CASE-SOLVING: UNIT 6

NATIONAL TREATMENT
Issue 1: Newland applied to the following excise tax rates currently: N$5 ppl on
wine, N$15 ppl on ordinary beer and N$6 ppl on specialty beers (ordinary beer and
specialty beer are imported from Richland). Does it violate the obligation provided
for in Article III:2, first sentence of the GATT 1994?

To solve this issue, it is necessary to answer the following questions:

*For wine and ordinary beer:
- Is Newland's excise tax internal taxes or other internal charges?
 In Article III:2, first sentence of GATT 1994: “The products of the territory of any
contracting party imported into the territory of any other contracting party shall
not be subject, directly or indirectly, to internal taxes or other internal charges of
any kind in excess of those applied, directly or indirectly, to like domestic
products.”
 The excise tax which Newland imposed on wine and ordinary beers is the internal
tax provided for in Article III:2, first sentence of GATT 1994 and applied directly
by Newland to the two products. So, this act of excise tax imposed by Newland is
subject to the provisions of Article III:2, first sentence of GATT 1994.
 Newland applies the excise tax of 5 N $ for wine and 15 N $ for ordinary beer
imported from Richland under the scope Article III:2, first sentence of GATT
1994.
- Are ordinary beers from Richland and domestic wines considered to be “like
products”?

 In the case of Japan – Alcoholic Beverages (1999), two "like products" do not
mean identical. The analogy of the product is likened to the acordion, pulling in or
out depending on the different circumstances when the various rules in the WTO
agreements apply.
 In the cases of EC - Asbestos (2001) and Philippine - Distilled Spirits (2012), the
judicial authorities identified the factors that need to be considered to conclude
that the two suspects are "like products": (i) physical characteristic; (ii) the
product’s end-uses; (iii) consumers’ tastes and habits; (iv) tariff classification
  Physical characteristic: wine and beer are usually alcoholic products but the
alcohol content of them varies greatly (the average alcohol content of beer is 4.5 -
5%, while the alcohol content of wine is 12-14%)
 The product’s end-uses: is for drink
 Consumers’ tastes and habits: because the concentration of stimulants in the two
products is so large => difference in consumption behavior.
 Tariff classification: both products are not in the same category of tariff
classification
 From the above analysis, we can conclude that wines produced in Newland and
ordinary beers imported from Richland are not two ‘like products’.

- Are ordinary beers from Richland subject to tax levies exceeding domestic wines?

 Any tax identified as "excess" also violates Article III: first sentence of GATT
1994. "Excess" is the expression of any difference between the taxation between
the two products. This means that there is a larger taxpayer than the other party,
which is considered excessive, even the smallest amount of ‘excess’ is too much.
Specifically, in this situation, Newland levied a tax of 15 N $ for imported
ordinary beer, while for domestic wines it was only $ 5 N, there was a clear
difference in the tax rate that the two products must bear.
 imported products have been taxed in excess of domestic products

* For wine and special beer:

- Is Newland's excise tax internal taxes or other internal charges?

 Basing on Article III:2, first sentence of GATT 1994 and as discussed in the case
of wine and ordinary beer, we can conclude that Newland applies the excise tax of
5 N $ for wine and 6 N $ for specialty beer imported from Richland under the
scope Article III:2, first sentence of GATT 1994.
- Are special beers from Richland and domestic wines considered to be “like products”?
 As discussed in the case of wine and ordinary beer, we base on the following
factors to conclude that the two suspects are "like products":
 Physical characteristic: wine and beer are usually alcoholic products and fruit
flavors, the alcohol content of them is not differ much (the average alcohol
content of specialty beer is 8 - 9%, while the alcohol content of wine is 12-14%)
 The product’s end-uses: is for drink
 Consumers’ tastes and habits: because the content of alcohol in the two products
does not have much difference => relatively similar in consumption behavior.
  Tariff classification: both products are in the same tariff classification.
- Are ordinary beers from Richland subject to tax levies exceeding domestic wines?
 As discussed in the case of wine and ordinary beer, Newland levied a tax of 6 N $
for imported specialty beer, while for domestic wines it was only $ 5 N, there was
a clear difference in the tax rate that the two products must bear => imported
products have been taxed in excess of domestic products

Conclusion 1: Newland applied to the following excise tax rates currently: N$5 ppl on
wine, N$15 ppl on ordinary beer and N$6 ppl on specialty beers (ordinary beer and
specialty beer are imported from Richland):

