For example, restrictions on imports of oranges containing a certain level of pesticide residues, or regulations applied to imports of poultry products containing salmonella (rod-shaped bacteria causing food poisoning, typhoid, and paratyphoid fever in human beings and other infectious diseases in domestic animals) are typical SPS measures. Veterinary drugs given to farm animals are also covered in so far as they may pose a threat to humans later consuming the meat.
· protect animal life or health, or plant life or health from risks arising from the entry, establishment or spread of pests, diseases, disease-carrying organisms or disease-causing organisms;
For example, an import ban on live cattle originating from herds infected by Bovine tuberculosis would be one example of an SPS measure taken with the objective of avoiding the introduction and spread of the disease to domestic cattle. Another example might be restrictions on certain fruit from areas plagued by the fruit fly.
· protect human life or health from the risks arising from diseases carried by animals, plants or their products, or the entry, establishment or spread of pests;
For example, the spread of rabies (an acute, infectious, often fatal viral disease of most warm-blooded animals, especially wolves, cats, and dogs, that attacks the central nervous system and is transmitted by the bite of infected animals) will be prevented or the banning of imports of meat and meat products originating from foot-and-mouth disease regions will be imposed.
· prevent or limit other damage from the entry, establishment or spread of pests.
For example, the undesired importation of certain weeds can cause major damage in terms of crowding out domestic animal and plant species without necessarily causing a disease.
Purpose: to reduce the possible arbitrariness of governments’ decisions in the field of sanitary and phytosanitary measures by clarifying which factors should be taken into account when imposing health protection measures. The SPS Agreement also encourages consistent and transparent decision-making in determining an appropriate level of health protection, and should not result in unjustified barriers to trade.
Consideration: SPS Agreement should be applied without unjustified discrimination, or be in line with MFN principles and National Treatment principle. SPS Agreement recognizes, however, that the animal and plant disease status may differ among supplying countries, and this must be taken into consideration in the trade measures applied.
The three standard-setting international organizations:
1) FAO/WHO Codex Alimentarius Commission: based in Rome, is a subsidiary organ of the Food and Agriculture Organization of the UN (FAO) and the World Health Organization (WHO). The SPS Agreement designates Codex as the authority for all matters related to international food safety evaluation and harmonization (Harmonization means the establishment of national sanitary and phytosanitary regulations must be consistent with international standards, guidelines and recommendations). Codex develops scientific methodologies, concepts and standards to be used worldwide for food additives, microbiological contaminants, veterinary drug and pesticide residues to be used worldwide.
2) Office International des Epizooites (OIE): based in Paris, is the world animal health organization. The OIE develops manuals on animal diseases, standards for diagnosis, vaccination, epidemiological surveillance, disease control and eradication, etc.
3) International Plant Protection Convention (IPPC): based in Rome, is a subsidiary body of the FAO. The IPPC develops international plant import health standards, basic principles governing phytosanitary laws and regulations, and harmonized plant quarantine procedures.
Conformity with international standards: Generally, Members must base their SPS measures on international standards, guidelines and recommendations if there exist. A Higher level of protections is permitted if a Member has conducted an examination and evaluation of available scientific information and determined that the international standards are not sufficient to achieve an appropriate level of protection.
Equivalence: Ways of ensuring food safety or animal and plant health protection in different countries may be varied, but Members should accept each other’s regulations as equivalent whenever the same level of protection is achieved. For this purpose, bilateral consultations and negotiations are essential. For example, if Country A is concerned with food-and-mouth disease in Country B, the latter must cooperate by letting experts from Country A visit its farm operations and inspect its meat processing facilities.
Risk assessment: Members must establish SPS measures on the basis of an evaluation of the actual risks involved.
Risk assessments may be qualitative or quantitative, and quantitative risk assessment can be very costly. WTO Members have the right to determine what they consider to be an appropriate level of health protection, so long as this level does not protect domestic producers from competition.
Selection of an SPS Measure: Once the government has determined its appropriate level of sanitary and phytosanitary protection, it should not choose a measure that is more stringent and trade-restrictive than necessary. For example, a complete ban on imports of wheat may be one way to limit pesticide residue levels causing certain health risks to consumers, but random testing for maximum residue levels at the port of entry may be a less trade-restrictive measure, and wheat complying with the relevant residue requirements could safely be distributed on the domestic market.
