GATT Law and the World Trade Organization: Basic Principles

Why Use Trade Barriers? • Economic Reasons for Imposition of Trade Barriers • Collect Revenue • Support National Economic Policies • Protect “Infant” Industries • Political Reasons for Trade Barriers • Foreign Policy Considerations • Domestic Political Concerns • Forestall Foreign Competition • Protect Jobs or “Strategic” Industries • Other Reasons: • Health and Safety Concerns • Environmental Protection • Protect Cultural or Religious Values

Trade Barriers • Tariff or Import Duties • Direct Nontariff Barriers (NTB’s) • Embargoes • Quotas • Auctioned quotas • Tariff rate quota • Indirect nontariff barriers • Monetary and exchange controls • Health or Safety Regulations • Labeling Requirements • Import Licensing Schemes and Customs Procedures

Development of GATT • 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

GATT 1947 • 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

GATT 1994 • 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

GATT Exceptions • 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

World Trade Organization • Replaced GATT - Jan. 1, 1995 • 153 members (as of 3/09) • Dispute Settlement Process: • 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

Import Regime for Bananas • 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

Major GATT Principles • 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

MFN (NTR, PNTR) • 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 • national security • foreign policy, or • state’s denial of human rights to its citizens

China and MFN • 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

Japan Taxes on Alcoholic Beverages (WTO Appellate Body Report 1996) • 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

GATT and Quotas • 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

GATT Balance of Payments Provisions • 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 – adopted 1999

Politics and Trade • Attempts to open international trade subject to domestic political pressures • “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

Web Sites • http://www.trade.gov/td/auto • http://www.ustr.gov • http://www.europa.eu.int/comm/trade/index_en.htm • http://www.jetro.org • http://wwwmeti.go.jp/english • http://moftec.com

GATT Law and the World Trade Organization: Basic Principles