1.

World Trade Organization: Structural

Dimension
 Introduction
1. The establishment of the World Trade Organization (WTO) in January 1995
was the culmination of international efforts over the past five decades to
establish a truly international trade organization which would cater to the
growing needs of international economic community.
2. The world trade had witnessed substantial and enormous multifaceted
phenomena, especially of protectionism, regionalism and interdependence.
Therefore, there was an urgent need to substitute the aborted ITO of Havana
Charter with a new international organization plugging the weaknesses of the
GATT 1947, which had served the cause of the international trade on a loose
footed way.
3. The WTO can, therefore, be characterized as completing the unfinished
agenda of ITO and strengthening the GATT 1947 which was established by
way of accident and substituting it by GATT 1994.
4. The WTO’s top-level decision-making body is the Ministerial Conference,
which usually meets every two years. Below this is the General Council
(normally ambassadors and heads of delegation in Geneva, and sometimes
officials sent from members’ capitals), which meets several times a year in the
Geneva headquarters. The General Council also meets as the Trade Policy
Review Body and the Dispute Settlement Body.
5. At the next level, the Goods Council, Services Council and Intellectual
Property (TRIPS) Council report to the General Council. Numerous
specialized committees, working groups and working parties deal with the
individual agreements and other areas such as the environment, development,
membership applications and regional trade agreements. All WTO members
may participate in all councils and committees, with the exceptions of the
Appellate Body, Dispute Settlement panels and plurilateral committees.
 The structure of the WTO
1. The structure of the WTO is dominated by its highest authority, the
Ministerial Conference, composed of representatives of all WTO members,
which is required to meet at least every two years and which can take
decisions on all matters under any of the multilateral trade agreements.
2. The day-to-day work of the WTO falls to a number of subsidiary bodies;
principally the General Council, also composed of all WTO members, which
is required to report to the Ministerial Conference. As well as conducting its
regular work on behalf of the Ministerial Conference, the General Council
convenes in two particular forms - as the Dispute Settlement Body, to
oversee the dispute settlement procedures and as the Trade Policy Review
Body to conduct regular reviews of the trade policies of individual WTO
members.
3. The General Council delegates responsibility to three other major bodies -
namely the Councils for Trade in Goods, Trade in Services and Trade-
Related Aspects of Intellectual Property. The Council for Goods oversees
the implementation and functioning of all the agreements covering trade in
goods, though many such agreements have their own specific overseeing
 bodies. The latter two Councils have responsibility for their respective WTO
agreements and may establish their own subsidiary bodies as necessary.
4. Three other bodies are established by the Ministerial Conference and report to
the General Council. The Committee on Trade and Development is
concerned with issues relating to the developing countries and, especially, to
the "least-developed" among them. The Committee on Balance of Payments
is responsible for consultations between WTO members and countries which
take trade-restrictive measures, under Articles XII and XVIII of GATT, in
order to cope with balance-of-payments difficulties. Finally, issues relating to
WTO's financing and budget are dealt with by a Committee on Budget.
5. Each of the four plurilateral agreements of the WTO - those on civil aircraft,
government procurement, dairy products and bovine meat - establish their own
management bodies which are required to report to the General Council.
 The WTO Secretariat
1. The WTO Secretariat is located in Geneva. It has around 450 staff and is
headed by its Director-General and four deputy directors-general.
2. Its responsibilities include the servicing of WTO delegate bodies with respect
to negotiations and the implementation of agreements.
3. It has a particular responsibility to provide technical support to developing
countries, and especially the least-developed countries. WTO economists and
statisticians provide trade performance and trade policy analyses while its
legal staff assist in the resolution of trade disputes involving the interpretation
of WTO rules and precedents.
4. Much of the Secretariat's work is concerned with accession negotiations for
new members and providing advice to governments considering membership.
 Representation in the WTO and economic groupings
1. The work of the WTO is undertaken by representatives of member
governments.
2. Most countries have a diplomatic mission in Geneva, sometimes headed by a
special Ambassador to the WTO, whose officials attend meetings of the many
negotiating and administrative bodies at WTO headquarters. Sometimes expert
representatives are sent directly from capitals to put forward their
governments' views on specific questions.
3. As a result of regional economic integration - in the form of customs unions
and free trade areas - and looser political and geographic arrangements, some
groups of countries act together in the WTO with a single spokesperson in
meetings and negotiations.

Example: The largest and most comprehensive grouping is the European

Union and its 15 member states. The EU is a customs union with a single
external trade policy and tariff. While the member states coordinate their
position in Brussels and Geneva, the European Commission alone speaks for
the EU at almost all WTO meetings. The EU is a WTO member in its own
right as are each of its member states.

 WTO Decision-making process

1. The WTO continues a long tradition in GATT of seeking to make decisions
not by voting but by consensus. This procedure allows members to ensure
their interests are properly considered even though, on occasion, they may
 decide to join a consensus in the overall interests of the multilateral trading
system.
2. Where consensus is not possible, the WTO agreement allows for voting. In
such circumstances, decisions are taken by a majority of the votes cast and on
the basis of "one country, one vote".
3. There are four specific voting situations envisaged in the WTO Agreement.

a. A majority of three-quarters of WTO members can vote to adopt

an interpretation of any of the multilateral trade agreements.

b. By the same majority, the Ministerial Conference, may decide to waive an

obligation imposed on a particular member by a multilateral agreement.

c. Decisions to amend provisions of the multilateral agreements can be

adopted through approval either by all members or by a two-thirds majority
depending on the nature of the provision concerned. However, such
amendments only take effect for those WTO members which accept them.

d. A decision to admit a new member is taken by a two-thirds majority in the

Ministerial Conference.

