RUTENIA’S IMPOSITION OF THE CARBON CHARGE ON FLAT GLASS FROM

BURLANDIA IS INCONSISTENT WITH ARTICLE III:2 OF THE GATT 1994.

The Contracting Parties recognize that internal taxes and other internal charges, and laws,
regulations and requirements affecting the internal sale, offering for sale, purchase,
transportation, distribution or use of products in specified amounts or proportions, should not
be applied to imported or domestic products so as to afford protection to domestic
production1.
A) National Treatment Test for Internal Taxation on Domestic Products vis à vis
Imported Products.
The first sentence of Article III:2 states that, the products of the territory of any [Member]
imported into the territory of any other [Member] shall not be subject, directly or indirectly,
to internal taxes or other internal charges of any kind in excess of those applied, directly or
indirectly, to like domestic products2. GATT Article III:2 mandates that taxes have to be
applied on a non-discriminatory basis to both domestic and like imported products originating
in other WTO members.

It is pertinent to note that Article III:1 provides that internal taxation must not be applied so
as to afford protection to domestic production and this has to move in tan dem with the
requirements in the first sentence of Article III:2.
Bossche and Zdouc develop a three-tier test of consistency of internal taxation with Article
III:23. This test requires the examination of;
a) Whether the measure at issue is an internal tax or other charge on products
b) Whether the imported and domestic products are like products and;
c) Whether the imported products are taxed in excess of the domestic products
In order to certify Burlandia’s claim on the carbon charge from Rutenia we need to
understand each of these requirements

a) Whether the measure at issue is an internal tax or other charge on products.

Article III applies only to ‘imported goods’, not to ‘goods’ or ‘goods destined for
importation’. A legal text defining the rights and obligations of sovereign states with regard
to trans-boundary commerce will not refer to an ‘imported good’ as a mere factual
description of a good having reached the domestic market of a member (or else contraband
cigarettes would be ‘imported’ for the purposes of Article III)4. Rather, ‘imported good’ must
mean ‘a good that has been cleared by customs, meaning in particular that pertinent custom
duties and other levies have been paid for.’ Vetro exports flat glass to Rutenia, where it is
purchased in large quantities by DIM in order to produce windows, doors, mirrors, and table
tops5. The exports of flat glass from Burlandia fit the description of what is referred to as an
imported good for the purposes of Article III.
1
Advanced Introduction to International Trade Law, Michael J. Trebilcock and Joel Trachtman
2
Article III:2, The General Agreement on Tariffs and Trade (GATT 1994)
3
The Law and Policy of the World Trade Organization, Bossche Peter Van den and Zdouc Werner
4
The World Trade Organisation; Law, Practice and Policy, Mitsuo Matsushita,Thomas J. Schoenbaum,Petros C.
Mavroidis,Michael Hahn
5
Paragraph 7 of the JHJMCC_Case_22nd Edition
Direct taxes (in particular income taxes) do not fall a priori outside the scope of GATT
Article III:26. This gives proper description that the first sentence of Article III:2 covers
primarily taxes levied on products generally referred to indirect taxes like sales taxes, excise
taxes and value added taxes and not direct taxes (particularily income taxes). Rutenia intends
to apply the carbon charge on products whether domestic or imported and our particular point
in case is the flat glass from Burlandia’s Vetro7.
The Appellate Body in China Auto Parts stated 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 product8 The carbon charge is an internal tax which is applied on the flat glass from
Burlandia and this definitely qualifies it to be an indirect tax. It is also evident that the carbon
charge is only levied on the flat glass when it enters Rutenia making it an imported product
from Burlandia9 whose description matches that of the covered products in Section 10 of the
NZF Act and finally making it subject to the carbon charge of USD 50 per tonne of CO2
emitted during its production

b) Whether the imported and domestic products are like products.

It is only between ‘like’ imported and domestic products that the national treatment
obligation applies and discrimination within the meaning of Article III:2, first sentence, may
occur. The concept of like products in Article III:2 is neither defined in the GATT nor is there
a textbook definition giving a precise and absolute definition of what is’like’ but a number of
WTO dispute settlements reports have overtime gone ahead to give a clear definition to what
exactly like products are and here the leading case would be the second Japanese Alcoholic
Beverages case of 1996. In Japan, the internal tax imposed on domestic shochu was the same
as that imposed on imported shochu; the higher tax imposed on imported vodka was also
imposed on domestic vodka. Identical products (not considering brand differences) were thus
taxed identically. However, the question in that case was whether shochu and vodka should
be considered to be ‘like products’. If shochu and vodka were ‘like products’, vodka could
not be taxed in excess of shochu10. The Appellate Body analogized the accordion stating that
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.11 The very purpose of defining likeness is to find the aspects and
circumstances that establish the existence, degree and extent of the competitive relationship
between the imported good at issue and the like domestic good. The identification of whether
the imported and domestic products are the like makes it easier to identify whether they fit in
6
Ibid 3
7
Section 10 of the Net Zero Future Act, Article 1 lists the covered products where glass is a listed commodity.
8
Appellate Body Reports, China – Measures Affecting Imports of Automobile Parts DSR 2009
9
Ibid 5 states that Vetro exports at glass to Rutenia, where it is purchased in large quantities by DIM in order
to produce windows, doors, mirrors, and table tops. Vetro's at glass is on average 20% cheaper than at glass
produced by Guta.
10
Ibid 3 pg 769
11
Appellate Body Reports, Japan – Taxes on Alcoholic Beverages, DSR 1996
the broader category of directly competitive or substitutable product which poses an
important question. Can the flat glass from Rutenia be considered a like product to that
exported by Burlandia? In 1970, the Working Party on Border Tax Adjustments had
identified criteria for determining whether a product is similar12;
 The product’s properties, nature and quality are somewhat the same in every market.
The first criterion of likeness that comes to mind is physical characteristics
that’s to say that the more two products have the same physical
characteristics, the more “like” they can be said to be. A high degree of
physical likeness can be a reliable proxy for many other criteria that do
have policy content, criteria such as commercial interchangeability. The
greater the physical identity of two products the more likely they are
interchangeable13. Despite the ‘narrower’ interpretation of GATT Article
III:2, sentence 1, its catchment area is not reduced to identical products.
The Appellate Body stated that likeness under the first sentence of Article
III:2 is not limited to identical products 14
With this description, it is clear that flat glass manufactured by Burlandia
and Rutenia all bare the same properties, nature and also quality.

 The product’s end uses in a given market.

Under this requirement it is important to understand whether the goods in question have the
same end uses in the market. These end uses make it possible to qualify the domestic and
imported products as like products, say for example a luxury SUV and a motorbike or a
workstation and a game console. Both scenarios cannot qualify because their end uses have a
huge divergence. An SUV has the capacity to carry luggage and a large number of people on
the other hand a motorbike is very restricted. A game console’s end use is restricted to
entertainment while a workstation like a personal computer has a limitless capacity to
perform numerous tasks. The flat glass which is the product in question has the same end use
in Rutenia and Burlandia. DIM manufactures windows, table tops, mirrors, and doors with
flat glass as an input15, the same product exported by Burlandia’s Vetro. This is enough to
confirm that indeed the flat glass from Rutenia and Burlandia are like products because they
have the same end-use.

 Consumer tastes and habits in a given market (which may be very different tastes and
habits in another market).
This factor comes into play when it affects the direct competition and substitutability of
domestic and imported commodities for each other. Based on the facts that asbestos is
carcinogenic and harmful to the human body, France issued a ban on imports and distribution
of asbestos and products containing asbestos in order to protect its consumers and workers.
Canada filed a complaint in 1998 claiming the measure was in violation of GATT III and the

