Non-Discrimination in WTO Law - Essay Example

?Thamer Aloudah Scope, Meaning and Relevance (Non-discrimination in WTO Law) 15 July A. Introduction The World Trade Organization (WTO) is the product of years of intense negotiations. It is a remarkable achievement with the sole purpose of facilitating world trade by elimination of trade barriers such as tariffs. Looking back at history, most of the major wars in recent past were usually fought over resources and so the World Trade Organization is a step in the right direction by removing these irritants so trade can flow in a free, smooth and equitable manner. This is what WTO is all about and this world trade body is remarkable for one characteristic: decisions are made by the entire body (all member-governments represented by a designated minister, ambassador or trade delegate) sitting as committee of the whole.1 The WTO is built on the crucial principle of non-discrimination because trade discrimination had been the cause of irritants before. This paper tackles the most-favoured-nation (MFN) treatment obligations of member countries and its twin principle which is a national treatment obligation; the WTO is supposed to equally grant MFN-like status to all countries. The WTO replaced the General Agreement on Tariffs and Trade (GATT) as the world global trading body tasked to implement and adjudicate the rules for international commerce. The recent global Great Recession has highlighted anew the importance of the role of WTO in settling trade disputes as countries scramble for ways out of the recession. Trade frictions are again on the rise as countries find ways to revive their economies. This paper discusses the non-discrimination principle and its increased relevance in international trade.2 B. Discussion The WTO is a big improvement over the GATT and its still-born cousin ITO. In the WTO rule of consensus decision making (termed derisively as its mass management), there is no board of directors like in modern corporations.3 The consensus makes the WTO a success it is today although in rare instances, majority votes may also rule. If trade disputes arise, the WTO works to resolve it through negotiations. Once a WTO resolution is deemed final, the concerned country must conform to the ruling such as amending its laws or pay compensation to the adjudged winner; failure to do so results in non-negotiable sanctions as no appeals are allowed. This is how non-discrimination is enforced in the WTO; its stated aims are to expand free trade equally without barriers to all members, make trade predictable through rules and a truly competitive undertaking by removal of subsidies.4 The lack of a governing body similar to a corporation's board of directors is intentional to address previous complaints of smaller countries. There is no body within WTO that has a delegated power from its members despite proposals for creation of a smaller executive body.5 Members make their decisions known through its committees and councils. Decisions reached by the members are more acceptable to all implemented quickly like the Japanese way of doing things.6 This loose set up has advantages but sometimes, people end up confused.7 Its culture is designed to promote sharing of common values and reassure smaller nations their weaknesses are being addressed.8 Fusion of interests of all countries helps build harmony through transparency and inclusion. The WTO success is its rules-based disputes resolution.”9 Non-discrimination in WTO Law – experts call WTO a modern miracle for sheer fact it managed to exist.10 The guiding idea behind WTO is its Dispute Settlement Understanding or DSU. For the first time, the DSU codified all procedural rules as they pertain to the core principles in any dispute across all types of trade agreements.11 It is the basic document that sets out the jurisdictional scope of the WTO dispute settlement and all members must submit to its authority. There is less reason to suspect any subjectivity in any of the WTO decisions.12 Relative to transparency and inclusion, the guiding principles in the new World Trade Organization are its twin principles that serve as its cornerstones. The two principles are the non-discrimination principle and its fairness principle. The first refers to both the MFN and national treatment obligations of all member countries.13 Meaning - the MFN principle requires all WTO member countries not to discriminate between countries. It obliges a member that granted special treatment (favoured-nation status) to another country's products or services to also grant it to all other countries. This obligation to treat all countries equally pertains to the imposition of customs duties, charges or fees of any kind in connection with importations and exportations that tend to give advantage, favour, privilege or immunity to another country's products or services; MFN must be extended to all other countries. This equality in treatment of similar products or services should be accorded to all members without any preconditions and must be extended immediately. A good example here would be the case of banana exports or any fruit for that matter. Bananas from Puerto Rico, for example, are no different from the bananas from most Asian countries, say the Philippines. The whole point of the MFN treatment obligations is to afford all the exporters of bananas an equal opportunity to sell their bananas to a banana-importing country. A guiding principle is that any product from one country that is similar should not be discriminated over another similar product from a different country of origin. This principle of non-discrimination is applied not only to de