Focusing on the Jurisprudence of the WTO - Essay Example

JURISPRUDENCE AND CASE LAW OF WTO AND GATT MOST FAVOURED NATION (MFN) AND NATIONAL TREATMENT STUDENT NAME PROFESSORS NAME COURSE TITLE DATE INTRODUCTION According to Ian Brownlie, a reputable in international law asserts that international has its establishment on the principle of sovereignty and equality of states1. In the contemporary society, international trade is dependent on the cooperation of States and that a tribunal addresses any potential dispute relating to trade regimes, tariff disputes and discrimination. The concept of international trade and investment law, necessitated the need to effectively administer trade between countries, creation of tariff measures that are similar and platform for dispute settlement In the quest to bring uniformity to international trade and investment law, various investment treaties have been borne out of negotiations that go way back before the two world wars. The non-discrimination policy is one of the specific trait of treaty-based international economic law especially in international trade regulation and the protection of foreign direct investment2. The principle of non-discrimination embodies the Most Favoured Nation (MFN) and the principle of national treatment (NT). The Marrakesh Agreement establishes the World Trade Organization (WTO) the umbrella agreement for most of the international trade agreements. The General Agreement on Tariffs and Trade (GATT) 1994 modified the original 1947 agreement sets out the basic goods-related obligations of WTO members. The Marrakesh Agreement in its preamble provides that that discrimination in international trade law needs elimination and is amongst the main objectives of the WTO regime3. This paper focuses on the jurisprudence set by the WTO in relation to intention to discriminate in consideration of the MFN and NT treaty obligations of contracting state parties. Keywords: Most Favoured Nation (MFN), NT, WTO, GATT, non-discrimination Non-Discrimination In the GATT and WTO system, non-discrimination is premised on the two clauses; MFN and NT. In a nonprofessional’s language, discrimination refers to ‘segregating, setting aside, or isolating another person’s products or items due to particular reasons or factors’. International trade refers to trading with other states other than one and therefore there are many factors such as; ideology and political affiliations that may lead to discrimination in relation to their products. Failing to allow products free market in a state indicates a discriminatory practice. In history, discrimination was an important characteristic in the protectionist trade policies pursued by many countries during the economic crisis of the 1930. There is a perception that countries may ultimately wish to treat investors differently due to some legitimate reasons. However, international customary law fails to control the actions of a state when desiring to treat foreign investors in a discriminatorily especially those who wish to establish their markets within the state4. In some instance, the global competition to capture new markets to attract FDI incentives has led to the sidling and undermining their own domestic products. In the quest of the WTO and GATT to eliminate discrimination, there are three concepts linked to the non-discrimination principle; Equality: The non-discrimination principle seeks to create equality of states in the passing of policies that aim at giving privilege to one state against another state. The equality of state before international law implies that all states are equal; none is sovereign over the other and ought to treat each other equally5. In the case of the MFN and NT principle is promotes and ensures reasonable equality among members so that no contracting state is enriched at the expense of another state6. Equal conditions of competition: In any instance a States decides or intends to pass a regulation, a new tariff structure or increase internal taxes levied on foreign goods, it implies that there are no equal competition afforded to investors within the state. In many states, competing interests informs the states creation of policies and regulations that eliminate competition. In many instances, market monopoly hampers the growth of the economy and therefore equal opportunities for competition enhance the status of a given state. There is a need to balance both the national interest of the state to advance their economic status while catering for the interest of their trading status. The application of the non-discrimination clauses aims at creating an environment whereby investors operate successfully in market on equal terms and are unimpaired by unfair restrictions imposed by the state of private actors. In international law, there are two fundamental aspects of discrimination: a) Intention to discriminate