INTERNATIONAL TRADE LAW- MONIKA NEGI

TABLE OF CONTENTS

PROJECT OUTLINE: 2

THEORITICAL BASIS OF INTERNATIONAL TRADE: 4

Adam Smith: ABSOLUTE ADVANTAGE THEORY: 4

David Ricardo’s theory: 6

Neo classical economists: 7

General principles in GATT Agreement: 10

Art 1 13

1940s case between India and Pakistan (didn’t mention the name) 14

1952 case: Belgian Family Allowances Case 14

1981 Spain Unroasted Coffee Case (Brazil v Spain) 15

Case: Tariff on Imports of SPF Dimension Lumber 1989 (Canada v Japan) 16

Japan Semi-Conductor Case 1988 Panel Report (Japan v EC) *European

Community 18

Indonesia Autos case: 19

Canada Auto Pact’s Case 2000 20

Generalized System of Preference scheme: 22

India EPGSP Dispute: 23

Art 3: National Treatment Provision (NTP) 25

Korea Taxes on Alcoholic Beverages case: 2000 27

Japan Alcoholic Beverages Case 1987, 1996 28

Chile Taxes on Alcoholic Beverages 2000- 29

Reformulated Gasoline Case 1995 (Venezuela v US) 32

Canada Foreign Investment Review (Canada v US) 1984 (panel decision) 35

EC Asbestos (EC v Canada) 2001 37

Korea Measures on Fresh, Frozen and Chilled Beef (South Korea v US) or the
Beef ban case 2001 38

Canada Feed In Tariff Program Dispute 42

India Solar Cells 2016 42

14th August, 2019:

PROJECT OUTLINE:
For project purpose:
Case study analysis. Refer to worldtradelaw.net - world trade cases.

Establishment of principle of law is important to proceed with the case study.

Elements of project:
1. Introduction (brief background to the dispute)
2. Main part-
- Agreement and the article of the agreement that is in contention between the two
countries. Principle of law comes in this part. Dispute should reach the appellate
body which deals with essential principles of law. Or atleast go till the Panel
Stage.
- In depth analysis.
3. Conclusion and Future relevance/implications of the dispute.

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INTERNATIONAL TRADE LAW

WTO was established on 1st Jan, 1995. It aims to achieve a fair and an equitable trade along
with liberalization of trade. It has a plethora of agreements listed in Annex I(A).
GATT is one of them. It aims to regulate tariffs w.r.t trade.

What are tariffs?

It’s a kind of tax levied on international exchange of commodities and goods. It is applied at
the time of international movement of goods and commodities. It is different from a national
tax coz its applied when goods or commodities enter from country A to country B.
If tariffs are reduced, trade can become truly liberalized.

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In 2018 trade has witnessed a decline coz countries are imposing tariffs, additional and
retaliatory tariffs are seen in the case of US and China wherein the countries are engaged in a
trade war. US has imposed tariff above the mandated tariffs in the schedule of commitments
to products emanating from China. China has responded by imposing retaliatory tariffs on
American products like Harley Davidson.
How does it affect us?
Two superpowers are involved here so obviously we’ll get affected. Most of the IP is owned
by America.

We’ve seen a wave of neo protectionism. WTO tries to do away with it. This emerged in the
18th-19th century.

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In 1850 Britain imposed scornful laws. This aimed at not allowing imports to come to Britain
till the time British industries evolved.

GATT was signed in 1947 and came into effect in 1948 and its new version(amendments)
came into being in 1994. A permanent body was established in 1995 with the coming up of
WTO so that trade takes place in an equitable manner.
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David Ricardo and Adam Smith: Classical Thinkers-

Countries do benefit from trade. Trade should happen from a resource rich country to a
resource deficit country and countries will ultimately get benefitted.

Joseph Jiglet: Contemporary Thinker

Globalization or liberalization of world trade has not happened equitably for a lot of
countries. Many countries have suffered from free trade.
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Eg: Apple is a co located in California. Apple’s products are not manufactured in America.
It’s assembled in China coz cheaper labour. China has easy access to low skilled labour.
Designing happens in US but its manufactured and assembled in China. This is beneficial
even w.r.t transportation cost.

Does this create a problem?

Trade Deficit:
As far as US and China are concerned US is in a trade deficit with respect to trade with
China. Imports are exceeding the exports. Eg: iPhone is assembled in China. It goes back to
US. Its like an import for the US. Therein comes the issue of trade deficit.

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Global value chains:

There are various stages of manufacturing and assembly (m&a). At every stage there is a
chain that is established, designing and IP happened in US, m&a is done at various stages in
China. This is called a global value chain. To be discussed in detail later.

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Syllabus:
1. Introduction
2. Theories of International Trade.
3. GATT
- Most Favored Nation. (Art 1)
- National Treatment.(Art 3)
4. Customs Valuation Agreement.
5. Quantitative Restrictions: Art 11.
6. State Trading Enterprises: Art 17.
7. Exceptions to the GATT principles.
8. Dispute Settlement Mechanism of WTO. (DSS)
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19th August, 2019

THEORITICAL BASIS OF INTERNATIONAL TRADE:

Basis:
Why do nations trade? What is the significance of trade?
To answer this question we have thinkers starting from 18th century onwards. The earlier
notion (before 18th Century) that was prevalent in the UK or Britain was that of mercantilism.
Thinkers wanted to attack this notion.

Mercantilism means where a nation wants to accumulate its wealth. The dominant thought
was that if wealth is accumulated, that will be good for the country. This has to be
accumulated if the country adopts the path of protectionism it doesn’t allow trade to happen
between another country. Thus it’s a facet of protectionism. Countries aren’t engaged in trade
as benefits of trade are feared if they trade.

Adam Smith: ABSOLUTE ADVANTAGE THEORY:

He was a Brit economic thinker. He attacked the mercantilists. Protectionism is not the sine
qua non. He said trade should be free and fair trade. An Inquiry into the Nature and
Causes of Wealth of Nations- this is his book.
He talks about free trade. There are various stages of this theory.
Smith on Foreign trade:
Foreign trade is based upon labour and most importantly division of labour. Labour should
have some value and there should be division of labour. Eg: 1000s of pins could be produced
by a pin factory if there is division of labour on the basis of specialization of its labour.
When this becomes more mature it leads to more and more specialization of labour. This will
result in more accumulation of wealth. Productivity of country will increase coz of division
of labour and consequently specialization of labour.

If Division of Labour occurs the world as a whole will become wealthier and productivity
specialization and the wealth and efficiency firstly in the domestic realm and finally in the
whole world will consequently increase.
Nations as a whole will benefit from the exchange of commodities which happens between
two countries. When wealth and productivity of countries increase trade as a whole is
beneficial to these countries. In EU today, we say free movement of goods, services, capital.
This is modeled on his theory of absolute advantage. The WTO, when it came up, lowered
tariffs between countries to experience seamless movement of goods and services. This also
has its roots in Adam Smith’s theory.
All countries are not equally endowed with the same resources. If country A is abundant with
certain resources as compared to country B, country B should import those resources from
country A instead of focusing on its production.

Eg given by him:
Scotland is not naturally endowed with resources to produce wine as compared to Portugal.
Scots shouldn’t waste its resources in producing wine that it can easily import from Portugal
which has the absolute advantage in production of wine. Less no. of workers, better
grapes(natural resources) etc. are some of the favorable factors in Portugal. Scotland is thus at
an absolute disadvantage. Thus, pattern of trade is from an absolutely advantageous country
to an absolute disadvantaged country.

Next eg:

Country Cloth Wine(Labour days per unit)

England 100 100

Portugal 120 80

Absolute advantage in cloth production England and wine: Portugal.

His theory is not so relevant in today’s time wherein there is dispersal of knowledge and
productivity across all countries. A country with regard to labour could outdo in terms of
other factors like knowledge.

NOTE:
 He just takes one factor of production that is labour.
 Direction of trade and all countries benefiting from trade is not enumerated.
 Countries could be absolutely disadvantaged in terms of production.

Free trade will benefit all countries but whether this happens on an equal basis is something
to be questioned even today.

Some of the reflags in his theory was pointed out by Ricardo in this theory.

1. Comparative advantage theory- David Ricardo.

His premise is one does not have to look at the absolute disadvantage in terms of production.
A comparative advantage will suffice. Many leading economists like Paul Samuelson agree
with this theory being the truest and non trivial one standing strong even today.
Certain nations are not good at production of commodities in terms of labour as a factor of
production. Other factors of production is overlooked.

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20th August, 2019

Adam Smith’s theory of Absolute Advantage- in his book he advocates the case of free trade.
The way he enunciates his theory is not in the way of advocating the case of free trade but
can lead us to the direction for advocacy of the cause of free trade.
Absolute Advantage began with division of labour. It leads to specialization of labour. It in
turn leads to more productivity and efficiency in the market. He makes no distinction
between the domestic and international market. He is treating the international market akin to
the domestic market. The world market is the province of the same kingdom which is the
domestic market. So the same laws apply to both the market.

Whatever is more advantageous absolutely for a country to produce, it should only be

producing that. What is advantageous means the cost of production is the lowest in that
country primarily because of the labour force. It is prudent for that country which takes less
no of labour days and export it to the country which requires more no of labour days to
produce the same product.

Division of Labour

Specialization of labour

Product being exported

Back to y’day’s example:

Country Cloth Wine (from comparative advantage pov)

England 100 90
Portugal 120 80

Country Cloth Wine

England 100 90
Portugal 120 100

^Eng is absolutely advantaged in production of cloth and wine as it takes less no of labour
days to produce the same quantity that Portugal produces with it.

Limitations:
1. Only one factor of production is taken into account that is labour. It’s very one
dimensional.
2. What about fair trade? Whether all countries benefit equally from the gains of trade?
He writes from the vantage point of a Britisher. This model doesn’t suffice for low
income counties or at the same stage of development as England. He tries to
rationalize the above by saying that countries not benefiting from trade is a natural
corollary of this particular aspect. As countries specialize in labour countries will
have certain differences amongst themselves. So when rich countries trade with the
poor both countries benefit but the first benefits more than the second. He doesn’t
advocate for fair trade. Prosperous countries will prosper more if it trades with
another prosperous country like say between England and France as compared to
England and Portugal.
David Ricardo’s theory:
A country may not be AA in the production of one commodity. Will trade not be beneficial in
those circumstances?
David had an answer in his theory. Countries may not be AA in the production of a particular
commodity. Countries should still trade with each other we gotta look at the CA of the
particular commodity.
From the above table (see above),
Should Portugal not trade with England and vice versa?
Portugal has less no of labour days to produce the same unit of the particular product.

Country Cloth Wine (from comparative advantage pov)

England 100 90
Portugal 120 80

England’s case:
Comparing cloth with Wine: 100/120 that is 5/6
Wine vis-à-vis Cloth (120/100) = 6/5.

Portugal’s case:
Cloth & Wine: 9/8
Wine& Cloth: 8/9.

Since, 8/9 < 6/5.

England is at CA in the production of cloth. And Portugal is CA in the production of wine. It
is still beneficial for the two countries to trade with each other by virtue of CA. England
should focus on production of cloth and export clothes to Portugal. Portugal should focus on
production of wine and export wine to England. Cloth is benefiting from 20 more laborers
which produce the same amount of commodity. The opportunity cost is 20 here.
The excess of labour days in production of that unit of commodity could shift. This excess
value is called opportunity cost. England has opportunity cost of 20 vis- a- vis cloth.

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At the world stage, this theory is not free from contradictions or limitations.

1. Only labour. That is one factor of production is taken into account. Government
policies which are equally important for production is not taken into account inter
alia.

Ricardo’s theory is very path breaking. Later economists call it the biggest theory which has
come about in the social sciences. CA holds more sway in the world today as compared to
AA.

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Neo classical economists:

 1. H- O Theorem

Given by two Swedish Economists in the late 1920s- Eli Heckscher and Bertit Ohlin. This
theory takes away some of the rigors of Ricardo’s theory. It takes into account factors of
production in a more progressive manner. They have built upon the theories of classical
economists like Adam and David.
Countries should engage in production of those commodities that require its abundant factors
more intensively in the production process. That is countries imbued with capital should
focus on prod process which require capital to be used more intensively and so on. If a
country is bestowed with land as a factor of production, production process should tune itself
to use land intensively because of its abundance. When countries focus on its abundant
factors and export it to other countries. Country B which is scarce in those factors should
import from the country which has abundant factor.

NOTE:
1. abundant factor more intensively.
2. scarce factors not intensively.

Example:
America is capitally rich due to resources, finances, good R&D facilities and so on. China is
labour intensive. So applying this theory, America should focus its energy on those
commodities which allow it to use its capital being abundant. And China should focus its
energy on labour as the abundant factor.

Issue: is it true in today’s world? Can we compartmentalize countries like that?

Nope. The theories were propounded when this was true. Now there are certain developments
in today’s world so this theory doesn’t stand true anymore.

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20th August, 2019 (Second Hour)

Raymond Vernon (1960s) Production Cycle theory-
He is a Harvard Business School graduate. He said that a product has a lot of cycles. He talks
from the perspective of manufacturing in the production process. When a product is
manufactured, there are various cycles it goes through.
Eg: a product which requires a lot of capital or is capital intensive will get manufactured in
the first cycle, R&D will take place in US. The market is domestic in nature. This particular
product which is manufactured will be exported to other countries. after that an understanding
will arise in the world market. There is a prudence in spreading the operations abroad. So
manufacturing will take place abroad upon standardization of its operations and finally it gets
exported back to America which is the country of origin.

Eg: apple and its various products. iPhone is limited to America, China is responsible for
other stages of manufacturing and gets exported back to the US. This is reflective of
production cycle theory. Product is getting manufactured in cycles.

1. It gets introduced in country of origin.

2. Operations become standardized in other countries.
3. And gets exported back to the country of origin.
Food cos limited to America like McD is now seen elsewhere. Trade happens in goods and
commodities initially. When trade matures it becomes predominant in the arena of services as
well.

