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WTO ANALYTICAL INDEX: GATT 1994 General Agreement on Tariffs and Trade 1994 |
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> General Agreement On Tariffs And Trade 1994
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229. 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.”(348) 230. 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’.”(349) 231. 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.(350) 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.”(351) 232. 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:(352) “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.”(353) (iii) Relationship with other paragraphs of Article III 233. With respect to the relationship between Paragraphs 1 and 4 of Article III, see paragraphs 140–143 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 230 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 237 and 239 below. 234. 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’.(354) 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.(355) 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.(356) 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.”(357) 235. 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.(358) 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.”(359) 236. The Appellate Body on 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.’(360)
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.”(361) Relationship with “like products” under Article III:2, first sentence 237. 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.”(362) 238. 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.”(363) 239. 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.’(364) Rather, an assessment utilizing ‘an unavoidable element of individual, discretionary judgement’(365) 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.(366) 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.(367) 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.”(368) 240. 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 162 above. Relationship with “like products” in other GATT provisions 241. With respect to the interpretation of “like products” under GATT Article I, see paragraphs 15–16 above. 242. 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.”(369) 243. 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.”(370) 244. 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.”(371) 245. 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.(372) 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.”(373) 246. 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”:(374) “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.(375) We noted that, in such situations, ‘it may be highly relevant to examine latent demand’ that is suppressed by regulatory barriers.(376) 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.’(377) 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.”(378) 247. 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.”(379) “the situation of the parties dealing in [subject products]” 248. 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.”(380) Likeness of products when origin is the sole distinctive criterion 249. In India — Autos, the Panel declared that, when origin is the sole distinguishing criterion, it is correct to treat products as “alike” within the meaning of Article III:4: “The Panel notes that the only factor of distinction under the ‘indigenization’ condition between products which contribute to fulfilment of the condition and products which do not, is the origin of the product as either imported or domestic. India has not disputed the likeness of the relevant automotive parts and components of domestic or foreign origin for the purposes of Article III:4 of the GATT 1994. Origin being the sole criterion distinguishing the products, it is correct to treat such products as like products within the meaning of Article III:4.”(381) 250. The Panel on Canada — Wheat Exports and Grain Imports confirmed this jurisprudence relying also on the Panel report in Argentina — Hides and Leather: “In Argentina — Hides and Leather, in dealing with a claim under Article III:2 of the GATT 1994, the panel found that where a Member draws an origin-based distinction in respect of internal taxes, a comparison of specific products is not required and, consequently, it is not necessary to examine the various likeness criteria. … While this finding is pertained to Article III:2, we consider that the same reasoning is applicable in this case mutatis mutandi.”(382) (iii) Reference to GATT practice 251. 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) 252. 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.”(383) 253. 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,(384) including in cases where the advantage is in the form of a benefit with respect to the conditions of importation of a product.(385) 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.”(386) 254. In Canada — Wheat Exports and Grain Imports, Canada argued that the measure at issue could only be found inconsistent if it mandated or required less favourable treatment. Making reference to the Appellate Body Report in US — Corrosion-Resistant Steel Sunset Review(387), the Panel made the following finding which was not challenged on appeal: “Canada is of the view that since the United States in this case is challenging Section 57(c), as such, Section 57(c) would, under GATT/WTO practice, be inconsistent with Article III:4 only if it mandated, or required, less favourable treatment of foreign grain. Canada is referring here to the so-called “mandatory/discretionary” distinction which has been applied by numerous GATT and WTO panels. The United States did not specifically address this point. We note that the Appellate Body has not, as yet, expressed a view on whether the mandatory/discretionary distinction is a legally appropriate analytical tool for panels to use. In this case, our ultimate conclusion with respect to the United States’ challenge to Section 57(c) does not depend on whether or not the mandatory/discretionary distinction is valid. This said we will continue on the assumption that Section 57(c) is inconsistent with Article III:4 only if it mandates, or requires, less favourable treatment of imported grain.”(388) (iii) Action of private parties 255. 