International Trade Law, Sintesi del corso di Economia

Scarica International Trade Law e più Sintesi del corso in PDF di Economia solo su Docsity! 1 INTERNATIONAL TRADE LAW WTO: History and Structure Main Features of the System The multilateral trading system, which now has the WTO at its center, has its roots in the aftermath of World War II. There was a period when institutionalized neoliberalism came to life; the thinking was that international cooperation could prevent from other wars. This brough to the establishment of bodies like IMF, IBRD… In 1940s, there was also an unsuccessful attempt to create an International Trade Organization. It did not come into force in its entirety but only a part of it, the one dealing with tariffs concessions, the so-called GATT. Before the entrance into force of the GATT, Britain and USA started a trade policy of bilateral agreements and, starting from this, with the Bretton Woods conference they wanted to move to a multilateral approach with a global dimension of trade. The ITO was purpose to expand world trade, while IMF and the World Bank to guarantee stability and to offer liquidity to help Europe recover from the war and promote economic growth. Only the GATT (General Agreement on Tariffs and Trade) became forcefully a stand-alone agreement, intended to protect the tariff reduction commitments agreed to during the ITO negotiations. The GATT is only a treaty, not an organization thus it lacked an institutional structure, but there were general governance provisions that allowed the Contracting Parties to set up a workable procedure to administer the application of the agreement. In order to allow the GATT to rule the international trade relations until the creation of WTO (1948-1994), it was changed not in its rules but in its rule’s application throughout: 1. Periodic updating of the tariff commitments of the Parties during Negotiating Rounds (8 Rounds concluded by now). 2. Procedure for the handling of trade disputes arising between the States. The success of GATT was also due to the appreciable goals, set in its Preamble: - Raising standards of living, ensuring full employment; - Expanding the production and exchange of goods; … and the means to reach the goals: - Entering into reciprocal and mutually advantageous arrangements; - Substantial reduction of tariffs and other barriers to trade; - Elimination of discriminatory treatment in international commerce. GATT’s idea was to liberalize international trade through common rules, reciprocity and non- discrimination. 2 GATT was a successful treaty because: - From 1948 to 1994 it was the most important treaty regulating international trade; - Promoted the liberalization of the trade in goods covering almost every aspect of the subject (except agricultural sector); - Reduced tariffs from 40% after the II World War to less than 5% today; - Started tackling non-tariff barriers; - Even without institutional structure, it was able to handle disputes. GATT also had problems: - No organizational structure: it was a treaty assisted by an only (weak) embryonal governance mechanism; - A number of agreements had been signed by only some countries (custom valuation, dumping, subsidies,...): this brough to the birth of different regimes, against goal of uniform rules, and every country seemed to be able to sign what it wanted (so-called «GATT à la carte»). - Its normative power was questioned since o Agriculture and textiles products got to escape its discipline; o Safeguards norms were neglected o Export restraints was used as means of protection, whose legality was uncertain under the GATT. - Increasing importance of the services sector called for a more comprehensive discipline; - The dispute settlement procedure, apparently well-functioning, could be easily blocked since decisions were in fact adopted «by consensus», i.e. one state could prevent them from becoming binding on the parties. All these problems brought to the creation of WTO during the Uruguay Round (1986-94) The World Trade Organization has the headquarter in Geneva. Members are now 164, with the entrance of China in 2001 and Russian Federation in 2012. These two entries are important because they have a state-economy, there is not a free market economy, though they decided to entry in the WTO. The main reasons for WTO to exists are - Avoid that most powerful countries can impose unfair tariffs on weaker countries; - Limit internal pressure from producers to the Government against trade policies, having a superior organization who set the rules. The goals of WTO set in the Preamble are - Raising standards of living, ensuring full employment; - Expanding the production of and trade in goods and services; - Allowing for the optimal use of the world's resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment; - Enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of economic development. - Encompassing the General Agreement on Tariffs and Trade, the results of past liberalization efforts. 5 The contracting party may, with a view to the satisfactory adjustment of the matter, make written representations or proposals to the other contracting party or parties which it considers to be concerned. Any contracting party thus approached shall give sympathetic consideration to the representations or proposals made to it. If no satisfactory adjustment is reached between the contracting parties concerned within a reasonable time, or if the difficulty is of the type described in paragraph 1(c) of this Article, the matter may be referred to the contracting parties. Article 22-1(b) provides for “Non violation complaints”: if a (trade) measure which is perfectly legal (not against GATT or other agreements) touches the interest of another party causing damages that couldn’t have been anticipated at negotiations time, the damaged country can start procedure, from consultation to, eventually, a constitution of a panel. The WTO system does not aim at imposing strict rules and punishing countries for violations, but to preserve the equilibrium among their reciprocal trade relationships as set in the negotiation rounds. The dispute resolution system was improved during the Uruguay Round, with the introduction of: 1. Articulated timeframe for all the steps of the procedure; 2. Second instance of judgment, with a permanent Appellate Body of 7 judges; 3. Shift from «consensus» to a «negative consensus» rule for the decisions to establish panels and to adopt the reports; 4. New phase for the multilateral surveillance of the implementation of the reports to grant more efficacy of decisions. In this compulsory system, defendants have no more veto right to apply a binding effect and parties are no longer able to block decisions, as steps are now more regulated. For example, if a party continues to oppose to the panelist nomination, the other parties can, at a certain point, to ask the DG to intervene and nominate panelists himself. The phases of the DSU are: 1. Consultation: 2 meetings 2. Panel: group of 3-5 experts (quasi-judicial phase) 3. Appeal (not compulsory phase) 4. Implementation The features of the DS are: Timeframe Time limits for each stage of the proceeding to make the system more predictable. Decision are taken within 9 or 12 months depending on the fact that the panel report has or hasn’t been appealed. Appeal Under the GATT there was only a first instance procedure (panel), but now a new permanent institution – the Appellate Body – is entrusted with the second instance of the proceeding. 6 The AB is a judge of legitimacy only; it cannot reconsider the facts of the case, as established by the Panel, but only has to deal with the law issues (e.g. if parties have correctly qualified facts, used correct articles…). Decision making rule The Dispute Settlement Body (DSB) administers the DS procedures. Before 1994, decisions were taken by «consensus», that is without a formal vote of its members, but with no opposition to the proposal of the General Director. This rule, applied to the decisions to establish a panel or to adopt a panel report, could block the proceedings, conferring to the Parties a sort of “veto right”. Reports were binding on the Parties of a proceeding only after being adopted by the DSB From 1994, with the Uruguay Round, decisions were taken by «negative consensus» rule: the decision is prevented only if all Members vote against. Now reports have a binding effect automatically. Phase before the Panel The Panel state shall examine the issue referred by the complainant in the light of the applicable agreements and clear facts to assist the DSB in making its final recommendations and rulings. Before the Panel, parties can file written submissions and there are usually at least two meetings for the oral discussion of the case where each party holds evidences to prove their claims. After the hearing of the parties, the Panel releases an preliminary report on the facts and the parties can submit their comments. Possible content of the reports If the Panel (or AB) finds that a rule has been violated, it is presumed the nullification or impairment of the complainant’s rights, otherwise the complainant will have to prove its rights. The Panel/AB recommends to conform the contested measure with the violated rules and could make suggestions on how to do so. The Panel/AB cannot award of damages. The final report is then referred to the DSB and it must adopt it within 60 days unless all WTO Members object (negative consensus). Implementation phase The DSB can be entrusted with the surveillance of the implementation of the reports until the dispute is definitively settled among the Parties (DSB from its second meeting following the report’s adoption on). The final settlement may happen only in two ways: a. The stipulation of a definitive agreement through which the Parties put an end to the dispute. b. The implementation of the reports of the panel and- if an appeal has been proposed – of the Appellate Body. 7 What enforcement for Panels and Appellate Body Rulings? Non implementation of the reports The loser country within 30 days should communicate how it intends to implement the decision. It can also ask for a “reasonable” period of time, decided between the Parties or set through an arbitration, must be no longer than 15 months. If the loser refuses to implement an adopted report: à Article 22 provides for two different measures that can be enacted temporary till the dispute is finally settled: 1. Compensation agreement reached by the Parties. 