WTO SUBSTANTIVE RULES FOR GOODS

In 1994 several agreements were added to the WTO: among them, there is the GATT, bringing to
the abolition of all barriers that may prevent international trade.
It’s up to the state party to the WTO and GATT to enforce the obligations that are provided in the
agreements. These obligations are very general, being a global regime.

NON-DISCRIMINATION PRINCIPLE
Prohibition of differential treatment between states. Two points of view of discrimination:
1) A state treats in a different manner two other states. The WTO wants to avoid this kind of
problem establishing the most favored nation principle.
2) Within a domestic legal system → affecting the trade operators that are nationals of a state,
and those of another state. The victims are private operators: however, the only ones that can
claim this kind of differentiated treatment is the State.
Also, It can occur when the state doesn’t apply the principle of national treatment,
according to which a state is obliged to treat foreign trade operators in the same manner as it
treats its domestic trade operators

MOST FAVORED NATION PRINCIPLE IN 1994 GATT

Established in Art.1 GATT, it existed also in the 1947 version.
• It only applies to measures that are adopted by the states: they must affect imports and exports.
o Rules and formalities
o Procedures established by national norms
• Type of differentiation affecting the two states treated in a different manner → indicated by the
world advantage: it is what is considered relevant according to the GATT.
• A state that is ensuring an advantage to a state must ensure the same advantage to the other
states, immediately and unconditionally.

Measures in order to ascertain the violation of the MFN principle:

• State measures → if a private company does something in breach of the MFN principle, we
can’t claim the violation.
State = all public organs belonging to the state structure.
o Custom duty: applying duties in a different manner to two different states
o Charge: applying in a different manner all the payments and extra requirements that are
asked with respect to a foreign product
o Method of levying
o Rules and formalities
• Border measures → affecting a good while crossing a border. It is not only a concrete
difference, but it also may affect the mechanism of application of a charge or a duty.
• Internal measures → state measures applied when an object is within the territory of a state.
These measures are the rules concerning some requirements that the products must have.
• De jure and de facto discrimination → even the application of the same norms may have a
different effect with respect to different states.
De jure discrimination: discrimination made by law; it is a clear discrimination between two
products of different states.
De facto discrimination: it occurs by means of norms that are equally applicable, but in concrete
it provokes a discrimination of these two products.
• No subsidies to domestic production → norms aimed at establishing a subsidy to domestic
production. When there is a need of supporting the domestic industry using subsidies (and
buying from a country because cheaper), it is possible to apply a differentiated treatment with
respect to foreign states. This kind of norm is discriminatory, but it cannot be considered in
breach because aimed at carrying out a political decision of the state.
• Modification of competitive opportunities → a measure is considered in breach of the MFN
principle when it modifies the competitive opportunities of foreign products. It is not important
the intention, but the result of provoking a modification of the competitive opportunities
between different states.

Advantage: what kind of differential treatment affects some products with respect to other foreign
products. It may be provoked by the fact that some foreign products are not subject to some rules.
The appellate body affirms that we must consider an advantage any treatment that provides more
favorable opportunities from the products of a country with respect to the products of another
country. It is not possible to make balance between different products: it is not relevant whether this
state has other advantages with respect to other products.

Like products: products that may be relevant for ascertaining the compliance with the MFN
principle. We analyze them according to the Art. 1 GATT:
• Similar characteristics → similar external characteristics
• Extent of similarity → how similar two products must be in order to be considered like
products
• Criteria for assessing similarity → they may affect the physical characteristics, but also the
end use, and the tariff regime. The ascertainment is a case-by-case one.
• Consumers’ tastes → they must be in competition.
• No presumption of likeness → we cannot assume without ascertaining in concrete that two
products are like products.

Immediately and unconditionally:

• Immediately – instantly: the manner in which a state must ensure the equal treatment or the non-
differentiate treatment between two products coming from two different states.
• Unconditionally – no conditions are allowed
• Not necessary to ascertain
o Actual negative effect on trade → even if a product has not suffered a damage, the state of
import may be considered in breach if it doesn’t treat that product in the same manner of a
like product
o Discriminatory intent → even if the discrimination occurs because of a casualty or because a
norm has provoked it, that norm may be considered in breach of the most favored nation
rule.
• Potential advantages → a domestic norm can be considered in breach of the MFN principle
even if the damage may be suffered in the future.

Exceptions: enabling cause

1979 Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Participation
of Developing Countries
o Recognizes the possibility of ensuring a different treatment → exception to breach the MFN
principle
o Only reserved to developing countries
o Ensuring better tariffs and lower duties to developing states
o It is not possible to raise barriers or establish higher custom duties with respect to other states
o This preferential treatment is not everlasting: it lasts only as long as the developing country
remains so
o We must notify to the WTO organs about the fact that they are applying and recognizing the
preferential treatment

MFN AND TRADE IN SERVICES

In 1994 a new agreement was adopted, which was the general agreement on trade in services:
GATTS.
Art.II(1): with respect to any measure covered by this agreement, each member shall accord
immediately and unconditionally to services and service suppliers of any other member treatment
no less favorable than that it accords to like services and services suppliers of any other country.
In services also the characteristics of the supplier are important. There is not a definition of
advantage, but the concept analyzed is the one of no less favorable, which can be interpreted in a
broader manner. States have less obligations in the field of services than in the field of trading
goods.

MEASURES
• Any law, regulation, procedure, administrative action
• State measures including local authorities are public measures
• Professional associations’ regulations if those are recognized by the state → these
associations establish rules that must be respected by the members, but also by the people that
want to provide the same service in a foreign country.
• Affecting trade in services: purchase, payment, use, services related to goods. Some services
may be prohibited.
• Governmental authority can exclude some services. Governmental activities are not covered
by the MFN principle.

MFN IN THE GATTS

We do not have a definition of services; we only find a definition of the way in which a service may
be provided.
A service is any activity that is not the selling of goods and may entail a commercial activity that
needs to be paid.

Definition of trade in services – forms of supplying

o Cross-border supply: services that moves across the border
o Consumption abroad: it is the customer that crosses the border
o Commercial presence: a company may establish a 2 nd branch in another country, and it has a
2nd branch to provide services
o Presence of a natural person: the natural person that moves is an employee.
These four categories have been added by a further way of providing services: telecommunication
services. Nobody moves across the border: it is possible to have the movement of the service
without the actual physical movement.

Some types of services may be excluded from the application of the MFN principle:
• Exemptions → states wanted to safeguard some domestic services and some relationships with
foreign states. In 1994 they established the adoption of some exemptions: exclusion of some
services from the application of the MFN principle. These services are listed in a specific list.
• Adjacent countries → exemption relating to some specific services that may be provided
between adjacent countries. There is the possibility for a state to exclude some services from the
treatment of the most favored nations.

Like services and like services suppliers

The same service may vary significantly if the supplier is different. The definition of these activities
and the likeness requires a case-by-case approach: services can have more differences. Two
services can be considered as such even if they show differences among them.
Criteria for the definition of services: consumer preferences are very important. Also, the
preferences affecting the service supplier are important. The classification is difficult: presumption
of likeness is allowed. The presumption of likeness, that is not allowed as far as trade in goods are
concerned, is allowed in the field of services because the discrimination of the state of origin of the
service is a sufficient data to consider that there is a discrimination.

NO LESS FAVORABLE TREATMENT

Art. II GATTS: a state cannot discriminate between services, but it’s difficult to ascertain the
ground of discrimination. For this reason, the GATTS uses the concept of no less favorable
treatment, which is a wider concept.
States have to avoid the modification of the conditions of competitions by means of domestic
measures that can affect services. If a national measure does so, it is less favorable with respect to a
service of another country. This kind of behavior entails both de jure and de facto discrimination.
It is not necessary that a norm may have discriminatory intent: even if a norm doesn’t want to be
discriminatory but ends up being so, it is considered in breach of Art.2 of GATTS.
However, the treatment must be defined out of the exemptions: in some cases, states are allowed to
treat services in a different manner.
Regulatory aspects are excluded by the assessment according to the Art.2 GATTS: states are free
to establish some regulatory aspects. For example, a regulatory aspect is entailed in the case of the
language of the service. WTO norms cannot be invoked, given that a state is free to regulate these
aspects on its own.

Exemptions vs exceptions:
o Exemptions are the exclusion of some services that have been established before the entry into
force of the GATTS; they concern the services.
o Exceptions are some exemptional treatments that may be ensured with respect to some states

Exceptions:
• LDC services waiver → established in 2001 with the Geneva Decision to provide a better
position of least developed countries. Services from least developed countries must be excluded
by the regulation of Art.2 of the GATTS. This exception is temporary.
• Recognition Art.VII GATTS → a state may conclude a treaty with another state in order to
mutually recognize their degrees or training certificates. This decision may be made at a
unilateral level; nevertheless, the decision cannot be based only on the origin of a certificate but
must take into account some concrete aspects.

NATIONAL TREATMENT PRINCIPLE

This principle is aimed at protecting foreign products from that form a privilege that a state may
recognize with respect to its domestic product: the protectionist approach. This principle is
sanctioned in Art. 3 of the GATT.
There are two main fields:
1) Taxation or regulation of all products
2) Regulations → they may concern all the aspects concerning the sale. Some of these measures
may be established by private voluntary requirements.
Measures must be applied within the territory of the state. What is relevant is the treatment that the
product receives when in the territory.

Par.1 Art. III: those measures cannot afford protection to domestic products. Two different
sentences:
1) Dealing with the issue of taxation of like products → foreign products may not be subjected to
taxes in excess with respect to domestic like products.
Taxation: any form of tax that may affect the goods.
Indirect taxation: taxation of the raw materials with which a good is made. This type of
 charges concerns the procedure affecting the selling of the product, but it doesn’t concern other
activities.
Penalties: if a foreign producer exports in another country some products that don’t comply
with the regulatory provisions of that state, it may be subject to penalties, which are not covered
by the principle of the national treatment principle.
Custom duties: not linked to the principle of national treatment.
2) No contracting party shall otherwise apply internal taxes or charges to imported or domestic
products in a manner contrary to the principles set for in par.1 (establishing the prohibition of
protectionism).

Like products
The definition in this case is narrower. We are dealing with taxation, which is a national issue, and
international and WTO cannot interfere in a significant manner. When a state is obliged to change
its fiscal provisions, this must occur with respect to very specific situations, as in the case of like
products.
Par.2 Art. III → like products are those perfectly substitutable

Criteria:
o Competitive relationship
o Channels of distribution
o Properties
o End use
o Consumers’ tastes
o Tariff classification
o Internal regulation

Taxed in excess → there is a difference in the taxation. Any difference is relevant. It is not relevant
if the form applies equally to domestic and foreign products, what matters is that the norm has a
negative impact on the foreign product. The detrimental effect is not important, a potential
damage is sufficient. It is not possible to apply tax correction and try to balance with other taxes.

Par. 2 Art. 3: no contracting party shall apply internal taxes to imported or domestic product in a
manner contrary to the principles set for in par.1. A tax is inconsistent only in cases in which
competition was involved between the tax and the product, and a directly competitive product was
not similarly taxed.

Internal regulation (Par.4 Art.3) → measure that is applicable in the territory of the state. It
establishes regulation, not taxes or charges. The products of any country imported into the territory
of another country shall be accorded treatment no less favorable than that accorded to like products
of national origin, with respect of laws affecting the internal law.

DEROGATIONS TO THE NATIONAL TREATMENT PRINCIPLE

The states may violate and disapply the national treatment principle. These derogations are strict.
• Government procurement Art. III(8)(a) → government procurement is present when goods
are bought by governmental agencies. The government decides to buy some products for
governmental purposes: in those circumstances, the government may decide to buy only
domestic products, discriminating foreign products. We can demonstrate that we are in front of
a government procurement by:
o Process of obtaining products
 o This procurement of goods must be performed by governmental agencies → in some
countries some activities are being delegated to these bodies that act in the name and interest
of the state
o No commercial resale
• Derogation of subsidies → a subsidy is a payment of a financial amount. It only consists of
payment, there are no other benefits: it is public money that goes to private domestic producers.
When this kind of payment goes to domestic producers, this can be justified if there is the need
to support domestic production. Governmental subsidies may only consist in:
o Payment of an amount of public money
o Governmental purchase of domestic products
It is not possible to consider as subsidy the exemption from taxes: in that case, we have a
discrimination.

