PRICIPLES OF NON-DISCRIMINATION

IN WTO

Talha Ansari B.A.LLB(hons).

S.NO. TITLE PAGE NO.

1 WTO 2

2 HISTORY 3

3 FUNCTIONS 3

4 PRINCIPLES 4

5 NON-DISCRIMINATION 5

6 MFN 6

7 NATIONAL TREATMENT 9

8 ADVANTAGES 12

9 BIBLIOGRAPHY 16

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WTO
The World Trade Organization (WTO) is an intergovernmental organization that
regulates international trade. The WTO officially commenced on 1 January 1995 under
the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the General
Agreement on Tariffs and Trade (GATT), which commenced in 1948. It is the largest
international economic organization in the world. The WTO deals with regulation of trade
between participating countries by providing a framework for negotiating trade
agreements and a dispute resolution process aimed at enforcing participants' adherence to
WTO agreements, which are signed by representatives of member governments and ratified
by their parliaments. Most of the issues that the WTO focuses on derive from previous trade
negotiations, especially from the Uruguay Round (1986–1994).

The WTO is attempting to complete negotiations on the Doha Development Round, which
was launched in 2001 with an explicit focus on developing countries. As of June 2012, the
future of the Doha Round remained uncertain: the work programme lists 21 subjects in which
the original deadline of 1 January 2005 was missed, and the round is still incomplete. The
conflict between free trade on industrial goods and services but retention
of protectionism on farm subsidies to domestic agricultural sector (requested by developed
countries) and the substantiation of fair trade on agricultural products (requested by
developing countries) remain the major obstacles. This impasse has made it impossible to
launch new WTO negotiations beyond the Doha Development Round. As a result, there have
been an increasing number of bilateral free trade agreements between governments. As of
July 2012, there were various negotiation groups in the WTO system for the current
agricultural trade negotiation which is in the condition of stalemate.

The WTO's current Director-General is Roberto Azevêdo, who leads a staff of over 600
people in Geneva, Switzerland. A trade facilitation agreement, part of the Bali Package of
decisions, was agreed by all members on 7 December 2013, the first comprehensive
agreement in the organization's history.

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History

The WTO was officially created in January of 1995 and essentially replaced the General
Agreement on Tariffs and Trade (GATT), which had been in force since 1948, a few years
after the Second World War. Before the WTO was created, an initiative to start something
similar known as the International Trade Organization (ITO) took place. Unfortunately, the
ITO treaty was not approved by the U.S. and a few other countries and ultimately never went
into effect.

In the 1980s, as the world economies became more global in trade and business, it became
evident that GATT was not built or structured to address many of the new global trading
challenges that were arising. As a result, the biggest trade negotiating event on record began
in 1986. It was known as the Uruguay Round, seeing as it took place in Punta del Este,
Uruguay. One of the final accomplishments of this round was the creation of the WTO. The
WTO is currently working on new negotiations and agreements, known as the Doha
Development Agenda, and these started in 2001.

FUNCTIONS

Among the various functions of the WTO, these are regarded by analysts as the most
important:

• It oversees the implementation, administration and operation of the covered agreements.

• It provides a forum for negotiations and for settling disputes.

Additionally, it is WTO's duty to review and propagate the national trade policies, and to
ensure the coherence and transparency of trade policies through surveillance in global
economic policy-making. Another priority of the WTO is the assistance of developing, least-
developed and low-income countries in transition to adjust to WTO rules and disciplines
through technical cooperation and training.

1. The WTO shall facilitate the implementation, administration and operation and
further the objectives of this Agreement and of the Multilateral Trade Agreements
and shall also provide the frame work for the implementation, administration and
operation of the multilateral Trade Agreements.

