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No Regulatory Purpose Test Under the Less Favourable Treatment Standard of GATT Article III:4 Following EC–Seal Products
Published online by Cambridge University Press: 20 January 2017
GATT Article III:4 aims at equal treatment in respect of competitive opportunities of imports and competing domestic products by preventing protectionism. A key question is whether regulations with heavier burdens on imported products than on domestic products and a valid regulatory purpose are consistent with Article III:4. Inquiry into regulatory purpose under Article III:4 would allow by-passing Article XX whose list of regulatory objectives is a closed one and which puts the burden of proof on the defending WTO member. In EC-Seal Products, the Appellate Body has rejected any role for the regulatory purpose inquiry under Article III:4. This article shows why a purely empirical definition of likeness and less favourable treatment as disparate impact cannot logically lead to a finding of a violation of Article III:4. It then argues that regulatory purpose continues to play a role under Article III:4 because of the centrality of the notion of competition. It proposes to frame that competition as perfect competition. It shows that the adoption of perfect competition as the evaluative benchmark for all of Article III:4 makes better legal sense than starting from imperfect competition for the likeness analysis and perfect competition for the less favourable treatment standard, as is proposed in the literature. It also shows that even in case where imperfect competition is used as the sole benchmark for both parts of Article III:4, an assessment of how regulation interacts with competition continues to play some role.
1 European Communities – Measures Affecting Asbestos and Asbestos–Containing Products, Report of the Appellate Body, WT0 Doc., WT/DS135/AB/R, 12 March 2001, para. 98.
2 Ibid., para. 100.
3 Ibid., para. 99.
4 Ibid., paras. 101, 103. In taxation cases involving Article III:2, the Appellate Body has also considered cross-price elasticity of demand as useful and a TBT case used consumer survey data as evidence of consumer tastes and habits. See, Japan–Taxes on Alcoholic Beverages, Report of the Appellate Body, WTO Dc., WT/DS8/AB/R; WT/DS10/AB/R, WT/DS11/AB/R, 1 November 1996, p. 25 and Appellate Body Report, United States – Measures Affecting the Production and Sale of Clove Cigarettes, WTO Doc., WT/DS406/AB/R, 24 April 2012,, paras. 150-151.
5 EC –Asbestos, Report of the Appellate Body, supra note 1, paras. 113-114, 118,
6 Ibid., para. 122.
7 Korea –Measures Affecting Imports of Fresh, Chilled and Frozen Beef, Report of the Appellate Body, WTO Doc., WT/DS161/AB/R, WT/DS169/1B/R, 10 January 2001, paras. 135-7.
8 EC – Asbestos, Report of the Appellate Body, supra note 1, para. 100, European Communities - Measures Prohibiting the Importation and Marketing of Seal Products, Report of the Appellate Body, WTO Doc., WT/DS400/R, WT/DS401/AB/R, 18 June 2014, para. 5.117.
9 Lothar Ehring calls a legal standard whereby less favourable treatment would depend on whether one imported product was negatively affected the diagonal test. Ehring, Lothar, “De Facto Discrimination in World Trade Law National and Most-Favoured- Nation Treatment—or Equal Treatment”, 36 (5) Journal of World Trade, (2002), 921 et sqq., at pp. 924-925.CrossRefGoogle Scholar
10 Dominican Republic – Measures Affecting the Importation and Internal Sale of Cigarettes, Report of the Appellate Body, WTO Doc., WT/DS302/AB/R, 19 May 2005, para. 96.
11 In EC–Seals, the EU tried to rely on Dominican Republic – Cigarettes to suggest that more than just a detrimental impact had to be presented. See EC-Seals, Report of the Appellate Body, supra note 8, para. 5.103.
12 US – Clove, Report of the Appellate Body, supra note 4, footnote 372.
13 Zhou, Weihuan, “US –Clove Cigarettes and US – Tuna II (Mexico): Implications for the Role of Regulatory Purpose under Article III:4 of the GATT”, 15 (4) Journal of International Economic Law (2012), 1075 et sqq., at pp. 1111-2.CrossRefGoogle Scholar
14 Gene M. Grossman, Henrik Horn and Petros C. Mavroidis, “Legal and Economic Principles of World Trade Law: National Treatment”, American Law Institute Project Legal and Economic Principles of World Trade Law, IFN Working Paper No. 917, 28 April 2012, available on the Internet at <http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2094286> (last accessed 3 May 2015) at pp. 125-6.
15 US – Clove, Report of the Appellate Body, supra note 4, paras. 175, 181-2; United States – Certain Country of Origin Labelling (COOL) Requirements, Report of the Appellate Body, WTO Doc., WT/DS384/AB/R, 23 July 2012, paras. 271, 373-379, United States, Measures Concerning the Importation, Marketing and Sale of Tuna and Tuna Products, Report of the Appellate Body, WT/DS381/AB/R, 13 June 2012, paras. 215, 315-322.
