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>
General
Agreement On Tariffs And Trade 1994
> Article I
> Article II
>
Article III
>
Article IV
> Article V
> Article VI
>
Article VII
>
Article VIII
> Article IX
> Article X
> Article XI
> Article XII
>
Article XIII
>
Article XIV
> Article XV
> Article XVI
>
Article XVII
>
Article XVIII
> Article XIX
> Article XX
> Article XXI
> Article XXII
>
Article XXIII
>
Article XXIV
> Article XXV
> Article XXVI
>
Article X XVII
> Article XXVIII
> Article XXVIII bis
> Article XXIX
> Article XXX
> Article XXXI
> Article XXXII
> Article XXXIII
> Article XXXIV
> Article XXXV
> Article XXXVI
> Article XXXVII
> Article XXXVIII
> Analytical Index main page
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4. Paragraph 4
(a)
General
(i) Test under paragraph 4
198. In Korea –
Various Measures on Beef, the Appellate Body explained the three
elements of a violation of Article III:4:
“For a
violation of Article III:4 to be established, three elements must
be satisfied: that the imported and domestic products at issue are ‘like
products’; that the measure at issue is a ‘law, regulation, or
requirement affecting their internal sale, offering for sale,
purchase, transportation, distribution, or use’; and that the
imported products are accorded ‘less favourable’ treatment than
that accorded to like domestic products.”(300)
199. In EC – Bananas
III, the
Appellate Body reviewed the Panel’s finding that the EC’s
allocation method of tariff quota for bananas was inconsistent
with Article III:4. The Appellate Body considered that an
independent consideration of the phrase “so as [to] afford
protection to domestic production” is not necessary under
Article III:4:
“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’.”(301)
(ii) Burden of proof
200. In Japan – Film, the Panel
allocated the burden of proof under Article III:4 according
to the general principle that it is for the party asserting a
fact or claim to bear the burden of proving this fact or claim:
“As for the burden of proof…
we note that it is for the party asserting a fact, claim or defence to
bear the burden of providing proof thereof. Once that party has put
forward sufficient evidence to raise a presumption that what is claimed
is true, the burden of producing evidence shifts to the other party to
rebut the presumption.(302)
Thus, in this case, including the claims under
Articles III… , it is for the United States to bear the burden of
proving its claims. Once it has raised a presumption that what it claims
is true, it is for Japan to adduce sufficient evidence to rebut any such
presumption.”(303)
201. The Appellate Body confirmed
this approach by the Panel on Japan – Film to the allocation of
the burden of proof in its report in EC – Asbestos. In so
doing, the Appellate Body referred to its finding on US – Wool
Shirts and Blouses:(304)
“Applying
these rules, it is our opinion that Canada, as the complaining party,
should normally provide sufficient evidence to establish a presumption
that there are grounds for each of its claims. If it does so, it will
then be up to the EC to adduce sufficient evidence to rebut the
presumption. When the EC puts forward a particular method of defence
in the affirmative, it is up to them to furnish sufficient evidence,
just as Canada must do for its own claims. If both parties furnish
evidence that meets these requirements, it is the responsibility of
the Panel to assess these elements as a whole. Where the evidence
concerning a claim or a particular form of defence is, in general,
equally balanced, a finding has to be made against the party on which
the burden of proof relating to this claim or this form of defence is
incumbent.”(305)
(iii) Relationship with other
paragraphs of Article III
(a.1) Relationship
with paragraph 1
202. With respect to the relationship
between Paragraphs 1 and 4 of Article III, see
paragraphs 110-113 above. Also, in EC – Bananas III, the
Appellate Body touched on this issue in discussing whether the
independent consideration of “so as to afford protection to
domestic production” is necessary under Article III:4. See
paragraph 199 above. Further, this issue was touched upon by the
Appellate Body in EC – Asbestos in relation to the
interpretation of the term “like products” under paragraph 4.
See paragraphs 206 and 208 below.
(a.2) Relationship
with paragraph 2
203. In EC – Asbestos, the
Appellate Body considered that Article III:2 constitutes part of
the context of Article III:4, and examined the relationship between
these paragraphs. However, the Appellate Body concluded that
Article III:1, rather than Article III:2, had “particular
contextual significance” for the interpretation of
Article III:4:
“To begin to resolve these
[interpretative] issues, we turn to the relevant context of
Article III:4 of the GATT 1994. In that respect, we observe
that Article III:2 of the GATT 1994, which deals with the
internal tax treatment of imported and domestic products, prevents
Members, through its first sentence, from imposing internal taxes on
imported products ‘in excess of those applied … to like
domestic products.’ (emphasis added) In previous Reports, we have
held that the scope of ‘like’ products in this sentence is to be
construed ‘narrowly’.(306)
This reading of ‘like’ in Article III:2 might be taken to
suggest a similarly narrow reading of ‘like’ in
Article III:4, since both provisions form part of the same
Article. However, both of these paragraphs of Article III
constitute specific expressions of the overarching, ‘general
principle’, set forth in Article III:1 of
the GATT 1994.(307)
As we have previously said, the ‘general principle’ set forth in
Article III:1 ‘informs’ the rest of Article III and acts
‘as a guide to understanding and interpreting the specific
obligations contained’ in the other paragraphs of Article III,
including paragraph 4.(308)
Thus, in our view, Article III:1 has particular contextual
significance in interpreting Article III:4, as it sets forth the
‘general principle’ pursued by that provision. Accordingly, in
interpreting the term ‘like products’ in Article III:4, we
must turn, first, to the ‘general principle’ in
Article III:1, rather than to the term ‘like products’ in
Article III:2.”(309)
204. After emphasizing the
significance of Article III:1 for the interpretation of
Article III:4, the Appellate Body in EC – Asbestos
considered the different respective structures of Articles III:2 and
III:4:
“In addition,
we observe that, although the obligations in Articles III:2 and
III:4 both apply to ‘like products’, the text of
Article III:2 differs in one important respect from the text of
Article III:4. Article III:2 contains two separate
sentences, each imposing distinct obligations: the first lays
down obligations in respect of ‘like products’, while the second
lays down obligations in respect of ‘directly competitive or
substitutable’ products.(310)
By contrast, Article III:4 applies only to ‘like products’
and does not include a provision equivalent to the second sentence of
Article III:2. We note that, in this dispute, the Panel did not
examine, at all, the significance of this textual difference between
paragraphs 2 and 4 of Article III.”(311)
205. The Appellate Body in EC –
Asbestos also recalled its report in Japan – Alcoholic
Beverages II, where it had emphasized the need to interpret the
two sentences of Article III:2 and the separate obligations
contained therein in the light of the structure of Article III:2:
“For us, this
textual difference between paragraphs 2 and 4 of Article III has
considerable implications for the meaning of the term ‘like products’
in these two provisions. In Japan – Alcoholic Beverages, we
concluded, in construing Article III:2, that the two separate
obligations in the two sentences of Article III:2 must be
interpreted in a harmonious manner that gives meaning to both
sentences in that provision. We observed there that the interpretation
of one of the sentences necessarily affects the interpretation of the
other. Thus, the scope of the term ‘like products’ in the first
sentence of Article III:2 affects, and is affected by, the scope
of the phrase ‘directly competitive or substitutable’ products in
the second sentence of that provision. We said in Japan –
Alcoholic Beverages:
‘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.’(312)
In construing
Article III:4, the same interpretive considerations do not arise,
because the ‘general principle’ articulated in Article III:1 is
expressed in Article III:4, not through two distinct obligations,
as in the two sentences in Article III:2, but instead through a
single obligation that applies solely to ‘like products’. Therefore,
the harmony that we have attributed to the two sentences of
Article III:2 need not and, indeed, cannot be replicated in
interpreting Article III:4. Thus, we conclude that, given the
textual difference between Articles III:2 and III:4, the
‘accordion’ of ‘likeness’ stretches in a different way in
Article III:4.”(313)
(b)
“like products”
(i) General
(a.1) Relationship
with “like products” under Article III:2, first sentence
206. In EC – Asbestos, the
Appellate Body interpreted the term “like” in
Article III:4 by comparing the same term as used in
Article III:2. The Appellate Body emphasized the need for
consistency between the general principle of Article III, contained
in paragraph 1, and the interpretation of Article III:4. The
Appellate Body then interpreted the term “like products” to
refer to products which are in a competitive relationship:
“[T]here must
be consonance between the objective pursued by Article III, as
enunciated in the ‘general principle’ articulated in
Article III:1, and the interpretation of the specific expression
of this principle in the text of Article III:4. This
interpretation must, therefore, reflect that, in endeavouring to
ensure ‘equality of competitive conditions’, the ‘general
principle’
in Article III seeks to prevent Members from applying internal
taxes and regulations in a manner which affects the competitive
relationship, in the marketplace, between the domestic and imported
products involved, ‘so as to afford protection to domestic
production.’
