Non-Discrimination Under WTO Law PDF

SCHOOL OF LAW FLAW 435– INTERNATIONAL TRADE LAW TOPIC: Non-Discrimination under the Law of the WTO T.N. ADIMAZOYA  INTRODUCTION Trade discrimination breeds resentment and poisons the political and economic relations between countries. Non-discrimination i...

SCHOOL OF LAW FLAW 435– INTERNATIONAL TRADE LAW TOPIC: Non-Discrimination under the Law of the WTO T.N. ADIMAZOYA  INTRODUCTION Trade discrimination breeds resentment and poisons the political and economic relations between countries. Non-discrimination is thus a key concept in WTO law and policy. This is highlighted in the preamble to the WTO Agreement, where “elimination of discriminatory treatment in international trade relations” is identified as one of the ways by which the objectives of the WTO may be achieved. There are two main non-discrimination obligations under WTO law, viz, the Most-Favored-Nation (MFN) treatment obligation and the National Treatment Obligation.  Consider the following ?????? Can country A, a WTO member, impose a 10% ad valorem customs duty on beer from country B, also a WTO Member, while imposing a 5% ad valorem customs duty on beer from country C, another WTO member? Can county A impose a 10% domestic sales tax on soft drinks from country B while imposing a 5% domestic sales tax on mineral water from country C? Can country A impose on soft drinks a labelling requirement to indicate the sugar content while not imposing such a requirement on fruit juice? Can country A allow doctors from country B to practice in its territory but bar doctors from country C from doing so? Can country A impose strict qualification requirements on nannies from country B while leaving the qualification of domestic workers from country C largely unregulated?  The MFN Obligation under the GATT 1994 Legal Text of Article I:I of the GATT ‘94: “With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation,…any advantage, favour, privilege or immunity granted by any [Member] to any product originiating 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]”  MFN under the GATT 1994 Cont’d N/B: The GATT ’94 contains a number of other provisions requiring MFN or MFN-like treatment E.gs: Article III:7 (regarding local content requirements); Article V (regarding freedom of transit); Article IX (regarding marks of origin); Article XIII:I (regarding the non- discriminatory administration of quantitative restrictions. Other multilateral agreements on trade in goods such as the SPS Agreement, the Agreement on rules of Origin and the Agreement on Import Licensing Procedures, require MFN treatment.  Nature of the MFN Obligation The AB noted in EC-Tariff Preferences (2004) that “It is well settled that the MFN principle embodied in Article I:1 is a "cornerstone of the GATT" and "one of the pillars of the WTO trading system". See Para 101 citing the AB report Canada – Autos (2000) The AB noted in Canada-Autos (2000) that Article I:1 of the GATT ‘94 prohibits discrimination between like products originating in, or destined for, different countries. Para 84 Thus Article I:1 prohibits WTO Member A, from giving products from WTO Member B treatment less favorable than that it gives to like products from any other WTO Member or other country.  Hypo…..... HYPO: Country A has a 10% tariff on Oranges from country B, and a 5% tariff on Oranges from country C. Is there a MFN violation? (GATT applies) Rule: A country cannot exceed its bindings. o If A’s binding for Oranges is 15%, then A has not violated its binding under the WTO schedule. Rule: o Actual tariffs are what is at issue in GATT (1:1) and are of concern in MFN violation cases. o The tariffs listed in the hypo are the actual tariffs that A is imposing. The validity of these tariffs depends on whether the countries are parties to the WTO. o There is no MFN obligation to non-parties. o However, a WTO nation is obligated not to charge a WTO member country a better tariff rate than ANY other country. § Cannot charge a non-party less than it charges a party country, or some WTO countries better tariff rates than others.  Nature of MFN Obligation Cont’d Guiding Principles: Unconditional treatment. The favor that you accord one country must be applied unconditionally to the like products of all Member nations. – MFN applies to imports from ALL WTO countries equally. (EC Bananas III) – “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.” para 190 – A WTO Member is obligated not to charge a WTO member country a better tariff rate than ANY other country (including non-members). Actual Tariffs: Actual tariffs are what is at issue in GATT (1:1) and are of concern in MFN violation cases.  Two Types of GATT Article I:1 Obligation de jure vs. de facto discrimination: Article I:1 covers both “in law” or de jure, discrimination and “in fact” or de facto discrimination. A measure may discriminate ‘in law or de jure’ in a case in which it is clear from reading the text of the law, regulation or policy that it treats the product from one WTO Member less favorably than like products from another WTO Member or country. De facto discrimination occurs where facts relating to a measure shows that, in practice or in fact, the product of from one WTO Member is treated less favorably than like products from another WTO Member. In Canada – Autos (2000) a custom duty exemption accorded by Canada to imports of motor vehicles by certain manufacturers on the face of it had no requirements of origin. In practice however, the manufacturers imported only their own make of motor vehicles and those of related companies. As a result only motor vehicles originating from a small number of countries benefited de facto from the measure.  