TEAM CODE -66

ELSA Moot Court Competition

2017 – 2018

Borginia– Measures Affecting Trade in Textile Products

SYLDAVIA
(Complainant)

V.

BORGINIA
(Respondent)

Submission of the Complainant

 A. General I SYLDAVIA

Table of Contents
LIST OF REFERENCES..........................................................................................III
A. Treaties and Conventions...........................................................................................III
B. WTO Appellate Body Reports....................................................................................III
C. WTO Panel Reports....................................................................................................IV
D. WTO Reports and Documents....................................................................................IV
E. Secondary Sources including Treatises, Arts. and Works of Publicist......................V
LIST OF ABBREVIATIONS.................................................................................VII
Summary of Arguments................................................................................................1
Statement Of Facts........................................................................................................3
Identification of WTO Measure at Issue....................................................................4
LEGAL PLEADINGS.................................................................................................4
I.NESI’S 2015 DECISION IS A TR WITHIN THE MEANING OF ANNEX 1.1TO
THE TBT AGREEMENT 1994, IS INCONSISTENT WITH ARTS.2.1, 2.2 AND 2.4
OF THE TBT AGREEMENT 1994, AND WITH ART. III:4GATT 1994..........4
A. NESI’S DECISION IS A TR IN THE LIGHT OF ANNEX 1.1 TBT AGREEMENT. 4
a. NESI’s decision is a document and applies to an identifiable product........................4
b. NESI’s decision lays down product characteristics.....................................................4
c. NESI’s decision makes compliance with product characteristics mandatory.............5
B. THE TR IS INCONSISTENT WITH ART. 2.1 OF TBT...........................................5
a. The products are like products.....................................................................................5
b. The TR accords LFT under the national treatment obligation....................................5
C. THE TR IS INCONSISTENT WITH ART.2.2 TBT Agreement..............................7
a. TR does not pursue a legitimate objective...................................................................7
b. TR is more trade restrictive than necessary.................................................................7
D. THE TR IS INCONSISTENT WITH ART.2.4 TBT..................................................8
a. ISO-14666 is a relevant international standard..........................................................8
b. ISO-14666 is not used as a basis for the TR................................................................9
c. ISO-14666 is an Effective and Appropriate standard..................................................9
E. THE TR IS INCONSISTENT WITH ART. III: 4 GATT..........................................9
II.THE TAX LEVIED ON THE IMPORTED COTTON FABRIC IS INCONSISTENT
WITH ARTS. II: 1 (A) AND (B), II: 2(A) AND III: 2 GATT 1994......................9
A. The tax levied is inconsistent with Arts. II: 1 (A) and (B)........................................10
B. The Tax Levied Is Inconsistent With Arts. II: 2 (A) and III: 2................................11
III.THE ALLOCATION OF FUNDS IS INCONSISTENT UNDER ARTs.3.1(A), 27.4
AND 27.5 SCM AGREEMENT..............................................................................13
A. THE ALLOCATION OF FUND IS A PROHIBITED SUBSIDY UNDER ART.3.1 SCM
AGREEMENT...........................................................................................................13
a. The allocation of funds constitutes a subsidy under Art. 1.1 SCM Agreement........13
a. The allocation of funds involves a direct transfer of funds.......................................14
b. The allocation of funds is a financial contribution since government revenue has been
forgone.......................................................................................................................14
 A. General II SYLDAVIA

c. Borginia's allocation of funds confers a benefit to the textile units situated in the TEPZS.
...................................................................................................................................15
d. The allocation of funds is a per se prohibited under Art.3 (1)(a) SCM Agreement.. 16
B. THE ALLOCATION OF FUNDS IS INCONSISTENT UNDER ART. 27.4 SCM
AGREEMENT...........................................................................................................17
a. Phasing out subsidy under Art. 27.4 SCM Agreement..............................................17
b. Increase in level of export subsidy............................................................................18
c. Entering into consultation with the Committee.........................................................18
C. THE ALLOCATION OF FUNDS IS INCONSISTENT UNDER ART. 27.5 SCM
AGREEMENT 1994..................................................................................................19
a. Failed to phase out export subsidy.............................................................................19
b. Definition of a product under Art.27.6 SCM Agreement..........................................20
Request for Findings...................................................................................................21
 A. General III SYLDAVIA

LIST OF REFERENCES
A. Treaties and Conventions
1. General Agreement on Tariffs and Trade, 15 April 1994, 1867 U.N.T.S 187; 33 ILM
1153(1994).
2. Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations,
15 April 1994, 1867 U.N.T.S. 14; 33 I.L.M. 1143 (1994).
3. Understanding on the Rules and Procedures Governing the Settlement of Disputes, 15 April
1994, 1869 U.N.T.S 401; 33 ILM 1226 (1994).
4. Agreement on Subsidies and Countervailing Measures, 31 December 1996, 1869 U.N.T.S.
14.
5. Agreement on Technical Barriers to Trade,1 January 1995, 1868 U.N.T.S. 120.
6. Agreement Establishing the World Trade Organization, 15 April 1994, 1867 U.N.T.S. 154;
33 I.L.M. 1144 (1994).
7. Agreement on Agriculture, January 1, 1995, 1867 U.N.T.S. 410.
8. Vienna Convention on the Law of Treaties, 23 May 1969, UN Doc. A/Conf.39/27; 1155
U.N.T.S 331; 8 ILM 679 (1969).

B. WTO Appellate Body Reports

1. European Communities — Measures Affecting Asbestos and Products Containing Asbestos -
Appellate Body Report (16 October 2015) WT/DS400/16/Add.7 (hereafter referred asEC –
Asbestos).
2. European Communities - Trade Description of Sardines - Notification of Mutually Agreed
Solution (29 July 2003) WT/DS231/18 (hereafter referred as EC – Sardines).
3. United States – Measures Concerning the Importation, Marketing and Sale of Tuna and
Tuna Products, Report of the appellate body (16 May 2012), WT/DS381/AB/R (hereafter
referred as US – Tuna II).
4. European Communities — Measures Prohibiting the Importation and Marketing of Seal,
Report of the Appellate Body (22 May 2014), WT/DS401/R (hereafter referred as EC –
Seal).
5. India – Additional and Extra-Additional Duties on Imports from the United States, Appellate
Body Report (17 November 2008), WT/DS360/AB/R.
6. Korea — Measures Affecting Imports of Fresh, Chilled and Frozen Beef, Report of the
appellate body, (24 April 2001), WT/DS161/12 [133] (hereafter referred as Korea – Beef).
 A. General IV SYLDAVIA

7. China – Measures Affecting Imports of Automobile Parts, Appellate Body Report (12
January 200) WT/DS339/AB/R (hereafter referred as China - Automobile).
8. Philippines—Taxes on Distilled Spirits, Appellate Body Report (20 January 2012.),
WT/DS396/AB/R. (hereafter referred as Philippines – Spirits).
9. Canada — Measures Affecting the Export of Civilian Aircraft Appellate Body Report (4
August 2000), WT/DS70/15 [157], (hereafter referred as Canada - Aircraft).
10. European Communities — Measures Affecting Trade in Large Civil Aircraft, Appellate Body
Report (17 January 2017), WT/DS316/31, (Hereafter referred as Hereafter referred as Brazil
- Aircraft).
11. United States - Tax Treatment for "Foreign Sales Corporations" - Appellate Body Report
(17 March 2006), WT/DS108/36 (Hereafter referred as US - FSC).
12. United States - Final Dumping Determination on Softwood Lumber from Canada - Appellate
Body Report (17 February 2004) WT/DS257/AB/R, (Hereafter referred as US - Softwood
Lumber).
13. United States - Certain Country of Origin Labeling (COOL) Requirements - Communication
from the European Union, (11 December 2015) WT/DS384/39 (Hereafter referred as US -
COOL)

C. WTO Panel Reports

1. Brazil - Export Financing Programme for Aircraft - Panel Report (28 August 2001),
WT/DS46/29, (Hereafter referred as Brazil - Aircraft).
2. European Communities - Countervailing Measures on Dynamic Random Access Memory
Chips from Korea – Panel Report (20 April 2006), WT/DS299/9 (Hereafter referred as EC –
Dram Chips).