As products that are in a
competitive relationship in the marketplace could be affected through
treatment of imports ‘less favourable’ than the treatment
accorded to domestic products, it follows that the word
‘like’
in Article III:4 is to be interpreted to apply to products that
are in such a competitive relationship. Thus, a determination of
‘likeness’ under Article III:4 is, fundamentally, a determination
about the nature and extent of a competitive relationship between and
among products. In saying this, we are mindful that there is a
spectrum of degrees of ‘competitiveness’ or ‘substitutability’ of
products in the marketplace, and that it is difficult, if not
impossible, in the abstract, to indicate precisely where on this
spectrum the word ‘like’ in Article III:4 of the GATT 1994
falls. We are not saying that all products which are in some
competitive relationship are ‘like products’ under Article III:4.
In ruling on the measure at issue, we also do not attempt to define
the precise scope of the word ‘like’ in Article III:4. Nor do we
wish to decide if the scope of ‘like products’ in Article III:4
is co-extensive with the combined scope of ‘like’ and ‘directly
competitive or substitutable’ products in Article III:2. However,
we recognize that the relationship between these two provisions is
important, because there is no sharp distinction between fiscal
regulation, covered by Article III:2, and non-fiscal regulation,
covered by Article III:4. Both forms of regulation can often be
used to achieve the same ends. It would be
incongruous if, due to a significant difference in the product scope
of these two provisions, Members were prevented from using one form of
regulation – for instance, fiscal – to protect domestic production
of certain products, but were able to use another form of regulation
– for instance, non-fiscal – to achieve those ends. This would
frustrate a consistent application of the ‘general principle’ in
Article III:1. For these reasons, we conclude that the scope of
‘like’ in Article III:4 is broader than the scope of
‘like’ in
Article III:2, first sentence. Nonetheless, we note, once more,
that Article III:2 extends not only to ‘like products’, but also
to products which are ‘directly competitive or substitutable’, and
that Article III:4 extends only to ‘like products’. In view of
this different language, and although we need not rule, and do not
rule, on the precise product scope of Article III:4, we do
conclude that the product scope of Article III:4, although
broader than the first sentence of Article III:2, is
certainly not broader than the combined product scope of
the two sentences of Article III:2 of the
GATT 1994.”(314)
207. The Appellate Body acknowledged
that its interpretation resulted in giving Article III:4 “a
relatively broad product scope”. Nevertheless the Appellate Body
pointed out that mere “likeness” of products and distinctions
between “like products” in and of themselves would not lead to
inconsistency with Article III:4; rather, “less favourable
treatment” would also have to be established in order to find a
violation of Article III:4:
“We recognize
that, by interpreting the term ‘like products’ in Article III:4
in this way, we give that provision a relatively broad product scope
– although no broader than the product scope of Article III:2.
In so doing, we observe that there is a second element that must be
established before a measure can be held to be inconsistent with
Article III:4. Thus, even if two products are ‘like’, that does
not mean that a measure is inconsistent with Article III:4. A
complaining Member must still establish that the measure accords to
the group of ‘like’ imported products ‘less favourable
treatment’ than it accords to the group of ‘like’ domestic
products. The term ‘less favourable treatment’ expresses the general
principle, in Article III:1, that internal regulations ‘should
not be applied … so as to afford protection to domestic
production’.
If there is ‘less favourable treatment’ of the group of ‘like’
imported products, there is, conversely, ‘protection’ of the group of
‘like’ domestic products. However, a Member may draw distinctions
between products which have been found to be ‘like’, without, for this
reason alone, according to the group of ‘like’ imported
products ‘less favourable treatment’ than that accorded to the group
of ‘like’ domestic products. In this case, we
do not examine further the interpretation of the term ‘treatment no
less favourable’ in Article III:4, as the Panel’s findings on
this issue have not been appealed or, indeed, argued before us.”(315)
208. Further, in EC – Asbestos,
the Appellate Body also referred to the Report of the Working Party on Border
Tax Adjustment. It confirmed that the criteria listed in this Report
provide a framework for analysing the “likeness” of products
on a case-by-case basis. However, the Appellate Body emphasized that
these criteria were not treaty language nor did they constitute a “closed list” and that
“the adoption of a particular
framework to aid in the examination of evidence does not dissolve the
duty or the need to examine, in each case, all of the
pertinent evidence”:
“We turn to consideration of
how a treaty interpreter should proceed in determining whether
products are ‘like’ under Article III:4. As in
Article III:2, in this determination, ‘[n]o one approach … will
be appropriate for all cases.’(316)
Rather, an assessment utilizing ‘an unavoidable
element of individual, discretionary judgement’(317)
has to be made on a case-by-case basis. The Report of the Working
Party on Border Tax Adjustments outlined an
approach for analyzing ‘likeness’ that has been followed and developed
since by several panels and the Appellate Body.(318)
This approach has, in the main, consisted of employing four general
criteria in analyzing ‘likeness’: (i) the properties, nature and
quality of the products; (ii) the end-uses of the products; (iii)
consumers’ tastes and habits – more comprehensively termed
consumers’ perceptions and behaviour – in respect of the products;
and (iv) the tariff classification of the products.(319)
We note that these four criteria comprise four categories of
‘characteristics’ that the products involved might share: (i) the
physical properties of the products; (ii) the extent to which the
products are capable of serving the same or similar end-uses; (iii)
the extent to which consumers perceive and treat the products as
alternative means of performing particular functions in order to
satisfy a particular want or demand; and (iv) the international
classification of the products for tariff purposes.
