Most favoured nation

Introduction
WTO has implemented 3 important agreements
1. GATT
2. GATS
3. TRIPS
These 3 agreements basically deal with – “merchandise trade, service trade and
intellectual property right”
Under all these 3 agreements the common thread is the concept of MFN, and all three
agreements promote the idea of MFN that is Most Favoured Nation.

Discrimination makes people angry and when you discriminate between the trading
partners then entire country can become angry. That’s what the WTO most Most Favoured
Nation principle is all about.
The World Trade Organization (WTO) has made the most favoured nation principle part
of its rules. WTO members are not allowed to favour any one country with another.

Meaning
The most favoured nation (MFN) principle is based on the idea that countries should treat
all other members equally—that no one country should be “more favoured.” It means no
country should give special treatment to goods or services coming from one particular
country to another.

Definiton:
MFN is one of the cornerstones of WTO. The MFN principle of the WTO state that each
of the WTO members equally as “most- favoured” trading partners.
“MFN Treatment - requires Members to according the most favourable tariff and
regulatory treatment given to the product of any one member at the time of import or
export of “like products” to all other members.
Advantage of MFN
The advantages of the most-favored nations are:
1. These nations get access to a wider market for better trade.
2. They pay a lesser cost on their exports due to the reduction in trade barriers.
3. Due to the above opportunities, they get better options in terms of growth in business
and competitiveness.

Elements of MFN
1. Treating other members equally
2. Treating foreigners and locals equally
3. Free trade
4. Predictability

1- Treating other members equally

Treating others people or members of WTO equally without any discrimination means-
when one country gives certain exemption (withdrawal and reduction of tariffs) or benefits
to another country in trading then it is duty of that country who is providing such exemption
and benefits to extend the same kind of exemption and benefits to others members of WTO.
This concept is based on the principle of treating all the members alike.
example
assume two trading country A and B, country A reduce tariffs by 5% import from B to A
on product X, then according to MFN (one of WTO non-discrimination principle) same
kind of reduction is provided by country A to others members of WTO

2- Treating foreigners and locals equally

If a particular product exports from country B to A then the movement X product land into
the market of country A then it has to be treaded equally with domestically manufactured
product without any discrimination.
NOTE - Country A can impose certain tariff and custom on product X but it must imposed
before landing the product in country A, once it landed then such foreigners product must
be treated equally with locals product.

3- Free trade
MFN promote free trade, among the members countries of WTO free trade can be
promoted only when-
• Trade barriers are reduced and or eliminated. It could be tariffs and non-tariffs
barrier.
• Tariff barrier – Custom & non-tariff barrier are – quotas, certification etc

4- predictability
it means whenever the Govt or members countries make certain policies then such policies
must be predictable for future perspective.
Example
If country A says that certain tariff will not be imposed on certain product line, then this
particular policy has to be predictable and has to be continued by this particular govt.

EXCEPTION OF MFN
Where there are rules there are always exceptions
1. One exception of MFN is regarding poorer or developing countries
WTO members are allowed to grant poorer countries (who are under develop or
developing) special treatment to their market without granting the same treatment to others
members of WTO.
GATT members recognized in principle that the "most favoured nation" rule should be
relaxed to accommodate the needs of developing countries, and the United Nations
Conference on Trade and Development (established in 1964) has sought to extend
preferential treatment to the exports of the developing countries.
 2. Countries negotiate Trade agreements
Countries can negotiate trade agreement in smaller groups and this can be done bilaterally
and regionally and then trade is freed up between those partners.
Example – NAFTA, EU, BRICS, ASEAN etc

LEGAL FRAME WORK:

GATT PRACTICE REGARDING MFN TREATMENT AS STIPULATED IN GATT
ARTICLES - I, XIII, AND XVII

GATT ARTICLE I:
Provides for contracting parties to access most favoured nation treatment to like
products of other contracting parties regarding tariffs, regulations on exports and
imports internal taxes and charges and internal regulations.

Non-Discriminatory Administration of Quantitative Restrictions

GATT article xiii stipulates those quantitative restrictions as tariff quotas on any
product must be administered in a non - discriminatory fashion regarding like products
and that in administering import restrictions and tariff quotas, contracting parties shall
aim to allocate shares close to that which night be expected in their absence.