Disease-free areas: Governments should recognize disease- or pest-free areas. These areas may be only part of a country or may cover parts of several countries. In the past, importing countries often required the whole exporting country to be free from a disease before it could be granted access. Today, products from disease-free areas within a given country should be grantee market access. The burden rests on the exporting Member to demonstrate that given areas within an exporting country are free from a disease.
Transparency: SPS measures must be published by Members so that interested Members can become acquainted with them. A Member must establish an enquiry point which will be responsible for providing answers to various questions. A national central government authority will be designated in each Member to notify the WTO Secretariat any new SPS regulations or modification to existing laws.
6. Trade-Related Investment Measures (TRIMs)
The Agreement on TRIMs covers conditions on investment which are related to trade in goods. Sometimes, governments impose conditions on investment, some of which are trade-related, others are not. For example, a government may prescribe that investment can only be made in a firm owned by resident nationals, or it may impose restrictions on the import of raw materials or the export of products. The restrictions on import and export relate to trade in goods, whereas the restrictions in respect of firm ownership relate to non-trade matters.
Background: Prior to the Uruguay negotiations, the linkage between trade and investment received little attention in the framework of the GATT. The Punta del Este Ministerial Declaration included this subject, stating that further provisions are necessary to avoid the trade-restrictive and trade-distorting effects of investment measures. The Uruguay negotiations on TRIMs were marked by strong disagreement among participants over the coverage and nature of possible new disciplines. The compromise that eventually emerged from the negotiations is essentially limited to an interpretation and clarification of the application to trade-related investment measures of GATT provisions on national treatment for imported goods (Article III) and on quantitative restrictions on imports or exports (Article XI).
Objectives: To promote the expansion and progressive liberalization of world trade and to facilitate investment across international frontiers so as to increase the economic growth of all trading partners, particularly developing country Members.
Coverage: The Agreement applies to investment measures related to trade in goods only. Moreover, the Agreement is not concerned with the regulation of foreign investment. The disciplines of the TRIMs Agreement focus on discriminatory treatment of imported and exported products and do not govern the issue of entry and treatment of foreign investment. For example, a local content requirement imposed in a non-discriminatory manner on domestic and foreign enterprises is inconsistent with the TRIMs Agreement because it involves discriminatory treatment of imported products in favor of domestic products. But the fact that there is no discrimination between domestic and foreign investors in the imposition of the requirement is irrelevant under the TRIMs Agreement.
Measures inconsistent with Article III.4 of GATT 1994
· specifying that particular products of domestic origin must be purchased or used by an enterprise,
· specifying that a particular volume or value of some products of domestic origin must be purchased or used by an enterprise,
· specifying that an enterprise must purchase or use domestic products at least up to a particular proportion of the volume or value of the local production of the enterprise,
· restricting the purchase or use of an imported product by and enterprise to an amount related to the export of its (the enterprise’s) local production.
The first three are local-content requirements and the fourth is an indirect requirement of partial balancing of foreign exchange outflows and inflows.
Measures inconsistent with Article XI.1 of GATT 1994
· imposing a general restriction on the import of inputs by an enterprise or restricting the import of inputs to an amount related to the export of its local production,
· restricting the foreign exchange for the import of inputs by an enterprise to an amount related to the foreign exchange inflow attributable to the enterprise,
· restricting export by an enterprise by specifying the products so restricted, the volume or value of products so restricted, or the proportion of its local production so restricted.
The first two are requirements of a partial balancing of foreign exchange, and the third is an export-restraint requirement for ensuring the domestic availability of the product.
Exception: A developing country Member is allowed temporary deviation from this obligation in so far as it is covered by the flexibility provided under the provision of Balance-of-Payment.
Notification and transparency: Members have to notify all TRIMs not in conformity with the Agreement to the Council for Trade in Goods within 90 days of 1 January 1995.
Elimination of existing measures: 2 years of 1 January 1995 by a developed country Member, 5 years of 1 January 1995 by a developing country Member, 7 years of 1 January 1995 by a least developed country Member, and the time for developing and least developed country Members can be extended if necessary.
Questions
1. What are VERs and OMAs? What economic interests of participating and third countries are involved in connection to VERs? Why were they seldom challenged in the GATT dispute settlement system?
