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WTO ANALYTICAL INDEX: GATT 1994

General Agreement on Tariffs and Trade 1994

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The texts reproduced here do not have the legal standing of the original documents which are entrusted and kept at the WTO Secretariat in Geneva.

> Language Incorporating GATT 1947 and other Instruments into GATT 1994
> Preamble
> Article I
> Article II
> Article III
> Article IV
> Article V
> Article VI
> Article VII
> Article VIII
> Article IX
> Article X
> Article XI
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> Article XV
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> Article XX
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> Article XXIV
> Article XXV
> Article XXVI
> Article XXVII
> Article XXVIII
> Article XXVIII bis
> Article XXIX
> Article XXX
> Article XXXI
> Article XXXII
> Article XXXIII
> Article XXXIV
> Article XXXV
> Article XXXVI
> Article XXXVII
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IV. Article II     back to top

A. Text of Article II

Article II: Schedules of Concessions

1.   (a)     Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.

 

      (b)     The products described in Part I of the Schedule relating to any contracting party, which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date.

 

     (c)     The products described in Part II of the Schedule relating to any contracting party which are the products of territories entitled under Article I to receive preferential treatment upon importation into the territory to which the Schedule relates shall, on their importation into such territory, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided for in Part II of that Schedule. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with importation in excess of those imposed on the date of this Agreement or those directly or mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date. Nothing in this Article shall prevent any contracting party from maintaining its requirements existing on the date of this Agreement as to the eligibility of goods for entry at preferential rates of duty.

 

2.     Nothing in this Article shall prevent any contracting party from imposing at any time on the importation of any product:

 

(a)     a charge equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III* in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part;

 

(b)     any anti-dumping or countervailing duty applied consistently with the provisions of Article VI;*

 

(c)     fees or other charges commensurate with the cost of services rendered.

 

3.     No contracting party shall alter its method of determining dutiable value or of converting currencies so as to impair the value of any of the concessions provided for in the appropriate Schedule annexed to this Agreement.

 

4.     If any contracting party establishes, maintains or authorizes, formally or in effect, a monopoly of the importation of any product described in the appropriate Schedule annexed to this Agreement, such monopoly shall not, except as provided for in that Schedule or as otherwise agreed between the parties which initially negotiated the concession, operate so as to afford protection on the average in excess of the amount of protection provided for in that Schedule. The provisions of this paragraph shall not limit the use by contracting parties of any form of assistance to domestic producers permitted by other provisions of this Agreement.*

 

5.     If any contracting party considers that a product is not receiving from another contracting party the treatment which the first contracting party believes to have been contemplated by a concession provided for in the appropriate Schedule annexed to this Agreement, it shall bring the matter directly to the attention of the other contracting party. If the latter agrees that the treatment contemplated was that claimed by the first contracting party, but declares that such treatment cannot be accorded because a court or other proper authority has ruled to the effect that the product involved cannot be classified under the tariff laws of such contracting party so as to permit the treatment contemplated in this Agreement, the two contracting parties, together with any other contracting parties substantially interested, shall enter promptly into further negotiations with a view to a compensatory adjustment of the matter.

 

6.    (a)     The specific duties and charges included in the Schedules relating to contracting parties members of the International Monetary Fund, and margins of preference in specific duties and charges maintained by such contracting parties, are expressed in the appropriate currency at the par value accepted or provisionally recognized by the Fund at the date of this Agreement. Accordingly, in case this par value is reduced consistently with the Articles of Agreement of the International Monetary Fund by more than twenty per centum, such specific duties and charges and margins of preference may be adjusted to take account of such reduction; provided that the CONTRACTING PARTIES (i.e., the contracting parties acting jointly as provided for in Article XXV) concur that such adjustments will not impair the value of the concessions provided for in the appropriate Schedule or elsewhere in this Agreement, due account being taken of all factors which may influence the need for, or urgency of, such adjustments.

 

     (b)     Similar provisions shall apply to any contracting party not a member of the Fund, as from the date on which such contracting party becomes a member of the Fund or enters into a special exchange agreement in pursuance of Article XV.

 

7.     The Schedules annexed to this Agreement are hereby made an integral part of Part I of this Agreement.


B. Text of Note Ad Article II

Ad Article II: Paragraph 2 (a)

     The cross-reference, in paragraph 2 (a) of Article II, to paragraph 2 of Article III shall only apply after Article III has been modified by the entry into force of the amendment provided for in the Protocol Modifying Part II and Article XXVI of the General Agreement on Tariffs and Trade, dated September 14, 1948.(1)

 

(footnote original) 1 This Protocol entered into force on 14 December 1948.

Paragraph 2 (b)

See the note relating to paragraph 1 of Article I.

Paragraph 4

     Except where otherwise specifically agreed between the contracting parties which initially negotiated the concession, the provisions of this paragraph will be applied in the light of the provisions of Article 31 of the Havana Charter.


C. Understanding on Interpretation of Article II.1(B) of the GATT 1994

Members hereby agree as follows:

 

1.     In order to ensure transparency of the legal rights and obligations deriving from paragraph 1(b) of Article II, the nature and level of any “other duties or charges” levied on bound tariff items, as referred to in that provision, shall be recorded in the Schedules of concessions annexed to GATT 1994 against the tariff item to which they apply. It is understood that such recording does not change the legal character of “other duties or charges”.

 

2.     The date as of which “other duties or charges” are bound, for the purposes of Article II, shall be 15 April 1994. “Other duties or charges” shall therefore be recorded in the Schedules at the levels applying on this date. At each subsequent renegotiation of a concession or negotiation of a new concession the applicable date for the tariff item in question shall become the date of the incorporation of the new concession in the appropriate Schedule. However, the date of the instrument by which a concession on any particular tariff item was first incorporated into GATT 1947 or GATT 1994 shall also continue to be recorded in column 6 of the Loose-Leaf Schedules.

 

3.     “Other duties or charges” shall be recorded in respect of all tariff bindings.

 

4.     Where a tariff item has previously been the subject of a concession, the level of “other duties or charges” recorded in the appropriate Schedule shall not be higher than the level obtaining at the time of the first incorporation of the concession in that Schedule. It will be open to any Member to challenge the existence of an “other duty or charge”, on the ground that no such “other duty or charge” existed at the time of the original binding of the item in question, as well as the consistency of the recorded level of any “other duty or charge” with the previously bound level, for a period of three years after the date of entry into force of the WTO Agreement or three years after the date of deposit with the Director-General of the WTO of the instrument incorporating the Schedule in question into GATT 1994, if that is a later date.

 

5.     The recording of “other duties or charges” in the Schedules is without prejudice to their consistency with rights and obligations under GATT 1994 other than those affected by paragraph 4. All Members retain the right to challenge, at any time, the consistency of any “other duty or charge” with such obligations.

 

6. For the purposes of this Understanding, the provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the Dispute Settlement Understanding shall apply.

 

7.     “Other duties or charges” omitted from a Schedule at the time of deposit of the instrument incorporating the Schedule in question into GATT 1994 with, until the date of entry into force of the WTO Agreement, the Director-General to the CONTRACTING PARTIES to GATT 1947 or, thereafter, with the Director-General of the WTO, shall not subsequently be added to it and any “other duty or charge” recorded at a level lower than that prevailing on the applicable date shall not be restored to that level unless such additions or changes are made within six months of the date of deposit of the instrument.

 

8.     The decision in paragraph 2 regarding the date applicable to each concession for the purposes of paragraph 1(b) of Article II of GATT 1994 supersedes the decision regarding the applicable date taken on 26 March 1980 (BISD 27S/24).


D. Interpretation and Application of Article II

1. Article II:1: Interpretation of tariff concessions

(a) General

118.     The Panel in EC — Chicken Cuts had to decide whether the tariff treatment of frozen boneless salted chicken cuts imported into the European Communities was inconsistent with Article II:1(a)  and Article II:1(b), as had been alleged by Brazil and Thailand. The Panel set out a three-step test for their analysis of this issue:

“[W]e will need to ascertain: (a) the treatment accorded to the products at issue under the EC Schedule; (b) the treatment accorded to the products at issue under the measures at issue; and (c) whether the measures at issue result in less favourable treatment of the products at issue than that provided for in the EC Schedule and, more particularly, whether those measures result in the imposition of duties and conditions on the products at issue in excess of those provided for in the EC Schedule.”(165)

119.     The Panel found that the EC measures at issue had the effect of classifying frozen boneless chicken cuts that had been impregnated with salt, with a salt content of 1.2%–3% (the products at issue), under the concession contained in heading 02.07 of the EC Schedule, which relates inter alia to “frozen” chicken. The Panel concluded that those measures were in violation of Article II:1(a)  and II:1(b) of the GATT 1994 because (based on its interpretation of the EC Schedule) the products at issue were covered by the concession in heading 02.10 of that Schedule, but the EC measures resulted in imposition of customs duties on the chicken cuts in question in excess of the bound duty rate for heading 02.10.

“The Panel recalls that … we stated that, if we were to conclude that the products at issue are covered by the concession contained in heading 02.10 of the EC Schedule, there is no question that the treatment accorded to those products under the measures at issue is less favourable than that provided for in the EC Schedule because undisputed pricing data indicates that the duty levied on the products at issue can and has exceeded 15.4% ad valorem, being the bound duty rate for products covered by heading 02.10.

 

It is the Panel’s view that the products at issue are covered by the concession contained in heading 02.10 of the EC Schedule. Therefore, such products are entitled to treatment provided for by that concession. Since the products at issue are not being accorded such treatment, the European Communities is in violation of Article II:1(a)  and Article II:1(b) of the GATT 1994.

 

In reaching this conclusion, the Panel recalls that a fundamental object and purpose of the WTO Agreement and the GATT 1994 is that the security and predictability of reciprocal and mutually advantageous arrangements must be preserved. In the Panel’s view, a Member’s unilateral intention regarding the meaning to be ascribed to a concession that Member has made in the context of WTO multilateral trade negotiations cannot prevail over the common intentions of all WTO Members as determined through an analysis undertaken pursuant to Articles 31 and 32 of the Vienna Convention.”(166)

120.     In considering what is required to prove an “as such” breach of Article II:1, the Panel in EC — IT Products declined to accept the argument that particular product models or categories must always be identified in cases under Article II involving the product composition of tariff concessions:

“The key issue in this case under Article II is whether certain products that are entitled duty-free treatment under the EC Schedule indeed receive such treatment. If the complainants are able to establish that the measures operate in such a way as to necessarily deny duty-free treatment, then we consider that a breach of Article II has been established. More specifically, in the circumstances of this case, if we were to determine that some products fall within the scope of duty-free concessions in the EC Schedule, then if the challenged measures provide for the application of duties to those products covered by the concession, this would be sufficient to find a breach of Article II. …findings generally focus on measures rather than products. While the obligation under Article II refers to the tariff treatment of products, such treatment results from the effect of certain measures. This means that, in the event that a violation is found, it is the measures at issue that must be brought into conformity.”(167)

(b) Applicable interpretative rules

121.     In EC — Computer Equipment, the Appellate Body dealt with the complaint that the application of increased duties on certain computer equipment was in violation of the relevant tariff concessions of the European Communities, and therefore inconsistent with Article II. The Appellate Body set forth the interpretative rules on tariff concessions and, contrary to the Panel which had based its interpretation of the European Communities’ tariff commitments on the “legitimate expectations” of the exporting Member,(168) it emphasized the parties’ common intentions as determined through treaty interpretation:

“The purpose of treaty interpretation under Article 31 of the Vienna Convention is to ascertain the common intentions of the parties. These common intentions cannot be ascertained on the basis of the subjective and unilaterally determined ‘expectations’ of one of the parties to a treaty. Tariff concessions provided for in a Member’s Schedule — the interpretation of which is at issue here — are reciprocal and result from a mutually-advantageous negotiation between importing and exporting Members. A Schedule is made an integral part of the GATT 1994 by Article II:7 of the GATT 1994. Therefore, the concessions provided for in that Schedule are part of the terms of the treaty. As such, the only rules which may be applied in interpreting the meaning of a concession are the general rules of treaty interpretation set out in the Vienna Convention.”(169)

122.     The Appellate Body Report in EC — Chicken Cuts agreed with the Panel in that case that “in characterizing a product for purposes of tariff classification, it is necessary to look exclusively at the ‘objective characteristics’ of the product in question when presented for classification at the border.”(170)

123.     The Panel in China — Auto Parts, considering the scope of the term “as presented” in the General Rules of Interpretation (GIRs) of the Harmonized Commodity Description and Coding System (HS), decided that this term “is limited to the specific moment when goods are presented to the customs authority for classification”.(171)

(c) Ordinary meaning and factual context

124.     In EC — Chicken Cuts, the Appellate Body observed: “The Appellate Body has observed that dictionaries are a ‘useful starting point’ for the analysis of ‘ordinary meaning’ of a treaty term, but they are not necessarily dispositive. The ordinary meaning of a treaty term must be ascertained according to the particular circumstances of each case. Importantly, the ordinary meaning of a treaty term must be seen in the light of the intention of the parties ‘as expressed in the words used by them against the light of the surrounding circumstances’.(172) The Appellate Body also considered that the use of elements such as the products falling under a HS heading, the physical properties of those products, and aspects of the description of those products was not incorrect; the Panel’s considerations of these elements under “ordinary meaning” complemented its analysis of dictionary definitions, and even if these elements could not be considered under “ordinary meaning”, they could be considered under “context”.

“Interpretation pursuant to the customary rules codified in Article 31 of the Vienna Convention is ultimately a holistic exercise that should not be mechanically subdivided into rigid components. Considering particular surrounding circumstances under the rubric of ‘ordinary meaning’ or ‘in the light of its context’ would not, in our view, change the outcome of treaty interpretation.”(173)

(d) Context for tariff concessions including Harmonized System

125.     The Appellate Body confirmed in EC — Chicken Cuts that the HS constitutes relevant “context” to interpret a Member’s Schedule of concessions in the sense of Article 31(2)(a) of the Vienna Convention on the Law of Treaties:

“[P]rior to, during, as well as after the Uruguay Round negotiations, there was broad consensus among the GATT Contracting Parties to use the HS as the basis for their WTO Schedules, notably with respect to agricultural products. In our view, this consensus constitutes an ‘agreement’ between WTO Members ‘relating to’ the WTO Agreement that was ‘made in connection with the conclusion of’ that Agreement, within the meaning of Article 31(2)(a) of the Vienna Convention. As such, this agreement is ‘context’ under Article 31(2)(a) for the purpose of interpreting the WTO agreements, of which the EC Schedule is an integral part. In this light, we consider that the HS is relevant for purposes of interpreting tariff commitments in the WTO Members’ Schedules.”(174)

126.     The Appellate Body also explained that, besides considering the headings and subheadings of the HS, a treaty interpreter may also resort to HS elements which are binding on the contracting parties of the HS (i.e. the Section, Chapter and Subheading Notes and the General Rules for Interpretation of the HS), as well as other elements which are not binding for the contracting parties of the HS, such as the HS Explanatory Notes.(175) The Panel in China — Auto Parts also found that parts of a HS Committee Decision that have not been codified into legal texts of the HS or Explanatory Notes to the HS, do not afford the same evidentiary weight as the GIR itself or the HS Committee Decisions that have been codified into legal texts or Explanatory Notes.(176)

127.     The Panel in China — Auto Parts referred to other terms in tariff headings in China’s Schedule as “context.” However the Appellate Body in China — Auto Parts cautioned that context provided by the HS was not relevant to the issue of whether the charges at issue were internal charges.(177)

128.     The Panel in EC — IT Products opined on this subject:

“[W]hile the HS would always qualify as context for interpreting concessions in a Member’s schedule that are based on that nomenclature, or that explicitly or implicitly make reference to it, the relevance of the HS will depend on the interpretative question at issue. Moreover, it does not follow from the Appellate Body jurisprudence that the HS will necessarily qualify as context or be relevant in interpreting all tariff concessions, including concessions which are not based on the HS.”(178)

129.     The EC — IT Products Panel determined that the HS and its associated interpretative materials were not relevant for interpreting the concessions based on narrative descriptions (relating to Attachment B of the Annex to the ITA).(179)

(e) Subsequent practice

130.     In EC — Chicken Cuts the Appellate Body would not recognize a failure to protest a classification practice as agreement confirming that practice as “subsequent practice” in the sense of Article 31(3)(b) of the Vienna Convention.(180)

(f) Circumstances of conclusion

131.     Regarding the “circumstances of conclusion of a treaty” which may be taken into account as supplementary means of interpretation under Article 32 of the Vienna Convention, in EC — Chicken Cuts the Appellate Body agreed that relevant such circumstances for an Uruguay Round tariff concession “should be ascertained over a period of time ending on the date of the conclusion of the WTO Agreement;(181) that relevant customs classification practices would include those of the importing Member, and could also include those of other Members(182); and that information or events subsequent to conclusion of the treaty can be probative of the common intentions of the parties at the time of the conclusion of the treaty.(183)

(g) Relevance of “legitimate expectations”

132.     In EC — Computer Equipment, the Appellate Body rejected the Panel’s findings that “the meaning of the term ‘ADP machines’ in this context [of Article II:1(b)] may be determined in light of the legitimate expectations of an exporting Member”(184) and that during tariff negotiations, the United States “was not required to clarify the scope of the European Communities’ tariff concessions”.(185) The Appellate Body stated:

“Tariff negotiations are a process of reciprocal demands and concessions, of ‘give and take’. It is only normal that importing Members define their offers (and their ensuing obligations) in terms which suit their needs. On the other hand, exporting Members have to ensure that their corresponding rights are described in such a manner in the Schedules of importing Members that their export interests, as agreed in the negotiations, are guaranteed. There was a special arrangement made for this in the Uruguay Round. For this purpose, a process of verification of tariff schedules took place from 15 February through 25 March 1994, which allowed Uruguay Round participants to check and control, through consultations with their negotiating partners, the scope and definition of tariff concessions.(186) Indeed, the fact that Members’ Schedules are an integral part of the GATT 1994 indicates that, while each Schedule represents the tariff commitments made by one Member, they represent a common agreement among all Members.

 

For the reasons stated above, we conclude that the Panel erred in finding that ‘the United States was not required to clarify the scope of the European Communities’ tariff concessions on LAN equipment’.(187) We consider that any clarification of the scope of tariff concessions that may be required during the negotiations is a task for all interested parties.”(188)

2. Article II:1(a) : “treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule”

(a) “treatment no less favourable”

133.     In Argentina — Textiles and Apparel, the Appellate Body found that “Paragraph (b) prohibits a specific kind of practice that will always be inconsistent with paragraph (a): that is, the application of ordinary customs duties in excess of those provided for in the Schedule.”(189) Also: “the application of customs duties in excess of those provided for in a Member’s Schedule inconsistent with the first sentence of Article II:1(b), constitutes ‘less favourable’ treatment under the provisions of Article II:1(a).”(190) The Panels on EC — Chicken Cuts and EC — IT Products also found that a violation of Article II:1(b) necessarily results in less favourable treatment which is inconsistent with the obligations in Article II:1(a). (191)

(b) “Treatment”: Schedule concessions other than duties on importation

(i) Non-tariff concessions

134.     The standard format for schedules to the GATT 1994 provides for concessions on non-tariff measures, which may be scheduled in Part III of the schedule. Eight Members included concessions in Part III of their Uruguay Round Schedules, listing tariff item numbers and describing the concessions.(192) A Secretariat Technical Note on the Accession Process notes that China, Chinese Taipei, Saudi Arabia, Viet Nam and Ukraine have made concessions in Part III of their Schedules.(193)

(ii) Export duties and taxes

135.     Part I of Australia’s Uruguay Round Schedule I includes commitments not to impose export duties in respect of a number of metals, ores and minerals.

136.     A number of acceding Members have agreed to commitments other than schedule concessions which govern their use of export charges and taxes, in protocols of accession or in accession working party reports.(194)

3. Article II:1(b)

(a) Duties or charges under Article II:1(b)

137.     In India — Additional Import Duties, the Appellate Body rejected the Panel’s finding that duties or charges under Article II:1(b) are “inherently discriminatory”,

“[I]nsofar as this may suggest that the mere application of a tariff by a Member on imports of another Member is somehow unfair or prejudicial. Such a connotation would, in our view, be at odds with negotiations by Members of tariff concessions that allow for the imposition of duties up to a bound level. Tariffs are legitimate instruments to accomplish certain trade policy or other objectives such as to generate fiscal revenue. Indeed, under the GATT 1994, they are the preferred trade policy instrument, whereas quantitative restrictions are in principle prohibited. Irrespective of the underlying objective, tariffs are permissible under Article II:1(b) so long as they do not exceed a Member’s bound rates.”(195)

(b) “subject to the terms, conditions or qualifications set forth in that Schedule”

138.     In EC — Bananas III, addressing the question as to whether the allocation of tariff quotas as inscribed in a Schedule was inconsistent with GATT Article XIII, the Appellate Body addressed the legal status of tariff concessions. The Appellate Body held that “a Member may yield rights and grant benefits, but it cannot diminish its obligations”:

“With respect to concessions contained in the Schedules annexed to the GATT 1947, the panel in United States — Restrictions on Importation of Sugar (“United States — Sugar Head note”) found that:

 

‘ … Article II permits contracting parties to incorporate into their Schedules acts yielding rights under the General Agreement but not acts diminishing obligations under that Agreement.(196)’

 

This principle is equally valid for the market access concessions and commitments for agricultural products contained in the Schedules annexed to the GATT 1994. The ordinary meaning of the term ‘concessions’ suggests that a Member may yield rights and grant benefits, but it cannot diminish its obligations. This interpretation is confirmed by Paragraph 3 of the Marrakesh Protocol, which provides:

 

‘The implementation of the concessions and commitments contained in the schedules annexed to this Protocol shall, upon request, be subject to multilateral examination by the Members. This would be without prejudice to the rights and obligations of Members under Agreements in Annex 1A of the WTO Agreement. (emphasis added)’”(197)

139.     In EC — Poultry, the Appellate Body rejected Brazil’s argument that the MFN principle in Articles I and XIII of the GATT 1994 does not necessarily apply to tariff-rate quotas resulting from compensation negotiations under Article XXVIII of the GATT 1994. In so doing, the Appellate Body confirmed its finding in EC — Bananas III, cited in paragraph 138 above, and again referred to paragraph 3 of the Marrakesh Protocol. The Appellate Body stated:

“In United States — Restrictions on Imports of Sugar(198) the panel stated that Article II of the GATT permits contracting parties to incorporate into their Schedules acts yielding rights under the GATT, but not acts diminishing obligations under that Agreement. In our view, this is particularly so with respect to the principle of nondiscrimination in Articles I and XIII of the GATT 1994. In EC — Bananas, we confirmed the principle that a Member may yield rights but not diminish its obligations and concluded that it is equally valid for the market access concessions and commitments for agricultural products contained in the Schedules annexed to the GATT 1994.(199) The ordinary meaning of the term ‘concessions’ suggests that a Member may yield or waive some of its own rights and grant benefits to other Members, but that it cannot unilaterally diminish its own obligations. This interpretation is confirmed by paragraph 3 of the Marrakesh Protocol, which provides:

 

‘The implementation of the concessions and commitments contained in the schedules annexed to this Protocol shall, upon request, be subject to multilateral examination by the Members. This would be without prejudice to the rights and obligations of Members under Agreements in Annex 1A of the WTO Agreement. (emphasis added)’”(200)

140.     In Canada — Dairy, Canada’s Schedule established a quota of 64,500 tons, under which imports were subject to a certain duty, while out-of-quota imports were subject to a higher duty. Under the heading “Other terms and conditions”, the Canadian Schedule stated: “This quantity [64,500] represents the estimated annual cross-border purchases imported by Canadian consumers.” The United States argued that Canada violated Article II:1(b) in restricting access to tariff quotas for fluid milk to cross-border imports by Canadians of (i) consumer packaged milk for personal use, (ii) valued at less than Can$20. The United States argued that with respect to those two conditions, Canada was granting imports of fluid milk treatment less favourable than that provided for in its Schedule. The Panel found the language contained in Canada’s Schedule under the heading “Other terms and conditions” to be a description of the way the size of the quota was determined, rather than a statement of the conditions as to the kind of imports qualified to enter Canada under this quota. The Panel found that “the ordinary meaning of the word ‘represent’ in this context does not, in our view, call to mind the setting out of specific restrictions or conditions”.(201) The Panel added that “[e]ven if the phrase could be said to include restrictions on access to the tariff-rate quota, we do not see how the two conditions at issue in this dispute could be read into this phrase”.(202) As a result, the Panel did not find any restriction to tariff quotas in Canada’s relevant Schedule, and thus, agreed with the United States’ argument.(203) The Appellate Body disagreed with the Panel’s reading of the Schedule and presented the following interpretation of the term “subject to terms, conditions or qualifications” contained in Article II:1(b):

“Under Article II:1(b) of the GATT 1994, the market access concessions granted by a Member are ‘subject to’ the ‘terms, conditions or qualifications set forth in [its] Schedule’. (emphasis added) In our view, the ordinary meaning of the phrase ‘subject to’ is that such concessions are without prejudice to and are subordinated to, and are, therefore, qualified by, any ‘terms, conditions or qualifications’ inscribed in a Member’s Schedule. We believe that the relationship between the 64,500 tonnes tariff-rate quota and the ‘Other Terms and Conditions’ set forth in Canada’s Schedule is of this nature. The phrase ‘terms and conditions’ is a composite one which, in its ordinary meaning, denotes the imposition of qualifying restrictions or conditions. A strong presumption arises that the language which is inscribed in a Member’s Schedule under the heading, ‘Other Terms and Conditions’, has some qualifying or limiting effect on the substantive content or scope of the concession or commitment.(204)

 

In interpreting the language in Canada’s Schedule, the Panel focused on the verb ‘represents’ and opined that, because of the use of this verb, the notation was no more than a ‘description’ of the ‘way the size of the quota was determined’.(205) The net consequence of the Panel’s interpretation is a failure to give the notation in Canada’s Schedule any legal effect as a ‘term and condition’. If the language is merely a ‘description’ or a ‘narration’ of how the quantity was arrived at, we do not see what purpose it serves in being inscribed in the Schedule. The Panel, in other words, acted upon the assumption that Canada projected no identifiably necessary or useful qualifying or limiting purpose in inscribing the notation in its Schedule. The Panel thus disregarded the principle of effectiveness in its interpretive effort.

