Contents
Prior to January 1, 1995, when the World Trade Organization (WTO) was
established, only trade in goods was subject to multilateral rules. These
rules were codified in the General Agreement on Tariffs and Trade (GATT), which
came into force on January 1, 1948. Upon creation, the WTO subsumed GATT
within itself and added to it the General Agreement on Trade in Services (GATS)
and the Agreement on Trade Related Aspects of Intellectual Property Rights
(TRIPs). These latter agreements brought trade in services and intellectual
property rights, respectively, within the ambit of multilateral rules.
Currently, the WTO has 137 members, accounting for more than 90 percent of the
world trade. More than three fourths of these members are developing or
least developed countries. The organization has four principal functions:
administering trade agreements, settling trade disputes, conducting trade
policy reviews of its members, and acting as a forum for trade
negotiations. In addition, it provides technical assistance to developing
countries in the area of trade policy and also cooperates with other
multilateral agencies.[1]
In this chapter, I discuss the core WTO
agreements covering trade in goods and services and intellectual property
rights. Section 2 is devoted to trade in goods, Section 3 to trade in
services and Section 4 to intellectual property rights. In Section 5, I
conclude the chapter. To economize on space, I limit the discussion to
the essential provisions of the agreements.[2]
At the end of the Second World War, along side the two international financial
institutions—the International Monetary Fund (IMF) and International Bank for
Reconstruction and Development (World Bank)—the United States and United
Kingdom led an effort to create a permanent international institution governing
world trade in goods. This effort culminated in the signing of the
Charter for the International Trade Organization (ITO) in Havana in March 1948
by fifty-three countries. As it turned out, however, the ITO was never ratified
by the United States Congress and was, thus, stillborn.
The discussions for the ITO had been
conducted at four major meetings. At the third of these meetings held in
Geneva during April-November 1947, twenty-three participating nations decided
to sign the General Agreement on Tariffs and Trade to undertake trade
liberalization that seemed politically feasible at the time. As a part of
this agreement, they negotiated reductions in tariffs on some 50,000
items. Fearful that the negotiated tariff reductions might unravel if
they waited too long, the GATT signatories agreed to implement the agreement on
January 1, 1948.
GATT had many of the same provisions as
the ITO. At the time the agreement was signed, the expectation was that
the ITO would eventually supersede it. But as the prospects for the
ratification of the ITO by the United States dimmed, de facto, GATT
became an international trade organization. It came to govern
international trade in goods between the signatory countries, which grew in
number over time. It also became the umbrella organization for
multilateral trade negotiations.[3]
The original GATT had three parts
containing thirty-five articles in all. Part I contains two articles, one
on the most-favored-nation treatment and the other on tariff concessions.
Part II has twenty-one articles covering issues such as national treatment,
anti-dumping, quantitative restrictions, emergency safeguards, subsidies, state
trading, general exceptions, security exceptions and nullification or
impairment. Part III has twelve articles addressed to the formation of
customs unions and free trade areas and many procedural matters including
withdrawal of concessions, modification of schedules and accession of new
members.
The only significant addition to the
original GATT was Part IV entitled “Trade and Development,” which was approved
in 1965 and implemented in June 1966. This addition came at the
insistence of the developing country members. There are three articles in
this part, which happen to be long on promises but short on specific
commitments. Not surprisingly, apart from sensitizing the contracting
parties to the importance of GATT for developing countries, this part has had
minimal impact on the actions taken by the signatory countries.
The Tokyo Round (1973-79) adopted the
so-called Enabling Clause that legalized partial trade preferences among
developing countries, as also one-way partial preferences by developed to
developing countries. The latter provision legitimated the Generalized
System of Preferences (GSP) that had come to exist since at least 1971.
The Enabling Clause was never formally incorporated into GATT but its
provisions have been clearly influential in the creation of many partial PTAs
and legitimating the GSP.
The Tokyo Round was also responsible
for the negotiation of several codes and agreements, signed principally by
developed countries. The codes related to subsidies and countervailing
measures, product standard, government procurement, customs valuation,
import-licensing procedures and anti-dumping. The agreements covered
civil aircraft, bovine meat and dairy products. Many of the codes later
served as the basis of parallel agreements in the Uruguay Round, signed by all
WTO members.
The Uruguay Round (UR) (1986-94)
brought about major changes in and considerable consolidation of the rules
governing trade in goods. The basic international rules applicable to
goods trade are now contained in what is referred to as GATT 1994, which
incorporates within it GATT 1947 as
rectified, amended or modified prior to the establishment of the WTO and six UR
Understandings on the interpretation of a subset of the GATT articles.
These basic rules are supplemented by a number of agreements on goods
trade. These are referred to as Agreements on: Agriculture, Sanitary and
Phytosanitary (SPS) Measures, Textiles and Clothing, Technical Barriers to
Trade (TBT), Trade Related Investment Measures (TRIMs), Anti-dumping, Customs
Valuation, Pre-shipment Inspection, Rules of Origin, Import Licensing
Procedures, Subsidies and Countervailing Measures, and Safeguard.
In the following, I will describe the
WTO regime in goods as implied by GATT 1994 and these UR Agreements. To
appreciate these rules, the reader may find it useful to bear three points in
mind. First, the guiding philosophy of the GATT-WTO system is to achieve
a liberal trade regime. Therefore, the majority of the provisions we will
encounter relate to the lowering of the barriers to trade. Second,
negotiators must carry with them domestic consumer and producer interests,
which inevitably results in the accommodation of certain protectionist
measures. Finally, as an extension of the second point, in the
negotiations, a country views its own liberalization as a cost and that of the
partners as benefit. This “mercantilist” view of trade policy naturally
introduces an element of reciprocity in the negotiations.
Central to the global trading system in goods is the unconditional most favored
nation (MFN) principle enshrined in Article I of GATT 1994. According to
this provision, if country A grants a concession to country B as a part of a
bargain, it must automatically grant the same concession to all other WTO
members even if the latter offer no concession in return. Thus, a member
country must treat all WTO members at par with its most favored trading partner.
An immediate implication of this
provision is that a country must charge the same tariff rate on imports
irrespective of its origin (leaving aside the possibility that the imports may
have come from a nonmember). If applied without exception, this provision
has the virtue that it ensures a single tariff rate on each product in a
country. The resulting tariff regime is not only transparent but also
economically efficient from the global standpoint. Being entirely
nondiscriminatory, it also gives least reason for political discord across
trading partners.
Being a compromise among competing
interests, the WTO agreements admit a variety of violations of the MFN
principle. Article I itself accommodates the trade preferences that
existed prior to April 10, 1947. But more extensive violations of the MFN
principle have come from preferential trade areas (PTAs) under three sets of
provisions (see below for more details). First, GATT Article XXIV permits
the formation of free trade areas (FTAs) and customs unions (CUs) whereby two
or more WTO members eliminate trade barriers among them but not on outside
countries. Under an FTA, such as the North American Free Trade Agreement
(NAFTA), each member retains its own external tariffs while under a CU, such as
the European Community (EC), the members adopt a common external tariff on each
product.[4] These arrangements naturally
introduce discrimination between union member and outside countries.
Second, the Enabling Clause, introduced
in 1979, allows two or more developing countries to exchange partial trade
preferences with one another. In these cases, internal tariffs need not
be eliminated entirely; nor is it required that substantially all products be
covered. The Enabling Clause also permits one-way preferences by
developed to developing countries. These preferences, as exemplified by
GSP, may be partial and can be granted on selected products.
Finally, in the past, the GATT
contracting parties have granted waivers from the application of Article
I. The United States-Canada Automotive Products Agreement of 1965, which
established a free trade area between the two countries in the automotive
sector, operated under such a waiver. During 1971 to 1981, GSP also
operated under a similar waiver.
Violations of the MFN principle also happen in the application of safeguard
measures (see below for more details). For instance, when anti-dumping
duties are imposed, they apply only to those firms or countries found
guilty. This automatically induces discrimination in trade policy.
