GENERAL PRESENTATION OF THE WTO AGREEMENT

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GENERAL PRESENTATION OF THE WTO AGREEMENT

by

Gabrielle Marceau1

1Gabrielle Marceau, Ph.D. is Counsellor for the Legal Affairs Division of the WTO Secretariat. The opinions

expressed are strictly personal and cannot be attributed to the WTO Secretariat or the WTO Members. This

paper is based on a previous paper which I did with my previous colleague Ichiro Araki entitled "GATT/WTO

CODE OF CONDUCT The Legal Management of International Trade Relations", first published in Global

Governance, Jin-Young Chung (Ed.), 1997, The Sejong Institute. All mistakes are mine only.

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I. INTRODUCTION 3

II. NATURE AND SCOPE OF INTERNATIONAL TRADE PROBLEMS 4

A. Tariffs 4

B. Quantitative restrictions 5

C. Voluntary export restraint agreements 5

D. Administrative rules at the border 5

E. Trade remedies 5

F. Disguised restrictions on trade 6

G. Discriminatory regulations 6

H. Uneven enforcement of domestic policies 6

III. THE BIRTH OF THE GATT 7

IV. GUIDING PRINCIPLES AND RULES OF THE GATT 9

A. Basic Market Access Principles and Disciplines 10

1. Tariff reductions (bound) and reciprocity 10

2. The Elimination of quantitative restrictions 10

3. The principle of the Most-Favoured-Nation clause 10

4. The National treatment obligation 11

B. Possibility of Safeguard Measures 11

1. General safeguard measures 11

2. Safeguard measures for balance-of payment problems 11

3. Safeguard or protection for the establishment of a particular industry to stimulate its economic

development ("infant industry") 11

C. Rules on Undistorted Competition 12

1. Measures against certain subsidies granted by the exporting country 12

(a) Possibility of imposing countervailing duties (surtax) against imports 12

(b) The disciplines over subsidies 12

2. Measures to combat dumping by the exporting country 12

3. Rules on state- trading enterprises 12

D. Privileges and positive discrimination in favour of the developing countries 13

E. Exceptions 13

1. Regional groupings 13

2. General and security exceptions 13

3. Transparency 13

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V. THE EVOLUTION OF THE GATT AND THE STEPS TOWARDS THE URUGUAY ROUND OF NEGOTIATION 14

VI. THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS AND THE WTO AGREEMENT 17

A. The WTO as an International Organization 17

1. Institutional character of the WTO 17

(a) Functions of the WTO 17

(b) Legal Structure of the WTO 18

B. The Multilateral Trade Agreements of the WTO 18

1. Multilateral Trade Agreements on Goods, Annex 1A 18

(a) The GATT 1994 18

(b) Agreement on Subsidies and Countervailing Measures 19

(c) Agreement on Antidumping Measures 20

(d) Agreement on Safeguards 21

(e) The Agreement on Textiles and Clothing and the Textile Monitoring Body 22

(f) Agreement on Agriculture 22

(g) The SPS Agreement 23

(h) The TBT Agreement 23

(i) Other Agreements 24

2. Trade in Services, Annex 1B 24

3. Intellectual Property, Annex 1C 25

C. Dispute Settlement, Annex 2 26

D. Trade Policy Review Mechanism, Annex 3 28

E. General Principles of the Plurilateral Agreements, Annex 4 28

1. Agreement on Government Procurement 29

2. Agreement on Civil Aircraft 29

VII. DEVELOPING COUNTRIES IN WORLD TRADE 29

A. Amendment of Article XVIII, Governmental Assistance to Economic Development (1955) 29

B. Adoption of Part IV - Trade and Development (1964-65) 30

C. Creation of the ITC (1964) 30

D. The Generalized System of Preferences (1971) 30

E. The Tokyo Round Decisions (1979) 30

F. The Uruguay Round 30

VIII. CONCLUSION 31

I. INTRODUCTION

Mankind has been engaged in trade -- buying, selling and bartering goods and services -- for

many millennia, but it was not until formal and distinct borders were established that "international"

trade formally came into being. From the beginning, states for various reasons wanted to regulate the

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flow of international trade, most notably to raise revenues and to protect vested interests within their

territories. Later, state regulation of international trade was rationalized as a positive policy measure by

the philosophy of mercantilism, which links trade surpluses directly with national strength, and aims at

maximizing exports and minimizing imports with a view to accumulating foreign exchange reserves.

Many have argued, however, that a policy of mercantilism cannot be justified on economic

grounds. Free trade maximizes the welfare of all nations, and mercantilism, in the long run, is a self-

defeating policy. Nonetheless, tariffs and other regulation of international trade were imposed by self-

aggrandizing states that sought to use trade for their own purposes. As a result, when regulation

receded, trade flourished; and when regulation was intense, trade languished. The most recent and

particularly disastrous experience was the downward spiral of shrinking trade during the Great

Depression.

The need to "regulate" the regulation of trade was recognized as early as in the middle of the

nineteenth century. It was only after the world had witnessed the scourge of the Great Depression and

World War II that these trade agreements started to be multilateralized and institutionalized. The

unsuccessful attempt to create an International Trade Organization (ITO) immediately after the Second

World War left the General Agreement on Tariffs and Trade (GATT), negotiated in 1947, as the sole

legal instrument governing trade on a provisional basis. Rapidly the GATT became the central forum

where international trade relations evolved continuously. The World Trade Organization (WTO), which

has been operational since 1995, now provides world trade partners with an authentic international trade

organization administering various multilateral agreements.

The present paper focuses on the GATT/WTO as an institution, and describes and analyzes the

trade related problems faced by countries together with the solutions proposed by the GATT/WTO and

the tolls used, i.e. the GATT/WTO principles and rules. This paper is divided into eight Sections.

Section I serves as an introduction; Section II elaborates general problems associated with international

trade; Section III briefly explains the difficult birth of the GATT; Section IV explains the basic

principles of the GATT; Section V explains the evolution of the GATT into a de facto international

organisation and the steps towards the conclusion of the Uruguay Round; Section VI presents the WTO

as an international organization; Section VII focuses on developing countries; and Section VIII

concludes.

II. NATURE AND SCOPE OF INTERNATIONAL TRADE PROBLEMS

To understand the nature and scope of international trade problems, one has to look at how

international trade is regulated at the national level. Because many, if not all, trade problems stem from

each country's attempt to regulate the flow of trade in goods and services, we will try to identify and

analyze various regulatory measures. These principles are described in the attached table "A" hereafter,

and are presented by order of their economic, political and GATT ranking. It should be noted that the

solutions proposed by the GATT principles are discussed in Section IV.

A. TARIFFS

The levying of tariffs by customs services is one of the oldest functions of governments. Even

today, tariffs provide an important source of revenue for governments, in particular, for many

developing countries. In economic terms, tariffs distort the costs of production and consumption, even

though they are transparent instruments which may be controlled through legislation or regulation. High

tariffs can have devastating effects on international trade, as was the case of the infamous Smoot-

Hawley Tariff Act of 1930, which raised the average U.S. tariff level from 38 to 52 percent and

significantly contributed to the "downward spiral" in world trade in the 1930s. Reducing tariffs,

therefore, has been one of the main features of international economic negotiations and, as further

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elaborated in section IV, the favoured trade instrument of the GATT/WTO in preference to non-tariff

instrument.

B. QUANTITATIVE RESTRICTIONS

Quotas are restrictions on the number, volume or value of imported goods. Quotas impose

absolute limits on imports. If quotas are used, the consumers of the importing country will pay higher

prices for the product (according to basic supply and demand economics), and it is often the exporters,

the producers of the exporting country, that will gain the benefit from higher prices resulting from

reduced exports following the imposition of quotas. Quotas and other quantitative restrictions ("QRs")

are not transparent, and usually they are politically easy to implement through administrative acts.

There are also important administrative problems associated with the allocation of quotas: how to

allocate quotas and to whom and for how long? The existence of discretion may lead to potential

situations of bribery. Trade negotiators have long been aware of the undesirability of QRs. Efforts to

control the spread of QRs even preceded the GATT. In 1927, at the initiative of the League of Nations,

an agreement was reached on the Geneva Convention on Import and Export Prohibition and Restriction,

which unfortunately did not come into effect. As further discussed below, the GATT/WTO prohibits

QRs in principle.

C. VOLUNTARY EXPORT RESTRAINT AGREEMENTS

Another problem arises with the use of bilateral agreements that impose voluntary export

restraints ("VERs") where two countries or a country and a firm or a group of firms decide informally or

otherwise to limit the exportation of certain products. VERs are economically worse than quotas

because all the rents are transferred to the exporting country, while prices are increased for consumers

of the importing countries. These agreements do not provide any legal security since they are informal

and non-transparent. VERs are now clearly regulated by the WTO Agreement and must be phased out.

D. ADMINISTRATIVE RULES AT THE BORDER

Restrictions at the border can take a more subtle form than outright quantitative restrictions.

Arbitrary administration of customs valuation rules or discriminatory issuance of import licenses can

also have similar effects. Arbitrary application of the rules of origin can also act as quota-type

measures. All these administrative manipulations of import formalities and procedures are not

transparent and can counteract the results of market access agreements and tariff reductions.

E. TRADE REMEDIES

Trade remedies are usually concerned with measures against (illegal) subsidies and dumping.

States have been providing subsidies to firms for a long time. Subsidies themselves are often adequate

means of import protection, but if subsidized products are exported, they can cause "injury" to the

industry of the country into which such products are exported. In order to counteract the effects of such

subsidies on the price of exported goods, the importing country may impose at its border a surtax to

raise the price of the imported subsidized product so that it loses the benefit of such subsidies. States

may, however, abuse these trade remedies in alleging that imports have benefitted from excessive and

unfair subsidies in order to raise the prices of imports so as to protect their domestic industry producing

similar goods. A similar pattern exists with regard to dumping. When goods are exported at a price

which does not cover the cost of production of such a product or which is lower than the price of the

same product in the domestic market of the exporter, one may fear that the exporter act this way in order

to eliminate competition in the country of export so that after competition is eliminated, the foreign

producer can impose monopolistic prices. In these circumstances countries may also want to impose a

surtax at the border in order to ensure that the imported dumped good is not sold at such a threatening

low price. After World War I, antidumping surtaxes were already used by Canada and the USA because

of fears of cartelized exports, mainly from Germany. As we will see later, despite the effort of the

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GATT/WTO to address this issue, problems still remain because there are widely divergent views on

this issue among major trading nations.

F. DISGUISED RESTRICTIONS ON TRADE

Border measures can be taken to achieve goals such as protection of human, animal, plant life or

health, but under the cover of these legitimate policies they can become a prime tool of protectionism.

The identification of the real purpose of a specific measure often involves a difficult interpretative

question. As the case of an import ban of furs from animals caught with leg-hold traps illustrates, what

seems to be a disguised restriction on trade in the eyes of one group, may, for another group, be the only

means to achieve a legitimate policy objective. The settlement of these apparently conflicting goals

(protection of animal health or environmental issues for instance, and free-trade) has recently become a

primary source of international trade conflicts.

G. DISCRIMINATORY REGULATIONS

Ideally, once the imported goods have been cleared through customs, they would be put in free

circulation on equal terms with domestic products. However, in reality, they can still face

discrimination. Governments can impose higher taxes on imported goods or impose on them

discriminatory regulations in various areas. Discriminatory domestic regulations are particularly

problematic for trade in services, because the control of trade in services is not usually carried out at the

border, but is implemented through domestic regulation. Almost all the difficult issues in the General

Agreement on Trade in Services (GATS) involve heavily regulated industries -- banking, insurance,

maritime transport, telecommunications, etc.