jure discrimination but to actual discrimination as based on importation practices and policies of any country (de facto discrimination). African, Caribbean and Pacific (ACP) banana-exporting countries had filed suit at WTO against the European Union for giving preferences to Latin American banana exporters such as Panama and Costa Rica with the EU caught in between.14 Most bilateral investment treaties (BIT), free trade agreements (FTA) and international investment agreements (IIA) are deemed exclusionary and therefore discriminatory under the most-favoured nation status (MFN) definition.15 The task of WTO is to level the international trading field by ensuring MFN status granted to a country is extended equally to all countries. Success of WTO depends on how it can enforce this through sanctions. On the other hand, the national treatment principle of non-discrimination adopted by WTO means there are no discriminatory practices when nations trade with a particular nation. It means there are no distinctions such as favouring a product imported from another country as against that of locally-made products.16 Both products, local and imported, must be treated the same when it comes to taxes, laws and regulations such as valuing of products for customs purposes or tariff computations.17 A sign of the importance given to trade non-discrimination principle is there are many pending cases involving charges and accusations of “dumping” in which exporting countries engaged in so-called predatory pricing of selling lower than their domestic prices. In many cases, the usual charges of bias in decisions crop up especially when related to non-tariff measures allowed to richer, importing countries to stem the tide against dumping by poorer countries. Sample cases are in garments and textiles, in agricultural products and automotive tires. Despite all pronouncements to the contrary, the WTO is in danger of eroding its credibility due to this perceived bias.18 The non-discrimination principle of national treatment in the WTO laws is general in nature but only when it pertains to trade in products. This principle does not apply in the case of specific sectors in services in which some member countries can apply for exemptions. The idea is that unlike tangible products, trade in services has a wide degree of variation which is often intrinsic. The exemptions to the national treatment obligations in services are stated in a roundabout way by making national treatment subject to some conditions and qualifications or certain limitations; it means members must explicitly grant national treatment in services.19 Its application has been expanded to other areas such as intellectual property rights. Trade in services falls under the General Agreement on Trade in Services (GATS) of the WTO, defined as the agreement that covers all internationally-traded services with two exceptions: services provided to the public by a government authority (or agency) and traffic rights (air transport sector) and all services directly related thereto.20 Scope of the Non-Discrimination Principle – the principle of non-discrimination is to be applied to all trade in tangible products in general with immediate and unconditional effect. The idea is to be fair to all countries and that any country is to be treated equally since not all of them are comparable in size.21 Being fair does not necessarily mean being equal but should border on something reasonable for trade negotiations. The idea is small or weaker economies have little leverage and non-discrimination gives all countries equality to trade fairly. Fairness in previous GATT was not a priority but it is now under the new WTO. The introduction of the fairness principle into WTO is a conscious effort in the pursuit of justice in international law practice; although not every trade rule is fair, the intent is to promote trade de-regulation as envisaged by the WTO.22 Fairness as understood and applied at the WTO implies the sense of equality although it is hard to achieve considering the disparity in the size of nations as mentioned earlier. Most political discourses about fairness at the WTO are centred on what is termed as re-distributive equity and equality of opportunities. Fairness and justice are used in almost the same vein and meaning but the keyword there is reciprocity.23 The spirit and intent of non-discrimination in WTO in terms of scope is to be broad in its interpretation. Unless otherwise specified by exemptions, such as those granted in certain types of services, non-discrimination should be interpreted liberally to practically include anything.24 Original scope of the non-discrimination principle was intended for trade in tangible products; it has been expanded to include intangibles like patents, artistic concepts, business ideas such as franchising and innovative ideas like in architectural designs. This expanded scope has relevance in today's information-based or knowledge-based economy where ideas and innovations acquire commercial applications. It can be exemplified by the new social controversy now brewing in the human genome project (HGP) as some countries had already allowed discoveries pertaining to some inherited defects caused by genetic malformations to be patented in their jurisdictions. This should fall under a WTO purview but the laws on this still have to be threshed out and formulated. It is the similar and familiar situation concerning patents on expensive medicines to cure HIV/AIDS where poor countries would be in violation of WTO rules if they manufacture generic versions. It is a contemporary issue that has acquired new importance because of rapid advances