Q 1n2

Question 1

What is MFN principle in GATT?

Answer 1

Article I states that any advantage, favour, privilege or immunity granted by any contracting
party to any product originating in or destined for any other country shall
be accorded immediately and unconditionally to the like product
originating in or destined for the territories of all other contracting parties.

WTO Members cannot normally discriminate between their trading partners. If a Member grants a coutry an advantage (such as a lower tariff on one of its products), it must grant this advantage immediately and unconditionally to all WTO Members.

• the MFN principle requires each Member to extend to all other WTO Members treatment no less favourable than the treatment it accords to imports from any other country - Member or not of the WTO.

Question 2

What is NT principle in GATT?

Answer 2

Article III

Question 3

When GATT was created ?

Answer 3

in 1994

Question 4

What is MFN principle in GATS?

Answer 4

Article II

Question 5

What is NT principle in GATS?

Answer 5

Article XVII

Question 6

What is MFN principle in TRIPS ?

Answer 6

article IV

Question 7

What is NT principle in TRIPS?

Answer 7

article III

Question 8

What is the object of MFN principle ?

Answer 8

The object and purpose of the MFN principle is to prohibit discrimination among like products originating in or destined for different countries

Question 9

besides Article I where the MFN principle is also reflected in other GATT 1994 provisions?

Answer 9

such as Article IX:1 (marks of origin) and Article XIII (non-discriminatory administration of quantitative restrictions (QRs)).

Question 10

The MFN principle works to:

Answer 10

Maximize efficiency.
Minimize transaction costs
Promote further reciprocal liberalization
Minimize costs of trade negotiations

Question 11

What is Minimize transaction costs ?

Answer 11

related rules for the issuance of certificates of origin, direct shipment requirements and other relevant administrative producers can impose significant costs on both enterprises and governments, but, in accordance with MFN countries apply the same rules to imports from all countries).

Question 12

What is promote further reciprocal liberalization

Answer 12

this benefits particularly small developing countries, which benefit from the most favored treatment provided to other Members

Question 13

What is Minimize costs of trade negotiations

Answer 13

negotiating one multilateral agreement instead of several bilateral agreements

Question 14

What is de jure discrimination ?

Answer 14

when it is clear from the wording of the legal instrument that it provides an advantage to a product from a Member or non-Member, without extending such advantage to like products from all WTO Members

Question 15

What is de facto discrimination?

Answer 15

When the discrimination does not appear on the text or face of the legal instrument, it can still be de facto, or in practice, discriminatory. De facto discrimination occurs when an apparently neutral legal instrument, is in effect or in fact, discriminatory. To establish de facto discrimination, all the facts relating to the application of the measure must be reviewed.

Question 16

What is the example of de facto discrimination?

Answer 16

For example, imagine Medatia, a WTO Member, enacts a measure whereby imported milk from cows raised in pastures above 1000 feet pays a higher tariff than imported milk from cows raised in pastures at the sea level. Suppose now that Tristat, another WTO Member, is the only country that exports to Medatia milk from cows raised in pastures above 1000 feet, while other WTO Members export to Medatia milk from cows raised in pastures at the sea level.

Question 17

Canada- Autos de jure and de facto discrimination?

Answer 17

the Appellate Body ruled that the scope of Article I:1 of the GATT 1994 covers both de jure and de facto discrimination. The measure at issue was Canada’s import duty exemption granted to motor vehicle imports which met certain requirements

Question 18

What is the MFN principle: Three-Tier-Test

Answer 18

The analysis of inconsistency of a measure with the MFN principle is a three-tier test. One needs to check
these three elements to find an inconsistency:

Any advantage, favour, privilege or immunity covered by Article I:1 of the GATT 1994;

Like products; and,

The advantage at issue is not granted immediately and unconditionally to the like products concerned.

Question 19

What kind of a measures covers Article I:1 in relation to exportation and importation as well as internal measures. ?

Answer 19

Customs duties;

any kind of charges imposed on importation or exportation;

any kind of charges imposed in connection with importation or exportation;

any charges imposed on the international transfer of payments for imports and exports;

the method of levying such duties and charges;

all rules and formalities in connection with importation and exportation;

internal taxes or other internal charges (covered in Article III.2);
all laws, regulations and requirements affecting internal sale, offering fore sale, purchase, transportation, distribution or use of any product (covered in Article III.4).
Both Panels and the Appellate Body have interpreted Article I:1 as covering a wide range of measures. In Canada – Autos, the Appellate Body stated that the wording of Article I:1 refers not to some advantages granted with respect to the subjects that fall within the scope of Article I:1, but to “any advantage”; not to some products, but to “any product’; and not to like products from some other Members, but to like products originating in or destined for “all other” Members

Question 20

What is like products ?

Answer 20

As explained by the Appellate Body in EC – Bananas III, the essence of the MFN obligation is that “like products” should be treated equally, irrespective of their origin. This means that products which are not “like products” may be treated differently. The term “like products” is not defined in the GATT 1994, although it is used in other provisions both in the GATT 1994 and in other WTO Agreements.

Question 21

In which article appears like product ?

Answer 21

For example, the concept of “like products” appears in Articles II, III, VI, IX, XI, XIII, XVI and XIX of the GATT 1994. As it will be explained further on, the concept of “like products” may have different meanings depending on its context in the various provisions of the WTO Agreements

Question 22

What is 4 criteria to consider like product?

Answer 22

Criteria applied in the analysis of “Like Products”
The four criteria employed by the GATT 1994/WTO adjudicating bodies in determining “like products” under Article I:1 are:
1. The product’s end uses

2. Consumers’ tastes and habits
3. The product’s nature, properties and quality (physical characteristics)
4. The customs classification of the products

Question 23

what does it mean the third element in the three tier test “immediately and unconditionally”?