 

We note that the Panel also adopted an overly literal and narrow view of the words ‘cross-border purchases imported by Canadian consumers’ in the notation at issue. Moreover, the Panel erred in failing to give meaning to all of the words in that notation. On the basis of its ordinary meaning, the Panel stated that the language in the notation could not refer only to ‘consumer packaged’ milk ‘for personal use(206) (emphasis in original) We do not agree that the ordinary meaning of that phrase in the notation is so unequivocal. We do not see anything in the text of the notation which necessarily precludes such an interpretation. The notation refers to ‘cross-border purchases imported by Canadian consumers’. It seems, to us, that this language may well be taken to refer to imports of fluid milk made by Canadian consumers for personal use in the course of cross-border shopping.”(207)

141.     After making the findings referenced in paragraph 140 above, the Appellate Body in Canada — Dairy found that while the language contained in Canada’s Schedule could be said to refer to the requirement of “consumer packaged milk for personal use”, it could not refer to the Can$50 value limitation. As a result, the Appellate Body found the latter requirement not to be contained in Canada’s Schedule and its existence to be inconsistent with Article II:1(b).(208)

142.     In Korea — Various Measures on Beef, the Panel ruled, in a finding not appealed, that pursuant to Article II of the GATT 1994 any other “terms, conditions or qualifications” that are added to import concessions, must be included in the schedules. The Panel went on to find that “[g]iven that Korea made no such qualification, and that imports of grass-fed beef by the LPMO are thus restricted, the Panel finds that imports of grass-fed beef are accorded less favourable treatment than that is provided for in Korea’s Schedule, contrary to Article II:1(a).”(209)

(c) “ordinary customs duties”

143.     The Panel in Chile — Price Band System, discussing the use of the phrase “ordinary customs duties” in both Article II:1(b) and Article 4.2 of the Agreement on Agriculture, suggested that the phrase should be interpreted consistently in both agreements.(210)

144.     The Panel Report on China — Auto Parts, examining the nature of a particular charge, held as follows:

“[T]he ordinary meaning of ‘on their importation’ in Article II:1(b), first sentence, of the GATT 1994, considered in its context and in light of the object and purpose of the GATT 1994, contains a strict and precise temporal element which cannot be ignored. This means that the obligation to pay ordinary customs duties is linked to the product at the moment it enters the territory of another Member. If the right to impose ordinary customs duties — and the importer’s obligation to pay it — accrues because of the importation of the product at the very moment it enters the territory of another Member, ordinary customs duties should necessarily be related to the status of the product at that single moment. It is at this moment, and this moment only, that the obligation to pay such charge accrues. As stated by the Appellate Body in EC — Poultry, ‘it is upon entry of a product into the customs territory, but before the product enters the domestic market, that the obligation to pay customs duties … accrues.’ And it is based on the condition of the good at this moment that any contemporaneous or subsequent act by the importing country to enforce, assess or reassess, impose or collect ordinary custom duties should be carried out.”(211)

145.     As the Appellate Body remarked in China — Auto Parts,

“[T]he moment at which a charge is collected or paid is not determinative of whether it is an ordinary customs duty or an internal charge. Ordinary customs duties may be collected after the moment of importation, and internal charges may be collected at the moment of importation. For a charge to constitute an ordinary customs duty, however, the obligation to pay it must accrue at the moment and by virtue of or, in the words of Article II:1(b), ‘on’, importation.”(212)

(d) “in excess of”

146.     In Argentina — Textiles and Apparel, the products at issue were subject to the higher of either (i) a 35 per cent ad valorem duty or (ii) a minimum specific duty (the so-called “DIEM”); the relevant tariff concession was a 35 per cent ad valorem duty rate. The Panel found that Argentina violated Article II by applying a different type of import duty than set out in its Schedule, and because the minimum specific duty exceeded 35 per cent when levied on low-value products. The Appellate Body reversed the Panel in part, as follows:

“A tariff binding in a Member’s Schedule provides an upper limit on the amount of duty that may be imposed, and a Member is permitted to impose a duty that is less than that provided for in its Schedule. The principal obligation in the first sentence of Article II:1(b), as we have noted above, requires a Member to refrain from imposing ordinary customs duties in excess of those provided for in that Member’s Schedule. However, the text of Article II:1(b), first sentence, does not address whether applying a type of duty different from the type provided for in a Member’s Schedule is inconsistent, in itself, with that provision.”(213)

 

“[T]he application of a type of duty different from the type provided for in a Member’s Schedule is inconsistent with Article II:1(b), first sentence, of the GATT 1994 to the extent that it results in ordinary customs duties being levied in excess of those provided for in that Member’s Schedule. In this case, we find that Argentina has acted inconsistently with its obligations under Article II:1(b), first sentence, of the GATT 1994, because the DIEM regime, by its structure and design, results, with respect to a certain range of import prices in any relevant tariff category to which it applies, in the levying of customs duties in excess of the bound rate of 35 per cent ad valorem in Argentina’s Schedule.”(214)

 

“ … the structure and design of the Argentine system is such that for any DIEM, no matter what ad valorem rate is used as the multiplier of the representative international price, the possibility remains that there is a ‘break-even’ price below which the ad valorem equivalent of the customs duty collected is in excess of the bound ad valorem rate of 35 per cent.

 

… it is possible, under certain circumstances, for a Member to design a legislative ‘ceiling’ or ‘cap’ on the level of duty applied which would ensure that, even if the type of duty applied differs from the type provided for in that Member’s Schedule, the ad valorem equivalents of the duties actually applied would not exceed the ad valorem duties provided for in the Member’s Schedule. However, no such ‘ceiling’ exists in this case… .”(215)

147.     The Panel in EC — IT Products found that certain EU regulations resulted in imposition of duties in excess of those provided for in the EU Schedule, and were therefore inconsistent with Article II:1(b); but a separate duty suspension eliminated the inconsistency with Article II:1(b) to the extent that it covered items within the scope of the concession.(216)

(e) “other duties or charges” (ODCs)

(i) General

148.     In Dominican Republic — Import and Sale of Cigarettes, the Panel analysed the definition of an “other duty or charge”:

“Although there is no definition of what constitutes an ‘other duty or charge’ in the GATT 1994 and in the ‘Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994’, the ordinary meanings of Article II:1(b) and Article II:2 make it clear that any fee or charge that is in connection with importation and that is not an ordinary customs duty, nor a tax or duty as listed under Article II:2 (internal tax, antidumping duty, countervailing duty, fees or charges commensurate with the cost of services rendered) would qualify for a measure as an ‘other duties or charge’ under Article II:1(b).

 

The travaux préparatoires concerning the Understanding confirm such interpretation. The Secretariat note on ‘Article II:1(b) :OF THE GENERAL AGREEMENT’ stated:

 

‘4 The definition of ODCs falling under the purview of Article II:1(b) can only be done by exclusion — i.e. by reference to those categories of ODC not covered by it. It would be impossible, and logically fallacious, to draw up an exhaustive list of ODCs which do fall under the purview of Article II:1(b), since it is always possible for governments to invent new charges. Indeed, an attempt to provide an exhaustive list would create the false impression that charges omitted from it, or newly invented, were exempt from the II:1(b) obligation.’(217)”(218)

149.     The Appellate Body Report on India — Additional Import Duties remarked that “the duties and charges covered by the second sentence of Article II:1(b) are ‘defined in relation to’ duties covered by the first sentence of Article II:1(b), such that ODCs encompass only duties and charges that are not [ordinary customs duties].”(219)

(ii) Import surcharges

150.     In Dominican Republic — Import and Sale of Cigarettes, Honduras challenged inter alia a 2 per cent transitional surcharge for economic stabilization on all imports.

“The Panel agrees with the parties that the surcharge as it is applied in Law 2-04 is imposed on, or in connection with, the importation of all goods with a few exceptions prescribed in paragraph I to Article 1 of Law 2-04. It is imposed on these imported products in addition to tariff duties on these products. It is clearly a border measure.

 

The surcharge is based on the value of the imported products, rather than any service rendered by the custom authorities. Therefore, it is not a fee or charge that falls under Article VIII of the GATT 1994. It is not an internal tax either since it does not apply to domestic products. To summarize, the surcharge is neither an ordinary customs duty, nor a charge or duty that falls under Article II:2 of the GATT 1994. The Panel agrees with the parties that as a border measure, the surcharge as prescribed in Law 2-04 is an ‘other duty or charge’ within the meaning of Article II:1(b) of the GATT 1994.”(220)

(iii) Foreign exchange fees

151.     In Dominican Republic — Import and Sale of Cigarettes, Honduras also challenged a 10 per cent foreign exchange fee on all imports. The Panel found that “[t]he foreign exchange fee is imposed on imported products only and it is not an ordinary customs duty. It is computed on the value of imports, not on the cost of the services rendered by the customs authorities. Consequently, it is not a fee or charge that falls under Article VIII of the GATT. It is obviously not an antidumping or countervailing duty. Therefore, it is a border measure in the nature of an ODC within the meaning of Article II:1(b).”(221)

(iv) Recording of “other duties and charges” pursuant to the Understanding on Article II.1(b)

152.     In Dominican Republic — Import and Sale of Cigarettes, the Panel found that the Dominican Republic did record ODCs for its Schedule in 1994, pursuant to paragraph 7 of the Understanding on Article II:1(b), that there was no objection within the specified period of time, and therefore the notification was deemed as approved. However, the Panel determined that the transitional surcharge referred to in paragraph 150 above was not in effect as of 1994, and the Dominican Republic’s notification pertained to a different measure which was not in fact an ODC.(222) The Dominican Republic then contended that even if the recording was not properly made, it was not challengeable after expiry of the three-year period specified in paragraphs 4 and 5 of the Understanding. The Panel held that the Understanding would permit a challenge on the basis that the recorded ODC did not exist as of 15 April 1994, and therefore the recording was not legally valid; also, a challenge on the basis that the nature of the recorded measure is not an ODC within the meaning of Article II:1(b). The Panel noted the statement in paragraph 1 of the Understanding that “recording does not change the legal character of ‘other duties or charges’”, and found:

“[T]he recording of the nature of the measure is a necessary part of the recorded content and it also constitutes an element that is bound in the Schedule. Therefore, in case what was recorded is not in the nature or legal character of an ODC, the recording cannot be invoked to justify a current ODC measure due to the difference in nature of the two measures.”(223)

 

“Reading Article II:1(b) together with paragraphs 1, 2, 7 and 4 of the Understanding as context, the Panel considers that the obligation under Article II:1(b), second sentence is for Members to record in their Schedules, within six months of the date of deposit of the instrument, all ODCs as applied on 15 April 1994 unless those levels breach previous bound levels of ODCs. In case any Member did not record the ODCs in the Schedule within six months of the date of deposit of the said instrument, the right to record it in the Schedule and to invoke it expired after six months… .

 

There is no legally valid recording of ‘other duties or charges’ as required by the Understanding in the Schedule of Concessions of the Dominican Republic. For all legal and practical purposes, what was notified by the Dominican Republic in document G/SP/3 is equivalent to ‘zero’ in the Schedule. The Panel finds that the surcharge as an ‘other duty or charge’ measure is applied in excess of the level ‘zero’ pursuant to the Schedule. Therefore, the surcharge measure is inconsistent with Article II:1(b) of the GATT 1994.”(224)

(f) “date of this Agreement” (Article II:1(b), II:1(c), II:6(a))

153.     The “date of this Agreement” was originally established as 30 October 1947 by Article XXVI:1, and that date applied to the concessions made in the round of tariff negotiations held in 1947. The various tariff protocols to the GATT 1947 provided that “In each case in which paragraph 1(b) and (c) of Article II of the General Agreement refers to the date of that Agreement, the applicable date in respect of each product which is the subject of a concession provided for in a schedule of tariff concessions annexed to this Protocol shall be the date of this Protocol, but without prejudice to any obligations in effect on that date.” Thus, in the GATT 1947, each concession would have its own “date of this Agreement” for the purpose of the binding on “other duties and charges” under Article II:1(b) or the adjustment of specific duties under Article II:6, and a series of concessions by the same contracting party on the same product could have a series of different and coexisting such “dates of this Agreement.”

154.     Paragraph 5(a) of the Marrakesh Protocol provides that without prejudice to Article 4.2 of the Agreement on Agriculture, “for the purpose of the reference in paragraphs 1(b) and 1(c) of GATT 1994 to the date of this Agreement, the applicable date in respect of each product which is the subject of a concession provided for in a schedule of concessions annexed to this Protocol shall be the date of this Protocol.” The date of the Marrakesh Protocol was 15 April 1994.

155.     The Understanding on Article II:1(b) provides that:

“1.  … the nature and level of any ‘other duties or charges’ shall be recorded in the Schedules of concessions annexed to GATT 1994 against the tariff item to which they apply… .

 

2. The date as of which ‘other duties or charges’ are bound, for the purposes of Article II, shall be 15 April 1994. ‘Other duties or charges’ shall therefore be recorded in the Schedules at the levels applying on this date. At each subsequent renegotiation of a concession or negotiation of a new concession the applicable date for the tariff item in question shall become the date of the incorporation of the new concession in the appropriate Schedule. However, the date of the instrument by which a concession on any particular tariff item was first incorporated into GATT 1947 or GATT 1994 shall also continue to be recorded in column 6 of the Loose-Leaf Schedules.

8. The decision in paragraph 2 regarding the date applicable to each concession for the purposes of paragraph 1(b) of Article II of GATT 1994 supersedes the decision regarding the applicable date taken on 26 March 1980 (BISD 27S/24).”

156.     Regarding recording of ODCs under the Understanding, see above at paragraph 152.

157.     The standard provisions in WTO accession protocols provide that “For the purpose of the reference in paragraph 6(a) of Article II of the GATT 1994 to the date of that Agreement, the applicable date in respect of the Schedules of Concessions and Commitments annexed to this Protocol shall be the date of entry into force of this Protocol.”(225) GATT accession protocols also included a standard reference to an applicable date in respect of Article II:1(b) and (c), but WTO accession protocols do not.

(g) Relationship between paragraphs 1(b) and 2(a)

158.     In India — Additional Import Duties the Appellate Body considered whether certain border charges were inconsistent with Article II:1(b) or whether they correlated with internal taxes and were sheltered by Article II:2(a). The Appellate Body observed that “Article II:2(a), subject to the conditions stated therein, exempts a charge from the coverage of Article II:1(b). The participants agree that, if a charge satisfies the conditions of Article II:2(a), it would not result in a violation of Article II:1(b).”(226)

4. Article II:2

(a) Article II:2(a): “a charge equivalent to an internal tax imposed consistently with paragraph 2 of Article III”

159.     As the Appellate Body observed in India — Additional Import Duties, “charges that are justified under Article II:2(a) are not in breach of Article II:1(b).”(227) Examining the text of Article II:2(a), the Appellate Body found:

“In our view, these two concepts — ’equivalence’ and ‘consistency with Article III:2’ — cannot be interpreted in isolation from each other; they impart meaning to each other and need to be interpreted harmoniously… . Determining whether a charge is imposed consistently with Article III:2 necessarily involves a comparison of a border charge with an internal tax in order to determine whether one is ‘in excess of’ the other… .”(228)

 

“ … as we see it, the reference in Article II:2(a) to consistency with Article III:2 suggests that the concept of equivalence includes elements of ‘effect’ and ‘amount’ that necessarily imply a quantitative comparison.”(229)

 

“We therefore consider that whether a charge is imposed ‘in excess of’ a corresponding internal tax is an integral part of the analysis in determining whether the charge is justified under Article II:2(a). Contrary to what the Panel suggests, a complaining party is not required to file an independent claim of violation of Article III:2 if it wishes to challenge the consistency of a border charge with Article III:2.”(230)

160.     Regarding the burden of proof under Article II:2(a), the Appellate Body found in India — Additional Import Duties:

“Not every challenge under Article II:1(b) will require a showing with respect to Article II:2(a). In the circumstances of this dispute, however, where the potential for application of Article II:2(a) is clear from the face of the challenged measures, and in the light of our conclusions above concerning the need to read Articles II:1(b) and II:2(a) together as closely inter-related provisions, we consider that, in order to establish a prima facie case of a violation of Article II:1(b), the United States was also required to present arguments and evidence that the Additional Duty and the Extra-Additional Duty are not justified under Article II:2(a).(231)

 

… We do not consider that a complaining party alleging a violation of Article II:1(b) must also disprove in all cases that the challenged charge is justified under Article II:2, much less some other hypothetical category of charges. We do consider, however, that if, due to the characteristics of the measures at issue or the arguments presented by the responding party, there is a reasonable basis to understand that the challenged measure may not result in a violation of Article II:1(b) because it satisfies the requirements of Article II:2(a), then the complaining party bears some burden in establishing that the conditions of Article II:2(a) are not met.”(232)

(b) Article II:2(b)

161.     In US — Zeroing (Japan — Article 21.5 — Japan), the Appellate Body upheld the Panel’s approach to Article II:2(b) as “providing a ‘safe harbour’ to Article II:1 to the extent that the anti-dumping duties are applied consistently with Article VI of the GATT 1994 and the Anti-Dumping Agreement”, and upheld the Panel’s findings that certain US Department of Commerce liquidation instructions and US Customs liquidation notices violated Article II:1(a) and (b).(233) The Panel had found:

“[T]he safe harbour provided for in Article II:2(b) does not apply to the liquidation actions at issue in this proceeding, since those actions were taken pursuant to administrative reviews, and importer-specific assessment rates determined therein, that had been found to be WTO-inconsistent in the original proceeding… . Since the underlying basis of the liquidation actions challenged by Japan was WTO-inconsistent, we conclude that antidumping duties collected pursuant to those liquidation actions were not ‘applied consistently with the provisions of Article VI’ of the GATT 1994, as implemented by the AD Agreement.”(234)

5. Article II:5

162.     In EC — Computer Equipment, the Panel held that Article II:5 confirms that legitimate expectations are a vital element in the interpretation of Article II:1 and of Members’ Schedules. The Appellate Body reversed this finding:

“It is clear from the wording of Article II:5 that it does not support the Panel’s view. This paragraph recognizes the possibility that the treatment contemplated in a concession, provided for in a Member’s Schedule, on a particular product, may differ from the treatment accorded to that product and provides for a compensatory mechanism to rebalance the concessions between the two Members concerned in such a situation. However, nothing in Article II:5 suggests that the expectations of only the exporting Member can be the basis for interpreting a concession in a Member’s Schedule for the purposes of determining whether that Member has acted consistently with its obligations under Article II:1. In discussing Article II:5, the Panel overlooked the second sentence of that provision, which clarifies that the ‘contemplated treatment’ referred to in that provision is the treatment contemplated by both Members.”(235)

6. Article II:7

163.     In EC — Computer Equipment, the Appellate Body considered that “[a] Schedule is made an integral part of the GATT 1994 by Article II:7 of the GATT 1994”. The Appellate Body thus concluded that “the concessions provided for in that Schedule are part of the terms of the treaty”.(236) See the discussion above of interpretation of Schedules.

7. Relationship with other GATT provisions

(a) General

164.     In EC — Bananas III, the Appellate Body, discussing whether tariff concessions for agricultural products can deviate from Article XIII of GATT 1994, emphasized that in their Schedules, Members may yield their rights, but may not diminish their obligations under GATT 1994. See paragraph 138 above.

(b) Article III

165.     In EC — Bananas III, the Appellate Body rejected the argument that Article III:4 did not cover the EC licensing system for the allocation of tariff quotas for imports of bananas because it was a border measure. See paragraphs 210 and 397 below.

166.     In Korea — Various Measures on Beef, after finding that the practice of the Korean state trading agency for beef’s practice of treating grass-fed beef and grain-fed beef differently was inconsistent with GATT Articles XI and II:1(a), the Panel, in a finding not reviewed by the Appellate Body, did not “find it necessary to address Australia’s claims that the same measures also violate Articles III:4 and XVII of GATT.”(237)

167.     In China — Auto Parts, the Appellate Body upheld the Panel’s finding that the charge in question was an internal charge under Article III:2, not an ordinary customs duty under Article II:1(b). The Appellate Body remarked:

“[I]n examining the scope of application of Article III:2, in relation to Article II:1(b), first sentence, the time at which a charge is collected or paid is not decisive. In the case of Article III:2, this is explicitly stated in the GATT 1994 itself, where the Ad Note to Article III specifies that when an internal charge is ‘collected or enforced in the case of the imported product at the time or point of importation’, such a charge ‘is nevertheless to be regarded’ as an internal charge. What is important, however, is that the obligation to pay a charge must accrue due to an internal event, such as the distribution, sale, use or transportation of the imported product.”

(c) Article XIII

168.     Following the finding referenced in paragraph 164 above, the Appellate Body in EC — Bananas III addressed whether the Agreement on Agriculture shelters market access concessions on agricultural products that are inconsistent with GATT Article XIII (such as discriminatory tariff rate quotas resulting from tariffication of discriminatory import quotas). The Appellate Body addressed the relationship between the Agreement on Agriculture and GATT 1994 and found that Article XIII of GATT 1994 was applicable to such concessions:

“The question remains whether the provisions of the Agreement on Agriculture allow market access concessions on agricultural products to deviate from Article XIII of the GATT 1994. The preamble of the Agreement on Agriculture states that it establishes ‘a basis for initiating a process of reform of trade in agriculture’ and that this reform process ‘should be initiated through the negotiation of commitments on support and protection and through the establishment of strengthened and more operationally effective GATT rules and disciplines’. The relationship between the provisions of the GATT 1994 and of the Agreement on Agriculture is set out in Article 21.1 of the Agreement on Agriculture:

 

‘The provisions of GATT 1994 and of other Multilateral Trade Agreements in Annex 1A to the WTO Agreement shall apply subject to the provisions of this Agreement.’

 

Therefore, the provisions of the GATT 1994, including Article XIII, apply to market access commitments concerning agricultural products, except to the extent that the Agreement on Agriculture contains specific provisions dealing specifically with the same matter.”(238)

169.     In EC — Bananas III, the Panel also found that the European Communities’ import regime for bananas was inconsistent with Article XIII of GATT 1994 in that the European Communities allocated tariff quota shares to some Members without allocating such shares to other Members. In doing so, with respect to the relationship between Articles II and XIII, the Panel stated as follows:

“The panel in the Sugar Headnote case found that qualifications on tariff bindings do not override other GATT provisions after an analysis of the wording of Article II, its object, purpose and context, and the drafting history of the provision. Although it made no mention of the Vienna Convention, it seems to have followed closely Articles 31 and 32 thereof… . (239)

We agree with the analysis of the Sugar Headnote panel report and note that Article II was not changed in any relevant way as a result of the Uruguay Round. Thus, based on the Sugar Headnote case, we conclude that the EC’s inclusion of allocations inconsistent with the requirements of Article XIII in its Schedule does not prevent them from being challenged by other Members. We note in this regard that the Uruguay Round tariff schedules were prepared with full knowledge of the Sugar Headnote panel report, which was adopted by the GATT CONTRACTING PARTIES in the middle of the Round (June 1989).”(240)

(d) Article XVII

170.     In Korea — Various Measures on Beef, after finding that the practice of the Korean state trading agency for beef of treating grass-fed beef and grain-fed beef differently was inconsistent with GATT Articles XI and II:1(a), the Panel, in a finding not reviewed by the Appellate Body, did not “find it necessary to address Australia’s claims that the same measures also violate Article XVII of GATT(241).

