General National Treatment Obligation: Article III:4 of the GATT 1994

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1 COURSE ON WTO LAW AND JURISPRUDENCE PART I: BASIC WTO LEGAL PRINCIPLES General National Treatment Obligation: Article III:4 of the GATT 1994 Session 6 19 November 2015

2 National Treatment Article III:2 of the GATT 1994: No taxes in excess of those borne by the "like" product produced domestically Delivery Exporting Country Payment Importing Country Article III:4 of the GATT 1994 No less favourable treatment regarding laws, regulations and requirements

3 Article III:4 of the GATT 1994 Article III National Treatment on Internal Taxation and Regulation 4. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. [ ]

4 Test of inconsistency with Article III:4 Three-tier test of inconsistency with Article III:4 of the GATT 1994: Measure is a "law, regulation or requirement" affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products Imported and domestic products are "like products" Imported products are accorded "less favourable treatment"

5 Laws, regulations and requirements Article III:4 concerns "all laws, regulations and requirements affecting [the] internal sale, offering for sale, purchase, transportation, distribution or use [of products]. Broad interpretation of the term "affecting" As the Appellate Body has noted, the fact that a measure is not primarily aimed at regulating the sale, offering for sale, purchase, transportation, distribution and use of the products at issue "is not an obstacle to its 'affecting' them".

6 Examples A tax stamp imposed on the sale of imported cigarettes An obligation to dispose of ten used tyres as a prerequisite for the importation of one retreaded tyre VAT-related administrative requirements imposed on resellers of imported cigarettes A sales ban on asbestos fibres and products containing asbestos fibres Requirement that all imported newspapers be distributed through only one particular distribution channel A sales ban on seal products

7 Like products 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. The concept of "likeness" in Article III:2, first sentence, must be construed narrowly. What about in Article III:4? "In view of [the] different language [of Articles III:2 and 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." (Appellate Body Report, EC Asbestos, para. 96)

8 Like products: "origin-based presumption" Panels have assumed that there are "like products" when the measure at issue distinguishes between products solely on the basis of their origin. In Canada Wheat Exports and Grain Imports, the measures at issue provided for requirements applicable only to imported grain or benefits granted only to domestic grain. The panel noted: "Given the existence of an origin-based distinction in [the measure at issue], the United States need only demonstrate that there can or will be domestic imported products that are like". The panel in China Publications and Audiovisual Products reiterated that: "When origin is the sole criterion distinguishing the products, it is sufficient for purposes of satisfying the 'like product' requirement for a complaining party to demonstrate that there or can or will be domestic and imported products that are 'like'".

9 Like products: criteria Four general "likeness" criteria: The properties, nature and quality of the products; The end-uses of the products; Consumers' tastes and habits The tariff classification of the products. Evidence on one of the criteria cannot be determinative on the "likeness" of products. A panel always has to examine the totality of the relevant evidence. Panel in EC Asbestos erred in not considering "consumers' tastes and habits" and "tariff classification". Can a "likeness" analysis take into account non-economic interests and values? In EC Asbestos, the Appellate Body took into account the health risks of asbestos as part of two of the criteria. (See also Appellate Body Report, US Clove Cigarettes).

10 Like products: "aims-and-effects" Is the "regulatory intent" of a measure relevant in determining "likeness"? The GATT panel in US Malt Beverages considered that the reason for the product differentiation was to be taken into account when deciding on the "likeness" of products. The "aim-and-effect" test was explicitly rejected by the panel in Japan Alcoholic Beverages II; a conclusion endorsed by the Appellate Body. " very often there is a multiplicity of aims that are sought through enactment of legislation and it would be a difficult exercise to determine which aim or aims should be determinative for applying the aim-and-effect test. " [T]he list of exceptions contained in Article XX of the GATT 1994 could become redundant or useless [I]n principle, a WTO Member could, for example, invoke protection of health in the context of invoking the aim-and-effect test. [I]f this were the case, then the standard of proof established under Article XX would effectively be circumvented". (Panel Report, Japan Alcoholic Beverages II, paras and 6.17)

11 Like products: "NPR-PPMs" Can the "likeness" analysis take into account processes and production methods that do not affect the characteristics or properties of the products concerned (NPR-PPMs)? The GATT panel in US Malt Beverages found that the fact that products were produced by small, artisanal or large industrial firms was irrelevant in the determination of their likeness. Therefore: child labour, environmental impact of production: in principle, they do not affect "likeness". or Like products