2. What are safeguards and escape clauses?
3. Describe balance of payment provisions of WTO system.
4. Discuss the problem of technical standards in International Trade.
5. Explain the aims and procedure of imposing sanitary and phytosanitary measures.
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. Ustor, Most-Favored-Nation Clause, III EPIL (1997), 468-473.
3. Jackson/Davey/Sykes, 559-595, 990-1061.
4. Trading into the Future – WTO, 3rd edition, Revised August 2003. p. 50-55.
Lecture 5. Measures against Unfair Trade
WTO establishes rules of competition for countries, which can be described as rules on ‘fair trade’. Mainly, WTO targets two types of measures affecting competitiveness of companies – subsidies and dumping. In cases of dumping and subsidies WTO allows countries to restrict their trade under strict set of rules.
1. Subsidies
Subsidies are benefits provided by governments to producers and exporters of products which improve their competitiveness in international trade and thereby distort competition. Hence, a subsidy is generally considered to be an unfair practice.
For example, all major industrial nations give foreign buyers of the nation’s exports low-interest loans to finance the purchase through agencies such as the US export-import bank. These low-interest credits finance about 5% of US exports but as much as 30 to 40% of the exports of Japan and France. The amount of the subsidy can be measured by the difference between the interest that would have been paid on a commercial loan and what is in fact paid at the subsidized rate.
Definition
A subsidy is a financial contribution or income or price support by the government or any public body or a funding mechanism or a private party directed or trusted by the government within the territory of a Member, which confers a benefit to production/producers or export/exporters.
Financial contribution
- Direct transfer of funds, e.g., direct payments, granting of tax relief, subsidized loans, and equity infusion, low-interest loans to foreign buyers
- Potential direct transfer of funds or liabilities, e.g., loan guarantees
- Revenue foregone or not collected, e.g., tax credits
- Provision of goods and services other than general infrastructure, or purchase of goods
- Subsidies for exports: an outright cash payment based on the volume or value of the export of a product, payment of a part of the freight charges
- Subsidies for domestic production: provision of raw materials at subsidized prices for the production of a particular product, exemption from the payment of some tax, provision of cheap loans
Examples of non-subsidy
- A government temporarily exempts a paper mill in financial difficulties from the obligation to observe anti-pollution laws. (Regulatory but not financial privileges)
- A private NGO - non-governmental organization - gives technical and financial assistance to coffee growers in Africa. (Private aid)
- A government makes a loan to an automobile manufacturer on conditions equivalent to those that the manufacturer could obtain from private banks. (Financial contribution with no benefit)
- Differing effects of subsidies in importing countries
- Domestic producer industry: harm - more competitive foreign products
- Consumers and user industries: benefit - possibility of buying the product at lower prices and a wider choice of sources from which to buy
Categories of Subsidies
Prohibited subsidies (red): subsidies for export performance or for the use of domestic over imported goods, namely export subsidies and import substitution subsidies.
Export subsidies: direct payment of subsidy to a firm or an industry based on export performance, a bonus on exports through currency retention schemes, favorable internal transport and freight charges on export shipments, favorable provision of goods or services for the production of exported goods, export-related exemption, remission or deferral of indirect taxes or import duties, favorable export credits at rates lower than those in international capital markets, export credit guarantee or insurance programs at premium rates inadequate to cover the operating costs and losses of the programs, full or partial payment of the costs incurred by exporters
Prohibited subsidies are designed to affect trade and are most likely to cause adverse effects to the interests of other Members, thus are subject to dispute settlement procedures which include an expedited timetable for action by the Dispute Settlement Body. If it is found that the subsidy is indeed prohibited, it must be immediately withdrawn. If this is not done within the specified time period, the complaining member is authorized to take counter-measures.
Actionable subsidies (yellow): specific subsidies allowed under some conditions up to certain limits, but subject to challenge, either through multilateral dispute settlement or through countervailing action, in the event that they cause adverse effects to the interests of other Members
There are three possible types of adverse effects that can be challenged multilaterally:
- one country’s subsidies can hurt a domestic industry in an importing country;
- one country’s subsidies can harm a Member’s exporting interests because of serious prejudice;
- there is nullification or impairment of benefits accruing under GATT 1994 because the improved access to a market that is presumed to flow from a
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