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“Like Products” and Processing and Production Methods

The term “like products” is a key concept in the analysis of nondiscrimination obligations in GATT Articles I:1, III:2, and III:4, as well as in the TBT Agreement. The issue of whether processing and production methods (PPMs) are relevant to determining the likeness of products also has implications for the SCM Agreement (and the Antidumping Agreement), since the term “like products” is relevant to a variety of key issues in those agreements.[1] In these two agreements this term is defined, whereas it is not in the GATT or the TBT Agreement. The determination of which environmental concerns can be taken into consideration to determine the likeness of products would have wide-ranging consequences in WTO law.

In Japan—Alcoholic Beverages II, the Appellate Body explained that:

[the] concept of “likeness” is a relative one that evokes the image of an accordion. The width of the accordion must be determined by the particular provision in which the term “like” is encountered as well as by the context and the circumstances that prevail in any given case to which that provision may apply.[2]

The jurisprudence suggests that the same four criteria that apply to determine likeness in GATT Article III also apply in the context of GATT Article I.[3]

The Appellate Body has consistently applied the following four criteria to determine whether products are in a competitive relationship that would lead to the conclusion that they are like products under GATT Article III: (1) the physical properties, nature, and quality of the products; (2) the extent to which the products may serve the same or similar end uses in a given market; (3) the extent to which consumers perceive and treat the products as alternative means of satisfying a want or demand; and (4) tariff classification of the products. In EC—Asbestos, the Appellate Body noted that these criteria are “simply tools to assist in the task of sorting and examining the relevant evidence. They are neither treaty mandated nor a closed list of criteria that will determine the legal characterization of a product.”[4] The source of the first three criteria is the Working Party Report on Border Tax Adjustments, while the fourth criterion was added by subsequent GATT panels. The purpose of the like products analysis is “to take account of evidence which indicates whether, and to what extent, the products involved are—or could be—in a competitive relationship in the marketplace.”[5] The relevant market is the market in which the products compete, and the competitive relationship between the same products may be different in different markets.[6]

As the Appellate Body noted in Japan—Alcoholic Beverages II, the tariff classification of products is a problematic criterion where it is not sufficiently detailed. Since the Harmonized System only harmonizes the first six digits, each government has discretion to determine more detailed product classification. Moreover, the Harmonized System (HS) was not designed to resolve the issue ofwhether products are similar according to the GATT.[7] However, even if HS classification cannot be applied directly to decide like products, it is useful to support the decision regarding likeness based on other criteria.

A key issue in the case of measures based on the carbon footprint of products is whether product PPMs can be used to determine likeness. Some might argue that, since the health effects of asbestos were relevant to determining likeness in EC—Asbestos (under the first and third criteria), the environmental effects of a production process are relevant to determine likeness. For example, Howse has argued that the Appellate Body ruling in EC—Asbestos supports the view that nondiscriminatory process-based measures are consistent with GATT Article III:4, based on their consideration of consumer preferences.[8] The same evidence can be considered under both Articles III and XX, for different purposes, according to the Appellate Body in EC—Asbestos:

Under Article III:4, evidence relating to health risk may be relevant in assessing the competitive relationship in the marketplace between allegedly “like” products. The same, or similar, evidence serves a different purpose under Article XX(b), namely, that of assessing whether a Member has a sufficient basis for “adopting or enforcing” a WTO-inconsistent measure on the grounds of human health.[9]

However, the measures at issue in EC—Asbestos can be distinguished from measures based on the carbon footprint of a product’s production process because the health effects of asbestos are related to the product as such, not its production method. Indeed, the principal argument against taking PPMs into account to determine likeness is that likeness should be based on the characteristics of the product as such. In US—Tuna (Mexico), the GATT panel held that the term “like products” did not apply to production processes, but rather to products as such. It therefore did not permit differentiation between products based on production processes that had no effect on the quality of the product.[10] As an unadopted GATT report, US—Tuna (Mexico) has no normative value. However, a panel may find useful orientation in its reasoning.[11]

It would be more appropriate to determine whether non-product-related PPMs are relevant to determining likeness on a case-by-case basis, based on the evidence presented in each case. If a PPM determines the competitive relationship between products in a particular case, the PPM should be relevant to determining whether the products are like.[12] This approach would be consistent with the purpose of the like products analysis, “to take account of evidence which indicates whether, and to what extent, the products involved are—or could be—in a competitive relationship in the marketplace.”[13] Moreover, the competitive relationship between products is not static, but rather evolves over time.[14] Thus, a factor that might not be considered relevant to this issue today could be relevant in the future.