 How countries join the WTO

1. Most WTO members are previously GATT members who have signed the
Final Act of the Uruguay Round and concluded their market access
negotiations on goods and services by the Marrakesh meeting in 1994.
2. A few countries which joined the GATT later in 1994, signed the Final Act
and concluded negotiations on their goods and services schedules, also
became early WTO members.
3. Aside from these arrangements which relate to "original" WTO membership,
any other state or customs territory having full autonomy in the conduct of its
trade policies may accede to the WTO on terms agreed with WTO members.
4. In the first stage of the accession procedures the applicant government is
required to provide the WTO with a memorandum covering all aspects of its
trade and economic policies having a bearing on WTO agreements.
5. Once both the examination of the applicant's trade regime and market access
negotiations are complete, the working party draws up basic terms of
accession.
6. Finally, the results of the working party's deliberations contained in its report,
a draft protocol of accession, and the agreed schedules resulting from the
bilateral negotiations are presented to the General Council or the Ministerial
Conference for adoption. If a two-thirds majority of WTO members vote in
favor, the applicant is free to sign the protocol and to accede to the
Organization; when necessary, after ratification in its national parliament or
legislature.
 Advantages/Goals of WTO

o Assisting developing and transition economies

1. Developing countries, together with countries currently in the process
of transition to market-based economies, are expected to play an
 increasingly important role in the WTO as the Organization's
membership expands.
2. As a consequence, much attention is paid to the special needs and
problems of developing and transition economies.
3. For instance, the WTO Secretariat, alone or in cooperation with other
international organizations, conducts missions and seminars and
provides specific, practical technical cooperation for governments and
their officials dealing with accession negotiations, implementing WTO
commitments or seeking to participate effectively in multilateral
negotiations.
4. Courses and individual assistance is given on particular WTO activities
including dispute settlement and trade policy reviews. Moreover,
developing countries, especially the least-developed among them, are
helped with trade and tariff data relating to their own export interests
and to their participation in WTO bodies.
5. The WTO Secretariat has also continued GATT's program of training
courses. These take place in Geneva twice a year for officials of
developing countries.
o Specialized help for export promotion
1. The International Trade Centre was established by GATT in 1964 at
the request of the developing countries to help them promote their
exports.
2. It is jointly operated by the WTO and the United Nations, the latter
acting through UNCTAD (the UN Conference on Trade and
Development).
3. The Centre responds to requests from developing countries for
assistance in formulating and implementing export promotion program
as well as import operations and techniques.
4. It provides information and advice on export markets and marketing
techniques, and assists in establishing export promotion and marketing
services and in training personnel required for these services. The
Centre's help is freely available to the least-developed countries.
o WTO’s part in global economic policy making
1. An important aspect of the WTO's mandate is to cooperate with the
International Monetary Fund, the World Bank and other multilateral
institutions to achieve greater coherence in global economic policy-
making.
2. A separate Ministerial Declaration was adopted at the Marrakesh
Ministerial Meeting in April 1994 in order to underscore this objective.
3. The declaration envisages an increased contribution by the WTO to
achieving greater coherence in global economic policy-making.
4. The declaration also recognizes the contribution that trade
liberalization makes to the growth and development of national
economies. It views such liberalization as an increasingly important
component in the success of the economic adjustment programs which
many WTO members are undertaking, even though it may often
involve significant transitional social costs.
o Overseeing National Trade Policies
 1. Surveillance of national trade policies is a fundamentally important
activity running throughout the work of the WTO. At the center of this
work is the Trade Policy Review Mechanism (TPRM).
2. The objectives of the TPRM are, through regular monitoring, to
increase the transparency and understanding of trade policies and
practices, to improve the quality of public and intergovernmental
debate on the issues, and to enable a multilateral assessment of the
effects of policies on the world trading system.
3. Reviews are conducted on a regular, periodic basis. The four biggest
traders - the European Union, the United States, Japan and Canada -
are examined approximately once every two years. The next 16
countries in terms of their share of world trade are reviewed every four
years; and the remaining countries every six years, with the possibility
of a longer interim period for the least-developed countries.
4. In addition to the TPRM, many other WTO agreements contain
obligations for member governments to notify the WTO Secretariat of
new or modified trade measures. For example, details of any new anti-
dumping or countervailing legislation, new technical standards
affecting trade, changes to regulations affecting trade in services, and
laws or regulations concerning the TRIPs agreement all have to be
notified to the appropriate body of the WTO. Special groups are also
established to examine new free-trade arrangements and the trade
policies of acceding countries.
 Conclusion

Edhoti raasi sastha moddalodhi

2. Most Favored Nation

 Introduction
1. “Most-Favored-Nation” (“MFN”) treatment requires Members to accord the
most favorable tariff and regulatory treatment given to the product of any one
Member at the time of import or export of “like products” to all other
Members. (Explain Like Products)
2. This is a bedrock principle of the WTO. Under the MFN rule, if WTO
Member A agrees in negotiations with country B, which need not be a WTO
Member, to reduce the tariff on product X to five percent, this same “tariff
rate” must also apply to all other WTO Members as well.
3. In other words, if a country gives favorable treatment to one country regarding
a particular issue, it must treat all Members equally with respect to the same
issue.
4. Spain - Tariff Treatment of Unroasted Coffee (BISD 28S/102) is an example
where like products are defined and the MFN principle is reiterated.
 History
1. The idea of MFN treatment has a long history. Prior to the GATT, an MFN
clause was often included in bilateral trade agreements, and as such it
contributed greatly to the liberalization of trade.
 2. However, in the 1930s, measures were taken that limited the functioning of the
MFN principle. It is said that these measures led to the division of the world
economy into trade blocs.
3. Lessons were learned from this mistake; in the wake of World War II, an
unconditional MFN clause was included in the GATT, on a multilateral basis,
and has contributed to the stability of trade around the world.
4. Against this background, the MFN principle in particular must be observed as
a fundamental principle for sustaining the multilateral trading system.
5. Regional integration and related exceptions must be uniformly administered so
as not to undermine the MFN principle.
 Legal Framework
1. GATT (General Agreement on Tariffs and Trade) Practice regarding MFN
Treatment is stipulated in GATT Articles I, XIII and XVII.
2. GATT Article I:1 provides for WTO Members to extend MFN treatment to
like products of other WTO Members regarding tariffs, regulations on exports
and imports, internal taxes and charges, and internal regulations.
3. In other words, “like” products from all WTO Members must be given the
same treatment as the most advantageous treatment accorded the products of
any state. Should an importing country flagrantly extend differential treatment
to “like products” of the exporting country — by setting different tariff rates it
would clearly be in violation of GATT Article I:1.
4. However, Article I:1 violations can also occur even when there is no
discrimination against the product of another Member, such as when an
importing country accords differential treatment among products that are
considered to be “like products.” This is often defined as de facto
discrimination.
5. For instance, a country may apply a different tariff rate to a particular variety
of unroasted coffee, but if that variety and other varieties of coffee beans were
considered to be “like products” the differential tariff may have an effect on
imports only from specific countries. This may be considered a violation of
the MFN rule.
6. The concept of like products was strictly interpreted in the SPF (“spruce, pine,
and fir”) case involving Japan. The panel in that case recognized that each
WTO Member might exercise considerable discretion as to tariff
classifications and that the legality of such classifications would be established
to the extent that it did not discriminate against the same products from
different WTO Member.
7. Non-Discriminatory Administration of Quantitative Restrictions: GATT
Article XIII stipulates that, with regard to like products, quantitative
restrictions or tariff quotas on any product must be administered in a non-
discriminatory fashion. It also stipulates that, in administering import
restrictions and tariff quotas, WTO Members shall aim to allocate shares
approaching as closely as possible to that which might be expected in their
absence.
8. Article XIII provides for MFN treatment in the administration of quantitative
restrictions, and supplements the disciplines under Article I.
9. “States Trading Enterprises” are defined as:

