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NATIONAL TREATMENT
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World Trade Organization (WTO)
The World Trade Organization (WTO) is a governmental organization which
regulates international trade. The WTO officially commenced on 1 January 1995 under
the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General
Agreement on Tariffs and Trade (GATT), which commenced in 1948. The WTO deals with
regulation of trade between participating countries by providing a framework for negotiating
trade agreements and a dispute resolution process aimed at enforcing participants' adherence to
WTO agreements, which are signed by representatives of member governments and ratified by
their parliaments. Most of the issues that the WTO focuses on derive from previous trade
negotiations, especially from the Uruguay Round (1986–1994).
The WTO is attempting to complete negotiations on the Doha Development Round, which was
launched in 2001 with an explicit focus on developing countries. As of June 2012, the future of
the Doha Round remained uncertain: the work programme lists 21 subjects in which the original
deadline of 1 January 2005 was missed, and the round is still incomplete. The conflict between
free trade on industrial goods and services but retention of protectionism on farm subsidies to
domestic agricultural sector (requested by developed countries) and the substantiation of fair
trade on agricultural products (requested by developing countries) remain the major obstacles.
This impasse has made it impossible to launch new WTO negotiations beyond the Doha
Development Round. As a result, there have been an increasing number of bilateral free trade
agreements between governments. As of July 2012, there were various negotiation groups in the
WTO system for the current agricultural trade negotiation which is in the condition of stalemate
The WTO's current Director-General is Roberto Azevêdo, who leads a staff of over 600 people
in Geneva, Switzerland. A trade facilitation agreement known as the Bali Package was reached
by all members on 7 December 2013, the first comprehensive agreement in the organization's
history.
HOW IT WORKS (EXAMPLE):
More than 140 countries belong to the WTO, and membership is voluntary. Some countries hold
observer status with the WTO, which enables the country to follow discussions and matters of
particular interest. Some WTO committees are for members only, however, and do not allow
observers.
WTO decisions are made by consensus rather than by delegation to a board of directors or leader.
The WTO's highest authority is the Ministerial Conference, whose members meet at least once

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every two years. The WTO General Council, with the Dispute Settlement Body and the Trade
Policy Review Body, handles the WTO's day-to-day duties. These day-to-day entities, which are
collectively referred to as the General Council, act on behalf of the Ministerial Conference and
are composed of several subcouncils, including the Council for Trade in Goods, the Council for
Trade in Services and the Council for Trade-Related Aspects of Intellectual Property Rights.
Each subcouncil has several committees.
WTO members negotiate World Trade Agreements, which are later ratified by the participating
nations' parliaments or congresses. WTO agreements involve five principles:
1. With some exceptions, members must provide equal trade-agreement terms to all fellow WTO
countries. This equal treatment is known as most-favored-nation status. Members also must offer
"national treatment," meaning a WTO member may not discriminate against products from other
WTO countries once the products have entered the member's market.
2. WTO agreements must work to lower trade barriers such as customs duties, tariffs, import
bans and quotas.
3. WTO agreements must help provide a stable and predictable business environment by
including commitments about future trade policies.
4. WTO agreements must define fair and unfair trade practices.
5. WTO agreements must consider the special needs developing countries may have in
implementing WTO requirements.
Dispute settlement processes are written into WTO agreements, which are legally binding. WTO
members enforce agreements according to predetermined procedures, but there is some concern
that economically strong countries may be able to ignore complaints brought by poorer countries,
whose sanctions or other penalties may not hurt the offending country enough to stimulate
compliance.
WHY IT MATTERS:
The WTO is one of the most powerful and controversial legislative bodies in the world. Ideally,
the purpose of the WTO is to facilitate free trade while helping governments meet social and
environmental goals.
Whether free trade and the WTO accomplish these goals is the subject of considerable debate.
Some question whether free trade benefits wealthy nations and multinational corporations rather
than communities and the environment. Further, approximately two thirds of WTO members are
developing countries, and some of these countries are concerned that poor domestic
infrastructure, political instability, and certain tariff arrangements disproportionately inhibit their

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abilities to engage in profitable trade. Critics also point out that a country's choice not to join the
WTO may effectively place an embargo on the goods and services of that country.

