TRADE IN GOODS:
CORE PRINCIPLES AND MAIN
EXCEPTIONS
Content

Part I: Principles of Non Discrimination

Part II: Liberalization of trade

Part III: Protective Measures

Part IV: Exceptions
2
PART I:
NON DISCRIMINATION
3
Contents
1. Most Favoured Nation Treatment
2. National Treatment
4
1. MOST- FAVOURED NATION TREATMENT
(ARTICLE I:1 GATT)
5
Article I: 1 GATT
“any advantage, favour, privilege or
immunity granted by any Contracting Party to
any product originating in or destined for any
other country shall be
accorded immediately and unconditionally to
the like product originating in or destined for
the territories
of all other Contracting Parties.”
6
MFN Treatment


No discrimination between like
products originating in, or destined
for, different WTO members.
Each WTO member must grant all
other members immediately and
unconditionally the best treatment it
gives to any trading partner
7
MFN 3 tier test
1. Whether the measure at issue confers a trade
advantage of the kind covered by Article I:1.
2. Whether the products concerned are like
products.
3. Whether the advantage in issue is granted
immediately and unconditionally to all like
products concerned.
8
1. Trade advantage
US – MFN Footwear, established that the MFN concept
is applicable to any advantage granted with respect to:

Imports and exports of like products originating in the territories
of other Members.

Customs duties and charges of any kind.

The method of levying such duties and charges.

Rules and formalities in connection with importation and
exportation.

Internal taxes or other internal charges.

Laws, regulations requirements affecting internal sales,
purchases inter alia.
9
2. Like products’


The concept of ‘like products’ is not defined in
GATT.
In EC – Asbestos the Appellate Body
considered the dictionary meaning of ‘like’ and
suggested that ‘like products’ are products that
share a number of identical or similar
characteristics.
10
Jurisprudence on ‘like products’.
Products have been considered to be ‘like products’ on the
basis of some of the following concepts:
1. Their physical characteristics. In EC – Bananas III where
the EC import regime for bananas from Latin American countries
were treated less favourably than bananas from former
European colonies, it was stated that all bananas are like
products irrespective of whether and how a Member categorises
or subdivides them.
2. Listing of products in tariff schedules. In Australia –
Ammonium Sulphate, Australia had different treatment for
ammonium sulphate and sodium nitrate fertilisers and this was
challenged by Chile as being contrary to Article I:1. The Working
party noted that in the Australian tariff schedule, and in the tariff
schedules of many other countries, these products were listed
separately and enjoyed different treatment. The Working Party
therefore concluded that these were not like products.
11
Jurisprudence on ‘like products’.
3. Composition, content, purpose, chemical and
synthetic origin and duties applied to products.
In EEC – Measures on Animal Feed Proteins, the
Panel examined whether all products used for the
same purpose of adding protein to animal feed should
be considered to be like products. The Panel noted
such factors as the number of products and tariff
items carrying different duty rates and tariff bindings,
the varying protein contents, and the different
vegetable, animal and synthetic origins of the protein
products under consideration. It concluded that these
various protein products could not be considered as
like products.
12
Jurisprudence on ‘like products’.
4. End use and tariff classification practices by WTO
Members.
In Spain – Roasted Coffee Spain had divided unroasted
coffee into five tariff classifications. Colombian mild, other
mild, unwashed Arabica, robusta and other. The first two
were duty free and the other three were subject to a 7%
duty. Brazil claimed that all these were like products and that
different rates of duty were inconsistent with Article I. The
Panel noted that the arguments given for differentiation were
based on geographical factors, cultivation methods, the
processing of the beans and genetic factors. The Panel did
not consider such grounds as sufficient for differentiation and
noted that no other Member made such a classification. It
concluded that these were like products within the meaning of
Article 1.
13
3. Immediately and unconditionally


MFN treatment has to be extended to Members
immediately and unconditionally.
For example, in Belgium – Family Allowances,
Belgium had a system of granting exemption from a levy
to products purchased by public bodies only from
countries which had a system of family allowance similar
to that of Belgium. The Panel held that this practice was
inconsistent with the MFN principle as it inter alia,
introduced an element of conditionality in the application
of an advantage.
14
Exceptions to the MFN rule
The Enabling Clause
Parties may accord differential and more favourable treatment to
developing countries, without according such favourable treatment to
other Contracting Parties (Decision of 28 November 1979).