The intention to discriminate refers to the steps taken by a country to discriminate against products perceived to be in direct competition with other products or creation of new tariff structure that discriminates against certain products. In one notable case of Japan-Taxes on Alcoholic Beverages,7 the issue before the Panel was whether alcoholic beverages like ‘sochu’ traditional Japanese drink received a favourable treatment. The issue was whether they were like products. The panel concluded that in alcohol strength did not preclude a finding of likeness especially since alcohol beverages drunk in diluted form. It agreed with arguments by European Commission, Finland and the US that Sochu and Vodka were like products because they were clean spirits, made from similar materials and the end uses were virtually identical. The scope of application of the intention to discriminate according to case law, there are certain elements that are necessary: I. The discrimination must be with respect to and in principle to all or and measures that affect trade either de jure or de facto, any advantage granted to goods that originate from anywhere in the world; II. It must extend to like products; III. Originating from a contracting state to the WTO ; IV. Immediately and unconditionally8; In the determination of whether a new tariff regime intends to discriminate against products from another state then the elements must be present. According to WTO jurisprudence, one can interpret that if two products share the same tariff classification, then they are like products. In any instance, the WTO does not have any rule on the origin of products and each state has the freedom to create their own policies as long as it is non-discriminatory9. In the case of Canada –Certain Measures Affecting the Automotive Industry10 (Canada Autos) the Appellate Body states that Article 1:111 states that; ‘the advantages granted with respect to’ the subjects that fall within the defined scope of Article, but to ‘any advantage’ not to some products, but to ‘any products’ and not to like products of some other Members, but to like products originating in or destined for ‘all other’ members. In the same instance in Canada Autos Case the court held that Article 1:1 of GATT also caters for cases where a state fails to accord an ‘advantage ‘ to like products of all other members either appearing on the face of the measure or on the basis of the words of the measure. In the Canada Auto case between 1999 and June 2000, Japan and the EC filed a complaint against Canada for exemption for automobile export to Canada as other eligible manufacturers like the United States and Mexico. In this arrangement, Canada granted; General Motors, Ford, Chrysler and Volvo were beneficiaries of an import duty exemption not applicable to Toyota, Nissan, Mazda, Honda, Subaru, Hundai and others. In the decision of the panel, they stated that Article III12 paragraph 2 and 4 states that any advantage, favour, privilege or immunity is to be applied immediately and unconditionally to all like products originating from territories of the contracting parties. The Panel and the Appellate Body came to a conclusion that the duty exemption was inconsistent with the MFN obligation that not only applies in de jure but also the de facto discriminations. In relation to a state intending to discriminate against the products of another country, the regulatory measure as per Article III accords a treatment no less favourable than that accorded to like products of national origin. Applicable mostly under the NT principle, the regulatory measure must be; a law or a requirement, that affects the internal sale, transportation and distribution of imported products according a less favourable treatment to imported products than to like products13. In the EU Bananas case, after the conclusion of the Uruguay Round, the EU adopted a new tariff quota system for bananas. The US argued that the preferential allocation quota to Latin American countries was inconsistent with the WTO agreement. The Appellate Body in upholding the Panel decisions stated that the quota systems measure was inconsistent with the WTO agreements. Most Favoured Nation (MFN) The MFN principle has its roots in medieval city of Mantua in Italy whereby the Roman Emperor granted a promise that there is always a benefit from any privilege by the Emperor to ‘whatsoever other town’14 . An MFN clause in any given investment treaty refers to a promise between state parties that neither of the state will give investors from a third state a more favourable treatment that that given from investors from a third party15. In instances where a State party grants this favourable treatment, it must unconditionally apply to the other states that carry on their business within that state. There is growing concerns about the ability of the MFN