NATIONAL TREATMENT
Executive summary
The national treatment standard is perhaps the single most important standard of
treatment enshrined in international investment agreements (IIAs). At the same time, it is

perhaps the most difficult standard to achieve, as it touches upon economically (and politically)
sensitive issues. In fact, no single country has so far seen itself in a position to grant national
treatment without qualifications, especially when it comes to the establishment of an investment.
National treatment can be defined as a principle whereby a host country extends to foreign
investors treatment that is at least as favorable as the treatment that it accords to national
investors in like circumstances. In this way the national treatment standard seeks to ensure a
degree of competitive equality between national and foreign investors. This raises difficult
questions concerning the factual situations in which national treatment applies and the precise
standard of comparison by which the treatment of national and foreign investors is to be
compared. National treatment typically extends to the post-entry treatment of foreign investors.
However, some bilateral investment treaties (BITs) and other IIAs also extend the standard to
pre-entry situations. This has raised the question of the proper limits of national treatment, in that
such an extension is normally accompanied by a “negative list” of excepted areas of investment
activity to which national treatment does not apply, or a “positive list” of areas of investment
activity to which national treatment is granted. In addition, several types of general exceptions to
national treatment exist concerning public health, safety and morals, and national security,
although these may not be present in all agreements, particularly not in BITs. National Treatment
National treatment interacts with several other investment issues and concepts. Most notably
there are strong interactions with the issues of admission and establishment, the most-favoured
nation (MFN) standard, host country operational measures and investor-State dispute settlement.
National treatment raises some of the most significant development issues in the field of foreign
direct investment (FDI). It stipulates formal equality between foreign and national investors.
However, in practice national investors, especially those that could be identified as “infant
industries” or “infant entrepreneur, may be in an economically disadvantageous position by
comparison with foreign investors, who may be economically powerful transnational
corporations (TNCs). Such “economic asymmetry” may require a degree of flexibility in the
treatment of national investors, especially in developing countries, for instance through the
granting of exceptions to national treatment.

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INTRODUCTION
National treatment is a principle in international law vital to many treaty regimes. It essentially
means treating foreigners and locals equally. Under national treatment, if a state grants a
particular right, benefit or privilege to its own citizens, it must also grant those advantages to the
citizens of other states while they are in that country. In the context of international agreements, a
state must provide equal treatment to those citizens of other states that are participating in the
agreement. Imported and locally produced goods should be treated equally — at least after the
foreign goods have entered the market.
While this is generally viewed as a desirable principle, in custom it conversely means that a state
can deprive foreigners of anything of which it deprives its own citizens. An opposing principle
calls for an international minimum standard of justice (a sort of basic due process) that would
provide a base floor for the protection of rights and of access to judicial process. The conflict
between national treatment and minimum standards has mainly played out
between industrialized and developing nations, in the context of expropriations. Many
developing nations, having the power to take control over the property of their own citizens,
wished to exercise it over the property of aliens as well.
Though support for national treatment was expressed in several controversial (and legally nonbinding) United Nations General Assembly resolutions, the issue of expropriations is almost
universally handled through treaties with other states and contracts with private entities, rather
than through reliance upon international custom.
National treatment only applies once a product, service or item of intellectual property has
entered the market. Therefore, charging customs duty on an import is not a violation of national
treatment even if locally produced products are not charged an equivalent tax.

