Regulation of international trade within the framework of the world trade organization (WTO)

Regulation of International Trade under WTO rules: objectives, functions, principles, structure, decision-making procedure. Issues on market access: tariffs, safeguards, balance-of-payments provisions. Significance of liberalization of trade in services.

Рубрика Международные отношения и мировая экономика
Вид курс лекций
Язык английский
Дата добавления 04.06.2011
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85 Electrical machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles

8501 Electrical motors and generators (excluding generating sets)

8501.10 Motors of an output not exceeding 37.5W

8501.10 10 Synchronous motors of an output not exceeding 18W

8501.10 93 AC (alternating current) Motors

8501.20 Universal AC/DC motors of an output exceeding 37.5 W

Through the addition of numbers on the right, more and more subdivisions can be made, and the products can be further differentiated. In this way, comparison of tariffs among different countries becomes easy.

Binding of tariffs.

The GATT agreement establishes the rule for countries to bind their tariff rates. Implications of tariff binding are that, countries can bind tariffs on some products at particular levels through multilateral or bilateral trade negotiations. A Member normally cannot raise the levels of tariffs beyond the bound levels, but is free to apply the tariff on a product at a level lower than the bound level.

There are two major of approaches of tariff binding - `formula approach' and `request-offer approach':

Formula approach: In the Multilateral Trade Negotiations, this approach is preferred.

· reducing tariffs by a certain percentage over a period of time;

· laying down a peak level beyond which a Member would not apply tariffs on the bound items;

· prescribing an overall reduction of the average tariff level by a certain percentage, with a minimum percentage reduction in each tariff line;

· laying down a minimum percentage of the tariff lines to be covered by binding.

Once the formula is decided, Members work out their charts of reductions, which are examined by other Members and then recorded in the “schedule”.

Request-offer approach: Two countries sit down and each gives its own request list and offer list to the other for tariff reduction. An attempt will be made to achieve reciprocity as far as possible, that is, equalizing the reduction of total customs duty on each side. For example, if the average value of the export of product P from country A to B is US$200,000 and the tariff is proposed to be reduced by 3%, the loss of revenue to B is US$6,000. This would be the measure of the concession which A should made for B. The final results will be applied to all Members of the WTO.

If country A has to decide on the product to be included in the request list to be presented to country B, A would normally choose a product on the following considerations:

· the existing and potential production prospects for this product in A should be good;

· there should be a good demand or high potential of demand for this product in B;

· the tariff on this product in B should be high, adversely affecting the export of A at present.

Similarly, while choosing a product for inclusion in the offer list, A will take the following points into consideration:

· the product should be needed in A;

· the product should be of export interest to B;

· the reduction of the tariff on this item should not have the possibility of damaging the prospects of the firms producing the product in A.

Increase in tariff beyond binding:

If a Member wishes to raise the tariff on a product above the bound level, it has to offer compensatory concession on some other items.

The Member informs the Council for Trade in Goods about its proposal, and the Council authorizes a negotiation for this purpose;

The negotiation will take place specifically with the following members:

· the member with which the tariff binding concession was initially negotiated, that is initial negotiating rights (INR)

· the member having principal supply interest

· the member having the highest ratio of export of the product in question into the modifying Member country compared to its total export of that product

· other members having a significant share in the market of the modifying Member

Negotiation will take place to decide on the products which will be subjected to tariff reduction and the depth of the reduction in order to offer an almost equivalent concession to the proposed withdrawal or modification of the concession in question, and the final results will apply to all Members;

If agreement is not reached, the modifying Member will be free to take the action as proposed by it, and other Members will be free to withdraw substantially equivalent concessions. The withdrawal has to take place within six months of the action of the modifying Member. A notice of withdrawal has to be given and withdrawal can be effected after 30 days of the notice.

Tariff quota:

The quantity of import up to which a lower level of tariff is applied, and beyond that limit of quantity, the normal tariff in the schedule applies. The tariff quotas included in the schedule are binding. For example, the EC provided for an annual tariff quota of 1.5 million tons of duty-free import of newsprint; beyond that quantity, a duty of 7% was applicable.

Preferential tariff: Concessional rates of tariff applied by developed Members to developing countries under GSP and those applied in a free-trade area.

Tariff escalation: The rate of tariff in a country is higher on a product with a higher level of processing than on one with a lower level of processing or on the basic raw material in a product chain.

Countries/Products

Raw material

Leather

Leather products

Canada

0.0

6.6

12.6

EU

0.0

3.7

4.3

Japan

0.0

7.0

9.4

US

0.0

3.1

9.0

Tariff escalation has an important implication for the development of industrialization of developing countries. If major developed countries do not apply higher tariffs on products with a higher level of processing, the processing of raw materials in developing countries can be encouraged.

