TRADE LAW FINAL NOTES

ARTICLE I: MOST FAVORED NATIONS

The context of the MFN principle of GATT is to forbid Members to discriminate among
‘like’ products originating from other Members, by imposing an equal treatment by the
members of GATT of imports and domestic products. For example, if Italy imposes a 10 per
cent tariff on German cars, it cannot impose a 20 per cent tariff on French cars.

Furthermore, Article 1 of GATT explicitly states that any trade advantages granted one member
must be 'unconditionally' and ‘immediately’ offered to all members of WTO. This means that if a
country is accorded any trade advantage, the same trade advantage shall be accorded
‘unconditionally and immediately’ to all other members of WTO. So, the Appellate Body
Report on Canada–Autos concluded that the measures maintained by Canada did not afford the
same import duty exception immediately and unconditionally to motor vehicles imported from
all WTO members, as required by the MFN principle of GATT 1994.

The purpose of MFN under GATT is to prohibit discrimination between like products
originating in, or destined for, different countries. The purpose of the MFN principle is to ensure
equality of opportunity to import from or to export to all WTO Members. In EC–Bananas III,
the Appellate Body stated, with regard to WTO nondiscrimination obligations (such as the
obligation set out in Article I:1):

"The essence of the non-discrimination obligations is that like products should be treated
equally, irrespective of their origin. As no participant disputes that all bananas are like
products, the non-discrimination provisions apply to all imports of bananas, irrespective of
whether and how a Member categorizes or subdivides these imports for administrative or other
reasons."

In other words, any member of the WTO that gives a favorable treatment to another partner is
under the obligation to grant the same treatment to all Members of the WTO.

When one member treats another member of GATT differently, by granting an advantage to one
member but not the others with respect to tariffs and regulations on exports and imports, internal
taxes and charges, and internal regulation, this treatment is considered to be a violation of MFN's
obligation.

TEST UNDER ARTICLE III AND APPLICATION OF CASES

It is the status awarded by 1 nation to another in international trade that one nation’s product will
not be treated worse then any other nations product provided that the product is like.

Article 1:1- 1) with regard to customs duties, charges with importation or exportation. 2) Any
advantage, favor, privilege or immunity granted by any contracting party originating in or
destined for any other country shall be. 3) Accorded immediately and unconditionally to the
like products originating in or destined for the territories of all other contracting parties.

CASE -- EC – Bananas III case, (Article 1:1) MFN- “The essence of the non-discrimination
obligation is that like products should be treated equally, irrespective of their origin. As no
participant disputes that all bananas are like products, the non-discrimination provisions apply to
all imports of bananas, irrespective of whether and how a member categorizes or subdivides the
imports for administrative or other reasons.”

CASE -- Canada-Autos case (de-facto discrimination u/a 1:1)-

FACTS:

Canada gives an import duty exemption to people who import automobiles. There were certain
manufacturers within Canada (Mercedes) who would start importing only their cars from France
and Germany — the de facto discrimination-taking place even due to no fault of Canada.

ANALYSIS:

The Appellate Body usefully clarified the scope of Article I:1 by ruling: “Article I:1 requires that
“ any advantage, favour, privilege or immunity granted by any Member 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
members”. The words of Article I:1 refer not to some advantages granted “with respect to”
the subjects that fall within the defined scope of the Article, but to “ any advantage”; not to
some products, but to “any product”; and not to like products from some other Members,
but to like products originating in or destined for “ all other” Members.”

The Appellate Body also discussed the concepts of ‘immediately and unconditionally’, and
found: “The measures maintained by Canada accords the import duty exemption to certain motor
vehicles entering Canada from certain countries. These privileged motor vehicles are imported
by a limited number of designated manufacturers who are required to meet certain performance
conditions. In practice, this measure does not accord the same import duty exemption
immediately and unconditionally to like motor vehicles of all other Members, as required under
Article I: 1 of the GATT 1994. The advantage of the import duty exemption is accorded to like
motor vehicles from all other Members. Accordingly, we find that this measure is not consistent
with Canada’s obligations under Article I: 1 of the GATT 1994”.

SUMMARY OF CANADA AUTOS: An import duty exemption was accorded by Canada to

imports of motor vehicles by certain manufactures. Formally speaking there was no restriction on
the origin of the motor vehicles that were eligible for the exemption. However, the manufacturers
imported only their own make of motor vehicles and those of related companies. As a result,
only motor vehicles originating in a small no. of countries benefitted de-facto from the
exemption. The appellate body rejected Canada’s argument that article 1:1 does not apply to
measures which appear to be origin neutral, as there was a clear de-facto MFN violation. Note:
No origin neutral violation but a de-facto violation.

3-tier test of article 1:1

(i) Whether the measure at the issue confers a trade advantage of any kind covered by
article 1:1? (Here, measure would mean a law which provides a discrimination)

(ii) Whether the products concerned are ‘like’ products?

(iii) Whether the advantage at issue is granted ‘immediately and unconditionally’ to all
like products concerned?

Like Products: Questions to take into account while deciding like products

(i) Which characteristics or qualities are important in assessing the likeliness?

(ii) To what degree or extent must products share qualities or characteristics in order to
be ‘like products’?

(iii) From whose perspective should likeliness be judged?

CASE – Spain-Tariff treatment of unroasted coffee (case on like products)

FACTS: Spain did not apply customs duties on Columbia mild and other mild, while it imposed
a 7% custom duty on other three types of unroasted coffee (unwashed Arabica (UA), Robusta
and others). Brazil, which exported mainly UA, claimed that the Spanish tariff regime was
inconsistent with article 1:1.

ISSUE: Whether various types of unroasted coffee were like products within the meaning of
article 1:1?

HELD AND REASONING: Should be considered to be like products within meaning of article
1:1

(i) It was not unusual in the case of agricultural products that the taste and aroma of the
end product would differ because of geographical condition and distinct methods of
preparation of beans.

(ii) The consumers considered coffee as one product intended to be drank as a beverage
as end use.
PROCESS OR PRODUCT METHOD

*PPM – Process of product method is not relevant in determining likeliness. The advantage
of the import duty exemption is accorded to some motor vehicles from all other members.
Accordingly, we find this measure is not consistent with Canada’s obligation under article 1:1.

CASE -- US-MFN Footwear (US- Non Rubber Footwear)

FACTS: In 1990, Brazil requested consultations with the US concerning an alleged denial by the
United States of most-favored-nation treatment which is enshrined under Article I of GATT with
respect to a countervailing duty order on non-rubber footwear from Brazil.

HELD: Countervailing duty which is an import tax imposed on goods in order to prevent
dumping or counter export subsidies are covered within the meaning of article 1:1 and thus have
to be immediately and unconditionally imposed.

REASONING: United States treated imports from Brazil less favorably than imports from
other contracting parties -- specifically, fasteners from India, steel wire rod from Trinidad and
Tobago, and industrial lime and automotive glass from Mexico – and consequently, the United
States denied Brazil the unconditional benefits guaranteed under Article I:1.

CASE –Belgium-Family Allowances (IMMEDIATE AND UNCONDITIONAL)

FACTS: A law providing for an exemption from a levy on products purchased from
countries, which had a system of family allowances similar to that of Belgium, was not
granted unconditionally to every other nation and hence law was inconsistent with MFN
treatment.

HELD: Law introduced discrimination between countries having a given system of family
allowances and those, which had a different system or no system at all. Belgian Family
Allowances" was a discriminatory method of applying charges, not the particular level of
charges on particular products. It was the system applied by Belgium to the products of different
countries which was discriminatory and inconsistent with Article I:1.

CASE: JAPAN SPF DIMENSION LUMBER CASE (Canada v. Japan): (LIKE

PRODUCTS)

FACTS AND CONTENTIONS:

The case involved a claim of GATT Article I (i.e., most-favored-nation treatment) violations in
Japan’s tariff schedule regarding dimension lumber. Canada essentially claimed that since
spruce-pine-fir (SPF) dimension lumber, which was the major export item from Canada in this
category, was a “like product” to non-SPF dimension lumber (mostly exported from the United
States), the fact that Japan maintained duties on the former while eliminating the duties on the
latter was a violation of GATT Article I:1.

Japan based its tariff rates on dimension lumber imports on the species of tree from which the
dimension lumber was produced. According to its tariff system, Japan applied this 8% tariff to
SPF dimension lumber but not to dimension lumber on other species of tree.

In this case, Canada challenged that Japan had charged different tariffs for the same quality
lumber. Specifically, Canada wanted the same 8% tariff on dimension lumber that Japan put on
similar types of lumber, used for similar purposes. Japan had different tariffs on different lumber,
based on factors it claims made the lumber not “like” products. Canada argued that Japan should
treat all dimension lumber the same.

Japan defended its tariff measure by arguing that SPF dimension lumber was not ‘like’
dimension lumber from other species.

ISSUE:

Whether Japan’s application of an 8% tariff on spruce-pine-fir (SPF) dimension lumber was

consistent with Article I of GATT

HOLDING:
In this case, Canada failed to prove likeness and because Canada did not argue its case well, the
panel found for Japan and held the lumber was not a “like” product. The panel concluded that
Japan could differentiate between dimension lumber based on whether the lumber came from
specific tree species or not.

ANALYSIS:
In this case, Canada failed to prove “likeness”
-Japan’s Argument: Japan contended that it does not have a tariff classification for dimension
lumber, and the panel found that Canada cannot invent new categories for Japan’s trade code – it
must work within Canada’s trade code.

CONTRADICTION OF JAPAN SPF WITH SPANISH UNROASTED COFFEE CASE

In contrast to Spanish Coffee case, Japan SPF seems to recognise that contracting parties should
be able to use their own tariff systems to serve certain national interests by giving states that
flexibility.
CASE: EC BANANAS CASE

FACTS: The dispute revolves around the EU’s regulatory regime for imported bananas
commonly known as Common Market Organisation for Bananas (CMOB), enacted in 1993. It
was an attempt to combine obligations to former colonies with the single European market. Prior
to this enactment, each EU member states had its own banana import regime. The CMOB gave
preferential entry to bananas from the overseas territories and former colonies of EU
member countries, while restricting entry from other countries, including several in Latin
America where US companies predominate, and Ecuador where they do not. Under this
multifaceted regime, banana imports were subject to a multilayered system of quotas based on
their country of origin.