OVERVIEW OF RULES
(1) The Background of Rules: National Treatment Principle
National treatment (GATT Article III) stands alongside MFN treatment as one of the central
principles of the WTO Agreement. Under the national treatment rule, Members must not accord
discriminatory appropriate treatment between imports and like domestic products (with the
exception of the imposition of tariffs, which is a border measure). The GATS and the TRIPS
Agreement have similar provisions. This rule prevents countries from taking discriminatory
measures on imports on the one hand, and to prevent countries from offsetting the effects of
tariffs through non-tariff measures. An example of the latter could be where Member A reduces
the import tariff on product X from ten percent to five percent, only to impose a five percent
domestic consumption tax only on imported product X, effectively offsetting the five percentage
point tariff cut. The purpose of the national treatment rule is to eliminate “hidden” domestic

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barriers to trade by WTO Members through according imported products treatment no less
favourable than that accorded to products of national origin. The adherence to this principle is
important to maintain the balance of rights and obligations, and is essential for the maintenance
of the multilateral trading system.

2) Legal Framework
(i) GATT Article III
GATT Article III requires that WTO Members provide national treatment to all other
Members. Article III:1 stipulates the general principle that Members must not apply internal
taxes or other internal charges, laws, regulations and requirements affecting imported or
domestic products so as to afford protection to domestic production.
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 goods, or between imported goods and “a directly
competitive or substitutable product.” With regard to internal regulations and laws, Article III: 4
provides that Members shall accord imported products treatment no less favourable than that
accorded to “like products” of national origin.
In determining the similarity of “like products,” GATT panel reports have relied on a
number of criteria including tariff classifications, the product’s end uses in a given market,
consumer tastes and habits, and the product’s properties, nature and quality. The same idea can
be found in reports by WTO panels and the Appellate Body.

The substantive content of the national treatment standard
This issue involves two closely related questions: first, what are the factual situations in which
national treatment applies? Second, in what manner, and to what extent, is the treatment of
foreign investors assimilated to that of nationals? The first issue defines the limits of factual
comparison, while the second issue deals with the techniques of comparison, the application of
which is limited to the factual situations identified in answering the first question.

The relationship between national treatment and other general
standards of treatment
National treatment may co-exist in an IIA with other standards of treatment, notably MFN and
fair and equitable treatment. This raises the technical question of how the relevant clauses relate
to one another. National treatment may be stated in a “stand alone” provision or it may be
combined with other general standards of treatment. It is common practice in IIAs to combine
national treatment with MFN (less commonly with fair and equitable treatment) in one clause

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(UNCTAD, 1999a, 1999b). The main effect of such combinations is to emphasize the close
interaction between the various standards of treatment. This may be supplemented by a further
clause which entitles the foreign investor to the better of national treatment or MFN, whichever
is more advantageous (and, in some cases, may result in treatment for foreign investors that is
better than national treatment and therefore discriminates against local investors). Thus, for
example, if a foreign investor received better treatment under an MFN clause than under a
national treatment standard, the former would apply. This may be the case in situations in which
some foreign investors already enjoy preferential treatment in a host country vis-à-vis national
firms regarding, for example, incentives.

“De jure” and “de facto” treatment
A question that arises is whether national treatment covers not only de jure treatment, that is,
treatment of foreign investors provided for in national laws and regulations, but also de facto
treatment, as where a measure in fact works against national treatment. One example may be
licensing requirements for the conduct of a certain business activity which depend on the
possession of qualifications by skilled personnel that can only be obtained in the host country.
Although this measure may be justifiable on policy grounds, as where health and safety issues
are involved, it would require a foreign investor to ensure that its own personnel have the
relevant national qualifications, requiring additional time and cost to be incurred before the
investor can begin to operate.

(ii) Exceptions to GATT Article III (National Treatment Rule)
Although national treatment is a basic principle under the GATT, the GATT provides for certain
exceptions as follows.
(a) Government Procurement
GATT Article III : 8(a) permits governments to purchase domestic products preferentially,
making government procurement one of the exceptions to the national treatment rule. This
exception is permitted because WTO Members recognize the role of government procurement in
national policy. For example, there may be a security need to develop and purchase products
domestically, or government procurement may, as is often the case, be used as a policy tool to
promote smaller business, local industry or advanced technologies. While the GATT made
government procurement an exception to the national treatment rule, the Agreement on
Government Procurement resulting from the Uruguay Round mandates signatories to offer
national treatment in their government procurement. However, WTO Members are under no
obligation to join the Agreement on Government Procurement. In fact, it has mostly been
developed countries that have joined the Agreement. Therefore, in the context of government
procurement, the national treatment rule applies only between those who have acceded to the
Agreement on Government Procurement, and for others, the traditional exception is still in force.