2. Safeguards

Article XIX of GATT 1994 provides for emergency action on imports of particular products, and contains the basic principles upon which the WTO Agreement on Safeguards was negotiated during the Uruguay.

Safeguard measures or escape clause are emergency trade measures taken temporarily by a Member to provide relief to its domestic industry in the situation of its getting hurt from an increase in imports. It is an important exception to the general prohibition of quantitative restraints on imports.

Purpose of safeguard measures is to lighten the burden on the country whose domestic industry is facing acute problems due to imports. Safeguards' objective is to disperse the burden over all the Members to enable the affected Member to adjust smoothly to the new situation of international competition in that particular product line.

MFN treatment results in the sharing of the benefits of multilateralism, while a Safeguard measure is about sharing the burdens. Taking safeguard measures means withdrawal of concession by raising the tariff on a product above the bound level, or modification of the concession by raising the tariff level for imports beyond a particular value or volume, or the imposition of quantitative restrictions to limit the import of a product.

If the tariff is not bound, or if the applicable tariff is lower than the bound level, a Member is free to raise the tariff (up to the bound in the latter case).

Preconditions:

· Imports of the product should have increased either absolutely or relatively.

· The imports should be to cause or threaten to cause serious injury to domestic producers of like or directly competitive products.

· The increased imports should be the result of unforeseen developments.

· The increased imports should be the effect of the obligations of the Member in GATT 1994, such as the result of a tariff concession given by the Member in respect of that product.

Relative increase: Suppose that the domestic production and import of a product in the past were, respectively 9,000 and 1,000 units, and now, these are, respectively 4,000 and 800 units. Therefore, earlier, the import was 11% of domestic production, and now, it has risen to 20%. This is a case of relative increase, because the actual volume of import has decreased.

Serious injury: There is no specific criteria for serious injury, thus a case-by-case exam is needed. Some guidelines have, however, been provided:

· the rate and amount of the increase in imports of the product, in absolute terms or relative to domestic production;

· the share of the domestic market taken by increased imports;

· changes in the levels of sales, production, productivity, capacity utilization, profits and losses, and employment.

The threat of serious injury means serious injury being clearly imminent on the basis of facts and not merely on allegation, conjecture or remote possibility.

Domestic industry: means all the producers of like or directly competitive products in the country, or at least, those whose collective production of like or directly competitive products forms a major proportion of the total domestic production of those products. Thus, if only a small number of producers having a small share in domestic production have suffered serious injury, the cause of action would not arise.

Procedure for taking safeguard measures:

A competent authority has to be designated to hold investigations on the existence of the preconditions for taking safeguard measures.

Investigation:

A Member has to notify the Committee on Safeguards, and give public notice to all interested parties, that is importers, exporters and others. Public hearings will be conducted so that interested parties are able to present evidence, views and response accordingly.

The competent authority determines whether there has been an increase in the import of the product, whether serious injury or threat of such injury to a domestic industry has been caused, or whether there is a causal linkage between the increased imports and the serious injury or its threat.

Application of safeguard measures:

Once there is a finding of serious injury or threat of serious injury caused by increased imports, the Member has to notify the Committee on Safeguards about it. Before applying or extending a safeguard measure, a Member has to give notice to all those Members that have a substantial export interest in the product and invite them for consultation, such as reviewing the information provided by the Member proposing safeguard action, exchanging views on the proposed measure.

Types of safeguard measures:

· a tariff measure: increase in import duty beyond the bound level, imposition of surcharges or surtaxes, compensatory taxes on the product

· a non-tariff measure: fixing global quotas for import, introducing discretionary licensing, etc

· Provisional measure: When there is a sudden surge of imports, or when the domestic industry needs immediate relief because of a rapidly emerging adverse situation as a result of the increased imports, a Member can take urgently provisional safeguard measures in the form of a tariff increase for a maximum duration of 200 days. The provisional measures should be withdrawn if further investigation finds no evidence of serious injury or there is no link between the imports and such injury.

Special disciplines regarding quantitative restrictions:

When taking quantitative restrictions, a Member has to enter into consultations with the Members having substantial interest in the export of the product and decide on the global quota as well as on the shares of individual Members having substantial interest.

Members having substantial interest: Members having 10% share in the market of the importing Member, or having the highest ratio of exports of the product in question to its total exports.

General discipline in fixing quota and shares: The quantity of imports is not reduced below the average level of imports in the last three representative years for which statistics are available.

The previous representative years exclude from the average the imports of a year which is abnormal for some reason or another. For example, the Panel on EEC-Restrictions on Imports of Apples from Chile (November 1980) considered representative years prior to 1979, left out 1976 as there were some restrictions in that year. Hence, the Panel chose the years 1975, 1977 and 1978.

