International trade law
GATT-General agreement on trade and tariffs
History-Meaning-Principles
The GATT was originally created by Bretton Wood Conference after
World War II.
Main objective of GATT was
1:-To reduce international trade barriers.
2:-Increase standard of living of people of member nations.
3:-To provide for good social infrastructure.
The GATT was an agreement and not an organization which was provisional in nature for 40years.
It was succeeded by World Trade Organization.
GATT performed its obligations in various rounds.
First round: Began in 1947 in US and extended till Tokyo Round in 1970s followed by Uruguay Round which was the most ambitions round as it included new areas like services, agriculture, capital etc .The present round called the Doha round which has been pending since 2000 and still not concluded.
The following are the main tools/principles of GATT/ WTO-
Most Favored Nation Treatment:
This is the most important principles of GATT. It means that every member has a duty to give to another member treatment which is not less favorable than the treatment it provides to any other country. It means that if a member country offers a privilege to another country then it has to extend the same treatment to all other member countries.
Thus MFN clause is based on the idea of non-discrimination and equality.
However MFN treatment is not absolute in nature because it may not be unconditional. Under MFN treatment a country may keep some reservation for some ,countries like Least Developed Countries.
Here comes the principle of special and diffential treatment .
According to this a member nation may give a special and different treatment to a country which it does not give to other countries by giving more tariff reduction and concessions. It can be claimed by the developing countries or LDCs if they are dissatisfied by the MFN treatment the following terms:-
A:-It can ask for a privilege of renegotiation trading terms on certain products.
B:-To take any measures to promote a particular industry.
C:-To reduce tariffs.
2) National treatment:-
Art III of GATT incorporates the principle of national treatment. The locally produced goods or services should be treated equally with imported goods or services. After foreign goods or services have entered the market. Or it can be defined as giving the same treatment to a foreign good as your own national. This treatment becomes very important once the property like Intellectual Property enters the market because then it becomes the duty of the nation to protect it. Such equal treatment is in the form of tariffs and trade barriers which a nation applies an its own products and the other countries’ products.
3) Protection of Tariffs
Trade Barriers: Can be imposed only by national governments. As per MFN treatment, the trade barriers should be equally or similarly imposed on all nations. These barriers may be in the forms of:-
1:-Tariff
2:-Non tariff barriers.
Tariff barriers are imposed in the form of duties , taxes. On the other hand, Non Tariff Barriers are imposed in the form of qualitative restrictions or import bans.
Quantitative Restrictions: Are the express limits or the quotas on the physical amount or quantities of a particular commodity that can be imported or exported during a specific time period. It is usually imposed on the basis of volumes or value. Quotas may be applied on selective basis ,according to the country of origin or destination and it benefits more on efficient traders. These restrictions are prohibited by GATT. Because it prohibits international trade. When a trading partner uses quantitative ristrictions it becomes impossible to import/export in excess in that quota. Which may negatively effect the trade and may have more negative impact on trade than tariffs.
To remove quantitative restrictions, India has removed most of the quantitative restrictions but all the consumer goods and textiles are still subject to quantitative restrictions.
4) Dispute Settlement
Under the GATT, there is a procedure for settlement of disputes by way of negotiations and mediations. However, GATT had a weak Dispute Settlement body(DSB) which has been significantly improved by WTO.
GATT
1:-It is a multilateral agreement.
2:-It was provisional in nature for 40 years.
3:-Only is goods
4:-There are contracting parties.
5:-Weak DSB.
6:-GATT was predecessor of WTO.
WTO
1:-It is a permanent organization.
2:-It is permanent and final.
3:-Dealt with both goods and services.
4:-There are member nation.
5:-Stronger DSB.
6:-WTO is successor.
Ongoing multilateral agreements
The negotiations under GATS are done with the object of liberalization of trade in services. These negotiations are still under way to achieve growth in service sector and improve the rules for trade in services.
In Doha ministerial conference which stated in 2001, It was decided that each member country must submit initial requests by June 2002 and initial offers by march 2003. Second basis of these negotiation was Art XlX of GATS which provided for negotiation in services to begin not later than 5years from the establishment of WTO, which was to get over in 2005.
Method of Negotiation
The main method of negotiation in services is the request- offer process each country puts its demand in the from of request from its trading partners/member nations and gives its offers sector-wise.
The member country shall than formulates those offers. The member are not obliged to respond to any request because there is no provision for reciprocity. Member are free to choose the sector in which they want to have binding commitments. This in known as bottoms up approach or positive listing.
Since the 2001 Doha ministerial conference, India has made a big change in its position on services. In august 2005, India submitted a very ambitions and revised offer to other members.
In India services today is a very dominant sector and contributes significantly to the GDP.
In 2005 India ranked among the top 10 exporters of commercial services .It is Indian IT companies like Infosys and Wipro, that are prime GATS movers.
