Case Study Caribou Xenia Archland.

Introduction

This paper focuses on a case study, involving Caribou, Xenia, Archland, and Texiria, which this study assumes to be members of the World Trade Organization (WTO). In this regard, and based on the first case scenario, this paper will purpose to critically advise and based on merits, Texiria’s complaints regarding Article I of GATT 1994. On the other hand, based on the second scenario, this paper purposes to advice, on the merits of Teiria’s complaints regarding Article III GATT 1994, and the merits of Caribou’s argument under Article XX (g) GATT 1994. Overall, on each of the presented scenarios, this paper starts by providing a brief description of the scenarios, followed by their critical analysis, in accordance with the GATT 1994 provision that relate to the issue in question.

Brief description of the scenario

The scenario a hand is that Caribou presently has a thriving car industry, and in attempt to boosting it in the year 2001, it offered custom duty exceptions, towards the import of vehicles from any motor vehicle manufacturer that was willing to support Caribou’s local companies with technology transfers. Notably in last year, Caribou purposed to close the list of manufacturers that were granted the custom duty exception, and presently, only car manufacturers such as Huada, based in Archland and Yondy, based in Xenia are the only ones that qualified for the custom duty exception. On the other hand, Texiria is also a major exporter of motor vehicles, and as such, argues that the eligibility limitation that Caribou has imposed for custom duty exception, to only allow Xenia and Archland is inconsistent, when considering Article 1:1 GATT 1994. In response, Caribou noted that the custom duty exception that it has provided to Huanda and Yondu is neither tied to the nationality of their manufacturers, or even the national origin of the automobile. In line with this, Caribou points out that both care manufacturers are permitted to import motor vehicles that originate from any country.

Article 1 of the GATT 1994 focuses on the subject of Most-Favored-Nation (MFN), which primarily requires the members of WTO to accord the most favorable regulatory treatment, as well as tariff given to a product of any WTO member at the time of either import or export of the said “like products” to other members. Notably, this has been regarded as the founding principle that governs the WTO members (Narlikar, 2004). For instances, based on the MFN rule, in an instance where a member negotiates with country B and agrees to reduce a tariff to 3 per cent, it should be noted that this same tariff must be extended to the rest of the WTO members. In simple terms, if a country provides a treatment of favor to another country, then it is obligated to provide the same treatment to all the member countries. In this regard, the essence of the establishment of the MFN is to enhance non-discriminatory treatment, which can be derived by providing same treatment that is given to a member state to the rest of the member states (Davis & Wilf, 2017). In a trade context, it is a significant principle, which purposes to prohibit a different form of treatment that is given to the same product, whether depending on the country of origin.

Based on the aforementioned background of the Article 1:1 of the GATT, it is mandatory that WTO members should extend the non-discriminatory treatment to “like” products of other members of the WTO, with respects to custom duties, regulations, internal taxes, charges, as well as well as imports. In simple terms, “like” products produced by all members of the WTO should be accorded the same treatment and this should be regarded as the most advantageous treatment that should be accorded by a WTO member to the products of other WTO members, under the jurisdiction of all members (Hoda, 2018). In line with this, it should be noted that Caribou’s decision to close the list of all automobile manufactures, except for Huada and Yondu, based in Archland and Xenia respectively is a discriminatory act, which violates the provisions of the Article 1:1 of the GATT 1994.

Moreover, it is evident that based on the provisions in this article, the provided meaning of “like products” imposes an issue. Notably, there are few determinations in the dispute settlement cases of the WTO, and the determinations that were made in the former GATT era that are being used in the precedents for interpretation (Koul, 2018). In accordance with discriminatory of tariff treatment, it is significant to take note of the fact that “like products” are determined using the following three key factors, one is the products’ physical characteristics, two is the their end-users and three is the tariff regimes of the other WTO members. In the scenario at hand, it is evident that all the three WTO members (Archland, Xenia and Texiria) had “like products” with similar key factors, yet Caribou chose to provide a treatment of favor to Xenia and Archland, yet even Texiria is a member of WTO and also a major exporter of automobile. In this regard, it should be noted that Caribou’s claim that the custom duty exception that it has provided to Huanda and Yondu is neither tied to the nationality of their manufacturers, or even the national origin of the automobile is not justified, as all WTO members should be treated equality.

