The Interpretation of the term "Like Product" under GATT Law


In a recent trade related dispute, Indonesia complained to WTO's Dispute Settlement Body (DSB) against US by alleging that US did ban imports of Indonesia's clove cigarettes by invoking the provisions of  section 907(a) (1) (A), of the United States Family Smoking Prevention and Tobacco Control Act, 2009 (FSPTCA). :The said Law provides that :



'… a cigarette or any of its components (including the tobacco, filter, or paper) shall not contain, as a constituent … or additive, an artificial or natural flavor (other than tobacco or menthol) or an herb or spice, including strawberry, grape, orange, clove, cinnamon, pineapple, vanilla, coconut, liquor-ice, cocoa, chocolate, cherry, or coffee, that is a characterizing flavor of the tobacco product or tobacco smoke.'(1)

 To understand the meanings of the above quoted provision of US law attention is invited to a   report prepared by the Energy and Commerce Committee of the congress under the title ,the "House Report", the report articulates both the objectives of the said report overall, and in particular of Section 907(a)(1)(A) . According to the House Report, "the objectives of the FSPTCA include to provide the Secretary with the proper authority over tobacco products in order to protect the public health and to reduce the number of individuals under 18 years of age who use tobacco products.This House Report also explains the purpose of Section 907(a)(1)(A) in the following terms:

    'Consistent with the overall intent of the bill to protect the public health, by reducing the number of children and adolescents who smoke cigarettes, Section 907(a)(1)(A) is intended to prohibit the manufacture and sale of cigarettes with certain 'characterizing flavors' that appeal to youth.'

 In order to solve the dispute, a panel was constituted by the DSB, who after considering the issue and listening the arguments of both the parties came to the conclusion that the complaint of Indonesia was legally sustainable and upheld it,by declaring that  the US measures fall within the framework of Technical Barriers to Trade (TBT)  and US action did contravene the provisions of GATT 1994.

In a review filed by US, the appellate body through its detailed findings upheld the panel’s decision. From the ensuing debate on the moot point an interesting issue came to light,that is, what is  the true meaning of the term, “like products” as used in the GATT law. Through its findings the  appellate body did define the parameters to interpret the term  "like Products" the findings  of the appellate body in this regard  are important and note worthy. (2 )

The appellate body came to the conclusion that for  the interpretation of the term "like products" as used in Article 2.1 of the Technical Barriers to Trade (TBT) Agreement, the said phrase is to be read in conjunction with the other provisions of the text as provided in Article 2.1 along with  other provisions of the TBT Agreement. As per appellate body, Article 2.1 applies to technical regulations, as the regulations lay down the characteristics of products. Furthermore, the preamble of the TBT Agreement recognizes a Members' right to regulate its trade through technical regulations though, yet these contextual elements and the object and purpose of the TBT Agreement suggests that for the interpretation of the phrase  "like products" as used in Article 2.1 of the TBT Agreement, the same may not be approached from a competition-oriented perspective.(3)The problem is that the very concept "treatment no less favorable", expressed in Article III: 4 of GATT 1994 has long been marked by legal indeterminacy. Just consider what Article III:4 provides: 

'The products of … any contracting party imported into … any other contracting party shall be    accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements ...'

 

  

.The products produced in the territory of any Member state and imported into the territory of any other  Member state is required to be accorded treatment no less favorable than that is accorded to like products of national origin under regulations and requirements affecting the internal sale, offerings for sale, purchases, transportation, distribution and the use.(4)

 The fact is that article 2.1 of the TBT Agreement, provides the basis for the determination of the term 'likeness'. The said regulation suggests that term' likeness' is used about the "nature and extent of a competitive relationship between and among products offered for sale". The appellate body accordingly explained the phrase, "treatment no less favorable" by stating that it indeed links the products to the marketplace, where it can be determined that how the measure adopted treats alike imported and domestic products.  And while determining likeness on the basis of competitive relationship between and among the products, the appellate body proposed that an adjudicator is supposed to discount any distortion or effect of the disputed measures on the competitive relationship. And he may reserve the consideration of such effects for the analysis of less favorable treatment. For the purpose of deciding 'likeness' in isolation , and the disputed measure,  the nature and the extent of the competitive relationship is to be determined to the extent that the latter tells the physical characteristics of the products and consumers' preferences.

As per appellate body, the meaning and the concept of "likeness" in Article 2.1 of the TBT Agreement focuses on the legitimate objectives and purposes of the technical regulations, and it can not be determined on the basis of text and context of the TBT Agreement; rather it can be determined on the basis of competitive relationship which the competing products have among themselves.

