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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
analysed 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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