APPLICATION OF NATIONAL TREATMENT PRINCIPLE TO TRADE IN SERVICES

Art. 27 → in the sectors inscribed in its schedule, each member shall accord to services and service
suppliers of any other member treatment no less favorable than that it accords to its own like
services and service suppliers.
We find very restrictive applications of national principle, due to the fact that the application is an
exception with respect to the general rules according to which states are free to regulate services as
they prefer. The application of the national treatment principle is only possible if states have
accepted to regulate services according to WTO. The application is only possible in the sectors
described in this schedule, in which the state’s commitment is specified by means of domestic
measures.

Main concept of art.27:

o Explicit commitment → it binds specifically the state to which it belongs. Since it is an
agreement, obligations must be interpreted according to the rules and application of
international treaty.
The concept of definition in the schedule must be interpreted so as to be consistent both with the
meaning that this definition has within the domestic legal system of the state and with the
definition in WTO.
o Like services and service suppliers
o No less favorable treatment

Measures:
o Any law, regulation, procedure, administrative action
o State measures including local authorities
o Excluding measures concerning governmental services
o Professional associations’ regulations if regulations are recognized by the state
o Substantive and procedural obligations

Like services and like services suppliers → the same service may have different characteristics if
supplied by an individual or by a company. The two services cannot be treated in the same way.
In order to be classified as like services and like service suppliers:
• Two services are in competition
• Differences with respect to goods
o When talking about the services, we take into account the supplier
o When looking at services, having to ascertain the likeness, we don’t look at the physical
characteristics: what is important is the competitive relationship
o When talking about services, we talk about measures in general: we do not distinguish
between taxation and regulation
 o The likeness is defined in a general manner. The differentiation applied in goods doesn’t
exist with respect to services
• Criteria as analytical tools are not sufficient to ascertain the likeness. It is a case-by-case
analysis.
• Presumption of likeness between a foreign and domestic product is possible when the domestic
measure only differentiates services based on the origin: it is a discriminatory treatment.

NO LESS FAVORABLE TREATMENT

Art. XVII paras. 2 and 3
• Formally identical or formally different treatment
• Modification of the conditions of competition
Some aspects cannot be taken into account for the breaching of the no less favorable treatment:
o Regulatory aspects: prohibition must apply to both domestic and foreign services
o Inherent disadvantages: related to the supply of a service. The most common disadvantage is
language.

TARIFF BARRIERS
Typical form of barriers to trade that have been considered an impediment. During the’60s and the
‘70s the parties to the GATT have attempted to reduce tariffs.
Tariffs: financial charge on imported or exported product. The importer or the exporter must pay a
financial amount of money in order to move its products from a country to another.
o Need of financial charge
o The financial charge must affect the crossing of a border
Usually, tariffs consist in custom duties, which may be quantified in different manners:
• Ad valorem duties → based on the value of the good, which is the price according to which a
product is sold in the foreign country
• Non ad valorem duties → not based on the price, but on some specific characteristics of a
product
o Specific: based on weight, length
o Compound: takes into account both the ad valorem and non-ad valorem quantification of the
duty
o Mixed: the importing state established a minimum and maximum of the duty that is
applicable to certain goods
o Technical: measures according to the technical characteristics of a product

TYPES OF DUTIES ON IMPORT

• Most favored nation duties → applied when we deal with the relationship between WTO
members. We must ascertain that the most favored nation principle is applied.
• Preferential duties → special treatment recognized with respect to some states. They usually
are lower, and they are regulated within national or bilateral agreements, always scrutinized
according to the WTO criteria.
• Non-WTO duties → applicable to the few states not WTO members, which are subject to
special duties. WTO members cannot be treated as the other states.

NATIONAL CUSTOM TARIFF

In order to establish tariffs, all foreign products belong to a specific category. In order to be
specific, the harmonized system has been established.
Imposition (ascertaining if a certain tariff is lawful):
• Classification of goods: performed according to an international treaty, the International
Convention on the Harmonized Commodity Description and Coding System (1983). It
doesn’t belong to the WTO system, it is independent. The GATT members decided to adopt it
 because it was effective in classifying goods. It refers to an independent organization, the
World Customs Organization.
• Valuation of custom duties: performed according to the valuation procedure, which has legal
criteria. We have an agreement which has been adopted within the WTO, the Customs
Valuation Agreement (1994): according to it, the custom duties affecting goods are determined
on the basis of some methods listed. They take into account the transaction value (the import
price of the product). The alternative methods taken into account are:
o Similar goods: looking at the characteristic of the goods
o Deductive method: usually applied when there are no similar goods in the market.
o Computed value method: looking at the exporter. We look at the producer of a good to see
in which category of duties he is usually included.
o Fallback method: we look at the legislation of the importing state.
These four criteria are vague, that’s why ad valorem criteria are considered more transparent and
more effective.
• Definition of the origin of the good: we have a distinction between WTO members and non-
WTO members.
The origin of the goods is regulated by the 1994 Agreement of Rules of Origin, which was
adopted with the WTO Agreement.
Distinction between two categories of duties:
o Non preferential duties: applicable to all WTO Member States
o Duties applicable to some states that deserve a special treatment
Criteria for determining the origins of a good:
o Value added: activity that makes a product as a valuable product
o Change in tariff classification: place in which a product changes his tariff classification
o Qualifying processes: looking at the process of a creation of a product, there are some
phases of the proceeding that are more important

The majority of tariff barriers are custom duties; however, the main objective of the GATT is to
abolish these barriers as much as possible. Tariff barriers also consist in other duties and charges.
According to Art II(1)(b) GATT, the total amount of the charges affecting the product is not in
excess of lawful duties: if according to the WTO rules it is possible to apply a given total amount of
duties to a specific product, as long as we remain within the limit, we can apply several duties or
charges.
Goods schedule → schedule in which are defined the lawful thresholds. States have specific
commitments that are listed in the document that is added to the general agreement and binds all
WTO members. The rules that are established in the understanding is that it is possible to establish
further charges if provided for by the schedule.

EXEMPTIONS
States are free to adopt financial charges. Art. II(2) GATT:
• Internal taxes → it is possible for a state to adopt internal taxes in particular tax adjustments in
order to protect its own production. If these protection measures are aimed at ensuring fair
competitions, they are allowed.
• Anti-dumping → practice not completely unlawful according to international trade, but a
country is allowed to adopt measures aimed at facing it.
• Cost of services → charges deriving from the payment of some services, that the importing
state grants to foreign products.

EXPORT DUTIES
They are tariffs entailing the financial charge on imports or exports. They are possible as long as
there are some rules:
• MFN principle, Art. I GATT: these duties must be applicable to all WTO members
• Art. II(1) GATT commitment to reduce export duties: even if states are allowed to adopt
export duties, they should at least endorse the commitment to reduce this kind of duties, and
actually they have done so. If export duties exist, they are not regulated.
• Accession protocols: in recent years, new members entered in the WTO. Both China and
Russia added a provision in their accession protocols where they wanted to have the right to
establish duties to some raw materials. The other WTO members accepted it, because they are
powerful. There is a member that was against the introduction of this provision, which was the
European Union: it expressly stated that the only allowed export duties were the ones applied by
developing countries.

TARIFF CONCESSIONS AND BINDINGS

Specific obligations that affect every single member of the WTO. Each member has its own
concessions and bindings.
Concessions: recognition of a privileged treatment to foreign products, it entails the fact that these
products are not subject to duties.
Bindings: obligations with respect to the state to which the concessions and bindings belong,
according to which a state cannot establish tariffs beyond a maximum amount.

Obligations are instruments by which international trade is balanced. However, the general purpose
of the GATT being reducing tariffs as much as possible, tariffs are allowed only according to
specific rules:
o Reciprocity → a state has the same treatment with respect to another state
o MFN → concessions and bindings cannot be ensured only with respect to some states. This
doesn’t mean ensuring the same concession to all states, they may affect different products and
different amounts.
o Developing states → subjected to a preferential treatment

NEGOTIATIONS
• Product by product basis – bilateral negotiation → at the beginning of the GATT,
concessions and bindings were established on a bilateral basis.
• Multilateral negotiation – formula approach → regulating the relationship within all
GATT/WTO members. A mathematical formula that allows to quantify concessions and
bindings is established. It could be based on different criteria:
o Linear Approach (Kennedy Round): the same percentage of tariff was applied to all goods.
The reduction was the main objective, which should proceed with a linear approach,
reducing tariffs by a certain amount
o Non-linear Approach (Tokyo Round) → products were divided in categories. States should
lower tariffs for some specific categories of food.
o Uruguay Round Formula → only applicable to agricultural product. It establishes an
average basis and a minimum reduction.
Average basis: basis that in general should be achieved by reduction of tariffs (36%)
Minimum reduction: even if all the tariffs of agricultural products may be lowered, the
minimum reduction may not be lower than the 15%
o Swiss formula (2007 Non-Agricultural Market Access) → it is a mathematical formula
applied to cut the percentage of the tariffs that are higher with respect to others. It applies to
all products. Usually, this reduction takes place in a progressive manner.

MODIFICATION OF CONCESSIONS
The rules of modification are provided for in Art. XXVIII dividing WTO states in three categories:
o Initial negotiating rights → states that are the direct addressees of the concessions
o Principal supplying interest → WTO members that are not the addressees of the concession, but
are producers of the same type of goods: they may have an advantage in negotiating new
concessions, and they have the right to participate
o Substantial interest → states the trade of which may be affected by the modification.
These categories aim at excluding all those WTO members that do not have any interest in the
negotiations.
If the negotiation succeeds, we have a new concession; if the negotiation fails, states may decide
to withdraw from the concession. This is allowed, but there will be some consequences, in
particular that reciprocity will no longer apply.

NON-TARIFF BARRIERS
All those barriers applied when a good or service in a foreign territory is subject to its legislation.
Within the WTO system, they are prohibited in general terms: non-tariff barriers result in unfair
practices, and they are not transparent.
In Art. XI(1) GATT we have some examples of non-tariff barriers:
• Quotas
• Licenses
• Import or export of other measures
Non-tariff barriers prevent the entry of a product within the territory of another state. The most
prohibited non-tariff barriers are quantitative restriction: a product cannot enter at all in a market
of a foreign country (banned) or it can enter but for a specific amount of species (quotas).
In other circumstances limiting the entry of a certain product is permitted: if a state provides the
procedure of licensing.
It is not possible to abolish quantitative restrictions, in particular those existing before the WTO.
For this reason, some of them still exist. If a state wants to establish them, it must notify the WTO
secretariat in order for it to control the legitimacy of their application.
They may be applied:
o By means of domestic measures (laws and administrative actions) → they can be generally
applicable, but their negative effect mainly affects foreign products.
o Exception → states may exclude some products from their market in the case in which there are
some shortages of products essential to export.
Attempt to abolish quantitative restrictions within the WTO. Agreements in two fields:
o Agriculture (1994) → attempt to substitute quantitative restrictions and non-tariff barriers with
tariffs. They are more transparent, and they may raise the price, but still allowing the entry of
the product. As to agricultural products are concerned, there is this substitution from
quantitative restrictions to tariffs, guaranteeing the state the same advantage with respect to
foreign products. This tariff must be consistent with the norms of tariff barriers. One of the most
important is tariff quotas: the application of a tariff after a certain amount of a product.
o Textiles and clothing (1994) → complete transformation from non-tariff barriers to tariffs.

Voluntary export restraints → another form of non-tariff barrier. A state accepts to limit its own
exports. This usually happens when the importing state is more powerful. This kind of relationship
is usually established by bilateral treaties.
In 1994, the Agreement on Safeguards was adopted. It established a period of 5 years to allow
states to abolish voluntary export restraints.

