General Agreement on Tariffs and Trade - Essay Example

of the of the 07 February 2008 General Agreement on Tariffs and Trade (GATT) - Article III The General Agreementon Tariffs and Trade (GATT) was first signed in 1947. The agreement was designed to provide an international forum that encouraged free trade between member states by regulating and reducing tariffs on traded goods and by providing a common mechanism for resolving trade disputes1. GATT membership now includes more than 150 countries. The purpose of the GATT is the "substantial reduction of tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually advantageous basis." Various issues relating to trade have been negotiated over eight rounds of negotiations. The most recent, the Uruguay Round, addressed issues such as tariffs, services, and the trade related aspects of intellectual property and investment measures. The Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations was signed in April 1994. The Uruguay Round agreement was approved and implemented by the U.S. Congress in December 1994, and went into effect on January 1, 1995. The implementing legislation, known as the Uruguay Round Agreements Act, was passed in December, 1994. In any federal regime dedicated to maintaining open markets - whether it is the GATT/WTO regime to liberalize trade between WTO member states, or the European Community (EC) regime to create free trade between EC member states, or the United States regime to maintain an open market among its fifty U.S. states - experience teaches that domestic regulations enacted by member states sometimes have a negative impact on trade. In some cases the negative trade effects are unintended, but on other occasions it has been clear that member states are using domestic regulations to give local producers a competitive advantage. The WTO inherited a basic structure of policing rules from the 1947 GATT agreement. The core GATT provisions for this purpose are the two-step set of rules in Articles III and XX. Article III governs "internal" taxes and regulations - those taxes and regulations that apply to imports after the imports have cleared customs and entered domestic commerce. The general rule of Article III is that internal taxes and regulations must treat imports no less favourably than like domestic products - an anti-discrimination rule known in GATT parlance as the "national treatment" principle. If a domestic regulatory measure is found to discriminate against imports in violation of Article III, the regulating government can seek to justify that discrimination by proving that it is necessary to the achievement of some legitimate regulatory purpose. GATT Article III - National Treatment on Internal Taxation and Regulation Article III of the GATT is about the National Treatment on Internal Taxation and Regulation. The detailed description about the Article III is as follows: 1. The contracting parties recognize that internal taxes and other internal charges, and laws, 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 production2. 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 contrary to the principles set forth in paragraph 1.* 3. With respect to any existing internal tax which is inconsistent with the provisions of paragraph 2, but which is specifically authorized under a trade agreement, in force on April 10, l947, in which the import duty on the taxed product is bound against increase, the contracting party imposing the tax shall be free to postpone the application of the provisions of paragraph 2 to such tax until such time as it can obtain release from the obligations of such trade agreement in order to permit the increase of such duty to the extent necessary to compensate for the elimination of the protective element of the tax. 4. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product3. 5. No contracting party shall establish or maintain any internal quantitative regulation relating to the mixture, processing or use of products in specified amounts or proportions which requires, directly or indirectly, that any specified amount or proportion of any product which is the subject of the regulation must be supplied from domestic sources. Moreover, no contracting party shall otherwise apply internal quantitative regulations in a manner contrary to the principles set forth in paragraph 14. 6. The provisions of paragraph 5 shall not apply to any internal quantitative regulation in force in the territory of any contracting party on July 1, 1939, April 10, 1947, or March 24, l948, at the option of that contracting party; Provided that any such regulation which is contrary to the provisions of paragraph 5 shall not be modified to the detriment of imports and shall be treated as a customs duty for the purpose of negotiation. 7. No internal quantitative regulation relating to the mixture, processing or use of products in specified amounts or proportions shall be applied in such a manner as to allocate any such amount or proportion among external sources of supply. 8. a. The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or with a view to use in the production of goods for commercial sale. b. The provisions of this Article shall not prevent the payment of subsidies exclusively to domestic producers, including payments to domestic producers derived from the proceeds of internal taxes or charges applied consistently with the provisions of this Article and subsidies affected through governmental purchases of domestic products. 9. The contracting parties recognize that internal maximum price control measures, even though conforming to the other provisions of this Article can have effects prejudicial to the interests of contracting parties supplying imported products. Accordingly, contracting parties applying such measures shall take account of the interests of exporting contracting parties with a view to avoiding to the fullest practicable extent such prejudicial effects. 