Exceptions.

The obligation of national treatment does not apply to laws, regulations or requirements governing government procurement where products are purchased for the use of the government and not for commercial resale nor for use in production of goods for commercial resale.

The obligation of national treatment does not prevent payment of subsidies exclusively to domestic producers. In this connection, a US tax measure providing credit against excise taxes to domestic producers of beer and wine came up for consideration in the Panel on US-Measures Affecting Alcoholic and Malt Beverages (June 1992). The US argued for exemption from the obligation of national treatment on the grounds that the measure in question was in the nature of a subsidy. The Panel noted that the word “payment” of subsidies in Article III refers only to direct subsidies involving payments and not to other measures like tax credits or tax reduction.

A new exception appears in the Uruguay Round Agreement on Subsidies and Countervailing Measures. Subsidies contingent on the use of domestic goods over imported goods are allowed, in the case of developing countries, for five years from the date of the coming into force of the WTO Agreement. For the least developed countries, they are allowed for eight years from that date.

The local content requirement (requirement that permission for investment will be conditional on the use of domestic products to some extent) and the limitation on the use of imported products (related to the value or volume of the domestic products that the firm exports) have been declared to be inconsistent with the obligations of Article III of GATT 1994 in the Agreement on TRIMs. Developed country Members have, however, been given two years from the coming into force of the WTO Agreement to eliminate these measures if they have them. For developing Members, this period is five years and for least developed country Members, it is seven years.

Emerging Problems.

So far, the criteria of determining like products have been based on the characteristics of the products; attempts have been initiated to broaden the scope so as to include in the criteria even the method of production of the products. This is the emerging problem. For example, suppose the imported product is produced in factories which pollute the environment by discharging harmful fluids into the neighboring river. At present, this aspect of the production will be totally irrelevant in comparing this imported product with the domestic product having similar composition, use and other characteristics. The domestic product and the imported product will be considered like products, and, as such, the imported product will have the benefit of national treatment.

Now, attempts are being made to distinguish the imported product from the domestic product on the grounds of whether the production process of the former causes pollution to the environment. If this is accepted as a criterion for determining the like product, the imported product will be declared as not being a like product, and thus will not have the benefit of national treatment.

2. Progressive trade liberalization and Transparency

Increased market access.

The multilateral trading system is an attempt by governments to provide investors, employers, employees and consumers with a business environment which encourages trade, investment and job creation as well as choice and low-prices in the market place. Such an environment needs to be stable and predictable, particularly if businesses are to invest and thrive. Predictable and growing access to markets for goods and services is an essential principle of the WTO.

Binding of tariffs:

The existence of secure and predictable market access is largely determined by the use of tariffs, or customs duties. While quotas are generally outlawed, tariffs are legal in WTO and are commonly used by governments to protect domestic industries and to raise revenues. However, they are subject to disciplines - for instance, that they are not discriminatory among imports - and are largely “bound”. Binding means that a tariff level for a particular product becomes a commitment by a WTO member and cannot be increased or raised beyond the bound level without compensation negotiations with its main trading partners. Thus, it can be the case that the extension of a customs union can lead to higher tariffs in some areas for which compensation negotiations are necessary. The bound tariff on a product can be higher than the tariff actually applied. The developed countries have normally bound their tariffs at the applied levels. Developing countries, however, have adopted commitments on “ceiling bindings”, that is, bindings at levels higher than the applied rates. This has allowed developing countries to substantially increase their bound commitments, thus underpinning their open markets policies, while keeping a certain margin for protection in case of need.

Prohibition of quantitative restrictions:

While tariffs are legal in WTO and are commonly used by governments to protect domestic industries and to raise revenues, quotas are generally outlawed. Article XI of GATT 1994 sets out a general prohibition of quantitative restrictions, whether on imports or exports. In some special cases and for specific reasons, such as safeguard action, balance-of-payment, protection of public health or national security, quantitative restrictions can be introduced under strictly defined criteria.

