Akansha Rukhaiyar

B.A. LL.B 2015

TRADE LAW FINAL NOTES

WEEK 4-5

ARTICLE I: MOST FAVORED NATIONS

The context of the MFN principle of GATT is to forbid Members to discriminate

among ‘like’ products originating from other Members, by imposing an equal
treatment by the members of GATT of imports and domestic products. For
example, if Italy imposes a 10 per cent tariff on German cars, it cannot impose a 20
per cent tariff on French cars.

Furthermore, Article 1 of GATT explicitly states that any trade advantages

granted one member must be 'unconditionally' and ‘immediately’ offered to all
members of WTO. This means that if a country is accorded any trade advantage,
the same trade advantage shall be accorded ‘unconditionally and immediately’ to
all other members of WTO. So, the Appellate Body Report on Canada–Autos
concluded that the measures maintained by Canada did not afford the same import
duty exception immediately and unconditionally to motor vehicles imported from
all WTO members, as required by the MFN principle of GATT 1994.

The purpose of MFN under GATT is to prohibit discrimination between like

products originating in, or destined for, different countries. The purpose of the
MFN principle is to ensure equality of opportunity to import from or to export to
all WTO Members. In EC–Bananas III, the Appellate Body stated, with regard to
WTO nondiscrimination obligations (such as the obligation set out in Article I:1):

"The essence of the non-discrimination obligations is that like products should be

treated equally, irrespective of their origin. As no participant disputes that all
bananas are like products, the non-discrimination provisions apply to all imports
of bananas, irrespective of whether and how a Member categorizes or subdivides
these imports for administrative or other reasons."

In other words, any member of the WTO that gives a favorable treatment to
another partner is under the obligation to grant the same treatment to all Members
of the WTO.
 Akansha Rukhaiyar
B.A. LL.B 2015

When one member treats another member of GATT differently, by granting an

advantage to one member but not the others with respect to tariffs and regulations
on exports and imports, internal taxes and charges, and internal regulation, this
treatment is considered to be a violation of MFN's obligation.

TEST UNDER ARTICLE III AND APPLICATION OF CASES

It is the status awarded by 1 nation to another in international trade that one

nation’s product will not be treated worse then any other nations product provided
that the product is like.

Article 1:1- 1) with regard to customs duties, charges with importation or

exportation. 2) Any advantage, favor, privilege or immunity granted by any
contracting party originating in or destined for any other country shall be. 3)
Accorded immediately and unconditionally to the like products originating in
or destined for the territories of all other contracting parties.

a. Immediate and Unconditional:

- Little debate on the meaning of the requirement to accord an
advantage ‘immediately’ to all like products. ‘Immediately’
means ‘without delay, at once, instantly’. No time should lapse
between granting an advantage to a product and according that
advantage to all like products.
- However the term unconditional has two competing
interpretations: 1) Canada – Autos (2000): whether conditions
attached to an advantage granted in connection with the
importation of a product offend Article I:1 depends upon
whether or not such conditions discriminate with respect to the
origin of products and 2) EC – Tariff Preferences (2004)-
ordinary meaning to be given, that is, ‘not limited by or subject
to any conditions’.
b. A complainant has to show neither any actual trade effects nor
the discriminatory intent of the measure at issue to be successful in
claiming inconsistency with the MFN treatment obligation of Article I:1.
Note in this respect that the panel in EC – Bananas III (1997) found that
it is the mere fact of creating more favourable competitive
opportunities for some WTO Members only that triggers the
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B.A. LL.B 2015

inconsistency with the MFN treatment obligation of Article I:1 of the

GATT 1994.

MFN and enabling clause:- NOT IN AGREEMENT SO PLS REMEMBER

- An important exception to the MFN treatment obligation of

Article I:1 of the GATT 1994, and arguably the most significant
special and differential treatment provision in WTO law, is the
‘Enabling Clause’. The Enabling Clause, which is now an
integral part of the GATT 1994, states, in paragraph 1:
‘Notwithstanding the provisions of Article I of the General
Agreement, [Members] may accord differential and more
favourable treatment to developing countries, without
according such treatment to other [Members].’

CASE -- EC – Bananas III case, (Article 1:1) MFN- “The essence of the non-
discrimination obligation is that like products should be treated equally,
irrespective of their origin. As no participant disputes that all bananas are like
products, the non-discrimination provisions apply to all imports of bananas,
irrespective of whether and how a member categorizes or subdivides the imports
for administrative or other reasons.”

ARTICLE III: NATIONAL TREATMENT

GENERAL OVERVIEW
 Akansha Rukhaiyar
B.A. LL.B 2015

1. Members may not use internal measures to discriminate between domestic

goods and those imported from Members; that is to say that imports from
Members are accorded National Treatment.
2. This rule prevents countries from taking discriminatory measures on imports
on the one hand, and to prevent countries from offsetting the effects of
tariffs through non-tariff measures.
3. An example of the latter could be where Member A reduces the import tariff
on product X from ten percent to five percent, only to impose a five percent
domestic consumption tax only on imported product X, effectively offsetting
the five percentage point tariff cut.
4. The purpose of the national treatment rule is to eliminate “hidden” domestic
barriers to trade by WTO Members through according imported products
treatment no less favorable than that accorded to products of national origin.

LEGAL FRAMEWORK

1. GATT Article III requires that WTO Members provide national treatment
to all other Members.
2. Article III: 1 of GATT: Article III:1 stipulates the general principle that
Members must not apply internal taxes or other internal charges, laws,
regulations and requirements affecting imported or domestic products so as
to afford protection to domestic production.
3. Article III: 2 of GATT: In relation to internal taxes or other internal
charges, Article III: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.”
4. Article III: 4 of GATT: With regard to internal regulations and laws,
Article III:4 provides that Members shall accord imported products
treatment no less favorable than that accorded to “like products” of national
origin.
5. How to determine likeness: In determining the similarity of “like
products,” GATT panel reports have relied on a number of criteria including
tariff classifications, the product’s end uses in a given market, consumer
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tastes and habits, and the product’s properties, nature and quality. The same
idea can be found in reports by WTO panels and the Appellate Body.

De facto vs. De jure Violation

 De jure: Apparent on the face of the measure.

 De facto: Not explicit but based on certain feature.

Example: Higher tax imposed on beverages with higher alcohol content than
domestic products.

To determine whether a violation exists or not, there will have to be; (2)
conditions

 An examination whether the differentiation b/w imports & domestic

products actually puts imports at a disadvantage as compared to domestic
products.

 Has to pertain to “like” or “substitutable” goods. (products are ‘like’ or

‘substitutable’ products)

Article 3:2(1):- 2 Tier Test

In Canada – Periodical case, it was decided, there are 2 questions to determine

violation of article3:2

1. Whether imported & domestic products are like products?

2. Whether imported products are taxed in excess of the domestic

products?

If both affirmative, there is a violation of article 3:2(1)

Article 3:2(2):- 3 Tier Test

1. Whether the imported & domestic Products are directly competitive or

substitutable?

2. Whether the products are not similarly taxed?

 Akansha Rukhaiyar
B.A. LL.B 2015

3. Whether the dissimilar taxation is applied so as to afford protection to

domestic production?

DIFFERENCE BETWEEN LIKE AND DIRECTLY COMPETITIVE OR

SUBSTITUTABLE PRODUCTS

In Korea – Alcoholic Beverages case, the difference b/w “like products” &
“substitutable products” was emphasized. “Like products are a subset of directly
competitive or substitutable products whereas not all ‘directly competitive or
substitutable’ products are “like”. The notion of like products must be constituted
narrowly but the category of directly competitive or substitutable products is
broader. While perfectly substitutable products fall within article 3:2, first
sentence, imperfectly substitutable product can be assessed under article 3:2,
second sentence.

Article III: 4:- 3 Tier test:-

1. The measure at issue is a law, regulation or requirement covered by

article 3:4;

2. Imported & domestic products are like

3. Imported products are accorded less favorable treatment.

EXAMPLE under Article III: 4: Limitations on product of sale for imported

alcoholic beverages.

MEANING OF LIKE PRODUCTS IN ARTICLE III: 2 AND III: 4 IS

DIFFERENT

In Japan – Alcoholic Beverages case, the Panel determined the meaning of like
products in Article 3:2, 3:4. It can be said that the concept of ‘like product’ in
Art. 3:4 has a relatively board scope. Its scope is boarder than that of the
concept of ‘like product’ in Art. 3: 2 first sentence.

