Working Paper No 2011/16 | April 2011
Direct and Indirect
Discrimination in WTO Law
and EU Law
1 2
Thomas Cottier and Matthias Oesch
Abstract
Non-discrimination is at the heart of WTO law and EU law. Both layers of governance share
commonalities in addressing the operation of the principle, essentially banning
distinctions based upon the origin of products and the nationality of persons. Both share
the basic functions of preventing and correcting state failures in granting privileges and
undue protection to domestic products and nationals. A closer analysis, however,
shows important differences which we assign to different constitutional functions of the
WTO and to a much wider and more ambitious scope of EU law, including the explicit
pursuit of other policy goals and the protection of human rights. Functional differences
will remain. They need recognition. Yet, global regulatory needs show that the WTO
will need to expand to recognise a wider range of legitimate policy goals. In so doing,
it will move closer to the matrix defining non-discrimination at the regional level of the EU.
Stronger emphasis on compelling interests and proportionality offers a bridge to overcome
some of the divergence, contributing to the overall coherence of multilayered
governance.
1
Managing Director World Trade Institute, Director NCCR Trade Regulation, University of Bern
2
Assistant Professor of European and International Economic Law at the University of Bern,
Senior Research Fellow at the World Trade Institute
NCCR TRADE WORKING PAPERS are preliminary documents posted on the NCCR Trade
Regulation website (<www.nccr-trade.org>) and widely circulated to stimulate
discussion and critical comment. These papers have not been formally edited.
Citations should refer to a “NCCR Trade Working Paper”, with appropriate reference
made to the author(s).
, Direct and Indirect Discrimination in WTO Law and EU Law
Thomas Cottier and Matthias Oesch
Non-discrimination is at the heart of WTO law and EU law. Both layers of governance share commonalities in
addressing the operation of the principle, essentially banning distinctions based upon the origin of products and
the nationality of persons. Both share the basic functions of preventing and correcting state failures in granting
privileges and undue protection to domestic products and nationals. A closer analysis, however, shows important
differences which we assign to different constitutional functions of the WTO and to a much wider and more
ambitious scope of EU law, including the explicit pursuit of other policy goals and the protection of human
rights. Functional differences will remain. They need recognition. Yet, global regulatory needs show that the
WTO will need to expand to recognise a wider range of legitimate policy goals. In so doing, it will move closer
to the matrix defining non-discrimination at the regional level of the EU. Stronger emphasis on compelling inter-
ests and proportionality offers a bridge to overcome some of the divergence, contributing to the overall coher-
ence of multilayered governance.
I. Introduction...................................................................................................................................................2
II. The Essence of Non-Discrimination.............................................................................................................5
A. Equality....................................................................................................................................................................... 5
B. Equal Conditions of Competition................................................................................................................................5
C. Multilayered Governance............................................................................................................................................6
D. Main Challenges and Issues........................................................................................................................................7
III. The Legal Framework of Non-Discrimination...........................................................................................8
A. Scope of Protection..................................................................................................................................................... 8
B. Regulatory Approaches to Non-Discrimination...........................................................................................................9
C. Excluded Motives for Discrimination........................................................................................................................11
D. Included Motives for Discrimination.........................................................................................................................13
IV. The Operation of Non-Discrimination.......................................................................................................15
A. Tariffs and Taxes....................................................................................................................................................... 15
B. Non-Tariff Measures and Regulations.......................................................................................................................17
1. Product-Related Discrimination............................................................................................................................17
2. Process and Production Related Discrimination...................................................................................................19
C. Monopolies and State Trading...................................................................................................................................21
V. Conclusions..................................................................................................................................................23
1
, I. Introduction
International law has been based on the principle of sovereign equality of states.1 All states
shall be equal Members of the international community, notwithstanding differences of eco-
nomic, social or political characteristics, or of any other kind.2 Sovereign equality of states in
customary international law and in the law of the United Nations entitles states to be treated
equally before the law in terms of procedures and formalities of international relations. Thus,
equality means equality in legal status.3 Yet, it does not entail equal treatment in terms of trea-
ty relations and policies. Indeed, sovereignty entitles states to discriminate among their peers
and to prefer some over others in unilateral policies and bilateral relations.4 Equally, it has
been the raison d’être of nation states to protect and thus to privilege their own citizens and
domestic products within their jurisdiction. In international trade relations, the mercantilist
tradition is closely tied to this rationale. Discrimination has inherently been part of the West-
phalian state system, consisting of varying coalitions and balances of power. The advent of
the League of Nations and the United Nations did not fundamentally alter the equation. Prin-
ciples of non-discrimination among states have not emerged to form part of the general body
of contemporary customary international law or general principles of law.5 Moreover, non-
discrimination is not a self-standing human right and may be invoked only in the context of
more specific violations.6
Non-discrimination, instead, emerged as a specific trait of treaty-based international economic
law, in particular in international trade regulation and the protection of foreign direct invest-
ment.7 Today, it is the leading principle of the WTO and was essentially developed under the
General Agreement on Tariffs and Trade (GATT).8 It essentially consists of the principle of
1
I. Brownlie, Principles of Public International Law (Oxford: Oxford University Press, 6th ed. 2003), at
289-292; A. Peters, ‘Die Strukturähnlichkeit der Diskriminierungsverbote im Menschenrechtsbereich
und im Welthandelsrecht’, in S. Breitenmoser et al. (eds.), Human Rights, Democracy and the Rule of
Law, Liber amicorum Luzius Wildhaber (Zurich: Dike Verlag, 2007), 551, at 578; C. Tomuschat, ‘In-
ternational Law: Ensuring the Survival of Mankind on the Eve of a New Century’, Recueil des Cours
281 (1999), 161.
