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Week 2: Key disciplines of international trade - Coggle Diagram
Week 2: Key disciplines of international trade
Tariffs
Tariffs is a tax that applies to products in the border when they are imported or exported. More oftenly imposed on imports
Tariff discipline encompasses two main obligations that create a cycle of tariff reductions
Obligation to negotiate substantial reductions in tariffs (Art XXVIII GATT)
Tariff charges are a binding act (Art II(1)(a) GATT)
States agree not impose a tariff higher than their negotiated limit. States agree not to apply a tariff to a product that is less favourable than the states bound rate. The bound rate is the negotiated limit.
These obligations create a cycle of tariff reduction
GATT encourages tariffs ver other taxes as they are transparent and they are subject to the ongoing commitment to reduce them
Each memeber has its own "schedule of concessions" linked to art 2
Each memeber sets its own tariff bindings on products or groups of products
Tariff rates reflect the own memebers interest
Elimination of quantitative restrictions (article XI GATT)
Elimination of prohibitions or restrictions on imports and exports.
Quantitative restrictions include quotas, licensing or certification processes
There are three specific exceptions in Art XI.2
a. Export restrictions "temporarily applied" on food or essential products to prevent or relieve "critical shortages". Strictly applied (eg. China - Raw Metals, DS394
Balance of Payments and safeguards exceptions in XII, XIX and XVIII (developing states): Now administered under the safeguard agreement
Most Favoured Nation (article I GATT)
MFN is a principle of non-discrimination
All WTO member states mist extend any trading preferences given to any state to all member states (Art I (1) GATT)
Covers a broad range of trade priviledges
MFN is the key to why tariff reductions negotiated in the GATT/WTO "rounds" have been so effective
Specific exceptions:
Regional trade agreements (art XXIV) Eg. NAFTA
Enabling clause 1979 / Generalized system of preferences
Permits non-discriminatory preferential treatment from dev'd to dev'g states
Permits preferential treatment amongst developing states
National Treatment Obligation (article III)
NTO is the principle of non discrimination
Member states must treat domestic and foreign goods the same (art III.1)
This includes taxes, product standards, sales restrictions, safety regulations, etc
Article III GATT
(1) sets out the purpose of the NTO principle
(2) sets out two obligations adressing fiscal measures. First sentence: states should not subject imported products to internal taxes in excess of those applied to domestd like products. Sesond sentence: Can`t apply taxes in a way that affords protection to a domestic product
(4) Non fiscal measures. Measures affecting sale, offer to sale, transport, distribution, purchase must not treat imported products less favourably than domestic like products
"Like product"
What exactly does a like product mean
In order for a NTO or MFN claim to go forward member states must prove that the products are "like" through a market test.
Market test: The nature an extend of competitive relationship, substitutability between products is often crucial (Article III.2)
Four characteristics generally considered
Product end uses 2. Consumer taste's and habits 3. Product properties, nature and quality 4. Common customs classifications
The application of these criteria is not formulaic. The application is a balancing act. Weigh of each criteria varies according to the circumstances of the case
Dispute settlement
The Dispute Settlement Understanding (annex 3, WTO Agreement) established the DSU body and the process
Dispute Settlement Body: Each State may have a representative on the DSB (essentially, the general council)
The dispute settlement is performed by Panels (first instance) and the Appellate Body (appeals of law and DSB
First instance: PAnels are ad hoc (as and when needed)
Appellate Body is a new permanent body: appeals on questions of law
Decisions of the AB are final and binding
Member states have complained that the AB and Panels have overstepped their role. They should ensure their decisions do not add to or diminish the balance of rights and responsibilities agreed between states and the reflected WTO agreements
AB and panels are to clarify what the words of the agreement mean
DSB has oversight of the system and adopts reports, but has no real power
The process is entirely confidential: continuity with GATT dispute settlement
Considered the crowning jewel of rules bases systems because of its legalisation of dispute settlement. These innovations included:
Establishing an Appelette Body: Permanent seven member body based on four year terms with members expert in law and trade
Setting out a formalised and compulsory system of dispute settlement, with clear timelines for all stages of the dispute
Establishing third party rights of participation for other member states
Introducing mechanisms for compliance review and enforcement
Panels where created to monitor and review compliance
A for remedies a panel can approve retaliatory santions or counter measures
Retaliation is flexible: Go outside sector or agreement raised in the dispute (eg. Frozen Chicken: US allowed to impose tariffs on Cognac as a compensation for illegal French ban on US chicken exports)
Introducing reverse consensus voting, which meant that process was unstoppable
Establishment of a panel or adoption of a panel or appellette body report will only be blocked if ALL members agree NOT to establish or adopt
Its inconceivable that a panel or report may be blocked as the winning member must oppose as well
Once a report is adopted the recommendations become binding on the parties to the dispute
DSB members have the rights to make comments before the decisions are adopted, but no real power.