Professional Documents
Culture Documents
Team Code: 40
KONAHA
-
Measures Concerning EVDs
_________________________________
COMPLAINANT: SHARINGA
WT/DSXX
Table of Contents
List of Abbreviations 5
Index of Authorities 6
Statement of Jurisdiction 9
Statement of Facts 10
Measures at Issue 11
Summary of Pleadings 12
Measures implemented by Konaha under Notification N. 34/2019 are not covered
LEGAL PLEADINGS 15
I. PARAGRAPH 1 OF NOTIFICATION N. 34/2019 IS IN VIOLATION OF
ARTICLE III:2 OF GATT 15
[A] USAGE FEE OF 2% (AD-VALOREM) ON SALE OF EVERY EVD IN
OF GATT. 15
OF GATT. 18
1) EVDs and tobacco are directly competitive or substitutable products which are
III:4 OF GATT. 22
3) EVDs are accorded less favourable treatment than tobacco products in Konaha.
24
III:4 OF GATT. 25
3) EVDs are accorded less favourable treatment than tobacco products in Konaha.
26
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1) Policy in respect of the measures for which the provision was invoked does not
fall within the range of policies designed to protect human, animal or plant life
or health. 27
3) Measure does not satisfy the requirements of the chapeau of Article XX. 28
List of Abbreviations
Index of Authorities
Articles
1. Regan, Donald H. "Regulatory Purpose and 'Like Products' in Article III:4 of the GATT
(With Additional Remarks on Article II:2)." J. World Trade 36, no. 3 (2002): 443-78.
2. Goniewicz ML, Boykan R, Messina CR, et al High exposure to nicotine among adolescents
who use Juul and other vape pod systems (‘pods’) Tobacco Control Published Online First:
07 September 2018. doi: 10.1136/tobaccocontrol-2018-054565
Statement of Jurisdiction
Statement of Facts
Konaha is located in Chidori region. Sharinga, also in the Chidori region, is a neighbouring
country to Konaha. Sharinga is known to have developed industries engaged predominantly in
developing new technology. One category of the products that has recently become popular in
Konaha are electronic vaping products. An Electronic Vaping Device (EVD) is a battery powered
device used to vaporize a substance and inhale it. It has a battery, a heating element and a place to
hold the substance to be heated.The health effects of using an EVD include addiction to nicotine
and other effects that come along with the intake of nicotine. Defective EVD batteries can cause
fires and explosions.
Surrounding discussion on the health effects of using EVDs, the Government of Konaha enacted
Guidelines for Electronic Vaping Devices to regulate the sale of EVDs in the territory of Konaha.
These guidelines were published in the official gazette of Konaha, along with a press note
released by the government.
Sharinga has approached Konaha under the acquis of the WTO dispute settlement system. After
unsuccessful consultations, Sharinga requested the Dispute Settlement Body (DSB) to establish a
panel pursuant to Article 6 of the Dispute Settlement Understanding (DSU) to determine the
validity of the Guidelines.
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Measures at Issue
1. Paragraph 1 of Guidelines: All EVDs to be sold in the territory of Konaha will be subject to a
usage-fee of 2%(ad-valorem), to be collected on the sale of every EVD in the territory of
Konaha.
2. Paragraph 2 of Guidelines: All EVDs may only be offered for sale by being placed in
shelves that are at a height above 5ft from floor level.
Summary of Pleadings
• Paragraph 2 of Guidelines for Electronic Vaping Devices is a regulation affecting internal sale,
offering for sale, purchase, transportation, distribution and use of EVDs.
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The display restriction in retail stores is a restriction on offering for sale of EVDs. No such
restriction exists on tobacco products.
• EVDs and Cigarettes are like products.
‘Like’ under Article III:4 is broader than ‘like’ under Article III:2, first sentence. It must be read
with Article III:1. Interchangeability and cross-elasticity then become important factors in
proving this likeness.
• EVDs are accorded less favourable treatment than tobacco products in Konaha.
As a result of restrictions only on EVDs and no restrictions on tobacco, which is in fact promoted
by the government, EVDs are accorded less favourable treatment than tobacco products in
Konaha.
• Paragraph 3 of Guidelines for Electronic Vaping Devices is a regulation affecting internal sale,
offering for sale, purchase, transportation, distribution and use of EVDs.
Criminalization of public consumption of EVDs and no such restriction on tobacco is likely to
affect internal sale since both product serve the same end uses.
• EVDs and Cigarettes are like products.
‘Like’ under Article III:4 is broader than ‘like’ under Article III:2, first sentence. It must be read
with Article III:1. Interchangeability and cross-elasticity then become important factors in
proving this likeness.