a. state enterprises established or maintained by a WTO Member; or

 b. private enterprises granted exclusive or special privileges by WTO
Members that make purchases or sales involving either imports or exports.

By making use of their monopolistic status, such enterprises could operate

against the principles of international trade through discrimination on the part
of importing country and quantitative restrictions. GATT Article XXVII
obliges WTO Members to act in accordance with the rules of non-
discrimination, including the MFN rule.

 MFN Provisions outside of GATT 1994

1. The idea of MFN treatment has been extended to the areas of trade in services
and intellectual property by the WTO Agreement, although with certain
exemptions.
2. Article II of the General Agreement on Trade in Services (GATS) provides for
MFN treatment for services and service providers. The GATS affords
exceptions where Members may waive their obligation to provide MFN
treatment for specific measures in specific fields by listing the measure in the
Annex on Article II Exemptions.
3. Article 4 of the Agreement on Trade-Related Aspects of Intellectual Property
Rights (TRIPS) contains the same for the protection of intellectual property
rights. The TRIPS Agreement also provides for exemptions regarding
measures based on existing treaties in the area of intellectual property.
 Exceptions to the MFN Rule
1. Regional Integration (GATT Article XXIV):

Regional integration through customs unions or free trade areas liberalizes

trade among countries within the regions, while maintaining trade barriers
with countries outside the region or regions. Regional integration therefore
may lead to results that are contrary to the MFN principle because countries
inside and outside the region are treated differently. This may have a negative
effect on countries outside the region, and is at odds with the liberalization of
trade.

Therefore, GATT Article XXIV provides that regional integration may be

allowed as an exception to the MFN rule only if the following conditions are
met. First, tariffs and other barriers to trade must be eliminated with respect to
substantially all trade within the region. Second, the tariffs and other barriers
to trade applied to outside countries must not be higher or more restrictive
than they were prior to regional integration.

2. Generalized System of Preferences:

The Generalized System of Preferences (GSP) is a system that grants products

originating in developing countries lower tariff rates than those normally
enjoyed under MFN status. GSP is a special measure granted to developing
countries in order to increase their export earnings and to promote their
development.

The GSP is defined in the GATT decision on “Generalized System of

Preferences” of June 1971. Granting of GSP preferences is justified by the
 1979 GATT decision on “Differential and More Favourable Treatment,
Reciprocity, and Fuller Participation of Developing Countries” or the
“Enabling Clause”.

The GSP has the following characteristics: First, preferential tariffs may be
applied not only to countries with special historical and political relationships
(e.g. the British Commonwealth), but also to developing countries more
generally (thus the system is described as “generalized”).

Second, the beneficiaries are limited to developing countries. Finally, it is a

benefit unilaterally granted by developed countries to developing countries.

3. Non-Application of Multilateral Trade Agreements Between Particular

Member States (WTO Article XIII):

The Marrakesh Agreement Establishing the World Trade Organization (the

“WTO Agreement”) provides that “[t]his Agreement and the Multilateral
Trade Agreement in Annexes 1 and 2 shall not apply as between any Member
and any other Member”, when any of the following two conditions are met:

(a) at the time the WTO went into force, Article XXXV of GATT 1947 had
been invoked earlier and was effective as between original Members of the
WTO which were Members to GATT 19475 or;

(b) between a Member and another Member which has acceded under Article
XII only if the Member not consenting to the application has so notified the
Ministerial Conference before the approval of the agreement on the terms of
accession by the Ministerial Conference.

In the case of non-application, benefits enjoyed by other Members are not

provided to the country of non-application, which leads to results that are
contrary to the MFN principle.

These Article XIII provisions were created to deal with problems arising from
accessions. Ideally, the MFN rule would be strictly applied so that when
country B accedes to the Agreement, it is required to confer MFN status on all
other Members, and they, in turn, are required to confer MFN status on
country B. However, country A, which is already a Member of the WTO, may
have reasons for not wanting to confer the rights and obligations of the WTO
on new Member B. Because the WTO only requires the consent of two-thirds
of the existing membership for accession, it is conceivable that country A
might, against its will, be forced to give MFN status to country B. WTO
Article XIII is a way to respect country A’s wishes by preventing a WTO
relationship from taking effect between countries A and B.

