Deck 9: The World Trade Organization: Basic Principles

Question 1

How do you reconcile free trade with the protection of cultural diversity? Free trade in goods and services means that a country will necessarily open itself to foreign influences. Just look at the impact of American fast-food restaurants, hotels, and large retail outlets on the American landscape andparticularly on small-town America. Now imagine the influence of American companies and American culture in foreign countries. Consider the long-term impact of American music and film on the indigenous culture of a foreign country. Despite theseimpacts, free trade agreements mandate the opening of local markets to foreign goods, services, and advertising, including music and film. The French, as well as French-Canadians, are notorious for trying to manipulate trade rules to preserve their French language and French culture. Examples might include limits on foreign advertising, television programming, or films. Consider the Convention on the Protection and Promotion of the Diversity of Cultural Expressions, which has been ratified or approved by 69 nations and entered into force in 2007. The Convention states:
Nations may adopt measures aimed at protecting and promoting the diversity of cultural expressions within its territory. Such measures may include (a) regulatory measures aimed at protecting and promoting diversity of cultural expressions; (b) measures that, in an appropriate manner, provide opportunities for domestic cultural activities, goods and services among all those available within the national territory for the creation, production, dissemination, distribution and enjoyment of such domestic cultural activities, goods and services, including provisions relating to the language used for such activities, goods and services.
In addition, a country may take "all appropriate measures to protect and preserve cultural expressions"that are "at risk of extinction, under serious threat, or otherwise in need of urgent safeguarding."
The United States is not a party to the Convention. In response to the Convention, the U.S. State Department stated, "The United States is a multicultural society that values diversity…Governments deciding what citizens can read, hear, or see denies individuals the opportunity to make independent choices about what they value."
Do you feel that countries should limit the influence of foreign cultures in their communities? How should they do that? Do you think that a country should restrict the foreign content of advertising, television, music, or film?

Answer 1

Influence of Foreign Culture:
A country's native culture may get affected when people comes in contact with foreign cultures that is promoted in the form of advertisements, films and news. People may acquire foreign cultures keeping aside their previous culture and traditions aside.
Cultural transformations can take place by erasing old and existing cultures and traditions. Countries should try to cut down the impact of foreign cultures on their own communities because there is a strong possibility that people may acquire foreign cultures slowly and the native cultures may get lost.
Cultures are passed on from region to another through mediums such as Films, music, advertising and television Shows. If a government can succeed in limiting the entry of foreign films, music, advertising and Television shows it can reduce the impact on its culture.
For example, some of kid's shows of a country are full of violence and they convey unethical messages. These shows are not suitable for watching by the kids of other countries but they are shown without inhibition and kids may get spoilt by watching them.
Not only kids but adults also get affected by foreign culture. Their eating habits, lifestyles, way of thinking gets affected by influence of foreign culture.
Thus, it can be concluded that governments should call for limiting foreign films, music, advertising and television shows.

Question 2

Your firm designs, manufactures, and markets children's toys for sale in the United States. Almost 90 percent of your production is done in the People's Republic of China. During the 1990s, U.S. relations with China improved. Even though there were many disagreements between the two countries, the United States granted normal trade status to China and supported China's membership in the WTO in 2001. Your firm invested heavily in China during that time. You have developed close ties to Chinese suppliers and have come to depend greatly on inexpensive Chinese labor and the lower costs of doing business there.
You are now concerned about increasing political tension between China and the United States over a variety of issues: China's s treatment of the Tibetanpeople, reports about the use of prison labor to manufacture goods for export, China's population policies, and differences over relations with communist North Korea. The United States has also accused China of corporate and industrial espionage in the United States to obtain scientific, industrial, and trade secrets, and of hacking into corporate and government computer networks. There are also disagreements over China's censorship of Internet search providers, and over the protection of U.S. intellectual property rights in China. The United States is also concerned with China's tax policies, which are said to discriminateagainst imported goods, and also with China's state subsidies to domestic industry. The U.S. accuses China of currency manipulations of the yuan, making Chinese goods unfairly cheap in foreign markets andimports into China artificially expensive. Most worrisome is the potential for conflict over Taiwan, with which the United States has had a mutual defensepact for 60 years. China claims Taiwan under its "One China" reunification policy, while accusing the United States of fostering "independence" there. Despite the issues, both countries recognize their deep economic reliance on each other. With that background, consider the following:
Describe the impact that a trade dispute between the U.S. and China would have on your firm.

Answer 2

International Trade:
When exchange of goods and services is done beyond the borders of a country, it is termed as international trade.
Factors affecting international trade:
These are several factors which will be impacting international trade such as trade agreements, tariff agreements, elimination of quota system between the trading countries, transparency in operations between the countries, national treatment and other non - tariff barriers.
Country C and Country U were engaged in trade at the time when relations between these countries were good. Later tension was emerging due to political issues between C and U.
In case there is a trade dispute between C and U, it may impact on U's Organization in many ways. The factors affecting the international trade will cause following negative impact on the organization:
•Impact on Trade Agreements:
C's companies may back off from the trade agreements because of trade disputes between the nations. They may impose trade restrictions and may force the U's company to withdraw investments from C.
•Tariff restrictions:
C's companies may impose additional tariff for utilizing their man power and for moving products out of their country in terms of excise duty.
•Lack of Transparency:
Trade disputed may dilute the transparency of operation between the U company and the C's Counter parts. They may begin to hide key information regarding the employee's details and kind of procedures adapted during manufacturing process, thus harming the U Company's image.
•National Treatment:
Disturbed trade relations may result in getting disparate treatment from the C vendors and the U company may not be able to get suppliers in time.
•Quota system:
If the C Government sets up a quota system it may impact the U Counterpart badly as they may not be able to get the required output in time to meet the market demand.
These are some of the adverse impacts on the U Company due to bad trade relations with C.

Question 3

Visit the Website of the World Trade Organization (www.wto.org). It is a practical, user-friendly guide that offers complete information on the WTO's role and organizational structure as well as access to the GATT/WTO legal texts and dispute settlement cases.
a. As a beginning point, from the home page click on Documents and Resources. From there you will have access to WTODistance Learning, WTOVideos, audiopodcasting, the WTO Library , and a helpful WTOGlossary. The Distance Learning page offers training modules and excellent multimedia presentations on the basics of world trade and on many of the more technical WTO issues. You can also link to the international trade statistics page. From the WTOVideos page, you can view programs or link to the WTO Channel on YouTube.
b. For links to all GATT/WTO agreements from 1947 to the present, navigate from the home page to Documents and Resources and choose Legal Texts ofthe WTO Agreements. Accessing WTO materials through the Legal Texts page is quick and easy. You can find Web documents either by browsing or searching.
c. For access to major WTO trade issues, from the homepage click on Trade Topics and navigate to the Trade Topics Gateway and choose a subject, trade in goods, services, intellectual property, dispute settlement, or "Other topics," including electronic commerce, investment, government procurement, or tradeand the environment.
d. The highest decision-making body of the WTO is the Ministerial Conference, which brings together all members of the WTO for meetings every two years. The Ministerial Conference can make decisions on all matters under any of the multilateral trade agreements. Ministerial Conferences have been held in Bali
(2013), Geneva (2009, 2011), Hong Kong (2005), Cancún (2003), Doha (2001), Seattle (1999), Geneva(1998), and Singapore (1996). From the Trade Topics menu, navigate to Ministerial Conferences. What topics were on the most recent Ministerial agenda?
e. For access to the reports of WTO dispute settlement panels and the Appellate Body, from the home page navigate to Trade Topics Dispute Settlement, and look for The Disputes. From here you may search either chronologically, by country involved in the dispute, by the GATT/WTO agreement at issue, or by subject. Notice that disputes are cited as DS followed by a number. The numbers are sequential; for example, DS1 designates the first dispute filed in 1995, and so forth. Citations for panel reports will generally appear as WT/DS#/R, and reports of the Appellate Body will appear as WT/DS#/AB/R.
f. From the Dispute Settlement page, find The Disputes , and click on Disputes by Subject. Assume you are researchinga Japanese restriction on the import of apples fromthe United States. Click on Apples. This is a search function, with results listed for you at the bottom of the page. Enter the case and find the link to the one pagesummary. What actions did Japan take against U.S. apples? Why? What was the result of the disputeresolution?

Answer 3

General Agreement on Tariffs and Trade (GATT):
General agreement on Trade and Tariff is established to regulate the international trade between countries.
It stashed several regulations through which it abolishes unethical practices such as imposing quotas or higher tariffs.
World Trade Organization:
World trade organization is a global organization which basically formulates the rules for conducting world trade.
Basically it convinces countries to enter into agreements with other countries so that they can conduct free trade with other member nations.
Dispute Resolution:
WTO offers a dispute resolution mechanism in which aggrieved parties can approach the dispute settlement board of WTO and file their claims.
a).
In order to understand the WTO role in regulating trading activities the home page of WTO is referred and the link documents and resources led to distance learning page which offers several training videos and presentation articles on technical issues of WTO.
The WTO statistics page offers insights into the various trading activities that took place across the globe in recent times.
b).
All the agreements approved by WTO based on the GATT regulations from 1947 can be obtained by referencing the WTO's documents and resources page link.
The link offers a facility to download all the important information in the form of PDF files.
c).
In order to understand the various areas of WTO such as the e-commerce, dispute settlement, investment mechanisms, trade of services or goods, intellectual property rights, dispute settlement mechanisms etc the web page Trade Topics Gateway was referred.
The gateway offers plenty of information on all the issues above mentioned.
d).
The ministerial conference known as the "Bali Package" held on 7 th December, 2013 decided on many issues of WTO.
The issues on the agenda are trade facilitation between the member nations, it covered the issues on food security in the developing countries, it approved on offering subsidies for development of cotton industry.
The Bali Conference also discussed about the development of the Least Developed countries.
These are the various issues discussed during the Bali Conference.
e).
In order to find and understand about the dispute settlement mechanism of the WTO the web site of WTO is referred and from the web page searching the disputes link led to the various disputes which are handled by the WTO.
The disputes appear with the suffix DS, indicating Dispute settlement.
f).
The Dispute between Japan and America over import of American apples is referred to understand the dispute settlement mechanism of the WTO.
The case, numbered: DS -245 filed on 1 st March, 2002 and the appellate body gave its report on 26 th November, 2003.
U.S complained about the quarantine decisions of Japan under GATT provisions, the Appellate board gave its verdict in the favor of United States under the provisions of article 3.6 of the GATT provisions.

Question 4

How do you reconcile free trade with the protection of cultural diversity? Free trade in goods and services means that a country will necessarily open itself to foreign influences. Just look at the impact of American fast-food restaurants, hotels, and large retail outlets on the American landscape andparticularly on small-town America. Now imagine the influence of American companies and American culture in foreign countries. Consider the long-term impact of American music and film on the indigenous culture of a foreign country. Despite theseimpacts, free trade agreements mandate the opening of local markets to foreign goods, services, and advertising, including music and film. The French, as well as French-Canadians, are notorious for trying to manipulate trade rules to preserve their French language and French culture. Examples might include limits on foreign advertising, television programming, or films. Consider the Convention on the Protection and Promotion of the Diversity of Cultural Expressions, which has been ratified or approved by 69 nations and entered into force in 2007. The Convention states:
Nations may adopt measures aimed at protecting and promoting the diversity of cultural expressions within its territory. Such measures may include (a) regulatory measures aimed at protecting and promoting diversity of cultural expressions; (b) measures that, in an appropriate manner, provide opportunities for domestic cultural activities, goods and services among all those available within the national territory for the creation, production, dissemination, distribution and enjoyment of such domestic cultural activities, goods and services, including provisions relating to the language used for such activities, goods and services.
In addition, a country may take "all appropriate measures to protect and preserve cultural expressions"that are "at risk of extinction, under serious threat, or otherwise in need of urgent safeguarding."
The United States is not a party to the Convention. In response to the Convention, the U.S. State Department stated, "The United States is a multicultural society that values diversity…Governments deciding what citizens can read, hear, or see denies individuals the opportunity to make independent choices about what they value."
Do you think that this Conventionmight be used as a means of restricting trade in the guise of protecting cultural expressions and national identity?

