COURSE ON WTO LAW AND JURISPRUDENCEPART I: BASIC WTO LEGAL PRINCIPLES

Session 619 November 2015

General National Treatment Obligation: Article III:4 of the GATT 1994

National Treatment

Payment

Delivery

Exporting Country Importing Country

Article III:2 of the GATT 1994: No taxes in excess of those borne

by the "like" product produceddomestically

Article III:4 of the GATT 1994No less favourable treatment

regarding laws, regulations and requirements

Article III:4 of the GATT 1994

Article III

National Treatment on Internal Taxation and Regulation

4. The products of the territory of any contracting partyimported into the territory of any other contracting partyshall be accorded treatment no less favourable than thataccorded to like products of national origin in respect of alllaws, regulations and requirements affecting their internalsale, offering for sale, purchase, transportation,distribution or use. […]

Three-tier test of inconsistency with Article III:4 of the GATT 1994:

Measure is a "law, regulation or requirement" affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products

Imported and domestic products are "like products"

Imported products are accorded "less favourable treatment"

Test of inconsistency with Article III:4

Article III:4 concerns "all laws, regulations and requirementsaffecting [the] internal sale, offering for sale, purchase,transportation, distribution or use [of products].

Broad interpretation of the term "affecting"

As the Appellate Body has noted, the fact that a measure is notprimarily aimed at regulating the sale, offering for sale,purchase, transportation, distribution and use of the productsat issue "is not an obstacle to its 'affecting' them".

Laws, regulations and requirements

Examples

A tax stamp imposed on the sale of imported cigarettes

An obligation to dispose of ten used tyres as a prerequisite for the importation of one retreaded tyre

VAT-related administrative requirements imposed on resellers of imported cigarettes

A sales ban on asbestos fibres and products containing asbestos fibres

Requirement that all imported newspapers be distributed through only one particular distribution channel

A sales ban on seal products

A determination of "likeness" under Article III:4 is, fundamentally, a determinationabout the nature and extent of a competitive relationship between and amongproducts.

The concept of "likeness" in Article III:2, first sentence, must be construednarrowly. What about in Article III:4?

"In view of [the] different language [of Articles III:2 and III:4] … we doconclude that the product scope of Article III:4, although broader than thefirst sentence of Article III:2, is certainly not broader than the combinedproduct scope of the two sentences of Article III:2 of the GATT 1994."

(Appellate Body Report, EC – Asbestos, para. 96)

Like products

Panels have assumed that there are "like products" when the measure at issuedistinguishes between products solely on the basis of their origin.

In Canada – Wheat Exports and Grain Imports, the measures at issue provided forrequirements applicable only to imported grain or benefits granted only todomestic grain. The panel noted:

"Given the existence of an origin-based distinction in [the measure at issue], theUnited States need only demonstrate that there can or will be domestic importedproducts that are like".

The panel in China – Publications and Audiovisual Products reiterated that:

"When origin is the sole criterion distinguishing the products, it is sufficient forpurposes of satisfying the 'like product' requirement for a complaining party todemonstrate that there or can or will be domestic and imported products thatare 'like'".

Like products: "origin-based presumption"

Four general "likeness" criteria:

The properties, nature and quality of the products;

The end-uses of the products;

Consumers' tastes and habits

The tariff classification of the products.

Evidence on one of the criteria cannot be determinative on the "likeness" ofproducts. A panel always has to examine the totality of the relevant evidence.

Panel in EC – Asbestos erred in not considering "consumers' tastes and habits" and"tariff classification".

Can a "likeness" analysis take into account non-economic interests and values? InEC – Asbestos, the Appellate Body took into account the health risks of asbestos aspart of two of the criteria. (See also Appellate Body Report, US – Clove Cigarettes).

Like products: criteria

Is the "regulatory intent" of a measure relevant in determining "likeness"?

The GATT panel in US – Malt Beverages considered that the reason for the productdifferentiation was to be taken into account when deciding on the "likeness" of products.

The "aim-and-effect" test was explicitly rejected by the panel in Japan – Alcoholic Beverages II; aconclusion endorsed by the Appellate Body.

"… very often there is a multiplicity of aims that are sought through enactment of legislationand it would be a difficult exercise to determine which aim or aims should be determinativefor applying the aim-and-effect test.

"… [T]he list of exceptions contained in Article XX of the GATT 1994 could become redundantor useless … [I]n principle, a WTO Member could, for example, invoke protection of health inthe context of invoking the aim-and-effect test. … [I]f this were the case, then the standard ofproof established under Article XX would effectively be circumvented".

(Panel Report, Japan – Alcoholic Beverages II, paras. 6.16 and 6.17)

Like products: "aims-and-effects"

Can the "likeness" analysis take into account processes and productionmethods that do not affect the characteristics or properties of the productsconcerned (NPR-PPMs)?

The GATT panel in US – Malt Beverages found that the fact that products wereproduced by small, artisanal or large industrial firms was irrelevant in thedetermination of their likeness.

