|
ON THIS PAGE:
> Article III:1 of the GATT 1994 — General principle
> Relationship between Article II and Article III:2 of the GATT 1994
> Article III:2 of the GATT 1994 — Tax discrimination
> Article III:2 of the GATT 1994, first sentence — “like products”
> Article III:2 of the GATT 1994, first sentence — “in excess of”
> Article III:2 of the GATT 1994 — Notions of “like” and “directly competitive or substitutable” products
> Article III:2 of the GATT 1994, second sentence — “directly competitive or substitutable” products. See also Directly Competitive or Substitutable Products (D.1);
Textiles and Clothing Agreement, Article 6.2 — “directly competitive products” (T.7.4)
> Article III:2 of the GATT 1994, second sentence — “not similarly taxed”
> Article III:2 of the GATT 1994, second sentence — “so as to afford protection”
> Article III:4 of the GATT 1994 — Regulatory discrimination
> Article III:4 of the GATT 1994 — “affecting”
> Article III:4 of the GATT 1994 — “less favourable treatment”
> Relationship between Article III and Article XX
> Article XVII of the GATS. See also MFN Treatment, Article II of the GATS (M.2.2)
> Article 3.1 of the TRIPS Agreement
|
N.1.1 Article III:1 of the GATT 1994 — General principle
back to top
N.1.1.1 Japan — Alcoholic Beverages II, pp. 16-17, DSR
1996:I, 97, at 109-110
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
The broad and fundamental purpose of Article III is to avoid
protectionism in the application of internal tax and regulatory
measures. More specifically, the purpose of Article III “is to ensure
that internal measures ‘not be applied to imported or domestic
products so as to afford protection to domestic production’ ”.
Toward this end, Article III obliges Members of the WTO to provide
equality of competitive conditions for imported products in relation to
domestic products. …It is irrelevant that “the trade effects” of
the tax differential between imported and domestic products, as
reflected in the volumes of imports, are insignificant or even
non-existent; Article III protects expectations not of any particular
trade volume but rather of the equal competitive relationship between
imported and domestic products. …
… The Article III national treatment obligation is a general
prohibition on the use of internal taxes and other internal regulatory
measures so as to afford protection to domestic production. This
obligation clearly extends also to products not bound under Article II.
…
N.1.1.2 Japan — Alcoholic Beverages II, p. 18, DSR 1996:I, 97,
at 111
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
… Article III:1 articulates a general principle that internal
measures should not be applied so as to afford protection to domestic
production. This general principle informs the rest of Article III. The
purpose of Article III:1 is to establish this general principle as a
guide to understanding and interpreting the specific obligations
contained in Article III:2 and in the other paragraphs of Article III,
while respecting, and not diminishing in any way, the meaning of the
words actually used in the texts of those other paragraphs. In short,
Article III:1 constitutes part of the context of Article III:2, in the
same way that it constitutes part of the context of each of the other
paragraphs in Article III. Any other reading of Article III would have
the effect of rendering the words of Article III:1 meaningless, thereby
violating the fundamental principle of effectiveness in treaty
interpretation. Consistent with this principle of effectiveness, and
with the textual differences in the two sentences, we believe that
Article III:1 informs the first sentence and the second sentence of
Article III:2 in different ways.
N.1.1.3 Japan — Alcoholic Beverages II, p. 18, DSR 1996:I, 97,
at 111-112
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
… Article III:2, first sentence does not refer specifically to
Article III:1. There is no specific invocation in this first sentence of
the general principle in Article III:1 that admonishes Members of the
WTO not to apply measures “so as to afford protection”. This
omission must have some meaning. We believe the meaning is simply that
the presence of a protective application need not be established
separately from the specific requirements that are included in the first
sentence in order to show that a tax measure is inconsistent with the
general principle set out in the first sentence. However, this does not
mean that the general principle of Article III:1 does not apply to this
sentence. To the contrary, we believe the first sentence of Article
III:2 is, in effect, an application of this general principle.…
N.1.1.4 EC — Asbestos, para. 93
(WT/DS135/AB/R)
… 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. 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. 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.
N.1.1A Relationship between Article II and Article III:2 of the GATT
1994 back to top
N.1.1A.1 India — Additional Import Duties, footnote 304 to para.
153
(WT/DS360/AB/R)
…The Panel and the participants also agree that the
Additional Duty and the Extra-Additional Duty are border charges subject
to the terms of Article II, and that they are not disciplined by the
provisions of Article III as “internal taxes”. The Ad Note to
Article III provides that “any internal tax or other internal charge”
that applies to both domestic and imported products, but which is “collected
or enforced” in respect of the imported product “at the time or
point of importation”, is “nevertheless to be regarded” as subject
to the provisions of Article III. Whether a measure is a “charge” to
which Article II:2(a) applies, or an “internal tax or other internal
charge” referred to in the Ad Note to Article III, has to be decided
in the light of the characteristics of the measure and the circumstances
of the case.
N.1.1A.2 China — Auto Parts, paras. 139, 141 and footnote 209
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)
… as the Appellate Body has previously observed, the “fundamental
structure and logic” of a covered agreement may require panels to
determine whether a measure falls within the scope of a
particular provision or covered agreement before proceeding to
assess the consistency of the measure with the substantive obligations
imposed under that provision or covered agreement. We consider this to
be just such a case, particularly in the light of the Panel’s
observation — with which China expressly agrees — that “a charge
cannot be at the same time an ‘ordinary customs duty’ under Article
II:1(b) of the GATT 1994 and an ‘internal tax or other internal charge’
under Article III:2 of the GATT”. If, as the Panel considered, the
charge imposed on automobile manufacturers could fall within the scope
of either the first sentence of Article II:1(b) or Article III:2,
then the Panel had to begin its analysis by ascertaining which of
these provisions applied in the circumstances of this dispute.