Existing quantitative restrictions must be consistent with some fundamental rules:

o Non-discrimination → affecting all states in the same manner
o Distribution of trade → allocating quotas in a reasonable manner, balancing and avoiding
damaging some states.
o Import-licensing procedures
o Differentiated treatment of developing countries

Import-licensing procedures
Possibility of allowing selling products in the territory by means of issuing a license may be useful
in order to control the safety of a specific product or limiting the exports to those having it.
The license has to comply with some requirements in order to be lawful:
• Automatic licenses: producers or importers are obliged to ask for a license, but it is
automatically granted from the state
• Non automatic licenses: they are a restriction, because subject to the assessment to the state
issuing it. A state can reject to issue the license. They are not unlawful, but the evaluation must
be objective. These non-automatic licenses must be considered unlawful if the fact that they are
not granted result in an additional impediment, modifying the competitive conditions that a
product may have.

Other non-tariff barriers

• Lack of transparency → if information about the rules applicable in a state is not available for
foreign producers.
o Publication: rules must be public
o Notification: send specific information to the producer
o Enquiry points: offices where foreign producers may ask for information
o Review: ensure foreign producers to apply for the issuance of a license before a court or an
administrative body
• Arbitrary application of measures → it is not the measure being at issue, but the way in
which it is applied.
• Customs formalities → we are talking about the application of customs. There are domestic
laws establishing how they can be applied. According to the 2013 Agreement on Trade
Facilitation there is an obligation to abolish all the formalities that may entail a non-tariff
barrier. These formalities may entail an obstacle for some producers and some countries with
respect to others.
• Government procurement → a state may exclude foreign products from the import when the
state buys them for governmental purposes. In 2014 the Plurilateral Agreement on Government
Procurement was added to the WTO, establishing general rules and applicable only to the
parties of the agreement.
BARRIERS TO MARKET ACCESS
Non-tariff barriers may also be applied to trade-in services.
Art. XVI GATS: Types
o Number of suppliers
o Transaction value → quantitative restriction of the service
o Number of operations → particularly important for financial services
o Number of employees
o Amount of foreign capital invested

There is a specific document added to the WTO agreement, the service schedule, in which there are
all the obligations of each state. The general rule is that states are free: they may apply quantitative
restrictions to services, but this is not a positive approach. States are obliged with respect to services
only if they have accepted some specific obligations: there are no general rules prohibiting states to
adopt non-tariff barriers.
These hypotheses are the ones that are prohibited. It is an exhaustive list.
There is a fundamental rule: if some services are included in the services schedule in the possible
fields in which the state accepts some kinds of obligations, it is not possible to ensure to the other
state a treatment that is less favorable than the one provided in the schedule.
States are not obliged to accept all the views of other states: they can have a negotiation, which
does not follow specific rules. They only are addressed by some guidelines adopted in 2001. If in
the end a state doesn’t want to accept some obligations, it can deny them.
Least developed countries are excluded from negotiations. The service schedule is not applicable
and least developed countries must be supported.

Service schedules → different types of commitments:

o Horizontal Commitments: it is the general obligations that a state accepts with regard to all
services in general.
o Sector Commitments: regulation of single sectors of services. In the sector in which a country
is weaker, it certainly will establish some barriers in order to safeguard the interest of its
national service suppliers.
With regard to non-tariff barriers in services and the service schedule, the modification of the
commitments is in the hands of the state:
• Notify the council on trade in services: it is a specialized council made of representatives of all
WTO member states. States must notify this organ in order to say that they want to change their
commitments.
• Compensatory adjustment: The Council has to establish a compensation for those states that are
going to suffer damages from this modification.
• The only possible objection that other states can do is with regard to the amount of the
compensation: there can be a dispute which must be resolved by means of arbitration. The WTO
isn’t considered to have the competence to interfere in it.
• Most favored nation principle: applying the same rules to all those states in the same economic
condition

EXCEPTIONS:
• Government procurement: also applicable in the case of services, together with the Plurilateral
Government Procurement Agreement.
• Monopolies and exclusive service suppliers: they are possible as long as they are aimed at
applying and protecting domestic services.
• Restrictions on international payments: international payments are necessary in order to allow
international trade; the only possibility is to allow them. The exception is in the case in which a
state must stop payments because it is in a very serious and exceptional economic condition.
SPECIAL AGREEMENTS
We must take into account those domestic measures regulating technical and sanitary issues.
These measures are adopted for a specific reason: a state wants to control the safety of some
products. This purpose may be considered legitimate, but in this way a state can establish barriers to
trade. They are more specific than non-tariff barriers.

TECHNICAL BARRIERS TO TRADE (TBT AGREEMENT)

It regulates the legitimacy of domestic measures aimed at regulating technical aspects affecting
goods and services. It establishes more detailed obligations than in the GATT. It also establishes an
organ, the TBT Committee, which is subordinated to the specialized council, but is competent for
TBT issues. It is made of state representatives and states may consult each other in order to decide
necessary technical measures and which ones are considered barriers to trade. Their decisions are
binding and adopted by the committee by means of consensus. All WTO member states are bound
by these decisions, which are to be considered as sort of treaty obligations added to existing TBT
agreement obligations.
There is a specific dispute settlement procedure that allows the appellate body and the panels to ask
for some advice to the Technical Expert Group.
We have a distinction in three categories:
• Technical regulations (Annex 1.1):
o Establishing the characteristics of a product. In this law we find the list of these
characteristics. If a product doesn’t have them, it cannot be commercialized in the state
adopting them.
o Establishing the process and production methods: taking into account how a product is
produced and what are the specific relevant production phases.
o Labeling: it is an external characteristic and doesn’t affect the technical characteristics of a
product. If the labeling is used in a country, and a product doesn’t have it, it cannot be sold.
• Standards (Annex 1.2): not state measures and not binding, usually established by private
organs. They are voluntary requirements, but they may influence the consumers and the
international trade. They may be applied by organs that are not state organs: they may be
suggested by private associations that are recognized by the state.
• Conformity assessment procedures (Annex 1.3): procedures that are performed after the
production of a product in order to check if it complies with the technical characteristics or the
safety objective that the domestic measure may want to comply with.
o Sampling
o Inspections with respect to raw materials
This procedure may be compulsory: if it is not, there is not a barrier. They concern the use of
the products.

National entities that may adopt measures in breach of the TBT Agreement:
- Governmental (central and local)
- Non-governmental – private sector organizations

TBT SUBSTANTIVE OBLIGATIONS

Substantive obligations are those obligations that require a state to do something or abstain from
doing something.

Substantive obligation of Art. 2.1

Principle that prohibits any type of discrimination. It is not possible to discriminate between like
products when a state decides to apply technical regulations. We refer to the prohibition of
discrimination (towards the product of a foreign country) and the national treatment principle
(prohibiting discrimination between domestic and foreign like products).

Main features of the obligation:

o Standard Annex 3.D
o Conformity Assessment Procedures Art. 5.11 TBT
o Like products: interpreted in a very general manner. They are those products in competition.
o No less favorable treatment: looking at the impact that the domestic measure affecting technical
regulations may have on the market and on the trade of the product
o Measures: affecting products that may produce a less favorable treatment. They apparently may
be applied in the same manner to domestic and foreign products, but they may provoke a
negative impact on foreign ones. We have a de facto discrimination. Usually, states are quite
free to adopt these kinds of measures. What we have to look at when ascertaining whether or
not they are lawful according to the WTO is the fact that they are impartial and proportionate.
The proportionality concerns the relationship between the objective of the measure and the
impact on trade.

Substantive obligation of Art. 2.2 TBT

Obligation to avoid any unnecessary obstacle. The domestic legislation cannot establish some
obstacles, and any regulation cannot be more restrictive than the necessary in order to reach an
objective.
This norm takes into account risk assessment: if technical measures are aimed at safeguarding
important interests, states have the right to adopt them in order to avoid risks with respect to these
interests.
A measure cannot establish an obligation that hinders international trade in a very substantive
manner just to avoid the risk.
• It applies standards and conformity assessment procedures
• Principle of necessity: we have to ascertain the risk, and if it exists, we may adopt the restrictive
measure
• Non-more restrictive than necessary: Even if there is a risk and the measure is legitimate
because it is going to reduce the risk, we still have to look at the proportionality and necessity of
the measure. In order to ascertain whether or not a domestic measure is necessary, we have to
look at:
o The relationship between risk and restriction
o Compare analysis with other measures: if we can adopt a less restrictive measure and
obtain the same objective, we have to opt for that one. We have to choose the less restrictive
measure with respect to trade.
In order to assess the risk, we have to look at the objectives:
• Types
o National security
o Human, animal, and plant health
o Environment
• Ascertained by an impartial body: it decides whether or not we are facing a risky situation,
following the rules of impartiality. If a state wants to adopt a technical measure, it must take
into account some binding norms, which may be international standards.
• Contribution to the fulfillment: in order to take into account if a measure is lawful, we have to
look at the way in which this measure contributes to the fulfilment of the legitimate objective
• Degree of fulfillment achieved
What we need to do is to carry out an analysis of risks:
▪ Scientific information: the relevance of scientific data is important.
▪ Technology: we have to analyze if the risk really exists on the basis of the development of
technology
▪ End uses of the product: the end use is important to ascertain the risk that a product may
produce

Substantive obligation of Art. 2.4

It concerns the way in which states may use international standards: when they exist, states must
use them. They are objective criteria that states must take into account in order to adopt a
regulation. They exist in order to allow uniform or harmonized legislation: states have their own
legislative powers, and each state is free to adopt its own rules. In order to avoid having too many
different rules among the WTO system, some common rules must be established. They must derive
from international organizations or organizations made by states.
The harmonization may affect substantive standards or the assessment procedure. These
standards must be used as long as they are effective to achieve a specific objective.

Other obligations:
• Mutual recognition of states’ regulations (Art. 2.7 TBT): states are invited to recognize the
other states’ measures. There is a reciprocity in the recognition of technical measures.
• Product requirements fixed according to performance (Art. 2.8 TBT): products should be
defined according to the performance more than to their external characteristics.
• Transparency (Art. 2.9 TBT): need to make public the technical regulations of the state. These
measures may be notified when they are specifically addressed to a manufacturer.
o Except for urgent problems: we can stop the market of a product because dangerous
o Measures in force after notification in reasonable interval
o Applicable to standards and assessment procedures
o Information management system: obligation for states to send to the WTO secretariat the
content of the measures that establish technical requirements. This is a way of preserving a
precautionary control of states.

Special treatment: recognizes the rights of developing states. In the case of technical barriers to
trade, given that they aim at safeguarding important interests, this special treatment applies in a
more limited manner. Countries cannot be excluded from the application of TBT obligations. States
may take into account that developing states may have more difficulties in complying with
regulations and can facilitate them to be familiar with technical obligations.
There is then the obligation to provide technical assistance, but in particular the facilitation of
the political participation of developing countries in those fora in which international standards
are established.

SANITARY AND PHYTOSANITARY (SPS AGREEMENT)

Among technical barriers, there are some that are more specific. In establishing whether a sanitary
measure is consistent with WTO law, there is a hierarchy:
1) Look at SPS Agreement
2) If there are not specific obligations in the SPS Agreement, we look at the TBT Agreement
3) If there are not specific obligation in the TBT Agreement, we look at the GATT.

