The scope of the likeness in Art III:4 – competitive relationship in the market place

As regard to the criteria of Border Tax the Appellate Body in the EC-Asbestos case hold that competitive relationship is highly relevant and both necessary and sufficient for determination of likeness standard under Art III:4 and therefore regulatory purposes are irrelevant. National treatment principle can be applicable only with respect to ‘like products’ being in a close competitive relationship in the marketplace. Consequently, protectionist measures can be possibly applied only with the purpose of affecting the significant situation in the market of such products.[1] The Appellate Body stated as following:

‘As products that are in a competitive relationship in the marketplace could be affected through treatment of imports ‘less favourable’ than the treatment accorded to domestic products, it follows that the word ‘like’ in Article III:4 is to be interpreted to apply to products that are in such a competitive relationship. Thus, a determination of ‘likeness’ under Article III:4 is, fundamentally, a determination about the nature and extent of a competitive relationship between and among products.’[2]

It is noteworthy that in the Korea-Alcoholic Beverages case, the Appellate Body confirmed the existence of a competitive relationship regarding to Art III:2 second sentence, however to a lesser degree. In the context of Article III:2, the word `directly’ suggests a degree of proximity in the competitive relationship between the domestic and the imported products.[3]

However, it is difficult to indicate precisely where on the spectrum of competitiveness or substitutability the word ‘like’ in Article III:4 falls.

In the EC-Asbestos case, the Appellate Body affirmed that physical characteristics, including health risks, can indicate the degree of the competitive relationship between products. In particular, it must have been examined those physical properties of products that are likely to influence the competitive relationship between products in the marketplace.’[4]

The element of end-uses and consumer’s tastes and habits can also reflect the degree of the competitive relationship between products:

‘Evidence of this type is of particular importance under Article III of the GATT 1994, precisely because that provision is concerned with competitive relationships in the marketplace. If there is or could be no competitive relationship between products, a Member cannot intervene, through internal taxation or regulation, to protect domestic production. Thus, 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 of the GATT 1994.’[5]

Finally tariff classifications likewise indicate the degree of the competitive relationship between products under Article III:4 of the GATT.

Having found that competitive relationship is a necessary condition, the Appellate Body seem to treat it as necessary and sufficient, and therefore leaving no room for consideration of, for example, regulatory purpose. This approach has attracted some criticism from scholars and environmentalists. It should be noted that one Appellate Body Member wrote a ‘concurring opinion’ on this issue in which he disagreed with the two other Members of the Division that the competitive relationship is decisive in the determination of ‘likeness’ of products under Article III:4.

The concurring Member of the Appellate Body was willing to make a positive finding that asbestos fibres and PCG fibres are not ‘like products’, even without clear evidence on the issue of competitive relationship. In the context, this means the Member is treating competitive relationship as not sufficient for likeness.

The non-discrimination obligations of national treatment requires considering the purposes of consumers and the purposes of regulators- because of the nature of protectionism. Not every alteration in competitive conditions is a protectionist ‘distortion’ However, the Appellate Body in the EC-Asbestos case relied solely on competitive relationship, without bringing in regulatory purpose to complete them. [6]

[1] Goco J.B., Non-Discrimination, ’Likeness’, and Market Definition in World Trade Organization Jurisprudence, p. 325

[2] Appellate Body Report, EC-Asbestos para. 99

[3] Appellate Body Report, Korea – Alcoholic Beverages, para. 118.

[4] Appellate Body Report, EC – Asbestos, para. 114

[5] Ibid. paras. 117-118.

[6] Regan, D. H., Regulatory Purpose and ‘Like Products’ in Article III:4 of the GATT (With Additional Remarks on Article III:2), p. 445.

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