Any time that safeguard actions take the form of quantitative restrictions, no
matter how they are administered, discrimination is likely to result.
Voluntary export restraints, which limit imports from specific countries only,
are outright discriminatory.
Countries may also discriminate across trading partners by classifying imports
so as to place similar products coming from different partners into categories
subject to different tariff rates. But such discrimination can be
challenged successfully in the WTO at least so long as the products can be
shown to have similar characteristics.
While Article I of GATT 1994 is designed to eliminate discrimination
among imports from different WTO members, Article III aims to eliminate
discrimination against imported goods vis-Ã -vis domestically produced goods
once they cross the border. It stipulates that once imports have entered
the territory of a member country, they must be treated no less favorably than
similar domestically produced goods.[5] Article III explicitly states that
products from other member countries should not be subject to internal taxes or
other charges in excess of those applicable to similar domestically produced
goods. At least equal treatment to imports must also be given with
respect to all laws, regulations and requirements affecting their internal
sale, purchase, transportation, distribution or use.
Also prohibited under the national
treatment provision are any internal quantitative restrictions that
discriminate against imports. For instance, producers cannot be required
that a minimum proportion of an input used in production be of domestic
origin. Such “domestic content” requirements have been a source of
contention, especially when imposed on foreign investors. The UR
Agreement on TRIMs now explicitly recognizes that the domestic content
requirements violate Article III of GATT.
The national treatment provisions do
not apply, however, to laws, regulations or requirements governing the procurement
of goods by government agencies for governmental use. A code on
government procurement was signed by a plurality of the members in the Tokyo
Round. While future negotiations may try to extend this code,
appropriately modified, to the entire WTO membership, at present, government
procurement is exempt from Article III.
In recent years, technical standards
are fast becoming effective means of discrimination in favor of domestic
producers of manufactures. The standards can be set in such a way as to
make it costly for foreign producers to comply.[6] Likewise, unduly strict inspections
of imports for health and safety reasons may raise the costs of imports unnecessarily.[7] The UR Agreements on TBTs and SPS
measures have recently tried to address some of these concerns. The
Agreement on TBTs explicitly states that WTO members shall “ensure that neither
technical regulations, nor standards themselves nor their application have the
effect of creating unnecessary obstacles to international trade.” The
Agreement on SPS similarly requires that sanitary and phytosanitary measures “should
be applied only to the extent necessary to protect human, animal or plant life
or health and should not arbitrarily or unjustifiably discriminate between
Members where identical or similar conditions prevail.”
GATT shows a strong preference for tariffs over other instruments of
protection. Tariffs may be levied on a per-unit basis or on an ad
valorem (according to value) basis. Tariff concessions that countries
give upon accession to the WTO or as a part of negotiations are recorded as
“bound” tariffs in their tariff schedules. Under Article II, these
schedules form an integral part of GATT. The schedules are drawn
according to the “positive list” approach, which means that no commitment
exists for products not included in the schedule. For the included
products, countries are not to impose a tariff on the WTO members higher than
the commitment or “binding” indicated in the schedule.
Prior to the UR Agreement, developed countries had 78 percent of their tariff
lines of industrial products bound. The corresponding figure for
developing countries was merely 22 percent. As a result of the UR
Agreement, these percentages have gone up to 99 and 72 percent, respectively.
Thus, under the UR Agreement, developing countries have gone on to expanded
their tariff bindings substantially.[8] Even though these bindings are
often higher than the tariff rates actually applied, this is a significant
development in terms of the expanded embrace of the GATT discipline by
developing countries.
GATT Article VIII requires that the
charges relating to exports and imports other than tariffs and export taxes
(covered under Article III) should be limited to the cost of services
rendered. These charges should not be levied with the intention to
provide extra protection or generate revenues. Nevertheless, countries
often introduce charges that are not called tariffs but have the same effect as
them. Examples include taxes on foreign-exchange transactions, special
import surcharges and other taxes affecting imports. The UR Understanding
on Article II imposes major constraints on the use of these “para-tariffs.”
It requires that, for each tariff line, national schedules record "other
duties or charges" levied in addition to the recorded tariff and bind them
at the levels prevailing on the date established in the Uruguay Round Protocol.
Valuation procedures at the border can also be used to increase the effective
duty on imports. Simply assigning a product a higher price than justified
can increase the incidence of tariff on it. GATT Article VII addresses
this issue, requiring that the assessment of the custom duty be based on the
actual value of the merchandise or of like merchandise. The provisions of
Article VII are somewhat vague, however, especially with respect to the
definition of “actual value”. The UR Agreement on Customs Valuation
(formally the Agreement on Implementation of Article VII of GATT) attempts to
correct this deficiency by establishing uniform, transparent and fair valuation
standards. It requires that valuation be based on the transaction value
of or invoice value of the good. If the customs authorities doubt the
transactions value, they should rely on the value of identical or similar
goods. The Agreement also clarifies how transportation, handling and
insurance costs are to be treated for the assessment of tariffs.
Accordingly, the members are free to base the valuation on the cost, insurance
and freight (c.i.f), cost and freight or free-on-board (f.o.b.) basis.
In recent years, developing countries have been increasingly relying on
pre-shipment inspections (PSI) to reduce the scope for under-invoicing or
over-invoicing of imports. They hire specialized PSI firms, which inspect
the goods prior to being shipped and provide information on their quantity and
value. In effect, these inspections substitute for inspections by
domestic customs authorities that may not be able to perform the function
efficiently. For some time, exporters had objected to some of the
practices of the PSI firms. The UR Agreement on Pre-shipment Inspection
responds to these concerns and stipulates that PSI firms must carry out their
activities in a transparent, objective and nondiscriminatory manner. They
must apply the standards agreed in the buyer-seller agreement. If no
standards are specified, the relevant international standards are to be
applied.
Article XI of GATT 1994 prohibits quantitative restrictions as long-run
measures except when they are applied to agricultural or fisheries products in
conjunction with measures restricting the domestic output of similar
products. Temporary export restrictions or prohibitions are permitted to
relieve critical shortages of foodstuffs or other essential products (Article
XI: 2a). Temporary import restrictions are permitted to relieve short-run
balance of payments difficulties (Article XII). If this is done, the
quota should not be administered on a selective basis, subjecting some
countries to the restriction but not others. Preference is for an overall
quota.[9] If country-by-country allocations
are nevertheless made, they should be either negotiated with major partners or
conform to the proportions in a previous representative year (Article
XIII). Developing countries are given special exemption from Article XI
obligations on grounds of balance of payments considerations and
infant-industry protection (Article XVIII).
The provisions of Article XI notwithstanding, until recently, quantitative
restrictions have been employed extensively. Developing countries made
liberal use of Article XVIII exception granted on the balance of payments
grounds. Developed countries invoked the restrictions on domestic output
as the basis for similar restrictions on the imports of agricultural
products. Imports of textiles and clothing into developed countries,
including the United States, European Union, Canada and Australia, were
regulated by the GATT sanctioned Multi-fiber Arrangement (MFA) which imposed
country-specific voluntary export quotas. Voluntary export restrictions
were also used in auto and steel industries.
In recent years, there has been some capping of the quantitative restrictions,
however. With the adoption of flexible exchange rates in many cases and a
general trend towards trade liberalization, developing countries have increasingly
phased out quantitative restrictions. The UR Agreement on Agriculture has
led to the replacement of non-tariff barriers by tariffs to a large
degree. The UR Agreement on Textiles and Clothing is expected to phase
out the MFA by the year 2005. And the UR Agreement on Safeguards now
prohibits the use of new voluntary export quotas and requires the existing one
to be phased out.[10]
The WTO rules generally do not permit the use of subsidies, especially if they
lead to an expansion of a country’s exports or lower the prices of exports
below those prevailing at home. Article XVI of GATT 1994 contains general
provisions against subsidies that expand the exports of primary products or
lower the export prices of other products below those prevailing in the
domestic market. Article VI provides for countervailing duties to offset
subsidies granted, directly or indirectly, on the manufacture, production or
export of any merchandise. To countervail, injury or threat of injury to
an established industry must be determined. Alternatively, the subsidy
must be shown to retard the establishment of an equivalent domestic industry.