Answer 23

This means that once a WTO Member has granted an advantage to imports from any country, it must immediately and unconditionally grant that advantage to imports of like products from all WTO Members.

Question 24

What is about Indonesia - autos case? (immediately and unconditionally)

Answer 24

In Indonesia – Autos, the measure at issue was “The 1993 Programme” that provided import duty reductions or exemptions on imports of automotive parts based on the local content per cent; and “The 1996 National Car Programme” that provided various benefits such as luxury tax exemption or import duty exemption to qualifying (local content etc.) cars or Indonesian car companies. In this case the Panel held that, according to GATT/WTO case-law, the right of Members “cannot be made conditional on any criteria not related to the imported product itself”. The existence of such conditions is inconsistent with the provisions of Article I:1 which require that tax and customs duty advantages accorded to products of one Member be accorded to imported like products from other Members “immediately and unconditionally”

Question 25

What is the exceptions to the provisions contained in the WTO agreements ?

Answer 25

There are a number of provisions that allow WTO Members to derogate from most or some provisions contained in the WTO Agreements, including the MFN principle. These will be covered in detail in Modules 8 (Exceptions) and 9 (Development Dimension). They include:

General exceptions (Article XX of the GATT 1994);

Security exceptions (Article XXI of the GATT 1994);

Balance of payment exceptions and temporary application of quantitative restrictions in a discriminatory manner (Articles XII, XVIII.B, and XIV of the GATT 1994);

Waivers (Article IX:3 of the Agreement Establishing the WTO); and,

A number of provisions on special and differential treatment, which can be found throughout the WTO Agreements.

Question 26

What is exceptions to the MFN principle ?

Answer 26

The specific exceptions to the MFN principle are listed below. The most important exceptions are the first two related to Regional Integration and the “Enabling Clause”.

a. REGIONAL INTEGRATION (ARTICLE XXIV OF THE GATT 1994)
b. 1979 DECISION ON DIFFERENTIAL AND MORE FAVOURABLE TREATMENT, RECIPROCITY AND FULLER PARTICIPATION OF DEVELOPING COUNTRIES (THE “ENABLING CLAUSE”)
c. HISTORICAL PREFERENCES (ARTICLE I:2 – I:4 OF THE GATT 1994)
d. FRONTIER TRAFFIC (ARTICLE XXIV:3 OF THE GATT 1994)

Question 27

What is regional Integration?

Answer 27

Article XXIV of the GATT 1994 allows a WTO Member to grant more favourable treatment to its trading partners within a customs union or a free trade area without extending such treatment to all WTO Members, subject to certain conditions.

Question 28

What is the enabling clause?

Answer 28

The Enabling Clause also allows WTO Members to depart from the MFN principle. This Clause “enables” developed country Members to derogate from the MFN principle in order to grant preferential tariff treatment to imports from developing country Members under certain conditions. The Enabling Clause also “enables” developing country Members to depart from the MFN principle to negotiate regional agreements among them.

Question 29

What is historical preferences ?

Answer 29

Very few “historical preferences” exist today. The few preferences which derogate from the MFN principle and which can be maintained, are remnants of the particular situations which existed back in the GATT 1947. For this reason they are called “historical” preferences. It should be emphasized that these preferences were significant when the GATT 1947 was negotiated, but their importance has faded over the years.

Question 30

What is “frontier Traffic”

Answer 30

Advantages accorded by Members to “adjacent countries” in order to facilitate frontier transactions constitute one authorized derogation to the MFN principle. It should nevertheless be emphasized that this derogation refers to the facilitation of transactions in the vicinity of the frontier and cannot cover a trade agreement governing the entire territories of two neighbouring countries. As with the historical preferences, the economic impact of this derogation is very limited.

Question 31

Case study: What is Canada - Autos about?

Answer 31

Canada granted an import duty exemption for motor vehicle imports and imported motor vehicle parts and materials by certain manufacturers which met the Canadian Value Added (“CVA”) requirements and certain production to sales ratio requirements. Other manufacturers which did not meet these requirements were subject to a 6.1 per cent import duty.
The Panel found that Canada violated Article I:1 of the GATT 1994 by granting the import duty exemption to motor vehicles from some countries but not to motor vehicles from all other WTO Members. On appeal, Canada argued that Article I:1 did not prohibit the imposition of “origin-neutral terms and conditions on importation that apply to companies as opposed to the products they import”.
The Appellate Body upheld the Panel’s finding that the duty exemption was inconsistent with the MFN treatment obligation under Article I:1 on the grounds that Article I:1 covers not only de jure but also de facto discrimination and that the duty exemption at issue was in practice given only to the imports from a small number of countries in which an exporter was affiliated with eligible Canadian manufacturer/importers.

Question 32

Canada case: What is the object and purpose of Article I:1 the MFN clause?

Answer 32

To prohibit discrimination among like products originating in or destined for different countries.

	Serves as an incentive for concessions, negotiated reciprocally, to be extended to all other Members on an MFN basis.

Question 33

Canada case: What is the scope of Article I:1

Answer 33

Covers both de jure and de facto discrimination
Not restricted only to cases in which the failure to accord an “advantage” to like products of all other Members appears on the face of the measure, or can be demonstrated on the basis of the words of the measure. Article I:1 also applies to measures which, on their face, are “origin- neutral”.

Question 34

Canada case: How was de facto discrimination found in this case?

Answer 34

The measure maintained by Canada accorded the import duty exemption to certain motor vehicles entering Canada from certain countries. These privileged motor vehicles were imported by a limited number of designated manufacturers who were required to meet certain performance conditions. In practice, this measure did not accord the same import duty exemption immediately and unconditionally to like motor vehicles of all other Members.