Free Trade Areas and Customs Unions
Article XXIV GATT allows a group of Members to constitute themselves into a
customs union or a free trade area and have totally free trade or reduced
levels of duties and of other trade restrictive regulations amongst themselves
without the obligation of extending such treatment to other Members.

Frontier Traffic
Advantages accorded by Members to “adjacent countries” in order to facilitate
frontier transactions. This derogation however only refers to the facilitation of
transactions in the vicinity of the frontier and cannot cover a trade agreement
governing the entire territories of two neighbouring countries. (Article XXIB.3
GATT 1994).

15
Exceptions to the MFN rule
Government Procurement
MFN does not apply to the import of products for immediate or
ultimate consumption in government use and not otherwise for resale
or use in the production of goods for sale.

Security Exceptions
Restrictions on imports and exports from or to specific countries can be
imposed for security reasons. (Article XXI GATT)

General Exceptions
Article XX GATT allows Members to restrict imports or exports
from or to specific sources for example for the protection of public
morals, human, animal or plant life, etc.

Measures permitted by WTO Agreements
Such as countervailing duties, antidumping duties and Retaliatory
measures.

16
Exercise (1): MFN-Treatment

Alba, Vanin, Medatia and Tristat are WTO
Members and Ruritania is not

Could Alba's customs authorities levy a
customs duty of 10% for imported
pocket watches originating in Medatia,
while levying a lower customs duty of
5% for imported pocket watches
originating in Vanin?
Exercise (2): MFN-Treatment

Alba, Vanin, Medatia and Tristat are WTO
Members and Ruritania is not

Could Alba levy a customs duty of 5%
for Ruritania’s watches while applying a
10% rate watches originating in Vanin,
Medatia and Tristat ?
Exercise (3): MFN-Treatment

Alba, Vanin, Medatia and Tristat are WTO
Members and Ruritania is not

Could Alba levy a 5% duty for pocket
watches from Vanin, Medatia and Tristat
and a 100% duty for Ruritania’s pocket
watches?
2. NATIONAL TREATMENT
(Article III GATT)
20
NATIONAL TREATMENT
Prohibits Members from treating
imported products directly or
indirectly less favourably than like
domestic products once the
imported products have entered the
domestic market.

i.e foreign goods must not be
discriminated against vis-à-vis
domestic goods
21
Article III: 1

Internal taxes, other internal charges,
regulations and requirements affecting the
internal sale, offering for sale, purchase,
transportation, distribution or use of
products, and internal quantitative
regulations requiring the mixture,
processing or use of products in specified
amounts or proportions, should not be
applied to imported or domestic
products so as to afford protection to
domestic production.
22
Article III: 2.

The products of the territory of any contracting
party imported into the territory of any other
contracting party shall not be subject, directly
or indirectly to internal taxes or other
internal charges of any kind in excess of those
applied directly or indirectly, to like domestic
products. Moreover, no contracting party shall
otherwise apply internal taxes or other
internal charges to imported or domestic
products in a manner that is contrary to Article
III:1.
23
Key elements of Article III
1.
2.
3.
4.
5.
Internal tax or charge
Imposed directly or indirectly
Affecting sale or purchase etc
Like products, directly competitive
products
Discrimination against imported
products, protection of domestic
products
24
1. INTERNAL TAX OR CHARGE



Article III only applies to internal measures not
border measures.
Hence, there is need to determine whether a
measure is an internal measure or a border
measure, especially if the measure is applied to
imported products at the time or point in time of
importation.
The Ad Article III Note clarifies that any internal tax
or charge collected or enforced on an imported
product at the time or point of importation is an
internal tax under Article III.
25
2. Directly and indirectly

Indirectly covers



Even such taxes which are not on the product as such, but on
the processing of the product.
Taxation methods and rules for tax collection.
With respect to internal quantitative regulations, the
term covers:


Regulations laying down the requirement of compulsory use,
Regulations which by implication, or in the process of
implication, have the effect of such a requirement.
26
3. Affecting the sale or purchase....

