Homework on Principle of National Treatment (WTO)

Question

Good evening all,

The question that I have is basically homework.

Country A and C are member states of the World Trade Organisation (WTO). A trades regularly with C, but recently faced an issue. A is a major red wine exporter of C. Recently, C imposed a new internal taxation system for beverages. For all kinds of red wines, the taxation rate is 15%. For “Cherry”, the non-alcoholic energy drink that is made by a domestic brand of Country C, the taxation rate is 4%. Recommend if A has a prima facie case against C on the basis of violating the principle of National Treatment, to commence proceedings against C for its trade measure under the WTO dispute settlement system. State any relevant WTO law and cases and other authoritative sources to support your answer.

Right now I am looking at UNITED STATES - MEASURES AFFECTING ALCOHOLIC AND MALT BEVERAGES and Japan- Alcoholic Beverages as possible relevant cases since they deal with alcoholic beverages and internal taxes. In terms of relevant WTO law, I am looking at GATT Article III:1, III:2, and III:4 as they deal with internal taxes and protectionism, under the principle of national treatment.

I think the fact that the energy drink is non-alcoholic means that it is not 'like' red wine or even 'directly competitive or substitutable', so A might not have a prima facie case.

If any of you can recommend any other WTO laws or cases that might be relevant to this dispute, I would be grateful, or even any insights regarding this dispute.

Answer 1

The principle of national treatment is that, once an import has passed customs then it should be treated exactly as if were a domestic product, with no additional fees, tariffs or non-tariff barriers.

I think the Japanese case you have found is most relevant. Here is how a country might try to add an additional barrier:

Country C classifies wines as "standard" or "superior", with "superior" wines attracting a 15% tax but standard wines only having a 4% tax. Wines from country A are generally considered "superior", but domestically produced wines are mostly classified as "standard".

In this case there is a prima facia case for action under the principle of national treatment. The classification into "superior" and "standard" is subjective and may be being done to disadvantage the imported product.

It would be much harder to justify a case in the situation you describe as there is a clear and objective difference between "Cherry" and "Red wine", and nearly all countries tax alcohol differently to non-alcoholic drinks.

The UK taxes wine at a rate of 297.57 pence per litre, and VAT is also added (at 20%) but "Cherry" would only attract VAT. There are a range of different duty levels across the EU, so the situation of country A and C is far from unusual.