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  2. Content • Part I: Principles of Non Discrimination • Part II: Liberalization of trade • Part III: Protective Measures • Part IV: Exceptions


  4. Contents 1. Most Favoured Nation Treatment 2. National Treatment


  6. Article I: 1 GATT “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 other Contracting Parties.”

  7. MFN Treatment • No discrimination between like products originating in, or destined for, different WTO members. • Each WTO member must grant all other members immediately and unconditionally the best treatment it gives to any trading partner

  8. MFN 3 tier test 1. Whether the measure at issue confers a trade advantage of the kind covered by Article I:1. 2. Whether the products concerned are like products. 3. Whether the advantage in issue is granted immediately and unconditionally to all like products concerned.

  9. 1. Trade advantage US – MFN Footwear,established that the MFN concept is applicable to any advantage granted with respect to: • Imports and exports of like products originating in the territories of other Members. • Customs duties and charges of any kind. • The method of levying such duties and charges. • Rules and formalities in connection with importation and exportation. • Internal taxes or other internal charges. • Laws, regulations requirements affecting internal sales, purchases inter alia.

  10. 2. Like products’ • The concept of ‘like products’ is not defined in GATT. • In EC – Asbestos the Appellate Body considered the dictionary meaning of ‘like’ and suggested that ‘like products’ are products that share a number of identical or similar characteristics.

  11. Jurisprudence on ‘like products’. Products have been considered to be ‘like products’ on the basis of some of the following concepts: 1. Their physical characteristics.In EC – Bananas III where the EC import regime for bananas from Latin American countries were treated less favourably than bananas from former European colonies, it was stated that all bananas are like products irrespective of whether and how a Member categorises or subdivides them. 2. Listing of products in tariff schedules. In Australia – Ammonium Sulphate, Australia had different treatment for ammonium sulphate and sodium nitrate fertilisers and this was challenged by Chile as being contrary to Article I:1. The Working party noted that in the Australian tariff schedule, and in the tariff schedules of many other countries, these products were listed separately and enjoyed different treatment. The Working Party therefore concluded that these were not like products.

  12. Jurisprudence on ‘like products’. 3. Composition, content, purpose, chemical and synthetic origin and duties applied to products. In EEC – Measures on Animal Feed Proteins, the Panel examined whether all products used for the same purpose of adding protein to animal feed should be considered to be like products. The Panel noted such factors as the number of products and tariff items carrying different duty rates and tariff bindings, the varying protein contents, and the different vegetable, animal and synthetic origins of the protein products under consideration. It concluded that these various protein products could not be considered as like products.

  13. Jurisprudence on ‘like products’. 4. End use and tariff classification practices by WTO Members. In Spain – Roasted Coffee Spain had divided unroasted coffee into five tariff classifications. Colombian mild, other mild, unwashed Arabica, robusta and other. The first two were duty free and the other three were subject to a 7% duty. Brazil claimed that all these were like products and that different rates of duty were inconsistent with Article I. The Panel noted that the arguments given for differentiation were based on geographical factors, cultivation methods, the processing of the beans and genetic factors. The Panel did not consider such grounds as sufficient for differentiation and noted that no other Member made such a classification. It concluded that these were like products within the meaning of Article 1.

  14. 3. Immediately and unconditionally • MFN treatment has to be extended to Members immediately and unconditionally. • For example, in Belgium – Family Allowances, Belgium had a system of granting exemption from a levy to products purchased by public bodies only from countries which had a system of family allowance similar to that of Belgium. The Panel held that this practice was inconsistent with the MFN principle as it inter alia, introduced an element of conditionality in the application of an advantage.

  15. Exceptions to the MFN rule • The Enabling Clause Parties may accord differential and more favourable treatment to developing countries, without according such favourable treatment to other Contracting Parties (Decision of 28 November 1979). • Free Trade Areas and Customs Unions Article XXIV GATT allows a group of Members to constitute themselves into a customs union or a free trade area and have totally free trade or reduced levels of duties and of other trade restrictive regulations amongst themselves without the obligation of extending such treatment to other Members. • Frontier Traffic Advantages accorded by Members to “adjacent countries” in order to facilitate frontier transactions. This derogation however only refers to the facilitation of transactions in the vicinity of the frontier and cannot cover a trade agreement governing the entire territories of two neighbouring countries. (Article XXIB.3 GATT 1994).