 It did not violate the obligations set out in Article III:2, first sentences of GATT
1994
 It violated the obligations set out in Article III:2, first sentences of GATT 1994
Issue 2: Newland applied to the following excise tax rates currently: N$5 ppl on
wine, N$15 ppl on ordinary beer. Does it violate the obligation provided for in
Article III:2, second sentence of the GATT 1994?
To solve this issue, it is necessary to answer the following questions:
- Newland's excise tax internal taxes or other internal charges?
 Article III:2, second sentence: “Moreover, no contracting party shall otherwise
apply… contrary to the principles set forth in paragraph 1*”
 The excise tax levied on the alcohol content of each liter of alcohol that Newland
applies to the two products is that wine and beer are internal taxes. Consequently,
Newland's application of this excise tax on ordinary wines and beers falls within
the scope of Article III:2, second sentence of GATT 1994
 Newland applied excise tax on wines and imported ordinary beers from Richland
falls within the scope of Article III:2, second sentence of GATT 1994
- Are ordinary beer and wine products two directly competitive or substitutable
products?
 In the case of Korea - Alcoholic Beverages (1999), the product "directly
competitive or substitutable" is understood in a broader sense than the "like
product" defined in Article III:2, first sentence of GATT 1994. As discussed in
Issue 1, ordinary beer and wine are not two "like products". Domestic wines and
ordinary beer imported from Richland are not a perfect substitute for one another.
However, depending on the nature of the two products can still be interchangeable
although not giving the consumer a degree of absolute utility but still acceptable
=> these two products are considered two "substitutable" products.
  In addition, recent Newland market research shows that the demand for beer in
Newland is growing rapidly and tends to grow in the near future. At that time,
Richland wanted to increase its exports of beers including ordinary beer, specialty
beers and non-alcoholic beers to Newland. On the other hand, Newland set quotas
on imported beer at 50,000 hectoliters per year (prior to WTO accession) and
Newland's beer boycott movements or Newland’s National Federation of
Restaurateurs, prescribed for 10,000 of its members not to serve beer with
traditional Newland dishes to protect domestic wine. Newland has these policies to
protect domestic wines from imported beers => regular imported beer and
domestic wines are "directly competitive ".
 Ordinary beer imported from Richland and Newland's wine are the products
“directly competitive or substitutable”
-Is ordinary beer dissimilarly taxed to wine?
 In the case of Japan - Alcoholic Beverages (1996), the dissimilarly tax must be
determined depending on the difference between the two rates applied to the
domestic product and the imported product. This difference in margins only needs
to go through a de minimis level, which is considered "dissimilarly". Here,
Newland applies the excise tax on wine is $ 5N while the ordinary beer imported
is $ 15 and also be measured by alcohol. It can be seen that this is not a "very
small" but rather large difference.
 Generally imported beer is subject to a dissimilarly taxed to that of domestic
wines.
- Is the dissimilar taxation aim at protecting the domestic production?
 When entry into the WTO, Newland was obliged to break down the quota
requirement in order to limit the import of beer to protect the winegrowers in its
country from the competition of imported beer. The country has imposed a
significantly higher excise tax on ordinary beer than wine, limiting the
consumption of ordinary beer imported in the domestic market, facilitating the
development of the traditional wine industry.
 the dissimilar taxation is applied so as to afford protection to domestic production
Conclusion 2: From the above analysis, it can be concluded that Newland applied to the
following excise tax rates currently: N$5 ppl on wine, N$15 ppl on ordinary beer, it
violated the obligation provided for in Article III:2, second sentence of the GATT 1994
Issue 3: Newland's 21% VAT applies to non-alcoholic beer - the main import
product from Richland, while only 15% VAT on Newland’s canned grape-juice.
Does it violate the obligations under the scope Article III:2, second sentence of
GATT 1994?
To solve this issue, it is necessary to answer the following questions:
-Does the Newland measure apply as a internal tax or other internal charges?