Question 5

Your firm designs, manufactures, and markets children's toys for sale in the United States. Almost 90 percent of your production is done in the People's Republic of China. During the 1990s, U.S. relations with China improved. Even though there were many disagreements between the two countries, the United States granted normal trade status to China and supported China's membership in the WTO in 2001. Your firm invested heavily in China during that time. You have developed close ties to Chinese suppliers and have come to depend greatly on inexpensive Chinese labor and the lower costs of doing business there.
You are now concerned about increasing political tension between China and the United States over a variety of issues: China's s treatment of the Tibetanpeople, reports about the use of prison labor to manufacture goods for export, China's population policies, and differences over relations with communist North Korea. The United States has also accused China of corporate and industrial espionage in the United States to obtain scientific, industrial, and trade secrets, and of hacking into corporate and government computer networks. There are also disagreements over China's censorship of Internet search providers, and over the protection of U.S. intellectual property rights in China. The United States is also concerned with China's tax policies, which are said to discriminate against imported goods, and also with China's state subsidies to domestic industry. The U.S. accuses China of currency manipulations of the yuan, making Chinese goods unfairly cheap in foreign markets andimports into China artificially expensive. Most worrisome is the potential for conflict over Taiwan, with which the United States has had a mutual defensepact for 60 years. China claims Taiwan under its "One China" reunification policy, while accusing the United States of fostering "independence" there. Despite the issues, both countries recognize their deep economic reliance on each other. With that background, consider the following:
Describe the impact on your firm if China were to lose its MFN trading status.

Question 6

One of the most controversial areas for the WTO and its member governments has been the relationship between trade and the environment. What are the overlapping issues? What is the impact of trade or trade negotiations onenvironmental issues? How do these issues affect the developing countries, and what position have various developing countries taken? Explain the relationship between protection of the environment and economic development.
a. Consider the following major trade-related environmental disputes at the WTO: U.S. - Standards for Reformulated and Conventional Gasoline (provisionsof the U.S. Clean Air Act, DS52)
• U.S.-Import Prohibition of Certain Shrimp and Shrimp Products (selling of shrimp caught in netswithout turtle extractors, DS58)
• European Communities - Measures Affecting Asbestos and Asbestos-Containing Products (DS135)
• European Communities - Measures Concerning Meat and Meat Products (containing growthhormones, DS26, DS48, DS39)
• European Communities - Measures Affecting the Approval and Marketing of Biotech Products (genetically engineered foods, DS291)
Using one of these cases, write a case study on the relationship between trade and environmental issues. Be sure to explore both sides of the debate.
b. For alternative views on trade and the environment, see the Websites of Public Citizen and the Sierra Club and a highly educational site presented by the Levin Institute at the State University of New York, aptly called Globalization101.org. To learn more about the important Shrimp/Turtle case at the WTO, see the Website of the National Wildlife Federation.

Question 7

How do you reconcile free trade with the protection of cultural diversity? Free trade in goods and services means that a country will necessarily open itself to foreign influences. Just look at the impact of American fast-food restaurants, hotels, and large retail outlets on the American landscape andparticularly on small-town America. Now imagine the influence of American companies and American culture in foreign countries. Consider the long-term impact of American music and film on the indigenous culture of a foreign country. Despite theseimpacts, free trade agreements mandate the opening of local markets to foreign goods, services, and advertising, including music and film. The French, as well as French-Canadians, are notorious for trying to manipulate trade rules to preserve their French language and French culture. Examples might include limits on foreign advertising, television programming, or films. Consider the Convention on the Protection and Promotion of the Diversity of Cultural Expressions, which has been ratified or approved by 69 nations and entered into force in 2007. The Convention states:
Nations may adopt measures aimed at protecting and promoting the diversity of cultural expressions within its territory. Such measures may include (a) regulatory measures aimed at protecting and promoting diversity of cultural expressions; (b) measures that, in an appropriate manner, provide opportunities for domestic cultural activities, goods and services among all those available within the national territory for the creation, production, dissemination, distribution and enjoyment of such domestic cultural activities, goods and services, including provisions relating to the language used for such activities, goods and services.
In addition, a country may take "all appropriate measures to protect and preserve cultural expressions"that are "at risk of extinction, under serious threat, or otherwise in need of urgent safeguarding."
The United States is not a party to the Convention. In response to the Convention, the U.S. State Department stated, "The United States is a multicultural society that values diversity…Governments deciding what citizens can read, hear, or see denies individuals the opportunity to make independent choices about what they value."
Reconcile the terms of this convention with principles of free trade. What will be the effecton trade in audiovisual products? How would American industry respond?

Question 8

Your firm designs, manufactures, and markets children's toys for sale in the United States. Almost 90 percent of your production is done in the People's Republic of China. During the 1990s, U.S. relations with China improved. Even though there were many disagreements between the two countries, the United States granted normal trade status to China and supported China's membership in the WTO in 2001. Your firm invested heavily in China during that time. You have developed close ties to Chinese suppliers and have come to depend greatly on inexpensive Chinese labor and the lower costs of doing business there.
You are now concerned about increasing political tension between China and the United States over a variety of issues: China's s treatment of the Tibetanpeople, reports about the use of prison labor to manufacture goods for export, China's population policies, and differences over relations with communist North Korea. The United States has also accused China of corporate and industrial espionage in the United States to obtain scientific, industrial, and trade secrets, and of hacking into corporate and government computer networks. There are also disagreements over China's censorship of Internet search providers, and over the protection of U.S. intellectual property rights in China. The United States is also concerned with China's tax policies, which are said to discriminateagainst imported goods, and also with China's state subsidies to domestic industry. The U.S. accuses China of currency manipulations of the yuan, making Chinese goods unfairly cheap in foreign markets andimports into China artificially expensive. Most worrisome is the potential for conflict over Taiwan, with which the United States has had a mutual defensepact for 60 years. China claims Taiwan under its "One China" reunification policy, while accusing the United States of fostering "independence" there. Despite the issues, both countries recognize their deep economic reliance on each other. With that background, consider the following:
What strategic actions might you consider toreduce your firm's exposure to political risk?

Question 9

Every year, the U.S. Trade Representative issues a report on foreign government trade barriers to U.S. goods and services. Locate these reports and describe the nature of these trade barriers. Which countries are the greatest offenders? What industries are most affected?

Question 10

Your firm designs, manufactures, and markets children's toys for sale in the United States. Almost 90 percent of your production is done in the People's Republic of China. During the 1990s, U.S. relations with China improved. Even though there were many disagreements between the two countries, the United States granted normal trade status to China and supported China's membership in the WTO in 2001. Your firm invested heavily in China during that time. You have developed close ties to Chinese suppliers and have come to depend greatly on inexpensive Chinese labor and the lower costs of doing business there.
You are now concerned about increasing political tension between China and the United States over a variety of issues: China's s treatment of the Tibetanpeople, reports about the use of prison labor to manufacture goods for export, China's population policies, and differences over relations with communist North Korea. The United States has also accused China of corporate and industrial espionage in the United States to obtain scientific, industrial, and trade secrets, and of hacking into corporate and government computer networks. There are also disagreements over China's censorship of Internet search providers, and over the protection of U.S. intellectual property rights in China. The United States is also concerned with China's tax policies, which are said to discriminate against imported goods, and also with China's state subsidies to domestic industry. The U.S. accuses China of currency manipulations of the yuan, making Chinese goods unfairly cheap in foreign markets andimports into China artificially expensive. Most worrisome is the potential for conflict over Taiwan, with which the United States has had a mutual defensepact for 60 years. China claims Taiwan under its "One China" reunification policy, while accusing the United States of fostering "independence" there. Despite the issues, both countries recognize their deep economic reliance on each other. With that background, consider the following:
What are the current areas of agreement or disagreement between the United States and China, and how do you think they will affect future trade relations between the two countries?

Question 11

In 1990, a Korean law established two distinct retail distribution systems for beef: one system for the retail sale of domestic beef and another system for the retail sale of imported beef. A small retailer (not a supermarket or a department store) designated as a "Specialized Imported Beef Store" may sell any beef except domestic beef. Any other small retailer may sell any beef except imported beef. A large retailer (a supermarket or department store) may sell both imported and domestic beef, as long as imported and domestic beef are sold in separate sales areas. A retailer selling imported beef must display a sign reading "Specialized Imported Beef Store."The dual retail system resulted in a reduction of beef imports. By 1998, there were approximately 5,000 imported beef shops as compared with approximately 45,000 shops selling domestic beef. Koreaclaims that stores may choose to sell either domestic or imported beef and that they have total freedom to switch from one to another. Moreover, Korea argues that the dual system is necessary to protect consumers from deception by allowing themto clearly distinguish the origin of the beef purchased. Is the Korean regulation a valid consumer protection law? Do you think this system is necessary to protect consumers from fraudulent misrepresentation of the country of origin of the beef? Does it matter that scientific methods are available to determine the country of origin of beef? How do you think the dual system might affect the prices of imported beef versus domestic beef? Assuming that countries have the right to protect consumers from deception, what other methods might be available to accomplish this goal? WTO Report on Korea - Measures Affecting Imports of Fresh, Chilled and Frozen Beef, World Trade Organization Report of the Appellate Body, WT/DS161/AB/R, WT/DS169/AB/R (11 December 2000).

Question 12

Your firm designs, manufactures, and markets children's toys for sale in the United States. Almost 90 percent of your production is done in the People's Republic of China. During the 1990s, U.S. relations with China improved. Even though there were many disagreements between the two countries, the United States granted normal trade status to China and supported China's membership in the WTO in 2001. Your firm invested heavily in China during that time. You have developed close ties to Chinese suppliers and have come to depend greatly on inexpensive Chinese labor and the lower costs of doing business there.
You are now concerned about increasing political tension between China and the United States over a variety of issues: China's s treatment of the Tibetanpeople, reports about the use of prison labor to manufacture goods for export, China's population policies, and differences over relations with communist North Korea. The United States has also accused China of corporate and industrial espionage in the United States to obtain scientific, industrial, and trade secrets, and of hacking into corporate and government computer networks. There are also disagreements over China's censorship of Internet search providers, and over the protection of U.S. intellectual property rights in China. The United States is also concerned with China's tax policies, which are said to discriminate against imported goods, and also with China's state subsidies to domestic industry. The U.S. accuses China of currency manipulations of the yuan, making Chinese goods unfairly cheap in foreign markets andimports into China artificially expensive. Most worrisome is the potential for conflict over Taiwan, with which the United States has had a mutual defensepact for 60 years. China claims Taiwan under its "One China" reunification policy, while accusing the United States of fostering "independence" there. Despite the issues, both countries recognize their deep economic reliance on each other. With that background, consider the following:
The United States often links trade policy with a nation's foreign policy. Do you agree with this? What do you think of U.S. trade policies toward China being linked to foreign policy issues?

Question 13

One of the central obligations of WTO membership is a limit on tariffs on particular goods according to a nation's tariff commitments. If a member does not abide by its agreement, can another WTO member unilaterally raise its agreed-upon tariff? Explain.

Question 14

Your firm designs, manufactures, and markets children's toys for sale in the United States. Almost 90 percent of your production is done in the People's Republic of China. During the 1990s, U.S. relations with China improved. Even though there were many disagreements between the two countries, the United States granted normal trade status to China and supported China's membership in the WTO in 2001. Your firm invested heavily in China during that time. You have developed close ties to Chinese suppliers and have come to depend greatly on inexpensive Chinese labor and the lower costs of doing business there.
You are now concerned about increasing political tension between China and the United States over a variety of issues: China's s treatment of the Tibetanpeople, reports about the use of prison labor to manufacture goods for export, China's population policies, and differences over relations with communist North Korea. The United States has also accused China of corporate and industrial espionage in the United States to obtain scientific, industrial, and trade secrets, and of hacking into corporate and government computer networks. There are also disagreements over China's censorship of Internet search providers, and over the protection of U.S. intellectual property rights in China. The United States is also concerned with China's tax policies, which are said to discriminate against imported goods, and also with China's state subsidies to domestic industry. The U.S. accuses China of currency manipulations of the yuan, making Chinese goods unfairly cheap in foreign markets andimports into China artificially expensive. Most worrisome is the potential for conflict over Taiwan, with which the United States has had a mutual defensepact for 60 years. China claims Taiwan under its "One China" reunification policy, while accusing the United States of fostering "independence" there. Despite the issues, both countries recognize their deep economic reliance on each other. With that background, consider the following:
Although both mainland China and Taiwan are "Chinese," doing business in Taiwan differs greatly from doing business in China. Investigate and describe that difference. How do business opportunities differ on the mainland versus the island?

Question 15

The U.S. auto industry has had its problems in the past from foreign competition. If the auto industry lobbied the president and Congress for implementation of a quota on the total number of imported automobiles and trucks, would such a quota be in violation of GATT 1994? Under what circumstances may a country impose a quota?