…
It seems to us that an examination of whether a particular charge is
an internal charge or a border measure involves consideration of all three
types of charges, that is: ordinary customs duties under the first
sentence of Article II:1(b); other duties and charges under the second
sentence of Article II:1(b);209 and internal charges and taxes under
Article III:2. This should assist a panel in understanding the
relationship among these fundamental GATT provisions. In this case the
Panel could have undertaken a more complete analysis of the architecture
of Article III:2 and both sentences of Article II:1(b) of the
GATT 1994. However, its resolution of the threshold question was not
affected by the fact that the Panel did not do so. We note that China
has recorded “0” in the “Other Duties and Charges” column of its
Schedule of Concessions in respect of the products at issue in this
dispute.
N.1.1A.3 China — Auto Parts,
paras. 161-163, 165
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)
Like the Panel, we consider that the adjectives “internal” and
“imported” suggest that the charges falling within the scope of
Article III are charges that are imposed on goods that have already been
“imported”, and that the obligation to pay them is triggered by an
“internal” factor, something that takes place within the
customs territory. Further, the second sentence of Article III:2
expressly refers to the principles set forth in Article III:1. The
Appellate Body has stated that Article III:1 articulates a general
principle, that informs all of Article III, that internal measures
should not be applied so as to afford protection to domestic production.
We note that, in addition to laws, regulations and requirements
affecting, inter alia, the use and sale of imported goods on the
internal market, the first paragraph of Article III also specifically
mentions “internal quantitative regulations requiring the… use of
products in specified amounts or proportions” as among the types of
measures that should not be applied so as to afford protection to
domestic production, and such measures are subject to the specific
disciplines of Article III:5, which also serves as relevant context.
As already mentioned, in examining the scope of application of
Article III:2, in relation to Article II:1(b), first sentence, the time
at which a charge is collected or paid is not decisive. In the case of
Article III:2, this is explicitly stated in the GATT 1994 itself, where
the Ad Note to Article III specifies that when an internal charge
is “collected or enforced in the case of the imported product at the
time or point of importation”, such a charge “is nevertheless to be
regarded” as an internal charge. What is important, however, is that
the obligation to pay a charge must accrue due to an internal
event, such as the distribution, sale, use or transportation of the
imported product.
This leads us, like the Panel, to the view that a key indicator of
whether a charge constitutes an “internal charge” within the meaning
of Article III:2 of the GATT 1994 is “whether the obligation to pay
such charge accrues because of an internal factor (e.g., because
the product was re-sold internally or because the product was used
internally), in the sense that such ‘internal factor’ occurs after
the importation of the product of one Member into the territory of
another Member”. We also observe that the Harmonized System does not
serve as relevant context for the interpretation of the term “internal
charges” in Article III:2.
…
In our view, accepting that a charge imposed on auto parts following,
and as a consequence of, their assembly into a complete motor vehicle
can constitute an ordinary customs duty would significantly limit the
scope of “internal charges” that fall within the scope of Article
III:2 of the GATT 1994. We also share the concerns expressed by the
Panel to the effect that the security and predictability of tariff
concessions would be undermined if ordinary customs duties could be
applied based on factors and events that occur internally, rather than
at the moment and by virtue of importation, and that this, in turn,
would upset the carefully negotiated and balanced structure of key GATT
rights and obligations, including the different disciplines imposed on
ordinary customs duties and internal charges.
N.1.1A.4 China — Auto Parts, para. 171
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)
… a panel’s determination of whether a specific charge falls
under Article II:1(b) or Article III:2 of the GATT 1994 must be made in
the light of the characteristics of the measure and the circumstances of
the case. In many cases this will be a straightforward exercise. In
others, the picture will be more mixed, and the challenge faced by a
panel more complex. A panel must thoroughly scrutinize the measure
before it, both in its design and in its operation, and identify its
principal characteristics. Having done so, the panel must then seek to
identify the leading or core features of the measure at issue, those
that define its “centre of gravity” for purposes of characterizing
the charge that it imposes as an ordinary customs duty or an internal
charge. It is not surprising, and indeed to be expected, that the same
measure may exhibit some characteristics that suggest it is a measure
falling within the scope of Article II:1(b), and others suggesting it is
a measure falling within the scope of Article III:2. In making its
objective assessment of the applicability of specific provisions of the
covered agreements to a measure properly before it, a panel must
identify all relevant characteristics of the measure, and
recognize which features are the most central to that measure itself,
and which are to be accorded the most significance for purposes of
characterizing the relevant charge and, thereby, properly determining
the discipline(s) to which it is subject under the covered agreements.
N.1.1A.5 China — Auto Parts,
paras. 177-178
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)
In contrast, regarding the characteristics of the measures at issue
that might suggest that the charge imposed there under is an ordinary
customs duty… Ultimately, the Panel considered that none of these
factors, nor all of them taken together, was determinative of the
issue of the legal characterization of the charge imposed under the
measures at issue in this case.
We see no error in the Panel’s approach. Taking each of these
criteria in turn, we first observe that the way in which a Member’s
domestic law characterizes its own measures, although useful, cannot be
dispositive of the characterization of such measures under WTO law.
Secondly, “the intent, stated or otherwise, of the legislators is not
conclusive” as to such characterization. Thirdly, [although] the Panel
acknowledged that parts imported by automobile manufacturers are deemed
to remain under bond… the Panel also found that there is no physical
confinement or any other restriction by customs authorities on the use
of these auto parts in the internal market so that the bond requirement
is in the nature of a financial guarantee. Lastly, with respect to the
administration of the measures at issue by customs authorities, we
recall that, in addition to the [General Administration of Customs],
other agencies within the Chinese Government have a role under those
measures. … In addition, as the Panel recognized, and as is the case
with all of the criteria we have just mentioned, a degree of caution
must be exercised in attributing decisive weight to characteristics that
fall exclusively within the control of WTO Members, “because otherwise
Members could determine by themselves which of the provisions would
apply to their charges”.