H. UNEVEN ENFORCEMENT OF DOMESTIC POLICIES

Finally, the way states implement various domestic policies can affect the conditions under

which foreign goods and services compete with their domestic counterparts. These policies include for

instance, industrial policy (e.g., nurturing of an aircraft industry), intellectual property protection (e.g.,

enactment and enforcement of patent and copyright laws) and competition policy (e.g., prohibition of

cartels). Recently, this issue of uneven enforcement of policies has been labelled "level playing fields".

Perhaps the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and

the General Agreement on Services (GATS)2 was the first attempt to tackle these issues in a multilateral

context.

Thus far we have briefly identified the ways in which states regulate the flow of international

trade and the international trade "problems", these practices may cause. Exporters of foreign products

and foreign producers are among those who are affected by these trade measures. Foreign producers

and exporters often bring grievances to their own governments. Those governments in turn request the

importing country to rectify the situation. Under normal circumstances, negotiations will ensue,

resulting in a bilateral, plurilateral or multilateral agreement. Sometimes, however, states are tempted

to settle a dispute unilaterally. Until the WTO, unilateral enforcement of trade policy has become one

of the world's major trade problems. That is why the negotiations concerning dispute settlement became

so important during the Uruguay Round. The WTO dispute settlement rules explicitly prohibit

unilateral measures.

Before analysing the solutions proposed by the GATT/WTO, the next section will look at the

historical background of the GATT, which help to understand why the GATT exists and what was the

intentions – albeit limited – of its drafters.

2And some may say the Agreement on Technical Barriers to Trade (TBT) and the Agreement on the Application of

Sanitary and Phytosanitary Measures (SPS) as well are agreements which attempt to tackle uneven domestic regulation levels

and enforcement.

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III. THE BIRTH OF THE GATT

The ideas behind today's multilateral trading system date back to World War II when the United

States and Great Britain began negotiations about the shape of the post-war international economy. At

that time, many state leaders and economists believed the Great Depression and to some extent the

Second World War had been caused by "beggar-thy-neighbour" trade policies3. It became clear that

trade privileges had to be multilateralized. After the conclusion of the Bretton Woods Conference,

where the International Monetary Fund and the World Bank were created, it became more and more

evident that obstacles to trade also had to be reduced in order to stimulate world trade expansion. The

United States then began a real campaign on the need for the international free trade rules. Their slogan

to negotiate a world trade agreement was: "If goods don't cross the borders, soldiers will."4 In 1945, the

United States invited some countries to multilateral tariff reduction negotiations, thereby sowing the

seeds for what was going to become the future GATT.

At this time, the United Nations Economic and Social Council (ECOSOC) was being

established. It began work on becoming a major co-ordinating body for international economic co-

operation. At the first meeting of ECOSOC, the United States called for a "United Nations Conference

on Trade and Employment" with the purpose of drafting a charter for an International Trade

Organization and also to pursue negotiations for reductions in world-trade tariffs. In 1946, the United

States published its famous "Suggested Charter for an International Trade Organization" which formed

the basis for the negotiations that took place during the preparatory meetings. It was in the context of

the negotiations for an international trade organization that the negotiations of the GATT were

conducted.5

The negotiations for an international trade organization (ITO) lasted one year and negotiators

met five times: a first Session of the Preparatory Committee took place in London in November 1946;

the London Conference outlined the procedures that would be followed for multilateral tariff

negotiations and suggested that a "General Agreement on Tariffs and Trade" would be necessary "to

safeguard the value of tariffs concessions" and to include "such other provisions as may be

appropriate"6. "The theory of the GATT was that it would be a specific trade agreement within the

broader institutional context of the ITO Charter and that the ITO would furnish the necessary

organizational and secretariat support for GATT"7. The ITO Draft was completed by the end of August

1947, but the GATT negotiations were concluded in the autumn, with the signature of 22 contracting

parties8. Finally a third Session took place in Havana, Cuba, in November 1947 where the stillborn ITO

Charter (often called the Havana Charter) was concluded. The ITO, created in Chapter VII of the

Havana Charter, was going to be the central organization of the United Nations responsible for co-

ordinating the various aspects of international economic co-operation among States including the results

3 Beggar-thy-neighbour policies is define as "trade or economic measures, such as export subsidies, import quotas

and tariffs, taken with the intention of improving domestic economic conditions, e.g. raising employment, which have the

effect of being a cost to other countries. Such policies may lead to similar measures by others in response. Beggar-thy-

neighbour policies are considered to have been a major factor in deepening and prolonging the Great Depression of the

1930's. Walter Goode, Dictionary of Trade Policy Terms, 1977. 4Gardner R. Sterling Dollar Diplomacy, p.3 5Professor Jackson wrote, "The preparatory work for GATT is unusually full and complex.... and ... it is "mingled"

with that of the ITO." Jackson (1969), p.35. 6Jackson reports that the London Conference was divided into committees roughly corresponding with each of the

major subjects of the United States draft ITO Charter. The Committee II (commercial policy) was the committee charged with

developing that portion of the text of the ITO Charter that was ultimately drawn up for many clauses of the GATT. Jackson J.,

GATT Law (1969), p.42. For a detailed presentation of the various committees of the ITO negotiations see section IV:A

“Drafting of the General Agreement and the Havana Charter” at page 9 of the GATT: Analytical Index. 7idem, p.43. 8The first 23 countries that participated to the GATT negotiations were: Australia, Belgium, Brazil, Burma, Canada,

Ceylon, Chile, China, Cuba, Czechoslovakia, France, India, Lebanon, Luxembourg, Netherlands, New Zealand, Norway,

Pakistan, Southern Rodhesia (Zimbabwe), Syria, South Africa, United Kingdom, United States.

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of the GATT.9

In addition to negotiating tariffs reductions, representatives on the Tariff Agreement Committee

had to identify which provisions (disciplines), if any, should be included in the GATT, taking into

consideration the need to ensure that tariff concessions would be have to be safeguarded. It was finally

decided that most provisions of Chapter IV of the Havana Charter on commercial policies would be

included therein in order to ensure the respect and the balance of the results of these tariff negotiations.10

It was, however, envisaged that if the ITO Charter came into force, changes in the GATT would occur

automatically11

. Before the Havana meeting, on 30 October 1947, the Final Act of the Second Session

of the Preparatory Committee was signed, authenticating the GATT and its Protocol of Provisional

Application, which entered into force on 1 January 1948. The GATT was brought into effect through

a Protocol of Provisional Application for at least two reasons. First, it allowed prospective signatories to

avoid having to present the GATT with the Havana Charter for domestic approval. Second, it allowed

parties to the protocol to lock in the benefits of tariff reductions even if the ITO ran into trouble.

The ratification of the ITO ran into trouble. By the time the Havana Charter was completed in

1948, a new Congress hostile to the trade policies of the previous Administration had been elected in the

United States. In December 1950, the U.S. administration quietly issued a press release in which it

stated that it would not be re-submitting the Charter to Congress for approval. There was not much

point in other countries continuing without the leading economic power. The demise of the ITO did not,

however, signal the end of multilateral trade arrangements. The GATT, as further discussed below in

Section V, continued to grow not only in membership but in scope.

At the end of the Havana Conference, participating countries adopted a resolution establishing

an Interim Commission for the International Trade Organization (ICITO) which was going to perform

interim functions pending the establishment of the ITO. The ICITO consisted of the governments which

were entitled to original membership of the ITO.12

In 1948, the ICITO made arrangements with the

Secretary-General of the United Nations regarding personnel for the ICITO and the benefits, privileges

and immunities provided in the Convention on Privileges and Immunities of Specialized Agencies

adopted by the General Assembly of the United Nations, as far as possible, were extended to ICITO

9The main purpose and objectives of the ITO were those of the United Nations: "stability and well-being which are

necessary for peaceful and friendly relations among nations" (Article 1) and the specific means of the Havana Charter were co-

operation in the field of trade and employment. In order to achieve these goals the Havana Charter contained a comprehensive

approach to international trade in goods and services and it wanted to regulate both acts of States and acts of enterprises. The

Charter was divided into seven main chapters which dealt with the following subjects: fair labour standards and employment

(Chapter II); specific needs of European reconstruction and the special rights of developing countries (Chapter III); a wide range

of commercial policies that affect the flow of trade i.e. tariffs, preferences, internal taxation, regulation, quotas, subsidies,

dumping and safeguard measures (Chapter IV); standards relating to restrictive business practices used by firms (Chapter V);

inter-governmental commodity agreements (Chapter VI); the structure and function of the ITO (Chapter VII); and the settlement

of disputes (Chapter VIII, where the possibility of references to the International Court of Justice and also the use of arbitration

were envisaged). The Havana Charter represented a prophetic recognition of need to coordinate all aspects of commercial

policies in international trade which are now confirmed in the WTO Agreement. The emphasis put on the relationship between

domestic employment and international trade (Chapter I) is also indicative of the conviction of the negotiators that international

stability and well-being can only be achieved in relating and integrating domestic and external economic policies. 10Other provisions dealing with domestic policies, or which were not of immediate application, were

explicitly omitted since the U.S. Administration only had the authority to negotiate international trade agreements.

This authority was conferred upon the President of the United States by the Reciprocal Trade Agreements Act of 1934. U.S.

Congress has never fully delegated the power to regulate international commerce to the President, and the U.S. delegates had to

act within the confines of the 1934 law. If they had acted beyond this authority, they would have had to request Congressional

approval for the agreement, which was almost impossible to attain at that juncture. 11Indeed at the first and second session of the contracting parties to the GATT after the demise of the ITO, many

such changes to the ITO provisions were carried into the GATT. 12Note that China, Iran, Iraq, Lebanon and others are therefore members to the ICITO, although they are not

members of the GATT or WTO, having either left the GATT or never ratified it.

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staff to it.13

This arrangement between ICITO and the CONTRACTING PARTIES14

lasted until the end

of 1995, when the CONTRACTING PARTIES decided to terminate the old GATT.15

Returning to the birth of the GATT in 1948, GATT contracting parties met twice in 1948 and

introduced into the text of the GATT the changes brought about by the ITO corresponding clauses. In

spring 1949 the contracting parties organised a second major round of tariffs negotiations in Annecy,

France. A third round was planned in Torquay, England in 1950. By that time it had become clear that

the ITO would never be ratified by the USA. After that failure two attempts to set up a formal

organisation to support the GATT were rejected by the US government.

There is no doubt that the GATT turned out to be a totally different agreement that it was

envisaged.

IV. GUIDING PRINCIPLES AND RULES OF THE GATT16

The basic principle of the GATT17

is that countries should use tariffs -- reduced through

reciprocal concessions -- on foreign goods on a non-discriminatory manner independent of the origin of

the goods -- the "most-favoured-nation" (MFN) clause -- as the only "acceptable" form of protection.

These two basic principles (negotiated tariffs applied on an MFN basis) constitute PART I of the

GATT. PART II contains the other related obligations, the purpose of which is to ensure the non-

evasion of those principles assessed in PART I. The most fundamental of these obligations are: the

national treatment ("NT") clause; the prohibition against quantitative restrictions ("QRs"); the

possibility of safeguard, antidumping and countervailing measures against subsidies; and certain other

exceptions. Special treatment for developing countries was introduced into PART IV of the GATT in

1964-65 (and entered into force in January 1966) and specific provisions for developing countries are

now included into the WTO agreements.

