1.1 WHAT IS THE WTO?
🡪The Marrakesh Agreement Established the World Trade Organization (WTO) 1994.
🡪 Legal instrument which binds parties.
Global international organization deals with
🡪 rules of trade between nations.
🡪WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.
🡪aid producers of goods and services, exporters, and importers conduct their business.
🡪rules of trade between nations at a global or near-global level.
🡪liberalizing trade.
🡪forum for governments to negotiate trade agreements.
🡪settle trade disputes.
🡪 operates a system of trade rules.
🡪negotiating forum
🡪member governments go,
🡪sort out the trade problems they face with each other.
The bulk of the WTO's current work comes from the 1986-94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT).
The WTO is currently the host to new negotiations, under the “Doha Development Agenda” launched in 2001.
Where countries face trade barriers and want them lowered, the negotiations help to liberalize trade.
The WTO also sets trade barriers, — for example to protect consumers or prevent the spread of disease.
It’s a set of rules … documents provide the legal ground-rules for international commerce. They are essentially contracts, binding governments to keep their trade policies within agreed limits. Although negotiated and signed by governments,
🡪producers of goods and services, exporters, and importers conduct their business, while allowing governments to meet social and environmental objectives.
🡪help trade flow as freely as possible — so long as there are no undesirable side-effects. 🡪removing obstacles
🡪ensuring that individuals, companies and governments know what the trade rules are
around the world.
🡪 no sudden changes of policy.
🡪rules have to be “transparent” and predictable.
🡪The World Trade Organization (WTO) is the only international organization dealing with
the global rules of trade between nations.
🡪 trade flows as smoothly, predictably and freely as possible.
🡪The result is assurance.
🡪Consumers and producers know that they can enjoy secure supplies and greater choice of the finished products, components, raw materials and services that they use.
🡪Producers and exporters know that foreign markets will remain open to them.
🡪 more prosperous, peaceful and accountable economic world.
🡪all decisions in the WTO are taken by consensus among all member countries and they are ratified by members' parliaments.
🡪 WTO's dispute settlement process 🡪interpreting agreements and commitments, and
🡪ensure that countries' trade policies conform with them.
🡪risk of disputes spilling over into political or military conflict is reduced.
🡪breaks down other barriers between peoples and nations.
Agreements🡪ground-rules for international commerce. 🡪contracts, guaranteeing member countries important trade rights. 🡪bind governments to keep their trade policies within agreed limits to everybody’s benefit.
The case for open trade
Freer trade = economic growth.
Economics tells us that we can benefit when these goods and services are traded.
🡪Principle of “comparative advantage” says that countries prosper first by taking advantage of their assets in order to concentrate on what they can produce best, and then by trading these products for products that other countries produce best.
🡪 Liberal trade policies — policies that allow the unrestricted flow of goods and services — sharpen competition, motivate innovation and breed success. 🡪 They multiply the rewards that result from producing the best products, with the best design, at the best price.
But success in trade is not static. The ability to compete well in particular products can shift from company to company when the market changes or new technologies make cheaper and better products possible. Producers are encouraged to adapt gradually and in a relatively painless way. They can focus on new products, find a new “niche” in their current area or expand into new areas.
Competitiveness can also shift between whole countries. A country that may have enjoyed an advantage because of lower labour costs or because it had good supplies of some natural resources, could also become uncompetitive in some goods or services as its economy develops. However, with the stimulus of an open economy, the country can move on to become competitive in some other goods or services. This is normally a gradual process.
Protectionism 🡪 Richer governments are likely to yield to the siren call of protectionism, for short term political gain — through subsidies, complicated red tape, and hiding behind legitimate policy objectives such as environmental preservation or consumer protection as an excuse to protect producers.
Protection ultimately leads to unattractive products.
🡪If other governments around the world pursue the same policies, markets contract and world economic activity is reduced.
🡪One of the objectives that governments bring to WTO negotiations is to prevent such a self-defeating and destructive drift into protectionism.
COMPARATIVE ADVANTAGE
Suppose country A is better than country B at making automobiles, and country B is better than country A at making bread. It is obvious (the academics would say “trivial”) that both would benefit if A specialized in automobiles, B specialized in bread and they traded their products.
That is a case of ABSOLUTE ADVANTAGE. (usually confused with comparative advantage) Be careful!
But what if a country is bad at making everything? Will trade drive all producers out of business? The answer, according to Ricardo, is no. The reason is the principle of COMPARATIVE ADVANTAGE
Ricardo’s comparative advantage theory
A country does not have to be best at anything to gain from trade. That is comparative advantage
It says, countries A and B still stand to benefit from trading with each other even if A is better than B at making everything. If A is much more superior at making automobiles and only slightly superior at making bread, then A should still invest resources in what it does best — producing
automobiles — and export the product to B. B should still invest in what it does best — making bread — and export that product to A, even if it is not as efficient as A. Both would still benefit from the trade.
It is often claimed, for example, that some countries have no comparative advantage in
anything. That is virtually impossible. Think about it…
2.2 TEN BENEFITS OF THE WTO TRADING SYSTEM
The system helps promote peace
Disputes are handled constructively
Rules make life easier for all
Freer trade cuts the costs of living
It provides more choice of products and qualities
Trade raises incomes
Trade stimulates economic growth
The basic principles make life more efficient
Governments are shielded from lobbying
The system encourages good government
Maintain peace
Trade war of the 1930s when countries competed to raise trade barriers in order to protect domestic producers and retaliate against each others’ barriers. This worsened the Great Depression and eventually played a part in the outbreak of World War 2.
Second World War Consequence
🡪In Europe, international cooperation developed in coal, and in iron and steel. (EU)
🡪Globally, the General Agreement on Tariffs and Trade (GATT) was created. (WTO)
Lesson 🡪 if trade flows smoothly and both sides enjoy a healthy commercial relationship, political conflict is less likely.
When governments are confident that others will not raise their trade barriers, they will not be tempted to do the same. They will also be in a much better frame of mind to cooperate with each other.
Particularly important are negotiations that lead to agreement by consensus, and a focus on abiding by the rules.
As trade expands in volume, in the number of products traded, and in the numbers of countries and companies trading, there is a greater chance that disputes will arise. The
WTO system helps resolve these disputes peacefully and constructively.
More trade means more possibilities for disputes to arise. Left to themselves, those disputes could lead to serious conflict. But in reality, a lot of international trade tension is reduced because 🡪reduced disputes 🡪countries can turn to organizations, in particular the WTO, to settle their trade disputes.
The fact that the disputes are based on WTO agreements means that there is a clear basis
for judging who is right or wrong. Once the judgement has been made, the agreements provide the focus for any further actions that need to be taken.
🡪closer economic ties throughout the world, the GATT/WTO’s expanding membership and the fact that countries have faith in the system to solve their differences.
🡪Decisions in the WTO are made by consensus. The WTO agreements were negotiated by
all members, were approved by consensus and were ratified in all members’ parliaments.
🡪Without a multilateral regime such as the WTO’s system, the more powerful countries would be freer to impose their will unilaterally on their smaller trading partners. Smaller countries would have to deal with each of the major economic powers individually, and would be much less able to resist unwanted pressure.
The principle of non-discrimination
🡪 built into the WTO agreements avoids that complexity.
🡪The fact that there is a single set of rules applying to all members greatly simplifies the entire trade regime.
🡪agreed rules give governments a clearer view of which trade policies are acceptable.
We are all consumers. The prices we pay for our food and clothing, our necessities and luxuries, and everything else in between, are affected by trade policies.
Protectionism is expensive: it raises prices. The WTO’s global system lowers trade barriers through negotiation and applies the principle of non-discrimination. The result is reduced costs of production (because imports used in production are cheaper) and reduced prices of finished goods and services, and ultimately a lower cost of living.
There are plenty of studies showing just what the impacts of protectionism and of freer trade are. These are just a few figures:
When you protect your agriculture, the cost of your food goes up — by an estimated $1,500 per year for a family of four in the European Union (1997); by the equivalent of a 51% tax on food in Japan (1995); by $3 billion per year added to US consumers’ grocery bills just to support sugar in one year (1988).
🡪Negotiating agricultural trade reform is a complex undertaking. Governments are still debating the roles agricultural policies play in a range of issues from food security to environmental protection. But WTO members are now reducing the subsidies and the trade barriers that are the worst offenders. And in 2000, new talks started on continuing the reform in
agriculture.
When the US limited Japanese car imports in the early 1980s, car prices rose by
41% between 1981 and 1984 — nearly double the average for all consumer products. The objective was to save American jobs, but the higher prices were an important reason why one million fewer new cars were sold, leading to more job losses.
One of the objectives of the Doha Development Agenda (DDA) is another round of cuts in tariffs on industrial products, i.e. manufactured and mining products.
🡪Trade barriers around the world are lower than they have ever been in modern trading history. They continue to fall, and we are all benefiting.