N.1.1A.6 China — Auto Parts, para. 243
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)
Thus, it appears to us that the Panel considered that there were distinct
charges imposed under Decree 125, and that it could characterize the
“charge” imposed on imports of CKD and SKD kits under Article 2(2)
of Decree 125 differently, as an ordinary customs duty. However, the
Panel did not explain why this was so. Earlier in our analysis, we
expressed the view that, in dealing with the threshold issue, the Panel
properly scrutinized the key characteristics of the charge, evaluated
the significance of those characteristics, and determined that the
charge imposed under the measures at issue was an internal charge. In
contrast, the Panel did not explain how or why the characteristics of
the “charge” imposed on imports of CKD and SKD kits under Article
2(2) differed from those that it had earlier identified in its
resolution of the threshold issue. Nor did it explain why such
characteristics required characterization of the “charge” imposed on
CKD and SKD kits imported under Article 2(2) as an ordinary customs
duty. This does not seem to us to have been a proper approach to the
characterization of this “charge”.
N.1.2 Article III:2 of the GATT 1994 — Tax discrimination
back to top
N.1.2.1 Canada — Periodicals, p. 19, DSR 1997:I, p. 449 at 464
(WT/DS31/AB/R)
Article III:2, first sentence, uses the words “directly or
indirectly” in two different contexts: one in relation to the
application of a tax to imported products and the other in relation to
the application of a tax to like domestic products. Any measure that
indirectly affects the conditions of competition between imported and
like domestic products would come within the provisions of Article
III:2, first sentence, or by implication, second sentence, given the
broader application of the latter.
N.1.2.2 Canada — Periodicals, pp. 22-23, DSR 1997:I, 449, at
468
(WT/DS31/AB/R)
… there are two questions which need to be answered to determine
whether there is a violation of Article III:2 of the GATT 1994: (a)
whether imported and domestic products are like products; and (b)
whether the imported products are taxed in excess of the domestic
products. If the answers to both questions are affirmative, there is a
violation of Article III:2, first sentence. If the answer to one
question is negative, there is a need to examine further whether the
measure is consistent with Article III:2, second sentence.
N.1.3 Article III:2 of the GATT 1994, first sentence
— “like
products” back to top
N.1.3.1 SCOPE OF “LIKE PRODUCTS”
N.1.3.1.1 Japan — Alcoholic Beverages II, pp. 19-20, DSR
1996:I, p. 97 at 112-113
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
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. …
How narrowly is a matter that should be determined separately for
each tax measure in each case. We agree with the practice under the GATT
1947 of determining whether imported and domestic products are “like”
on a case-by-case basis. …
N.1.3.1.2 Japan — Alcoholic Beverages II, p. 21, DSR 1996:I, p.
97 at 114
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
No one approach to exercising judgement will be appropriate for all
cases. The criteria in Border Tax Adjustments should be examined,
but there can be no one precise and absolute definition of what is “like”.
The concept of “likeness” is a relative one that evokes the image of
an accordion. The accordion of “likeness” stretches and squeezes in
different places as different provisions of the WTO Agreement are
applied. The width of the accordion in any one of those places must be
determined by the particular provision in which the term “like” is
encountered as well as by the context and the circumstances that prevail
in any given case to which that provision may apply. …
N.1.3.1.3 Canada — Periodicals, p. 28, DSR 1997:I, p. 449 at
473
(WT/DS31/AB/R)
… A case of perfect substitutability would fall within Art. III:2,
first sentence, while we are examining the broader prohibition of the
second sentence. …
N.1.3.1.4 EC — Asbestos,
paras. 94-95
(WT/DS135/AB/R)
… 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. 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. …
… 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. …
N.1.3.2 CRITERIA. See also National Treatment, Article III:4
of the GATT 1994 — Regulatory discrimination — Relation to Article
III:2 (N.1.9.3); Textiles and Clothing Agreement, Article 6.2 — “like
products” (T.7.5)
N.1.3.2.1 Japan — Alcoholic Beverages II, pp. 20-21, DSR
1996:I, p. 97 at 113-114
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
… In applying the criteria cited in Border Tax Adjustments to
the facts of any particular case, and in considering other criteria that
may also be relevant in certain cases, panels can only apply their best
judgement in determining whether in fact products are “like”. This
will always involve an unavoidable element of individual, discretionary
judgement…it is a discretionary decision that must be made in
considering the various characteristics of products in individual cases.
N.1.3.2.2 Japan — Alcoholic Beverages II, p. 22, DSR 1996:I, p.
97 at 114-115
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
Uniform classification in tariff nomenclatures based on the
Harmonized System (the “HS”) was recognized in GATT 1947 practice as
providing a useful basis for confirming “likeness” in products.
However, there is a major difference between tariff classification
nomenclature and tariff bindings or concessions made by Members of the
WTO under Article of the GATT 1994. …
… tariff bindings that include a wide range of products are not a
reliable criterion for determining or confirming product “likeness”
under Article III:2.
N.1.3.2.3 Canada — Periodicals, p. 21, DSR 1997:I, p. 449 at
466
(WT/DS31/AB/R)
… As the Panel recognized, the proper test is that a determination
of “like products” for the purposes of Article III:2, first
sentence, must be construed narrowly, on a case-by-case basis, by
examining relevant factors including:
(i) the product’s end-uses in a given market;
(ii) consumers’ tastes and habits; and
(iii) the product’s properties, nature and quality.
