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Trade related aspects of IP rights

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) came into force in 1995, as part of the Agreement Establishing the World Trade Organization (WTO). TRIPS incorporates and builds upon the latest versions of the primary intellectual property agreements administered by the World Intellectual Property Organization (WIPO), the Paris Convention for the Protection of Industrial Property, and the Berne Convention for the Protection of Literary and Artistic Works, agreements that go back to the 1880s.

TRIPS is unique among these IPR accords because membership in the WTO is a "package deal," meaning that WTO members are not free to pick and choose among agreements. They are subject to all the WTO's multilateral agreements, including TRIPS. 

TRIPS applies basic international trade principles to member states regarding intellectual property, including national treatment and most-favored-nation treatment. TRIPS establishes minimum standards for the availability, scope, and use of seven forms of intellectual property: copyrights, trademarks, geographical indications, industrial designs, patents, layout designs for integrated circuits, and undisclosed information (trade secrets). It spells out permissible limitations and exceptions in order to balance the interests of intellectual property with interests in other areas, such as public health and economic development. (For the complete text of the TRIPS Agreement, as well as an explanation of its provisions, see the WTO web site at www.wto.org .)

According to TRIPS, developed countries were to have implemented the agreement fully by January 1, 1996. Developing-country members and members in transition to a market economy were entitled to delay full implementation of TRIPS obligations until January 1, 2000. Least-developed members were given until January 1, 2006, to implement their obligations, with the possibility of further transition upon request. Developing countries that did not provide patent protection for particular areas of technology on their date of application were given an additional five years, until January 1, 2005, to provide such protection. In November 2005, the 2006 transition period for least-developed countries was extended to July 1, 2013.

At the 2001 WTO Ministerial Conference in Doha, least-developed countries were given an additional 10 years to implement TRIPS patent and "undisclosed information" provisions as they relate to pharmaceuticals. In July 2002, the WTO General Council agreed to waive the obligations of least-developed countries concerning exclusive marketing rights for pharmaceutical products until January 1, 2016.

Because the TRIPS Agreement is over a decade old, however, it does not address several new developments, such as the Internet and digital copyright issues, advanced biotechnology, and international harmonization, the process of creating uniform global standards of laws or practice. It sets the floor for minimum IPR protection, not the ceiling.

Since the conclusion of the TRIPS Agreement, the World Intellectual Property Organization has addressed digital copyright issues in the so-called Internet Treaties, namely the WIPO Copyright Treaty (WCT) and the WIPO Performances and Phonograms Treaty (WPPT).

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• Preface to the Third Edition
• List of Abbreviated Dispute Names
• WTO Decisions
• GATT Decisions
• European Commission
• European Court of Justice and Court of First Instance
• International Court of Justice
• NAFTA Dispute Panel
• Permanent Court of International Justice
• WTO Documents
• GATT Documents
• WTO Agreements
• Other Conventions and Treaties
• List of Abbreviations
• Preliminary Material
• 1 Bretton Woods and the Failure of the International Trade Organization
• 2 The GATT Becomes an International Organization
• 3 A Summary of GATT Obligations
• 4 The Historical Context of the GATT
• 5 The Need for an International Organization Concerned with Trade
• 6 The GATT Tariff Negotiating Rounds
• 7 The Creation of the WTO
• 8.1 Membership, accession, and withdrawal
• 8.2.1 General decision making
• 8.2.2 Interpretations
• 8.2.3 Waivers
• 8.2.4 Amendments
• 8.3 The WTO as an international organization
• 9 Ongoing Work and Activities
• 10 Principal Accomplishments of the GATT/WTO
• 11.1 General decision making
• 11.2 Relations with civil society
• 11.3 Achieving greater consistency in global economic policy
• 11.4 Regional and preferential trade agreements
• 11.5 Developing countries and trade
• 12 The Doha Development Agenda
• 13 The ‘Bali Package’
• 14 The Future of the WTO
• 1 Introduction
• 2.1 Treaty powers of the Union
• 2.2 The relationship between WTO law and the legal regime of the EU
• 4.1 Overview of US law
• 4.2 The relationship between WTO law and US law
• 5 Conclusion
• 2.1 The covered agreements
• 2.2.1 Interpretations, waivers, amendments
• 2.2.2 Decisions and recommendations by WTO organs
• 2.2.3 International agreements signed by the WTO
• 2.3 The treatment of customary international law in the WTO
• 2.4.1 Estoppel
• 2.4.2 Res judicata
• 2.4.3 Error
• 2.4.4 Non adimplenti contractus
• 2.4.5 Good faith (bona fides)
• 2.4.6 In dubio mitius
• 3.1 The Vienna Convention on the Law of Treaties in the hands of the WTO courts
• 3.2.1 The text
• 3.2.2 The context
• 3.2.3 Object and purpose
• 3.2.4 Subsequent agreement
• 3.2.5 Subsequent practice
• 3.2.6 Other relevant rules of public international law
• 3.2.7 Special meaning
• 3.2.8 Supplementary means
• 3.3 Other interpretative elements
• 4 The ‘Self-Contained Regime’ Problem
• 5 Concluding Remarks
• 2 Dispute Settlement in the GATT
• 3.1 General considerations
• 3.2 Institutions
• 3.3 Scope of application
• 3.4 The legal effect of Panel and Appellate Body reports
• 3.5.1 Objectives
• 3.5.2 Initiation: request for consultations
• 3.5.3 Standing to bring claims
• 3.5.4 Good offices, conciliation, and mediation
• 3.5.5 Arbitration
• 3.6 The Panel process
• 3.7 The appellate process
• 3.8.1 Reasonable period for implementation
• 3.8.2 Compliance and the ‘sequencing’ problem
• 3.9 Compensation for failure to comply and retaliation
• 3.10.1 Non-violation complaints
• 3.10.2 Situation complaints
• 3.11 Adverse inference
• 3.12 Amicus curiae
• 3.13 Burden of proof
• 3.14 Judicial economy
• 3.15 Standard of review
• 3.16 A critique of the DSU
• 1 Overview: Implementing the DSB’s ‘Recommendations and Rulings’
• 2 Remedies in Cases of Successful Non-violation and Situation Complaints
• 3.1 Recommendations by Panels or the Appellate Body pursuant to DSU Article 19
• 3.2.1 Treatment of requests for suggestions in WTO case law
• 3.2.2 Situations that warrant the issuing of suggestions
• 3.2.3 Unrequested suggestions
• 4 Lex specialis Remedies
• 5.1 Bilateral determination of the RPT
• 5.2.1 The regulatory framework
• 5.2.2.1 The function of the fifteen-month guideline
• 5.2.2.2 The ‘particular circumstances’
• 5.2.2.3 Factors considered in WTO arbitral awards
• 5.2.2.4 Factors not considered in WTO arbitral awards
• 5.2.2.5 The burden of proof
• 5.3 Surveillance of implementation by the DSB after the establishment of RPT
• 6.1 The mechanics
• 6.2 The rationale for compliance Panels: the exclusion of unilateralism
• 6.3 The mandate of compliance Panels
• 6.4 Appeals of compliance Panel decisions
• 6.5 The sequencing issue
• 7.1 The remedies available under DSU Article 22.1
• 7.2 The different functions of compensation and suspension of concessions
• 7.3 Mutually acceptable compensation pursuant to DSU Article 22.2
• 7.4.1 Countermeasures: cross-retaliation and its limits
• 7.4.2 Equivalence: the level of permissible countermeasures, DSU Article 22.4
• 7.5 Prospective or retroactive remedies
• 7.6.1 The mandate of the Arbitrators
• 7.6.2 The burden of proof
• 7.6.3 The Arbitrators’ decision: first and last resort
• 7.6.4 Calculating the level of suspension of concessions
• 7.6.5 Indirect benefits: what counts as a nullified or impaired benefit?
• 7.6.6 Litigation costs are not recoverable
• 7.6.7 The special cases of prohibited and actionable subsidies
• 8 Compliance Following the Adoption of Countermeasures
• 9 The Sequencing Issue: DSU Article 21.5 vs. 22.2
• 10 Conclusions
• 1 The Most Favoured Nation Obligation as a Manifestation of the Principle of Non-discrimination
• 2.1 Policy rationale
• 2.2 Measures covered
• 2.3 ‘Any advantage, favour, privilege or immunity’
• 2.4.1 The basic definition of ‘like product’
• 2.4.2 ‘Irrespective of origin’
• 2.5 ‘Accorded immediately and unconditionally’
• 2.6 De jure and de facto discrimination
• 2.7 No demonstration of effects or intent required
• 2.8 No rebalancing permitted
• 2.9 The assumption of ‘likeness’ in case of origin-based discrimination
• 3 MFN in the GATS: Preliminary Remarks
• 4.1.1 Quotas
• 4.1.2 Waivers
• 4.2 Preferential trade areas (GATT Article XXIV and GATS Article V)
• 4.3 Special and differential treatment for developing countries (the Enabling Clause)
• 5 Conclusions
• 1.1 National treatment in the TBT and SPS Agreements
• 1.2 National treatment in the GATS
• 1.3 National treatment in the TRIPs Agreement
• 2.1 A broad protection against discriminatory and protectionist internal measures
• 2.2.1 The aim and effects test
• 2.2.2 ‘Likeness’ and the product–process distinction
• 2.2.3 GATT Article III: more than the sum of its constituent parts…
• 3.2.1 First element: the imported and domestic products are ‘like products’
• 3.2.2 Second element: the imported products are taxed ‘in excess of’ the domestic products
• 3.3.1 The imported and domestic products are ‘directly competitive or substitutable’
• 3.3.2 The domestic and imported products are ‘not similarly taxed’
• 3.3.3 The dissimilar taxation is applied ‘so as to afford protection’ to domestic production
• 4.1 The (allegedly) preferentially treated domestic product needs to be ‘like’
• 4.2 The measure is a law, regulation, or requirement affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of the products
• 4.3 The imported products ‘are afforded less favourable treatment’
• 5 Application of Article III to State-trading Monopolies
• 6 Application of Article III National Treatment Obligations to Sub-National Units of WTO Members
• 7 The Relationship between GATT Article III and Article XI
• 8.1 Government procurement (GATT Article III:8(a))
• 8.2 Subsidies to domestic producers (GATT Article III:8(b))
• 8.3 Internal maximum price control measures (GATT Article III:9)
• 8.4 Cinematographic films (GATT Articles III:10 and IV)
• 2.1 Introduction
• 2.2 The definition of ‘tariff’
• 2.3 Types of tariffs
• 2.4 The purpose and effects of (import) tariffs
• 2.5 Schedules of concessions
• 2.6 Tariffs bindings proper
• 2.7 Renegotiation of schedules and other tariff modifications
• 2.8 Classification of goods
• 2.9 Other duties and charges
• 3.1 Agreement on Customs Valuation
• 3.2 Customs fees and formalities connected with importation and exportation
• 3.3 Agreement on Import Licensing Procedures
• 3.4 Agreement on Preshipment Inspection
• 3.5 Agreement on Rules of Origin
• 3.6 Customs laws and procedures
• 4.1 Introduction
• 4.2 Prohibition on quantitative restrictions: a primer
• 4.3 Exceptions to the prohibition on quotas and other measures
• 5.1 State-trading enterprises
• 5.2 Technical barriers to trade
• 5.3 Sanitary and phytosanitary measures
• 5.4.1 Textiles and clothing
• 5.4.2 Agriculture
• 2 Historical Context
• 3 Non-trade Concerns in Agricultural Trade (‘Multifunctionality’)
• 4.1 Product coverage
• 4.2 Substantive provisions
• 4.3 Relationship to other WTO agreements
• 5.1 Overview
• 5.2 Tariffication and reduction commitments
• 5.3 Current and minimum market access
• 5.4.1 Special treatment and GATT exceptions, Article 4.2 and Annex 5
• 5.4.2 AoA Article 5 special safeguard provisions
• 6.1.1 Aggregated Measurement of Support
• 6.1.2 Exemptions from the calculation
• 6.2 ‘Blue box’ measures
• 6.3 ‘Green box’ measures
• 7.1 Definition of export subsidies
• 7.2.1 ‘Direct subsidies’
• 7.2.2 Sale or disposal for exports by governments or their agencies
• 7.2.3 Payments on export financed by virtue of governmental action
• 7.2.4 Subsidies to reduce marketing costs
• 7.2.5 Transport charges for export shipments more favourable than for domestic shipments
• 7.2.6 Subsidies on agricultural product contingent on their incorporation in exported products
• 7.3 Prohibition of circumvention
• 7.4 Reduction commitments
• 7.5 Export restrictions
• 8.1 Committee on Agriculture
• 8.2 The ‘Peace Clause’: history
• 8.3 Remedies after the expiry of the ‘Peace Clause’
• 9 Special Treatment of Developing Countries
• 10.1.1 Market access
• 10.1.2 Special safeguards
• 10.1.3 Export competition
• 10.1.4 Domestic support
• 10.2 Efforts to save the Doha Round: the Bali package and beyond
• 1 The Power of the Purse
• 2.1.1 Direct transfer of funds
• 2.1.2 Forgoing or not collecting government revenue that is otherwise due
• 2.1.3 Providing goods or services other than general infrastructure, or purchasing goods
• 2.1.4 Use of a private entity as intermediary
• 2.1.5 Attributing financial contribution to a government
• 2.1.6 Income or price support in the sense of GATT 1994 Article XVI
• 2.2.1 The ‘private investor test’ as a starting point
• 2.2.2 Identity of the recipient and the issue of ‘pass through’ of subsidies
• 2.2.3 Duration of benefits—the life of a subsidy
• 2.3 Specificity
• 3.1 Export subsidies
• 3.2 Import substitution subsidies
• 4.1.1 Like products
• 4.1.2 Domestic industry
• 4.1.3.1 Material injury to a domestic industry
• 4.1.3.2 Threat of material injury to a domestic industry
• 4.1.3.3 Material obstruction of the establishment of such an industry
• 4.1.3.4 Causation
• 4.2 Actionable due to ‘nullification or impairment of benefits accruing directly or indirectly to other Members under GATT 1994’
• 4.3.1 Definition of market
• 4.3.2 Displacement of and impediment to the imports of a like product
• 4.3.3 Serious prejudice due to ‘significant price undercutting by the subsidized product as compared with the price of a like product of another Member in the same market or significant price suppression, price depression or lost sales in the same market’
• 4.3.4 Serious prejudice due to ‘an increase in the world market share of the subsidizing Member in a particular subsidized primary product or commodity’
• 4.4.1 Causation issues
• 4.4.2 Methodology issues
• 5.1 Prohibited subsidies
• 5.2 Actionable subsidies
• 6.1 The substantive conditions for lawful imposition, in particular injury
• 6.2.1 Application by or on behalf of the domestic industry
• 6.2.2 Role of the Investigating Authority
• 6.3 The numerus clausus of measures to be taken after the conclusion of CVD investigations
• 6.4 Ending of the procedure by undertakings
• 6.5 Provisional imposition of CVDs
• 6.6.1 Quantitative determination of CVDs
• 6.6.2 Other legal questions related to imposition of CVDs
• 6.6.3.1 The sunset review
• 6.6.3.2 The administrative review
• 6.7 Judicial review
• 7 Special and Differential Treatment
• 8 Institutional Set-up
• 1.1 Dumping as sales below cost
• 1.2 Dumping as international price discrimination
• 1.3 Duration
• 1.4 Cost analysis
• 1.5 Welfare effects
• 1.6 Measures to counteract dumping
• 2.1.1 GATT Article VI
• 2.1.2 The Antidumping Agreement
• 2.1.3 Institutions and notifications
• 2.1.4 Developing countries
• 2.2.1 Initiating an investigation
• 2.2.2 Evidential issues
• 2.2.3 The duties of the investigating authority
• 2.3.1 Like product
• 2.3.2 Comparison of third-country prices
• 2.3.3 Constructed value
• 2.3.4 Arm’s length transactions and transactions between affiliated parties
• 2.3.5 Sales below cost
• 2.3.6 Fair price comparisons
• 2.3.7 Averaging
• 2.3.8 Zeroing
• 2.3.9 Non-market economy
• 2.4.1 Material injury or threat of material injury
• 2.4.2 Factors to be considered when determining injury
• 2.4.3 Factors to be considered when determining threat
• 2.4.4 Cumulation of injuries
• 2.4.5 Causation
• 2.5 Domestic industry
• 2.6.1 Provisional measures
• 2.6.2 Definitive measures
• 2.6.3 Retroactivity
• 2.6.4 Duration and review
• 2.7 Price undertakings (suspension of antidumping duty investigations)
• 2.8 Anti-circumvention
• 2.9 Dispute settlement
• 3.1 The US 1916 Antidumping Act
• 3.2 Future implications of the Panel and the Appellate Body report on the 1916 Act case
• 3.3 The US Offset Act
• 4 Conclusions
• 2 The Legal and Policy Framework for Safeguards in the GATT/WTO Regime
• 3.1 GATT Article XIX
• 3.2 The Safeguards Agreement
• 3.3 The relationship between GATT Article XIX and the Safeguards Agreement
• 3.4 Investigation
• 3.5 Provisional application
• 3.6 Determination of increased imports
• 3.7 Unforeseen developments
• 3.8.1.1 Serious injury
• 3.8.1.2 Threat of serious injury
• 3.8.1.3 Factors to be considered when determining injury or threat thereof
• 3.8.1.4 Domestic industry
• 3.8.2 Causation
• 3.9.1 Parallelism
• 3.9.2 Non-attribution
• 3.9.3 Extent of safeguards
• 3.9.4 Selectivity
• 3.9.5 Developing countries
• 3.9.6 GATT Article XIII
• 3.9.7 Duration and review
• 3.10 Notification and consultation
• 3.11 Compensation
• 3.12 The standard of review for safeguard disputes
• 4.1 The GATT
• 4.2 The WTO
• 5 Safeguard Measures in Textile and Clothing Trade
• 6.1 Prohibition in the Safeguards Agreement
• 6.2 Tension between voluntary export restraints and competition policy
• 1 The Role of the TBT and SPS Agreements
• 2 The Legal Relationship between the GATT, TBT, and SPS
• 3.1.1.1 Document
• 3.1.1.2 Identifiable product or group of products
• 3.1.1.3 One or more product characteristics
• 3.1.1.4 Compliance with the product characteristics must be mandatory
• 3.1.1.5 Holistic analysis
• 3.1.1.6 Processes and production methods
• 3.1.2 Standards
• 3.1.3 Conformity assessment
• 3.2.1.1 Like products
• 3.2.1.2 Less favourable treatment
• 3.2.2.1 ‘First, a “legitimate objective”…’
• 3.2.2.2 Does the technical regulation ‘fulfil a legitimate objective’?
• 1 Degree of contribution
• 2 The trade-restrictiveness of the measure
• 3 The nature of the risks at issue and the gravity of consequences that would arise from non-fulfilment of the objective(s) pursued by the member through the measure, taking into account alternative measures
• 3.3.1 Relevant international standard
• 3.3.2 Use of the relevant international standard as a basis
• 3.3.3 Is the relevant international standard an effective and appropriate means for the fulfilment of the legitimate objectives?
• 3.4 Equivalence and mutual recognition
• 3.5 Performance requirements
• 3.6 Additional obligations
• 3.7 Special and differential treatment
• 3.8 Institutional provisions
• 4.1.1 Sanitary or phytosanitary measure
• 4.1.2 Trade effect
• 4.2 Basic rights and obligations
• 4.3.1 Members shall base their sanitary or phytosanitary measures on international standards, guidelines, or recommendations
• 4.3.2 Deviating from international standards
• 4.3.3 Burden of proof in cases of deviation from international standards
• 4.4.1 Introduction
• 4.4.2.1 The obligation to have recourse to scientific evidence
• 4.4.2.2 Defining risk
• 4.4.2.3 Two types of risk assessment
• 4.4.3.1 In general
• 4.4.3.2 SPS Measures ‘based on’ risk assessment: due process requirements?
• 4.4.3.3 Taking into account risk assessment techniques developed by the relevant international organizations
• 4.5.1 Determining the appropriate level of protection
• 4.5.2 Consistency in the application of the appropriate level of protection
• 4.5.3 Necessity of the SPS measure with regard to the ALOP
• 4.6.1 The precautionary principle in the WTO and in customary international law
• 4.6.2 SPS measures adopted as a precaution
• 4.6.3 Maintaining provisional SPM measures based on SPS Article 5.7
• 4.7.1 Recognition of foreign SPS policy and measures
• 4.7.2 Adaptation to regional conditions, including pest- or disease-free areas and areas of low pest or disease prevalence
• 4.7.3 Control inspection and approval procedures
• 4.7.4 Procedural obligations
• 4.7.5 Special and differential treatment
• 4.8 Institutional provisions
• 4.9.1 Recourse to experts
• 4.9.2 Functions of adjudicators vs. functions of experts
• 4.9.3 Standard of review
• 1 Disciplining Preferential Trade Agreements
• 2 The Negotiating History of GATT Article XXIV
• 3.1 The cost side
• 3.2 The benefit side
• 4.1 Notification
• 4.2 Substantially all trade
• 4.3 External protection cannot be raised
• 5 PTAs in WTO Dispute Settlement
• 3.1 WTO discipline on export measures
• 3.2 Exceptions permitting export measures
• 4 Export Tariffs
• 5.1 Critical shortage/short supply
• 5.2 Creating competitive advantages for domestic downstream industries
• 5.3 Export measures necessary to protect human, animal, or plant life, or health
• 5.4 Export restrictions in conjunction with restrictions on domestic production and consumption
• 5.5 Export measures on natural resources: a tangle of inconsistent legal rules
• 6 Agricultural Commodities
• 7.1 GATT Article XXI
• 7.2 Extraterritorial application of export controls
• 8 Preferential Trade Agreements and Export Restrictions
• 9 Conclusions
• 1 Introduction to the GATS and Trade in Services
• 2 The Relationship between the GATT and the GATS
• 3.1 Definition of ‘service’
• 3.2 Definition of trade in services (modes of supply)
• 3.3 Measure by a member
• 3.4 Affecting trade in services
• 4.1.1.1 Likeness of services and likeness of services suppliers
• 4.1.1.2 Immediately and unconditionally
• 4.1.1.3 Less favourable treatment
• 4.1.2.1 Annex on MFN exemptions
• (a) Agreement liberalizing trade
• (b) Substantial sectoral coverage
• (c) Elimination of substantially all discrimination
• (d) Conditions regarding trade with third parties
• (e) Transparency
• 4.1.2.3 Mutual recognition agreements
• 4.1.3 Transparency
• 4.1.4 Domestic regulation
• 4.1.5 Competition-related requirements
• 4.2.1.1 Developing disciplines on domestic regulation
• 4.2.1.2 Provisional application of Article VI:4 principles
• 4.2.2 Transparency
• 4.2.3 Monopolies
• 4.2.4 Payments and transfers
• 4.3.1 Safeguards
• 4.3.2 Subsidies
• 4.4 Institutional provisions
• 5.1.1 The scheduling modalities
• 5.1.2 The 1993 and 2001 Scheduling Guidelines
• 5.1.3 Structure of schedules
• 5.1.4.1 Multilateral modification of schedules
• 5.1.4.2 Unilateral modification of schedules
• 5.2.1 Introduction
• 5.2.2 Relationship between Article XVI:1 and Article XVI:2
• 5.2.3 Forms of quantitative limitations
• 5.2.4 Relationship with the national treatment obligation
• 5.2.5 GATS Articles XVI and VI
• 5.2.6 GATS Articles XVI and XIV
• 5.3.1 Introduction
• 5.3.2.1 Specific commitments must have been undertaken
• 5.3.2.2 Measure affecting trade in services
• 5.3.2.3 Like services or service suppliers
• 5.3.2.4 Treatment no less favourable
• 5.3.3.1 Subsidies
• 5.3.3.2 GATS Articles XVII and VI:5
• 5.4.1 Overview
• 5.4.2 The mechanics of scheduling additional commitments
• 5.4.3.1 GATS Articles XVIII and II
• 5.4.3.2 GATS Articles XVIII and VI
• 5.4.3.3 GATS Articles XVIII and XIV
• 5.4.3.4 GATS Articles XVIII and XXI
• 6.1 Introduction
• 6.2 Necessity in GATS Article XIV
• 6.3.1 Public morals and public order
• 6.3.2 Human, animal or plant life, or health
• 6.3.3 Measures to secure compliance with GATS-compatible laws and regulations
• 6.3.4 Discriminating measures relating to taxation and double taxation agreements
• 6.4 Compliance with the chapeau of GATS Article XIV
• 7.1.1.1 The Annex
• 7.1.1.2.1 The rationale for negotiating the Reference Paper
• (a) Anti-competitive practices envisaged
• (b) Interconnection
• (c) International interconnection
• (d) Cost-oriented rates for interconnection
• 7.1.2.1 The telecoms specificity of the Services Sectoral Classification List
• 7.1.2.2 Level of commitments by modes of supply
• 7.1.2.3 Types of limitations maintained
• 7.2.1.1 Financial services
• 7.2.1.2 Financial service supplier
• 7.2.1.3 Prudential carve-out
• 7.2.2 The Understanding on Commitments in Financial Services
• 8 Conclusions
• 2 Types of Intellectual Property Rights Addressed in the TRIPs Agreement
• 3 Overview of the TRIPs Agreement
• 4 Institutional Arrangements
• 5 Provisions Relating to Developing Countries
• 6.1 Benefits and costs of higher IP standards for developing countries
• 6.2 Patentability
• 6.3 Protection of traditional knowledge and culture
• 6.4.1 Access to genetic resources
• 6.4.2 Transfer of technology
• 6.4.3 The disclosure solution
• 6.5.1 Compulsory licensing
• 6.5.2 Parallel imports
• 6.5.3 Beyond the TRIPS Agreement
• 6.6 Food and farmers’ rights
• 7.1 The relationship between the TRIPs Agreement and other intellectual property treaties
• 7.2 Acquisition and maintenance of intellectual property rights
• 7.3 National treatment and most favoured nation treatment
• 8.1 Copyright and related rights
• 8.2.1 Patent excludability
• 8.2.2 Limited exceptions
• 8.2.3.1 Differing views on compulsory licensing
• 8.2.3.2 Provisions in the TRIPs Agreement
• 8.2.4 Criticisms of the patentability Article of TRIPs
• 8.3 Trademarks and service marks
• 8.4 Geographical indications
• 8.5 Undisclosed information or trade secrets
• 8.6 Industrial designs
• 8.7 Layout designs of integrated circuits
• 9.1 General principles
• 9.2 Civil and administrative procedures and remedies
• 9.3 Criminal procedures
• 9.4 Border measures
• 9.5 Provisional measures
• 9.6 Dispute settlement
• 10 Exhaustion of Intellectual Property Rights
• 11.1 Types of restrictive business practices involved in technology licensing agreements
• 11.2 Article 40 of the TRIPs Agreement
• 12 Conclusions
• 1 The Government Procurement Agreement as a Plurilateral Agreement
• 2.1 A brief history
• 2.2 The Tokyo Round Agreement
• 2.3 The WTO Government Procurement Agreement
• 3.1 An overview of the 2012 Agreement
• 3.2 Electronic auction
• 3.3 Scope and coverage
• 3.4 Security and general exceptions
• 3.5 General principles—non-discrimination
• 3.6 Developing countries
• 3.7 Tendering
• 3.8 Technical specifications
• 3.9 Domestic review procedure
• 3.10 Consultations and dispute settlement
• 3.11 Negotiations under GATS Article XIII
• 4.1 Article XXIII of the Agreement
• 4.2 The European Union
• 4.3 The United States
• 5.1 In general
• 5.1.1 The Trondheim case
• 5.1.2 The Korean Inchon Airport case
• 5.2.3 The State of Massachusetts case
• 5.2.4 The Japan Railway case—a dispute settlement at challenge procedures
• 1.1 The early years
• 1.2 Haberler vs the Singer–Prebisch Thesis
• 2.1 First a waiver
• 2.2 And then the Enabling Clause
• 2.3 Lack of reciprocity underlined
• 3.1 The key elements
• 3.2 The Enabling Clause in the WTO legal order
• 3.3 Who are the beneficiaries? Developing countries and LDCs
• 3.4 Distinguishing beyond the developing countries/LDCs dichotomy
• 4 Other Provisions on Special and Differential Treatment
• 5 Institutional Provisions
• 6 The Limits of WTO Involvement
• 2 Environmentalist Trade Demands: A Critical Analysis
• 3 The Environmental Impact of Trade
• 4 The Tuna Dolphin Cases: A False Start
• 5.1 GATT Article XX(g)
• 5.2 GATT Article XX(b)
• 5.3 GATT Article XX(a)
• 5.4 The chapeau of GATT Article XX
• 6 Multilateral and Bilateral Environmental Agreements
• 7 Unilateral Measures
• 8.1 Export restrictions
• 8.2 Subsidies
• 8.3 The Canada—Renewable Energy cases
• 8.4 Import tariffs and restrictions
• 9.1 Raw materials and minerals
• 9.2 Wildlife
• 9.3 Forest products
• 10.1 Standards and technical regulations
• 10.2.1 Environmental agreements
• 10.2.2 Environmental management systems
• 10.2.3 Investment
• 11 Recycling and Packaging
• 12 Eco-labelling
• 13.1 Domestically prohibited goods
• 14.1 Taxes on products
• 14.2 Taxes on resource use
• 14.3 Taxes on inputs
• 15.1 A domestic carbon tax and border tax adjustment
• 15.2 Cap-and-trade laws and energy taxes and charges
• 15.3 Climate change and the TBT Agreement
• 16 Conclusions
• 1.1 High hopes in Havana
• 1.2 The FIRA report
• 1.3 The failed Multilateral Agreement on Investment (MAI)
• 2.1 The scope of TRIMs
• 2.2 TRIMs and multilateral agreements on trade
• 2.3.1 TRIMs inconsistent with GATT Article III
• 2.3.2 TRIMs inconsistent with GATT Article XI
• 2.4 Procedural obligations
• 2.5 Institutional provisions
• 3.1 Investment-relevant specific commitments
• 3.2 Investment-related GATS disciplines pursuant to mode 3 and mode 4
• 4 The Agreement on Subsidies and Countervailing Measures (SCM)
• 5 The Agreement on Trade-Related Aspects of Intellectual Property (TRIPs)
• 6 The Agreement on Government Procurement (GPA)
• 2.1 International, export, and import cartels
• 2.2 Boycotts, tie-in contracts, and vertical restraints
• 2.3 Mergers and acquisitions
• 3.1 The Agreement on Technical Barriers to Trade
• 3.2 Trade in services
• 3.3 National treatment
• 3.5 Antidumping
• 3.6 Intellectual property and trade-related investment measures
• 3.7 Voluntary export restraints
• 4.1 What is extraterritorial application?
• 4.2 Conflict of jurisdictions
• 5.1 Trade policy and competition
• 5.2 The Semiconductor case
• 5.3 Competition policy implications of the Semiconductor Agreement
• 5.4.1 The Kodak/Fuji case
• 5.4.2 The US 1916 Act case
• 5.4.3 The Canada Dairy case
• 5.4.4 The Mexico—Telecoms case
• 5.4.5 Voluntary export restraint and competition policy
• 5.5.1 The Fax Paper case
• 5.5.2 The Malaysian ETR case
• 5.5.3 The Saskatchewan Potash case
• 5.5.4 The US–Japan Semiconductor Agreement
• 5.5.5 Confrontation and compromise between antidumping and competition policy
• 5.6.1 Export cartels
• 5.6.2 Import cartels
• 6.1.1 Activities of the working group on trade and competition policy in the WTO
• 6.1.2 Review of the working group’s reports
• 6.1.3 Consensus
• 6.1.4 Divergent views
• 6.1.5 The Ministerial Declaration on Competition Policy adopted at the Doha Ministerial Conference in November 2001
• 7 Concluding Remarks

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Go to full text on:

• United Nations

Treaty Establishing the European Community (as amended by other Treaties) (European Union) [2006] OJ 321 E/37 (Date signed: 25th March 1957)

• External Link

7 National Treatment

Mitsuo matsushita, thomas j. schoenbaum, petros c. mavroidis, michael hahn, from: the world trade organization: law, practice, and policy (3rd edition), mitsuo matsushita, thomas schoenbaum, petros c. mavroidis, michael hahn.

This chapter discusses the National Treatment (NT) obligation present in all World Trade Organization (WTO) agreements. It begins with a brief overview of important NT provisions in the Agreement on Technical Barriers to Trade (TBT) and the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS), in the GATS, and under the TRIPS Agreement. It then discusses the general NT obligation in GATT enshrined in its Article III. It covers the application of Article III to state-trading monopolies; the application of Article III national treatment obligations to sub-federal units of WTO members; the relationship between Article III and Article XI of the GATT; and exceptions to the National Treatment Principle.

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1 The Challenges of the TRIPS Agreement

• Published: April 2012
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This Chapter presents a synopsis of the argument advanced in the book. It recognizes the comprehensiveness of TRIPS and the theory of comparative advantage that underlies its adoption as part of a trade regime. But it challenges the understanding of TRIPS as a “supranational code,” a comprehensive code of intellectual property law that dictates exactly how WTO members must protect knowledge-intensive goods. Instead, it emphasizes that intellectual property is a complex regime that reflects notions of balance, diversity and historical contingency. There must be a balance between the interests of proprietors in securing a return from their investments and the interests of followers and the public in a robust domain of accessible knowledge. Because countries with different economic and cultural conditions will need to adopt different approaches to intellectual property, a one-size-fits-all code is undesirable. And as the creative ecosystem evolves, so too must intellectual property law. These features of intellectual property law support the need to view TRIPS through a neo-federalist lens. The Chapter illustrates the stakes involved in looking at TRIPS as a code and, conversely, at the advantage of seeing it from a neofederalist perspective, by examining the controversy over gene patents.

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Chapter 6 TRIPS Agreement: The Negotiating History of the TRIPS Agreement and Patent Exhaustion

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Different aspects of ipr s are governed and administered by different international inter-governmental organisations ( igo ) under the aegis of number of international treaties and multilateral agreements. The World Intellectual Property Organisation ( wipo ) is the specialised organ of the United Nations (UN) to administer ipr s globally, however the United Nations Educational, Scientific and Cultural Organisation ( unesco ) also addresses certain issues of ipr s like Copyright. 299 In today’s context, amidst a broad array of multilateral agreements on ipr s, one important agreement is the trips . With the signing of the gatt 1994 and establishment of the wto , trips Agreement became a founding pillar of the gatt 1994. gatt 1947 had nominally covered issues related to ipr s without any effectiveness and were taken up first as a matter of serious discussion only in the Tokyo Round of gatt Ministerial Conference in 1978.

Intellectual Property Conventions 1. In respect of Parts 2, 3 and 4 of this Agreement, Members shall comply with Articles 1 through 12, and Article 19, of the Paris Convention (1967). 2. Nothing in Parts I to iv of this Agreement shall derogate from existing obligations that Members may have to each other under the Paris Convention, the Berne Convention, the Rome Convention and the Treaty on Intellectual Property in Respect of Integrated Circuits.

