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Thailand - Restrictions on Importation of and Internal Taxes on Cigarettes, a GATT decision (CPTech)

 

Editor's note:

The GATT decision in the 1990 Thai tobacco case is important for several different reasons. The GATT ruled against the Thai efforts to ban imports of cigarettes. However, the GATT did establish a precedent by consulting with the World Health Organization (WHO) on a trade issue involving public health, and it did indicate that a ban on the advertising of cigarettes, while potentially harmful to the interests of importers who were not well known, was justified for public health reasons.

The entire opinion is given below. As an introduction, here are a few key parts.

From paragraph 27

Since the health consequences of the opening of cigarette markets constituted one of the major justifications for Thailand's cigarette import regime, Thailand deemed it necessary that the panel consult with experts from the World Health Organization (WHO) on recent experience in countries which had been made to open their markets for cigarettes. This showed that once a market was opened, the United States cigarette industry would exert great efforts to force governments to accept terms and conditions which undermined public health and governments were left with no effective tool to carry out public health policies. Advertising bans were circumvented and modern marketing techniques were used to boost sales. Hence, Thailand was of the view that an import ban was the only measure which could protect public health. Any other measure which allowed imports in any amounts would not be effective.

From paragraph 34

Since May 1989 Thailand had resisted bilateral pressures, under Section 301 of the US Trade Act, to open its market for cigarettes, and faced the imminent threat of retaliation against Thai exports to the United States, valued at US$166 million. Even though exports were the linchpin of Thailand's economic success, such considerations had given way to health concerns. In the course of these bilateral pressures, the United States had made it clear that its objectives were not limited to market opening and national treatment on internal taxation but covered other areas, such as a unilateral reduction of Thailand's import duty on cigarettes to zero, a low specific rate of excise tax on cigarettes (which when converted to an ad valorem basis, would work to the advantage of higher-value American cigarettes) and the right for manufacturers of foreign cigarettes to advertise and conduct point-of-sale promotion even though such a right was denied to manufacturers of domestically-produced cigarettes. Thailand therefore sought from the Panel a recommendation as to whether Thailand was required by GATT provisions to grant such concessions to the United States. Such a recommendation was necessary to protect the credibility of the multilateral dispute settlement mechanism. Thailand also sought from the Panel confirmation of its understanding that, in the event of its market for cigarettes being opened, its obligations with regard to the pricing, distribution, advertising, promotion and labelling of cigarettes were limited to providing national treatment for foreign cigarettes.

From paragraph 62

The United States also stated that the 1989 Report of the United States Surgeon General had concluded that there was no scientifically rigorous study available to the public that provided a definitive answer to the basic question of whether advertising and promotion increase the level of tobacco consumption and that the extent of the influence of advertising and promotion on the level of smoking was unknown and possibly unknowable. ("Surgeon General, Reducing the Health Consequences of Smoking" 512-12(1989).) . . . .

From paragraph 78.

A ban on the advertisement of cigarettes of both domestic and foreign origin would normally meet the requirements of Article III:4. It might be argued that such a general ban on all cigarette advertising would create unequal competitive opportunities between the existing Thai supplier of cigarettes and new, foreign suppliers and was therefore contrary to Article III:4 [2]. Even if this argument were accepted, such an inconsistency would have to be regarded as unavoidable and therefore necessary within the meaning of Article XX(b) because additional advertising rights would risk stimulating demand for cigarettes.

Cecile Crettol, Catherine Gavin


5 October 1990

THAILAND - RESTRICTIONS ON IMPORTATION OF AND INTERNAL TAXES ON CIGARETTES Report of the Panel adopted on 7 November 1990 (DS10/R - 37S/200)

                                                    
I. INTRODUCTION
1.  On 22 December 1989, the United States requested consultations 
with Thailand under Article XXIII:1, concerning restrictions on imports of 
and internal taxes on cigarettes maintained by the Royal Thai Government 
(DS10/1).  As these consultations which were held on 5 February 1990 did 
not lead to a solution, the United States requested the CONTRACTING 
PARTIES to establish a panel under Article XXIII:2, to examine the matter 
(DS10/2).  The Council agreed to establish the Panel on 3 April 1990 and 
authorized its Chairman to designate the Chairman and members of the Panel 
in consultation with the parties concerned (C/M/240).

2.  On 16 May 1990, the Council was informed that the Panel would 
have the following terms of reference and composition:


A.  Terms of reference

    "To examine, in the light of the relevant GATT provisions, the 
matter referred to the CONTRACTING PARTIES by the United States in 
document DS1O/2 and to make such findings as will assist the
CONTRACTING PARTIES in making the recommendations or in giving the 
rulings provided for in Article XXIII:2" (C/M/241).


B.  Composition

    Chairman:   Mr. Rudolf Ramsauer 
    Members:    Mr. Pekka Huhtaniemi
            Mr. Adrian Macey


3.  Additionally, the Council took note of the following understanding 
between the Parties (C/M/241):

    "(i)    The United States agreed to present its first submission 
in advance of Thailand's first submission and to allow the Thai authorities 
a reasonable period to prepare their own first submission;

    (ii)    The two parties understand that Thailand will make a 
request for the Panel to consult with competent international organizations 
on technical aspects such as the health effects of cigarette use and 
consumption.  It is further understood that if Thailand makes 
such a request, the Panel may so consult;

    (iii)   The two parties agree that the "relevant GATT provisions" 
referred to in the terms of referenceinclude the Protocol of Accession of 
Thailand (BISD, 29S/3) and the CONTRACTING PARTIES decision of 17 June 
1987 (BISD 34S/28)."

4.  At the meeting of the Council held on 3 April 1990, the European 
Communities reserved the right to intervene in the Panel proceedings 
(C/M/240).


<--------------------------- p 2 -------------------------------------->


5.  The Panel held meetings with the parties to the dispute on 2 and 
27 July 1990.  It consulted with officials of the World Health Organization 
on 19 July 1990.  The delegation of the European Communities made an oral 
submission to the Panel at the meeting held on 27 July 1990.  The 
Panel submitted its report to the parties on 21 September 1990.

II. FACTUAL ASPECTS

A.  Restrictions on imports

6.  Under Section 27 of the Tobacco Act, 1966, the importation or 
exportation of tobacco seeds, tobacco plants, tobacco leaves, plug 
tobacco, shredded tobacco and tobacco is prohibited except by licence of the
Director-General of the Excise Department or a competent officer 
authorized by him.  Section 4 of the said Act defines tobacco as 
"cigarettes, cigars, other tobacco rolled for smoking, prepared shredded 
tobacco including chewing tobacco".  Licences have only been granted to 
the Thai Tobacco Monopoly, which has imported cigarettes on only three 
occasions since 1966, namely in 1968-70, 1976 and 1980.

B.  Internal taxes

7.  Cigarettes are subject to the payment of an excise tax, a 
business tax and a municipal tax.

    (i) Excise tax:

8.  The schedule of fees and tobacco stamp rates appended to the 
Tobacco Act, 1966, provides that the ceiling rate of excise tax for 
domestic cigarettes is 60 per cent of the retail selling price given in 
notifications of the Director-General of the Excise Department, while the 
ceiling rate for imported cigarettes is 80 per cent of the retail selling 
price given in notifications of the Director-General of the Excise Department 
or 0.60 baht/gram.  The Act permits the Ministry of Finance to set the rate 
of tax at levels which do not exceed those laid down in the schedule.  
Until 11 July 1990, the rates of excise tax on domestic cigarettes were
based on the amount of Thai tobacco leaf contained in the cigarette, with 
the maximum rate set at a level slightly below the ceiling laid down in 
the Tobacco Act.

9.  The sales weighted average rate of excise tax on domestically 
produced cigarettes in 1989 was 54.69 percent of the retail selling 
price.  The excise tax which would be applied to imported cigarettes was 
set at 0.50 baht per gram.  In the absence of cigarette imports, the ad 
valorem equivalent of this tax in 1989, as computed by the Thai 
authorities, would have been 35.83 per cent, assuming a c.i.f.  price of 
11.50 baht per packet.

10. On 11 July 1990, the Ministry of Finance issued a regulation 
which set the rate of excise tax at 55 percent ad valorem, for both 
domestic and imported cigarettes, with immediate effect.

    (ii)    Business and municipal taxes

11. Business tax is currently assessed on both domestically produced 
and imported cigarettes at a rate of 1.5 per cent of the retail selling 
price and the municipal tax is set at 10 per cent of the business tax.  
Section 5 bis of the Tobacco Act, 1966, exempts from business tax "tobacco 
manufacturers on the sale of shredded tobacco or smoking tobacco, and 
sellers of shredded tobacco or smoking tobacco made from native tobacco
leaves".  As indicated in paragraph 6, the Act defines the term tobacco 
to include cigarettes.  The Thai Tobacco Monopoly is the only licensed 
manufacturer of cigarettes.  Under the Municipal Revenue Act of 1954, the 
municipal tax is collected as a percentage of the business tax, and products 
exempted from the business tax are also exempted from the municipal tax.  
On 18 August 1990, the King approved a Royal 


<---------------------------------- p 3 --------------------------------->

Decree which explicitly exempts as of 22 August 1990 all imported cigarettes 
from payment of business and therefore municipal taxes.

III.    MAIN ARGUMENTS

A.  Findings and recommendations requested by the Parties

12. The United States requested the Panel to find that:

    (i) Restrictions on imports

    -   the restrictions on imports of cigarettes by Thailand 
were inconsistent with Article XI of the General Agreement and were not 
justified by the exception contained in Article XI:2(c), because
cigarettes were not an agricultural or fisheries product in the meaning 
of Article XI, the restrictions operated as an import prohibition, they 
were not imposed in conjunction with domestic supply restrictions and 
they had a disproportionate effect on imports;

    -   the same restrictions could not be justified under 
Article XX(b) since as applied by Thailand they were not necessary to 
protect human health;

    -   these restrictions were not covered by Thailand's 
Protocol of Accession to the GATT since the Tobacco Act of 1966 on which 
they were based did not impose mandatory import restrictions;

    -   the restrictions were not covered by any other exception 
to the General Agreement;

    (ii)    Internal Taxes

    -   Thailand's excise tax on cigarettes was inconsistent with 
Article III:1 and III:2 because it permitted the application of a higher 
rate for imported cigarettes than for like domestic products, in the
event that imports of cigarettes were authorized;

    -   Thailand's business and municipal taxes on cigarettes 
were also inconsistent with Article III:1 and III:2 because only domestic 
products or imports effected by local manufacturers were exempted
from payment of the taxes.