The provisions on subsidies and
countervailing in the original GATT did not define precisely which subsidies
could be subject to a countervailing action. As a result, during 1970s
and 1980s, there were several disputes in this area.[11] The UR Agreement on Subsides and
Countervailing Measures has gone some ways towards alleviating this problem
with respect to industrial products while the UR Agreement on Agriculture does
the same for agricultural products.[12]
To solve the problem of definition,
Agreement on Subsides and Countervailing Measures introduces the concept of a
"specific" subsidy. A subsidy is specific if it is available
only to an enterprise or industry or group of enterprises or industries within
the jurisdiction of the authority granting the subsidy. In addition, subsidies
that are contingent on export performance or on the use of domestic over
imported goods and categorized as prohibited (see the next paragraph) are
defined as “specific”. Only specific subsidies are subject to the
disciplines set out in the agreement.
The agreement divides subsidies into
three categories: prohibited, actionable and non-actionable. Subsidies
that are contingent on export performance or on the use of domestic over
imported goods are prohibited. These subsidies are subject to the WTO
dispute settlement procedures and, thus, can be challenged by the injured party
whether it happens to be the importing country or a third country whose export
interests in the importing country are adversely affected. If the subsidy
is ruled as prohibited by the dispute settlement body, it must be immediately
withdrawn. If withdrawal does not take place within the specified time
period, the complainant is authorized to take countermeasures.[13]
The "actionable" subsidies
are those that adversely affect the interests of other WTO signatories.
The adverse effects may include injury to domestic industry of another
signatory, nullification or impairment of benefits accruing directly or indirectly
to other signatories under GATT 1994 (in particular the benefits of bound
tariff concessions), and “serious prejudice” to the interests of another
member. Serious prejudice is presumed to exist if the sum of ad
valorem subsidies to a product exceeds 5 per cent, an enterprise receives
reprieve from the government-held debt, or an enterprise or industry is given
subsidies to cover operating losses. Members affected adversely by
actionable subsidies may challenge them in the WTO Dispute Settlement Body.
If the DSB rules in their favor, the subsidizing member must withdraw the
subsidy or remove the adverse effects. If this is not done within the
specified time period, the complainant may be authorized to take
countermeasures.
In the third and final category, we
have subsidies that are termed non-actionable. These subsidies can be
either non-specific subsidies or specific subsidies for industrial research and
pre-competitive development activity, subsidies to disadvantaged regions that
are non-specific within the regions, or certain type of assistance for adapting
existing facilities to new environmental requirements imposed by law and/or
regulations.
As an alternative to the dispute
settlement remedy, consistent with GATT Article VI, Agreement on Subsidies and
Countervailing Duties allows domestic remedies via the use of countervailing
measures on subsidized imported goods. By its very nature, this remedy is
available only to the importing country and not to third countries whose
exports into the importing country may be adversely affected by the
subsidy. To ensure that all interested parties can present information
and arguments, the Agreement sets out disciplines on the initiation of
countervailing cases, investigations by national authorities and rules of
evidence. The agreement requires not only the establishment of injury to
the domestic industry but also a causal link between the subsidized imports and
the alleged injury. Countervailing investigations are not permitted in cases
where the amount of a subsidy is de minimis (the ad valorem
subsidy is less than 1 percent) or where the volume of subsidized
imports or the injury is negligible. Investigations must be concluded normally
within one year and should in no case take longer than 18 months. All countervailing
duties have to be terminated within 5 years of their imposition unless the
authorities determine that this would result in the continuation or recurrence
of subsidization and injury.
The Agreement gives some (very limited)
leeway to developing countries in the use of subsidies for economic
development. For example, in the case of prohibited subsidies, least
developed countries and developing countries with per-capita incomes below
$1,000 are subject to remedies under more demanding procedures normally applied
to actionable subsidies. Countervailing investigation against a
developing country must be terminated if the overall subsidy is less than 2
percent or if the volume of the subsidized imports represents less than 4
percent of the total imports.
Subsidies on agricultural products are
governed largely by the Agreement on Agriculture. To avoid repetition,
the main provisions of this agreement are left for chapter 3 which devoted
exclusively to agriculture.
Though the WTO rules normally
discourage protectionist policies, they do permit and accommodate anti-dumping
measures to provide temporary relief to domestic industry against “dumping” by
foreign firms. Many trade economists view anti-dumping as the most
pernicious WTO-sanctioned instrument of protection available to countries
currently. The best explanation for its existence is that developed
countries have chosen not to give it up. Lately, however, developing
countries have also become frequent users of this instrument.
The WTO provisions on anti-dumping are
contained in GATT Article VI and the UR Agreement on Anti-dumping (formally,
Agreement on Implementation of Article VI). The latter builds on the
Tokyo Round Anti-dumping Agreement, which had been signed by developed
countries only. The UR Agreement revises the Tokyo Agreement in some
areas while adding precision in others.
In broad terms, two conditions must be
fulfilled before anti-dumping duties can be imposed: the existence of dumping
must be established and dumping should be determined to cause material injury
to an established industry or retard the establishment of a domestic
industry. For the purpose of establishing dumping, GATT Article VI
defines dumping as the sale of a product of a country into another at less than
“normal value.” Sales at less than fair value can be said to have
occurred if the exporter sells the product in the importing country at a price
below what he charges in his own domestic market. If the price in the
domestic market is not available, the export price may be compared to the
highest price charged for a like product by the exporter in a third country or
the cost of production in the exporting country after due allowance is made for
selling cost and profit.
The Agreement on Anti-dumping
introduces specific provisions relating to the methodology of establishing the
existence of dumping and injury. For example, the United States and
European Community had for years compared the prices charged in individual
export transactions with the average home market price to establish
dumping. This practice biased the outcome in favor of a positive
finding. The Agreement on Anti-dumping now requires that export prices be
compared on either "average-to-average" or
"transaction-to-transaction" basis. As a result, the US has
adopted the average-to-average comparisons in majority of the cases.
The
Agreement also restrains the methodology for calculating "constructed
value" which has been used in the United States as a measure of normal
value that is compared with the export price to establish the existence of
dumping. In the past, calculations of constructed value could be inflated
by adding 10% of overhead cost and 8% profit to direct costs of labor and
material. This biased the system in favor of a positive finding of
dumping. The Agreement requires that overhead and profits be based on
actual data.
GATT
Article VI offers minimal guidance with respect to the criteria to be satisfied
to establish injury to the domestic industry. The Agreement on
Anti-dumping explicitly stipulates that the determination
of injury be based on positive evidence relating to the volume of the dumped
imports and their effect on prices and the impact on industry
in the importing country. Rregarding the volume of the dumped
imports, the authorities must consider whether there has been a significant
increase in dumped imports, either in absolute terms or relative to production
or consumption. The effect of the dumped imports on prices is to be
judged by considering whether there has been a significant price undercutting
by the accused, or whether the dumped imports have significantly depressed
prices or prevented price increases, which otherwise would have occurred.
The examination of the impact of the dumped imports on
the domestic industry must include an evaluation of all relevant economic
factors and indices having a bearing on the state of the industry. These include
actual and potential decline in sales, profits, output, market share,
productivity, return on investments, or utilization of capacity; factors
affecting domestic prices; the magnitude of the margin of dumping; actual and
potential negative effects on cash flow, inventories, employment, wages,
growth, ability to raise capital or investments. The Agreement explicitly
states that this list is not exhaustive, nor can one or several of these
factors necessarily give decisive guidance.