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(b) Domestic Subsidies
GATT Article III: 8(b) allows for the payment of subsidies exclusively to domesticproducers as
an exception to the national treatment rule, under the condition that it is not in violation of other
provisions in Article III and the Agreement on Subsidies and Countervailing Measures. The
reason for this exception is that subsidies are recognized to be an effective policy tool, and is
recognized to be basically within the latitude of domestic policy authorities. However, because
subsidies may have a negative effect on trade, the Agreement on Subsidies and Countervailing
Measures imposes strict disciplines on the use of subsidies.
(c) GATT Article XVIII : C
Members in the early stages of development can raise their standard of living by promoting the
establishment of infant industries, but this may require government support and the goal may not
be realistically attainable with measures that conform to the GATT. In such cases, countries can
use the provisions of GATT Article XVIII: C to notify WTO Members and initiate consultations.
After consultations are completed and under certain restrictions, these countries are then allowed
to take measures that are inconsistent with GATT provisions excluding Articles I, II and XIII.
Unlike the trade restrictions for balance of payment reasons in GATT Article XVIII:B, the Article
XVIII:C procedure allows both border measures and violations of the national treatment
obligations in order to promote domestic infant industries. In the case concerning Malaysia ’s
import permit system of petrochemical products, Malaysia resorted to GATT Article XVIII:C as
a reason to enforce import restrictions on polyethylene. Although Singapore filed a WTO case
against this Malaysian practice, Singapore then withdrew its complaints and therefore neither a
panel nor the Appellant Body had an opportunity to rule on the case.
(d) Other Exceptions to National Treatment
Exceptions peculiar to national treatment include the exception on screen quotas of
cinematographic films under Article III:10 and Article IV. The provisions of GATT Article XX
on general exceptions, Article XXI on security exceptions, and WTO Article IX on waivers also
apply to the national treatment rule. For further detail, see the relevant sections of Chapter 1
(MFN Principle).
(iii) National Treatment Rules Outside of GATT Article III With the entry into force of the WTO
Agreement, the idea of national treatment has been extended, although in a limited fashion, to
agreements on goods, services and intellectual property. Among the agreements on goods, for
instance, Article 5.1.1 of the TBT Agreement also addresses national treatment. GATS Article
XVII provides national treatment for services and service providers and Article 3 of the TRIPS
Agreement provides national treatment for the protection of intellectual property rig

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hts. The plurilateral Agreement on Government Procurement also contains a national treatment
clause. (See the relevant chapters for more information on Trade in Services, Intellectual
Property Rights, and Government Procurement.)

(3) Economic Implications
There is a tendency for importing countries to attempt to use discriminatory application of
domestic taxes and regulations to protect national production, often as the result of protectionist
pressures from domestic producers. This distorts the conditions of competition between domestic
and imported goods and leads to a reduction in economic welfare. The national treatment rule
does not in principle permit these sorts of policies designed to protect domestic products. GATT
Article II does permit the use of tariffs as a means of protecting domestic industry, but this is
because tariffs have high degrees of transparency and predictability since they are published and
committed to in tariff schedules. On the other hand, domestic taxes and regulations are “hidden
barriers to trade” that lack both transparency and predictability, which means that they can have a
large trade-distortive impact. The existence of GATT Article III generally impedes the adoption
of policies and measures aimed at domestic protection, and thus promotes trade liberalization. In
addition, regarding tariff concessions, GATT Article II recognizes tariffs as tools for domestic
industrial protection, and having done so, sets a course for the achievement of liberalization
through gradual reductions. Even if tariff reductions were made as a result of trade negotiations,
if domestic taxes and regulations were to be applied in a discriminatory fashion to protect
domestic industry simultaneously, then effective internal trade barriers would remain. The
national treatment rule prohibits countries from using domestic taxes and regulations to offset the
value of tariff concessions and is, therefore, a significant tool in promoting trade liberalization.