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(389), 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.”(390) 256. In India — Autos, the Panel analysed the notion of “requirement” within Article III:4: “An ordinary meaning of the term ‘requirement’, as articulated in the New Shorter Oxford Dictionary, is ‘Something called for or demanded; a condition which must be complied with’. The Canada — FIRA panel further suggested that there must be a distinction between ‘regulations’ and ‘requirements’ and that requirements could not be assumed to mean the same, i.e. ‘mandatory rules applying across the board’.”(391) 257. In India — Autos, the Panel recalled that GATT jurisprudence “suggests two distinct situations which would satisfy the term ‘requirement’ in Article III:4: (i) obligations which an enterprise is ‘legally bound to carry out’; [and (ii)] those which an enterprise voluntarily accepts in order to obtain an advantage from the government.” It therefore stated that: “A binding enforceable condition seems to fall squarely within the ordinary meaning of the word ‘requirement’, in particular as ‘a condition which must be complied with’.(392) The enforceability of the measure in itself, independently of the means actually used or not to enforce it, is a sufficient basis for a measure to constitute a requirement under Article III:4 …”(393) (v) Reference to GATT practice 258. 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 …” 259. 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.(394) In this context, the Panel opined that the scope of application of Articles I and III was not necessarily mutually exclusive.(395) 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.”(396) 260. 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.(397) 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.(398) … 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.”(399) 261. 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.”(400) 262. In India — Autos, the Panel considered that, in order to rule on whether certain “indigenization” requirements were inconsistent with Article III:4 of GATT 1994, it had to determine, inter alia, whether the measures “affected” the “internal sale, purchase, transportation, distribution or use” of the products concerned. In that regard, the Panel recalled that the ordinary meaning of the term “affecting” has been understood to imply “a measure that has an effect on”. It went on to state that: “[T]he fact that the measure applies only to imported products need not [be], in itself, an obstacle to its falling within the purview of Article III.(401) For example, an internal tax, or a product standard conditioning the sale of the imported but not of the like domestic product, could nonetheless ‘affect’ the conditions of the imported product on the market and could be a source of less favorable treatment. Similarly, the fact that a requirement is imposed as a condition on importation is not necessarily in itself an obstacle to its falling within the scope of Article III:4.(402)”(403) 263. In US — FSC (Article 21.5 — EC), the Appellate Body shared the view that the word “affecting” in Article III:4 of the GATT 1994 has a “broad scope of application”: “We observe that the clause in which the word ‘affecting’ appears — ‘in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use’ — serves to define the scope of application of Article III:4. (emphasis added) Within this phrase, the word ‘affecting’ operates as a link between identified types of government action (‘laws, regulations and requirements’) and specific transactions, activities and uses relating to products in the marketplace (‘internal sale, offering for sale, purchase, transportation, distribution or use’). It is, therefore, not any ‘laws, regulations and requirements’ which are covered by Article III:4, but only those which ‘affect’ the specific transactions, activities and uses mentioned in that provision. Thus, the word ‘affecting’ assists in defining the types of measure that must conform to the obligation not to accord ‘less favourable treatment’ to like imported products, which is set out in Article III:4.
The word ‘affecting’ serves a similar function in Article I:1 of the General Agreement on Trade in Services (the ‘GATS’), where it also defines the types of measure that are subject to the disciplines set forth elsewhere in the GATS but does not, in itself, impose any obligation.(404) In EC — Bananas III, we considered the meaning of the word ‘affecting’ in that provision of GATS. We stated:
[t]he ordinary meaning of the word ‘affecting’ implies a measure that has ‘an effect on’, which indicates a broad scope of application. This interpretation is further reinforced by the conclusions of previous panels that the term ‘affecting’ in the context of Article III of the GATT is wider in scope than such terms as ‘regulating’ or ‘governing’.(405) (emphasis added, footnote omitted).”(406) (i) Reference to GATT practice 264. With respect to GATT practice on this subject-matter. (e) “treatment no less favourable” Equality of competitive opportunities 265. 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.’(407) 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.”(408) 266. 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’(409), 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(410), has been followed consistently in subsequent GATT and WTO panel reports.(411) 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).(412)”(413) 267. 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.(414)
