"Green products" can simply be defined as products that are less harmful to the environment than other similar products accomplishing the same tasks. Environmental benefits can include reusability or recyclability, less waste and more energy efficiency during the packaging, transport, use and disposal of the product, and less raw material consumption and environmental impacts in its manufacture.

From a trade law perspective, promoting the use, labeling and consumption of green products may raise a question whether the distinctions drawn between green and other products are legitimate distinctions or are disguised trade barriers and hence illegal. A critical element in looking at this issue will be the determination of `like products' under trade law.

`like product' issues arise under the GATT 1994 and the Agreement on Technical Barriers to Trade (TBT). The most important uses of this term are in Art. III.2 and III.4 of the GATT. These have been interpreted in the broader context of Art. Ill as establishing the principle that internal measures should not be applied so as to afford protection to domestic production.¹

Efforts to define `like products' have been made. However, in 1970, a Working Party on Border Tax Adjustments concluded that the application of this provision needed to be determined on a case by case basis. Suggested criteria for this purpose included end use, consumer tastes and habits, and the products' properties, nature and quality.² No further precision on the term was achieved.

In the first dispute brought to the WTO, the US Reformulated Gasoline panel dealt with the interpretation of `like product' under Art. III.4.<sup>3</sup> The panel found that the domestic and imported gasoline at issue had exactly the same chemical composition and physical characteristics, same end uses, tariff classification, and that they were perfectly substitutable. Hence they were found to be `like products'. The emphasis here was on the identical nature of the products. However, identical and like are not necessarily synonymous terms.

In the Japanese Alcoholic Tax case, the Appellate Body (AB) dealt with the issue of `like products' in the context of taxes or charges under Art. III.2. It has two sentences that incorporate two different standards and tests. The first is that imported products shall not be subject to any tax or charge in excess of that applied to a domestic like product. The second is that in the case of "a directly competitive or substitutable product", these must be similarly taxed so as not to afford protection to domestic production.⁴

Ruling in this context, the AB stated that the test for `like product' had an accordion like quality: "decision makers should keep ever in mind how narrow the range of 'like products' in Article III.2, first sentence is meant to be as opposed to the range of 'like products' contemplated in some other provisions of the GATT 1994 and other Multilateral Trade Agreements of the WTO Agreement." The context of each provision should be a guide for this purpose. In the case of Art. III.2, where the two different tests of `like products' and directly competitive products apply, it was to be construed narrowly so as not to condemn measures that its strict terms are not meant to condemn.⁵

The AB, when looking at the broader test, emphasized the issue of substitutability in the market place: "This seems appropriate. The GATT 1994 is a commercial agreement, and the WTO is concerned, after all, with markets." Price elasticity was confirmed as critical in this regard.⁶

The test must be carefully understood: the narrower the interpretation applied, the more alike the products must be to be `like products', and hence the larger the ability of a government to differentiate between products. The broader the interpretation, the easier it will be find products to be `like products', and the narrower will be the scope for different treatment.⁷

The next AB report dealt extensively with the criteria of substitution. In relation to Art. III.2, the Canadian Periodicals case looked at the issue of substitution in the context of the second sentence, the lower test of directly competitive or substitutable products.⁸ In doing so it held that "a case of perfect substitutability" would fall within the narrower `like product' test of Art. III.2, first sentence, but not the second sentence and its broader test The AB ruled that Canadian content and foreign content magazines are directly competitive and substitutable in spite of the fact it was the Canadian content and associated cultural values that were being fostered by the measures in dispute. These values were essentially disregarded, while the "market" for advertisers ready to substitute one magazine for the other was accepted as proof of market substitutability in a commercial agreement. The need for measures to support the industry provided further proof of consumer readiness to switch.

Given that the AB has said that the interpretation of the words `like product' themselves would be broader for the other Articles of the agreement, this raises the question of which test of substitutability would apply in those instances. ``perfect substitutability" was the language used by the Panel in the Reformulated Gasoline case in determining `like product' under Art. III.4. But this does not appear to be supported by the AB.

The problem becomes more important when the environmental benefits are not in the physical characteristics of the product, so that the products are physically alike for purposes of a `like product' test, but have different environmental costs on a life cycle basis. If the physical likeness and cost elasticity factors outweigh the role of environmental factors when a broader test is applied, green product differentiation will be difficult. The traditional GATT/WTO antipathy towards dealing with process issues, especially foreign process issues, may also impact on their role in differentiating products.

The contextual approach to when a narrow or broad interpretation should apply leaves the door open for considerable flexibility. This flexibility is applicable to Art. III.4, and to the TBT Agreement, which are directly applicable to environmental regulations. But why the different words should not still be given full effect when used in other articles of the same agreement was not explained by the Appellate Body.

One cannot now foresee how a panel would deal with environmental factors reflected in promoting green products. Given the notion of a broader test for `like products' in Art. III.4 and in the TBT Agreement, and the focus of the AB on commercial issues as a major factor in addressing this test, yellow caution lights are appropriate for policy makers in this area.

Howard Mann, LL.M., Ph.D., is a practising lawyer and policy consultant specialising in international environmental and trade law issues, in Ottawa, Canada.

²Report of the Working Party on Border Tar Adjustment, U3464, December 2, 1970, BISD 18S/97, 102, para. 18.

³ United States, Standards for Reformulated and Conventional Gasoline. Panel Report, 1996. This issue was not dealt with by the Appellate Body.

⁴ See Japan - Taxes on Alcoholic Beverages, AB-1996-2, Appellate Body Report, 1996.

⁵Ibid, p.20-21.

⁶Ibid, p.26.

⁷ This discussion presumes some difference in treatment of domestic and foreign goods is being complained of, as well as actual or possible trade impacts.