It should as well be noted that the panel for the WTO on non-discrimination pointed out that the establishment of different rates of tariffs for “like products” was a violation of the MFN obligation of the WTO members to provide equal treatment to all the other members. In this regard, it is of great significance for all WTO members to exercise considerable discretion in relation to tariff classification. As such, WTO members should rely on the significant standards of all the importing countries in the determination of “like products,” thus bringing forth the opinion that Caribou should purpose to reconsider its stand on excluding other WTO members such as Texiria from gaining from the benefit of custom duty exemption (Lovett et al., 2015). It should be noted that should any importing country purpose to extend differential treatment towards “like products” of another exporting country over the other through setting different rates of tariffs, then it should be regarded clearly as a violation of the Article 1:1 of the GATT. However, it is also significant to take in the fact that Article 1:1 of the GATT can as well incur violations, in an instance where discrimination against another member’s product is less apparent. For instance, a country that imports accords a differential treatment among products that are regarded as “like products.” This is defined as the de facto discrimination. A good example of such a case had involved Canada’s automobile measures. In this specific case, the Canada’s system eliminated tariffs on some imported automobiles from the US under certain conditions (Javorcik & Narciso, 2017). However, the system was open to other WTO countries and as such, could be used through meeting certain conditions. Factually, the acceptance of new applications had been suspended immediately after the US-Canada FTA had been concluded, thus making it unavailable to companies in the US. The panel noted that the issue in that case was in relation to the de facto discrimination, and as such, it was evident that it was a violation of the provisions of the Article 1:1 of the GATT.

Overall, with the side scope relating to the application allowed for the Article 1:1 of the GATT 1994, it is worth noting that the appellant body that is further established for easing interpretation aids in establishing the consistency test that can determine the violation or not of the non-discriminatory treatment obligation. In this regard, it is notable that to constitute the Article 1:1 of the GATT violation, the following should be put into consideration. First is whether the measure of the issue purposes to confer a trade advantage as covered in the Article 1:1 of the GATT 1994 (Tejeda, 2017). Second is if the product in question are “like products” and thirdly, whether the advantage derived from the issue is granted immediately and unconditionally to all the “like products” in question. As such, it can be deduced that Caribou violated the provision in the Article 1:1 of the GATT 1994. On the other hand, it is evident that the claims made by Texiria are justified, to the fact that Caribou is not fair on its treatment towards Texiria and other countries, which are members of the WTO. Moreover, it is evident that the claim of Caribou that the custom duty exception that it has provided to Huanda and Yondu is neither tied to the nationality of their manufacturers, or even the national origin of the automobile. Moreover, its claim that both car manufacturers are permitted to import motor vehicles that originate from any country is not justified as Caribous should be obligated to follow strictly, the provision in the Article 1:1 of the GATT 1994.

Recently, Caribou has been experiencing smog and as such, noticed an increase in the number of bronchitis related diseases. In order to reduce the pollution level, Caribou has thus passed a regulation recently, that imposes an advertising ban on all automobiles (be it domestic or imported) that have their fuel consumption below 12.5 miles per gallon. On the other hand, fuel consumption that is above 12.5 miles per gallon are not to be subjected to the advertising ban. Notably, all the care that are produced in Caribou have a fuel consumption of above 12.5 miles per gallon, whilst on the other hand, all the car manufacturers in Texaria have a fuel consumption of below 12.5 miles per gallon. Still on Caribou’s neck, Texiria believes that the regulation that Caribou had passed purposes to violate the Article III GATT 1994. In response, Caribou makes a claim that even if the regulation purposes to violate the Article III GATT 1994, it can be justified, based on the provisions in Article XX (g) GATT, owing to the fact that it contributes to the reduction in the levels of pollution in Caribou.

The Article III of the GATT 1994 focuses on national treatment, and stands alongside the MFN treatment, which is regarded as one of the key principles of the WTO. Based on the provisions of the national treatment rule, it is significant to note that the WTO members should not accord any form of discriminatory treatment on imports when it comes to “like” domestic products (only on the exception of the tariffs impositions, which entails a broad measure) (Crump & Druckman, 2016). This rule purposes to prevent other countries from taking measures that are regarded as discriminatory on imports, as well as from offsetting the impacts of tariffs through measures that are non-tariff. A good example is a case in which member A purposes to reduce tariff on a given product by 5 per cent, only to consequently impose a 5 per cent domestic consumption tax on an imported “like product.” This offsets the 5-percentage point tariff cut (Du, 2016). Overall, the major purpose of the Article III of the GATT is primarily to eliminate instances of “hidden” domestic barrier to trade carried out by the WTO members by according the imported products less favorable treatment as compared to the treatment accorded to the products of the national origin. Notably, adhering to this principle is noted to be significant, as it aids in maintaining a balance of rights, as well as obligation, which are essential in the maintenance of a significant multilateral trading system (Du, 2015).

