India ECGSP dispute case

Dispute between Indian and EU

Council regulations to its generalized system of preferences scheme
In 2001, EU launched GSP scheme through council regulations, it had 5 different preferential
tariff preferences. 5 aspects were for special arrangements with respect to
-drug arrangement: EU decided to give tariff preferences to combat drug production and
trafficking
-labour arrangement: if these countries ensure labour rights special incentive given in form of
preferential tariff treatment.
- environment arrangements:
- general arrangements
-LDC arrangements
in contention, India is developing country, but is not given incentive in first category that is drug
arrangement, EU says when country doing what they see is enough to combat drug trafficking.
India not doing enough to combat drug production but India says Pakistan is given the preference.
Pakistan is similarly situated.
India and Pakistan competing for clothing and textiles. India has evidence due to this arrangement;
Pakistan textile share in EU has increased in volume as well as quantity. But India’s has declined
after this arrangement. Behind India’s contention there is trade issue of market access as well as
what market can give to India. before EC arrangement came to force, India’s textile was growing
but now declining at absolute volumes.
Special and differential rights given to developing countries. In 1979 understanding reached as a
result of Tokyo round. The world trading countries had negotiation round in Tokyo: Tokyo trade
negotiation round, decided that diff tariff to developing countries.
Pg 417 course material
In para 1: notwithstanding provision art 1 of GATT, art 1 is not applicable to this understanding
EU is violating art 1 para 1 of GATT: contention of India.
Para 2 clause a:
Footnote 3: EC cannot incorporate preferences which is reciprocal or which is discriminatory.
GATT says MFN should be unconditional. Whatever treatment the developed countries giving as
a result of GSP should be in non reciprocal and non discriminatory manner.
Para 3: laying down that tariff treatment that should be given to developing country, aim should
be to facilitate and promote trade needs rather than creating barriers or undue difficulties to the
trading parties. Not to create barriers to other parties.
Para 3 clause c: treatment given has to be designed or modified taking into account to respond
positively to development, financial and trade needs. Policies of the countries or trade system has
to be modified taking into account development and financial needs of the developing countries.
These are the mandates laid down as a result of negotiation.
Complaints: EC has vioalated art 1 para 1 of GATT.
Para 1 of this 1979 says in the opening line, notwithstanding, so art 1 para 1 does not apply.
Pakistan were getting more preferential treatment, art 1 para 1 does not apply but can countries
differentiate between developing countries which are similarly situated?
Aspects of drug arrangement in contention.
Panel: whether this understating of 1979 its an exception to MFN under art 1 para 1?
Panel held that 1979 is an exception specially para 1 of this understanding. This differential and
more favorable treatment is an exception under art 1 para 1.
Appellate body agreed with panel.
2nd issue: panel had different finding and AB overturned.
Whether countries promulgating GSP scheme can differentiate amongst developing countries
inter se?
Panel had given out decision that countries which are developing and countries which are laying
down the scheme could not differentiate among them inter se, so violated provisions of the
understanding. Reasoning based on para 1, para 2 a footnote 3, para 3 a and para 3 c
This decision of panel was contended by EC in AB.
This was an issue of law.
AB reading primarily para given above and para 3 c, nowhere the wording all developing countries
are used. Till the time the understanding has not used all , the developed countries can differentiate
amongst countries developing countries. All developing countries are not similarly situated.
Countries can differentiate between developing countries inter se. provided certain objectives are
met. The AB s qualifying diff treatment provided there was an objective criterion.
It is giving pref tariff treatment because doing enough to combat drug prod and trafficking of drug
substances. But AB said this criterion was not objective enough.
Decision was overturned
Decision in favour of India only upon this objective criteria parameter.

Article 3
It is a principle of non discrimination obligation, it is called national treatment obligation.
It obligates country to treat the imports and domestic products to treat alike. Exponent of int trade
prof john Jackson, most prominent. he makes diff between MFN and NTO and examines MFN
and NTO with the help of examples of widgets. Product is domestically produced and imported
from country a and b. in MFN, COUNTRY A AND B will be given similar treatment but as far
as NTO, the product coming from a nd b will be given same treatment as given to domestic
products. Domestic product vis a vis imported product to be treated similarly provided the
products are same.
Why this NTO is so contentious.
This provision impinges on the domestic policy of nation state. It is human urges to discriminate
in favour of domestic products.
NTO is concerned with internal taxes or internal regulations. Products are discriminated not only
at borders but once enter the market in the country in question.
Art 3 para 4 talks about non fiscal measure
Art 3 para 3 fiscal measure
Custom duty: any duty levied at time of importation, nature is for goods to come into borders.
Internal tax: not the authority that is determining factor.