The appellate body observed that complainant or adjudicators can not always identify all the objectives of a measure and one can not be in a position to determine which among multiple objectives are relevant for the determination of ‘likeness’ among the two products.(5)

It was the opinion of the appellate body that the concept of "like products" in Article 2.1 of the TBT Agreement lends itself to distinctions between products that are based on the regulatory objectives of a measure and it will however be wrong to assume such a fact. For the scope of products which are being compared to establish whether less favorable treatment is being accorded to the one, the concept of like products provides easiness to define it. Where products are in a sufficiently strong competitive relationship far to be considered ‘like’ the same are excluded from the group of ‘like products’ on the basis of a measure's regulatory purposes, and such products would not be comparable in order to ascertain whether less favorable treatment has been accorded to the imported ones.

Ordinarily, the determination of likeness may not be based on the regulatory purposes of technical regulations, and the regulatory concerns underlying technical regulations should not play a role in the determination of whether or not products are like. In EC – Asbestos case , adjudicators found, regulatory concerns and considerations may play a role in applying certain criteria of the "likeness" (that is, physical characteristics and consumer preferences), thus making it easy for the determination of likeness under Article III: 4 of the GATT 1994.

The appellate body observed that all relevant evidence must be evaluated while examining whether products are like, including evidence relating to the health risks associated with a product, that was the underlying concern of the challenged measure in EC - Asbestos dispute. Such evidence may not be examined as a separate criterion, rather such evidence be examined taking into consideration of the traditional "likeness" criteria. A product's health risks, in particular are relevant for the determination of the competitive relationship between products, and the process of determination may address health risks as the products' physical characteristics, as well as the tastes and habits of consumers.(6) The process should also consider the physical properties of products, in particular, those physical properties that are likely to influence the competitive relationship between products in the marketplace. For this purpose physical properties such as that make a product toxic or otherwise dangerous to health are also included.(7 ) It may be noted, health risks associated with a product could influence the preference of consumers.(8)

The appellate body further observed that for consideration of criteria under Article III: 4 of the GATT 1994, as well as under Article 2.1 of the TBT Agreement, the regulatory concerns underlying a measure, such as the health risks associated with a given product, become relevant for analysis of the "likeness" since they have an impact on the competitive relationship among the competing products.

The appellate body came to the conclusion that WTO legal instruments contain a similarly worded national treatment obligation and the same is applicable to laws, regulations, and procedural requirements including technical regulations. In the light of this context and of the object and purpose of the TBT Agreement, as expressed in its preamble, the determination of likeness under Article 2.1 of the TBT Agreement, as well as under Article III: 4 of the GATT 1994, is a determination about the nature and extent of a competitive relationship between and among the products at issue. To the extent that they are relevant to the examination of certain "likeness" criteria and are reflected in the products' competitive relationship, regulatory concerns underlying technical regulations may play a role in the determination of likeness. (9) The end-uses describe the possible functions of a product, while consumer tastes and habits reflect the consumers' appreciation of these functions. In EC – Asbestos, the Appellate Body of DSB held that the end-uses tell us the extent to which products are capable of performing the same, or similar, functions as well as consumer tastes and habits as the limit to which consumers are willing to use the products to perform these functions.*(10)

Thus the consumer preference to smoke to satisfy an addiction or pleasure are relevant to the examination of both end-uses and consumer tastes and habits, although different aspects are addressed by the appellate body in their determination for the analysis of said "likeness" criteria.

The appellate body observed that by forming a complete picture of the various end-uses of a product, a panel can assess the significance of the fact that products share a limited number of end-uses.(11)

And for determination whether such products are like products within the meaning of Article 2.1 of the TBT Agreement, the end use both of clove and menthol cigarettes becomes an appropriate tool for guidance. 

The appellate body further observed that there are more specific permutations and functions of "smoking", which are relevant to the end-uses of cigarettes, such as "satisfying an addiction to nicotine" and "creating a pleasurable experience associated with the taste of the cigarette and the aroma of the smoke".

Hence the context of the TBT Agreement and its object and purpose do not suggest that the regulatory objectives of a technical regulation should play a role that is separate from the determination of a competitive relationship between the competing products. Determining likeness primarily in the light of the regulatory objectives of the measure is further complicated by the fact that measures, including technical regulations, often have multiple objectives. A determination about the nature and the extent of a competitive relationship between competing can be determined by considering the intention of regulation or measure adopted to the extent that what impact it will create on the competitive relationship.(12)

And in order to evaluate the degree of substitut-ability among these products, the adjudicators are required to assess the tastes and habits of all relevant consumers of the products at issue. 