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PROBLEMS OF TRADE POLICIES AND MEASURES IN
INDIVIDUAL COUNTRIES
National treatment provisions, as well as the MFN clause, are often invoked in WTO disputes.
However, an argument on national treatment is rarely made on its own; instead, the national
treatment principle is usually invoked in conjunction with other provisions regarding MFN,
quantitative restrictions, TRIMs, and standards and conformity assessment. The United States’
Harbour Maintenance Tax and the Brazilian Automobile Policy, in which national treatment is a
major issue. In principle we have left detailed descriptions of other cases to other chapters.

(1) United States
(i) Harbour Maintenance Tax (Harbour Services Fee)
Since 1987, in accordance with the Water Resources Development Act (1986 Public Law 99662) and related amendments, the United States has operated a system that is designed to impose
ad valorem taxes of 0.125 percent (0.04 percent until 1990) as to freight (imports and exports and
parts of national freight) on persons who own the freight and use harbours within the territory of
the United States. Under this system, imported products are almost inevitably subject to the tax
since it is collected at the point of importation, where relevant duties are charged. On the other
hand, the tax burden on exports and national freight is comparatively light because ship-owners
or exporters voluntarily pay the tax in these circumstances on a quarterly basis. With regard to
national freight, exceptions to this system are allowed in the following three cases:
(a) payment under ten thousand dollars per quarter,
(b) traffic in Alaska, Hawaii and dependencies, and
(c) landing of fish from ships, and some freights of Alaskan crude oil. Yet similar exceptions
are not allowed for imported products. An annual limit of the abovementioned ad valorem
taxes that are to be granted to US military personnel is five hundred million dollars. It is
reported that, as of October 1997, a surplus of 1.1 billion dollars has accumulated.
This new system instituted by the United States may be in violation of the WTO Agreement in
the following three respects.
(a) GATT Article II (Schedules of Concessions): The system, which adopts the ad valorem taxes
on import products, imposes a tax that is higher than that prescribed in the schedules of
concessions;
(b) GATT Article III (National Treatment): Imported products are accorded less favourable
treatment as explained above.

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(c) GATT Article VIII (Fees and Formalities Connected with Importation and Exportation): The
system is designed to levy charges that are heavier than fees for the maintenance ofharbours.
In February 1998, the European Union requested consultations with the United Statesregarding
this system pursuant to GATT Article XXII. Japan has participated in the consultations as a third
party.
In October 1995, the US Court of International Trade ruled that the system violated the US
Constitution prescribing the prohibition of direct taxation on export products. In June 1997, the
Court of Appeals for the Federal Circuit, supporting this decision, ordered the prohibition of
these taxes on the maintenance of harbours and the refund of collected taxes (about 1.1 billion
dollars). In March 1998, the Supreme Court of the United States also delivered a similar
judgement regarding the unconstitutionality of the tax. In accordance with this decision, the US
Government decided not to collect the tax from exporters or exports from 25 April 1998.
However, the problems above have not been solved yet.
In May 1995, US Government submitted bill HR 1947 to introduce Harbour Services Fee, which
substitute for Harbour Maintenance Tax. The fee will be reserved as HarbourServices Fee in
order to expend for not only harbour maintenance but harbour development. However, this bill
does not resolve problems of Harbour Maintenance Tax, such as exception measures for
American domestic ships, and charges that are heavier than fees for the maintenance of harbours.
In addition, there are criticisms that the bill has a character of “tax”, since this fee is charged
irrespective of loading and actual substance of harbour services.Moreover, there is also criticism
that the bill discriminates against container ships, which are usually foreign ships, and is in
favour of non-container ships, which are usually American domestic ships, and imposes a fee
about 25 times higher on the former. The bill was scheduled to apply from 1 October 1999, but
the consideration of the bill has not been advanced yet.
Hence, we must closely observe the development with respect to this legislation and should
make repeated requests to the United States to make the system compatible with the WTO
agreements.v