Along with the gatt and General Agreement on Trade in Services ( gats ), the trips Agreement forms one of the pillars of the wto -based multilateral system. In that it continues to follow the fundamental principles of non-discrimination through an elaborate and transparent regime of Most Favoured Nation ( mfn ) and National Treatment ( nt ) that existed in Paris and Rome Conventions. 301 However, deviating from the Paris Convention, which allows members to determine the subject matter of patents, the trips Agreement elaborately defines patentable subject matter and also exceptions to patentability. 302 Further, a significant move from status-quo with the trips Agreement coming into effect was its inclusion in wto dispute settlement mechanism. The issue of counterfeit trademarked products along with copyright piracy as problems hindering multilateral trade, were widely discussed right from the Tokyo Ministerial Round. Through protruded negotiations, it took the shape of trips at the Punta del Este round culminating elaborate enforcement mechanisms within the Agreement itself. 303

The fundamental reason for introducing mfn and nt in the multilateral trading system under the wto is to have equal conditions of competition to determine that like products are treated equally. 304 The importance of this agreement lies in the fact that it established a uniform minimum standard of protection of ipr s, 305 as well as directly connected ipr s with multilateral trade. Thus, the trips Agreement provides a harmonised bottom floor of protection of ipr s for all members while allowing the members to decide the upper level of protection they prefer to provide.

The other significance of the trips Agreement is that while a multitude of different treaties on ipr s catered to the governance and administration of ipr s, the linking of them with trade is through the trips Agreement and it brought ipr s within the realm of the dispute settlement mechanism of the wto . The Understanding on Rules and Procedures of Governing the Settlement of Disputes in the wto , commonly referred to as Dispute Settlement Understanding ( dsu ), covers the trips . 306 The mandatory surrender to the dispute resolution mechanism of the wto with appeal provisions before the Appellate Body ( ab ) of the wto , a permanent standing body, made the trips unique in comparison with any of the other treaties on different ipr s. 307

This completely changed the scenario since it was no longer just the industrialised nations that would need to provide effective protection of ipr s, but all members would need to have a common minimum threshold of protection (subject to certain transition time flexibility). This minimum threshold was much higher than that followed in the municipal laws of many gatt members at the time when trips became part of the wto system with the signing of gatt 1994. At the time trips was signed, many of the member countries restricted patent protection only to processes and not products. Further, in many countries, protection was lower than 20 years and over 40 countries did not provide patent protection to pharmaceuticals. 308 With the introduction of trips that was all set to change.

Since the 1967 Stockholm Revision, the Paris Convention contains a rule on dispute settlement (Art. 28), according to which, as first step, negotiations between the disputants should take place, and then, in the absence of a mutual agreement, the matter is to be brought before the International Court of Justice. This regulation is to be seen as a special, contractual submission to the jurisdiction of the International Court of Justice. It is applicable to all Union countries unless they have declared that they do not consider themselves bound (Art. 28.2)

However, even with such regulations, adjudication by the icj was not effective. 309

The trips Agreement stands unique from the other wto Agreements by way of acknowledging individual rights. 310 Thus at one end it precludes discrimination between international trade 311 and on the other it allows the members necessary flexibility to countries to interpret crucial substantive issues like ‘ novelty ’, ‘ inventive step ’, ‘ disclosure ’, ‘ grace period ’, while according individual rights. Interesting to note that while the rights are elaborated at great extent, the trips Agreement does not mandate any specific mode of exhaustion even when exhaustion is covered in Article 6 of the Agreement. Apparently, it allows the members to adopt any mode of exhaustion it prefers. This, although seems to provide flexibility to the members, only adds to the confusion and hinders seamless removal of barriers to multilateral trade.

6.1 Intellectual Property Rights under the gatt and the Negotiating History of trips

First and foremost, I am convinced that it would be very serious if protection of ip were to stifle and prevent research. In a sense it would be self-defeating. There would be less genuine progress to protect. My other concern is more general. I think both politicians and the business community should consider the obvious need to demand a clear, visible, inventive step in order to award 20 years’ protection from competition. 313

Apart from such published memoirs, this book has also sourced the negotiating history from such scholarly works and through the author’s personal interactions with some of the negotiators of the trips Agreement where published records were not available.

From the beginning there was scepticism as to whether ipr s as a non-trade issue should have been linked with trade issues under the new wto regime. There was a strong belief that ipr s under trips were significantly different from other trade issues such as the labour and environment standards. Also, in effect, trade liberalisation undertaken on a multilateral platform produces positive efficiency where ipr s are trade restrictive. This is since ipr s can lower the economic welfare by increasing costs due to the monopolistic nature of the ipr s. 314

At the time when the gatt was negotiated after World War ii , even strong technology-based exporting countries like the US had less than 10% percent of its exports tied to ip . 315 For this reason there was initially not much interest even among the industrialised countries to link up international trade and ipr s internationally. On the other hand, developing countries did not have any interest in linking ipr s and international trade issues since they were mainly ipr s importing countries. They preferred not to increase the cost of the products through enhanced transaction costs due to protection of ipr s. For this reason, although ipr s were referred to in the original gatt 1947 Agreement, they were not so elaborate. 316 They were in terms of rights and obligations related to goods. In fact, some other international agreements like the ‘ Customs Valuation Code ’ and the ‘ Standards Code ’ had more elaborate provisions. 317

Much later, during the US president Ronald Reagan’s tenure, the US government decided on linking international trade and ipr s at that 98th US Congress. As a result of this, number of measures were taken to examine the level of ipr s that are maintained by the trade partners of US and how it affected trade with these partners. 318 This led to the promulgation of The Trade Act of 1984 in US, wherein different policy issues to address protection of ipr s were introduced. Initially steps were taken on the bi-lateral front wherein the US managed to effectively change the ip regimes of some of its partners (e.g. Korea, Taiwan and Singapore). By this time the US government also started moving the ip issues at the international front and it was taken up at the gatt negotiations as an issue of trade in counterfeit goods. In fact, the issue of commercial counterfeiting was first taken up at the end of the Tokyo Round of the gatt 1978 Ministerial meeting. But due to lack of consensus it had to be dropped from the agenda. Later the matter came up again in the Ministerial Declaration of the gatt in 1982.

The first time ipr s came up for discussion was regarding the need for stricter enforcement measures to restrict counterfeit of trademarked products and copyright piracy. The USA and the eec tried to initiate negotiations on a draft ‘ Anti-Counterfeit Code ( acc ) ’ at the end of Tokyo round but did not pick up any traction due to lack of support from other industrialised countries. 319 Further, although the issue of higher protection of ipr s had come up in the Tokyo Round, it did not bring any impact. The US was not satisfied with the results and in the early 1980s, protectionist tendencies had already been rising in the US Congress. 320

In the gatt , a group of ip experts was formed in 1984 to assess the situation given that there were differences on many issues (e.g. whether gatt was the right forum to address ipr s issues, what should be covered in the ipr protection code), however the core issue generally remained ipr s. There was a consensus that the problem in trade in counterfeit goods had to be tackled and the matter was taken up again in the mid-term review meeting at Montreal in 1986, wherein the US government mainly aimed at stopping piracy. The US government exerted tremendous pressure on specifically countries which accorded weaker protection of ipr s through its ‘ Special 301 ’ unilateral punitive measure under ‘ Omnibus Trade and Competitiveness Act ’ of 23rd August 1988. 321

Most of these were developing countries that were severely impacted with serious public health and access to affordable medicine problems. They used weaker patent laws that supported legitimate reverse-engineering to locally manufacture pharmaceutical drugs but did not necessarily have weak trademark laws or their enforcement. It is interesting to note that a perception was created by vested interests that developing countries were counterfeiters while the accuser industrialised countries were the sufferers. This narrative was deliberately expanded and propagated pushing the developing countries to a defensive position and making the way for enhanced demands for stricter protection norms under the gatt umbrella. 322

Some members presented fifteen subjects on the negotiation agenda but the members failed to gain consensus on four issues, of which the issue of trade in counterfeit goods was one. 323 The developing country members resisted inclusion of trade in counterfeits for some time, but gradually yielded. The first signal of yielding was noticed when fourteen developing country members presented their position on enforcement of trademarks and copyrights. 324 There were many other issues including some on which there were differences between the industrialised countries that kept the debate going, but finally the mandate to introduce regulations on trade in counterfeit goods was given at the Punta del Este, 1986 Ministerial meeting in Uruguay. 325

The Industrialised countries had formed the ‘ Quad ’ group, which pushed for stricter enforcement of ipr s included in the gatt regime with a wide coverage of ip s. This was countered by another group of 10 developing countries led by India and Brazil with Argentina, Cuba, Egypt, Nicaragua, Nigeria, Peru, Tanzania and Yugoslavia also joining. They resisted formation of a comprehensive code on ip within the gatt . 326 Finally, a ten-plus-ten group was formed and under the leadership of the chair of the negotiating group and assistance of the secretariat, negotiations proceeded to the July 1990 text.

The July 1990 text was the most controversial text since for the first time there was an official proposal that expanded beyond trade in counterfeits and pirated goods. ‘ Approach A ’ proposals from developed countries included all aspects of ipr s and ‘ Approach B ’ proposal from developing countries that restricted reference only to counterfeits and pirated goods. Eventually ‘ Approach B ’ moved up to the Brussels text but was dropped as a separate alternate text since it was not considered credible. In fact, ‘ Approach B ’ was incorporated in the comprehensive text including all ipr s hence it became redundant.

The role played by the private sector in pushing the ipr s issue in the gatt negotiations was very crucial at this stage. Practically they were the driving force in moving the issue of protection of ipr s beyond the debate on trade in counterfeit goods. The pharmaceutical, software and entertainment industries played a vital role, led by the Chief Executive Officer of the prominent US pharmaceutical giant, Pfizer as the Chairman of the Intellectual Property Rights Committee ( ipc ). Within two years the ipc managed to create a coalition of international multinational corporations ( mnc ) which comprised not only industries from the US but also from Europe and Japan. This coalition exerted influence on their governments to go beyond restriction on trade in counterfeit goods. As a result, issues like ‘ minimum standards of ipr s protection ’, ‘ strict enforcement mechanisms ’ and ‘ dispute settlement ’ under the new gatt rules were laid on the table. This was objected by the developing countries led by Brazil and India, gradually depicting a larger North-South divide.

The issue of ip protection had caused a good bit of tension not just two camps with India and Brazil on one side and the US and EU on the other, but in general it polarised industrialised nations on one side and the developing world on the other. It even took the turn of an ideological dispute since the industrialised members pushed its ideology on the developing countries. This is because the industrialised countries tried to follow the line of natural justice wherein they tried to argue that they should not be robbed off their technological and literary innovations. While the developing countries felt that the ipr s would increase their costs since protection of ipr s would transfer wealth from their countries without providing proportionate social and economic gains. 327

One of the main objections by developing nations to introduce ipr s protection measures, beyond trademarks and copyrights that would address counterfeits and pirated goods was because they would lose the ability to use reverse-engineering as a mode of technology dissemination. The developing nations believed that strict patent rights would hinder technology-transfer since they would increase the difficulty as well as costs in absorbing new technologies. They felt that there were double standards since their present position is not different to what many of the developed countries had in the last eighteenth and nineteenth centuries. 328 Further, the trips Agreement placed a significant burden on the developing countries in terms of completely reforming the ipr s legal regime in most developing countries. This increased the transaction costs in introducing and implementing the changes on one hand and with the harmonised bottom level of protection on the other. It also imposed negative economic implications in the short run where rents got transferred from developing to developed nation. 329

India which was in the forefront of resistance against including ipr s, objected, based on the belief that enhanced protection of ipr s would retard the pace of the country’s economic development because India had witnessed a tremendous growth in the generic pharmaceutical sector by removing product patents on pharmaceuticals. 330 But still in India the debate regarding ip protection was divided between definite groups but not effectively organised via associations or organisations as was noticed at later times. Some industries that would possibly be affected by a new stricter regime was against it, while others which had a more global stake was in favour of the need for enhanced protection. 331 It is well known that Brazil and India took the leading role on behalf of the developing countries in the debate on ipr s and tried to keep trips issues outside the gatt framework or to maintain a status quo because they had industries that would be negatively affected.

Amidst all the heat on the ipr s, the Uruguay Round of the gatt started on 20th September 1986 at Punta del Esté. In the initial stage the Ministers representing the different Members issued the Ministerial Declaration to establish guidelines regarding the topics to be covered by the negotiations that included subjects like tariffs, non-tariff measures, safeguards, textiles and clothing, agriculture, subsidies and countervailing measures, dispute settlement and the most important among few others were that on ipr s. 332 There was a strong opinion that bringing ipr s into gatt was actually stretching gatt into the domains of wipo and unesco . 333 However once the negotiations picked steam, it was clear that there was no possibility of preventing ipr s to be included along with the gatt agreement. India tried to block the mfn and nt in gatt from applying to ipr s on the grounds that since the obligations were related to goods and not rights of persons, these should not apply. However, although most of the developed countries had already settled to accept ipr s in the agenda, India’s efforts were side-lined and it too like others agreed to include ipr s to restrict trade in counterfeits and pirated goods.

In order to reduce the distortions and impediments to international trade, and taking into account the need to promote effective and adequate protection of intellectual property rights, and to ensure the measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade, the negotiations shall aim to clarify gatt provisions and elaborate as appropriate new rules and disciplines. Negotiations shall aim to develop a multilateral framework of principles, rules and disciplines dealing with international trade in counterfeit goods, taking into account work already undertaken in the gatt . These negotiations shall be without prejudice to other complementary initiatives that may be taken in the World Intellectual Property Organisation and elsewhere to deal with these matters. 334

After nearly eight years of trade negotiations, the gatt 1994 agreement establishing the wto was signed and became effective from 1st January 1995. The overall issue of ip was covered by a separate agreement – Agreement on trips , covered under gatt 1995. The trips Agreement became part and parcel of the wto system as soon as it came into existence. 335 A transition period of one year was allowed 336 to all countries that needed to amend their domestic laws to bring them in compliance with trips . Developing countries were provided an additional ten years to comply to trips , but were required to introduce mechanisms to accept applications for patents from 1st January 2000 either immediately or through a mailbox for deferred examination of patent while providing an immediate emr to these applications. 337

After long and protruded negotiations and consistent resistance, the developing countries finally agreed to the trips Agreement once certain important flexibilities were incorporated into it. 338 The trips Agreement introduced a common minimum standard of ipr s for all members and further, it brought ipr s in direct relationship with multilateral trade for the first time. It became the most comprehensive agreement on ip without replacing the different international conventions and treaties that had been signed earlier.

6.2 The Negotiating History of Exhaustion

It is important to note that at the time of negotiating trips Agreement, industrialised countries were already generators of ip while the developing countries were not, but both were net users. Hence the obvious divide between developed and the developing nations where the developed countries wanted strictest level of ipr s protection and the developing countries wanted to treat ipr s goods as knowledge goods thus public products, to be used for economic development rather than private gains. 339 ipr s were introduced in the negotiations with the sole intention to restrain trade in counterfeit goods and it was obviously difficult to oppose. In the beginning, on 20th September 1986 when the ministers adopted the initial declaration, a very prominent objective outlined by the declaration was that, the measures and procedures to protect ipr s themselves should not become barriers to legitimate trade.

27. The question has been raised as to what would be the substantive intellectual property norms by reference to which counterfeit goods should be defined. In this regard the following points have been made: – parallel imports are not counterfeit goods and a multilateral framework should not oblige parties to provide means of action against such goods. 340

Limited exceptions to the exclusive rights conferred by a trademark, which take account of the legitimate interests of the proprietor of the trademark and of third parties, may be made, such as fair use of descriptive terms and exhaustion of rights. 342

On the contrary, the US presented a proposal in support of national exhaustion of trademarks. 343 This was opposed by the developing countries including India. They had proposed international exhaustion for both patents and trademarks. 344

[Patents] Article 24: Rights Conferred . A participant expressed the view that the proposed provisions on rights conferred were not in line with the principles of intellectual property protection, for example because they tried to invalidate parallel imports and the doctrine of exhaustion of rights. 345

unless expressly provided to the contrary in this agreement, nothing in this agreement shall limit the freedom of parties to provide that any intellectual property rights conferred in respect of the use, sale, importation and other distribution of goods are exhausted once those goods have been put on the market by or with the consent of the right holder. 347

The Anell Draft was duly revised to include specific provision on exhaustion separate from the issue of counterfeit goods but there was no modification of the exhaustion clause. 348 This was the first time that the issue of ‘ exhaustion ’ appeared in the issues for negotiations in somewhat direct manner. 349 However due to stiff resistance from the United States which wanted to install a ‘ national exhaustion ’ mode, it was still not clear whether international exhaustion can be introduced universally. 350 The US proposed provisions of national exhaustion was termed as ‘ international non-exhaustion ’ rule where the ipr s in one jurisdiction would not exhaust with the first sale in any other wto member country jurisdiction. The exhaustion issues witnessed North-South cooperation with some of the commonwealth countries like Hong Kong, Australia and New Zealand taking the lead to exclude parallel trade from dispute settlement with number of developing countries following. The industries lobbied extensively with their governments and even when a number of countries preferred international exhaustion, the interest of increased profits restrained the members any consensus position on exhaustion. 351

Subject to the provisions of Article 3 and 4 above, nothing in this Agreement impose any obligation on, or limits the freedom of, parties with respect to the determination of their respective regimes regarding the exhaustion of any intellectual property rights conferred in respect of the use, sale, importation or other distribution of goods once those goods have been put on the market by or with the consent of the right holder. 352

The modification of the earlier draft to change the language content, clearly shows that the drift from the mode of international exhaustion was not focused on any principle of removal of trade barriers but rather to cater to the demand of some influential negotiating members. Further the lack of progress in the negotiations on Agriculture, Services and Market Access also had a negative effect on the trips negotiation. Further study of the negotiations shows that instead of moving towards a consensus the negotiations on determining exhaustion was about to become standstill. There was confusion as to how the right holder would exhaust the right and a deep divide was noticed between developing and industrialised members that restricted any consensus on the issue. 353

[Products] Where the subject matter of the patent concerns a product, the owner of the patent shall have the right to prevent third parties from performing, without his authorisation, at least the following acts: the making of the product, the offering or the putting on the market of the product, the using of the product, or the importing or stocking of the product for such offering or putting on the market or for such use. [Processes] … Exceptions to Paragraphs (1) and (2) (a) Notwithstanding paragraphs (1) and (2), any Contracting Party shall be free to provide that the owner of a patent has no right to prevent third parties from performing, without his authorisation, the acts referred to in paragraphs (1) and (2) in the following circumstances: Where the act concerns a product which has been put on the market by the owner of the patent, or with his express consent, insofar as such an act is performed after that product has been put on the market in the territory of that Contracting Party, or in the case of a regional market, in the territory of one of the members States of such group. 354

There appears to be no dissent from the view that under the existing international regimes, countries are already free to practice whatever system of exhaustion they wish, and it has proved to be impossible to negotiate any modification or restriction on this freedom whatsoever. This is to a large extent due to the absence of any kind of consensus internationally on what should or what should not be permissible. 355

for the purposes of dispute settlement and subject to Article 3 and 4, nothing in this Agreement shall be used to address the issue of the exhaustion of intellectual property rights. 356

It is understood that the US, European and Japanese Pharmaceutical industry representatives that grouped together under the name ‘ interpat ’ exerted influence on their countries’ negotiators to take a very strict ipr s stand. In their joint views that they had released after the presentation of the Dunkel Draft, they pressed for complete deletion of the text on exhaustion in Article 6 and preferred a clear adoption of ‘ National exhaustion ’. 357 Further they also wanted the related footnote in Article 28 (1) to be removed. However, there was strong opposition by developing countries when the industrialised members tried to establish a national exhaustion regime and fearing a total failure on the issue, the matter was dropped. As a result, a compromise took shape in the form of Article 6 of the trips text (which is an unaltered version of that in the Dunkel Draft). Although it is true that national mode of exhaustion was not introduced, a mode of international exhaustion was also not installed per se . However, the compromise resulted in removal of exhaustion related disputes from the purview of the dsb .

One can argue that both national and international exhaustions have their drawbacks. National exhaustion allows market segmentation and differential pricing, so obviously less expensive parallel imports can be blocked. This means that this type of exhaustion is not favourable for the consumer since who would have to pay more for a product that is available at a cheaper price in the international market. International exhaustion is said to be deficient from the perspective of the ipr s owner who could have reaped higher profits based on the territorial royalty consideration. 358 It is ironical that from the beginning of the negotiations, while members discussed ways and means to remove barriers to trade with immense enthusiasm for globalisation, things changed outright the moment discussion started on exhaustion of ipr s. The negotiations were said to have broken down completely on this issue and although there was a lot of deliberation on how national ipr s were to work at the international level, there was only signs of disagreement as far as the vital issue of exhaustion of ipr s was concerned. As a result of this, trips in its apparent interpretation and without any decision of the dsb of the wto on the issue of exhaustion of patents, not only remained a dissatisfactory agreement but allowed ipr s to become a barrier to international trade. 359

6.3 Exhaustion under trips / wto : Analysis from the Multilateral Trade Perspective

The fundamental principle on which the wto as a multilateral system is built is the concept of elimination of illegitimate barriers to trade. It advocates removal of barriers that can restrict free movement of goods and services within different geographical boundaries. This is further based on the economic concept of comparative advantage that encourages specialisation to bring in efficiency in the market and thus enhance production . The main reason for bringing ipr s within full purview of gatt 1994 was to remove illegitimate barriers to trade in ip goods through proper enforce mechanisms that got initiated to restrain trade in counterfeits and pirated goods.

Issues like exhaustion of ipr s can be considered core, given that its treatment would ascertain treatment of parallel importation. Once limited to restraining trade through legitimate exceptions, ipr s became an integral part of the wto multilateral trade regime. It is rather astonishing that even when the aim of gatt is to remove rent-seeking measures, the negotiating members could not determine on the mode of exhaustion and ideally install the type of exhaustion that would be based on the fundamental principles of the gatt 1994 regulations. 360

The issue of exhaustion was one of the most difficult issues during the trips negotiations since some, adamantly favoured adopting national exhaustion while others were equally bent on installing international exhaustion. Finally, it was rested by the decision to exclude the issue of exhaustion from the purview of the wto as a compromise. 361 The cause for the confusion in determining a particular mode of exhaustion is because countries were not sure whether ip law should supersede trade law. In case of national exhaustion, it can be argued that because it restricts entry of competing goods from licensed producers of other countries, the goods might not be available at the lowest price. In addition, it causes hindrance to competition in the market and thus negatively affecting international trade. But at the same time, it enforces a stricter ip regime and allows enhanced exclusivity through stricter enforcement of ipr s. Whereas in the case of international exhaustion, it also allows manufacturers of parallel goods from licensed producers to make use of the comparative advantage and thus manufacture and market their products at a lower price. International exhaustion would enable not only open market competition but also in the process result in more efficient allocation of resources. 362 Such practice is supported by the principles of multilateral trade law in line with the wto rules. Moreover, one needs to ascertain the level of monopoly that the ipr s should provide.

On the other hand, if international exhaustion is followed then, it is stated by its critics that the economic benefits of a legal monopoly accorded to the owner of an ip might not be exploited to its fullest capacity. Hence according to some critics, it will undermine the purpose of having ipr s. Although one cannot ignore the fact that the essential functions of ipr s are not to artificially partition a market (as it is done when national exhaustion is followed). It is further argued that if the ip owners sold products in one country and exhausted the rights internationally, then the owner would most likely try to charge a higher price to cover the less profit that would result due to exhaustion. Thus, the monetary interest behind having the ip right would be at stake. Further, it could also be possible that the ip owner would avoid differential pricing, which in the long run would go against the argument that international exhaustion would encourage more competition and low prices.

There was considerable confusion amongst trips negotiators to commit on a single mode of exhaustion of the ipr s and hence it became a backburner. 363 Before moving into a debate over the confirmation of the most preferred mode of exhaustion from multilateral trade perspective, a detailed analysis of the different Articles of the trips Agreement as well as the gatt and any other covered Agreement of the wto is essential.

6.3.1 Patent Exhaustion under the trips Agreement

6.3.1.1 preamble to the trips agreement.

to reduce distortions and impediments to international trade, and taking into account the need to promote effective and adequate protection of intellectual property rights, and to ensure that measures and procedures to enforce intellectual property rights do not themselves become barriers to legitimate trade; 364

Among the limited number of trips cases that have been addressed by wto Panels and the ab , in India – Pharmaceutical Patents Case 365 the ab legitimizes the importance of the Preamble of the trips Agreement while referring to it in terms of consistency with the ‘ Objects and purpose of the trips Agreement ’. Contrary to the aims of the Preamble, the mode of national exhaustion restricts free movement of goods protected by ipr s since it disallows legally licensed products from competing with the patented products. Further, national exhaustion is discriminatory in terms of international trade because although it allows the patent holder to reap monetary benefit through licensing, the patent holder can still restrict importation of the product he first marketed in that country. Thus, in the case of imported products, the titleholder would be allowed to exercise his rights multiple times, i.e. in the country where the product was first marketed as well as in the countries of importation, whereas in the domestic market the title-holder is allowed to exercise his rights only once. 366

If the Preamble to the trips Agreement is followed in letter and spirit, then a member cannot support the mode of national exhaustion since it is not conducive to international trade in a multilateral set up governed by the wto . On the other hand, a mode of international exhaustion would allow the licensee to market its product simultaneously with the products of the patent holder and hence promote higher competition and encourage removal of barriers to legitimate trade. Thus, it is argued that international exhaustion is the most appropriate mode that reduces distortion and barriers to trade and is in line with the Preamble to the trips Agreement, while at the same time patent enforcement is possible, it does not sacrifice the interest of the patent holder.

6.3.1.2 Article 6: Exhaustion of Intellectual Property Rights

for the purposes of dispute settlement under this Agreement, subject to the provisions of Article 3 & 4 above, nothing in this Agreement shall be used to address the issue of exhaustion of intellectual property rights.

It has been already mentioned (while discussing the negotiating history of trips ) that the members of the wto could not agree to a common mode of exhaustion of ipr s for all members. As a result, apparently Article 6 was introduced which provides the flexibility to a member to adopt the exhaustion mode that it prefers. However, it is important to note that Article 6 actually does not give such liberty given that adoption of a particular exhaustion mode is subject to the specific obligations both within this Article and other wto Agreements. 368

However, one needs to carefully examine the notion that, prima-facie Article 6 allows members to follow any mode of exhaustion and further prevents members from referring the disputes to the dsb of the wto over an issue of exhaustion. Considering the trade enhancing characteristics of international exhaustion and the intention of trips as reflected in the Preamble to the trips , international exhaustion is most appropriate within the wto system. It is also sometimes argued that the language of Article 6, precludes exhaustion of patents being brought as a violation complaint before the wto dsb . 369 In fact, although apparently it might seem Article 6 restricts members from bringing exhaustion related disputes to the dsb , there is a qualification wherein disputes can still be brought under Article 3 ( nt ) and Article 4 ( mfn , i.e. mfn ) . Further, practice of Article 6 needs to qualify under gatt Article xx (d) as well as the necessity test as well as is not exempt from assessment of necessity under Article 31(3)(c) of the vclt . 370 In such scenario a question arises as to how decisions of domestic courts would be treated under nt and mfn . The same is discussed at length later while addressing nt and mfn specifically under gatt and trips . This means, although Article 6 tends to be neutral in supporting any specific mode of exhaustion, it makes the exhaustion mode subject to Article 3 and 4 , which are to be applied uniformly.

Further, one can argue that a member does not have the liberty to establish any mode of exhaustion since that could be inconsistent with Article 28 of the trips , hence exhaustion issue could still be a bilateral dispute issue. 371 This can be of considerable concern from the perspective of the necessary policy space that a wto member might want to exercise in deciding an exhaustion regime that it finds most appropriate, hence not positively contributing to a solution. It is noticed that even after lobbying attempts by industry groups like the International Trademark Association ( inta ), the exhaustion issue is limited to its interpretation in terms of Article 6 . 372 Thus, if a member invokes an exhaustion mode which violates Article 3 and 4 , then the matter might be taken up before the dsb . An in-depth study will show that if any mode other than the mode of international exhaustion is followed, ‘ like products ’ would be treated differently. Here it must be noted that exhaustion rules cannot and should not vary depending on the origin of the product. 373

Albeit this should not apply if the patents in the products does not naturally exhaust, in other words, if they are impacted by market manipulations like government regulatory interventions, price caps, etc. then such products need to be exempted from international exhaustion. The logic being, allowing international exhaustion in such cases will bring an effect of export subsidies not only distorting multilateral trade but also violating the Agreement on Subsidies and Countervailing Measures of the wto . 374 A case in point is the Swiss Patent law of 2009 that allows regional exhaustion but excludes cases where the patented products have been subjected to price control or similar other measures. However, this would not include general regulatory approvals or those covered under Article xx gatt . Considering that the fundamental reasoning of the gatt and trips is to effect equal treatment to like products, such exclusions would be considered compatible of Article 6 of the trips Agreement. 375

Some critics refuse to read Article 6 in conjunction with other Articles of trips and other wto Agreements and are of the opinion that this Article should be interpreted literally, i.e. exclusively on the basis of its content. These critics thus prefer to take a neutral stand and support the view that Members should be allowed to follow any exhaustion mode that they prefer. 376 Here it is important to note that the final wording of Article 6 resulted after long negotiations and are after careful consideration to maintain a status quo . Given the present circumstances when there are multiple interpretations of the Article specifically dealing with exhaustion, Members need to avoid any reading of Article 6 in isolation from the other Articles of the trips Agreement or in exclusion of the other wto Agreements. It is important to give not only due consideration to the other Articles of the trips , but also analyse gatt 1994 and other relevant wto Agreements to assess their impact on exhaustion. The exhaustion of patents under gatt mfn and nt are dealt with in detail in the next chapter including how in the erstwhile gatt 1947 regime Dispute Settlement panel in 1989 held US Patent Act Section 337 in violation of nt . 377 The fundamental premise being, there is no material difference of substantial nature in the approach towards the gatt / wto rules on goods and those on ipr s. Both seek to bring in positive effects for the betterment of international trade.

Further, while Article 6 of trips does not specifically restrain a member from adopting national or regional exhaustion of ipr s, the application of different relevant Articles of the gatt is implicit. gatt applies independently of trips hence non-violation of trips would not preclude compliance with gatt in any manner. 378 The relevance of gatt is founded in the fact that parallel trade, triggered by international exhaustion of ipr s including patents, refer to the geographical origin of the product and not the nationality of the right holders. Moreover, Article 6 of trips does not in any way exclude the purview of the gatt 1994. It has also been argued that trips is ‘ lex specialis ’ or ‘ sui generis ’ hence it supersedes in governance of ipr s and the gatt would not be relevant. 379

As a general principle of (international) law, the notion of lex specialis derogate generali applies between provisions of a single treaty, between provisions within two or more treaties, between a treaty and a non-treaty standard, as well as between two non-treaty standards. It suggests that whenever two or more norms deal with the same subject matter, priority should be given to the norm that is more specific since it often takes better account of the particular context addressed or creates a more equitable result. Confirming the relative nature of inter-legality, the lex specialis principle only applies in relation to those states which are bound by both norms – such as between two international ip treaties for those states bound by both. 380

Considering that trips Agreement imposes different obligations on wto members than under gatt and does not regulate discrimination based on origin of goods, it is doubtful if the doctrine of lex specialis derogat generali can be applied unchallenged. 381 The impact of different Articles of the gatt on exhaustion of patents and as a result in its treatment of parallel imports have been discussed at length more specifically in the next chapter.

6.3.1.3 Article 3: National Treatment

The nt requirement in trips Agreement require ip applicants and holders including patent holders from outside the wto member’s country the same treatment as that of domestic patent ip holders. 382 Some proponents of national and regional exhaustion, although agree that Article 3 and 4 of the trips lay down conditions that wto members are required to accord nt and mfn status to all members, still hold the opinion that national and regional exhaustion does not violate these Articles. According to them, these modes of exhaustion do not discriminate on the basis of the

origin of the imported goods but on the nationality of the patent right holder, a good case could be made that such exception would not violate the non-discrimination principles of the gatt . 383

This also shows that even these proponents of national and regional exhaustion admit that goods are discriminated and differentiated on the basis of nationality of the patent holders of the different wto members hence it is important to analyse these two Articles in greater depth.

Here it is important to note the difference between ‘ Same Treatment ’ under the Paris Convention and ‘ Treatment no less favourable ’ in the trips Agreement. Under Article 2 (1) & (2) of the Paris Convention, each member country is mandated to grant the same protection to nationals of other member countries that it grants its own nationals and nationals of the non-member countries are also entitled to the same treatment if they are domiciled in the country or have ‘ real and effective or commercial establishment ’ in the member country. 384 It is interesting to note that Article 3 , of the trips Agreement is not just restricted to same treatment but much beyond and reads similar to Article iii : 4 of the gatt Agreement on nt . A study of the negotiating history shows that nt always had been an important principle in international ip laws and was the fundamental principle in the gatt 1947 Agreement as far as trade in goods is concerned. The question that arises is whether nt would also apply to trips in respect of ipr s the same way as it applies in gatt .

1. Each Member shall accord to the nationals of other Members treatment no less favourable than that it accords to its own nationals with regard to the protection (here there is a footnote which states – For the purposes of Article 3 & 4, “protection” shall include matters affecting the availability, acquisition, scope, maintenance and enforcement of intellectual property rights as well as those matters affecting the use of intellectual property rights specifically addressed in this Agreement.) of intellectual property, subject to the exceptions already provided in, respectively, the Paris Convention (1967), the Berne Convention (1971), the Rome Convention or the Treaty on Intellectual Property in respect of Integrated Circuits.

As mentioned, considering that trips Agreement incorporates the provisions of the Paris Convention, it is important to note that ‘ nt ’ was included in it in the first category itself as a basic right.

Nationals of any country of the Union shall, as regards the protection of industrial property, enjoy in all the other countries of the Union the advantages that their respective laws now grant, or may hereafter grant, to nationals; all without prejudice to the rights specially provided for by this Convention. Consequently, they shall have the same protection as the latter, and the same legal remedy against any infringement of their rights, provided that the conditions and formalities imposed upon nationals are complied with.

Nationals of countries outside the Union who are domiciled or who have a real and effective industrial or commercial establishments in the territory of one of the countries of the Union shall be treated in the same manner as nationals of the countries of the Union. 385

From this it’s clear that a country which is a member of the Paris Convention shall have to grant the same level of protection to other member countries’ subjects as provided to its own. Interestingly, although both the Paris Convention and trips mandates nt , there is distinction. While Paris Convention mandates same treatment, trips require treatment that is no less favourable.

