Name: Sejal Choudhary

JGU ID: 18010351

Batch: BA LLB 2018 (Section B)
Course: International Trade Law

International Trade Law: Mid-Term Assessment

Answer 1(a):

The fact pattern of the case at hand suggests that the prohibition measures imposed by
the Union on the import of certain chemically treated meat products were done to protect
human health from potentially harmful chemical effects. Here, the measures under scrutiny for
inconsistency fall under the ambit of WTO’s Sanitary and Phytosanitary Measures (SPS)
Agreement.

The SPS Agreement aims to balance the rights & obligations of members to further
food safety and plant and animal health while also preventing these SPS measures from posing
as unjustified hindrances in trade barriers. In particular, article 2.1 of the said agreement
outlines the scope of the agreement. It allows members to undertake SPS measures necessary
for the protection of human, plant or animal life and health, provided that such measures are
consistent with the agreement’s provisions. The given factual situation suggests that the
measures imposed by the Union are in furtherance of protecting human life from any potential
chemical risk; hence does not pose an instance where the rule in Article 2.1 is being digressed
from.

Article 2.2 encapsulates the specific criteria for the imposition of such SPS measures
by members; it allows the members to embrace SPS measures to the degree necessary for the
protection of human health or life, animal or plant life, provided they are found on scientific
reasoning & evidence. Imposition of such measures that have the potential to pose as
unjustified trade barriers hence require a logical defence and objective relationship between
the measures and the scientifically evaluated dangers.

The meat import prohibition measure imposed by the Union displays a prima facie
inconsistency with Article 2.2 as the Union’s claims regarding the effects of chemically treated
meat lacked any appropriate scientific backing and were based solely on the public
understanding at large. Hence, by virtue of the rule drawn by this provision, the Union does
not reserve the power to implement such SPS measures under article 2.1 in this particular
situation.

Article 5.1 also requires the sanitary and phytosanitary lengths undertaken by the
members to be found on a ‘risk assessment’ to demonstrate the risks posed to human, animal
or plant life or health. A general understanding of danger would not amount to the risk
assessment prerequisite, and the latter should be construed as a more definite expression of
Article 2.2’s ‘sound science’ requirement.

In a factually similar case of EC—Measures Concerning Meat and Meat Products

(Hormones), the appellate body found the EC’s prohibition on importing chemically treated
meat inconsistent with Article 5.1 due to the absence of any risk assessment. Drawing from the
AB’s observation, in the case in hand, the Union’s imposition of the measure concerning the
import of chemically treated meat was done in the absence of any scientific reasoning or risk
evaluation, which implied the shortcoming of an objective relationship between the contended
measure and the risk; thus making it inconsistent with Article 5.1. Moreover, the AB also held
that while the requirement of meeting international standards under Article 3.1 was not
mandatory but in no case can Article 5.1 be deferred.

In Japan Agricultural Products – II, Japan’ did not undertake a risk evaluation of fire
spread and merely set out claims on a general understanding concerning such an issue; thus, its
measure was found inconsistent. It is pertinent to mention that Article 5.7 allows members to
provisionally undertake sanitary and phytosanitary lengths to embrace additional insurance
vital for safeguarding human, animal and plant life or health based on the available evidence
and defence. Although further procurement of the additional information is necessary to avail
an appropriate risk analysis of the SPS measure within a ‘reasonable time period’. However,
the fact pattern of the case in hand evidence that Union made a negligible effort to analyse the
risk, which can be seen from their evidence solely based on general public opinion. Moreover,
the time period of 4 years to attain more conclusive evidence cannot be accounted as
‘reasonable’.

Answer 1(b):

The Union’s attempt to take the Arbitration recourse as an alternate dispute resolution
method during the implementation stage and get the decision reviewed again for obtaining four
years to acquire scientific evidence is rather vain and merely a delaying scheme to attain more
definite evidence.

As stated in Article 26.1(a) of the DSU (Non-violation), in this particular situation of a

WTO dispute, the Union, i.e. the complaining party, would also be the party bearing the burden
of proof to justify and present evidence sufficient to establish a prima facie case that their claim
of meat being chemically contaminated is grave enough to inflict harm to human lives on
consumption in order to implement its measures. However, the fact pattern suggests that the
Union’s claims are primarily drawn from general public opinion, lacking any scientific
evidence corroboration. In the absence of any objective scientific evidence or risk analysis as
mandated by SPS Article 5.1 to substantiate the Union’s alleged violation, the prohibition
measure will be inconsistent with the SPS Agreement.

