International Trade and Investment Law

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International Trade & Investment Law
I. INTRODUCTION TO INTERNATIONAL TRADE LAW: Bretton-Woods  WTO

Regulating International Trade: Clashes Between Theory & Practice
o Why is the Regulation of International Trade Important?

Ricardo D. The Principles of Political Economy & Taxation

Economic Globalization is the gradual integration of national economies into 1 mega borderless global economy.

International trade is not about competition between countries, but rather about mutually beneficial exchange.

International trade is not a zero-sum game where if one country benefits, another has to lose (like Trump thinks).

Adam Smith saw mercantilism, and its zero-sum understanding of the market, encouraging nations to beggar
each other in order to increase economic gain, as misguided; instead, he believed that free trade would lead to
long-term economic growth that would actually increase wealth across all nations.

Absolute versus Comparative Advantage

Adam Smith The Wealth of Nations: Discusses absolute advantage which refers to the advantage that someone
Due to scarceness of goods and unequal
has when they can produce more output per unit of effort than someone else.
distribution of global resources and
working capabilities, a free trade market

Law of Comparative Advantage: by specializing in producing goods and services that they are best at and trading
is the best choice for every country b/c
every nation will strategically specialize
to obtain other goods and services, a country is able to maximize its own consumption.
in the productions in which it’s better
o E.g. If Country A is superior at producing automobiles and only mediocre at producing tea, while
than the others, importing the goods
that are efficiently produced abroad.
Country B is the best at producing tea  Country A should focus all its efforts and invest all its
Everyone maximizes profit +
resources on producing automobiles and let Country B produce tea. In this way, Country A and B can
the demand of goods and services
becomes international, making the
trade with one another and each mutually gain from trade.
internal production increase + important
boosts to modernization +

A country need not be the ‘best producer’ of anything to benefit from trade.
research due to competition + market

Theory of Comparative Advantage: still the most influential explanation for why countries (even the poorest)
integration fosters cooperation between
countries, with great benefits for peace.
can and do benefit from international trade.
o Opening markets is beneficial b/c lowers prices for consumers and is more efficient overall.
o Collective Action Problem (in practice)

While states may share a common interest in trade at the aggregate level, this does not automatically mean that
governments will advance this interest in practice, but rather this depends on accountability mechanisms within the state.

Even if a group shares a common interest in a public good, this is not a sufficient condition for the good to be provided due
to free-riding incentives. Individuals may not contribute to the costs of the good but rather reap the benefits of the
contribution of others. The result is that the good will not materialize, unless certain specific conditions are met.

In the case of free trade, this means that although all states have a collective interest in free trade, every state
has an incentive to protect its own producers while benefitting from other states opening up their domestic
markets. But what if they don’t? Then we need to create international arrangements that allow weak states to
protect themselves or be compensated for not doing so.
o In this regard, free trade might become a weapon of the strong against the weak. These incentives
may explain the difficulties states experience in building a global or regional free trade regime.

Historical Timeline & Predecessors
o Great Depression (1929) & Economic Protectionism

The Great Depression of the 1930s was marked by a severe outbreak of protectionist trade policies. Governments from
around the world imposed tariffs, import quotas, and exchange controls to restrict spending on foreign goods. These
trade barriers contributed to a sharp contraction in world trade in the early 1930s beyond the economic collapse itself.
o WWII (1939)

Trade frictions partly responsible.

Trade protectionist policies had prevented the world economy from recovering from the 1929 crisis.

Beggar-Thy-Neighbor Theory: international trade policy that benefits the country that enacted it, while harming
its neighbors or trade partners (Trump’s current practice).
o Basic idea is to increase the demand for a nation's exports, while reducing reliance on imports.
o Post-WWII

Bretton-Woods Agreement (1944) is the landmark system for monetary and exchange rate management established at
the UN Monetary and Financial Conference. Currencies were pegged to the price of gold, and USD was seen as a reserve
currency linked to the price of gold.

Main goals were to ensure a foreign exchange rate system, prevent competitive & promote economic growth.

Gave birth to both the IMF & World Bank.
o (1945) International Monetary Fund (IMF): monitors exchange rates and lends reserve currencies to
nations.
o (1946) World Bank: provides financial assistance for countries during the reconstruction post-WWI.

Collapsed in 1973; overvaluation of USD led to concerns over the exchange rates/the price of gold, so foreign
governments let currencies float, which put an end to the Bretton Woods system.
o
(1948) International Trade Organization (ITO)

Proposed international institution for the regulation of trade led by the US in collaboration with allies of which goal was to
negotiate a multilateral agreement for the reciprocal reduction of tariffs on trade in goods.

Negotiations on the ITO Charter were successfully completed in Havana Charter which set out the basic rules for
international trade and other international economic matters & allowed for international cooperation and rules
against anti-competitive business practices.
o
o

Instead, int’l trade came be provisionally governed by GATT until 1994 <<see below>>
(1947-1994) General Agreement on Tariffs & Trade (GATT)

Formation & Principles

Meanwhile, other countries had begun talks in December 1945 to reduce and bind customs tariffs. With WWII
recently ended, wanted to give an early boost to trade liberalization, and to correct the legacy of protectionist
measures which remained in place from the early 1930s (this led to the GATT).

GATT represented a legal agreement between many countries, whose overall purpose was to promote
international trade with the substantial reduction of tariffs and other trade barriers and the elimination of
preferences, on a reciprocal and mutually advantageous basis.
o Was first discussed during the UN Conference on Trade and Employment and was the outcome of the
failure of negotiating governments to create the International Trade Organization (ITO).
o GATT was signed by 23 nations in Geneva on October 30, 1947 and took effect on 1 January 1948.
o It remained in effect until the signature by 123 nations in Marrakesh on 14 April 1994, of the Uruguay
Round Agreements, which established the World Trade Organization (WTO) on 1 January 1995.
o The WTO is a successor to GATT, and the original GATT text (GATT 1947) is still in effect under the
WTO framework, subject to the modifications of GATT 1994.
o The GATT 1947 contained provisions for the binding of tariffs on a most-favored nation basis and
prohibited quantitative restrictions and discriminatory internal taxes and regulations, amongst others.

Institutional Shortcomings

However, the rules of the GATT were weakened by several factors:
o Just a provisional agreement NOT a formal international organization & suffered from a reduced staff.
o Grandfathering reduced the impact of the GATT as it made it applicable to future laws only.
o Another debilitating factor for the GATT was its weak dispute settlement. GATT panel had to be
agreed to by all contracting parties, including the losing party; i.e. the losing party could veto, and this
was a very powerful tool.
o Contracting parties adopted foreign restrictive trade practices that contravened the aims of the GATT.
o The main subject of regulation of the GATT was trade in goods, nowadays services are increasingly
more important. (e.g. 87% of US citizens are employed in the services sector).

When the GATT was contracted in 1947, agriculture/steel were the dominant sectors, but by
1995, goods still matter, but in terms of figures, they have far less significance than services.
Liberalization of services were left basically completely unregulated by the GATT.

Institutionally ill-equipped for promoting the liberalization of trade…When, as result of low tariffs, the
importance of non-tariff barriers to trade became more apparent, however, further liberalization was more
difficult to achieve. Ultimately, the GATT was institutionally too weak to handle these politically more salient
barriers amidst a greater diversity of contracting parties.

GATT worked well as far as periodic tariff reductions, but at a certain points (1980s) it was clear that in order for
the international trading system to meet new challenges due to new economic sectors, it was necessary to revise
not only the institutional framework, but to introduce new substantive law as well.
Uruguay Round was the most ambitious round to
date, hoping to expand the competence of the
GATT to important new areas such as services,
capital, intellectual property, textiles, and
agriculture + was also the first set of multilateral
trade negotiations in which developing countries
had played an active role.
The Agreement on Agriculture of the Uruguay
Round continues to be the most substantial trade
liberalization agreement in agricultural products
in the history of trade negotiations. The goals of
the agreement were to improve market access
for agricultural products, reduce domestic
support of agriculture in the form of pricedistorting subsidies and quotas, eliminate over
time export subsidies on agricultural products
and to harmonize to the extent possible sanitary
and phytosanitary measures between member
countries.

⚠️Havana Charter never came into force b/c it was not ratified by US Congress.
Initial GATT trade rounds concentrated on further
reducing tariffs. Then the Kennedy Round in the
mid-sixties brought about a GATT anti-dumping
Agreement and a section on development. The
Tokyo Round during the seventies represented the
first major attempt to tackle trade barriers that do
not take the form of tariffs, and to improve the
system, adopting a series of agreements on nontariff barriers, which in some cases interpreted
existing GATT rules, and in others broke entirely
new ground. Because not all GATT members
accepted these plurilateral agreements, they were
often informally called "codes"
Bali Package includes provisions for lowering
import tariffs and agricultural subsidies, making it
easier for developing countries to trade w/
developed world in global markets. Developed
countries would abolish hard import quotas on
agricultural products from the developing world
and instead would only be allowed to charge
tariffs on amounts of agricultural imports
exceeding specific limits + reforming customs
bureaucracies and formalities to facilitate trade
(1994) Modification of GATT  (1995) Establishment of the World Trade Organization (WTO)
o Background

Original GATT was straining to adapt to a new globalizing world economy. In response to the problems identified in the
1982 Ministerial Declaration (structural deficiencies, spill-over impacts of certain countries' policies on world trade GATT
could not manage etc.), the 8th GATT round was launched in September 1986, in Uruguay.