END OF THEORISTS
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New Topic

WTO aims to liberalize trade across the world by the reduction of tariffs and quotas. Tariffs
is a kind of charge, cess or a levy on international transportation of goods. It’s a financial
obligation on goods that can come inside the borders. These are the classical impediments on
international trade.
There is an obligation that they will reduce tariffs and remove quotas. Liberalization of trade
existed even in the classical ages as per some economists and therefore is not a new concept.
But in the 16th and 17th century, countries started becoming protectionist in their outlook.
Adam Smith and David explained to the world that trade as a whole is beneficial to countries.
Countries came about to do away with protectionism mechanisms. Countries in a group or
bilaterally started to do away with tariffs and quotas. But liberalization of trade was not a
reality then coz WTO was not in existence until 1995. Until 1995 the lowering of trade was
happening on a reciprocal and mutual basis and not happening in a multi-lateral fashion.

GATT was in existence even in 1947. But this did not lead to formation of a world trading
body. WTO was yet to be established. US did not want to be part of an international trade
organization and therefore efforts to establish the body was aborted back then. GATT was
established in 1994 once again and finally WTO was established in 1995.

IS TRADE FAIR TO US?

GATT 1994 incorporated a separate provision for developing countries in its constitution
wherein they are accorded a special and deferring treatment. Trade aims to be free but it is
nowhere fair.

So why is it not free in its real sense of fair trade?

How has free trade played out?
Exceptions to free trade:
1. Optimal tariff consideration:
this is a situation where the govt acts as the cartel manager and optimizes tariff to a certain
limit for domestic considerations. Those domestic considerations can be varied. There is a
tariff in operation across the world. But it imposes a certain higher tariff to strengthen its
domestic industries. The importers will be disincentived or will be incentivized upon giving
the tariff.
2. Infant Industries:
this is a narrower version on optimal tariff. The govt has to promote infant industries which
have just started out. It will give them certain subsidies, concessions or grants in the form of
export subsidies, production subsidies, R&D subsidies etc. the govt protects these industries
by giving them subsidies and at the same time imposes excess of tariffs on imports at an
optimal level.
3. Revenue raising considerations:
govt imposes excess tariffs to raise revenues. Income tax is the biggest source of revenue
generation now. Earlier it was import duties which was the biggest source of revenue
generation.
4. National security considerations:
govts sometimes stop engaging in those commodities and services which can hamper national
security. they ban the import or export of certain commodities. Eg: Poland stopped
importation of clothes skegs from communist countries coz of the Cold War Situation and it
feared an imminent war from other countries. This is found in Art 21of GATT text.

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What is globalization vis-a-vis factor price equalization?

This concept was given by Paul Samuelson. He received Nobel Prize in Economics. He
builds upon the other theories we’ve discussed. As an when countries will mature and
develop, there will be an equalization of factor prices. When capital and labour become
mobile across countries, there will be an equalization of factor prices because of
interconnectedness of the world through the process of globalization. Adam Smith talked
about cost of production in terms of labour only. Here we talk about price of commodities in
a globalized world leading to optimal tariff situation or best case scenario tariff. People,
services, material and capital is the interconnectedness that globalization talks about.

Problem: Once Optimal Tariff takes place should trade not take place? Optimal Tariff is
never reached in reality. It’s only an ideal.

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22nd August, 2019

As a result of the theories two questions arise:

1. Are there gains from free trade?
2. If there are gains from free trade then why are countries not pursuing trade
liberalization anyway?

Answer lies in the area of enforcement. Nations are gaining from free trade. But what about
the enforcement mechanism? What about uniformity or non-volatility of tariffs?

GATT is an agreement which focuses on volatility of tariffs. A schedule of agreements is

there in GATT. Art 2 Para 1 of the GATT text: countries have to multi laterally announce the
tariffs or bound them to a particular goods or products coming from the other countries they
can’t impose unilateral tariffs on countries as per their whims and fancies. There is a bound
level of commitments that is there is a ceiling. Countries party to WTO are bound to this
ceiling. Consultations and negotiation between countries can happen as to the level of ceiling
that they will be bound by but it has to be done under the aegis of GATT and WTO
framework.

It is because of unsatisfactory enforcement mechanism. If there is a uniform tariff structure

available that is universal and not so variable. To address the concern of uncertainty in tariffs.
Tariffs are a charge imposed on importation of goods. It is also called customs duties.
---------------------------x-------------------------

ANALYSIS OF GATT PROVISIONS AND HOW DOES IT GIVE RISE TO A FREE

FAIR AND MULTI LATERAL TRADING SYSTEM

BACKGROUND:
GATT in its present form came up in 1994. WTO began its functioning on 1 st Jan 1995.
GATT 1948 is the predecessor to GATT 1994. GATT 1947 is considerably different from
GATT 1994 in the sense earlier after WWII certain institutions were established for the first
time the primary one being UN and the Bretton Woods institutions like IMF and World
Bank- financing the developing countries, it was thought that these financial institutions
should have a commercial angle to it. This was envisaged in the form of an international
trading organization (ITO).

ITO formed a part of Havana Charter. It had certain features. Predominant one was that it will
also regulate the domestic policies of countries like domestic employment policies. ITO did
not really come into existence coz of reluctance of the US. Havana charter had problematic
issues w.r.t sovereignty of nations that is domestic employment agreements. This is one of
the primary reasons the negotiations were stalled. GATT 1947 was a preparatory kind of an
agreement.

General principles in GATT Agreement:

Principle I: NON DISCRIMINATION
This ideal is running through many provisions of GATT. Non Discrimination amongst
countries is at the heart of GATT 1994 and 1947. This is based on origin of goods. If goods
and products are discriminated on the premise that they are originating from another country
this is not permitted in the GATT scheme. It impinges on every aspect of WTO.

Principle II: Special and Differential Treatment to LDCs.

All countries don’t have to be treated equally. W.r.t LDCS there has got to be a special and
differential treatment. This was not there is 1947 framework. Tariffs were the main concern
earlier. LDCs were asked to wait for sometime. After the Uruguay round(9 th round), WTO
came up and S & D treatment provision was made w.r.t LDCs.

Important rounds:
1. Uruguay Round.
2. Marrakesh Agreement.

NOTE: Trading nations can’t impose higher tariffs than what is bound by tariffs as per the
schedule of commitments in the GATT.
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GATT:

PREAMBLE: II para-
The field of trade and economic endeavor should raise standard of living, increase real
income, develop full use of resource and increase and expand production and exchange of
trade and goods.
Increase the living standards of all people in the world and ensure full employment and
increase a large volume of steadily growing real income. It should not be subjected to tariffs
and quotas volatility.

III para: ND is mentioned. Countries have to enter into mutually advantageous agreements
directed towards substantial reduction of tariffs and other barriers to trade. These other
barriers are called NTBs or Non technical Barriers to Trade.
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Art I: Most Favored Nations Treatment (Ma’am is only dealing with trade in goods)
Para I: w.r.t customs, duties and charges of any kind imposed on or in connection with
importation or exportation or imposed on international transfer of payments for imports or
exports and w.r.t method of levying or charges any advantage or favour or privilege or
immunity granted by a contracting party to any product originating in or destined for another
country shall be accorded to the like product unconditionally and immediately.

This is w.r.t customs, duties and charges which are imposed on importation or exportation.
Once the products have entered the territory of country is not in purview under MFNT.
Customs duties are a border charge. MFNT provision applies. If product enters a country it is
subject to VAT,GST. Does it come under MFNT? No. MFNT has to be seen at the border
when the country is being imported or exported. It is a border charge and does not take into
account internal charges or cess.

Any advantage or favour or privilege or immunity granted by a contracting party to any

product originating in or destined for another country shall be accorded to the like product
unconditionally.

Meaning:
Eg: India Pak and countries like US are a part of WTO. They have given their agreement to
be a part of GATT. India can’t give Pak more beneficial treatment as compared to goods
coming from US. Provided they are like products. This is the mandate of MFNT for GATT
signatories. There is an incentive to join WTO coz of this provision. Countries can’t
discriminate between like products destined for countries which are a part of WTO.

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26th August, 2019

MFN in GATT Agreement:
It is the cornerstone of non - discrimination = MFN+ National Treatment. One country has to
give the treatment as it is given to MFN countries. this is applicable to countries signatories
to GATT. Eg: If Aussie imposes 10% custom duties on cars coming from France, it has to
apply the custom duty on a car from other signatory countries as well.

It is the cornerstone of non – discrimination. How?

Because it does not allow discrimination among various trading nations which are signatories
to the GATT.

MFN does not allow discrimination occurring as far as trade is concerned between trading
nations.
There are 2 kinds of discrimination practiced by countries:
 1. De jure discrimination:
This is apparent or explicit on the face of the legislation adopted by a particular country. Eg:
if there is customs provision on the face of it differentiates between country A and B. this is
explicit which is apparent on the face of legislation. This is not generally practiced by
countries.
2. De facto discrimination:
This is not explicit but the effect is discriminatory. Eg: Country A imposes 80% duty ad
valorem on alcohol which consists of 20% alcoholic content. And 60% on alcohol beverage
containing less than 20%. Most of the beverages coming from France may have alcohol
content above 20%. Whereas England may have alcohol content below 20%. On the face of
legislation this is not discriminatory because of categorization of the alcohol beverage. Most
of the imports of France have an alcohol limit above 20% and hence automatically subject to
80% custom duty.. This is de facto discrimination.
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Aim & Effects Test:

Aims test: This was the test which was predominant in the WTO. But this has been
challenged by WTO Panel. In the case of de jure and de facto discrimination. The aim of a
legislation could be subjective as well as objective. Eg: w.r.t a legislation adopted by a
country on environment protection, a country can impose a sales tax on cars which are above
a certain capacity on the basis of carbon emission. The subjective intent could be to bring.
Legislation which amounts to the same. It amounts to protecting the environment. And the
objective aim is to protect the environment. If the objective aim is seen in complete clarity.
Subjective aim held by certain legislators behind imposing an economic legislation is not
taken into account as far as knowing whether the legislation is concerned is discriminatory or
not. One has to go by the objective aim.

Effects test: this is similar to de facto legislation. The effects are not so apparent on the face
of the legislation its discriminatory effects are felt. If cars above 300 CC are taxed more and
come from country A as compared to Country B the effect is felt more by Country A then
Country B.

Both of them: the objective of both these tests is to look at the cumulative effect to know
whether discrimination is happening or not.

Eg: the categorization of the price of car- 30K USD and below 30k USD

USD Imports Domestic

Above 30K 180 40

Below 30K 20 160

When price is above 30K USD imports is 180 units and below 30K USD its 20 units. the
legislation on the face of it is benevolent. The tax categorization is made on two brackets.
The imports that is180 units fall in the more 30k bracket. Imports are negligible at 20 units
for cars below 30k USD. Upon look at the table cumulatively, there is de facto
discrimination.

Criticism: One needs to look at an individual level. it could still be a matter of de facto
discrimination. This test is often looked down by the WTO panel. And two Panels have
discontinued with this practice. CHECK.

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Certain features of MFN:
Art 1 Para I:
deals with customs duties, charges of any kind on international transfer of payments as
referred to in the Art. Customs duties is a particular kind of charge. Charges of other kind like
cess or levy not necessarily a customs duty also fall in the ambit of Art 1 Para I as well has
under para II and IV of Art 3.

Art 3 is the national treatment provision. These charges deal with internal charges also which
must fall in line with Art 1 Para I. National Treatment is more comprehensive than MFN.

Any advantage, favour, privilege, immunity given w.r.t customs duties, charges of any kind,
charges mentioned in Para 2 and 4 of Art III should be immediately and unconditionally
accorded to all contracting parties.
MFN is now supposed to be unconditional. But this wasn’t like that when it started out. This
is one of the oldest provisions figuring in the GATT. This was not initially unconditionally
accorded to contracting parties that is in the 19th Century. US accorded certain riders or
qualifications to get MFN by getting concessions from these countries. Whereas UK is more
in line with the unconditional principle.

BENEFITS:
1. Efficient Production Location:
One of the benefits of giving MFN status unconditionally is that it allows the theory of
comparative advantage to work. MFN Status is accorded to all countries who are GATT
signatories. Trade can increase and be distributed in a more efficient manner. This means
countries stop shifting production locations and this ultimately leads to liberalization of trade.
2. Tariff Cuts Given To One Has To Be Extended To All: No explanation given.
3. Simplifying Trade Negotiations:
By eliminating or seeing whether there is reciprocity in tariffs that is tariff negotiations will
be simplified if MFN is given to countries. It won’t permit countries to see whether the
second country is giving it tariff concessions or not in the first place.
4. Transparent Customs Policies:
Customs authorities don’t have to grapple with tough rules of origin of goods which are
rather hard to identify.
5. Reduce International Tensions:
There is no scope of countries being treated adversely in comparison to the other country.
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27th August, 2019

Reiteration: Elements of MFN as laid down under Art 1 Para 1. What countries had
negotiated was the scope and extent of MFN. Countries agreed that it should be there as a
cornerstone of non discrimination.
Art 1 had various sub elements. How are we supposed to that?
Art 1 is actually divided into 5 parts.
1. Customs duties and charges of any kind imposed in connected with importations,
exportations and international transfer of payments for imports and exports.
2. Method of levying such duties and charges.
3. All rules and formalities in connection with importation and exportation.
4. All matters referred to Art 3 para II and IV: rules on internal charges that is charges
which are applied when the product has come inside the territory.
5. All of the above mainly apply to products.
(NOTE: it applies only to like products, you can’t compare pineapples with apples) When
dispute reaches the WTO, it has to analyze whether the product are like products or not.
We’ll get into discussions on like products in the next unit that is National Treatment.
This is how MFN provision in Art 1 Para I enshrines the non-discrimination mandate.
------------------------x--------------------------

If all parties(signatories) are accorded MFN, other countries would be encouraged to come
within the framework of GATT and WTO. Its an incentive for non members to be a part of
the GATT framework. Eg: Iran is not a part of the GATT framework and WTO. US is a
signatory to GATT and a prominent figure. The product it reduces its duty is on pistachios
from 15% to 5%. But Iran which is not a part of GATT-WTO framework the duty remains
15%. If Iran wants to reduce its duty they(Iran-US) have to conclude a middle east free trade
agreement. Iran could take the advantage of a lower duty than 15% but it still won’t come
down to 5% which is the MFN rate. MISSED A POINT HERE.
Thus, MFN rate is a preferential duty structure. It could benefit countries which are a part
of WTO framework as compared to another non member country.