These general
criteria, or groupings of potentially shared characteristics, provide
a framework for analyzing the ‘likeness’ of particular products on a
case-by-case basis. These criteria are, it is well to bear in mind,
simply tools to assist in the task of sorting and examining the
relevant evidence. They are neither a treaty-mandated nor a closed
list of criteria that will determine the legal characterization of
products. More important, the adoption of a particular framework to
aid in the examination of evidence does not dissolve the duty or the
need to examine, in each case, all of the pertinent
evidence. In addition, although each criterion addresses, in
principle, a different aspect of the products involved, which should
be examined separately, the different criteria are interrelated. For
instance, the physical properties of a product shape and limit the
end-uses to which the products can be devoted. Consumer perceptions
may similarly influence – modify or even render obsolete –
traditional uses of the products. Tariff classification clearly
reflects the physical properties of a product.
The kind of
evidence to be examined in assessing the ‘likeness’ of products will,
necessarily, depend upon the particular products and the legal
provision at issue. When all the relevant evidence has been examined,
panels must determine whether that evidence, as a whole, indicates
that the products in question are ‘like’ in terms of the legal
provision at issue. We have noted that, under Article III:4 of
the GATT 1994, the term ‘like products’ is concerned with
competitive relationships between and among products. Accordingly,
whether the Border Tax Adjustments framework is adopted or not,
it is important under Article III:4 to take account of evidence
which indicates whether, and to what extent, the products involved are
– or could be – in a competitive relationship in the
marketplace.”(320)
209. In Japan – Alcoholic
Beverages II, the Appellate Body found that the term “like
product” evoked the image of an accordion whose width would vary
depending on the provision under which the term was being interpreted.
See paragraph 132 above.
(a.2) Relationship
with “like products” in other GATT provisions
210. With respect to the
interpretation of “like products” under GATT Article I,
see paragraphs 11-12 above.
(ii) Relevant factors
(a.1) General
211. In EC – Asbestos, the
Appellate Body reviewed the Panel’s approach to its “likeness”
analysis, and criticised the Panel for not taking into account all
of the relevant criteria:
“It is our
view that, having adopted an approach based on the four criteria set
forth in Border Tax Adjustments, the Panel should have examined
the evidence relating to each of those four criteria and, then,
weighed all of that evidence, along with any other relevant
evidence, in making an overall determination of whether the
products at issue could be characterized as ‘like’. Yet, the Panel
expressed a ‘conclusion’ that the products were ‘like’ after examining
only the first of the four criteria. The Panel then repeated
that conclusion under the second criterion – without further
analysis – before dismissing altogether the relevance of the third
criterion and also before rejecting the differing tariff
classifications under the fourth criterion. In our view, it was
inappropriate for the Panel to express a ‘conclusion’ after examining
only one of the four criteria. By reaching a ‘conclusion’ without
examining all of the criteria it had decided to examine, the Panel, in
reality, expressed a conclusion after examining only some of the
evidence. Yet, a determination on the ‘likeness’ of products cannot be
made on the basis of a partial analysis of the evidence, after
examination of just one of the criteria the Panel said it would
examine. For this reason, we doubt whether the Panel’s overall
approach has allowed the Panel to make a proper characterization of
the ‘likeness’ of the fibres at issue.”(321)
212. In EC – Asbestos, the
Appellate Body also disagreed with the Panel’s findings with respect to
the examination of the first criteria of likeness – product
properties. More specifically, the Appellate Body held that toxicity was
a physical difference to be taken into account in the determination of
“likeness” and linked this criterion to the criterion of
competitive relationship between the products at issue:
“Panels must
examine fully the physical properties of products. In particular,
panels must examine those physical properties of products that are
likely to influence the competitive relationship between products in
the marketplace. …
…
This carcinogenicity, or toxicity,
constitutes, as we see it, a defining aspect of the physical
properties of chrysotile asbestos fibres. The evidence indicates that
PCG fibres, in contrast, do not share these properties, at least to
the same extent. We do not see how this highly significant physical
difference cannot be a consideration in examining
the physical properties of a product as part of a determination of “likeness” under Article III:4 of the
GATT 1994.”(322)
213. Also, in EC – Asbestos,
with respect to the criteria of end-use and consumer tastes and habits,
the Appellate Body again established an explicit link to the criterion
of a competitive relationship between products:
“Before
examining the Panel’s findings under the second and third criteria, we
note that these two criteria involve certain of the key elements
relating to the competitive relationship between products: first, the
extent to which products are capable of performing the same, or
similar, functions (end-uses), and, second, the extent to which
consumers are willing to use the products to perform these functions
(consumers’ tastes and habits). Evidence of this type is of particular
importance under Article III of the GATT 1994, precisely
because that provision is concerned with competitive relationships in
the marketplace. If there is – or could be – no
competitive relationship between products, a Member cannot intervene,
through internal taxation or regulation, to protect domestic
production. Thus, evidence about the extent to which products can
serve the same end-uses, and the extent to which consumers are – or
would be – willing to choose one product instead of another to
perform those end-uses, is highly relevant evidence in assessing the
‘likeness’ of those products under Article III:4 of the
GATT 1994.”(323)
214. After having found that the
(degree of) toxicity of a product was a physical characteristic to be
taken into account for the determination of likeness under
Article III:4, the Appellate Body emphasized the significance of
the toxicity of a subject product also in relation to consumers’
behaviour:
“In this case especially, we
are also persuaded that evidence relating to consumers’ tastes and
habits would establish that the health risks associated with
chrysotile asbestos fibres influence consumers’ behaviour with respect
to the different fibres at issue(324).
We observe that, as regards chrysotile asbestos and PCG fibres,
the consumer of the fibres is a manufacturer who
incorporates the fibres into another product, such as cement-based
products or brake linings. We do not wish to speculate on what the
evidence regarding these consumers would have
indicated; rather, we wish to highlight that consumers’
tastes and habits regarding fibres, even in the case of
commercial parties, such as manufacturers, are very likely to be
shaped by the health risks associated with a product which is known to
be highly carcinogenic. A manufacturer cannot, for instance,
ignore the preferences of the ultimate consumer of its products. If
the risks posed by a particular product are sufficiently great, the
ultimate consumer may simply cease to buy that product. This would,
undoubtedly, affect a manufacturer’s decisions in the marketplace.