In terms of the compliance timing, the spirit of DSU’s Article 21.1 is ‘prompt
compliance’. However, DSU also permits a member to comply in a ‘reasonable time period’ if
immediate compliance is unfeasible in a specific situation. Article 21.3 outlines three ways of
determining a reasonable period of time: In case the member is unable to reach a stipulated
period by consensus, the implementation period is within 45 days following the adoption of
the ruling; if neither occurs, a period of 90 days for the compliance is set by a binding
arbitration following the adoption of the report. Further, Article 21.3(c) offers the ‘guideline’
to arbitrators for determining the reasonable period, which must not exceed 15 months from
the date the ruling was adopted (subjected to the factual circumstance of the case).

However, in the case at hand, the Union’s unreasonable appeal of 4 years for further
attainment of conclusive scientific evidence violates the essence of Article 21.3 (c). It is a mere
attempt to misuse the reasonable period to prolong the process to evade its obligation. In a
comparative case, Meat Products (Hormones), the appellate body held that it would not
conform with the spirit of Article 21.3(c) to include, in the reasonable time period, the time
required for demonstrating the consistency of a measure already adjudicated as inconsistent.
Similarly, in furtherance of this spirit, the Union must comply with the finding of the AB within
15 months.

The AB also held that rectification of inconsistency due to lacking scientific and risk
analysis cannot be construed as a ‘necessary first step’ to bring the contended measure to
consistency with SPS. The AB report is not a prerequisite for commissioning this scientific
evidence. In the present case, the Union’s measures were found inconsistent with Article 5.1
of the SPS Agreement; so drawing a concurrent conclusion to EC - Hormone case, the first and
preferred means of bringing such inconsistency to conformity with the DSB’s
recommendations and rulings is by withdrawing them under Article 3.7 of SPS rather than
prolonging the process with an unreasonably long time period. Arbitration must be respectfully
utilised as a dispute resolving mechanism and not misused as a delaying scheme.
Answer 2:

A series of issues are involved in the fiscal and regulatory policies imposed by
Bandland on imported sweeteners and sodas made from such sweeteners. The issues in hand
are discussed below:

ISSUE 1:

Bandland’s discriminatory tax regime consisting of a 20% VAT imposition on imported

sweeteners like high fructose corn syrup (HFCS) while exempting domestically produced
traditional cane sugar from any tax instigates an inconsistency with the GATT Article III:2,
second sentence.

Article III of the GATT 1994 prohibits discrimination against imported products in the
application of internal tax and regulatory measures. The second sentence of Article III:2 of the
GATT 1994 prohibits any Member from imposing a discriminatory internal measure on
imported DCS goods. The examination of the consistency of the internal taxation with the said
provision is done in a four-tier test:

In the present case, the contended measure, i.e. 20% VAT on imported goods like
HFCS, is an internal charge as it is a discretionary charge by the state wherein the obligation
to pay accrued on account of an internal event, i.e. for the usage of goods.

The Appellate Court in Korea – Alcoholic Beverages (1999) reported that like goods
are a sub-set of the broader notion of ‘directly competitive or substitutable’ (DCS) goods. The
degree of competitiveness is yielded when they are interchangeable or offer alternative ways
of satisfaction and are need not be perfect substitutes. Here, both HFCS and cane sugar operate
as soft drink sweeteners and thus fight in the same marketplace, making them directly
competitive or substitutable products within the meaning of Article III:2, the second sentence.
The Panel in Japan—Alcoholic Beverages II (1996) stressed the need to consider the
marketplace as a pertinent factor over and above other factors like physical attributes, end-uses
etc., to determine whether two items are DCS. Market competition is even more pertinent to
be examined, particularly when internal regulatory measures influence their demand.

HFCS and traditionally produced cane-sugar qualify as DCS goods as these are
imperfect substitutes, yet are interchangeable and offer alternative ways of satisfying a
particular need, i.e. sweetening sodas. The Appellate Body in Korean Drinks found imported
spirits & indigenous distilled beverages soju as DCS goods, and the dissimilar taxation on these
said DCS was found in violation of Article III:2, the second sentence of GATT. Despite the
different constitutional attributes of soju and foreign liquors, the Korean beverages were found
to be DCS goods based on their qualities, just like HFCS and cane sugar.

