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ON THIS PAGE:
> Korea — Alcoholic Beverages, para. 114
> Korea — Alcoholic Beverages, para. 115
> Korea — Alcoholic Beverages, para. 118
> Korea — Alcoholic Beverages, para. 120
> Korea — Alcoholic Beverages, para. 124
> Korea — Alcoholic Beverages, para. 127
> Korea — Alcoholic Beverages, para. 134
> Korea — Alcoholic Beverages, para. 137
> Korea — Alcoholic Beverages, paras. 142-143
> US — Cotton Yarn, paras. 96-98
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D.1.1 Korea —
Alcoholic Beverages, para. 114 back to top
(WT/DS75/AB/R, WT/DS84/AB/R)
The term “directly competitive or
substitutable” describes a particular type of relationship between two
products, one imported and the other domestic. It is evident from the
wording of the term that the essence of that relationship is that the
products are in competition. This much is clear both from the word “competitive”
which means “characterized by competition”, and from the word “substitutable”
which means “able to be substituted”. The context of the competitive
relationship is necessarily the marketplace since this is the forum
where consumers choose between different products. Competition in the
market place is a dynamic, evolving process. Accordingly, the wording of
the term “directly competitive or substitutable” implies that the
competitive relationship between products is not to be analyzed exclusively
by reference to current consumer preferences. In our view, the
word “substitutable” indicates that the requisite relationship may
exist between products that are not, at a given moment, considered by
consumers to be substitutes but which are, nonetheless, capable
of being substituted for one another.
D.1.2 Korea — Alcoholic Beverages,
para. 115 back to top
(WT/DS75/AB/R, WT/DS84/AB/R)
Thus, according to the ordinary meaning of the
term, products are competitive or substitutable when they are
interchangeable or if they offer, as the Panel noted, “alternative
ways of satisfying a particular need or taste”. Particularly in a
market where there are regulatory barriers to trade or to competition,
there may well be latent demand.
D.1.3 Korea —
Alcoholic Beverages, para. 118 back to top
(WT/DS75/AB/R, WT/DS84/AB/R)
… “Like” products are a subset of
directly competitive or substitutable products: all like products are,
by definition, directly competitive or substitutable products, whereas
not all “directly competitive or substitutable” products are “like”.
The notion of like products must be construed narrowly but the category
of directly competitive or substitutable products is broader. While
perfectly substitutable products fall within Article III:2, first
sentence, imperfectly substitutable products can be assessed under
Article III:2, second sentence.
D.1.4 Korea — Alcoholic Beverages,
para. 120 back to top
(WT/DS75/AB/R, WT/DS84/AB/R)
In view of the objectives of avoiding
protectionism, requiring equality of competitive conditions and
protecting expectations of equal competitive relationships, we decline
to take a static view of the term “directly competitive or
substitutable.” The object and purpose of Article III confirms that
the scope of the term “directly competitive or substitutable” cannot
be limited to situations where consumers already regard products
as alternatives. If reliance could be placed only on current instances
of substitution, the object and purpose of Article III:2 could be
defeated by the protective taxation that the provision aims to prohibit.
…
D.1.5 Korea — Alcoholic Beverages,
para. 124 back to top
(WT/DS75/AB/R, WT/DS84/AB/R)
… the term “directly competitive or
substitutable” does not prevent a panel from taking account of
evidence of latent consumer demand as one of a range of factors to be
considered when assessing the competitive relationship between imported
and domestic products under Article III:2, second sentence, of the GATT
1994. …
D.1.6 Korea — Alcoholic Beverages, para. 127 back to top
(WT/DS75/AB/R, WT/DS84/AB/R)
… the object and purpose of Article III is
the maintenance of equality of competitive conditions for imported and
domestic products. It is, therefore, not only legitimate, but even
necessary, to take account of this purpose in interpreting the term “directly
competitive or substitutable product”.