In Philippines—Distilled Spirits, the Appellate Body held that differences in products’ inputs that do not affect their competitive relationship are not an obstacle to finding that the products are similar with respect to their physical properties. Moreover, the production process was relevant to determining the likeness of the products in that case, since it was designed to ensure that the domestic products would be sufficiently similar to compete with the imported products. However, the Appellate Body also noted that GATT Article III:2 refers to “like products,” not inputs, and that differences in inputs that do not affect the final products would not prevent a finding of likeness.[15] Thus, it is not clear from this case whether the approach in this case would permit a finding that products are not like where PPMs affect the competitive relationship but do not affect the final product as such. However, it makes it clear that the nature and extent ofthe competitive relationship between products is the central issue in determining likeness. Thus, for example, where the nature and extent of the competitive relationship between products depends on a particular PPM, that PPM should determine the likeness of products even where it does not affect the final product as such. Moreover, in PhilippinesDistilled Spirits, the Appellate Body held that the products need not be in a competitive relationship in all segments of the market; their competitive relationship in one sector of the market was sufficient to establish likeness. This raises an interesting question. If consumer preferences in one segment of a market make the carbon footprint a determining factor in assessing the competitive relationship between products, would this be sufficient to sustain that the products are not like?

In US—Tuna II (Mexico), the evidence showed that US consumers preferred dolphin-safe tuna products. Indeed, these consumer preferences determined the competitive relationship between tuna products, not their physical characteristics or their end use. The Panel considered that these preferences could be relevant in determining likeness of products under Article 2.1 of the TBT Agreement to the extent that they affected the competitive relationship between products. However, in this case, the evidence did not prove that the fishing methods for Mexican tuna were more harmful than those for US tuna or tuna from other countries.[16] Nevertheless, this case demonstrates that it is possible for PPMs to be the determining factor regarding the competitive relationship between products. The United States did not appeal the Panel’s finding that Mexican tuna products are “like” US tuna products and tuna products from other countries within the meaning of Article

2.1 of the TBT Agreement, so the Appellate Body did not address this issue.[17] However, in US—Clove Cigarettes, the Appellate Body held that the analysis of like products in Article 2.1 of the TBT Agreement serves to determine the competitive relationship between products, just as it does in GATT Article III.[18] Moreover, the Appellate Body has stated that distinctions “based exclusively on such particular product characteristics or on particular processes and production methods” would not per se constitute less favorable treatment within the meaning of Article 2.1.[19]

Since the Appellate Body has signaled that the competitive relationship between products is the central issue in determining likeness, then it should be possible for differences in PPMs to determine likeness. The parallels between the dolphin-safe label in this case, and carbon footprint labels, mean that differences in carbon footprints might be sufficient to conclude that products are not “like” in markets where the carbon footprint determines the competitive relationship between products. Of course, there are other hurdles to overcome with respect to carbon labels, such as the accuracy of their measurement of GHGs produced in the life cycle of a particular product, the extent to which the carbon label discriminates between products from different countries based on factors other than emissions, and the extent to which consumers consider carbon footprints to be a determining factor in a given marketplace. In the context of the TBT Agreement, there is also an issue regarding whether the issuer of the carbon label qualifies as an international standardizing body, an issue we analyze below. The point here is that a properly designed and applied carbon label might not violate national treatment and MFN rules, in the GATT or the TBT Agreement, based on the issue of likeness. However, in US—Clove Cigarettes and in Philippines—Distilled Spirits, the Appellate Body held that the analysis of consumer preferences in the like products analysis (in Article 2.1 of the TBT Agreement and GATT Article III:2, respectively) need not show that products are substitutes for all consumers or that they compete in all segments of the market in order to conclude that they are similar.[20] This raises an interesting issue regarding carbon labels, since it implies that the carbon content of products would have to determine the competitive relationship between products in all segments of a particular market in order to conclude that the products are not similar. If the products competed in one segment irrespective of their carbon footprint, then they would be like products according to the logic of the Appellate Body in these cases.