CRITERIA SET TO DERMINE ‘LIKENESS’

1) Physical taste & preferences

 Akansha Rukhaiyar
B.A. LL.B 2015

2) Ends use of product

3) Consumer taste & habits

4) Tariff Classification

i. Tax in excess of:

1. In Japan – Alcoholic Beverages II (1996), the Appellate
Body established a strict benchmark for the ‘in excess of’
requirement. The Appellate Body ruled that the
prohibition of discriminatory taxes in Article III:2, first
sentence, is not qualified by a de minimis standard.
According to the Appellate Body, ‘even the smallest
amount of “excess” is too much’. the Appellate Body
stated in Japan – Alcoholic Beverages II (1996): it is
irrelevant that the ‘trade effects’ of the tax differential
between imported and domestic products, as reflected in
the volumes of imports, are insignificant or even non-
existent; Article III protects expectations not of any
particular trade volume but rather of the equal
competitive relationship between imported and domestic
products.
2. A Member which applies higher taxes on imported
products in some situations but ‘balances’ this by
applying lower taxes on the imported products in other
situations also acts inconsistently with the national
treatment obligation of Article III:2, first
sentence. Article III:2, first sentence, requires a
comparison of actual tax burdens rather than merely of
nominal tax rates.
 Akansha Rukhaiyar
B.A. LL.B 2015

ii. Article 3:para 2, second sentence:

1. broader meaning
2. Three tests: 1) whether the measure at issue is an internal
tax or other internal charge on products; 2) ‘directly
competitive or substitutable products’ which are in
competition with each other; 3) ‘not similarly taxed’; and
4) the dissimilar taxation is ‘applied … so as to afford
protection to domestic production’.
3. First test same as first sentence.
iii. Directly competitive:
1. A case of perfect substitutability would fall within
Article III:2, first sentence, while we are examining the
broader prohibition of the second sentence.
2. Like’ products are a subset of directly competitive or
substitutable products: all like products are, by definition,
directly competitive or substitutable products, whereas
not all ‘directly competitive or substitutable’ products are
‘like’. The notion of like products must be construed
narrowly but the category of directly competitive or
substitutable products is broader.
3. They are interchangeable or if they offer ‘alternative
ways of satisfying a particular need or taste’.
4. In the context of Article III:2, second sentence, the word
‘directly’ suggests a ‘degree of proximity’ in the
competitive relationship between the domestic and the
imported products.
5. In examining whether products are ‘directly competitive
or substitutable’, an analysis of latent as well
as extant demand is required since ‘competition in the
marketplace is a dynamic, evolving process’ and the
object and purpose of Article III is, fundamentally,
‘protecting expectations of equal competitive
relationships’.
6. panel needs to look at the ‘market place’ and elasticity of
substitution.
iv. Dissimilar Taxation:
1. Under Article III:2, first sentence, even the slightest tax
differential leads to the conclusion that the internal tax
imposed on imported products is GATT-inconsistent,
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B.A. LL.B 2015

under Article III:2, second sentence, the tax differential

has to be more than de minimis to support a conclusion
that the internal tax imposed on imported products is
GATT-inconsistent.
v. So as to Afford Protection to Domestic Production
1. It must be stressed that WTO Members are allowed to
apply dissimilar taxes on directly competitive or
substitutable products as long as these taxes are not
applied so as to afford protection to domestic production.
2. Protective application: to determine whether the
application of a tax measure affords protection to
domestic production, a panel must examine the design,
the architecture, the structure and the overall application
of the measure.
3. The very magnitude of the tax differential may be
evidence of the protective application of a tax measure.
Other criteria may also be looked at.
vi. Article III: 4
1. Article III also concerns internal regulation, dealt with
primarily in Article III:4
2. Tests: 1) whether the measure at issue is a law, regulation
or requirement covered by Article III:4; 2) whether the
imported and domestic products are like products; and 3)
whether the imported products are accorded less
favourable treatment.
3. Unlike Article III:2, second sentence, Article III:4
does not specifically refer to Article III:1. Therefore,
while Article III:1 has ‘particular contextual significance
in interpreting Article III:4, as it sets forth the “general
principle” pursued by that provision’,163 a determination
of whether there has been a violation of Article III:4
does not require a separate consideration of whether a
measure ‘afford[s] protection to domestic production’.
vii. Laws, Regulations and Requirement
1. The scope of application of Article III:4 is broad and
includes all measures that may modify the conditions of
competition in the market.
2. In Canada – Autos (2000), the panel held that a measure
can be considered to be a measure affecting, i.e. having
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B.A. LL.B 2015

an effect on, the internal sale or use of imported products

even if it is not shown that under the current
circumstances the measure has an impact on the
decisions of private parties to buy imported products.
3. Both MFN and National Treatment case: Canada had an
agreement with U.S. in which the imports for
automobiles were discounted. Agreement multilaterlised.
There were certain conditions on the same imposed on
importers. 75% locally manufactured for 100% of reports
(violation of local content provision under subsidies
agreement) + discount only if Canadian spare parts used
so violation of national treatment- protectionism.
Appellate Body held that the effect was that car
manufacturers in Canada would import only their brand.
Cars being imported from some countries and not others-
de facto MFN. De jure violation of MFN- when
agreement became multilateral, WTO members had to
apply and then it was closed, so only those who applied
could avail the discount. The fact that it was closed is a
de jure violation.
4. The question has arisen whether a ‘requirement’ within
the meaning of Article III:4 necessarily needs to be a
government-imposed requirement, or whether a
(voluntary) action by a private party can constitute a
‘requirement’ to which Article III:4 applies. In Canada –
Autos (2000), the panel examined commitments by
Canadian car manufacturers to increase the value added
to cars in their Canadian plants. These commitments
were communicated in letters addressed to the Canadian
Government. The panel characterised these commitments
as ‘requirements’ subject to Article III:4. According to
the panel, (voluntary) private action can be a
‘requirement’ within the meaning of Article III:4 if, and
only if, there is such a nexus, i.e. a close link, between
that action and the action of a government, that the
government must be held responsible for that private
action.
5. Article III:8 of the GATT 1994 explicitly excludes two
kinds of measure from the scope of application of Article
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III:4, namely: laws, regulations or requirements

governing government procurement (see Article III:8(a));
and the payment of subsidies exclusively to domestic
producers (see Article III:8(b)).
viii. Like Products
1. The second element of the test of consistency with the
national treatment obligation of Article III:4 relates to the
question of whether the imported and domestic products
concerned are ‘like’ as per EC – Asbestos
a. Analysis - In construing Article III:4, the same
interpretive considerations do not arise, because
the ‘general principle’ articulated in Article III:1 is
expressed in Article III:4, not through two distinct
obligations, as in the two sentences in Article III:2,
but instead through a single obligation that applies
solely to ‘like products’. Therefore, the harmony
that we have attributed to the two sentences of
Article III:2 need not and, indeed, cannot be
replicated in interpreting Article III:4. Thus, we
conclude that, given the textual difference between
Articles III:2 and III:4, the ‘accordion’ of
‘likeness’ stretches in a different way in Article
III:4.
b. The term ‘like product’ in Article III:4 must be
interpreted to give proper scope and meaning to
the anti-protectionism principle of Article III:1
c. In the absence of a competitive relationship
between the domestic and imported products,
internal regulation cannot be applied to these
products so as to afford protection to domestic
production. The Appellate Body thus came to the
following conclusion with respect to the meaning
of ‘like products’ in Article III:4: determination of
‘likeness’ under Article III:4 is, fundamentally, a
determination about the nature and extent of a
competitive relationship between and among
products.
d. Likeness’ is a matter of judgment – qualitatively as
well as quantitatively.
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B.A. LL.B 2015

e. The Appellate Body turned in EC – Asbestos

(2001) to the question of how one should
determine whether products are ‘like’ within the
meaning of Article III:4. The Appellate Body first
noted: As in Article III:2, in this determination,
‘[n]o one approach … will be appropriate for all
cases’. Rather, an assessment utilizing ‘an
unavoidable element of individual, discretionary
judgement’ has to be made on a case-by-case
basis.
f. According to the Appellate Body, this approach
has, essentially, consisted of employing four
general criteria in analysing ‘likeness’: (i) the
properties, nature and quality of the products; (ii)
the end-uses of the products; (iii) consumers’
tastes and habits – also referred to as consumers’
perceptions and behaviour – in respect of the
products; and (iv) the tariff classification of the
products.
g. According to the Appellate Body, ‘evidence
relating to health risks may be relevant in assessing
the competitive relationship in the
marketplace between allegedly “like” products’.
The Appellate Body also noted that consumers’
tastes and habits regarding asbestos fibres or PCG
fibres are very likely to be shaped by the health
risks associated with a product which is known to
be highly carcinogenic (as asbestos fibres are).
h. Evidence relating to end-uses and consumers’
tastes and habits is especially important in cases
where the evidence relating to properties
establishes that the products at issue are physically
quite different.
Conclusion: After reversing the panel's findings, in EC – Asbestos (2001), on the
‘likeness’ of chrysotile asbestos fibres and PCG fibres, the Appellate Body itself
examined the ‘likeness’ of these products and came to the conclusion that the
evidence was certainly far from sufficient to satisfy the complainant's burden of
proving that chrysotile asbestos fibres are ‘like’ PCG fibres under Article III:4. The
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B.A. LL.B 2015

Appellate Body considered that the evidence tended rather to suggest that these
products are not ‘like products.’