D. WTO Reports and Documents

1. WTO General Council, Art. 27.4 of the Agreement on Subsidies and Countervailing
Measures—Decision of 27 July 2007, WT/L/691.
2. Doha WTO Ministerial 2001: Ministerial: Declarations and Decisions WT/MIN (01)/1710.5.
3. GATT, Report of the Working Party on Border Tax Adjustments, L/ 3464 (1970).
4. WTO-AB Repertory of Reports and Awards 1995-2010 (2011).
5. Negotiating Group on Rules: amendment to Arts. 27.2 and 27.4 of ASCM in relation to
developing countries covered under annex vii, WTO, TN/RL/GEN/177/Rev.1,(9 March
2011).
 A. General V SYLDAVIA

E. Secondary Sources including Treatises, Arts. and Works of Publicist.

1. The Cassell Thesaurus Dictionary, (Mackays of Chatham PLC, 1998), pp. 387 and 453.
2. The New Oxford Dictionary of English, (Clarendon Press, Oxford, 1998), p. 1229.
3. ISO/IEC Directives Part 1, Consolidated ISO Supplement- Procedure specific to ISO (3rd
Edition, 2012) (hereafter referred to as ISO/IEC Guide).
4. Trachtman, Joel P, WTO Law Constraints on Border Tax Adjustment and Tax
CreditMechanisms to Reduce the Competitive Effects of Carbon Taxes, Resources for the
Future Discussion Paper 16-03 (2016).
5. Hillman, Jennifer, "Changing Climate for Carbon taxes: Who’s afraid of the WTO", German
Marshall Fund of the United States Climate and Energy PaperSeries (2013).
6. Kaufmann, Christine, and Weber Rolf H., Carbon-related border tax adjustment:
mitigating climate change or restricting international trade?, World Trade Review10, no. 4
(2011): 497.
7. Oxford English Dictionary, L. Brown (ed.) (Clarendon Press, 2002), Vol I.

8. How special is the Special and Differential Treatment under the SCM Agreement? A legal
and normative analysis of WTO subsidy disciplines on developing countries”, World Trade
Review (2013), 12: 1, 79–109.

9. Free Zones and the WTO Agreement on Subsidies and Countervailing Measures, Global
Trade and Customs Journal, Vol. 2, No. 5, 2007.

10. Sue Arrowsmith, Robert D. Anderson, The WTO Regime on Government Procurement:
Challenge and Reform (First published 2011, Cambridge University Press).

11. OECD (1997a), Data for the publication of the database on the activity of foreign affiliates
in OECD countries (inward investment), OECD, Paris, 1996.

12. How special is the Special and Differential Treatment under the SCM Agreement? A legal
and normative analysis of WTO subsidy disciplines on developing countries, World Trade
Review (2013), 12: 1, 79–109.
13. Prof. Mukesh Bhatnagar & Jayant Raghu Ram, Elimination Of Export Subsidies: Concerns
for India ,Quarterly Newsletter of Centre for WTO Studies,IIFT ,Vol. 1 2014 ,January-
March.
14. Oliver De Schutter, Trade in the service of climate change: the question of linkage” in Anna
Grear and Conor Gearty (eds), Choosing a Future: The Social and Legal Aspects of Climate
Change (Edward Elgar Publishing 2014). (hereafter referred to as De Schutter (2014))
 A. General VI SYLDAVIA

15. Gabrielle Marceau & Joel P. Trachtman, A Map of the World Trade Organization Law of
Domestic Regulation of Goods: The Technical Barriers to Trade Agreement, the Sanitary
and Phytosanitary Measures Agreement, and the General Agreement on Tariffs and Trade
[2014] 48(2) JWT 351.(hereafter referred to as Marceau and Trachtmann (2014)).
16. Benjamin Blase Caryl,, Is China Currency Regime a Countervailable Subsidy? A Legal
Analysis Under the World Trade Organization's SCM Agreement, 45(1) J. World Trade 187,
203–04 (2011).
17.
A. General VII SYLDAVIA

LIST OF ABBREVIATIONS

Abbreviation Full Form

AB Appellate Body

Art./Arts. Article/ Articles

GATT General Agreement on Tariffs and Trade, 1994

TR Technical regulation

CAP Conformity Assessment Procedure

ED Executive Decision

DTA Domestic Tariff Area

TBT Technical Barriers to trade

BTA Border Tax Adjustment

US United States of America

NESI National Environment Safety Institute

SOCA Save Our Climate Act

WTO World Trade Organization

EC European Communities

ED Executive Decision

LFN Love for Nature

HS Harmonized System

ISO International Standards Organization

TEPZS Textile Export promotion Zones

TTUFS Textile Technology Update Fund Scheme

LFT Less Favorable Treatment

 B. Substantive 1 SYLDAVIA

Summary of Arguments

NESI’s 2015 decision is a TR within the meaning of Annex 1.1 TBT Agreement 1994 , is
inconsistent with Arts. 2.1, 2.2 and 2.4 TBT Agreement 1994, and Art. III:4 of the
GATT 1994.
 NESI’s decision is a TR within the meaning of Annex 1.1 TBT agreement.
NESI’s decision is a TR as it is a document implemented by the government that concerns an
identifiable group of products, lays down process and production methods relating to product
characteristics, and with which compliance is mandatory.
 NESI’s decision is inconsistent with Art. 2.1 TBT Agreement.
The TR violates National Treatment obligations by causing de facto detrimental impact on
the competitive opportunities between like Syldavian products vis-à-vis like domestic and
imported products. Domestic and Syldavian products are like as they have the same product
characteristics, end-uses, tariff classification, and Borginian consumers consider both groups
of products to be substitutable. The detrimental impact cannot be justified under the
legitimate regulatory distinction test because the distinction is arbitrary and the measure
lacks even-handedness.
 NESI’s decision is inconsistent with Art. 2.2 TBT Agreement.
The TR does not pursue a legitimate objective listed under Art. 2.2. It is more trade
restrictive than necessary because it lacks even handedness and there exist less trade
restrictive alternatives
 NESI’s decision is inconsistent with Art. 2.4TBT Agreement.
ISO-14666 is a relevant international standard because consensus is not requirement under
TBT. It was not used as a basis for the enactment of TR and it is not ineffective or
inappropriate for the fulfillment of the legitimate objectives pursued by Borginia.
 NESI’s decision is inconsistent with Art.III:4 of the GATT 1994.
The TR is covered by Article III:4 GATT 1994 because it is a regulation. Furthermore, the
TR accords less favorable treatment to Syldavian handloom cotton fabric vis-à-vis like
domestic products because it modifies the conditions of competition to their detriment. In
addition, a genuine relationship between the TR and that detrimental impact exists.
The tax levied on the imported cotton fabric is inconsistent with Arts. II:1 (a) and (b),
II: 2(a) and III:2 of the GATT 1994.
 Tax levied on the imported cotton fabric is inconsistent with Art. II: 1(a) and (b).
 B. Substantive 2 SYLDAVIA

