WEEK 3:

DISPUTE SETTLEMENT

AGENDA
• Jurisdiction
• Access to WTO Dispute Settlement System
• Principles
• Institutions
• Procedure
• Critique
Multi-Party Interim Appeal Arbitration Arrangement (MPIA)

JURISDICTION
Nature of Jurisdiction
The jurisdiction of the WTO dispute settlement system is: (1) compulsory; (2) exclusive; and (3) only
contentious
● Compulsory
The jurisdiction of the WTO dispute settlement system is compulsory in nature. A responding Member has,
as a matter of law, no choice but to accept the jurisdiction of the WTO dispute settlement system
Art 6.1 of DSU --If the complaining party so requests, a panel shall be established at the latest at the DSB
meeting following that at which the request first appears as an item on the DSB's agenda, unless at that
meeting the DSB decides by consensus not to establish a panel.
No specific Agreement or Declaration is required.
Membership of the WTO constitutes consent to, and acceptance of the jurisdiction of the WTO dispute
settlement system.

● Exclusive
The jurisdiction of the WTO dispute settlement system is also exclusive.
Pursuant to this provision, a complaining Member is obliged to bring any dispute arising under the covered
agreements to the WTO dispute settlement system to the exclusion of any other system

● Contentious Jurisdiction
WTO dispute settlement system has only contentious jurisdiction, and it does not render advisory opinions.
Scope of Jurisdiction
Disputes Subjected to WTO Dispute Settlement
The rules and procedures of this Understanding shall apply to disputes brought pursuant to the consultation
and dispute settlement provisions of the agreements listed in Appendix 1 to this Understanding.
Covers WTO, GATT etc. Scope is broad- Custom duties, Compulsory licensing, market access for services

Measures subjected to WTO dispute settlement

1. Any action or conduct by private parties.
Japan Film (1998)
An action taken by private parties does not rule out the possibility that it may be deemed to be governmental
if there is sufficient government involvement with it. It is difficult to establish bright lines rules in this
regard. Thus that possibility will need to be examined on a case by case basis.
Art 8 of ARSIWA
Eg: Dumping is done by private parties.
2. Measure that is withdrawn or no longer in existence
DSU doesn’t specifically address this issue. Inconsistent practice.
Measure- withdrawn- Panel or AB cannot make recommendations regarding its withdrawal.
3. National Legislations
AB Report on US Corrosion Resistant Steel Sunset Review- (2004) Serves the purpose of preventing future
disputes by allowing the root of WTO inconsistent behaviour to be eliminated. (Distinction with Investment
Law- de facto implication on legislation).
4. Discretionary Legislation Earlier emphasis was on Mandatory – WTO inconsistent legislations-
Subjected to Dispute Settlement. Now look into the circumstances of each case.
Demonstrate and WTO Consistency of a discretionary measure-
EU Biodiesel Case- “measure at issue mandated the investigating authority to act inconsistently with the
relevant provisions of WTO law, or that such law ‘restricted in a material way’ the authority’s discretion to
make a determination consistent with WTO Law.”
Check- circumstance, nature of the measure, WTO obligation at issue.
5. Unwritten norms or rules
• AB ruled in US Zeroing- Mere fact that a norm or a rule is not expressed in the form of a written
instrument, is not determinative of the issue whether it can be challenged, as such in dispute
settlement proceedings.
• Checklist
✔ Rule or norm is attributable to the responding member.
✔ Precise content or rule or norm.
✔ Rule or norm has a general or prospective application.
6. Measures by regional members-
Art 22.9 of DSU

ACCESS TO DISPUTE SETTLEMENT SYSTEM

Right to recourse to WTO Dispute Settlement Mechanism

• Art XXIII: 1 of GATT -Nullification or Impairment
1. If any contracting party should consider that any benefit accruing to it directly or indirectly under
this Agreement is being nullified or impaired or that the attainment of any objective of the
Agreement is being impeded as the result of
(a) the failure of another contracting party to carry out its obligations under this Agreement, or
(b) the application by another contracting party of any measure, whether or not it conflicts with the
provisions of this Agreement, or
(c) the existence of any other situation.

Access of members other than Parties (aka Third Parties): -

⮚ Art- 4.11 of DSU any member that has substantial trade interest can be allowed to participate in
consultations.
⮚ Art 10- Substantial interest before a panel
⮚ Art 17.4 – Substantial interest before an Appellate Body.

Types of complaint
• Violation Complaint- XXIII:1:a of GATT 1994 – identify the legal inconsistency with WTO
Agreements.
• Non-Violation Complaint XXIII:1:b of GATT 1994 r/w Art 26.1 of DSU
Panel report Japan films (1998)- para 10.82
It must be demonstrated:
(1) The imported products at issue are subject to and benefiting from a relevant market access
concession;
(2) The competitive position of the imported products is being upset (ie. 'nullified or impaired': and
(3) The competitive position is being upset by i.e. as the result of the application of a measure not
reasonably anticipated."
• Situation Complaint XXIII:1:c of GATT 1994 r/w Art 26.2 of DSU

What is a Dispute Settlement Body?

• Art IV:3 of the WTO Agreement
 • The General Council shall convene as appropriate to discharge the responsibilities of the Dispute
Settlement Body provided for in the Dispute Settlement Understanding. The Dispute Settlement
Body may have its own chairman and shall establish such rules of procedure as it deems necessary
for the fulfilment of those responsibilities.
• GC administers the WTO dispute settlement system, it convenes and acts as DSB.
• It comprises of diplomats of WTO Members.
• Function- Art 2.1 of DSU
• Functions: -
• Administration of Dispute Settlement System.
• Appointment of members of Appellate Body.
• Adoption of rules of conduct for WTO dispute settlement.
• Consensus: -
• Art 2.4 of the DSU
Where the rules and procedures of this Understanding provide for the DSB to take a decision, it shall
do so by consensus.
• Interpretation- Consensus means- The DSB shall be deemed to have decided by consensus on a
matter submitted for its consideration, if no Member, present at the meeting of the DSB when the
decision is taken, formally objects to the proposed decision.
• Reverse Consensus-
Means DSB is deemed to have taken a decision unless there is a consensus among WTO members not to
take that decision.
• Adoption of establishment on Panel.
• Adoption of Panel and Appellate Body Reports
• Authorization of suspension of concession and other obligations.
There would be one party that will have a strong interest in establishing a panel or to adopt a panel report or
to authorize or suspend a concession.
• Eg- Art 17.14 of DSU- An Appellate Body report shall be adopted by the DSB and unconditionally
accepted by the parties to the dispute unless the DSB decides by consensus not to adopt the
Appellate Body report within 30 days following its circulation to the Members.8 This adoption
procedure is without prejudice to the right of Members to express their views on an Appellate Body
report.
Purpose of adoption
• It keeps all WTO Members directly informed of WTO dispute settlement
• Ensures multiple surveillance of the implementation of the DSB recommendations and rulings,
thereby exerting pressure on the offending party to comply.
• It gives WTO Members a designated political forum in which issues arising from the use of dispute
settlement system can be debated

Panels
ESTABLISHMENT OF PANELS
Panels are not standing bodies. (established and dissolved).
Art 11 of DSU – Functions of panel: Objective Assessment
• Purpose when DSB requests to establish a panel–
Defines scope of the dispute and delimits jurisdiction of the panel.
Serves due process objective of notifying the respondent and third parties of the nature of the
complainant’s case.
• More than one member requests for establishment of panel-
Art 9.1 of DSU
Single panel should be established.
DSU doesn’t deal with the situation in which a Member files a second panel request on the same
matter.
⮚ Composition of Panel
• Art 8 of DSU
• Well qualified govt/ non govt individuals.
• Representative of members.
• Academicians who have taught or published on ITL or policy served as senior trade policy official.
• Qualities- Art 8.2 of DSU.
• Conflict of interest- Art 8.3 of DSU.
• Steps: -
• DSB establishes it.
• Assistance by WTO Secretariat (Art 8.4 of DSU)
• Parties need to agree on names
• In case of deadlock matter is referred to the WTO Secretariat. (Art 8.7 of DSU)

Mandate of the Panel

• Scope and nature of tasks entrusted to panels.
1. Terms of Reference: -
• Panels shall have the following terms of reference unless the parties to the dispute agree otherwise
within 20 days from the establishment of the panel:
• "To examine, in the light of the relevant provisions in (name of the covered agreement(s) cited by the
parties to the dispute), the matter referred to the DSB by (name of party) in document ... and to make
such findings as will assist the DSB in making the recommendations or in giving the rulings
provided for in that/those agreement(s).“- Art 7.1 of DSU.
⮚ Specific measure at issue.
⮚ Legal basis of complaint- identify the WTO inconsistency.
 ⮚ Objective assessment of facts
⮚ Precedents Art 3.2 of DSU
• 2. Degree of Judicial Economy enjoyed by Parties-
• Issue- Making of finding on claims that are not part of the Terms of Reference-
• In AB Report- EC Hormones (1998)- A panel which uses legal arguments or reasoning that have
not been submitted or developed by parties to the dispute does not act ultra petita. (outside the
jurisdiction). Panels are restricted to the claims falling within the terms of reference but they are not
restricted to the legal arguments and reasoning submitted or developed by the parties.
3. Expert Advice-
• Individual expert advice or scientists or specialized international institutions.
• Art 13 of DSU Right to seek information + Appendix 4 of the DSU.
• Discretionary to accept but if not taken into consideration for objective assessment, it amounts to
violation of Art 11.
• AB Report, US – Large Civil Aircraft (2nd Complaint) (2012)-
• While the authority under Art 13 of DSU to seek information is discretionary, failure of the panel to
seek information necessary to make an objective assessment of the facts may amount to violation of
Art 11 of the DSU.
• The authority can be indispensably necessary to enable a panel to discharge its duty under Art
11 of the DSU to make an objective assessment.

Role of Panel
• The possible and permissible role of panel experts under Article 13.2 of the DSU was further
clarified in Australia - Apples (2010) when the Appellate Body ruled:
• Experts may assist a panel in assessing the level of risk associated with SPS measures and potential
alternative measures, but whether or not an alternative measure's level of risk achieves a Member's
appropriate level of protection is a question of legal characterization the answer to which will
determine the consistency or inconsistency of a Member's measure with its obligation under Article
5.6 Answering this question is not a task that can be delegated to scientific experts.

Required Content of panel Reports: -

• Art 12.7 of the DSU.
1. Findings of the fact
2. Applicability of relevant provisions
3. Basic rationale behind any findings and recommendations

Appellate Body
• Membership and structure
• Scope
 • Mandate
• Requirements

Membership
• Permanent international tribunal
• 7 judges referred to as members of Appellate Body.
• Art 17.3 of DSU Qualifications of the members.
• Art 17.2 of DSU Term of Office- 4 year term plus reappointment.
• Decision on Appointment- by DSB via “consensus”.
⮚ DSB takes decision based on selection committee- Chairs of GC, DSB, Council of Trade in
Goods, Council of Trade in Services, TRIPS Council and WTO Director General.
⮚ WTO members suggest the name to the Selection Committee.
• Read Rule 2 of the Working Procedures of Appellate Review. (Duties and Responsibilities).
• Appeals are not heard en banc (aka entire strength of the court). – Refer to Rule 6(2) of Working
Procedures. Instead, they hear it in a division of 3 Members
• Unlike Panelists- nationality of members of AB is irrelevant.
• Decision- By consensus; if not reached – then by majority vote.
• Separate opinion are rare.
• Structure- Chairman and AB Secretariat independent of WTO Secretariat.

Scope of Appellate Review

• Who Can Appeal?
• Art 17.4 of DSU- Only parties to the dispute. Not third parties who shared substantial interest in
panel stage
• What Can be Appealed?
• Art 17.6 DSU
• An appeal shall be limited to issues of law covered in the panel report and legal interpretations
developed by the panel.
• Example- Whether Codex standard has been applied to the measure is an issue of fact- not subjected
to Appellate Review

Catch- Complexity of issue of fact and law

1. Application of a legal rule to a set of facts are finding on issues of law and thus fall in the scope of
appellate review.
• Eg- Canada Periodicals-
• Panel’s determination of like products for the purpose of III:2 was subjected to appellate review.
 • “The determination of whether imported and domestic products are like products is a process by
which legal rules have to be applied.”
2. Can findings on municipal law be within the scope of appellate review?
US-Section 211 Appropriations Act (2002) that:
a panel may examine US-Section 211 Appropriations Act (2002) that: a panel may examine the municipal
law of a WTO Member for the purpose of determining whether that Member has complied with its
obligations under the WTO Agreement. Such an assessment is a legal characterization by a panel. And,
therefore, a panel's assessment of municipal law as to its consistency with WTO obligations is subject to
appellate review under Article 17.6 of the DSU.
3. Can AB see whether an objective assessment under Art 11 of DSU is made by the panel?
Eg: Objective assessment- consideration and weighing of evidence to determine if commitment is breached
or not. Can be raised in appeal- fall within the scope of Appellate Review.
4. Can they admit new facts?
New factual evidence falls outside the scope of Art 17.6 of DSU.
5. Can they admit new arguments?
Tricky- Canada – Aircraft case – AB held “Art 17.6 forecloses the possibility of Appellate Body to decide
on a new argument that would involve reviewing new facts”.
Practice- Not taking an overly restrictive sense.

Mandate of AB
• Art 17.13
• Uphold- Agree with Conclusion and Reasoning
• Modify – Agree with Conclusion but not reasoning
• Distinction not clear- may uphold and also amend or supplement the finding.
• Reverse the legal findings and conclusion of the panel.
No remand the case to panel for adjudication- complete the analysis

PROCESS
• Consultation
• Panel Proceeding
• Appellate Body Proceeding
• Implementation and Enforcement

Consultations
• Art XXII or XXIII of GATT 1994
 • Art XXII- 3rd party may participate
• Art XXIII- 3rd party may not participate.
⮚ Identify measure at issue (Need not precise and exact)
⮚ Give an indication of legal basis of complaint.
• All requests for consultation to be notified to DSB.
• AB ruled in US Certain EC products-
• A measure not mentioned before consultations and later on referred before panel- not within panel’s
jurisdiction.
• Outcome of consultations Art 3.5 of DSU.

Panel Proceedings
• Art 12 + Working Procedures in Appendix 3.
• Establishment of Panel by reverse consensus-
• Written Submissions and Rebuttal submissions (reply to the arguments)
• Panel Deliberations are Confidential (Art 14 of DSU).
• Interim Review given pursuant to Art 15 of DSU- Parties comment on facts, legal findings.
• Art 15.2 of DSU– if no comments received from the parties, interim report becomes binding.
• Adopting Report- Circulated to 1) Parties 2) Other WTO Members
• Art 16.4 of DSU– Decision to Appeal or Adopt it by Reverse Consensus within 60 days.

Appellate Body Proceeding

• Working Procedures
• Initiation of Appellate Review Proceedings
⮚ Notice of Appeal – identify findings and legal interpretations of panels- erroneous.
⮚ List of legal provisions on which panel has erred
⮚ Identify paragraphs in panel that are erroneous.
• Withdraw Appeal during the process of Appellate Review- Rule 30(1) of Working Procedures.
• Rule 23bis sets out detail rules on amendment of a notice of appeal
• Written submission along with the notice of appeal is filed.
• Oral hearing takes place.
• Third parties participation- comprehensively determined. Rule 27(3) of Working Procedures- Third
Participants are encouraged to file written submissions to facilitate their positions being taken into
account.- They can file written submission or notify participation to the AB.
• Report is finalized, signed by 3 Members; translated into 3 working languages, circulated to WTO
members and then adopted by DSB via reverse consensus.
 • Art 17.14 The adopted AB report must be accepted unconditionally by the parties to the dispute.

Implementation and Enforcement of Recommendations and Rulings.

• Arbitration on “reasonable period of time” for implementation.
• Surveillance of implementation by the DSB.
• Disagreement on implementation.
• Compensation and Retaliation.

Arbitration on Reasonable period of time

• Art 21.3 of DSU. – when it is impractical to comply with recommendations and rulings immediately.
• No agreement reached between parties to the dispute within 45 days after the date of adoption of
recommendations and rulings.
• Art 21.3(c) of the DSU + Footnotes 12 and 13.
• No qualification or professional requirement stated
• As a practice- Appellate Body members serve as Arbitrators in personal capacity.
• No specific procedure stated in the DSU.
• Arbitration proceedings do not exceed 90 day timeline- in practice is flexible
• Unlike Panel/ AB reports, arbitration award under Art 21.3(c) DSU is not adopted by the DSB. It is
posted on WTO Website.
Surveillance and Implementation by DSB
• During the reasonable time the DSB keeps the implementation of adopted recommendations and
rulings under surveillance. Checking if compliance is done or not – Art ref – Art 21.6 and Art 22.8
Disagreement or Implementation- Compliance Proceedings
• There may be issues with the measure to comply with recommendations and rulings.
• Those disputes are settled as per Art 21.5 of DSU. The consistency with WTO law of implementing
measure shall be decided
• “through recourse to these dispute settlement procedures, including wherever possible resort to the
original panel”.
• Refer to proceedings within Art 4- 20 of DSU with minor deviations.
• Time limit- 90 days. (Realistically- 282 days on avg)
• Should a new claim be entertained?
• In EC-Bed Linen (Article 21.5-India) (2003), the Appellate Body found that-
• “new claims, arguments, and factual circumstances different from those raised in the original
proceedings (may be raised), because a ‘measure taken to comply’ may be inconsistent with WTO
obligations in ways different from the original measure… An Article 21.5 panel could not properly
carry out its mandate to assess whether a measure taken to comply is fully consistent with WTO
 obligations, if it were precluded from examining claims additional to and different from, the claims
raised in the original proceedings.”
• Like original panel and Appellate Body reports, Art 21.5 compliance rulings have to be adopted by
reverse consensus.

Compensation and Retaliation

• Respondent fails to implement the recommendations and rulings correctly within reasonable period
of time.
• Art 22 Compensation and Suspension of Concessions.
• Temporary remedy should be WTO compliant.
• If non complying member objects to level of suspension proposed or claims procedure for it in Art
22.3 and has not complied- the matter may be referred to Arbitration under Art 22.6
This final decision is notified to DSB but not adopted by it
 WEEK 4-5
NON-DICRIMINATION

MFN- MOST FAVOURED NATION TREATMENT

Objective- purpose of Article I:1 is: to preserve the equality of competitive opportunities for like imported
products from all Members.
Definition: As the Appellate Body stated in Canada – Autos (2000), Article I:1 of the GATT 1994 prohibits
discrimination between like products originating in, or destined for, different countries.
Not to accord treatment less favourable in 2 situations-
• Products originating in different WTO Member Countries (Import)
• Products destined for different member countries (Export)
Principle: To ensure all WTO members equality of opportunity to import from or export to other WTO
Members (or any other country.
De jure discrimination (origin based measure).
A measure may be said to discriminate in law (or de jure) in a case in which it is clear from reading the text
of the law, regulation or policy that it treats the product from one WTO Member less favourably than the
like product from another WTO Member or country.

De Facto Discrimination
Test to check a de facto measure
Analyse the design, structure, expected operation of the measure.
Whether it is detrimentally affecting the conditions of the competition.

In Canada – Autos (2000),

The Appellate Body rejected, as the panel had done, Canada’s argument that Article I:1 does not apply to
measures which appear, on their face, to be ‘origin-neutral’ vis-à-vis like products.19 According to the
Appellate Body, measures which appear, on their face, to be ‘origin-neutral’ can still give certain
countries more opportunity to trade than others and can, therefore, be in violation of the non-discrimination
obligation of Article I:1. The measure at issue in Canada – Autos (2000) was a customs duty exemption
accorded by Canada to imports of motor vehicles by certain manufacturers.20 Formally speaking, there were
no restrictions on the origin of the motor vehicles that were eligible for this exemption. In practice, however,
the manufacturers imported only their own make of motor vehicle and those of related companies. As a
result, only motor vehicles originating in a small number of countries benefited de facto from the exemption.

TEST FOR MFN

1) Whether the measure at issue is a measure covered by Article I:1 of GATT 1994.