GATT
Article VI requires an injury test for the "industry" but does not
define industry. As a result, in practice, in the past, when individual
firms or trade associations filed anti-dumping petitions, it was presumed that
they were acting on behalf of an "industry." Under the
Agreement, a determination must now be made though the test is relatively
lax. The test requires that the petition must be "supported" by
producers (a) accounting for 25% of total production of "like
products" and (b) representing more than 50% of the production of those
firms expressing a position, pro or con, on the petition.
In
the United States, anti-dumping duties have traditionally stayed in force for
years. The Agreement introduces a sunset clause under which such duties
are to be generally terminated after five years. Unfortunately, the
clause is weakened by the provision that if the authorities determine that the
expiration will lead to further dumping and material injury, they can extend
the measures beyond five years--apparently indefinitely.
Finally,
in the United States, a dumping margin in excess of .5% of the export price has
been sufficient for a positive finding of dumping. The Agreement raises
this margin to 2%. Moreover, if the volume of dumped imports from a
country is less than 3% of total imports of like products, anti-dumping
proceedings must be terminated. This restraint is weakened, however, by
the additional provision that if dumped imports from several countries together
account for more than 7% of total imports, the 3% rule does not apply.
GATT Article XIX provides an explicit
"escape clause" remedy for an industry that is subject to serious
injury. If, due to unforeseen circumstances, the obligations incurred by
a country under GATT, including tariff concessions, lead to such a large
increase in the imports of a product as to cause or threaten serious injury to
domestic producers of like products, the country can suspend the obligations
relating to the product in whole or part and until such time as necessary to
prevent or remedy the injury. Since the obligations undertaken by a
member may include the removal of quantitative restrictions, Article XIX is
consistent with quotas. The actions under Article XIX must be implemented
on a nondiscriminatory basis. The underlying objective of Article XIX is
to provide a “safety valve” to members so that they will be encouraged to
undertake liberalization commitments without the fear of serious dislocation of
the domestic industry.
In the past, under Article XIX, the
country taking a safeguard action was required to give trade concessions of
equivalent value in other areas to the trading partners whose export interests
were adversely affected. If this was not done, the trading partners were
free to withdraw concessions of equal value from the country taking the
safeguards action. This feature made safeguard actions quite similar to
the renegotiation of obligations under Article XXVIII.[14] The main difference was that
safeguard actions were intended to be temporary while Article XXVIII
renegotiations were permanent. But since no formal time limits were
imposed on safeguard actions, in practice, even this difference meant
little. As I discuss below, the UR Agreement on Safeguards has altered
some of the provisions relating to the time limits on safeguard actions and
compensation.
Formal safeguard measures have not been
employed frequently due to the availability of other instruments (for example,
tariffs and quotas in developing countries and anti-dumping and Article XXVIII
renegotiations in developed countries). What have been used are
"gray area measures" such as the voluntary export restraint
(VERs). Under these measures, targeted countries agree to limit their
exports of a product to the country seeking import restriction to the agreed
upon levels. Being targeted to specific countries, VERs are discriminatory.
Exporting countries generally accepted the restriction because the alternative
could be worse (for example, anti-dumping). Under VERs, they were at
least able to capture the bulk of the quota rent through an increase in the
price received by their exporters.
The essential objective behind the UR
Agreement on Safeguards was to encourage member countries to make use of the
conventional safeguards over anti-dumping and VERs. To this end, it
abolishes the use of VERs. It required the VERs in force at the time of
the establishment of the WTO to be phased out over a period of four
years. For future, the Agreement explicitly states that a WTO member
state "shall not seek, take or maintain any voluntary export restraints,
orderly market arrangements, or any other similar measures on the import
side." Unfortunately, since the only way to enforce this provision
is through a challenge by the "victim" in the WTO and the
"victim" in this case is the initiator, it is doubtful the VERs will
disappear altogether. Indeed, recently, the United States has been gone
on to introduce new VERs on the imports of steel from Brazil.
The Agreement on Safeguards also introduces an explicit time limit on the use
of formal safeguards. Accordingly, these are to be limited now to four
years. If it is determined, however, that protection is necessary and
there is evidence that the industry is adjusting rather than simply enjoying
its protected status, the safeguards may be extended for another four years.
As described above, GATT Article XIX originally provided for either
compensation to affected exporting countries or, if an agreement on
compensation could not be reached, suspension of offsetting concessions granted
the nations imposing safeguard measures. This feature made safeguards
less attractive than anti-dumping since the latter does not require no
compensation or allow retaliation. Accordingly, the Agreement on
Safeguards eliminates the provision of retaliation for the first three years
provided the measure is taken in response to absolute increase in imports and
in accordance with other provisions laid out in the agreement.
Two special provisions for developing countries are worth noting. First,
exports of a developing country are exempt from safeguard actions so long as
they constitute less than 3% of the total imports of the product in
question. The exemption does not apply, however, if cumulated exports of
such countries exceed 9% of the total imports. Second, developing
countries can use safeguard measures for ten years. But because they are
not exempt from retaliation in the absence of compensation beyond the
three-year period, this provision does not help make safeguard actions more
attractive than anti-dumping measures.
The UR Agreement on Trade Related Investment Measures (TRIMs) explicitly
recognizes certain trade policy measures relating to investment as being
inconsistent with some of the GATT provisions. Despite inconsistency with
the GATT obligations, member countries have applied some of these measures in
the past. They are to be now phased out and their future use
prohibited. The Agreement on TRIMs provides that no member country should
apply any TRIMs inconsistent with its GATT obligations with respect to national
treatment (Article III) and prohibition of quantitative restrictions (Article
XI). The agreement provides an illustrative list of TRIMs agreed to be inconsistent
with these obligations. The list includes "local content
requirements," which require particular levels of local procurement by an
enterprise and "trade balancing requirements," which restrict the
volume or value of imports such an enterprise can purchase to an amount related
to the level of products it exports. The former violates Article III and
the latter Article XI of GATT.
The agreement required that developed countries eliminate all non-conforming
TRIMs within two years, developing countries within five years and
least-developed countries within seven years. It also provided for
consideration, at a later date, of whether it should be complemented with
provisions on investment and competition policy more broadly.
GATT permits state trading enterprises to engage in export and import activity
under Article XVII. The original GATT did not define state trading
enterprises, which led to a very wide interpretation of the term. The UR
Understanding on Article XVII corrects this deficiency and defines state
trading enterprises as “Governmental and non-governmental enterprises,
including marketing boards, which have been granted exclusive rights or
privileges, including statutory or constitutional powers, in the exercise of
which they influence through their purchases or sales the level or direction of
imports and exports.” Note that this definition covers private
enterprises as long as they enjoy exclusive rights or privileges.
Article XVII requires that in their purchases and sales involving imports or
exports, state trading enterprises should adhere to the most favored nation
principle. The enterprises must carry out the purchases or sales
according to commercial considerations and afford the enterprises of other
member countries adequate opportunity to compete. These provisions do not
apply to imports of products for use of governmental consumption.
Article XVII also requires that, if requested by another member, a country
authorizing a state monopoly of a product, which is not the subject of a
concession under Article II, should provide information on the import mark up
on the product during a recent representative period.
If this information is not available, the country should provide the
information on the price charged on the resale of the product. The
mark-ups may be negotiated by member countries on a reciprocal basis and bound
in the manner tariffs are negotiated and bound under Article II.
To promote transparency, the UR Understanding on Article XVII requires that all
state trading enterprises be notified to the WTO Council for Trade in Goods for
review by a Working Party. Any member that has a reason to believe that
another member has not met its notification obligations adequately may raise
the matter with the member concerned. If the matter is not satisfactorily
resolved, the member may make a counter notification to the Working Party.
In view of the fact that state trading is pervasive in centrally planned
economies, GATT/WTO members have often imposed special conditions in the
accession agreements with these countries. Poland and Romania, which
acceded to GATT in 1967 and 1971, respectively, were subject to explicit
requirements to expand their imports from GATT members. They were also
subject to special safeguard provisions, allowing for discriminatory action
against their imports. Hungary, which acceded in 1973, was not subject to
import requirements but did agree to the special safeguard provisions.