Moreover, in the case of products posing risks to human health, we
think it likely that manufacturers’ decisions will be influenced by
other factors, such as the potential civil liability that might flow
from marketing products posing a health risk to the ultimate consumer,
or the additional costs associated with safety
procedures required to use such products in the manufacturing
process.”(325)
215. In EC – Asbestos, the
Appellate Body rejected Canada’s argument that consumers’ tastes and
habits were irrelevant in this dispute because “the existence of
the measure has disturbed normal conditions of competition between the
products”:(326)
“In our Report
in Korea – Alcoholic Beverages, we observed that, ‘[p]articularly
in a market where there are regulatory barriers to trade or to
competition, there may well be latent demand’ for a product.(327)
We noted that, in such situations, ‘it may be highly relevant to
examine latent demand’ that is suppressed by regulatory barriers.(328)
In addition, we said 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.’(329) We,
therefore, do not accept Canada’s contention that, in markets where
normal conditions of competition have been disturbed by regulatory or
fiscal barriers, consumers’ tastes and habits cease to be relevant. In
such situations, a Member may submit evidence of latent, or
suppressed, consumer demand in that market, or it may submit evidence
of substitutability from some relevant third market. In making this
point, we do not wish to be taken to suggest that there is
latent demand for chrysotile asbestos fibres. Our point is simply that
the existence of the measure does not render consumers’ tastes and
habits irrelevant, as Canada contends.”(330)
216. Further, in EC – Asbestos,
the Appellate Body acknowledged that an analysis of the various criteria
for establishing “likeness” can produce “conflicting
indications”; however, it emphasized that the fact that the
analysis of a particular criterion may produce an unclear result does
not relieve a panel of its duty to inquire into the relevant evidence:
“In many
cases, the evidence will give conflicting indications, possibly within
each of the four criteria. For instance, there may be some evidence of
similar physical properties and some evidence of differing physical
properties. Or the physical properties may differ completely, yet
there may be strong evidence of similar end-uses and a high degree of
substitutability of the products from the perspective of the consumer.
A panel cannot decline to inquire into relevant evidence simply
because it suspects that evidence may not be ‘clear’ or, for that
matter, because the parties agree that certain evidence is not
relevant. In any event, we have difficulty seeing how the Panel
could conclude that an examination of consumers’ tastes and habits
‘would not provide clear results’, given that the Panel did not
examine any evidence relating to this
criterion.”(331)
(a.2) “the
situation of the parties dealing in [subject products]”
217. In US – Gasoline, the
Panel addressed the respondent’s argument that with respect to the
treatment of the imported and domestic products, the situation of the
parties dealing in gasoline must be taken into consideration:
“The Panel
observed first that the United States did not argue that imported
gasoline and domestic gasoline were not like per se. It had
argued rather that with respect to the treatment of the imported and
domestic products, the situation of the parties dealing in the
gasoline must be taken into consideration. The Panel, recalling its
previous discussion of the factors to be taken into account in the
determination of like product, noted that chemically-identical
imported and domestic gasoline by definition have exactly the same
physical characteristics, end-uses, tariff classification, and are
perfectly substitutable. The Panel found therefore that
chemically-identical imported and domestic gasoline are like products
under Article III:4.”(332)
(iii) Reference to GATT practice
218. With respect to GATT practice on
this subject-matter, see also GATT Analytical Index, pages 171-172.
(c)
“laws, regulations or
requirements”
(i) Differences from
“measures” under Article XXIII:1(b)
219. In Japan – Film, the
Panel examined the relationship between the term “laws, regulations
or requirements” under Article III:4 and the term “measures” under Article XXIII:1(b). The Panel opined
that the concept of “measure” for the purposes of
Article XXIII:1(b) is “equally applicable to the definitional
scope of ‘all laws, regulations and requirements’ in Article III:4:
“A literal
reading of the words all laws, regulations and requirements in
Article III:4 could suggest that they may have a narrower scope
than the word measure in Article XXIII:1(b). However,
whether or not these words should be given as broad a construction as
the word measure, in view of the broad interpretation assigned
to them in the cases cited above, we shall assume for the purposes of
our present analysis that they should be interpreted as encompassing a
similarly broad range of government action and action by private
parties that may be assimilated to government action. In this
connection, we consider that our previous discussion of GATT cases on
administrative guidance in relation to what may constitute a
‘measure’
under Article XXIII:1(b), specifically the panel reports on Japan
- Semi-conductors and Japan - Agricultural Products, is
equally applicable to the definitional scope of ‘all laws, regulations
and requirements in Article III:4.”(333)
(ii) Non-mandatory measures
220. In Canada – Autos, the
Panel, in a finding subsequently not addressed by the Appellate Body,
held that a measure can be subject to Article III:4 even if its
compliance is not mandatory, and noted as follows:
“We note that it has not been
contested in this dispute that, as stated by previous GATT and WTO
panel and appellate body reports, Article III:4 applies not only
to mandatory measures but also to conditions that an enterprise
accepts in order to receive an advantage,(334)
including in cases where the advantage is in the form of a benefit
with respect to the conditions of importation of a product.(335)
The fact that compliance with the CVA
requirements is not mandatory but a condition which must be met in
order to obtain an advantage consisting of the right to import certain
products duty-free therefore does not preclude application of
Article III:4.”(336)
(iii) Action of private parties
221. In Canada – Autos, the
Panel examined the GATT-consistency of commitments undertaken by
Canadian motor vehicle manufacturers in their letters addressed to the
Canadian Government to increase Canadian value added in the production
of motor vehicles. Referring to the GATT Panel Reports on Canada –
FIRA and EEC – Parts and Components(337),
the Panel analysed whether the action of private parties is subject to
Article III:4. The Panel found that “[n]either legal
enforceability [n]or the existence of a link between a private action
and an advantage conferred by a government is a necessary condition in
order for an action by a private party to constitute a
‘requirement’”:
“It is evident
from the reasoning of the Panel Reports in Canada – FIRA and
in EEC – Parts and Components that these Reports do not
attempt to state general criteria for determining whether a commitment
by a private party to a particular course of action constitutes a
‘requirement’ for purposes of Article III:4. While these cases
are instructive in that they confirm that both legally enforceable
undertakings and undertakings accepted by a firm to obtain an
advantage granted by a government can constitute ‘requirements’ within
the meaning of Article III:4, we do not believe that they provide
support for the proposition that either legal enforceability or the
existence of a link between a private action and an advantage
conferred by a government is a necessary condition in order for an
action by a private party to constitute a ‘requirement’ To qualify a
private action as a ‘requirement’ within the meaning of
Article III:4 means that in relation to that action a Member is
bound by an international obligation, namely to provide no less
favourable treatment to imported products than to domestic products.
A determination of
whether private action amounts to a ‘requirement’ under
Article III:4 must therefore necessarily rest on a finding that
there is a nexus between that action and the action of a government
such that the government must be held responsible for that action. We
do not believe that such a nexus can exist only if a government makes
undertakings of private parties legally enforceable, as in the
situation considered by the Panel on Canada – FIRA, or if a
government conditions the grant of an advantage on undertakings made
by private parties, as in the situation considered by the Panel on EEC
– Parts and Components. We note in this respect that the word
‘requirement’ has been defined to mean ‘1. The action of requiring
something; a request. 2. A thing required or needed, a want, a need.