On the other hand, WTO Article XIII provides a way for the accession of
country B, even if more than a third of the membership, like country A, has
reasons for not wanting a WTO relationship with country B (in which case
they will object to the accession itself) by allowing for non-application.
 In January 1995, the United States notified the General Council that it would
not apply the Agreement and the Multilateral Trade Agreements in Annexes 1
and 2 to Romania. Yet in February 1997 the United States withdrew its
invocation. In addition, the United States also notified that it would not apply
the above-mentioned agreements to three other new Members: Mongolia; the
Kyrgyz Republic; and Georgia, but withdrew it for Mongolia in July 1999; for
the Kyrgyz Republic in September 2000; and for Georgia in January 2001.

4. Other Exceptions: Other exceptions peculiar to the MFN principle include

Article XXIV:3 regarding frontier traffic with adjacent countries, and Article
I:2 regarding historical preferences that were in force at the signing of the
GATT, such as the British Commonwealth.

General exceptions to the GATT that may be applied to the MFN principle
include Article XX regarding general exceptions for measures necessary to
protect public morals, life and health, etc., and Article XXI regarding security
exceptions. It is also possible to obtain a waiver to the MFN principle. Under
WTO Article IX:3, countries may, with the agreement of other Members,
waive their obligations under the agreement. New waivers, however, can only
be obtained under exceptional circumstances, and require the consent of three-
quarters of the Members.

Article IX:3 stipulates that exceptional circumstances, the terms and

conditions governing the application of the waiver, and the date on which the
waiver will be terminated shall be clearly stated. These waivers are also
subject to annual review under Article IX:4.

 Economic Implications
1. Increased Efficiency in the World Economy: MFN treatment makes it
possible for countries to import from the most efficient supplier, in accordance
with the principle of comparative advantage. For example, if country B can
supply product X at a lower price than country C, country A can increase its
economic efficiency by importing it from country B. If, however, country A
applies higher tariff rates to product X from country B than to product X from
country C, country A may be forced to import product X from country C, even
though country C is not as efficient a supplier. This distorts trade and reduces
the welfare of country A and the economic efficiency of the entire world. If,
however, the MFN principle is applied between the three countries, then
country A will levy its tariffs equally and therefore necessarily import product
X from country B because it is cheaper to do so. The most efficient result is
thus attained.
2. Stabilization of the Multilateral Trading System: The MFN rule requires
that favorable treatment granted to one country be immediately and
unconditionally granted to all other countries. Trade restrictions, too, must
also be applied equally to all. This increases the risk of the introduction of
trade restrictions becoming a political issue, raises the costs of doing so, and
therefore tends to support the liberalized status quo. By stabilizing the free
trade system in this manner, MFN increases predictability and therefore
increases trade and investment.
 3. Reduction of the Cost of Maintaining the Multilateral Trading System:
MFN reduces the cost of maintaining the multilateral trading system. The
equal treatment demanded by the MFN principle tends to act as a force for
unifying treatment at the most advantageous level (for trade that means the
most liberal level). The establishment and maintenance of the MFN rule
enables WTO Members to reduce their monitoring and negotiation costs for
disadvantageous treatment. In short, the most-favored-nation rule has the
effect of reducing the cost of maintaining the free trade system.
4. Finally, as long as the MFN rule is honored, imports from all WTO Members
are treated equally, which reduces the cost of determining an import’s origin
and therefore improves economic efficiency.
5. The MFN rule is therefore of fundamental importance in improving economic
efficiency. However, we must also note that the MFN rule is often misused.
One argument runs that bilateral negotiations not under the auspices of the
WTO can be justified by the MFN principle, since any trade benefits that
result from these negotiations will be applied equally to all other WTO
members, even though they may be excluded from the negotiations.
6. Bilateral negotiations are thus justified as a more efficient and effective means
to remove “unfair” trade measures. However, this does not take into account
the fact that because bilateral negotiations lack transparency and the
negotiations tend to reflect the power relationship between the two countries,
there is a possibility that MFN treatment is may not be extended to countries
not in the negotiation. Even if the results of the negotiations are extended
through the MFN principle, it must be noted that the end “result” of improved
treatment in trade does not necessarily justify the means.
7. Continual vigilance is required to ensure that the most-favored-nation rule is
not abused in a results-oriented manner to undermine the basic importance of
the dispute settlement process in the WTO.
 Major Cases

The MFN principle is used often in GATT disputes as a basic principle of the GATT
together with national treatment. However, in those disputes, it is rare for MFN to be
invoked on its own, and provisions regarding national treatment, quantitative
restrictions, TRIMs, rules of origin, and technical barriers to trade are often cited in
conjunction.

1. Spain- Unroasted Coffee Case

2. Canada- Measures Regarding Automobiles: Under the “Auto Pact” (the
Agreement Concerning Automotive Products with the United States, which
took effect in 1966), the government of Canada accorded duty-free treatment
to vehicles, provided that importers (the Big Three and others, hereinafter
referred as “Auto Pact members”) met certain conditions (e.g., Canadian
value-added — the required rates varied, but in general they were 60 percent
or more). The system had been administered so as to give tariff exemption to
automobiles imported by any company as long as the companies met the
above conditions, but the signing of the Free Trade Agreement (FTA) between
the United States and Canada resulted in barring extension of the Auto Pact
status to any new companies. This treatment continued after the North
American Free Trade Agreement (NAFTA) took effect. What this in essence
meant was that original Auto Pact member companies in Canada could import
 automobiles duty-free so long as they met the above conditions, while non-
members had to pay a 6.1 percent tariff, despite the fact that all of these
companies involved like products and services through production,
importation and sale of automobiles. The Ministry of Economy, Trade and
Industry (METI) deemed this a priority trade policy, and in July 1998
requested bilateral consultations with Canada under WTO dispute settlement
procedures. Japan requested the establishment of a panel in November of that
year, and in February 1999 a panel was established to review the Japanese
complaint in conjunction with a similar EU complaint. The panel issued its
report in February 2000, and the Appellate Body issued its report in May.
Both reports upheld virtually all of the Japanese argument, finding that the
measure: 1) violated GATT Article I:1 (MFN treatment);
2. violated GATT Article III:4 (national treatment);
3. violated the SCM Agreement;
4. violated Article XVII of the GATS (national treatment); and
5. that the duty waiver violated Article II of the GATS (MFN treatment)
and Article XVII (national treatment) of the GATS.