N.1.4 Article III:2 of the GATT 1994, first sentence
— “in excess
of” back to top
N.1.4.1 Japan — Alcoholic Beverages II, pp. 18-19, DSR
1996:I, p. 97 at 112
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
… Read in their context and in the light of the overall object and
purpose of the WTO Agreement, the words of the first sentence
require an examination of the conformity of an internal tax measure with
Article III by determining, first, whether the taxed imported and
domestic products are “like” and, second, whether the taxes applied
to the imported products are “in excess of” those applied to the
like domestic products. If the imported and domestic products are “like
products”, and if the taxes applied to the imported products are “in
excess of” those applied to the like domestic products, then the
measure is inconsistent with Article III:2, first sentence.
N.1.4.2 Japan — Alcoholic Beverages II, p. 23, DSR 1996:I, p.
97 at 115
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
… Even the smallest amount of “excess” is too much. “The
prohibition of discriminatory taxes in Article III:2, first sentence, is
not conditional on a ‘trade effects test’ nor is it qualified by a de
minimis standard.” …
N.1.5 Article III:2 of the GATT 1994 — Notions of “like” and
“directly competitive or substitutable” products
back to top
N.1.5.1 Japan — Alcoholic Beverages II, p. 25, DSR 1996:I, p.
97 at 117
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
… As with “like products” under the first sentence, the
determination of the appropriate range of “directly competitive or
substitutable products” under the second sentence must be made on a
case-by-case basis.
In this case, the Panel emphasized the need to look not only at such
matters as physical characteristics, common end-uses, and tariff
classifications, but also at the “market-place”. This seems
appropriate. …It does not seem inappropriate to look at competition in
the relevant markets as one among a number of means of identifying the
broader category of products that might be described as “directly
competitive or substitutable”.
Nor does it seem inappropriate to examine elasticity of substitution
as one means of examining those relevant markets.
N.1.5.2 Canada — Periodicals, p. 19, DSR 1997:I, p. 449 at 464-465
(WT/DS31/AB/R)
… Any measure that indirectly affects the conditions of competition
between imported and like domestic products would come within the
provisions of Article III:2, first sentence, or by implication, second
sentence, given the broader application of the latter.
N.1.5.3 Korea — Alcoholic Beverages, para. 118
(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.
N.1.6 Article III:2 of the GATT 1994, second sentence
— “directly
competitive or substitutable” products. See also Directly
Competitive or Substitutable Products (D.1); Textiles and Clothing
Agreement, Article 6.2 — “directly competitive products” (T.7.4)
back to top
N.1.6.1 Korea — Alcoholic Beverages, paras. 114-115
(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.
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.
N.1.6.2 Korea — Alcoholic Beverages, para. 120
(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. …
N.1.6.3 Korea — Alcoholic Beverages, para. 124
(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. …
N.1.6.4 Korea — Alcoholic Beverages, para. 127
(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”.
N.1.6.5 Korea — Alcoholic Beverages, para. 134
(WT/DS75/AB/R, WT/DS84/AB/R)
In taking issue with the use of the term “nature of competition”,
Korea, in effect, objects to the Panel’s sceptical attitude to
quantification of the competitive relationship between imported and
domestic products. For the reasons set above, we share the Panel’s
reluctance to rely unduly on quantitative analyses of the competitive
relationship. 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”. …
N.1.6.6 Korea — Alcoholic Beverages, para. 137
(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.
N.1.6.7 Korea — Alcoholic Beverages,
paras. 142-143
(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. …
N.1.7 Article III:2 of the GATT 1994, second sentence
— “not
similarly taxed” back to top
N.1.7.1 Japan — Alcoholic Beverages II, p. 27, DSR 1996:I, p.
97 at 118-119
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
To interpret “in excess of” and “not similarly taxed”
identically would deny any distinction between the first and second
sentences of Article III:2. Thus, in any given case, there may be some
amount of taxation on imported products that may well be “in excess of”
the tax on domestic “like products” but may not be so much as to
compel a conclusion that “directly competitive or substitutable”
imported and domestic products are “not similarly taxed” for the
purposes of the Ad Article to Article III:2, second sentence. In
other words, there may be an amount of excess taxation that may well be
more of a burden on imported products than on domestic “directly
competitive or substitutable products” but may nevertheless not be
enough to justify a conclusion that such products are “not similarly
taxed” for the purposes of Article III:2, second sentence. …
N.1.7.2 Japan — Alcoholic Beverages II, p. 27, DSR 1996:I, p.
97 at 119
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
… We agree with the Panel that this amount of differential taxation
must be more than de minimis to be deemed “not similarly taxed”
in any given case. And, like the Panel, we believe that whether any
particular differential amount of taxation is de minimis or is
not de minimis must, here too, be determined on a case-by-case
basis. Thus, to be “not similarly taxed”, the tax burden on imported
products must be heavier than on “directly competitive or
substitutable” domestic products, and that burden must be more than de
minimis in any given case.
N.1.7.3 Canada — Periodicals, p. 29, DSR 1997:I, p. 449 at 474
(WT/DS31/AB/R)
… we find that the amount of the taxation is far above the de
minimis threshold required by the Appellate Body Report in Japan
— Alcoholic Beverages. The magnitude of this tax is sufficient to
prevent the production and sale of split-run periodicals in Canada.
N.1.7.4 Canada — Periodicals, p. 32, DSR 1997:I, p. 449 at 476
(WT/DS31/AB/R)
We therefore conclude on the basis of the above reasons, including
the magnitude of the differential taxation, the several statements of
the Government of Canada’s explicit policy objectives in introducing
the measure and the demonstrated actual protective effect of the
measure, that the design and structure of Part V.1 of the Excise Tax Act
is clearly to afford protection to the production of Canadian
periodicals.
N.1.7.5 Chile — Alcoholic Beverages, para. 49
(WT/DS87/AB/R, WT/DS110/AB/R)
… We must, therefore, assess the relative tax burden imposed on
directly competitive or substitutable domestic and imported products.
