HOW SIGNIFICANT IS THE CONCEPT OF LIKE PRODUCT UNDER THE MOST FAVORED NATION AND NATIONAL TREATMENT RULE?

Members of the World Trade Organization (WTO) are under an obligation to abstain from discriminating internationally between like products by virtue of the Most Favored Nation and the National Treatment rule.1 The two provisions are orthogonal in the sense MFN referring to the treatment rendered to different foreign products, whereas NT compares the treatment given to foreign products to that of domestic products.2 The essence of this obligation is that like products should be treated equally, irrespective of their origin.3
SIGNIFICANCE OF THE CONCEPT OF LIKE PRODUCTS UNDER ARTICLE I

Even though the concept of like products under both the MFN and NT are complementary, MFN applies to both internal and border measures and, in this respect, it is wider in its applicability than NT, which only applies to internal measures.4 In Brazil Non Rubber Footwear5 Panel report argues that MFN must be strictly complied with: for instance, no WTO Member may have different administrative proceedings at its border for like products from different origins. Further, in Spain Tariff Treatment of Unroasted Coffee dispute6, the Panel held that non-decaffeinated coffee beans listed in the Spanish Customs Tariff should be considered as like products within the meaning of Article I:1 and therefore denied Spain the right to make tariff classification distinctions. Therefore, the

1 2

Article I and III of the GATT Agreement Horn & Mavroidis, Economic and legal aspects of the Most-Favored-Nation Clause, European Journal of Political Economy, Vol. 17 2001, Pg 233279 3 EC Bananas Case, WT/DS27/AB/R, Appellate Body, 9 September 1997 4 Rdiger Wolfrum & Michael Kbele, WTO: TRADE REMEDIES (2008) 5 Brazil Non Rubber Footwear, DS18/R - 39S/128, 19 June 1992 6 Spain Tariff Treatment of Unroasted Coffee, L/5135 - 28S/102, 11 June 1981

significance of like products under MFN it is well established by the fact that once likeness has been established, WTO Members must accord unconditional MFN treatment to the products.7
INTERPRETATION TREATMENT RULE AND SIGNIFICANCE OF

LIKE

PRODUCTS

UNDER

THE

NATIONAL

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 good. 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.8 Obligations under NT does not only refer to like products, but has also been interpreted to apply in the case of directly competitive or substitutable goods.9 The contracting parties have never developed a general definition of the term like products an d past decisions on this question have been made on a case-by-case basis. 10 In many cases the panel was faced with the problem that Article III:4 refers only to "like" products and does not explicitly include "directly competitive or substitutable" products in the way that Article III:2 does. If the term "like" were to have the same meaning in Article III:4 as it does in Article III:2, then the scope of Article III:4 would be narrower than that of Article III:2.11 Japan Taxes on Alcoholic Beverages12, noted that the term like product simply has a different meaning in Paragraph 4. Given that recent WTO legal rulings tend to give the like product test of

7 8

Canada Auto Pact, WT/DS139/R, 11 February 2000 http://www.meti.go.jp/english/report/downloadfiles/2011WTO/2-2NationalTreatment.pdf 9 Interpretative Note to Art. III.2 GATT, Available at: http://www.wto.org/english/res_e/booksp_e/analytic_index_e/gatt1994_02_e.htm 10 3L/6216, adopted on 10 November 1987, 34S/83, 113-115, para. 5.5. 11 1994 Panel Report on "United States-Taxes on Automobiles" (Inside U.S. Trade, 1994) 12 Japan Taxes on Alcoholic Beverages, WT/DS8, -10, -11/AB/R, 4 October 1996

Article III:2 a very narrow reading, a different meaning is quite likely to be adopted if, as one assumes, it is thought necessary to give Article III:4 a broad enough scope to make it effective. But scholars have also opined that the object and purpose of Article III:2 could not be achieved if it were construed in a manner allowing discriminatory and protective internal taxation of imported products in excess of like domestic products. 13 To resolve this problem, the tribunal in recent decisions14 interpreted the first obligation in Article III:2 in terms of the second by arguing that a regulatory distinction between product categories, i.e a pronouncement of "unlikeness", is illegitimate only if it leads to protection being afforded. This interpretation eliminates the

independent discipline of the first sentence of Article III:2, that like foreign products must not be treated discriminatorily irrespective of whether it is possible to prove that protection is being afforded. Instead, these panels affirm the right of countries to define likeness in terms of the regulatory objective being pursued, provided that the aim and effect is not to afford protection.
CONCLUSION

The concept of like products has different meaning in the different contexts in which it is used. 15 In Japan-Alcoholic Beverages II case, the Appellate Body illustrated the possible differences in the scope of the concept of like products between different provisions of the WTO Agreement by evoking 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

13

Robert E. Hudec, Like Product: The Differences in Meaning in GATT Articles I and III. Available at http://www.worldtradelaw.net/articles/hudeclikeproduct.pdf 14 The 1992 Panel Report on "United States - Measures Affecting Alcoholic and Malt Beverages" (GATT, 1993) and the 1994 (unadopted) Panel Report on "United States-Taxes on Automobiles" (Inside U.S. Trade, 1994) 15 http://www.legalserviceindia.com/article/l320-Most-Favoured-Nation-Treatment.html

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.