All these principles contained in the initial GATT of 1947 still constitute the backbone of the

WTO, and indeed the provisions of GATT 1947 are components of the GATT 1994 of the WTO

Agreement18

. See Table B for the basic principles of GATT. As will be discussed later, the same

GATT basic rules have been improved, clarified, expanded, or amended in more specific multilateral

trade agreements of the WTO agreement. It is therefore important to understand the object and

13 Australia, Benelux, Brazil, Canada, China, Colombia, Egypt, El Salvador, United States, France, Greece, India,

Italy, India, Mexico, Norway, the Philippines and the United Kingdom constitute the Executive Committee of ICITO. In the

GATT, wherever reference is made to the contracting parties acting jointly, they are designated as the CONTRACTING

PARTIES (Article XXV:1). We also follow this convention in this Chapter. 14And in fact ICITO's only role has been in relation with the GATT. 15However, a transitional decision was proposed by the Preparatory Committee of the World Trade

Organization (WTO) dated 8 December 1994, confirmed by the General Council of the WTO on 31 January 1995,

and was signed by the Executive Secretary for the ICITO, the Chairman of the CONTRACTING PARTIES for the

GATT 1947 and the Chairman for the Preparatory Committee for the WTO. The decision envisages that all assets

and liabilities of the GATT 1947 and the ICITO shall be assets and liabilities of the WTO and that the staff of the

ICITO shall perform the duties of the Secretariat of the WTO until the appointment of the staff of the Secretariat of

the WTO. See the "Agreement on the Transfer of Assets, Liabilities, records, staff and functions from the ICITO

and the GATT to the WTO" WT/L/36, 31 January 1995. 16See Table “B” hereafter. 17At the opening of the London Conference the USA representative expressed the five basic principles of what was

to become the ITO (and as well the commercial policies of the GATT): " 1) existing barriers to international trade should be

substantially reduced; 2) International trade should be multilateral rather than bilateral; 3) International trade should be

nondiscriminatory; 4) stabilization policies for industry and agriculture were so intimately related to international trade policies

that the two must be consistent and co-ordinated; 5) The rules for international commerce should be drafted so that they apply

with equal fairness and equal force to the external trade of all nations regardless of whether their internal economies were

organized upon the basis of individualism, collectivism, or some combination of the two." Taken from Jackson J., GATT Law,

(1969), p.54. 18See discussion in section VI below.

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functioning of those basic GATT rules.

A. BASIC MARKET ACCESS PRINCIPLES AND DISCIPLINES

1. Tariff reductions (bound) and reciprocity

Tariffs are taxes on the value, weight or volume of products collected at the border upon

importation of goods. They are the only form of protection authorized by the GATT because, unlike

other forms, they show the "level of protection" in a transparent manner. Pursuant to Article II of the

GATT, products imported into the territory of a GATT/WTO Member must be exempt from ordinary

customs duties in excess of those set forth in that countries' tariffs' listings (Schedules). The efforts to

reduce tariffs in the GATT produced excellent results in 8 negotiating rounds (in the lowering of the

average industrial tariff in developed countries from nearly 40% in 1947 to less than 4% after the

Uruguay Round negotiations in 1993) and may have convinced Members to undertake the important

general tariffication exercise of all agricultural products in the context of the negotiation of the WTO

Agreement on Agriculture. In principle tariffs, as any other trade privileges, must be imposed in a

non-discriminatory manner on all imports regardless of origin and exceptions are clearly defined.

Tariffs concessions (market access concessions) are contained in each Members' Schedule

and Article II of GATT prohibit WTO Members from imposing on imported products a treatment less

favorable that the maximum level of tariff listed in its Schedule. Today, WTO Members must respect

the same principle for their market-access commitments in the area of services, which commitment

(albeit of different nature and negotiated differently) are also contained in Members' Schedules.

During the Uruguay Round Members agreed to "tariffy" all their agricultural products with a

view to accelerating the liberalization of the commerce of agricultural products which had not been

well covered by the rules of the GATT.

2. The Elimination of quantitative restrictions

Quotas are restrictions on the number, volume or value of products imported or exported.

Quantitative restrictions on imports or exports are prohibited under Article XI of GATT, essentially

because they prevent competition and their administration is less transparent than that of tariffs.

Contrary to tariffs, quotas fix absolute limits for imports. Their allocation also poses major

problems: "which country gets what quota and for how long." In this context Article XIII provides

that when quotas are allowed to be imposed, Members must do so on a non-discriminatory basis.

Finally, if tariffs are imposed, consumers in the importing country pay more for the imported

products. However, the money from the imposition of tariffs could be redistributed to the same

consumers. When quotas are imposed, the consumers in the importing country generally pay higher

prices. In most cases, it is the exporters (producers in the exporting country) who profit from the

higher prices as their products are exported in limited supply.

The principle of a prohibition of market access restrictions now exists as well in the GATS.

3. The principle of the Most-Favoured-Nation clause

The "most-favoured-nation" ("MFN", Article I of GATT) and "national treatment" ("NT",

Article III of GATT) principles, are two sides of the "non-discrimination" principle formally introduced

in multilateral trade relations by the GATT. They are the external and internal expressions of the idea

that all trade partners must be offered the same privileges.

The MFN clause provides that "any advantage, favour, privilege or immunity" granted by a

Member to a product originating in or destined for another country shall be accorded "immediately

and unconditionally" to the like products of all other Members. This provision reinforced the effect

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of tariff reductions, since any concession granted by a Member is automatically extended to all other

Members. It applies not only to tariffs but also to a wide range of measures that regulate all stages of

the marketing and sale of a product. If a country decides to collect a 10 per cent tariff on imports of

certain shoes, all like shoes from all Member countries of the WTO/GATT must enjoy the same tariff

level.

The principle of external non-discrimination also exist for authorized quantitative restrictions

(Article XIII discussed below with the rule prohibiting quantitative restrictions (Article XI of

GATT)). The principle of MFN now exists as well in the GATS and the TRIPS.

4. The National treatment obligation

Article III on national treatment provides that no domestic regulation can be such as to afford

protection to the domestic production. In particular Article III provides that once in the territory of a

Member, products from other Members must not be treated, in respect of internal taxes and

regulations, in a less favourable manner than similar domestically produced goods. If a country

decides to impose a sales tax of 10 per cent on certain locally produced shoes, no "like" or "similar"

shoes from any WTO/GATT Member country may be subject to a sales tax higher than 10 per cent.

The determination of the "likeness" or "similarity" between imported and local shoes is a factual

issue that depends, among other things on the physical characteristics, consumers' preferences and

end uses of the said goods. In case of a dispute, the panel and the Appellate Body would have to

determine whether the imported and domestically produced goods affected by the challenged

regulation effectively belong to the same "market" and thus ought to be treated without

discrimination.

The principle of national treatment now exists as well in the GATS and the TRIPS.

B. POSSIBILITY OF SAFEGUARD MEASURES

1. General safeguard measures

Since the beginning of GATT it was recognized that certain "safety valves" were needed in

the case of increases in trade or imports, even if fair. Safeguard measures are designed to allow

importing countries to impose quotas or customs duties to limit a sudden increase in imports. Article

XIX of the General Agreement (today together with the WTO Agreement on Safeguards) allows a

Member to take protectionist measures, increase a tariff or impose a quota for a limited period, in the

event of a sudden increase of (fair) imports that cause or threaten to cause serious injury to a

domestic industry. In the WTO Agreement there are provisions for specific safeguards measures in

the sectors of agriculture and textiles.

2. Safeguard measures for balance-of payment problems

Article XII authorizes the temporary imposition of quotas in the case of a balance-of-

payments crisis. The WTO Understanding on Balance-of-Payments Provisions and the 1979 BOP

Decision now impose additional conditions or disciplines on those countries that want to benefit from

the conditional right to impose trade restrictions for balance-of-Payments reasons. Article XVIII:B

offers a special procedure for safeguard measures for balance-of-payment of developing countries.

3. Safeguard or protection for the establishment of a particular industry to stimulate its

economic development ("infant industry")

Article XVIII:C also allows developing countries to impose quotas or increase tariffs above

bindings, with a view to promoting the establishment of a particular and new industry, to stimulate its

economic development if such WTO Members respect the prescriptions of Article XVIII:C, including

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its notification , consultations and negotiation requirements.

C. RULES ON UNDISTORTED COMPETITION

A related, fundamental GATT principle is one of free competition in trade -- the most

efficient firm of any nationality should win favours of customers world-wide. This competition for

trade should not be distorted by governmental intervention.

1. Measures against certain subsidies granted by the exporting country

(a) Possibility of imposing countervailing duties (surtax) against imports

Article VI of the GATT (today, together with the Agreement on Subsidies and

Countervailing duties provide that countervailing duties) allows importing countries to impose at the

border surcharges on imports to compensate the effects of certain subsidies granted by a government

if such specific subsidies cause injury to a domestic industry producing like products.

(b) The disciplines over subsidies

The provision of direct subsidies to production, as opposed to export subsidies, are usually

considered by economists as the best trade measure to improve efficiency without distorting

international trade. Production subsidies are also transparent and can even be difficult to justify

politically since one domestic industry is favoured at the expense of another. In this context, GATT has

never penalized production subsidies but has strongly discouraged export subsidies. At the time a

distinction was made between export subsidies on primary products and other subsidies. Export

subsidies on primary products were tolerated as long as they did not result in granting to the signatory

country "having more than an equitable share of world export in such product", a criteria which always

remained ambiguous.

However, with the conclusion of the Uruguay Round the subsides have been defined into three

categories - prohibited, actionable and non-actionable with related disciplines. There are also more

specific and predictable disciplines on the use of export subsidies in the agriculture sector, all of which

is further discussed hereafter.

2. Measures to combat dumping by the exporting country

Article VI (today together with the Agreement on Dumping) authorizes a Member to apply

anti-dumping duties (a surtax on imported products), representing the price difference between the

"normal value", (usually the price of the product in the domestic market of the exporting country or,

alternatively a third-country market price or the full cost of production of the said exported good), if

such dumped imports cause injury to a domestic industry in the territory of the importing country. It

should be noted that the GATT does not address pricing practices of private firms and does not

condemn dumping as such. The GATT only permits the importing country to protect itself in allowing a

surtax at the border which covers the dumping margin if injury is caused to domestic industry producing

products like those dumped imports.

3. Rules on state- trading enterprises

GATT/WTO Members have the rights to establish and maintain State enterprise or grant to

any enterprise, formally or in effect, exclusive or special privileges, but 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 prescribed in this Agreement for governmental measures

affecting imports or exports by private traders. Generally such non-discrimination principles have

been understood to include the most-favoured nation principles and the national treatment principle

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and require that such enterprises shall, having due regard to the other provisions of this Agreement,

make any such purchases or sales solely in accordance with commercial considerations, including

price, quality, availability, marketability, transportation and other conditions of purchase or sale, and

shall afford the enterprises of the other contracting parties adequate opportunity, in accordance with

customary business practice, to compete for participation in such purchases or sales. In other words

GATT/WTO Members cannot hide behind a state trading enterprise to avoid their GATT/WTO

obligations.

D. PRIVILEGES AND POSITIVE DISCRIMINATION IN FAVOUR OF THE DEVELOPING COUNTRIES

The GATT grappled from the outset with the role and place of developing countries in the

system it had established. The whole debate centred on the extent to which these countries should be

subject to the set of principles and obligations deriving from the General Agreement. The history of

the GATT shows that the outcome of the debate has been a constant easing of their obligations.

More particularly, in the 1970s the Member countries adopted the "Enabling Clause", an exception to

the rule in the Most-Favoured Nation clause which allows developed countries to grant tariff

preferences to products from developing countries without breaching Article I of the GATT. The

other two decisions taken in 1979 concerned trade measures that developing countries could take for

balance-of-payments or safeguard purposes. Under the WTO, the rights of developing countries have

been increased.

E. EXCEPTIONS

1. Regional groupings

Although they are an exception to the MFN principle, regional preferences existed when the

GATT was created and could not be ignored. Still today they are a fundamental feature of the current

international trading system. Regional arrangements as such are neither good nor bad for

international trade and most economists agree that it is only when such an agreement is implemented

that its real impact can be determined. In fact, there were regional preferences well before the

GATT, which were never formally abolished. Article XXIV imposes conditions to ensure that

regional groupings created in the framework of the WTO/GATT contribute overall to developing

trade. Recently again the Appellate Body declared that it is for the Member invoking Article XXIV

as a defense or justification for violating basic GATT/WTO obligations to demonstrate that the

regional trade agreement at issue is fully compatible with Article XXIV and that the measure

challenged was necessary for the formation of the regional trade agreement.