WHAT WAS THE DESCRIMINATION?

The African, Caribbean and Pacific (ACP) banana producing countries being the former
colonies of EU were allowed a duty free entry up to 857 thousand tonnes and subject to 750
European Currency Unit (ECUs) per metric tonne above that amount. On the other hand, the
non-ACP banana producing countries were subject to a duty of 100 ECUs per metric tonne on
imports up to two million metric tonnes, and 850 ECUs on imports above that amount. Besides,
more than 30 percent of these two million tonnes of non-ACP bananas were reserved for the
European marketing firms, most of which historically had marketed only ACP bananas.

ISSUE

In this case, five Latin American countries requested for a second GATT Panel in February
1993. The complainants argued that the new regime violated Article I: 1 of GATT – Most
Favored Nation (MFN) principle, as the EU discriminated against other contracting parties and in
favour of ACP countries;

HOLDING

The panel found that the preferences granted by the European Communities of an annual duty
free quota of 7, 75,000 MT of imported bananas originating in ACP countries constituted an
advantage, which was not accorded to like bananas originating in non-ACP WTO Members, and
was therefore inconsistent with Article I: 1 of GATT.

CASE: EC TARIFF CASE

FACTS: In this case, the Government of India initiated a claim at the World Trade Organization
(WTO) against the European Community (EC), alleging that the EC’s special tariff preference
arrangement to combat drug production and trafficking (the Drug Arrangements) violated the
Most Favored Nation (MFN) principle of Article I:1 of the General Agreement on Tariffs and
Trade 1994 (GATT) and that the scheme was not justified under the Enabling Clause, under
which developed countries are allowed to grant preferential tariff treatment to developing
countries.

Under the Drug Arrangements, twelve specified Generalized System of Preferences (GSP)
beneficiary countries were granted greater tariff reductions than those offered to other
developing countries pursuant to the EC’s GSP.

ARGUMENT MADE BY INDIA

India—an EC GSP beneficiary, though not a designated country under the Drug Arrangements—
argued that such disparate treatment was a violation of the EC’s WTO obligations.

ANALYSIS:

The WTO Panel agreed with India, holding that the Enabling Clause requires that “identical
tariff preferences under GSP schemes be provided to all developing countries without
differentiation” except in the cases of least-developed countries (LDCs) and implementation of a
priori limitations. In one broad stroke the Panel required developed countries to hold open their
GSP schemes to all developing countries (even those developing countries not deemed by
developed countries to be GSP beneficiaries) or to none at all.

HOLDING:

The Panel found that the tariff advantages under the Drug Arrangements were inconsistent with
Art. I:1, as the tariff advantages were accorded only to the products originating in the 12
beneficiary countries, and not to the like products originating in all other Members, including
those originating in India.
ARTICLE II: SCHEDULES OF CONCESSION

All trade concessions made by Members must be stated and incorporated into the legal
agreement – ‘bound’ rates. No other Member may be treated less favourably than any
‘bound’ rate.

The GATT rules on tariffs are set out in Article II, which is entitle ‘Schedules of Concessions’.
Members commit to offering treatment that is no worse than that promised in their schedule.

ARTICLE II: 1 In essence, GATT Article II:1(a) is the provision that makes the schedules
‘operative’, that is, it provides a legal basis for enforcing the commitments made in the schedule.

FIRST SENTENCE, ARTICLE II: 1(b)

The first sentence of Article II:1(b) offers a more specific version of the Article II:1(a)
obligation, requiring that Members not charge ‘ordinary customs duties in excess of those set
forth and provided’ in the schedule. It is a rule specific to customs duties. However, II: 1(a)
is written in general term and is broader.

SECOND SENTENCE, ARTICLE II: 1(b)

The second sentence of Article II: 1(b) prohibits ‘other duties or charges (ODC)’ in excess of
those imposed at the time of signing of the GATT. It is designed to prevent Members from
evading their scheduled commitments by imposing what is effectively an ‘ordinary customs
duties’ under another name. ODC are defined in terms of Ordinary Custom duties. Only when
there is no ordinary custom duty, can a ODC come into place. If no ‘other duties or charges’ are
recorded for a product, then none are permitted for that product.

Each schedule contains the following information: tariff item number; description of the product;
rate of duty; date on which the present concession was established; Initial Negotiation Rights (or
INR); date on which the concession was first incorporated in a GATT schedule; INR on earlier
occasions; other duties and charges; and for agricultural products special safeguards may also be
defined.

CASE: INDIA ADDITIONAL DUTIES

FACTS AND ISSUE:

The United States requested consultations with India with respect to “additional duties” or “extra
additional duties” that India applies to imports from the United States, which include (but are not
limited to) wines and distilled products. The United States claims that the measures are
inconsistent with Articles II: 1(a) and (b) of the GATT.
ANALYSIS AND CONCLUSION:

As regards the Panel's findings with respect to the interpretation of Articles II: 1(b) and II: 2(a),
the Appellate Body found that the Panel erred in its interpretation that Article II: 1(b) covers only
duties or charges that “inherently discriminate against imports”. The appellate body held that
‘Tariffs are legitimate instruments to accomplish certain trade policy or other objectives
such as to generate fiscal revenue. Irrespective of the underlying objective, tariffs are
permissible under Article II:1(b) so long as they do not exceed a Member’s bound rates.”
Hence they are not inherently discriminatory.

The Appellate Body also considered that the Additional Duty would not be justified under
Article II:2(a) of the GATT 1994 only if it results in the imposition of charges on imports of
alcoholic beverages in excess of the excise duties applied on like domestic products, and,
consequently, that this would render the Additional Duty inconsistent with Article II:1(b)
to the extent that it results in the imposition of duties in excess of those set forth in India's
Schedule of Concessions. Charges that are justified under Article II:2(a) are not in breach of
Article II:1(b).

The AB also stated “In our view, these two concepts — ’equivalence’ and ‘consistency with
Article III: 2’ — cannot be interpreted in isolation from each other; they impart meaning to each
other and need to be interpreted harmoniously…... Determining whether a charge is imposed
consistently with Article III: 2 necessarily involves a comparison of a border charge with an
internal tax in order to determine whether one is ‘in excess of’ the other….” There the concept of
equivalence will automatically arise when looking at the consistency with A. III(2). “As we see
it, the reference in Article II:2(a) to consistency with Article III:2 suggests that the concept of
equivalence includes elements of ‘effect’ and ‘amount’ that necessarily imply a quantitative
comparison.”

Regarding Burden of Proof, the AB said “Not every challenge under Article II:1(b) will require a
showing with respect to Article II:2(a). However, here this was the case of prima facie case of
violation of A.II:2(a) and hence US had the burden to prove it.”

The Appellate Body also considered that the Extra-Additional Duty would not be justified under
Article II:2(a) of the GATT 1994 insofar as it results in the imposition of charges on imports in
excess of the sales taxes, value-added taxes, and other local taxes or charges that India alleges
are equivalent to the Extra-Additional Duty; and, consequently, that this would render the Extra-
Additional Duty inconsistent with Article II:1(b) to the extent that it results in the imposition of
duties in excess of those set forth in India's Schedule of Concessions.

The Appellate Body considered that the Additional Duty and Extra-Additional Duty would be
inconsistent with Art. II:1(b) to the extent that they result in the imposition of duties in excess of
those set forth in India's Schedule of Concessions.
CASE: CHINA AUTOPARTS

FACTS:

Canada requested consultation with Canada with regard to three legal instruments enacted by
China which impose a 25 per cent “charge” on imported auto parts “characterized as
complete motor vehicles” based on specified criteria and prescribe administrative procedures
associated with the imposition of that charge. This measure adversely affects the export of
automobile parts from Canada.

ARGUMENTS BY CANADA

Canada argues that the measures identified above impose different charges on vehicles
manufactured in China depending on the domestic content of the automobile parts used in the
manufacture, thus providing domestic manufacturers with an advantage if they use domestic
parts. Canada adds that the charges that may be assessed on automobile parts once a vehicle is
complete appear to constitute a charge in excess of those set forth in China's schedule of
concessions.

ANALYSIS AND CONCLUSION

The Appellate Body upheld the Panel’s finding that the charge in question was an internal charge
under Article III: 2, not an ordinary customs duty under Article II:1(b). “[I]n examining the
scope of application of Article III:2, in relation to Article II:1(b), first sentence, the time at which
a charge is collected or paid is not decisive. In the case of Article III:2, this is explicitly stated in
the GATT 1994 itself, where the Ad Note to Article III specifies that when an internal charge is
‘collected or enforced in the case of the imported product at the time or point of importation’,
such a charge ‘is nevertheless to be regarded’ as an internal charge. What is important, however,
is that the obligation to pay a charge must accrue due to an internal event, such as the
distribution, sale, use or transportation of the imported product.”

“The charge in question was within the scope of Article III:2, because it was imposed on goods
that had already been imported, and the obligation to pay it was triggered “because of an internal
factor (e.g., because the product was re-sold internally or because the product was used
internally), in the sense that such ‘internal factor’ occurs after the importation of the product of
one Member into the territory of another Member.”

ARTICLE III: NATIONAL TREATMENT

GENERAL OVERVIEW

Members may not use internal measures to discriminate between domestic goods and those
imported from Members; that is to say that imports from Members are accorded National
Treatment. This rule prevents countries from taking discriminatory measures on imports on the
one hand, and to prevent countries from offsetting the effects of tariffs through non-tariff
measures. An example of the latter could be where Member A reduces the import tariff on
product X from ten percent to five percent, only to impose a five percent domestic consumption
tax only on imported product X, effectively offsetting the five percentage point tariff cut. The
purpose of the national treatment rule is to eliminate “hidden” domestic barriers to trade by
WTO Members through according imported products treatment no less favorable than that
accorded to products of national origin.