Question 16

Your firm designs, manufactures, and markets children's toys for sale in the United States. Almost 90 percent of your production is done in the People's Republic of China. During the 1990s, U.S. relations with China improved. Even though there were many disagreements between the two countries, the United States granted normal trade status to China and supported China's membership in the WTO in 2001. Your firm invested heavily in China during that time. You have developed close ties to Chinese suppliers and have come to depend greatly on inexpensive Chinese labor and the lower costs of doing business there.
You are now concerned about increasing political tension between China and the United States over a variety of issues: China's s treatment of the Tibetanpeople, reports about the use of prison labor to manufacture goods for export, China's population policies, and differences over relations with communist North Korea. The United States has also accused China of corporate and industrial espionage in the United States to obtain scientific, industrial, and trade secrets, and of hacking into corporate and government computer networks. There are also disagreements over China's censorship of Internet search providers, and over the protection of U.S. intellectual property rights in China. The United States is also concerned with China's tax policies, which are said to discriminate against imported goods, and also with China's state subsidies to domestic industry. The U.S. accuses China of currency manipulations of the yuan, making Chinese goods unfairly cheap in foreign markets andimports into China artificially expensive. Most worrisome is the potential for conflict over Taiwan, with which the United States has had a mutual defensepact for 60 years. China claims Taiwan under its "One China" reunification policy, while accusing the United States of fostering "independence" there. Despite the issues, both countries recognize their deep economic reliance on each other. With that background, consider the following:
Explain the importance of sound country risk analysis in doing business abroad. What sources of information do you think you would use to evaluate your international business strategies in China?

Question 17

The WTO comprises many nations from all regions of the world. As such, the GATT/WTO system takes a global view of trade liberalization based on nondiscrimination, unconditional MFN, national treatment, tariffication, and multilateral trade negotiations. The GATT agreements recognize that nations may form bilateral or regional free trade areas and customs unions. Yet a free trade area only has free trade between the countries that belong to it. How does the conceptof a free trade area, such as the North American Free Trade Agreement (NAFTA), fit into the GATT/WTO global framework? Do bilateral or regional free trade areas violate the principles of nondiscrimination and MFN trade? Evaluate these arguments.

Question 18

Your firm designs, manufactures, and markets children's toys for sale in the United States. Almost 90 percent of your production is done in the People's Republic of China. During the 1990s, U.S. relations with China improved. Even though there were many disagreements between the two countries, the United States granted normal trade status to China and supported China's membership in the WTO in 2001. Your firm invested heavily in China during that time. You have developed close ties to Chinese suppliers and have come to depend greatly on inexpensive Chinese labor and the lower costs of doing business there.
You are now concerned about increasing political tension between China and the United States over a variety of issues: China's s treatment of the Tibetanpeople, reports about the use of prison labor to manufacture goods for export, China's population policies, and differences over relations with communist North Korea. The United States has also accused China of corporate and industrial espionage in the United States to obtain scientific, industrial, and trade secrets, and of hacking into corporate and government computer networks. There are also disagreements over China's censorship of Internet search providers, and over the protection of U.S. intellectual property rights in China. The United States is also concerned with China's tax policies, which are said to discriminate against imported goods, and also with China's state subsidies to domestic industry. The U.S. accuses China of currency manipulations of the yuan, making Chinese goods unfairly cheap in foreign markets andimports into China artificially expensive. Most worrisome is the potential for conflict over Taiwan, with which the United States has had a mutual defensepact for 60 years. China claims Taiwan under its "One China" reunification policy, while accusing the United States of fostering "independence" there. Despite the issues, both countries recognize their deep economic reliance on each other. With that background, consider the following:
Do you think it would be advantageous to visit China, and to visit your suppliers there? If so, what would you hope to accomplish in your visits?

Question 19

BACKGROUND AND FACTS
Since 1963 the European Economic Community (EEC), had negotiated tariff rates with the developing countries that export bananas, and these concessions were bound in the tariff schedules at 20 percent ad valorem. In 1993 the EEC took over banana import regulation from the individual countries. The EEC set up uniform rules on quality, marketing standards, and tariffs. Under the EEC regime, the tariff rates on bananas from the Latin American countries were increased between 20 and 180 percent. A complex licensing scheme was also set up to limit the access of foreign banana traders (e.g., Chiquita, Dole, and Del Monte) to sell in the EEC. The Latin American countries claimed that the regulations impaired their Article II tariff concessions and violated Article I, MFN principles, and other GATT provisions. Notice that prior to the WTO's founding in 1995, countries that were party to the GATT agreement were called "contracting parties."
REPORT OF THE PANEL
Article II-Schedules of Concessions: [Central and South American] banana producers had assessed their competitive position on the basis of the bound tariff level. They had made strategic decisions and investments on that basis; they had cultivated substantially more land specifically for this export trade; and they had pursued marketing ties with European importers. The new tariff quota undermined the legitimate expectations upon which these actions were based and severely disrupted the trade conditions upon which these producers had relied, regardless of the actual protective effect of the new regime. The Panel noted that Article II required that each contracting party "accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the … Schedule of Concessions." The Panel then considered whether the introduction of a specific tariff for bananas in place of the ad valorem tariff provided for in its Schedule constituted "treatment no less favourable" in terms of Article II … The Panel consequently found that the new specific tariffs led to the levying of a duty on imports of bananas whose ad valorem equivalent was, either actually or potentially, higher than 20 percent ad valorem …
The Contracting Parties had consistently found that a change from a bound specific to an ad valorem rate was a modification of the concession. A working party examining a proposal by Turkey to modify its tariff structure from specific to ad valorem had stated: "The obligations of contracting parties are established by the rates of duty appearing in the schedules and any change in the rate such as a change from a specific to an ad valorem duty could in some circumstances adversely affect the value of the concessions to other contracting parties. Consequently, any conversion of specific into ad valorem rates of duty can be made only under some procedure for the modification of concessions."
Decision. The panel held that the EEC had deprived the complaining Latin American countries of the benefits to which they were entitled under the schedule of concessions. The
What action did the EEC take that violated its tariffconcessions?

Question 20

BACKGROUND AND FACTS Since 1963 the European Economic Community (EEC), had negotiated tariff rates with the developing countries that export bananas, and these concessions were bound in the tariff schedules at 20 percent ad valorem. In 1993 the EEC took over banana import regulation from the individual countries. The EEC set up uniform rules on quality, marketing standards, and tariffs. Under the EEC regime, the tariff rates on bananas from the Latin American countries were increased between 20 and 180 percent. A complex licensing scheme was also set up to limit the access of foreign banana traders (e.g., Chiquita, Dole, and Del Monte) to sell in the EEC. The Latin American countries claimed that the regulations impaired their Article II tariff concessions and violated Article I, MFN principles, and other GATT provisions. Notice that prior to the WTO's founding in 1995, countries that were party to the GATT agreement were called "contracting parties."
REPORT OF THE PANEL
Article II-Schedules of Concessions: [Central and South American] banana producers had assessed their competitive position on the basis of the bound tariff level. They had made strategic decisions and investments on that basis; they had cultivated substantially more land specifically for this export trade; and they had pursued marketing ties with European importers. The new tariff quota undermined the legitimate expectations upon which these actions were based and severely disrupted the trade conditions upon which these producers had relied, regardless of the actual protective effect of the new regime. The Panel noted that Article II required that each contracting party "accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the … Schedule of Concessions." The Panel then considered whether the introduction of a specific tariff for bananas in place of the ad valorem tariff provided for in its Schedule constituted "treatment no less favourable" in terms of Article II … The Panel consequently found that the new specific tariffs led to the levying of a duty on imports of bananas whose ad valorem equivalent was, either actually or potentially, higher than 20 percent ad valorem …
The Contracting Parties had consistently found that a change from a bound specific to an ad valorem rate was a modification of the concession. A working party examining a proposal by Turkey to modify its tariff structure from specific to ad valorem had stated: "The obligations of contracting parties are established by the rates of duty appearing in the schedules and any change in the rate such as a change from a specific to an ad valorem duty could in some circumstances adversely affect the value of the concessions to other contracting parties. Consequently, any conversion of specific into ad valorem rates of duty can be made only under some procedure for the modification of concessions."
Decision. The panel held that the EEC had deprived the complaining Latin American countries of the benefits to which they were entitled under the schedule ofconcessions. The
Why is it important that countries maintain theirtariff commitments?

Question 21

BACKGROUND AND FACTS Since 1963 the European Economic Community (EEC), had negotiated tariff rates with the developing countries that export bananas, and these concessions were bound in the tariff schedules at 20 percent ad valorem. In 1993 the EEC took over banana import regulation from the individual countries. The EEC set up uniform rules on quality, marketing standards, and tariffs. Under the EEC regime, the tariff rates on bananas from the Latin American countries were increased between 20 and 180 percent. A complex licensing scheme was also set up to limit the access of foreign banana traders (e.g., Chiquita, Dole, and Del Monte) to sell in the EEC. The Latin American countries claimed that the regulations impaired their Article II tariff concessions and violated Article I, MFN principles, and other GATT provisions. Notice that prior to the WTO's founding in 1995, countries that were party to the GATT agreement were called "contracting parties."
REPORT OF THE PANEL
Article II-Schedules of Concessions: [Central and South American] banana producers had assessed their competitive position on the basis of the bound tariff level. They had made strategic decisions and investments on that basis; they had cultivated substantially more land specifically for this export trade; and they had pursued marketing ties with European importers. The new tariff quota undermined the legitimate expectations upon which these actions were based and severely disrupted the trade conditions upon which these producers had relied, regardless of the actual protective effect of the new regime. The Panel noted that Article II required that each contracting party "accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the … Schedule of Concessions." The Panel then considered whether the introduction of a specific tariff for bananas in place of the ad valorem tariff provided for in its Schedule constituted "treatment no less favourable" in terms of Article II … The Panel consequently found that the new specific tariffs led to the levying of a duty on imports of bananas whose ad valorem equivalent was, either actually or potentially, higher than 20 percent ad valorem …
The Contracting Parties had consistently found that a change from a bound specific to an ad valorem rate was a modification of the concession. A working party examining a proposal by Turkey to modify its tariff structure from specific to ad valorem had stated: "The obligations of contracting parties are established by the rates of duty appearing in the schedules and any change in the rate such as a change from a specific to an ad valorem duty could in some circumstances adversely affect the value of the concessions to other contracting parties. Consequently, any conversion of specific into ad valorem rates of duty can be made only under some procedure for the modification of concessions."
Decision. The panel held that the EEC had deprived the complaining Latin American countries of the benefits to which they were entitled under the schedule of concessions. The
What is the GATT basis for its objections?