Biggest negotiating mandate on trade ever agreed: aimed to extend the trading system into several new areas,
notably trade in services and intellectual property, and to reform trade in sectors of agriculture and textiles.
The Final Act concluding the Uruguay Round and officially establishing the WTO regime was signed 15 April 1994,
during the ministerial meeting at Marrakesh, Morocco, and hence is known as the Marrakesh Agreement.
o
o
o
☂️ GATT still exists as the WTO's umbrella treaty for trade in goods, updated as a result of the
Uruguay Round negotiations (a distinction is made between GATT 1994, the updated parts of GATT,
and GATT 1947, the original agreement which is still the heart of GATT 1994). GATT 1994 is not
however the only legally binding agreement included via the Final Act at Marrakesh; list of ~60
agreements, annexes, decisions & understandings was adopted. The agreements fall into 6 main parts:

Agreement Establishing the WTO

Multilateral Agreements on Trade in Goods (GATT 1994)

General Agreement on Trade in Services (GATS)

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

Dispute Settlement

reviews of governments' trade policies
Objectives (preamble to WTO)

Parties to WTO, recognizing that their relations in the field of trade and economics should be conducted with a view to:

Raising the standards of living;

Securing full employment and steadily growing volume of real income;

Expanding production and trade of goods and services;

Consistently with sustainable development and the protection of the environment;

Ensuring that developing countries secure a proper share in the growth of international trade;

Resolve therefore to develop an integrated, more viable and durable multilateral trading system encompassing GATT.

The WTO is essentially saying that trade liberalization, harmonization and integration is the foremost method to
reach these objectives.
Various Agreements Comprising WTO

Annex 1.A [Multilateral Agreement on the Trade in Goods aka GATT 1994]

Agreement on Agriculture (AoA): Has 3 central pillars: domestic support, market access and export subsidies.

Application of Sanitary and Phytosanitary Measures (SPS)
o Sets constraints on MS policies relating to food safety (bacterial contaminants, pesticides, inspection
and labelling) as well as animal and plant health (imported pests and diseases).

Technical Barriers to Trade (TBT)
o International treaty ensuring that technical negotiations and standards, as well as testing and
certification procedures, do not create unnecessary obstacles to trade.

Trade-Related Investment Measures (TRIMS)
o Rules that apply to the domestic regulations a country applies to foreign direct investors.
o Restrict preference of domestic firms  enabling international firms to operate in foreign markets.

Policies such as local content requirements and trade balancing rules that have traditionally
been used to both promote the interests of domestic industries and combat restrictive
business practices are now banned.

Antidumping
o Dumping = introducing a product into commerce of another country at less than normal market value.

Via GATT Art. VI, Members can impose anti-dumping measures, if a determination is made:

(a) that dumping is occurring,

(b) that the domestic industry producing the like product in the importing country
is suffering material injury, and

(c) that there is a causal link between the two.

Customs Valuation
o Prescribes methods of customs valuation that Members are to follow via "transaction value" approach.

Rules of Origin

Import Licensing Procedures

Subsidies and Countervailing Measures

Safeguards

Trade Facilitation

Annex 1.B [General Agreement on Trade in Service (GATS)]

Created to extend the multilateral trading system to service sector, in the same way as the General Agreement
on Tariffs and Trade (GATT) provided such a system for merchandise trade.

Annex 1.C [Trade Related Aspects of Intellectual Property Rights (TRIPS)]

Sets down minimum standards for many forms of intellectual property (IP) regulation.

Annex 2 [Dispute Settlement Understanding]

<<see below>>

Annex 3 [Trade Policy Review Mechanism]


The main transparency instrument of the World Trade Organization (WTO), affording opportunities for a process
of collective evaluation of the trade policies and practices of individual members.
o Body which collects yearly information from current/former WTO member states regarding their trade
policies, economic policies and how it can affect their trade patterns, and all possible measures and
administrative practice they introduce in a given fiscal year, and which may have an impact on their
trade relations with other member states.
o Provides very relevant information to the WTO & allows member states to keep tabs on one another.

The 164 WTO member states would otherwise be in the dark about one another’s activities.
‘Soft’ mechanism of international supervision due to lack of power to impose sanctions.
o

o
o
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Currently under fierce scrutiny; US/EU will want to have a substantial revision of this system if a
new round ever is underway.
Annex 4 [Plurilateral Trade Agreements]

Almost all WTO members subscribe to all WTO agreements. After the Uruguay Round, however, there remained
4 agreements which had a narrower group of signatories and are known as “plurilateral agreements”
o Civil Aircraft (32 signatories) eliminates import duties on all aircraft, other than military aircraft, as well
as on all other products covered by the agreement — civil aircraft engines and their parts and
components, all components and sub-assemblies of civil aircraft, and flight simulators and their parts
and components.
o Government Procurement (19 parties) In most countries the government, and the agencies it controls,
are together the biggest purchasers of goods of all kinds, ranging from basic commodities to hightechnology equipment. They also buy large amounts of services and construction services, such as
telecommunications, roads, airports and power stations, etc. Having in place a sound public
procurement system based on principles of transparency, integrity and competition is vital in order to
maximize the benefit arising from the procurement for citizens and businesses alike.
o Dairy/Bovine Meat: (were scrapped in 1997) Countries that had signed the agreements decided that
the sectors were better handled under the Agriculture and SPS agreements.
Functions

Among the various functions of the WTO, these 2 are regarded by analysts as the most important:

Oversees the implementation, administration and operation of the covered agreements.

Provides a forum for negotiations and for settling disputes.

WTO has duty to review and propagate national trade policies, and to ensure the coherence and transparency of trade
policies through surveillance in global economic policymaking.

Another priority of the WTO is the assistance of developing, least-developed and low-income countries in transition to
adjust to WTO rules and disciplines through technical cooperation and training.

The WTO shall facilitate the implementation, administration and operation and further the objectives of this
Agreement and of the Multilateral Trade Agreements, and shall also provide the framework for the
implementation, administration and operation of the multilateral Trade Agreements.

The WTO shall provide the forum for negotiations among its members concerning their multilateral trade
relations in matters dealt with under the Agreement.

The WTO shall administer the Understanding on Rules and Procedures Governing the Settlement of Disputes.

The WTO shall administer Trade Policy Review Mechanism.

With a view to achieving greater coherence in global economic policy making, the WTO shall cooperate, as
appropriate, with the IMF & World Bank.

As globalization proceeds, the necessity of the WTO to manage the trading systems has been of vital importance.

As trade volume increases, issues such as protectionism, trade barriers, subsidies, violation of intellectual
property arise due to the differences in the trading rules of every nation.

WTO serves as the mediator between the nations when such problems arise.

WTO is also a center of economic research and analysis: regular assessments of the global trade picture in its
annual publications and research reports on specific topics are produced by the organization.

Single Undertaking Rule: if you want to be a member of the WTO, you have to comply with the single undertaking rule
(you can’t cherry pick among the various agreements e.g. no country can go before the WTO organs and ask to not open
their market to GATS. If you want to be part of the WTO, all of these agreements under the single undertaking rule + the
Dispute Settlement Body must be complied with.

Motive for single undertaking rule is to have a level playing field for all member countries.
o This is part of the reason that trade negotiations are so tedious.

Plurilateral Agreement is an exception to the single undertaking rule.
WTO Structure (Member-Driven Democratic Organization)

The WTO has about 160 members, accounting for about 95% of world trade + 25 others are negotiating membership.

Decisions are made by the entire membership typically via consensus. WTO agreements are ratified in MS parliaments.

WTO’s top-level decision-making body is the Ministerial Conference which meets at least once every 2 years.
o Below this is the General Council (normally ambassadors and heads of delegation in Geneva, but
sometimes officials sent from members’ capitals) which meets several times a year in the Geneva
headquarters. The General Council also meets as the Trade Policy Review Body and the Dispute
Settlement Body.

o
At the next level, the Goods Council, Services Council and Intellectual Property (TRIPS)
Council report to the General Council.

Numerous specialized committees, working groups and working parties deal with
the individual agreements and other areas such as the environment, development,
membership applications and regional trade agreements.
Current Challenges

Doha «development» Round (2001 - 2015)

Longer than any other round (still ongoing): Aim was to put less developed countries' priorities first. The major
factors discussed include trade facilitation, services, rules of origin and dispute settlement, and special and
differential treatment for the developing countries. Has failed due to many factors.

Problematic Issues

IP issues (Geographical Indications)
o Geographical indications are place names used to identify the origin and quality, reputation or other
characteristics of products (e.g. Champagne/Tequila).
o TRIPS Agreement handles this in 3 articles:

[Article 22] defines geographical indications and sets a standard level of protection. All have
to be protected in order to avoid misleading the public and to prevent unfair competition

[Article 23] applies only to protection for wines and spirits and says that subject to a number
of exceptions their names have to be protected against incorrect use even where this would
not mislead the public

[Article 24] A term does not have to be protected in a country if it has become generic or has
already been protected as a trademark in that country (exception).