2. General and security exceptions

Articles XX and XXI contain a list of objectives which may justify a country derogating from

its obligations under the General Agreement. Article XXI concerns measure taken for the purposes

of national security and Article XX refers to measures necessary, for instance, for the protection of

public morals, the environment, health of humans animal or plant life or relating to prison labour or

to the conservation of natural resources. Article XX provides that these derogations must not

constitute a means of arbitrary or unjustified discrimination between countries where the same

conditions prevail, nor a disguised restriction on international trade.

3. Transparency

In the GATT context transparency is to be discussed with reference to obligation of

Members (and before GATT contracting parties) to publish domestically any regulation or laws that

may affect international trade. This obligation of publication is contained in Article X of GATT.

The first paragraph obligates Members to publish promptly, in their own language any measures

(laws, regulations, judicial decisions, etc.) relating to GATT matter, as well as any international

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agreement affecting international trade policy, to allow government and trading entities to become

familiar with them.

Another transparency requirement refers to the obligation of GATT contracting parties to notify

other Members, through the WTO Secretariat, of all laws and regulations of general application19

concerned with WTO matters. This includes all actions and measures covered by the WTO provisions,

especially those actions affecting the rights of other Members, and obligates Members to provide due

consideration to requests by other Members for information on such regulations. This obligation, which

binds only Member governments, ensures for transparency at two levels: first domestically, individuals

and other members of civil society may have access to their own government documents and papers

notified to WTO if the domestic system allows for such procedure;20

second, at the WTO level, most

documents notified to the WTO are circulated to all Members, are accessible to anyone who request a

copy and, since the adoption of the Decision on Derestriction discussed below, are posted on the WTO

Web Site. The GATT 1947 contained many notification requirements for measures of general

application.

Both these domestic publication and WTO notification obligations have been expanded in the

various multilateral trade agreements of the WTO.

V. THE EVOLUTION OF THE GATT AND THE STEPS TOWARDS THE URUGUAY

ROUND OF NEGOTIATION

As mentioned, the GATT was an interim agreement containing the results of the tariff reduction

negotiations and represented an effort to restrict the primary sources of trade diversion on a multilateral

basis. It was not an international treaty and was never intended to be an international organization, as it

was supposed to be eventually administered under the umbrella of the ITO. However, the demise of the

Havana Charter created a void which the GATT eventually filled. The GATT developed its own quasi-

institutions and an ability to function through custom and practice. On 11 August 1952, the Executive

Secretary of the GATT and the Secretary-General of the United Nations exchanged letters confirming

that the existing de facto working arrangements between the Secretariat of the ICITO and the UN made

it unnecessary to have a special or formal arrangement relating to the GATT. Nevertheless, this has not

prevented the development of an effective practical interaction with the United Nations, its organs and

agencies.

The GATT also evolved through periodic rounds of multilateral trade negotiations covering

substantive aspects of the Agreement. Chronologically, the important stages of the GATT negotiations

can be summarized as follows:

During the second Round of trade negotiations, held from April to August 1949 at Annecy,

France, the contracting parties exchanged some 5,000 tariff concessions. At this third Session, they also

dealt with the accession of ten more countries.

From September 1950 to April 1951, at Torquay, England, the contracting parties exchanged

some 8,700 tariff concessions, yielding tariff reductions of about 25 per cent from the 1948 level. Four

more countries acceded to the GATT. During the fifth Session of the CONTRACTING PARTIES, the

United States indicated that the ITO Charter would not be re-submitted to the U.S. Congress; this, in

effect, meant that the ITO would not come into operation.

The fourth Round was completed in May 1956 at Geneva and produced some $2.5 billion worth

19 Members are also obliged to notify any specific measure that affect matters covered by WTO

provisions. 20

For instance in the United Sates, the government is oblige to make available to the public most of its

position papers and other submissions to WTO bodies.

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of tariff reductions.21

The fifth Round opened in September 1960 and was divided into two phases: the

first was concerned with negotiations with EEC member states for the creation of a single schedule of

concessions for the Community based on its Common External Tariff; and the second was a further

general round of tariff negotiations. Named in honour of U.S. Under-Secretary of State Douglas Dillon,

who proposed the negotiations, the Round concluded in July 1962 and resulted in about 4,400 tariff

concessions covering $4.9 billion of trade.22

Meeting at Ministerial level, a Trade Negotiations Committee formally opened the Kennedy

Round in May 1964. In June 1967, the Round's Final Act was signed by some 50 participating countries

which together accounted for 75 per cent of world trade. For the first time, negotiations departed from

the product-by-product approach used in the previous Rounds and used an across-the-board or linear

method of cutting tariffs for industrial goods. The working hypothesis of a 50 per cent target cut in

tariff levels was achieved in many areas. Concessions covered an estimated total value of trade of about

$40 billion. Separate agreements were reached on grains, chemical products and a Code on Anti-

Dumping.

Before the Kennedy Round, completed in 1967, the GATT negotiations dealt primarily with

reducing tariffs, as efforts to expand the policy areas the GATT dealt with met with resistance. New

types of international trade problems were occurring, namely the so-called non-tariff barriers, for which

the initial GATT provisions were neither appropriate nor adequate. Contracting parties had to wait until

the Tokyo Round to reach consensus. The early 1960s were marked by the accession to the General

Agreement of many newly-independent developing countries.23

As mentioned, the contracting parties to the GATT needed then to address problems different

from tariff concessions and not properly dealt with in the GATT. Since amendments of the GATT

required unanimity, the growth of membership made further amendment of the GATT to address these

new fields difficult.

In the Tokyo Round, conducted between 1973 and 1979 with 102 participants - and the results

of which include also an average of one-third cut in customs duties covering more than $300 billion of

trade (bringing the average tariff on manufactured products down from 7% to 4.7 %, compared with

about 40% at the time of GATT's creation) - the contracting parties turned to the adoption of various

GATT "Codes", i.e. special agreements binding only the contracting parties which accepted them.

These codes were adopted to confront the increasing use of these non-tariff barriers, particularly by

developed countries, and dealt with specific practices.24

It is important to note that notwithstanding the

21At the beginning of the year, the GATT commercial policy course for officials of developing countries was

inaugurated. The contracting parties at their 13th Session in 1958, attended by Ministers, subsequently established three

committees in GATT: Committee I to convene a further tariff negotiating conference; Committee II to review the agricultural

policies of member governments and Committee III to tackle the problems facing developing countries in their trade. The

establishment of the European Economic Community during the previous year also demanded large-scale tariff negotiations

under Article XXIV:6 of the General Agreement. In 1958, GATT published Trends in International Trade in October. Known

as the "Haberler Report" in honour of Professor Gottfried Haberler, the chairman of the panel of eminent economists, it provided

initial guidelines for the work of GATT. 22In 1961, The Short-Term Arrangement covering cotton textiles was agreed as an exception to the GATT rules.

The arrangement permitted the negotiation of quota restrictions affecting the exports of cotton-producing countries. In 1962 the

"Short-term" Arrangement became the "Long-term" Arrangement, lasting until 1974 when the Multifibre Arrangement entered

into force. 23As mentioned, in February 1965, the CONTRACTING PARTIES, meeting in a special session, adopted the text of

Part IV on Trade and Development. The additional chapter to the GATT required developed countries to accord high priority to

the reduction of trade barriers to products of developing countries. A Committee on Trade and Development was established to

oversee the functioning of the new GATT provisions. In the preceding year, GATT had established the International Trade

Centre (ITC) to help developing countries with trade promotion and with identifying potential markets. Since 1968, the ITC has

been jointly operated by GATT and the United Nations Conference on Trade and Development (UNCTAD). 24The Tokyo Codes were the following: 1) Technical Barriers to Trade; 2)Government Procurement; 3) Subsidies;

4) Customs Valuation; 5) Import Licensing Procedures; 6)Dumping. In addition the Arrangement Regarding Bovine Meat, the

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principle of non-discrimination (MFN) institutionalised by the GATT, the GATT Codes were binding

only on those states which ratified them (like the WTO plurilateral agreements today).

Although contracting parties understood that rights under the GATT were not affected by the

existence and the participation of certain countries in these Codes, the rights and obligations of

contracting parties to the GATT became very complex and fragmented. Moreover, developing

countries generally opposed these codes during the Tokyo Round. As a result, the membership of the

Codes always remained fairly limited. In fragmenting the GATT system, the GATT Codes separated

even more the developed from the developing countries. Moreover, the existence of parallel rules in the

codes and in the GATT led to experiences of "forum-shopping and agreement-shopping" amongst

those countries which were parties to both the GATT and any of the codes.

The fragmentation of the trade disciplines amongst all countries and between developed and

developing countries revealed to be an important weakness of the GATT/Tokyo Codes. This was one of

the reasons why the WTO Agreement, some 15 years later, was negotiated as a "single undertaking".25

In addition, the Tokyo Round failed to come to grips with the fundamental problems affecting

agricultural trade. The economic recessions of the early 1980's led governments to devise new forms of

protection. "The failure of the 1982 GATT Ministerial and the frequent resort to Voluntary Export

Agreements had eroded the confidence in the GATT and its Codes to deal with trade problems of the

1980s and beyond."26

Starting with the 1983 G-7 Summit in Williamsburg, the U.S. began pushing for

a new multilateral round of negotiations under the auspices of GATT.

In November 1983 the Director-General of the GATT, on his personal initiative, announced that

seven eminent persons had accepted his invitation to serve in an independent group to study and report

on problems facing the international trading system. These eminent persons presented their report in

February 1985 in which they suggested 15 recommendations which focused on the main problems and

weaknesses of the international trading system and which were going to determine the parameters of the

Uruguay Round negotiations.27

This report was strongly contested. Developing countries thought generally that priority should

be given to enforcing the GATT rules as they stood rather that increasing the scope of those rules.

Developed countries, on the other hand, favoured expanding the coverage of international trade rules but

disagreed with some of the conclusions of this group of "wise men".

A Ministerial-level meeting of the CONTRACTING PARTIES at Punta del Este decided to

launch the Uruguay Round of Multilateral Trade Negotiations. To this end, the Ministers adopted a

formal Declaration. A Trade Negotiations Committee was established to carry out the negotiations and

the Multilateral Trade Negotiations were to be concluded within four years28

International Dairy Arrangement, the Agreement on Trade in Civil Aircraft were also concluded together with four decisions:

the Differential and More favourable Treatment, Reciprocity and Fuller Participation of Developing Countries, the Declaration

on Trade Measures Taken for Balance-of-payments purposes, the Safeguard Action for Development Purposes and the

Understanding regarding Notification, Consultation, Dispute Settlement and Surveillance. For details, see the Twenty-sixth

Supplement to the Basic Instruments and Selected Documents, published by the GATT Secretariat, at page 3 and onwards

(hereinafter quoted as "BISD 26S/3"). 25 The Punta del Este Declaration states, "The launching, the conduct and the implementation of the outcome of the

negotiations shall be treated as parts of a single undertaking." (Ministerial Declaration of 20 September 1986, BISD 33S/20. 26 Ibidem. 27

The recommandations of these experts can be found in the Trade Policies for a Better Future,

Proposals for Action, GATT publication, Geneva, March 1985, pp.9-10. 28

The Uruguay Round declaration can be fond in XXXX. Please note that at the time of the launching of the

Round, the TRIPS agreement was not seen as a third branch but rather as a section of the subsection of the Trade in goods. This

organization of the results of the negotiations where the TRIPS agreement constitute Annex 1C of the WTO Agreement came

towards the end of the Rounds. See further discussion in Section VI hereafter.

