(D) A Closer Look at National Treatment and Like Products
A fuller examination of the Third Pillar and the concept of like products will aid our understanding of the Pillars. After eight rounds of GATT negotiations on import duties and other trade barriers, tariffs—in developed countries at least—no longer constitute significant restrictions to the free movement of goods across national borders. Most disputes over the Pillars thus revolve around the complex rules requiring equal conditions of competition for imported and domestic like products. Understanding the like product concept is necessary to appreciate operation of the Pillars and most other aspects of global trade rules. The term is critical in nine articles of the GATT and three other WTO Agreements, so it comes up repeatedly in studying the relationship between trade and human rights.
The decision by the WTO Appellate Body—the Supreme Court of world trade—in the EC-Asbestos case offers the clearest explanation of the like product concept in a GATT Article III context that implicates human rights concerns. Canadian asbestos producers awoke one morning to find that France had shut down a major export market for their asbestos insulation through a total ban on all products containing asbestos, which it justified on human health grounds, citing evidence that asbestos is a known carcinogen. Although the ban applied both to foreign imports and to domestic production, the second article of the decree made an exception for importation and production of asbestos that had no substitutes.
Canadian producers were not amused to learn that the decree effectively banned only the type of chrysotile or white asbestos that they produced, because polyvinyl alcohol and cement-based substitutes existed for Canada’s type of asbestos. French companies were the leading producers of these polyvinyl alcohol- and cement-based articles, while Canada produced virtually none. Although it made other arguments, including that the ban violated the WTO Agreement on Technical Barriers to Trade (TBT), which prevents countries from disguising trade barriers as product safety standards, Canada’s most potent claim was that the French ban discriminated between imported and domestic products in violation of Article III:4 of the GATT.
Paragraph 1 of Article III sets out a general statement of policy that dispute settlement panels have held “informs” the rest of the article, including Paragraph 4, which does not even mention it. The Members recognize in Paragraph 1 that they cannot apply taxes and regulations “so as to afford protection to domestic production.” That statement, incidentally, is the purpose of almost every GATT provision—to ensure that Members do not nullify or override their Article II agreement to reduce tariffs on products by imposing nontariff barriers that have the same effect of restricting trade.
Thus, when Paragraph 1 states that the purpose of Article III is to prevent Members from protecting “domestic production,” the reference is not to all domestic production, but only to those products that compete with the imported product. Article III requires examination of the competitive relationship between the two products at issue. Paragraph 2 converts this general language into a specific prohibition against assessing internal taxes or other charges on imported products in excess of such charges collected on like domestic products. Paragraph 4 addresses the specific measures at issue in the EC-Asbestos case by imposing essentially the same obligation with respect to regulations and other requirements affecting the internal sale of imported products.5
The Appellate Body’s report in EC-Asbestos points out that the initial panel had found that the asbestos products and their PVA substitutes are “like products” and that France had treated the imported asbestos products “less favorably” than their domestic substitutes by totally banning the imports. France could not have mounted a viable argument against a finding of violation of Article III:4 under these facts if it had accepted the panel’s finding that the products were “like.” In fact, the parties did not even bother to argue this point on appeal. France, through the European Communities (EC), did argue that the panel improperly had found that the products were “like” within the meaning of Article III:4.
If the two products were not “like,” France could not have violated Article III by treating them differently. For example, if the United States tests imported beef for foot-and-mouth disease, but performs no such test on domestic chickens, it has not violated the national treatment obligation. A WTO Member need not treat chickens and cows alike, nor must it regulate baseballs similarly to computers. Therefore, if the EC could convince the Appellate Body that the two products were not “like,” then it could work a narrowing of Article III’s requirement to provide national treatment, with the result that a greater number of safety measures could be imposed on imports.
The initial panel analysis of the term employed the four general criteria recognized in a 1970 Working Party Report on Border Tax Adjustments: (1) the physical characteristics of the two sets of products (one deck baluster is made of wood, the other of vinyl), (2) the end uses of the products (polyurethane foam for attic insulation or for beer coolers), (3) consumer expectations (would the purchaser complain if hot-dip galvanized fasteners are substituted for the specified stainless steel fasteners), and (4) the tariff classification of the products (electric typewriters might be in one tariff group, charged a 5 percent tariff, while computer keyboards might be in another, charged 3 percent). Each of these criteria would be relevant in an examination whether two products are competing for the same buyer and no single criterion would necessarily outweigh the others.
The initial EC-Asbestos panel’s analysis gave compelling weight to the end-use criterion. The panel reasoned that, although the asbestos products and their substitutes were not physically identical—in that they had a different chemical composition, and in fact asbestos was unique—their end uses were the same for some applications. In effect, the panel concluded that their properties were effectively equivalent under Article III:4, which aims to prevent parties from using internal measures to protect domestic industry.
The panel explicitly declined to consider the health “risk” of the product as a separate criterion, reasoning that if it did so the other criteria would become meaningless, because the health risk clearly would overshadow other physical differences, as well as the other “like product” criteria. The panel almost had it right with this comment. Tellingly for purposes of this volume, the panel also found that taking account of the health risk would make the Public Health exceptions of Article XX superfluous. The Appellate Body examined the findings of the panel regarding the carcinogenicity of asbestos, noting that the types of cancer that it caused had a 100 percent mortality rate. Its conclusion from the assessment was that the toxicity of asbestos was indeed a “defining aspect” of the product, one that hardly could be overlooked when determining whether two products had the same physical characteristics. The Appellate Body also noted that under the criterion of consumer expectations, a manufacturer choosing among alternative inputs certainly would not be indifferent to the fact that one caused cancer and the other did not.
Having found that the products were physically distinguishable, that consumer expectations were likely to be significantly different, and that the panel simply had concluded without much analysis that the end uses of the products sometimes were the same, the Appellate Body found that asbestos and its substitutes were not like products within the meaning of Article III:4. France thus had not acted inconsistently with that article. One wonders if the Appellate Body did not have in mind how useful its narrowing of Article III might be to a Member looking for other ways to protect health and the environment, and perhaps other human rights as well, without being found to have violated the WTO Agreements.
(E) If It Quacks Like a Duck
A GATT dispute panel reminds us of another principle applicable to Article III’s discipline on internal regulations and taxes. Some countries collect internal taxes or impose internal regulations—for administrative purposes—at the border, rather than waiting for the imported product to clear customs procedures by payment of the appropriate tariff and meeting other importation rules. These countries find it easier to take care of everything at once while the product is still seeking permission to enter its customs territory. The drafters of GATT Article III recognized this fact by providing in a Supplementary Note to Article III (see Item 7 in the online Documents Annex) that these charges or regulations nonetheless are “internal” and must therefore be consistent with Article III. The nature of the