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.’(415) (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.”(416) 268. 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.”(417) Relationship with “upsetting the competitive relationship” under Article XXIII:1(b) 269. 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 Relevance of formal differences between imported and domestic products in legal requirements 270. In Korea — Various Measures on 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 267 above. 271. 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.(418) 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.”(419) 272. 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”(420) 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 nontraditional 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.”(421) 273. In US — FSC (Article 21.5 — EC), the Appellate Body declared that the examination of whether a measure involves “less favourable treatment” of imported products within the meaning of Article III:4 cannot rest on simple assertion, but must be founded on a careful analysis of the contested measure and of its implications in the marketplace: “The examination of whether a measure involves ‘less favourable treatment’ of imported products within the meaning of Article III:4 of the GATT 1994 must be grounded in close scrutiny of the ‘fundamental thrust and effect of the measure itself’.(422) This examination cannot rest on simple assertion, but must be founded on a careful analysis of the contested measure and of its implications in the marketplace. At the same time, however, the examination need not be based on the actual effects of the contested measure in the marketplace.(423) … In our view, the above conclusion is not nullified by the fact that the fair market value rule will not give rise to less favourable treatment for like imported products in each and every case … Even so, the fact remains that in an indefinite number of other cases, the fair market value rule operates, by its terms, as a significant constraint upon the use of imported input products. We are not entitled to disregard that fact.”(424) Relevance of “treatment accorded to similarly situated domestic parties” 274. 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”.(425) 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”(426), 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 …”.(427) Relevance of “more favourable treatment of some imported products” 275. In US — Gasoline, the Panel rejected the US argument that the subject regulation treated imported products “equally overall”(428), 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.”(429) Relationship with other methodologies of comparison 276. With respect to the methodology of comparison for “in excess of those applied” under the first sentence of Article III:2, see paragraphs 175–186 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 209 above. With respect to the methodology of comparison in examining the “dissimilar taxation” under the second sentence of Article III:2, see paragraphs 217–218 above. (f) Relationship with other GATT provisions (i) Relationship with Article XX 277. 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.”(430) 278. 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 243 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.”(431) (ii) Relationship with Article XXIII:1(b) 279. 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.”(432) (g) Reference to GATT practice 280. With respect to GATT practice on this subject-matter, see GATT Analytical Index, pages 162–171. (i) “the payment of subsidies exclusively to domestic producers” 281. 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 subparagraph or elsewhere in Article 18 would override the provisions of Section C of Chapter IV.’(433)
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.”(434) 282. 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(435) and WTO Appellate Body(436) 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]’.(437)
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.”(438) (b) Reference to GATT practice 283. With respect to GATT practice on this subject-matter.
284. The Panel on US — Gasoline did not examine a claim under GATT Article I, considering that it was unnecessary in view of the findings it had reached on the violation of Article III:4 for the subject measure.(439) 285. 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 125 above. 286. Exercising judicial economy, the Panel on Korea — Various Measures on Beef did not examine claims regarding a certain practice of the Korean state trading agency for beef under Articles III:4 and XVII after having found a violation of Articles XI and II:1(a) for that practice. See paragraph 477 below. (a) Reference to GATT practice 287. With respect to GATT practice on this subject. 288. In US — 1916 Act (EC), exercising judicial economy, the Panel found that the subject United States act was inconsistent with GATT Article VI and did not examine the EC claim that it was also inconsistent with GATT Article III. The Appellate Body did not address the issue upon appeal. The Panel first stated that Article VI was, with respect to the 1916 Act, the more specific provision, such that it had to be addressed first: “It is a general principle of international law that, when applying a body of norms to a given factual situation, one should consider that factual situation under the norm which most specifically addresses it.(440) As a result, one way to reply to the question above is to determine which article more specifically addresses the 1916 Act. We agree that this will require us to touch upon the substance of the case, but we recall that this test is used here for purely procedural reasons, that is to determine the order of our review. Such a prima facie analysis is, of course, without prejudice to the final findings on the issue of the applicability of Articles III:4 and VI, to be reached after a more detailed review of the scope of each provision, as necessary.
As mentioned above, our understanding is that Article III:4 and Article VI are based on two different premises. The applicability of Article III:4 seems to depend primarily on whether the measure applied pursuant to the law at issue is an internal measure or not. In contrast, the applicability of Article VI seems to be based on the nature of the trade practice which is addressed. Under Article VI, the type of sanction eventually applied does not seem to be relevant for a measure to be considered as an anti-dumping measure, or not. We note in this respect that, for the EC, the fact that the 1916 Act imposes other sanctions than duties is insufficient to make that law fall outside the scope of Article VI and, for the United States, under Article VI, dumping does not have to be counteracted exclusively with duties. Consequently, it seems to us that the fact that a law imposes measures that can be qualified as ‘internal measures’, such as fines, damages or imprisonment, does not appear to be sufficient to conclude that Article VI is not applicable to that law.