In gatt there is the notion of de facto non-discrimination that was applied in the European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs ( ec – gi ) case. In this case, apart from violation of Article 3 of trips and Article iii (4) of gatt , the Panel decided in favour of US and Australia that the ec ’s gi Regulation did not provide nt to other wto members’ right holders and their products. Protection to other members’ gi was made contingent upon the government of that country adopting gi protection mechanism equivalent to that of the ec and in the process, provide reciprocal protection to ec gi s. The Panel found that the ec ’s regulations pertaining to gi themselves being in breach of gatt were as such inconsistent under Article xx (d) gatt . Further, the Regulations that was to be introduced by the other wto members also needed to have a product examination mechanism for cases where applications and objections were raised by other wto members. In other words, foreign nationals would have access to the ec gi protection only if the ec granted it on examination through the mechanism like that of the ec , hence no guaranteed access. Hence, the additional gi protection being challenged as mentioned above failed the consistency test and could not be justified under Article xx (d) . 386

Here it raises the argument that if both are like products as is the case for patented products, whether this will be a valid differentiation based on the origin of the goods. In case of trademark for different products, the test of nt under gatt is whether the marked products originate from the same source. 387 Here reference may be made to the two decisions of the ab of the wto , Japan – Taxes on Alcoholic Beverages (Japan – Alcoholic Beverages) and Korea – Taxes on Alcoholic Beverages (Korea – Alcoholic Beverages) cases. 388 These two orders of the ab emphasised that in case of directly competitive or substitutable products which are in competition with each other, if the imported goods are taxed higher than the locally produced goods, then the dissimilar taxation of the directly competitive or substitutable imported domestic products would be considered as protection accorded to domestic product and this would result in violation of Article iii : 2 of the gatt Agreement.

The question as to whether Article 3 of the trips Agreement treats exhaustion of ipr s in the same manner as gatt , would ascertain the eligibility of the ‘ national ’ or ‘ regional ’ exhaustion modes under this Article. Article 3 clearly states that members should accord no less favourable treatment to products from other members as it does to products from its own country. One might argue that if a country follows national exhaustion, it restricts parallel import of products from other members through injunctive relief, damages, etc. on ground that the imported product has infringed the ipr s of the products. 389 On the other hand, no such effect exists for domestic products moving from one part of the country to another or within the markets under fta . The imported products are manufactured legally under licence from the original producer while being marketed through their own channels instead of the distributors chosen by the patent holder. However, that is not actually the test for nt in case of trips since the test is whether there is discrimination is between the local patent holder and the foreign right holder.

Under national exhaustion too, the foreign patent holder can stop the entry of parallel imports exactly in the same way as the original patent holder if the same is registered in the country. Hence there is no discrimination from the perspective of nt under Article 3 trips either for national, or regional or international exhaustion. Hence on comparison with similar provision under gatt , there is a distinct difference. While in case of the former, nt relates to the nationality of the right holder, in case of gatt , it relates to the origin of the product. In the latter there is discrimination between the free movement of goods within the country in modes of exhaustion other than international exhaustion and restrictions imposed on imported like products. The significant difference being the right and title being on the good and not on the right holder.

6.3.1.4 Article 4: Most Favoured Nation Treatment

With regard to the protection of ip , any advantage, favour, privilege or immunity granted by a Member to the nationals of any other country shall be accorded immediately and unconditionally to the nationals of all other Members.

It must be noted that the mfn principle in trips , is not adopted from the previous ip conventions since it was absent in these conventions. However, it was very much present in the gatt 1947 Agreement although restricted only to its applications to goods. With the extension of the mfn principle to trips , the principle has been extended not just to ipr s but also to persons, i.e. nationals who would hold ipr s in different member countries. Given that it is now concerning right holder, the question related to exhaustion of patent rights any mode other than the ‘ international exhaustion ’ would be in violation of the well-established mfn principle.

When “nationals” are referred to in this Agreement, they shall be deemed, in the case of a separate customs territory Member of the wto , to mean persons, natural or legal, who are domiciled or who have a real and effective industrial or commercial establishment in that customs territory.

However, given that the other regional blocs like the nafta , asean and others do not practice regional exhaustion of ipr s, it is not very clear if such a qualification is restricted only to cu or would apply to fta s in general.

Another case in point is the Unitary Patent system in EU, considering that it is expected to provide a mechanism for a single patent right for participating members along with a unified patent court, question arises as to whether and if so, why regional exhaustion would still be legitimate. 390 The contrary argument is that, such unitary patent mechanism does not replace the national patents in each member States but exist at parallel with the separate adjudicating mechanisms, hence the question on regional exhaustion within EU is still questionable. Given the fact that the patent right exists in the member State independent of the European patent, considering the entire EU as a single entity for exhaustion is more a decision of market integration enforced through the ecj , rather than based on legal reasoning.

On the issue of exhaustion, one must note that by allowing exhaustion of ipr s for goods imported from a particular country, a member of the Union while refusing to do the same if the products were from another country a member of the wto but not of the Union, would seem to outright violate the mfn principle in the gatt . Such discrimination of the mfn principle was however curved in, under a special exemption for regional agreements as provided by Article xxiv of the gatt Agreement. It is questionable whether such exemption which is against free trade principles, should be accorded to regional agreements at the cost of multilateral trade. Pre-negotiation view of the effect of mfn on ipr s had exposed some problems since there was a view that it was better not to apply mfn to ipr s since then it would have to be extended to persons (which would in turn affect many bilateral and regional agreements). 391 The issue of mfn in gatt 1994 with relation to the exhaustion principle will be discussed in greater details in the analysis of the gatt 1994 Agreement in the next chapter.

It is indeed an irony that multilateral trade agreements like the gatt Agreement and it is covered agreements, including the trips Agreement which aims at reduction of distortions in international trade, does not consider restrictions imposed by way of such exemption null and void. Had it not been that nt relating to the nationality of the right holder or specific exclusions curved in at the formative stage itself, such exemptions would not have qualified in the ‘ necessity ’ test since international exhaustion, which facilitates in the removal of trade barriers also allow protection of ipr s. Given that the trips Agreement being within the larger framework of gatt 1994 Agreement, one might question whether the necessity test as reflected in Article 8 of trips Agreement needs to be read within the context of gatt 1994. 392 However, based on the above study on nt and mfn , the issue of national and regional exhaustion discriminating over international exhaustion needs to be assessed under relevant provisions of the gatt Agreement rather than the trips .

6.3.1.5 Article 7: Objectives of trips Agreement

Article 7 of the trips Agreement, ties dissemination of knowledge with patent protection through technology transfer. Remedies to patent infringement through injunctive relief, damages, etc. are awarded so that the society is benefited from the invention while the patent holder enjoys government assured market exclusivity for a certain predetermined period. More specifically, Article 7 aims at promotion of technological innovation and transfer of technology in a manner that is ‘conducive to social and economic welfare’ and at the same time brings ‘a balance of rights and obligations’. 393 While interpreting Article 7 in the background of the exhaustion issue, it will be noticed that international exhaustion enables the licensee to come in to direct competition with the licensor. Hence it enhances more opportunities of technology transfer, enabling increased dissemination of technology through market competition which is most conducive to economic welfare. The other modes do not enable possibilities of any such technology transfer and are far more restrictive, thus would fail to meet the aims of Article 7 .

6.3.1.6 Article 8: Underlying Principles of trips Agreement

Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of ipr s by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.

It has been mentioned earlier and decided by the ecj (discussed in detail later) that the mode of national exhaustion restrains trade and it is for this reason, the ec (including countries of the eea ) follows the mode of international exhaustion within the region. It is important to read Article 8 with Article xx (d) gatt , applying the necessity test, reflecting suitability, necessity and proportionality. There is absolute clarity that, restraining parallel imports by opting out of international exhaustion of patents is untenable. 394 It would be impossible to establish that to protect patents, parallel imports of products need to be restricted.

A careful study of clause (2) of the Article mentioned above will show that it requires appropriate measures (consistent with the provisions of the Agreement) to be taken to prevent practices which unreasonably restrain trade. In such circumstances any mode of exhaustion other than international exhaustion calls for outright rejection since it restrains trade. Further, since national exhaustion mode allows the patent holder to benefit from charging royalty more than once, it can be interpreted as an abuse of the monopoly right accorded to the patent holder. Given that often doubts have been raised as to whether strong ipr s regime can exclusively bring in technological change and economic growth, it is logical to install a strong patent regime while at the same time allowing enhanced market competition. 395 If international exhaustion is adopted, parallel trade will be allowed and the industries in the developing countries will be interested in technology transfer as they would gain from comparative advantage.

Recognizing that no country should be prevented from taking measures necessary to ensure the quality of its exports, or for the protection of human, animal or plant life or health, of the environment, or for the prevention of deceptive practices, at the levels it considers appropriate, subject to the requirement that they are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a disguised restriction on international trade, and are otherwise in accordance with the provisions of this Agreement.

Here exemption from nt triggers only for specific purposes as mentioned and needs to be justified. It cannot be arbitrary action or disguised restriction on international trade. Similarly, the exemption provided for protection of ipr in Article 8 of trips , enables patent holders to take specific enforcement measures if the rights are infringed but restricting parallel importation by following the mode of national or regional exhaustion for protecting patents, cannot qualify as justified restriction on nt .

6.3.1.7 Article 28: Patent Rights Conferred

Proponents of national and regional exhaustion usually cite Article 28 of trips Agreement and state that under this Article, the mode of international exhaustion is not allowed. Before starting a discussion on this Article, the historical developments in ip law in the pre- trips era should be noted when ipr s were governed mainly by the international ip conventions. These conventions acknowledged the principle of territoriality in ip law. 396 It is for this reason many supporters of strong ipr s regimes prefer the mode of national exhaustion and fail to accept the fact that trips has changed the scenario and no longer can one look at ipr s exclusively as a territorial issue without considering its effect on multilateral trade in a global setting.

It is an irony that some critics fail to acknowledge that the main reason to include trips is to promote multilateral trade along with effective protection of ipr s. Often it is overlooked that in line with the overall aim of the wto Agreements, trips Agreement aims to promote barrier-free trade in addition to its aim of providing a harmonized minimum level of ipr protection. Article 28 does not restrict the possibility of following international exhaustion in any manner since following international exhaustion cannot lead to infringement of the patent. 397 Article 28 does not in any manner present even a hypothetical situation of restraining international exhaustion of patents, it only excludes exhaustion issues from being taken up before the dsb of the wto .

1. A patent shall confer on its owner the following exclusive rights: (a) where the subject matter of a patent is a product, to prevent third parties not having the owner's consent from the acts of: making, using, offering for sale, selling, or importing (Here the footnote 6 with reference to 'importing' states that, this right, like all other rights conferred under this Agreement in respect of the use, sale, importation or other distribution of goods, is subject to the provisions of Article 6) for these purposes that product; (b) where the subject matter of a patent is a process, to prevent third parties not having the owner's consent from the act of using the process, and from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process ( Emphasis added).

A careful study of this Article will show that the contradiction in views on the issue of exhaustion occurs because of the mention of ‘ importing without the owner’s consent ’ and its treatment.

The critics who support the mode of national exhaustion, often state that this Article allows patent holders to restrict others from, ‘ making, using, offering for sale, selling or importing (emphasis added) ’ products that are covered by the patents, hence restrict items of parallel trade since they are marketed without the prior consent of the patent holders. According to them the exclusive right granted by this Article would not allow third parties to import a patented product or a direct product made from a patented process. 398 Further, they are of the opinion that if a wto member follows international exhaustion, another member that does not follow international exhaustion can retaliate through trade policy sanctions against the member that follows international exhaustion. Such arguments are based on the interpretation that the footnote to Article 28 (1) (a) (with reference to Article 6 of trips ), does not change the substantive patent law under trips . 399

Proponents of national exhaustion often fail to analyse the issue of exhaustion from the perspective of multilateral trade in the setting of global trade rules of the wto including the trips Agreement the very purpose of having an elaborate agreement on ipr s. They try to interpret the issue from a very narrow (pre- trips ) perspective, thus over-ruling international exhaustion. One might argue that under the Paris Convention international exhaustion could be restricted under Article 4bis (1) and (2) of the Paris Convention. Under the Paris Union, members are required to treat patent applications in different member countries independent of patents obtained for the same invention in other member countries. Although there is no specific mention of the exhaustion issue, there is no express mention of excluding it either, hence one can argue that it would apparently apply for exhaustion too. Based on such an interpretation, it is sometimes advocated that Article 4bis (2) mentions the independence of patents. As such if a patent is nullified in one country, it would not necessarily be nullified in the other country or if it lapses in one country would not mean that it would also lapse in another country. Similarly, according to this interpretation, if the patent rights are exhausted in one country it should not necessarily mean that it would exhaust in the other country.

Some critics of international exhaustion further comment that there is no obligation on the part of wto members to comply with Article 6 of the trips Agreement since it is placed in Part 1 of the Agreement. According to such interpretation, under Article 2.1 of trips , Members are obliged to comply with the principles of independence in respect of Parts 2, 3, and 4 of the trips Agreement. Hence, it’s argued that even if Article 6 of the trips might allow international exhaustion, it is against the Paris Convention since it is against the principle of independence of patents. 400 Critics also argue that Article 6 does not affect Part 2 of the trips Agreement and Part 2 which elaborates on the standards concerning the availability, scope and use of ipr s, makes parallel imports illegal based on the principle of territoriality. 401 Such view does not hold ground since the principle of territoriality as established by the Paris Convention, applies to the existence and not the exercise of the patent right.

Members shall give effect to the provisions of this Agreement. Members may, but shall not be obliged to, implement in their law more extensive protection than is required by this Agreement, provided that such protection does not contravene the provisions of this Agreement. Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.

Here it must also be pointed out that the Paris Convention does not state that due to the territorial and independent nature of the patents, developments outside the country where it is patented would not affect or influence it in any manner. Even when patents follow territoriality principle, it is a standard practice to follow absolute novelty instead of relative novelty. If this is the case, then the novelty will consider ‘ state of the art ’ globally and not nationally. Under same logic exhaustion of patent laws should also be international. Here it must be considered carefully that there is nothing contradictory between Article 4 bis of the Paris Convention and the doctrine of exhaustion since while the former deals with domestic patent right the latter deals with the economic exploitation of the patented product. 403

Further, nothing impairs the law of territory to consider effects of facts and events that take place outside the territory. In fact, since the footnote to Article 28 clearly refers to the exhaustion issue, the right of ‘ making, using, selling and importing ’ cannot escape exhaustion. The footnote makes it clear that the right of importation does not affect exhaustion in any way. It should also be noted that if it is accepted that exhaustion is allowed because of the footnote to Article 28 , then in true sense there cannot be discrimination between national and international exhaustion. Moreover, one cannot interpret exhaustion based on territoriality principle and at the same time overlook the basic intention of patent law.

Some others who support national and regional exhaustion modes, opine that a mode of international exhaustion is against Article 1 of the trips Agreement which requires all parties to abide by the trips rules. They confer that Article 28 requires members to follow the mode of national exhaustion and hence they feel that if a member does not follow such mode of exhaustion, it would be against the member’s obligation under Article 1 . 404 However again these proponents of national and regional exhaustion tend to overlook the fact that the wto Agreement clearly states that the other covered agreements (which includes the trips Agreement), are governed by the wto Agreement which aims at removal of trade barriers. Restraining international exhaustion of patent, converts ipr s into non-tariff barriers to trade hence are counter-productive to the aims of the wto multilateral system.

The critics also argue that since the rights of the patent holder under the trips Agreement are subject to the patent owner’s consent, exhaustion is also tied to the consent. Such arguments are flawed given the fact that it undermines the exceptions to such consent which are already embedded in domestic law and trips defines such exceptions, albeit limiting them. 405 Moreover, these interpretations totally fail to acknowledge the fact that the aims and objectives of the trips is not identical to the ip conventions. Article 4bis of the Paris Convention never declared that national exhaustion is to be adopted by members. With the establishment of wto and with the trips coming into force, protection of ipr s have moved beyond the principle of territoriality to ipr s as crucial component of free trade which cannot enjoy the fruits of ipr s enforcement without honouring foundation of free trade.

In the present scenario under the gatt / wto regime, the trips Agreement not only makes the ipr s regime strict and effective, it also has a role to promote global trade. International exhaustion of patents aims at promoting a balanced approach towards rights and obligations of producers so that technical knowledge can be used in a way conducive to social and economic welfare. Further, international exhaustion also acts as checks and balance measure to restrain the patent holder from profiteering from the exercise of the patent. It receives its due incentive through the returns on placing the patented product or the product manufactured under a patented process on the market the first time. International exhaustion mandates the patent owner to compete in the global market on principles of free trade and pass on the benefits of consumer benefits by way of access to the patented products at the lowest possible market driven price. 406 The, national exhaustion on the contrary, limits competition only among exclusive licences and distributors operating in restrictive geographical areas.

6.3.1.8 Article 30: Exceptions to the Patent Rights Conferred

Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.

This can be considered a limited exemption that, on one hand serves the purpose of the exemption, while on the other, does not hinder the legitimate interests of the patent owner. Given its nature, wto members have used the provision to draft laws to allow research exemptions for patents that are similar to ‘ fair use ’ in copyrights. 407 Popular in some jurisdictions as ‘ Bolar Exceptions ’, in the pharmaceutical industry such exceptions are used for applying to regulatory bodies by generic manufacturers before expiry of the patent to enable quick marketing of a generic drug on expiry of the patent. 408

The legality of use of Article 30 exception by pharmaceutical manufacturers was challenged before the wto dsb in the ‘ Canada – Patent Protection for Pharmaceutical Products ’ case (Canada – Pharmaceuticals) and found to be permissible. The practice of filing for regulatory compliance of generic versions of patented pharmaceutical drugs before the national drug authority before expiry of the relevant patent and stockpiling of generic drugs in anticipation of the patent expiry were upheld to be within the exemptions provided under Article 30. The Panel considered the public policy requirements that a wto member may need to address while adjudicating the case and decided that this exception claimed by Canada under Article 3 0 of the trips Agreement would result in a balanced intellectual property regime. The Panel Report also provided guidance to how the three-step test is to be interpreted as well laid down that the words ‘ limited ’ and ‘ exceptions ’ to be interpreted in combination as a narrow exception. Through the three-step test the Panel decided that the exception curtails the patent owner’s right in only a small diminution. 409 The findings in Canada Pharmaceutical case confirmed that the trips Agreement allowed wto members necessary flexibilities in framing and enforcing their municipal legislation to provide certain restricted exemptions to patent protection for a balanced patent regime. Further, as per the Doha Declaration (discussed in details in Chapter 10 ), wto members may also authorise exportation and importation of pharmaceutical drugs to address national health emergencies as an exception provided under Article 30 . 410

The provisions under Article 30 have been lauded to bring a balanced patent regime in a wto member country through limited exceptions to the patent rights wherein the patent owner would not be able to allege infringement and enforce its rights. However, there would be considerable conditions too as such exceptions would be only applicable under certain conditions. In a hypothetical case, if a generic pharmaceutical company decides to manufacture a patented pharmaceutical drug under Article 30 exception exclusively for exporting to a wto member country without capacity to produce the drug, it cannot be considered an infringement. In such a case, the importing country would need to grant cl for such importation exactly in a manner it would have needed to grant for locally producing the patented pharmaceutical product.

Article 30 as interpreted by the Panel in Canada Pharmaceutical case, clearly does not impact exhaustion. However if a comparison is to be drawn between the patent exemption regime under Article 30 and patent exhaustion regime of a wto member, specifically in case of exportation under the exceptions, international exhaustion would be more seamless and use of Article 30 could be more restrictive. 411 It has already been found that although patent rights are territorial in nature, legitimate extraterritorial sales outside the authorised dealership via parallel trade is not barred. 412 It must also be noted that the use of Article 30 exception in an exporting country needs to be in sync with a compulsory licensing for importation under Article 31 in the importation country would work. Hence, such exportation would be a violation in absence of cl under Article 31 in the importing country. In other words, if a country evokes Article 30 and allows a company to produce generic version of a patented product for permitted exceptions but instead exports them to some other wto member’s markets which has not notified importation under Article 31 , the patent being unenforceable, cannot be considered to have exhausted. Hence, when a patent is temporarily withdrawn or suspended or made un-enforceable under Article 30 , products covered under such patent shall not exhaust on exportation.

6.3.1.9 Article 31: Use of the Patent without Authorisation of the Right Holder

Each country of the Union shall have the right to take legislative measures providing for the grant of compulsory licenses to prevent the abuses which might result from the exercise of the exclusive rights conferred by the patent, for example, failure to work. 414

Slightly differing from the provision in the Paris Convention where the aim had been solely to address market abuses, in the trips Agreement, Article 31 adds on to the exceptions to patent rights that has already been provided in Article 30 , hence the reason might not necessarily be to address ipr -centric abuses but to address other situations too. Further, subsequently in the Doha Declaration (discussed in details in Chapter 10 ), the cl provisions under Article 31 address situations of national calamities or exigencies are vividly dealt with.

The scope and duration of such use shall be limited to the purpose for which it was authorized, and in the case of semi-conductor technology shall only be for public non-commercial use or to remedy a practice determined after judicial or administrative process to be anti-competitive. (Emphasis added) .

Members are not obliged to apply the conditions set forth in subparagraphs (b) and (f) 415 where such use is permitted to remedy a practice determined after judicial or administrative process to be anti-competitive. The need to correct anti-competitive practices may be taken into account in determining the amount of remuneration in such cases. Competent authorities shall have the authority to refuse termination of authorization if and when the conditions which led to such authorization are likely to recur. (Emphasis added).

It is clear that there is no direct relation between Article 31 , Article 31bis and exhaustion of patents hence it is not analysed in further details. However, it is important to note that if Article 31 or Article 31bis is evoked, the patent rights would be curtailed. E.g. in case of issuance of cl the right holder would be restricted from monetising the patent under free market conditions. In such scenario, as earlier discussed in case of evoking Article 30, the patents should not be allowed to exhaust since its existence itself is controlled. As such if a patented product is manufactured under cl at restrictive licensing conditions, any import of such products cannot be considered for parallel importation. Exhaustion is and should be adopted independent of Article 31 and Article 31bis and the two should not be linked in any manner.

6.3.1.10 Article 40: Controlling Anti-competitive Practices in Licensing

Article 40 of the trips Agreement provides with measures to control anti-competitive practices that might occur through ip licence contracts. However, most of the measures are guidelines for domestic action by national adjudicators and regulatory authorities hence to be applied in the relevant market and not at the multilateral level. Further, in absence of any definition of ‘ relevant market ’, or clear indication as to what might constitute ‘ abuse ’ of ip , it completely depends on the competent national adjudicators or regulatory authorities to address it on a case-by-case basis. Some guidance is provided by the United Nations Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices. 416

It has already been discussed that there are no definite competition/anti-trust laws in the wto or the trips Agreement to control anti-competitive trade practices. In such circumstance, owners of ipr s might try to supersede their legitimate exclusivity to the extent of abusive monopoly not only directly through ipr s but also through their license contracts. Very often the licensee is unable to negotiate a balanced deal due to the stronger market power of the licensor, resulting in anti-competitive license contracts. Hypothetically, the licensor might contractually bind the licensee not to sale its products beyond a certain market if it receives the patent holder’s technology, even when the country’s laws on ipr s allow such trade, i.e. allows international exhaustion. This is in essence, a reflection of the Preamble of the trips Agreement wherein, it aims to put in place an effective system of checks and balance so that protection of ipr s does not become an impediment to dissemination of knowledge and technology.

In the first instance, Article 40 acknowledges the fact that licensing agreements can restrict free and fair competition and at the same time allows countries to take necessary legal measures to restrain owners of ipr s from abusing the monopoly that might have been created through the exclusivity. 417 However the problem lies in the fact that although the aim is to provide sufficient checks against possible abuse of ipr s, there is a proviso that makes any such measure compliant to the protection of ipr s. As such it becomes a matter of interpretation as to whether the protection of ipr s provided is necessary or an excess that constitutes an abuse. Moreover, the action against any anti-competitive contract is also voluntary and not obligatory. This means that member countries can put in place legal measures in their national laws to check any anti-competitive practice but that is not mandatory under trips Article 40 . Hence, if a country does not have any such laws to check anti-competitive practice, the country cannot be brought before the dsb of the wto .

It must also be noted that Article 40 also provides guidance on problems related to cross-border restraints wherein it requires wto members to solve the problems through consultations. But here too there is no specific right or norm set by trips , hence such clauses are mere guidance which can never contribute effectively in providing any remedy. 418 It has been discussed in Chapter 3.2.3 how in the EU, competition law principles were adopted by the ecj and international exhaustion within the EU was established by the Grundig-Consten case which became a landmark in being known as regional exhaustion. Here the free movement of goods within the EU member countries was considered from the perspective of intra-brand trade. However, the most crucial arguments in the case that superseded trademark laws were that of anti-cartel aspect of European Competition law. 419 Although a country might not be mandated under Article 40 to remedy an anti-competitive practice through adjudication before the dsb of the wto , hypothetically not following international exhaustion under Article 6 might be brought before the dsb in conjunction with Article 40 .

wipo was earlier known by its French acronym ‘Bureaux Internationaux Réunis pour la Protection de la Propriété Intellectuelle’ ( birpi ) or as ‘United International Bureau for the Protection of Intellectual Property’. It administers different international Treaties and Conventions in the area of patents. Under the auspices of the birpi and later wipo (after its establishment in 1967), the ‘Paris Convention’ for Protection of Industrial Property signed in 1883 and updated in the later years, ‘The Patent Co-operation Treaty’ signed in 1970, ‘The Strasbourg Convention on the International Classification of Patents’ signed in 1971 and the ‘Patent Law Treaty’ of 2000 were signed. They provide the basic guidelines and rules for member countries to opt for and follow to enhance protection of ipr in the member countries.

Yusuf Abdulqawi, “ trips : Background, Principles and General Provisions”, in Correa Carlos and Yusuf Abdulqawi (eds.), “Intellectual Property and International Trade – The trios Agreement”, Walters Kluwer 2nd Edition, pgs. 19, 20, 21 (3–21), 2008.

Braga Carlos Primo, “Trade-related intellectual property issues: the Uruguay Round Agreement and its economic implications”, in Maskus Keith (ed.), “The wto , Intellectual Property Rights and the Knowledge Economy”, Edward Elgar Publishing Ltd., pg. 6, (3–41), 2004.

Kaur Annette, “Limitations and exceptions under the three-step test – how much room to walk the middle ground?” in Kur Annette and Levin Marianne (eds.), “Intellectual Property Rights in a Fair World Trade System”, Edward Elgar Publishing Ltd., pgs. 220, 221 (208–261), 2011.

Cottier Thomas, “The Prospects for Intellectual Property in gatt ”, 28 Common Market Law Review, pg. 386, 387, (383–414), Kluwer Academic Publishers 1991.

Cottier Thomas & Schneider Lena, “The philosophy of non-discrimination in international trade regulation”, in Sanders Anselm Kamperman edited, “The Principle of National Treatment in International Economic Law Trade, Investment and Intellectual Property” Edward Elgar Publishing Ltd., pg. 13 (3–33), 2014.

Otten Adrian, “Implications of the trips Agreement for Dispute Settlement in Industrial Property” in Cottier Thomas and Widmer Peter (eds.), “Strategic Issues of Industrial Property Management in a globalising Economy”, Hart Publishing, pg. 103, 1999.

Nolff Markus, “The relevance of trips for Patent Law”, in “ trips , pct and Global Patent Procurement”, Kluwer Law International, pg. 29, 2001.

Land Molly, “Adjudicating trips for development”, in trips and Developing Countries Towards a New ip World Order? Edward Elgar Publishing Ltd., pgs. 146, 147 (142–162), 2014.

Vivekanandan V. C., “The Indian Patent Matrix: issues in patent amendment 2005”, in Bird Robert and Jain Subhash (eds.), “The Global Challenge of Intellectual Property Rights”, Edward Elgar Publishing Ltd., pg. 137 (135–152), 2008.

Stoll Peter-Tobias, Busche Jan and Arend Katrin, “ wto – Trade-Related Aspects of Intellectual Property Rights”, Max Planck Institute for Comparative Public Law and International Law, Martinus Nijhoff Publishers, pgs. 2, 3, 4, 2009.

Haugen Hans Morten, “ trips and compatible protection”, in “The right to food and the trips Agreement”, Martinus Nijhoff Publishers, Boston, pg. 216, (213–253), 2007.

McGinnis John & Movsesian Mark, “The World Constitution” 114 Harvard Law Review at pg. 511, (524–526) 2000.

The negotiating draft of Ambassador Lars Annell (of Sweden) is discussed at length later in this chapter. See, https://www.wto.org/english/res_e/booksp_e/trips_agree_e/chapter_4_e.pdf .

Anell Lars, “Keynote speech at the trips Symposium 26 February 2015” in Watal Jayashree and Taubman Antony (eds.), “The Making of the trips Agreement Personal Insights from The Uruguay Round Negotiations” wto , pg. 366, 371 (365–371), 2015. Also available at, https://www.wto.org/english/res_e/booksp_e/trips_agree_e/chapter_4_e.pdf .

Panagariya Arvind, “ trips and the wto : An uneasy Marriage”, in Maskus Keith (ed.), “The wto , Intellectual Property Rights and the Knowledge Economy”, Edward Elgar Publishing Ltd., pg. 43 (42–47), 2004.

Gadbaw Michael, “Intellectual Property and International Trade: Merger or Marriage of Convenience?” in Brown Lonnie and Szweda Eric (eds.), “Trade-Related Aspects of Intellectual Property”, pg. 232, 1990.

Article ix of gatt 1947 established marks of origin and Article xx (d) allowed enforcement against infringements of ipr .

Braga Carlos Primo, “The Economics of Intellectual Property Rights and the gatt : A View from the South”, Brown Lonnie and Szweda Eric (eds.), “Trade Related Aspects of Intellectual Property”, Vanderbilt Journal of Transnational Law, William S. Hein and Co. Inc., pg. 247 (243–264) 1990.

U.S. Trade Representative, National Trade Estimate, Report, pgs. 222–237, 1985.

Ibid at 303, pg. 386. Reference to Draft Agreement on Measures to Discourage the Importation of Counterfeit Goods, gatt Doc. l /8417 (31 July 1979).

Ostry Sylvia, “Intellectual Property Protection in the wto : Major issues in the millennium round”, Fraser Institute Conference Santiago, Chile, pg. 1, 19th April 1999.

Molly Land, “Adjudicating trips for development”, in trips and Developing Countries Towards a New ip World Order? Edward Elgar Publishing Ltd., pgs. 146, 147 (142–162), 2014.

Watal Jayashree, “From Punta del Este to Doha and Beyond: Lessons from the trips Negotiating Process”, ssrn Electronic Journal, pg. 3, 2011. Available at https://www.researchgate.net/publication/228122380_From_Punta_Del_Este_to_Doha_and_Beyond_Lessons_from_the_TRIPS_Negotiating_Processes .

Hartridge David and Subramanian Arvind, “Intellectual Property Rights: The Issues in gatt ”, 22 Vanderbilt Journal of Transnational Law, pg. 894, (893–910), 1989.

Communication from Argentina, Chile, Brazil, China, Colombia, Cuba, Egypt, India, Nigeria, Peru, Tanzania and Uruguay, (later joined by Pakistan and Zimbabwe), mtn.gng/ng 11/ w /71 (14th May 1990).

Bradley Jane, “Intellectual Property Rights, Investment and Trade in Services in the Uruguay Round: Laying the Foundations.” 23 Stanford Journal of International Law, pgs. 57–98, 1987.

Stern Richard, “Intellectual Property” in Finger Michael and Olechowski Andrzej (eds.) “The Uruguay Round – A Handbook for the Multilateral Trade Negotiations”, World Bank publication pg. 205, 1987.

Christopher May, “A Global Political Economy of Intellectual Property Rights – The New Enclosures?”, Routledge pg. 86, 2000.

Anell Lars, “Keynote speech at the trips Symposium 26 February 2015” in Watal Jayashree and Taubman Antony (eds.), “The Making of the trips Agreement Personal Insights from The Uruguay Round Negotiations” wto , pg. 393, 2015. Also available at, https://www.wto.org/english/res_e/booksp_e/trips_agree_e/chapter_4_e.pdf .

Michael R. Gadbaw and Timothy J. Richards, “Intellectual Property Rights in the New gatt Round”, Westview Press, pg. 189, 1988.

Dwyer Amy, “Trade-Related Aspects of Intellectual Property Rights” in “The gatt Uruguay Round: A Negotiating History (1986–1994), Volume iv : “The End Game”, Stewart Terence (ed.), Kluwer Law International pg. 20–21, 1999. See, Ministerial Declaration on the Uruguay Round, gatt Doc. No. min (86)/ w/ 19 dec (20 September 1986) available at, https://www.wto.org/gatt_docs/English/SULPDF/91240226.pdf .

Cottier Thomas, “The Prospects for Intellectual Property in gatt ”, 28 Common Market Law Review, pg. 393, Kluwer Academic Publishers 1991.

Cottier Thomas, “The Prospects for Intellectual Property in gatt ”, 28 Common Market Law Review, pg. 393, Kluwer Academic Publishers 1991. See, Ministerial Declaration on the Uruguay Round, gatt Doc. No. min (86) /w/ 19 dec (20 September 1986) reprinted.

Although the wto was established in 1995, since all member countries were provided one year’s, transition under Article 65 to implement trips provisions into their domestic laws, it became effective in 1996. Article ii (2) of the wto Agreement, Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, gatt Doc. mtn/fa , 15, December 1993.

Under requirements of Article 65 (1) of the trips Agreement.

Under requirements of Article 65 (2) of the trips Agreement.

Ibid at 322.

Ross Julie and Wasserman Jessica, “The gatt Uruguay Round: A Negotiating History (1986–1994), Trade Related aspects of Intellectual Property Rights”, Volume ii : Commentary in Stewart Terence (ed. pg. 11, Kluwer Law, 1993).

Trade in Counterfeit Goods: Compilation of Written Submissions and Oral Statements, Prepared by the Secretariat, Doc. No. mtn.gng/ng 11/ w /23, 26th April, 1998. Reproduced in unctad – ictsd , “Resource Book on trips and Development”, Cambridge University Press, pg. 98, 2005.

Secretariat note dated 16th August 1989 of the Negotiating Group Meetings dated 3–4 July 1989, Doc. No. gng/ng 11/13 at para D7; Secretariat Note dated 12th September, 1989 of the Negotiating Group Meetings dated 12–14 July 1989, Doc. No. mtn.gng/ng 11/14 at paragraph 26.

Guidelines and objectives proposed by the European Community, Negotiating Group on trips , including Trade in Counterfeit Goods, Guidelines and Objectives Proposed by the European Community for the Negotiations on Trade-Related Aspects of Substantive Standards of Intellectual Property Rights, dated 7th July 1988, Doc No. mtn.gng/ng 11/ w /26, paragraph iii .D.3.b( i ).