GATT - MFN
1. CASE – Spain- unroasted coffee (case on like products)
2. CASE -- US-MFN Footwear (US- Non Rubber Footwear)
3. CASE –Belgium-Family Allowances (IMMEDIATE AND
UNCONDITIONAL)
4. CASE: JAPAN SPF DIMENSION LUMBER CASE (Canada v. Japan):
(LIKE PRODUCTS)

WTO - MFN

5. CASE: EC BANANAS CASE

6. CASE -- Canada-Autos case (de-facto discrimination u/a 1:1)-

GATT - NATIONAL TREATMENT

7. CASE: ITALY AGRICULTURAL PRODUCTS CASE (ARTICLE III: 4)
8. US-377 Tarriff Act

WTO – NATIONAL TREATMENT

9. CASE: JAPAN ALCOHOL BEVERAGES CASE (ARTICLE III: 2 OF
GATT)
10. CASE: KOREA BEEF CASE (Art.3:4)
11. CASE: EC ASBESTOS
12. Canada Periodicals
13. CASE: EC TARIFF CASE
14.EC Bananas
15.Canada Autos

WEEK 6-7

INTRODUCTION
 Akansha Rukhaiyar
B.A. LL.B 2015

Tariff Barriers (Border Measure) Article II GATT, 1994

1. Market access for goods in the WTO means the conditions, tariff and non-
tariff measures, agreed by members for the entry of specific goods into their
markets.
2. It stands for the totality of government-imposed conditions under which a
product may enter a country under non-discriminatory conditions. It is often,
but determined by border measures, such as tariffs, tariff rate quotas (TRQs),
and quantitative restrictions (QRs).

What is a Tariff?

3. A tariff is a financial charge in the form of a tax, imposed on goods

transported from one customs area to another (often from one country to
another). They are also referred to as "customs duties".
4. Under the WTO, tariffs are regarded as the most common and widely used
barriers to market access for goods. The WTO does not prohibit the use of
tariffs. However, Members recognise that tariffs often constitute serious
obstacles to trade. Tariffs are subject to negotiations, which have led to
successive reductions of tariffs over the years. The concessions granted by a
Member must be extended on a MFN basis to all WTO Members
immediately and unconditionally.
5. Members have also agreed to bind their tariffs at reduced levels and to
record such tariff bindings in their Schedules of concessions, which
represent their legal commitments on tariffs under the WTO (Article II of
the GATT 1994). WTO Members may apply a tariff which is lower than the
bound level, however they cannot exceed the bound levels specified in their
Schedules of concessions. Therefore, the applied tariff of a particular
product (as reflected in a Members' national tariff schedule) can be different
– lower — than the bound tariff rate for that product as specified in the
Members' WTO Schedule of concessions.

A negotiated tariff binding may become too onerous to maintain over time due to
changing circumstances. WTO Members are allowed to modify the concessions in
their Schedules by using the renegotiation procedures outlined in the GATT 1994,
provided that they compensate those Members holding special rights.
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Article II GATT, 1994 - Schedules of Concessions:

Article II: 1(a) provides, “Each contracting party shall accord to the commerce of
the other contracting parties treatment no less favourable than that provided for in
the appropriate Part of the appropriate Schedule annexed to this Agreement.”

In the Uruguay Round of agreements held before the GATT, 1994 came into force,
parties agreed to various concessions under the Agreement, this meant that each
member party to the agreement agreed to cut tariffs on certain goods while setting
a definite ceiling rate for other goods (Bound rates), which are all maintained in a
schedule of the tariffs and the concessions of goods, under the agreement.

Article II: 1(b) provides that products imported from contracting parties shall be
exempt from ordinary customs duties in excess of those set forth in the schedule.
Furthermore, these products shall be exempt from other duties or charges (ODCs -
are customs duties paid solely for the fact of importation and are generally paid at
the border), unless notified in the schedule maintained by the importing country.

Article II(2) doesn’t prevent the contracting parties from implementing certain
custom duties such as;

a. a charge equivalent to an internal tax imposed consistently with the

provisions of paragraph 2 of Article III in respect of the like domestic
product or in respect of an article from which the imported product has been
manufactured or produced in whole or in part;
b. any anti-dumping or countervailing duty applied consistently with the
provisions of Article VI;
c. fees or other charges commensurate with the cost of services rendered.

ARTICLE II: SCHEDULES OF CONCESSION

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All trade concessions made by Members must be stated and incorporated into the
legal agreement – ‘bound’ rates. No other Member may be treated less
favourably than any ‘bound’ rate.

The GATT rules on tariffs are set out in Article II, which is entitle ‘Schedules of
Concessions’. Members commit to offering treatment that is no worse than that
promised in their schedule.

ARTICLE II: 1 In essence, GATT Article II:1(a) is the provision that makes the
schedules ‘operative’, that is, it provides a legal basis for enforcing the
commitments made in the schedule.

FIRST SENTENCE, ARTICLE II: 1(b)

The first sentence of Article II:1(b) offers a more specific version of the Article
II:1(a) obligation, requiring that Members not charge ‘ordinary customs duties
in excess of those set forth and provided’ in the schedule. It is a rule specific
to customs duties. However, II: 1(a) is written in general term and is broader.

SECOND SENTENCE, ARTICLE II: 1(b)

The second sentence of Article II: 1(b) prohibits ‘other duties or charges
(ODC)’ in excess of those imposed at the time of signing of the GATT. It is
designed to prevent Members from evading their scheduled commitments by
imposing what is effectively an ‘ordinary customs duties’ under another name.
ODC are defined in terms of Ordinary Custom duties. Only when there is no
ordinary custom duty, can a ODC come into place. If no ‘other duties or charges’
are recorded for a product, then none are permitted for that product.

Each schedule contains the following information: tariff item number; description
of the product; rate of duty; date on which the present concession was established;
Initial Negotiation Rights (or INR); date on which the concession was first
incorporated in a GATT schedule; INR on earlier occasions; other duties and
charges; and for agricultural products special safeguards may also be defined.

SPS MEASURES
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B.A. LL.B 2015

The Agreement on the Application of Sanitary and Phytosanitary Measures sets

out the basic rules for food safety and animal and plant health standards.

The purpose of the SPS Agreement is to ensure that measures established by

governments to protect human, animal and plant life and health are consistent
with obligations prohibiting arbitrary or unjustifiable discrimination on trade
between countries where the same conditions prevail. Also, such measures
shall not be applied in a manner that would constitute a disguised restriction
on international trade.

It allows countries to set their own standards. But it also says regulations must be
based on science. They should be applied only to the extent necessary to protect
human, animal or plant life or health. The Agreement also allows for countries to
adopt stricter measures than those adopted by the international organisations, but
only if there is a scientific justification for doing so or if the level of protection
afforded by the recognized standard setting organizations is inconsistent with the
level of protection generally applied and deemed appropriate by the country
concerned(Article 3.3).

1) Article 1 – General Provisions - Outlines the application of the Agreement.

SPS Measures include those measures which –a) related to the entry,
establishment or spread of pests or diseases; disease-carrying organisms; or
disease-causing organisms. b) risks arising from: food additives; contaminants;
toxins; or disease-causing organisms in foods, beverages, or feedstuffs

2) Article 2 – Basic Rights and Obligations.

Article 2.2 - requires measures to be based on sufficient scientific analysis.

Article 2.3 - states that Members shall ensure that their sanitary and phytosanitary
measures do not arbitrarily or unjustifiably discriminate between Members
where identical or similar conditions prevail, including between their own
territory and that of other Members. Sanitary and phytosanitary measures shall
not be applied in a manner which would constitute a disguised restriction on
international trade.
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3) Article 3 – Harmonization- This article requires Members to base their

sanitary and phytosanitary measures on international standards, guidelines
and recommendations, where they exist and if sufficient to provide the
appropriate level of protection.

Article 3.3- Members can establish a higher level of protection if scientific

justification is provided in accordance with the requirements in Article 5
(Risk Assessment) (article 3.3). In addition, Members are to fully participate in
the relevant international organizations (Codex, IPPC and OIE), within the limits
of their resources, to promote the development of sanitary and phytosanitary
standards.