We also note that the parties agree that the 1916 Act deals with transnational price discrimination. Furthermore, the United States argues that it does not merely address dumping, and that other requirements under the 1916 Act make that law fall outside the scope of Article VI. We note that Article III:4 states that imported products
‘shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.’”(441) 289. The Panel held that damages, fines or imprisonment could theoretically accord less favourable treatment to imported products, but opined that the terms of Article III:4 were less specific than Article VI with respect to the case before it: “Determining that damages, fines or imprisonment, which are imposed on persons, may accord less favourable treatment to imported products with respect to their internal sale, offering for sale, purchase, transportation, distribution or use, is not a priori impossible and has actually been done by previous panels. However, a preliminary examination of the scope of application of Article III:4 (i.e. internal sale, offering for sale, purchase, transportation, distribution or use) would tend to show that the terms of Article III:4 are less specific than those of Article VI when it comes to the notion of transnational price discrimination.
In application of the principle recalled by the Appellate Body in European Communities — Bananas and by the Permanent Court of International Justice in the Serbian Loans case, there would be reasons to reach the preliminary conclusion that we should review the applicability of Article VI to the 1916 Act in priority, as that article apparently applies to the facts at issue more specifically. This preliminary conclusion is based on our understanding of the arguments of the parties and on a preliminary review of the terms of Articles III:4 and VI. Since the fact that the 1916 Act provides for the imposition of internal measures does not seem to be sufficient as such to differentiate the scope of application of Article III:4 and that of Article VI, we had to consider the other terms of these articles.”(442) 290. The Panel on US — 1916 Act (EC) then held, after finding that the 1916 Act fell under the scope, and was in violation of, Article VI, that it was no longer necessary to consider whether some elements of the 1916 Act could also be subject to Article III:4: “We recall that we decided to proceed first with a review of whether Article VI applied to the 1916 Act because Article VI seemed to address more specifically the terms of the 1916 Act. We found that the 1916 Act, because it targets ‘dumping’ within the meaning of Article VI of the GATT 1994, was fully subject to the provisions of Article VI of the GATT 1994 and the Anti-Dumping Agreement and could not evade the disciplines of Article VI by the mere fact that it had anti-trust objectives or included requirements of an anti-trust nature. We therefore find it unnecessary to determine whether some elements of the 1916 Act could be subject to Article III:4.
We also found that the 1916 Act violates the provisions of Article VI and certain provisions of the Anti-Dumping Agreement. We consider these findings sufficiently complete to enable the DSB to make sufficiently precise recommendations and rulings so as to allow for prompt compliance ‘in order to ensure effective resolution of disputes to the benefit of all Members.’(443) Therefore, we are entitled to exercise judicial economy in accordance with WTO panel and Appellate Body practice and decide not to review the EC claims under Article III:4.”(444) 291. The Panel on US — 1916 Act (Japan) further elaborated on the precise relationship between Article VI and Article III: “When we considered the relationship between Article VI and Article III:4 of the GATT 1994, we noted that Article VI seemed to address the basic feature of the 1916 Act (i.e. transnational price discrimination) more directly than Article III:4. In our findings, we concluded that Article VI applies to a measure whenever that measure objectively addresses a situation of transnational price discrimination, as defined in Article VI:1. Thus, we found that the 1916 Act was fully subject to the provisions of Article VI of the GATT 1994 and the Anti-Dumping Agreement and could not escape the disciplines of Article VI by the mere fact that it had anti-trust objectives, did not address injurious dumping as such, included additional requirements of an anti-trust nature or led to the imposition of measures other than anti-dumping duties that were not border adjustment measures.
However, even though we considered that Article VI deals specifically with the type of price discrimination at issue, we did not address the question whether Article VI applied to the 1916 Act to the exclusion of Article III:4. In this regard, we recall that, in its report on European Communities — Bananas, the Appellate Body noted that:
‘Although Article X:3(a) of the GATT 1994 and Article 1.3 of the Licensing Agreement both apply, the Panel, in our view, should have applied the Licensing Agreement first, since this agreement deals specifically, and in detail, with the administration of import licensing procedures. If the Panel had done so, then there would have been no need for it to address the alleged inconsistency with Article X:3(a) of the GATT 1994.’(445)”(446) 292. After recalling the findings of the Appellate Body in EC — Bananas III, the Panel on US — 1916 Act went on to distinguish the subject-matter at issue in that case from the case before it. The Appellate Body did not address the finding of the Panel that it was entitled to exercise judicial economy with respect to the claims under Article III:4: “We are mindful of the fact that Article X:3(a) of the GATT 1994 deals with the way domestic trade laws in general should be applied, whereas Article 1.3 of the Agreement on Import Licensing Procedures deals with the way rules should be applied in the specific sector of import licensing. In contrast, it may be said that Articles III:4 and VI do not share the same purpose. However, we view the Appellate Body statement as applying the general principle of international law lex specialis derogat legi generali. This is particularly clear from its remark that the Agreement on Import Licensing Procedures ‘deals specifically, and in detail, with the administration of import licensing procedures’. In our opinion, Article VI and the Anti-Dumping Agreement ‘deals specifically, and in detail, with the administration of’ anti-dumping. In the present case, the question of the applicability of Article III:4 was essentially raised by the type of measures imposed under the 1916 Act. On the basis of the reasoning of the Appellate Body, we conclude that, even assuming that Article III:4 is applicable, in light of our findings under Article VI and the Anti-Dumping Agreement, we do not need to make findings under Article III:4 of the GATT 1994.