‘any advantage, favour, privilege or immunity’ granted by any Member to any product originating in,
or destined for, any other country with respect to:
(1) customs duties; (2) charges of any kind imposed on or in connection whether the measure at issue
is a measure covered by Article I:1; whether that measure grants an ‘advantage’; whether the
products concerned are ‘like products’; and whether the advantage at issue is accorded
‘immediately and unconditionally’ to all like products concerned, irrespective of their origin or
destination.24 with importation or exportation (e.g. import surcharges, export duties, customs
fees or quality inspection fees); (3) charges imposed on the international transfer of payments for
imports or exports; (4) the method of levying such duties and charges, such as the method of
assessing the base value on which the duty or charge is levied; (5) all rules and formalities in
connection with importation and exportation; (6) internal taxes or other internal charges (i.e. the
matters referred to in Article III:2 of the GATT 1994); and (7) laws, regulations and requirements
affecting internal sale, offering for sale, purchase, transportation, distribution or use of any
product (i.e. the matters referred to in Article III:4 of the GATT 199.
Border Measures – custom duties, charges on import and export, tariff quotas, import
licenses and custom formalities
 Internal Measures- Internal taxes on products or internal regulations affecting sale,
distribution, or use of product.

2) Whether the measure grants an ‘advantage’?

It refers to any advantage granted by a Member to any like product from or for another country.

EC-Bananas III- measure granting an advantage within Art I:1 is creating ‘more favourable
competitive opportunities’ or ‘affects the commercial relationship between products of different
origins’.

Can a balancing be introduced?

Offset less advantageous treatment in one circumstance with more advantageous treatment in other
circumstance?

US – MFN Footwear (1992)- lf such a balancing were accepted, it would entitle a contracting party
to derogate from the most-favoured-nation obligation in one case, in respect of one contracting party,
on the ground that it accords more favourable treatment in some other case in respect of another
contracting party. In the view of the Panel, such an interpretation of the most-favoured- nation
obligation of Article 1:1 would defeat the very purpose underlying the uncondition- ality of that
obligation

3) Whether the products are like products

It is generally accepted that the concept of ‘like products’ has a different scope or ‘width’ in the
different contexts in which it is used.

Accordion of Likeness- Japan Alcoholic Beverages Case II (1996)- Appellate Body illustrated the
possible differences in the scope of the concept of 'like products' in different provisions of the WTO
Agreement by evoking the image of an accordion: The accordion of 'likeness' stretches and squeezes
in different places as different provisions of the WTO Agreement are applied. The width of the
accordion in any one of those places must be determined by the particular provision in which the
term like is centered as well as by the context and the circumstances that prevail in any given case to
which that provision may apply."

Spain Unroasted Coffee Case- likeness test

• Physical characteristics of the product.
• End use (extent to which the products are capable of performing same or similar functions)
• Tariff regimes of other countries (aka tariff classification)
• Additionally- consumer tastes and habits (aka consumers’ perceptions and behaviour – are they
willing to substitute one for another)
• Nature of competitive relationship- ‘like products’ is, fundamentally, ‘a determination about the
nature and extent of a competitive relationship between and among products
Note in De Jure MFN Cases- likeness is presumed.

4) Whether the advantage at issue is accorded ‘immediately and unconditionally’ to all like
products concerned, irrespective of their origin or destination.
 Article I:1 of the GATT 1994 requires that any advantage granted by a WTO Member to imports
from, or exports to, any country must be granted ‘immediately and unconditionally’ to imports from,
or exports to, all other WTO Members

• Immediately- Without delay, at once, instantly

• Unconditionally- Detrimental impact on competitive opportunities for like imported products
• A complainant to show neither actual trade effects nor the discriminatory intent of the measure as
issue to be successful in claiming inconsistency under Art I:1 of GATT 1994

ENABLING CLAUSE
Exception from Art I:1 of GATT 1994
• The Enabling Clause officially called the “Decision on Differential and More Favourable Treatment,
Reciprocity and Fuller Participation of Developing Countries”, was adopted under GATT in 1979
and enables developed members to give differential and more favourable treatment to developing
countries.
• Para 1 Notwithstanding the provisions of Article I of the General Agreement, contracting parties may
accord differential and more favourable treatment to developing countries1 , without according such
treatment to other contracting parties.
• Para 2a.- Note that most developed-country Members grant preferential tariff treatment to imports
from developing countries under their respective Generalised System of Preferences (GSP) schemes
• Purpose- developed country to grant enhanced market access to products from developing countries
extending beyond the access granted to like products from developed countries. The Enabling Clause
plays a vital role in promoting trade as a means of stimulating economic growth and development
• Para 3 – deviation from the MFN obligation of Article I:1 is allowed only when, and to the extent
that, the conditions set out in paragraphs 3 and 4 of the Enabling Clause are met.
Any differential and more favourable treatment provided under this clause:
a. shall be designed to facilitate and promote the trade of developing countries and not to raise barriers to or
create undue difficulties for the trade of any other [Members];
b. shall not constitute an impediment to the reduction or elimination of tariffs and other restrictions to trade
on a mostfavoured-nation basis;
c. shall in the case of such treatment accorded by [developedcountry Members] to developing countries be
designed and, if necessary, modified, to respond positively to the development, financial and trade needs of
developing countries.
• Para 4- procedural conditions for introduction, modificationand withdrawal of preferential measure
for developing countries.

Additional Preferential Treatment under Enabling Clause

In EC – Tariff Preferences (2004), the question arose as to whether the European Communities could grant
additional preferential tariff treatment to certain developing countries to the exclusion of others. Council
Regulation (EC) No. 2501/2001 of 10 December 2001, the EC’s former Generalised System of Preferences
Regulation,80 provided for five preferential tariff ‘arrangements’, namely:
(1) the ‘General Arrangements’;
(2) special incentive arrangements for the protection of labour rights;
(3) special incentive arrangements for the protection of the environment;
(4) special arrangements for least-developed countries; and (
5) special arrangements to combat drug production and trafficking.

India challenged (5) special arrangements to combat drug production and trafficking.
• Whether drug arrangements were consistent with Para 2a of the Enabling Clause?
• Provided only to Pakistan and 11 Latin American Countries-
• Para 2(a) along with Foot note 3- Principle of non discrimination is included.
• Panel stated that clear intent of negotiators was to accord GSP equally to all developing countries
and to eliminate all differentiation in preferential treatment to developing countries.
• Drug Arrangements did not provide identical tariff treatment to all developing countries (requirement
under Fn 3)
• Appellate Body reversed its finding

EC – Tariff Preferences Case- AB ruled

• The term non-discriminatory in footnote does not prohibit developed country Member from granting
different tariffs to products originating in different GSP beneficiaries provided that such differential
tariff treatment meets the remaining conditions in the Ending Clause.
• In granting such differential tariff treatment, however, preference-granting countries are required by
virtue of the term ‘non-discriminatory’ to ensure that identical treatment is available to all similarly
situated GSP beneficiaries, that is to all GSP beneficiaries that have the development, financial and
trade needs to which the treatment in question is intended to respond."

NATIONAL TREATMENT
In simple terms, a national treatment obligation relates to whether a country favours itself over other
countries.
Object and Purpose of National Treatment Obligation
• NT prohibits Members from treating imported products less favourably than like domestic products
once the imported product has entered the domestic market.
• Avoid protectionism and application of internal tax and regulatory measures.
 • Internal measures should not be applied to imported or domestic products so as to afford protection
to domestic production.
• Ultimate aim is to grant equality of competitive conditions and protecting expectations of equal
competitive relationships.- Japan Alcoholic Beverages II(1996)

Nature of Discrimination
• De jure discrimination- Korea Various Measures on Beef (2001)." In that case, the disputed measure
was an "origin-based' dual retail distribution system for the sale of beef. Under this system, imported
beef was to be sold in specialist stores selling only imported beef or in separate sections of
supermarkets.
• De facto discrimination- Japan Alcoholic Beverages II (1996). Disputed measure was tax legislation
that provided for higher taxes on whiskey, brandy and vodka (whether imported or domestic) than on
shochu (whether domestic or imported). Prima facie origin neutral, but discriminated de factoly.

Internal Measures versus Border Measure

Article III of the GATT 1994 applies only to internal measures, not to border measures. It is therefore
important to determine whether a measure is an internal or a border measure. W
Any internal tax or other internal charge, or any law, regulation or requirement of the kind referred to in
paragraph 1 which applies to an imported product and to the like domestic product and is collected or
enforced in the case of the imported product at the time or point of importation, is nevertheless to be
regarded as an internal tax or other internal charge.
The question of which kind of charges fall within the scope of Article III is determined by the usage of the
words "internal" and "imported", which suggests that Article III covers charges that are imposed on goods
that have already been imported" and the obligation to pay such charges is triggered by an internal factor
which takes place inside the relevant customs territory.

Limitation on Scope of application of National treatment Obligation under Art III of GATT 1994
The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement
by governmental agencies of products purchased for governmental purposes and not with a view to
commercial resale or with a view to use in the production of goods for commercial sale.
Test to determine fulfilment of government procurement?
1. There should be a binding structure of laws, regulations or requirements (for government
procurement).
2. Procurement must be done by a government agency (acting for, on behalf, performing governmental
functions).
3. Products purchased must be in a competitive relationship with foreign goods that are being
discriminated under Art III. (like or substitutable product)
4. Products should be purchased for governmental purposes (Rational relationship between Products
purchased and government function being discharged).
5. May not be with a view to commercially resale or for use of production of goods for commercial
resale.
Test of ‘competitive relationship
Canada Feed in tariff program Case (2013)- Applying these five requirements to the measure at issue in
Canada – Renewable Energy / Feed-In Tariff Program (2013), the Appellate Body concluded that Article
III:8(a) did not apply because the imported product being discriminated against (i.e. the solar panels and the
windmills) were not in a competitive relationship with the product purchased by the government (i.e. the
green electricity).
Indian- Solar Cells (2016) also- Art III:8(a) not attracted as products were not in a competitive relationship.
Electricity v. Solar Cells and Modules.

Structure of Article III

Art III:1 establishes general principle
Art III:2 – Internal Taxation
⮚ Art III:2 first sentence –Internal taxation of like products
⮚ Art III:2 second sentence – Internal Taxation of directly competitive or substitutable
products (Read Ad Note Interpretation to Art III:2 of GATT)
Art III:4 Internal Regulations

Article III:2 First Sentence

National Treatment obligation for Internal Taxation on Like Products.
• Art III:2 first sentence reads as –
• 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.
Three-tier test of consistency of internal taxation with Article III:2, first sentence, requires the examination
of:
1. Whether the measure at issue is an internal tax or other internal charge on products;
Eg: VAT, Sales Tax, Excise duties.
Custom duties or border charges are not covered since they are not internal taxes or charges on the product.
Check whether it is an internal charge or a border measure; applied indirectly or directly on products or
applied on or in connection with the products.
Look for-
Obligation to pay must accrue due to an internal event such as distribution, sale, use or transportation of the
imported product,
Characteristics of the measure and circumstances of the case.

2. Whether the imported and domestic products are like products; and
● Physical characteristics of the product.
● End use (extent to which the products are capable of performing same or similar functions)
● Tariff regimes of other countries (aka tariff classification only if it sufficiently detailed)
● Additionally- consumer tastes and habits (aka consumers’ perceptions and behaviour – do they
consider it to be distinct or similar characteristics).
● Price level of product at issue.
● Expandable income of population
● Internal regulatory framework.
● None of the critereas have an overarching role. Holistically look at the facts
However, according to the Appellate Body in Japan – Alcoholic Beverages II (1996), the presence of a
protective application need not be established separately from the specific requirements of Article III:2, first
sentence. Whenever imported products from one Member are subject to taxes in excess of those applied to
like domestic products in another Member, this is deemed to ‘afford protection to domestic production’
within the meaning of Article III:
Japan – Alcoholic Beverages II (1996):
Facts: Under the Japanese tax system, the internal tax imposed on domestic shochu was the same as that
imposed on imported shochu; the higher tax imposed on imported vodka was also imposed on domestic
vodka. Identical products (not considering brand differences) were thus taxed identically.
Issue: However, the question in that case was whether shochu and vodka should be considered to be ‘like
products’. If shochu and vodka were ‘like products’, vodka could not be taxed in excess of shochu.
Analysis: The context of ‘likeness’ under Article I:1 of the GATT 1994, the Appellate Body in Japan –
Alcoholic Beverages II (1996) stated: ‘The concept of ‘likeness’ is a relative one that evokes the image of an
accordion.’
With respect to ‘like products’ in Article III:2, first sentence, the Appellate Body in Japan – Alcoholic
Beverages II (1996) ruled that the ‘accordion of “likeness” is meant to be narrowly squeezed’. According to
the Appellate Body, the concept of ‘like products’ in Article III:2, first sentence, should be construed
narrowly because of the existence of the concept of ‘directly competitive or substitutable products’ used in
the second sentence of Article III:2.If ‘like products’ in Article III:2, first sentence, were to be given a broad
meaning, the scope of this concept would be identical, or at least largely overlap, with the concept of
‘directly competitive or substitutable products’ in Article III:2, second sentence, and thus render Article
III:2, second sentence, redundant. To give meaning to the concept of ‘directly competitive or
substitutable products’ in Article III:2, second sentence, the concept of ‘like products’ in Article III:2,
first sentence, must be construed narrowly.
Appellate Body expressly agreed with the basic approach for determining ‘likeness’ set out in the working
party report in Border Tax Adjustments (1970). In this report, a working party established by the GATT
Council in 1968 found with regard to the term ‘like’ that: the interpretation of the term should be examined
on a case-by-case basis … Some criteria were suggested for determining, on a case-by-case basis, whether a
product is ‘similar’: the product's end-uses in a given market; consumers’ tastes and habits, which change
from country to country; the product's properties, nature and quality. In Japan – Alcoholic Beverages II
(1996), the Appellate Body called upon panels to consider, in addition to the Border Tax
Adjustments criteria, also ‘other criteria that may be relevant’. One of such criteria considered by panels and
the Appellate Body has been the tariff classification of the products at issue. The Appellate Body
acknowledged in Japan – Alcoholic Beverages II (1996) that classification under the same Harmonized
System tariff heading or sub-heading can provide a ‘useful basis for confirming ‘likeness’ in products’.
However, this is only so if the tariff heading is sufficiently detailed. ‘Other criteria that may be relevant’
have also included internal regulations, or the internal regulatory framework or regime, applicable to the
products at issue. Regulations, or the regulatory framework or regime, applicable to the products at issue
may indicate that consumers perceive the products as having similar or distinct characteristics. Also, the
price level of the products at issue and the expendable income of the population has been considered a
criterion that may be relevant in deciding on whether products are ‘like’ within the meaning of Article III:2,
first sentence.
he ‘aim-and-effect’ test for determining ‘likeness’ was, however, explicitly rejected in 1996 by the panel
in Japan – Alcoholic Beverages II (1996). The panel found as follows:
‘the proposed aim-and-effect test is not consistent with the wording of Article III:2, first sentence. The Panel
recalled that the basis of the aim-and-effect test is found in the words ‘so as to afford protection’ contained
in Article III:1. The Panel further recalled that Article III:2, first sentence, contains no reference to those
words. Moreover, the adoption of the aim-and-effect test would have important repercussions on the burden
of proof imposed on the complainant. The Panel noted in this respect that the complainants, according to the
aim-and-effect test, have the burden of showing not only the effect of a particular measure, which is in
principle discernible, but also its aim, which sometimes can be indiscernible. The Panel also noted that very
often there is a multiplicity of aims that are sought through enactment of legislation and it would be a
difficult exercise to determine which aim or aims should be determinative for applying the aim-and-effect
test.89
In further support of its rejection of the aim-and-effect test in determining ‘likeness’ in the context of Article
III:2, the panel in Japan – Alcoholic Beverages II (1996) also noted:
the list of exceptions contained in Article XX of GATT 1994 could become redundant or useless because the
aim-and-effect test does not contain a definitive list of grounds justifying departure from the obligations that
are otherwise incorporated in Article III … [I]n principle, a WTO Member could, for example, invoke
protection of health in the context of invoking the aim-and-effect test. The Panel noted that if this were the
case, then the standard of proof established in Article XX would effectively be circumvented. WTO
Members would not have to prove that a health measure is ‘necessary’ to achieve its health objective.
Moreover, proponents of the aim-and-effect test even shift the burden of proof, arguing that it would be up
to the complainant to produce a prima facie case that a measure has both the aim and effect of affording
protection to domestic production and, once the complainant has demonstrated that this is the case, only then
would the defending party have to present evidence to rebut the claim.
Conclusion: Inconsistent.
Tax in excess of:
● In Japan – Alcoholic Beverages II (1996), the Appellate Body established a strict benchmark for the
‘in excess of’ requirement. The Appellate Body ruled that the prohibition of discriminatory taxes in
Article III:2, first sentence, is not qualified by a de minimis standard. According to the Appellate
Body, ‘even the smallest amount of “excess” is too much’.
● the Appellate Body stated in Japan – Alcoholic Beverages II (1996): it is irrelevant that the ‘trade
effects’ of the tax differential between imported and domestic products, as reflected in the volumes
of imports, are insignificant or even non-existent; Article III protects expectations not of any
particular trade volume but rather of the equal competitive relationship between imported and
domestic products.
● A Member which applies higher taxes on imported products in some situations but ‘balances’ this by
applying lower taxes on the imported products in other situations also acts inconsistently with the
 national treatment obligation of Article III:2, first sentence. Article III:2, first sentence, requires a
comparison of actual tax burdens rather than merely of nominal tax rates.

3. Whether the imported products are taxed in excess of the domestic products.
In Japan – Alcoholic Beverages II (1996), the Appellate Body established a strict benchmark for the
‘in excess of’ requirement. The Appellate Body ruled that the prohibition of discriminatory taxes in
Article III:2, first sentence, is not qualified by a de minimis standard. According to the Appellate
Body, ‘even the smallest amount of “excess” is too much’.
the Appellate Body stated in Japan – Alcoholic Beverages II (1996): it is irrelevant that the ‘trade
effects’ of the tax differential between imported and domestic products, as reflected in the volumes
of imports, are insignificant or even non-existent; Article III protects expectations not of any
particular trade volume but rather of the equal competitive relationship between imported and
domestic products.
A Member which applies higher taxes on imported products in some situations but ‘balances’ this by
applying lower taxes on the imported products in other situations also acts inconsistently with the
national treatment obligation of Article III:2, first sentence. Article III:2, first sentence, requires a
comparison of actual tax burdens rather than merely of nominal tax rates.

Article III:2 Second Sentence

National Treatment obligation for Internal Taxation on Directly Competitive or Substituatble
Products

Moreover, no [Member] 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.

1. Whether the measure at issue is an internal tax or other internal charge on products?
SAME AS ABOVE

2. Whether the imported and the domestic products are directly competitive or substitutable
products.
No perfect substitutability – it falls within the scope of Art II:2: first sentence.
In Japan – Alcoholic Beverages II (1996) and Korea – Alcoholic Beverages (1999), the traditional local
alcoholic beverages, shochu and soju respectively, were found to be ‘directly competitive or substitutable’
with imported ‘Western-style’ liquors, such as whisky, vodka, brandy, cognac, rum, gin and liqueurs.1
Korea Alcoholic Beverages (1999)- All like products are directly competitive or substitutable while not true
vice versa.
Appellate Body further stated in Korea – Alcoholic Beverages (1999) that products are ‘competitive’ or
‘substitutable’ when: CHECKLIST
• Interchangeable - ‘alternative ways of satisfying a particular need or taste’.
 • ‘degree of proximity’ in the competitive relationship between the domestic and the imported
products
• the term ‘directly competitive or substitutable’ implies that the competitive relationship between
products is not to be analyzed exclusively by reference to current consumer preferences
• In assessing whether products are ‘directly competitive or substitutable’, a panel must thus consider
not only extant demand (or current competition) but also latent demand (or potential competition)

3. Whether the directly competitive or substitutable imported and domestic products are
dissimilarly taxed; /Dissimilar Taxation
If imported products and directly competitive or substitutable domestic products are ‘similarly
taxed’, there is no inconsistency with Article III:2, second sentence.

The tax differential has to be more than de minimis to support a conclusion that the internal tax
imposed on imported products is GATT-inconsistent
whether products are ‘similarly taxed’ or not, must be determined on a case-by-case basis.

4. Whether the dissimilar taxation of the directly competitive or substitutable imported [and]
domestic product is applied so as to afford protection to domestic production.
As per Japan Alcoholic Beverages case, look into- design, architecture structure, overall application to
ascertain whether it is applied in a way that affords protection to domestic products.
Not role of trade effects.
Check if lower tax bracket covers domestic production and higher tax bracket imported products
No role of regulatory intent (Eg- to prevent consumption of higher concentration of alcohol.)

National Treatment for Internal Regulation

The national treatment obligation under Article III of the GATT 1994 does not only concern internal
taxation dealt with in Article III:2. Article III also concerns internal regulation, dealt with primarily in
Article III: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 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.