in both scientific research and medical science technologies. Dramatic advances in the field of genetics had opened up new possibilities for a commercial application of knowledge in human genome sequencing in making new medical products based on genetically-expressed proteins in human body processes linked to congenital defects.25 Another area where knowledge forms part of intellectual property rights and must be included in future discussions of the WTO is in agricultural bio-technology in the designs of genetically-modified organisms (GMO) because these has potential commercial applications.26 A challenge facing WTO in this regard is how to balance the need for equality of access to vital knowledge and still have strict adherence to protecting the sanctity of patents for intellectual property protection. Relevance of Non-discrimination Principle – this principle is the foundation on which the WTO is based on. It means members of WTO must not discriminate or show preference for one country or its products at the expense or exclusion of another member-country; what is offered to one country (similar to the MFN status under the GATT) must also by principle be available to other countries if they so desire favourable treatment. The scope or coverage of the non-discrimination principle is very wide ranging under WTO.27 This non-discrimination principle under WTO laws finds expression and meaning in what is termed as most favoured nation and national treatment concepts. Under the MFN concept, products are to be treated equally by an importing country regardless of the product's origin. The said country must not make distinctions among several countries which export the same products to it. Example is to accept banana exports from one country but refuse entry to bananas of still another exporting country although bananas are theoretically the same regardless of source. WTO requires that the non-discrimination principle be applied at two levels: a first level is when an exporting country's goods, products or services arrived at the importing country (the final destination); a country's exports must not be discriminated against products from its competitor countries. The second level of required non-discrimination as prescribed under WTO laws is not to make distinctions between the exported products once it has entered an importing country's domestic markets. This means the imported goods are not to be treated any differently from an importing country's local products. This is to avoid situations where governments will impose additional or special surcharges, taxes and fees to make imported products uncompetitive. The intent and spirit of the non-discrimination principle is not to allow anything to be hindrances to further growth in global trade. For example, today there are many regional trade agreements (RTAs) seeking to grant another country which is a member of regional groupings preferential treatment. RTA is the collective term for free trade agreements (FTAs) and service agreements like Japan’s terminology for these which are economic partnership agreements.28 Economic groupings (more than 200 and still counting) are bad for this principle. In reality, this cherished principle on which many developing nations had put the hope of their countries gaining economic development has not been honoured. It has acquired new relevance in view of the current global economic slowdown. As countries try to revive their economies by promoting exports, conflicts are bound to increase and care must be exerted by everyone against creeping trade protectionism that might escalate to open trade wars. The broadness of the non-discrimination principle is supposedly simple to follow for any country but that very characteristic of being too broad in scope invites the exceptions to it. Non-discrimination is not only for tangible products but also services and intellectual property rights although exceptions are allowed under these latter sectors.29 The real significance of the non-discrimination principle in today's super-competitive trade environment is to avoid frictions which can lead to trade wars like what happened in the previous decades. Its relevance is all the more heightened in view of the global recession that had engulfed most of the developed countries in the world and to some extent also the smaller countries that are plugged into a global economy. Without it, trade protectionism can result. In one of the most contentious areas of trade, big subsidies exist which are against the spirit of the non-discrimination principle. A country that is not well prepared to open its own markets to international competition is tempted to take undue advantage of countries opening their markets by “dumping” its products such as cement like the case between Guatemala v Mexico.30 It does this by subsidizing its exports which make these exports cheaper compared to local products even after the added cost of shipping.31 The real meaning of this cornerstone principle in the WTO rules is to make all crucial purchase or buy decisions solely on the basis of commercial considerations only. By this, it means all member-countries and their business companies must do export and import transactions devoid of any other consideration, such as political or diplomatic factors. A case on this point is Brazil – Measures Affecting Desiccated Coconuts in which the Appellate Body initially ruled in favour of Brazil against four coconut-exporting nations but was eventually reversed.32 It was considered as a test case of DSU;33 the period of the case traversed the critical transition period between GATT and WTO.34 Relevance of non-discrimination