Internal Fiscal and Regulatory Distinctions Based on Process and Production Methods and GATT Article III: Different ways to argue in favour of their compatibility

1 I. INTRODUCTION Members of the WTO are free to pursue their own domestic goals through internal taxation or regulation so long as they do not do so in a way that violates Article III or any of the other commitments they have made in the WTO Agreement. 1 This paper addresses a particular aspect of WTO constraints on fiscal and regulatory autonomy of WTO Members, notably the possibility of drawing regulatory distinctions on the basis of process and production methods (PPMs). While it is commonly held that such a distinction is not permitted under WTO law (IV), it is submitted that an origin-neutral process-based distinction is not necessarily inconsistent with Article III, as interpreted by GATT and WTO Panels and by the Appellate Body. In order to substantiate this thesis, PPMs are classified in different categories (III), and disputes arising from PPMs are analysed in the light of this classification (V). While some authors base their arguments in favour of the compatibility between Article III and PPMs on the concept of “like products” (VII), the approach chosen here is founded on a reading of the national treatment obligation as requiring a proportionate impact of regulatory distinctions on imported and domestic products (VIII). If a regulatory measure is origin-neutral and has a proportionate impact on imported and domestic products, the measure does not breach Article III, irrespective of its underlying criterion expressed in terms of product or process characteristics (IX). 1 Appellate Body Report on Japan – Taxes on Alcoholic Beverages (hereinafter Japan – Alcoholic Beverages II), WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted 1 November 1996, p.16.