Test of consistency
1. Whether the measure at issue is a law, regulation or requirement covered by Art III:4.
Article III:4 of the GATT 1994, concerns ‘all laws, regulations and requirements affecting [the] internal
sale, offering for sale, purchase, transportation, distribution or use [of products]’.
In Canada – Autos (2000), the panel held that a measure can be considered to be a measure affecting, i.e.
having an effect on, the internal sale or use of imported products even if it is not shown that under the
current circumstances the measure has an impact on the decisions of private parties to buy imported products
• Domestic regulations that affect the sale and use of products.
• Scope:
• Substantive as well as procedural laws are covered under Art III:4.
• “all laws, regulations and requirements affecting their internal sale, offering for sale, purchase,
transportation, distribution or use.”
⮚ “Affecting” implies- not just directly governing the conditions of sale or purchase but also
which might adversely modify the competition between the domestic and imported products
on the internal markets.

2. Whether the imported and domestic products are like products

Likeness test under Art III:2:first sentence cannot be replicated under Art III:4.
] determination of ‘likeness’ under Article III:4 is, fundamentally, a determination about the nature and
extent of a competitive relationship between and among products.
• 1. Nature and extent of competitive relationship between and among products.
(i) the physical properties of the products:
(ii) the extent to which the products are capable of serving the same or similar end uses:
(iii) the extent to which consumers perceive and treat the products as alternative means of performing
particular functions in order to satisfy a particular want or demand: and
(iv) the international classification of the products for tariff purposes.

3. Whether the imported products are accorded less favourable treatment?

Different treatment does not necessarily mean inconsistent treatment under Art III:4 as long as it is provided
no less favourable.
It has to modify the conditions of the competition in the relevant market to the detriment of imported
products.
No need of actual effects, potential effects of the measure may suffice as a basis for finding that a measure
involves “treatment no less favourable”.
In Thailand - Cigarettes (Philippines) (2011), however, the Appellate Body added a cautionary note in this
respect: [W]here a Member's legal system applies a single regulatory regime to both imported and like
domestic products, with the sole difference being that an additional requirement is imposed only on
imported products, the existence of this additional requirement may provide a significant indication that
imported products are treated less favourably.
However, the examination of whether imported products are treated less favourably 'cannot rest on simple
assertion, close scrutiny of the measure at issue will normally require further identification or elaboration of
its implications for the conditions of competition in order properly to sup- port a finding of less favourable
treatment under Article III:4 of the GATT 1994.
Thus, a finding of ‘treatment less favourable' does not require that the detrimental impact of the measure on
the conditions of competition is related to the foreign origin of the products, but does require that there is
a genuine relationship between the measure and the detrimental impact. In other words, if a genuine
relationship between the measure and the detrimental impact exists, i.e if the detrimental impact can be
attributed genuinely to the measure, the measure may be found to accord "treatment less favourable'
even if the detrimental impact can be explained by factors or circumstances that are unrelated to the foreign
origin of the product

• In EC-Seal Products (2014), the Appellate Body summarised the case law on
• 1. The term ‘treatment no less favourable’ requires effective equality of opportunities for imported
products to compete with like domestic products.
• 2. formal difference in treatment is neither necessary, nor sufficient, to establish that imported
products are accorded less favourable treatment than that accorded to like domestic products.
• 3. Assessment of the implications of the contested measure: If the outcome of this assessment is that
the measure has a detrimental impact on the conditions of competition for like imported products,
then such detrimental impact will amount to treatment that is less favourable within the meaning of
Article III:4
• Finally, for a measure to be found modify the conditions of competition in the relevant market to the
detriment of

No separate consideration to prove- whether it affords protection to domestic production?

 WEEK 6-7
RULES ON MARKET ACCESS

TARIFF BARRIERS
1. CUSTOM DUTIES ON IMPORTS
Definition- CD is a financial charge or tax on imported goods due because of their importation. It is also
called a tariff. * The market access to goods is conditional upon the payment of CD.
China- Auto Parts (2009)
Issue: whether the charges at issue in that case were ‘internal charges’ or ‘customs duties
Held: Time and destination of charge is not important. Moreover, what is important in determining whether
a charge is a border charge (such as a customs duty) or an internal charge is whether the obligation to pay
that charge accrues due to the importation or to an internal event. In this regard, the characteristics of the
measure and the circumstances of the case must also be kept in mind. Thereby, to constitute CD- the
obligation to pay it must accrue at the moment and by virtue of an importation.

1.1 Types of Custom Duties

Ad Valorem: The ad valorem amount is based on the value of that good. It is a percentage of the value of the
imported good, for example a 15 per cent ad valorem duty on computers. Ad valorem duties are more
transparent than non-ad valorem duties
Non-ad valorem: NAV duties can be specific, compound, mixed or ‘other’ customs duties. A specific
customs duty on a good is an amount based on a unit of quantity such as weight, length, area, volume or
numbers
Ad valorem or non-ad valorem duties can be MFN duties, preferential duties or neither of the two. MFN
duties are the ‘standard’ customs duties applicable to all other WTO Members in compliance with the
nondiscrimination MFN treatment obligation of Article I:1 of the GATT 1994.23 Preferential duties are
customs duties applied to specific countries pursuant to conventional or autonomous arrangements under
which products from these countries are subject to duties lower than MFN duties

Customs Duties as a Lawful Instrument of Protection/ CDs under GATT

WTO law, and in particular the GATT 1994, does not prohibit the imposition of customs duties on imports.

1. India- Additional import duties

1. FACTS AND ISSUE: The United States requested consultations with India with
respect to “additional duties” or “extra additional duties” that India applies to
imports from the United States, which include (but are not limited to) wines and
distilled products. The United States claims that the measures are inconsistent with
Articles II: 1(a) and (b) of the GATT.
 1. ANALYSIS AND CONCLUSION:
1. As regards the Panel's findings with respect to the interpretation of
Articles II: 1(b) and II: 2(a), the Appellate Body found that the Panel
erred in its interpretation that Article II: 1(b) covers only duties or
charges that “inherently discriminate against imports”.
1. The appellate body held that ‘Tariffs are legitimate instruments to
accomplish certain trade policy or other objectives such as to
generate fiscal revenue. Irrespective of the underlying objective,
tariffs are permissible under Article II:1(b) so long as they do not
exceed a Member’s bound rates.” Hence they are not inherently
discriminatory.
1. The Appellate Body also considered that the Additional Duty would not
be justified under Article II:2(a) of the GATT 1994 only if it results in
the imposition of charges on imports of alcoholic beverages in excess
of the excise duties applied on like domestic products, and,
consequently, that this would render the Additional Duty
inconsistent with Article II:1(b) to the extent that it results in the
imposition of duties in excess of those set forth in India's Schedule
of Concessions. Charges that are justified under Article II:2(a) are not
in breach of Article II:1(b).
The AB also stated “In our view, these two concepts — ’equivalence’ and ‘consistency with
Article III: 2’ — cannot be interpreted in isolation from each other; they impart meaning to
each other and need to be interpreted harmoniously…... Determining whether a charge is
imposed consistently with Article III: 2 necessarily involves a comparison of a border charge
with an internal tax in order to determine whether one is ‘in excess of’ the other….” There
the concept of equivalence will automatically arise when looking at the consistency with A.
III(2). “As we see it, the reference in Article II:2(a) to consistency with Article III:2 suggests
that the concept of equivalence includes elements of ‘effect’ and ‘amount’ that necessarily
imply a quantitative comparison.”
India - Additional Import Duties (2008), the Appellate Body stated:
Tariffs are legitimate instruments to accomplish certain trade policy or other objectives such as to generate
fiscal revenue. Indeed, under the GATT 1994, they are the preferred trade policy instrument, whereas
quantitative restrictions are in principle prohibited. Irrespective of the underlying objective, tariffs are
permissible.“

Negotiations on the Reduction of Customs Duties

While WTO law does not prohibit customs duties, it does recognise that customs duties constitute an
obstacle to trade. Article XXVIII(28) bis of the GATT 1994, therefore, calls upon WTO Members to
negotiate the reduction of customs duties. Call upon developed country members in the interest of economic
development of developing country members- Art XXXVII:1 of GATT 1994

Tariff Concessions and Schedule of Concessions

A tariff concession, or a tariff binding, is a commitment not to raise the customs duty on a certain product
above an agreed level.
Outcome of Tariff Negotiation- Tariff concessions
These concessions are set out in Member’s Schedule of Concessions aka the Goods Schedule. Each WTO
Member has a schedule.
Question- Can WTO Members agree in their Schedules to a treatment i.e. inconsistent with the basic
GATT Obligations.
It is not possible for Members to agree in their Schedules to treatment that is inconsistent with the basic
GATT obligations.
EC – Bananas III (1997), the Appellate Body addressed the question of whether the allocation of tariff
quotas agreed to and inscribed in the EC’s Schedule was inconsistent with Article XIII of the GATT 1994.
Article II permits contracting parties to incorporate into their Schedules acts yielding rights under the
General Agreement but not acts diminishing obligations under that Agreement"
It was held that This principle is equally valid for the market access concessions and commitments for
agricultural products contained in the Schedules annexed to the GATT 1994. The ordinary meaning of the
term concessions suggests that a Member may yield rights and grant benefits, but it cannot diminish its
obligations."

BASIC Rules on Tariff Concession

Article II:1 of GATT
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 Schedule annexed to this
Agreement.
(b) The products described in Part I of the Schedule relating to any contracting party, which are the products
of territories of other contracting parties, shall, on their importation into the territory to which the Schedule
relates, and subject to the terms, conditions or qualifications set forth in that Schedule, be exempt from
ordinary customs duties in excess of those set forth and provided therein. Such products shall also be
exempt from all other duties or charges of any kind imposed on or in connection with the importation in
excess of those imposed on the date of this Agreement or those directly and mandatorily required to be
imposed thereafter by legislation in force in the importing territory on that date.
Article II:1(a) provides that Members shall accord to the commerce of other Members, that is, in any case
the products imported from other Members, treatment no less favourable than that provided for in their
Schedule.115
Article II:1(b), first sentence, provides that products described in Part I of the Schedule of any Member
shall, on importation, be exempt from ordinary customs duties in excess of those set out in the Schedule.
This means that products may not be subjected to customs duties above the tariff concessions or bindings
Relationship between the two: Paragraph (a) of Article II:1 contains a general prohibition against according
treatment less favourable to imports than that provided for in a Member’s Schedule. Paragraph (b) prohibits
a specific kind of practice that will always be inconsistent with paragraph (a): that is, the application of
ordinary customs duties in excess of those provided for in the Schedule.11
Argentina – Textiles and Apparel Case
Facts: In its Schedule, Argentina has bound its customs duties on textiles and apparel to 35 per cent ad
valorem. In practice, however, these products were subject to the higher of either a 35 per cent ad valorem
duty or a minimum specific import duty (the so-called ‘DIEM’)
Issue: The requirement of Article II:1(b), first sentence, that a Member may not impose customs duties in
excess of the duties set out in its Schedule was at issue in Argentina – Textiles and Apparel (1998).
AB Held: AB ruled- The principal obligation in the first sentence of Article II:1:b requires a Member
to refrain from imposing ordinary customs duties in excess of these provided for in that Member's
Schedule. However, the text of Article II:1:(b), first sentence, does not address whether applying a type of
duty different from the type provided for in a Member's Schedule is inconsistent, in itself, with that
provision.
According to the Appellate Body, the application of a type of duty different from the type provided for in a
Member's Schedule is only inconsistent with Article II:1(b) to the extent that it results in customs duties
being imposed in excess of those set forth in that Member's Schedule.

EC- Chicken Cuts (2005) – Case regarding Interpretation of Tariff Schedule

Facts: In this case, the European Communities (the ‘EC’) departed from an established practice of
classifying imported chicken cuts that had been treated with salt under a lower-tariff heading (02.10,
covering ‘meat _ salted _’) and began to classify the increasing volume of such imports under a higher-tariff
heading (02.07, covering ‘ fresh, chilled or frozen’ poultry). EC argued that the interpretation of “salted”
category is for preservation but this chicken is not salted for preservation. Hence the general category of
meat cuts. The complainants claimed violation of Article 2(1)(a) and 2(1)(b) against EC for applying duties
and charges higher than the bound rates in schedule.
Held: According to the European Communities, the key element under heading 02.10 was preservation and
therefore the term ‘salted’ implied that the meat should be impregnated with salt sufficient to ensure long-
term preservation. The complainants, Thailand and Brazil, contended that ‘salted’ did not imply long-term
preservation and that the salted chicken cuts at issue thus fell within heading 02.10. Both the panel and the
Appellate Body came to the conclusion that ‘salted’ did not imply long-term preservation in any way and
that therefore the chicken cuts did fall under the more favourable tariff heading 02.10.122 The European
Communities had thus acted inconsistently with Article II:1(a) and (b) by wrongly classifying the chicken
cuts, which resulted in treatment less favourable than that provided for in its Schedule. To date, WTO
Members have been found to have acted inconsistently with the obligations under Articles II:1(a) and
II:1(b), first sentence, of the GATT 1994 in ten disputes.
• Practice prior to 2002 it was placed under Heading 2.10 ‘Meat and edible meal offal, salted, in brine,
dried, smoked, edible flours and meals of meat or meat offal’- which would have attracted Lower
tariff.
• In 2002 EC placed under the heading 2.07 ‘Meat and edible offal heading no. 0105 fresh chilled or
frozen’ – which would have attracted a higher tariff.
• Context (VCLT Art. 31(2)): Having considered relevant context including explanatory notes to the
EC schedule and the Harmonized System for Tariff Classification for the interpretation of the term
“salted”, the Appellate Body upheld the Panel's finding that the term “salted” in the relevant EC
tariff commitment was not necessarily characterized by the notion of longterm preservation as
argued by the European Communities, but rather encompassed both concepts, i.e. “preparation” and
“preservation” by the addition of salt.

Modification or Withdrawal of Tariff Concessions

Members may not apply customs duties above the tariff concessions or bindings agreed to in tariff
negotiations and reflected in their Schedules. However, the GATT 1994 provides a procedure for the
modification or withdrawal of agreed tariff concessions.
 • Withdrawal of Concession- XXVII of GATT
• Modification of Concession- XXVIII of GATT (refer procedure)
Members that hold Initial Negotiating Rights (Bilaterally negotiated initially)
Principal supplying interest- (large market share)Ad Note Art XXVIII, para 1.4
Members with substantial interests (Eg- 10% of market share) (Ad Note XXVIII para 1.7)
If negotiation fail- still members can modify or withdraw. – XXVIII:3:a of GATT.
Imposition of Customs Duties on Imports
In addition to rules for the protection of tariff concessions, WTO law also provides for rules on the manner
in which customs duties must be imposed. The imposition of customs duties may require three
determinations to be made: (1) the determination of the proper classification of the imported good, which
allows customs authorities to determine which duty to levy; (2) the determination of the customs value of
the imported good; and (3) the determination of the origin of the imported good.

● Proper classification of Imported Good/ Tariff Classification

The imposition of customs duties requires the determination of the proper customs classification of
the imported good. Basically allows customs authorities to determine which duty to levy. In
classifying products for customs purposes, Members have of course to consider their general
obligations under the WTO agreements, such as the MFN treatment obligation.
Rules regarding the same can be found in Harmonized System – International Commodity
Classification System by WCO.
Explanatory Notes and Classification Opinions serve to secure uniformity in interpretation of HS.
These are commentaries finalized by WCO HS Committee and adopted by WCO Council.
Members under WTO are not obliged to follow HS System, but most WTO Members are already a
Member of HS System and they follow it for uniformity.

● Custom Valuation
As previously explained, most customs duties are ad valorem. The customs administrations must
therefore determine the value of the imported goods in order to be able to calculate the customs duty
due.

Rules for Custom Valuation are found in

1. Art VII of GATT 1994 Valuation for Custom Purposes
2. The Note Ad Article VII
3. WTO Agreement on implementation of Art VII of GATT1994- known as the Custom Valuation
Agreement.
Th core provision of Article VII on customs valuation is found in paragraph 2(a), which states
The value for customs purposes of imported merchandise should be based on the actual value of the
imported merchandise on which duty is assessed, or of like merchandise, and should not be based on the

value of merchandise of national origin or on arbitrary or fictitious values. --- CD should be based on
actual value of the good- which means price at which the good/like good is sold under fully competitive
conditions.
Art 1.1 of CVA- Primary basis for custom value is “transaction value of imported good.”
 ● Determination of Origin
In spite of the MFN treatment obligation, discussed in Chapter 4, the customs duties applied to imported

goods may differ depending on the country from which the goods originate. Differ for- Developed
Country, Developing Country and FTA. Moreover, only the goods from WTO Members benefit under
WTO law from MFN treatment with respect to customs duties. It is, therefore, important to determine
the origin of imported goods, and this is not always an easy determination to make.
The rules to determine the origin of imported goods differ from Member to Member, and many
Members use different rules of origin depending on the purpose for which the origin is determined.
Generally speaking, the national rules of origin currently applied by Members use one or more of three
methods to determine origin:
(1) the method of ‘value added: Under national rules of origin using the method of ‘value added’, a good
will be considered to have originated in country X if in that country a specified percentage (for example,
50 per cent) of the value of the good was added.
(2) the method of ‘change in tariff classification’: good will be considered to have originated in country
X if, as a result of processing in that country, the tariff classification of the product changes.
(3) the method of ‘qualifying processes’: a good will be considered to have originated in country X if a
particular technical manufacturing or processing operation relating to the good took place in that country

Agreement on Rules of Origin (Annex IA of WTO Agreement)

• Non preferential rules of origin (used for MFN Treatment, Anti Dumping, Quotas,etc) ARO contains mostly
Non Preferential ROO.
• Preferential Rules of Origin (Go beyond MFN- eg – GSP, FTA)- Annex II of ARO
• Harmonization of Non preferential Rules- Art 9.2 of ARO provided for 3 years since initiation to be
completed, however the work is still not complete.
• Art 2 of ARO- Disciplines during Transition period.
• Art 3 of ARO- Disciplines after the Transition period.
• Specifically- rules regarding “wholly obtained”- in one country; “substantially transformed” (i.e. a change in
tariff classification and/ or a specific percentage of value added)
• Efforts in Ministerial Conferences to determine origin- Nairobi- Whether a product ahs originated from a
LDC- criteria applicable- “sufficient or substantial transformation”

OTHER DUTIES AND CHARGES ON IMPORT

Definition- ‘Other duties and charges on imports’ are financial charges or taxes, other than ordinary
customs duties, which are levied on imported products and are due because of their importation.
‘Other duties and charges on imports’ form a residual category encompassing financial charges on
imports that are not ordinary customs duties or customs duties sensu strict
Examples: of ‘other duties and charges on imports’ identified in GATT/WTO case law are: (1) an import
surcharge, i.e. a duty imposed on an imported product in addition to the ordinary customs duty; (2) a
security deposit to be made on the importation of goods; (3) a statistical tax imposed to finance the
collection of statistical information, with no maximum limit; (4) a customs fee with no maximum limit;(5) a
transitional surcharge for economic stabilisation imposed on imported goods; and (6) a foreign exchange fee
imposed on imported goods. 7) Forex Fee imposed on imported goods.