Most recently, China has also been subject to similar safeguard provisions by
the United States.[15]
The GATT provisions relating to preferential trade areas (PTAs) have been
partially covered in the context of the exceptions to the MFN principle. These
may be considered here in greater detail. GATT Article XXIV accommodates
free trade area (FTAs) and customs unions (CUs). As already noted, FTAs
free up trade among union members, with each member retaining its own external
tariff. CUs are FTAs with a common external tariff for each
product. Article XXIV requires three conditions to be fulfilled by
CUs and FTAs: (i) trade barriers on outside countries should not rise on
average, (ii) tariffs and other trade restrictions must be removed on ‘substantially
all’ intra-regional trade within a ‘reasonable’ time period, and (iii) the
arrangement must be notified to GATT, which may decide to establish a working
party to determine if these conditions are satisfied.
In practice, the first two of these conditions have been rarely
fulfilled. For instance, the European Economic Community (EEC), which is
regarded as the foremost example of a customs union, did not incorporate
agriculture into the arrangement for decades. Yet, GATT never ruled that the
arrangement was inconsistent with Article XXIV due to the threat by the EEC
members to withdraw from the multilateral agreement in case of an adverse
finding. Thus, political compromise has prevailed over rules.
The UR Understanding on the Interpretation of Article XXIV attempts to enhance
the effectiveness of the role of the Council for Goods in reviewing the
arrangements to be undertaken by its Committee on regional Trade Agreements
(CRTA). But so far this has not resulted in major success with no
verdicts given on Article XXIV consistency on any of the arrangements under
review. The Understanding introduces a ten-year limit on the transition
period though allowance can be made under ‘exceptional circumstances’. It
also requires a customs union to compensate the nonmembers who are adversely
affected by one or more members raising their tariffs to conform to the common
external tariff of the union. The Understanding recognizes that in
assessing the need and magnitude of compensation, account may be taken of the
reduction in tariff rates of other members. In case of failure to
compensate, nonmembers can retaliate through the withdrawal of an equivalent
concession.
PTAs among developing countries can be formed under the 1979 Enabling
Clause. Under this provision, partial tariff preferences are
admissible. This means that preferences among developing countries need
not result in the formation of full FTA or CU. Preferences that apply to
only a subset of products or do not lead to zero tariffs among participating
countries are permitted. Not surprisingly, the arrangements among
developing countries are almost always notified to the WTO under the Enabling
Clause.
According to Article XXXV
(Non-application of the Agreement), members are allowed a one-time exception
with respect to their GATT obligations vis-Ã -vis a new member. GATT
obligations do not apply between two members if they have not entered into
tariff negotiations with each other and either of the members does not consent
to the application at the time either becomes a member. What this means
is that even when two-thirds of the WTO membership confers the membership on a
country, some members and the new entrant may choose not to give the full GATT
rights to each other. This provision was behind the debate in the United
States recently on on giving China permanent MFN status to China.
Article XXI (Security Exception) allows
certain exceptions on national security grounds. Members cannot be asked
to disclose information that will compromise their security. Countries
are allowed to take any actions on security grounds relating to fissionable
materials and traffic in arms, ammunition and implements of war. In time
of war or other emergency in international relations, they are also allowed to
take any actions necessary for security. These actions may include, for
instance, the withdrawal of the MFN status or national treatment from specific
members.
Finally, Article XX (General
Exceptions) lists a set circumstance under which members can introduce measures
that are otherwise contrary to their GATT obligations. The most important
of these are measures (a) necessary to protect public morals, (b) necessary to
protect human, animal or plant life or health, (c) relating to the importation
or exportation of gold and silver, (d) necessary to secure compliance with laws
and regulation that are not inconsistent with GATT, (e) relating to the
products of prison labor, (f) imposed for the protection of national treasures
of artistic, historic or archeological value, and (g) relating to the
conservation of exhaustible natural resources if such measures are introduced
in conjunction with restrictions on domestic consumption or production.[16]
The preamble to Article XX imposes
tough restrictions on the use of measures aimed at achieving these
objectives. It states that such measures are permitted provided they “are
not applied in a manner which would constitute a means of arbitrary or
unjustifiable discrimination between countries where the same conditions prevail,
or disguised restriction on international trade.” The WTO Appellate Body
has taken this preamble very seriously in the disputes relating to some of the
environmental measures undertaken by the United States. In particular, in
the much-publicized shrimp-turtle case, the Appellate Body ruled that while the
measures taken by the United States fit category (b) above, they violated
Article XX because they constituted arbitrary and unjustifiable discrimination
between countries where the same conditions prevailed. Given that
developed countries are likely to continue introducing environmental measures
that may have an adverse impact on the trading rights of developing countries,
Article XX is likely to play an important role in the forthcoming years.
As previously noted, the national treatment provision (Article III) of GATT
1994 does not apply to government procurement. The status of the MFN
principle would appear to be more ambiguous. But in listing the subjects
to which the MFN principle is to apply, Article I refers to “all matters
referred to in paragraphs 2 and 4 of Article III.” Since paragraphs 2 and
4 of Article III do not apply to government procurement, this reference in
Article I has been interpreted to exclude the latter from the application of
the MFN principle. As Jackson (1997, p. 225) notes, practice under GATT
confirms this interpretation.
Thus, government procurement is
essentially out of the net of GATT discipline. Over the years, the
increasing share of the government expenditure in the GDP led the member
countries to consider bringing government procurement into the multilateral
discipline. The result was the Tokyo Round Agreement on Government Procurement
by a small number of countries. This agreement was revised further under
the Uruguay Round. The revised version came into force on January 1,
1996.
Thought the revised agreement is far
reaching, potentially covering entities at central, sub-central and other
levels of government and extending to services and construction contract, only
eleven WTO members have signed it. The list of non-signatories includes
many OECD countries. The agreement is nondiscriminatory only among the
signatories. This means that any concessions offered under the agreement
by one signatory to another do not extend to non-signatory WTO members.
The extent to which entities belonging
to the central, sub-central and other levels are covered depends on the
schedules negotiated between signatories. The agreement applies to all
contracts above SDR 130,000 and SDR 200,000 issued by listed central and
sub-central entities, respectively. The agreement also contains detailed
rules regarding the tendering procedures and seeks transparency.
The
extension of the Agreement on Government Procurement to all WTO members or the
negotiation of a new agreement applicable on a multilateral basis remains a
subject on the WTO agenda. The issue is controversial but the pressures
for it from export lobbies, especially from the countries that signatories to
the present agreement, are likely to persist.
Until the Uruguay Round, trade in services was not subject to any multilateral
rules. A major accomplishment of the Uruguay Round was the creation of a
framework agreement which brings trade in services into the fold of the
WTO. Services are traded internationally in ways fundamentally different
from goods. Moreover, barriers to them are more complex than border
barriers such as tariffs and quotas. For these reasons, GATT rules could
not be applied directly to trade in services and a new set of rules that would
facilitate trade liberalization in this area was needed. The General
Agreement on Trade in Services or GATS was a response to that need.
GATS is divided into six Parts, which together contain 29 Articles, with the
last article containing eight sectoral annexes. Part I (Article I) deals
with the scope of the agreement and definition of services in
terms of various modes of supply, Part II (Articles II-XV) describes a set of general
obligations and disciplines that apply to all services, Part III (Articles
XVI-XVIII) relates to Specific commitments on the national treatment and
market access applying to a subset of service sectors listed in a member’s
Schedule on a sector-by-sector and country-by-country basis, Part IV
(Articles XIX-XXI) commits members to progressive liberalization through
periodic negotiations, Part V (Articles XXII-XVI) lays down the institutional
provisions covering such matters as consultation between members, dispute
settlement and the Council for Trade in Services, and Part VI (XXVII-XXIX)
contains final provisions regarding circumstances under which a member
can deny benefits of GATS, some definitions, and annexes. The sectoral Annexes
explain how GATS is to be implemented in the specific sectors. In the
following, I provide a more detailed discussion of the main provisions.