2. Unilateral suspension of concessions (counter-measure) on the part of the winning Party. It is a mean of last resort and it is temporary. These measures are enacted until the end of dispute is reached with either a. The end of the dispute comes when a mutually agreed acceptable solution between the Parties. b. Secure of the withdrawal of the measure concerned, if inconsistent with WTO agreements. Why is the implementation system considered such an advancement compared to before 1994 if countermeasures (e.g. suspension of concessions) are still possible? What is the strength of the system? The non-compliance of solution is strictly managed at a multilateral level; if this mechanism is respected, trade wars are out ruled. In fact, 1. Countermeasures has to be previously authorized by the DSB; 2. They must comply with conditions set out in Art. 22.3, e.g. its amount must not exceed the damage caused; 3. if the amount of the measure is contested, the dispute is settled through an arbitration. This is guarantee of multilateral control over the procedure; that is one of the major strengths of the WTO DS mechanism. A good example of the ultimate function of DS mechanism is the following case: EC- HORMONE BEEF (WT/DS26, WT/DS48) Not to condemn Members for violating the rules, but allowing them to find a new equilibrium in their commercial interests. In the two parallel proceedings USA and Canada affirmed that the European Community rules banning the import of meat from hormones raised cattle were inconsistent with the GATT and with the SPS Agreement. The 1998 report of the AB found that the contested EC directive was not based on a correct risk assessment under the SPS Agreement and, as the EC did not comply by the end of the reasonable period of 15 months , the USA and Canada requested authorization to suspend concessions for an amount of $202 and $75 million respectively. Thanks to the DS mechanism, EC was able to contest the countermeasure, otherwise it would have suffered a loss of $277 per year. Decision of the Arbitrators, 1999 à Interpretation of DSU Article 22.4 1. USA and Canada have to identify the products that may be subject to suspension and declare the level of suspension (in this case, 100% duty) (can pick from a broader list) 10 The «Tariffication» Principle Tariffs Tariffs are tax on imports, collected by the importing country, and paid by foreign exporters or domestic importers, but ultimately, partially, carried forward into higher consumer prices in the importing country. Tariffs are not prohibited by the GATT, but, being transparent and easy to control, they should be the only means for Member States to protect domestic economy; this is why we talk about the Tariffication Principle. The WTO does not rule tariffs out, but seeks to get a reduction of tariff barriers through gradual and reciprocal tariff negotiations among Members (Negotiating Rounds). The duty resulting from the multilateral negotiating process is called the “consolidated duty” or “bound tariff rate”, and it’s automatically extended to all the Members of the WTO. Most-Favoured-Nation (MFN) Principle, (GATT, Art. 1) Each Member State publishes its bound tariffs rates in its Schedule, and all these Schedules form part of the GATT (binding on Members). Schedules of Concessions (GATT, Art. 2) (a) 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. (b) The products described in Part I of the Schedule relating to any contracting party, which are the products of territories of other contracting parties, shall, on their importation into the territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein. The consolidated duty (or bound tariff rate) is a ceiling value: Members can apply lower duties (applied tariff rate). The Consolidated duty can be modified a. multilaterally, in the negotiating rounds; b. unilaterally, but through consultation with Members which have more interest in such concessions and who have the right to respond withdrawing «substantially equivalent concessions» (Art. 28). From here, again, it emerges that the real aim of WTO system is not to provide a system with strict application of rules with punishments, but to make it possible to preserve the equilibrium acress members through negotiation rounds. Classification of duties 11 1. Ad valorem duties: a percentage of the of the imported product; 2. Specific duties: not based on value, but on weight, volume or quantity. (e.g. € 1 per Kg). From 1948 to nowadays, average duties decreased from 40% to less than 5%. Duties are applied on MFN principles, but Part IV of GATT allows negotiations between developed and developing countries to deviate from the principle of reciprocity. Not only tariffs can be applied as duties by countries; in the Art. 2-1(b) of the GATT we read: “(...)Such products shall also be exempted from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date.” These “other duties or charges” are different from consolidated duties and are duties that have been imposed at the moment GATT was signed. For example, imposition on imports applied as a contribution on the lunch costs of custom officials, or imposition on imports of raw meat equivalent to the cost the importing State is bearing for the medical inspection of the products. During the Uruguay round, it has been clarified what “other duties or charges” and how they are regulated: - "Other duties or charges" must be written in the Schedule and not be subsequently be added to the Schedule. - Other duties or charges" must respect GATT’s obligations. Is it possible to apply a duty exceeding the ceiling bound under Art.-1(b)? It is possible only in some cases specified in Art. 2-2 of the GATT: Nothing in this Article shall prevent any contracting party from imposing at any time on the importation of any product: a. a charge equivalent to an internal tax imposed consistently with the provisions of Art.3-2 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 (trade measures) applied consistently with the provisions of Art. 4; c. fees or other charges commensurate with the cost of services rendered. d. safeguard duties under GATT Art. 19. Fees and Formalities connected with Importation and Exportation (GATT, Art. 7-1): (a) All fees and charges of whatever character (other than export duties and other than taxes within the purview of Article III) imposed by contracting parties on or in connection with importation or exportation shall be limited in amount to the approximate value of services rendered and shall not represent an indirect protection to products or a taxation of imports or exports for fiscal purposes. To apply duties and rules on duties, we need Ancillary rules: 12 1. How to determine the ORIGIN of a product. (otherwise there can be a preferential agreement): Rules of origin a. substantial transformation criterion: where the product undergoes the substantial transformation. b. change of tariff classification: where the product shift to another tariffs heading (e.g. from tissue to apparel). c. ad valorem percentage criterion: where the most of product value is added. 2. How to determine the VALUE of the product to be imported.(necessary to calculate ad valorem duties). According to GATT, Art. 7 and to the Agreement on Customs Valuation, the value is the “transaction value, i.e. the price actually paid or payable for the goods when sold for export to the country of importation”. Tariff negotiations have been greatly facilitated by the consensus of all Members to use the classification of products of the Harmonized System (HS) Treaty as a basis for their Schedules of Concessions. The HS lists and classifies all products, giving a number or digit to each product or tariff line. Fewer digits corresponds to broader product categories and these codes have up to 6 digits. This Treaty is not one of the WTO trade treaties, but it was signed in the World Customs Union Organization. On case for the tariff classification systems is EC-Custom Classification of Frozen Boneless Chicken Cuts (WT/DS269, AB 2005) To avoid the application of the high EU duties for “fresh, chilled or frozen” poultry (40-60% ad valorem), between 1996 and 2002 Brazil and Thailand exported frozen boneless chicken cuts, to which they added “a pinch of salt” as «salted meat» (15.4% ad valorem duty). In 2003 the EU changed the tariff classification to “frozen poultry”. Brazil and Thailand started the dispute settlement procedure. The question was: does “salted meat” refer also to the preparation or to the preservation method (salt)? The Appellate Body dedicates much attention to the interpretation of the expression «salted meat» in the EU Schedule and states: - The general rules of treaty interpretation apply o Art. 31 of the Vienna Convention on the Law of Treaties: treaties have to be interpreted in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of their object and purpose (...); o Art. 32 of the Vienna Convention on the Law of Treaties: recourse may be had to supplementary means of interpretation, including the preparatory works and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of Article 31, or to determine the meaning when the interpretation according to Article 31: (a) Leaves the meaning ambiguous obscure; or (b) Leads to a result which is manifestly absurd or unreasonable); 15 The leading case for the definition of quantitative restriction is Japan - Semi-Conductor (Panel Report, 1988) In the early 1980s Japan became a big producer and exporter of semi-conductors (very important in producing of electronic devices). Its products were sold on the US market at unfairly low price. In 1986, it was signed an agreement between the US and the Japanese government aimed at giving more market access to US semi-conductors in Japan and at stopping dumping of Japanese semi-conductors on the US market. Under the agreement, Japanese government would monitor the prices of goods exported to the US and, if need be, prevent some exports; it also requested Japanese exporters not to export to the US or third markets at prices below company specific costs. The EC challenged the agreement claiming, among others, a violation of Article XI (export restraint). Japan argued that the measures could not constitute export restrictions as they were not legally binding or mandatory. The Panel stated that the measures were quantitative restrictions because, if lacking of formal mandatory effect, from a substantial viewpoint, they were operated in a manner equivalent to legally binding measures and were effective on Japanese exporters. India - Autos (2001) The Indian government imposed «trade balancing requirement» on motor vehicles producers who wanted to import automotive kits amounted to a quantitative restriction. The measure required to sign a Memorandum of Understanding under which the company, in order to get an import license, accepted that its exports had to