clause in the promotion of harmonization and non-discrimination. Its interpretation by tribunals overrides its aim of eliminating discrimination and fosters the issue of equalizing the market16. Its inclusion within the GATT regime makes it a multilateral obligation as opposes to a bilateral obligation that is one another State can obtain MFN benefits from other contracting states automatically. Article 1:1 of GATT gives MFN an unconditional aspect and no state can break from the notion of conditional MFN where its provision is dependent on exchange for some reciprocal benefit17. In the WTO regime once a WTO member grants an advantage to imports, the country cannot make the granting of the advantage to imports of other WTO members conditional upon those other WTO members ‘giving something in return’ or ‘paying’ for the given advantage. The GATT gives provision for the MFN principle under Articles I, XIII and XVII. According to Article XXIV of GATT, it states that: “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. Also 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.”18 The MFN clause requires that the contracting parties’ trade policies must treat all the GATT members equally. The article applies to all tariffs, whether they are subject to negotiations between the GATT members as well as the policy measures that relate to imports and exports. In relation to whether a state party grants an advantage; the issues in consideration are; custom duties, charges on imports and customs matters19. The internal tax regime and regulation in relation to those that affect the sale, use of products and the distribution with the advantage granted not only extending to WTO members but also to other countries including the non-WTO members. Spain-Tariff Treatment of unroasted coffee20 prior to the WTO regime, Brazil filed a complaint against Spain’s new tariff of unroasted and non-decaffeinated. According to Spain, no contracting party was obliged to retain the tariff structure; however, Brazil felt discriminated since they exported unwashed Arabica & Robusta. In the decision of the Panel, they stated that Article 1:1 required that same tariff is applied to like products. In agreeing with Brazils arguments, the Panel stated that coffee beans listed in the Spanish Customs Tariff should be like products within the meaning of Article 1:1. Brazilian coffee exports to Spain were charged higher duties and the Panel regime in Spain was discriminatory vis-à-vis unroasted coffee that originated from Brazil. In the application of MFN principle in within the GATT regime, there are certain exemptions that allow for application of different tariff classification arrangement. These include; I. Regional integration In reference to regional integration through customs union and free trade liberalized areas, a state can maintain the trade barriers as against other countries outside the free trade area. In instances where regional integration is practiced, then the outcome would be contrary to the aspirations of the MFN principles. According to the interpretation of Article XXIV regional integration is acceptable if; the tariff barriers are eliminated to substantially all trade within the region, the tariff barriers to trade applied to countries not members of the regional block are not higher or restrictive21. II. Generalized System of Preferences (GSP) The GSP system aims at giving an advantage to developing countries through the lowering of tariff rates than those normally granted to those within the MFN status. This aims at increasing the export earnings of this state22. The beneficiaries of the GSP system are limited to developing countries. III. Non-Application of Multilateral Trade Agreements(MTAs) Between Particular Member States The Marrakesh Agreement states that the MTA shall not apply if; during the entry into force of WTO, Article XXXV of GATT 1947 had been invoked earlier and was effective as between the original signatories of the GATT 1947. In other case between members who have acceded to Article XII only. National Treatment (NT) Article III of GATT gives the distinction of what entails domestic policy interventions into fiscal23 and non-fiscal measures24 The fiscal measures refer to the introduction of a taxation regime that is different in application in ‘like products’ that violates the NT principle. In other instances the application of different taxations on domestic goods that are in direct competition or substantial on products so as to give protection to the domestic products. National treatment refers to the treatment given to foreign goods, which must be just as good as, that which is given to the national or domestic goods. According to Article III of the GATT 1994, the national treatment principle works to; avoid protectionist measures, maintenance of competitive conditions and protect the tariff bindings. The