MFN Treatment Test Article I:1 of GATT ‘94 sets out a four-tier test of consistency with the MFN obligation: 1. whether the measure at issue is a measure covered by Article I:1; 2. Whether that measure grants an ‘advantage….’; 3. whether the products concerned are ‘like products’; and 4. whether the advantage at issue is ‘accorded immediately and unconditionally’ to all like products concerned, irrespective of their origin or destination; We will consider this four-tier test individually below:  1. Whether the measure at issue is covered by Article I:1 Article I:1 covers “any advantage, favor, privilege or immunity’ granted by any Member to any product originating in, or destined for any other country with respect to: (1) custom duties; (2) charges of any kind imposed on or in connection with importation or exportation (e.g import surcharges, export duties, customs fees, or quality inspection fees); (3) charges imposed on the international transfer of payments for imports or exports; (4) the method of levying such duties and charges, (5) all rules and formalities in connection with imports and exports; (6) internal taxes or other internal charges; and (7) laws, regulations and requirements affecting internal sale, offering for sale, purchase, transportation, distribution or use of any product. 2. Whether the measure grants an ‘advantage’ Article I:1 refers to any ‘advantage, favor, privilege or immunity’ granted by any Member. ”advantage” has been given an expansive meaning in the case law. [EC- Bananas III, AB report, para 206]. In EC-Bananas III the Panel considered that a measure granting an ‘advantage’ within the meaning of Article I:1 is a measure that creates “more favorable competitive opportunities’ or affects the commercial relationship between products of different origins.” In Canada- Autos (2000 at para 79) the AB concluded that ‘advantage’ refers to any advantage and not ‘some advantage’. In other words, Article I:1 refers to any advantage granted by a Member to any like product from or for another country.  3. Whether the products concerned are ‘like products’ ”Likeness” depends on the scope and context within which it is used. In Japan-Alcoholic Beverages, the AB stated that “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. But Panels examine on a case-by-case basis relevant factors, including (1) the products’ properties, nature and quality i.e their physical characteristics (2) the products’ end-uses; (3) consumers’ tastes and habits, also referred to as consumers’ perceptions and behavior in respect of the products; and (4) the products tariff classification. 4. Whether the advantage is accorded ‘immediately and unconditionally’ “immediately” means without delay, at once, instantly. No time should lapse between granting an advantage to a product and according that advantage to all like products. “unconditionally” - In EC-Tariff Preferences (2004) the Panel stated that “the panel sees no reason not to give that term its ordinary meaning under Article I:1, that is, ‘not limited by or subject to any conditions”. Para 7.59  MFN Obligation and the Enabling Clause An important exception to MFN treatment under Article I:1 of GATT ‘94 is the 1979 GATT Decision on Differential and More favorable Treatment, Reciprocity and Fuller participation of Developing Countries, commonly referred to as the Enabling Clause. This is now part of the GATT ‘94. Para 1 of the Enabling Clause states: “Notwithstanding the provision of Article I of the General Agreement, [Members] may accord differential and more favorable treatment to developing countries, without according such treatment to other [Members]”. Under para 3 differential treatment must be designed to (1) facilitate and promote trade of developing countries and not to raise barriers for other Members; (2) not to constitute an impediment to tariff reduction; and (3) be designed to respond positively to development, financial and trade needs of developing countries.  MFN Treatment under the GATS MFN treatment obligation is also one of the basic provisions of the GATS. Legal Text: GATS Article II:1 states as follows: ”With respect to any measure covered by this Agreement, each Member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favorable than that it accords to like services and service suppliers of any other country.” Like the GATT, the MFN treatment obligation of Article II:1 of the GATS applies to de jure and de facto discrimination. In EC-Bananas III the AB stated “the obligation imposed by Article II is unqualified. The ordinary meaning of this provision does not exclude de facto discrimination.” para 233  MFN Treatment Test of Article II:1 of GATS Three-tier test of consistency: 1. whether the measure at issue falls within the scope of application of Article II:1 of the GATS; 2. Whether the service or service suppliers concerned are ‘like services’ or ‘like service suppliers’; and Whether like services or service suppliers are accorded treatment no less favorable. 1. Whether the measure at issue falls within the scope of application of Article II:1 of the GATS GATS Article I:1 stipulates that “[t]his Agreement applies to measures by Members affecting trade in services.” A measure by a Member is broad. Article XXIII(a) of the GATS defines ‘measure’ for the purposes of the GATS as “any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form” A measure may be taken by central, regional or local governments and authorities including those taken by NGOs in furtherance of delegated powers by gov’t– Article I:3(a) of GATS. There is an exception to service supplied in the exercise of gov’tal authority or supplied not on commercial basis – Art I: 3(c) N/B: GATS Article II:2 also provides that a Member may maintain an inconsistent measure if such a measure is listed in, and meets the conditions of, the Annex on Article II Exemptions.  