India has always taken aggressive stand in mode 4, i.e. movement of labor to supply of service to member countries. India continues to convince the US that Mode 4 is a win-win situation for both the countries. India is demanding US under mode 4 to abolish the quotas, remove the wage difference but the US response has been frustrating for India.
India is also active in negotiating in mode 1 and 4 to get good market access.
However in few areas such as legal services, water, retail, etc, India has not been able to successfully make commitments. Doha has still not been able to conclude.
Agreement on Agriculture (AOA)
AOA is a result of negotiations of Uruguay round which was finally ratified in 1994 at Morocco.
The agreement gave 6 years time period to the Developed countries to complete their reduction commitments by 2000 and 10 years to the developing countries.
Features of AOA
1) Market Access- Under this there were 3 ways to access the market i.e. tarrification tariff reelection and other access.
The domestic support in reduced under 4 boxes which are like traffic signals-
1:- Green box- Here everything is allowed and also the subsides as long as its supply is being paid for.
2:- Red box- It is the forbidden box. No subsidies are allowed.
3:- Blue box- It contains subsidies which can be increased without limits, it is also called amber box with conditions.
4:- Amber box- Here, the subsidies were allowed but they had to be reduced but were not eliminated.
Developed countries – 36%
Developing countries – 24%
India’s commitments on AOA
- With respect to market access, India did not make any commitments because it was maintaining quantitative restrictions due to its Balance Of Payment reasons.
- With respect to domestic support, India does not provide any product specific support but only gives market price support. India gives market price support to 22 products out of which 19 are included in GATT commitments. Eg: wheat and bajra.
Since our total AMS is negative ie less than 10%, there was no reduction commitment by India in AOA.
- With respect to export subsidies, India had no commitments because in India exporters of agricultural products do not get any direct subsidy but they only get subsidies in the from of exemption from certain takes in the cost of freight.
- India has suggested that an in depth analysis of AOA should be undertaken as it no where helps Indian agriculture.
TRIMS
Agreement on Trade Related Investment Measures.
One of the agreements signed by the end of Uruguay Round.
The TRIMS lays down the rules and regulations that a country applies to foreign investors as its investment policies. The agreement gives a transition period to all the members to notify its investment measures within a period of:-
Prohibitions under the TRIMS agreement-
It provided measures for purchase or use of domestic product by an enterprise under Art II of GATT.
These include measures which balance the purchase or use of imported products with the purchase or use of the exported products.
These are the measures which restrict the import of products in the country by restricting in foreign exchange.
If a country does not agree to the TRIMS obligations then the country may restrict its export to the other country.
India and TRIMS
As per TRIMS, India has notified trade related 3 investments which are not consistent with the main agreements-
Agreement on Sanitary Phytosanitary Measures (SPS)
The SPS Agreement came as a result of negotiation during the Uruguay Round of WTO. It is in the self interest of the producers as well as the consumers that certain hygienic and safety conditions are observed by the member nations. The SPS Agreement seeks to lay down minimum sanitary and Phytosanitary measures that member countries must achieve to ensure the safety of like and health of humans, animals and plants.
The SPS Agreement allows countries to set their own standards. Developing countries like India have always said that these standards are acting as trade barriers against them. And this practice has an adverse effect on their exports. On the other hand, the countries imposing these standards claim it as necessary for the heath of people and other living species, so there are conflicts between Developed and developing countries regarding the standards given under the SPS Agreement.
Following are the lift standards prescribed by the agreement.
1:-Product related standards-
These are the lift standards imposed on the quality of the product. Eg: the limits up to which microbes can be allowed in the product.
2:-Production process standards-
These are the standards imposed on the quality of the process by which goods are produced and not only the end products. Especially EU countrries lay a lot of emphasis on these standards.
3:-Testing procedure standards-
The agreement says that some detailed test are to be conducted on the products before they are exported to other countries .
4:-Certification process-
Under the agreement the developed countries have demanded that some international standards should be followed which require certification from agencies.
Hormone-treated beef case,
In this case, the USA challenged before the WTO-DSB, the directions and prohibitions imposed by EU countries relating to import and sale of meat/beef which in treated with growth hormones. The DSB rejected the contention of EU that the presence of banned hormones in the food may impose a risk on the consumers’ health. And DSB allowed USA and Canada to take counter measures against EU.
In Salmon case, Australia had banned the import of fresh chilled Salmon to protect the salmon population in it domestic market from diseases. The WTO held that the ban imposed by Australia was not based on proper risk assessment and the ban was not justified.
Experience of India
The food and its qualities has been ensured in India by enacting certain laws like essential commodities Acts and prevention of Food Adulteration Act as these acts lay down certain standards for producers and seller to be followed by them.
Apart from these Acts, the following effects have been taken by India for implementation of this agreement.
1:- BIS- Bureau of India standards it lays down standards which are more than 17,000 which are to be followed by India manufacturers.
2:-FAD-Food and Agriculture Department. It lays down standards in the area of food and agriculture.
3:-Food processing industry – It lays down standards for the processing of foods in industries. Eg: material to be used or machinery and quality of water and chemicals ,etc.