8. Exceptions and derogations from Article II

(a) Waivers

171.     To accommodate Members’ obligation to implement updated HS nomenclature by the date required under the Harmonized System Convention, the WTO has granted waivers of Article II. See the discussion of these waivers below under Schedules, and in the Chapter on the WTO Agreement.

(b) Price-based measures taken for balance of payments purposes

172.     Paragraph 2 of the Understanding on the Balance-of-Payments Provisions of the GATT 1994 provides an exception from Article II:1(b) for “price-based measures taken for balance-of-payments purposes”:

“Members confirm their commitment to give preference to those measures which have the least disruptive effect on trade. Such measures (referred to in this Understanding as ‘price-based measures’) shall be understood to include import surcharges, import deposit measures or other equivalent trade measures with an impact on the price of imported goods. It is understood that, notwithstanding the provisions of Article II, price-based measures taken for balance-of-payments purposes may be applied by a Member in excess of the duties inscribed in the Schedule of that Member… .”

9. Relationship with other WTO agreements

(a) Agreement on Agriculture

173.     As a result of the Uruguay Round modalities for agricultural negotiations(242), each Member’s Schedule binds all of its tariffs on agricultural products.

174.     The Appellate Body in Chile — Price Band System, in examining the concept of ordinary customs duties under Article 4.2 of the Agreement on Agriculture, referred to GATT Article II:1(b). See the Chapter on the Agreement on Agriculture under Article 4.2. The Appellate Body also indicated that if it were to find that Chile’s price band system was inconsistent with Article 4.2 of the Agreement on Agriculture, it would not need to make a separate finding on whether Chile’s price band system also results in a violation of Article II:1(b) to resolve this dispute.(243)

(b) Licensing Agreement

175.     In Canada — Dairy, the Panel decided not to examine a claim that Canada violated Article 3 of the Licensing Agreement in that it restricted access to tariff-rate quotas for imports of fluid milk to Canadians of consumer packaged milk for personal use, valued less than Can$20, after having found the Canadian measure inconsistent with GATT Article II:1(b) (see paragraph 140 above).(244) See the Chapter on the Licensing Agreement.


E. Schedules of Concessions

1. Schedules to GATT 1994

176.     Each WTO Member has a Schedule(245) of tariff concessions which is either annexed to the Marrakesh Protocol to the GATT 1994 or to a Protocol of Accession. Some Members also have Schedules predating the Uruguay Round, which reflect concessions granted previously and remain in force.(246) Under the GATT 1947, the tariff concessions of each contracting party were reflected in successive schedules attached to tariff protocols at the end of each negotiating round. As a result, one tariff line can be subject to multiple successive tariff concessions.

177.     Applying the Uruguay Round modalities on agricultural trade negotiations, all original Members of the WTO and Members that have acceded to the WTO have bound all of their tariffs on agricultural products. Part III of each Member’s Schedule may include concessions on non-tariff measures, and Part IV of each Member’s Schedule provides concessions and commitments in respect of domestic support and export subsidies for agricultural products.

178.     Schedules may change over time, as a result of implementation of the Harmonized System (HS) or changes to the HS; as a result of other renegotiation of concessions under Article XXVIII; or as a result of rectification or modification.

179.     The GATT 1947 Council adopted procedures for rectification and modification of Schedules on 26 March 1980.(247) According to a Secretariat Note on the Status of Schedules, “Modifications made pursuant to [the 1980] procedures have included, inter alia: (i) modifications of a technical nature that do not affect the scope of the concessions; (ii) concessions made in the context of the Ministerial Declaration on Trade in Information Technology Products (ITA); (iii) revisions and additions to the product coverage of the Pharmaceutical Understanding (Pharma); (iv) bilateral sectoral negotiations (e.g. distilled spirits); (v) modifications pursuant to Annex 5 of the Agreement on Agriculture; and (vi) autonomous improvements in concessions.”(248)

180.     As mandated by the Committee on Market Access, the Secretariat provides periodic updates on the Situation of Schedules of WTO Members, providing information for each Member regarding the situation of its pre-Uruguay Round Schedule, if any; whether the Member’s Schedule is annexed to the Marrakesh Protocol or to a Protocol of Accession; transposition of schedules into the Harmonized System and its subsequent amendments; rectifications or modifications; and renegotiations initiated under GATT Article XXVIII. These have been circulated as documents and as an interactive webpage on the WTO website.(249)

2. Consolidated Loose-Leaf Schedules and Market Access Databases

(a) Consolidated Loose-Leaf Schedules and Consolidated Tariff Schedule (CTS) Data Base

181.     At its meeting on 22 November 1995, the Committee on Market Access agreed in principle to a process leading to establishment of legally-binding consolidated loose-leaf schedules replacing prior schedules. (250) On 29 November 1996, the Council for Trade in Goods then adopted a Decision on the Establishment of Consolidated Loose-Leaf Schedules on Goods, concerning the status of the new loose-leaf schedules, the information to be included, and the process for establishing them as legally binding instruments:

“The consolidated loose-leaf schedules on goods as described in the Annex to this Decision shall be binding instruments, replacing all previous schedules for all purposes relating to a Member’s rights and obligations under the WTO, except with respect to historical Initial Negotiating Rights (INRs). The schedules therefore shall contain all necessary information in order to reflect the exact situation in respect of each tariff concession and commitment.

With respect to modifications and rectifications of loose-leaf schedules, the Procedures for Modification and Rectification of Schedules of Tariff Concessions shall apply. A request for the correction of minor clerical errors that have occurred in the transposition of existing schedules into loose-leaf schedules through these Procedures may be submitted at any time.”(251)

182.     In 1998, the Committee approved a project to establish a Consolidated Tariff Schedules (CTS) Database. The CTS Database responded to the situation that for many Members, information on tariff concessions was not consolidated in one list. Some of this information was available in electronic format, but for the most part, not in a standardized database format. In the CTS Database project, the Secretariat prepares draft files of consolidated tariff concessions for developing countries; developed countries prepare their submissions for the CTS Database using the electronic format developed by the Secretariat. The objective was a database containing the consolidated draft tariff schedules, including all elements described in the Decision on the Establishment of Loose-leaf Schedules on Goods. The database would be established as a working tool only, without implications as to the legal status of the information therein.(252)

183.     The procedures adopted by the General Council in 2005 to introduce HS2002 changes to Schedules, and in 2006 to introduce HS2007 changes to Schedules, both use the CTS database.(253)

184.     At its meeting on 28 July 2000, the Committee on Market Access adopted a format for inclusion of agricultural commitments into the CTS database on the understanding that the database has no legal basis and that the data contained therein would be available to all delegations at the same time.(254) On 11 October 2010, the Committee adopted a revised version of the formats to be used in the CTS database for all Members’ tariff commitments, as well as specific commitments in agriculture, pursuant to introduction of the HS 2002 changes in Members’ Schedules.(255)

(b) Integrated Data Base (IDB) Project

185.     The Integrated Data Base (IDB) was established pursuant to a decision by the GATT 1947 Council on 10 November 1987, as a database of imports, tariffs and quantitative restrictions, at the tariff line level.(256) At its meeting on 24 June 1997, the Committee on Market Access agreed to have the IDB restructured from a mainframe system to a personal computer (PC)-based product(257), and on 16 July 1997, the General Council adopted the Decision on the Supply of Information to the Integrated Data Base for Personal Computers, mandating that Members supply this information annually.(258) On 2 December 1997, the Committee on Market Access adopted decisions concerning the deadlines for IDB submissions, and access to the IDB.(259) In 2002, the Secretariat began work on linking the applied tariff data in the IDB to the bound tariff data in the CTS data; a document approved by the Committee on 19 March 2004 discusses the technical and procedural issues.(260)

186.     The Committee on Market Access has periodically issued updates on the status of submissions to the IDB,(261) and has discussed ways to facilitate compliance with IDB notification requirements.(262)

(c) Dissemination and access to CTS Database, IDB and other tariff data

187.     On 12 June 2002, the Committee on Market Access adopted a dissemination policy, granting full access to the CTS Database and the IDB for Members, acceding countries or territories that have provided IDB submissions, the Secretariat, and certain intergovernmental organizations.(263) On 13 July 2009, the dissemination of IDB at G/MA/IDB/3. Committee adopted a new dissemination policy according Internet access to unrestricted data from the IDB and CTS database freely to the public, through a user-defined identification and password system.(264)

188.     Since July 2009, the WTO website has provided a Tariff Download Facility at http://tariffdata.wto.org, which allows for downloads of unrestricted approved data from the CTS and the IDB into spreadsheet formats for further use with other PC software. Data for several Members and for several years can be downloaded in one operation. The Tariff Download Facility contains comprehensive information on MFN applied and bound tariffs at the HS subheading (six-digit) level, for all WTO Members. It also provides data on non-MFN applied tariff regimes which a country grants to its export partners when such data are available. This information is sourced from submissions made to the IDB for applied tariffs and imports, and from the CTS Database for the bound duties of all WTO Members.

189.     In addition, the WTO’s Tariff Analysis Online facility at http://tariffanalysis.wto.org provides registered users with the ability to access the IDB and CTS databases online, select markets and products, compile reports and download data.

3. Implementation in WTO Schedules of HS changes

190.     The Convention on the Harmonized Commodity Description and Coding System requires its parties to ensure that customs tariffs and statistical nomenclature are in conformity with the Harmonized System (HS) nomenclature, which is binding on parties to the Convention down to the sub-heading (six-digit) level. According to a Secretariat Note of May 2011 on the status of Schedules, as of that date 91 WTO Members (counting the EC-27 as one) were contracting parties to the HS Convention, and almost all other WTO Members applied the HS nomenclature.(265)

191.     Following the 1 January 1988 entry into force of the HS Convention, GATT contracting parties that were also party to the HS Convention were required by the Convention to transpose their Schedules into the HS nomenclature. The GATT Committee on Tariff Concessions developed procedures for this purpose.(266) A number of schedules were transposed, certified and annexed to Protocols.(267) Some Members undertook to renegotiate their schedules in connection with the implementation of the HS.

192.     The Harmonized System Committee of the World Customs Organization (WCO) undertakes a periodic review of the HS nomenclature to take account of changes in technology and patterns in international trade, and recommends amendments to it. The first set of such modifications came into force on 1 January 1992 (HS92). A second, more substantial, set of amendments came into force on 1 January 1996 (HS96), a third one on 1 January 2002 (HS2002), a fourth one on 1 January 2007 (HS2007), a fifth set of amendments will come into force on 1 January 2012 (HS2012), and a sixth set is envisaged for 2017.(268) A May 2011 Secretariat Note on status of Schedules set out the status of implementation in Schedules of the various amendments to the HS nomenclature:

First Amendment to the HS (HS92): With a view to keeping the authentic texts of GATT schedules up to date and in conformity with the national customs tariff, the Committee on Tariff Concessions adopted in 1991 simplified procedures to implement the HS92 and any future changes relating to the HS.(269) Eleven GATT contracting parties followed these procedures and submitted the required documentation, with only one of them still pending.

 

Second Amendment to the HS (HS96): Members made use of the 1991 procedures for introducing modifications to the schedules resulting from the introduction of HS96. A total of 49 Members submitted the required HS96 documentation, out of which: 29 were full loose-leaf schedules, 19 reflected only the HS96 changes and one included information on a preliminary basis. The General Council adopted, subject to certain conditions, a “collective waiver” suspending the application of Article II of the GATT for 33 Members.(270) This initial waiver was renewed on ten occasions and covered a varying number of Members.(271) The General Council noted at its last renewal that, although it would be the last time that an extension of the HS96 waiver would be granted collectively, Members were not precluded from requesting the suspension of GATT Article II on an individual basis.(272) Since then, the General Council has adopted 48 individual waiver requests from 13 Members.(273)

 

Noting that 64 developing Members had not followed the 1991 procedures to introduce the modifications resulting from the introduction of HS96, the General Council adopted in 2010 a new set of procedures.(274) This Decision instructed the Secretariat to conduct the technical work for the transposition of the Schedules, using the Consolidated Tariff Schedule database (CTS) as a working tool. The files were subject to multilateral review in dedicated sessions of the Committee on Market Access. The procedures have almost been finalized for the 64 Members concerned, including the circulation pursuant to the 1980 procedures for rectification and modification of 62 schedules, of which 61 have been certified.

 

Third Amendment to the HS (HS2002): The General Council established on 18 July 2001 a set of new procedures for the introduction of HS2002 changes into the schedules of concessions.(275) Although HS2002 had been implemented by most WTO Members, only 35 of them submitted the documentation required by these procedures. With a view to further facilitating and simplifying the introduction of HS2002 changes in the schedules of concessions of all Members, the General Council adopted on 15 February 2005 a set of amendments to the procedures in which the Consolidated Tariff Schedule (CTS) database was to be used as a working tool. The Secretariat was instructed to transpose the schedules of all developing countries.(276) Modifications to 45 schedules have been circulated [as of May 2011] pursuant to the 1980 procedures for rectification and modification of schedules, of which 41 have been certified.

 

Although the Secretariat concluded the technical work on most of Schedules, procedures remained outstanding for a high number of files in spite of the absence of comments by other Members and due to the lack of approval or comments by the Member concerned. With a view to redressing this situation, the General Council adopted on 14 December 2010 a new decision amending the procedures.(277) As a result, [as of May 2011] modifications to 54 schedules have now been circulated pursuant to the 1980 procedures for rectification and modification of schedules.

 

The General Council has adopted ten “collective waivers” and one individual waiver suspending the application of Article II of the GATT(278) on an annual basis until 31 December 2011. The latest applies to 17 Members (counting the EU-27 as one).(279) The General Council established, in addition, a set of procedures that would need to be followed by any other Member wishing to be covered by the waiver.(280)

 

Fourth Amendment to the HS (HS2007): The General Council adopted on 15 December 2006 procedures for the introduction of HS2007 changes into schedules of concessions.(281) … .

 

The General Council has also adopted five “collective waivers” suspending the application of Article II of the GATT on an annual basis until 31 December 2011.(282) The waivers also provide that any other Member could be included therein upon request. Five Members have made use of this provision.(283) There are [as of May 2011] 27 Members (counting the EU-27 as one) covered by the fifth HS2007 collective waiver.(284)


F. Tariff Initiatives in the WTO

1. Ministerial Declaration on Trade in Information Technology Products

193.     In December 1996, the Singapore Ministerial Conference adopted the Ministerial Declaration on Trade in Information Technology Products (“Information Technology Agreement”, or ITA).(285) The Declaration, initially agreed by 29 Members (including the 15 EC member States) and States or separate customs territories in the process of WTO accession, called on its participants to:

“[B]ind and eliminate customs duties and other duties and charges of any kind, within the meaning of Article II:1(b) of the General Agreement on Tariffs and Trade 1994, with respect to the following:

 

‘(a)     all products classified (or classifiable) with Harmonized System (1996) (‘HS’) headings listed in Attachment A to the Annex to this Declaration; and

 

(b)     all products specified in Attachment B to the Annex to this Declaration, whether or not they are included in Attachment A;’

 

through equal rate reductions of customs duties beginning in 1997 and concluding in 2000, recognizing that extended staging of reductions and, before implementation, expansion of product coverage may be necessary in limited circumstances.”(286)

194.     The Annex to the Ministerial Declaration sets out modalities and product coverage for this initiative. Paragraph 1 of the Annex states that “each participant shall incorporate the measures described in paragraph 2 of the [ITA] into its schedule to the General Agreement on Tariffs and Trade 1994, and, in addition, at either its own tariff line level or the Harmonized System (1996) (‘HS’) 6-digit level in either its official tariff or any other published versions of the tariff schedule, whichever is ordinarily used by importers and exporters.” The Annex also recorded agreement to implement these tariff reductions only if participants representing a threshold amount (90 per cent) of world trade in information technology products have agreed to participate. It listed HS headings to be covered (Attachment A), and products to be covered by tariff elimination wherever they are classified in the HS (Attachment B).

195.     The 90 per cent target was met in early 1997, and the first staged reduction in tariffs took place on 1 July 1997. As described in the Panel Report on EC — IT Products, “in accordance with paragraph 2 of the ITA Annex and the Decision of 26 March 1980 on Procedures for Modification and Rectification of Schedules of Tariff Concessions (the ‘1980 Procedures’), each ITA participant submitted a proposed modification to its own Schedule for review by all WTO Members. Each participant’s schedule was certified following a three-month review period for that particular schedule.”(287)

196.     As of 12 May 2011, the ITA had 46 participants (covering 73 Members and States or separate customs territories in the process of acceding to the WTO) representing approximately 97 per cent of world trade in information technology products.(288)

197.     On 26 March 1997, the Participants established the Committee of Participants on the Expansion of Trade in Information Technology Products in order to monitor the provisions of paragraphs 3, 5, 6 and 7 of the Annex to the Declaration.(289) At its meeting of 30 October 1997, the Committee of Participants adopted rules of procedure which are similar to those of other WTO bodies.(290)

198.     At its meeting of 26 October 2000, the Committee of Participants agreed, on an ad referendum basis, to a Non-Tariff Measures Work Programme, subject to further consultations with capitals by 10 November 2000. Since no comments were received by this date, the Work Programme was deemed approved and issued as a formal document.(291)

199.     The Panel Report in EC — IT Products, which interprets the ITA at length, sums up its interpretation of the product coverage of Attachment B to the Annex as follows:

“Taking into account our analysis of the provisions in the ITA so far, and looking at them in a holistic manner, the Panel is of the view that the drafters of the ITA considered that the traditional approach of listing HS codes was inadequate to address the full scope of the product coverage that was intended by participants to the ITA, in particular given the then prevailing divergences in the classification of products in and for Attachment B. Consequently, ITA participants agreed to implement their commitments though a ‘dual’ approach that included binding and eliminating duties for both: (i) products classified or classifiable in HS codes listed in Attachment A, and (ii) products specified in Attachment B. While the approach under Attachment A is straightforward and ‘traditional’ in WTO terms, ITA participants were directed under Attachment B to eliminate duties on all products ‘specified’ in that Attachment. This approach was taken because ITA participants could not agree on precise headings for the products identified through the narrative descriptions in Attachment B. Since the narrative descriptions must determine the scope of coverage of those products, duty-free treatment must be extended to products specified in Attachment B ‘wherever they are classified’. Otherwise, ITA participants would have ended up with diverging product coverage, which runs contrary to the intent to provide duty-free coverage for specified ‘products’ in Attachment B, and not headings of tariff lines under which products are classified. We explained that, if the ‘exhaustion’ interpretation were correct, the potentially significant differentiation in the scope of commitments undertaken by ITA participants would be a significant feature of ITA-related concessions. An intention to create such a differentiated approach to commitments should be clearly evident from the language in the ITA. However, it is not. We also do not see a basis to conclude that a unique or elevated burden of proof would be required to demonstrate that a product fell within the scope of a particular concession that is defined by the narrative description.”(292)

2. Other sectoral initiatives

200.     A Secretariat Note of 24 January 2005, “Sector Specific Discussions and Negotiations on Goods in the GATT and WTO”, provides information on sectoral negotiations since the Kennedy Round of 1964–67, summarizes the main elements identified in some sectoral negotiations, and lists the product coverage of plurilateral sectoral initiatives concluded during the Uruguay Round.(293) A Secretariat Technical Note on Accessions shows participation by new Members in sectoral initiatives.(294)

 

PART II

 

V. Article III     back to top

A. Text of Article III

Article III*: National Treatment on Internal Taxation and Regulation

1.     The contracting parties 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.*

 

2.     The products of the territory of any contracting party imported into the territory of any other contracting party 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 contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1.*

 

3.     With respect to any existing internal tax which is inconsistent with the provisions of paragraph 2, but which is specifically authorized under a trade agreement, in force on April 10, 1947, in which the import duty on the taxed product is bound against increase, the contracting party imposing the tax shall be free to postpone the application of the provisions of paragraph 2 to such tax until such time as it can obtain release from the obligations of such trade agreement in order to permit the increase of such duty to the extent necessary to compensate for the elimination of the protective element of the tax.

 

4.     The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations 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.

 

5.     No contracting party shall establish or maintain any internal quantitative regulation relating to the mixture, processing or use of products in specified amounts or proportions which requires, directly or indirectly, that any specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources. Moreover, no contracting party shall otherwise apply internal quantitative regulations in a manner contrary to the principles set forth in paragraph 1.*

 

6.     The provisions of paragraph 5 shall not apply to any internal quantitative regulation in force in the territory of any contracting party on July 1, 1939, April 10, 1947, or March 24, 1948, at the option of that contracting party; Provided that any such regulation which is contrary to the provisions of paragraph 5 shall not be modified to the detriment of imports and shall be treated as a customs duty for the purpose of negotiation.

 

7.     No internal quantitative regulation relating to the mixture, processing or use of products in specified amounts or proportions shall be applied in such a manner as to allocate any such amount or proportion among external sources of supply.

 

8.     (a)     The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale.

 

(b)     The provisions of this Article shall not prevent the payment of subsidies exclusively to domestic producers, including payments to domestic producers derived from the proceeds of internal taxes or charges applied consistently with the provisions of this Article and subsidies effected through governmental purchases of domestic products.

 

9.     The contracting parties 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 contracting parties supplying imported products. Accordingly, contracting parties applying such measures shall take account of the interests of exporting contracting parties with a view to avoiding to the fullest practicable extent such prejudicial effects.

 

10.     The provisions of this Article shall not prevent any contracting party from establishing or maintaining internal quantitative regulations relating to exposed cinematograph films and meeting the requirements of Article IV.


B. Text of Note Ad Article III

Ad Article III

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.

Paragraph 1

     The application of paragraph 1 to internal taxes imposed by local governments and authorities within the territory of a contracting party is subject to the provisions of the final paragraph of Article XXIV. The term “reasonable measures” in the last-mentioned paragraph would not require, for example, the repeal of existing national legislation authorizing local governments to impose internal taxes which, although technically inconsistent with the letter of Article III, are not in fact inconsistent with its spirit, if such repeal would result in a serious financial hardship for the local governments or authorities concerned. With regard to taxation by local governments or authorities which is inconsistent with both the letter and spirit of Article III, the term “reasonable measures” would permit a contracting party to eliminate the inconsistent taxation gradually over a transition period, if abrupt action would create serious administrative and financial difficulties.

Paragraph 2

     A tax conforming to the requirements of the first sentence of paragraph 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.

Paragraph 5

     Regulations consistent with the provisions of the first sentence of paragraph 5 shall not be considered to be contrary to the provisions of the second sentence in any case in which all of the products subject to the regulations are produced domestically in substantial quantities. A regulation cannot be justified as being consistent with the provisions of the second sentence on the ground that the proportion or amount allocated to each of the products which are the subject of the regulation constitutes an equitable relationship between imported and domestic products.


C. Interpretation and Application of Article III

1. General

(a) Purpose of Article III

(i) Avoidance of protectionism in the application of internal measures

201.     In examining the consistency of the Japanese taxation on liquor products with Article III, the Appellate Body in Japan — Alcoholic Beverages II explained the purpose of Article III in the following terms:

“The broad and fundamental purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures. More specifically, the purpose of Article III ‘is to ensure that internal measures “not be applied to imported or domestic products so as to afford protection to domestic production”’.(295) Toward this end, Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products.(296) ‘[T]he intention of the drafters of the Agreement was clearly to treat the imported products in the same way as the like domestic products once they had been cleared through customs. Otherwise indirect protection could be given’.(297)”(298)

202.     The Appellate Body repeatedly cited its finding referenced in paragraph 201 above.(299) Further, in Korea — Alcoholic Beverages, the Appellate Body added:

“In view of the objectives of avoiding protectionism, requiring equality of competitive conditions and protecting expectations of equal competitive relationships, we decline to take a static view of the term ‘directly competitive or substitutable’.”(300)

203.     Also, in Canada — Periodicals, the Appellate Body added:

“The fundamental purpose of Article III of the GATT 1994 is to ensure equality of competitive conditions between imported and like domestic products.(301)”(302)

204.     In Argentina — Hides and Leather, the Panel referred to the findings of the Appellate Body referenced in paragraphs 201203 above, and stated that “Article III:2, first sentence, is not concerned with taxes or changes as such or the policy purposes Members pursue with them, but with their economic impact on the competitive opportunities of imported and like domestic products.”(303) See also paragraph 266 below.