Question 35

Canada case: Article XXIV - an exception to Article I:1

Answer 35

Canada invoked an Article XXIV exception with respect to a certain import duty exemption, found to be inconsistent with Article I of the GATT 1994. The Panel rejected this defence because, on the one hand, Canada was not granting the import duty exemption to all North American Free Trade Agreement (NAFTA) manufacturers and because, on the other hand, manufacturers from countries other than the United States and Mexico were being provided duty-free treatment. Canada did not appeal this finding of the Panel.

Question 36

What is NT principle ?

Answer 36

In Brief:

The National Treatment Principle prohibits a Member from favouring its domestic products over the imported products of other WTO Members.

In this section, we will explain the national treatment principle, which constitutes the second component of the non-discrimination pillar of the WTO. The national treatment principle for goods is provided in Article III of the GATT 1994. The relevant parts of Article III are paragraphs 1, 2 and 4 as well as the explanatory Ad Note to Article III, second sentence.
The National Treatment Principle prohibits a Member from favouring its domestic products over the imported products of other WTO Members.

Question 37

What is the general principle of article III of the GATT: National Treatment on Internal Taxation and Regulation?

Answer 37

1. Members recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.

Question 38

What is internal taxation ?

Answer 38

. The products of the territory of any Member imported into the territory of any other Member shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no Member shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in para. 1.

Question 39

What is Ad Note to Article III:2, second sentence

Answer 39

A tax conforming to the requirements of the first sentence of para. 2 would be considered to be inconsistent with the provisions of the second sentence only in cases where competition was involved between, on the one hand, the taxed product and, on the other hand, a directly competitive or substitutable product which was not similarly taxed.

Question 40

What is international regulation in article III

Answer 40

The products of the territory of any Member imported into the territory of any other Member shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations, transportation, and requirements affecting their internal sale, offering for sale, purchase, transportation distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.

Question 41

What is difference between the national treatment principle and the MFN Principle?

Answer 41

According to the national treatment principle, each Member shall treat imports no less favourably than it treats like domestically produced goods. Whilst the MFN principle seeks to ensure that a WTO Member does not discriminate between like products originating in, or destined for, other WTO Members, the national treatment principle addresses the non-discriminatory treatment to be applied to imported and domestic like products.

Question 42

What is difference between MFN and NT in nutshell?

Answer 42

MFN – Non-discriminatory treatment between products of WTO members.
NT – Non-discriminatory treatment between imported and domestic products.

Question 43

What is the rationale behind the article III ?

Answer 43

What would happen if a government imposed an internal regulation that costs foreign competitors much more than domestic industries to meet?
Negotiated tariff bindings (the maximum level of customs duty to be levied on products imported into a Member) are effective only if Members cannot undermine their market access commitments by using other internal measures. But a large number of internal measures, sometimes not directly trade-related, can have effects that are very similar to tariffs and the use of such policies can therefore offset tariff concessions.
Assume a country binds itself not to increase tariffs on bicycles beyond 15 per cent. An internal tax which applies only to imported products would improve the competitiveness of domestic producers of bicycles with respect to foreign producers and the market access that foreign governments had expected to gain through tariff bindings would be partly or entirely offset. Therefore, goods that can enter a country’s territory thanks to reduced border barriers, such as tariffs, should not be discriminated against once they have entered that territory.
The purpose of Article III of the GATT 1994 is therefore to prohibit or limit the use of trade restricting or distorting trade policy measures by requiring non-discriminatory treatment between imported and domestic goods. In this regard, in examining the consistency of the Japanese taxation on liquor products with Article III:2, the Appellate Body in Japan - Alcoholic Beverages II explained that the purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures. Towards this end, Article III obliges WTO Members to provide equality of competitive conditions for imported products in relation to domestic products (Japan - Alcoholic Beverages II, Appellate Body Report, pages 16-17).

Question 44

Rationale Behind the NT Principle

Answer 44

The national treatment principle embodied in Article III of the GATT 1994 works to:
Avoid protectionist measures.

Maintain equality of competitive conditions.

Protect tariff bindings.

Question 45

What is de jure and de facto discrimination MFN in nutshell?

Answer 45

As with the MFN principle, the scope of the national treatment principle also covers both de jure and de facto discrimination. A measure is de jure discriminatory when discriminatory treatment between imported and domestic like products is clear from the wording of the legal instrument. When the discrimination is not clear on the text or face of the legal instrument, it can still be de facto, or in practice, discriminatory. In the case of the national treatment principle, de facto discrimination occurs when a legal instrument in effect or in fact favours domestic products over imported like products. As explained when referred to the MFN principle, to establish de facto discrimination, all the facts relating to the application of the measure must be reviewed.
Cases where de facto discrimination was found are Japan – Alcoholic Beverages II, Korea - Alcoholic Beverages and Chile – Alcoholic Beverages. These cases involved internal measures which, although not making an explicit reference to the origins of products, had the effect of affording protection to domestic products vis-à-vis “like” or “directly competitive or substitutable” imported products.

Question 46

APPLIES ONLY TO INTERNAL MEASURES

Answer 46

The national treatment obligation only applies to internal measures as opposed to border measures. Distinguishing between an internal measure and a border measure may not always be easy. The Ad Note to Article III of the GATT 1994 clarifies that an internal measure may nevertheless be applied at the border on imported goods.

Question 47

What is stated in Ad Note to Article III ?

