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‘Like Products’ in International Trade LawTowards a Consistent GATT/WTO Jurisprudence$

Won-Mog Choi

Print publication date: 2003

Print ISBN-13: 9780199260782

Published to Oxford Scholarship Online: March 2012

DOI: 10.1093/acprof:oso/9780199260782.001.0001

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(p.158) Appendix I

(p.158) Appendix I

Source:
‘Like Products’ in International Trade Law
Publisher:
Oxford University Press

(p.158) Appendix I

The historical origin of the term ‘like product’ in the field of international economic law seems to date back to the MFN clause of the ‘Jay Treaty’ between the United States and the United Kingdom in 1794.1

According to Art. 3 of the Treaty, all goods and merchandise from one party ‘shall be subject to no higher or other Duties than would be payable [by the other party] … on the importation of the same from Europe …’ (emphasis added). Furthermore, Art. 15 of the Treaty states that:

No other or higher Duties shall be paid by the Ships or Merchandize of the one Party in the Ports of the other, than such as are paid by the like vessels or Merchandize of all other Nations. Nor shall any other or higher Duty be imposed in one Country on the importation of any articles, the growth, produce, or manufacture of the other, than are or shall be payable on the importation of the like articles being of the growth, produce or manufacture of any other Foreign Country (emphasis added)

Hence, one could say that the term ‘like product’ first appeared in the provisions of the MFN treatment, using the words ‘the same [goods and merchandize]’ or ‘like merchandize or like articles’.

Before this Treaty the MFN clause had been inserted in various bilateral commercial treaties.2 But the clause employed the terms ‘Subjects’, ‘Inhabitants’, ‘Merchants’, ‘Most Favoured Nations’, or ‘Citizens’, because the MFN obligation was understood as meaning equal treatment between ‘subjects’, ‘people’, or ‘vessels’, not between ‘products’.3 Commencing with the Jay Treaty, states began to understand the MFN obligation in terms of ‘product’ relationships (rather than producers' relationships), which seemed to make the MFN rule more strict. If the MFN were interpreted as applying to the producers' relationship, some discriminatory treatments of some products might be permitted, provided the overall producer relationship was not harmed. For instance, suppose a producer in country X produces products A and B (A and B have the same price) and another producer in country Y produces the same (like) two products; both of them export A and B to country Z. In this example, country Z may be allowed to impose a 5 per cent tariff on A imported from X and a 7 per cent tariff on A imported from Y, provided that Z imposes a 7 per cent tariff on B imported from X and a 5 per cent tariff on B imported from Y. One might argue that this is not a violation of the MFN because, despite the existence of tariff discrimination on each product, the overall competitive relationship between the producer in X and the producer in Y is unaffected. Thus, whether the MFN is understood in the context of product relationship or producer relationship could result in there being different scopes of the obligation: according to the former understanding, country Z would violate the MFN obligation in the above example.

(p.159) With regard to the term ‘product’ relationship, another interesting issue may be raised: does the Art. I MFN obligation apply only on the GATT member-to-member basis? in fact, this issue was raised in 1989 by Canada in the Japan SPF Lumber case.4 Canada contended that the prohibition of discrimination between member countries was only a part of the larger obligation requiring that ‘all products’ considered to be ‘like’ be treated in the same way.5

The significance of this claim appears in the possibility that discrimination between like products imported from the ‘same’ country could violate the MFN obligation. Although the plain text of the provision seems to contain a seed of support for the Canadian argument,6 most panel decisions seem to suggest the requirement for country-of-origin discrimination.7 Considering the basic purpose and historical development of the provision, and that its title is the ‘General Most-Favoured-Nation Treatment’, one could conclude that discrimination with regard to the country of origin should be required as a precondition of the MFN challenge.8

