GATT Law and the World
Trade Organization: Basic
Principles
Chapter 9
© 2002 West/Thomson Learning
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Why Use Trade Barriers?
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Economic Reasons for Imposition of
Trade Barriers
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Political Reasons for Trade Barriers
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Collect Revenue
Support National Economic Policies
Protect “Infant” Industries
Foreign Policy Considerations
Domestic Political Concerns
 Forestall Foreign Competition
 Protect Jobs or “Strategic” Industries
Other Reasons:
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Health and Safety Concerns
Environmental Protection
Protect Cultural or Religious Values
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Trade Barriers
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Tariff or Import Duties
Direct Nontariff Barriers (NTB’s)
 Embargoes
 Quotas
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Auctioned quotas
Tariff rate quota
Indirect nontariff barriers
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Monetary and exchange controls
Health or Safety Regulations
Labeling Requirements
Import Licensing Schemes and Customs Procedures
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Development of GATT
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Part of Post WWII Efforts to Develop
Framework for Trade
Multilateral Trade Negotiations to
Reduce Tariffs and NTB
Establish Principles of
Nondiscrimination and Unconditional
MFN
National Treatment
Eliminate Quotas and NTB’s
(Tariffication)
Transparency
“Rounds” of Negotiations: Current
Doha Round Focuses on Agricultural
Products
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GATT 1947
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Covered Trade in Goods
Excluded
 Agricultural Products
 Textiles
 Services
 Intellectual Property
 Foreign Investment
Dispute Settlement Mechanism Ineffective
 Required Consensus
 One Member State Could “Veto” Adoption of
Panel Report
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GATT 1994
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Scope of Coverage Broadened:
 Agricultural Products
 Textiles
 Financial Services
 Intellectual Property Rights (TRIPS)
 Government Procurement
 Trade Related Investment Measures (TRIMS)
Focus on Technical Barriers to Trade
Created WTO to Administer GATT
Revised Dispute Settlement Mechanism
 Strict Timetables for Procedures
 Panel Reports Adopted Unless Consensus to Reject
 Panel Decisions “Relevant But Not Binding” in Future
Cases
 Retaliatory Sanctions Authorized if Party Refuses to
Comply
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GATT Exceptions
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GATT Authorizes Regional Trade
Agreements
 NAFTA, EU, ASEAN, MERCOSUR
etc.
 Special Preferences May Be
Granted to Members Within Free
Trade Area
Members May Grant Preferences
for Developing Countries
Temporary Quotas to Address
Balance of Payments Emergencies
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World Trade Organization
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Replaced GATT - Jan. 1, 1995
157 members (as of 8/12)
Dispute Settlement Process:
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Dispute Settlement Body (DSB)
overseen by General Council
Consultations – may lead to
convening a Panel
Panel Report subject to appeal
Panel Report or Appellate Report final
unless rejected by consensus vote of
DSB
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Import Regime for Bananas
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WTO Appellate Body Report - 1997
United States challenges EC preferences
for bananas from former colonies (ACP
countries) and increased duties and
restrictions on non-ACP bananas
EC argues that US lacks legal right or
trade interest in claim by Latin
American banana producers
Report holds that US has interest as
producer and potential export interest
Member nations have broad discretion
to bring case against other member
before DSU
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Major GATT Principles
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Multilateral Trade Negotiations: “Rounds”
 Uruguay Round (1986 – 1994): led to
creation of WTO
 Doha Round (2001): focus on agriculture
and services
Tariffication: convert other barriers into tariffs
– reduce through negotiations
Tariff Concessions, Bound Rates and Tariff
Schedules
Nondiscrimination: Most Favored Nation and
National Treatment
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MFN (NTR, PNTR)
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Most Favored Nation Status (now known
as Normal Trade Relations or Permanent
Normal Trade Relations)
Unconditional MFN: concessions granted
by one member to another member
automatically is extended to all members
Conditional MFN: member grants
concessions to another member only in
return for concession
GTT Allows Exceptions: may deny MFN
based on
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national security
foreign policy, or
state’s denial of human rights to its citizens
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China and MFN
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Temporary MFN granted in 1980
Restrictions imposed after 1989 Tiananmen
Square massacre
1994 Clinton delinked human rights and trade
for China’s annual renewal of MFN
2000 Congress granted permanent normal
trade status to China effective on China’s
admission to WTO
China admitted to WTO – Dec. 2001
Subject to political events and tensions
Concern over Taiwan – admitted to WTO as
part of “Separate Customs Territory of Chinese
Taipei” in January 2002
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Japan Taxes on Alcoholic Beverages
(WTO Appellate Body Report 1996)
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Japan taxed vodka and other imported liquors
7 times higher than domestic types such as
shochu
US challenged tax discrimination as violation
of national treatment principle
GATT Article III requires national treatment of
imports for like products
Like products determined by end uses in
particular market, physical characteristics,
common end uses – elasticity of substitution
Report holds Japanese tax laws violate GATT
US ultimately had to use arbitration - in 1997
Japan agreed to revise tax system and
eliminate taxes on spirits by 2002
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GATT and Quotas
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GATT calls for end to quotas – use
tariffs instead
 Nondiscrimination principle applies to
any quotas
 GATT allows use to relieve food
shortages or prohibit importation of
ag products subject to price supports
 Textile trade – multilateral quotas
expired Jan. 1, 2005
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GATT Balance of Payments
Provisions
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GATT permits temporary quantitative
restrictions in balance of payments crisis
 Art. XVII: developed countries
 Art. XVIII: developing countries
India – Quant. Restrictions on Imports (WTO
Panel Report 1999): restrictions in place for
50 years; discretionary licensing scheme
 India claims balance of payments defense
 India’s reserves ($25.1 B) not inadequate
under Art. XVIII
 India not justified in maintaining
restrictions
 Panel Report upheld by Appellate Body –
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adopted 1999
Politics and Trade
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Attempts to open international trade
subject to domestic political pressures
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“Free Trade vs. Fair Trade”
Protectionism vs. Multilateralism
Who Speaks for Consumers
Should Trade and Human Rights
Concerns Be Linked?
Labor and Environmental Issues:
Avoid “Race to the Bottom”
Conflict between the developing and
developed world
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Web Sites
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http://www.trade.gov/td/auto
http://www.ustr.gov
http://www.europa.eu.int/comm/trade/i
ndex_en.htm
http://www.jetro.org
http://wwwmeti.go.jp/english
http://moftec.com
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