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 2. The WTO shall provide the forum for negotiations among its members concerning
their multilateral trade relations in matters dealt with under the Agreement in the
Annexes to this Agreement.
3. The WTO shall administer the Understanding on Rules and Procedures Governing the
Settlement of Disputes.
4. The WTO shall administer Trade Policy Review Mechanism.
5. With a view to achieving greater coherence in global economic policy making, the
WTO shall cooperate, as appropriate, with the international Monetary Fund (IMF)
and with the International Bank for Reconstruction and Development (IBRD) and its
affiliated agencies.

The above five listings are the additional functions of the World Trade Organization. As
globalization proceeds in today's society, the necessity of an International Organization to
manage the trading systems has been of vital importance. As the trade volume increases,
issues such as protectionism, trade barriers, subsidies, violation of intellectual property arise
due to the differences in the trading rules of every nation. The World Trade Organization
serves as the mediator between the nations when such problems arise. WTO could be referred
to as the product of globalization and also as one of the most important organizations in
today's globalized society.

The WTO is also a centre of economic research and analysis: regular assessments of the
global trade picture in its annual publications and research reports on specific topics are
produced by the organization. Finally, the WTO cooperates closely with the two other
components of the Bretton Woods system, the IMF and the World Bank.

Principles of the trading system

The WTO agreements are lengthy and complex because they are legal texts covering a wide
range of activities. They deal with: agriculture, textiles and clothing, banking,
telecommunications, government purchases, industrial standards and product safety, food
sanitation regulations, intellectual property, and much more. But a number of simple,
fundamental principles run throughout all of these documents. These principles are the
foundation of the multilateral trading system.

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• Non-discrimination. It has two major components: the most favoured nation (MFN) rule, and
the national treatment policy
• Reciprocity
• Binding and enforceable commitments
• Transparency
• Safety values
NON-DISCRIMINATION

Non-discrimination is a key concept in WTO law and policy. There are two main principles
of non-discrimination in WTO law: the most-favoured-nation (MFN) treatment obligation
and the national treatment obligation. In simple terms, the MFN treatment obligation
prohibits a country from discriminating between countries; the national treatment obligation
prohibits a country from discriminating against other countries.

Discrimination between, as well as against, other countries was an important characteristic of

the protectionist trade policies pursued by many countries during the economic crisis of the
1930s. Historians now regard these discriminatory policies as an important contributing cause
of the economic and political crises that resulted in the Second World War. Discrimination in
trade matters breeds resentment among the countries, manufacturers, traders and workers
discriminated against. Such resentment poisons international relations and may lead to
economic and political confrontation and conflict.

In addition, discrimination makes scant economic sense, generally speaking, since it distorts
the market in favour of products and services that are more expensive and/or of a lesser
quality. Eventually, it is the citizens of the discriminating country that end up ‘paying the
bill’ for the discriminatory trade policies pursued.

The importance of eliminating discrimination in the context of the WTO is highlighted in the
Preamble of the WTO Agreement where the ‘elimination of discriminatory treatment in
international trade relations’ is identified as one of two main means by which the objectives
of the WTO may be attained.

The key provisions of the GATT 1994 dealing with non-discrimination in trade in goods are:

• Article I, on the MFN treatment obligation; and,

• Article III, on the national treatment obligation.

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The key provisions on non-discrimination in the GATS are:

• Article II, on the MFN treatment obligation; and,

• Article XVII, on the national treatment obligation.

The MFN and national treatment obligations of the GATT 1994 and the GATS prohibit
discrimination on the basis of ‘nationality’ or the ‘national origin or destination’ of a product,
service or service supplier however in a few situations, WTO law also prohibits
discrimination based on criteria other than ‘nationality’ or ‘national origin or destination’.

MFN

GATT ARTICLE I:1

GATT Article I:1 General Most-Favoured-Nation Treatment

• With respect to customs duties and charges of any kind imposed on or in

connection with importation or exportation or imposed on the international
transfer of payments for imports or exports, and with respect to the method of
levying such duties and charges, and with respect to all rules and formalities in
connection with importation and exportation, and with respect to all matters
referred to in paragraphs 2 and 4 of Article III, any advantage, favour,
privilege or immunity granted by any Member to any product originating in or
destined for any other country shall be accorded immediately and
unconditionally to the like product originating in or destined for the territories
of all other Members.