N.1.7.6 Chile — Alcoholic Beverages,
paras. 52-53
(WT/DS87/AB/R, WT/DS110/AB/R)
… The examination under the second issue must, therefore, take into
account the fact that the group of directly competitive or substitutable
domestic and imported products at issue in this case is not limited
solely to beverages of a specific alcohol content, falling within a particular
fiscal category, but covers all the distilled alcoholic
beverages in each and every fiscal category under the New Chilean
System.
A comprehensive examination of this nature, which looks at all of
the directly competitive or substitutable domestic and imported
products, shows that the tax burden on imported products, most of which
will be subject to a tax rate of 47 per cent, will be heavier than the
tax burden on domestic products, most of which will be subject to a tax
rate of 27 per cent. …
N.1.8 Article III:2 of the GATT 1994, second sentence
— “so as to
afford protection” back to top
N.1.8.1 Japan — Alcoholic Beverages II, pp. 27-28, DSR
1996:I, p. 97 at 119
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
This third inquiry under Article III:2, second sentence, must
determine whether “directly competitive or substitutable products”
are “not similarly taxed” in a way that affords protection. This is
not an issue of intent. It is not necessary for a panel to sort through
the many reasons legislators and regulators often have for what they do
and weigh the relative significance of those reasons to establish
legislative or regulatory intent. If the measure is applied to imported
or domestic products so as to afford protection to domestic production,
then it does not matter that there may not have been any desire to
engage in protectionism in the minds of the legislators or the
regulators who imposed the measure. It is irrelevant that protectionism
was not an intended objective if the particular tax measure in question
is nevertheless, to echo Article III:1, “applied to imported or
domestic products so as to afford protection to domestic production”.
This is an issue of how the measure in question is applied.
N.1.8.2 Japan — Alcoholic Beverages II, p. 29, DSR 1996:I, p.
97 at 120
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
Although it is true that the aim of a measure may not be easily
ascertained, nevertheless its protective application can most often be
discerned from the design, the architecture, and the revealing structure
of a measure. …
N.1.8.3 Japan — Alcoholic Beverages II, p. 29, DSR 1996:I, p.
97 at 120
(WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R)
… The very magnitude of the dissimilar taxation in a particular
case may be evidence of such a protective application, as the Panel
rightly concluded in this case. Most often, there will be other factors
to be considered as well. In conducting this inquiry, panels should give
full consideration to all the relevant facts and all the relevant
circumstances in any given case.
N.1.9 Article III:4 of the GATT 1994 — Regulatory discrimination
back to top
N.1.9.1 “LIKE PRODUCTS”
N.1.9.1.1 EC — Asbestos, para. 89
(WT/DS135/AB/R)
… while the meaning attributed to the term “like products” in
other provisions of the GATT 1994, or in other covered agreements, may
be relevant context in interpreting Article III:4 of the GATT 1994, the
interpretation of “like products” in Article III:4 need not be
identical, in all respects, to those other meanings.
N.1.9.1.2 EC — Asbestos,
paras. 91-92
(WT/DS135/AB/R)
This meaning suggests that “like” products are products that
share a number of identical or similar characteristics or qualities. The
reference to “similar” as a synonym of “like” also echoes the
language of the French version of Article III:4, “produits
similaires”, and the Spanish version, “productos similares”,
which, together with the English version, are equally authentic.
However, as we have previously observed, “dictionary meanings leave
many interpretive questions open”. In particular, this definition does
not resolve three issues of interpretation. First, this dictionary
definition of “like” does not indicate which characteristics or
qualities are important in assessing the “likeness” of products
under Article III:4. For instance, most products will have many
qualities and characteristics, ranging from physical properties such as
composition, size, shape, texture, and possibly taste and smell, to the
end-uses and applications of the product. Second, this dictionary
definition provides no guidance in determining the degree or extent
to which products must share qualities or characteristics in order
to be “like products” under Article III:4. Products may share only
very few characteristics or qualities, or they may share many. Thus, in
the abstract, the term “like” can encompass a spectrum of differing
degrees of “likeness” or “similarity”. Third, this dictionary definition of “like” does not indicate from
whose perspective “likeness” should be judged. For instance,
ultimate consumers may have a view about the “likeness” of two
products that is very different from that of the inventors or producers
of those products.
N.1.9.2
RELATION TO GENERAL PRINCIPLE IN ARTICLE III: I
N.1.9.2.1 EC — Asbestos, para. 93
(WT/DS135/AB/R)
… 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. 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. 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.
N.1.9.2.2 EC — Asbestos, para. 96
(WT/DS135/AB/R)
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.
N.1.9.2.3 EC — Asbestos, para. 98
(WT/DS135/AB/R)
As we have said, although this “general principle” is not
explicitly invoked in Article III:4, nevertheless, it “informs” that
provision. Therefore, the term “like product” in Article III:4 must
be interpreted to give proper scope and meaning to this principle. In
short, there 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”.
N.1.9.3
RELATION TO ARTICLE III:2
N.1.9.3.1 EC — Asbestos,
paras. 94-95
(WT/DS135/AB/R)
… 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. 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. …
… 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. …
N.1.9.3.2 EC — Asbestos, para. 99
(WT/DS135/AB/R)
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.
N.1.9.4
LIKENESS CRITERIA
N.1.9.4.1 EC — Asbestos,
paras. 101-102
(WT/DS135/AB/R)
… The Report of the Working Party on Border Tax Adjustments outlined
an approach for analysing “likeness” that has been followed and
developed since by several panels and the Appellate Body. …
These general criteria, or groupings of potentially shared
characteristics, provide a framework for analysing 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.