Also the action or an instance of needing or wanting something. 3.
Something called for or demanded; a condition which must be complied
with.‘ The word ‘requirements’ in its ordinary meaning and in light of
its context in Article III:4 clearly implies government action
involving a demand, request or the imposition of a condition but in
our view this term does not carry a particular connotation with
respect to the legal form in which such government action is taken. In
this respect, we consider that, in applying the concept of “requirements” in Article III:4 to situations involving
actions by private parties, it is necessary to take into account that
there is a broad variety of forms of government of action that can be
effective in influencing the conduct of private parties.”(338)
(iv) Reference to GATT practice
222. With respect to GATT practice on
this subject-matter, see also GATT Analytical Index, pages 173-174.
(d)
“affecting the internal
sale, offering for sale, purchase …”
223. In EC – Bananas III,
the Appellate Body upheld the Panel’s finding that the EC import
licensing requirements concerning import quotas for bananas were
inconsistent with Article III:4. The Panel had found that in
answering the question whether Article III:4 was applicable to the
EC import licensing requirements, it was important to distinguish
between, on the one hand, the mere requirement to present a licence upon
importation of a product as such and, on the other hand, the procedures
applied by the European Communities in the context of the licence
allocation. The latter procedures, in the view of the Panel, were
internal laws, regulations and requirements affecting the internal sale
of imported products.(339) In this context,
the Panel opined that the scope of application of Articles I and III was
not necessarily mutually exclusive.(340)
The Appellate Body, in examining whether the measure at issue was
subject to Article III:4, attached significance to the fact that
the measure at issue went beyond “mere import licence
requirements” and that the “intention” of the measure was
to “cross-subsidize distributors of [certain] bananas”:
“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. …
These rules go far beyond the mere import licence requirements needed
to administer the tariff quota for third-country and non-traditional
ACP bananas or Lomé 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.”(341)
224. In Canada – Autos, the
Panel, in a finding subsequently not addressed by the Appellate Body,
interpreted the term “affecting” as having a broad scope of
application and as referring to measures which have an effect on
imported goods:
“With respect
to whether the CVA requirements affect the ‘internal sale,…or
use’
of products, we note that, as stated by the Appellate Body, the
ordinary meaning of the word ‘affecting’ implies a measure that has
‘an effect on’ and thus indicates a broad scope of application.(342)
The word ‘affecting’ in Article III:4 of the GATT has been
interpreted to cover not only laws and regulations which directly
govern the conditions of sale or purchase but also any laws or
regulations which might adversely modify the conditions of competition
between domestic and imported products.(343)
…
The idea that a measure which
distinguishes between imported and domestic products can be considered
to affect the internal sale or use of imported products only if such a
measure is shown to have an impact under current
circumstances on decisions of private firms with respect to the
sourcing of products is difficult to reconcile with the concept of the
‘no less favourable treatment’ obligation in Article III:4 as an
obligation addressed to governments to ensure effective equality of
competitive opportunities between domestic and imported products, and
with the principle that a showing of trade effects is not necessary to
establish a violation of this obligation. In this respect, it should
be emphasized that, contrary to what has been argued by Canada, the
present case does not involve ‘the possibility of a future change in
circumstances creating the potential for discrimination’ or
‘discrimination that might exist after a change in circumstances that
could occur at some unspecified time in the future.’ Rather, the
present case clearly involves formally different treatment of imported
and domestic products albeit that the actual trade effects of this
different treatment may be minimal under current circumstances. We
therefore disagree with Canada’s assertion that the CVA requirements
do not entail a ‘current potential for discrimination under present
circumstances.’ As a consequence, whether or not in practice motor
vehicle manufacturers can easily meet the CVA requirements of the MVTO
1998 and the SROs on the basis of labour costs alone does not alter
our finding that the CVA requirements affect the internal sale or use
of products. We therefore do not consider it necessary to examine the
factual issues raised by the parties in support of their different
views on this matter.
In light of the
foregoing considerations, we find that the CVA requirements affect the
internal sale or use in Canada of imported parts, materials and
non-permanent equipment for use in the production of motor vehicles.
We further consider that the CVA requirements accord less favourable
treatment within the meaning of Article III:4 to imported parts,
materials and non-permanent equipment than to like domestic products
because, by conferring an advantage upon the use of domestic products
but not upon the use of imported products, they adversely affect the
equality of competitive opportunities of imported products in relation
to like domestic products.”(344)
225. In the Canada – Autos
case, the Panel found that the Canadian value added requirements, which
stipulated that the amount of Canadian value added in the manufacturer’s
local production of motor vehicles must be equal to or greater than the
amount of Canadian value added in the production of motor vehicles, by
the same manufacturer, during an earlier reference period, were in
violation of Article III:4 of GATT 1994. The Panel also addressed
another aspect of the Canadian measures, the so-called “ratio
requirements”. Under these measures, the ratio of the net sales
value of the vehicles produced in Canada to the net sales value
of the vehicles sold for consumption in Canada during the
relevant period had to be at least equal to the ratio in a reference
year. The Panel found that the “ratio requirements” did not
affect the sale of imported products:
“For purposes
of Article III, the manner in which the ratio requirements affect
the treatment accorded to motor vehicles with respect to the
conditions of their importation is irrelevant. That there is a
limitation on the net sales value of vehicles which can be imported
duty-free therefore cannot constitute a grounds for finding a
violation of Article III:4. The fact that internal sales of
domestic vehicles are not subject to a ‘similar’ limitation is also
without relevance. By definition, a violation of Article III
cannot be established on the basis of a comparison between the
conditions of internal sale of domestic products with the conditions
of importation of imported products.”(345)
(i) Reference to GATT practice
226. With respect to GATT practice on
this subject-matter, see also GATT Analytical Index, pages 175-182.