GATS Article I begins by establishing
the scope of the agreement. The agreement applies to measures taken by
central, state or local governments and authorities and by nongovernmental
bodies in the exercise of powers delegated by central, state or local
governmental authorities. It excludes services supplied in the exercise
of governmental authority.
The definition of trade in services is given in terms of four modes of
delivery. First, there is electronic commerce that involves arms-length
supply of services and comes closest to the mode used for the delivery of
goods. But it is distinguished from the latter in that at least at the
current state of knowledge, it does not permit the inspection of
"wares" at the border and hence cannot be subject to tariff
duties. Second, some services require the movement of the buyer to the
location of the seller. Tourism is the most important example of this
mode of delivery. Third, we have services that require commercial
presence of the provider. Most financial services fall into this
category. Finally, there are services that require the movement of the
provider or "natural person" to the location of the
buyer. These services include, for example, construction and
consulting services.[17]
Like GATT, GATS adopts the MFN treatment as a key provision (Article II) with
the qualification that at the time the agreement came into force (January 1,
1995), signatories could schedule a one-time exemption from it. The
exemption was to be claimed by country and by sector.[18] In principle, these exemptions can
last up to ten years and but may be negotiated away sooner. Over 60 GATS
members took the MFN exemption at the time of the signing of the UR Agreement.
In the spirit of Article XXIV in GATT, Article V in GATS allows exemption from
MFN if two or more countries want to enter into a preferential arrangement
liberalizing trade in services with one another without extending this
liberalization to other Members. The exemption applies only if the
arrangement has a substantial sectoral coverage and eliminates substantially
all discrimination among participants in the sense of Article XVII (see
below). Developing countries are given more flexibility in forming
preferential trade arrangements, especially with respect to the coverage of
measures that discriminate against partner countries.
Each country gives market access (Article XVI) under GATS through a schedule
that lists the sectors in which it commits to giving concessions to other
members. No market access commitment is presumed to exist in a sector not
listed in the schedule. Six types of restrictive actions are prohibited
unless otherwise specified in the schedule. These are: (i)
limitations on the number of service suppliers, (ii) limitations on the total number
of service transactions or assets, (iii) limitations on the total number of
service operations or total quantity of service output, (iv) limitations on the
total number of natural persons that may be employed in a particular service
sector or by a service supplier, (v) measures which restrict or require
specific types of legal entity joint venture, and (vi) limitations on the
participation of foreign capital in terms of maximum percentage limit of
foreign shareholding or the total value of investment.
In GATT, national treatment on internal taxation and regulation is a general
obligation. But in GATS, being an important instrument of liberalization,
it is a specific commitment (Article XVII). National treatment applies
only to those services included in the schedule of the member and even then it
can be subject to specific conditions. For instance, it may subject the
imported services to a higher tax than identical domestically supplied
services.
The process of scheduling sector-specific commitments (Article XX) is a hybrid
between negative- and positive-list approaches. A Member must first
identify in its schedule the sectors in which it wishes to make
commitments. Following the positive-list approach, the country makes
commitments with respect to the listed sectors only. But following the
negative-list approach, it is presumed that complete access and national
treatment are granted except to the extent that explicit qualifications and
limitations are listed.
The schedule has a horizontal and a vertical section. The former is a
general section applying to all sectors listed in the vertical section.
The latter spells out qualifications applying to specific sectors. In the
horizontal section and for each specific sector in the vertical section,
qualifications to commitments must be listed separately for each mode of
delivery and with respect to market access and national treatment. Given
four modes of supply, this leads to eight entries in the horizontal section and
for each specific sector in the vertical section.
The following chart, taken from Low (1997), illustrates the structure of the
GATS schedule. As just noted, the horizontal section, designed to avoid
repetition, contains market access and national treatment limitations that
apply to all scheduled sectors. When the entry in the market access or
national treatment column for a given mode of delivery says “none,” it implies
a complete absence of limitations and conditions. On the other hand, if the
entry says "unbound," no commitment under the particular mode of
delivery has been made.
As
noted previously, GATS Article V allows members to liberalize preferentially in
services. The requirements imposed on such liberalization are similar to
those in the GATT Article XXIV relating to preferential trading in goods.
The main difference is that no distinction is made in GATS between FTAs and
CUs. This is perhaps because of the conceptual difficulties in making
such a distinction in view of the fact that trade in services is normally not
subject to border barriers.
Member countries can form PTAs in
services provided (a) they have a substantial sectoral coverage and (b) they
eliminate substantially all discrimination in the sense of providing national
treatment (as defined by Article XVII). The first of these conditions is
to be met in terms of the number of sectors, volume of trade affected and modes
of supply. In order to meet this condition, the agreement should not
provide for a priori exclusion of any mode of supply. The second
condition is to be met by removing the existing measures that discriminate
against union partners and prohibiting any new discriminatory measures except those
relating to short-run balance of payments difficulties (Article XII) general
exceptions relating to public morals, human, animal or plant life or health,
and so on (Article XIV) and security exceptions (Article XIV bis).
Table 1
|
Services
Activity
|
Mode
of Supply
|
Limitation
on Market Access
|
Limitation
on National Treatment
|
|
|
Part I: Horizontal Commitments
|
||||
|
All
Sectors
|
1. Cross-border
2. Consumption abroad
3. Commercial presence
4. Movement of natural persons
|
None
None
None
Unbound except intra-corporate
transfers of executives for initial four years; extension subject to economic
needs test
|
None
None
Subsidies for research and
development
Unbound except under market access
column
|
|
|
Part II: Sector-specific Commitments
|
||||
|
Accounting
Services
|
1. Cross-border
2. Consumption abroad
3. Commercial presence
4. Movement of natural persons
|
None
None
Only natural persons may be
registered as auditors
Unbound except as provided in the
horizontal section
|
None
None
At least one equity partner in a firm
must be a permanent resident
Unbound except under market access
column
|
|
|
Electronic
Data Interchange
|
1. Cross-border
2. Consumption abroad
3. Commercial presence
4. Movement of natural persons
|
None
None
None
Unbound except as provided in the
horizontal section
|
None
None
None
Unbound except as provided in the
horizontal section
|
|
Source:
Low (1997)
In
arrangements that include developing countries, Article V provides some flexibility,
especially with respect to condition (b) above. In evaluating whether or
not this condition is satisfied, the overall as well as sector specific level
of development in the country concerned may be taken into account. This
provision is clearly different from the GATT Article XXIV which makes no
concessions for developing countries forming FTAs or CUs with developed
countries. Where arrangements between two or more developing countries
are concerned, this provision opens the possibility of a partial exchange of
preferences as under the Enabling Clause for PTAs in goods.
There are three additional conditions
that PTAs in services must satisfy. First, the arrangements must not
result in increased barriers to trade with extra-union WTO members.
Second, a service supplier of any other WTO member that is a juridical person
constituted under the laws of a PTA member must be entitled to treatment
granted under the PTA agreement, provided it engages in substantive business
operations in the territories of the PTA members. This condition is
weakened in PTAs that have only developing countries as members. In such
arrangements, more favorable treatment may be granted to juridical persons
owned or controlled by natural persons of the parties to the agreement.
Finally, member countries forming a PTA should promptly notify the agreement,
its enlargement or significant modification to the Council for Trade in
Services.
Under Article VII, a member may give recognition to the experience obtained,
requirements met or licenses or certificates granted in another member.
Such recognition may be accorded autonomously, through a mutual recognition
agreement or an agreement to harmonize the standards.