N.1.9.4.2 EC — Asbestos, para. 111
(WT/DS135/AB/R)
We believe that physical properties deserve a separate examination
that should not be confused with the examination of end-uses. Although
not decisive, the extent to which products share common physical
properties may be a useful indicator of “likeness”. Furthermore, the
physical properties of a product may also influence how the product can
be used, consumer attitudes about the product, and tariff
classification. It is, therefore, important for a panel to examine fully
the physical character of a product. …
N.1.9.4.3 EC — Asbestos, para. 114
(WT/DS135/AB/R)
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. …
N.1.9.4.4 EC — Asbestos,
paras. 117-118
(WT/DS135/AB/R)
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.
We consider this to be especially so in cases where the evidence
relating to properties establishes that the products at issue are
physically quite different. In such cases, in order to overcome this
indication that products are not “like”, a higher burden is
placed on complaining Members to establish that, despite the pronounced
physical differences, there is a competitive relationship between the
products such that all of the evidence, taken together,
demonstrates that the products are “like” under Article III:4 of the
GATT 1994. In this case, where it is clear that the fibres have very
different properties, in particular, because chrysotile is a known
carcinogen, a very heavy burden is placed on Canada to show, under the
second and third criteria, that the chrysotile asbestos and PCG fibres
are in such a competitive relationship.
N.1.9.4.5 EC — Asbestos, para. 119
(WT/DS135/AB/R)
… the Panel stated that “[i]t suffices that, for a given
utilization, the properties are the same to the extent that one
product can replace the other” (emphasis added). Although we agree
that it is certainly relevant that products have similar end-uses for a
“small number of … applications”, or even for a “given
utilization”, we think that a panel must also examine the other, different
end-uses for products. It is only by forming a complete picture of
the various end-uses of a product that a panel can assess the
significance of the fact that products share a limited number of
end-uses. In this case, the Panel did not provide such a complete
picture of the various end-uses of the different fibres. The Panel did
not explain, or elaborate in any way on, the “small number of …
applications” for which the various fibres have similar end-uses. Nor
did the Panel examine the end-uses for these products which were not
similar. …
N.1.9.4.6 EC — Asbestos, para. 120
(WT/DS135/AB/R)
… There will be few situations where the evidence on the “likeness”
of products will lend itself to “clear results”. 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. …
N.1.9.4.7 EC — Asbestos, para. 121
(WT/DS135/AB/R)
Furthermore, in a case such as this, where the fibres are physically
very different, a panel cannot conclude that they are “like
products” if it does not examine evidence relating to consumers’
tastes and habits. In such a situation, if there is no inquiry
into this aspect of the nature and extent of the competitive
relationship between the products, there is no basis for overcoming the
inference, drawn from the different physical properties of the products,
that the products are not “like”.
N.1.9.4.8 EC — Asbestos, para. 138
(WT/DS135/AB/R)
… Where products have a wide range of end-uses, only some of which
overlap, we do not believe that it is sufficient to rely solely on
evidence regarding the overlapping end-uses, without also examining
evidence of the nature and importance of these end-uses in relation to
all of the other possible end-uses for the products. In the absence of
such evidence, we cannot determine the significance of the fact that
chrysotile asbestos and PCG fibres share a small number of similar
end-uses.
N.1.9.5
EVIDENCE
N.1.9.5.1 EC — Asbestos, para. 103
(WT/DS135/AB/R)
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.
N.1.9.5.2 EC — Asbestos, para. 113
(WT/DS135/AB/R)
… In reviewing this finding by the Panel, note that neither the
text of Article III:4 nor the practice of panels and the Appellate Body
suggest that any evidence should be excluded a priori from a
panel’s examination of “likeness”. Moreover, as we have said, in
examining the “likeness” of products, panels must evaluate all of
the relevant evidence. We are very much of the view that evidence
relating to the health risks associated with a product may be pertinent
in an examination of “likeness” under Article III:4 of the GATT
1994. We do not, however, consider that the evidence relating to the
health risks associated with chrysotile asbestos fibres need be examined
under a separate criterion, because we believe that this evidence
can be evaluated under the existing criteria of physical properties, and
of consumers’ tastes and habits, to which we will come below.
N.1.10 Article III:4 of the GATT 1994 — “affecting”
back to top
N.1.10.1 EC — Bananas III, para. 211
(WT/DS27/AB/R)
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 ECprocedures 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 Lom´e 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. …
N.1.10.2 US — FSC (Article 21.5
— EC), paras. 208-210
(WT/DS108/AB/RW)
… 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. …
In view of the similar function of the identical word, “affecting”,
in Article III:4 of the GATT 1994, we also interpret this word, in this
provision, as having a “broad scope of application”.
N.1.10.3 China — Auto Parts, paras. 194-195
(WT/DS339/AB/R, WT/DS340/AB/R, WT/DS342/AB/R)
… We recall that the Appellate Body determined that a 50 per cent
“fair market value” rule under the measure at issue in [US — FSC (Article 21.5
— EC)] “affected” the internal use of
imported products because it created an incentive for a manufacturer not
to use imported input products. Similarly, the Panel in India —
Autos found that “indigenization requirements” (requirements to
use a minimum amount of domestically produced parts) and “trade
balancing requirements” (requirements to export products of an
equivalent value to the imported products) created incentives for
automobile manufacturers to purchase Indian parts and components rather
than imported parts and components and, thereby, “affected” the
internal sale, offering for sale, purchase and use of imported parts and
components in the Indian market within the meaning of Article III:4 of
the GATT 1994. That panel also observed that “[t]he fact that a
provision is not necessarily primarily aimed at regulating the offering
for sale or use of the product on the domestic market is…not an
obstacle to its ‘affecting’ them.”