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Agricultural liberalization (market access, subsidies)
o The most significant differences are between developed nations led by the EU, the US, Canada, and
Japan and the major developing countries led and represented mainly by India, Brazil, China, and South
Africa. Considerable contention against and between the EU and the US over their maintenance of
agricultural subsidies—seen to be trade barriers.
o Agriculture has become the most important and controversial issue, as it is particularly important for
developing countries, because around 75% of the population in developing countries live in rural areas,
and the vast majority are dependent on agriculture for their livelihoods.
Special Safeguards for Developing Countries
o There was insoluble disagreement between India and the US over the special safeguard mechanism
(SSM), a measure designed to protect poor farmers by allowing countries to impose a special tariff on
certain agricultural goods in the event of an import surge or price fall.
o The negotiations have been split along a developing-country/developed-country divide.

Developing countries wanted to negotiate on changes to S&D provisions, keep proposals
together in the Committee on Trade and Development, and set shorter deadlines.

Developed countries wanted to study S&D provisions, send some proposals to negotiating
groups, and leave deadlines open.

Developing countries claimed developed countries were not negotiating in good faith, while
developed countries argued developing countries were unreasonable in their proposals.

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Environment

A "green subsidy" is the allocation of public resources for the purpose of improving sustainability over what
would otherwise occur via the market. Green subsidies are on the rise throughout the world with the aim of
developing clean energy industries, phasing out of fossil fuels, arresting climate change, and promoting
sustainable production and consumption.

WTO subsidy rules are multilateral trade rules that need to be multilaterally beneficial to all of its members.
However, a carve out for renewable energy subsidies would likely be utilized only by member countries that
are advanced enough in renewable energy technology. Not all members may benefit from the new rules, and
thus lack legitimacy and justification.
o Newly allowed use of environmental subsidies may be abused as a disguised form of protectionism,
leading to a surge in trade remedy measures targeting renewable energy-related products.

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Human Rights

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Access to Medicine
o The issue involves the balance of interests between the pharmaceutical companies in developed
countries that held patents on medicines and the public health needs in developing countries. Another
issue concerns the protection of traditional medicinal knowledge and practices. Before the Doha
meeting, the United States claimed that the current language in TRIPS was flexible enough to address
public health emergencies, but other countries insisted on new language.



Rise of Bilateral Trade Agreements

Many countries have been so frustrated by the Doha stalemate (mainly US & EU refusing to give up their
agricultural subsidies) that they have been instead negotiating bilateral and regional trade deals. E.g.:
o Preferential Trade Agreements (PTAs)

US-EU Trade Agreement (TTIP) pending agreement between US & EU but future is uncertain
b/c Trump has not moved forward with it.

Trans-Pacific Partnership (TPP) Was pending between US and 11 other trading partners
bordering the Pacific Ocean; Trump withdrew.

China has signed many bilateral and regional agreements and proposed a 16-country trade
deal that would include India and Japan.
o Regional agreements can be useful if done right, but they threaten to segregate the world into
overlapping trading blocs with different rules in areas like labor rights, environmental protection and
access to medicines. And most such pacts — in which countries agree to eliminate tariffs for products
made within the trading bloc — do not include the world’s least-developed countries.
Political Challenges to Multilateralism

Trump Administration:
o Bilateralism-Mercantilism: Trump has made clear that he believes bilateral trade deals are better for
the US than regional or multilateral agreements. This is problematic for many reasons:

Switch from regional/multilateral forums to purely bilateral deals will shift negotiation
dynamics between would-be trade partners; one-on-one negotiations constrain the set of
potential agreements that could be reached with more players at the table.

A web of various floating bilateral trade agreements will do far less to promote efficient
global integration than comparable regional or multilateral treaties.

Trade agreements are important not only for lowering tariffs but also for helping harmonize
standards and regulations to ease international commerce; negotiating such standard setting
at a bilateral, rather than regional or multilateral, level is much less efficient.

Firms will find it costly and confusing to keep track of many overlapping sets of
trade regulations negotiated under different agreements, which may conflict. A
series of bilateral deals will substantially fragment international trade governance,
leaving a hodgepodge of incoherent rules ill-designed for the 21st century.

Abandoning regional and multilateral deals for a bilateral worldview could institutionalize
Trump’s mercantilist approach to the international trade system, in which countries are
locked in zero-sum competition to win market shares, rather than cooperating to improve
economic efficiency.

Over the long term, the risk is that the rules, norms, and laws that govern trade
relations will erode, along with the effectiveness and legitimacy of the WTO.
o Unilateralism (America First!)

Trump ‘goes it alone’ returning American trade policy back to aggressive unilateralism.

Trump rejects the idea of cooperation for mutual advantage; international
relations are not a win-win situation, but a zero-sum game with only 1 winner.

Consequently, a policy can serve US interests only if the benefits it provides are
exclusively for the US. Thus, Trump’s trade policy plans follow only US interests––
no matter whether they could hurt US allies directly or indirectly. All that matters
for Trump are US interests exclusively.
WTO…Still Relevant in the New Digital Economy?
o The WTO (facing assault from Trump) is struggling to find ways to deal with emerging issues such as ecommerce,
which many members believe it must do to remain relevant in a changing global economy.
o The launch of new negotiations in Doha in 2001 proved over-ambitious and divisive and collapsed without ever
formally ending…amid this stalemate, rise of digital economy is turning chronic ailment into an acute condition.
o Without updated rules applicable to global value chains, e-commerce and digital trade, the WTO rulebook risks
sliding into irrelevance.
o EU has suggested methods of this modernization effort related to 3 key areas:

Updating the rule book on international trade to capture today's global economy

Strengthening the monitoring role of the WTO

Overcoming the imminent deadlock on the WTO dispute settlement system.
II. The WTO Dispute Settlement System

GATT [Pre-1994] Dispute Settlement System
o The rudimentary rules in Article XXIII:2 of GATT 1947 provided that the contracting parties themselves, acting jointly, had to deal
with any dispute between individual contracting parties. Accordingly, disputes in the very early years of GATT were decided by
rulings of the Chairman of the GATT Council.


Later the Chairman was replaced by a Panel of (3-5) independent experts who would write reports and make
recommendations to resolve the dispute. Only upon approval by the GATT Council did these reports become legally
binding on the parties to the dispute.
o Weaknesses of the 1947 GATT Dispute Settlement System

Positive Consensus Requirement: positive consensus in the GATT Council was required to refer a dispute to a panel.

This meant there had to be no objection from any contracting party to the decision (including those parties
involved in the dispute). In other words, the respondent could basically just block the establishment of a panel.

Even if panel reports were adopted, the risk of 1 party blocking adoption often influenced the panels rulings.

Lack of Confidence in GATT: some contracting parties attempted to achieve trade-offs between ongoing disputes and
matters being negotiated which resulted in decreased confidence in GATT’s ability to resolve difficult cases  led to
unilateral direct legal action by individual contracting parties against other parties (w/o invoking GATT).
WTO Dispute Settlement Understanding (DSU)
o Introduction

The (WTO) dispute settlement system is often praised as one of the most important innovations of the Uruguay Round.

A dispute arises when 1-member country adopts a trade policy measure or takes some action that one or more fellow
members considers to a breach of WTO agreements or to be a failure to live up to obligations.

By joining the WTO, member countries have agreed that if they believe fellow members are in violation of trade rules, they
will use the multilateral system of settling disputes instead of taking direct legal action unilaterally.

Pursuant to the rules detailed in the DSU, member states can engage in consultations to resolve trade disputes pertaining
to a "covered agreement" or, if unsuccessful, have a WTO panel hear the case (goal is to reach private agreement first).
o Functions [DSU Art. 3.2]

Preserve the rights and obligations of Members under the covered agreements;

Clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public
international law;
o Bodies

Dispute Settlement Body (DSB): Consists of all of representatives of the WTO member governments, meeting together.

DSB decides the outcome of a trade dispute on the recommendation of the Panel and (possibly) on a report
�
from the Appellate Body, which may have amended the Panel recommendation if a party chose to appeal.
Reverse Consensus
employed by DSB makes it
almost certain that Panel
recommendations will
always be accepted.
o
o
⚠️Only the DSB can make decisions: Panels and the Appellate Body are limited to making
recommendations.
Reverse Consensus: Requires that Panel recommendations (as amended by the Appellate Body) should be
adopted "unless" there is a consensus of MSs against adoption.
o This has never happened given that the 'winning' MS would have to join this reverse consensus.

Panels: quasi-judicial bodies in charge of adjudicating disputes between Members in the first instance. Normally composed
of 3-5 experts selected on an ad hoc basis.

No permanent WTO Panel, rather a unique panel is composed for each dispute.

Anyone who is well-qualified and independent can serve as panelist.

Appellate Body (AB): Full complement consists of 7 judges, but AB can hear an appeal with a minimum of 3.

The full term for an Appellate Body judge's appointment lasts 4 years with a possibility of a reappointment for a
second (4-year) term.

AB judges must be individuals with recognized standing in the field of law and international trade, but not
affiliated with any government.

Broadly representative of the range of WTO membership.

Director-General & WTO Secretariat: Director-General convenes the meetings of the DSB and appoints panel members
upon the request of either party… The WTO Secretariat assists Members in respect of dispute settlement at their request,
conducts special training and provides additional legal advice and assistance to developing country Members. The
Secretariat also assists parties in composing panels by proposing nominations for potential panelists to hear the dispute
and provides administrative support for the DSB.
Procedure

Step 1: [Initiating Consultation] If a MS considers that a measure adopted by
another MS has deprived it of a benefit accruing to it under one of the covered
agreements, it may call for consultations.