The SOCA mandated carbon tax was levied not on the product, i.e. Cotton fabric but on the
product production method used by the manufacturer of the said product. Fabric marketed
as cotton fabric in Borginia were exempted from paying carbon taxes, hence an equal and
proportionate charge wasn’t levied to a like domestic product. The SOCA mandated carbon
tax was hence a custom duty and not an internal Tax Borginia Art. II: 1 (a) and (b) as less
favorable treatment was accorded to imported Cotton fabrics.
 Tax levied on the imported cotton fabric is inconsistent with Arts. II: 2 (a) and III: 2.
Products marketed as cotton fabric and other cotton products are for all intent and purposes
under Art. III: 4 like. Hence the exemption of products marketed as cotton fabric from
paying carbon tax is a violation of both Arts. II: 2(a) and III: 2.
The allocation of funds is inconsistent under Arts. 3.1(a), 27.4 and 27.5 of the SCM
agreement.
 The allocation of funds is a prohibited subsidy under Art.3.1 SCM Agreement.
Allocation of fund meets all three requirements for a subsidy under Art.1.1 SCM Agreement.
The allocation of funds constitutes a financial contribution by a government or any public
body. This is because it constitutes a direct transfer of funds and is government revenue
foregone or not collected. The allocation of funds confers a benefit on a specific recipient,
i.e. textile units situated in the TEPZs.
 Allocation of funds is a per se prohibited export subsidy under SCM Art. 3(1)(a).
This is due to contingency upon export performance. The allocation of funds from the
TTUFS to the textile units situated in the TEPZS in Borginia meets the specificity
requirement under the SCM Art. 3(1)(a)  and Art.2.2
 The allocation of funds is inconsistent under Art. 27.4 SCM Agreement.
This is due to Borginia's failure to phase out export subsidy within stipulated 8 year period,
to not increase the level of its export subsidies and non-fulfilment of entering into
consultation with the Committee.
 The allocation is inconsistent under Art. 27.5 SCM Agreement.
This is due to Borginia's failure to phase out export subsidy within two years from reaching
export competitiveness in a product, which is a product under Art. 27.6 SCM Agreement.
 B. Substantive 3 SYLDAVIA

Statement Of Facts

1. Borginia is a member of the WTO and the ISO, so is Syldavia. Borginia is also a party to the
2015 Paris Agreement under the UNFCCC.
2. Textile industry is an important sector in Borginia. Major cluster of textile industry in
Borginia is based in the TEPZs. Also being major recipients of export earnings. Borginia is
ecologically vulnerable and global warming is believed to be the reason. Thus the NESI in
Borginia decided to implement the LFN Action Plan. NESI considered the power loom
industry as a significant contributor to the emission of GHGs.
3. In 2015, NESI issued an executive decision to ensure, carbon-neutral production practices
throughout the entire production chain. According to it only 100% handloom cotton fabric
can be marketed as cotton fabric in Borginia. Furthermore, earlier Borginia and Syldavia
were engaged in the discussions for the adoption of the ISO 14666 – Standards related to
cotton fabric. According to Borginia, the ISO 14666 is inconsistent with the goals
enunciated in the LFN Action Plan.
4. Meanwhile, Borginia passed tax legislation entitled, SOCA. The tax is based on self-
declarations by importers on the amount of carbon emissions in the production of the
product. Products marketed as cotton fabrics are exempt from this tax due to negligible
carbon emissions in the production process. Also there is a separate classification for
handloom and power loom items in the GST imposed in Borginia.
5. Concurrently, The SOCA tax collected is pooled into a TTUFS. As per the decision of The
Ministry of Textiles the funds are allocated entirely to the textile units situated in the TEPZs
for the installation of modern technology. The TEPZ regulations, requires the textile units
situated in the TEPZs to sell more than 80% of their output in export markets.
6. Additionally, Borginia is included as one of the Annex VII (b) countries under the SCM
Agreement. The per capita GNP for Borginia has been calculated by the World Bank as US
$1020 for 2012, US $1050 for 2013 and US $1080 for 2014 at constant 1990-dollar terms.
However Borginia has not submitted any request to the SCM Committee for the extension of
export subsidies under Art.27.4 SCM Agreement.
 B. Substantive 4 SYLDAVIA

Identification of WTO Measure at Issue

Measure 1: NESI’s ED, requiring 100% cotton fabric produced wholly by handloom to be
labeled as genuine cotton.
Measure 2: Enactment of SOCA Tax act, requiring all producers to pay taxes according to
carbon footprint.
Measure 3: The SOCA tax on fabric pooled into a TTTUFS.. Requirement of the TEPZ
regulations, for the textile units situated in the TEPZs have to sell more than 80% of their
output in export markets. 

LEGAL PLEADINGS

I. NESI’S 2015 DECISION IS A TR WITHIN THE MEANING OF ANNEX 1.1TO THE

TBT AGREEMENT 1994, IS INCONSISTENT WITH ARTS.2.1, 2.2 AND 2.4 OF
THE TBT AGREEMENT 1994, AND WITH ART. III: 4 GATT 1994.

A. NESI’S DECISION IS A TR IN THE LIGHT OF ANNEX 1.1 TBT AGREEMENT.

1. In order to be a TR under Annex 1.1 the measure should be a. A document which is applied
to an identifiable product or group of products b. It lays down one or more product
characteristics and c. Compliance with the product characteristics was mandatory.1

a. NESI’s decision is a document and applies to an identifiable product.

2. The measure at issue in this case, explicitly identifies the product it covers. It stipulates that
only 100% handloom cotton fabric can be marketed as cotton fabric in Borginia.2 Also, it
lays down as to what can be marketed and sold as cotton fabric in Borginia. Therefore, NESI
decision applies expressly to marketing and sale ofcotton fabric.

b. NESI’s decision lays down product characteristics.

3. The TBT Agreement itself gives certain examples of product characteristics -terminology,
symbols, packaging, marking or labelling requirements. The ordinary meaning of the term
label is name and vice versa3. The ordinary meaning of the term naming is identify by name.4
Labelling and naming requirements are essentially means of identification of a product and
as such, they come within the scope of the definition of TR 5.Since naming of the fabric as

1 ABR, EC -Asbestos, paras 66-70.

2 Problem, [2.2].
3 The Cassell Thesaurus Dictionary, (Mackays of Chatham PLC, 1998), pp. 387 and 453.
4 The New Oxford Dictionary of English, (Clarendon Press, Oxford, 1998), p. 1229.
5 ABR, EC –Sardines, para 7.40.
 B. Substantive 5 SYLDAVIA

cotton fabric constitutes labelling the decision should be said to lay down product
characteristic.

c. NESI’s decision makes compliance with product characteristics mandatory.

4. NESI’s official memorandum prohibits textile industries not implementing the LFN Action
Plan and not adhering to its 2015 executive decision from being able to market or sell their
cotton-based fabric as cotton fabric in Borginia. 6Compliance with NESI’s decision hence
becomes mandatory.