(ii) Merchant Shipping Act of 1920 (Jones Act)
This law speccifies that only ships owned by US citizens, built in US shipyards, and run by US
crews are permitted to engage in domestic passenger and cargo transport within the United
States. The measure is conceivably a violation of Article III and XI of the GATT, but the United
States has maintained its legality under the provisions concerning provisional application of
GATT 1947. During this Uruguay Round negotiations, the United States successfully maintained
the exemption of GATT provisions under Paragraph 3 of GATT 1994.
However, Paragraph 3 of GATT 1994 stipulates that the Ministerial Conference shall review this
exemption not later than five years after the date of entry into force of the WTOAgreement and

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thereafter every two years for as long as the exemption is in force for the purpose of examining
whether the conditions which created the need for the exemption still prevail.
The WTO General Council began its review in July of last year. The United States argued that
the exemption continued to be necessary because there had been no change in domestic law. A
large number of Members including Japan take the position that the Council should adopt a
restrictive attitude when the exemption are renewed and should review in a strict manner, since
the exemptions based on Paragraph 3 of the GATT 1994 are deviations from the basic principles
of the GATT. The issue has not yet been resolved, and we will need to continue to monitor the
US response

(iii) Section 337 of the Tariff Act of 1930
Section 337 of the Tariff Act of 1930 law targets “unfair practices” by importers, through
excluding imports by those importers from US imports, when US industry would have injury
from those imports. The US International Trade Commission (ITC) establishes a “target date” for
final determination in each investigation within 45 days of the initiation of an investigation
depending on how this law is administered, it could result in discriminatory treatment against
imports.

(iv)Foreign Sales Corporations (FSC)
Tax exemptions regarding foreign sales corporations (FSCs) only cover products whosemarket
value is over 50 percent domestic, in violation of the national treatment principle.
(v) Corporate Average Fuel Economy (CAFE) Regulation
This measure requires that the average fuel economy for all models handled by an auto company
remain above certain levels, but calculates domestic automobiles and imports as different groups.
This is discrimination between like products according to whether they are domestic or foreign.

(2) India
Local Content Requirements for Automobiles
Local content requirements and import restrictions regarding parts that depend on meeting export
performance targets are measures that are conditional upon priority use of domestic products
over imports < Box> Brazilian Automobile Policy
The Government of Brazil introduced measures regarding automobiles in the period between
June 1995 and December 1995. Investment measures thought to be in violation of the GATT, the
TRIMs Agreement, and the Agreement on Subsidies and Countervailing Measures among others
were included.

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Japan requested consultations with the Brazilian Government under Article XXII of theGATT.
Brazil did not offer any specific improvements to its investment incentive measures in the
informal and formal consultations that were held during 1996, but in August 21, 1996, it
announced, as a unilateral measure, a Presidential Decree on tariff quotas that would give
reduced tariff quotas to auto importers who did not enjoy the benefits of the investment incentive
measures. Brazil implemented a similar measure in August 1997, September 1998, and
September 1999. Japan has repeatedly urged the government of Brazil to eliminate its
investment-related measures as quickly as possible because of the consequent improvement in
market access and relaxation of preferences for investing companies. During consultations, the
Government of Brazil indicated that the investment-related measures would be eliminated at the
end of 1999, and indeed Brazil in fact eliminated them. Brazil should be praised for its positive
attitude in bringing its domestic systems in line with the TRIMs Agreement and other WTO
agreements and in fulfilling the promises it made in bilateral consultations.

