¹ In Recital 154 of the AB decision, the anonymous Separate Opinion opines: “My second point is that the necessity or appropriateness of adopting a ‘fundamentally’ economic interpretation of the ‘likeness’ of products under Article III.4 GATT 1994 does not appear to me to be free from substantial doubt. Moreover, in future concrete contexts, the line between a ‘fundamentally’ and ‘exclusively’ economic view of ‘like products’ under Article III.4 may well prove very difficult, as a practical matter, to identify. It seems to me the better part ofvalour to reserve one’s opinion on such an important, indeed, philosophical matter, which may have unforeseeable implications, and to leave that matter for another appeal and another day, or perhaps other appeals and other days. I so reserve my opinion on this matter.”

² Décret no. 96-1133 relatif à l’interdiction de l’amiante, pris en application du code de travail et du code de la consommation, Journal officiel, December 26, 1996.

³ WTO WT/DS88, 10, 11/AB/R, Oct 1996.

⁴ AB Report, Japan - Taxes on Alcoholic Beverages, footnote 58, at 109 and 110.

⁵ Tantalizingly, the ad to Article III speaks of direct competition or substitutability. Could there be a situation where substitutable products would not be in competition with each other? A high degree of functional substitutability between two products should naturally contribute to a competitive relationship in the market. But, the competitive relationship is determined by the interaction of the demand and the supply side. Therefore, if firms are constrained in their capacity to increase production, there is not a very competitive relationship in the market, despite the fact that products are highly substitutable on the demand side. On the other hand, it seems less likely that a competitive situation would arise in a situation where products are rather poor substitutes.

We would also like to make a comment on the common argument that likeness should not be determined “in the marketplace.” It is argued that consumers may gradually change their consumption patterns habits through learning if imported products were to become substantially cheaper. For instance, after some time, kiwis are recognized by most consumers as a valid substitution to many other “juicy fruits” and find themselves in a competitive relationship with such fruit. But that might not be the case at the moment of introduction into the market. This argument has been invoked in case law in, for instance, Korea Alcoholic Beverages, where the AB speaks of “latent demand” alluding to the situation where the very tax or regulatory regime under consideration would have shaped consumer preferences in a way that as an empirical matter two products which could (as evidenced in, say, some other market) be considered as objectively substitutable, do not appear to engender robust competition and thus would not be considered under the objective test as like. In some respects a similar phenomenon exists in relation to any new product, though functional similarity is much easier to communicate to potential consumers than taste.

This argument has an important grain of truth, but is at the same time a bit misleading. One has to distinguish between the notion that market competitiveness is what should ultimately determine likeness under Methodology I, and the practical question of how to determine this competitiveness. Heuristically, we may here distinguish between three types of situations with regard to the role of potential competition. In the first, the magnitude of the alleged discrimination is small, in the sense that the measure would not change prices, etc., in the market outside the range in which they normally vary. In this case, no fundamental problem stemming from potential competition seems to be involved. In the second type of situation the measure does shift prices, significantly outside the range where they normally vary. Here there is a problem, since we would have to “extrapolate” outside the range for which we have observations, and the further outside this range we go, the more uncertainty there is concerning the trustworthiness of the assessment. But, as far as we can see, there is no presumption that the errors we would make would be biased toward underestimating the degree of competitive relationship. A third type of situation would be one where some formof learning process is indeed involved. For instance, consumers may learn gradually about the characteristics of an imported product from their consumption of the product. Information obtained from a period of very high import prices, and low consumption, may then be of limited value to predict the consequences of a substantial reduction in the price of imported products, where consumers have learnt about the foreign product. In this third situation we can hardly rely on market data to determine the competitive relationship, since there is a presumption that data stemming from a period before learning would be biased toward undervaluing the degree of competitive rivalry. As a result, one may have to rely on evidence that does not directly stem from observations of the market in question. Note however, that the problem here is “only” one of empirically estimating the competitive relationship in the market. In particular, we have not questioned the basic premise that the competitive relationship - “the marketplace” - determines the degree of likeness. Hence, this is not an argument against the conceptual basis of the likeness definition, but about the possibility to use for instance standard econometrics to assess the competitive relationship.

⁶ We avoid “aims and effect” because that has attained a certain canonical meaning in doctrine from which we prefer to be unencumbered. Of course our Methodology II shares much with aims and effect.

⁷ Submission of the United States of August 23, 1996 in the Appeal to Japan - Taxes on Alcoholic Beverages II (AB 1996-2).

⁸ This raises a delicate issue: since “like products” in Article III.4 GATT is considered to cover more than “like products” in Article III.2 GATT, would this possible distinction drawn by the AB in Japan Alcoholic Beverages II indicate a similar bifurcated approach to Article III.4 GATT depending on the degree of likeness of the domestic and imported products?

⁹ We are assuming that a difference of, say, one degree of alcoholic content is irrelevant to consumer preference.

¹⁰ We concentrate on the relationship between cement-based products containing chrysotile asbestos fibres and those containing PCG fibres.

¹¹ Since the definition of likeness under III.4 seems to overlap with the combined definition of likeness of III.2.