(ii) Protection of tariff commitments under Article III/Relevance of tariff concessions

205.     In Japan — Alcoholic Beverages II, the Panel held that “one of the main purposes of Article III is to guarantee that WTO Members will not undermine through internal measures their commitments under Article II.”(304) Although the Appellate Body agreed about the significance of Article III with respect to tariff concessions, it emphasized that the purpose of Article III was broader:

“The broad purpose of Article III of avoiding protectionism must be remembered when considering the relationship between Article III and other provisions of the WTO Agreement. Although the protection of negotiated tariff concessions is certainly one purpose of Article III, the statement in Paragraph 6.13 of the Panel Report that ‘one of the main purposes of Article III is to guarantee that WTO Members will not undermine through internal measures their commitments under Article II’ should not be overemphasized. The sheltering scope of Article III is not limited to products that are the subject of tariff concessions under Article II. The Article III national treatment obligation is a general prohibition on the use of internal taxes and other internal regulatory measures so as to afford protection to domestic production. This obligation clearly extends also to products not bound under Article II. This is confirmed by the negotiating history of Article III.”(305)

(iii) Comparison with competition law

206.     In Korea — Alcoholic Beverages, the Panel, in a statement subsequently not addressed by the Appellate Body, considered that it is not necessary to use the same criteria for defining markets under Article III:2 as under competition law. The Panel stated:

“While the specifics of the interaction between trade and competition law are still being developed, we concur that the market definitions need not be the same. Trade law generally, and Article III in particular, focuses on the promotion of economic opportunities for importers through the elimination of discriminatory governmental measures which impair fair international trade. Thus, trade law addresses the issue of the potentiality to compete. Antitrust law generally focuses on firms’ practices or structural modifications which may prevent or restrain or eliminate competition. It is not illogical that markets be defined more broadly when implementing laws primarily designed to protect competitive opportunities than when implementing laws designed to protect the actual mechanisms of competition. In our view, it can thus be appropriate to utilize a broader concept of markets with respect to Article III:2, second sentence, than is used in antitrust law. We also take note of the developments under European Community law in this regard. For instance, under Article 95 of the Treaty of Rome, which is based on the language of Article III, distilled alcoholic beverages have been considered similar or competitive in a series of rulings by the European Court of Justice (‘ECJ’).(306) On the other hand, in examining a merger under the European Merger Regulation,(307) the Commission of the European Communities found that whisky constituted a separate market.(308) Similarly, in an Article 95 case, bananas were considered in competition with other fruits.(309) However, under EC competition law, bananas constituted a distinct product market.(310) We are mindful that the Treaty of Rome is different in scope and purpose from the General Agreement, the similarity of Article 95 and Article III, notwithstanding. Nonetheless, we observe that there is relevance in examining how the ECJ has defined markets in similar situations to assist in understanding the relationship between the analysis of nondiscrimination provisions and competition law.(311)”(312)

(iv) GATT practice

207.     Regarding GATT practice on the scope and purpose of Article III.

(b) Scope of application — measures imposed at the time or point of importation

208.     In Argentina — Hides and Leather, the Panel addressed the question whether Argentine fiscal provisions concerning pre-payment of a value added tax, applied to imported goods at the time of their importation, were nevertheless to be considered “internal measures” within the meaning of Article III:2. The Panel addressed in particular Note Ad Article III, which sets forth that a measure applied to a product at the time of importation is nevertheless an internal measure within the meaning of Article III if this measure is also imposed on the like domestic product:

“RG 3431 [the value-added tax measure applicable to imported goods] applies to definitive import transactions, but only if the products imported are subsequently re-sold in the internal Argentinean market. In other words, RG 3431 provides for the pre-payment of the IVA chargeable to an internal transaction. It should also be pointed out that the fact that RG 3431 is collected at the time and point of importation does not preclude it from qualifying as an internal tax measure.”(313)

209.     While the parties to the Argentina — Hides and Leather dispute agreed that RG 3543, another Argentine tax measure imposing a collection regime of income taxes with respect to import transactions, was an internal measure within the meaning of Article III, they disagreed with respect to the question whether the same tax regime existed for domestic goods, i.e. whether RG 2784, the income tax measure applicable with respect to domestic transactions, was the “internal analogue” of RG 3431. While RG 3543 established a collection regime and defined the purchaser as the taxable person, RG 2784 established a withholding regime and defined the seller as the taxable person. The Panel did not consider these differences significant enough for the Argentine regime to fall outside the scope of Note Ad Article III:

“[I]t is clear that the fact that RG 3543 creates a collection regime and not a withholding regime does not establish, in itself, that RG 2784 is not equivalent to RG 3543. The use of a different method of taxation may be justified by objective reasons. In this regard, it seems logical to us to collect pre-payments of an income tax from the sellers of a product, as indeed RG 2784 envisages. As we understand it, RG 3543 does not do so, inter alia, because foreign sellers are not normally subject to income taxation in Argentina. In those circumstances, Argentina apparently saw fit to adjust for the adverse competitive effect of RG 2784 on domestic products by collecting pre-payments from importers in accordance with RG 3543.

For these reasons, we find that RG 3543 establishes a mechanism for the collection of the IG at the border which is equivalent in nature to the IG withholding mechanism established by RG 2784. In accordance with the Note Ad Article III, we therefore conclude that RG 3543 is an internal measure within the meaning of Article III:2.”(314)

210.     In EC — Bananas III, the Appellate Body found the EC import licensing system for bananas inconsistent with Article III:4. The European Communities claimed that Article III:4 was not applicable to the import licensing system because it was a border measure. The Appellate Body replied as follows:

“At issue in this appeal is not whether any import licensing requirement, as such, is within the scope of Article III:4, but whether the EC procedures and requirements for the distribution of import licences for imported bananas among eligible operators within the European Communities are within the scope of this provision. The EC licensing procedures and requirements include the operator category rules, under which 30 per cent of the import licences for third-country and non-traditional ACP bananas are allocated to operators that market EC or traditional ACP bananas, and the activity function rules, under which Category A and B licences are distributed among operators on the basis of their economic activities as importers, customs clearers or ripeners. These rules go far beyond the mere import licence requirements needed to administer the tariff quota for third-country and nontraditional ACP bananas or Lome´ Convention requirements for the importation of bananas. These rules are intended, among other things, to cross-subsidize distributors of EC (and ACP) bananas and to ensure that EC banana ripeners obtain a share of the quota rents. As such, these rules affect ‘the internal sale, offering for sale, purchase, …’ within the meaning of Article III:4, and therefore fall within the scope of this provision. Therefore, we agree with the conclusion of the Panel on this point.”(315)

(ii) State trading enterprises

211.     In Korea — Various Measures on Beef, the Panel recognized that where a state trading enterprise has a monopoly over both importation and distribution of goods, a blurring may occur of the traditional distinction between measures affecting imported products and measures affecting importation:

“Based on the panel findings in the Canada — Marketing Agencies (1988) case, the Panel considers that to the extent that LPMO fully controls both the importation and distribution of its 30 per cent share of Korean beef quota, the distinction normally made in the GATT between restrictions affecting the importation of products (i.e. border measures) and restrictions affecting imported products (i.e. internal measures) loses much of its significance.”(316)

(iii) GATT practice

212.     On GATT practice under the Note Ad Article III.

(c) Relevance of policy purpose of internal measures / “aims-and-effects” test

213.     With respect to the relevance of policy purposes of subject internal measures, in Japan — Alcoholic Beverages II, the Appellate Body stated as follows:

“Members of the WTO are free to pursue their own domestic goals through internal taxation or regulation so long as they do not do so in a way that violates Article III or any of the other commitments they have made in the WTO Agreement.”(317)

214.     In this respect, in Argentina — Hides and Leather, the Panel stated that “[i]t must be stated … that the applicability of Article III:2 is not conditional upon the policy purpose of a tax measure.(318)”(319) See also paragraph 204 above.

215.     In Japan — Alcoholic Beverages II, the Panel explicitly rejected the so-called “aim-and-effect” test. The Panel summarized the parties’ arguments for the “aims-and-effects” test as follows:

“Japan … essentially argued that the Panel should examine the contested legislation in the light of its aim and effect in order to determine whether or not it is consistent with Article III:2. According to this view, in case the aim and effect of the contested legislation do not operate so as to afford protection to domestic production, no inconsistency with Article III:2 can be established… . [T]he United States … essentially argued that, in determining whether two products that were taxed differently under a Member’s origin-neutral tax measure were nonetheless ‘like products’ for the purposes of Article III:2, the Panel should examine not only the similarity in physical characteristics and end-uses, consumer tastes and preferences, and tariff classifications for each product, but also whether the tax distinction in question was ‘applied … so as to afford protection to domestic production’: that is, whether the aim and effect of that distinction, considered as a whole, was to afford protection to domestic production. According to this view, if the tax distinction in question is not being applied so as to afford protection to domestic production, the products between which the distinction is drawn are not to be deemed ‘like products’ for the purpose of Article III:2.”(320)

216.     In upholding the Panel’s rejection of the “aimand-effect” test under Article III:2, first sentence, the Appellate Body, in Japan — Alcoholic Beverages II, found that the policy purpose of a tax measure (the “aim” of a measure”) was not relevant for the purpose of Article III:2, first sentence:

Article III:2, first sentence does not refer specifically to Article III:1. There is no specific invocation in this first sentence of the general principle in Article III:1 that admonishes Members of the WTO not to apply measures ‘so as to afford protection’. This omission must have some meaning. We believe the meaning is simply that the presence of a protective application need not be established separately from the specific requirements that are included in the first sentence in order to show that a tax measure is inconsistent with the general principle set out in the first sentence. However, this does not mean that the general principle of Article III:1 does not apply to this sentence. To the contrary, we believe the first sentence of Article III:2 is, in effect, an application of this general principle… . If the imported and domestic products are ‘like products’, and if the taxes applied to the imported products are ‘in excess of’ those applied to the domestic like products, then the measure is in consistent with Article III:2, first sentence.”(321)

217.     The Appellate Body rejected the “aim-and-effect” test under both Article II and Article XVII of the GATS in EC — Bananas III.(322) See Chapter on the GATS, Section XXI.B.3.

218.     In Japan — Alcoholic Beverages II, the Appellate Body did find that the “general principle” in Article III:1 that internal measures should not be applied so as to afford protection to domestic production “informs” the rest of Article III;(323) see below regarding the application of this principle in interpreting Article III:2, second sentence. In EC — Asbestos, the Appellate Body, recalling that this “general principle” “informs” Article III:4, found that “the term ‘like product’ in Article III:4 “must be interpreted to give proper scope and meaning to this principle”.(324) See also paragraph 311 below.

219.     On GATT practice regarding the relevance of the policy purpose of internal taxes or regulations.

(d) Relevance of trade effects

220.     In Japan — Alcoholic Beverages II, the Appellate Body addressed the relevance of the trade effects of measures falling under the scope of Article III:

“[I]t is irrelevant that ‘the trade effects’ of the tax differential between imported and domestic products, as reflected in the volumes of imports, are insignificant or even non-existent; Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products.(325)”(326)

221.     The Appellate Body reiterated this approach in Canada — Periodicals:

“It is a well-established principle that the trade effects of a difference in tax treatment between imported and domestic products do not have to be demonstrated for a measure to be found to be inconsistent with Article III.(327)”(328)

222.     On GATT practice regarding the relevance of trade effects to Article III obligations.

(e) State trading monopolies

223.     In Korea — Various Measures on Beef, the Panel addressed the relationship between Article XVII, the provision on state trading enterprises, and Article III. Finding support for its conclusions in GATT practice, the Panel held:

Article XVII.1(a) establishes the general obligation on state trading enterprises to undertake their activities in accordance with the GATT principles of nondiscrimination. The Panel considers that this general principle of non-discrimination includes at least the provisions of Articles I and III of GATT.

… 

… A conclusion that the principle of non-discrimination was violated would suffice to prove a violation of Article XVII.”(329)

224.     On GATT practice regarding application of Article III with regard to state trading monopolies.

2. Article III:1

(a) Relationship between paragraph 1 and paragraphs 2, 4 and 5

225.     In US — Gasoline, the Panel examined whether a US gasoline regulation treated imported gasoline in a manner inconsistent with Article III:1. In response to the US argument that Article III:1 “could not form the basis of a violation”(330), the Panel answered as follows:

“The Panel examined first whether, after making a finding of inconsistency with Article III:4, it should make a finding under Article III:1. The Panel noted that the panel in the Malt Beverages case had examined a claim made under paragraphs 1, 2 and 4 of Article III. That panel had concluded that ‘because Article III:1 is a more general provision than either Article III:2 or III:4, it would not be appropriate for the Panel to consider [the complainant’s] Article III:1 allegations to the extent that the Panel were to find [the respondent’s] measures to be inconsistent with the more specific provisions of Article III:2 and  III:4.’(331) The present Panel agreed with this reasoning, and therefore did not find it necessary to examine the consistency of the Gasoline Rule with Article III:1.”(332)

226.     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. With respect to the legal status of Article III:1, the Appellate Body invoked the principle of effective treaty interpretation and found that Article III:1 constitutes part of the context for Article III:2:

“The terms of Article III must be given their ordinary meaning — in their context and in the light of the overall object and purpose of the WTO Agreement. Thus, the words actually used in the Article provide the basis for an interpretation that must give meaning and effect to all its terms. The proper interpretation of the Article is, first of all, a textual interpretation. Consequently, the Panel is correct in seeing a distinction between Article III:1, which ‘contains general principles’, and Article III:2, which ‘provides for specific obligations regarding internal taxes and internal charges’. Article III:1 articulates a general principle that internal measures should not be applied so as to afford protection to domestic production. This general principle 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 in any way, the meaning of the words actually used in the texts of those other paragraphs. In short, Article III:1 constitutes part of the context of Article III:2, in the same way that it constitutes part of the context of each of the other paragraphs in Article III. Any other reading of Article III would have the effect of rendering the words of Article III:1 meaningless, thereby violating the fundamental principle of effectiveness in treaty interpretation. Consistent with this principle of effectiveness, and with the textual differences in the two sentences, we believe that Article III:1 informs the first sentence and the second sentence of Article III:2 in different ways.”(333)

227.     In EC — Asbestos, the Appellate Body, in interpreting Article III:4 by comparing its terms with the terms used in Article III:2, referred to Article III:1. See paragraph 328 below.

228.     The precise significance of Article III:1 for the interpretation of Article III:2, first sentence, was also addressed by the Panels on Argentina — Hides and Leather. See paragraph 239 below.(334)

229.     With respect to GATT practice on this subject-matter.

3. Article III:2

(a) General

(i) General distinction between first and second sentences

230.     In Japan — Alcoholic Beverages II, the Appellate Body described the distinction between the first and second sentences of Article III:2 as follows:

“[T]he second sentence of Article III:2 provides for a separate and distinctive consideration of the protective aspect of a measure in examining its application to a broader category of products that are not ‘like products’ as contemplated by the first sentence …”.(335)

231.     In Canada — Periodicals, the Appellate Body, in reviewing the Panel’s finding that the Canadian excise tax on magazines was inconsistent with Article III:2, first sentence, also addressed the distinction between the first and second sentence of Article III:2:

“[T]here are two questions which need to be answered to determine whether there is a violation of Article III:2 of the GATT 1994: (a) whether imported and domestic products are like products; and (b) whether the imported products are taxed in excess of the domestic products. If the answers to both questions are affirmative, there is a violation of Article III:2, first sentence. If the answer to one question is negative, there is a need to examine further whether the measure is consistent with Article III:2, second sentence.”(336)

232.     In Canada — Periodicals, the Appellate Body also reiterated its statement from Japan — Alcoholic Beverages II that Article III:2, second sentence, contemplates a “broader category of products” than Article III:2, first sentence:

“Any measure that indirectly affects the conditions of competition between imported and like domestic products would come within the provisions of Article III:2, first sentence, or by implication, second sentence, given the broader application of the latter.”(337)

233.     Further, in Canada — Periodicals, the Appellate Body rejected Canada’s argument that the imported and domestic periodicals in question were only imperfectly substitutable with each other and, therefore, did not fall under the term “directly competitive or substitutable product”:

“A case of perfect substitutability would fall within Article III:2, first sentence, while we are examining the broader prohibition of the second sentence.”(338)

234.     In Korea — Alcoholic Beverages, the Appellate Body examined the Panel’s finding that Korean tax laws concerning liquor products were inconsistent with Article III:2. In rejecting Korea’s appeal that “potential competition” was not enough to find that subject products were “directly competitive or substitutable products”, the Appellate Body stated as follows:

“The first sentence of Article III:2 also forms part of the context of the term. ‘Like’ products are a subset of directly competitive or substitutable products: all like products are, by definition, directly competitive or substitutable products, whereas not all ‘directly competitive or substitutable’ products are ‘like’.(339) The notion of like products must be construed narrowly(340) but the category of directly competitive or substitutable products is broader.(341) While perfectly substitutable products fall within Article III:2, first sentence, imperfectly substitutable products can be assessed under Article III:2, second sentence.(342)”(343)

(ii) Relationship with paragraph 1

235.     With respect to the relationship with paragraph 1, see paragraphs 225228 above.

(iii) Legal status of Note Ad Article III:2

236.     In Japan — Alcoholic Beverages II, the Appellate Body defined the legal status of Interpretative Note Ad Article III:2 and its relevance for the interpretation of Article III:2, as follows:

Article III:2, second sentence, and the accompanying Ad Article have equivalent legal status in that both are treaty language which was negotiated and agreed at the same time. The Ad Article does not replace or modify the language contained in Article III:2, second sentence, but, in fact, clarifies its meaning. Accordingly, the language of the second sentence and the Ad Article must be read together in order to give them their proper meaning.”(344)

(b) Article III:2, first sentence

(i) General

Test under Article III:2, first sentence

237.     In Japan — Alcoholic Beverages II, the Appellate Body clarified the two elements contained in the first sentence of Article III:2 — “like products” and “in excess of”. The Appellate Body established that these requirements constitute, in and of themselves, an application of the general principle contained in Article III:1 and that, consequently, the presence of a protective application need not be established separately from the specific criteria of Article III:2, first sentence:

Article III:1 informs Article III:2, first sentence, by establishing that if imported products are taxed in excess of like domestic products, then that tax measure is inconsistent with Article III. Article III:2, first sentence does not refer specifically to Article III:1. There is no specific invocation in this first sentence of the general principle in Article III:1 that admonishes Members of the WTO not to apply measures so as to afford protection’. This omission must have some meaning. We believe the meaning is simply that the presence of a protective application need not be established separately from the specific requirements that are included in the first sentence in order to show that a tax measure is inconsistent with the general principle set out in the first sentence. However, this does not mean that the general principle of Article III:1 does not apply to this sentence. To the contrary, we believe the first sentence of Article III:2 is, in effect, an application of this general principle. The ordinary meaning of the words of Article III:2, first sentence leads inevitably to this conclusion. Read in their context and in the light of the overall object and purpose of the WTO Agreement, the words of the first sentence require an examination of the conformity of an internal tax measure with Article III by determining, first, whether the taxed imported and domestic products are ‘like’ and, second, whether the taxes applied to the imported products are ‘in excess of’ those applied to the like domestic products. If the imported and domestic products are ‘like products’, and if the taxes applied to the imported products are ‘in excess of’ those applied to the like domestic products, then the measure is inconsistent with Article III:2, first sentence.

 

This approach to an examination of Article III:2, first sentence, is consistent with past practice under the GATT 1947. Moreover, it is consistent with the object and purpose of Article III:2, which the panel in the predecessor to this case dealing with an earlier version of the Liquor Tax Law, Japan — Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages … , rightly stated as ‘promoting non-discriminatory competition among imported and like domestic products [which] could not be achieved if Article III:2 were construed in a manner allowing discriminatory and protective internal taxation of imported products in excess of like domestic products’.”(345)

238.     In Canada — Periodicals, the Appellate Body reiterated this two-tiered test:

“[T]here are two questions which need to be answered to determine whether there is a violation of Article III:2 of the GATT 1994: (a) whether imported and domestic products are like products; and (b) whether the imported products are taxed in excess of the domestic products. If the answers to both questions are affirmative, there is a violation of Article III:2, first sentence.”(346)

239.     In Argentina — Hides and Leather, Argentina, citing the finding of the Appellate Body in Japan — Alcoholic Beverages II referenced in paragraph 216 above, argued that the existence of a protective application must be determined together with the other specific requirements contained in Article III:2. The Panel rejected this argument:

“We are unable to agree with Argentina’s interpretation of the Appellate Body’s statement. As we understand it, the presence of a protective application need be established neither separately nor together with the specific requirements contained in Article III:2, first sentence. The quoted passage from the Appellate Body report in Japan — Alcoholic Beverages II makes clear that Article III:2, first sentence, is, in effect, an application of the general principle stated in Article III:1. Accordingly, whenever imported products from one Member’s territory are subject to taxes in excess of those applied to like domestic products in the territory of another Member, this is deemed to ‘afford protection to domestic production’ within the meaning of Article III:1. It follows that, in applying Article III:2, first sentence, recourse to the general principle of Article III:1 is neither necessary nor appropriate.(347) The only requirements that need to be demonstrated by the complaining party are those contained in Article III:2, first sentence, itself.(348)”(349)

Burden of proof

240.     In Japan — Alcoholic Beverages II, the Panel stated that “complainants have the burden of proof to show first that products are like and second, that foreign products are taxed in excess of domestic ones.”(350)

(ii) “like domestic products”

Relevant factors for the determination of “likeness”

General

241.     In Japan — Alcoholic Beverages II, the Appellate Body was called upon to examine the Panel’s finding of inconsistency of the Japanese Liquor Tax Law with Article III:2. The Appellate Body analysed what factors to take into consideration in deciding whether two products in question were “like products”:

“We agree with the practice under the GATT 1947 of determining whether imported and domestic products are ‘like’ on a case-by-case basis. The Report of the Working Party on Border Tax Adjustments, adopted by the CONTRACTING PARTIES in 1970, set out the basic approach for interpreting ‘like or similar products’ generally in the various provisions of the GATT 1947:

 

… the interpretation of the term should be examined on a case-by-case basis. This would allow a fair assessment in each case of the different elements that constitute a ‘similar’ product. Some criteria were suggested for determining, on a case-by-case basis, whether a product is ‘similar’: the product’s end-uses in a given market; consumers’ tastes and habits, which change from country to country; the product’s properties, nature and quality.(351)

 

This approach was followed in almost all adopted panel reports after Border Tax Adjustments. This approach should be helpful in identifying on a case-by-case basis the range of ‘like products’ that fall within the narrow limits of Article III:2, first sentence in the GATT 1994.”(352)

242.     In Canada — Periodicals, the Appellate Body reiterated the aforementioned finding in Japan — Alcoholic Beverages II:

“[T]he proper test is that a determination of ‘like products’ for the purposes of Article III:2, first sentence, must be construed narrowly, on a case-by-case basis, by examining relevant factors including:

 

(i)     the product’s end-uses in a given market;

 

(ii)     consumers’ tastes and habits; and

 

(iii)     the product’s properties, nature and quality.”(353)

243.     With respect to the criteria of likeness, see also the Panel Report on Argentina — Hides and Leather,(354) where the Panel referred to the Appellate Body’s finding in Canada — Periodicals referenced in paragraph 242 above; also many other panel reports referencing the same list of factors from the Working Party Report on Border Tax Adjustments.

244.     In Thailand — Cigarettes (Philippines), the Panel found that it was not necessary to do a like product analysis comparing all domestic and all imported cigarettes across all price segments; domestic and imported cigarettes within the same price segments were “like products”, based on an analysis of the physical quality and characteristics, end-uses, tariff classification, and Thai internal taxes and regulations, supported by econometric studies on cross-price elasticity of demand.(355)

Relevance of tariff classifications and bindings

245.     In Japan — Alcoholic Beverages II, the Appellate Body addressed the relevance of tariff classification for establishing the “likeness” of products:

“A uniform tariff classification of products can be relevant in determining what are ‘like products’. If sufficiently detailed, tariff classification can be a helpful sign of product similarity. Tariff classification has been used as a criterion for determining ‘like products’ in several previous adopted panel reports.(356) For example, in the 1987 Japan — Alcohol Panel Report, the panel examined certain wines and alcoholic beverages on a ‘product-by-product basis’ by applying the criteria listed in the Working Party Report on Border Tax Adjustments,

 

… as well as others recognized in previous GATT practice (see BISD 25S/49, 63), such as the Customs Cooperation Council Nomenclature (CCCN) for the classification of goods in customs tariffs which has been accepted by Japan.(357)”(358)

246.     In Japan — Alcoholic Beverages II, in addition to tariff classification, the Appellate Body also examined the relevance of tariff bindings for the determination of “like products”. In contrast to tariff classification, the Appellate Body expressed reservations about the reliability of tariff bindings as a criterion in establishing “likeness”:

“Uniform classification in tariff nomenclatures based on the Harmonized System (the ‘HS’) was recognized in GATT 1947 practice as providing a useful basis for confirming ‘likeness’ in products. However, there is a major difference between tariff classification nomenclature and tariff bindings or concessions made by Members of the WTO under Article II of the GATT 1994. There are risks in using tariff bindings that are too broad as a measure of product ‘likeness’. Many of the least-developed country Members of the WTO submitted schedules of concessions and commitments as annexes to the GATT 1994 for the first time as required by Article XI of the WTO Agreement. Many of these least-developed countries, as well as other developing countries, have bindings in their schedules which include broad ranges of products that cut across several different HS tariff headings. For example, many of these countries have very broad uniform bindings on nonagricultural products. This does not necessarily indicate similarity of the products covered by a binding. Rather, it represents the results of trade concessions negotiated among Members of the WTO.