We nevertheless recall that, as stated by the Appellate Body in its report on Australia — Measures Affecting Importation of Salmon,(447) our findings must be complete enough to enable the DSB to make sufficiently precise recommendations and rulings so as to allow for prompt compliance ‘in order to ensure effective resolution of disputes to the benefit of all Members.’
Having regard to our findings under Article VI and the Anti-Dumping Agreement, and keeping in mind that, in our view, Article VI and the Anti-Dumping Agreement deal specifically and in detail with laws addressing dumping as such, we do not consider that making additional findings under Article III:4 is necessary in order to enable the DSB to make sufficiently precise recommendations and rulings so as to allow prompt compliance by the United States in order to ensure an effective resolution of this dispute.
Therefore, we find that we are entitled to exercise judicial economy and decide not to review the claims of Japan under Article III:4 of the GATT 1994.”(448) 293. Exercising judicial economy, the Panel on Korea — Various Measures on Beef did not examine claims regarding a certain practice of the Korean state trading agency for beef under Articles III:4 and XVII after having found a violation of Articles XI and II:1(a) for that practice. See paragraph 477 below. 294. In EC — Asbestos, the Panel rejected Canada’s argument that the French ban on the manufacture, imports and exports, and domestic sales and transfer of certain asbestos and asbestos-containing products was not covered by Note Ad Article III, and thus, subject to Article XI:1 as well as Article III:4.(449) See paragraphs 401–402 below. 295. In India — Autos, the Panel recalled the Panel Report on Canada — FIRA when it stated that Articles III and XI of GATT 1994 have distinct scopes of application. It quoted from that Panel that “the General Agreement distinguishes between measures affecting the ‘importation’ of products, which are regulated in Article XI:1, and those affecting ‘imported products’, which are dealt with in Article III. If Article XI:1 were interpreted broadly to cover also internal requirements, Article III would be partly superfluous.(450)”(451) 296. In India — Autos, the Panel did, however, consider that under certain circumstances, specific measures may have an impact upon both the importation of products (Article XI) and the competitive conditions of imported products on the internal market (Article III): “[I]t therefore cannot be excluded a priori that different aspects of a measure may affect the competitive opportunities of imports in different ways, making them fall within the scope either of Article III (where competitive opportunities on the domestic market are affected) or of Article XI (where the opportunities for importation itself, i.e. entering the market, are affected), or even that there may be, in perhaps exceptional circumstances, a potential for overlap between the two provisions, as was suggested in the case of state trading… … … there may be circumstances in which specific measures may have a range of effects. In appropriate circumstances they may have an impact both in relation to the conditions of importation of a product and in respect of the competitive conditions of imported products on the internal market within the meaning of Article III:4.(452) This is also in keeping with the well established notion that different aspects of the same measure may be covered by different provisions of the covered Agreements.”(453) (a) Reference to GATT practice 297. With respect to GATT practice on this subject-matter. 298. The Panel on Korea — Various Measures on Beef discussed the relationship between GATT Articles III and XVII. See paragraphs 138 above and 477 below. (a) Reference to GATT practice 299. With respect to GATT practice.
300. In Japan — Alcoholic Beverages II, in discussing the purpose of Article III, the Appellate Body stated: “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.”(454) 301. In EC — Hormones (US), the Panel examined the consistency of certain sanitary measures of the European Communities with Articles I and III of the GATT 1994 and certain provisions of the SPS Agreement. With respect to the relationship between Article III of the GATT 1994 and SPS Agreement, the Panel, in a finding subsequently not addressed by the Appellate Body, stated as follows: “Since we have found that the EC measures in dispute are inconsistent with the requirements of the SPS Agreement, we see no need to further examine whether the EC measures in dispute are also inconsistent with Article I or III of GATT.