13. The United States requested the Panel to recommend that:

    -   Thailand eliminate its quantitative restrictions on 
imports of cigarettes and that it bring its tax laws and practices into 
conformity with its obligations under the General Agreement.

14. Thailand requested the Panel to find that:

    (i) Restrictions on imports

    -   its restrictions on imports were justified by Article 
XI:2(c) because cigarettes were an agricultural product within the meaning 
of Article XI and the Thai cabinet had taken action to reduce the area in 
which tobacco could be planted and the production of cigarettes;


<-------------------------------- p 4 -------------------------------->


    -   Thailand's restrictions on imports were also justified 
under Article XX(b) because measures which could only be effective if 
cigarette imports were prohibited had been adopted by the government
to control smoking and because chemical and other additives contained in 
United States cigarettes might make them more harmful than Thai cigarettes;

    -   the restrictions were justified by Thailand's Protocol of 
Accession to the GATT because the Tobacco Act of 1966, upon which the 
restrictions were based, predated Thailand's accession to the GATT in 
1982 and was mandatory in its expressed intent;  

    (ii)    Internal taxes

    -   the excise, business and municipal taxes applied to 
cigarettes were not higher for imported cigarettes than for the like 
domestic product and were not therefore inconsistent with Article III;

15. Thailand therefore requested the Panel to reject the complaint of 
the United States.

B.  Article XI:1

16. The United States argued that since 1966 Thailand had implemented 
an import licensing regime for cigarettes which was inconsistent with 
Article XI.  The Thai Tobacco Monopoly had imported cigarettes on only 
three occasions and the Government refused to consider import licence 
applications from any other entity.  The United States had repeatedly 
requested that Thailand eliminate its licensing restrictions and
permit imports of cigarettes from other contracting parties.  These requests 
had been turned down.  Recalling that a number of recent panel reports [1] 
which had been adopted by the CONTRACTING PARTIES, had confirmed that the 
activities of state-controlled import monopolies must conform to a number of 
rules contained in the General Agreement, including those of Article XI:1, 
the United States asked the Panel not to accept an artificial distinction 
between the activities of state-trading monopolies and other government
acts and policies to restrict trade.  Such a finding would essentially 
vitiate one of the most effective provisions for achieving the objectives 
of the General Agreement, i.e. the substantial reduction of tariffs and other
barriers to trade and the elimination of discriminatory treatment in 
international trade.

C.  Exceptions to Article XI:1

    (i) Article XI:2

17. Thailand recognized the existence of a virtual prohibition on 
imports of cigarettes.  However, it contended that this restriction was 
justified under Article XI:2(c).  There was a long-standing practice in 
GATT which had been accepted in past rounds of trade negotiations and 
followed by panels in other cases, to treat products falling under 
Chapters 1 to 24 of the CCCN or the HS nomenclatures as agricultural products 
within the meaning of Article XI.   Therefore, cigarettes which were 
classified under the CCCN as 24.02.B and the HS nomenclature as 2402.20 were 
agricultural products.  Thailand contended that import restrictions on
cigarettes were "necessary to the enforcement of governmental measures 
which operated to restrict the quantities of the like domestic product".  
Allowing cigarette imports would undermine government policy
to reduce the tobacco planting area and cigarette production.
_______________
    1. Report of the Panel - "Republic of Korea's Restrictions on 
Imports of Beef, paragraph 115 (L/6503). Report of the Panel - "Japan's 
Restrictions on Imports of Certain Agricultural Products", paragraph 
5.2.2.2. (BISD, 35S/163).


<-----------------------------------p 5----------------------------->


18. The United States held the view that because of the fundamental 
nature of the ban on quantitative restrictions, contained in Article XI:1, 
any exceptions to it must be narrowly construed.  With respect to each 
exception asserted, each and every condition must be met before a  
measure may be considered as covered by the exception.

19. The United States argued that the import restrictions maintained 
by Thailand on cigarettes could not be justified by Article XI:2(c) for 
the following reasons:

    (a) the implementation of the import licensing system set 
forth in Section 27 of the Tobacco Act of 1966 acted as a de facto 
prohibition on imports from the United States and other contracting 
parties.  At least two prior GATT panels had found that import 
prohibitions were not justified under Article XI:2(c)(i) [1].  The Panel on 
"Japan - Restrictions on Imports of Certain Agricultural Products" had 
cited the conclusion reached by the Panel on "United States - Prohibition of 
Imports of Tuna and Tuna Products from Canada", which had noted that in 
Article XI:2(a) and (b), the words "prohibitions and restrictions" are used 
while in Article XI:2(c) mention is only made of "restrictions", and had 
concluded that "the provisions of Article XI:2(c) could not justify the
application of an import prohibition";

    (b) the working assumption that a product falling under 
Chapters 1-24 of the CCC or HS nomenclatures is considered an agricultural 
product should not automatically be applied when that resulted in 
unnecessary and unintended exemptions from the provisions of Article XI. 
Consequently, a cigarette could not be considered an agricultural product 
simply because it is processed, in part, from an agricultural product;

    (c) the import restrictions imposed by Thailand on cigarettes 
were not necessary to ensure enforcement of governmental measures which 
operate to restrict the quantities of the like domestic product
permitted to be marketed or produced since there was no effective 
governmental policy to restrict the quantities of Thai cigarettes 
permitted to be marketed or produced.  The Cabinet resolutions
that the Thai Government presented as measures to restrict marketing and 
production of cigarettes did not have the effect of law.  Moreover, 
Thailand had not presented any concrete plans for implementing the Cabinet 
resolutions.  The like domestic product referred to in Article XI:2(c)(i) was 
cigarettes rather than tobacco leaf.  Current constraints consisted of 
limited capacity while Thailand had a stated policy of promoting cigarette 
exports and a record of increasing levels of production and sales of 
cigarettes.  In spite of anti-smoking activities in Thailand, no constraints 
had been put on cigarette production.  Various plans to increase capacity had 
been considered but had not been acted upon because of the United States' 
request to enter the market.  Thailand  simply wanted to satisfy domestic 
demand in cigarettes through sales of domestic products.  It also wanted to 
maintain the income of tobacco growers and of those in related 
industries, to protect employment in the cigarette industry and ensure a 
predictable and high level of government revenue.  A recent Panel report [2] 
had noted that the drafters of Article XI had agreed that the exception "was 
not intended to provide a means of protecting domestic producers against 
foreign competition" and "should not be construed as permitting the use of 
quantitative restriction as a method of protecting the industrial 
processing of agricultural or fisheries products";

_______________
    1. Report of the Panel on "Japan - Restrictions on Imports of 
Certain Agricultural Products" (BISD,35S/230-231, paragraph 5.3.1.2).  
Report of the Panel on "United States - Prohibition of Imports of Tuna
and Tuna Products from Canada", (BISD, 29S/91).
    2. Panel report on "Japan - Restrictions on Imports of Certain 
Agricultural Products", paragraph 5.1.2(BISD, 35S/163)


<-------------------------------------p 6----------------------------->

    (d) a de facto ban on cigarettes which had been in effect 
since 1966, could not be considered an act to address unexpected excess 
supply of agricultural products, in the meaning of Article XI:2;

    (e) the restriction reduced the total of imports relative to 
the total of domestic production, as compared with the proportion which 
might reasonably be expected to rule between the two in the absence
of restrictions.

20. Thailand recognized that since the first Tobacco Act had been 
passed in 1938, no imports of cigarettes had been allowed, except on a few 
critical occasions when insignificant quantities had been imported during
short periods of time.  Thus, it could not be argued, as the United 
States did, that the restriction had the effect of reducing the proportion of 
imports which might be expected to rule in the absence of restrictions.

    (ii)    Article XX(b)

21. Thailand contended that the prohibition on imports of cigarettes 
was justified by the objective of public health policy which it was 
pursuing, namely to reduce the consumption of tobacco which was harmful to
health.  It was therefore covered by Article XX (b).  The production and 
consumption of tobacco undermined the objectives set out in the Preamble 
of the General Agreement which were:  to raise the standard of living,
ensure full employment and a large and steadily growing volume of real 
income and effective demand, develop the full use of the resources of the 
world and expand the production and exchange of goods.  Instead, smoking 
lowered  the standard of living, increased sickness and thereby led to 
billions of dollars being spent every year on medical costs, which 
reduced real income and prevented an efficient use being made of resources, 
human and natural. The production of tobacco had not altogether been prohibited 
in Thailand because this might have led to production and consumption of 
narcotic drugs having effects even more harmful than tobacco, such as 
opium, marijuana and kratom (a plant with fragrant yellow flowers and 
intoxicating leaves).  Historically, the manufacturing of cigarettes in 
Thailand had been aimed at providing a legal substitute for narcotic 
products which were themselves outlawed. Cigarette production in Thailand  was 
a state-monopoly under the Tobacco Act, because the government felt the need 
to have total control over such a product which, even though legal, could 
be extremely harmful to health.  A main objective of the Act was to ensure 
that cigarettes were produced in a quantity just sufficient to satisfy 
domestic demand, without increasing such demand.  While a certain 
quantity of foreign cigarettes was smuggled into Thailand, this was unlikely 
to be done without the manufacturers' consent, since prior to the total ban on 
cigarette advertising which had been implemented on 10 February 1989, 
foreign cigarette manufacturers had advertised on Thai television, in mass 
circulation newspapers and on billboards. Indirect advertising had also taken
place and the logos of cigarette manufacturers had appeared on clothing 
and many other non-tobacco products.

22. The United States noted the intent of the drafters of the General 
Agreement that measures which a contracting party seeks to justify under 
the provisions of Article XX(b) should reflect similar domestic
safeguards.  The drafting history of Article XX(b) indicated that the 
language in the preamble to Article XX stating that measures not be 
disguised restrictions on international trade had this meaning in the context
of Article XX(b).  The United States further noted that safeguards 
comparable to an import prohibition did not exist with respect to 
domestic cigarettes.