Another possible approach is to consider the carbon “content” of a product to be analogous to alcohol content. In US—Malt Beverages, the GATT panel found that beer with a low alcohol content and beer with a high alcohol content were not like products under GATT Article III:4 because the differentiation in treatment of low alcohol beer and high alcohol beer did not afford protection to domestic produc- tion.[21] However, in Chile—Alcoholic Beverages, the Appellate Body found that the differentiation in taxation of alcoholic beverages based on alcohol content was inconsistent with the second sentence of GATT Article III:2 because the products were directly competitive or substitutable and because the design of the measure did afford protection to domestic production.[22] These cases might support the view that the likeness of low and high carbon content products under GATT Article III:4, or the issue of whether they are directly competitive or substitutable under the second sentence of GATT Article III:2, turns on the issue of whether the measure in question affords protection to domestic production. However, an important difference between alcohol content and carbon content is that the former is in fact part of the product itself, whereas carbon “content” refers to the production process and is not part of the product itself. Thus, if the likeness of products depends on factors that affect the product as such, these cases would be less relevant.

Yet another approach might be to apply a tax to carbon content for domestic production and apply a border tax adjustment to the carbon content of imported products. If the measure applied the same tax rate to the value of the carbon content, rather than the value of the products themselves, the measure could meet the national treatment requirement of Article III:2 first sentence.[23]

GATT Article I would be relevant if imports from different WTO Members were treated differently. GATT Article I requires that like products be granted unconditional market access, which may imply that nondiscriminatory access to the importing nation’s market cannot be made conditional upon the exporting country’s environmental policies. In EC—Tariff Preferences, in which access to tariff preferences were conditional upon countries suffering from an illicit drug problem, the Panel interpreted Article I:1 as prohibiting the placing of conditions on access to preferential treatment.[24] In Indonesia—Autos the panel held that an advantage could not be conditional upon criteria that were unrelated to the product itself.[25] However, it is not clear whether the issue of conditionality can be determined independently of the issue of whether products are like.[26] If the products under consideration are not like, would subjecting them to different treatment amount to a condition?

Finally, some have argued that, if regulatory categories are permissible in the determination of whether the treatment of imports was “no less favourable,” then PPMs might be considered in this part of the analysis.[27] Others have argued that it is still better to address PPMs in Article XX.[28] The resolution of this issue could affect the analysis in GATT Article III and TBT Agreement Article 2.1.[29] In order to address climate change and other environmental issues in the SCM Agreement, WTO Members will have to consider whether to address environmental subsidies under the like products analysis, the extension of GATT Article XX to the SCM Agreement or both. In doing so, they will have to keep in mind the systemic implications of this decision.

