GATT Law and the World Trade Organization: Basic Principles Chapter 9 © 2002 West/Thomson Learning

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

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

Development of GATT Part of Post WWII Efforts to Develop Framework for Trade Multilateral Trade Negotiations to Reduce Tariffs and NTB Establish Principles of Nondiscrimination and Unconditional MFN National Treatment Eliminate Quotas and NTB’s (Tariffication) Transparency “Rounds” of Negotiations: Current Doha Round Focuses on Agricultural Products

GATT 1947 Covered Trade in Goods Excluded Agricultural Products Textiles Services Intellectual Property Foreign Investment Dispute Settlement Mechanism Ineffective Required Consensus One Member State Could “Veto” Adoption of Panel Report

GATT 1994 Scope of Coverage Broadened: Agricultural Products Textiles Financial Services Intellectual Property Rights (TRIPS) Government Procurement Trade Related Investment Measures (TRIMS) Focus on Technical Barriers to Trade Created WTO to Administer GATT Revised Dispute Settlement Mechanism Strict Timetables for Procedures Panel Reports Adopted Unless Consensus to Reject Panel Decisions “Relevant But Not Binding” in Future Cases Retaliatory Sanctions Authorized if Party Refuses to Comply

GATT Exceptions GATT Authorizes Regional Trade Agreements NAFTA, EU, ASEAN, MERCOSUR etc. Special Preferences May Be Granted to Members Within Free Trade Area Members May Grant Preferences for Developing Countries Temporary Quotas to Address Balance of Payments Emergencies

World Trade Organization Replaced GATT - Jan. 1, 1995 153 members (as of 3/09) Dispute Settlement Process: Dispute Settlement Body (DSB) overseen by General Council Consultations – may lead to convening a Panel Panel Report subject to appeal Panel Report or Appellate Report final unless rejected by consensus vote of DSB

Import Regime for Bananas WTO Appellate Body Report - 1997 United States challenges EC preferences for bananas from former colonies (ACP countries) and increased duties and restrictions on non-ACP bananas EC argues that US lacks legal right or trade interest in claim by Latin American banana producers Report holds that US has interest as producer and potential export interest Member nations have broad discretion to bring case against other member before DSU

Major GATT Principles Multilateral Trade Negotiations: “Rounds” Uruguay Round (1986 – 1994): led to creation of WTO Doha Round (2001): focus on agriculture and services Tariffication: convert other barriers into tariffs – reduce through negotiations Tariff Concessions, Bound Rates and Tariff Schedules Nondiscrimination: Most Favored Nation and National Treatment

MFN (NTR, PNTR) Most Favored Nation Status (now known as Normal Trade Relations or Permanent Normal Trade Relations) Unconditional MFN: concessions granted by one member to another member automatically is extended to all members Conditional MFN: member grants concessions to another member only in return for concession GTT Allows Exceptions: may deny MFN based on national security foreign policy, or state’s denial of human rights to its citizens

China and MFN Temporary MFN granted in 1980 Restrictions imposed after 1989 Tiananmen Square massacre 1994 Clinton delinked human rights and trade for China’s annual renewal of MFN 2000 Congress granted permanent normal trade status to China effective on China’s admission to WTO China admitted to WTO – Dec. 2001 Subject to political events and tensions Concern over Taiwan – admitted to WTO as part of “Separate Customs Territory of Chinese Taipei” in January 2002

Japan Taxes on Alcoholic Beverages (WTO Appellate Body Report 1996) Japan taxed vodka and other imported liquors 7 times higher than domestic types such as shochu US challenged tax discrimination as violation of national treatment principle GATT Article III requires national treatment of imports for like products Like products determined by end uses in particular market, physical characteristics, common end uses – elasticity of substitution Report holds Japanese tax laws violate GATT US ultimately had to use arbitration - in 1997 Japan agreed to revise tax system and eliminate taxes on spirits by 2002

GATT and Quotas GATT calls for end to quotas – use tariffs instead Nondiscrimination principle applies to any quotas GATT allows use to relieve food shortages or prohibit importation of ag products subject to price supports Textile trade – multilateral quotas expired Jan. 1, 2005

GATT Balance of Payments Provisions GATT permits temporary quantitative restrictions in balance of payments crisis Art. XVII: developed countries Art. XVIII: developing countries India – Quant. Restrictions on Imports (WTO Panel Report 1999): restrictions in place for 50 years; discretionary licensing scheme India claims balance of payments defense India’s reserves ($25.1 B) not inadequate under Art. XVIII India not justified in maintaining restrictions Panel Report upheld by Appellate Body – adopted 1999

Politics and Trade Attempts to open international trade subject to domestic political pressures “Free Trade vs. Fair Trade” Protectionism vs. Multilateralism Who Speaks for Consumers Should Trade and Human Rights Concerns Be Linked? Labor and Environmental Issues: Avoid “Race to the Bottom” Conflict between the developing and developed world

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