Since this tax is collected by custom authority, tax on luxury a
(missed)

art 3 para 1: preamble

art 1 has to be taken into consideration while reading other provisions.
Rationale is those internal charges which affect the sale, prod, purchase of product should not be
imposed which affords protection to domestic products.
Any charge levied could be also an internal charge. look at charge whether external, internal or
custom duty. Look at the nature of the tax.
Para 2: the fiscal obligations w.r.t NTO. Talks about internal taxes.
Laying down that foreign prod not to be imposed any internal taxes which are not of those kinds
applied to like domestic products. If products are like cannot be subject to differential internal
taxes. It applies to like domestic products. Like foreign products can not be charged in the excess
of like domestic products. Country where goods are imported can impose lower cost.
Para 2 second sentence: any party will not apply internal charges which are contraty to principles
set forth in art 1. Principle of as to not afford protection to domestic productions.
Art 3 para 1 talks about excess: 1st sentence
2nd sentence: so as to afford protection to domestic production
interpretative note: to para 2: lays down that a tax which is conforming to prov para 2 first sentence
would be considered inconsistent with second sentence only when there is direct competition or
substitutable products.
18sep
para 2: first sentence deals with like products
second sentence: directive comparative and substitutable products
internal charges imposed in excess to those applied to like domestic products.
Internal charges or taxes which are contrary to principle set out in para 1( enshrined art 3 as a
whole). What are the principles? Whether tax is fine or not as far as second sentence goes?
Principle: any tax which is affecting internal sale, transport should not be applied to imported or
domestic products so as to afford protection to domestic production. Nothing should afford
protection to domestic products.
Interpretative note to this para: lays down that there could be situation where tax is confirming to
first sentence (products is not taxed in excess of like domestic product) but situation where it is
not as per second sentence only in such situation where products are direct competitive or
substitutable products. Application of two sentences are different.
What do we mean by directive competitive or substitutable products?
Difference between like products and directly competitive and substitutable products
Like products: 4 parameters to likeness. Cannot be one objective criteria. GATT working party
report on border tax adjustments in 1970. Adopted by contracting party laid down 4 parameters
for identification of like products. Only parameters not objectives. But courts take into account
these parameters. Possibility of adding another one is not closed.
1. Physical characteristics
2. Tariff classification
3. End uses
4. Consumer taste and preferences
DCSP: all like products are DCSP but all DCSP are not like. Examples of two fruits: apple and
oranges are not like. Whether apple and oranges could be DCSP? Can they compete with each
other and can they be substituted? Yes, under circumstances like prices of apples are high then
many consumers would like to take into account by fulfilling the demands by eating oranges.
Scarcity in the market/high price, onion and tomato can be substituted. The more the elasticity
the more substitubality product has.
Analysis by panel reports and appellate bodies when can product be said to be DCSP
Korea taxes on alcoholic beverages 2000
Appellate body said that substitute means to be able to substitute it and context of competitive
relationship is the market place. Have to analysis the comp and sub in the market place. It is a
forum where comp and sub of the product will be assessed. Market is leading to direction that
product is comp and sub then would find that products are comp and could be substituted for
each other. Wording of term of dcsp, consumer preferences means the current market preference
should not only be taken but also future preferences. If a product has potential to be comp and
sub in future, then also be considered as DCSP.
Mobile phones produces by apple and micromax can never be comp and sub with each other. The
fact that market is not considering them to be comp and sub then they are not DCSP. It’s the
condition of the market which is test whether the product is DCP. Not only current consumer
demand but also potential and future consumer demand. Another test if Whether they are
interchangeable/ alternative ways to satisfy a particular need or taste.
Appellate body also said wrt DCSOP when there is a total ban of certain production or embargo
importation, then can never be sure whether this product can be interchanged. Latent demand of
the product has to be seen also of the market whether the products could be directly comp or
subst. analysis of possibility that products can be substituted, if cannt be interchanged then there
cannot be competition between them.
Only consumer preferences is the market here. Parameter of consumer taste and preferences
which are tested in the market.

Analyzing the market whether products are DCSP, which country to be seen?
Only the relevant market is seen, market of importing country where goods are imported and
market which has similar market conditions with the market in issue. Notion of demand and
supply. Similar demand and similar supply of the market.

US cotton yarn
The DCSP were in question. Panel held comp is the characteristics attached to the product and
denotes the capacity to compete both in current and future situation. Possibility that products can
compete in future. Not necessary that at present time they are competing with each other but in
future time it has potential to compete with each other. Static notion has to be disregarded. If takes
the present position, then future possibilities are closed.
Japan alcoholic beverages case: landmark case
In 1987; appellate body
1996; panel gave the report
products are certain alcoholic beverages. Local alcohol drink. Sochu vis a vis vodka.