This article contains the specific rules for MFN treatment for goods. The general effect of
Article I.1 is to create the obligation among WTO Members to give each other’s' like
products the best existing market access opportunities without discrimination in law or in
fact.

A detailed reading of the provision reveals that the key elements of the MFN principle are:

1. Any advantage, favour of privilege covered in Article I.1.

2. Like products.

3. The immediate and unconditional grant of the advantage at issue to the like products
concerned.

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ANY ADVANTAGE COVERED IN ARTICLE I:1

The advantages that a WTO Member must grant to all members' like products without
discrimination in fact or in law are listed in the first part of Article I.1. They are advantages in
respect of the following measures:

 Customs duties;

 Any kind of charges imposed on importation or exportation;

 Any kind of charges imposed in connection with importation or exportation;

 Any charges imposed on the international transfer of payments for imports and exports;

 The method of levying such duties and charges;

 The rules and formalities in connection with importation and exportation;

 Internal taxes or other internal charges (covered in Article III.2);

 Laws, regulations and requirements affecting internal sale, offering fore sale, purchase,
transportation, distribution or use of any product (covered in Article III.4).

The scope of the measures covered in Article I.1 is in practice, wide enough to cover a very
broad range of measures in relation to exportation and importation as well as internal
measures.

LIKE PRODUCTS

The MFN obligation applies to like products. The idea of "likeness" is very relative and is not
defined in the GATT, therefore WTO case law has developed four criteria that should be
considered in deciding if products are alike (see for example, Japan – Taxes on Alcoholic
Beverages - WT/DS8, 10 and 11; and Canada - Autos WT/DS139 and 142). Such
consideration should be assessed on a case by case basis, but the said factors are as follows:

1. physical characteristics of the products;

2. end use of the products;

3. consumer preferences;

4. the classification of the products in Members' tariff laws.

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THE IMMEDIATE AND UNCONDITIONAL GRANT OF THE ADVANTAGE TO
THE LIKE PRODUCTS CONCERNED

Once a WTO Member has granted an advantage to imports from any country, it must
immediately grant that advantage to imports from all WTO members and it cannot make the
granting of that advantage to imports from all WTO members conditional upon receiving
something in return. This obligation applies equally to exports, therefore advantages granted
by a WTO Member to exports to any country must be granted immediately and
unconditionally to exports to all WTO Members.

THE MFN PRINCIPLE UNDER GATS

Under Article II of the GATS, WTO members are held to extend immediately and
unconditionally to services and service suppliers of all other members "treatment no less
favourable than that accorded to like services and service suppliers of any other country".
Therefore, the best access conditions that have been conceded to one country must be
extended to all WTO members. This amounts to a prohibition, in principle, of preferential
treatment among Members, or groups of Members, in individual sectors, or of reciprocity
provisions which confine access benefits to trading partners granting similar treatment. The
MFN obligation is applicable to any measure that affects trade in services in any sector
falling under the Agreement, whether specific commitments have been undertaken or not.

SPECIFIC EXEMPTIONS

 Derogations are possible in the form of Article II-Exemptions. WTO members were
allowed to seek exemptions under the Annex on Article I Exemptions before the GATS
entered into force. New exemptions can only be granted to new members at the time of
accession or, in the case of current members, by way of a waiver under Article IX:3 of the
WTO Agreement. All exemptions should in principle not last longer than 10 years and are
subject to periodic review in the Council for Trade in Services;

 Exemptions in Maritime transport services are still possible (Annex on Negotiations on

Maritime Transport Services and doc. S/L/24). Note that the GATS allow groups of Members
to enter into economic integration agreements (Article V) and to mutually recognize
regulatory standards and certificates (Article VII), subject to certain conditions.