4) Article 5 – Risk Assessment and Determination of the Appropriate

Level of SPS Protection.

Article 5.1 – Members shall ensure that their SPS measures are based on – an
assessment, as appropriate, of the risks to human, animal or plant life or health, –
taking into account risk assessment techniques developed by the relevant
international organizations .

Article 5.2- In risk assessment, take into account: • Scientific evidence • Processes
and production methods • Inspection, sampling, and testing methods • Pest or
disease prevalence • Ecological and environmental conditions • Quarantine and
other treatment.

Article 5.4- Members should, when determining the appropriate level of sanitary
or phytosanitary protection, take into account the objective of minimizing
negative trade effects.

Article 5.5 - each Member shall avoid arbitrary or unjustifiable distinctions in

the levels it considers to be appropriate in different situations, if such distinctions
result in discrimination or a disguised restriction on international trade, it will not
be considered.

For an article 5 assessment remembers –

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B.A. LL.B 2015

- non-use of international standard requires risk assessment

- risk assessment need not be quantitative •
- risks must be ascertainable, not just theoretical •
- can go beyond controlled lab conditions, assess risk in real
world
- • risk assessment can consider divergent, minority scientific
view.

TECHNICAL BARRIERS TO TRADE

The WTO Agreement on Technical Barriers to Trade (the “TBT Agreement”)

entered into force with the establishment of the World Trade Organization (WTO)
on 1 January 1995. It aims to ensure that regulations, standards, testing and
certification procedures do not create unnecessary obstacles to trade.

The TBT Agreement helps in distinguishing between "legitimate" and

IMPORTANT POINT WITHIN -Preamble to TBT-

“Recognizing that no country should be prevented from taking measures necessary to ensure the quality
of its exports, or for the protection of human, animal or plant life or health, or the environment, or for
the prevention of deceptive practices, at the levels it considers appropriate, subject to the requirement
that they 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, and are otherwise in accordance with the provisions of this Agreement;”

protectionist motivations for TBT measures.

MEASURES UNDER THE AGREEMENT-

The TBT Agreement distinguishes between three categories of measures: technical

regulations, standards, and conformity assessment procedures.

1) TECHNICAL REGULATIONS-
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Technical regulations lay down product characteristics or their related processes

and production methods. Compliance is mandatory. They may also deal with
terminology, symbols, packaging, marking and labelling requirements.

EXAMPLE- they may be specific-relating to maximum permitted levels of lead in

paint used on toys, or prohibiting the use of certain additives in tobacco products.
OR more general in nature- the establishment of criteria for the labelling of organic
agricultural products, or emission requirements for diesel engines.

What they have in common is that, through some form of government intervention
(law, regulation, decree, act), market access is contingent on fulfilling the
requirements set out in the technical regulation.

TEST-

To ascertain that a technical regulation exists, WTO jurisprudence to date has

established three criteria:

(i) that the requirements (given in that particular measure) must apply to an
identifiable product or group of products (even if this is not expressly
identified in the document);

(ii) ii) that the requirements must specify one or more characteristics of the
product (these may be intrinsic to the product itself, or simply related to
it, and they may be prescribed or imposed in either a positive or a
negative form);

(iii) that compliance with the product characteristics must be mandatory.

2) STANDARDS-

Standards are approved by a recognized body which is responsible for establishing

rules, guidelines or characteristics for products or related processes and production
methods. Compliance is not mandatory. They may also deal with terminology,
symbols, packaging, marking and labelling requirements. Standards are often used
as the basis for both technical regulations and conformity assessment procedures
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and, in such cases, the requirements set out in the standard become mandatory by
virtue of government intervention.

TEST-

Standards are addressed by the TBT Agreement in a separate "Code of Good

Practice for the Preparation, Adoption and Application of Standards" (the Code)
contained in Annex 3 of the TBT Agreement. This Code, which is open to
acceptance by any standardizing body, offers guidance on the process of setting
standards (e.g. these should be transparent, and standardizing bodies should accept
comments and avoid duplication).

3) Conformity assessment procedures

Conformity assessment procedures are used to determine that relevant

requirements in technical regulations or standards are fulfilled. They include
procedures for sampling, testing and inspection; evaluation, verification and
assurance of conformity; and registration, accreditation and approval.

TEST-

Given that different types of conformity assessment procedures affect trade

differently, a key issue from the perspective of the WTO is the choice of which
conformity assessment procedure to use in a particular situation. One factor that
might influence this choice is the level of risk: for instance, third-party certification
(a form of conformity assessment procedure that tends to be more costly than, for
example, a supplier’s declaration of conformity) may be the choice of some
members in situations in which the risk of harm is sufficiently high.

KEY PRINCIPLES-

The substantive PRINCIPLES of the TBT Agreement are that it should be: non-
discrimination, avoidance of unnecessary barriers to trade, the use of international
standards, as well as technical assistance and special and differential treatment for
developing countries. Transparency(AM NOT DOING WE DID NOT DO IN
CLASS AND NOT RELEVENT FOR THE CASES AS WELL) – an additional
core element of the TBT Agreement
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1) Non-discrimination

Under the TBT Agreement, governments must ensure that TBT measures do not
discriminate against foreign products (in favour of domestic producers), or
between foreign producers (for example, by favouring one country over another):

A) Technical regulations (Article 2.1) g

Members shall ensure that in respect of technical regulations, products imported

from the territory of any Member shall be accorded treatment no less favourable
than that accorded to like products of national origin and to like products
originating in any other country.

If a member wishes to claim a violation of Article 2.1 of the TBT Agreement, it

needs to show: (i) that the products involved are "like" and (ii) that the imported
products have been accorded "less favourable treatment". With respect to the
former, WTO adjudicators have referred to the traditional "likeness" criteria
(physical characteristics, end-uses, consumer tastes and habits, and tariff
classification) and the "competitive relationship" between and among the products
being compared. With respect to "less favourable treatment",

if detrimental impact stems exclusively from a legitimate regulatory distinction,

there is not necessarily a violation of the Article 2.1 EG- a requirement that meat
must be frozen before transport over long distances will entail different costs for
local producers as compared with overseas exporters. This does not necessarily
imply less favourable treatment.

B) Conformity assessment procedures (Articles 5.1 and 5.1.1)

5.1 members shall ensure that, in cases where a positive assurance of conformity
with technical regulations or standards is required, their central government bodies
apply the following provisions to products originating in the territories of other
Members: 5.1.1 conformity assessment procedures are prepared, adopted and
applied so as to grant access for suppliers of like products originating in the
territories of other Members under conditions no less favourable than those
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accorded to suppliers of like products of national origin or originating in any other

country, in a comparable situation; access entails suppliers' right to an assessment
of conformity under the rules of the procedure, including, when foreseen by this
procedure, the possibility to have conformity assessment activities undertaken at
the site of facilities and to receive the mark of the system. Standards (paragraph D
of Annex 3, under "substantive provisions")

C) standards,

the standardizing body shall accord treatment to products originating in the

territory of any other Member of the WTO no less favourable than that accorded to
like products of national origin and to like products originating in any

2) Avoidance of unnecessary barriers to trade-

Even if a technical regulation is non-discriminatory (thus passing the test described

above), it could still BE AGAINST the TBT Agreement because it restricts trade
unnecessarily. Thus all measures must be necessary –

A)Technical regulations (Article 2.2) Members shall ensure that technical

regulations are not prepared, adopted or applied with a view to or with the effect of
creating unnecessary obstacles to international trade. For this purpose, technical
regulations shall not be more trade-restrictive than necessary to fulfil a legitimate
objective, taking account of the risks non-fulfilment would create. Such legitimate
objectives are, inter alia: national security requirements; the prevention of
deceptive practices; protection of human health or safety, animal or plant life or
health, or the environment. In assessing such risks, relevant elements of
consideration are, inter alia: available scientific and technical information, related
processing technology or intended end-uses of products.

B) Conformity assessment procedures (Articles 5.1 and 5.1.2) … conformity

assessment procedures are not prepared, adopted or applied with a view to or with
the effect of creating unnecessary obstacles to international trade. This means, inter
alia, that conformity assessment procedures shall not be more strict or be applied
more strictly than is necessary to give the importing Member adequate confidence
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that products conform with the applicable technical regulations or standards, taking
account of the risks non-conformity would create.

