This paper analyzes a number of economic and legal issues raised by the Appellate Body Report in the Thai–Cigarettes case. The paper suggests two improvements that could be made to Panel procedures; supports the Appellate Body's interpretation of Article XX(d) in the present case, which seems to discard an earlier mistaken approach to Article XX; and examines, in some detail, whether the Appellate Body's application of the ‘less favourable treatment’ component of GATT Article III:4 in this and other cases is consistent with its jurisprudence under GATT Article III:2 and TBT Article 2.1. From an economics perspective, the case is straightforward on its face. However, the Appellate Body's rigorous application of the ‘less favourable treatment’ principle might not survive a fuller market analysis in terms of policy impacts on conditions of competition. Further, while we agree with the rejection of Thailand's Article XX claim, we raise the question of whether a strict national-treatment rule may be an unwarranted constraint on policy where there is a clear trade-related external cost to address.
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