I'm sure many of you remember the U.S. - Auto Taxes GATT dispute. There were several U.S. measures at issue, one of which was a "gas guzzler" tax. Car manufacturers were required to pay taxes on their automobiles based on the fuel efficiency, with higher taxes for less fuel efficient vehicles. The EC claimed that because most automobiles subject to the tax were of EC origin, with very few of these of U.S. origin, "treatment under the measure was discriminatory." Examining this claim under Article III:2, first sentence, the Panel used the "aim and effect" test to conclude that there was no violation. (And no violation of Article III:2, second sentence either.) (See paras. 5.17-38)
Of course, in Japan - Alcohol, the Appellate Body abandoned the aim and effect test in the context of Article III:2, first sentence. (While using some version of the test under Article III:2, second sentence.) So how would Article III:2, first sentence be applied to this kind of measure today? It's possible that we could find out. The Economist reports that China has adopted its own version of the gas guzzler tax:
On August 13th the government announced a new “green” tax that will come into effect on September 1st. The new tax is meant to reduce fuel consumption and fight pollution. Rather than further raising the tax on fuel, which increased by almost 20% in June, the government is taxing gas-guzzling cars. By an amazing coincidence, most such cars are foreign-made.
Cars with engine capacities larger than 4.1 litres will now incur a 40% sales tax—twice the previous level. Cars with engines between 3 and 4.1 litres will be taxed at 25%, up from 15%. The tax on the smallest cars, with engines smaller than 1 litre, will fall from 3% to 1%. The 8% and 10% taxes on other cars will not change.
The government says the new tax will encourage a shift to more fuel-efficient cars. It will also help Chinese carmakers, as they tend to make cars with engines smaller than 2.5 litres. Foreign carmakers, which make most of the cars with larger engines, will suffer.
This would be a great case for helping to clarify the GATT's non-discrimination rules. In particular, it could help answer the question of what role, if any, does an environmental purpose behind a measure play in the Article III:2, first sentence context; and what is the precise role of a discriminatory effect against foreign products. (The same issues also arise under Article III:2, second sentence, although the answers are much clearer there). And if a violation were found, we would then get into interesting issues under Article XX(g) and the chapeau.
Somewhat surprisingly, the Economist concludes the piece by saying that this measure, in contrast to the current Chinese auto tax measures being disputed at the WTO, "prevents any more pesky calls from Geneva." I wonder if they are right about that. There are certainly legal claims that can be made, although the chances of success are not entirely clear. On the other hand, the most likely complainants, the EC and the U.S., may be reluctant to start a new trade/environment dispute right now.
