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1.

DISPUTE SETTLMENT

GATT system
o

Changes
o Provided detailed procedures for the various stages of the dispute, including specific time frames.
o Eliminated the right of individual parties, typically the one hose measure is being challenged, to block the establishment
of panels or the adoption of a repot.
o Now automatically establishes panels and adopts panel and appellate body reports unless there is consensus not to do so
Negative consensus
Also applies to the authorization of counter measures against a party which fails to implement a ruling
o Appellate body
PROBLEM with the process of the GATT
o Basically, under the GATT system, the respondent party and potentially the losing party has the opportunity to block
dispute resolution decisions at many instances because GATT must make decisions based on consensus
o Ultimately GATT was a conciliation approach
o Response to the problem was created at the Uruguay Round

WTO Annex 2 See chart for steps and time line

Purpose:
Agreement is not worth very much if its obligations cannot be enforced when one of the signatories fails to comply with
such obligations.
Settling disputes in a timely structure manner helps prevent the detrimental effects of unresolved international trade
conflicts and to mitigate the imbalances between stronger and weaker players by having their disputes settled on the
basis of rules rather than having power determine the outcome.
Aim is to secure a positive solution to the dispute (art. 3.7 of the DSU)
Essential for providing security and stability
o Greater amount of risk at international level because you are dealing with countries that have different legal
systems = greater level of risk that rules will change. Therefore dispute resolution system needs to balance that
risk to give businesses the assurances that the rules that have been negotiated will actually be enforced so they
can rely on the rules in planning their future transactions.
3.4 solution must be consistent with WTO rules
Interpretation
Article 31 General rule of interpretation
Article 32 supplementary means of interpretation
Panel is entitled and obliged to clarify the meaning of an article concerned by interpreting the provision in accordance
with the customary rules of interpretation of public international law.
Mutually agreed solution is the preferred solution
Requires formal consultations as the first stage of any dispute (parties must attempt to negotiate a settlement (art. 3.7)
Even when adjudication process is underway, parties may still negotiate a settlement (art. 11)
Sets out procedures and deadlines
If case is adjudicated, it should normally take no more than one year for a panel ruling and more than 16 months if the
case is appealed (art. 20)
If complainant deems the case urgent, consideration of the case should take even less time (art. 4.9)
Agreement to use multi lateral system for settling disputes rather than taking matters into their own hands (art. 23)
Applies to situations where member believes that another member violates the WTO agreement or otherwise nullifies or
impairs benefits under the WTO agreements or impedes the attainment of an objective of one of the agreements.
Whatever actions the member take, it may only take them based on the findings of an adopted panel or appellate body
report or arbitration award
Additionally article 23 says must bring dispute in WTO it has exclusive jurisdiction
Participants:
Can take part either as parties or as third parties.
WTO secretariat, WTO observer countries, other IOs and regional or local governments are not entitled to initiate dispute
settlement proceedings in WTO
A NGO or industry may petition their government to bring a claim as well as file an amicus curiae submission, which the
panel or appellate body may consider, without any obligation to do so.

Substantive scope
Covered agreements
o DSU article 1.1 and WTO agreement article I to XVI
o Complainant often invokes provisions belonging to more than one covered agreement
A single set of rules and procedure
o In certain cases may special and additional rules and procedures contained din article 1.2 and appendix 2 of the
DSU
Decision making
Chairperson will ask, for example, whether the decision can be adopted and if no one raises their voice in opposition the
chair person will announce that the decision has been adopted.
A DELEGATION WISHING TO BLOCK A DECISION IS OBLIGED TO BE PRESENT AND ALERT AT HE
MEETING, AND WHEN THE MOMENT COMES, MUST RAISE ITS FALG AND VOICE OPPOSTION.
Establishment, adoption and retaliation DSB must automatically decide to take the action ahead, unless there is
consensus not to do so.
When DSB administers the dispute settlement provision of a trade agreement by certain members (Annex 4 WTO) only
members that are party to that agreement may participate in decision or actions taken by the SCB with respect to disputes
under these agreement (Art. 2.1 DSU)
Developing countries
No substantive benefits
Procedural benefits may make available to developing country members additional or privileges procedures, or longer
accelerated deadlines.
Rules of conduct
Covered persons (panelists, appellate body, experts, arbitrators, members of WTO secretariat, etc.) must be independent
and impartial must disclose the existence or development of interest, relationship or matter that he or she could
reasonably be expected to know and that is likely to affect, or give rise to justifiable doubts as to the persons
independence or impartiality.
Circumstances when member is entitled to a remedy Article XXII: (1)(a) (c)
Nullification or Impairment
1. If any contracting party should consider that any benefit accruing to it directly or indirectly under this Agreement is
being nullified or impaired or that the attainment of any objective of the Agreement is being impeded as the result of
o the failure of another contracting party to carry out its obligations under this Agreement, or (VIOLATION
COMPLAINT)
o the application by another contracting party of any measure, whether or not it conflicts with the provisions of
this Agreement, or(NON VIOLATION COMPLAINT)
o the existence of any other situation, (SITUATION COMPLAINT)
the contracting party may, with a view to the satisfactory adjustment of the matter, make written representations or
proposals to the other contracting party or parties which it considers to be concerned. Any contracting party thus
approached shall give sympathetic consideration to the representations or proposals made to it.
Possible object of complaint
o If a complaint is base don a provision which prohibits certain actions (e.g. article XI which prohibits export restrictions)
only positive action (e.g. a law impeding the exportation of goods to other members) can violate such a provision
o in action as such (the failure to adopt such a law) could not breach this obligation
o Situation is different under WTO agreement provisions that do not prohibit certain behavior, bur rather require
positive action (e.g. TRIPS obliges member to do something) and inaction or an omission will be at the heart of
a violation complaint which can be brought in a situation where a member has either done nothing or where the
laws passed and applied for some reason do not meet the required standard.
Only government measures of members can be object of complaints

Consultation
o

Bilateral consultations between parties is the first step (art. 4 DSU) request formally initiates a dispute and triggers
application of the DSU
o Must be submitted in writing and must give reasons for the request legal basis (art. 4.4 DSU)
o Before initiating, member is obliged to exercise its judgment as to whether action under the dispute settlement
system would be fruitful
Only after such mandatory consultations have failed to produce a satisfactory solution within 60 days may the
complainant request adjudication by a panel (art. 4.7 DSU)

o
o

o
o

o
o

Allow parties to clarify the facts of the matter and the claims of the complainant, possibly dispelling misunderstanding as
to the actual nature of the measure at issue.
Respondent must rely within 10 days and must enter consultation in good faith within a period of no more than 30 days
after receiving the request
o If respondent fails Complainant may immediately proceed to the adjudicative stage and request panel (art. 4.3
DSU)
o If respondent participates complainant can proceed to the request for a panel at the earliest 60 days after the
date of receipt of request
o Can be terminated early if parties jointly agree that consultations have failed to settle dispute (art. 4.7 DSU)
URGENCY cases i.e. perishable goods
o Must enter into consultations within a period of no more than 10 days after the date of receipt of the request. If
fail within 20 days after receipt, complaining party may request panel (art. 4.8 DSU).
Third parties in consultations
o Why third party interest?
Other member may have a trade interest and so feels similarly harmed by the challenged measure
May benefit from the measure
May be concerned about the challenge because it maintains a measure similar to that of the respondent
May have interest in being present because such a solution may affect its interest
o May request to join consultations if it has a SUBSTANTIAL trade interest in the matter being discussed and if
consultations were requested pursuant to article XXII:1 of GATT 1994, article XXII:1 of GATS or the other
corresponding provisions
Request must be addressed to the consulting members and the DSB within 10 days after the date of the
circulation of the original request for consultations.
Responding member must also agree that the claim of substantial trade interest is well founded
If disagrees there is no resource
But wouldnt be respondents interest to block third party could request consultations
with them separately then.
Text doesnt say what happens if you dont consulate. One interpretation is that the DSB cannot refuse to establish a
panel, but they could dismiss the case because its procedurally defective.
If the consultations fail
o They can ask the WTO director general to mediate or try to help in other way.
o You can then ask for a panel to be involved.

Panel stage
o

Request initiates the phase of adjudication


o Must be made in writing and is addressed to chairman of the DSB
o To be distributed to DSB meeting, must be filed at least 11 days in advance
o Must indicate whether consultations were held, specific measures at issue, and provide a brief summary of the
legal basis of the complainant (art. 6.2 DSU)
Voting
o First DSB meeting in which the request is made responding member can still block the establishment
o Second DSB meeting where the request is made panel will be establish unless the DSB decides by consensus
not to establish he panel (negative consensus rule art. 6.1 DSU)
Third parties
o Must have substantial interest in the matter and must notify their interest ot the DSB (art. 10 DSU)
Different than the substantial trade interest requirement in consultations
o Dont need to have participated in consultations
o DSB applies a 10 day deadline from the establishment of the panel for members to reserve their rights as third
parties.
Panel composition
o Composed of 3, sometimes 5, experts selected on an ad hoc basis no permanent panel. Anyone who is well
qualified (art. 81 DSU) and independent (art. 8.2 DSU) can serve as a panelist. Secretariat has list of names
from which panelist may be drawn (8.4 DSU). Citizens of a party or a third party to a dispute may not serve as
panelists without the agreement of the parties (art. 8.3 DSU)
o Developing country rule When dispute is between developing country and a developed country, developing
country may request that there be at least on panelist from a developing country (art. 8.10 DSU)

Special rules in GATS para. 4 of GATS annex on financial services expressly provide for the selection of
panelists to ensure that panels have the relevant specific expertise in the sector that is the subject of dispute.
Interim review
o Panel issues its reports to the parities in an interim form and as a confidential document containing all the above
elements, ideally two to four weeks after the receipt of comments on the descriptive part (art. 15 DSU)
o Interim report is confidential
Issuance and circulation of the final report
o Panel should submit to parties within 2 weeks following the conclusion of the interim review
o Then circulated to all other members
Adoption of panel reports
o Only becomes binding when DSB adopts it
o Must adopt the report no earlier than 20 days, but no later than 60 days after the date of its circulation to the
members, unless a party to the dispute formally notifies the DSB of its decision to appeal or the DSB decides by
consensus not to adopt the report (art. 16.4 DSU)
o If no appeal DSB obliged to adopt unless there is negative consensus
o Must be placed on DSB agenda
o

Appeal
o

o
o
o
o
o
o

o
o
o
o
o

Permanent body of 7 members


o DUS appoints members by consensus (Art. 2.4 DSU)
o Four a four year term and can reappoint a person once (art. 17.2 of the DSU)
o Must be persons of recognized authority, with demonstrated expertise in law, international trade and the subject
matter of the covered agreement generally and must not be affiliated with any government (art. 17.3 of the
DSU)
Purpose:
o Added the appellate body to help resolve the issue of wrong cases by giving the losing party a second bite of the
apple. Appellate reports are then almost adopted automatically. Possibility that panel could make a mistake.
Second and final stage
o If party files an appeal, appellate body review the challenged legal issues and may uphold, reverse or modify the
panels finding (art. 17.3 DSU)
Article 16.4 notification of partys decision to file an appeal
Article 17 deals with structure, function and procedures
Rules that are applicable to panel and appellate
o 1, 3, 18, 19 of DSU
Who has right to appeal?
o Only parties to dispute not third parties
o Third parties CAN participate during appeal as a third participant (art. 17.4) if they were parties at the panel
stage
What is the object of an appeal?
o Limited to legal questions address issues of law and legal interpretations (standard of review questions are
issues of law)
After 30-45 days from the notice of appeal, body holds an oral hearing not open to the public.
No interim review
Must be completed within 60 days, and in no case take longer than 90 days from the date when the notice of appeal was
filed.
DSB must adopt and the parties must accept the report unless the DSB decides by consensus not the adopt the report
within 30 days following circulation.

DSB adoption recommendation and ruling to losing party


o
o
o

Bring itself into compliance with the law or to find a mutually satisfactory adjustment
First duty of the losing member is to inform the DSB at a meeting within 30 days of the adoption of its intention to
implement the recommendations and rulings (art. 21.3 DSU)
If immediate compliance is not possible, then has reasonable period of time (art. 21.3 DSU)
o Three ways time period can be determined
Proposed by the member concerned and approved by consensus by the DSB
Mutually agreed by the parties to the dispute within 45 days after adoption of the report; or
Determined by an arbitrator

o
o
o

DSB keeps implementation by a member under surveillance


Non implementation
o Complainant is entitled to resort to temporary measures which can be either compensation or the suspension of
WTO obligations
Countermeasures and suspension of obligation
o If, within 20 days after the expiry of the reasonable period of time, the parties have not agreed on satisfactory
compensation, the complainant may ask the DSB for permission to impose trade sanctions against the
respondent that has failed to implement. Technically, this is called suspending concessions or other obligations
under the covered agreements (Article 22.2 of the DSU).
o Retaliation is the final and most serious consequence a non-implementing Member faces in the WTO dispute
settlement system (Article 3.7 of the DSU). Although retaliation requires prior approval by the DSB 1, the
countermeasures are applied selectively by one Member against another.
o Debate whether the purpose of the suspension of obligations is to enforce recommendations and rulings, or
merely to rebalance reciprocal trade benefits (at a new and lower level). Irrespective of the answer, it is clear
that the suspension of obligations has the effect of rebalancing mutual trade benefits. It is also clear that the
complainants who suspend obligations often do so with the intention of inducing compliance
o The DSB must grant the authorization to suspend obligations within 30 days of the expiry of the reasonable
period of time, unless it decides by reverse consensus to reject the request.

60 days

Consultations, mediation, etc.

45 days

Panel set up and panelists appointed

6 months

Final panel report to parties

3 weeks

Final panel report to WTO Members

60 days

Dispute Settlement Body adopts report

Total = 12 months

(Without appeal)

90 days

Appellate Body report

30 days

Dispute Settlement Body adopts Appellate Body report

Total = 15 months

(with appeal)

2.