While recognition and harmonization of standards are likely to have
liberalizing effect on trade in services, they may also effectively result in
discrimination against member countries whose standards are not
recognized. To seek a balance between these two opposing effects, Article
VII makes an effort to ensure that adequate opportunity is given to other
countries to have their standards recognized as well. Thus, a member
signing an agreement with another member is asked to give adequate opportunity
to other members to negotiate their accession to the agreement or negotiate
comparable one. A member that accords the recognition autonomously is
asked to give adequate opportunity to any other member to demonstrate that
education, experience, license, or certification obtained or requirements met
in its territory should be recognized as well.
Members are not to accord recognition in a manner that constitutes a means of
discrimination between countries or disguised restriction on trade in
services. Whenever appropriate, the members should accord recognition on
multilaterally agreed criteria. In appropriate cases, members are to
cooperate with relevant inter-governmental and non-governmental organizations
towards the establishment and adoption of common international standards for
recognition.
To ensure smooth flow of trade, Article III introduces some transparency
requirements, Article VI addresses domestic regulatory issues and Article VIII
deals with sectors or sub-sectors characterized by monopolies and exclusive
service suppliers. Article III requires all members to publish all
relevant measures of general application affecting trade in services.
They are also to notify the Council for Trade in Services all new or modified
laws, regulations, and administrative guidelines affecting scheduled
commitments at least once a year. Each member is also required to
establish inquiry points to provide specific information to other members on
laws, regulations or administrative guidelines which affect trade in services covered
by GATS.
Article VI requires that in sectors
where a member has made specific commitments, all measures of general
application affecting trade in services be administered in a reasonable,
objective and impartial manner. The legal system permitting, members are
also required to maintain or institute judicial, arbitral or administrative
tribunals or procedures which provide for prompt review of and remedies for
administrative decisions affecting trade in services. Where authorization
is required for the supply of a service on which a specific commitment has been
made, the relevant authority must make its decision within a reasonable time.
Article VIII (implicitly) permits monopolies and exclusive suppliers in service
industries but requires that they not be allowed to abuse their market power so
as to violate the MFN obligations or to nullify any specific commitments of the
country. When the monopoly supplier competes in the supply of a service
outside of his monopoly rights and which is subject to the member’s specific
commitments, he is not to abuse his monopoly power. For instance, a
monopoly operator in telecommunications sector in a member country is not to
operate in a way that nullifies the member’s specific commitments with respect
to the provision of Internet services.
Article IX relates to business practices of suppliers who do not fall under
Article VIII. It states that upon request from another member, a member
will enter consultation with a view to eliminating business practices that
restrain competition and thereby restrain trade in services. The
obligations imposed by this provision are not onerous, however. The
member is asked to “accord full and sympathetic consideration” to the request
and “supply publicly available non-confidential information relevant to the
matter in question.”
Like GATT, GATS (Article XII) permits temporary suspension of liberalization
commitments for the balance of payments reasons. The measures must be
nondiscriminatory, consistent with the Articles of Agreement of the
International Monetary Fund, no more restrictive than necessary and should not
cause undue damage to the commercial interests of other members. In
determining the incidence of restrictions, members are permitted to give
priority to sectors more essential to their economic or development interests
but restrictions are not to be adopted for the purpose of protecting a
particular service sector.
Article XI requires that except under the circumstances necessitating Article
XII actions, members are not to restrict international transfers and payments
for current transactions relating to their specific commitments.
Like GATT, GATS (Articles XIV and XIV bis) allows exceptions to the agreement
on specific grounds. In the spirit of GATT Article XX, GATS Article XIV,
members are allowed to take the measures necessary to protect public morals or
maintain public order, to protect human, animal or plant life or health, and to
secure compliance with laws and regulation that are not inconsistent with
GATS. In addition, members are allowed to depart from national treatment
provided this is aimed at ensuring equitable collection of direct taxes.
Departures from the MFN treatment to accommodate differences among signatories
arising from existing double taxation agreements are also permitted.
Article XIV bis allows several exceptions on security grounds.
Articles X, XIII and XV deal with emergency safeguards, government procurement
and subsidies, respectively. No agreement could be reached in these areas
and GATS simply left the issues to future negotiations. Article XIII
explicitly excludes services purchased by government for governmental (rather
than commercial) purposes from being subject to the MFN, national treatment and
market access provisions of GATS.
Though there are some special provisions for developing countries in GATS, they
are weaker than those in GATT. For example, there is no provision for
one-way, preferential market access by developed to developing countries
comparable to the GSP under GATT. As already described, partial
preferences by developing countries to each other are permitted. Also in
PTAs with developed countries under Article V, they can participate with less
than full preferences.
Article IV, which may be viewed as the GATS equivalent of Part IV of GATT,
offers some general statements about increasing the participation of developing
countries but commits members to very little. It entreats all members to
undertake specific commitments beneficial to developing countries. Among
measures that might be adopted are liberalization of market access in sectors
and supply modes of interest to developing countries and better access to
technology, distribution channels, and information networks. The article
calls on developed country members, and to the extent possible developing
country members, to establish contact points within two years to facilitate the
access of developing country members' service suppliers to information related
to their respective markets.
Article XIX on market access also carries a general statement allowing
"appropriate flexibility for individual developing country members for
opening fewer sectors, liberalizing fewer types of transactions," and so
on. But since actual liberalization is a matter of negotiation, it is
doubtful that this provision is of any practical value. The provision in
the Annex on Telecommunications that a developing country member may place
reasonable conditions on access to public telecommunications networks is similarly
of dubious value.
The remaining articles may be summarized as follows:
(i)
Article XIX establishes a continuing program of future negotiations. The
first of these negotiations was to begin by January 1, 2000 but has failed to
be launched due to the failure of the Seattle conference.
(ii)
Article XXI sets out procedures for the withdrawal or modification of
commitments in the schedules.
(iii)
Articles XXII and XXIII contain dispute settlement provisions. Article
XXII provides for consultations at the bilateral level as well as through the
Council for Trade in Services or the Dispute Settlement Body. Article
XXIII establishes the right of members to use the WTO Dispute Settlement
mechanism.
(iv)
Article XXIV establishes the Council for Trade in Services, Article XXV deals
with technical cooperation and Article XXVI concerns the relationship with
other international organizations.
(v)
Part VI has three articles, XXVII to XXIX. Article XVII states that a
country can deny the benefits of the agreement to a service if it originates in
the territory of a nonmember. Article XXVIII defines several terms used
in the agreement. For instance, “supply” is defined to include production,
distribution, marketing, sale, and delivery of the service. A juridical
person is considered “owned” by a member if more than 50 percent of the equity
is owned by persons of the member. Article XXIX makes the annexes a part
of the agreement.
Article XXIX consists of eight annexes that are integral part of GATS.
These relate to the MFN exemptions, movement of natural persons,
telecommunications, financial services, air transport services and maritime
services.[19] The sectoral annexes spell out in
greater detail provisions specific to the sectors under consideration.
For instance, the annex on financial services (largely banking and insurance)
lays down the right of parties to take prudential measures for the protection
of investors, deposit holders and policyholders, and to ensure the integrity
and stability of the financial system. Similarly, the annex on
telecommunications relates to measures that affect access to and use of public
telecommunications services and networks. It requires that such access be
provided to another party on reasonable and non-discriminatory terms, to permit
the supply of a service included in the member’s schedule. The annex on
air-transport services excludes from GATS traffic rights (principally bilateral
air-service agreements conferring landing rights) and directly related
activities.
In addition to trade in goods and services, WTO rules cover intellectual
property (IP) rights. The inclusion of this subject into the WTO was and
remains a source of considerable controversy. The relationship between
intellectual property rights and trade is at best indirect. Moreover,
whereas trade liberalization is beneficial to the country undertaking
liberalization as well as its trading partners, the extension of IP protection
to poor countries redistributes income from the rich to poor countries without
necessarily increasing the world welfare. We will return to this
controversy later. Presently, let us look at the main provisions of the
Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs)
which governs the WTO regime on IP protection.