Returning to the circumstances of this case, we note that the
measures at issue set out specific thresholds for determining when
imported auto parts will be characterized as complete vehicles. The use
by an automobile manufacturer, in a given vehicle model, of certain key
assemblies or combinations of assemblies that are imported means that a
higher (25 per cent) charge will be payable on all imported parts
than would be the case if those combinations of imported assemblies were
not used and the thresholds were not met, in which case
any imported parts used in the vehicle model would be subject to only a
10 per cent duty. This creates an incentive for manufacturers to limit
their use of imported parts relative to domestic parts. In addition,
the measures at issue in this dispute impose administrative procedures,
and associated delays, on automobile manufacturers using imported parts,
which could be avoided entirely if a manufacturer were to use
exclusively domestic auto parts. These incentives “affect” the
conditions of competition for imported auto parts on the Chinese
internal market.
N.1.11 Article III:4 of the GATT 1994 — “less favourable treatment”
back to top
N.1.11.1 EC — Bananas III,
paras. 213-214
(WT/DS27/AB/R)
… the practice of issuing hurricane licences constitutes an
incentive for operators to market EC bananas to the exclusion of
third-country and non-traditional ACP bananas. This practice therefore
affects the competitive conditions in the market in favour of EC
bananas. …
… we agree with the Panel that the EC practice of issuing hurricane
licences is inconsistent with Article III:4 of the GATT 1994.
N.1.11.2 EC — Bananas III, para. 216
(WT/DS27/AB/R)
… we stated that “Article III:1 articulates a general principle”
which “informs the rest of Article III”. However, we also said in
that Report that Article III:1 “informs the first sentence and the
second sentence of Article III:2 in different ways”. With respect to
Article III:2, first sentence, we noted that it does not refer
specifically to Article III:1. …
… 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”.
N.1.11.3 Korea — Various Measures on Beef, para. 137
(WT/DS161/AB/R, WT/DS169/AB/R)
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.
N.1.11.4 Korea — Various Measures on Beef, para. 144
(WT/DS161/AB/R, WT/DS169/AB/R)
… the Korean measure formally separates the selling of imported
beef and domestic beef. However, that formal separation, in and of
itself, does not necessarily compel the conclusion that the
treatment thus accorded to imported beef is less favourable than the
treatment accorded to domestic beef. To determine whether the treatment
given to imported beef is less favourable than that given to domestic
beef, we must, as earlier indicated, inquire into whether or not the
Korean dual retail system for beef modifies the conditions of
competition in the Korean beef market to the disadvantage of the
imported product.
N.1.11.5 Korea — Various Measures on Beef, para. 149
(WT/DS161/AB/R, WT/DS169/AB/R)
… We are not holding that a dual or parallel distribution
system that is not imposed directly or indirectly by law or
governmental regulation, but is rather solely the result of private
entrepreneurs acting on their own calculations of comparative costs and
benefits of differentiated distribution systems, is unlawful under
Article III:4 of the GATT 1994. …
N.1.11.6 Korea — Various Measures on Beef, paras. 150-151
(WT/DS161/AB/R, WT/DS169/AB/R)
… Korea requires that imported beef be sold in a store displaying a
sign declaring “Specialized Imported Beef Store”. …
Without a system of specialized imported beef stores, the sign
requirement would have no meaning and would not be required. When
considered independently from a dual retail system, a sign requirement
might or might not be characterized legally as consistent with Article
III:4 of the GATT 1994. …
N.1.11.7 EC — Asbestos, para. 100
(WT/DS135/AB/R)
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.
N.1.11.8 US — FSC (Article 21.5
— EC), para. 215
(WT/DS108/AB/RW)
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”. 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.
N.1.11.9 US — FSC (Article 21.5
— EC), para. 221
(WT/DS108/AB/RW)
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. …
N.1.11.10 Dominican Republic
— Import and Sale of Cigarettes,
para. 96
(WT/DS302/AB/R)
Nor do we accept Honduras’ argument that the bond requirement
accords “less favourable treatment” to imported cigarettes because,
as the sales of domestic cigarettes are greater than those of imported
cigarettes on the Dominican Republic market, the per-unit cost of the
bond requirement for imported cigarettes is higher than for domestic
products. The Appellate Body indicated in Korea — Various Measures
on Beef that imported products are treated less favourably than like
products if a measure modifies the conditions of competition in the
relevant market to the detriment of imported products. However,
the existence of a detrimental effect on a given imported product
resulting from a measure does not necessarily imply that this measure
accords less favourable treatment to imports if the detrimental effect
is explained by factors or circumstances unrelated to the foreign origin
of the product, such as the market share of the importer in this case.
In this specific case, the mere demonstration that the per-unit cost of
the bond requirement for imported cigarettes was higher than for some
domestic cigarettes during a particular period is not, in our view, sufficient
to establish “less favourable treatment” under Article III:4 of
the GATT 1994. Indeed, the difference between the per-unit costs of the
bond requirement alleged by Honduras is explained by the fact that the
importer of Honduran cigarettes has a smaller market share than two
domestic producers (the per-unit cost of the bond requirement being the
result of dividing the cost of the bond by the number of cigarettes sold
on the Dominican Republic market). In this case, the difference between
the per-unit costs of the bond requirement alleged by Honduras does not
depend on the foreign origin of the imported cigarettes. Therefore, in
our view, the Panel was correct in dismissing the argument that the bond
requirement accords less favourable treatment to imported cigarettes
because the per-unit cost of the bond was higher for the importer of
Honduran cigarettes than for two domestic producers.
N.1.12 Relationship between Article III and Article XX
back to top
N.1.12.1 EC — Asbestos, para. 115
(WT/DS135/AB/R)
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.
N.1.13 Article XVII of the GATS. See also MFN Treatment,
Article II of the GATS (M.2.2) back to top
N.1.13.1 EC — Bananas III, para. 241
(WT/DS27/AB/R)
We see no specific authority either in Article II or in Article XVII
of the GATS for the proposition that the “aims and effects” of a
measure are in any way relevant in determining whether that measure is
inconsistent with those provisions. In the GATT context, the “aims and
effects” theory had its origins in the principle of Article III:1 that
internal taxes or charges or other regulations “should not be applied
to imported or domestic products so as to afford protection to domestic
production”. There is no comparable provision in the GATS.
