THE WTO DISPUTE SETTLEMENT

SYSTEM

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Module 1:
Introduction to the WTO

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 Welcome & Objectives
MODULE 1: INTRODUCTION 3

Welcome to Module 1 on “Introduction to the WTO”! This module provides an overview of the WTO’s objectives,
functions, decision-making rules, basic principles and main exceptions. The objective of this module is to refresh the
knowledge you acquired by studying the E-Learning course “Introduction to the WTO”, a necessary
precondition for your study of this E-Learning course on the WTO Dispute Settlement System (DSS).

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 Structure
MODULE 1: INTRODUCTION 4

This module is divided into four lessons:

Lesson 1 Lesson 2 Lesson 3 Lesson 4

What is the WTO? How does the WTO Basic principles: Basic principles:
What are its work? What are the main What are the main
objectives and WTO obligations on exceptions to WTO
functions? market access? obligations?

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 LESSON 1
What is the WTO? What are its objectives and functions?

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 I.A: Objectives of the WTO
MODULE 1: LESSON 1 6

Key provision:
Preamble to the WTO Agreement

The WTO is the only global organization dealing with the rules of international trade between nations. 160
governments are Members of the WTO. At its heart are the agreements, which were negotiated, signed and ratified by
governments. In the preamble to the Marrakesh Agreement Establishing the WTO (the “WTO Agreement“), the parties
to the Agreement recognize the objectives they wish to attain through the multilateral trading system:

 Raise living standards;

 Ensure full employment;
 Ensure a large and steadily growing volume of real income and effective demand; and
 Expand the production of, and trade in, goods and services, while allowing for the optimal use of the world's
resources in accordance with the objective of sustainable development.

The WTO Agreement also recognizes the need for "positive efforts to ensure that developing countries, and
especially the least-developed among them, secure a share in the growth in international trade commensurate
with … their economic development".

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 I.B: Functions of the WTO
MODULE 1: LESSON 1 7

The WTO…: Key provision:

Article III of the WTO Agreement
 …provides a forum for global trade negotiations
 …is a system of international trade rules
 …administers and monitors the WTO Agreement
 …provides a forum for settling trade disputes among its Members
 …cooperates with other international institutions
 …helps to enhance trade capacity in developing countries

The E-Learning course on the WTO Dispute Settlement System (DSS) discusses one of the core functions of the WTO,
namely to provide a forum for settling trade disputes among its Members.

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 I.B: Functions of the WTO
MODULE 1: LESSON 1 8

I.B.1: The WTO provides a forum for trade negotiations

The WTO provides a forum for negotiating global trade rules. Negotiations in the WTO are conducted directly by
Member governments. The WTO was born out of negotiations and everything it does is the result of negotiations. The
purpose is to reduce trade barriers for the benefit of producers, exporters, importers and consumers; while
allowing governments to meet legitimate policy objectives. The bulk of the WTO's current work comes from the
1986-94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and
Trade (GATT). The WTO is currently acting as a forum for negotiations under the Doha Development Agenda (DDA),
launched in 2001.
WTO Members have placed the needs of developing and LDC Members at the heart of the Doha work
programme. The developmental aspects of the Doha Round permeate all negotiating subject areas,
which put special emphasis on the needs and interests of developing countries. The DDA includes
negotiations on a wide range of trade issues including agriculture, market access for non-agricultural
products, services, as well as dispute settlement provisions. Negotiations on dispute settlement aim
at improving and clarifying the DSU. The DDA negotiations have yielded a “Transparency Mechanism
for Regional Trade Agreements (RTAs)”, and the so-called “Bali Package” of Ministerial Declarations
and Decisions, which includes a Monitoring Mechanism on special and differential treatment (S&D),
Decisions for least-developed Countries (LDCs), and an Agreement on Trade Facilitation!

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 I.B: Functions of the WTO
MODULE 1. LESSON 1 9

I.B.2: The WTO is a system of international trade rules

1: Which rules?