• EVDs are accorded less favourable treatment than tobacco products in Konaha.
As a result of restrictions and penalty on public consumption of EVDs, and no such restrictions
on tobacco, EVDs are accorded less favourable treatment than tobacco products in Konaha.
Measures implemented by Konaha under Notification N. 34/2019 are not covered by Article
XX(b) of GATT.
• Policy in respect of the measures for which the provision was invoked does not fall within the
range of policies designed to protect human, animal or plant life or health.
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EVDs are a safer alternative than tobacco. Non-nicotine EVDs are also sold but a blanket
restriction is made on EVDs despite the fact that it is a safe alternative to tobacco.
• Measure is not necessary to fulfil policy objective.
The policy objective is not best fulfilled by restrictions on EVD since no such measure is being
taken on more harmful products like tobacco. Further, EVDs are safer alternatives.
LEGAL PLEADINGS
1. Article III of the GATT 1994 prohibits discrimination between domestic and like imported
products through the use of internal measures mentioned in article III:11. The broad and
fundamental purpose of Article III is to avoid protectionism2. It states that internal charges or
taxes should not be applied to imported or domestic products so as to afford protection to
domestic production3.
2. Article III:2 sets out a two-tier test in order to determine whether there is a violation4.
3. WTO jurisdiction has established that like products are not confined to identical products but
also cover other products such as if they serve substantially identical end-uses5. Minor
differences in taste, colour and other properties do not prevent products from qualifying as like
products 6. The products in question are EVDs manufactured in Sharinga which share a
substantially similar end-use to tobacco manufactured in Konaha. The distinction between the
products is the physical structure of the product but the end-use, being the consumption of
nicotine, establishes likeness of the products.
4. The criteria determined relevant in determining whether two products are like products are7:
a. The products’ properties, nature and quality: The properties in both EVD and other tobacco
products tend to them the feature of inhaling substances.
b. The products’ end-uses in a given market: The products are used by consumers to for the
purpose of smoking and there is no distinct demarcation between how they are used by
consumers.
c. The consumers’ tastes and habits: Within this criteria, consumers tend not to distinguish
between either tobacco products or EVDs since they cater to the same needs of the consumers. A
major proportion of EVD users are former smokers of conventional cigarettes or use both types
of products.
5. The WTO has also established that determining whether products are ‘like’ always involves an
unavoidable element of individual, discretionary judgement 8. The WTO Appellate Body also
stated that there can be no one precise and absolute definition of what is ‘like’9. Similarly in this
case, This Panel has the discretion to evaluate the likeness of EVDs and cigarettes using its
discretion and using factors unused in previous panel reports.
6. In Japan- Alcoholic Beverages, the panel noted that a difference in physical characteristics of
alcohol does not preclude the finding of likeness since the alcoholic beverages in question tend to
be consumed “in diluted form” 10. If this reasoning were to be applied in present case, EVDs
although physically different, and different in composition from cigarettes as many alcoholic
beverages are with each other, are consumed for the same purpose and have similar effects on
consumers of either products. Therefore, EVDs and tobacco products can be considered to be like
products.
7. Under Notification No. 34/2019, Guidelines for Electronic Vaping Devices, paragraph 1 all
EVDs sold in the territory of Konaha is subject to a 2% usage-fee to be collected on the sale of
every EVD within the territory of Konaha.
8. Article III:2 first sentence concerns “internal taxes and charges of any kind” which are applied
“directly or indirectly” on products 11. Penalty provisions coupled with a domestic content
requirement may be qualified as “internal taxes or charges of any kind”12. In present case,
Konaha has indirectly imposed a domestic content requirement by way of disincentivising
consumers from purchasing EVDs and with intent to promote local production of tobacco.
9. Tobacco and its products, which benefit from policies of the state are not subject to the same
taxation burdens as EVDs. Therefore, EVDs and tobacco being like products are taxed
differently.
10. Article III:2, first sentence, provides that internal taxes on imported products should not be in
excess of the internal taxes applied to like domestic products. There is no requirement to apply a
trade effects test13. This would mean that even if Konaha’s 2% usage fee has an insignificant or
non-existent effect on the volumes of imports, Article III would protect the importing nation from
such an action. Article III:2 protects the equal competitive trade relationship between imported
and domestic products.
11. There is no stipulation of a de minimis standard under Article III:2. The WTO has established
that rejecting contentions that the tax burden differential was negligible or lasting for a short
period of time14.