MARKET ACCESS PRINCIPLES

What are border measures?

Border measures are any laws or regulations at the border. For example, goods that show up the border to enter domestic
commerce must clear through customs. Anything regulated by customs is a border measure. A common measure is a tariffwhich is a tax imposed at the border on imported goods. If there are any quantitative restrictions and it is enforced at the
border, the restriction is a border measure. A border measure could include an environmental protection law that says it is
illegal to import whale meat.
Binding border measures are described in Article II- the schedule of concessions.
o Schedule is the list of the products that the country is making a commitment to in the agreements.
o Schedule sets out certain treatment relating to ordinary custom duties. In negotiating the GATT, countries negotiate
on a reciprocal basis looking for market access to imports.
o Commitments give a certain amount o access or impose a certain level of customs duties that become embodied in the
agreement, which concludes the negotiations and is therefore called binding.

Obligation under the GATT places a ceiling on tariffs (a binding), which is part of the process of lowering duties in the future.
Exceptions: if you have an internal tax on a product and you collect it on the import made domestically, you can also collect
it on imported products.
Determinations that customs officials must make in order to administer tariffs and quotas
1 They must classify the goods, identifying them under one of the categories in the tariff schedule - "what is it"

2
3

a What provision in the tariff schedule is it classified in.


The goods must be valued so that the ad valorem tariff rate can be applied
Origin of the goods must be determined so that it is possible to apply the appropriate tariff rate within the specific category

VII through X articles of the GATT impose some international standards on the customs procedures followed by WTO
members
X requires that customs laws and regulations be published promptly and that a tribunal be available to hear appeals from
decision by customs officials
VIII limits the fees, formalities and penalties that can be imposed on the imported products
IX limits the use of origin marking requirements, in particular by requiring MFN treatment
VII deals with valuation of goods
V provides freedom of transit for goods
Classification

International Rules: the harmonized system


o World customs organization - like WTO
o Main function - has drafted a tariff nomenclature that countries can use in their tariff schedules
o Each country must use the harmonized system as the basis for their tariff schedules and the basic structure of
numbering the provisions in order to be a member
Heading/subheading (4 and 6 digit number)
Article description
o 8 number is added by the US
Classification under national law
o Harmonized tariff schedule of the US which is based on the CC's harmonized system includes around ten thousand 8
digit tariff lines.
o Column 1: general or normal trade relations rate
Applied to countries receiving most favor nation treatment
GATT binding
o Column 2: statutory rate
Applies to products from countries which do not receive normal or special treatment
Tariff duties enacted by congress in the 1930s
o Column 3: special column
Apply mainly to imports from countries who are beneficiaries of a US tariff preference
Like duty free

WTO legal methods for interpreting treaties


WTO appellate body understands and applies international public law with agreements
Vienna convention, law of treaties
o Article 31, page 325 - a treaty shall be interpreted in good faith in accordance with the ordinary meaning of the
treaty terms in the context in light of the object and purpose
o Very methodical way of identifying the elements of any legal rule and takes them step by step and analyze them and
synthesizing the result.
o Rule on how to interpret the treaty:
Start out with the terms and their ordinary meaning
Look to the context (Vienna convention defines context in para. 2 - preamble of annexes, any agreement in
relation to the conclusion, etc) (commentary)
The object and purpose
Court of international trade- Conair Corp. v. US (2005)
o P claims D classified wrong in harmonized tariff schedule
Table top fountain
Pumps for liquids (duty free) v. statutes and other ornamental articles (5.3 percent rate of duty)
P wants it classified as pumps, government wants it classified as sculpture
o What this device consists of provides for a plastic mountain with a pump that pumps water up and waterfall and it
catches water at the pump. All forms of pumps are included and this is a pump. Conairs argument.
Court doesnt agree immediately and says they must go to general rules of interpretation rule 2(b) - go to
rule 3

Rule 3
Rule 3(b)
Need to determine essential character - which of the components are indispensable to the merchandise
Determined by the pump - ponds are designed to create a tranquil atmosphere at home and appeal to the visual and auditory sense of
the summer - pump is necessary
o Need to look at the rules of interpretation under the harmonized tariff schedule. Look to language of tariff heading to
see if it applies. Headings are made up of chapters which are made up of sections. Legal text of tariff headings with
aid of explanatory notes.
GATT article II Concessions
o Tariff border restrictions: bindings
o Sovereignty
In international law, states are sovereign they are able to do what they want. In this case, if they want to
collect tariffs, they may do so unless prohibited by an existing bilateral treaty. Initial problem was that tariff
levels fluctuated and varied depending on the origin of the goods and the intention fo the importing states.
Example: X in country A produces tables which it sells for $10. X would like to import to country B. B
collects 150% one day, 300% the next day and so on.
o Two types of tariffs:
Take percentage on the value of imported product ad valorum
Take specific amount per good specific
o Article 2 binding on tariffs solved the problem
o GATT contracting parties will not collect at the border tariffs higher than the negotiated and accepted maximum level
committed. Once a country has committed itself, the tariff level is bound.
o Negotiate for reciprocity purposes
o Example: A will not collect more than 150% on Bs tables if B will not collect more than 200% on As shoes.
o Implies that during rounds of negotiation for the reduction of tariffs, each country will make equivalent concessions.
No provision provides guidance on this. Up to each government to make the determination.
ARTICLE 7: Valuation for Customs Purposes
Generally:
Most tariffs are ad valorem, which means that the value of the goods subject to them must be ascertained in order to calculate
the amount of tariff due.
Rules come from WTO: agreement on customs valuation originally adopted at the end of the Tokyo Round and absorbed into
WTO.
Primary method for determination is transaction value which is defined as the price paid when the goods are sold to
exportation to the country in which they will be imported. Look at invoice price between the exporter and importer.
o Sometimes if freight and transport are included in the price they will be taken out
o Sometimes rejected if it seems that parties have arbitrarily set the price
Article 8 provides for certain adjustments to the price paid for certain specified costs, charges and expenses that are incurred
by not reflected in the price for the goods
If the exporter and importer are related, which is often the case in international trade, the relationship must not have
influenced the price paid.
National Valuation Rules: 439-440
Customs valuation code was implemented into US law by title II of the trade agreements act of 1979
Rules of Origin
Generally:
Once goods have been classified and valued, it is necessary to determine their origin so that the proper tariff rate may be
applied.
Problems of determining origin have been exacerbated by recent trends toward global sourcing and multinational
manufacturing, where different stages in manufacturing are performed in different countries.
North Korea and Cuba have column 2 rates - we have embargo on them
International Rules on Origin

Origin marking rules are dealt with in Article IX, which requires MFN treatment but the rest of article IX is aimed at
minimizing the use or origin making requirements to hinder trade.
WTO agreement on rules or origin
o Calls for the harmonization of non preferential origin rules through a work program to be undertaken by the WTO
committee on rules or origin and the WCO.

The application of national origin rules


A product made in country A and transshipped via country B to country X is unlikely to be considered to have originated in B
when it arrives in X.
How much work does B have to do so B is considered the country of origin.
If there has been a substantial transformation of the product, then the goods originated there. Wherever the last substantial
transformation occurred -product has new name, and use
Article XI prohibits border restrictions
o
o

Compliment to article 2. At borders, GATT contracting parties and WTO members are not entitled to maintain non-tariff
border restrictions. They are only able to maintain tariffs at levels below their binding level.
If you become a contracting party to GATT, you must treat imports from all GATT partners they same way you would treat
imports from your most favored trading partner.
o No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas,
import or export licenses or other measures shall be instituted or maintained by any member on the importation of
any product of the territory of any other member or on the exportation or safe for export of any product destined for
the territory of any other member. Bans other forms of import restraints, and once imported goods are admitted to a
country, article II Generally prohibits the application to them of discriminatory internal taxes or other regulatory
measures.
Why?
o Example:
A makes deal with B and B has made a binding tariff of 125% on the import of tables from country A. In
response, A begins to produce more tables, thinking that they can profit from exporting them because of the
binding tariff.
The following year, country A tables arrive at border of country B. B says we will respect binding tariff, but
will only import three tables.
o The prohibition against quantitative restrictions is a reflection that tariffs are GATTs border protection of choice.
Quantitative restrictions impose absolute limits on imports, while tariffs do not. In contrast to MFN tariffs which
permit the most efficient competitor to supply imports, quantitative restrictions usually have a trade-distorting effect,
their allocation can be problematic and their administration may not be transparent
Hypo: suppose there is a country that prohibits anyone from exporting an atomic bomb A: (prohibited by
article XI)
Hypo: suppose country wants to refuse import of meat contaminated with mad cow disease

A: (prohibited by article XI)


Hypo: county won't import product unless its priced at a certain level
A: (prohibited)
Article XI exceptions
o Article XI.2 allows for certain import restrictions on fish and agricultural products. HOWEVER, with the
implementation of the WTO agreement on agriculture, border restrictions on agriculture are invalid. Now provision
can be read as allowing restriction on import of fish.
o Article XI.2 allows members to maintain temporary restrictions to prevent shortage of necessary products.
Article XIII When quantitative restrictions can be legally imposed as an exception to article 11 or as a safeguard
measure such restrictions must be applied equally on exports from all GATT contracting parties.
o In other words, there is a MFN obligation for quotas and other border restrictions when applied.
o XIII.2 when allocating a quota between exporters, the importer must aim at a distribution of trade approach as
closely as possible to the share that various members might be expected to obtain in the absence of such restriction.
When allocating shares, importing member must take into account a series of criteria:
In interest in the principal supplier
The trade share of suppliers in the previous representative period
Capacity utilization of exporting members


3.

New WTO agreement on licensing adds that interest of new importers and desirability of issuing
license in economic quantities should also be taken into account.

NON DISCRIMINATION PRINCIPLES

MFN article 1 WTO is a club, members get benefits that you dont have to give to outsiders
o
o

Fundamental principle of GATT, GATS, and TRIPS


Applies to all benefits and privileges that GATT contracting parties offer another party including tariff bindings
o Example: In the context of negotiation between A and B, country B commits to 125% binding tariff on tables. The result
of MFN is that this 125% negotiated in a bilateral context, will become multi lateralized in favor of all exports of
tables to all contracting parties.
Applies even if members were not producing tables at the time.
o Free Rider problem
Z starts exporting tables and has right to require its exports to country B be subject to the same level of
binding tariff that B applies to imports from A. Z will benefit from binding of 125% in country B even
though Z has not made any concessions during the bilateral negotiations between country A and B.
Policy:
o From an economic point of view, no country will have an artificial regulatory advantage because of a better import duty
than the most efficient producer. Therefore, it provides assurances to a country who is the most efficient producer of a
product, that there will be an incentive for consumers to buy from them.
o From a trade negotiations point of view, all countries will be able to benefit from whichever country is able to secure the
best market access. Furthermore, countries who have a weak bargaining power are able to benefit from the strongest
countries.
Obligations:
o Clause applies to custom duties and any other import or export charges, the methods of levying them, all rules and
formalities in connection with importation or exportation, and internal taxation and sales regulations. The clause requires
that any advantage granted in respect of these matters must be granted to the like product from other countries.

National Treatment Article 3


o
o

Similar obligation exists under TRIPS and GATS


Provides that once in the territory of a member, products imported from other members may not be treated in a less favorable
manner than like domestic products III.1
o Example
A decides to impose sales tax of 10% on all domestic hats. A may not impose a sales tax of more than 10%
on imported like hats from X.
o Why? Avoid protectionism.
Example w/o: Whats the purpose of A and B negotiating a binding on imported hats, if once A imports Bs
hats, A says it will respect the binding but will only sell the hats in a remote town between the hours of 1
and 3 am with a sales tax of 200%.
Prohibits discrimination between imported and domestically produced goods with respect to
internal taxation or other governmental regulation.
Aim is to prevent internal taxes or other regulations from being used as a substitute for tariff
protection.
Acts to reinforce the tariff bindings made pursuant to article II by limiting the circumstances in
which it is permissible for a nation to provide treatment for domestic goods in its national
legislation and programs which is more favorable than that for imported goods.
Must determine likeness
o WTO panel or appellate body would have to determine whether the imported and domestic goods affected by the
challenged regulations are like before they can asses whether national treatment has been violated.
o If products are in competition, panel worries about protectionism.
o WTO has established that likeness determination is essentially a determination of competitiveness, determined by
using the following criteria:
Physical characteristics
End use
Consumers perception (substitutability)
Tariff classification of product

Discriminatory Taxes Article III.2


o 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.
Requires national treatment in respect of internal taxation (such as sales, excise or value added taxes)
A tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be inconsistent
with the provisions of the second sentence only in cases where competition was involved between, on the one
hand, the taxed product and a directly competitive or substitutable product which was not similarly taxed.
Provides specific obligations
General distinctions between first and second sentence
Second sentence provides for a separate and distinctive consideration of the protective aspect of a measure in
examining its application to a broader category of products that are not "like products" as contemplated by the first
sentence
In determining whether there is a violation of article 3(2) first sentence: must ask and answer affirmatively both
questions:
o Whether imported and domestic products are like products
o Whether the imported products are taxed in excess of the domestic products
If answer to one is negative, then need to examine further whether the measure is consistent with article 3(2) second
sentence.
Like products are a subset of directly competitive or substitutable products
MFN v. national treatment
o Both fundamental non discrimination obligations
o MFN obligation under art. I (1) proscribes with respect to measures falling within its scope of application,
discriminatory treatment between and among like products of different origins.
o National treatment obligation under art. III (4) proscribes, with respect to measures falling within its scope of
application, discriminatory treatment of imported products vis-a-vis like domestic products.
o Article 1 incorporates all matters referred to in para. 2 and 4 of art. III
Current issues:
o National treatment and determination of likeness is at the heart of on going debate on trade and the environment,
human rights, and labor rules.
o NGOS and other activists would deny that a product that is produced in respect of environmental norms is a like
product to one produced in violation of environmental norms even if they are in competition and substitutable
EU Seal Regime Case:
Regulation at issue: EU seal regime prohibits placing seal products on the EU market unless they qualify under certain
exceptions.
Claim:
o Canada and Norway claimed that the seal regime violates obligations under GATT- the non discrimination
policy under article 1 and article 3(4) because the regime exceptions accord seal products from Canada and
Norway less favorable treatment than that accorded to like seal products of domestic origin and other foreign
origin
o EU appeals a panels interpretation of article 1 and article 3(4) as well as its conclusion that EU seal regime is
inconsistent with Article 1
MFN
o Based on the text of Article I (1), the following elements must be demonstrated to establish an inconsistency
with that provision:
(i) That the measure at issue falls within the scope of application of Article I:1;
(ii) That the imported products at issue are "like" products within the meaning of Article I:1; (
(iii) That the measure at issue confers an "advantage, favour, privilege, or immunity" on a product
originating in the territory of any country; and
(iv) That the advantage so accorded is not extended "immediately" and "unconditionally" to "like"
products originating in the territory of all Members.
Thus, if a Member grants any advantage to any product originating in the territory of any other
country, such advantage must be accorded "immediately and unconditionally" to like products
originating from all other Members.
o Any advantage granted by a Member to imported products must be made available "unconditionally", or
without conditions, to like imported products from all Members