F. THE TR IS INCONSISTENT WITH ART. 2.1 OF TBT.

5. For a violation of Art. 2.1 to be established, i) The imported products must be like the
domestic product and the products of other origins, and ii) The treatment accorded to
imported products must be less favourable than that accorded to like domestic products and
like products from other origins.7

a. The products are like products.

6. The likeness analysis under Art. III: 4 GATT 1994 should be used here because there exists
a similarity in formulation and overlap in scope of application of the Art. 2.1 and Art.
III:4.8The analysis encompasses four elements, physical characteristics, end-uses9,
10
consumer’s tastes and habits and product’s tariff classification.11 The two products are
domestic 100% handloom cotton fabricandthe 100% handloom cotton fabric imported from
Syldavia. Firstly, there is no evidence that suggests any difference regarding the physical
characteristics of both products. Secondly, there is no indication that there are specific end-
uses that could only be performed by domestic or Syldavian 100 % handloom cotton fabric.
Thirdly, there is no indication that Borginian consumers would prefer one product to
perform certain end-uses over the other. Fourthly, there is both fall under the same tariff
classification (HS-code 5208.05.10)12.Consequently, domestic and imported products are in a
strong competitive relationship, and therefore are like.

d. The TR accords LFT under the national treatment obligation.

6 Supra note 2
7 US – Tuna II, para. 202.
8 ABR, US – Clove Cigarettes, [100 and 180].
9 ABR, EC – Asbestos, [117].
10Ibid at 9.
11ABR, EC – Asbestos, [102].
12Problem, [Table B].
 B. Substantive 6 SYLDAVIA

7. Two elements are needed to establish LFT.a. The measure causes a detrimental impact on
competitive opportunities for the group of products imported from the complainant vis-à-vis
the group of like imported products from any other country and domestic products.b.The
detrimental impact must not stem from a legitimate regulatory distinction13

i. Detrimental impact on competitive opportunities for like Syldavian product.

8. Detrimental impact arises where like products are accorded LFTby adversely modifying the
conditions of competition,(CC) between the like products.14Firstly, CC is the framework of
governmental measures that impact the internal sale, offering for sale, purchase,
transportation, distribution, or use of goods or services.The TR demands that 100% cotton
fabric be wholly made from handloom. While Borginia predominantly produces Khadi a
15
cotton fabric produced almost exclusively by handloom Syldavia specializes in cotton
fabrics and has a vibrant and industrialized power loom sector. It is evident that TR is harder
for Syldavian producers to comply with and thus modifies conditions of competition to their
detriment. Secondly, the cotton fabric exports from Syldavia decreased by 3,150 per million
from 2014 to 201516 while the sales of domestic market of Borginia have increased.
Therefore, detrimental impact arises from the change in the competitive relationship between
them.
ii. The detrimental impact does not stem from a legitimate regulatory distinction.
9. Where a prima facie de facto discrimination exists, a respondent must justify that the
detrimental impact stems from a legitimate regulatory objective 17.Where a regulatory
distinction is not designed and applied in an even-handed manner because, for e.g., it is
designed or applied in a manner that constitutes a means of arbitrary or unjustifiable
discrimination, that distinction is not legitimate. Therefore the detrimental impact will reflect
discrimination prohibited under Art. 2.118.

10. The relevant regulatory distinction in NESI’s executive decision is made between cotton
fabric produced exclusively by handloom and those that are not. For the CAP, NESI’s
technical staffs conducts plant visits demanding detailed reports on the nature and quantum
of carbon emissions reports which are then released in annual reports but for the years 2015,

13Supra note 2.
14EC - Seal, [7.130].
15Problem, [1.2]; Clarification, [11]
16Problem ,Table A, Annex 2
17 ABR, US—Clove Cigarettes, [173-174]; Marceau and Trachtmann (2014), 366.
18ABR, US—COOL, [271]; ABR, US—Tuna II (Mexico), [216]; ABR, US—Clove Cigarettes, [182].
 B. Substantive 7 SYLDAVIA

2016 the reports of plant visits of Borginia have not been published . 19While Borginia’s
cotton fabric sales have been in increasing. This creates an ambiguity as to conformity of the
TR by domestic producers. The CAP is applied in a less stringent manner to the domestic
producers thus the measure lacks even handedness. Therefore, the detrimental impact does
not stem from a legitimate regulatory distinction and the TR accords LFT to Syldavian
cotton fabric.

G. THE TR IS INCONSISTENT WITH ART.2.2 TBT Agreement.

11. The terms of Art. 2.2 of TBT Agreement provide that a TR must a. Pursue a legitimate
objective andb.Not be more trade restrictive than necessary to fulfil that legitimate objective
taking into account the risks non-fulfilment would create. 20

a. TR does not pursue a legitimate objective.

12. To examine the legitimacy of an objective it must be properly identified and it can be
determined by regarding the structure and operation of the measure. 21One of the goals
identified by NESI was to encourage, environment-friendly methods of production. 22But
when interpreted in consonance with the uneven application of the TR it is clear that the
primary objective of this measure was to promote domestic manufacturing. Protection of
domestic manufactures does not fall within the ambit of legitimate objective under Art. 2.2.
23
Therefore, Borginia’s trade restriction is not in compliance with legitimate objective of the
TBT Agreement and can be considered as a disguised restriction on international trade.24

e. TR is more trade restrictive than necessary.

13. Measures that impose limits on imports or discriminate against them meet the definition of a
measure that is trade-restrictive.25NESI’s executive decision and the CAP ensure that non-
compliers are prohibited from marketing and selling their product as cotton fabric in
Borginia. This essentially acts a ban on 100% cotton fabric not produced wholly by
handloom as one cannot market their cotton fabric by any other name.

14. A regulation is more restrictive than necessary when the objective pursued can be achieved
with alternative measures which have less trade-restricting effects, taking account of the

19Problem, [2.3]
20TBT Agreement 2.2
21US-Tuna II.
22 Problem, [2.]
23Supra note 20
24GATT, 1994.
25PR, US — Tuna II (Mexico), [7.455]
 B. Substantive 8 SYLDAVIA

risks non-fulfilment of the objective would create. 26LFN plan aims to promote environment
friendly and sustainable production processes and TR stipulates that 100% cotton fabric
should be produced without electricity or machines, or any form of conventional energy. The
objectives can be achieved with lesser trade-restricting alternatives like, allowing for
production by machines that run on renewable energy and setting limits on carbon emission.
Therefore TR is more trade restrictive than necessary.

H. THE TR IS INCONSISTENT WITH ART.2.4 TBT.

15. For a measure to violate Art. 2.4, the international standard at issue must a. Is a relevant
international standard and b. Have not been used as a basis for the measure in question and
c. Is not ineffective or inappropriate to the measure’s purpose.27

a. ISO-14666 is a relevant international standard.

16. The ISO/IEC Guide 2 defines the term as a standard that is adopted by an international
standardization organization and made available to the public. 28Since the term standard is
derived from the definition of an international standard in the guide, it must be read in that
context.29 This guide defines a standard as a document, established by consensus and
approved by a recognized body that provides, for common and repeated use, rules or
characteristics for activities or their results30.However, the AB does not require a consensus
for a standard in the context of TBT Agreement. 31.ISO – 14666 constitute a document
providing various rules regarding tariff classification, cotton content and method of
production for any fabric to qualify as 100% cotton fabric.32Hence, these rules are created
for common and repeated use. ISO-14666 was adopted by the ISO, which qualifies as an
international standardizing body for the purposes of the Art.

