Environment and Trade

A Guide to WTO Jurisprudence

Nathalie Bernasconi-Osterwalder, Daniel Magraw, Maria Julia Oliva, Elisabeth Tuerk, Marcos Orellana

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781136567001
• Edition: 1
• Topic: Medicine
• Subtopic: Public Health, Administration & Care

International trade rules have significant impacts on environmental law and policy, at the domestic, regional and global levels. At the World Trade Organization (WTO), dispute settlement tribunals are increasingly called to decide on environment- and health-related questions. Can governments treat products differently based on environmental considerations? Can they block the import of highly carcinogenic asbestos-containing products or genetically modified crops? Does the WTO allow governments to protect dolphins or endangered sea turtles through the use of import restrictions on certain products? How can civil society participate in WTO dispute settlement?

This Guide, authored by five world leaders on international environmental and trade law at the Center for International Environmental Law (CIEL), is an accessible, comprehensive, one-of-a-kind compendium of environment and trade jurisprudence under the WTO. Providing an overview for both experts and non-experts of the major themes relevant to environment and trade, it also analyses how WTO tribunals have approached these themes in concrete disputes and provides selected excerpts of the most significant cases.

Chapter 1

Like Products

Background

Introduction

The World Trade Organization’s (WTO’s) principles of most-favoured nation (MFN) treatment and national treatment are the cornerstones of the international trade regime. Under the most-favoured nation principle, Members must extend any advantage granted to a product from one WTO Member to ‘like products’ from all other Members. Under the national treatment principle, internal taxes and regulations must treat imported products no less favourably than like domestic products. Similar non-discrimination rules also apply for trade in services.

The trade and environment discussions have focused primarily on the national treatment principle and its inherent concept of ‘like products’. When products are considered ‘like’, one product may not be treated more favourably than the other. If products are not considered ‘like’, Members may treat them differently. For example, a WTO Member may wish to apply lower taxes to energy-efficient automobiles and higher ones to energy-inefficient cars. If both categories of cars are viewed as ‘like’, they must generally be treated similarly, and preferential taxation would not be permitted, whereas, if the categories are not viewed as ‘like’, preferential taxation would be permitted. The question of ‘like products’ has most recently come up in the currently pending EC – Biotech case, in which the panel has been called to examine the WTO consistency of the European Communities’ authorization system for genetically modified products, as well as the ban on genetically modified organisms (GMOs) adopted by individual European Union (EU) members. Here, the panel might be faced with the question of whether genetically modified products (such as maize, cotton, corn or soya) are ‘like’ conventional, non-genetically modified products.

The Concept of Like Products

The concept of ‘like’ products is relevant to several provisions of the General Agreement on Tariffs and Trade (GATT) as well as other WTO Agreements, such as the Agreement on Technical Barriers to Trade (TBT Agreement), and the Agreement on Subsidies and Countervailing Measures (SCM Agreement). The meaning of this concept, however, is anything but uniform. As the Appellate Body described in an oft-cited paragraph:

[t]he concept of ‘likeness’ is a relative one that evokes the image of an accordion. The accordion of ‘likeness’ stretches and squeezes in different places as different provisions of the WTO Agreement are applied. The width of the accordion in any one of those places must be determined by the particular provision in which the term ‘like’ is encountered as well as by the context and the circumstances that prevail in any given case to which that provision may apply (Japan – Alcoholic Beverages, 1996, Appellate Body report, section H.1.a)

Thus, ‘likeness’ varies amongst the agreements and their respective provisions. Furthermore, while some agreements, such as the SCM, do assign ‘likeness’ a specific meaning, others do not contain any such definitions. Consequently, although there has been much WTO and GATT jurisprudence addressing the concept of ‘likeness’, the exact meaning and parameters of the concept as well as its variations remain shrouded with uncertainty.

It is also important to note that ‘likeness’ is relevant to services, as well as to products. The General Agreement on Trade in Services (GATS) contains provisions addressing ‘like’ services and service suppliers. This section of the compendium, however, does not discuss the meaning of ‘likeness’ in the context of the GATS. Rather, it limits its discussion to the comparatively large body of jurisprudence on ‘like products’.