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NATIONAL TREATMENT

(1) The Background of Rules:

National Treatment Principle National treatment (GATT Article III) stands alongside MFN
treatment as one of the central principles of the WTO Agreement. Under the national
treatment rule, Members must not accord discriminatory appropriate treatment between
imports and like domestic products (with the exception of the imposition of tariffs, which is a
border measure). The GATS and the TRIPS Agreement have similar provisions. This rule
prevents countries from taking discriminatory measures on imports on the one hand, and to
prevent countries from offsetting the effects of tariffs through non-tariff measures. An
example of the latter could be where Member A reduces the import tariff on product X from
ten percent to five percent, only to impose a five percent domestic consumption tax only on
imported product X, effectively offsetting the five-percentage point tariff cut. The purpose of
the national treatment rule is to eliminate “hidden” domestic barriers to trade by WTO
Members through according imported products treatment no less favourable than that
accorded to products of national origin. The adherence to this principle is important to
maintain the balance of rights and obligations and is essential for the maintenance of the
multilateral trading system.

(2) Legal Framework

(i) GATT Article III GATT Article III requires that WTO Members provide national
treatment to all other Members. Article III:1 stipulates the general principle that Members
must not apply internal taxes or other internal charges, laws, regulations and requirements
affecting imported or domestic products so as to afford protection to domestic production.

In relation to internal taxes or other internal charges, Article III:2 stipulates that WTO
Members shall not apply standards higher than those imposed on domestic products between
imported goods and “like” domestic goods, or between imported goods and “a directly
competitive or substitutable product.” With regard to internal regulations and laws, Article
III:4 provides that Members shall accord imported products treatment no less favourable than
that accorded to “like products” of national origin. In determining the similarity of “like
products,” GATT panel reports have relied on a number of criteria including tariff
classifications, the product’s end uses in a given market, consumer tastes and habits, and the
product’s properties, nature and quality. The same idea can be found in reports by WTO
panels and the Appellate Body.

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(ii) Exceptions to GATT Article III (National Treatment Rule) Although national treatment
is a basic principle under the GATT, the GATT provides for certain exceptions as follows: -

(a) Government Procurement

GATT Article III:8(a) permits governments to purchase domestic products preferentially,

making government procurement one of the exceptions to the national treatment rule. This
exception is permitted because WTO Members recognize the role of government
procurement in national policy. For example, there may be a security need to develop and
purchase products domestically, or government procurement may, as is often the case, be
used as a policy tool to promote smaller business, local industry or advanced technologies.
While the GATT made government procurement an exception to the national treatment rule,
the Agreement on Government Procurement resulting from the Uruguay Round mandates
signatories to offer national treatment in their government procurement. However, WTO
Members are under no obligation to join the Agreement on Government Procurement. In fact,
it has mostly been developed countries that have joined the Agreement. Therefore, in the
context of government procurement, the national treatment rule applies only between those
who have acceded to the Agreement on Government Procurement, and for others, the
traditional exception is still in force.

(b) Domestic Subsidies

GATT Article III:8(b) allows for the payment of subsidies exclusively to domestic producers
as an exception to the national treatment rule, under the condition that it is not in violation of
other provisions in Article III and the Agreement on Subsidies and Countervailing Measures.
The reason for this exception is that subsidies are recognized to be an effective policy tool
and is recognized to be basically within the latitude of domestic policy authorities.

However, because subsidies may have a negative effect on trade, the Agreement on Subsidies
and Countervailing Measures imposes strict disciplines on the use of subsidies.

(c) GATT Article XVIII:C

Members in the early stages of development can raise their standard of living by promoting
the establishment of infant industries, but this may require government support and the goal
may not be realistically attainable with measures that conform to the GATT. In such cases,
countries can use the provisions of GATT Article XVIII:C to notify WTO Members and
initiate consultations. After consultations are completed and under certain restrictions, these

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countries are then allowed to take measures that are inconsistent with GATT provisions
excluding Articles I, II and XIII.

Unlike the trade restrictions for balance of payment reasons in GATT Article XVIII: B, the
Article XVIII:C procedure allows both border measures and violations of the national
treatment obligations in order to promote domestic infant industries.