Question 22

BACKGROUND AND FACTS
The European Community (EC) had been the world's largest importer of bananas, two-thirds of which was grown in Latin America. A large percentage came from developing countries that were once colonies of Britain, Spain, and France, located in Africa, the Caribbean, and the Pacific (known as ACP countries). Growers in the ACP countries could not compete with the highly efficient non-ACP producers, most of which are in Latin America. In order to encourage the import of ACPgrown bananas and to aid in the development of ACP economies, the EC devised a host of tariff and non-tariff barriers aimed at non-ACP bananas. For example, a complex quota scheme was used permitting only a limited quantity of non-ACP bananas to be imported each year. While licenses to import ACP bananas were granted routinely, only importers who met strict requirements could receive licenses to import Latin American and other non-ACP bananas. Whereas most ACP bananas entered duty free, other bananas had a very substantial tariff rate. Several Latin American countries requested consultations, claiming that the EC regulations violated GATT by discriminating against bananas grown in their countries. The United States joined with them in bringing this complaint, arguing that the United States also had a substantial interest in the issue. While the United States was not an exporter of bananas, the U.S. government noted that U.S. companies, such as Chiquita Brands and others, conducted a wholesale trade in bananas amounting to hundreds of millions of dollars a year and would lose market share because of the EC's actions. The EC maintained that the United States had no grounds for complaining about the EC regulations because itwas not a producer and grower. A WTO panel was convened, and its decision was appealed to the WTO Appellate Body.
REPORT OF THE APPELLATE BODY
The EC argues that the Panel infringed Article 3.2 of the Dispute Settlement Understanding (DSU) by finding that the United States has a right to advance claims under the GATT 1994. The EC asserts that, as a general principle, in any system of law, including international law, a claimant must normally have a legal right or interest in the claim it is pursuing…. The EC asserts that the United States has no actual or potential trade interest justifying its claim, since its banana production is minimal, it has never exported bananas, and this situation is unlikely to change due to the climatic and economic conditions in the United States. In the view of the EC, the panel fails to explain how the United States has a potential trade interest in bananas, and production alone does not suffice for a potential trade interest. The EC also contends that the United States has no right protected by WTO law to shield its own internal market from the indirect effects of the EC banana regime.…
We agree with the Panel that no provision of the DSU contains any explicit requirement that a member must have a "legal interest" as a prerequisite for requesting a panel. We do not accept that the need for a "legal interest" is implied in the DSU or in any other provision of the WTO Agreement…[We believe] that a member nation has broad discretion in deciding whether to bring a case against another member nation under the DSU…
The participants in this appeal have referred to certain judgments of the International Court of Justice and the Permanent Court of International Justice relating to whether there is a requirement, in international law, of a legal interest to bring a case. We do not read any of these judgments as establishing a general rule that in all international litigation, a complaining party must have a "legal interest" in order to bring a case. Nor do these judgments deny the need to consider the question of standing under the dispute settlement provisions of any multilateral treaty, by referring to the terms of that treaty.
We are satisfied that the United States was justified in bringing its claims under the GATT 1994 in this case. The United States is a producer of bananas, and a potential export interest by the United States cannot be excluded. The internal market of the United States of bananas could be affected by the EC banana regime, in particular, by the effects of that regime on world supplies and world prices of bananas. We also agree with the Panel's statement that: "… with the increased interdependence of the global economy…member nations have a greater stake in enforcing WTO rules than in the past since any deviation from the negotiated balance of rights and obligations is more likely than ever to affect them, directly or indirectly."
Accordingly, we believe that a member nation has broad discretion in deciding whether to bring a case against another member under the DSU. The language of Article XXIII: 1 of the GATT 1994 and of the DSU suggests, furthermore, that a member is expected to be largely self-regulating in deciding whether any such action would be "fruitful."
Decision. The Appellate Body held that the United States could call for the convening of a WTO panel to question EC import barriers even though its exports were not directly affected.
Comment. The United States sought WTO authorization to "suspend concessions" (i.e., impose retaliatory tariffs) on a wide range of EU products, the value of which was equivalent to the nullification or impairment sustained by the United States. Consider the impact of a trade war over bananas: In 1999 the Dispute Settlement Body authorized the United States to impose 100 percent ad valorem duties on a list of EU products with an annual trade value of $191.4 million. The range of European products included bath preparations, handbags of plastic, paperboard, lithographs not over twenty years old, cotton bed linens that are printed and do not contain any embroidery or trimming, lead-acid batteries, "articles of a kind normally carried in the pocket or handbag, with outer surface of reinforced or laminated plastics," electric coffeemakers, and other products. In 2001, an agreement was reached to end the trade dispute. The EU restrictions were dismantled, and U.S. tariffs were lifted. The "Banana Wars"were the largest tradewar to datewith tremendous economic and political ramifications.
When may a member bring a complaint against another member of the WTO?

Question 23

BACKGROUND AND FACTS
The European Community (EC) had been the world's largest importer of bananas, two-thirds of which was grown in Latin America. A large percentage came from developing countries that were once colonies of Britain, Spain, and France, located in Africa, the Caribbean, and the Pacific (known as ACP countries). Growers in the ACP countries could not compete with the highly efficient non-ACP producers, most of which are in Latin America. In order to encourage the import of ACPgrown bananas and to aid in the development of ACP economies, the EC devised a host of tariff and non-tariff barriers aimed at non-ACP bananas. For example, a complex quota scheme was used permitting only a limited quantity of non-ACP bananas to be imported each year. While licenses to import ACP bananas were granted routinely, only importers who met strict requirements could receive licenses to import Latin American and other non-ACP bananas. Whereas most ACP bananas entered duty free, other bananas had a very substantial tariff rate. Several Latin American countries requested consultations, claiming that the EC regulations violated GATT by discriminating against bananas grown in their countries. The United States joined with them in bringing this complaint, arguing that the United States also had a substantial interest in the issue. While the United States was not an exporter of bananas, the U.S. government noted that U.S. companies, such as Chiquita Brands and others, conducted a wholesale trade in bananas amounting to hundreds of millions of dollars a year and would lose market share because of the EC's actions. The EC maintained that the United States had no grounds for complaining about the EC regulations because itwas not a producer and grower. A WTO panel was convened, and its decision was appealed to the WTO Appellate Body.
REPORT OF THE APPELLATE BODY
The EC argues that the Panel infringed Article 3.2 of the Dispute Settlement Understanding (DSU) by finding that the United States has a right to advance claims under the GATT 1994. The EC asserts that, as a general principle, in any system of law, including international law, a claimant must normally have a legal right or interest in the claim it is pursuing…. The EC asserts that the United States has no actual or potential trade interest justifying its claim, since its banana production is minimal, it has never exported bananas, and this situation is unlikely to change due to the climatic and economic conditions in the United States. In the view of the EC, the panel fails to explain how the United States has a potential trade interest in bananas, and production alone does not suffice for a potential trade interest. The EC also contends that the United States has no right protected by WTO law to shield its own internal market from the indirect effects of the EC banana regime.…
We agree with the Panel that no provision of the DSU contains any explicit requirement that a member must have a "legal interest" as a prerequisite for requesting a panel. We do not accept that the need for a "legal interest" is implied in the DSU or in any other provision of the WTO Agreement…[We believe] that a member nation has broad discretion in deciding whether to bring a case against another member nation under the DSU…
The participants in this appeal have referred to certain judgments of the International Court of Justice and the Permanent Court of International Justice relating to whether there is a requirement, in international law, of a legal interest to bring a case. We do not read any of these judgments as establishing a general rule that in all international litigation, a complaining party must have a "legal interest" in order to bring a case. Nor do these judgments deny the need to consider the question of standing under the dispute settlement provisions of any multilateral treaty, by referring to the terms of that treaty.
We are satisfied that the United States was justified in bringing its claims under the GATT 1994 in this case. The United States is a producer of bananas, and a potential export interest by the United States cannot be excluded. The internal market of the United States of bananas could be affected by the EC banana regime, in particular, by the effects of that regime on world supplies and world prices of bananas. We also agree with the Panel's statement that: "… with the increased interdependence of the global economy…member nations have a greater stake in enforcing WTO rules than in the past since any deviation from the negotiated balance of rights and obligations is more likely than ever to affect them, directly or indirectly."
Accordingly, we believe that a member nation has broad discretion in deciding whether to bring a case against another member under the DSU. The language of Article XXIII: 1 of the GATT 1994 and of the DSU suggests, furthermore, that a member is expected to be largely self-regulating in deciding whether any such action would be "fruitful."
Decision. The Appellate Body held that the United States could call for the convening of a WTO panel to question EC import barriers even though its exports were not directly affected.
Comment. The United States sought WTO authorization to "suspend concessions" (i.e., impose retaliatory tariffs) on a wide range of EU products, the value of which was equivalent to the nullification or impairment sustained by the United States. Consider the impact of a trade war over bananas: In 1999 the Dispute Settlement Body authorized the United States to impose 100 percent ad valorem duties on a list of EU products with an annual trade value of $191.4 million. The range of European products included bath preparations, handbags of plastic, paperboard, lithographs not over twenty years old, cotton bed linens that are printed and do not contain any embroidery or trimming, lead-acid batteries, "articles of a kind normally carried in the pocket or handbag, with outer surface of reinforced or laminated plastics," electric coffeemakers, and other products. In 2001, an agreement was reached to end the trade dispute. The EU restrictions were dismantled, and U.S. tariffs were lifted. The "Banana Wars"were the largest tradewar to datewith tremendous economic and political ramifications.
What was the basis for the EC's argument in thiscase?

Question 24

BACKGROUND AND FACTS
The European Community (EC) had been the world's largest importer of bananas, two-thirds of which was grown in Latin America. A large percentage came from developing countries that were once colonies of Britain, Spain, and France, located in Africa, the Caribbean, and the Pacific (known as ACP countries). Growers in the ACP countries could not compete with the highly efficient non-ACP producers, most of which are in Latin America. In order to encourage the import of ACPgrown bananas and to aid in the development of ACP economies, the EC devised a host of tariff and non-tariff barriers aimed at non-ACP bananas. For example, a complex quota scheme was used permitting only a limited quantity of non-ACP bananas to be imported each year. While licenses to import ACP bananas were granted routinely, only importers who met strict requirements could receive licenses to import Latin American and other non-ACP bananas. Whereas most ACP bananas entered duty free, other bananas had a very substantial tariff rate. Several Latin American countries requested consultations, claiming that the EC regulations violated GATT by discriminating against bananas grown in their countries. The United States joined with them in bringing this complaint, arguing that the United States also had a substantial interest in the issue. While the United States was not an exporter of bananas, the U.S. government noted that U.S. companies, such as Chiquita Brands and others, conducted a wholesale trade in bananas amounting to hundreds of millions of dollars a year and would lose market share because of the EC's actions. The EC maintained that the United States had no grounds for complaining about the EC regulations because itwas not a producer and grower. A WTO panel was convened, and its decision was appealed to the WTO Appellate Body.
REPORT OF THE APPELLATE BODY
The EC argues that the Panel infringed Article 3.2 of the Dispute Settlement Understanding (DSU) by finding that the United States has a right to advance claims under the GATT 1994. The EC asserts that, as a general principle, in any system of law, including international law, a claimant must normally have a legal right or interest in the claim it is pursuing…. The EC asserts that the United States has no actual or potential trade interest justifying its claim, since its banana production is minimal, it has never exported bananas, and this situation is unlikely to change due to the climatic and economic conditions in the United States. In the view of the EC, the panel fails to explain how the United States has a potential trade interest in bananas, and production alone does not suffice for a potential trade interest. The EC also contends that the United States has no right protected by WTO law to shield its own internal market from the indirect effects of the EC banana regime.…
We agree with the Panel that no provision of the DSU contains any explicit requirement that a member must have a "legal interest" as a prerequisite for requesting a panel. We do not accept that the need for a "legal interest" is implied in the DSU or in any other provision of the WTO Agreement…[We believe] that a member nation has broad discretion in deciding whether to bring a case against another member nation under the DSU…
The participants in this appeal have referred to certain judgments of the International Court of Justice and the Permanent Court of International Justice relating to whether there is a requirement, in international law, of a legal interest to bring a case. We do not read any of these judgments as establishing a general rule that in all international litigation, a complaining party must have a "legal interest" in order to bring a case. Nor do these judgments deny the need to consider the question of standing under the dispute settlement provisions of any multilateral treaty, by referring to the terms of that treaty.
We are satisfied that the United States was justified in bringing its claims under the GATT 1994 in this case. The United States is a producer of bananas, and a potential export interest by the United States cannot be excluded. The internal market of the United States of bananas could be affected by the EC banana regime, in particular, by the effects of that regime on world supplies and world prices of bananas. We also agree with the Panel's statement that: "… with the increased interdependence of the global economy…member nations have a greater stake in enforcing WTO rules than in the past since any deviation from the negotiated balance of rights and obligations is more likely than ever to affect them, directly or indirectly."
Accordingly, we believe that a member nation has broad discretion in deciding whether to bring a case against another member under the DSU. The language of Article XXIII: 1 of the GATT 1994 and of the DSU suggests, furthermore, that a member is expected to be largely self-regulating in deciding whether any such action would be "fruitful."
Decision. The Appellate Body held that the United States could call for the convening of a WTO panel to question EC import barriers even though its exports were not directly affected.
Comment. The United States sought WTO authorization to "suspend concessions" (i.e., impose retaliatory tariffs) on a wide range of EU products, the value of which was equivalent to the nullification or impairment sustained by the United States. Consider the impact of a trade war over bananas: In 1999 the Dispute Settlement Body authorized the United States to impose 100 percent ad valorem duties on a list of EU products with an annual trade value of $191.4 million. The range of European products included bath preparations, handbags of plastic, paperboard, lithographs not over twenty years old, cotton bed linens that are printed and do not contain any embroidery or trimming, lead-acid batteries, "articles of a kind normally carried in the pocket or handbag, with outer surface of reinforced or laminated plastics," electric coffeemakers, and other products. In 2001, an agreement was reached to end the trade dispute. The EU restrictions were dismantled, and U.S. tariffs were lifted. The "Banana Wars"were the largest tradewar to datewith tremendous economic and political ramifications.
The EU-Latin America banana dispute did not end until 2012. What was the ultimate conclusion tothis WTO issue?