Eg: Turkey is a WTO member. Members can free ride on non members but vice versa is not
true. When members like Turkey are free riding on non members like Iran but vice versa is
not true. If preferential structure is given to Iran, US has to extend it to Turkey as well being
a member country. Thus, MFN is the preferential duty structure given to countries who are
signatories to WTO.

Art 24 talks about customs union and free trade areas: this is an exception to MFN condition
enshrined under Art 1 Para 1. If countries are forming a free trade area or customs area
among them it serves as an exception. But GATT Secretariat has to be notified about the
same and register the agreement with the Secretariat.
---------x--------
Certain issues w.r.t interpretation of the Art 1 Para 1:
What do you mean by advantage, favour, privilege or immunity?

1940s case between India and Pakistan (didn’t mention the name)
Facts:
India was giving excise tax rebates on exports to certain GATT contracting parties. Excise
tax is essentially duty levied on manufactured products at the moment of manufacture rather
than at the moment of sale. This is levied at the time of manufacture. If the product goes to
Pak(part of a GATT framework too), excise tax rebate is not given.
Held:
excise tax rebates not given to Pak fell foul to Art 1 para I being discriminatory. India was
not giving a similar treatment to products going to Pak vis a vis going to other countries.
India had to amend its excise tax policies in a manner that Pak is giving the same tax rebate.
1952 case: Belgian Family Allowances Case
Facts:
Dispute is between Belgium on one hand and Denmark and Norway on the other hand. Its
cause of action was related to family allowance. Belgium taxed goods purchased by public
authorities in Denmark and Norway. But countries like France, Italy, UK, Luxembourg didn’t
face such charges. Dispute arose. Negotiations failed. The dispute moved to the panel stage.
Issue:
Whether Belgium’s move was valid or not as per Art 1 Para 1?
Held:
Belgium gives a qualification in its favour- it’s taxing products bought by public authority
from Denmark and Norway coz they are not following a family welfare system as is followed
in its own country. Family welfare country is followed in other countries like UK, France and
so on.
MFN has to be unconditional. The panel analyzed that countries which are following the
same family welfare system are not taxed. Imposition or application of Art 1 has to be
unconditional. Here it was conditional. There can’t be any riders attached to application of
Art 1 para 1 and Belgium is imposing a condition that is not valid and tenable as far as Art 1
Para 1 is concerned.
Unconditional was interpreted in this case.

1981 Spain Unroasted Coffee Case (Brazil v Spain)

Dealt with facially neutral measure (de facto discrimination). Not apparent on the face of the
measure that it is discriminatory. But when one looks at the effect of the measure it is
discriminatory in fact.
Facts:
Till 1979, Spain did not have a duty structure of unroasted non decaffeinated coffee(UNDC)
which was different. It amended its duty structure as far as UNDC is concerned in 1979. Duty
structure (tariff classification structure)divided UNDC into 5 parts based on its variety.-
distinguished between different typs of coffee

Sl Products Duty Rate

.
1. Columbian Mild Duty Free
2. Other Mild Duty Free
3. Unwashed Arabica 7%
4. Robusta 7%
5. Other 7%

Most of its exports are figuring in 3,4,5 where the duty structure is 7% whereas the duty
structure of 1,2 is duty free and its contention is that Spain has adopted this duty structure for
1 and 2 to favour its former colonies. And since the disputant was not a former colony of
Spain, a high duty/ tariff structure was imposed on it.

Issue: Whether this duty rate was discriminatory?

Held:
Spain said varieties are distinguished on the basis of its quality. Countries can contend that
different tariff rates are imposed owing to the product quality. But the Panel did not agree
with Spain in this case. Panel said that differences in these varieties are all organoleptic
differences that is minor differences on the basis of cultivation, processing methods, genetic
differences and so on. Every agricultural product will have different cultivation and
processing method but the end result is coffee which is meant for drinking. All these types of
coffee are UNDC and coffee is a blend. The end result is meant for drinking purposes. The
differences don’t give rise to a differential duty rate. This was done as a sort of
discriminatory measure so far as Brazil is concerned.
----------------x-----------------

28th August, 2019

Coffee case: (Same Tariff Treatment Rate Case? CHECK) Brazil was the complainant. The
product centered on UNDC.

In 1970 there was a GATT Working Party Report. Certain parameters regarding the
characteristic of likeness came up. Likeness varies depending on the context. All the reps
came to the conclusion that likeness is different for every context. Wherever like is
mentioned in the Articles it would be different that is likeliness in Art 1 is different from Art
3, Art 11 and so on.
When the case analysis came up in GATT, they grappled on the conception on like. The
working party gave a report in 1970. There are 4 parameters to likeness. What are those
parameters to determine likeness? The coffee case devolves on whether the products are like.
Spain adopted a differential duty structure for certain categories of UNDC.
Analyze how the panel looked at the concept of likeness. This wasn’t the first time that the
panel had to deal with the conception of likeness.

The 4 parameters of likeness are:

1. Physical characteristics or quality: if this is similar, it would be considered to be a
like products.
2. End uses: if they have the same functions, it would be like products.
3. Tariff treatment/classification of other members: if one analyses the tariff structure
of a country, it could be presumed that different products are characterized differently.
4. Consumer tastes and preferences: whether their tastes and preferences are such that
it can determine the products to be like.
This was laid down so that the Panel could effectively decide on the issue of likeness.

Brazil says its de facto discrimination, that is it is not apparent on the face of the legislation.
De facto discrimination happens with respect to products means that the country distinguishes
on the basis of origin which is not permitted as far as Art 1 Para 1 is concerned. Country
based/ origin based discrimination is not permitted. Brazil’s exports to Spain consisted of the
products which had 7% duty.
The panel said: this was discriminatory.

2nd analysis: likeness analysis

Brazil says there is a category of UNDC. So why make various sub divisions under this on
the basis of the type of coffee? This sub categorization is not good because the product are
like. They should therefore attract the same duty structure.

Issue: whether Spain could adopt this classification?

Panel went against Spain. This has been criticized later on. Products are like. The differences
are very minute. They are organoleptic differences resulting from factors like production,
processing, genetic factors. This is an agricultural products intended for drinking. Even if it is
sold in blend it is one product which is intended to be drank. UNDC was discriminatory as far
as Brazil’s exports to Spain was concerned. The differential duty structure was not rationale.
No other country in the world has this duty structure for UNDC. The panel paid deference to
what other country is doing. Spain’s decree is therefore discriminatory and Spain was asked
to amend its decree.

The analysis given by the Panel in this case is very brief.

-------------------x--------------------

Case: Tariff on Imports of SPF Dimension Lumber 1989 (Canada v Japan)

Facts:
The product here is timber or lumber. This is a type of wood which is semi processed. The
issue was about the dimension of lumber. Japan had a tariff structure which applied an 8%
duty to lumber which was made of certain species. The trees involved here are Spruce, Pine
and Fur. Canada says most of it’s the exports fall in the SPF category. Lumber which is made
out of SPF is being disadvantaged here coz Japan adopts 8% tariff rate as compared to other
categories like Hemlock fir, Douglas Fur, which comes from the US.

ANALYSIS:
Canada’s contentions:
 Panel has gone into how the tariff structure came about in the whole GATT, WTO
framework. Countries which are a part of GATT, WTO framework have to adopt a
uniform structure. That is all parties which are signatories to it are required to adopt a
uniform structure. They have to adopt a uniform tariff structure therefore. The
problems could be manifold in this structure especially language.
 In 1988, HS Classification or the Harmonized System Classification came up. This
means a singular way of describing a product. If there is product for eg. Lumber, there
could be different sub categorization. The broad framework would be uniform but
countries are given the discretion could adopt any amount of sub categorization.
 Canada also goes on to say that lumber coming from SPF is a different kind of lumber
altogether that is dimensional lumber. even if Japan does not agree to it, at least it is
not different from other species of wood where they are not attracting a higher duty
rate. Dimensional lumber is used mainly for construction.

Issue:
Whether Japan could adopt a differentiation tariff rate?

Japan’s contention:
 The kind of lumber which is coming from Canada is inferior in quality coz it has zero
resistance to decay. There is domestic reason why SPF attracts a higher rate. There
isn’t much demand for this kind of lumber in Japan. And there are enough domestic
industries to meet the demand for this lumber. therefore SPF from Canada has a
higher duty structure.

Panel held:
There are 6 paras which are relevant stating from 5.7 to 5.13.
  5.7: introductory paragraph.
 5.8: the panel is saying that the HS classification has left a wide discretion to
contracting parties to fashion its tariff structure taking into account its domestic
reasons/ policies. Japan’s reason was held here by the Panel.
 5.9: this is the most important para.
A tariff classification going beyond HS classification is a legitimate means of adopting a
tariff scheme( for the country’s interest)… but such differentiations can lead to abuse.
Basically it is upto the party to determine if it wants to go beyond HS. It qualified the
previous statement and said that such differentiations lead to trade abuse in the sense that
parties may structure their classifying system in a manner that it will discriminate goods
coming from a particular country. The discretion lies with the country but it should not lend
itself to abuse. Origin based discrimination should be avoided.
 5.10: tariff differential is a legitimate means of trade policy. The burden of proof lies
on the prejudiced party to show that it was not done legitimately. Here it is on Canada
that it is prejudiced owing to illegitimate tariff rate. Here the Panel’s findings are in
consonance with Japan. There was no evidence that Canada was prejudicially
affected.
NOTE:
 The reasoning here leads us to the conclusion that there has to be a deference as far as
countries’ domestic/ political reasoning/ interests are concerned.
Panels have generally been conservative to disturb Tariff rates/structure of a country. If
products are classified under different tariff headings it signifies that products may not be
like. The most important is tariff classification- if a country creates classification for tariffs then the
products are not like. 


NOTE:
 Both the cases dealt with tariff treatment. On one hand there was UNDC and on the
other hand the issue was regarding SPF lumber. the panel gave its reasoning
differently. In the Spain case, it did not agree with Spain methodology of its tariff
classification. But it agreed to Japan’s methodology of tariff classification. Certain
parameters of likeness has been laid down by GATT’s Working Party. It laid down
four parameters of likeness. It differs with different context and circumstances. These
parameters are: check above. Tariff Classification is one of them.
 Countries have come about in adopting a harmonized system of tariff classification.
Most countries which are part of WTO are following this harmonized system. This
system has a uniformity to it in the sense products are to be classified in a uniform
way but it gives some amount of discretion to have various sub headings under the
main division. Therefore Japan could adopt a tariff structure according to its domestic
requirements/constraints so long as its tariff structure was not abusive to trade.
 Most of the scholars have agreed that SPF is decided correctly. Why? Domestic
constraints of a country gotta be looked at.
 SPF is the right way of looking at Art 1 para 1. The panel w.r.t Spain case the panel
was unduly strict. Brazil clamored for a lot of developing countries cooperation in that
case. developing countries consensus emerged. So panel could’ve got swayed from
that and gave its decision against Spain.
 Japan case was decided more correctly. But as far as the Spain case is concerned it is
not wrongly decided. It was decided as per the context and circumstances which arose
at the point of time.
29th August, 2019
Japan Semi-Conductor Case 1988 Panel Report (Japan v EC) *European Community
Facts:
US and Japan were the largest producers and exporters of semi-conductor chips(SCC) in the
world. Beginning in 1983 the American SCC industry association had problems with the
Japanese SCC industry. There problems were regarding access to the Japanese SCC market.
Japan wasn’t giving them enough of market access. Another issue was regarding the issue of
dumping-unfair trade practice. Dumping as far as international trade is concerned means
exporting the commodities at a price lesser than the price in the original market. Material
injury has to be shown that is substantial amount of trade has to be injured by export of those
products to that country. Japan is allowing dumping to happen in various countries which
affected US’s SCC industry. Certain actions taken by US Trade Representatives is called
Section 301 Actions.
This issue was domestically brought forth. US and Japan enter into negotiations between
themselves. As a result, an agreement called 1986 US- Japan Arrangement concerning trade
in SCC products was concluded.the agreement envisaged that the Japanese gov to undertake
certain obligations.  Japanese government was required to make a commitment to give a chance to
foreign based semiconductor products and allow them to compete.

Certain portions of this arrangement was the bone of contention between these two countries.
The main features of this arrangement:
1. Market access to foreign based semi conductors
The govt of Japan agreed to impress upon the Japanese producers and users of SCC the need
to take advantage aggressively of increased market opportunity in Japan for foreign waste
firms.
2. It offered to provide support for the expansion of sales of foreign based production of
SCC in Japan.
EC says this arrangement is done to advantage the SCC products of US and not of any other
foreign based firm.
The wordings mentioned in the arrangement is foreign based firm that is a neutral term and
not US firms exclusively.
Issue: Whether the arrangement between US and Japan was discriminatory?
Premise: MFN does not permit countries to favour products coming from one particular
country.
Held:
Dispute reached the panel coz negotiations failed. The panel decided in favour of Japan that
the arrangement was not falling foul of Art 1 Para 1.
Certain evidences were taken into account such as the sales output. It found that foreign
based firms which are not a part of the US are doing better than US based SCC industry. If a
country has to argue that a particular measure falls foul of Art 1 Para 1 then it has to show
that it has incurred some disadvantage but this was absent in this case.
The panel looked at the arrangement and said that the fact the Japanese govt has taken upon it
the task of use of foreign based firm and not US based firm the arrangement applies
uniformly to all foreign firms.
The Japanese govt administered the arrangement in an impartial manner. And the fact that US
based industry was given an advantage was a sheer speculation.
One of the points in the side letter that came up was the US would like that there should be an
increase of 20% of market access by foreign based firm. Japan expressed interest to this
point. This side letter was never brought to contention in the panel. Whether this would have
changed the judgment altogether remains a contentious issue. Japan was however not
committed to it but only expressed its interest and therefore the result would not have
changed anyway is what some scholars say.

9th September 2019 (take from Shweta)

Japan and US are the largest producer and exporter of semi conductor chip in the world/ in
1983 US semi conductor association complained to US govt. that its semi conductor chip
were not getting enough market access in Japan. US Trade Representative and Japanese govt
engaged in negotiations.
11th September, 2019
Indonesia Autos case:
Trade disputes arise pertaining to Art 1 that is MFN and National treatment on the basis of
whether countries can impose local content requirements as far as giving concessions in
tariffs is concerned.
Whether Indonesia’s requirement of imposing local content requirement was in violation of
Art. 1 para 1?
Facts: Indonesia promulgated two programs in 1993 and 1996. The features were contended
by US, Japan and EU w.r.t Indonesia’s incentive systems under these two programs.