Definition of ‘trade in services’ The GATS does not define ‘services’ but Article I:2 defines ‘trade in services’ as ”the supply of a service” in any one of four listed ‘modes of supply’: 1. from the territory of one Member into the territory of any other Member – e.g legal advice given by a lawyer in country A to a client in Country B.; 2. in the territory of one Member to the service consumer of any other Member –e.g medical treatment given by a doctor in country A to a patient from country B who comes to country A for treatment; 3. by a service supplier of one Member, through commercial presence in the territory of any other Member – e.g financial service supplied in Country B by a bank from country A through a branch office established in country B; and 4. by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member – e.g the programming services supplied in country B by a computer programmer from country A, who travels to country B to supply such services.  2. Whether the service or service suppliers concerned are ‘like services’ or ‘like service suppliers N/B - No definition of of the terms ‘like service’ or ’like service supplier’ in the GATS, and to date there is very little relevant case law on the meaning of the terms in Article II:1; The Panels in EC-Bananas III and Canada – Autos found that, to the extent that service suppliers provide ‘like service’, they are ‘like service suppliers’. Is this always the case? Does the size of the service supplier matter? Does their assets and the nature and extent of their expertise important? It is evident that such determinations will be made on a case-by-case basis taking into consideration the evidence as a whole.  3. Whether ‘like services’ or ‘service suppliers’ are accorded treatment no less favorable GATS does not provide a any guidance as to the meaning of the concept ‘treatment no less favorable’ But Article XVII: 3 of GATS gives us a clue – ‘formally identical or formally different treatment shall be considered less favorable if it modifies the conditions of competition in favor of services or service suppliers of the Member compared to the like services or service suppliers of any other Member.’ N/B: That pursuant to Article VII of the GATS entitled ‘Recognition’ a Member may recognize the education or experience obtained, requirements met or licence or certificates granted in a particular country. Such recognition may be based on agreement or arrangements with the country concerned or granted autonomously  The National Treatment Obligation[NT] National Treatment Clause: Internal taxes applied to the imported product, cannot be in excess of the taxes imposed on the domestic “like” product. Guiding Principles: National Treatment in the WTO: – GATT Art. III:2 & 4. – GATS Art. XVII:1. – Scope of imports covered between GATS and GATT is different: GATT covers ALL imported products. GATS applies just to services in the schedule. (narrower rule) National Treatment Claim has got to be predicated on the fact that the import once inside the market, is not being treated as well as a “like” or substitutable product in the domestic market. There need not be any actual domestic product, if the law is facially in violation of Art. III. (e.g., imports will be sold at 10% higher price than domestically- produced product).  Benefits and Drawbacks of NT Benefits of National Treatment: Prevents Circumventing of Tariff Commitments. If governments were able to place internal taxes on imports higher than the domestically-produced product, this would have the effect of placing a protectionist tariff on the imports.- see AB report in Japan –Alcoholic Beverages (1996) para 109 Drawbacks of National Treatment: Restricts the Sovereignty of a Government. Prevents use of taxes in certain circumstances when trying to promote domestic policies and improve domestic economies. – States should be deserved the flexibility to exercise taxes and regulations to protect domestic producers and improve its economy. GATT Art. III is not about tariffs, it’s about internal taxes and regulations.  Scope of National Treatment Obligation Scope of National Treatment: – National treatment is generally about how a product is treated, once it crosses the border. – However, if there is a domestic policy that prevents a product from coming into the country, this will also be treated under Article III National Treatment policy. Border Tax Adjustment: This sort of adjustment is permitted on the principle that imports must be taxed to come into compliance with the taxes domestic producers face. National Treatment is Not About Trade Impact, It’s About the Ability to Compete on Equal Footing: So any different treatment is going to be a violation of Article III.4 even though it might not actually diminish exports. See Korean Beef (2000)  Nature of NT Obligation 1. Internal taxes, regulations, other internal charges, and requirements affecting internal sale should not be applied to imported or domestic products so as to afford protection to domestic production. 