Step 2: [Requesting a Panel] If consultations fail to resolve the dispute w/in 60
days after receipt of the request for consultations, the complainant MS may
request establishment of a Panel.

Step 3: [Panel Review] The panel, consisting of 3 members appointed ad hoc by
the Secretariat, receives written & oral submissions, on which it reaches
conclusions for (confidential) presentation to the DSB.

Step 4 [Panel Report Distribution & Adoption?] The final version of the panel's
report is distributed first to the parties; 2 weeks later it is circulated to all WTO members.

The report is required to be adopted at a meeting of the DSB w/in 60 days of its circulation, unless the DSB by
consensus decides not to adopt the report or a party to the dispute gives notice of its intention to appeal.

Step 5 [Appeal of Panel Report] Party may appeal panel report to the standing Appellate Body, but only on issues of law
and legal interpretations developed by the panel.




Each appeal is heard by 3 members of the permanent 7-member Appellate Body.
The Appellate Body may uphold, modify or reverse the panel's legal findings and conclusions. Normally appeals
should not last more than 60 days, with an absolute maximum of 90 days.

Step 6 [Adoption of AB Report by DSB] Appellate Body reports MUST be adopted by the DSB and unconditionally
accepted by the parties, unless the DSB decides by consensus within 30 days of its circulation not to adopt the report.

MSs may express their views on the report of the Appellate Body, but they cannot derail it.
o Implementation of Ruling

Compliance: Within 30 days of the adoption of the report,
the losing member is to inform the DSB of its intentions in
respect of implementation of the recommendations and
rulings. If respondent complies, end of story.

Reasonable Period of Time (RPT): If the member
explains that it is impracticable to comply
immediately with the recommendations and
rulings, it is to have a "reasonable period of time"
to comply (usually < than 15 months).
o If no agreement is reached w/r/t RPT for
compliance, that issue is subject to
binding arbitration w/ arbitrator
appointed by agreement of the parties.

If there is a disagreement as to the satisfactory
nature of the measures adopted by the respondent state to comply with the report, that disagreement is to be
decided by a panel, if possible the same panel that heard the original dispute, in practice, appeal is possible.

Compensation

If a member fails within the "reasonable period" to carry out the recommendations and rulings, it may negotiate
with the complaining state for a mutually acceptable compensation. Compensation is not defined but may be
expected to consist of the grant of a concession by the respondent state on a product or service of interest to
the complainant state in exchange for agreement not to pursue retaliation measures.

Retaliation (Final & Most Serious Consequence)

If, within 20 days after the expiry of RPT, the parties have not agreed on satisfactory compensation, the
complainant may ask the DSB for permission to impose trade sanctions against the respondent that has failed
to implement. Technically, this is called “suspending concessions or other obligations under the covered
agreements”
o The DSU does not favor retaliation, and sets the criteria for retaliation:

Suspension/concession or other obligation is to be temporary (meant to induce compliance);

Must be equivalent to the level of the nullification or impairment (can’t over punish);

If dispute to any of these retaliation measures, arbitration again is prompted.

Post-Retaliation: Retaliation must cease with the end of the violation, given that it is intended to encourage compliance.
WTO DSU versus ICSID (World Bank’s Dispute Settlement Mechanism)
WTO Dispute Settlement Body (DSB)
Resembles International Judiciary
Arbitrates only between States parties to the WTO
Has number of permanent judicial bodies staffed by senior international
legal experts.
WTO intended to liberalize trade, reduce trade barriers etc.
State-Centered: Ensure respect of multilateral obligations (security and
predictability) for all Members
Form of diplomatic protection,
Breach of: Multilateral Trade Agreements WTO law to be evaluated
under customary international law or general int’l treaty interpretation
(VCLT)
 No cost, not contentious
 Partly confidential, open hearings (possibly)
 3rd Parties can participate: any WTO Members (multi-bilateral)
International Center for Settlement of Investment Disputes (ICSID)
Resembles international commercial arbitration
Allows for individual (private) investors to bring cases directly against host
signatory states.
Independent arbitrators appointed on an ad-hoc basis.
ICSID geared towards attracting & protecting FDI
Investor-Centered: Protects rights of individual investor claimants.
Alternative to diplomatic protection
Breach of: Relevant BIT, national law or contract  to be evaluated under:
the BIT’s standards, customary international law, or host State’s national
law
 Contentious cost reimbursement
 Confidential, hearing and transparency questionable(?)
 Purely bilateral, no 3rd Parties
 Only Investor can initiate proceedings
Stages
(1) ad hoc Panel (arbitral features)
(2) AB = permanent court, appeal in law only
Effect of Decision:
Stages
(1) Ad hoc arbitration
(2) Possible Annulment for serious procedural errors
Effect of Decision:
Panel/AB Report “automatically” binding upon adoption by WTO
membership (DSB)
International Award binding on parties to dispute only
Limited precedential value
Binds disputing parties, but indirectly also: precedent guiding all Members
(stability and predictability of WTO).
Content of Decision
Content of Decision

Withdraw, modify WTO-inconsistent Measure
Obligation for the future (prospective remedy)
Reinstate balance of trade rights and obligations
Mutually agreed compensation possible.
Enforcement/Remedies
Compensation for damages suffered by claimant due to host State’s breach.
Multilateral surveillance of implementation by WTO
Multilaterally authorized trade sanctions by winning against losing party
(temporary withdrawal of concessions)
Rationale Behind Regime
Automatic recognition of Awards in nat’l law of all Parties
Damages enforcement under domestic law
Indirect consequences for non-implementing Host State
Rationale Behind Regime


Export/Import States Involved
–
Subject matter is multilaterally inter-State negotiated
trade rules and barriers reductions; respect of negotiated
market access
–
Individual domestic traders or sectors are affected
–
Limitated protection if internal rather than border
measures at issue.
Enforcement/Remedies
Home State hands-off  depoliticization of investment Dispute
–
Subject matter: host State’s BIT commitments to fair
treatment, (not under multilateral treaties: Failure of
MAI) or agreed with investor
–
Conditions of competition in host market protected
–
Limited protection if general measures (regulations) are
at issue
III. GATT NON-DISCRIMINATION PRINCIPLES: MOST-FAVORED NATION & NATIONAL TREATMENT
☂️NON-DISCRIMINATION: a fundamental principle of the multilateral trading system and is recognized in the Preamble to of the WTO
Agreement as a key instrument to achieve the objectives of the WTO. In the Preamble, WTO members express their desire to eliminate
discriminatory treatment in international trade relations. Nondiscrimination in the WTO is embodied by 2 principles, the most favored nation
(MFN) treatment obligation and the national treatment obligation.

⚖️MOST-FAVORED NATION (MFN) [External Mechanism] is the cornerstone of GATT and represents external non-discrimination whereby
any advantage granted to or gained from ANY country (not just WTO members) will be applied automatically to ALL 164-member states.

In Brief: Pursuant to the WTO agreements countries cannot normally discriminate between their trading partners. If a
Member grants to a *country (ANY COUNTRY, not just WTO Members) a special favor (such as a lower customs duty on
one of its products) it must grant the favor immediately and unconditionally to all WTO members.

In other words: WTO Members can be seen as members of a club. One of the fundamental rules of the club is that each
member will grant any other member the best possible treatment it grants to anyone else. Hence, each member of the
club is guaranteed to receive the best possible treatment from each of its fellow-members.

General Effect: creates an obligation among WTO Members to give each other’s’ like products the best existing market
access opportunities without discrimination in law or fact (maintains the balance, ensures level playing field).


�
Hypothetical:

Country I’s MFN duty (applicable to all WTO Members) is 10% for all tomatoes imported into Country I.

Country E is a major tomato producer and wants to increase its exports of tomatoes to Country I.
o During a round of bilateral negotiations, Country E initiates tariff negotiations on tomatoes with
Country I after which Country I agrees to give Country E duty free access (0% tariffs) for tomatoes.

In accordance with the MFN principle, Country I will then be obligated to extend the same
0% tomato tariff uniformly across ALL WTO Member States.
Rationale Behind MFN:
o Reducing Factionalism: GATT wants to prevent Member States playing favorites with some Members while excluding others.

MFN avoids economic distortions that would occur through more selective country-by-country liberalization.
o Limiting Bilateral Opportunism Favoring a 3rd Country: in the absence of MFN, there is no legally protected trust among the
Member States. Otherwise, 2 MSs would not be able to openly negotiate if there would be a risk that 1 MS would use that
information to strategically negotiate a better deal with a 3rd country.
o
Constraining Bilateral Opportunism Disadvantaging a 3rd Country: concern that 2 MSs negotiating bilaterally who agree to a
bilateral free trade agreement will disadvantage & deter trade from a 3rd country which does not enjoy 0% taxes.
MFN Principle (For Goods)
GATT Art I: WTO Members must grant immediate and
unconditional MFN treatment to the products of other
Members with respect to customs duties and import
charges, internal taxes and regulations, and other
trade-related matters.
Thus, whenever a WTO Member accords a benefit to a
product of one country (whether a WTO Member or
not) the Member must accord the same treatment to
the like product of all other WTO Members.

NATIONAL TREATMENT [Internal Mechanism]
GATT [ART. III] National Treatment
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.
The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded
treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements
affecting their internal sale, offering for sale, purchase, transportation, distribution or use.

