Topics handled by WTO committees and agreements
Issues covered by the WTO’s committees and agreements

REPERTORY OF APPELLATE BODY REPORTS

National Treatment


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


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