At any rate, going back to the discussion of the Jay Treaty's language, it should be noted that many bilateral treaties since the Jay Treaty have adopted the product-relationship-based MFN and/or national treatment clause by including such terms as (1) ‘same articles’;9 (2) ‘same merchandize’;10 (3) ‘like articles’;11 (4) ‘like articles, the produce or manufacture’;12 (5) ‘like articles, being the growth, produce, or manufacture’;13 (6) ‘articles of like nature, the growth’;14 (7) ‘same articles, being the produce, or manufacture’;15 (8) ‘similar articles’ or ‘similar native productions’;16 (9) ‘same merchandise or produce’;17 (10) ‘same or like articles, the produce, growth or manufacture’;18 (11) ‘same merchandise or articles of commerce’;19 (12) ‘same or similar merchandize’;20 (13) ‘similar goods’ or ‘same goods’;21 (14) ‘articles of like nature, the growth’;22 (15) ‘articles of like nature, the products of the soil or industry’;23 (16) ‘like goods and merchandize’,24 etc.

Before 1934, MFN clauses in commercial treaties negotiated by the United States generally were conditional in nature,25 although this was not universally the case.26 It was not until after World War I that the United States began negotiating unconditional MFN clauses routinely with its trading partners, primarily under the authority of the Reciprocal Trade Agreements Act of 1934.27 The typical unconditional MFN clause in a bilateral US trade treaty relating to trade in goods used the following boilerplate language:28

Any advantage of whatsoever kind which either High Contracting Party may extend, by treaty, law, decree, regulation, practice or otherwise, to any article, the growth, produce or manufacture of any other foreign country shall simultaneously and unconditionally, without request and without compensation, be extended to the like article, the growth, produce or manufacture of the other High Contracting Party.29

The Reciprocal Trade Agreements Act of 1934, which added s 350 to the Tariff Act of 1930 (the Smoot-Hawley Tariff Act), moved the unconditional MFN principle to center stage by requiring the non-discriminatory application to all countries of tariff and trade concessions granted in bilateral agreements, regardless of whether (p.160) those countries had agreements with the United States containing an MFN clause.30

What was the reason for this ‘depersonalization’ of the MFN likeness clause that brought more strictness to the obligation? It may have been just an unintentional change; or one might say that this trend reflected the altered industrial environment. Consequent upon specialization and the mass production system, one-producer-one-product systems have been the trend (multiple-goods producers, as in the above example, have substantially disappeared). Thus, it seems natural that MFN has come to be understood on a products basis.

It is no wonder that this understanding was adopted by the standard League of Nations MFN clause.31 During the discussions of the clause at the end of the 1920s and the beginning of the 1930s, the Economic Committee of the League of Nations raised questions concerning the interpretation of ‘like products’.32 The conclusion was, in essence, that whether or not products were ‘like’ should be decided on the basis of the ‘intrinsic qualities’ of the products, and that ‘any endeavour to find a more precise formula … appears to be Utopian’.33 (In this context, one should note that the concept of ‘like product’ was discussed in relation to the customs treatment of goods, and that attempts were being made at establishing a general tariff nomenclature at the time.34 Also noteworthy is the fact that during the drafting of the Havana Charter, it was proposed to elaborate a general definition of the concept together with other key terms, but this attempt was abandoned.35)

From this moment, the ‘orphan’ GATT (or its tribunals) has traveled a long way away from its ‘dead parents’, who left no formula except for a definition of ‘practically identical with another product’36—a journey toward the Utopian home!

Notes:

(1) Treaty of Amity Commerce and Navigation between Great Britain and the United States, signed at London, 19 November 1794, in Miller, H., Treaties and other International Acts of the United States (US Government Printing Office, 1934) Vol II, p. 245. With regard to its background, see Combs, J. A., The Jay Treaty: Political Battleground of the Founding Fathers (University of California Press, 1970) (‘The arguments that were … made against the concessions granted to the United States in the Peace Treaty of 1783 raised issues that were to help push England and the United States to the brink of war in 1794 and set the stage for negotiation of the Jay Treaty’: ibid., at 4).