C) Standards (paragraph E of Annex 3, under "substantive provisions") The

standardizing body shall ensure that standards are not prepared, adopted or applied
with a view to, or with the effect of, creating unnecessary obstacles to international

However, Article 2.3 states that measures may not be maintained if the circumstances or
objectives giving rise to their adoption no longer exist, or if the changed circumstances or
objectives can be addressed in a less traderestrictive manner. In other words, if, upon
reassessment in light of new scientific (or other relevant) information, a perceived risk is
deemed to be non-existent, it may be necessary to review the measure.(against the
preamble wala part)
trade.

3) International standards

The TBT Agreement strongly encourages members to use "relevant" international

standards, guides or recommendations "as a basis" for their regulations and
standards (Articles 2.4, 5.4 and Annex 3, paragraph F of the TBT Agreement).

A)Technical regulations (Article 2.4) Where technical regulations are required

and relevant international standards exist or their completion is imminent,
Members shall use them, or the relevant parts of them, as a basis for their technical
regulations except when such international standards or relevant parts would be an
ineffective or inappropriate means for the fulfilment of the legitimate objectives
pursued, for instance because of fundamental climatic or geographical factors or
fundamental technological problems.

B)Conformity assessment procedures (Article 5.4) In cases where a positive

assurance is required that products conform with technical regulations or standards,
and relevant guides or recommendations issued by international standardizing
bodies exist or their completion is imminent, Members shall ensure that central
governments bodies use them, or the relevant parts of them, as a basis for their
conformity assessment procedures, except where, as duly explained upon request,
such guides or recommendations or relevant parts are inappropriate for the
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Members concerned, for, inter alia, such reasons as: national security requirements;
the prevention of deceptive practices; protection of human health or safety, animal
or plant life or health, or the environment; fundamental climatic or other
geographical factors; fundamental technological or infrastructural problems.

Standards (paragraph F of Annex 3, under "substantive provisions") Where

international standards exist or their completion is imminent, the standardizing
body shall use them, or the relevant parts of them, as a basis for the standards it
develops, except where such international standards or relevant parts would be
ineffective or inappropriate, for instance, because of an insufficient level of
protection or fundamental climatic or geographical factors or fundamental
technological problems.

CASES

1. EC- SEALS CASE

DIFFERENCE BETWEEN SPS AND TBT-

Article 1.5 of the TBT Agreement excludes SPS measures from its scope. This
means that a TBT measure cannot be an SPS measure and vice versa.( the SPS
Agreement concerns predefined specific risks related to human health (mostly
about food safety) and animal/plant health or life or protection from pests.)

It is the purpose of a particular measure that determines whether that measure is

subject to the disciplines of the SPS or the TBT Agreement, and not the particular
product or category of product in question.

CASES

1. CASE: INDIA ADDITIONAL DUTIES

2. EC- COMPUTER EQUIPMENT
3. GATT - Japan-Trade in Semi Conductors
4. WTO – India – QR Panel Report
5. Rules of Origin – US
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6. TBT Agreement - EC- Asbestos

7. TBT Agreemet - EC – Sardines
8. SPS Agreement – EC Hormones
9. SPS Agreement – Japan Apples
10.SPS Agreement – EC Biotech Panel Report

WEEK 8 AND 9

IV. Trade Remedies

Anti-Dumping
History
 WTO law on dumping and anti-dumping measures is set out in Article VI of
the GATT 1994 and in the WTO Agreement on Implementation of Article VI
of the GATT 1994, commonly referred to as the Anti-Dumping Agreement.
 When the GATT was negotiated in 1947, participants initially failed to agree
on whether a provision allowing countries to impose anti-dumping measures
in response to dumping should even be included.
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 However, largely at the insistence of the United States, Article VI was

included to provide a basic framework as to how countries could respond to
dumping.
 In the years following its negotiation, Article VI alone proved to be
inadequate in addressing the anti-dumping measures. Its language was
particularly vague and was therefore interpreted and applied in an
inconsistent manner.
 At the end of the Uruguay Round, a compromise was reached that was
ultimately reflected in the WTO Anti-Dumping Agreement and which,
together with Article VI of the GATT 1994, sets out the current rules on
dumping and anti-dumping measures.
 Developing countries are against the idea. The export price is lower of the
dumped goods. because of factors like low demand in local market and lack
of economies of scale. These are not retaliatory measures. It is an act of
protecting domestic industry. Hence, regulated.
 But why allow protectionism? Political reason- US made proposals for
liberalization but US domestic industry was against it. The countervailing
duty served as a mechanism to pacify them. If you are unable to compete
with imports, we have the anti-dumping duty to help you.
Definition: ‘Dumping’ is a situation of international price
discrimination involving the price and cost of a product in the exporting country in
relation to its price in the importing country. Article VI of the GATT 1994 and
Article 2.1 of the Anti-Dumping Agreement define dumping as the introduction of
a product into the commerce of another country at less than its ‘normal value’.
Thus, a product can be considered ‘dumped’ where the export price of that product
is less than its normal value, that is, the comparable price, in the ordinary course of
trade, for the ‘like product’ destined for consumption in the exporting country.

Triggering of the Anti-Dumping Measure: Pursuant to Article VI of the GATT

1994 and the Anti-Dumping Agreement, WTO Members are entitled to impose
anti-dumping measures if, after an investigation initiated and conducted in
accordance with the Agreement, on the basis of pre-existing legislation that has
been properly notified to the WTO, a determination is made that: (1) there is
dumping; (2) the domestic industry producing the like product in the importing
country is suffering injury (or threat thereof) Article 3; and (3) there is a causal
link between the dumping and the injury (Article 3.5).
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Anti-Dumping Measures: Article VI, and in particular Article VI:2, read in

conjunction with the Anti-Dumping Agreement, limits the permissible responses to
dumping to:
 provisional measures (provisional duty or, preferably, a security, by cash
deposit or bond, equal to the amount of the preliminarily determined margin
of dumping Article 7);
 price undertakings (Undertakings to revise prices or cease exports at the
dumped price Article 8);
 definitive anti-dumping duties (It is desirable’ that the duty imposed
be less than the margin of dumping if such lesser duty would be adequate to
remove the injury to the domestic industry Article 9).
Article 9.2 of the Anti-Dumping Agreement requires Members to collect anti-
dumping duties on a non-discriminatory basis on imports from ‘all sources’ found
to be dumped and causing injury. The MFN treatment obligation thus applies to the
collection of anti-dumping duties.
Article 11 of the Anti-Dumping Agreement establishes rules governing the
duration of anti-dumping duties and a requirement for the periodic review of any
continuing necessity for the imposition of anti-dumping duties.
Investigation: The Anti-Dumping Agreement sets out, in considerable detail, how
investigating authorities of WTO Members have to initiate and conduct an anti-
dumping investigation. Article 5-initiation of an anti-dumping investigation; and
Article 6 the conduct of an investigation.
Committee of Anti-Dumping Practices: Article 16.4 requires Members to report
all preliminary or definitive anti-dumping actions taken. They also have to submit,
on a half-yearly basis, reports on any anti-dumping actions taken within the
preceding six months. In accordance with Article 16.5, each Member has to notify
the Committee which of its authorities are competent to initiate and conduct
investigations and domestic procedures governing such investigations.