Rule Regarding Other Duties or Charges on Imports

Para 1 states In order to ensure transparency of the legal rights and obligations deriving from paragraph 1(b)
of Article II, the nature and level of any "other duties or charges" levied on bound tariff items, as referred to
in that provision, shall be recorded in the Schedules of concessions annexed to GATT 1994 against the tariff
item to which they apply. It is understood that such recording does not change the legal character of "other
duties or charges".
Uruguay Round Schedules have a special column for other duties and charges. They must be recorded in the
schedules
II:1:b second sentence-- (b) The products described in Part I of the Schedule relating to any contracting
party, which are the products of territories of other contracting parties, shall, on their importation into the
territory to which the Schedule relates, and subject to the terms, conditions or qualifications set forth in that
Schedule, be exempt from ordinary customs duties in excess of those set forth and provided therein. Such
products shall also be exempt from all other duties or charges of any kind imposed on or in connection with
the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily
required to be imposed thereafter by legislation in force in the importing territory on that date.
Explanation of above: With regard to products subject to a tariff binding, Article II:1(b), second sentence, of
the GATT 1994 requires that no other duties or charges be imposed in excess of those: (1) already imposed
at the ‘date of this Agreement’; or (2) provided for in mandatory legislation in force on that date.
Chile – Price Band System (2002),
The panel, having found that the Chilean Price Band System (PBS) duties were not ‘ordinary customs
duties’ but were ‘other duties or charges’, examined whether these duties were inconsistent with Article
II:1(b), second sentence.
• Pursuant to the Uruguay Round Understanding on the Interpretation of Article II:1(b), such other
duties or changes had to be recorded in a newly created column other duties and charges in the
Members Schedules.
• Other duties or charges must not exceed the binding in this other duties and charges' column of the
Schedule.
• If other duties or charges were not recorded but are nevertheless levied, they are inconsistent with the
second sentence of Article II:1:b, in light of the Understanding on the Interpretation of Article
II:1(b).
• We note that Chile did not record its PBS in the other duties and charges column of its Schedule. We
therefore find that the Chilean PBS duties are inconsistent with Article II: 1b) of GATT 1994
Dominican Republic- Import and Sale of Cigarettes case
panel found that the two ‘other duties or charges’ at issue in this case, namely the transitional surcharge for
economic stabilisation and the foreign exchange fee imposed on imported products, had not been recorded in
a legally valid manner in the Schedule of Concessions of the Dominican Republic.
For all legal and practical purposes, what was notified by the Dominican Republic in document G/SP/3 is
equivalent to ‘zero’ in the Schedule. The Panel finds that the surcharge as an ‘other duty or charge’ measure
is applied in excess of the level ‘zero’ pursuant to the Schedule. Therefore, the surcharge measure is
inconsistent with Article II:1(b) of the GATT 1994
Measures Exempted from the Rule
There are a number of ‘other duties and charges on imports’ that are exempted from the rule that Members
may not impose such duties or charges unless recorded and not in excess of the recorded level. Pursuant to
Article II:2 of the GATT 1994, Members may – despite their obligation under Article II:1(b), second
sentence – impose on an imported product: (1) a financial charge equivalent to an internal tax on the like
domestic product imposed consistently with Article III:2 of the GATT 1994 (border tax adjustment) (see
Article II:2(a));242 (2) WTOconsistent anti-dumping or countervailing duties (see Article II:2(b)); or (3)
fees or other charges ‘commensurate’ with

CUSTOM DUTIES AND OTHER DUTIES ON EXPORT

Definition: an export duty, be it a customs duty or another duty or charge on exports, is a financial charge or
tax on exported products, due because of their exportation. Market exit of the products concerned is
conditional upon the payment of the export duty.
• Generally applied on agricultural products, raw materials short in supply. (Wheat- 2022); rare earth
materials
• Exportation is commercially less attractive and less likely to be exported promoting usage by
domestic downstream industries.

Rules Applicable
While the WTO agreements do not specifically regulate export duties, there are some general GATT
obligations which also apply to export duties. This is the case, for example, for Article I:1 of the GATT
1994, which sets out the MFN treatment obligation.
• Caveat- Distinction from CD on import- Some members have agreed to bindings in their Goods
Schedule. It is debatable whether the general obligation under Art II:1:a applies to export duties.
• “commerce” under II:1:a- may apply to import and export.
But II:1:b first and second sentence doesn’t apply to exports
Example of Accession Protocol of China: While the GATT 1994 or the other multilateral agreements on
trade in goods do not prohibit or specifically regulate export duties, some WTO accession protocols do. The
best-known example of such accession protocol is the 2001 Protocol on the Accession of the People’s
Republic of China
China’s accession protocol provides that: China shall eliminate all taxes and charges applied to exports
unless specifically provided for in Annex 6 of this Protocol or applied in conformity with the provisions of

Article VIII of the GATT 1994. Annex 6 contains host of different products subject to export duty.

China – Raw Materials (2012) (NP)

• Products at issue: - Export duties on bauxite, coke, fluorspar, magnesium, manganese, silicon metal.
zinc and yellow phosphorus were inconsistent with paragraph 11.3 of China's Accession Protocol.
 • The panel found that, with the exception of yellow phosphorus, none of these raw materials is listed
in Annex 6 to China's Accession Protocol and that China therefore acted inconsistently with
paragraph 11.3 of the Accession Protocol when it imposed export duties on these raw materials
• With regard to yellow phosphorus, which is included in the list of Annex 6, the complainants
contended that China imposed a 'special' export duty of 50 per cent ad valorem on yellow
phosphorus pursuant to the 2009 Tariff Implementation Program, while it had committed, pursuant
to paragraph 11.3 of and Annex 6 to its Accession Protocol, not to exceed a maximum export duty of
20 per cent on yellow phosphorus.
• The panel, however, agreed with China that China had removed the 'special' export duty rate as of 1
July 2009, before the date of the panel's establishment and therefore did not make any finding on the
WTO consistency of this measure."
• EC – LAN
Facts: In EC – Computer Equipment (1998), at issue was a dispute between the United States and the European
Communities on whether the EC’s tariff concessions regarding automatic data-processing equipment applied to local
area network (LAN) computer equipment.
Holding: The panel based its interpretation of the EC’s tariff concessions on the ‘legitimate expectations’ of the
exporting Member, in casu, the United States. On appeal, the AB rejected this approach to the interpretation of tariff
concessions, ruling as follows:
The purpose of treaty interpretation under Article 31 of the Vienna Convention is to ascertain the common intentions
of the parties. These common intentions cannot be ascertained on the basis of the subjective and unilaterally
determined ‘expectations’ of one of the parties to a treaty. Tariff concessions provided for in a Member's Schedule
– the interpretation of which is at issue here – are reciprocal and result from a mutually advantageous negotiation
between importing and exporting Members. A Schedule is made an integral part of the GATT 1994 by Article
II:7 of the GATT 1994. Therefore, the concessions provided for in that Schedule are part of the terms of the
treaty. As such, the only rules which may be applied in interpreting the meaning of a concession are the general rules
of treaty interpretation set out in the Vienna Convention.
For the reasons stated above, we conclude that the Panel erred in finding that ‘the United States was not required to
clarify the scope of the European Communities’ tariff concessions on LAN equipment’. We consider that any
clarification of the scope of tariff concessions that may be required during the negotiations is a task for all interested
parties.
India – Additional Import Duties Cases
Facts: India imposed additional import duties on alcohol and called it internal tax (exception under Article 2, para 2).
Holding: Appellate Body held that the custom duties are legitimate means to protect domestic producers recognized
by WTO as opposed to panel finding that the custom duties are inherently discriminatory (WTO foundation erase all
barriers). The internal taxes should be equal in amount and nature. Just because they are equal in function does not
help. India violated the WTO obligations. Further India argued that it can refund the excess amount, but Appellate
body did not find any refund mechanism. Trend- India losing cases because of lack of evidence.

NON TARIFF BARRIERS

QUANTATIVE RESTRICTIONS
Definition: A quantitative restriction on trade in goods, also referred to as a ‘QR’, is a measure that limits
the quantity of a product that may be imported or exported. A typical example of a quantitative restriction is
a measure allowing the importation of a maximum of 1,000 tonnes of cocoa powder a year or a measure
allowing the importation of a maximum of 450 tractors a year.
Types of quantitative restriction: a prohibition, or ban, on the importation or exportation of a product; such a
prohibition may be absolute or conditional, i.e. only applicable when certain defined conditions are not
fulfilled; (2) an import or export quota, i.e. a measure, as the examples given above, indicating the quantity
that may be imported or exported; a quota can be a global quota, a global quota allocated among countries or
a bilateral quota; (3) import or export licensing, as further discussed below;6 and (4) other quantitative
restrictions.

Tariff Rate quota

• It is not a quota in a strict sense of the term, it is not a quantitative restriction.
• A TRQ is a quantity that can be imported at a certain duty. It involves application of a higher tariff
rate to imported goods after a specific quantity of the item has entered the country at a lower
prevailing rate. Any quantity above this quota is subject to a higher duty.
• These are not quantitative restrictions because rather than prohibit or restrict the quantity of imports,
they subject the imports to varying duties.
• Administration of TRQs- Art XIII of GATT

Prerequisite for TRQs

• WTO Members are required to notify the WTO Secretariat of any quantitative restrictions which
they maintain, and of any changes to these restrictions, as and when they occur. Such notifications
must contain and/indicate:
• 1) a general description of the restriction
• (2) the type of restriction
• (3) the relevant tariff line code
• (4) a detailed product description
• (5) the WTO justification for the measure concerned
• (6) the national legal basis for the restriction: and
• (7) information on the administration of the restriction and, where relevant, an explanation of the
modification of a previously notified restriction

Rules Applicable
The general prohibition on quantitative restrictions set out in Article XI of the GATT 1994
Article XI:1 of the GATT 1994, entitled ‘General Elimination of Quantitative Restrictions’, sets out a
general prohibition on quantitative restrictions, whether on imports or exports.
Article XI:1 provides, in relevant part: No prohibitions or restrictions other than duties, taxes or other
charges, whether made effective through quotas, import or export licences 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]
Meaning: it applied to all measures instituted or maintained by a contracting party prohibiting or restricting
the importation, exportation or sale for export of products other than measures that take the form of duties,
taxes or other charges.
The broad scope of the prohibition on quantitative restrictions set out in Article XI:1 is clear from the text of
Article XI:1 itself, which refers in addition to quotas and import licences, also to the undefined residual
category of ‘other measures’
Examples- Export Quotas, minimum export/import price requirements, a discretionary or non-automatic
licensing system, restriction on ports of entry.
Art XI:1 doesn't cover measures under Art XI:2, XII, XIV, XV, XVIII, XX, XXI.
Art XI:1 covers- laws, regulations and measures (including non mandatory ones)
Japan – Semi-Conductors (1988)
the panel thus ruled that non-mandatory measures of the Japanese Government, restricting the export of
certain semiconductors at below-cost price, were nevertheless ‘restrictions’ within the meaning of Article
XI:1
Core idea is – measure should have a limiting effect on the quantity or amount of a product being imported
or exported.
Note that, in addition, quantitative restrictions which do not actually restrict or impede trade, such as quotas
above current levels of trade, are nevertheless prohibited under Article XI:1 of the GATT 1994.32
The panel in EEC – Oilseeds I (1990) ruled in this respect: [T]he Contracting Parties have consistently
interpreted the basic provisions of the General Agreement on restrictive trade measures as provisions
establishing conditions of competition. Thus they decided that an import quota constitutes an import
restriction within the meaning of Article XI:1 whether or not it actually impeded imports
Article XI:1 of the GATT 1994 does not only prohibit de jure quantitative restrictions; restrictions of a de
facto nature are also prohibited under Article XI:1.

Art VIII and Art XI:1 of GATT

• Argentina Imports Case-
• Issue- Whether measures under Art VIII:1(c) (import/ export formalities or requirements) exempted
from Art XI:1.
• The Appellate Body found that formalities of requirements under Article VIII of the GATT 1994 are
not excluded per se from the scope of application of Article XI:1 of the GATT 1994, and that their
consistency could be assessed under either Article VIII or Article XI:1, or under both provisions.
Thus, we reject Argentina's argument that Articles VIII and XI:1 have mutually exclusive spheres of
application.
• To summarize if an import/export requirement under Art VIII has a limiting effect, it can be held
inconsistent with Art XI:1 of the GATT.

Rules on QR on Specific Products

QRs were very high in agricultural sector
The Agreement on Agriculture provides that quantitative import restrictions and voluntary export restraints,
inter alia, must be converted into tariffs and that no new restrictions of this kind can be adopted.
Process of tariffication- conversion of non-tariff barriers to tariff barriers- Promotion of tariff quotas.
 • Eg.- AoA – Art 4.2- Members shall not maintain, resort to, or revert to any measures of the kind
which have been required to be converted into ordinary customs duties (1), except as otherwise
provided for in Article 5 and Annex 5.
• Fn-These measures include quantitative import restrictions, variable import levies, minimum import
prices, discretionary import licensing, non-tariff measures maintained through state-trading
enterprises, voluntary export restraints, and similar border measures other than ordinary customs
duties, whether or not the measures are maintained under country-specific derogations from the
provisions of GATT 1947, but not measures maintained under balance-of-payments provisions or
under other general, non-agriculture-specific provisions of GATT 1994 or of the other Multilateral
Trade Agreements in Annex 1A to the WTO Agreement.
Therefore a violation under Art XI of GATT would necessarily cause a violation of Art 4.2 of AoA.

Voluntary Export Restraints

• A voluntary export restraint (VER) is a trade restriction on the quantity of a good that an exporting
country is allowed to export to another country. This limit is self-imposed by the exporting country.
• It can be applied under terms of an agreement or unilaterally.
• Entered into voluntary basis. Rationale is to avoid unilateral action in the form of QR, harassment by
anti dumping investigations, countervailing actions.
Agreement on safeguards Art 11.1(b) talks about phasing out VERs

Administration of Quantitative Restrictions

Article XI:1 of the GATT 1994 prohibits quantitative restrictions. There are, however, as noted above and
discussed elsewhere in this book, many exceptions to this prohibition of Article XI:1
(1) the rule of nondiscrimination; (2) the rules on the distribution of trade; and (3) the rules on import-
licensing procedures
1)The Rule of non-discrimination
Article XIII:1 of the GATT 1994 provides that quantitative restrictions, when applied, should be
administered in a non-discriminatory manner.
Article XIII:1 states: No prohibition or restriction shall be applied by any [Member] on the importation of
any product of the territory of any other [Member] or on the exportation of any product destined for the
territory of any other [Member], unless the importation of the like product of all third countries or the
exportation of the like product to all third countries is similarly prohibited or restricted.
EEC – Apples (Chile I) (1980)
The GATT panel in EEC – Apples (Chile I) (1980) found that the European Communities had acted
inconsistently with the non-discrimination obligation of Article XIII:1. The importation of apples from
Argentina, Australia, New Zealand and South Africa into the European Communities had been restricted
through voluntary restraint agreements negotiated and concluded with these countries. The European
Communities tried to agree on a similar voluntary restraint agreement with Chile but the negotiations failed.
The European Communities subsequently adopted measures restricting the importation of Chilean apples to
approximately 42,000 tonnes a year. The panel in EEC – Apples (Chile I) (1980) found that the measure
applied to apple imports from Chile were not a restriction similar to the voluntary restraint agreements
negotiated with the other appleexporting countries and therefore was inconsistent with Article XIII:1.
The panel came to this conclusion primarily on the basis that: (1) there was a difference in transparency
between the two types of action; (2) there was a difference in the administration of the restrictions, the
one being an import restriction, the other an export restraint; and (3) the import restriction was unilateral
and mandatory while the other was voluntary and negotiated.8

2)Rules on Distribution of Trade

If quantitative restrictions, other than a prohibition or ban, are applied on the importation of a product, the
question arises how the trade that is still allowed will be distributed among the different Members exporting
that product. The chapeau of Article XIII:2 of the GATT 1994 provides in this respect:
In applying import restrictions to any product, [Members] shall aim at a distribution of trade in such product
approaching as closely as possible the shares which the various [Members] might be expected to obtain in
the absence of such restrictions.88
3) Import Licensing Requirement
• Quotas and Tariff Quotas are administered through import licensing procedures.
• Article 1.1 of the Agreement on Import Licensing Procedures, commonly referred to as the Import
Licensing Agreement, defines import-licensing procedures as:
administrative procedures requiring the submission of an application or other documentation (other than that
required for customs purposes) to the relevant administrative body as a prior condition for importation into
the customs territory of the importing Member.
Some important provisions-
Non-discrimination among applicants for import licences: 2 Obligation to give reason for refusing an
application: 3 Right of appeal or review of the decisions on applications 4 Time limits for processing
applications 5 Validity of import licences and

Other important provisions

• Special and Differential Treatment- Art XVIII of GATT developing countries can impose QR for
Balance of Payment (BoP) reasons.
• Other Non Tariff barriers-
• Art VIII- Custom Formalities and Procedures
• Article X: Publication and Administration of Trade Regulations (Transparency)
• Eg: -Unfair and Arbitrary Application of Trade Measures- Art X:3:a- Each contracting party shall
administer in a uniform, impartial and reasonable manner all its laws, regulations, decisions and
rulings of the kind described in paragraph 1 of this Article.
• These transparency obligations may also include WTO plus obligations
 WEEK 8-9
Sanitary and Phytosanitary Measures (SPS) AND Technical Barriers to Trade (TBT)

TBT AGREEMENT
Background
• Nature of the measure- regulatory measure/ non tariff barrier.
• Objective of the requirement- life, health, environment, consumer, deceptive practices, legitimate
societal values.
• These can be mandatory requirements, rules laid down by standardizing bodies
 • These may be barriers which may not be applied in discriminatory manner yet increase the cost of
compliance and difficulty to gain market access.

Scope of Application
1. Measures to which TBT applies: -
• Technical Regulation
• Standards
• Conformity Assessment Procedures
2. 2. Entities to which TBT Applies
3. 3. Temporal Scope of Application of TBT
4. 4. Relationship with Other Agreements – SPS Agreement and GATT 1994

1.1Measures to Which the TBT Agreement Applies

The rules of the TBT Agreement apply to: (1) technical regulations; (2) standards; and (3) conformity
assessment procedures.
Technical Regulations
• Annex 1.1 – Defines Technical Regulation
• Technical regulation- Document which lays down product characteristics or their related processes
and production methods, including the applicable administrative provisions, with which compliance
is mandatory. It may also include or deal exclusively with terminology, symbols, packaging, marking
or labelling requirements as they apply to a product, process or production method.
• The rules specifically applicable to technical regulations are set out in Articles 2 and 3 of the TBT
Agreement.
• Eg- Law that requires no single use of plastics; wine to be sold in green glass bottles; plain
packaging of cigarette packets, no lead in petrol.
EC- Asbestos Case
Facts: The measure at issue consisted of, on the one hand, a general ban on asbestos and asbestos-
containing products and, on the other hand, some exceptions referring to situations in which asbestos-
containing products would be allowed.
Issue: whether the measure at issue was a ‘technical regulation?
Held: The panel concluded that the ban itself was not a technical regulation, whereas the exceptions to
the ban were. On appeal, the Appellate Body first firmly rejected the panel's approach of considering
separately the ban and the exceptions to the ban. According to the Appellate Body, the ‘proper legal
character’ of the measure cannot be determined unless the measure is looked at as a whole, including
both the prohibitive and the permissive elements that are part of it. The Appellate Body then examined
whether the measure at issue, considered as a whole, was a technical regulation within the meaning of
the TBT Agreement. On the basis of the definition of a ‘technical regulation’ of Annex 1.1, quoted
above, the Appellate Body set out a number of considerations for determining whether a measure is a
technical regulation.
1) Measure must stipulate product characteristics- First, for a measure to be a ‘technical regulation’,
it must ‘lay down’ – i.e. set forth, stipulate or provide – ‘product characteristics’ that include
objectively definable ‘features’, ‘qualities’, ‘attributes’, or other ‘distinguishing mark’ of a product.

Such characteristics might relate, inter alia, to a product's composition, size, shape, colour, texture,
hardness, tensile strength, flammability, conductivity, density, or viscosity.
• Egs: of product characteristics given in the TBT Agreement- terminology, symbols, packaging,
marking or labelling requirements
• Product characteristics may be intrinsic to the product (what goes inside) to extrinsic (how it
appears).
• Products characteristics may be imposed in positive or negative form- i.e. it should possess certain
characteristics or it should not possess certain characteristics.
2) Measure Must be mandatory.

3) Technical regulation must apply to identifiable products or group of products- It means from
the regulation you are able to identify the products. No need to expressly identify products by name,
but simply makes them identifiable – for instance, through the ‘characteristic’ that is the subject of
regulation.
A "technical regulation" must, of course, be applicable to an identifiable product, or group of products.
Otherwise, enforcement of the regulation will, in practical terms, be impossible. This consideration also
underlies the formal obligation, in Article 2.9.2 of the TBT Agreement, for Members to notify other
Members, through the WTO Secretariat, "of the products to be covered " by a proposed "technical
regulation". (emphasis added) Clearly, compliance with this obligation requires identification of the
product coverage of a technical regulation. However, in contrast to what the Panel suggested, this does
not mean that a "technical regulation" must apply to "given" products which are actually named,
identified or specified in the regulation. (emphasis added) Although the TBT Agreement clearly applies
to "products" generally, nothing in the text of that Agreement suggests that those products need be
named or otherwise expressly identified in a "technical regulation". Moreover, there may be perfectly
sound administrative reasons for formulating a "technical regulation" in a way that does not expressly
identify products by name, but simply makes them identifiable – for instance, through the
"characteristic" that is the subject of regulation.