(2) An embryonic version of an MFN clause has been found in a treaty of 8 November 1226 between Emperor Frederick II and the city of Marseilles. However, the history of the MEN clause in commercial treaties seems to have begun around the middle of the 17th century. See Hornbeck, S. K., ‘The Most-Favoured-Nation Clause’, American journal of International Law, Vol 3 (Nos 2,3, and 4) (1909) pp. 395–402; Ito, N, La Clause De La Nation La Plus Favorisée (Les editions internationals, 1930) 80. In those periods, what provided a background for political reality for the development of the non-discrimination notion seems to have been the bad effects of a country policy that engendered retaliation and other bitterness. See Jackson, Introduction, note 2, at 249, 250.

(3) See, e.g., Treaty of Amity and Commerce between France and the United States (1778), Miller, op. cit. supra note 1, Vol. II, p. 3; Treaty of Amity and Commerce between the Netherlands and the United States (1782), ibid., p. 59; Treaty of Amity and Commerce between Sweden and the United Sates, ibid., p. 123; Treaty of Amity and Commerce between Prussia and the United States (1785), ibid., p. 162. For the history of the MEN principle, see McGovern, Introduction, note 22, at 8.3; Laing, E. A., ‘Equal Access/Non-Discrimination and Legitimate Discrimination in international Economic Law’, 14 Wis. Int'I L. J. 246 (1996).

(4) See Chapter II, note 233.

(5) See Japan SPF Lumber Panel Report, paras 3.30, 3.54.

(6) GATT Art. I:1 provides that ‘… any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.’ (emphasis added)

(7) See Spain Unroasted Coffee Panel Report, paras 4.9 and 4.10; and see Japan SPF Lumber, paras 5.9 (‘originating in different contracting parties’) and 5.10 (‘different extraneous sources’). But no reference to country of origin discrimination in Australia Sulphate, see Chapter II, note 228.

(8) According to the Economic Committee of the League of Nations, which considered a ‘multilateral tariff-reduction treaty’ during the late 1920s, the MFN clause ‘implies the right to demand and the obligation to concede all reductions of duties and taxes and all privileges of every kind accorded to the most-favoured nation, no matter whether such reductions and (p.257) privileges are granted autonomously or in virtue of conventions with third parties.’ See LN Docs. C.138.M.53.1929.11, p. 5 (emphasis added). This conclusion becomes clearer when attention is paid to the more ‘nation-oriented’ text of the draft articles of MFN clauses prepared by the international Law Commission, in its 1978 annual report, the Commission defined MFN treatment as ‘treatment accorded by the granting State to the beneficiary State, or to persons or things in a determined relationship with that State, not less favorable than treatment extended by the granting State to a third State or to persons or things in the same relationship with that third State.’ See Report of the International Law Commission on the Work of Its Thirtieth Session (1978) 2Y. B. Intl L. Cornm'n 5, UN Doc. A/33/192 (1978), reprinted in 17 Int'l Legal Materials 1518 (1978).

More tersely, the Restatement (Third) Foreign Relations Law of the United States defined MFN treatment as ‘an obligation to treat that state, its nationals or goods, no less favorably than any other state, its nationals or goods’. See Restatement (Third) Foreign Relations Law of the United States §801(1) (1987). (emphasis added)

(9) See, e.g., Treaty of Amity Commerce and Navigation between Sweden and Norway and the United States (1816), Miller, supra note 1, Vol. II, p. 601.

(10) See, e.g., Treaty of Amity and Commerce between. Prussia and the United States (1799), ibid., p. 433.