17. The ordinary meaning of the term relevant is bearing upon or relating to the matter in hand;
pertinent. 33ISO-14666 is relevant to the TR, because they cover the same subject matter
namely, 100%cotton fabric. Hence the relating matter in hand is relevant, here sale and
marketing of cotton fabric. An international standard is used as a basis for a TR when it is

26Technical Barriers To Trade: Technical Explanation

27PR, US—Tuna II, [7.627]; PR, EC—Sardines, [7.74]; ABR, EC—Sardines, [204].
28ISO/IEC Guide 2:2004, 3.2.1.1; ABR, US – Tuna II (Mexico), [344]; PR, US – Tuna II (Mexico), [72].
29PR, US – Tuna II (Mexico), [7.671].
30ISO/IEC Guide 2:2004, 3.2.
31TBT Agreement, Explanatory Note to Annex 1.2; ABR, EC – Sardines, [227].
32Clarification, [19]
33Panel Report, EC - Sardines, Para. 7.68, quoting Webster’s New World Dictionary (William Collins & World
Publishing Co., Inc. 1976), p. 1199
 B. Substantive 9 SYLDAVIA

used as the principal constituent or fundamental principle for the purpose of enacting the
TR.34

f. ISO-14666 is not used as a basis for the TR.

18. A regulating member is not permitted to select only some of the relevant parts of an
international standard to base their regulation upon.35While ISO-140666 allows for
production of 100% cotton fabric by hand or machine, NESI’s decision restricts them to by
hand only. NESI thus selects the relevant part of the standard as basis for the TR which is
not permitted. Therefore ISO-14666 is not used as a basis for the TR.

g. ISO-14666 is an Effective and Appropriate standard.

19. A standard is effective if it has the capacity to accomplish the legitimate objectives pursued
and it is appropriate if it is suitable for the fulfilment of these objectives. 36NESI’s 2015
decision was to ensure that throughout the entire production chain, carbon-neutral production
practices are used.ISO-14666 is effective because power looms can also run on renewable
energy and achieve carbon neutrality. Therefore this standard is effective or appropriate
means of fulfilling the legitimate objective.

I. THE TR IS INCONSISTENT WITH ART. III: 4 GATT.

20. Elements necessary to prove a violation of Art. III:4.Firstly, the imported and domestic
products at issue are like products. Secondly, the measure at issue is a law, regulation, or
requirement affecting their internal sale, offering for sale, purchase, transportation,
distribution, or use. Thirdly, the imported products are accorded LFT than that accorded to
like domestic products.37 The first and third elements have been discussed under Art. 2.1. In
regards to the second element, NESI’s executive decision is a regulation. It is a document
providing binding legislative rules that38and was adopted by an authority39was adopted by an
official memorandum by central government to the Ministry of Consumer Affairs and other
municipal authorities of Borginia. The TR therefore violates the national treatment
obligations under Art. III: 4.

II. THE TAX LEVIED ON THE IMPORTED COTTON FABRIC IS INCONSISTENT

WITH ARTS. II: 1 (A) AND (B), II: 2(A) AND III: 2 GATT 1994.

34ABR, EC-Sardines, [ 240-245].

35Ibid [245]; WTO-AB Repertory of Reports and Awards 1995-2010 (2011), pg. 999.
36 ABR, EC – Sardines, [288].
37ABR, Korea – Beef; ABR, EC—Seals, [5.99]; ABR, EC—Asbestos, [87-101].
38 ISO/IEC Guide 2:2004, 3.6
39
 B. Substantive 10 SYLDAVIA

21. Borginia passed tax legislation entitled SOCA. The tax seeks to encourage carbon mitigation
steps initiated by various industries. Specifically, in the case of fabrics, the tax was
determined by the carbon emission per square meter in the production process.
22. It is based on self-declarations by importers on the amount of carbon emissions in the
production of the product concerned. In the case of imports, the tax is collected at the point
of customs clearance and alongside other applicable customs duties. Specifically, in the case
of cotton fabrics, SOCA is applicable to both domestic and imported products. In the case of
domestic fabrics, it is collected at the time of domestic sale. Products marketed, as cotton
fabrics were exempt from the tax. Therefore, the above-mentioned conduct of the state of
Borginia was inconsistent with the Arts. II: 1(A) and (B), II: 2(A) and III: 2 of the general
agreement.
A. The tax levied is inconsistent with Arts. II: 1 (A) and (B).
23. Art. II: 1(a) GATT 1994 provides that Members shall accord to products imported from
other Members treatment no less favourable than that provided for in their Schedule. Art. II:
1(b), first sentence, of the GATT 1994 provides that products described in Part I of the
Schedule of any Member shall, on importation, be exempt from ordinary customs duties in
excess of those set out in the Schedule.
24. Art. II generally prohibits countries from imposing any customs duties that exceed the
amounts they agreed to charge in their tariff schedule, but would allow an import duty such
as a carbon tax that exceeds these limits if it were considered to be a charge equivalent to an
internal tax40.
25. The criteria for distinguishing between an import tax or ordinary customs duty subject to
Art. II versus an internal tax subject to Art. III was recently spelled out by the WTO’s AB
report41. The AB found that the Distinction turns on what triggers the obligation to pay the
charge: if the obligation to pay accrues because of an internal factor (e.g., because the
product was re-sold internally or because the product was used internally), then it falls under
Art. III, whereas if the obligation to pay the charge accrues at the moment of and by virtue of
importation, then the charge would fall under Art. II as an import duty.
26. In the 1970 BTA Working Party Report, the Working Party concluded that there was
convergence of views to the effect that taxes directly levied on products were eligible for tax
adjustment. Examples of such taxes comprised specific excise duties, sales taxes and cascade

40Art. II:2
41ABR, China – Automobile.
 B. Substantive 11 SYLDAVIA

taxes and the tax on value added. Furthermore, the Working Party concluded that there was
convergence of views to the effect that certain taxes that were not directly levied on products
were not eligible for tax adjustment42.
27. The SOCA mandated carbon tax was levied not on the product, i.e. cotton fabric but on the
product production method used by the manufacturer of the said product. For carbon tax to
be an internal charge there has to be an equal domestic tax levied on the domestic product 43.
In this case fabric marketed as cotton fabric were exempted from paying carbon taxes, hence
an equal and proportionate charge wasn’t levied to a like domestic product. The SOCA
mandated carbon tax was hence a custom duty and not an internal tax.
28. The schedule of concession for the state of Borginia 44 provides for bound rate of 10% and
applied rate (MFN) was already at 10%, therefore any application of carbon taxes are in the
excess of the custom duties provided in the schedule and hence a violation of Art. II: 1(a).
Therefore Borginia by imposing SOCA mandated Carbon tax has violated the Art. II: 1 (a)
and (b) as LFT was accorded to import cotton fabrics, Tax levied on the imported cotton was
not an internal tax and hence is in violation of the Art II: 1(b).
J. The Tax Levied Is Inconsistent With Arts. II: 2 (A) and III: 2.
29. Art. II: 2(a) allows for imposing at any time on the importation of any product a charge
equivalent to an internal tax in respect of the like domestic product or in respect of an
Art.from which the imported product has been manufactured or produced in whole or in part.
This exception is based on the destination principle, which states that products should only
be taxes in the country of consumption.45
30. Art. III: 2 of GATT requires national treatment in connection with internal taxes: The
products of the territory of any contracting party imported into the territory of any other
contracting party shall not be subject, directly or indirectly, to internal taxes or other internal
charges of any kind in excess of those applied, directly or indirectly, to like domestic
products.
31. GATT governing import charges and internal taxes46, the Members of the WTO may levy
internal taxes on imported products through their customs services. 47 Working Party used the