The Agreement on TRIPs has wide ranging provisions as it covers the entire
gamut of issues related to the protection of intellectual property. These
include patents, copyrights, trademark and geographical indications, layout
designs of integrated circuits, industrial designs, and protection of
undisclosed information (trade secrets). The agreement incorporates the
provisions of the four previous IPR agreements: the Paris Convention covering
inventions, trade names, trade marks, industrial designs and appellation of
source; Berne Convention on copyrights, Rome Convention on sound recordings and
the Washington Treaty on layout design of integrated circuits. The agreement
specifies the standards defining key issues of protection in each area and
includes commitments on national enforcement procedures. The agreement binds
the contracting parties to a dispute settlement mechanism, administered by the
WTO.
The agreement has six parts which contain 73 articles. Here I provide a
summary treatment of the main provisions, with the details left for Table 2.
Part I has eight articles that set out general obligations of members.
The key obligations relate to the national status and most favored nation
treatment by each member to other members. According to Article 3, each
member must treat the nationals of other member countries no less favorably
than its own on all IP matters including standards, enforcement and
acquisition. According to Article 4, members must not treat the nationals
of another member country less favorably than those of another country.
Part II is divided into eight sections which are, in turn, divided into 32
articles. This part contains the standards of intellectual property right
in different areas in succession. Provisions on copyright in Section 1 protect
the rights of authors of books, music and films. Members are required to comply
with the substantive provision for the Berne Convention on the Protection of
Literary and Artistic Works in its latest version (Paris 1971). The agreement
provides that computer programs be protected as literary works under the Berne
Convention and lays down criteria for the protection of data bases by copyright.
The agreement also requires that authors of computer programs and producers of
sound recordings be given the exclusive right to authorize or prohibit the
commercial rental of their works to the public. A similar exclusive right
applies to films.
Section 5 of Part II covers patents. In this area, members must comply
with the substantive provisions of the 1967 Paris Convention on the Protection
of Industrial Property. In addition, the agreement requires that 20-year patent
protection be available for all inventions, whether of products or processes,
in almost all fields of technology including pharmaceuticals. Plant
varieties are to be protected either by patents or by a specific system such as
the breeder's rights provided in the International Convention for the
Protection of New Varieties of Plants of 1978. Furthermore, rights conferred in
respect of processes must extend to the products directly obtained from the
process.
Section 6 of Part II deals with the protection of layout designs of integrated
circuits and goes beyond the Washington Treaty (1989) by adding further
provisions. Accordingly, protection to layout designs of integrated
circuits is to be provided for at least ten years, the rights extend to
articles containing the chip, an "innocent infringer," though free
from liability, must pay a suitable royalty on the use or sale of stock in hand
and ordered before learning of the infringement, and compulsory licensing and
use by the government can be permitted only under a number of strict
conditions.
On trademarks and service marks, covered in Section 2 of Part II, the agreement
provides the first full set of key standards that include the definition of
signs that must be eligible for protection. It requires that protection be
granted for a minimal period of seven years and should be renewable
indefinitely. In the area of geographical indications (Section 3), the
agreement lays down that members should prevent the use of any indication that
misleads the consumer as to the origin of goods. Industrial designs (Section 4)
are protected under the agreement for a period of ten years. Owners of
protected designs would be able to prevent the manufacture, sale, or
importation of articles bearing or embodying a design that is a copy of the
protected design. Finally, trade secrets and expertise (Section 7) that have a
commercial value must be protected against breach of confidence and other acts
contrary to honest commercial practices.
Part III of the agreement deals with the important issue of enforcement of
TRIPs. The broad objective of the enforcement provisions is to ensure effective
national enforcement of IP laws without the procedure becoming abusive. The
primary responsibility for initiating action for enforcement falls on the private
right holders, not the country. The country can be challenged by WTO only if it
can be shown that it has failed to fulfill its obligations under the TRIPs
agreement.
Part IV, containing just one article (Article 62), recognizes that the
acquisition and maintenance of IP rights may require reasonable compliance with
procedures and formalities. Part V deals with dispute prevention and
settlement. Members are required to satisfy certain transparency
requirements and the strengthened WTO dispute settlement procedures apply to
the TRIPs agreement. Part VI describes the transitional arrangements.
Accordingly, national treatment and the MFN provision were to come into force
in all countries beginning 1 January 1996. Developed countries were also
to implement the rest of the agreement by that date. Developing and transition
economies were given until January 1, 2000 to implement the rest of the
agreement with additional leeway as follows: (i) Any member not providing product
patent in certain areas at the time of the signing of the agreement, could
delay the introduction of product patent in those areas until January 1,
2005. This meant countries such as India, which provided only process
patent in the area of pharmaceuticals, got until January 1, 2005 to introduce
product patent in this area. (ii) Least developed countries were given
until January 1, 2006 to implement all provisions other than Articles 3, 4 and
5. Part VII of the agreement describes the institutional arrangements
including the delegation of the charge of monitoring of the agreement to the
Council on TRIPs.
[1] It is doubtful,
however, that with a total budget of less than $85 million in 1999 and a staff
of 500, it could have provided significant volume of technical assistance to
developing countries.
[2] For an in-depth
coverage, the reader should consult Jackson (1997) and Hoekman and Kostecki
(1995).
[3] By the time the
Uruguay Round was negotiated, there were as many as ninety-nine GATT
signatories.
[4] According to Dam
(1970, p. 48), when GATT was originally signed, Article XXIV was limited to
customs unions and did not contain the provision for free trade areas.
The exception to the MFN clause for preferences existing on April 10, 1947 and
customs unions engendered in 1947 a movement to establish a similar exception
for free trade areas. France, Syria and Lebanon, who hoped to work out an
arrangement along FTA lines among French territories, led this movement.
At the Havana Conference, they succeeded in having Article XXIV modified to
include free trade areas.
[5] Note that more
favorable treatment to foreign goods than to similar domestically produced
goods is permitted.
[6] For instance, Swiss
car manufacturers routinely equip their cars with wipers on headlights.
The adoption of this feature as a requirement for car sales in Switzerland may
unduly raise the production costs of foreign suppliers who do not normally
equip their cars with this gadget. Even though the regulation has the
appearance of being consistent with the national treatment provision, it can
have a protective effect.
[7] The much-publicized
beef-hormone case is a good example of a contentious SPS restriction. In
1988, the European Union (EU) banned the use of hormonal substances to fatten
animals meant for human consumption after slaughter. This ban affected
the U.S exports of beef from animals than were fed the hormonal
substances. The U.S. challenged the EU measure at the WTO as being
protectionist rather than a legitimate SPS measure and eventually won the case.
[9] Use of licenses is
permitted to administer the quota though the procedures should be
transparent. The UR Agreement on Import Licensing Procedures lays down
the criteria for transparency in this regard. For example, the agreement
requires parties to publish sufficient information for traders to know the
basis on which licenses are granted.
[10] It must be pointed
out, however, that recently the United States did introduce voluntary export
quotas in steel through direct agreements with Brazilian firms.
[12] This agreement
builds on the Agreement on Interpretation and Application of Articles VI, XVI
and XXIII, which was negotiated by a subset of the GATT members in the Tokyo
Round.
[13] Least
developed countries and developing countries with a per-capita income of less
than $1,000 have some procedural reprieve in the case of export
subsidies. Rather than being subject to Article 4 procedures normally
applicable to prohibited subsidies, they are subject to Article 7 procedures
normally applicable to actionable subsides. Unlike the former, the latter
require the complainant to demonstrate that the subsidy has resulted in injury
to its domestic industry, nullification or impairment of a concession accruing
under GATT 1994 or serious prejudice to its interests.
[16] The list includes
three additional types of measures relating to obligations under any
intergovernmental agreement, restrictions on exports of inputs imposed as a
part of a stabilization plan and acquisition or distribution of products in
general or local short supply.
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