Answer 47

Any internal tax or other internal charge, or any law, regulation or requirement of the kind referred to in paragraph 1, which applies to an imported product and to the like domestic product and is collected or enforced in the case of the imported product at the time or point of importation, is nevertheless to be regarded as an internal tax or other internal charge, or a law, regulation or requirement of the kind referred to in paragraph 1, and is accordingly subject to the provisions of Article III.
In Argentina - Hides and Leather, the Panel addressed the question whether an Argentinean value added tax (VAT), was an “internal measure” within the meaning of Article III:2 of the GATT 1994. Based on the text of Article III and its Ad Note, the Panel found that such measure was indeed an internal measure within the meaning of Article III inter alia because the VAT, although applied at the border, was chargeable to an internal transaction. Furthermore, in accordance to the Ad Note to Article III, the fact that the VAT was collected “at the time or point of importation” did not preclude it from being characterized as an “internal tax measure” under Article III:2 of the GATT 1994 (Argentina - Hides and Leather, Panel Report, paras. 11.145).

Question 48

What is bound and Unbound measures ?

Answer 48

The national treatment principle extends to bound and unbound measures. In this regard, the Appellate Body in Japan-Alcoholic Beverages II, held that Article III is a general prohibition on the use of internal taxes and other internal regulations that clearly extends to products not bound under Article II - Schedule of Concessions (for trade in goods, in general, the Schedules of concessions consist of a list of products for which a bound tariff has been agreed by the Member concerned – the Schedules will be studied in Module 3) (Japan-Alcoholic Beverages II, Appellate Body Report, p. 17).

Question 49

What is a general obligation under article III?

Answer 49

The general principle set out in Article III:1 informs the rest of Article III and serves as a guide to understanding and interpreting the specific obligations contained in the other paragraphs of Article III. However, as we will see below, Article III:1 applies to the first and second sentences of Article III:2 and Article III:4 in different ways.
In Japan - Alcoholic Beverages II, the Appellate Body examined the Panel’s finding of inconsistency of the Japanese Liquor Tax Law with both sentences of Article III:2. The Appellate Body found that Article III:1 constitutes part of the context for Article III:2. In this regard, it stated that Article III:1 articulates a general principle that internal measures should not be applied so as to afford protection to domestic production, which informs the rest of Article III. The purpose of Article III:1 is to establish this general principle as a guide to understanding and interpreting the specific obligations contained in Article III:2 and in the other paragraphs of Article III, while respecting, and not diminishing, the meaning of the words used in those other paragraphs (Japan - Alcoholic Beverages II, Appellate Body Report, pages 16-18 – see Case Study 2).

Question 50

General Obligation article III

Answer 50

The general principle set out in Article III:1 informs the rest of Article III and serves as a guide to understanding and interpreting the specific obligations contained in the other paragraphs of Article III. However, as we will see below, Article III:1 applies to the first and second sentences of Article III:2 and Article III:4 in different ways.

In Japan - Alcoholic Beverages II, the Appellate Body examined the Panel’s finding of inconsistency of the Japanese Liquor Tax Law with both sentences of Article III:2. The Appellate Body found that Article III:1 constitutes part of the context for Article III:2. In this regard, it stated that Article III:1 articulates a general principle that internal measures should not be applied so as to afford protection to domestic production, which informs the rest of Article III. The purpose of Article III:1 is to establish this general principle as a guide to understanding and interpreting the specific obligations contained in Article III:2 and in the other paragraphs of Article III, while respecting, and not diminishing, the meaning of the words used in those other paragraphs

Question 51

Article III:2 Internal taxation

Answer 51

Article III:2 applies the general non-discrimination principle set out in paragraph 1 to internal taxation. WTO jurisprudence has distinguished two levels of obligations regarding internal taxation depending on whether imported and domestic products can be considered “like products” or “directly substitutable products”. In this respect, the first sentence of paragraph 2 deals with the internal taxation of “like products” while the second sentence (by cross reference with the relevant Ad Note) deals with the internal taxation of “directly competitive or substitutable products”
If the products under consideration cannot be considered “like products” within Article III:2, first sentence, it can still be further examined whether they may be “directly competitive or substitutable” according to Article III:2, second sentence, given the broader scope of the latter.

Question 52

Article III:2 First sentence

What is two tier test?

Answer 52

The analysis of consistency of a measure with the first sentence of Article III:2 constitutes a two-tier test.
One needs to check the following two elements to find an inconsistency:
The imported and domestic products are like products; and,

	The imported products are taxed in excess of the domestic products.

Question 53

What is the criteria used for the determination of “Like Products”

Answer 53

The four criteria employed by the GATT/WTO jurisprudence in determining “likeness” under Article III:2 first sentence are the following:

1. The product’s end uses
2. Consumer tastes and habits
3. The product’s properties, nature and quality
4. The customs classification of the product

these four criteria were analysed by the Appellate Body for the first time in Japan-Alcoholic Beverage II, where it referred to the Working Party on Border Tax Adjustment, which developed the basic approach for interpreting “like or similar products”. Body held that the interpretation of the term ‘‘like product’’ should be examined on a case-by-case basis. In relation to the second sentence dealing with “directly competitive or substitutable products”, the Appellate Body further ruled that the term “like product” under the first sentence of ArticleIII:2 should be construed narrowly

Question 54

The imported products are taxed “in excess of” the domestic products:

Answer 54

The taxes levied on imported products cannot exceed those levied on like domestic products. According to the Appellate Body in Japan-Alcoholic Beverages II, even the smallest amount of “excess” would be too much. The prohibition of discriminatory taxes in Article III:2, first sentence, is not conditional on a “trade effects test’” nor is it qualified by a de minimis standard. Thus, the slightest margin of excessive taxing will constitute an infringement, even if the margin is de minimis

Question 55

ARTICLE III:2 - SECOND SENTENCE

Answer 55

if a product does not meet the narrow definition of “like product”, it may still be “directly competitive or substitutable”. Therefore, if there is no violation of Article III:2, first sentence, one must still consider if there is an infringement of Article III:2, second sentence.
In Japan – Alcoholic Beverages II, the Appellate Body explained the three-tier test to be used under Article III:2, second sentence, and distinguished this test from the one applicable under the first sentence. This distinction, in the view of the Appellate Body, is a result of the explicit reference to Article III:1 in the second sentence of Article III:2. Accordingly, the Appellate Body found that three separate issues must be addressed to determine whether an internal tax measure is inconsistent with Article III:2, second sentence

Question 56

What is three tier test under Article III:2 - second sentence

Answer 56

The analysis of consistency of a measure with the second sentence of Article III:2 constitutes a three-tier
test. One needs to check the following three elements to find an inconsistency:
The imported and domestic products are directly competitive or substitutable;

		the domestic and imported products are not similarly taxed; and, 

		the dissimilar taxation is applied to so as to afford protection to domestic production.