42Working Party Report, Border Tax Adjustments, adopted 2 December 1970, BISD 18S/97, 100–101, para. 14
43OECD (1997a), Data for the publication of the database on the activity of foreign affiliates in OECD countries
(inward investment), OECD, Paris, 1996, Para. 24.
44Moot proposition, Table C (pg. 6)
45Report By The Working Party On Border Tax Adjustments Gatt (1970), Para. 14.
46Kaufmann, Christine, and Weber Rolf H., "Carbon-related border tax adjustment: mitigating climate change
or restricting international trade?” World Trade Review10, no. 4 (2011): 497.
47ABR, India –Additional Duties.
 B. Substantive 12 SYLDAVIA

definition of BTA. Thus, border tax adjustments were regarded as any fiscal measures which
put into effect, in whole or in part, the destination principle (i.e. which enable exported
products to be relieved of some or all of the tax charged in the exporting country in respect
of similar domestic products sold to consumers on the home market and which enable
imported products sold to consumers to be charged with some or all of the tax charged in
the importing country in respect of similar domestic products).
32. Both Arts. II.2 and III.2 permits countries to impose taxes or charges on imports, on basis of
certain conditions. Firstly, that the tax that are imposed on products which are like the
domestic products that are subject to the tax in the first place. Secondly, that the amount of
the taxes imposed on the imported goods does not exceed the amount of the tax on the
domestically-produced like products48.In order to pass the first test under Art. II.2 or III.2,
requiring the tax be applied only to like products, the country must show that, first, the tax is
imposed on a product (a so-called indirect tax) and not on a producer or manufacturer or
their income (a direct tax). Second, the imported products that are subject to the tax are like
the domestically produced products subject to the domestic tax.
33. The general notion is the countries can offset (i.e., adjust at the border) taxes they charge on
products - such as sales taxes, VAT taxes, and excise duties - if they are assessing similar
taxes on domestically produced goods. Such taxes applied to both imports and domestic
goods would simply level the competitive playing field between the imported and domestic
product49.
34. In Philippines - Distilled Spirits50, the main issue was whether the Philippines could tax
sugarcane–based alcoholic beverages at lower rates than similar-tasting alcoholic beverages
using other raw materials. The panel and AB found that the differences in raw materials were
insufficient to make these products not like for the purposes of Art. III: 2.This holding
suggests that differences in carbon usage may not be sufficient to make products not like.
35. The implication of the competition-based approach to likeness is that unless consumers
distinguish among products on the basis of the amount of carbon used in producing the
products, varying carbon intensity is unlikely to render products unlike.51The likeness criteria
under Art. III: 4 GATT 1994 can be used here because there exists a similarity in

48Trachtman, Joel P, "WTO Law Constraints on Border Tax Adjustment and TaxCreditMechanisms to Reduce
the Competitive Effects of Carbon Taxes", Resources for the Future Discussion Paper 16-03 (2016).
49Hillman, Jennifer, "Changing Climate for Carbon taxes: Who’s afraid of the WTO", German Marshall Fund
of the United States Climate and Energy Paper Series (2013).

50ABR, Phillipines – Spirits.

51ABR, US – Tuna II.
 B. Substantive 13 SYLDAVIA

formulation and overlap in scope of application of the two. The products are, on the one
hand, domestic 100% handloom cotton fabric, and, on the other hand, the 100% handloom
cotton fabricimported from Syldavia. Firstly, there is no evidence that suggests any
difference regarding the physical characteristics of both products. Secondly, there is no
indication that there are specific end-uses that could only be performed by domestic or
Syldavian 100 % handloom cotton fabric. Thirdly, there is no indication that Borginian
consumers would prefer one product to perform certain end-uses over the other .Fourthly,
both products fall under the same tariff classification (HS-code 5208.05.10) 52. Consequently,
domestic and imported products from all WTO Members, including that from Syldavia are in
a strong competitive relationship.
36. Therefore as products marketed as cotton fabric and other cotton products are for all intent
and purposes under Art. III: 4 like. Hence the exemption of products marketed ascotton
fabricfrom paying carbon tax is a violation of both Arts.II:2(a) and III:2.

III. THE ALLOCATION OF FUNDS IS INCONSISTENT UNDER ARTs.3.1(A), 27.4

AND 27.5 SCM AGREEMENT.
A. THE ALLOCATION OF FUND IS A PROHIBITED SUBSIDY UNDER ART.3.1
SCM AGREEMENT.
37. In the last two decades, several textile units have sprung up in the TEPZs of Borginia. The
TEPZs textile units are one of the major recipients of export earnings for Borginia. 53 The
TTUFS has been created by The Ministry of Textiles in Borginia for the purpose of
allocating the funds entirely to the textile units situated in the TEPZs for the installation of
modern technology.54 Under the TEPZ regulations, the textile units situated in the TEPZs
have to sell more than 80% of their output in export markets. The remaining 20% can be sold
within the DTA after payment of the basic customs duty and any other applicable duties. 55
This allocation of fund is a per se prohibited subsidy under the SCM Agreement. Thus
Borginia must cease to grant or maintain such a subsidy.
a. The allocation of funds constitutes a subsidy under Art. 1.1 SCM Agreement.

52Fabrics woven with the use of Handloom, Table B: - Classification under Goods and Services Tax and the Tax
Rates
53Problem, [1.3].
54Problem, [3.2].
55Problem, [3.2].
 B. Substantive 14 SYLDAVIA

38. The SCM Agreement states that a subsidy exists where there is i) A financial contribution by
a government body or any form of income or price support according to GATT Art. XVI that
b. Confers a benefit on a specific recipient.56The allocations of fund meet all three criteria.
i. The allocation of funds constitutes financial contribution by a government or public body.
39. Art.1.1 SCM Agreement states that a government can contribute financially to a business in
four different ways, including, a direct transfer of funds and government revenue foregone or
not collected.57 The allocation of funds from the TTUFS to the textile units in the TEPZS in
Borginia amount to a financial contribution since it both involves a direct transfer of funds
and is government revenue foregone or not collected.
a. The allocation of funds involves a direct transfer of funds.
40. The definition of transfer is a conveyance from one person to another, and the definition of
funds is a stock or sum of money, especially one set apart for a particular purpose or
financial resources58. The Ministry of Textiles in Borginia created the TTUFS for the
purpose of transfer of funds entirely to the textile units situated in the TEPZS for installation
of modern technology.59 Therefore the Ministry of Textiles in Borginia has set apart a sum of
money for the particular purpose of transfer from the Borginian Ministry of textile to textile
units situated in the TEPZS.
h. The allocation of funds is a financial contribution since government revenue has been
forgone.
41. In US — FSC, the AB held that in determining if revenue otherwise due has been foregone;
a comparison must be made between the revenue actually raised and the revenue that would
have been raised otherwise. It was agreed that the basis of comparison in determining what
would otherwise have been due must be the tax rules applied by the Member in question. 60
Under the Borginian TEPZ regulations, the textile units situated in the TEPZs have to pay
basic customs duty and other applicable duties on the 20% outputs sold within the DTA and
sell more than 80% of their output in export markets. 61Thus the revenue that would have

56SCM, art 1.1.