Think also of the things people in other countries can have because they buy exports from us and elsewhere. Look around and consider all the things that would disappear if all our imports were taken away from us. Imports allow us more choice — both more goods and services to choose from, and a wider range of qualities. Even the quality of locally produced goods can improve because of the competition from imports.
The wider choice isn’t simply a question of consumers buying foreign finished products.
Imports are used as materials, components and equipment for local production.
This expands the range of final products and services that are made by domestic
producers, and it increases the range of technologies they can use. When mobile
telephone equipment became available, services sprang up even in the countries that did
not make the equipment, for example.
Sometimes, the success of an imported product or service on the domestic market can
also encourage new local producers to compete, increasing the choice of brands available
to consumers as well as increasing the range of goods and services produced locally.
If trade allows us to import more, it also allows others to buy more of our exports. It
increases our incomes, providing us with the means of enjoying the increased choice.
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Lowering trade barriers allows trade to increase, which adds to incomes — national incomes and personal incomes. But some adjustment is necessary.
In Europe, the EU Commission calculates that over 1989–93 EU incomes increased by
1.1–1.5% more than they would have done without the Single Market.
So trade clearly boosts incomes.
Trade also poses challenges as domestic producers face competition from imports.
Trade clearly has the potential to create jobs. In practice there is often factual evidence that lower trade barriers have been good for employment.
This is a difficult subject to tackle in simple terms. There is strong evidence that trade boosts economic growth, and that economic growth means more jobs.
While trade clearly boosts national income (and prosperity), this is not always translated into new employment for workers who lost their jobs as a result of competition from imports.
🡪The facts also show how protectionism hurts employment. The example of the US car industry has already been mentioned: trade barriers designed to protect US jobs by restricting imports from Japan ended up making cars more expensive in the US, so fewer cars were sold and jobs were lost.
🡪 problems of discrimination.
In other words, an attempt to tackle a problem in the short term by restricting trade turned
into a bigger problem in the longer term.
🡪Even when a country has difficulty making adjustments, the alternative of protectionism
would simply make matters worse.**
🡪Trade allows a division of labour between countries. It allows resources to be used more appropriately and effectively for production. But the WTO’s trading system offers more
than that. It helps to increase efficiency and to cut costs even more because of important principles enshrined in the system.
🡪Imagine a situation where each country sets different rules and different customs duty
rates for imports coming from different trading partners. The company would also have to make separate calculations about the different duty rates it would be charged on the imports (which would depend on where the imports came from), and it would have to study each of the regulations that apply to products from each country. Buying some copper or circuit boards would become very complicated.
Imagine now that the government announces it will charge the same duty rates on imports
from all countries, and it will use the same regulations for all products, no matter where
they come from, whether imported or locally produced. Life for the company would be
much simpler. Sourcing components would become more efficient and would cost less.
Non-discrimination is just one of the key principles of the WTO’s trading system. Others
include:
Non-discrimination
transparency (clear information about policies, rules and regulations);
increased certainty about trading conditions (commitments to lower trade barriers and increase other countries’ access to one’s markets are legally binding);
simplification and standardization of customs procedure, removal of red tape, centralized databases of information, and other measures designed to simplify trade that come under the heading “trade facilitation”.
Together, they make trading simpler, cutting companies’ costs and increasing confidence
in the future. That in turn also means more jobs and better goods and services for
consumers.
The GATT-WTO system which evolved in the second half of the 20th Century helps
governments take a more balanced view of trade policy. Governments are better-placed
to defend themselves against lobbying from narrow interest groups by focusing on tradeoffs
that are made in the interests of everyone in the economy.
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One of the lessons of the protectionism that dominated the early decades of the 20th
Century was the damage that can be caused if narrow sectoral interests gain an
unbalanced share of political influence. The result was increasingly restrictive policy
which turned into a trade war that no one won and everyone lost.
Superficially, restricting imports looks like an effective way of supporting an economic
sector. But it biases the economy against other sectors which shouldn’t be penalized — if
you protect your clothing industry, everyone else has to pay for more expensive clothes,
which puts pressure on wages in all sectors, for example.
Protectionism can also escalate as other countries retaliate by raising their own trade
barriers. That’s exactly what happened in the 1920s and 30s with disastrous effects. Even
the sectors demanding protection ended up losing.
Governments need to be armed against pressure from narrow interest groups, and the
WTO system can help.
The GATT-WTO system covers a wide range of sectors. So, if during a GATT-WTO
trade negotiation one pressure group lobbies its government to be considered as a special
case in need of protection, the government can reject the protectionist pressure by arguing
that it needs a broad-ranging agreement that will benefit all sectors of the economy.
Governments do just that, regularly.
Under WTO rules, once a commitment has been made to liberalize a sector of trade, it is
difficult to reverse. The rules also discourage a range of unwise policies. For businesses,
that means greater certainty and clarity about trading conditions. For governments it can
often mean good discipline.
The rules include commitments not to backslide into unwise policies. Protectionism in
general is unwise because of the damage it causes domestically and internationally, as we
have already seen.
Particular types of trade barriers cause additional damage because they provide
opportunities for corruption and other forms of bad government.
One kind of trade barrier that the WTO’s rules try to tackle is the quota, for example
restricting imports or exports to no more than a specific amount each year.
Because quotas limit supply, they artificially raise prices, creating abnormally large
profits (economists talk about “quota rent”). That profit can be used to influence policies
because more money is available for lobbying.
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It can also provide opportunities for corruption, for example in the allocation of quotas
among traders. There are plenty of cases where that has happened around the world.
In other words, quotas are a particularly bad way of restricting trade. Governments have
agreed through the WTO’s rules that their use should be discouraged.
Nevertheless, quotas of various types remain in use in most countries, and governments
argue strongly that they are needed. But they are controlled by WTO agreements and
there are commitments to reduce or eliminate many of them, particularly in textiles.
Many other areas of the WTO’s agreements can also help reduce corruption and bad
government.
Transparency (such as making available to the public all information on trade
regulations), other aspects of “trade facilitation”, clearer criteria for regulations dealing
with the safety and standards of products, and non-discrimination also help by reducing
the scope for arbitrary decision-making and cheating.
Quite often, governments use the WTO as a welcome external constraint on their
policies: “we can’t do this because it would violate the WTO agreements”.
Free trade and its discontents
George monibot link
DANI RODRIK 2001
Dani rodrik criticises global integration!
🡪The new agenda of global integration distorts policymakers' priorities.
🡪By focusing on international integration, governments in poor nations divert human resources, administrative capabilities, and political capital away from more urgent development priorities such as education, public health, industrial capacity, and social cohesion. This emphasis also undermines nascent democratic institutions by removing the choice of development strategy on public debate.
🡪Policymakers need to forge a growth strategy by relying on domestic investors and domestic institutions. The costliest downside of the integrationist faith is that it crowds out serious thinking and efforts along such lines. There is simply no alternative to a home grown business plan.
🡪Advocates of global economic integration hold out utopian visions of the prosperity!
🡪 Developing countries will not prosper if they open their borders to commerce and capital.
🡪diverts poor nations' attention and resources from the key domestic innovations needed to spur economic growth. | By Dani Rodrik
🡪A senior U.S. Treasury official recently urged Mexico's government to work harder to reduce
violent crime because "such high levels of crime and violence may drive away foreign
investors."
🡪Foreign trade and investment have become the ultimate yardstick for evaluating the social and economic policies of governments in developing countries.
🡪Just mention "investor sentiment" or "competitiveness in world markets" and policymakers will come to attention in a hurry.
🡪Joining the world economy is no longer a matter simply of dismantling barriers to trade and investment. Countries now must also comply with a long list of admission requirements, from new patent rules to more rigorous banking standards.
🡪Global integration has become, for all practical purposes, a substitute for a development strategy.
🡪This trend is bad news for the world's poor.
🡪The new agenda of global integration distorts policymakers' priorities.
🡪By focusing on international integration, governments in poor nations divert human resources, administrative capabilities, and political capital away from more urgent development priorities such as education, public health, industrial capacity, and social cohesion.
Successful economic growth strategies 🡪
🡪Policymakers need to focus on a domestic growth strategy by relying on domestic investors and domestic institutions.
🡪Countries that have bought wholeheartedly into the integration orthodoxy are discovering that openness does not deliver on its promise.
🡪Despite sharply lowering their barriers to trade and
investment since the 1980s, scores of countries in Latin America and Africa are stagnating or
growing less rapidly than in the heyday of import substitution during the 1960s and 1970s.
🡪By contrast, the fastest growing countries are China, India, and others in East and Southeast
Asia. Policymakers in these countries have also espoused trade and investment liberalization,
but they have done so in an unorthodox manner-gradually.
