L EGAL T EST UNDER A RTICLE I A violation of Article I:1 exists if - - PowerPoint PPT Presentation

TRAINING PROGRAMME FOR THE GOVERNMENT OF INDONESIA

SESSION 3: The GATT 1994: Basic Principles

Jogjakarta, Indonesia 26-29 March 2019

AGENDA

I.

General overview of WTO Obligations and Exceptions

II.

Article I of the GATT 1994 (Most-Favoured-Nation treatment)

III.

Article II of the GATT 1994 (Tariffs)

IV.

Article III of the GATT 1994 (National treatment)

V.

Article XI of the GATT 1994 (Quantitative Restrictions) and Article 4.2 of the Agreement on Agriculture (Market Access)

GENERAL OVERVIEW OF WTO OBLIGATIONS AND EXCEPTIONS

Category Type of obligation in the GATT 1994 and specific agreements Non-discrimination Most-favoured-nation: Article I:1 and Article XIII National treatment: Article III:2 and Article III:4 Border measures Tariffs: Article II and the Understanding Customs valuation, fees and formalities: Article II:2(c) and Article VIII; Customs Valuation Agreement Internal measures Technical regulations, standards, sanitary and phytosanitary measures Restrictions Quantitative restrictions: Article XI:1 and Article 4.2 of Agriculture Agreement Subsidies General obligations: Article 1- 7 Subsidies Agreement Agricultural subsidies: Article 2-11, Agriculture Agreement Exceptions Public policy exceptions: Article XX Foreign policy exceptions: Article XXI

ARTICLE I: MFN TREATMENT

Import duties State trading Quotas and TRQs Article I:1 Benefits of duty reductions and other measures must be extended to all Members immediately and unconditionally. Article XVII:1 STEs shall make purchases involving imports solely in accordance with commercial considerations. Article XIII:2 Distribution of trade approaching shares that Members could have

• btained in the absence of

the restrictions.

ARTICLE I: MFN TREATMENT

With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.

Measures covered Advantage, favour, etc. Accorded immediately /unconditionally To like products of

• ther origins

LEGAL TEST UNDER ARTICLE I

A violation of Article I:1 exists if the following elements are present: (1) The measure at issue must fall within the scope of application of Article I:1 (broad scope of measures). (2) The measure confers an "advantage, favour, privilege, or immunity"

• n a product originating in the territory of any country;

(3) Imported products from different origins must be "like" products within the meaning of Article I:1. (4) That advantage is not extended "immediately" and "unconditionally" to "like" products originating in the territory of all Members

WHAT IS "UNCONDITIONALLY"?

• Does the obligation to extend advantages “unconditionally” mean

countries cannot impose any conditions? No Canada – Autos (Panel report, para. 10.23): “[W]e consider that the obligation to accord ‘unconditionally’ to third countries which are WTO Members an advantage which has been granted to any other country means that the extension of that advantage may not be made subject to conditions with respect to the situation or conduct of those countries” “This means that an advantage granted to the product of any country must be accorded to the like product of all WTO Members without discrimination as to origin”.

NO TRADE EFFECTS ARE REQUIRED

• Under Article I, just like under Articles III and XI, no

evidence of an actual trade impact is required (also known as “trade effects”).

• For example, no need to show that imports have

declined as a result of the measure.

• Emphasis
• n

"design, structure, and expected

• peration" of the measure.

DE JURE AND DE FACTO

DISCRIMINATION

• The MFN obligation of Article I of the GATT covers "de

jure and de facto" discrimination.

• De

jure: the measure provides discriminatory treatment in the text of the law itself.

• De facto: although the measure is phrased in originl-

neutral terms, in practice certain countries benefit while others do not.

SPAIN – UNROASTED COFFEE (GATT)

• Spain introduced a new tariff heading to separate different types of

unroasted coffee:

• Coffee from "mild" beans (Colombia): duty free
• Coffee from "unwashed arabica" / robusta beans (Brazil): 7%
• Spain argued that these were different products and, thus, no

discrimination existed.

• Panel found:
• Both types of coffee are "like" products.
• The measure violates Article I:1 because the disadvantaged

producto is exported mainly by Brazil. Therefore, Spain’s tariff regime was discriminatory vis-a-vis unroasted coffee originating in Brazil.