likewise appears in how the socialist or communist nations make buying or selling decisions through state-owned enterprises (STEs) that are by their very nature part of that country’s political landscape. An example is a giant country like China where big purchases are made by its STEs. It is easy to use these STEs for politics by choosing a supplier from one country over that of another nation via political or diplomatic considerations; this practice is not allowed under WTO as it is similar to giving MFN. It can be challenged by aggrieved supplier parties shut out in the bidding process.35 However, the cherished principle of non-discrimination is slowly being eroded by grey areas like special taxation laws and subsidies as opposed to state aid.36 WTO non-discrimination mandates that MFN status be granted to all member countries such that any exclusive rights for a certain country effectively become irrelevant as other nations are given the same rights. The relevance of this principle is that it serves as the guiding concept in the promotion of international trade. Without it, any trade growth would probably be slow and stunted. This principle is what encourages countries to open up their markets to international suppliers and competitors although the WTO allows some of developing countries more time in opening up their markets. In this connection, it is equally important to bear in mind that the WTO is not a free trade agreement but an organization that promotes trade liberalization for all its member-countries. The non-discrimination principle is an important component towards progressive trade liberalization by opening up markets to foreign competition. Without non-discrimination, the whole area of international trade will break down into protectionism. It is crucial to keep national markets open by this non-discrimination principle as regional trade blocs can be considered a violation of WTO rules. The United States and the European Union are violators of WTO rules by granting preferential access to their domestic markets to some countries only. The non-discrimination principle in trade acquires greater importance in today's fast-paced trend in globalization in trade. There are also doubts about long term beneficial effects when giving trade preferences as these create economic distortions in the recipient countries. Most of the EU members are even in contravention of their charters that supposedly promote a free movement of goods, people, capital and services.37 Trade preferences tend to stunt the growth of recipients because it will make domestic industries reliant on protectionist policies. C. Conclusion The World Trade Organization is now a rules-based organization unlike GATT that was power oriented. As trade globalization continues to intensify and accelerate, international jurisprudence must also keep up with developments of trade and it is in the WTO Appellate Body where international trade jurisprudence is very detailed but also still evolving.38 It is in this body where the guiding principle of non-discrimination is tested for what it stands for as currently defined; example was admission of rising trade giant China after it complied with requirements for accession.39 However, critics of the WTO contend it is a way for developed countries to continue dominance over the developing world. New regulations such as those pertaining to the environment, for example, tend to favour giant multinationals. WTO rules undermine national sovereignty of small countries, degrade the environment and lowered the living standards of low-skilled workers. This is the reason why Russia has delayed joining the WTO although it is expected to join very soon, pending some reviews on the effects of WTO entry on its economy with help from the World Bank.40 China’s WTO entry case was governed by special agreements that had addressed the issue of non-market treatments in the anti-dumping field, but this may not be enough to stem the tide against the non-tariff barriers being adopted by some countries in the EU.41 In many cases involving dumping, it is difficult to reach a reasonable conclusion as the relevant industry conditions that promote or hamper healthy competition are hard to obtain.42 The expiration of the “peace clause” in 2003 contributed to the rise of challenges in decisions reached in dispute settlements.43 An example is of Canada, New Zealand et al. v Hungary on dairy products.44 The WTO is the only regulator in promoting trade globalization and it must not allow its critics to undermine it. The scope and relevance of non-discrimination is more important than ever. But disputes handled by the WTO are increasing due to the added pressures of the global recession.45 Non-discrimination encourages foreign investments but investors have an advantage as they win most cases against weak state governments.46 The non-discrimination principle's relevance can be found in how it affects all countries' levels of income, job creation and economic growth through freer international trade. Bibliography Anders Aslund and Andrew Kuchins, The Russia Balance Sheet (Peterson Institute for International Economics, Washington, D.C. 2009). Bernard M. Hoekman, Trade Laws and Institutions: Good Practice and the World Trade Organization (World Bank Publications, Washington, D.C. 1995). Christiane R. Conrad, Processes and Production Methods in WTO Law (CUP, Cambridge, UK 2011). Donna Lee and Rorden Wilkinson, The WTO After Hong Kong: Progress in, and Prospects for, the Doha Development Agenda (Routledge, Oxon, UK 2007). Edwin A. Vermulst and Folkert Graafsma, WTO Disputes: Anti-dumping, Subsidies and Safeguards (Cameron