The Republic of Madagscar is a signatory to the General Agreement on Tariffs and Trade and a member of the WTO. Article III:2 of GATT states that a government must accord the same or better tax treatment to imported goods as it does to domestic products. Madagascar imposed a tax on imported lumber of 13 cents per board foot while its own lumber is taxed at 5 cents per board foot. Its own lumber industry is small and very inefficient. It exports a variety of manufactured goods to Canada.

Multiple Choice

A. Since the purpose of the GATT is to help reduce barriers to international free trade, it is likely that Madagascar's actions would breach the spirit of GATT.

B. Madagascar is obligated to follow the GATT rules on the restrictions it may impose on imports, or suffer countervailing duties being imposed by Canada on Madagascar's exports to Canada.

C. Madagascar is obligated to follow the GATT rules on the restrictions it may impose on imports, or suffer countervailing duties being imposed by Canada on Madagascar's exports to Canada and since the GATT is only a body of principles, Canada cannot use it to impose countervailing duties on Madagascar's exports to Canada.

D. Since the GATT is only a body of principles, Canada cannot use it to impose countervailing duties on Madagascar's exports to Canada.

E. Since the purpose of the GATT is to help reduce barriers to international free trade, it is likely that Madagascar's actions would breach the spirit of GATT and Madagascar is obligated to follow the GATT rules on the restrictions it may impose on imports, or suffer countervailing duties being imposed by Canada on Madagascar's exports to Canada.