12. The WTO has established that Article III:2 requires a comparison of actual tax burdens and
not only tax rates. The first sentence is concerned with the economic impact on the competitive
opportunities of imported and like domestic products, and not with taxes or charges or the policy
purposes sought to be achieved 15. Thus, even if the tax rates are identical the actual tax burden on
imported products can still be heavier16.
13. Article III:2 does not permit Members to balance a more favourable tax treatment of some
imported products against less favourable taxation of other imported products17 .
14. Having established the likeness and the discriminatory taxing practices of the Konaha
government, it follows that paragraph 1 is violative of Article III:2, first sentence, of the GATT,
1994.
15. Article III:2, second sentence, prohibits Members from applying internal taxes or charges to
imported products or domestic products in a manner contrary to the principles set forth in
paragraph 1.
16. The Ad Article III Note provides that tax conforming to the requirements of the first sentence
of paragraph 2 would be considered to be inconsistent with the provisions of the second sentence
only in cases where competition was involved between the taxed product and a directly
competitive or substitutable product which was not similarly taxed.
17. The Appellate Body of the WTO has established that Article III:2, second sentence, is
broader than Article III:2, first sentence 18. It sets out a three-tier test to determine whether there
exists a violation 19.
18. Article III:2, second sentence, provides for a broader category since substitutability and
competitiveness are broader than likeness in products. Further, products under this test are not
required to be perfectly substitutable in order to be directly competitive or substitutable since a
case of perfect substitutability would fall within the purview of Article III:2 first sentence 20.
19. Like products are a subset of directly competitive or substitutable products and therefore all
like products are directly competitive and substitutable but the vice versa would not necessarily
hold true. Therefore, imperfectly substitutable products can be assessed under Article III:2,
second sentence 21.
20. The WTO has established that products are considered to be directly competitive or
substitutable when they are interchangeable or if they offer alternative ways of satisfying a
particular need or taste 22. EVDs, as proven by the 2025 study as well as the fact that a major
proportion of EVD users are former smokers of conventional cigarettes or use both products,
shows that EVDs are a plausible alternative to cigarettes.
18Appellate Body Report, Japan – Alcoholic beverages II, p. 25; Appellate Body Report, Canada – Periodicals, p. 19.
19Appellate Body Report, Japan – Alcoholic Beverages II, p.24.
20Appellate Body Report, Canada – Periodicals, p. 28.
21Appellate Body Report, Korea – Alcoholic Beverages, para. 118.
22Appellate Body Report, Korea – Alcoholic Beverages, para. 114-116.
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22. Another important factor in determining direct competitiveness and substitutability is the
cross-price elasticity of demand in the market between EVDs and cigarettes. This would mean
examining the change in demand of one product due to the change in price of the other in order to
see if consumers can be incentivised to substitute one product with the other 24. Even though this
criterion is not decisive in determining substitutability or competitiveness 25, it helps to understand
how taxes on imported product would affect domestic production.
23. WTO has emphasised quality or nature of competition as opposed to a quantitative overlap of
competition 26. Therefore the figure of 15% replacements by EVDs in the cigarette market is not
the only determinant for establishing substitutability and direct competitiveness.
24. It is clear from the facts and the law that EVDs and cigarettes are directly competitive and
substitutive if not like products since they serve the same end use, consumers tend to use them
interchangeably and they seek to fulfil the same taste.
25. Unlike Article III:2, first sentence, Article III:2, second sentence requires more than a de
minimis standard to be fulfilled 27. In the event that only some imported products are similarly
taxed as compared with the domestic products, while other imported products are not taxed
similarly, such dissimilar taxation of even some imported products as compared to directly
competitive and substitutable domestic products is inconsistent with Article III:2, second
sentence 28.
26. Konaha has benefited from the creation of conducive policies for the promotion of tobacco
cultivation while simultaneously taxing EVDs. This indicates that the standards applied to
domestic products afford it protection while there is a clear increment on the tax on EVDs which
are almost entirely produced in Sharinga. This amounts to dissimilar taxation.
27. Under this test, there is no requirement to prove the intent of the legislation but only its
protectionist outcome29. The most important element is “so as to afford protection to domestic
production”. This would mean comparing the structure of taxation on imported goods to the
taxation awarded to domestic goods.
28. Of the EVDs supplied in Konaha, 90% are produced in Sharinga. Further, Konaha does not
have a domestic industry producing EVDs and it does not possess the technology to be able to do
so in the near future. Konaha has been proactive in its support of its domestic tobacco industry
which is not taxed30 as opposed to EVDs which have been taxed at a rate of 2%.
29. From these facts, it is clear that Konaha’s domestic industries are being afforded protection
which is in violation of Article III:2, second sentence.