Subsidies:
Debate: On the one hand, subsidies are evidently used by governments to pursue
and promote important and fully legitimate objectives of economic and social
policy. On the other hand, subsidies may have adverse effects on the interests of
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trading partners whose industry may suffer, in its domestic or export markets, from
unfair competition with subsidised products.
History:
 The WTO rules on subsidies and subsidised trade are set out in Articles VI
and XVI of the GATT 1994 but also, and more importantly, in the
WTO Agreement on Subsidies and Countervailing Measures, commonly
referred to as the SCM Agreement.
 The GATT 1947 did not contain clear and comprehensive rules on subsidies.
In fact, Article XVI of the GATT 1947, entitled ‘Subsidies’, did not even
define the concept of ‘subsidies’.
 Moreover, with regard to subsidies in general, Article XVI merely provided
that Contracting Parties to the GATT should notify subsidies that have an
effect on trade and should be prepared to discuss limiting such subsidies if
they cause serious damage to the interests of other CONTRACTING
PARTIES.
 With regard to export subsidies, Article XVI provided that CONTRACTING
PARTIES were to ‘seek to avoid’ using subsidies on exports of primary
products. In 1962, Article XVI was amended to add a provision
prohibiting CONTRACTING PARTIES from granting export subsidies to
non-primary products which would reduce the sales price on the export
market below the sales price on the domestic market. Note, however, that
this amendment did not apply to developing countries.
 In addition, Article VI of the GATT 1947, which dealt with measures taken
to offset any subsidy granted to an imported product (i.e. countervailing
duties), did not provide for clear and comprehensive rules.
 The Uruguay Round negotiations eventually resulted in the SCM Agreement.
Definition: Article 1.1 of the SCM Agreement defines a subsidy as a financial
contribution by a government or public body which confers a benefit. Furthermore,
Article 1.2 of the SCM Agreement provides that the WTO rules on subsidies and
subsidised trade only apply to ‘specific’ subsidies, i.e. subsidies granted to an
enterprise or industry, or a group of enterprises or industries.
Subsidies v. Dumping: WTO law permits the imposition of anti-dumping
measures if dumping causes injury. The WTO law on subsidies is different. Article
XVI of the GATT 1994 and Articles 3 to 9 of the SCM Agreement impose
disciplines on the use of subsidies. Certain subsidies are prohibited, and many
other subsidies, at least when they are specific, rather than generally available, may
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be challenged when they cause adverse effects to the interests of other Members.
WTO law distinguishes between prohibited subsidies, actionable subsidies and
non-actionable subsidies. Each of these kinds of subsidy has its own substantive
and procedural rules. Moreover, subsidies on agricultural products are subject to
specific rules set out in the Agreement on Agriculture.
Response to Dumping: Members may, pursuant to Article VI of the GATT 1994
and Articles 10 to 23 of the SCM Agreement, respond to subsidised trade which
causes injury to the domestic industry producing the like product by imposing
countervailing duties on subsidised imports. These countervailing duties are to
offset the subsidisation. However, comparable to the anti-dumping measures
discussed above, countervailing duties may only be imposed when the relevant
investigating authority properly establishes that there are subsidised imports, that
there is injury to a domestic industry and that there is a causal link between the
subsidised imports and the injury. As with the conduct of anti-dumping
investigations, the conduct of countervailing investigations is subject to relatively
strict procedural requirements. Note that the substantive and procedural rules on
the imposition and maintenance of countervailing measures are similar to (albeit
somewhat less detailed than) the equivalent rules on anti-dumping measures).
Conditions for Imposing Countervailing Measures: It follows from Article VI
of the GATT 1994 and Articles 10 and 32.1 of the SCM Agreement that WTO
Members may impose countervailing duties when three conditions are fulfilled,
namely: (1) there are subsidised imports, i.e. imports of products from producers
who benefited or benefit from specific subsidies within the meaning of Articles 1,
2 and 14 of the SCM Agreement; (2) there is injury to the domestic industry of the
like products within the meaning of Articles 15 and 16 of the SCM Agreement; and
(3) there is a causal link between the subsidised imports and the injury to the
domestic industry and injury caused by other factors is not attributed to the
subsidised imports.
Subsidies Committee: Article 25.11 provides that Members shall report without
delay to the Subsidies Committee all preliminary or final actions taken with respect
to countervailing duties as well as submit semi-annual reports on any
countervailing duty actions taken within the preceding six months.

WHAT IS A SUBSIDY?
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Article 1 of the SCM Agreement:

In the Subsidies and Countervailing Measures Agreement, a subsidy shall be

deemed to exist if: “there is a financial contribution (i.e., a fiscal burden) by a
government or any public body within the territory of a Member” or “there is any
form of income or price support in the sense of Article XVI of GATT 1994,” and
“a benefit is thereby conferred.”

Actions constituting “financial contributions” include:

1. Direct transfers of funds (for example, grants, loans and equity infusions) and
potential direct transfers of funds or liabilities (for example, government
guarantees).
2. Foregoing or non-collection of government revenue that is otherwise due (for
example, fiscal incentives such as tax credits).
3. Government provision of goods or services (other than infrastructure) or
government purchases of goods.
4. Government making payments to a funding mechanism or entrusting or
directing a private body to carry out one or more of the type of functions above
which would normally be vested in the government and which in practice does
not differ from practices normally followed by governments.

CATEGORIES OF SUBSIDIES:

Red Red-light subsidies mean prohibited subsidies. With certain

Light exceptions, such as preferential treatment for developing countries
Subsidies and transitional economies, all red-light subsidies must be eliminated
(Article 3). If a red-light subsidy is granted, it may be subject to the
remedies for red-light subsidies (Article 4). Furthermore, the
remedies for red-light subsidies may be invoked in parallel with
countervailing measures; however, with regard to the effects of a
particular subsidy in the domestic market of the importing member,
only one form of relief (either a countervailing duty or the defined
remedies) shall be available.
Yellow Yellow-light subsidies are not prohibited per se but may be subject to
Light the remedies for yellow subsidies if they cause adverse effects, such
Subsidies
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as serious injury to other countries (Article 7). Furthermore, the

remedies for yellow-light subsidies may be invoked in parallel with
countervailing measures; however, with regard to the effects of a
particular subsidy in the domestic market of the importing member,
only one form of relief (either a countervailing duty or the defined
remedies) shall be available.
Green Green-light subsidies are neither prohibited nor subject to
Light countervailing measures (Article 8). Green-light subsidies includes
Subsidies non-specific subsidies and those specific subsidies that meet certain
conditions. Specific green-light subsidies include research and
development subsidies, regional development subsidies, and
environmental conservation subsidies that have been reported to the
Committee before they take effect, reviewed by the WTO Secretariat,
and approved by the Committee.

WHAT IS A COUNTERVAILING MEASURE?

Articles 10 to 23 of the SCM Agreement:

Countervailing measures may be used for red-light and yellow-light subsidies

when imports of subsidized goods harm a competing domestic industry. They are
used to offset the effect of the subsidy by, for example, imposing a countervailing
duty (limited to the amount of the subsidy) on the import of subsidized goods or
securing quid pro quo commitments from the subsidizing country (that it will
abolish or restrict the subsidy, or that exporters will raise prices).

ARTICLE XI: QUANTITATIVE RESTRICTIONS

Article XI of the GATT generally prohibits quantitative restrictions on the

importation or the exportation of any product, by stating "[n]o prohibitions or
restrictions other than duties, taxes or other charges shall be instituted or
maintained by any Member..." One reason for this prohibition is that
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quantitative restrictions are considered to have a greater protective effect

than tariff measures and are more likely to distort free trade. It is important to
note that under Article XI, ‘like product’ requirement is irrelevant. When a trading
partner uses tariffs to restrict imports, it is still possible to increase exports as long
as foreign products become price competitive enough to overcome the barriers
created by the tariff. When a trading partner uses quantitative restrictions,
however, it is impossible to export in excess of the quota no matter how price
competitive foreign products may be. Thus, quantitative restrictions are considered
to have such a greater distortional effect on trade than tariffs that their prohibition
is one of the fundamental principles of the GATT.
However, the GATT provides exceptions to this fundamental principle. These
exceptional rules permit the imposition of quantitative measures under limited
conditions and only if they are taken on policy grounds justifiable under the GATT
such as critical shortages of foodstuffs (Article XI:2), restrictions imposed on
agricultural products including fisheries etc.(Article X1: 2(c)) and balance of
payment (Article XVIII:B). As long as these exceptions are invoked formally in
accordance with GATT provisions, they cannot be criticized as unfair trade
measures.

EXCEPTIONS PROVIDED UNDER ARTICLE X1: 2 OF GATT

- Export prohibitions or restrictions temporarily applied to prevent or relieve critical

shortages of foodstuffs essential to the exporting WTO Members (Paragraph 2 (a));

Import and export prohibitions or restrictions necessary to the application of

standards or regulations for the classification, grading or marketing of commodities
in international trade (Paragraph 2 (b)); and

Import restrictions on any agricultural or fisheries product, necessary to the

enforcement of governmental measures which operate to restrict production of the
domestic product or for certain other purposes (Paragraph 2 (c)). (PLEASE NOTE
THAT UNDER PARA. 2(C), only restriction is mentioned and NOT
prohibitions. Under other exception, prohibitions and restrictions are applied.

GENERAL OVERVIEW: SOME EXAMPLES OF IMPORT BAN WITH

CASES
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The text of Article XI: 1 is very broad in scope, providing for a general ban on
import, export restrictions, prohibitions ‘other than duties, taxes or other charges.’
The Panel in US — Shrimp found that the United States violated Article XI by
imposing an total import ban on shrimp and shrimp products harvested by vessels
of foreign nations without been certified by United States’ authorities.

ARTICLE XIII: NON-DISCRIMINATORY ADMINISTRATION OF

QUANTITATIVE RESTRICTION

No discrimination between Members in the application of quantitative restrictions

and the allocation of such restrictions should reflect their underlying trade shares.
Details of any restrictions should be transparent and negotiated with affected
Members.

No prohibition or restriction shall be applied by any contracting party on the

importation of any product of the territory of any other contracting party or on the
exportation of any product destined for the territory of any other contracting party,
unless the importation of the like product of all third countries or the exportation of
the like product to all third countries is similarly prohibited or restricted.

