WTO Space for National Regulation: Requiem for a Diagonal Vector Test

This article examines the concept of de facto breaches of a national treatment obligation in the context of Articles III:2 (fiscal measures) and III:4 (regulatory measures) of the GATT 1994; and Article 2.1 of the TBT Agreement (technical regulations), particularly following the Appellate Body Reports in the Clove Cigarettes, Tuna, and COOL cases. The same problem of balancing a federal trade interest and local fiscal or regulatory autonomy arises in other tiered jurisdictions. It is not solved by mechanistically comparing the different treatment of one (imported) good and a different (domestic) good, that is, through a diagonal vector of comparison. Rather, it can only be solved by enquiring into what the true objective of the measure is, whether it is legitimate, whether the measure contributes to the objective, and whether there is another equally effective but less trade restrictive measure available. In short, whether the measure is necessary or reasonable. These questions are not part of the analysis of the product (which is competition based) or part of delimiting the like domestic product category (which simply has to be identical), but part of the analysis of less favourable treatment. This has several implications, summarized in the conclusion of this article. In particular, this article identifies the root cause of an earlier drift in WTO jurisprudence away from a balanced approach to regulatory autonomy and towards a diagonal vector of comparison as being a misinterpretation of the Ad Article to Article III:2. This Ad Article does not refer to the relationship between the imported and domestic product categories (which is the true 'like product' issue). Rather, it refers to the question of whether two different goods can be combined as one product on both the import and domestic sides of the comparison (correctly referred to as the 'product' issue) because they are directly competitive or substitutable. This problem only arises in de facto cases, because in de jure cases it is necessary to identify a distinction based exclusively on origin. In the most recent cases the tail (the TBT Agreement) has wagged the dog (the GATT 1994), heralding a further improvement in the previously unsettled balance between the trade interest and national fiscal and regulatory autonomy. The Author 2013. Published by Oxford University Press. All rights reserved., Oxford University Press.