One effective way of applying quantitative restrictions is to decide on a global quota for imports and then allocate this quota among supplying countries based on their proportions of the total quantity or value of imports of that product in the country during a previous representative period.

Duration of safeguard measure.

General provision: safeguard measure will apply only for the period which is necessary to remedy or prevent serious injury, and to facilitate adjustment of the domestic industry. Moreover, the safeguard measure should be reviewed during the period of application and be liberalized at regular intervals.

Specific limitations: The duration of a provisional measure must not exceed 200 days;

In other cases, the duration will initially be up to four years, but it can be extended to eight years if the competent authority of the Member country has determined that the safeguard measure continues to be necessary and that there is evidence that the domestic industry is adjusting.

The total period of the measure, including the duration of the provisional measure, must not exceed 8 years. A developing country Member can extend the measure for 2 more years, beyond the general limit of 8 years.

Repeated application of measures:

A safeguard measure cannot be applied again to the import of a product for a period of time equal to that during which the measure had previously been applied or half of the earlier duration for developing country Members. But the period of non-application will be at least 2 years. For example, if a Member had applied a safeguard measure on certain basic chemicals and had continued it for 5 years, it cannot again take safeguard measure against these products for at least five years from the date of discontinuance of the initial measure.

A safeguard measure up to 180 days can be applied again if such a measure has not been applied on the product more than twice in the five years immediately preceding the introduction of the measure.

Compensation and retaliation:

When a Member introduces a safeguard measure on a product, it has to enter into consultation with the Members having substantial interest in the export of the product for the purpose of equivalent tariff reduction on some other products in which these Members may have an export interest. If the safeguard measure is in the nature of a quantitative restriction, equivalence may be calculated based on an approximate estimate of the imports foregone as a result of the restriction. The selection of products and the extent of the tariff reduction on each of these products will have to be worked out in detailed consultations with the affected Members in order to meet their specific interest.

If the affected Members are not satisfied with the measures taken or the compensation given, they have the option to suspend substantially equivalent concessions or other obligations. But, the right to such suspension cannot be exercised for the first three years of the safeguard measure, provided that:

· the safeguard measure had been taken as a result of an absolute increase in imports;

· the safeguard measure conforms to the provisions of the Agreement on Safeguard;

In other cases, the stipulation of deferment for three years does not apply. In such cases, suspension can be effected on the expiry of 30 days after the notice of suspension has been received by the Committee on Safeguards.

Termination of pre-existing measures:

A Member must terminate a pre-existing measure, i.e. Grey-Area Measures, within 8 years of the date on which it was first applied or within 5 years of 1 January 1995, whichever comes later.

Grey-Area Measures refer to voluntary export restraints (VER) and orderly marketing arrangement (OMA). VER means an affected country consults with the exporting developing countries and persuades them to limit their export of a product to a specified quantity or value so as to avoid the normal procedure and compensation negotiation. The exporting countries would generally agree to restrain their exports of the particular product in order to avoid more severe unilateral import restraint by the importing country. In fact, there is nothing voluntary about it.

OMA means several importing and exporting countries would arrive at arrangements of the same nature together, under almost similar situations, such as the Multi-Fibre Arrangement (MFA). Sometimes, enterprises of two countries enter into their own agreements resulting in restrictions on exports or imports. Members are required not to encourage or support the adoption or continuance of such non-governmental measures.

Non-discrimination or selectivity:

The raising of tariffs or the use of other tariff-type charges as a safeguard measure has to be applied to all Members. While applying quantitative restrictions, the safeguard measures shall be applied to a product being imported “irrespective of its source”, that is, safeguard measures cannot target only a few selected Members supplying the product. Though a quantitative restriction has to be applied globally, that is, to all exporting countries, under certain conditions, the shares of the quota may be reduced in the case of some countries and increased in the case of others.

In the past, restraints have been applied as a safeguard measure to the import of products below a particular price level. Though apparently the measures were applied on a non-discriminatory basis, in actual practice, these measures might have had a selective impact on low-cost suppliers. So far, there is no decisive view as to whether or not measures linked to prices are in conformity with Article XIX of GATT 1994.

Notification:

A Member has to notify its laws, regulations and administrative procedures as well as their modification regarding safeguard measures. A Member may send a notification if it finds that another Member has not fulfilled its obligations.

Notifications have to be sent when:

· an investigation is started;

· existence of serious injury or its threat is determined;

· a decision is taken to apply or extend a safeguard measure

· before taking a provisional safeguard measure

All in all, everything a Member has done in the process of taking safeguard measures should be notified to the Council for Trade in Goods.

Provisions for developing countries:

No safeguard action will be taken against a product originating in a developing country Member as long as its share of imports of the product in the importing country concerned does not exceed 3%.