  16. Exceptions to the MFN rule • Government Procurement MFN does not apply to the import of products for immediate or ultimate consumption in government use and not otherwise for resale or use in the production of goods for sale. • Security Exceptions Restrictions on imports and exports from or to specific countries can be imposed for security reasons. (Article XXI GATT) • General Exceptions Article XX GATT allows Members to restrict imports or exports from or to specific sources for example for the protection of public morals, human, animal or plant life, etc. • Measures permitted by WTO Agreements Such as countervailing duties, antidumping duties and Retaliatory measures.

  17. Exercise (1): MFN-Treatment • Alba, Vanin, Medatia and Tristat are WTO Members and Ruritania is not • Could Alba's customs authorities levy a customs duty of 10% for imported pocket watches originating in Medatia, while levying a lower customs duty of 5% for imported pocket watches originating in Vanin?

  18. Exercise (2): MFN-Treatment • Alba, Vanin, Medatia and Tristat are WTO Members and Ruritania is not • Could Alba levy a customs duty of 5% for Ruritania’s watches while applying a 10% rate watches originating in Vanin, Medatia and Tristat ?

  19. Exercise (3): MFN-Treatment • Alba, Vanin, Medatia and Tristat are WTO Members and Ruritania is not • Could Alba levy a 5% duty for pocket watches from Vanin, Medatia and Tristat and a 100% duty for Ruritania’s pocket watches?


  21. NATIONAL TREATMENT Prohibits Members from treating imported products directly or indirectly less favourably than like domestic products once the imported products have entered the domestic market. • i.e foreign goods must not be discriminated against vis-à-vis domestic goods

  22. Article III: 1 • Internal taxes, other internal charges, 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.

  23. Article III: 2. • 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 that is contrary to Article III:1.

  24. Key elements of Article III • Internal tax or charge • Imposed directly or indirectly • Affecting sale or purchase etc • Like products, directly competitive products • Discrimination against imported products, protection of domestic products

  25. 1. INTERNAL TAX OR CHARGE • Article III only applies to internal measures not border measures. • Hence, there is need to determine whether a measure is an internal measure or a border measure, especially if the measure is applied to imported products at the time or point in time of importation. • The Ad Article III Note clarifies that any internal tax or charge collected or enforced on an imported product at the time or point of importation is an internal tax under Article III.

  26. 2. Directly and indirectly • Indirectly covers • Even such taxes which are not on the product as such, but on the processing of the product. • Taxation methods and rules for tax collection. • With respect to internal quantitative regulations, the term covers: • Regulations laying down the requirement of compulsory use, • Regulations which by implication, or in the process of implication, have the effect of such a requirement.

  27. 3. Affecting the sale or purchase.... • In Italian Discrimination Against Imported Agricultural Machinery observed that “affecting” covers not only the laws and regulations which directly govern the conditions of sale or purchase, but also any law or regulation which might adversely modify the conditions of competition between the domestic and imported products in the internal market.

  28. 4. Like Products • In Canada – Periodicals, two questions were established to determine whether there is a violation of Article III:2. (a) whether the products were like products, (b) whether the imported products were taxed in excess of the domestic products. • In Japan –Alcoholic Beverages, the Japanese had a system of giving different tax treatment to liqueurs and sparkling wines according to alcoholic and extract content. The panel found that imported liqueurs and sparkling wines with high raw material content were subjected to higher internal taxes than domestic liqueurs and sparkling wines which had lower raw material content. They were considered like products.

  29. Directly competitive or substitutable products. • Domestic production does not only mean production of a particular product, but also of directly competitive or substitutable products. • There may be cases where taxes etc are applied at the same rate on imported and like domestic products, and yet the manner of application is such that protection is afforded to the domestic production of a directly competitive or substitutable product. Such practice is prohibited under Article III:2.

  30. Directly competitive or substitutable products. For example, a country may apply a high internal tax rate on oranges, which is applied to both imported and domestic oranges, but if this country does not produce oranges, this tax in effect goes to raise the price of only imported oranges, which may in a way afford protection to its own production of apples, in so far as oranges are directly competitive or substitutable with apples.

  31. Directly competitive or substitutable products. Korea – Alcoholic Beverages established that: • Products are competitive or substitutable when they are interchangeable or if they offer, alternative ways of satisfying a particular need or taste. • Like products are a subset of directly competitive or substitutable products. • The notion of like products must be construed narrowly but the category of directly competitive or substitutable products is broader.

  32. Determining whether products are directly competitive or substitutable. Japan – Alcoholic Beverages II - factors to consider include; • physical characteristics • common end use • tariff classifications • the nature of the compared products • the competitive conditions in the relevant market.