10

Conclusion in case on claim:


The Panel found that, while virtually all Greenlandic seal products are likely to qualify under the IC
exception for access to the EU market, the vast majority of seal products from Canada and Norway do
not meet the IC requirements for access to the EU market. Thus, the Panel found that, "in terms of its
design, structure, and expected operation", the measure at issue detrimentally affects the conditions of
competition for Canadian and Norwegian seal products as compared to seal products originating in
Greenland
Article III (4)
o Entails an inquiry into whether the detrimental impact of a measure on competitive opportunities for like
imported products stems exclusively from a legitimate regulatory distinction.
o There are three elements that must be demonstrated to establish that a measure is inconsistent with Article III:4:
(i) That the imported and domestic products are "like products";
(ii) That the measure at issue is a "law, regulation, or requirement affecting the internal sale, offering
for sale, purchase, transportation, distribution, or use" of the products at issue; and
(iii) That the treatment accorded to imported products is "less favourable" than that accorded to like
domestic products.
o First, the term "treatment no less favourable" requires effective equality of opportunities for imported products
to compete with like domestic products.
o Second, a formal difference in treatment between imported and domestic like products is neither necessary, nor
sufficient, to establish that imported products are accorded less favourable treatment than that accorded to like
domestic products.
o Third, because Article III:4 is concerned with ensuring effective equality of competitive opportunities for
imported products, a determination of whether imported products are treated less favourably than like domestic
products involves an assessment of the implications of the contested measure for the equality of competitive
conditions between imported and like domestic products.
If the outcome of this assessment is that the measure has a detrimental impact on the conditions of
competition for like imported products, then such detrimental impact will amount to treatment that is
"less favourable" within the meaning of Article III(4)
o Finally, for a measure to be found to modify the conditions of competition in the relevant market to the
detriment of imported Products, there must be a "genuine relationship" between the measure at issue and the
adverse impact on competitive opportunities for imported products.
o

4.

TRANSPARENCY ARTICLE X

Discussed with reference to obligations of members to publish domestically any regulation or law that may affect international trade.
Three reasons why transparency at WTO is so important
o The underlying goal of WTO is to expand international trade so as to improve the worlds economic condition
Need to know what rules apply in foreign territory to asses the economics of a transaction and whether their goods
can be traded.
Trade is less likely to occur if difficult to know
o Important for rule enforcement
Transparency requirements facilitate rule enforcement by helping members verify that other members are living up
to their basic TWO obligations
o Transparency rules help combat the use of non tariff barriers.
X.1
o
o

Obliges members to publish promptly in their own language any measure related to GATT matters as well as any
international agreement that affects trade policy, so as to allow trading entities and governments the opportunity to become
familiar with them.
Laws, regulations, judicial decisions and administrative rulings
o Reflects an intention on the part of the drafters to include a wide range of measures that have the potential to affect
trade and traders
o Ordinary meanings of the terms indicates that the instruments covered by Article X:1 range from imperative rules of
conduct to the exercise of influence or an authoritative pronouncement by certain authoritative bodies.
Article X:1 of the GATT 1994 makes it clear that Article X does not deal with specific transactions, but rather with rules of
general application.

11

o
o

shall be published Article X:1 addresses the due process notion of notice by requiring publication that is prompt and that
ensures those who need to be aware of certain laws, regulations, judicial decisions and administrative rulings of general
application can become acquainted with them.
promptly the meaning of prompt is not an absolute concept, i.e. a pre-set period of time applicable in all cases. Rather, an
assessment of whether a measure has been published promptly, that is quickly and without undue delay, necessarily
requires a case-by-case assessment.

X.2

Obligation to notify other members through GATT/ WTO Secretariat of all laws and regulations of general applications
Measures of general application
o Article X:2 refers simply to measure and hence encompasses an even broader category namely, any act or
omission by a WTO Member. It follows therefore that the drafters intended to include a broad range of measures that
have the potential to affect trade and traders.
Promotes full disclosure of governmental acts affecting Members and private persons and enterprises, whether of domestic
or foreign nationality.
o People should have a reasonable opportunity to acquire authentic information about such measures and accordingly
to protect and adjust their activities or alternatively to seek modification of such measures.
Effecting an advance in a rate of duty or other charges on imports under an established and uniform practice
o Under Article X:2, measures must be of a type that effect an advance in a rate of duty under an established and
uniform practice, which means that the advance in a rate of duty must be applied (practice) in the whole customs
territory (uniform) and its application should be on a secure basis (established).

X.3
o
o

Obliges each member to maintain judicial, arbitral, or administrative tribunals or procedures for the purpose of prompt
review and correction of administrative actions relating to customs matters
Must be independent of agencies
Ensures due process by importing member when assessing whether import complies with WTO requirements.

5.

EXCEPTIONS TO MFN

Developing Countries
o
o

o
o

Number of provisions allow for deferential and more favorable treatment for developing countries.
Only applies to goods
o However, parallel language in TRIPS suggests that drafters tried to provide the same flexibility in favor of services
from developing countries
Donor country may maintain GSP schemes must treat similarly developing countries in similar
conditions on the basis of objective criteria, which can be determined in light of international standards and
norms dictated by international organization.
GATT Article XVIII designed to grant certain privileges to developing countries.
o Refers to contracting parties the economies of which can only support low standards of living and are in the early
stages of development
o Establishes criteria describing those nations entitled to utilize its provisions, and then basically grants four
privileges.
Part A: the right to renegotiate tariff bindings so as to raise tariffs on products a developing country desires
to produce, thus enabling protection of so called infant industries.
Part B: the privilege to use quantitative restrictions when in balance of payments difficulties
Part C: a privilege to use any measure necessary to promote a particular industry
Part D: certain countries with economies in process of development, but not falling within the criteria of
low living standards, can apply for permission to deviate from GATT rules so as to establish a particular
industry.
Part IV of GATT added XXXVI, XXXVII and XXXVIII which are devoted solely to the problems of developing
countries.
Enabling clause: an explicitly recognition of the principle that developing countries should receive differential and more
favorable treatment in GATT, at least under certain circumstances.
o Allows countries parties to the general agreement to accord differential and more favorable treatment to developing
countries without according such treatment to other countries, notwithstanding the MFN provision of article I of the
general agreement.
o Counterbalanced by the graduation clause: establishes a legal precedent within the GATT system by requiring
developing countries to accept greater obligations as their economic situation improves.

12

Developing countries concerns at DOHA


o Express dissatisfaction with the decision making mechanisms of WTO where important decisions are first reached
by small groups of countries they are often left out or have no bargaining power
o Undertook extensive obligations by joining the WTO, and often had to reform or adopt new laws and administrative
practices. They want more support but doing receive it, so they are reluctant to start new negotiations.
o Concerned that they have yet to receive substantial market access benefits from Uruguay Round.
o Want stricter controls on import restrictions that they perceive are used by developed countries to keep out
developing country exports.
o Concern that some of the new issues, including environment, human rights, and labor standards, may lead to
disguised protectionism
US GSP scheme under Title V
o Criteria:
(1)That a country must initially meet to be designated as a beneficiary developing country; (2) For
including products in the scheme, (3) for removing products form the scheme and (iv) for removing
countries from the scheme.
o US has special preference programs of certain places which afford more generous treatment to their imports than is
even under GSP program
o Criteria for Inclusion of Countries:
President may designate countries as beneficiaries
Takes into consideration a number of acts:
Has the country in question expressed a desire to be GSP beneficiary? Is it truly a developing
country? Do other major developed countries grant it GSP status?
Other factors focus on whether the country follows polices promoted by the US:
o Has it assured the US of equitable and reasonable access to its markets and commodity
resources? Has it assured the US that it will refrain from engaging in unreasonable export
practices? Does the country provide adequate and effective protection or intellectual
property rights? Has the country taken action to reduce trade distorting investment
policies and to reduce or eliminate barriers to trade in services? Has it taken steps or is it
taking steps to afford works internationally recognized worker rights?
Even if the president grants GSP status, there are certain countries that congress has excluded:
Communist countries, certain export cartel members, countries that expropriate US property
without compensation, countries that fail to recognize arbitral awards in favor of US citizens,
countries that aid and abet international terrorism, countries that do not afford internationally
recognized worker rights to work in the country and countries that have not eliminated the worst
forms of child labor.
o In the last five, president has power to designate a country as a GSP beneficiary despite
the exclusion provisions if he determines that to do so would be in the national economic
interest of the US
o Criteria for product coverage
Section 503(b) provides that certain articles are not eligible for GSP treatment
Certain textiles and apparel articles
Certain watches
Import sensitive electron articles
Import sensitive steel articles
Import sensitive glass products
Certain articles of foot wear, hand backs, luggage, falt goods, work gloves and leather wearing
apparel
o Criteria for excluding products form coverage
The act provides that an otherwise eligible may be denied GSP treatment because it comes from beneficiary
country that is deemed to be sufficiently competitive in the US market such that it does not need
preferential treatment any more with respect to that particular product competitive need exclusion
Provides that if a GSP beneficiary becomes a significant supplier, in percentage or dollar terms, of
a particular product to the US market, it may lose its GSP status in respect of that product.
Why? Because country has demonstrated its ability to compete in the US without special treatment
and that its GSP benefits should be restricted so as to allow other GSP beneficiaries to have a
better chance to compete for the market in question.
o Criteria for excluding or graduating countries

13

Section 502(d)(2) requires the president to withdraw or suspect a countrys beneficiary status under the US
GSP scheme if he determines that, as a result of changed circumstances; the country would be barred by
section 502(b)(2) from designation as a beneficiary country.
SU trade representative annually accepts petitions to reconsider the beneficiary status of the countries for
these reasons.
President also has broad discretion in deciding whether to withdraw GSP benefits form a country.
Another way country hasnt taken steps to afford internationally recognized rights to its work force.

Preferential trade agreements (exception to MFN)


o
o
o

o
o

GATT has had difficulty regulating Free Trade Areas and Customs Unions. WTO has provisions which discipline and regulate
preferential trade agreements but they are somewhat flexible and have been difficult to enforce.
Soft law: doesnt impost a firm obligation or create a firm right (Art. 24(4))
Definition of a customs union Art. 24(8)(a)
o (a) A customs union shall be understood to mean the substitution of a single customs territory for two or more customs
territories, so that (i) duties and other restrictive regulations of commerce (except, where necessary, those permitted
under Articles XI, XII, XIII, XIV, XV and XX) are eliminated with respect to substantially all the trade between the
constituent territories of the union or at least with respect to substantially all the trade in products originating in such
territories, and, (ii) subject to the provisions of paragraph 9, substantially the same duties and other regulations of
commerce are applied by each of the members of the union to the trade of territories not included in the union;
Definition of a free trade area Art. 24(8)(b)
o A free-trade area shall be understood to mean a group of two or more customs territories in which the duties and other
restrictive regulations of commerce (except, where necessary, those permitted under Articles
XI, XII, XIII, XIV, XV and XX) are eliminated on substantially all the trade between the constituent territories in
products originating in such territories. Free Trade could satisfy section 1 of customs union, but section 2 also
establishes a single common tariff policy vis a vi the rest of the world
o NAFTA is a free trade area limited to products that originate from the participating countries.
o Much more common than customs unions
Article XXIV exception
o Duties and other regulations cannot be higher or more restrictive than previously existed (Art. 24(5)(b))
Policy Issues
o Preferential agreements lead to two possible outcomes:
Trade creation: Exactly what happens if there is trade liberalization in the WTO, like import duties and other
border measures are reduced- allows greater flow of trade and allows consumers to have access to lower cost
goods and shifting production to countries with most productive capabilities.
Trade diversion: no longer favoring the most efficient producer. Most efficient producer is given an artificial
disadvantage because other producer does not have a tariff.
o Rules of origin problem
In modern globalized economy companies have very elaborate supply chains that may take place in multiple
countries. Because of the requirement that products must constitute original products to benefit from products,
agreements could complicate trade.
For example, NAFTA requires goods be wholly obtained or produced entirely in the territory of Canada,
Mexico, and/ or US. Complying with the rules is complicated and expensive, thus creating a burden on the
companies that are subject to them.
o Economists are suspicious because they are inconsistent with MFN treatment
Regional and bilateral agreements are unfavorable, more expensive and less efficient than MFN treatment.
Example: US could have a bilateral agreement with Honduras and be in a regional agreement with Costa Rica.
If a product were processed in Costa Rica and originated in Honduras, the product wouldnt quantify under
Honduras agreement because it was processed in Costa Rica. The product wouldnt qualify under regional
agreement with Costa Rica because the product came from Honduras.
o Building blocks v. stumbling blocks
Those in favor of preferential agreements argue they are building blocks to multilateral agreements. The idea is
if a few countries get together and negotiate an agreement, it will be easier to later negotiate an agreement in a
larger setting.
In practice, there have been very few, if any, examples where free trade areas have merged together to further
liberalize trade. If actors lock in their practices based on bilateral agreements, they may oppose additional
agreements later.
U.S. Participation in Regional Arrangements
o NAFTA

14

Objectives:
Eliminating trade barriers
Facilitating the cross-border movement of goods
Promoting fair competition
Creates preferential treatment for certain goods traded between the countries:
There are no tariffs or quotas on US exports to Mexico and Canada
The US does not charge tariffs on imported products of Canadian or Mexican origin
Rule of Origin
Goods that are either wholly obtained or produced entirely in the NAFTA region
Goods that are produced in the NAFTA region wholly from originating materials
Recent developments
Obama Administration has expanded preferential agreements
Idea is to bring together countries that the US already has bilateral agreements with
Before 2004, US only had a few preferential trade agreements
o Israel, Canada, NAFTA, Jordan
Expansion since 2004
o Singapore, Australia, South Korea, Chile, CAFTA-DR (Costa Rica, DR, El Salvador,
Guatemala, Honduras, Nicaragua), Peru, Colombia, Panama, Morocco, Oman, Bahrain
Example US Korea Trade Promotion Agreement
Trade in goods, Investment, Trade in Services, Competition Related Matters, Government
Procurement, Intellectual Property Labor and Environment, Institutional Arrangements

6.