FREE TRADE-OFFS
🡪Should governments in developing countries train more bank auditors and accountants, even if those investments mean fewer secondary-school teachers or reduced spending on primary education for girls?
…
🡪Governments face difficult choices over how to deploy their fiscal resources, administrative capabilities, and political capital. Setting institutional priorities to maximize integration into the global economy has real opportunity costs.
🡪Consider some illustrative trade-offs. World Bank trade economist Michael Finger has estimated that a typical developing country must spend $150 million to implement
equirements under just three WTO agreements (those on customs valuation, sanitary and
phytosanitary measures, and trade-related intellectual property rights).
🡪 this sum equals a year's development budget for many least-developed countries.
🡪When South Africa passed legislation in 1997 allowing imports of patented AIDS drugs from cheaper sources, the country came under severe pressure from Western governments, which argued that the South African policy conflicted with WTO rules on intellectual property.
The rules for admission into the world economy are often completely unrelated to sensible economic principles.
WTO agreements on anti-dumping, subsidies and countervailing measures, agriculture, textiles, and trade-related intellectual property rights lack any economic rationale beyond the mercantilist interests of a narrow set of powerful groups in advanced industrial countries.
🡪U.S. President Clinton in May 2000 provides increased access to the U.S. market only if African apparel manufacturers use U.S.-produced fabric and yarns. This restriction severely limits the potential economic spillovers in African countries.
ASIAN MYTHS
Even if the institutional reforms needed to join the international economic community are
expensive and preclude investments in other crucial areas, pro-globalization advocates argue
that the vast increases in economic growth that invariably result from insertion into the global
marketplace will more than compensate for those costs. Take the East Asian tigers or China,
the advocates say. Where would they be without international trade and foreign capital flows?
India which significantly raised its economic growth rate in the early 1980s, remains one of the world's most highly protected economies.
🡪All of these countries liberalized trade gradually, over a period of decades, not years.
🡪 South Korea, China, India, and the other Asian success cases had the freedom to do their own thing, and they used that freedom abundantly.
Today's globalizers would be unable to replicate these experiences without running afoul of the IMF or the WTO.
The Asian experience
🡪A sound overall development strategy that produces high economic growth is far more effective in achieving integration with the world economy than a purely integrationist strategy that relies on openness to work its magic.
🡪The globalizers have it exactly backwards.
🡪Integration is the result, not the cause, of economic and social development.
🡪A relatively protected economy like Vietnam is integrating with the world economy much more rapidly than an open economy like Haiti because Vietnam, unlike Haiti, has a reasonably functional economy and polity.
TOO GOOD TO BE TRUE
Do lower trade barriers spur greater economic progress? The available studies reveal no systematic relationship between a country's average level of tariff and nontariff barriers and its subsequent economic growth rate. evidence for the 1990s indicates a positive relationship between import tariffs and economic growth
🡪 The only clear pattern is that countries dismantle their trade restrictions as they grow richer.
🡪economists blame poor growth on the government's failure to liberalize trade policies, when the true culprits are ineffective institutions, geographic determinants (such as location in a tropical region), or inappropriate macroeconomic policies (such as an overvalued exchange rate).
🡪There is plenty of evidence that financial liberalization is often followed by financial crash-just ask Mexico, Thailand, or Turkey.
GROWTH BEGINS AT HOME
🡪Well-trained economists are justifiably proud of the textbook case in favor of free trade. For
🡪Neither economic theory nor empirical evidence guarantees that deep trade liberalization will deliver higher economic growth.
🡪. Countries that have achieved long-term economic growth have combined the opportunities offered by world markets with a growth strategy that mobilizes the capabilities of domestic institutions and investors.
🡪growth is country specific and do not respond well to standardized recipes.
🡪 But it is easier because once those constraints are targeted, relatively simple policy changes can yield enormous economic payoffs and start a virtuous cycle of growth and additional reform.
High Tariffs Don't Mean Low Growth!
🡪Public enterprises during the Meiji restoration in Japan;
🡪township and village enterprises in China;
🡪an export processing zone in Mauritius;
🡪generous tax incentives for priority investments in Taiwan;
🡪extensive credit subsidies in South Korea;
🡪infant-industry protection in Brazil during the 1960s and 1970s-
🡪🡪🡪🡪are some of the innovations that have been instrumental in kickstarting investment and growth in the past.
None came out of a Washington economist's tool kit.
🡪Development strategies need to be tailored to prevailing domestic institutional strengths.
Policymakers who look to Washington and financial markets for the answers are condemning themselves to mimicking the conventional wisdom du jour, and to eventual disillusionment.
UNIT II
WTO established in 1995
123 countries involved
Covered all trade , from toothbrushes to banking communications to aids treatment
GATT vs. WTO differences
GATT1947 is no longer in force yet the GATT 1991 is valid
Nature
🡪The GATT was a set of rules, with no institutional foundation, applied on a provisional basis.
🡪The WTO is a permanent institution with a permanent framework and its own secretariat.
Scope
🡪The GATT rules applied to trade in goods.
🡪The WTO Agreement covers trade in goods, trade in services and trade-related aspects of intellectual property rights.
Approach
🡪Whilst the GATT was a multilateral instrument, a series of new agreements were adopted during the Tokyo Round on a plurilateral - that is, selective - basis, causing a fragmentation of the multilateral trading system.
🡪The WTO has been adopted, and accepted by its Members, as a single undertaking: the agreements which constitute the WTO are all multilateral, and therefore involve commitments for the entire membership of the organization.
Dispute settlement
🡪The WTO dispute settlement system has specific time limits and is therefore faster than the GATT system; it operates more automatically, thus ensuring less blockages than in the old GATT; and it has a permanent appellate body to review findings by dispute settlement panels. There are also more detailed rules on the process of the implementation of findings.
WTO agreement
Multilateral legal instrument
Covers many matters IP, trade
Multilateral because it covers many topics🡪 topics covered by same legal principles (transparency and non-discrimination)
Agreements
🡪set of agreements creating legally binding rights and obligations for all members
Agreements
🡪WTO includes a set of agreements that create legally binding rights and obligations for all members
🡪The agreements and commitments have been negotiated multilaterally and agreed to by all WTO members.
Negotiations
🡪countries meet to discuss and negotiate a number of trade-related matters.
🡪In the Trade Policy Review Body, for example, governments periodically review the trade policies of other members.
A secretariat
🡪The 500 staff members have neither enforcement powers nor any role in the interpretation of the legal rights and obligations of members.
🡪It is one of the smaller international organizations—dwarfed by the size of the World Bank, United Nations, the International Monetary Fund, and numerous other organizations. It is located in Geneva and headed by a Director General.
Governments
🡪WTO comprises almost 150 sovereign states🡪
🡪 democratically elected.
🡪collectively agreed to conduct their trade according to multilaterally agreed rules that have been agreed to on a consensus basis.
🡪After agreement is struck between trade negotiators,
🡪the agreements are then ratified by the domestic parliaments of all WTO member countries.
🡪To criticize the "WTO" is – in practical terms - to criticize the collective action of close to 150 sovereign states acting on the basis of consensus and according to rules accepted by their national parliaments.
WTO functionality
Ministerial conferences
🡪made up of the full membership of the WTO. It is responsible for the continuing management of the WTO and supervises all aspects of its activities. The General Council also meets as the Dispute Settlement Body and as the Trade Policy Review Body.
WTO General Council
The General Council is the WTO’s highest-level decision-making body in Geneva, meeting regularly to carry out the functions of the WTO. It has representatives (usually ambassadors or equivalent) from all member governments and has the authority to act on behalf of the ministerial conference which only meets about every two years. The current chairman is H.E. Ms. Amina Chawahir MOHAMED (Kenya).
The General Council also meets, under different rules, as the Dispute Settlement Body and as the Trade Policy Review Body.
Settling disputes
🡪In all of the diverse multilateral trade agreements, breaking the rules means being taken to court - and in fact, the same court for all breaches of agreement. If as a result of an inquiry measures are found to be in error with respect to WTO rules, they are to be brought into conformity with WTO obligations. If they are not, then compensation and retaliation - with the approval of the General Council sitting as the
Dispute Settlement Body -
🡪Compensation, for example, can be sought in the form of improved market access in any of the areas covered by the multilateral trade agreements. It is not necessarily with respect to the agreement where the breach of obligations was committed.
The WTO members can form alliances to represent in the WTO( for eg NAFTA, 🡪 Canada, US , Mexico) EU etc page 19 of unit II.
The WTO secretariat
The WTO Secretariat is located in Geneva. It has around 630 staff and is headed by a director-general. Its responsibilities include:
Administrative and technical support for WTO delegate bodies (councils, committees, working parties, negotiating groups) for negotiations and the implementation of agreements.
Technical support for developing countries, and especially the least-developed.
Trade performance and trade policy analysis by WTO economists and statisticians.