The panel looked at various components of art 1 para 1. The panel had identified 4 issues.

ISSUES:
1. Whether there was an advantage created by the measure?
The panel found out that there was de facto discrimination coz certain countries like EU, US
Japan which had large motor companies were excluded. Countries which were falling out of
EU, US, Japan were allowed this benefit of less import tariffs. There was thus an advantage
created by the measure in the face of import duty reduction.

2. Whether the products affected by the measure were like?

Auto parts and auto components of cars are like products.
So w.r.t first two issues: the panel had an affirmative yes to it.

3. Whether the disputed measure was covered by MFN provision?

This is a measure which falls w/n the analysis of art 1 para 1.

4. Whether the advantage is offered to all like products unconditionally?

The advantage as per the letter of Art 1 para 1 has to be conferred on all like products
unconditionally. In Belgium family allowances case, the term unconditionally was
enunciated. The panel in that case held that unconditionally means no conditions attached. So
MFN has to be extended with no conditions attached to all members so long as the products
are like. The panel found in this case that the advantage of the measure was not offered to all
like products unconditionally. There were conditions as far as extending the equal treatment
was concerned. There were import duty reduction of upto 0% if 60% and above was sourced
locally.

This case is significant from the p.o.v of unconditionally. National sovereignty issue is
another pertinent issue. When countries have sovereignty means they should have the
freedom to decide on policies as per their wishes. This sovereignty includes economic
sovereignty. But when you are a part of an org like WTO one has to barter some amount of
sovereignty so as to come to a consensus. Indonesia is a part of WTO system. When it
imposes local value added content requirement it falls foul of art 1 para 1. All countries are at
different stages of development so the commitment target differs.

A lot of countries were not satisfied with the multi lateral system. Regional trade agreements
or free trade agreements were formulated which come under the auspices of WTO mentioned
under Art 24 of GATT 1994. They are subjected to some disciplines of GATT WTO
framework. If countries have formulated RTA or FTA they have to notify the agreement to
WTO Secretariat. They have to qualify or except those agreement from MFN provision of the
GATT/ WTO otherwise MFN provision applies to them.

----x----
Let’s discuss a little about NAFTA. (Irrelevant so far)
North America, Mexico and Canada are party to NAFTA. Duty free treatment of goods
passing through the borders of these three countries in the basic premise of NAFTA. Tough
rules of origin exists under NAFTA. This came into effect in 1994.

Canada Auto Pact’s Case 2000

This case’s history proceeded from the 1960s. in 1965, the then US’s Prez. and Canadian PM
signed an agreement relating to auto pact coz they felt that due to this signing there could be a
preferential tariff treatment that could be giving to automotive products. Auto pact had
certain features. Certain manufacturers could take benefit of this auto pact which was
concluded between US and Canada but only those automakers could take benefit of this auto
pact who qualified to be called a manufacturer. There were certain requirements to be a
manufacturer. Preferential tariff treatment or duty free treatment would be applied to auto
parts and auto cos provided they fulfil the definition of manufactures.

1. The importer must have produced in Canada during the base year motor vehicles of
the category it is importing. That is if the importer produces certain no of cars in
Canada itself of the category which it imports it would be called a manufacture. The
base year here is 1963-64. It is allowing importation provided same class of cars are
produced in Canada also. This is will give rise to production in Canada. There were 3
importers: General Motors, Ford Co and Chrysler ltd of American origin but have set
up their plants in Canada. EU and Japan had an issue with this pact concluded
between US and Canada because most of the cos that benefited from this arrangement
were American in origin.
2. The importer must comply to production to sales ratio. That is net sales values of
vehicles produced in Canada to net sales value of all vehicles of the same class sold in
Canada. It should not be less than what it was in the base year. The ratio has to be
effected as per the base year by an entity to be called a manufacture. The production
and sales in the year 1963-64 has to be maintained every year and the ratio here is
75:100. This is an onerous condition. The class of vehicles produced have to be sold.
Nothing should be kept in the inventory as that it could be exported. The rationale
behind this was to Canadianize the automotive industry. The importer has to produce
it in Canada itself and then sell it in Canada itself.
3. The importer must achieve a minimum amount of Canadian value added that is the
value added to the product has to be Canadian in nature. Whatever value is added to
product must be of Canadian nature. Canadian value means there must be some
 signi economic activity going in Canada example Canadian labour cost, Canadian raw
materials. Canada is not just serving as assembly plant. And Canada should not
merely be a ground of assemblage of products. Anything which is expended on the
production of the product has to be Canadian in nature is the meaning of Canadian
value added. The Canadian value added should be equal to greater than the value
added in the base year. It can’t be lesser than that at any cost. The Big 3 cos as
mentioned undertook an obligation stating that they would satisfy that 50% of
operations would be Canadian value added.

Thus, the advantage given is that of duty free treatment which is not given unconditionally to
be termed as a manufacturer. There is something called special remission orders which are
also under challenge. The free trade agreement has two components:
1. Motor vehicle tariff order also called MVTO.
2. Special remission orders also called SRO. There could be certain leniency to be given
to a particular importer but this can be given for only 1 year. If an importer can’t
fulfill the requirement of being a manufacture in one particular order as compared to
the base year there is the provision of SRO so an importer can’t lose the manufacturer
status just like that. SRO is a concession given to manufactures for a particular year
when they couldn’t fulfil MVTO.

------xx-------

2nd Hour
There were certain conditions attached to SRO. This was that the Canadian value added and
product to sales Ratio had to be maintained to a certain level that is 40%. The production to
sales Ratio could also become a little less than 100 but it still had to fulfil the 75:100 ratio.
The importer, in order to continue as manufacturers had to constantly report to the Canadian
govt on whether he intended to be getting an SRO.
The negotiations failed between these set of countries. Then it went to the panel and the
appellate body. This is one of the few cases which went to the level of appellate body
(decides on matter of law and not on facts) The appellate body sided with the panel.

Panel’s analysis:
Certain American cos like Ford, GM and Chrysler were getting the benefits of the agreement
between the two countries. Canada US free trade agreement needs to be looked at.
Auto Pact requirements:
1. MVTO.
2. Canadian value added by manufacturers.
3. SRO.

When the Canada US free trade agreement was brought into operation in 1998, it limited the
set of manufacturers which were manufactures until then. Thus, it closed all new avenues for
an importer to become a manufacturer.
Then came NAFTA in 1994. Duty free treatment started happening between these countries
with respect to automotive parts. It led to further reduction of manufacturers.

FTA and regional trade agreements are an exception to MFN in the sense when agreements
are being formulated the application of MFN has to be accepted by countries which are
coming together to form these regional trade agreements. It was held that there must be a
specific clause in the free trade agreement which overrides the MFN provisions of Article 1, it cannot
assumed that exceptions will automatically apply. If the MFN provision is to be overridden, there
must be a clause in the agreement stating so.

Exceptions were not being seeked. These exceptions were not sought so art 1 para1 applies
and so proceeds the reasoning and rationale of the panel and the appellate body.
The requirements were discriminatory in this case falling foul of art 1 para 1.

Intra co trade that is trade within the co. American companies were practicing intra firm trade- for
example, GM US or Ford US were only selling to GM Canada or Ford Canada.
The major American cos GM America and GM Canada: it imports components from GM
America so a lot of intra co trade is happening the nature of trade is such that. A large amount
of intra firm trade as opposed to inter firm trade. It leads to hogging of major share of
preferential tariff arrangement.

Canada says: it has laid down certain parameters and thus, the question of preferential
treatment doesn’t arise as its origin neutral. It only says that it should be Canada in origin.
The program is origin neutral in nature. But the second factor which is de facto
discrimination: it has evidence that most of the prod happens in American co and GM Canada
and ford motor Canada are affiliates of GM and Ford motor America that is most of the trade
is happening between American co. art 1 para 1 is violated by the auto pact.

Base year along with other conditionalities were discriminatory of art 1 para 1. Only
American motor cos fitted the will. There was a lot of intra trade between the two countries.
Canada had to amend its pact and MVTO and other agreements with respect to auto parts.
This is an important decision from the perspective of the products in question.

------------x---------------

Generalized System of Preference scheme:

You must be knowing that US has withdrawn its GSP status that it has given to India and
subjected it to more tariff in that regard now.

What is it?
David and Adam Smith’s assumption: Free trade is beneficial to all.
Upon decolonization, those countries felt that their developing needs were not being
effectively met. GATT 1947: countries which were being liberalized started raising issues
that there was not enough voice and representation in the trading system. An org called UN
Conference on Trade and Development UNCTAD was established in 1964. It’s an inter-
governmental permanent organization to take care of the needs of the developing countries.
these countries wanted a voice so as to the meet their trade needs. In the WTO framework
Chapter 4 (XXXVI, XXXVII, XXXVIII)was incorporated in the year 1965 which was about
special and differential requirements of developing and LDCs. Trade should be liberalized as
per their state of development.
There were many rounds of negotiations were held which would liberalize trade
incrementally. The aim of these rounds was to liberalize trade. Tokyo round held in Tokyo
led to certain developments w.r.t trade liberalization. All countries in the GATT came to an
understanding which was established in the GATT framework.
On, 28th Nov, 1979, differential and more favorable treatment reciprocity and fuller
participation of developing countries came up as a result of Tokyo round which we have to
discuss.
Prowl Prebisch and Paul Baran were development economists: they said that the benefit of
economics have not reached the developing and LDCs as was prophesized Ricardo and
Smith.

US has a trade act of 1974: there is a generalized system of preferences which it gives to
certain countries which are developing and LDCs as a result of mandate arrived at by
countries in 1979. They will be given tariff preferential of imports coming from developing
and LDCs. Trump has threatened to withdraw GSP that it extends to India. when US extends
this to India it entails that certain or more tariff countries will be given to developing and
LDCs beyond the mandate of WTO framework.

17th September, 2019 (only Monika Negi this week, double classes)

Reiteration: India was the complainant in the EPGSP case. This dispute was between
European community and India. it dealt with another related aspect of MFN provision w.r.t
special and differential rights vis a vis developing countries that is developing countries don’t
have to meet uniform objectives which are there as. a result of trade liberalization.
This was accorded because they are not at the same stage of development and accordingly
they are given the treatment. This treatment was not originally there in the GATT text. Need
was felt to incorporate this in the GATT text. (Check previous notes)
UNCTAD is an intergovernmental body that takes into account the development needs of
developing countries so that they can achieve the fruits/the advantages of trade. GATT lays
down the framework for trade. That framework has to be accommodative and inclusive in
nature.

Certain countries like China and India claim that they are developing nations. US doesn’t
regard them as developing anymore looking at their income level. the objective criteria for
countries to be called developing is not there as such. Countries which themselves feel that
they are developing are supposed to declare themselves as developing country. It’s like a
voluntary submission rather than having an objective criteria which gives rise to
controversies regarding their status as developing countries. They are definitely on a higher
developing curve now as compared to before.

India EPGSP Dispute:

Coming back to the case, India was a complainant as far as certain council regulations
regarding GSP was concerned. In 2001, European community launched its new EPGSP
regulations. It had 5 different preferential tariff preferences(PTP). What are these aspects
now?
1. drug arrangements:
2. Labour arrangements.
3. Environment arrangements.
4. General arrangements.
5. Arrangement for LDCs.
As far as 1,2 & 3 are concerned the European community gave certain PTP as a reward for
some countries to combat drug production and trafficking. If these countries could combat
that they are given preferential treatment. Similarly, if countries could ensure labour rights,
they were given incentives in the form of PTP.
1 is in contention here that it is a developing country but it has not been given as far as 1 is
concerned. EC says that PTP are given only if countries are doing what they can or what they
see as enough to combat drug production and trafficking. EC sees that India is not doing
enough to combat drug production and trafficking. But Pakistan is given PTP along with a
few other countries. India finds this problematic w.r.t Pakistan prima facie which is similarly
situated and not other countries.
As a result of this Pakistan textile share in EC has increased by volume and quantity whereas
India’s textile as far as quantity and volume has declined after coming into force of EC
Council Regulations. Market access is the issue at hand here. Before EC council regulation,
India’s textile was growing at an exponential rate but after that it declined in absolute
volumes. Clothing and textile is an integral part of India’s economy in the manufacturing
sector. Manufacturing, infact accounts for substantial part of India’s GDP.
In 1979, an understanding was reached as a result of Tokyo round of trade negotiations. The
world trading countries had a negotiation round in Tokyo which is called Tokyo Trade
Negotiation Round wherein it was decided that an understanding should be reached for
differential tariff treatment to developing countries which becomes significant to understand
the background of this case. There are certain provisions of this understanding. (refer the
reading material)
1. Notwithstanding the provisions of Art 1 of the GATT that is MFN provision…. Art 1
is not applicable to this particular understanding. It could accord more favorable
treatment to developing countries.
India says that EC is violating Art 1 para 1 of GATT coz it is giving PTP to other developing
countries including Pakistan.
2. Para 2.a PTP accorded by developed contracting parties to products originating in
developing countries para 1 applies to products which are originating in developing
countries in accordance to GSP.. (check footnote 3 to this para) which says that
countries can’t incorporate a system of preferences which is reciprocal or
discriminatory. It won’t expect the same kind of treatment from developing countries.
GATT Art 1 says MFN should be unconditional. Though it is an exception to MFN
provision, whatever treatment the developed countries are giving as a result of GSP
has to be given in a non reciprocal and non-discriminatory manner. This
understanding is incorporated to act as a by pass or an exception to MFN provision as
enshrined in the GATT.
3. Para 3.a: any differential and more favorable treatment provide under clause a shall be
designed to facilitate and promote the trade of developing countries and not to create
undue difficulties for any other contracting parties. The PTP accorded to developing
countries should aim to facilitate and promote the trade of developing countries rather
than create barrier or undue difficulties for trade of any other contracting parties. The
mandate laid here is that trade needs of developing countries need to be addressed.
4. Para 3c.any differential and more favorable treatment shall in case of such treatment
accorded by developed contracting parties to developing countries has to be designed
and modified taking into account or having the mandate to respond positively to
development, financial needs to the developing countries.