As noted above in paragraph 8.42, if we were to find an inconsistency with Article I or III of GATT, we would then need to examine whether this inconsistency could be justified, as argued by the European Communities, under Article XX(b) of GATT and would thus necessarily need to revert to the SPS Agreement under which we have already found inconsistencies. Since the European Communities has not invoked any defence under GATT other than Article XX(b), an inconsistency with Article I or III of GATT would, therefore, in any event, not be justifiable.”(455) 302. In EC — Sardines, the Panel considered that, in this case, the analysis of the claims under the TBT Agreement would precede any examination of the claims under Article III:4 of GATT 1994. In doing so, the Panel recalled the Appellate Body’s statement in EC — Bananas III which declared “that the panel ‘should’ have applied the Licensing Agreement first because this agreement deals ‘specifically, and in detail’ with the administration of import licensing procedures”. In the Panel’s view, the Appellate Body is suggesting that where two agreements apply simultaneously, a panel should normally consider the more specific agreement before the more general agreement.”(456) Using that same rationale, the Panel concluded that since “[a]rguably, the TBT Agreement deals ‘specifically, and in detail’ with technical regulations”, and considering the parties claims, “then the analysis under the TBT Agreement would precede any examination under [Article III:4 of] the GATT 1994.”(457) 303. In Indonesia — Autos, the Panel examined the consistency with Article III of measures contained in the Indonesian National Car Programme, including a luxury tax exemptions given to certain domestically produced cars. Indonesia argued that the challenged measures were subsidies, which were exclusively governed by Article XVI of GATT and the SCM Agreement. Referring to the finding of the Appellate Body in Japan — Alcoholic Beverages II referenced in paragraph 300 above(458), the Panel concluded that there is no general conflict between Article III and the SCM Agreement for the following reasons: “[W]e think that Article III of GATT 1994 and the WTO rules on subsidies remain focused on different problems. Article III continues to prohibit discrimination between domestic and imported products in respect of internal taxes and other domestic regulations, including local content requirements. It does not ‘proscribe’ nor does it ‘prohibit’ the provision of any subsidy per se. By contrast, the SCM Agreement prohibits subsidies which are conditional on export performance and on meeting local content requirements, provides remedies with respect to certain subsidies where they cause adverse effects to the interests of another Member and exempts certain subsidies from actionability under the SCM Agreement. In short, Article III prohibits discrimination between domestic and imported products while the SCM Agreement regulates the provision of subsidies to enterprises.
Contrary to what Indonesia claims, the fact that a government gives a subsidy to a firm does not imply that the subsidy itself will necessarily discriminate between imported and domestic products in contravention of Article III of GATT. Article III:8(b) of GATT makes clear that a government may use the proceeds of taxes collected equally on all imported and domestic products in order to provide a subsidy to domestic producers (to the exclusion of producers abroad).
Finally, the fact that, as a result of the Uruguay Round, the SCM Agreement to some extent covers subject matters that were already covered by other GATT disciplines is not unique. This situation is similar to the relationship between GATT 1994 and GATS. In Periodicals and in Bananas III, the defending parties argued that since a set of rules on services exists now in GATS, the provisions of Article III:4 of GATT on distribution and transportation have ceased to apply. Twice the Appellate Body has ruled that the scope of Article III:4 was not reduced by the fact that rules on trade in services are found in GATS: ‘The entry into force of the GATS, as Annex 1B of the WTO Agreement, does not diminish the scope of application of the GATT 1994.’
Accordingly, we consider that Article III and the SCM Agreement have, generally, different coverage and do not impose the same type of obligations.(459) Thus there is no general conflict between these two sets of provisions.”(460) 304. The Panel on Indonesia — Autos, in the context of discussing the relationship between Article III and the SCM Agreement, considered in which manner “direct” taxes (taxes on individuals and economic entities) and “indirect” taxes (taxes on products) are covered by Article III of GATT 1994: “When subsidies to producers result from exemptions or reductions of indirect taxes on products, Article III:2 of GATT is relevant. In contrast, subsidies granted in respect of direct taxes are generally not covered by Article III:2, but may infringe Article III:4 to the extent that they are linked to other conditions which favour the use, purchase, etc. of domestic products.”(461) 305. The Panel on Indonesia — Autos also rejected Indonesia’s argument that if Article III applied to the subject measures, the SCM Agreement would be reduced to “inutility”: “This is to say that the only subsidies that would be affected by the provisions of Article III are those that would involve discrimination between domestic and imported products. While Article III of GATT and the SCM Agreement may appear to overlap in respect of certain measures, the two sets of provisions have different purposes and different coverage. Indeed, they also offer different remedies, different dispute settlement time limits and different implementation requirements. Thus, we reject Indonesia’s argument that the application of Article III to subsidies would reduce the SCM Agreement to ‘inutility’.
