Most Favored Nation Byol/ Han Jo/ Hyun Shik/ Mikhail/ Soojin/ Taehong

Definition  The Most Favored Nation; MFN – A status awarded by one nation to another in int’l trade – One’s nation will not be treated worse than anyone else’s nation – One of the cornerstones of WTO trade law

Conditional & Unconditional MFN 3 A The United States ↓ Conditional MFN ↓ (WWI) Unconditional MFN ↑ Free ride Least common denominator ↓ (WTO) Single undertaking idea C B Must grant privilege grant privilege MFN

Benefits  A country that grants MFN on imports will have its imports provided by the most efficient supplier.  MFN commitment protects the value of bilateral concessions and spread security around by making them the basis for a multilateral system  MFN allows smaller countries  MFN restraints domestic special interests from obtaining protectionist measures

CASE 1: Spain-Tariff Treatment of Unroasted coffee

Facts_1. abridged  When: 1980 (pre-WTO)  Complainant: Brazil  Respondent: Spain  Subject: Coffee Brazil complained against Spain’s newly applied tariff on unroasted, and non-decaffeinated coffee

Facts_2. prior background [Former times]  Customs duty 25%  22.5% on unroasted coffee [1975]  No customs duty on unroasted coffee (under the State-trading system)

Facts_3. the initiative [8 July 1979]  Royal Decree No.1764/79 Effective by 1 March 1980  Marketed by private entities Product DescriptionDuty Rate Columbia mild Free Other mild Free Unwashed Arabica 7% ad valorem Robusta 7% ad valorem Other 7% ad valorem

Facts_4. assertion  Spain “No contracting party was obliged to retain tariff structure.”  Brazil “The new Spain tariff regime discriminate Brazil as Brazil mainly exports unwashed Arabica & Robusta.”

Issues_1. focus point I. Whether they are “like product” or not II. Is there any discrimination against Brazil

[Spain]  No contracting party was obliged to retain either its tariff structure, or its duties, applicable to the importation of products which have not been bound  Did not agree with some past GATT cases that suggested "like products" were all the products falling within the same tariff heading Issues_2. main arguments

[Spain]  Although both "mild" and "unwashed Arabica“ coffees belonged to the group of Arabica, the Spanish representative further argued that differences in quality also existed between them, as a result of climatic and growing conditions as well as methods of cultivation and above all the preparation because aroma and taste, essential features in determining trade and consumption of these products, were completely different  In the Spanish market, distinctive markets existed for the various types of unroasted coffee Issues_2. main arguments

[Brazil]  Coffee was one single product, therefore, for the purpose of Article I:1 of the GATT, must be considered a "like product“ - "mild" and "unwashed Arabica" coffees, both came from the same species of plant - existing differences between "groups" of coffee were essentially of an organoleptic nature (taste, aroma, body, etc.) resulting from geographical conditions and, principally, from the distinct methods of preparation of the beans Issues_2. main arguments

[Brazil]  From the point of view of the consumer, virtually all coffee, either roasted or soluble, was sold in the form of blends, combining in varying proportions coffee belonging to different groups  The terms type, quality, and growth were used interchangeably to indicate specific grades of coffee was the only characterization really meaningful for trading purposes  With respect to its end use, coffee was a well determined and one single product, generally intended for drinking as a beverage Issues_2. main arguments

 The Panel found that a contracting party had the right to introduce in its customs tariff new positions or sub ‑ positions as appropriate. However, whatever the classification adopted, Article I:1 required that the same tariff treatment be applied to "like products“  whether the various types of unroasted coffee listed in the Royal Decree 1764/79 should be regarded as "like products" within the meaning of Article I:1 Decisions

 The panel agreed with Brazil argument, and concluded that coffee beans listed in the Spanish Customs Tariffs, should be considered as "like products" within the meaning of Article I:1  The Panel further noted that Brazil main coffee export to Spain were presently charged with higher duties. Since these were considered to be "like products", the Panel concluded that the tariff régime as presently applied by Spain was discriminatory vis ‑ à ‑ vis unroasted coffee originating in Brazil Decisions

 Can the term “like product” be interpreted the same way for different cases?  Do you find the interpretation of “like product” in this case acceptable? What do you think about the Spanish market? Evaluation

CASE 2: CANADA – Certain Measures Affecting the Automotive Industry

Facts  When: February 1999 – June 2000  Complainant: Japan and EC  Respondent: Canada  Third Parties: Korea, USA  Subject: Motor vehicle imports  Content: Japan and EC complain that they should get duty exemption for their motor vehicle export to Canada like other eligible manufacturers in U.S. and Mexico.

Facts (con’t)  Four companies qualified as beneficiaries of the import duty exemption 1.General Motors 2.Ford 3.Chrysler 4.Volvo  Do not benefit from the import duty exemption: Toyota Nissan Mazda Honda Subaru Hyundai Volkswagen BMW etc.

Facts (con’t)  Import duty exemption  Duty-free treatment provided under the following  Canadian regulations: 1) MVTO (Motor Vehicle Tariff Order)  originated from the Auto Pact Agreement concerning automotive products between Canadian and US governments. - Canadian Value Added (CVA) requirement - Production-to-sales ratio requirements. 2) SRO - Special Remission Orders

Facts (con’t)  To qualify for the exemption, an eligible manufacturer's local production of motor vehicles must achieve a minimum amount of Canadian value added (CVA), and its local production must maintain a minimum ratio ("production-to-sales" ratio) with respect to its sales of motor vehicles in Canada.

Issues (Arguments)  Japan & EC: – Due to obligations to meet CVA and production-to- sales ratio requirements to import into Canada only a small number of exporters affiliated with eligible Canadian manufacturers/importers from few countries were given the duty exemption.

Issues (Arguments)  Canada: Canada argues that its measure at issue is consistent with MFN provisions of Article I:1 of the GATT By its terms, Article I:1 prohibits discrimination in the according of advantages based on the origin of products. In Canada's view, the Canadian measure is "origin- neutral“ in this sense, and is therefore consistent with Article I:1 of the GATT According to Art. XXIV of the GATT the duty exemption is allowed for NAFTA members (US and Mexico)

Decisions (examining the words of the treaty)  Article I:1 states: With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. (cf. Article III : National Treatment)

Decisions (con’t)  Both the Appellate Body and the Panel findings stated that the duty exemption is inconsistent with MFN obligation under Art. I:1 GATT which covers not only de jure but also de facto discriminations.

Decisions (con’t)  Canada’s defense related to NAFTA members was rejected because it was found that the exemption was given to countries other than US & Mexico, and because the exemption did not apply to all manufacturers from these countries.

Evaluation  What if Canada gave exemption only to all manufacturers from NAFTA members?  Do you agree with this decision?  Can we get the consistent decision even for other cases, which is related with other RTAs including FTAs when the both treaties collide with?

Thank you!!

Article I. 1 General MFN Treatment With respect to customs duties and charges of any kind imposed......, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in any other country shall be accorded immediately to the like product originating in the territories of all other contracting parties.