The Principle of National Treatment in the International
Conventions Protecting Intellectual Property
National treatment is one of the fundamental principles in the international conventions
protecting intellectual property. It is established in the most important conventions — as, e.g., in
the Paris Convention, the Berne Convention, the Rome Convention, the Universal Copyright
Convention, TRIPS, NAFTA and the WPPT, also in the WCT that under its Article 3 makes
Articles 2 — 6 part of the WCT. There are only a few conventions not applying the national
treatment principle, such as, the Geneva Phonograms Convention and the Brussels Satellite
Convention, and those do not confer private rights to the beneficiaries who shall be protected,
but leave it to the Contracting States to choose the legal means of protection.
National treatment is the simple and ingenious solution to solve the problem of worldwide
protection for creative inventors and authors. According to the principle of territoriality, countries
can grant protection only within the boundaries of their own territory. Worldwide protection can
be provided only by international treaties having as members the greatest possible number of
countries. But when concluding such treaties, the nature and scope of protection accorded to
nationals of other member states was an issue that still had to be solved. Worldwide
harmonization of national intellectual property appeared to be unrealistic, and reciprocity as a
general principle would have led to a patchwork system of mutual protection, including the need
to find out in individual cases what kind of protection was granted by the laws of the other
country in question. National treatment, under which a treaty member accords nationals of other
member states the same treatment it accords its own nationals, allows that member and its courts
to apply their own law — the law they are familiar with. Supplemented by the system of
minimum rights, it even has the tendency to bring about a harmonization of national laws — at
least up to a certain degree.

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Cases Related to National Treatment
1. Japan Alcoholic Beverages Case:
Key facts
Short title:

Japan

Beverages II

Alcoholic

Complainant:

European Communities

Respondent:

Japan

Third Parties:
Agreements
(as cited in request for consultations)

cited: GATT 1994: Art. III:2

Request for Consultations received:

21 June 1995

Panel Report circulated:

11 July 1996

Appellate Body Report circulated:

4 October 1996

Article 21.3(c)Arbitration

14 February 1997

Reportcirculated:

Summary of the dispute to date
Consultations
Complaints by the European Communities, Canada and the United States.
The EC requested consultations on 21 June 1995, and Canada and the US on 7 July 1995. The
complainants claimed that spirits exported to Japan were discriminated against under the
Japanese liquor tax system which, in their view, levies a substantially lower tax on “shochu” than
on whisky, cognac and white spirits.

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Panel and Appellate Body proceedings
A joint panel was established at the DSB meeting on 27 September 1995. On 30 October 1995,
the Panel was composed. The report of the panel, which found the Japanese tax system to be
inconsistent with GATT Article III: 2, was circulated to Members on 11 July 1996.
On 8 August 1996 Japan filed an appeal. The report of the Appellate Body was circulated to
Members on 4 October 1996. The Appellate Body’s Report affirmed the Panel’s conclusion that
the Japanese Liquor Tax Law is inconsistent with GATT Article III:2, but pointed out several
areas where the Panel had erred in its legal reasoning. The Appellate Report, together with the
panel report as modified by the Appellate Report, was adopted on 1 November 1996.
Implementation of adopted reports
On 24 December 1996, the US, pursuant to Article 21(3)(c) of the DSU applied for binding
arbitration to determine the reasonable period of time for implementation by Japan of the
recommendations of the Appellate Body.
The Arbitrator’s report was circulated to members on 14 February 1997. The Arbitrator found the
reasonable period for implementation of the recommendations to be 15 months from the date of
adoption of the reports i.e. it expired on 1 February 1998. Japan presented modalities for
implementation which were accepted by the complainants.