In 1940 dispute aroused but the effects were not felt till certain point of time. In 70s started feeling
the effect of tax being promulgated by japan. In 1940 liquor tax law was enacted in japan. It
classified alcoholic beverages in 9 categories and set 9 different types of taxes rates on them. What
are the characteristics that beverages are classified into: sparkling wine, still, unsweetened,
sweetened wines. japan government that these tax rates were made as per the diff needs of the
various communities. High rates on those liquors which super rich could consume. Japan
incorporated this tax law it also classified the beverages, two things happened: ad valorem taxes
and specific taxes were imposed.
Specific tax rate: applied on the particular quantity that was being taxed. If quantity was of that
type there was a tax.
Ad valorem: on the value of good in question.
Vodka was taxed differently and discriminatory coming from EC. Products are like so how can
there be discriminatory taxes. Its like sochu. Japan incorporated on the basis of paying capacity of
the consumers. Liquor tax was third most important revenue source.
Panel report: japan lost.
Para 2 art 3: lays down internal charges in excess to those applied to like domestic products. EC
has contended that primarily vodka and sochu are like products so why differential status wrt tax
rates. Panel looked tat the taxation law of japan, no relevance as to how japan adopted differential
tax system when considered as like products. Another earlier cases took into account: coffee panel
case: Brazil v Spain: panel held that the product is intended for drinking therefore like products,
though manufacturing products are diff, minor diff in taste cannot lead to conclusion are products
are not like. Panel took into account minor differences. Products are like products and should not
be taxed in excess on like products which is sochu. Sochu and vodka are like products.
Second issue: art 3 para 2 second sentence deals with DCSP. EC contended that products are not
like but whiskey and brandy etc. they could be DCSP. Wine vis a vis gin could be DCSP.
DCSP analysis, appellate body agreed with panel finding, fine tuned it and made it more legally
sound. Wording of art 3 para 2, second sentence-dcsp. Compare with first sentence: wording are
in excess of like products. Second sentence: DCSP Not similarly taxed and so as to afford
protection to domestic products.
Even though a de minimums excess, even then excess is an excess. And foul of Art 3 para 2 first
sentence. Analysis is very strict w.r.t like products. Second sentence not similarly taxed and
dissimilar taxation is leading to protection of domestic products. Here range of enquiry whether
violation of second sentence is not strict. See first whether products are DCSP: panel said that
products were DCSP and once it is DCSP not similarly taxed, this dissimilar taxation led to
affording to protection of domestic production. The parameters are not so tight as in case of
excess. Here enquiry is little lesser. Complainant has to show that protection is afforded to
domestic products. In first sentence if excess it is assumed directly there is violation, so
strict.
The difference between like products and DCSP is arbitrary decision. But appellate body said is
not arbitrary decision but discretionary decision made considering various characteristics of the
product.
8-10 lines finding of appellate body: no one definition of likeness. Enquiry of likeness
different for different provision of GATT. But accordion of likeness stretches and squeezes
itself narrowly when art 3 second para first sentence is concerned. Dcsp are subset of like
products but reverse is not true.
Panel held combination of custom duty and internal taxes did not led vodka to penetrate
Japanese market and does not ensure equality of competitive conditions. Amend the tax
laws in accordance with first sentence and second sentence.

19 sep
Chile taxes on alcoholic beverages 2000
EC was complainant
Facts: local beverage called pisco. Contended that art 3 para 2 second sentence has been violated.
Chile had adopted a regulation which was called new chilean tax system. It taxed the alcoholic
beverages. In japan case alcoholic beverages were not taxed according to alcohol content. Structure
of taxation was 5:4.
Alcohol content tax rate ad valorem
Less or equal to 35 27%
Less or equal to 36 31%
Less or equal to 37 35%
Less or equal to 38 39%
Less or equal to 39 43%
Over 39 47%
LESS THAN 35% OF VOLUME WOULD BE SUBJECTED TO TAX RATE AD VALOREM
WHICH IS 27% AND SO ON. Gradual increase in the level of alcohol, then increase in tax rate.
It is increasing by 4%. They have made a distinction when it comes to tax. Apparently on the face
of it, there is an objective, higher the alcoholic level the tax rate will increase. First objective of
regulation: Wanted to discourage or disentivise alcohol consumption. Second is to maintain the
revenue collection. Third, eliminating type distinctions. We are not discriminating alcohol on the
base of the type of the alcohol like japan did. Last, minimizing the potentially regressive tax. issues
wrt tax which were regressive trying to rectify that. Incorporate the new regulation to do away with
protectionism.
Appellate body agreed with panel in all findings. But appellate body expounded on law in nuanced
fashion. Panel looked whether new regulation was discriminatory wrt art 3 para 2 second sentence?