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This was the most ambitious trade project undertaken since the ITO negotiations. The

Uruguay Round came to be known as the longest multilateral trade negotiation in economic history.

VI. THE URUGUAY ROUND OF MULTILATERAL TRADE NEGOTIATIONS AND

THE WTO AGREEMENT

At the outset, the negotiations were broken down into 15 negotiating groups ranging from such

traditional subjects as tariff reduction and review of the Tokyo Round Codes, as well as new subject

areas such as services, intellectual property, trade-related investment measures, textiles and clothing,

and agriculture.29

A mid-term review meeting took place in Montreal in December 1988 and the Round

was originally scheduled to be completed by 1990. A disagreement on the nature of commitments to

future agricultural trade reform led to a decision at the end of 1990 to extend the round.

Negotiations were reinvigorated with the presentation to the contracting parties of a

comprehensive text ("the Dunkel Draft") prepared under the responsibility of then Director-General

Arthur Dunkel. The "Draft" represented the basis for a possible agreement for the round. On 15

December 1993, three years after it was supposed to conclude, the Uruguay Round ended successfully.

On 15 April 1994, the Final Act embodying the results of the round was formally adopted at a

Ministerial Meeting in Marrakesh, Morocco, and governments decided later that year that a new trade

institution, the World Trade Organization, should become operational on 1 January 199530

.

A. THE WTO AS AN INTERNATIONAL ORGANIZATION

One of the main successes of the Uruguay Round negotiations is the establishment of the World

Trade Organization, an international organization, the legal personality of which is distinct from that of

its member States (Article I of the Agreement Establishing the WTO Agreement). Indeed the WTO

Agreement now refers to the "Members" of the WTO (as opposed to parties having contracted i.e. the

"contracting parties" of the GATT).

1. Institutional character of the WTO

The WTO is organized in the following manner (See Table "C" hereafter): The Ministerial

Conference oversees the organization. Since it meets only every two years, a General Council

consisting of all Members was established to oversee the operation of the agreement and the ministerial

decisions on a regular basis. When dealing with dispute settlement issues, the General Council will be

convened as the Dispute Settlement Body, headed by a different chairman. It may also be convened as

the Trade Policy Review Body for the examination of the trade policies of Members. Subsidiary bodies

such as the Council for Goods, the Council for Services and the Council for Trade Related Intellectual

Property Rights are responsible for the operation of their respective agreements. There are also, as was

the case under the GATT, a series of Committees to supervise the operation of the other agreements

including the plurilateral agreements.

(a) Functions of the WTO

The main functions of the WTO are the following31

:

29The subject of the negotiations were the following: Tariffs, Non-tariff measures, Tropical products, Natural

resource-based products, Textiles and clothing, Agriculture, GATT Articles, Safeguards, Subsidies and countervailing measures,

Dispute settlement, Trade-related aspects of intellectual property rights, including trade in counterfeit goods, Trade-related

investment measures. 30On the transition from GATT to WTO see “Transition from GATT to WTO - A Most Pragmatic Operation”,

Gabrielle Marceau, J.W.T. vol 29 (1995) no 4 page 147.

31 Article III of the WTO Agreement.

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1. To facilitate the implementation, administration and operation of the WTO Agreement

and further its objectives.

2. To provide a forum of negotiations among its Members to deals with existing

agreements and a forum for further negotiations concerning their multilateral trade relations.

3. To administer the Dispute Settlement Understanding (DSU).

4. To administer the Trade Policy Review Mechanism.

5. To cooperate, as appropriate, with the IMF and the World Bank and its affiliated

agencies.

The WTO has therefore a much stronger institutional framework than had the GATT; it also

covers a much wider range of trade issues in addition to being a permanent forum for negotiations.

(b) Legal Structure of the WTO32

One of the most important consideration for the creation of a WTO under the umbrella of which

all the negotiated agreements would be administered, was the need to avoid the fragmentation of trade

obligations and discipline. It was therefore necessary to have a "single undertaking" as stated in the

Punta del Este Declaration. In order to confirm legally the "single undertaking" of the WTO, it was

decided that all agreements would become annexes to the main agreement founding the international

organization, the WTO as such. These Annexes therefore constitute "integral parts of this agreement,

binding on all Members"33

: Annex 1 contains the multilateral trade agreements subdivided into three:

Annex 1A for the rules for trade in goods, Annex 1B for the rules for trade in services and Annex 1C for

the Agreement on Trade-Related Aspects of Intellectual Property Rights; Annex 2 contains the

integrated dispute settlement rules; Annex 3 the Trade Policy Review Mechanism. Annex 4 is different

from the three previous annexes because it contains the Plurilateral agreements (the Agreement on

Trade in Civil Aircraft, the Agreement on Government Procurement, the International Dairy Agreement

and the International Bovine Meat Agreement34

) which are part of the WTO Agreement but only for

those that have accepted them. The Agreements are binding on those Members only.

B. THE MULTILATERAL TRADE AGREEMENTS OF THE WTO

1. Multilateral Trade Agreements on Goods, Annex 1A

(a) The GATT 1994

As shown on Table "D", the GATT 1994 is the first component of Annex 1A containing the

multilateral agreements on trade in goods. The GATT 1994 consists of: the provisions of the General

Agreement on Tariffs and Trade, dated 30 October 1947, as rectified, amended or modified by the terms

of legal instruments which have entered into force before the date of entry into force of the WTO

Agreement; the provisions of the legal instruments such as protocols, decisions and understandings35

32 See Table D attached.

33 Article II:2 of the WTO Agreement.

34 The International Dairy Agreement and the International Bovine Meat Agreement were terminated

in December 1996.

35 The decisions, protocols and understanding included in the GATT 1994 are the following: (i)

Protocols and certifications relating to tariff concessions; (ii) protocols of accession (excluding the provisions

(a) concerning provisional application and withdrawal of provisional application and (b) providing that Part II of

GATT 1947 shall be applied provisionally to the fullest extent not inconsistent with legislation existing on the

date of the Protocol); (iii) decisions on waivers granted under Article XXV of GATT 1947 and still in force on

the date of entry into force of the WTO Agreement; (iv) other decisions of the CONTRACTING PARTIES to

GATT 1947; (v) Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and

Trade 1994; (vi) Understanding on the Interpretation of Article XVII of the General Agreement on Tariffs and

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that have entered into force under the GATT 1947 before the date of entry into force of the WTO

Agreement: and the Marrakesh Protocol to GATT 1994.

In addition to GATT 1994, Annex 1A contains agreements which have replaced the Tokyo

Codes (dumping, subsidies, customs valuation, technical barriers to trade, import licensing procedures)

together with new agreements covering new areas such as agriculture, sanitary and phytosanitary (SPS)

measures, textiles, safeguards, preshipment inspection, rules of origin and trade-related investment

measures. The principal agreements are discussed below.

(b) Agreement on Subsidies and Countervailing Measures

The Agreement on Subsidies and Countervailing Measures is one of the great successes of the

Uruguay Round. It is intended to build on the Agreement on Interpretation and Application of Articles

VI, XVI and XXIII which was negotiated in the Tokyo Round (the Subsidies Code). Unlike its

predecessor, the SCM Agreement contains a definition of subsidy and introduces the concept of the

"specificity" of a subsidy - for the most part, a subsidy available only to an enterprise or industry or

group of enterprises or industries within the jurisdiction of the authority granting the subsidy. Only

specific subsidies will be subject to the disciplines set out in the Agreement.

The Agreement establishes three categories of subsidies. First, it deems the following subsidies

to be "prohibited", the red subsidies36

: those contingent, in law or in fact, upon export performance; and

those contingent, upon the use of domestic over imported goods. Prohibited subsidies are subject to

new dispute settlement procedures. The main features include an expedited timetable for action by the

Dispute Settlement Body, and if it is found that the subsidy is indeed prohibited, it must be immediately

withdrawn.

The second category is "actionable" subsidies, the yellow subsidies37

. The SCM Agreement

stipulates that no Member should cause, through the use of subsidies, adverse effects to the interests of

other signatories, i.e. injury to domestic industry of another signatory, nullification or impairment of

benefits accruing directly or indirectly to other signatories under the General Agreement (in particular

the benefits of bound tariff concessions), and serious prejudice to the interests of another member.

"Serious prejudice" shall be presumed to exist for certain subsidies including when the total ad valorem

subsidization of a product exceeds 5 per cent. These were called the amber (or yellow) subsidies. In

such a situation, the burden of proof is on the subsidizing Member to show that the subsidies in question

do not cause serious prejudice to the complaining member. Members affected by actionable subsidies

may refer the matter to the Dispute Settlement Body. In the event that it is determined that such adverse

effects exist, the subsidizing member must withdraw the subsidy or remove the adverse effects.

The third category involves non-actionable subsidies or green subsidies, which can either be

non-specific subsidies, or specific subsidies involving assistance to industrial research and pre-

competitive development activity, assistance to disadvantaged regions, or certain types of assistance for

adapting existing facilities to new environmental requirements imposed by law and/or regulations.38

Where another Member believes that an otherwise non-actionable subsidy is resulting in serious adverse

effects to a domestic industry, it may seek a determination and recommendation on the matter from the

Committee, which takes decisions by consensus.

Trade 1994; (vii) Understanding on Balance-of-Payments Provisions of the General Agreement on Tariffs and

Trade 1994; (viii) Understanding on the Interpretation of Article XXIV of the General Agreement on Tariffs and

Trade 1994; (ix) Understanding in Respect of Waivers of Obligations under the General Agreement on Tariffs

and Trade 1994; and (x) Understanding on the Interpretation of Article XXVIII of the General Agreement on

Tariffs and Trade 1994. 36 Articles 3 and 4 of the Agreement on Subsidies and Countervailing Measures. 37Articles 5, 6 and 7 idem. 38Articles 8 and 9 idem.

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Pursuant to Article 31 of the SCM, the SCM Committee had to review the operation of the so-

called green and amber subsidies before the end of 1999,with a view to determining whether to extend

their application, either as presently drafted or in a modified form, for a further period. WTO Members

were not able to reach any consensus on this matter, so the provisions lapsed. At the moment therefore,

all subsidies (but subject to the specific rules on export subsidies and domestic support to agricultural

products) are either prohibited (red) or actionable (yellow).

The SCM Agreement also covers rules dealing with the unilateral application of anti-subsidies

duties, called "countervailing duties" as initially envisaged in Article VI of GATT. The scope of

countervailing duty investigations are limited under the new SCM Agreement.39

They are to be

terminated immediately in cases where the amount of a subsidy is de minimis (less than 1 per cent

ad valorem) or where the volume of subsidized imports, actual or potential, or the injury is negligible.

Except under exceptional circumstances, investigations shall be concluded within one year after their

initiation, but in no case should they last more than 18 months.40

All countervailing duties have to be

terminated within five years of their imposition (sunset clause) unless the authorities determine on the

basis of a review that the expiry of the duty would be likely to lead to continuation or recurrence of

subsidization and injury.41

(c) Agreement on Antidumping Measures

Rules governing the application of anti-dumping measures were provided in an Anti-Dumping

Code concluded at the end of the Tokyo Round. Negotiations in the Uruguay Round have resulted in a

revision of this Code, which addresses many areas in which the Code lacked precision and detail. In

particular, the revised Antidumping Agreement provides for greater clarity and more detailed rules in

relation to the method of determining that a product is dumped42

and the criteria to be taken into

account in a determination that dumped imports cause injury to a domestic industry.43

The Agreement

further outlines not only the procedures to be followed in initiating and conducting anti-dumping

investigations44

but also for the implementation45

and duration of anti-dumping measures46

. In addition,

the new Agreement clarifies the role of dispute settlement panels relating to anti-dumping actions taken

by domestic authorities47

. On the methodology for determining that a product is exported at a dumped

price, the new Agreement adds relatively specific provisions on such issues as criteria for allocating

costs when the export price is compared with a "constructed" normal value.48

It also ensures that a fair

comparison is made between the export price and the normal value of a product so as not to arbitrarily

create or inflate margins of dumping.49

Clear-cut procedures have been established on how anti-dumping cases are to be initiated and

how such investigations are to be conducted. Conditions for ensuring that all interested parties are given

an opportunity to present evidence are set out50

. Provisions on the application of provisional

measures51

, and the use of price undertakings in anti-dumping cases52

have been strengthened. Thus, a

39Article 12 idem. 40Article 11 idem. 41Article 21 idem. 42Article 2 of the Agreement on Implementation of Article VI of the GATT 1994. 43Article 3 idem. 44Article 5 idem. 45Article 9 idem. 46Article 11 idem. 47Article 13 idem and the Decision on Review of Article 17.6 of the Antidumping Agreement. 48Article 2.2 idem. 49Article 2.4 idem. 50Article 6 idem. 51Article 7 idem. 52Article 8 idem.

