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WTO Summary
WTO Summary
WTO Summary
According to Friedman, from the pointview of our well-being the unfavorable balance
is to have more export than import – concentrating on productive side. Visible effect is good:
If we tax steel, less steel imported, and concentrating on steel workers inside the country. If
we import less steel (?), we give more money to the respected country and ability for them to
buy our products from other sectors.
Invisible effect: If we import less steel, foreigners earn fewer money thus less money
to spend on our country, people in our country will not have jobs because export is not
developed.
WTO and Risk regulation: focused on environment, health protection and food
International trade laws (economic law):
A good description of international trade law should refer to those rules of public
international law, which directly concern economic exchanges between the subjects of
international law; describes the term with nations as stakeholders but publics are involved
too. At the minimum it includes:
● The background rules of private international commerce
● The architecture of the global trading and monetary systems
● The principles for international development and investment
The existing definitions today are:
- Seidl-Hohenveldern’s definition on trade law might not work for today’s issues
because now it’s not only about the states, as public also protests on trade agreements
like TTIP.
- Aust’s definition also does not cover the whole thing, as it only highlights commerce
and trade, which standard is provided by private sectors (inter-parties contract).
- Bederman has the closest definition to global economic law. But they excluded
international standards in the definition.
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Global Trade Law (post-modern view) covers certain topics as follows:
● Transnational law: law valid without nation-states (private law).
● International law: law valid because states agree and enforce (e.g. WTO law).
● Supranational law: law valid because states agree. Enforcement without states (e.g.
EU law).
● National law: law valid in a nation-state (e.g. tax law).
● Private law: law only valid because private parties agree (e.g. contract).
Risk regulation: regulations intended to protect health, safety, security and environment as
well as the accompanying institutional challenges for governance.
Regulation: any activity of attempting to control, order or influence the behaviour of others:
● Content related: bans.
● Information related: disclosure.
● Nudging: you give information, but not all the information or in a certain way to
influence consumers’ behaviour.
International law sources: includes treaty, customary law, and soft law. It tends to be positive
law rather than customary.
● Principles: guidelines for interpreting the law.
1. Reciprocity: I help you, you help me…
2. Most-favoured nation principle: treats everyone same
3. Common but differentiated responsibility: the obligation is the same but the
times depends on the economic situation.
4. Non-discrimination: cannot discriminate certain country without valid reason
5. National treatment; treat foreigners the same as your own.
● Ius cogens and Erga Omnes obligations are guided by VCLT and Case law.
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● Ius cogens obligations (art. 53 VCLT): norm accepted and recognized by international
community which no derogation is permitted, and which can be modified only by a
subsequent norm of general international law. It is an unwritten norm that protects
collective rights such as human rights (e.g. prohibition of slavery, torture, piracy).
Individual scope.
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Developing countries Developed countries
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○ Information asymmetry
● In risk regulation: risks are universal, question is how to, identify, manage and control
them. Control measures regulation is put in place for living normal life.
Reasons for risk approaches:
1. Rationality robust regulation
2. More socially accepted regulation
3. Reaction to fears rather than economics
4. What is price safety? And the price willing to pay?
5. Providing a level playing field “behind the border” regulations (NTTB) to harvest
efficiency gains.
Risk regulation:
1. Risk assessment: hazard identification, hazard characterization, exposure assessment
and risk characterization.
2. Risk management: evaluation of risks, ranking of risks, treatment of risks.
3. Risk communication: interactive exchange of information + opinions concerning risk
assessors, risk managers consumers and other stakeholders. It is largely influencing
the other two: a risk is already put forward (by communication) that made one assess
the risk. Also the management, which decision are taken, depends how people
perceive it.
Problems with risk approach: battle of science = science failure (missing data, uncertainty,
contrary information).
E.g.: BSE crisis: European Commission banned beef from UK during 2 weeks. After they lift
the band because there was too little scientific evidence for the relationships between BSE
and van Creutz Jakobs disease (brain disease). However, France kept the band because they
had proven that it was linked.
Alternative to the science approach:
● Values and beliefs (religion: halal)
● Economics (market power)
● Democratic decision making
● Comparative legal analysis
Science approach:
Allows a better decision base for level Can lead to unaccepted outcome by public
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playing fields = fear leading
Good level playing field for trade. Can be used as a political tool to hide
protectionism
a. Absolute advantage (Smith): countries should export those products which they can
produce more efficiently than other countries and imports those products which they
cannot produce. E.g.: Shoemaker will sell shoes to the fisherman and viceversa.
b. Comparative advantage (Ricardo): a country should specialize in producing and
exporting goods in which its comparative advantage is greatest and should import
goods in which it competitive disadvantage is greatest.
c. Factor proportion hypothesis (Heckscher–Ohlin model): countries export what
can be most efficiently and plentifully produced. This model is used to evaluate
trade and, more specifically, the equilibrium of trade between two countries
that have varying specialties. Emphasis is placed on the exportation of goods
requiring factors of production that a country has in abundance and the
importation of goods that the country cannot produce as effectively.
d. Product Cycle Theory (Vernon): each product has a certain life cycle that begins
with its development and ends with its decline. The stages are: introduction, growth,
maturity and decline. A firm will specialize in their manufacture depending upon the
particular stage the product is in.
e. Choice architecture (van Aaken): we all make choices influenced by our own
environment. E.g.: nudging.
Infant industries: temporary markets may be shut off to allow a market grow = works.
1. Reciprocity: Mutual recognition I lower tariffs for you importing products, you
will lower tariffs for me exporting products.
● Prisoners dilemma: when 2 parties choose to act in self-interest. As a result,
both participants find themselves in a worse state than if they had cooperated
with each other in the decision-making process.
2. The optimal tariff: Monopsony1 power by countries with high demand in one
product. Country that imports large portion of the whole trade export of that product,
can impose tariffs and exercise more monopsony power that the exporting party will
lower the price, so the actual (selling) price in the importing country is the same as
before (own product). A country must produce at lower cost to compensate the tariff.
3. Revenue raising: Import and export duties are major source of income for less
developed countries. These are often an important source of government revenue
difficult to replace in a short term.
4. National security:
1 A market situation in which there is only one buyer.
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● Protect industries of war
● Integration of (war) industries and markets leads to peace
5. Adjustment cost: Traditional transaction cost theory
Quantitative Restrictions: limits imposed on the volume or value of goods traded by a WTO
member. (Belgium Case: brother in law is the only one able to manufacture according to
law).
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Government procurement: customs duties on merchandise imports.
WTO agreement: establishment WTO (art. 1 WTO).
Overall aim (art. 2.1 WTO): The WTO shall provide the common institutional framework
for the conduct of trade relations.
The dispute settlement understanding is often only referring to the WTO law because they
don’t want to interfere too much into the domestic law or other international law. They only
want to look at the WTO principles for solving disputes.
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Ministerial Conference (MC) (Art. 4.1 WTO): most powerful body of WTO.
● Taking over functions of MC "(i)n the intervals between the meetings". Meeting
based on the needs, for example to find consensus or to make panels in case of
dispute.
● Consists of representatives of member states in principle, but in practice there is a
rotation between member states.
● Agreements with intergovernmental and non-governmental organisations (Art. 5
WTO)
● Budget (Art. 7.3 WTO) and Staff and Financial Regulations (Art. 6.3; 7.3 WTO)
● GC forms and oversee a Special Council (Art. 4.5 WTO), but the overseeing function
is not actually exercised. Council for Trade in Goods, Council for Trade in Services,
Council for TRIPS.
Secretariat (Art. 6 WTO): Operational Unit under Supervision of the Director-General. 1rst
Contact of WTO. It is the body with the most employees.
1. Decision making:
○ Consensus (Art. 9 WTO). If no consensus, then decision by voting
○ Some Committees refer back to their "heads" when consensus cannot be
reached. In practice: "toilet practice", where a delegate leave the negotiating
room if he doesn’t want to be attached in the letter; but he would still benefit
by MFN principle.
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○ Special Rules for Amendments in Art. 10 WTO.
Dispute Settlement System: mediation first when a Member is not agreeing with a trade
regulation or with another Member.
Preamble of GATT commits members to enter into reciprocal and mutually advantageous
arrangements directed to the substantial reduction of tariffs and other barriers to trade and to
the elimination of discriminatory treatment in international commerce.
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Tariff (art. 28 and 2 GATT): custom duties on merchandise imports. Tariffs can be used to
restrict the sale of imported goods and give revenue to the importing country - guide price
advantageous.
How to treat tariffs (art. 28 GATT): members recognize that customs duties often constitute
serious obstacles to trade and that negotiations on a reciprocal + mutually advantageous basis
directed to the substantial reduction of the general level of tariffs are of great importance to
the expansion of international trade:
● Tariff negotiation: each contracting party shall accord to the commerce of the
other contracting parties treatment no less favorable than that provided for in
the appropriate part of the appropriate schedule.
● Tariff binding: commitment not to increase a rate of duty beyond an agreed
level. Once a rate of duty is bound, it may not be raised without compensating
the affected parts.
WTO never target at private parties directly like companies, only governments. The exporting
company pays tax/tariff to the state where the product is sold. At a certain level the importing
state will compensate the paid tax. The state will give a compensation to the state, where the
exporting company is situated. That state may spend the compensation on the company.
Practical problems:
The Most Favored Nation principle (MFN): all members must be treated as the most
favorite. With a non-member without any agreement (contract), the state member does not
have to have the same treatment as the WTO member. Other way around, when a rule is in
favor of a non-WTO member, it should be applied to all the WTO members because WTO is
a privilege club. MFN also applies the same to every liked or comparable products.
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Preferential Trade Agreement (PTA): unilateral trade preferences = generalized system of
preferences scheme.Preferential Trade Agreements usually involve north-south relation or
developing and developed country (Generalized Schemes for Preferences).
Trade bloc: Usually between neighboring countries, with set internal and external rules (for
non-members). Internal rules: rules that members follow for behaviour among themselves.
External rules: rules that members follow for behaviour towards non-members.
Common but differentiated: developing countries have the same obligations but they are
given more time to fulfil them. Also, sometimes WTO is guiding the developing countries for
example when a claim occurs.
National Treatment Principle (art. 3.2 GATT): the products of the territory of any
contracting party imported into the other shall not be subject (directly or indirectly) to
internal taxes or any other internal charges to like domestic products.
1. Substitutability: which criteria do you take into account) when can a product be a
substitute?
2. Equality of competitive opportunities
3. Measures targeted at product
4. Varies with design, architecture and structure of measure
5. Foreign and domestic products are not like
6. Utility function to consumers
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Has always been an exception? Is this an excuse to all the exceptions?:
Video – agricultural sector is not the subject of demand and supply, nor the subject
liberalization of trade in agriculture; no subsidy in developing country; globalized
agricultural trade has no focus on global food supply but instead the profit of private sector in
developed countries, according to the reporter food shall be viewed as human right instead of
as subject of trade.
Agriculture in GATT
Agriculture Agreement
● Domestic support measures. Direct payment/subsidies for farmers. Quantification of
support measures are used in direct payment, pay support etc. These pay support/price
subsidies for farmers shall be reduced to 20% according to the law, but in practice it
doesn’t. this kind of internal subsidies can somehow substitute export subsidies.
● Export subsidies. There are some exemptions to this rule, called yellow, green, and
blue boxes: blue box includes direct payments, developing aid is subject to be reduced
but based on the peace clause it is not enforced.
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● EU used to have export subsidies on primary products. Now the GAP still has the
problem but not with the same extent as it was (Video)
Notable cases
a. Canada-Autos. EU and Japan had failed to determine that Autos is actually trade in
goods, instead of delivery services.
b. US-Gambling. US had violated GATS commitment to free trade in recreational services
(betting). US committed to ‘zero quota’ in that scope, and reasoned that their measures
were designed ‘to protect public morals or public order’. AB found that US had not
prohibited the remote supply of betting services in domestic horse racing - Antigua won.
c. EC-Bananas III. Mostly violated GATT, but the ruling should be considered in regards
of both GATT and GATS. In concern of GATS, EC violated MFN principle and national
treatment principle - de facto EC gave more favourable treatment to countries who have
traditionally supply to the EC. (There are 3 cases on this, but more less the same).
Measures affecting: Implies a measure that has an effect on which indicates a broad scope of
application.
● General obligations –MFN (art. 2): each member shall accord immediately and
unconditionally to services and suppliers of any other member treatment no less
favorable than it accords. ‘immediately and unconditionally’ could mean two things,
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based on the condition you impose to the first other country, or with additional
condition.
● Likeness of service product can be judged according to its competing market.
Likeness in services is even harder to determine than in products à law is not giving
much guidance.
● Exceptions to MFN: a member may maintain a measure inconsistent with obligations
provided that such measure is in the annex on art, 2 exceptions.
● Substantive rule 1:
○ Covers qualification technical standards + licenses
○ Consolidate Tariffs Schedules (CTS): should develop disciplines to ensure
requirement are based on objective + transparent criteria à not too burdensome
+ not in themselves restrict supply.
● Substantive rule 2 (respect to art. 4): unless that could not reasonably have been
expected of that member at the time the specific commitments in those sectors were
made.
● Procedural rule: establish impartial for a place to document to judge cases
impartially/objectively.
*Substantive rule is the rule of law, procedural rule is how the rule is applied.
5 exceptions in total, 2 are about tax, and 3 are other exceptions above. For example in US-
Gambling case US tried to protect children and citizens from organized crime. US had to
show provisionally justified proof that there is no other way to restrict gambling.
● Transparency: Members have to publish all the regulations and notify WTO (art. 3)
● Mutual recognition: shall allow other people to negotiate. for example in ’98 Australia
and NZ made agreement that if one person is qualified to work in Australia, then he is
allowed to practice in NZ.
● Monopolies: when monopolies occur, government has to ensure these monopolies are
complying too by comprising their monopoly system (art. 8).
● Emergency safeguard measures (art. 10)
● Subsidies (art. 15)
● Specific commitments + voluntary additional commitments:
○ Market Access: You cannot limit the number of suppliers and other related
things (on slide), unless stated in the signing. Type of commitment you make
can be only one of the four modes of supply; with or without additional
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conditions, full commitment or partly. ‘non’ means fully committed,
‘unbound’ means not committed.
○ National Treatment commitments.
You came up with an idea = the inventor has to be protected from being robbed. IP laws are
different per each country regarding the timespan, registration etc. IP law covers:
● Copyrights → automatically protected for four kind of products i.e. book, map,
website
● Design rights (furniture, maps, pics…): needs to be registered and proved distinct to
copyright.
● Patents
Why?
+ -
History: Paris convention (1883) and Berne convention (1886). National treatment clause:
one shall treat a patent from abroad like a domestic product, where a domestic product can be
patented, the foreign product can be patented in the respective country as well.
TRIPS:
Objectives of TRIPS (art. 7): The protection and enforcement of IPR should contribute to:
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● Promotional innovation: means for novel technologies
● Transfer and dissemination of technology: no border for technology.
● To the mutual advantage of procedures and users of technological knowledge.
Producers refer to the parties who produce the protected goods.
1. Members may adopt measures necessary to protect public health and nutrition à
promote the public interest in sectors vital importance to their socio-economic and
technological development.
2. Appropriate measures, consistent with agreement may be needed to prevent the abuse
of IPR.
3 steps test: used when Member wants to limit the use of IPRs.
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No unreasonable prejudice Taking into account No unreasonable prejudice
to legitimate interests of legitimate interests of owner to legitimate interests of
rights holder + 3rd party + 3rd parties rights holder
Case Law: Bowman vs Monsanto 569 US 2013: not much room for interpretation so it is
closed, but the discussion is worth looking.
GM seeds and crops harvested by and limited use license of Monsanto, then the crops are
bought by Bowman. Bowman then replant the crop seeds for his second harvest, Monsanto
filed a lawsuit. The case was closed rather quickly, because of patent exhaustion; where the
patent is only valid for the first product – not the derivative or second harvest.
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standards or risk assessment – temporary precautionary principle
prevails. Precautionary principle temporary measures should be based on
necessary risk assessment; it is labeled as ‘temporary’ to enable the
member getting more data, in other words allowing you to hold the
measure temporarily – if it is proven to be risky then one can take a
preventive measure, if it is not then one should drop the ban, if in doubt
then one can prolong the time span of PP.
○ Art. 4: equivalence, aim of achieving bi and multilateral equivalence
agreements.
○ Art. 5: risk assessment. By adopting international standards into domestic,
members also shall take into account the risk assessment which also
standardized by international organizations.
○ By default, risk assessment is the basis, hence the international standards is
the most recognized risk assessment.
○ Art. 6: regionalized concept: reg. identification of hazards.
○ Art. 9: technical assistance.
○ Art. 10: special and differentiated treatment.
● Rights and obligations in SPS (art. 2).
○ To take SPS measures is necessary to protect health. Not inconsistent with
SPS.
○ Science based approach. Science proves that this measure is necessary to take
in order to protect.
Harmonization:
Appropriate Level of Protection (ALOP, art. 5.4 and 5.5.): take into account to minimize
negative trade effects = proportional principle
ALOP is a political determination, reflection of democratic system for people to choose
which level of protection they want to have. Later, this level can be justified by SPS measure
– based on the risk assessment and international standards. The interpretation of ‘based on’ is
highly debated.
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● IPPC = international plant protection convention
Beef case: is about technical regulations on product and process related. EU banned beef
from LLS+CAN because of the following hormones: estradiol, progesterone, testosterone,
etc. Risk analysis is spastically in nature = unable to say with certainty there is no health risk.
Allocation of resources should be more and more efficient. Trade itself (transporting,
shipping…) should not cost more resources than the resources themselves (products which
are shipped).
Marrakesh agreement (1994): its preamble is the starting point of environmental laws.
However the preamble can only be used for the interpretation of the articles, so cannot be
used as a combination. No legal binding.
While most of the economic theory, except for micro- or consumer focused economics,
concerns efficient use of world’s resources. So, WTO tries to implement sustainable
development in this regard.
SCM: subsidies and countervailing measures: allows subsidies up 20% pf firm’s cost for
adapting to new environmental laws.
Compulsory license (TRIPS and art. 27): governments can refuse to issue patents that form a
risk for human health, animal or environment.
Tuna – dolphin I (1991*): US embargo on imports of tuna products from any nation that
does not meet US dolphin protection standards. Panel reported that US could only apply its
regulations on the quality of tuna (TBT process vs product issue); and GATT rules did not
allow ‘extra-territoriality’ where one country take trade action (here, embargo) for the
purpose of enforcing their domestic law. The case was settled out of court -> doesn’t interpret
GATT law.
Tuna - dolphin II: 1) US labelling standards found to violate TBT measure with respect to
the broad subject of ‘dolphin-safety’, 2) AB found that the measure detriment Mexican tuna
products, and that the measure was inconsistent with national treatment, 3) more trade-
restrictive than necessary, and 4) did not constitute a relevant international standard.
Reformulated gasoline (1995): US set out different baseline for domestic and imported
gasoline (proved to violate national treatment), with the aim of regulating emission effects of
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gasoline to prevent air pollution. US defended under Art.XX(g) and AB confirmed that the
measure was aimed at “conservation of exhaustible natural resources”, but the measure was
not justified to the exception because it constituted “unjustifiable discrimination” and a
“disguised restriction on international trade” under the chapeau of Art.XX.
Seals (2014): EU Seal regulation prohibit import of seal products with some exceptions to
certain ‘hunter’. AB found it was not consistent to MFN treatment and national treatment, as
it did not extend the same market access to Norway and Canada as to Greenland or to like
domestic products. It was necessary to protect public morals, but because of the exception to
‘hunter’, it had not justified EU seal regulation under Art.XX(a).