  • [1] Condon, El Derecho de la Organizacion Mundial de Comercio 331—2, 417.
  • [2] Appellate Body Report, Japan—Taxes on Alcoholic Beverages (Japan—Alcoholic Beverages II),WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted November 1, 1996, 21.
  • [3] Panel Report, Indonesia—Autos para. 14.141.
  • [4] Appellate Body Report, European Communities—MeasuresAjjectingAsbestos andAsbestos—ContainingProducts (EC—Asbestos), WT/DS135/AB/R, adopted April 5, 2001, para. 102.
  • [5] Appellate Body Report, EC—Asbestos para. 103.
  • [6] Appellate Body Report, EC——Asbestos para. 103; Appellate Body Report, Philippines—Taxes onDistilled Spirits (Philippines—Distilled Spirits), WT/DS403/AB/R, WT/DS396/AB/R, adopted January20, 2012, paras. 168—9.
  • [7] Appellate Body Report, Japan—Alcoholic Beverages II25.
  • [8] Robert Howse, “The Appellate Body Rulings in the Shrimp/Turtle Case: A New Legal Baselinefor the Trade and Environment Debate” (2002) 27 Columbia Journal of Environmental Law 491,515.
  • [9] Appellate Body Report, EC—Asbestos para. 115.
  • [10] GATT Panel Report, United States—Restrictions on Imports of Tuna (US—Tuna (Mexico]),DS21/R, September 3, 1991, unadopted, BISD 39S/155, 41; Appellate Body Report, UnitedStates—Safeguard Measures on Imports of Fresh, Chilled or Frozen Lamb Meat from New Zealand andAustralia (US—Lamb Safeguard), WT/DS177/AB/R, WT/DS178/AB/R, adopted May 16, 2001;Appellate Body Report, United States—Transitional Safeguard Measure on Combed Cotton Yarn fromPakistan (US—Cotton Yarn), WT/DS192/AB/R, November 5, 2001; Marceau andTrachtman “TheTechnical Barriers to Trade Agreement” 857—8.
  • [11] Appellate Body Report, Japan—Alcoholic Beverages II14—15.
  • [12] For a different view, see Patrick Low, Gabrielle Marceau, and Julia Reinaud, “The Interfacebetween the Trade and Climate Change Regimes: Scoping the Issues” (2011) WTO Staff WorkingPaper ERSD-2011-1, at 2 (accessedOctober 20, 2012).
  • [13] Appellate Body Report, EC—Asbestos para. 103; Appellate Body Report, Philippines—DistilledSpirits para. 119.
  • [14] I thank Deborah Elms for this insight. One example is the competitive relationship betweencellular phones and cameras, which has changed as technology has evolved.
  • [15] Appellate Body Report, Philippines—Distilled Spirits paras. 125—8.
  • [16] Panel Report, United States—Measures Concerning the Importation, Marketing and Sale of Tunaand Tuna Products (US—Tuna II (Mexico)), WT/DS381/R, adopted June 13, 2012, para. 7.249.
  • [17] Appellate Body Report, United States—Measures Concerning the Importation, Marketing and SaleofTuna and Tuna Products (US—TunaII (Mexico)), WT/DS381/AB/R, adopted June 13, 2012, para.230.
  • [18] Appellate Body Report, US—Clove Cigarettes paras. 108—13.
  • [19] Appellate Body Report, United States—Certain Country of Origin Labelling Requirements (US—COOL), WT/DS386/AB/R, adopted July 23, 2012, para. 268; Appellate Body Report, US—TunaII(Mexico) para. 211; Appellate Body Report, US—Clove Cigarettes para. 169.
  • [20] Appellate Body Report, US—Clove Cigarettes paras. 142—5.
  • [21] GATT Panel Report, United States—Measures Affecting Alcoholic and Malt Beverages (US—MaltBeverages), DS23/R—39S/206, adopted June 19, 1992, paras. 5.71—5.73.
  • [22] Appellate Body Report, Chile—Taxes on Alcoholic Beverages (Chile—Alcoholic Beverages), WT/DS87/AB/R, WT/DS110/AB/R, adopted January 12, 2000.
  • [23] GATT Panel Report, United States—Taxes on Petroleum and Certain Imported Substances,L/6175-34S/136, adopted June 17, 1987, paras. 5.2.7-5.2.8.
  • [24] Panel Report, European Communities—Conditions for the Granting of Tariff Preferences toDeveloping Countries (EC—Tariff Preferences), WT/DS246/R, adopted April 20, 2004, para. 7.59.
  • [25] Panel Report, Indonesia—Autos para. 14.145.
  • [26] Panel Report, Canada—CertainMeasures Affecting theAutomotiveIndustry, WT/DS139/R, WT/DS142/R, adopted June 19, 2000, para. 10.22; Mitsuo Matsushita, Thomas Schoenbaum, and PetrosMavroidis, The World Trade Organization: Law, Practice and Policy (2nd edn., Oxford UniversityPress, Oxford 2006) 216.
  • [27] Robert Howse and ElizabethTuerk, “The WTO Impact on Internal Regulations—A Case Studyof Canada—EC Asbestos Dispute” in Grainne de Burca andJoanne Scott (eds.), The EU and the WTO:Legal and Constitutional Issues (Hart Publishing, Oxford 2001).
  • [28] Michael Trebilcock and S. Giri, “The National Treatment Principle in International TradeLaw,” Law and Economics Workshop Series, Faculty of Law, University of Toronto, WS 2002—2003(9), February 2003.
  • [29] Marceau and Trachtman “The Technical Barriers to Trade Agreement”; Andrew James Green,“Climate Change, Regulatory Policy and the WTO: How Constraining are Trade Rules?” (2005) 8JIEL 143.
 
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