2. Korea –Beef Case
Measure at issue: (i) Korea's measures affecting the importation, distribution and sale of beef,
(ii) Korea's “dual retail system” for sale of domestic imported beef), and (iii) Korea's agricultural
domestic support programmes.
• Product at issue: Beef imports from Australia and the United States.
2. SUMMARY OF KEY PANEL/AB FINDINGS
• AA Art. 3.2 (domestic support): While upholding the Panel's conclusion that Korea
miscalculated its domestic support (AMS) for beef, the Appellate Body reversed the Panel's
ultimate finding that Korea acted inconsistently with Art. 3.2 by exceeding its commitment levels
for total support for 1997 and 1998 as the Panel had also relied on an improper methodology for
its own calculations.
• GATT Art. III:4 (national treatment – domestic laws and regulations): The Appellate
Body agreed with the Panel's ultimate conclusion that Korea's dual retail system (requiring
imported beef to be sold in separate stores) accorded “less favourable” treatment to imported
beef than to like domestic beef. According to the Appellate Body, the dual retail system virtually
cut off imported beef from access to the “normal” distribution outlets for beef, which modified

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the conditions of competition for imported beef. In this connection, the Appellate Body said that
formally different treatment of imported and domestic products is not necessarily “less
favourable” for imports within the meaning of Art. III:4.
(GATT Art. XX(d) (exceptions – necessary to secure compliance with laws): Further, the
Appellate Body upheld the Panel's finding that the dual retail system was not justified as a
measure necessary to secure compliance with Korea's Unfair Competition Act because the dual
retail system was not “necessary” within the meaning of Art. XX(d). “Necessary” requires the
weighing and balancing of regulations of factors such as the contribution made by the measure to
the enforcement of the law or regulation at issue, the relative importance of the common interests
or values protected and the impact of the law on trade. The Appellate Body agreed with the Panel
that Korea failed to demonstrate that it could not achieve its desired level of enforcement using
alternative measures.
GATT Arts. XI:1 (prohibition on quantitative restrictions) and XVII:1(a) (state trading
enterprises – nondiscrimination obligations) and AA Art. 4.2 (tariffication): The Panel
concluded that the LPMO's failure to call, and delays in calling for, tenders, as well as its
discharge practices (i.e. the LPMO's increase in its stocks of foreign beef, while failing to meet
requests for that beef) led to import restrictions on beef contrary to GATT Art. XI. This also led
to the conclusion that the measures were inconsistent with AA Art. 4.2, which prohibits Members
from maintaining, resorting to, or reverting to any quantitative import restrictions, including nontariff measures maintained through state-trading enterprises, which have been required to be
converted into ordinary customs duties. The Panel also found that should the LPMO be viewed
as a state-trading enterprise without full control over the distribution of its import quota share,
the measures violated GATT Art. XVII:1(a) (a provision governing state-trading enterprises) as
well, because they were inconsistent with the general principles of non-discriminatory treatment.
(Korea did not appeal this finding.)

16

Conclusion
Naturally, we look at the purpose of the Anti-discrimination provision to help us apply it, but
moving from general purpose to a specific test is also problematic. By all accounts, the National
treatment Principle is designed to interdict “Hidden Proctionism” and to prohibit measures that
are equivalent to tariff barrier with the goal of protecting the commitments that WTO members
have made to reduce tariff and other trade barriers and to ensure equality of competitive
conditions. This is to prevent countries from taking discriminatory measures on imports on the
other hand, and to prevent countries from offsetting the effects of tariffs through non tariffs
measures.
In operation National Treatment serves to limit the exercise of sovereignty. It provides the basis
on which Trade Liberalization proceeds or international markets are ‘opened up’. It allowed a
margin for social and cultural differences between member counties. The foregoing analysis has
shown that while National Treatment remains a Key Principle in ensuring that municipal Laws
do not discriminate against the nationals of other member states. In this regard the role of the
National Treatment Principle reflects the erosion and re-conceptualization of the traditional
notion of National Sovereignty.

17

Webilography




http://newindialaw.blogspot.in/2013/02/principle-of-national-treatment.html
https://www.wto.org/english/thewto_e/thewto_e.htm
http://cn.lakshmisri.com/News-and-Publications/Publications/Articles/Tax/NationalTreatment-principle-Analysis-of-GATT-Article-III
http://www.meti.go.jp/english/report/downloadfiles/gCT0002e.pdf