2
See, e.g., Declaration on Principles of International Law concerning Friendly Relations and Co-
operation among States in accordance with the Charter of the United States, G.A. Resolution 2625
(XXV), 24 United Nations Year Book (1970), 788.
3
Tomuschat, above n. 1, at 189.
4
G. Schwarzenberger, ‘Equality and Discrimination in International Economic Law’, The Yearbook of
World Affairs (London: Stevens & Sons, 1971), 163; W. F. Schwartz/A. O. Sykes, ‘The Economics of
the Most-Favored-Nation Clause’, in J. S. Bhandari/A. O. Sykes (eds.), Economic Dimensions in Inter-
national Law: Comparative and Empirical Perspectives (Cambridge: Cambridge University Press,
1997), 62.
5
M. Oesch, ‘Commercial Treaties’, in Max Planck Encyclopedia of Public International Law (Oxford:
Oxford University Press, 2009), para. 4.
6
Peters, above n. 1, at 554-562.
7
See, e.g., T. Cottier/M. Oesch, International Trade Regulation: Law and Policy in the WTO, the Euro-
pean Union and Switzerland. Cases, Materials and Comments (Berne/London: Stämpfli Publishers
Ltd/Cameron May), at 346-381; W. J. Davey/J. Pauwelyn, ‘MFN-Unconditionality: A Legal Analysis
of the Concept in View of its Evolution in the GATT/WTO Jurisprudence with Particular Reference to
the Issue of Like Product’, in T. Cottier/P. C. Mavroidis (eds.), Regulatory Barriers and the Principle of
Non-Discrimination in World Trade Law (Michigan: The University of Michigan Press, 2000), 13.
8
WTO law is reprinted in: The Results of the Uruguay Round of the Multilateral Trade Negotiations: the
Legal Texts (Geneva, 1995); Cottier/Oesch, above n. 7, at 346; V. Heiskanen, ‘The Regulatory Philoso-
2
Direct and Indirect
Discrimination in WTO Law
and EU Law
1 2
Thomas Cottier and Matthias Oesch
Abstract
Non-discrimination is at the heart of WTO law and EU law. Both layers of governance share
commonalities in addressing the operation of the principle, essentially banning
distinctions based upon the origin of products and the nationality of persons. Both share
the basic functions of preventing and correcting state failures in granting privileges and
undue protection to domestic products and nationals. A closer analysis, however,
shows important differences which we assign to different constitutional functions of the
WTO and to a much wider and more ambitious scope of EU law, including the explicit
pursuit of other policy goals and the protection of human rights. Functional differences
will remain. They need recognition. Yet, global regulatory needs show that the WTO
will need to expand to recognise a wider range of legitimate policy goals. In so doing,
it will move closer to the matrix defining non-discrimination at the regional level of the EU.
Stronger emphasis on compelling interests and proportionality offers a bridge to overcome
some of the divergence, contributing to the overall coherence of multilayered
governance.
1
Managing Director World Trade Institute, Director NCCR Trade Regulation, University of Bern
2
Assistant Professor of European and International Economic Law at the University of Bern,
Senior Research Fellow at the World Trade Institute
NCCR TRADE WORKING PAPERS are preliminary documents posted on the NCCR Trade
Regulation website (<www.nccr-trade.org>) and widely circulated to stimulate
discussion and critical comment. These papers have not been formally edited.
Citations should refer to a “NCCR Trade Working Paper”, with appropriate reference
made to the author(s).
, Direct and Indirect Discrimination in WTO Law and EU Law
Thomas Cottier and Matthias Oesch
Non-discrimination is at the heart of WTO law and EU law. Both layers of governance share commonalities in
addressing the operation of the principle, essentially banning distinctions based upon the origin of products and
the nationality of persons. Both share the basic functions of preventing and correcting state failures in granting
privileges and undue protection to domestic products and nationals. A closer analysis, however, shows important
differences which we assign to different constitutional functions of the WTO and to a much wider and more
ambitious scope of EU law, including the explicit pursuit of other policy goals and the protection of human
rights. Functional differences will remain. They need recognition. Yet, global regulatory needs show that the
WTO will need to expand to recognise a wider range of legitimate policy goals. In so doing, it will move closer
to the matrix defining non-discrimination at the regional level of the EU. Stronger emphasis on compelling inter-
ests and proportionality offers a bridge to overcome some of the divergence, contributing to the overall coher-
ence of multilayered governance.