Assistance from legal staff in the resolution of trade disputes involving the interpretation of WTO rules and precedents.
Dealing with accession negotiations for new members and providing advice to governments considering membership.
Some of the WTO’s divisions are responsible for supporting particular committees: the Agriculture Division assists the committees on agriculture and on sanitary and phytosanitary measures, for example. Other divisions provide broader support for WTO activities: technical cooperation, economic analysis, and information, for example.
The WTO budget is over 160 million Swiss francs with individual contributions calculated on the basis of shares in the total trade conducted by WTO members. Part of the WTO budget also goes to the International Trade Centre.
Principles of the Trading system
Trade without discrimination
MFN: treating people equally
Under the WTO agreements, countries cannot normally discriminate between their
trading partners. Grant someone a special favour and you have to do the same for all other WTO members.
🡪Article I of the General Agreement on Tariffs and Trade (GATT), which governs trade in goods.
🡪General Agreement on Trade in Services (GATS) (Article 2)
🡪 Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) (Article 4),
Some exceptions are allowed.
🡪countries can set up a free trade agreement that applies only to goods traded within the group — discriminating against goods from outside.
🡪 give developing countries special access to their markets.
🡪 Or a country can raise barriers against products that are considered to be traded unfairly from specific countries.
🡪 And in services, countries are allowed, in limited circumstances, to discriminate.
🡪But the agreements only permit these exceptions under strict conditions.
In general, MFN means that every time a country lowers a trade barrier or opens up a market, it has to do so for the same goods or services from all its trading partners — whether rich or poor, weak or strong.
National Treatment: Treating foreigners and locals equally
🡪”giving others the same treatment as one’s own nationals”
🡪Imported and locally-produced goods should be treated equally.
🡪The same should apply to foreign and domestic services, and to foreign and local trademarks, copyrights and patents.
This principle of
“national treatment” (is also
found in all the three main WTO agreements (Article 3 of GATT, Article 17 of GATS
and Article 3 of TRIPS), although once again the principle is handled slightly differently
in each of these. National treatment only applies once a product, service or item of intellectual property has entered the market. Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.
🡪Freer Trade: Gradually through negotiation
Lowering trade barriers is one of the most obvious means of encouraging trade. 🡪include customs duties (or tariffs) and measures such as import bans or quotas that restrict quantities selectively.
As a result of the negotiations, by the mid-1990s industrial countries’ tariff rates on industrial goods had fallen steadily to less than 4%.
The WTO agreements allow countries to introduce changes gradually, through “progressive liberalization”. Developing countries are usually given longer to fulfil their obligations.
Predictability: Through binding and transparency
Promise gives businesses a clearer view of their future opportunities.
🡪With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition — choice and lower prices. The multilateral trading system is an attempt by governments to make the business environment stable and predictable
🡪In the WTO, when countries agree to open their markets for goods or services, they “bind” their commitments. For goods, these bindings amount to ceilings on customs tariff rates.
🡪A country can change its bindings, but only after negotiating with its trading partners, which could mean compensating them for loss of trade. One of the achievements of the Uruguay Round of multilateral trade talks was to increase the amount of trade under binding commitments
In agriculture, 100% of products now have bound tariffs. The result of all this: a substantially higher degree of market security for traders and investors.
🡪Another is to make countries’ trade rules as clear and public (“transparent”) as possible.
Many WTO agreements require governments to disclose their policies and practices publicly within the country or by notifying the WTO. The regular surveillance of national trade policies through the Trade Policy Review Mechanism provides a further means of encouraging transparency both domestically and at the multilateral level.
Promoting fair competition
It is a system of rules dedicated to open, fair and undistorted competition.
The rules on non-discrimination — MFN and national treatment — are designed to
secure fair conditions of trade.
Encouraging development and economic reform
The WTO system contributes to development. On the other hand, developing countries need flexibility in the time they take to implement the system’s agreements.
🡪Agreements themselves inherit the earlier provisions of GATT that allow for special assistance and trade concessions for developing countries.
🡪 Developed countries have started to allow duty-free and quota-free imports for almost all products from least-developed countries.
UNIT III
🡪Prohibition of discrimination on grounds of nationality is encapsulated in two types of non-discrimination norms: the Most-Favoured-Nation (MFN) principle and the National-Treatment (NT) principle.
🡪MFN = “nation A to give equal treatment to economic transactions originating in, or destined for, other countries entitled to the benefit of the norm” and the
🡪NT= “that a nation treat within its own borders, goods, services, persons, etc.,
originating from outside its borders, in the same manner that it treats those which are of domestic origin”.
Both norms forbid the use of the of the economic transaction as the regulatory criterion.
Contrary to the broad principle of equality, 🡪that `like’ should be treated in `like manner’ and `unlike’ in `unlike manner’,
🡪 both the MFN and NT principles is much limited banning
- (a) the use of as the express regulatory criterion (formal or discrimination) and
- (b) the use of other regulatory criteria which, though apparently origin-neutral, have the of discriminating between products or services on the basis of their nationality (material or de facto discrimination).
Focus on NT principle 🡪 by distinguishing de facto - and de jure - discrimination on grounds of nationality.
Article III GATT🡪 NT principle
“internal taxes and other internal charges [...] affecting the internal sale [...] of products [...] should not be applied to imported or domestic products so as to afford protection to domestic production”
De jure discrimination
Overt or express or de jure discrimination = national measure which in its face (ITSELF) discriminates as to origin of the goods, thus affording protection to production, clearly represents a blatant obstacle to international trade.
Example 🡪rate of 25% on imported cars and one of 15% on domestic cars.
KEY! 🡪”identical products” treated differently due to origin of product which leads to less favourable treatment. (De facto discrimination is different!! See below)
(De facto = measures which have a disparate impact on trade=
De Jure discrimination can be proven by
The national measure employs nationality as the regulatory criterion and
the treatment afforded by the national measure to the foreign product is less favourable compared to the treatment afforded to the domestic one.
a) cars are differentiated on the basis of their origin (or nationality)
b) imported (foreign) cars are afforded less favourable treatment (higher tax or stricter safety standard) compared to domestic cars.
DE JURE (FORMAL) DISCRIMINATION ARTICLE III:2
GATT article III:2 Fiscal measures
“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.”
Case examples
In both superfund and malt beverages cases the US used the “de minimis” argument 🡪 that the tax differential was so small that its trade effects were minimal or nil. The Panel forcefully rejected the de minimis argument advanced by the United States.
Superfund case
Canada, the EEC and Mexico claimed that a US excise tax on petroleum and a tax on certain imported substances produced or manufactured from taxable feedstock chemicals violated Article III.2 of the GATT.
US had just give “petroleum” a different name
Two different tax rates were applied to two apparently different products (crude oil and petroleum products),
🡪the tax, was effectively imposed on one product only, namely `petroleum’.
🡪 The differential treatment thus was exclusively based on the origin of the product in question
🡪DOMESTIC petroleum was taxed at 8.2 cents a barrel while petroleum at IMPORTED was taxed at 11.7 cents a barrel.
HELD: measure violated Article III:2 once it had determined that the two products were
(a) “either identical or, in the case of imported liquid hydrocarbon products, serve substantially identical end” and
(b) “the rate of tax applied to the imported products is 3.5 cents per barrel higher than the rate applied to the like domestic products.”
Malt beverages dispute
GATT Panel had been asked to rule on some twenty-seven different US state and federal taxes affecting beer and wine imports.
🡪The fiscal measures, both the federal government and several States had for the most part either imposed lower excise taxes on certain domestically produced wine and beer compared to imported foreign wine and beer.
🡪the diffencerences were applied between certain states as well.
🡪 Measures were discriminating between domestic and imported products.
🡪The measures were all found to violate the National Treatment provision.
They formally discriminated between domestic and imported products
Treatment of imported products need to me no less favoured than most favoured domestic products
🡪whenever a tax measure discriminates on the basis of the product’s origin or nationality, a violation of the National Treatment obligation will be found if the measure at issue upsets the competitive conditions in favour of domestic production.
🡪For purposes of this determination, the level of actual trade effects is thus irrelevant.
🡪 In other words, a national fiscal measure will be found to violate Article III:2 even if the higher burden on imported products is
🡪 minimal (de minimis exception) or
🡪the imported products potentially disadvantaged by such a measure are but a few (i.e., it is enough to show that potentially single imported product may be taxed in excess of a domestic one. )
The second sentence of Article III:2
“Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1.”
paragraph 2, states that a tax conforming to the requirements of the first sentence of that paragraph could be considered to be inconsistent with the provisions of the second sentence only in those cases where competition was involved between, on the one hand, the taxed product and, on the other hand, a `directly competitive or substitutable’ product which was `not similarly’ taxed.
The text of Article III:2 thus appears to contain two distinct obligations depending on the nature of the relationship between the products at issue.