If several developing country Members are exporting the product to this particular Member country and their individual shares are less than 3% each, safeguard measures will not be taken against the product concerned from these developing country Members so long as their shares collectively account for not more than 9% of the total import of the product in the importing Member country proposing to take safeguard measures.

Special safeguard provisions: There are special safeguard measures in the Agreement on Agriculture and Textiles.

Summary: A safeguard measure is an import restriction which can be adopted in emergency circumstances, when imports have increased in such quantities and conditions that they are the cause of serious injury or threat of such injury to a domestic industry producing a like or directly competing product. An agreement on safeguards, setting out conditions and criteria for these actions, is one of the multilateral trade Agreements. Measures affecting prices, i.e., tariffs, are preferable to quantitative restrictions. However, quantitative restrictions can be applied as safeguard measures in specific cases.

In case of emergency, the importing Member will be free to suspend the obligation or withdraw or modify the concession provided it fulfills certain requirements, i.e.

The suspension of the obligation, or the withdrawal or modification of the concession, shall be temporary, that is, “…to the extent and for such time as may be necessary to prevent or remedy such injury…”.

Action can only be taken after written notification and opportunity for consultation with the WTO (in practice, with its Committee on Safeguards) and with the countries having a substantial interest as exporters of the product concerned. In critical circumstances, where delay would cause damage difficult to repair, action can be taken provisionally without prior consultation, on condition that consultation take place immediately afterwards.

If no agreement is reached during consultations, the Member proposing the action shall be free to do so, and the affected Member or Members shall also be free to suspend the application of substantially equivalent concessions or other obligations under the Agreement to the trade of the party taking the action. The suspension of substantially equivalent concessions or other obligations has to be notified previously to the WTO, and not be disapproved by it.

3. Balance-of-Payments Provisions

The Balance of Payment is a summary statement in which, in principle, all the transactions of the residents of a nation with the residents of all other nations are recorded during a particular period of time, usually a calendar year. Obviously, the millions of transactions of the residents of a nation with the rest of the world cannot appear individually in the balance of payments. As a summary statement, the balance of payments aggregates all merchandise trade into a few major categories. The balance of payments includes some transactions in which the residents of foreign nations are not directly involved, for example, when a nation's central bank sells a portion of its foreign currency holdings to the nation's commercial banks. Gifts are also included in a nation's balance of payments. Diplomats, military personnel, tourists, and workers who temporarily migrate are residents of the nation in which they hold citizenship. International institutions such as the United Nations, IMF, the World Bank, and the WTO are not residents of the nation in which they are located.

Article XII of GATT 1994 allows a Member to restrict the quantity or value of merchandise permitted to be imported in order to safeguard its external financial position and its balance of payments. Article XVIII sets out a separate provision on restrictions for balance-of-payments purposes in relation to developing countries.

In the 1979 Tokyo Round Declaration on Trade Measures Taken for Balance-of-Payment Purposes, it was recognized that restrictive trade measures are in general an inefficient means to maintain or restore the balance-of-payments equilibrium. It was also provided that in applying restrictive import measures preference should be given to the measure which has the least disruptive effect on trade.

Article XVIII:B of GATT 1994 permits the use by developing countries of measures to control the general level of imports by restricting the quantity or value of merchandise permitted to be imported in order to safeguard their external financial position and to ensure a level of reserves adequate for the implementation of their programs of economic development. The Uruguay Understanding on Balance-of-Payments Provisions of GATT 1994 encourages all Members, including developing countries, to give preference to “price-based measures” such as import surcharges, import deposit requirements or other equivalent trade measures with an impact on the price of imported goods.

Members adopting, maintaining or intensifying such measures have the obligation to notify and to consult with the Committee on Balance-of-Payments Restrictions. Consultations with Members maintaining balance-of-payments restrictions under Article XII have to be held annually; for those maintained under Article XVIII: B, they are held every two years. The IMF also participates in these consultations and presents findings of statistical and other facts relating to foreign exchange, monetary reserves and balance of payments.

Purpose: To provide developing countries with some relief and flexibility when they face problems of low inflow and small reserves of foreign exchange.

Provisions: Article XVIIIB permits limiting the quantity or value of imports in order to:

· safeguard the country's external financial position, and

· ensure a level of reserves needed for economic development programs.

Permissible actions:

Price-based measures: The Uruguay Understanding on Balance-of-Payments Provisions of GATT 1994 encourages all Members, including developing countries, to give preference to “price-based measures” such as import surcharges, import deposit requirements or other equivalent trade measures with an impact on the price of imported goods. If the duty on a product is not bound, a Member is free to raise the duty.

Quantitative restrictions: A Member may totally stop the import of a product or limit the import of a product to a specified volume or value. While applying quantitative restrictions on imports, Members have to justify why price-based measures are not adequate to deal with the problem.