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significant improvement over the existing Agreement consists of the addition of a new provision under

which anti-dumping measures shall expire five years after the date of imposition, unless a determination

is made that, in the event of termination of the measures, dumping and injury would be likely to

continue or recur53

. Finally a new provision requires the immediate termination of an anti-dumping

investigation in cases where the authorities determine that the margin of dumping is de minimis (which

is defined as less than 2 per cent, expressed as a percentage of the export price of the product) or that the

volume of dumped imports is negligible (generally when the volume of dumped imports from an

individual country accounts for less than 3 per cent of the imports of the product in question into the

importing country)54

.

(d) Agreement on Safeguards

The new Agreement on Safeguards has greatly clarified and limited the use of safeguard

measures. Under Article XIX of the GATT 1947, there were no time limits, no criteria for assessing the

increase of imports or injury to domestic industries and no possibility of applying these measures on a

non-MFN basis. All existing safeguard measures taken under Article XIX have to be terminated not

later than eight years after the date on which they were first applied (or 10 years if applied by a

developing country) or five years after the date of entry into force of the Agreement Establishing the

WTO, whichever comes later55

. In addition the Agreement on Safeguards now prohibits the so-called

"grey area" measures,56

and introduces a "sunset clause" limiting their duration generally to a maximum

of four years.57

The Agreement on Safeguards sets out requirements for safeguard investigations which include

public notice for hearings and other appropriate means for interested parties to present evidence,

including on whether a measure would be in the public interest58

. In the event of critical circumstances,

a provisional safeguard measure may be imposed based on a preliminary determination of serious

injury59

. The duration of such a provisional measure should not exceed 200 days.

The Agreement also sets out the criteria for "serious injury" and the factors which must be

considered in determining the impact of imports. The safeguard measure should be applied only to the

extent necessary to prevent or remedy serious injury and to facilitate adjustment.60

Where quantitative

restrictions are imposed, they normally should not reduce the quantities of imports below the annual

average for the last three representative years for which statistics are available, unless clear justification

is given that a different level is necessary to prevent or remedy serious injury.61

In principle, safeguard measures have to be applied irrespective of source62

and generally, the

duration of a measure should not exceed four years though this could be extended up to a maximum of

eight years63

, subject to confirmation of continued necessity by the competent national authorities.

There should, however, be evidence that the industry is adjusting. Any measure imposed for a period

53Article 11 idem. 54Article 5.8 idem. 55Article 10 of the Safeguard Agreement. An exception could be made for one specific measure for each importing

member, subject to mutual agreement with the directly concerned member, where the phase-out date would be 31 December

1999. 56Article 11 idem. 57Article 7 idem. 58Article 4 idem. 59Article 6 idem. 60Article 4 idem. 61Article 5 idem. 62However, it would be possible for the importing country to depart from this approach if it could demonstrate, in

consultations under the auspices of the Safeguards Committee, that imports from certain contracting parties had increased

disproportionately in relation to the total increase and that such a departure would be justified and equitable to all suppliers 63 Article 7 of the Agreement on Safeguards.

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longer than one year should be progressively liberalized during its lifetime. No safeguard measure can

be applied again to a product that has been subject to such action for a period equal to the duration of

the previous measure, subject to a non-application period of at least two years. A safeguard measure

with a duration of 180 days or less may be applied against the import of a product if at least one year has

elapsed since the date of introduction of the measure on that product, and if such a measure has not been

applied on the same product more than twice in the five-year period immediately preceding the date of

introduction of the measure.

The Agreement on Safeguards envisages consultations on compensation for safeguard

measures. Where consultations are not successful, the affected Members may withdraw equivalent

concessions or other obligations under GATT 1994. However, such action is not allowed for the first

three years of the safeguard measure if it conforms to the provisions of the Agreement and is taken as a

result of an absolute increase in imports64

.

(e) The Agreement on Textiles and Clothing and the Textile Monitoring Body

The object of the Uruguay Round textile negotiations was to secure the eventual integration of

the textiles and clothing sector into the WTO. The textiles and clothing sector is currently subject to

bilateral quotas negotiated under the Multifibre Arrangement (MFA). While the agreement focuses

largely on the phasing-out of MFA restrictions, it also recognizes that some Members maintain non-

MFA restrictions which are not justified under the WTO provisions. It contains a specific safeguard

mechanism which can be applied to products not yet integrated into the GATT at any stage65

. The

integration into the WTO system are to proceed in three stages:66

first on 1 January 1995, each party

integrated into the WTO products from the specific list in the Agreement which accounted for not less

than 16 per cent of its total volume of imports in 1990. At the beginning of phase 2, on 1 January 1998,

products which accounted for not less than 17 per cent of 1990 imports, were integrated. On 1 January

2002, products which accounted for not less than 18 per cent of 1990 imports would be integrated.

All remaining products would be integrated at the end of the transition period on 1 January

2005. All MFA restrictions in place on 31 December 1994 are carried over into the new WTO

agreement and maintained until such time as the restrictions are removed or the products integrated into

the WTO. A Textiles Monitoring Body (TMB) has been established to oversee the implementation of

commitments and to prepare reports for the major reviews67

. The TMB's recommendation replaces the

consultation process normally required prior to the request for a panel under the new dispute settlement

mechanism68

.

(f) Agreement on Agriculture

One of the main achievements of the WTO is the consensus reached on the Agreement on

Agriculture, an area where the GATT disciplines were not strictly enforced. The agricultural package

provides for commitments in the area of market access, domestic support and export competition. In

many areas of the agreement, history seems to repeat it-self. In the area of market access, non-tariff

border measures are replaced by tariffs that provide substantially the same level of protection69

. Tariffs

resulting from this "tariffication" process, as well as other tariffs on agricultural products, are to be

reduced by an average 36 per cent in the case of developed countries and 24 per cent in the case of

developing countries, with minimum reduction for each tariff line. Reductions are to be implemented

over six years in the case of developed countries and over ten years in the case of developing countries.

64Article 8 idem. 65Article 6 of the Agreement on Textile and Clothing. 66Article 2 idem. 67Article 8 idem. 68Article 8.10 idem. 69Article 4 of the Agreement on Agriculture.

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Least-developed countries are not required to reduce their tariffs. The tariffication package also

provides for the maintenance of current access opportunities and the establishment of minimum access

tariff quotas (at reduced-tariff rates) where current access is less than 3 per cent. These minimum access

tariff quotas are to be expanded to 5 per cent over the implementation period. A "special treatment"

clause was introduced to allow, under certain conditions, a country to maintain import restrictions up to

the end of the implementation period.

Domestic support measures which have, at most, a minimal impact on trade ("green box"

policies) are excluded from reduction commitments. The other policies provided on either a product-

specific or non-product-specific basis constitute the Total Aggregate Measurement of Support (the

AMS) and are to be reduced during the implementation period by 20 per cent (13.3 for developing

countries with no reduction for least-developed countries). Export subsidies are to be reduced in value

by 36 per cent below the 1986-90 base period level over a period of six years and the quantity of

subsidised exports is to be reduced by 21 per cent over the same period. In the case of developing

countries, reductions are two-thirds those of developed countries and are to be made in periods of 10

years. Finally there is a "Peace Clause" for nine years (2004), which provides for due restraint

obligations and an understanding that certain actions available under the Subsidies Agreement will not

be brought with respect to green box policies and domestic support and export subsidies maintained in

conformity with the Agriculture Agreement.70

Pursuant to what was envisaged in the Agreement on Agriculture, WTO Members have

undertaken negotiations with a view to continuing the reform process.

(g) The SPS Agreement

The new Sanitary and Phytosanitary Agreement (SPS Agreement) has further developed the

principles of Article XX of GATT, with a view to ensuring that sanitary and phytosanitary

restrictions allegedly imposed for the protection of plant, animal or human life or health, are so only

if based on sufficient scientific evidence contained in what is called a "risk assessment". SPS

measures must also be imposed in a consistent manner71

and not in a manner more restrictive than

necessary.72

An SPS measure is defined as a measure imposed (a) to protect animal or plant life or health

within the territory of the Member from risks arising from the entry, establishment or spread of pests,

diseases, disease-carrying organisms or disease-causing organisms; or (b) to protect human or animal

life or health within the territory of the Member from risks arising from additives, contaminants,

toxins or disease-causing organisms in foods, beverages or feedstuffs; or (c) to protect human life or

health within the territory of the Member from risks arising from diseases carried by animals, plants

or products thereof, or from the entry, establishment or spread of pests; or (d) to prevent or limit

other damage within the territory of the Member from the entry, establishment or spread of pests.

If a measure is considered to be an SPS measure it is not covered by the TBT Agreement.

(h) The TBT Agreement

Various other Tokyo Round Codes have been improved in the WTO, such as the Agreement on

Technical Barriers to Trade (TBT) which addresses the issue of non-tariff measures and special

regulations which may be used to otherwise counter trade liberalization concessions. Together with the

SPS Agreement, these agreements invite Members to refer disputed matters to experts to settle their

conflicts. Members are also encouraged to use international standards, as much as possible and Article

70Article 13 of the Agreement on Agriculture. 71

Article 5.5 of the SPS Agreement 72

Article 5.6 of the SPS Agreement

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2.2 of the TBT Agreement prohibits any technical regulation from being more restrictive than necessary.

The TBT Agreement outlines procedural rules relating to the development of product standards

by signatories, as well as providing for transparency in their application, i.e. requiring adequate notice

and opportunity to comply with new standards prior to their implementation. Further, the rule-making

process allows for input by signatories during the formulation stage. The Agreement does not apply to

services, technical specifications included in government procurement contracts or standards established

by companies for their own use. A Committee on Technical Barriers to Trade supervises the Agreement

and deals with consultation and dispute settlement processes provided for under the Agreement.

(i) Other Agreements

The Import Licensing Agreement is concerned with the administration of quotas which have

been one of the main barriers to trade. This form of discretionary protectionism is administered

primarily through the use of automatic and non-automatic import licensing. Under a licensing system the

importing country only allows imports to be brought in by a licensed importer and then only up to the

volume or amount that the importer's license provides. While Article XI:1 refers to import licensing in

its general prohibition against quotas, it does not address their use directly. The Import Licensing

Agreement attempts to rectify this by focusing on the procedures used in administering the licensing

process. The abuse of these procedures has been seen as a cause of significant delay in the issuing of

licenses. The Agreement is designed to simplify procedures and ensure fairness in administration.

Articles 2 and 3 of the Agreement oblige Members to avoid using licensing procedures in a manner that

restrict trade. Thus, Members are required to publish information about quotas, provide that any

restrictions apply equally to all applicants and ensure that licenses remain in force for reasonable

periods of time.