I. Introduction...................................................................................................................................................2
II. The Essence of Non-Discrimination.............................................................................................................5
A. Equality....................................................................................................................................................................... 5
B. Equal Conditions of Competition................................................................................................................................5
C. Multilayered Governance............................................................................................................................................6
D. Main Challenges and Issues........................................................................................................................................7
III. The Legal Framework of Non-Discrimination...........................................................................................8
A. Scope of Protection..................................................................................................................................................... 8
B. Regulatory Approaches to Non-Discrimination...........................................................................................................9
C. Excluded Motives for Discrimination........................................................................................................................11
D. Included Motives for Discrimination.........................................................................................................................13
IV. The Operation of Non-Discrimination.......................................................................................................15
A. Tariffs and Taxes....................................................................................................................................................... 15
B. Non-Tariff Measures and Regulations.......................................................................................................................17
1. Product-Related Discrimination............................................................................................................................17
2. Process and Production Related Discrimination...................................................................................................19
C. Monopolies and State Trading...................................................................................................................................21
V. Conclusions..................................................................................................................................................23
1
, I. Introduction
International law has been based on the principle of sovereign equality of states.1 All states
shall be equal Members of the international community, notwithstanding differences of eco-
nomic, social or political characteristics, or of any other kind.2 Sovereign equality of states in
customary international law and in the law of the United Nations entitles states to be treated
equally before the law in terms of procedures and formalities of international relations. Thus,
equality means equality in legal status.3 Yet, it does not entail equal treatment in terms of trea-
ty relations and policies. Indeed, sovereignty entitles states to discriminate among their peers
and to prefer some over others in unilateral policies and bilateral relations.4 Equally, it has
been the raison d’être of nation states to protect and thus to privilege their own citizens and
domestic products within their jurisdiction. In international trade relations, the mercantilist
tradition is closely tied to this rationale. Discrimination has inherently been part of the West-
phalian state system, consisting of varying coalitions and balances of power. The advent of
the League of Nations and the United Nations did not fundamentally alter the equation. Prin-
ciples of non-discrimination among states have not emerged to form part of the general body
of contemporary customary international law or general principles of law.5 Moreover, non-
discrimination is not a self-standing human right and may be invoked only in the context of
more specific violations.6
Non-discrimination, instead, emerged as a specific trait of treaty-based international economic
law, in particular in international trade regulation and the protection of foreign direct invest-
ment.7 Today, it is the leading principle of the WTO and was essentially developed under the
General Agreement on Tariffs and Trade (GATT).8 It essentially consists of the principle of
1
I. Brownlie, Principles of Public International Law (Oxford: Oxford University Press, 6th ed. 2003), at
289-292; A. Peters, ‘Die Strukturähnlichkeit der Diskriminierungsverbote im Menschenrechtsbereich
und im Welthandelsrecht’, in S. Breitenmoser et al. (eds.), Human Rights, Democracy and the Rule of
Law, Liber amicorum Luzius Wildhaber (Zurich: Dike Verlag, 2007), 551, at 578; C. Tomuschat, ‘In-
ternational Law: Ensuring the Survival of Mankind on the Eve of a New Century’, Recueil des Cours
281 (1999), 161.
2
See, e.g., Declaration on Principles of International Law concerning Friendly Relations and Co-
operation among States in accordance with the Charter of the United States, G.A. Resolution 2625
(XXV), 24 United Nations Year Book (1970), 788.
3
Tomuschat, above n. 1, at 189.
4
G. Schwarzenberger, ‘Equality and Discrimination in International Economic Law’, The Yearbook of
World Affairs (London: Stevens & Sons, 1971), 163; W. F. Schwartz/A. O. Sykes, ‘The Economics of
the Most-Favored-Nation Clause’, in J. S. Bhandari/A. O. Sykes (eds.), Economic Dimensions in Inter-
national Law: Comparative and Empirical Perspectives (Cambridge: Cambridge University Press,
1997), 62.
5
M. Oesch, ‘Commercial Treaties’, in Max Planck Encyclopedia of Public International Law (Oxford:
Oxford University Press, 2009), para. 4.
6
Peters, above n. 1, at 554-562.
7
See, e.g., T. Cottier/M. Oesch, International Trade Regulation: Law and Policy in the WTO, the Euro-
pean Union and Switzerland. Cases, Materials and Comments (Berne/London: Stämpfli Publishers
Ltd/Cameron May), at 346-381; W. J. Davey/J. Pauwelyn, ‘MFN-Unconditionality: A Legal Analysis
of the Concept in View of its Evolution in the GATT/WTO Jurisprudence with Particular Reference to
the Issue of Like Product’, in T. Cottier/P. C. Mavroidis (eds.), Regulatory Barriers and the Principle of
Non-Discrimination in World Trade Law (Michigan: The University of Michigan Press, 2000), 13.
8
WTO law is reprinted in: The Results of the Uruguay Round of the Multilateral Trade Negotiations: the
Legal Texts (Geneva, 1995); Cottier/Oesch, above n. 7, at 346; V. Heiskanen, ‘The Regulatory Philoso-
2