In Italian Discrimination Against Imported
Agricultural Machinery observed that
“affecting” covers not only the laws and
regulations which directly govern the conditions
of sale or purchase, but also any law or
regulation which might adversely modify the
conditions of competition between the domestic
and imported products in the internal market.
27
4. Like Products

In Canada – Periodicals, two questions were established
to determine whether there is a violation of Article III:2.
(a) whether the products were like products,
(b) whether the imported products were taxed in excess of the
domestic products.

In Japan –Alcoholic Beverages, the Japanese had a
system of giving different tax treatment to liqueurs
and sparkling wines according to alcoholic and extract
content. The panel found that imported liqueurs and
sparkling wines with high raw material content were
subjected to higher internal taxes than domestic
liqueurs and sparkling wines which had lower raw
material content. They were considered like products.
28
Directly competitive or
substitutable products.


Domestic production does not only mean
production of a particular product, but also of
directly competitive or substitutable products.
There may be cases where taxes etc are applied
at the same rate on imported and like domestic
products, and yet the manner of application is
such that protection is afforded to the domestic
production of a directly competitive or
substitutable product. Such practice is prohibited
under Article III:2.
29
Directly competitive or substitutable products.
For example, a country may apply a high
internal tax rate on oranges, which is
applied to both imported and domestic
oranges, but if this country does not
produce oranges, this tax in effect goes to
raise the price of only imported oranges,
which may in a way afford protection to its
own production of apples, in so far as
oranges are directly competitive or
substitutable with apples.
30
Directly competitive or substitutable
products.
Korea – Alcoholic Beverages established that:



Products are competitive or substitutable when
they are interchangeable or if they offer,
alternative ways of satisfying a particular need
or taste.
Like products are a subset of directly
competitive or substitutable products.
The notion of like products must be construed
narrowly but the category of directly competitive
or substitutable products is broader.
31
Determining whether products are
directly competitive or substitutable.
Japan – Alcoholic Beverages II - factors to consider
include;
 physical characteristics

common end use

tariff classifications

the nature of the compared products

the competitive conditions in the relevant market.
32
Exercise (1): National Treatment

Alba, Vanin, Medatia and Tristat are
WTO Members and Ruritania is not

Could Alba impose a sales tax of 5% on
domestically produced pocket watches
while applying a sales tax of 6% on
imported pocket watches from Medatia
and Tristat?
Exercise (2): National Treatment

Alba, Vanin, Medatia and Tristat are
WTO Members and Ruritania is not

What if the 6% sales tax only applies to
imported pocket watches from
Ruritania?
Exercise (3): National Treatment

Alba, Vanin, Medatia and Tristat are WTO
Members and Ruritania is not. Alba
traditionally produces pocket watches but
does not produce wrist watches

Could Alba impose a 5% sales tax on pocket
watches while applying a 10% sales tax to
wrist watches?
Discrimination against imported products,
protection of domestic products
Examples of jurisprudence on discrimination under
Article III.
1.Granting financial facilities like tax refunds,
special credit facilities, tax exemptions etc to
domestic products and not to imported products.
US – Measures affecting Alcoholic and Malt
Beverages examined the US tax measure
providing excise tax exemption for domestic
producers of beer and wine, which was not
available for imported products. It was found
that the tax law operated to create a lower tax
rate on domestic beer and wine than on like
imported products and that was discriminatory.
36
Discrimination against imported products,
protection of domestic products
2. Obligations on investors or local industry to
purchase domestic products. This way, there is a
denial of opportunity to like imported products for
competing in the market.

