By Lakshmi Neelakantan
the pillars of the modern trading system that developed due to the genesis of
GATT/WTO, principle of National Treatment is arguably one of the most
significant. It is often regarded as a cornerstone of the GATT/WTO regime and
is present in many of the agreements under the WTO, including the General
Agreement on Trade in Services (GATS), the Agreement on Trade-related Aspects
of Intellectual Property Rights (TRIPs) and the Agreement on Trade-related
Investment Measures (TRIMs). National
treatment is one of the components of the principle of non-discrimination in
the multilateral trading regime; the other is the Most Favoured Nation
Treatment (MFN). Importance of principle of national treatment under not just
the WTO but also under a number of other international treaty regimes is
reflected in its presence in most Bilateral Investment Treaties (BITs) in
existence today, thus effectively transforming the way in which nations trade
with one another [see end note 1].
article seeks to outline the scope of the provisions of Article III of GATT
1994, and highlight noteworthy points of interpretation under Articles III:1 and III:2 in order to acquire a fundamental
understanding of the concept of national treatment under the above provisions
and its interpretation by various WTO panels and the Appellate Body.
principle of national treatment, in simple terms, prohibits discrimination
between imported goods and domestically produced goods with regard to internal
taxation or regulation. The history of Article III can be traced to Article 18
of the failed Havana Charter [see end note 2]
which sought to create the International Trade Organisation (ITO), and
provisions of which were reworked into GATT 1947. Article III, in its present
form, has been incorporated into GATT 1994 by way of reference.
the seminal dispute of Japan – Taxes on Alcoholic Beverages, the
Appellate Body stated that the purpose of Article III was to avoid
protectionism in the application of internal tax and regulatory measures and
further extended this postulation to mean that members were obligated to provide equal competitive conditions for
imported products in relation to domestic products [see end note 3]. Thus,
the focus of Article III is that laws and regulations are not enacted in favour
of domestic goods so that imported goods are left with a lesser competitive
advantage in the marketplace.
a more detailed understanding, the relevant extracts of Article III are
"Article III - National Treatment on Internal Taxation and Regulation
contracting parties recognize that internal taxes and other internal charges,
and laws, regulations and requirements affecting the internal sale, offering
for sale, purchase, transportation, distribution or use of products, and
internal quantitative regulations requiring the mixture processing or use of
products in specified amounts or proportions, should not be applied to imported
or domestic products so as to afford protection to domestic production.
products of the territory of any contracting party imported into the territory
of any other contracting party shall not be subject, directly or indirectly, to
internal taxes or other internal charges of any kind in excess of those
applied, directly or indirectly, to like domestic products. Moreover, no
contracting party shall otherwise apply internal taxes or other internal
charges to imported or domestic products in a manner contrary to the principles
set forth in paragraph 1."
Analysis of Article III:1
III:1 emphasizes that internal taxes and other charges, in addition to other
laws, regulations or requirements which may affect the internal sale, offering
for sale, purchase, transportation, distribution or use of products should not
be applied so as to afford protection to domestic production. Article III:1 contains
general principles, as opposed to
specific obligations contained in other provisions of Article III. However,
the general principles enshrined in Article III:1 act as a guiding principle
for, and inform the interpretation of the other obligations contained in
Article III, apart from the text of the provisions themselves [see end note 4].
III:1 often influences the manner in which other provisions such as Articles
III:2 and III:4 are interpreted. For instance, the question of which kind of
charges fall within the scope of Article III is determined by the usage of the
words "internal" and "imported", which suggests that
Article III covers charges that are imposed on goods that have already been
imported" and the obligation to pay such charges is triggered by an internal
factor which takes place inside the relevant customs territory [see end note 5].
the phrase "so as to afford protection to domestic production" is
also interpreted to mean that intent is not the key factor for a finding of
violation or non-violation, thereby rejecting the so-called
"aim-and-effect" test. Indeed, it is immaterial if protection to the
domestic industry was not the intended objective of the measure because the
relevant consideration is the application of the measure [see end note 6] Therefore,
the test of a measure's consistency with Article III will necessarily entail a
comprehensive analysis and scrutiny of the design, architecture and entire
structure and application of the measure in question [see end note 7].