LEGAL FRAMEWORK

1. GATT Article III requires that WTO Members provide national treatment to all other
Members.
2. Article III: 1 of GATT: Article III:1 stipulates the general principle that Members must
not apply internal taxes or other internal charges, laws, regulations and requirements
affecting imported or domestic products so as to afford protection to domestic
production.
3. Article III: 2 of GATT: In relation to internal taxes or other internal charges, Article
III:2 stipulates that WTO Members shall not apply standards higher than those imposed
on domestic products between imported goods and “like” domestic goods, or between
imported goods and “a directly competitive or substitutable product.”
4. Article III: 4 of GATT: With regard to internal regulations and laws, Article III:4
provides that Members shall accord imported products treatment no less favorable than
that accorded to “like products” of national origin.
5. How to determine likeness: In determining the similarity of “like products,” GATT
panel reports have relied on a number of criteria including tariff classifications, the
product’s end uses in a given market, consumer tastes and habits, and the product’s
properties, nature and quality. The same idea can be found in reports by WTO panels and
the Appellate Body.

De facto vs. De jure Violation

 De jure: Apparent on the face of the measure.

 De facto: Not explicit but based on certain feature.

Example: Higher tax imposed on beverages with higher alcohol content than domestic products.

To determine whether a violation exists or not, there will have to be; (2) conditions

 An examination whether the differentiation b/w imports & domestic products actually
puts imports at a disadvantage as compared to domestic products.
  Has to pertain to “like” or “substitutable” goods. (products are ‘like’ or ‘substitutable’
products)

Article 3:2(1):- 2 Tier Test

In Canada – Periodical case, it was decided, there are 2 questions to determine violation of
article3:2

1. Whether imported & domestic products are like products?

2. Whether imported products are taxed in excess of the domestic products?

If both affirmative, there is a violation of article 3:2(1)

Article 3:2(2):- 3 Tier Test

1. Whether the imported & domestic Products are directly competitive or substitutable?

2. Whether the products are not similarly taxed?

3. Whether the dissimilar taxation is applied so as to afford protection to domestic

production?

DIFFERENCE BETWEEN LIKE AND DIRECTLY COMPETITIVE OR

SUBSTITUTABLE PRODUCTS

In Korea – Alcoholic Beverages case, the difference b/w “like products” & “substitutable
products” was emphasized. “Like products are a subset of directly competitive or substitutable
products whereas not all ‘directly competitive or substitutable’ products are “like”. The notion
of like products must be constituted narrowly but the category of directly competitive or
substitutable products is broader. While perfectly substitutable products fall within article 3:2,
first sentence, imperfectly substitutable product can be assessed under article 3:2, second
sentence.

Article III: 4:- 3 Tier test:-

1. The measure at issue is a law, regulation or requirement covered by article 3:4;

2. Imported & domestic products are like

3. Imported products are accorded less favorable treatment.

EXAMPLE under Article III: 4: Limitations on product of sale for imported alcoholic beverages.

MEANING OF LIKE PRODUCTS IN ARTICLE III: 2 AND III: 4 IS DIFFERENT

In Japan – Alcoholic Beverages case, the Panel determined the meaning of like products in
Article 3:2, 3:4. It can be said that the concept of ‘like product’ in Art. 3:4 has a relatively
board scope. Its scope is boarder than that of the concept of ‘like product’ in Art. 3: 2 first
sentence.

CRITERIA SET TO DERMINE ‘LIKENESS’

1) Physical taste & preferences

2) Ends use of product

3) Consumer taste & habits

4) Tariff Classification

Case: U.S Gasoline case (Art. 3:4)

 A dispute concerning legislations designed to present & control air pollution, the panel
found that the measure at issue afforded less favorable treatment to imported gasoline, an
individual baseline was established while, for importers of gasoline, the more onerous
statutory baseline applied.

 This resulted in less favourable treatment to imported product, as illustrated by the case
of a batch of imported gasoline which was chemically identical to a batch of domestic
gasoline that met its refines individual baseline, but nit statutory baseline. .

CASE: ITALY AGRICULTURAL PRODUCTS CASE (ARTICLE III: 4)

FACTS:

UK used to export agricultural machinery to Italy and they were like products in relation to the
Italian agricultural machinery. Any Italians citizens who want to buy Italian machinery, loan
would be given for less than market rate. If they wanted to take imported machinery,
normal tax rate would apply. UK claims national treatment violation. Italy said that it was
doing it to develop its own country.

ISSUE:

Whether there is a violation under Article III: 4 OF GATT

CONTENTIONS:

Article III:4 of the General Agreement provided that products imported into the territory of any
contracting party "shall be accorded treatment no less favorable than that accorded to like
products of national origin in respect of all laws, regulations and requirements affecting their
internal sale, offering for sale, purchase, transportation..." etc.

UK argued that as the credit facilities provided under the Italian Law were not available to the
purchasers of imported tractors and other agricultural machinery, these products did not enjoy
the equality of treatment which should be accorded to them. The fact that these credit facilities
were reserved exclusively to the purchasers of Italian tractors and other agricultural
machinery represented a discrimination and the operation of the Law involved an
inconsistency with the provisions of Article III of the General Agreement which provides
that laws, regulations and requirements affecting internal sale should not be applied to imported
products so as to afford protection to domestic producers.

DISPOISITION

The Panel in this case holds that there is a violation by Italy against UK under Article III: 4 OF
GATT. In this case, the imported products from UK were not treated at par with the like products
of Italy.

CASE: JAPAN ALCOHOL BEVERAGES CASE (ARTICLE III: 2 OF GATT)

ISSUE: The complainants i.e., European Communities, Canada and U.S. claimed that spirits
exported to Japan were discriminated against under the Japanese liquor tax system which,
in their view, levies a substantially lower tax on “shochu” than on whisky, cognac and
white spirits.

FACTS:

Here, the measure at issue is the Japanese Liquor Tax Law that established a system of internal
taxes applicable to all liquors at different tax rates depending on which category they fell within.
The Japanese Liquor Tax Law, which is the law, at issue taxed shochu at a lower rate than the
other products. Here, the products at issue are the Vodka and other alcoholic beverages such as
liqueurs, gin, genever, rum, whisky and brandy, and domestic shochu.

ANALYSIS AND HOLDING:

1. GATT Art. III:2 (national treatment – taxes and charges), first sentence (like
products):

The Appellate Body upheld the Panel's finding that vodka was taxed in excess of shochu, in
violation of Art. III:2, first sentence, accepting the Panel's interpretation that Art. III:2, first
sentence requires an examination of the conformity of an internal tax measures by determining
two elements: (i) whether the taxed imported and domestic products are like; and (ii) whether the
taxes applied to the imported products are in excess of those applied to the like domestic
products. In this case , the court holds that the products were like and very clearly the Japanese
tax statute provided different tax rates for the beverages. So, violation under Article III: 2

2. GATT Art. III:2 (national treatment – taxes and charge), second sentence (directly
competitive or substitutable products):

The Appellate Body upheld the Panel's finding that shochu and whisky, brandy, rum, gin,
genever, and liqueurs were not similarly taxed so as to afford protection to domestic
production, in violation of Art. III:2, second sentence. Modifying some of the Panel's reasoning,
the Appellate Body clarified three separate issues that must be addressed to determine whether a
certain measure is inconsistent with Art. III:2, second sentence: (i) whether imported and
domestic products are directly competitive or substitutable products; (ii) whether the directly
competitive or substitutable imported and domestic products are not similarly taxed; and (iii)
whether the dissimilar taxation of the directly competitive or substitutable imported and domestic
products is applied so as to afford protection to domestic production. Henceforth, there is a
violation under Article III: 2 of GATT.

CASE: KOREA ALCOHOL

FACTS:

In this case, the measure at issue is Korea's tax regime for alcoholic beverages, which imposed
different tax rates for various categories of distilled spirits. The Product at issue are Imported
distilled liquors and Soju which is a traditional Korean alcoholic beverage.

Under the Liquor Tax Law of 1949, as amended, Korea creates various categories of distilled
spirits, on which it imposes different ad valorem taxes.

The Panel considered claims made by the European Communities and the United States that the
contested measures are inconsistent with Article III:2 of the GATT 1994 because they accord
preferential tax treatment to soju, a traditional Korean alcoholic beverage, as compared
with certain imported "western-style" alcoholic beverages.

ANALYSIS:

GATT Art. III:2 (national treatment – taxes and charges), second sentence (directly competitive
or substitutable products):

The Appellate Body upheld the Panel's conclusion that the Korean tax measures at issue were
inconsistent with Art. III:2, second sentence: More specifically, the Appellate Body upheld the
Panel's findings that the products at issue were “directly competitive or substitutable” within the
meaning of Art. III:2, second sentence and that Korea's tax measures on alcoholic beverages
were applied “so as to afford protection” to domestic production within the meaning of Art. III:2,
second sentence.
On the question of the interpretation and application of the term “directly competitive or
substitutable product”, the Appellate Body upheld the Panel's approach: (i) the Panel correctly
considered evidence of “present direct competition”, not the future evolution of the market, by
referring to the potential for the products to compete in a market free of protection because in a
protected market consumer preferences may have been influenced by that protection; (ii) the
Panel was not wrong in looking to the Japanese market for an indication of how the Korean
market may develop without the distortions caused by protection; and (iii) the Panel's approach
of grouping the products, which was based in part on a collective assessment of the products and
in part on individual assessment, was not flawed.

CASE: CHILE ALCOHOL (ARTICLE III: 2 OF GATT)

In this case, the measure at issue is Chile's tax measures that imposed an excise tax at
different rates – depending on the type of product (pisco, whisky, etc.) under the “Transitional
System” and according to the degree of alcohol content (35°, 36°, ... 39°) under the “New
Chilean System”. The Product at issue includes all distilled spirits including pisco, which is
Chile's domestic product, and imported distilled spirits such as whisky, vodka, rum, gin,
etc.

ANALYSIS AND CONCLUSION

GATT Art. III:2 (national treatment – taxes and charges), second sentence (directly
competitive or substitutable products):

The Appellate Body upheld the Panel's finding that Chile's new tax regime for alcoholic
beverages violated the national treatment principle under Art. III:2, second sentence. The
Panel found both Chile's transitional and new tax regimes are inconsistent with Article III: 2,
second sentence. (“not similarly taxed”): The Appellate Body agreed with the Panel that
imported distilled spirits and Chilean pisco, as directly competitive and substitutable
products, were not similarly taxed since the tax burden (47 per cent) on most of imported
products (95 per cent of imports) would be heavier than the tax burden (27 per cent) on
most of the domestic products (75 per cent of domestic production). The Appellate Body
took the view that the relevant comparison between imported and domestic products had to be
made based on a comparison of the taxation on all imported and domestic products over the
entire range of categories, not simply a comparison of the products within each category.