EXCEPTIONS TO THE MFN:

THE GATT provides for certain exceptions to the most favoured nations rule explained
above:
A. Regional integration (GATT Article XXIV) liberalizes trade among countries
within the region, while allowing trade barriers with outside countries. It therefore
leads to results that are Contrary to the MFN principles because countries inside
and outside the region are treated differently. This may have a negative effect on
countries outside the region, and thus lead to results contrary to the liberalization of
trade.

B. Generalized system of preferences (GSP) is a system that grants products

originating in developing countries lower tariff rate than those normally enjoyed
under MFN status, as a special measure in tariffs for developing countries in order to
increase their export earnings and promote their development.

C. Non - application of the agreement b/w specific contracting parties (GATT

ARTICLE XXXV): GATT article XXXV allows for the entire agreement, as
alternatively, article II, to not be applied when either of the following conditions is
met:
i. That 2 countries have not entered into tariff negotiations with each other.
ii. that either of the contracting parties at the time either becomes a contracting
party doesn’t consent to application of either entire agreement or
alternatively, article II.
In the case of non-application, benefits enjoyed by other contracting parties are not
provided to the country of non-application which leads to results that are contrary
to the MFN principle.

D. Other Exceptions. peculiar to the MFN principle include;

a. Article XXVI: 3) Regarding frontiers traffic with adjacent countries.
b. Article I: 2) regarding preferences which were in force at the signing of the
GATT such as the British Commonwealth.
c. General Exceptions: 1) To protect public Moral life + health. 2) Waiver to the
obligations (EXCEPTIONAL CIRCUMSTANCES).
NATIONAL TREATMENT
Imported and locally produced goods should be treated equally at least after the foreign
goods have entered the market, The same should apply to foreign domestic services, and
to foreign and local trade markets, Patents and copyrights.

National Treatment (GATT Article III) stands alongside MFN treatment as one of the
central principles of the WTO agreement. Under the NT Rule, Members must not accord
discriminatory treatment between imports and “like” domestic products (with the
exception of the imposition of tariffs, which is a border measure).

LEGAL FRAMEWORK: GATT ARTICLE III

GATT Article III requires that WTO Members provide national treatment to all other
members.
Article 3(1) stipulates the general principle that members must not apply internal taxes as
other internal charges, laws, regulations and requirements affecting imported or domestic
products so as to afford protection to domestic production.
Article 3(2) stipulates that WTO members shall not apply standards higher than those
imposed on domestic products between imported goods and “like” domestic goods, or
between imported goods and “a directly competitive or substitutable product,”
Article 3 (4) provides that members shall accord imported products treatment no less
favourable than that accorded to “like products” of national origin.

EXCEPTIONS TO GATT ARTICLE III

National Treatment Rule: Although NT is a basic principle under the GATT, the GATT
provides for certain exceptions Outlined below:
A. Govt. procurements
Article 3(8) permits govts to purchase domestic products preferentially, making govt
procurement one exception to the national treatment rule.
This exception is permitted because WTO members recognise the role of government
procurement in national policy.
B. Domestic subsidies.
Article 3(8) (b) allows for the payment of subsidies exclusively to domestic subsidies as
an exception to the NT rule, under the condition that it is not in violation of other provisions
in article III and the agreement on subsidies and countervailing measures.
The reason for this exception is that subsidies are recognised to be an effective policy tool,
and are recognised to be basically within the latitude of domestic policy authorities.
C. Other exceptions.
Exceptions peculiar to NT include the exception on screen Quotas of cinematographic
films under Article III (10) and Article IV.
a. Security exceptions (Article XXI)
b. WTO Article IX on waiver also applies to the National treatment rule.
Case law: Japan Alcohol and beverage case and the Korean beef case.