Question 57

The imported and domestic products are “directly competitive or substitutable” :

Answer 57

The second sentence of Article III:2 applies to competitive or directly substitutable products. This is a much broader concept than likeness in the first sentence: whereas the first sentence applies only to products that are perfectly substitutable, the second sentence is broad enough to include products that are imperfectly substitutable. In Korea - Alcoholic Beverages, the Appellate Body concluded that the term “like products’’ should be considered as a subset of “competitive or substitutable product” under the second sentence of that Article (Korea - Alcoholic Beverages, Appellate Body Report, para. 118).
In interpreting the term “directly competitive or substitutable products”, the Appellate Body in Japan - Alcoholic Beverages II found that it did “not seem inappropriate” to consider the competitive conditions in the relevant market, nor did it seem inappropriate to examine elasticity of substitution as one means of examining the relevant markets (Japan - Alcoholic Beverages II, Appellate Body Report, p. 25). In addition, in Korea - Alcoholic Beverages, the Appellate Body considered that competition in the market place is a dynamic, evolving process and thus, the concept of “directly competitive or substitutable” implies that the competitive relationship between products is not to be analyzed exclusively by reference to current consumer preferences (Korea - Alcoholic Beverages, Appellate Body Report, para. 114).
b. The domestic and imported products are “not similarly taxed”
In the first sentence, even the slightest difference in tax between imported and domestic products will lead to inconsistency with the national treatment obligation. This is not the case with regard to the second sentence where the requirement is that the product must be “similarly taxed”. In Japan-Alcoholic Beverages II, the Appellate Body interpreted the term “not similarly taxed” as requiring taxation exceeding the de minimis threshold. Accordingly, the difference in tax must be more than de minimis to constitute an infringement of the national treatment obligation in Article III:2 second sentence (Japan-Alcoholic Beverages II, Appellate Body Report, pages 26-27)
c. The dissimilar taxation is applied “so as to afford protection” to domestic production
If it is established that a dissimilar taxation is applied, it must thereafter be established that this was applied “so as to afford protection” to domestic production. Thus, although “so as to afford protection” needs not to be established independently in a finding of a violation with Article III:2, first sentence, it shall be established under the second sentence of that Article.
The Appellate Body stated in Japan - Alcoholic Beverages II that an examination of whether dissimilar taxation has been applied “so as to afford protection” requires a comprehensive and objective analysis of the structure and application of the measure in question on domestic production as compared to imported products. The very magnitude of the tax differentials may be evidence of the protective application of a national fiscal measure.
The Appellate Body has also held that the subjective intent of legislators and regulators of a particular measure, in this case reducing the consumption of alcoholic beverages, is irrelevant for ascertaining whether a measure is applied “so as to afford protection” (Japan - Alcoholic Beverages II, Appellate Body Report, pages 27-31). In a subsequent dispute, Chile - Alcoholic Beverages, the Appellate Body refused to accept explanations of policy objectives which were not ascertainable from the objective design, architecture and structure of the measure (Chile - Alcoholic Beverages, Appellate Body Report, para. 71).

Question 58

Example: Measure Applied “so as to afford protection” under Article III:2, Second Sentence

Answer 58

In Korea - Alcoholic Beverages, the Appellate Body held that because there were virtually no imported sochu in Korea “the beneficiaries of this internal tax structure are almost exclusively domestic producers”. Therefore, the tax operated in such a way that the lower tax brackets covered “almost exclusively” domestic production, whereas the higher tax brackets embraced “almost exclusively” imported products. In light of the foregoing, the Appellate Body upheld the Panel’s finding that the Korean measures were applied “so as to afford protection” to domestic production (Korea - Alcoholic Beverages, Appellate Body Report, paras. 150 - 154).

Question 59

Article III:4 – Internal Laws, Regulations and Requirements Related to Internal Sale, Transportation, Distribution or Use

Answer 59

The national treatment obligation in Article III:4 of the GATT 1994 is concerned with measures affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of the imported product.

Question 60

What is three tier test under Article III:4

Answer 60

The analysis of consistency of a measure with Article III:4 constitutes a three-tier test. One needs to check
the following three elements to find an inconsistency:
- The imported and domestic products at issue are like products;
- The measure at issue is a law, regulation, or requirement affecting their internal sale, offering for sale, purchase, transportation, distribution, or use; and,
- The imported products are afforded less favourable treatment than like domestic products.

Question 61

The imported and domestic products are “like products” :

Answer 61

The scope of likeness in Article III:4 has been found by the Appellate Body to be somewhat wider than that in the first sentence of Article III:2. This is because the scope of the first sentence of Article III:2 must be read in light of its relationship with the second sentence of Article III:2, something that does not apply to Article III.4. In EC-Asbestos, the Appellate Body ruled that the scope of likeness in Article III:4, although broader than the first sentence of Article III:2, is certainly not broader than the combined products scope of the two sentences of Article III:2. This different standards were further explained by the Appellate Body in Japan – Alcoholic Beverages and EC - Asbestos using the accordion analogy The accordion of “likeness” stretches and squeezes in different places, as different provisions of the WTO Agreements are applied. The width of the accordion in any one of those places must be determined by the particular provision in which the term “like” is encountered as well as by the context and the circumstances that prevail in any given case to which that provision may apply (Japan - Alcoholic Beverages, Appellate Body Report, page 23 and EC - Asbestos, Appellate Body Report, paras. 98-99).