ISSUES:
EC has violated art 1 para 1 of GATT contends India. art 1 para 1 does not apply to this
understanding but can countries in their GSP scheme discriminate among developing
countries which are similarly situated as in India and Pakistan and other developing
countries?
Art 1 para 1 of the GATT does not apply to PTP. But can countries differentiate between
countries which are similarly placed as far as development is concerned?

 Whether the understanding or decision of 1979 is an exception to MFN provision

under Art 1 para 1of GATT?
Panel held that the understanding is an exception to MFN provision under Art 1 para 1 of
GATT 1994. This was agreed by appellate body as well.
 Whether GSP countries can differential amongst developing countries inter se for
PTP?
The panel held that countries which are developing and accorded preferential treatment
couldn’t be given differential treatment amongst developing countries inter se. The drug
arrangement violated the provision of understanding. The panel’s reasoning was based on the
provisions are listed above that is para 1, para 2.a, footnote 3,p para 3.a and 3.c. The panel’s
decision on the issue of law was contended by EC’s in the appellate body. This issue was an
issue of law and not an issue of fact. This issue went to appellate body. At this stage, reading
primarily all these paras, esp. para 3.a and 3.c nowhere in these paras the word all developing
countries are mentioned. This means that developed countries which are enforcing GSP
scheme can differentiate countries on the basis of devilment they are in. Appellate body gave
us an understanding that all developing countries are not similarly placed. There is enough
strength in the decision that all developing countries are not similarly situated countries can
differentiate between developing countries inter se. and differing from Panel’s rationale. The
appellate body qualifies this reasoning further by stating that provided there is an objective
criteria. Here PTP was given to developing countries coz they are doing enough to combat
drug production and trafficking of narcotics but the appellate body held that this criteria was
not objective enough as far as EC was concerned. The decision in favour of India only on the
basis of objective criteria. Many trade law specialists say that EC won the law and India won
the case.
Significance of the case: This understanding of 1979 has been interpreted by both the panel
and appellate body for the first time.

End of MFN.
---------x--------

Art 3: National Treatment Provision (NTP)

This has 10 paras. We’ll be studying 5 paras of art 3 which are relevant and has enough case
laws.
Art 1 and Art 3 are at the heart of non-discriminatory principle of GATT.
Art 3 is called the National Treatment obligation. This obligates a country to treat its imports
in a similar fashion as it treats its domestic products.
Prof. John Jackson tries to bring out the difference between MFN and NT obligation. He
gives an example of widgets. This is domestically produced and imported as well from
countries A and B. Country A &B have to be given similar treatment as far as the MFN
provision is concerned.
But the same countries will be given a same national treatment as a product which is given in
a domestic market. Foreign and domestic goods have to be given same treatment as far as the
products concerned are same. This provision is contentious because it impinges on domestic
policies of nation states. It is one of the human urges to discriminate in favour of locally
manufactured goods. Hence NTP is one of the most contentious issues.
NTP is concerned with internal taxes or regulations. It is felt that products are discriminated
against not only at the borders but also once they enter the market of a particular country in
question. internal taxes is a fiscal measure(domestic taxation) and internal regulations could
be any measures of the government.
What is an internal tax?
Customs duty is a duty levied at the time of importation collected at the border is an internal
tax.
Luxury tax or turnover tax is not related to duty levied at the border. It is also an internal tax.
It is not the authority or time that is relevant but the nature of taxation or duty is pertinent.
Nature of tax has to be seen and rather than seeing that authority which levies it.
---------x----------

Para 1: preamble to art 3. Art 1 has to be taken into consideration even when reading other
paras of art 3. This is like a preambular provision.
The contracting parties recognize that internal taxes and other internal charges and laws,
regulations and requirements affecting internal sale, distribution, purchase, transportation etc
should not be applied to imported or domestic products so as to afford protection to domestic
production. The rationale here is that those internal charges or regulations which affect the
sale, purchase of the product should not be imposed so that. Domestic products are given
protection so far as their production is concerned.
Any charge which is levied at the border could be an internal charge. The nature of tax is
pertinent.

Art 3 para 2 sentence 1, in excess: Fiscal provision:

The products of foreign origin are not to be imposed any internal taxes or charges which are
not of those kinds applied to like domestic products. Those internal taxes or charges should
not be in excess of those applied directly or indirectly to like domestic products. Like foreign
goods can’t be charged in excess of like domestic goods, that is they can’t be subject to
internal taxation. They can impose lower charges but not in excess.
Products which are not like or different they can’t be taxed differently or in excess of
domestic goods.

2nd sentence: so as to afford protection to domestic production

Art 3 para 2 second sentence: no contracting party shall otherwise apply internal taxes or
charges to imported or domestic products in a manner contrary to the principles laid down in
para 1 that is so as to afford protection to domestic protection.
Interpretative note to para 2: (check) A tax conforming to the requirement of 1 st sentence of
para 2 would be considered to be inconsistent with the provisions of 2 nd sentence only when
competition is involved between the taxed product and a directly competitive and
substitutable product which was not similarly taxed.
A tax could be in conformity with 2nd para 1st sentence but it won’t be considered in
conformity only when there is direct competition or substitutability between the products in
questions. We are not talking about like products here but directly competitive and
substitutable products.

18th September, 2019

Art 3 para II is a fiscal provision. It talks of internal taxes or internal charges.
What is an internal charge? Read the interpretative note to the article.
Para II of art 3: this is divided into 2 parts-
Para II first sentence: internal charges impose din excess of those applied directly or
indirectly to like domestic products and
para II 2nd sentence: internal taxes or other internal charges which is contrary to principles set
out in para I of Art 3 ( principles encapsulate art 3 as a whole) w.r.t directly competitive or
substitutable products.

Principles mentioned under para I of Art 3:

Any taxes or internal charges which is affecting the internal sale, transportation etc. should
not be applied to imported or domestic products so as to afford protection to domestic
production. Nothing should afford protection to domestic production is the principle being
talked about here.

Interpretative note to this para 2 clarifies the meaning of affording protection to

domestic production:
Tax conforming to the requirement of first sentence of para 2 would be considered to be
inconsistent with the 2nd sentence only when competition was involved between the taxed
product and on the other hand w.r.t directly competitive and substitutable products.
(DCS)which was not taxed similarly.
A measure could be very well within the parameters of first sentence of para II but it might
not be as per 2nd sentence of para II but only in those situations where the product are
directly competitive and substitutable products are concerned. A tax would be fulfilling the
mandate laid down under 1st sentence but it could be violative of 2nd sentence but only where
the products are directly competitive or substitutable.

What is directly competitive or substitutable products vs like products?

Like products:
 this is being talked about in art II para 2, 2nd sentence.
 There are 4 parameters to likeness as has been discussed w.r.t MFN provision. GATT
working party report on Border Tax Adjustments was adopted by contracting parties
of GATT in 1970. It laid down 4 parameters to likeness or certain characteristics
which highlight what could be like products.
1. Physical characteristics.
2. End uses.
3. Tariff treatment/classification
4. Consumer tastes and preferences.
 This is not so difficult to make out by the panel as well as the appellate body. But
w.r.t DCS it becomes difficult coz.
DCS:
 All like products are DCS products but all DCS products are not like. Eg: apples are
oranges are not like. They dont have the same physical characteristics, they are
classified differently under tariff headings and so on. But whether they are DCS? Yes,
under certain circumstances they become DCS like when prices of apples are touching
high records, consumers will shift to oranges, scarcity of apples etc. It is all about
elasticity of substitution. The more the elasticity the more substitutability that product
has.
-------x------
Korea Taxes on Alcoholic Beverages case: 2000
Alcoholic beverages are the most contentious products when it comes to Art 3 Para II. Facts
are not important for this case. Only the panel/appellate decision is important to note in this
case.
 The appellate body held in this case substitutable mean to be able to substitute and so
far as the context of competitive or substitutability is concerned, it is the market place
which is the forum. The wording of the term DCS implies that the competitive
relation between the products is not to be analysed exclusively by current consumer
preferences or market scenario. One has to take into account future preferences of the
consumer/ future market scenario.
Eg: cell phones produced by Apple and Micromax are not DCS products in the
market. This is not based on Ma’am personal opinion but the market condition says
so. It is the conditions of the market which is the true test to determine DCS.
 It also held that when there is a total ban of the production of a certain product or
there is an embargo on importation of a particular product, we can’t be sure whether
the product could be interchanged/substitutable with something else which makes
them DCS products. Thus latent demand of the market is equally important as an
explicit demand.
---------x----------

NOTE:
 If products are interchangeable that is if consumers can satisfy their needs and tastes
from either of them, even then the products will be DCS products.
 Only one parameter is sufficient to give a finding that products are DCS or not and
that is the parameter of consumer tastes and preferences which are tested in the
market system as opposed to the 4 parameters to determine like products.
 Only the relevant market that is the market of the importing country and another
similarly placed country which has a similar market situation that is to be seen to
determine DCS products by the Panel.
-------x----------
US Cotton Yarn decision summarized what we have studied so far. DCS is in question here.
Panel held that directly competitive is a characteristic attached to a product and denotes the
capacity of a product to compete in a current and a future situation. It is the capacity to
compete or a possibility whether the products could compete in future is what is pertinent to
note. Competitive is a word of wider connotation. As some point they could compete with
each other.
A static view is incorrect for it leads to the same products being competitive in one moment
of time and not in the next depending or not whether they are in the market place. Thus such
static notions have to be disregarded for the future possibilities are closed, if only the present
position is being looked it.

---------x----------

Japan Alcoholic Beverages Case 1987, 1996

The product in question is certain alcoholic beverages. The dispute is between Japan and
European communities. A local alcoholic drink made in Japan called Soju vis- a- vis Vodka.
In 1940, the liquor tax law was enacted in Japan. It classified alcoholic beverages into 9
categories and set the tax rate on each kind of alcoholic beverages.
What are the categories that the beverages have been classified into?
Japanese govt had certain ends in mind. The tax rates were made as per the different needs of
various communities. Highest tax rate was imposed on those beverages or liquors which only
the super-rich could afford and it progressively declined with the paying capacity of the
payer.
On certain beverages specific tax rates that is, it is it applied on particular quantity of the
product in question on which it was taxed and ad valorem tax (that is it is on the value of the
good which is in question) on which it was also imposed.
Most of the foreign beverages like Vodka was discriminately taxed coming from EC. Why
the differential rate of tax when the products are like esp. Vodka which is like Soju argues the
EC?
Liquor tax is the third most source of revenue after income tax and corporation tax for Japan.

Panel and appellate body decision:

This is one of the landmark cases pertaining to Art 3. Decision was given in favour of EC at
both the stages and Japan had to amend its liquor tax law.
Para II of Art 3:
Internal charges/ internal taxes in excess of those as applied on like domestic products.
EC contends that primarily soju and vodka are like products hence taxation was
discriminatory.
Panel looked at taxation law of Japan and found no relevance as to how Japan had adopted a
differential taxation system w.r.t Soju and Vodka when they are considered to be like
products.
It referred to the case of Coffee Panel (Spain v Brazil) wherein it was held that the product
was ultimately intended to be for drinking. The manufacturing process may be different.
Minor differences in taste can’t lead us to the conclusion that the products are not like. The
panel took into account minor differences or organo leptic differences so long as the product
is one single product which is meant for drinking.
The products are like products and should not be taxed in excess of a like domestic product
which is soju. Thus, vodka and soju being like products.

Issue II: Art 3 Para II 2nd sentence which deals with DCS products.
The appellate body agreed with the panel’s finding and rationale. The wordings of art 3 para
II 2nd sentence talks about DCS products.
Comparing it with the first sentence the wordings used are in excess of like products, w.r.t
DCS products the wordings used are not similarly taxed in the interpretative note. Para I of
Art 3 says so as to afford protection to domestic production.
Issue whether any kind of excess or even a minimum excess could be an excess? Japan says
the excess was minimal but successively it was held that even though it’s a de minimus
excess even then an excess is an excess to give a finding that art III para II, 1 st sentence w.r.t
like products. The analysis is very strict when it comes to like products.
Countries cant contend that the charge. Or tax is very small so it has a di minimus effect.t a
small fraction of an excess is enough to be violative of art 3 1st sentence.
2nd sentence entails not similarly taxed w.r.t DCS products and that leads to protection to
domestic production.
Since the products are DCS in this case, the inquiry is not very strict. One has to see firstly
whether the products are DCS or not. The panel’s decision which was affirmed by appellate
body is that the products are DCS. Once that is established and if they were not similarly
taxed that is if dissimilar tax is found out it amounts to according protection to domestic
production. The wordings of 2nd sentence, the parameters are not so tight as compared to the
case of in excess of. If the products are not similarly taxed, any dissimilar tax is okay so long
as there is no protection to domestic production. The inquiry is a little more lenient when it
comes to comparison of 2nd sentence of the para.

PRIYA: see first whether the products are DCSP. The panel said the products are DCSP and
once that is established if it is not taxed similarly, this leads to according protection to
domestic production. Complainant has to show that protection is afforded to domestic
products.

What should be the level of inquiry when it comes to 1st and 2nd sentence?
The level of inquiry to find whether the measure or tax is violative of art III. Inquiry is
different for them. Inquiry is stricter wr.t first sentence. CHECK IT.

The test to distinguish between like and DCSP is an arbitrary decision held the panel. The
appellate body held in this case that this is not an arbitrary but a discretionary decision.