This agreement concerns issues related to the safeguard of human health, health of animals and
plants. This agreement stablishes the SPS Committee, made of representatives of states that have
the competences to analyze domestic measures concerning sanitary and phytosanitary matters.
The SPS Committee has the role of:
o A forum for consultation: we can have the consultation among the states in order to decide
whether some rules must be established
o Supporting international standards
o Review of the implementation of the agreement: in order to avoid that states in the name of
the protection of health may prevent international trade

Advisory technical expert group: specific advisory organ provided for by the SPS, that may
participate in the dispute settlement and provide advice to panels and the appellate body. It is made
of technical experts.
Entities that may adopt domestic measures and may scrutinize according to the SPS Agreement are
both governmental and non-governmental: what is important is that the state must recognize the
private rule that a non-governmental association may establish. If it does so, the state may be
considered responsible.
Art. 1.1 SPS: this agreement applies to all sanitary and phytosanitary measures that can affect
international trade.
Hypothesis in Annex A.1:
o Protection of health for food-borne risks
o Protection of health from risks due to pests and diseases
o Prevention of other damages from the spread of pests or diseases
Measures:
• Types: they can be any type of measure
• They must be applicable in the territory of the state: a foreign producer may face these measures
when he enters his product in the territory of the state. States can adopt obligations that do not
apply in the territory, but that apply to areas beyond national jurisdiction, which are not subject
to the WTO control (ex. Antarctica)
• Affecting international trade: the SPS agreement only applies to products coming from a foreign
country.
• In force: there is the acceptance of the exception according to which the SPS agreement also
applies to the measures that have been adopted before 1994.

SPS basic principles:

• Right of states to adopt measures to protect health (Art. 2.1 SPS): this kind of legislation is
lawful. It is the first. Norm in the GATT and WTO that doesn’t concern international trade.
• Only measures necessary to protect health (Art. 2.2 SPS): international trade may be prevented
or limited by measures aimed at protecting human health only if these measures are necessary to
this purpose. We assess this necessity on the basis of the scientific evidence and on the basis of
risk assessment.
• These measures must be non-arbitrary and unjustifiable discrimination (Art. 2.3 SPS): they can
entail discrimination only if there is a reason. Even SPS measures are subject to the principles of
most favored nation and national treatment.
• Aim of harmonization: standards may be used in different manners, which are specified in Art.
3 SPS:
o States may decide to base their legislation on international standards: states may establish
their own means of enforcing these standards. They are free to choose the instruments by
which complying with the international principles, but they are obliged to apply them.
o States comply with international standards: domestic legislation and international standards
overlap and are the same.
o States decide to adopt more stringent obligations: a state may decide to adopt a level of
protection that is higher than that guaranteed by international standards.

RISK ANALYSIS
• Risk assessment: ascertainment of the risk, whether and to what extent it exists.
o It must be performed according to international techniques
o When human health is at issue, we must only take into account the risk of human health,
sacrificing the aspects of international trade, even if the measure is very restrictive. When a
measure is aimed at safeguarding animals and plants, their protection must be assessed by
reason also of economic factors, and the measure has a strong impact on the economy, it
may be considered in breach of the SPS.
Scientific aspects:
o Scientific evidence: the special condition must be taken into account, given that in some
countries some problems are higher. Scientific evidence must be adapted to the specific
conditions of a country.
o Scientific techniques: such as inspections of areas or sampling of some species
• Risk management: ascertaining how to manage the risk.
o Level of protection: decided by a state. Once the level of protection has been established, the
state must adopt SPS measures that are no more restrictive than required.
o Minimizing negative impact on trade (Art. 5.4): adopting the measure with the minor
negative impact.
o Loss of production or sale (Art. 5.3): we can take into account the economic impact that a
measure may have when the health of animals and plants is at issue
 o Avoiding arbitrary discrimination and disguised restrictions (Art. 5.5): de facto
discrimination
o No-more trade restrictive measure than required (Art. 5.6): we have to look among the
possible measures the ones that are less restrictive
o SPS and precautionary principle: according to this principle (established in Rio), states must
apply other international limitations even when there is uncertainty and doubts about the
effect of a product, and there is no scientific evidence. The SPS Agreement doesn’t
expressly mention it, because not all states were in favor of the recognition of it.
The preventative principle is aimed at prohibiting state behaviors that may entail a damage,
having the scientific certainty of the risk.
o States didn’t accept the precautionary principle, but used a similar norm, the insufficient
scientific evidence (Art. 5.7 SPS): when there is lack of scientific certainty, a domestic
measure restricting international trade is allowed. This rule is temporary, because the
scientific knowledge may change.

Other obligations that states must comply with:

• Recognition of equivalence (Art. 4.1 SPS) of domestic measures in order to have a harmonized
system
• Adaptation to regional conditions (Art. 6 SPS): states must adapt their standards to the
conditions of the region where they are. One category is the pest-free area.
• Controls and inspections (Art. 8 SPS): may be performed as long as they are non-
discriminatory, they are justified by objective reasons
• Transparency and notification (Art. 7 SPS): SPS measures must be transparent and public, so
that the producers and the importers must know whether or not the products are considered
risky.

SPS special and differential treatment

• Taking into account the special needs of developing countries (Art. 10.1 SPS)
• Longer timeframe for the adoption of new SPS measures (Art. 10.2 SPS)
• Time-limited exceptions allowed (Art. 10.3 SPS)
• Support of other states for facilitating the participation in international fora establishing SPS
standards (Art. 10.4 SPS)
• Technical assistance (Art. 9 SPS): there is a specific system of assistance to which developing
states may apply, the Standards and Trade Development Facility. This system also entails
financial support.
ANTI-DUMPING
Dumping: unfair trade practice non-regulated by WTO law. It is not prohibited by the WTO
system; Art. 6 GATT regulated this issue in 1947 stating that States could adopt measures
against it.
In 1994, Agreement on Implementation of the Anti-Dumping Practice from Art. 6 GATT
(AD Agreement).

Anti-Dumping Committee, permanent organ established by the AD Agreement made of

WTO members States and with the functions of Revision of Acts:
- Review of Notification of Anti-Dumping measures,
- Review of Annual Report in which Dumping activities are described and the measures
adopted to face these activities.

National Investigating Authorities (Art. 16.5 ADA), they are organs appointed by each
State, they have the competence to ascertain if the dumping occurred and the competence to
adopt measures against it.

Dispute Settlement Art. 17.6 AD Agreement, in the case of dumping, panels can only
ascertain the legitimacy while national authorities choose the norms. Panels have a function
concerning the interpretation of measures adopted, national but with an international
relevance. If the interpretation reveals an ambiguity, the measures can be applied as long as
they are consistent with WTO obligations.

DUMPING is the activity which allows producers or States to export their products at a price
lower in the foreign importing market than the price in the exporter’s domestic market.
According to Art. 6 GATT, not all forms of dumping are unlawful but only those who cause
material damage to the industries of a foreign country or that retard the establishment of an
industry on the domestic territory (measures adopted by domestic authorities).

ANTI-DUMPING MEASURES to ascertain its consistency with Art. 6 GATT

● Cases of Dumping: Once the normal value and the export price are known, the Dumping
margin is calculated as the difference between export price and normal value. Comparable
export transactions may be taken into account, the difference with the export price is
lower if we have higher transactions. Art. 2.4.2
The existence of a dumping margin per se is not a breach, we need to have an export price
significantly lower with respect to the normal price. Measures cannot exclude the
dumping margins. Customs putting at 0 dumping margin (Zeroing practice) are
considered unlawful.

● Injury: type of damage.

o Concept of domestic industry: all the producers of a specific country producing a
specific product, are considered as a whole and not individually.
o Concept of injury:
- Material injury: decrease of sale of the domestic product due to the increase of
import of the dumped product.
- Threat of material injury: potential injury, to demonstrate a threat we need
factual evidence (i.e. import has increased, export is going to decrease).
- Retardation of the establishment of domestic industry: no reason to establish a
domestic industry when importing at low prices.
● Causal Link: between the activity and the injury, if it is not present, the entity who
performed it cannot be considered liable.
o Rule of non-attribution: Art. 3.5 ADA, attribution of responsibility. It is not
possible to attribute the responsibility to an exporter if other factors caused changes.
o Cumulative Analysis: it takes into account the fact that the dumping may be carried
out by multiple exporting States, the attribution of responsibility must be assessed on
the basis of contribution to the injury.

Define the Normal Value and compare it with the export price in order to calculate the
Dumping Margin.
- Normal Value: comparable price in the ordinary course of trade for products in the
exporting countries in ordinary trade activities. (like products, identical or highly
resemblant products, and comparable prices on similar markets Art. 2.6 ADA)
- Comparable price: necessary to assess the normal value of a product, fair
comparison taking into account the level of trade, ex-factory levels, same time frame
and due allowances for differences.
In case there is no comparable market, the third State’s normal value is taken into
account or the price of origin + the export costs.
- Export price: price sold at the first independent buyer.

● Investigation: carried out by domestic organs such as the National Investigative

Authority.
o Initiation Art. 5 ADA: entailed by the private industry asking for the beginning
of the investigation. It is up to the industry to bring evidence. NAI can look for
further evidence.
o Process Art. 6 ADA: it requires the authority to ask the respondent states and
producers to submit a questionnaire (confidential information).
o Conclusion: once the authority has knowledge they adopt a decision prior
informing parties sending a public note to the states and producers considered in
breach of the norms.
o Once the dumping is ascertained, it may be posed under Judicial Review
according to Art. 13 ADA, parties can ask for a review of the decision.

ALLOWED MEASURES
Authorities are obliged to comply with WTO while proceeding. They are also obliged to
comply with WTO while establishing measures.
● Provisional Measures during the proceedings: Art. 7 ADA, measures can be adopted
only after 60 from the initiation of the process to give the authority to investigate the
case. A preliminary assessment is needed about the dumping phenomenon, a strict
necessity exam is carried on in order to safeguard the interest of the domestic industry
injured to prevent further damage. These measures are temporary, they can last up to 4
months but they can eventually be extended in case of risk for further injury. The
confirmation of the duration must be established by the investigating authority.
● Price Undertakings negotiated by parties: Art. 8 ADA, it entails the agreement
between the exporters (respondent in AD process) and the investigating authority that
agrees to higher prices with respect to the dumped prices.
To establish the measure, a preliminary affirmative determination is needed by the national
investigative authority that dumping has occurred. The exporters prefer to solve the problem
before the process ends by agreeing with the authority on higher prices on a voluntary basis.
Exporters can ask for the continuation of the process if they think that the evidence is not
enough to assess the dumping. If at the end of the process the authority demonstrates that
there is no dumping, the price undertaking falls.
● Anti-Dumping Duties: Art. 9 ADA, Rule of Lesser Duty: they cannot exceed the
value of the dumping margin, the final value cannot be higher than the normal price
value. States are invited to not apply the maximum level of duty since adjustments are
always necessary and possible.
If different States and producers keep the same conduct no discrimination occurs, they
must be treated the same according to the MFN principle. The value of the duty
corresponds with a specific transaction, they are calculated individually. In the case of
a producer with a dominant position, prices are computed collectively and applied to
all the others (sampling).
AD duties can be applied only after the end of the investigation process
(non-retroactivity) but there are some exceptions from Art. 10 ADA, which is the case
of material injury which has already occurred before the end of the proceedings.
Massive dumping as an ordinary practice doesn’t enjoy retroactivity.
AD duties cannot last more than 5 years, they must be reviewed periodically to avoid
non-necessary duties.

SPECIAL TREATMENT ART. 15 ADA

Developing Countries performing dumping activities have a preferential treatment to be
eventually applied. Constructive remedies are suggested to help DCs to avoiding those
practices. There are no precise obligation. The only case of exemption is when a DC’s
essential interests are affected by anti-dumping duties even if it cannot be justified as an
illegal practice.
 SUBSIDIES

• The issues concerning governmental subsidies to domestic industry was partially regulated by
Article 6 and 16 in the GATT. However, a full regulation commenced in 1994 with the adoption
of the Agreement on Subsidies and Countervailing Measures (SMC Agreement).
• This agreement provides a definition of subsidies as well as the Subsidies Committee, that is the
main body for the management of subsidies on an international and domestic level.
• In particular, it describes the role of the Forum for Consultation, which investigates and
discusses the problems that are likely to arise.
• Similarly, the Subsidies Committee revises the documentation redacted by each government
about subsidies for each specific industry to make them aware to every Member State.
• Subsidies are defined by ART. 1 (par.1) as “ a financial contribution by a government or any
public body within the territory of Member State, conferring a benefit to an industry or a
domestic producer” -> two important concepts:
A) financial contribution: it entails both direct and indirect contribution (es: direct
financing or tax exemption), as well as the identification of the public contribution (who
allows for the subsidies) or of the private financing (private initiative);
B) benefit: it is the improvement of the position of a commercial operator. They are
measured taking into consideration the industry benchmarks (from an analysis of the
features of the industry).