ARTICLE II: TARIFFS

Article II:1(a) of the GATT 1994 provides: Each [Member]shall accord to the commerce of the other [Members] treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement. Article II:1(b) of the GATT 1994 provides: The products described in Part I of the Schedule relating to any [Member], which are the products of territories of other [Members], shall, on their importation into the territory to which the Schedule relates, and subject to the terms, condition or qualifications set forth in that Schedule be exempt from

• rdinary customs duties in excess of those set forth and provided herein. Such

products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed

• n the date of this Agreement or those directly and mandatorily required to be

imposed thereafter by legislation in force in the importing territory on that date.

ARTICLE II: TARIFFS

The provisions of Article II are important because they preserve the balance of tariff concessions. The Appellate Body has stated: A basic object and purpose of the GATT 1994, as reflected in Article II, is to preserve the value of tariff concessions negotiated by a Member with its trading partners, and bound in that Member's Schedule. Once a tariff concession is agreed and bound in a Member's Schedule, a reduction in its value by the imposition

• f duties in excess of the bound tariff rate would upset the balance
• f concessions among Members.

Appellate Body Report, Argentina – Textiles, para. 47.

Tari ariff/Duty Type Description Example(s) Specific Based on a unit of measure such as the weight, volume,

• etc. of the goods.

5 dollars per kilogram. Ad valorem Percentage of the value of the goods. 7% (so the duty on a car worth US$7,000 would be US$490). Mixed Alternative between an ad valorem duty and a specific duty. 7% or 5 dollars per kilogram whichever is less; 7%, but not more than 5 dollars per kilogram. Compound An ad valorem duty to which a specific duty is added. 7% + 5 dollars per kilogram. "Technical" / other Based on specific contents,

• r on duties that

apply to related products or components. For batteries: 0.55¢/kg on the manganese content; 48¢ each + 4.6 % on the case + 3.5 % on the battery.

Based on chart produced by WTO Market Access Division

Tariff/Duty Type Description Example(s) Specific Based on a unit of measure such as the weight, volume,

• etc. of the goods.

5 dollars per kilogram. Ad valorem Percentage of the value of the goods. 7% (so the duty on a car worth US$7,000 would be US$490). Mixed Alternative between an ad valorem duty and a specific duty. 7% or 5 dollars per kilogram whichever is less; 7%, but not more than 5 dollars per kilogram. Compound An ad valorem duty to which a specific duty is added. 7% + 5 dollars per kilogram. "Technical" / other Based on specific contents,

• r on duties that

apply to related products or components. For batteries: 0.55¢/kg on the manganese content; 48¢ each + 4.6 % on the case + 3.5 % on the battery.

Based on chart produced by WTO Market Access Division

WHAT IS A TARIFF-RATE QUOTA OR TRQ?

There are at least two levels of tariffs Tariff differentiation is based on volumes imported

100$ 5 $ 10000 t

Tariff rate quotas:

SCHEDULES OF CONCESSIONS

• Not all products are subject to tariff concessions.
• Tariff concessions are set out in a Member's Schedule of

Concessions.

• Each WTO Member has a separate Schedule of Concessions

(special case: the EU).

• Pursuant to Article II:7 of GATT, a Member’s Schedule of

Concessions is an integral part of this agreement.

• Note that Article XII Member’s Schedules of Concessions in

goods and services become Schedules of the GATT/GATS, respectively, according to Section II of each WTO Accession Protocol.

OTHER DUTIES AND CHARGES

What are "other duties and charges" ("ODCs")?

• No definition. In practice, any duty or charge "in addition" to an ordinary

customs duty. Wide variety of charges, such as development taxes, foreign exchange fees, revenue duties, etc.

• Article II:1(b), second sentence: products listed in the Schedules cannot

be subject to ODCs unless (i) they were imposed at the date of the GATT

• r (ii) they were mandatorily required to be imposed at that date.
• In Peru – Agricultural Products the Appellate Body upheld the Panel's

finding that the PBS additional duties are "variable import levies" in the Agreement on Agriculture. Not an "ordinary customs duty" and therefore an "other duty or charge" within the meaning of Article II:1(b) of the GATT 1994, second sentence. Upheld Panel's finding .

Appellate Body Report, Peru – Agricultural Products, paras. 5.74, 6.6.b.

OTHER DUTIES AND CHARGES

How do we know if a Member has ODCs?

• Prior to the WTO Agreement: no record of the level and nature
• f ODCs.
• Thus, a complainant has to show that the ODC was not in place
• r required under domestic legislation of the importing Member

as of the time when the concession was made.

• Now, pursuant to the Understanding on the Interpretation of

Article II:1(b), all ODCS have to be recorded in Members' Schedules for transparency reasons. The date as of which ODCs are bound is 15 April 1994.