23. The United States noted that a recent panel [1] had found that a 
contracting party could not justify a measure inconsistent with another 
GATT provision as "necessary" in terms of Article XX(d) if an alternative 
measure which it could reasonably be expected to employ and which is not 
inconsistent with other GATT provisions is also available to it.  It had 
also found that in cases where a measure consistent with other GATT provisions
is not reasonably available, a contracting party is bound to use, among 
the measures reasonably available to it, that which entails the least 
degree of inconsistency with other GATT provisions.  The United States
considered that Thailand, like other contracting parties, could pursue 
the objective of seeking to prevent the increase in the number of smokers 
without imposing a ban on imports.  The experience of other countries


<-------------------------------------p 7-------------------------------->

had shown that decreases in the level of smoking resulted from diminished 
demand achieved through education and the recognition of the effects of 
smoking rather than restraints on the availability of cigarettes. 
Moreover, the United States considered that Thailand could not argue that 
the ban on imports was necessary to protect human life or health since 
domestic production, sales and exports of cigarettes and tobacco remained
at high levels.  Between 1979 and 1988, total domestic sales of Thai 
cigarettes had risen by 2.6 per cent annually.  They had risen by 5.76 
per cent in 1987, after the active anti-smoking campaign had started,
and by 7.4 per cent in 1988.  Most recent data suggested that sales rose 
by about 8 per cent in 1989.  They were forecast to rise again in 1990.  
These figures indicated that there was an ongoing substantial increase
in the number of smokers or a substantial increase in the number of 
cigarettes consumed by current smokers. The anti-smoking campaign had been 
unsuccessful in actually diminishing the absolute level of cigarette production 
and sales in Thailand, while all legitimate imports had been banned.  There 
existed in Thailand a well-established demand for foreign cigarettes, met 
by illegal imports unauthorized by legitimate producers, which accounted for 4 
to 5 per cent of the market.

24. Thailand replied that the exception contained in Article XX(b) 
reflected the recognition that public health protection is a basic 
responsibility of governments.  With the support of non-governmental
organizations, the Thai government had taken action to control smoking 
by, inter alia:

    -   adopting a comprehensive national programme for the 
control of tobacco use;

    -   establishing a body, the National Committee for Control 
of Tobacco Use (NCCTU), to implement the national programme;

    -   imposing a total ban on direct and indirect advertising 
of cigarettes in all media, legally enforced under the authority of the 
Consumer Protection Act;

    -   informing the general public about the dangers of smoking;

    -   requiring the printing of seven rotatory health warnings 
on the packages of cigarettes, in accordance with the Consumer Protection 
Act;

    -   prohibiting smoking in all public transport, health 
establishments and other public places;

    -   improving data collection on smoking and health;  

    -   promoting research on smoking and health.





_______________
    1. Panel report on "United States - Section 337 of the Tariff Act 
of 1930", paragraph 5.26 (L/6439).


<------------------------------------- p 8 ------------------------------>


25. Most recently, on 6 March 1990, the Thai Cabinet had decided to 
attack the problem of smoking on both the supply and demand sides by 
instructing the relevant authorities to:

    -   reduce the production of cigarettes on a continuous basis;

    -   reduce the area where tobacco is grown;

    -   set aside funds to be used by the NCCTU in its 
anti-smoking campaign;

    -   encourage academic institutions in their role of 
expressing or reflecting public opinion on cigarette smoking;

    -   prohibit exports of cigarettes.

26. According to Thailand, the smoking rate among the Thai population 
over 10 years of age declined from 30.1 per cent in 1976 to 27.8 per cent 
in 1981, 26.4 per cent in 1986 and 25 per cent in 1988.  In addition per 
capita consumption of tobacco declined at a rate of 2.2 per cent a year 
between 1974-76 and 1984-86.  Aggregate consumption had increased at an 
average annual rate of 1.1 per cent in 1984-86 but this was largely 
accountable to increase in population and a higher standard of living which 
had encouraged smokers, particularly in rural areas, to switch from 
self-rolled cigarettes and traditional tobacco products to manufactured 
cigarettes.  At the same time, while total cigarette production in Thailand 
was still growing, the annual growth rate had fallen from 2.8 per cent 
to 2.72 per cent in recent years.

27. Thailand argued that while competition had desirable effects in 
international trade in goods, this did not apply to cigarettes.  
Governments in many countries, including the United States and Thailand, 
tried to discourage or control tobacco and cigarette consumption.  
Competition would lead to the use of better marketing techniques 
(including advertising), a wider availability of cigarettes, a possible 
reduction of their prices, and perhaps improvements in their quality.  
This might have the undesirable effect of leading to an increase in total 
consumption, especially among women and the young, which would run contrary to
public health objectives.  Some American cigarettes were specifically 
targeted at women of whom only 3.5 per cent smoked in Thailand compared 
to 30 per cent in Western countries.  A recent report of the
Council on Scientific Affairs of the American Medical Association stated 
that at a time when cigarette smoking is falling in developed nations, it 
is increasing in Africa, Latin America and Asia as tobacco companies seek 
new markets.  According to this report, the United States leads the world 
in tobacco exports, and its cigarette exports to Asia had increased by 75 
per cent in 1988 alone.  Since the health consequences of the opening of 
cigarette markets constituted one of the major justifications for Thailand's 
cigarette import regime, Thailand deemed it necessary that the panel consult 
with experts from the World Health Organization (WHO) on recent experience in countries which had been made to open their 
markets for cigarettes.  This showed that once a market was opened, the 
United States cigarette industry would exert great efforts to force 
governments to accept terms and conditions which undermined public 
health and governments were left with no effective tool to carry out 
public health policies.  Advertising bans were circumvented and
modern marketing techniques were used to boost sales.  Hence, Thailand 
was of the view that an import ban was the only measure which could 
protect public health.  Any other measure which allowed imports
in any amounts would not be effective.

28. Thailand also argued that cigarettes manufactured in the United 
States may be more harmful than Thai cigarettes because of unknown 
chemicals placed by the United States cigarette companies in their 
cigarettes, partly to compensate for lower tar and nicotine levels.  
United States cigarette companies also used other additives which 
increased the health risks of smoking.  One such additive 
was cocoa, which according to one study increased the risk of cancer.  
Others included deer tongue, ethyl butyrate, linayle acetate, isoamyl
acetate, 2,3,5 trimethyl and pyrazine.  According to the United States 
Surgeon-General's 1984 report, "a 


<------------------------------- p 9 ---------------------------------->

characterization of the chemical composition and adverse biological potential 
of these additives is urgently required, but is currently impossible 
because cigarette companies are not required to reveal what additives they 
employ in the manufacture of tobacco" (USDHHS, 1984).  According to Thailand, 
some United States cigarettes contained nicotine which was extracted from 
tobacco leaf, resprayed back into the leaf as part of a process called 
"reconstituting" the tobacco.  Re-adding nicotine in chemical form to tobacco 
leaf may make United States cigarettes different from Thai cigarettes in the 
strict sense of the word and make them more addictive, since it could 
make inhalation easier and absorption of nicotine by the bloodstream and
the brain more efficient.  

29. The United States replied that the health hazards of smoking had 
been the subject of extensive documentation in a number of countries.  The 
existence of such hazards was not the real issue in this dispute. 
The United States did not believe that Thailand had established that its 
import ban served the purpose of protecting public health or that such a 
measure was necessary to accomplish that purpose.  The Thai Tobacco
Monopoly produced at least 15 brands of cigarettes appealing to all types 
of consumers.  It had consciously attempted to imitate "American blend" 
cigarettes, clearly in response to perceived consumer demand.  These
"American-style" brands were among the Monopoly's best sellers.  Its 
distribution system was both extensive and well-established at the 
wholesale and retail levels.  Few barriers were imposed to entry into the retail
cigarette business.  Currently, Thailand had over 40,000 licensed 
cigarette retailers.  The marketing techniques of the Thai Tobacco 
Monopoly were as effective as those of American manufacturers. No decision had
been adopted by the Thai Cabinet to reduce cigarette production until 6 
March 1990, i.e.  after the United States had requested the establishment 
of the panel.  In the past, the Thai Tobacco Monopoly had ignored earlier 
Cabinet decisions.  For example, it had not implemented the six labelling 
requirements mentioned by Thailand and was negotiating with the 
government to weaken two of them.  Moreover, three major expansion plans had 
been initiated by the Thai Tobacco Monopoly between July 1987 and January 1990, 
despite government policy, and new orders had been placed for machinery which 
would enable the Monopoly to increase its production by 10 billion 
cigarettes in 1991.  While the Ministry of Agriculture had been instructed in 
January 1988 to formulate a plan for reducing tobacco acreage, this was
not relevant to the object of the dispute which was cigarettes.  
Furthermore, Thailand had not presented any information on a concrete 
plan to decrease acreage and Thai statistics showed, if anything, that tobacco
acreage increased, rather than decreased, in the 1988/1989 season.

30. According to the United States, the reasons identified by 
Thailand for the increasing consumption of cigarettes, namely a switch 
from traditional tobacco products to manufactured cigarettes were of 
declining importance as the economic situation of Thailand changed.  
Increased availability would lead to increased consumption if there was 
demand that was not currently satisfied.  Thus, as had happened in other Asian
markets which had recently liberalized import policies, opening the Thai 
market would lead to a shift in consumption from the Thai Tobacco 
Monopoly cigarettes to imported products, rather than to an increase
in total demand. If the real issue was over advertising and concern over 
the creation of new customers and new demand, that problem should be 
addressed directly and not through a GATT-inconsistent import
prohibition.  The United States could not accept the view that the import 
ban on cigarettes was justified because of the lack of an alternative 
tool to carry out public health policy effectively.  Any measures that
could be taken in pursuance of such objectives should be taken on a 
national treatment basis.

31. The United States denied that its cigarettes raised special 
health concerns.  Indeed, the Thai government had recognized that United 
States and other foreign cigarettes were less harmful than Thai 
cigarettes because of their significantly lower tar and nicotine 
content.  Cigarettes exported from the United States were the
same product as the ones sold in the United States.  Their ingredients 
had been disclosed to the Department of Health and Human Services since 
1985, in pursuance of the Federal Cigarette Labelling Act.  That
Department had raised no issue with any of the items on the list of 
ingredients that had been reported each year.  None of the other 
countries, such as the United Kingdom, France and the Federal Republic of Germany,
which also required disclosure of ingredients, had raised problems with 
ingredients in United States cigarettes. 