 

It is true that there are numerous tariff bindings which are in fact extremely precise with regard to product description and which, therefore, can provide significant guidance as to the identification of ‘like products’. Clearly enough, these determinations need to be made on a case-by-case basis. However, tariff bindings that include a wide range of products are not a reliable criterion for determining or confirming product ‘likeness’ under Article III:2.”(359)

247.     With respect to the purpose of Article III as it relates to tariff bindings, see paragraph 205 above.

Hypothetical “like products”

248.     In Canada — Periodicals, the Panel found that the Canadian excise tax on magazines was inconsistent with Article III:2. Upon appeal, Canada argued that the Panel erred in basing its comparison upon a hypothetical example of periodicals. The Appellate Body endorsed the Panel’s recourse to a hypothetical example of imported products:

“As Article III:2, first sentence, normally requires a comparison between imported products and like domestic products, and as there were no imports of split-run editions of periodicals because of the import prohibition in Tariff Code 9958, which the Panel found (and Canada did not contest on appeal) to be inconsistent with the provisions of Article XI of the GATT 1994, hypothetical imports of split-run periodicals have to be considered. As the Panel recognized, the proper test is that a determination of ‘like products’ for the purposes of Article III:2, first sentence, must be construed narrowly, on a case-by-case basis, by examining relevant factors including:

 

(i)     the product’s end-uses in a given market;

 

(ii)     consumers’ tastes and habits; and

 

(iii)     the product’s properties, nature and quality.(360)”(361)

249.     In Indonesia — Autos, the Panel examined the consistency with Article III of measures contained in the Indonesian National Car Programme, including the luxury tax exemption given to certain domestically produced cars. On the issue of hypothetical “like products”, the Panel referred to the finding of the Appellate Body in Canada — Periodicals, referenced in paragraph 248 above, and emphasized the significance of the fact that the Indonesian car programme distinguished between the products at issue on the grounds of nationality of the producer or the origin of the parts and components of the product:

“In Periodicals, the Appellate Body recognized the possibility of using hypothetical imports to determine whether a measure violates Article III:2, although in that case the Appellate Body rejected the hypothetical example used by the Panel.(362) But this case is different. Under the Indonesian car programmes the distinction between the products for tax purposes is based on such factors as the nationality of the producer or the origin of the parts and components contained in the product. Appropriate hypotheticals are therefore easily constructed. An imported motor vehicle alike in all aspects relevant to a likeness determination would be taxed at higher rate simply because of its origin or lack of sufficient local content. Such vehicles certainly can exist (and, as demonstrated above, do in fact exist). In our view, such an origin-based distinction in respect of internal taxes suffices in itself to violate Article III:2, without the need to demonstrate the existence of actually traded like products. This is directly in accord with the broad purposes of Article III:2, as outlined by the Appellate Body …”.(363)

250.     In Argentina — Hides and Leather, referring to the finding of the Panel in Indonesia — Autos referenced in paragraph 249 above, the Panel reiterated this standard of varying “quantum and nature of the evidence” required for a finding under Article III:2, first sentence, depending on the “structure and design” of the measure at issue:

“In the case before us, the European Communities has neither compared specific products nor addressed the criteria relevant to determining likeness. The European Communities considers that it is not incumbent upon it to do so. We agree. In circumstances such as those confronting us in this case no comparison of specific products is required. Logically, no examination of the various criteria relevant to determining likeness is then called for either.

 

We consider that in the specific context of a claim under Article III:2, first sentence, the quantum and nature of the evidence required for a complaining party to discharge its burden of establishing a violation is dependent, above all, on the structure and design of the measure in issue.(364) The structure and design of RG 3431 and RG 3543 and their domestic counterparts RG 3337 and RG 2784 are such that the level of tax pre-payment is not determined by the physical characteristics or end-uses of the products subject to these resolutions, but instead is determined by factors which are not relevant to the definition of likeness, such as whether a particular product is definitively imported into Argentina or sold domestically as well as the characteristics of the seller or purchaser of the product.(365) It is therefore inevitable, in our view, that like products will be subject to RG 3431 and its domestic counterpart, RG 3337. The same holds true for RG 3543 and its domestic counterpart, RG 2784.(366) The European Communities has demonstrated this to our satisfaction, and, in our view, this is all it needs to establish in the present case as far as the ‘like product’ requirement contained in Article III:2, first sentence, is concerned.

 

This view is consistent with that adopted by the panel in Indonesia — Autos. That panel was of the view that: 

 

‘ … an origin-based distinction in respect of internal taxes suffices in itself to violate Article III:2, without the need to demonstrate the existence of actually traded like products.’(367)”(368)

251.     The Panel in China — Auto Parts(369) also took the hypothetical approach set out above in determining “like products” in respect of internal tax measures that discriminate solely on the basis of origin under Article III:2.

Relevance of differences among sellers of goods

252.     In Argentina — Hides and Leather, the Panel addressed Argentina’s tax collection mechanism which required the pre-payment of taxes only with respect to internal sales made by certain taxable persons, so-called agentes de percepción, whilst in respect of import transactions, a pre-payment obligation would arise without regard to who made them. See also paragraph 272 above. Finding this mechanism inconsistent with Article III:2, first sentence, the Panel stated:

“As a further consideration, we add that, in the context of an inquiry under Article III:2, first sentence, the mere fact that a domestic product is sold by a non-agente de percepción does not, in our view, render a product which is otherwise like an imported product ‘unlike’ that product.(370)

“The identity and circumstances of the persons involved in sales transactions cannot, in our view, serve as a justification for tax burden differentials.(371)”(372)

GATT practice

253.     On GATT practice regarding “like products” under Article III:2.

Relationship between “like products” and “directly competitive products” under Article III:2

254.     In Japan — Alcoholic Beverages II, the Appellate Body analysed the scope of the first sentence of Article III:2 in relation to the second sentence of this Article. It held that the term “like products” in Article III:2, first sentence, should be construed narrowly. Subsequently, it considered the basic GATT approach for interpreting “like products” generally in the various provisions of the GATT 1947:

“Because the second sentence of Article III:2 provides for a separate and distinctive consideration of the protective aspect of a measure in examining its application to a broader category of products that are not ‘like products’ as contemplated by the first sentence, we agree with the Panel that the first sentence of Article III:2 must be construed narrowly so as not to condemn measures that its strict terms are not meant to condemn. Consequently, we agree with the Panel also that the definition of ‘like products’ in Article III:2, first sentence, should be construed narrowly.

 

How narrowly is a matter that should be determined separately for each tax measure in each case. We agree with the practice under the GATT 1947 of determining whether imported and domestic products are ‘like’ on a case-by-case basis. The Report of the Working Party on Border Tax Adjustments, adopted by the CONTRACTING PARTIES in 1970, set out the basic approach for interpreting ‘like or similar products’ generally in the various provisions of the GATT 1947:

 

‘ … the interpretation of the term should be examined on a case-by-case basis. This would allow a fair assessment in each case of the different elements that constitute a “similar” product. Some criteria were suggested for determining, on a case-by-case basis, whether a product is “similar”: the product’s end-uses in a given market; consumers’ tastes and habits, which change from country to country; the product’s properties, nature and quality’.(373)

 

This approach was followed in almost all adopted panel reports after Border Tax Adjustments.(374) This approach should be helpful in identifying on a case-by-case basis the range of ‘like products’ that fall within the narrow limits of Article III:2, first sentence in the GATT 1994. Yet this approach will be most helpful if decision makers keep ever in mind how narrow the range of ‘like products’ in Article III:2, first sentence is meant to be as opposed to the range of ‘like’ products contemplated in some other provisions of the GATT 1994 and other Multilateral Trade Agreements of the WTO Agreement. In applying the criteria cited in Border Tax Adjustments to the facts of any particular case, and in considering other criteria that may also be relevant in certain cases, panels can only apply their best judgement in determining whether in fact products are ‘like’. This will always involve an unavoidable element of individual, discretionary judgement. We do not agree with the Panel’s observation in paragraph 6.22 of the Panel Report that distinguishing between ‘like products’ and ‘directly competitive or substitutable products’ under Article III:2 is ‘an arbitrary decision’. Rather, we think it is a discretionary decision that must be made in considering the various characteristics of products in individual cases.”(375)

255.     The consequence of the determination whether two products are or are not like was stated by the Appellate Body in Japan — Alcoholic Beverages II:

“If imported and domestic products are not ‘like products’ for the narrow purposes of Article III:2, first sentence, then they are not subject to the strictures of that sentence and there is no inconsistency with the requirements of that sentence. However, depending on their nature, and depending on the competitive conditions in the relevant market, those same products may well be among the broader category of ‘directly competitive or substitutable products’ that fall within the domain of Article III:2, second sentence.”(376)

256.     With respect to the nature of like products as a subset of the category of “directly competitive or substitutable products”, see also paragraph 234 above.

Relationship with “like products” in Article III:4

257.     In EC — Asbestos, the Appellate Body discussed the relationship between the term “like products” in Article III:4, and that in the first sentence of Article III:2. See paragraphs 342 and 0 below.

258.     In Japan — Alcoholic Beverages II, the Panel discussed whether the term “like products” can be interpreted differently between GATT provisions, with a focus on the relationship between Article III:2, first sentence and Article III:4:

“The Panel noted that the term ‘like product’ appears in various GATT provisions. The Panel further noted that it did not necessarily follow that the term had to be interpreted in a uniform way. In this respect, the Panel noted the discrepancy between Article III:2, on the one hand, and Article III:4 on the other: while the former referred to Article III:1 and to like, as well as to directly competitive or substitutable products (see also Article XIX of GATT), the latter referred only to like products. If the coverage of Article III:2 is identical to that of Article III:4, a different interpretation of the term ‘like product’ would be called for in the two paragraphs. Otherwise, if the term ‘like product’ were to be interpreted in an identical way in both instances, the scope of the two paragraphs would be different. This is precisely why, in the Panel’s view, its conclusions reached in this dispute are relevant only for the interpretation of the term ‘like product’ as it appears in Article III:2.”(377)

259.     In Thailand — Cigarettes (Philippines), the Panel found that because the scope of “like product” is broader under Article III:4 than under Article III:2, if products are “like” for purposes of Article III:2, they are automatically “like” for purposes of Article III:4:

“[W]e also recall our finding above that Marlboro and L&M cigarettes at issue are like the domestic cigarettes within the same price segments under Article III:2, first sentence, of the GATT. The Appellate Body clarified that the scope of ‘like’ in Article III:4 is broader than that in the first sentence of Article III:2.(378) Accordingly, to the extent that the imported and domestic products compared are found ‘like’ within the meaning of the first sentence of Article III:2, they can also be deemed to meet the likeness requirement under Article III:4. Therefore, we find that Marlboro and L&M are ‘like’ domestic cigarettes within the meaning of Article III:4.”(379)

Relationship with “like products” in other GATT provisions

260.     In Japan — Alcoholic Beverages II, the Appellate Body explained the possible differences in the scope of “like products” depending on provisions. To illustrate that the term “like products” will vary between different provisions of the WTO Agreement, the Appellate Body evoked the image of an accordion:

“No one approach to exercising judgement will be appropriate for all cases. The criteria in Border Tax Adjustments should be examined, but there can be no one precise and absolute definition of what is ‘like’. The concept of ‘likeness’ is a relative one that evokes the image of an accordion. The accordion of ‘likeness’ stretches and squeezes in different places as different provisions of the WTO Agreement 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. We believe that, in Article III:2, first sentence of the GATT 1994, the accordion of ‘likeness’ is meant to be narrowly squeezed.”(380)

(iii) “internal tax or other internal charge of any kind”

261.     In Argentina — Hides and Leather, the Panel examined whether the measures at issue, establishing a mechanism for the collection of certain taxes, were covered by Article III:2. The Panel found that the measures provide for the imposition of charges and create a liability and, as such, fall under the scope of Article III:2:

“We consider that RG 3431 and RG 3543 are properly viewed not as taxes in their own right, but as mechanisms for the collection of the IVA [value-added tax] and IG [income tax]. What is special, however, about RG 3431 and RG 3543 as mechanisms for the collection of the IVA and IG is that they provide for the imposition of charges. We recall that Article III:2 covers ‘charges of any kind’ (emphasis added). The term ‘charge’ denotes, inter alia, a ‘pecuniary burden’ and a ‘liability to pay money laid on a person …’. There can be no doubt, in our view, that both RG 3431 and RG 3543 impose a pecuniary burden and create a liability to pay money. Moreover, the charges provided for in RG 3431 and RG 3543 represent advance payments of the IVA and IG. RG 3431 and RG 3543 in effect impose on importers part of their definitive IVA and IG liability. It is clear to us, therefore, that the charges in question qualify as tax measures. As such, they fall to be assessed under Article III:2.

 

With regard to Argentina’s argument that RG 3431 and RG 3543 are measures designed to achieve efficient tax administration and collection and as such do not fall under Article III:2, it should be noted that Argentina has provided no support for this argument, except to say that it is up to Members to decide how best to achieve efficient tax administration. We agree that Members are free, within the outer bounds defined by such provisions as Article III:2, to administer and collect internal taxes as they see fit. However, if, as here, such ‘tax administration’ measures take the form of an internal charge and are applied to products, those measures must, in our view, be in conformity with Article III:2. There is nothing in the provisions of Article III:2 to suggest a different conclusion. If it were accepted that ‘tax administration’ measures are categorically excluded from the ambit of Article III:2, this would create a potential for abuse and circumvention of the obligations contained in Article III:2. It must be stated, moreover, that the applicability of Article III:2 is not conditional upon the policy purpose of a tax measure.(381) On that basis, we cannot agree with Argentina that charges intended to promote efficient tax administration or collection a priori fall outside the scope of Article III:2.”(382)

262.     In China — Auto Parts, the Panel found, and the Appellate Body agreed, that the charge in question was within the scope of Article III:2, because it was imposed on goods that had already been imported, and the obligation to pay it was triggered “because of an internal factor (e.g., because the product was re-sold internally or because the product was used internally), in the sense that such ‘internal factor’ occurs after the importation of the product of one Member into the territory of another Member.”(383)

263.     The Panel Report on Thailand — Cigarettes (Philippines) found that “value added taxes, and hence the VAT at issue imposed on cigarettes under the Thai law, are an internal tax covered by Article III:2.”(384)

264.     On GATT practice in respect of the definition of “internal taxes and charges of any kind”.

(iv) “in excess of those applied”

General

265.     In Japan — Alcoholic Beverages II, the Appellate Body established a strict standard for the term “in excess of” under Article III:2, first sentence:

“The only remaining issue under Article III:2, first sentence, is whether the taxes on imported products are ‘in excess of’ those on like domestic products. If so, then the Member that has imposed the tax is not in compliance with Article III. Even the smallest amount of ‘excess’ is 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.’ ”(385)

Methodology of comparison — “individual import transactions” basis

266.     In Argentina — Hides and Leather, the Panel explained the method of comparison, for the purposes of Article III:1, first sentence, of the tax burdens imposed on imports and on domestic like products. In the case before it, the Panel emphasized that Article III:2, first sentence, requires a comparison of actual tax burdens rather than merely of nominal tax burdens:

“[I]t is necessary to recall the purpose of Article III:2, first sentence, which is to ensure ‘equality of competitive conditions between imported and like domestic products’(386). Accordingly, Article III:2, first sentence, is not concerned with taxes or charges as such or the policy purposes Members pursue with them, but with their economic impact on the competitive opportunities of imported and like domestic products. It follows, in our view, that what must be compared are the tax burdens imposed on the taxed products.

 

We consider that Article III:2, first sentence, requires a comparison of actual tax burdens rather than merely of nominal tax burdens. Were it otherwise, Members could easily evade its disciplines. Thus, even where imported and like domestic products are subject to identical tax rates, the actual tax burden can still be heavier on imported products. This could be the case, for instance, where different methods of computing tax bases lead to a greater actual tax burden for imported products. In this regard, the GATT 1947 panel in Japan — Alcoholic Beverages I has stated that:

 

… in assessing whether there is tax discrimination, account is to be taken not only of the rate of the applicable internal tax but also of the taxation methods (e.g. different kinds of internal taxes, direct taxation of the finished product or indirect taxation by taxing the raw materials used in the product during the various stages of its production) and of the rules for the tax collection (e.g. basis of assessment).(387)

 

It may thus be stated, in more general terms, that a determination of whether an infringement of Article III:2, first sentence, exists must be made on the basis of an overall assessment of the actual tax burdens imposed on imported products, on the one hand, and like domestic products, on the other hand.”(388)

267.     In Argentina — Hides and Leather, the measure at issue was, inter alia, an income tax provision under which customs authorities collected a certain amount of tax when foreign goods were definitively imported into Argentina. The normal applicable tax rate was 3 per cent. The corresponding provision for internal sales provided for a withholding rate of 2 or 4 per cent, depending on whether the payment, on which the tax was being withheld, was made to a registered or non-registered taxpayer. Argentina argued that the measure applicable to imported goods was consistent with Article III:2, first sentence, because, “the 3 per cent rate applicable to imports is lower than the 4 per cent rate applicable to like domestic products”. The Panel explained:

Article III:2, first sentence, is applicable to each individual import transaction. It does not permit Members to balance more favourable tax treatment of imported products in some instances against less favourable tax treatment of imported products in other instances.(389)”(390)

268.     In Canada — Periodicals, the Appellate Body also addressed the issue of “balancing more favourable treatment in some instances against less favourable treatment in other instances “under Article III:2, second sentence. See paragraph 309 below.

269.     In Thailand — Cigarettes (Philippines) the Panel analysed the Thai VAT system, under which VAT for domestic cigarettes was collected at the manufacturer level, while VAT for imported cigarettes was passed on through the distribution chain to the consumer. Resellers of domestic cigarettes were exempt from VAT, whereas a reseller of imported cigarettes remained potentially liable for VAT and could only deduct VAT paid on its purchases from its VAT liability if it submits required forms. In response to Thailand’s argument that Article III:2 focuses on how much is collected, not when the taxes are collected, the Panel found as follows:

“We do not … consider that the scope of scrutiny of a given measure for its consistency with Article III:2, first sentence, can simply be limited to whether the final consumer ultimately pays the same VAT for imported and domestic cigarettes. In our view, the fact that VAT is in principle a consumer tax that normally is passed on to the final consumer does not eliminate the possibility that imported cigarettes may still be exposed to potential excess taxation under a Member’s specific VAT system through the manner in which resellers of imported cigarettes in the distribution chain are held liable for the VAT obligations. Further, we do not find that the VAT exemption granted only to the resale of domestic cigarettes under the Thai VAT system is a typical feature of VAT or a common practice shared by other countries.

 

Finally, we do not agree with Thailand’s view that the obligations under Article III:2, first sentence, are not concerned with the issue whether the tax is collected uniformly from different merchants at each stage of the distribution process. We agree that the issue is not whether the tax is collected uniformly from distributors at each stage of the transaction chain. However, to the extent that the manner in which the tax is collected affects the tax liability applied to imported goods, we are of the opinion that a measure falls within the scope of Article III:2, first sentence. We also find support for our view from the statement of the Appellate Body in Canada — Periodicals that ‘[a]ny measure that indirectly affects the conditions of competition between imported and like domestic products would come within the provisions of Article III:2, first sentence, or by implication, second sentence, given the broader application of the latter.’(391)”(392)

270.     The Appellate Body in Thailand — Cigarettes (Philippines) found that “a proper conception of Thailand’s measure clarifies that it is not the mere imposition of administrative requirements that creates a differential tax burden, but rather that only resellers of imported cigarettes will incur VAT liability as a consequence of failing to offset output tax. Resellers of imported cigarettes are subject to VAT liability in defined circumstances under Thai law, whereas resellers of domestic cigarettes, due to a complete exemption from VAT, are not.” On this basis, the Appellate Body agreed with the Panel that Thailand subjected imported cigarettes to internal taxes in excess of those applied to like domestic cigarettes within the meaning of Article III:2, first sentence.(393)

271.     With respect to the methodology of comparison used to examine the requirement of “no less favourable treatment” under Article III:4, see paragraphs 376381 below.(394)

Relevance of duration of tax differentials

272.     In Argentina — Hides and Leather, the measure at issue provided for the pre-payment of taxes on import sales, while exempting certain types of internal sales from such pre-payment; thus, although a tax liability would arise for every sale, certain internal sales were not subject to the tax pre-payment requirement. The Panel held that the loss of interest on the part of the taxpayer due to the pre-payment requirement constituted a tax differential (even if the same nominal tax rates were imposed). The Panel then rejected Argentina’s justification that the tax burden differential was limited to a 30-day period and therefore was de minimis:

“The terms of Article III:2, first sentence, prohibit tax burden differentials irrespective of whether they are of limited duration. Moreover, since we have found above that even the smallest tax burden differential is in violation of Article III:2, first sentence, it would be inconsistent for us to allow tax burden differentials on the basis that their impact is limited to a 30-day period.”(395)

GATT practice

273.     On GATT practice regarding the interpretation of “in excess of those applied” under Article III:2.

Relevance of regulatory objectives

274.     In Japan — Alcoholic Beverages II, the Appellate Body made a general statement on the relevance of regulatory objectives of a measure at issue, finding that Members may pursue, through their tax measures, any given policy objective, provided they do so in compliance with Article III:2. See paragraph 213 above.

275.     In Argentina — Hides and Leather, the Panel rejected Argentina’s argument that the measures in question were designed to achieve efficient tax administration and collection and as such did not fall under Article III:2. The Panel stated:

“We agree that Members are free, within the outer bounds defined by such provisions as Article III:2, to administer and collect internal taxes as they see fit. However, if, as here, such ‘tax administration’ measures take the form of an internal charge and are applied to products, those measures must, in our view, be in conformity with Article III:2. There is nothing in the provisions of Article III:2 to suggest a different conclusion. If it were accepted that ‘tax administration’ measures are categorically excluded from the ambit of Article III:2, this would create a potential for abuse and circumvention of the obligations contained in Article III:2.”(396)

276.     With respect to the relevance of regulatory objectives in relation to the “aim-and-effect” test, see paragraphs 213217 above.

(v) “directly or indirectly”

277.     In Canada — Periodicals, the Appellate Body reviewed the Panel’s finding that the Canadian excise tax on magazines was inconsistent with Article III:2. The Panel had found that the relevant tax provision was a measure affecting the trade in goods, as it applied to so-called split-run editions of periodicals which were distinguished from foreign non-split-run editions by virtue of their advertising content directed at the Canadian market. Canada argued that its measure regulated trade in services (advertising) “in their own right”, therefore did not “indirectly” affect imported products and, as a result, was subject to GATS and not to GATT 1994. The Appellate Body rejected Canada’s argument:

“An examination of Part V.1 of the Excise Tax Act demonstrates that it is an excise tax which is applied on a good, a split-run edition of a periodical, on a ‘per issue’ basis. By its very structure and design, it is a tax on a periodical. It is the publisher, or in the absence of a publisher resident in Canada, the distributor, the printer or the wholesaler, who is liable to pay the tax, not the advertiser.