ARTICLE III: NT

Principle Prohibits discrimination against imported products: with respect to its fiscal and regulatory measures, a Member cannot treat imported products less favourably than its

• wn domestic like products.

Purpose Article III:1 National Treatment

• n

Internal Taxation and Regulation: The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use

• f products in specified amounts or

proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.

WHAT MEASURES ARE COVERED

UNDER ARTICLE III?

Article III Internal measures Article III:2 Taxes and internal charges First sentence: like

• products. No de minimis

standard. Second sentence: directly competitive and subtitutable products. De minimis standard. Article III:4 Other internal measures Like products

INTERNAL VS. BORDER

MEASURES

Member A Member B

Biodiesel produced from palm oil A 40% charge applied to domestic and imported biodiesel, produced from palm oil, based on sustainability grounds, enforced at the border in the case of imports

Internal or border measure?

INTERNAL VS. BORDER

MEASURES

Note Ad Article III Any internal tax or other internal charge, or any law, regulation or requirement of the kind referred to in paragraph 1 which applies to an imported product and to the like domestic product and is collected or enforced in the case of the imported product at the time or point of importation, is nevertheless to be regarded as an internal tax or other internal charge, or a law, regulation or requirement of the kind referred to in paragraph 1, and is accordingly subject to the provisions of Article III.

ARTICLE III:2, FIRST SENTENCE

Legal test Internal Taxes or internal charges Like Products "In excess of"

Distinction between border & internal measures 4 criteria of likeness developed in Working Party Report on Border Tax Adjustments, 1970. No notion of de minimis - even the smallest amount of excess is "too much" AB Report, Japan – Alcoholic Beverages II, p. 23.

LIKENESS CRITERIA

What criteria should be used to determine whether two products are "like products"? Report of the GATT Working Party on Border Tax Adjustments, 1970: (i) the properties, nature and quality of the products; (ii) the end-uses of the products; (iii)consumers' tastes and habits – more comprehensively termed consumers' perceptions and behaviour – in respect

• f the products; and

(iv)the tariff classification of the products.

ACCORDION OF LIKENESS

• A

determination

• f

"likeness" is, fundamentally, a determination about the nature and extent of a competitive relationship between and among products.

• The concept of "likeness" is a relative one that evokes the

image of an accordion. The accordion of "likeness" stretches and squeezes in different places as different provisions of the WTO Agreement are applied. … We believe that, in Article III:2, first sentence of the GATT 1994, the accordion of "likeness" is meant to be narrowly squeezed.

Appellate Body Report, Japan – Alcoholic Beverages II, p. 21

JAPAN – ALCOHOLIC BEVERAGES II

The facts: Respondent: Japan Complainants: EC, Canada, US The products at issue:

Other alcoholic beverages (vodka, whisky, brandy, gin, genever, rum, liqueurs) Shochu vs.

JAPAN – ALCOHOLIC BEVERAGES II

1) Whether the products at issue are like products: Shochu Vodka Why:

• Share most physical characteristics, virtual identity in the definition
• f the products (white/clean spirits, similar raw materials).
• Currently classified under the same Japanese tariff heading.
• Referred to Japan – Alcoholic Beverages I that the end-uses are

virtually identical (either straight or in mixtures) and that with respect to consumers' habits, both beverages provide an alternative choice leading to a competitive relationship.

Like

JAPAN – ALCOHOLIC BEVERAGES II

2) Whether vodka is taxed in excess of shochu: The Japanese Liquor Tax Law:

• Vodka is taxed at 377,230 Yen per kiloliter (< 38°), i.e. 9,927 Yen per

degree of alcohol.

• Shochu is taxed at 155,700 Yen per kiloliter (between 25° and 26°),

i.e. 6,228 Yen per degree of alcohol. Tax imposed on vodka is in excess of the tax imposed on shochu. No de minimis standard: "even the smallest amount of 'excess' is too much" (ABR, Japan, Alcoholic Beverages II, p. 23).

• > Violation of Article III:2, first sentence. Upheld by the Appellate Body.

ARTICLE III:2, SECOND SENTENCE

Legal test

Internal Taxes or internal charges Directly competitive

• r substitutable

products Not similarly taxed Protection to domestic production Distinction between border & internal measures Must be distinguished from “in excess of”. The amount of differential taxation must be more than de minimis Not a question of the legislators’

• intent. Rather, is

there a fiscal distortion of the competitive relationship between domestic and imported like products? Assess 4 criteria of likeness plus whether competition exists in the relevant markets, and elasticity of substitution Appellate Body Report, Japan – Alcoholic Beverages II, pp. 25-31 Appellare Body Report, Chile — Alcoholic Beverages, paras. 44-76

JAPAN – ALCOHOLIC BEVERAGES II

1) Whether the products at issue are directly competitive or substitutable:

Shochu Whisky, brandy, gin, genever, rum, liqueurs Why:

• Referred to the panel in Japan – Alcoholic Beverages I: "white" and "brown"

spirits are directly competitive or substitutable to shochu.