While MFN seeks to ensure that a WTO Member does not discriminate between like products originating in or destined for other
WTO Members the National Treatment principle addresses the treatment to be applied to imported products after they have
reached another Member's territory.
o The National Treatment principle prohibits a Member from favoring its domestic products over the imported products of
other Member countries.

According to the National Treatment principle, each trading partner should treat imports no less favorably than
they treat like domestically produced goods (internal aspect of non-discrimination).
o National Treatment prohibits WTO members from discriminating in favor of domestically produced goods.

The result is that once the applicable border duties (e.g. tariffs) have been paid, the importing Member cannot
apply any further burdens on imports that are not applied to the like domestic products.

o
⌚️Hypothetical: Country I applies a sales tax of 5% on domestically produced watches. Country I
applies a 10% sales tax on imported watches from Country E. If we assume that these watches are
similar enough to be considered “like products,” then Country I will have violated Art. III b/c the
practice described taxes.
[2] Categories of NT Claims

Domestic and Imported Product is “like” and the latter is taxed in excess of the former.

Domestic and Imported Product is directly competitive/substitutable, but they are taxed differently in a way that
affords protection to the Domestic Product.
National Treatment (for Goods)
Once the applicable border duties (e.g. tariffs) have been
paid, the importing Member cannot apply any further
burdens on foreign imports that are not applied to the like
domestic products such as additional internal charges, or any
laws/regulations/requirements affecting their internal sale,
distribution or use.

2 Key Concepts of Non-Discrimination

Treatment No Less Favorable (Applicable w/r/t National Treatment)
o Granting treatment no less favorable = effective equality of competitive opportunities (EC-Asbestos).
o According ‘treatment no less favorable’ means according conditions of competition no less favorable to the imported
product than to the domestic like product (Korea-Beef).

Providing treatment to foreign products that is merely different from that accorded to like domestic products is
not automatically ‘less favorable.’

 Rather must ask whether the measure modifies the conditions of competition in the relevant
domestic market to the detriment of the foreign/imported product?
o Examples of Measures that WTO Panels have found to be Inconsistent with NT:

Minimum Price Requirements which applied equally to foreign and domestic beer did afforded treatment LESS
favorable to foreign beer b/c the foreign beer was prevented from being supplied at a lower price than the
domestic beer.

Thailand’s general ban on cigarette advertising constituted treatment LESS favorable to foreign cigarettes b/c it
would create unequal competitive opportunities between existing Thai suppliers of cigarettes and new foreign
suppliers that may enter the market.
o
�
Under Most-Favored Nation Principle:

Phrase ‘treatment no less favorable’ is absent. Instead, GATT Art. I states that any advantage, favor, privilege or
immunity granted to any one country’s product must immediately and unconditionally also be extended to the
like products of ALL WTO Member States.

This covers custom duties, other charges, charges on international wire transfers, administrative costs.
o
Like Products

A “like product” describes the particular relationship in international trade law between two goods that are produced by
two different trading nations.
The concept of

“Like product” is not defined in GATT, so there is no concrete rule to determine whether 2 products are ‘like.’
"likeness" is a
relative

Defining ‘like product’ has given WTO's jurisprudence interpretive difficulties. It has been difficult to apply this
…interpretation
concept of ‘like product’ uniformly throughout GATT since contracting parties have never developed a general
must be
definition of “like product” for application to all provisions of GATT,
determined by the

[5] Main Criteria have emerged from WTO case law which courts weigh and consider on a case-by-case basis.
particular
provision in which

(1) physical properties of the products (more physically identical = the more interchangeable);
the term "like" is

(2) extent to which the products serve the same end-use/function;
encountered as

(3) Direct Competitiveness: extent to which consumers perceive and treat the products as alternative means of
well as by the
context and the
performing particular functions in order to satisfy a particular want/needs;
circumstances

(4) the international classification of the products for tariff purposes;
that prevail in any

(5) Substitutability: extent to which consumers perceive 2 products as functionally equivalent, measured by the
given case to
which that
consumer’s willingness to substitute one for the other.
provision may

Various Case Law Interpretations of “likeness”
apply.

EC-Asbestos: a determination of "likeness" comes from the nature and extent of a competitive relationship
These principles
between and among the products in question.
are not absolute

Philippines-Spirits: products w/ very similar physical characteristics may not be "like" if their competitiveness or
but allow
substitutability is low, while physically different products may still be considered "like" if such physical
exceptions…some
differences have a limited impact on the competitive relationship between and among the products.
measures which in
theory constitute
o Korea-Alcoholic Beverages: Competitive relationships between products shouldn’t be
a breach may be
analyzed exclusively w/r/t current consumer preferences…the word “substitutable” indicates that
justified by
competitiveness may exist between products that are not, at a given moment, considered by
circumstances.
consumers to be substitutes but which are, nonetheless, capable of being substituted for one another.

SCHEDULE OF CONCESSIONS (Standstill Clause)
o
All
GATT [ART. II] Schedule of Concessions
Each contracting party shall accord to the commerce of the other contracting parties’ treatment no less favorable than that provided
for in the…Schedule’
trade concessions
made by Members
must be stated and
incorporated into the legal agreement “bound” rates. No other Member may be treated any less favorably than any set “bound”
tariff rate.

Schedule of Concessions is a legal instrument consisting of a list of products for which a maximum applicable customs
duty (bound rate), as agreed to the Member concerned. The product is identified by a code and its description is based on
a Harmonized System of Classification.

The tariff "bindings" of WTO Members are set out in each Members’ Schedule of Tariff Concession.

WTO Members may negotiate the "bound" level of an import duty for any product.

A "bound tariff" is a tariff for which there is a legal commitment not to raise it above the bound level
IV. EXCEPTIONS to GATT PRINCIPLES

*GENERAL EXCEPTIONS GATT [ART. XX]
o Purpose: lays out a number of specific instances in which WTO members may be exempted from GATT rules.

Allow WTO members to adopt and maintain measures that promote or protect important societal values even if the
measures are inconsistent with other rules of the GATT (and are hence trade restrictive).

Allow WTO MSs, under specific conditions, to give priority to certain societal values and interests over trade liberalization.

Ensures that commitments undertaken by WTO Members do not hinder the pursuit of legitimate policy objectives.
�
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: (purpose of the Chapeau is to prevent abuse of these general exceptions)
The
Chapeau
(a) necessary to protect public morals;
• measures seeking to limit cruelty to animals fall within the purview of protecting public morals (EC-Seals).
(b) necessary to protect human, animal or plant life or health;
•Smoking poses serious risk to human health  measure designed to reduce cigarette consumption falls under Art. XX(b) (Thailand – Cigarettes).
•Protection of dolphin life/health falls under Art. XX(b) (US-Tuna).
•Reducing air pollution from gasoline consumption falls under protecting human, animal and plant life or health in Art. XX(b) (US – Gasoline).
•Chrysotile-cement products pose risk to human life/health  prohibiting chrysotile asbestos falls within Art. XX(b) (EC – Asbestos).
•Reducing exposure of risk from the accumulation of waste tires falls under Art. XX(b) (Brazil –Tyres).
(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 ¶4 of Article II and Article XVII, the protection of patents, trademarks and copyrights, and the
prevention of deceptive practices;
• Mexico argued 20% tax imposed on soft drinks using non-cane sugar was necessary to get US to comply with NAFTA (Mexico-Soft Drinks)
(e) relating to the products of prison labor;
(f) imposed for the protection of national treasures of artistic, historic or archaeological value;
(g) relating to conservation of exhaustible natural resources if measures are made effective in conjunction w/ restrictions on domestic production/consumption;
• Covers conservation of "mineral/non-living" natural resources + living species, especially susceptible to depletion, exhaustion or extinction due to
human activity (US-Shrimps) such as tuna, salmon and herring stocks, dolphins, clean air and sea turtles.
(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 supply; 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.
o
Overview: Article XX governs the use of the general exception for trade in goods by recognizing that Members may need measures
for purposes such as protecting public morals; human animal or plant life or health + conserving exhaustible natural resources.


⚠️However, any measure adopted under the general exceptions provision must meet the requirements set out in the
sub-paragraphs of Article XX – depending on the objective of the measure - and its introductory paragraph ("the
Chapeau").

According to the Chapeau of Article XX, the measure must not be applied in a manner that would constitute a
means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail or a
disguised restriction on international trade.
o Art. XX Structure [2-Tier] Test

In order for a GATT-inconsistent measure to be justified under Art. XX, the measure at issue MUST:

[Step 1] fall under one of the exceptions delineated in subparagraphs (a-j);
o (a) Does the policy pursued via the measure fall within the range of policies provided for in (a-j)?
o (b) Are the legal elements of the subparagraph met? E.g. is the measure ‘necessary/related to…?’

Is the measure for which Art. XX being invoked truly necessary to fulfill the policy objective?

The "necessity test" involves a process of "weighing and balancing" a series of
relevant (4) factors set out in (Brazil-Tires):
o Likelihood that the measure to achieve its objective;
o Importance of the interests or values at stake;
o Trade-restrictiveness of the measure;
o Possible available alternatives, which may be less trade restrictive while
equally contributing to the achievement of the objective pursued.