Question 25

BACKGROUND AND FACTS
For 50 years prior to this case, India had placed complex restrictions on the import of agricultural, industrial and consumer goods from other countries. Goods placed on the "negative list" could only be imported by special license, which was generally only granted to the "actual user," rather than to firms in the normal chain of distribution. Many goods could only be imported by state agencies. The restrictions were, in many cases, applied arbitrarily and in the discretion of Indian government officials on a case-by-case basis. As a result, it was often impossible to know at any given time what goods might be allowed into the country. Goods imported with a license were subject to confiscation or a fine of five times the value of the goods. In 1997, the United States brought this complaint at the WTO against India requesting that restrictions on thousands of products be removed. India claimed that without restrictions its foreign exchange would leave the country, upsetting its balance of payments and inhibiting its economic development.
REPORT OF THE PANEL
The United States contended that…persons wishing to import an item on the Negative List had to apply for a license and explain their "justification for import": the authorities provided no explanation of the criteria for judging applications, and no advance notice of the volume or value of imports to be allowed. In fact, licenses were routinely refused on the basis that the import would compete with a domestic producer. The leading item on the Negative List was consumer goods (including many food items), and for many consumer goods inclusion on the Negative List had amounted to an import ban or close to it.
The United States considered that the restrictiveness of India's licensing of consumer goods imports was demonstrated by the trade statistics… zero imports for 1995/96, including meat; fish; cereals; malt and starches; preparations of meat or fish; cocoa, chocolate and cocoa preparations; nuts, canned and pickled vegetables and fruits, and fruit juices; wine, beer, spirits and vinegar; leather articles; matting and baskets; carpets; knitted fabrics; clothing; headgear; umbrellas; and furniture. [Imports of hundreds of other products were allowed in only minute quantities for a population of 1 billion.] Thus, in many cases import licensing amounts to an import ban, or close to it.
The United States noted that … the "Actual User condition" ruled out any imports by wholesalers or other intermediaries, and itself was a further quantitative restriction on imports. * * *
Thus, according to the United States, the generally applicable import licensing process was a complete black box for the importer and for the foreign exporter. No information was provided on the Government's sectoral priorities with respect to products or on what its views of "merit" might be. All that the United States knew was that the Indian licensing authority generally refused to grant import licences for "restricted" items when it was considered prejudicial to the state's interest to do so.
The United States added that the broad definition of "consumer goods," and the fact that some goods were only restricted if they were consumer goods, created considerable confusion, commercial uncertainty and distortion of trade. * * * The 1996 study on Liberalisation of Indian Imports of Consumer Durables by the Export-Import Bank of India had noted that the only two commonly-used consumer durable goods that were freely importable were cameras and nail cutters. * * *
India said that it needed to use discretionary licensing on a case-by-case basis for the following reasons. India's economy had been almost totally closed to imports barely 15 years ago. Because of the size and structure of the economy, it was impossible for India to estimate precisely the level of demand for imports, the import elasticity of demand for a huge number of products, as well as the elasticity of substitution of domestic products by consumers, and the effective rate of protection for all these products. Accordingly, India considered recourse to discretionary licensing to be unavoidable. Further, India was progressively phasing out its import restrictions. As part of its autonomously initiated programme of economic liberalization, India had already reduced the number of items on which there were import restrictions to just 2,296 as of 1998, from about 11,000 HS-lines in l991. * * *
The United States stated that India's quantitative restrictions and licensing regimes had damaged and continued to damage U.S. trade interests…In 1996, the United States exported $1.3 billion to India in goods subject to quantitative restrictions. However, while the ASEAN area had a population half the size of India's, U.S. exports to ASEAN were eight times the value of U.S. exports to India. As the panel on "Japanese Measures on Imports of Leather" noted, "the fact that the United States was able to export large quantities of leather to other markets [than Japan]…tended to confirm the assumption that the existence of the restrictions [on leather imports] had adversely affected [the] United States' exports."
The nature and operation of India's import licensing regimes also damaged and continued to damage U.S. trade interests. The uncertainty and limitations imposed by India's licensing regime deterred or prevented exporters from undertaking the investments in planning, promotion andmarket development necessary to develop and expand markets in India for their products. No exporter would put resources into developing a product's market in India without some assurance that it would be able to export some minimum amount per year, and the Indian system provided no such assurance-only a guarantee of continuing uncertainty-if the product in question was on the Negative List of Imports. * * *
In light of the foregoing, we note that it is agreed that India's licensing system for goods in the Negative List of Imports is a discretionary import licensing system, in that licences are not granted in all cases, but rather on unspecified "merits." We note also that India concedes this measure is an import restriction under Article XI: 1. * * * Having determined that the measures at issue are quantitative restrictions within the meaning of Article XI:1 and therefore prohibited, we must examine… India's defence under the balance-of-payments provisions of GATT 1994. * * *
In this connection, we recall that the IMF reported that India's reserves as of 21 November 1997 were $25.1 billion and that an adequate level of reserves at that date would have been $16 billion. While the Reserve Bank of India did not specify a precise level of what would constitute adequacy, it concluded only three months earlier in August 1997 that India's reserves were "well above the thumb rule of reserve adequacy" and although the Bank did not accept that thumb rule as the only measure of adequacy, it also found that "[b]y any criteria, the level of foreign exchange reserves appears comfortable." It also stated that "the reserves would be adequate to withstand both cyclical and unanticipated shocks." ***
For the reasons outlined…we find that…India's monetary reserves of $25.1 billion were not inadequate as that term is used in Article XVIII:9(b) and that India was therefore not entitled to implement balanceof- payments measures to achieve a reasonable rate of growth in its reserves. * * *
The institution and maintenance of balanceof- payments measures is only justified at the level necessary to address the concern, and cannot be more encompassing. Paragraph 11, in this context, confirms this requirement that the measures be limited to what is necessary and addresses more specifically the conditions of evolution of the measures as balance-of-payments conditions improve: at any given time, the restrictions should not exceed those necessary. This implies that as conditions improve, measures must be relaxed in proportion to the improvements. The logical conclusion of the process is that the measures will be eliminated when conditions no longer justify them. * * *
In conclusion…we have found that India's balanceof- payments situation was not such as to allow the maintenance of measures for balance-of-payments purposes under the terms of Article XVIII9, that India was not justified in maintaining its existing measures under the terms of Article XVIII: 11, and that it does not have a right to maintain or phase-out these measures on the basis of other provisions of Article XVIII:B which it invoked in its defence. We therefore conclude that India's measures are not justified under the terms of Article XVIII:B. * * *
This panel suggests that a reasonable period of time be granted to India in order to remove the import restrictions which are not justified under Article XVIII:B. Normally, the reasonable period of time to implement a panel recommendation, when determined through arbitration, should not exceed fifteen months from the date of adoption of a panel or Appellate Body report. However, this 15-month period is "a 'guideline for the arbitrator,' not a rule," and…"that time may be shorter or longer, depending upon the particular circumstances."
Decision. India's quantitative restrictions and the licensing scheme violated Article XI because they were discriminatory and not "rules based," and were no longer justified to preserve its balance of payments. The panel's decision was upheld by the WTO Appellate Body in its report of August 1999 and later adopted by the Dispute Settlement Body.
Comment. Complex licensing restrictions like the one used by India for decades following World War II were not uncommon in developing countries. While it protected domestic producers, many of which were state-owned enterprises, it also kept their markets closed to foreign technology, innovation, capital, and the many benefits of competition. But consider how life in many developing countries has changed since the 1980s and 1990s. Most developing countries, including India, have dramatically opened their markets to foreign competition and foreign investment (although certainly not in all industry sectors). Many are no longer totally dependent on an agricultural economy. And many that once feared imports because they did not have the foreign currency to pay for them, now have vibrant export- based manufacturing industries.
Compare the system of import licensing in effect in India during that time to what you know in the United States today. Are there any industries you can think of in the United States that are subjected to import licensing? What industries are so highly regulated?

Question 26

BACKGROUND AND FACTS
For 50 years prior to this case, India had placed complex restrictions on the import of agricultural, industrial and consumer goods from other countries. Goods placed on the "negative list" could only be imported by special license, which was generally only granted to the "actual user," rather than to firms in the normal chain of distribution. Many goods could only be imported by state agencies. The restrictions were, in many cases, applied arbitrarily and in the discretion of Indian government officials on a case-by-case basis. As a result, it was often impossible to know at any given time what goods might be allowed into the country. Goods imported with a license were subject to confiscation or a fine of five times the value of the goods. In 1997, the United States brought this complaint at the WTO against India requesting that restrictions on thousands of products be removed. India claimed that without restrictions its foreign exchange would leave the country, upsetting its balance of payments and inhibiting its economic development.
REPORT OF THE PANEL
The United States contended that…persons wishing to import an item on the Negative List had to apply for a license and explain their "justification for import": the authorities provided no explanation of the criteria for judging applications, and no advance notice of the volume or value of imports to be allowed. In fact, licenses were routinely refused on the basis that the import would compete with a domestic producer. The leading item on the Negative List was consumer goods (including many food items), and for many consumer goods inclusion on the Negative List had amounted to an import ban or close to it.
The United States considered that the restrictiveness of India's licensing of consumer goods imports was demonstrated by the trade statistics… zero imports for 1995/96, including meat; fish; cereals; malt and starches; preparations of meat or fish; cocoa, chocolate and cocoa preparations; nuts, canned and pickled vegetables and fruits, and fruit juices; wine, beer, spirits and vinegar; leather articles; matting and baskets; carpets; knitted fabrics; clothing; headgear; umbrellas; and furniture. [Imports of hundreds of other products were allowed in only minute quantities for a population of 1 billion.] Thus, in many cases import licensing amounts to an import ban, or close to it.
The United States noted that … the "Actual User condition" ruled out any imports by wholesalers or other intermediaries, and itself was a further quantitative restriction on imports. * * *
Thus, according to the United States, the generally applicable import licensing process was a complete black box for the importer and for the foreign exporter. No information was provided on the Government's sectoral priorities with respect to products or on what its views of "merit" might be. All that the United States knew was that the Indian licensing authority generally refused to grant import licences for "restricted" items when it was considered prejudicial to the state's interest to do so.
The United States added that the broad definition of "consumer goods," and the fact that some goods were only restricted if they were consumer goods, created considerable confusion, commercial uncertainty and distortion of trade. * * * The 1996 study on Liberalisation of Indian Imports of Consumer Durables by the Export-Import Bank of India had noted that the only two commonly-used consumer durable goods that were freely importable were cameras and nail cutters. * * *
India said that it needed to use discretionary licensing on a case-by-case basis for the following reasons. India's economy had been almost totally closed to imports barely 15 years ago. Because of the size and structure of the economy, it was impossible for India to estimate precisely the level of demand for imports, the import elasticity of demand for a huge number of products, as well as the elasticity of substitution of domestic products by consumers, and the effective rate of protection for all these products. Accordingly, India considered recourse to discretionary licensing to be unavoidable. Further, India was progressively phasing out its import restrictions. As part of its autonomously initiated programme of economic liberalization, India had already reduced the number of items on which there were import restrictions to just 2,296 as of 1998, from about 11,000 HS-lines in l991. * * *
The United States stated that India's quantitative restrictions and licensing regimes had damaged and continued to damage U.S. trade interests…In 1996, the United States exported $1.3 billion to India in goods subject to quantitative restrictions. However, while the ASEAN area had a population half the size of India's, U.S. exports to ASEAN were eight times the value of U.S. exports to India. As the panel on "Japanese Measures on Imports of Leather" noted, "the fact that the United States was able to export large quantities of leather to other markets [than Japan]…tended to confirm the assumption that the existence of the restrictions [on leather imports] had adversely affected [the] United States' exports."
The nature and operation of India's import licensing regimes also damaged and continued to damage U.S. trade interests. The uncertainty and limitations imposed by India's licensing regime deterred or prevented exporters from undertaking the investments in planning, promotion andmarket development necessary to develop and expand markets in India for their products. No exporter would put resources into developing a product's market in India without some assurance that it would be able to export some minimum amount per year, and the Indian system provided no such assurance-only a guarantee of continuing uncertainty-if the product in question was on the Negative List of Imports. * * *
In light of the foregoing, we note that it is agreed that India's licensing system for goods in the Negative List of Imports is a discretionary import licensing system, in that licences are not granted in all cases, but rather on unspecified "merits." We note also that India concedes this measure is an import restriction under Article XI: 1. * * * Having determined that the measures at issue are quantitative restrictions within the meaning of Article XI:1 and therefore prohibited, we must examine… India's defence under the balance-of-payments provisions of GATT 1994. * * *
In this connection, we recall that the IMF reported that India's reserves as of 21 November 1997 were $25.1 billion and that an adequate level of reserves at that date would have been $16 billion. While the Reserve Bank of India did not specify a precise level of what would constitute adequacy, it concluded only three months earlier in August 1997 that India's reserves were "well above the thumb rule of reserve adequacy" and although the Bank did not accept that thumb rule as the only measure of adequacy, it also found that "[b]y any criteria, the level of foreign exchange reserves appears comfortable." It also stated that "the reserves would be adequate to withstand both cyclical and unanticipated shocks." ***
For the reasons outlined…we find that…India's monetary reserves of $25.1 billion were not inadequate as that term is used in Article XVIII:9(b) and that India was therefore not entitled to implement balanceof- payments measures to achieve a reasonable rate of growth in its reserves. * * *
The institution and maintenance of balanceof- payments measures is only justified at the level necessary to address the concern, and cannot be more encompassing. Paragraph 11, in this context, confirms this requirement that the measures be limited to what is necessary and addresses more specifically the conditions of evolution of the measures as balance-of-payments conditions improve: at any given time, the restrictions should not exceed those necessary. This implies that as conditions improve, measures must be relaxed in proportion to the improvements. The logical conclusion of the process is that the measures will be eliminated when conditions no longer justify them. * * *
In conclusion…we have found that India's balanceof- payments situation was not such as to allow the maintenance of measures for balance-of-payments purposes under the terms of Article XVIII9, that India was not justified in maintaining its existing measures under the terms of Article XVIII: 11, and that it does not have a right to maintain or phase-out these measures on the basis of other provisions of Article XVIII:B which it invoked in its defence. We therefore conclude that India's measures are not justified under the terms of Article XVIII:B. * * *
This panel suggests that a reasonable period of time be granted to India in order to remove the import restrictions which are not justified under Article XVIII:B. Normally, the reasonable period of time to implement a panel recommendation, when determined through arbitration, should not exceed fifteen months from the date of adoption of a panel or Appellate Body report. However, this 15-month period is "a 'guideline for the arbitrator,' not a rule," and…"that time may be shorter or longer, depending upon the particular circumstances."
Decision. India's quantitative restrictions and the licensing scheme violated Article XI because they were discriminatory and not "rules based," and were no longer justified to preserve its balance of payments. The panel's decision was upheld by the WTO Appellate Body in its report of August 1999 and later adopted by the Dispute Settlement Body.
Comment. Complex licensing restrictions like the one used by India for decades following World War II were not uncommon in developing countries. While it protected domestic producers, many of which were state-owned enterprises, it also kept their markets closed to foreign technology, innovation, capital, and the many benefits of competition. But consider how life in many developing countries has changed since the 1980s and 1990s. Most developing countries, including India, have dramatically opened their markets to foreign competition and foreign investment (although certainly not in all industry sectors). Many are no longer totally dependent on an agricultural economy. And many that once feared imports because they did not have the foreign currency to pay for them, now have vibrant export- based manufacturing industries.
Why did the licensing scheme violate Article XI?