 

Based on the above analysis of the measure, which is essentially an excise tax imposed on split-run editions of periodicals, we cannot agree with Canada’s argument that this internal tax does not ‘indirectly’ affect imported products.”(397)

278.     In Argentina — Hides and Leather, Argentina argued that, since an income tax is not a tax on products, its measure establishing the collection regime for such a tax (“RG 3543”) could not be subject to the provisions of Article III:2. Citing the finding of the Appellate Body in Canada — Periodicals as support(398), the Panel rejected this argument:

“We … agree that income taxes, because they are taxes not normally directly levied on products, are generally considered not to be subject to Article III:2.(399) It is not obvious to us, however, how the fact that the IG is an income tax outside the scope of Article III:2 logically leads to the conclusion that RG 3543 does not fall within the ambit of Article III:2, even though RG 3543 is a tax measure applied to products. Not only do we see nothing in the provisions of Article III:2 which would preclude the applicability of these provisions to RG 3543 merely because of the latter’s linkage to the IG. Were we to accept Argentina’s argument, it would also not be difficult for Members to introduce measures designed to circumvent the disciplines of Article III:2.”(400)

279.     In Mexico — Taxes on Soft Drinks, the Panel made findings on tax measures that were not directly imposed on sweeteners, but rather on soft drinks and syrups. The Panel nevertheless found that the imposition of a soft drink tax created a connection such that non-cane sugar sweeteners, such as beet sugar, could be regarded as being indirectly subject to the tax, because the tax was based solely on the nature of the sweetener used, and because the burden of the tax could be expected to fall, at least in part, on the products containing the sweetener, and thereby to fall on the sweetener:

“In regard to the question of the indirect imposition of the soft drink tax on sweeteners, it is significant that: (a) it is the presence of non-cane sugar sweeteners that provides the trigger for the imposition of the tax; and, (b) the burden of the tax can be expected to fall, at least in part, on the products containing the sweetener, and thereby to fall on the sweetener. The Appellate Body has said that ‘Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products’.(401) Taxes directly imposed on finished products can indirectly affect the conditions of competition between imported and like domestic inputs and therefore come within the scope of Article III:2, first sentence.(402) Indeed, in a previous case the word ‘indirectly’ was considered to cover, inter alia, taxes that are imposed on inputs.(403)

 

Given the facts just stated, the Panel concludes that the operation of the soft drink tax in regard to sweeteners is a factor influencing such competitive relationship and that such non-cane sugar sweeteners are therefore ‘subject … to’ the tax, albeit that the relationship is indirect. Consequently, non-cane sugar sweeteners are indirectly subject to the soft drink tax when they are used for the production of soft drinks and syrups.”(404)

280.     In Mexico — Taxes on Soft Drinks the Panel made similar findings on Mexico’s distribution tax to those in paragraph 279 above. This tax was imposed on the provision of certain services when those services were provided “for the purpose of transferring” certain products, including soft drinks and syrups. The Panel held that while on its face the distribution tax was a tax directly applied on the provision of certain services, in the circumstances of the case, it was also a tax indirectly applied on non-cane sugar sweeteners when used for the production of soft drinks and syrups.(405)

281.     On GATT practice regarding “directly or indirectly”.

(c) Article III:2, second sentence

(i) General

Legal status of Ad Article III:2

282.     In Japan — Alcoholic Beverages II, the Appellate Body discussed the legal status of Note Ad Article III:2 in the interpretation of Article III:2 and held that the Note must always be read together with Article III. See paragraph 236 above.

Test under Article III:2, second sentence

283.     In Japan — Alcoholic Beverages II, the Appellate Body explained the test to be used under Article III:2, second sentence, and distinguished this test from the test 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:

“Unlike that of Article III:2, first sentence, the language of Article III:2, second sentence, specifically invokes Article III:1. The significance of this distinction lies in the fact that whereas Article III:1 acts implicitly in addressing the two issues that must be considered in applying the first sentence, it acts explicitly as an entirely separate issue that must be addressed along with two other issues that are raised in applying the second sentence. Giving full meaning to the text and to its context, three separate issues must be addressed to determine whether an internal tax measure is inconsistent with Article III:2, second sentence. These three issues are whether:

 

(1)     the imported products and the domestic products are ‘directly competitive or substitutable products’ which are in competition with each other;

 

(2)     the directly competitive or substitutable imported and domestic products are ‘not similarly taxed’; and

 

(3)     the dissimilar taxation of the directly competitive or substitutable imported domestic products is applied so as to afford protection to domestic production’.

 

Again, these are three separate issues. Each must be established separately by the complainant for a panel to find that a tax measure imposed by a Member of the WTO is inconsistent with Article III:2, second sentence.”(406)

Burden of proof

284.     In Japan — Alcoholic Beverages II, the Panel, in a finding not expressly addressed by the Appellate Body, allocated the burden of proof under Article III:2, second sentence, to the complaining party:

“[T]he complainants have the burden of proof to show first, that the products concerned are directly competitive or substitutable and second, that foreign products are taxed in such a way so as to afford protection to domestic production”.(407)

285.     In Korea — Alcoholic Beverages, the Panel followed the approach to the allocation of burden of proof in the Panel Report on Japan — Alcoholic Beverages II. The Appellate Body rejected Korea’s appeal against this allocation of the burden of proof:

“[T]he Panel properly understood and applied the rules on allocation of the burden of proof. First, the Panel insisted that it could make findings under Article III:2, second sentence, only with respect to products for which a prima facie case had been made out on the basis of evidence presented. Second, it declined to establish a presumption concerning all alcoholic beverages within HS 2208. Such a presumption would be inconsistent with the rules on the burden of proof because it would prematurely shift the burden of proof to the defending party. The Panel, therefore, did not consider alleged violations of Article III:2, second sentence, concerning products for which evidence was not presented. Thus, the Panel examined tequila because evidence was presented for it, but did not examine mescal and certain other alcoholic beverages included in HS 2208 for which no evidence was presented. Third, contrary to Korea’s assertions, the Panel did consider the evidence presented by Korea in rebuttal, but concluded that there was ‘sufficient unrebutted evidence’ for it to make findings of inconsistency.”(408)

(ii) “directly competitive or substitutable products”

Relevance of market competition/cross-price elasticity

General

286.     In interpreting the term “directly competitive or substitutable” products, the Appellate Body in Japan — Alcoholic Beverages II found that it was “not inappropriate” to consider the competitive conditions in the relevant market, as manifested in the cross-price elasticity in particular:

“The GATT 1994 is a commercial agreement, and the WTO is concerned, after all, with markets. It does not seem inappropriate to look at competition in the relevant markets as one among a number of means of identifying the broader category of products that might be described as ‘directly competitive or substitutable’.

 

Nor does it seem inappropriate to examine elasticity of substitution as one means of examining those relevant markets. The Panel did not say that cross-price elasticity of demand is ‘the decisive criterion’ for determining whether products are ‘directly competitive or substitutable’.”(409)

287.     The Appellate Body developed this finding — contained in Japan — Alcoholic Beverages II — in the Korea — Alcoholic Beverages dispute:

“We observe that studies of cross-price elasticity, which in our Report in Japan — Alcoholic Beverages were regarded as one means of examining a market,(410) involve an assessment of latent demand. Such studies attempt to predict the change in demand that would result from a change in the price of a product following, inter alia, from a change in the relative tax burdens on domestic and imported products.”(411)

288.     In its approach to cross-price elasticity between domestic and imported products, the Panel in Korea — Alcoholic Beverages emphasized the “quality” or “nature” of competition, rather than the “quantitative overlap of competition”. Upon appeal, Korea argued that through its reliance on the “nature of competition” the Panel had created a “vague and subjective element” not found in Article III:2, second sentence. The Appellate Body, however, shared the Panel’s skepticism towards reliance upon the “quantitative overlap of competition”:

“In taking issue with the use of the term ‘nature of competition’, Korea, in effect, objects to the Panel’s sceptical attitude to quantification of the competitive relationship between imported and domestic products. For the reasons set above, we share the Panel’s reluctance to rely unduly on quantitative analyses of the competitive relationship. (412) In our view, an approach that focused solely on the quantitative overlap of competition would, in essence, make cross-price elasticity the decisive criterion in determining whether products are ‘directly competitive or substitutable’.”(413)

Relevance of the market situation in other countries

289.     In Korea — Alcoholic Beverages, the Appellate Body addressed whether the market situation in other Members should be taken into consideration in evaluating whether subject products are directly competitive or substitutable products. The Appellate Body held that although not every other market would be relevant, evidence from other markets may nevertheless be pertinent to the analysis of the market at issue:

“It is, of course, true that the ‘directly competitive or substitutable’ relationship must be present in the market at issue(414), in this case, the Korean market. It is also true that consumer responsiveness to products may vary from country to country.(415) This does not, however, preclude consideration of consumer behaviour in a country other than the one at issue. It seems to us that evidence from other markets may be pertinent to the examination of the market at issue, particularly when demand on that market has been influenced by regulatory barriers to trade or to competition. Clearly, not every other market will be relevant to the market at issue. But if another market displays characteristics similar to the market at issue, then evidence of consumer demand in that other market may have some relevance to the market at issue. This, however, can only be determined on a case-by-case basis, taking account of all relevant facts.”(416)

“directly competitive or substitutable”

290.     In Korea — Alcoholic Beverages, the Appellate Body considered the “object and purpose” of Article III in its interpretation of the term “directly competitive or substitutable”:

“[T]he object and purpose of Article III is the maintenance of equality of competitive conditions for imported and domestic products. It is, therefore, not only legitimate, but even necessary, to take account of this purpose in interpreting the term ‘directly competitive or substitutable product’.”(417)

Latent, extant and potential demand

291.     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”. Following this line of argumentation, the Appellate Body concluded that the term “directly competitive or substitutable” may include the analysis of latent as well as extant demand:

“The term ‘directly competitive or substitutable’ describes a particular type of relationship between two products, one imported and the other domestic. It is evident from the wording of the term that the essence of that relationship is that the products are in competition. This much is clear both from the word ‘competitive’ which means ‘characterized by competition’, and from the word ‘substitutable’ which means ‘able to be substituted’. The context of the competitive relationship is necessarily the marketplace since this is the forum where consumers choose between different products. Competition in the marketplace is a dynamic, evolving process. Accordingly, the wording of the term ‘directly competitive or substitutable’ implies that the competitive relationship between products is not to be analyzed exclusively by reference to current consumer preferences. In our view, the word ‘substitutable’ indicates that the requisite relationship may exist between products that are not, at a given moment, considered by consumers to be substitutes but which are, nonetheless, capable of being substituted for one another.

 

Thus, according to the ordinary meaning of the term, products are competitive or substitutable when they are interchangeable (418) or if they offer, as the Panel noted, ‘alternative ways of satisfying a particular need or taste’. Particularly in a market where there are regulatory barriers to trade or to competition, there may well be latent demand.

 

The words ‘competitive or substitutable’ are qualified in the Ad Article by the term ‘directly’. In the context of Article III:2, second sentence, the word ‘directly’ suggests a degree of proximity in the competitive relationship between the domestic and the imported products. The word ‘directly’ does not, however, prevent a panel from considering both latent and extant demand.”(419)

292.     In support of its proposition that the term “directly competitive or substitutable” required a dynamic interpretation of both latent and extant demand, the Appellate Body in Korea — Alcoholic Beverages rejected an attempt by one of the parties to read a prohibition of considering “potential competition” into the text of Note Ad Article III:

“Our reading of the ordinary meaning of the term ‘directly competitive or substitutable’ is supported by its context as well as its object and purpose. As part of the context, we note that the Ad Article provides that the second sentence of Article III:2 is applicable ‘only in cases where competition was involved’. (emphasis added) According to Korea, the use of the past indicative ‘was’ prevents a panel taking account of ‘potential’ competition. However, in our view, the use of the word ‘was’ does not have any necessary significance in defining the temporal scope of the analysis to be carried out. The Ad Article describes the circumstances in which a hypothetical tax ‘would be considered to be inconsistent with the provisions of the second sentence’. (emphasis added) The first part of the clause is cast in the conditional mood (‘would’) and the use of the past indicative simply follows from the use of the word ‘would’. It does not place any limitations on the temporal dimension of the word ‘competition’.”(420)

293.     The Appellate Body subsequently referred to the context of Article III:2 to support its dynamic approach to the notion of “directly competitive or substitutable”:

“The context of Article III:2, second sentence, also includes Article III:1 of the GATT 1994. As we stated in our Report in Japan — Alcoholic Beverages, Article III:1 informs Article III:2 through specific reference.(421) Article III:1 sets forth the principle ‘that internal taxes … should not be applied to imported or domestic products so as to afford protection to domestic production.’ It is in the light of this principle, which embodies the object and purpose of the whole of Article III, that the term ‘directly competitive and substitutable’ must be read. As we said in Japan — Alcoholic Beverages:

 

‘The broad and fundamental purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures… . Toward this end, Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products… . Moreover, it is irrelevant that the “trade effects” of the tax differential between imported and domestic products, as reflected in the volumes of imports, are insignificant or even non-existent; Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products.’ (emphasis added)”(422)

294.     The Panel in Japan — Alcoholic Beverages II held that “a tax system that discriminates against imports has the consequence of creating and even freezing preferences for domestic goods. In the Panel’s view, this meant that consumer surveys in a country with such a tax system would likely understate the degree of potential competitiveness between substitutable products.”(423) The Appellate Body in Korea — Alcoholic Beverages confirmed this approach and emphasized the importance of an analysis of “latent” or “potential” demand by pointing out that current consumer behaviour itself could be influenced by protectionist taxation. It concluded that if only “current instances of substitution” could be taken into account, Article III:2 would, in effect, be confirming the very protective taxation it aims to prohibit:

“In view of the objectives of avoiding protectionism, requiring equality of competitive conditions and protecting expectations of equal competitive relationships, we decline to take a static view of the term ‘directly competitive or substitutable’. The object and purpose of Article III confirms that the scope of the term ‘directly competitive or substitutable’ cannot be limited to situations where consumers already regard products as alternatives. If reliance could be placed only on current instances of substitution, the object and purpose of Article III:2 could be defeated by the protective taxation that the provision aims to prohibit. Past panels have, in fact, acknowledged that consumer behaviour might be influenced, in particular, by protectionist internal taxation. Citing the panel in Japan — Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages (424), the panel in Japan — Alcoholic Beverages observed that ‘a tax system that discriminates against imports has the consequence of creating and even freezing preferences for domestic goods’.(425) The panel in Japan — Alcoholic Beverages also stated that ‘consumer surveys in a country with … a [protective] tax system would likely understate the degree of potential competitiveness between substitutable products’.(426) (emphasis added) Accordingly, in some cases, it may be highly relevant to examine latent demand.”(427)

295.     The Appellate Body in Korea — Alcoholic Beverages concluded its analysis of why “latent” demand had to be considered in the interpretation of “directly competitive or substitutable products” by emphasizing the need for such an analysis particularly in the product sector in the case before it:

“We note, however, that actual consumer demand may be influenced by measures other than internal taxation. Thus, demand may be influenced by, inter alia, earlier protectionist taxation, previous import prohibitions or quantitative restrictions. Latent demand can be a particular problem in the case of ‘experience goods’, such as food and beverages, which consumers tend to purchase because they are familiar with them and with which consumers experiment only reluctantly.

 

[T]he term ‘directly competitive or substitutable’ does not prevent a panel from taking account of evidence of latent consumer demand as one of a range of factors to be considered when assessing the competitive relationship between imported and domestic products under Article III:2, second sentence, of the GATT 1994.”(428)

296.     In Canada — Periodicals, the Appellate Body reiterated the need for the consideration of latent demand in assessing whether products are “directly competitive or substitutable”. In this dispute, the Appellate Body rejected Canada’s argument that the market shares of foreign and domestic magazines on the Canadian periodicals market had remained constant over an extended period of time and that this fact pointed to a lack of competition or substitutability between domestic and foreign periodicals:

“We are not impressed either by Canada’s argument that the market share of imported and domestic magazines has remained remarkably constant over the last 30-plus years, and that one would have expected some variation if competitive forces had been in play to the degree necessary to meet the standard of ‘directly competitive’ goods. This argument would have weight only if Canada had not protected the domestic market of Canadian periodicals through, among other measures, the import prohibition of Tariff Code 9958 and the excise tax of Part V.1 of the Excise Tax Act.”(429)

297.     In Korea — Alcoholic Beverages, the Panel elaborated on the meaning of the term “directly competitive or substitutable products”:

“[W]e must first decide how the term ‘directly competitive or substitutable’ should be interpreted… .

 

The Appellate Body on Japan — Taxes on Alcoholic Beverages II stated that ‘like product’ should be narrowly construed for purposes of Article III:2. It then noted that directly competitive or substitutable is a broader category, saying: ‘How much broader that category of “directly competitive or substitutable products” may be in a given case is a matter for the panel to determine based on all the relevant facts in that case.’(430) Article 32 of the Vienna Convention provides that it is appropriate to refer to the negotiating history of a treaty provision in order to confirm the meaning of the terms as interpreted pursuant to the application of Article 31. A review of the negotiating history of Article III:2, second sentence and the Ad Article III language confirms that the product categories should not be so narrowly construed as to defeat the purpose of the anti-discrimination language informing the interpretation of Article III. The Geneva session of the Preparatory Committee provided an explanation of the language of the second sentence by noting that apples and oranges could be directly competitive or substitutable. Other examples provided were domestic linseed oil and imported tung oil and domestic synthetic rubber and imported natural rubber. There was discussion of whether such products as tramways and buses or coal and fuel oil could be considered as categories of directly competitive or substitutable products. There was some disagreement with respect to these products.

 

This negotiating history illustrates the key question in this regard. It is whether the products are directly competitive or substitutable. Tramways and buses, when they are not directly competitive, may still be indirectly competitive as transportation systems. Similarly even if most power generation systems are set up to utilize either coal or fuel oil, but not both, these two products could still compete indirectly as fuels. Thus, the focus should not be exclusively on the quantitative extent of the competitive overlap, but on the methodological basis on which a panel should assess the competitive relationship.

 

At some level all products or services are at least indirectly competitive. Because consumers have limited amounts of disposable income, they may have to arbitrate between various needs such as giving up going on a vacation to buy a car or abstaining from eating in restaurants to buy new shoes or a television set. However, an assessment of whether there is a direct competitive relationship between two products or groups of products requires evidence that consumers consider or could consider the two products or groups of products as alternative ways of satisfying a particular need or taste.”(431)

Factors relevant to “directly competitive or substitutable”

298.     In Japan — Alcoholic Beverages II, the Appellate Body agreed with the Panel’s illustrative enumeration of the factors to be considered in deciding whether two subject products are “directly competitive or substitutable”; for example, the nature of the compared products, and the competitive conditions in the relevant market, in addition to their physical characteristics, common end-use, and tariff classifications.(432)

299.     In Korea — Alcoholic Beverages, the Panel evaluated whether the subject products were “directly competitive or substitutable products” by discussing the various characteristics of the products. The Appellate Body implicitly endorsed this approach in the context of upholding the Panel’s approach of grouping certain products into categories:(433)

“We next will consider the various characteristics of the products to assess whether there is a competitive or substitutable relationship between the imported and domestic products and draw conclusions as to whether the nature of any such relationship is direct. We will review the physical characteristics, end-uses including evidence of advertising activities, channels of distribution, price relationships including cross-price elasticities, and any other characteristics.”(434)

300.     With respect to the “grouping” methodology, see also paragraph 301 below.

Methodology of comparison — grouping of products

301.     In Korea — Alcoholic Beverages, the Appellate Body agreed with the Panel’s comparison method of domestic and imported products, whereunder both types of soju (Korean traditional liquor), i.e. distilled and diluted soju, were compared with imported liquor products on a group basis, rather than on an item-by-item basis. The Appellate Body rejected Korea’s appeal of this methodology :

“We consider that Korea’s argument raises two distinct questions. The first question is whether the Panel erred in its ‘analytical approach’. The second is whether, on the facts of this case, the Panel was entitled to group the products in the manner that it did. Since the second question involves a review of the way in which the Panel assessed the evidence, we address it in our analysis of procedural issues.

 

The Panel describes ‘grouping’ as an ‘analytical tool’. It appears to us, however, that whatever else the Panel may have seen in this ‘analytical tool’, it used this ‘tool’ as a practical device to minimize repetition when examining the competitive relationship between a large number of differing products. Some grouping is almost always necessary in cases arising under Article III:2, second sentence, since generic categories commonly include products with some variation in composition, quality, function and price, and thus commonly give rise to sub-categories. From a slightly different perspective, we note that ‘grouping’ of products involves at least a preliminary characterization by the treaty interpreter that certain products are sufficiently similar as to, for instance, composition, quality, function and price, to warrant treating them as a group for convenience in analysis. But, the use of such ‘analytical tools’ does not relieve a panel of its duty to make an objective assessment of whether the components of a group of imported products are directly competitive or substitutable with the domestic products. We share Korea’s concern that, in certain circumstances, such ‘grouping’ of products might result in individual product characteristics being ignored, and that, in turn, might affect the outcome of a case. However, as we will see below, the Panel avoided that pitfall in this case.

 

Whether, and to what extent, products can be grouped is a matter to be decided on a case-by-case basis. In this case, the Panel decided to group the imported products at issue on the basis that:

 

… on balance, all of the imported products specifically identified by the complainants have sufficient common characteristics, end-uses and channels of distribution and prices … .(435)

 

As the Panel explained in the footnote attached to this passage, the Panel’s subsequent analysis of the physical characteristics, end-uses, channels of distribution and prices of the imported products confirmed the correctness of its decision to group the products for analytical purposes. Furthermore, where appropriate, the Panel did take account of individual product characteristics. It, therefore, seems to us that the Panel’s grouping of imported products, complemented where appropriate by individual product examination, produced the same outcome that individual examination of each imported product would have produced.(436) We, therefore, conclude that the Panel did not err in considering the imported beverages together.”(437)

302.     In Argentina — Hides and Leather, the Panel discussed the methodology of comparison to be applied with respect to the term “in excess of those applied” under the first sentence of Article III:2. See paragraphs 266267 above. See also the Appellate Body’s finding in Canada — Periodicals on the methodology of comparison for “dissimilar taxation”. See paragraph 309 below. Also, with respect to the methodology of comparison applicable to the term “no less favourable treatment” under Article III:4, see paragraphs 376381 below.

Like products as a subset of directly competitive or substitutable products

303.     In Korea — Alcoholic Beverages, the Appellate Body defined “like products” as a subset of “directly competitive or substitutable” products:

“The first sentence of Article III:2 also forms part of the context of the term. ‘Like’ products are a subset of directly competitive or substitutable products: all like products are, by definition, directly competitive or substitutable products, whereas not all ‘directly competitive or substitutable’ products are ‘like’.(438) The notion of like products must be construed narrowly(439) but the category of directly competitive or substitutable products is broader.(440) While perfectly substitutable products fall within Article III:2, first sentence, imperfectly substitutable products can be assessed under Article III:2, second sentence.(441)”(442)

Reference to GATT practice

304.     With respect to the interpretation of “directly competitive or substitutable products” under GATT.

Relationship with “like products”

305.     In Japan — Alcoholic Beverages II and Korea — Alcoholic Beverages, the Appellate Body compared the term “like products” with the term “directly competitive or substitutable products”. See paragraphs 254256 above.

(iii) “not similarly taxed”

General

“de minimis” standard

306.     In Japan — Alcoholic Beverages II, the Appellate Body interpreted the term “not similarly taxed” as requiring excessive taxation more than “de minimis”:

“To give due meaning to the distinctions in the wording of Article III:2, first sentence, and Article III:2, second sentence, the phrase ‘not similarly taxed’ in the Ad Article to the second sentence must not be construed so as to mean the same thing as the phrase ‘in excess of’ in the first sentence. On its face, the phrase ‘in excess of’ in the first sentence means any amount of tax on imported products ‘in excess of’ the tax on domestic ‘like products’. The phrase ‘not similarly taxed’ in the Ad Article to the second sentence must therefore mean something else. It requires a different standard, just as ‘directly competitive or substitutable products’ requires a different standard as compared to ‘like products’ for these same interpretive purposes.”(443)

307.     The Appellate Body found support for the above approach in Japan — Alcoholic Beverages II also in the distinction between “like products” in the first sentence and “directly competitive or substitutable products” in Note Ad Article III:

“Reinforcing this conclusion is the need to give due meaning to the distinction between ‘like products’ in the first sentence and ‘directly competitive or substitutable products’ in the Ad Article to the second sentence. If ‘in excess of’ in the first sentence and ‘not similarly taxed’ in the Ad Article to the second sentence were construed to mean one and the same thing, then ‘like products’ in the first sentence and ‘directly competitive or substitutable products’ in the Ad Article to the second sentence would also mean one and the same thing. This would eviscerate the distinctive meaning that must be respected in the words of the text.

