Defining the limits and scope of the national treatment obligation in the GATT: A law and economics approach

The national treatment obligation embodied in Article III of the GATT prohibits the application of internal tax and other regulatory measures so as to afford protection to domestic products. Regional trading regimes, such as European Union, and countries with federal system of governance, such as the United States, also have legal norms aimed at preventing their constituent states from imposing similar taxes or regulations. Because of its potential reach to virtually all governmental policies, the precise limits and scope of the national treatment obligation, particularly in situations where tax or regulatory measures make distinctions between products on the basis of certain characteristics other than origin and accord different treatment to each of them with a more burdensome impact on imported products than on domestic products, has been a matter of intense debate among legal scholars.;This thesis attempts to contribute to the debate as to the clarity and predictability of the limits and scope of the national treatment obligation under the GATT. It does so firstly by proposing a tightly-structured economic approach, drawn largely on analytical frameworks used in anti-trust contexts particularly in defining relevant markets and determining anti-competitive exclusions, to interpreting the provisions of Article III of the GATT and the underlying concepts of product likeness and less favorable tax or regulatory treatment. The proposed approach suggests that an internal tax or regulation applied to domestic and imported products should be considered to have afforded protection to domestic production if the imported and domestic products in question have a substantial competitive relationship between them and if a tax or regulatory measure modifies the equality of competitive conditions for imported and domestic products to the competitive advantage of domestic products. Second, the thesis examines, from the perspectives of predictability and clarity, the basic premises of the analytical frameworks followed by the GATT/WTO dispute settlement bodies, the European Court of Justice and the Supreme Court of the United States to determining the legitimacy of a contested tax or regulation under the legal norms aimed at preventing the protective application of internal taxation or regulation. Third, it analyses the alternative tests suggested by various legal scholars and the normative and practical advantages and problems associated with them. Finally, it also evaluates the limitations and policy implications of the economic approach proposed in this thesis.