OTHER EXCEPTIONS

Article XX General Exceptions


o Lays out a number of specific instances in which WTO members may be exempted from GATT principles.
o Composed of two parts:
o Chapeau (introduction)
Controls the good faith of the member who imposes measure. As long as these measures are not disguised
restrictions to trade and dont evidence unsuitable or arbitrary discrimination, nothing prevents members
from adopting these measures
o 10 separate sub paragraphs of particular products
At the time GATT was drafted, these are the topics they deemed most important to include.
Doesn't use the same introductory language in sub paragraphs, which implies that the provisions do not
have the same meaning.
o What is the relationship between the two components? Its a two tier analysis:
o First: make sure its a measure that falls under at least one of the exceptions. If so, then it is provisionally justified.
o Second: make sure that the provisionally justified measure satisfies the requirements of the Chapeau. (I.e. that it is
not applied in a manner which would constitute "a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, and is not a disguised restriction on international trade.
o Burden of Proof: Art. XX is an affirmative defense. Initial obligation is on the respondent country after complaining country
establishes a violation of substantive obligations.
o Necessity test of XX calls for balancing of three factors:
o Value at issue
o The efficacy of the chosen measure
o Trade restrictiveness
o Asbestos case:
Appellate Body reviewed panels interpretation of article XX and found as the result of a process of weighing and
balancing a series of factors, that there was no reasonably available alternative to a trade prohibition.
Can be subdivided into two elements:
Whether measure was necessary?
o Canada argued there was no evidence and they did not quantify the risk?
Response: No requirement to quantify the risk.
o Canada argued that the standard was too high.
WTO members have the right to determine the level of health they choose to have. In the
absence of such a legal limitation, whatever level France choose, would be permissible.

15

Canada argued there was previous GATT and WTO jurisprudence on what necessary means, and this
situation did not meet the necessary standard.
Previous case law said, in order for something to be necessary, you must show there is no
measure consistent with GATT that the country could be expected to use or employ. So if
there is an alternative measure that is reasonable and consistent with the GATT, then the
measure they have adopted is not allowed. - High Standard
Given that France has decided to eliminate the risk to public health from asbestos, the
Canadian controlled use recommendation would not achieve France's goal of eliminating the
risk. Since there is no other measure besides complete prohibition that would be reasonably
expected ot achieve the objective, that satisfies the necessary requirement.
Whether measure deals with the protection of human, animal, or plant life or health?
o Canada argued that the second element was not satisfied, this was not a measure pertaining to human,
life or health.
Response: Appellate body does not review question of fact, only law. Only if the panel has
exceeded the bounds of its discretion would the decision be reversible. In this case the panel
did not.
Teaches us that legal language "necessary" represents a very high standard that may be difficult to achieve.
Must show that there is not alternative measure that is GATT consistent that the country could reasonably be
expected to adopt. Therefore, its only necessary if there is nota a measure less restrictive to trade that the
country could reasonably adopt.
US Gambling Case
US had restricted the use of cross border internet gambling. Determined to be a violation. US evoked exceptions. In
some situations, there is a kind of integrated process in the burden of coming with evidence. First respondent country
raises the defense as justified as necessary. Makes a prima facie case that it is necessary by coming forward with
evidence and arguments that would claim it is necessary. Complaining party can then object by raising alternative
measures that the complainant thinks could reasonably be considered. Final, up to respondent to rebut complainants
arguments and show definitely that the proposed alternatives are not reasonably available to it.
US- Reformulated Gasoline
Facts:
US had adopted a statute and regulations pertaining to additives in gasoline. Part of the requirements was that
1990 was a baseline and for the next 7 or 8 years, the additives in the gasoline cannot be higher than they were
in the 1990 baseline. Two ways to calculate the baseline: (1) EPA calculates based on industry average (2)
individual companies can select a specific country's baseline- but not available to imported gasoline.
Problem:
If you were a US company and the level of your additives was higher than the statutory guidelines, it would be
in you interest to use company baseline. If your company had less pollution than statutory baseline, it would be
interest to use statutory baseline.
Panel Ruling:
Panel ruled that this regulation violated the national treatment provision because the individual company
baseline is not available to foreign refiners. They are treated less favorable than domestic. (violates article 3)
US then invoked the exceptions in article XX (sub. B and sub. G)
Panel rejected both defenses.
Under paragraph b- did not meet necessary standard.
Appeal:
Abandoned paragraph B defense
Subdivide paragraph G into its various elements:
o "Relating to"
How does it differ from necessary to? Much more flexible and lower standard.
Must be primarily aimed at the policy goal. Must be a rational connection between
the measure and the objective and the main purpose of adopting the provision is to
conserve. Need to consider the measure as a whole: so if the existence of baseline is
primarily aimed - it satisfies the relating to requirement
o "Conservation of exhaustible natural resources"
This was meant to protect clean air - is clean air a resource? Clean air can run out, so it is
exhaustible. So if you are trying to prevent the exhaustion of the resource, it qualifies as
conservation.
o "Must be made effective in conjunction"
o

16

Requirement of even handedness in the implementation of the measure. Domestic and import
products do not need to be treated identically, but they must be treated on the same level or
with comparable measures.

US- SHRIMP The Chapeau


Measure:
Shrimp nets needed to have a turtle excluder device. US would prohibit the importation of Shrimp that were not
certified as having a comparable program.
Violation of article 11 of the GATT - prohibition on importation
US turned to clause G as an affirmative defense.
Are sea turtles natural resources?
o Presumably they are because they are animals. They can reproduce naturally, so there is not a finite
quantity like minerals in the grounds or clean air. Can sea turtles be exhausted? Yes, animals can go
extinct. Sea turtles are endangered, so a measure that protects the sea turtles is a conservation of
natural resources.
What makes this different than Asbestos and Gasoline case is the actions that the measures were trying to
protect were taking place in the domestic home of those countries. Here we are trying to regulate something
going on the Indian Ocean - so issue of extraterritoriality.
o Panel said Clause G is limited to the territory or territorial waters of the importer.
o Appellate body rejects this. Wasn't in treaty language, so appellate body would not go along with it.
o Appellate body came to the conclusion in note 4 on pg. 662. Not all population of sea turtles migrate
through US water, but some are found in US territorial waters. This is a significant nexus between the
measure.
o In this particular case, where you are talking about a endangered species that live in territorial waters
as well as high seas, it is a permissible geographical scope for the US to regulate.
Practical effect of US measure is that it regulates the methods of production within the high seas. US Argues
that they are just restricting imports not regulating methods of other countries.
Since the US had its own regulations for domestic - it satisfied the requirements that the measures were made
effective in conjunction with domestic measures.
Chapeau Application:
Appellate body's analysis of what the purpose of the Chapeau is: need to maintain a balance between right of a
member to invoke an exception and the right of other members under substantive provisions of the GATT.
Rule of reason - tests the reasonableness of the way the measure is applied.
the application of the measure must not constitute a means of arbitrary or unjustifiable discrimination or a
disguised restriction on international trade.
Look at how they treated other places differently - treated Indian ocean countries less favorable than western
hemisphere countries because they provided technology for the western countries.
US didnt negotiate at all with countries in the Indian Ocean, but the completed negotiations with countries in
the western hemisphere to protect sea turtles in the 2estern hemisphere. Example of how US is treating Indian
ocean countries less favorably.
US required foreign countries to adopt the same program - which is even more stringent than the statute
provides for. Programs only need to be comparable. Result is discrimination.
Guideline sot stringent
US did not take into account whether they same conditions apply in all countries - just applied across the board
that countries must apply same standards.
SO for all these reasons, this measures constituted unjustifiable discrimination. Appellate body also said this is arbitrary
discrimination, violation of due process because didnt give foreign countries a fair opportunity to provide evidence. US
loses the case before the WTO. Legal obligation to brings its measures into conformity. US then initiated negotiations
with the countries. Appellate body then said the US fulfilled its obligations in that respect. US also became more flexible
in its interpretation of the guidelines.
Based on having done that, the appellate body sustained the US position that it had brought the measure into compliance
with its obligations.
So ultimately, the US won the shrimp case.

Security Exception Article XXI


o
o

Allows members to deviate, when members consider measures are necessary for the protection of their security interest
Formally invoked in only a few circumstances

17

No need to obtain WTO permission only if other members disagree and trigger dispute resolution, then Panel will examine
treatment

Agreement on Sanitary and Phytosanitary Measures


o

SPS : to ensure food safety, and to avoid the introduction of diseases and pests through trade, countries impose regulations to
protect human and animal health (sanitary measures) and plant health (phytosanitary measures)
GATT 1947: allowed measures necessary to protect, human, animal, or plant life or health in article XXb.
Had right to take these measure as long as they were not applied in a manner that would be a means of arbitrary or
unjustifiable discrimination between countries, or a disguised restriction on international trade.
Goals:
Recognize the sovereign right of members to provide the level of health protection they deem appropriate; and
Ensure that measures do not represent unnecessary, arbitrary, scientifically unjustifiable, or disguised restrictions on
international trade
Protection not protectionism
Cannot go beyond what is necessary for health protection and use SPS measures to shield domestic producers from
economic competition
What is SPS measure? Annex A
According to Annex A of the SPS Agreement, an SPS measure is any measure applied:
o to protect animal or plant life or health within the territory of the Member from risks arising from the entry,
establishment or spread of pests, diseases, disease-carrying organisms or disease-causing organisms;
o to protect human or animal life or health within the territory of the Member from risks arising from additives,
contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs;
o to protect human life or health within the territory of the Member from risks arising from diseases carried by
animals, plants or products thereof, or from the entry, establishment or spread of pests; or
o to prevent or limit other damage within the territory of the Member from the entry, establishment or spread of
pests.
For the purpose of these definitions, animal includes fish and wild fauna; plant includes forests and wild flora;
pests include weeds; and contaminants include pesticide and veterinary drug residues and extraneous matter.
SPS measures can take many forms. Examples of SPS measures include the following:
o requiring animals and animal products to come from disease-free areas;
o inspection of products for microbiological contaminants;
o mandating a specific fumigation treatment for products; and
o setting maximum allowable levels of pesticide residues in food.
Differences between SPS and TBT see chart
SPS measures typically deal with:
o additives in food or drink
o contaminants in food or drink
o toxic substances in food or drink
o residues of veterinary drugs or pesticides in food or drink
o certification: food safety, animal or plant health
o processing methods with implications for food safety
o labelling requirements directly related to food safety
o plant/animal quarantine
o declaring areas free from pests or disease
o preventing disease or pests spreading to or in a country
o other sanitary requirements for imports (e.g. imported pallets used to transport animals)
TBT measures typically deal with:
o labelling of composition or quality of food, drink and drugs
o quality requirements for fresh food
o volume, shape and appearance of packaging
o packaging and labeling for dangerous chemicals and toxic substances, pesticides and fertilizer
o regulations for electrical appliances
o regulations for cordless phones, radio equipment etc.
o textiles and garments labelling
o testing vehicles and accessories
o regulations for ships and ship equipment

18

o
o

safety regulations for toys


etc.

Key Parts
Scientific justification Article 2
o Members have the right to adopt SPS measures to achieve their self-determined health protection level.
Provided the measure:
Is applied only to the extent necessary to protect life or health;
Is based on scientific principles and not maintained without sufficient scientific evidence (except
emergency or provisional measures); and
Do not unjustifiably discriminate between national and foreign, or among foreign sources of supply
o Two options to show measure is based on science:
Base measure on international standards; or
Base measure on scientific risk assessment
Harmonization Article 3
o Base measures on international standards, guidelines and recommendations where they exist. By harmonizing
with international standards, protection can be achieved without unduly restricting international trade.
o Three international standard setting bodies
Codex food safety
Office International des Epizooties animal
Secretariat of Intl plant protection convention
Measures not based on international standards
o Article 3 and 5: Members are permitted to adopt SPS measures which are more stringent than the relevant
international standards or adopt SPS measures when international standards do not exist, provided the measures
are:
Based on scientific risk assessment;
Article 5.1 requires that SPS measures be based on an assessment of the risks to human,
animal or plant life or health. It does not necessarily require that the importing country itself
must do the risk assessment but the importing country must be able to demonstrate that its
measure is based on an appropriate risk assessment. Members are to take into account the
risk assessment techniques developed by the three sister organizations.
Article 5.2 explains what kinds of information shall be taken into account when undertaking a
risk assessment: available scientific evidence; relevant processes and production methods;
relevant inspection, sampling and testing protocols; prevalence of specific diseases or pests;
existence of pest- or disease-free areas; relevant ecological and environmental conditions; and
quarantine or other treatment.
Article 5.3 identifies the economic factors which shall be taken into account when
undertaking a risk assessment for animal or plant health:
o the potential damage in terms of loss of production or sales in the event of the entry,
establishment or spread of a pest or disease;
o the costs of control or eradication in the territory of the importing Member; and
o the relative cost-effectiveness of alternative approaches to limiting risks.
Two different definitions of risk assessment
o If It deals with a pest or disease risk affecting human, plants and animals, must
evaluate the likelihood of entry, establishment or spread according the SPS measure
which might be applied, and the associated potential biological and economic
consequences. If it deals with a food related risk to human or animal health
sufficient to evaluate the potential for adverse effects
Consistently applied; and
Article 5.5 means that members must avoid unjustifiable differences in the level of health
protection they require in different situations, if such differences result in discrimination or a
disguised restriction on international trade.
Example: if member restricts the importation of one animal products because of disease risks,
yet allows the important of other animals presenting identical or similar risks, there would be
a concern that the objective may be protectionism.
Not more trade restrictive than necessary art. 5.6
Implied that when there are alternative ways to achieve that appropriate level of protection,
the government should use those measure which are the least trade restrictive, if technically
and economically feasible.

