MODULE
2
Trade in Goods: Main disciplines
and Exceptions under the WTO
ESTIMATED TIME: 3 hours
OBJECTIVES OF MODULE 2

To introduce the main principles of the WTO which apply to trade in goods.

To provide an overview of the main rules on market access for goods under the
WTO.

To provide an overview of the exceptions to WTO rules, including those on market
access for goods.

To introduce the WTO dispute settlement mechanism.
1
MODULE 2
TRADE IN GOODS: MAIN DISCIPLINES AND EXCEPTIONS UNDER THE WTO ............. 1
I.
INTRODUCTION............................................................................................................ 3
II.
WTO BASIC PRINCIPLES ................................................................................................ 4
III.
IV.
V.
II.A.
NON-DISCRIMINATION ..................................................................................... 4
II.B.
OBSERVANCE OF BINDING LEVELS OF TARIFF CONCESSIONS ............................... 9
II.C.
GENERAL PROHIBITION OF QUANTITATIVE RESTRICTIONS ................................... 9
II.D.
TRANSPARENCY ............................................................................................. 10
MARKET ACCESS FOR GOODS ...................................................................................... 11
III.A.
AGRICULTURAL VS. NON-AGRICULTURAL PRODUCTS ......................................... 11
III.B.
MAIN RULES ON MARKET ACCESS FOR NON-AGRICULTURAL PRODUCTS .............. 12
EXCEPTIONS TO THE MAIN RULES ON MARKET ACCESS FOR TRADE IN GOODS ................. 16
IV.A.
GENERAL EXCEPTIONS ................................................................................... 17
IV.B.
SECURITY EXCEPTIONS .................................................................................. 19
IV.C.
BALANCE OF PAYMENTS (BOP) EXCEPTIONS ..................................................... 22
IV.D.
REGIONAL INTEGRATION ................................................................................ 23
IV.E.
WAIVERS ...................................................................................................... 25
IV.F.
TRADE REMEDIES .......................................................................................... 26
SPECIAL AND DIFFERENTIAL TREATMENT FOR DEVELOPING COUNTRIES .......................... 29
V.A.
PART IV OF THE GATT 1994............................................................................. 29
V.B.
THE ''ENABLING CLAUSE'' ............................................................................... 29
V.C.
OTHER SPECIAL AND DIFFERENTIAL TREATMENT PRO VISIONS UNDER THE WTO
AGREEMENTS ................................................................................................ 30
VI.
2
SUMMARY .................................................................................................................. 32
I.
INTRODUCTION
Module 2 will introduce the main principles of the multilateral trading system (MTS), as well as the main rules
on market access for goods, namely:
1. The principle of non-discrimination embodied in the Most-Favoured-Nation Treatment and National
Treatment principles;
2. the obligation to observe binding levels of tariff concessions;
3. the prohibition of quantitative restrictions; and,
4. transparency
In addition to the general introduction offered by this Module, a more in-depth discussion of the main rules on
market access for goods can be found in subsequent Modules as indicated in the table below.
BASIC PRINCIPLES
Relevant legal provisions
Module that explains
the Subject
Non-discrimination principle:
Article I of the GATT 1994
Most-Favoured-Nation (MFN)
Article XIII of the GATT 1994
National Treatment
Module 2
Article III of the GATT 1994
Observance of binding levels
Article II:1 of the GATT 1994 Schedules
of tariff concessions for goods
of Concessions
Modules 3 and 4
''Understanding on the Interpretation of
Article II:1(b) of the GATT 1994''
General elimination of
quantitative restrictions
Transparency
Article XI of the GATT 1994
Module 5
Article XIII of the GATT 1994
Various
provisions
across
the
WTO
Modules 3, 4 and 5
Agreements (including Article X of the
GATT 1994)
This Module will also provide an overview of the exceptions contained in the WTO Agreements which allow the
Members to depart from their WTO obligations, in particular those on market access for goods, subject to
certain conditions.
Last but not least, this Module will introduce the provisions on special and differential treatment for developing
and least-developed (LDC) Members, as provided in WTO Agreements and Decisions, with a focus on those
related to market access for goods.
3
II.
WTO BASIC PRINCIPLES
II.A. NON-DISCRIMINATION
Non-discrimination is a fundamental principle of the WTO, which is embodied in the most-favoured-nation
(MFN) treatment and the national treatment principles. These two principles apply to trade in goods, trade in
services and trade-related aspects of intellectual property rights. For the purpose of this Course, we will only
explain the non-discrimination principle in the context of trade in goods, as incorporated in Article I (MFN) and
Article III (national treatment) of the GATT 1994.
II.A.1. THE MOST-FAVOURED-NATION (MFN) RULE UNDER THE GATT
1994
Pursuant to the MFN principle, if a Member grants an advantage to any country (such as a lower tariff on a
product), it is required to extend such advantage immediately and unconditionally to all WTO Members. It is,
however, important to note that the opposite is not an obligation: a WTO Member could give an advantage to
products from WTO Members, which it would not need to extend to non-WTO Members.
EXAMPLE: THE MFN RULE
Assume that in Vanin – a WTO Member - applies a 20 per cent duty on imports of pearls coming from all WTO
Members. Medatia – another WTO Member - is a big exporter of pearls interested in increasing its exports of
pearls to Vanin.
Imagine that, during a WTO negotiating round, Medatia seeks to negotiate that tariff on pearls with Vanin.
After long and difficult bilateral meetings, Vanin agrees to give Medatia duty-free access (0% tariff) for pearls.
Would this tariff have to be extended to all WTO members? Yes. According to the MFN principle, Vanin should
extend the 0% tariff on pearls to all WTO Members, because all WTO Members should enjoy the most
favourable treatment for pearls granted by Vanin.
Therefore, for trade in goods, the MFN principle requires each Member to extend to all other WTO Members any
advantage it accords to like products from any other country - Member or not of the WTO.
Article I of the GATT 1994: General Most-Favoured-Nation Treatment
1.
With respect to customs duties and charges of any kind imposed on or in connection with importation
or exportation or imposed on the international transfer of payments for imports or exports, and with
respect to the method of levying such duties and charges, and with respect to all rules and formalities
in connection with importation and exportation, and with respect to all matters referred to in
paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any
contracting party to any product originating in or destined for any other country shall be accorded
immediately and unconditionally to the like product originating in or destined for the territories of all
4
other contracting parties.
Importance of the MFN Principle for Market Access for Goods
The MFN principle serves as an incentive for tariff concessions by avoiding concession-erosion after tariff
negotiations. Let's see an example. Assume that during a WTO negotiating round, the government of Vanin
agrees to reduce its tariff rate for T-shirts from Tristat to 12 per cent, in exchange of Tristat's commitment
to reduce its tariff on carpets. If Vanin later agrees to apply a lower tariff rate of five per cent to T-shirts
from Medatia, Tristat's competitive position would be worsened unless it also benefits from the new lower
tariff. In the absence of the MFN principle, the benefits obtained by Tristat would be eroded by subsequent
tariff negotiations.
Instead, the MFN principle serves as a guarantee that WTO Members will be able to
benefit from best tariff treatment, even if subsequent tariff negotiations take place with third countries.
Thus, the lower tariff rates provided by Vanin to Medatia will be extended to Tristat, so that Tristat's T-shirts
retain their competitiveness. This encourages Vanin to make an optimal deal right from the beginning.
For developing countries and others with little bargaining power, the MFN principle ensures that they are
able to benefit from the best trading conditions resulting from the negotiations.
The MFN rule also functions to reduce transaction costs associated with market access for goods.
If a
country discriminates among its different trading partners by applying different tariff rates or customs
formalities, it burdens its administration with additional time and money needed to determine the origin of
products and the conditions applicable to their importation. Furthermore, related rules for the issuance of
certificates of origin, direct shipment requirements and other relevant administrative procedures can impose
significant costs on both the traders and governments. With the MFN principle, Members are required to
apply the same duty rates and other customs formalities to imports from all Members. In so doing, the MFN
rule tends to simplify customs procedures and consequently, reduces transaction costs associated with
market access for trade in goods.
The analysis of inconsistency of a measure with the MFN principle is a three-tier test. One needs to check the
following three cumulative elements to find an inconsistency (see for example Indonesia – Autos, Panel Report,
para. 14.138):

Any advantage, favour, privilege or immunity covered by Article I:1 of the GATT 1994 is conferred;

to a like product; and,

the advantage is not granted immediately and unconditionally to the like products of other Members.
With regard to the scope of an "advantage", Article I:1 covers a broad range of measures mostly, but not
exclusively, related to border measures. Such measures include the following:

Customs duties;

any kind of charges imposed on importation or exportation;

any kind of charges imposed in connection with importation or exportation;

any charges imposed on the international transfer of payments for imports and exports;
5

the method of levying such duties and charges;

the rules and formalities in connection with importation and exportation;

internal taxes or other internal charges (covered in Article III:2);

all
laws,
regulations
and
requirements
affecting
internal
sale,
offering
for
sale,
purchase,
transportation, distribution or use of any product (covered in Article III:4).
The essence of the MFN obligation is that "like products" should be treated equally, irrespective of their origin
(EC - Bananas III, Appellate Body Report, para. 190). This means that products which are not "like products"
may be treated differently.
The third element in the three-tier test is the granting of the advantage "immediately and unconditionally".
This means that once a WTO Member has granted an advantage to imports from any country, it must
immediately and unconditionally grant that advantage to imports of like products from all other WTO Members.
It is worth noting that the MFN rule applies to both de jure discrimination and de facto discrimination. (Canada
- Autos, Appellate Body Report, para. 79). A measure discriminates de jure when it is clear from the wording
of the legal instrument that it provides an advantage to a product from a Member or non-Member, without
extending such advantage to like products from all WTO Members. When the discrimination does not appear
on the text or face of the legal instrument, it can still be de facto, or in practice, discriminatory.
De facto
discrimination occurs when an apparently neutral legal instrument, is in effect or in fact, discriminatory. To
establish de facto discrimination, all the facts relating to the application of the measure must be reviewed.
II.A.2. THE NATIONAL TREATMENT RULE UNDER THE GATT 1994
The national treatment rule constitutes the second component of the non-discrimination pillar.
In general,
Article III of the GATT 1994 prohibits a Member from favouring its domestic products over the imported like
products of other Members.
Whilst the MFN principle seeks to ensure that a WTO Member does not discriminate between like products
originating in or destined to different WTO Members, the national treatment principle addresses the treatment
to be applied to imported and domestic like products.
Article III of the GATT 1994: National Treatment on Internal Taxation and Regulation
GENERAL PRINCIPLE
1.
The contracting parties recognize that internal taxes and other internal charges, and laws, regulations
and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or
use of products, and internal quantitative regulations requiring the mixture, processing or use of
products in specified amounts or proportions, should not be applied to imported or domestic products
so as to afford protection to domestic production.
INTERNAL TAXATION
2.
6
The products of the territory of any contracting party imported into the territory of any other
contracting party shall not be subject, directly or indirectly, to internal taxes or other internal charges
of any kind in excess of those applied, directly or indirectly, to like domestic products. Moreover, no
contracting party shall otherwise apply internal taxes or other internal charges to imported or domestic
products in a manner contrary to the principles set forth in paragraph 1.
AD NOTE: TO ARTICLE III:2, SECOND SENTENCE
A tax conforming to the requirements of the first sentence of paragraph 2 would be considered to be
inconsistent with the provisions of the second sentence only in cases where competition was involved
between, on the one hand, the taxed product and, on the other hand, a directly competitive or substitutable
product which was not similarly taxed.
...
INTERNAL REGULATION
4.
The products of the territory of any contracting party imported into the territory of any other
contracting party shall be accorded treatment no less favourable than that accorded to like products of
national origin in respect of all laws, regulations, transportation, and requirements affecting their
internal sale, offering for sale, purchase, transportation distribution or use. The provisions of this
paragraph shall not prevent the application of differential internal transportation charges which are
based exclusively on the economic operation of the means of transport and not on the nationality of the
product....
The national treatment rule applies to internal measures (internal taxation and regulations) as opposed to
border measures. Therefore, charging customs duties at the border on an import is not a violation of national
treatment, even if locally-produced goods are not charged that same duty. It is worth noting that the Ad note
to Article III of the GATT 1994 clarifies that an internal measure may be applied at the border on imported
goods.
Importance of the National Principle for Market Access for Goods
The national treatment principle ensures market access for goods.
It prohibits the application of any
discriminatory internal fiscal or non-fiscal measure that would frustrate the competitive conditions between
imports and domestic like products which might have resulted from tariff negotiations.
Negotiated tariff
concessions, including tariff bindings (the maximum level of customs duty to be levied on products imported
into a Member – see also Section on Main Rules on Market Access for Goods in this Module), can only result
in effective market access conditions if Members are not allowed to undermine their concessions through
trade-restrictive internal measures.
In other words, goods that can enter a Member's customs territory
thanks to reduced border barriers should not be put in an uncompetitive position because of the application
of internal measures.
The analysis of inconsistency of a measure with the national treatment principle varies according to the
paragraph and/or sentence of Article III of the GATT 1994: Article III:1 (general principle);
Article III:2
(internal taxation) first sentence or second sentence; and Article III:4 (internal regulations).
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To establish an infringement of Article III:2, first sentence, one must demonstrate that (see for example Japan
– Alcoholic Beverages II, Appellate Body Report, pages 16 - 25):
(i) The imported and domestic products are like products; and,
(ii) the imported products are taxed in excess of the domestic products (even the slightest margin of
excessive taxing will constitute an infringement, that is, even if the margin is de minimis).
Instead, to establish an infringement of Article III:2, second sentence, one must demonstrate that (see for
example Japan – Alcoholic Beverages II Appellate Body Report, pages 25 – 33; and, Korea – Alcoholic
Beverages, Appellate Body Report, paras. 103 - 154):
(i) The imported and domestic products are directly competitive or substitutable;
(ii) the domestic and imported products are not similarly taxed (more than de minimis); and,
(iii) the dissimilar taxation is applied so as to afford protection to domestic production.
Finally, to establish an infringement of Article III:4, one must demonstrate that (see for example EC Asbestos, Appellate Body Report, paras. 98 - 146):
(i) The imported and domestic products at issue are "like products";
(ii) the measure at issue is a "law, regulation, or requirement affecting the internal sale, offering for sale,
purchase, transportation, distribution, or use" of the imported products; and,
(iii) the imported products are afforded less favourable treatment.
National Treatment – Internal Taxation
Requirements under Article III:2 of the GATT 1994 (Goods)
Article III:2 first sentence
1.
Imported and domestic products are "like
Article III:2 second sentence
1.
products".
2.
The imported products are taxed in excess of
Imported and domestic products are "directly
competitive or substitutable".
2.
the domestic products (even if the margin is
Domestic
and
imported
products
are
not
similarly taxed (more than de minimis).
de minimis).
3.
The dissimilar taxation is applied to so as to
afford protection to domestic production.
The term "like products" under Article III:2 first sentence should be considered as a subset of "directly
competitive or substitutable products" under Article III:2 second sentence (Korea – Alcoholic Beverages,
Appellate Body Report, para. 118). Whereas the first sentence ("like products") applies only to products that
are perfectly substitutable, the second sentence ("directly competitive or substitutable products") is broad
enough to include products that are imperfectly substitutable.
8
Therefore, if a product does not meet the
narrow definition of "like product" under Article III:2 first sentence, it may still be "directly competitive or
substitutable" (Article III:2 second sentence). 1 The determination of whether two products are "like products"
or "directly competitive or substitutable products" should be made on a case-by-case basis.
As the MFN rule, the national treatment rule also applies to both de jure and de facto discrimination.
A
measure is de jure discriminatory when discriminatory treatment between imported and domestic like products
is clear from the wording of the legal instrument. When the discrimination is not clear on the text or face of
the legal instrument, it can still be de facto, or in practice, discriminatory.
In the case of the national
treatment principle, de facto discrimination occurs when a legal instrument in effect or in fact favours domestic
products over imported like products. Cases where de facto discrimination was found are Japan – Alcoholic
Beverages II, Korea – Alcoholic Beverages and Chile – Alcoholic Beverages.
II.B.
OBSERVANCE OF BINDING LEVELS OF TARIFF
CONCESSIONS
Tariff concessions constitute one of the most significant achievements of trade negotiations under the auspices
of the GATT/WTO. Tariff concessions have been incorporated in the WTO Schedules of concessions on goods,
which record Members' specific legal commitments on tariffs and other concessions.
The main provision
relating to tariff concessions is Article II of the GATT 1994 (introduced in the next section –Main Rules on
Market Access for Trade in Goods - and explained in detail in Module 4). Article II:1(b) first sentence provides
that Members shall refrain from applying customs duties in excess of the bound levels set forth in their
Schedules.
Besides Article II of the GATT 1994, there are several other provisions in the GATT and the WTO Agreements
which have been negotiated over time to prevent the value of tariff concessions is undermined. These rules
aim to ensure the predictability and security of tariff commitments, as incorporated in Members' Schedules of
concessions.
II.C.
GENERAL PROHIBITION OF QUANTITATIVE
RESTRICTIONS
Quantitative restrictions can be defined as restrictions on imports or exports at the time or point of
importation, such as a prohibition or a quota. According to Article XI of the GATT 1994, WTO Members cannot
prohibit, restrict or limit the quantity of products authorized for importation or exportation, except in a limited
number of situations. This principle does not apply in the same way in the context of the GATS and the TRIPS.
Members are in general prohibited from applying quantitative restrictions because they impose absolute limits
on imports, while tariffs do not.
1
Whenever authorized as an exception, quantitative restrictions must be
The scope of likeness in Article III:4, although broader than the first sentence of Article III:2, is not broader
than the combined products scope of the two sentences of Article III:2 (Japan – Alcoholic Beverages II,
Appellate Body Report, page 23; and, EC - Asbestos, Appellate Body Report, paras. 98 – 99).
9