(e)
“treatment no less
favourable”
(i) General
(a.1) Equality of
competitive opportunities
227. In US – Gasoline, the
Panel, in a finding subsequently not addressed by the Appellate Body,
found that the measure in question afforded to imported products less
favourable treatment than that afforded to domestic products because
sellers of domestic gasoline were authorized to use an individual
baseline, while sellers of imported gasoline had to use the more onerous
statutory baseline:
“The Panel
observed that domestic gasoline benefited in general from the fact
that the seller who is a refiner used an individual baseline, while
imported gasoline did not. This resulted in less favourable treatment
to the imported product, as illustrated by the case of a batch of
imported gasoline which was chemically-identical to a batch of
domestic gasoline that met its refiner’s individual baseline, but not
the statutory baseline levels. In this case, sale of the imported
batch of gasoline on the first day of an annual period would require
the importer over the rest of the period to sell on the whole cleaner
gasoline in order to remain in conformity with the Gasoline Rule. On
the other hand, sale of the chemically-identical batch of domestic
gasoline on the first day of an annual period would not require a
domestic refiner to sell on the whole cleaner gasoline over the period
in order to remain in conformity with the Gasoline Rule. The Panel
also noted that this less favourable treatment of imported gasoline
induced the gasoline importer, in the case of a batch of imported
gasoline not meeting the statutory baseline, to import that batch at a
lower price. This reflected the fact that the importer would have to
make cost and price allowances because of its need to import other
gasoline with which the batch could be averaged so as to meet the
statutory baseline. Moreover, the Panel recalled an earlier panel
report which stated that ‘the words ‘treatment no less favourable’ in
paragraph 4 call for effective equality of opportunities for imported
products in respect of laws, regulations and requirements affecting
the internal sale, offering for sale, purchase, transportation,
distribution or use of products.’(346)
The Panel found therefore that since, under the baseline establishment
methods, imported gasoline was effectively prevented from benefitting
from as favourable sales conditions as were afforded domestic gasoline
by an individual baseline tied to the producer of a product, imported
gasoline was treated less favourably than domestic gasoline.”(347)
228. In Japan – Film, the
Panel reiterated the standard of equality of competitive conditions as a
benchmark for establishing “no less favourable treatment”:
“Recalling the statement of
the Appellate Body in Japan - Alcoholic Beverages that
‘Article III obliges Members of the WTO to provide equality of
competitive conditions for imported products in relation to domestic
products’(348) , we consider that
this standard of effective equality of competitive conditions on the
internal market is the standard of national treatment that is
required, not only with regard to Article III generally, but also
more particularly with regard to the “no less favourable
treatment” standard in Article III:4. We note in this regard
that the interpretation of equal treatment in terms of effective
equality of competitive opportunities, first clearly enunciated by the
panel on US – Section 337(349),
has been followed consistently in subsequent GATT and WTO panel
reports.(350) The panel report on US -
Section 337 explains the test in very clear terms, noting that
‘the ‘no less
favourable’ treatment requirement set out in Article III:4, is
unqualified. These words are to be found throughout the General
Agreement and later Agreements negotiated in the GATT framework as an
expression of the underlying principle of equality of treatment
of imported products as compared to the treatment given either to
other foreign products, under the most favoured nation standard, or
to domestic products, under the national treatment standard of
Article III. The words ‘treatment no less favourable’ in
paragraph 4 call for effective equality of opportunities for
imported products in respect of the application of laws, regulations
and requirements affecting the internal sale, offering for sale,
purchase transportation, distribution or use of products. This
clearly sets a minimum permissible standard as a basis’ (emphasis
added).(351)”(352)
229. In Korea – Various Measures
on Beef, the measure at issue established a dual retail distribution
system for the sale of beef. Inter alia, imported beef was to be
sold either in specialized stores selling only imported beef or, in the
case of larger department stores, in separate sales. The Appellate Body
first held that such different treatment of imported products did not
necessarily lead to less favourable treatment:
“We observe
… that Article III:4 requires only that a measure accord
treatment to imported products that is ‘no less favourable’ than that
accorded to like domestic products. A measure that provides treatment
to imported products that is different from that accorded to
like domestic products is not necessarily inconsistent with
Article III:4, as long as the treatment provided by the measure
is ‘no less favourable’. According ‘treatment no less favourable’
means, as we have previously said, according conditions of
competition no less favourable to the imported product than to the
like domestic product.(353)
This
interpretation, which focuses on the conditions of competition
between imported and domestic like products, implies that a measure
according formally different treatment to imported products
does not per se, that is, necessarily, violate
Article III:4. In United States – Section 337, this
point was persuasively made. In that case, the panel had to determine
whether United States patent enforcement procedures, which were
formally different for imported and for domestic products, violated
Article III:4. That panel said:
‘On the one hand,
contracting parties may apply to imported products different
formal legal requirements if doing so would accord imported products
more favourable treatment. On the other hand, it also has to be
recognised that there may be cases where the application of formally
identical legal provisions would in practice accord less
favourable treatment to imported products and a contracting party
might thus have to apply different legal provisions to imported
products to ensure that the treatment accorded them is in fact no
less favourable. For these reasons, the mere fact that imported
products are subject under Section 337 to legal provisions that are
different from those applying to products of national origin is in
itself not conclusive in establishing inconsistency with
Article III:4.’(354)
(emphasis added)
A formal difference
in treatment between imported and like domestic products is thus
neither necessary, nor sufficient, to show a violation of
Article III:4. Whether or not imported products are treated
‘less favourably’ than like domestic products should be assessed instead by
examining whether a measure modifies the conditions of competition
in the relevant market to the detriment of imported products.”(355)
230. In EC – Asbestos, the
Appellate Body interpreted the term “no less favourable
treatment” as requiring that the group of imported products
not be accorded less favourable treatment than that accorded to the group
of domestic like products:
“A complaining
Member must still establish that the measure accords to the group of
‘like’ imported products ‘less favourable treatment’ than it
accords to the group of ‘like’ domestic products. The term
‘less favourable treatment’ expresses the general principle, in
Article III:1, that internal regulations ‘should not be applied
… so as to afford protection to domestic production’. If there is
‘less favourable treatment’ of the group of ‘like’ imported products,
there is, conversely, ‘protection’ of the group of ‘like’ domestic
products. However, a Member may draw distinctions between products
which have been found to be ‘like’, without, for this reason alone,
according to the group of ‘like’ imported products ‘less
favourable treatment’ than that accorded to the group of ‘like’ domestic
products. In this case, we do not examine further the interpretation
of the term ‘treatment no less favourable’ in Article III:4, as
the Panel’s findings on this issue have not been appealed or, indeed,
argued before us.”(356)
(a.2) Relationship
with “upsetting the competitive relationship” under
Article XXIII:1(b)
231. In Japan – Film, the
Panel equated the standards of “upsetting effective equality of
competitive opportunities” under Article III:4 and “upsetting the competitive relationship” under
Article XXIII:1(b).
(ii) Methodology of comparison
(a.1) Relevance of
formal differences between imported and domestic products in legal
requirements
232. In Korea – Beef, the
Appellate Body addressed the relevance of formal regulatory differences
between domestic and imported products and held that formally different
treatment of imported and domestic goods did not, in and of itself,
necessarily lead to less favourable treatment. See paragraph 229
above.