• Evidence by complainants: high degree of price-elasticity between shochu and

certain brown and white spirits.

• Evidence by Japan: if shochu not available, 10 per cent of consumers switch to

spirits and whisky.

Directly competitive or substitutable

JAPAN – ALCOHOLIC BEVERAGES II

2) Whe hether the the pr prod

• ducts ar

are "n "not

• t si

simil ilarly ly taxed":

• Whether the difference in taxation is more than "de minimis":

Taxation per kiloliter: Taxation per degree of alcohol: Taxes are not similar and the differences are not de minimis.

JAPAN – ALCOHOLIC BEVERAGES II

3) Whether th the measure is is ap appli lied "so "so as as to to afford protectio ion":

• Appellate Body: the panel blurred the distinction between "not

similarly taxed" and "so as to afford protection".

• But panel correctly stated that the mix between import duties

and internal taxation protects Japanese shochu from foreign competition.

• > Violation of Article III:2, second sentence.

ARTICLE III:4

Legal test "law, regulation or requirement" affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products Imported and domestic products are "like products". Imported products are accorded "less favourable treatment".

4 criteria of likeness developed in Working Party Report on Border Tax Adjustments, 1970.

LIKENESS UNDER ARTICLE III:4

• The concept of "likeness" in Article III:2, first sentence, must be

construed narrowly. What about in Article III:4? "In view of [the] different language [of Articles III:2 and III:4] … we do conclude that the product scope of Article III:4, although broader than the first sentence of Article III:2, is certainly not broader than the combined product scope of the two sentences of Article III:2 of the GATT 1994." (Appellate Body Report, EC – Asbestos, para. 96)

LIKENESS AND NPR - PPMS

• Product related processes and production methods (PPMs) are those that affect

the product characteristics or properties of a product. E.g. recycled paper.

• Non-product related (NPR) - PPMs are those that do not affect the product

characteristics or properties of a product. E.g. production with the help of child labour.

• Can the "likeness" analysis take into account NPR - PPMs?
• It depends. Child labour, environmental impact of production: in principle,

they do not affect "likeness".

• But… NPR-PPMs may have an impact on consumer’s tastes and habits and

thus the nature of the competitive relationship between products.

Like products

• r

LESS FAVOURABLE TREATMENT

• A measure accords "less favourable treatment" when it modifies the

conditions of competition to the detriment of imported products in the relevant market.

• Formally different treatment to imported products does not per se violate

Article III:4. A formal difference in treatment between imported and like domestic products is thus neither necessary, nor sufficient, to show a violation of Article III:4. Whether or not imported products are treated "less favourably" than like domestic products should be assessed instead by examining whether a measure modifies the conditions of competition in the relevant market to the detriment of imported products. (Appellate Body Report, Korea – Various Measures on Beef,

• para. 137)

LESS FAVOURABLE TREATMENT

• It is clear, however, that measures imposing an additional administrative

burden or hurdle on imported products are likely to modify the conditions

• f competition of such products in the marketplace.
• As the Appellate Body noted in Thailand – Cigarettes (Philippines):

"[W]here a Member's legal system applies a single regulatory regime to both imported and like domestic products, with the sole difference being that an additional requirement is imposed only on imported products, the existence of this additional requirement may provide a significant indication that imported products are treated less favourably."

• Panel Report in Canada – Wheat Exports and Grain Imports:

"That the requirement in question may not be very onerous in commercial and/or practical terms does not, in our view, detract from the fact that it is an additional requirement not imposed on like domestic grain."

ARTICLE III:8 OF THE GATT 1994

a.The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies

• f

products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale. b.The provisions of this Article shall not prevent the payment of subsidies exclusively to domestic producers, including payments to domestic producers derived from the proceeds of internal taxes or charges applied consistently with the provisions of this Article and subsidies effected through governmental purchases of domestic products.

ARTICLE XI: QUANTITATIVE RESTRICTIONS

General Elimination of Quantitative Restrictions No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any [Member] on the importation of any product of the territory of any other [Member] or on the exportation or sale for export of any product destined for the territory of any other [Member].

SCOPE OF ARTICLE XI

Which measures are covered by Article XI:1 of the GATT 1994? Prohibitions or restrictions on the:

• importation;
• exportation; and
• sale for export.