30. Article III:4 deals with national treatment obligations relating specifically with internal laws
and regulations. Article III:4 does not make any specific reference to the element “so as to afford
protection to domestic production” in Article III:1 and therefore there is no requirement to
examine whether the measure in question is applied so as to afford domestic production
protection31. However, Article III:1 provides context to the rest of the article because it sets forth
the general principle of the Article. Therefore, it is not a requirement of the test under Article III:4
but it informs Article III:4 nevertheless 32.
31. Article III:4 has been interpreted broadly. The term “affecting” has been interpreted so as to
allow Article III:4 to not only cover laws and regulations which directly govern the conditions of
sale or purchase but also any laws and regulations which might adversely modify the conditions
of competition between the domestic and imported products on the internal markets33. Konaha
has enforced a requirement for EVDs to be placed only on the higher shelves, which would be 5
ft above ground level, which would affect the way shop owners may choose to retail the product.
There would exist no such regulation on tobacco whereas the restriction on EVDs would affect
how the product may retail.
32. Since both substantive and procedural laws are covered under Article III:434, the regulation
mandating retailers on how to store and display EVDs in itself is not the only question but the
enforcement of the regulation will also deter the way in which EVDs retail. This acts as a
deterrent for EVDs produced by Sharinga.
33. Like products under Article III:4 is not construed as narrowly as in Article III:2, first sentence
because Article III:2 distinguishes like products from directly competitive and substitutable
products while Article III:4 is only concerned with like products 35.
34. Similar to Article III:2, no one approach has been established to be appropriate for all cases
and must be made on a case-to-case basis36. The criteria determined relevant in determining
whether two products are like products are 37:
a. The products’ properties, nature and quality: The properties in both EVD and other tobacco
products tend to them the feature of inhaling substances.
b. The products’ end-uses in a given market: The products are used by consumers to for the
purpose of smoking and there is no distinct demarcation between how they are used by
consumers.
c. The consumers’ tastes and habits: Within this criteria, consumers tend not to distinguish
between either tobacco products or EVDs since they cater to the same needs of the consumers. A
major proportion of EVD users are former smokers of conventional cigarettes or use both types
of products.
34PanelReport, United States – Section 337 of the Tariff Act of 1930 (“US – Section 337“), adopted 7 November
1989, BISD 36S/345, para. 5.10.
35Appellate Body Report, EC – Asbestos, para. 95.
36Appellate Body Report, EC – Asbestos, para. 101.
37Appellate Body Report, EC – Asbestos, para. 101.
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35. The aforementioned criterion is not exhaustive and are meant to be tools to assist in
examination of relevant evidence 38. All pertinent evidence and not only relevant criteria should be
examined for determining likeness. The competitive relationship between products has also been
considered as relevant in examining likeness 39. Konaha has intervened through Paragraph 2 to
afford its domestic production of tobacco protection against the competitive product.
36. Evidence about the extent to which products can serve the same end-uses, and the extent to
which consumers are – or would be – willing to choose one product instead of another to perform
those end-uses, is highly relevant evidence in assessing the “likeness” of those products under
Article III:4 40. A study has predicted that EVDs can replace 15% of cigarette sales in wealthy
markets by 2025. This shows that Konaha, a developed country, would possess consumers who
are likely to purchase EVDs as opposed to cigarettes and vice versa since they would cater to the
same tastes and needs in the market.
37. WTO has interpreted “no less favourable treatment” to require “effective equality of
competitive opportunities” 41. A formal difference in the treatment of domestic and imported
products is not necessary for establishment of less favourable treatment and absence of formal
difference does not necessarily mean that there is no less favourable treatment of imported
goods42.
38. Competition in the relevant market has been modified to the detriment of EVDs 43. Paragraph
2 identifies restrictions as to the display of EVDs which adversely affects the adage EVDs
receive in Konaha’s markets, the retailer’s ease of being able to sell the product and stock the
product. No such restrictions exist for tobacco.
39. Therefore, EVDs by measures enforced under Paragraph 2 are accorded less favourable
treatment than tobacco products within the territory of Konaha.
40. Article III:4 has been interpreted broadly. The term “affecting” has been interpreted so as to
allow Article III:4 to not only cover laws and regulations which directly govern the conditions of
sale or purchase but also any laws and regulations which might adversely modify the conditions
of competition between the domestic and imported products on the internal markets44. Konaha
has criminalised smoking of EVDs in public places and has penalised the same in the form of 50
days of community service. Tobacco is promoted by the State as opposed to EVDs which are
severely restricted in their use by consumers.