10. The provisions of this Article shall not prevent any contracting party from establishing or maintaining internal quantitative regulations relating to exposed cinematograph films and meeting the requirements of Article IV. Extent of Regulation According to the Article III of the GATT, Governments should not employ "internal" measures -- internal taxes or internal regulations -- to give protection to domestic industry. A rule that internal measures must not give less favourable treatment to "like" foreign products, will achieve this anti-protection goal if "like [foreign] products" is defined to mean competitive foreign products. Less favourable treatment will tend to protect domestic products whenever it imposes a commercial disadvantage on those foreign products with which the domestic product competes for sales. The rule for all internal regulation is a simple per se rule and nothing else -- one that states that less favourable treatment must not be given to "like" foreign products, period. If the foreign product is not "like" the relevant domestic product, the government may treat it less favourably, even if such differential regulation has a protective effect5. There are two cases which are relevant to Article III of the GATT both being the Japan Alcoholic Beverage Cases. In the first case of the Japan Alcoholic Beverages, an interesting series of "like" product rulings were made by the panel. According to the panel, standard distilled spirit classifications were "like products" - gin, vodka, whiskey, grape brandy - as well as classic liqueurs, still wine and sparkling wine. The functional effect of the holding was to rule that Japan could not impose different internal taxes on different quality grades within these product categories - in other words, that it was impossible to subdivide these product categories according to quality. Further, the distinctions were rejected by the panel based on the quality and hence these distinctions offered a broader and more rigorous definition of "like product" than one would expect to find applied to product distinctions made in tariffs, where similar distinctions appear routinely. With respect to the first case of the Japan Alcoholic Beverages case, it was expressed by the panel that it would not have had a problem with tax differences based on alcohol content, which it viewed as an "objective" basis for product distinctions which clearly indicates that the determining issue in its "like product" analysis, whether consciously or not, may have been the question of protective purpose. In the second Japan Alcoholic Beverages case, the main "like product" issue involved an internal tax on shochu that was lower than the comparable tax on several Western varieties of distilled spirits. According to Article III, the question was whether any of Western type distilled spirits were "like" shochu6. The initial decision of the panel with respect to this case was similar to the first case of the Japan Alcoholic Beverage case - "like product" classification in which only vodka, which is almost identical to shochu in all respects except filtration, was found to be "like" shochu. In distinguishing other types of distilled spirits, the panel in the second Japan Alcoholic Beverages case claimed to be applying market principles, but in fact the panel did do so. With respect to the second case, the panel relied on physical characteristics reminiscent of those employed to make very fine tariff distinctions - colour, raw materials, presence of additives instead of relying on market - based characteristics such as consumer preferences etc. In both the above discussed cases, although the panel never suggested that the explicitly discriminatory character of the regulation in the cases were relevant to this rather rigorous standard of harm, in other legal systems one would not expect to see such rigorous standards applied in cases involving "origin-neutral" measures. The substance of current GATT rules has been influenced primarily by violations involving explicit discrimination; one should expect to see some pressure for relaxing the more rigorous elements of those rules in cases involving de facto discrimination. The primary source of differential impact in origin-neutral measures is the distinction that the regulation makes between one class of products and another. The finding of discrimination ultimately rests on a finding that the product distinction is illegitimate. The differential taxes based on product distinctions between "not-like" but directly competitive products are also invalid if the tax difference results in protection of domestic production. While such burdensome requirements may be appropriate for measures that are explicitly and purposefully discriminatory, it is more difficult to explain why governments must meet such high standards to justify "origin-neutral" regulatory measures which are guilty of nothing more than transgressing certain abstract notions of "likeness." Yet, certain approaches of the GATT did not suit to certain issues. A relevant example to this statement would be the "aim and effects" approach. The first textual problem was that the "aim and effects" approach had been offered as a way of analyzing "like product" claims under the first sentence of Article III: 2. Although the "aim and effects" analysis was based on the general policy stated in Article III: 1, the first sentence of Article III: 2 contains no textual reference to the policy statement in Article III: 1. The fact that this policing activity intrudes upon domestic regulatory sovereignty leaves the new WTO legal institutions particularly exposed to damaging criticism from national governments that do not yet fully accept the WTO's authority in this area. Recognizing this very exposed position, the Appellate Body may well have concluded that the safest refuge from political criticism was to stay as close as possible to the shelter of the legal texts accepted by governments. The Appellate Body decision in Japan-Alcoholic Beverages7 not only reemphasized that case-by-case approach several times, but went on to add several layers of additional discretion. The Appellate Body announced that the "like product" concept was an accordion that can be made larger or smaller depending upon the particular legal and factual context in which that issue is being decided. Under GATT Article III, most national treatment issues will involve a "like-product" issue, because, under the "product-process" doctrine, governments are not permitted to make regulatory distinctions based on criteria other than the characteristics of the products. Under the national treatment provision in GATS Article XVII, however, no such a priori limitation is imposed on regulatory distinctions involving service transactions and service providers. Thus, a government is permitted to distinguish between otherwise "like" service providers by imposing regulatory distinctions based on some other characteristics of the service provider or service transaction. A tremendous burden on the words of the legal text, suggests that WTO possess a rather uncommon degree of perfection in foresight and expression. However, this interpretative approach may have been viewed as the only safe course for a new and very exposed legal institution to follow. References: 1. http://www.ciesin.org/TG/PI/TRADE/gatt.html 2. http://www.law.duke.edu/lib/researchguides/gatt.html 3. http://www.worldtradelaw.net/articles/hudeclikeproduct.pdf 4. http://www.worldtradelaw.net/articles/hudecrequiem.pdf Read More