MFN TREATMENT :
Every member has to be treated equally with out any discrimination. If a
favour ie., lowers Customs Duty rate for a product favoring one country,
then same lower duty should be applicable to all other W.T.O members
.favour one favour all.
For example BANANA WAR.
*The EC (European Community) charged lower duty on bananas imported
AFRICIAN CARIBBEAN PACIFIC (ACP) , when compared to duties levied
on bananas from
*The complaining countries were the United States , Ecuador , Guatemala
& Honduras besides
The dispute evolved in EU‟s 1993 Regulatory Regime
for banana imported into EU. E.U wise Banana Trade
Regime had a system of a Tariff Rate Quota (TRQ)
based on the Country of Origin. Bananas from the
ACP countries had duty free entry into the EU up to
85,77,000 metric tons . This quota was allocated to each
of producing countries on the basis of their historic
exports to EU. While ACP Bananas , in excess of quota,
were levied 750 ECU per metric tons . Non –ACP
bananas wear subjected to a duty of ECU 100 per
metric tons on imports of up to 2 million metric tone and
ECU 850 on imports of above the amount .
The dispute was between two powerful members of QUAD
(US,EU,JAPAN and CANADA) who were confronting each other from
the area of currency trade (Euro vs US$ ) to Military Understandings .
Some members of the EC appear to be inclined towards the belief that
countries can flourish more in Bipolar World than Uni- polar one .
The dispute involved article 1 of GATT 1994, the Most Favored Nations
The DSB‟s Appellate Body , hearing the dispute in 1997, indicated that
the MFN philosophy transcended any Preferential Trade Agreement or
understanding that contracting parties might have out side the WTO
agreement . The Appellate Body did not agree with EC‟s stand that
Preferential Trade with African countries .
Aligned with the main complaint , the United States , wear as in the
days of small countries like Ecuador , Guatemala & Honduras. The
only big member in this group was NAFTA member, Mexico.
1993 May 19 GATT panel finds against EC member state restrictions (banana-1)
EC blocks the panel report from being adopted by GATT council
1994 Jan 18 GATT panel finding go against EC’s new regulations 404 (banana-2)
1994 Feb 07 EC blocks the (banana-2) panel report from being adopted by GATT council
1995-1996 New WTO dispute settelment provision prevents one member from blocking
panel findings in 1995 . In 1996 equdor , guatemala & honduras and US (g-5)
bring formal WTO cases
1997 May 22 WTO panel finds many goods and services violation of EC regime (banana 3 )
1997 Sept 9 WTO panel body up holds the findings of EC
1997 Spt 25 WTO dispute body adopts panel and appellate body reports
1998 Jan 08 WTO arbitrator gives until jan 1, 1999 . to complys WTO ruling
1998 June 26 European agriculture adopts modification to banana measures and
unilaterally declares them WTO conistent.
1998 Dec 18 Ecudor request re-establishment of original panel to acess weather EC
measures are WTO – conistent
1999 Jan 12 Original panel reconvened
1999 May 6 Panel report adopted .
1999 April 9 The united states requested that the DBS authorise suspension of concession
to the level of nulification and impaiment , ie.,US$191.4million
2000 Mar 24 The arbitrator report on Ecudor request for suspenssion of concession
circulated to members
2000 May 18 DBS authorises Ecudor to suspension of concession to EC
2001 Nov 14 Doha Ministrial waiver of article 1 & 13 , new TRQ Regime
NATIONAL TREATMENT : Treating imported and domestically
produced goods equally .
An example is The Korean Soju case.
The issue was consistency of two Korean tax laws : The Korean
Liquor Tax Law 1949 & The Korean Education Tax Law of 1982 with
National Treatment Principle of WTO .
Item KOREAN LIQUOR TAX EDUCATION
Diluted soju 35 10
Distilled soju 50 10
Whisky 100 30
Brandy 100 30
General distilled liquor (vodka,gin,rum) 80 30
General distilled liquor containing whisky
Liquor 50 10
-with 25% or more alc.
-with less than 25% alc.
-which contain 20% or more whisky or
The EC, the complaining country argued that these two laws
favored the Korean local sprits called „SOJU‟ and discriminated
the imported sprits and liqueurs , thus protecting the soju from
the competition from imported Whisky, Rum, Brandy and Vodka.