The WTO Agreement was concluded during the Uruguay Round. This "package" includes about 60 agreements and
Decisions, as well as the original GATT 1947. Since 1994, negotiations have produced additional legal texts which have
focused mainly on market access commitments (*). The conceptual structure is reflected in the way the legal texts are
organized. The WTO Agreement serves as an "umbrella agreement“: it sets up the legal and institutional
foundations of the WTO. It includes four Annexes:

(*) They include decisions on financial services, basic

telecommunications, and maritime transport (under GATS), and
information technology products (under GATT).

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 I.B: Functions of the WTO
MODULE 1. LESSON 1 10

Annex 1 is divided into three sections:

 Annex 1A: containing the revised General Agreement on Tariffs and Trade (GATT), the other agreements governing trade in
goods, and a protocol which ties in individual countries’ concessions on goods (schedules on goods).
 Annex 1B: the General Agreement on Trade in Services (GATS), texts on specific services, and individual countries’ specific
commitments (schedules on services) and exemptions.
 Annex 1C: the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement).

Annex 2
 Sets the rules and procedures for dispute settlement contained in the “Understanding on Rules and Procedures Governing the
Settlement of Disputes” (DSU).

Annex 3
 Provides for regular reviews of developments and trends in national and international trade policy under the “Trade Policy
Review Mechanism” (TPRM).

Annex 4
 Covers the Plurilateral Trade Agreements which are within the WTO framework but have a limited Membership (i.e. they only
apply to those WTO Members that have accepted them).

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 I.B: Functions of the WTO
MODULE 1: LESSON 1 11

I.B.2: The WTO is a system of international trade rules

2: Based on which fundamental principles?

The WTO Agreements are based on a number of simple and fundamental principles:

Non-discrimination: Members shall not discriminate among their trading partners (most-favoured nation principle);
or between national and foreign like products, services or nationals (national treatment principle).
More open trade: reducing or eliminating obstacles to trade.
Transparency and predictability: traders and Members need to know what the trade rules are around the world
(transparency) and that trade measures will not be imposed arbitrarily (predictability).
Special treatment for less developed Members: least-developed Members face particular challenges when
benefiting from trade liberalization; therefore, they have more time to adjust to the rules, greater flexibility and other
special rights.

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 I.B: Functions of the WTO
MODULE 1: LESSON 1 12

I.B.2: The WTO is a system of international trade rules

3: Administered by whom?

The WTO facilitates the administration of the WTO Agreements. To this end, WTO Member governments meet
regularly in the various WTO councils and committees to monitor the implementation of the Agreements.
Monitoring is indeed one of the most intense areas of work in the WTO: WTO councils and committees consider
information provided by the Members regarding their trade regulations and measures. WTO councils and committees
serve as a forum for discussions where Members ask each other questions on various WTO-related issues.

WTO Members also review periodically each Member's trade policies and practices under the Trade Policy Review
Mechanism (TPRM). These reviews allow the evaluation of individual Members' trade policies and practices and their
impact on the multilateral trading system (MTS).

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 I.B: Functions of the WTO
MODULE 1: LESSON 1 13

I.B.3: The WTO provides a forum for settling trade disputes

Key provision:
Article III.3 of the WTO Agreement

The WTO's procedure for settling disputes is vital for enforcing the rules. By doing so, the WTO DSS
underscores the rule of law and improves the stability and predictability of the MTS. A dispute commonly arises
when a Member adopts a trade measure that one or more Members consider to be contrary to the obligations under the
WTO Agreements. When Members are unable to agree on a solution, they can request a panel of independent experts
to rule on the dispute. The procedures for settling disputes are based on clearly-defined rules, which are
embodied in the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU).