[Step 2] be applied in a manner that satisfies the requirements of the Chapeau
o Art. XX Chapeau requires that measures covered by an exception NOT be administered to constitute:

1. Arbitrary or unjustifiable discrimination between countries where the same conditions
prevail; OR

There is arbitrary or unjustifiable discrimination when the reasons given for this
discrimination bear no rational connection to the policy objective falling under Art.
XX or would go against that objective.

2. A disguised restriction on international trade.
*REGIONAL FREE TRADE AGREEMENTS (RTAS/FTAS)
o
o
o
WTO Members are allowed, under certain conditions, to depart from the MFN principle in order to grant preferential treatment to
their trading partners within a customs union or a free trade area, without extending such treatment to all WTO Members.

Parties to RTAs offer each other more favorable trade treatment than to rest of world (including WTO Members).

The coverage and depth of such preferential treatment varies but many go beyond just tariff elimination to
include regulations on non-tariff barriers & other trade policies such as customs matters, standards, trade
remedies, and dispute settlement.

RTAs are facially inconsistent with MFN b/c they grant those countries party to the RTA more favorable trade
benefits than those extended to other trading partners.
o But due to the prevailing view that such arrangements are trade-enhancing, GATT Art. XXIV contains
a specific exception for FTAs.

Rationale Behind RTA Exception

Desire to increase freedom of trade via development of voluntary agreements
initiating closer integration between the economies of country’s party to them.

Purpose of a customs union/FTA is to facilitate trade between constituent
territories w/o raising barriers to trade of other parties with such territories.
[GATT Art. XXIV]

GATT doesn’t prevent, as between the territories of contracting parties, the formation or adoption of an interim
agreement necessary to establish a customs union or free-trade area, subject to certain conditions.

GATT Art. XXIV(4) provides that a customs union, free trade area or an interim agreement should aim to facilitate
trade between the constituent territories and not to raise barriers to the trade of 3rd parties.
o Sets out 2 main requirements that parties to an RTA must meet to avoid MFN obligations:

Internal requirement relating to what is expected from the parties with respect to intratrade liberalization.

Duties and other restrictive regulations of commerce are to be eliminated with
respect to substantially all the trade between the parties of a customs union or free
trade area or at least with respect to substantially all the trade in products
originating in such territories.

External requirement relating to avoiding any negative effects of the RTA on 3rd parties

For free trade areas: the duties and other regulations of commerce imposed on 3rd
parties at the formation of the free trade area or an interim agreement leading to it
should not be higher or more restrictive than those existing prior to its formation;

for customs unions: the duties and other regulations of commerce shall not on the
whole be higher or more restrictive than the general incidence of the duties and
other regulations of commerce applied prior to its formation.

A Customs Union (CU) is a territory ´to which separate tariffs or other regulations of commerce are maintained
for a substantial part of the trade ... with other territories´.
o A customs union (formed between two or more customs territories) can also be considered to be a
´customs territory´ for the purpose of territorial application of the GATT. The European Community
customs union is a member of the WTO and has authority to represent its member states in those
areas where it has competence (e.g. trade in goods).

This distinguishes a free-trade area (FTA) where the individual members retain their full sovereign control of
their individual customs territories.
o FTA members can also arrange to apply the same tariff duty levels to their trade with non-members,
but where they retain the individual power to change those tariff levels, it is probably not the case that
they are forming a ´customs territory´ in the sense of the term as it is used in the GATT.

GATT Art. XXIV also requires that parties must notify the WTO of these agreements, which are then subject to
WTO review; applies both to completed FTAs as well as to the interim agreements leading to their formation.

In the WTO, agreements are examined by the Committee on Regional Trade Agreements (CRTA).
Economic Integration for Developing Countries

[GATS Art. V]: provides a mechanism for departure from WTO principles to allow for WTO Members to enter into regional
economic integration agreement for liberalizing trade in services.

E.g. Uganda is a member of East African Community and Common Market for East and Southern Africa
(COMESA), and will also negotiate services liberalization under phase II of the Tripartite Free Trade Area
(COMESA-EAC-SADC).

(1979) Enabling Clause was adopted in order to permit trading preferences targeted at developing and least developed
countries which would otherwise violate Article I of the GATT.

Makes provisions for developing countries in both a vertical and horizontal dimension.
o Vertical Dimension: Grants exception from the MFN obligation for the implementation and the
maintenance of trade preferences in favor of developing and least developed countries.

Permits developed countries to discriminate between different categories of trading partners
(in particular, between developed, developing and least developed countries) which would
otherwise violate GATT Art. I.

Allows developed countries to give special & preferential treatment to poorer
countries, particularly to least developed countries.

o
General System of Preferences (GSP)
o Allows developed countries to install a system of non-reciprocal
preferences for the group of developing countries. Each country
establishing such a system maintains its own list of preferential products
and its own system of qualification and graduation where by a developing
country may either make use of the preferential market access or be
´graduated´ back to the conventional MFN rates by either market basis or
by development level of the country. Because GSP is non-reciprocal in
nature, it is also deemed, at least by most developed countries, to be tied
to conditions for the receipt of the preferences. This aspect of
conditionality has been controversial where the granting of preferences
has been tied to core labor rights, democracy or human rights
requirements.
o Horizontal Dimension: Provides for preferential trading arrangements between developing countries.

Permits developing countries to enter into preferential trade agreements which do not meet
the strict criteria laid out in GATT Article XXIV for regional free-trade agreements.

Allows developing country Members to conclude among themselves RTAs on trade
in goods subject to more flexible requirements than those contained in Article XXIV
of the GATT 1994. The Enabling Clause also provides for some preferential
schemes, other than RTAs, subject to certain circumstances
Are RTAs Good or Bad for Multilateral Trading?

Pros:

As two (or more) countries cut tariffs on each other’s products, new trade is created. Some goods that were
previously bought from domestic producers are now bought from lower-cost producers in the trading partner
nation, whose goods now come in duty-free, which improves efficiency.

RTAs can complement the MTS and serve as a catalyst for further liberalization.

They may act as laboratories of international cooperation, reducing political opposition to multilateral
liberalization at the domestic level. RTAs have allowed groups of countries to negotiate rules and commitments
that go beyond what was possible at the time multilaterally. Some of these rules have paved the way for
agreement in the WTO.
o Services, intellectual property, environmental standards, investment and competition policies are all
issues that were raised in regional negotiations and later developed into agreements or topics of
discussion in the WTO.

Cons:

RTAs are discriminatory by nature: they depart from the MFN principle, posing a risk that RTAs may promote
trade diversion rather than trade creation + may reinforce vested interests to maintain preferences margins.

Increase in RTAs has resulted in overlapping membership - the coexistence in a single country of differing trade
rules applying to different RTA partners. This can hamper trade flows merely by the costs involved for traders in
meeting multiple sets of trade rules.

Proliferation of RTAs, especially as their scope broadens to include policy areas not regulated multilaterally,
increases the risks of inconsistencies in the rules and procedures among RTAs themselves, and between RTAs
and the multilateral framework.

RTAs may crowd out negotiating resources necessary to achieve further multilateral liberalization.
o



�
To ensure that RTAs be building blocks rather than obstacles to the MTS, they should help trade
flow more freely among the countries in the group without barriers being raised on trade with the
outside world.
Balance of Payment (BOP)
o WTO Members are allowed under certain circumstances and subject to specific conditions, to adopt import restrictions otherwise
inconsistent with the WTO rules in order to safeguard their external financial position and their balance-of-payments.
Waivers
o In exceptional circumstances, a WTO Member may be authorized by the other Members to derogate, for a specific time and under
certain conditions, from a provision contained in the Agreement Establishing the WTO or any of the Multilateral Trade Agreements.
National Security Exceptions
o A WTO Member is allowed to take any action which it considers necessary for the protection of its essential security interests or in
pursuance of its obligations under the UN Charter for the maintenance of international peace and security. Members are not
required to furnish information, the disclosure of which would be contrary to their essential security interests.
V. Agreement on the Technical Barrier to Trade (TBT)


PURPOSE *TBT rules help to distinguish legitimate standards and technical regulations from protectionist measures.
o The Agreement on Technical Barriers to Trade (TBT), is an international treaty administered by the
World Trade Organization (WTO).

Aims to ensure that technical regulations, standards, and conformity assessment
procedures are non-discriminatory and do not create unnecessary obstacles to trade.

At the same time, it recognizes WTO members' right to implement measures to achieve legitimate policy objectives, such
as the protection of human health and safety, or protection of the environment. The TBT Agreement strongly encourages
members to base their measures on international standards so that international trade is not hindered.

Through its transparency provisions, it also aims to create a predictable trading environment.
o Technical barriers to trade (TBTs): a category of nontariff barriers to trade, are the widely divergent measures that countries use to
regulate markets, protect their consumers, or preserve their natural resources (among other objectives), but they also can be used
(or perceived by foreign countries) to discriminate against imports in order to protect domestic industries.

TBT prohibits technical requirements created in order to limit trade, as opposed to technical requirements created for
legitimate purposes which include but are not limited to:

National security requirements, protection of human health or safety, protection of animal or plant life/health,
protection of the environment, prevention of deceptive practices etc.
o The significance of TBT has increased considerably over the past years, as tariffs steadily decline and governments worldwide
introduce more and more regulatory requirements to address inter alia health, safety or environmental concerns.
SCOPE
o
o
o
✅TBT APPLIES to: ALL industrial and agricultural products.
⛔️ TBT DOES NOT APPLY TO: sanitary & phytosanitary measures (SPS), services and specifications prepared by government
bodies.
Substantive Scope: 3 categories of substantive measures are included in TBT Annex 1:

(1) Technical Regulations [Mandatory]: a technical regulation is a document stipulating conditions which are mandatory.
Such measures may include terminology, symbols, packaging/labeling requirements, and may apply to a product, process
or production method.