CASE: KOREA BEEF CASE (Art.3:4)

FACTS:

Measure at issue: (i) Korea's measures affecting the importation, distribution and sale of beef,
(ii) Korea's “dual retail system” for sale of domestic imported beef), and (iii) Korea's agricultural
domestic support programmes.
Product at issue: Beef imports from Australia and the United States VS Domestic Korean Beef

In this case, a regulatory measure introduced a deal retail distribution system for beef. Small
retailers could only sell either domestic or imported beef whereas large retailers could sell both,
as long as they are sold in separate sale areas. The test is to see if the dual system modified the
conditions of competitive to the disadvantages of imported beef.

ANALYSIS

GATT Article III: 4 (national treatment – domestic laws and regulations):

The Appellate Body agreed with the Panel's ultimate conclusion that Korea's dual retail system
(requiring imported beef to be sold in separate stores) accorded “less favorable” treatment to
imported beef than to like domestic beef. According to the Appellate Body, the dual retail
system virtually cut off imported beef from access to the “normal” distribution outlets for
beef, which modified the conditions of competition for imported beef. In this connection, the
Appellate Body said that formally different treatment of imported and domestic products is not
necessarily “less favorable” for imports within the meaning of Art. III: 4.

Since small retailers had money & domestic beef was cheap, they found if different to imported
beef. A formal difference in treatment (Art. 3:4) b/w imported & domestic products is thus
neither necessary, nor sufficient, to show a violation of article 3:4. Whether or not imported
product are treated less favorably than like domestic products should be assessed by examining
whether a measure modifies the conditions of competition in the relevant market to the detriment
of imported products.

CASE: EC ASBESTOS

Measure at issue: France's ban on asbestos (Decree No. 96-1133).

Product at issue: Imported asbestos (and products containing asbestos) vs certain domestic
substitutes such as PVA, cellulose and glass (“PCG”) fibres (and products containing such
substitutes).

The dispute revolved around the compatibility of the French ban on the import and use of
construction materials containing asbestos with free trade regulations. A French Decree came
into force banning the production, sale, and import of asbestos and products containing asbestos
due to the health risks associated with these goods. Inhaling asbestos can lead to severe illnesses
such as asbestosis, lung cancer, or mesothelioma. According to Art. 2 of the Decree, limited and
temporary exceptions to the import ban for some products containing Chrysotile are permitted if
other less harmful substitutes, for example, PCG, are not available. Canada sought to import
products containing asbestos into France and stated that the Decree violated several WTO
regulations.
ANALYSIS

GATT Article III: 4 (national treatment – domestic laws and regulations): As the Appellate Body
found the Panel's likeness analysis between asbestos and PCG fibres and between cement-based
products containing asbestos and those containing PCG fibres insufficient, it reversed the Panel's
findings that the products at issue were like and that the measure was inconsistent with Art. III:
4. (The Appellate Body emphasized a competitive relationship between products as an important
factor in determining likeness in the context of Art. III: 4 Then, having completed the like
product analysis, the Appellate Body concluded that Canada had failed to demonstrate the
likeness between either set of products, and, thus, to prove that the measure was inconsistent
with Art. III: 4. The Panel thus established a violation of the principals of differential
National Treatment prohibited by article III: 4, since the decree specially treated chrysotile
asbestos fiber less favorably than like substitute fiber.

ARTICLE XI: QUANTITATIVE RESTRICTIONS

Article XI of the GATT generally prohibits quantitative restrictions on the importation or the
exportation of any product, by stating "[n]o prohibitions or restrictions other than duties, taxes or
other charges shall be instituted or maintained by any Member..." One reason for this
prohibition is that quantitative restrictions are considered to have a greater protective
effect than tariff measures and are more likely to distort free trade. It is important to note
that under Article XI, ‘like product’ requirement is irrelevant. When a trading partner uses tariffs
to restrict imports, it is still possible to increase exports as long as foreign products become price
competitive enough to overcome the barriers created by the tariff. When a trading partner uses
quantitative restrictions, however, it is impossible to export in excess of the quota no matter how
price competitive foreign products may be. Thus, quantitative restrictions are considered to have
such a greater distortional effect on trade than tariffs that their prohibition is one of the
fundamental principles of the GATT.
However, the GATT provides exceptions to this fundamental principle. These exceptional rules
permit the imposition of quantitative measures under limited conditions and only if they are
taken on policy grounds justifiable under the GATT such as critical shortages of foodstuffs
(Article XI:2), restrictions imposed on agricultural products including fisheries etc.(Article X1:
2(c)) and balance of payment (Article XVIII:B). As long as these exceptions are invoked
formally in accordance with GATT provisions, they cannot be criticized as unfair trade
measures.

EXCEPTIONS PROVIDED UNDER ARTICLE X1: 2 OF GATT

- Export prohibitions or restrictions temporarily applied to prevent or relieve critical shortages of

foodstuffs essential to the exporting WTO Members (Paragraph 2 (a));
- Import and export prohibitions or restrictions necessary to the application of standards or
regulations for the classification, grading or marketing of commodities in international trade
(Paragraph 2 (b)); and

Import restrictions on any agricultural or fisheries product, necessary to the enforcement of

governmental measures which operate to restrict production of the domestic product or for certain
other purposes (Paragraph 2 (c)). (PLEASE NOTE THAT UNDER PARA. 2(C), only restriction is
mentioned and NOT prohibitions. Under other exception, prohibitions and restrictions are applied.

GENERAL OVERVIEW: SOME EXAMPLES OF IMPORT BAN WITH CASES

The text of Article XI: 1 is very broad in scope, providing for a general ban on import, export
restrictions, prohibitions ‘other than duties, taxes or other charges.’ The Panel in US — Shrimp found
that the United States violated Article XI by imposing an total import ban on shrimp and shrimp
products harvested by vessels of foreign nations without been certified by United States’ authorities.
In Canada — Periodicals, the Panel found that a complete ban on imports of certain magazines was
inconsistent with Article XI:1 of GATT: “Since the importation of certain foreign products into
Canada is completely denied under Tariff Code 9958, it appears that this provision by its terms is
inconsistent with Article XI:1 of GATT 1994.”

RESTRICTION OR PROHIBITION

In the case of India Autos, the restriction or prohibition should be such that it has a ‘limiting effect’
on the imports. “Not every measure affecting the opportunities for entering the market would be
covered by Article XI, but only those measures that constitute a prohibition or restriction on the
importation of products, i.e. those measures which affect the opportunities for importation
itself.” So, if you remember the Kaapo Kader case, it is very clear that a bar on the importation of the
herring smaller than the prescribed size does not merely affect the opportunity to enter the market, but
such measure constitute a prohibition on importation of this product.

The Appellate Body Report in China Raw Materials stated that the word ‘prohibition’ is used in a
very broad manner and is understood to mean as a “legal ban on the trade or importation of a
specified community.” For instance, prohibition of imported products would be inconsistent with
Article XI: 1 of GATT. Also, the panel report in India-Quantitative Restrictions determined the scope
of the term ‘restriction’ is also broad in scope and in terms of its ordinary meaning covers a
“limitation on action, a limiting condition or regulation.”

Article XI extends to de-facto restrictions and the very potential to limit trade is sufficient to
constitute a restriction.

CASE: EC ASBESTOS

Measure at issue: France's ban on asbestos (Decree No. 96-1133).

Product at issue: Imported asbestos (and products containing asbestos) vs certain domestic
substitutes such as PVA, cellulose and glass (“PCG”) fibres (and products containing such
substitutes).

The dispute revolved around the compatibility of the French ban on the import and use of construction
materials containing asbestos with free trade regulations. A French Decree came into force banning
the production, sale, and import of asbestos and products containing asbestos due to the health risks
associated with these goods. Inhaling asbestos can lead to severe illnesses such as asbestosis, lung
cancer, or mesothelioma. According to Art. 2 of the Decree, limited and temporary exceptions to the
import ban for some products containing Chrysotile are permitted if other less harmful substitutes, for
example, PCG, are not available. Canada sought to import products containing asbestos into France
and stated that the Decree violated several WTO regulations.

ANALYSIS

(REFER THE REASONING WITH THE DOCUMENT SENT BY PROF. JAMES)

CASE: BRAZIL TYRES

CASE IN A NUTSHELL

At issue was Brazil's ban on imports of retreaded tyres. The European Communities (EC) challenged
the ban as a violation of WTO rules, whereas Brazil defended the measure as necessary to protect
health and the environment. The Panel held that, although the ban was necessary to protect health and
the environment, it was applied in a WTO-inconsistent manner because Brazil failed to enforce a
similar ban on used tyre imports.

FACTS

Measure at issue: (i) Brazil's import prohibition on retreaded tyres (“Import Ban”); (ii) fines on
importing, marketing, transportation, storage, keeping or warehousing of retreaded tyres; (iii)
Brazilian state law restrictions on the marketing of imported retreaded tyres; (iv) exemptions of
retreaded tyres imported from Mercosur countries from the Import Ban and fines (“MERCOSUR
exemption”).

Product at issue: Retreaded tyres.

In this case, Brazil imposed the ban on retread imports claiming such imports led to a faster
accumulation of waste tyres, which create health and environmental hazards by providing breeding
grounds for mosquito-borne diseases such as dengue fever, yellow fever, and malaria, and by causing
tyre fires that are difficult to control. Furthermore, Brazil claimed, it is not only costly to collect waste
tyres scattered in its vast territory, but also technologically impossible to dispose of waste tyres
without negative environmental consequences.

ANALYSIS AND CONCLUSION

GATT Art. XI (prohibition on quantitative restrictions): The Panel concluded that Brazil's import
prohibition on retreaded tyres and the fines imposed by Brazil on importation, marketing,
transportation, storage, keeping or warehousing of retreaded tyres were inconsistent with Art. XI:1. In
this case, there was a clear import ban which violates the General Agreement on Tariffs and Trade
(GATT) Article XI:1. The Panel hold that any kind of import ban would amount to violation of Article
XI

CASE: US-TUNA DOLPHIN

While capturing tuna fish, dolphins were caught and as a result intentionally injured/ killed as dolphin
used to locate Tuna. The US marine Mammal Protection Act, 1772 prohibited any person under USA
jurisdiction from the taking, harassing or killing of any marine mammal whether directly or
incidentally in connection with the harvesting of fish. United States’ Marine Mammal Protection Act
(MMPA), imposed a ban on imports of tuna from countries that did not have a conservation program
designed to protect dolphins in the tuna-fishing process. Tuna, it turns out, are often found swimming
in schools underneath dolphins. In order to catch the tuna, fishermen used to drag large nets through
the water and then pull them up under the tuna. The Panel found that there is a violation under Article
XI: 1 of GATT.