(11) See, e.g., Convention of Navigation and Commerce between France and the United States (1822), Miller, op. cit., Vol. III, p. 77; Treaty of Peace, Amity, Commerce and Navigation between the Central American Federation and the United States (1825), ibid., p. 209; Convention of Friendship, Commerce and Navigation between the Hanseatic Republics and the United States, ibid., pp. 387, 447; Treaty of Navigation and Commerce between Russia and the United States (1832), ibid., p. 732; Treaty of Peace, Friendship, Navigation and Commerce between Ecuador and the United States (1839), von Martens, G. E, Nouveau Receuil des Traites, Vol. V, p. 3; Treaty of Commerce and Navigation between Portugal and the United States (1840), Miller, op. cit., Vol. IV, p. 295.

(12) See e.g., Convention of Friendship, Commerce and Navigation between Denmark and the United States (1826), Miller, op. cit., Vol. III, p. 239; Treaty of Peace, Friendship, Commerce and Navigation between Brazil and the United States (1828).

(13) See, e.g., Treaty of Amity Commerce and Navigation between Great Britain and Mexico (1826), British and Foreign State Papers, Vol. XIV, p. 614; Treaty of Commerce and Navigation between Hanover and the United States (1840), Miller, op. cit., Vol. IV, p. 256.

(14) See, e.g., Treaty of Commerce and Navigation between Sweden-Norway and the United States (1827), Miller, op, cit, Vol III, p. 283.

(15) See, e.g.,Treaty of Commerce and Navigation between Sardinia and the United States (1838), Miller, op. cit., Vol IV, p. 145.

(16) See, e.g., Treaty of Commerce and Customs between Hesse-Darmstadt and Prussia (1828), von Martens, Nouveau Recueil des Traites, Vol. VII, p. 550; Treaty of Friendship, Commerce and Navigation between Chile and Mexico (1831), von Martens, op. cit., Vol XIII, p. 1.

(17) See, e.g.,Treaty of Commerce and Navigation between Austria and the United States (1829), Miller, op. cit., Vol. III, p. 507; Treaty of Commerce and Navigation between Sardinia and the United States (1838), Miller, op. cit., Vol. IV, p. 145.

(18) See, e.g., Treaty of Amity, Commerce and Navigation between Mexico and the United States (1831), Miller, op. cit., Vol III, p. 599.

(p.258) (19) See, e.g., Treaty of Navigation and Commerce between Russia and the United States (1832), ibid., p. 732.

(20) See, e.g., Treaty of Friendship, Commerce and Navigation between Chile and Peru (1835), British and Foreign State Papers, Vol. XXIII, p. 742.

(21) See, e.g., ibid.

(22) See, e.g.,Treaty of Commerce and Navigation between Greece and the United States (1837), Miller, op cit., Vol. IV, p. 107.

(23) See, e.g., ibid.

(24) See, e.g., Treaty of Commerce and Navigation between the Netherlands and the United States (1839), Miller, op. cit., Vol. IV, p. 171.

(25) See, e.g., Treaty of Peace, Friendship, Commerce, and Navigation, May 13, 1858, US–Bolivia, Art. 6, T. S. No. 32; Treaty of Peace, Amity, Commerce, and Navigation, May 22, 1882, US–Korea, Art, XIV, T. S. No. 61; Treaty of Amity, Commerce, and Navigation, April 3, 1783, US–Sweden, Art. 2, T. S. No. 346; Treaty of Amity Commerce, and Navigation, Oct. 1, 1885, US–Two Sicilies, Art. 15, T. S. No. 365. See also Staff of House Comm. on Ways and Means, 104th Cong., 1st Sess., Overview and Compilation of US Trade Statutes (Comm. Print, 1995) 191.

(26) See, e.g., Treaty of Friendship, Commerce, and Consular Rights, Dec. 8, 1923, US–Germany, Art. VII, T. S. No. 725; Treaty of Friendship, Commerce, and Consular Rights, June 24, 1925, US–Hungary, Art. VII, T. S. No. 748; Treaty of Friendship, Commerce, and Consular Rights, June 19,1928, US–Austria, Art, VII, T. S. No. 838.