Doc. No. mtn.gng/ng 11/ w /71 at paragraph 45.

Communication from Argentina, Brazil, Chile, China, Colombia, Cuba, Egypt, India, Nigeria, Peru, Tanzania and Uruguay, dated 14th May 1990, Doc No. mtn.gng/ng 11/14 at paragraph (1)( i ) for patents and 7(2) for trademarks.

Secretariat note dated 24th April, 1990 of the Negotiating Group Meetings dated 2nd, 4th and 5th April 1990, Doc. No. mtn.gng/ng 11/20. Reproduced in unctad – ictsd , “Resource Book on trips and Development”, Cambridge University Press, pg. 99, 2005.

Chairman’s report to the group negotiating on goods dated 23rd July 1990, Doc. No. mtn.gng/ng 11/ w /76.

See, Status of Work in the Negotiating Group, Chairman’s Report to the gng , gatt Doc. No. mtn.gng/ng 11/ w 76, July 18, 1990 reprinted.

unctad – ictsd , “Resource Book on trips and Development”, Cambridge University Press, pg. 101, 2005.

Status of Work in the Negotiating Group, Doc. Ref. No. 2341 (Oct. 1, 1990), See Amy S. Dwyer, “The gatt Uruguay Round: A Negotiating History (1986–1994), Trade Related aspects of Intellectual Property Rights, Volume iv : The End Game”, Terence P. Stewart (ed.) Kluwer Law International pgs. 30, 31, 1993.

Draft Agreement on the Trade Related aspects of Intellectual Property Rights: Communication from the United States, gatt Doc. mtn . gng/ng 11/ w /70, May 11, 1990.

Ibid at 322. Also see, Cottier Thomas, “Parallel Trade and Exhaustion of Intellectual Property in wto Law Revisited”, in Ruse Khan Grosse Henning & Metzger Axel (eds.), “Intellectual Property Ordering Beyond Borders”, Cambridge University Press, pgs. 193, 194 (189–232), 2022.

Brussels Draft, gatt Doc. No. mtn.tnc/w /35/Rev.1 (Dec. 3, 1990); also see Neff & Smallson, “ nafta : Protecting and Enforcing Intellectual Property Rights in North America 25 (1994)” – A comparison might be drawn here between trips and nafta negotiations to note that in both the US vehemently tried to install the mode of national exhaustion.

Reproduced in the unctad – ictsd , “Resource Book on trips and Development”, Cambridge University Press, pg. 102, 2005.

Reproduced in the unctad – ictsd , “Resource Book on trips and Development”, Cambridge University Press, pgs. 102–103, 2005.

Reinbothe Jörge & Howard Anthony, “The State of Play in the Negotiations on trips ( gatt /Uruguay Round)”, 5 eipr , pgs. 159–160, 1991.

Draft Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations, gatt Doc. mtn.tnc/w/fa , Dec. 20, 1991.

Pugatch Meir, “The International Political Economy of Intellectual Property Rights: the trips Agreement and the Advanced Pharmaceutical Induarty in Europe”, Proquest llc ., pgs. 150, 2014.

Cottier Thomas, “The Value and Effects of Protecting Intellectual Property Rights within the World Trade Organization”, presentation to the Association Littéraire et Artistique Internationale ( alai ), Journée d’études, 27th & 28th June, 1984.

Chiapetta Vincent, “The desirability of Agreeing to disagree: The wto , trips , International ipr Exhaustion and a few other things”, in Introduction, 21 Michigan Journal of International Law pgs. 333, Spring 2000.

Taubman Antony, “A practical guide to working with trips ”, Oxford University Press 2011, page 85. Also see, Cottier Thomas, “Parallel Trade and Exhaustion of Intellectual Property in wto Law Revisited”, in Ruse Khan Grosse Henning & Metzger Axel (eds.), “Intellectual Property Ordering Beyond Borders”, Cambridge University Press, pg. 197 (189–232), 2022.

Gervais Daniel, “Exhaustion” in “The trips Agreement: Drafting History and Analysis”, Sweet & Maxwell, South Asian Edition, pg. 64, 2011.

Ibid at 5, pg. 100.

Preamble / Foreword to the Agreement on Trade Related Aspects of Intellectual Property Rights ( trips ).

wt/ds 50/ ab/r , 1997 para 57.

Yusuf Abdulqawi and Monacayo Andrés Hase, “Intellectual Property Protection and International Trade”, 16 World Competition, pg. 128, 1992.

Article 4 trips , “With regard to the protection of intellectual property, any advantage, favour, privilege or immunity granted by a Member to the nationals of any other country shall be accorded immediately and unconditionally to the nationals of all other Members. ”

Dutfield Graham and Sutherland Uma, “The international law and political economy of intellectual property”, in “Global Intellectual Property”, Edward Elgar Publishing Ltd. pgs. 34, 35, 2008. Also see, Cottier Thomas, “Parallel Trade and Exhaustion of Intellectual Property in wto Law Revisited”, in Ruse Khan Grosse Henning & Metzger Axel (eds.), “Intellectual Property Ordering Beyond Borders”, Cambridge University Press, pg. 200 (189–232), 2022.

Ibid 309, pgs. 172, 173.

Yamane Hiroko, “The trips Agreement de Lege Lata: The Outline”, in “Interpreting trips Globalisation of Intellectual Property Rights and Access to Medicines” Hart Publishing Ltd., pgs. 155, 156, (148–189), 2011. Also see, Cottier Thomas, “Parallel Trade and Exhaustion of Intellectual Property in wto Law Revisited”, in Ruse Khan Grosse Henning & Metzger Axel (eds.), “Intellectual Property Ordering Beyond Borders”, Cambridge University Press, pg. 217 (189–232), 2022.

Ibid at 122, pgs. 312, 313, (304–342).

Blakeney Michael, “Trade Related Aspects of Intellectual Property Rights: A Concise Guide to the trips Agreement”, Sweet & Maxwell, pg. 42, 1996.

Cottier Thomas, “The wto System and the Exhaustion of Intellectual Property Rights”, May 2000, Draft paper based on previous work presented to the conference on the Exhaustion of Intellectual Property Rights, ila Trade Law Committee, Geneva 6th & 7th November, 1998.

Bonadio Bonadio Enrico, “Parallel Imports in a Global Market: Should a Generalised International Exhaustion be the Next Step?”, 33 European Intellectual Property Review (3), pgs. 8, (153–161), 2011.

Article 9a : Federal Acts of Patents for Invention (Patents Act PatA) as on 1st April 2019. Available at, www.admin.ch/opc/en/classified-compilation/19540108/201904010000/232.14.pdf . Please also see, Ibid. at 5, pgs. 261, 262.

Bronckers Marco, “The Exhaustion of Patent Rights under wto Law”, 5 Journal of World Trade, pg. 142, 1998.

Ibid at 5, pg. 937.

Grigoriadis Lazaros, “Trademarks and Free Trade: A Global Analysis”, Springer, pg. 105, 2014.

Ibid at 376, pg. 143.

Ruse-Khan Henning Grosse, “The Protection of Intellectual Property in International Law”, Oxford University Press, pg. 2359, 2016.

Reichman Jerome, Okediji Ruth, Lianos Ioannis, Jacob Robin and Stothers Christopher, “The wto Compatibility of a Differentiated International Exhaustion Regime”, International Laboratory for Law and Development Research Paper Series, dated, pg. 20. Available at, http://www.eurasiancommission.org/ru/act/finpol/dobd/intelsobs/Documents/WTO%20Compartibility%20of%20Exhaustion%20Regimes_EEC_SkHSEreport.pdf .

Ibid at 5, pg. 27.

Ibid at 378, pg. 146.

Article 2, See https://wipolex.wipo.int/en/text/287556 .

Paris Convention for the protection of Industrial Property, see, https://www.unido.org/sites/default/files/2014-04/Paris_Convention_0.pdf .

Ruse-Khan Henning Grosse, “The Protection of Intellectual Property in International Law”, Oxford University Press, pg. 308, 313–315, 2016. See, European Communities – Protection of Trademarks and Geographical Indications for Agricultural Products and Foodstuffs case, See, https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=Q:/WT/DS/290R.pdf&Open=True .

The hag case in EU presents the established practice in trademarks long back. See, Case C 10/89, sa cnl – sucal nv v hag gf ag , ( http://curia.europa.eu/juris/showPdf.jsf?docid=96580&doclang=en ).

Japan – Taxes on Alcoholic Beverages case, wt/ds 8/ ab/r , wt/ds 10/ ab/r and wt/ds 11 / ab/r , of 4th October 1996 and Korea – Taxes on Alcoholic Beverages case, wt/ds 75/ ab/r , wt/ds 84/ ab/r of 18th January 1999.

Verma Surinder, “Exhaustion of Intellectual Property Rights and Free Trade – Article 6 of the trips Agreement”, 5 iic , pgs. 553, 554, 1998.

The ‘Unitary Patent’ system which is expected to come into effect from mid-2020 would enable patent protection to up to 26 EU Members through a single application. The Unified Patent Court expected to be set up as an international court would address the problem of parallel litigation. For more details please see, https://www.epo.org/law-practice/unitary/unitary-patent/start.html . However, it should also be noted that the unitary patent mechanism needs to be ratified in minimum of 13 countries of the EU and at present it has been challenged before the German Constitutional court. The fate of wide adoption of the unitary patent would be influenced by the German court in mid-2020.

Dhanjee Rajan and Chazournes Laurence de Boisson “Trade Related Aspects of Intellectual Property Rights ( trips ): Objectives, Approaches and Basic Principles of the gatt and of Intellectual Property Conventions”, 24 Journal of World Trade, pg. 12, 1990.

Rodrigues Edson Beas Jr., “The general exception clauses of the trips Agreement Promoting Sustainable Development” Cambridge University Press, pgs. 62, 63 (46–64), 2012.

Article 7 states: The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to balance of rights and obligations.

Article xx (d) states, “Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: … (d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to … the protection of patents, trademarks and copyrights.” Explained in details in the next chapter.

Mattoo Aaditya and English Philip (eds.), “Benefiting from Intellectual Property Protection” in, “Development, Trade, and the wto – A Handbook”, The World Bank, Washington D.C., pg. 369, 2002.

Here Article 4bis of the Paris Convention might be referred to, which clearly lays down the principle of territoriality but it must be carefully noted that it does not deal in the exhaustion of rights.

Demaret Paul & Govaere Inge, “Parallel Imports, Free Movement and Competition Rules! The European Experience and Perspective”, in Cottier Thomas and Mavroidis Petros (eds.), “Intellectual Property: Trade, Competition, and Sustainable Development”, The University of Michigan Press, pg. 158, 2003.

Straus Joseph, “Implications of trips Agreement in the field of Patent Law”, in Beier and Shricker edited, “From gatt to trip s – The Agreement on Trade – Related Aspects of Intellectual Property Rights”, 18 Studies International Review of Industrial Property and Copyright Law ( iic ), Max Planck Institute, Munich, pgs. 191, 192, 1996.

Footnote to Article 28 (1) (a) , “This right, like all other rights conferred under this Agreement in respect of the use, sale, importation or other distribution of goods, is subject to the provisions of Article 6 .

Pires de Carvalho Nuno, “The trips Regime of Patent Rights”, Kluwer Law International, pg. 104–105, 2002.

Gallus Nick, “The Mystery of Pharmaceutical Parallel Trade and Developing Countries”, 7 (2) The Journal of World Intellectual Property, pgs. 170, 169–182, 2004.

Osterrieth, “Die Hager Konferenz” 1925, Leipzig 1926, 37: S. Ladas, Patents, Trademarks and Related Rights, Cambridge (Mass.) 11975, 505, cited in Heath Christopher.

Ibid at 190, pg. 628, (623–632).

Harvey Bale James, “The conflicts between parallel trade and product access and innovation: The case of pharmaceuticals”, Journal of International Economic Law, pg. 638, 1998.

Abbott Frederick, “Parallel trade in pharmaceuticals: trade therapy for market distortions”, in Calboli Irene and Lee Edward (eds.), “Research handbook on Intellectual Property Exhaustion and Parallel Imports”, Edward Elgar Publishing Ltd., pg. 159 (145–165), 2016.

Soltysinski Stanislaw, “International Exhaustion of Intellectual Property Rights under the trips , the ec Law and the European Agreements”, 4 grur Int., pg. 317, 1996.

Gitter M. Donna, “International conflicts over patenting human dna sequences in the United States and the European Union: An argument for compulsory licensing and a fair use exception”, 76, New York University Law Review 6, pg. 1690, 2001. Available at, https://www.nyulawreview.org/wp-content/uploads/2018/08/NYULawReview-76-6-Gitter.pdf .

https://www.wto.org/english/tratop_e/trips_e/factsheet_pharm02_e.htm#art30 .

Canada – Patent Protection for Pharmaceutical Products , wt/ds 114/ r (2000). See, https://www.wto.org/english/tratop_e/dispu_e/7428d.pdf .

Daya Shankar, “Access to medicines, Article 30 of trips in the Doha Declaration and an Anthropological Critique of International Treaty Negotiations”, Deakin University – Bowater School of Management and Marketing, 2003. Available at, https://papers.ssrn.com/sol3/papers.cfm?abstract_id=391540 .

This position has been widely been propagated as a policy option by Medicines sans Frontier. See, https://msfaccess.org/why-article-30-will-work-why-article-31-will-not .

Correa Carlos, “Intellectual Property Rights, the wto and Developing Countries – The trips Agreement and Policy Options”, Zed Books Ltd., pg. 84, 2000.

Schovsbo Jens, “Fire and water make steam – redefining the role of competition law in trips ”, in Kur Annette and Levin Marianne (eds.), “Intellectual Property Rights in a fair world trading system”, pgs. 326, 327, (308–358), 2011.

See, https://wipolex.wipo.int/en/text/287556 .

Article 30 (b) states, “such use may only be permitted if, prior to such use, the proposed user has made efforts to obtain authorization from the right holder on reasonable commercial terms and conditions and that such efforts have not been successful within a reasonable period of time. This requirement may be waived by a Member in the case of a national emergency or other circumstances of extreme urgency or in cases of public non-commercial use. In situations of national emergency or other circumstances of extreme urgency, the right holder shall, nevertheless, be notified as soon as reasonably practicable. In the case of public non-commercial use, where the government or contractor, without making a patent search, knows or has demonstrable grounds to know that a valid patent is or will be used by or for the government, the right holder shall be informed promptly;” and Article 30 (f) states, “any such use shall be authorized predominantly for the supply of the domestic market of the Member authorizing such use.”

Roffe Pedro and Spennemann Christoph, “Control of Anti-competitive Practices in Contractual Licenses under the trips Agreement”, Kluwer Law, pgs., 322, 323, 324 (293–329), 2008.

Article 40 , “1. Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology. 2. Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grant-back conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member.”

Article 40 , “3. Each Member shall enter, upon request, into consultations with any other Member which has cause to believe that an intellectual property right owner that is a national or domiciliary of the Member to which the request for consultations has been addressed is undertaking practices in violation of the requesting Member’s laws and regulations on the subject matter of this Section, and which wishes to secure compliance with such legislation, without prejudice to any action under the law and to the full freedom of an ultimate decision of either Member. The Member addressed shall accord full and sympathetic consideration to, and shall afford adequate opportunity for, consultations with the requesting Member, and shall cooperate through supply of publicly available non-confidential information of relevance to the matter in question and of other information available to the Member, subject to domestic law and to the conclusion of mutually satisfactory agreements concerning the safeguarding of its confidentiality by the requesting Member. 4. A Member whose nationals or domiciliaries are subject to proceedings in another Member concerning alleged violation of that other Member’s laws and regulations on the subject matter of this Section shall, upon request, be granted an opportunity for consultations by the other Member under the same conditions as those foreseen in paragraph 3.”

Ibid at 107.

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All you need to know about the TRIPS Agreement

This article has been written by Ayush Tiwari , a student of Symbiosis Law School, NOIDA. In this article, the author has covered everything one needs to know about the TRIPS Agreement.

This article has been published by Shoronya Banerjee .

Table of Contents

Introduction

Various intellectual inventions and creativity have a significant impact on the world today. As these innovations and concepts grow more popular and successful, the inventor’s efforts to promote and defend them become increasingly crucial. Beyond just shipping goods across borders, the concept of commerce and what makes trade useful for nations have developed. In today’s international trade, innovation, creativity, and branding account for a significant portion of the value exchanged. How to increase this value and make it easier for the innovation-rich commodities and services to flow across borders have become important factors in development and trade policy. 

The Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement is crucial for promoting trade in knowledge and innovation, resolving intellectual property trade disputes, and ensuring World Trade Organization (WTO) members’ freedom to pursue their domestic goals. The agreement is a formal acknowledgment of the importance of intellectual property and trade relations. Before studying the TRIPS agreement in detail, one should have a brief knowledge about Intellectual Property Rights (IPR).

What are intellectual property rights

“Intellectual Property shall include rights relating to literary, artistic, and scientific works, discoveries throughout all areas of human endeavor, scientific advances, industrial design rights, trademarks, service marks, and commercial names and designations, protection against unfair competition,” states Article 2 of the WIPO (World Intellectual Property Organization) – Central Organization for the Protection of Intellectual Property laws and the UN expert organization.

Intellectual property rights are the rights granted to individuals over the creation of their minds. For a set period of time, they usually grant the creator exclusive rights to use his or her creation. Intellectual property (IP) is a non-tangible asset developed by the human mind. Business organizations may use IP to gain a competitive advantage and drive their growth. Intellectual property ownership interests, like any other property, can be assigned, licenced, or otherwise passed to third parties.

Internationally, intellectual property rights (IPR) are valued and exchanged. The WTO’s TRIPS (Trade-Related Aspects of Intellectual Property Rights) agreement recognises the importance of IP in international trade. The TRIPS Agreement establishes basic requirements for member governments’ IPR protection.

The TRIPS Agreement in detail

How it all started.

As intellectual property grew more significant in commerce, the level of protection and enforcement of these rights varied greatly throughout the world, and these variations became a source of stress in international economic relations. New globally agreed-upon trade standards for intellectual property rights were considered as a method to bring greater order and predictability to the market, as well as a more systematic approach to resolving disputes.

The General Agreement on Tariffs and Trade (GATT) was the only multilateral mechanism overseeing international commerce until the World Trade Organization (WTO) was established in 1995. Under GATT, there were eight rounds of negotiations, the first five of which were solely focused on tariffs, while the sixth round included discussions on anti-dumping measures, which included provisions for member nations to control the dumping of goods into their territory by other nations that could harm their economies.

The Uruguay Round was the last GATT round (1986-1994). It was in this session that the first discussions on trade linked to agriculture, services, and intellectual property rights were conducted. All 123 countries that took part in the Uruguay Round, including India, became members of the WTO. WTO now has 164 members , accounting for about 90% of the world’s countries. The World Trade Organization (WTO) is in charge of negotiating and implementing new international trade agreements. It is also responsible for ensuring that the majority of the world’s trading nations comply with the trade agreements they have signed. The WTO is the legal and administrative framework for managing and growing international connections between its 157 members on a multilateral basis. Its goal is to establish fair and secure international trading arrangements in order to stimulate trade and investment and raise global living standards.

The TRIPS Agreement is one of the most significant WTO accords. The Agreement went into effect on January 1, 1995.

What is the TRIPS Agreement about?

The TRIPS Agreement protects intellectual property in trade-related regions to a large extent and is regarded as a comprehensive new framework for intellectual property standards protection. The TRIPs Agreement also has the distinction of being the first legal agreement to address all areas of intellectual property with a number of specific clauses. 

The three main issues governed by the agreement are:

• Standard – All member states are required to provide a minimum set of criteria for the protection of IPRs in each of the IP categories covered by the Agreement. Each area of IP is addressed in such a way that the major aspects of protection, such as the subject matter sought to be protected, the rights to be granted, and possible exceptions to such rights, as well as the minimum period of protection, are all explicitly stated.
• Enforcement – The second set of clauses focuses on domestic processes and remedies for intellectual property rights enforcement. The Agreement establishes a set of broad rules that apply to all IPR enforcement actions. It also includes rules on civil and administrative processes and remedies, provisional measures, particular border requirements, and criminal proceedings, all of which outline the procedures and remedies that must be provided so that the right holders can successfully exercise their rights.
• Dispute settlement – Disputes occurring between WTO members over responsibilities emanating from the TRIPS Agreement are subject to the WTO’s dispute resolution processes.

The whole TRIPS Agreement is further divided into seven parts which contain the complex provisions regarding intellectual property: 

Part I- General Provisions and Basic Principles (Article 1 to Article 8)

Part II- This part covers the requirements for the availability, scope, and application of intellectual property rights. (Article 9 to Article 40)

Part III- The enforcement of IPRs is the focus of this part.  (Article 41 to Article 61)

Part IV: This part covers the procedures for obtaining and maintaining intellectual property rights. (Article 62)

Part V: This part deals with the prevention and resolution of conflicts resulting from the provisions of the Agreement. (Article 63 to Article 64)

Part VI: This part is about transitional agreements. (Article 65 to Article 67)

Part VII: This part of the Agreement deals with a variety of institutional arrangements. (Article 68 to Article 73)

General provisions and basic principles

The essential principles on the national and most-favored-nation treatment of foreign persons are found in Articles 3, 4, and 5, and they apply to all kinds of intellectual property covered by the Agreement. These obligations apply not only to substantive standards of protection, but also to issues relating to the availability, acquisition, scope, maintenance, and enforcement of intellectual property rights, as well as issues relating to the use of intellectual property rights that are specifically addressed in the Agreement. While the national treatment provision prohibits discrimination between a member’s own nationals and those of other members, the ‘most-favored-nation’ treatment clause prohibits discrimination between other members’ nationals. The exclusions authorised under the pre-existing WIPO intellectual property treaties are likewise available under TRIPS in terms of the national treatment commitment. Furthermore, governments have the authority to enact legislation to prohibit right holders from abusing IPR or to challenge practises that unfairly restrict commerce or impede the international transfer of technology, all in accordance with the Agreement’s provisions.

Types of intellectual properties

Copyrights and related rights.

The Agreement states that copyright protection only applies to phrases, ideas, techniques, operating methods, or mathematical concepts. Literary, musical, dramatic, photographic, sculptural, architectural, choreography, graphic, motion picture, sound recording, multimedia work, computer programs, and other works are all given copyright. For a certain amount of time, the owner of a copyright has the right to prevent others from duplicating, distributing, making derivative works, performing, exhibiting, or utilising the work covered by the copyright. The essence of copyright is originality, which means that the work was created by the copyright owner or claimant. A work of originality, on the other hand, does not have to be innovative. In copyright law, originality does not entail innovation.

The Berne Convention protects computer programs in both source and object code, and compilations of data in machine-readable or other formats constitute creative works due to the selection or arrangement of their contents and are thus protected by the Agreement. In the case of computer programs and cinematographic works, authors are granted the right to approve or restrict commercial renting of originals or copies of protected works to the public. However, if giving rental rights leads to widespread copying of such works, jeopardising the work’s uniqueness, member governments can revoke such rights. The term of protection extends up to not less than 50 years as per Article 12 of the Agreement.

Article 15 states that any sign, or set of signs, able to distinguish one undertaking’s products and services from other undertakings’, shall be eligible for trademark registration, provided that it is clearly detectable. Such signs, in particular words, characters, digits, figurative components, and colour combinations, as well as any combination of these signs, must be acceptable for trademark registration. According to Article 16, the trademark owner has the exclusive right to restrict third parties from using similar or identical signs for products or services that are similar to those for which the trademark is registered.

Geographical indications

As per Article 22, geographical indications designate a good as coming from a member’s territory, or an area or place within that territory, where the good’s quality, reputation, or other attribute is largely due to its geographical origin. Traditionally, some commercial items have been manufactured in a geographically defined territory. In commercial relations, the geographical indicator becomes the dependable “carrier” of qualifying product features when these items are accredited to certain criteria fundamentally due to their geographical provenance. The purpose and value of geographical indications are subsequently given to trademarks, and they are entitled to legal protection.

Industrial designs

Articles 25 and 26 of the agreement says members must ensure that fresh or unique industrial designs generated independently are protected. The Agreement, which is based on the Paris Convention but goes much beyond it, promises to preserve industrial designs for a minimum of 10 years. When such activities are conducted for commercial objectives, the right holder can ban third parties who do not have the holder’s agreement from producing, importing or selling items that incorporate the protected design.

According to Article 27 of the agreement, a patent is an intellectual property right (IPR) awarded to inventors. The inventor, as the patent owner, has the right to prevent anybody else from creating, using, selling, or importing the patent-protected invention in a specified region for a set length of time.

The basic criterion of patentability is subject to three exceptions. One is for innovations that are against the public good or morals- this includes inventions that are harmful to human, animal, or plant life or health, or that are substantially harmful to the environment.

Members may also exclude diagnostic, medicinal, and surgical procedures for the treatment of people and animals from patentability. 

The length of protection is normally 20 years from the date of filing of the patent application. Member nations could provide specific exemptions to exclusive rights conferred by a patent under Article 21 of the Agreement, given that such exclusions do not unreasonably conflict with a normal exploitation of the patent and therefore do not unreasonably bias the patent owner’s legitimate interests, taking into consideration the legitimate interests of third parties. Furthermore, Article 29 mandates that the patent filing discloses the innovation in a manner that is explicitly clear and complete for a person knowledgeable in the art to carry out the invention. Article 31 of the Agreement contains provisions that allow the government of a member nation to award a compulsory licence for medicines without the patentee’s approval, subject to specific circumstances.

Layout-Designs (Topographies) of Integrated Circuits

Importing, selling, or distributing (for commercial reasons) a secured layout design, an integrated circuit where a secured layout design is implemented, or an article including such a circuit is prohibited under Article 36 of the Agreement. From the date of filing an application for layout designs, the protection offered in this sector of IP is at least ten years. According to Article 37, member countries may limit the length of protection to fifteen years from the date of development of the layout design. 

Protection of undisclosed information 

The information which is undisclosed is referred to as a trade secret. Article 39 of the Agreement requires member states to provide trade secret protection in accordance with the Agreement’s provisions. TRIPS mandates that member countries should create national legislation to prevent such information from being revealed to, obtained by, or used by third parties without the agreement of the person who is lawfully in possession of it, in a manner that is inconsistent with fair trade practises. Such information must be confidential, have commercial value as a result of its confidentiality, and have been subjected to reasonable efforts to keep it hidden in order to be granted protection.

Control of anti-competitive practises in contractual licences

Members of the Agreement believe that some licensing arrangements or restrictions relating to IPR that restrict competition may have a negative impact on trade and impede technological transfer and dissemination. The clause allows for government discussions in cases where there is an infringement of intellectual property rights that has a negative impact on competition. On some occasions, the TRIPS Agreement waives some of the requirements necessary for a compulsory licence of a patent, such as when the government gives the compulsory licence to correct an anti-competitive activity.

Enforcement

Governments must guarantee that IPR can be implemented to prevent or discourage infringement, according to the Agreement. The methods must be just and equal, as well as not overly cumbersome or expensive. They shall not impose unreasonable deadlines or unjustified delays. People concerned must be allowed to request a court review, an administrative decision or appeal a lower court’s judgement. The TRIPS agreement goes into great detail about how to defend intellectual property rights, including requirements for gathering evidence, interim measures, injunctions, damages, and other penalties. It states that courts must have the authority to compel the disposal or destruction of objects that infringe on intellectual property rights under specified situations. On a commercial scale, wilful trademark counterfeiting or copyright infringement must be prosecuted as a crime. Governments must also ensure that holders of intellectual property rights can get assistance from customs authorities to prevent the import of counterfeit and pirated goods.

Prevention and resolution of conflicts resulting from the provision of the TRIPS Agreement

The TRIPS Council is in charge of the provisions relating to dispute resolution and prevention. The common register, which contains a compilation of laws and regulations, final judicial decisions, and other information pertaining to the Agreement, should be established, Article 63 establishes an obligation to notify laws and regulations to the TRIPS Council or the WIPO. Article 64 of the Agreement outlines processes for preventing and resolving disputes. For this aim, the WTO Agreement’s integrated dispute settlement procedure will apply to TRIPS issues.

Transitional agreements

The TRIPS agreement allowed countries to delay the implementation of its terms for various lengths of time. These timeframes specify the period between when the agreement entered into force (on January 1, 1995) and when it got implemented in member countries. The following are the major transition periods:

• Developed countries were given a one-year transition period following the WTO Agreement’s entry into force, i.e. until January 1, 1996.
• Developing nations were given an extra four years (until January 1, 2000) to implement the agreement’s provisions, with the exception of Articles 3, 4, and 5, which deal with broad principles like non-discrimination.
• Transition economies, i.e. countries in the process of transitioning from centrally planned to market economies, could also benefit from the same postponement (until January 1, 2000) if they fulfilled specific additional criteria.
• Least-developed nations were given an additional eleven-year transition time (until January 1, 2006), with the option of an extension. The transition period has been prolonged three times, and now continues until July 1, 2034, or until a member no longer qualifies as a Least Developed Country (LDC), whichever comes first.

Institutional arrangements

Article 68 of the TRIPS Agreement establishes The TRIPS Council. The TRIPS Council oversees the administration of this Agreement, including members’ compliance with their duties under it, and provides members with the opportunity to consult on trade-related aspects of intellectual property rights. It carries out any other obligations that the members delegate to it, including providing any help sought by them in the context of dispute resolution procedures. The TRIPS Council may consult with and obtain information from any source it finds relevant in carrying out its tasks.

Need for the TRIPS Agreement

IP protection was supposed to help not only promote technical innovation but also the transfer and spread of new technology in a way that benefits both its producers and users while maintaining a balance of rights and duties, all with the purpose of increasing social and economic wellbeing. As a result, the TRIPS Agreement’s primary objectives included reducing trade distortions and obstructions by supporting effective and appropriate protection of IPRs, as well as ensuring that measures and processes for enforcing IPRs do not become hurdles to legitimate trade. 

Currently, the rise in IP legislative activity, as well as the quick adoption of TRIPS-covered IP rights, demonstrated the TRIPS Agreement’s centrality in the global trade system. The TRIPS Agreement continues to play a key role in facilitating international trade in knowledge, resolving trade issues over IP, and guaranteeing WTO members the latitude to achieve their domestic objectives, while IP is at the core of attempts to obtain benefits from innovation and creativity in today’s global economy.

Advantages and disadvantages of the TRIPS Agreement

Advantages of the trips agreement.

• Transparency in IP policy was brought to the world’s attention.
• WIPO’s existing international legal system, which was designed and controlled by them, was greatly enhanced by this agreement.
• Trade conflicts over intellectual property concerns were reduced by establishing a clear, rules-based framework for resolving disputes.
• It has aided in the acquisition and exercise of intellectual property rights, as well as providing a solid platform for the trade in knowledge products.
• In developing countries, the number of patent applications is increased

Disadvantages of the TRIPS Agreement

• TRIPS mandates high levels of patent protection.
• Fertilisers, insecticides, pharmaceutical items, and procedures were not protected by patents, resulting in low-cost food and drugs.
• Education and technology transfer were fostered by the lack of copyright protection for informational products.
• Jobs in the local imitative industries were lost.
• In general, increased prices resulted in significant deadweight losses, with minimal stimulation of local innovation.
• Traditional knowledge is not protected in any way. 

TRIPS Agreement : a boon or bane for developing countries

The agreement imposes essential and obligatory requirements on signatory member nations to implement basic levels of intellectual property right protection in all of its elements. However, this Agreement has far-reaching implications for developing nations, as rigid intellectual property restrictions stifle the growth of indigenous enterprises in these areas. Intellectual property rights, although vital, must be implemented with caution in developing nations since they can harm the economy, public health, and so on. The principal consequences of the patent protection regime have a deterring effect on the expansion of local sectors, such as pharmaceuticals. 

Intellectual property should not be used to thwart the interests of developing nations, such as public health, which is already being harmed. As a result, a re-evaluation is necessary. In addition, when the situation demands them, the exceptions to the intellectual property rights shall be implemented effectively and strictly.

The TRIPS Agreement has had a considerable impact on IPR protection in poor nations but has had a little discernible impact on IPR protection in developed countries. This outcome is consistent with the TRIPS Agreements’ requirements being established to be as near as possible to IPR protection systems already in existence in many developed nations. To comply with the TRIPS Agreement, developed nations did not need to make significant changes to their policies. And also the Nations that rely heavily on exports to countries that advocated for the TRIPS Agreement’s inclusion in the WTO (i.e. developed countries) may take the possibility of retaliatory trade penalties seriously since they stand to lose a lot of money in lost exports. This demonstrates the TRIPS Agreement’s effectiveness as a coercive threat in international economic negotiations. 

Numerous objections have been leveled against the TRIPS Agreement’s validity and efficacy, particularly in relation to poor nations. Even famous free-trade proponents like Martin Wolf have criticised TRIPS for its “hypocrisy” viewing it as a rent-seeking device from many poor nations, with potentially disastrous consequences for education, public health, and economic growth. Even among nations that appear to benefit the most from the agreement, gains may only go to certain segments of society, implying that the actual beneficiaries from TRIPS are not developed nations, but rather the major businesses that pushed for its adoption. TRIPS has also failed to address policymakers’ concerns, since trade balances have continued to deteriorate, and the current emphasis on private rights may, in the long run, contribute to stifling innovation and knowledge dissemination in developed nations. While Archibugi & Filippetti warned against misrepresenting TRIPS’ impact, it is clear that the agreement does not work as intended. It would have been better to establish a tiered structure that provided more meaningful special and differential treatment based on nations’ developmental requirements. Given that TRIPS is already firmly established inside the WTO system, it is unclear if major revision of the agreement is possible for the sake of developing nations.

This article might be concluded by stating that, despite the importance of the TRIPS Agreement, the developing countries have highlighted a number of concerns and flaws in the treaty. Despite these issues, the TRIPS Agreement is often regarded as the most comprehensive mechanism for protecting intellectual property rights. It enhances and manifests the previous IPR conventions, the most important of which were first drafted at the end of the nineteenth century. Certainly, these agreements were revised on a regular basis, to permit a gradual international control of intellectual property and copyrights. However, in comparison to the results of previous revision exercises, the TRIPS Agreement constitutes a tremendous conceptual leap that profoundly transforms not only how IPRs are seen internally, but also how they are implemented and disputes are resolved.