• Subsidies are defined according to some characteristics:

A) Specific Subsidies -> applied to peculiar situations;
B) Prohibited Subsidies -> not allowed by the WTO in any circumstances;
C) Actionable Subsidies -> can be both lawful or unlawful and they must be assessed upon
investigation
D) Non-actionable Subsidies -> these cannot be scrutinised so they must be interpreted as
unlawful;

• ART 2 of the SMC Agreement defines the conditions to accept a Subsidy as Specific:
A) when applied to specific industries of enterprises;
B) When applied to a specific territory (regional specificity);
C) All the prohibited subsidies are considered as Specific;

• Their contribution can be either: positive (when there is an direct economic benefit) or negative
(when the action entails an economic benefit, es: tax exemption).
• NB: the “de facto specificity” is defined as this scenario where domestic producers/industries
obtain benefits at the cost of foreign ones.

• The Prohibited Subsidies are regulated by ART 3 of the SCM Agreement. More in detail:
A) Export Subsidies (3.1a SCM Agreement) are contingent upon export performances
and can be either “de facto” or “de jure” if they respectively provide explicit benefits
to domestic industries/producers, at the expenses of foreign ones, or not. They can
be alone or accompanied by other conditions.
B) Import Substitution Subsidies (3.1b SCM Agreement) are contingent upon the use
of domestic products and can be alone or accompanied by further conditions. They
do not express any reference to “de facto” regulation. However, they must be interpreted
by the AB.

 • Since prohibited subsidies are so serious, the WTO allows for independent settlement of these
disputes through the Multilateral remedies for prohibited subsidies. There must be a
Consultation between parties, and, in the case it fails, a process of Compulsory Dispute
Settlement starts. The Permanent Group of Experts (PGE) provides a binding opinion to
make the dispute end.
• Hence, the decision is enforced by ART. 4.10 of the SCM Agreement which allows for
unilateral action, rather than for collective/multilateral actions, due to the importance of the
dispute.

• Actionable Subsidies are regulated by ART. 5 of the SCM Agreement and are generally
interpreted as likely to produce adverse effects to the interests of other members, such as:
A) Injury to the domestic industry of another Member of like products -> (similar to
dumping effects) to be measured both the products and the markets must be allayed as,
for instance, the products must be very similar or perfect substitutes. The injury can
be material, there is a threat of material injury or there is a retardation of the
establishment of a domestic industry;
B) Nullification or impairment of the benefits accruing directly or indirectly to the
other Members under the GATT (already explained for antidumping), or
C) Serious prejudice to the interest of another Member ->es: (1) impediment to import
of like products, (2) impediment to the export of like products, (3) undercutting of
the price of subsidised products, or (4) increase of the share of the subsidising
Member in the world market.

• However, there are some circumstances where the link between the subsidy and the adverse effect
is causal even tough there is not a breach of the regulations. In these cases, a counterfactual
analysis is carried out to analyse what would have happened if the subsidy didn’t exist, as set out
by the SCM Agreement. Similarly, it will be taken into consideration the “non-attribution rule”,
which states that, if other drivers are in place, the subsidy is not responsible for the outcome.

• Among the remedies for Actionable subsidies we find the consultancy among parties, which
can result in a compulsory dispute settlement if parties do not find an agreement. However, in
these cases, the decisions of the PGE is not binding. Nevertheless, there may be the request for
a pecuniary compensation instead of the withdrawal of the subsidy (only when the causal link
is ascertained).
• On the other hand, non-actionable subsidies (that are non-specific subsidies) cannot be
brought to the attention of international bodies.
• There are some countervailing measures to avoid negative effects of subsidies. These are, for
instance, countervailing duties (to balance the negative effects), which can be introduced after
proper investigation in a proportional measure.
• Countervailing duties, as set out by Art. 5 of the GATT and Art.10 of the SCM Agreement,
are applicable only in those cases where there are subsidised imports which have a causal link
with injuries to domestic industry of like products.
• The Investigation procedure is set out by Arts. 11-13 of the SCM Agreement, which describes
the circumstances in which it can be applied, and defines the timing for notification of
investigation by part of Investigation Authorities. These must notify interested parties (those
that are affected by the subsidy either directly or indirectly), too. Once the investigating authority

 has drawn any conclusion they must provide public notice of the decision to every party
affected by the subsidy.

• The measures to balance the negative effects can be:

A) Provisional measure (as the antidumping ones) which must be necessary to balance
the aforementioned effects, and temporary (no more than 4 months but they can be
renewed);
B) Voluntary undertakings are the result of the voluntary consent of the subsidised
exporting states and exporting industries;
C) Definitive Duties are the definitive measures that are adopted at the end of the
investigative process and these have some lines to follow: the duty cannot go beyond
the negative effect of the subsidy, there must not be any form of discrimination, the
Duration Sunset Clause must be respected (the countervailing duty lasts as long as the
negative effects, no longer), these must not be simultaneous with unilateral
countermeasures/anti-dumping measures (if these are in force, no other measure can
be adopted).

• Art 27 of the SCM Agreement allows for differential treatment. For instance, for those
countries that are still developing export subsidies. Similarly, more developed countries
cannot adopt countervailing measures against less developed ones if their negative effects
are under a certain amount (es: under 2% of the value of the product or under 4% of total
imports). In the same way, it is not possible to action social costs subsidies.

• With respect to Agricultural subsidies, the Agreement on Agriculture must be taken in

consideration instead of the subsidy agreements. More in detail, subsides are allowed only for
scheduled products, as defined by Art. 9 of the Agriculture Agreement, but two needs must be
met. These states must undertake a commitment of reduction (of the subsidies) and they must
adopt governmental actions only. Furthermore, as set out by Art. 10 of the Agriculture
Agreement, subsidies for food aids can be introduced since addressed to superior interests.
With respect to the export subsidies, after the Nairobi Ministerial Conference, least developed
countries can adopt subsidies to face competition from developed and developing countries.
Finally, there are other measure to support agriculture but the Commitment of Reduction
(Art. 6 of Agriculture Agreement) must be accepted with the exception of measures included
in the Green Box (health/environment/… protection) and in the Blue Box (those measures
necessary to sustain the development of least developed countries).

GENERAL EXCEPTIONS IN GATT

• As set out by Art. 20 of the GATT, there are some exceptions to the procedural
obligations, mainly regarding the GATT and GATS ( Trade and Service).
• W.r.t. the GATT, it is allowed to introduce some measures even though they represent
a breach of the obligations.
• These exceptions are described in Art. 20 GATT, which is divided into the Chapeau
(introduction) and an exhaustive list of all the circumstances in which these exceptions
may be applied.
• As it happens with other regulations, Art. 20 GATT must be interpreted in a narrow
manner as there is not place for interpretation/flexibility (es: inclusion of breaches not
listed). However, this narrow interpretation is carried out in an “evolutionary” manner to
include topics that didn’t occurred before.
• The aforementioned division of Art. 20 GATT is necessary for the proper evaluation of
the cases. More in detail, the Chapeau describes how and in what cases these
exceptions can be applied, and the second part is a list of all the specific cases in
which they are applicable.
• Btw, these exceptions must be applied in a non-discriminatory way and do not have to
hinder international trade.
• There are also other agreements that recall Art. 20 GATT, such as the TRIM
( Agreement on Trade Related Investment Measures) that are applicable only in those
circumstances listed by Art. 20 GATT.

• Chapeau: “subject to the requirement that such measures are not applied in a manner
which would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail, or a disguised restriction on international
trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement
by any contracting party of measures”.
• List of Hypotheses: Protection of Public Morals/ Human, Animals and Plant Life/…;
Securing Compliance with Law and Regulations; Products of Prison Labour;
Conservation of National Artistic Treasures/ Exhaustible Resources/…; Acquisition
and Distribution of Products in Short Supply, etc.

• Among the several hypotheses that we find in the second part of Art. 20 GATT we have
to make a distinction between those measures requiring a Condition of Necessity and
those who don’t. The former can be applied only in those cases where the measure is
necessary to achieve the goal described by Art. 20 GATT.
• Among them we find for example the Art. 20(b) GATT for the Protection of Human
and Natural Life. However, as described before, although this measure is not strictly
linked to the overall environment, it may be enforced anyway since necessary to achieve
the ultimate goal described by the Article.
• However, before application, it is necessary to analyse the domestic measures. It can be
done either in a narrow or general way. The former is an analysis of the domestic
measures that are directly linked to the provision, while the latter is an analysis of the
domestic measures that, even though they are not directly linked to the provision,
they contribute to the achievement of the goal of interest.

• (NB) This protocol is applied to every measure as long as they deal with the protection of
Human and Natural Life.
• To understand if this measure is applicable, it is mandatory to define its “necessity”. As a
result, it is necessary to investigate the Level of Protection of the domestic industry,
the Contribution to the Achievement of the Purpose (is it a concrete contribution or
not?), the Balance of Interests (to investigate the interests of those that are positively and
negatively affected), and, finally, to make a Comparison with Less-Restrictive
Measures to facilitate international trade. In the end, once we’ve take into
consideration all these points, we can understand if the measure is strictly necessary or not
to the purpose.

• Among the other hypotheses that require the condition of necessity we find Art. 20(d)
GATT, which complies with Securing Compliance with Laws and Regulations.
• To make letter d applicable, it is necessary that the regulations and laws that we want to
apply are not inconsistent with GATT and WTO, hence, they must be lawful and be in
line with the values of these international bodies/agreements. In other words, the measure
introduced must to be incompatible with the GATT and WTO instead of strictly consistent
because it would highly reduce the number of circumstances in which these can be applied
(general approach instead of narrow approach). Furthermore, these exceptions are
applicable only in the circumstances relating to Customs Enforcement, Monopoly,
Protection of Copyrights and Patents, and Deceptive Practices (es: Fraud). This list is
an open list so there may be additional circumstances that can be included to the
aforementioned ones.
• As for letter b of Art. 20 GATT, it in mandatory to investigate its “necessity”. Firstly, it
will be analysed if the purpose is in compliance with the regulation (and not the
concrete achievement so as to understand if the measure is properly designed for the
purpose), as well as all the Domestic Law or International Law with direct effect on
the regulation since the latter must be in compliance with the former. For direct effect
we intend all the Domestic/international laws that can be invoked in these peculiar
circumstances. Secondly, it is necessary to investigate the Condition of Necessity, which
is analysed by taking into consideration the Balance of Interests, Vital Interests, the
Contribution to the Achievement of the Purpose, the Degree of Restrictiveness (how
much it will restrict international trade and integration), and to make Comparison with
Less-Restrictive Measures.

• Another hypothesis where exceptions are applicable is Art. 20(a) GATT for the
protection of Public Morals (that are, the rights and duties of conduct of a certain
community or state). In other words, it is not possible to oblige a state/community to
accept a moral different from the one they’ve chosen.
• To ascertain if the exception is applicable, there must be a strict relation between the
regulation and the purpose (no indirect relation) (es: the regulation explicitly affects
public moral).
• Similarly, as in the other cases, it is necessary a Condition of Necessity, that is composed
of the Relevance of the Interest, the Contribution to the Achievement, the Degree of
Restrictiveness on Trade, and to make Comparisons with Less-Restrictive Measures.

 • Another case is defined by Art. 20(j) GATT which concerns Measures that are
Essential for the Acquisition or Distribution of Products in Short Supply.
• As before, the international bodies must investigate if the regulation is in compliance
with the purpose, that is, to safeguard/measure the available quantity of the goods at
the National and International Level -> if there are enough resources, the regulation has
no reason to exist!
• Furthermore, the measure must be essential, that is, indispensable and so necessary. As
in the other cases, we’ve to investigate whether there is a condition of necessity
according to the points mentioned for the other exceptions.