233. The Panel on US – Gasoline
examined the consistency with Article III:4 of a United States
environmental regulation on gasoline and its potential to result in
formally different regulation for imported and domestic products. The
Panel stated as follows:
“Although such
a scheme could result in formally different regulation for imported
and domestic products, the Panel noted that previous panels had
accepted that this could be consistent with Article III:4.(357)
The requirement under Article III:4 to treat an imported product
no less favourably than the like domestic product is met by granting
formally different treatment to the imported product, if that
treatment results in maintaining conditions of competition for the
imported product no less favourable than those of the like domestic
product.”(358)
234. In
EC – Bananas III, the Appellate Body agreed with the
Panel’s finding that the EC allocation method of tariff
quota for bananas was inconsistent with
Article III:4. The Appellate Body addressed, among
other things, so-called hurricane licences, which
authorize operators who include or represent European
Communities’ and African, Caribbean and Pacific (ACP)
producers, or producer organizations “to import in
compensation third-country bananas and non-traditional ACP
bananas for the benefit of the operators who directly
suffered damage as a result of the impossibility of the
supplying the Community market with bananas originating in
affected producer regions”(359)
because of the impact of
tropical storms:
“Although [the] issuance [of
subject import licences] results in increased exports from those
countries, we note that hurricane licences are issued exclusively to EC
producers and producer organizations, or to operators including or
directly representing them. We also note that, as a result of the EC
practice relating to hurricane licences, these producers, producer
organizations or operators can expect, in the event of a hurricane, to
be compensated for their losses in the form of ‘quota rents’ generated
by hurricane licences. Thus, the practice of issuing hurricane licences
constitutes an incentive for operators to market EC bananas to the
exclusion of third-country and non-traditional ACP bananas. This
practice therefore affects the competitive conditions in the market in
favour of EC bananas. We do not dispute the right of WTO Members to
mitigate or remedy the consequences of natural disasters.
However, Members
should do so in a manner consistent with their obligations under the
GATT 1994 and the other covered agreements.”(360)
(a.2) Relevance of
“treatment accorded to similarly situated domestic parties”
235. In US – Gasoline, the
Panel, in a finding subsequently not addressed by the Appellate Body,
“rejected the US argument that the requirements of
Article III:4 are met because imported gasoline is treated
similarly to domestic gasoline from similarly situated domestic
parties”(361).
In addition to pointing out that “[the] wording [of
Article III:4] does not allow less favourable treatment dependent
on the characteristics of the producer and the nature of the data held
by it”,(362)
the Panel held that even if the approach of the United States were
followed, there would be great uncertainty and indeterminacy of the
basis of treatment:
“Apart from
being contrary to the ordinary meaning of the terms of
Article III:4, any interpretation of Article III:4 in this
manner would mean that the treatment of imported and domestic goods
concerned could no longer be assured on the objective basis of their
likeness as products. Rather, imported goods would be exposed to a
highly subjective and variable treatment according to extraneous
factors. This would thereby create great instability and uncertainty
in the conditions of competition as between domestic and imported
goods in a manner fundamentally inconsistent with the object and
purpose of Article III.
[E]ven if the US
approach were to be followed, under any approach based on similarly
situated parties’ the comparison could just as readily focus on
whether imported gasoline from an identifiable foreign refiner
was treated more or less favourably than gasoline from an identifiable
US refiner. There were ... many key respects in which these refineries
could be deemed to be the relevant similarly situated parties, and the
Panel could find no inherently objective criteria by means of which to
distinguish which of the many factors were relevant in making a
determination that any particular parties were ‘similarly
situated’.
Thus, although these refineries were similarly situated, the Gasoline
Rule treated the products of these refineries differently by allowing
only gasoline produced by the domestic entity to benefit from the
advantages of an individual baseline. This consequential uncertainty
and indeterminacy of the basis of treatment underlined ... the
rationale of remaining within the terms of the clear language, object
and purpose of Article III:4 as outlined above …”.(363)
(a.3) Relevance of
“more favourable treatment of some imported products”
236.
In US – Gasoline, the
Panel rejected the US argument that the subject regulation treated
imported products “equally overall”(364),
stating as follows:
“The Panel noted that, in
these circumstances, the argument that on average the treatment
provided was equivalent amounted to arguing that less favourable
treatment in one instance could be offset provided that there was
correspondingly more favourable treatment in another. This amounted to
claiming that less favourable treatment of
particular imported products in some instances would be balanced by
more favourable treatment of particular products in others.”(365)
(a.4) Relationship
with other methodologies of comparison
237. With respect to the methodology
of comparison for “in excess of those applied” under the first
sentence of Article III:2, see paragraphs 145-156 above. With
respect to the methodology of comparison in identifying “directly
competitive or substitutable products” under the second sentence of
Article III:2, see paragraph 179 above. With respect to the
methodology of comparison in examining the “dissimilar
taxation” under the second sentence of Article III:2, see
paragraphs 186-187 above.
(f) Relationship with other GATT
provisions
(a.1) Relationship
with Article XX
238. In US – Gasoline, the
Appellate Body discussed the relationship between Article III:4 and
Article XX in interpreting Article XX(g). The Appellate Body
stated:
“Article XX(g)
and its phrase, ‘relating to the conservation of exhaustible natural
resources,’ need to be read in context and in such a manner as to give
effect to the purposes and objects of the General Agreement.
The context of Article XX(g) includes the provisions of the rest
of the General Agreement, including in particular
Articles I, III and XI; conversely, the context of
Articles I and III and XI includes Article XX. Accordingly,
the phrase ‘relating to the conservation of exhaustible natural
resources’ may not be read so expansively as seriously to subvert the
purpose and object of Article III:4. Nor may Article III:4
be given so broad a reach as effectively to emasculate Article XX(g)
and the policies and interests it embodies. The relationship between
the affirmative commitments set out in, e.g., Articles I, III and
XI, and the policies and interests embodied in the ‘General
Exceptions’ listed in Article XX, can be given meaning within the
framework of the General Agreement and its object and purpose
by a treaty interpreter only on a case-to-case basis, by careful
scrutiny of the factual and legal context in a given dispute, without
disregarding the words actually used by the WTO Members themselves to
express their intent and purpose.”(366)
239. In EC – Asbestos, the
Appellate Body found that “carcinogenicity, or toxicity,
constitutes … a defining aspect of the physical properties of [the
subject products]”. See paragraph 212 above. The Appellate Body
disagreed with the Panel’s finding that considering the health risks
associated with a product under Article III:4 would negate the
effect of Article XX(b):
“We do not agree with the
Panel that considering evidence relating to the health risks
associated with a product, under Article III:4, nullifies the
effect of Article XX(b) of the GATT 1994. Article XX(b)
allows a Member to ‘adopt and enforce’ a measure, inter alia,
necessary to protect human life or health, even though that measure is
inconsistent with another provision of the GATT 1994.
Article III:4 and Article XX(b) are distinct and independent
provisions of the GATT 1994 each to be interpreted on its own.
The scope and meaning of Article III:4 should not be broadened or
restricted beyond what is required by the normal customary
international law rules of treaty interpretation, simply because
Article XX(b) exists and may be available
to justify measures inconsistent with Article III:4. The fact
that an interpretation of Article III:4, under those rules,
implies a less frequent recourse to Article XX(b) does not
deprive the exception in Article XX(b) of effet utile.
Article XX(b) would only be deprived of effet utile if
that provision could not serve to allow a Member to ‘adopt and
enforce’ measures ‘necessary to protect human … life or
health’.