We note further that Indonesia’s argument would imply that every time a measure involves tax discrimination in respect of products, that measure should be considered a subsidy governed exclusively by the SCM Agreement to the exclusion of Article III:2. It appears to us that this line of argument would reduce Article III:2 to ‘inutility’, since the very explicit (and arguably only) purpose of Article III:2 is to deal with tax discrimination in respect of products.”(462) 306. In Indonesia — Autos, the Panel also addressed the significance of Article III:8(b) in the context of the relationship between Article III and the SCM Agreement. See paragraph 282 above. 307. The Panel on Indonesia — Autos addressed claims that certain Indonesian local content requirements for import duty exemptions to automobiles and their parts and components were inconsistent with the TRIMs Agreement and Article III:4 of the GATT 1994: “The complainants have claimed that the local content requirements under examination, and which we find are inconsistent with the TRIMs Agreement, also violate the provisions of Article III:4 of GATT. Under the principle of judicial economy,(463) a panel only has to address the claims that must be addressed to resolve a dispute or which may help a losing party in bringing its measures into conformity with the WTO Agreement. The local content requirement aspects of the measures at issue have been addressed pursuant to the claims of the complainants under the TRIMs Agreement. We consider therefore that action to remedy the inconsistencies that we have found with Indonesia’s obligations under the TRIMs Agreement would necessarily remedy any inconsistency that we might find with the provisions of Article III:4 of GATT. We recall our conclusion that non applicability of Article III would not affect as such the application of the TRIMs Agreement. We consider therefore that we do not have to address the claims under Article III:4, nor any claim of conflict between Article III:4 of GATT and the provisions of the SCM Agreement.”(464) 308. In Canada — Autos, following the finding of a violation of Article III:4, the Panel opined that a finding under the TRIMs Agreement was not necessary. The Appellate Body did not address this issue: “[W]e do not consider it necessary to make a specific ruling on whether the CVA requirements provided for in the MVTO 1998 and the SROs are inconsistent with Article 2.1 of the TRIMs Agreement. We believe that the Panel’s reasoning in EC — Bananas III as to why it did not make a finding under the TRIMs Agreement after it had found that certain aspects of the EC’ licensing procedures were inconsistent with Article III:4 of the GATT also applies to the present case.(465) Thus, on the one hand, a finding in the present case that the CVA requirements are not trade-related investment measures for the purposes of the TRIMs Agreement would not affect our finding in respect of the inconsistency of these requirements with Article III:4 of the GATT since the scope of that provision is not limited to trade-related investment measures. On the other hand, steps taken by Canada to bring these measures into conformity with Article III:4 would also eliminate the alleged inconsistency with obligations under the TRIMs Agreement.”(466) 309. In India — Autos, the Panel was dealing with separate claims under both the GATT 1994 and the TRIMs Agreement. It noted that previous panels confronted with concurrent claims concerning these two agreements had taken differing approaches to the choice of order of analysis of such claims. The Panel recognized that, in some circumstances, there may be a practical significance in determining a particular order for the examination of claims based on the TRIMS and GATT 1994; for example if a party claimed as a defence that a measure had been notified under the TRIMs Agreement. Since that was not the case in this dispute, the Panel did not find any particular reason to start its examination on any particular order, nor did it consider that the end result would be affected by either determination of order of analysis. In fact, the Panel was not persuaded that, as a general matter, the TRIMs Agreement could inherently be characterized as more specific than the relevant GATT provisions, and stated: “As a general matter, even if there was some guiding principle to the effect that a specific covered Agreement might appropriately be examined before a general one where both may apply to the same measure, it might be difficult to characterize the TRIMs Agreement as necessarily more ‘specific’ than the relevant GATT provisions. Although the TRIMS Agreement ‘has an autonomous legal existence’, independent from the relevant GATT provisions, as noted by the Indonesia — Autos panel,(467) the substance of its obligations refers directly to Articles III and XI of the GATT, and clarifies their meaning, inter alia, through an Illustrative list. On one view, it simply provides additional guidance as to the identification of certain measures considered to be inconsistent with Articles III:4 and XI:1 of the GATT 1994. On the other hand, the TRIMs Agreement also introduces rights and obligations that are specific to it, through its notification mechanism and related provisions. An interpretative question also arises in relation to the TRIMs Agreement as to whether a complainant must separately prove that the measure in issue is a ‘trade-related investment measure’. For either of these reasons, the TRIMs Agreement might be arguably more specific in that it provides additional rules concerning the specific measures it covers.