There was no contention of like products. Beverages are different types. But panel said yes could
be DCSP. Wine could be DCSP with vodka. One has to see whether measure at hand fulfilling the
mandate laid down in art 3 para 2 second sentence. It says the products do not have to afford
protection to domestic products. They should not be treated in the manner that it provides
protection to domestic products.
Appellate body: to know whether measure is falling foul one has to see at overall design,
architecture and effect of the particular measure. In a comprehensive manner to be looked
into, then only can say art 3 para 2 is violated or not. Evidence before panel: based on factual
evidences, that the measure fell foul of art 3 para 2, by looking at overall design, architecture, effect
most of the chile’s products beverages including pisco was falling under less or equal to 35, 90%
of the beverages of the chile fell within first category. Foreign beverages fell in less or equal to 39,
70% foreign beverages fell into this category. Why should most of foreign beverages fall here?
Chile system was designed that most imports will fall in higher tax brackets and domestic under
first bracket which is the lowest tax rate. There was no rationale of chile adopting this system,
designed In a manner even though differences but there is higher tax rate for every one degree
variation. Tax structure and overall application of the measure at issue should be looked into
was held by appellate body.
Para 65: appellate body how structure was discriminatory. Very few drinks which are available to
third and fourth category. if chile saying, it is taxing on progressive basis but there are no beverages
which fall under these two brackets. Though Chilean system designed in a such manner, but local
drinks mostly in first bracket and foreign products in higher tax rate bracket. Why has chileean
nation adopted such system and calling itself progressive and lenient. And leaving a chunk of
products in third and fourth bracket. Its only 27% or 43% tax rate and nothing in between. Do
not have to look into intent of legislature but have to look at overall application and design.
De minimis aspect in DCSP: the discrimination to fall foul art 3 para 2 second sentence,
discrimination has to be more than de minimis more than negligible.

Article 3 para 4: Non fiscal measures

Other measures which are not fiscal in nature. Non tariff measures could be an imp tool to end
discrimination.
No less favourably treatment is used. Wrt all laws, regulations and requirements which is affecting
their sale, purchase and transportation, distribution etc. government cannot impose any laws,
regulation and requirements which affect the sale, purchase of imported like products.
Clash of trade interest and environmental obligations. Trade law wants free and fair trade but did
not take into account laws which government set up to take into account to save the environment.
Interface of trade and interface of environment. There is exception in art 12.
Art 3 para 4 serving as compliment to art 3 para 2. Both of them take the mandate take non
discriminatory obligation to the good level. Non fiscal measures might discriminate amongst
imports therefore para 4 is important.
Examples of this article: governments may impose labelling requirements, onerous packaging or
safety requirements. Can lead foreign products sale, trans, affected.
Not all laws which gov cannot impose on foreign products, it is free to impose anything which is
different from domestic laws, but should not be treated less favourable than domestic products.
What does one mean by affecting, in 1958-59 panel deliberated on this in the case of Italian
discrimination against imported agriculture machinery 1958.
Complainant was UK
UK had issues wrt certain provisions of Italian law. Italian law provided special credit facilities to
some categories of farmer’s cooperatives for purchase of agriculture machinery produced in Italy.
When special facilities given only if buy agriculture machinery produced in Italy, then machinery
produced in another part of world what will happen?
Analysis of this dispute is very limited and reached only the panel. It is an early GATT case and
been referred by later panel as well as appellate body to enumerate on what is affecting. Uk
contented those special credit fell violative of art 3 para 4. Italian law is enacted and discriminates
against agriculture machinery produced by other countries. Thsse credit facilities were reserved
exclusively to purchasers of Italian tractors. Represented distinction and discrimination. Italian
govt said text of para 4 applies to only such laws, regulation which were concerned with actual
condition of sale, transportation. Italian says this credit facility given to farmers cannot fall under
para 4 as not affecting the sale, of a part product. Requirement these agriculture machinery
producers are incentivized wrt economic development.
Para 12: panel dwelling on meaning of affecting the sale etc. panel do not agreed with Italian giv
arguments that it is not affecting sale etc. These credit facilities given to buy machinery falls within
art 3 para 4 because it is modifying the condition of competition between domestic and
imported products on the internal market. The argument made by Italian gov was this measure
not affecting the sale etc, but the panel agreed with UK that it is affecting and the word used is
not governed. Even though not directly governing but affecting. Affecting means Any law which
is modifying the condition of competition will be violative of art 3 para 4.
Venezuela vs US pg 253
Landmark case: past through all the stages
Interface between free trade and protection of env talked about
Reformulated gasoline case 1995
Can any law for protecting its env go against principle of free trade? Not permitted under
art 3 para 4 but general exception in art 20.