41. Since both substantive and procedural laws are covered under Article III:445, the penalty for
public smoking of EVDs is also violative of Article III:4. This acts as a strong deterrent for
potential users of EVDs who would be incentivised to purchase tobacco instead since both
products serve same end uses.
42. Like products under Article III:4 is not construed as narrowly as in Article III:2, first sentence
because Article III:2 distinguishes like products from directly competitive and substitutable
products while Article III:4 is only concerned with like products 46.
43. EVDs and cigarettes are like products since they match the aforementioned criterion, they
share perfect substitutability owing to their end-uses.A study has predicted that EVDs can replace
15% of cigarette sales in wealthy markets by 2025. This shows that Konaha, a developed country,
would possess consumers who are likely to purchase EVDs as opposed to cigarettes and vice
versa since they would cater to the same tastes and needs in the market. Therefore, EVDs and
cigarettes can be considered to be like products within Article III:4.
44. EVDs have been accorded less favourable treatment than tobacco products in Konaha due to
the prohibition of public smoking of EVDs and the penalty for doing so imposed only on smokers
of EVDs. Competition in the relevant market has been affected to the detriment of EVDs due to
this measure. Both products are perfectly substitutable in terms of the tastes and needs they cater
to and their end-uses. Therefore users of EVDs or potential users of EVDs would be incentivised
to consume tobacco products instead of EVDs. Therefore EVDs are accorded less favourable
treatment than tobacco products in Konaha.
45PanelReport, United States – Section 337 of the Tariff Act of 1930 (“US – Section 337“), adopted 7 November
1989, BISD 36S/345, para. 5.10.
46Appellate Body Report, EC – Asbestos, para. 95.
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45. Article XX (b) lays out the exception of Members who wish to enforce measures necessary to
protect human, animal or plant life or health. A two tier test for determining whether a measure is
covered under Article XX (b) 47. Further the elements of the chapeau of Article XX also have to be
satisfied48.
1) Policy in respect of the measures for which the provision was invoked does
not fall within the range of policies designed to protect human, animal or
plant life or health.
46. A requirement of even-handedness must be established in imposition of policies on both
domestic and imported products49. Policy of Konaha is not even-handed in its treatment of
imported and domestic products. Tobacco has severe health effects on consumers but is not
subject to the same restrictions as EVDs. EVDs are also possibly a safer substitute for traditional
cigarettes since they lack tar. Thus the policy does not fall within the range of policies designed to
protect human life.
47. The objective of the policy initiated by Konaha is to protect by-standers from second-hand
smoke and to protect youth from exposure to harmful substances. A measure is necessary within
the meaning of Article XX (b) when there are no alternative consistent or less consistent
measures which can be employed to reach the objective50. An alternative would be to curb the
promotion of the tobacco industry which is significantly more harmful than EVDs.
3) Measure does not satisfy the requirements of the chapeau of Article XX.
48. The chapeau of Article XX addresses not the substance of the measure but the manner in
which it is applied 51. Its purpose is to prevent abuse of Article XX and its exceptions, the abuse of
which would result in frustration of the objects of GATT. Article XX chapeau is codification of
the general principle of good faith in international law52.
49. The chapeau of Article XX prohibits arbitrary and unjustifiable discrimination 53. Following
three elements must be met to satisfy the same 54:
a) The application of the measure must result in discrimination: Notification No. 34/2019
discriminatorily taxes EVDs which are largely imported by Sharinga and does not apply the
same restrictions to tobacco which cause the same, if not worse, effects on consumers and by-
standers. The result would be discrimination that is foreseeable and not just inadvertent or
unavoidable in the present case. There is criminalisation with penalty on public use of EVDs,
restrictions on retail display as well as 2% tax on their sale.
c) The discrimination must occur between countries where the same conditions prevail:
Discrimination occurs not only when countries in which the same conditions prevail are
differently treated, but also when the application of the measure at issue does not allow for
any inquiry into the appropriateness of the regulatory program for the conditions prevailing in
those exporting countries55. Konaha is a developed country with a burgeoning tobacco
industry which it openly promotes and it has therefore been able to maximise the benefit from
such an industry due to its economic and political strength. Sharinga is a developing country
who has been a major exporter of EVDs, a technology they have successfully developed.
This does not allow for an inquiry into such a policy’s appropriateness for the conditions
prevailing in Sharinga.
50. There exists a practice of disguised discrimination against Sharinga by Konaha through its
implementation of such policies56. Although such a restriction may be formally within the terms
of Article XX, it has concealed a discrimination which amounts to arbitrary and unjustifiable
under such a guise.
49. For the above stated reasons, Sharinga requests that the Panel finds: