KOREAN SOJU DISPUTE

FINAL DRAFT

KOREAN SOJU DISPUTE

Final research proportion submitted in the partial fulfilment of the course

INTERNATIONAL TRADE LAW semester 6th during the academic year 2018-19

Submitted to-

Dr. P.P Rao

Submitted by-

Anuj kumar

Roll no- 1611

3rd year, BBALLB

MARCH 2019

CHANAKYA NATIONAL LAW UNIVERSITY

NYAYA NAGAR, MITHAPUR, PATNA 800001

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DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the B.B.A. LL.B (Hons.) Project Report entitle
“KOREAN SOJU DISPUTE” submitted at Chanakya National Law University, Patna is an
authentic record of my work carried out under the supervision of Dr. P. P. Rao sir. I have not
submitted this work elsewhere for any other degree or diploma. I am fully responsible for the
contents of my Project Report.

Name- Anuj Kumar

Roll no- 1611

(Chanakya National Law University)

Signature-

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ACKNOWLEDGEMENT

I am overwhelmed in all humbleness and gratefulness to acknowledge from the bottom of my

heart to all those who have helped me to put these ideas, well above the level of simplicity and
into something concrete effectively and moreover on time.

I would like to take this opportunity to thank my faculty Dr. P. P Rao sir, for his invaluable
support, guidance and advice. His assignment of such a relevant topic made me work towards
knowing the subject with a great interest and enthusiasm.

I owe the present accomplishment of my project to my friends, who helped me immensely with
sources of research materials throughout the project and without whom I couldn’t have
completed it in the present way. I would also like to thank the library staff for working long
hours to facilitate us with required materials going a long way in quenching our thirst for
education. I would also like to extend my gratitude to my parents and all those unseen hands
who helped me out at every stage of my project.

ANUJ KUMAR

SEMESTER- 6th

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RESEARCH METHODOLOGY

Aims and objective

The researcher will do the research to-

 Case study of Korean soju dispute

 To know about the basic principle of National Treatment in context of GATT and WTO.
 To outline the various issues raised in Korean Soju Case.
 To analyse the observations laid out in the case and its effect on international trading
regime

Hypothesis:

The hypothesis of the researcher is that the National Treatment principle, along with the Most
Favoured-Nation (MFN) principle, constitute the two pillars of the non-discrimination
principle that is widely seen as the foundation of the GATT/WTO multilateral trading regime.

Research methodology

The researcher will emphasize and use the doctrinal method for this project topic. The
researcher will be collecting valuable data from library which includes the written works and
from the field. All these data will help the researcher to solve his research problem. All the
books, journals, articles published in newspapers, bodies, reports. The researcher will make
use of doctrinal. The doctrinal process includes the use of literary source.

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NATIONAL TREATMENT – A BASIC PRINCIPLE OF WTO

Non-discrimination is a key concept in WTO law and policy. The National Treatment principle,
along with the Most-Favoured-Nation (MFN) principle, constitute the two pillars of the
nondiscrimination principle that is widely seen as the foundation of the GATT/WTO
multilateral trading regime. The principle of National Treatment as embodied in Article III of
General Agreement on Tariffs and Trade (GATT) prohibits discrimination between domestic
and foreign goods in the application of internal taxation and government regulations after the
foreign goods satisfy customs measures at the border.

Under the national treatment rule, contracting parties must not accord discriminatory treatment
between imports and like domestic products -- with the exception of the imposition of tariffs,
which is a border measure. This is to prevent countries from taking discriminatory treatment to
imports on the one hand, and to prevent countries from offsetting the effects of tariffs through
non-tariff measures. An example of the latter could be where a contracting party A reduces the
import tariff on Product X from 10% to 5%, only to impose a 5% domestic consumption tax
only on imported Product X, effectively offsetting the five percentage point tariff cut. The
purpose of the national treatment rule is to eliminate “hidden” domestic barriers to trade in
WTO members by banning this kind of discriminatory treatment between domestic and
imported goods. The adherence to this principle is important to maintain the balance of rights
and obligations, and is essential for the maintenance of the multilateral trading system.

National treatment has a long history dating back to ancient Hebrew law. It was introduced in
various commercial agreements concluded in Europe in the Middle Ages, in a number of
shipping treaties between European countries in the 17th and 18th centuries, and became quite
a common part of many trade agreements since the late 19th century.1 This principle has been
“multilateralized” through inclusion in the Havana Charter for an International Trade
Organization and, subsequently, in the General Agreement on Tariffs and Trade (GATT). In
the World Trade Organization (WTO), it also appears in the GATS and TRIPS Agreement.

1
Michael Trebil cock, “The National Treatment Principle in International Trade Law”, American Law &
Economics Association Annual Meetings, Working Paper 8 (2004), p. 1.

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LEGAL FRAMEWORK- An overview

(i) GATT Article III

GATT Article III requires that contracting parties provide national treatment to all other
contracting parties. First, Article III:1 stipulates the general principle that contracting parties
must not apply internal taxes and other internal charges, and laws, regulations and requirements
affecting imported or domestic products so as to afford protection to domestic production. In
addition, Article III:2 stipulates that contracting parties must not use internal taxes or other
internal charges to discriminate between imported goods and “like” domestic goods, or
between imported goods and “a directly competitive or substitutable product”, which is a
broader concept than “like product”. Further, Article III:4 stipulates that contracting parties
must not discriminate between imported goods and “like” domestic goods regarding laws,
regulations, and requirements.

In determining the likeness of “like products,” panel conclusions in the past have relied on a
number of criteria including tariff classifications, the product's end uses in a given market,
consumer tastes and habits, and the product's properties, nature, and quality. There is no
problem with according different treatment to different products (say apples and oranges), but
when likeness has been affirmed, the national treatment rule obligates countries not to
discriminate in their treatment. Should a country's domestic tax code clearly state that domestic
products and foreign products were to be treated differently with regard to origin, it would
obviously be in violation of GATT Article III. But an Article III violation may also be found
even if discrimination is not clearly stated in the law, if as a result differential treatment is
accorded to products that are considered to be like, and products of other contracting parties
are placed at a disadvantage. For example, suppose a country applies a differential internal tax
rate to wines which use a certain variety of grape. If that wine is considered to be a "like
product" with other wines, and that variety of grape in fact grows mainly in domestic regions,
the internal tax may have a discriminatory effect on imports, and thus may be considered in
violation of the national treatment principle (U.S. panel on alcoholic beverages).

(ii) Exceptions to GATT Article III (National Treatment Rule)

Although national treatment is a basic principle under GATT, the GATT provides for certain
exceptions as follows:

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A. Government Procurement

GATT Article III: 8(a) permits governments to purchase domestic products preferentially,
making government procurement one of the exceptions to the national treatment rule. This
exception is permitted because the contracting parties recognized the role of government
procurement in national policy. For example, there may be a security need to develop and
purchase products domestically, or government procurement may, as is often the case, be used
as a policy tool to promote smaller business, local industry, or advanced technologies. While
the GATT made government procurement an exception to the national treatment rule, the
Plurilateral Agreement on Government Procurement resulting from the Tokyo Round mandates
signatories to offer national treatment in their government procurement. However, the
contracting parties to the WTO are under no obligation to join the Agreement on Government
Procurement. In fact, it has mostly been developed countries which have joined the Agreement.
Therefore, in the context of government procurement, the national treatment rule applies only
between those who have signed the Agreement. For others, the traditional exception is still in
force.2

B. Domestic Subsidies

GATT Article III: 8(b) allows for the payment of subsidies exclusively to domestic producers
as an exception to the national treatment rule, under the condition that it is not in violation of
other provisions in Article III and the Agreement on Subsidies and Countervailing Measures.
The reason for this exception is that subsidies were recognized to be an effective policy tool,
and is recognized to be basically within the latitude of industrial policy authorities. However,
because subsidies may have a negative effect on trade, the Agreement on Subsidies and
Countervailing Measures imposes strict disciplines on the use of subsidies.

C. GATT Article XVIII

Less-developed countries can raise their standard of living by promoting the establishment of
infant industries, but this may require government support and the goal may not be realistically
attainable with measures that conform to the GATT. In such cases, countries can use the
provisions of GATT Article XVIII:C to notify WTO members and initiate consultations. After
consultations are completed and under certain restrictions, these countries are then allowed to

2
http://www.meti.go.jp/english/report/data/g400012e.html

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take measures that violate GATT provisions excluding Articles I, II, and XIII. Unlike the trade
restrictions for balance of payments reasons in GATT Article XVIII:B, the Article XVIII:C
provisions allow both border measures and violations of the obligation to national treatment in
order to promote domestic infant industries. At this time, there are no developing countries that
are currently invoking these provisions.

D. Other Exceptions to National Treatment

Exceptions peculiar to national treatment include the exception on cinematograph films under
Article III:10 and Article IV. The provisions of GATT Article XX on general exceptions,
Article XXI on security exceptions, and Article XXV on waivers also apply to the national
treatment rule. (Most-Favored-Nation Treatment).3

(iii) National Treatment Rules Outside of GATT Article III4

The idea of national treatment has been extended by the WTO Agreement, although in a limited
fashion, to areas of trade in services and intellectual property. Article XVII of the General
Agreement on Trade in Services provides for national treatment for services and service
providers; Article III of the Agreement on TRIPs, for the protection of intellectual property
rights. The plurilateral Agreement on Government Procurement also contains a national
treatment clause.

(iv) Economic Implications

There is a tendency for importing countries to attempt to use discriminatory application of

domestic taxes and regulations to protect national production, often as the result of protectionist
pressures from domestic producers. This distorts the conditions of competition between
domestic and imported goods and leads to a reduction in economic welfare. The national
treatment rule does not in principle permit these sorts of policies designed to protect domestic
products. GATT Article II does permit the use of tariffs as a means of protecting domestic
industry, but this is because tariffs have high degrees of transparency and predictability since
they are published and committed to in concession schedules.4 On the other hand, domestic

3
The_National_Treatment_Principle_in_Inte.pdf
4
http://cale.law.nagoya-u.ac.jp/_userdata/CALE%20Book%203

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taxes and regulations are “hidden barriers to trade” that lack both transparency and
predictability, which means that they have a large trade-distortionary impact.

The existence of GATT Article III generally impedes the adoption of policies and measures
aimed at domestic protection, and promotes trade liberalization. In addition, as regards tariff
concessions, GATT Article II recognizes tariffs as tools for domestic industrial protection, and
having done so, sets a course for the achievement of liberalization through gradual reductions.
Even if tariff reductions are made as a result of trade negotiations, if domestic taxes and
regulations are applied in a discriminatory fashion to protect domestic industry simultaneously,
then effective internal trade barriers would remain. The national treatment rule prohibits
countries from using domestic taxes and regulations to offset the value of tariff concessions
and is, therefore, a significant tool in promoting trade liberalization.

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