The Tabac Republic is a small country that imports cigarettes from abroad and produces cigarettes domestically. In 2000, Tabac introduced a new internal tax of 5 percent on all cigarettes, whether produced locally or imported. 

To assist in the enforcement of the regulation, cigarette packages must have a "tax stamp" on them in order to be sold. The stamp certifies that the tax has been paid. The tax stamp is provided by the Tabac Tax Authority (TTA) and looks like this: 

The stamp must appear on the front or back of the package and must be placed against a plain background (i.e., it cannot be placed on top of text or graphics of any kind). 

The relevant statute provides that the tax stamp must be "affixed in the territory of the Tabac Republic and under the supervision of the local tax authorities." 

Domestic producers are allowed to pay the tax in advance, and they do. As a result, their cigarettes packages have the tax stamp pre-printed on them, which allows them to design their packaging with the stamp in mind. The TTA considers this to be consistent with the statute, because they are able to supervise the package design process and monitor production to ensure that the appropriate taxes are paid. 

Although any cigarette manufacturer is free to adopt the approach used by domestic producers, the requirement that the stamp be affixed in the Tabac Republic prevents foreign cigarette producers from including the stamp in their designs. Instead, imported cigarettes are brought into the country, and each package is then stamped. The producers of imported cigarettes have found that the best way to manage this task is to have a facility in the Tabac Republic. At this local facility, specialized equipment is used to affix the relevant stamps. In the production of the packaging, space is left for the stamp, but the way in which the stamp is affixed does not allow for as much precision as would be the case if the stamp were incorporated into the graphic design of the package. It has, as a result, proven to be difficult to achieve the same aesthetic quality of packaging as could be achieved if the stamp could be affixed prior to importation. 

The country of Marlbora sells cigarettes in Tabac. Marlbora has threatened to file a complaint at the WTO to protest the above Tabac rules. What could Marlbora plausibly complain about, what defenses would Tabac likely employ, and how do you think the case would come out if it went to a panel? 
 

APPROVED FOR SALE BY TTA