ARTICLE XIII: NON-DISCRIMINATORY ADMINISTRATION OF QUANTITATIVE

RESTRICTION

No discrimination between Members in the application of quantitative restrictions and the allocation
of such restrictions should reflect their underlying trade shares. Details of any restrictions should be
transparent and negotiated with affected Members.

No prohibition or restriction shall be applied by any contracting party on the importation of any
product of the territory of any other contracting party or on the exportation of any product destined for
the territory of any other contracting party, unless the importation of the like product of all third
countries or the exportation of the like product to all third countries is similarly prohibited or
restricted.

Case of EEC - Chile against EEC on Apples:

European Economic Community (EEC) wanted to restrict import of apples and negotiated voluntary
restraint exports with some countries. Chile refused this. As a result on Chile, EEC imposed a quota of
42,000 tonnes at a time when GATT allowed Voluntary Export Restraints (VER).

The Panel in this case held that EEC has violated article 13 para 1 as it says similarly prohibited
includes the type of restriction i.e. in one case it was VER and other was quota cause difference in
transparency of both the measures, administration and one is mandatory and other is voluntary. In this
case, the restriction which was imposed on imported products from Chile was not similar to other
countries. Since, restriction was not similar. Therefore, EEC lost the case.

ARTICLE XX: EXCEPTIONS

Why do we need exceptions?

To allow members to adopt and maintain measures that promotes or protects other societal values and
interest even though the legislation or measures are inconsistent with substantive discipline imposed
by GATT.

Article 20(b) - Necessary to protect human, animal or plant life or health.

2 Requirement: (A) it must be shown that the measures have been taken for purposes of protecting
human, animal, plant life or health. (B) The measure is “necessary”.

What is “necessary” test?

(A) A measure that is indispensable. (B) Proportional that is the least trade restrictive measure.

Article 20(g)- relating to conservative of exhaustible natural resources if such measures are
made effective in conjunction with restrictions on domestic production or consumption.

3 Requirements: (A) is the measure concerned with conservation of exhaustible natural resources
(B) It is the measure relating to the conservation. (C) is the measure made effective in
conjunction with restrictions on domestic production or consumption.

“Relate to” test: the GATT panels have interpreted ‘relating to’ to mean that it must be primarily
aimed at conservation.

Tests for Article 20 GATT:

1) Existence of one of the exceptions under article 20(a-j)

2) Consistency with the chapeau of article 20

3) Relationship between measure and aim.

US-Shrimp (AB Report)

FACTS:

This case was brought by India, Malaysia, Pakistan and Thailand against the US. The measure
concerned was Section 609 of US Public Law 101–102. Section 609 of US Public Law 101–102,
enacted in 1989, dealt with imports. It said, among other things, that shrimp harvested with
technology that may adversely affect certain sea turtles may not be imported into the US — unless the
harvesting nation was certified to have a regulatory programme and an incidental take-rate comparable
to that of the US, or that the particular fishing environment of the harvesting nation did not pose a
threat to sea turtles.

The appellate body tested the measure under the provisional justification under XX(g) and the shopue
of Article XX of GATT.

Under XX(g), they hold

1.) The sea turtles sought to be protected are ‘exhaustible natural resources’. Any resourced,
living/non-living, renewable/ non renewable can be exhaustible.

2.) S.609 is a measure ‘relating to’ the conservation of [exhaustible natural resources]. There
should be a relationship between general structure and design of the measure at stake and
legitimate policy of conserving exhaustible natural resources that it purports to serve. Court
holds that design of S. 609 is narrowly focused to protect sea turtles- exemptions from the
import ban given if (a) the fishing technique is not harmful for the turtles (b) if the countries
have been certified are also focused on this policy. The means are reasonabley related to the
ends. There is a close and real relationship between them.

3.) S. 609 was made effective in conjunction with restriction on domestic consumption and
production. Various internal laws were cited to prove that the same restrictions were imposed
internally also.

Regarding the ‘Chapeau’

The Court begins by analyzing the importance of Chapeau itself. If a measure falls withing the terms
of A XX(g), it doesn’t mean that it will automatically comply with the terms of Chapeau as well.
[detail: para 150-156] Para 158- Chapeau is an anti abuse provision. Acc. to the chapeau, the measure
should not be applied in a manner so as to constitute “arbitrary discrimination between the countries
where the same conditions prevail”, “unjustifiable discrimination in the countries where same
conditions prevail” or “a disguised restriction on international trade”.

1. Unjustifiable discrimination-para 163: failed to negotiate- it was a unilateral decision, did not
take into account the conditions prevailing in different countries.- availability of an alternative-
para 172(imp.)- there was differing treatment given to different countries while certification.

2. Arbitrary – Single rigid an unbending requirement to apply for certification constitute

arbitrariness. – certification process(para 180) is extremely informal-casual and arbitrary.
US- Gambling

KOREA- BEEF

US filed a complained against the Republic of Korea. The measure concerned are Korean regulatory
scheme that allegedly discriminates against imported beef by inter alia, confining sales of imported
beef to specialized stores (dual retail system), limiting the manner of its display, and otherwise
Antigua and Barbuda requested consultations with the US regarding measures applied by central,
regional and local authorities in the US which affect the cross-border supply of gambling and
betting services. Antigua and Barbuda considered that the cumulative impact of the US measures is
to prevent the supply of gambling and betting services from another WTO Member to the United
States on a cross-border basis.

In this regard, it first noted that GATS Article XIV ‘sets out the general exceptions from obligations
under that Agreement in the same manner as does [GATT] Article XX’. Thus, it found previous
decisions under GATT Article XX to be ‘relevant for [the] analysis under Article XIV of the
GATS’. The converse is also true. Interpreting ‘necessary’, the AB said “It is on the basis of this
“weighing and balancing” and comparison of measures, taking into account the interests or values
at stake, that a panel determines whether a measure is “necessary” or, alternatively, whether
another, WTO-consistent measure is “reasonably available”.

AB found that the United States’ measures are justified under Article XIV(a) of the GATS as
measures “necessary to protect public morals or to maintain public order”. But the measure is not
covered under the exception because the United States had failed to show that these measures
satisfy the conditions of the chapeau of Article XIV.

constraining the opportunities for the sale of imported beef. The US alleged that Korea imposes a
mark-up on sales of imported beef, limits import authority to certain so-called “super-groups” and the
Livestock Producers Marketing Organization (“LPMO”), and provides domestic support to the cattle
industry in Korea in amounts which cause Korea to exceed its aggregate measure of support as
reflected in Korea’s schedule. The US contended that these restrictions apply only to imported beef,
thereby denying national treatment to beef imports. Korea took the exception of Article 20(g).

Panel interpreted the term necessary in XX(g). the Appellate Body set out the following three relevant
factors for determining whether a measure is ‘necessary’: (1) the contribution made by the compliance
measure to the enforcement of the law or regulation at issue(see if alternatives are available); (2) the
importance of the common interests or value protected by that law or regulation; and (3) the
accompanying impact of the law or regulation on imports or exports(GATT inconsistency of the
measure, less trade restrictive measure). It should be seen that the value pursued is vital and
important(vitality test)- Held that measure cannot be justified under it because it was not ‘necessary’.
Brazil- Tyres

EC filed complaint against Brazil. The measure concerned was (i) Brazil's import prohibition on
retreaded tyres (“Import Ban”); (ii) fines on importing, marketing, transportation, storage, keeping or
warehousing of retreaded tyres; (iii) Brazilian state law restrictions on the marketing of imported
retreaded tyres; (iv) exemptions of retreaded tyres imported from Mercosur countries from the Import
Ban and fines (“MERCOSUR exemption”).

The Appellate Body upheld the Panel's finding that the Import Ban was provisionally justified as
“necessary” within the meaning of Art. XX(b). The Appellate Body determined that the assessment of
whether discrimination is arbitrary or unjustifiable should be made in the light of the objective of the
measure, and found that the MERCOSUR exemption had resulted in the Import Ban being applied in
a manner that constituted arbitrary or unjustifiable discrimination. (covered by 150-155)

US- Gasoline

Venezuela requested for consultation alleging that US gasoline regulation discriminated against
complainants’ gasoline. US took defense of Art. 20(b), panel said still no such need of granting less
favorable treatment to importers. Thus, violation alternative being as per necessary test, US could
assign the statutory baseline to all products. The holding of this case has been reiterated in US –
Shrimp case, so just use Shrimp case.

ARTICLE 24

Art XXIV is an exception and defense, not a right or an obligation:

Art. XXIV does not establish any positive obligations for WTO Members, and as a result, there is no
way to violate it. Thus, no Member will be able to bring an independent claim on the grounds that a
particular CU does not meet the terms set out under Art. XXIV. Rather, Art. XXIV is an exception,
and provides a defence for WTO inconsistent behavior,6 particularly derogation from the cardinal
principle of most favoured nation (MFN) treatment.7 However, it is important to note that this defence
is only available on a conditional basis. In order to qualify for the exception of Art. XXIV, a CU must
first meet the definitions set out in Art. XXIV, and further fulfil what are commonly referred to as the
external and internal trade requirements.

Definition of a ‘customs union’ in Art. XXIV:8:

Art. XXIV:8(a) states that a customs union shall be understood to mean the substitution of a single
customs territory for two or more customs territories’ The ambiguity of this wording raises the
following question: for the purposes of Art. Although this provision has not been interpreted by the
Appellate Body, the negotiating history offers some indication.

Art. XXIV:5(a).
This provision limits the extent to which CU members can increase their external restrictions on trade
for non-CU parties when forming the CU. Accordingly, such increase should not be jon the whole
higher or more restrictive than the general incidence of the duties and regulations of commerce
applicable in the constituent territories prior to CU formation. The Understanding on Art. XXIV
clarifies that for duties, any evaluation shall be based upon an overall assessment of weighted average
tariff rates and of customs duties collectedk11, and the applied rates are to be taken into consideration.
For other regulations of commerce (ORC), the Understanding does not offer a formula, but notes that
evaluation will likely need to be case-by-case, examining individual measures, regulations, products
covered and trade flows affected.

