Outline

I. Basic Concepts of Public International Law

II. WTO Basics – The Multilateral Trading System

III. EU Law – Core Ideas

IV. Summary

Table of Contents

1. Introduction

2. Basic Principles – GATT

3. GATS

4. TRIPS

Self-study and further reading: www.wto.org

1 Introduction1.1 Trade Barriers

• Trade barrier is any impediment to trade in services or goods

• Import trade barrier is any obstacle, direct or indirect, to the entrance and/or sale of both imported goods and services

• Questions:– What are some of the reasons for regulating imports?– What are the main policy instruments?– Why are conflicts over trade policies dangerous?

1 Introduction1.2 Protectionist Past

• “Black Thursday” (October 24, 1929)

• The US raised tariffs on more than 900 items in 1930 and major trading nations reciprocated with similar increases

• Roosevelt advocated lowering tariffs as part of his re-covery plan from the Great Depression

• Starting in 1934, the US entered into bilateral trade nego-tiations to mutually lower tariffs

• The end of WW II led to an integrated international sys-tem to encourage trade liberalisation and multilateral economic cooperation

1 Introduction1.3 The Bretton Woods System

• Was supposed to create a system that would promote trade liberalisation and multilateral economic cooperation

• Intended to create a multilateral institutional framework of rules and obligations through three organisations:

– International Monetary Fund (IMF)– International Bank of Reconstruction and Dev. (IBRD)– International Trade Organization (ITO)

• ITO charter never submitted by Pres. Truman to Senate for confirmation due to fear that it would be defeated, harming U.S. foreign relations

1 Introduction1.4 The GATT 1947

• Instead of the ITO, the developed market-economy countries entered into the General Agreement on Tariffs and Trade (GATT) 1947

• Multilateral agreement that set out the rules under which the contracting states were committed to negotiate

– reductions in customs tariffs– other impediments to international trade in goods

• GATT 1947 came to govern almost all of the world’s merchandise trade

1 Introduction1.5 Multilateral Trade Negotiations

• To update GATT 1947, contracting parties participated in multilateral trade negotiations (MTNs), which are known as rounds

• The first five rounds were mostly devoted to reducing tariffs on a product-by-product basis

• The last three completed rounds – resulted in even larger across-the-board tariff cuts – expanded to handle non-tariff matters

• DDA – Doha Development Agenda

1 Introduction1.6 The Eight Rounds Were…

1. Geneva 1947

2. Annecy, France (1949)

3. Torquay, England (1950-1951)

4. Geneva (1955-1956)

5. Dillon Round – Geneva (1961-1962)

6. Kennedy Round – Geneva (1964-1967)

7. Tokyo Round – Geneva (1973-1979)

8. Uruguay Round – in four cities (1986-1994) – established the World Trade Organisation

9. Doha Round (commenced in 2000…)

1 Introduction1.7 From GATT 1947 to the WTO

• Uruguay round transformed GATT 1947, which was a trade accord serviced by a professional secretariat, into a membership organisation – the WTO

• Is guided by the procedures, customary practices, and decisions of the GATT 1947

• Does not create a new supranational organisation

• The original membership of 125 in 1994 has grown to more than 150

1 Introduction1.8 Tasks

• WTO was created as a unified administrative organ to oversee the Uruguay Round Agreements

• Forum for trade negotiations

• Current set of rules deals with– Trade in goods

– Trade in services

– Trade-related aspects of intellectual property rights

– Dispute settlement

– Safeguard measures (protective, but not protectionist)

– Trade policy reviews

– etc.

