Non Discrimination Principle

National Treatment Principle

The national treatment principle requires that once goods have been imported, and the relevant duty has been paid under the importing state\’s tariff schedules, no additional burdens may be imposed by way of further tax or equivalent measure. The goods must be treated in the same way as like national products.

The national treatment principle prohibits discrimination in taxation, regulatory or other internal policies which favour domestic producers relative to foreign producers. There must be uniform treatment. The principle requires that once the relevant duties have been paid by the exporter under the tariff schedule, no additional duties charges or costs may be applied to the product, relative to that for like domestic products.

Article III GATT provides that the contracting parties recognise that internal taxes other internal charges and law, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation and distribution or use of products in specified amounts or proportion should not be applied to import or domestic products so as to afford protection to domestic production.

The GATT Agreement prohibits quotas and restriction on export and import. It requires that barriers to trade be expressed and embodied clearly in the tariff levels rather than by way of quota restrictions. There are some important exceptions to this general principle. Quotas may be imposed to counteract balance of payment problems. Developing countries may apply quotas to protect industries in their early phases. There are significant exceptions relating to agriculture

The products of the territory of any (state) contracting party imported into the territory of another contracting party shall not be subject directly or indirectly to internal taxes or other internal charges of any kind, in excess of those applied directly or indirectly to like domestic products. Moreover, no contracting party shall otherwise apply an internal tax or other charges to imports in a manner contrary to the above principle

Products of the territory of any contracting party imported into the territory of another contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. These provisions shall not prevent the application of differential internal transportation charges, which were based exclusively on the economic operation of the means of transport and not on the nationality of the product.

A tax conforming to the requirements of the first requirement would be considered inconsistent with the provisions of the second requirement only in cases where competition is involved between on the one hand the taxed product and on the other hand a directly competitive or substitutable product, which was not similarly taxed.

Interpretation

There have been different approaches to the interpretation of Article III. They range from a literal interpretation and approach to a purposive approach.

Like products are considered in accordance with the same criteria as above. Their actual or potential substitutability is considered. A GATT working party has emphasized the following factors:

• consumers’ tastes and habits,
• the product’s properties, nature and quality,
• customs classification,
• the product’s end uses.

The standard effectively prescribes equality of competitive access for domestic products and imports.

Measures which have an objective legitimate basis, such as the protection of health, intellectual property, etc are unlikely to be discriminatory.

Under WTO, the assessment of likeness might require an examination of the design, architecture and nature of the measures in question. In particular, consideration is given to whether they were designed to protect domestic providers or with some other objective legitimate purpose in mind.

The fact that greater administrative difficulties apply in the application of uniform domestic requirements to imports relative to national producers’ products, does not of itself imply less favourable treatment. Where a condition is by its terms more burdensome, it is not necessary to show that it has an actual effect on competition. It must be assessed in relation to the fundamental nature and effect of the measure and its intended operation.

Difficulties may occur in relation to things based on differences in production and processing methods. For example, it is not clear to what extent differentiation can be justified on the basis of environment-friendly, human rights compliant production etc.

There are exceptions to the general principles for measures which are necessary for the protection of human and animal life and health, public morals compliance with rules and regulations which are consistent with the general GAPP principles, the protection of national treasures and the conservation of finite natural resources. They must not constitute arbitrary or unjustifiable discrimination.

Procurement

In principle, the national treatment principle applies to procurement by governments.Each state undertakes to ensure that its own domestic state-controlled monopolies and enterprises act in non-discriminatory fashion in relation to imports and exports. The requirement does not apply to imports for immediate or ultimate consumption in governmental use and not otherwise resold.

Under revisions later made, GATT members undertake that their state trading enterprises (effectively state-owned businesses, statutory monopolies etc) in making purchases or sales involving either import or export, must act in a non-discriminatory manner and on a commercial basis. This requirement does not apply to products imported for immediate consumption or ultimate use by government and not for resale.

There are significant exceptions and qualifications. The principle applies to public sector bodies. There are financial thresholds. There are some exceptions for state owned businesses and lower layers of government (such as local government).

The Code on Government Procurement and the Government Procurement Agreement applies the national treatment principle to government procurement policies. There are many significant exceptions and qualifications. The Government Procurement Agreement applies to a limited number of signatories only.

Exception for Customs Union /  Free Trade Area

Preferential agreements are permissible under GATT rules provided that trade restrictions are eliminated on most trade between the participants and that customs duties are not higher than the average that formerly applied between the participants prior to the regional trade agreement.

There may be a free trade agreement or a customs union.  A free trade agreement necessitates the maintenance of border controls and restrictions in order to monitor rule of origin.   Otherwise in the absence of a common external policy, distortions could occur by the import of goods through low tariff members passing to high tariff members thereby circumventing the latter’s tariffs.

The customs union/free trade area exceptions to the MNF principle requires that they must substantially eliminate all restrictions on all trade amongst themselves and do not raise average duties on third parties, relative to those which had prevailed before the agreement was entered. In the absence of this latter principle, state parties who negotiate concessions may liberalize trade between themselves while disadvantaging a third party in respect of access to either market.