Choice of products: A Member has to justify which products should be covered by the measures. Essential products such as basic consumption goods, capital goods should normally be out of the coverage.

Limitations on BOP:

· Not more than one type of restrictive measure may be applied on the same product.

· The restrictions should not be excessive.

· The measure for BOP reasons should not be taken to protect domestic production.

· Unnecessary damage to the commercial or economic interests of any other Member should be avoided.

· The restriction should not be applied to prevent the import of commercial samples or the import of any product in minimum commercial quantities.

· A member must progressively relax the restrictions as conditions improve and must eliminate the measures when conditions no longer justify their existence.

Notification: A Member applying measures because of BOP difficulties has to send notifications to the WTO Secretariat every year to indicate the types of measure applied, the criteria used for their application, the product coverage of the measures and the trade flows affected by the measures. Besides, a Member must notify the General Council when a new measure is introduced or any change is made in the application of existing measures or any modification is made in the time schedule for the elimination of the measures taken to address BOP difficulties. Significant changes must be notified prior to or not later than 30 days after their announcement.

Consultation: The Member explains the details of the measures and the justification for taking these measures. Other Members ask questions, seek clarifications and make comments.

Simplified consultation: this process may be applied when

· least developed country Members are involved;

· other developing country Members are pursuing liberalization efforts in conformity with the schedule presented in previous consultations;

· the trade policy review of a developing country Member is scheduled for the same calendar year in which the consultation is fixed.

Full consultation: more detailed Plan of Consultations is needed, including BOP position and prospects, alternative methods to restore equilibrium, system and methods of restriction and effects of the restrictions.

4. Technical Barriers to Trade

Definition: Governments lay down mandatory technical regulations on products or formulate or encourage the formulation of non-mandatory standards for products for reasons of security, health, environment or easy utilization. However, these regulations and standards may sometimes operate as barriers to imports, and thereby distort international trade.

Objectives: national security, prevention of deceptive practices, protection of human, animal and plant life or health or safety and protection of environment

Technical regulations: a set of rules which lay down:

· the characteristics of a product

· related processes and production methods

· applicable administrative provisions

Standards: formulations approved by a recognized body, providing for rules and guidelines on characteristics of products and related processes and production methods.

Disciplines on technical regulations and standards:

· use of international standards for technical regulations: If there are international standards for regulations in a specific field, Members are obliged to use them as a basis for their own technical regulations. Exceptions are provided when the international standards will be ineffective or inappropriate.

· National treatment and MFN treatment must be applied

· The regulations must not create unnecessary obstacles to international trade

Procedure for formulation of regulations:

· send notice to the WTO Secretariat

· publish a notice indicating its proposal

· other Members make comments

There is, however, an exception for situations where urgent problems of safety, health, environment or national security might arise.

Obligations:

· A reasonable interval between the publication of the regulation and its actual entry into force must be allowed so that the producers in exporting countries will have time to adapt themselves to the new requirements.

· Regulation specifications should be based on product performance rather than design or descriptive characteristics.

· The technical regulations of other Members should be accepted as equivalent if they fulfill the desired objectives.

· Regulations of local government bodies and non-government bodies must be in conformity with the WTO disciplines.

· A Member must establish an enquiry point which is able to respond to enquiries from other Members and interested parties and provide relevant documents relating to central government bodies, local government bodies and non-government bodies.

5. Sanitary and Phytosanitary Measures

SPS means trade-restrictive measures for the protection of human life or health and for the protection of plant or animal life or health. Sanitary measures are related to human or animal health, and phytosanitary measures deal with plant health.

Nature and coverage of SPS measures:

SPS measures may be in the form of laws, regulations, requirements, procedures or decrees and may cover products, processes and production methods (PPMs), testing, inspection, certification and approval procedures, requirements for transport of animals or plants, sampling procedures, packaging and labeling requirements directly related to food safety. Some of these measures, like processing requirements or certification, may take place in the exporting country and not upon arrival in the importing country. However, although the measure may be imposed outside the territory of the importing country, its purpose must be to protect health within the territory of the importing country.

Situations: Sanitary and phytosanitary (SPS) measures are those which are applied in order to:

· protect human life or health, or animal life or health from risks arising from additives, contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs;

For example, restrictions on imports of oranges containing a certain level of pesticide residues, or regulations applied to imports of poultry products containing salmonella (rod-shaped bacteria causing food poisoning, typhoid, and paratyphoid fever in human beings and other infectious diseases in domestic animals) are typical SPS measures. Veterinary drugs given to farm animals are also covered in so far as they may pose a threat to humans later consuming the meat.