Regarding the criteria for determining “likeness” under Article III:4, the Appellate Body confirmed in EC-Asbestos the following criteria: (i) the product’s end uses; (ii) consumers’ tastes and habits; (iii) the product’s nature, properties, and quality; and, (iv) the customs classification of the products (EC-Asbestos, Appellate Body Report, paras. 101-103). As mentioned above, these criteria are simply tools to assist in the task of sorting and examining the relevant evidence.

Question 62

In a nutshell

Answer 62

Art III:2, 1st Like products&raquo_space;> Basic Criteria
Art III:4 Like products&raquo_space;> Basic Criteria + Competitive Relationship
Art III:2 2nd “Dir. Competitive Products”&raquo_space;> Basic Criteria + Conditions of Competition

Question 63

Example: ‘‘Like Product’’ under Article III:4

Answer 63

In EC - Asbestos, the Appellate Body held that carcinogenicity or toxicity was a physical difference to be taken into account in the determination of “likeness” between chrysotile asbestos fibres and PCG fibres, and linked this criterion to the criterion of competitive relationship between the products at issue. It also emphasized the significance of toxicity of a product in relation to consumers’ behaviour (EC - Asbestos, Appellate Body Report, para. 114).
The measure is a law, regulation or requirement affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of the products
Article III:4 relates to all laws, regulations, and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products. In Canada-Autos, the Panel, in a finding subsequently not addressed by the Appellate Body, held that the word “affecting” in Article III:4 of the GATT 1994 has been interpreted to cover not only laws and regulations which directly govern the conditions of sale or purchase but also any laws or regulations which might adversely modify the conditions of competition between domestic and imported products (Canada-Autos, Panel Report, paras. 10.80 and 10.84 - 10.85).
The Panel also held in Canada-Autos that a measure can be subject to Article III:4 even if compliance with it is not mandatory as it also applies to conditions that an enterprise voluntarily accepts in order to receive an advantage

Question 64

The imported products “ are afforded less favourable treatment”

Answer 64

given equal treatment in terms of competitive opportunities. Therefore, if a measure gives imported products “less favourable treatment” than it gives to like domestic products, the measure will be inconsistent with the national treatment obligation under Article III:4.
The Appellate Body held in Korea - Various Measures on Beef that a formal difference in treatment between imported and like domestic products is not necessary, nor sufficient, to demonstrate a violation of Article III:4. Whether or not imported products are treated “less favourably” than like domestic products should be assessed instead by examining whether a measure modifies the conditions of competition in the relevant market to the detriment of imported products (Korea-Various Measures on Beef, Appellate Body Report, paras. 135-137).
In EC – Bananas, Regime for the Importation, Sale and Distribution of Bananas, the Appellate Body held that Article III:4 does not specifically refer to Article III:1 and therefore, a determination of whether there has been a violation of Article III:4 does not require a separate consideration of whether a measure “affords protection to domestic production’’ (EC – Bananas, Regime for the Importation, Sale and Distribution of Bananas, Appellate Body Report, para. 216). However, in EC - Asbestos, it stated that the term “less favourable treatment” expresses the general principle in Article III:1 that internal regulations ‘‘should not be applied…so as to afford protection to domestic production

Question 65

Example: Finding on’ ‘Less Favourable Treatment’’ under Article III:4

Answer 65

In Korea – Various Measures on Beef, the Appellate Body held that as a consequence of the introduction of the Korean dual retail system for beef, “the existing small retailers had to choose between, on the one hand, continuing to sell domestic beef and renouncing the sale of imported beef or, on the other hand, ceasing to sell domestic beef in order to be allowed to sell the imported product”. Apparently, the vast majority of the small meat retailers chose the first option. The result was the virtual exclusion of imported beef from the retail distribution channels through which domestic beef (and until then, imported beef) was distributed to Korean households and other consumers throughout the country

Question 66

EXCEPTIONS

Answer 66

As with the MFN rule, there are exceptions that allow WTO Members to derogate, among others, from the national treatment principle, as well as specific exceptions that apply only to this principle.
EXCEPTIONS TO THE PROVISIONS CONTAINED IN THE WTO AGREEMENTS – INCLUDING THE NATIONAL TREATMENT PRINCIPLE
These exceptions are the same mentioned for the MFN principle and will be covered in detail later in Modules 8 (Exceptions) and 9 (Development Dimension). They include:
General exceptions (Article XX of the GATT 1994);

		Security exceptions (Article XXI of the GATT 1994); 

		Balance of payment exceptions and temporary application of quantitative restrictions in a discriminatory manner (Articles XII, XVIII.B, and XIV of the GATT 1994); 

		Waivers (Article IX:3 of the Agreement Establishing the WTO); and, 

	A number of provisions on special and differential treatment, which can be found  throughout the WTO Agreements.