Furthermore, in our Report in Japan — Alcoholic Beverages the
Appellate Body rejected the “aims and effects” theory with respect
to Article III:2 of the GATT 1994. The European Communities cites an
unadopted panel report dealing with Article III of the GATT 1947, United
States — Taxes on Automobiles as authority for its proposition,
despite our recent ruling.
N.1.14 Article 3.1 of the TRIPS Agreement
back to top
N.1.14.1 US — Section 211 Appropriations Act, paras. 242-243
(WT/DS176/AB/R)
As we see it, the national treatment obligation is a fundamental
principle underlying the TRIPS Agreement, just as it has been in
what is now the GATT 1994. The Panel was correct in concluding that, as
the language of Article 3.1 of the TRIPS Agreement, in
particular, is similar to that of Article III:4 of the GATT 1994, the
jurisprudence on Article III:4 of the GATT 1994 may be useful in
interpreting the national treatment obligation in the TRIPS Agreement.
As articulated in Article 3.1 of the TRIPS Agreement, the
national treatment principle calls on WTO Members to accord no less
favourable treatment to non-nationals than to nationals in the “protection”
of trade-related intellectual property rights. The footnote to Article
3.1 clarifies that this “protection” extends to “matters affecting
the availability, acquisition, scope, maintenance and enforcement of
intellectual property rights as well as those matters affecting the use
of intellectual property rights specifically addressed” in the TRIPS
Agreement. …
N.1.14.2 US — Section 211 Appropriations Act, paras. 261-265
(WT/DS176/AB/R)
…the report of the panel in US — Section 337. That panel
reasoned that “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”.
That panel stated further that:
[I]t would follow…that any unfavourable elements of treatment of
imported products could be offset by more favourable elements of
treatment, provided that the results, as shown in past cases, have not
been less favourable. [E]lements of less and more favourable
treatment could thus only be offset against each other to the extent
that they always would arise in the same cases and necessarily would
have an offsetting influence on the other. (emphasis added) [BISD
36S/345, para. 5.12]
And that panel, importantly for our purposes, concluded that:
… while the likelihood of having to defend imported products in two
for a is small, the existence of the possibility is inherently less
favourable than being faced with having to conduct a defence in only one
of those for a. (emphasis added) [BISD 36S/345, para. 5.19]
… It is likewise not disputed that, under Section 211(a)(2), in every
individual situation where a non-United States successor-in-interest
seeks to assert its rights without the express consent of the original
owner or its bona fide successor-in-interest, the United States
courts are required not to recognize, enforce or otherwise validate any
assertion of rights. We emphasize that this situation exists under the
statute on its face, and that, therefore, unlike the situation
with respect to the granting of a special licence to United States
successors-in-interest by OFAC, this situation assumes no action by OFAC
or by any other agency of the United States Government.
The United States may be right that the likelihood of having to
overcome the hurdles of both Section 515.201 of Title 31 CFR and Section
211(a)(2) may, echoing the panel in US — Section 337, be small.
But, again echoing that panel, even the possibility that
non-United States successors-in-interest face two hurdles is inherently
less favourable than the undisputed fact that United States
successors-in-interest face only one.
N.1.14.3 US — Section 211 Appropriations Act, para. 267
(WT/DS176/AB/R)
The United States has not shown, as required under the national
treatment obligation, that, in every individual case, the courts of the
United States would not validate the assertion of rights by a United
States successor-in-interest. Moreover, even if there is, as the United
States argues, a likelihood that United States courts would not
enforce rights asserted by a United States successor-in-interest, the
fact remains, nevertheless, that non-United States
successors-in-interest are placed by the measure, on its face, in
an inherently less favourable situation than that faced by United States
successors-in-interest. And, even if we were to accept the United States
argument about the doctrine of non-recognition of foreign confiscation,
presumably that doctrine would apply to those who are not nationals of
the United States as well as to those who are. Any application of this
doctrine would therefore not offset the discrimination in Section
211(a)(2), because it would constitute yet another, separate obstacle
faced by nationals and non-nationals alike. Hence, it would not offset
the effect of Section 211(a)(2), which applies only to
successors-in-interest who are not United States nationals.
N.1.14.4 US — Section 211 Appropriations Act, para. 286
(WT/DS176/AB/R)
… to fulfil the national treatment obligation, less favourable
treatment must be offset, and thereby eliminated, in every individual
situation that exists under a measure. Therefore, for this argument by
the United States to succeed, it must hold true for all Cuban
original owners of United States trademarks, and not merely for some of
them.
N.1.14.5 US — Section 211 Appropriations Act, para. 289
(WT/DS176/AB/R)
… the very existence of the additional “hurdle” that is imposed
by requiring application to OFAC is, in itself, inherently less
favourable. Sections 211(a)(2) and (b) do not apply to United States
original owners; no application to OFAC is required. But Cuban original
owners residing in the “authorized trade territory” must apply to
OFAC. Thus, such Cuban original owners must comply with an
administrative requirement that does not apply to United States original
owners. …
N.1.14.6 US — Section 211 Appropriations Act, para. 294
(WT/DS176/AB/R)
… We are, therefore, not satisfied that Section 515.201 would
offset the inherently less favourable treatment present in Sections
211(a)(2) and (b) in each and every case. And, because it has not been
shown by the United States that it would do so in each and every case,
the less favourable treatment that exists under the measure cannot be
said to have been offset and, thus, eliminated.
209. We are also mindful that such duties and charges are permitted
only when their nature and level are recorded in a Member’s Schedule,
they do not exceed the level recorded in such Schedule, and they existed
on the relevant date specified in the Understanding on Article
II:1(b) of the General Agreement on Tariffs and Trade 1994.
back to text
|
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.
|