Evaluating evidence relating to the health risks arising from the
physical properties of a product does not prevent a measure which is
inconsistent with Article III:4 from being justified under
Article XX(b). We note, in this regard, that, different inquiries
occur under these two very different Articles. Under
Article III:4, evidence relating to health risks may be relevant
in assessing the competitive relationship in the marketplace
between allegedly ‘like’ products. The same, or similar, evidence
serves a different purpose under Article XX(b), namely, that of
assessing whether a Member has a sufficient basis
for ‘adopting or enforcing’ a WTO-inconsistent measure on the grounds
of human health.”(367)
(a.2) Relationship
with Article XXIII:1(b)
240. In Japan – Film, the
Panel did not find a significant distinction between the standard it had
set out for Article XXIII:1(b) and the standard of “upsetting
effective equality of competitive opportunities” under
Article III:4:
“We recall our
earlier findings that none of the eight distribution ‘measures’ cited
by the United States had been shown to discriminate against imported
products, either in terms of a de jure discrimination (a
measure that discriminates on its face as to the origin of
products) or in terms of a de facto discrimination (a measure
that in its application upsets the relative competitive position
between domestic and imported products, as it existed at the time when
a relevant tariff concession was granted). In this connection, it
could be argued that the standard we enunciated and applied under
Article XXIII:1(b) – that of ‘upsetting the competitive
relationship’ – may be different from the standard of ‘upsetting
effective equality of competitive opportunities’ applicable to
Article III:4. However, we do not see any significant distinction
between the two standards apart from the fact that this
Article III:4 standard calls for no less favourable treatment for
imported products in general, whereas the Article XXIII:1(b)
standard calls for a comparison of the competitive relationship
between foreign and domestic products at two specific points in time,
i.e., when the concession was granted and currently.”(368)
(g) Reference to GATT practice
241. With respect to GATT practice on
this subject-matter, see GATT Analytical Index, pages 162-171.
5. Paragraph 8
(a) Item (b) (i)
“the payment of subsidies
exclusively to domestic producers”
242. In the Canada – Periodicals
dispute, one of the measures at issue related to postal rates charged by
the Canadian Post Corporation, a Crown Corporation controlled by the
Canadian Government. Canada Post applied reduced postal rates to
Canadian-owned and Canadian-controlled periodicals
meeting certain requirements. These lower postal rates were funded by
the Department of Canadian Heritage, which provided funds to Canada Post
so that this agency could in turn offer the reduced postal rates to
eligible Canadian periodicals. Canada argued that the reduced postal
rate was exempted from the strictures of Article III:4 by virtue of
Article III:8(b), because the reduced postal rate represented “payment of subsidies exclusively to domestic producers”. The
Panel agreed with Canada and found that the funds provided by the
Department of Canadian Heritage passed through Canada Post directly to
the eligible Canadian publishers and that therefore, Canada’s funded
rate scheme on periodicals qualified under Article III:8 (b). The
Appellate Body reversed the Panel’s finding and found that
Article III:8(b) applied only to the payment of subsidies which
involves the expenditure of revenue by a government:
“In examining
the text of Article III:8(b), we believe that the phrase,
‘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’ helps to elucidate the types of
subsidies covered by Article III:8(b) of the GATT 1994. It is not
an exhaustive list of the kinds of programmes that would qualify as
‘the payment of subsidies exclusively to domestic producers’, but
those words exemplify the kinds of programmes which are exempted from
the obligations of Articles III:2 and III:4 of the GATT 1994.
Our textual
interpretation is supported by the context of Article III:8(b)
examined in relation to Articles III:2 and III:4 of the GATT 1994.
Furthermore, the object and purpose of Article III:8(b) is
confirmed by the drafting history of Article III. In this
context, we refer to the following discussion in the Reports of the
Committees and Principal Sub-Committees of the Interim Commission for
the International Trade Organization concerning the provision of the
Havana Charter for an International Trade Organization that
corresponds to Article III:8(b) of the GATT 1994:
‘This
sub-paragraph was redrafted in order to make it clear that nothing
in Article 18 could be construed to sanction the exemption of
domestic products from internal taxes imposed on like imported
products or the remission of such taxes. At the same time the
Sub-Committee recorded its view that nothing in this sub-paragraph
or elsewhere in Article 18 would override the provisions of
Section C of Chapter IV.’(369)
We do not see a
reason to distinguish a reduction of tax rates on a product from a
reduction in transportation or postal rates. Indeed, an examination of
the text, context, and object and purpose of Article III:8(b)
suggests that it was intended to exempt from the obligations of
Article III only the payment of subsidies which involves the
expenditure of revenue by a government.”(370)
243. In Indonesia – Autos,
the Panel examined the consistency of certain tax exemption to
domestically produced automobiles. The Panel rejected Indonesia’s
argument that tax exemptions are excluded from the scope of
Article III by virtue of Article III:8(b), stating:
“In line with
its two previous arguments, Indonesia maintains the view that ‘the
payment of subsidies’ in Article III:8(b) of GATT must refer to all
subsidies identified in Article 1 of the SCM Agreement, not merely
to the subset of ‘direct’ subsidies. Under this approach, any measure
which constitutes a subsidy within the meaning of the SCM Agreement
would not be subject to Article III of GATT. In Indonesia’s view,
only this interpretation avoids rendering the SCM Agreement meaningless.
…
We consider that the
purpose of Article III:8(b) is to confirm that subsidies to
producers do not violate Article III, so long as they do not have
any component that introduces discrimination between imported and
domestic products. In our view the wording ‘payment of subsidies
exclusively to domestic producers’ exists so as to ensure that only
subsidies provided to producers, and not tax or other forms of
discrimination on products, be considered subsidies for the purpose of
Article III:8(b) of GATT. This is in line with previous GATT panels(371)
and WTO Appellate Body(372)
reports.
We recall also that
the type of interpretation sought by Indonesia was explicitly excluded
by the drafters of Article III:8(b) when they rejected a
proposal by Cuba at the Havana Conference to amend the Article so
as to read:
‘The provisions of
this Article shall not preclude the exemption of domestic
products from internal taxes as a means of indirect subsidization in
the cases covered under Article [XVI]’(373)
The arguments
submitted by Indonesia that its measures are only governed by the SCM
Agreement clearly do not find any support in the wording of
Article III:8(b) of GATT. On the contrary, Article III:8(b)
confirms that the obligations of Article III and those of
Article XVI (and the SCM Agreement) are different and
complementary: subsidies to producers are subject to the national
treatment provisions of Article III when they discriminate between
imported and domestic products.”(374)
(b) Reference to GATT practice
244. With respect to GATT practice on
this subject-matter, see also GATT Analytical Index, pages 194-197.
D. Relationship with other Articles
1. Article I
245. The Panel on US – Gasoline
did not examine a claim under GATT Article I after having found a
violation of Article III:4 for the subject measure.(375)
2. Article II
246. 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 noted the
existence of the “operator category rules” and the “activity function rules”, which both affected the allocation
of licences. The Appellate Body held that “these rules go far
beyond the mere import licence requirements needed to administer the
tariff quota … and therefore fall within the scope of
[Article III:4]”. See paragraph 96 above.
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