Important lines:
Decision of the appellate body:
No one approach to exercising judgment would be appropriate for all cases. There cant be
one definition of likeness. The accordion of likeness stretches and squeezes as far as different
provisions of Gatt are concerned. But it stretches narrowly so far as art 3 para II 1 st sentence
is concerned. The combination of customs duties and internal taxes have made it difficult for
Vodka to penetrate the Japanese market and it does not ensure equality of competitive
conditions. Therefore Japan was asked to amend its tax laws in accordance with 1 st and 2nd
sentence.

http://www.worldtradelaw.net/reports/gattpanels/japanliquor.pdf.download

---------x---------

19th September, 2019

Chile Taxes on Alcoholic Beverages 2000-

EC was the complainant.
Facts:
Product involved in an alcoholic beverage called PISCO a local drink which was in
contention. 2nd sentence of Art 3 was in question here. The products were not like but
products were DCSP. Once that is established they have to be within the framework of 2 nd
sentence of Art 3.
Chile adopted a regulation/ law called New Chilean System. According to this this system, it
taxed the product or alcoholic beverage depending on alcoholic strength/ content.
Alcohol content Tax rate ad valorem
Less or equal to 35 degrees/volume 27%
Less or equal to 36 31%
Less or equal to 37 35%
Less or equal to 38 39%
Less or equal to 39 43%
Over 39 47%
(In Japan case: the alcoholic beverage was not taxed as per the alcoholic content.)
Tax rate increases at the rate of 4% in each category. Apparently the tax rate doesn’t fall foul
to art 3, 2nd sentence.
Chile contends that there were certain objectives which the new system was planning to
achieve such as it wanted to disincentivize alcoholic consumption. Secondly, it wanted to
maintain its revenue collection by adoption of new Chilean system. Thirdly, it wanted to
eliminate type distinctions such as those that existed in Japan and Korea that is no
discrimination on the basis of type of alcohol ( soju v vodka) but only on the basis on
alcoholic content. Lastly, it wanted to minimize the potentially regressive tax system of the
past which was based on a lot of domestic protectionism that is it wanted to reduce the
regressive aspects of its earlier tax system. One doesn’t have to go by the apparent scheme of
things to determine its discriminatory nature but look at its overall scheme.

Appellate body agreed with the Panel in this case and expounded upon the law in a more
nuanced fashion. The case failed at the negotiation stage. Dispute moved to the stage of panel
and looked at whether the new Chilean system was discriminatory as far as para 2 2 nd
sentence of art III is concerned?
Alcoholic beverages are of different types. They are not like products. But they could be
DCSP as in the case of wine with vodka. Across the type of beverages they can’t be like but
could be interchanged with each other depending on certain circumstances.

2nd sentence says: so as to afford protection to domestic protection which has to be read with
para 1 as far as DCSP are concerned. If the products are DCS then imported product cant be
treated in a manner which gives protection to domestic production.

Appellate body: To know whether a taxation measure is falling foul of art III para 2 one has
to look at the architecture design and overall effect of the particular measure in question. one
has to look a t the tax measure in a comprehensive manner only then we can come to a
finding as to Art III para 2 has been violated or not.
the panel gave a factual finding that the measure fell foul of art III para 2 2 nd sentence coz
looking at the whole architecture and overall effect it found that most of Chile’s alcoholic
beverages including the local drink Pisco was falling in less or equal to 35 vol. which has an
ad valorem tax of 27%. 95% of Chilean beverages fell in the first category. And most of the
foreign beverages about 75% fell in the last two category.
The new system was designed in a manner that most of the imports falling the higher tax
bracket and the domestic beverages fell in the lowest bracket.
Appellate body-
Chile could not adopt such a system coz the tax structure was designed in a manner that the
tax rate is high in the sense of 4% increase in tax rate for every 1 degree/ vol variation. The
new Chilean system had no rationale to adopt such a measure. The objective could have been
achieved in a different manner also. This was not necessary.
Check para 65 of this case-
“Although tax rate increase steeply with beverages there are in fact a very few beverages in
the Chilean market with an alcoholic content of between 35 to 39…..”
There are very few Chilean drinks as well as foreign beverages which are available in 37 and
38 wala category. So if Chile says that its taxing in a progressive manner its not true. The
steeply graduating progression of tax rate between 35 and 39 seems anomalous and at odds
with the linear basis of tax system.
Though Chilean system is designed to be progressive the local and domestic drink fall in 27%
and foreign liquor falling in the last two categories the tax structure is rather anomalous then
being benevolent. The tax structure has two rates either first or the last two categories with no
drinks falling in between and therefore the tax structure was problematic.
Thus, one has to look at the design and effect/application overall of the tax measure in
question and not just look at the intention of the legislature.
Another aspect: di minimus aspect
Likeness and DCS products:
Discrimination is only di minimum holds water as far as DCS products are concerned.
discrimination to fall foul of art II para 2 2 nd sentence w.r.t DCS: discrimination has to be
more than di minimum. Di minimus standard is not scene in likeness analysis. But this
argument could be given so far DCS products are concerned.
-----------------------x------------------------

Art III para 4: non fiscal measure which undermine national treatment obligation
This is the most prominent ways in which discrimination happens nowadays vis a vis
imported products coz tariffs have reduced in today’s liberalized world.
Non tariff measures or fiscal measures could be an important tool in discrimination. In fact it
leads to more discrimination than tariff barriers which is rather easier to see than the former.

Art III:4- products imported into a contracting parties state shall be accorded treatment no
less favorably in comparison to like domestic products. Scope of this para is as far as in
respect of all laws regulations and requirements affecting their sale, purchase, transportation,
distribution etc. of imported like products..

Explanation of the term no less favorably & laws, regulations etc.-

This para is important coz it has led to clash of trade interests and environmental obligations.
It is a comment made by commentators that trade laws undermine environmental obligations.
The aim of trade laws is free and fair trade overlooking/ trumping other laws esp. that of
environmental laws.
Rationale behind this article:
This serves as a compliment to art III:2. If govts can discriminate against imports once they
clear the borders then what is the point? The problem will still be there that is foreign
products will still be discriminated. This is complimenting art III:2. They take the non
discrimination obligation to a good level. other measures which are non fiscal may also
discriminate against imports. When this article and the paras were being drafted developing
countries had an issue with respect to National Treatment obligation esp. para 2 and 4 as it
impinges on their national sovereignty. If WTO or GATT can dictate that they have to treat
imports in a like manner it takes away their sovereignty.
--------x------

2nd hour, 19th September, 2019

What exactly is the framework of art III:4?

All laws, regulations and measures don’t have to treat imported goods less favorably then
domestic products which affects their sale, purchase, distribution etc.
Govts can impose labeling requirements on products for them to be certified that they can be
imported in the country of importation, or packaging requirements which take into account
the safety of the particular product can affect their sale, purchase and so on. MISSED. So
long as imported products are treated akin to domestic products any laws and regulations of
govt are alright. Imported goods cant be treated less favorably then domestic products.
In 1958-59 the panel had an occasion to deliberate on the term affecting occurring in art III:4

Italian Discrimination against Imported Agricultural Machinery 1958 Panel

Complainant was the UK. UK Govt had issues with certain provisions of an Italian law which
provided special credit facilities to some categories of farmers and farmers cooperatives for
purchase of agricultural machinery produced in Italy. These special credit facilities are in
respect of an Italian law. Countries importing agricultural machines into Italy would be
troubled because the special credit facility was not extended to them. The analysis of this
dispute is very limited. Its an early decision. It reached the panel which reached a thin
analysis of this dispute. It has been referred to by later panels as well as appellate body to
enumerate upon the term affecting.
Special credit. Facilities which are contingent on buying Italian machinery fell foul of Art
III:4.
These cred facilities are reserved exclusively to purchasers of Italian tractors and other
machinery. There was a distinction and discrimination against other tractor manufacturers.
Italian govt said that text of para 4 applies only to such laws, regulations and requirements
which are concerned with actual conditions of sale, transportation etc.
Italy says that it is the requirement of Italian economy that agricultural machinery producers
are incentivized in this manner, being in an infant stage.
CHECK PARA 12 of this case which is most relevant. panel delves on the meaning of
affecting sale, distribution etc.
“selection of the word affecting implies laws, regulations which directly govern the sale,
purchase of products but any laws regulations which might adversely modify the competitive
factors on the internal market w.r.t domestic vis-à-vis imported goods”.
Panel didn’t agree with Italian govt. arguments that it’s not affecting sale, purchase etc. the
cred facilities given to farmers falls within art III:4 coz it is modifying the conditions of
competition between the domestic and imported products in the internal market.

----------x----------

Case mentioned in Pg. 253 of Course Material (Free trade and protection of environment
clashing with each other)
Reformulated Gasoline Case 1995 (Venezuela v US)
This case is a seminal case for a host of reasons:
- it has passed all the stages from negotiation to appellate body.
- Clash between trade issues and environmental issues.

Can any law/ measure adopted by a country go against the principle of free trade?
No this is not permitted under art III:4. MISSED.

Facts:
The product in question is gasoline/ petroleum. US enacted Clean Air Act which had certain
mandates to it. the objectives were that US wanted to reduce environmental pollution/ air
pollution. It wanted to take into account destruction of harmful substance sin the atmosphere
that is nitrogen oxide, volatile organic compound etc.
This act was understood that even the petrol that vehicles are using emit a host of harmful
substances, it was mandated by the act that a particular type of gasoline which is reformulated
gasoline which doesn’t have these harmful substances should be distributed in US. refiners
had to comply with certain methodologies. There were certain baselines to measure the
progress of oil refiners. The act envisaged the baseline of year 1990 levels.
The problem was that most of the foreign refiners most importantly Venezuela didn’t have
1990 data available with them. There was a method 2 and method 3 which they could adopt
in method 1’s absence( individual baseline).
Alternative methods:
1. It had to utilize 1990 blend stock and could make a baseline according to that.
2. Allowed the refiner to utilize data from post 1990 gasoline blend stock, gasoline
quality and production record.
Both these methods are more liberal as compared to method 1. But Foreign refiners could
base their baselines on 1990 data that is on the basis of method 1 only. Method 2nd 3 were not
permitted to be used.
Issue: treatment meted out to foreigners was less favorable that the treatment meted out to
domestic refiners?
Oil refiners were subject to major checks and inspections by US authorities.
US authorities: they have to do it because it’s the mandate of Clean Air Act.
Venezuela: this is only being done vis-a- vis foreign refiners. Domestic refiners are not
subject to these treatment. When they don’t have 1990 baseline data they could not even use
method 2 and method 3.
US: it has done this to protect its environment. Inspection and reporting w.r.t foreign refiners:
US govt says it is there because it is nowhere capable of ensuring that when gasoline moves
into US shores that it is devoid of the harmful substances. So to ensure clean gas, reporting
and inspection processes exist for foreign refiners, that is the process is more onerous as
opposed to domestic refiners.

23rd September, 2019

Reiteration: Dispute was between US and Venezuela (US Reformulated Gasoline). It is the
first case which is decided by the appellate body after coming into force of WTO.
The product in question was reformulated gasoline. US enacted Clean Air Act which was
passed in 1990 the objective of which was to reduce air pollution in US from mobile sources
like automobiles etc. the fuel which is going inside the car is of major concern in the US. the
fuel which is put in the car should be of a particular standard, that is use reformulated
gasoline or blend it in such a manner such that is doesn’t burn in a manner that there is not
too much toxic substances in the air. Refiners have to take into certain considerations to come
into the ambit of Clean Air Act.
There was a baseline methodology which is contended in this case. it wanted more
environment efficient fuel. And as a consequent t this mandate, US Gov asked the fuel
refiners to adopt a baseline methodology- baselines were to be established from 1990
onwards otherwise how will the government come to know whether the gas meets those
standards or not and hence the comparison year of 1990.
Feature of method 1: fuel refiners had to formulate a baseline based on 1990 data. most of the
domestic refiners and few or negligible foreign refiners could meet the mandate of method 1.
In the absence of 1990 baseline method 2 and 3 were there. It was a little less lenient than 1.

Issue: foreign refiners did not have the data. they couldn’t go with method 1. They couldn’t
formulate the baseline and method 2 and 3 was also not reliable for them. Imports are being
treated less favorably than the domestic products.

Art III para 4: no less favorable treatment should be meted out to imported products vis a vis
domestic products.
Most of the domestic refiners could employ method 2 and 3 to formulate the baselines. tHe
parameters are stringent for foreign importers.
In the consultation process, US gov agreed that foreign refiners could also be able to employ
method 2 and method 3 to formulate the baseline but in the US house of Rep an act was
passed which excluded them from the purview of forming a baseline as per method 2 and 3.
Certain other stringent measures also came into picture in the meantime w.r.t foreign refiners
like onerous conditions, inspection and reporting. As per the US House of Reps, if they can’t
adopt method 1 they aren’t allowed to choose method 2 and 3 and therefore they can go for a
statutory baseline which was onerous as far as the foreign refiners are concerned.

Issue: Whether the clean air act and its mandate is falling foul to art III:4?
Pg 253 of the module.
US arguments:
On the whole imports are being treated no less favorably. Even if there is some amount of
non-favorable treatment but if you look at it comprehensively treatment is no less favorable.

Panel’s analysis:
Para 295: Products are like products. Imported and domestic reformulated gasoline are like
products. Since they are like products as far as the establishing of baseline methodology is
concerned, imported gasoline was effectively prevented from benefiting from a favorable
treatment than being meted out to domestic gasoline.
Country couldn’t balance less favorable treatment against more favorable treatment and
thereby achieve a more overall favorable treatment. (this is not permitted under art III: para 4-
balancing of no less favorable treatment with favorable treatment). Panel rejected this
contention. On the basis of evidence, it found that imported gasoline was treated less
favorably at all times. 97% of all US refiners also did not even meet the statutory baseline
which is formulated if method 2 and 3 is not being followed. Since almost 100% domestic
refiners couldn’t meet the statutory requirement then why should this requirement be imposed
on foreign refiners?
US made an argument that even if the measure is falling foul of art III:4 the measure could be
implemented because of art 20. So if any country formulates any laws or regulations or
provisions and it violates any of the GATT provisions, they have recourse to GATT
exceptions under art 20 on general exceptions.
Art 20 (b): if any measure is implemented which is necessary to protect animal life, plant life
and human health than it is permitted even if it falls foul to other provisions of the GATT.
The panel did not agree with US however. the panel said that the measure is necessary but at
the same time the measure can be allowed to pass through if there are no alternative
methods / measures that could be implemented. The baseline methodology could be avoided
by US and the same could have been achieved through other methods so as to achieve the
objective of reducing air pollution from mobile sources.