Notably, the GATT article III required the members of the WTO to provide significant national treatment to all other WTO members. It stipulates its general principles that the WTO members should not apply internal taxes, or any form of internal charges, regulations, requirement, or law that may affect imported or even domesticated products, in order to afford significant protection to domestic production (Koul, 2018). Relating to internal taxes, Article III stipulates that members of WTO should in no case, apply standards that are higher than those that are imposed on domestic products, especially between imported goods, and “like domestic goods” or even between imported goods and directly competitive/ substitutable products.” In addition to this, and with regards to internal laws and regulations, it should also be noted that Article III stipulates that all members of WTO should accord imported products with treatment that is no less that those that are accorded to “like products” of a national origin (Duque, 2019). For these reasons, it should be noted that Texiria’s complaints are justified as Caribou has passed a regulation recently, that imposes an advertising ban on all automobiles (be it domestic or imported) that have their fuel consumption below 12.5 miles per gallon. On the other hand, fuel consumption that is above 12.5 miles per gallon are not to be subjected to the advertising ban. All the care that are produced in Caribou have a fuel consumption of above 12.5 miles per gallon, whilst on the other hand, all the car manufacturers in Texaria have a fuel consumption of below 12.5 miles per gallon. This is in line with the general principle of Article III of the GATT, which states that WTO members should not apply internal taxes, or any form of internal charges, regulations, requirement, or law that may affect imported or even domesticated products, in order to afford significant protection to domestic production (Sarmah, 2019). In addition to this, article III also aids in justifying Texiria’s claim as with regards to internal regulations, as well as laws, section 4 of it stipulates that WTO members should no accord imported product a treatment, which is less favorable to the treatment accorded to “like products” which are produced within a national origin. Notably, the WTO panel has significantly relied upon various criteria that include tariff classification, the end uses of the product in a particular market, the tastes, and habits of the consumer, the properties, nature, as well as quality of the products (Harris & Moon, 2015).

Significantly, Article XX (g) of the GATT 1994 is concerned with the environmental measures, and exceptions, which enhance sustainability (Koul, 2018). This article provide the significant space, for sheltering various environmental measures, which strictly observe the GATT 1994 law. It is concerned with the conservation of exhaustible natural resources and in defining the exhaustible natural resources, this article implies the living resources, or the atmosphere, although the WTO panel body has noted that both may be included, and there should be policies in all member states that aim at conserving the environment. Notably, the phrase denoted by “exhaustible natural resources,” based on Article XX (g) is interpreted in a broad way to include both living and non-living resources. Overall, it is significant to take note of the fact that WTO requires member states to enforce environmental sustainability in their various countries, in order to protect both the living and non-living things (Chen, 2017).

Legal framework

Notably, the members of the WTO retained Article XX (g) and noted that it entailed significant, as well as legitimate concept, which required member states to protect their environment, and make it a national goal, as well as an international policy (Bartels, 2015). For this reason, it is significant to note that Caribou has passed a regulation recently, that imposes an advertising ban on all automobiles (be it domestic or imported) that have their fuel consumption below 12.5 miles per gallon. On the other hand, fuel consumption that is above 12.5 miles per gallon are not to be subjected to the advertising ban. This should be regarded as a national policy, which enforced the Article XX (g) on national protection of the environment and enhancement of environmental sustainability (Koul, 2018). Additionally, the Article XX (g) also purposes to permit WTO member states, and this is subject to particular conditions, to take significant measures that relate to conserving the exhaustible natural resources, and these measures ought to be made effective, in conjunction with the restriction of domestic, production, as well as consumption (Chen, 2017). Notably, it is evident that Article XX (g) poses as an exception, in which the responding parties purpose to bear a significant burden of proof. In this regard, by authorizing the sustainability measures regarding conservation, it is in line with the preamble of the WTO agreement, in which case, members should recognize the implementation of such measures as an act of defence. Overall, it should be noted Caribou having instituted a national policy is of great significance, and it is in line with the Article XX (g) of the GATT 1994.

Conclusion

Based on the first scenario, one could be left pondering on the fate of MFN treatment obligation if WTO member states do not purpose to oblige to it. However, it is suggestible that MFN intends to provide a structure, and also a functionally effective way of harnessing the value, in which WTO provides an open trade, to enhance fairness, in a bid to reflecting on political realism, as well as free trade doctrine. Based on the advice that was provided on the first case, it is evident that Caribou violated the provision in the Article 1:1 of the GATT 1994. On the other hand, it is evident that the claims made by Texiria are justified, to the fact that Caribou is not fair on its treatment towards Texiria and other countries, which are members of the WTO. On the other hand, based on the second scenario, it is evident that both Caribou and Texiria are justified in their claims. This is owing to the fact that Caribou having instituted a national policy is of great significance, and it is in line with the Article XX (g) of the GATT 1994. On the other hand, Texiria’s claim is justified as if Caribou makes the ban the advert of fuel automobiles with the consumption of below 12.5 miles per gallon, then act of discrimination will be noted.

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