• The same happens for Art. 20(g) GATT that concerns the Conservation of Exhaustible
Natural Resources. Due to their both biological and economic importance, only those
rules that have a strictly link with these topics are lawful (es: not only “conserve
them”).
• (NB) this measure is not subject to Conditions of Necessity! But, the measures adopted
are considered as necessary for the purpose.
• There is also an Evolutionary Interpretation to include Living Resources due to the
worsening environmental conditions. At the beginning, they dealt only with mineral
resources.
• Due to its global importance, there is no differentiation/discrimination between
domestic and foreign producers, and so, these measures must be applied in conjunction
with restrictions on domestic production ( Evenhandedness, that is, impartiality in its
application).

• There are also other measures that do not need Conditions of Necessity, such as Art.
20(e) and (f) that deal respectively with the Production of Prison Issue and the
Protection of National Artistic Treasures. For the former we do not have issues
nowadays, they are being applied to slavery production thanks to the Evolutionary
Interpretation. On the other hand, the latter are generally applied to protect domestic
artistic treasures and, from a few decades, to protect endangered cultural goods/
heritage (evolutionary interpretation). In other words, Art. 20(f) GATT deals with the
illicit trade/movement of artistic treasures.

• Let’s analyse more in detail the Chapeau of Art. 20 GATT. It defines that: “subject to the
requirement that such measures are not applied in a manner which would constitute a
means of arbitrary or unjustifiable discrimination between countries where the same
conditions prevail, or a disguised restriction on international trade, nothing in this
Agreement shall be construed to prevent the adoption or enforcement by any contracting
party of measures”.
• In other words, the Chapeau of Art. 20 defines the second assessment for the legality
of these measures. This process is carried out by taking into consideration the
Application of the Measure, its Purpose (to avid abuse of exceptions), the Balance
between Rights and Duties, any Arbitrary or Unjustifiable Discrimination, and

 Disguised Restrictions to International Trade. Only if we take into consideration all

these points we can assess the validity of the measure.
• For Arbitrary or Unjustifiable Discrimination it is meant any form of discrimination
that is deliberate (the intent of the State must be taken into consideration) and/or has
significant effects (that show a huge difference in treatment of States). To carry out this
investigation it is necessary to look at countries with same conditions and to spot whether
there are favoured nations and the treatment for each nation.
• For Disguised Restriction it is meant any hindering/favouring of domestic production/
trade. Disguised restrictions have a broader effect than discrimination as they have large
economic effects. Furthermore, it is necessary to take into consideration the relevance of
the intent of the State to understand whether it is (in)consistent with the GATT, and so it
lawfulness, and the answer to that intent.

GENERAL EXCEPTIONS IN GATS

• As for the exceptions set out by Art. 20 GATT, also Art. 19 (GATS) is divided in two
parts: the chapeau (whose description is identical to Art. 20 GATT’s) and a list of
hypotheses. Due to the huge similarity with Art. 20 GATT, both Art. 20 GATT and
Art. 19 GATS are interpreted in the same way and have a double exam.
• The main differences occur due to the fact that goods and services are traded/produced
differently.
• The list of hypotheses comprehends: (a) Protection of Public Morals or Public Order
(Art. 19(a)), (b)Protection of Human, Animal or Plant Life (Art. 19(b)), (c) Securing
Compliance With Laws or Regulations Not Inconsistent with the GATS (they
include: the prevention of deceptive and fraudulent practices, the protection of the
privacy of individuals and confidentiality of individual records, and safety)
(Art.19(c)), (d) Inconsistent with Art II, Difference in treatment for the Avoidance of
Double Taxation in any International Agreement or Arrangement.
• Art. 19(a), Art. 19(b) and Art.19(c) GATS are subject to the same assessment of the
cases listed in Art.20 GATT, that is composed of the design to achieve the purpose and
the Conditions of Necessity for the Protection of Relevant Interests.
• Therefore, the measures must be designed to achieve the purposes (described before in
the list of hypotheses) and the have Conditions of Necessity, which are investigated
through the analysis of the Relevance of the Interests, the Balance between Interests
and GATS Obligations, the Contribution to Achieving the Aim, and through a
Comparison with Alternative Measures.
• Moreover, Art 14 GATS provides for two exceptions that are not subject to
Conditions of Necessity but are applied through a more narrow approach.
• These are listed in Art.14(d) (Equitable Fiscal Imposition) and Art14(f) (Avoiding
Double Taxation According to International Agreements).
• For the narrow approach we mean that these exceptions are limited to single norms, that
are: Art.17 GATS, National Treatment and Art. 2 GATS, and to the Most Favoured
Nations.
• Furthermore, there are some exceptions that are specific for financial services and are
listed in Paragraph 2(a) of the Annex on Financial Services. They mainly deal with

 Prudential Reasons (including the protection of investors and the stability of the financial
system). These measures may be all measures concerning the Supply of Financial
Services for Prudential Reasons. It is important to demonstrate that these measures are
applied not for avoiding GATS obligations.

SECURITY EXCEPTIONS
• These are listed in Art. 21 GATT and these are:
(A) No information the disclosure of which is contrary to essential security interest;
(B) Any action necessary for the protection of essential Security interest (such as:
fissionable materials; traffic in arms, ammunition, and implements of war; taken in time
of war or other emergency in international relations);
(C) Any action in pursuance of its obligations under the United Nations Charter for
the Maintenance of International Peace and Security.

• In other words, these are political exceptions introduced in an after-war period,

characterised by the development of nuclear resources, to have a bit more security on both
the political and war spheres.
• Therefore, national security can be a reason for the application of exceptions to
GATT obligations.
• These exceptions are at the discretion of States and provide the duty to inform other
parties (to safeguard their security). However, due to their political nature, these
exceptions are characterised by a scarce justiciability.
• Art. 14 bis GATS includes similar provisions to Art.21 GATT. However, these
provisions have never been applied.

SAFEGUARD MEASURES
Safeguard measures are exceptions to the GATT and they are defined in Art. XIX GATT, that
has been implemented by the SG Agreement adopted during the WTO negotiations in 1994.
The Agreement establishes a special Committee on Safeguards, with a very important role in
establishing measures applicable only in the following cases:
● Economic Emergencies: when States are in negative conditions,
● Fair Trade: not as a response to unfair practice, the States in negative conditions can
adopt them trying to make up for the crisis.
These measures have an Extraordinary Nature and they are subject to very strict conditions,
they can only be applied on actions on import, influencing the internal market.

SUBSTANTIVE REQUIREMENTS
Art. 2.1 SGA entails a necessity to have an economic emergency caused specifically by an
increase in imports of a certain product. The levels of import must be considered in terms of
absolute (exact amount) and in relative (wrt the domestic market) terms.
The increase must be recent in order to be recognized as a responsible issue and it must be
sudden (not foreseeable). The increase can only affect some specific products.
The increase must cause serious injury to the domestic economy and we also need a causal
link between the increase of import and the injury in order to allow a state to adopt the
measures.

● Serious injury to domestic industry Art. 4.1 SGA:

- Domestic industry: product suffering with respect to the import and the
producers, the domestic industry are the producers who produce a very like or
competitive product to the one taken into account. We have to look at the number
of the producers involved or a major portion of them.
- Serious Injury: impact that the increase has had on the domestic industry, we
have to analyze the amount of increase in import and the amount of injury. It is
possible to have a threat of injury, the threat must be imminent and likely to
happen.
- Causation: causal link between import and injury, the link can’t be prevented by
the existence of other factors (principle of non-attribution), If there are no other
factors which we can blame for the serious injury, the injury has then been
provoked by the import of the specific product from abroad.

PROCEDURAL REQUIREMENTS
Art. 3 SGA states that procedural requirements affect both the proceedings and the
characteristics of the measures.
Proceedings are carried out by a national authority that has the duty of investigation before
adopting those measures, they must notify the beginning to the SG Committee. It must also
inform the SDGC about the adopted measures, in the end the authority must send a report to
the committee about the case, its development and the measures adopted.

CHARACTERISTICS OF THE MEASURES

Art. 5.1 SGA states that measures must be necessary and most suitable, their effectiveness
must be tested. They have a temporary effect according to Art. 7 SGA. All the measures
must be non-discriminatory as to the origin of the product imported.
Application is selective with only two exceptions:
- Disproportionated import from a specific country,
 - Not applied to Developing Countries when the import is no more than 2% of the
total amount.

o Art. XIX GATT allows the adoption of any measure aimed at establishing balance
between imports, in the SGA some measures are not allowed to respond to a case of
increase of import.
o Exporting States may contribute differently to the increase in imports, so quotas of
restrictions are allocated according to their responsibility.
o Art. 8 SGA, States adopting SG measures are obliged to compensate measures by
means of concessions in other products or sectors upon consultation of the Committee.
o Art. 6 SGA allows provisional measures before the adoption of safeguard measures in
some specific cases such as critical circumstances. They are allowed only if national
authorities have carried out a preliminary determination.
Their maximum duration is 200 days, to avoid measures to affect a state’s interest.

SG MEASURES ON AGRICULTURE (special issue for WTO)

Art. 5 Agriculture Agreement regulates SG measures in case of increase of the volume of
import beyond a trigger value (level of danger).
It is also possible to adopt them when import prices go below a certain trigger value in the
agricultural market. An injury is not necessary to proceed.

SG measures can’t be adopted in the case of trading services. GATT established in Art. X that
States are invited to negotiate norms of safeguard. These negotiations have taken place
without no effect so far.
BALANCE OF PAYMENTS
Art. XII and XVIII GATT establish exceptional measures to maintain the Balance of
Payments of a State. From 1994, an Understanding on BoP Provision was implemented and
created a specific organ aimed at supervising all the procedures affecting BoPs, it is the BoP
Committee.

Art. XII GATT imposes restrictive measures on import in order to safeguard the external
financial position or its BoP (applicable to all States).
Art. XVIII GATT allows restrictive measures only for Developing Countries, in particular
States ensuring low standards of living or early stage of development in order to implement
its program of development (Section B).

MEASURES ALLOWED
According to Art. XII GATT is applicable only to measures affecting imports.
The BoP Understanding forbids quantitative restrictions, Art. XVIII GATT instead allows all
measures.

Art. XVIII(9) GATT provides flexibility for developing countries.

All the measures must be applied in a non-discriminatory manner depending on the country
of origin of the good. All these measures must have a temporary nature.

PROCEDURE
● When a State wants to adopt a measure on the BoP, they must notify the BoP
Committee.
● A consultation starts among all the WTO parties for some new restrictions.
● The result of the consultation is notified to the general council submitting a report to
the BoP Committee.
● The general council decides to keep the measures, if they are not able to make a
decision, the BoP committee may eventually intervene on specific measures.
● An international organ is deciding on measures (first procedure).
● A revision by the panels is possible (judicial organs), because of their competence on
the application rather than on the substance.