CASES
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1. Anti Dumping - EC – India Anti Dumping Duties on Cotton Type Bed

Linen
2. Anti Dumping - US – India Anti Dumping and CVMs on Steel Plates
3. Anti Dumping - US – Continued Dumping and Subsidy Offset Act 2000
4. Anti Dumping - India – Lead Acid Batteries
5. Subsidies – Canada – Aircraft and Article 21.5 DSU Report
6. Subsidies – US – FSC and Article 21/5 DSU
7. US – Hot Rolled Lead and Bismuth Carbon Steel Products
8. Economic Emergencies – US - Lamb

WEEK 3

The General Agreement on Tariffs and Trade (GATT) was the system of dispute
settlement prior to the commencement of DSU. GATT was an agreement between
countries to promote international trade by eliminating trade barriers. The central
provision for dispute settlement under GATT are found in Articles XXII and
XXIII.

Article XXII – Each contracting party shall accord sympathetic consideration to,
and shall afford adequate opportunity for consultation regarding, such
representations as may be made by another contracting party with respect to any
matter affecting the operation of this Agreement.

Article XXIII – The contracting parties may, at the request of a contracting party,
consult with any contracting party or parties in respect of any matter for which it
has not been possible to find a satisfactory solution through consultation under
paragraph 1.
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The Dispute Settlement Understanding (DSU), is a significant improvement from

the previous GATT dispute resolution system and presents some radical
innovations over the GATT system solving many of its shortcomings. Firstly, it
resolved the problem of uncertainty in determining which procedure to apply as the
DSU creates a ‘unified’ dispute settlement system. Secondly, it created an
Appellate Body to review legal issues decided by the panel. Lastly, the DSU
ensures the establishment of panels and appellate bodies and adoption of their
decisions unmodified through a reverse/inverted consensus.

The GATT has no general definition of what constitutes a dispute. Beyond GATT
law, other international agreements such as NAFTA provide possibly competing
venues and procedures for settlement of disputes. What follows a dispute
resolution is interpretation. Without a dispute, there would be no need of
interpretation and without interpretation as to what and how the parties’ intent to
bind themselves there would be no dispute settlement. Just as there is no definition
provided for ‘dispute’ under the GATT, there is none for ‘interpretation’ either. In
the absence of a formal interpretation procedure, international principles of treaty
interpretation should be followed. As per the principles of the Vienna Convention,
interpretation should be guided by the ordinary and natural meaning of the words
of the agreement and international law, along with previous and subsequent
agreements.

Dispute Settlement under the WTO

 The new system of dispute resolution under the WTO can be divided into
four parts;
o consultation,
o a panel phase,
o Appellate Body review and
o arbitration as an optional alternative procedure.
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o
 Under the DSU, a complaining party has several potential remedies.
o First, the respondent party’s measure that are in violation may be
brought into conformity. If they fail to do so, the complaining party
may receive compensation for the injury caused.
o Second, if the disputing parties fail to reach an agreement with respect
to the compensation, the complaining party has an option of either
retaliating against the respondent within the same sector and the
agreement under which the respondent has been found to be in
violation or if retaliation seems insufficient, the complaining party
may seek authorization to retaliate across sectors and agreements
against the respondent party.

 The creation of the DSB was a very significant step for adjudication in the
world trading system.
 Although the DSU provides specific procedures for dispute resolution, in
certain cases, additional or special rules for dispute settlement may be
provided in the individual agreements. However, only to the extent that they
are consistent with the DSU.
 The General Council which comprises of representatives of all members of
the WTO, is the organ which administers consultations and dispute
settlements when it sits in its capacity as DSB. The DSB appoints its own
chairperson and makes its own rules and operates on an important inversion
of the traditional GATT method of decision making. The DSB must first
form a panel after the consultations are done.
 The introduction of Appellate Body is perhaps the systems most significant
step towards the creation of an international legal tribunal on trade. It
radically alters the dispute settlement regime. Another introduction was of
arbitration as an optional alternative technique which adds more of a judicial
flavor to WTO Dispute Settlement.
 The downside of the arbitration process is that if does not clarify whether a
party is permitted to pull out of the arbitration process once its begun.
 Akansha Rukhaiyar
B.A. LL.B 2015

 The aim of dispute settlement rules and procedures is to come to a positive

solution which are mutually satisfactory solutions rather than decisions. If
mutually satisfactory solutions cannot be reached, there several options are
available. First, removal of the infringing measure. Second, where a measure
cannot be removed, compensation by infringing member may be required.
Third, as a last resort, suspension of concessions or other obligations of the
complaining member vis-à-vis the infringing member may be imposed.

Consultation

When a member country believes that another member has infringed upon the
obligations under a Covered Agreement, it may call for consultations. According to
Article 3, paragraph 7 of the DSU, consultation is not merely a formality rather, it
plays a very important role in dispute settlement. The aim is to find a positive
solution to the dispute. The parties also have an option of resolving the dispute by
negotiated settlement any time during the procedure of the DSU. The consultation
process is very similar to negotiation which may continue even after the
commencement of the panel phase, also known as the judicial phase.

Process of Consultation

1. Once a member makes a request for consultation, the respondent has ten
days to reply. This period of ten days can be extended by mutual agreement;
however, consultations need to take place within 30 days from the date of
the agreement. This request needs to be in writing and should indicate the
‘legal basis for the complaint’. It also needs to specify the infringing
measures employed by the respondent.
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2. If the respondent fails to send a reply within the given time or enter
consultations, the complainant has the option of requesting the formation of
a panel.
3. When the consultations take place, the disputing members are to make an
attempt to ‘obtain a satisfactory adjustment of the matter’, which is done in
confidential negotiations. The time period for the same is 60 days or may be
less in urgent cases. If they fail to settle after 60 days, then the complaining
party may request a panel.
4. If a third-party member is of the opinion that they have a substantial trade
interest in the consultations, they may participate with the respondent’s
permission. If the respondent rejects the inclusion of the third-party, then it
may enter into separate consultations.
5. Consultation is not the only recourse that can be taken by the complaining
party to reach a panel formation. Once the request for consultation is made,
if both parties to a dispute agree that the matter can be solved by arbitration,
conciliation, good offices or mediation they are free to choose that recourse.
a. There exists no requirements of form, time or procedure.
b. These processes can be initiated by a party at any time with the
approval of the other party.
c. However, any single party may terminate arbitration, conciliation,
good offices or mediation at any time without unanimous agreement
among disputing parties.
d. Upon termination, the complaining party may request the formation of
a panel. Thus, the complaining party has five available avenues to
reach a panel formation.

Panel Phase
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B.A. LL.B 2015

1. After the process of consultation, good offices, conciliation or mediation has

broken down, a panel must be formed at the request of the complaining party
unless it decides not to by consensus.
2. The panel shall consist of three or five (if the parties agree) well qualified
individuals who are not citizens of either of the disputing parties. The
selection of the panel members will be done ‘with a view to insuring the
independence of the members of the panel’. The panel may comprise of the
citizens of the parties, if both parties agree.
3. The DSU requires independence of panelists even when they are citizens of
the disputing parties. Although panels make final decisions on the facts of
the case, they do not have the last say on legal issues. The DSU forbids
disputing parties from influencing their citizen panelists.
4. The Secretariat makes nominations which the parties may not oppose except
for compelling reasons. Twenty days are given to the parties to agree on the
panelists. If they fail to agree, the Director –General and the Chairman of the
DSB and a Chairman of a relevant council or committee of a covered
agreement shall appoint the panelists.
5. The panels are to hold confidential deliberations, set deadlines, receive
pleadings and rebuttals and hear oral arguments. After deliberation, the
panel provides a written report to the DSB which includes findings of law
and fact. A panel should deliver its decision within 6 months. The report by
the panel shall be adopted unless any disputing parties want to appeal to the
Appellate Board or if the DSB decides by consensus not to adopt it.

Appellate Body

1. The Appellate Body determines the question of law and legal interpretation.
The Appellate Body is something of a judicial tribunal. The proceedings are
confidential and the opinions submitted by the members are anonymous.
2. The members of the Appellate Body are to be individuals of recognized
authority with expertise in law, international trade and the subject matters of
the covered agreement generally.
3. The disputing parties do not have the liberty of choosing the members.
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B.A. LL.B 2015

4. Each case is chaired by three or the seven appointed members in rotation.

The decision of the Appellate Body needs to be delivered within 60 days for
normal instances and 90 days from the formal request of appeal. The
decision delivered are adopted without amendment unless vetoed by
consensus in the DSB.

