Challenges in the WTO Accession Process: Excise Taxes and GMOs Dr. Christian Pitschas, LL.M. IDEAS Centre, Geneva 9 May 2016

Excise Taxes & GMOs Overview of Presentation: Excise Taxes on Alcoholic Beverages: – Trade in Goods – GATT 1994 – National Treatment Principle GMOs: – Trade in Goods – SPS Agreement – EC-Biotech case SPS measure – risk assessment Approval procedure – undue delay Dr. Pitschas, IDEAS Centre, 9 May 20162

Excise Taxes on Alcoholic Beverages Trade in Goods: – Multilateral agreements on trade in goods Annex 1A to the WTO Agreement integral part of the WTO Agreement, binding on all WTO Members – General Agreement on Tariffs and Trade 1994 applicable by default if no other multilateral agreement on trade in goods is applicable applicable in addition to any other multilateral agreement on trade in goods but the latter prevails in case of a conflict – general interpretative note to Annex 1A Dr. Pitschas, IDEAS Centre, 9 May 20163

Excise Taxes on Alcoholic Beverages National Treatment Principle: – Article III of the GATT 1994 – Scope: Internal Taxation (2 nd paragraph) Internal Regulation (4 th paragraph) – Object & purpose: Avoidance of protectionism in the application of internal tax and regulatory measures Equality of competitive opportunities for imported products and like domestic products No requirement to demonstrate actual trade effects of the measure at issue (e.g. an excise tax) Dr. Pitschas, IDEAS Centre, 9 May 20164

Excise Taxes on Alcoholic Beverages Article III:2 of the GATT 1994: – Two legal standards: one legal standard for “like” products (  1 st sentence) different legal standard for “directly competitive or substitutable” products (  2 nd sentence) Rationale: – ”like” products refers to a narrow category of products (  high degree of competition; close to perfectly substitutable products), – “directly competitive or substitutable” products refers to a broader category of products (  lesser degree of competition; imperfectly substitutable products) Dr. Pitschas, IDEAS Centre, 9 May 20165

Excise Taxes on Alcoholic Beverages Art. III:2, 1 st sentence, of the GATT 1994 (1): – Legal standard: Comparison of the tax treatment accorded to imported and like domestic products – internal taxes & internal charges of any kind  impose a pecuniary burden and create a liability to pay money – obligation to pay an internal tax/charge must accrue due to an internal event, such as distribution, sale, use or transportation, and not by virtue of importation “as such” Prohibition of “excess” taxation of imported products versus like domestic products – even the smallest amount of “excess” is too much; no de minimis standard  identical tax burden is required Dr. Pitschas, IDEAS Centre, 9 May 20166

Excise Taxes on Alcoholic Beverages Art. III:2, 1 st sentence, of the GATT 1994 (2): – Like products: determination of the nature & extent of a competitive relationship between and among imported and domestic products determination on a case-by-case basis, taking account of: – Products’ physical characteristics – Products’ end-uses in relevant markets – Consumers’ tastes and habits – Tariff classification – Relevant internal regulations none of these criteria has an overarching role Dr. Pitschas, IDEAS Centre, 9 May 20167

Excise Taxes on Alcoholic Beverages Art. III:2, 2 nd sentence, of the GATT 1994 (1): – Legal standard: Imported and domestic products are directly competitive or substitutable products Dissimilar taxation of the imported and domestic product Dissimilar taxation is applied “so as to afford protection to domestic production” – Directly competitive or substitutable products: Products are interchangeable or offer alternative ways of satisfying a particular need or taste Competitive relationship must be present in the market at issue (evidence from other markets may be pertinent) Dr. Pitschas, IDEAS Centre, 9 May 20168

Excise Taxes on Alcoholic Beverages Art. III:2, 2 nd sentence, of the GATT 1994 (2): – Directly competitive or substitutable products: Price competition indicates that the imported product exercises constraints on the domestic product, and vice versa  sufficiently direct competitive relationship Not only actual competition, but also potential competition is relevant  internal taxation and other regulatory measures may have distortive effects on consumer demand (latent demand), especially in the case of “experience goods” – Dissimilar taxation: De minimis standard  tax differential must be more than minimal Dr. Pitschas, IDEAS Centre, 9 May 20169

Excise Taxes on Alcoholic Beverages Art. III:2, 2 nd sentence, of the GATT 1994 (3): – Protection of domestic production: Not an issue of intent, but how the measure is applied Analysis of the design, architecture and structure of the tax – Magnitude of dissimilar taxation may be evidence of protective application – Question of whether or not there are negative trade effects is irrelevant Philippines – Distilled Spirits: – Application of the excise tax resulted in all domestic spirits enjoying a lower tax rate, while the vast majority of imported spirits were subject to higher tax rates – Tax burden on imported spirits was 10 to 40 times higher than for domestic spirits Dr. Pitschas, IDEAS Centre, 9 May

