Some General Principles
The GATT provides for a number of basic principles.
Non-discrimination; The principle of national treatment requires that goods, once lawfully imported, will be treated in the same manner as domestic goods. They must not be treated any less favourably such as in relation to tax, consumer laws, regulations and requirements in relation to the sale, offering for sale, marketing, transportation, distribution and use.
Most favoured Nation; the state parties must apply the same duties and charges on the import of goods between GATT parties, regardless of origin. Therefore, any advantage, favour, privilege or immunity granted to a product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or from the territories of all other members.
Tariffs only; Trade restraints should be by way of tariffs. This is to make them explicit and visible. They should be referable to a percentage of the value of the goods. In principle, they may be applied with reference to another measure.
States must respect the principle of transparency. States must disclose their rules, regulations and practices internationally to allow exporters comply. They must try endeavour to simplify import and export formality.
States may apply sales and consumption taxes, regulation and regulatory requirements. They must not be intended nor have the effect of creating a greater burden on imported goods relative to domestic goods. There are exceptions.
States are obliged to work towards the reduction of tariffs. Tariff reductions are negotiated and then recorded. The states agree on the maximum amount that they may set. This is then binding. This rate must also be extended to all GATT members. The contracting parties agreed to apply the duties set out in the schedules submitted by them at the conclusion of the agreements.
Members must adhere to the terms of their schedule and tariff bindings. They may not impose customs duty at higher than the rates set out in their respective schedules.
A tariff concession once agreed is a tariff binding and becomes part of the member state’s “schedule”. In effect, each country has a series of mutual obligations as well as unilateral undertakings. The maximum tariff levels for goods are so-called bound tariffs or “bindings”.
Quotas, whether on imports or exports, are generally prohibited subject to exceptions. Quotas may be applied where a state has the balance of payment problems. Developing countries may use them to protect new industry.
The members of GATT agree periodically to enter negotiations on a reciprocal, mutually advantageous basis with a view to the reduction of the general level of tariffs. The state parties were to meet and regularly negotiate with a view to reduction of trade barriers on a multilateral basis in accordance with an amendment and review incorporated 1954. In view of the failure to put in place the international trade organisation which have been contemplated, the regularity of negotiations was not specified.
When a tariff level concession is agreed, it becomes binding and is set out in the tariff schedules of that country in the Annex to GATT. States must comply with the tariff binding and not impose duties in excess of those in their schedule.
States may renegotiate their tariff commitments periodically. Every three years, state members may enter negotiations to modify or withdraw concessions previously made. However, they must allow compensating measures or concessions to others affected. They must maintain a general level of reciprocal and mutually advantageous concessions, not less favourable than that which existed prior to the negotiations.
Pre-GATT Preferences and Rules Exception
Existing preferences were permitted to be maintained provided that the degree of preference could not be increased relative to the position at the outset. The principal objective was to ensure continuing colonial and imperial preferences for states with colonies in particular, the United Kingdom, France, Netherlands and Belgium. The effect of these provisions has now largely diminished, although some vestiges remain.
Existing pre-1947 rules could be preserved in relation to many of the key substantive provisions in Part 2. Part 2 dealt with many substantial provisions including national treatment in relation to internal taxation, anti-dumping, countervailing duties, customs valuations, quantitative restrictions, safeguarding balance of payments and subsidies. GATT provisions could take effect to the extent they were not inconsistent with the existing (1947 inception) legislation.
In practice, this has been interpreted narrowly so that provisions contrary to GATT could be maintained only where required under the existing legislation rather than merely permitted. Equally once such legislation expired the exception was no longer applicable even if it was substantially re-enacted or replaced.
Customs Union / FTA Exception
The customs union and free trade area exceptions provide as a condition that
- the whole of the tariffs and other barriers to trade must not be higher or more restrictive than the average tariffs of the constituent members before the formation of the customs union or free trade area and
- that the arrangement covers substantially all the trade between or among parties.
The exception for customs unions and free trade areas was to some extent provided in the context of the then-recent Benelux Agreement,,between Netherlands, Belgium and Luxembourg by way of a customs union and the then proposed idea for a European Community, being discussed in the context of post-war Europe (prior to the ECSC and EEC agreements).
The effect of the creation of a customs union or free trade area may be to disadvantage third countries relative to their prior position with particular members. It creates a diversion of trade in favour of internal members.
It became established that third countries could seek offsetting measures when a customs union was established or changed in composition and its effect was to change the position of the existing earlier, pre-existing position prior to membership due to the community rates being higher than the member’s average rates in some cases.
If the customs union affects bound duties, there is an obligation to negotiate with the beneficiaries of those concessions to re-balance to the pre-existing position. If the customs union or trade area is to be phased in, it must be phased in within a reasonable time.
States retain a broad freedom to legislate in relation to issues of public safety, health and public morals. They are expressly permitted. However, they must not constitute disguised protectionist measures.
Article XX provides that nothing in the agreement shall be construed to prevent the adoption and enforcement of measures listed therein.
Regulations must not breach the non-discrimination principle and must not by their terms or by their implementation be a disguised restriction on trade. The issue has arisen in many cases before GATT panels.
