1. GATT Law and the World Trade Organization: Basic Principles
Chapter 9
© 2002 West/Thomson Learning

2. Why Use Trade Barriers?
Economic Reasons for Imposition of Trade Barriers
Collect Revenue
Support National Economic Policies
Protect “Infant” Industries
Political Reasons for Trade Barriers
Foreign Policy Considerations
Domestic Political Concerns
Forestall Foreign Competition
Protect Jobs or “Strategic” Industries
Other Reasons:
Health and Safety Concerns
Environmental Protection
Protect Cultural or Religious Values

3. Trade Barriers Tariff or Import Duties
Direct Nontariff Barriers (NTB’s)
Embargoes
Quotas
Auctioned quotas
Tariff rate quota
Indirect nontariff barriers
Monetary and exchange controls
Health or Safety Regulations
Labeling Requirements
Import Licensing Schemes and Customs Procedures

4. Development of GATT
Part of Post WWII Efforts to Develop Framework for Trade
Multilateral Trade Negotiations to Reduce Tariffs and NTB
Establish Principles of Nondiscrimination and Unconditional MFN
National Treatment
Eliminate Quotas and NTB’s (Tariffication)
Transparency
“Rounds” of Negotiations: Current Doha Round Focuses on Agricultural Products

5. GATT 1947 Covered Trade in Goods Excluded Agricultural Products
Textiles
Services
Intellectual Property
Foreign Investment
Dispute Settlement Mechanism Ineffective
Required Consensus
One Member State Could “Veto” Adoption of Panel Report

6. GATT 1994 Scope of Coverage Broadened: Agricultural Products Textiles
Financial Services
Intellectual Property Rights (TRIPS)
Government Procurement
Trade Related Investment Measures (TRIMS)
Focus on Technical Barriers to Trade
Created WTO to Administer GATT
Revised Dispute Settlement Mechanism
Strict Timetables for Procedures
Panel Reports Adopted Unless Consensus to Reject
Panel Decisions “Relevant But Not Binding” in Future Cases
Retaliatory Sanctions Authorized if Party Refuses to Comply

7. GATT Exceptions GATT Authorizes Regional Trade Agreements
NAFTA, EU, ASEAN, MERCOSUR etc.
Special Preferences May Be Granted to Members Within Free Trade Area
Members May Grant Preferences for Developing Countries
Temporary Quotas to Address Balance of Payments Emergencies

8. World Trade Organization
Replaced GATT - Jan. 1, 1995
153 members (as of 3/09)
Dispute Settlement Process:
Dispute Settlement Body (DSB) overseen by General Council
Consultations – may lead to convening a Panel
Panel Report subject to appeal
Panel Report or Appellate Report final unless rejected by consensus vote of DSB

9. Import Regime for Bananas
WTO Appellate Body Report
United States challenges EC preferences for bananas from former colonies (ACP countries) and increased duties and restrictions on non-ACP bananas
EC argues that US lacks legal right or trade interest in claim by Latin American banana producers
Report holds that US has interest as producer and potential export interest
Member nations have broad discretion to bring case against other member before DSU

10. Major GATT Principles Multilateral Trade Negotiations: “Rounds”
Uruguay Round (1986 – 1994): led to creation of WTO
Doha Round (2001): focus on agriculture and services
Tariffication: convert other barriers into tariffs – reduce through negotiations
Tariff Concessions, Bound Rates and Tariff Schedules
Nondiscrimination: Most Favored Nation and National Treatment

11. MFN (NTR, PNTR)
Most Favored Nation Status (now known as Normal Trade Relations or Permanent Normal Trade Relations)
Unconditional MFN: concessions granted by one member to another member automatically is extended to all members
Conditional MFN: member grants concessions to another member only in return for concession
GTT Allows Exceptions: may deny MFN based on
national security
foreign policy, or
state’s denial of human rights to its citizens

12. China and MFN Temporary MFN granted in 1980
Restrictions imposed after 1989 Tiananmen Square massacre
1994 Clinton delinked human rights and trade for China’s annual renewal of MFN
2000 Congress granted permanent normal trade status to China effective on China’s admission to WTO
China admitted to WTO – Dec. 2001
Subject to political events and tensions
Concern over Taiwan – admitted to WTO as part of “Separate Customs Territory of Chinese Taipei” in January 2002

13. Japan Taxes on Alcoholic Beverages (WTO Appellate Body Report 1996)
Japan taxed vodka and other imported liquors 7 times higher than domestic types such as shochu
US challenged tax discrimination as violation of national treatment principle
GATT Article III requires national treatment of imports for like products
Like products determined by end uses in particular market, physical characteristics, common end uses – elasticity of substitution
Report holds Japanese tax laws violate GATT
US ultimately had to use arbitration - in 1997 Japan agreed to revise tax system and eliminate taxes on spirits by 2002

14. GATT and Quotas GATT calls for end to quotas – use tariffs instead
Nondiscrimination principle applies to any quotas
GATT allows use to relieve food shortages or prohibit importation of ag products subject to price supports
Textile trade – multilateral quotas expired Jan. 1, 2005

15. GATT Balance of Payments Provisions
GATT permits temporary quantitative restrictions in balance of payments crisis
Art. XVII: developed countries
Art. XVIII: developing countries
India – Quant. Restrictions on Imports (WTO Panel Report 1999): restrictions in place for 50 years; discretionary licensing scheme
India claims balance of payments defense
India’s reserves ($25.1 B) not inadequate under Art. XVIII
India not justified in maintaining restrictions
Panel Report upheld by Appellate Body – adopted 1999

16. Politics and Trade
Attempts to open international trade subject to domestic political pressures
“Free Trade vs. Fair Trade”
Protectionism vs. Multilateralism
Who Speaks for Consumers
Should Trade and Human Rights Concerns Be Linked?
Labor and Environmental Issues: Avoid “Race to the Bottom”
Conflict between the developing and developed world

17. Web Sites http://www.trade.gov/td/auto http://www.ustr.gov