  33. Exercise (1): National Treatment Alba, Vanin, Medatia and Tristat are WTO Members and Ruritania is not Could Alba impose a sales tax of 5% on domestically produced pocket watches while applying a sales tax of 6% on imported pocket watches from Medatia and Tristat?

  34. Exercise (2): National Treatment Alba, Vanin, Medatia and Tristat are WTO Members and Ruritania is not What if the 6% sales tax only applies to imported pocket watches from Ruritania?

  35. Exercise (3): National Treatment Alba, Vanin, Medatia and Tristat are WTO Members and Ruritania is not. Alba traditionally produces pocket watches but does not produce wrist watches Could Alba impose a 5% sales tax on pocket watches while applying a 10% sales tax to wrist watches?

  36. Discrimination against imported products, protection of domestic products Examples of jurisprudence on discrimination under Article III. 1. Granting financial facilities like tax refunds, special credit facilities, tax exemptions etc to domestic products and not to imported products. US – Measures affecting Alcoholic and Malt Beverages examined the US tax measure providing excise tax exemption for domestic producers of beer and wine, which was not available for imported products. It was found that the tax law operated to create a lower tax rate on domestic beer and wine than on like imported products and that was discriminatory.

  37. Discrimination against imported products, protection of domestic products 2. Obligations on investors or local industryto purchase domestic products.This way, there is a denial of opportunity to like imported products for competing in the market. • EEC – Measures on Animal Feed Proteins examined a regulation requiring domestic producers or importers of oil seeds etc and importers of corn gluten feed to purchase a certain quantity of surplus skimmed milk powder held by intervention agencies. It was found that these agencies held only domestic products and concluded that this regulation protected the domestic industry.

  38. Discrimination against imported products, protection of domestic products 3. If imported products are required to pass through certain specified wholesale or retail channels unlike domestic products. In US – Measures Affecting Alcoholic and Malt Beverages the requirement in some US states that imported beer and wine be sold only though in state wholesalers or other middlemen while some instate like products were permitted to be sold directly to retailers was considered discrimination.

  39. Discrimination against imported products, protection of domestic products 4. A regulation that both imported and domestic goods adhere to a minimum price requirement is discriminatory. • In Canada – Import Distribution and Sale of Certain Alcoholic Drinks it was established that the refusal of the sale of the imported product at a price below that of the domestic product did not accord equal conditions of competition.

  40. Discrimination against imported products, protection of domestic products 5. Existence of wider choices for punitive action against imported goods. • Us – Section 337found that the facilitation of legal action against imported products when such facilities were not available for domestic products were discriminatory against imported products.

  41. Exercise (1): National Treatment A new Alban law requires that pocket watches imported and sold in Alba have a minimum of 10% ‘local content’. Is this compatible with the NT-obligation under GATT?

  42. EXCEPTIONS TO NATIONAL TREATMENT 1. Government Procurement. Where products are purchased for the use of the government and not for commercial resale. Article III: 8 (a) 2. Obligation not to affect payment of subsidies exclusively to domestic producers. Article III: 8 (b) 3. Internal quantitative regulations relating to exposed cinematograph films. (Article III:10).


  44. Contents 1. Market Access 2. Prohibition of Quantitative Restrictions: 3. Transparency


  46. Bindings / Commitments • A country commits itself to ensure an agreed level of access to its market, on an MFN basis, for supplying countries.

  47. Art. II: 1(a) Each contracting party shall accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Scheduleannexed to this Agreement. Bindings/ Commitments GATT Art. II • Some exceptions to Art II:1 • Anti dumping duties, Countervailing duties • Art XXVIII –re-negotiate concessions • Art IX:3 -Waiver

  48. Exercise: Tariff Bindings Alba, Vanin, Medatia and Tristat are WTO Members and Ruritania is not. In Alba’s Schedule, the bound duty for pocket watches is 25% Can Alba apply a 15% tariff to pocket watches originating in Vanin and Tristat? And to pocket watches from Ruritania?


  50. General Prohibition of QRs Art. XI:1 No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through quotas, import or export licenses or other measures, shall be instituted or maintained by any Member on the importation of any product of the territory of any other Member or on the exportation or sale for export of any product destined for the territory of any other Member. Art. XIII:1 No quotas, unless when permitted. Then similarly apply to all WTO members GATT Art. XI Non-discrimination in administration of QRs GATT Art. XIII