Inconsistency in measures regarding DCS products also arises from dissimilar taxation.
Imported sweeteners were taxed at a rate 20% higher than cane sugar, which sufficiently
crosses the threshold of de minimis to conclude that this internal measure imposed was GATT
inconsistent as the differential amount was enough to discourage the sale and consumption of
the imported sweeteners. Further, on a comprehensive and objective analysis of the application
of the measure, it can be evidently seen that both the sweeteners competed in the market,
however, 20% VAT was only imposed on the imported HFCS and not to the domestic
counterpart, which clearly operates to discourage its consumption while safeguarding the
domestic cane sugar industry. The dissimilar tax treatment is enough to cross the ‘to give
protection’ threshold, thus violating Article III:2, second sentence.

ISSUE 2:

Bandland’s discriminatory tax regime imposing a 50% service tax on soda sweetened
with HFCS while excluding soda sweetened with domestically produced cane sugar makes
such a measure inconsistent with GATT’s Article III:2, first sentence.

The first sentence of GATT Article III:2 prohibits discriminatory internal taxation of
like imported goods. The consistency of the measure at issue, i.e. the internal taxation with
Article III:2, first sentence, is demonstrated through a three-tier test:

Firstly, the contended measure here is a service tax on soda sweetened with imported
sweeteners like HCFS; hence it falls under the purview of an internal tax, as the obligation to
pay a charge accrues due to an internal event such as a sale and can be imposed on products at
the state’s discretion.

In Philippines – Distilled Spirits (2012), certain distilled spirits (such as whisky and
brandy) made from specific raw materials (particularly sugar cane) and similar distilled spirits
made from other raw materials were found to be ‘like products’ within the meaning of Article
III:2, first sentence. Similarly, in the present case, the two varieties of sodas (made from HFCS
vis-à-vis cane sugar) in question have a high degree of competition and are interchangeable.
Their constitutional differences only have a limited impact on their competitive relationship,
demonstrating their likeness under GATT Article III:2, first sentence.

The Appellate Body further noted that under GATT Article III:2, first sentence,
products that are close to perfect substitutes could be termed as ‘like products’. In the present
case, the contended goods, i.e. soda, offer the same taste and quality and are perfect substitutes;
thus, they can be called like products. In Mexico – Taxes on Soft Drinks (2006), both soft
drinks sweetened with beet sugar/HFCS as well as with cane sugar were considered to be ‘like
products’. For the purpose of GATT Article III:2, first sentence, the likeness of a product must
be demonstrated with a narrow interpretation; and in the case in hand, the two varieties of sodas
not only possessed similar end-use, quality, customer inclination or taste but were also
perfectly interchangeable and not merely alternatives.

The Appellate Body in Japan – Alcoholic Beverages II (1996) noted that Shochu and
vodka were found to be like goods since both were liquors made from similar raw materials,
physical characteristics and end-uses. The differential tax rates imposed on imported liquors
compared to indigenous spirit shochu were found in excess and violation of Article 111:2, first
sentences. Pursuant to Article III:2, first sentence, the internal fiscal measure of 50% service
tax on imported sweeteners is in excess of the same applied to ‘like’ domestic products.

The AB in Japan – Alcoholic Beverages also ruled that the prohibition of

discriminatory taxes in Article III:2, first sentence, is concerned with de minimis standard, i.e.
even a small excess amount is a lot. A 50% service tax rate is in grave excess in the present
case. It entails severe economic impact detrimental to the competitive opportunities of
imported sweeteners in a manner that enables domestic cane sugar to avoid such internal
charges. Hence, this measure is inconsistent with Article III:2, first sentence.
ISSUE 3:

Bandland’s regulatory requirement for all retail sellers of imported sweeteners like
HFCS to keep financial bookkeeping while exempting the sellers of traditional sugar from such
obligations entices a violation of GATT Article III:4. Article III:4’s primarily focuses on
creating a fair and equal environment in the marketplace for both imported and domestic goods.
The examination of consistency with Article III:4 is demonstrated through a three-tier test:

In the case in hand, the 20% VAT and regulatory policies like bookkeeping on imported
sweeteners (like HFCS) will clearly violate Article III:4 since these are internal fiscal and
regulatory measures that can easily circumvent the national treatment obligation and affect the
internal sale and usage of such imported sweeteners, as also held in a factually similar case of
Mexico – Taxes on Soft Drinks (2006).