Product was gasoline(petrol) wrt reformulated gasoline.US enacted clean air act, it had certain
mandates to it. Objectives to reduce air pollution. Destruction of harmful substances. This act also
was understood that even petrol vehicles are using emitting harmful substances, mandated that
particular type of reformulated gasoline which does not have harmful substances should be
distributed in America. Stringent methodology in the ACT. The sellers of petrol had to see that
the petrol is reformulated which doesn’t emit harmful substances. Certain baselines based on 1990
levels. Targets to be measured from this baseline. Problem was that most of foreign refiners did
not have 1990 data available with them. There was a method two and method three that they could
adopt.
Method one is individual baselines
Method two: it allowed refiner to utilize 1990 blend stock and prod records t formulate 1990 base
line.
Method three: utilize data post 1990 gasoline blend stock to formulate 1990 base line.
Most of the foreign refiners base their baselines on 1990 data and not allowed method two and
method three data. Act was passed which debarred foreigners to use method two and method
three.
Panel had to decide:
23rd sep
US reformulated gasoline
Important from many points
Application of art 3 para 4
US enacted clean air act 1990. Object of the act was to reduce air pollution from mobile sources
like cars. The fuel which is going inside car is the major concern. US desiring the fuel which is put
in car should be of certain standard. Should be reformulated or blended that it does not burn when
comes out and there is no toxic air and be env efficient. Fuel agency have to take into consideration
certain requirements to come within formulation of clean air act. There was baseline methodology
adopted. This methodology was disputed in this case. US asked fuel refiners to adopt baseline
methodology; in the year 1990 onwards,
Otherwise how will it come to know Whether the fuel which is being emitted meets those
standards or not.
Method 1: fuel refiners had to formulate baseline based on 1990 data. Few refiners foreign could
meet the mandate of method 1. They don’t have 1990 data.
Method 2: they could have baseline which is less lenient provided they do not have data of 1990
available to them. If you have, method 1 to be adopted.
Method 3:
Foreign refiners don’t have a data. Cant go with method 1. Also could not rely on method 2 and
method 3. The imports are treated less favourable than domestic products. Art 3 para 4 it talks
about no less favorable treatment should be given to imports vis a vis domestic products.
Domestic refiners can employ method 2 or 3 to formulate their baseline. Parameters are stringent
for foreign refiners. (promised)Agreed by US foreign refiners would be able to employ method 2
and 3. But in the meantime, HOR act was passed which excluded them from purview for
formulating baseline according to method 2 and method 3 and certain stringent conditions were
imposed on them by giving them new baseline. Boarding, inspection, reporting: onerous
conditions for foreign refiners but the same was not there for domestic products. HOR: if can’t
adopt methods 1,2,3 they can go for statutory baseline, but it was very onerous. Also boarding,
inspect, report their products: further amounts to onerous conditions.
Panel had to decide: whether US adoption of this act and various mandates fulfils the criteria of
or falling foul of art 3 para 4?
It is country specific Act.
Panel held: pg 253
US arguments: on the whole, imports are not being treated less favorable. US says even if there
is some amount of non favorable treatment, look at it comprehensively no less treatment. Panel
had to analyze whether argument could fall under art 3 para 4.
It found products are like products. Para 295 of judgment. Foreign and domestic gasoline are like
products. With the establishment of baseline methodology, imported gasoline was prevented from
panel rejected us contention as the whole wala point. At every point of time they are supposed to
mete out no less favourable treatment. Balancing no less favourable treatment with the favourable
treatment is not permitted under art 3 para 4.
From evidence, imported gasoline treated less favourable all the time. 97% of all US refiners did
not meet statutory baseline. So why should be imposed on foreign refiners. Treatment was less
favorable whereas treatment has to be no less favorable.
Another argument by US: even if measure is falling foul the measure can be implemented because
there is art 20 in the GATT. If any country formulates any laws, it is violating any GATT provisions
it is not permitted but have recourse to GATT exceptions. Art 20b: if any measure is implemented
which are necessary to protect animal, plant and human health even if falling foul of other
obligations of GATT.
This could be achieved by some other method. Adopting some other ways to reduce air pollution
for mobile sources.
Appellate body: agreed with panel and even as 20 b even those grounds lost its case.

Free trade vis a vis regulations of environment

Expansion v regulation of environment

1984 US AND CANADA: foreign investment review

art 3 para 4 lays down laws, regulations, requirements. What does one mean by
requirements or it is same as law, regulations? So the foreign products which are imported do
not have to be given treatment less favourably as far as laws, regulations and requirements are
concerned. First time in this case, panel had to interpret the word requirements. This case is a
panel decision but significant.