main difference between the NT principle and MFN is that the MFN prevents the discrimination as between foreign products, while NT prevents the discrimination between imported products and imported products25. There is a clear mandate in the two principles; that is MFN operates within the border while NT prevent discrimination within a States within the domestic market26. However, in certain circumstances MFN principles applies in the domestic market if there is discrimination of foreign products even when the NT principle is not breached27. In relation to non-fiscal measures, it applies in instances where it affords to an imported good less favourable treatment that afforded a domestic like product. The exclusion in application of the national treatment principle is the use of production subsidies and government procurement. Article III:1 of GATT states ; “The contracting parties recognize that; internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation and distribution or use of products. It extends to internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions should not be applied to imported or domestic products so as to afford protection to domestic production.”28 This interpreted in the Japan-Alcohol case; the appellate body held that ‘the broad and fundamental purpose of Article III is to provide protectionism in the application of internal taxes and regulatory measures’29. Article III: 2 creates at least three tests; whether the measure at issue in an internal tax, whether the imported and domestic products are ‘like’ products and whether the imported products are not taxed in excess of the domestic products. Whether the dissimilar taxation applied is to afford protection to domestic products. Conclusion In conclusion, the international trade law regime plagued with different interest from contract state parties to the WTO identified the non-discrimination principle as the basis for which to advance transnational trade. The non-discrimination policy implies that the states are equal granting equal opportunities and favourable conditions within the market without introduction of unfair trade barriers, tariffs and charges. The intention to discriminate relies on at least three elements; the intention to discriminate either de fact or de jure, on like products and immediately and unconditionally. The benefit of a non-discrimination policy is to enhance efficiency, minimize the cost of transactions such as direct shipment requirements, and promote reciprocity and liberalization of trade and the minimization of trade negotiations. Despite the fact that the MFN clauses and NT principle applies only signatories and member states of the WTO/ GATT regime, the non-members states have benefited through the MFN principle of non-discrimination. BIBLIOGRAPHY A. Books/Articles/ Reports Burnett, R, Law of International Business Transactions (The Federation Press, 3rd ed, 2004) Brownlie, I, Principles of International Law (Oxford University Press, 6th ed., 2003) at 289-292 Bosche, V D, The Law and Policy of the World Trade Organization: Text, Cases and Materials (Cambridge University Press, 2nd ed, 2008) Gathi, J T, War, Commerce and International law (Oxford University Press, 2010) Hudec, R E, Tiger, tiger in the house: a critical evaluation of the case against discriminatory trade measures. In Ernst‐Ulrich Petersmann and Meinhard Hilf, The new GATT round of multilateral trade negotiations: legal and economic problems, (Kluwer Law International, 1988) Kevin, K, International Trade Regulation; Readings, Cases and Problems (Aspen Publishers, 2009) Lester, S, ‘The Asian Newly Industrialized Countries to Graduate from Europe GSP Tariffs’ 36, Harvard International Law Journal 220 Lester, S, Davies, A, Leitner, K and Mercurio, B, World Trade Law Text, Materials and Commentary (Hart Publishing, 2012), Mitsuo, M, Schoenbaum, T J, and Mavroidis, P C, The World Trade Organization Law, Practice and Policy, (Oxford University Press, 2006) Oesch, M, Commercial Treaties’ in Max Planck Encyclopedia of Public International Law (Oxford University Press, 2009) Todd, P, Cases and Materials on International Trade Law (Sweet & Maxwell, 2003) Whalley, J, ‘Special and Differential Treatment in the Millennium Round’ World Economy B. WTO CASES Canada–Certain Measures Affecting the Automotive Industry 10.289, WT/DS139/R, WT/DS142/R (Feb. 11, 2000) (adopted June 19, 2000, as modified by Appellate Body Report, WT/DS139/AB/R, WT/DS142/AB/R) European Communities – Regime for the Importation, Sale and Distribution of Bananas, WT/DS27/R/ECU, WT/DS27/R/MEX & WT/DS27/R/USA (May 22, 1997). Japan–Taxes on Alcoholic Beverages, 19, WT/DS8/AB/ R, WT/DS10/AB/R, WT/DS11/AB/R (Oct. 4, 1996) (adopted Nov. 1, 19 Spain - Tariff Treatment of Unroasted Coffee, BISD 28S/102. C. Treaties GATT 1980BISD 26th Supplement, Geneva. The Marrakesh Agreement Read More