1 Introduction1.9 The Organisation

Ministerial Conference

Dispute Settlement Body General CouncilTrade Policy Review Body

Council for Trade in Goods

Council for Trade in Services

Council for TRIPS

Five Committees

Working Groups

Five Committees

Working Groups

Textiles Monitoring Body

Five Committees

Working Groups

In general, decisions are made unanimously

(by consensus), not by a majority vote

1 Introduction1.10 Dispute Settlement

• Tribunal for resolving disputes• Dispute mechanisms and procedures attempt to avoid

retaliation or “trade wars”• Quasi-judicial process for resolving disputes when deadlocked• Only a government can bring a “complaint” against another

government• “Indirect” enforcement mechanism

1 Introduction1.11 Case Study: Banana Wars (1)

• Case: “European Communities-Regime for the Importation, Sale, and Distribution of Bananas”

• Questions:– When may a member bring a complaint against another

member of the WTO?– What was the basis for the EC’s argument in this case? – Which countries can export bananas to the EU duty-free,

and why?

1 Introduction1.12 Trade-Related Ethical Questions

• Should labour and environmental issues be linked to trade?

• Furthers whose agenda?

• Protectionism in disguise?

• Conflict between the ‘developing’, ’newly industrialised’ and ‘developed’ world?

• Forum for negotiations – a level playing field?

Table of Contents

1. Introduction

2. Basic Principles – GATT

3. GATS

4. TRIPS

Self-study and further reading: www.wto.org

2 Basic Priniples – GATT 2.1 Overview

WTO-agreements are based on fundamental principles:

• Non-discriminatory legal framework for international trade• Predictability of trade opportunities• The framework´s main principles are

– Most-favoured Nation (MFN)– National Treatment (NT)

• Trade liberalisation• No unfair (protectionist) trade distortions• Transparency and neutrality of trade

2 Basic Principles – GATT2.2 Most Favoured Nation Principle – MFN, Art. 1 GATT• Art. 1 (1) GATT: “[…] any advantage, favour, privilege or

immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.“

• US: MFN is also referred to as ‘Normal Trade Relations’ (NTR)

2 Basic Principles – GATT2.3 Unconditional MFN

• Unconditional MFN: if a member extends privilege to another country (member or non-member) then that privilege automatically is extended to all members

• Tariffs and any other domestic instrument affecting trade have to respect this principle

• Discrimination in law (de jure) and in fact (de facto) covered

• “[…] the like product […]”

• “Multilateralisation” of bilateral (trilateral, plurilateral) agreements

2 Basic Principles – GATT 2.4 Exceptions to MFN (see later for more details)

• GATT contains numerous exceptions to the MFN clause• ‘Enabling clause’ is an integral part of the GATT (adopted as a

decision of the contracting parties):– special access to markets: favourable treatment with respect to

developing countries regardless of whether other WTO members are subject to such treatment

• Art. 24 GATT:– Free Trade Agreements

– Customs Union (e.g., EU+Turkey; GCC)

2 Basic Principles - GATT2.5 Tariff Bindings

• Tariff Bindings, Art 2 GATT• All types of tariffs/duties covered: ad valorem duty and specific

duty• Bound tariff levels agreed upon (= tariff ceiling commitment)• Tariff concession: country promises not to levy a tariff at a

higher level then agreed upon• Less than maximum can be collected – but not more• Predictability enhanced through schedules (integral part of

GATT)• Lowering of tariff commitments subject of trade

(re-)negotiations

2 Basic Principles - GATT2.6 Case Study: Banana Wars (2)

• Art. 2 GATT: In essence, each country make concessions to other WTO members’ products

• GATT Report on European Economic Community-Import Regime for Bananas

• Questions:– Which countries object to the change in the consolidated

tariff rate on bananas that took effect in 1993?– What is the GATT basis for their objections?