Question 27

BACKGROUND AND FACTS
For 50 years prior to this case, India had placed complex restrictions on the import of agricultural, industrial and consumer goods from other countries. Goods placed on the "negative list" could only be imported by special license, which was generally only granted to the "actual user," rather than to firms in the normal chain of distribution. Many goods could only be imported by state agencies. The restrictions were, in many cases, applied arbitrarily and in the discretion of Indian government officials on a case-by-case basis. As a result, it was often impossible to know at any given time what goods might be allowed into the country. Goods imported with a license were subject to confiscation or a fine of five times the value of the goods. In 1997, the United States brought this complaint at the WTO against India requesting that restrictions on thousands of products be removed. India claimed that without restrictions its foreign exchange would leave the country, upsetting its balance of payments and inhibiting its economic development.
REPORT OF THE PANEL
The United States contended that…persons wishing to import an item on the Negative List had to apply for a license and explain their "justification for import": the authorities provided no explanation of the criteria for judging applications, and no advance notice of the volume or value of imports to be allowed. In fact, licenses were routinely refused on the basis that the import would compete with a domestic producer. The leading item on the Negative List was consumer goods (including many food items), and for many consumer goods inclusion on the Negative List had amounted to an import ban or close to it.
The United States considered that the restrictiveness of India's licensing of consumer goods imports was demonstrated by the trade statistics… zero imports for 1995/96, including meat; fish; cereals; malt and starches; preparations of meat or fish; cocoa, chocolate and cocoa preparations; nuts, canned and pickled vegetables and fruits, and fruit juices; wine, beer, spirits and vinegar; leather articles; matting and baskets; carpets; knitted fabrics; clothing; headgear; umbrellas; and furniture. [Imports of hundreds of other products were allowed in only minute quantities for a population of 1 billion.] Thus, in many cases import licensing amounts to an import ban, or close to it.
The United States noted that … the "Actual User condition" ruled out any imports by wholesalers or other intermediaries, and itself was a further quantitative restriction on imports. * * *
Thus, according to the United States, the generally applicable import licensing process was a complete black box for the importer and for the foreign exporter. No information was provided on the Government's sectoral priorities with respect to products or on what its views of "merit" might be. All that the United States knew was that the Indian licensing authority generally refused to grant import licences for "restricted" items when it was considered prejudicial to the state's interest to do so.
The United States added that the broad definition of "consumer goods," and the fact that some goods were only restricted if they were consumer goods, created considerable confusion, commercial uncertainty and distortion of trade. * * * The 1996 study on Liberalisation of Indian Imports of Consumer Durables by the Export-Import Bank of India had noted that the only two commonly-used consumer durable goods that were freely importable were cameras and nail cutters. * * *
India said that it needed to use discretionary licensing on a case-by-case basis for the following reasons. India's economy had been almost totally closed to imports barely 15 years ago. Because of the size and structure of the economy, it was impossible for India to estimate precisely the level of demand for imports, the import elasticity of demand for a huge number of products, as well as the elasticity of substitution of domestic products by consumers, and the effective rate of protection for all these products. Accordingly, India considered recourse to discretionary licensing to be unavoidable. Further, India was progressively phasing out its import restrictions. As part of its autonomously initiated programme of economic liberalization, India had already reduced the number of items on which there were import restrictions to just 2,296 as of 1998, from about 11,000 HS-lines in l991. * * *
The United States stated that India's quantitative restrictions and licensing regimes had damaged and continued to damage U.S. trade interests…In 1996, the United States exported $1.3 billion to India in goods subject to quantitative restrictions. However, while the ASEAN area had a population half the size of India's, U.S. exports to ASEAN were eight times the value of U.S. exports to India. As the panel on "Japanese Measures on Imports of Leather" noted, "the fact that the United States was able to export large quantities of leather to other markets [than Japan]…tended to confirm the assumption that the existence of the restrictions [on leather imports] had adversely affected [the] United States' exports."
The nature and operation of India's import licensing regimes also damaged and continued to damage U.S. trade interests. The uncertainty and limitations imposed by India's licensing regime deterred or prevented exporters from undertaking the investments in planning, promotion andmarket development necessary to develop and expand markets in India for their products. No exporter would put resources into developing a product's market in India without some assurance that it would be able to export some minimum amount per year, and the Indian system provided no such assurance-only a guarantee of continuing uncertainty-if the product in question was on the Negative List of Imports. * * *
In light of the foregoing, we note that it is agreed that India's licensing system for goods in the Negative List of Imports is a discretionary import licensing system, in that licences are not granted in all cases, but rather on unspecified "merits." We note also that India concedes this measure is an import restriction under Article XI: 1. * * * Having determined that the measures at issue are quantitative restrictions within the meaning of Article XI:1 and therefore prohibited, we must examine… India's defence under the balance-of-payments provisions of GATT 1994. * * *
In this connection, we recall that the IMF reported that India's reserves as of 21 November 1997 were $25.1 billion and that an adequate level of reserves at that date would have been $16 billion. While the Reserve Bank of India did not specify a precise level of what would constitute adequacy, it concluded only three months earlier in August 1997 that India's reserves were "well above the thumb rule of reserve adequacy" and although the Bank did not accept that thumb rule as the only measure of adequacy, it also found that "[b]y any criteria, the level of foreign exchange reserves appears comfortable." It also stated that "the reserves would be adequate to withstand both cyclical and unanticipated shocks." ***
For the reasons outlined…we find that…India's monetary reserves of $25.1 billion were not inadequate as that term is used in Article XVIII:9(b) and that India was therefore not entitled to implement balanceof- payments measures to achieve a reasonable rate of growth in its reserves. * * *
The institution and maintenance of balanceof- payments measures is only justified at the level necessary to address the concern, and cannot be more encompassing. Paragraph 11, in this context, confirms this requirement that the measures be limited to what is necessary and addresses more specifically the conditions of evolution of the measures as balance-of-payments conditions improve: at any given time, the restrictions should not exceed those necessary. This implies that as conditions improve, measures must be relaxed in proportion to the improvements. The logical conclusion of the process is that the measures will be eliminated when conditions no longer justify them. * * *
In conclusion…we have found that India's balanceof- payments situation was not such as to allow the maintenance of measures for balance-of-payments purposes under the terms of Article XVIII9, that India was not justified in maintaining its existing measures under the terms of Article XVIII: 11, and that it does not have a right to maintain or phase-out these measures on the basis of other provisions of Article XVIII:B which it invoked in its defence. We therefore conclude that India's measures are not justified under the terms of Article XVIII:B. * * *
This panel suggests that a reasonable period of time be granted to India in order to remove the import restrictions which are not justified under Article XVIII:B. Normally, the reasonable period of time to implement a panel recommendation, when determined through arbitration, should not exceed fifteen months from the date of adoption of a panel or Appellate Body report. However, this 15-month period is "a 'guideline for the arbitrator,' not a rule," and…"that time may be shorter or longer, depending upon the particular circumstances."
Decision. India's quantitative restrictions and the licensing scheme violated Article XI because they were discriminatory and not "rules based," and were no longer justified to preserve its balance of payments. The panel's decision was upheld by the WTO Appellate Body in its report of August 1999 and later adopted by the Dispute Settlement Body.
Comment. Complex licensing restrictions like the one used by India for decades following World War II were not uncommon in developing countries. While it protected domestic producers, many of which were state-owned enterprises, it also kept their markets closed to foreign technology, innovation, capital, and the many benefits of competition. But consider how life in many developing countries has changed since the 1980s and 1990s. Most developing countries, including India, have dramatically opened their markets to foreign competition and foreign investment (although certainly not in all industry sectors). Many are no longer totally dependent on an agricultural economy. And many that once feared imports because they did not have the foreign currency to pay for them, now have vibrant export- based manufacturing industries.
What causes a balance-of-payments problem, and why can this be a critical problem for many developing countries?