• https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm7_e.htm
• https://www.wto.org/english/tratop_e/trips_e/intel2_e.htm
• https://www.e-ir.info/2013/12/23/the-arguments-for-and-against-the-trips-agreement/
• https://www.wto.org/english/tratop_e/trips_e/tripfq_e.htm

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The Arguments For and Against the TRIPS Agreement

Following the culmination of the Uruguay Round of trade talks, the World Trade Organisation entered into existence on 1 January 1995. Alongside agreements on goods (GATT) and services (GATS), the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) forms one of the three pillars of the new multilateral trading system (WTO, 2008: 24). While it represents the first comprehensive and enforceable global agreement on Intellectual Property Rights (IPRs), it has since its inception been the subject of much criticism (Sell & Prakash, 2004). This paper outlines the main arguments both for and against TRIPS, and in so doing provides a sceptical assessment of its legitimacy and effectiveness. It begins, firstly, with the principal arguments in favour of TRIPS, before critically examining the recent history of the agreement and IPRs more generally. The paper then moves on to discuss the impact of TRIPS on economic development, and concludes that criticism of the agreement is broadly persuasive.

The WTO position

The standard line in support of TRIPS stems from recognition of the contemporary significance of the knowledge economy, and private intellectual property (IP) as a major component of international trade (WTO, 2008: 39). Disagreements over, and absence of, IPR protection constitute significant non-tariff barriers to trade, and TRIPS is the result of the need for a robust multilateral framework to replace what was an ineffective patchwork of pre-existing IPR agreements[i] (Matthews, 2002: 10-12). For the first time, therefore, TRIPS has put in place a global minimum standard of IP protection that all WTO members must adhere to. This covers copyrights, trademarks, industrial designs, geographical indications, patents, integrated circuit designs, trade secrets, and anti-competitive contract restrictions. Like other WTO agreements, it applies the fundamental principles of non-discrimination – most-favoured-nation treatment (no discrimination between trading partners) and national treatment (giving foreigners the same treatment domestically as one’s own nationals).

Various wider benefits to society are said to accrue from the imposition of temporary monopolies and other limitations that result from private IPRs (WTO, 2008: 39; CIPR, 2002: 14-18). By instituting legal protection – tackling piracy and counterfeiting – the disclosure of new knowledge and creativity is encouraged, and the significant costs associated with the creative process (such as with research and development) can therefore be recouped and remuneration earned. Innovation is thus both rewarded and further promoted. The scope and reliability offered by a global IPR regime should not only stimulate domestic innovation, but the security offered to developed world patent holders and others can also encourage foreign direct investment, technology transfer and licensing, and the diffusion of knowledge to the developing world (Matthews, 2002: 108-111). TRIPS is therefore able to play a significant role in the overall promotion of trade and economic development.

The agreement also takes care to recognise the differing position of member states vis-à-vis their relative economic status, administrative capabilities, and technological base. As per other WTO agreements, developing countries were afforded special and differential treatment as detailed in Part VI of the agreement under ‘transitional arrangements’. While developed countries had to ensure compliance by 1 January 1996, developing and post-communist countries were instead allocated a further four years to achieve this (with another five years granted for new patents products). Under Article 66.1, least-developed countries (LDCs) were given until 2006 to enact TRIPS, with the possibility of further extensions; the 2001 Doha Declaration on TRIPS and Public Health has also subsequently allowed a further ten years for pharmaceutical products for LDCs (WTO, 2001). Article 66.2 meanwhile explicitly encourages technology transfer from developed states to the LDCs so as to assist in the establishment of a viable technological base, and Article 67 obliges developed countries to provide technical and financial assistance to facilitate implementation of the agreement.

A further advantage inherent within TRIPS is the ‘flexibility’ offered to all members in interpreting various articles of the agreement (Vandoren, 2001). Article 27.3, for example, allows members to exclude certain inventions and subject matter from patentability, and permits the protection of others – such as plant varieties – through compatible sui generis systems. The Doha Declaration reiterated that developing countries have the right to grant compulsory licences or allow parallel importing for pharmaceutical products under Article 31 to tackle ‘national emergencies or other circumstances of extreme urgency’ –  and that public health crises such as HIV/AIDS , malaria, and other epidemics can be declared as such (WTO, 2001).

Crucially, TRIPS also represents a significant improvement on previous IPR agreements in having considerable monitoring, enforcement, and dispute settlement capabilities (Matthews, 2002: 79-95). A TRIPS Council – comprising all WTO members – reviews national legislation and implementation of the agreement. Should serious disputes occur, any member may ultimately bring a case to the WTO’s Dispute Settlement Body, which has the power to issue punitive trade sanctions to ensure compliance. Successful cases launched by Ecuador and Brazil show that the dispute resolution mechanism works for both developed and developing countries alike (MIP, 2010). TRIPS is therefore seen by its supporters as representing an enforceable global system of IPR protection that plays an essential role in the modern global information society. By rewarding and encouraging innovation, it facilitates international trade, spurs economic growth, and enables technological progress and the dissemination of knowledge, ultimately benefiting both producers and users throughout the developed and developing world.

A critical perspective

Carla Hesse (2002: 26) usefully reminds us, however, that “the concept of intellectual property – the idea that an idea can be owned – is a child of the European Enlightenment”. Unlike physical property, knowledge is generally not rivalrous and can be shared without loss of utility: one person’s contemporaneous use of it does not detract from another’s ability to do so. The institution of intellectual property therefore involves the ‘construction of scarcity’ where none necessarily exists (May & Sell, 2006: 17-20). As noted above, granting of private IP rights is intended to protect and encourage innovation; a balance is consequently to be struck between the private rights of ownership and the public good of shared knowledge, for the broader welfare of society.

The TRIPS agreement is however predicated on a particular conception of intellectual property as an idea, and internationalising this can be problematic. This may be in the narrow sense that different societies afford greater priority to the public good on a variety of issues, and in the broader sense that some forms of ‘traditional knowledge’ (TK) as shared amongst indigenous communities do not conform to the codified Western model of individual and exclusive ownership (Michalopoulos, 2003: 17-18). The recent progress made in biotechnology-based products has notably highlighted this contrast: for Western advocates, modern genetic research aimed at increasing human welfare is entirely respectable ‘bioprospecting’, a form of IP that fits within the TRIPS framework. For indigenous peoples, by way of contrast, the patenting of TK resources such as neem extract[ii] can be seen as a form of ‘biopiracy’, and represents the “disingenuous repackaging of traditional knowledge in order to secure monopoly rents for the biopirate while excluding the original innovator from a claim of these rents” (Isaac & Kerr, 2004). TRIPS, crucially, does not currently provide an agreed interpretation of either what constitutes traditional knowledge, or how it should be protected (CIPR, 2002b: 73-87).

It is also vital to note that the concept of intellectual property as contained within the TRIPS agreement stems from a particular interpretation of IPRs that has developed within the Western tradition over the last few decades alone. Intellectual property was initially highlighted an international issue in the 1960s and 1970s by the G77 group of developing countries, when as part of the push for a New International Economic Order they unsuccessfully sought the dilution of existing IPR protection in order to narrow the technology gap with the developed world (May & Sell, 2006: 155-156). This debate, however, also galvanised various corporate actors in the USA – and to a lesser extent in Europe and Japan – who were becoming increasingly concerned about losses stemming from trade in counterfeit goods.

While pressure from the likes of the chemical, pharmaceutical, and entertainment industries led to a ‘silent revolution’ in stricter IPR protection within the USA from the 1970s onward, corporate lobbyists also sought to move the issue to the global level (Archibugi & Filippetti, 2010). American government policy-makers, concerned about the country’s trade deficit and loss of competitiveness, became increasingly receptive to their lines of argument. International IPRs as based on protection and exclusion, rather than competition and diffusion, were thus promoted as a means of maintaining a comparative advantage in emerging knowledge-based, high-technology sectors of the global economy. Business groups succeeded in placing IP protection on the Uruguay Round agenda, and – through claiming unrivalled expertise in arcane ‘technical’ matters of IP legislation – they managed to play a key role in shaping the terms of the agreement (Matthews, 2002: 7-28).

Developing countries, on the other hand, had little input, although while many were initially sceptical of the proposals, resistance to a deal on TRIPS was gradually overcome (Drahos, 2002). The promise of greater access to agricultural and textile markets, economic coercion via threat of American sanctions, the potential development of restrictive bilateral IPR agreements, and an overall lack of  awareness of the content of proposals, all played their part (May & Sell, 2006: 157-158).  TRIPS therefore reflected the interests of particular global corporate actors, and it is only through acknowledgement of this that it can be properly understood (Matthews, 2002: 4-5). It is the specific view of intellectual property as promoted by Western transnational corporations, and supported by governments, that became embedded within the agreement. The fine balance between private gain and the public good – the purpose and scope of IPRs – may therefore have been tilted too far toward the former at the expense of the latter, and the consequences of this for how TRIPs functions in spite of its stated objectives are what we now turn to.

TRIPS and development

One of the principal criticisms made of the TRIPS agreement is that it offers an inappropriate uniform standard across a diverse range of states. Developed countries generally already possess suitable levels of IPR protection, and are home to the overwhelming majority of IP rights-holders that stand to benefit from increased protection (Chang, 2001: 23). Most developing countries, on the other hand, may incur significant costs from raising domestic standards to the required level – taking scarce resources away from other crucial sectors – and from the increased payments to be made to developed world rights-holders. A 2001 World Bank report suggested that in the short term TRIPS effectively constitutes an annual $20 billion transfer of wealth from technology-importing developing countries to technology-exporting developed countries (cited in Dutfield & Suthersanen, 2004). Similarly, Philip McCalman (2005) estimates that the beneficiaries of TRIPS are just a handful of developed countries: primarily the USA and various Western European states. Countries from India to Brazil – and even South Korea – meanwhile suffer through their reliance on technology imports. While most countries could still benefit in the long-term, McCalman argues that the advantages will nonetheless be distributed overwhelmingly amongst the leading developed countries. The Commission on Intellectual Property Rights also arrived at similar conclusions in its 2002 report on IPRs and development – assessing the argument that a stronger IPR regime would offset short-term implementation costs over the long-term, they concluded that:

“…for most developing countries with weak technological capacity, the evidence on trade, foreign investment, and growth suggests IP protection will have little impact. Nor is it likely that the benefits of IP protection will outweigh the costs in the foreseeable future. For more technologically advanced developing countries, the balance is finer. Dynamic gains may be achieved through IP protection, but at cost to other industries and consumers.”

(CIPR, 2002a: 12)

The Commission emphasised that developing countries do require different IP strategies as depending on their level of development. Contrary to the claims of TRIPS advocates, “rapid growth is more often associated with weaker IP protection” and does not start to become important until a country is well into upper-middle income category (CIPR, 2002b:22). So, while the WTO may claim to take developing countries needs into account, its emphasis on the need for a single high standard of IPRs appears to run contrary to the historical evidence. Indeed, Ha-Joon Chang observes of Europe and the USA that they themselves were “still routinely violating the IPRs of other countries’ citizens well into the twentieth century” (2001: 10). The flexible use of IP regimes to further economic interests was also successfully adopted by East Asian states such as Korea and Taiwan until very recently, where imitation and reverse-engineering were all considered important methods for developing technological and innovative capacity (CIPR, 2002b: 19-20). Strong IPR protection therefore appears to be a consequence, rather than a cause, of economic development.

The potential social cost of TRIPS for poorer countries has meanwhile been particularly evident over the issue of access to medicines, most notably with regard to antiretroviral drugs (Lanoszka, 2003). Before TRIPS, many countries either did not patent medicines or provided less than the robust 20-year protection subsequently introduced. Contemporary TRIPS rules, however, drive up costs to unaffordable levels by enabling monopoly pricing and excluding cheaper ‘generic’ alternatives. In 2001, by way of example, a group of 39 pharmaceutical companies took the South African government to court to prevent their use of compulsory licensing of generics, although intense public pressure did eventually force them to abandon the case (Sell & Prakash, 2004). However, the incident showed how multinational corporations attempt to use TRIPS to pursue private gain at clear cost to the public good[iii]. While some flexibilities in interpreting the agreement in light of public health concerns have since been established, as mentioned above, they often remain unused owing to cost, complexity, and the threat of trade ‘retaliation’ (O’Farrell, 2008).

The few allowances that are granted to developing countries in the TRIPS agreement can therefore be seen as insufficient, and the numerous limitations far too restrictive. As Constantine Michalopoulos (2003) notes, TRIPS does not actually offer the same range of ‘special and differential treatment’ (SDT) as other WTO agreements. Once the transition periods have expired, developing countries must implement the same rules on scope and duration of protection – regardless of circumstances – as the most advanced developed countries[iv]. Any form of permanent SDT is not an option: LDCs can no longer exempt sectors from protection, or reduce patent duration, as a means of addressing social or economic concerns. The flexibilities within the agreement, as seen above, therefore offer only limited room for manoeuvre.

Robert Wade (2003) suggests that as a result this constitutes a distinct ‘shrinking of the development space’: a reduction in states’ policy-making autonomy that denies them the paths to development that were taken by others before them. Furthermore, the agreement is “vague at points where vagueness benefits the developed countries, and precise at points where precision works against developing countries” (Wade, 2003: 630). The obligations of developing countries and the rights of developed are both enforceable to a far greater extent than the rights of the developing and the obligations of the developed. There is, for example, despite the clearly stated objective of Article 66.2 regarding technology transfer, little evidence of a sustained effort by developed states to honour such commitments (Moon, 2008).

The legitimacy and effectiveness of the TRIPS agreement is clearly vulnerable to numerous criticisms, particularly so with regard to developing countries. It is noteworthy that even prominent free trade advocates such as Martin Wolf (2005: 217) criticise the ‘hypocrisy’ of TRIPS, seeing it as a rent extraction device for many developing countries, with potentially devastating effects on education, public health, and economic development. Even within those countries who appear to gain most from the agreement, the benefits may only accrue to particular sections of society, so that “the real winners from TRIPS are not advanced countries, but rather the large corporations that pressed for its adoption” (Archibugi & Filippetti, 2010: 144). TRIPS has also not provided a solution to policy-makers’ concerns, as trade balances have continued to erode, while the recent emphasis on private rights may even serve to inhibit innovation and the spread of knowledge in developed countries in the long term (Hesse, 2002). While Archibugi & Filippetti (2010) caution against attributing too much importance to TRIPS, it is apparent that the agreement does not function as advertised. From a global perspective, it seems clear that adopting a ‘one-size-fits-all’ approach to IPRs is entirely inappropriate. A tiered system, offering more substantive special and differential treatment according to countries’ developmental needs, would have been more suitable. However, it remains to be seen whether major reform of the agreement is likely, given that TRIPS is now firmly established within the WTO system.

Bibliography

Archibugi, D. and Filippetti, A. (2010) ‘The Globalisation of Intellectual Property Rights: Four Learned Lessons and Four Theses’, Global Policy , 1, 2, 137-149.

Botov, I. E. (2004) ‘From the Paris Convention to the TRIPS Agreement: A One-Hundred-and-Twelve-Year Transitional Period for the Industrialized Countries’, Journal of World Intellectual Property , 7, 1, 115-130.

Chang, H-J. (2001) Intellectual Property Rights and Economic Development – Historical Lessons and Emerging Issues . Third World Network: Penang.

Commission on Intellectual Property Rights (CIPR) (2002a) Integrating Intellectual Property Rights and Development Policy: Executive Summary . CIPR: London.

Commission on Intellectual Property Rights (CIPR) (2002b) Integrating Intellectual Property Rights and Development Policy: Full Report . CIPR: London.

Drahos, P. (2002) ‘Developing Countries and International Intellectual Property Standard-Setting’, Journal of World Intellectual Property , 5, 5, 765-789.

Dutfield, G. and Suthersanen, U. (2004) ‘Harmonisation or Differentiation in Intellectual Property Protection? The Lessons of History’, Occasional Paper 15 , Quaker United Nations Office: Geneva. [Online] http://www.quno.org/geneva/pdf/economic/Occassional/Harmonisation-or-Differentiation.pdf, accessed 10 March 2011.

Hesse, C. (2002) ‘The rise of intellectual property, 700 B.C. – A.D. 2000: an idea in the balance’, Daedalus , Spring 2002, 26-45.

Isaac, G. E. and Kerr, W. A. (2004) ‘Bioprospecting or biopiracy? Intellectual Property and Traditional Knowledge in Biotechnology Innovation’, Journal of World Intellectual Property , 7, 1, 35-52.

Lanoszka, O. (2003) ‘The Global Politics of Intellectual Property Rights and Pharmaceutical Drug Policies in Developing Countries’, International Political Science Review , 24, 2, 181-197.

Managing Intellectual Property (MIP) (2010) Peter Drahos: How TRIPs reshaped IP norms. 1 st June 2010 p44 .

Matthews, D. (2002) Globalising Intellectual Property Rights: The TRIPs Agreement . Routledge: London.

May, C. and Sell, S. K. (2006) Intellectual Property Rights: A Critical History . Lynne Rienner Publishers: Boulder.

Michalopoulos, C. (2003) ‘Special and Differential Treatment of Developing Countries in TRIPS’, TRIPS Issues Paper 2 , Quaker United Nations Office: Geneva. [Online]

http://www.quno.org/geneva/pdf/economic/Issues/Special-Differential-Treatment-in-TRIPS-English.pdf, accessed 10 March 2011.

O’Farrell, G. (2008) ‘One Small Step or One Giant Leap Towards Access to Medicines for All?’, European Intellectual Property Review , 30, 6, 211-215.

Sell, S. K. and Prakash, A. (2004) ‘Using Ideas Strategically: The Contest Between Business and NGO networks in Intellectual Property Rights’, International Studies Quarterly , 48, 143-175.

Vandoren, P. (2001) ‘The TRIPS Agreement: A Rising Star’, Journal of World Intellectual Property , 4, 3, 307-322.

Wade, R. (2003) ‘What strategies are viable for developing countries today? The World Trade Organization and the shrinking of ‘development space’, Review of International Political Economy , 10, 4, 621-644.

Wolf, M. (2005) Why Globalization Works . Yale University Press: London.

World Trade Organisation (WTO) (2001) ‘Declaration on the TRIPS Agreement and Public Health’, World Trade Organisation. [Online] http://www.wto.org/english/thewto_e/minist_e/min01_e/mindecl_trips_e.htm, accessed 10 March 2011.

World Trade Organisation (WTO) (2008) Understanding the WTO . World Trade Organisation: Geneva.

World Trade Organisation (WTO) (2011) ‘Frequently asked questions about TRIPS in the WTO’, World Trade Organisation. [Online]  http://www.wto.org/english/tratop_e/trips_e/tripfq_e.htm, accessed 10 March 2011.

[i] The main agreements – the Paris and Berne Conventions of 1883 and 1886 respectively – have been subsumed within TRIPS, as have parts of the 1961 Rome Convention and the 1989 Washington Treaty (WTO, 2011).

[ii] Neem is a tree from South Asia whose extract has long been used as a form of natural medicine, pesticide, and fertilizer (CIPR, 2002b: 76)

[iii] As Chang (2001: 15-16) notes, the industry argument that profit through such strict patent protection is critical for innovation remains unconvincing. Scientific curiosity and common humanity are often sufficient motivation, while public funds are often provided to assist private sector research, and profits can also still accrue via ‘natural protective mechanisms’ (e.g. imitation lag and reputational advantage).

[iv] Botov (2004) describes how developed countries had over a century – from the Paris Convention in 1883 to the WTO agreement in 1995 – to fully develop their IPR regimes, and suggests the same latitude should be extended to today’s developing countries.

Written by: Ben Willis Written at: University of Plymouth Written for: Piers Revell Date written: March 2011

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• TRIPS-Plus Provisions and the Access to HIV Treatments in Developing Countries
• Poliheuristic Analysis: 2008 Indo-US Civil Nuclear Agreement
• Indian Perspective on Iran-China 25-year Agreement
• A Pareto Optimal Peace: How the Dayton Peace Agreement Struck a Unique Balance
• Intermestic Realism: Domestic Considerations in International Relations
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Press Release  Newburyport Water Treatment Plant Superintendent Thomas Cusick Pays $13,000 Civil Penalty for Violating Conflict of Interest Law

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Boston, MA — Newburyport Department of Public Services Water Treatment Plant Superintendent Thomas Cusick has paid a $13,000 civil penalty for violating the conflict of interest law by accepting free ski trips from a water meter manufacturer and its distributor. Cusick signed a Disposition Agreement in which he admitted the violations and waived his right to a hearing.

Cusick committed the violations both as a Newburyport town employee and as a Groveland town employee in his previous position as Groveland Water and Sewer Department Superintendent, which he held until May 2019.

The Groveland Water and Sewer Department uses water meters made by an Alabama-based manufacturer and sourced through the manufacturer’s sole authorized New England distributor. While Newburyport has not purchased water meters from the Alabama manufacturer or its distributor, the DPS does purchase other products from the distributor. When asked by another Newburyport DPS employee considering purchasing water meters about his prior experience purchasing from the manufacturer and distributor, Cusick spoke favorably of them.

On multiple occasions, the Alabama water meter manufacturer and its distributor hosted ski trips and other events to which they invited employees of several municipal water districts and departments of public works, including, at times, Cusick.

Cusick took part in three-day ski trips the Alabama water meter manufacturer and its distributor hosted in Sugarloaf, Maine, in 2018; Stowe, Vermont, in 2019; Okemo, Vermont, in 2020; and Jay Peak, Vermont, in 2022. The water meter vendors paid for Cusick’s lodging, meals, and ski lift tickets.

The conflict of interest law prohibits public employees from accepting anything worth $50 or more that is given to them for or because of their official positions. When Cusick accepted the free ski trips, he violated this prohibition because he knew or had reason to know the vendors were giving him the free trips due to his positions as Groveland Water and Sewer Department Superintendent and Newburyport DPS Water Treatment Plant Superintendent.

“When a municipal employee in a position of authority accepts valuable gifts from vendors or potential vendors to their agency, they give the public cause to question the integrity of their agency’s purchasing decisions and to ask whether those decisions are being made to serve private interests rather than the public interest,” said State Ethics Commission Executive Director David A. Wilson. “Such misconduct undermines the public’s confidence in the integrity of public service at the municipal level, in municipal agencies, and in municipal government generally.”

Earlier this year, current or former employees of Danvers, Franklin, Natick, Salem, Southampton, and the Sudbury Water District  signed disposition agreements and paid civil penalties to resolve similar conflict of interest law violations related to accepting ski trips from the water meter manufacturer and distributor. In May, the Commission initiated adjudicatory proceedings against an Auburn Water District employee  alleging that he also accepted free ski trips from the water meter vendors.

The Commission encourages public employees to contact the Commission’s Legal Division at 617-371-9500 for free advice if they have any questions regarding how the conflict of interest law may apply to them.

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REPERTORY OF APPELLATE BODY REPORTS

National Treatment

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> Article III:1 of the GATT 1994 — General principle > Relationship between Article II and Article III:2 of the GATT 1994 > Article III:2 of the GATT 1994 — Tax discrimination.   See also Taxation (T.3) > Article III:2 of the GATT 1994, first sentence — “like products”.   See also National Treatment, Article III:4 of the GATT 1994 — Regulatory discrimination (N.1.9); Textiles and Clothing Agreement, Article 6.2 — “like products” (T.7.5); TBT Agreement, Article 2.1 — MFN and national treatment obligations, “like products” (T.4.2A.4) > Article III:2 of the GATT 1994, first sentence — “in excess of” > Article III:2 of the GATT 1994 — Notions of “like” and “directly competitive or substitutable” products > Article III:2 of the GATT 1994, second sentence — “directly competitive or substitutable” products.   See also Directly Competitive or Substitutable Products (D.1); Textiles and Clothing Agreement, Article 6.2 — “directly competitive products” (T.7.4) > Article III:2 of the GATT 1994, second sentence — “not similarly taxed” > Article III:2 of the GATT 1994, second sentence — “so as to afford protection” > Article III:4 of the GATT 1994 — Regulatory discrimination.   See also National Treatment, Article III:2 of the GATT 1994, first sentence — “like products” (N.1.3); Textiles and Clothing Agreement, Article 6.2 — “like products” (T.7.5); TBT Agreement, Article 2.1 — MFN and national treatment obligations, “like products” (T.4.2A.4) > Article III:4 of the GATT 1994 — “affecting” > Article III:4 of the GATT 1994 — “less favourable treatment”.   See also MFN Treatment (M.2); National Treatment, Article XVII of the GATS (N.1.13); National Treatment, Article 3.1 of the TRIPS Agreement (N.1.14); TBT Agreement, Article 2.1 — MFN and national treatment obligations, “treatment no less favourable” (T.4.2A.5) > Article III:8 of the GATT 1994 — Derogations from the National Treatment Obligation.   See also SCM Agreement, Relationship between the SCM Agreement and the GATT 1994 (S.2.41); SCM Agreement, Relationship between the SCM Agreement and the TRIMs Agreement (S.2.45); TRIMs Agreement (T.8A) > Relationship between Article III and Article XX.   See also General Exceptions: Article XX of the GATT 1994, Article XX(g) — Jurisdictional limitation (G.3.10) > Article XVII of the GATS.   See also MFN Treatment, Article II of the GATS (M.2.2); National Treatment, Article III:4 of the GATT 1994 — “less favourable treatment” (N.1.11) > Article 3.1 of the TRIPS Agreement.   See also National Treatment, Article III:4 of the GATT 1994 — “less favourable treatment” (N.1.11)

N.1.1   Article III:1 of the GATT 1994 — General principle    back to top

N.1.1.1   Japan — Alcoholic Beverages II , pp. 16–17, DSR 1996:I, 97, at 109–110 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

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 internal measures ‘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. … 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 non-existent; Article III protects expectations not of any particular trade volume but rather of the equal competitive relationship between imported and domestic products. …  

… The Article III national treatment obligation is a general prohibition on the use of internal taxes and other internal regulatory measures so as to afford protection to domestic production. This obligation clearly extends also to products not bound under Article II. …  

N.1.1.2   Japan — Alcoholic Beverages II , p. 18, DSR 1996:I, 97, at 111 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

… Article III:1 articulates a general principle that internal measures should not be applied so as to afford protection to domestic production. This general principle informs the rest of Article III. The purpose of Article III:1 is to establish this general principle as a guide to understanding and interpreting the specific obligations contained in Article III:2 and in the other paragraphs of Article III, while respecting, and not diminishing in any way, the meaning of the words actually used in the texts of those other paragraphs. In short, Article III:1 constitutes part of the context of Article III:2, in the same way that it constitutes part of the context of each of the other paragraphs in Article III. Any other reading of Article III would have the effect of rendering the words of Article III:1 meaningless, thereby violating the fundamental principle of effectiveness in treaty interpretation. Consistent with this principle of effectiveness, and with the textual differences in the two sentences, we believe that Article III:1 informs the first sentence and the second sentence of Article III:2 in different ways.  

N.1.1.3   Japan — Alcoholic Beverages II , p. 18, DSR 1996:I, 97, at 111–112 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

… Article III:2, first sentence does not refer specifically to Article III:1. There is no specific invocation in this first sentence of the general principle in Article III:1 that admonishes Members of the WTO not to apply measures “so as to afford protection”. This omission must have some meaning. We believe the meaning is simply that the presence of a protective application need not be established separately from the specific requirements that are included in the first sentence in order to show that a tax measure is inconsistent with the general principle set out in the first sentence. However, this does not mean that the general principle of Article III:1 does not apply to this sentence. To the contrary, we believe the first sentence of Article III:2 is, in effect, an application of this general principle. …  

N.1.1.4   EC — Asbestos , para. 93 ( WT/DS135/AB/R )  

… However, both of these paragraphs of Article III constitute specific expressions of the overarching, “general principle”, set forth in Article III:1 of the GATT 1994. As we have previously said, the “general principle” set forth in Article III:1 “informs” the rest of Article III and acts “as a guide to understanding and interpreting the specific obligations contained” in the other paragraphs of Article III, including paragraph 4. Thus, in our view, Article III:1 has particular contextual significance in interpreting Article III:4, as it sets forth the “general principle” pursued by that provision. Accordingly, in interpreting the term “like products” in Article III:4, we must turn, first, to the “general principle” in Article III:1, rather than to the term “like products” in Article III:2.  

N.1.1A   Relationship between Article II and Article III:2 of the GATT 1994    back to top

N.1.1A.1   India — Additional Import Duties , Footnote 304 to para. 153 ( WT/DS360/AB/R )  

… The Panel and the participants also agree that the Additional Duty and the Extra-Additional Duty are border charges subject to the terms of Article II, and that they are not disciplined by the provisions of Article III as “internal taxes”. The Ad Note to Article III provides that “any internal tax or other internal charge” that applies to both domestic and imported products, but which is “collected or enforced” in respect of the imported product “at the time or point of importation”, is “nevertheless to be regarded” as subject to the provisions of Article III. Whether a measure is a “charge” to which Article II:2(a) applies, or an “internal tax or other internal charge” referred to in the Ad Note to Article III, has to be decided in the light of the characteristics of the measure and the circumstances of the case.  

N.1.1A.2   China — Auto Parts , paras. 139, 141 and Footnote 209 ( WT/DS339/AB/R , WT/DS340/AB/R , WT/DS342/AB/R )  

… as the Appellate Body has previously observed, the “fundamental structure and logic” of a covered agreement may require panels to determine whether a measure falls within the scope of a particular provision or covered agreement before proceeding to assess the consistency of the measure with the substantive obligations imposed under that provision or covered agreement. We consider this to be just such a case, particularly in the light of the Panel’s observation — with which China expressly agrees — that “a charge cannot be at the same time an ‘ordinary customs duty’ under Article II:1(b) of the GATT 1994 and an ‘internal tax or other internal charge’ under Article III:2 of the GATT”. If, as the Panel considered, the charge imposed on automobile manufacturers could fall within the scope of either the first sentence of Article II:1(b) or Article III:2, then the Panel had to begin its analysis by ascertaining which of these provisions applied in the circumstances of this dispute.  

It seems to us that an examination of whether a particular charge is an internal charge or a border measure involves consideration of all three types of charges, that is: ordinary customs duties under the first sentence of Article II:1(b); other duties and charges under the second sentence of Article II:1(b); 209 and internal charges and taxes under Article III:2. This should assist a panel in understanding the relationship among these fundamental GATT provisions. In this case the Panel could have undertaken a more complete analysis of the architecture of Article III:2 and both sentences of Article II:1(b) of the GATT 1994. However, its resolution of the threshold question was not affected by the fact that the Panel did not do so. We note that China has recorded “0” in the “Other Duties and Charges” column of its Schedule of Concessions in respect of the products at issue in this dispute.  

N.1.1A.3   China — Auto Parts , paras. 161–163, 165 ( WT/DS339/AB/R , WT/DS340/AB/R , WT/DS342/AB/R )  

Like the Panel, we consider that the adjectives “internal” and “imported” suggest that the charges falling within the scope of Article III are charges that are imposed on goods that have already been “imported”, and that the obligation to pay them is triggered by an “internal” factor, something that takes place within the customs territory. Further, the second sentence of Article III:2 expressly refers to the principles set forth in Article III:1. The Appellate Body has stated that Article III:1 articulates a general principle, that informs all of Article III, that internal measures should not be applied so as to afford protection to domestic production. We note that, in addition to laws, regulations and requirements affecting, inter alia , the use and sale of imported goods on the internal market, the first paragraph of Article III also specifically mentions “internal quantitative regulations requiring the … use of products in specified amounts or proportions” as among the types of measures that should not be applied so as to afford protection to domestic production, and such measures are subject to the specific disciplines of Article III:5, which also serves as relevant context.  

As already mentioned, in examining the scope of application of Article III:2, in relation to Article II:1(b), first sentence, the time at which a charge is collected or paid is not decisive. In the case of Article III:2, this is explicitly stated in the GATT 1994 itself, where the Ad Note to Article III specifies that when an internal charge is “collected or enforced in the case of the imported product at the time or point of importation”, such a charge “is nevertheless to be regarded” as an internal charge. What is important, however, is that the obligation to pay a charge must accrue due to an internal event, such as the distribution, sale, use or transportation of the imported product.  

This leads us, like the Panel, to the view that a key indicator of whether a charge constitutes an “internal charge” within the meaning of Article III:2 of the GATT 1994 is “whether the obligation to pay such charge accrues because of an internal factor (e.g., because the product was re-sold internally or because the product was used internally), in the sense that such ‘internal factor’ occurs after the importation of the product of one Member into the territory of another Member”. We also observe that the Harmonized System does not serve as relevant context for the interpretation of the term “internal charges” in Article III:2.  

In our view, accepting that a charge imposed on auto parts following, and as a consequence of, their assembly into a complete motor vehicle can constitute an ordinary customs duty would significantly limit the scope of “internal charges” that fall within the scope of Article III:2 of the GATT 1994. We also share the concerns expressed by the Panel to the effect that the security and predictability of tariff concessions would be undermined if ordinary customs duties could be applied based on factors and events that occur internally, rather than at the moment and by virtue of importation, and that this, in turn, would upset the carefully negotiated and balanced structure of key GATT rights and obligations, including the different disciplines imposed on ordinary customs duties and internal charges.  

N.1.1A.4   China — Auto Parts , para. 171 ( WT/DS339/AB/R , WT/DS340/AB/R , WT/DS342/AB/R )  

… a panel’s determination of whether a specific charge falls under Article II:1(b) or Article III:2 of the GATT 1994 must be made in the light of the characteristics of the measure and the circumstances of the case. In many cases this will be a straightforward exercise. In others, the picture will be more mixed, and the challenge faced by a panel more complex. A panel must thoroughly scrutinize the measure before it, both in its design and in its operation, and identify its principal characteristics. Having done so, the Panel must then seek to identify the leading or core features of the measure at issue, those that define its “centre of gravity” for purposes of characterizing the charge that it imposes as an ordinary customs duty or an internal charge. It is not surprising, and indeed to be expected, that the same measure may exhibit some characteristics that suggest it is a measure falling within the scope of Article II:1(b), and others suggesting it is a measure falling within the scope of Article III:2. In making its objective assessment of the applicability of specific provisions of the covered agreements to a measure properly before it, a panel must identify all relevant characteristics of the measure, and recognize which features are the most central to that measure itself, and which are to be accorded the most significance for purposes of characterizing the relevant charge and, thereby, properly determining the discipline(s) to which it is subject under the covered agreements.  

N.1.1A.5   China — Auto Parts , paras. 177–178 ( WT/DS339/AB/R , WT/DS340/AB/R , WT/DS342/AB/R )  

In contrast, regarding the characteristics of the measures at issue that might suggest that the charge imposed thereunder is an ordinary customs duty … Ultimately, the Panel considered that none of these factors, nor all of them taken together, was determinative of the issue of the legal characterization of the charge imposed under the measures at issue in this case.  

We see no error in the Panel’s approach. Taking each of these criteria in turn, we first observe that the way in which a Member’s domestic law characterizes its own measures, although useful, cannot be dispositive of the characterization of such measures under WTO law. Secondly, “the intent, stated or otherwise, of the legislators is not conclusive” as to such characterization. Thirdly, [although] the Panel acknowledged that parts imported by automobile manufacturers are deemed to remain under bond … the Panel also found that there is no physical confinement or any other restriction by customs authorities on the use of these auto parts in the internal market so that the bond requirement is in the nature of a financial guarantee. Lastly, with respect to the administration of the measures at issue by customs authorities, we recall that, in addition to the [General Administration of Customs], other agencies within the Chinese Government have a role under those measures. … In addition, as the Panel recognized, and as is the case with all of the criteria we have just mentioned, a degree of caution must be exercised in attributing decisive weight to characteristics that fall exclusively within the control of WTO Members, “because otherwise Members could determine by themselves which of the provisions would apply to their charges”.  