(468) The Panel is therefore not convinced that, as a general matter, the TRIMs Agreement could inherently be characterized as more specific than the relevant GATT provisions.”(469) 310. The Panel on India — Autos ultimately decided to examine the GATT claims first, since both complainants had addressed their claims under GATT 1994 prior to their claims under the TRIMS Agreement, and the order selected for examination of the claims could have an impact on the potential to apply judicial economy. In effect, the Panel stated: “It seems that an examination of the GATT provisions in this case would be likely to make it unnecessary to address the TRIMs claims, but not vice-versa. If a violation of the GATT claims was found, it would be justifiable to refrain from examining the TRIMs claims under the principle of judicial economy. Even if no violation was found under the GATT claims, that also seems an efficient starting point since it would be difficult to imagine that if no violation has been found of Articles III or XI, a violation could be found of Article 2 of the TRIMs Agreement, which refers to the same provisions. Conversely, if no violation of the TRIMs Agreement were found, this would not necessarily preclude the existence of a violation of GATT Articles III:4 or XI:1 because the scope of the GATT provisions is arguably broader if India’s argument was accepted that there is a need to prove that a measure is an investment measure and its assertion that this is not the case with the measures before this Panel.”(470) 311. In Canada — Periodicals, the Appellate Body examined the Panel’s finding that Canada was in violation of Article III:2 in imposing an excise tax on split-run editions of periodicals, i.e. those editions which “contain[…] an advertisement that is primarily directed to a market in Canada and that does not appear in identical form in all editions of that issue of the periodical[s] that were distributed in the periodical[s’] country of origin.”(471) Canada claimed that the excise tax was subject to the GATS, and thus, not subject to Article III:2 of the GATT 1994.(472) Rejecting this argument, the Appellate Body stated: “The entry into force of the GATS, as Annex 1B of the WTO Agreement, does not diminish the scope of application of the GATT 1994. …
We agree with the Panel’s statement:
‘The ordinary meaning of the texts of GATT 1994 and GATS as well as Article II:2 of the WTO Agreement, taken together, indicates that obligations under GATT 1994 and GATS can co-exist and that one does not override the other.’”(473) 312. In EC — Bananas III, the Appellate Body also addressed the question of “whether the GATS and the GATT 1994 are mutually exclusive agreements”, as follows: “The GATS was not intended to deal with the same subject matter as the GATT 1994. The GATS was intended to deal with a subject matter not covered by the GATT 1994, that is, with trade in services. Thus, the GATS applies to the supply of services. It provides, inter alia, for both MFN treatment and national treatment for services and service suppliers. Given the respective scope of application of the two agreements, they may or may not overlap, depending on the nature of the measures at issue. Certain measures could be found to fall exclusively within the scope of the GATT 1994, when they affect trade in goods as goods. Certain measures could be found to fall exclusively within the scope of the GATS, when they affect the supply of services as services. There is yet a third category of measures that could be found to fall within the scope of both the GATT 1994 and the GATS. These are measures that involve a service relating to a particular good or a service supplied in conjunction with a particular good. In all such cases in this third category, the measure in question could be scrutinized under both the GATT 1994 and the GATS. However, while the same measure could be scrutinized under both agreements, the specific aspects of that measure examined under each agreement could be different. Under the GATT 1994, the focus is on how the measure affects the goods involved. Under the GATS, the focus is on how the measure affects the supply of the service or the service suppliers involved. Whether a certain measure affecting the supply of a service related to a particular good is scrutinized under the GATT 1994 or the GATS, or both, is a matter that can only be determined on a case-by-case basis. This was also our conclusion in the Appellate Body Report in Canada — Periodicals.(474)”(475) 313. The finding that the scope of application of GATT and GATS, respectively, may or may not overlap, was reiterated by the Appellate Body in Canada — Autos.(476)
Footnotes:
348. Appellate Body Report on
Korea — Various Measures on Beef,
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