moduled 8-10

Question 1

The EC Bananas Case, 1997 (CHECK!!!)

Answer 1

🍌 The EC – Bananas Case (1997)

Full Name: European Communities — Regime for the Importation, Sale and Distribution of Bananas
WTO Dispute Nos: DS27 (filed by the US), along with DS16 (Guatemala), DS38 (Honduras), DS40 (Mexico), DS105 (Ecuador)

🔹 Background

• The European Union (then EC) had a banana import regime that favored bananas from former European colonies in Africa, the Caribbean, and the Pacific (the ACP countries) over Latin American bananas.
• This was done via tariff quotas, licenses, and preferential treatment under the Lomé Convention.
• U.S.-based banana companies (like Chiquita and Dole) sourced bananas from Latin America and claimed discrimination.
• The United States, Ecuador, and others challenged the regime at the WTO, claiming it violated WTO rules.

🔹 Main Legal Issues

• Violation of GATT 1994 Articles I (MFN – Most Favoured Nation), III (National Treatment), and XI (quantitative restrictions).
• Inconsistency with GATS (General Agreement on Trade in Services) due to discriminatory licensing procedures in banana distribution services.
• Breach of non-discrimination and transparency obligations under WTO law.

🔹 WTO Panel and Appellate Body Findings

• The WTO Panel (1997) and Appellate Body (1997) ruled:
  • The EC banana import regime violated WTO rules.
  • The system discriminated against Latin American countries and foreign service providers.
  • It breached the MFN principle and national treatment obligations under both GATT and GATS.

🔹 Aftermath and Significance

• The case triggered a long-standing transatlantic trade dispute.
• The US imposed retaliatory tariffs after the EC delayed compliance.
• It highlighted:
  • Tensions between preferential trade agreements (like the Lomé Convention) and multilateral WTO rules.
  • The strength of the WTO dispute settlement system.
  • Conflicts between trade policy and development goals for poorer ACP nations.

Initial Import System (1993-1995)
- Tariff quotas favored ACP countries over Latin American producers.
- Latin American quota: Started at 2M tonnes, increased to 2.3M tonnes (1995).
- Traditional ACP suppliers: 857,700 tonnes at zero duty.
- Within-quota duties:
- Latin America: €75/tonne.
- ACP countries: Zero duty (under Lomé Convention).
then - they revised it but that again lead to discrimination per WTO
- Main issues: Unfair ACP quotas & discriminatory licensing.
- US imposed trade sanctions (100% tariffs on EU exports).

EC Reforms & Final Tariff System (1999-2006)
- 1999: EC proposed a two-phase solution:
- Phase 1: Transitional tariff quota with ACP preferences.
- Phase 2: Shift to flat tariff by 2006.
- Final Tariff Quotas:
- Quota A: 2.2M tonnes (€75/t).
- Quota B: 353,000 tonnes (€75/t).
- Quota C: 850,000 tonnes (€300/t, ACP exclusive).
- 2000: WTO waiver secured; US agreed to remove sanctions.

-

Question 2

The Spain Coffee Case, 1981

Answer 2

Spain Coffee Case (1981) – Simplified Summary

Background
- 1979: Spain imposed new tariffs on unroasted coffee, making some types more expensive.
- Brazil objected, claiming discrimination and requested WTO dispute resolution.
- Spain argued unroasted and roasted coffee were different, justifying different tariffs.

Key Issues
- Before 1979: Spain applied the same tariff to all unroasted coffee.
- After 1979: Spain classified coffee into five types with different tariff rates:
1. Colombian mild – 0% duty
2. Other mild – 0% duty
3. Unwashed Arabica – 7% duty
4. Robusta – 7% duty
5. Other – 7% duty
- Brazil, Spain’s main coffee supplier, argued the new system unfairly favored mild coffee producers.

Arguments
- Spain’s Position:
- Coffee types were different due to taste, aroma, cultivation, and trade value. and price of washed vs unwashed arabica was also different as gthey were clearly differing in essential aspects.
- “Like products” should be based on quality differences, not just tariff categories.
- Brazil’s Position:
- Brazil argued that coffee was one single product and that, must be considered a “like product”
because both came from thesame species of plant, and often from the same variety of tree.
- All coffee serves the same purpose (drinking).
- Most coffee is sold as blends, making the distinction unfair.
- Under GATT Article I:1 (MFN principle), all coffee should be treated equally.