The determination of what products are considered ‘like’ affects how wide panels and the Appellate Body will cast the WTO net to find countries in violation of its agreements’ provisions. This is because a narrow interpretation of ‘like products’ will allow countries more leeway to differentiate between imported and domestic products in their regulatory and tax measures, while a broad interpretation of that term will necessitate further judicial scrutiny of those allegedly discriminatory measures.

That further scrutiny is an analysis of whether the challenged measure is discriminatory. It is important to note that ‘likeness’ is just one part of the inquiry. If products are deemed ‘like’, the next stage in the analysis of whether a measure violates national treatment or MFN obligations asks whether the challenged measure discriminates between the ‘like’ products. As with the meaning of ‘likeness’, the concept of discrimination also varies amongst the agreements and their respective provisions. These differences arise from variations in the actual text of the national treatment and MFN provisions in the agreements, and from WTO jurisprudence interpreting those provisions.

The Relevance of Like Products for Environmental Policy Making

The question of ‘like’ products is central to the interaction between international trade law and national environmental measures. Many domestic environmental measures, for example, differentiate between products that are – on their face or in their use – similar, but that in some aspect – in their use, in their production process or in their disposal – have different environmental or health implications. Thus, if the concept of ‘likeness’ is interpreted so as to consider environmentally harmful products as being different from environmentally sustainable products, then the WTO’s non-discrimination obligations would grant considerable flexibility to Members enacting domestic environmental or health measures. In turn, if environmental considerations were not to play a role when determining whether two products or services are like, then the WTO’s non-discrimination provisions could constrain the domestic regulatory prerogative to enact environmental or health protection measures. To date, the exact boundaries of ‘likeness’ (as applied in the various WTO obligations) and the precise impact of the ‘likeness’ determination on domestic environmental and health policy making remains unclear.

The present chapter on ‘like products’ attempts to give guidance as to the scope and meaning of ‘likeness’ under the various WTO provisions. It provides an analysis of the various considerations used to determine whether or not a product is ‘like’. In this context, it also addresses the question, among many others, whether it is legitimate under WTO rules to deem ‘unlike’ two products which were produced in a distinct manner. In WTO parlance this issue is usually referred to as Processes and Production Methods (PPMs). Because of its primary relevance for environmental and health concerns, this issue is treated in a separate chapter of this compendium: Chapter 4, Processes and Production Methods.

Discussion of Relevant WTO Provisions

The GATT in General

Within the GATT the phrase ‘like product’ appears in Articles I:1, II:2, III:2, III:4, VI:1, IX:1, XI:2(c), XIII:1, XVI:4 and XIX:1. Nowhere, however, does the GATT contain a definition of what are ‘like products’. Identifying the meaning of ‘like product’ has been a central aspect in jurisprudence relating to the GATT. As mentioned above, the scope of what are ‘like products’ has important implications for the stringency of the GATT non-discrimination obligations.

As noted earlier ‘likeness’ determinations are but one part of the inquiry into whether a measure violates the GATT’s non-discrimination obligations. An important caveat to note here, however, is that some cases examining allegations of MFN and national treatment violations have concluded that ‘likeness’ determinations are not always a necessary part of non-discrimination analyses. At least in cases where the challenged measure discriminates between products based on explicitly origin-related criteria, WTO tribunals have been willing to skip the first step – examining whether the affected products are ‘like’ – and move directly into an assessment of whether the challenged measure impermissibly treats imported products less favourably than domestic products (i.e. Korea – Beef or Indonesia – Automobile).

The following section focuses on the meaning of ‘likeness’ as it is incorporated in GATT Article I (MFN) and GATT Article III (national treatment). Article III is treated first because of its particular relevance in the context of domestic environmental policy making. Article I is discussed subsequently.

Article III of the GATT

In General

Article III sets forth the GATT’s national treatment obligations. In essence, Article III obliges WTO Members to grant foreign products treatment at least as favourable as the treatment granted to domestic like products. Article III applies to: taxation and other internal regulatory measures.

Because it encompasses both tax and other internal regulatory measures, Article III can cover an extremely large variety of environmental and health measures. While the scope of Article III’s coverage does not alone dictate the rate at which measures will be deemed inconsistent with Article III, Article III’s breadth does indicate that the provision is of prime importance in the context of environmental and health policy making.