Which measures are not covered by Article XI:1?

• Duties, taxes and other charges (governed by Article II:1 of the GATT 199);
• Internal laws, regulations and requirements according less favourable

treatment to imported products (governed by Article III:4 of the GATT 1994), including those enforced at the time or point of importation (as clarified in the Note to Article III of the GATT 1994); and

• Formalities connected with importation and exportation (governed by

Article VIII of the GATT)

• Administrative

procedures used to implement import licensing requirements (governed by the Agreement on Import Licensing Procedures).

DEFINITION OF "PROHIBITION"

AND "RESTRICTION"

"The term "prohibition" is defined as a "legal ban on the trade or importation of a specified commodity". ... "restriction" ... is defined as "[a] thing which restricts someone or something, a limitation on action, a limiting condition or regulation", and thus refers generally to something that has a limiting effect. ... we consider that the use of the word "quantitative" in the title of the provision informs the interpretation of the words "restriction" and "prohibition" in Article XI:1 and XI:2. It suggests that Article XI of the GATT 1994 covers those prohibitions and restrictions that have a limiting effect on the quantity or amount of a product being imported or exported." Appellate Body Report, China – Raw Materials, paras. 319 -320

TRADE EFFECTS

ARE NOT NECESSARY

Not necessary to quantify limiting effects of the measure at issue: "Co-complainants are not obliged to demonstrate the limiting effects

• f the measures at issue by quantifying their effects though trade
• flows. On the contrary, the co-complainants can demonstrate the

limiting effects of the measures 'through the design, architecture, and revealing structure of the measure at issue considered in its relevant context'. Nevertheless, while not required to do so, the co- complainants have presented data on trade flows that we will consider when examining each of the measures at issue." Panel Report, Indonesia - Import Licensing Regimes, para. 7.50

INDONESIA – IMPORT LICENSING REGIMES

All measures, including those applicable to horticultural products as well as animal products were found to violate Article XI:1 of the GATT 1994 for different reasons. For example, Measure 10 was a prohibition. Measure 14 was a restriction that affected the competitive opportunities of imports vis- à-vis domestic products.

RELATIONSHIP BETWEEN ARTICLE XI:1 OF THE GATT 1994 AND ARTICLE 4.2 OF THE AOA

• Notwithstanding this broad prohibition against quantitative

restrictions, GATT contracting parties over many years failed to respect completely this obligation. … In sectors such as agriculture, quantitative restrictions were maintained and even increased to the extent that the need to restrict their use became central to the Uruguay Round negotiations. Panel Report, Turkey – Textiles, para. 9.64

• Agreement on Agriculture(AoA) was negotiated in the

Uruguay Round in order to discipline the types of measures that certain GATT Contracting Parties had been applying on agricultural products which were not disciplined by general GATT obligations.

ARTICLE 4.2 AOA: MARKET ACCESS

Article 4.2 of the Agreement on Agriculture provides: Members shall not maintain, resort to, or revert to any measures of the kind which have been required to be converted into ordinary customs duties1, except as otherwise provided for in Article 5 and Annex 5. ________________________________________________________

1 These measures include quantitative import restrictions, variable

import levies, minimum import prices, discretionary import licensing, non-tariff measures maintained through state-trading enterprises, voluntary export restraints, and similar border measures other than

• rdinary

customs duties, whether

• r

not the measures are maintained under country-specific derogations from the provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or under other general, non-agriculture-specific provisions

• f GATT 1994 or of the other Multilateral Trade Agreements in

Annex 1A to the WTO Agreement.

RELATIONSHIP BETWEEN ARTICLE XI:1 OF THE GATT 1994 AND ARTICLE 4.2 OF THE AOA

• Relationship between GATT 1994 and AoA is set out in Article 21.1
• f the Agreement on Agriculture:
• The provisions of GATT 1994 and of other Multilateral Trade

Agreements in Annex 1A to the WTO Agreement shall apply subject to the provisions of this Agreement.

• Should a complainant challenge a quantitative restriction on

agricultural products under Article XI:1 or Article 4.2 of AoA?

Article XI:1 of the GATT 1994 Article 4.2 Agreement on Agriculture

Only disciplines quantitative restrictions Disciplines broader range of measures Applies to all goods Applies to all agricultural products Complainant has to show violation of Article XI.1, then burden shifts to respondent to justify measure under Article XX. Complainant has to prove 1) existence of measure and 2) that it is not maintained under other general, non-agriculture- specific provisions of GATT 1994 (Article XX)