Question 67

GOVERNMENT PROCUREMENT (ARTICLE III:8A OF THE GATT 1994)

Answer 67

Advantages or preferences can be accorded to domestic products over imported ones if government agencies purchase such products for government purposes and not for commercial resale or use in the production of goods for commercial sale.
The Plurilateral Agreement on Government Procurement contains specific rules pertaining to the opening of the procurement process by government entities to international competition. The rights and obligations it contains, because of its plurilateral nature, only bind the Members that have ratified it (to know more about the

Question 68

b. SUBSIDIES TO DOMESTIC PRODUCERS (ARTICLE III:8B OF THE GATT 1994)

Answer 68

Governments can provide subsidies (including payments to domestic producers derived from the proceeds of internal taxes or charges applied consistently with the provisions of Article III) exclusively to domestic producers. GATT Contracting Parties and WTO Members considered that the practice of granting production subsidies was not necessarily illegal.
In the Tokyo and Uruguay Rounds the GATT CONTRACTING PARTIES introduced progressively additional disciplines on the use of subsidies. Subsidies and their use are now regulated by the Agreement on Subsidies and Countervailing Measures and by the Agreement on Agriculture (subsidies limited to agricultural products).
Note also that Members have the right to take certain “corrective measures” – one of them being countervailing measures - against imported subsidized products which cause injury to a Member’s domestic industry producing “like products”. Such duties are collected at the border in addition to, and independently of, tariffs

Question 69

c. INTERNAL MAXIMUM PRICE CONTROL MEASURES (ARTICLEIII:9 OF THE GATT 1994)

Answer 69

Members recognize that internal maximum price control measures, even though conforming to the other provisions of this Article, can have effects prejudicial to the interests of the Members supplying imported products. Accordingly, Members applying such measures shall take account of the interests of exporting Members with a view to avoiding to the fullest practicable extent such prejudicial effects.

Question 70

d. CINEMATOGRAPH FILMS (ARTICLES III:10 AND IV OF THE GATT 1994)

Answer 70

As an exception to the National Treatment principle, negotiators of the GATT retained the possibility of giving preferences to products emanating from the national movie industry (exposed cinematograph films). National preferences are governed by the provisions of Article IV, and take the form of internal quantitative regulations in “screen quotas”.
This provision must now be read together with specific commitments taken by Members in the audiovisual sector in the GATS Agreement.

Question 71

Case Study

CASE STUDY 2: JAPAN-TAXES ON ALCOHOLIC BEVERAGES II In a nutshell:

Answer 71

Japanese Liquor Tax Law classified various alcoholic beverages into different categories on the basis of the alcohol content of the product and established a system of internal taxes applicable to all liquors at different tax rates depending on the category they fell in. The tax law at issue taxed shochu at a lower rate than other alcoholic beverages, including vodka and others such as liqueurs, gin, genever, rum, whisky and brandy.
The Panel found that vodka and shochu were “like” products and that by taxing vodka in excess of shochu, Japan was in violation of its obligation under Article III:2, first sentence. The Panel also found that shochu and whisky, brandy, rum, gin, and other liqueurs were directly competitive or substitutable products according to Article III:2, second sentence, and that Japan, by not taxing them similarly, was acting in a manner inconsistent with its obligation under Article III:2, second sentence. Japan appealed both findings.
The Appellate Body upheld the Panel’s finding that vodka was taxed in excess of shochu, and found the measure inconsistent with Art. III:2, first sentence. It also upheld the Panel’s finding that shochu and whisky, brandy, rum, gin and other liqueurs were not similarly taxed so as to afford protection to domestic production, concluding that the measure was in violation of Art. III:2, second sentence.
1. Article III:2 of the GATT 1994, First Sentence

1. Imported and domestic products are ‘‘like products’’
   Should be construed narrowly

Should be determined separately for each tax measure in each case

Should be determined by the particular provision in which the term “like” is encountered.

How was likeness analyzed?
‘‘…vodka and shochu shared most physical characteristics. … except for filtration, there is virtual identity in the definition of the two product. … a differ- rence in the physical charac- teristic of alcoholic strength of two products did not preclude a finding of likeness especially since alcoholic beverages are often drunk in diluted form.’’

Furthermore, ‘‘vodka and shochu were currently classified in the same heading in the Japanese tariffs’’ (Panel report, para. 6.23; Appellate Body report, ps. 19-23). 2. The taxes applied to the imported products are ‘‘in excess of’’ those applied to the like domestic products.
Even the smallest amount of “excess” is too much

1. Article III:2 of the GATT 1994, Second Sentence
2. Imported and domestic products are ‘‘directly competitive or substitutable products’’
   - Is broader in scope than ‘‘like product’’
   - Should be determined on a case-by-case basis
   - The competitive relation- ship between the products at issue in a relevant market is an important factor.
   How was this element determined in this case?
3. There is a high degree of price-elasticity between shochu, on the one hand, and five brown spirits (Scotch whisky, Japanese whisky, Japanese brandy, cognac, North American whisky) and three white spirits (gin, vodka and rum), on the other.
4. The 1989 Japanese tax reform, which disadvanta- ged domestically produced whisky, led to a rise of both shochu’s and foreign produced whisky’s market shares in Japan. Shochu and foreign whisky were in fact capturing the market share lost by domestically produced whisky. This proves that there is elasticity of substitution between whisky and shochu.
5. The directly competitive or substitutable imported and domestic products are ‘‘not similarly taxed’’.
   - Must be more than de minimis
   - De minimis must be deter- mined on a case-by-case basis
6. The dissimilar taxation of the directly competitive or substitutable imported and domestic products is ‘‘applied so as to afford protection to domestic production’’.
   Legislative or regulatory purpose is NOT relevant

Requires a comprehensive and objective analysis of the design, the architecture, and the revealing structure of a measure.

How was this element determined in this case?
‘‘…the combination of customs duties and internal taxation in Japan has the following impact: on the one hand, it makes it difficult for foreign produced shochu to penetrate the Japanese market and, on the other, it does not guarantee equality of competitive conditions between shochu and the rest of “white” and “brown” spirits.