Art XXIV:8(a)(ii).

In accordance with this provision, a CU must apply j7substantially the same duties and other
regulations of commerce to non-CU Members. The Appellate Body briefly addressed this question in
the Turkey-Textiles case, stating that substantially implies something closely approximating sameness
although parties still enjoy ja certain degree of flexibility in terms of their individual external trade
policies

. The ‘internal’ trade requirement of a customs union

In order to qualify as a customs union, the following requirement, set out in Art. XXIV:8(a)(i) must be
met:

duties and other restrictive regulations of commerce (except, where necessary, those permitted under
Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all trade between
the constituent territories of the union or at least with 11Understanding on Art. XXIV, (s, respect to
substantially all the trade in products originating in such territories

The meaning of duties. The term duties should be interpreted to refer only to ordinary customs duties,
and not other types of special duties, or charges (such as taxes and fees) that may be imposed at the
border. Although the English version of the text is somewhat ambiguous on this point, the French and
Spanish versions (which are equally authentic) are clear. The French version uses the term droits de
douane and the Spanish version uses drenches de aduana. Both are translated as customs duties. The
distinction between customs duties and all other duties is first introduced in GATT Art. II:1(b). When
distinguishing between the two, the French and Spanish versions employ droits de douane and
derechas de aduana, respectively, to refer to ordinary customs duties. Therefore, we would exclude
special types of duties, such as those used for safeguards, anti-dumping and countervailing measures,
from the term duties in Art.

Are Members required to apply measures within the exceptions list to their CU partners?

Prior to the Turkey-Textiles case, it was unclear whether the exceptions list of Art. XXIV:8(a)(i)
made it mandatory for Members to apply the listed measures to their CU trading partners if those
measures were applied to non-CU parties. The Appellate Body clarified this point, stating that
members of a customs union may maintain, where necessary7certain restrictive regulations of
commerce that are otherwise permitted7k39 This shows that article XXIV:8 of the GATT can be
construed as permitting rather than mandating non-application of trade remedies within customs
unions. While this permission may be further invalidated by rules applicable to certain measures on
the exceptions list (as we will discuss in Section 4, dealing with non-tariff barriers), Art. XXIV:8 does
not appear to require the non-discriminatory application of these measures.

Additional requirements to employ Art XXIV as a defense:-

In addition to meeting the definitional requirements for internal and external trade, the Appellate Body
has articulated two additional requirements to use Art. XXIV as a defence, both of which are found in
the chapeau of Art. XXIV:5.41 For the Appellate Body, the phrase shall not prevent operates to
introduce the Art XXIV defense.42 However, it is only available if the WTO-inconsistent measure at
issue was introduced upon the formation of the CU.43 Secondly, the defence is only available if the
formation CU would have been prevented if the measure in question had not been introduced.44 This
second element includes an implicit necessity test that, according to the Appellate Body, will only be
met if there is no other reasonable alternative measure that would have been less trade restrictive, yet
allowed the PTA to be established.

We argue that these two additional requirements should be seen to apply only to WTO-inconsistent
measures that result in an increase in external trade restrictions for non-CU parties, and not for
measures that merely result in a decrease in trade restrictions for CU parties. The Appellate Body
made these findings in the context of a case that involved an increase to quantitative restrictions on
textiles coming from non-CU trading partners (Turkey’s implementation of quantitative restrictions
for textile products). It has not discussed these additional conditions in any other context. Given that
Art. XXIV:5 aims to limit Members ability to use their PTAs as an excuse to raise their restrictions on
external trading partners,46 we argue that the additional conditions of the chapeau should be read
specifically in this light. If CU parties were required to prove that every decrease in trade restrictions
within the CU were necessary to the CUls formation, this would undermine the very purpose of Art
XXIV, which is the elimination between the constituent territories of duties and other restrictive
regulations of commerce. Furthermore, since Art. XXIV gives CU parties discretion as to which
internal trade restriction to eliminate and in which circumstances, provided that restrictions are
eliminated on substantial all trade7it would go beyond the role of panels and the Appellate Body to
second-guess such decisions.k48 This perspective is supported by the findings of the Panel in the
Line-pipe Safeguards case, in which it determined that the necessity test should not be required for
violations caused by the elimination of barriers within a PTA.49 While this finding was not reviewed
by the Appellate Body on appeal and was deemed to be of no formal legal relevance for future
disputes,50 it serves as strong indication of how this provision might be addressed in the future.

CASE- TURKEY TEXTILES CASE

FACTS-

The dispute concerns two WTO member countries, Turkey and India, and the wrongful imposition by
Turkey of textile quotas on 19 categories of Indian textile and clothing goods.

The dispute essentially concerned the following: as a member of the customs union with the EU,
Turkey agreed to align its external trade policy to that of the EU, which, as is widely known,
maintains quotas on imports of textiles and clothing products. Since, in the customs union, products
can freely circulate between Turkey and the EU without being subject to any duties or restrictive
measures, Turkey argued that it had to introduce quotas on textile and clothing products to avoid the
circumvention of the EU quotas by means of imports into the EU via Turkey. The Panel ruling on the
matter at the WTO rejected Turkey's argument.

HOLDING-

GATT Arts. XI (prohibition on quantitative restrictions) and XIII (non-discriminatory administration

of quantitative restrictions): The Panel found that the quantitative restrictions at issue were
inconsistent with Arts. XI and XIII. (Turkey did not deny this.) •

ATC Art. 2.4 (prohibition on new restrictions): The Panel found that Turkey's measures were new
restrictions, that did not exist at the time of the entry into force of the ATC, and, thus, were prohibited
by Art. 2.4. •

GATT Art. XXIV (regional trade agreements): The Appellate Body agreed with the Panel's ultimate
conclusion that Turkey's measures were not justified under Art. XXIV because there were alternatives
available to Turkey that would have met the requirements of Art. XXIV:8(a), which were necessary to
form the customs union, other than the adoption of the quantitative restrictions. The Appellate Body,
therefore, modified the Panel's legal reasoning and concluded that to determine whether a measure
found inconsistent with certain other GATT provisions can be justified under Art. XXIV, a panel
should examine two conditions: (i) whether a “customs union”, as defined in Art. XXIV:8 exists
(compatibility of a customs union with the provisions of Art. XXIV); and (ii) whether the formation of
a customs union would be prevented without the inconsistent measure (i.e. whether the measure is
necessary for the formation of a customs union). (The Panel had assumed the existence of the customs
union and moved on to examine the necessity)

Burden of proof (GATT Art. XXIV): The Appellate Body agreed with the Panel that Art. XXIV may
be considered as a “defence” or “exception” to a violation. The Panel also held that the burden of
proof under Art. XXIV was on the party invoking it.

SPS MEASURES

The Agreement on the Application of Sanitary and Phytosanitary Measures sets out the basic rules
for food safety and animal and plant health standards.
 The purpose of the SPS Agreement is to ensure that measures established by governments to
protect human, animal and plant life and health are consistent with obligations prohibiting
arbitrary or unjustifiable discrimination on trade between countries where the same conditions
prevail. Also, such measures shall not be applied in a manner that would constitute a disguised
restriction on international trade.

It allows countries to set their own standards. But it also says regulations must be based on science.
They should be applied only to the extent necessary to protect human, animal or plant life or health.
The Agreement also allows for countries to adopt stricter measures than those adopted by the
international organisations, but only if there is a scientific justification for doing so or if the level of
protection afforded by the recognized standard setting organizations is inconsistent with the level of
protection generally applied and deemed appropriate by the country concerned(Article 3.3).

1) Article 1 – General Provisions - Outlines the application of the Agreement.

SPS Measures include those measures which –a) related to the entry, establishment or spread of
pests or diseases; disease-carrying organisms; or disease-causing organisms. b) risks arising
from: food additives; contaminants; toxins; or disease-causing organisms in foods, beverages, or
feedstuffs

2) Article 2 – Basic Rights and Obligations.

Article 2.2 - requires measures to be based on sufficient scientific analysis.

Article 2.3 - states that Members shall ensure that their sanitary and phytosanitary measures do not
arbitrarily or unjustifiably discriminate between Members where identical or similar conditions
prevail, including between their own territory and that of other Members. Sanitary and
phytosanitary measures shall not be applied in a manner which would constitute a disguised restriction
on international trade.

3) Article 3 – Harmonization- This article requires Members to base their sanitary and
phytosanitary measures on international standards, guidelines and recommendations, where
they exist and if sufficient to provide the appropriate level of protection.

Article 3.3- Members can establish a higher level of protection if scientific justification is
provided in accordance with the requirements in Article 5 (Risk Assessment) (article 3.3). In
addition, Members are to fully participate in the relevant international organizations (Codex, IPPC and
OIE), within the limits of their resources, to promote the development of sanitary and phytosanitary
standards.

4) Article 5 – Risk Assessment and Determination of the Appropriate Level of SPS

Protection.

Article 5.1 – Members shall ensure that their SPS measures are based on – an assessment, as
appropriate, of the risks to human, animal or plant life or health, – taking into account risk
assessment techniques developed by the relevant international organizations .

Article 5.2- In risk assessment, take into account: • Scientific evidence • Processes and production
methods • Inspection, sampling, and testing methods • Pest or disease prevalence • Ecological and
environmental conditions • Quarantine and other treatment.

Article 5.4- Members should, when determining the appropriate level of sanitary or phytosanitary
protection, take into account the objective of minimizing negative trade effects.

Article 5.5 - each Member shall avoid arbitrary or unjustifiable distinctions in the levels it
considers to be appropriate in different situations, if such distinctions result in discrimination or a
disguised restriction on international trade, it will not be considered.

For an article 5 assessment remembers – non-use of international standard requires risk

assessment risk assessment need not be quantitative • risks must be ascertainable, not just
theoretical • can go beyond controlled lab conditions, assess risk in real world • risk assessment can
consider divergent, minority scientific view.