EC-Sardines (2002)
Facts: The measure at issue in EC – Sardines (2002) was an EC regulation setting out a number of
prescriptions for the sale of ‘preserved sardines’, including a requirement that a product sold under the
name ‘preserved sardines’ contained only one species of sardines (namely, the Sardina pilchardus
Walbaum), to the exclusion of other species (such as the Sardinops sagax).
Issue: Whether the measure is a technical regulation?
Holding: Confirmed the EC Asbestos ruling. established a three-tier test for determining whether a
measure is a ‘technical regulation’ under the TBT Agreement: • the measure must apply to
an identifiable product or group of products;• the measure must lay down product characteristics; and
•compliance with the product characteristics laid down in the measure must be mandatory.
As the enforcement of the EC Regulation had led to a prohibition against labelling Sardinops sagax as
‘preserved sardines’, this product was considered to be ‘identifiable’. With regard to the second element
of the three-tier test, the question arose as to whether a ‘naming’ rule, such as the rule that only Sardina
 pilchardus could be named ‘preserved sardines’, laid down product characteristics. The Appellate Body
held in this respect that product characteristics include means of identification and that, therefore, the
naming rule at issue definitely met the requirement of the second element of the test. As the European
Communities did not contest that compliance with the Regulation at issue was mandatory, the Appellate
Body found that the third element of the three-tier test was also met, and the measure was therefore a
‘technical regulation’ for purposes of the TBT Agreement.
With respect to the issue of application- Panel and AB held that it can be concluded that the TBT
Agreement applies to technical regulations, which, although adopted prior to 1995, are still in force.

Standards
• Annex 1.2 Standards- Document approved by a recognized body, that provides, for common and
repeated use, rules, guidelines or characteristics for products or related processes and production
methods, with which compliance is not mandatory. It may also include or deal exclusively with
terminology, symbols, packaging, marking or labelling requirements as they apply to a product,
process or production method.
• Voluntary in nature
• Eg: -ISI Mark for industrial goods; SAC (Standardization Administration of the People’s Republic
Of China)
• Contrast to technical regulation- standards are voluntary. Companies comply with voluntary
standards in response to consumer concerns. But often companies have little choice but to comply
with these voluntary standards as non-adherence would much more in practice make it difficult to
sell their products.
• Rules regarding standards is given in Art 4 of TBT and Annex 3 to the TBT- Code Of Good Practice
For The Preparation, Adoption And Application Of Standards.

Conformity assessment procedures

It is defined in Annex 1.3 to the TBT Agreement as: [a]ny procedure used, directly or indirectly, to
determine that relevant requirements in technical regulations or standards are fulfilled.
• Explanatory note to Annex 1.3- Conformity assessment procedures include, inter alia, procedures for
sampling, testing and inspection; evaluation, verification and assurance of conformity; registration,
accreditation and approval as well as their combinations.
• Rules applicable- Art 5-9 to the TBT Agreement.

Pertinent to Note that: With regard to NPR- PPM

The TBT Agreement applies to technical regulations, standards and conformity assessment procedures
relating to: (1) products (including industrial and agricultural products); and (2) processes and production
methods (PPMs).
It is the subject of much debate, however, whether the processes and production methods to which the TBT
Agreement applies include so-called non-product-related processes and production methods (NPR–PPMs).
This term is commonly used to refer to processes and production methods that do not affect the physical
characteristics of the final product put on the market. An example of a technical regulation relating to an
NPR–PPM would be the prohibition of the use of environmentally unfriendly sources of energy, or the use
of child labour, in the production of a product.
No consensus regarding NPR PPM-
Not fall within the scope of TBT -Interpretation 1- as the word “related to” prefixed to product
characteristics
Fall within the scope of TBT-Interpretation 2- Last line – It may also include or deal exclusively with
terminology, symbols, packaging, marking or labelling requirements as they apply to a product, process or
production method- doesn’t use the word related to.

Difference between a technical regulation and a standard

2) Entities Covered under TBT Agreement

The TBT Agreement is mainly addressed to central government bodies
• Central Government Bodies (Annex 1.6)
• Local Government Bodies (Annex 1.7)
• Non Government Bodies (Annex 1.8)

3)Temporal application/ Temporal Scope of Application under

The issue arose whether the TBT Agreement applies to technical regulations which were already in force on
1 January 1995, i.e. the date on which the TBT Agreement entered into force.
TBT Agreement applies to Technical Regulations prior to 1995 if they continue to be in force.
Absent a contrary intention, a treaty cannot apply to acts or facts which took place, or situations which
ceased to exist, before the date of its entry into force.

Relationship with SPS Agreement and Government Procurement

TBT Agreement doesn’t apply to
• Agreement on Government Procurement (Art 1.4 of TBT )
 • Agreement on sanitary and phytosanitary measures. (Art 1.5 of TBT)-
They are removed from the scope of application even if they take form of TR, standard or conformity
assessment procedures.
Note- A measure can have SPS and non SPS measure aspect- TBT can apply to non SPS Measure category
Fertilizers being imported- packeging or labelling aspect (Non SPS measure) while residue level or ratio of
N:P:K that can cause harm to human life (SPS measure)

GATT and TBT

The relationship between the GATT 1994 and the TBT Agreement is of a different nature and is not
characterised by mutual exclusivity.
TBT Agreement expands on the pre-existing GATT disciplines and emphasises that the two agreements
should be interpreted in a coherent and consistent manner.
In case of conflict between a provision of the GATT 1994 and a provision of another multilateral agreement
on trade in goods, the latter will prevail to the extent of the conflict

Substantive Obligations
• MFN and NT Obligation
• Refrain from unnecessary Obstacles to International Trade
• Obligation to Base TBT on International Standards

1.Non Discrimination
With respect to technical regulations, Article 2.1 of the TBT Agreement provides that: Members shall ensure
that in respect of technical regulations, products imported from the territory of any Member shall be
accorded treatment no less favourable than that accorded to like products of national origin and to like
products originating in any other country
Example: A requirement that furniture from Brazil must be made from sustainable wood (i.e. wood from
sustainably managed forests), while there is no such requirement for furniture from African countries, would
constitute a violation of the MFN treatment obligation set out in Article 2.1 of the TBT Agreement.
• Annex 3D- standards
• Art 5.1.1- conformity assessment procedures.

National Treatment Test under Art 2.1

Article 2.1 of the TBT Agreement thus sets out a three-tier test of consistency with the national treatment
obligation. This test of consistency requires the examination of: (1) whether the measure at issue is a
‘technical regulation’ within the meaning of Annex 1.1; (2) whether the imported and domestic products at
issue are ‘like products’; and (3) whether the imported products are accorded ‘treatment no less favourable’
than like domestic products.
Overview of Requirements
 • 1st requirement- TR? Already discussed.
• 2nd Requirement – Likeness
• Nature of extent and competitive relationship between and among the products.
• Analysis of likeness as undertaken under Art III:4
• 3rd Requirement- Treatment no less favourable-
• Modifies the condition of the competition in the relevant market to the detriment of imported
products vs like domestic products.
• It prohibits both de jure and de facto discrimination against imported products.
• In case of a de facto discrimination- Additional analysis of – whether the detrimental impact stems
exclusively from a legitimate regulatory distinction rather than reflecting discrimination against
group of imported products.
• Therefore to establish treatment no less favourable look at the: -
• Design, architecture, revealing structure, operation of the technical regulation at issue.
• Even-handedness.
• Prohibiting both de jure and de facto discrimination against imported products, while at the
same time permitting detrimental impact on competitive opportunities for imports that stems
exclusively from legitimate regulatory distinctions.

Ultimate checklist-Treatment no less favourable

• Modifies the condition of the competition in the relevant market to the detriment of imported
products vs like domestic products- Genuine relationship between measure and detrimental impact
on competitive opportunities. No need to take actual trade effects.
• Whether the detrimental impact stems exclusively from a legitimate regulatory distinction. (Check
even-handedness) of the measure.
• Arbitrary or unjustifiable application- means not legitimate
• Eg- US COOL on pork and beef- the labels did not identify specific production steps and contained
confusing or inaccurate origin information. They didn’t necessarily convey information to
consumers.

Obligation to Refrain from Unnecessary Obstacles to International Trade

The first sentence of Article 2.2 of the TBT Agreement provides that, ---“with respect to technical
regulations: Members shall ensure that technical regulations are not prepared, adopted or applied with a
view to or with the effect of creating unnecessary obstacles to international trade.”
Article 2.2 Second sentence- For this purpose, technical regulations shall not be more traderestrictive than
necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create.
Both the first and second sentences of Article 2.2 reflect the notion of ‘necessity’.
The third sentence of Article 2.2- This list of legitimate objectives includes: (1) national security; (2) the
prevention of deceptive practices; (3) the protection of human health and safety, animal or plant life or
health; and (4) the protection of the environment.
The fourth sentence states that, in assessing such risks, it is relevant to consider, inter alia: (1) available
scientific information; (2) related processing technology; or (3) intended end uses of products
Same applicable to- Standards( Annex 3E) and Conformity Assessment Procedure (Art 5.1.2)
Article 2.2 sets out a four-tier test of consistency. There are four main questions which must be answered
to determine whether or not a measure is consistent with Article 2.2,
(1) whether the measure at issue is a ‘technical regulation’ within the meaning of Annex 1.1; (2) whether the
measure at issue is ‘trade-restrictive’; (3) whether the measure at issue fulfils a legitimate objective; and (4)
whether the measure at issue is ‘not more trade-restrictive than necessary’ to fulfil a legitimate objective,
taking account of the risks non-fulfilment would create.

• 1st Requirement- Already discussed.

• 2nd Requirement- trade restrictiveness- having a limiting effect on trade. Since it talks about
unnecessary restriction- it means some restriction is permissible.
• 3rd Requirement- Fulfilling a Legitimate Objective
• First- determine objective- not confined to the way the member determines. Panel can look
into text of the statute, legislative history, and other evidence regarding structure and
operation.
• Second- Legitimate objectives- lawful, justifiable, proper. Listed out in sentence 3. The list is
not exhaustive.
• Third- Fulfilling legitimate objective- Look at degree of contribution it makes towards the
achievement of legitimate objective. Is it able to achieve- To check look at design, structure
operation of the measure.
• It is important to analyse the contribution to the legitimate objective is actually achieved by
the measure at issue not the contribution that is intended to achieve.
• 4th requirement- Not more trade restrictive than necessary. Page- 2076
•
• a panel should begin by considering factors that include: (i) the degree of contribution made by the
measure to the legitimate objective at issue; (ii) the trade-restrictiveness of the measure; and (iii) the
nature of the risks at issue and the gravity of consequences that would arise from non-fulfilment of
the objective(s) pursued by the Member through the measur
• In the context of such ‘comparative analysis’, it may be relevant to consider in particular: (1)
whether the proposed alternative measure is less traderestrictive; (2) whether it would make an
equivalent contribution to the relevant legitimate objective, taking account of the risks non-fulfilment
would create; and (3) whether it is reasonably availabl
• Necessity Test
Relational Analysis and Comparative Analysis
Sanitary and Phytosanitary Measures
Scope of Application
• Measures to which SPS Agreement applies.
• Entities covered
• Temporal Application
Substantive Provisions

Nature of the measure to which SPS Agreement applies-

A sanitary or phytosanitary measure, or ‘SPS measure’, is defined in paragraph 1 of Annex A to the SPS
Agreement as: Any measure applied:
• Sanitary or phytosanitary measure - Any measure applied:
• (a) to protect animal or plant life or health within the territory of the Member from risks arising from
the entry, establishment or spread of pests, diseases, disease-carrying organisms or disease-causing
organisms;
• (b) to protect human or animal life or health within the territory of the Member from risks arising
from additives, contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs;
• (c) to protect human life or health within the territory of the Member from risks arising from diseases
carried by animals, plants or products thereof, or from the entry, establishment or spread of pests; or
• (d) to prevent or limit other damage within the territory of the Member from the entry, establishment
or spread of pests.
• Sanitary or phytosanitary measures include all relevant laws, decrees, regulations, requirements and
procedures including, inter alia, end product criteria; processes and production methods; testing,
inspection, certification and approval procedures; quarantine treatments including relevant
requirements associated with the transport of animals or plants, or with the materials necessary for
their survival during transport; provisions on relevant statistical methods, sampling procedures and
methods of risk assessment; and packaging and labelling requirements directly related to food safety.

Interpretation
• “Include and inter alia” in 1st and 2nd sentence- list of measures that can be taken is not exhaustive.
• Relevant- indicates only measures that fulfil the objective listed in a to d.
 • In broad terms, an SPS measure' is one that: (i) aims at the protection of human or animal life or
health from food-borne risks; or (ii) aims at the protection of human, animal or plant life or health
from risks from pests or diseases: or iii) aims at the prevention or limitation of other damage from
risks from pests.
• Eg- A measure aimed at protecting humans, animals or plants from health-related risks other than
food borne risks or risks from pests or disease, such as eg- health risks from lead-based paint (as
used in children’s toys) or asbestos fibres (as used in building materials) are not SPS Measures.

Difference between TBT and SPS

• Eg – Apple juice bottle-
1. Hygiene standard for bottling Apple juice – to prevent contaminants entering the Apple Juice.
Objective- Human health- This TR will be a SPS and not TBT.
2. Product description – Not call it apple juice until it contains 20% of apple- Objective- Inform
Consumers- This would be a TBT and not SPS.
3. Maximum amount of contaminants that can be allowed in the drink- This will be an SPS- Protect
Human health from harmful substances.
4. Ingredient Labelling- It depends on the objective- complicated area.
If information for consumer awareness-sugar (make dietary choices) TBT
If health reasons (Eg- allergies- SPS)
5. Recyclable Bottle- Objective- Environment Pollution to be curbed- Not fall in Annex A Para 1
specifically- food, feed, pests, plant, animal related disease- Not SPS but TBT.

Entities Covered by the SPS Agreement

SPS measures are often measures adopted and implemented by the central government bodies of a WTO
Member.
They may also be in the hands of other bodies, such as regulatory agencies, regional bodies, subfederal
governments and nongovernmental entities.

Temporal Scope of Application of the SPS Agreement

Thus, the SPS Agreement applies pre-1995 SPS measures, to the extent of course that these measures are
still in force.
Relationship with Other WTO Agreements
TBT- However, as already discussed above and as explicitly set out in Article 1.5 of the TBT Agreement,
the TBT Agreement does not apply to SPS measures. When a measure is an ‘SPS measure’, as defined in
Annex A(1) to the SPS Agreement, the SPS Agreement applies to the exclusion of the TBT Agreement,
even if the measure would otherwise be considered a ‘technical regulation, standard or conformity
assessment procedure’ for purposes of the TBT Agreement. The relationship between the SPS Agreement
and the TBT Agreement can thus be described as one of mutual exclusivity.
GATT- It is therefore possible for a measure to be subject to the GATT disciplines as well as those of the
SPS Agreement. Article 2.4 thus provides for a (rebuttable) presumption of GATT 1994 consistency of all
measures that are in conformity with the SPS Agreement. The opposite is not the case. Measures that are in
conformity with the GATT 1994 cannot be presumed to be consistent with the SPS Agreement,

Substantive Provisions of the SPS Agreement

• Basic Principles
• Harmonization
• Risk Assessment
• Risk Management

BASIC PRINCIPLES
The basic principles of the SPS Agreement are set out in Article 2, entitled ‘Basic rights and obligations
This section discusses the following basic principles of the SPS Agreement: (1) the sovereign right of WTO
Members to take SPS measures; (2) the obligation to take or maintain only SPS measures necessary to
protect human, animal or plant life or health (the ‘necessity requirement’); (3) the obligation to take or
maintain only SPS measures based on scientific principles and on sufficient scientific evidence (the
‘scientific disciplines’); and (4) the obligation not to adopt or maintain SPS measures that arbitrarily or
unjustifiably discriminate or constitute a disguised restriction on trade (the ‘non-discrimination’
requirement).
1) Right to Take SPS Measures- Art 2.1 Members have the right to take sanitary and phytosanitary
measures necessary for the protection of human, animal or plant life or health, provided that such
measures are not inconsistent with the provisions of this Agreement.
In contrast, under the SPS Agreement, the complaining Member must show that the measure is
inconsistent with the rules of the SPS Agreement.
2) Only to the Extent Necessary’ -the sovereign right of Members to take SPS measures is, first of all,
limited by the requirement that: any sanitary or phytosanitary measure [be] applied only to the extent
necessary to protect human, animal or plant life and health.
3) Only to the Extent Necessary- . It requires that: any sanitary or phytosanitary measure … [be] based
on scientific principles and … not [be] maintained without sufficient scientific evidence, e
4) Non-Discrimination- Art 2.3 of SPS- Members shall ensure that their sanitary and phytosanitary
measures do not arbitrarily or unjustifiably discriminate between Members where identical or similar
conditions prevail, including between their own territory and that of other Members. Sanitary and
phytosanitary measures shall not be applied in a manner which would constitute a disguised
restriction on international trade.
• Test of Non Discrimination-
• 1. Discrimination exists between the products (between imported and domestic and among the
imported products)
• 2. Discrimination is arbitrary and unjustifiable.
3. Identical or similar conditions prevail in Members compared (Here similarity of risks has to be
compared instead of similarity in products)

Article 2.3 recognises that it is the similarity of the risks, rather than the similarity of the products,
that matters. Thus, when dissimilar products pose the same or similar health risks, they should be
treated in the same way.
In this regard, the panel in Australia – Salmon (Article 21.5 – Canada) (2000) was not convinced that
‘identical or similar’ conditions prevailed in Australia and Canada, as there was a substantial
difference in the disease status of these two Members
HARMONIZATION
The resulting wide variety of SPS measures that producers face in their different export markets has a
negative impact on market access for their products, as they may have to adjust products to many different
SPS measures.72
The SPS Agreement addresses this problem in Article 3 by encouraging, but not obliging, Members to
harmonise their SPS measures around international standards
Under Article 3 of the SPS Agreement, Members have three autonomous options:
Option 1- base on
The first option is set out in Article 3.1 of the SPS Agreement. Article 3.1 obliges Members to base their
SPS measures on international standards where they exist, except as provided for in Article 3.3. The
‘international standards’ to which Article 3.1 refers are standards set by international organisations, such as
the Codex Alimentarius Commission with respect to food safety, the World Organisation for Animal H
EC- Hormones(1998)
Where a relevant international standard exists, Members must – according to Article 3.1 – base their SPS
measures thereon. WWith respect to this requirement, the Appellate Body made the following observations
in EC – Hormones (1998):
Thus, the non-binding standards set by the international standard-setting organisations do not become
binding by virtue of the SPS Agreement. According to the Appellate Body in EC – Hormones (1998), a
measure that is ‘based on’ an international standard is one that ‘stands’ or ‘is founded’ on, or ‘built’ upon or
‘supported’ by, the international standard. To be ‘based on’ an international standard, an SPS measure need
not incorporate all of the elements of that standard.78 It suffices that some of the elements of the standard
are adopted and that the measure does not contradict the standard.

Option 2- conform to
The second option available to Members under Article 3.2 of the SPS Agreement is to ‘conform’ their SPS
measures to the relevant international standard. To ‘conform to’ is more demanding than to ‘base on’. In EC
– Hormones (1998), the Appellate Body interpreted this requirement as follows: Such a measure would
embody the international standard completely and, for practical purposes, converts it into a municipal
standard
Completely embody the international standard and convert into a municipal standard.
This conformity is designed to incentivize members to adopt it.
Presumption of GATT Consistency (rebuttable

Option 3- choose a measure resulting in higher level of protection

The third option that Members may choose, with respect to international standards, is to differ from the
relevant international standard by choosing a measure resulting in a higher level of protection than that
achieved by the international standard
Article 3.3 of the SPS Agreement, is important as it reflects the recognition of the right of Members to
choose the level of protection they deem appropriate in their territories.
In respect of this option, the Appellate Body in EC – Hormones (1998) held that: [t]his right of a Member to
establish its own level of sanitary protection under Article 3.3 of the SPS Agreement is an autonomous right
and not an ‘exception’ from a ‘general obligation’ under Article 3.1.
• Art 3.3 can be invoked in two alternative situation-
1. there is a scientific justification, or
2. as a consequence of the level of sanitary or phytosanitary protection a Member determines to be
appropriate in accordance with the relevant provisions of paragraphs 1 through 8 of Article 5
Lack of clarity as to how these two situations differ.
In both cases Art 3.3 Measure can be adopted only after a risk assessment is done.