<---------------------------- p 10 ----------------------------------->


Thailand, however, had no regulations or restrictions on ingredients or 
flavourings used in cigarettes.  The United States noted that the Thai 
Government admitted that the Thai Tobacco Monopoly used additives
in its cigarettes.  With respect to the ingredients that the Thai 
Government cited as raising health concerns, the United States noted that 
the US cigarette industry, unlike the Thai Tobacco Monopoly, did not use deer
tongue, also known as coumarin.  The Thai Tobacco Monopoly also purchased 
cocoa which it used as flavouring and which was on the list of approved 
ingredients of every country that maintained one.  It was also a 
substance frequently consumed as food or beverage.  2,3,5 trimethyl was a 
flavoured aroma ingredient commonly used in food products and approved 
by the US Food and Drug Administration.  Reconstituted tobacco had less 
nicotine than full leaf tobacco and the Thai Tobacco Monopoly intended to use 
this technique in the future.  According to independent studies, tar and 
nicotine levels in Thai cigarettes were higher than in foreign cigarettes 
illegally imported into Thailand.  While it was true that United States 
cigarette exports to Asia had increased in recent years, this increase, which 
was due to the dismantling of monopolies in several countries, had been 
from a zero base which explained the high percentage increase in exports.

32. Thailand replied that it had never recognized that foreign 
cigarettes were less harmful than Thai cigarettes. Even though their tar 
and nicotine contents might be lower, they were more addictive than Thai 
cigarettes because smokers tended to consume a higher number of low tar 
and nicotine cigarettes, in order to obtain the amount of nicotine to 
which they were used.  Artificial flavourings and other ingredients were added
to low tar/nicotine cigarettes to compensate for the milder taste of such 
cigarettes.  Thailand, like the United States, had regulations on 
ingredients and flavourings.  The Thai Tobacco Monopoly was required
by a Cabinet resolution of February 1990 to disclose the ingredients of 
its cigarettes to the Ministry of Public Health.  This Ministry had 
requested the Ministry of Finance, which supervised the Thai Tobacco
Monopoly to instruct it to reduce or eliminate three of the ingredients 
which were considered particularly dangerous to health.  Some of these, 
such as cocoa could be harmless when eaten or drunk, but could be
carcinogenic when burned.  While it was true that the list of additives 
to American cigarettes had been submitted to the Department of Health and 
Human Services since 1985, only a consolidated list of additives
which was used by six manufacturers was submitted by these manufacturers, 
without identifying the brand (or brands) of cigarettes containing 
particular additives and without indicating the amount of each additive
used.  Thus, the nature of the information given to the Department of 
Health and Human Services limited the ability to conduct a thorough 
analysis of the potential health risks of additives.  Canada had passed
legislation requiring all cigarette manufacturers to disclose the 
additives they used, and as a result one leading United States 
manufacturer had withdrawn several of its brands from the 
Canadian market.  Moreover, Thailand did not agree that cigarettes 
exported from the United States were the same product as those sold
on the domestic market.  Recent studies had shown that some foreign 
cigarettes sold in Asia contained a higher tar level than the same brands 
sold in Australia, Europe or the United States.  

33. Thailand recognized that consumption of cigarettes had continued 
to rise in Thailand, in spite of the efforts by the government with the 
support of non-governmental organizations, because such campaigns
took a long time to produce effects, as had been seen in the United 
States where consumption had continued to rise until 1981, even though 
the first anti-smoking campaign had been initiated in 1965.  Thailand denied
that the objective of its policy was to protect domestic production of 
cigarettes.  No new factory had been built in the last 12 years and a 
number of plans to expand existing capacity had been rejected by the
government.  Any machinery installed in existing factories was only 
replacing equipment whose life-span had expired.  While it was true that 
the Thai Tobacco Monopoly had delayed implementing the health
warnings required by the Cabinet, and had tried to weaken two of them, it 
could not ignore cabinet resolutions and would have to enforce the 
warnings.  Health considerations overrode any other policy objectives of
the government.  Thus, the Ministry of Finance had estimated that the 
importation of cigarettes would yield an extra revenue of baht 800 
million (about US$30 million) per year which was a substantial sum for a
developing country.  However, the government had decided to forego this 
sum in deference to public health considerations.  


<---------------------------- p 11 ----------------------------------->


34. Since May 1989 Thailand had resisted bilateral pressures, under 
Section 301 of the US Trade Act, to open its market for cigarettes, and 
faced the imminent threat of retaliation against Thai exports to the
United States, valued at US$166 million.  Even though exports were the 
linchpin of Thailand's economic success, such considerations had given 
way to health concerns.  In the course of these bilateral pressures,
the United States had made it clear that its objectives were not limited 
to market opening and national treatment on internal taxation but covered 
other areas, such as a unilateral reduction of Thailand's import
duty on cigarettes to zero, a low specific rate of excise tax on 
cigarettes (which when converted to an ad valorem basis, would work to 
the advantage of higher-value American cigarettes) and the right for
manufacturers of foreign cigarettes to advertise and conduct 
point-of-sale promotion even though such a right was denied to 
manufacturers of domestically-produced cigarettes. Thailand therefore sought 
from the Panel a recommendation as to whether Thailand was required by GATT 
provisions to grant such concessions to the United States.  Such a 
recommendation was necessary to protect the credibility of the
multilateral dispute settlement mechanism.  Thailand also sought from the 
Panel confirmation of its understanding that, in the event of its market 
for cigarettes being opened, its obligations with regard to
the pricing, distribution, advertising, promotion and labelling of 
cigarettes were limited to providing national treatment for foreign 
cigarettes.

35. In the view of the United States, there was a marginal benefit to 
be gained from smoking low tar and nicotine cigarettes, rather than high 
tar and nicotine cigarettes.  With respect to tobacco additives, it 
considered that there was no evidence that these additives had any 
adverse effects and referred the panel to the findings of the American 
Health Foundation which were annexed to the WHO submission.  Moreover, 
Thailand's import prohibition had always affected all cigarettes and not 
simply those containing additives, many of which such as menthol were 
also used by the Thai Tobacco Monopoly.  United States cigarette 
manufacturers complied with the labelling and disclosure requirements of 
United States law.  Apart from cigarettes sold in countries where local 
content requirements resulted in United States companies manufacturing locally 
for domestic consumption through licensees, and in consequent variations in 
tar and nicotine levels, all other cigarettes exported from the United 
States were identical to the product sold on the domestic market. Unless 
Thailand amended the Tobacco Act of 1966 to eliminate the monopoly on the 
manufacture of cigarettes, foreign firms would have to supply the Thai market 
through imports.  In the case of Canada, only 1 per cent of the market 
had been held by United States cigarette manufacturers prior to the 
introduction of a reporting requirement for additives.  That did not change 
after the implementation of the requirement as much of US manufacturing 
and sales were effected through Canadian licensees.  Some firms had expressed 
concern about the protection of their trade secrets and had considered that 
the size of the market did not justify continuing their export effort, 
especially as each Canadian province had enacted individual requirements thus 
atomizing the market.  The United States denied that it was seeking anything 
other than the application of national treatment in measures taken by 
Thailand to control the consumption of cigarettes and objected to the Panel 
making recommendations on issues not raised by it, as these issues were 
outside the terms of reference of the Panel.

    (iii)   Protocol of Accession

36. Thailand argued that the Thai import regime for cigarettes was in 
full conformity with Thailand's rights and obligations under the General 
Agreement as the Tobacco Act of 1966 on which the import restrictions
were based, was covered by paragraph 1(b) of the Protocol for the 
Accession of Thailand by the General Agreement according to which:

    "Thailand ...  shall apply to contracting parties provisionally 
and subject to this Protocol, ...  (b) Part II of the General Agreement 
to the fullest extent not inconsistent with the legislation existing on 
the date of this Protocol" (BISD, 29S/3).


<---------------------------- p 12 ----------------------------------->


37. Recalling that the recent panel report [1], adopted by the 
CONTRACTING PARTIES, on "Norway's Restrictions on Imports of Apples and 
Pears" had concluded that in order to be eligible under the Protocol,
existing legislation must (a) be legislation in a formal sense, (b) 
predate the Protocol and (c) be mandatory in character by its terms or 
expressed intent, the United States argued that Thailand's restrictions on 
cigarette imports were not covered by its Protocol of Accession, because 
although they predated its accession to the GATT, they were not 
mandatory.  Section 27 of the Tobacco Act, 1966, did not impose a mandatory 
prohibition on importation of cigarettes, but only empowered the Director-
General of the Excise Department to issue import licences.  Moreover, 
imports had occurred under the Act.

38. According to Thailand, the Tobacco Act of 1966, which was the 
legal basis for restrictions on the importation of cigarettes, constituted 
existing legislation within the meaning of the Protocol.  The Act could
satisfy each and every condition specified in the recent Panel report on 
Norway - "Restrictions on Imports of Apples and Pears" (L/6474, paragraph 
5.7).  The Act, which was adopted in 1966, predated the Protocol,
which had itself been adopted in 1982.  Even though the Act did not state 
explicitly the intent of minimizing harm to public health, it was 
self-evident that its intent was identical to that of its predecessor, namely the
Opium Act of 1929, which was to control consumption in order to minimize 
the harm to health.  The Tobacco Act shared the same features as the 
Opium Act in requiring strict control over the production, distribution,
consumption etc.  of the product from beginning to end.  As in the case 
of the legislation which it had replaced, namely the Tobacco Acts of 1938 
and 1943, the 1966 Act required the Thai government to control
production, consumption, internal and international trade of cigarettes.  
The purpose of the Act was to ensure that the quality and quantity of 
tobacco products were such that they did not jeopardize public health.  With
this objective, the law regulated the supply of tobacco products from 
both domestic and foreign  sources. The importation of tobacco, 
including cigarettes, was explicitly prohibited under Section 27 of the Tobacco
Act of 1966.  Although such prohibition could be relaxed by the 
Director-General of the Excise Department, the mandatory intent of the 
law had to be respected.

D.  Article III

39. The United States recalled that paragraph 3 of the Protocol of 
Accession of Thailand to the GATT stated that Thailand "intends to bring 
into line with Article III of the General Agreement, the business and
excise taxes with respect to items on which the incidence of these taxes 
varies according to whether the items are locally produced or imported" 
(BISD, 29S/3), and that the CONTRACTING PARTIES had decided
to allow Thailand until 30 June 1987 to bring these taxes into line with 
Article III.  In 1987, noting that steps had been taken to align the 
rates of business and excise taxes applied in Thailand to domestic and
imported products and that the Thai government was in the  process of 
introducing a value-added tax system which would impose uniform taxes on 
domestic and imported products, the CONTRACTING PARTIES had granted 
Thailand a further extension of time until 30 June 1990, for 
it to bring aspects of its tax system into conformity with Article III.