[3-Elements] determine whether a measure constitutes a technical regulation (EC-Sardines)
o [1] The measure applies to an identifiable product or group of products;
o [2] It lays down one or more characteristics of the product; and
o [3] Compliance with the product characteristic is mandatory.


� If a measure is deemed to be a technical regulation  will be regulated by TBT [Art. 2]
(2) Standards [NOT Mandatory]: a standard is a document approved by a recognized body that stipulates guidelines or
characteristics that are NOT mandatory which may include terminology, symbols, packaging, or labelling requirements,
and may apply to a product, process or production method.

Standards are distinct from technical regulations b/c they are voluntary, though in reality most producers comply
with them for commercial purposes.



�
If a measure is found to be a standard  will be regulated by TBT [Art. 4]
o [Art. 4.1] Members shall ensure that their central government standardizing bodies accept and comply
with the Code of Good Practice for the Preparation, Adoption and Application of Standards; shall not
take measures which have the effect of, directly or indirectly, requiring or encouraging such
standardizing bodies to act in a manner inconsistent with the Code of Good Practice.
(3) Conformity Assessment: A conformity assessment is a direct or indirect procedure used to determine whether the
requirements in a technical regulation or standard have been fulfilled.

Conformity assessments may include sampling, testing, and inspection, evaluation, verification, assurance of
registration, accreditation and approval (as well as combinations thereof).

� Conformity assessments are governed by TBT Arts. 5-9.
OBLIGATIONS & PRINCIPLES
o
[5] Core Principles of the TBT Agreement *WTO members can avoid unnecessary obstacles to trade by following these principles:

Transparency: WTO Members planning to introduce a measure that might have an important impact on trade should
notify this to the WTO, and consider comments submitted by other countries on the draft legislation.

Notification Requirements: TBT obliges States to notify each other of proposed technical barriers. To give States
the opportunity to raise their concerns before the measures come into force, members must allow reasonable
time for Members to make comments, discuss their comments and to have their comments considered.
o Members must notify each other in relation to proposed TBT provisions when the following 3
conditions are satisfied:

The measure must be a technical regulation or an evaluation of a conformity assessment
procedure.

There must either be no relevant international standard or, if there is, the measure must not
conform to it.

The technical regulation must have a considerable effect on international trade.



Non-Discrimination: a measure should not discriminate among different importing Members and should apply in the same
way to both imports and ‘like’ domestic goods.

Members must ensure that technical regulations & standards do not accord treatment less favorable to
imported products compared to those granted to like products of national origin or any other country.

This principle applies also to conformity assessment procedures, that have to "grant access for suppliers of like
products originating in the territories of other members under conditions no less favorable than those accorded
to suppliers of like products of national origin or originating in any other country in a comparable situation."
Avoiding Unnecessary Obstacles to Trade: [2.2] Members are obliged NOT to create unnecessary obstacles to trade by
ensuring that technical regulations are not more trade restrictive than necessary to fulfill a legit policy objective,
considering the risks that non-fulfilment may create.

‘taking account of the risks’ qualifier leaves room for States designing technical regulations to argue that
although the measure is trade restrictive, the risk of noncompliance is high and the objective is very internal and
sensitive which would result in significant implications.

Switched Burden of Proof:
o Under GATT Art. XX, the burden of proof lies with the MS to show that the GATT was violated.
o Under TBT, burden is on MS to demonstrate the particular non-tariff barrier regulation is necessary.

Proportionality: measure shouldn’t be more trade restrictive than necessary to achieve legitimate goal pursued.
Harmonization/Use of International Standards: Whenever possible, international standards should be used as a basis for
technical regulations and MS should participate in efforts made by international standardizing bodies.

[2.4] When international standards exist, members shall use them as a basis for their technical regulations,
standards and conformity assessment procedures, unless their use seems inappropriate or ineffective in certain
circumstances (for example, for climatic or technological reasons) for achieving the pursued objective.

[2.6] With a view to harmonizing technical regulations on as wide a basis as possible, Members shall participate
to the extent possible, in the preparation by appropriate international standardizing bodies of international
standards for products for which they either have adopted, or expect to adopt, technical regulations.
o
⚠️ international standardizing bodies are not explicitly recognized in the TBT, but the preamble
does encourage the development of international standards agreed upon and utilized by all MSs.
Benefits of Harmonization:
o Facilities market access;
o Reduces costs for producers  reduces costs for consumers;

If technical regulations/standards vary too much from country to country, this makes life
difficult for producers and exporters. E.g. a Canadian entrepreneur may have a product
certified by the Canadian Standards Association (CSA), but that certification may not be valid
in the EU. This forces the company to recertify the product in the country where they wish to
sell it—a potentially costly and time-consuming procedure.
o Minimizes obstacles to international trade;
o Promotes trade of developing countries.

Equivalence: WTO Members should consider accepting technical regulations of other Members as equivalent to their own,
provided that these measures are an effective way of addressing the objectives pursued.
TBT (limited) Case Law


o
�
EC-Sardines: EC Regulation established marketing standards dictating that only products prepared from Sardina pichardus
Walbaum could be marketed/labelled as sardines in the EU. Peru challenged regulation as violation of TBT b/c no other fish
displaying similar characteristics (caught along Peruvian coast) could be marketed as sardines in the EU.

International Standard defined ‘sardines’ as Sardina pichardus Walbaum as well as and 20 other species including
Sardinops sagax sagax as (which were caught in Peru).

EU argued that the int’l standard was inappropriate and ineffective for meeting the regulation’s goals of
consumer protection against deceptive practices, market transparency, and fair competition.

AB rejected EU’s claim by adopting a broad definition of technical regulation.
o Issue was whether a regulation that restricted the naming of products as “sardines” constituted a
product characteristic. The AB ruled that listing the species that can be labeled “sardines” is a product
characteristic “intrinsic to” preserved sardines, because identifying a product in this way objectively
defines the features and qualities of preserved sardines and, thus, lays down product characteristics
within the meaning of the TBT Agreement’s definition of “technical regulation.”

EU was also required to use the relevant int’l standard rather than adopt its own technical regulation.
o Since the EU Regulation did not allow these 20 fish species to be marketed as “sardines” as the Codex
(int’l) standard did, the EU regulation did not use the Codex standard “as a basis for” its regulation. In
fact, the EU regulation contradicted the international standard.

The EU Regulation could still differ from the international standard if the international standard would be an
“ineffective or inappropriate” means to fulfill the EU’s “legitimate objectives” of market transparency, consumer
protection, and fair competition.
o But AB was not convinced by EU’s argument b/c:

EU consumers could distinguish species if provided the proper geographic or other qualifying
terms, such as “Pacific.”

The EU’s stated objectives were undermined because “the very purpose of the labeling
regulations set out in Codex Stan 94 for sardines of species other than Sardina pilchardus is
to ensure market transparency.”
2.4 [Required Application of Int’l Standards]
2.4 Applied to EC-Sardines
If the measure is a technical regulation + relevant international
standards exist
The EC Regulation WAS a technical regulation + a relevant international
standard DID exist (Codex Standard 94)
 MS shall use that international standard as a basis for the
 The Codex Standard WAS NOT USED as a basis for the EC Regulation
technical regulation
⚠️ EXCEPT when such international standard would
constitute an inappropriate or ineffective means for the
fulfillment of the legit policy objective.
The Codex Standard was neither an ineffective nor inapprpoapite means
for the fulfilment of the legit policy ibjective pursued
= EC Regulation was INCONSISTENT with TBT 2.4
VI. Agreement on Sanitary & Phytosanitary Measures (SPS)


Introduction
o Sanitary and phytosanitary (SPS) measures protect humans, animals, and plants from diseases, pests, or contaminants.

SPS agreement includes a series of trade discipline understandings on how SPS measures will be established and used by
countries when they establish, revise, or apply their domestic laws and regulations.

Members agree to base their SPS standards on science, and as guidance for their actions, SPS encourages Members use
standards set by international standard setting organizations.

SPS seeks to ensure that SPS measures will not arbitrarily or unjustifiably discriminate against trade of certain other
members nor be used to disguise trade restrictions.

Under SPS, countries maintain the sovereign right to provide the level of health protection they deem
appropriate but agree that this right will not be misused for protectionist purposes nor result in unnecessary
trade barriers. A rule of equivalency rather than equality applies to the use of SPS measures.
SPS Relation to other WTO Agreements
⚠️Hierarchy of WTO Agreements⚠️
o SPS   TBT
SPS >>> TBT >>> GATT

TBT does not apply to SPS measures (TBT Art. 1.5)
WTO jurisprudence dictates that TBT takes precedence over GATT +

Relation of Mutual Exclusivity: When a measure is an “SPS measure”
SPS trumps TBT
(as defined in SPS Annex A), SPS applies to the exclusion of the TBT.
o SPS   GATT

[SPS Art. 2.4]: Sanitary or phytosanitary measures which conform to the relevant provisions of this Agreement are
presumed to be in accordance with the obligations of the Members under the provisions of GATT Art. XX(b) which
provides the exception for measures necessary to protect human, animal or plant life or health.