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 I.B: Functions of the WTO
MODULE 1: LESSON 1 14

I.B.4: The WTO cooperates with other international institutions

Key provision:
Article III.5 of the WTO Agreement

The WTO cooperates with other international institutions, such as the International Monetary Fund (IMF) and
the World Bank, to achieve greater coherence in global economic policy-making. However, coherence in global
economic policy-making goes well beyond the WTO's cooperation arrangements with the IMF and the World Bank.
Indeed, the WTO maintains extensive institutional relations with several other international organizations. Some 140
international organisations have observer status in WTO bodies. The WTO also participates as observer in the work of
several international organizations. In all, the WTO Secretariat maintains working relations with almost 200
international organisations in activities ranging from statistics, research and standard-setting to technical
assistance and training. Although the extent of such cooperation varies, coordination and coherence between the
work of the WTO and that of other international organizations continues to evolve so as to assist Members in the
operation of their economic policies.

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 I.B: Functions of the WTO
MODULE 1: LESSON 1 15

I.B.5: The WTO helps to enhance trade capacity in developing countries and LDCs
Key documents:
Doha, Hong Kong and Bali Ministerial Declarations

Technical assistance and capacity building are core elements of the WTO's work. More than two thirds of WTO
Members are developing countries and LDCs. The WTO helps these Members to fully benefit from the MTS in various
ways. The WTO Agreements contain special provisions for developing countries, including longer periods to implement
their obligations and measures to increase their trading opportunities. The WTO also organizes hundreds of technical
assistance activities every year to help these Members to better understand and implement WTO rules and to
participate more effectively in its work. Capacity building also involves providing assistance to build the supply-side
capacity and infrastructure needed in these countries to expand their trade.

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 Test your knowledge!
MODULE 1: LESSON 1 16

Can you find the words?

Definition 4

1. The employment that Members

5
wish to attain through the WTO, as
reflected in the preamble to the
Marrakesh Agreement
2. The new “package” of ministerial 3 2

declarations and decisions

3. The WTO Agreement, which
includes four Annexes, is this type 1

of agreement
4. The Trade Policy Review
Mechanism (acronym)
5. Non-discrimination is a
fundamental .... of the WTO

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 Test your knowledge!
MODULE 1: LESSON 1 17

Answer:

4.
Definition
T
1. The employment that Members
wish to attain through the WTO, as 5. P R I N C I P L E
reflected in the preamble to the
R 2.
Marrakesh Agreement
2. The new “package” of ministerial 3. U M B R E L L A
declarations and decisions
3. The WTO Agreement, which A
includes four Annexes, is this type 1. F U L L
of agreement
4. The Trade Policy Review I
Mechanism (acronym)
5. Non-discrimination is a
fundamental .... of the WTO

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 I.C: Takeaway messages from Lesson 1
MODULE 1: LESSON 1 18

Lesson 1 has discussed the following key points:

 The WTO is the only international organization dealing with the rules of global trade between governments. Its
objectives are to:
 Raise living standards;
 Ensure full employment;
 Ensure a large and steadily growing volume of real income and effective demand; and
 Expand the production of, and trade in, goods and services, while allowing for the optimal use of the world's resources
in accordance with the objective of sustainable development.
 The WTO Agreement also recognizes the need for "positive efforts to ensure that developing countries, and
especially the least-developed among them, secure a share in the growth in international trade commensurate with
… their economic development".
 The WTO:
 …provides a forum for global trade negotiations
 …is a system of international trade rules
 …administers and monitors the WTO Agreement
 …provides a forum for settling trade disputes among its Members
 …cooperates with other international institutions
 …helps to enhance trade capacity in developing countries

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 I.D: Suggested readings and resources
MODULE 1: LESSON 1 19

References for Lesson 1:

Legal documents:
• The Preamble of the Marrakesh Agreement Establishing the WTO:
http://www.wto.org/english/docs_e/legal_e/04-wto_e.htm

Introductory videos:
• The WTO in brief (video):
http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr00_e.htm
• WTO at fifteen (video):
http://www.wto.org/english/res_e/webcas_e/webcas_e.htm#video
• A virtual tour of the WTO (video):
http://www.wto.org/english/forums_e/students_e/students_e.htm

Supplementary information:
• In brief - The WTO: past, present and future:
http://www.wto.org/english/thewto_e/whatis_e/inbrief_e/inbr01_e.htm
• Understanding the WTO – Basics:
http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm
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 LESSON 2
How does the WTO work?