equal in value its imports. India’s defense here was that the measure could not fall under Art. 11, which only covered «restrictions ...on importation» (on the boarder). According to the Panel «on importation» has a broad meaning; it covers all measures related to the process of importation, not only those that are applied at a custom post (on the border). Thus, «any form of limitation imposed on, or in relation to importation constitutes a restriction on importation within the meaning of Article XI:1». In the last decade there have two cases on this issue, both lost by China and relating to export restrictions on raw materials. They are very relevant now, due to the pandemic: in the first months of 2020 many countries enacted provisions that can be qualified as export restrictions. To avoid unilateral actions, EU Commission implemented a new Regulation (2020/568) to have a European policy on this issue. EU does not want to restrict exports any more than necessary, the authorization system for some products aims at avoiding shortage of essential products (face masks, gloves…) and protecting public health. China – Raw materials (2012) China adopted export restrictions on minerals used in the production of steel products (bauxite, coke, zinc...). These measures were contested by other Member States because against Art. 11.2(a) of the GATT about «critical shortages». According to the Panel /AB, it is considered a critical shortage a “deficiency in quantity that is crucial”; the measure must be temporary, that is applied for a limited duration and adopted in order to bridge a transitory need. 16 China was not able to prove this and then tries to justify its measures under GATT Art. 20(b) and (g) (limited production and exportation were necessary to protect environment) but also this defense is rejected. China-Rare earths (2014) China adopted export restrictions on a number of rare earths, tungsten, and molybdenum, such as export duties, export quotas, and certain limitations on the enterprises permitted to export the products. These measures were challenged by the US, EU and Japan. The Panel and AP decided that - export duties were not consistent with China’s Accession Protocol and quotas with GATT Art. 11. - the measures could not be justified under Article 20(g) which allows WTO Members to implement GATT-inconsistent measures “relating to the conservation of exhaustible natural resources”. China loses in both cases. The National Treatment Principle The National Treatment Principle is one of the cornerstones of GATT but also belongs to treaties that are not within the international organization. Multilaterally negotiated tariffs’ ceilings and the prohibition of quantitative restrictions are powerful rules to implement a project of liberalization of trade. But they are not enough, because States could easily undo the progress made in terms of liberalization of their markets adopting «beyond the border measures». For example, higher tariff rate and heavier internal sale taxes to foreign goods have the same effects on the price of imported products. That’s why the GATT’s scope had to be extended also on what States do inside their borders in terms of taxation and regulation. There could have been different ways to apprach this issue: e.g. regulating internal policies, in a way to avoid a negative impact on trade, but it would inevitably come to impact on national policies (health, environmental, industrial) and infringe on the sovereignty of its Members. GATT founding fathers chose a «softer approach»: they only required Members to respect the rule of non-discrimination (negative integration). National Treatment on Internal Taxation and Regulation (Art. 3, GATT) 1. The contracting parties recognize that internal taxes and other internal charges and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production. 17 Imported products cannot be discriminated against domestic products. Thanks to this rule the others we’ve seen (bound tariffs, ban on quantitative restriction) don’t risk to become ineffective and Members are induced to engage seriously in trade negotiations. The «not so as to afford protection» principle (SATAP) provided for in Art. 3.1 is applied separately to - Tax measures (Art. 3.2) - Internal regulation (Art. 3.4) Firstly, what’s the difference between duties/taxes? The two concepts have been clarified by the AB in China-Auto parts (2008): - The obligation to pay a custom duty accrues (matura) at the moment and by virtue of importation; - The obligation to pay a tax under Art. 3.2 relates to goods already been imported and is triggered by an internal event that takes place within the customs territory (like distribution, sale , use or transportation of the imported products) Art. 3.2, GATT: 2. The products of the territory of any contracting party imported into the territory of any other contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic products in a manner contrary to the principles set forth in paragraph 1*. *A tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be inconsistent with the provisions of the second sentence only in cases where competition was involved between, on the one hand, the taxed product and, on the other hand, a directly competitive or substitutable product which was not similarly taxed. Different requirements for the non –discriminatory taxation of: - Imported and «like domestic products» (first sentence of Art. 3.2); - Imported and «directly competitive or substitutable products» (second sentence of Art. 3.2) This distinction has been clarified by the AP in the case Japan-Taxes on alcoholic beverages (WT/DS8, 10, 11 – AB Rep. 1996) Canada, European Communities (EU) and United States (US) complain that the Japanese law on alcoholic beverages violates rt. 3.2 of GATT. This law established that taxes were based on a double criterion: a. belonging of the beverage to one of ten different categories (among which beer, wine, , “white spirits”, liquor, sake, shochu); b. Percentage of alcohol contained. Under these two criteria, shochu was taxed less than vodka and whisky. There is not a formal discrimination but also de facto discrimination is prohibited: according to the AB only for products which are not like but in competition on the market (“directly competitive or substitutable”) a “similar” but not “identical” taxation is permitted, and only when it is not aimed at protecting national production. 20 As the Decree was not based on origin neutral and we are speaking of a “ban”, why does it refer to Art. 3.4 (and not 11)? Because we are not speaking of the same products, but to similar (like) products. This case, in fact, clarifies the notion of «like products» under Art. 3.4 Four traditional criteria already set by AB in 1970 are: 1. Physical characteristics; 2. End-use; 3. Consumer preferences; 4. Tariff classification. The case innovation is that these four traditional criteria must be used to find out if imported and domestic products are in a competitive relationship in the marketplace. Likeness must be examined on a case by case basis and all pertinent evidence must be considered. Canada was not able to prove likeness and thus France did not violate art. 3.4. This case is also important because, for the first time, the AB considers the carcinogenicity and/or toxicity of a product as relevant to decide on products likeness (under consumer preferences criterion); before EC-Asbestos such negative effects on consumers’ health could only trigger the waiver under Art. 20(b). EC-Seals (WT/DS401, AB Rep. 2014) In 2009, EU banned the importation and sale of seal products on animal welfare grounds. Only seal products from Greenland under the IC exception were admitted. Canada and Norway, the main seal products exporters, contested the EU ban as violating GATT (Art. 1 and 3.4) and the TBT (Art. 2.1, 2.2, 5,6, 7, 8). AB clarified the meaning of «less favorable treatment»: there is less favorable treatment of imports if the measure affects competitive opportunities to the detriment of imports (so affording protection to domestic products). Does the process or production method (PPMs) by which the product has been obtained matter to the likeness of products, even if the final products are identical? Process and production methods could be in themselves harmful for the environment or could violate social rights of workers à if they don’t fall under Art. 3, then they fall under the prohibition provided for under Art.11 According to the AB the measure violated art. 3.4 and European Union could not justified neither under the exceptions of GATT Art. 20(a). Thus, a PPM measure will violate Article 3.4 only if one can demonstrate: - Likeness - Less favourable treatment (“detrimental impact on conditions of competition”) What if this detrimental impact is inevitable to pursue a legitimate policy objective? The measure will still violate Article 3.4 but even a de facto national treatment violation could be justified under GATT Art. 20 (General Exceptions). 21 The Most-Favored-Nation Treatment Every WTO Member must offer imports from (and exports to) any other WTO Member the best- available treatment offered to any other country. First example of these rule was in 11th century: in the Charter of the town of Mantua, the Roman Emperor promised to afford Mantua all the benefits granted to «whatsoever other town». It then became a popular rule in commercial treaties since the 17th century, and USA insisted on including it in the GATT, to get rid of all the colonial preferences of the European countries. General Most-Favoured-Nation Treatment (Art. 1.1, GATT) 1. With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III,* any advantage, favor, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. Border measures (duties and charges) are covered and respecting art. 3.2 (fiscal measures), 3.4. (internal regulatory measures), any advantage granted to another country (even if not WTO Member) must be accorded also to like products of all Members. The GATT preserves the MFN clause in its broadest meaning: the benefit granted is unconditional and immediate. What does “unconditional” mean? - Unconditional MFN: if State A has an MFN obligation in favor of State B, then, any advantage it (State A) affords to State C, it must also grant to State B; - Conditional MFN: if State A has an MFN obligation in favor of State B, then any advantage it (State A) affords to State C, it must also grant to State B but only on the condition that State B affords to State A advantages similar to those State A gets from State C The unconditional MFN rule has 1. Advantages: a. Accelerate trade liberalization; b. Favors small States; c. More relaxed trade relations among countries; d. Simpler custom operations; e. Limit ability of lobbies to obtain preferential measures. 