From an initial reading (and for the sake of discussion), the latest Panel Report (DS360 -- India - Additional and Extra-Additional Duties on Imports from the United States) released last week appears to enrich WTO jurisprudence on the fundamentals of tariff bindings under Article II GATT, if only because of its colorful references to football, faucets, hens and sheep (see para. 7.181), but mainly with its analysis of the relation between Article II GATT and Article III:2 GATT (National Treatment). In this respect, however, I was surprised to find no reference to note ad Article III, because this note largely complements the Panel's analysis of the "equivalence" referred to between internal charges and charges imposed on the importation of a product. Although ad note III refers to internal charges collected at the time or point of importation, and Article II(a) refers to "a charge equivalent to an internal tax", I think it is reasonable to say that both provisions serve the same purpose of equalizing charges imposed at the border with internal charges on the functional basis advocated by the Panel, ie. whereby "It follows that, in effect, an "equivalence" determination under Article II:2(a) aims at establishing whether despite constituting separate charges, the border charge on the importation of a product and the internal tax on the like domestic product, when viewed together, can be considered to form a distinct whole within the relevant Member's customs duty and tax system." Possibly, this is not an oversight, nor related to the United States abandonment of Article III claims (paras. 7.402 et seq.) but rather stems from the Panel's tendency to understand "equivalence" in loose terms, in the sense that the internal tax and additional duty on imports need not be identical, whereas the text of ad note III is less forgiving.
Of particular interest, however, is the Panel's analysis of the relationship between Article II:1 and Article II:2. Article II:1, roughly stated, binds Members to their scheduled "Ordinary Customs Duties" (OCD) and "Other Charges and Duties" (OCD). Article II:2(a) allows charges "equivalent to an internal tax" consistent with Article III:2; AD duties and CVD; and fees for services rendered. The United States argued that the Indian taxes under scrutiny were ODC or OCD, the Indian counter-argument was that they were charges equivalent to internal taxes. Vive la difference? After all, even if they were found to be OCD or ODC, they might be exempted or discounted from scheduling requirements as charges equivalent to internal taxes - an obligation-exception construction. Yet the panel takes pains to construct Articles II:1 and II:2 as separate categories of charges that do not act as rule and exception (para. 7.148):
Our view that Article II:2 charges are not subject to the obligations set out in Article II:1(b) has significant implications. In particular, it means that Article II:2 does not set out exceptions to the positive obligations contained in Article II:1(b). Accordingly, the sub-paragraphs of Article II:2 cannot be invoked to justify a breach of the obligations contained in Article II:1(b). In saying this, we are mindful of the fact that the chapeau of Article II:2 opens with the phrase "[n]othing in this Article [Article II] shall prevent ...". That phrase is similar to the phrase "nothing in this Agreement shall be construed to prevent ..." in the chapeau of Article XX of the GATT 1994 which is entitled "General Exceptions" and which jurisprudence confirms sets out exceptions to positive obligations. However, we do not consider that a phrase like "nothing in this Article shall prevent ..." always and necessarily introduces an exception of the kind described above. We think that instead, as in the case of Article II:2, such a phrase may also serve to provide confirmation, clarification or reassurance and carries no necessary implication that a measure caught by a clause introduced by such a phrase would otherwise (i.e., but for that phrase and the clause it introduces) be prevented by a positive obligation set out elsewhere in the relevant article or agreement.
Why does the panel think this distinction is important? Evidently the importance is the allocation of the burden of proof. If Article II:2 were considered to be an exception to Article II, the burden of proving consistency of the Indian measures with Article II:2(a) would rest with India. This would mean that India would have to prove prima facie compliance of its taxes with Article III:2. But normally, it would be for the complainant to prove inconsistency of a measure with Article III:2. Alternatively, the path chosen by the panel, if Article II:2 charges are a separate category of charges, the burden of proving non-compliance remains with the US as complainant. That this was among the panels considerations is evident in the Panel's subsequent "case-specific analysis" (para. 7.159):
"In the case before us, the debate between the Parties has revolved almost exclusively around the issue of whether the measures at issue fall within the scope of Article II:2(a) (dealing with charges equivalent to internal taxes). In this situation, if the United States as the complaining party cannot establish that a charge which meets the elements of its definition of "ordinary customs duties" falls outside the scope of Article II:2(a), it cannot successfully establish that the charge is in the nature of an ordinary customs duty (or an "other duty or charge" imposed on the importation of a good).[1] Conversely, if the United States can establish that such a charge falls outside the scope of Article II:2(a), II:2(b) and II:2(c), bearing in mind the Appellate Body report on Chile – Price Band System, the issue could arise whether Article II:2 exhaustively defines the universe of charges that do not inherently discriminate against, or disadvantage, imports or whether it identifies only examples of such charges.[2] In the latter case, a showing that a charge falls outside the scope of Article II:2 might not be sufficient, per se, to bring that charge within the scope of Article II:1."
So, we see in this case another example of substantive legal relationships being constructed with procedural and evidentiary considerations in mind, something of a WTO tradition. While at this stage I have no particular qualms with the Panel's method of construction – indeed it seems to be teleogically and contextually sound while remaining faithful to the text – I am critical of the tail-wagging-the-dog syndrome reflected by this.
But, ultimately, in contrast to previous cases where burden of proof considerations merged with substantive law issues, in this case it seems that the burden of proof was indeed crucial in determining which party would prevail. The case involved insufficient information on internal excise duties imposed not by the Indian federal government but by Indian states. Without full information available, the Panel made its determinations on an explicit burden of proof basis, against the US as complainant ("there is no evidence on the record to demonstrate…we can only conclude that the US had failed to meet its burden…") – see Paras. 7.294-5 and 7.389-90.
There are other, perhaps more important, substantive and procedural findings in this Report, but the burden of proof aspect is worth noting.
T.