12 Less favourable treatment A measure accords "less favourable treatment" when it modifies the conditions of competition to the detriment of imported products in the relevant market. Formally different treatment to imported products does not per se violate Article III:4. 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. (Appellate Body Report, Korea Various Measures on Beef, para. 137)

13 Less favourable treatment It is clear, however, that measures imposing an additional administrative burden or hurdle on imported products are likely to modify the conditions of competition of such products in the marketplace. Asthe Appellate Body noted in Thailand Cigarettes (Philippines): "[W]here a Member's legal system applies a single regulatory regime to both imported and like domestic products, with the sole difference being that an additional requirement is imposed only on imported products, the existence of this additional requirement may provide a significant indication that imported products are treated less favourably." Panel Report in Canada Wheat Exports and Grain Imports: "That the requirement in question may not be very onerous in commercial and/or practical terms does not, in our view, detract from the fact that it is an additional requirement not imposed on like domestic grain."

14 Less favourable treatment What is to be compared is the treatment given to the group of imported products as a whole and the treatment given to the group of like domestic products as a whole. A measure which does not accord treatment less favourable to some products in the group of imported products, may still be found to accord "treatment less favourable" to the whole group of imported products. Domestic Imported

15 Less favourable treatment Balancing less favourable treatment to some imported products with more favourable treatment to other imported products does not save a measure from a finding of inconsistency. The "balancing" notion was expressly rejected by the GATT panel in US Section 337: "[T]he "no less favourable" treatment requirement of Article III:4 has to be understood as applicable to each individual case of imported products. The Panel rejected any notion of balancing more favourable treatment of some imported products against less favourable treatment of other imported products. If this notion were accepted, it would entitle a contracting party to derogate from the no less favourable treatment obligation in one case, or indeed in respect of one contracting party, on the ground that it accords more favourable treatment in some other case, or to another contracting party. Such an interpretation would lead to great uncertainty about the conditions of competition between imported and domestic products and thus defeat the purposes of Article III.

16 Less favourable treatment An examination of whether a measure involves "less favourable treatment" need not be based on the actual effects of the contested measure in the marketplace. Potential effects of the measure may suffice as a basis for a finding that a measure involves "less favourable treatment". The Appellate Body has noted that: "[A]n analysis under Article III:4 must begin with careful scrutiny of the measure, including consideration of the design, structure, and expected operation of the measure at issue. Such scrutiny may well involve but does not require an assessment of the contested measure in the light of evidence regarding the actual effects of that measure in the market." (Appellate Body Report, Thailand Cigarettes (Philippines), para. 134)

17 Less favourable treatment A measure that does not legally require certain treatment of imports, may still be considered to accord "treatment less favourable" if it creates incentives for market participants to behave in certain way and has the "practical effect" of treating imported products less favourably. Examples: Korea Various Measures on Beef, and Mexico Taxes on Soft Drinks, where the panel noted: The challenged measures create an economic incentive for producers to use cane sugar as a sweetener in the production of soft drinks and syrups, instead of other non-cane sugar sweeteners such as beet sugar or HFCS. This incentive is created by conferring an advantage on those producers that use cane sugar instead of non-cane sugar sweeteners, such as beet sugar or HFCS. These measures do not legally impede producers from using non-cane sugar sweeteners... However, they significantly modify the conditions of competition between cane sugar, on the one hand, and non-cane sugar sweeteners, such as beet sugar or HFCS, on the other.

18 Exercise Article III:4 would cover a prohibition on the importation of alcohol. Article III:4 would cover a tax imposed on domestic and imported beer. A ban on cigarette advertising would be covered by Article III:4. The notion of "like products" is narrower under Article III:4 than under Article III:2. For two products to be considered "like" they must compete in the relevant market. Shrimp caught without killing turtles is not "like" shrimp caught killing turtles. If a measure, on its face, grants a benefit to domestic coffee but not to imported coffee, domestic and imported coffee can be presumed to be "like".

19 Exercise If a measure treats imported products differently than like domestic products, it is inconsistent with Article III:4 of the GATT If a measure imposes additional administrative burdens only on imported products, it is inconsistent with Article III:4 of the GATT Nothing prevents Members from granting more favourable treatment to imported products. If a measure creates incentives for private parties not to use imported products, it modifies the conditions of competition to the detriment of imported products. If a measure does not have a negative effect on the trade of the complaining Member, it cannot be considered inconsistent with Article III:4.