Appellate body:
It agreed with the findings of the panel. US lost its case in the appellate body. Ma’am is not
going to the details of art 20. She’ll discuss it at a later point of time. But otherwise this case
is important from the p.o.v of general exception to GATT.
Comments:
1. Free trade vis a vis regulation of environment
It talks about the clash between free trade and environment: importers want free trade as in
the case of Venezuela but US took the argument that we need to protect our environment.
Art III:4 is one of the measures which advocates the expansion of trade. And on the other
hand environmental measures regulate free trade. This was a major issue after the
establishment of WTO until the early years of 2001. WTO only advocates for free trade
overlooking environmental issue is the biggest criticism of this case.
------------xxxxx-------------

Canada Foreign Investment Review (Canada v US) 1984 (panel decision)

There are certain wordings used in art III: 4, like requirements, laws and regulations.
Are they one and the same thing?
Art III: 4: imported products shall be accorded treatment no less favorable than those
accorded to like products in respect of all laws regulations and requirements.
Facts:
Dispute had its genesis from the late 1970s. There was a growing nationalist feeling/upsurge
in 1970s which developed a resentment of the seeming omnipresence of foreign businesses in
the Canadian nation. They should be regulated by the Canadian government.
In the year 1973, Canada passed an act called Canada Foreign Investment Review Act. this
act was motivated out of the feeling of fear that US was gobbling up large chunks of
Canadian economy.
Issue is not with the act per se but its implicit features.
Explicit features of this act:
Section 2(1): recognized the extent to which Canadian industry, trade and commerce have
been acquired by persons other than Canadians and therefore limit the ability of Canadians.
-------------------------x--------------------------

2nd hour, 2019

Section 2(1): most of the concerns in Canada that is business were being managed by people
not being Canadian in origin. This provision expressed the intent behind the act. businesses
had to be managed by those who were Canadian in origin.
As a result of the act, certain businesses required government approval if there were two
categories of transactions proposed by foreigners:
1. first was acquisition or control of a Canadian business
2. establishment of a new business.
these transactions had to be reviewed by Canadian govt if proposed by a foreigner. There
were 5 criteria to determine the above:
 look at the effect on the level and nature of economic activity in Canada- the effect is
w.r.t employment, resource processing on the utilization of a parts, components and
services produced in Canada and exports from Canada.
 degree and significance of participation of Canadians in business enterprise and new
business.
 the effect on productivity, industrial efficiency, technological development, product
innovation and product variety in Canada.
 the effect on competition within any industry or industries in Canada.
 the compatibility of the acquisition or establishment with national, industrial and
economic policies.

All foreign businesses or entrepreneurs were subjected to 5 criteria. The issue was not
pertaining to this act the issue was w.r.t certain things that the act did not explicitly mention.
In order to satisfy the Canadian govt many foreign enterprises started giving written
undertakings or obligations under which they obliged themselves to abide by the five
requirements.
These written undertakings were not a part/mandate of the act but were given voluntarily by
foreign entrepreneurs because they thought that if they give that they will be favored by the
Canadian government. Once the written purchase/undertakings were given by foreigners,
they were supposed to be strictly enforced by the Canadian government, section 21 of the act
said so (enforcement obligations- if any obligation is given it has to be fulfilled)
US had an issue with these written obligations. It is not a requirement under the act.
US contends that requirements is not a part of the act so why favour business who are giving
these written obligations.
Canadian arguments:
Evidence was produced by Canada that between 1974 and 1982 it was not favoring countries
giving written oblations. There were approx. 4500 investment projects out of which 2500
were American. Canada allowed 90% of Americans to acquire and set up businesses.
The panel took into a/c Canada could be supplying this set of data because it may be favoring
Canada but what about the situation which occurs after 1982 or in situations where the
opposite is true? The possibility is always open wherein as a result of the act, American
businesses would not be favored.

ISSUE:
1. Whether these undertakings could be considered to be requirements coming under the
ambit of art III:4?

Canada claims that these written obligations are not mandated by the act. It is a voluntary
submission by prospective businesses. Hence it is not a requirement within the meaning of
the word requirement in art III:4.
Panel disagreed. It said that the word requirement is different from the word law or
regulation.
Across the board requirement is w.r.t laws or regulations it is not there with requirements.
Thus requirement is not supposed to be across the board and applicable at all times. Art III:4
could have just suffice with laws and regulations but drafters had a different mindset and
hence the word requirement was put in.
Once the undertakings are given they are enforced and therefore it becomes a mandatory
requirement.
Panel held that it is a law or regulation which could affect the sale, distribution of products in
the Canadian nation state or economy.

Obiter:
Canada did not discriminate against foreign business/ enterprises. Irrelevant.

Comments:
Meaning of the word requirement was enunciated in this case.

24th September, 2019

Reiteration: Foreign Investment Review Act was passed by the Canadian Govt in 1973 to
protect the Canadian economy and business. This case is important from the p.o.v of ambit
and scope of art III:4 as to the word requirements. It is not so significant from the term not so
favorable treatment.
One of the arguments in this case- within the framework of WTO and GATT agreement we
don’t study private disputes. Canada said the written undertakings was a choice that was
amongst the private players so when its an element of choice arising from pvt. contractual
agreements and therefore the govt has no role in it so the provisions especially art III:4 wont
work here coz these are private contractual agreements. The panel said that even if were to be
taken as pvt. contractual agreement the genesis of this was the passage of the Act though it
did not mandate that pvt. undertakings could be given but once they were given they were
strictly enforced as per sec 25 of the act.

Comment:
When ITO was going to be formed competition provisions of competition issues should be
brought within the GATT but this was not agreed upon. So GATT regulates govt measures
only and has no role in pvt. parties agreements

EC Asbestos (EC v Canada) 2001

Significance of this case:
 Interface between trade and protection of environment.
 Whether the word likeness in art III:4 has the same meaning as the word like
occurring in art III: 2 or DCS products occurring in para II 2nd sentence?
 Art III:4 also talks about bans as in this case.
Appellate body has guided advocates as to how likeness has to be examined.

Facts:
Asbestos is the product in contention here. It is used in the construction industry as it can
withstand high temperature. At the same time this product has certain cancer inducing
properties due to which construction workers and those who are exposed to such sites have
the possibility of passive suffering apart from the direct sufferings. France banned the
importation, distribution and production of asbestos and asbestos containing products.
Canada is the third largest producer of asbestos in the world, it is concerned that it will lose a
section of its important European market. The issue is about penetration and availability of
asbestos in the European market.
Canada would lose a major chunk of European market that is France and has contended that
other substitutes of asbestos is not banned. So why ban asbestos only? The contention is not
on ban of asbestos alone but substitutes to asbestos are not banned. Asbestos is composed of
chrysotile fibres. And those substitutes of asbestos were made of PCG fibres which was not
banned.
In the consultation process, countries failed to reach a compromise. The dispute moved to the
panel. Panel gave a decision that the products are like. Once the panel gives a finding that the
products or commodities are like, it means that it has to be given similar treatment. But the
ban was upheld by the panel on the basis of art 20(b).
As far article III:4 was concerned, the case was not considered to be violative of this article at
this stage.

At the appellate stage, the party has raised the issue that the measure is violative of art III:4
because the products are not like as they can have a difference in treatment.
Appellate body disagreed with the panel on whether the products are like. They said that the
products are not like. The appellate body upheld the ban but not on the basis of general
exception art 20(b) but based on art III:4.
It made a comparison of likeness in art III:2 and Art III:4:
Art III:2 is fiscal measure in nature. Taxation, internal charges etc. are being talked about in
this para and art III:4 is a non fiscal measure in nature. Fiscal is more specific in nature it is
only w.r.t charges and not with other regulations, requirements etc. which are not fiscal in
nature as in the case of art III:4 which can be very wide unlike art III:2 which is very limited.
Art III:4 is wider than the likeness occurring in art III: 2 1st sentence.
Art III:2 2nd is w.r.t DCS products. DCS is not used in art III:4. Since the word DCS is not
occurring in art III: 4 the word like occurring in art :4 has to be given a narrower meaning
than DCS product. It is wider than Art III:2 1st sentence but narrower than Art III: 2 2 nd
sentence.

The 4 parameters of likeness are:

1. Physical characteristics or quality: if this is similar, it would be considered to be a like
products.
2. End uses: if they have the same functions, it would be like products.
3. Tariff treatment/classification: if one analyses the tariff structure of a country, it could
be presumed that different products are characterized differently.
4. Consumer tastes and preferences: whether their tastes and preferences are such that
which can determine the products to be like.
The panel did not analyze the product in question as to whether it fulfilled these criteria
independently.
On the basis of physical properties the two products are like and therefore they were like. But
it did not go into end uses factor deeply. Certain end uses were same but not all were same.
All the relevant or existing end uses have to be seen by the panel held the appellate body so
that the products can be considered to be like or not and not just some or few end uses. Thus,
end uses have to be looked at comprehensively.
The panel did not give a finding on consumer tastes and preferences at all. The panel chose
not to get into the inquiry of what the consumers feel about the product as it will give
conflicting results. The appellate body said that not getting into this factor was an erroneous
act that the panel did. Consumer tastes ad preferences is an important indictor of likeness.
Once consumers feel that the products are different the consumer tastes and references is
therefore a relevant criteria.
w.r.t tariff classification, it skirted from this assessment altogether.
Appellate body held the health prop of a particular product is a very important consideration.
Any of the parameters will be similar or different because of health properties of the product
in question. The whole basis of the panel not coming into an examination of health or toxicity
of the product in question. If panel took that into consideration it would have come into a
different finding. Toxicity could be an independent factor besides the four factors in this case.
it is an important parameter obviously but it did not say that it is the 5th parameter to
determine likeness explicitly or deeply. Toxicity determines preferences and tastes
Art III:4 was not violated in this case because the products are not like. So difference in
treatment could be permitted. Appellate body did not take into account any general exception,
ban was upheld on the basis of art II:4 itself.
Pg 37 to pg 48 of this case (check)

Case comment: Championing of environment issues vis a vis trade issue. Environmental
activists were happy with this case that health/environmental issues can stand on a higher
ground than erstwhile trade issue. From the 2000s itself the panel/ appellate body have taken
a sensitive understanding of health/environmental issues.
-------------xxx--------------------

Korea Measures on Fresh, Frozen and Chilled Beef (South Korea v US) or the Beef
ban case 2001
Product in casem is beef.
Appellate body interpreted the term no less favorable. This term is used in art III:4. The panel
gave a different interpretation to this term.

Facts:
Korean govt enacted two legislations, the provisions of which were in contention. It wanted
to regulate the importation and distribution and sale of beef in the Korean market. Korea was
a country which wanted to adopt protectionism in many of its sectors, such as beef and rice.
The Act on Distribution and Price Stabilization of Agricultural and Fisheries Products and
Livestock Act were in contention. The first act called for a smooth distribution and
maintenance of appropriate prices for agricultural and fisheries product. The second act
empowered Korea’s Ministry of Agricultural and Fisheries to establish a comprehensive plan
for the livestock industry. Features of this comprehensive plan was to:
 improvement in production of livestock breeds,
 structural development,
 balancing demand and supply forces and stablishing prices and enhancing the
distribution system
 supply of livestock feeds and proper treatment and utilization of livestock excrement
as well as appropriate sanitation.

The objectives of the act couldn’t be achieved w/o regulating the importation, distribution
and sale of foreign produced beef. Korea has separate or differing treatment w.r.t importation,
distribution and sale system for foreign produced beef.
A state agency called Livestock Product Market Organization or LPMO had the exclusive
authority to import foreign beef into the Korean market.
Another system of simultaneous buy and sell system deal(SBS) with the distribution system.
Beef has to reach its end consumers and for that it has to pass through various channels. 12
super groups were set up which could distribute the beef which was imported into the Korean
territory. Any organization couldn’t take up the onus of distributing foreign beef into the
Korean territory. Certain quotas were allocated to these groups which would be formulated in
advance quarterly. If one supergroup allocated quotas could not distribute whole of its quotas,
the quota left unutilized could not go to another supergroup.
w.r.t sales there were these big supermarkets or stores and there were small stores/retailers as
well. The small stores were given a choice as to whether they wanted to sell either imported
or domestic beef and not sell both. If they chose the former they could not go for the latter
and vice versa. If they chose to sell foreign beef their outlets were called specialized retail
outlet for foreign beef.
The big supermarkets were allowed to sell domestic and imported beefs but the latter could
be done in different areas of the same supermarket and not in one area of the same
supermarket.

US had an issue with these two acts because it said that Korean is the third largest market for
beef in the US. if it adopts these measures which fall foul to art III:4 it will modify the
condition of competition for imported beef, esp. American beef. If Korea was not a very big
market for US, maybe US wouldn’t have given two fucks. All trade dispute arises from
losing a wide section of market. This two acts together are called Dual Distribution and Retail
Scheme.
It imposed onerous labelling conditions on them which was not there with respect to domestic
beef wherein labels are put on foreign beef to indicate that it is not domestic in origin. When
these super groups were selling to the retailers foreign beef they had to adopt stringent
labelling requirements which indicated the name of the importer and the quota attached to it.
Panel stage:
1. Panel analyzed whether the products are like or not?
Yes they were like.
2. Whether the treatment no less favorable was meted out to imported beef vis a vis
domestic beef?
Panel determined the meaning of the term no less favorable in a 1950 Italian judgment. Any
treatment amounts to no less favorable where the country modifies the conditions of
competition for the imported products. The inquiry starts from whether the conditions of
competition was modified by the country in question. The panel on a host of reasons gives its
findings in favour of US. the dual distribution and retail system was violative of art II:4 and
discriminatory on the basis of several parameters:
 Difficulty of comparison shopping
If Korean buyers go to the supermarket they’ll have a difficulty in comparison shopping
when foreign beef is sold in different areas of the outlet, and w.r.t small stores the retailers
are given an option to choose between domestic and imported beef. this leads to modification
in competitive conditions. Most consumers like to do comparison shopping but in the
presence of such conditions it becomes difficult.
 Display tradeoffs
Small retail outlets could choose either. When they have exercised the choice of foreign beef
they have to display that very categorically/explicitly. These two products are different thinks
the consumer automatically. So that is why the panel said that there is a display trade off. It
was mandated by the act that a display tradeoff wherein it is inducing a different attitude in
the mind of consumers. So the conditions of competitor are modified as a result.

 Limited no of sale outlet

This affects the consumer choices.

 Adding costs:
Costs will be added coz the small retailers or the distribution outlet or orgs distributing beef
has to comply with a lot of regulations, laws which require costs to be incurred. This will be
added to the product in question. the consumers pay for the increased cost ultimately.