imposed on a non-discriminatory manner in accordance to Article XIII of the GATT 1994 (see also next section
- Main Rules on Market Access for Trade in Goods - and Module 5).
II.D. TRANSPARENCY
It is important that trade regulations and policies are transparent. Article X of the GATT 1994 lays down the
general transparency obligation. This provision requires the prompt publication of laws, regulations, judicial
decisions and administrative rulings affecting trade in such a manner as to enable governments and traders to
become acquainted with them. In addition, some measures shall be published before their entry into force.
WTO Members are also required to inform the WTO and fellow-Members of specific measures, policies or laws
through regular "notifications". Furthermore, the WTO conducts periodic reviews of individual Members’ trade
policies through the Trade Policy Review Mechanism (TPRM), introduced in Module 1.
EXERCISES:
1.
Briefly describe the main WTO principles.
2.
GATT Article I:1 says: "With respect to customs duties … any advantage … granted by any Member to any
product originating in or destined for any other COUNTRY shall be accorded immediately and
unconditionally."
Why did the drafters of Article I:1 of the GATT 1994 refer to "any other COUNTRY" and not "any other
MEMBER"?
3.
Please briefly explain why the non-discrimination principle (as embodied in the MFN and national
treatment rules) is important to market access for goods.
10
III.
MARKET ACCESS FOR GOODS
The term ''Market Access'' is considered by the Dictionary of Trade Policy Terms to be "one of the basic
concepts in international trade". In the WTO framework, "market access" is a term outlining the governmentimposed conditions under which a product may enter a country under non-discriminatory conditions. Market
access conditions, in the WTO sense, is expressed through border measures, i.e. tariffs and non-tariff
measures, in the case of goods. 2 In addition, several other measures imposed after the goods have passed
the border or entered a Member's customs territory, such as internal taxes and regulations, can also affect the
conditions under which a product accesses a market.
In addition to the two basic principles of Most-Favoured-Nation and National Treatment discussed above, WTO
Members must comply with several other specific rules which impinge on market access conditions for trade in
goods. The most significant among these principles and rules are enumerated in this section.
III.A. AGRICULTURAL VS. NON-AGRICULTURAL PRODUCTS
IN BRIEF
Non-Agricultural Market Access (NAMA) refers to all products NOT covered by the Agreement on Agriculture.
These were referred to as "the other" products (i.e. other than agricultural products) in the context of the
Uruguay Round and are sometimes called, incorrectly, the "industrial" products.
Agricultural products are listed in Annex 1 of the Agreement on Agriculture, which is based on the 1992
Harmonized Commodity Description and Coding System (explained in Module 3). The product coverage of the
Agreement encompasses not only basic agricultural products (such as wheat), but also the products derived
from them (such as flour), as well as most processed agricultural products (e.g. bread). The WTO Schedules of
concessions (which will be explained in detail in Module 4) contain a special section in which the concessions on
all agricultural products are listed.
Non-agricultural products are defined, by exclusion, as all other products not listed in Annex 1 of the
Agreement on Agriculture.
concessions.
These products are listed in a separate section of the WTO Schedules of
In practice, the non-agricultural products include manufactured products, fuels and raw
materials, as well as fish and fish products, and forestry products.
They are sometimes referred to as
industrial products or manufactured goods, but the term "non-agricultural products" is the one used in the
context of the Doha negotiations.
The difference between agricultural and non-agricultural products is
important insofar as different legal rules may apply to them.
2
Based on: Goode Walter, Dictionary of Trade Policy Terms (2007), Fifth Edition, pages 272 – 273.
11
Non agricultural products (NAMA products)
"Agricultural Products"
The "Other Products" or "Non-Agricultural
Defined in Annex 1 of the Agreement on
Products"
Agriculture
III.B. MAIN RULES ON MARKET ACCESS FOR NONAGRICULTURAL PRODUCTS
As explained in Module 1, there is no WTO Agreement providing disciplines specifically applicable to nonagricultural products.
The Multilateral Agreements on Trade in Goods in Annex 1A of the Agreement
Establishing the WTO embody the disciplines on goods in general and thus, are applicable to non-agricultural
products.
The GATT 1994, introduced in Module 1, sets out the basic principles and disciplines on market access for
goods. Several provisions contained in the GATT 1994 are defined in detail by the corresponding Multilateral
Agreements on Trade in Goods.
The two main categories of measures that could restrict market access for goods in the WTO context are (1)
tariffs and (2) non-tariff measures. The reduction or elimination of tariffs, and the inclusion of disciplines on
non-tariff measures are, together with the non-discrimination principle, key instruments to achieve the
objectives of the WTO.
As it will be explained in Module 5, there is no agreed definition in the WTO of what constitutes a "non-tariff
measure" nor a "non-tariff barrier" neither is there consistency in the way both terms have been used in the
past.
12
Although both terms are often used interchangeably, the term "non-tariff measure" (NTM) has been
preferred throughout this course. 3 While the application of NTMs does not always restrict trade, they often
result in unnecessary restrictions or undue barriers, which explains the utilisation of the term "non-tariff
barrier" (NTBs).
While the GATT 1994 lays down the basic disciplines on tariffs and quantitative restrictions (e.g. quotas, which
was one of the most frequently used NTBs in the past), several other NTMs are regulated by the corresponding
Multilateral Agreements on Trade in Goods contained in Annex 1A of the Agreement Establishing the WTO. The
Table below provides a brief introduction of these rules which will be further elaborated in Modules 3, 4 and 5.
RULES
MAIN PROVISIONS
BRIEF DESCRIPTION
TARIFFS (Modules 3 and 4)
1. ''Bound'' tariffs and
Article II:1(b)
Schedule of concessions
GATT 1994
of
the
A ''bound'' tariff is the maximum level of
customs duty that a Member can levy on
products from other WTO Members imported
into a Member.
The bound levels are
recorded in each Member's Schedule of
concessions.
A Member is not allowed to
apply tariffs above the bound levels specified
in its Schedule of concessions, but it may
apply lower levels (the "applied" tariffs).
Other duties and
Article II:1(b)
charges (ODCs)
GATT
of
1994,
sentence,
the
Other duties and charges (ODCs) may be
second
imposed in addition to the ''ordinary customs
the
duty'', but only if they are recorded in the
the
Schedule of concessions and do not exceed
and
''Understanding
on
Interpretation
Article II:1(b)
of
of
the levels indicated therein.
the
GATT 1994''
2. Tariff Negotiations
Article XXVIIIbis
GATT 1994
of
the
The WTO does not prohibit the use of tariffs.
However, Members
recognize that these
often constitute serious obstacles to trade.
Therefore, negotiations on a reciprocal and
mutually advantageous basis, directed to the
substantial reduction of tariffs and other
charges, shall take place periodically.
In
practice, most tariff negotiations have taken
place during negotiating rounds launched by
the
GATT
Contracting
Parties
or,
more
recently, by WTO Members (e.g. the Doha
3
The term "non-tariff barrier" (NTB) is, nevertheless, used whenever this course cites GATT/WTO texts or
refers to specific occasions where the term NTB was originally employed.
13
RULES
MAIN PROVISIONS
BRIEF DESCRIPTION
Development Agenda (DDA)).
3. Modification of
Article XXVIII of the GATT
Tariff
Schedules
1994
withdrawn through renegotiations, subject to
''Understanding
on
the
Interpretation
concessions
can
be
modified
or
certain rules and procedures.
of
Article XXVIII of the GATT
1994''
NON-TARIFF BARRIERS (NTBs) (Module 5)
4. General elimination of
Article XI:1 of the GATT
No
quantitative restrictions
1994
duties, taxes or other charges, whether
prohibition
or
restriction
other
than
made effective through quotas, import or
export licenses or other measures shall be
instituted or maintained in relation to the
importation or exportation of goods.
This
being said, it should also be noted that there
are
some
exceptions
to
this
general
prohibition, which allow Members to impose
quantitative restrictions subject to specific
requirements.
5. Non-discriminatory
Article XIII of the GATT
administration of
restriction is allowed, as well as in the case
quantitative restrictions
and tariff quotas
In cases where the use of a prohibition or
of tariff quotas, there are requirements
applicable
4
to
their
administration.
In
general, these shall be applied on a nondiscriminatory basis.
Moreover, in applying
import restrictions, Members shall ensure a
distribution of trade that would approach as
closely, as possible, the shares that Members
might be expected to obtain in the absence
of such restrictions.
6. Other disciplines
4
Article VIII of the GATT
Besides
the
provisions
on
quantitative
Under the WTO one must distinguish between quotas and tariff quotas (sometimes referred to as "tariff-rate
quotas" or TRQs), as the former are generally prohibited whereas the latter are a form of tariff protection and
are, therefore, allowed under the WTO Agreement.
A TRQ is a two-tiered tariff tied with a quantity under
which, predetermined quantities of goods can be imported at a "preferential" (i.e. lower) rate of customs duty
("in-quota tariff rate"). Once the TRQ volume has been filled for a given period of time, one can continue to
import the product without limitations but paying a higher tariff rate ("out-of-quota tariff rate").
14
RULES
MAIN PROVISIONS
BRIEF DESCRIPTION
1994
restrictions, the WTO Agreement contains a
Article X of the GATT
1994
large number of provisions which prohibit or
regulate
a
large
measures.
number
These
of
include
non-tariff
lack
of
various ANNEX 1A
transparency in trade regulations, unfair and
Agreements
arbitrary application of trade regulations,
customs formalities, technical barriers to
trade,
sanitary
and
phytosanitary
regulations, etc.
In general, these provisions require the nondiscriminatory and transparent application
and administration of these policies, so that
they do not constitute unnecessary barriers
to international trade in goods.
In some
Agreements, the WTO encourages Members
to
harmonize
Members'
practices
in
a
particular field (e.g. Agreement on Customs
Valuation) or to use international standards
(e.g.
the
SPS
Agreement
and
TBT
Agreement).
15
IV.
EXCEPTIONS TO THE MAIN RULES ON MARKET
ACCESS FOR TRADE IN GOODS
IN BRIEF
WTO Members may, in certain circumstances, deviate from some of their WTO obligations, including those
on market access for non-agricultural products, provided that they comply with certain conditions. Although
several provisions contain inbuilt exceptions to the general rules they establish, there are also exceptions
that allow Members to derogate from one or more provisions or principles.
This Module focuses on the exceptions that allow WTO Members to deviate from essential GATT provisions or
principles, including Articles I and III (MFN and national treatment principles), Article II (Schedules of
concessions) and Article XI (General elimination of quantitative restrictions) of the GATT 1994. The specific
exceptions applicable in the context of specific GATT/WTO provisions – including those on market access for
goods- will be studied in the following Modules.
The exceptions that allow Members to deviate from the
most important GATT provisions include:

General Exceptions (Article XX of the GATT 1994).
WTO Members retain the right to take
measures which may restrict trade in goods if, for example, they are necessary to protect human,
animal or plant life or health. Such measures cannot constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail or a disguised restriction on
international trade.

Security Exceptions (Article XXI of the GATT 1994).
WTO Members retain the right to restrict
trade in goods to protect essential national security interests.

Regional Trade Agreements (RTAs) (Article XXIV of the GATT 1994 and the Understanding on the
interpretation of Article XXIV of the GATT 1994).
WTO Members have the right to form customs
union and free trade areas, subject to certain conditions, thereby departing from the MFN principle in
order to grant preferential treatment to goods from the relevant Members, without having to extend
such treatment to all WTO Members.

Balance of Payments (BOPs) (Article XII and Article XVIII, Section B, of the GATT 1994, as well as
the Understanding on Balance-of-Payments provisions of the GATT 1994). Members retain the right
to take restrictive import measures, including under limited circumstances the introduction of
quantitative restrictions, to safeguard a Member's external financial position and its balance-ofpayments.

Waivers (Article IX(3) of the Marrakesh Agreement Establishing the WTO). Members have the right
to request a temporary authorization, in exceptional circumstances, to derogate from any provision
contained in the Agreement Establishing the WTO or any Multilateral Trade Agreement, which has to
be approved by the other WTO Members.

Trade defence mechanisms – Members can also temporarily depart from some of their obligations
in order to remedy a situation of unfair competition (anti-dumping and countervailing measures) or a
surge of imports (safeguard measures) when these are causing injury to the domestic industry,
subject to certain requirements.
These measures allow WTO Members to impose, for example,
tariffs above the bound levels or quantitative restrictions – depending on the type of trade remedy.
16
IV.A. GENERAL EXCEPTIONS
Article XX of the GATT 1994 allows Members to take certain measures, otherwise prohibited by GATT
provisions, subject to stipulated conditions.
The purpose of Article XX is to ensure that commitments
undertaken by the Members under the GATT do not hinder the pursuit of legitimate policy objectives, such as
the protection of human, animal or plant life or health, or the conservation of exhaustible natural resources.
One of the most important conditions in this respect is embodied in the chapeau of Article XX, according to
which the measures should not be applied in a manner that: 1) could constitute a means of arbitrary or
unjustifiable discrimination between countries where the same conditions prevail or 2) a disguised restriction
on international trade.
Article XX of the GATT 1994: General Exceptions
Subject to the requirement that such measures are not applied in a manner which would constitute a means
of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a
disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any contracting party of measures:
(a)
necessary to protect public morals;
(b)
necessary to protect human, animal or plant life or health;
(c)
relating to the importations or exportations of gold or silver;
(d)
necessary to secure compliance with laws or regulations which are not inconsistent with the provisions
of this Agreement, including those relating to customs enforcement, the enforcement of monopolies
operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and
copyrights, and the prevention of deceptive practices;
(e)
relating to the products of prison labour;
(f)
imposed for the protection of national treasures or artistic, historic or archaeological value;
(g)
relating to the conservation of exhaustible natural resources if such measures are made effective in
conjunction with restrictions on domestic production or consumption;
(h)
undertaken in pursuance of obligations under any intergovernmental commodity agreement which
conforms to criteria submitted to the contracting parties and not disapproved by them or which is itself
so submitted and not so disapproved; and
(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; and
(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 no later than 30 June 1960.
17
In order to be justified under Article XX of the GATT 1994, a GATT - inconsistent measure must pass a two-tier
test (US – Gasoline, Appellate Body Report, p. 22):

The measure at issue must fall under one of the exceptions – sub-paragraphs (a) to (j) - listed under
Article XX - each sub-paragraph concerns different objectives and contains different requirements; and,