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 Introduction
MODULE 1: LESSON 2 21

The WTO is a “Member-driven” international organization. All decisions in the WTO are taken by its Members,
normally by consensus. In the WTO, the Members take decisions in various councils and committees which generally
consist of all WTO Members. These councils and committees meet regularly to monitor the implementation of WTO
agreements and provide a forum for Members to discuss trade issues. The WTO also has a Secretariat composed of
international officers who provide support to the WTO bodies.

This section will explain:

1. The institutional structure of the WTO
2. The decision-making process in the WTO

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 II.A: The institutional structure of the WTO
MODULE 1: LESSON 2 22

Ministerial Conference

General Council (also DSB and TPRB)

Councils (Goods, Services and intellectual

Property)

Committees

Subsidiary Bodies

Secretariat To see a more detailed WTO organizational chart:

http://www.wto.org/english/thewto_e/whatis_e/tif_e/org2_e.htm

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 II.A: The institutional structure of the WTO
MODULE 1: LESSON 2 23

Ministerial Conference

The Ministerial Conference is composed of representatives of all WTO Members and generally meets once every
two years. It has the authority to take decisions on all matters under any of the Multilateral Trade Agreements, in
accordance with the decision-making procedures contained in the WTO Agreement and in the relevant multilateral
trade agreement(s).

General Council (also DSB and TPRB)

The General Council is also composed of representatives of all WTO Members, usually Ambassadors or Permanent
Representatives, based in Geneva. It carries out the functions of the Ministerial Conference in the intervals between
meetings of the Ministerial Conference.
The General Council meets regularly to carry out the functions assigned to it under the WTO Agreement. It has a
Chairperson (a Member's representative, normally an Ambassador), who is elected by all the Members every year.
The General Council also meets as the Dispute Settlement Body (DSB) and as the Trade Policy Review Body (TPRB).

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 II.A: The institutional structure of the WTO
MODULE 1: LESSON 2 24

Councils (Goods, Services and intellectual Property)

Three Councils operate under the guidance of the General Council and are also open to all WTO Members:
 The Council for Trade in Goods oversees all the issues related to the WTO Agreements with respect to trade in
goods. It supervises the work of the Committees responsible for specific areas, such as agriculture, market access,
customs valuations, rules of origin, sanitary and phytosanitary measures, etc.).
 The Council for Trade in Services oversees all issues related to the General Agreement on Trade in Services
(GATS). Like the Council for Trade in Goods, it has a number of subsidiary bodies.
 The Council for Trade - Related Aspects of Intellectual Property Rights (TRIPS) oversees all issues related to the
TRIPS Agreement.

Committees

The Trade Negotiations Committee (TNC) was set up by the Doha Ministerial Declaration to oversee the
negotiations mandated under the DDA. The TNC is chaired by the Director-General of the WTO. The TNC created a
number of subsidiary negotiating bodies to handle different subjects that form part of the DDA, including the Special
Sessions of various Committees or Councils that have a mandate to negotiate.

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 II.A: The institutional structure of the WTO
MODULE 1: LESSON 2 25

Subsidiary Bodies

Several other subsidiary bodies, which focus on horizontal issues, report to the General Council directly. They
cover issues such as trade and environment, trade and development, regional trade agreements and the accessions of
new Members. They are open to all WTO Members. The bodies that are of a permanent nature are normally called
"Committees" or "Working Groups", while those established on a temporary basis are called "Working Parties".