 Sheltering high prices:

When the acts are itself allowing dual distribution and retail scheme gives effect to the notion
the high prices can be sheltered.

The treatment was no less favorable was meted out to foreign beef as opposed to domestic
beef. the scheme falls foul to art III:4 and was discriminatory. It modified the condition of
competition between the two beef products which were treated differently despite the
products being like.

Appellate body:
The appellate body agreed with panel that art III:4 was violative but did not agree with its
rationale. It said:
1. Any origin based discrimination will not be considered to be discriminatory per se. It
can be fine but that difference should not be one in a manner that it treats the products
no less favorably. Sometimes the difference in treatment is permitted but it should not
be permitted to the detriment of the particular imported product. Otherwise it will fall
foul to art III:4. Sometimes it could be warranted so that further indifference doesn’t
 happen but the otherwise such discrimination and detriment to the imported product is
not permitted.

25th September, 2019

Beef Ban case- certain measures were enacted w.r.t sale of beef in Korean territory. Appellate
body polished the decision of the panel. US contented on the basis of equal competitive
conditions to be meted out to them.
NOTE:
 Equality of competitive conditions is mandated by Art III:4. When successive
appellate bodies are talking about competitive conditions that the terms of trade
should not be to the detriment of imported product, the concerned country requires to
provide equality of opportunity and not equality of outcome/ results.
 Thus, GATT contracting parties must ensure equality of opportunity. The foreign
product will get those conducive conditions that it can compete on a level playing
field with that of the domestic product. If it gets a lesser market share after that that
it’s not the concerned country’s problem. Equality of opportunity is w.r.t laws
regulations and requirements as per art III:4.
Coming back to beef ban case:
At the stage of importation, distribution and final sale- the imported beef was given a
different treatment or an adverse treatment than the domestic beef in all these steps.
Moreover, labeling requirement was there wherein the product had to cite as to who was the
importing party, the contract no etc. Based on these parameters, the panel held that the dual
distribution retail system adopted by Korea fell foul of Art III:4.
Appellate body:
 There was origin based discrimination which is violative of art III:4 said the Panel.
There has to be a difference in what is called discrimination and difference said the
appellate body. Every difference can’t be discriminatory. Sometimes countries have to
give foreign products different treatment so that discrimination might not occur. Thus,
difference in treatment is not necessarily discriminatory.
It relied on two decisions:
Japan alcoholic beverages case, : equality of competitive conditions for imported products
in relation to domestic products.
US Section 337 case-In that case, the panel had to determine whether United States patent
enforcement procedures, which were formally different for imported and for domestic
products, violated Article III:4

Every difference is not discriminatory per se.

 Para 145 of this case:
“The central consequence of this system can only be reasonably construed as imposition of
drastic reduction in commercial opportunity to reach and hence to generate sales to the same
consumers served by the traditional retail channels for domestic beef.”
Panel had said the dual retail distribution system was violative of art III:4 coz of the above
listed parameters. But its not about these parameters. Rather it’s about consequent reduction
of commercial/ economic opportunity of foreign made beef. Small retail shops selling foreign
beef were 5000 in number as compared to domestic beef retailers which was 45k in number.
This led to no less favorable treatment which is forbidden under art III:4. Appellate body
enunciated that what we mean by treatment no less favorable is reduction in commercial
opportunity and not opportunity of outcome or volumes in trade.
--------------x------------------
Para 8a of art III:
The provisions of this section is an exception to art III:4 specifically. It is applicable to laws,
regulations or requirements dealing with procurement by governmental agencies. Anything
that the government purchases for governmental purposes and not for commercial resale will
be the ambit of this para.
This para is significant because it is a contemporary para in the sense India was involved with
dispute with US leading to interpretation of this para and its relationship with art III:4. India
lost the solar cells case because of interpretation given by this para by the appellate body in
2016.
India’s claims with local content requirements and subsidies w.r.t renewable programs in 7
US states was agreed by the panel. These states gave a host of subsidies for the renewable
program sector.

What is government procurement now?

Procurement means purchase by govt bodies from external providers of products and services
which the govt requires to carry out its public service missions.
Why is this an issue then?
Govt is the largest buyer of goods & services in the world. Govt procurement policies is
constantly under the scanner because of the provision under national treatment which doesn’t
permit govt to discriminate between domestic and foreign products.
Eg: as far as India is concerned, the ministry of agriculture does is- Minimum Support Price
or MSP is given to farmer that even if products fall below a certain quantity and quality they
are assured that govt will procure them at an assured rate. This is a constant issue under
WTO’s radar and tensions arise w.r.t agriculture because Indian govt gives a lot of subsidies
to Indian farmers which becomes a disadvantage for foreigners.
Canada Feed In Tariff Program Dispute
Panel decision was appreciated by Indian academicians especially because it was very
progressive. The product in question was w.r.t electricity generation equipment.
India Solar Cells 2016
Facts:
There is a mission called Jawaharlal Nehru National Renewable Mission according to which
renewable energy has to be harnessed. It is thought that solar power is a way to go about it so
there is scheme. India wanted to purchase electricity. Solar power developers got into a
power purchase agreement to procure electricity which is very capital intensive. Govt assures
of guaranteed returns if their solar cells or modules are used and have a term called the
domestic content requirement. They have to buy their solar cells or modules from domestic
content providers. Issue was about these domestic content requirement. US said it failed the
requirements of Art III, national treatment requirement.
Canada feed in case was cited as a precedent because in that case the panel gave a decision in
favour of India but the appellate body overturned the decision in India solar cells case.
whether the appellate body held correctly than electricity generation equipment is different
from solar cells?

26th September, 2019

Art III 8a is a qualifying provision to other paras under National Treatment. NT won’t be
applicable when the conditions of art III 8 a are met.
National treatment won’t apply as long as its done in the course of government procurement
and not for commercial resale.
India Solar Cells case
Issue was about the fact that India in order to harness its renewable energy, it got into an
arrangement with certain pvt. developers. The mandate was there under JNNRM with the
objective of harnessing solar energy. But this can’t be met easily. The govt plan was to
execute it in a decentralized way, wherein it would work with the pvt. Sector.
One of the major constraints in the govt plan was a constraint in tapping the solar power
because of its high capital cost. So, in the absence of guaranteed returns over a period of time,
people are generally skeptical to invest on it. The govt thought of a scheme wherein it would
enter into power purchase agreement with pvt .solar power developers because of the
problem of high capital cost. Government imposed certain conditions or externalities which
were put upon the solar power developers on the pretext that they’ll get assured returns.
These developers, in order to avail the price guarantee for the next 25 years they must
undertake to buy solar cells and modules from indigenous producers. This requirement of the
govt that is domestic content requirement was the bone of contention in this case.

Consultations proved futile. No compromise was reached between the two countries. Panel
was set up.

Panel’s analysis:
Panel had certain precedents before them.
Canada feed in tariff case- (Canada v Japan) Japan complained regarding domestic content
requirement which Canada enacted w.r.t wind energy equipment. It relied on a straight
forward interpretation of art III: 8a. The product in question was procuring electricity and not
the equipment that was in question unlike solar cells in India solar cells case. It doesn’t fall
foul to Art III, National Treatment obligation.
The govt is procuring electricity in the instant case. It is giving an incentive to the pvt. solar
power developers to enter into an agreement to give them guaranteed returns.
India contended in India case that the condition to be met as far as Art III:8a is concerned is
that it affects the govt procurement. Govt is procuring electricity. It doesn’t fall foul to art
III:4 therefore it is well within the boundaries of art III:8a. this was not accepted by the panel
in the Indian solar cells. Solar modules are an integral part of electricity. You can’t
differentiate the raw materials and the product procured. There can’t be any fine distinction.
The policy of asking the power developers to source their raw materials from indigenous
producers fall foul to art III:4. (she is not making sense) MISSED.

Basically in Canada feed in case, it was held that the measure did not fall foul of art III:8(a).
to qualify for this derogation the product of foreign origin allegedly being discriminated
against must be in a competitive relationship with the product purchased by the government.
the product being procured by the government of Ontario was electricity whereas the foreign
product suffering from discrimination due to domestic content requirement was electricity
generation equipment. these two products were not in a competitive relationship. Therefore
discrimination relating to foreign generation equipment was not covered by the derogation.
Therefore, measures at issue were laws, regulations, or requirements governing the
procurement by governmental agencies of electricity within the meaning of Art III:8(a).
But in India Solar Cells case, domestic content requirement under the Mission are not
covered by governmental procurement derogation from the principle of national treatment
pursuant to art III:8(a). this case is different from Canada case in the sense the solar cells and
modules and not the electricity purchased by the government were subject to discrimination.
http://www.mondaq.com/x/533696/Renewables/WTO+Case+Summary+India+Solar+Cells
Case comments:
 How WTO is always favoring the developed countries and doesn’t give its decision in
favour of developing countries. Why should the panel and appellate body go blindly
in deference with previous precedents.
 Deepak Naiyer has made a scathing remark on what WTO does to developing
countries. he gave prominence to the fact that there is lot of state intervention which is
required for developing countries. Countries which are late entrants to
industrialization, WTO is unduly biased against them.
 One of the analysis made was that govt didn’t give a choice to procure electricity
from India or from abroad. There was no competition between domestically and
foreign produced electricity. The issue was about solar cells and modules and not
electricity.
 India was forced to withdraw its support to pvt solar developers. This in effect meant
that it would be bound to procure the solar modules from other countries like US and
China.
------------x--------------

US was the losing party in this case. A distinction has to be drawn between the two cases. It
doesn’t pertain to art III:8(a) though the US could have made the argument of art III:8 a.
India won the case at the panel stage but US has appealed as of now.
The dispute centered upon art III:4. Certain incentives were given by certain states in the US
to produce energy. There were 11 issues identified in this case.
Somewhere in 2016-17india and US had failed negotiations between themselves w.r.t
renewable energy measures which the US was giving to its producers.
1. State of Washington was giving incentives which were contingent upon the use of
domestic over imported goods under the renewable energy cost recovery intensive
payment programme.
2. Incentives contingent upon the use of domestic over imported goods in the state of
California.
3. Same w.r.t Los Angeles Dept of water & power Solar intensive Programme.
4. Same incentives in Montana.
5. Connecticut.
6. Michigan
7. Delaware
8. Minnesota
9. Massachusetts.
Basically the incentive in all these states was regarding use of domestic over imported goods.
Panel is established.
India argues that these incentives or concessions given by these states is violative of art III:4.
These are laws/ regulations or requirements affecting internal sales under art III:4.
Certain panels have discussed upon the wording of art III:4. The panel is going by the past
panel cases and appellate body reports. The prominent feature of this case is that it brings
forth certain conclusions w.r.t doubts on what is no less favorable treatment.
There can be no finding of treatment no less favorable if there is only a concern that no less
favorable treatment occurs in the future.

2nd class, 26th September, 2019

All the programmes had a commonality that they were done for the purpose of harnessing
renewable energy in the form of mandated programmes which the states have enacted as laws
or regulations. The programmes were violative of art III:4.

Whether the products are like or not?

US agreed that the products are like. The panel held that products are like. It’s a no brainer.
Whether the measure at hand is laws, regulations, requirements affecting internal sale?
Yes, they come within the parameters of laws, regulations and requirements.
Whether the laws affect the sale of imported goods in the internal market?
Pg. 56 of Panel Report:
The panel interpreted the term affecting the internal sale, offering for sale, transportation, use
of relevant product etc.
The panel has laid deference to other earlier reports. The panel approved of another dispute
between US and China in this case. the word affecting in art III:4 of the GATT cover not only
laws and regulations which directly govern the conditions of sale and purchase but any laws
and regulations which may adversely modify the conditions of competition between imported
and domestic products.
US contended that till now India has not adduced any substantial evidence that actually
modifies the conditions of competition adversely. But panel said that it is not the case of
might. It is not that it should have happened. It is a truism that it may happen in the future.
Countries can’t make this argument that it is not really affecting it directly. US made this
argument that India is not able to show enough evidence that it has affected them. Panel said
that there is possibility that it might affect so it comes within the framework of art III:4.

Para 7.156 and 7.157 (read) given in pg 56-57.

Para 7.159 – the panel says that idea that measure distinguishes between the two goods can
affect the internal sales or use of internal measures only If the measure has an impact on
current circumstances on decisions of pvt. firms w.r.t sourcing of products is difficult to
reconciles with the concept of no less favorable.

Current circumstances are not to be seen as to whether a measure falls foul of art III:4. One
has to look at effective equality of commercial and competitive opportunities.
Para 7.161- panel should examine whether the measure has an impact on conditions of
competition between domestic and imported like products but need not examine whether the
measure has impacted purchasing decision of the current market.
Current circumstances which affect the decision of purchasers is not to be seen. Just look at
the impact made on conditions of competition. US made an argument that presently it is not a
treatment which is not less favorable. But panel said no, we have to go by the conditions of
competition which have the potential of adversely being affected so current circumstances
have no relevance in this regard

Para 7.175: California’s programme is discussed in this case. it doesn’t agree with US that
India should have demonstrated that it induces consumers to buy Californian made goods. It
is not violative of art III:4. But panel said that its not about inducing. If the measure has
potential to modify the competitive conditions it is violative of art III.4. panel made an
expansive interpretation and said that India is not supposed to show any tables and figures to
show the amount of buyers who buy products of Californian origin.
Other sections of the report talk about various states. The states have similar programmes
being run.
Para 7.242-7.246 Pg 72 & 73
Para. 7.244:
Panel makes a distinction between affecting and treatment no less favorable. Affecting means
about a measure and the amount of impact that the measure in question has. And less
favorable treatment is about impacting it on an extent that it modifies the conditions of
competition to the detriment of the imported product. This case has highlighted the
distinction very distinctly.

It gave a decision in favour of India that Indian imports were or could be affected and to such
a degree that it really modified that conditions of competition to the detriment of the imported
product.

Appellate body still hasn’t decided on this issue. Let’s see what happens. India is facing
tensions with US starting from latter half of last year. US declared that it will withdraw its
GSP status to India. Trade deal has fallen through for both these countries.

India had stated that the measures are inconsistent with global trade norms because they
provide less favourable treatment to imported products than to like domestic products, and
because the subsidies are contingent on the use of domestic over imported goods.

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3rd October, 2019 MISSED