· protect animal life or health, or plant life or health from risks arising from the entry, establishment or spread of pests, diseases, disease-carrying organisms or disease-causing organisms;

For example, an import ban on live cattle originating from herds infected by Bovine tuberculosis would be one example of an SPS measure taken with the objective of avoiding the introduction and spread of the disease to domestic cattle. Another example might be restrictions on certain fruit from areas plagued by the fruit fly.

· protect human life or health from the risks arising from diseases carried by animals, plants or their products, or the entry, establishment or spread of pests;

For example, the spread of rabies (an acute, infectious, often fatal viral disease of most warm-blooded animals, especially wolves, cats, and dogs, that attacks the central nervous system and is transmitted by the bite of infected animals) will be prevented or the banning of imports of meat and meat products originating from foot-and-mouth disease regions will be imposed.

· prevent or limit other damage from the entry, establishment or spread of pests.

For example, the undesired importation of certain weeds can cause major damage in terms of crowding out domestic animal and plant species without necessarily causing a disease.

Purpose: to reduce the possible arbitrariness of governments' decisions in the field of sanitary and phytosanitary measures by clarifying which factors should be taken into account when imposing health protection measures. The SPS Agreement also encourages consistent and transparent decision-making in determining an appropriate level of health protection, and should not result in unjustified barriers to trade.

Consideration: SPS Agreement should be applied without unjustified discrimination, or be in line with MFN principles and National Treatment principle. SPS Agreement recognizes, however, that the animal and plant disease status may differ among supplying countries, and this must be taken into consideration in the trade measures applied.

The three standard-setting international organizations:

1) FAO/WHO Codex Alimentarius Commission: based in Rome, is a subsidiary organ of the Food and Agriculture Organization of the UN (FAO) and the World Health Organization (WHO). The SPS Agreement designates Codex as the authority for all matters related to international food safety evaluation and harmonization (Harmonization means the establishment of national sanitary and phytosanitary regulations must be consistent with international standards, guidelines and recommendations). Codex develops scientific methodologies, concepts and standards to be used worldwide for food additives, microbiological contaminants, veterinary drug and pesticide residues to be used worldwide.

2) Office International des Epizooites (OIE): based in Paris, is the world animal health organization. The OIE develops manuals on animal diseases, standards for diagnosis, vaccination, epidemiological surveillance, disease control and eradication, etc.

3) International Plant Protection Convention (IPPC): based in Rome, is a subsidiary body of the FAO. The IPPC develops international plant import health standards, basic principles governing phytosanitary laws and regulations, and harmonized plant quarantine procedures.

Conformity with international standards: Generally, Members must base their SPS measures on international standards, guidelines and recommendations if there exist. A Higher level of protections is permitted if a Member has conducted an examination and evaluation of available scientific information and determined that the international standards are not sufficient to achieve an appropriate level of protection.

Equivalence: Ways of ensuring food safety or animal and plant health protection in different countries may be varied, but Members should accept each other's regulations as equivalent whenever the same level of protection is achieved. For this purpose, bilateral consultations and negotiations are essential. For example, if Country A is concerned with food-and-mouth disease in Country B, the latter must cooperate by letting experts from Country A visit its farm operations and inspect its meat processing facilities.

Risk assessment: Members must establish SPS measures on the basis of an evaluation of the actual risks involved.

Risk assessments may be qualitative or quantitative, and quantitative risk assessment can be very costly. WTO Members have the right to determine what they consider to be an appropriate level of health protection, so long as this level does not protect domestic producers from competition.

Selection of an SPS Measure: Once the government has determined its appropriate level of sanitary and phytosanitary protection, it should not choose a measure that is more stringent and trade-restrictive than necessary. For example, a complete ban on imports of wheat may be one way to limit pesticide residue levels causing certain health risks to consumers, but random testing for maximum residue levels at the port of entry may be a less trade-restrictive measure, and wheat complying with the relevant residue requirements could safely be distributed on the domestic market.

Disease-free areas: Governments should recognize disease- or pest-free areas. These areas may be only part of a country or may cover parts of several countries. In the past, importing countries often required the whole exporting country to be free from a disease before it could be granted access. Today, products from disease-free areas within a given country should be grantee market access. The burden rests on the exporting Member to demonstrate that given areas within an exporting country are free from a disease.

Transparency: SPS measures must be published by Members so that interested Members can become acquainted with them. A Member must establish an enquiry point which will be responsible for providing answers to various questions. A national central government authority will be designated in each Member to notify the WTO Secretariat any new SPS regulations or modification to existing laws.

6. Trade-Related Investment Measures (TRIMs)

The Agreement on TRIMs covers conditions on investment which are related to trade in goods. Sometimes, governments impose conditions on investment, some of which are trade-related, others are not. For example, a government may prescribe that investment can only be made in a firm owned by resident nationals, or it may impose restrictions on the import of raw materials or the export of products. The restrictions on import and export relate to trade in goods, whereas the restrictions in respect of firm ownership relate to non-trade matters.