The Tokyo Round Code on Customs Valuation was also improved with the WTO, although the

changes were rather of technical nature. There are two new Agreements in Annex 1A, which are the

results of negotiations on non-tariff barriers in the Uruguay Round. They are the Agreement on

Preshipment Inspection and the Agreement on Rules of Origin. Finally, the Agreement on Trade-

Related Investment Measures is included in Annex 1A. The Agreement does not deal with all the issues

relating to trade and investment. Rather, it is a modest restatement of the GATT rules and past panel

reports on trade-related measures involving foreign investment, such as local-content requirement.

2. Trade in Services, Annex 1B

If the WTO Agreement was the occasion to agree on a series of improved provisions for the

regulation of commerce of goods, it was also and importantly the occasion for States to agree on the

General Agreement on Trade in Services (GATS), contained in Annex 1B of the WTO Agreement, as

the first set of multilaterally-agreed and legally enforceable rules to cover international trade in services.

In principle GATS is applicable to all services, except services supplied in the exercise of

government authority. Obligations contained in the GATS may be categorized in two groups:

specific commitments whose scope is limited to the sectors and activities where a Member has

decided to assume market access and national treatment limitations; general obligations which

apply to all services, regardless of the existence of sectoral commitments (such as

MFN73

,transparency74

, possibility of safeguard measures, regional national treatment and market access

applied to specific sectors75

). There is also a list of MFN exemptions; and annexes addressing special

conditions relating to individual sectors (such as financial services, telecommunications and air

transport) which form an integral part of the WTO Agreement.

73Article II of the Agreement on Trade in Services. 74Article III idem. 75Articles XVI and XVII idem.

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As can be seen from the brief description above, the structure of the GATS is strongly

influenced by that of the GATT. GATS, as GATT did and GATT still does, contain rules on

transparency, national treatment, most-favoured-nation, rules (to be negotiated) for safeguard and

against distorted competition. But the GATS deals, by its very nature, with issues other than border or

tariff measures. The GATT fundamental concepts and rules such as those of the "national treatment

and the MFN clause, borrowed from the GATT, have however a different scope and different

application in the GATS. Still, one can argue that GATS, as is GATT for goods, is about guaranteeing

transparency, predictability and competitive opportunities of import and export markets ensured through

MFN, national treatment, market access, prohibition of distorted competition and similar disciplines.

However, it is impossible to establish a complete parallel between trade in goods and services. First of

all, the manner in which services are traded across the border is inherently more complicated than trade

in goods. Unlike trade in goods, there is no effective way of controlling the flow of these diverse

business activities at the border. One cannot simply stop services at the border and impose a surtax or a

duty on it. This means the regulation of services trade is carried out through diverse means that are also

used to regulate the domestic industry (typically, licensing in regulated industry such as finance,

transportation and communication). These measures are not so tangible or quantifiable as in the case of

tariffs or QR's on goods. Also, these measures are so inseparable from domestic policies that they are

more prone to political pressures from the vested interests. Furthermore, while it is fairly easy to

distinguish between trade issues and investment issues in the case of trade in goods, in services the

distinction often gets blurred. This explains the importance of "market-access" provisions76

and

commitments in the GATS which strengthen the traditional national treatment obligation77

, limited

however to sectors recorded in the national schedules.

GATS recognizes four modes of delivery of services78

: (a) services supplied from the territory

of one Member to another (e.g. international telephone calls); (b) services supplied to the service

consumer of another Member (e.g. tourism); (c) services supplied through commercial presence (e.g.

banking service by a foreign bank operating domestically); and (d) services supplied through movement

of natural persons (e.g. fashion models and art performers travelling abroad). Market access

negotiations take place for each modes of delivery.

These enormous complexities of the concepts used in the GATS explain the embryonic stage of

some of the disciplines of the GATS. The GATS also include sectoral annexes that provide for

derogations from the general principles. However, the GATS in its current form is only a starting point

for the future liberalization of the services sector. Already in February 1997, Members concluded

negotiations on basic telecommunications and in 1998 a new Protocol on Financial Services.

The GATS rules are not quite complete, and are largely untested. One of the purposes of the

ongoing GATS negotiations is to try to complete and improve these rules. Another is to improve

market access in international trade in services.

3. Intellectual Property, Annex 1C

Inadequate protection of intellectual property rights (patents, copyrights, trademarks and other

proprietary rights awarded to creative activities of human intellect) often hampers the free flow of trade

in goods and services. Widely varying standards in the protection and enforcement of intellectual

property rights and the lack of multilateral disciplines dealing with international trade in counterfeit

goods have been a growing source of tension in international economic relations.

76Article XVI idem. 77Article XVII idem. 78Article I idem.

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These concerns led to the launching of intellectual property negotiations in the Uruguay Round,

the result of which is incorporated in the Agreement on Trade-Related Aspects of Intellectual Property

Rights (TRIPs Agreement) as Annex 1C of the WTO Agreement. The Agreement addresses the

applicability of basic WTO principles (including dispute settlement79

) and those of relevant

international intellectual property agreements administered under the auspices of the World Intellectual

Property Organization; the provision of adequate intellectual property rights; the provision of effective

enforcement measure; and transitional implementation arrangements. As for GATT, the TRIPS

Agreement contains rules on transparency, national treatment, most-favoured-nation, rules (to be

negotiated) for safeguard and against distorted competition.

The special nature of the TRIPS Agreement which brought under the scope of the WTO a series

of norms and standards from other intellectual property international conventions (most of which

provide rights and obligations to persons holding intellectual property rights such as copyrights, patents

etc...) can be considered as containing additional provisions against undistorted competition. These

intellectual property rights and obligations are directly related to and complement the effectiveness of

market access rules for goods and services.

C. DISPUTE SETTLEMENT, ANNEX 2

Table “E” explains the process of the dispute settlement in the WTO. The dispute settlement

system of the WTO is generally considered to be one of the cornerstones of the multilateral trade order.

The system was already strengthened and streamlined as a result of reforms agreed following the Mid-

Term Review Ministerial Meeting held in Montreal in December 1988. These new rules included

greater automaticity in decisions on the establishment, terms of reference and composition of panels,

such that these decisions are no longer dependent upon the consent of the parties to a dispute.80

The Uruguay Round Understanding on Rules and Procedures Governing the Settlement of

Disputes (DSU) has strengthened the existing system significantly, extending the greater automaticity

agreed in the Mid-Term Review to the adoption of the panels' and the new Appellate Body's reports.

Moreover, the DSU establishes an integrated system permitting WTO Members to base their claims on

any of the multilateral trade agreements included in the Annexes to the Agreement establishing the

WTO. For this purpose, a Dispute Settlement Body (DSB)81

exercises the authority of the General

Council and the councils and committees of the covered agreements.

The DSU emphasizes the importance of consultations in securing dispute resolution82

, requiring

a Member to enter into consultations within 30 days of a request for consultations from another

Member. If after 60 days from the request for consultations there is no settlement, the complaining party

may request the establishment of a panel. Where consultations are denied, the complaining party may

move directly to request a panel. The parties may voluntarily agree to follow alternative means of

dispute settlement, including good offices, conciliation, mediation and arbitration.

Where a dispute is not settled through consultations, the DSU requires the establishment of a

panel, at the latest, at the meeting of the DSB following that at which a request is made, unless the DSB

decides by consensus against establishment83

. The terms of reference (the mandate)84

of the panel is to

provide a legal answer the claims of the complaining party. And where the parties do not agree on the

composition of the panel within the same 20 days, this can be decided by the Director-General. Panels

normally consist of three persons of appropriate background and experience from countries not party to

79Article 64 of the Agreement on Trade-Related aspects of Intellectual Property Rights. 80Articles 6, 7 and 8 of the Understanding on Dispute Settlement (DSU). 81Article 2 of the DSU. 82Article 4 idem. 83Article 6 idem. 84Article 7 idem.

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the dispute. The Secretariat maintains a list of experts suggested by delegations, nominated by the DSB.

The basic panel procedures are set out in the DSU. The panel shall meet in closed session. The

deliberations of the panel and the documents submitted to it shall be kept confidential, but nothing in the

DSU precludes a party to a dispute from disclosing statements of its own positions to the public.

Members shall treat as confidential information submitted by another Member to the panel which that

Member has designated as confidential. Where a party to a dispute submits a confidential version of its

written submissions to the panel, it shall also, upon request of a Member, provide a non-confidential

summary of the information contained in its submissions that could be disclosed to the public.

Before the first substantive meeting of the panel with the parties, the parties to the dispute shall

transmit to the panel written submissions in which they present the facts of the case and their arguments.

At its first substantive meeting with the parties, the party which has brought the complaint will present

its case. Subsequently, and still at the same meeting, the party against which the complaint has been

brought will present its point of view. All third parties which have notified their interest (which can be

systemic) in the dispute to the DSB will be invited to present their views during a session of the first

substantive meeting of the panel set aside for that purpose. The panel may at any time put questions to

the parties and ask them for explanations either in the course of a meeting with the parties or in writing.

Between the first and the second meeting parties will usually have to answer numerous

questions put forward by the panel and to submit written rebuttals. At the second meeting, the party

complained against will usually take the floor first to be followed by the complaining party.

After the panel's meetings, the panel will issue a draft descriptive part and invite the parties

comments. Subsequently the Panel will issue a interim panel report including the revised descriptive

part and the interim findings and conclusions of the panel on the legal issues, inviting the parties'

comments on this interim report. Subsequently the final report will be issued to the parties before it is

translated into the two other official languages of the WTO and then circulated to all Members.

It is envisaged that a panel will normally complete its work within six months or, in cases of

urgency, within three months85

. Panel reports may be considered by the DSB for adoption 20 days after

they are issued to Members. Within 60 days of their issuance, they will be adopted, unless the DSB

decides by consensus not to adopt the report or if one of the parties notifies the DSB of its intention to

appeal.86

The concept of appellate review is an important new feature of the DSU. An Appellate Body

was established, composed of seven members, three of whom serve on any one case. An appeal will be

limited to issues of law covered in the panel report and legal interpretations developed by the panel.

Appellate proceedings shall not exceed 60 days from the date a party formally notifies its decision to

appeal. The resulting report shall be adopted by the DSB and unconditionally accepted by the parties

within 30 days following its issuance to Members, unless the DSB decides by consensus against its

adoption.87

Once the panel report and the Appellate Body report are adopted, the party concerned will have

to notify its intentions with respect to implementation of adopted recommendations.88

If it is

impracticable to comply immediately, the party concerned shall be given a reasonable period of time,

the latter to be decided either by agreement of the parties and approval by the DSB within 45 days of

adoption of the report or through arbitration within 90 days of adoption. In any event, the DSB will

85Articles 12.8 and 20 idem. 86Article 16 idem. 87Article 17 idem. 88Article 21 idem.

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keep the implementation under regular surveillance until the issue is resolved.

Further provisions set out rules for compensation or the suspension of concessions in the event

of non-implementation89

. Within a specified time-frame, parties can enter into negotiations to agree on

mutually acceptable compensation. Where this has not been agreed, a party to the dispute may request

authorization of the DSB to suspend concessions or other obligations to the other party concerned. The

DSB will grant such authorization within 30 days of the expiry of the agreed time-frame for

implementation. Disagreements over the proposed level of suspension may be referred to arbitration. In

principle, concessions should be suspended in the same sector as that in issue in the panel case. If this is

not practicable or effective, the suspension can be made in a different sector of the same agreement. In

turn, if this is not effective or practicable and if the circumstances are serious enough, the suspension of

concessions may be made under another agreement90

.

The DSU contains a number of provisions which take into account the specific interests of the

developing and the least-developed countries.91

One of such provision is Article 27, which encourages

developing countries to request the Secretariat to provide it with the service of a legal expert. This

provision has been used more and more often by developing countries which, in the first six years of the

WTO, have been involved in 35% of the disputes. Their participation in the multilateral trading system

is remarkable when compared with the old GATT, where disputes were dominated by industrialized

countries. The dispute settlement mechanism has been one of the main success stories of the WTO so

far.