REMEDIES
- If the panel or the Appellate body of the Dispute Settlement Body (DSB) finds
the trade practice of a party to be in violation of the Covered Agreements, then the
Member will face three possible consequences-

I) The Member will be required to act in conformity with the relevant provision of
the agreement within a ‘reasonable amount of time’
II) If the Member fails to comply with the agreement within the ‘reasonable
amount of time’, the complaining party may call for negotiation of compensation
III) If no compensation is agreed upon within 20 days from the expiration of the
‘reasonable amount of time’, the complaining party may request the DSB to
authorize retaliation.

Retaliation and Cross Retaliation: The act of retaliation is done through the
suspension of the complainant’s concessions or other obligations to the Member in
violation originating from the same sectors of the same covered agreement that has
been violated. If the complainant believes that such suspension will not be
sufficient, the suspension may extend to different sectors of the same covered
agreement. If it is still believed to be insufficient then the suspension may extend
to other covered agreements. Sector is defined with respect to goods and services.
Services are further defined in a separate list of the GATT called Services Sectoral
Classification List. When a request for retaliation has been made by the
complaining party, the respondent has the right of arbitrational review to determine
whether the authorized retaliation is appropriate or not.

The procedure of DSB is such that once the decisions are made and unless vetoed
by a consensus vote of the DSB at the close of the panel or the Appellate Body
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B.A. LL.B 2015

phase, will result in a decision for the complainant or the respondent. The report
made by the panel has to be adopted as a whole; without amendment or
modification of the report by the DSB. The ultimate consequence for a violating
member is however, only higher tariffs, quotas or other restrictions on trade.

ARBITRATION

Under the previous dispute settlement system of the then ITO, there were mainly
three phases of a dispute settlement resolution: 1) direct consultation, 2) arbitration
and 3) review of legal issues by the World Court. Arbitration was considered the
main phase of the ITO system.

On the other hand, in the WTO system the panels and the Appellate bodies are the
central forces. Even then it cannot be denied that arbitration may prove helpful in
certain situations; for example, the respondent may request arbitration to make sure
all the procedures have been followed when retaliation has been authorized.

Arbitration is considered an alternative means to resolve a dispute without going

through the DSB process. However, it can only be employed if the parties mutually
agree to an arbitration. Since the disputing parties are bound by the arbitration
award, the award cannot be reviewed by the DSB. However, any issue arising in
the dispute may yet be challenged in a panel or an Appellate body for clarification.

ARTICLE 23 OF THE DISPUTE SETTLEMENT UNDERSTANDING

Under this article, the WTO becomes the ultimate arbiter of disputes between
WTO members. The article states-
“When Members seek the redress of a violation of obligations or other
nullification or impairment of benefits under the covered agreements or an
impediment to the attainment of any objective of the covered agreements, they shall
have recourse to, and abide by, the rules and procedures of [the DSU].”

In such cases, members of WTO cannot make the determination that a violation
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B.A. LL.B 2015

has occurred or benefits have been nullified/impaired or any objective of the

covered agreement has been impeded, except through recourse to dispute
settlement in accordance with the rules and procedures of the DSU. This means
that if members resort to the WTO dispute resolution system, they will be bound
by the results of the procedure of dispute settlement. Therefore, if a member goes
on to violate a decision of the DSB, it would also have violated Article 23.

SPECIFIC PROVISIONS IN THE COVERED AGREEMENTS

If a covered agreement contains special provisions regarding disputes and these

provisions depart from the procedures set down in the DSU, they do so to establish
the specific cause of action arising in that case. They may also contain special
provisions with regard to expert groups which may assist the panels to reach a
proper factual conclusion.

CONCLUSION

The DSU displays various substantive and procedural changes made to the GATT.
Some important changes are-
I) The creation of a unified dispute settlement system overcoming the problem of
uncertainty
II) The establishment of a new organ I.e. the Appellate Body to review legal issues
decided previously by panels
III) The option of panels and Appellate body and unmodified application of their
decisions through inverted consensus

Article XVI of the WTO Agreement: Members are required to conform their
national laws, regulations and administrative procedures to the obligations of the
international trade law laid down in the Uruguay Round Agreements. If a member
does not adhere to it, the DSB may bring an action against it.

The WTO System: Diplomacy or rule of law?

 Akansha Rukhaiyar
B.A. LL.B 2015

Over the years many have argued that the GATT dispute settlement system has
evolved into a judicial system, while other argue that it is a type of negotiation
process. This debate over the nature of the GATT “law” is imbedded in the greater
debate over the nature of international law. In this debate those who defend the
‘rule-oriented’ approach in the conduct of international trade relations are called
legalists or ‘rule partisans’. For them GATT is both in form and practice an
example of law in international relations. Others have called it the ‘model or
prototype of a legalistic type system of international regulation.

The U.S. and the developing countries have considered the GATT to be more of a
legal body, while countries like Japan and the EU look at it as a negotiation forum,
a mechanism of persuasion aiding the contracting parties in finding mutually
agreeable solutions to conflicts in international trade.

Even though the GATT system resembles a judicial process, it is still negotiation
‘at its roots dressed up in court-like proceedings’. In a national judicial proceeding,
the State can enforce decisions through its powers, for example seizing the
property of the losing party or person in order to enforce a decision of the court.
With GATT and other international organizations the same level of enforcement is
not possible as a party may reject the decision reached and refuse to implement it.
We still have to wait and see whether the WTO and the Covered Agreements will
bring more of a legal quality to the system or will it just be another complex and
perhaps more effective system of negotiation. The question, however, still remains
whether a philosophical approach, adjudication or negotiation will be the most
effective in attaining compliance by members.

Criticism on adjudication and negotiation:

Critics argue that all disputes whether adjudicated or negotiated, ultimately come
to negotiations between the contracting parties due to the system’s inability to
enforce compliance. Further, adjudication can lead to hostility between members
because it places parties on two distinct sides of dispute as opposed to the more
traditional method of negotiation and conciliation which attempts to find common
 Akansha Rukhaiyar
B.A. LL.B 2015

ground while reaching a solution.

It is also argued that international law exists at the will of the nations. Often
international obligations conflict with national interest. Therefore, an obligation is
only completed when it fulfills the national interest of a state.

Legalists, as mentioned previously, are divided into two thought camps: the first is
the practical camp that is of the belief that international trade law profits from
adherence of internationally agreed rules. It is a moderate legalistic view where
obligation and law come together in a fusion. The other camp is the more radical
scholars who maintain that international rules of law should act to restrain politics
and political activity so as to better the national or global economy. They realize
the inherent need to transcend certain aspects of national sovereignty in order to
achieve their goals.

Despite these varying arguments, it is clear that such organizations depend on the
good will of the parties to an agreement. Further, it is also clear that the WTO will
always remain diplomatic and legal in its constitution. If an economically powerful
member is found to be in violation of an agreement, an authorized retaliation
against them may hardly be effective in most cases. Many a times disputes may be
too sensitive in nature and parties may not bring it forward to the DSB. Therefore,
for now it is a negotiation forum that has the potential of turning into an
international judicial tribunal in the future.

CASES

1. EC-Hormones
2. Australia – Automotive Leather II
3. EC-Asbestos w.r.t Article XXIII GATT
4. India – Lead Acid Batteries
Akansha Rukhaiyar
B.A. LL.B 2015
-

Akansha Rukhaiyar
B.A. LL.B 2015
WEEKS 12-15

ARTICLE XX: EXCEPTIONS

Why do we need exceptions?

To allow members to adopt and maintain measures that promotes or protects other
societal values and interest even though the legislation or measures are inconsistent
with substantive discipline imposed by GATT.

Article 20(b) - Necessary to protect human, animal or plant life or health.

2 Requirement: (A) it must be shown that the measures have been taken for purposes
of protecting human, animal, plant life or health. (B) The measure is “necessary”.

What is “necessary” test?

(A) A measure that is indispensable. (B) Proportional that is the least trade restrictive
measure.

Article 20(g)- relating to conservative of exhaustible natural resources if such

measures are made effective in conjunction with restrictions on domestic
production or consumption.

3 Requirements: (A) is the measure concerned with conservation of exhaustible

natural resources (B) It is the measure relating to the conservation. (C) is the
measure made effective in conjunction with restrictions on domestic production or
consumption.

“Relate to” test: the GATT panels have interpreted ‘relating to’ to mean that it must be
primarily aimed at conservation.

Tests for Article 20 GATT:

1) Existence of one of the exceptions under article 20(a-j)

2) Consistency with the chapeau of article 20

3) Relationship between measure and aim.

ARTICLE 24

Art XXIV is an exception and defense, not a right or an obligation:

Akansha Rukhaiyar
B.A. LL.B 2015