However, this last finding was overturned by the Appellate Body. Canada
repealed the Auto Pact’s measures on February 19, 2001.

3. European Union-Measures Regarding Bananas:

The European Union maintains measures that provide preferential treatment to

countries in Africa, the Caribbean, and the Pacific (ACP) regarding tariff
quotas (that is both the quota amount and applicable tariff rates), under the
Lomé Convention. These measures involving bananas have been before a
panel twice under the GATT. After the conclusion of the Uruguay Round, the
European Union put in place a new tariff quota regime for bananas. However,
the United States, whose companies mainly deal in Latin American bananas,
was unsatisfied with the new regime, and argued that the licensing system still
provided preferential treatment to ACP bananas. The United States further
argued that the preferential allocation of the quota to Latin American countries
who are parties to the “Framework Agreement on Bananas (BFA)” (especially
Colombia and Costa Rica) was inconsistent with the WTO Agreement. After
bilateral negotiations under GATT Article XXII between the European Union
and the United States as well as some Latin American countries (Ecuador,
Guatemala, Honduras, and Mexico), a panel was established in May 1996.
Japan participated in the panel process as a third party. In the panel report
issued in May 1997, the EU’s measures were found inconsistent with the
WTO agreements on the following points. The report of the Appellate Body
also basically upheld the main points of the panel report. The elements of the
Appellate Body report are summarized as follows: (1) Allocating a portion of
the quota regarding third-country and nontraditional ACP bananas to only
operators who deal in the EU and traditional ACP bananas is inconsistent with
Article I:1 (MFN) and Article III:4 (national treatment) of the GATT. The
Lomé waiver does not waive the EU’s obligations under Article I:1 with
respect to licensing procedures applied to third-country and non-traditional
ACP imports. (2) The above preferential allocation of the quota to operators
who deal in traditional ACP bananas creates less favorable conditions of
 competition for like service suppliers from third countries, and is therefore
inconsistent with the requirements of Article XVII of GATS. (3) Regarding
the “BFA”, although it was not unreasonable for the EU to conclude at the
time the BFA was negotiated that Colombia and Costa Rica were the only
Members that had a substantial interest in supplying the EU market, the EU’s
allocation of tariff quota shares is inconsistent with Article XIII:1 (non-
discriminatory administration of quantitative restrictions). Regarding the
relationship between the inclusion of the BFA tariff quota shares in the EU’s
tariff schedule and GATT Article XIII, the EU’s tariff schedule does not
permit the EU to act inconsistently with the requirements of Article XIII.

3. National Treatment
 Introduction

The NTP prohibits any of the member nations from favouring or giving any
advantages or raising any benefits to their domestic products/ goods over imported
products of other member nations. Article III of GATT 1994 specifically deals with
NTP and explains the secondary need of NTP after MFN principles to fight against
any discrimination of imported products. NTP has been well defined under paragraph
1, 2 & 4 of Article III and 2nd sentence of Article III. NTP deals with the products of
any member imported by any other member shall not be treated less favourable than
that to like products of national or domestic product in respect of all laws, regulations,
requirements affecting their internal sale etc., which means the domestic country
should not make any rules or law which protects its domestic products over imported
products. So reading NTP with MFN gives a brief difference between both of the
principles that one deals with protectionism and MFN deals with favourable treatment
to all nations.

 Reasons behind NTP

The main reason why GATT/ WTO drafter has proposed NTP was after imposing so
much restriction with regard to MFN principles, the drafter considered that the
member nation can discriminate the imported product indirectly and to prevent such
indirect acts of member nations NTP was introduced to prevent and restrict the
domestic government from imposing any internal regulation that may create scope for
discrimination to imported products over domestic product.

Illustration- Let’s assume that India is manufacturing a certain mobile phone for Rs.
10k and on the other hand China is manufacturing a certain mobile phone with the
same configurations and quality for just Rs.7k. In that case, being both the countries a
member nation of GATT/ WTO, India can’t impose any restrictions on exporting
Chinese Mobile phones from China to India, but India may impose certain heavy
taxes to protect its domestic market. To protect such measures the drafter of GATT/
WTO introduced NTP which prohibit any member nation from doing such activities.

Now it can be assumed that the main purpose of Article III of the GATT 1994 was to
prohibit or limit the use of trade-restricting by requiring non-discriminatory treatment
between imported and domestic goods.
 For better understanding, we may classify NTP into 3 different categories:

o To avoid protectionism measure by the domestic country.

o To maintain equality between imported and domestic products.
o To protect the imported products from unjust tariffs.
 Scope of NTP

Just like the MFN principle, the scope of the NTP also covers the scope of de
jure and *de facto* discrimination of imported products. A stance is de
jure discriminatory when discrimination can clearly be seen between imported and
domestic like products in term of a legal manner. And when the discrimination is very
much clear on the face of a legal instrument that it doesn’t have any complexity to
understand, then it can be de facto discrimination. The most important part of NTP is
that it only applies to internal measures, and it does not at the border on imported
goods.

Illustration- Let’s assume a case when India imposes a 10% tariff on importing
automatic machines and but on the other hand India only imposes 7% tariff on Indian
manufacturer of automatic machines. Then it can be clearly seen that India is
discriminating against imported products and protecting its domestic products. And
any tariffs imposed on imported products collected at the time of importation in the
country are not considered as against the NTP, as Article III only deals with internal
taxes which are discriminating against imported products over domestic products.

In Argentina – Hides and Leather, the Panel expressed that VAT of Argentina was an
internal measure or internal tax and comes under Article III:2 of WTO.

 Legal Aspect

Article III:1 General Obligation- It talks about the general obligation of Article III
and lays tells about the concept of NTP that how it works and what the essentials of it.

Article III:2 Internal Taxation- It tells about the non- discriminatory principle
through internal taxation.

1. Article III:2 – First Sentence (Two-Tier Test)

This part of Article III gives a platform for testing if the action of importing nation is
discriminatory, for testing such action a two-tier test has to be passed to check the
consistency of importing nation with NTP which are:

o If the imported and domestic products are like products- It explains the
consistency of ‘Like Product’ essentials with domestic & imported products.
And explains a condition if both domestic and imported products are ‘Like
Product.
o If the imported products are taxed in excess of the domestic products.- It
explains the condition when the imported products are taxed excessively
compared to like domestic products.
 Here in the NTP the definition and essentials of ‘Like Products’ are the same as
discussed in MFN principles.

4. Article III:2 – Second Sentence

It has another test of checking if the action of importing country is against NTP or
not. Therefore, if there is no violation of Article III:2, first sentence, and if can still be
considered that there is an infringement of Article III:2, then another three-tier test of
the second sentence can be applied.

Three – Tier test prescribed under Article III:2 of 2nd sentences:

o If the imported and domestic products are directly competitive or substitutive-

This means if domestic and imported products are directly or closely
competitive or substitutive like tea- coffee, roasted- unroasted coffee etc.
o If the domestic and imported products are not similarly taxed or if the
imported products are taxed excessively over domestic product- This means if
the importing country is imposing more taxes on imported products and less
tax on domestic products.
o If the importing nation is doing anything which causes protectionism of their
domestic products over imported products- This means a condition when the
domestic government is trying to protect their domestic product by
implementing certain rules and regulations in any manner.

8. Article III:4 (Internal Laws, Regulations and Requirements Related to

Internal Sale, Transportation, Distribution or Use)- This article is again
providing another platform to test if the importing country is violating any
NTP and if such violation can’t be tested by either of the two tests explained
above then, the test expressed in this article can help to test if any nation is
violating NTP. The test follows three conditions which are:

o The imported and domestic products at issue are like products.

o The measure at issue is a law, regulation, or requirement affecting their
internal sale, offering for sale, purchase, transportation, distribution, or use- It
means that if the importing country is using any of such measures to protect its
domestic products by using its intern power of imposing new rules and
regulations etc.
o The imported products are afforded less favourable treatment than domestic
products- It is a condition when the government is trying to market its
domestic product and doing unfavourable practices in providing less
favourable treatment to imported goods.
 Exceptions to NTP

Just like the exception to the MFN principles NTP also has various exceptions which
provide the nation from following the NTP blindly and grants any of the nations the
power to refuse on implementing such principles on their trade. Some specific
exceptions which deal with the national treatment principle can be summarized as
follows:
 o Government Procurement (Article III:8A)- It explains a concept or principle
that when government agencies hire or purchase any imported goods for their
benefit or for government purpose, then the domestic government can give
preference to domestic products over imported products, it is also considered
that the purpose of government procurement should only be subjected to
government use and not for commercial utility.
o Subsidies to Domestic Producers (Article III:8B)- Governments have the
power and can provide subsidies even including subsidies to domestic
manufacturers for aiding those manufacturers from a tax benefit and can
impose some restrictions on the kind of trade or business they can carry for the
purpose of exempting from tax. And such subsidies granted by domestic
government are not considered necessarily be legal by GATT/ WTO members.
And also in the Tokyo and Uruguay Rounds, a provision for the additional
subsidy was introduced and now Subsidies and Countervailing Measures are
dealt with SCM Agreement.
o Internal Maximum Price Control Measures (Article III:9)
o Cinematograph Films (Articles III:10 and IV of the GATT 1994)- A wide
concept of discrimination between international and nation fils are discussed
under this article which says that the possibility of giving preferences to
products emerging from the national movie industry can be granted and it will
not be covered under NTP. National preferences are governed by the
provisions of Article IV, and the domestic country can impose internal
quantitative regulations in “screen quotas”.
 Cases

1. India Solar Cells Case

2. Clove Cigarettes
3. EC Asbestos Case
4. Korea Beef Case
5. EC Seal Products Case
 Illustration

Scenario- Let us assume that India and Canada are WTO Members. Recently, India
has come up with new regulation which imposes a tax of 20 % on cars with fuel
efficiency below 14 Km/L and a sales tax of 7% on cars with fuel above 14 Km/L.

Cars with fuel efficiency below 14 Km/L are also restricted to advertising their
product. Canada is the leading car exporter to India. All cars manufactured in Canada
are with fuel efficiency below 14 Km/L. India is the major producer of cars with fuel
efficiency above 14 Km/L. Canada believes that India’s regulation violates the
national treatment principle under the WTO.

Proposed Advice

o Canada’s argument could be as follows: With the application of the 1st

principle which is MFN principles, does not have any much relevance
according to the case and also that the MFN principles don’t cover the case
issues. So here NTP will be introduced and their application will definitely
make some relevance in solving the issues of the illustration.
The NTP prohibits any of the member nations from favouring or giving any
advantages or raising any benefits to their domestic products/ goods over imported
products of other member nations.

o Internal Taxation – Article III:2 with respect to the sales tax, Canada can
invoke Article III:2, which covers internal taxation. Canada can argue that the
action by the Indian government can be easily be seen that it is de facto
discriminatory. Where de facto discrimination relates to awarding protection
to domestic products by imposing such different tax and it is very much
visible that both the cars- India & Canada Originated are completely like
products and hence any discrimination in like products satisfies the need of
NTP. Therefore, India is liable for doing prohibited acts under agreements of
GATT/ WTO.
o Two–tier test under Article III:2 first sentence
o The domestic cars/ Indian cars with fuel efficiency equal or above 14 Km/L
and imported cars with fuel efficiency below 14 Km/L are “like” products; and
o The imported cars are taxed in excess of domestic cars with respect to fuel
efficiency and classified the same products in different stages. To prove ‘Like
Product’ Canada might argue that cars have the same end-uses, same physical
characteristics, and the end user has the only possibility.
o Three –tier test under Article III:2, second sentence- If Canada fails to
prove the fact that different classification of cars with respect to fuel mileage
is also ‘Like Product’ as per the provisions of Article III: 2- first sentence.
Canada still has a chance to approach the Panel/ Dispute Resolution Body
under the same provision by the second sentence and argue that both the
products are “directly competitive or substitutable” products (which are also
considered as ”like” products). If Canada challenges India, then it would have
to establish a three-tier test of the second sentence that:
o Imported and domestic cars with different fuel efficiency are directly
competitive or substitutable products;
o The domestic and imported are discriminated in terms of imposing difference
taxes or the imported cars are taxed higher than the domestic cars;
o The different tax policy adopted by the Indian government has some effects,
and such effects end up awarding protection to domestic products/ cars.
o Advertising ban – Article III:4, with respect to the ban on advertising,
Canada can apply principles of Article III:4, and the three-tier test of this
article covers the aspects of the internal regulation. To substantiate the
arguments Canada has to make consistency with the actions of the Indian
government and the principles of the article which are-