19

Example: if a country wants to avoid the introduction of an inset associated with fruit imports,
requiring fumigation might be a less trade restrictive alternative to an import ban.
Provisional measures article 5.7
o May take provisional measures when there is insufficient evidence to permit a final decision on the safety of a
product or process.
o Qualified exemption four conditions must all be met for provision to invoked:
May be imposed onl in a situation where relevant scientific information is insufficient;
The provisional measure must be adopted on the basis of available pertinent information;
The member adopted the measure must seek to obtain the additional information necessary for a more
objective assessment of risk; and
The member must review the SPS measure within a reasonable period of time.
o Examples:
Taken as an emergency response to a sudden outbreak of an animal disease suspected of being linked
to imports
Taken against new food processing techniques where sufficient evidence regarding safety does not yet
exist
EC Measures Concerning Meant and Meant Products (Hormones)
o Complainants US and Canada
o Respondent EU
o Under dispute: an EC ban on imports of beef from cows treated with hormones for growth promotion
purposes, allegedly for human health reasons. The US and Canada claimed that there was no evidence of
adverse effects of human health. EC claimed the ban was necessary for food safety.
o Panel Findings measure not okay
The EC measure violated article 3 on harmonization. Although international standards existed for five
of the six hormones in question, the EC measures was not based these standards; it reflected a higher
level of protection and was not justified by a risk assessment, as required by article 3.3.
EC ban was not based on a risk assessment, and violated article 5.1. The ECs scientific studies on five
of the hormones did not support the ban on hormone treated meat.
The EC measure violated 5.5, because the level of protection sought for hormone treated meat was
higher than required in comparable situations; these differences were arbitrary or unjustifiable, and
resulted in discrimination or a disguised restriction on trade
EC permitted higher levels of the same naturally occurring hormones in untreated meat and
other foods; the use of the same hormones for therapeutic and herd management purposes;
and the use of other growth promoters in swine production.
The EC had not invoked article 5.7, which allows precautionary measures to be taken on a provisional
basis, but rather the precautionary principle in general. The panel found that invoking the principle did
not override a countrys obligations under the SPS agreement.
o Appellate body findings
Agreed with the panels finding that since EC measure reflected a higher level of protection than the
international standard and was not justified by a risk assessment, it violated article 3.
Confirmed the panels finding on 5.1 that there was no rational relationship between the measure and
the scientific evidence submitted on five of the hormones, and found that there was no risk assessment
at all for the sixth hormone.
Reversed the panels finding on article 5.5. Considered that there was a fundamental difference
between added hormones and naturally occurring hormones in meat and other foods, and that the
therapeutic use of hormones involved closer supervision and control.
Upheld the panels finding on the use of precaution and its relationship with article 5.7.
Agreement on Technical Barriers to Trade
o

Agreement ensures that regulations, standards, testing and certification procedures do not create unnecessary obstacles, while
also providing members with the right to implement measures to achieve legitimate policy objectives, such as the protection
of human health, safety, or the environment.
o If regulations are set arbitrarily, they could be used as an excuse for protectionism.
o Procedures used to decide whether a product conforms with the relevant standards have to be fair and equitable,
discourages any methods that would give domestically produced goods an unfair advantage.
o Technical barriers to trade committee is the major clearing house for members to share the information on their
policies and is the major forum to discuss concerns about the regulation and their implementation

20

7.

o Technical regulations increase as standard of living increases


History
o GATT 1947 contained only a general reference to technical regulations and standards in articles III, XI, and XX.
o Agreement came out of Tokyo round at time 32 parties signed the plurilateral agreement
o TBT agreement result of Uruguay round
Difference between regulation and standard compliance
o Conformity with standards is voluntary
o Conformity with regulations are mandatory
Objectives and examples
o Protection of human safety or health regulation calling for the labeling of cigarettes to indicate that they are
harmful to health
o Protection of animal and plant life or health requirement that endangered species of fish reach a certain length
before they can be caught
o Protection of the environment recycling of paper and plastic prodcuts or levels of motor vehicle emmissions
Technical regulations and standards in the TBT Agreement (Annex 1)
o Technical regulations and standards set out specific characteristics of a product such as its size, shape, design,
functions and performance, or the way it is labelled or packaged before it is put on sale. In certain cases, the way a
product is produced can affect these characteristics, and it may then prove more appropriate to draft technical
regulations and standards in terms of a product's process and production methods rather than its characteristics per
se. The TBT Agreement makes allowance for both approaches in the way it defines technical regulations and
standards (Annex 1).
Technical regulations and MFN
o Like many other WTO Agreements, the TBT Agreement includes the GATT's Most Favoured Nation (MFN) and
national treatment obligations. Article 2.1 states that in respect of their technical regulations, products imported
from the territory of any Member be accorded treatment no less favourable than that accorded to like products of
national origin and to like products originating in any other country..
Flexibility
o The TBT Agreement takes into account the existence of legitimate divergences of taste, income, geographical and
other factors between countries. For these reasons, the Agreement accords to Members a high degree of flexibility in
the preparation, adoption and application of their national technical regulations. The Preamble to the Agreement
states that no country should be prevented from taking measures necessary to ensure the quality of its exports, or
for the protection of human, animal, and plant life or health, of the environment, or for the prevention of deceptive
practices, at the levels it considers appropriate. However, Members' regulatory flexibility is limited by the
requirement that technical regulations are not prepared, adopted or applied with a view to, or with the effect of,
creating unnecessary obstacles to trade. (Article 2.2).
When is a technical regulation an unnecessary obstacle to trade?
o Unnecessary obstacles to trade can result when (i) a regulation is more restrictive than necessary to achieve a given
policy objective, or (ii) when it does not fulfil a legitimate objective. A regulation is more restrictive than necessary
when the objective pursued can be achieved through alternative measures which have less trade-restricting effects,
taking account of the risks non-fulfilment of the objective would create.
o Elements that Members can use for risk assessment are: available technical and scientific information,
technology or end-uses of the products.
o Article 2.2 Legitimate Objectives: National security requirements, prevention of deceptive practices, protection
of human health or safety, protection of animal and plant life or health or the environment.
TRADE REMEDY LAWS

Generally:
o

The WTO upholds binding tariffs and applies them equally to all trading partners, the most favored nation treatment. This allows
for the free trade. However, there are some exception to these principles.
o Actions taking against dumping (selling at an unfairly low price)
o Subsidies and special "countervailing" duties to offset the subsidies
o Emergency Measures to limit imports temporarily, designed to "Safeguard" domestic industries.
Purposes of these trade policy exceptions:
o Purpose of the laws is to assure that competition in international trade is fair and that there is an orderly way to
competition.
o Permit an importing country to impose restrictions on international trade in certain conditions where there is certain
types of adverse effects in domestic economy

21

Trade remedy law reduces the extent that lobbies and political parties can exert pressure on congress because when
people want trade restrictions, they have adjudicative remedies by filing a petition to get trade remedies with the
commerce department.
Some of the laws
o Antidumping law
o Countervailing
o Unfair trade practices
o Safeguards
o Trade adjustment assistance - provides direct assistance to workers who have lost their jobs as a result to import
competition or their employer moving their business over seas
o

Dumping and the WTO

What is dumping?
o If a company exports a product at a price lower than the price it normally charges on its own home market, it is said
to be dumping the product.
o An action an government will take to "protect" its domestic industry
o Dumping cannot happen if there is a world wide price for the commodity because price discrimination cannot
happen.
How does WTO deal with dumping?
o The WTO Agreement does not regulate the actions of companies engaged in "dumping". Its focus is on how
governments can or cannot react to dumping it disciplines anti-dumping actions, and it is often called the Antidumping Agreement.
o WTO agreement goes into much more detail than the original GATT on anti dumping, but core provisions are still
found in original GATT.
o They allow countries to act in a way that would normally breach the GATT principles of binding a tariff and not
discriminating between trading partners
What are the policy arguments for anti-dumping laws?
o US prevailing theory: price discrimination and subsidization represent distortions of international trade so it is
appropriate to impose restrictions to discipline the unfair restrictions.
o Some argue that we don't need anti-dumping laws. Use the safeguard statute instead, which doesnt require
determining whether price discrimination is occurring.
o Theoretical Argument which hasn't been accepted: Laws are extremely complex and require elaborate procedures
to get a result. The costs for complying with investigations are so complicated that the process itself is a barrier to
import competition in the domestic economy.
Determining whether Dumping is occurring
o In simple cases, identify dumping by comparing the prices in the two markets. Must determine the appropriate price
in the market value 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.
What must the government show to act against dumping?
o Show that dumping is taking place. Calculate the extent of the dumping (how much lower the export price is
compared to the exporter's home market price). Show that the dumping is causing a material injury or threatening to
do so, or materially retards the establishment of a domestic industry
Example of dumping:
o In country A the cost of production of table by firm Z is $8 with $2 of profit, so table sells for $10. There is dumping
when Z in country A exports a table to country B at $7 while it sells the same table at $10 in its home country A.
o Dumping occurs:
Because there is a price difference for the same product between country A price (the normal value) and
country B price (export price)
The margin of dumping is $3 in this example difference between $10 (normal value) and $7 (export
price)
o Why would Z dump its exports into country B?
Z believes that consumers in country B will buy its tables at 7$ instead of the locally made tables that sell at
$10
This way Z will be able to find a niche or share of table market in country B.
o Why is dumping feared?
Because if firm Z exports and sells its able at $7, all consumers will buy Z table since it is cheaper.
Risk that Bs domestic industry will disappear.

22

Risk that once firm Z has managed to exterminate the domestic competitor, then Z will be a monopoly and
raise prices

Subsidies and the WTO two GATT provisions

Article 6 para. 3 deals with countervailing duty


o No countervailing duty shall be levied on any product of the territory of nay contracting party imported into the
territory of another contracting party in excess of an amount equal to the estimated bounty or subsidy
o Para 16 requires an element of material injury (current, threat of future, or theoretical threat)
o Provisions are pretty much still in force - needs to be a subsidy, needs to be material injury, amount of CVD cannot
exceed the amount of the subsidy
Art. 16
o Para. 4
o Rules have been completely superseded
Why are there two articles that deal with this topic?
Article 6 deals with countervailing duties and the rules of importing countries.
Article 16 in contrast, contrasts a different type of distortion in international trade, and that is the granting of a
subsidy.
WTO created definition of a subsidy
The WTO Agreement on Subsidies and Countervailing Measures: Disciplines the use of subsidies. Regulates the actions
countries can take to counter the effects of subsidies. Under the agreement, a country can use the WTOs dispute-settlement
procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own
investigation and ultimately charge extra duty (countervailing duty) on subsidized imports that are found to be hurting
domestic producers.
Example of a subsidy:
Table sells at $10 in country A. Cost of production is $12. The export subsidy is therefore $2. Without subsidy, table
price would be $12.
Developing countries
Temporarily permitted subsidies, but most have expired.
Subsidies allowed to promote development where they wouldn't be allowed in an advanced country.