2. Disadvantages a. Allows «free riding»: smaller trading nations may be tempted to profit from the concessions negotiated among others without giving anything in return. 22 The effect of free riding on the liberalization process can be - Small countries will liberalize less. - Large trading countries will agree to less liberalization than if reciprocal concessions were required (since they would give much and receive less). - Slowing down effect of trade liberalization process in general. In practice, to (partly) prevent the risk of free riding, large trading countries prefer not to make commitments if a «critical mass» of countries has not committed in advance liberalization measures. However, WTO Members were able to progress in the telecommunication, information technology products and financial services sectors. MFN covers both - Internal Measures - Border Measures (tariffs/quotas) This non-discrimination rule set out in GATT Art. 1 covers a variety of measures: it covers duties and charges, but also the internal measures of Art. 3. How is the rule applied in the two cases? 1. INTERNAL MEASURES a. Art. 3 à out rules the less favorable treatment of imported goods vis à vis like domestic products. b. Art. 1 à out rules less favorable treatment of goods imported from a foreign country vis à vis like goods imported from another foreign country. Both rules aim to protect those goods which are directly competitive with other goods (internal/imported) receiving a more favorable treatment. No reason to apply a different definition of like products. 2. TARIFFS a. Art. 2 à regulates (not out rules) the tariff measures to limit its negative effects on trade. Tariff negotiation is based on reciprocity of concessions: it is not easy to reconcile this with the non-discrimination rule of Art. 1, which allows the practice of «free riding» (the opposite of reciprocity: taking advantage of commitments made by others without paying anything in exchange). How to reconcile reciprocity of negotiations with the non-discrimination rule of Art. 1? States tend to wait until an advanced political agreement on the concessions to grant is met among the major trading nations (each one affording almost equal contributions) before proceeding in the negotiations (so to minimize free riding). Also, through finely designed product distinctions in their tariffs, States manage to limit the benefit of tariff reductions to those countries that have granted equivalent concessions in return. For example, in the 1904 German tariff concession to Switzerland on «large dappled mountain cattle reared at a spot at least 300 m above the sea level and having at least one month’s grazing each year at a spot at least 800 m above sea level» 25 The GATT’s Exceptions Members of WTO would have never commit to GATT rules if they were too strict, that’s why GATT’s fathers made some exceptions. There are exceptions of two types: 1. Economic exceptions § Preferential trade agreements (PTAs); § Preferential treatment of developing countries; § Restrictions to address balance of payments problems; § Trade remedies (charge, anti-dumping duties…) 2. Non-economic exceptions: § Restrictions to address, for example, public morals, health, environmental protection; § Restrictions to address national security’s needs We could also classify the exceptions type under the scope of application, i.e. for general application or only for some countries (e.g. developing countries). Preferential Trade Agreements PTAs are essentially a major exception to the MFN rule: why are they permitted? Article 24.4, GATT The contracting parties recognize the desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries parties to such agreements. They also recognize that the purpose of a customs union or of a free-trade area should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other contracting parties with such territories. Closer integration among certain WTO Members is alowed only if it is a step towards the goal of a higher level of trade liberalization for all of them. There are different forms of closer economic integration among countries. The GATT only refers to FTAs and CUs, which were the main ones at that time, but nowadays there are other. • Free Trade Areas (FTAs) (Art. 24.8(b), GATT) A group of two or more customs territories in which the duties and other restrictive regulations of commerce (...) are eliminated on substantially all the trade between the constituent territories in products originating in such territories. • Costume Unions (CUs) (Art. 24.8(a), GATT) Substitution of a single customs territory for two or more customs territories, so that (i) duties and other restrictive regulations of commerce (...) are eliminated with respect to substantially all the trade between the constituent territories of the union or at least with respect to substantially all the trade in products originating in such territories, and 26 (ii) substantially the same duties and other regulations of commerce are applied by each of the members of the union to the trade of territories not included in the union; FTAs are by far the most common form of economic integration; e.g. NAFTA (now USMCA), EFTA (European Free Trade Association: Iceland, Liechtenstein, Norway, Switzerland). FTAs and CUs are usually called Regional Trade Agreements, notwithstanding that often they are entered into by countries that are not geographically close (EU-Korea; EU- Canada). A better name is Preferential Trade Agreement. In FTAs, signatories countries agreed to eliminate barriers for the internal trade, but they still draw independent tariff policies towards other countries. In CUs, instead, also external custom policies were uniformized among countries of the custom area. FTAs and CUs permitted under the conditions set in - Art. 24.8, GATT - Art. 24.5, GATT For FTA it is necessary that: 1. Internal requirement Duties and restrictions on trade be eliminated with respect to substantially all trade among the FTA members (par. 8(b)); 2. External requirements Duties or other regulations of commerce of the FTA members towards third countries must not increase (shall not be higher or more restrictive) at the time of the formation of the FTA (par. 5(b)) For a CU it is necessary that: 1. Internal requirement Duties and restrictions on trade be eliminated with respect to substantially all trade among members of the CU (par. 8(a)); 2. External requirements Substantially the same duties and other regulations of commerce are applied by each of the CU’s members towards third countries (par. 8(a)); 3. External requirements External duties and other regulations of commerce must not be on the whole higher than was the case prior to the formation of the CU (par. 5(a)). There is no definition in GATT of “substantially all trade”, but there is the Panel report where of the only case in which it has been somewhat defined: à Turkey-Textiles case: “It is clear, though, that «substantially all the trade» (in sub- paragragh 8(a)(i)) is not the same as all the trade, and also that «substantially all the trade» is something considerably more than merely some of the trade....the terms of sub-paragraph 8(a)(i) offer some flexibility to the constituent members of a customs union...” The “substantially all trade” can be thus interpreted by having both - quantitative dimension: higher percentage of total trade. 27 - qualitative dimension: relevant number of sector covered. Which requirements are stricter, the ones for the formation of a FTA or CU? 1. Paragraph 5(b) (FTA) is stricter; it prohibits any increase of trade restrictions towards third countries; 2. Paragraph 5(a)(CU) is more soft: third countries duties and regulations only have to «not be on the whole higher or more restrictive» than their general incidence before the CU was formed. This because, while the formation of a FTA doesn’t affect the conditions granted to third countries, to form a CU the constituent countries have to uniformize their external trade policy: this may require some adjustments upward and downward, thus further requirements would prevent from forming a CU. Procedure There is a duty of notification on WTO members in respect of all preferential agreements that they intend to enter into. Notification is due to the Committee on Regional Trade Agreements (CRTA) and aims to consent the adoption of recommendations. But this procedure has proven quite inefficient, because no recommendation has been adopted. So, in 2006 a new Transparency Mechanism was created. Under the Transparency Mechanism, the duty of notification was enforced and then it is mandatory to provide to the WTO Secretariat all data to be uploaded in the WTO website. This allows the Secretariat to upload a factual representation of the RTA and every WTO Member can raise question on the proposed agreement. Developing countries are given a different treatment. Preferential agreements among developing countries undergo less strict requirements: under the Enabling Clause there is no requirement on the elimination of internal barriers The leading (only) case on the application of Art. 24 is Turkey - Textiles (AB Rep. 1999) In 1995 Turkey and the European Community signed a customs union agreement. Before 1995 Turkey used to import textiles and clothing from India under a very liberal trade regime. On the contrary, the EU had in place very restrictive quotas on imports of textiles from India. In 1996 Turkey introduced quantitative restrictions on Indian textiles on the grounds that such measures were necessary for the entry into force of the CU with the EC. India contested the measure. To justify the inconsistency of a CU with GATT provisions two conditions have to be satisfied: 1. party must prove that the measure is introduced upon the formation of a CU that meets the requirements of 24.8(a) and 24.5(a). 2. party must demonstrate that without the measure at issue the formation of the CU would be prevented. 30 2. Information The Commission regularly informs the European Parliament of key WTO issues, by reporting to the International Trade Committee (INTA). 3. Complaints The Commission initiates and handles WTO complaints backed by Council support and may propose retaliatory measures to the Council. The TTIP negotiations It is about a trade treaty with USA on tariffs, trade regulations and rules on other issues… Negotiations started in July 2013 and in the last negotiating round was in 2016 but the agreement has not been signed yet. The structure the TIIP should have is divided in 3 parts: 1. Market access: tariff reduction, access to services ,… 2. Regulation: regulatory cooperation (common rules on technical regulation), … 3. Rules: Investments, competition, intellectual property,… Market access - Goods: reducing tariff barriers - Services: getting national treatment; policy-space for public services; Public procurements: more openness - Rules of origin: harmonization Regulation The aim is “cutting red tape”, but there is also the need to guarantee all non-economic values (health, environment…), thus it is very delicate. 