There is a rebuttable presumption that if a measure conforms w/ SPS, then it also conforms w/ GATT.

The opposite is not the case: measures that are consistent with the GATT 1994 may NOT be presumed to
conform w/ SPS, as the latter provides for additional and special obligations in respect to the former.
o SPS consistency automatically = GATT consistency.
o



⚠️GATT consistency ≠ does NOT automatically mean SPS consistency.
Scope of Application [Art. 1]
o SPS applies to all sanitary (animals) and phytosanitary (plants) measures that may have a direct or indirect impact on int’l trade.
‘SPS Measure’ Defined [Annex A]
o An SPS measure is any relevant law, regulation, requirement, decree or procedure (e.g., production and processes methods, risk
assessment, final product testing, inspection, certification, packaging and labeling requirements, etc.) governments implement to:

(a) protect animal or plant life or health within the territory of the Member from risks arising from the entry,
establishment or spread of pests, diseases, disease-carrying organisms or disease-causing organisms;

(b) protect human or animal life or health within the territory of the Member from risks arising from additives,
contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs;

(c) to protect human life or health within the territory of the Member from risks arising from diseases carried by animals,
plants or products thereof, or from the entry, establishment or spread of pests; or

(d) to prevent other damage within territory of the Member from the entry, establishment or spread of pests.
o ‘SPS Measure’ Definition is based on the purpose and intention of the measure which is to be ascertained on the basis of objective
considerations (Australia-Apples).

This is an important qualification; WTO AB is saying that given the central importance of safety measures, the (objective)
goal’s intent tends to be established via subjective elements.
Substantive Provisions
o Basic Rights & Obligations [Art. 2]

[Sovereign Rights of Members] Members have the right to take SPS measures necessary for the protection of human,
animal or plant life or health, provided such measures are not inconsistent with the SPS provisions.



[Necessity Requirement] Members must ensure SPS measures are applied only to the extent necessary to protect human,
animal or plant life or health.
[Scientific Discipline] Members must ensure that SPS measures are based on scientific principles and is maintained with
sufficient scientific evidence.

What constitutes ‘Sufficient Scientific Evidence’:
o A rational & objective relationship between the SPS measure and the scientific evidence must exist,
and this is to be determined on a case-by-case basis (Japan – Agricultural Products).

In principle, the WTO panel enjoys a significant margin of discretion to decide whether an
objective and rational relationship exists between the SPS measure and the scientific
evidence at hand.

WTO case law has been rather uncertain/oscillating/fluctuating in detailing the rational
connection between the measure undertaken and the scientific evidence.
[Non-discrimination Requirement] Members must ensure SPS 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 (must not be applied in a manner which would constitute a disguised restriction on international trade).

�
Discrimination under SPS includes discrimination between different products.
o
o
o
⚠️This is a significant departure from GATT whereby nondiscrimination (whether under MFN or NT)
only applies to ‘like’ products.
Harmonization [Art. 3]

SPS encourages Members to harmonize their SPS measures according to standards developed by 3 international intergovernmental standards-setting bodies:

World Health Organization (WHO) Codex Alimentarius Commission for food safety.

International Plant Protection Convention (IPPC) for plant safety.

World Organization for Animal Health (OIE) for animal safety.
o Members have the option of doing 1 of 3 things:

Base their SPS measures on them;

Conform their SPS measures to them;

Impose SPS measures of a higher level of protection than would be achieved by them.
Risk Assessment

[Art. 5.1] Members shall ensure that SPS measures are based on an assessment, as appropriate to the circumstances, of
the risks to human, animal or plant life or health (WTO encourages references to risk assessment techniques developed by
relevant international organizations).

Risk Assessment Definition: scientific process of identifying the existence of a risk and establishing the likelihood
that the risk may actually materialize according to the measures that could be applied to address the risk.
o This means there must be a rational relationship between the measure and the risk assessment, and
the risk assessment must reasonably support the measure (EC-Biotech Products).

Permissible for an SPS measure to be based on a divergent or minority view (from a qualified
and respected source), rather than mainstream scientific opinion (EC-Hormones).

No single black and white formula; still vague and room for discretion.

[2] Types of Risk Assessments:
o Those applicable to measures aimed at risks from pests or diseases (Australia – Salmon)

Identification of the pest or disease, whose entry, establishment or spread a Member wants
to prevent, and of the associated potential biological and economic consequences;

Evaluation of the likelihood of entry, establishment or spread of such pest or disease and of
the associated biological and economic consequences;

*Evaluation of possible alternative SPS measure that would have achieved the same level of
protection but is much less trade restrictive).

General attitude of the AB is that they are deferential to national regulators.
o Evolution of Case Law: AB at first was deferential, then they turned to
being less deferential and would more readily contest/criticize Panels
when they evaluated the possible alternative measures in each specific
case. Then, the AB again reverted back to being more deferential and are
less inclined to explore the world of possible alternate SPS measures.

If there is any subtlety w/r/t possible alternate SPS measure
(gray area) the AB usually defers to the national regulators.

But if there is a clear alternative SPS measure available that
would prevent the risk at hand + less restrictive to trade, then
this would be different,
o Those applicable to measures aimed at food-borne risks (EC-Hormones).

Identification of the adverse effects on human or animal health (if any) arising from the
additive, contaminant, toxin or disease-causing organism in food/beverages/feedstuffs; (not
a strict rule, no evaluation of associated biological and economic consequences necessary).

Just have to identity detrimental effect which would arise.

Evaluation of the possibility for such adverse effects to occur.

o
o
[Art. 5.2] In risk assessment, Members must account for available scientific evidence; relevant processes and production
methods; relevant inspection, sampling and testing methods; prevalence of specific diseases or pests; existence of pest- or
disease-free areas; relevant ecological and environmental conditions; and quarantine or other treatment.

Risk assessment is not purely scientific but includes considerations of “real world” factors that affect risk like
climatic conditions, control mechanisms, etc. (EC-Hormones).
Risk Management

Risk management is the policy-based process of (1) determining the level of protection a country wants to secure in its
territory and (2) choosing the measure that will be used to achieve that level of protection.

Tension between a MSs sovereign right to adopt SPS measures and the obligation to minimize trade hinderance.

[Art. 5.4] Determining Level of Protection: MSs should establish SPS measures at a level they deem appropriate, while
also considering the objective of minimizing negative trade effects.

[Art. 5.5] MSs shall avoid arbitrary or unjustifiable distinctions in the protection levels it considers to be appropriate in
different situations, if such distinctions result in discrimination or a disguised restriction on international trade.

[Art. 5.3] Choice of Measure to Achieve Appropriate Level of Protection: In assessing the risk to animal or plant life or
health and determining the measure to be applied for achieving the appropriate level of SPS protection from such risk,
MSs 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.

[Art. 5.6] SPS measures established to achieve an appropriate level of protection must NOT be more trade-restrictive than
required, considering technical and economic feasibility.

[3-Prong] Test (Australia – Salmon)
o An SPS measure is more trade-restrictive than required when there is an alternative measure, which:

is reasonably available considering technical and economic feasibility;

achieves the Member’s appropriate level of protection; and

is significantly less trade-restrictive than the measure at issue.
Provisional Measures & Precautionary Principle [Art. 5.7]

In absence of relevant scientific evidence, a Member may provisionally adopt SPS measures on the basis of available
pertinent information (such as from the relevant international organizations or SPS measures applied by other MS.

In such circumstances, Members shall seek to obtain the additional information necessary for a more objective
assessment of risk and review the SPS measure accordingly within a reasonable period of time.
o 5.7 operates as qualified exemption from the obligation under Article 2.2. not to maintain SPS
measures without sufficient scientific evidence (Japan-Agricultural Products).
o Provides temporary safety valve in situations where some evidence of risk exists, but not enough to
complete a full risk assessment, whereby it’s impossible to meet the rigorous standards set by Art. 2.2.
& 5.1 (US/Canada-Continued Suspension).
VII. Liberalization of Services: The GATS
MFN Principle Under GATS
GATS Art II: WTO Members must immediately &
unconditionally extend to services and service
suppliers of all other Members “treatment no less
favorable than that accorded to like services and
service suppliers of any other country.
The best access conditions conceded to 1 country must
be extended to ALL WTO members.
National Treatment in GATS
In the sectors inscribed in its Schedule, each Member
shall accord to services and service suppliers of any
other Member, in respect of all measures affecting
the supply of services, treatment no less favorable
than it accords to its own like services and service
suppliers.
GATS allows each Member to adjust the conditions of
market entry and participation to its sector-specific
objectives and constraints. Market access and national
treatment specific commitments guarantee minimum
levels of treatment, but do not prevent Members from
being more open (or less discriminatory) in practice.
National treatment under GATS is more limited (e.g.
confined to scheduled services and subject to possible
limitations) than under GATT where it applies across
the board due to the nature of services trade.
Universal national treatment for goods does not
necessarily imply free trade b/c imports of foreign
goods can still be controlled by tariffs which, in turn,
may be bound in the country's tariff schedule. By
contrast, given the impossibility of operating tarifftype measures across intangible services transactions,
regulatory distinctions are the only way to control the
supply of foreign services. In these conditions, the
general extension of national treatment in services
would in practice be tantamount to guaranteeing free
access.
VIII. Investment Law
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