URUGUAY ROUND

The Uruguay Round was the 8th round of Multilateral Trade Negotiations (MTN)
conducted within the framework of the General Agreement on Tariffs and Trade (GATT),
from 1986 to 1994 by 123 countries as "contracting parties".
The negotiations and process ended with the signing of the Final Act of the Marrakesh
Agreement in April 1994 at Marrakesh, Morocco.
The round led to the creation of the World Trade Organization (WTO), with GATT
remaining as an integral part of the WTO agreements.
The Uruguay Round was, without a doubt, the largest trade negotiation ever, and may very
well have been the largest negotiation ever. It set out rules and principles to cover all global
trade, from banking to consumer products.
The subjects for negotiations, the widest of any GATT round, were tariffs, non-tariff
measures, tropical products as a priority area, natural resource-based products, textiles and
clothing, agriculture, review of GATT articles, safeguards, Tokyo Round agreements ad
arrangements, subsidies and countervailing measures, dispute settlement, trade-related
aspects of intellectual property rights, trade-related investment measures and the
Functioning of the GATT System (FOGS).
The main achievements of the Uruguay Round included:
1- a trade-weighted average tariff cut of 38%;
2- conclusion of the Agreement on Agriculture which brought agricultural trade for the
first time under full GATT disciplines;
3- adoption of the General Agreement of trade in Services (GATS);
4- the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS);
5- the Agreement on Trade-Related Investment Measures (TRIMS);
6- the creation of unified and predictable dispute settlement mechanism (Dispute
Settlement Body-DSB);
7- confirmation of the trade Policy Review Mechanism (TPRM);
8- the establishment of the WTO, which administers 15 multilateral, and four plurilateral
trade agreements;
The Uruguay Round had extended considerably the realm of world trade rules with
agreements on intellectual property and trade in services in ex-change for finally tackling
agricultural protectionism on a broader scale and getting rid of the textile and clothing
quotas.
Question asked in general on trips and emphasis is on IPR

TRIPS

Introduction

• The TRIPS agreement came into forced on 1995

• It was negotiated at the end of the URUGUAY round of GATT in 1994
• TRIPS council is responsible for administering and monitoring the operation of the
TRIPS agreement.
The TRIPS agreement is also described as a BORNE and PARIS PLUS agreement
TRIPS- Trade related aspects of intellectual and property right (TRIPS) is the most
comprehensive and multilateral agreement which has 73 articles and 7 parts.
Trips is an international agreement administered by WTO and WTO lay down minimum
standards norms for the protection of IP which would be applicable to all others members
of WTO.
Same was done by WTO in GATT and GATS for the protection of goods and services
respectively.

Intellectual property right

IP rights basically give certain right to owner for his innovation
Meaning- IP rights are the rights given to persons over the creations of their minds. IPRs
are legal rights that protect these creations. IP rights give their owners rights to exclude
others from making use of their creations only for a limited period.
IP rights entitle the owners to receive a royalty or any sort of financial compensation or
payment when another person uses their creations.
IP includes-
1. Trademark
2. Patents
3. Copyrights
4. Industrial design
5. GI
6. Layout design
7. Trade secrets
Trademark- sign or a combination of sign used to distinguish the goods and services of
one enterprise from another
Copyright – it usually refers to the rights of authors in their literary and artistic works
GI – name or indication associated with a place is sometimes used to identify a product.
Patent – it is an exclusive right granted for an invention. To get a patent, technical
information about the invention must be disclose to the public in a patent application. They
must ne protected for at least 20 years.
Layout design of integrated circuit
Industrial designs – type of intellectual property right awarded for the protection of the
visual aspects of item.

Requirements of TRIPS
Copyright terms must extend at least 50 years, unless based on the life of the author.
Copyright must be granted automatically, and not based upon any "formality," such as
registrations, as specified in the Berne Convention.
Computer programs must be regarded as "literary works" under copyright law and receive
the same terms of protection.
National exceptions to copyright (such as "fair use" in the United States) are constrained
by the Berne three-step test.
Patents must be granted for "inventions" in all "fields of technology" provided they meet
all other patentability requirements (although exceptions for certain public interests are
allowed (Art. 27.2 and 27.3) and must be enforceable for at least 20 years (Art 33)
Exceptions to exclusive rights must be limited, provided that a normal exploitation of the
work (Art. 13) and normal exploitation of the patent (Art 30) is not in conflict.
No unreasonable prejudice to the legitimate interests of the right holders of computer
programs and patents is allowed.
Legitimate interests of third parties have to be taken into account by patent rights (Art 30).

Obligations
It requires signatory countries to adhere to its criteria for intellectual property monopoly
grants of limited duration.
Adherence to the Paris Convention, Berne Convention and other WTO Conventions.
All developed countries were given twelve months from the date of signing the agreement
to implement its provisions.
Developing countries and transition economies (under certain conditions) were
given five years.
Least developed countries (LDCs) were given 11 years, until 2006, to comply.
There are currently 30 LDCs within the WTO organization bound by TRIPS and another
10 LDCs are waiting accession.

Patentee Rights
The rights obtainable by patentees are clearly outlined in Article 28.
The TRIPS agreement provides that inventions must be disclosed by publication (Article
29) and sets out a minimum term of 20 years for patent protection.
TRIPS also provides rules regarding domestic procedures and remedies for the
enforcement of intellectual property rights
The rules are general principles applicable to all enforcement procedures.
They contain provisions on civil and administrative procedures and appropriate remedies
so that right holders can effectively enforce their rights.