12
Report by The Working Party on Border Tax Adjustments, 20th November 1970
13
Regulatory Barriers and The Principle of Non-discrimination in World Trade Law (University of Michigan Press
2000) at page 103 by Robert Hudec
14
Appellate Body Reports, Philippines- Taxes on Distilled Spirits DSR 2012
15
Paragraph 4 of the JHJMCC_Case_22nd Edition
panel determined that asbestos and similar products were like products but the appellate body
found that if consumers were choose between carcinogenic asbestos and similar products that
are not carcinogenic, they would likely chose the latter and therefore asbestos and products
like cellulose and glass fibres could not be deemed like products16. On the otherhand the same
cannot be said for Rutenia and Burlandia. The consumer tastes and habits do not vary from
the international market to the domestic market. They compete directly with each because
they are perfect substitutes for each other. The flat glass from Burlandia is the same as that
domestically manufactured by Guta in Rutenia17. From the foregone discussion, it is also
important to note that the definition of like products varies considerably in relation to the
other Articles of the GATT 1994 but the examination of ‘like’ products with internal taxes
under Article III:2 must be construed more narrowly and strictly18. This means that the
requirement of likeness must interpreted keenly to have a certain definition of whether the
products in question are indeed like and that is under Article III:2 of the GATT 1994. In this
case, there is no doubt that the flat glass from Burlandia bears the same qualities in end use
and also consumer taste as that domestically manufactured in Rutenia.

c) Whether the imported products are taxed in excess of the 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, sentence 119. Therefore, even the slightest amount
of excess is too much and this was United States main argument in 1987. The tax amounted
to approximately US$0.0007 per litre for imported goods and US$0.0005 per litre for
domestic goods. The difference of US$0.0002 per litre was insignificant when compared to
day to day changes in contract prices of petroleum20.
Article 4 of Section 10 of the NZF Act provides for carbon charge deduction. It states that to
avoid double charging for carbon emissions embedded in the imports, the carbon charge
expressed under Article 3:1(iii) shall be deducted from the applicable carbon charge (that is
USD 50). This action infers that imports from Burlandia will have to subjected to the default
values from the 5% worst performing installations of Rutenia. The average emission of the
16
Appellate Body Report, European Communities-Measures Affecting Asbestos and Asbestos Containing
Products DSR 2001
17
Part 1, Clarification question 6 and 7 of the Answers_to_Clariifcation_Questions 22nd Edition. See also
Paragraph 4 and 7 of the JHJMCC_Case_22nd Edition
18
See Paragraph 88 of the Appellate body report, European Communities- Measures affecting Asbestos and
Asbestos Containing Products DSR 2001, The term "like product" appears in many different provisions of the
covered agreements, for example, in Articles I:1, II:2, III:2, III:4, VI:1, IX:1, XI:2(c), XIII:1, XVI:4 and XIX:1 of the
GATT 1994.
19
Ibid 4
20
GATT Panel Report, United States- Taxes on Petroleum and Certain Imported Substances 1987. See also
paragraph 3.1.4, Canada, the EEC and Mexico noted that the United States had not presented any arguments
to counter their contention that the tax on petroleum was contrary to Article III:2 but had merely attempted to
demonstrate that the commercial effect of the tax differential was insignificant. This argument was not a valid
legal defense. It had already been recognized in 1949 by the majority of the members of the Working Party on
Brazilian Internal Taxes "that, whether or not damage was shown, taxes on imported products in excess of
those on like domestic products were prohibited by Article III, and that the provisions of Article III were
intended to prevent damage and not merely to provide a means of rectifying such damage" and that "the
provisions of the first sentence of Article III, paragraph 2, were equally applicable whether imports from other
contracting parties were substantial, small or non-existent"
5% worst performing installations was 0.68 tonnes of CO2 emissions per tonne of flat glass
in 202221 yet Vetro’s emissions were 0.65 tonnes of CO2 emissions per tonne of flat glass in
202222. The difference in a such situation is negligible but will still be regarded as an
inconsistency with Article III:2 of the GATT 1994. Burlandia has also implemented an excise
tax on the fossil fuels used in the production of these products and this tax has been equated
to an emission weighted average of USD 15 per tonne of CO2 emissions23 but Rutenia has
deliberately ignored this equivalence and imports from Burlandia are subject to the carbon
charge of USD 50 per tonne of CO2. This goes against all the tenements and principles that
The National Treatment on Internal Taxation24 stands for. This differential treatment creates
protectionism for the domestic products manufactured in Rutenia.
Article 3:125 recognizes that member parties should preserve and protect the environment for
future generations but must take into consideration their common but differentiated
responsibilities and respective capabilities and developed member countries must take the
lead. Rutenia is a high-income country making it the most developed country in the
intermarium region but in an attempt to fulfill its commitment to the Paris Agreement is
crippling the export industry in Burlandia. The NZF Act enacted by Rutenia can be a
reasonable solution to the GHG emissions but it is crippling the exports from Vetro.
Rutenia’s refusal to make a carbon charge deduction on the exports from Burlandia makes its
products expensive compared to the products from other countries and even those on the
domestic market. Daniel C Esty26 elaborates that though some developing countries have
expressed concerns about whether such tariffs will be implemented in a discriminatory
manner that violates the CBDRRC and the dispute between these two states is a perfect
example what Daniel envisaged.