Carbon Steal Case from UK:


After British steal industry was nationalized, it was then privatized.
Question of whether the sale of the entire company constituted a subsidy on the grounds that it is goods sold by the
government.
US held, and the WTO affirmed, if a company is privatized on terms on which the company is sold at the going market rate,
it does not constitute a subsidy.
Softwood Lumber Case:
Issue was whether a benefit was provided
Canada charged a fee for allowing lumber companies to cut lumber on government owned land. Private landowners charged
the same fee. Problem was that the government owned significantly more land than any private individual.
The government price became the market price because the government had so much market power.
The US argued that the market price in Canada is distorted because the government influences the price. So the US compared
the price to the market price in the US for cutting lumber.
Canada challenged this at the WTO. WTO sided with Canada. Appellate body reversed the decision. The private price in
Canada should be the primary bench mark, but not the exclusive bench mark.
Because there is no remand authority, the appellate body could not determine whether the US confirmed to the requirement or
not so there was no ultimate determination on whether the violation occurred.
Question: What does in relation to mean?
Implies a comparative exercise, but its meaning is not limited to "in comparison with". The phrase has meaning
similar to the phrases "as regards" and "with respect to"
So suggests that drafters did not intend to exclude any possibility of using as a benchmark something other than
private prices in the market of the country or provision.
See US AD and CVD determination aid

23

Safeguards Article 19
o

o
o

Existed since beginning of GATT and provides for an importing country to impose a safeguard in deviation from its article II
or XI if its domestic industry is injured or threatened with injury caused by a surge in imports.
o Example: B has binding at 150%. Although it committed under article 2 not to collect more than 150%, article 19
and the safeguards agreement allows country B in situations of surge of imports to either raise the tariff binding
(deviation from article 2) or impose a quota (deviation from XI) for a limited period of time.
o Injury must be SERIOUS
o When imposed, a safeguard measure should be applied only to the extent necessary to prevent or remedy serious
injury and to help the industry concerned to adjust.
o Where quantitative restrictions (quotas) are imposed

They normally should not reduce the quantities of imports below the annual average for the last three
representative years for which statistics are available, unless clear justification is given that a different level
is necessary to prevent or remedy serious injury.
o Import surge justifying safeguard action
Can be a real increase in imports (an absolute increase); or it can be an increase in the imports share of a
shrinking market, even if the import quantity has not increased (relative increase).
o Cannot target imports from a particular country.
Exception: the agreement does describe how quotas can be allocated among supplying countries, including
in the exceptional circumstance where imports from certain countries have increased disproportionately
quickly.
o Time limitation:
Should not last more than four years, although this can be extended up to eight years, subject to a
determination by competent national authorities that the measure is needed and that there is evidence the
industry is adjusting. Measures imposed for more than a year must be progressively liberalized.
o When a country restricts imports in order to safeguard its domestic producers, in principle it must give
something in return
The agreement says the exporting country (or exporting countries) can seek compensation through
consultations.
If no agreement is reached the exporting country can retaliate by taking equivalent action for instance, it
can raise tariffs on exports from the country that is enforcing the safeguard measure.
In some circumstances, the exporting country has to wait for three years after the safeguard measure was
introduced before it can retaliate in this way i.e. if the measure conforms with the provisions of the
agreement and if it is taken as a result of an increase in the quantity of imports from the exporting country.
Purpose:
o To facilitate the orderly adjustment of import competition. May help facilitate companies to become more
competitive. It does not remedy unfair competition but it does promote the orderly adjustment of an industry.
Policies of safeguards:
o Compensation and adjustment costs
o Restoring competitiveness
o The safety valve hypothesis
o Preventing the trade agreement from unraveling
o The public choice perspective
Safeguard agreement provision for developing countries important change in Uruguay Round
o To some extent developing countries exports are shielded from safeguard actions.
o An importing country can only apply a safeguard measure to a product from a developing country if the developing
country is supplying more than 3% of the imports of that product, or if developing country members with less than
3% import share collectively account for more than 9% of total imports of the product concerned.
US law found in title II of the Trade Act of 1974
o Initial prerequisites for a safeguard measure under US law section 202
Asks whether an article is begin imported into the US in such increased quantities as to be a substantial
cause of serious injury, or the threat thereof, to the domestic industry producing an article like or directly
competitive with the imported article.
Substantial cause: as a cause which is important and not less than any other cause.
o Three ways to begin proceedings
Petition to ITC by the allegedly injured domestic industry
Request to the ITC by President, US trade rep., senate finance committee, or the house
Initiation by ITC itself

24

8.

What must the petition for relief include?


Must give information justifying relief, including extensive data on imports, domestic production and
injury
Explanation of how the industry is making an effort to compete with the imports
How it will adjust if relief is granted
If ITC makes an affirmative determination (including a tie vote)
Those commissioners voting in the affirmative recommend a remedy and pass the matter on to the president
President must usually act within 60 days.
President can increase duties, impose quotas or tariff rate quotas, or enter into agreements with
exporting nations to facilitate efforts by the domestic industry to make positive adjustment to
import competition and provide greater economic and social benefits than costs.
Congress may override the president and cause the recommendation of the ITC to come into effect by
adopting a join resolution to that effect.
Time duration:
Section 203 provides a 4-year period of relief in accordance with the safeguards agreement, which can be
extended to a total of 8 years if the ITC makes a determination that an extension is needed to prevent injury
and that a positive adjustment is occurring.
From the perspective of a domestic industry, safeguards remedy is uncertain
Even if you win on the merits cant be sure you will obtain any remedy (president decides)
So this fact combined with the fact that its not difficult to show that less than fair value sales are occurring
and since the injury requirement in anti dumping cases much lower, much more likely to petition for anti
dumping duties rather than safeguards.

TRADE IN SERVICES GATS

Basic Purpose:
Intended to contribute to trade expansion under conditions of transparency and progressive liberalization and as a means of
promoting the economic growth of all trading partners and the development of developing countries (Preamble)
o Includes MFN and National Treatment (sector by sector basis)
o MFN Article II
Applicable to any measure that affects trade in services in any sector falling under the Agreement, whether
specific commitments have been made or not. Exemptions could have been sought at the time of the
acceptance of the Agreement (for acceding countries: date of accession). They are contained in countryspecific lists, and their duration must not exceed ten years in principle.
Article 1:
o

Article I:1 stipulates that the GATS applies to measures by Members affecting trade in services. It does not matter in this
context whether a measure is taken at central, regional or local government level, or by non-governmental bodies exercising
delegated powers. The relevant definition covers any measure, whether in the form of a law, regulation, rule, procedure,
decision, administrative action, or any other form, ... in respect of:
o the purchase, payment or use of a service;
o the access to and use of, in connection with the supply of a service, services which are required by those Members to
be offered to the public generally;
o the presence, including commercial presence, of persons of a Member for the supply of a service in the territory of
another Member.
The definition of services trade under the GATS is four-pronged, depending on the territorial presence of the supplier and the
consumer at the time of the transaction. Pursuant to Article I:2, the GATS covers services supplied
o From the territory of one Member into the territory of any other Member (Mode 1 Cross border trade);
A user in country A receives services from abroad through its telecommunications or postal infrastructure.
Such supplies may include consultancy or market research reports, tele-medical advice, distance training,
or architectural drawings.
o In the territory of one Member to the service consumer of any other Member (Mode 2 Consumption abroad);
Nationals of A have moved abroad as tourists, students, or patients to consume the respective services
o By a service supplier of one Member, through commercial presence, in the territory of any other Member (Mode 3
Commercial presence); and
The service is provided within A by a locally-established affiliate, subsidiary, or representative office of a
foreign owned and- controlled company (bank, hotel group, construction company, etc.)

25

By a service supplier of one Member, through the presence of natural persons of a Member in the territory of any
other Member (Mode 4 Presence of natural persons).
A foreign national provides a service within A as an independent supplier (e.g. consultant, health care
worker) or employee of a service supplier (e.g. consultancy firm, hospital, construction company)

Specific Commitments
o

In addition to respecting the general obligations each Member is required to assume specific commitments relating to market
access (Article XVI) and national treatment (Article XVII) in designated sectors. The relevant sectors as well as any
departures from the relevant obligations of Articles XVI and XVII are to be specified in the countrys Schedule of
Commitments.
Article XVI (Market Access) and XVII (National Treatment) commit Members to giving no less favourable treatment to
foreign services and service suppliers than provided for in the relevant columns of their Schedule. Commitments thus
guarantee minimum levels of treatment, but do not prevent Members from being more open (or less discriminatory) in
practice.
Conditional Granting of Market Access XVI
o The GATS is a very flexible agreement that allows each Member to adjust the conditions of market entry and
participation to its sector-specific objectives and constraints.
o Members are free to designate the sectors, and list them in their schedules of commitments, in which they assume
such obligations with regard to the four modes of supply.
o Moreover, limitations may be attached to commitments in order to reserve the right to operate measures inconsistent
with full market access and/or national treatment.
o The market access provisions of GATS, laid down in Article XVI, cover six types of restrictions that must not be
maintained in the absence of limitations. The restrictions relate to:
The number of service suppliers
The value of service transactions or assets
The number of operations or quantity of output
The number of natural persons supplying a service
The type of legal entity or joint venture
The participation of foreign capital
o These measures, except for (e) and (f), are not necessarily discriminatory, i.e. they may affect national as well as
foreign services or service suppliers
National Treatment Article XVII
o Implies the absence of all discriminatory measures that may modify the conditions of competition to the detriment of
foreign services or service suppliers.
o Again, limitations may be listed to provide cover for inconsistent measures, such as discriminatory subsidies and tax
measures, residency requirements, etc.
It is for the individual Member to ensure that all potentially relevant measures are listed
o The national treatment obligation applies regardless of whether or not foreign services and suppliers are treated in a
formally identical way to their national counterpart. What matters is that they are granted equal opportunities to
compete.
o Why is national treatment more limited in GATS?
The reason lies in the particular nature of services trade. Universal national treatment for goods does not
necessarily imply free trade. Imports can still be controlled by tariffs which, in turn, may be bound in the
countrys tariff schedule. By contrast, given the impossibility of operating tariff-type measures across large
segments of services trade, the general extension of national treatment in services could in practice be
tantamount to guaranteeing free access.

Governments remain free under the GATS to pursue such policy objectives even in sectors where they have undertaken full
commitments on market access and national treatment.
o

Some examples of public policy objectives that might require regulatory support and the sectors they may apply to.
o Equitable access, regardless of income or location, to a given service
Sectors: transport; education; health; telecommunication services
Measures: cross-subsidization and other financial incentives; universal service obligation as licensing
condition
o Consumer protection (including through information and control)
Sectors: professional services; financial services; health services

26

Policies: prudential and other technical standards; publication requirements; qualification requirements for
professionals; licensing/ certification of facilities
Job creation in disadvantaged regions
Sectors: infrastructural services such as railways, maritime transport; long term health care (rehab centers,
etc)
Policies: twinning requirements relating activities in urban centers to those in remote areas (repair shops,
ship yards, health facilities)
Labor market integration of disadvantaged persons
Sectors: potentially all service suppliers beyond certain minimum size
Policies: obligation to employ certain percentage of handicapped persons
Reduction of environmental impacts and other externalities
Sectors: road transport; tourism
Policies: prohibition of weekend or night traffic; zoning laws; environment-related standards
Macroeconomic stability
Sectors: financial services
Policies: minimum equity requirements; diversification of assets; other prudential standards
Avoidance of market dominance and anti-competitive conduct
Sectors: potentially all sectors prone to market concentration (including sectors with strong network effects
and interconnection needs (transport, telecom) and previous monopoly areas)
Policies: prohibition of collusive arrangements; monitoring of market developments; price surveillance;
harmonization of technical standards; promotion of new market entries
Avoidance of tax evasion, fraud, etc.
Sectors: all
Policies: disclosure requirements; monitoring and policing

Article V?
US gambling?
Cross border trucking?
9.

TRADE RELATED ASPECTS ON INTELLECTUAL PROPERTY TRIPS

Goal of TRIPS Preamble


Can often hamper the free flow of goods and services, so agreement aims for:
o Reduction of distorting and impediments to international trade
o Promotions of adequate protection
o Ensuring that measures and procedures to enforce IP do not themselves become barriers to legitimate trade
o Should be read in conjunction with article 7 of the TRIPS agreement objectives
o Protection and enforcement of IP rights should contribute to the promotion of technological innovation and to the
transfer and dissemination of technology to the advantage of producers
Types of IP:
o

o
o

Patent law:
o Concerns "inventions" which can take many forms. They may constitute a new product, a new process for making an old
product, a new molecule, or even a new organism.
o Patents are widely considered essential, at least under many circumstances, provide appropriate incentives for innovation
o Patents may not be enforced if the invention is obvious
Copyright law:
o Concern "literary and artistic expression" which again can take many forms. Books, films, songs and paintings are
paradigm examples, but copyright can also extend to computer programs and operating systems, to a blueprint for
making a computer chip or to data bases even though the individual bits of data are not themselves copy right able.
o Grant of copyright law is in most cases less likely than a patent to raise concerns about monopoly and the incentives for
subsequent creators
Trademark and trade dress law:
o Concern the rights of a seller to market a product or service in a distinctive manner, and to prevent others from passing
their goods or services off in misleading fashion.
Trade secret law:

27

Is most closely related to patent law. Broadly speaking, a trade secret is information that has value to its holder, and that
would have less value if generally known.

History:
IP included in the GATT under article XX(d)
Art. XX (d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of
this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under
paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of
deceptive practices
Doesnt require countries to do anything, but gives them the power to
Suppose country A has a law saying its illegal to import patent infringed items.
Prima facie violation of article 11
Meets XX requirements.
Allows countrys to impose import restrictions that would protect the importation of articles even if they violated
trademarks, etc.
Suppose patent owner exports to country B, and country B does not recognize the patent. Patent owner finds an
infringer, brings a lawsuit in country B to stop the infringement. Local courts say thats not patented here.
This is not encompassed by the GATT original provisions. The original provisions allowed countries to impose
import restrictions that would stop the import of infringing articles.
Uruguay Round and US Interest in Regulating IP
The US has long been among the leading advocates for stronger intellectual property rights in the trading community,
based on at least a perception that US inventors and creators lose considerable sums due to lax protection overseas.
It is important to limit unfair competition and unfair trade. Have an established pattern in international trade where trade
restrictions are permitted if they promote fair competition, like CVD and AD. So intellectual property infringement is an
unfair practice and is therefore consistent with the international trade regime.
Wanted it to be consistent with existing rules that allow restrictions for the purpose of fair competition, having the
importing country upgrading their laws is a means of providing greater market access, single undertaking principle
meant that countries were obligated to adhere to the agreement, and the single undertaking plus comprehensive dispute
settlement backed up by sanctions meant there would be an enforcement mechanism.
How would we promote fair competition relating to IP in international trade? Why doesnt the existing article XX
accomplish this?
Article XX didnt make the rule mandatory.
IP interests consistent with the normal idea that market access to foreign countries drives trade negotiations,
they felt that not having world wide protection of IP would be a barrier to market access because if the attempt
to export to a country without IP protection, they would immediately lose out to infringed products.
Dispute settlement understanding relating to IP rights.
If a party wins, the get a binding obligation that the countries will bring its measures into compliance, maybe
compensation. If they dont get either of those, they may get automatic sanctions.
This helps IP industries because it creates an enforcement mechanism against the other country
Single undertaking concept and IP
All WTO members in order to join must adhere to all agreements which are included in at least annex one,
including the TRIPS agreement
Way of forcing countries which may not otherwise support IP rights to do so in order to join the WTO.
International trade is Intended to promote mutually beneficially transactions by virtue of comparative advantage,
how does it play in to IP?
Party that benefits from intellectual property gets to be paid. And the assumption is that in many developing
countries, since they may well have less human capital and less technology. Means an international trade regime
that involves intellectual property, in all likelihood will involve an outflow of wealth from poor developing
countries into highly developed countries.
From a policy standpoint, IP is more questionable and certainly not in developing countries interests.
o

The TRIPS Agreement is a minimum standards agreement, which allows Members to provide more extensive protection of intellectual
property if they so wish. Members are left free to determine the appropriate method of implementing the provisions of the Agreement
within their own legal system and practice.
Part 1: how basic principles of trading system and other international intellectual property agreements should be applied.

