Leveraging Climate Change Benefits through the World Trade Organization: Are Fossil Fuel Subsidies Actionable?

By Wold, Chris; Wilson, Grant et al. | Georgetown Journal of International Law, Spring 2012 | Go to article overview

Leveraging Climate Change Benefits through the World Trade Organization: Are Fossil Fuel Subsidies Actionable?


Wold, Chris, Wilson, Grant, Foroshani, Sara, Georgetown Journal of International Law


2. "Like Products" under the SCM Agreement

Under the SCM Agreement, it is not clear just how tightly the accordion of likeness should be squeezed. The SCM Agreement explicitly defines "like products" to mean products that are "identical, i.e., alike in all respects." (148) That certainly suggests a very tightly squeezed accordion similar to Article III:2, particularly in light of the Appellate Body's frequent admonition to interpret terms according to their ordinary meaning. (149) The ordinary meaning of the term "identical" is a product that is exactly the same. Requiring products to be exactly the same would result in a "like product" test even narrower than under GATT Article III:2.

However, the SCM Agreement's definition continues: when the products are not alike in all respects, then products are "like" if they have "characteristics closely resembling" each other. Just how tightly the accordion should be squeezed in this situation is unclear. The ordinary meaning of the phrase "characteristics closely resembling" still indicates that the scope of products considered "like" under the SCM Agreement is quite narrow. For example, the phrase "characteristics closely resembling" indicates that products must more than merely resemble each other--they must closely resemble each other. (150) Further, the phrase "although not alike in all respects" precedes the use of the phrase "characteristics closely resembling," indicating that the product must be alike in at least most respects. The lone panel to address this issue under the SCM Agreement, in Indonesia--Autos, (151) recognized that the term "characteristics closely resembling" was "[0] n its face ... quite narrow." (152) Nonetheless, it undertook an analysis that appears to squeeze the accordion of likeness rather loosely.

In Indonesia--Autos, the Panel assessed whether certain cars produced in the European Union and the United States were "like" the Timor, a car produced in Indonesia and the production of which Indonesia subsidized. The Panel embraced the four-part test to determine likeness used under the GATT, (153) described in the preceding subsection, but nonetheless appeared to take a different approach. While ostensibly discussing the physical characteristics of the cars in question, the Panel considered factors such as brand loyalty, brand image/reputation, status and resale value as reflecting, at least in part, "an assessment by purchasers of the physical characteristics of the cars being purchased." (154) Most significantly, the Panel noted that the extent to which products are substitutable may also be determined in substantial part by their physical characteristics; price differences could also reflect physical differences in products. (155) In other words, instead of simply comparing whether the Timor and the foreign cars had the same or similar engine sizes or types, number of doors, and other readily identifiable physical characteristics, the Panel applied economic factors to the question of like product. This point is most striking since the SCM Agreement's definition of "like product" excludes any reference to "directly competitive products," a concept that is included in the Agreement on Safeguards and, in certain circumstances, the GATT. (156)

As a result, the Panel rejected the European Union's argument that all cars are "like products." Had the Panel simply relied on the physical characteristics of the cars, this finding would have been unsurprising: cars with different physical characteristics such as hybrid, electric, and conventional gasoline-powered engines are not "identical, i.e., alike in all respects." When other differences are considered, such as the size of the engines, the number of doors and the car's weight, a finding that cars with such varying characteristics do not "closely resembl[e]" each other is reasonably apparent.

However, relying on the economic factors, which the Panel said were aspects of a car's physical characteristics, the Panel found it "almost inconceivable that a subsidy for Timors could displace or impede imports of Rolls Royces, or that any meaningful analysis of price undercutting could be performed between these two models. …

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