The measure must be applied in a manner that satisfies the requirements of the chapeau of Article XX.
The order of the test cannot be reversed because it reflects the fundamental structure and logic of Article XX of
the GATT 1994 (US – Shrimp, Appellate Body Report, paras. 119). Therefore, in assessing an Article XX claim,
panels should always start the analysis with the particular exception(s) invoked by a party (sub-paragraph(s))
and only after the measure at issue has been found to be falling within the scope of the claimed exception(s),
should they consider whether the application of the measure satisfies the conditions of the chapeau (EC –
Asbestos, Panel Report, para. 6.20; US – Shrimp (Article 21.5), Panel Report, paras. 5.27-5.28).
IV.A.1. APPLICATION OF EXCEPTIONS – SUB-PARAGRAPHS (A) TO (J)
For example, sub-paragraphs (a), (b), and (d) provide that the measures sought to be taken by a Member
must be "necessary" either to, protect public morals; human, animal or plant life or health; or to secure
compliance with certain laws or regulations.
These sub-paragraphs set forth a "necessity test" which must be satisfied for the measures to be consistent
with Article XX. The determination of whether a measure is "necessary" involves in every case a process of
weighing and balancing a series of relevant factors, in particular: (i) the contribution made by the measure to
the achievement of the objectives pursued; (ii) the importance of the interests or values at stake; (iii) the
trade-restrictiveness of the measure (Brazil – Retreaded Tyres, Appellate Body Report, para. 178). In addition,
the measure has to be compared with possible available alternatives, which may be less trade restrictive while
providing an equivalent contribution to the achievement of the objective pursued (Brazil – Retreaded Tyres,
Appellate Body Report, para. 156).
To conduct this assessment, the Appellate Body has observed that the more vital or important the common
interests or values pursued, the easier it would be to accept as "necessary" a measure designed to achieve
those ends (Korea – Beef, Appellate Body Report, para.162).
In this respect, the Appellate noted that the
preservation of human life and health is of a value both "vital" and "important in the highest degree" (EC –
Asbestos, Appellate Body Report, para. 172).
Article XX (g) requires that the measure sought to be justified be one which "relates to" the conservation of
exhaustible natural resources. The term "relates to" imposes a lower standard than the term "necessary to"
(i.e. the "necessity test" is more difficult to demonstrate). This determination essentially involves looking into
the relationship between the measure at stage and the legitimate policy of conserving natural resources.
Specifically, a measure would qualify as "relating to the conservation of natural resources" if the measure
exhibited a "substantial relationship" with, and was not merely "incidental or inadvertently aimed at" the
conservation of exhaustible natural resources (US Gasoline – Appellate Body Report, page 19). In addition,
Article XX(g) requires the measure at stake "be made effective in conjunction with restrictions on domestic
production or consumption".
18
IV.A.2. APPLICATION OF THE CHAPEAU OF ARTICLE XX
Once a measure satisfies the conditions set by one or more of the sub-paragraphs of Article XX, the panel or
the Appellate Body will turn to the application of the chapeau of Article XX of the GATT 1994. The chapeau
requires that in order to be justified under one of the sub-paragraphs of Article XX, measures must not be
"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".
The object and purpose of the chapeau is generally the prevention of abuse of the exceptions of Article XX.
Moreover, the chapeau by its express terms addresses, not so much the questioned measure or its specific
contents as such, but rather the manner in which that measure is applied. The chapeau serves to ensure that
Members’ rights to avail themselves of exceptions are exercised in good faith to protect interests considered
legitimate under Article XX, not as a means to circumvent one Member’s obligations towards other WTO
Members (Brazil – Retreaded Tyres, Appellate Body Report, para. 215).
The chapeau of Article XX requires that measures covered by an exception be not administered in a manner
that would constitute: (i) arbitrary or unjustifiable discrimination between countries where the same conditions
prevail; (ii) unjustifiable discrimination between countries where the same conditions prevail; or (iii) a
disguised restriction on international trade (US – Shrimp, Appellate Body Report, para. 150).
In US - Gasoline, the Appellate Body held that "arbitrary discrimination", "unjustifiable discrimination" and
"disguised restriction" on international trade may, accordingly, be read side-by-side. They impart meaning to
one another (US.-. Gasoline, Appellate Body Report, p. 24).
IV.B. SECURITY EXCEPTIONS
In the context of trade in goods, Article XXI of the GATT governs the use of the "Security Exceptions" which
allows a WTO Member to take any action, which it considers necessary for the protection of its essential
security interests or in pursuance of its obligations under the United Nations 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.
Article XXI: Security Exceptions
Nothing in this Agreement shall be construed:
(a)
to require any contracting party to furnish any information the disclosure of which it considers contrary
to its essential security interests; or
(b)
to prevent any contracting party from taking any action which it considers necessary for the protection
of its essential security interests
(i) relating to fissionable materials or the materials from which they are derived;
(ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods
and materials as is carried on directly or indirectly for the purpose of supplying a military
establishment;
19
(iii) taken in time of war or other emergency in international relations; or
(c)
to prevent any contracting party from taking any action in pursuance of its obligations under the United
Nations Charter for the maintenance of international peace and security.
EXERCISES:
4.
Can a WTO Member apply a measure under Article XX of the GATT 1994, which bans the imports from
some, but not all Members?
5.
20
Explain the structure of Article XX of the GATT 1994.
ILLUSTRATION
General Exception on Trade in Goods (Article XX of the GATT 1994)
SCENARIO
Suppose that Vanin and Tristat are WTO Members. Recently, Vanin established a regulation which imposes a
ban on cars with fuel efficiency below 12.5 miles per gallon (mpg).
Tristat exports cars to Vanin, its major export market. Most of the cars Tristat produces are with fuel efficiency
below 12.5 mpg. Vanin does not produce cars with fuel efficiency below 12 mpg.
Tristat considers that Vanin's regulation is inconsistent with Article XI of the GATT 1994 (General Elimination of
Quantitative Restrictions).
Vanin argues that its measure is aimed at reducing air pollution and protecting human, life and health.
QUESTION
Assume you are advising the government of Vanin on WTO Law, what defences or WTO exception(s) would you
suggest Vanin to invoke and what arguments could this country make under such exception(s)?
PROPOSED ADVICE
Vanin can invoke Article XX of the GATT 1994 (General Exceptions) to justify its measure in case it is found to
be inconsistent with Article XI of the GATT 1994 (General Elimination of Quantitative Restrictions, which will be
explained in detail in Module 5).
As mentioned above, according to Article XI, no prohibition or restriction
other than duties, taxes or other charges, "whether made effective through quotas, import or export licenses
or other measures" shall be instituted or maintained in relation to the importation or exportation of goods.
Under Article XX, Vanin must establish first, that its regulation is provisionally justified under Article XX(b)
and/or Article XX(g); and second, that the application of the regulation complies with the chapeau of Article XX
ARTICLE XX OF THE GATT 1994 – GENERAL EXCEPTIONS
ARTICLE XX (B)- "NECESSARY TO PROTECT HUMAN, ANIMAL OR PLANT LIFE OR HEALTH"
Vanin would need to establish that: 1. the policy in respect of the measures for which the provision was
invoked falls within the range of policies designed to protect human, animal or plant life or health; and, 2. the
inconsistent measures for which the exception is being invoked is "necessary" to fulfil such policy objective
"necessity test" - (US – Gasoline, Panel Report, para. 6.20).
Accordingly, Vanin may claim that its regulation is pursuing the objective of protection of human health by
reducing vehicle emissions. As you studied in this Module, the "necessity test" involves a process of weighing
and balancing a series of factors, in particular: i. the contribution made by the measure to the achievement of
its objectives, that is, the protection of human, animal or plant life or health; ii. the importance of the interests
21
or values at stake; and, iii. the trade-restrictiveness of the measure (Brazil – Retreaded Tyres, Appellate Body
Report, para. 178). In this regard, Vanin may argue that the measure makes a contribution to the objective
since its application is reducing pollution in forms of emissions posing risk to human life or health. In addition,
Vanin may argue that the ban is applied to preserve human life and health, considered of a value both "vital"
and "important in the highest degree" (EC- Asbestos, Appellate Body Report, para. 172).
With respect to possible alternative measures (less trade restrictive) that Tristat might propose, Vanin would
have to show that these alternatives do not contribute equivalently to the achievement of the objective
pursued (protection of human health by reducing vehicle emissions). In addition, depending on the alternative
measures proposed by Tristat, Vanin may argue that such measures impose an undue burden on it, e.g.
prohibitive costs (see US – Gambling, Appellate Body Report, para. 308).
ARTICLE XX (G) "RELATING TO THE CONSERVATION OF EXHAUSTIBLE NATURAL RESOURCES"
Under XX(g), Vanin has to demonstrate that the measure at issue: 1. is concerned with the conservation of
exhaustible natural resources, 2. "relates to" the conservations of exhaustible natural resources, and 3. the
measure is made effective in conjunction with restrictions on domestic production or consumption.
Vanin can claim that its regulation is concerned with the conservation of exhaustible natural resources since it
is aimed at the conservation of clean air, a policy that falls within Article XX(g) (see US – Gasoline, Panel
Report, para. 6.37).
Vanin also needs to demonstrate that the measure at issue exhibits a "substantial
relationship" with, and is not merely "incidentally or inadvertently aimed at", the conservation of clean air (US
– Gasoline, Appellate Body Report, page 19). Furthermore, to comply with the third requirement, Vanin will
have to show that a similar restriction applies to cars produced in Vanin.
CHAPEAU OF ARTICLE XX OF THE GATT 1994
Vanin also has to demonstrate that its regulation satisfies the requirement of the Chapeau. In this respect,
Vanin shall demonstrate that its regulation is not applied in a manner that constitutes: 1. arbitrary or
discrimination between countries where the same conditions prevail; 2. unjustifiable discrimination between
countries where the same conditions prevail; or 3. a disguised restriction on international trade.
A measure would be considered to be applied in a manner that constitutes "arbitrary or unjustifiable
discrimination between countries where the same conditions prevail" if: 1. the application of the measure
results in discrimination; 2. the discrimination is arbitrary or unjustifiable in character; 3. this discrimination
occurs between countries where the same conditions prevail (US – Shrimp, Appellate Body Report, para. 150).
IV.C. BALANCE OF PAYMENTS (BOP) EXCEPTIONS
Article XII and Article XVIII:B of the GATT 1994, together with the Understanding on Balance-of-Payments
Provisions of the GATT 1994 allow WTO Members to take measures in order to safeguard their external
financial position and their balance of payments.
While the basic condition for invoking Article XII is to
safeguard the Member's external financial position and its BOPs, Article XVIII:B refers to Members (within the
scope of paragraph 4) experiencing BOPs difficulties arising mainly from efforts to expand their internal
markets as well as from the instability in their terms of trade. In this regard, paragraph 2 of Article XVIII:B
refers to the need of these Members to safeguard their external financial position and to ensure a level of
reserves adequate for the implementation of their programme of economic development.
22
Article XII can be
invoked by all Members and Article XVIII:B only by developing country Members. Article XVIII:B contains less
stringent criteria than Article XII.
Article XII:2 – applicable to all Members - states that import restrictions "shall not exceed those necessary: (i)
to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves"; or (ii) "...in the case
of a Contracting Party with very low monetary reserves, to achieve a reasonable rate of increase in its
reserves". Instead, Article XVIII:B:9 – which can be invoked by developing country Members only - omits the
word "imminent" from the first condition and refers to an "inadequate" level rather than a "very low" level of
reserves ("adequate" is defined as "adequate for the implementation of its programme of economic
development"). Both articles require Members to progressively relax the restrictions as conditions improve,
and to eliminate them, when conditions no longer justify their maintenance.
In general, measures taken for BOPs purposes have to be temporary, may not exceed what is necessary to
address the BOPs situation (preferably price-based), administered in a transparent manner and applied to the
general level of imports (i.e. avoid sectoral specificity).
IV.D. REGIONAL INTEGRATION
Article XXIV of the GATT 1994, complemented by the Understanding on the Interpretation of Article XXIV of
the GATT 1994 (the "Understanding"), allows WTO Members, 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.
By definition, parties to an RTA offer each other more favourable treatment in trade matters than to the rest of
the world (including WTO Members). The coverage and depth of such preferential treatment varies from one
RTA to another. Trade barriers among participants to an RTA may be completely abolished in intra-RTA or
merely reduced.
In addition, paragraph 2(c) of the 1979 Decision on Differential and More Favourable Treatment, Reciprocity
and Fuller Participation of Developing Countries (the "Enabling Clause") 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, in certain circumstances (the ''Enabling Clause'' will be explained later on in this Module).
IV.D.1. CONDITIONS FOR THE FORMATION OF CUSTOMS UNIONS AND
FREE TRADE AREAS UNDER ARTICLE XXIV OF THE GATT 1994
Article XXIV allows WTO Members 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 subject to certain internal and external
requirements.
23
a. INTERNAL REQUIREMENTS
Conditions for the Formation of RTAs under Article XXIV of the GATT 1994: Internal Requirements