If the imported and domestic products at issue are “like products”, the National Treatment provision prohibits any tax applied to the imported products that is “in excess of” those applied to the like domestic products (Article III:2, first sentence).
If the imported and domestic products at issue are “only directly or substitutable product” the National Treatment provision prohibits a pecuniary measure imposed by a Member if
🡪 (a) the directly competitive or substitutable imported and domestic products are similarly taxed and
🡪(b) the dissimilar taxation of the directly competitive or substitutable imported and domestic products is “applied so as to afford protection to domestic production” (Article III:2, second sentence).
The relationship of the product at issue (identical, similar or competitive)
The effects of the measure itself on domestic and imported products (i.e. whether the effects are discriminatory or protectionist).
The relationship of the product at issue (identical, similar or competitive)
Japan- alcoholic beverages
Claimants: US, EU Canada
Defendant: Japan
MEASURE AND PRODUCT AT ISSUE
Japanese Liquor Tax Law that established a system of internal taxes applicable to all liquors at different tax rates depending on which category they fell within. The tax law at issue taxed shochu at a lower rate than the other products. • Product at issue: Vodka and other alcoholic beverages such as liqueurs, gin, genever, rum, whisky and brandy, and domestic shochu.
2. SUMMARY OF KEY PANEL/AB FINDINGS
• GATT Art. III:2 (national treatment – taxes and charges), first sentence (like products): The Appellate Body upheld the Panel's finding that vodka was taxed in excess of shochu, in violation of Art. III:2, first sentence, accepting the Panel's interpretation that Art. III:2, first sentence requires an examination of the conformity of an internal tax measures by determining two elements: (i) whether the taxed imported and domestic products are like; and (ii) whether the taxes applied to the imported products are in excess of those applied to the like domestic products.
Taxes applied in excess of = taxes applied so as to afford better tax treatment or protection to domestic production. I.e. taxes which are more than de minimis. This also applies to like products and identical ones
A measures protective application can be revealed by “ the design, the architecture and the revealing structure of a measure.”
A case on likeness must be established on a case by case basis
• GATT Art. III:2 (national treatment – taxes and charge), second sentence (directly competitive or substitutable products): The Appellate Body upheld the Panel's finding that shochu and whisky, brandy, rum, gin, genever, and liqueurs were not similarly taxed so as to afford protection to domestic production, in violation of Art. III:2, second sentence. Modifying some of the Panel's reasoning, the Appellate Body clarified three separate issues that must be addressed to determine whether a certain measure is inconsistent with Art. III:2, second sentence: (i) whether imported and domestic products are directly competitive or substitutable products; (ii) whether the directly competitive or substitutable imported and domestic products are not similarly taxed; and (iii) whether the dissimilar taxation of the directly competitive or substitutable imported and domestic products is applied so as to afford protection to domestic production.
• GATT Art. III:1 (national treatment – general principles): The Appellate Body agreed with the Panel that Art. III:1, as a provision containing general principles, informs the rest of Art. III, and further elaborated that, because of the textual differences in the two sentences, Art. III:1 informs the first and second sentences of Art. III:2 in different ways.
NB 🡪aim and effect test used in the case
NB🡪 AIM🡪 tax distinction applied so as to afford protection to domestic production
NB🡪 EFFECT🡪PROTECTION WAS AFFORDED TO SOCHU SALES
NB🡪 SOCHU AND VODKA LIKE PRODUCTS WITH SIMILAR END USES AND PHYSICAL CHARACTERISTICS
PANEL CONCLUDED ”an assessment of whether there is a direct competitive relationship between two products or groups of products requires evidence that consumers consider or could consider the two products or groups of products as alternative ways of satisfying a particular need or taste.”
The fact that an essentially Japanese product (the EC had argued that imported shochu represented 0.4 per cent of domestic production was taxed more favourably than any of the competitive imported products was by itself enough to satisfy the `protective application’ test, and thus establish a prima facie case of de facto discrimination between imported and domestic products.
Attention needs to be given to
physical characteristics,
end-uses (including evidence of advertising activities),
channels of distribution,
price relationships including cross-price elasticity
Chile- Alcoholic beverages
MEASURE AND PRODUCT AT ISSUE
Measure at issue: Chile's tax measures that imposed an excise tax at different rates – depending on the type of product (pisco, whisky, etc.) under the “Transitional System” and according to the degree of alcohol content (35°, 36°, ... 39°) under the “New Chilean System”. • Product at issue: All distilled spirits falling within HS heading 2208, including pisco (Chile's domestic product) and imported distilled spirits such as whisky, vodka, rum, gin, etc.
SUMMARY OF KEY PANEL/AB FINDINGS2 • GATT Art. III:2 (national treatment – taxes and charges), second sentence (directly competitive or substitutable products): The Appellate Body upheld the Panel's finding that Chile's new tax regime for alcoholic beverages violated the national treatment principle under Art. III:2, second sentence. (Chile's appeal was only in regard to the new regime.) The Panel found both Chile's transitional and new tax regimes inconsistent with Art. III:2, second sentence. (“not similarly taxed”): The Appellate Body agreed with the Panel that imported distilled spirits and Chilean pisco, as directly competitive and substitutable products, were not similarly taxed since the tax burden (47 per cent) on most of imported products (95 per cent of imports) would be heavier than the tax burden (27 per cent) on most of the domestic products (75 per cent of domestic production). The Appellate Body took the view that the relevant comparison between imported and domestic products had to be made based on a comparison of the taxation on all imported and domestic products over the entire range of categories, not simply a comparison of the products within each category. (“applied so as to afford protection”): The Appellate Body stated that an examination of the design, architecture and structure of the New Chilean System “tend[ed] to reveal” that the application of dissimilar taxation of directly competitive or substitutable products would “afford protection to domestic production”, as the magnitude of difference (20 per cent) between the tax rates – 27 per cent ad valorem for alcohol content of 35° or less (75 per cent of domestic production) and 47 per cent ad valorem for alcohol content of over 39° (95 per cent of imports) – was considerable. Also, the Appellate Body stated that a measure's purpose, objectively manifested in the design, architecture and structure of the measure, was pertinent to the task of evaluating whether that measure was applied so as to afford protection to domestic production. However, the Appellate Body rejected the Panel's consideration of the relationship (logical connection) between Chile's new measure and de jure discrimination (against imports) found under its traditional system. In this regard, it further said that “Members of the WTO should not be assumed, in any way, to have continued previous protection or discrimination through the adoption of a new measure, as this would come close to a 'presumption of bad faith'”.
Korea-Alcoholic beverages
MEASURE AND PRODUCT AT ISSUE • Measure at issue: Korea's tax regime for alcoholic beverages, which imposed different tax rates for various categories of distilled spirits. • Product at issue: Imported distilled liquors and Soju (traditional Korean alcoholic beverage).
SUMMARY OF KEY PANEL/AB FINDINGS2
GATT Art. III:2 (national treatment – taxes and charges), second sentence (directly competitive or substitutable products): The Appellate Body upheld the Panel's conclusion that the Korean tax measures at issue were inconsistent with Art. III:2, second sentence: More specifically, the Appellate Body upheld the Panel's findings that the products at issue were “directly competitive or substitutable” within the meaning of Art. III:2, second sentence and that Korea's tax measures on alcoholic beverages were applied “so as to afford protection” to domestic production within the meaning of Art. III:2, second sentence. On the question of the interpretation and application of the term “directly competitive or substitutable product”, the Appellate Body upheld the Panel's approach: (i) the Panel correctly considered evidence of “present direct competition”, not the future evolution of the market, by referring to the potential for the products to compete in a market free of protection because in a protected market consumer preferences may have been influenced by that protection; (ii) the Panel was not wrong in looking to the Japanese market for an indication of how the Korean market may develop without the distortions caused by protection; and (iii) the Panel's approach of grouping the products, which was based in part on a collective assessment of the products and in part on individual assessment, was not flawed. In addressing the issue of “so as to afford protection” under Art. III:2, second sentence, both the Panel and the Appellate Body once again emphasized the importance of examining the “design, structure, and architecture” of the measures, as previously clarified by the Appellate Body in Japan – Alcoholic Beverages II.
Purpose of Article III is to avoid `protectionism’ in the application of internal tax and regulatory measures, and more specifically, as evidenced in the first paragraph of this Article, to ensure that internal measures `not be applied to imported or domestic products so as to afford protection to domestic production’. The emphasis on the `origin’ or `nationality’ of the products clearly shows that the aim of the National Treatment principle in Article III is to provide equality of competitive conditions for products, or, in other words, to prohibit both de jure and de facto protectionism toward domestic products.
De facto is origin neutral and applies where the measure in its effect causes discrimination.
De Jure is not origin neutral
The effects of the measure itself on domestic and imported products (i.e. whether the effects are discriminatory or protectionist).