16 Zhou, “Role of Regulatory Purpose”, supra note 13, at p. 1112. Others have argued that the TBT Agreement is more restrictive of regulation because the detrimental impacts have to stem exclusively from a legitimate regulatory objective. See Gruszczynski, Lukasz, “The TBT Agreement and Tobacco Control Regulations”, 8(1) Asian Journal of WTO & International Health and Policy (2013), 115 et sqq. at. pp. 132—133.Google Scholar Which of the two agreements is more restrictive of regulation is not material to my argument. For this reason, I do not discuss these conflicting perspectives further here.
17 EC – Seals, Report of the Appellate Body, supra note 8, para. 5.117.
18 Ibid., paras. 5.114-5.117.
19 Ibid., paras. 5.121-5.125.
20 Ming Du, “Treatment No Less Favourable’ and the Future of National Treatment Obligation in Article III:4 of the GATT 1994 after EC – Seal Products”, forthcoming in World Trade Review, p. 15.
21 Ibid., at pp. 30-33.
22 Ibid., at pp. 25-26 [with further references].
23 Ibid., at pp. 26-27.
24 Ibid., at pp. 27-30.
25 Defined as a small or absent domestic efficiency in the presence of a larger cross–border inefficiency. See Grossman, Horn and Mavroidis, supra note 14, at pp. 102, 113-116.
26 European Communities – Measures Prohibiting the Importation and Marketing of Seal Products, Report of the Panel, WT/DS400/R, WT/DS401/R., 18 June 2014, fn. 227.
27 Christian Pitschas and Hannes Schloemann, “WTO Compatibility of the EU Seal Regime: Why Public Morality is Enough (but May not Be Necessary)”, Beiträge zum transnationalen Wirtschaftsrecht, Institute of Economic Law, May 2012, available on the Internet at http://telc.jura.uni-halle.de/sites/default/files/BeitraegeTWR/Heft118.pdf (last accessed on 3 May 2015) at p. 16.
28 D and E stand for ‘domestic’ and ‘imported from Expatria’ respectively.
29 Regan, Donald H., “Regulatory Purpose in GATT Article III, TBT Article 2.1, the Subsidies Agreement, and Elsewhere: Hic et Ubique” , in Geert van Calster and Denise Prévost (eds.), Research Handbook on Environment, Health and the WTO (Cheltenham, Edward Elgar, 2013), 41 et sqq., at p. 48.Google Scholar For related arguments about the lack of guidance numbers offer, see also pp. 47-48, 54.
30 There can be production and consumption externalities. An example of a production externality is methane gas emissions and the cutting down of rainforest in the raising of cattle. An example of a consumption externality is passive smoking.
31 For an explanation of how the SSNIP test should be used for Article III (or 2.1 TBT) when there are different user groups, see Iacovides, Marios C., “Marginal Consumers, Marginalized Economics: Whose Tastes and Habits Should the WTO Panels and the Appellate Body Consider When Assessing ‘Likeness?”, 48 Journal of World Trade (2014), pp. 323 et sqq., 350.Google Scholar
32 This suggestion builds in significant measure upon the theory for the interpretation of the national treatment obligation developed by Grossman, Horn and Mavroidis and on a similar perspective developed by Don Regan, supra note 29, especially pp. 54 and 61 et passim. Grossman, Horn and Mavroidis argue that likeness should comprise actual market likeness and policy–likeness (the question of externalities) and that the analysis of discrimination should examine whether the regulatory distinction remains in proportion to the extent of policy-difference. See Grossman, Horn and Mavroidis, supra note 14, at 110-116, 132. According to them, market likeness is needed in order to make sense of the notion of protectionism because products could give rise to the same externality but in different degrees without different treatment, however, being protectionist since the products are not substitutable for each other. What remains unclear from their account, however, is why the actual, imperfect market of a WTO member should be the correct reference market for assessing substitution.
33 Ibid., at p. 116.
34 Grossman, Horn and Mavroidis argue likewise. Ibid., at p. 115.
35 For a related critique of the Appellate Body's reasonable consumer test in EC – Asbestos, see Mavroidis, Petros C., Trade in Goods, Oxford: Oxford University Press, 2007, at p. 242.Google Scholar
36 This construction of Article XX may also help to explain why the Appellate Body has accepted current technical unfeasibility and excessive costs as possible reasons to demonstrate why a less trade–restrictive alternative is not reasonably available.
37 The same conclusion does not necessarily hold if products compete based on product differentiation and the regulation affects price substantially, not reputation because substantial price increases are likely to be a sensitive factor for most consumers in almost all cases since they have scarce financial resources relative to their wants and needs. Price increases on luxury goods may be a possible exception.
38 Broude, Tomer and Levy, Philip I., “Do you Mind if I Don't Smoke? Products, Purpose and Indeterminacy in US-Measures Affecting the Sale of Clove Cigarettes”, 13 World Trade Review (2014), pp. 357 et sqq., at pp. 369–381.CrossRefGoogle Scholar
39 Broude and Levy, n. 38, at 381-390.