Current action
● Energy related disputes, for example solar panels – China heavily subsidized their
solar panel market which in a way restricting European producers.
● Other example, greening energy traded as goods.
Article XVIII states another objective of WTO, that is economic development – giving a
room for developing countries. Usually by giving exceptions to the rule. Using principle of
international law called ‘common but differentiated’ principle, where the level standards are
the same but the time span could be expanded according to the level of development of the
respective country.
Consumer demand is the key to private standards. Private standards can only be viewed if we
look through the whole supply chain, it’s consumer-to-business and also business-to-business
and to consumers along the line.
Why private standards? Dependant on consumer demands. the whole chain is considered.
● globalization economically = not only 1 or 2 jurisdictions and there is a regulatory
gap in developed countries. it is not controllable easily what is happening with our
products.
● The enforcement body is the holder of private standard itself.Ineffective state
regulation in producing states.
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● Reduce outsourcing effect (Western approach): benefit is the safety can be reached,
however the downside to this effect is developing countries can’t bring firms into
their market. When one has to comply to the same standard it is less attractive to
move the production to cheap countries.
● extraterritolization of domestic (higher) standards.
Private standards: not defined by WTO (in consensus). Written requirement or condition or a
set of written requirements/ conditions, related to food safety/ animal, plant life, health that
may be used in commercial transactions and that is applied by a non-governmental entity that
is not exercising governmental authority.
2 approaches:
1. Bindingness
2. Actors:
a. Impact on the supply chain
b. Actors involved in their making
c. Their regulatory substance
i. Procedural/ substantive rules
ii. Adjudicative approaches
iii. Judgement enforcement mechanisms
Vertical standards:
Horizontal standards: covering the whole supply chain.
1st standard setting: one has to comply to domestic how in the first place. In EU is prohibited
to make label with only complying to EU law.
2nd certification: allowed to put label whatever…
3rd auditing: check compliance
All steps are conducted by 3 separate parties: 3rd party certification.
Different kinds of certification:
1. First party certificates, company sets standards itself, make a label and audit itself =
free riding sometimes.
2. Second party certificates: 2 companies involved
3. Third party certification: proper certification, reliable, objective, good label,
independent.
Legal responses:
● Unfair competition law
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● Antitrust law
● Procurement law
● Freedom of movement law
Frabo case – EU: A new product received private certificate from German DVGW, in
addition to European public ones. But the DVGW was withdrawn and changed into a new
one upon request from German competitors. Frabo complaints against Germany for violating
EC standards. Frabo won and ECJ forces DVGW to change its role in market to avoid acting
as relative barrier to free movement of goods.
These agreements are not new for EU: art. 207 TFEU:
● Under Art.207(1) TFEU, TTIP and CETA is considered as bilateral agreement; yet
the interesting thing from these trade agreements is the huge impact it would have
once enforced.
● Art.207(4) TFEU sets qualified majority vote in negotiation and conclusion of any
trade agreements.
● Art.207(6) TFEU: EU can only sign treaties which has the areas where EU already
had been harmonized, it should be ratified by each MS. This is only valid for legal
level, but private standards have more chance for harmonization (one option it can be
treated as a public standard).
By exercising this article shall not affect the delamination of competences between the
Union and MSs = shall not lead to harmonization of legislative/ regulatory provisions
of the MSs in so far as the Treaty exclude such harmonization. When making an
agreement = legal harmonization of all standards.
Provisions on TTIP:
● Regulatory cooperation
● …
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TTIP in light of SPS (an example, chlorinated chicken case): Art. 10.4 Equivalence – EU
side: importing party shall accept SPS measures of exporting party as equivalent to its own if
the exporting party objectively demonstrates to the importation party that its measure achieve
the importing party appropriate level of protection (ALOP).
For the determination, recognition and maintenance of equivalence the Parties shall follow
the principles set out in the available guidance of international standard-setting bodies
recognized by the WTO. SPS agreement as well as annex 4. EU wants to have things
regulated, just to be sure.
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