Art. XII(1) GATT extends BoP measures to services in case of serious difficulties affecting
the BoP or external financial relationships of a State.
Measures can be adopted on payments or transfers for services.
The measures must be:
- Non-discriminatory,
- Necessary,
- No further damage to other States,
- Consistent with IMF decisions (wrt services): when measures on BoP affect services,
the decision is agreed between WTO and IMF.
rosso→ titolo
giallo→ argomento generale
verde→ sub-argomenti degli argomenti generali

9F→ REGIONAL EXCEPTIONS

WTO aimed at favouring international integrational trade to allow a global market to exist.
Wto allows the existence of some forms of regional trade integration that allows states to
have stricter relations with those states that are closer to them (in geographical terms). This
principle already existed at the time of the GATT, in 1947.
1. REGIONAL TRADE AGREEMENTS (RTA)=Regional exception, so the possibility to
not follow some agreements as the WTO or GATT in favour of some regional treaties
concerning commercial issues.
2. PREFERENTIAL TRADE AGREEMENT (PTA)= During the years, within the GATT,
some states decided to establish some agreements in which they recognize
preferential treatments for some state even if they were not geographically near, but
just for political, cultural, interests purposes. So RTA was substituted by PTA.
3. SOURCES OF LAW that regulated this issue are:
● ART. XXIV GATT + 1994 UNDERSTANDING→
● ART. V GATS→ norm that regulates trade of services on PTA
● ENABLING CLAUSE AND WITHDRAWAL FROM ART. I GATT → special
instruments applicable in case of agreement with developing countries.
● TRANSPARENCY MECHANISM→ a mechanism that enables the perfect
integration of those instruments previously mentioned.
ART. XXIV (5) GATT→ states are allowed to establish RTA if this agreement complies with
the requirements of ART XXIV and in the other norms of the WTO. Recognition of 3 types of
regional integration:
a) establishment of a custom union
b) establishment of free trade areas (FTA)
c) adoption of an interim agreements (agreement to establish a custom union or a free
trade area in the future)
1994 UNDERSTANDING ON ART. XXIV→ establishment of some criteria, namely 2
principles by which RTA must comply with:
1) not to raise barriers→ RTA must favour the liberalization of trade
2) avoid to create adverse effects on the trade of other WTO members

CUSTOMS UNION
3 different hipotesis of RTA provided in ART.XXIV (5) of GATT.
An agreement establishing a custom union or the measures adopted in this agreement in
order to make it working must comply with two conditions, in fact a custom union must be
consistent with the provision of
- ART. XXIV (8) (a) of the GATT, concerning norms the characteristics of custom union
- ART. XXIV (5) (a) of the GATT, concerning the way in which the custom union must
work
- The measures established on the agreement of the custom union must be necessary
to allow the existence of the custom union→ if those obligations are unnecessary and
inconsistent, they are unlawful.
According with ART XXIV a custom union is a substitution of single custom territory for two
or more custom territories→ this substitution must be done according with two requirements
established in ART XXIV (8) (a):
- Abolition of substantially all duties within the custom territory→ in a custom union is
impossible to have duties within the custom unions, so all the duties that used to
exist between the states that established the custom union are abolished.
- need to apply substantially the same duties to third states with respect to custom
union.
Those 2 requirements are recognized respectively as the Internal and External dimension of
custom union.
In order to establish a custom union consistent with ART.XXIV, states must comply also with
paragraf (5):
- it is not allowed to establish higher duties than before the formation of the custom
union→ economic test performed to compare the restriction before and after the
custom union.
- Modification of schedule→ change the condition with third states (mutual agreement)
- Compensatory adjustments→ it happens if a mutual agreement is impossible to find
and the third state believes that it suffers for the custom union.
A last condition must be applied for the proper creation of the custom union:
- the norms or measures have to be necessary for the formation of the custom union
necessity→ a measure is necessary only if it is the least restrictive possible and if it has no
other possible alternatives.

FREE TRADE AREA

FTA must be established with an agreements and measures in compliance with:
- ART. XXIV (8) (b) GATT→ abolition of substantially all duties within the area. The
difference with custom union is that here we have only the internal dimension and the
external is not necessary to be applied.
- ART. XXIV (5) (b) GATT → not higher duties than before the formation of the FTA
- Only necessary requirements (as for custom union) but for this issue none of the
body of the WTO have made an interpretation.

INTERIM AGREEMENTS
Aimed at creating a customs union or a FTA.
- ART. XXIV (5) (c) GATT → duty to submit a plan of the formation of the custom union
of FTA in a reasonable time (before 1994) and specified (the meaning of reasonable
time) in the 1994 understanding as no more than 10 years.

DIFFERENTIAL TREATMENT IN TRADE GOODS

Among the Preferential trade agreements, there are agreements that are aimed at
establishing a relationship based on common interest between states, in particular the
interest of developing countries. A further decision can be distinguished among those
agreements, a decision taken at the end of the tokyo round in 1979→ Differential and more
favourable treatment reciprocity and fuller participation of developing countries, namely the
Enabling clause→ every agreements aimed at helping developing countries are allowed
and are considered exception of the general norms established by WTO or GATT.
Waiver from ART.I of the GATT→ another instrument that establishes an exception from
the general rules.
WTO ministerial conference in Hong Kong in 2005→ decision on duty-free and quota-free
market.

ENABLING CLAUSE
It was included in the negotiation of instruments of the GATT in 1994. it is a treaty obligation.
1. Paragraph 1(c) → developing states may enjoy differential treatments from regional
and global agreements:
a. designed to facilitate trade of developing countries
b. not aimed at raising barriers to trade
c. no reciprocity with developed countries
d. restraint of developed countries from seeking concession and contributions
COMESA (common market of estern-south Africa) and INDIA agreement are examples of
agreements subject to the enabling clause.
WAIVER FROM ART.1 GATT
recognition of preferential treatments in 1999
- differential treatment from least developed (in commercial activities) countries as to
MFN principles
- applied by developed states
- consultation from application by developing states
The waiver lasted only 10 years and in 2009 and in 2019 was renewed.
DECISION ON DUTY-FREE AND QUOTA-FREE MARKET
final form of preferential treatments of least developed countries. establishment of a market
for least developed countries that is duty- and quota-free.
- In favour of least developed states
- developed states improve their conditions when facing commercial activities with less
developed countries.
- developing state effort→ developing can recognize this market, but they are not
obliged.

REGIONAL EXCEPTIONS IN SERVICES

ART. V GATS (general agreements on trading services). allowed preferential trade
agreements on services, as soon as they are in compliance with some requirements:
01. agreements liberalising trade in services in compliance with paragraph 1 (regards
content and scope of agreement)
02. agreements designed (paragraph 4):
a. to facilitate trade among the parties
b. not to raise barriers to trade in services
03. measures allowing to enter the agreements
04. measures adopted in compliance with the agreement
ART. V (1) (a) GATS→ substantial sectoral coverage (no general agreement on services but
the agreement must cover just a specified type). 3 criteria to evaluate the compliance of an
agreement on services:
- number (nt all the services but just specified ones)
- volume
- method of supply (the agreement must contain just a single method)
Another substantial requirement can be found in ART. V (1) (b) GATS→ establishes, in order
to have an effective regional agreement in service, the elimination of substantially all
discriminations relating to ART. XVII GATS (recognize the principle of national treatments→
apply the same rules for every state) by means of:
- elimination of existing discrimination measures
- prohibition of additional discrimination measures

LABOUR AGREEMENTS
Agreements that recognize special rights in favour of workers.
ART. V bis GATS recognizes the possibility to adopt and sacrifice other norms of the gats in
order to apply labour agreements
➔ labour market integration agreement (for independent or collective workers)
➔ substantial and procedural requirements to be in compliance with GATS:
- no residence or work permit conditions for the workers enjoying this right
- duty to notify the council on trade in service

DIFFERENTIAL TREATMENTS
The differential treatment of developing countries is also recognized with respect to services.
it is established in:
I. ART. V (3) (a) GATS:
A. flexibility for developing countries (in order to maintain for developing
countries some rules, that in practice are forbidden)
1. according to the level of development
II. ART. V (3) (b) GATS:
A. economic integration agreements (also in services), and must fulfill some
criteria:
1. Between developing countries only
2. Favourable treatments for nationals of states parties that are owners
of legal persons.

RTA PROCEDURE
The RTA procedures are aimed at improving transparency and compliance of this
agreements with respect to WTO. even at the beginning a norms in the GATT was
established, that was the one of the obligation of notification
● ART. XXIV (7) (a) → obligation of notification (a state should inform the other GATT
members) → from this norms, other have been established and improved:
● 1994 council on trade in goods and council on trade in services become the
competent organs to receive the notification of the states that want to apply the RTA.
The former precisely, was charged with receiving the notification of the establishment
of a custom union or free trade area or interim agreement. The latter, instead, is
competent to receive the notification about the formation of the economic trade
agreements, such as RTA or Preferential agreement on services or labour
agreements.
● 1996 committee on regional trade agreements (RTA committee) → competent organ
to receive all the information (front organ that manages all the issues related to
trade).
- ART. XXIV GATT
- ART. V GATS
● 2006 Doha decision→ RTA transparency mechanism (never become binding)
➔ RTA committee
 ➔ WTO secretariat
➔ procedure:
1. notification of state received by the WTO secretariat
2. secretariat factual presentation (facts about the agreement presented)
to RTA committee
3. RTA database
● Dispute settlement
➔ different competences with respect to RTA committee

ENABLING CLAUSE PROCEDURE

● 1995 new committee established on trade and development, focused on the issues
related to the RTA or preferential agreements adopted according to:
➢ enabling clause
➢ ART. V (3) (a) GATS
● Transparency mechanism
➢ committee on trade and development
➢ procedures:
1. Notification (intention of adoption of the agreement)
2. Consultations (establishing the conditions)
3. RTA database (collection of results)

ART. I GATT WAIVER PROCEDURE

❖ original procedure
1. notification to the council on trade in goods
2. supervision of the general council (highest executive organs of WTO) and
final decision

DUTY-FREE AND QUOTA-FREE MARKET AGREEMENTS

❖ original procedure
1. notification to the committee on trade and development
2. supervision of the general council

❖ 2013 Bali decision→ transparency mechanism (created in 2006) extended as PTA

1. notification to the committee on trade and development
2. consultation within the committee
3. report of the committee to the general council
4. RTA database
This last decision (Bali) is extended for both duty- / quota-free market and for waiver of ART.
I GATT.
CONCLUSIONS
Positive effects:
- increase of the volume of trade
- economic growth
- increase of the capabilities of negotiations. Thus, indirectly, facilitation of the WTO
development
Negative effects.
- retardation of global trade integration (that is the principal aim of WTO)
According to studies performed in 2016 concerning the systematic implication on multilateral
trade system of the adoption of regional or preferential trade agreements
- coherence between multilateral and regional trade system (no conflict of interest at
this stage→ this type of agreements are both necessary, what is important is the
coordination between them→ need of coherence between WTO and regional
agreement adopted by states→ for this reasons the WTO has enhanced its role in
the negotiations and supervision on the implementation of regional agreements to
ensure that this implementation is performed in accordance with the WTO
obligations.
 EU EXTERNAL RELATIONS

International legal Personality and International Legal Capacity

• The European Union is one of the most developed governmental systems both at
a domestic and international level.

• According to international law, the EU is recognised an international organisation.

However, it must demonstrated its independency.

• As set out by Art. 47 of the Treaty on the European Union (TEU) (Lisbon
Treaty, 2004), the EU has legal personality as opposed to the EU established
after the Maastricht Treaty in 1992.

• Furthermore, according to Art. 335 of the Treaty on the Functioning of the

European Union (TFEU), the EU has legal capacity in order to act within its
domestic legal system and to stand before national courts -> “ In each MS, the
Union shall enjoy the most extensive legal capacity accorded to legal persons
under their laws; it may, in particular, acquire or dispose of moveable and
immoveable property and may be a party to legal proceedings”.

• Nevertheless, although the EU is a system that recognises its legal personality, it

is necessary to analyse the behaviour of third parties with the EU to understand
whether or not its legal capacity is recognised an international level. As
demonstrated by the establishment of international treaties between third parties
and the EU, the legal personality of the latter is recognised at an international
level. Otherwise, their parties would have signed treaties with Mss rather than
with the EU.

• The External Representation of the EU is promoted both at a Political and

Judicial level. The former is carried out by the President of the European
Council, the High Representative for Foreign A airs and Security Policy (who
de nes the activity of the EU w.r.t. third parties), and the Commission (it was the
rst organ representing the EU and has the task to negotiate international a airs).
The latter is carried out by the UNCLOS (United Nation Convention on the Law
of the Sea), the WTO, and the EEA (European Economic Area, characterised
by a Free Trade Area). Therefore, the EU has di erent representatives for each
one of its external actions.