 

To interpret ‘in excess of’ and ‘not similarly taxed’ identically would deny any distinction between the first and second sentences of Article III:2. Thus, in any given case, there may be some amount of taxation on imported products that may well be ‘in excess of’ the tax on domestic ‘like products’ but may not be so much as to compel a conclusion that ‘directly competitive or substitutable’ imported and domestic products are ‘not similarly taxed’ for the purposes of the Ad Article to Article III:2, second sentence. In other words, there may be an amount of excess taxation that may well be more of a burden on imported products than on domestic ‘directly competitive or substitutable products’ but may nevertheless not be enough to justify a conclusion that such products are ‘not similarly taxed’ for the purposes of Article III:2, second sentence. We agree with the Panel that this amount of differential taxation must be more than de minimis to be deemed ‘not similarly taxed’ in any given case. And, like the Panel, we believe that whether any particular differential amount of taxation is de minimis or is not de minimis must, here too, be determined on a case-by-case basis. Thus, to be ‘not similarly taxed’, the tax burden on imported products must be heavier than on ‘directly competitive or substitutable’ domestic products, and that burden must be more than de minimis in any given case.”(444)

Distinction from “so as to afford protection”

308.     With respect to the distinction between “not similarly taxed” and “so as to afford protection” by the Appellate Body in Japan — Alcoholic Beverages II, see paragraphs 311319 below.

Methodology of comparison — treatment of dissimilar taxation of some imported products

309.     In Canada — Periodicals, referring to its Report on Japan — Alcoholic Beverages II(445), the Appellate Body stated:

“[D]issimilar taxation of even some imported products as compared to directly competitive or substitutable domestic products is inconsistent with the provisions of the second sentence of Article III:2. In United States — Section 337, the panel found:

 

… that the ‘no less favourable’ treatment requirement of Article III:4 has to be understood as applicable to each individual case of imported products. The Panel rejected any notion of balancing more favourable treatment of some imported products against less favourable treatment of other imported products.(446)”(447)

310.     The issue of balancing more favourable treatment of some imported products against less favourable treatment of other imported products was also addressed by the Panel in Argentina — Hides and Leather with respect to Article III:2, first sentence (see paragraphs 266267 above) and by the Panel in US — Gasoline (see paragraph 381 below).(448)

(iv) “so as to afford protection to domestic production”

General

Relationship with Ad Article — distinction from “not similarly taxed”

311.     In Japan — Alcoholic Beverages II, the Appellate Body drew a distinction between the term “not similarly taxed” and the term “so as to afford protection to domestic production” as follows:

“[T]he Panel erred in blurring the distinction between that issue and the entirely separate issue of whether the tax measure in question was applied ‘so as to afford protection’. Again, these are separate issues that must be addressed individually. If ‘directly competitive or substitutable products’ are not ‘not similarly taxed’, then there is neither need nor justification under Article III:2, second sentence, for inquiring further as to whether the tax has been applied ‘so as to afford protection’. But if such products are ‘not similarly taxed’, a further inquiry must necessarily be made.”(449)

Relevant factors

General

312.     In Japan — Alcoholic Beverages II, the Appellate Body indicated as follows:

“As in [GATT Panel Report on Japan — Customs Duties, Taxes and Labelling Practices on Imported Wines and Alcoholic Beverages, BISD 34S/83], we believe that an examination in any case 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 as compared to imported products. We believe it is possible to examine objectively the underlying criteria used in a particular tax measure, its structure, and its overall application to ascertain whether it is applied in a way that affords protection to domestic products.

 

Although it is true that the aim of a measure may not be easily ascertained, nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure.”(450)

Relevance of tax differentials

313.     In Japan — Alcoholic Beverages II, the Appellate Body held that the very magnitude of the tax differentials may be evidence of the protective application of a national fiscal measure:

“The very magnitude of the dissimilar taxation in a particular case may be evidence of such a protective application, as the Panel rightly concluded in this case. Most often, there will be other factors to be considered as well. In conducting this inquiry, panels should give full consideration to all the relevant facts and all the relevant circumstances in any given case.

 … The dissimilar taxation must be more than de minimis. It may be so much more that it will be clear from that very differential that the dissimilar taxation was applied ‘so as to afford protection’. In some cases, that may be enough to show a violation. In this case, the Panel concluded that it was enough. Yet in other cases, there may be other factors that will be just as relevant or more relevant to demonstrating that the dissimilar taxation at issue was applied ‘so as to afford protection’. In any case, the three issues that must be addressed in determining whether there is such a violation must be addressed clearly and separately in each case and on a case-by-case basis. And, in every case, a careful, objective analysis must be done of each and all relevant facts and all the relevant circumstances in order to determine ‘the existence of protective taxation’.(451)”(452)

314.     The Appellate Body in Japan — Alcoholic Beverages II supported its interpretation of the various elements of Article III:2, second sentence, by emphasizing the consistency of its analysis with the customary rules of interpretation of public international law:

“Our interpretation of Article III is faithful to the ‘customary rules of interpretation of public international law’. WTO rules are reliable, comprehensible and enforceable. WTO rules are not so rigid or so inflexible as not to leave room for reasoned judgements in confronting the endless and ever-changing ebb and flow of real facts in real cases in the real world. They will serve the multilateral trading system best if they are interpreted with that in mind. In that way, we will achieve the ‘security and predictability’ sought for the multilateral trading system by the Members of the WTO through the establishment of the dispute settlement system.”(453)

Relevance of tariffs on subject products

315.     The Panel’s approach in Japan — Alcoholic Beverages II reveals the possible roles of tariffs in a finding that a national measure has been applied “so as to afford protection to domestic production”. The Appellate Body agreed with the following finding of the Panel:(454)

“The Panel took note, in this context, of the statement by Japan that the 1987 Panel Report erred when it concluded that shochu is essentially a Japanese product. The Panel accepted the evidence submitted by Japan according to which a shochu-like product is produced in various countries outside Japan, including the Republic of Korea, the People’s Republic of China and Singapore. The Panel noted, however, that Japanese import duties on shochu are set at 17.9 per cent. At any rate what is at stake, in the Panel’s view, is the market share of the domestic shochu market in Japan that was occupied by Japanese-made shochu. The high import duties on foreign-produced shochu resulted in a significant share of the Japanese shochu market held by Japanese shochu producers. Consequently, in the Panel’s view, 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.”(455)

Relevance of the intent of legislators/regulators

316.     In Japan — Alcoholic Beverages II, the Appellate Body considered that the subjective intent of legislators and regulators in the drafting and the enactment of a particular measure is irrelevant for ascertaining whether a measure is applied “so as to afford protection to domestic production”:

“This third inquiry under Article III:2, second sentence [’so as to afford protection’], must determine whether ‘directly competitive or substitutable products’ are ‘not similarly taxed’ in a way that affords protection. This is not an issue of intent. It is not necessary for a panel to sort through the many reasons legislators and regulators often have for what they do and weigh the relative significance of those reasons to establish legislative or regulatory intent. If the measure is applied to imported or domestic products so as to afford protection to domestic production, then it does not matter that there may not have been any desire to engage in protectionism in the minds of the legislators or the regulators who imposed the measure. It is irrelevant that protectionism was not an intended objective if the particular tax measure in question is nevertheless, to echo Article III:1, ‘applied to imported or domestic products so as to afford protection to domestic production’. This is an issue of how the measure in question is applied.”(456)

317.     In contrast to its statements in Japan — Alcoholic Beverages II, the Appellate Body in Canada — Periodicals did ascribe some significance to the statements of representatives of the Canadian executive about the policy objectives of the part of the Excise Tax Act at issue. The Appellate Body did so after finding that “the magnitude of the dissimilar taxation between imported split-run periodicals and domestic non-split-run periodicals is beyond excessive, indeed, it is prohibitive” and that “[t]here is also ample evidence that the very design and structure of the measure is such as to afford protection to domestic periodicals”:(457)

“The Canadian policy which led to the enactment of Part V.1 of the Excise Tax Act had its origins in the Task Force Report. It is clear from reading the Task Force Report that the design and structure of Part V.1 of the Excise Tax Act are to prevent the establishment of split-run periodicals in Canada, thereby ensuring that Canadian advertising revenues flow to Canadian magazines. Madame Monique Landry, Minister Designate of Canadian Heritage at the time the Task Force Report was released, issued the following statement summarizing the Government of Canada’s policy objectives for the Canadian periodical industry:

 

‘The Government reaffirms its commitment to protect the economic foundations of the Canadian periodical industry, which is a vital element of Canadian cultural expression. To achieve this objective, the Government will continue to use policy instruments that encourage the flow of advertising revenues to Canadian magazines and discourage the establishment of split-run or “Canadian” regional editions with advertising aimed at the Canadian market. We are committed to ensuring that Canadians have access to Canadian ideas and information through genuinely Canadian magazines, while not restricting the sale of foreign magazines in Canada.’

 

Furthermore, the Government of Canada issued the following response to the Task Force Report:

 

‘The Government reaffirms its commitment to the long-standing policy of protecting the economic foundations of the Canadian periodical industry. To achieve this objective, the Government uses policy instruments that encourage the flow of advertising revenues to Canadian periodicals, since a viable Canadian periodical industry must have a secure financial base.’

 

During the debate of Bill C-103, An Act to Amend the Excise Tax Act and the Income Tax Act, the Minister of Canadian Heritage, the Honourable Michel Dupuy, stated the following:

 

‘ … the reality of the situation is that we must protect ourselves against split-runs coming from foreign countries and, in particular, from the United States.’

 

Canada also admitted that the objective and structure of the tax is to insulate Canadian magazines from competition in the advertising sector, thus leaving significant Canadian advertising revenues for the production of editorial material created for the Canadian market. With respect to the actual application of the tax to date, it has resulted in one split-run magazine, Sports Illustrated, to move its production for the Canadian market out of Canada and back to the United States. Also, Harrowsmith Country Life, a Canadian-owned split-run periodical, has ceased production of its United States edition as a consequence of the imposition of the tax.”(458)

318.     In Korea — Alcoholic Beverages, Korea appealed the Panel’s finding that the Korea tax measures were inconsistent with Article III:2, second sentence, on the ground that the Panel ignored the explanation provided by Korea of the structure of the subject Korean taxation on liquor products. The Appellate Body rejected Korea’s argument and expressed its agreement with the Panel’s approach:

“Although [the Panel] considered that the magnitude of the tax differences was sufficiently large to support a finding that the contested measures afforded protection to domestic production, the Panel also considered the structure and design of the measures. In addition, the Panel found that, in practice, ‘[t]here is virtually no imported soju so the beneficiaries of this structure are almost exclusively domestic producers’. In other words, the tax operates in such a way that the lower tax brackets cover almost exclusively domestic production, whereas the higher tax brackets embrace almost exclusively imported products. In such circumstances, the reasons given by Korea as to why the tax is structured in a particular way do not call into question the conclusion that the measures are applied ‘so as to afford protection to domestic production’. Likewise, the reason why there is very little imported soju in Korea does not change the pattern of application of the contested measures.”(459)

319.     In Chile — Alcoholic Beverages, the Appellate Body examined Chile’s claim that the subject taxation on alcoholic beverages was aimed at, among others, reducing the consumption of alcoholic beverages with higher alcohol content. The Appellate Body again refused to accept explanations of policy objectives which were not ascertainable from the objective design, architecture and structure of the measure and supported the Panel’s attempts to “relate the observable structural features of the measure with its declared purposes”:

“We recall once more that, in Japan — Alcoholic Beverages, we declined to adopt an approach to the issue of ‘so as to afford protection’ that attempts to examine ‘the many reasons legislators and regulators often have for what they do’.(460) We called for examination of the design, architecture and structure of a tax measure precisely to permit identification of a measure’s objectives or purposes as revealed or objectified in the measure itself. Thus, we consider that a measure’s purposes, objectively manifested in the design, architecture and structure of the measure, are intensely pertinent to the task of evaluating whether or not that measure is applied so as to afford protection to domestic production. In the present appeal, Chile’s explanations concerning the structure of the New Chilean System — including, in particular, the truncated nature of the line of progression of tax rates, which effectively consists of two levels (27 per cent ad valorem and 47 per cent ad valorem) separated by only 4 degrees of alcohol content — might have been helpful in understanding what prima facie appear to be anomalies in the progression of tax rates. The conclusion of protective application reached by the Panel becomes very difficult to resist, in the absence of countervailing explanations by Chile. The mere statement of the four objectives pursued by Chile does not constitute effective rebuttal on the part of Chile.

 

At the same time, we agree with Chile that it would be inappropriate, under Article III:2, second sentence, of the GATT 1994, to examine whether the tax measure is necessary for achieving its stated objectives or purposes. The Panel did use the word ‘necessary’ in this part of its reasoning. Nevertheless, we do not read the Panel Report as showing that the Panel did, in fact, conduct an examination of whether the measure is necessary to achieve its stated objectives. It appears to us that the Panel did no more than try to relate the observable structural features of the measure with its declared purposes, a task that is unavoidable in appraising the application of the measure as protective or not of domestic production.”(461)

320.     The Panel in Mexico — Taxes on Soft Drinks, after finding that the disputed tax measures did afford protection to the Mexican production of cane sugar, went on to consider the intent of the Mexican legislators in the drafting of the tax measures and the evidentiary weight that should be ascribed to such intent:

“The protective effect of the measure on Mexican domestic production of sugar does not seem to be an unintended effect, but rather an intentional objective. The Appellate Body has cautioned against ascribing too much importance to the subjective legislative intent of legislators and regulators in the drafting of a particular measure, to determine whether the measure is applied so as to afford protection to domestic production, particularly when that declared intent is that protectionism was not an objective.(462) However, the declared intention of legislators and regulators of the Member adopting the measure should not be totally disregarded, particularly when the explicit objective of the measure is that of affording protection to domestic production. Indeed, the Appellate Body has confirmed that statements made by government representatives of a Member, admitting to the protective intent of a measure, may be relevant as part of a number of considerations in reaching the conclusion that a measure is applied so as to afford protection to domestic production.(463)”(464)

321.     For GATT practice on this subject.

 

Footnotes:

165. Panel Report, EC — Chicken Cuts, para. 7.65; followed by Panel Report, EC — IT Products, para. 7.100. back to text
166. Panel Report, EC — Chicken Cuts, paras. 7.425–7.427. The Panel arrived at this conclusion by interpreting tariff heading 02.10 of the EC Schedule using the customary rules of treaty interpretation codified in Articles 31 and 32 of the Vienna Convention on the Law of Treaties. The Appellate Body reversed the Panel’s interpretation and application of the concept of “subsequent practice” under Article 31(3)(b) of the Vienna Convention, but did not alter the Panel’s ultimate conclusion that the European Communities’ measures were WTO-inconsistent. back to text
167. Panel Report, EC — IT Products, para. 7.116. back to text
168. Panel Report, EC — Computer Equipment, para. 8.60. back to text
169. Appellate Body Report, EC — Computer Equipment, para. 84. The Appellate Body confirmed this finding in Canada — Dairy. Appellate Body Report, Canada — Dairy, para. 131. back to text
170. Appellate Body Report, EC — Chicken Cuts, para. 246. Panel Reports, para. 7.321. back to text
171. Panel Report, China — Auto Parts, para. 7.415. back to text
172. (footnote original) Lord McNair, The Law of Treaties (Oxford Clarendon Press, 1961), p. 365. back to text
173. Appellate Body Report, EC — Chicken Cuts, para. 176. back to text
174. Appellate Body Report, EC — Chicken Cuts, para. 199. back to text
175. See Appellate Body Report, EC — Chicken Cuts, para. 224. While the Appellate Body agreed with the general proposition that “the Chapter Notes to the Harmonized System, which are binding, may have greater probative value than the Explanatory Notes to the Harmonized System, which are non-binding” it also recognized that the “probative value of a Note will, however, also depend on how relevant it is to the interpretative question at issue; as a result, it cannot be excluded that an Explanatory Note that directly addresses a given interpretative question will be more probative than a Chapter Note that does not relate specifically to that interpretative question.” (See Appellate Body Report, EC — Chicken Cuts, para. 224, fn. 431.) back to text
176. Panel Report, China — Auto Parts, para. 7.421. back to text
177. Appellate Body Report, China — Auto Parts, para. 151. back to text
178. Panel Report, EC — IT Products, para. 7.443. back to text
179. Panel Report, EC — IT Products, para. 7.444. back to text
180. Appellate Body Report, EC — Chicken Cuts, paras. 272–273. back to text
181. Appellate Body Report, EC — Chicken Cuts, para. 293. back to text
182. Appellate Body Report, EC — Chicken Cuts, paras. 300–301. back to text
183. Appellate Body Report, EC — Chicken Cuts, para. 305. back to text
184. Panel Report, EC — Computer Equipment, para. 8.31. back to text
185. Panel Report, EC — Computer Equipment, para. 8.60. back to text
186. (footnote original) MTN.TNC/W/131, 21 January 1994. See also Marrakesh Protocol to the General Agreement on Tariffs and Trade 1994, para. 3. back to text
187. Panel Report, EC — Computer Equipment, para. 8.60. back to text
188. Appellate Body Report, EC — Computer Equipment, paras. 109–110 back to text.
189. Appellate Body Report, Argentina — Textiles and Footwear, para. 45. back to text
190. Appellate Body Report, Argentina — Textiles and Apparel, para. 47. back to text
191. Panel Reports on EC — Chicken Cuts, para. 7.65, and EC — IT Products, para. 7.747. back to text
192. Belize, Cameroon, El Salvador, Egypt, Indonesia, Malta, Senegal and Trinidad & Tobago. back to text
193. WT/ACC/10/Rev.4, p. 17. back to text
194. Protocols of accession: China. Accession working party reports: Bulgaria, Croatia, Estonia, Georgia, Latvia, Nepal, Saudi Arabia, Tonga, Ukraine, Viet Nam. WT/ACC/10/Rev.4/Add.1, pp. 98–100. back to text
195. Appellate Body Report, India — Additional Import Duties, para. 159. back to text
196. (footnote original) Panel Report, US — Sugar, para. 5.2. back to text
197. Appellate Body Report, EC — Bananas III, para. 154. back to text
198. (footnote original) Adopted 22 June 1989, BISD 36S/331, para. 5.2. back to text
199. Adopted 25 September 1997, WT/DS27/AB/R, para. 154. back to text
200. Appellate Body Report, EC — Poultry, para. 98. back to text
201. Panel Report, Canada — Dairy, para. 7.151. back to text
202. Panel Report, Canada — Dairy, para. 7.152. back to text
203. Panel Report, Canada — Dairy, paras. 7.151–7.155. back to text
204. (footnote original) The United States contends, on the basis of the panel report in United States — Restrictions on Imports of Sugar (supra, footnote 52), that “terms and conditions” may encompass “additional concessions”. We take no position as to whether “terms and conditions” may encompass “additional concessions”; but we do, however, note that, even assuming that the United States is correct on this point, an “additional concession” may well embody a qualification to a concession by expanding its scope or adding to it. back to text
205. (footnote original) Panel Report, para. 7.151. back to text
206. (footnote original) Ibid., para. 7.152. back to text
207. Appellate Body Report, Canada — Dairy, paras. 134–136. back to text
208. Appellate Body Report, Canada — Dairy, para. 143. back to text
209. Panel Report, Korea — Various Measures on Beef, para. 779. back to text
210. Panel Report, Chile — Price Band System, para. 7.49 (with citations to the negotiating history). This finding was not reversed by the Appellate Body. back to text
211. Panel Report, China — Autos, para. 7.184 (citing para. 145 of the Appellate Body Report, EC — Poultry). back to text
212. Appellate Body Report, Chin — Auto Parts, para. 158. back to text
213. Appellate Body Report, Argentina — Textiles and Apparel, para. 46. back to text
214. Appellate Body Report, Argentina — Textiles and Apparel, para. 55. back to text
215. Appellate Body Report, Argentina — Textiles and Apparel, paras. 53–54. back to text
216. Panel Report, EC — IT Products, paras. 7.743–7.744. back to text
217. The footnote in the original cites document MTN.GNG/NG7/W/53. back to text
218. Panel Report, Dominican Republic — Import and Sale of Cigarettes, paras. 7.113–114. back to text
219. Appellate Body Report, India — Additional Import Duties, para. 151. back to text
220. Panel Report, Dominican Republic — Import and Sale of Cigarettes, paras 7.24–7.25. back to text
221. Panel Report, Dominican Republic — Import and Sale of Cigarettes, para. 7.115. back to text
222. Panel on Dominican Republic — Import and Sale of Cigarettes, paras 7.34–7.40. back to text
223. Panel on Dominican Republic — Import and Sale of Cigarettes, para 7.72. back to text
224. Panel Report, Dominican Republic — Import and Sale of Cigarettes, paras. 7.88–7.89. back to text
225. WT/ACC/10/Rev.1/Add.1, p. 4. back to text
226. Appellate Body Report, India — Additional Import Duties, para. 153. back to text
227. Appellate Body Report, India — Additional Import Duties, fn. 320. back to text
228. Appellate Body Report, India — Additional Import Duties, para. 170. back to text
229. Appellate Body Report, India — Additional Import Duties, para. 172. back to text
230. Appellate Body Report, India — Additional Import Duties, para. 180. back to text
231. Appellate Body Report, India — Additional Import Duties, para. 190. back to text
232. Appellate Body Report, India — Additional Import Duties, para. 192. back to text
233. Appellate Body Report, US — Zeroing (Japan — Article 21.5 — Japan), para. 209. back to text
234. Panel Report, US — Zeroing (Japan — Article 21.5 — Japan), para. 7.207. back to text
235. Appellate Body Report, EC — Computer Equipment, para. 81. back to text
236. Appellate Body Report, EC — Computer Equipment, para. 84. back to text
237. Panel Report, Korea — Various Measures on Beef, para. 780. back to text
238. Appellate Body Report, EC — Bananas III, para. 155. back to text
239. Following this paragraph, the Panel cited Panel Report, US — Sugar, paras. 5.1–5.7. back to text
240. Panel Report, EC — Bananas III, paras. 7.113–7.114. In support of its finding, the Panel cited Appellate Body Report, Japan — Alcoholic Beverages II, p. 15, as stating that “[a]dopted panel reports are an important part of the GATT acquis. They are often taken into account by subsequent panels. They create legitimate expectations among Members, and, therefore should be taken into account where they are relevant to any dispute”. back to text
241. Panel Report, Korea — Various Measures on Beef, para. 780. back to text
242. MTN.GNG/MA/W/24. back to text
243. Appellate Body Report, Chile — Price Band System, para. 190. back to text
244. Panel Report, Canada — Dairy, para. 7.157. back to text
245. 1.1 Paragraph 1 of the Marrakesh Protocol to the GATT 1994 provides: “The schedule annexed to this Protocol relating to a Member shall become a Schedule to GATT 1994 relating to that Member on the day on which the WTO Agreement enters into force for that Member.” This usage followed the convention in earlier GATT 1947 tariff protocols under which a “schedule” of proposed concessions became a legally-binding “Schedule” upon its entry into force. back to text
246. On the situation of pre-Uruguay Round schedules, see GATT documents TAR/W/7 and TAR/W/85. back to text
247. BISD 27S/25. back to text
248. “Situation of Schedules of WTO Members”, G/MA/W/23/Rev.7, para. 16. back to text
249. G/MA/63; G/MA/W/23 and revs. 1 7; http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_table_e.htm. back to text
250. G/MA/M/4, para. 1.2 (including Chairman’s responses to various questions about substance and process for the consolidated schedules; see Chairman’s proposal at G/MA/TAR/W/4/Rev.2). See also the GATT Analytical Index at pp. 105–106 regarding earlier attempts to establish a comprehensive set of consolidated Schedules. back to text
251. G/L/138, paras. 1 and 13. (Adoption: G/C/W/98/Rev.1, para. 9.1.) back to text
252. G/MA/63. back to text
253. WT/L/605; WT/L/673. back to text
254. G/MA/M/25, para. 1. back to text
255. G/MA/244. back to text
256. BISD 34S/66. back to text
257. G/MA/M/10, para. 4; G/MA/IDB/1/Rev.1. back to text
258. WT/L/225 (discussed at G/MA/M/10, para. 4). back to text
259. G/MA/IDB/Rev.1/Add.1 (adoption at G/MA/M/12, para. 3). back to text
260. G/MA/156. back to text
261. G/MA/IDB/2 and Rev.133. back to text
262. See, e.g., G/MA/IDB/W/12, G/MA/M/27. back to text
263. G/MA/115 and addenda; see also 1999 document on dissemination of IDB at G/MA/IDB/3. back to text
264. G/MA/238 and addenda. back to text
265. G/MA/W/23/Rev.7. back to text
266. Decision of 12 July 1983, GATT BISD 30S/17. back to text
267. See TAR/W/67/Rev.15 and TAR/W/74/Rev.12. back to text
268. G/MA/W/100; G/MA/W/105. back to text
269. (footnote original) Decision of 8 October 1991, Annex to L/6905, GATT BISD 39S/300. back to text
270. (footnote original) WT/L/124 and WT/L/124/Corr.1. The Annex to the first “collective waiver” listed the following Members: Argentina, Brazil, Brunei Darussalam, Canada, Colombia, Cuba, Cyprus, Czech Republic, European Communities, Hungary, Iceland, India, Indonesia, Israel, Malaysia, Mexico, Norway, Paraguay, Philippines, Poland, Singapore, Slovak Republic, Slovenia, South Africa, Sri Lanka, Switzerland, Thailand, Tunisia, Turkey, United States, Uruguay, Venezuela and Zimbabwe. back to text
271. (footnote original) WT/L/173, WT/L/216, WT/L/243, WT/L/268, WT/L/281, WT/L/303, WT/L/338, WT/L/351, WT/L/379, WT/L/400. back to text
272. (footnote original) WT/L/400, item number (v). back to text
273. (Citations to waivers in G/MA/W/23/Rev.7) back to text
274. (footnote original) Decision of 27 May 2009 (WT/L/756), Procedures Leading to the Verification and Certification of HS96 Changes Relating to the Schedules of 64 Members. back to text
275. (footnote original) WT/L/407. back to text
276. (footnote original) Decision of 15 February 2005, WT/L/605. back to text
277. (footnote original) Decision of 14 December 2010 (WT/L/807), Amendment to the Procedures Leading to the Certification of HS2002 Changes. back to text
278. (footnote original) The Decisions are contained in documents WT/L/469, WT/L/477 (in respect of Romania), WT/L/511, WT/L/562, WT/L/598, WT/L/638, WT/L/674, WT/L/712, WT/L/744, WT/L/786 and WT/L/808. back to text
279. (footnote original) The annex to the waiver contained in document WT/L/808 lists the following Members: Argentina; Australia; Brazil; China; Costa Rica; Croatia; El Salvador; European Union; Iceland; India; Korea, Rep. of; Mexico; New Zealand; Norway; Thailand; United States; and Uruguay. back to text
280. (footnote original) The Decision indicates that those Members not listed in the Annex, that have approved their draft HS02 files and whose draft HS02 files have been released for multilateral review, shall notify the Committee on Market Access of their wish to be included in the waiver decision. back to text
281. (footnote original) WT/L/673. back to text
282. (footnote original) WT/L/675, WT/L/713, WT/L/745, WT/L/787, and WT/L/809. back to text
283. (footnote original) The Decision provides that those Members not listed in the Annex may notify the Committee on Market Access of its wish to be included in the waiver decision. Thailand, Mexico, Pakistan, Singapore and Israel have used this provision (WT/L/675/Add.1, WT/L/675/Add.2, WT/L/675/Add.3, WT/L/675/Add.4 and WT/L/787/Add.1 respectively). back to text
284. (footnote original) The annex to the fifth waiver lists the following Members: Argentina; Australia; Brazil; Canada; China; Costa Rica; Croatia; El Salvador; European Union; Guatemala; Honduras; Hong Kong, China; India; Israel; Korea, Rep. of; Macao, China; Malaysia; Mexico; New Zealand; Nicaragua; Norway; Pakistan; Singapore; Switzerland; Thailand; United States; and Uruguay. back to text
285. WT/MIN(96)/16. back to text
286. WT/MIN(96)/16, para. 2. back to text
287. Panel Report, EC — IT Products, para. 7.18 (extensive document references in original). back to text
288. See G/IT/1/Rev.44. back to text
289. G/L/160, para. 3. The Committee’s rules of procedure provide for observer status in the Committee to WTO Members which are not parties, and governments that are observers to the Council for Trade in Goods. Furthermore, requests for observer status by international intergovernmental organizations would be considered on a case-by-case basis. back to text
290. G/IT/M/2, para. 1.5. The text of the Rules of Procedure can be found in G/IT/3. back to text
291. G/IT/19. back to text
292. Panel Report, EC — IT Products, para. 7.409. back to text
293. TN/MA/S/13. back to text
294. WT/ACC/10/Rev.4, p. 24. back to text
295. (footnote original) Panel Report, US — Section 337, para. 5.10. back to text
296. (footnote original) Panel Reports on US — Superfund, para. 5.1.9; and Japan — Alcoholic Beverages II, para. 5.5(b). back to text
297. (footnote original) Panel Report, Italy — Agricultural Machinery, para. 11. back to text
298. Appellate Body Report, Japan — Alcoholic Beverages II, p. 16. back to text
299. Appellate Body Report, Korea — Alcoholic Beverages, para. 119; Appellate Body Report, Chile — Alcoholic Beverages, para. 67; and Appellate Body Report, EC — Asbestos, para. 97. See also Panel Report, Indonesia — Autos, para. 14.108. back to text
300. Appellate Body Report, Korea — Alcoholic Beverages, para. 120. back to text
301. (footnote original) Panel Reports on US — Tobacco, para. 99; US — Malt Beverages, para. 5.6; Canada — Provincial Liquor Boards (EEC), para. 5.6; US — Section 337, para. 5.13; US — Superfund, para. 5.1.9; Brazil — Internal Taxes, para. 15. back to text
302. Appellate Body Report, Canada — Periodicals, p. 18. back to text
303. Panel Report, Argentina — Hides and Leather, para. 11.182. (emphasis added) back to text
304. Panel Report, Japan — Alcoholic Beverages II, para. 6.13. back to text
305. Appellate Body Report, Japan — Alcoholic Beverages II, pp. 16–17. back to text
306. (footnote original) See Commission v. France, Case 168/78, 1980 ECR 347; Commission v. Kingdom of Denmark, Case 171/78, 1980 ECR 447; Commission v. Italian Republic, Case 319/81, 1983 ECR 601; Commission v Hellenic Republic, Case 230/89, 1991 ECR 1909. back to text
307. (footnote original) Council Regulation No. 4064/89 of 21 December 1989 on the control of concentrations between undertakings. back to text
308. (footnote original) Case No. IV/M 938 — Guinness/Grand Metropolitan. back to text
309. (footnote original) Commission v. Italy, Case 184/85, 1987 ECR 2013. back to text
310. (footnote original) United Brands v. Commission, Case 27/76, 1978 ECR 207. back to text
311. (footnote original) In finding the relationship of the provisions to each other relevant, we do not intend to imply that we have adopted the market definitions defined in these or other ECJ cases for purposes of this decision. back to text
312. Panel Report, Korea — Alcoholic Beverages, para. 10.81. back to text
313. Panel Report, Argentina — Hides and Leather, para. 11.145. back to text
314. Panel Report, Argentina — Hides and Leather, paras. 11.150 and 11.154. back to text
315. Appellate Body Report, EC — Bananas III, para. 211. back to text
316. Panel Report, Korea — Various Measures on Beef, para. 766. back to text
317. Appellate Body Report, Japan — Alcoholic Beverages II, p. 16. back to text
318. (footnote original) See the Panel Reports on US — Superfund, para. 5.2.4, EEC — Parts and Components, para. 5.6. back to text
319. Panel Report, Argentina — Hides and Leather, para. 11.144. back to text
320. Panel Report, Japan — Alcoholic Beverages II, para. 6.15. back to text
321. Appellate Body Report, Japan — Alcoholic Beverages II, pp. 18–19. back to text
322. Appellate Body Report, EC — Bananas III, paras. 216 and 241. back to text
323. Appellate Body Report, Japan — Alcoholic Beverages II, p. 18. back to text
324. Appellate Body Report, EC — Asbestos, para. 98. back to text
325. (footnote original) Panel Report, US — Superfund, para. 5.1.9. back to text
326. Appellate Body Report, Japan — Alcoholic Beverages II, p. 16 (statement also endorsed in Appellate Body Report, Korea — Alcoholic Beverages, para. 119; see also Panel Report, Indonesia — Autos, para. 14.108). back to text
327. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, p. 16. back to text
328. Appellate Body Report, Canada — Periodicals, p. 18. back to text
329. Panel Report, Korea — Various Measures on Beef, paras. 753 and 757. back to text
330. Panel Report, US — Gasoline, para. 6.17. back to text
331. (footnote original) US — Malt Beverages, para. 5.2. back to text
332. Panel Report, US — Gasoline, para. 6.17. back to text
333. Appellate Body Report, Japan — Alcoholic Beverages II, pp. 17–18. back to text
334. With respect to this issue, see also Panel Report, Japan — Film, para. 10.371. back to text
335. Appellate Body Report, Japan — Alcoholic Beverages II, p. 19. back to text
336. Appellate Body Report, Canada — Periodicals, pp. 22–23. back to text
337. Appellate Body Report, Canada — Periodicals, p. 19. back to text
338. Appellate Body Report, Canada — Periodicals, p. 28. back to text
339. (footnote original) Panel Report, Japan — Alcoholic Beverages II, para. 6.22, approved by the Appellate Body at p. 23 of its Report. back to text
340. (footnote original) Appellate Body Reports on Japan — Alcoholic Beverages II, p. 20, and Canada — Periodicals, p. 21. back to text
341. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, p. 25. back to text
342. (footnote original) Appellate Body Report, Canada — Periodicals, p. 28. back to text
343. Appellate Body Report, Korea — Alcoholic Beverages, para. 118. back to text
344. Appellate Body Report, Japan — Alcoholic Beverages II, p. 24. Two panels cited this finding and stated that “Ad Article III has equal stature under international law as the GATT language to which it refers, pursuant to Article XXXIV.” Panel Report, Korea — Alcoholic Beverages, footnote 346; and Panel Report, Chile — Alcoholic Beverages, footnote 349. back to text
345. Appellate Body Report, Japan — Alcoholic Beverages II, pp. 18–19. back to text
346. Appellate Body Report, Canada — Periodicals, pp. 22–23. back to text
347. (footnote original) We find further support for our view in the following statement made by the Appellate Body in its Report, EC — Bananas III, supra, at para. 216:
     “Article III:4 does not specifically refer to Article III:1. Therefore, a determination of whether there has been a violation of Article III:4 does not require a separate consideration of whether a measure “afford[s] protection to domestic production”.
     While this statement relates to Article III:4 of the GATT, which is not at issue in the present case, it nevertheless provides useful clarification for purposes of analysing Argentina’s argument in respect of Article III:2, first sentence. It clearly emerges from this statement that not only is there no requirement separately to establish the presence of a protective application, but that there is not even a requirement separately to consider whether there is a protective application. back to text
348. (footnote original) We note Argentina’s contention that the GATT 1947 panel reports on Japan — Alcoholic Beverages I; US — Section 337, and US — Malt Beverages, lend support to its view that the presence of a protective application must be established for purposes of a claim under Article III:2, first sentence. See paras. 8.228 et seq. of this report. Since all of the aforementioned reports pre-date the Appellate Body reports on Japan — Alcoholic Beverages II and EC — Bananas III and since those Appellate Body reports directly address the issue before us, we see no need to further consider the GATT 1947 reports in this regard. back to text
349. Panel Report, Argentina — Hides and Leather, para. 11.137. back to text
350. Panel Report, Japan — Alcoholic Beverages II, para. 6.14. back to text
351. The Appellate Body cited Report of the Working Party on Border Tax Adjustments, BISD 18S/97, para. 18. back to text
352. Appellate Body Report, Japan — Alcoholic Beverages II, p. 20. In Indonesia — Autos, the Panel followed this finding of the Appellate Body. Panel Report, Indonesia — Autos, para. 14.109. back to text
353. Appellate Body Report, Canada — Periodicals, pp. 21–22. back to text
354. Panel Report, Argentina — Hides and Leather, para. 11.167. back to text
355. Panel Report, Thailand — Cigarettes (Philippines), paras. 7.425– 7.451. back to text
356. (footnote original) Panel Reports on EEC — Animal Proteins; Japan — Alcoholic Beverages I; and US — Gasoline. back to text
357. (footnote original) Panel Report, Japan — Alcoholic Beverages I, para. 5.6. back to text
358. Appellate Body Report, Japan — Alcoholic Beverages II, pp. 21–22. back to text
359. Appellate Body Report, Japan — Alcoholic Beverages II, p. 22. back to text
360. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, p. 20. back to text
361. Appellate Body Report, Canada — Periodicals, pp. 20–21. back to text
362. (footnote original) Appellate Body Report, Canada — Periodicals, pp. 20–21. back to text
363. Panel Report, Indonesia — Autos, para. 14.113. back to text
364. (footnote original) As the Appellate Body has stated in US — Wool Shirts and Blouses, p. 14: back to text
     “In the context of the GATT 1994 and the WTO Agreement, precisely how much and precisely what kind of evidence will be required to establish such a presumption will necessarily vary from measure to measure, provision to provision, and case to case.”
365. (footnote original) In our view, the mere fact that a product is of non-Argentinean origin or that it is being definitively imported into Argentina does not, per se, distinguish it — in terms of its physical characteristics and end-uses — from a product of Argentinean origin or a product which is being sold inside Argentina. Nor does likeness turn on whether the sellers or purchasers of the products under comparison qualify as registered or non-registered taxable persons or as agentes de percepción under Argentinean tax law. back to text
366. (footnote original) This view is unaffected by the fact that, according to the Appellate Body, the term “like products”, as it appears in Article III:2, first sentence, is to be construed narrowly and on a case-by-case basis. See the Appellate Body Report, Japan — Alcoholic Beverages, pp. 19–20. back to text
367. (footnote original) Panel Report, Indonesia — Autos, para. 14.113. See also the Panel Reports on Korea — Various Measures on Beef, para. 627 (with respect to Article III:4 of the GATT 1994) and US — Certain EC Products, para. 6.54 (with respect to Article I:1 of the GATT 1994). back to text
368. Panel Report, Argentina — Hides and Leather, paras. 11.168– 11.170. back to text
369. Panel Report, China — Autos, para. 7.216. back to text
370. (footnote original) See also the Panel Reports on US — Gasoline, supra, para. 6.11; United States — Alcoholic Beverages, para. 5.19. These panels held that differential regulatory or tax treatment of imported and like domestic products cannot be maintained, consistently with Article III, on the basis that the characteristics and circumstances of the producers of those products are different. The same logic must apply, in our view, to cases where tax distinctions between like imported and domestic products are based on the characteristics and circumstances of the sellers or purchasers of those products. back to text
371. (footnote original) See the  Panel Reports on US — Gasoline, para. 6.11; United States — Alcoholic Beverages, para. 5.19. See also footnote 499 of this report. The disciplines of Article III:2, first sentence, are of course subject to whatever exceptions a Member may justifiably invoke. back to text
372. Panel Report, Argentina — Hides and Leather, paras. 11.210 and 11.220. back to text
373. (footnote original) Report of the Working Party on Border Tax Adjustments, BISD 18S/97, para. 18. back to text
374. (footnote original) Panel Reports on Australia — Ammonium Sulphate; EEC — Animal Proteins; Spain — Unroasted Coffee; Japan — Alcoholic Beverages I; US — Superfund. Also see Panel Report, US — Gasoline. back to text
375. Appellate Body Report, Japan — Alcoholic Beverages II, pp. 19–21. back to text
376. Appellate Body Report, Japan — Alcoholic Beverages II, p. 25. back to text
377. Panel Report, Japan — Alcoholic Beverages II, para. 6.20. back to text
378. Appellate Body Report, EC — Asbestos, para. 99. back to text
379. Panel Report, Thailand — Cigarettes (Philippines), para. 7.662. back to text
380. Appellate Body Report, Japan — Alcoholic Beverages II, p. 21. back to text
381. (footnote original) See the Panel Reports on US — Superfund, para. 5.2.4, EEC — Parts and Components, para. 5.6. back to text
382. Panel Report, Argentina — Hides and Leather, paras. 11.143– 11.144. back to text
383. Appellate Body Report, China — Auto Parts, para. 163 (citing the Panel Report, para. 7.132). back to text
384. Panel Report, Thailand — Cigarettes (Philippines), para. 7.598. back to text
385. Appellate Body Report, Japan — Alcoholic Beverages II, p. 23. This finding was followed by the Panel in Argentina — Hides and Leather. Panel Report, Argentina — Hides and Leather, para. 11.243. back to text
386. (footnote original) Appellate Body Report, Canada — Periodicals, p. 18. back to text
387. (footnote original) Panel Report, Japan — Alcoholic Beverages I, para. 5.8. back to text
388. Panel Report, Argentina — Hides and Leather, paras. 11.182– 11.184. back to text
389. (footnote original) See Panel Report, US — Tobacco, para. 98. For reports with respect to Article III:4 of the GATT 1994, see the Panel Reports on US — Section 337, para. 5.14; US — Gasoline, para. 6.14. back to text
390. Panel Report, Argentina — Hides and Leather, para. 11.260. back to text
391. (footnote original) Appellate Body Report, Canada — Periodicals, p. 19. back to text
392. Panel Report, Thailand — Cigarettes (Philippines), paras. 7.610– 7.611. back to text
393. Appellate Body Report, Thailand — Cigarettes (Philippines), para. 116. back to text
394. Further, with respect to the methodology of comparison in identifying “directly competitive and substitutable products” under the second sentence of Article III:2, see paras. 286–302 of this Chapter. back to text
395. Panel Report, Argentina — Hides and Leather, para. 11.245. back to text
396. Panel Report, Argentina — Hides and Leather, para. 11.144. back to text
397. Appellate Body Report, Canada — Periodicals, p. 18. back to text
398. Panel Report, Argentina — Hides and Leather, para. 11.160, which refers to the Appellate Body Report, Canada — Periodicals, p. 20. back to text
399. (footnote original) See the Working Party Report, Border Tax Adjustments, adopted on 2 December 1970, BISD 18S/97, at para. 14. back to text
400. Panel Report, Argentina — Hides and Leather, para. 11.159. back to text
401. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, p. 16, DSR 1996:1, p. 97, at p. 110. back to text
402. (footnote original) Cf., Appellate Body Report, Canada — Periodicals, p. 19, DSR 1997:I, p. 449, at pp. 464–465. back to text
403. (footnote original) GATT Panel Report, Japan — Alcoholic Beverages I, para. 5.8. See also, Panel Report, Canada — Periodicals, paras. 3.49 and 5.29. back to text
404. Panel Report, Mexico — Taxes on Soft Drinks, paras 8.44–8.45. back to text
405. See Panel Report, Mexico — Taxes on Soft Drinks, paras. 8.46–8.50. back to text
406. Appellate Body Report, Japan — Alcoholic Beverages II, p. 24, DSR 1996:1, p. 97, at p. 116. This part has been later cited and endorsed by the Appellate Body, in Appellate Body Report, Canada — Periodicals, pp. 24–25, and the Appellate Body Report, Chile — Alcoholic Beverages, para. 47 and by the Panel Report, Mexico — Taxes on Soft Drinks, para. 8.66. back to text
407. Panel Report, Japan — Alcoholic Beverages II, para. 6.28. back to text
408. Appellate Body Report, Korea — Alcoholic Beverages, para. 156. back to text
409. Appellate Body Report, Japan — Alcoholic Beverages II, p. 25. back to text
410. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, fn. 20. back to text
411. Appellate Body Report, Korea — Alcoholic Beverages, para. 121. back to text
412. (footnote original) Appellate Body Report, Korea — Alcoholic Beverages, para. 120. back to text
413. Appellate Body Report, Korea — Alcoholic Beverages, para. 134. back to text
414. (footnote original) Appellate Body Reports on Japan — Alcoholic Beverages II, fn. 20 and Canada — Periodicals, fn. 91. back to text
415. (footnote original) Panel Report, Japan — Alcoholic Beverages II, fn. 16, with reference to Working Party Report, Border Tax Adjustments, L/3464, BISD 18S/97, para. 18, approved by the Appellate Body Report, Japan — Alcoholic Beverages II, fn. 20. back to text
416. Appellate Body Report, Korea — Alcoholic Beverages, para. 137. back to text
417. Appellate Body Report, Korea — Alcoholic Beverages, para. 127. back to text
418. (footnote original) Appellate Body Report, Canada — Periodicals. back to text
419. Appellate Body Report, Korea — Alcoholic Beverages, paras. 114–116. back to text
420. Appellate Body Report, Korea — Alcoholic Beverages, para. 117. back to text
421. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, footnote 20. back to text
422. Appellate Body Report, Korea — Alcoholic Beverages, para. 119. back to text
423. Panel Report, Japan — Alcoholic Beverages II, para. 6.28. back to text
424. (footnote original) Panel Report, Japan — Alcoholic Beverages I. The panel in Japan — Alcoholic Beverages II cited para. 5.9 of this panel report. back to text
425. (footnote original) Panel Report, Japan — Alcoholic Beverages II, footnote 16, para. 6.28. This excerpt was expressly approved by the Appellate Body in its Report in this case (p. 25). back to text
426. (footnote original) Panel Report, Japan — Alcoholic Beverages II, footnote 16, para. 6.28. back to text
427. Appellate Body Report, Korea — Alcoholic Beverages, para. 120. back to text
428. Appellate Body Report, Korea — Alcoholic Beverages, paras. 122–124. back to text
429. Appellate Body Report, Canada — Periodicals, p. 28. back to text
430. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, p. 25. back to text
431. Panel Report, Korea — Alcoholic Beverages, paras. 10.37–10.40. back to text
432. Appellate Body Report, Japan — Alcoholic Beverages II, p. 25. back to text
433. Appellate Body Report, Korea — Alcoholic Beverages, para. 144. back to text
434. Panel Report, Korea — Alcoholic Beverages, para. 10.61. back to text
435. (footnote original) Panel Report, Korea — Alcoholic Beverages, para. 10.60. back to text
436. (footnote original) We note that the panels in Japan — Alcohol Beverages I and in Japan — Alcoholic Beverages II, followed the same approach. This approach was implicitly approved in our Report, Japan — Alcoholic Beverages II. back to text
437. Appellate Body Report, Korea — Alcoholic Beverages, paras. 141–144. back to text
438. (footnote original) Panel Report, Japan — Alcoholic Beverages II, footnote 16, approved by the Appellate Body at p. 23 of its Report. back to text
439. (footnote original) Appellate Body Reports on Japan — Alcoholic Beverages II, footnote 20, and Canada — Periodicals, footnote 91. back to text
440. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, footnote 20. back to text
441. (footnote original) Appellate Body Report, Canada — Periodicals, footnote 91. back to text
442. Appellate Body Report, Korea — Alcoholic Beverages, para. 118. back to text
443. Appellate Body Report, Japan — Alcoholic Beverages II, p. 26. back to text
444. Appellate Body Report, Japan — Alcoholic Beverages II, pp. 26–27. This “de minimis” standard was endorsed by the Appellate Body in Canada — Periodicals (Appellate Body Report, Canada — Periodicals, p. 29); in Chile — Alcoholic Beverages (Appellate Body Report, Chile — Alcoholic Beverages, para. 49). back to text
445. Appellate Body Report, Japan — Alcoholic Beverages II, p. 27. back to text
446. (footnote original) GATT Panel Report, US — Section 337, BISD 36S/345, para. 5.14. back to text
447. Appellate Body Report, Canada — Periodicals, p. 29. back to text
448. Further, with respect to the methodology of comparison in identifying “directly competitive and substitutable products” under the second sentence of Article III:2, see paras. 286–302 of this Chapter. Also with respect to this issue under Article III:4, see paras. 331–336 of this Chapter. back to text
449. Appellate Body Report, Japan — Alcoholic Beverages II, p. 27. back to text
450. Appellate Body Report, Japan — Alcoholic Beverages II, p. 29. back to text
451. (footnote original) Panel Report, Japan — Alcoholic Beverages I, para. 5.11. See also Appellate Body Report, Canada — Periodicals, p. 30. back to text
452. Appellate Body Report, Japan — Alcoholic Beverages II, p. 33. back to text
453. Appellate Body Report, Japan — Alcoholic Beverages II, pp. 29–31. back to text
454. Appellate Body Report, Japan — Alcoholic Beverages II, p. 31. back to text
455. Panel Report, Japan — Alcoholic Beverages II, para. 6.35. back to text
456. Appellate Body Report, Japan — Alcoholic Beverages II, pp. 27–28. back to text
457. Appellate Body Report, Canada — Periodicals, p. 32. back to text
458. Appellate Body Report, Canada — Periodicals, pp. 30–32. back to text
459. Appellate Body Report, Korea — Alcoholic Beverages, para. 150. back to text
460. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, fn. 20. back to text
461. Appellate Body Report, Chile — Alcoholic Beverages, paras. 71–72. back to text
462. (footnote original) Appellate Body Report, Japan — Alcoholic Beverages II, pp. 27–28, DSR 1996:I, p. 97, at p. 119. back to text
463. (footnote original) Appellate Body Report, Canada — Periodicals, pp. 30–32, DSR 1997:1, p. 449, at pp. 475–476. back to text
464. Panel Report, Mexico — Taxes on Soft Drinks, para. 8.91, see also paras. 8.92–8.94. back to text

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