Excise Taxes on Alcoholic Beverages Some observations: – different tax treatment for imported and domestic alcoholic beverages is liable to run counter the NT obligation of the GATT 1994 To date, all complaints in WTO dispute settlement system about different (excise) taxes for imported and domestic alcoholic beverages were successful either imported and like domestic alcoholic beverages were considered like products, and hence the tax differential was per se a violation of Art. III:2, 1 st sentence, of the GATT 1994 or imported and domestic alcoholic beverages were considered to be directly competitive/substitutable products and the tax differential was deemed to constitute protection in violation of Art. III:2, 2 nd sentence, of the GATT 1994 Dr. Pitschas, IDEAS Centre, 9 May

GMOs Trade in Goods: – Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) Applicable to all SPS measures affecting int’l trade SPS measures include any measure applied – to protect human life or health – from risks arising from – additives, contaminants, toxins or disease-causing organisms – in foods, beverages or feedstuffs Purpose, legal form and nature of a measure have to be considered Dr. Pitschas, IDEAS Centre, 9 May

GMOs EC – Biotech case (1): – Measure at issue: EC Regime for the approval of biotech products – Biotech products – genetically modified plants – Case by case evaluation of the potential risks of biotech products to human health – Approval of the marketing of a biotech product depends on the outcome of the evaluation Moratorium on the approval of biotech products – De facto measure (not formalized) – Applicable to all applications for approval of biotech products – Effective suspension of final approval decisions – Until new rules on labelling and traceability of GMOs were adopted Dr. Pitschas, IDEAS Centre, 9 May

GMOs EC – Biotech case (2): – Legal standard: Art. 5.1 of the SPS-Agreement SPS measure – Measure applied for achieving the level of SPS protection deemed appropriate by the Member concerned » Members enjoy discretion Based on a risk assessment – Evaluation of the potential for adverse effects on human health arising from additives, etc. in food, beverages or feedstuffs – risk assessment is needed to ensure a «rational relationship» between the risk identified and the SPS measure applied Dr. Pitschas, IDEAS Centre, 9 May

GMOs EC – Biotech case (3): – Is the moratorium an SPS measure? Is the moratorium applied to achieve the EC’s appropriate level of SPS protection? Moratorium is a procedural decision to delay final approval decision – Delay of final approval decisions does not achieve or imply a particular level of SPS protection – Different from the pre-marketing approval mechanism as such (and its implicit provisional marketing ban) as well as final approval decisions on individual applications No SPS measure in the sense of Art. 5.1 of the SPS Agreement Dr. Pitschas, IDEAS Centre, 9 May

GMOs EC – Biotech case (4): – Legal standard: Art. 8 and Annex C of the SPS Agreement «approval procedures» have to be operated in accordance with Annex C  «without undue delay» Core obligation: Members must come to a substantive decision within reasonable time limits  no unjustifiable delays – Case-by-case analysis Members may take the time reasonably needed to determine with adequate confidence whether their appropriate level of SPS protection is achieved Dr. Pitschas, IDEAS Centre, 9 May

GMOs EC – Biotech case (5): – Members may follow a «precautionary» approach in assessing applications concerning GMOs But Members cannot endlessly defer substantive decisions on the grounds of precaution – If scientific evidence is insufficient to perform a risk assessment, a Member may provisionally adopt an SPS measure on the basis of available pertinent information – Range of possible measures: Approval or rejection of applications Time-limited approval Approval subject to fulfillment of certain conditions Rejection of approval subject to a review if and when the relevant circumstances change Dr. Pitschas, IDEAS Centre, 9 May

GMOs EC – Biotech case (6): – Moratorium: Delay in the approval of applications Delay was found to be injustifiable as regards the approval procedure concerning a specific biotech product Breach of Art. 8 and Annex C of the SPS Agreement – General moratorium of the final approval of biotech products may be justifiable where new scientific evidence emerges that contradicts previous scientific evidence, is directly relevant to all biotech products subject to a pre- marketing approval, and requires a new risk assessment Dr. Pitschas, IDEAS Centre, 9 May

GMOs Some observations: – EC – Biotech case did not challenge the EC pre- marketing approval regime – and the temporary marketing ban it implies – as such but its procedural application through a (temporary) moratorium on final approval decisions – EC – Biotech case confirms the importance of a risk assessment as a basis of any SPS measure – Risk assessment may be based on a «precautionary» approach but the latter does not relieve a Member of its duty to make a final (positive, negative or possibly conditional) decision on applications for approval within a reasonable time frame Dr. Pitschas, IDEAS Centre, 9 May

Excise Taxes & GMOs Thank you for your attention! Dr. Pitschas, IDEAS Centre, 9 May