• The European External Action is carried out according to funding principles

listed in the Art. 21 TEU. Furthermore, the EU deals with the Common Foreign
and Security Policy which is carried out by the Commission after unanimous
agreement. Furthermore, the EU carries out other external policies such as the
Common Commercial Policy, the Cooperation with Third Countries and
Humanitarian Aid (es: the establishment and formation of relations with
developed and developing countries), and the Relations with International
Organisations.
• Art. 216 TFEU sets out the power of the EU to establish treaties with third
countries without the participation of MSs -> ”The Union may conclude an
agreement with one or more thir countries or international organisations: (a) where
the Treaties so provide; (b) where the conclusion of an agreement is necessary in
order to achieve, within the framework of the Union’s policies, one of the
objectives referred to in the Treaties; (c) where it is provided for in a legally
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 binding Union act; and (d) where it is likely to a ect common rules or alter their
scope (that means that states are not always free to establish agreement with
third countries because they may alter the e ciency of the EU such as hindering
the power of the Euro, therefore, the EU reserves the power to act for the
collectivity to prevent these scenarios).”
• (NB) These cases are very speci c and have been listed by the EU Court of
Justice to de ne whether or not the EU can behave independently from MSs with
its Treaty.Making Power.

• The Treaty-Making Power is characterised by the Principle of Parallelism

which grants either Exclusive Competence of the EU or Shared Competence
of the EU and MSs according to the actions in consideration. Therefore, the EU
has individual power to make decisions over speci c areas, while it shares
common competence over other precise areas. The EU Exclusive Competence
is granted by the Principle of Subsidiarity which states that the EU has the
power to act when the initiatives of MSs alone are not enough to achieve the
goal.
• The exclusive competences of the EU are set out in Art. 3(2) TFEU which are
sanctioned in a EU form, in those cases where it is necessary to exercise these
competences to avoid/alter any impact on the e ectiveness of common
obligations. To understand whether or not the action is of exclusive competence
of the EU we must consider three points. The action must be recognised in a
norm of the treaty /EU act/ case law/… . Furthermore, this competence must
be exercised by the EU bodies and a process of harmonisation must be
carried out (i.e. all EU MSs agree to some common rules that prevent individual
initiatives against the EU actions).

• The shared competences of the Union deal with the internal level of the EU,
which later translate into international action. Furthermore, we speak about
shared competence (and not of individual competence of MSs) because the
cooperation of the EU bodies is necessary to achieve the purpose ->
principle of subsidiarity. As a result, the agreement reached from the
cooperation between EU bodies and MSs are known as Mixed Agreements.
On the other hand, the agreement reached by the EU only are carried out by the
FAO (in these cases the MSs delegate the EU to represent them at an
international level), while those reached by MSs only are carried out by the ILO
(international Labour Organisation) (mainly for domestic actions).

• The fact the the EU has legal personality and is independent at an international
level represents a limit to MSs’s freedom, in particular in the adoption of treaties
since they cannot participate in the negotiation of treaties whose subject
matters interests the European Community. As a result, as set out by Art.
34(2) TEU UN concerning the Security Council, and demonstrated by the
2009 ICJ Black Sea Case, the EU has power to represent the Union, but
taking into consideration the interests of both the Community and the
individual MSs. On the other hand, MSs have power to act independently on
speci c subject matters. Furthermore, as sets out by Art. 351 TFEU, the action
of the EU a ects also treaties that have been signed by States before
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 becoming Members of the EU. Therefore, MSs must adopt to the policies of the
EU even if they’ve signed agreements con icting with current EU policies.

• Although the EU has the power to sign agreements independently, we nd

several procedures that must be followed for the proper execution of these
treaties. These procedures vary according to the subject matter of the
di erent agreements.
• We have the Ordinary Procedure (Art. 218 TFEU), the Commercial
Agreements (Art. 207 TFEU), the Association Agreements (Art. 217 TFEU),
and the Development and Cooperation Agreements (Arts. 208 and 212
TFEU).

• The Ordinary Procedure (Art. 218 TFEU) is carried out by the EU body of the
Council authorities Commission, which allows the Commission to carry out
Negotiations (to balance the interests of the the MSs) that are brought to the
attention of the Parliament’s that gives its Opinion on the Treaties (not always, but
for some subject matters it is mandatory) and if it is negative, the Treaty cannot
be adopted. Once this procedure is concluded, the Council makes its Decisions.
In cases of doubt of the compatibility of the agreement with EU treaties, upon
request of the MSs/ Council/ Parliament/ Commission, the European Court of
Justice has the power to make a binding opinion for the acceptance or
refusal of the Treaty.
• Throughout this procedure, the Parliament’s consent is required (and binding)
if it deals with Association Agreements (when the EU establishes strong
relations with 3rd Countries), Accession to the European Convention of
Human Rights, Establishing Institutional Framework, Budgetary
Implications, A ecting Fields where the Ordinary Legislative Procedure
applies (i.e. subject matters where the Parliament’s Opinion is mandatory).

• Once these procedures are carried out, the Council has to make its decision if
it wants to nally adopt the Treaty. In some cases, unanimous agreement is
necessary, as in the case relating to Association Agreements, Accession to the
European Convention of Human Rights, Economic Cooperation Agreements with
the States which are Candidates for Accession (in particular if the agreement are
going to make 3rd Countries part of the EU), and A ecting Fields where
unanimity is required at the EU internal level.

• The Commercial Agreement’s Procedure (Art. 207 TFEU) has huge

importance for the Union since the economic interests of MSs and the Union
must be preserved. In these cases, the Parliament and the Council must adopt
Regulations on the Framework for the Commercial Policy. Thus, the Commission
has to discuss about the negotiations with the help of the Directorate General of
Commercial Action after Council’s authorisation. Once majority is reached, the
agreement is established. However, throughout this process, the Parliament has
to monitor the proper functioning of negotiations. Furthermore, there are some
cases where the Council decision must be unanimous, as in the cases dealing
with Cultural and Audio-Visual Services; Social, Educational and Health Services
(in these cases the EU doesn’t have exclusive competence); Commercial
Aspects of Services; Foreign Direct Investments; and IPRs (intellectual property
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 rights). In all the other cases, the Council makes its decision according to
majority.

• The Association Agreements (art. 217 TFEU) requires the unanimity of the
Council and the consent of the Parliament (the opinion of the parliament is
mandatory and binding). Furthermore, since these agreements deal with the
establishment of relations with 3rd countries, nancial contributions usually
follow. Hence, the opinion of MSs has a huge importance, which results in the
establishment of Mixed Agreements.

• The Cooperation Agreements can be dived into two categories, one relating to
Developing countries (art. 208 TFEU) and one dealing with the establishment
of Economic Cooperation (Art. 212 TFEU). In the latter case, the opinion of
MSs is of huge importance, hence, these agreements take the form of Mixed
Agreements.

• As to the E ectiveness of International Agreements made by the EU, we’ve

to make a distinction their e ectiveness at an international level and the one
at a Union level. For the one at the international level, the agreements
become part of the EU Law and must be in compliance with the values and
laws of the Union to not result in a breach of law. On the other hand, at the
Union level, although these agreements are binding both at an international and
Union level, more di culties occurs. More in detail, at the international level they
are binding because the EU is one of the parties of the agreement and so
become binding for the EU legal order. Conversely, at the internal level they are
binding because they are the result of the decision of the Council, which
has the role to represent EU MSs before 3rd Countries, as de ned by Art.
216 TFEU.
• From an individual perspective, these agreements are binding and so they can
be invoked before EU and international courts if directly applicable as EU
Law.

• W.r.t the Hierarchy Among EU Sources of Law, these agreements are just
below the EU Treaties, which are the direct result of negotiations between MSs
and the EU, and at a higher position than the directives and the decisions
made by the Union. Therefore, if the regulations adopted are contrary to the EU
Treaties (international agreements) these can be considered as unlawful, while,
on the other hand, if these regulations are incompatible with decisions and
directives, the latter will be harmonised.
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EU COMMON COMMERCIAL POLICY
• Commercial and association agreements since 1957
• Customs union since 1972- cooperation between states based upon internal and external
element. Internal: abolish all barriers. External: adopt same duties and barriers with respect
to third parties. Area where there are no tariff barriers at national level and common tariff
system at external level.
o Exclusive competence: this list has developed thanks to the case law of European
court of justice that recognized the exclusive or shared competences as to these
different issues.
▪ Trade in goods and services
▪ Commercial aspects of intellectual property (IP)
▪ Public procurement: same obligation for all EU member states
▪ Foreign direct investments
o Shared competence
▪ Portfolio investments
▪ Cultural services
▪ IPRs: intellectual property rights
▪ Dispute settlement: states must participate in this agreement, usually it is
mixed agreement

EU international commercial agreements

• European economic area (EEA)
o Free movement and full participation in the internal market
o Substantial financial contributions
• Switzerland – currently regulated by several agreements
o 1972 FTA and several sectoral agreements
o Free movement of persons (Schengen)
o Substantial financial contributions
• Deep and comprehensive free trade area (DFCTA) (e.g., Ukraine). Area in which EU has a
strong influence on the economic policy and commercial policy of the third states involved.
o Participation in EU agencies, that act with respect to Ukraine.
o Full access to research and innovation programs (e.g., Horizon Europe)
• Customs union (Turkey): has a proper customs union with respect to EU.
o Common external tariff
o Alignment with CCP in relation to third countries
o EU- compatible competition rules
• FTA (Chile 2002 or Mexico 2000)- normal free trade areas
o Liberalization of tariffs and market access
• Partnership and cooperation agreements (Russia)- same conditions as WTO systems
o Promote trade and investment
o Most favored nation (MFN) principle
o Reciprocity between parties and not privileged positions.
 • Eu – Canada comprehensive economic and trade agreement (CETA) and EU- Japan
economic partnership agreement- these are very important because they are not limited to
trading goods, but they also apply to services. Even rights of individuals then come at issue
and must have to be taken into account.
o Deep liberalization of tariffs and non-tariff barriers
o Including services, intellectual property, investment, and regulatory cooperation.

CETA
• 2016
• Provisional application since 2017: now it is applied on a provisional basis
• Free trade area: in which tariffs are almost abolish, although they maintain their autonomous
custom policies
• Mixed agreement: because EU member states did not trust Canada and Canadian companies.
• Controversial negotiations: due to several issues. One was the dispute settlement regime
concerning investments disputes.

• Contents
o Abolition of tariffs- 98%
o Public procurement
o Professional services (accountants, architects, engineers)
▪ Public services excluded
o Direct investments
o Regulatory cooperation
▪ Protection of IPRs and geographic indications
▪ Environmental issues
• Dispute settlement
o Consultation, mediation, arbitration chapter 29,
o Investments disputes art 8.23- most controversial issue. That’s why the agreement is
only provisionally applied. Italy, Germany and others have not yet ratified this
agreement

WTO-EU relationships
• Before 1994- only GATS 1947 was in force and EU community existed
• After 1994- WTO existed and EU community and EU were members of WTO

We have to make distinction between these 2 periods

1947 GATT AND EEC
• From 1957 to 1972
• From 1972 to 1994
o Flexible obligation of GATT
o GATT applicable in inter-state relationships
o Private persons cannot invoke GATT
o States cannot invoke GATT in the name of their nationals
▪ 1994 Germany v. Council Case
o Consistency of EU Acts with GATT norms and measures- these are 2 exceptions
▪ When EU acts expressively recall GATT norms - 1989 Fediol Case- if the
norm is inconsistent with the norm of the GATT is then consider
inconsistent.
▪ When EU acts implemented GATT norms and measures- 1991 Nakajima
case

WTO AGREEMENTS AND EU

• 1994 council decision approving WTO agreements
• No direct applicability because there is not reciprocity in other WTO members
o 1999 Portugal v. Council Case- not fair to recognize the direct applicability of
GATT norms within the EU system because there are many GATT members states
that do not recognize similar effectiveness. It would have been an unbalanced
situation
• Private persons cannot invoke DSB (dispute settlement body) decisions
o 2005 Van Parys Case
• WTO agreements (TRIPS): agreement on issue related to intellectual property, the EU court
of justice, the Trips are part of EU law. Not possible to apply directly a GATT rule, but the
obligations must be taken into account.
o Parts of EU law
o Interpretative instruments of EU acts