Facts: from early 1970s, there was growing nationalist feeling which developed a resentment of
the Omni presence of foreign business in the Canadian nation. if foreign business are there it
should be regulated by the Canada government. In 1973, Canada passed an Act : Canada foreign
investment review act. American business was boggling up large chunks of Canadian economy.
Canada passed this bill in 1973.
Section 2(1) recognized the extent to which control of Canadian industry has been acquired other
than who are not Canadian. Expressed the intent behind the act. Most business to be controlled
by the Canadian origin. Two kinds of business required by gov to run in the Canada. First was if
there were two categories proposed by foreigner; acquisition or control of Canadian business. If
foreigner wanted to establish a new business. Both of these businesses, had to be reviewed by the
Canadian government. These transactions will be reviewed only if proposed by the foreigner.
Government had five criteria to refuse the above or to give approval to above.
1. Would look at the effect on level and nature of economic activity in Canada. Effect to be
seen on employment, resources, components, utilization of parts, services. Canadian value
added will be seen. Whether there is enough export from Canada will also be seen.
2. Degree and significance of participation by Canadians in new enterprise.
3. The effect on productivity, industrial efficient, product variety or innovation, technological
development in Canada. Gov wants to incorporate there should be these by Canadians
itself.
4. The effect on competition within any industry in Canada. Market forces to be seen.
5. Compatibility of acquisition with national and economic policy of Canada.
Nationalist feeling that Canadian wanted that most of the business gobbled by foreigners.
When this acknowledgment accepted by government, led to certain transactions been reviewed.
All the foreigner’s business, subjected to five criteria’s to acquire or establish a new business.
Many businesses started giving written purchase undertakings or obligations under they oblige to
abide by 5 requirements set up. These written purchases were not part of the act but were given
voluntarily. If they would give this, they will be favored by Canadian government. Once written
purchase given, supposed to be enforced strictly by the government under sect 21 of FRA. Section
21 talks about enforceability.
Issue is with these written obligations; why should business be favored who are giving written
obligations as it is not the requirement under the act. Requirements is not part of the act.
Canada produced evidence between april 1974 - sep 1982, to show not favoring countries who are
giving these written obligations. Data provided that some 4500 investment projects, out of these
2500 were American. Out of total of 2500 Canadian gov allowed 90% American business to
acquire or establish new businesses. So these written obligations is not a mandate. And not blocked
any US proposals as 90% of them are allowed.
Panel took into account that Canada could be supplying evidence because it may be favoring
Canada. What about situation which occurs after 1982. Could not be favoured.
Whether these written obligations they could be considered as requirements coming within the
definition or meaning of the word requirements in art 3 para 4?
Canada is claiming these written obligations are not mandated by the act. Voluntary submission
then not coming under mandate of art 3 para 4 and is not requirements. But the panel did not
agree with the argument of Canada. The word requirement will be different from the word laws
and regulations. To be applied across the board (applicable at all the time) is the requirement of
the law and regulations and not the requirements, it could be at one time and not across the board.
Otherwise art 3 para 4 would have sufficed with laws and regulations. Panel said necessity of
application of across the board is not of the requirements. Panel held that it is a law which would
effect the sale or distribution in the Canadian economy.
Obiter dicta issued: Canada did not discriminate against imports and treatment meted out was
similar treatment to domestic business. But this was not relevant as not ratio decidendi.
24th sep
Case between EC and Canada:
EC Asbestos 2001: landmark case
Case has to look into:
- Clash between free trade and environment vis a vis health
- Whether the likeness in art 3 para 4 has the same meaning as the word like occurring in art
3 para 2 first and second sentence?
Here appellate body gave a whole jurisprudence on the second issue.
Facts: product was in contention is asbestos. It is used in construction industry it can withstand
high temperature. Though has this benevolent feature, but at the same time it has certain cancer
inducing properties. Constriction workers and people exposed to such sites are in danger. There
is active as well as passive influence. EC banned importation, transportation or production of
asbestos or asbestos containing products in France. Canada is third largest producer of Asbestos;
it is concerned it will lose important section in the European market. Canada argue that stand to
lose major chunk of market and other substitutes of asbestos are not banned. France has not
banned this substitutes so why ban asbestos. Substitutes were chrysotile fibres and PCG Fibres.
Canada says that PCG is not banned but Chrysotile is.
Panel: products are like. So once given a finding, it means that similar treatment has to be given.
Though products are like, the ban was upheld on the basis of art 20 clause b. art 3 para 4 was not
considered violative of it.