EEC – Measures on Animal Feed Proteins examined
a regulation requiring domestic producers or importers
of oil seeds etc and importers of corn gluten feed to
purchase a certain quantity of surplus skimmed milk
powder held by intervention agencies. It was found that
these agencies held only domestic products and
concluded that this regulation protected the domestic
industry.
37
Discrimination against imported products,
protection of domestic products
3. If imported products are required to pass
through certain specified wholesale or
retail channels unlike domestic products.
In US – Measures Affecting Alcoholic and
Malt Beverages the requirement in some US
states that imported beer and wine be sold only
though in state wholesalers or other middlemen
while some instate like products were permitted
to be sold directly to retailers was considered
discrimination.
38
Discrimination against imported products,
protection of domestic products
4. A regulation that both imported and
domestic goods adhere to a minimum
price requirement is discriminatory.

In Canada – Import Distribution and
Sale of Certain Alcoholic Drinks it was
established that the refusal of the sale of
the imported product at a price below that
of the domestic product did not accord
equal conditions of competition.
39
Discrimination against imported products,
protection of domestic products
5. Existence of wider choices for
punitive action against imported
goods.

Us – Section 337 found that the
facilitation of legal action against
imported products when such facilities
were not available for domestic products
were discriminatory against imported
products.
40
Exercise (1): National Treatment

A new Alban law requires that pocket
watches imported and sold in Alba have a
minimum of 10% ‘local content’.

Is this compatible with the NT-obligation under
GATT?
EXCEPTIONS TO NATIONAL
TREATMENT
1. Government Procurement. Where products are
purchased for the use of the government and
not for commercial resale. Article III: 8 (a)
2. Obligation not to affect payment of subsidies
exclusively to domestic producers. Article III: 8
(b)
3. Internal quantitative regulations relating to
exposed cinematograph films. (Article III:10).
42
PART II:
LIBERALIZATION OF
TRADE
43
Contents
1. Market Access
2. Prohibition of Quantitative Restrictions:
3. Transparency
44
1. MARKET ACCESS
45
Bindings / Commitments

A country commits itself to ensure an
agreed level of access to its market,
on an MFN basis, for supplying
countries.
46
Bindings/
Commitments
GATT Art. II
Art. II: 1(a)
Each contracting party shall accord to the commerce
of the other contracting parties treatment no less
favourable than that provided for in the appropriate
Part of the appropriate Schedule annexed to this
Agreement.
Some exceptions to Art II:1
• Anti dumping duties, Countervailing duties
•Art XXVIII –re-negotiate concessions
•Art IX:3 -Waiver
Exercise: Tariff Bindings

Alba, Vanin, Medatia and Tristat are
WTO Members and Ruritania is not.
In Alba’s Schedule, the bound duty
for pocket watches is 25%


Can Alba apply a 15% tariff to pocket
watches originating in Vanin and
Tristat?
And to pocket watches from Ruritania?
2. PROHIBITION ON QUANTITATIVE
RESTRICTIONS
49
General
Prohibition of
QRs
GATT Art. XI
Nondiscrimination in
administration of
QRs
GATT Art. XIII
Art. XI:1
No prohibitions or restrictions other than
duties, taxes or other charges, whether made
effective through quotas, import or export licenses
or other measures, shall be instituted or
maintained by any Member on the importation of
any product of the territory of any other Member or
on the exportation or sale for export of any product
destined for the territory of any other Member.
Art. XIII:1
No quotas, unless when permitted. Then similarly
apply to all WTO members
Exceptions to the Prohibition of QRs
 Marrakesh Agreement Art. IX:3 (Waiver)
GATT Art. XI:2(c) (Agricultural Products and Fish)
Agreement on Agriculture (Tariffication)
 GATT Art. XX (General Exception)
 GATT Art. XXIV:5 (Free-Trade Area and Customs Unions)
 GATT Art. XXI (Security Exception)
 GATT Art. XIX (Safeguards)
 GATT Art. XI:2(a) (Critical Shortage of Foodstuffs
or Other Essential Products)
Exercise: Quantitative Restrictions

Alba, Vanin, Medatia and Tristat are
WTO Members and Ruritania is not.