Background: Prior to the Uruguay negotiations, the linkage between trade and investment received little attention in the framework of the GATT. The Punta del Este Ministerial Declaration included this subject, stating that further provisions are necessary to avoid the trade-restrictive and trade-distorting effects of investment measures. The Uruguay negotiations on TRIMs were marked by strong disagreement among participants over the coverage and nature of possible new disciplines. The compromise that eventually emerged from the negotiations is essentially limited to an interpretation and clarification of the application to trade-related investment measures of GATT provisions on national treatment for imported goods (Article III) and on quantitative restrictions on imports or exports (Article XI).

Objectives: To promote the expansion and progressive liberalization of world trade and to facilitate investment across international frontiers so as to increase the economic growth of all trading partners, particularly developing country Members.

Coverage: The Agreement applies to investment measures related to trade in goods only. Moreover, the Agreement is not concerned with the regulation of foreign investment. The disciplines of the TRIMs Agreement focus on discriminatory treatment of imported and exported products and do not govern the issue of entry and treatment of foreign investment. For example, a local content requirement imposed in a non-discriminatory manner on domestic and foreign enterprises is inconsistent with the TRIMs Agreement because it involves discriminatory treatment of imported products in favor of domestic products. But the fact that there is no discrimination between domestic and foreign investors in the imposition of the requirement is irrelevant under the TRIMs Agreement.

Measures inconsistent with Article III.4 of GATT 1994

· specifying that particular products of domestic origin must be purchased or used by an enterprise,

· specifying that a particular volume or value of some products of domestic origin must be purchased or used by an enterprise,

· specifying that an enterprise must purchase or use domestic products at least up to a particular proportion of the volume or value of the local production of the enterprise,

· restricting the purchase or use of an imported product by and enterprise to an amount related to the export of its (the enterprise's) local production.

The first three are local-content requirements and the fourth is an indirect requirement of partial balancing of foreign exchange outflows and inflows.

Measures inconsistent with Article XI.1 of GATT 1994

· imposing a general restriction on the import of inputs by an enterprise or restricting the import of inputs to an amount related to the export of its local production,

· restricting the foreign exchange for the import of inputs by an enterprise to an amount related to the foreign exchange inflow attributable to the enterprise,

· restricting export by an enterprise by specifying the products so restricted, the volume or value of products so restricted, or the proportion of its local production so restricted.

The first two are requirements of a partial balancing of foreign exchange, and the third is an export-restraint requirement for ensuring the domestic availability of the product.

Exception: A developing country Member is allowed temporary deviation from this obligation in so far as it is covered by the flexibility provided under the provision of Balance-of-Payment.

Notification and transparency: Members have to notify all TRIMs not in conformity with the Agreement to the Council for Trade in Goods within 90 days of 1 January 1995.

Elimination of existing measures: 2 years of 1 January 1995 by a developed country Member, 5 years of 1 January 1995 by a developing country Member, 7 years of 1 January 1995 by a least developed country Member, and the time for developing and least developed country Members can be extended if necessary.

Questions

1. What are VERs and OMAs? What economic interests of participating and third countries are involved in connection to VERs? Why were they seldom challenged in the GATT dispute settlement system?

2. What are safeguards and escape clauses?

3. Describe balance of payment provisions of WTO system.

4. Discuss the problem of technical standards in International Trade.

5. Explain the aims and procedure of imposing sanitary and phytosanitary measures.

References

1. John H. Jackson, The World Trading System: Law and Policy of International Economic Relations (2nd ed., Cambridge, MA: MIT Press, 1997). p.139-228.

2. Ustor, Most-Favored-Nation Clause, III EPIL (1997), 468-473.

3. Jackson/Davey/Sykes, 559-595, 990-1061.

4. Trading into the Future - WTO, 3rd edition, Revised August 2003. p. 50-55.

Lecture 5. Measures against Unfair Trade

WTO establishes rules of competition for countries, which can be described as rules on `fair trade'. Mainly, WTO targets two types of measures affecting competitiveness of companies - subsidies and dumping. In cases of dumping and subsidies WTO allows countries to restrict their trade under strict set of rules.

1. Subsidies

Subsidies are benefits provided by governments to producers and exporters of products which improve their competitiveness in international trade and thereby distort competition. Hence, a subsidy is generally considered to be an unfair practice.

For example, all major industrial nations give foreign buyers of the nation's exports low-interest loans to finance the purchase through agencies such as the US export-import bank. These low-interest credits finance about 5% of US exports but as much as 30 to 40% of the exports of Japan and France. The amount of the subsidy can be measured by the difference between the interest that would have been paid on a commercial loan and what is in fact paid at the subsidized rate.