RISK ANALYSIS
• It involves two fold procedures-
• Risk Assessment- The term 'risk assessment refers to the scientific process of identifying the
existence of a risk and establishing the likelihood that the risk may actually materialise according
to the measures that could be applied to address the risk.
• Risk management- is the policy-based process of determining the level of protection a country
wants to ensure in its territory and choosing the measure that will be used to achieve that level
of protection. This takes into account not only the scientific results of the assessment, but also
considerations relating to societal values such as consumer preferences, industry interests, relative
costs, etc.
• The distinction between these two elements of the risk analysis process is not absolute. Non-
scientific considerations do play some part in risk assessment, and scientific considerations

RISK ASSESSMENT
The term ‘risk assessment’ refers to the scientific process of identifying the existence of a risk and
establishing the likelihood that the risk may actually materialise according to the measures that could be
applied to address the risk.
Article 5.1 of the SPS Agreement states: Members shall ensure that their sanitary or phytosanitary measures
are based on an assessment, as appropriate to the circumstances, of the risks to human, animal or plant life or
health, taking into account risk assessment techniques developed by the relevant international organizations.
Article 5.1 thus obliges Members to base their SPS measures on a risk assessment, as appropriate to the
circumstances.
• To check consistency with Art 5.1
1. Whether there is a risk assessment within the meaning of SPS Agreement.
2. Whether the SPS measure at issue is based on the risk assessment.

A ‘risk assessment’ is defined in paragraph 4 of Annex A to the SPS. Two Types of risk assessment.
 • Pests or diseases-
1. Identify the pests or diseases whose entry, establishment or spread a Member wants to prevent, as
well as the potential biological and economic consequences associated with the entry, establishment
of spread of such pests/diseases;
2. Evaluate the likelihood of entry, establishment or spread of these pests or diseases and the
associated biological and economic consequences; and
3. Evaluate the likelihood of entry, establishment or spread of these pests or diseases according to the
SPS measures that might be applied

• Food borne risks-

1. Identify the adverse effects on human or animal health (if any) arising from the additive,
contaminant, toxin or disease-causing organism in food/beverages feedstuffs: and
2. If such adverse health effects exist evaluate the potential for such adverse effects to occur.
(Not that stringent as mentioned in 1st category- pests.
No evaluation of bio/ eco consequences)
Potential (lesser degree than likelihood)

Important caveats associated with risk assessment

• Proof of actual risk and not theoreti8cal uncertainty
• Not required to quantify the risk in terms of numbers always. It may expressed quantitatively or
qualitatively.
• It should be specific to particular type of risk. (Not general harm)
• It may not embody mainstream scientific opinion, can embody minority or divergent view from a
qualified and respected source.
• Evolution of scientific evidence alongwith risk assessment should be seen.

Factors to be taken into consideration while doing risk analysis

• Art 5.2 of SPS-
• available scientific evidence; relevant processes and production methods; relevant inspection,
sampling and testing methods; prevalence of specific diseases or pests; existence of pest- or disease-
free areas; relevant ecological and environmental conditions; and quarantine or other treatment.
• This is not a closed list- even non scientific factors can be taken into consideration. (Eg-
Administrative setup to ensure quality check; lack of vet care)
• Art 5.3- factors in case of plant/ animal health being affected- additional factors to be taken into
account (not applicable to human health)

OBLIGATIONS RELATED TO RISK MANAGEMENT

Risk management, as explained above, entails policy decision-making regarding: (1) the level of protection
that a country wants to secure in its territory; and (2) the measure it will use to achieve this level of
protection.
Appropriate Level of Protection- Risk management involves, in the first place, a decision on the ‘appropriate
level of protection.
• 2 Provision on choice of ALOP
• Obligation w.r.t ALOP- Art 5.4- Members should, when determining the appropriate level of
sanitary or phytosanitary protection, take into account the objective of minimizing negative trade
effects.
• Obligation under Art 5.5- Prohibits arbitrary or unjustifiable distinction in ALOP and calls for Non
Discriminatory Application

Test of consistency under Art 5.5 of SPS

In EC – Hormones (1998), the Appellate Body recognised that countries establish their levels of protection
ad hoc as risks arise. Absolute consistency in levels of protection is neither realistic nor required by Article
5.5 of the SPS Agreement. 128 To establish whether an SPS measure is inconsistent with Article 5.5, three
questions need to be answered: With regard to the first element of this three-tier test, it is obvious that not all
risks can be treated the same. Thus, according to the Appellate Body in EC – Hormones (1998), the
‘different situations’ referred to in Article 5.5 of the SPS Agreement must be comparable situations, that is,
they must have some common element or elements.130
whether the Member concerned has set different levels of protection in different situations;
whether these different levels of protection show arbitrary or unjustifiable differences in their treatment of
different situations;
and whether these arbitrary or unjustifiable differences lead to discrimination or disguised restrictions on
trade

With regard to the first element of this three-tier test, it is obvious that not all risks can be treated the same.
Thus, according to the Appellate Body in EC – Hormones (1998), the ‘different situations’ referred to in
Article 5.5 of the SPS Agreement must be comparable situations, that is, they must have some common
element or elemen

Obligation- Precautionary Principle

Precautionary principle- Govt taken an action where sufficient scientific evidence is not available to
assess the risk. Relevant Art 5.7.
Triggered when there is insufficiency of scientific evidence
4 requirements-
• 1. Measure must be imposed in respect of a situation where relevant scientific evidence is
insufficient: (Check if small amount of evidence available or accumulated evidence is inconclusive
or unreliable)
• 2. Be adopted on the basis of available pertinent information;
• 3. Not be maintained unless the Member seeks to obtain the additional information necessary for a
more objective assessment of risk; and
4. be reviewed accordingly within a reasonable period of time

Other Obligations-
• Adaptation to Regional Conditions- Art 6 (issue arises in specific region and not the entire territory)
• Transparency- Notification of measure in advance
• Special and Differential Treatment- Art 10

WEEK 10
TRADE REMEDIES

ANTI-DUMPING
Definition of Dumping: ‘Dumping’ is a situation of international price discrimination. It is a process where a
company exports a product at a price lower than the price it normally charges in its own home country. Price
of a product in exporting country vs Price of a product in importing country.
 Or
Article VI of the GATT 1994 and Article 2.1 of the Anti-Dumping Agreement define: dumping as the

introduction of a product into the commerce of another country at less than its ‘normal value’. Thus, a
product can be considered dumped, where the export price of the product is less than its normal value, that is
the comparable price, in the ordinary course of trade, for the like product destined for consumption in the
exporting country.
Article VI of GATT accepts the proposition that dumping is an Unfair Trade Practice. Article VI of the
GATT 1994 and the Anti-Dumping Agreement provide a framework of substantive and procedural rules
governing how a Member may counteract or ‘remedy’ dumping, through the imposition of ‘anti-dumping’
measures.
Definition of Anti- Dumping Duty: It is a protectionist tariff that a domestic government imposes on foreign
imports that it believes are priced below fair market value.
Export Price- The price of the product at which the exporter sells in the importing country.
Normal Value- Price of the product in the home market of the exporter or producer.

Anti Dumping Agreement

• It deals with injurious dumping by allowing Members to take anti-dumping measures to counteract
injurious dumping and imposing disciplines on the use of such anti-dumping measures.
• Dumping is an act of private party, therefore WTO Law doesn’t prohibit dumping but it regulates the
response to dumping.
• Since dumping may cause injury to the domestic industry of the importing country, therefore Art VI
of the GATT gives substantive and procedural rules governing how a member may remedy a
dumping.

When can an action be introduced against dumping?

Pursuant to Article VI of the GATT 1994 and the Anti-Dumping Agreement, WTO Members are entitled to
impose anti-dumping measures if, after an investigation initiated: a determination is made that:
(1) there is dumping;
(2) the domestic industry producing the like product in the importing country is suffering injury (or threat
thereof); and
(3) there is a causal link between the dumping and the injury

1)Determination of Dumping (Requirement 1)

As we know, Dumping is when Export Price < Normal value.
NORMAL VALUE: Article 2.1 of the Anti-Dumping Agreement defines the ‘normal value. The ‘normal
value’ is the price of the like product in the home market of the exporter or producer.
There exist 4 conditions: The four conditions that sales transactions must fulfil so that they may be used to
determine the ‘normal value’.
1) The sale must be ‘in the ordinary course of trade: Sales not made in the ordinary course of trade
may be disregarded in determining normal value. It excludes sales to affiliated parties, very high
priced sales or abnormally low priced sales or sales below cost. Anyways, investigation must be
done.

Sometimes such sales (that are not in ordinary course of trade) can be included in calculating normal
value. Members may exercise discretion but it has to be within limits- Art 2.2.1.1 first sentence.

Costs shall normally be calculated on the basis of records kept by the exporter or producer under
investigation:
If 2 conditions are met- deduced from the word -‘provided’
• Such records are in accordance with the generally accepted accounting principles of the exporting
country.
• Such records reasonably reflect the costs associated with the production and sale of the product
under consideration. (There must be a genuine relationship between the two).

2) the sale must be of the ‘like product’: the determination of what constitutes a ‘like product’
involves, first examining the imported product or products that is or are alleged to be dumped and,
secondly, establishing the product that is ‘like’.
Article 2.6 of the Anti-Dumping Agreement defines the ‘like product’ as: [a] product which is identical, i.e.
alike in all respects to the product under consideration, or in the absence of such a product, another product
which, although not alike in all respects, has characteristics closely resembling those of the product under
consideration
• A ‘like product’ is thus an identical product or a product with a close resemblance to the product
under consideration.

3) Destined for consumption in the exporting country.

4) Price must be comparable- Article 2.4 of the Anti-Dumping Agreement requires that a ‘fair
comparison’ be made between export price and normal value.

Constraints in Comparison
These are situations when domestic price doesn’t produce an appropriate normal value-
• no sales of the like product in the ‘ordinary course of trade’ in the domestic market of the exporting
country;,
• because of the low volume of sales in that market, such sales do not permit a proper comparison
• Because of particular market situation (non market economy). mports from a country which has a
complete or substantially complete monopoly of its trade and where all domestic prices are fixed by
the State, often referred to as a ‘non-market economy’.
IN THAT CASE RESORT TO
Article 2.2 of the Anti-Dumping Agreement provides that an importing Member may select one of two
alternative methods for determining an appropriate normal value for comparison with the export price:
 • using a third country price as the normal value;: Provided it should be representative
• constructing the normal value: he cost of production in the country of origin plus a reasonable
amount for administrative, selling and general costs and for profits.

EXPORTING PRICE/ VALUE

Based on transaction price. If not reliable- then price can be constructed as per Art 2.3 of ADA.
(Reference)
The export price is ordinarily based on the transaction price at which the producer in the exporting country
sells the product to an importer in the importing country. The ‘constructed export price’ is based on the price
at which the product is first sold to an independent buyer.

COMPARISION OF EXPORT PRICE WITH THE NORMAL VALUE

To determine whether dumping, as defined above, exists, the export price is compared with the normal
value.
• Fair Comparison Requirement
In order to ensure a fair comparison between the export price and normal value, Article 2.4 of the
Anti-Dumping Agreement requires that adjustments be made to the normal value, the export price, or
both

Thus, Article 2.4 requires that: [d]ue allowance shall be made in each case, on its merits, for
differences which affect price comparability, including differences in conditions and terms of sale,
taxation, levels of trade, quantities, physical characteristics, and any other differences which are also
demonstrated to affect price comparability.

‘Any other difference’ entails difference in conditions and terms of sale or price comparability.
US – Hot-Rolled Steel- Article 2.4 requires that allowances are made not only for the differences
explicitly mentioned in that Article (i.e. differences in conditions and terms of sale, taxation, levels
of trade, etc.) but for any other differences which are also demonstrated to affect price comparability.
In US – Zeroing (EC) (2006), the Appellate Body stated that Article 2.4 also applies a contrario: it
implies that allowances should not be made for differences that do not affect price comparability
Zeroing - When it chooses to disregard or put a value of zero on instances when the export price is
higher than the home market price, the practice is called “zeroing”.
Debate whether Zeroing is fair or unfair- US – Washing Machines (2016)- the use of zeroing when
applying the W-T comparison methodology is inconsistent with Article 2.4 of the Anti-Dumping
Agreement

• Calculation of the Margin of Dumping

The margin of dumping is the difference between the export price and the ‘normal value’.
As provided in Article 2.4.2, first sentence, of the Anti-Dumping Agreement:
the calculation of the dumping margin normally requires either the comparison of the weighted average
‘normal value’ to the weighted average of prices of all comparable export transactions (i.e. the W-W
methodology); or a transaction-to-transaction comparison of ‘normal value’ and export price (i.e. the T-
T methodology).
 a normal value established on a weighted average basis may be compared to prices of individual export
transactions (i.e. W-T methodology) if: (1) if the authorities find a pattern of export prices which differ
significantly among different purchasers, regions or time periods (‘targeted dumping’), and (2) if an
explanation is provided as to why such differences cannot be taken into account appropriately by the use
of a weighted average-to-weighted average or transaction-to-transaction comparison

EC – Bed Linen (2001)- ZEROING

The practice of "zeroing", as applied in this dispute, can briefly be described as follows16: first, the
European Communities identified with respect to the product under investigation – cotton type bed linen – a
certain number of different "models" or "types" of that product. Next, the European Communities calculated,
for each of these models, a weighted average normal value and a weighted average export price. Then, the
European Communities compared the weighted average normal value with the weighted average export
price for each model. For some models, normal value was higher than export price; by subtracting export
price from normal value for these models, the European Communities established a "positive dumping
margin" for each model. For other models, normal value was lower than export price; by subtracting export
price from normal value for these other models, the European Communities established a "negative dumping
margin" for each model.17 Thus, there is a "positive dumping margin" where there is dumping, and a
"negative dumping margin" where there is not. The "positives" and "negatives" of the amounts in this
calculation are an indication of precisely how much the export price is above or below the normal value.
Having made this calculation, the European Communities then added up the amounts it had calculated as
"dumping margins" for each model of the product in order to determine an overall dumping margin for the
product as a whole. However, in doing so, the European Communities treated any "negative dumping
margin" as zero – hence the use of the word "zeroing". Then, finally, having added up the "positive dumping
margins" and the zeroes, the European Communities divided this sum by the cumulative total value of all the
export transactions involving all types and models of that product. In this way, the European Communities
obtained an overall margin of dumping for the product under investigation.
Zeroing being an inconsistent practice to Art 2.4.2- The Appellate Body concluded in US - Continued
Zeroing (2009) as regards zeroing in periodic reviews: We fail to see a textual or contextual basis in the
GATT 1994 or the Anti-Dumping Agreement for treating transactions that occur above normal value as
dumped for purposes of determining the existence and magnitude of dumping in the original investigation,
and a non- dumped for purposes of assessing the final liability for payment of anti-dumping duties in a
periodic review. If, as a consequence of zeroing, the results of certain comparisons are disregarded only for
purposes of assessing final liability for payment of anti-dumping duties in a periodic review, a mismatch is
created between the product considered dumped in the original investigation and the product for which anti-
dumping duties are collected. This isnot consonant with the need for consistent treatment of a product at the
various stages of anti-dumping duty proceedings.

Requirement 1-Determination of Dumping

• Caveats while calculating dumping-
• Intent is irrelevant
• Injurious effect of dumping to the domestic industry is not relevant in determining whether there is
“dumping” (but relevant in separate analysis.
• Margin of dumping is also defined in relation to the product
Requirement 2- Injury to domestic industry
Therefore, after having determined the existence of dumping, the competent authorities must establish: (1)
the existence, or threat, of injury to the domestic industry; and (2) the causal link between dumping and
injury.
• Domestic Industry
• Defined in Art 4.1 of ADA- Domestic Producers as a whole of the like product or those of them
whose collective output of the products constitutes a major proportion of the total domestic
production.
• ‘Major Proportion’ means it should substantially reflect the total production of producers as a whole.
• It should exclude related producers while analysing domestic industry. They are the ones that are
related to exporters or importers or are themselves importers of allegedly dumped product (as they
may not reflect the true interest of domestic industry)

• Injury

• The Anti-Dumping Agreement defines ‘injury’ to mean one of three things:

(1) material injury to a domestic industry:
• (a) the volume of the dumped imports and the effect of the dumped imports on prices in the
domestic market for like products, and; (Read Art 3.2 for factors taken into account)
• (b) the consequent impact of these imports on domestic producers of such products. (Read
Art 3.4 of ADA for factors into account).

(2) threat of material injury to a domestic industry:

• A determination of a threat of material injury shall be based on facts and not merely on allegation,
conjecture or remote possibility
• Totality of factors needed for conclusion
(3) material retardation of the establishment of a domestic industry:
• a new industry is actually forthcoming.

Requirement 3- Establishment of a Causal Link

Article 3.5 also contains a ‘nonattribution’ requirement. According to this requirement, investigating
authorities must examine any known factors other than the dumped imports that are injuring the domestic
industry at the same time and they must not attribute the injury caused by these other factors to the dumped
imports
Article 3.5 of the Anti-Dumping Agreement identifies several factors which ‘may be relevant’ in
demonstrating a causal link between dumped imports and injury and in ensuring non-attribution to the
dumped imports of injury being caused by other factors.
These factors include: (1) the volume and prices of imports not sold at dumping prices; (2) contraction in
demand or changes in the patterns of consumption; (3) trade-restrictive practices of and competition between
the foreign and domestic producers; (4) developments in technology; and (5) the export performance and
productivity of the domestic industry.
Measure- Anti Dumping Duty
General- Article 9 of the Anti-Dumping Agreement governs the imposition and collection of anti-dumping
duties.
Non- Discriminatory requirement- Article 9.2 of the Anti-Dumping Agreement requires Members to collect
anti-dumping duties on a non-discriminatory basis on imports from ‘all sources’ found to be dumped and
causing injury. 261 The MFN treatment obligation thus applies to the collection of anti-dumping duties
Must not exceed dumping margin- Pursuant to Article 9.3 of the Anti-Dumping Agreement, the antidumping
duty collected shall not exceed the dumping margin as established under Article 2
Calculation of Margin- When anti-dumping duties are imposed, pursuant to Article 6.10 of the Anti-
Dumping Agreement, the investigating authorities must, ‘as a rule’, calculate a dumping margin for each
known exporter or producer of the product under investigation.
Review of duties- Responding to the concern of some Members that some countries were leaving anti-
dumping duties in place indefinitely, Article 11 of the Anti Dumping Agreement establishes rules governing
the duration of antidumping duties and a requirement for the periodic review of any continuing necessity for
the imposition of anti-dumping duties.
Art 11.3- Sunset clause of Anti Dumping Duties- Terminate in 5 years from its imposition unless the
dumping and injury continue.

Permissible Action or Response to dumping

Art VI:2 of GATT read in conjunction with Anti Dumping Agreement
1) Provisional Measures: It is a provisional duty or a security deposit by cash depositor bond equivalent
to the amount of preliminary determined margin of dumping. (Read Art 7 of ADA for details)
2) Price Undertaking: Undertakings to revise prices or cease exports at the dumped price may be
entered into only after investigating authorities have made an affirmative preliminary determinations.
Such actions are voluntary. (Read Art 8 of ADA for detail)
3) Anti Dumping Duties: Read definition above or (Read Art 9 of ADA for detail)

CASE LAWS
India- Lead Acid Batteries Case:
Facts: The dumping allegation brought by U.S., India and Brazil against Bangladesh exporters. Bangladesh
objected to these allegations. Readymade garment, frozen food, lead batteries were being exported. Selling a
product at a lower price in the importer’s market damaging the domestic business is called dumping. If the
export is below than 3% then the export is negligible and difficult to classify as dumping. India imposed on
a duty on the weight of the batteries.
Result: Bangladesh, LDC, difficulties in accessing WTO dispute resolution- resource crunch.
Exporting/interested Company provided for financial support and advisory centre for legal support. Some
weak links in India’s case as well. All these factors led them to pursue WTO dispute resolution. Political
consideration- WTO dispute resolution process usually pursued. India will still find Bangladesh to be a
lucrative trading partner. India agreed to settle the issue during WTO consultation because of the weak legal
position. Bangladesh withdrew the case.
Analysis: The reading highlights difficulties faced by LDC in pursuing such cases- financial, political will
(Art. 3 DSU- cases should not be considered as contentious) yet LDCs are scared. Bangladesh minister met
Indian minister, trying to settle the issue at government level. But then these government level negotiations
become side lined in view of the WTO mechanism, which has an overbearing presence. Having the
consultation mechanism helped Bangladesh and the weak legal position of India helped Bangladesh in
settling the issue before the adjudication stage. They came to a mutual agreement where India admitted that
Bangladesh has not dumped at all. This shows the power of the dispute resolution system. However, if the
case had reached the adjudication stage and Bangladesh had won the case and if India refused to follow the
ruling, Bangladesh as LDC would not be able to retaliate against India. A solution is proposed that all LDC
retaliate, but difficult to build such consensus. First LDC country to become a complainant. India also
wanted to protect its reputation as a champion of the poor countries.