May, Ltd., London 2002). Farid Elashmawi, Competing Globally: Mastering Multi-cultural Management and Negotiations (Butterworth-Heinemann, MA, USA 2001). Frederick M. Scherer, Patents: economics, policy, and measurement (Edward Elgar Publishing, Inc., Northampton, MA, USA 2005). Geoff Moore, Fairness in International Trade (Springer, London 2010). Josef Kreiner and Hans Dieter Olschleger, Japanese Culture and Society: Models of Interpretation (Ludicium Verlag GmbH, Munich, Germany 1996). Jeffrey L. Gertler, “What China's WTO Accession is All About” in Deepak Bhattasali, Shantong Li and Will Martin (eds.) China and the WTO: Accession, Policy Reform and Poverty Reduction Strategies (World Bank Publications, Washington, D.C. 2004). John H. Jackson, William J. Davey and A. O. Sykes, Legal Problems of International Economic Relations: Cases, Materials and Text on the National and International Regulation of Transnational Economic Relations (5th edn Thomson-West, Eagan, MN, USA 2008). Krista N. Schefer, Social Regulation in the WTO: Trade Policy and International Legal Development (Edward Elgar Publishing, Limited, Cheltenham, UK 2010). Laurence Boulle, The Law of Globalization: An Introduction (Kluwer Law International, the Netherlands 2009). Matthias Oesch, Standards of Review in WTO Dispute Resolution (OUP, Oxford 2003). Merlinda D. Ingco and John D. Nash, Agriculture and the WTO: Creating a Trading System for Development (World Bank Publications, Washington, D.C. 2004). Michael Lang, Judith Herdin and Ines Hofbauer, WTO and Direct Taxation (Kluwer Law International, the Netherlands 2005). Michael J. Trebilcock and Robert Howse, The Regulation of International Trade (3rd edn Routledge, London 2005) Mitsuo Matsushita, Thomas J. Schoenbaum and Petros C. Mavroidis, The World Trade Organization: Law, Practice and Policy (2nd edn OUP, Oxford 2006). Peter van den Bossche, The Law and Policy of the World Trade Organization: Text, Cases and Materials (2nd edn CUP, Cambridge 2008). Petros C. Mavroidis, Trade in Goods: The GATT and the Other Agreements Regulating Trade in Goods (OUP, Oxford 2007). Raj Bhala, Modern GATT Law: A Treatise on the General Agreement on Tariffs and Trade (Sweet and Maxwell, London 2005). Rebecca Eisenberg, Intellectual property rights in agricultural biotechnology (DIANE Publishing Company, Darby, PA, USA 1994). Thomas Cottier, The Challenge of WTO Law: Collected Essays (Cameron May, Ltd., London 2007). Thomas Cottier, Matthias Oesch and Thomas M. Fischer, International Trade Regulation: Law and Policy in the WTO, the European Union and Switzerland: Cases, Materials and Comments (Berne,. Switzerland, Staempfli Publishers 2005). WTO, WTO Analytical Index: Guide to WTO Law and Practice (2nd edn CUP, Cambridge 2005). Law Journals Joel P. Trachtman, “The Domain of WTO Dispute Resolution” [1999] 40 Harv. Int'l. L.J. 333. Juscelino F. Colares, “A Theory of WTO Adjudication: From Empirical Analysis to Biased Rule Development” [March 2009] 42 Vand. J. Transnat’l. L. 383. Patricio Grane, “Remedies under WTO Law” [2001] 40 J. Int'l. Econ. L. 764. List of Cases WTO, Brazil – Measures Affecting Desiccated Coconuts [1997] WTO Doc. WT/DS22/AB/R (Appellate Body Report). WTO, Guatemala – Anti-dumping Investigation Regarding Portland Cement from Mexico [1998] WT/DS60/R. WTO, Hungary – Export Subsidies in Respect of Agricultural Products [1997] WTO/DS35. WTO, Panama - European Communities – Regime for the Importation of Bananas [2007] WTO/DS364. Web Sites Asian Development Bank, “World Trade Organization Toolkit: Non-discrimination Principles” (2011) accessed 12 April 2011. Chakravarthi Raghavan, “Rulings against India, Brazil Raise WTO Bias Issues” (1999) accessed 08 April 2011. Ueno Asako, “Erosion of the Non-discrimination Principle through Waves of Preferential Trade Agreements: A Warning from the Sutherland Report” (2005) accessed 12 April 2011. World Trade Organization, “Guatemala – Anti-dumping Investigation Regarding Portland Cement from Mexico” accessed 13 April 2011. World Trade Organization, “Hungary – Export Subsidies in Respect of Agricultural Products” [1997] WTO/DS35 accessed 14 April 2011. World Trade Organization, “The Regulation of State Trading under the WTO System” (2011) accessed 10 April 2011. World Trade Organization, “Whose WTO Is It Anyway?” (2011) accessed 12 April 2011. Table of Authorities AFTA – ASEAN Free Trade Area (September 1992 in Singapore) APEC – Asia-Pacific Economic Cooperation (1989) CAFTA – Central America Free Trade Agreement (2005) CAFTA – China-ASEAN Free Trade Agreement (January 2010) CUSFTA – Canada-United States Free Trade Agreement (1987) DSB – Dispute Settlement Body (1995) ECJ – European Court of Justice (1952 in Luxembourg) GATS – General Agreement on Trade in Services (January 2000) General Agreement on Tariffs and Trade (GATT 1947) (Adopted 30 October 1947, entered into force 1 January 1948) 55 UNTS 194 General Agreement on Tariffs and Trade (GATT 1994) (Adopted 15 April 1994, entered into force 1 January 1995) 1867 UNTS 187 ICJ – International Court of Justice (1945 at the Hague, Netherlands) IIPA – International Intellectual Property Alliance (1984) International Centre for Settlement of Investment Disputes (ICSID) International Monetary Fund (IMF) MERCOSUR – Southern Common Market (1991 in Treaty of Asuncion) NAFTA - North American Free Trade Agreement (1994). UN Commission on International Trade Law (UNCITRAL). UNCTAD – United Nations Conference on Trade and Development (1964) USDOC – United States Department of Commerce USITC – United States International Trade Commission (1966 in New York City) World Bank (WB) World Trade Organization (WTO) Read More