Gatt Case

GATT

Article III

National Treatment on Internal Taxation and Regulation

1. The 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.

According to the Article III of GATT,

It deals with the treatment on internal taxation and regulation and that it "should not be applied to imported or domestic products so as to afford protection to domestic production." However, performing protectionism toward international products from a domestic country is when the product or an industry is threatened by a like product. As mentioned in TBT where Romantia have clearly argued that Nuevo Escargots are not "like products," and the reason for the ad valorem is not because to protect the domestic market but to fulfill a legitimate objective as the 2.2 Article of the TBT Agreement mentions.

According to the article 2.2 of the TBT agreement,

Article 2.2 of the TBT agreement deals with the technical regulations that fulfill the legitimate objectives; national security requirements; the prevention of deceptive practices; protection of human health or safety, animal or plant life or health, or the environment. The second part of the technical regulations that fulfill the legitimate objectives, the prevention of deceptive practices is a supporting argument for this case of concluding legitimacy. The reason why the technical regulations have legitimate means to prevent deceptive practices is because Romantia's unique and traditional way of producing Escargots; unlike the genetically modified products from Narnia, producing massively, Romantia produces their products in a different way than that of Narnia's. It is to say that the product of Romantia differs in quality and the means.

The usage of the name Nuevo Escargots is an act of deceptive practices because the origin of the product is not related to the product name itself. It is an act of deceiving the consumers confusing them with the original product produced from Romantia. Due to the deceptive practices, creating obstacles of international trade is necessary and that technical regulations shall be more trade-restrictive than necessary to fulfill a legitimate objective. Therefore the technical regulation that fulfills the legitimate objectives to prevent deceptive practices is legitimate.

According to the SCM Agreement Articles 1.1, 2, and 15, it has been shown how the Narnian government has given subsidy to the area of research and development area and to the product of Nuevo Escargots. Therefore, Narnia has been subsidized by the Narnian government, showing the loans from a state-owned bank and even giving advantages that no other departments are able to enjoy. Even if Narnia argues that there needs to be a specificity to say it is a subsidy, research and development body is seen to be an industry. Romantia is determined to have been injured by the introduction of "Nuevo Escargots" and other than the direct influences, other factors than the subsidized imports are injuring the domestic industry (Injury Causation) which therefore rules to be a subsidy.

2. The 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.

Refer to Article 2.1 of the TBT Agreement regarding the disagreement of Nuevo Escargots being "Like product."

The Appellate Body upheld the Panel's finding that shochu and whisky, brandy, rum, gin, genever, and liqueurs were not similarly taxed so as to afford protection to domestic production, in violation of Art. III:2, second sentence. Modifying some of the Panel's reasoning, the Appellate Body clarified three separate issues that must be addressed to determine whether a certain measure is inconsistent with Art. III:2, second sentence: (i) whether imported and domestic products are directly competitive or substitutable products; (ii) whether the directly competitive or substitutable imported and domestic products are not similarly taxed; and (iii) whether the dissimilar taxation of the directly competitive or substitutable imported and domestic products is applied so as to afford protection to domestic production.

This case of alcohol beverages shows how it is consistence with the article III:2 second sentence. First of all, it is not a substitutable product, second of all, since it is not a product that is directly competitive or substitutable it cannot be similarly taxed and last of all the action for imposing an ad valorem is not due to protectionism but to fulfill a legitimate objective.

Art. III:2, second sentence: i) mentions whether imported and domestic products are directly competitive or substitutable products. Romantian Escargots cannot be substituted by other products since the quality, market and the characteristics of the product itself are different than any other products. The specific environment that is required in order to breed and produce the Romantian traditional Escargots show that it cannot be substituted by any other product due to its uniqueness. The traditional way of creating the product is no match for other ways such as using the biotechnology and that the quality itself is different in the end. Also the traditional way of production has created the culture of having escargots that are few in numbers to be eaten at restaurants at