57,Benjamin Blase Caryl,, "Is China Currency Regime a Countervailable Subsidy? A Legal Analysis Under the
World Trade Organization's SCM Agreement", 45(1) J. World Trade 187, 203–04 (2011), p. 194.
58Oxford English Dictionary, L. Brown (ed.) (Clarendon Press, 2002), Vol. I, p. 1042.
59Problem, [3.2].
60ABR,  US — FSC, para. 90.
61Problem, [3.2].
 B. Substantive 15 SYLDAVIA

been raised otherwise is forgone for the 80% output required to be exported by textile units
situated in the TEPZS.
i. Borginia's allocation of funds confers a benefit to the textile units situated in the
TEPZS.
42. In order for a subsidy to exist, Art. 1.1(b) SCM Agreement requires that a benefit be
conferred as a result of the financial contribution by the government or the income or price
support.62In Canada—Aircraft, the AB explained that the ordinary meaning of benefit clearly
encompasses some form of advantage and that one needs to determine whether the recipient
is better off than it would have been absent the contribution. 63In addition, the AB adopted a
marketplace test, noting that the only logical basis for determining the position of the
recipient .absent the financial contribution is by looking at the market.64Art. 14 SCM
Agreement, relevant in interpreting Art. 1.1(b) supports view that the marketplace is an
appropriate basis for comparison.65
43. The Panel in Japan — DRAMs (Korea) acknowledged the evidentiary problems that may
arise in seeking to establish benefit by reference to the market, particularly where no market
benchmark exists. In certain circumstances, an investigating authority might rely on
evidence of whether or not the financial contribution was provided on the basis of
commercial considerations. Commercial consideration should mean charging by state
enterprise of different prices for its sale of product in different markets for commercial
reasons.66 The evidence of reliance on non-commercial considerations indicates terms more
favorable than those available from the market (market is presumed to operate on basis of
commercial considerations).67
44. As a usual matter, of course, a non-refundable payment will confer a benefit.68
45. Borginia's allocation of funds from the TTUFS is a non-refundable fund transferred to the
textile units situated in the TEPZS .Under the TEPZ regulations, the textile units situated in
the TEPZS have to sell more than 80% of their output in export markets. 69 This restriction

62.Art.1.1 (b) SCM.

63ABR, Canada – Aircraft; ABR, EC – Aircraft.
64ibid [157].
65  ibid at, paras. 157 and 158.
66Sue Arrowsmith, Robert D. Anderson, The WTO Regime on Government Procurement: Challenge and Reform
(First published 2011, Cambridge University Press)
67(EC — DRAM Chips, para. 7.209).
68PR, Brazil – Aircraftat paras. 5.27–5.28.
69Problem, [3.2].
 B. Substantive 16 SYLDAVIA

gives clear incentive for producers established in a free zone to engage in exports. 70Therefore
there is evidence of reliance on non-commercial consideration i.e. requirement to export
more than 80% of the output on the basis of which fund is allocated to the textile units
situated in the TEPZS.
j. The allocation of funds is a per se prohibited under Art.3 (1)(a) SCM Agreement.
46. In accordance with Art. 3 SCM Agreement, a subsidy is per se prohibited if the subsidy is
contingent, in law or in fact, whether solely or as one of several other conditions, upon
export performance. 71In Canada-Autos, the panel stated that a subsidy is contingent in law
upon export performance when the existence of that condition can be demonstrated on the
basis of the very words of the relevant legislation, regulation or other legal instrument
72
constituting the measure. In US—FSC, the AB upheld the panel’s findings. In order to
determine an export subsidy under Art. 3, the panel must determine whether export is a
necessary precondition to be eligible for the favorable allocation of funds from the TTUFS to
the textile units situated in the TEPZS in Borginia.73
47. The imposition of an explicit requirement for free zone enterprises to export  part of their
production or use a certain level of domestically produced inputs ,turns benefits provided in
a free zone into either export or import substitution subsidies.
48. The SOCA tax collected by Borginia on fabric and other textile-related products is pooled
into a TTUFS. Funds from the same are decided to be allocated to the textile units in the
TEPZs for the installation of modern technology. 74Regulation requires these, textileunits to
sell more than 80% of their output in export markets. 75 The very words of the relevant
TEPZS regulation demonstrate the existence of the condition of contingency upon export
performance. Thus the allocation of funds is a per se prohibited export subsidy under Art.
3(1)(a) SCM Agreement.
i. The allocation of funds meets the specificity requirement under the Arts. 3(1)(a) and 2.2
SCM Agreement.

70“Free Zones and the WTO Agreement on Subsidies and Countervailing Measures” ,Global Trade and Customs
Journal, Vol. 2, No. 5, 2007.
71Arts3.1(a) SCM.
72ABR,US—FSC [100].
73Benjamin Blase Caryl, Is China Currency Regime a Countervailable Subsidy? A Legal Analysis Under the
World Trade Organization's SCM Agreement 45(1) J. World Trade 187, 203–04 (2011),209.
74Problem, [3.2].
75Problem, [3.2].
 B. Substantive 17 SYLDAVIA

49. Only specific subsidies are subject to the SCM Agreement disciplines. 76.The fund allocation
from the TTUFS to the textile units situated in the TEPZS in Borginia meets the specificity
requirement as it amounts to an export subsidy both under the Art. 3(1)(a) SCM Agreement.
50. In accordance with Art. 3 SCM Agreement, a subsidy is automatically deemed specific
under Art. 2.3 If it is per se prohibited under Art. 3 SCM Agreement. The fund allocation is
per se prohibited under SCM Art.3 and is thus automatically deemed specific under Art. 2.3.
K. THE ALLOCATION OF FUNDS IS INCONSISTENT UNDER ART. 27.4 SCM
AGREEMENT.
51. Provisions of Art.27.4 SCM Agreement which although as per the SCM Agreement apply to
countries mentioned under the ambit of Art.27.2(b), also apply to Borginia, the country
falling under the ambit of Art. 27.2(a) as per provisions of the SCM Agreement77.
52. The per capita GNP for Borginia has been calculated by the World Bank as US$1020 for
2012, US $1050 for 2013 and US $1080 for 2014 at constant 1990 dollar terms. 78 Thus
Borginia in 2014 has become subject to provisions applicable to other developing country
members according to paragraph 2(b) of Art. 27.
53. Therefore due to failure to a. Phase out export subsidy within stipulated 8 year period. b. To
not increase the level of its export subsidies and c. Non fulfilment of entering into
consultation with the Committee, to seek extension of subsidies beyond the 8-year period.
The allocation of funds from the TTUFS to the textile units situated in the TEPZs in
Borginia is inconsistent with Borginia’s obligations under Art. 27.4 SCM Agreement 1994.
a. Phasing out subsidy under Art. 27.4 SCM Agreement.
54. Art. 27.2(b) SCM Agreement lacks clarity as regards its application to Annex VII
countries .It refers to the entry into force of the WTO Agreement as kick off point for the
eight-year phase-out period. This cannot be applied to graduated Annex VII countries as they
only join this paragraph (b) at a later moment of time. 79But there is no textual basis
whatsoever to start the eight-year phase-out period only at the moment of graduation.80

76SCM Agreement.
77Art. 3(1)(a) of the SCM Agreement.
78Problem,[3.3].
79Art. 27.2 of the SCM Agreement.
80“How special is the Special and Differential Treatment under the SCM Agreement? A legal and normative
analysis of WTO subsidy disciplines on developing countries”, World Trade Review (2013), 12: 1, 79–109.
 B. Substantive 18 SYLDAVIA

