There are some good non-discrimination cases going on right now in WTO dispute settlement (including the Philippines - Spirits case mentioned here). For DSC subscribers, here is a run-down we did of the U.S. position on GATT Article III:4 less favorable treatment issues in the U.S. - Tuna Labeling (DS381) case. In the U.S. - Clove Cigarettes (DS406) case, only the U.S. first written submission is publicly available at this point, so the issues have not been developed as much as in Tuna, but there's a bit to talk about nonetheless.
Here's how Indonesia put its discrimination argumement, in general terms, in its panel request:
Indonesia believes that the measure discriminates against imported clove cigarettes based on the fact that the clove cigarettes that were sold in the United States were imported (primarily from Indonesia), while virtually all of the menthol cigarettes sold in the United States are produced domestically (imports are negligible).
In its first written submission, the U.S. rejects this de facto discrimination argument. Here are some key passages:
207. Similarly, the Appellate Body’s approach in Chile – Alcoholic Beverages is instructive on this point. In Chile – Alcoholic Beverages, a tax measure that was not facially discriminatory in fact imposed a higher rate to an imported product. However, the different treatment accorded by the tax was not enough in itself to constitute de facto discrimination, unless the different treatment was based on national origin. Following its approach in Japan – Alcoholic Beverages, the Appellate Body examined the design, architecture and structure of the measure at issue, seeking to determine whether the measure was applied “so as to afford protection to domestic production.” The Appellate Body concluded that the measure in question was “anomalous” and inconsistent with respect to the Chilean tax system, and therefore constituted an instance of de facto discrimination.
208. Unlike in Chile – Alcoholic Beverages, where the Appellate Body found an “absence of countervailing explanations from Chile,” there is in this case a legitimate countervailing explanation for the different treatment under Section 907(a)(1)(A) of tobacco and menthol cigarettes as compared to clove cigarettes.
209. In this case, the application of 907(a)(1)(A) is entirely consistent with the object and purpose of the FPSTCA and the approach of the United States to tobacco regulation, in general. An Indonesian product is adversely effected under Section 907(a)(1)(A) not as a result of origin based discrimination, but because U.S. health authorities legitimately determined that clove cigarettes fall into a category of cigarettes that should be banned from the U.S. market for the protection of the public health. Section 907(a)(1)(A) distinguishes among cigarettes as appropriate for the public health, and not based on the national origin of the products. Tobacco and menthol-flavored cigarettes are not covered under Section 907(a)(1)(A) because a ban on such products would involve countervailing public health concerns.
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212. Article III:4 protects Members from discrimination based on origin – but does not protect foreign products from all adverse effects of a measure which, in pursuit of a legitimate objective, has an adverse impact upon a foreign product. The protections contained in the GATT 1994 are not designed, and should not be applied, to require that Members only can ban a specific class of cigarettes for a legitimate policy reason unless they ban all domestic cigarettes. Such an outcome would seriously hamper national regulatory prerogatives to minimize the harms of tobacco products.
I read the U.S. position as follows: Discriminatory effect, even if it exists here, is not enough for an Article III:4 violation; you need to show protectionist intent, too.
Hopefully we will get more details of the argument as the dispute progresses.