Panel Decision
- Spain’s tariff regime violated GATT’s MFN rule (Article I:1).
- “Like products” should be treated the same, even if they have minor differences.
- Spain’s system was discriminatory as Brazilian unwashed Arabica & Robusta faced higher duties than “mild” coffee.
- Spain was required to change its tariff structure to comply with GATT rules.

Question 3

**Canada Aircraft Case (2002) – Summary*

Answer 3

Canada Aircraft Case (2002) – Summary

Background
- March 1997: Brazil initiated WTO consultations, alleging that Canada illegally subsidized its civilian aircraft exports, violating Article 3 of the SCM Agreement (Agreement on Subsidies and Countervailing Measures).
- Key subsidies in question:
- Financing & loan guarantees from the Export Development Corporation (EDC).
- Funds & support from Canada Account and Technology Partnerships Canada (TPC).
- Ontario Aerospace Corporation’s sale of a 49% stake in de Havilland Holdings Inc. under non-commercial terms.
- Benefits from Canada-Québec industrial programs.

Panel Findings
- Some Canadian subsidies violated Articles 3.1(a) & 3.2 of the SCM Agreement as they were contingent on export performance.
- However, EDC assistance was not deemed an export subsidy.
- The Panel ordered Canada to withdraw the prohibited subsidies within 90 days.

Appeal & Appellate Body Ruling
- May 1999: Canada appealed, challenging the Panel’s interpretation of certain legal principles.
- Appellate Body upheld key findings:
- Confirmed the Panel’s definition of “benefit” under Article 1.1(b).
- Agreed that TPC assistance was export-contingent, violating SCM rules.
- Ruled that Brazil failed to prove that EDC’s financing conferred a subsidy.
- Final ruling: The WTO ordered Canada to withdraw the unlawful subsidies within 90 days to comply with WTO regulations.

Question 4

MFN PRINCIPLE

Answer 4

• concept where a country must treat all WTO members equally, meaning they can’t discriminate between trading partners and must extend the most favorable trade terms to all.
• if any priviliges are granted to any member nation by another nation of the WTO then the same privilege on like products must b eextended to all member nations

De jure discrimination is when the extra advantage given is recognised by legal instruments without extending the same to other member nations

De Facto discrimination means when the discrimination cannot be recognised in legal instrument, but rather is an issue of material facts.

Article I: 1 covers a broad range of issues such as customs duties, any charges imposed on import/export or charge on international transfer, internal taxes and all laws or regulations or requirements affecting internal sale, purchase, transportation or distribution or use of any product.

3 tier test to check for MFN principles
- advantage or favour or privilege or immunity covered under Art. I:1 of GATT,
- like products
- the advantag issues is not granted immediately or unconditionally to like products of other nations

Ingredients of the Most Favoured Nation Principle:
Non-discrimination: The core element is that a WTO member must treat all other WTO members equally. If a country grants a trade advantage (e.g., lower tariffs, easier customs procedures) to one country, it must extend the same advantage to all other WTO members.

Like circumstances/Like services and service suppliers: The obligation applies to “like products” under GATT and “like services and service suppliers” under GATS. Determining what constitutes “like” can involve considering factors such as the nature of the product/service, its end-use, and consumer perceptions.

Unconditional application: The MFN treatment must be granted immediately and without conditions. It doesn’t depend on whether other countries offer reciprocal treatment.
Any advantage: The principle covers any advantage, favour, privilege, or immunity granted by a member to any product originating in or destined for any other country. (in the case of goods) or to services and service suppliers of any other member (in the case of services).

Question 5

the term like products was coined in which case and how do you interpret it?

Answer 5

• coined in the EC bananas case-

to check for it - you have to check 4 things:
1. the products end use
2. the consumers taste and habit
3. the products nature, properties and quality
4. the customs classification of the products

Question 6

exceptions to the MFN principles

Answer 6

1. historical preferences (Art I:2 GATT)
2. Customs Unions/Free-Trade Areas (GATT Article XXIV)
In order to strengthen economic relation between two countries, regional trade agreements are permitted for customs unions/free-trade areas under certain conditions.
These agreements liberalize trade among countries within the regions, while maintaining trade barriers with countries outside the region or regions