Definition

A subsidy is a financial contribution or income or price support by the government or any public body or a funding mechanism or a private party directed or trusted by the government within the territory of a Member, which confers a benefit to production/producers or export/exporters.

Financial contribution

- Direct transfer of funds, e.g., direct payments, granting of tax relief, subsidized loans, and equity infusion, low-interest loans to foreign buyers

- Potential direct transfer of funds or liabilities, e.g., loan guarantees

- Revenue foregone or not collected, e.g., tax credits

- Provision of goods and services other than general infrastructure, or purchase of goods

- Subsidies for exports: an outright cash payment based on the volume or value of the export of a product, payment of a part of the freight charges

- Subsidies for domestic production: provision of raw materials at subsidized prices for the production of a particular product, exemption from the payment of some tax, provision of cheap loans

Examples of non-subsidy

- A government temporarily exempts a paper mill in financial difficulties from the obligation to observe anti-pollution laws. (Regulatory but not financial privileges)

- A private NGO - non-governmental organization - gives technical and financial assistance to coffee growers in Africa. (Private aid)

- A government makes a loan to an automobile manufacturer on conditions equivalent to those that the manufacturer could obtain from private banks. (Financial contribution with no benefit)

- Differing effects of subsidies in importing countries

- Domestic producer industry: harm - more competitive foreign products

- Consumers and user industries: benefit - possibility of buying the product at lower prices and a wider choice of sources from which to buy

Categories of Subsidies

Prohibited subsidies (red): subsidies for export performance or for the use of domestic over imported goods, namely export subsidies and import substitution subsidies.

Export subsidies: direct payment of subsidy to a firm or an industry based on export performance, a bonus on exports through currency retention schemes, favorable internal transport and freight charges on export shipments, favorable provision of goods or services for the production of exported goods, export-related exemption, remission or deferral of indirect taxes or import duties, favorable export credits at rates lower than those in international capital markets, export credit guarantee or insurance programs at premium rates inadequate to cover the operating costs and losses of the programs, full or partial payment of the costs incurred by exporters

Prohibited subsidies are designed to affect trade and are most likely to cause adverse effects to the interests of other Members, thus are subject to dispute settlement procedures which include an expedited timetable for action by the Dispute Settlement Body. If it is found that the subsidy is indeed prohibited, it must be immediately withdrawn. If this is not done within the specified time period, the complaining member is authorized to take counter-measures.

Actionable subsidies (yellow): specific subsidies allowed under some conditions up to certain limits, but subject to challenge, either through multilateral dispute settlement or through countervailing action, in the event that they cause adverse effects to the interests of other Members

There are three possible types of adverse effects that can be challenged multilaterally:

- one country's subsidies can hurt a domestic industry in an importing country;

- one country's subsidies can harm a Member's exporting interests because of serious prejudice;

- there is nullification or impairment of benefits accruing under GATT 1994 because the improved access to a market that is presumed to flow from a bound tariff reduction is undercut by subsidization in that market.

Non-actionable (permissible) subsidies (green): Four types of subsidy are permitted in the sense that no counteraction against them is normally allowed.

1. general subsidies: subsidies not specific to particular enterprises or industries

2. subsidies for research activities conducted by firms or by higher education or research establishments on a contract basis with firms

3. The subsidy should not exceed 75% of the cost of industrial research or 50% of the cost of pre-competitive development activity like the preparation of blueprints and designs for new or improved products.

4. subsidies for development of disadvantaged regions within the territory of a Member.

Criteria for these regions are: a) per capita income, per capita household income or per capita GDP must not be above 85% of the average for the Member territory, b) the unemployment rate must be at least 110% of the average of the Member territory, c) subsidies for environmental purposes by promoting adaptation of existing facilities to new environmental requirements by law or regulations which result in greater constraints and financial burden on firms, provided that the assistance is a one-time non-recurring measure and is limited to 20% of the cost of adaptation, directly linked to the firm's own planned reduction of pollution and available to all firms which have to adapt to the new environmental requirements.

Non-actionable subsidies are challenged if the implementation of these measures has resulted in “serious adverse effects” to the domestic industry of another Member, such as to cause damage that is difficult to repair. Members initiating action for countermeasures will first have consultations with the subsidizing Member, and if a mutually acceptable solution is not found in 60 days, the matter will be referred to the Committee on Subsidies. If the Committee determines that serious adverse effects do exist and that these cause damage which is difficult to repair, it will recommend the subsidizing Member to modify its program to remove these effects. If the recommendation is not implemented within six months, the Committee will authorize the complaining Member to take appropriate countermeasures normally in the form of the withdrawal of some concessions to the Member or the reduction of obligations benefiting the Member.


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