D.1.7 Korea — Alcoholic Beverages,
para. 134 back to top
(WT/DS75/AB/R, WT/DS84/AB/R)
… we share the Panel’s reluctance to rely
unduly on quantitative analyses of the competitive relationship. In our
view, an approach that focused solely on the quantitative overlap of
competition would, in essence, make cross-price elasticity the
decisive criterion in determining whether products are “directly
competitive or substitutable”. …
D.1.8 Korea — Alcoholic Beverages,
para. 137 back to top
(WT/DS75/AB/R, WT/DS84/AB/R)
It is, of course, true that the “directly
competitive or substitutable” relationship must be present in the
market at issue. … It is also true that consumer responsiveness to
products may vary from country to country. This does not, however,
preclude consideration of consumer behaviour in a country other than the
one at issue. It seems to us that evidence from other markets may be
pertinent to the examination of the market at issue, particularly when
demand on that market has been influenced by regulatory barriers to
trade or to competition. Clearly, not every other market will be
relevant to the market at issue. But if another market displays
characteristics similar to the market at issue, then evidence of
consumer demand in that other market may have some relevance to the
market at issue. This, however, can only be determined on a case-by-case
basis, taking account of all relevant facts.
D.1.9 Korea — Alcoholic Beverages, paras. 142-143 back to top
(WT/DS75/AB/R, WT/DS84/AB/R)
… Some grouping is almost always necessary
in cases arising under Article III:2, second sentence, since generic
categories commonly include products with some variation in
composition, quality, function and price, and thus commonly give rise to
sub-categories. From a slightly different perspective, we note that “grouping”
of products involves at least a preliminary characterization by the
treaty interpreter that certain products are sufficiently similar as to,
for instance, composition, quality, function and price, to warrant
treating them as a group for convenience in analysis. But, the use of
such “analytical tools” does not relieve a panel of its duty to make
an objective assessment of whether the components of a group of imported
products are directly competitive or substitutable with the domestic
products. …
Whether, and to what extent, products can be
grouped is a matter to be decided on a case-by-case basis. …
D.1.10 US — Cotton Yarn,
paras. 96-98 back to top
(WT/DS192/AB/R)
According to the ordinary meaning of the term
“competitive”, two products are in a competitive relationship if
they are commercially interchangeable, or if they offer alternative ways
of satisfying the same consumer demand in the marketplace. “Competitive”
is a characteristic attached to a product and denotes the capacity
of a product to compete both in a current or a future situation. The
word “competitive” must be distinguished from the words “competing”
or “being in actual competition”. It has a wider connotation than
“actually competing” and includes also the notion of a potential to
compete. It is not necessary that two products be competing, or that
they be in actual competition with each other, in the marketplace at a
given moment in order for those products to be regarded as competitive.
Indeed, products which are competitive may not be actually competing
with each other in the marketplace at a given moment for a variety of
reasons, such as regulatory restrictions or producers’ decisions.
Thus, a static view is incorrect, for it leads to the same products
being regarded as competitive at one moment in time, and not so the
next, depending upon whether or not they are in the marketplace.
It is significant that the word “competitive”
is qualified by the word “directly”, which emphasizes the degree of
proximity that must obtain in the competitive relationship between the
products under comparison. As noted earlier, a safeguard action under
the ATC is permitted in order to protect the domestic industry
against competition from an imported product. To ensure that such
protection is reasonable, it is expressly provided that the domestic
industry must be producing “like” and/or “directly competitive
products”. …
When … the product produced by the domestic
industry is not a “like product” as compared with the imported
product, the question arises how close should be the competitive
relationship between the imported product and the “unlike” domestic
product. It is common knowledge that unlike or dissimilar products
compete or can compete in the marketplace to varying degrees, ranging
from direct or close competition to remote or indirect competition. The
more unlike or dissimilar two products are, the more remote or indirect
their competitive relationship will be in the marketplace. The term “competitive”
has, therefore, purposely been qualified and limited by the word “directly”
to signify the degree of proximity that must obtain in the competitive
relationship when the products in question are unlike. Under this
definition of “directly”, a safeguard action will not extend to
protecting a domestic industry that produces unlike products which have
only a remote or tenuous competitive relationship with the imported
product.
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The texts reproduced here do not have the legal standing of the original
documents which are entrusted and kept at the WTO Secretariat in Geneva.
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