GATT III: 4 NON-FISCAL REGULATION
Article III:4 provides:
🡪“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”
“Like in the case of fiscal measures, in order to determine whether a non-fiscal regulation conforms with the National Treatment principle of Article III, a Panel will have to determine whether the differential treatment between domestic and imported products violates the `no less favourable treatment’ standard of Article III:4.”
De facto or material discrimination
Like products which have competitive relationship treated differently which have the EFFECT of less favourable treatment. (NOT IDENTICAL products LIKE DE JURE DISCRIMINATION)
For example wine (2%) and beer (10%) taxed differently since wine is abundant in the country yet not beer.
In the case of de facto discrimination, on the other hand, the national measure,
again by definition, does not on its terms differentiate between products on the basis of `origin’ or `nationality’.
🡪 This is why it will be necessary to go behind and beyond the formal text of the origin-neutral measure under review and determine whether or not that measure has in practice the same protectionist effect of a measure formally discriminating on the basis of origin or nationality. In order to accomplish this task, next to a comparison of the actual treatment afforded to identical imported and domestic products, it may also be appropriate to examine how similar or competitive imported and domestic products are treated by national regulators. Accordingly, an origin-neutral measure will be deemed to discriminate, albeit only in its effects, on the basis of the product’s origin depending on
(a) the relationship of the products at issue (whether identical, similar or competitive)
(b) the effect of the measure itself on domestic and imported products (whether discriminatory or protectionist).
Based on these two elements, we can distinguish at least two types of de facto discriminatory measures or, in other words, two types of origin-neutral measures that
discriminate against imported products.
First, a measure, which treats identical products in exactly the same manner, may be deemed to constitute de facto discrimination when that same measure materially adversely affects imported products compared to identical domestic products (
Second, a measure, which treats differently two similar or competitive products, may be deemed to constitute de facto discrimination when that differentiation materially adversely affects imported products compared to similar imported products (formally different treatment of similar or competitive products with de facto discriminatory effects towards imported products).
No less favourable treatment
Section 337
Section 337 panel report the Appellate Body noted that a measure according formally treatment to imported products does not that is, necessarily, violate Article III:4, as long as that measure does not modify the conditions of competition in the relevant market to the detriment of imported products.
Gasoline case
Complainants: Venzuela and Brazil
Respondent: US
MEASURE AND PRODUCT AT ISSUE
• Measure at issue: The “Gasoline Rule” under the US Clean Air Act that set out the rules for establishing baseline figures for gasoline sold on the US market (different methods for domestic and imported gasoline), with the purpose of regulating the composition and emission effects of gasoline to prevent air pollution.
Product at issue: Imported gasoline and domestic gasoline.
SUMMARY OF KEY PANEL/AB FINDINGS
🡪GATT Art. III:4 (national treatment – domestic laws and regulations): The Panel found that the measure treated imported gasoline “less favourably” than domestic gasoline in violation of Art. III:4, as imported gasoline effectively experienced less favourable sales conditions than those afforded to domestic gasoline. In particular, under the regulation, importers had to adapt to an average standard, i.e. “statutory baseline”, that had no connection to the particular gasoline imported, while refiners of domestic gasoline had only to meet a standard linked to their own product in 1990, i.e. individual refinery baseline.
• GATT Art. XX(g) (general exceptions – exhaustible natural resources): In respect of the US defence under Art. XX(g), the Appellate Body modified the Panel's reasoning and found that the measure was “related to” (i.e. “primarily aimed at”) the “conservation of exhaustible natural resources” and thus fell within the scope of Art. XX(g). However, the measure was still not justified by Art. XX because the discriminatory aspect of the measure constituted “unjustifiable discrimination” and a “disguised restriction on international trade” under the chapeau of Art. XX.
OTHER ISSUES
GATT Art. III:1 (national treatment – general principles): The Panel considered it unnecessary to examine the consistency of the Gasoline Rule with Art. III:1, given that a finding of violation of Art III:4 (i.e. more specific provision than Art. III:1) had already been made.
Appeal of an issue (Appellate Body working procedures): The Appellate Body held that participants can appeal an issue only through the filing of a Notice of Appeal and an “appellant's” submission, but not through an “appellee's” submission.
Korea-Beef case
Complainant: Australia and US
Respondent: Korea
MEASURE AND PRODUCT AT ISSUE
Measure at issue:
Korea's measures affecting the importation, distribution and sale of beef,
Korea's “dual retail system” for sale of domestic imported beef),
Korea's agricultural domestic support programmes.
• Product at issue: Beef imports from Australia and the United States.
SUMMARY OF KEY PANEL/AB FINDINGS
GATT Art. III:4 (national treatment – domestic laws and regulations): The Appellate Body agreed with the Panel's ultimate conclusion that Korea's dual retail system (requiring imported beef to be sold in separate stores) accorded “less favourable” treatment to imported beef than to like domestic beef. According to the Appellate Body, the dual retail system virtually cut off imported beef from access to the “normal” distribution outlets for beef, which modified the conditions of competition for imported beef. Less imported beef was being sold in the markets! In this connection, the Appellate Body said that formally different treatment of imported and domestic products is not necessarily “less favourable” for imports within the meaning of Art. III:4.
(GATT Art. XX(d) (exceptions – necessary to secure compliance with laws): Further, the Appellate Body upheld the Panel's finding that the dual retail system was not justified as a measure necessary to secure compliance with Korea's Unfair Competition Act because the dual retail system was not “necessary” within the meaning of Art. XX(d). “Necessary” requires the weighing and balancing of regulations of factors such as the contribution made by the measure to the enforcement of the law or regulation at issue, the relative importance of the common interests or values protected and the impact of the law on trade. The Appellate Body agreed with the Panel that Korea failed to demonstrate that it could not achieve its desired level of enforcement using alternative measures.
Japan- Film
MEASURE AND PRODUCT AT ISSUE
Measure at issue: Actions by Japan affecting the distribution, offering for sale, and internal sale of imported consumer photographic film and paper, in particular, (i) distribution measures; (ii) restrictions on large retail stores; and (iii) promotion measures. • Product at issue: Imported consumer photographic film and paper.
Findings:
GATT Art. III:4 (national treatment – domestic laws and regulations): The Panel found that the distribution measures were generally origin-neutral and did not have a disparate impact on imported film or paper. The Panel therefore found that the United States had not proved that the distribution measures were inconsistent with Art. III:4.
Asbestos
MEASURE AND PRODUCT AT ISSUE
Measure at issue: France's ban on asbestos (Decree No. 96-1133).
Product at issue: Imported asbestos (and products containing asbestos) vs certain domestic substitutes such as PVA, cellulose and glass (“PCG”) fibres (and products containing such substitutes).
SUMMARY OF KEY PANEL/AB FINDINGS •
• GATT Art. III:4 (national treatment – domestic laws and regulations): As the Appellate Body found the Panel's likeness analysis between asbestos and PCG fibres and between cement-based products containing asbestos and those containing PCG fibres insufficient, it reversed the Panel's findings that the products at issue were like and that the measure was inconsistent with Art. III:4. (The Appellate Body emphasized a competitive relationship between products as an important factor in determining likeness in the context of Art. III:4
Then, having completed the like product analysis, the Appellate Body concluded that Canada had failed to demonstrate the likeness between either set of products, and, thus, to prove that the measure was inconsistent with Art. III:4.
Likeness test is asbestos
Recalling the four general criteria to determine `product likeness’,
criteria comprise four categories of `characteristics’ that the products involved might share
the physical properties of the products;
the extent to which the products are capable of serving the same or similar end-uses;
the extent to which consumers perceive and treat the products as alternative means of performing particular functions in order to satisfy a particular want or demand; and
the international classification of the products for tariff purposes. Although they provide a framework for analysing the `likeness’ of particular products on a case-by-case basis,
The Appellate Body’s analysis of the `likeness’ issue may be divided into three distinct parts:
an elaboration of the general approach to the interpretation of `like products’ as found in Article III:4;
findings of error of law by the panel; and
`completing the analysis, where the Appellate Body applies Article III:4 to the facts of the case.
With regard to the elaboration of the general approach, the Appellate Body began its analysis by delineating the meaning of the likeness concept as employed in Article III:4. Observing that the TEXTUAL meaning leaves many interpretative questions open, the Appellate Body turned to paragraphs 1 and 2 of Article III as the relevant CONTEXT Article III:4.
It noted that while the `general principle’ of Article III:1 is expressed in Article III:2 through two distinct obligations—the first lays down obligations in respect of `like products’, and the second lays down obligations in respect of `directly competitive or substitutable’ products—Article III:4 includes only obligations applicable `like products’. Therefore, given the textual difference between Articles III:2 and III:4,
the `accordion’ of `likeness’ stretches in a different way in Article III:4. In other words,
the strict reading of `like products’ in Article III:2 should not be replicated under Article
III:4.