11. The measures adopted by the Indian government by imposing different or new
laws, regulations, or any such actions which affect the internal sale of the
imported products/ cars;
12. Canada has to prove that both imported and domestic products are “like
products” as discussed above; and
13. That Indian is treating less favorable to imported products as compared to
domestic products. Canada can uphold its previous arguments that because of
cause in internal policies which cause a ban on advertisement, and such
actions affect the sale of cars in India. Therefore, Indian is treating less
 favorably to imported products/ cars than their domestic cars as the ban on
advertising is only subjected to imported cars.

4. Dumping and Anti-Dumping

 Dumping
1. Dumping is a situation of international price discrimination, where the price of
a product when sold in the importing country is less than the price of that
product in the market of the exporting country.
2. Dumping is defined in the Agreement on Implementation of Article VI of the
GATT 1994 (The Anti-Dumping Agreement) as the introduction of a product
into the commerce of another country at less than its normal value.
3. Thus, in the simplest of cases, one identifies dumping simply by comparing
prices in two markets. However, in most cases it is necessary to undertake a
series of complex analytical steps in order to determine the appropriate price
in the market of the exporting country (known as the “normal value”) and the
appropriate price in the market of the importing country (known as the “export
price”) so as to be able to undertake an appropriate comparison and determine
occurrence of dumping.’

 Types of Dumping

Below are the four types of dumping in international trade:

1. Sporadic dumping: Companies dump excess unsold inventories to avoid price

wars in the home market and preserve their competitive position. They can either
dump by destroying excess supplies or export them to a foreign market where the
products are not sold.

2. Predatory dumping: Unlike sporadic dumping, which is occasional, predatory

dumping is permanent. It involves the sale of goods in a foreign market at a price
lower than the home market. Predatory dumping is done to gain access to the foreign
market and eliminate competition. It creates a monopoly in the market.

3. Persistent dumping: When a country consistently sells products at a lower price in

the foreign market than the local prices, it is called persistent dumping. It happens
when there is a constant demand for the product in the foreign market.
 4. Reverse dumping: Reverse dumping happens when the demand for the product in
the foreign market is less elastic. It means that price changes do not impact demand.
Therefore, the company can charge a higher price in the foreign market and a lower
price in the local market.

 Anti-Dumping Legislation
1. Article VI of GATT talks about Anti-dumping and Countervailing duties. It
explicitly authorizes the imposition of a specific anti-dumping duty on imports
from a particular source, in excess of bound rates, in cases where dumping
causes or threatens injury to a domestic industry, or materially retards the
establishment of a domestic industry.
2. Under Article VI of GATT 1994, and the Anti-Dumping Agreement, WTO
Members can impose anti-dumping measures, if, after investigation in
accordance with the Agreement, a determination is made

(a) that dumping is occurring,

(b) that the domestic industry producing the like product in the importing
country is suffering material injury, and

(c) that there is a causal link between the two.

3. The Agreement on Implementation of Article VI of GATT 1994, commonly

known as the Anti-Dumping Agreement, provides further elaboration on the
basic principles set forth in Article VI itself, to govern the investigation,
determination, and application, of anti-dumping duties.
4. In addition to substantive rules governing the determination of dumping,
injury, and causal link, the Agreement sets forth detailed procedural rules for
the initiation and conduct of investigations, the imposition of measures, and
the duration and review of measures.
5. The Committee on Anti-Dumping Practices meets at least twice a year. It
provides Members of the WTO the opportunity to discuss any matters relating
to the Anti-Dumping Agreement and also questions concerning the
consistency of national practice with the Anti-Dumping Agreement.
6. All WTO Members are required to bring their anti-dumping legislation into
conformity with the Anti-Dumping Agreement, and to notify that legislation to
the Committee.
7. While the Committee does not “approve” or “disapprove” any Members'
legislation, the legislations are reviewed in the Committee, with questions
posed by Members, and discussions about the consistency of a particular
Member's implementation in national legislation of the requirements of the
Agreement.
 Determination of injury and casual link

To prove the occurrence of dumping, the member nation alleging the occurrence must
prove the following:

1. Like Product (Article 2.6): An important decision must be made early in each
investigation to determine the domestic “like product”. The determination
involves first examining the imported products that are alleged to be dumped,
 and then establishing what domestic products are the appropriate “like
product”. The decision regarding the like product is important because it is the
basis of determining which companies constitute the domestic industry, and
that determination in turn governs the scope of the investigation and
determination of injury and causal link.
2. Domestic industry (Article 4): The Agreement defines the term “domestic
industry” to mean “the domestic producers as a whole of the like products or
those of them whose collective output of the products constitutes a major
proportion of the total domestic production of those products”. If an
affirmative determination is based on injury to a regional industry, the
Agreement requires investigating authorities to limit the duties to products
consigned for final consumption in the region in question, if constitutionally
possible. If the Constitutional law of a Member precludes the collection of
duties on imports to the region, the investigating authorities may levy duties
on all imports of the product, without limitation, if anti-dumping duties cannot
be limited to the imports from specific producers supplying the region.
However, before imposing those duties, the investigating authorities must
offer exporters an opportunity to cease dumping in the region or enter a price
undertaking.
3. Injury: The Agreement provides that, in order to impose anti-dumping
measures, the investigating authorities of the importing Member must make a
determination of injury. The Agreement defines the term “injury” to mean
either

(i) material injury to a domestic industry

(ii) threat of material injury to a domestic industry, or

(iii) material retardation of the establishment of a domestic industry, but is

silent on the evaluation of material retardation of the establishment of a
domestic industry.