Therefore: child labour, environmental impact of production: in principle, theydo not affect "likeness".

Like products: "NPR-PPMs"

Like productsor

A measure accords "less favourable treatment" when it modifies the conditions of competition to the detriment of imported products in the relevant market.

Formally different treatment to imported products does not per se violate Article III:4.

A formal difference in treatment between imported and like domestic products isthus neither necessary, nor sufficient, to show a violation of Article III:4. Whetheror not imported products are treated "less favourably" than like domesticproducts should be assessed instead by examining whether a measure modifiesthe conditions of competition in the relevant market to the detriment of importedproducts.

(Appellate Body Report, Korea – Various Measures on Beef, para. 137)

Less favourable treatment

It is clear, however, that measures imposing an additional administrative burden orhurdle on imported products are likely to modify the conditions of competition ofsuch products in the marketplace.

As the Appellate Body noted in Thailand – Cigarettes (Philippines):

"[W]here a Member's legal system applies a single regulatory regime to bothimported and like domestic products, with the sole difference being that anadditional requirement is imposed only on imported products, the existence ofthis additional requirement may provide a significant indication that importedproducts are treated less favourably."

Panel Report in Canada – Wheat Exports and Grain Imports:

"That the requirement in question may not be very onerous in commercialand/or practical terms does not, in our view, detract from the fact that it is anadditional requirement not imposed on like domestic grain."

Less favourable treatment

What is to be compared is the treatment given to the group of imported productsas a whole and the treatment given to the group of like domestic products as awhole.

A measure which does not accord treatment less favourable to some products inthe group of imported products, may still be found to accord "treatment lessfavourable" to the whole group of imported products.

Less favourable treatment

Domestic Imported

Balancing less favourable treatment to some imported products with morefavourable treatment to other imported products does not save a measure from afinding of inconsistency.

The "balancing" notion was expressly rejected by the GATT panel in US – Section337:

"[T]he "no less favourable" treatment requirement of Article III:4 has to beunderstood as applicable to each individual case of imported products. The Panelrejected any notion of balancing more favourable treatment of some importedproducts against less favourable treatment of other imported products. If thisnotion were accepted, it would entitle a contracting party to derogate from theno less favourable treatment obligation in one case, or indeed in respect of onecontracting party, on the ground that it accords more favourable treatment insome other case, or to another contracting party. Such an interpretation wouldlead to great uncertainty about the conditions of competition between importedand domestic products and thus defeat the purposes of Article III.

Less favourable treatment

An examination of whether a measure involves "less favourable treatment" neednot be based on the actual effects of the contested measure in the marketplace.

Potential effects of the measure may suffice as a basis for a finding that a measureinvolves "less favourable treatment".

The Appellate Body has noted that:

"[A]n analysis under Article III:4 must begin with careful scrutiny of the measure,including consideration of the design, structure, and expected operation of themeasure at issue. Such scrutiny may well involve —but does not require—anassessment of the contested measure in the light of evidence regarding theactual effects of that measure in the market."

(Appellate Body Report, Thailand – Cigarettes (Philippines), para. 134)

Less favourable treatment

A measure that does not legally require certain treatment of imports, may still beconsidered to accord "treatment less favourable" if it creates incentives for marketparticipants to behave in certain way and has the "practical effect" of treatingimported products less favourably.

Examples: Korea – Various Measures on Beef, and Mexico – Taxes on Soft Drinks,where the panel noted:

The challenged measures create an economic incentive for producers to use canesugar as a sweetener in the production of soft drinks and syrups, instead of othernon-cane sugar sweeteners such as beet sugar or HFCS. This incentive is createdby conferring an advantage … on those producers that use cane sugar instead ofnon-cane sugar sweeteners, such as beet sugar or HFCS. These measures do notlegally impede producers from using non-cane sugar sweeteners ... However, theysignificantly modify the conditions of competition between cane sugar, on theone hand, and non-cane sugar sweeteners, such as beet sugar or HFCS, on theother.

Less favourable treatment

Article III:4 would cover a prohibition on the importation of alcohol.

Article III:4 would cover a tax imposed on domestic and imported beer.

A ban on cigarette advertising would be covered by Article III:4.

The notion of "like products" is narrower under Article III:4 than under Article III:2.

For two products to be considered "like" they must compete in the relevant market.

Shrimp caught without killing turtles is not "like" shrimp caught killing turtles.

If a measure, on its face, grants a benefit to domestic coffee but not to importedcoffee, domestic and imported coffee can be presumed to be "like".

Exercise

If a measure treats imported products differently than like domestic products, it isinconsistent with Article III:4 of the GATT 1994.

If a measure imposes additional administrative burdens only on importedproducts, it is inconsistent with Article III:4 of the GATT 1994.

Nothing prevents Members from granting more favourable treatment to importedproducts.

If a measure creates incentives for private parties not to use imported products, itmodifies the conditions of competition to the detriment of imported products.

If a measure does not have a negative effect on the trade of the complainingMember, it cannot be considered inconsistent with Article III:4.

Exercise