United States

The United States Federal Food, Drug, and Cosmetic Act (“FFDCA”) prohibits the production and sale in the United States of cigarettes with characterizing flavours (such as clove, strawberry, or chocolate), but does not prohibit regular or menthol cigarettes. Indonesia, which exports clove cigarettes to the United States, brought this case before the World Trade Organization.  Here, the Appellate Body upheld an earlier Panel's findings that FFDCA is inconsistent with provisions of the Technical Barriers to Trade ("TBT") Agreement. The Appellate Body, however, disagreed with the Panel's interpretation of “like products” and “treatment no less favourable” in the TBT Agreement.

The Appellate Body considered that the determination of whether products are “like” within the meaning of the TBT Agreement is a determination about the competitive relationship between the products.  Regulatory concerns underlying a measure, such as the health risks, may be relevant to the determination of “likeness” to the extent they have an impact on the competitive relationship between the products.  Based on this interpretation, the Appellate Body agreed with the Panel that clove and menthol cigarettes are “like products.”

In determining whether a measure's detrimental impact on imports constitutes "less favourable" treatment, the Appellate Body found that a panel must carefully scrutinize the particular circumstances of the case, namely the design, operation, and application of the regulation, and, in particular, whether that regulation is even handed.  Based on this interpretation, the Appellate Body found that these factors  strongly suggests that the FFDCA has a detrimental impact on competitive opportunities for clove cigarettes and reflects discrimination against the group of like products imported from Indonesia.

Finally, the Appellate Body upheld the Panel's finding that the United States acted inconsistently with the TBT Agreement by allowing only three months between publication and entry into force.