40. According to the United States, the discriminatory and protective 
aspects of the tax system applied by Thailand on cigarettes had not been 
addressed in the eight years which had passed since Thailand had
stated in its Protocol of Accession to the GATT its intention to bring 
its excise and business taxes into conformity with Article III.  
Legislation to implement a value-added tax system had not yet been introduced
in Parliament.
_______________
    1. Panel on "Norway - Restrictions on Imports of Apples and Pears" 
(L/6474).



<------------------------------ p 13 --------------------------------->


41. In the view of the United States, adoption and implementation of 
a value-added tax system was not the only means to address the problems 
raised by the application to cigarettes of the Thai business and 
municipal taxes.  These problems should be addressed promptly and 
directly.  Furthermore, adoption of a value-added tax on cigarettes, as 
planned by the Thai government, would not eliminate all of the
discriminatory aspects of cigarette taxation in Thailand because the 
value-added tax on imported and domestic cigarettes would replace the 
business and municipal taxes but the excise tax, with rates tied to the amount
of domestic tobacco in the cigarette and higher ceiling rates for 
imported cigarettes, would continue to be applied.  Thus domestic 
production of cigarettes would still be protected by a tax system 
permitting imposition of a higher rate of tax on imported products than 
on the like domestic product.

    (i) Excise Tax

42. In the view of the United States, cigarettes of varying tobacco 
mixtures were directly substitutable for the same end use.  Although 
consumers may have different preferences resulting in a number of different
brands being offered in a particular market, manufactured cigarettes 
shared the same general and many specific characteristics.  They were 
therefore like products in the meaning of Article III.  By imposing higher
excise taxes on foreign cigarettes than on domestic ones Thailand applied 
internal taxes on imported products in excess of those applied to like 
domestic products and thus acted inconsistently with its obligations under
Article III.

43. Thailand accepted that the ceiling rate for the excise tax on 
foreign cigarettes was 80 per cent of the retail price or 0.60 baht/gram 
whereas the ceiling rate for domestic cigarettes was 60 per cent of the 
retail price.  It also recalled that Article III:2 referred specifically to 
applied rates of tax and not to ceiling rates. The Thai Cabinet had 
decided on 20 June 1990, to apply a single rate of excise tax on all 
cigarettes, regardless of their origin and local tobacco content, thus 
eliminating any possibility for the excise tax to be applied
in such a manner as to afford protection to domestic production of 
cigarettes.  On 11 July 1990, the Ministry of Finance had issued a 
regulation stipulating that the excise tax would be applied to domestic and 
imported cigarettes at a single rate of 55 per cent.  Hence, Thailand had 
fulfilled its Article III obligations with respect to the excise tax on 
cigarettes.

44. The United States contended that the new regulations had not 
changed the statutory rate of tax that could be applied to imported and 
domestically produced cigarettes.  Thus, the Thai law, on its face, permitted
the application of a higher rate of tax on imported products than on 
domestically-produced cigarettes.  In response to Thailand's assertion 
that, since no action had been taken which was inconsistent with Thailand's 
GATT obligations, it would be premature to claim that the Thai excise tax 
regime could be discriminatory, the United States stated that the Panel 
on "United States - Section 337 of the Tariff Act of 1930" had looked at the 
potential for discriminatory action rather than at specific instances of 
discrimination.

    (ii)    Business and Municipal Taxes

45. The United States argued that Thailand imposed business and 
municipal taxes on imported cigarettes, while exempting manufacturers and 
sellers of cigarettes made from domestic tobacco leaf from payment
of their taxes.  Thai officials had informed the United States that the 
Thai Tobacco Monopoly did not pay business and municipal taxes on any of 
its cigarette sales.  This clearly resulted in imposition of internal
taxes on imported products in excess of those applied to like domestic 
products and was thus inconsistent with Thailand's obligations under 
Article III.

46  Thailand responded that exemption from business and municipal 
taxes was not conditional upon whether the cigarettes were imported or 
domestically produced since cigarettes imported by "licensed tobacco
manufacturers" were also exempted from payment of the taxes.


<-------------------------- p 14 ------------------------------------>


47. The United States considered that exempting cigarettes imported 
by licensed tobacco manufacturers from payment of business and municipal 
taxes failed to resolve the issue of application of an additional
tax on some imported products, in that only Thai entities, with facilities in 
the country, had been licensed as tobacco manufacturers.  Thus, only the 
Thai Tobacco Monopoly or one of the other entities manufacturing tobacco 
products in Thailand could be exempted from the business and municipal taxes, 
in the event that they were authorized to import cigarettes.  Importers 
without such facilities and licenses were not exempted. The panel on "United 
States - Section 337 of the Tariff Act of 1930" [1] had concluded that the 
applicability of Article III:4 could not "be denied on the ground that 
most of the procedures in the case before the Panel are applied to 
persons rather than products, since the factor determining whether persons 
might be susceptible to Section 337 proceedings or federal district court 
procedures is the source of the challenged products, that is whether they 
are of United States origin or imported".  In the view of the United States 
a tax exemption based on the identity of the importer was inconsistent with 
Article III.

48. While disagreeing with this view, Thailand subsequently informed 
the Panel that the Ministry of Finance had decided to streamline the 
business and municipal tax regime on cigarettes and had proposed that a Royal
Decree be issued under the Revenue Code to explicitly exempt all 
cigarettes, whether imported or domestically produced, from payment of 
these taxes.  On 27 August 1990, Thailand informed the Panel that the Royal
Decree was adopted on 18 August 1990 and stated that Thailand had thereby 
fulfilled its Article III obligations with respect to business and 
municipal taxes on cigarettes.

IV. Submission by the European Communities

49. The European Communities stated that, as an important 
manufacturer and exporter of cigarettes, they had a significant interest 
in the opening of the Thai market for cigarettes which was estimated to 
be worth approximately US$1,500 million annually.  The Communities 
believed that the operation of Thailand's import licensing regime for 
cigarettes constituted a de facto prohibition inconsistent with Article XI:1, 
which wasnot covered by the exceptions set out in Article XI:2 or Article XX(b) 
and could not be justified under Thailand's Protocol of Accession to the 
GATT.  The Communities also believed that there was insufficient evidence that 
Thailand was bringing its internal taxes into conformity with Article III as 
it had undertaken to do at the time of its accession to GATT.  The 
maintenance on cigarettes of discriminatory excise and business taxes could 
not be justified under the terms of paragraph 3 of Thailand's Protocol, eight 
years after its accession.  The Communities therefore supported the United 
States in its request that the Panel recommend that Thailand eliminate 
the quantitative restrictions maintained on imports of cigarettes and
bring its tax laws and practices on cigarettes into conformity with its 
obligations under the General Agreement.

V.  Submission by the WHO

50. On the basis of the Memorandum of Understanding between the 
parties (see paragraph 3 above) and in pursuance of Thailand's request 
(paragraph 27 above), the Panel asked the World Health Organization(WHO) 
to present its conclusions on technical aspects of the case, such as the 
health effects of cigarette use and consumption, and on related issues 
for which the WHO was competent.

51. In submissions to the Panel which were generally supported by 
Thailand, representatives of the WHO explained that one of the best known 
effects of smoking was lung cancer but that pulmonary and cardiovascular 
diseases were also attributable to it, as were increased risks of miscarriage, 
still-births 



______________
    1. Panel report on "United States - Section 337 of the Tariff Act 
of 1930" (L/6439).


<---------------------------------- p 15 ------------------------------>



or reductions in birth weights.  Many other health problems had also been 
linked with smoking.  Cigarette smoking had been shown to be the leading 
cause of preventable death and disease in developed nations. 
As far as Thailand was concerned, smoking-related cancer was not as high 
as in many other developing countries and was relatively low in 
comparison to more affluent countries.  However, an increase in cigarette
smoking would lead to an increase in mortality due to lung cancer and 
hypertension, which was already rising because of the increase in 
cigarette consumption which had occurred 10 to 20 years ago.

52. According to the representatives of the WHO, cigarette smoking 
was declining in industrialized nations at a rate of 1.1 per cent a year, 
but rising in developing countries by 2.1 per cent a year.  Smoking 
prevalence was high among males in developing countries, but low among 
women and children.  There were sharp differences between the cigarettes 
manufactured in developing countries such as Thailand and those available
in developed countries.  In Thailand like in other developing countries, 
the market was dominated by a state-owned monopoly which promoted smoking 
minimally, in the absence of competition.  Locally grown tobacco leaf was 
harsher and smoked with less facility than the American blended tobacco used 
in international brands.  Locally-produced cigarettes were unlike those 
manufactured in western countries in that sophisticated manufacturing 
techniques such as the use of additives and flavourings, or the downward 
adjustment of tar and nicotine were not generally available, or were primitive 
in comparison to the techniques used by the multinational tobacco 
companies.  These differences were of public health concern because they made 
smoking western cigarettes very easy for groups who might not otherwise smoke, 
such as women and adolescents, and create the false illusion among many 
smokers that these brands were safer than the native ones which consumers were 
quitting.  In Thailand, half of the tobacco crop was consumed in the
form of hand-rolled cigars or cigarettes which yielded large amounts of 
nicotine and tar and were popular among the elderly.  However, their use 
was fading as old people died.  There was no indication that young
women turned to manufactured cigarettes instead of the self-made ones 
which their elders had smoked. Approximately half of all tobacco was used in 
the manufacturing of cigarettes by the government-owned monopoly which had 
produced 30.4 billion cigarettes in 1987.  An additional 1.5 billion 
cigarettes had been smuggled into the country the same year, and foreign 
cigarette companies had advertised these allegedly imported cigarettes on 
television and billboards despite the administrative ban on advertising which had
been in effect prior to the legislative ban.  Current adult smoking rates 
were 67 per cent for males and 6 per cent for females.  The male rate had 
declined by 6 per cent since 1981.  Adult per capita consumption
had also declined from 1,100 cigarettes per person in the late 1970s to 
900 in 1985.  The per capita rate was far lower than in the United States 
where it stood at 3,200 per person per year.  A major factor in
the recent decline in per capita consumption of cigarettes in Thailand 
had been the adoption of recommended WHO smoking control policies by the 
small but growing Thai tobacco control programme which had recently
secured passage of a law prohibiting all forms of tobacco advertising, 
including a ban on events sponsorship and forceful warning labels on 
packages.  A number of events and numerous educational programmes had
been held in Thailand on "World No Tobacco Day" by the Thai Anti-Smoking 
Group which had been critical of the Thai Government's support of tobacco 
and had acted independently of the Government.  If the multinational 
tobacco companies entered the market, the poorly-financed 
public health programmes would be unable to compete with the marketing 
budgets of these companies, as had been the case in other Asian
countries whose markets had been opened.  As a result, cigarette 
consumption and, in turn, death and disease attributable to smoking would 
increase.