 Article III:2, second sentence of GATT 1994: "Moreover, no contracting party

shall otherwise apply internal taxes or other internal charges to imported or
domestic products in a manner contrary to the principles set forth in paragraph
1*."
 The VAT applied by Newland on non-alcoholic beverages and canned fruit juice
is the internal tax provided for in Article III:2 second sentence, so the VAT action
taken by Newland on two products above falls within the scope of Article III:2,
second sentence of GATT 1994.
 21% VAT on non-alcoholic beer and 15% VAT on Newland's canned fruit juice is
internal tax.
- Are the non alcoholic beer and canned grape-juice two “directly competitive or
substitutable products”?
 Basing on the case of Korea – Alcoholic Beverages (1999): “directly competitive
or substitutable products” in Article III:2 second sentence have a broader meaning
than ‘like products’ in Article III:2, first sentence
 It can be seen that non-alcoholic beer and canned grape-juice are not similar
products under Article III:2, first sentence. Although these two products are
physically identical, there is no alcohol content and the purpose is to make
beverages, however, in terms of their chemical characteristics, materials and
processing of these two products are different. In addition, for consumers' tastes
and habits, beer (although not alcoholic) and grape-juice are the default that are
completely different drink and depending on the age they will choose to use the
product. Consequently, despite the similarities, non-alcoholic beer and canned
grape-juice are not a perfect substitute for each other but only can substitutes.
 Recent market research shows that the demand for beer in Newland is growing
fast and tends to grow in the near future. Although the tastes for both non-
alcoholic beer and canned grape-juice of the customers are different, they can still
choose them for easy substitute use (because beer does not contain alcohol). So in
this case, the two products have potential competition in the market
 The non-alcoholic beer and canned grape-juice are two “directly competitive or
substitutable products”
- Does a non-alcoholic beer subject to dissimilar tax to Newland's canned grape-juice?
 Basing on the case of Japan – Alcoholic Beverages II (1996): when the difference
between the two taxes exceeds the de minimis level and the difference is large
enough to make an impact, the change in market competition for the two products
 will be called a "dissimilar taxation". In the case of Newland, the imposition of a
21% VAT on non-alcoholic beer and a 15% VAT on canned grape-juice has been
found to be inequitable (21% and 15%). There are certain differences in
competition between the two products in the market (the price of non-alcohol beer
is higher due to higher VAT). From the difference in tariffs, canned grape-juice is
more competitive in price than non-alcoholic beer.
 Non-alcoholic beer is subject to a dissimilarly taxed to that of canned grape-juice.
- Is the dissimilar taxation aim at protecting the domestic production?
 After the accession to the WTO, Newland abolished quotas on imported beers, but
at the same time adjusted internal taxes, which imposed a 21% VAT on all
alcoholic beverages (including non-alcoholic beer) and canned grape-juice is only
subject to 15% VAT. The application of this measure shows that Newland has
created a price advantage for domestic products (canned grape-juice) and reduces
the competitiveness of non-alcoholic beers in the market.
 the dissimilar taxation is applied so as to afford protection to domestic production
Conclusion 3: From the above analysis, it can be concluded that Newland's 21% VAT
applies to non-alcoholic beer - the main import product from Richland, while only 15%
VAT on Newland’s canned grape-juice, it violated the obligation provided for in Article
III:2, second sentence of the GATT 1994
Issue 4: In support of the national wine industry, Newland’s National Federation of
Restaurateurs, a government-sponsored organization, has instructed its 10,000
members not to serve beer with traditional Newland dishes. Does it violate the
obligation provided for in Article III:4 of the GATT 1994?
 Article III:4 of the GATT 1994: “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.”
 Subject to the above measures is the Newland’s National Federation of
Restaurateurs, a private entity, which is not governed by Article III: 4. Private
investigator measures fall within the scope of Article III: 4 if and only if the
conduct of the private subject arises because of an impact from the Government of
a Member State. Relate to this incident, it can be seen that the a government-
sponsored organization due to the significant impact of the boycott beer promotion
and encourage domestic wine. This movement may have been partly influenced by
the government, but it was not directly attributable to the government-sponsored
organization's decision to impose the measure, nor was there any indication that
 the a government-sponsored organization orders directly from the government to
enact those measures.
Conclusion 4: From the above analysis, it can be concluded this measure did not violate
the obligation provided for in Article III:4 of the GATT 1994

CONCLUSION:
- Most of these measures violate the national treatment principle of WTO.
Therefore, the dispute settlement may require Newland to change the measure in
accordance with the provisions of GATT 1994 and this decision can bring the
market to fair competition.
- For the legal protection of the winemaking industry, The National Association of
Wineries (NAW) can mobilize local wineries to carry out campaigns calling on
consumers to use local wines, to implement measures to stimulate demand for
wine products, enterprises to improve the quality of products.