Effects of TRIPS
• One of the effects of the TRIPS agreement has been to tie trade and intellectual property
together.
• Developing countries have opposed the range of nontariff barriers, such as the protection
of inventions, which they see as preventing them from trading competitively throughout
the rest of the world.
• Controversy has arisen over perceptions of inconsistency between the TRIPS Agreement
and other international agreements, such as the Convention on Biological Diversity.
• Patenting restricts the availability of the latest chemicals, pharmaceuticals and fertilizers,
thereby necessitating the use of older, less safe and more toxic products.
• There have been reports that intellectual property rights on plant varieties erode biological
diversity, especially in agriculture.
• Some countries demand existing intellectual property system should accommodate
concepts traditionally outside of the scope of intellectual property, for example indigenous
and traditional knowledge.

Question asked in 7.5 marks – Doha declaration in general

DOHA DECLARATION

The Doha Declaration on the TRIPS agreement and Public Health was adopted by the
WTO ministerial conference of 2001 in Doha on November 14, 2001.
Agrees that the TRIPS agreement DOES NOT AND SHOULD NOT prevent member
countries taking measures to protect public health as also provided in Art 8.
It gave right to every WTO members to grant compulsory licences.
TRIPS also specifies enforcement procedures, remedies and dispute resolution
procedures
Overview of Doha agreement
The trade negotiations are achieved by consensus and with the single undertaking. Doha
Round is formally not completed but some issues related to Doha Development Agenda
were taken up in the Nairobi Ministerial Conference (10th WTO Ministerial Conference)
that took place in December 2015. Read the overview below:
1. It is the first round of negotiations since the WTO adopted a multilateral trading
system in 1995 and the first of the nine rounds to put the development of developing
nations at the centre stage.
2. 157 members of the WTO participated in the Doha Round
3. The major subjects for negotiations that are covered in Doha Round are:
a) Multilateral environmental agreements
b) Trade barriers on environmental goods & services
c) Fisheries subsidies
4. The negotiations on the trade and the environment were the first of its kind in
WTO/GATT rounds of negotiations.
5. Issue of the Geographical Indications is the only intellectual property right issue
included in the Doha Round.
6. The Doha Round is formally not completed.
One of the focus points of Doha Round was to put the development of the developing and
lesser developed countries at the heart of the trade negotiations. Special and differential
treatment for the developing countries made the core of the Doha Development Agenda.

Implication of TRIPS agreement

Promotion and enforcement of intellectual property shall contribute to the promotion of
technological innovation and to the transfer and dissemination of technology to the new
advantage for producers and uses of technology.
Member country should design domestic intellectual property e regulation on the basis of
TRIPS provision
In India government has made major amendments to the 1970 panel act 2005, in 2010
copyright act was amended which came into force on 2012

Question asked in 7.5 marks – nature and scope of WTO

WTO NATURE AND SCOPE

Introduction
The world trade organization is 'member - driven', with decisions taken by general
agreement among all member countries and it deals with the rules of trade between
nations at global level.
They deal with agriculture, textiles and clothing, banking, telecommunication,
government purchases, industrial standards and product safety, intellectual properties
The WTO agreements are lengthy and complex because they are legally text covering a
wide range of activates among member countries trade and services
The WTO came into origin on Jan 1st 1995. It was the lengthy Uruguay round of GATT
negotiations. The WTO was essentially an extension of GATT.

Nature of WTO:
The WTO aims to achieve its objectives by reducing existing barriers to trade and by
preventing new ones from developing.
It seeks to ensure fair and equal competitive conditions for market access, and
predictability of access for all traded goods and services.
This approach is based on two fundamental principles: the national-treatment and most-
favoured nation principles.
Together, they form the critical "discipline" of non-discrimination at that core of trade.
The principle of national treatment requires, in its simplest terms, that the goods and
services of other countries be treated in the same way as those of your own country.
The most favoured nation principle requires that if special treatment is given to the goods
and services of one country, they must be given to all WTO member countries. No one
country should receive favours that distort trade.

Scope of WTO
To oversee implementing and administering WTO agreements.
To provide a forum of negotiation
To provide a dispute settlement mechanism
Raising standards of living
Ensuring full employment
Ensuring large and steadily growing real incomes and demand
Expanding the production of and trade in goods and services.