53. The representatives of the WHO stated that the use of additives 
in American cigarettes had increased greatly during the 1970s with the 
introduction of low-yield cigarettes.  They were used to restore the lost
flavour of the cigarette brought about by the reduction in tar and 
nicotine.  The US Surgeon-General reports had concluded that the lowering 
of tar and nicotine had only a marginal benefit in contrast to quitting. 
Smokers of low-yield cigarettes had been found to increase their 
consumption or to inhale more deeply. The health effects of cigarette additives 
were being analysed by the US Department of Health and Human Services which 
considered this task to be "enormously complex and expensive".  Serious 
concerns about the presence in cigarettes of certain additives had been 
raised by the American Health Foundation which 


<---------------------------- p 15 ----------------------------------->

acted as a consultant to the Department of Health and Human Services on this 
issue.  However, there was no scientific evidence that one type of 
cigarette was more harmful to health than another.  

54. According to the WHO representatives, another major difference 
between manufacturers of American cigarettes and of Thai cigarettes was 
that the former designed special brands aimed at the female market. 
These cigarettes contained a much lower tar and nicotine level, thus 
making it easier for women to inhale the smoke.  Some were also made to 
appeal to women by the addition of perfume or were made long and
slender to suggest that smoking would result in thinness.

55. The WHO representatives stated that the experience in Latin 
America and Asia showed that the opening of closed cigarette markets 
dominated by a state tobacco monopoly resulted in an increase in smoking. 
Multinational tobacco companies had routinely circumvented national 
restrictions on advertising through indirect advertising and a variety of 
other techniques.  However, one country outside Latin America and
Asia had recently taken action to ban the utilization in advertising of 
brand imagery linked to tobacco products.  Particularly concerned by the 
threats posed by advertising, the member states of WHO had adopted
in May 1990, resolution WHO 43.16 which urged all member states:

    "to consider including in their tobacco control strategies plans 
for legislation or other effective measures at the appropriate government 
level providing for:

        ...

        (c) progressive restrictions and concerted actions to 
eliminate eventually all direct and indirect advertising, promotion and 
sponsorship concerning tobacco;"

56. The representatives of the WHO stated that their organization had 
convened in 1982 an Expert Committee on "Smoking Control Strategies in 
Developing Countries" which had made a number of recommendations
designed to reduce smoking.  In particular, this Committee, many of whose 
recommendations had already been adopted in Thailand, had recommended to 
developing countries that all advertising and promotion of tobacco 
products be prohibited, including through the sponsorship of 
sporting events, that where tobacco is a commercial crop, its rôle be 
reduced in the economy through alternative use of land and labour for
which the assistance of organizations within the UN system, such as FAO 
and the World Bank, would be sought.  The same Committee had recommended 
to developed countries, inter alia, that any action possible be taken to 
curb activities aimed at promoting and selling tobacco products and that any 
exported tobacco products conform to standards obtaining in the exporting 
country in terms of health warnings, emissions and product information.

57. The representatives of WHO also stated that policies which raised 
the price of cigarettes, for instance through taxation, could result in a 
reduction in smoking.  Studies showed that price elasticities were higher
for younger smokers than for dependent ones.  A recent study carried out 
in a developing country indicated that the price elasticity of smoking 
was higher in developing countries than in developed ones, thus making
measures which raise the price of cigarettes, such as excise taxes, 
effective public health policy tools in such countries.

58. Responding to the submission of the WHO, the United States did 
not take issue with its statements regarding the effect of cigarette use 
or consumption on human health because this was within the WHO's
area of recognized expertise.  However, the United States took issue with 
some of the conclusions drawn by the WHO on the effect of lifting the 
import ban on cigarettes in Thailand as well as with the factual
basis for these conclusions.  The United States did not consider that the 
WHO was specially competent to address the "health consequences of the 
opening of the market for cigarettes" as requested by Thailand,


<------------------------------- p 17 ------------------------------->


but urged the Panel to limit the issues presented to the WHO to those 
aspects referred to in the Memorandum of Understanding between the 
parties (see paragraph 3 above).

59. On the question of additives contained in American cigarettes, 
the United States noted that the American Health Foundation had stated 
that for the great majority of agents in the list of tobacco additives 
contained in the 1988 report of the Independent Scientific Committee on 
Smoking and Health, they had no knowledge of adverse health effects.  
Nevertheless, some of the agents aroused concern.

60. The United States disagreed with the assertion that Thai 
cigarettes were unlike western cigarettes. In the view of the United 
States, the Thai Tobacco Monopoly had used additives and flavourings for some
time and had imitated United States cigarettes with the help of imports 
of United States tobacco.  While the equipment presently used by the Thai 
Tobacco Monopoly was not very modern, some of the machinery
being purchased would permit the reconstitution of tobacco and the use of 
other modern cigarette manufacturing techniques.  Neither did the United 
States agree with the view that prior to the imposition of the total ban 
on cigarette advertising, foreign companies had been advertising smuggled 
cigarettes.  Some of the actions complained of could have been instances of 
trademark infringements or marketing of legitimate goods.  Moreover, the 
Thai Tobacco Monopoly had been advertising its cigarettes during the period 
when the administrative ban had been in force.  The United States noted that 
Thailand cited the figure of 3.5 per cent for the smoking rate among 
women whereas the WHO reported the figure of 6 per cent.  While such 
statistics did not appear reliable, what seemed certain was that the level of 
production of cigarettes in Thailand was rising at a large and steady pace.

61. As to the effect of the lifting of restrictions on imports in 
other Asian countries, the United States considered that in these 
countries such restrictions as may have been implemented had not been 
effective in decreasing the level of consumption.  In one of these countries 
consumption had declined after the cigarette market had been opened and 
had been accompanied by a shift in consumption from domestic to foreign
cigarettes.  In another country, the growth rate of consumption had 
slowed down after the market had been opened while in the third, 
consumption had not changed in the 18 months which had passed since the market 
had been opened.  Comparisons between one of these countries and in particular 
Thailand were not appropriate because of developmental and cultural 
differences.  It was therefore not accurate to draw the conclusion on the 
basis of the experience of these countries, that smoking among Thai women 
would increase as a result of opening of the Thai market.

62. The United States also stated that the 1989 Report of the United 
States Surgeon General had concluded that there was no scientifically 
rigorous study available to the public that provided a definitive answer to
the basic question of whether advertising and promotion increase the 
level of tobacco consumption and that the extent of the influence of 
advertising and promotion on the level of smoking was unknown and
possibly unknowable.  ("Surgeon General, Reducing the Health Consequences 
of Smoking" 512-12(1989).)  Even if it were accepted that advertising 
had an effect on the level of consumption of cigarettes, restrictions
on advertising and fiscal measures to affect the price of cigarettes were 
available to control the level of consumption.  Such measures could be 
applied on the basis of national treatment and thus provide a GATT
consistent measure of addressing the problem.  The United States could 
not share the view that the Thai government and the anti-smoking lobby 
would not be able to resist the efforts of the foreign cigarette interests
to permit the marketing practices that they opposed.



VI. FINDINGS

<------------------------------- p 18 -------------------------------->


A.  Introduction

63. The Panel noted that the issues before it arise essentially from 
the following facts:  Thailand restricts the importation of cigarettes 
under the Tobacco Act of 1966, which states that "the importation ...  of 
tobacco is prohibited except by licence of the Director-General".  
Tobacco is defined in the Act to include cigarettes. 
Import licences for cigarettes have not been granted for the past ten 
years.  Thailand also imposes on cigarettes an excise tax and, until 
recently, business and municipal taxes.  The Tobacco Act enables the Thai
Government to impose a maximum excise tax of 60 per cent on domestic 
cigarettes and the higher of 80 percent or 0.60 baht/gram on imported 
cigarettes.  Until 11 July 1990, the excise tax on domestic cigarettes
varied in proportion to their foreign tobacco content;  the more foreign 
tobacco they contained, the higher the excise tax rate.  On 11 July 1990, 
Thailand modified its regulations to provide for an excise tax of
55 per cent for all cigarettes.  Until 18 August 1990 business and 
municipal taxes were payable on all cigarettes except those sold by 
licensed cigarette manufacturers or which were made from domestic 
tobacco.  On 18 August 1990 Thailand modified its regulations with the 
effect that all cigarettes were exempt from business and municipal taxes.

64. Thailand's 1982 Protocol of Accession records its intention to 
bring as soon as possible its business and excise taxes into conformity 
with Article III of the General Agreement.  The Protocol provided for
a review by the CONTRACTING PARTIES if during the period ending 30 June 
1987 Thailand had not made the necessary modifications.  This period was 
subsequently extended by the CONTRACTING PARTIES until 30 June 1990, when 
it lapsed.

65. The United States requested the Panel to find that the cigarette 
import restrictions were inconsistent with Article XI:1 of the General 
Agreement and were not covered by any of the exceptions in the General
Agreement, in particular Articles XI:2(c)(i) and XX(b), or by the 
provisions of Thailand's Protocol of Accession.  It further requested the 
Panel to find that the taxes on cigarettes were contrary to the national
treatment provisions of Article III.  The United States asked the Panel 
to recommend that Thailand eliminate its quantitative restrictions on the 
importation of cigarettes, and that it bring its taxes on cigarettes into
conformity with its obligations under the General Agreement.

66. Thailand requested the Panel to find that its restrictions on the 
importation of cigarettes were justified under Articles XI:2(c)(i) and 
XX(b) and by the provisions of Thailand's Protocol of Accession, and that
its taxes on cigarettes were consistent with Article III.