For free trade areas and customs unions: apart from a few exceptions permitted under certain other
Articles of the GATT 1994, the 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 (Article XXIV:8(a)(i) and XXIV:8 (b)); and,

Only for customs unions: in addition, to qualify as a customs union, its members should apply
substantially the same duties and other regulations of commerce to trade with non-members
(Article XXIV:8(a)(ii)).
Article XXIV:8 states that apart from a few exceptions permitted under certain other Articles of the GATT 1994
(XI, XII, XIII, XIV, XV and XX), the 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. In addition, to qualify as a
customs union, its members should apply substantially the same duties and other regulations of commerce to
trade with non-members. In practice, this condition implies a common external tariff and trade policy.
b. EXTERNAL REQUIREMENTS
Article XXIV:4 provides that the purpose of a customs union or of a free trade area should be to facilitate trade
between the constituent territories and not to raise barriers to the trade of other Members. The Understanding
on Article XXIV explicitly reaffirms this purpose and states that the constituent members should "to the
greatest possible extent avoid creating adverse affects on the trade of other Members".
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 (Article XXIV:5(a)). 5 For free trade areas, the duties and other regulations of commerce imposed
on third –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 (Article XXIV:5(b)).
5
The Understanding provides that the comparison under Article XXIV:5(a) of the level of protection shall be
based upon an overall assessment of weighted average of tariff rates and of customs duties collected prior to,
and at, the institution of the customs union or the interim agreement leading to the customs union. For this
purpose, the duties and charges to be taken into consideration shall be the applied tariffs (as explained above,
an applied tariff is a duty that is actually charged on imports on an MFN basis .- they are not inscribed in the
WTO Schedule of concessions but rather specified in national tariff Schedules).
For other regulations of
commerce, whose quantification and aggregation may be difficult, the examination of individual measures,
regulations, products covered and trade flows affected may be required.
24
IV.D.2. OTHER REQUIREMENTS
In addition to the conditions set out in Article XXIV:8 and XXIV:5, other requirements include provisions on
interim agreements and transition periods 6, tariff renegotiations in the context of the formation of a customs
unions, and transparency provisions.
As for tariff renegotiations in the context of the formation of a customs union, Article XXIV:6 provides that in
cases where, in the context of the formation of a customs union, a Member proposes to increase any bound
rate, the procedures for modification of Schedules set forth in Article XXVIII shall apply – this procedure will be
explained in Module 4.
As regards to transparency, the General Council adopted the Decision on a "Transparency Mechanism for
Regional Trade Agreements" (WT/L/671) on 14 December 2006. The Mechanism is being implemented on a
provisional basis in accordance with paragraph 47 of the Doha Ministerial Declaration, and will be replaced by a
permanent mechanism to be adopted as part of the Doha Round of Negotiations.
It clarifies existing
transparency requirements such as notification of RTAs, consideration of the RTA by the WTO, and subsequent
notification and reporting.
IV.E. WAIVERS
In "exceptional circumstances", a WTO Member may seek and get the authorization from 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. Waivers are governed by Article IX:3 of the
Agreement Establishing the WTO. 7 A waiver is normally used when there are no other provisions which would
allow a Member to derogate from a WTO provision.
While there is no need to negotiate before adopting a measure under the "general exceptions" of Article XX of
the GATT 1994, waivers shall be granted by three fourths of the Members through a decision of the Ministerial
Conference (i.e. they need the approval of the waiver from the Members before introducing the measure).
Consequently, in contrast to other exceptions, a waiver may be viewed as a "negotiated right".
Furthermore, while measures justified by Article XX of the GATT 1994 may be introduced and maintained for
an undefined period of time, waivers are temporary. So, when they are granted, a definite time-period is set
for termination. Moreover, if granted for more than a one-year period, a waiver must be reviewed annually to
establish if the exceptional circumstances warranting its grant still exist.
6
With respect to interim agreements, Article XXIV:5(c) states that an interim agreement must include a plan
and schedule for the formation of a customs unions or a free trade area within "a reasonable length of time",
defined by paragraph 3 of the Understanding as not exceeding 10 years except in exceptional circumstances.
7
See also. Understanding in Respect of Waivers of Obligations under the General Agreement on Tariffs and
Trade 1994, and the Guiding Principles to Be Followed in Considering Applications for Waivers adopted on
1 November 1956 (L/532 (BISD 5S/25)).
25
Example of Waiver
On 15 June 1999, Members adopted a decision granting a waiver of paragraph 1 of Article I of the GATT
1994 (MFN principle) to the extent necessary to allow developing country Members to provide preferential
tariff treatment to products of LDCs without being required to extend the same tariff rates to like products of
any other Member (WT/L/304) – see also section on Special and Differential Treatment for Developing
Countries (Enabling Clause).
IV.F. TRADE REMEDIES
The WTO Agreements also authorize Members to apply trade remedies, which allow them to depart temporarily
from certain WTO provisions (e.g. to apply tariffs above the bound levels or quantitative restrictions –
depending on the trade remedy measure), subject to certain conditions. The three types of trade remedies
that Members may apply are:

anti-dumping measure;