28

Art. 2:
General obligations includes reference tot the important pre existing conventions (Paris Convention and Berne
Convention that were administered by world intellectual property rights organization which is a specialized agency of the
UN)
National Treatment: Art. 3
Foreign rights holders receive treatment no less favorable than the country accords to its own nationals.
Treating ones own nationals and foreigners equally
Key principle in other intellectual property agreements outside the WTO
MFN: Article 4 (new to this agreement)
Rights accorded to one country shall not be less favorable than those given to others
Equal treatment for nationals of all trading partners in the WTO
Exhaustion: Art. 6 first sale rule
After the goods have been sold for the first time that exhaust the protection of the intellectual property rights.
If you buy a book, and sell it to another person, the copyright has been protected by the first sale and doesnt apply anymore.
Can be a protective means of providing pharmaceuticals to countries who dont have access to them.
Also affects other types of intellectual property. Creates the issue of gray market products.
o Products that are produced lawfully in one country and imported into a second country where the rights holder did
not intend the products of the first country to be sold.
o In respect to patents: patents are exhausted by the first sale so gray market imports are not restricted.
o For trademarks there is a separate statute which is addressed in K Mart v. Cartier interpreting 526 of the US tariff act
Part of the customs regulation that allowed gray market was consistent with the statue. So fit enforcing and
SU trademark holder are owned by them as company, the trademark imports are permitted. If they are
parent-sub it is permitted. If the products is manufactured under license in a foreign country, then those
imports can be restricted because of the statute that permits ?
Geographic limitation on where licensed products can be sold and imported in the US remain in effect.

Part 2: looks at different kinds of intellectual property rights and how to protect them. The purpose is to ensure adequate
standards of protection exist in all member countries.
o

Section 1: copyright and related rights


Literary and artistic creations
Covers other related rights (rights of performers, producers of sound recordings and broadcasting
organizations)
Art. 10 makes it clear that computer programs will be protected as literary works
Art. 12: Term of protection is minimum of 50 years from publication and is shorter than the US copyright
law.
Section 2: Trademarks
See article.
Agreement defines what types of signs must be eligible for protection as trademarks, and what the
minimum rights conferred on their owners must be. It says that service marks must be protected in the same
way as trademarks used for goods.
Marks that have become well known in a particular country enjoy additional protection.
Section 3: Geographical Indications
A place name is sometimes used to identify a product. This geographical indication does not only say
where the product was made. More importantly, it identifies the products special characteristics, which are
the result of the products origins.
Well-known examples include Champagne, Scotch, Tequila, and Roquefort cheese. Wine
and spirits makers are particularly concerned about the use of place-names to identify products,
and the TRIPS Agreement contains special provisions for these products. But the issue is also
important for other types of goods.
Using the place name when the product was made elsewhere or when it does not have the usual
characteristics can mislead consumers, and it can lead to unfair competition. The TRIPS
Agreement says countries have to prevent this misuse of place names.
For wines and spirits, the agreement provides higher levels of protection, i.e. even where there is
no danger of the public being misled.
Some exceptions are allowed, for example if the name is already protected as a trademark or if it has
become a generic term. For example, cheddar now refers to a particular type of cheese not necessarily

29

made in Cheddar, in the UK. But any country wanting to make an exception for these reasons must be
willing to negotiate with the country which wants to protect the geographical indication in question.
The agreement provides for further negotiations in the WTO to establish a multilateral system of
notification and registration of geographical indications for wines. These are now part of the Doha
Development Agenda and they include spirits. Also debated in the WTO is whether to negotiate extending
this higher level of protection beyond wines and spirits
Something the US did not anticipate. Here US interests are not in favor of protecting geographic
indications. For example, we have Scottish people in Wisconsin making whiskey they way they did in
Scotland and would like to use the name scotch.
Could try to trademark the geographic indication but unlike trademarks, geographic indication
does not need to be renewed
Example 2(a) the use of any means in the designation or presentation of a good that indicates or suggests
that the good in question originates in a geographical area other than the true place or origin in a manner
which misleads the public as to the geographical origin of the good.. parma cheese by craft- example of a
name that may suggest an origin but it has become the identification of the type of product not the
origination.
Geographical indications are defined as indications which identify a good as originating in the
territory of a Member, or a region or locality in that territory, where a given quality, reputation or
other characteristic of the good is essentially attributable to its geographical origin (Article 22.1).
Thus, this definition specifies that the quality, reputation or other characteristics of a good can each be a
sufficient basis for eligibility as a geographical indication, where they are essentially attributable to the
geographical origin of the good.
In respect of all geographical indications, interested parties must have legal means to prevent use of
indications which mislead the public as to the geographical origin of the good, and use which constitutes an
act of unfair competition within the meaning of Article 10bis of the Paris Convention (Article 22.2).
The registration of a trademark which uses a geographical indication in a way that misleads the public as to
the true place of origin must be refused or invalidated ex officio if the legislation so permits or at the
request of an interested party (Article 22.3).
Article 23 provides that interested parties must have the legal means to prevent the use of a geographical
indication identifying wines for wines not originating in the place indicated by the geographical indication.
This applies even where the public is not being misled, there is no unfair competition and the true origin of
the good is indicated or the geographical indication is accompanied be expressions such as kind, type,
style, imitation or the like. Similar protection must be given to geographical indications identifying
spirits when used on spirits. Protection against registration of a trademark must be provided accordingly.
o Industrial designs:
Cross between a trademark and a patent
o Patent:
Protection of invention that must be new, useful and non obvious.
One of the issues with the TRIPS agreement, was first to invent v. first to file rule. Harmonized the rule to
say that the patent runs 20 years from the filing date.
o Designs of integrated circuits
o Protection undisclosed information: trade secrets
Trade secrets and other types of undisclosed information which have commercial value must be protected
against breach of confidence and other acts contrary to honest commercial practices. But reasonable steps
must have been taken to keep the information secret. Test data submitted to governments in order to obtain
marketing approval for new pharmaceutical or agricultural chemicals must also be protected against unfair
commercial use.
Part three: enforcement
o Assures enforcement
o Deals with domestic procedures and remedies for the enforcement of intellectual property rights. The Agreement
lays down certain general principles applicable to all IPR enforcement procedures. In addition, it contains provisions
on civil and administrative procedures and remedies, provisional measures, special requirements related to border
measures and criminal procedures, which specify, in a certain amount of detail, the procedures and remedies that
must be available so that right holders can effectively enforce their rights.
o Makes it mandatory to not allow import of infringed articles
Dispute Settlement

US Laws relating to copy right in relation to article 13 of TRIPS

30

Article 13 allows limitations and exceptions. US statute makes it permissible for bars, restaurants, retail stores to rebroadcast
music or tv.
o As long as the size of the business or restaurant is not above a specified size, they are permitted to broadcast music
or tv
EU brought a case saying this was illegal on the basis of article 13 members shall confine limitations or expectations to
exclusive right to certain special cases which do not conflict with a normal exploitation of the work and do not unreasonably
prejudice the legitimate interest of the right holder
First issue: is it limited to certain special cases?
o What does certain mean?
Appellate body says it needs to be something that is determined, fixed, not variable, definite, precise, or
exact. So a certain case must be an exception that is clearly defined by the law.
Body ruled that sense US clearly defined the size of the establishment, the statute was certain.
Second issue: is it special?
o Limited application or purpose.
o Body ruled that the problem was that 70 percent of establishments qualified for the exception, and is therefore not a
special case.
US exception was illegal.

Public health

Compulsory licensing
o Compulsory licensing and government use without the authorization of the right holder are allowed, but are made
subject to conditions aimed at protecting the legitimate interests of the right holder. The conditions are mainly
contained in Article 31. These include the obligation, as a general rule, to grant such licenses only if an unsuccessful
attempt has been made to acquire a voluntary license on reasonable terms and conditions within a reasonable period
of time; the requirement to pay adequate remuneration in the circumstances of each case, taking into account the
economic value of the licence; and a requirement that decisions be subject to judicial or other independent review by
a distinct higher authority. Certain of these conditions are relaxed where compulsory licenses are employed to
remedy practices that have been established as anticompetitive by a legal process. These conditions should be read
together with the related provisions of Article 27.1, which require that patent rights shall be enjoyable without
discrimination as to the field of technology, and whether products are imported or locally produced.
o Can immediately have compulsory licensing if its an emergency.
Suppose your country does not have any pharmaceutical industry but you have a health crisis and need access. How
does it create a problem under article 31?
o Clause (f) any such use shall be authorized predominantly for the supply of the domestic market of the Member
authorizing such use;
o So want the compulsory license for another country and then import into your country. Which is not covered.
o How is this addressed?
Waiver provision, allowing cases involving pharm. Products
Terms of the waiver put in certain safeguards
Allows protection in one country to export to a country that has the need of the drugs.
How long does the waiver stay in effect?

Section 307 of the US Tariff Act


Prohibits unfair competition in international trade. In practice, all of the unfair competition cases involve importation of
patent infringing articles.
Producer is that the patent holder will file a petition with the ITC. Procedures are different in that the cases go to an
administrative law judge and there is an on the record trial conducted. Decision is subject to approval of 6 commissioners of
the ITC. Can issue exclusion orders- a general one restricting all imports of the patented product or limited one that only
applies to specific name companies. Decision of the international trade commission subject to presidential review where
president has the authority to overrule a decision and in the case of public policy, the president can deny relief.
Decisions of commission is subject review straight to US federal circuit appeals court.
10. ECONOMIC THEORY FOR AN OPEN TRADING SYSTEM
Economic Theory for open trading system:
All countries, including the poorest, have assets- human, industrial, natural, financial which they can employ to produce goods
and services for their domestic markets or to compete overseas. Countries can benefit when these goods and services are traded.

31

o
o
o
o

o
o

o
o

Comparative advantage: countries prosper first by taking advantage of their assets in order to concentrate on what they
can product best, and then by trading these products for products that other countries produce best.
So liberal trade polices which allow unrestricted flow of goods and services sharpen competition, motivate innovation
and breed success.
This is arguably the single most powerful insight into economics.
Suppose country A is better than country B at making automobiles, and country B is better than
country A at making bread. It is obvious (the academics would say trivial) that both would benefit
if A specialized in automobiles, B specialized in bread and they traded their products. That is a case
of absolute advantage.
But what if a country is bad at making everything? Will trade drive all producers out of business?
The answer, according to Ricardo, is no. The reason is the principle of comparative advantage.
It says, countries A and B still stand to benefit from trading with each other even if A is better than
B at making everything. If A is much more superior at making automobiles and only slightly
superior at making bread, then A should still invest resources in what it does best producing
automobiles and export the product to B. B should still invest in what it does best making
bread and export that product to A, even if it is not as efficient as A. Both would still benefit
from the trade. A country does not have to be best at anything to gain from trade. That is
comparative advantage.
The theory dates back to classical economist David Ricardo. It is one of the most widely accepted
among economists. It is also one of the most misunderstood among non-economists because it is
confused with absolute advantage.
It is often claimed, for example, that some countries have no comparative advantage in anything.
That is virtually impossible.

Labor Productivity units per


worker per hour

o
o

o
o

Lab
or

Productivity

HD

Buns

US

12

RW

Costs/ Prices:
US
Cost of hot dog (12/3) = 4
Cost of bun= 4 hot dogs
RW
Cost of hot dog 2 buns
Cost of bun - 1/2 hot dog
Benefit
US to import bun, RW to import hot dog

Comparative Advantage

Nations trade because the amount of a good that must be sacrificed internally to produce a unit of another
good varies across countries

Always accompanied by a comparative disadvantage

Trade benefits all countries


o
Gives consumers access to less expensive goods
o
Increases productivity, allowing additional resources to be shifted to more productive sectors of the
economy
Production and Consumption - No Trade

32

HW

US

30 workers - 360 HD

20 workers - 360 buns

RW

100 workers - 100 HD

50 workers - 100 Buns

Production and Consumption - Int'l Trade

HW

US

50 workers - 600 HD

0 workers

RW

(assume they give up)


0 workers

150 workers - 300 buns

Opportunity costs
How much of one commodity must be given up to get more of the other
Illustrated in international trade theory with production possibilities or transformation curves
Trading with countries that have lower wages
Countries are not harmed by trade with countries that have workers paid lower rates - Wage rates are usually
tied to the level of productivity - countries with lower wages have lower rates of productivity and things
balance out

Foreign Policy Goals and Intl' Trade policy Pg. 59-63 If goods dont cross the borders, soldiers will
o
o

International trade promotes harmonious and prosperous relationships with other countries. Prosperity
promotes stability which promotes peace.
War and Peace
o Most important foreign policy goal related to EP is the prevention of war
o Richard N. Cooper. Trade Policy and Foreign Policy
Smooth-Haley Tariff Act helped convert what would have been a major economic
downturn into world depression
Valuable lessons: pg. 60
o Douglas A. Irwin: The Genesis of the GATT
Trade reduces conflict among nations
Trade provides an alternative mechanism for extracting resources from other countries
Trade increases communication between countries and promotes transparency
States that are more likely to trade with one another that are politically friendly, whereas
trade may be low between states with a likelihood of conflict.
Other foreign policy goals
o Desire of one nation to strengthen its allies and to avoid strengthening its potential enemies and to
convince (or to attempt to force) foreign countries to change their behavior or policies.

11. INTERNATIONAL TRADE GENERAL


Scope of International Trade
National level: regulatory laws which apply to imported goods. Including law of customs tariffs, export and import controls,
quality and packaging standards, internal taxes, special mixing or purchasing requirements, anti dumping laws, etc.
International level: treaty and international organizations with the purpose to limit the national regulatory laws and promote
greater freedom of the movement of goods.
Private law: not covered.