D. TRADE POLICY REVIEW MECHANISM, ANNEX 3

The review mechanism enables the regular collective appreciation and evaluation of the full

range of individual Members' trade policies and practices and their impact on the functioning of the

multilateral trading system. It is not, however, intended to serve as a basis for the enforcement of

specific obligations under the Agreements or for dispute settlement procedures, or to impose new policy

commitments on Members. This process was first introduced at the Mid-term Review of the Uruguay

Round (December 1988) to

"contribute to improved adherence by all Members to rules, disciplines and

commitments made under the Multilateral Trade Agreements... and hence to smoother

functioning of the multilateral trading system by achieving greater transparency in, and

understanding of, trade policies and practices of Members..."92

and has been continued on a permanent basis with the entry into force of the WTO Agreement.

Countries are, therefore, requested to report periodically: the United States, the European Communities,

Japan and Canada report every two years; the next 16 countries in terms of world trade share report

every four years, with most other countries reporting every six years.

E. GENERAL PRINCIPLES OF THE PLURILATERAL AGREEMENTS, ANNEX 4

As appears from Table D, the WTO Agreement also contains four Plurilateral Agreements. The

agreements and associated legal instruments included in Annex 4 are also part of this Agreement for

those Members that have accepted them, and are binding on those Members. The Plurilateral Trade

Agreements do not create either obligations or rights for Members that have not accepted them and

cross-retaliation for obligations under these agreements is not possible.

89Article 22 DSU. 90The so-called "cross retaliation", Article 22.3 of the DSU. 91Article 27 and various provisions throughout the DSU. 92Paragraph (i) of A. Objectives of Annex 3 Trade Policy Review Mechanism.

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1. Agreement on Government Procurement

Article III:8 of the GATT sets out possibly the most important exception to the National

Treatment obligation. It exempts from this obligation procurement by government agencies for

government purposes. The problems contained within this exception became evident by the 1970's with

the increased size and role of governments in national economies. Widespread discrimination in favour

of domestic producers in this area of purchasing (often used by governments as a means of stimulating

national economic growth) led to the negotiation of the first agreement on government procurement

during the Tokyo Round. The scope of the new WTO Agreement on Government Procurement is much

broader and it opens up government procurement worth hundreds of billions of dollars to international

competition. The Government Procurement negotiations had three objectives: to extend the coverage

of the Agreement to services (it covered only goods); to broaden the application of the Agreement by

bringing in sub-central levels of government and certain public utilities; and to improve the existing text

of the Agreement. These negotiations have been successful although the participation of developing

countries remains limited.

2. Agreement on Civil Aircraft

The security exception of Article XXI has always allowed States to exclude military machinery,

including aircraft, from the scope of the GATT. The 1979 Agreement on Civil Aircraft, negotiated

during the Tokyo Round, tries to take civil aircrafts out of this exception. It provides for the duty-free

treatment of civil aircraft and engines and all their parts, components and sub-assemblies, as well as all

ground flight simulators. The Agreement also calls for purchasers of civil aircraft to have the freedom

to select suppliers and repair services on the basis of commercial and technological factors. Quotas and

import licensing requirements imposed in a manner inconsistent with GATT are expressly prohibited.

Importantly, the Agreement imposes on signatories trading in civil aircraft the obligations relating to

subsidies provided for in the Agreement on Interpretation and Application of Articles VI, XVI and

XXIII (the Tokyo Round Subsidies Code) as well as those contained in the Agreement on Technical

Barriers to Trade. Special procedures for surveillance, review, consultation and settlement of disputes

are also administered by the Committee on Trade in Civil Aircraft. An annex contains a list of goods

covered by the Agreement. Military airplanes and related products are expressly excluded. The annual

reviews have been the occasion for increasing this list of products.

During the Uruguay Round, the revision of the 1979 Agreement was envisaged, but has not

materialized to date. Thus the Agreement retains its old form, unlike the other three Plurilateral Trade

Agreements.

VII. DEVELOPING COUNTRIES IN WORLD TRADE

From the very beginning, the GATT has struggled with the role and place of developing

countries within the GATT system. At the centre of this struggle has been the extent to which

developing countries, which now make up the vast majority of WTO Members and countries associated

with the GATT, should be subject to the full discipline of GATT principles or obligations. GATT

history showed that the result of this struggle has been the continual easing of obligations. However,

from the perspective of the developing countries this does not address the other factors which impact on

their economies and societies. Major steps in the evolution of this issue within the GATT up to the

Uruguay Round are outlined below.

A. AMENDMENT OF ARTICLE XVIII, GOVERNMENTAL ASSISTANCE TO ECONOMIC

DEVELOPMENT (1955)

These were the first major amendments to the GATT to deal with the specific circumstances of

developing countries. They allowed the governments of these countries to take actions inconsistent with

GATT principles to protect infant industries and deal with balance of payments problems.

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B. ADOPTION OF PART IV - TRADE AND DEVELOPMENT (1964-65)

The provisions of Part IV clarify the position of developing countries within the GATT system.

These amendments state explicitly (particularly Article XXXVI:8) that developing countries would not

be required to make the same concessions on tariffs, or the removal of non-tariff barriers, as developed

countries. Part IV did not, however, provide a specific legal basis for preferential arrangements with or

between developing countries.

C. CREATION OF THE ITC (1964)

On 19 March 1964, parallel to the adoption of Part IV of the GATT, the CONTRACTING

PARTIES created the International Trade Centre as part of the efforts to help developing countries

expand trade. The ITC was then just a division of the GATT Secretariat, responsible for providing

developing countries with information, marketing techniques and training of personnel to promote their

exports. In 1967, the administration of the ITC was transferred and placed under the joint sponsorship

of GATT and UNCTAD and it became a semi-autonomous institution.

D. THE GENERALIZED SYSTEM OF PREFERENCES (1971)

Pursuant to waiver granted under Article XXV:5, developed countries were authorized to grant,

for a period of ten years, preferential treatment (i.e. lower tariffs), to developing countries on a wide

range of goods.

E. THE TOKYO ROUND DECISIONS (1979)

Three decisions were made at the end of the Tokyo Round which addressed the differential

treatment granted to developing countries under the GATT. The most important of these was entitled

Differential and More Favourable Treatment Reciprocity and Fuller Participation of Developing

Countries, more commonly referred to as the "Enabling Clause". The primary purpose of the Enabling

Clause was to provide for the extension of the General System of Preferences established in 1971. The

other two 1979 Decisions dealt with trade measures developing countries could take for Balance-of-

Payments and Safeguard purposes.

F. THE URUGUAY ROUND

Under the WTO Agreement, the reference to developing countries' rights have been

systematised in four ways: most preambular provisions refer to the need to offer special consideration to

developing countries. Some agreements contain different substantive rights which soften the obligations

of developing countries during the transitional period into the WTO, and others contain different sets of

rights and obligations and thresholds for developing countries. For instance, the Subsidies Agreement

recognizes that subsidies may play an important role in the economic development programmes of

developing countries, and especially in the transformation of centrally-planned economies to market

economies93

. Least-developed countries and developing countries that have less than $1,000 per capita

GNP are thus exempted from disciplines on prohibited export subsidies and have a time-bound

exemption from other prohibited subsidies. For other developing countries, the export subsidy

prohibition would take effect eight years after the entry into force of the Agreement establishing the

WTO. They also have a time-bound (though fewer years than for poorer developing countries)

exemption from the other prohibited subsidies. Countervailing investigations of products originating

from a developing country Member would be terminated if the overall level of subsidies does not exceed

2 per cent (and from certain developing countries 3 per cent) of the value of the product, or if the

volume of the subsidized imports represents less than 4 per cent of the total imports for the like product

93Article 27 of the Agreement on Subsidies and Annex VII.

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in the importing signatory. For countries in the process of transformation from a centrally-planned into a

market economy, prohibited subsidies shall be phased out within a period of seven years from the date

of entry into force of the Agreement.

Under the Agreement on Safeguards, safeguard measures would not be applicable to a product

from a developing country Member, if the share of the developing country Member is 3 per cent or less,

and that developing country Members with less than 3 per cent import share collectively account for no

more than 9 per cent of total imports of the product concerned. A developing country member has the

right to extend the period of application of a safeguard measure for a period of up to two years beyond

the normal maximum. It can also apply a safeguard measure again to a product that had been subject to

such an action after a period equal to half of the duration of the previous measure, subject to a non-

application period of at least two years.94

Under the Agreement on Agriculture, the reduction obligations imposed on developing

countries are generally one-third less stringent than those imposed on developed countries. The least-

developed countries do not have to reduce the level of protection.

Furthermore, throughout the DSU, developing countries have special rights. They may request

a shorter duration for panel proceedings95

or an extension of the period for consultations.96

Special

consideration is requested during the consultations stage97

, during the panel proceedings98

, at the

implementation stage99

, and should a panel be established between a developed and a developing

country, the latter may request a panelist from a developing country to examine the case.100

Moreover,

Article 24 deals explicitly with least-developed country Members and their requests for particular

consideration in their favour and due restraint from other Members. Importantly, Article 27 of the DSU

envisages that developing countries may now request, the service of a legal assistant to help them with

their legal dispute:

27.2 While the Secretariat assists Members in respect of dispute settlement at their

request, there may also be a need to provide additional legal advice and assistance in

respect of dispute settlement to developing country Members. To this end, the

Secretariat shall make available a qualified legal expert from the WTO technical

cooperation services to any developing country Member which so requests. This expert

shall assist the developing country Member in a manner ensuring the continued

impartiality of the Secretariat.

Indeed, since the entry into force of the WTO, out of 80 requests for consultations, 31 were

requested by developing countries and 41 involve developing countries as complaint or defendant. And

this is an important change from previous years. For instance between 1948 and 1994, out of 126 panels

established, 11 were initiated by developing countries.

VIII. CONCLUSION

The GATT/WTO system has successfully developed as a mechanism of regulating the

regulation of trade. The economic prosperity and development achieved since the end of World War II

is to a large extent due to the quiet, persistent achievements of the GATT. The GATT contract was

first signed in 1947 by 23 countries and grew into a broad-based multilateral system covering over 90%

94Article 9 of the Agreement on Safeguards. 95Art.3.11 of the DSU. 96Art. 12.10 idem. 97Art. 4.10 idem 98Art. 12.11 idem. 99Art. 21.2, 21.7 and 21.8 idem. 100Art. 8.10 idem.

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of world trade. Membership in GATT grew to 128 countries, of which the majority were developing

countries.

One way of measuring the extent of the success of the GATT system would be to make a

historic comparison between 1820 and 1992, during which world population grew five-fold, world GDP

forty-fold and world trade no less than 540-fold. Two periods stand out. The first, were the years

between 1820 and 1870 - an especially liberal period for commercial policies throughout the world -

when the annual average growth of the volume of world exports was 4.2 per cent. The second, which

many observers call the "Golden Age", was precisely the period 1950 to 1970 when successive rounds

of GATT trade negotiations progressively knocked down the high tariffs and the quota restrictions of the

inter-war years. During those years world merchandise exports grew by 7.0 per cent a year on average.

Only in the last few years of the 1990s, as the Uruguay Round was concluded and commitments to the

further opening of markets and new rules and disciplines were secured, has there been some signs of a

return to trade growth near that of the "Golden Age".101

Despite this impressive record, we cannot be complacent about the achievement of the Uruguay

Round. There is a famous "bicycle" theory about trade negotiations: Should one stop moving forward,

one falls down because of lack of impetus. Although the Uruguay Round is over, many are of the view

that Members should not stop striving for the further liberalization of trade, not only in goods, but in

services as well.

101Data extracted from the Statement by Renato Ruggiero, Director-General of the WTO at the 51st Session of the

GATT CONTRACTING PARTIES.