Thus, through a combination of high import duties and differentiated internal taxes, Japan manages to “isolate” domestically produced shochu from foreign competition, be it foreign produced shochu or any other of the mentioned white and brown spirits.’’ (Panel report, para. 6.35; Appellate Body report, p. 31)

Question 72

CASE STUDY 3: EC-ASBESTOS

In a nutshell:

Answer 72

The French government adopted Decree No. 96-1133, which imposed a ban on all variety of asbestos fibres. The Panel found that chrysotile asbestos fibres and polyvinyl alcohol, cellulose and glass fibres (“PCG fibres”) are “like products” under Article III:4. The Panel also found that cement-based products containing chrysotile asbestos fibres are “like” cement-based products containing PCG fibres. Having found that the products at issue are like products under Article III:4, the Panel continued to examine the alleged ‘‘less favourable treatment’’ and found that imported asbestos and asbestos-containing products were treated less favourably than the domestic “like” products. In the light of the findings, the Panel concluded that the measure was contrary to Article III:4. On appeal, the European Union argued, among other issues, that the inquiry into the physical properties of products must include a consideration of the risks posed by the product to human health. The Appellate Body reversed the Panel’s findings that “it is not appropriate” to take into consideration the health risks associated with chrysotile asbestos fibres in examining the “likeness” under Article III:4 and reversed the Panel’s finding that cement-based products containing chrysotile asbestos fibres and cement-based products containing PCG fibres are “like products” under Article III:4 of the GATT 1994. Accordingly, it reversed the Panel’s finding that the measure was inconsistent with Article III:4 of the GATT 1994.
Article III:4 of the GATT 1994
1. Imported and domestic products are ‘‘like products’’
Broader than the first sentence of Article III:2; NOT broader than the combined product scope of the two sentences of Article III:2. A determination about the nature and extent of a competitive relationship between and among products. How was “likeness” in Article III:4 determined in this case?
1. Highly significant physical difference exists between chrysotile asbestos fibres (which are carcinogenic or toxic in humans, following inhalation) and PCG fibres (which do not share these properties, at least to the same extent).
2. Due to the lack of evidence, the Appellate Body couldn’t conclude what proportion of all end-uses for chrysotile asbestos and PCG fibres overlap.
3. Canada presented no evidence on consumers’ tastes and habits regarding chrysotile asbestos and PCG fibres. 1. 4. Chrysotile asbestos fibres and the various PCG fibres all have different tariff classifications
2. The imported products are afforded ‘‘less favourra- ble treatment’’ than domes- tic like products.
Expresses the general principle, in Article III:1, that internal regulations “should not be applied … so as to afford protection to domestic production”.

Question 73

NON-DISCRIMINATION –TRADE IN GOODS

Answer 73

As you learned in this Module, there are two non-discrimination principles: MFN and national treatment. Under the GATT 1994, the “subject” group of the MFN principle and the national treatment principle is “goods”.
For goods, the MFN principle prohibits discrimination between like products originating from, or destined for other WTO Members, while the national treatment principle prohibits discrimination between imported and domestic like products. Both principles apply to all goods and cover de jure and de facto discrimination. To find an inconsistency of the non-discrimination principles under the GATT 1994, different tests apply.
For the MFN principle, Article I:1 sets out a three-tier test. One needs to check the following elements to find an inconsistency: (1) any advantage, favour of privilege covered by Article I.1; (2) the products at issue should be ‘‘like’’ products; and, (3) the advantage at issue is not immediately and unconditionally granted to the like product concerned.
The test applicable to the national treatment principle varies according to the paragraph and/or sentence of Article III concerned: Article III:1 (General Principle), Article III:2 (Internal Taxation) first sentence or second sentence, and Article III:4 (Internal Laws, Regulations and Requirements Related to Internal Sale, Transportation, Distribution or Use).
To establish an infringement of Article III:2, first sentence, one must demonstrate that: (1) the imported and domestic products are like products; and, (2) the imported products are taxed in excess of the domestic products. To establish an infringement of Article III:2, second sentence, one must demonstrate that: (1) the imported and domestic products are directly competitive or substitutable; (2) the domestic and imported products are not similarly taxed; and, (3) the dissimilar taxation is applied so as to to afford protection to domestic production. Finally, to establish an infringement of Article III:4, one must demonstrate that: (1) the imported and domestic products at issue are “like products”; (2) the measure at issue is a “law, regulation, or requirement affecting the internal sale, offering for sale, purchase, transportation, distribution, or use” of the imported products; and (3) the imported products are afforded less favourable treatment.
The determination of ‘‘like products’’ and ‘‘directly competitive or substitutable products’’ should be made on a case-by-case basis. “Like product” is a subset of ‘‘directly competitive or substitutable product’’ and thus, has a narrower scope than the latter. Moreover, the scope of the term ‘‘like product’’ itself may vary from provision to provision. In this respect, the scope of “like products” in Article III:4 covers a broader product scope than the same term in Article III:2 first sentence, but it is not broader than the combined product scope of the two sentences of Article III:2 (“like products” in the first sentence plus “directly competitive or substitutable products” in the second sentence).
The term ‘‘in excess of’’ under Article III:2, first sentence, imposes a different standard than that one imposed by the term ‘‘not similarly taxed’ contained in the Ad Note of the second sentence of that Article. While in the former, even the slightest margin of excessive taxing will constitute an infringement (even if it is de minimis); the latter requires excessive taxation (more than de minimis).
To establish an infringement of Article III:2, second sentence, it is necessary to demonstrate that the dissimilar taxation is applied “so as to afford protection’’. It mainly requires a comprehensive and objective analysis of the design, architecture and structure of the measure. Article III:4 requires a demonstration that imported products are afforded “less favourable treatment”, which expresses the general principle that internal regulations should not be applied “so as to afford protection’’.
There are a number of exceptions to the provisions in the WTO Agreements and specific exceptions that allow Members to depart from the MFN and national treatment principles, subject to certain requirements, which will be explained in the corresponding Modules. Some of the most important are those contained in Article XX of the GATT 1994 (General Exceptions) and, in the case of the MFN principle, Article XXIV of the GATT 1994 (Regional Integration) and the Enabling Clause.