US – Continued Dumping and Subsidy Offset Act, 2000

In US – Offset Act (Byrd Amendment) (2003), the measure at issue was the United States Continued
Dumping and Subsidy Offset Act of 2000 (CDSOA). This Act provided, in relevant part, that United States
Customs shall distribute duties assessed pursuant to an anti-dumping duty order to ‘affected domestic
producers’ for ‘qualifying expenditures’. Recalling its ruling in US – 1916 Act (2000) that Article VI:2, read
in conjunction with the Anti-Dumping Agreement, limits the permissible responses to dumping to definitive
anti-dumping duties, provisional measures and price undertakings. The Appellate Body concluded in US –
Offset Act (Byrd Amendment) (2003) is inconsistent with Article 18.1 of Anti-Dumping Agreement. Article
18.1 of the Anti-Dumping Agreement provides: No specific action against dumping of exports from another
Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this
Agreement.

SUBSIDIES
Subsidies and Countervailing Measures- SCM
Definition of subsidy- Article 1.1 of the SCM Agreement defines a subsidy as a financial contribution by
a government or public body, which confers a benefit.
Article XVI of the GATT 1994 and Articles 3 to 9 of the SCM Agreement impose disciplines on the use of
subsidies.
Similarly, Members may, pursuant to Article VI of the GATT 1994 and Articles 10–23 of the SCM
Agreement, respond to subsidised trade which causes injury to the domestic industry producing the like
product by imposing countervailing duties on subsidised imports. These countervailing duties are to offset
the subsidisation.

The following sections examine the four constituent elements of the concept of ‘subsidy’:
• Financial Contribution or take the form of income or price support.
• Read Art 1.1(a)(i) to (iv)
• Art 1.1 (a)(2)- income or price support if it confers a benefit to a specific enterprise or an
industry. (Direct government intervention in the market)
 • This list includes: (1) direct transfers of funds, such as grants, loans and equity infusions;29
(2) potential direct transfers of funds or liabilities, such as loan guarantees;30 (3) government
revenue, otherwise due, that is foregone or not collected;31 (4) the provision by a government
of goods or services other than general infrastructure;32 (5) the purchase by a government of
goods;33 (6) government payments to a funding mechanism;
• By Govt or Public Body
• For a financial contribution to be a subsidy within the meaning of Article 1.1 of the SCM
Agreement, the financial contribution must be made by a government or a public body, including
regional and local authorities as well as State-owned companies
• Govt- central, regional, subfederal, local govt
• Public Body- Controversial issue- general factors- possesses, exercises or is vested with govt
authority- Look at ownership, control, govt can use entities resources as its own.
• Confers a benefit
• Difficult to ascertain when the recipient of a subsidy is in more favorable condition as
compared to market
• Read Art 14- to determine conferring a benefit.
• Few eg- Art 14(b)- loan conferring a benefit (difference between market rate and subsidized
rate rate)
• Specificity
Assuming that a measure is a subsidy within the meaning of the SCM agreement, it nevertheless not subject
to the SCM Agreement unless it has been specifically provided to an enterprise or industry or group of
enterprises.
• The WTO rules on subsidies do not apply to all financial contributions by a government that confer a
benefit. In other words, these rules do not apply to all subsidies. They apply only to specific
subsidies.
• Article 2 of the SCM Agreement distinguishes between different types of specificity:
• (1) enterprise or industry specificity, i.e. a situation in which a government targets a particular
company or industry or group of companies or a group of industries for subsidisation;130
• (2) regional specificity, i.e. a situation in which a government targets producers in specified parts of
its territory for subsidisation;131 and
• (3) the specificity of prohibited subsidies, i.e. a situation in which a government targets export
goods or goods using domestic inputs for subsidisation.132 For a subsidy to be subject to the
disciplines of the SCM Agreement, it has to be specific in one of the abovementioned ways.
• It has to be directed towards specific enterprises
• 2.1(a) Eg- Subsidies given to air bus enterprises / aircraft industries- De jure subsidy
• 2.1(b)- when subsidies are not specific- r/w Fn 2. De jure subsidy
• 2.1 (c) - De facto subsidy- non specificity in facts but reason to believe specificity. Look into factors
– 2.1( c)
Types of Subsidies
• Prohibited Subsidies
• Contingent on Exports
SCM Agreement, quoted above, export subsidies are subsidies contingent upon export performance.
This non-exhaustive list includes eleven types of export subsidy, including, inter alia: (1) direct export
subsidies; (2) export retention schemes which involve a bonus on exports; (3) export-related exemption,
remission or deferral of direct taxes and social welfare charges; (4) excess exemption or remission.
Thus, for a subsidy to be an export subsidy, the Appellate Body ruled in US – FSC (Article 21.5 – EC)
(2002) that ‘the grant of the subsidy must be conditional or dependent upon export performance’.
Article 3.1(a) prohibits both subsidies that are contingent de jure and subsidies that are contingent de facto
on export performance.
a subsidy is contingent de facto upon export performance: [w]hen the facts demonstrate that the granting of a
subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or
anticipated exportation or export earnings.
for a subsidy to be de jure export contingent, the underlying law, regulation or other legal instrument does
not have to provide expressis verbis that the subsidy is available only upon the fulfilment of the condition of
export performance.175 The de jure export contingency can also ‘be derived by necessary implication from
the words actually used in the measure
With respect to de facto export contingency, footnote 4 to the SCM Agreement states that the standard of ‘in
fact’ contingency is met if the facts demonstrate that the subsidy is ‘in fact tied to actual or anticipated
exportation or export earnings’
Canada – Aircraft (1999
The Appellate Body stated in Canada – Aircraft (1999) that satisfaction of the standard for determining de
facto export contingency set out in footnote 4 requires proof of three different substantive elements: (1) the
‘granting of a subsidy’; (2) ‘is … tied to … ’; and (3) ‘actual or anticipated exportation or export earnings’.
178 According to the Appellate Body in Canada – Aircraft (1999), de facto export contingency must be
inferred from the total configuration of the facts constituting and surrounding the granting of the subsidy.
179 None of these facts on its own is likely to be decisive. In combination, however, they may lead to the
conclusion that there is de facto export contingency in a given case.

• Import Substitution
Import substitution subsidies are subsidies contingent upon the use of domestic over imported goods.
• Use of domestic product in place of imported product.
• Art 4- triggers actions- if a prohibited subsidy
• Consultations
• Proceedings before DS panel, appellate body.
• Call for withdrawal without delay of subsidy upon determination that the measure is a
prohibited subsidy. (Art 4.7)
• Pursuant to Art 4.10- if measure is not withdrawn - Appropriate Countermeasures replace
the retaliation measures.
Countermeasures are equivalent to the level of prohibited subsidy than the level of trade affected by
nullification and impairment.

• Actionable Subsidies
Unlike export subsidies and import substitution subsidies, most subsidies are not prohibited but are
‘actionable’, i.e. they are subject to challenge in the event that they cause adverse effects on the interests of
another Member.
No Member should cause, through the use of any subsidy referred to in paragraphs 1 and 2 of Article 1,
adverse effects to the interests of other Members.
Three types of ‘adverse effects’ on the interests of other Members: (1) injury to the domestic industry of
another Member (Article 5(a)); (2) nullification or impairment of benefits accruing directly or indirectly to
other Members under the GATT 1994 (Article 5(b)); and (3) serious prejudice, including a threat thereof, to
the interests of another Member
including a threat thereof, to the interests of another Member
Test for an actionable subsidy-
• Subsidy
• Adverse Effect
Art 5(a) Injury to the domestic industry of another member
Art 5(b) Nullification or impairment of benefits accruing directly or indirectly to other Members under
GATT.
Art 5(c) Serious prejudice to the interests of another member – for what constitutes it- read- Art 6.3 of SCM-
Eg (3rd Country Market)
• To the interest of another member (Causal link between the subsidy and injury- subsidy should be
the sole reason for injury). (Unlike dumping no list of factors are given – panel can exercise
discretion for non attribution)
• Response to Actionable subsidy – Art 7-
• Consultations on withdrawal or removing the adverse effect
• Proceedings under DSU- panel; AB (if consultations fail;
• in not withdrawn- impose a counter measure (Art 7.9)

• Non- Actionable Subsidies

This group of subsidies now only includes non-pecific subsidies, to which, as discussed above, the
disciplines of the SCM Agreement do not apply.
Environment subsidies, research and developmental subsidies
Only if they are specific and cause adverse effect are actionable.

Countervailing measure
Prohibited subsidies and actionable subsidies which cause injury to the domestic industry can be challenged
directly in WTO dispute settlement, or, in the alternative, they can be offset by the application of a
countervailing measures.
Conditions for the Imposition of Countervailing Duties
• Subsidized imports
• Material injury to domestic industry of like product (threat)
• Causal link between the subsidy and injury
Types of CVM-
• Provision CVM-provisional countervailing duties guaranteed by cash deposits or bonds equal to the
amount of the provisionally calculated amount of subsidization. (Art 17.2)
• Voluntary Undertakings- stop subsidization or remove adverse effects (just like price undertakings.
(Art 18)
• CVD- Art VI:3 second sententce - The term "countervailing duty" shall be understood to mean a
special duty levied for the purpose of offsetting any bounty or subsidy bestowed, directly, or
indirectly, upon the manufacture, production or export of any merchandise. (Disciplines under Art
VI:3 of GATT and Art 19.4 of SCM Agreement)

CVD- basic principles

• Lesser Duty Rule.
• Non Discrimination- Art 19.3 of SCM
• Periodic Reviews and Termination- Art 21 A countervailing duty shall remain in force only as long
as and to the extent necessary to counteract subsidization which is causing injury.
• Sunset clause of 5 years; but may continue if the effect continues (Art 21.3 of SCM)
• Lastly - A CVD can be triggered by challenging the subsidy under
• Multilateral response i.e. DSU.
• Unilateral Response i.e. Countervailing duties are a unilateral instrument, which may be applied by a
Member after an investigation by that Member and a determination that the criteria set forth in the
SCM Agreement are satisfied.

Agreement on Agriculture
• Agricultural export subsidies and domestic agricultural support measures are indispensable
instruments of agricultural policies of a number of developed-country Members.
• Rules of SCM Agreement also apply to Agreement on Agriculture
• But there are specific rules in AoA.
• Conflict- AOA> SCM.

US-Carbon Steel (India)

AB held that PSUs do not constitute public body under Article 1.1 capable of providing subsidy merely for
reasons that the government has a majority shareholding in them and directors to the Boards of PSUs are
appointed by the government. AB held that cumulation of non-subsidized imports (dumped products) with
subsidized imposts while determining injury in countervailing duty investigation is inconsistent with the
WTO law (Article 15). The AB Report is also relevant with regard to a number of other systemic issues
concerning the implementation of ASCM. (1) For instance, on the aspect of determining an appropriate
benchmark to determine benefit, it has now been clarified that investigating authorities cannot presumptively
reject government-related prices as relevant benchmarks as indicators of prevailing market conditions; (2) in
applying adverse inferences against non-cooperating parties, investigating authorities cannot arbitrarily
choose to apply any inference, but instead account for all substantiated facts; and (3)in selecting one fact
over another in such cases, the finding is to be supported by reasoning and evaluation.

US – Lead and Bismuth

In US – Lead and Bismuth II (2000), the Appellate Body noted with regard to the determination an
investigating authority must make in an Article 21.2 review: On the basis of its assessment of the
information presented to it by interested parties, as well as of other evidence before it relating to the period
of review, the investigating authority must determine whether there is a continuing need for the application
of countervailing duties. The investigating authority is not free to ignore such information. If it were free to
ignore this information, the review mechanism under Article 21.2 would have no purpose.510 As to the
question of whether the existence of a ‘benefit’ in an Article 21.2 review, the Appellate Body held in US –
Lead and Bismuth II (2000): We do not agree with the Panel’s implied view that, in the context of an
administrative review under Article 21.2, an investigating authority must always establish the existence of a
‘benefit’ during the period of review in the same way as an investigating authority must establish a ‘benefit’
in an original investigation … In an original investigation, the investigating authority must establish that all
conditions set out in the SCM Agreement for the imposition of countervailing duties are fulfilled. In an
administrative review, however, the investigating authority must address those issues which have been
raised before it by the interested parties or, in the case of an investigation conducted on its own initiative,
those issues which warranted the examination.
The Appellate Body hence draws a distinction between the original investigation which is concerned with
the initial imposition of a countervailing duty and the review procedure of Article 21.2.5

US – FSC (2000)
As provided in Article 1.1(a) (1) (ii), government revenue, otherwise due, that is foregone or not collected is
also a financial contribution within the meaning of Article 1.1. In US – FSC (2000), the Appellate Body
held:
In our view, the ‘foregoing’ of revenue ‘otherwise due’ implies that less revenue has been raised by the
government than would have been raised in a different situation, or, that is, ‘otherwise’. Moreover, the word
‘foregone’ suggests that the government has given up an entitlement to raise revenue that it could
‘otherwise’ have raised. This cannot, however, be an entitlement in the abstract, because governments, in
theory, could tax all revenues. There must, therefore, be some defined, normative benchmark against which
a comparison can be made between the revenue actually raised and the revenue that would have been raised
‘otherwise’.
The term ‘otherwise due’ refers to a normative benchmark as established by the tax rules applied by the
Member concerned.44 The panel in US – FSC (2000) explained that the term ‘otherwise due’ refers to the
situation that would prevail but for the measure at issue
Thus, for a subsidy to be an export subsidy, the Appellate Body ruled in US – FSC (Article 21.5 – EC)
(2002) that ‘the grant of the subsidy must be conditional or dependent upon export performance’ or rather
tied to an export performance
 WEEK 11
GATS- General Agreement of Trade in Services

Modes of Supply of Services

• Mode 1 – Cross Border (Without crossing borders via online- eg-legal advice, telemarketing)
• Mode 2- Consumption abroad (Consume that services abroad Eg-Tourism)
• Mode 3- Commercial Presence (Eg- Branches, subsidiary companies, franchises)
• Mode 4- Natural Person (Eg- Allowing a legal practitioner or doctor to practice).

MFN- Art II:1 of GATS

Article II:1 prohibits discrimination between like services and service suppliers from different countries. In
other words, Article II:1 prohibits WTO Member Richland from giving services and service suppliers from
WTO Member Newland treatment less favourable than the treatment it gives to like services and service
suppliers from any other WTO Members or other country.
The Appellate Body in EC – Bananas III (1997) found that the MFN treatment obligation of Article II:1 of
the GATS applies both to de jure and to de facto discrimination.

MFN Treatment Test of Article II:1 of the GATS

1) whether the measure at issue falls within the scope of application of Article II:1 of the GATS;
Therefore, for the GATS to apply to a measure, that measure must be: (1) a measure by a Member; and (2) a
measure affecting trade in services.
With respect to 1- Article I:3(a) of the GATS further clarifies that ‘measures by Members’ means measures
taken by central, regional or local governments and authorities.100 Measures taken by non-governmental
bodies are also ‘measures by Members’ when they are taken in the exercise of powers delegated by central,
regional or local governments or authorities.
Canada – Autos (2000)- ‘measure affecting trade in services’
Facts: The measure at issue in that case was an import duty exemption accorded by Canada to imports of
motor vehicles by certain manufacturers. The complainants, the European Communities and Japan, argued
that this measure was inconsistent with Article II:1 of the GATS as it accorded ‘less favourable treatment’ to
certain Members’ services and service suppliers than to those of other Members.
The panel found that the import duty exemption was indeed inconsistent with Article II:1 of the GATS. In
addition to appealing this finding, Canada challenged, as a threshold matter, the panel’s finding that the
measure at issue fell within the scope of application of Article II:1 of the GATS. According to Canada, the
measure at issue was not a measure ‘affecting trade in services’.
AB Held: The Appellate Body stated that two key issues must be examined in order to determine whether a
measure is one ‘affecting trade in services’, namely: (1) whether there is ‘trade in services’ in the sense of
Article I:2; and (2) whether the measure at issue ‘affects’ such trade in services within the meaning of
Article I:1
While the GATS does not define ‘services’, Article I:2 thereof defines ‘trade in services’ as ‘the supply of a
service’ in any one of four listed ‘modes of supply’. Article I:2 states:
Furthermore, Article XXVIII(b) makes clear that the ‘supply of a service’ includes not only the sale of a
service, but also its production, distribution, marketing and delivery.
THISSS- Recall, with respect to the first question, the broad scope of the concept of ‘trade in services’,
including all services except services supplied in the exercise of governmental authority. Trade in services
includes services supplied in any of the four distinct modes of supply (cross-border supply, consumption
abroad, commercial presence and the presence of natural persons).353 With respect to the second question,
recall that, for a measure to ‘affect’ trade in services, this measure need not regulate or govern the trade in,
i.e. the supply of, services. A measure affects trade in services when the measure bears ‘upon the conditions
of competition in supply of a service’

2) ‘Like Services and Service Suppliers’

Namely, it must be determined whether the services and services suppliers concerned are ‘like services and
like service suppliers.
The panels in EC – Bananas III (1997) and Canada – Autos (2000) found that, to the extent that service
suppliers provide ‘like services’, they are ‘like service suppliers’
In Argentina – Financial Services (2016), the Appellate Body clarified that the following could be relevant
for determining ‘likeness’ under the GATS: (1) characteristics of services and service suppliers; (2)
consumers’ preferences in respect of services and service suppliers; and (3) tariff classification and
description of service.

3) Treatment No Less Favourable

Relates to the treatment accorded to ‘like services and service suppliers’. A WTO Member must accord,
immediately and unconditionally, to services and service suppliers of any given WTO Member ‘treatment
no less favourable’ than the treatment it accords to ‘like services and service suppliers’ of any other country.
• The Appellate Body thus ruled that the legal standard of ‘treatment no less favourable’ in
Articles II:1 and XVII involves an assessment of whether the measure modifies the
conditions of competition in favour of the services or service suppliers of any other Member.
• Modifies conditions of the competition
• No role of regulatory intent under MFN analysis
• Design structure expected operation

Deviations from the Most-Favoured-Nation Treatment Obligation under the GATS

Two deviations from the MFN treatment obligation under Article II:1 of the GATS must be briefly
mentioned as part of this chapter, namely: (1) the ‘LDC services waiver’; and (2) Article VII of the GATS
regarding recognition of diplomas and certificates.
1) LCD Services Waiver- Under this temporary waiver, the obligations under Article II:1 of the GATS
are waived, allowing WTO Members to grant preferential treatment to services and service suppliers
from least-developed-country Members. The preferential treatment covered by the ‘LDC services
waiver’ takes the form of, for example, waiving fees for business and employment visas for services
suppliers from least-developed countries, and extending the duration of their authorised stay in the
markets of preference granting Members.
2) Second, pursuant to Article VII of the GATS, entitled ‘Recognition’, a Member may recognise the
education or experience obtained, requirements met or licences or certificates granted in a particular
country. Such recognition may be based upon an agreement or arrangements with the country
concerned or may be accorded autonomously

National Treatment under GATS- Art XVII:1

The national treatment obligation only applies to a measure affecting trade in services to the extent that a
WTO Member has explicitly committed itself to grant ‘national treatment’ in respect of the specific services
sector concerned.
National Treatment Test of Article XVII:1 of the GATS- TEST OF CONSISTENCY
1) National Treatment Commitment
As explained above, the national treatment obligation of Article XVII:1 of the GATS does not apply
generally to all trade in services. The national treatment obligation applies only to the extent that a WTO
Member has explicitly committed itself to grant ‘national treatment’ in respect of a specific services sector
• They may grant NT only w.r.t specific sectors, modes, nationality, residential requirements,
etc
• If not listed- means nmo commitment made w.r.t the mode.
2) Measures by Members Affecting Trade in Services’-
Same as mfn

3) Likeness
Same as mfn

4) ‘Treatment No Less Favourable’

It follows that a Member that gives formally identical treatment to foreign and domestic services and service
suppliers may nevertheless be in breach of the national treatment obligation. This happens if that Member,
by giving formally identical treatment, modifies the conditions of competition in favour of the domestic
services or service suppliers. Also, a Member that gives formally different treatment to foreign and domestic
services or service suppliers does not act in breach of the national treatment obligation if that Member, by
giving formally different treatment, does not modify the conditions of competition in favour of the domestic
services and service suppliers.
Market Access Barriers under GATS
• Interpretation of Schedule
• Art XVI of GATS
• Art XVI:2 wherever commitments have been made-
• No measure which creates a market access barrier shall be applied that restrict-
• XVI:2 (a) to (d)- restrict quantity
• XVI:2 (e)- legal entity
• XVI:2 (f)- foreign capital
• How to read the schedule-
• None- No limitations for a given sector and for a given mode of supply, the schedule should read
"NONE". "NONE" represents the ideal commitment. This means that the sector is completely open
to foreign service providers, i.e. no limits on market access or national treatment.
• Unbound- . The term "UNBOUND" is listed in the market access or national treatment column when
a country wishes to make no commitments in a given sector or a given mode of supply.

