ECF trade law W2, Lecture 2 Key Disciplines

Introduction

Key disciplines of international trade discussed in the context of the GATT agreement underpin a framework essential for facilitating trade relations among nations. These disciplines form fundamental principles that are foundational to various agreements established under the World Trade Organization (WTO), including significant accords like the Services Bolstered Communication (SBC), the Trans-Pacific Partnership (TPP), as well as those pertaining to agriculture and textiles. While some disciplines have evolved and been elaborated upon in more recent agreements, others have maintained their original principles, reflecting the ongoing commitment to fair trade practices.

Tariff Discipline

Definition of Tariff

A tariff is defined as a border tax or customs duty imposed on goods due to import or export activities. The imposition of tariffs is an important tool in trade policy, as goods generally cannot clear customs until all applicable tariffs have been paid. While tariffs are most commonly applied to imports to protect domestic industries and producers, they can also be implemented on exports under specific conditions to regulate supply. An example of this would be tariffs on staple foods, which some nations impose as a strategy to ensure domestic supply assurance for essential goods.

Types of Tariffs

• Ad Valorem Tariffs: These are calculated as a percentage of the value of the goods being imported or exported. For example, a 5% ad valorem tariff on a scooter valued at $100 would result in a $5 tariff.

• Specific Tariffs: These are based on the physical quantity or volume of the goods rather than value. While ad valorem tariffs are often preferred for their straightforward application, specific tariffs still appear in many trade agreements.

Obligations Under GATT

Under the General Agreement on Tariffs and Trade (GATT), member states have binding obligations. Members are required to negotiate tariff reductions at least every three years (Article 28), ensuring that there is a cyclical movement towards lower tariffs. Furthermore, members must not impose tariffs that exceed declared limits established during negotiations (Article 2, paragraph 1). These obligations create an ongoing cycle of binding rates and negotiations aimed at promoting lower barriers to trade while also enhancing predictability in international trade relations.

Impacts of the GATT

GATT does not outright prohibit the use of tariffs; instead, it aims to facilitate the reduction of such trade barriers over time. Tariffs, while still commonly used, are viewed as more transparent trade barriers when compared to other non-tariff barriers such as quotas or regulations. Historically, GATT has been successful in reducing tariffs on industrial products significantly—from an average of approximately 40% in 1947 to about 3% in 2011. Its success, however, has been less pronounced in the agricultural sector, where tariffs remain high and variable.

Member State Tariff Schedules

Each WTO member state maintains its own schedule of concessions, wherein they record all tariff bindings, essentially logging all commitments on trade restrictions. For instance, Australia may have a 5% import tariff on passenger vehicles, whereas Malaysia may impose a substantially higher rate of 30%. These tariff structures can vary greatly, particularly in agriculture, as they often reflect each country's domestic production capacity and policy priorities. For example, Japan and Mexico maintain relatively high tariffs on beef imports, while countries like Indonesia apply lower rates when facing shortages of beef supply.

Quantitative Restrictions (QRs)

Definition and Obligations

Quantitative Restrictions (QRs) refer to measures that limit the quantity of goods that can be imported or exported. Under Article 11, paragraph 1, GATT prohibits the imposition of QRs unless exemptions are clearly defined. QRs can manifest as direct quotas that restrict quantities or through licensing processes that limit the number of goods transacted.

Exceptions to QR Elimination

Certain exceptions to QR prohibitions exist, such as temporary export restrictions designed to safeguard essential goods during shortages (Article 11, paragraph 2(a)). However, these exceptions have been infrequently utilized as modifications through Agreements on Agriculture have limited their effectiveness. Furthermore, balance of payment issues provide a rationale for the temporary use of QRs under specified conditions (Articles 12 and 19), but Article 13 maintains that such exceptions must not be discriminatory in application.

Anti-Discrimination Principles

Most Favored Nation Principle

The Most Favored Nation (MFN) principle mandates member states to grant favorable trade treatment, particularly in terms of tariff reductions, to all WTO member states without discrimination (Article 1, paragraph 1). Essentially, if one member state secures a tariff reduction on tomatoes, that reduction must be extended unconditionally to all other GATT members.

Exceptions to MFN

Regional trade agreement (RTA) provisions provide exceptions, as these do not necessitate extending preferences to all WTO members (Article 24). Thus, countries forming regional groupings can negotiate preferential tariff benefits amongst themselves.

National Treatment Obligation

This obligation prevents discrimination against imported products in favor of domestic ones (Article 3). National treatment, often considered more complex than the MFN principle, encompasses fiscal measures as well as regulatory regulations designed to avert domestic protectionism. Obligations under Article 3 include:

• Paragraph 2: States cannot impose internal taxes on imports that exceed those imposed on domestic products. Disproportionate taxation may indicate a breach.

• Paragraph 4: Regulations that govern the sale of products must treat imports and domestic products equally.

Discussion of Discrimination Examples

• Example 1: Australian Wine Tax: If an internal tax on imported wine disproportionately disadvantages the competitiveness of imported products, it may violate Article 3, paragraph 2 requirements.

• Example 2: Varying Tariff Rates for TVs: Different tariff rates imposed on TVs from the EU versus Argentina may violate MFN obligations under Article 1, paragraph 1 by treating nations differently without just cause.

Concept of 'Like Product'

Importance of 'Like Product'

The anti-discrimination provisions within GATT are applicable exclusively to imports deemed as “like products.” This means that distinctions made among products can potentially avoid MFN and National Treatment obligations if those products are classified as not alike.

Criteria Defining 'Like Product'

Several criteria are used to evaluate whether products are considered ‘like products’:

• End Uses: Are the products utilized for similar purposes?

• Consumer Tastes and Habits: Do consumers view these products similarly?

• Physical Properties: Are the materials of the products similar in quality and kind?

• Customs Classification: How are the products classified for tariff-related evaluations?

Application of Criteria

Determining 'like product' status is not done through a rigid formula; it depends on the context of the case.

• Example: Butter and margarine may be treated distinctly regarding tariff discrimination, while they might be perceived as like products in tax scenarios.

PPM Considerations

Recognizing differences in Production Process or Method (PPM) does not factor into the assessments regarding 'like products'. For instance, the U.S. ban on tuna caught with methods harmful to dolphins raises questions related to the GATT obligations as it may affect trade without regard to like product definitions.

Conclusion

This presentation covered the foundational disciplines of GATT that remain relevant for international trade law as it evolves. The provisions established by the WTO further modify the interpretation and application of GATT principles, while legal analyses of compliance with key obligations reveal the complexities and interpretative nuances inherent in international trade law.