In the case concerning Malaysia ’s import permit system of petrochemical products, Malaysia
resorted to GATT Article XVIII:C as a reason to enforce import restrictions on polyethylene.
Although Singapore filed a WTO case against this Malaysian practice, Singapore then
withdrew its complaints and therefore neither a panel nor the Appellant Body had an
opportunity to rule on the case.

(d) Other Exceptions to National Treatment

Exceptions peculiar to national treatment include the exception on screen quotas of

cinematographic films under Article III:10 and Article IV. The provisions of GATT Article
XX on general exceptions, Article XXI on security exceptions, and WTO Article IX on
waivers also apply to the national treatment rule. For further detail, see the relevant sections
of Chapter 1 (MFN Principle).

(iii) National Treatment Rules Outside of GATT Article III With the entry into force of the
WTO Agreement, the idea of national treatment has been extended, although in a limited
fashion, to agreements on goods, services and intellectual property. Among the agreements
on goods, for instance, Article 5.1.1 of the TBT Agreement also addresses national treatment.
GATS Article XVII provides national treatment for services and service providers and Article
3 of the TRIPS Agreement provides national treatment for the protection of intellectual
property rights. The plurilateral Agreement on Government Procurement also contains a
national treatment clause. (See the relevant chapters for more information on Trade in
Services, Intellectual Property Rights, and Government Procurement.)

(3) Economic Implications

There is a tendency for importing countries to attempt to use discriminatory application of

domestic taxes and regulations to protect national production, often as the result of
protectionist pressures from domestic producers. This distorts the conditions of competition
between domestic and imported goods and leads to a reduction in economic welfare. The
national treatment rule does not in principle permit these sorts of policies designed to protect

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domestic products. GATT Article II does permit the use of tariffs as a means of protecting
domestic industry, but this is because tariffs have high degrees of transparency and
predictability since they are published and committed to in tariff schedules. On the other
hand, domestic taxes and regulations are “hidden barriers to trade” that lack both
transparency and predictability, which means that they can have a large trade-distortive
impact. The existence of GATT Article III generally impedes the adoption of policies and
measures aimed at domestic protection, and thus promotes trade liberalization. In addition,
regarding tariff concessions, GATT Article II recognizes tariffs as tools for domestic
industrial protection, and having done so, sets a course for the achievement of liberalization
through gradual reductions. Even if tariff reductions were made as a result of trade
negotiations, if domestic taxes and regulations were to be applied in a discriminatory fashion
to protect domestic industry simultaneously, then effective internal trade barriers would
remain. The national treatment rule prohibits countries from using domestic taxes and
regulations to offset the value of tariff concessions and is, therefore, a significant tool in
promoting trade liberalization.

ADVANTAGES
Freer trade: gradually, through negotiation
Lowering trade barriers is one of the most obvious means of encouraging trade. The barriers
concerned include customs duties (or tariffs) and measures such as import bans or quotas that
restrict quantities selectively. From time to time other issues such as red tape and exchange
rate policies have also been discussed.

Since GATT’s creation in 1947-48 there have been eight rounds of trade negotiations. A
ninth round, under the Doha Development Agenda, is now underway. At first these focused
on lowering tariffs (customs duties) on imported goods. As a result of the negotiations, by the
mid-1990s industrial countries’ tariff rates on industrial goods had fallen steadily to less than
4%.

But by the 1980s, the negotiations had expanded to cover non-tariff barriers on goods, and to
the new areas such as services and intellectual property.

Opening markets can be beneficial, but it also requires adjustment. The WTO agreements
allow countries to introduce changes gradually, through “progressive liberalization”.
Developing countries are usually given longer to fulfil their obligations.

Predictability: through binding and transparency

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Sometimes, promising not to raise a trade barrier can be as important as lowering one,
because the promise gives businesses a clearer view of their future opportunities. With
stability and predictability, investment is encouraged, jobs are created, and consumers can
fully enjoy the benefits of competition — choice and lower prices. The multilateral trading
system is an attempt by governments to make the business environment stable and
predictable.