Appellate body: the party raised the issue this measure is violative of art 3 para 4 because products
are not like. Means they can have different treatment. AB in its analysis disagreed that the products
are like they are unlike. It upheld the ban but not on the basis of art 20 but art 3 para 4. What the
appellate body, it started with analysis of likeness. And as far as this para 4, it made significant
departure from likeness of art 3 para 2. Art 3 para 2 lays down requirements regarding fiscal and
art 3 para 4 is non fiscal. non fiscal is more specific. Art 3 para 4 takes into account all the laws
which are non fiscal. Non fiscal laws are very wide but fiscal is limited. Art 3 para 4 likeness is
wider than likeness occurring in art 3 para 2 first sentence. Art 3 para 2 second sentence lays down
DSC, but not used in art 3 para 4. So the AB gave finding since word DSC not occurring in art 3
para 4 the word like is to be given narrower meaning.
4 parameters of likeness:
- Physical properties/characteristics
- End uses of the particular product
- Consumer taste and preferences
- Tariff classification
Panel in this case which AB did not agree, did not analyze whether product fulfilled the criteria’s
independently. End uses: it did not analyses the various end uses of the product in question. Since
there are certain end uses it came to finding products are like. But Ab says all the existing end uses
have to be seen by the panel to come to understanding whether products can be considered like
or not. Not getting into consumer preferences was erroneous activity which the panel did.
Consumer preferences vary and could change. Once consumer feel that products are different
therefore consumer taste and preferences is the relevant factor.
Health properties of a particular product is very important. AB questioned the whole basis of the
panel not coming for examination of health properties. If taken into account health effects, it
would have come into a different decision. Health property has an independent stand other than
those 4 parameters. Ban was upheld on the basis of art 3 para 4 where products were considered
like. Pg 37-48.
Env activists were happy with this decision. Env and health issues can stand on higher ground
than free trade issues.
Dispute between south Korea and US: beef ban case
The AB had the occasion to interpret the meaning of the word no less favorable. This term
is used in art 3 para 4 and the panel given a different interpretation to which AB differed
to. US was winning party who was also the complainant.
Facts: here there were two particular Act: provisions were in contention. Korean government
attempted to regulate the foreign beef importation and distribution in Korean market. korea which
wanted to adopt protectionism in many sectors; in rice and beef. Protect its domestic industry.
That’s why enacted these two acts. Act on distribution and price stabilization of agriculture and
fisheries products. Second act was livestock act. First act: called for smooth distribution and
maintenance of appropriate prices for agricultural and fisheries products. The second act: it
empowered Korea’s ministry of agriculture and fisheries to establish comprehensive plan for
livestock industry. When it has authorised the ministry to adopt a plan to establish thi plan there
are certain features of this plan. Supposed to deal with
- Improvement and production of livestock breed
- Structural development
- Balancing demand and supple forces
- Stabilizing prices and enhancing the distribution system
- The supply of livestock feed and proper treatment and utilization of excrement as well
appropriate sanitation.
All the objectives can’t be achieved without paying attention to importation, distribution and sale
of the foreign produced beef. To achieve its aim, Korea established separate importation,
distribution system and sale system for foreign produced beef. Agency in Korea: LPMo ( livestock
product market ) it had exclusive authority to import foreign beef into Korea. It is state designated
authority. Another system called SBS deals with distribution of foreign beef. Features of SBS: to
reach its end consumers has to pass through various channels. 12 super groups could distribute
the beef which was imported in Korean territory. Certain quotas allocated to every super group.
All of these requirements done vis a vis imported beef. Wrt sale there were big supermarkets, and
small stores. The small stores given a choice whether want to sell imported beef or domestic beef.
They cannot sell both. Big super markets were allowed domestic as well as foreign beef. Area
distinction was there. US had an issue wrt these acts. Korea is third largest market for American
beef, if adopting measures which are falling foul of art 3 para 4 this will modify condition of
competition. Dual distribution and retail scheme. Labels are put to indicate that it is foreign beef.
When super groups were selling to retailers, then they had to adopt stringent labelling requirements
and the quotas they can import.
Panel: it had to analyze whether products are like or not. The main issue: whether the treatment
no less favorable was meted out on foreign beef vis a vis domestic beef. Whether the conditions
of competition were modified? Panel gives its finding in favour of US. Certain parameters on basis
of which panel found the dual system was violative of art 3 para 4. Difficulty of comparison
shopping due to which Korean consumers will be affected and will lead to finding that
modification of conditions of competition. Second is about display trade off: small retail outlets
allowed to sell either domestic or either foreign, when exercise the choice, there is display trade
off. When such things are displayed explicitly, brings notion in mind that products are different.