Question 28

BACKGROUND AND FACTS
For 50 years prior to this case, India had placed complex restrictions on the import of agricultural, industrial and consumer goods from other countries. Goods placed on the "negative list" could only be imported by special license, which was generally only granted to the "actual user," rather than to firms in the normal chain of distribution. Many goods could only be imported by state agencies. The restrictions were, in many cases, applied arbitrarily and in the discretion of Indian government officials on a case-by-case basis. As a result, it was often impossible to know at any given time what goods might be allowed into the country. Goods imported with a license were subject to confiscation or a fine of five times the value of the goods. In 1997, the United States brought this complaint at the WTO against India requesting that restrictions on thousands of products be removed. India claimed that without restrictions its foreign exchange would leave the country, upsetting its balance of payments and inhibiting its economic development.
REPORT OF THE PANEL
The United States contended that…persons wishing to import an item on the Negative List had to apply for a license and explain their "justification for import": the authorities provided no explanation of the criteria for judging applications, and no advance notice of the volume or value of imports to be allowed. In fact, licenses were routinely refused on the basis that the import would compete with a domestic producer. The leading item on the Negative List was consumer goods (including many food items), and for many consumer goods inclusion on the Negative List had amounted to an import ban or close to it.
The United States considered that the restrictiveness of India's licensing of consumer goods imports was demonstrated by the trade statistics… zero imports for 1995/96, including meat; fish; cereals; malt and starches; preparations of meat or fish; cocoa, chocolate and cocoa preparations; nuts, canned and pickled vegetables and fruits, and fruit juices; wine, beer, spirits and vinegar; leather articles; matting and baskets; carpets; knitted fabrics; clothing; headgear; umbrellas; and furniture. [Imports of hundreds of other products were allowed in only minute quantities for a population of 1 billion.] Thus, in many cases import licensing amounts to an import ban, or close to it.
The United States noted that … the "Actual User condition" ruled out any imports by wholesalers or other intermediaries, and itself was a further quantitative restriction on imports. * * *
Thus, according to the United States, the generally applicable import licensing process was a complete black box for the importer and for the foreign exporter. No information was provided on the Government's sectoral priorities with respect to products or on what its views of "merit" might be. All that the United States knew was that the Indian licensing authority generally refused to grant import licences for "restricted" items when it was considered prejudicial to the state's interest to do so.
The United States added that the broad definition of "consumer goods," and the fact that some goods were only restricted if they were consumer goods, created considerable confusion, commercial uncertainty and distortion of trade. * * * The 1996 study on Liberalisation of Indian Imports of Consumer Durables by the Export-Import Bank of India had noted that the only two commonly-used consumer durable goods that were freely importable were cameras and nail cutters. * * *
India said that it needed to use discretionary licensing on a case-by-case basis for the following reasons. India's economy had been almost totally closed to imports barely 15 years ago. Because of the size and structure of the economy, it was impossible for India to estimate precisely the level of demand for imports, the import elasticity of demand for a huge number of products, as well as the elasticity of substitution of domestic products by consumers, and the effective rate of protection for all these products. Accordingly, India considered recourse to discretionary licensing to be unavoidable. Further, India was progressively phasing out its import restrictions. As part of its autonomously initiated programme of economic liberalization, India had already reduced the number of items on which there were import restrictions to just 2,296 as of 1998, from about 11,000 HS-lines in l991. * * *
The United States stated that India's quantitative restrictions and licensing regimes had damaged and continued to damage U.S. trade interests…In 1996, the United States exported $1.3 billion to India in goods subject to quantitative restrictions. However, while the ASEAN area had a population half the size of India's, U.S. exports to ASEAN were eight times the value of U.S. exports to India. As the panel on "Japanese Measures on Imports of Leather" noted, "the fact that the United States was able to export large quantities of leather to other markets [than Japan]…tended to confirm the assumption that the existence of the restrictions [on leather imports] had adversely affected [the] United States' exports."
The nature and operation of India's import licensing regimes also damaged and continued to damage U.S. trade interests. The uncertainty and limitations imposed by India's licensing regime deterred or prevented exporters from undertaking the investments in planning, promotion andmarket development necessary to develop and expand markets in India for their products. No exporter would put resources into developing a product's market in India without some assurance that it would be able to export some minimum amount per year, and the Indian system provided no such assurance-only a guarantee of continuing uncertainty-if the product in question was on the Negative List of Imports. * * *
In light of the foregoing, we note that it is agreed that India's licensing system for goods in the Negative List of Imports is a discretionary import licensing system, in that licences are not granted in all cases, but rather on unspecified "merits." We note also that India concedes this measure is an import restriction under Article XI: 1. * * * Having determined that the measures at issue are quantitative restrictions within the meaning of Article XI:1 and therefore prohibited, we must examine… India's defence under the balance-of-payments provisions of GATT 1994. * * *
In this connection, we recall that the IMF reported that India's reserves as of 21 November 1997 were $25.1 billion and that an adequate level of reserves at that date would have been $16 billion. While the Reserve Bank of India did not specify a precise level of what would constitute adequacy, it concluded only three months earlier in August 1997 that India's reserves were "well above the thumb rule of reserve adequacy" and although the Bank did not accept that thumb rule as the only measure of adequacy, it also found that "[b]y any criteria, the level of foreign exchange reserves appears comfortable." It also stated that "the reserves would be adequate to withstand both cyclical and unanticipated shocks." ***
For the reasons outlined…we find that…India's monetary reserves of $25.1 billion were not inadequate as that term is used in Article XVIII:9(b) and that India was therefore not entitled to implement balanceof- payments measures to achieve a reasonable rate of growth in its reserves. * * *
The institution and maintenance of balanceof- payments measures is only justified at the level necessary to address the concern, and cannot be more encompassing. Paragraph 11, in this context, confirms this requirement that the measures be limited to what is necessary and addresses more specifically the conditions of evolution of the measures as balance-of-payments conditions improve: at any given time, the restrictions should not exceed those necessary. This implies that as conditions improve, measures must be relaxed in proportion to the improvements. The logical conclusion of the process is that the measures will be eliminated when conditions no longer justify them. * * *
In conclusion…we have found that India's balanceof- payments situation was not such as to allow the maintenance of measures for balance-of-payments purposes under the terms of Article XVIII9, that India was not justified in maintaining its existing measures under the terms of Article XVIII: 11, and that it does not have a right to maintain or phase-out these measures on the basis of other provisions of Article XVIII:B which it invoked in its defence. We therefore conclude that India's measures are not justified under the terms of Article XVIII:B. * * *
This panel suggests that a reasonable period of time be granted to India in order to remove the import restrictions which are not justified under Article XVIII:B. Normally, the reasonable period of time to implement a panel recommendation, when determined through arbitration, should not exceed fifteen months from the date of adoption of a panel or Appellate Body report. However, this 15-month period is "a 'guideline for the arbitrator,' not a rule," and…"that time may be shorter or longer, depending upon the particular circumstances."
Decision. India's quantitative restrictions and the licensing scheme violated Article XI because they were discriminatory and not "rules based," and were no longer justified to preserve its balance of payments. The panel's decision was upheld by the WTO Appellate Body in its report of August 1999 and later adopted by the Dispute Settlement Body.
Comment. Complex licensing restrictions like the one used by India for decades following World War II were not uncommon in developing countries. While it protected domestic producers, many of which were state-owned enterprises, it also kept their markets closed to foreign technology, innovation, capital, and the many benefits of competition. But consider how life in many developing countries has changed since the 1980s and 1990s. Most developing countries, including India, have dramatically opened their markets to foreign competition and foreign investment (although certainly not in all industry sectors). Many are no longer totally dependent on an agricultural economy. And many that once feared imports because they did not have the foreign currency to pay for them, now have vibrant export- based manufacturing industries.
Why did the panel not accept India's balanceof-payments argument?

Question 29

BACKGROUND AND FACTS
The Japan Liquor Tax Law, or Shuzeiho, taxes liquors sold in Japan based on the type of beverage. There are ten categories of beverage (the categories are sake, sake compound, shochu, mirin, beer, wine, whiskey/brandy, spirits, liqueurs, and miscellaneous). Shochu is distilled from potatoes, buckwheat, or other grains. Shochu and vodka share many characteristics. However, vodka and other imported liquors fall in categories with a tax rate that is seven or eight times higher than the category for shochu. Foreign spirits account for only 8 percent of the Japanese market, whereas they account for almost 50 percent of the market in other industrialized countries. The United States, the European Union, and Canada called for consultations and brought this complaint at the WTO. The panel held that the Japanese tax law violated GATT, and Japan appealed to the Appellate Body.
REPORT OF THE APPELLATE BODY
The WTO Agreement is a treaty-the international equivalent of a contract. It is self-evident that in an exercise of their sovereignty, and in pursuit of their own respective national interests, the Members of the WTO have made a bargain. In exchange for the benefits they expect to derive as Members of the WTO, they have agreed to exercise their sovereignty according to the commitments they have made in the WTO Agreement. One of those commitments is Article III of the GATT 1994, which is entitled National Treatment on Internal Taxation and Regulation.
The broad and fundamental purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures. More specifically, the purpose of Article III is to ensure that internalmeasures not be applied to imported or domestic products so as to afford protection to domestic production. Toward this end, Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products. "[T]he intention of the drafters of the Agreement was clearly to treat the imported products in the sameway as the like domestic products once they had been cleared through customs. Otherwise indirect protection could be given." Italian Discrimination Against Imported Agricultural Machinery , BISD 7S/60, para.11. Moreover, it is irrelevant that "the trade effects" of the tax differential between imported and domestic products, as reflected in the volumes of imports, are insignificant or even nonexistent. Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products. Members of the WTO are free to pursue their own domestic goals through internal taxation or regulation so long as they do not do so in a way that violates Article III or any of the other commitments they havemade in the WTO Agreement. * * *
[I]f imported products are taxed in excess of like domestic products, then that tax measure is inconsistent with Article III …[We must determine first] whether the taxed imported and domestic products are "like" and, second, whether the taxes applied to the imported products are "in excess of" those applied to the like domestic products. If the imported and domestic products are "like products," and if the taxes applied to the imported products are "in excess of" those applied to the like domestic products, then the measure is inconsistent with Article III:2.
We agree with the Panel also that the definition of "like products" in Article III:2 should be construed narrowly. How narrowly is a matter that should be determined separately for each tax measure in each case. [A 1970 GATT Report] set out the basic approach for interpreting "like or similar products":
[T]he interpretation of the term should be examined on a case-by-case basis. This would allow a fair assessment in each case of the different elements that constitute a "similar" product. Some criteria were suggested for determining, on a case-by-case basis, whether a product is "similar": the product's end-users in a givenmarket; consumers' tastes and habits, which change from country to country; the product's properties, nature and quality. Report of the Working Party on Border Tax Adjustments 18S/97, para. 18. * * *
The concept of "likeness" is a relative one that evokes the image of an accordion. The accordion of "likeness" stretches and squeezes in different places as different provisions of the WTO Agreement are applied. [The definition of "likeness" must be narrowly interpreted.] The Panel determined in this case that shochu and vodka are "like products."
A uniform tariff classification of products can be relevant in determining what are "like products." Tariff classification has been used as a criterion for determining "like products" in several previous adopted panel reports … There are risks in using tariff bindings that are too broad as a measure of product "likeness. "…It is true that there are numerous tariff bindings which are in fact extremely precise with regard to product description and which, therefore, can provide significant guidance as to the identification of "like products." Clearly enough, these determinations need to be made on a case-by-case basis. However, tariff bindings that include a wide range of products are not a reliable criterion for determining or confirming product "likeness" under Article III:2
The only remaining issue under the first sentence of Article III:2 is whether the taxes on imported products are "in excess of" those on like domestic products. If so, then the Member that has imposed the tax is not in compliance with Article III. Even the smallest amount of "excess" is too much. The prohibition of discriminatory taxes in Article III is not conditional on a "trade effects test" nor is it qualified by a de minimis standard.
If imported and domestic products are not "like products"…those same products may well be among the broader category of "directly competitive or substitutable products" that fall within the domain of the second sentence of Article III:2. How much broader that category of "directly competitive or substitutable products" may be in any given case is a matter for the Panel to determine based on all the relevant facts in that case. In this case, the Panel emphasized the need to look not only at such matters as physical characteristics, common end-uses, and tariff classifications, but also at the "market place." This seems appropriate. The GATT 1994 is a commercial agreement, and the WTO is concerned, after all, with markets. It does not seem inappropriate to look at competition in the relevant markets as one among a number of means of identifying the broader category of products that might be described as "directly competitive or substitutable." Nor does it seem inappropriate to examine elasticity of substitution as one means of examining those relevant markets. In the Panel's view, the decisive criterion in order to determine whether two products are directly competitive or substitutable is whether they have common end-uses, inter alia, as shown by elasticity of substitution. We agree.
Our interpretation of Article III is faithful to the"customary rules of interpretation of public international law." WTO rules are reliable, comprehensible and enforceable. WTOrules are not so rigid or so inflexible as not to leave roomfor reasoned judgementsin confronting the endless and ever changing ebb and flowof real facts in real cases in the real world. They will serve the multilateral trading system best if they are interpreted with that in mind. In that way, we will achieve the "security and predictability" sought for the multilateral trading system by the Members of the WTO through the establishment of the dispute settlement system.
Decision. The Japan Liquor Tax Law was found to violate the national treatment provisions of GATT Article III. Shochu is a "like product" and is "directly competitive and substitutable" with other imported spirits. The imported spirits were taxed higher than the shochu. The decision of the panel was upheld and Japan was requested to bring its tax law into compliance with GATT.
Comment. In 1997, the United States was forced toseek binding arbitration when it became apparent that Japan did not intend to bring its liquor tax into WTO compliance within a "reasonable period" as required by WTO rules. The arbitration ruling supported the U.S. position. Japan agreed to revise its tariff system in stages and to eliminate tariffs on most spirits. The U.S. distilled spirits industry reported that, as expected, the change in taxation has increased exports of U.S. distilled spirits to Japan.
What is the purpose of GATT's Article III and how is that purpose served?