Article XIII of GATT 1994 stipulates that prohibitions and quantitative restrictions, when applied, should be administered on a non-discriminatory basis, i.e. to all trading partners equally. In applying import restrictions, Members should aim at a distribution of trade approaching as closely as possible the shares various supplying countries would have obtained in the absence of the restrictions. Furthermore, quotas should be allocated among supplying countries based upon the proportions supplied by the various supplying countries during a previous representative period.

The “tariffication” of all non-tariff import restrictions for agricultural products provided a substantial increase in the level of market predictability for agricultural products. More than 30% of agricultural produce had been subject to quotas or import restrictions. Virtually all such measures have now been converted to tariffs which, while initially providing substantially the same level of protection as previous non-tariff measures, are being reduced during the six years of implementation of the Uruguay Round agricultural agreement. The market access commitments on agriculture will also eliminate previous import bans on certain products.

Tariff negotiations and progressive reduction in protection:

Following the establishment of the GATT in 1948, average tariff levels fell progressively and dramatically through a series of seven trade rounds. The Uruguay Round added to that success, cutting tariffs substantially, sometimes to zero, while raising the overall level of bound tariffs significantly. The commitments on market access through tariff reductions made by over 120 countries in the Uruguay Round are contained in some 22,500 pages of national tariff schedules.

Tariff reduction, for the most part phased in over five years, will result in a 40% cut in developed countries’ tariffs on industrial products, form an average of 6.3% to 3.8%, and a jump from 20 to 44% in the value of imported industrial products that receive duty-free treatment in developed countries. At the higher end of the tariff structure, the proportion of imports into developed countries from all sources that encounter tariffs above 15% will decline from 7 to 5% and from 9 to 5% for imports from developing countries.

The Uruguay Round increased the percentage of bound product lines from 78 to 99% for developed countries, 21 to 73% for developing economies and from 73 to 98% for economies in transition results which are providing a substantially higher degree of market security for traders and investors.

Tariff renegotiations and compensation:

The contractual nature of a bound tariff concession lies in the fact that the tariff rate cannot be increased beyond the bound level. However, countries would not enter into this kind of commitment without the possibility of revision when the situation of a domestic industry so requires. The GATT 1994 allows for the possibility of renegotiations. A Member desiring to withdraw or modify tariff bindings has to renegotiate them with other interested Members and provide compensation, that is, substantially equivalent tariff concessions on other products.

Transparency.

The principle of transparency is realized through four schemes:

1) The obligation of notification: A WTO Member should notify the relevant WTO committees and explain any changes in trade policy, legislation and judicial decisions so long as they fall within the administration of the WTO.

2) Consultation: When a Member brings a charge against another over a trade dispute, the dispute should first be solved through consultation, political decision and mediation and then be handled by expert groups. For example, if the commodity trading council of the WTO discovers a change in the rise of tariff duties of car imports to Japan or more difficulties in auto importing by its sale networks, the council will conduct consultation among its members so as to demand that the Japanese government make changes within a rational time limit.

3) Transparency in domestic law making: Transparency should be reflected in domestic law making. Whenever a domestic law or regulation is created, opinions of the relevant departments should be solicited extensively. In addition, the opinions and suggestions concerning the same trades and industries abroad should also be considered. The Chinese government, for example, has begun housecleaning of rules, regulations, administrative documents, and internal documents of every department in line with the requirements of the basic rules of the WTO.

4) Unified implementation: Laws and regulations affecting trade are to be implemented uniformly in every region of the Member-state. Treatment has to be nondiscriminatory, enabling equal conditions for market participants to engage in fair competition.

3. Rules on Fair Competition

The WTO is not the “free-trade” institution as it is sometimes described - if only because it permits tariffs and, in limited circumstances, other forms of protection. It is more accurate to say it is a system of rules dedicated to open, fair and undistorted competition. Rules on non-discrimination are designed to secure fair conditions of trade and so too are those on dumping and subsidies.

