TBT Agreement – Determination of ‘likeness’ based on pure market factors

In the US- Clove Cigarettes case, the Appellate Body again rejected the ‘use of an aim and effects’ test in analysing whether products are like and stated that the Border Tax Adjustments factors as the touchstone for a competitive relationship.

It is necessary to note that in this statement, the Appellate Body does not exclude regulatory purposes of technical regulations by examing whether products are like in Art 2.1 of the TBT Agreement. In the determination of the ‘likeness’, panels must evaluate all relevant evidence, including evidence related to the health risks associated with a product, which was the underlying concern of the challenged measure in that dispute.[1]

TBT Agreement – Competitive relationship between imported and domestic product

The United States appealed the Panel’s decision that American technical regulations concerning the ban of clove cigarettes is inconsistent with Article 2.1 of the TBT Agreement. Essentially, the US argued that the Panel erred in finding that clove and menthol cigarettes are like products.

In examination of the Panel’s finding, the Appellate Body categorically rejected the panel’s approach of determining whether the products were like by reference to the regulatory objective pursued, as separate from the competitive relationship between the products. Admittedly, the contextual elements and purposes of the TBT Agreement supports a determination of the ‘likeness’ standard under Art 2.1 but they cannot justify reject the traditional competition-oriented approach. [1]

Restore of the ‘aim and effects’ test into the ‘like product’ analysis

In the US- Clove Cigarettes case, the Panel stated, adding to the traditional four likeness criteria a new consideration under the TBT Agreement, namely, the ‘regulatory purpose’ of the technical regulation.[1] In result, the Panel brought effectively the aim and effects test back into the like product analysis.[2]

Attempt to determinate ‘like product’ in terms of the regulatory purposes of the TBT Agreement

The dispute in the US-Clove Cigarettes case arose from the legislation of the United States legislation banning cigarettes flavoured with any material other than tobacco or menthol (reducing youth smoking was the regulatory objective pursued). As a consequence, Indonesia, the major exporter of clove cigarettes, complained that the American measure primarily exempted domestic menthol cigarettes from the ban and therefore, discriminated against clove cigarettes, which are largely imported to the US market. In response, the United States asserted that clove cigarettes are a starter product particularly attractive to youth, whereas menthol cigarettes are attractive to youth and adult smokers in similar proportions.[1]

Interpretation guidance of ‘likeness’ standard under Art. 2.1 TBT provided by the Clove Cigarettes case

The US- Clove Cigarettes decision was for the first time when the Appellate Body dealt with already unresolved issues of the Agreement on Technical Barriers to Trade giving the thorough interpretation of the meaning of the national treatment commitments of Art 2.1 TBT. This dispute established important new jurisprudence on the ‘likeness’ standard under the TBT Agreement.

Relevance of ‘directly competitive or substitutable products’ to the concept of ‘likeness’ under Art. 2.1 of the TBT Agreement

The determination of the ‘like products’ in Art 2.1 requires taking into consideration the context and purposes of the TBT Agreement and stands as well in interpretational relationship with Art III:4. In addition, as demonstrated above, the Article III:2 constitutes part of the context of Article III:4 so far there is no sharp distinction between the term ‘like products’ in Art III:4 and ‘directly competitive or substitutable’ products in Article III:2, second sentence.

Relationship between Art 2.1 TBT and Art III GATT – Interpretation of the ‘like product’ in relationship to Art III:4

The language of Article 2.1 TBT Agreement uses is the well-known terms ‘like products’ and ‘treatment no less favourable’ found in GATT Article III:4 for determination the national treatment obligation. Both Article 2.1 of the TBT Agreement and Article III:4 of the GATT prohibit a WTO Member from treating imported products less favourably than ‘like’ domestic goods. In result, the closely resembles wording of Article III:4 GATT 1994 suggested a similar interpretation of the term under Article 2.1 TBT Agreement.[1] In addition, technical regulations are in principle subject not only to Article 2.1 of the TBT Agreement, but also to the national treatment obligation of Article III:4 of the GATT 1994.[2]

Comparison between purposes of GATT and TBT

As mentioned above the TBT Agreement is intended as an elaboration of the commitments included in General Agreement of Tariffs and Trade. The General Interpretative Note to Annex 1A to the WTO Charter [1] contains a textual reference related to the relationship between the two agreements. The provision provides:

Interpretation of national treatment obligation in Article 2.1 within the context of the TBT Agreement

For a violation of the national treatment commitments under Art 2.1 TBT, three elements must be established:

• the measure at issue must be a technical regulation[1];
• the imported and domestic products at issue must be like products; and
• the treatment accorded to imported products must be less favourable than that accorded to like domestic products.

The interpretation of each of the term requires taking into account a special context of the Art 2.1 and objects and proposes of the TBT Agreement.

‘Likeness’ Standard under TBT Agreement

The system of GATT/WTO has contributed to the unprecedented progressive tariff reductions in the world. Nevertheless, WTO Members attempt to use other methods to protect their domestic markets, frequently taking the form of non-tariff barriers.

Many technical regulations, standards, labelling and conformity assessment procedures could constitute non-tariff measures, which can be potential barriers to international trade for their protectionist purposes.