The Appellate Body in EC – Asbestos (2001) noted that the product scope under Article
III:4, although slightly broader than the scope in Article III:2, first sentence, however, is
certainly not broader than the combined scope of both the sentences of Article III:2. In the
present case, both - the imported sweeteners and domestically produced cane sugar were used
for similar end-use, i.e. making soda and had similar taste and customer inclination. The
examination of these criteria in totality demonstrates the likeness of these products within
Article III:4, which also implies a high degree of competitive relationship in the market.

The Appellate in Korea - Beverages held that according to treatment, ‘no less
favourable’ implies according competition conditions no less favourable too, to the imported
product. However, interpreting the likeness of these competitive products from the scope of
the anti-protectionism principle, the discriminatory policy structure implemented by Bandland
accords a less favourable treatment to imported sweeteners vis-à-vis domestic produced goods
as it has modified the competition conditions to the detriment of imported sweeteners compared
to domestic cane-sugar in the marketplace. Further, drawing any inference from the holding in
the Dominican Republic, an additional burden of taxes and bookkeeping for the sellers of
imported sweeteners also offers regulatory and fiscal reliefs to domestic good sellers which
have a practical effect of making the imported goods less favourable.

The court in Mexico – Taxes on Soft Drinks (2006) also found that the discriminatory
measures towards non-cane sugar offer an economic incentive to use cane sugar as sweeteners
instead of non-cane sugar sweeteners like HFCS signifies a substantial modification in the
competition conditions between these like products. The factual situation of Bandland is very
much akin to the Mexico-Taxes on Soft Drinks case. Hence, it is determined that the internal
regulatory and fiscal measures imposed by Bandland on imported sweeteners like HFCS are
inconsistent and discriminatory in nature.
Answer 3:

In the case of Temerion, the contended measures in issue are the imposition of a
transitional surcharge of 2% on all bound & unbound items for furthering economic
stabilisation and a foreign exchange fee of 10% on all imports. As a result, cigarettes already
having a 40% bound rate in the Temerion Schedule of Concessions will be subjected to these
impositions on import.

The first sentence of Article II:1(b) prevents a member state from charging any excess
custom duty apart from the ones already encapsulated in the schedule at the time of signing the
agreement. The second sentence of the said GATT Article allows the imposition of ‘other
duties or charges’ (OCD) in addition to the ordinary custom duties agreed to while signing the
GATT. However, these OCDs must not exceed the already levied binding charges/duties. This
rule operates to prevent members from implementing excess duties under the guise of OCDs.

The Panel in the Dominican Republic – Cigarette held that OCD is not clearly defined
anywhere. However, a general understanding of this concept includes any charge or duty that
is not an ordinary customs duty or a charge under Article II:2. The panel in India - Additional
Import Duties also similarly noted that OCD encapsulates only those charges/duties that are
not ordinary custom duties. In the case in hand, the surcharge and foreign exchange fee on
imported cigarettes are border measures under Article II:1(b) as they are levied upon all such
imports along with customs duties and entail obligations due to importation. Furthermore, as
these additional charges on imported goods are separate and distinct from ‘ordinary custom
charges’, they certainly fall under the ambit of OCD in GATT Article II:1(b), second sentence.

The Uruguay Round of GATT in 1994 on the Understanding and Interpretation of

Article II:1(b) resulted in a series of amendments and modifications to the Schedule of
Concession. A separate column for OCD was introduced, which required the levy of any OCD
upon bound tariffs to be recorded to ensure further transparency, rights, and obligations of its
members. However, such OCDs were limited up to a permissible level of the bound rates
prevailing at the time it was first incorporated.

In a comparative case, Dominican Republic - Import and Sale of Cigarettes (2005), the
panel noted additional charges like transitional surcharge and foreign exchange fees imposed
on imported goods qualified as OCD under Article II:1(b), second sentence. However, the
panel also observed that unlike as agreed upon in GATT’s 1994 Uruguay Round, a failure on
the part of the Dominican Republic in legally recording and notifying these OCDs in their
Concession Schedule implied the notification level of the said OCDs equivalent to ‘zero’ in
the schedule. Similarly, since in the case in hand, the facts are silent on Temerion recording or
notifying their two OCDs in its Schedule of Concession, it is assumed that Temerion had
legally failed to do so. Hence, as a result, concurrent to the panel’s finding, the notification of
the said OCDs must be construed as equivalent to zero, and the application of two said OCDs
would be done in excess of the level notified pursuant to OCD in their schedule, i.e. ‘zero’,
making the 40% bound rate irrelevant. Consequently, the two measures imposed by Temerion
on imported cigarettes entice inconsistency with Article II:1(b) of the GATT 1994.