It is not necessary to demonstrate that the products are substitut-able for all consumers or those they actually compete in the entire market. Rather, if the products are highly substitut-able for some consumers but not for others, this may also support a finding that the products are like. In Philippines – Distilled Spirits dispute, the Appellate Body had considered the standard of direct competition or substitution. It may be noted, second sentence, of Article III: 2 GATT 1994 stands satisfied even if competition does not take place in the market as a while, and it is limited to a segment of the market only.In the said case, it was reasonable for the adjudicators to draw, from the Philippines' argument that imported distilled spirits are only available to a 'narrow segment' of its population, the inference that there is actual competition between imported and domestic distilled spirits at least in the segment of the market that the Philippines admitted has access to both imported and domestic distilled spirits".(13) In that dispute, the Appellate Body found that Article III: 2, does not require that competition be assessed in relation to the market segment that is most representative of the "market as a whole", and that Article III of the GATT 1994 "does not protect just some instances or most instances, but rather, it protects all instances of direct competition".(14)

Article 11 of the DSU requires adjudicators to make an objective assessment of the matter before it, including an objective assessment of the facts of the case. Article 11 requires adjudicators to consider all the evidence presented to it, assess its credibility, determine its weight, and ensure that its factual findings have a proper basis in that evidence.(15 ) Adjudicators are not required to accord the same meaning with regard to evidence presented by parties as is emphasized by the parties.(16) The Appellate Body accordingly did not interfere with the panel's fact-finding powers, and did not base its findings of inconsistency (under Article 11) simply on the ground that it can reach to a different factual finding.(17)

It may be added, in some segments of the market, there exists a sufficient degree of sustainability between clove and menthol cigarettes, and for the support of the argument, element of likeness as defined in Article 2.1 of the TBT Agreement,  and it becomes a relevant consideration.Therefore, the overall conclusion of the moot point is supported by the Likeness criteria and its claim that clove and menthol cigarettes are like products within the meaning of Article 2.1 of the TBT Agreement is also correct.


 REFERENCES;

1. Under Section 907(a)(1)(A), beginning three months after the enactment of the FSPTCA—that is, as from 22 September 2009:
2. See Appellate Body Report, United States-Measures Affecting the Production And Sale of Clove Cigarettes: WT/DS406/AB/R dated 4.4.2012.
3. Article 2.1 of the TBT Agreement provides:
Members shall ensure that in respect of technical regulations, products imported from the territory of any Member shall be accorded treatment no less favorable than that accorded to like products of national origin and to like products originating in any other country.
4. Article III:4 of the GATT 1994 reads, in relevant part:

5. See Panel Report, Japan – Alcoholic Beverages II, para. 6.16

6. Appellate Body Report, EC – Asbestos, para 113.
7. The Appellate Body noted that a characteristic of chrysotile asbestos fibers was that the microscopic particles and filaments of these fibers were carcinogenic for humans when inhaled. Thus, the Appellate Body concluded that the carcinogenicity, or toxicity, constituted a defining aspect of the physical properties of chrysotile asbestos fibers as opposed to polyvinyl alcohol, cellulose, and glass (PCG) fibers, which did not present the same health risk. (Appellate Body Report, EC – Asbestos, para. 114).
8. The Appellate Body found that the health risks associated with chrysotile asbestos fibers influenced the behavior of both manufacturers (who incorporate fibers into another product) and ultimate consumers. The Appellate Body noted that a manufacturer cannot ignore the preferences of the ultimate consumers of a product and, if the risks posed by a particular product are sufficiently great, the ultimate consumers may simply cease to buy that product. (Appellate Body Report, EC – Asbestos, para. 122).
9. Article 2.1, and Article III: 4 of the GATT 1994. See also relevant provisions of TBT Agreement.
10. Appellate Body Report, EC – Asbestos, para. 117. 
11. Appellate Body Report, EC – Asbestos, para. 119.
12. See n.1.
13. Appellate Body Reports, Philippines – Distilled Spirits, para. 220.
14. Appellate Body Reports, Philippines – Distilled Spirits, para. 221 (referring to Panel Report, Chile – Alcoholic Beverages, para. 7.43). 
15. Appellate Body Reports, Philippines – Distilled Spirits, para. 135 (quoting Appellate Body Report, Brazil – Retreaded Tyree, para. 185, in turn referring to Appellate Body Report, EC – Hormones, paras. 132 and 133).
16. Appellate Body Report, Australia – Salmon, para. 267.
17. Appellate Body Reports, Philippines – Distilled Spirits, para. 136 (quoting Appellate Body Report, US Wheat Gluten, para. 151).

Zafar Iqbal:Azimuddin Law Associates, Pakistan : www.azimuddinlawassociates.com

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