N.1.1A.6   China — Auto Parts , para. 243 ( WT/DS339/AB/R , WT/DS340/AB/R , WT/DS342/AB/R )  

Thus, it appears to us that the Panel considered that there were distinct charges imposed under Decree 125, and that it could characterize the “charge” imposed on imports of CKD and SKD kits under Article 2(2) of Decree 125 differently, as an ordinary customs duty. However, the Panel did not explain why this was so. Earlier in our analysis, we expressed the view that, in dealing with the threshold issue, the Panel properly scrutinized the key characteristics of the charge, evaluated the significance of those characteristics, and determined that the charge imposed under the measures at issue was an internal charge. In contrast, the Panel did not explain how or why the characteristics of the “charge” imposed on imports of CKD and SKD kits under Article 2(2) differed from those that it had earlier identified in its resolution of the threshold issue. Nor did it explain why such characteristics required characterization of the “charge” imposed on CKD and SKD kits imported under Article 2(2) as an ordinary customs duty. This does not seem to us to have been a proper approach to the characterization of this “charge”.  

N.1.2   Article III:2 of the GATT 1994 — Tax discrimination.   See also Taxation ( T.3 )    back to top

N.1.2.1   Canada — Periodicals , p. 19, DSR 1997:I, p. 449 at 464 ( WT/DS31/AB/R )  

Article III:2, first sentence, uses the words “directly or indirectly” in two different contexts: one in relation to the application of a tax to imported products and the other in relation to the application of a tax to like domestic products. Any measure that indirectly affects the conditions of competition between imported and like domestic products would come within the provisions of Article III:2, first sentence, or by implication, second sentence, given the broader application of the latter.  

N.1.2.2   Canada — Periodicals , pp. 22–23, DSR 1997:I, 449, at 468 ( WT/DS31/AB/R )  

… there are two questions which need to be answered to determine whether there is a violation of Article III:2 of the GATT 1994: (a) whether imported and domestic products are like products; and (b) whether the imported products are taxed in excess of the domestic products. If the answers to both questions are affirmative, there is a violation of Article III:2, first sentence. If the answer to one question is negative, there is a need to examine further whether the measure is consistent with Article III:2, second sentence.  

N.1.3   Article III:2 of the GATT 1994, first sentence — “like products”.   See also National Treatment, Article III:4 of the GATT 1994 — Regulatory discrimination ( N.1.9 ); Textiles and Clothing Agreement, Article 6.2 — “like products” ( T.7.5 ); TBT Agreement, Article 2.1 — MFN and national treatment obligations, “like products” ( T.4.2A.4 )    back to top

N.1.3.1   SCOPE OF “LIKE PRODUCTS”  

N.1.3.1.1   Japan — Alcoholic Beverages II , pp. 19–20, DSR 1996:I, p. 97 at 112–113 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

Because the second sentence of Article III:2 provides for a separate and distinctive consideration of the protective aspect of a measure in examining its application to a broader category of products that are not “like products” as contemplated by the first sentence, we agree with the Panel that the first sentence of Article III:2 must be construed narrowly so as not to condemn measures that its strict terms are not meant to condemn. …  

How narrowly is a matter that should be determined separately for each tax measure in each case. We agree with the practice under the GATT 1947 of determining whether imported and domestic products are “like” on a case-by-case basis. …  

N.1.3.1.2   Japan — Alcoholic Beverages II , p. 21, DSR 1996:I, p. 97 at 114 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

No one approach to exercising judgement will be appropriate for all cases. The criteria in Border Tax Adjustments should be examined, but there can be no one precise and absolute definition of what is “like”. 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 width of the accordion in any one of those places must be determined by the particular provision in which the term “like” is encountered as well as by the context and the circumstances that prevail in any given case to which that provision may apply. …  

N.1.3.1.3   Canada — Periodicals , p. 28, DSR 1997:I, p. 449 at 473 ( WT/DS31/AB/R )  

… A case of perfect substitutability would fall within Art. III:2, first sentence, while we are examining the broader prohibition of the second sentence. …  

N.1.3.1.4   EC — Asbestos , paras. 94–95 ( WT/DS135/AB/R )  

… we observe that, although the obligations in Articles III:2 and III:4 both apply to “like products”, the text of Article III:2 differs in one important respect from the text of Article III:4. Article III:2 contains two separate sentences, each imposing distinct obligations: the first lays down obligations in respect of “like products”, while the second lays down obligations in respect of “directly competitive or substitutable” products. By contrast, Article III:4 applies only to “like products” and does not include a provision equivalent to the second sentence of Article III:2. …  

… this textual difference between paragraphs 2 and 4 of Article III has considerable implications for the meaning of the term “like products” in these two provisions. In Japan — Alcoholic Beverages , we concluded, in construing Article III:2, that the two separate obligations in the two sentences of Article III:2 must be interpreted in a harmonious manner that gives meaning to both sentences in that provision. We observed there that the interpretation of one of the sentences necessarily affects the interpretation of the other. Thus, the scope of the term “like products” in the first sentence of Article III:2 affects, and is affected by, the scope of the phrase “directly competitive or substitutable” products in the second sentence of that provision. …  

N.1.3.1.5   Philippines — Distilled Spirits , para. 149 ( WT/DS396/AB/R , WT/DS403/AB/R )  

We do not understand the statements by the Appellate Body in Canada — Periodicals and in Korea — Alcoholic Beverages to mean that only products that are perfectly substitutable can fall within the scope of Article III:2, first sentence. This would be too narrow an interpretation and would reduce the scope of the first sentence essentially to identical products . Rather, we consider that, under the first sentence, products that are close to being perfectly substitutable can be “like products”, whereas products that compete to a lesser degree would fall within the scope of the second sentence.  

N.1.3.1.6   Philippines — Distilled Spirits , para. 168 ( WT/DS396/AB/R , WT/DS403/AB/R )  

The determination of “likeness” under Article III:2, first sentence, of the GATT 1994 should be made on a case-by-case basis. If two spirits are considered to be “like products” in a given market, this does not necessarily mean that they would be considered “like products” in another market. … in order to establish whether two products are “like” within the meaning of Article III:2 of the GATT 1994, a panel needs to examine the nature and the extent of the competitive relationship between and among products, which will depend on the market where these products compete.  

N.1.3.2   CRITERIA  

N.1.3.2.1   Japan — Alcoholic Beverages II , pp. 20–21, DSR 1996:I, p. 97 at 113–114 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

… In applying the criteria cited in Border Tax Adjustments to the facts of any particular case, and in considering other criteria that may also be relevant in certain cases, panels can only apply their best judgement in determining whether in fact products are “like”. This will always involve an unavoidable element of individual, discretionary judgment … it is a discretionary decision that must be made in considering the various characteristics of products in individual cases.  

N.1.3.2.2   Japan — Alcoholic Beverages II , p. 22, DSR 1996:I, p. 97 at 114–115 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

Uniform classification in tariff nomenclatures based on the Harmonized System (the “HS”) was recognized in GATT 1947 practice as providing a useful basis for confirming “likeness” in products. However, there is a major difference between tariff classification nomenclature and tariff bindings or concessions made by Members of the WTO under Article of the GATT 1994. …  

… tariff bindings that include a wide range of products are not a reliable criterion for determining or confirming product “likeness” under Article III:2.  

N.1.3.2.3   Canada — Periodicals , p. 21, DSR 1997:I, p. 449 at 466 ( WT/DS31/AB/R )  

… As the Panel recognized, the proper test is that a determination of “like products” for the purposes of Article III:2, first sentence, must be construed narrowly, on a case-by-case basis, by examining relevant factors including:  

(i) the product’s end-uses in a given market;  

(ii) consumers’ tastes and habits; and  

(iii) the product’s properties, nature and quality.  

N.1.3.2.4   Philippines — Distilled Spirits , paras. 119–121 ( WT/DS396/AB/R , WT/DS403/AB/R )  

While in the determination of “likeness” a panel may logically start from the physical characteristics of the products, none of the criteria that a panel considers necessarily has an overarching role in the determination of “likeness” under Article III:2 of the GATT 1994. A panel examines these criteria in order to make a determination about the nature and extent of a competitive relationship between and among the products.  

… products that have very similar physical characteristics may not be “like”, within the meaning of Article III:2, if their competitiveness or substitutability is low, while products that present certain physical differences may still be considered “like” if such physical differences have a limited impact on the competitive relationship between and among the products.  

… we do not consider … that the Panel committed an error of interpretation when it found that “likeness under the first sentence of Article III:2 is not limited to products that are identical”. This statement by the Panel … is consistent with the notion that, while physical characteristics are one of the relevant criteria in the determination of “likeness” under Article III:2, even products that present certain differences may still be considered “like” if the nature and extent of their competitive relationship justifies such a determination.  

N.1.3.2.5   Philippines — Distilled Spirits , paras. 124–125 ( WT/DS396/AB/R , WT/DS403/AB/R )  

The Panel considered that a difference in raw materials used in the production would only be relevant to the extent that it resulted in final products that are not similar. … Thus, the Panel focused on the physical characteristics of distilled spirits as final products, and not on those of the raw materials or production processes used to make the final products.  

We consider that, in spite of differences in the raw materials used to make the products, if these differences do not affect the final products, these products can still be found to be “like” within the meaning of Article III:2 of the GATT 1994. Article III:2, first sentence, refers to “like products”, not to their raw material base. If differences in raw materials leave fundamentally unchanged the competitive relationship among the final products, the existence of these differences would not necessarily negate a finding of “likeness” under Article III:2. As we have explained above, the determination of what are “like products” under Article III:2 is not focused exclusively on the physical characteristics of the products, but is concerned with the nature and the extent of the competitive relationship between and among the products. We consider, therefore, that as long as the differences among the products, including a difference in the raw material base, leave fundamentally unchanged the competitive relationship among the final products, the existence of these differences does not prevent a finding of “likeness” if, by considering all factors, the panel is able to come to the conclusion that the competitive relationship among the products is such as to justify a finding of “likeness” under Article III:2.  

N.1.3.2.6   Philippines — Distilled Spirits , para. 128 ( WT/DS396/AB/R , WT/DS403/AB/R )  

… While the Panel addressed presentation and labelling under consumers’ tastes and habits, we observe that, as distilled spirits are sold in labelled bottles, their presentation and labelling are also concerned with the physical characteristics of the product and not only with the perceptions of the consumer. The fact that domestic Philippine distilled spirits made from designated raw materials closely replicate imported distilled spirits made from non-designated raw materials supports the Panel’s overall finding that, within each type, these are “like products”. Even where certain differences remain, domestic distilled spirits made from designated raw materials are presented to consumers so as to be indistinguishable from imported distilled spirits made from non-designated raw materials. This suggests, in our view, that even where the products are made from different raw materials and may, as a consequence, present some physical differences that are not completely eliminated in the production process, they can be in a sufficiently close competitive relationship to be considered “like products” within the meaning of Article III:2, first sentence, of the GATT 1994.  

N.1.3.2.7   Philippines — Distilled Spirits , paras. 131–132 ( WT/DS396/AB/R , WT/DS403/AB/R )  

… the criteria to establish “likeness” under Article III:2, first sentence, of the GATT 1994 are not exhaustive and are not set forth in Article III:2, nor in any other provision of the covered agreements. Rather, these criteria are tools available to panels for organizing and assessing the evidence relating to the competitive relationship between and among the products in order to establish “likeness” under Article III:2, first sentence. While distinct, these criteria are not mutually exclusive. Certain evidence, such as that relating to the perceptibility of differences, may well fall under more than one criterion.  

… While consumer perception of products is highly relevant to the overall determination of “likeness” under Article III:2, we believe that this element may reach beyond the products’ properties, nature, and qualities, which concern the objective physical characteristics of the products. Indeed, consumer perception of products may be more concerned with consumers’ tastes and habits than with physical characteristics.  

N.1.3.2.8   Philippines — Distilled Spirits , paras. 161, 163 ( WT/DS396/AB/R , WT/DS403/AB/R )  

… tariff classification can be a helpful sign of similarity only if it is sufficiently detailed. We do not consider that HS heading 2208, which groups together all distilled spirits, as well as other liquors and unflavoured neutral spirits for human consumption or for industrial purposes, constitutes a tariff classification that is sufficiently detailed to provide an indication of “likeness”, within types of distilled spirits, between domestic distilled spirits made from designated materials and imported distilled spirits made from non-designated materials.  

… [The HS Explanatory Notes] to the six-digit HS codes for both brandy and whisky specify the material from which the spirit is distilled, namely, grape wine or grape marc for brandy and mash of cereal grains for whisky. This, in our view, provides an indication that tariff classification would not suggest that domestic brandies and whiskies made from designated raw materials are “like” imported brandies and whiskies made from non-designated raw materials. …  

N.1.4   Article III:2 of the GATT 1994, first sentence — “in excess of”    back to top

N.1.4.1   Japan — Alcoholic Beverages II , pp. 18–19, DSR 1996:I, p. 97 at 112 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

… Read in their context and in the light of the overall object and purpose of the WTO Agreement , the words of the first sentence require an examination of the conformity of an internal tax measure with Article III by determining, 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, first sentence.  

N.1.4.2   Japan — Alcoholic Beverages II , p. 23, DSR 1996:I, p. 97 at 115 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

… Even the smallest amount of “excess” is too much. “The prohibition of discriminatory taxes in Article III:2, first sentence, is not conditional on a ‘trade effects test’ nor is it qualified by a de minimis standard.” …  

N.1.4.3   Thailand — Cigarettes (Philippines) , para. 112 ( WT/DS371/AB/R )  

… Article III:2, first sentence, concerns circumstances where imported and like domestic products are subject “directly or indirectly” to internal taxes or other internal charges “of any kind”. This language suggests that the provision applies to a broad range of measures. Regarding the requirement of “not … in excess of”, the Appellate Body has clarified that a finding of inconsistency under Article III:2, first sentence, is not conditional on a “trade effects test”, and that even the smallest amount of “excess” is too much. … When … a measure subjects imported products to taxes or charges in excess of those applied to like domestic products, it will be inconsistent with the first sentence of Article III:2.  

N.1.4.4   Thailand — Cigarettes (Philippines) , paras. 115–117 ( WT/DS371/AB/R )  

… Thailand contends that it cannot be WTO-inconsistent to require resellers to complete “administrative formalities” in order to obtain input tax credits necessary to achieve zero VAT liability. …  

… We consider, however, that a proper conception of Thailand’s measure clarifies that it is not the mere imposition of administrative requirements that creates a differential tax burden, but rather that only resellers of imported cigarettes will incur VAT liability as a consequence of failing to offset output tax. Resellers of imported cigarettes are subject to VAT liability in defined circumstances under Thai law, whereas resellers of domestic cigarettes, due to a complete exemption from VAT, are not. Based on this understanding of the measure, we therefore agree with the Panel that Thailand subjects imported cigarettes to internal taxes in excess of those applied to like domestic cigarettes, within the meaning of Article III:2, first sentence, of the GATT 1994.  

… In any event, we do not consider that Thailand’s measure precludes a finding of inconsistency with Article III:2 due to the fact that resellers of imported cigarettes may take action to avoid the imposition of VAT liability. In our view, the availability of such a course of action does not alter the legal assessment of whether, under Thai law, imported cigarettes are subject to internal taxes or other internal charges in excess of those applied to domestic cigarettes. As we have explained, Thailand’s measure provides for circumstances in which resellers of imported cigarettes will be subject to VAT liability, to which resellers of domestic cigarettes will never be subject. In this respect, we agree with the Panel’s reliance on Korea — Various Measures on Beef , where the Appellate Body stated, in the context of its Article III:4 analysis, that “the intervention of some element of private choice does not relieve Korea of responsibility under the GATT 1994 for the resulting establishment of competitive conditions less favourable for the imported product than for the domestic product”.  

N.1.4.5   Thailand — Cigarettes (Philippines) , para. 118 ( WT/DS371/AB/R )  

We also disagree with Thailand’s suggestion that the Panel’s finding would limit the ability of WTO Members to ensure the proper administration of their tax regimes. Again, the Panel considered that Thailand’s measure was inconsistent with Article III:2, first sentence, not because it prescribed conditions for obtaining tax credits, but rather because those conditions applied only in respect of resellers of imported cigarettes, and did not “automatically and irrevocably offset tax liabilities incurred by [those resellers] in every case”. WTO Members remain free “to administer and collect internal taxes as they see fit”, so long as they do so “in conformity with Article III:2”. Imposing legal requirements that result in tax liability on imported products when resellers do not satisfy prescribed conditions necessary to avoid that liability, but which never result in tax liability on like domestic products, is inconsistent with the requirements of Article III:2, first sentence.  

N.1.5   Article III:2 of the GATT 1994 — Notions of “like” and “directly competitive or substitutable” products    back to top

N.1.5.1   Japan — Alcoholic Beverages II , p. 25, DSR 1996:I, p. 97 at 117 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

… As with “like products” under the first sentence, the determination of the appropriate range of “directly competitive or substitutable products” under the second sentence must be made on a case-by-case basis.  

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. … 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.  

N.1.5.2   Canada — Periodicals , p. 19, DSR 1997:I, p. 449 at 464–465 ( WT/DS31/AB/R )  

… Any measure that indirectly affects the conditions of competition between imported and like domestic products would come within the provisions of Article III:2, first sentence, or by implication, second sentence, given the broader application of the latter.  

N.1.5.3   Korea — Alcoholic Beverages , para. 118 ( WT/DS75/AB/R , WT/DS84/AB/R )  

… “Like” products are a subset of directly competitive or substitutable products: all like products are, by definition, directly competitive or substitutable products, whereas not all “directly competitive or substitutable” products are “like”. The notion of like products must be construed narrowly but the category of directly competitive or substitutable products is broader. While perfectly substitutable products fall within Article III:2, first sentence, imperfectly substitutable products can be assessed under Article III:2, second sentence.  

N.1.5.4   Philippines — Distilled Spirits , para. 148 ( WT/DS396/AB/R , WT/DS403/AB/R )  

We observe that both the analysis of “likeness” under Article III:2, first sentence, of the GATT 1994, and the analysis of direct competitiveness and substitutability under Article III:2, second sentence, require consideration of the competitive relationship between imported and domestic products. However, “likeness” is a narrower category than “directly competitive and substitutable”. Thus, the degree of competition and substitutability that is required under Article III:2, first sentence, must be higher than that under Article III:2, second sentence. …  

N.1.6   Article III:2 of the GATT 1994, second sentence — “directly competitive or substitutable” products.   See also Directly Competitive or Substitutable Products ( D.1 ); Textiles and Clothing Agreement, Article 6.2 — “directly competitive products” ( T.7.4 )    back to top

N.1.6.1   Korea — Alcoholic Beverages , paras. 114–115 ( WT/DS75/AB/R , WT/DS84/AB/R )  

The term “directly competitive or substitutable” describes a particular type of relationship between two products, one imported and the other domestic. It is evident from the wording of the term that the essence of that relationship is that the products are in competition. This much is clear both from the word “competitive” which means “characterized by competition”, and from the word “substitutable” which means “able to be substituted”. The context of the competitive relationship is necessarily the marketplace since this is the forum where consumers choose between different products. Competition in the marketplace is a dynamic, evolving process. Accordingly, the wording of the term “directly competitive or substitutable” implies that the competitive relationship between products is not to be analyzed exclusively by reference to current consumer preferences. In our view, the word “substitutable” indicates that the requisite relationship may exist between products that are not, at a given moment, considered by consumers to be substitutes but which are, nonetheless, capable of being substituted for one another.  

Thus, according to the ordinary meaning of the term, products are competitive or substitutable when they are interchangeable or if they offer, as the Panel noted, “alternative ways of satisfying a particular need or taste”. Particularly in a market where there are regulatory barriers to trade or to competition, there may well be latent demand.  

N.1.6.2   Korea — Alcoholic Beverages , para. 120 ( WT/DS75/AB/R , WT/DS84/AB/R )  

In view of the objectives of avoiding protectionism, requiring equality of competitive conditions and protecting expectations of equal competitive relationships, we decline to take a static view of the term “directly competitive or substitutable”. The object and purpose of Article III confirms that the scope of the term “directly competitive or substitutable” cannot be limited to situations where consumers already regard products as alternatives. If reliance could be placed only on current instances of substitution, the object and purpose of Article III:2 could be defeated by the protective taxation that the provision aims to prohibit. …  

N.1.6.3   Korea — Alcoholic Beverages , para. 124 ( WT/DS75/AB/R , WT/DS84/AB/R )  

… the term “directly competitive or substitutable” does not prevent a panel from taking account of evidence of latent consumer demand as one of a range of factors to be considered when assessing the competitive relationship between imported and domestic products under Article III:2, second sentence, of the GATT 1994. …  

N.1.6.4   Korea — Alcoholic Beverages , para. 127 ( WT/DS75/AB/R , WT/DS84/AB/R )  

… the object and purpose of Article III is the maintenance of equality of competitive conditions for imported and domestic products. It is, therefore, not only legitimate, but even necessary, to take account of this purpose in interpreting the term “directly competitive or substitutable product”.  

N.1.6.5   Korea — Alcoholic Beverages , para. 134 ( WT/DS75/AB/R , WT/DS84/AB/R )  

In taking issue with the use of the term “nature of competition”, Korea, in effect, objects to the Panel’s sceptical attitude to quantification of the competitive relationship between imported and domestic products. For the reasons set above, we share the Panel’s reluctance to rely unduly on quantitative analyses of the competitive relationship. In our view, an approach that focused solely on the quantitative overlap of competition would, in essence, make cross-price elasticity the decisive criterion in determining whether products are “directly competitive or substitutable”. …  

N.1.6.6   Korea — Alcoholic Beverages , para. 137 ( WT/DS75/AB/R , WT/DS84/AB/R )  

It is, of course, true that the “directly competitive or substitutable” relationship must be present in the market at issue. … It is also true that consumer responsiveness to products may vary from country to country. This does not, however, preclude consideration of consumer behaviour in a country other than the one at issue. It seems to us that evidence from other markets may be pertinent to the examination of the market at issue, particularly when demand on that market has been influenced by regulatory barriers to trade or to competition. Clearly, not every other market will be relevant to the market at issue. But if another market displays characteristics similar to the market at issue, then evidence of consumer demand in that other market may have some relevance to the market at issue. This, however, can only be determined on a case-by-case basis, taking account of all relevant facts.  

N.1.6.7   Korea — Alcoholic Beverages , paras. 142–143 ( WT/DS75/AB/R , WT/DS84/AB/R )  

… Some grouping is almost always necessary in cases arising under Article III:2, second sentence, since generic categories commonly include products with some variation in composition, quality, function and price, and thus commonly give rise to sub-categories. From a slightly different perspective, we note that “grouping” of products involves at least a preliminary characterization by the treaty interpreter that certain products are sufficiently similar as to, for instance, composition, quality, function and price, to warrant treating them as a group for convenience in analysis. But, the use of such “analytical tools” does not relieve a panel of its duty to make an objective assessment of whether the components of a group of imported products are directly competitive or substitutable with the domestic products. …  

Whether, and to what extent, products can be grouped is a matter to be decided on a case-by-case basis. …  

N.1.6.8   Philippines — Distilled Spirits , paras. 205, 207 ( WT/DS396/AB/R , WT/DS403/AB/R )  

… the Panel appropriately framed the analysis as one aimed at determining whether competition between imported and domestic distilled spirits in the Philippines is sufficiently direct so that these products could be properly characterized as “directly competitive or substitutable”. … The requisite degree of competition is met where the imported and domestic products are characterized by a high, but imperfect, degree of substitutability. As the Appellate Body found, this will be the case where the imported and domestic products are “interchangeable” or offer “alternative ways of satisfying a particular need or taste”.  

… We note, in this respect, that the Panel expressly derived, from its statement that the “question before us … is not so much what the ‘degree of competition’ between the products at issue is, but what is the ‘nature’ or ‘quality’ of their ‘competitive relationship’”, the conclusion that it “ should not place too much emphasis on quantitative analyses ”. … In de-emphasizing the role played by quantitative analyses of substitutability, the Panel followed the guidance provided by the Appellate Body in previous cases. …  

N.1.6.9   Philippines — Distilled Spirits , para. 215 ( WT/DS396/AB/R , WT/DS403/AB/R )  

… We consider that price is very relevant in assessing whether imported and domestic products stand in a sufficiently direct competitive relationship in a given market. This is because evidence of price competition indicates that the imported product exercises competitive constraints on the domestic product, and vice versa . In this respect, we agree with the Philippines that evidence of major price differentials could demonstrate that the imported and domestic products are in completely separate markets. …  

N.1.6.10   Philippines — Distilled Spirits , paras. 218–219 ( WT/DS396/AB/R , WT/DS403/AB/R )  

We do not agree with the Philippines that Article III:2, second sentence, of the GATT 1994 requires identity in the “nature and frequency” of the consumer’s purchasing behaviour. If that were the case, the competitive relationship between the imported and domestic products in a given market would only be assessed with reference to current consumer preferences. … requiring identity in frequency and nature of consumers’ purchase decisions, as suggested by the Philippines, would not sufficiently account for latent demand for imported distilled spirits in the Philippine market.  

Moreover, in determining whether imported and domestic distilled spirits offer “alternative ways of satisfying a particular need or taste” in the Philippines, the Panel was required to examine both “latent and extant demand” for imported distilled spirits in the Philippine market. …  

N.1.6.11   Philippines — Distilled Spirits , paras. 221–222 ( WT/DS396/AB/R , WT/DS403/AB/R )  

… we do not agree with the Philippines that Article III:2, second sentence, requires that competition be assessed in relation to the market segment that is most representative of the “market as a whole”. To the contrary, the Panel was correct in concluding that Article III of the GATT 1994 “does not protect just some instances or most instances, but rather, it protects all instances of direct competition”. This reading is consistent with the Appellate Body’s finding that the object and purpose of the GATT 1994, as reflected in Article III, is “requiring equality of competitive relationships and protecting expectations of equal competitive relationships”. Moreover, current demand for imported spirits in the Philippine market is a function of actual retail prices, which could be distorted by the excise tax system and other related effects, such as higher distribution costs, and lower volumes and economies of scale. …  

For these reasons, it was reasonable for the Panel to conclude that actual competition in a segment of the market further supports its conclusion that imported and domestic distilled spirits are capable of being substituted in the Philippines. …  

N.1.6.12   Philippines — Distilled Spirits , paras. 226–227 ( WT/DS396/AB/R , WT/DS403/AB/R )  

We do not agree with the Philippines that [the Panel’s statement that “ the imported and domestic products at issue in this dispute are indeed capable of being directly competitive or substitutable in the future”] is in error. … In our view, … instances of actual competition are also highly probative in relation to potential competition, particularly in this case where imported distilled spirits are subject to excise taxes that are 10 to 40 times higher than those applicable to domestic distilled spirits. … For this reason, instances of current substitution are likely to underestimate latent demand for imported spirits as a result of distortive effects introduced by the excise tax at issue. This is particularly the case for “experience goods” such as distilled spirits, which consumers “tend to purchase because they are familiar with them and with which consumers experiment only reluctantly”.  

In addition, we do not agree with the Philippines that an analysis of potential competition under Article III:2, second sentence, is limited to an assessment of whether competition would otherwise occur if the challenged taxation were not in place. In our view, such a “but for” test reflects an overly restrictive interpretation of the term “directly competitive or substitutable” products, one which assumes that internal taxation is the only factor restricting potential substitutability. On the contrary, as noted by the Appellate Body, “consumer demand may be influenced by measures other than internal taxation”, such as “earlier protectionist taxation, previous import prohibitions or quantitative restrictions”.  

N.1.7   Article III:2 of the GATT 1994, second sentence — “not similarly taxed”    back to top

N.1.7.1   Japan — Alcoholic Beverages II , p. 27, DSR 1996:I, p. 97 at 118–119 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

To interpret “in excess of” and “not similarly taxed” identically would deny any distinction between the first and second sentences of Article III:2. Thus, in any given case, there may be some amount of taxation on imported products that may well be “in excess of” the tax on domestic “like products” but may not be so much as to compel a conclusion that “directly competitive or substitutable” imported and domestic products are “not similarly taxed” for the purposes of the Ad Article to Article III:2, second sentence. In other words, there may be an amount of excess taxation that may well be more of a burden on imported products than on domestic “directly competitive or substitutable products” but may nevertheless not be enough to justify a conclusion that such products are “not similarly taxed” for the purposes of Article III:2, second sentence. …  

N.1.7.2   Japan — Alcoholic Beverages II , p. 27, DSR 1996:I, p. 97 at 119 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

… We agree with the Panel that this amount of differential taxation must be more than de minimis to be deemed “not similarly taxed” in any given case. And, like the Panel, we believe that whether any particular differential amount of taxation is de minimis or is not de minimis must, here too, be determined on a case-by-case basis. Thus, to be “not similarly taxed”, the tax burden on imported products must be heavier than on “directly competitive or substitutable” domestic products, and that burden must be more than de minimis in any given case.  

N.1.7.3   Canada — Periodicals , p. 29, DSR 1997:I, p. 449 at 474 ( WT/DS31/AB/R )  

… we find that the amount of the taxation is far above the de minimis threshold required by the Appellate Body Report in Japan — Alcoholic Beverages . The magnitude of this tax is sufficient to prevent the production and sale of split-run periodicals in Canada.  

N.1.7.4   Canada — Periodicals , p. 32, DSR 1997:I, p. 449 at 476 ( WT/DS31/AB/R )  

We therefore conclude on the basis of the above reasons, including the magnitude of the differential taxation, the several statements of the Government of Canada’s explicit policy objectives in introducing the measure and the demonstrated actual protective effect of the measure, that the design and structure of Part V.1 of the Excise Tax Act is clearly to afford protection to the production of Canadian periodicals.  

N.1.7.5   Chile — Alcoholic Beverages , para. 49 ( WT/DS87/AB/R , WT/DS110/AB/R )  

… We must, therefore, assess the relative tax burden imposed on directly competitive or substitutable domestic and imported products.  

N.1.7.6   Chile — Alcoholic Beverages , paras. 52–53 ( WT/DS87/AB/R , WT/DS110/AB/R )  

… The examination under the second issue must, therefore, take into account the fact that the group of directly competitive or substitutable domestic and imported products at issue in this case is not limited solely to beverages of a specific alcohol content, falling within a particular fiscal category, but covers all the distilled alcoholic beverages in each and every fiscal category under the New Chilean System.  

A comprehensive examination of this nature, which looks at all of the directly competitive or substitutable domestic and imported products, shows that the tax burden on imported products, most of which will be subject to a tax rate of 47 per cent, will be heavier than the tax burden on domestic products, most of which will be subject to a tax rate of 27 per cent. …  

N.1.8   Article III:2 of the GATT 1994, second sentence — “so as to afford protection”    back to top

N.1.8.1   Japan — Alcoholic Beverages II , pp. 27–28, DSR 1996:I, p. 97 at 119 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

This third inquiry under Article III:2, second sentence, must determine whether “directly competitive or substitutable products” are “not similarly taxed” in a way that affords protection. This is not an issue of intent. It is not necessary for a panel to sort through the many reasons legislators and regulators often have for what they do and weigh the relative significance of those reasons to establish legislative or regulatory intent. If the measure is applied to imported or domestic products so as to afford protection to domestic production, then it does not matter that there may not have been any desire to engage in protectionism in the minds of the legislators or the regulators who imposed the measure. It is irrelevant that protectionism was not an intended objective if the particular tax measure in question is nevertheless, to echo Article III:1, “ applied to imported or domestic products so as to afford protection to domestic production”. This is an issue of how the measure in question is applied .  

N.1.8.2   Japan — Alcoholic Beverages II , p. 29, DSR 1996:I, p. 97 at 120 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

Although it is true that the aim of a measure may not be easily ascertained, nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure. …  

N.1.8.3   Japan — Alcoholic Beverages II , p. 29, DSR 1996:I, p. 97 at 120 ( WT/DS8/AB/R , WT/DS10/AB/R , WT/DS11/AB/R )  

… The very magnitude of the dissimilar taxation in a particular case may be evidence of such a protective application, as the Panel rightly concluded in this case. Most often, there will be other factors to be considered as well. In conducting this inquiry, panels should give full consideration to all the relevant facts and all the relevant circumstances in any given case.  

N.1.8.4   Philippines — Distilled Spirits , para. 250 ( WT/DS396/AB/R , WT/DS403/AB/R )  

… in Japan — Alcoholic Beverages II , the Appellate Body stated that the question of whether dissimilar taxation affords protection is not one of intent, but rather of application of the measure at issue. This requires a “comprehensive and objective analysis of the structure and application of the measure in question on domestic as compared to imported products”. The Appellate Body observed that, “[a]lthough it is true that the aim of a measure may not be easily ascertained, nevertheless its protective application can most often be discerned from the design, the architecture, and the revealing structure of a measure”. The Appellate Body further stated that dissimilar taxation must be more than de minimis , and that in certain cases “[t]he very magnitude of the dissimilar taxation … may be evidence of such a protective application.” In Korea — Alcoholic Beverages , the Appellate Body added that the protective application of dissimilar taxation can only be determined “on a case-by-case basis, taking account of all relevant facts”.  

N.1.8.5   Philippines — Distilled Spirits , para. 256 ( WT/DS396/AB/R , WT/DS403/AB/R )  

… We agree with the Panel that the assessment of whether the excise tax could affect the competitive relationship between domestic and imported distilled spirits in the Philippine market pertains to the prong of analysis directed at determining whether the products are “directly competitive or substitutable”. … it was not necessary for the Panel to revisit this argument in its assessment of whether the dissimilar taxation of such products afforded protection to domestic production. Moreover, … a finding that a tax measure affords protection to domestic production does not depend upon showing “some identifiable trade effect”. Thus, the question of whether or not the excise tax negatively impacts trade in imported distilled spirits is not determinative of the question of whether the measure affords protection to domestic production.  

N.1.9   Article III:4 of the GATT 1994 — Regulatory discrimination.   See also National Treatment, Article III:2 of the GATT 1994, first sentence — “like products” ( N.1.3 ); Textiles and Clothing Agreement, Article 6.2 — “like products” ( T.7.5 ); TBT Agreement, Article 2.1 — MFN and national treatment obligations, “like products” ( T.4.2A.4 )    back to top

N.1.9.1   “LIKE PRODUCTS”  

N.1.9.1.1   EC — Asbestos , para. 89 ( WT/DS135/AB/R )  

… while the meaning attributed to the term “like products” in other provisions of the GATT 1994, or in other covered agreements, may be relevant context in interpreting Article III:4 of the GATT 1994, the interpretation of “like products” in Article III:4 need not be identical, in all respects, to those other meanings.  