Analysis of Article III:2, first
regard to the application of Article III:2, jurisprudence shows that the scope
of the first and the second sentence of Article III:2 differ substantially from
one another. A combined reading of the text as well as relevant interpretations
reveal that a two-tiered test exists in order to ascertain whether a measure is
in violation of Article III:2, first sentence [see end note 8]:
the imported products of one contracting party and the domestic products
of another are "like products";
the imported products are taxed "in excess" of the like domestic
criteria relating to "likeness" will involve a case-by-case
determination of the product's properties, nature and quality; the product's
end-uses in a given market; consumers' tastes and habits and a uniform tariff
classification [see end note 9]. In
addition, the test with regard to the phrase "in excess of" is
applied strictly to the tax or charge faced by the imported products and the
domestic products, and the tax/charge in question is not required to be
scrutinized under a "trade effects" test or a de minimis standard. Even a small amount of tax on imported
products which is "in excess" of the tax on the like domestic product
will attract a violation of the first sentence of Article III:2 [see end note 10].
Analysis of Article III:2, second
the scope of the second sentence of Article III:2 is significantly altered by
Ad Article III:2 which is extracted as follows:
A 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 involved between, on
the one hand, the taxed product and, on the other hand, a directly competitive
or substitutable product which was not similarly taxed."
following points of interpretation thus arise from Article III:2, second
sentence. First, the phrase "in a
manner contrary to the principles set forth in paragraph 1" indicates that
it specifically invokes the application of Article III:1,
as opposed to the implicit invocation of
Article III:1 in the first sentence of Article III:2.
for a measure to be in violation of the second sentence of Article III:2, the
following elements must be fulfilled [see end note 11]:
- The imported products and the domestic
products are "directly competitive
or substitutable products" which are in competition with each other;
- The directly competitive or
substitutable imported and domestic products are "not similarly taxed";
- The dissimilar taxation of the directly
competitive or substitutable imported domestic products is "applied...so as to afford protection to
domestic production", a criterion which is present in Article III:1.
can be inferred from the above requirements, the category of goods that can be
evaluated under the second sentence of Article III:2 is broadened to
"directly competitive or substitutable products" from "like products" in the first
sentence of Article III:2.
analysis in the foregoing paragraphs reveal that Article III:2 is structured
such that if the imported and domestic products are not "like", then
no violation of the first sentence of Article III:2 is triggered. However, in
light of the second sentence of Article III:2, the products in question may not
be "like" products, but may still fall within the scope of
"directly competitive or substitutable goods" as per Ad Article
III:2 [see end note 12]. Thus,
Article(s) III:1 and III:2 necessitate a multi-layered examination of a measure
which may involve varied questions of fact and law. In conclusion, the
principle of national treatment under Article(s) III:1 and III:2 will be
interpreted according to the facts and circumstances of each case and the
panel/Appellate Body is expected to apply the relevant principles on a
[ The author is an Associate, International Trade Practice,
Lakshmikumaran & Sridharan, New Delhi
Treatment, UNCTAD Series on issues in International Investment Agreements,
UNCTAD/ITE/IIT/11 (Vol. IV) (United Nations, 1999).
- Havana Charter for an International Trade Organization, Final Act and Related
Documents, United Nations Conference on Trade and Employment, United Nations Document
E/Conf. 2/78 (Nov. 21, 1947- Mar. 24, 1948).
- Appellate Body Report, Japan - Taxes on
Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, page 16 (1
November 1996) ["Japan - Alcoholic
- Id, page(s) 17-18.
Body Report, China - Measures Affecting
Imports of Automobile Parts, WT/DS339/AB/R, WT/DS340/AB/R / WT/DS342/AB/R,
para 161 (12 January 2009).
- Japan - Alcoholic Beverages,
supra note 3, page(s) 27-28.
- Id, page 29.
- Id, page(s) 18-19;
Appellate Body Report,Canada - Certain
Measures Concerning Periodicals, WT/DS31/AB/R, page(s) 22-23 ["Canada - Periodicals"].
of the Working Party on Border Tax Adjustments, BISD 18S/97, para. 18 in Japan - Alcoholic Beverages,supra note
3, page 20 &Canada- Periodicals,supra note 8, page(s) 20-21.
- Japan- Alcoholic Beverages,
supra note 3, page 23.
- Japan- Alcoholic Beverages,
supra note 3, page 24.
- Japan- AlcoholicBeverages,
supra note 3, page 25.