For this question: To deal with these and other concerns, Patria's Parliament changed Patria's tax code to impose a "luxury tax" of 10 percent ad valorem on all products sold in Patria, be they imported or domestically produced, above 5,000 Patrian Pesos (PP) (the equivalent of US$2,000). 

For imports, this tax is levied at the border by Patria's customs authorities. For domestic products, it is levied at the time of production. When the new law was enacted, one Member of Parliament stated that "the goal of this new tax is to redistribute the gains of trade more fairly among Patria citizens." Another member of Parliament, heading the "Patria for Patrians" coalition, explained the tax as follows: 

"Now that we've joined the WTO, our companies are suffering from import competition. Real patriots buy Patrian goods. Why does anyone need a 6,000 PP watch from Helvetica if we can produce a watch for 50 PP at home?" Helvetica is a small, developed nation that created a niche for itself in the production and export of luxury goods such as watches, yachts, and limited-edition sports cars. In response to Patria's new tax, Helvetica requested and obtained a WTO panel to examine Patria's new tax regime. Helvetica is of the view that the tax is a thinly disguised form of protectionism prohibited under WTO rules. 

How would a WTO panel approach Patria's "luxury tax"? 

Does GATT Article III:2 apply to the tax and, if so, does the tax violate national treatment?

 

Why would Article III:2 apply if both domestic and imported good get taxed?

Answer rating: 100% (QA)

Answer To analyze how a WTO panel would approach Patrias luxury tax we need to consider the relevant GATT General Agreement on Tariffs and Trade provi... View the full answer