2 Basic Principles - GATT2.7 Merchandise Classification – The ‚Harmonised System‘• Commodity nomenclature: reference point for classification/

categorisation of goods• ‘HS’ stands for ‘Harmonised Commodity Description and

Coding System’ (=‘Harmonised System’)• Universal economic language and code for goods• HS a creation of the WCO – World Customs Organisation• 21 sections, 96 chapters, 1200 positions and 5200 sub-

positions (each sub-position forms a commodity group)• Used by almost 200 countries as a basis for their customs

tariffs and for the collection of international trade statistics• Amended several times since 1988 (HS92, HS96, HS2002)• Classification conflicts (e.g., EC-Computer Equipment)

2 Basic Principles - GATT2.8 Quantitative Restrictions and Quotas

• Prohibition of quantitative restrictions (quotas), Art 11 GATT:– applies to non-tariff trade barriers

– restriction on the number/amount of importations

• Equal application of quantitative measures (if allowed by Art. 11 seq.): Art 13 GATT (‘MFN for quotas’)

• ‘Tarrification’:– The conversion of quotas or other non-tariff barriers to tariffs that

would provide roughly the equivalent level of trade restrictions on imported products

– First convert to tariffs – ‘tariffication’ – and then negotiate to reduce

– Conversion of non-tariff barriers to tariffs part of the Uruguay Round Agreement on Agriculture

2 Basic Principles – GATT2.9 National Treatment, Art 3 GATT

• Obligation to give others the same treatment as one´s own nationals: Equal treatment of imported and domestic products

• No law, regulation, or taxation pattern may adversely modify the conditions of competition between similar (“like”) imported and domestic products in the domestic market

• Protection of competitive relationship between all products, be they imported or not

• Applies in a similar way to Goods (Art 3 GATT), Services (Art 17 GATS), and IP (Art 3 TRIPS)

• Charging customs duties does not violate national treatment• National treatment core market access provision of the GATS

2 Basic Principles – GATT 2.10 National Treatment – Details

• Actual and potential discrimination covered

• Discrimination in law and discrimination in fact covered• Applicable when imported goods are disfavoured or domestic

goods are favoured by– Internal taxes and charges

– Laws, regulations, requirements affecting sale, transportation, distribution or use of products

– Internal quantitative regulations requiring the mixture, processing or use of products in specified proportions (e.g. “local content” rules)

2 Basic Principles – GATT 2.11 National Treatment – „Likeness“ of Products (1)

• According to the Appellate Body the concept of “likeness” is a relative one

• “Likeness” of imported an domestic products is a matter of a case-by case-judgement:

– To be judged only by physical characteristics?

– Only substitutable (in competition) products?

– Competitive relationship sufficient?

– Combination of the above?

– Ethical implications?

2 Basic Principles – GATT 2.12 National Treatment – „Likeness“ of Products (2)

• Art. 3 (2) GATT addresses two situations:

1. Art. 3 (2) sent. 1 GATT – any discrimination of like products a violation of the GATT (even if it does not have a protectionist effect) – judgement of the “likeness” to be based on the following criteria:

• Characteristics, quality and nature of the product• Possible use• Consumer behaviour/preferences• Tariff classification

2. Art. 3 (2) sent. 2 in conjunction with Art. 3 (1) GATT – to be judged upon the following criteria whereas unequal treatment/dis-crimination is not per se unlawful

• directly competitive/directly substitutable products and • taxed/charged differently and • results in protectionist effect

2 Basic Principles – GATT 2.13 Case Study – Japan Taxes on Alcoholic Beverages

• Japan Taxes on Alcoholic Beverages

• Japan taxed vodka and other imported liquors 7 times higher than shochu (similar to vodka). This practice was challenged.

• Held: Japan's practice violated national treatment provisions Art 3 GATT. U.S. had to go to arbitration. In 1997 Japan agreed to revise its system.

2 Basic Principles – GATT 2.14 Case Study – Japan Taxes on Alcoholic Beverages

• Questions:1. What is the purpose of Article 3 and how is that purpose

ensured?

2. What impact does substantive evidence of “the trade effects” of the tax differential have on an analysis of Art. III?

3. How does a WTO Panel determine whether two products are “like products” for purposes of the first sentence of Article 3 (2) or “directly competitive or substitutable products” that fall within the domain of the second sentence of Article 3 (2)?