33

Opponents of International Trade


Economic nationalism/ state capitalism theory
o Market orientated world economy is not going to give every country the types of strong industrial base, and the
government needs to play a role in adopting protecting measures and policies that restrict imports thereby
stimulating domestic industry's.
o Gives country additional economic benefits that it could get gain simply relying on world markets.
Economic radicalism/ anti- capitalism
o Market oriented world economy benefits wealthy groups in industrial economies and is harmful to the poor
countries. Does not promote a just and fair distribution through the world economy.
o Unrestricted capitalism leads to damage to the environment which is harmful in the long run.
Current International Negotiations:
Doha Development Agenda
o Current trae negotiation round of the WTO which commenced in November 2001 in Qatar
o Differences between developed and non developed countries
o Intent was to make trade rules fairer for developing countries
o Objective is to lower trade barriers around the world and facilitate increased global trade
o Topics under negotiation include market access, development issues, WTO rules, trade facilitation, etc.
TTP and TTIP Talks
o The United States and European Union will hold the second round of Transatlantic Trade and Investment
Partnership (T-TIP) negotiations with meetings and digital video-conferences scheduled to take place over the next
several weeks. From November 11-15, negotiators will meet in Brussels to cover services, investment, energy and
raw materials, and regulatory issues. U.S. and EU teams will conduct negotiations on other areas of T-TIP
negotiations by digital video-conference throughout November.
US constitution and regulation of international economic affairs
o

o
o

Congress:
power to lay and collect taxes, duties, imposts and excises, to pay the debts and provide for the common defense and
general welfare of the US
History of International Negotiations
Borrow money on the credit of the US
Regulate commerce with foreign nations, among the several states, and the Indian tribes
Executive:
Power, by and with the advice and consent of the senate, to make treaties, provided two thirds of the senators present
consent
Tariff Act of 1930 repealed with Roosevelt, who sought lower rates of duty
Discredited role of congress
Roosevelt's general idea was that it would negotiate trade agreements with trading partners. Executive has authority
to negotiate, but needs advice and consent of 2/3 of the senate.
Constitutional law issues with international agreements
Can president make an agreement that is binding in international trade? Probably not.
In practice, president and congress have reached accommodation and using the power of congress to delegate power
to the president, we have ended up with a verity of ways in which international agreements may be adopted.
Legislation in the US: President and Congress Accommodate
Congressional executive agreements:
Both houses of congress by majority vote approve the agreement
o First, congress can enact statutes as the first step, the statute tells president that if he negotiates an
agreement on a certain subject, in certain parameters, within a certain time limit, its ok
o Second, the president can negotiate the agreement in advance and then submit to both houses of
congress for approval
Roosevelt administration took the first method
Fast track authority:
Trade act of 1974, used in 1979 which approved Tokyo agreements and implemented them as a matter of
US law
Allows executive branch to unilaterally select partner countries for trade pacts, decide the agreements
contents, and then negotiate and sign the agreements before congress has voted on the matter.
Congress agrees to do the following:

34

Bills will be submitted to the appropriate committees and not amend the agreements, they will
simple vote
o Do this on a quick time table
o Bill will go to floor, cannot be amended, and conducted on an accelerated basis
Approved until 1993
President Bush was able to get fast track authority in 2003 for five years.
o Changes name to "trade promotion authority" - makes it sound better
President Obama
o Pro trade democrats are shrinking while anti trade democrats are growing
o Obama put trade policy on the back burner
o Trans-pacific partnership (TPP)
o Trans-Atlantic trade and investment partnership (trade with EU) (TTIP)
o Earlier this year, the administration sought trade promotion authority, but republican party in the
house does not want to do anything that would help the president (like Clinton problem) and great
deal of skepticism within the democrats.
When a treaty or agreement is approved in the US
Self executing: agreement automatically becomes part of domestic law
Non self executing: there must be additional action which creates domestic law. A dual legal order
(international and domestic). Must be something else to take effect for domestic purposes.
o

US Agencies and Courts


o

o
o

US Commerce department:
o Anti dumping
o Trade remedy laws
o Price discrimination
o Subsidization
US international trade commission
o Responsibility for conducting investigations as to the effects of imports on the domestic economy
US court of international trade
o Judicial review of actions within the US government under the trade law that regulates or imposes duties on
imported goods
o Specialized jurisdiction
o Limited to international trade
o Sometimes exercises de novo review
o Sometimes exercises appellate type jurisdiction
o They are appeal-able to federal appeals court or supreme court
o Exclusive jurisdiction over appeals or actions involving (a) denials of protests by the US customs service
(b) challenges by US competitors of import classification decisions, antidumping and countervailing duty
cases, (3) trade adjustment assistance to workers, firms and communities, (3) country or origin
determinations, (f) disputes over the confidentiality of information submitted to the ITC, (g) customs house
brokers licenses, (h) challenges by importers of classification decisions and (i) the US as a defendant that
arise out of any law providing for revenues from imports, tariffs, duties, fees, or other taxes on imports.
Chevron Doctrine
o Administrative law principle which requires courts to defer to interpretations of statutes made by those
government agencies charged with enforcing them, unless such interpretations are unreasonable.
Reasonableness in part turns on whether the statute unambiguously addresses the issue. If it does, then the
unambiguous meaning controls. If the statute is ambiguous, then the court asks whether the agencys
interpretation of the ambiguous provision is based on a permissible construction of the statute. A
permissible construction is one that is not arbitrary, capricious, or manifestly contrary to the statute. In
other words, it is a very low threshold of deference.

International Law and International Economic Relations


o

Certain fundamental of International law: Pg. 193-199


o Customary sources: defined as rules of national behavior that can be ascertained from the practice of nations when such
practice reveals that nations are acting under a sense of legal obligation.

35

Practice of states includes diplomatic acts and instruction as well as public measure and other governmental
acts and official statements of policy, whether they are unilateral or undertaken in cooperation with other states
Practice must be general and consistent
Must have wide spread acceptance among the states particularly involved in the relevant activity
Trade is within the domestic jurisdiction of each country - provides no restrictions on international trade
Conventional sources: treaties
Vienna Conventions: codification of the law of treaties.
Nearly every country is a party of the convention
US is not a party but regards it as binding customary law.
Each treaty is binding upon the parties to it and must be performed in good faith. (Art. 26)
Conflict between domestic law and treaty law is irrelevant for international purposes - obligation to hear to
domestic law is not a defense to a violation of a treaty (Article 27)
Interpretation (Article 31) Pg. 197
Interpreted in good faith
Scalia approach to a legal text
Look to text, then context, in light of its object and purpose
Sovereignty Issue:
Corollaries of the sovereignty and equality of states are:
A jurisdiction, prima facie exclusive, over a territory and the permanent population living there;
A duty of non-intervention in the area of exclusive jurisdiction of other states; and
only way in which states are bound by international law is that they have consented to the obligations)
Sovereignty carries a lot of emotional baggage with it. It has been abused and misused so that the word is no
longer useful (Louis Henkin)
Sovereignty is organized Hypocrisy (Krasner)
International legal sovereignty
o Refers to the practices associated with mutual recognition, usually between territorial entities
that have formal juridical independence (question of whether something represents a state or
not)
Westphalia sovereignty
o Refers to political organization based on the exclusion of external actors from authority
structures within a given territory
Domestic sovereignty
o Refers to the formal organization of political authority within the state and the ability of
public authorities to regulate the flow of information, ideas, goods, people, pollutants, or
capital across the borders of their states
Interdependence sovereignty
Does joining WTO impair sovereignty?
No, not if the state consents. People who argue that such a thing would violate our sovereignty are
using a different definition of sovereignty than international lawyers use. They are making it a
federalism issue.

12. MULTILATERAL TRADE HISTORY


Multilateral trading system- agreements are negotiated and signed by a large majority of the worlds trading nations, and then
ratified. Essentially they are contracts, guaranteeing member countries important trade rights.
Result: more prosperous, peaceful and accountable economic world. Virtually all decisions in the WTO are taken by
consensus among all member countries and they are ratified by members parliaments. Trade fiction is channeled into the
WTOs dispute settlement process where the focus is on interpreting agreements and commitments, and how to ensure that
countries trade policies conform with them.
Long path to the WTO
After world war II, desire to open borders and promote trade through treating states equally.
Bretton Woods created IMF and World Bank
Havana Charter 1947 Ch. 7, wanted central organization of nations responsible for coordinating the various aspects of
international trade cooperation
o GATT 1947 23 parties signed, entered into force on a provisional basis
o US congress was against, was not submitted for ratification.

36

o Other countries abandoned in response.


WTO created
o Trading goods Annex 1.a
o Trade in Services Annex 1.b
o Trade in IP Annex 1.c

13. WTO
Membership
o
o

o
o

Process is unique to each applicant, terms of accession are dependent upon the country's stage of economic development and
current trade regime
Original membership article 11- created a special rule, contracting parties of GATT plus the European committees (EU) to
be an individual member of the WTO
Must accept WTO charter and other multi lateral trade agreements
Must submit schedules of concessions and commitments to 1994 (to reduce their existing custom duties) and under
general agreement on trade and services.
Contracting party to gatt or Eu
Least developed countries are given an exception - only need to give commitments to the extent that they can do it.
New members coming in (Accession) Article XII
Any state or separate customs territory possessing full autonomy in the conduct of its external commercial relations
and of the other matters provided for in this agreement and the multilateral trade agreements may accede
DONT NEED TO BE A STATE
How does it work when EU votes- number of votes equal to amount of states who are members of the WTO
Hong kong, Tawain, Mkaw (so china has 3 different autonomous parties)
Puerto Rico - inside US custom territory - couldnt have autonomy.
What if Scotland becomes independent? They could.
Decision taking by ministerial conference if approved b y 2/3 vote
What are the issues?
Market access issues
Old members would need to open up their markets to the new countries
If the country has a big market, it will face a lot of demands from existing countries, thus making the
negotiations very difficult.
If its a small country, demands will be less.
Took china 10 years to join
Non application provision (art. 12) has never been applied
Potentially, could veto a state becoming a member
Any member can withdraw on six months notice

Decision making

Rule based, member driven organization where all decisions are made by the member governments and rules are the
outcomes of negotiations among members
Ordinary decisions: paragraph 1 Article 9
o Practice of consensus dominates the process of decision making (consensus if no member formally objects,
doesnt have to be unanimous) (people can abstain) (slightly biased towards small countries that may have
overworked diplomatic missions who cant attend every meeting) (at the same time its respectfully of small countries
because they have the power to have one vote that objects and thus stops the decision)
o Each member has one vote. In practice, they often dont have votes, it Is just by consensus. There is often a
preliminary question of "should we have a vote" or "consensus"?
Paragraph 2 Article 9: interpretations
o 3/4 majority of the members must affirmatively vote of the ministerial conference or the general council
Paragraph 3 Article 9: Waivers
o MC may waive an obligation under the WTO Charter and the Annex 1 multi lateral trade agreements
o If consensus cannot be reached, the grant of a waiver requires an affirmative vote of 3/4 of overall membership
o Specially crafted exception - if there are good policy reasons for letting someone do something that is not otherwise
allowed under substantive rules.

37

o Must go to ministerial conference to be reviewed


o Some provisions that cannot be waived.
Amendments to the agreements: Article 10
o Decisions by ministerial conference with 2/3 majority
o Must be submitted to members itself, with 3/4 majority
o Amendments come into force only for those members accepting them, unless by a three quarter vote
o Some provisions that cannot be amended
Green room process- small group of countries is brought together to reach a decision on something. Ad hoc informal basis.
One of the reasons developing countries began to criticize the WTO because in practice it was a way to exclude developing
countries. Still used to some extent.
Wanted the institutional structure to be as similar to the GATT as possible. Like the informal process of consensus.

Comparing WTO to other IOs


UN
o Resolutions of security council - 15 members, 5 permanent members with veto power - have decision making power
making something legally binding on all members
o General vote in general assembly is not legally binding
IMF
o Bigger the economy, the more votes a member gets
o Amendments require an 85 percent majority
o US has 17 percent of votes which allow it to defeat any amendment
Structure of the GATT and WTO

GATT
o
o
o
o

WTO
o
o

o
o
o
o
Year

Not an international organization


Doesnt use terminology "member" uses the phrase "contracting parties"
Intention was to create a set of rules to be administered by international trade organization which never came into
force
Lots of institutional problems
Because the intention was that GATT would be rules administered by ITO that never was created, then the
GATT itself never came into force either.
Given the vague rules on voting, it was difficult to amend the GATT
Problems of how GATT interacts with domestic law
No members, only contracting parties
Colonies that started out in GATT and then became independent, they inherited their membership
International organization with legal personality, and supports it with the traditional treaty organizational clauses
regarding privileges and immunities, secretariat, director general, budgetary provisions and explicit authority to
develop relations with other inter government organizations and non government organizations.
Ministerial conference
Meets not less often than every two years
Each member has a representative
General council
Overall supervisory authority
Responsibility for carrying out the functions of the ministerial conference between ministerial conference
sessions
Permanent representatives of each member
Five or so regular meetings a year
Dispute resolution body, trade policy body
Council for trade in goods
Council for trade in services
Council for trade related aspects of intellectual property rights
Other committees

Place/ Name

GATT Trade Rounds


Subjects Covered

Countries

38

1947
1949
1951
1956
1960-61
1964-67
1973-79
1986-94

Geneva
Annecy
Torquay
Geneva
Dillon Round
Kennedy Round
Tokyo Round
Uruguay Round

Tariffs
Tariffs
Tariffs
Tariffs
Tariffs
Tariffs; AD Measures
Tariffs; non tariff measures; framework agreements
Tariffs; non-tariff measures; rules; services; IP; dispute settlement;
textiles; agriculture; creation of WTO

23
13
38
26
26
62
102
123

39