It is inducing a different attitude in the mind of the consumers. Limited no of sales outlets. Which
also affect the consumer choices. Small retailer outlet sales become limited. Adding costs. Small
retailers or the organization distributing beef it has to comply with laws and regulations and
requires cost to be incurred. This added costs will be added to the products. Consumer perception
will change due to high cost of imported beef. Sheltering high prices. Dual retail distribution
scheme will give affect to principle that high prices can be sheltered. Panel found less favorable
treatment was meted out and dual system was falling foul of art 3 para 4. Firstly, it modified
condition of competition.
AB agreed with panel findings that art 3 para 4 was violated but did not agree with the rationale
of the panel. Dual system was discriminatory. Any origin based discrimination/difference will not
be considered discrimination as per se. we have to see that difference in treatment should not be
allowed to detriment. Certain differences are allowed. But not to the detriment.
9th October
custom valuation agreement of 1994
background which led to estb of this agreement.
Why is it important?
Custom valuation is integral component of int trad=e. When There is importation and exportation,
custom authprities are levying the custom duty. How do they value the particular product.
There were these consensuses reached in world community, harmonized system of custom
valuation, to calculate custom duty, otherwise diff duty would be payable as far as different
countries are concerned. Custom valuation code was an attempt by world system to formulate
uniform methodology to calculate custom duty.
Brussels definition of value was done. Positive value system
Basis of evaluation of custom value in brussels definition: notional price or transactional value
which seller declaring on receipt or invoice value. Brussels definition: which the custom authority
establish on their own. Both Brussel and positive value both had discretion to reject the value.
They differed as to secondary valuation methodology.
1979, Tokyo round:custom code was not an agreement which had to be agreed by all GAtt
MEMBERS. It was ala carte approach. Uruguay round led to formation of custom valuation
agreement. This agreement seeks to harmonise and make valuation uniform across the world and
countries which are part of GATT had to be necessarily part of this agreement. They cannot reject
it.
Art 7 and custom valuation agreement to be read together. But in case of conflict, custom valuation
will prevail.
Custom value agreement
general introductory commentary
Para 1 very explicitly lays down the primary basis of custom valuation is transactional value.
Art 1 read with art 8.
Art 1: lays down what is transaction value. Custom value of imported goods is tran value.it is price
actually paid or payable as reflected in the invoice. It only applies to goods and not services. Goods
are sold for exportation; they are crossing the borders. Does not take into account the domestic
sale. Will the location of seller be of any value here? No relevance with sellers location as long as
goods crosses the border then transaction value methodology kicks in.
What is art 8: add certain things in price actually paid or payable. This price which can be added is
certain expenses which the buyer has incurred but not included in transaction value. Commissions
and brokerage. If the seller and buyer got into agreement and buyer is selling goods on commission
and chargers not included in transaction value then it can be added. Commission chargers included
along with invoice price then value of product will increase. Cost of containers can be included in
transaction value, cost of packing also in the final valuation.
Goods sold on credit: should the interest be counted? Most of countries said the interest chargers
should be included in transaction value, but some said should not be included in final transaction
value.
Ordinarily custom authority has to go by invoice price but situation where seller has given huge
discounts, below the listed price. Arose in SC in India in EICHER tractors, Haryana v. comm of
customs 2000. This case proceeded from the customs auth and appeal went to tribunal and then
to SC.
Facts : whether if there is discount given by seller below listed price of commodity, can the custom
aut reject and say the priced is much below the listed price. Importer is company manufacturing
tractors and engines. Importing ball bearings of specific size from supplier in japan. In year 1989,
this relationship between indian buyer and foreign supplier snapped, when indian importer
discovered that bearings could be obtained at lower price from local manufacturer. Japanese
company was in the problem as already manufactured and had huge inventory. had anticipated
that india would buy bearings as buying since last 30 years. So now huge production of bearings
in inventory. so decided to supply at huge discounts. In 19993, It contacted indian manufacturer,
and offered to sell the inventory which consisted of 3600 bearing for price of 830 yen per piece. The
listed price was much above this. India accepted this proposal. Japanese company also before
contacting India tried to sell inventory to alternative buyers. The bearings were of specific size
therefore difficult to find alternative buyers. When goods were imported to india, this price was
rejected by custom authority on the ground that much below the listed price. If listed price was
2600 per piece, it went to 30% reduction. Max discount can be given is 30%. Beyind this is not
permissible. Custom appellate authority gave in favour of custom authority and opted value for
30% less price as accepted discount value.
Buyer approached SC: gave in favour of buyer. Upheld the transactional value. It laid credence to
principle that tran value is the value which customs have to value with the particular product even
if huge discounts given. Custom auth does not have discretion to reject the trans value.
Trans value is the ultimate value and auth cannot reject until and unless tran value cannot be established or parties
are related to each other or there is a fraud. SC is not approving the way auth went with price list. Price
list is of particular product, which can be higher or lower, this is at the discretion of the seller.
Will do secondary valuation methodology tomorrow