National Treatment on Internal Taxation: Revisiting GATT Article III:2

Sherzod Shadikhodjaev
KIEP Working Paper

This paper examines GATT Article III:2 on national treatment on internal taxation. The fact that as of 1 January 2008, national treatment violations in the goods sector have been challenged in nearly 29% of the WTO complaints points to the great importance of the national treatment principle in the multilateral trading system on the one hand, and temptation of WTO Members to protect domestic production through internal taxes and regulations on the other. Cases involving de facto discrimination against foreign goods will increase in number given the sophistication of governments protectionist policy.
The examination of a claim on a discriminatory internal tax requires a multi-tiered test of several issues including likeness, discriminatory threshold and protective application of the tax measure. This test applies differently depending on what sentence of Article III:2 is at issue. The controversial aim-and-effect approach is not relevant to the determination of likeness, but can still be utilized, to some extent, in examining the protective application of the measure concerned. Some discrepancy in the Appellate Bodys approach to the subjective intent issue seems to leave some room for referring to government statements in future analyses of protective application.
Korea and its FTA partners have affirmed their adherence to GATT Article III. When the FTA parties enter into a dispute over national treatment, a problem as to the jurisdiction of WTO panels over FTAs GATT-plus provisions on national treatment may arise. Irrespective of what dispute settlement forum is resorted to, GATTplus provisions, as a lex posterior, would prevail over the corresponding provisions of Article III. Another problem is that FTA panels are not legally constrained by WTO jurisprudence. In this regard, it is suggested that FTA panels, wherever possible, follow the WTO interpretations of Article III to secure consistent and predictable application of the national treatment rule.