CASE- EC-HARMONES CASE-

FACTS-

In 1996, the United States and Canada challenged before the WTO Dispute Settlement Body (DSB) a
number of EU directives prohibiting the importation and sale of meat and meat products treated with
certain growth hormones. This had a direct impact on the US beef industry, which uses hormones in
more than half of the cattle sent to market each year. The ruling effectively blocked $140 million
worth of American beef exports during the first year. The United States began dispute settlement
proceedings in 1996 to have the EU import ban removed. The EU lost an initial WTO dispute
settlement decision on the beef hormone import ban in 1997, and then lost an appeal in January
1998. EU alleged that it had collected new scientific data evidencing that the banned hormones
may cause harm to consumers. According to the EU, they had scientific data which provides
sufficient ground for the ban on hormones, which may no more be sanctioned by the countermeasures
imposed by the USA and Canada.

ISSUE- : Whether EC prohibition on the placing on the market and the importation of meat and meat
products treated with certain hormones was justified under SPS

FINAL HOLDING- SPS Art. 3.1 (international standards): The Appellate Body rejected the Panel's
interpretation and said that the requirement that SPS measures be “based on” international
standards, guidelines or recommendations under Art. 3.1 do not mean that SPS measures must
“conform to” such standards.

• Relationship between SPS Arts. 3.1, 3.2 and 3.3 (harmonization): The Appellate Body rejected
the Panel's interpretation that Art. 3.3 is the exception to Arts. 3.1 and 3.2 assimilated together and
found that Arts. 3.1, 3.2 and 3.3 apply together, each addressing a separate situation. Accordingly, it
reversed the Panel's finding that the burden of proof for the violation under Art. 3.3, as a provision
providing the exception, shifts to the responding party.

• SPS Art. 5.1 (risk assessment): While upholding the Panel's ultimate conclusion that the EC
measure violated Art. 5.1 (and thus Art. 3.3) because it was not based on a risk assessment, the
Appellate Body reversed the Panel's interpretation, considering that Art. 5.1 require that there be a
“rational relationship” between the measure at issue and the risk assessment.

• SPS Art. 5.5 (prohibition on discrimination and disguised restriction on international trade):
The Appellate Body reversed the Panel's finding that the EC measure, through arbitrary or
unjustifiable distinctions, resulted in “discrimination or a disguised restriction of international trade”
in violation of Art. 5.5, noting: (i) the evidence showed that there were genuine anxieties concerning
the safety of the hormones; (ii) the necessity for harmonizing measures was part of the effort to
establish a common internal market for beef; and (iii) the Panel's finding was not supported by the
“architecture and structure” of the measures.

Burden of proof (SPS Agreement): The Appellate Body reversed the Panel's finding that the SPS
Agreement allocates the “evidentiary burden” to the Member imposing an SPS measure.

CASE: INDIA AGRICULTURAL PRODUCT

FACTS:

 India placed a poultry ban on 10 products due to the risk of Avian Influenza.

 The US stated these measures were inconsistent with various Articles of the SPS agreement.

ISSUE:

 Whether India's poultry prohibition is justified under the SPS?

ANALYSIS:

 The appellate body held that, India's measures did not conform to the international standards
required under Article 2 of the SPS. There was risk assessment absent in India's measures
which made it inconsistent with Article 2 and 5 of the SPS.

 Article 5.6 looks at whether there is an alternative SPS measure which would achieve the
member's ALOP while also being significantly less trade restrictive. Requirements to be met
 under Article 5.6:

 SPS measure is reasonably available taking into account economic and technical feasibility.

 Achieves the member's (India's) appropriate level of SPS protection.

 Less restrictive to trade than SPS measure contested.

 The US had identified alternative measures which satisfy the requirements under Article
5.6. This made India's measures inconsistent with Article 5.6.

 Members have certain obligation that need to be satisfied for the introduction of sanitary
measures under Article 6. They are:

 SPS measures need to be adapted to the sanitary or pystosanitary characteristics of the area.

 Recognize the concept of pest/disease free areas or low pest areas

India did not satisfy either of these obligations.

TECHNICAL BARRIERS TO TRADE

The WTO Agreement on Technical Barriers to Trade (the “TBT Agreement”) entered into force with
the establishment of the World Trade Organization (WTO) on 1 January 1995. It aims to ensure that
regulations, standards, testing and certification procedures do not create unnecessary obstacles to
trade.

The TBT Agreement helps in distinguishing between "legitimate" and protectionist motivations for

IMPORTANT POINT WITHIN -Preamble to TBT-

“Recognizing that no country should be prevented from taking measures necessary to ensure the quality
of its exports, or for the protection of human, animal or plant life or health, or the environment, or for
the prevention of deceptive practices, at the levels it considers appropriate, subject to the requirement
that they are not applied in a manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail or a disguised restriction on
international trade, and are otherwise in accordance with the provisions of this Agreement;”

TBT measures.

MEASURES UNDER THE AGREEMENT-

The TBT Agreement distinguishes between three categories of measures: technical regulations,
standards, and conformity assessment procedures.
 1) TECHNICAL REGULATIONS-

Technical regulations lay down product characteristics or their related processes and production
methods. Compliance is mandatory. They may also deal with terminology, symbols, packaging,
marking and labelling requirements.

EXAMPLE- they may be specific-relating to maximum permitted levels of lead in paint used on toys,
or prohibiting the use of certain additives in tobacco products. OR more general in nature- the
establishment of criteria for the labelling of organic agricultural products, or emission requirements
for diesel engines.

What they have in common is that, through some form of government intervention (law, regulation,
decree, act), market access is contingent on fulfilling the requirements set out in the technical
regulation.

TEST-

To ascertain that a technical regulation exists, WTO jurisprudence to date has established three
criteria:

(i) that the requirements (given in that particular measure) must apply to an identifiable
product or group of products (even if this is not expressly identified in the document);

(ii) ii) that the requirements must specify one or more characteristics of the product (these may
be intrinsic to the product itself, or simply related to it, and they may be prescribed or
imposed in either a positive or a negative form);

(iii) that compliance with the product characteristics must be mandatory.

2) STANDARDS-

Standards are approved by a recognized body which is responsible for establishing rules, guidelines or
characteristics for products or related processes and production methods. Compliance is not
mandatory. They may also deal with terminology, symbols, packaging, marking and labelling
requirements. Standards are often used as the basis for both technical regulations and conformity
assessment procedures and, in such cases, the requirements set out in the standard become mandatory
by virtue of government intervention.

TEST-

Standards are addressed by the TBT Agreement in a separate "Code of Good Practice for the
Preparation, Adoption and Application of Standards" (the Code) contained in Annex 3 of the TBT
Agreement. This Code, which is open to acceptance by any standardizing body, offers guidance on the
process of setting standards (e.g. these should be transparent, and standardizing bodies should accept
comments and avoid duplication).

3) Conformity assessment procedures

Conformity assessment procedures are used to determine that relevant requirements in technical
regulations or standards are fulfilled. They include procedures for sampling, testing and inspection;
evaluation, verification and assurance of conformity; and registration, accreditation and approval.

TEST-

Given that different types of conformity assessment procedures affect trade differently, a key issue
from the perspective of the WTO is the choice of which conformity assessment procedure to use in a
particular situation. One factor that might influence this choice is the level of risk: for instance, third-
party certification (a form of conformity assessment procedure that tends to be more costly than, for
example, a supplier’s declaration of conformity) may be the choice of some members in situations in
which the risk of harm is sufficiently high.

KEY PRINCIPLES-

The substantive PRINCIPLES of the TBT Agreement are that it should be: non-discrimination,
avoidance of unnecessary barriers to trade, the use of international standards, as well as technical
assistance and special and differential treatment for developing countries. Transparency(AM NOT
DOING WE DID NOT DO IN CLASS AND NOT RELEVENT FOR THE CASES AS WELL) – an
additional core element of the TBT Agreement

1) Non-discrimination

Under the TBT Agreement, governments must ensure that TBT measures do not discriminate against
foreign products (in favour of domestic producers), or between foreign producers (for example, by
favouring one country over another):

A) Technical regulations (Article 2.1)

Members shall ensure that in respect of technical regulations, products imported from the territory of
any Member shall be accorded treatment no less favourable than that accorded to like products of
national origin and to like products originating in any other country.

If a member wishes to claim a violation of Article 2.1 of the TBT Agreement, it needs to show: (i) that
the products involved are "like" and (ii) that the imported products have been accorded "less
favourable treatment". With respect to the former, WTO adjudicators have referred to the traditional
"likeness" criteria (physical characteristics, end-uses, consumer tastes and habits, and tariff
classification) and the "competitive relationship" between and among the products being compared.
With respect to "less favourable treatment",
if detrimental impact stems exclusively from a legitimate regulatory distinction, there is not
necessarily a violation of the Article 2.1 EG- a requirement that meat must be frozen before transport
over long distances will entail different costs for local producers as compared with overseas exporters.
This does not necessarily imply less favourable treatment.

B) Conformity assessment procedures (Articles 5.1 and 5.1.1)

5.1 members shall ensure that, in cases where a positive assurance of conformity with technical
regulations or standards is required, their central government bodies apply the following provisions to
products originating in the territories of other Members: 5.1.1 conformity assessment procedures are
prepared, adopted and applied so as to grant access for suppliers of like products originating in the
territories of other Members under conditions no less favourable than those accorded to suppliers of
like products of national origin or originating in any other country, in a comparable situation; access
entails suppliers' right to an assessment of conformity under the rules of the procedure, including,
when foreseen by this procedure, the possibility to have conformity assessment activities undertaken
at the site of facilities and to receive the mark of the system. Standards (paragraph D of Annex 3,
under "substantive provisions")

C) standards,

the standardizing body shall accord treatment to products originating in the territory of any other
Member of the WTO no less favourable than that accorded to like products of national origin and to
like products originating in any

CASE

2) Avoidance of unnecessary barriers to trade-

Even if a technical regulation is non-discriminatory (thus passing the test described above), it could
still BE AGAINST the TBT Agreement because it restricts trade unnecessarily. Thus all measures
must be necessary –

A)Technical regulations (Article 2.2) Members shall ensure that technical regulations are not
prepared, adopted or applied with a view to or with the effect of creating unnecessary obstacles to
international trade. For this purpose, technical regulations shall not be more trade-restrictive than
necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create. Such
legitimate objectives are, inter alia: national security requirements; the prevention of deceptive
practices; protection of human health or safety, animal or plant life or health, or the environment. In
assessing such risks, relevant elements of consideration are, inter alia: available scientific and
technical information, related processing technology or intended end-uses of products.

