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ON THIS PAGE:
> Article III:1 of the GATT 1994 — General Principle
> 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
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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.1.2 Article III:2 of the GATT 1994
— Tax
discrimination back to top
N.1.2.1 Canada — Periodicals, p. 19, DSR
1997:I, 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,
p. 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 analyzed exclusively
by reference to current consumer preferences. In our view, the
word “substitutable” indicates that the requisite relationship may
exist between products that are not, at a given moment, considered by
consumers to be substitutes but which are, nonetheless, capable
of being substituted for one another.
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:1
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 analyzing “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 analyzing
the “likeness” of particular products on a case-by-case basis.
These criteria are, it is well to bear in mind, simply tools to assist
in the task of sorting and examining the relevant evidence. They are
neither a treaty-mandated nor a closed list of criteria that will
determine the legal characterization of products. More important, the
adoption of a particular framework to aid in the examination of
evidence does not dissolve the duty or the need to examine, in each
case, all of the pertinent evidence. In addition, although each
criterion addresses, in principle, a different aspect of the products
involved, which should be examined separately, the different criteria
are interrelated. For instance, the physical properties of a product
shape and limit the end-uses to which the products can be devoted.
Consumer perceptions may similarly influence — modify or even render
obsolete — traditional uses of the products. Tariff classification
clearly reflects the physical properties of a product.
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,
we 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 EC procedures and requirements for the distribution
of import licences for imported bananas among eligible operators within
the European Communities are within the scope of this provision. …
These rules go far beyond the mere import licence requirements needed
to administer the tariff quota for third-country and non-traditional
ACP bananas or Lomé Convention requirements for the importation of
bananas. These rules are intended, among other things, to
cross-subsidize distributors of EC (and ACP) bananas and to ensure
that EC banana ripeners obtain a share of the quota rents. As such,
these rules affect “the internal sale, offering for sale, purchase,
…” within the meaning of Article III:4, and therefore fall within
the scope of this provision. …
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.1.11 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 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 fora 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 fora. (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 fulfill 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.
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