N.1.9.1.2   EC — Asbestos , paras. 91–92 ( WT/DS135/AB/R )  

This meaning suggests that “like” products are products that share a number of identical or similar characteristics or qualities. The reference to “similar” as a synonym of “like” also echoes the language of the French version of Article III:4, “ produits similaires ”, and the Spanish version, “ productos similares ”, which, together with the English version, are equally authentic.  

However, as we have previously observed, “dictionary meanings leave many interpretive questions open”. In particular, this definition does not resolve three issues of interpretation. First, this dictionary definition of “like” does not indicate which characteristics or qualities are important in assessing the “likeness” of products under Article III:4. For instance, most products will have many qualities and characteristics, ranging from physical properties such as composition, size, shape, texture, and possibly taste and smell, to the end-uses and applications of the product. Second, this dictionary definition provides no guidance in determining the degree or extent to which products must share qualities or characteristics in order to be “like products” under Article III:4. Products may share only very few characteristics or qualities, or they may share many. Thus, in the abstract, the term “like” can encompass a spectrum of differing degrees of “likeness” or “similarity”. Third, this dictionary definition of “like” does not indicate from whose perspective “likeness” should be judged. For instance, ultimate consumers may have a view about the “likeness” of two products that is very different from that of the inventors or producers of those products.  

N.1.9.2   RELATION TO GENERAL PRINCIPLE IN ARTICLE III:1  

N.1.9.2.1   EC — Asbestos , para. 93 ( WT/DS135/AB/R )  

N.1.9.2.2   EC — Asbestos , para. 96 ( WT/DS135/AB/R )  

In construing Article III:4, the same interpretive considerations do not arise, because the “general principle” articulated in Article III:1 is expressed in Article III:4, not through two distinct obligations, as in the two sentences in Article III:2, but instead through a single obligation that applies solely to “like products”. Therefore, the harmony that we have attributed to the two sentences of Article III:2 need not and, indeed, cannot be replicated in interpreting Article III:4. Thus, we conclude that, given the textual difference between Articles III:2 and III:4, the “accordion” of “likeness” stretches in a different way in Article III:4.  

N.1.9.2.3   EC — Asbestos , para. 98 ( WT/DS135/AB/R )  

As we have said, although this “general principle” is not explicitly invoked in Article III:4, nevertheless, it “informs” that provision. Therefore, the term “like product” in Article III:4 must be interpreted to give proper scope and meaning to this principle. In short, there must be consonance between the objective pursued by Article III, as enunciated in the “general principle” articulated in Article III:1, and the interpretation of the specific expression of this principle in the text of Article III:4. This interpretation must, therefore, reflect that, in endeavouring to ensure “equality of competitive conditions”, the “general principle” in Article III seeks to prevent Members from applying internal taxes and regulations in a manner which affects the competitive relationship, in the marketplace, between the domestic and imported products involved , “so as to afford protection to domestic production”.  

N.1.9.3   RELATION TO ARTICLE III:2  

N.1.9.3.1   EC — Asbestos , paras. 94–95 ( WT/DS135/AB/R )  

… this textual difference between paragraphs 2 and 4 of Article III has considerable implications for the meaning of the term “like products” in these two provisions. …  

N.1.9.3.2   EC — Asbestos , para. 99 ( WT/DS135/AB/R )  

As products that are in a competitive relationship in the marketplace could be affected through treatment of imports “less favourable” than the treatment accorded to domestic products, it follows that the word “like” in Article III:4 is to be interpreted to apply to products that are in such a competitive relationship. Thus, a determination of “likeness” under Article III:4 is, fundamentally, a determination about the nature and extent of a competitive relationship between and among products. In saying this, we are mindful that there is a spectrum of degrees of “competitiveness” or “substitutability” of products in the marketplace, and that it is difficult, if not impossible, in the abstract, to indicate precisely where on this spectrum the word “like” in Article III:4 of the GATT 1994 falls. We are not saying that all products which are in some competitive relationship are “like products” under Article III:4. In ruling on the measure at issue, we also do not attempt to define the precise scope of the word “like” in Article III:4. Nor do we wish to decide if the scope of “like products” in Article III:4 is co-extensive with the combined scope of “like” and “directly competitive or substitutable” products in Article III:2. However, we recognize that the relationship between these two provisions is important, because there is no sharp distinction between fiscal regulation, covered by Article III:2, and non-fiscal regulation, covered by Article III:4. Both forms of regulation can often be used to achieve the same ends. It would be incongruous if, due to a significant difference in the product scope of these two provisions, Members were prevented from using one form of regulation — for instance, fiscal — to protect domestic production of certain products, but were able to use another form of regulation — for instance, non-fiscal — to achieve those ends. This would frustrate a consistent application of the “general principle” in Article III:1. For these reasons, we conclude that the scope of “like” in Article III:4 is broader than the scope of “like” in Article III:2, first sentence. Nonetheless, we note, once more, that Article III:2 extends not only to “like products”, but also to products which are “directly competitive or substitutable”, and that Article III:4 extends only to “like products”. In view of this different language, and although we need not rule, and do not rule, on the precise product scope of Article III:4, we do conclude that the product scope of Article III:4, although broader than the first sentence of Article III:2, is certainly not broader than the combined product scope of the two sentences of Article III:2 of the GATT 1994.  

N.1.9.3.3   Thailand — Cigarettes (Philippines) , Footnote 144 to para. 114 ( WT/DS371/AB/R )  

We note that even if a measure at issue consisted solely of administrative requirements, we do not exclude the possibility that such requirements may have a bearing on the respective tax burdens on imported and like domestic products, and may therefore be subject to Article III:2. Although Thailand may be correct in stating that prior WTO reports have examined measures consisting of “administrative requirements relating to the sale of imported products” under Article III:4 (Thailand’s appellant’s submission, para. 69), this does not in our view demonstrate that, if such requirements subject imported and like domestic products to internal taxes or other internal charges, the same measures, or certain aspects of the same measures, could not also be scrutinized under Article III:2. (See Panel Report, Argentina — Hides and Leather , para. 11.143 (finding that administrative measures concerning the pre-payment of tax “qualify as tax measures [that] fall to be assessed under Article III:2”))  

N.1.9.4   LIKENESS CRITERIA  

N.1.9.4.1   EC — Asbestos , paras. 101–102 ( WT/DS135/AB/R )  

… The Report of the Working Party on Border Tax Adjustments outlined an approach for analyzing “likeness” that has been followed and developed since by several panels and the Appellate Body. …  

These general criteria, or groupings of potentially shared characteristics, provide a framework for analyzing the “likeness” of particular products on a case-by-case basis. These criteria are, it is well to bear in mind, simply tools to assist in the task of sorting and examining the relevant evidence. They are neither a treaty-mandated nor a closed list of criteria that will determine the legal characterization of products. More important, the adoption of a particular framework to aid in the examination of evidence does not dissolve the duty or the need to examine, in each case, all of the pertinent evidence. In addition, although each criterion addresses, in principle, a different aspect of the products involved, which should be examined separately, the different criteria are interrelated. For instance, the physical properties of a product shape and limit the end-uses to which the products can be devoted. Consumer perceptions may similarly influence — modify or even render obsolete — traditional uses of the products. Tariff classification clearly reflects the physical properties of a product.  

N.1.9.4.2   EC — Asbestos , para. 111 ( WT/DS135/AB/R )  

We believe that physical properties deserve a separate examination that should not be confused with the examination of end-uses. Although not decisive, the extent to which products share common physical properties may be a useful indicator of “likeness”. Furthermore, the physical properties of a product may also influence how the product can be used, consumer attitudes about the product, and tariff classification. It is, therefore, important for a panel to examine fully the physical character of a product. …  

N.1.9.4.3   EC — Asbestos , para. 114 ( WT/DS135/AB/R )  

Panels must examine fully the physical properties of products. In particular, panels must examine those physical properties of products that are likely to influence the competitive relationship between products in the marketplace. …  

N.1.9.4.4   EC — Asbestos , paras. 117–118 ( WT/DS135/AB/R )  

Before examining the Panel’s findings under the second and third criteria, we note that these two criteria involve certain of the key elements relating to the competitive relationship between products: first, the extent to which products are capable of performing the same, or similar, functions (end-uses), and, second, the extent to which consumers are willing to use the products to perform these functions (consumers’ tastes and habits). Evidence of this type is of particular importance under Article III of the GATT 1994, precisely because that provision is concerned with competitive relationships in the marketplace. If there is — or could be — no competitive relationship between products, a Member cannot intervene, through internal taxation or regulation, to protect domestic production. Thus, evidence about the extent to which products can serve the same end-uses, and the extent to which consumers are — or would be — willing to choose one product instead of another to perform those end-uses, is highly relevant evidence in assessing the “likeness” of those products under Article III:4 of the GATT 1994.  

We consider this to be especially so in cases where the evidence relating to properties establishes that the products at issue are physically quite different. In such cases, in order to overcome this indication that products are not “like”, a higher burden is placed on complaining Members to establish that, despite the pronounced physical differences, there is a competitive relationship between the products such that all of the evidence, taken together, demonstrates that the products are “like” under Article III:4 of the GATT 1994. In this case, where it is clear that the fibres have very different properties, in particular, because chrysotile is a known carcinogen, a very heavy burden is placed on Canada to show, under the second and third criteria, that the chrysotile asbestos and PCG fibres are in such a competitive relationship.  

N.1.9.4.5   EC — Asbestos , para. 119 ( WT/DS135/AB/R )  

… the Panel stated that “[i]t suffices that, for a given utilization , the properties are the same to the extent that one product can replace the other” (emphasis added). Although we agree that it is certainly relevant that products have similar end-uses for a “small number of … applications”, or even for a “given utilization”, we think that a panel must also examine the other, different end-uses for products. It is only by forming a complete picture of the various end-uses of a product that a panel can assess the significance of the fact that products share a limited number of end-uses. In this case, the Panel did not provide such a complete picture of the various end-uses of the different fibres. The Panel did not explain, or elaborate in any way on, the “small number of … applications” for which the various fibres have similar end-uses. Nor did the Panel examine the end-uses for these products which were not similar. …  

N.1.9.4.6   EC — Asbestos , para. 120 ( WT/DS135/AB/R )  

… There will be few situations where the evidence on the “likeness” of products will lend itself to “clear results”. In many cases, the evidence will give conflicting indications, possibly within each of the four criteria. For instance, there may be some evidence of similar physical properties and some evidence of differing physical properties. Or the physical properties may differ completely, yet there may be strong evidence of similar end-uses and a high degree of substitutability of the products from the perspective of the consumer. A panel cannot decline to inquire into relevant evidence simply because it suspects that evidence may not be “clear” or, for that matter, because the parties agree that certain evidence is not relevant. …  

N.1.9.4.7   EC — Asbestos , para. 121 ( WT/DS135/AB/R )  

Furthermore, in a case such as this, where the fibres are physically very different, a panel cannot conclude that they are “like products” if it does not examine evidence relating to consumers’ tastes and habits. In such a situation, if there is no inquiry into this aspect of the nature and extent of the competitive relationship between the products, there is no basis for overcoming the inference, drawn from the different physical properties of the products, that the products are not “like”.  

N.1.9.4.8   EC — Asbestos , para. 138 ( WT/DS135/AB/R )  

… Where products have a wide range of end-uses, only some of which overlap, we do not believe that it is sufficient to rely solely on evidence regarding the overlapping end-uses, without also examining evidence of the nature and importance of these end-uses in relation to all of the other possible end-uses for the products. In the absence of such evidence, we cannot determine the significance of the fact that chrysotile asbestos and PCG fibres share a small number of similar end-uses.  

N.1.9.5   EVIDENCE  

N.1.9.5.1   EC — Asbestos , para. 103 ( WT/DS135/AB/R )  

The kind of evidence to be examined in assessing the “likeness” of products will, necessarily, depend upon the particular products and the legal provision at issue. When all the relevant evidence has been examined, panels must determine whether that evidence, as a whole, indicates that the products in question are “like” in terms of the legal provision at issue. We have noted that, under Article III:4 of the GATT 1994, the term “like products” is concerned with competitive relationships between and among products. Accordingly, whether the Border Tax Adjustments framework is adopted or not, it is important under Article III:4 to take account of evidence which indicates whether, and to what extent, the products involved are — or could be — in a competitive relationship in the marketplace.  

N.1.9.5.2   EC — Asbestos , para. 113 ( WT/DS135/AB/R )  

… we note that neither the text of Article III:4 nor the practice of panels and the Appellate Body suggest that any evidence should be excluded a priori from a panel’s examination of “likeness”. Moreover, as we have said, in examining the “likeness” of products, panels must evaluate all of the relevant evidence. We are very much of the view that evidence relating to the health risks associated with a product may be pertinent in an examination of “likeness” under Article III:4 of the GATT 1994. We do not, however, consider that the evidence relating to the health risks associated with chrysotile asbestos fibres need be examined under a separate criterion, because we believe that this evidence can be evaluated under the existing criteria of physical properties, and of consumers’ tastes and habits, to which we will come below.  

N.1.10   Article III:4 of the GATT 1994 — “affecting”    back to top

N.1.10.1   EC — Bananas III , para. 211 ( WT/DS27/AB/R )  

At issue in this appeal is not whether any import licensing requirement, as such, is within the scope of Article III:4, but whether the EC procedures and requirements for the distribution of import licences for imported bananas among eligible operators within the European Communities are within the scope of this provision. … These rules go far beyond the mere import licence requirements needed to administer the tariff quota for third-country and non-traditional ACP bananas or Lomé Convention requirements for the importation of bananas. These rules are intended, among other things, to cross-subsidize distributors of EC (and ACP) bananas and to ensure that EC banana ripeners obtain a share of the quota rents. As such, these rules affect “the internal sale, offering for sale, purchase, …” within the meaning of Article III:4, and therefore fall within the scope of this provision. …  

N.1.10.2   US — FSC (Article 21.5 — EC) , paras. 208–210 ( WT/DS108/AB/RW )  

… the word “affecting” assists in defining the types of measure that must conform to the obligation not to accord “less favourable treatment” to like imported products, which is set out in Article III:4.  

The word “affecting” serves a similar function in Article I:1 of the General Agreement on Trade in Services (the “GATS”), where it also defines the types of measure that are subject to the disciplines set forth elsewhere in the GATS but does not, in itself, impose any obligation. …  

In view of the similar function of the identical word, “affecting”, in Article III:4 of the GATT 1994, we also interpret this word, in this provision, as having a “broad scope of application”.  

N.1.10.3   China — Auto Parts , paras. 194–195 ( WT/DS339/AB/R , WT/DS340/AB/R , WT/DS342/AB/R )  

… We recall that the Appellate Body determined that a 50 per cent “fair market value” rule under the measure at issue in [ US — FSC (Article 21.5 — EC) ] “affected” the internal use of imported products because it created an incentive for a manufacturer not to use imported input products. Similarly, the Panel in India — Autos found that “indigenization requirements” (requirements to use a minimum amount of domestically produced parts) and “trade balancing requirements” (requirements to export products of an equivalent value to the imported products) created incentives for automobile manufacturers to purchase Indian parts and components rather than imported parts and components and, thereby, “affected” the internal sale, offering for sale, purchase and use of imported parts and components in the Indian market within the meaning of Article III:4 of the GATT 1994. That panel also observed that “[t]he fact that a provision is not necessarily primarily aimed at regulating the offering for sale or use of the product on the domestic market is … not an obstacle to its ‘affecting’ them”.  

Returning to the circumstances of this case, we note that the measures at issue set out specific thresholds for determining when imported auto parts will be characterized as complete vehicles. The use by an automobile manufacturer, in a given vehicle model, of certain key assemblies or combinations of assemblies that are imported means that a higher (25 per cent) charge will be payable on all imported parts than would be the case if those combinations of imported assemblies were not used and the thresholds were not met, in which case any imported parts used in the vehicle model would be subject to only a 10 per cent duty. This creates an incentive for manufacturers to limit their use of imported parts relative to domestic parts. In addition, the measures at issue in this dispute impose administrative procedures, and associated delays, on automobile manufacturers using imported parts, which could be avoided entirely if a manufacturer were to use exclusively domestic auto parts. These incentives “affect” the conditions of competition for imported auto parts on the Chinese internal market.  

N.1.11   Article III:4 of the GATT 1994 — “less favourable treatment”.   See also MFN Treatment ( M.2 ); National Treatment, Article XVII of the GATS ( N.1.13 ); National Treatment, Article 3.1 of the TRIPS Agreement ( N.1.14 ); TBT Agreement, Article 2.1 — MFN and national treatment obligations, “treatment no less favourable” ( T.4.2A.5 )    back to top

N.1.11.1   EC — Bananas III , paras. 213–214 ( WT/DS27/AB/R )  

… the practice of issuing hurricane licences constitutes an incentive for operators to market EC bananas to the exclusion of third-country and non-traditional ACP bananas. This practice therefore affects the competitive conditions in the market in favour of EC bananas. …  

… we agree with the Panel that the EC practice of issuing hurricane licences is inconsistent with Article III:4 of the GATT 1994.  

N.1.11.2   EC — Bananas III , para. 216 ( WT/DS27/AB/R )  

… we stated that “Article III:1 articulates a general principle” which “informs the rest of Article III”. However, we also said in that Report that Article III:1 “informs the first sentence and the second sentence of Article III:2 in different ways”. With respect to Article III:2, first sentence, we noted that it does not refer specifically to Article III:1. … Article III:4 does not specifically refer to Article III:1. Therefore, a determination of whether there has been a violation of Article III:4 does not require a separate consideration of whether a measure “afford[s] protection to domestic production”.  

N.1.11.3   Korea — Various Measures on Beef , para. 137 ( WT/DS161/AB/R , WT/DS169/AB/R )  

A formal difference in treatment between imported and like domestic products is thus neither necessary, nor sufficient, to show a violation of Article III:4. Whether or not imported products are treated “less favourably” than like domestic products should be assessed instead by examining whether a measure modifies the conditions of competition in the relevant market to the detriment of imported products.  

N.1.11.4   Korea — Various Measures on Beef , para. 144 ( WT/DS161/AB/R , WT/DS169/AB/R )  

… the Korean measure formally separates the selling of imported beef and domestic beef. However, that formal separation, in and of itself , does not necessarily compel the conclusion that the treatment thus accorded to imported beef is less favourable than the treatment accorded to domestic beef. To determine whether the treatment given to imported beef is less favourable than that given to domestic beef, we must, as earlier indicated, inquire into whether or not the Korean dual retail system for beef modifies the conditions of competition in the Korean beef market to the disadvantage of the imported product.  

N.1.11.5   Korea — Various Measures on Beef , para. 149 ( WT/DS161/AB/R , WT/DS169/AB/R )  

… We are not holding that a dual or parallel distribution system that is not imposed directly or indirectly by law or governmental regulation, but is rather solely the result of private entrepreneurs acting on their own calculations of comparative costs and benefits of differentiated distribution systems, is unlawful under Article III:4 of the GATT 1994. …  

N.1.11.6   Korea — Various Measures on Beef , paras. 150–151 ( WT/DS161/AB/R , WT/DS169/AB/R )  

… Korea requires that imported beef be sold in a store displaying a sign declaring “Specialized Imported Beef Store”. …  

Without a system of specialized imported beef stores, the sign requirement would have no meaning and would not be required. When considered independently from a dual retail system, a sign requirement might or might not be characterized legally as consistent with Article III:4 of the GATT 1994. …  

N.1.11.7   EC — Asbestos , para. 100 ( WT/DS135/AB/R )  

We recognize that, by interpreting the term “like products” in Article III:4 in this way, we give that provision a relatively broad product scope — although no broader than the product scope of Article III:2. In so doing, we observe that there is a second element that must be established before a measure can be held to be inconsistent with Article III:4. Thus, even if two products are “like”, that does not mean that a measure is inconsistent with Article III:4. A complaining Member must still establish that the measure accords to the group of “like” imported products “less favourable treatment” than it accords to the group of “like” domestic products. The term “less favourable treatment” expresses the general principle, in Article III:1, that internal regulations “should not be applied … so as to afford protection to domestic production”. If there is “less favourable treatment” of the group of “like” imported products, there is, conversely, “protection” of the group of “like” domestic products. However, a Member may draw distinctions between products which have been found to be “like”, without, for this reason alone, according to the group of “like” imported products “less favourable treatment” than that accorded to the group of “like” domestic products. In this case, we do not examine further the interpretation of the term “treatment no less favourable” in Article III:4, as the Panel’s findings on this issue have not been appealed or, indeed, argued before us.  

N.1.11.8   US — FSC (Article 21.5 — EC) , para. 215 ( WT/DS108/AB/RW )  

The examination of whether a measure involves “less favourable treatment” of imported products within the meaning of Article III:4 of the GATT 1994 must be grounded in close scrutiny of the “fundamental thrust and effect of the measure itself”. This examination cannot rest on simple assertion, but must be founded on a careful analysis of the contested measure and of its implications in the marketplace. At the same time, however, the examination need not be based on the actual effects of the contested measure in the marketplace.  

N.1.11.9   US — FSC (Article 21.5 — EC) , para. 221 ( WT/DS108/AB/RW )  

In our view, the above conclusion is not nullified by the fact that the fair market value rule will not give rise to less favourable treatment for like imported products in each and every case. …  

N.1.11.10   Dominican Republic — Import and Sale of Cigarettes , para. 96 ( WT/DS302/AB/R )  

Nor do we accept Honduras’ argument that the bond requirement accords “less favourable treatment” to imported cigarettes because, as the sales of domestic cigarettes are greater than those of imported cigarettes on the Dominican Republic market, the per-unit cost of the bond requirement for imported cigarettes is higher than for domestic products. The Appellate Body indicated in Korea — Various Measures on Beef that imported products are treated less favourably than like products if a measure modifies the conditions of competition in the relevant market to the detriment of imported products . However, the existence of a detrimental effect on a given imported product resulting from a measure does not necessarily imply that this measure accords less favourable treatment to imports if the detrimental effect is explained by factors or circumstances unrelated to the foreign origin of the product, such as the market share of the importer in this case. In this specific case, the mere demonstration that the per-unit cost of the bond requirement for imported cigarettes was higher than for some domestic cigarettes during a particular period is not, in our view, sufficient to establish “less favourable treatment” under Article III:4 of the GATT 1994. Indeed, the difference between the per-unit costs of the bond requirement alleged by Honduras is explained by the fact that the importer of Honduran cigarettes has a smaller market share than two domestic producers (the per-unit cost of the bond requirement being the result of dividing the cost of the bond by the number of cigarettes sold on the Dominican Republic market). In this case, the difference between the per-unit costs of the bond requirement alleged by Honduras does not depend on the foreign origin of the imported cigarettes. Therefore, in our view, the Panel was correct in dismissing the argument that the bond requirement accords less favourable treatment to imported cigarettes because the per-unit cost of the bond was higher for the importer of Honduran cigarettes than for two domestic producers.  

N.1.11.11   Thailand — Cigarettes (Philippines) , para. 126 ( WT/DS371/AB/R )  

Article III:4 forms part of the broader framework set out in Article III, which ensures that Members provide equality of competitive conditions for imported products in relation to domestic products. Like the other paragraphs of Article III, the obligation prescribed under Article III:4 is informed by the general principle set out in Article III:1 that internal measures should not be applied so as to afford protection to domestic production. In the context of Article III:4, this means that, where there is less favourable treatment of imported products, there is protection to domestic production.  

N.1.11.12   Thailand — Cigarettes (Philippines) , paras. 128–130 ( WT/DS371/AB/R )  

… the mere fact that a Member draws regulatory distinctions between imported and like domestic products is, in itself, not determinative of whether imported products are treated less favourably within the meaning of Article III:4. Rather, what is relevant is whether such regulatory differences distort the conditions of competition to the detriment of imported products. If so, then the differential treatment will amount to treatment that is “less favourable” within the meaning of Article III:4.  

The analysis of whether imported products are accorded less favourable treatment requires a careful examination “grounded in close scrutiny of the ‘fundamental thrust and effect of the measure itself’”, including of the implications of the measure for the conditions of competition between imported and like domestic products. This analysis need not be based on empirical evidence as to the actual effects of the measure at issue in the internal market of the Member concerned. Of course, nothing precludes a panel from taking such evidence of actual effects into account.  

The implications of the contested measure for the equality of competitive conditions are, first and foremost, those that are discernible from the design, structure, and expected operation of the measure. For instance, where a Member’s legal system applies a single regulatory regime to both imported and like domestic products, with the sole difference being that an additional requirement is imposed only on imported products, the existence of this additional requirement may provide a significant indication that imported products are treated less favourably. Because, however, the examination of whether imported products are treated less favourably “cannot rest on simple assertion”, close scrutiny of the measure at issue will normally require further identification or elaboration of its implications for the conditions of competition in order properly to support a finding of less favourable treatment under Article III:4 of the GATT 1994.  

N.1.11.13   Thailand — Cigarettes (Philippines) , para. 133 ( WT/DS371/AB/R )  

… the regulatory “differences” at issue stem from the fact that resellers of imported cigarettes must comply with the additional administrative requirements, whereas resellers of domestic cigarettes are exempt from such requirements. Thus, in this dispute, the sole difference in regulatory treatment consists of requirements applied only to imported cigarettes. The uncontested fact that resellers of imported cigarettes are subject to certain administrative requirements, whereas resellers of like domestic cigarettes are not, itself provides a significant indication that imported cigarettes are accorded less favourable treatment.  

N.1.11.14   Thailand — Cigarettes (Philippines) , para. 134 ( WT/DS371/AB/R )  

… In our view, … an analysis of less favourable treatment should not be anchored in an assessment of the degree of likelihood that an adverse impact on competitive conditions will materialize. Rather, an analysis under Article III:4 must begin with careful scrutiny of the measure, including consideration of the design, structure, and expected operation of the measure at issue. Such scrutiny may well involve — but does not require — an assessment of the contested measure in the light of evidence regarding the actual effects of that measure in the market. In any event, there must be in every case a genuine relationship between the measure at issue and its adverse impact on competitive opportunities for imported versus like domestic products to support a finding that imported products are treated less favourably.  

N.1.11.15   Thailand — Cigarettes (Philippines) , para. 138 ( WT/DS371/AB/R )  

… The Panel assessed certain implications of these measures in the Thai market by referring to econometric evidence indicating a close competitive relationship, and also by noting that the additional administrative requirements carry certain operating costs. We note that, although the Panel could have inquired further into the implications of Thailand’s measure for the conditions of competition, the mere fact that the additional administrative requirements are imposed on imported cigarettes, and not on like domestic cigarettes, provides, in itself, a significant indication that the conditions of competition are adversely modified to the detriment of imported cigarettes. We therefore consider that the Panel’s analysis was sufficient to support its finding that the additional administrative requirements modify the conditions of competition to the detriment of imported cigarettes.  

N.1.11.16   Thailand — Cigarettes (Philippines) , para. 139 and Footnote 207 ( WT/DS371/AB/R )  

… we do not see any basis for Thailand’s contention on appeal that [the Panel failed to address Thailand’s argument that resellers of imported cigarettes gain certain “financial advantages” by virtue of the additional administrative requirements]. 207  

N.1.11.17   US — Clove Cigarettes , Footnote 372 to para. 179 ( WT/DS406/AB/R )  

We disagree with the United States to the extent that it suggests that Dominican Republic — Import and Sale of Cigarettes stands for the proposition that, under Article III:4, panels should inquire further whether “the detrimental effect is unrelated to the foreign origin of the product”. … Although the statement referred to by the United States, when read in isolation, could be viewed as suggesting that further inquiry into the rationale for the detrimental impact is necessary … . … in that dispute, the Appellate Body merely held that the higher per unit costs of the bond requirement for imported cigarettes did not conclusively demonstrate less favourable treatment, because it was not attributable to the specific measure at issue but, rather, was a function of sales volumes. In Thailand — Cigarettes (Philippines) , the Appellate Body further clarified that for a finding of less favourable treatment under Article III:4 “there must be in every case a genuine relationship between the measure at issue and its adverse impact on competitive opportunities for imported versus like domestic products to support a finding that imported products are treated less favourably”. … The Appellate Body eschewed an additional inquiry as to whether such detrimental impact was related to the foreign origin of the products or explained by other factors or circumstances.  

N.1.11A   Article III:8 of the GATT 1994 — Derogations from the National Treatment Obligation.   See also SCM Agreement, Relationship between the SCM Agreement and the GATT 1994 ( S.2.41 ); SCM Agreement, Relationship between the SCM Agreement and the TRIMs Agreement ( S.2.45 ); TRIMs Agreement ( T.8A )    back to top

N.1.11A.1   ARTICLE III:8(A) — GOVERNMENT PROCUREMENT  

N.1.11A.1.1   Canada — Renewable Energy / Canada — Feed-in Tariff Program , paras. 5.55–5.56 ( WT/DS412/AB/R , WT/DS426/AB/R )  

… Article III:8(a) begins with the words “The provisions of this Article shall not apply to …”. This introductory clause establishes a linkage with the remainder of Article III. The title of Article III is “National Treatment on Internal Taxation and Regulation”. The national treatment principle enshrined in Article III has been a cornerstone of the multilateral trading system since its inception. This general principle, which is articulated in the first paragraph of Article III, postulates that internal measures “should not be applied … so as to afford protection to domestic production”. Other paragraphs of Article III “constitute specific expressions” of this “overarching, ‘general principle’”.  

The opening clause of Article III:8(a) uses the term “apply” in the negative, thus precluding the application of the other provisions of Article III to measures that meet the requirements of that paragraph. Article III:8(a) therefore establishes a derogation from the national treatment obligation of Article III for government procurement activities falling within its scope. Measures satisfying the requirements of Article III:8(a) are not subject to the national treatment obligations set out in other paragraphs of Article III. Article III:8(a) is a derogation limiting the scope of the national treatment obligation and it is not a justification for measures that would otherwise be inconsistent with that obligation. At the same time, we note that the characterization of the provision as a derogation does not pre-determine the question as to which party bears the burden of proof with regard to the requirements stipulated in the provision.  

N.1.11A.1.2   Canada — Renewable Energy / Canada — Feed-in Tariff Program , para. 5.57 ( WT/DS412/AB/R , WT/DS426/AB/R )  

Article III:8(a) contains several elements describing the types and the content of measures falling within the ambit of the provision. … We consider that Article III:8(a) should be interpreted holistically. This requires consideration of the linkages between the different terms used in the provision and the contextual connections to other parts of Article III, as well as to other provisions of the GATT 1994. At the same time, the principle of effective treaty interpretation requires us to give meaning to every term of the provision.  

N.1.11A.1.3   Canada — Renewable Energy / Canada — Feed-in Tariff Program , para. 5.58 ( WT/DS412/AB/R , WT/DS426/AB/R )  

Article III:8(a) describes the types of measures falling within its ambit as “laws, regulations or requirements governing the procurement by governmental agencies of products purchased”. We note that the word “governing” links the words “laws, regulations or requirements” to the word “procurement” and the remainder of the paragraph. In the context of Article III:8(a), the word “governing”, along with the word “procurement” and the other parts of the paragraph, define the subject matter of the “laws, regulations or requirements”. The word “governing” is defined as “constitut[ing] a law or rule for”. Article III:8(a) thus requires an articulated connection between the laws, regulations, or requirements and the procurement, in the sense that the act of procurement is undertaken within a binding structure of laws, regulations, or requirements.  

N.1.11A.1.4   Canada — Renewable Energy / Canada — Feed-in Tariff Program , para. 5.59 ( WT/DS412/AB/R , WT/DS426/AB/R )  

The term “procurement” may refer generally to “[t]he action of obtaining something; acquisition”, or it may refer more specifically to “the action or process of obtaining equipment and supplies”. In a more technical sense, procurement usually refers to formal procedures used by governments to acquire goods or services. In Article III:8(a), the word “procurement” is related to the words “products purchased”. In this respect, the Panel found that the term “procurement” in Article III:8(a) should be given the “same essential meaning” as the word “purchased” and vice versa . However, in our view, the concepts of “procurement” and “purchase” are not to be equated. As we see it, “procurement” is the operative word in Article III:8(a) describing the process and conduct of the governmental agency. The word “purchased” is used to describe the type of transaction used to put into effect that procurement. Not every procurement needs to be effectuated by way of a purchase, and not every purchase is part of a process of government procurement. The use of the word “purchased” in the same provision suggests reading the word “procurement” as referring to the process of obtaining products, rather than as referring to an acquisition itself, because, if procurement was understood to refer simply to any acquisition, it would not add any meaning to Article III:8(a) in addition to what is already expressed by the word “purchased”. We therefore understand the word “procurement” to refer to the process pursuant to which a government acquires products. The precise range of contractual arrangements that are encompassed by the concept of “purchase” is not a matter we need to decide in this case.  

N.1.11A.1.5   Canada — Renewable Energy / Canada — Feed-in Tariff Program , paras. 5.60–5.61 ( WT/DS412/AB/R , WT/DS426/AB/R )  

Article III:8 further specifies what is procured and by whom. The subject matter of the procurement is a “product”, and it is being procured by a “governmental agency”. The term “agency” is defined as “[a] business, body, or organization providing a particular service, or negotiating transactions on behalf of a person or group”. The word “agency” is used in connection with the word “governmental” and, accordingly, Article III:8(a) refers to entities acting for or on behalf of government. The Appellate Body has held that the meaning of “government” is derived, in part, from the functions that it performs and, in part, from the authority under which it performs those functions. We therefore consider that the question of whether an entity is a “governmental agency”, in the sense of Article III:8(a), is determined by the competences conferred on the entity concerned and by whether that entity acts for or on behalf of government.  

We consider that Articles XVII:1 and XVII:2 of the GATT 1994 provide relevant context for the interpretation of the term “governmental agency” in Article III:8(a). Article XVII:1 stipulates obligations for state trading enterprises and Article XVII:2 sets out a derogation from those obligations for certain government procurement transactions. In contrast to Article III:8(a), the provisions of Article XVII relate to “state trading enterprises” and not to “governmental agencies”. According to Article XVII:1, this includes state enterprises and enterprises that are conferred exclusive or special privileges from the state. It follows that the GATT 1994 recognizes that there is a public and a private realm, and that government entities may act in one, the other, or both. Governments may limit the actions of entities to the public realm or give entities competences to act in the private realm. In our view, the term “governmental agencies” refers to those entities acting for or on behalf of government in the public realm within the competences that have been conferred on them to discharge governmental functions. This further confirms our understanding that a “governmental agency” is an entity acting for or on behalf of government and performing governmental functions within the competences conferred on it.  