The Uruguay Round increased bindings

Percentages of tariffs bound before and after the 1986-94 talks

Before After

Developed countries 78 99

Developing countries 21 73

Transition economies 73 98

(These are tariff lines, so percentages are not weighted according to trade volume or value)

In the WTO, when countries agree to open their markets for goods or services, they “bind”
their commitments. For goods, these bindings amount to ceilings on customs tariff rates.
Sometimes countries tax imports at rates that are lower than the bound rates. Frequently this
is the case in developing countries. In developed countries the rates actually charged, and the
bound rates tend to be the same.

A country can change its bindings, but only after negotiating with its trading partners, which
could mean compensating them for loss of trade. One of the achievements of the Uruguay
Round of multilateral trade talks was to increase the amount of trade under binding
commitments (see table). In agriculture, 100% of products now have bound tariffs. The result
of all this: a substantially higher degree of market security for traders and investors.

The system tries to improve predictability and stability in other ways as well. One way is to
discourage the use of quotas and other measures used to set limits on quantities of imports —

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administering quotas can lead to more red-tape and accusations of unfair play. Another is to
make countries’ trade rules as clear and public (“transparent”) as possible. Many WTO
agreements require governments to disclose their policies and practices publicly within the
country or by notifying the WTO. The regular surveillance of national trade policies through
the Trade Policy Review Mechanism provides a further means of encouraging transparency
both domestically and at the multilateral level.

Promoting fair competition

The WTO is sometimes described as a “free trade” institution, but that is not entirely
accurate. The system does allow tariffs and, in limited circumstances, other forms of
protection. More accurately, it is a system of rules dedicated to open, fair and undistorted
competition.

The rules on non-discrimination — MFN and national treatment — are designed to secure
fair conditions of trade. So too are those on dumping (exporting at below cost to gain market
share) and subsidies. The issues are complex, and the rules try to establish what is fair or
unfair, and how governments can respond, in particular by charging additional import duties
calculated to compensate for damage caused by unfair trade.

Many of the other WTO agreements aim to support fair competition: in agriculture,
intellectual property, services, for example. The agreement on government procurement (a
“plurilateral” agreement because it is signed by only a few WTO members) extends
competition rules to purchases by thousands of government entities in many countries. And
so on.

Encouraging development and economic reform

The WTO system contributes to development. On the other hand, developing countries need
flexibility in the time they take to implement the system’s agreements. And the agreements
themselves inherit the earlier provisions of GATT that allow for special assistance and trade
concessions for developing countries.

Over three quarters of WTO members are developing countries and countries in transition to
market economies. During the seven and a half years of the Uruguay Round, over 60 of these
countries implemented trade liberalization programmes autonomously.

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At the same time, developing countries and transition economies were much more active and
influential in the Uruguay Round negotiations than in any previous round, and they are even
more so in the current Doha Development Agenda.

At the end of the Uruguay Round, developing countries were prepared to take on most of the
obligations that are required of developed countries. But the agreements did give them
transition periods to adjust to the more unfamiliar and, perhaps, difficult WTO provisions —
particularly so for the poorest, “least-developed” countries. A ministerial decision adopted at
the end of the round says better-off countries should accelerate implementing market access
commitments on goods exported by the least-developed countries, and it seeks increased
technical assistance for them. More recently, developed countries have started to allow duty-
free and quota-free imports for almost all products from least-developed countries. On all of
this, the WTO and its members are still going through a learning process. The current Doha
Development Agenda includes developing countries’ concerns about the difficulties they face
in implementing the Uruguay Round agreements.

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BIBLIOGRAPHY

BOOKS

A.K. GAUL: GUIDE TO WTO AND GATT

S.R. MYNENI: INTERNATIONAL TRADE LAWS

WEBSITES

WIKIPEDIA

WTO OFFICIAL SITE

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