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GATT and International Trade (Part 1)
GATT and International Trade (Part 1)
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World Trade Organization (WTO)
What is the relationship between WTO and GATT?
• The 1947 GATT preceded the WTO.
• Does this mean that the WTO render the GATT redundant? No.
• The WTO requires all members to sign and adhere to the provisions of
the GATT.
Appellate Body
Decision
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World Trade Organization (WTO)
How effective are retaliatory measures pursuant to a WTO ruling?
• WTO cannot ‘enforce’ a decision like in a court judgment because
member states of the WTO are sovereign countries.
• Problem: If non-complying state is economical powerful, an injured
state that is economically weaker probably cannot retaliate effectively
even if it is allowed to do so pursuant to a WTO decision.
• For example, Country X (developed, population: 300 million) violated
the GATT. Country Y (developing, population: 20 million) imposed
higher tariffs on specific goods from Country X. Consequently, these
goods are priced higher in Country Y and became uncompetitive. But
Country Y is a developing country with a small market, where the
consumer’s purchasing power is still weak. The lack of demand for
Country X’s goods has limited impact on Country X.
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The GATT : Rationale
What is the purpose behind the GATT?
• The main purpose of the GATT is to promote trade liberalization.
• The WTO’s main task is to reduce trade inequalities between the
members and promote global justice.
• Provisions in GATT seek to ‘open’ the markets of developed countries
so that developing countries can access wealthier markets. This is
achieved through preferential market access which is usually
unilateral.
• When developed countries open “their markets to exports from smaller
economies on a preferential basis, larger economies in effect place
the consumption power of their larger, richer consumer market at the
service of the smaller economies, which can increase their exports
and thereby strengthen their economic base.” (Di Lieto & Treisman,
2018, p. 250).
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The GATT : Most favoured nation
Which GATT provision lays down the ‘most favoured nation’
principle?
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The GATT : Most favoured nation
How do we ascertain whether goods are ‘like products’?
• Four perspectives:
(a) the physical properties of the products;
(b) the extent to which the products are capable of serving the
same or similar end-uses;
(c) 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; or
(d) the international classification of the products for tariff
purposes.
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The GATT : Most favoured nation
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The GATT : National treatment obligation
Article III of the GATT lays down the national treatment obligation?
Article III
National Treatment on Internal Taxation and Regulation
1. The contracting parties recognize that internal taxes and other
internal charges, and laws, regulations and requirements affecting the
internal sale, offering for sale, purchase, transportation, distribution or
use of products, and internal quantitative regulations requiring the
mixture, processing or use of products in specified amounts or
proportions, should not be applied to imported or domestic products so
as to afford protection to domestic production.
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The GATT : National treatment obligation
2. 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.
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.
…..
4. 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. The
provisions of this paragraph shall not prevent the application of
differential internal transportation charges which are based exclusively MONASH
on the economic operation of the means of transport and not on the BUSINESS
nationality of the product.
The GATT : National treatment obligation
5. No contracting party shall establish or maintain any internal
quantitative regulation relating to the mixture, processing or use of
products in specified amounts or proportions which requires, directly or
indirectly, that any specified amount or proportion of any product which
is the subject of the regulation must be supplied from domestic sources.
Moreover, no contracting party shall otherwise apply internal
quantitative regulations in a manner contrary to the principles set forth
in paragraph 1.
……
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The GATT : National treatment obligation
What does Article III mean?
• Article III basically says that a member state shall not impose
any tax or charges, or impose any law or place any
quantitative restriction on imported products in order to
protect similar domestic products.
• In other words, imported products should be treated no less
favourably compared to domestic products.
• The purpose of Article III is to deter protectionist policies.
• Again, the issue of ‘like products’ may surface.
• After all, a member state has to show that another member
state has instituted measures that renders its product being
treated less favourably compared to ‘like product’ in the
domestic market.
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The GATT : National treatment obligation
Japan – Alcoholic Beverages Case II (1996)
- The EC requested consultations on 21 June 1995. Later, Canada
and the US also requested consultations.
- The complainants claimed that spirits exported to Japan were
discriminated against under the Japanese liquor tax system. This
was because Japan levied a substantially lower tax on “shochu”
than on whisky, cognac and white spirits.
- Since shochu was a domestic product, higher taxes on whisky,
cognac, etc. would violate the national treatment obligation in Article
III – provided that these alcoholic beverages are ‘like products’.
- The Panel concluded that shochu and whisky, etc. were like
products. Hence, Japan had violated Article III.
- Japan appealed. The Appellate Body upheld the Panel’s decision.
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The GATT : National treatment obligation
But how should the ‘like products’ criteria be applied?
• Admittedly, there is considerable grey area where this issue is
concerned.
• In the Japan – Alcoholic Beverages Case II (1996), the Appellate
Body expressed the view that the concept of ‘likeness’ is a relative
one that evokes the image of an accordion. The accordion of
‘likeness’ stretches and squeezes in different places as different
provisions are applied. The width of the accordion in any one of
those places must be determined by the particular provision in
which the term ‘like’ is encountered as well as by the context and
the circumstances that prevail in any given case.
• In a nutshell, there is no one-size-fit-all interpretation. What
constitute ‘like products’ depend on the context and the specific
provision of the GATT. A case-by-case basis has to be adopted
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The GATT : Limits on quantitative restrictions
What are ‘quantitative restrictions’?
• These are quotas or absolute limits to trade that a country imposes
on the production or the importation/exportation of products (or
both).
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The GATT : Exemptions
The most favoured nation principle and the national treatment
obligation are not absolute. The GATT provides for exemptions.
• Two examples will be highlighted here.
• Article XX – General Exceptions allows a member state to depart from
these principles where such adoption would (among other things)
undermine public morals, affect the health and safety of the population or
exhaust its natural resources.
• However, these general exceptions must be interpreted in accordance
with the introduction paragraph or the ‘chapeau’ of Article XX, which
states that the exceptions should not be applied in a manner that results in
‘arbitrary or unjustifiable discrimination between countries’ or be used to
‘disguise restriction on international trade’.
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The GATT : Exemptions
European Communities - Measures Affecting Asbestos and Asbestos-
Containing Products (2000) (EC – Asbestos Case)
- On 28 May 1998, Canada requested consultations with the EC in
respect of measures imposed by France in 1996.
- France banned the importation of asbestos and products containing
asbestos. However, certain domestic substitutes such as PVA,
cellulose and glass (“PCG”) fibres (and products containing such
substitutes) are still available in the domestic market.
- Canada argued that (among other things) France violated the
national treatment obligation in Article III.
- The Panel considered the products concerned to be ‘like products’.
- The Appellate Body came to the contrary conclusion. A competitive
relationship between the products was an important factor in
determining likeness in the context of Article III. Here, Canada had
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failed to show that the products were competitive in order to BUSINESS
establish the likeness among the products.
The GATT : Exemptions
- In any event, the Appellate Body concurred with the Panel that
France’s measure was necessary to ‘protects human life or health’
and that ‘no reasonably available alternative measure’ existed
(GATT Art. XX(b)).
- In conclusion, the ban on asbestos and products containing
asbestos was justified as an exception under Art. XX(b).
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The GATT : Exemptions
• Article XXI – Security Exceptions allows a member state to depart
from these principles where such adoption would undermine the
safety, or act against the protection of society, the population and
resources of that country. For instance, a member state can impose
restrictions on the export of ‘fissionable materials’ which are used to
construct nuclear weapons.
• Similarly, the chapeau to Article XXI requires a member to act in
good faith and refrain from taking actions that undermine
international trade.
• In Russia - Measures Concerning Traffic in Transit (DS512, 26
April 2019), the meaning of ‘essential security interests’ was
considered. The provision at issue was Article XXI(b)(iii) of the
GATT 1994.
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The GATT : Exemptions
Russia - Measures Concerning Traffic in Transit (DS512, 26 April
2019)
- The dispute concerned Ukraine's challenges to Russian bans and
restrictions on traffic in transit by road and rail, from Ukraine, across
Russia and destined for Kazakhstan and the Kyrgyz Republic, as
well as other countries.
- Ukraine claimed that these transit measures are inconsistent with
Russia's obligations under Article V (freedom of transit), Article X
(publication and administration of trade regulations) and with related
commitments in Russia's Accession Protocol (para. 7.2).
- Russia argued that the measures were necessary for the protection
of its essential security interests, in light of the emergency in
international relations with Ukraine (which occurred in 2014) which
presented threats to Russia's essential security interests. Russia
therefore invoked the provisions of Article XXI(b)(iii) of the GATT MONASH
1994. BUSINESS
The GATT : Exemptions
- From the evidence, the Panel determined that the situation between
Ukraine and Russia since 2014 was indeed an “emergency in
international relations”.
- Thus, Russia's actions were objectively “taken in time of” an
“emergency in international relations” under Article XXI(b)(iii).
- “Essential security interests” could be generally understood as
referring to those interests relating to the quintessential functions of
the state. What constitutes “essential security interests” will depend
on the particular situation and perceptions of the state in question
and can be expected to vary with changing circumstances.
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The GATT : Exemptions
- For these reasons, it is generally up to a Member to define what it
considers to be its essential security interests.
- However, the Panel considered that a Member's general obligations
to interpret and apply Article XXI(b)(iii) in good faith meant that WTO
panels may review whether there was any evidence to suggest that
the Member's designation of its essential security interests was
made in good faith.
- Here, the crisis between Russia and Ukraine in 2014 was very close
to the ‘hard core’ of war or armed conflict.
- The transit bans and restrictions could be said to be related to the
2014 emergency. Thus, Russia could be considered to have acted
in the protection of its essential security interests.
Source:
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https://www.wto.org/english/tratop_e/dispu_e/cases_e/ds512_e.htm BUSINESS
Interesting read
- UK and US in talks over mini trade deal
https://www.bbc.com/news/business-55341970 (watch the video
linked to this article)
- China applies to join key Asia-Pacific trade pact
https://www.bbc.com/news/business-58579832
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