Determination of injury must be based on positive evidence and involve an objective

examination of the volume of dumped imports and the effect of the dumped imports
on prices in the domestic market for like products. The Agreement sets forth factors to
be considered in the evaluation of threat of material injury. These include the rate of
increase of dumped imports, the capacity of the exporter(s), the likely effects of prices
of dumped imports, and inventories. The Agreement specifies that a determination of
threat of material injury shall be based on facts, and not merely on allegation,
conjecture, or remote possibility, and moreover, that the change in circumstances
which would create a situation where dumped imports caused material injury must be
clearly foreseen and imminent.

 Investigation Process
1. Initiation of Investigation

a. Article 5 of the Agreement establishes the requirements for the initiation of

investigations. The Agreement specifies that investigations should generally
be initiated on the basis of written request submitted “by or on behalf of” a
domestic industry.
 b. This “standing” requirement includes numerical limits for determining
whether there is sufficient support by domestic producers to conclude that the
request is made by or on behalf of the domestic industry, and thereby warrants
initiation.

c. The Agreement establishes requirements for evidence of dumping, injury,

and causality, as well as other information regarding the product, industry,
importers, exporters, and other matters, in written applications for anti-
dumping relief, and specifies that, in special circumstances when authorities
initiate without a written application from a domestic industry, they shall
proceed only if they have sufficient evidence of dumping, injury, and
causality.

d. In order to ensure that investigations without merit are not continued,

potentially disrupting legitimate trade, Article 5.8 provides for immediate
termination of investigations in the event the volume of imports is negligible
or the margin of dumping is de minimis, and establishes numeric thresholds
for these determinations. In order to minimize the trade-disruptive effect of
investigations, Article 5.10 specifies that investigations should be completed
within one year, and in no case more than 18 months, after initiation.

2. Conducting the Investigation

1. Article 6 of the Agreement sets forth detailed rules on the process of
investigation, including the collection of evidence and the use of
sampling techniques.
2. It requires authorities to guarantee the confidentiality of sensitive
information and verify the information on which determinations are
based.
3. In addition, to ensure the transparency of proceedings, authorities are
required to disclose the information on which determinations are to be
based to interested parties and provide them with adequate opportunity
to comment.
4. The Agreement establishes the rights of parties to participate in the
investigation, including the right to meet with parties with adverse
interests, for instance in a public hearing.
3. Provisional Measures (Article 7): Provisional measures may take the form of a
provisional duty or, preferably, a security by cash deposit or bond equal to the
amount of the preliminarily determined margin of dumping. The Agreement
also contains time limits for the imposition of provisional measures—
generally four months, with a possible extension to six months at the request
of exporters.
4. Price undertakings (Article 8): Article 8 of the Agreement contains rules on
the offering and acceptance of price undertakings, in lieu of the imposition of
anti-dumping duties. It establishes the principle that undertakings between any
exporter and the importing Member, to revise prices, or cease exports at
dumped prices, may be entered into to settle an investigation, but only after a
preliminary affirmative determination of dumping, injury and causality has
been made. It also establishes that undertakings are voluntary on the part of
both exporters and investigating authorities.
 5. Imposition and Collection of Duties (Article 9): Article 9 of the Agreement
establishes the general principle that imposition of anti-dumping duties is
optional, even if all the requirements for imposition have been met.
6. Retroactive application of duties (Article 10): The Agreement sets forth the
general principle that both provisional and final anti-dumping duties may be
applied only as of the date on which the determinations of dumping, injury and
causality have been made. However, recognizing that injury may have
occurred during the period of investigation, or that exporters may have taken
actions to avoid the imposition of an anti-dumping duty, Article 10 contains
rules for the retroactive imposition of dumping duties in specified
circumstances.
7. Review of Anti-Dumping Duties (Article 11): Article 11 of the Agreement
establishes rules for the duration of anti-dumping duties, and requirements for
periodic review of the continuing need, if any, for the imposition of anti-
dumping duties or price undertakings. The “sunset” requirement establishes
that dumping duties shall normally terminate no later than five years after first
being applied, unless a review investigation prior to that date establishes that
expiry of the duty would be likely to lead to continuation or recurrence of
dumping and injury. This five year “sunset” provision also applies to price
undertakings. The Agreement requires authorities to review the need for the
continued imposition of a duty upon request of an interested party.
8. Public notice (Article 12): Article 12 sets forth detailed requirements for
public notice by investigating authorities. The public notice must disclose non-
confidential information concerning the parties, the product, the margins of
dumping, the facts revealed during the investigation, and the reasons for the
determinations made by the authorities, including the reasons for accepting
and rejecting relevant arguments or claims made by exporters or importers.
These public notice requirements are intended to increase the transparency of
determinations, with the hope that this will increase the extent to which
determinations are based on fact and solid reasoning.

 Dispute Settlement
1. Disputes in the anti-dumping area are subject to binding dispute settlement
before the Dispute Settlement Body of the WTO, in accordance with the
provisions of the Dispute Settlement Understanding (“DSU”) (Article 17).
2. Members may challenge the imposition of anti-dumping measures, in some
cases may challenge the imposition of preliminary anti-dumping measures,
and can raise all issues of compliance with the requirements of the Agreement,
before a panel established under the DSU.
3. In disputes under the Anti-Dumping Agreement, a special standard of review
is applicable to a panel's review of the determination of the national authorities
imposing the measure.
4. The standard provides for a certain amount of deference to national authorities
in their establishment of facts and interpretation of law, and is intended to
prevent dispute settlement panels from making decisions based purely on their
own views.
5. The standard of review is only for anti-dumping disputes, and a Ministerial
Decision provides that it shall be reviewed after three years to determine
whether it is capable of general application.