9 specific areas (agriculture, chemicals, cosmetics, engeneering, medical devices, telecommunications, pharmaceuticals, textiles, cars). Rules Introduction of new rules on - sustainable development, environment, social standards. - energy and raw materials. - trade facilitation. - SMEs. - investments (controversial ISDS clause). - competition. - intellectual property and geographical indications. - state /State dispute settlement. There was an attempt to resume negotiations in 2019. The EU Commission asked for the re- opening of negotiations but only on the removal of tariff only on industrial goods (not agricultural products) and on conformity assessment (non-tariff barriers). Instead, USA called for a new negotiations on the elimination of tariff and non-tariff barriers on agricultural products and higher tariffs on EU cars. 31 In September 2020, Commission published a draft regulation proposing to cut duties on certain US exports from the US (for an amount of about € 168 million) in exchange of tariff cuts on European products exported to the US. This would represent a first step towards de-escalation…. The General Exceptions to Article 20 Article 21 of the GATT authorizes the pursuit of non-economic ends: it allows to take restrictive measures for needs of national security taken in time of war or other emergency in international relations. Security exceptions (Art.21, GATT) Nothing in this Agreement shall be construed (a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests a) relating to fissionable materials or the materials from which they are derived; b) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment; c) taken in time of war or other emergency in international relations; or (c) to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.” Art. 21(c) is the provision that “links” the GATT/WTO and the United Nation. It allows a country that has liberalizing trade agreements with another country, to block trade relations if asked by UN without breaching the treaty and without incurring in liability. Under Chapter VII of the UN Charter: - Art. 39: The Security Council shall determine the existence of any threat to the peace, breach of the peace, or act of aggression and shall make recommendations, or decide what measures shall be taken in accordance with Articles 41 and 42, to maintain or restore international peace and security. - Art. 40: The Security Council may decide what measures not involving the use of armed force are to be employed to give effect to its decisions, and it may call upon the Members of the United Nations to apply such measures. These may include complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication, and the severance of diplomatic relations. Under Chapter XVI of the UN Charter - Art. 103: “In the event of a conflict between the obligations of the Members of the United Nations under the present Charter and their obligations under any other international agreement, their obligations under the present Charter shall prevail.” 32 GATT Art. 20 is legally an exception ; it allows national restrictive measures, which violates one of GATT’s obligations (non-discrimination obligations provided for by Articles I, III and XIII; prohibitions as of Articles II or XI), for needs of non-trade values, e.g. protection of health and of the environment. It is a complex provision, formed by 2 parts: 1. Chapeau: introductory paragraph setting out requisites for a measure - which is covered by the list - to be justified. 2. Main body: list of specific exceptions which can justify the violation of an obligation or prohibition. General Exceptions (Art. 20, GATT) Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures: a. necessary to protect public morals; b. necessary to protect human, animal or plant life or health; c. relating to the importations or exportations of gold or silver; d. necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices; e. relating to the products of prison labour; f. imposed for the protection of national treasures of artistic, historic or archaeological value; g. relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption; h. undertaken in pursuance of obligations under any intergovernmental commodity agreement which conforms to criteria submitted to the CONTRACTING PARTIES and not disapproved by them or which is itself so submitted and not so disapproved;* i. involving restrictions on exports of domestic materials necessary to ensure essential quantities of such materials to a domestic processing industry during periods when the domestic price of such materials is held below the world price as part of a governmental stabilization plan; Provided that such restrictions shall not operate to increase the exports of or the protection afforded to such domestic industry, and shall not depart from the provisions of this Agreement relating to non-discrimination; j. essential to the acquisition or distribution of products in general or local short sup ply; Provided that any such measures shall be consistent with the principle that all contracting parties are entitled to an equitable share of the international supply of such products, and that any such measures, which are inconsistent with the other provisions of the Agreement shall be discontinued as soon as the conditions giving rise to them have ceased to exist. The CONTRACTING PARTIES shall review the need for this sub- paragraph not later than 30 June 1960. 35 The complaining party is favoured because it has not to prove the violation of GATT, but on the other hand it has to prove the scientific violation. The link between GATT Art. 20 and the SPS Agreement is specified in art. 2.4 of SPS Agreement: “Sanitary or phytosanitary measures which conform to the relevant provisions of this Agreement shall be presumed to be in accordance with the obligations of the Members under the provisions of GATT 1994 which relate to the use of sanitary or phytosanitary measures, in particular the provisions of Article XX(b)”. Any measure compliant with SPS Agreement is presumed to be compliant also with art. 20(b) of GATT. The features of SPS measures are provided by paragraph 1 of Annex A: 1. About the content: i. aiming to protect human, animal or plant life or health from pests and diseases. ii. aiming to protect human or animal life or health from contaminated food, beverages or feedstuffs. 2. About the form: any government action can be judge under SPS Agreement (very vague). The adoption of health measures is a very delicate topic and both States and WTO has the power to decide, in order to take care of needs more closely but at the same time avoiding abuses of measures. • States à authority to respond to health risks. • WTO à responsibility to assure that SPS measures are not abused of. Standard of review It means the degree of scrutiny (defense) that Panel and Appellate Body engage reviewing a contested measure. Given the authority of States to set health measures, when judging a measure WTO has not the power to substitute itself to national governments. There are two types of review panels can potentially apply: - De Novo review: Panel can have a complete new vision of the measure respect to the national government and verify if the measure was correct both factually and procedurally. - Deference review: Panel should not seek to review the measure but define if the procedure has been followed. The AB in the Hormones case, the review that has to be used by Panel or AB is, under art. 11 of DSU, an “objective assessment” of the facts (neither “total deference” nor “de novo review”). In Hormones –Continued suspension (2008) the AB added that neither the Panel nor the AB have the power to substitute the national government in writing the measure, they only have the power to examine the procedure followed, i.e. the facts on which the government based its decision that have to be objectively justifiable (based on solid ground). 36 The aim of the SPS Agreement is to discourage governments from enacting protectionist measures disguised as measures to protect public health and safety. Conditions for adoption (Art. 2, SPS Agreement): Members have the right to adopt an SPS measure upon the occurrence of - Positive conditions 1. based on scientific principles and not maintained without sufficient scientific evidence. 2. applied only to the extent necessary to protect human, animal or plant life or health. - Negative conditions 1. not arbitrarily or unjustifiably discriminate between Members where identical or similar conditions prevail 2. not be applied in a manner which would constitute a disguised restriction on international trade Another aim of the SPS Agreement is to promote the harmonization of sanitary and phytosanitary among WTO Members. Harmonization of SPS (Art. 3, SPS Agreement) 1. Members shall base their sanitary or phytosanitary measures on international standards when they exist (Art. 3.1). 2. Sanitary or phytosanitary measures which conform to international standards(...) shall be deemed to be necessary to protect human, animal or plant life or health, and presumed to be consistent with the relevant provisions of this Agreement and of GATT 1994 (Art. 3.2). 3. Members may introduce or maintain sanitary or phytosanitary measures which result in a higher level of sanitary or phytosanitary protection than would be achieved by measures based on the relevant international standards, guidelines or recommendations, if there is a scientific justification, or as a consequence of the level of sanitary or phytosanitary protection a Member determines to be appropriate in accordance with the relevant provisions of paragraphs 1 through 8 of Article 5 (Art. 3.3). Members are not obliged to conform but only to base their measure to international standards, but if they conform, measure need to be necessary and WTO consistent. Members can choose a measure founded on scientific bases and determined by the level of protection within the country (these factors must both exists). Assessment of Risk and Determination of the Appropriate Level of Sanitary or Phytosanitary Protection (Art. 5, SPS Agreement) 1. Members shall ensure that their sanitary or phytosanitary measures are based on an assessment, as appropriate to the circumstances, of the risks to human, animal or plant life or health, taking into account risk assessment techniques developed by the relevant international organizations. 2. In the assessment of risks, Members shall take into account available scientific evidence; relevant processes and production methods; relevant inspection, sampling and testing 37 methods; prevalence of specific diseases or pests; existence of pest- or disease-free areas; relevant ecological and environmental conditions; and quarantine or other treatment. 3. In assessing the risk to animal or plant life or health and determining the measure to be applied for achieving the appropriate level of sanitary or phytosanitary protection from such risk, Members shall take into account as relevant economic factors: the potential damage in terms of loss of production or sales in the event of the entry, establishment or spread of a pest or disease; the costs of control or eradication in the territory of the importing Member; and the relative cost-effectiveness of alternative approaches to limiting risks. 4. Members should, when determining the appropriate level of sanitary or phytosanitary protection, take into account the objective of minimizing negative trade effects. 5. With the objective of achieving consistency in the application of the concept of appropriate level of sanitary or phytosanitary protection against risks to human life or health, or to animal and plant life or health, 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. Members shall cooperate in the Committee, in accordance with paragraphs 1, 2 and 3 of Article 12, to develop guidelines to further the practical implementation of this provision. In developing the guidelines, the Committee shall take into account all relevant factors, including the exceptional character of human health risks to which people voluntarily expose themselves. The leading case is EC-Hormones (1998) In the 1980s the EC enacted a ban on both the production and the importation of meat from cattle raised with the use of hormones on grounds of health protection. Canada and the US, which made a large use of hormones in cattle farming, challenged the EC ban, complaining that it violated GATT Articles I, III and XI. The AB stated that: - On the standard of review: under DSU Art. 11, “objective assessment” of the facts (neither “total deference” nor “de novo review”). - On harmonization: AB rejected the Panel's interpretation and stated that o Art. 3.3 is not an exception to Arts. 3.1; o The burden of proof for the violation under Art. 3.3 lies on the complaining party; o There is not an obligation to “to conform to” an international standard and that “to be based” on one does not mean necessarily to adopt all of its elements; o Art. 3.3 “is evidently not a model for clarity in drafting and communication”: notwithstanding the “or” both its conditions must concur together: scientific justification and risk assessment. - On the scientific foundation: since art. 5.1 requires that there be a “rational relationship” between the measure and the risk assessment, AB reversed Panel’s report that the EC measure violated Art. 5.1 (and thus Art. 3.3) because it was not based on a risk assessment. The AB reversed the Panel's finding that the EC measure, through arbitrary or unjustifiable distinctions, resulted in “discrimination or a disguised restriction of international trade” in violation of Art. 5.5 (prohibition on discrimination and disguised restriction on international trade), noting: o evidence showed that there were genuine anxieties concerning the safety of hormones; 40 Members are also called to “give positive consideration to accepting as equivalent technical regulations of other Members, even if these regulations differ from their own, provided they are satisfied that these regulations adequately fulfil the objectives of their own regulations” (Article 2.7). TBT Article 3 set weaker obligations on WTO Members for technical regulations adopted by local or non-governmental standardization bodies: «3.1 Members shall take such reasonable measures as may be available to them to ensure compliance by such bodies with the provisions of Article 2...» TBT Article 4 regulates standards: WTO Members ensure that their central governments (and reasonably endavour to ensure that local and non-governmental - standardization bodies) comply with the Code of Good Practice for the Preparation, Adoption and Application of Standards annexed to the Agreement. The first leading case is United States - Tuna II (AB Report, 2012) The US adopted measures introducing criteria for tuna to be labeled as «dolphin safe». The regulation was challenged by Mexico, which alleged they constituted a violation of TBT Article 2. Can the measures be considered «mandatory»? In the Asbestos case the 3 requisites of a technical regulation were found to be that 1. it must apply to an identifiable product or group of products; 2. it must lay down one or more characteristics of the product; 3. compliance with the product characteristic must be mandatory Thus, the AB said yes: even if it is not mandatory to use the label to sell tuna products in the U.S market, it is mandatory to comply with the measures at issue to place tuna products on the U.S. market with any reference to dolphin safety. According to the Panel the «dolphin safe» label was a technical regulation under the 2nd sentence of the definition in Annex 1.1 “...labelling requirements as they apply to a product...”. Can a «process and production method» be considered a technical regulation? It is partially answered by the case EC - Seals (AB Report, 2014) In 2009 the EU prohibited the importation and sale of seal products on animal welfare grounds. The seal ban applied both to EU seals and imported seals. The EC «Seal Regime» prohibited all seal products (made exclusively from seal or containing it as an input) with the exception of - products resulting from hunts of Inuit or other indigenous communities (IC excepion); - seals hunted for marine managment purposes (MRM exception); - travellers imports. Following the ban, only seal products from Greenland were admitted under the IC exception, thus Canada and Norway challenged the EU ban alleging violation of both the GATT (Art. 1 and Art. 3.4) and the TBT (Articles 2.1, 2.2, 5,6, 7, 8). 41 The Panel stated that the measure was a ban and was covered by definition of technical regulation: - Since the measure prohibits seal-containing products, it «lays down a product characteristic in the negative form by requiring that all products not contain seal». - Through its exceptions, the EU Seal Regime sets out the applicable administrative provisions for products «with certain characteristics». - It is unnecessary to examine if it also lays down «related» process and production method. The Appellate Body reversed the Panel finding stating that the measure does not qualify as a technical regulation because - It has to be assessed on the whole (ban on pure seal, ban on products containing seal (secondary) and exceptions). - As such, it does not lays down «product characteristics». The AB does not clarify when a measure providing for a PPM (process and production method) can be considered a technical regulation. According to the AB the ban on pure seal does not impose any characteristics; also the products containing seal are not banned because they contain seal as an input, but because of the identity of the hunter; the type of hunt and the purpose of the hunt: neither of these can be considered to be a «characteristic» of the final product. The EU ban is covered by GATT Article 3.4, but it does not comply with it, neither with Art.1.1. It could be justified under the exception of Art. 20(a), but the AB found that the European Union had not justified the EU Seal Regime under GATT Art. 20(a) as the measure does not comply with the chapeau of Article 20. Trade Defense Measures Trade defense measures can be considered as exceptions to general rules previously stated (e.g. prohibition on quantitative restrictions…) allowing Members to engage in behaviors that would be otherwise prohibited. Trade defense measures are mainly 3 tools that helps countries to fight against • Market distortions o Anti-dumping (AD): response to a private action in the exporting country that is harmful to international competition/trade. o Anti-subsidies or Countervailing Duties (AS o CVD): response to a government action of the exporting country that is harmful to international competition/trade • Increase in imports: o Safeguards: response to a situation that is internal to the importing country not caused by an anti-competitive behaviour. 42 Anti-dumping measures The normative sources of anti-dumping are - GATT Art. 6 - Agreement on the Implementation of Art. 5 of GATT ‘94 (AD) The dumping is the introduction of a product “into the commerce of another country at less than its normal value” (Article 2.1 AD). It is an unfair pricing practice of private firms; imports are being sold at a price that is too low. The key element of this definition is the comparison between - Export price of a good: the price of the good in the market of the importing country - Normal value of a good: in a market system, it is the actual price (it has a legal - not economic – meaning) According to Art. 6 of the GATT and to Art. 2 of the AD Agreement, the normal value can be defined in 3 different ways (preference for the first): 1. price of the good in the home-market of the exporting producer. 2. sales price in an appropriate third country. 3. cost of production plus a reasonable profit. Price in the exporting country can be used to find out dumping only if: - Sales are «in the ordinary course of trade»: those that are ordinary practice on the market. The problem may arise between companies that are part of the same group, where prices might be lower than market prices. The analysis must be applied to parties that are not part of the same group. - They are sales of like products; - Products are destined for consumption in the exporting country (and not sold in the home country); - Prices are comparable (goods at the same phase of production). If these 4 requirements are not met, there are two alternative methods: - Comparison with the sales price of the like product when exported to an appropriate third country; - Making reference to the cost of production plus a reasonable profit (AD 2.2) These alternative methods are very important when dumping comes from non-market economy countries (e.g. China), where a strict comparison with domestic prices is not possible. It is permitted by the Ad Note to Art. 5.1 for “imports from a country which has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the State”. China has been a big issue because China joined the WTO in 2001 and the condition for its entry were assessed in China Accession Protocol. Art. 15 of Protocol is about: Comparability in Determining Subsidies and Dumping “Article VI of the GATT 1994, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("Anti-Dumping Agreement") and the SCM Agreement shall apply in proceedings involving imports of Chinese origin into a WTO Member consistent with the following: 45 Safeguard measures are temporary import restrictions triggered by an unforeseen, massive increase in imports such to cause or threaten to cause serious injury to the domestic industry. The normative sources for safeguards are - GATT Art. 19 - Agreement on Safeguards (SA) Special safeguard measures are allowed by - Art. 16 of the China Protocol of Accession (lapsed in 2013); - Art. 5 of the Agreement on Agriculture (on terms less strict than the general ones, but only for products that have been specified in the member’s Schedule of concession with the symbol SSG (special safeguard good); - Preferential trade agreements (allowing in some circumstances the reintroduction of restrictions that had been renounced under the agreement) Emergency Action on Imports of Particular Products (Art. 19, GATT) (a) If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products, the contracting party shall be free, in respect of such product, and to the extent and for such time as may be necessary to prevent or remedy such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession. There must be an unforeseen development resulted in an increase of import and, consequently, in injury to the internal market. Safeguard measure must be proportionate to the injury caused. Conditions (Agreement on Safeguards, Art. 2) 1. A Member may apply a safeguard measure to a product only if that Member has determined, pursuant to the provisions set out below, that such product is being imported into its territory in such increased quantities, absolute or relative to domestic production, and under such conditions as to cause or threaten to cause serious injury to the domestic industry that produces like or directly competitive products. 2. Safeguard measures shall be applied to a product being imported irrespective of its source. The Panel stated that Article 19 continues in full force and effect, thus the requirement of «foreseeability» is still needed. A safeguard measure can be applied only if: 1. Good has been imported in increased quantities; 2. Such increase was not foreseeable; 3. Cause or threaten to cause serious injury to domestic industry that produces like or directly competitive products; 4. Investigation is consistent with the Agreement on Safeguards; 5. Non-discriminatory, unrelated to origin of the goods and of their producers. 46 The leading case is US – Steel and Aluminium Products (EU) (WT/DS548) The European Union accused US to raise duties on steel and aluminium products without following the procedure of the WTO treaties. Thus, EU contested their compliance with GATT Art. 19 and with the SA (EU Request for consultations, June 2018). The US alleged that the measures adopted concerned issues of national security and, as such, were not susceptible of review nor capable of resolution by WTO dispute settlement. Several other WTO Members (e.g. China, India, Canada, Mexico) started similar proceedings. In May 2019 the US reached a mutually agreed solution with Canada and Mexico where duties were eliminated) but all the other proceedings are still ongoing. Subsidies Anti-subsidies (or countervailing) duties are import duties imposed in response to certain subsidies provided to exporters by their governments and causing (or threatening to cause) material injury to industries in the importing country. In the “countervailing” term we can find that the ratio is not to punish but to regain an equilibrium on the market. WTO does not prohibit subsidies, except for very few types, but it wants to give to Members an instrument to offset the eventual damages of these subsidies. A subsidy is made of 3 elements: 1. Financial contribution from a government or public body: e.g. direct transfer of funds, loans, forgone revenues otherwise due, government provision of goods or services… 2. Advantage: it confers a benefit (more favorable terms than available in the market). 3. Specificity: access to the subsidy is limited to certain enterprises à “Financial contribution” Very broad sense: direct transfer of funds, loans, forgone revenues otherwise due, government provision of goods or services may all be financial contribution for purposes of the SCM Agreement à “Government or a public body”. Government is defined by the functions performed and the power and authority to perform them. How is a public body defined? (Public ownership or control?) The leading case is United States – Antidumping and countervailing duties (China), 2011 Chinese tyres producers received rubber at very low prices from State-owned enterprises (SOEs) and loans at below market rates offered by State-owned commercial banks (SOCBs). They could export and sell their products on the US market with a competitive advantage on American tyres producers. In 2007 the US Department of Commerce (USDoC) started an investigation that found out that subsidies had been granted and introduced countervailing duties. China started a WTO procedure. 47 The Panel agreed with the USDoC, finding that public body means “an entity” “controlled by” a government: in this case the Chinese government owned the majority of the shares in the rubber companies. The Appellate Body reversed the Panel report: majority stakes owned by the government are not enough to qualify a company as a public body. Public body is an entity that possesses, exercises or is vested with governmental authority. In United States – Countervailing Measures on Certain Hot-Rolled Carbon Steel Flat Products from India (2014) the AB added that while “formal indicia of control” have no relevance in identifying a public entity, what may be relevant is control that is reflected in the conduct of the entity, i.e. the government really plays a role and determine the policy in a company. à Conferral of a benefit Very broad sense: the important thing is the comparison between the situation of the recipient company with the generality. Canada – Aicraft (AB Report, 1999): AB stated that the marketplace provides an appropriate basis for comparison in determining whether a “benefit” has been “conferred” because the trade-distorting potential of a “financial contribution” can be identified by determining whether the recipient has received a “financial contribution” on terms more favorable than those available to the recipient in the market. The WTO regime for subsidies is called traffic-light system • Red-light subsidies: prohibited under SCM Article 3. i. Export subsidies: subsidies granted on the condition that the receiver will export a quota of the production. It is considered dangerous for international trade. ii. Subsidies contingent on the use of domestic products: subsidies granted on the condition that the receiver commit to use only the giver’s domestic sources/products. • Orange-light subsidies: actionable - not prohibited but can be countervailed or challenged if they damage another Member. They include all other subsidies • Green-light subsidies: subsidies that are not specific, or that offer forms of assistance for research activities, disadvantaged regions or adaptation to new environmental requirements. They were permitted, but the category lapsed in 2000. If a subsidy granted from another country damages its domestic industry, the WTO Member can follow two alternative procedure: 1. Initiate a dispute settlement procedure. o Longer times, solution applies only to the loser country’s market. 2. Respond with a countervailing duty. o Shorter time, autonomous solution, general application. The two procedures can run parallel up to a point, but double remedies are prohibited. Countervailing duties (CVDs) are duties to be added to the consolidated duty with the function to compensate the injury caused by subsidization. Governments don’t have to ask for prior authorization from the WTO but can directly impose CVDs on imports. However, the target country can contests CVDs before the Panel. 50 Transparency Members must be very clear about how the provisions of services is regulated in each sector. They must 1. Publish all regulations and provide specific information upon request to both domestic and foreign suppliers; 2. Notify at least annually all regulatory changes; 3. Assure that measures of general application are applied impartially and must provide ways to challenge decisions (tribunals/administrative bodies). Market Access According to Article 16, Members are free to decide which services sectors – and under which modes of supply – foreigners suppliers are allowed to enter. There are 6 types of restrictions that are legitimate only if are written in the Schedule (otherwise they are prohibited), relating to: a. The number of service suppliers; b. The value of service transactions or assets; c. The number of operations or quantity of output; d. the number of natural persons supplying a service; e. The type of legal entity or joint venture; f. The participation of foreign capital. National Treatment According to Article 17, Members are free to decide in which services sectors opened to foreign suppliers respect the national treatment principle, as long as such «conditions and qualifications» are written in the Schedule (otherwise they are prohibited),. The leading case is United States-Gambling (AB Report, 2005) Antigua and Barbados challenged USA because a natural person of American citizenship providing online gambling services from Antigua had been jailed in the USA because under USA law online gambling services were prohibited. Antigua replied that USA in the Schedule had liberalized recreational, cultural and sporting services, and online gambling services fell under “other recreational services”. The AB Body referred to the Vienna Convention and stated that online gambling entered in such clause, thus USA committed to liberalize such services. 