2. Tax Policy. (Divides into First and Second Sentence.) If a government places a different, less-favorable tax on products made abroad, versus “like” products made domestically, then the tax on the domestic product would be a violation of Article III. First Sentence: “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.” Per se violation where like products.  Nature of NT Obligation Cont’d Second Sentence: “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.” Only inquire as to an alleged violation of the second sentence, once it’s been determined there is no violation of the 1st sentence. Ad Note: You can be inconsistent with the 2nd sentence only where competition was involved between the taxed product and a directly competitive or substitutable product which was not similarly taxed. – Where these circumstances exist, you can get an Art. III(2) second sentence violation. (3) Regulations. The imported product should be accorded treatment no less favorable than that accorded the like product.  GATT Article III Test on National Treatment Analysis Under GATT Art. III.2 First Sentence: Where “Like” Products. Have to determine whether “like” products. – Likeness is determined by weighing factors, such as product’s end-use, consumer taste habits, property, nature, quality, and tariff classification. – Accordian Concept: Construe likeness narrowly because there exists a second sentence which gives a broader application of the Article. – Intent does not matter in determining whether the products are “like products.” And have to show that imported product has a tax “in excess” of the domestic product. Any higher tax, no matter how minimal, would be a violation.  GATT Article III Test on National Treatment Cont’d Three-Part Analysis Under GATT Art. III.2 (Second Sentence): Only do second sentence analysis where you’ve already determined no violation of the first sentence. Are they directly competitive or substitutable products? Look at the market to determine. Substitutability: Would a consumer look to price or availability to determine whether to buy one or the other? Are the products similarly taxed? The difference in taxation may not be de minimis. Requires taxes not be similar, rather than merely “in excess” as the first sentence requires. – So as to afford protection to domestic production. » The design, the architecture and the structure of the measure reveal its protective application. » Do not consider intent of the tax. EX: That the taxes are so much higher for the imported products reveals a protective design.  Two Types of GATT Article III Discrimination De Facto/Implicit Discrimination: Compare the actual treatment given to see what effect the domestic laws are actually having. – Look at the burden the taxes have on the import. – OK if the law itself states that certain imports pay higher taxes than domestic products do not have. EX: Border Tax Adjustment: This sort of adjustment is permitted on the principle that imports must be taxed to come into compliance with the taxes domestic producers face. de Jure/Explicit Discrimination: The law on its face is fundamentally unfair. – High tax on imports, low tax on domestic product. Does not matter if the Member does not produce the imported product domestically, because the tax scheme is facially unfair.  HYPOs HYPO: A WTO member has an excise tax (domestic tax). The tax is 15% on foreign apples. 0% tax on domestically produced apples. Is the tax an Art. III(2) violation? YES. What if A does not domestically produce apples? – This is not relevant to the analysis. – The law, on its face, violates Article III(2) without knowing how many apples member A has. What if you are attorney to a country that does not have a domestic apple production? – Re-write the language to say “all apples are taxed at 15%.” – Thus makes the tax equally applicable to everyone. It does not matter that, in practice, this tax only affects foreign producers.  HYPOs Cont’d HYPO: WTO Member A has the following excise tax: 15% on apples from USA 10% on apples from other countries 0% on domestically produced apples What WTO/GATT violation might exist? – Violates GATT Art. 1.1: USA is being treated less favorably than other countries. Violates GATT Art. 3.2: Places higher tax on imports than on domestically-produced “like” products.  National Treatment Under GATS Article XVII of the GATS, which is entitled “National Treatment” states in para 1: “In the sectors inscribed in its schedule, and subject to any conditions and qualifications set out therein, each Member shall accord to services and service suppliers of any other Member, in respect of all measures affecting the supply of services, treatment no less favorable than that it accords to its own like services and service suppliers.” Narrow application unlike national treatment under the GATT  Test under Article XVII:1 of the GATS 1. whether, and to what extent, a national treatment commitment was made in respect of the relevant service sector; - because the obligation applies only to the extent that a WTO Member has explicitly committed itself to grant NT in respect of a specific service sector. 2. whether the measure at issue is a measure by a Member affecting trade in services, i.e a measure to which the GATS applies, e.g measure of central gov’t, measures by regional and local gov’t authorities and –in specific circumstances- measures of non-gov’tal bodies. 3. whether the foreign and domestic services or service suppliers are ‘like services’ or ‘like service suppliers’; - the service need not necessarily be the same to qualify as like – ‘similar’ or ‘approximately’ services is enough; and 4. whether the foreign services or service suppliers are accorded less favorable treatment Questions ??????? Thank You!!!!