B) National Treatment Test for Internal Taxation on Directly Competitive or

Substitutable Products.
The second sentence of Article III:2 of the GATT is read in tandem with the Ad Note of the
Article III that explains that the tax conforming to the requirements of the first sentence of
paragraph 2 would be considered to be inconsistent with the provisions of the second
sentence only in cases where competition was involved between, on the one hand, the taxed
product and, on the other hand, a directly competitive or substitutable product which was not
similarly taxed27. This simply means that the second sentence addresses the scenario that a
domestic product is treated more favourably than an imported product; however, the imported
product is not sufficiently similar to meet the narrow definition of ‘like product’ pursuant to
Article II:2 sentence 1. However, Article III:2, sentence 2 does not negate that if the Panel
does not find a violation of Article III:2, sentence 1, it must still consider whether an
infringement of Article III:2, sentence 2 has occurred. The questions of likeness presented in

21
Part 1, Clarification question 15 of the Answers to Clarification Question 22nd Edition
22
Ibid 5
23
Paragraph 6 of the JHJMCC_Case_22nd Edition
24
Ibid 2
25
United Nations Framework on the Convention for Climate Change
26
World Trade Report 2022, An Opinion Piece by Daniel C Esty, Director of the Yale Centre of Environmental
Law and Policy
27
Ibid 4
the case between Rutenia and Burlandia show that the flat glass is evidently identical and
compete with each other both in the domestic market and the international market. However,
price may also be a criterion to determine likeness if prices of given products are vastly
different, this may be indicative of a non-competitive relationship28

Conclusively, has Burlandia suffered any impairment pursuant to Article XXIII of the GATT
and whether it is justified in bringing an action under Article III:2 of the GATT. From Annex
IV29, the exports from Burlandia in 2022 have declined significantly by 40,000 tonnes and are
projected to continue declining by a whole 70,000 tonnes in 2023 compared to those from
Korsania, Artania and Rutenia. This means that the NZF Act has adversely affected
Burlandia’s exports. Rutenia may argue that the essence of this act is to fulfill its commitment
in the NDC under the Paris Agreement but this has led to a contravention of the National
Treatment on Internal Taxation and Regulation under Article III of the GATT 1994. Michael
J Treilbock and Joel Trachtman30 state that …….such measures can be justified as falling
within the scope of one or both of these exceptions, but ensuring that such measures satisfy
all the conditions in the chapeau may be more challenging, particularly if some foreign
exporting countries are exempted from the measures, while attempts are made to
differentiate the burdens imposed on remaining exporting countries reflecting relative
abatement efforts undertaken in these countries. These differentiated burdens presumably
will require justification so as to avoid characterization as arbitrary or unjustifiable forms of
discrimination or disguised restrictions on trade. Korsania and Artania’s exemption from the
adverseness of the NZF Act led to an increase in their exports in 2022 and is still projected to
continue increasing even in 2023 by 30,000 tonnes and 15,000tonnes respectively.

28
Part 1, Clarification question 9
29
Page 15 of the JHJMCC Case 22nd Edition
30
Advanced Introduction to International Trade Law (Michael J. Trebilcock and Joel Trachtman) (z-lib.org).pdf