Dumping refers to such a trade practice that enterprises export products at very low prices in order to capture markets abroad and to eliminate competition. Article VI of GATT 1994 defines dumping as the introduction of a product into the commerce of an importing country at less than its normal value, that is, less than the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting Member.

Subsidies are benefits provided by governments to producers and exporters of products which improve their competitiveness in international trade and thereby distort competition.

Both dumping and subsidies are considered to be unfair practices; the difference is that the former is adopted by firms and enterprises, whereas the latter, by Member governments. Anti-dumping duties may be applied in order to offset or prevent dumping, and countervailing duties for the purpose of offsetting any subsidy on the manufacture, production or export of any merchandise. In both cases, such duties may only be imposed if imports of dumped or subsidized products cause or threaten to cause material injury to an established industry in the importing country or materially retard the establishment of a domestic industry.

4. Encouraging Development and Economic Reform

Over three-quarters of the WTO Members are developing countries and countries in the process of economic reform from non-market systems. During the seven-year course of the Uruguay—between 1986 and 1993 - over 60 such countries implemented trade liberalization programs. Some did so as part of their accession negotiations to the GATT while others acted on an autonomous basis. At the same time, developing countries and transition economies took a much more active and influential role in the Uruguay negotiations than in any previous round.

This trend effectively killed the notion that the trading system existed only for industrialized countries. It also changed the previous emphasis on exempting developing countries from certain GATT provisions and agreements. With the end of Uruguay, developing countries showed themselves prepared to take on most of the obligations that are required of developed countries. They were, however, given transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO provisions particularly so for the poorest, «least-developed» countries. In addition, a Ministerial decision on measures in favor of least-developed countries gives extra flexibility to those countries in implementing WTO agreements; calls for an acceleration in the implementation of market access concessions affecting goods of export interest to those countries; and seeks increased technical assistance for them. Thus, the value to development of pursuing, as far as is reasonable, open market-oriented policies, based on WTO principles, is widely recognized. But so is the need for some flexibility with respect to the speed at which those policies are pursued.

Nevertheless, the provisions of the GATT intended to favor developing countries remain in place in the WTO. In particular, Part IV of GATT 1994 contains three articles, introduced in 1965, encouraging industrial countries to assist developing nation members “as a matter of conscious and purposeful effort” in their trading conditions and not to expect reciprocity for concessions made to developing countries in negotiations. A second measure, agreed at the end of the Tokyo Round in 1979 and normally referred to as the “enabling clause”, provides a permanent legal basis for the market access concession made by developed to developing countries under the generalized system of preferences (GSP).

5. Single undertaking

Single undertaking implies that WTO members must accept all of the obligations of the GATT, GATS, TRIPs and any other corollary agreements. This ends the «free ride» of some developing countries which under the old GATT could receive the benefits of some trade concessions without having to join in and undertake their full obligations.

Questions

1. Which techniques may be employed by states to lower imports?

2. Are export controls compatible with GATT?

3. What are like products for MFN purposes?

4. Discuss the major exceptions to the GATT’s MFN obligation.

5. Describe the national treatment obligation under the GATT.

References

1. John H. Jackson, The World Trading System: Law and Policy of International Economic Relations (2nd ed., Cambridge, MA: MIT Press, 1997). p.139-228

2. Jackson/Davey/Sykes, 372-435, 436-463, 501-558, 596-665, 941-950, 983-988.

3. Trading into the Future – WTO, 3rd edition, Revised August 2003. p.21-55.

4. “Domestic Administration of Tariffs”, Trebilcock & Howse, The Regulation of International Trade, 2005, (Supplement, Volume II, pages 6 - 9)

Lecture 4. Issues on market access

WTO envisages regulates instruments countries may use under strict conditions to regulate access to their markets. These instruments can be in form tariff and nontariff restrictions. In this respect WTO sets up rules on usage of tariffs, safeguards, measures under balance of payment provisions, technical barriers to trade, sanitary and phytosanitary measures, trade-related investment measures.

1. Tariffs

A tariff is a tax or duty levied on the traded commodity as it crosses a national boundary. Purpose


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