51 Trade related aspects of Intellectual Property Intellectual Property Rights are legal tools to protect creations of the mind, such as industrial inventions, works of art and literature, designs. They also protect products, through the use of trademarks aimed at distinguishing them from similar ones sold by competitors. IPRs grant to the holder (inventor/copyright owner/author) the exclusive right to benefit from the protection of the economic or moral interests of their invention/product/creation for a certain time. The most relevant IPRs are patents, trademarks and copyrights, but there are also other similar forms of protection, like plant breeders’ rights, geographical indications, rights to layout-designs of integrated circuits.... Why an Agreement on Intellectual Property Rights (IPRs) in the WTO System? The aim of the Agreement is not to regulate IPRs in general but only those aspects of IPRs that are related to trade. This is why it is called Agreement on Trade-related Property Rights (TRIPs). Traditionally IPRs are regulated at national level but this may affect negatively international trade flows. The aim of TRIPs is to build up a common ground of intellectual protection within WTO Members. The national level of IP’s protection might: - Reinforce the partitioning of markets on national basis; - Encourage counterfeit (fake products) Developed country consider very important to incorporate IP rights into a WTO (trade) treaty because IP rights represent a considerable part of their value (relatively to developing countries). For many products the cost of the «hardware» (think of a music CD or a smartphone) is so low that if the goods were not protected by a patent they could be easily replicated and sold at a very low price. One may think this to be an advantage, but it also has drawbacks: - Induce companies not to invest in R&D, for fear not to recoup their money; - Induce companies to renounce to export for fear of selling their products on a market that doesn’t provide protection and they would be counterfeited. Developing countries had been long hostile to the TRIPs. Their attitude changed during the Uruguay Round because 1. Might have been forced by the single undertaking rule; 2. Might have been willing to push for innovation and resource. Structure of the Agreement: TRIPS Agreement is centered on a “positive integration”: WTO members are told to take positive steps toward harmonization, i.e. to set up a system of IP registration and enforcement that meets agreed minimum standards. Instead, all other WTO treaties are centered on a “negative integration”: WTO members are only asked not to discriminate, but it does not set any rule to harmonize. 52 The three goals of the TRIPS: 1. To provide for universal minimum standards of IPRs protection. Standards are not set in the Agreement, but gathered from previous major international treaties: i. The Paris Convention on patents and trademarks ii. The Berne Convention on copyrights 2. To strengthen domestic enforcement of IPRs. WTO members are compelled (à positive integration) to introduce in their legislation civil and criminal procedures that IPRs holders can use to stop the illegal use of their rights and obtain legal compensation. 3. To provide for an effective means of international enforcement of IPRs. Members must use the WTO procedure to settle disputes relating to IPRs. The substantive part of the Agreement is enriched by two rules inherent to the WTO liberalization process: - National Treatment (Article 3). - Most Favored Nation (Article 4). The objective of the Agreement is described in Article 7: The protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations. Thus, the objective is not only the merely protection of IPRs rights, but also to find a balance between the interests of IPRs holders and consumers, thanks to the encouragement in R&D. The second part of the Agreement states the disciplines concerning all different rights that are protected. We will go through some of them. Geographical indications (GI) “Geographical indications are, for the purposes of this Agreement, indications which identify a good as originating in the territory of a Member, or a region or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially attributable to its geographical origin”. There was a debate on how to discipline GI in TRIPS due to the different thinking of USA and EU. Finally, it was introduced in the TRIPS the Article 22: WTO Members must prevent any misleading or anticompetitive use of GI in their territory. Article 23 provides for an additional protection for geographical indications for wines and spirits. 55 Trips and Covid-19 The TRIPs Agreement may impact on the response to COVID-19 pandemic. A wide access to medical products and technologies (from personal protective equipment to contact tracing software, medicines, vaccines) is needed. IP rules must be applied in a way to facilitate access and support the creation/dissemination of new technolgies, medicines and vaccines How to deal with this problem? - Exploit TRIPS flexibilities, first of all compulsory licensing: France passed a law that affords Public Minister impose compulsory licences where necessary, bypassing the general provisions in the Intellectual Property Code. - International cooperation: public and private actors have launched collaborative global efforts to develop and manufacture diagnostics, medicines and vaccines. Cooperative initiatives: • Committing to non-exclusive and royalty-free licensing; • Issuing non-enforcement declarations of patent in some or all jurisdictions; • Publishing scientific data on a free-to-use basis; • National IP offices have simplified their administration of the IP system to expedite procedures. WTO and Developing countries The Preamble of the WTO Agreement was signed in 1994. It states the commitment to the pursuance of sustainable development in a manner consistence with the respective needs and concerns at different levels of economic development. There was also the objective of “securing to developing countries a share in the growth in international trade”. Developing countries according to WTO law are not clearly defined. The World Bank classifies countries in 4 categories basing on their annual gross national income (GNI) per capota: - Low income - Lower middle income à Developing countries - Upper middle income - High income à Developed countries In the UN system there is no established convention for the distinction of developed and developing countries but there are common practices and international trade statistics. The GATT/WTO system is the only one that applies the self-selection principle; any Member can define itself as a developed country and avail of provisions only for developed countries but other Members can open a dispute on this! WTO law also differentiates the status of least-developed countries, i.e. low-income countries suffering from structural impediments to sustainable development. 56 In this case the criterion is not the one of self-selection but the UN Committee for Development Policy (CDP) identifies them by 3 criteria: - Gross National Income (GNI) - Human Assets Index (HAI) - Economic and Enviromental Vulnerability Index (EVI) HAI and EVI are formed by 4 (health and educational) and 8 indicators respectively. Today 36 of the 46 least-developed countries are WTO Members. To respond to the needs of developing/least-developed countries, the WTO offers 2 means: - Differential treatment for developing countries (temporary mean). - Taking of positive efforts to help their economic growth. GATT’ 47 did not provide operational tool to meet developing countries’ needs. In 1964, when Part IV of the GATT was adopted (dealing with Trade and Development), it was introduced the art. 36.8: developed countries shall not expect reciprocity for commitments in negotiations with developing countries (non-reciprocity principle). In 1971, the generalized system of preferences was temporarily made available and was made permanent by the Enabling Clause in 1979. In the Uruguay Round they didn’t want to make specific rules only for developing countries but went for more flexibility in the implementation of the general rules in developing countries. These “special” rules were categorized in - Provisions increasing trade opportunities for developing countries though enlarged markets access; - Provisions required WTO Members to safeguards the interests of developing Members; - Provisions allowing flexibility in rules governing trade measures; - Provision allowing for longer transitional periods; - Provisions for technical assistance; - Provisions specific for least-developed countries. Such special provisions were not so efficient in promoting developing countries interests and didn’t introduce new obligations on developed countries. Developing countries got better results from the application of general rules. China… Is it a developing countries? The Accession Protocol of China imposes WTO-Plus obligations. The generalized system of preferences is the most important tool that exists towards developing countries. The legal basis of it is the Enabling Clause, also called “Decision on Differential and More Favorable Treatment, Reciprocity and Fuller Participation of Developing Countries”, adopted in 1979. It enables developed Member countries to adopt preferential measures towards developing countries. EU was the first one to adopt the GSP in 1971. Developed countries offers non-reciprocal preferential agreement (such as zero or low duties to encourage export from developing countries). Preference-giving countries unilaterally determine which countries and which products to include in their preferential treatment. Thus, there is a large discretionality. 57 The leading case is about non-discrimination EU – Conditions for the granting of tariff preferences to developing countries (2004) EU adopted a generalized tariff preferences scheme for developing countries that encompassed a more preferential treatment for 12 countries that experienced grave drug problems. India questioned such measures as it violated art. 1 of the GATT (MFN) and the Enabling Clause. The Panel and AB stated that Enabling Clause is an exception of art. 1 of the GATT and “Drug Arrangement” were not justified and should include other countries affected from drug problems. The EU system provides for a sliding scale of preferences according to the needs of developing countries: 1. General/Standard Arrangement: duty reduction for beneficial in general. 2. Special Incentive Arrangement: zero duties for countries that committed to implement core international human rights, labour rights and other sustainable development and good governance conventions. 3. Everything but Arms: full duty-free and quota-free access for all products from least- developed countries except for arms and ammunition. The Enabling Clause is also the legal basis for regional arrangements among developing countries and for the Global System of Trade Preferences (GSTP), under which a number of developing countries exchange trade concessions among themselves.