Appellate Body believed that the word `like’ in Article III:4 was to be interpreted to apply to products that are in such a competitive relationship. In other words, a determination of `likeness’ under Article III:4 is, 🡪a determination about the nature and extent of a competitive relationship between and among products
Summary of LFN
There appears to be two quite different ways in which the Appellate Body’s new
reading of the `less favourable treatment’ requirement may be applied. According to one perspective, a measure may be found in violation of the National Treatment obligation of Article III:4 if it is established that at the time of the dispute the measure negatively affects more imports than domestic products considered as a whole. In other words, while it will still be necessary to show an overall imbalance of the measure’s impact between the group of like domestic products (the majority of which falls within the more favoured sub-group of like products) and the group of like imported products (the majority of which falls within the more disfavoured sub-group of like products), it will be sufficient
to prove, under a pure discriminatory effect test that such imbalance has occurred in the past, is currently present or may happen in the future, without determining the causes of such imbalance. Let us take for example the asbestos dispute and imagine for the sake of the argument that the Appellate Body had actually found that chrysotile fibres and substitute fibres were indeed `like products’. Canada could have established that its products were not accorded treatment no less favourable than that accorded to like products of French origin in violation of Article III:4 by simply showing that at the time of the dispute Canada produced exclusively or prevalently chrysotile asbestos products (which were banned by the French measure), while France produced exclusively substitute fibres (which were permitted).
Under a second perspective, a violation of Article III:4 would be found only if it is established that the measure under review inherently discriminates against imported products as a whole. According to this approach, which borrows partially from the rationale of the aims and effect doctrine, the existence of an overall imbalance between domestic and imported like products would not be enough for a violation of the National Treatment obligation if it is not supported also by a finding that, under an inherent discriminatory nature test, the structural characteristics of the measure itself constitute the principal and direct cause for that imbalance. To use the asbestos dispute once more, Canada could have established that its products were not accorded treatment no less favourable than that accorded to like products of French origin in violation of Article III:4 only if it showed that the imbalance between the `prohibited’ Canadian fibres and the `permitted’ French fibres was inherent to the differentiating criterion employed by the French measure itself (for example, because France does not have the raw material or the know-how with which to produce chrysotile asbestos fibres).
I believe that the correct approach to be followed in determining whether a given measure affords no less favourable treatment sits half way between the two abovementioned perspectives.
Unit V
GENERAL EXCEPTIONS
Article XX(b) and (g) allow WTO Members to justify GATT-inconsistent policy measures if these are either
Article XX (b)“necessary” to protect human, animal or plant life or health,
Article XX (g) measures relate to the conservation of exhaustible natural resources.
Chapeau of Article XX is designed to ensure that such GATT-inconsistent measures
“do not result in arbitrary or unjustifiable discrimination and do not constitute a disguised restriction on international trade.”
AB-
🡪US-Gasoline case the defending party must demonstrate,
first, that the measure falls under at least one of the exceptions — paragraphs (b) and (g) — listed under Article XX
Measure satisfied Chapeu of XX
APPLICATION OF THE EXCEPTION UNDER ARTICLE XX
AB must identify whether the
policy protects human, animal or plant life or health under b
conserves exhaustible natural resources (paragraph (g)).
Chapeu, are the requirements met under b) and g) For example “necessity test” met?
REQUIREMENTS UNDER ARTICLE XX(b)🡪Necessity Test
In the Thailand-Cigarettes case “the import restrictions imposed by Thailand could be considered to be “necessary” in terms of Article XX(b) where there were
“least trade restrictive” requirement was applied which means = 🡪AB “only if there were no alternative measure consistent with the General Agreement, or less inconsistent with it, which Thailand could reasonably be expected to employ to achieve its health policy objectives”.
Subsequently, after Thailand cigarettes case 🡪 LEAST RESTRICTIVE, REPLACED WITH LESS RESTRICTIVE and PROPORTIONALITY TEST:
Proportionality test = (“a process of weighing and balancing a series of factors”).
The Appellate Body considered that the determination of whether a measure is necessary involves in every case “A process of weighing and balancing a series of factors =
contribution made by the measure to the enforcement of the regulation at issue
the importance of the common interests or values protected by the regulation
the accompanying impact of the measure on imports or exports.
In the EC-Asbestos case for the first time, an “environmental” measure passed the necessity test.
The Appellate Body noted that
🡪 the more vital or important the common interests or values pursued, the easier it would be to accept, as “necessary”, measures designed to achieve those ends.
GATT Art. XX(b) (general exceptions – necessary to protect human life or health):
Having agreed with the Panel that the measure “protects human life or health” and that “no reasonably available alternative measure” existed, the Appellate Body upheld the Panel's finding that the ban was justified as an exception under Art. XX(b). The Panel also found that the measure satisfied the conditions of the Art. XX chapeau, as the measure neither led to arbitrary or unjustifiable discrimination, nor constituted a disguised restriction on international trade.
REQUIREMENTS UNDER ARTICLE XX(g): “substantial relationship”
In the US-Gasoline case the Appellate Body clarified the meaning of Article XX(g) by stating that a measure would qualify as “relating to the conservation of natural resources” if the measure exhibited a “substantial relationship” with the conservation of exhaustible natural resources “and was not merely “incidentally or inadvertently aimed at the conservation of exhaustible natural resources.
Article XX(g) contains, as an additional requirement, that the measure at stake be “made effective in conjunction with restrictions on domestic production or consumption”. This is a requirement that the measures concerned impose restrictions not just in respect of imported products, but also with respect to domestic ones.
REQUIREMENTS UNDER ARTICLE XX CHAPEU
Once a measure satisfies the conditions set by one of the paragraphs (b or g) of Article XX, the panel or the Appellate Body has turned to the application of the introductory clause (chapeau) of Article XX.
The chapeau requires that in order to be justified under one of the paragraphs of Article XX, measures must not be 🡪“applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade”.
A means of arbitrary or unjustifiable discrimination
The Appellate Body noted in the US-Gasoline case that the chapeau, the manner in which that measure is applied is of importance.
Pursuant to the chapeau of Article XX, a measure may discriminate, but not in an “arbitrary” or “unjustifiable” manner.
To determine whether a measure has been applied in an unjustifiable manner, two requirements have been identified in the panel and Appellate Body reports in
US-Shrimp (Article 21.5):
whether a serious effort to negotiate has been made by the Member country adopting the measure,
whether the measure is flexible.
Concerning the determination of whether the measure has been applied in an arbitrary manner, the Appellate Body considered in the US-Shrimp case that the “rigidity and inflexibility” in the application of a measure constitutes “arbitrary discrimination” within the meaning of the chapeau.
A disguised restriction on international trade
Three criteria have been progressively introduced by panels and by the Appellate Body in order to determine whether a measure is a disguised restriction on international trade:
the publicity test (the measure is publicly announced),
the consideration of whether the application of a measure also amounts to arbitrary or unjustifiable discrimination, and
the examination of “the design, architecture and revealing structure” of the measure at issue.
Environment and trade
In 1987, the World Commission on Environment and Development produced a report
entitled Our Common Future (also known as the Brundtland Report), in which the term “sustainable development” was created.
The report identified poverty as one of the most important causes of environmental degradation, and argued that greater economic growth & increased international trade, could generate the necessary resources to combat “pollution of poverty”.
Marrakesh Agreement Establishing the WTO, reference was made to the importance of working towards sustainable development.
WTO Members recognized that “their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living ... while
allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development”.
Trade measures and environmental measures should promote sustainable development !!
Whilst developed countries were subjected to increased pressure from environmental
interest groups to reconcile what they perceived as “incompatibilities” between trade and environmental policies, developing countries feared that environmental concerns would be addressed at the expense of international trade.
Its competence in the field of trade and environment is limited to trade policies and to the trade-related aspects of environmental policies which have a significant effect on trade.
In addressing the link between trade and environment, WTO Members do not operate on the assumption that the WTO itself has the answer to environmental problems.
Non-discrimination is one of the main principles on which the multilateral trading system is founded. It secures
🡪predictable access to markets,
🡪protects the economically weak from the more powerful, and
🡪guarantees consumer choice.
WTO Members are free to adopt national environmental protection policies provided that they do not discriminate between
🡪 imported and domestically produced like products (national treatment principle),
🡪or between like products imported from different trading partners (most-favoured-nation clause).
The special situation of developing countries and the need to assist them in their process of economic growth is widely recognized and accepted in the WTO.
From the point of view of developing countries, where poverty is the number one policy preoccupation and the most important obstacle to environmental protection, the opening up of world markets to their exports is essential.
WTO Members recognize that trade liberalization for developing country exports, along with financial and technology transfers, is necessary in helping developing countries generate the resources they need to protect the environment and work towards sustainable development.