B.  Restrictions on the Importation of Cigarettes

    (i) Article XI:1

67. The Panel, noting that Thailand had not granted licences for the 
importation of cigarettes during the past 10 years, found that Thailand 
had acted inconsistently with Article XI:1, the relevant part of which
reads:

    "No prohibitions or restrictions ... made effective through ... 
import licences ... shall be instituted or maintained by any contracting 
party on the importation of any product of the territory of any other
contracting party ...".




    (ii)    Article XI:2(c)(i)

<------------------------------------- p 19 -------------------------->

68. The Panel then examined Thailand's claim that its restrictions on 
the importation of cigarettes were necessary to enforce domestic marketing 
or production restrictions for leaf tobacco and cigarettes and that
they were therefore justified by Article XI:2(c)(i), the relevant part of 
which reads:

    "The provisions of paragraph 1 of this Article shall not extend 
to the following:
        ...
        (c) Import restrictions on any agricultural or 
fisheries product, imported in any form, necessary to the enforcement of 
governmental measures which operate:

            (i) to restrict the quantities of the like 
domestic product permitted to be marketed or produced..."

The Panel noted that this provision refers to "agricultural products" and 
agricultural products "imported in any form", and defines the latter in 
the Note ad Article XI:2(c) [1] as covering 

    "the same products when in an early stage of processing and still 
perishable, which compete directly with the fresh product and if freely 
imported would tend to make the restriction on the fresh product
ineffective."

69. In the view of the Panel, the reference to "the fresh product" in 
this Note makes clear that the agricultural products subject to marketing 
or production restrictions must be fresh products.  It noted that a previous
panel had reached the same conclusion, stating that "the focus of this 
provision was limited to a fresh product" and that 

    "the domestic product subject to restrictions had to be the 
product produced by farmers" [2].

The Panel noted that this interpretation was borne out by the drafting 
history, which suggested that the provision was intended to enable 
governments to protect farmers and fishermen who, because of the
perishability of their produce, often could not withhold excess supplies 
of fresh product from the market. At Havana, the relevant sub-committee 
agreed that the exception 

    "should not be construed as permitting the use of quantitative 
restrictions as a method of protecting the industrial processing of 
agricultural or fisheries products" [3].

70. The Panel found for these reasons that the only domestic 
marketing and production restrictions that would be relevant under Article 
XI:2(c)(i) were those that Thailand claimed to have imposed on the production
of leaf tobacco - not those on cigarettes - and that consequently this 
provision would cover import restrictions only on (a) products that were 
"like" domestic leaf tobacco and (b) products

_______________
    1. Article XXXIV makes this Note an integral part of the General Agreement.
    2. Report of the panel on "Canada - Import Restrictions on Ice 
Cream and Yoghurt" (L/6568, paragraph 66,adopted on 4 December 1989).  
See also:  Report of the panel on "Japan - Restrictions on the Import of
Certain Agricultural Products" (BISD 35S/163, paragraph 5.3.12, adopted 
on 22 March 1989).
    3. United Nations Conference on Trade and Employment, Reports of 
the Committees and PrincipalSub-Committees, ICITO/I/8, page 94.  See 
also:  Report of the panel on "Canada - Import Restrictions
on Ice Cream and Yoghurt" (L/6568, paragraph 60, adopted on 4 December 
1989);  Report of the panel on "Japan - Restrictions on the Import of 
Certain Agricultural Products" (BISD 35S/163, paragraph 5.1.2,
adopted on 22 March 1988).


<--------------------------------- p 20 ------------------------------->

processed from such "like" products that met the conditions of the Note 
ad Article XI:2(c).  The Panel, noting that cigarettes were not "like" 
leaf tobacco, but processed from leaf tobacco, examined whether
cigarettes fell within the range of products covered by this Note.  It 
recognized that a central requirement of the Note was that the product 
processed from the fresh product was still "in an early stage of processing". 
It noted that a previous panel had found that agricultural products not 
normally intended for further processing such as ketchup could not be 
regarded as eligible for import restrictions under Article XI:2(c)(i) [1].  
Since cigarettes could not be described as "leaf tobacco in an early stage of 
processing" because they had already undergone extensive processing and, 
moreover, were not intended for further processing, the Panel found that they 
were not among the products eligible for import restrictions under Article 
XI:2(c)(i).

71. Having made this finding, the Panel did not consider it necessary 
to examine whether Thailand had met the other requirements of Article 
XI:2(c)(i), in particular whether the quantities of leaf tobacco permitted
to be marketed or produced had in fact been restricted;  whether, in 
spite of the absence of imports of cigarettes during ten years, 
Thailand's import measure could nevertheless be regarded as an import restriction
rather than an import prohibition;  and whether Thailand had fulfilled 
the public notice and the proportionality requirements of the last 
paragraph of Article XI:2.

    (iii)   Article XX(b)

72. The Panel proceeded to examine whether Thai import measures 
affecting cigarettes, while contrary to Article XI:1, were justified by 
Article XX(b), which states in part:

    "... nothing in this Agreement shall be construed to prevent the 
adoption or enforcement by any contracting party of measures:
         ...
    (b) necessary to protect human ... life or health".

73. The Panel then defined the issues which arose under this 
provision.  In agreement with the parties to the dispute and the expert 
from the WHO, the Panel accepted that smoking constituted a serious risk
to human health and that consequently measures designed to reduce the 
consumption of cigarettes fell within the scope of Article XX(b).  The 
Panel noted that this provision clearly allowed contracting parties to give
priority to human health over trade liberalization;  however, for a 
measure to be covered by Article XX(b) it had to be "necessary".

74. The Panel noted that a previous panel had discussed the meaning 
of the term "necessary" in the context of Article XX(d), which provides an 
exemption for measures which are "necessary to secure compliance
with laws or regulations which are not inconsistent" with the provisions 
of the General Agreement.  The panel had stated that 

    "a contracting party cannot justify a measure inconsistent with 
other GATT provisions as "necessary" in terms of Article XX(d) if an 
alternative measure which it could reasonably be expected to employ and 
which is not inconsistent with other GATT provisions is available to it.  
By the same token, incases where a measure consistent with other GATT 
provisions is not reasonably available, a contracting party is bound to use, 
among the measures reasonably available to it, that which entails the least 
degree of inconsistency with other GATT provisions."(emphasis supplied) [2]
_______________
    1. Report of the panel on "Japan - Restrictions on the Import of 
Certain Agricultural Products" (BISD35S/163, paragraph 5.3.12, adopted on 
22 March 1988).
    2. Report of the panel on "United States - Section 337 of the 
Tariff Act of 1930" (L/6439, paragraph 5.26,adopted on 7 November 1989).


<---------------------------------- p 21 ------------------------------>



The Panel could see no reason why under Article XX the meaning of the 
term "necessary" under paragraph (d) should not be the same as in 
paragraph (b).  In both paragraphs the same term was used and the same
objective intended:  to allow contracting parties to impose trade 
restrictive measures inconsistent with the General Agreement to pursue 
overriding public policy goals to the extent that such inconsistencies were
unavoidable.  The fact that paragraph (d) applies to inconsistencies 
resulting from the enforcement of GATT-consistent laws and regulations 
while paragraph (b) applies to those resulting from health-related
policies therefore did not justify a different interpretation of the term 
"necessary".

75. The Panel concluded from the above that the import restrictions 
imposed by Thailand could be considered to be "necessary" in terms of 
Article XX(b) only if there were no alternative measure consistent with the
General Agreement, or less inconsistent with it, which Thailand could 
reasonably be expected to employ to achieve its health policy 
objectives.  The Panel noted that contracting parties may, in accordance with
Article III:4 of the General Agreement, impose laws, regulations and 
requirements affecting the internal sale, offering for sale, purchase, 
transportation, distribution or use of imported products provided they do
not thereby accord treatment to imported products less favourable than 
that accorded to "like" products of national origin.  The United States 
argued that Thailand could achieve its public health objectives through
internal measures consistent with Article III:4 and that the 
inconsistency with Article XI:1 could therefore not be considered to be 
"necessary" within the meaning of Article XX(b). The Panel proceeded to examine
this issue in detail.

76. The Panel noted that the principal health objectives advanced by 
Thailand to justify its import restrictions were to protect the public 
from harmful ingredients in imported cigarettes, and to reduce the  
consumption of cigarettes in Thailand.  The measures could thus be seen 
as intended to ensure the quality and reduce the quantity of cigarettes 
sold in Thailand.

77. The Panel then examined whether the Thai concerns about the 
quality of cigarettes consumed in Thailand could be met with measures 
consistent, or less inconsistent, with the General Agreement.  It noted that
other countries had introduced strict, non-discriminatory labelling and 
ingredient disclosure regulations which allowed governments to control, 
and the public to be informed of, the content of cigarettes.  A
non-discriminatory regulation implemented on a national treatment basis 
in accordance with Article III:4 requiring complete disclosure of 
ingredients, coupled with a ban on unhealthy substances, would be an
alternative consistent with the General Agreement.  The Panel considered 
that Thailand could reasonably be expected to take such measures to 
address the quality-related policy objectives it now pursues through
an import ban on all cigarettes whatever their ingredients.

78. The Panel then considered whether Thai concerns about the 
quantity of cigarettes consumed in Thailand could be met by measures 
reasonably available to it and consistent, or less inconsistent, with the 
General Agreement.  The Panel first examined how Thailand might reduce 
the demand for cigarettes in a manner consistent with the General 
Agreement.  The Panel noted the view expressed by the WHO that the demand
for cigarettes, in particular the initial demand for cigarettes by the 
young, was influenced by cigarette advertisements and that bans on 
advertisement could therefore curb such demand.  At the Forty-third World
Health Assembly a resolution was approved stating that the WHO is:

    "Encouraged by ... recent information demonstrating the 
effectiveness of tobacco control strategies, and in particular ...  
comprehensive legislative bans and other restrictive measures to 
effectively control the direct and the indirect advertising, promotion 
and sponsorship of tobacco" [1].


_______________
    1. Forty-third World Health Assembly, Fourteenth plenary meeting, 
Agenda Item 10, 17 May 1990(A43/VR/14;  WHA43.16).