Question 30

BACKGROUND AND FACTS
The Japan Liquor Tax Law, or Shuzeiho, taxes liquors sold in Japan based on the type of beverage. There are ten categories of beverage (the categories are sake, sake compound, shochu, mirin, beer, wine, whiskey/brandy, spirits, liqueurs, and miscellaneous). Shochu is distilled from potatoes, buckwheat, or other grains. Shochu and vodka share many characteristics. However, vodka and other imported liquors fall in categories with a tax rate that is seven or eight times higher than the category for shochu. Foreign spirits account for only 8 percent of the Japanese market, whereas they account for almost 50 percent of the market in other industrialized countries. The United States, the European Union, and Canada called for consultations and brought this complaint at the WTO. The panel held that the Japanese tax law violated GATT, and Japan appealed to the Appellate Body.
REPORT OF THE APPELLATE BODY
The WTO Agreement is a treaty-the international equivalent of a contract. It is self-evident that in an exercise of their sovereignty, and in pursuit of their own respective national interests, the Members of the WTO have made a bargain. In exchange for the benefits they expect to derive as Members of the WTO, they have agreed to exercise their sovereignty according to the commitments they have made in the WTO Agreement. One of those commitments is Article III of the GATT 1994, which is entitled National Treatment on Internal Taxation and Regulation.
The broad and fundamental purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures. More specifically, the purpose of Article III is to ensure that internalmeasures not be applied to imported or domestic products so as to afford protection to domestic production. Toward this end, Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products. "[T]he intention of the drafters of the Agreement was clearly to treat the imported products in the sameway as the like domestic products once they had been cleared through customs. Otherwise indirect protection could be given." Italian Discrimination Against Imported Agricultural Machinery , BISD 7S/60, para.11. Moreover, it is irrelevant that "the trade effects" of the tax differential between imported and domestic products, as reflected in the volumes of imports, are insignificant or even nonexistent. Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products. Members of the WTO are free to pursue their own domestic goals through internal taxation or regulation so long as they do not do so in a way that violates Article III or any of the other commitments they havemade in the WTO Agreement. * * *
[I]f imported products are taxed in excess of like domestic products, then that tax measure is inconsistent with Article III …[We must determine first] whether the taxed imported and domestic products are "like" and, second, whether the taxes applied to the imported products are "in excess of" those applied to the like domestic products. If the imported and domestic products are "like products," and if the taxes applied to the imported products are "in excess of" those applied to the like domestic products, then the measure is inconsistent with Article III:2.
We agree with the Panel also that the definition of "like products" in Article III:2 should be construed narrowly. How narrowly is a matter that should be determined separately for each tax measure in each case. [A 1970 GATT Report] set out the basic approach for interpreting "like or similar products":
[T]he interpretation of the term should be examined on a case-by-case basis. This would allow a fair assessment in each case of the different elements that constitute a "similar" product. Some criteria were suggested for determining, on a case-by-case basis, whether a product is "similar": the product's end-users in a givenmarket; consumers' tastes and habits, which change from country to country; the product's properties, nature and quality. Report of the Working Party on Border Tax Adjustments 18S/97, para. 18. * * *
The concept of "likeness" is a relative one that evokes the image of an accordion. The accordion of "likeness" stretches and squeezes in different places as different provisions of the WTO Agreement are applied. [The definition of "likeness" must be narrowly interpreted.] The Panel determined in this case that shochu and vodka are "like products."
A uniform tariff classification of products can be relevant in determining what are "like products." Tariff classification has been used as a criterion for determining "like products" in several previous adopted panel reports … There are risks in using tariff bindings that are too broad as a measure of product "likeness. "…It is true that there are numerous tariff bindings which are in fact extremely precise with regard to product description and which, therefore, can provide significant guidance as to the identification of "like products." Clearly enough, these determinations need to be made on a case-by-case basis. However, tariff bindings that include a wide range of products are not a reliable criterion for determining or confirming product "likeness" under Article III:2
The only remaining issue under the first sentence of Article III:2 is whether the taxes on imported products are "in excess of" those on like domestic products. If so, then the Member that has imposed the tax is not in compliance with Article III. Even the smallest amount of "excess" is too much. The prohibition of discriminatory taxes in Article III is not conditional on a "trade effects test" nor is it qualified by a de minimis standard.
If imported and domestic products are not "like products"…those same products may well be among the broader category of "directly competitive or substitutable products" that fall within the domain of the second sentence of Article III:2. How much broader that category of "directly competitive or substitutable products" may be in any given case is a matter for the Panel to determine based on all the relevant facts in that case. In this case, the Panel emphasized the need to look not only at such matters as physical characteristics, common end-uses, and tariff classifications, but also at the "market place." This seems appropriate. The GATT 1994 is a commercial agreement, and the WTO is concerned, after all, with markets. It does not seem inappropriate to look at competition in the relevant markets as one among a number of means of identifying the broader category of products that might be described as "directly competitive or substitutable." Nor does it seem inappropriate to examine elasticity of substitution as one means of examining those relevant markets. In the Panel's view, the decisive criterion in order to determine whether two products are directly competitive or substitutable is whether they have common end-uses, inter alia, as shown by elasticity of substitution. We agree.
Our interpretation of Article III is faithful to the"customary rules of interpretation of public international law." WTO rules are reliable, comprehensible and enforceable. WTOrules are not so rigid or so inflexible as not to leave roomfor reasoned judgements in confronting the endless and ever changing ebb and flowof real facts in real cases in the real world. They will serve the multilateral trading system best if they are interpreted with that in mind. In that way, we will achieve the "security and predictability" sought for the multilateral trading system by the Members of the WTO through the establishment of the dispute settlement system.
Decision. The Japan Liquor Tax Law was found to violate the national treatment provisions of GATT Article III. Shochu is a "like product" and is "directly competitive and substitutable" with other imported spirits. The imported spirits were taxed higher than the shochu. The decision of the panel was upheld and Japan was requested to bring its tax law into compliance with GATT.
Comment. In 1997, the United States was forced toseek binding arbitration when it became apparent that Japan did not intend to bring its liquor tax into WTO compliance within a "reasonable period" as required by WTO rules. The arbitration ruling supported the U.S. position. Japan agreed to revise its tariff system in stages and to eliminate tariffs on most spirits. The U.S. distilled spirits industry reported that, as expected, the change in taxation has increased exports of U.S. distilled spirits to Japan.
Is it necessary that the complaining party show that a discriminatory tax has a negative effect on trade? Is a remedy possible even where the discrimination has no adverse impact on the sales volume of the imported products?

Question 31

BACKGROUND AND FACTS
The Japan Liquor Tax Law, or Shuzeiho, taxes liquors sold in Japan based on the type of beverage. There are ten categories of beverage (the categories are sake, sake compound, shochu, mirin, beer, wine, whiskey/brandy, spirits, liqueurs, and miscellaneous). Shochu is distilled from potatoes, buckwheat, or other grains. Shochu and vodka share many characteristics. However, vodka and other imported liquors fall in categories with a tax rate that is seven or eight times higher than the category for shochu. Foreign spirits account for only 8 percent of the Japanese market, whereas they account for almost 50 percent of the market in other industrialized countries. The United States, the European Union, and Canada called for consultations and brought this complaint at the WTO. The panel held that the Japanese tax law violated GATT, and Japan appealed to the Appellate Body.
REPORT OF THE APPELLATE BODY
The WTO Agreement is a treaty-the international equivalent of a contract. It is self-evident that in an exercise of their sovereignty, and in pursuit of their own respective national interests, the Members of the WTO have made a bargain. In exchange for the benefits they expect to derive as Members of the WTO, they have agreed to exercise their sovereignty according to the commitments they have made in the WTO Agreement. One of those commitments is Article III of the GATT 1994, which is entitled National Treatment onInternal Taxation and Regulation.
The broad and fundamental purpose of Article III is to avoid protectionism in the application of internal tax and regulatory measures. More specifically, the purpose of Article III is to ensure that internalmeasures not be applied to imported or domestic products so as to afford protection to domestic production. Toward this end, Article III obliges Members of the WTO to provide equality of competitive conditions for imported products in relation to domestic products. "[T]he intention of the drafters of the Agreement was clearly to treat the imported products in the sameway as the like domestic products once they had been cleared through customs. Otherwise indirect protection could be given." Italian Discrimination Against Imported Agricultural Machinery , BISD 7S/60, para.11. Moreover, it is irrelevant that "the trade effects" of the tax differential between imported and domestic products, as reflected in the volumes of imports, are insignificant or even nonexistent. Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products. Members of the WTO are free to pursue their own domestic goals through internal taxation or regulation so long as they do not do so in a way that violates Article III or any of the other commitments they havemade in the WTO Agreement. * * *
[I]f imported products are taxed in excess of like domestic products, then that tax measure is inconsistent with Article III …[We must determine first] whether the taxed imported and domestic products are "like" and, second, whether the taxes applied to the imported products are "in excess of" those applied to the like domestic products. If the imported and domestic products are "like products," and if the taxes applied to the imported products are "in excess of" those applied to the like domestic products, then the measure is inconsistent with Article III:2.
We agree with the Panel also that the definition of "like products" in Article III:2 should be construed narrowly. How narrowly is a matter that should be determined separately for each tax measure in each case. [A 1970 GATT Report] set out the basic approach for interpreting "like or similar products":
[T]he interpretation of the term should be examined on a case-by-case basis. This would allow a fair assessment in each case of the different elements that constitute a "similar" product. Some criteria were suggested for determining, on a case-by-case basis, whether a product is "similar": the product's end-users in a givenmarket; consumers' tastes and habits, which change from country to country; the product's properties, nature and quality. Report of the Working Party on Border Tax Adjustments 18S/97, para. 18. * * *
The concept of "likeness" is a relative one that evokes the image of an accordion. The accordion of "likeness" stretches and squeezes in different places as different provisions of the WTO Agreement are applied. [The definition of "likeness" must be narrowly interpreted.] The Panel determined in this case that shochu and vodka are "like products."
A uniform tariff classification of products can be relevant in determining what are "like products." Tariff classification has been used as a criterion for determining "like products" in several previous adopted panel reports … There are risks in using tariff bindings that are too broad as a measure of product "likeness. "…It is true that there are numerous tariff bindings which are in fact extremely precise with regard to product description and which, therefore, can provide significant guidance as to the identification of "like products." Clearly enough, these determinations need to be made on a case-by-case basis. However, tariff bindings that include a wide range of products are not a reliable criterion for determining or confirming product "likeness" under Article III:2
The only remaining issue under the first sentence of Article III:2 is whether the taxes on imported products are "in excess of" those on like domestic products. If so, then the Member that has imposed the tax is not in compliance with Article III. Even the smallest amount of "excess" is too much. The prohibition of discriminatory taxes in Article III is not conditional on a "trade effects test" nor is it qualified by a de minimis standard.
If imported and domestic products are not "like products"…those same products may well be among the broader category of "directly competitive or substitutable products" that fall within the domain of the second sentence of Article III:2. How much broader that category of "directly competitive or substitutable products" may be in any given case is a matter for the Panel to determine based on all the relevant facts in that case. In this case, the Panel emphasized the need to look not only at such matters as physical characteristics, common end-uses, and tariff classifications, but also at the "market place." This seems appropriate. The GATT 1994 is a commercial agreement, and the WTO is concerned, after all, with markets. It does not seem inappropriate to look at competition in the relevant markets as one among a number of means of identifying the broader category of products that might be described as "directly competitive or substitutable." Nor does it seem inappropriate to examine elasticity of substitution as one means of examining those relevant markets. In the Panel's view, the decisive criterion in order to determine whether two products are directly competitive or substitutable is whether they have common end-uses, inter alia, as shown by elasticity of substitution. We agree.
Our interpretation of Article III is faithful to the"customary rules of interpretation of public international law." WTO rules are reliable, comprehensible and enforceable. WTOrules are not so rigid or so inflexible as not to leave roomfor reasoned judgements in confronting the endless and ever changing ebb and flowof real facts in real cases in the real world. They will serve the multilateral trading system best if they are interpreted with that in mind. In that way, we will achieve the "security and predictability" sought for the multilateral trading system by the Members of the WTO through the establishment of the dispute settlement system.
Decision. The Japan Liquor Tax Law was found to violate the national treatment provisions of GATT Article III. Shochu is a "like product" and is "directly competitive and substitutable" with other imported spirits. The imported spirits were taxed higher than the shochu. The decision of the panel was upheld and Japan was requested to bring its tax law into compliance with GATT.
Comment. In 1997, the United States was forced toseek binding arbitration when it became apparent that Japan did not intend to bring its liquor tax into WTO compliance within a "reasonable period" as required by WTO rules. The arbitration ruling supported the U.S. position. Japan agreed to revise its tariff system in stages and to eliminate tariffs on most spirits. The U.S. distilled spirits industry reported that, as expected, the change in taxation has increased exports of U.S. distilled spirits to Japan.
How does a WTO panel determine whether two products are "like products" for purposes of the first sentence of Article III(2) or "directly competitive or substitutable products" that fall within the domain of the second sentence of Article III(2)?