Environmental issues should be applied multilaterally 🡪 against all MS. A MS should not be allowed to apply it unilaterally against one MS. Eg shrimp turtle and tuna dolphin case
WTO environmental agreements
What is the relationship between the WTO agreements and various international environmental agreements and conventions?
WTO principles of non-discrimination and transparency should not conflict with trade measures needed to protect the environment, including actions taken under the environmental agreements.
most effective way to deal with international environmental problems is through the environmental agreements.
It says this approach complements the WTO’s work in seeking internationally agreed solutions.
using the provisions of an international environmental agreement is better than one country trying on its own to change other countries’ environmental policies
Trade restrictions are not the only actions that can be taken, and they are not necessarily the most effective.
Alternatives include: helping countries acquire environmentally-friendly technology, giving them financial assistance, providing training (Tuna dolphin)
actions taken under an environmental agreement are unlikely to become a problem in the WTO if the countries concerned have signed the environmental agreement.
Problem is: Trade and Environment Committee: what happens when one country invokes an environmental agreement to take action against another country that has not signed the environmental agreement.
TRADE AND ENVIRONMENT DISPUTES
🡪The Trade and Environment Committee says that if a dispute arises over a trade action taken under an environmental agreement, and
🡪if both sides to the dispute have signed that agreement, then they should try to use the environmental agreement to settle the dispute.
🡪 if one side in the dispute has not signed the environment agreement, then the WTO would provide the only possible forum for settling the dispute.
🡪The preference for handling disputes under the environmental agreements does not mean environmental issues would be ignored in WTO disputes.
🡪The WTO agreements allow panels examining a dispute to seek expert advice on environmental issues.
TUNA- DOLPHIN case
Key questions are:
🡪can one country tell another what its environmental regulations should be? and
🡪do trade rules permit action to be taken against the method used to produce goods (rather than the quality of the goods themselves)?
Facts:
When tuna is harvested with purse seine nets, dolphins are trapped in the nets.
They often die unless they are released.
The US Marine Mammal Protection Act sets dolphin protection standards for the domestic fleets and for countries whose fishing boats catch tuna in that part of the Pacific Ocean.
If a country exporting tuna to the United States cannot prove to US authorities that it meets the dolphin protection standards set out in US law, the US government must embargo all imports of the fish from that country.
Mexicos exports of tuna to the US were banned.
Mexico complained in 1991 under the GATT dispute settlement procedure.
The embargo also applies to “intermediary” countries such as Costa Rica, Italy, Japan and Spain, and earlier France, the Netherlands Antilles, and the United Kingdom. Others, including Canada, Colombia, the Republic of Korea, and members of the Association of Southeast Asian Nations (ASEAN)
Mexico asked for a panel in February 1991. A number of “intermediary” countries also expressed an interest. The panel reported to GATT members in September 1991.
HELD:
🡪that the US could not embargo imports of tuna products from Mexico simply because Mexican regulations on the way tuna was produced did not satisfy US regulations.
🡪(But the US could apply its regulations on the quality or content of the tuna imported.)
🡪This has become known as a “product” versus “process” issue.
🡪GATT rules did not allow one country to take trade action for the purpose of attempting to enforce its own domestic laws in another country — even to protect animal health or exhaustible natural resources. The term used here is “extra-territoriality”.
🡪What was the reasoning behind this ruling?
🡪If the US arguments were accepted, then any country could ban imports of a product from another country merely because the exporting country has different environmental, health and social policies from its own.
🡪This would create a virtually open-ended route for any country to apply trade restrictions unilaterally — and to do so not just to enforce its own laws domestically, but to impose its own standards on other countries.
🡪The door would be opened to a possible flood of protectionist abuses.
🡪This would conflict with the main purpose of the multilateral trading system — to achieve predictability through trade rules.
🡪The panel suggested that the US policy could be made compatible with GATT rules if members agreed on amendments or negotiated the specific issues,
This way🡪prevention of protectionist abuse.
🡪The panel was also asked to judge the US policy of requiring tuna products to be labelled “dolphin-safe”
🡪This would leave to consumers the choice of whether or not to buy the product
🡪This did not violate GATT rules because it was designed to prevent deceptive advertising practices on all tuna products, whether imported or domestically produced.
SHRIMP-TURTLE CASE
This was a case brought by India, Malaysia, Pakistan and Thailand against the US.
FACTS:
🡪Seven species of sea turtles have been identified.
🡪They are distributed around the world
Sea turtles have been adversely affected by human activity, either directly (their meat, shells and eggs have been exploited), or indirectly (incidental capture in fisheries, destroyed habitats, polluted oceans).
🡪In early 1997, India, Malaysia, Pakistan and Thailand brought a joint complaint against a ban imposed by the US on the importation of certain shrimp and shrimp products. The protection of sea turtles was at the heart of the ban.
🡪The US Endangered Species Act of 1973 listed as endangered or threatened the five species of sea turtles that occur in US waters, and prohibited their “capture” within the US, in its territorial sea and the high seas.
🡪Under the act, the US required US shrimp trawlers to use “turtle excluder devices” (TEDs) in their nets when fishing in wates where sea turtles were prevalent.
🡪Section 609 of US Public Law 101-102, enacted in 1989, dealt with imports. It said,
among other things, that shrimp harvested with technology that may adversely affect
certain sea turtles may not be imported into the a threat to sea turtles.
HELD:
The US lost the case, not because it sought to protect the environment but because it discriminated between WTO members. It provided countries in the western hemisphere — mainly in the Caribbean — technical and financial assistance and longer transition periods for their fishermen to start using turtle-excluder devices.
It did not give the same advantages, however, to the four Asian countries (India,
Malaysia, Pakistan and Thailand) that filed the complaint with the WTO.
The ruling also said WTO panels may accept “amicus briefs” (friends-of-the-court
submissions) from NGOs or other interested parties.
This is part of what the Appellate Body said:
“although the measure of the United States in dispute in this appeal serves an environmental objective that is recognized as legitimate under paragraph (g) of Article XX [i.e. 20] of the GATT 1994, this measure has been applied by the United States in a manner which constitutes
arbitrary and unjustifiable discrimination between Members of the WTO, contrary to the requirements of the chapeau of Article XX. “
3.3 OTHER ISSUES
Eco-labelling: must be non-discriminatory
Labelling environmentally-friendly products is an important environmental policy instrument. For the WTO, the key point is that labelling requirements and practices should not discriminate — either between trading partners (most-favoured nation treatment should apply), or between domestically-produced goods or services and imports (national treatment).
Transparency – without too much paperwork
WTO members should provide as much information as possible about the environmental policies they have adopted or actions they may take, when these can have a significant impact on trade.
They should do this by notifying the WTO, but the task should not be more of a burden than is normally required for other policies affecting trade.
These are to be put in a single database which all WTO members can access
Domestically prohibited goods: dangerous chemicals, etc
This is a concern of a number of developing countries, which are worried that certain hazardous or toxic products are being exported to their markets without them being fully informed about the environmental or public health dangers the products may pose.
Developing countries want to be fully informed so as to be in a position to decide whether or not to import them.
Agreements on this do exist
WTO does not deal on these matters yet wants to play a complementary role.
Liberalization and sustainable development
Does freer trade help or hinder environmental protection?
On services, the committee says further work is needed to examine the relationship between the General Agreement on Trade in Services (GATS) and environmental
protection policies in the sector. The committee says that the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) helps countries obtain environmentally-sound technology and products. More work is scheduled on this, including on the relationship between the TRIPS Agreement and the Convention of Biological Diversity.
Safeguards
ARTICLE 19 OF GATT:
A WTO member may restrict imports of a product temporarily (take “safeguard” actions) if its domestic industry is injured or threatened with injury caused by a surge in imports.
Here, the injury has to be serious.
Industries or companies may request safeguard action by their government. The WTO agreement sets out requirements for safeguard investigations by national authorities.
The emphasis is on transparency and on following established rules and practices — avoiding arbitrary methods. The authorities conducting investigations have to announce when hearings are to take place and provide other appropriate means for interested parties to present evidence.
The evidence must include arguments on whether a measure is in the public interest.
When imposed, a safeguard measure should be applied only to the extent necessary to prevent or remedy serious injury and to help the industry concerned to adjust.
Where quantitative restrictions (quotas) are imposed, they normally should not reduce the quantities of imports below the annual average for the last three
representative years.
In principle, safeguard measures cannot be targeted at imports from a particular country.
A safeguard measure should not last more than four years, although this can be extended up to eight years, subject to a determination by competent national authorities that the measure is needed and that there is evidence the industry is adjusting.
Measures imposed for more than a year must be progressively liberalized.
When a country restricts imports in order to safeguard its domestic producers, in principle it must give something in return. The agreement says the exporting country (or exporting countries) can seek compensation through consultations. If no agreement is reached the exporting country can retaliate by taking equivalent action — for instance, it can raise tariffs on exports from the country that is enforcing the safeguard measure.
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