<------------------------------- p 22 ------------------------------->


The resolution goes on to urge all member states of the WHO

    "to consider including in their tobacco control strategies plans 
for legislation or other effective measures at the appropriate government 
level providing for:
        ...
        (c) progressive restrictions and concerted actions to 
eliminate eventually all direct and indirect advertising, promotion and 
sponsorship concerning tobacco" [1]

A ban on the advertisement of cigarettes of both domestic and foreign 
origin would normally meet the requirements of Article III:4.  It might 
be argued that such a general ban on all cigarette advertising would
create unequal competitive opportunities between the existing Thai 
supplier of cigarettes and new, foreign suppliers and was therefore 
contrary to Article III:4 [2].  Even if this argument were accepted, such an
inconsistency would have to be regarded as unavoidable and therefore necessary 
within the meaning of Article XX(b) because additional advertising rights 
would risk stimulating demand for cigarettes.  The Panel noted that Thailand 
had already implemented some non-discriminatory controls on demand, including
information programmes, bans on direct and indirect advertising, warnings 
on cigarette packs, and bans on smoking in certain public places.  

79. The Panel then examined how Thailand might restrict the supply of 
cigarettes in a manner consistent with the General Agreement.  The Panel 
noted that contracting parties may maintain governmental monopolies,
such as the Thai Tobacco Monopoly, on the importation and domestic sale 
of products [3].  The Thai Government may use this monopoly to regulate the 
overall supply of cigarettes, their prices and their retail
availability provided it thereby does not accord imported cigarettes less 
favourable treatment than domestic cigarettes or act inconsistently with 
any commitments assumed under its Schedule of Concessions [4].  As to the 
pricing of cigarettes, the Panel noted that the Forty-third World Health 
Assembly, in its resolution cited above, stated that it was:

    "Encouraged by ...  recent information demonstrating the 
effectiveness of tobacco control strategies, and in particular ...  
policies to achieve progressive increases in the real price of tobacco." 

It accordingly urged all member states

    "to consider including in their tobacco control strategies plans 
for ... progressive financial measures aimed at discouraging the use of 
tobacco" [5]

For these reasons the Panel could not accept the argument of Thailand 
that competition between imported and domestic cigarettes would 
necessarily lead to an increase in the total sales of cigarettes and that Thailand
therefore had no option but to prohibit cigarette imports.  


_______________
    1. Forty-third World Health Assembly, Fourteenth plenary meeting, 
Agenda Item 10, 17 May 1990(A43/VR/14;  WHA43.16).
    2. On the requirement of equal competitive opportunities, see the 
Report of the panel on "United States- Section 337 of the Tariff Act of 
1930" (L/6439, paragraph 5.26, adopted on 7 November 1989).
    3. Cf.  Articles III:4, XVII and XX(d).
    4. Cf.  Articles III:2 and 4 and II:4.
    5. Forty-third World Health Assembly, Fourteenth plenary meeting, 
Agenda Item 10, 17 May 1990(A43/VR/14;  WHA43.16).


<------------------------------- p 23 --------------------------------->


80. The Panel then examined further the resolutions of the WHO on 
smoking which the WHO made available.  It noted that the health measures 
recommended by the WHO in these resolutions were non-discriminatory and 
concerned all, not just imported, cigarettes.  The Panel also examined the 
Report of the WHO Expert Committee on Smoking Control Strategies in 
Developing Countries.  The Panel observed that a common consequence of import 
restrictions was the promotion of domestic production and the fostering
of interests in the maintenance of that production and that the WHO 
Expert Committee had made the following recommendation relevant in this 
respect:

    "Where tobacco is already a commercial crop every effort should 
be made to reduce its role in the national economy, and to investigate 
alternative uses of land and labour.  The existence of a tobacco
industry of any kind should not be permitted to interfere with the 
implementation of educational and other measures to control smoking." [1]

81. In sum, the Panel considered that there were various measures 
consistent with the General Agreement which were reasonably available to 
Thailand to control the quality and quantity of cigarettes smoked and
which, taken together, could achieve the health policy goals that the 
Thai government pursues by restricting the importation of cigarettes 
inconsistently with Article XI:1.  The Panel found therefore that Thailand's
practice of permitting the sale of domestic cigarettes while not 
permitting the importation of foreign cigarettes was an inconsistency 
with the General Agreement not "necessary" within the meaning of Article 
XX(b).

    (iv)    Protocol of Accession

82. The Panel then proceeded to examine whether Thailand's Protocol 
of Accession exempted import measures taken under the Tobacco Act from the 
application of Article XI:1 of the General Agreement. Paragraph 1(b) of the 
Protocol contains the usual existing legislation clause which states:

    "Thailand ... shall apply to contracting parties provisionally 
and subject to this Protocol ...  (b) Part II of the General Agreement to 
the fullest extent not inconsistent with its legislation existing on the date
of this Protocol." [2]

Section 27 of the Tobacco Act states that "the importation ... of tobacco 
is prohibited except by licence of the Director-General".  The United 
States argued that the existing legislation clause covered only legislation
which was mandatory and that Section 27 of the Tobacco Act, although 
expressed as a prohibition, in fact provided for licensing of tobacco 
imports.  Thailand argued that the intent of the Tobacco Act was to restrict
imports of cigarettes and that it was therefore mandatory.  

83. The Panel noted that previous panel reports had concluded that 
legislation had to meet three criteria in order to qualify under the 
existing legislation clause.  It had to

    "(a)    be legislation in the formal sense,
     (b)    predate the Protocol and
     (c)    be mandatory in character by its terms or expressed intent"[3]


_______________
    1. 1982 Expert Committee on "Smoking Control Strategies in 
Developing Countries", page 69;  citedat page 16 in the WHO Submission to 
the Panel of 19 July 1990.
    2. Thailand Protocol of Accession (BISD 29S/3).
    3. Report of the panel on "Norway - Restrictions on Imports of 
Apples and Pears" (L/6474, paragraph 5.7,adopted on 21 June 1989).



<------------------------------- p 24 -------------------------------->


The mandatory character required for such legislation was examined in a 
1949 Working Party report which stated that the existing legislation 
clause applied only to 

"legislation which is of a mandatory character by its terms or expressed 
intent - that is, it imposes on the executive authority requirements 
which cannot be modified by executive action" [1]

The Panel noted that, while the Tobacco Act was legislation in the formal 
sense and predated the Protocol of Accession of Thailand, it did not, by 
its terms or expressed intent, impose on the Thai executive authorities
a requirement to restrict imports that could not be modified by executive 
action.  On the contrary, Section 27 of the Act explicitly gives the Thai 
executive authorities the power to grant import licences.  The Panel
therefore found that the existing legislation clause in Thailand's 
Protocol of Accession did not exempt the restrictions on the importation 
of cigarettes from Thailand's obligations under the General Agreement.

C.  Internal Taxes on Cigarettes 

    (i) Excise Tax

84. The Panel then turned to the issue of internal taxation and 
examined whether excise taxes which could be levied by Thai authorities on 
foreign cigarettes were consistent with Article III.  The United States 
argued that the higher ceiling (80 per cent versus 60 per cent) on imported 
cigarettes was inconsistent with Article III:2 which provided for 
national treatment on internal taxes. In addition, the actual rate charged
for domestic cigarettes was calculated as a proportion of the domestic 
tobacco content which, by affording protection to domestic production, 
contravened Article III:1.  Thailand replied that on 11 July 1990 the
Ministry of Finance had issued a regulation stipulating that the excise 
tax would be applied at a single effective rate of 55 per cent for all 
cigarettes, domestic or imported.  The United States argued that it was
not sufficient under Article III for the rates effectively levied to be 
the same;  the maximum rates that could be levied under the legislation 
also had to be non-discriminatory.  The Panel noted that previous panels
had found that legislation mandatorily requiring the executive authority 
to impose internal taxes discriminating against imported products was 
inconsistent with Article III:2, whether or not an occasion for its actual
application had as yet arisen;  legislation merely giving the executive 
the possibility to act inconsistently with Article III:2 could not, by 
itself, constitute a violation of that provision [2].  The Panel agreed 
with 
the above reasoning and found that the possibility that the Tobacco Act 
might be applied contrary to Article III:2 was not sufficient to make it 
inconsistent with the General Agreement.

    (ii)    Business and Municipal Tax

85. The Panel then examined whether the exemption from Thai business 
and municipal taxes, which benefited local manufacturers and sellers of 
cigarettes made from domestic tobacco leaf, was contrary to Article III. 
The United States argued that this provision was inconsistent with 
Article III since it resulted in the imposition of internal taxes on the 
imported product in excess of those on the domestic product.  Thailand replied
that on 18 August 1990 it had issued a regulation which would remove 
business and municipal taxes on cigarettes.
_______________
    1. Working Party on "Notifications of existing measures and 
procedural questions" (BISD III/49,paragraph 99 at 62;  approved by the 
CONTRACTING PARTIES on 10 August 1949);  Report of the panel
on "Norway - Restrictions on imports of apples and pears" (L/6474 at 
paragraph 5.6, adopted on 21 June 1989).
    2. Report of the panel on "EEC - Regulation on Imports of Parts and 
Components" (L/6657 atparagraph 5.25, adopted on 16 May 1990).  Report of 
the panel on "United States - Taxes on Petroleum and Certain Imported 
Substances" (BISD 34S/160, 164, adopted on 17 June 1987).



<----------------------------- p 25 ------------------------------->


86. The Panel observed that the new Thai measure, by eliminating 
business and municipal taxes on cigarettes, removed the internal taxes 
imposed on imported cigarettes in excess of those applied to domestic
cigarettes.  The Panel noted that, as in the case of the excise tax, the 
Tobacco Act continued to enable the executive authorities to levy the 
discriminatory taxes.  However, the Panel, recalling its findings on the
issue of excise taxes, found that the possibility that the Tobacco Act 
might be applied contrary to Article III:2 was, by itself, not sufficient 
to make it inconsistent with the General Agreement.  


VII.    CONCLUSIONS

87. The quantitative restrictions on the importation of cigarettes 
maintained by Thailand under Section 27 of its Tobacco Act of 1966 are 
contrary to Article XI:1 and are not justified by Article XI:2(c)(i),
Article XX(b), or paragraph 1(b) of Thailand's Protocol of Accession.

88. The current regulations relating to the excise, business and 
municipal taxes on cigarettes are consistent with Thailand's obligations 
under Article III of the General Agreement

89. The Panel recommends that the CONTRACTING PARTIES request 
Thailand to bring its application of Section 27 of the Tobacco Act into 
conformity with its obligations under the General Agreement.

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