Extract

, requiring that imports be treated on an equivalent legal footing as domestically produced goods (except for the application of tariffs) is designed to assure equality of conditions of competition for imports in the internal product regulation and taxes of the importing state.

There are two core interpretative issues in Article III(i) which products are “like” or comparable enough to merit consistent treatment, and (ii) what types of regulatory or tax measures constitute less favourable treatment. These become especially difficult where domestic regulatory or internal tax measures may have a dual motivation: protectionism on the one hand, and other “legitimate” regulatory goals on the other hand. Over the history of the GATT/WTO, divergent approaches to the interpretation of Article III have been adopted, ranging from literalist or formalistic approaches; aims-and-effects approaches that focus on discerning protectionist intent; and economic or marketbased approaches that focus on domestic fiscal or regulatory measures that upset competitive relationships between imports and domestic products.

The first Japan – Alcoholic Beverages case (1987)1 was the leading GATT case on internal taxes, and in interpreting the phrase “like products” in Article III(2) tended to focus on actual or potential substitutability between imported or domestic products on the part of consumers, as well as major differences in physical characteristics. This Panel adopted the criteria proposed by the GATT Working Party on Border Tax Adjustments in 1970, which emphasized: (i) product end-uses; (ii) consumers’ tastes and habits; (iii) the products’ properties, nature, and quality,...