B) Conformity assessment procedures (Articles 5.1 and 5.1.2) … conformity assessment

procedures are not prepared, adopted or applied with a view to or with the effect of creating
unnecessary obstacles to international trade. This means, inter alia, that conformity assessment
procedures shall not be more strict or be applied more strictly than is necessary to give the importing
Member adequate confidence that products conform with the applicable technical regulations or
standards, taking account of the risks non-conformity would create.

C) Standards (paragraph E of Annex 3, under "substantive provisions") The standardizing body

shall ensure that standards are not prepared, adopted or applied with a view to, or with the effect of,
creating unnecessary obstacles to international trade.

However, Article 2.3 states that measures may not be maintained if the circumstances or
objectives giving rise to their adoption no longer exist, or if the changed circumstances or
objectives can be addressed in a less traderestrictive manner. In other words, if, upon
reassessment in light of new scientific (or other relevant) information, a perceived risk is
deemed to be non-existent, it may be necessary to review the measure.(against the
preamble wala part)

3) International standards

The TBT Agreement strongly encourages members to use "relevant" international standards, guides or
recommendations "as a basis" for their regulations and standards (Articles 2.4, 5.4 and Annex 3,
paragraph F of the TBT Agreement).

A)Technical regulations (Article 2.4) Where technical regulations are required and relevant
international standards exist or their completion is imminent, Members shall use them, or the relevant
parts of them, as a basis for their technical regulations except when such international standards or
relevant parts would be an ineffective or inappropriate means for the fulfilment of the legitimate
objectives pursued, for instance because of fundamental climatic or geographical factors or
fundamental technological problems.

B)Conformity assessment procedures (Article 5.4) In cases where a positive assurance is required
that products conform with technical regulations or standards, and relevant guides or
recommendations issued by international standardizing bodies exist or their completion is imminent,
Members shall ensure that central governments bodies use them, or the relevant parts of them, as a
basis for their conformity assessment procedures, except where, as duly explained upon request, such
guides or recommendations or relevant parts are inappropriate for the Members concerned, for, inter
alia, such reasons as: national security requirements; the prevention of deceptive practices; protection
of human health or safety, animal or plant life or health, or the environment; fundamental climatic or
other geographical factors; fundamental technological or infrastructural problems.

Standards (paragraph F of Annex 3, under "substantive provisions") Where international

standards exist or their completion is imminent, the standardizing body shall use them, or the relevant
parts of them, as a basis for the standards it develops, except where such international standards or
relevant parts would be ineffective or inappropriate, for instance, because of an insufficient level of
protection or fundamental climatic or geographical factors or fundamental technological problems.

CASES

1) US-CLOVE CIGARETTE CASE

FACTS-

The "US – Clove Cigarettes" dispute concerned a prohibition by the United States on the production
or sale of cigarettes containing flavours other than tobacco or menthol. The objective of the measure
was to reduce youth smoking. Indonesia, while not disputing the importance of reducing smoking,
complained that the measure prevented it from exporting clove-flavoured cigarettes to the United
States. It argued, among other things, that the prohibition of one flavour (clove) but not the other
(menthol) was discriminatory. Based on the competitive relationship between the products, the final
ruling determined that clove cigarettes imported from Indonesia and menthol cigarettes produced in
the United States were "like".

Holding-

TBT Art. 2.1 (no less favourable treatment): The Appellate Body upheld, although for different
reasons, the Panel’s finding that, by banning clove cigarettes while exempting menthol cigarettes from
the ban, Section 907(a)(1)(A) accorded less favourable treatment to imported clove cigarettes than it
accorded to “like” domestic menthol cigarettes. The Appellate Body interpreted “treatment no less
favourable” in Art. 2.1 as not prohibiting a detrimental impact on imports when such impact stems
exclusively from a legitimate regulatory distinction. The Appellate Body found that the design,
architecture, revealing structure, operation and application of Section 907(a)(1)(A) strongly suggested
that the detrimental impact on competitive opportunities for clove cigarettes reflected discrimination
against the group of like products imported from Indonesia.

TBT Art. 2.12, The Appellate Body upheld, although for different reasons, the Panel’s finding that, by
failing to allow an interval of not less than six months between the publication and the entry into force
of Section 907(a)(1)(A), the United States acted inconsistently with Art. 2.12. The Appellate Body
upheld the Panel’s finding that para. 5.2 constitutes a “subsequent agreement between the parties”
within the meaning of Art. 31(3)(a) of the VCLT, on the interpretation of the term “reasonable
interval” in Art. 2.12. Moreover, the Appellate Body found that “reasonable interval” should normally
be interpreted to mean at least six months.
 2) US- TUNA CASE

FACTS-

The "US – Tuna II" dispute concerned various US measures affecting the labelling of tuna products as
"dolphin-safe". In particular, the measures at issue determined that the "dolphin-safe" label could not
be used on tuna caught with "purse-seine nets" under the fishing technique of "setting on" dolphins.
Mexico, a purseseine net user in the Eastern Tropical Pacific Ocean, complained that the US measures
were inconsistent with the TBT Agreement and prevented Mexican exporters from labelling their tuna
as "dolphin-safe".

HOLDING-

TBT Annex 1.1 (definition of technical regulation): The Appellate Body found that “the US
measure establishes a single and legally mandated set of requirements for making any statement with
respect to the broad subject of ‘dolphin-safety’ of tuna products in the United States”. Thus, it upheld
the Panel’s ruling characterizing the measure at issue as a “technical regulation” within the meaning of
TBT Annex 1.

TBT Art. 2.1 (national treatment – technical regulations): According to the Appellate Body, the
measure at issue modified the competitive conditions in the US market to the detriment of Mexican
tuna products and the United States did not demonstrate that this stemmed solely from “legitimate
regulatory distinctions”. The Appellate Body, therefore found that the US “’dolphin-safe” labelling
measure was inconsistent with Art. 2.1 and reversed the Panel’s contrary finding.

TBT Art. 2.2 (not more trade-restrictive than necessary): The Appellate Body disagreed with the
Panel’s ruling that the measure at issue was more trade-restrictive than necessary to fulfil US
legitimate objectives, and found instead that “the alternative measure proposed by Mexico [AIDCP
‘dolphin safe’ labelling combined with the existing US standard] would contribute to both the
consumer information objective and the dolphin protection objective to a lesser degree than the
measure at issue”. The Appellate Body thus reversed the Panel’s finding that the measure was
inconsistent with Art. 2.2.

TBT Art. 2.4 (international standard): The Appellate Body modified the Panel’s conclusion and
ruled that the AIDCP “dolphin-safe” definition and certification did not constitute a “relevant
international standard” within the meaning of Art. 2.4, since “the AIDCP is not open to the relevant
bodies of at least all Members and thus not an ‘international standardizing body’ for purposes of the
TBT Agreement”. It nonetheless upheld the Panel’s ultimate finding that the measure did not violate
Art. 2.4.

3) EC- SEALS CASE

The European Union (“EU Seal Regime”) prohibited the importation and placing on the market of
seal products, with certain exceptions, including for seal products derived from hunts conducted by
Inuit or indigenous communities (IC exception) and hunts conducted for marine resource management
purposes (MRM exception). Canada, which suffered a major loss filed for violation under TBT.

HELD-

TBT Annex 1.1 (technical regulation): The Appellate Body reversed the Panel’s intermediate
finding that the EU Seal Regime lays down “product characteristics”, and consequently reversed the
Panel’s finding that the EU Seal Regime was a “technical regulation” within the meaning of TBT
Annex 1.1. The Appellate Body was unable to complete the legal analysis and thus did not rule on
whether the EU Seal Regime lays down “related processes and production methods” within the
meaning of TBT Annex 1.1. The Appellate Body therefore declared moot and of no legal effect the
Panel’s conclusions under TBT Arts. 2.1, 2.2, 5.1.2, and 5.2.1.

GATT Art. I:1 (most-favoured-nation treatment): The Appellate Body upheld the Panel’s finding
that the legal standard for the non-discrimination obligations under TBT Art. 2.1 does not apply
equally to claims under GATT Art. I:1. The Appellate Body therefore upheld the Panel's finding that
the EU Seal Regime was inconsistent with GATT Art. I:1 in respect of the IC exception, as it did not
“immediately and unconditionally” extend the same market access advantage to Canadian and
Norwegian seal products that it accorded to seal products from Greenland.

GATT Art. III:4 (national treatment – domestic laws and regulations): The Appellate Body
upheld the Panel's finding that the legal standard for the non-discrimination obligations under TBT
Art. 2.1 does not apply equally to claims under GATT Art. III:4. The European Union did not appeal
the Panel's finding that the EU Seal Regime was inconsistent with GATT Art. III:4 in respect of the
MRM exception, as it accorded less favourable treatment to imported Canadian and Norwegian seal
products than that accorded to like domestic products.

GATT Art. XX(a) (general exceptions – necessary to protect public morals): The Appellate Body
upheld the Panel's finding that the EU Seal Regime was “necessary to protect public morals” within
the meaning of GATT Art. XX(a).

The “chapeau” of GATT Art. XX (general exceptions): The Appellate Body found that the Panel
erred in applying the same legal test to the chapeau of GATT Art. XX as it applied to TBT Art. 2.1,
instead of conducting an independent analysis of the consistency of the EU Seal Regime with the
specific terms and requirements of the chapeau. The Appellate Body therefore reversed the Panel's
findings under the chapeau. However, the Appellate Body completed the analysis and found, as did
the Panel, that the European Union had not demonstrated that the EU Seal Regime, in particular with
respect to the IC exception, met the requirements of the chapeau of GATT Art. XX. Therefore, the
Appellate Body found that the European Union had not justified the EU Seal Regime under GATT
Art. XX(a).
DIFFERENCE BETWEEN SPS AND TBT-

Article 1.5 of the TBT Agreement excludes SPS measures from its scope. This means that a TBT
measure cannot be an SPS measure and vice versa.( the SPS Agreement concerns predefined
specific risks related to human health (mostly about food safety) and animal/plant health or life
or protection from pests.)

It is the purpose of a particular measure that determines whether that measure is subject to the
disciplines of the SPS or the TBT Agreement, and not the particular product or category of product in
question.