PROVISIONS OF THE GATT

ARTICLE I: GENERAL MOST FAVOURED NATION TREATMENT (MFN)

This principle states that any advantage, favour, privilege or immunity granted by any
contracting party to any product originating or destines for any other country shall be
accorded immediately and unconditionally to the like product origination in or destined for
the territories of all other countries

 Essentially, any favourable treatment given by country A to B should be given to

country C as well.
 It requires a legitimate basis of comparison and relates to discrimination on ground
of nationality
 Exceptions: Regional Trade Agreements, Free Trade Agreements or trade blocs such
as MERCOSUR. Special accessing power is also given to transitory economies to
facilitate trade amongst a few blocs/countries before MFN is to be applied to other
countries.

Features of MFN:
1. Trading without discrimination/Fair trade rules
2. Removal of barriers through negotiation
3. Predictability and transparency with respect to trade barriers/no arbitrary or unilateral
action
4. More competitive trade environment fostered by curbing of unfair trade practices.
(Special access/raising trade barriers are exceptions to the MFN principle)
 These principles are especially beneficial to developing countries

Relevant cases (extra)

1. CASE: CANADA – AUTOS case (Measures affecting automotive trade industries)

Complaint by Japan against Canada – Under the Auto Agreement between Canada and USA,
only a limited number of motor vehicle manufacturers from certain countries were eligible to
import vehicles into Canada duty free and to distribute the motor vehicles in Canada at the
wholesale and retail distribution levels, which was a violation of its MFN clause under
Article I:1.
 Appellate Body stated that GATT 1994 prohibits discrimination between like
products originating in, or designed for, different countries.
 Article I:1 serves as an incentive for concessions negotiated reciprocally, which can
be extended to other members on an MFN basis.
 Art. I:1 includes de jure and de facto discrimination.
 Therefore, Canadian import duty exemptions granted to motor vehicles originating in
certain countries were inconsistent with Article I:1.
2. CASE: EC – Bananas III
Import regime for bananas of the European Communities under which bananas from Latin
American countries (dollar bananas) were treated less favorably than bananas from former
European colonies (ACP bananas).
 Panel found that procedural and administrative requirements of the activity function
rules for importing third-country and non-traditional ACP bananas differ from, and go
significantly beyond, those required for importing traditional ACP bananas.

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 3. CASE: Spain-Tariff Treatment of Unroasted Coffee (case for like products)
Spain did not apply custom duties to ‘Columbian Mild’ and ‘Other Mild’ while it imposed a
7% tariff on other 3 types of unroasted coffee. Brazil used to export coffee (unwashed
Arabica) to Spain claimed that the Spanish tariff regime was inconsistent with the Article I:1.
 GATT Panel took into consideration (a) physical characteristics of the product, (b)
end use of the product, and (c) tariff regimes of other Member states.
 It held that the coffee, if not exclusively, but sold in the form of blends, and in its end
use, is regarded as a single product, regardless of the type. (hence like products in this
case)
 Therefore, the inconsistent tariff rate by Spain was violative of Article I:1.

Appellate body finally held that the essence of non-discrimination is that like products should
be treated equally, irrespective of their origin. Since the likeness of the bananas was not
disputed, the non-discrimination provisions therefore apply to all imports of bananas

ARTICLE III: NATIONAL TREATMENT

To check whether a Country favors itself over other countries. It prohibits a country from
discriminating against other countries.

Essentials/Definition:
1. Internal taxes and charges, law, regulations and requirements affecting the internal sale,
purchase, transportation, distribution or use should not be applied to imported or domestic
products in a way to provide protection to domestic products.
2. Products of one contracting party being imported into the territory of other contracting
party should not be subjected to internal taxes or charges in excess of those applied to
domestic products.
3. Treatment offered to products of one contracting party imported into the territory of
another contracting party should be given equally favorable treatment as to which is offered
to domestic products w.r.t. to all laws, regulations and requirements.
* National treatment only applies once a product, service or item has entered the market. This
does not include custom duty and taxes. Basic Customs duties obviously need to be paid.

Concept of ‘Like’ Products

 When considering national treatment, it has to be between like products.
 Characteristics of like products are based on:
o Demand/preferences of end users
o Products perspective, nature & quality
o Tariff classification
o Product’s end users
o Note that slight variations won’t affect the status of ‘like’ products

CASE: Japan-Alcoholic Beverages II (extra)

Case brought in by Canada, EC and US against Japan was levying a lower tax on domestic
“shochu” than on whiskey, cognac and white spirits.
 Appellate Body explained the broad and fundamental purpose of N.T. – to avoid
protectionism in the application of internal tax and regulatory mechanism.

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  To ensure that the internal measures are not applied on domestic and imported
products so as to afford protection to domestic products.
 To treat the imported products in the same way as the like domestic products once
they had been cleared through customs.
 Obligation under Article III is a general prohibition on the use of internal taxes to
provide protection to domestic products.
 Therefore, Japan was in violation of Article III on account of providing protection to
domestic ‘shochu’ by charging higher tax on other products.

ARTICLE II: SCHEDULE OF CONCESSIONS

(This was covered very briefly in class)

 Article II(1)(a) provides that each contracting party shall accord to the commerce of
the other contracting parties treatment no less favourable than that provided for in the
appropriate part of the appropriate schedule annexed to this agreement. (read the
entire provision if you want to know what kind of concessions the schedules provide
for)
 So if imports from a country are not treated as per the rates of duties etc, provided in
the schedule of concessions, it would be a violation of this provision.

CASE: EC-Chicken Cuts The Panel in EC – Chicken Cuts had to decide whether the tariff
treatment of frozen boneless salted chicken cuts imported into the European Communities
was inconsistent with Article II:1(a) and Article II:1(b), as had been alleged by Brazil and
Thailand. The Panel set out a three step test for their analysis of this issue: "[W]e will need to
ascertain:

(a) the treatment accorded to the products at issue under the EC Schedule;

(b) the treatment accorded to the products at issue under the measures at issue; and

(c) whether the measures at issue result in less favourable treatment of the products at issue
than that provided for in the EC Schedule and, more particularly, whether those measures
result in the imposition of duties and conditions on the products at issue in excess of those
provided for in the EC Schedule."

The Panel found that the EC measures at issue had the effect of classifying frozen boneless
chicken cuts that had been impregnated with salt, with a salt content of 1.2% – 3% (the
products at issue), under the concession contained in heading 02.07 of the EC Schedule,
which relates inter alia to "frozen" chicken. The Panel concluded that those measures were in
violation of Article II:1(a) and II:1(b) of the GATT 1994 because (based on its interpretation
of the EC Schedule) the products at issue were covered by the concession in heading 02.10 of
that Schedule, but the EC measures resulted in imposition of customs duties on the chicken
cuts in question in excess of the bound duty rate for heading 02.10.