Under the Education Tax 1990 a Tax Surcharge was levied on the
sale of variety of items , including most Alcoholic Beverages . for
alc. Beverage The applicable rate was determined by the reference
to another tax –tax applied liquor rate ,fro those assed liquor tax
rate 80% or greater ,the law imposed an education sur tax
calculated aas30% of the liquor tax imposed. For alcoholic
beverages assessed a liquor tax rate of less than 80% , the law
imposed an education tax of 10 % of the liquor tax imposed.
The net result, according to the EC ,was that SOJU
overwhelmingly dominated the Korean Spirits Market.the 1996
sales of SOJU amounted to 810 million liters , which represented
as much as 94% of the Distilled Spirit Market .
The original panel recommended that
1.The SOJU, a traditional Korean Alc.Beverage and
imported products such as Whisky, Brandy, Rum, Vodka,
Gin, Tequila and liqueurs were directly substitutive
2. These products competing for a share of the same
market were being taxed dissimilary and
3. The dissimilar Taxation resulted in a protection to the
locally produced SOJU over the imported products.
The Korean made the following observations with respect to physical
character end use, place of consumption and pricing .
1. SOJU and the imported products not physically identical merely
because they shared the essential feature of being distilled alc. Korea
argued that if similarity in raw materials used or the method of
manufacture were the criteria for putting products under the same
category, then paint thinners and ridding alcohol could also be
deemed to directly competing products.
2. SOJU had a different flavor when compared to the imported
3. Diluted SOJU was consumed along with meals , which was not so
the case with the other products in question.
4. The huge price difference between diluted SOJU and most of the
imported beverages also indicated they were competing for different
segments of the market and thus it would not be proper to use the
reasoning of directly competing or substitutable products.
The EC reply was as follows;
1.The face that a (minor) difference such as flavour had been
mentioned by Korea to differentiate between the domestic and
imported products was proof enough to suggest that products were
nearly identical. The EC cited the example fo a purchaser choosing a
green colored tie rather then a red one since he preferred the green
color, according to the EC, was a relatively minor feature of neckties
and this difference in colors did not make the different color ties other
then directly competing products.
2.The original panel was right in accepting the EC‟s example of generic
and branded aspirin and rejecting Korea‟s example of tap and bottled
water. The two aspirins were identical or nearly identical products, but
it was open to question whether the two waters, tap and bottled, had
close physical characteristics though they had the same physical
3. As regards to the contention of Korea that SOJU and the imported
beverages had to be on a different footing as the former was drunk with meals
and at homes or friends‟ places while the western spirits were standalone
drinks consumption at restaurants and bars, the EC argued that a NIELSEN
STUDY had indicated that 5.8%of Korean respondents drank whisky with
The APPELLATE body was of the view that common characteristics, end-uses
and channels of distribution and prices confirmed the correctness of the
original panel grouping SOJU and the imported beverages as directly
competitive or substitutable products.
With the appellate body confirming this aspect of the argument, the next
conclusion on the protection being given to the native Korean brew was only
matter of course due to the substantial tax differentials between SOJU and the
imported western-style spirits. The Appellate Body recommended that the
Dispute Settlement Body request Korea to bring the Korean Liquor Tax Law of
1949 and the Korean Education Tax Law of 1982 into conformity with its WTO
•There was another dispute involving Korea under the same
“National Treatment” issue. This was „Korea-measures affecting
imports of fresh, chilled and frozen beef‟
•. Beef imported into Korea was distributed under conditions not
applicable to domestic beef. Ed This dual retail system ensured that:
Imported beef was displayed separately in those department stores
and supermarkets that were authorized to sell such beef:
Foreign beef shops had to bear a sign with the words “specialized
imported beef store”.
•Foreign beef imported had to undergo additional requirements,
such as having to bear details regarding the end-consumer, the
contract number and the importer bringing in the foreign beef:
• Generally, a more stringent record keeping practice
was needed in the case of foreign beef.
The Appellate body hearing the dispute also upheld
the original panel‟s original conclusion that Korea‟s
dual retail system was inconsistent with Article: III:4
of the GATT1994.
While the dimensions of the briefly stated dispute
regarding the Korean policy on imported beef could
have been clear enough, the Soju dispute had
marketing dimensions as well since the panels had
to make a finding on directly competing or
Free Trade through negotiation.