Paragraph 2 of Article III relates to taxation. Its first sentence prohibits Members from taxing ‘like’ imported products ‘in excess of’ ‘like’ domestic products. Its second sentence states that Members will be in violation of the GATT if, under their tax regimes, ‘directly competitive or substitutable’ imported and domestic products are ‘not similarly taxed’. Paragraph 4 of Article III addresses other, non-tax laws and regulations, such as ‘… laws, regulations and requirements affecting [the] internal sale, offering for sale, purchase, transportation, distribution or use’ of products. Specifically, Article III:4 requires Members to ensure that such internal regulatory measures accord ‘treatment no less favorable [to imported products] than that accorded to like products of national origin’.

Article III jurisprudence indicates that ‘likeness’ determinations should be based on case-by-case analysis, and involve an ‘unavoidable element of individual, discretionary judgment’. (Japan – Alcoholic Beverages (1996) AB report, section H.1.a.) Against that general background, several more specific approaches and tests have emerged and evolved to guide ‘likeness’ determinations.

The Scope and Meaning of the ‘Likeness’ Concept in Articles III:2 and III:4

As mentioned above, Article III contains references to ‘like products’ in its paragraphs 2 and 4. WTO tribunals have pointed out that the meaning of ‘like products’ in Article III:2 does not necessarily have the same scope as ‘like products’ in Article III:4. While it is currently unclear exactly how the scope of ‘like products’ differs between the two provisions, the tribunals have attempted to give at least some minimal guidance.

Article III:2 sets forth two national treatment obligations. First, it requires WTO Members to ensure that ‘like’ imported products are not taxed ‘in excess’ of ‘like’ domestic products; second, it requires WTO Members to subject ‘directly competitive or substitutable products’ to similar levels of taxation. Thus, paragraph 2 of Article III covers two categories of comparable products: ‘like products’ and ‘directly competitive or substitutable products’. In Japan – Alcoholic Beverages (1996), the Appellate Body clarified that the phrase ‘like products’ in Article III:2 must be interpreted narrowly so as to not overshadow Article III:2’s second, broader category of ‘directly competitive or substitutable products’ (Japan – Alcoholic Beverages (1996) AB report, section H.1.a.).

Box 1.1 Article III of the GATT

Article III

National Treatment on Internal Taxation and Regulation

1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production.
2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1. [paragraph 3 omitted]
3. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product.
   [paragraphs 5–10 omitted]

Ad Article III

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

Ad Article III, Paragraph 2

A tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be inconsistent with the provisions of the second sentence only in cases where competition was involved between, on the one hand, the taxed product and, on the other hand, a directly competitive or substitutable product which was not similarly taxed.

[Editors’ note: Paragraphs 1 and 5 omitted; no Ad notes to paragraphs 3 and 4.]

In this context, it is important to keep in mind that the determination of whether or not products are ‘like’ or ‘directly competitive or substitutable’ is only the first stage in the analysis of whether a measure is consistent with that provision of the GATT. For example, once the tribunal considers products to be ‘like’ under Article III:2, it will then determine whether the imported products are taxed ‘in excess’ of the ‘like’ domestic products. The Appellate Body explained this two-tier approach in Japan – Alcoholic Beverages (1996). In this context, the Appellate interpreted ‘in excess of’ strictly, holding that it is irrelevant whether the different levels of taxation are merely de minimis. Any level of taxation imposed on imported products that exceeds the level imposed on domestic ‘like’ p...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright
• Contents
• List of Contributors
• Foreword
• Acknowledgements
• List of Acronyms and Abbreviations
• List of Relevant GATT and WTO Disputes
• List of Relevant WTO Agreements
• Introduction
• Chapter 1: Like Products
• Chapter 2: General Exceptions Clauses
• Chapter 3: The Necessity Requirement
• Chapter 4: Processes and Production Methods
• Chapter 5: Extraterritoriality
• Chapter 6: The Role of Science and the Precautionary Principle
• Chapter 7: The Relationship Between the TRIPS Agreement and the CBD
• Chapter 8: Participation in WTO Dispute Settlement: The Case of Amicus Briefs
• Index