countervailing measures; and,

safeguard measures
IV.F.1. ANTI-DUMPING
Article VI of the GATT 1994 and the Agreement on the Implementation of Article VI of the GATT 1994 (the
Anti-Dumping Agreement) authorize Members to apply unilateral anti-dumping measures, subject to certain
substantive and procedural requirements.
With regard to the substantive requirements, anti-dumping measures may be applied only after determining,
pursuant to a domestic investigation initiated and conducted in conformity with the provisions of the
Agreement on Anti-Dumping, the following cumulative requirements (Articles 2 and 3 of the Agreement):
(i) that an imported product is being "dumped" (i.e. that there are "dumped imports");
(ii) material injury is caused, or threatened to be caused, to the domestic industry producing the like
products, and,
(iii) there is a causal link between the dumped imports and the injury.
Dumping is a form of price discrimination, which takes place when the price of a product when exported to
another country is less than the price of that same product when sold in the market of the exporting country
(Article VI of the GATT 1994 and Article 2.1 of the Anti-Dumping Agreement).
The Agreement on Anti-
Dumping does not condemn the practice of dumping unless it causes injury to the domestic industry in the
importing country.
26
The procedural requirements set forth in the Anti-dumping Agreement apply to the initiation and conduct of
investigations, the application and duration of provisional and definitive anti-dumping measures, as well as the
review of anti-dumping measures.
Anti-dumping measures may only adopt the form of increased customs
duties, which may be applied in excess of the bound rates indicated in the Schedule of concessions of the
Member applying the measure. They are applied on imports from a particular source, that is, only on products
of enterprises found to be practicing dumping.
IV.F.2. SUBSIDIES & COUNTERVAILING MEASURES
The Agreement on Subsidies and Countervailing Measures (the SCM Agreement) - addresses two separate but
closely related matters: (i) the multilateral disciplines on the use of subsidies; and, (ii) the conditions under
which Members may apply countervailing measures. The SCM Agreement contains a definition of "subsidy",
which applies in both of these areas. 8
The SCM Agreement provides multilateral disciplines governing whether, and what kind of, a subsidy may be
granted by a Member. Certain subsidies are prohibited and all other specific subsidies may be challenged if
they cause adverse effects to the interests of other Members. These rules can be enforced through the WTO
dispute settlement mechanism ("multilateral track"). 9
The SCM Agreement also allows Members to apply countervailing measures after conducting an investigation
according to the substantive and procedural conditions set forth in the SCM Agreement (also called "unilateral"
or "domestic" track). These requirements are very similar to those applicable to anti-dumping investigations.
With regard to the substantive requirements, one of the main differences is that in the case of countervailing
measures, the issue to be determined is whether there are "subsidized imports" (instead of "dumped
imports").
As with ant-dumping measures, countervailing measures may only adopt the form of increased
customs duties, which may be applied in excess of bound rates.
In the case of countervailing measures
however, these measures are applied on products of enterprises benefiting from subsidies granted by
Members.
IV.F.3. SAFEGUARD MEASURES
Article XIX of the GATT 1994 and the Agreement on Safeguards provide the conditions for the application of
safeguard measures. Unlike anti-dumping and countervailing measures, the application of safeguard measures
does not depend on unfair practices. Instead, the objective of safeguard measures is to provide a temporary
remedy while facilitating structural adjustment of the industry adversely affected by increased imports.
8
As
This definition contains three elements which must be satisfied for a subsidy to be covered by the SCM
Agreement (Article 1). There must be: (i) a financial contribution; (ii) by a government or any public body
within the territory of a Member; (iii) which confers a benefit. The disciplines in the SCM Agreement only apply
to "specific" subsidies (Article 2), that is, a subsidy available only to an enterprise, industry, group of
enterprises, or group of industries within the jurisdiction of the granting authority.
9
The invocation of the multilateral track may end with the withdrawal of the subsidy or the removal of its
adverse effects, depending on the case.
27
with the other trade remedy measures, safeguard measures may only be applied after a domestic investigation
is conducted and certain substantive and procedural requirements are met.
Safeguard measures shall be applied as a result of unforeseen developments and of the effect of the
obligations incurred by a contracting party under the GATT (Article XIX of the GATT 1994). The Agreement on
Safeguards provides that a Member may impose a safeguard measure only after determining, pursuant to an
investigation, the existence of the following substantive requirements (Article 2 of the Agreement):
(i) a product is being imported in increased quantities, in absolute or relative terms;
(ii) that serious injury is caused, or threatened to be caused, to the domestic industry producing the like
or directly competitive products; and,
(iii) there is a causal link between the increased imports and the injury.
Contrary to anti-dumping and countervailing measures, safeguard measures shall be applied to a product being
imported irrespective of its source (Article 2 of the Agreement on Safeguards). Therefore, safeguard measures
must be applied, in principle, on an MFN basis (i.e. they will have to target the imports of the like or directly
competitive products of all affected WTO Members) 10. While the Agreement on Safeguards does not expressly
delimit the possible form of a safeguard measure, it envisages that safeguard measures may take the form of
tariffs above the bound rate or quantitative restrictions.
The investigations under the Agreement on Safeguards have to fulfil a number of procedural requirements,
which are –to a certain extent- similar to those provided for the investigations on anti-dumping and
countervailing measures.
IF YOU WANT TO KNOW MORE ...
For more information on Trade Remedies under the WTO, you may register to the eTraining specialized
course on ''Trade Remedies''.
EXERCISES
6.
Explain briefly the main conditions applicable to the formation of free trade areas under Article XXIV of
the GATT 1994.
7.
What are the main conditions for a waiver?
8.
What are the substantive requirements that a WTO Member must determine in an investigation before
applying an anti-dumping measure?
10
In the context of special and differential treatment, only products coming from developing countries may be
excluded under certain circumstances.
28
V.
SPECIAL AND DIFFERENTIAL TREATMENT FOR
DEVELOPING COUNTRIES
IN BRIEF
The majority of WTO Members are developing countries.
Trade plays an important role in fostering
economic growth and reducing poverty in these countries. In the Preamble to the Agreement Establishing
the WTO, Members recognize the "need for positive efforts designed to ensure that developing countries,
and in particular the least-developed among them, secure a share in the growth in international trade
commensurate with the needs of their economic development".
The WTO provides for developing country and LDC Members special rights as envisaged in various WTO
Agreements and GATT/WTO decisions. It should be noted however, that LDCs enjoy additional rights.
The concept of special and differential treatment, which has been recognized as a cornerstone of the GATT
and now the WTO system, has evolved over time, from Part IV of the GATT 1994 on "Trade and
Development" through the "Enabling Clause" to numerous provisions offering flexibilities across the different
WTO Agreements. It now encompasses, among others, "non-reciprocity" in tariff negotiations, preferential
treatment to products originating in developing countries, as well as technical assistance.
V.A. PART IV OF THE GATT 1994
Part IV recognizes the need for a rapid and sustained expansion of the export earnings of the LDCs. To this
effect, developed country Members are called upon to take a number of actions on a "best endeavour basis"
(provisions expressing intent rather than binding obligations, e.g. "to the extent possible").
These include
according high priority to the reduction and elimination of barriers to products currently or potentially of
particular interest to developing Members, including customs duties and other restrictions which differentiate
unreasonably between such products in their primary and processed forms (Article XXXVII:1(a)).
Part IV also codifies in the MTS the concept of "non-reciprocity" in trade negotiations between developed and
developing country Members.
The concept of non-reciprocity relates to developed country Members not
expecting reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and
other barriers to the trade of developing country Members.
This has permitted developing countries, for
example, to undertake lower levels of tariff bindings. This concept has evolved over time. More recently, this
principle is normally referred to as "less-than full reciprocity" (explained in Module 3).
V.B.
THE ''ENABLING CLAUSE''
The ''Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing
Countries'', adopted in 1979 during the Tokyo Round, is known as the "Enabling Clause" (L/4903).
The
Enabling Clause consolidated the concept of "differential and more favourable treatment" for developing
countries as well as the principle of non-reciprocity in trade negotiations. The main objective of the Enabling
29
Clause is to increase commercial opportunities for developing Members. This Decision has been incorporated
into the GATT 1994 as ''other decisions'' and therefore continued to apply as part of GATT 1994 under the
WTO.
One of the main provisions of the Enabling Clause provides the WTO legal basis for the Generalized System of
Preferences (GSP), which enables developed country Members to accord, on a voluntary basis, differential and
more favourable treatment to developing country Members (including LDCs) without according such treatment
to other Members (as a departure of the MFN principle). Thus, under the GSP, developed country Members
offer non-reciprocal preferential treatment (such as zero or lower duties) to products originating in developing
country Members. The Enabling Clause allows for:

preferential tariff treatment accorded by developed contracting parties to products originating in
developing countries in accordance with the GSP (paragraph 2(a));

differential and more favourable treatment with respect to the provisions of the GATT concerning nontariff measures governed by the provisions of instruments multilaterally negotiated under GATT (now
WTO) auspices (paragraph 2(b));

less-developed contacting parties to enter into regional or global arrangements amongst themselves
(i.e. agreements among developing country Members only) for the mutual reduction or elimination of
tariffs and, in accordance with criteria or conditions which may be prescribed by the Contacting Parties,
for the mutual reduction or elimination of non-tariff measures, on products imported from one another
(paragraph2(c));

