The Shochu Conundrum: Economics and GATT Article III

Authors

Alex Davis, George Washington UniversityFollow

Abstract

This paper will discuss the National Treatment (NT) obligation contained in Article III of the General Agreement on Tariffs and Trade (GATT) 1994 as applied in precedential tax discrimination cases. Case law has not taken a firm stance on the economic versus legal interpretation of the likeness/directly competitive or substitutable (DCS) criterion or the principle of “so as to afford protection” (SATAP) captured in Article III.2. After examining the case law on discriminatory taxation, I conclude that the NT obligation in trade agreements is imperfect. Nonetheless, NT is a critical component of these agreements, and the international trade order would collapse under the weight of protectionism were it not imposed. In order to ensure the efficacy of NT, the determination of likeness/DCS and protective application must consider market forces in addition to legal precedent. Economic indicators including elasticity of substitution and cross-price elasticity of the products in question are suitable measures of substitutability and are therefore the most accurate method of quantifying Article III violations.

Recommended Citation

Davis, Alex (2015) "The Shochu Conundrum: Economics and GATT Article III," Undergraduate Economic Review: Vol. 12: Iss. 1, Article 15.
Available at: https://digitalcommons.iwu.edu/uer/vol12/iss1/15