The barriers like tariffs and measures such as import
bans or quotas that selectively restrict import quantities
The Canadian Dairy case
This issue is regarding Govt. Policy that
enabled Canadian exporters of cheese and its products to
procure milk at advantage price
“The price which the exporters paid for milk was lower
when compared to the milk prices prevailing in Canada‟s
The US and NEW ZEALAND argued such that
such a govt. policy was not in conformity with
Canada‟s export subsidy commitments under
the agreement on agriculture .
Introduction: milk production in Canada was governed by
a quota system
Market Sharing Quota ( MSQ) all in million hector.
1995/96 1996/97 1997/98 1998/98
MSQ level 44.2 44.2 43.3 44.7
The Canadian milk producers were assigned a domestic
Milk produce with in the quota was sold in Canadian
market the domestic market milk recording to New
Zealand was sold C$ 49.48 and c$56.06 per hectoliter the
average figure cited by united state was Canadian
c$52.92 per hectoliter
Milk production beyond this quota could not be sold
This over production milk has to be sold as commercial
Export Milk (CEM)to processors exporting dairy
These export processors were able to get the commercial
export milk at lower price as compare to milk sold in the
domestic market according to Canada it self the price
ranged from C$19.06 toC$36.86 per hectoliter of
commercial export milk
The only way a producer could dispose of the over quota
milk in the domestic market was by selling it as animal
This situation of govt. influenced policies enabling
processor to get the milk at lower price for export of dairy
products according to the US and NZ was not in
conformity with article 9.1 (a)& (c)
On export subsidy commitments of the agreement on
Findings of the Appellate Body, the compliance panel made the
1. Payments provision of milk at discounted prices to dairy
processors for export constituted payments within the meaning of
2. By virtue of Govt. action : The procedures of over quota milk had
no other alternative but to sell to export processors at lower price . A
dairy producer was, in principle, prevented from marketing his milk
in the domestic market out side the quota allotted to him but
governmental action, these producers would have preferred to sell
the milk in the domestic market and realize a higher price
3. Simultaeously, processors who diverted CEM into
domestic market were penalized presence of these
conditions substantiated the reasoning and other dairy
products this action of the royal dairy Commission,
according to the compliance panel, fell within the
meaning of export subsidy , commitment of article of
4. Payment on the export of agriculture product: Only a
contract for exports allowed dairy processors to
have access to the lower priced commercial
export milk an export processor functioned out
side the regulatory frame work of price floors
and quota ceiling applicable to domestic market
milk transaction in Canada.
Given below is the simulation of the findings of the Appellate
Canada has modified the at Dairy Regulatory Regime so that
market forces are at work in respect of the sale of dairy
The original panel had taken international price and domestic
price as the bench marks for determine subsidy. These bench
mark prices may not be true indicators for calculating subsides
that may be given by a government to a product.
A better bench mark will be the total cost of production, which
will ensure determination of the cost that may be subsidized by
a government particularly in relation to exports .
A direct subsidizing connectivity has to be established to prove
non conformity to WTO commitments.
Panel report of July-11-2001 and Dec-20-2002.
Given the Canadian Govt‟s Quota on domestic sale of milk ,the
producers had to choose at the second best option available
and that was selling the excess at a lower price C$ 30 per
hectolitre to export processors compared to C$53 per
hectoliter that local market sales would fetch . How ever,
selling selling at was better alternative to destroying the milk
The panels also pointed to the Canadian dairy commissions (CDC),
prohibition on diversion of CEM , to the domestic market .the CDC had
the “seizure power “over such diverted milk .more ever, in such
instance the buyers of milk could end up paying the higher domestic
price in addition to the CEM price already paid
There was also the issue of cross-subsidization of
CEM . the fact that domestic sales of milk ensured
40% higer returnment that milk producer could
afford to sell at a lower price to export processors .
the Canadian system ensured that producers who
sold milk at a lower price to export processors
where compensated by a higer domestic price this
higher enabled milk producers to derive the
advantage of marginal costing in sales of
commercial export milk
The panel found inconsistency with article 9.1(C) of
the agreement on agriculture and recommended
that the DSB request Canada to bring its measures
in conformity which the WTO agreement.