Could Alba impose import quotas on fresh
tuna and frozen lamb meat?
3. TRANSPARENCY
53
Transparency: Article X of GATT



Publication of trade regulations, laws etc. Publication
before application.
Notification requirements.,
Uniform, impartial and reasonable administration of
laws, regulations etc.

Independent legal review

Trade policy review mechanism
54
PART III:
PROTECTIVE MEASURES
55
Contents
1. Safeguard Measures
2. Dumping and Antidumping Measures
3. Subsidies and Countervailing Measures
4. State Trading Enterprises
56
1. SAFEGUARD MEASURES
57
General Safeguard Measures

In specific situations, measures otherwise contrary to certain basic
principles- are available to Members
to protect, conditionally and
temporarily, their domestic industry
against surge of imports
58
Legal Basis for Safeguard Action

General Safeguards: Article XIX GATT and
WTO Agreement on Safeguards

BOP Safeguards: Article XII GATT; XVIII:B

Special Sector - Specific Safeguards:
 Article 5 of the WTO Agreement on
Agriculture
General Safeguards: Criteria for Application

As a result of unforeseen developments

A product is being imported in such increased
quantities

As to cause or threaten to cause serious injury

To the domestic industry producing like or directly
competitive products
General Safeguards:

Forms of Safeguard Measures:



Maximum Duration (Art. 7 Safeguards Agreement):




Increased Tariff
Imposition of Quotas
General Rule: 4 years
Possibility of extending to 8 years if evidence of continued
necessity and of adjustment on part of domestic industry
Maximum of 10 years for Developing Countries
Level of the Safeguard Measure (Art. 5 Safeguards
Agreement):
“to the extent necessary to prevent or remedy serious
injury and to facilitate adjustment”
2. ANTIDUMPING MEASURES
62
Dumping and Antidumping
Measures GATT Art VI & ADA

Measures -taking the form of
additional duties at the border- are
available to Members to defend
themselves and/or compensate for
the distortion created by unfair trade
practices
63
3. Subsidies and
Countervailing Measures
64
Subsidies and Countervailing
(Art VI, XVI & SCM Argt)

Subsidies may distort trade.

Some subsidies are prohibited.


Other subsidies are permitted but actions
can be taken against their adverse effects.
Actions are either in the form of “direct
actions” (Dispute Settlement) or
“Additional duties” at the border
(Countervailing duties)
65
GATT Art. XVI (Subsidies)
Agreement on Subsidies (Countervailing Duties)
Subsidies = (i) financial contribution (ii) by Government or
Uruguay
Round
Public entity (iii) conferring an advantage (iv) specific to an
enterprise or industry.
3 Types of Subsidies
Action
(1) Prohibited subsidies
Accelerated Dispute
Settlement proceedings
(2) Authorized - but
actionable - subsidies
Countervailing Duties
(+ Dispute Settlement)
(3) Authorized - and
non-actionnable - subsidies
In principle, None
4. STATE TRADING ENTERPRIES
67
State-trading enterprise- Art
XVII


State enterprises may distort trade
and abuse their specific position as
traders.
Disciplines regulate their traderelated activities
68
State-Trading
Enterprise
GATT Art.
XVII
Art. XVII
(a)
Each Member undertakes that if it
establishes or maintains a State enterprise, …,
such enterprise shall, in its purchases or sales
involving either imports or exports, act in a
manner consistent with the general principles of
non-discriminatory treatment ...
b)
The provisions of sub para. (a) … shall be
understood to require that such enterprises
shall, having due regard to the other provisions
of this Agreement, make any such purchase or
sales solely in accordance with commercial
considerations….
PART IV: EXCEPTIONS
70
Contents

HORIZONTAL EXCEPTIONS
1. Waivers
2. General Exceptions
3. Security Exceptions
4. Regional Integration

SPECIAL AND DIFFERENTIAL TREATMENT
71
Horizontal Exceptions

In certain specific situations - and
under certain conditions, the WTO
rules and obligations shall not
prevent Members to take certain
measures which otherwise would be
illegal.
72
1. WAIVERS
73
Waivers