special treatment for the least developed among the developing countries in the context of any general
or specific measures in favour of developing countries (paragraph2(d)).
In 1999 11, Members adopted a waiver (which was later extended until 30 June 2019 12) to allow developing
country Members to provide preferential tariff treatment to products of LDCs without being required to extend
the same tariff rates to imports from other developed and developing country Members. This expanded the
scope of the Enabling Clause to cover preferences given by developing country Members to goods from LDC
Members.
V.C.
OTHER SPECIAL AND DIFFERENTIAL TREATMENT PRO
VISIONS UNDER THE WTO AGREEMENTS
The WTO Agreements reflect an increased recognition of the need to integrate developing countries into the
multilateral trading system. Special provisions in favour of developing countries are spread out throughout the
WTO Agreements including the Multilateral Agreements on Trade in Goods and various Ministerial Decisions.
The table below summarizes the six main categories of provisions according special and differential treatment
to developing country Members (a comprehensive overview of these provisions can be found in the document
"Implementation of Special and Differential Treatment Provisions in WTO Agreements and Decisions"
(WT/COMTD/W/77 and Revisions)):
11
Decision of 15 June 1999 (WT/L/304).
12
See WT/L/759.
30
Categories of S&D Provisions according to their
Examples
Function
Provisions allowing developing countries
Article XVIII of the GATT 1994 (Sections A, B, C
flexibility of commitments, of action, and use of
and D)
policy instruments
Provisions granting longer transitional periods
for the implementation by developing countries
of various commitments flowing from WTO
Article 12.4 of the TBT Agreement
Article 10.2 of the SPS Agreement
Article 12.8 of the TBT Agreement
agreements
Article 65.2 and 65.4 of the TRIPS Agreement
Provisions aimed at increasing trade
Article XXXVII.1(a) of the GATT
opportunities for developing countries
Provisions requiring WTO Members to safeguard
the interests of developing country Members
when adopting protective trade measures
Article IV:1 of the GATS
Article 10.1 of the SPS Agreement
Article 9.1 of the Agreement on Safeguard
Article 4.10 of the DSU
Provisions regarding technical assistance for
developing countries
Provisions relating specifically to LDCs
Article 9 of the SPS Agreement
Article 11.1 of the TBT Agreement
Article 5.8 of the TBT Agreement
Decision
on
waiver
for
preferential
tariff
treatment of LDCs (WT/L/304)
The WTO provisions on special and differential treatment are currently under revision within the Doha Round of
Negotiations with a view to strengthening them and making them more precise, effective and operational
(Doha Declaration, para. 44). In addition, new special and differential treatment provisions are being
negotiated across the different WTO Agreements.
EXERCISES
9.
What is the objective of the ''Enabling Clause''?
10. List the six categories under which the provisions on special and differential treatment are classified in the
WTO.
31
VI.
SUMMARY
The main principles of the WTO are: the principle of non-discrimination, the obligation to observe binding
levels of tariff concessions, the prohibition of quantitative restrictions and transparency. All of them play an
important role in safeguarding market access for goods.
The non-discrimination principle is embodied in the MFN and the national treatment rules. While the MFN
rule prohibits discrimination between like products originating in different WTO Members, the national
treatment rule prohibits discriminatory treatment between imported and domestic like products.
The obligation to observe the binding levels of tariff concessions requires Members to refrain from applying
customs duties in excess of the bound levels set forth in each Member's Schedule of concessions.
The
general prohibition on quantitative restrictions precludes Members from prohibiting, restricting or limiting the
quantity of products authorized for importation or exportation, except in a limited number of situations.
Non-Agricultural Market Access (NAMA) refers to all products NOT covered by the Agreement on Agriculture.
These products are listed in a separate section of the WTO Schedules of concessions. In practice, the nonagricultural products include manufactured products, fuels and raw materials, as well as fish and fish
products, and forestry products.
They are sometimes referred to as industrial products or manufactured
goods, but the term "non-agricultural products" is the one used in the context of the Doha negotiations. The
difference between agricultural and non-agricultural products is important insofar as different legal rules may
apply to them.
The two main categories of measures that could restrict market access for goods are tariffs and non-tariff
measures (NTMs).
The reduction or elimination of tariffs and the inclusion of disciplines on NTMs are,
together with the non-discrimination principle, key instruments to achieve the objectives of the WTO. While
the GATT 1994 lays down the main disciplines on tariffs and quantitative restrictions, other NTMs are mainly
dealt with by the corresponding Multilateral Agreements on Trade in Goods contained in Annex 1A of the
Agreement Establishing the WTO.
Despite the importance of the rules on market access for goods, the WTO Members may, in certain
circumstances, derogate from these obligations, provided they comply with certain conditions.
The
exceptions studied in this Module allow Members to derogate from the main GATT provisions, including the
main disciplines on market access for goods, such as Article II (Schedules of concessions and tariff bindings)
and Article XI (General elimination of quantitative restrictions) of the GATT 1994. Among these exceptions
are the general exceptions provided in Article XX of the GATT, which allow Members to apply measures for
example, necessary to protect human, animal or plan life or health, which may restrict trade in goods,
subject to stipulated conditions, including not to constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail or a disguised restriction on
international trade.
Furthermore, developing country Members, including LDC Members, are entitled to special and differential
treatment provisions.
The concept of special and differential treatment, which has been recognized as a
cornerstone of the GATT and now the WTO system, has evolved over time, from GATT Part IV on "Trade and
Development" through the "Enabling Clause" to numerous provisions offering flexibilities across the different
WTO Agreements. With these rules and exceptions on trade in goods in mind, we will start to learn in detail
the most important and relevant rules on market access for goods, namely, the rules on tariffs and NTMs in
the following Modules.
32
PROPOSED ANSWERS:
1.
The main WTO principles are:
a. Non – discrimination: it is embodied in the most-favoured (MFN) treatment and national treatment
principles.
For trade in goods, the MFN principle requires each Member to extend to all other
Members any advantage it accords to like products from any other country. In general, the national
treatment principle prohibits a Member from favouring its domestic products over the imported like
products of other Members.
b. Observance of tariff bindings: Members shall refrain from applying customs duties in excess of the
bound levels set forth in their Schedules of concessions.
c. General prohibition of quantitative restrictions: Members cannot prohibit, restrict or limit the quantity
of products authorized for importation or exportation, except in a limited number of situations.
d. Transparency: Members are required, among others, to publish promptly their laws, regulations,
judicial decisions and administrative rulings affecting trade in such a manner as to enable
governments and traders to become acquainted with them.
2.
The MFN principle requires each Member to extend all other WTO Members treatment no less favourable
than the treatment it accords to like products from any country, Member or not of the WTO.
Consequently, WTO Members get the best treatment, except for derogations permitted by the WTO
Agreements. If Article I:1 of the GATT 1994 referred to any other "Member", this would mean that a
Member granting an advantage to products originating in a country which is not a WTO Member, would
not need to extend such advantages to the products of other Members.
3.
The MFN principle serves as an incentive for tariff concessions. Moreover, for developing countries and
others with little bargaining power, the MFN principle ensures that they are able to benefit from the best
trading conditions resulting from the negotiations. The MFN principle also simplifies customs procedures
and consequently, significantly reduces transaction costs associated with market access for goods.
The national treatment principle ensures market access for goods.
It prohibits the application of any
discriminatory internal fiscal or non-fiscal measure that would frustrate the competitive conditions
between imports and domestic like products as already achieved through tariff negotiations. Negotiated
tariff concessions, including tariff bindings (the maximum level of customs duty to be levied on products
imported into a Member), are effective in ensuring market access only if Members cannot undermine their
commitments by using other internal measures.
In other words, goods that can enter a Member's
customs territory thanks to reduced border barriers should not be put in an uncompetitive position
because of the application of internal measures.
4.
In principle, the answer is NO (unless there is an objective justification for making such distinction- see,
Brazil-Retreaded Tyres, Appellate Body Report, para. 225-230).
According to the chapeau, a measure
under Article XX must not be 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
to international trade".
5.
Article XX comprises ten subparagraphs and an introductory clause (the chapeau). Accordingly, Article XX
provides a two-tier test:
1. The measure at issue must fall under one of the exceptions – sub-paragraphs (a) to (j) - listed under
Article XX - each sub-paragraph concerns different objectives and contains different requirements;
and,
33
2. The measure must also satisfy the requirements imposed by the chapeau of Article XX.
The order of the two tests cannot be reversed.
6.
Article XXIV of the GATT 1994 allows the formation of free trade areas under certain internal and external
requirements:
1. Internal requirements: Article XXIV:8 states that apart from a few exceptions, the duties and other
restrictive regulations of commerce are to be eliminated with respect to "substantially all trade"
between the parties or at least with respect to substantially all the trade in products originating in
such territories; and,
2. External requirements: the duties and other regulations of commerce imposed on third-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 (Article XXIV:5(b).
In addition to the conditions set out in Article XXIV:8 and XXIV:5, other requirements include provisions
on interim agreements and transition periods, as well as transparency provisions.
7.
A Member applying for a waiver (or an extension of an existing waiver) must submit a request for that
purpose to specify the policy objectives it seeks to pursue and to explain the reason why a GATTconsistent measure prevents it from achieving such objectives. A waiver is granted by three fourths of
the Members through a decision of the Ministerial Conference (i.e. the approval of the other Members is
needed before introducing the measure). Waivers are temporary so, when they are granted, a definite
time-period is set for termination. Moreover, if granted for more than a one-year period, a waiver must
be reviewed annually to establish if the exceptional circumstances warranting its grant still exist.
8.
An anti-dumping measure may be applied by a Member only after determining, pursuant to a domestic
investigations initiated and conducted in conformity with the provisions of the Agreement on AntiDumping, the following cumulative requirements:
i)
that an imported product is being "dumped";
ii) material injury is caused, or threatened to be caused, to the domestic industry producing the like
products; and,
iii) there is a causal link between the dumped imports and the injury.
9.
The ''Enabling Clause'' consolidated the principle of non-reciprocity in trade negotiations.
The main
objective of the Enabling Clause is to increase commercial opportunities for developing Members.
Paragraph 2(a) of the Enabling Clause enables developed Members to accord, on a voluntary basis,
differential and more favourable treatment to developing and LDC Members, without having to accord
such preferential treatment to other developed Members as a departure from the MFN principle, subject
to certain conditions. In this regard, developing countries benefiting from such non-reciprocal preferential
treatment do not need to open their markets to the developed Members offering them more favourable
market access conditions. Paragraph 2(c) of the Enabling Clause allows developing Members to conclude
among themselves regional trade agreements on trade in goods subject to more flexible requirements
than those contained in Article XXIV of the GATT 1994.
10. In the WTO Agreements, various decisions, sections and specific provisions are devoted to special rights
for developing Members (including LDCs). These provisions (including the provisions of the GATT and the
34
Enabling Clause) are generally referred to as "special and differential treatment provisions" and can be
divided into six categories:
provisions aimed at increasing trade opportunities for developing countries;
provisions which require WTO Members to safeguard the interests of developing Members when
adopting protective trade measures;
provisions allowing flexibility to developing countries in the use of economic and commercial policy
instruments;
provisions granting longer transitional periods for the implementation by developing countries of various
commitments flowing from these agreements;
provision on technical assistance to developing countries in the implementation of their commitments as
well as in their efforts to reap the benefits of the MTS; and,
provisions relating specifically to the least-developed countries.
35