N.1.11A.1.6   Canada — Renewable Energy / Canada — Feed-in Tariff Program , paras. 5.62–5.63 and Footnotes 499–500 ( WT/DS412/AB/R , WT/DS426/AB/R )  

We turn next to the term “products purchased” within the meaning of Article III:8(a). A “product” in the sense of this provision is something that is capable of being traded. The term “product” is also found in other provisions of Article III of the GATT 1994 that provide relevant context. Paragraphs 2 and 4, in particular, focus on the treatment accorded to “products”. Article III:4 prohibits discrimination against imported products, that is, it prohibits a Member from treating imported products less favourably than like products of national origin. In the context of Article III:2, the national treatment obligation applies also to the treatment of imported products that are directly competitive to or substitutable with domestic products.  

We have found above that Article III:8(a) stipulates conditions under which derogation from the obligations in Article III takes place. The derogation in Article III:8(a) becomes relevant only if there is discriminatory treatment of foreign products that are covered by the obligations in Article III, and this discriminatory treatment results from laws, regulations, or requirements governing procurement by governmental agencies of products purchased. Both the obligations in Article III and the derogation in Article III:8(a) refer to discriminatory treatment of products. Because Article III:8(a) is a derogation from the obligations contained in other paragraphs of Article III, we consider that the same discriminatory treatment must be considered both with respect to the obligations of Article III and with respect to the derogation of Article III:8(a). Accordingly, the scope of the terms “products purchased” in Article III:8(a) is informed by the scope of “products” referred to in the obligations set out in other paragraphs of Article III. Article III:8(a) thus concerns, in the first instance, the product that is subject to the discrimination. The coverage of Article III:8 extends not only to products that are identical to the product that is purchased, but also to “like” products. In accordance with the Ad Note to Article III:2, it also extends to products that are directly competitive to or substitutable with the product purchased under the challenged measure. For convenience, this range of products can be described as products that are in a competitive relationship. What constitutes a competitive relationship between products may require consideration of inputs and processes of production used to produce the product. In its rebuttal of Canada’s claim under Article III:8(a), the European Union acknowledges that the cover of Article III:8(a) may also extend to discrimination relating to inputs and processes of production used in respect of products purchased by way of procurement. 499 Whether the derogation in Article III:8(a) can extend also to discrimination of the kind referred to by the European Union is a matter we do not decide in this case. 500  

N.1.11A.1.7   Canada — Renewable Energy / Canada — Feed-in Tariff Program , paras. 5.64, 5.66–5.68 ( WT/DS412/AB/R , WT/DS426/AB/R )  

We now turn to the next element of Article III:8(a). The provision refers to purchases “for governmental purposes”. …  

The word “purpose” may refer to “an object in view; a determined intention or aim” or it may refer to “the end to which an object or action is directed”. In Article III:8(a), the word “purpose” is used in conjunction with the word “governmental”. Accordingly, the term “governmental purposes” may refer either to the intentions or aims of a government, or it may refer to government as the end to which the product purchased is directed. We note that in Article III:8(a) the word “governmental” is used once in connection with “purposes”, and again in connection with the word “agencies”. The reference to “governmental agencies” defines the identity of the entity carrying out the procurement. Yet, because governmental agencies by their very nature pursue governmental aims or objectives, the additional reference to “governmental” in relation to “purposes” must go beyond simply requiring some governmental aim or objective with respect to purchases by governmental agencies.  

We further note that the French version of Article III:8(a) refers to “ les besoins des pouvoirs publics ” and the Spanish version of the provision refers to “ las necesidades de los poderes públicos ”. The term “purposes” thus corresponds to the terms “ besoins ” and “ necesidades ”, respectively, in the French and the Spanish texts. Both the French and the Spanish terms correspond closely to the English term “needs”. As such, the French and the Spanish text can be read harmoniously with an interpretation of the word “purposes” in English as referring to purchases of products directed at the government or purchased for the needs of the government in the discharge of its functions. By contrast, the words “ besoins ” or “ necesidades ” cannot be read harmoniously with the definition of the term “purpose” as “objectives” or “aims” of the government, because neither the word “ besoins ” in French, not the word “ necesidades ” in Spanish encompasses the notion of an aim or objective.  

Article XVII:2 of the GATT 1994 provides relevant context for the interpretation of the words “governmental purposes” in Article III:8(a). The provision refers to “imports of products for immediate or ultimate consumption in governmental use”. By referring to immediate and ultimate consumption in governmental use, Article XVII:2 identifies instances in which a product may be said to be purchased for governmental purposes. An obvious example is where a governmental agency purchases a good, uses it to discharge its governmental functions, and the good is totally consumed in the process. None of the participants disputes that this would constitute an example of a good purchased for governmental purposes. We also note that Article XVII:2 is phrased more narrowly than Article III:8(a), as the former provision refers to “immediate or ultimate consumption in governmental use”. This in turn suggests that, where products purchased are consumed in governmental use, Article III:8(a) does not require that this be “immediate or ultimate”. Therefore, we are of the view that the phrase “products purchased for governmental purposes” in Article III:8(a) refers to what is consumed by government or what is provided by government to recipients in the discharge of its public functions. The scope of these functions is to be determined on a case by case basis. Finally, we recall that Article III:8(a) refers to purchases “ for governmental purposes”. The word “for” relates the term “products purchased” to “governmental purposes”, and thus indicates that the products purchased must be intended to be directed at the government or be used for governmental purposes. Thus, Article III:8(a) requires that there be a rational relationship between the product and the governmental function being discharged.  

N.1.11A.1.8   Canada — Renewable Energy / Canada — Feed-in Tariff Program , paras. 5.69–5.71 ( WT/DS412/AB/R , WT/DS426/AB/R )  

We turn next to the analysis of the last element of the text of Article III:8(a), namely, the phrase “and not with a view to commercial resale or with a view to use in the production of goods for commercial sale”. In the context of Article III:8(a), the words “with a view to commercial resale” relate back to the “products purchased” and thus attach to the same textual element as the clause “for governmental purposes”. Both the terms “for governmental purposes” and “not with a view to commercial resale” further qualify and limit the scope of “products purchased”. These two requirements are linked by the words “and not”, which suggests that the requirement of purchases not being made with a view to commercial resale must be met in addition to the requirement of purchases being made for governmental purposes. Accordingly, a purchase that does not fulfil the requirement of being made “for governmental purposes” will not be covered by Article III:8(a) regardless of whether it complies with the requirement of being made “not with a view to commercial resale”. These are cumulative requirements. We therefore disagree with the Panel’s proposition that where a government purchase of goods is made “with a view to commercial resale”, it is for that reason also not a purchase “for governmental purposes”.  

Turning then to the meaning of the words “commercial resale”, we note that the term “resale” is defined as the “sale of something previously bought”. In the context of Article III:8(a), the word “resale” refers to the term “products purchased”. Accordingly, the product not to be “resold” on a commercial basis is the product “purchased for governmental purposes”. As we see it, “commercial resale” is a resale of a product at arm’s length between a willing seller and a willing buyer. Much of the debate in this case has focused on whether procurement “with a view to commercial resale” must involve profit. Canada, in particular, has argued that procurement “with a view to commercial resale” is procurement “with the aim to resell for profit”. Japan and the European Union reject the proposition that profit, or an intent to profit, is a required element. Although the Panel ultimately found the existence of profit in this case, it seemed unpersuaded by Canada’s argument that a profit element is required for a resale to be “commercial”. The Panel observed, in this regard, that “it is a fact that loss-making sales can be, and often are, a part of ordinary commercial activity”.  

As we see it, whether a transaction constitutes a “commercial resale” must be assessed having regard to the entire transaction. In doing so, the assessment must look at the transaction from the seller’s perspective and at whether the transaction is oriented at generating a profit for the seller. We see profit-orientation generally as an indication that a resale is at arm’s length. Profit-orientation indicates that the seller is acting in a self-interested manner. Yet, as the Panel noted, there are circumstances where a seller enters into a transaction out of his or her own interest without making a profit. There are different circumstances in which a seller may offer a product at a price that does not allow him or her to make a profit, or sometimes even fully to recoup cost. In such circumstances, it may be useful to look at the seller’s long-term strategy. This is because loss-making sales could not be sustained indefinitely and a rational seller would be expected to be profit-oriented in the long term, though we accept that strategies can vary widely and thus do not see this as applying axiomatically. The transaction must also be assessed from the perspective of the buyer. A commercial resale would be one in which the buyer seeks to maximize his or her own interest. It is an assessment of the relationship between the seller and the buyer in the transaction in question that allows a judgement to be made whether a transaction is made at arm’s length.  

N.1.11A.1.9   Canada — Renewable Energy / Canada — Feed-in Tariff Program , paras. 5.72–5.73 ( WT/DS412/AB/R , WT/DS426/AB/R )  

Finally, we turn to the clause “not … with a view to use in the production of goods for commercial sale” in Article III:8(a). Where the provision uses the same words as in the phrase “not with a view to commercial resale”, we consider that these words have the same meaning in both clauses. Furthermore, while the penultimate clause of Article III:8(a) refers to commercial “resale”, the last clause refers simply to “sale”. To us, this is due to the fact that the penultimate clause addresses the sale of the product previously bought by the governmental agency and the last clause addresses the sale of a product that is different from the product previously bought by the government. However, we consider that both clauses refer essentially to the same type of sales transactions.  

The provision further refers to “use in the production of goods”. The word “use” is defined as “[t]he act of putting something to work, or employing or applying a thing, for any ( esp . a beneficial or productive) purpose”. The relevant purpose in the sense of the provision is then specified by the words “in the production of goods”. The preposition “in” expresses a relation of inclusion and thus suggests that the product has a role in the production of goods. Finally, we note that the clause “not with a view to commercial resale” and the clause “with a view to use in the production of goods for commercial sale” are connected with the word “or”, which suggests that the provision covers only products that are neither purchased with a view to commercial resale, nor purchased with a view to use in the production of goods for commercial sale.  

N.1.11A.1.10   Canada — Renewable Energy / Canada — Feed-in Tariff Program , para. 5.74 ( WT/DS412/AB/R , WT/DS426/AB/R )  

In sum, we consider that Article III:8(a) sets out a derogation from the national treatment obligation contained in Article III of the GATT 1994. The provision exempts from the national treatment obligation certain measures containing rules for the process by which government purchases products. Under Article III:8(a), the entity procuring products for the government is a “governmental agency”. We have found above that a “governmental agency” is an entity performing functions of government and acting for or on behalf of government. Furthermore, we have found that the derogation of Article III:8(a) must be understood in relation to the obligations stipulated in Article III. This means that the product of foreign origin must be in a competitive relationship with the product purchased. Furthermore, Article III:8(a) is limited to products purchased for the use of government, consumed by government, or provided by government to recipients in the discharge of its public functions. On the contrary, Article III:8(a) does not cover purchases made by governmental agencies with a view to reselling the purchased products in an arm’s-length sale and it does not cover purchases made with a view to using the product previously purchased in the production of goods for sale at arm’s length.  

N.1.11A.1.11   Canada — Renewable Energy / Canada — Feed-in Tariff Program , paras. 5.75–5.76, 5.78–5.79 ( WT/DS412/AB/R , WT/DS426/AB/R )  

… We note that the product that is subject to the Minimum Required Domestic Content Levels of the FIT Programme and Contracts challenged by the complainants as discriminatory under Article III:4 of the GATT 1994 and the TRIMs Agreement is certain renewable energy generation equipment. The product purchased by the Government of Ontario under the FIT Programme and Contracts, however, is electricity and not generation equipment. … Accordingly, the product being purchased by a governmental agency for purposes of Article III:8(a) — namely, electricity — is not the same as the product that is treated less favourably as a result of the Minimum Required Domestic Content Levels of the FIT Programme and Contracts.  

… the Panel found that, in the present case, purchases of electricity nonetheless fall within the scope of the derogation of Article III:8(a), because the generation equipment “is needed and used” to produce the electricity, and therefore there is a “close relationship” between the products affected by the domestic content requirements (generation equipment) and the product procured (electricity).  

We recall our finding above that laws, regulations, or requirements “governing” procurement must articulate a connection between those legal instruments and procurement in the sense that the act of procurement is taken within a binding structure of laws, regulations, or requirements. We acknowledge that, under the challenged measures, a connection is articulated between the procurement of electricity and the Minimum Required Domestic Content Levels regarding generation equipment. However, in our view, this connection under municipal law is not dispositive of the issue, because Article III:8(a) imposes also other conditions.  

We have found above that the conditions for derogation under Article III:8(a) must be understood in relation to the obligations stipulated in the other paragraphs of Article III. This means that the product of foreign origin allegedly being discriminated against must be in a competitive relationship with the product purchased. In the case before us, the product being procured is electricity, whereas the product discriminated against for reason of its origin is generation equipment. These two products are not in a competitive relationship. … Accordingly, the discrimination relating to generation equipment contained in the FIT Programme and Contracts is not covered by the derogation of Article III:8(a) of the GATT 1994. We therefore reverse the Panel’s findings. … Instead, we find that the Minimum Required Domestic Content Levels cannot be characterized as “laws, regulations or requirements governing the procurement by governmental agencies” of electricity within the meaning of Article III:8(a) of the GATT 1994.  

N.1.11A.1.12   Canada — Renewable Energy / Canada — Feed-in Tariff Program , paras. 5.80–5.84 ( WT/DS412/AB/R , WT/DS426/AB/R )  

… Japan claims that the Panel erred in finding that the Government of Ontario’s purchases of electricity under the FIT Programme constitute “procurement” within the meaning of Article III:8(a) …  

… Japan and the European Union conditionally appeal the Panel’s interpretation and application of the term “for governmental purposes”. Japan conditionally appeals the Panel’s interpretation and application of the term “commercial resale”.  

We have addressed the various elements of Article III:8(a) to which the claims of Japan and the European Union relate in a holistic interpretation of this provision set out above. Having found that the Minimum Required Domestic Content Levels do not fall within the ambit of the derogation in Article III:8(a), we need not address these further allegations of error raised by the European Union and Japan seeking reversal of intermediate findings by the Panel. These findings are moot.  

Canada claims that the Panel erred in finding that the Government of Ontario’s purchases of electricity under the FIT Programme are undertaken “with a view to commercial resale”. …  

Our conclusion that the measures at issue are not covered by Article III:8(a) of the GATT 1994 is not premised on a finding that the Government of Ontario’s procurement of electricity under the FIT Programme is undertaken “with a view to commercial resale”. Rather, it is based on our finding that Article III:8(a) does not cover discriminatory treatment of the equipment used to generate the electricity that is procured by the Government of Ontario. Furthermore, we have mooted the Panel’s intermediate findings, including the finding that the Government of Ontario’s procurement of electricity under the FIT Programme and Contracts is undertaken “with a view to commercial resale”. Thus, we do not consider it necessary to address further Canada’s claims.  

N.1.11A.2   ARTICLE III:8(B) — SUBSIDIES TO DOMESTIC PRODUCERS.  

SCM Agreement, Article III:8 of the GATT 1994 — Subsidies ( S.2.42 )  

N.1.11A.2.1   Canada — Periodicals , p. 33, DSR 1997:I, p. 449 at 478 ( WT/DS31/AB/R )  

A proper interpretation of Article III:8(b) must be made on the basis of a careful examination of the text, context and object and purpose of that provision. In examining the text of Article III:8(b), we believe that the phrase “including payments to domestic producers derived from the proceeds of internal taxes or charges applied consistently with the provisions of this Article and subsidies effected through governmental purchases of domestic products” helps to elucidate the types of subsidies covered by Article III:8(b) of the GATT 1994. It is not an exhaustive list of the kinds of programmes that would qualify as “the payment of subsidies exclusively to domestic producers”, but those words exemplify the kinds of programmes which are exempted from the obligations of Articles III:2 and III:4 of the GATT 1994.  

N.1.11A.2.2   Canada — Periodicals , p. 34 and Footnote 73 thereto, DSR 1997:I, p. 449 at 478–479 ( WT/DS31/AB/R )  

Our textual interpretation is supported by the context of Article III:8(b) examined in relation to Articles III:2 and III:4 of the GATT 1994. Furthermore, the object and purpose of Article III:8(b) is confirmed by the drafting history of Article III. In this context, we refer to the following discussion in the Reports of the Committees and Principal Sub-Committees of the Interim Commission for the International Trade Organization concerning the provision of the Havana Charter for an International Trade Organization that corresponds to Article III:8(b) of the GATT 1994:  

This sub-paragraph was redrafted in order to make it clear that nothing in Article 18 could be construed to sanction the exemption of domestic products from internal taxes imposed on like imported products or the remission of such taxes. At the same time the Sub-Committee recorded its view that nothing in this sub-paragraph or elsewhere in Article 18 would override the provisions of Section C of Chapter IV. 73  

We do not see a reason to distinguish a reduction of tax rates on a product from a reduction in transportation or postal rates. Indeed, an examination of the text, context, and object and purpose of Article III:8(b) suggests that it was intended to exempt from the obligations of Article III only the payment of subsidies which involves the expenditure of revenue by a government.  

N.1.11A.2.3   Canada — Periodicals , p. 34, DSR 1997:I, p. 449 at 479 ( WT/DS31/AB/R )  

We agree with the panel in United States — Malt Beverages that:  

Article III:8(b) limits, therefore, the permissible producer subsidies to “payments” after taxes have been collected or payments otherwise consistent with Article III. This separation of tax rules, e.g. on tax exemptions or reductions, and subsidy rules makes sense economically and politically. Even if the proceeds from non-discriminatory product taxes may be used for subsequent subsidies, the domestic producer, like his foreign competitors, must pay the product taxes due. The separation of tax and subsidy rules contributes to greater transparency. It also may render abuses of tax policies for protectionist purposes more difficult, as in the case where producer aids require additional legislative or governmental decisions in which the different interests involved can be balanced.  

N.1.11A.2.4   Canada — Periodicals , p. 35, DSR 1997:I, p. 449 at 479 ( WT/DS31/AB/R )  

… For these reasons, we reverse the Panel’s findings and conclusions that Canada’s “funded” postal rates scheme for periodicals is justified under Article III:8(b) of the GATT 1994.  

N.1.12   Relationship between Article III and Article XX.   See also General Exceptions: Article XX of the GATT 1994, Article XX(g) — Jurisdictional limitation ( G.3.10 )    back to top

N.1.12.1   EC — Asbestos , para. 115 ( WT/DS135/AB/R )  

We do not agree with the Panel that considering evidence relating to the health risks associated with a product, under Article III:4, nullifies the effect of Article XX(b) of the GATT 1994. Article XX(b) allows a Member to “adopt and enforce” a measure, inter alia , necessary to protect human life or health, even though that measure is inconsistent with another provision of the GATT 1994. Article III:4 and Article XX(b) are distinct and independent provisions of the GATT 1994 each to be interpreted on its own. The scope and meaning of Article III:4 should not be broadened or restricted beyond what is required by the normal customary international law rules of treaty interpretation, simply because Article XX(b) exists and may be available to justify measures inconsistent with Article III:4. The fact that an interpretation of Article III:4, under those rules, implies a less frequent recourse to Article XX(b) does not deprive the exception in Article XX(b) of effet utile . Article XX(b) would only be deprived of effet utile if that provision could not serve to allow a Member to “adopt and enforce” measures “necessary to protect human … life or health”. Evaluating evidence relating to the health risks arising from the physical properties of a product does not prevent a measure which is inconsistent with Article III:4 from being justified under Article XX(b). We note, in this regard, that, different inquiries occur under these two very different Articles. Under Article III:4, evidence relating to health risks may be relevant in assessing the competitive relationship in the marketplace between allegedly “like” products. The same, or similar, evidence serves a different purpose under Article XX(b), namely, that of assessing whether a Member has a sufficient basis for “adopting or enforcing” a WTO-inconsistent measure on the grounds of human health.  

N.1.13   Article XVII of the GATS.   See also MFN Treatment, Article II of the GATS ( M.2.2 ); National Treatment, Article III:4 of the GATT 1994 — “less favourable treatment” ( N.1.11 )    back to top

N.1.13.1   EC — Bananas III , para. 241 ( WT/DS27/AB/R )  

We see no specific authority either in Article II or in Article XVII of the GATS for the proposition that the “aims and effects” of a measure are in any way relevant in determining whether that measure is inconsistent with those provisions. In the GATT context, the “aims and effects” theory had its origins in the principle of Article III:1 that internal taxes or charges or other regulations “should not be applied to imported or domestic products so as to afford protection to domestic production”. There is no comparable provision in the GATS. Furthermore, in our Report in Japan — Alcoholic Beverages the Appellate Body rejected the “aims and effects” theory with respect to Article III:2 of the GATT 1994. The European Communities cites an unadopted panel report dealing with Article III of the GATT 1947, United States — Taxes on Automobiles as authority for its proposition, despite our recent ruling.  

N.1.14   Article 3.1 of the TRIPS Agreement.   See also National Treatment, Article III:4 of the GATT 1994 — “less favourable treatment” ( N.1.11 )    back to top

N.1.14.1   US — Section 211 Appropriations Act , paras. 242–243 ( WT/DS176/AB/R )  

As we see it, the national treatment obligation is a fundamental principle underlying the TRIPS Agreement , just as it has been in what is now the GATT 1994. The Panel was correct in concluding that, as the language of Article 3.1 of the TRIPS Agreement , in particular, is similar to that of Article III:4 of the GATT 1994, the jurisprudence on Article III:4 of the GATT 1994 may be useful in interpreting the national treatment obligation in the TRIPS Agreement .  

As articulated in Article 3.1 of the TRIPS Agreement , the national treatment principle calls on WTO Members to accord no less favourable treatment to non-nationals than to nationals in the “protection” of trade-related intellectual property rights. The Footnote to Article 3.1 clarifies that this “protection” extends to “matters affecting the availability, acquisition, scope, maintenance and enforcement of intellectual property rights as well as those matters affecting the use of intellectual property rights specifically addressed” in the TRIPS Agreement . …  

N.1.14.2   US — Section 211 Appropriations Act , paras. 261–265 ( WT/DS176/AB/R )  

… the report of the panel in US — Section 337 . That panel reasoned that “the mere fact that imported products are subject under Section 337 to legal provisions that are different from those applying to products of national origin is in itself not conclusive in establishing inconsistency with Article III:4”.  

That panel stated further that:  

[I]t would follow … that any unfavourable elements of treatment of imported products could be offset by more favourable elements of treatment, provided that the results, as shown in past cases, have not been less favourable. [E]lements of less and more favourable treatment could thus only be offset against each other to the extent that they always would arise in the same cases and necessarily would have an offsetting influence on the other . (emphasis added) [BISD 36S/345, para. 5.12]  

And that panel, importantly for our purposes, concluded that:  

… while the likelihood of having to defend imported products in two fora is small, the existence of the possibility is inherently less favourable than being faced with having to conduct a defence in only one of those fora. (emphasis added) [BISD 36S/345, para. 5.19]  

… It is likewise not disputed that, under Section 211(a)(2), in every individual situation where a non-United States successor-in-interest seeks to assert its rights without the express consent of the original owner or its bona fide successor-in-interest, the United States courts are required not to recognize, enforce or otherwise validate any assertion of rights. We emphasize that this situation exists under the statute on its face , and that, therefore, unlike the situation with respect to the granting of a special licence to United States successors-in-interest by OFAC, this situation assumes no action by OFAC or by any other agency of the United States Government.  

The United States may be right that the likelihood of having to overcome the hurdles of both Section 515.201 of Title 31 CFR and Section 211(a)(2) may, echoing the panel in US — Section 337 , be small . But, again echoing that panel, even the possibility that non-United States successors-in-interest face two hurdles is inherently less favourable than the undisputed fact that United States successors-in-interest face only one.  

N.1.14.3   US — Section 211 Appropriations Act , para. 267 ( WT/DS176/AB/R )  

The United States has not shown, as required under the national treatment obligation, that, in every individual case, the courts of the United States would not validate the assertion of rights by a United States successor-in-interest. Moreover, even if there is, as the United States argues, a likelihood that United States courts would not enforce rights asserted by a United States successor-in-interest, the fact remains, nevertheless, that non-United States successors-in-interest are placed by the measure, on its face , in an inherently less favourable situation than that faced by United States successors-in-interest. And, even if we were to accept the United States argument about the doctrine of non-recognition of foreign confiscation, presumably that doctrine would apply to those who are not nationals of the United States as well as to those who are. Any application of this doctrine would therefore not offset the discrimination in Section 211(a)(2), because it would constitute yet another, separate obstacle faced by nationals and non-nationals alike. Hence, it would not offset the effect of Section 211(a)(2), which applies only to successors-in-interest who are not United States nationals.  

N.1.14.4   US — Section 211 Appropriations Act , para. 286 ( WT/DS176/AB/R )  

… to fulfill the national treatment obligation, less favourable treatment must be offset, and thereby eliminated, in every individual situation that exists under a measure. Therefore, for this argument by the United States to succeed, it must hold true for all Cuban original owners of United States trademarks, and not merely for some of them.  

N.1.14.5   US — Section 211 Appropriations Act , para. 289 ( WT/DS176/AB/R )  

… the very existence of the additional “hurdle” that is imposed by requiring application to OFAC is, in itself, inherently less favourable. Sections 211(a)(2) and (b) do not apply to United States original owners; no application to OFAC is required. But Cuban original owners residing in the “authorized trade territory” must apply to OFAC. Thus, such Cuban original owners must comply with an administrative requirement that does not apply to United States original owners. …  

N.1.14.6   US — Section 211 Appropriations Act , para. 294 ( WT/DS176/AB/R )  

… We are, therefore, not satisfied that Section 515.201 would offset the inherently less favourable treatment present in Sections 211(a)(2) and (b) in each and every case. And, because it has not been shown by the United States that it would do so in each and every case, the less favourable treatment that exists under the measure cannot be said to have been offset and, thus, eliminated.  

209. We are also mindful that such duties and charges are permitted only when their nature and level are recorded in a Member’s Schedule, they do not exceed the level recorded in such Schedule, and they existed on the relevant date specified in the Understanding on Article II:1(b) of the General Agreement on Tariffs and Trade 1994 .   back to text

[T]he “no less favourable” treatment requirement of Article III:4 has to be understood as applicable to each individual case of imported products. The Panel rejected any notion of balancing more favourable treatment of some imported products against less favourable treatment of other imported products. If this notion were accepted, it would entitle a contracting party to derogate from the no less favourable treatment obligation in one case, or indeed in respect of one contracting party, on the ground that it accords more favourable treatment in some other case, or to another contracting party. Such an interpretation would lead to great uncertainty about the conditions of competition between imported and domestic products and thus defeat the purposes of Article III. (GATT Panel Report, US — Section 337 Tariff Act , para. 5.14)

499. The European Union explains that, when it refers to product “characteristics”, it does so not as necessarily referring to physically detectable characteristics, but as referring to elements that define the nature of the product more broadly. The European Union submits that the environmental profile or the environmental attributes that a particular product may incorporate, even if they do not materialize into any particular physical characteristic, could legitimately form part of the requirements of the product purchased that are closely related to the subject matter of the contract. …   back to text

500. We do not address in this case rules for determining the origin of products purchased. It has not been alleged in this case that the Minimum Required Domestic Content Levels are rules of origin.   back to text

73. … Article 18 and Section C of Chapter IV of the Havana Charter for an International Trade Organization correspond, respectively, to Article III and Article XVI of the GATT 1947.   back to text

The texts reproduced here do not have the legal standing of the original documents which are entrusted and kept at the WTO Secretariat in Geneva.

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Biden and Zelenskyy will sign a security deal, as G7 leaders agree to use Russian cash to help Kyiv

President Joe Biden leaves Air Force One as he arrives at Brindisi airport, southern Italy, to take part in a G7 summit, Wednesday, June 12, 2024. The G7 Summit will take place at the Borgo Egnazia resort from June 13 through June 15, 2024. (AP Photo/Luca Bruno)

President Joe Biden is escorted by Air Force Col. Angela Ochoa, Commander, 89th Airlift Wing, as he arrives at Andrews Air Force Base, Md., Wednesday, June 12, 2024. Biden is headed to Italy for the G7 summit. Biden’s granddaughter, Finnegan Biden, walks right. (AP Photo/Alex Brandon)

President Joe Biden is escorted by Air Force Col. Angela Ochoa, Commander, 89th Airlift Wing, as he arrives at Andrews Air Force Base, Md., Wednesday, June 12, 2024. Biden is headed to Italy for the G7 summit. Biden’s granddaughter, Finnegan Biden, walks left. (AP Photo/Alex Brandon)

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BRINDISI, Italy (AP) — President Joe Biden and President Volodymyr Zelenskyy will sign a bilateral security agreement between the U.S. and Ukraine on Thursday when they meet on the sidelines of the Group of Seven summit in Italy.

Negotiators for the group have also reached an agreement on how to provide Ukraine with up to $50 billion backed by frozen Russian assets.

The international group of wealthy democracies has been discussing ways of using the more than $260 billion in frozen Russian assets, most of which are outside the country, to help Ukraine fight Russian President Vladimir Putin’s war machine.

European officials have resisted confiscating the assets, citing legal and financial stability concerns, but the plan would use the interest earned on the assets to help Ukraine’s war effort. An official with the French presidency confirmed the agreement Wednesday, saying most of the money would be flowing to Ukraine in the form of a loan from the U.S. government backed by the proceeds of the frozen Russian assets in the European Union. Two other people familiar with the matter confirmed the arrangement.

Final technical negotiations were underway ahead of the summit to finalize the legal terms of the deal.

The announcement of the agreement comes as Biden landed in Italy with an urgency to get big things done. Thursday’s security arrangement was aimed to send a signal to Russia of American resolve in supporting Kyiv, the White House said.

National security adviser Jake Sullivan said the security agreement would not commit U.S. troops directly to Ukraine’s defense against Russia’s invasion — a red line drawn by Biden, who’s fearful of being pulled into direct conflict between the nuclear-armed powers.

“We want to demonstrate that the U.S. supports the people of Ukraine, that we stand with them and that we’ll continue to help address their security needs,” Sullivan said, adding “this agreement will show our resolve.”

Sullivan said aboard Air Force One that the goal of the financing plan was to have a loan that would “pull forward the windfall profits from the seized assets” of Russia, giving Ukraine a “substantial source of funding” to meet its immediate needs.

The national security adviser said he had a specific sum of money in mind, but declined to say if that figure was $50 billion. He stressed the urgency of getting Ukraine financial resources as soon as possible and that multiple countries would back the agreement.

“It’s to provide the necessary resources to Ukraine now for its economic energy and other needs, so that it’s capable of having the resilience necessary to withstand Russia’s continuing aggression,” Sullivan said.

This year’s meeting comes three years after Biden declared at his first such gathering that America was back as a global leader following the disruptions to Western alliances that occurred when Donald Trump was president. Now, there’s a chance this gathering could be the final summit for Biden and other G7 leaders, depending on the results of elections this year.

Biden and his counterparts from Canada, Britain, France, Germany, Italy and Japan will use the summit to discuss challenges related to artificial intelligence, migration, the Russian military’s resurgence and China’s economic might, among other topics. Pope Francis, Zelenskyy and Turkish President Recep Tayyip Erdogan are joining the gathering at the Borgo Egnazia resort in the Puglia region of southern Italy.

The summit, which opened Thursday, will play out after far-right parties across the continent racked up gains of surprising scale in just-concluded European Union elections . Those victories — coupled with upcoming elections in the United Kingdom , France and the United States — have rattled the global political establishment and added weightiness to this year’s summit.

“You hear this a lot when you talk to U.S. and European officials: If we can’t get this done now, whether it’s on China, whether it’s on the assets, we may not have another chance,” said Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center, an international affairs think tank. “We don’t know what the world will look like three months, six months, nine months from now.”

The G7 is an informal bloc of industrialized democracies that meets annually to discuss shared issues and concerns. This is Biden’s second trip outside the U.S. in as many weeks; the Democratic president was in France last week for a state visit in Paris and ceremonies in Normandy marking the 80th anniversary of the D-Day landings in World War II.

While last week’s visit had a celebratory feel, this one will be dominated by pressing global issues, including how to keep financial support flowing to Ukraine as it fights Russia’s invasion . Biden’s trip comes days after his son Hunter was convicted on federal gun charges , a blow sure to weigh heavily on the president’s mind.

AP AUDIO: Fresh off France trip, Biden heads back to Europe for G7 summit to talk Ukraine support, migration

AP correspondent Jennifer King reports Ukrainian President Volodymyr Zelenskyy will be at Thursday’s G7 summit in Italy and meet with President Biden.

Despite pressing global challenges, White House national security spokesman John Kirby said there’s still a sense of relief among world leaders in 2024 that “America was back,” referencing Biden’s 2021 speech at the G7 in England.

“Biden’s message then was that democracies need to step up and show they can deliver for their people,” Kirby said. “That’s true now more than ever.”

Kirby said the U.S. was prepared to work with democratically elected officials in the EU no matter who they are, though some of those being elevated have expressed far less support for Ukraine than current leaders.

“We have every confidence that regardless of who fills the seats in the European Parliament, we’re going to continue to work closely with our EU partners on all the issues relative to our shared interests across the European continent,” Kirby said. “That includes supporting Ukraine.”

Biden and Zelenskyy, who met last week in Paris , are expected to hold a joint news conference while meeting at the G7 summit. Biden is also expected to meet with Italian Prime Minister Giorgia Meloni , the pope and other leaders.

Biden, who’s been adamant “we will not walk away” from Ukraine, last week publicly apologized to Zelenskyy for a monthslong delay by Congress in authorizing additional American military assistance. The delay allowed Russia to make gains on the battlefield .

Sullivan called the security agreement a “bridge” to when Ukraine is invited to join the NATO alliance — a long-term priority of Zelenskyy’s that the allies have said will first require an end to the Russia-Ukraine war and that Putin has steadfastly opposed .

Biden’s back-to-back trips to France and Italy amount to a rare doubleheader of diplomacy in the midst of the presidential election . The president, however, will skip a Ukraine peace conference in Switzerland this weekend to jet to Los Angeles for a campaign fundraiser with big names from Hollywood. Vice President Kamala Harris will represent the U.S. at the conference .

Despite the delays in military aid, the Biden administration on Tuesday announced it would send Ukraine another Patriot missile system to help fend off Russian strikes, two U.S. officials told The Associated Press.

Earlier Wednesday, the U.S. also announced fresh sanctions targeting Chinese companies that help Russia pursue its war in Ukraine, as well as Russia’s financial infrastructure. Sullivan said, “These actions will ratchet up the risk that foreign financial institutions take by dealing with Russia’s war economy.”

Biden is also expected to discuss economic concerns brought on by Chinese manufacturing overcapacity, how to use artificial intelligence in a way that maximizes benefits but still manages national security risks, and global migration.

The U.S. and other G7 nations are struggling to manage large influxes of migrants arriving for complicated reasons that include war, climate change and drought. Migration, and how nations cope with the growing numbers at their borders, has been a factor driving the far-right rise in some of Europe.

Superville reported from Bari, Italy. Miller and Madhani reported from Washington. Sylvie Corbet in Paris and Fatima Hussein and Josh Boak in Washington contributed.