Article IX (3) of the WTO Agreement:
“In exceptional circumstances, the Ministerial
Conference may decide to waive an obligation
imposed on a Member by this Agreement or any
of the Multilateral Trade Agreements, provided
that any such decision shall be taken by three
fourths of the Members...”
NB: General Council clarification: Consensus 1st
2. GENERAL EXCEPTIONS
75
General
Exceptions
GATT Art. XX
Art. XX:
Subject to the requirement that such
measures are not applied in a manner
which would constitute a means of
arbitrary or unjustifiable discrimination
between countries where the same
conditions prevail, or a disguised
restriction on international trade, nothing
in this Agreement shall be construed to
prevent the adoption or enforcement by
any Member of measures ….
a. Public Morals
b. Human, animal and plant life
or health
c. Trade in gold or silver
Article XX: General Exceptions
d. To secure compliance
with conforming laws
and regulations
e. Prison labour
f. National treasures
g. Conservation of
exhaustible natural
resources
h. In pursuit of an
intergovernmental
Commodity
agreement
i. Ensure essential
quantities to domestic
processing industry
j. For acquisition or
distribution of
products in local short
supply.
77
Invoking Article XX GATT as a Defense:
Two-Tier Test
1.
2.
Does the challenged measure fall within one
of the exceptions listed in Article XX (a)-(j)?
If yes, does it satisfy the requirements of
‘Article XX-chapeau’?
Invoking Article XX GATT as a Defense:
Two-Tier Test
Does the challenged measure fall within one of the
exceptions listed in Article XX (a)-(j)?
1.


(b) “measures necessary to protect human, animal, or
plant life”: EC-Asbestos/ Thailand-Cigarettes
(d) “measures necessary to secure compliance with”:
Korea-Various Measures on Beef

(g) “relating to the conservation of exhaustible natural
resources”: US-Gasoline and US-Shrimp
Invoking Article XX GATT as a Defense:
Two-Tier Test
2. If yes, does it satisfy the requirements of
‘Article XX-chapeau’? (US-Gasoline and USShrimp)


A means of “arbitrary or unjustifiable
discrimination” between countries where
same conditions prevail?
A “disguised restriction on trade”?
3. SECURITY EXCEPTIONS
81
Article XXI: Security Exceptions



No disclosure of information contrary to
essential security interests
No obstacle to any action contrary to essential
security interest
 relating to fissionable material
 relating to arms trade
 taken in time of war or other emergency
international relations
 Is this a “self-judging” exception?
No obstacle to UN collective security
82
4. REGIONAL INTEGRATION
83
Regional Integration

WTO rules and obligations shall not
prevent Members from taking certain
measures which otherwise would be
illegal, to enter closer integration of
their economies
84
Regional
integration
GATT Art. XXIV (4): Purpose
The contracting parties
recognise....that the purpose of a
customs union or of a free-trade area
should be to facilitate trade between
the constituent territories and not to
raise barriers to the trade of other
contracting parties with such
territories
5. SPECIAL AND DIFFERENTIAL
TREATMENT
86
Special and Differential Treatment

There are 146 such provisions throughout the
WTO Agreements of different nature






aimed at increasing trade opportunities
WTO Members should safeguard the interests
of the developing Members
flexibility of commitments
(extended) transitional time periods
technical assistance
provisions for least-developed country
Members
87
Special and Differential Treatment
Examples

Article 27 SCM Agreement contains 3 types:
Safeguarding the interests of developing countries
(e.g. 27.1)
 Flexibility of commitments (e.g. 27.4; 27.7)
 Transitional time periods (e.g. 27.3; 27.4)




Article 27.2 DSU - Technical assistance
Article 24 DSU - Least Developed Countries
Article IV GATS - Trade opportunities
88
TAKE HOME ASSIGNMENT
1.
2.
In Member Z’s Schedule of Tariff
Concessions, the bound duty for cars is
12%. Can Member Z apply a tariff
different from the 12% listed in its
schedules?
Is the bound tariff the only charge that
Member Z may levy on imported cares?
89
END
90