4:-Export inspection council- This council inspects the food before it is exported.
Agreement on technical barriers on trade (TBT)
The agreement on TBT concluded as result of negotiation in the Tokyo round. It comes into force in 1995. Its purpose was to assure that the technical barriers do not act as a barrier to International Trade. The agreement seeks to balance two objectives-
1:-Prevention of protectionism-
It says that the agreement has to ensure that the protection given by the member countries to their own countries should be not against the interests of the other member countries and the member country may impose technical regulation on other countries to protect its own industries and thus, it is to be prevented.
2:-The right of the member to make product regulations for public purpose. In the name of life, heath, safety, environment,
Features of TBT agreement
1:-SPS Measures- The agreement under Article 1.5 says that it does not apply to SPS measures given under SPS Agreement.
2:-Government Procurement- TBT Agreement is not applicable to the goods procured by the government.
3:-Import Prohibitions- The TBT Agreement applies when there are import prohibitions on a product
Principles of TBT .
1:-MFN-
2:-National Treatment-
3:-Reduction on trade barrier-
4:-Transparency-
5:-Harmonization- seeks to bring harmony with member nations.
In 2009 A Chinese toys case, china criticized new TBT standards which were imposed by India on china.
India Experience.
1:- BIS- Bureau of India standards it lays down standards which are more than 17,000 which are to be followed by India manufacturers.
2:-FAD-Food and Agriculture Department. It lays down standards in the area of food and agriculture.
3:-Food processing industry – It lays down standards for the processing of foods in industries. Eg: material to be used or machinery and quality of water and chemicals ,etc.
4:-Export inspection council- This council inspects the food before it is exported.
Anti-Dumping Agreement-
Dumping has been defined under Art I of this Agreement. It is defined as a practice of a company that exports a product at a price lower than the price of normally charges in its own market.
This Agreement does not prohibit dumping but condemns its practice by allowing member countries to impose anti-dumping duties if there is a national injury to its domestic market.
Requirements to impose Anti- Dumping duities
1:-Art III of Anti Dumping Agreement provides that there has to be material injury caused or it is threatened to be caused.
2:-There is a caused link between dumping and injury.
3:-Both the requirements are essential to be proved for any country to justify its action of imposing anti-dumping duties.
How to prove material injury?
1:-Significant increase in the dumped goods in the domestic market.
2:-Significant price under cutting in the importing country of the dumped goods.
3:-Other economic factors like market share, wages, margin of dumping, etc.
Procedure to find out practice of dumping under the Agreement
1:-The investigation into dumping in to be completed within one year and max within 18 months (Art V)
2:-The rules of investigation includes collecting evidence, its verification, transparency and the right to both the parties to adequate opportunities to present their case (Art VI)
3:-On proving dumping, (Art IX-XII) empowers the governmentto impose anti dumping duties. It can also terminate the anti-dumping duties, if the other county undertakes to revise its prices.
4:-Art II lays down a sun-set requirement which says that the principal of imposing AD duties shall not terminate before the expiry of five years after it was first applied.
The agreement says that the principle of imposing anti- dumping duties is that of lesser duty, which says that the duty imposed is to be lower than the dumping margin of that country.
Shrimp culture case
An anti dumping petition was filed by shrimp farmers of USA against 6 countries like Brazil, China, India on the ground that they had dumped their shrimps in the US market.
The WTO DSB decided that there was actually a reasonable threat to the US shrimp industry by such imports.
Indian Experience
India in also taking shelter of AD Agreement against china for the dumping of cheap electrics in the Indian market by China.
Agreement on safeguards.
Under the agreement, safeguards means, right of member nation to impose temporary guards like tariffs, quotas, etc on the other member to ensures that their domestic market in protected by serious injury and this serious injury has to be an unforeseen development.
To impose safeguards two requirements have to been fulfilled
1) serious inquiry
2) causal link between serious injury and the act of the other country.
On the fulfillment of both Safeguards measures can be applied by domestic member nation.
Duration of Safeguard measures is to be temporary in nature for provisional safeguards, it shall be 200 days and in any other case it shall be for 4 years and maximum up to 8 years.
Argentina footwear case
WTO-DSB held that the sudden increase in the imports of the footwear Argentina was in itself serious enough to threaten serious injury in domestic market of the importing country.
Investigation
1:-The investigation into dumping in to be completed within one year and max within 18 months (Art V)
2:-The rules of investigation includes collecting evidence, its verification, transparency and the right to both the parties to adequate opportunities to present their case (Art VI)
3:-On proving dumping, (Art IX-XII) empowers the government to impose anti dumping duties. It can also terminate the anti-dumping duties, if the other county undertakes to revise its prices.
4:-Art II lays down a sun-set requirement which says that the principal of imposing AD duties shall not terminate before the expiry of five years after it was first applied.
The agreement says that the principle of imposing anti- dumping duties is that of lesser duty, which says that the duty imposed is to be lower than the dumping margin of that country.
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