• GATT Article XXIV provides that regional integration may be allowed as an exception to the MFN principle only if the following conditions are met:
• (1) tariffs and other barriers to trade must be eliminated with respect to substantially all trade within the region; and
  (2) the tariffs and other barriers to trade applied to outside countries
  must not be higher or more restrictive than they were prior to regional integration

3. The Generalized System of Preferences (GSP) program is a system that grants
certain products originating in eligible developing countries preferential tariff treatment over those normally granted under MFN status. GSP is a special measure designed to help developing countries increase their export earnings and promote development. typically: the beneficiaries are limited to developing countries;
and it is a benefit unilaterally granted by developed countries to developing countries

General exceptions to the GATT that
may be applied to the MFN treatment obligation include GATT Article XX regarding general exceptions for** measures necessary to protect public morals, life and health, etc**., and GATT Article XXI regarding security exception

Article IX:3 stipulates that exceptional circumstances,
the terms and conditions governing the application of the waiver, and the date on which
the waiver will be terminated shall be clearly stated. These waivers are also subject to
annual review under Article IX:4

Question 7

MFN and GATS

Answer 7

Service Suppliers: The MFN obligation in GATS explicitly includes treatment accorded not only to services but also to service suppliers of other member countries. This recognizes that the ability to provide a service often depends on the service supplier (e.g., a foreign bank establishing a branch, a foreign consultant providing expertise).

Modes of Supply: GATS defines trade in services through four modes of supply:

Mode 1 (Cross-border supply): Service supplied from the territory of one member into the territory of another (e.g., online consulting).
Mode 2 (Consumption abroad): Service supplied in the territory of one member to the service consumer of another member (e.g., tourism).
Mode 3 (Commercial presence): Service supplied through the establishment of a commercial presence in another member’s territory (e.g., a foreign bank branch).
Mode 4 (Presence of natural persons): Service supplied by a natural person of one member in the territory of another (e.g., a foreign IT specialist working temporarily)

Question 8

WTO Japan Alcoholic Beverage Case (1996)

Answer 8

WTO Japan Alcoholic Beverage Case (1996)

🧾 Background
- Concerns Japan’s Liquor Tax Law (1953), which taxed all alcoholic beverages (domestic & imported).
- Beverages classified into 10 categories (e.g., shochu, whisky, wine, beer, etc.).
- Taxed at wholesale level:
- Domestic liquour is taxed: at time of factory shipment.
- Imported: at customs withdrawal.
- Different tax rates for each category/sub-category.

💼 Complaints (1995–96)
- European Communities, USA, and Canada challenged Japan’s tax system.
- Claimed discriminatory taxation against imported liquors (vodka, gin, rum, whisky, etc.) compared to shochu (a Japanese spirit).
- Alleged violations of GATT Article III:2 (national treatment).

📌 Main Legal Issues
- Whether imported liquors and shochu are:
- “Like products” (Article III:2, 1st sentence), or
- “Directly competitive or substitutable” (Article III:2, 2nd sentence).
- Whether Japan’s tax advantages to domestic producers violated GATT.

🧑‍⚖️ Panel Findings
- Shochu and vodka = “like products” → Japan violated Article III:2 (1st sentence).
- Shochu, whisky, brandy, rum, gin, genever, and liqueurs = “directly competitive/substitutable” → Japan violated Article III:2 (2nd sentence).
- Japan’s tax law discriminated against imported liquors.
- Recommended Japan revise its tax law to comply with GATT.

🧑‍⚖️ Appellate Body (AB) Ruling
- Found some legal errors in panel reasoning but upheld the main conclusion.
- Confirmed Japan must bring tax measures into GATT compliance.

Question 9

🇰🇷 Korea – Alcoholic Beverages (1999)

Answer 9

🇰🇷 Korea – Alcoholic Beverages (1999)
WTO Dispute: DS75 & DS84
Complainants: European Communities & United States
Respondent: South Korea

🧾 Facts of the Case
- South Korea taxed alcoholic beverages under two laws:
- Liquor Tax Law
- Education Tax Law
- Korean Soju (a local spirit) was taxed at a lower rate than imported spirits like vodka, whisky, brandy, rum, etc.
- Imported spirits faced significantly higher taxes (sometimes over double).
- Taxes applied at the wholesale level.
- Korea classified liquors into different categories (e.g., diluted soju, distilled soju, whisky, brandy).

⚖️ Complainants’ Arguments
- Soju and imported spirits are either:
- “Like products” (Article III:2, 1st sentence), or
- “Directly competitive or substitutable” (Article III:2, 2nd sentence)
- Higher taxes on imported spirits = discrimination against foreign products.
- Violates national treatment obligation under GATT 1994 Article III:2.

🛡️ Korea’s Defense
- Claimed:
- Soju and imported spirits are not like products.
- Different consumer bases, alcohol content, price points, and uses.
- Tax classification was not intended to protect domestic industry.
- Alleged goal was to encourage moderate alcohol consumption and collect revenue.

🔍 Panel Findings
- Soju and imported spirits are “directly competitive or substitutable” → similar use (consumption), overlap in market.
- Korea’s tax system violated Article III:2 (2nd sentence).
- Taxes gave protective advantage to domestic soju over foreign liquors.

👩‍⚖️ Appellate Body (AB) Ruling
- Upheld panel’s conclusions.
- Found Korea’s tax system inconsistent with GATT obligations.
- Recommended Korea bring tax laws into compliance with WTO rules.

Question 10

🇨🇱 Chile – Alcoholic Beverages Case (2000)
Complainant: European Communities
Respondent: Chile

Answer 10

🧾 Facts of the Case CHILEAN PISCO
- Chile imposed a differential tax system on alcoholic beverages.
- Tax rates increased with alcohol strength:
- Less than 35° alcohol → lower tax (e.g., Chilean pisco).
- More than 35° alcohol → higher tax (e.g., imported whisky, gin, vodka).
- Result: Imported spirits (mostly stronger) were taxed more heavily than Chilean products.
- Taxes applied under Chile’s Law No. 18.455 and Law No. 18.525.

📢 European Communities’ Arguments
- Claimed Chile’s tax structure:
- Discriminated against imported alcoholic beverages.
- Violated GATT 1994, Article III:2 (2nd sentence) – internal taxes shouldn’t protect domestic products.
- Alleged that Chilean pisco and imported spirits were “directly competitive or substitutable products.”

🛡️ Chile’s Defense
- Claimed:
- No discrimination, as tax was based on alcohol content, not origin.
- Tax system aimed at public health, not protectionism.
- Products like pisco and whisky were not substitutable due to consumer preferences and use differences.

⚖️ Panel Findings
- Chile’s tax system violated Article III:2 (2nd sentence):
- Pisco and imported spirits (e.g., whisky) are “directly competitive or substitutable.”
- Higher taxes on stronger alcohol disproportionately affected imports, giving domestic products a competitive edge.
- Found protective effect in favor of Chilean beverages.

👩‍⚖️ Appellate Body (AB) Ruling
- Upheld panel’s decision.
- The Appellate Body stated that an examination of the
design, architecture and structure of the New Chilean System “tend[ed] to reveal” that the
application of dissimilar taxation of directly competitive or substitutable products would
“afford protection to domestic production”, as the magnitude of difference (20 per cent)
between the tax rates was considerable.
- Recommended that Chile modify its tax system to comply with WTO obligations.

Question 11

GATT Article III – National Treatment on Internal Taxation and Regulation

Answer 11

GATT Article III – Key Points

• Fair Treatment: Imported goods must be treated the same as domestic goods regarding internal taxes, charges, and regulations.
• No Protectionism: Rules and taxes should not be used to protect domestic producers from foreign competition.
• Equal Taxes: Imports cannot be taxed more than similar domestic products.
• Internal Rules: Applies to how products are sold, transported, used, etc., inside a country—not at the border.

Analysis of Article III

• Article III:1 (General Principle):
  • Sets the basic rule: no internal taxes or rules should protect domestic products.
  • Acts as a guiding principle for interpreting the rest of Article III.
• Article III:2 (Specific Rule on Taxes):
  • First sentence: Imported goods must not be taxed more than “like” domestic goods.
    • “Like” = similar in properties, nature, and quality (case-by-case basis).
  • Second sentence: Applies when goods are not exactly alike but are “directly competitive or substitutable”.
    • If taxed differently, this is only a violation if the aim is to protect domestic production.
• Key Test for Violation of Article III:2 (Second Sentence):
  1. Are the products directly competitive or substitutable?
  2. Are they not similarly taxed?
  3. Is the different tax meant to protect domestic products? (As per Article III:1)