Regional Trade Exceptions

• Economic integration efforts; close integration of economies
• Facilitate trade and not to create barriers to trade.
• Source- Art XXIV of GATT, Enabling Clause of GATT and Art V of GATS.
• Different forms- Custom Unions, FTAs, RTA,
• Provided there is substantial coverage of goods/ service sectors
 WEEK 12-15
EXCEPTIONS UNDER THE GATT AND GATS

GENERAL EXCEPTIONS
Idea behind General Exceptions
Wide-ranging exceptions to the basic WTO rules, allowing Members to adopt trade-restrictive legislation or
other measures that pursue the promotion and protection of other societal values and interests.
Trade Liberalization, Market Access and Non-Discrimination may conflict with other important societal
values and interests.

Article XX of the GATT 1994, entitled ‘General Exceptions’, states:

• 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 of 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;*
(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;
(j) essential to the acquisition or distribution of products in general or local short supply;

Scope of Article XX
• Nature and Function of Article XX
• Scope of Application

Nature and Function of Article XX

Article XX is relevant, and will be invoked by a Member, only when a measure of that Member has been
found to be inconsistent with another GATT provision. In such a case, Article XX will be invoked to justify
the GATT-inconsistent measure.
US – Section 337- Application if Conditional basis the list
Measures satisfying the conditions set out in Article XX are thus permitted, even if they are inconsistent
with other provisions of the GATT 1994. As noted by the panel in US – Section 337 Tariff Act (1989),
Article XX provides, however, for limited and conditional exceptions from obligations under other GATT
provisions. The exceptions are ‘limited’ as the list of exceptions in Article XX is exhaustive. The exceptions
are ‘conditional’ in that Article XX only provides for justification of an otherwise GATT-inconsistent
measure when the conditions set out in Article XX.
US – Shrimp (1998)- Balance interpretation
However, the Appellate Body does not seem to have adopted this narrow interpretation approach. US –
Shrimp (1998) an approach which seeks to balance the affirmative commitments and the exceptions. The
Appellate Body strikes a balance between, on the one hand, trade liberalisation, market access and non-
discrimination rules and, on the other hand, other societal values and interests. Article XX is in essence a
balancing provision. Therefore, a narrow interpretation of Article XX is as inappropriate as a broad
interpretation.
With regard to the kind of measure that can be justified under Article XX, the panel in US – Shrimp (1998)
ruled that Article XX could not justify measures that ‘undermine the WTO multilateral trading system’. 33
The measure at issue in US – Shrimp (1998) was a US measure, which required India, Pakistan, Thailand
and Malaysia to harvest shrimp in the manner set out in US law if they wanted to export this shrimp into the
United States. The panel found that a measure of a Member ‘conditioning access to its market for a given
product upon the adoption by the exporting Member of certain policies’ would undermine the multilateral
trading system.34 On appeal, however, the Appellate Body categorically rejected this panel’s finding on the
scope of measures that Article XX can justify. Basically, Measures requiring that exporting countries
comply with, or adopt, certain policies prescribed by the importing country are, in fact, typical of the
measures that Article XX can justify. They are definitely not a priori excluded from the scope of application
of Article XX.
Ppm- "we considered that certain unilateral measures, insofar as they could jeopardize the multilateral
trading system, could not be covered by Article XX"in the present case … we consider that the United States
adopted measures which, irrespective of their environmental purpose, were clearly a threat to the multilateral
trading system and were applied without any serious attempt to reach, beforehand, a negotiated solution

Scope of Application
• GATT Inconsistency- I’m guessing this has already been dealt with,
• Other WTO Agreements
• WTO plus obligations
• Extra territorial application

Other WTO Agreements

• Eg: Relation between SPS and Art XX(b)
• SPS contains –Art XX+ obligations.
• A consistency with specific obligation under SPS means consistency with Art XX(b) of GATT
(rebbutable presumption –
• Eg: Art 2.4 of SPS Agreement- Sanitary or phytosanitary measures which conform to the relevant
provisions of this Agreement shall be presumed to be in accordance with the obligations of the
Members under the provisions of GATT 1994 which relate to the use of sanitary or phytosanitary
measures, in particular the provisions of Article XX(b).
• To be discussed in detail while specific agreements

WTO Plus Obligations

• Can Art XX be applied to obligations apart from GATT i.e. Other WTO Agreements and WTO Plus
Obligations
China- Publication of Audio-visual Products (2010)
• Part in question was –Paragraph 5.1 of Accession Protocol
5. Right to Trade
1. Without prejudice to China's right to regulate trade in a manner consistent with the WTO Agreement,
China shall progressively liberalize the availability and scope of the right to trade, so that, within
three years after accession, all enterprises in China shall have the right to trade in all goods
throughout the customs territory of China, except for those goods listed in Annex 2A which continue
to be subject to state trading in accordance with this Protocol. Such right to trade shall be the right to
import and export goods. All such goods shall be accorded national treatment under Article III of the
GATT 1994, especially paragraph 4 thereof, in respect of their internal sale, offering for sale,
purchase, transportation, distribution or use, including their direct access to end-users. For those
goods listed in Annex 2B, China shall phase out limitation on the grant of trading rights pursuant to
the schedule in that Annex. China shall complete all necessary legislative procedures to implement
these provisions during the transition period.
Art XX talks about- Nothing in this Agreement
 • The Panel presumed Art XX could be applied to WTO Plus Obligations. But did not give any
reasoning.
• The Appellate Body clarified- the phrase “China's right to regulate trade in paragraph 5.1 of China's
Accession Protocol is a reference to its power to subject international commerce to regulation. This
power may not be impaired by China's obligation to grant the right to trade, provided that China
regulates trade 'in a manner consistent with the WTO Agreement”.
• The Appellate Body subsequently considered that the measures that China sought to justify have a
clearly discernible, objective link to China's regulation of trade in the relevant products." In light of
this relationship between, on the one hand, the measures that are inconsistent with China's trading
rights commitments, and, on the other hand, China's regulation of trade in the relevant products, the
Appellate Body found that China could rely upon the introductory clause of paragraph 5.1 of its
Accession Protocol and that, therefore, in this particular case, Article XX was available to justify
measures inconsistent with China's Accession Protocol, i.e. inconsistent with a WTO agreement
other than the GATT 1994.
• China Raw Materials Case (2010)- Export Duties were found to be inconsistent with Para 11.3 of
Accession Protocol.
• Para 11.3 China shall eliminate all taxes and charges applied to exports unless specifically provided
for in Annex 6 of this Protocol or applied in conformity with the provisions of Article VIII of the
GATT 1994.
• The Appellate Body noted, there is no language in the paragraph 11.3 similar to that found in
paragraph 5.1 of the Accession Protocol- Without prejudice to China's right to regulate trade in a
manner consistent with the WTO Agreement.
• AB referred to Notes under Annex 6 of AP and Art VIII of GATT. Concluded Art XX cannot be
invoked.

Checklist for scope of Application of Art XX outside GATT

• Clarification regarding application of Art XX to Accession Protocol was addressed by AB in China
Rare Earth Material Case-
• “In our view, Paragraph 1.2 of China's Accession Protocol serves to build a bridge between the
package of Protocol provisions and the package of existing rights and obligations under the WTO
legal framework. Nonetheless, neither obligations nor rights may be automatically transposed from
one part of this legal framework into another. The fact that Paragraph 1.2 builds such a bridge is only
the starting point, and does not in itself answer the question of whether there is an objective link
between an individual provision in China's Accession Protocol and existing obligations under the
Marrakesh Agreement and the Multilateral Trade Agreements, and whether China may rely on an
exception provided for in those agreements to justify a breach of such Protocol provision

Extraterritoriality of Art XX of GATT

• Eg: Richland imposing import prohibition on coal that is imported from Newland that is mined at
low cost and poor environmental standards.
• US Shrimp-
• Measure at issue- Import ban on shrimp harvested through methods resulting in incidental killing of
sea turtles (migratory species)
 • AB held-
• We do not pass upon the question of whether there is an implied jurisdictional limitation in Article
XX(g), and if so, the nature or extent of that limitation. We note only that in the specific
circumstances of the case before us, there is a sufficient nexus between the migratory and
endangered marine populations involved and the United States for purposes of Article XX(g).“
• The position remains unclear. Depends on case to case analysis and the exception.
• How to assess- Sufficient nexus between the measure and purpose has to be established.

Two-Tier Test under Article XX of the GATT

For under Article XX, it must meet:
(1) the requirements of one of the exceptions listed in paragraphs (a)–(j) of Article XX/ PROVISIONAL
JUSTIFICATION-
• XX: a, b, d and g are frequently invoked.
• Challenged measure should address particular interest specified in the paragraph.
• Sufficient nexus between the measure and interest protected. – Interpreted from the words
“necessary, related to, essential.” Separate standard for each provisional justification.
(2) the requirements of the introductory clause, commonly referred to as the ‘chapeau’, of Article XX.
By its own terms, the chapeau of Article XX is concerned with the ‘manner’ in which a provisionally
justified measure is ‘applied’.
Whether a measure is applied in a particular manner ‘can most often be discerned from the design, the
architecture, and the revealing structure of a measure’. 46 The examination of the ‘manner’ in which the
measure at issue is ‘applied’ thus involves a consideration of ‘both substantive and procedural requirements’
under the measure at issue

a) PUBLIC MORALS

a) necessary to protect public morals;

• Egs- EU Seal Regime- public morale to protect animal welfare and particularly welfare of seals.
Higher compound tariff imposed to counter money laundering linked with drug trafficking and other
criminal activities.
2 step analysis
• 1. Design of the measure- Measure should be designed to protect the public morals. (Relationship
between measure and objective)- Look at design, content, structure and expected operation.
• 2. Necessary to protect such public morale (Difficult to establish)
US- Gambling Services
Facts: Antigua and Barbuda challenged the GATS-consistency of a number of US federal and state laws,
including the Wire Act, the Travel Act and the Illegal Gambling Business Act, which prohibit the remote
supply of gambling and betting services, including Internet gambling.The United States, inter alia, argued
that the measures at issue could be justified under Article XIV(a) of the GATS, as necessary to protect
public morals and maintain public order.
Analysis: With regard to the meaning of the concepts of ‘public morals’ and ‘public order’, the panel in US
– Gambling (2005) found that it: can vary in time and space, depending upon a range of factors, including
prevailing social, cultural, ethical and religious values. Further, the Appellate Body has stated on several
occasions that Members, in applying similar societal concepts, have the right to determine the level of
protection that they consider appropriate. Although these Appellate Body statements were made in the
context of Article XX of the GATT 1994, it is our view that such statements are also valid with respect to
the protection of public morals and public order under Article [XIV] of the GATS.
The panel thus concluded that the dictionary definition of the term ‘order’, read together with footnote 5,
suggests that ‘public order’ refers to:the preservation of the fundamental interests of a society, as reflected in
public policy and law.
The United States had argued that Internet gambling posed threats with regard to organised crime, money
laundering and fraud; risks to children; and risks to health due to the possible development of an addiction to
gambling.186 The panel had no difficulty in finding that these concerns fell within the scope of ‘public
morals’ and ‘public order’ as meant in Article XIV(a) and that the Wire Act, the Travel Act and the Illegal
Gambling Business Act, the measures at issue, were measures to protect ‘public morals or public
order’.187
The second element of the test under Article XIV(a) of the GATS concerns the ‘necessity’ requirement. As
both the panel and the Appellate Body in US – Gambling (2005) explicitly recognised, the extensive case
law on the ‘necessity’ requirement of Article XX(b) and (d) of the GATT 1994 – discussed at length above –
is very relevant for the interpretation and application of the ‘necessity’ requirement of Article XIV of the
GATS. Same as GATT.
However, the panel found that the United States, in rejecting Antigua's invitation to engage in bilateral or
multilateral consultations, failed to pursue a good faith course of action to explore the possibility of finding a
reasonably available WTO-consistent alternative. Having assessed each of the three factors, the panel then
‘weighed and balanced’ those factors and concluded that the measures at issue were not ‘necessary’ within
the meaning of Article XIV(a) of the GATS. According to the Appellate Body, the panel's ‘necessity’
analysis was flawed because it did not focus on an alternative measure that was reasonably available to
the United States to achieve the stated objectives. Engaging in consultations with Antigua was not an
appropriate alternative for the panel to consider because consultations are ‘by definition a process, the
results of which are uncertain and therefore not capable of comparison with the measures at issue in this
case’.
Chapeau and Conclusion: In the course of its examination of the requirements of the chapeau of Article
XIV of the GATS, the panel found that the United States had not prosecuted certain domestic remote
suppliers of gambling services and that the US Interstate Horseracing Act was ‘ambiguous’ as to whether or
not it permitted certain types of remote betting on horse racing within the United States. On the basis of
these two findings indicating a lack of consistency in the application of the prohibition on the remote supply
of gambling and betting services, the panel inUS – Gambling (2005) concluded that: the United States has
not demonstrated that it does not apply its prohibition on the remote supply of wagering services for horse
racing in a manner that [constitutes] ‘arbitrary and unjustifiable discrimination between countries where like
conditions prevail’ and/or a ‘disguised restriction on trade’ in accordance with the requirements of the
chapeau of Article XIV.
On appeal, the United States argued that the ‘consistency’ standard applied by the panel is not adequate for a
complete examination under the requirements of the chapeau of Article XIV. The Appellate Body, however,
dismissed this argument of the United States and upheld the panel's ‘consistency’ standard.

Step 1- Design of the measure

Measure should be designed to protect the public morals. (Relationship between measure and objective)-
Look at design, content, structure and expected operation.
• A panel should take into account the Member’s Articulation of the objective(s) it pursues through its
measure, but it is not bound by that Member's characterizations of such objective(s). Indeed, the
panel must take account of all evidence put before it in this regard, including the texts of statutes,
legislative history, and other evidence regarding the structure and operation of the measure at issue,“
• A member has a right to determine the level of protection of public morals that it considers
appropriate.
• Member may thus set different levels of protection even when responding to similar interests of
moral concern
Step 2- Necessary Test
In order to determine whether a measure is 'necessary' within the meaning of Article XX(b) of the GATT
1994, a panel must consider the relevant factors, particularly the importance of the interests or values at
stake, the extent of the contribution to the achievement of the measure's objective, and its trade
restrictiveness. If this analysis yields a preliminary conclusion that the measure is necessary, this result
must be confirmed by comparing the measure with possible alternatives, which may be less trade
restrictive while providing an equivalent contribution to the achievement of the objective. This
comparison should be carried out in the light of the importance of the interests or values at stake. It is
through this process that a panel determines whether a measure is necessary."

Check the measure at issue and not the policy objective under the element of necessary.
• 1. Importance of the objective.
• 2. Contribution of the measure to that objective.
• 3. Trade restrictiveness of the measure.
Weigh and balance these factors. Also take into account comparison between the challenged measure
and possible alternatives

Level of Contribution made by the measure- To be analysed-

• Not just any contribution,
• But to be done in a qualitative or a quantitative manner.
• The greater is the contribution of the measure at issue to the objective pursued, the more easy it is to
establish that the measure might be considered necessary.
Trade Restrictiveness
 • Assess the degree of measure’s trade restrictiveness rather than assessing whether the measure
involves some restriction on trade.
Alternative Measure
• It has to be reasonably available- due to significant costs or difficulties faced by the affected
industry.
• Take into account burden on industries
• Whether it contributes to the realization of the end pursued. It should achieve the desired level of
protection.

b) necessary to protect human, animal or plant life or health;

Same two step procedure

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 GATT 1947 protection
of patents, trade marks and copyrights, and the prevention of deceptive practices.
Same two step procedure
• Test 1-
• Designed to secure compliance with relevant provisions of laws and regulations that are not GATT
inconsistent.
• Which law do they refer to?
AB in Merico-Taxes on Soft Drinks (2006) in which it held that:
The terms laws or regulations are generally used to refer to domestic laws or regulations. As Mexico and the
United States note, previous GATT and WTO disputes in which Article XX(d) has been invoked as a
defence have involved domestic measures. We agree with the United States that one does not immediately
think about international law when confronted with the term "laws in the plural In our view, the terms laws
or regulations refer to rules that form part of the domestic legal system of a WTO Member.
Role of international instrument-
India - Solar Cells (2016), the rules that form part of the domestic legal system of a Member include 'rules
deriving from international agreements that have been incorporated into the domestic legal system of a
WTO Member or have direct effect according to that WTO Member's legal system.
Article XX(d) requires that the laws or regulations are not inconsistent. It does but require that the rules or
regulations are consistent. The use of the double negative (not inconsistent) suggests that the respondent
must not positively show the consistency of the relevant law or regulation, unless that consistency is
explicitly challenged by the complainant.
(g) relating to the conservation of exhaustible natural resources if such measures are made effective
in conjunction with restrictions on domestic production or consumption
• 1. Measure is about conservation of exhaustible natural resource
Conservation- preservation, employ sustainable development principles.
This should strike a balance between – trade liberalization, sovereignty over natural resources, right to
sustainable development.
Broad range of conservation measures- Complete ban or regulation over extraction.
Exhaustible natural resource- This includes renewable resources as well. They are not mutually
exclusive
• 2. It must relate to conservation of exhaustible natural resource
Close and real relationship between the measure and the policy objective.
Measure must be reasonably related to the end pursued.
Close and genuine relationship of ends and means.

• 3. Made effective in conjunction with restrictions on domestic production or consumption.

3. Requirement of an even handed test
Evenhandedness in the imposition of restrictions on imported and domestic products.
Doesn’t mean an identical treatment.
Eg- US Shrimp Case – US Shrimp Trawl vessels to prevent incidental killing of sea turtles. These
regulations imposed restrictions on domestic production as well as importation- qualified the even
handedness test.

CHAPEAU TEST
Application of the measure already found to be inconsistent with GATT Obligation
Objective is to avoid misuse or abuse of Art XX exceptions-
Balance right to invoke exception and substantive right of other members under the GATT 1994.
The chapeau is animated by the principle that while the exceptions of Article XX may invoked as a matter of
legal right they should not be so applied as to frustrate or defeat the legal obligations of the holder of the
right under the substantive rules of the General Agreement. If those exceptions are not to be abused or
misused, in other words, the measures falling within the particular exceptions must be applied reasonably,
with due regard both to the legal duties of the party claiming the exception and the legal rights of the parties
concerned

Requirement of Chapeau
Therefore, the measure must not constitute-
• 1. Arbitrary or Unjustifiable Discrimination between countries where the same conditions prevail.
Art XX Chapeau requires-
1. The application of measure at issue must result in discrimination.
2. This discrimination must be arbitrary or unjustifiable
3. This discrimination must occur between countries where the same conditions prevail.
Unjustifiable Discrimination- To meet the requirements of the chapeau members need to make serious
efforts in good faith to negotiate a multilateral solution before resorting to unilateral measures. Failure to
render such efforts leads to unjustifiable discrimination

• 2. A disguised restriction on international trade.

The analysis of arbitrary and unjustifiable discrimination helps in understanding if it is a disguised
restriction on international trade.
According to the Appellate Body in US-Gasoline (1996): the kinds of considerations pertinent in deciding
whether the application of a particular measure amounts to 'arbitrary or unjustifiable discrimination, may
also be taken into account in determining the presence of a 'disguised restriction' on international trade. The
fundamental theme is to be found in the purpose and object of avoiding abuse or illegitimate use of the
exceptions to substantive rules available in Article XX.

SECURITY EXCEPTION
Art XXI of GATT-
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;
(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.

Core Idea
WTO Members do, on occasion, take trade-restrictive measures, either unilaterally or multilaterally, against
other Members as a means to achieve national or international security. Members taking such measures will
seek justification for these measures under Article XXI.
Need to restrict trade in order to protect strategic domestic production capabilities from import competition.
Judgement on what is strategically important- left to the countries to determine. Eg: - Military, staple food
supply, energy.
Trade sanctions as an instrument of foreign policy against other States which either violate International
Law or pursue policies unacceptable or undesirable.
Prohibit import of arms, other products of military use to countries with which they do not have friendly
relations

• XXI(a) – Withholding information that it would be required to supply when it considers disclosure of
the information contrary to essential security interests.
• (Eg- information of products or commodities it considers to be most strategic.)
Art XXI(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;
(iii) taken in time of war or other emergency in international relations