55. The case of Sri Lanka can be taken to understand how the extension provision is invoked or
utilized under Art. 27 SCM Agreement, once a country graduates out of Annex VII.81Sri
Lanka notified its export subsidies in the year 2002.Therefore having reserved its rights
under the 2001 Committee Decision. As per the GNP per capita calculations, by the WTO
Secretariat dated 11 July 2013,Sri Lanka's GNP per capita at constant 1990 dollars were
$989(229), $1039(2010) and $1153(2011).82 Thus it can be inferred that the Special and
Differential treatment under Art. 27.4 is only applicable to those Annex VII countries that
have explicitly preserved their right to benefit .from the extension offered at Doha.83
56. Therefore since Borginia began with fund allocation from the TTUFS to the textile units
situated in the TEPZS in 2015.84 It amounts to failure to phase out subsidy within the
stipulated period of 8 years provided in Art. 27.4 of the SCM Agreement
k. Increase in level of export subsidy.
57. The text of Art. 27.2(b) lacks clarity as regards its application to those developing countries
who graduate out of Annex VII when their GNP per capita has reached US$1,000 per
annum. The language and conditions prescribed under paragraph 2(b) is in the context of a
particular point of time i.e., the entry into force of the WTO Agreement 85. If however the
provisions of Arts. 27.2 and 27.4 are read harmoniously in respect of developing countries
graduating out of Annex VII and the developing countries graduating out of Annex VII,
when their GNP per capita has reached US$1,000 per annum, shall have a period of 8 years
from the year of graduating out of Annex VII to phase out their export subsidies covered
under Art. 3.1(a).Then such developing country Member will also be subject to similar
conditions as in Art. 27.86
58. Therefore Borginia having graduated in 2014 is obligated to comply with provisions of Art.
27 SCM Agreement in entirety from 2014 onwards and fund allocation from 2015 amounts
to increase in level of export subsidy and failure to fulfil obligation under Art. 27.4 SCM
Agreement.
l. Entering into consultation with the Committee.

81Prof. Mukesh Bhatnagar & Jayant Raghu Ram, Elimination Of Export Subsidies: Concerns for India
,Quarterly Newsletter of Centre for WTO Studies, IIFT ,Vol. 1 2014 ,January-March.
82Note G/SCM/110/Add.10
83Ibid at 67.
84Problem, [3.2].
85Negotiating Group on Rules: amendment to arts, 27.2 and 27.4 of ASCM in relation to developing countries
covered under annex vii, WTO, TN/RL/GEN/177/Rev.1, (9 March 2011).
86ibid at 72.
 B. Substantive 19 SYLDAVIA

59. The phase-out period under Art. 27.4 SCM Agreement was only extended for some limited
programs of small-trading countries that requested such an extension in 2001. Four countries
listed under Annex VII(b) (i.e., Bolivia, Honduras, Kenya, and Sri Lanka) 87explicitly
preserved their right to similarly benefit from this transitional S&D treatment in case they
would graduate, illustrating that they understood that such a request was needed. 88 29.
89
Borginia is one of the most populous countries in the world. It also has a large
economy.90However Borginia has not submitted any request to the SCM Committee for the
extension of export subsidies under Art. 27.4 SCM Agreement.91 Therefore Borginia has
failed to enter into consultation with the Committee not later than one year before the expiry
of the 8-year period to phase out its export subsidies provided in Art. 27.4 SCM Agreement.
L. THE ALLOCATION OF FUNDS IS INCONSISTENT UNDER ART. 27.5 SCM
AGREEMENT 1994.
60. Export subsidies offered by Annex VII developing countries have to be phased out within
eight years and with regard to small trading developing countries, they have to be phased
within two years.92 Export competitiveness in a product exists if developing country
Member’s exports of that product have reached a share of at least 3.25% in world trade of
that product for two consecutive calendar years.93Also the text of Art. 27.6 is also
ambiguous on whether products should be defined at either the section or heading level of
the Harmonized System(HS) Nomenclature.94Borginia's violation of Art. 27.5 and meaning
of products under Art. 27.6 have been discussed below.
a. Failed to phase out export subsidy.
61. Member must phase out its export subsidies in respect of a product in which it is export-
competitive begins from the date export competitiveness exists within the meaning of Art.
27.6SCM Agreement.95 .As per the calculations by the WTO Secretariat, Borginia's share in

87 Requests Pursuant to Article 27.4 of the Agreement on Subsidies and Countervailing

MeasuresG/SCM/N/74/BOL (Bolivia) & Suppl.1, G/SCM/N/74/HND (Honduras), G/SCM/N/74/KEN(Kenya),
and G/SCM/N/74/LKA (Sri Lanka).
88 Article 27.6 of the SCM, WT/L/691, 31 July 2007, para. 4.
89Problem, [1.1].
90Problem, [1.5].
91Problem, [3.5].
92.Art.27.5 of the SCM Agreement.
93Art.27.6 of the SCM Agreement.
94“How special is the Special and Differential Treatment under the SCM Agreement? A legal and normative
analysis of WTO subsidy disciplines on developing countries”, World Trade Review (2013), 12: 1, 79–109.
95WTO Analytical Index .
 B. Substantive 20 SYLDAVIA

woven fabrics of cotton, containing 100% by weight of cotton, weighing not more than 200
gm was 4% in 2014 and 4.90% in 2015.96 Thus Borginia has achieved export
competitiveness in the product in 2015 according to the provisions of Art. 27.6. It has been
shown that the fund allocation by Borginia since 2015 amounts to a prohibited export
subsidy .Therefore Borginia had an obligation to phase out the export subsidy within 2 years,
and has failed to comply with the same.
m. Definition of a product under Art.27.6 SCM Agreement.
62. There is uncertainty flowing from the definition of a product in Art. 27.6 as this refers to a
section heading of the HS Nomenclature, though the HS itself only contains sections (group
of chapters) or headings (four-digit tariff level).97 The authentic French and Spanish texts of
the SCM Agreement refer to positions and partidas respectively, which correspond to four-
digit headings instead of sections. In accordance with the rules of treaty interpretation (Art.
33(3) of the Vienna Convention) , products seem to be defined at the four-digit heading level
because this appears the only simultaneous ordinary meaning as used in each authentic
language.98Thus, woven fabrics of cotton, containing 100% by weight of cotton, weighing
not more than 200 gm is clearly a product under Art. 27.6 SCM Agreement.

96Problem, [Table D].

97The HS classification Handbook, World Customs Organization.
98ABR, US–Softwood Lumber, para. 59.
 B. Substantive 21 SYLDAVIA

Request for Findings

For the above stated reasons, Syldavia requests the panel to:

i) NESI’s 2015 decision that only 100% handloom cotton fabric can be marketed as cotton
fabric in Borginia is a TR within the meaning of Annex 1.1 TBT Agreement 1994 and is
inconsistent with Arts. 2.1, 2.2 and 2.4 of the TBT agreement 1994, as well as with Art. III:
4 GATT 1994.

ii) The tax levied on the imported cotton fabric in excess of other applicable custom duties is
inconsistent with arts. II:1 (a) and (b), II: 2(a) and III:2 GATT 1994.

iii) The allocation of funds from the TTUFS to the textile units situated in the TEPZs in
Borginia is inconsistent with Borginia’s obligations under Arts. 3.1(a), 27.4 and 27.5 SCM
Agreement 1994.