The broadness of these provisions has been restricted by the later agreements relating to Technical Barriers to trade on Sanitary and phytosanitary measures.
Modification of Concessions
GATT provides for so-called escape clauses allowing states to withdraw any binding made at regular intervals, provided the overall balance of concessions in maintained.
Binding concessions may be unwound under every third year but the balance of overall concessions must be maintained either by agreement with the other beneficiary party or on the basis of mutual withdrawal of concessions. The provision contemplates mutual rebalancing of benefits and obligations between parties in the event of variation.
Ultimately in 1994, as safeguard agreement was adopted which gave further specificity to the criteria for the application of safeguarding provision.
Subsidy and Anti-Dumping
The GATT agreement provides for countervailing measures in respect of dumping and subsidies. The dumping and countervailing duties must not be themselves disguised protectionist measures. Quotas are not acceptable nor are punitive tariffs in excess of the benefit denied.
Duties and obligations must not exceed the extent of the dumping or subsidy. The importing State must determine that the dumping or subsidy causes or threatens material injury to an industry in its territory.
The later agreement of subsidies reduces the scope for abuse. It provides that where a subsidy must have harmful effects for this purpose.
The contracting parties must seek to avoid subsidies on primary products, but they should not, in any event, be applied to give more than an equitable share of world export trade in that product. States shall cease to grant subsidies on products which result in an export price less than the domestic price.
The GATT and subsequent agreements provided for waivers in exceptional circumstances, not otherwise provided. They were required to be approved by 2/3 vote. Waivers were granted in various circumstances in particular for the European Coal and Steel Community (1951) which was limited to particular sectors. It was not required for the European Economic Community covering substantially all sectors being a comprehensive agreement.
The United States enjoyed a waiver in respect of agricultural products. This was believed necessary to have the agreement ratified by Congress. Although the United States waiver was not fully deployed its effect was to cause other states, in particular, the EEC to formulate their agricultural policies on a similar basis.
The provision for waiver was retained upon establishment of the World Trade Organisation, but it is subject to three-quarters approval. All waivers must have an end date. If it is longer than one year, it must be reviewed annually.
Developing countries are given greater scope to impose restrictions to promote infant domestic industries and assist in the balance of payment problems. They are not required to make reciprocal commitments in trade negotiations. Developed countries are to give high priority to allowing non-reciprocal reduction and elimination of trade in products from less developed countries.
A General System of Preferences was introduced pursuant to these obligations. Some states have adopted their own special preferences under a waiver and laterally under a general exception to the most favoured nation requirement.
Emergency and Safeguards
GATT provides for so-called escape clauses allowing states to withdraw any binding made at regular intervals, provided the overall balance of concessions in maintained
GATT permits emergency action by way of restrictions on imports, if as a result of unforeseen developments, the effect of the obligations incurred by a contracting party under the agreement including tariff concessions, any products is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers of like or directly competitive products.
The provision contemplates mutual re-balancing of benefits and obligations between state parties in the event of variation. Ultimately in 1994, as safeguard agreement was adopted which gave further specificity to the criteria for the application of safeguarding provision.
The principle of prohibition of quantitative restrictions is qualified in certain respects, in particular in relation to agriculture. Most states historically have intervened in agricultural markets to maintain food security, agricultural incomes, protection of the rural empowerment et cetera.
GATT permits restrictions on imports on any fishing or agricultural product necessary for the enforcement of a general government program for restricting production. The quota must not be such as reduces the total imports relative to the total domestic production as compared with the proportion that might reasonably be expected in the absence of the restrictions.
There are exceptions to the obligation to implement GATT measures on the basis of where they are necessary
- to protect public morals, human or animal health,
- secure compliance with the laws and regulations that are not inconsistent with GATT,
- to protect national treasures,
- for the conservation of natural resources.
None of these measures may be an arbitrary or unjustifiable form of discrimination relative to comparable circumstances or be a disguised restriction on international trade.
Balance of Payments
States may impose restrictions and quotas in order to safeguard their external financial position and balance of payments. This has been of less importance in the absence of persistent balance of payment crises in recent decades and the general convertibility of currency.
Security and Conflicts
Due largely to a number of Cold War and frozen conflicts, a 1948 agreement allowed a State to join GATT on the basis of not entering tariff negotiations with a particular other State. This facilitated an increase in membership. Correspondingly, states could not veto the excision of new States as had been originally intended. The declaration to invoke this provision might be made upon accession but not thereafter. It might be revoked thereafter.
Initially, when Japan joined, a number of States including several in Europe invoked the clause not to give it most favoured nations status. Ultimately these provisions were revoked (amend above to provide that other States upon accession other GATT members could make a declaration that it would not accord the GATT provisions in respect of the State.
The GATT provides that a Member State is not prevented from taking action which it considers necessary for the protection of its essential security interests. There is no mechanism to review the reasonableness of the measure.
In practice there have been relatively few invocations of the article and the feared abuse has not largely occurred. It has been invoked between countries with actives or frozen conflicts. It has also been used for various strategic security reasons. It appears that if invoked, there is relatively little scope for challenging the exception.