The GMSA is seeking impermissible protection

Aug 21, 2023 Features / Columnists, Peeping Tom

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Kaieteur News – The Guyana Manufacturing and Services Association (GMSA) must be operating in some alternative universe. Surely, the main representative organization for manufacturing and services cannot be serious, or be taken seriously when it pleads for the government to remove the VAT on locally manufactured and agro-processing products.

Such actions would be in violation of international and regional trade laws. It is absolutely bizarre that the GMSA does not know this or if it does still has the temerity to ask the government to violate foundational agreements governing international and regional trade.

Article 3 (2) of the General Agreement on Tariffs and Trade (GATT) states: “The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products.”

Article 3 (4) then states:  “The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use.”

What this means is that government is not allowed to remove a tax on local item unless it does the same for the same imported product. Government is not permitted, not allowed to give domestic production more favourable treatment than that accorded to like imported products.  These practices are contrary to international trade law and for the GMSA not to know this is a travesty, and if it knows and is still asking the government to do this then it clearly unaware of the ramifications of doing so.

The Dispute Panel of the WTO had, way back in 1958, found that Article 3 of the GATT was clearly intended to treat the imported products in the same way as the like domestic products once import duties had been paid.

In 1992, the Panel considered a case in which the United States was applying a lower tax on local beer than that which was applied to imported beer. The Panel said that this was inconsistent with national treatment and therefore with Article 3 of the GATT.  In another case involving Japan, the Panel observed that Article 3 obligates states to provide equality of competitive conditions for imported products in relation to domestic products.

The GMSA may be seeking protection from foreign competition. In this respect, Article 3 was never intended to stop member states of the WTO from imposing such protection but merely to determine the permissible forms of such protections. In another case, the Dispute Panel had ruled that such protection can be done through imported tariffs and not on domestic taxes, which is what the GMSA is seeking.

Article 3 of the GATT is known as the ‘national treatment’ rule. Under the Revised Treaty of Chaguaramas (RTC), there is what is known as the ‘nationality rule’ which follows along the same principles as the ‘national treatment’ rule. That rule is contained in Article 7 and is a general principle of the Caribbean Community.

But there is also Article 90 which is similar in intent to that of Article 3 of the GATT and which states as follows: “Save as otherwise provided in this Treaty, Member States shall not: (a) apply directly or indirectly to imported goods of Community origin any fiscal charges in excess of those applied directly or indirectly to like domestic goods, or otherwise apply such charges so as to protect like domestic goods”

A Surinamese company had taken Guyana to the Caribbean Court of Justice (CCJ) because Guyana had imposed an environmental tax on non-returnable imported containers. This tax was applied only to imported non-returnable containers but not on locally-produced non-returnable containers. Guyana had consistently ignored warnings from COTED on this issue.

It was argued that since Guyanese companies didn’t have to pay the tax, they had a clear competitive advantage over manufacturers from other CARICOM States. Guyana was favouring its own manufacturers and engaging in discriminatory treatment towards other manufacturers. The CCJ ruled against Guyana on the basis of Article 87 of the RTC. The CCJ treated the environmental tax as an import tax which was not permitted under the RTC. But they could also have ruled that it was in violation of Article 90 of the RTC.

A similar case was filed by another company. The government lost also, ending up costing taxpayers billions of dollars in refunds.

The Irfaan Ali administration therefore should reject outright what the GMSA is demanding. It should urge that body not to shoot from the hip but to seek proper advice before proposing measures for implementation by government.

(The views expressed in this article are those of the author and do not necessarily reflect the opinions and beliefs of this newspaper and its affiliates.)

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• General Agreement on Tariffs and Trade (GATT), Guyana Manufacturing and Services Association (GMSA), impermissible, Peeping Tom, Protection

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