(27) See Treaty of Friendship, Commerce, and Consular Rights, Dec. 8, 1923, US–Germany Art. VII, T. S. No. 725; Treaty of Friendship, Commerce, and Consular Rights, June 19, 1928, US–Austria, Art. VII, T. S. No. 838.

(28) Bhala and Kennedy Chapter I, note 22, at 70–71.

(29) Treaty of Friendship, Commerce, and Consular Rights, June 19, 1928, US–Austria, Art. V, T. S. No. 838 (emphasis added).

(30) See Bhala and Kennedy, Introduction, note 22, at 71. One author carried out an examination of 510 bilateral agreements entered into between 1931 and 1939 and found MFN clauses in 227 treaties. See Snyder, R. C., The Most-Favoured-Nation Clause: An Analysis with Particular Reference to Recent Treaty Practice and Tariffs (King's Crown Press, 1948) 133.

(31) See Analytical Index, Second Revision, p. 2. London Report p. 9.

(32) See (1) LN Docs. C.138.M.53.1929.II, pp. 9–11 (‘…(among comparable terms of “like”, “similar” and “identical”) the word “like” is far preferable to the others, the expression “identical” being the least desirable of the three since the condition of identity may in practice involve a too restricted application of the clause, and is too difficult to determine … we may hope that the difficulties inherent in this question will be diminished with the introduction of the uniform Customs nomenclature … the following stipulations are clearly incompatible with the clause: (a) Provisions which restrict Customs privileges to products of a particular country or district simply because they originate in the country or district, thus ruling, a priori, that no other country can produce products like to those which it is sought to favour; (b) Provisions which make similarity depend on entirely external characteristics or conditions which, by the very nature of things, only the products of given countries can possess or fulfill …’; (2) C.641.M.260.1930.II, p. 3 (‘The object of the enquiry into the question of similar products, or products of the same kind, should be to indicate, by consideration of the tariff provisions in the various commercial treaties, cases of discrimination based on the essential characteristics of commodities, and on the other hand, cases in (p.259) which the discrimination is based on purely unessential characteristics and may therefore be regarded as having been imposed with a view to restricting artificially the operation of the most-favoured-nation clause’); (3) C.180.M.68.1931. II. B, p. 3 (endorsing the view already expressed by the Committee in 1929); and (4) C.427.M. 177.1931.II. B, pp. 2–3 (See infra note 33).

(33) See Fauchald, Introduction, note 11, at 123–25; LN Doc. C.427.M.177.1931.II. B, p. 2 (‘As regards the interpretation of the expression “like products”A contractual tariff discrimination—i.e., introduced into a Customs tariff by means of a treaty—can be justified only if and to the extent that the product entitled to the Customs facility possesses intrinsic qualities clearly distinguishing it from any other similar product. This was a somewhat general rule … A dispute might always arise as to the existence or absence of the intrinsic characteristics differentiating goods; but, as these characteristics naturally vary from one product to another, any endeavour to find, a more precise formula … appears to be Utopian; and only expert examinations in each particular case could be decisive … ’).

(34) See Fauchald, ibid.; League of Nations, The Monetary and Economic Conference: An Account of the Preparatory Work for the Conference and an Outline of the Previous Activities of the Economic and Financial Organization of the League of Nations (Information Section|Secretariat of the League of Nations, 1933) 75–76.

(35) See UN Docs. E/PC/T/C.II/W.14, pp. 7–8 and E/PC/T/C.II/W28, p. 4. See also Introduction, note 14 and accompanying text.

(36) According to a study by the GATT Secretariat, the League of Nations definition of ‘like products’ was products ‘practically identical with another product’. See GATT Secretariat, ‘The Most-favoured-nation Clause in GATT: The Rules and the Exceptions’, Journal of World Trade Law, Vol. 4, No. 6, p. 802 (1970). See also Chapter III, note 1. Regrettably the details on this definition and its background are not known.