Secretariat

The Secretariat is headed by the Director-General (DG), who is appointed by the Ministerial Conference. Since
decisions in WTO are taken by Members only, the Secretariat has no decision-making power.
The Secretariat is located in Geneva and has around 700 staff members who are nationals of WTO Members. WTO
staff members cannot seek or accept instructions from any government or any other authority external to the WTO in
the discharge of their duties. The main duties of the Secretariat include providing support to the various councils and
committees, technical assistance to developing countries and information to the public. The Secretariat also provides
legal assistance in the dispute settlement process and advises governments wishing to become Members of the WTO.

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 II.B: Decision-making process in the WTO
MODULE 1: LESSON 2 26

Key provision:
Articles IX, X and XII of the WTO Agreement

Decisions in the WTO are taken through its councils and committees, whose membership consists of all WTO
Members. The WTO continues the GATT’s tradition of taking decisions by consensus. Consensus is achieved if
no WTO Member present at the meeting when the decision is taken formally objects to the proposed decision.
Where consensus is not possible, the WTO Agreement allows for voting. A vote is won with a majority of the votes cast,
unless otherwise provided in the WTO Agreement. At meetings of the Ministerial Conference and the General Council,
each WTO Member shall have one vote.

TIP!
Since decisions in the WTO are generally made by consensus (i.e. without voting), informal consultations play a
vital role in bringing a diverse membership to an agreement. The chairperson of a negotiating group may attempt
to bridge positions or to forge a compromise by holding consultations with delegations individually, or in smaller
groups of interested delegations. The process must remain transparent to ensure that all Members are kept
informed of progress in the discussions and inclusive so that all Members have an opportunity to participate or to
provide input.

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 Test your knowledge!
MODULE 1: LESSON 2 27

Match the WTO bodies with their appropriate functions!

WTO bodies Functions

Ministerial Conference It oversees the Doha Development Agenda (DDA)

General Council It oversees the administration of the Agreements

covering trade in goods

DSB Takes decisions when the top decision-making

body is not in session

TNC Takes decisions on behalf of all the Members

Council for Trade in Goods It is in charge of administering the rules applicable

to the settlement of trade disputes

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 Test your knowledge!
MODULE 1: LESSON 2 28

Answer:

WTO bodies Functions

Ministerial Conference It oversees the Doha Development Agenda (DDA)

General Council It oversees the administration of the Agreements

covering trade in goods

DSB Takes decisions when the top decision-making

body is not in session

TNC Takes decisions on behalf of all the Members

Council for Trade in Goods It is in charge of administering the rules applicable

to the settlement of trade disputes

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 II.C: Takeaway messages from Lesson 2
MODULE 1: LESSON 2 29

Lesson 2 has discussed the following key points:

 The WTO is a “Member-driven” international organization. All decisions in the WTO are taken by its Members,
normally by consensus.
 The WTO continues the GATT’s tradition of decision-making by consensus. Consensus is achieved if no WTO
Member present at the meeting when the decision is taken formally objects to the proposed decision.
 The Ministerial Conference can take decisions on all matters under any of the Multilateral Trade Agreements, in
accordance with the decision-making procedures contained in the WTO Agreement and in the relevant multilateral
trade agreement.
 The General Council acts on behalf of the Ministerial Conference in the intervals between meetings of the
Ministerial Conference.
 The TNC was set up by the Doha Ministerial Declaration to oversee the negotiations mandated under the DDA.
 Three Councils operate under the guidance of the General Council and are also open to all WTO Members: the
Council for Trade in Goods, the Council for Trade in Services, and the Council for Trade - Related Aspects of
Intellectual Property Rights.
 Informal consultations within the WTO play a vital role in bringing a diverse membership to an agreement.

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 II.D: Suggested readings and resources
MODULE 1: LESSON 2 30

References for Lesson 2:

Legal documents:
 The Preamble of the Marrakesh Agreement Establishing the WTO:
http://www.wto.org/english/docs_e/legal_e/04-wto_e.htm

Supplementary information:
 To find more about WTO Ministerial Conferences:
http://www.wto.org/english/thewto_e/minist_e/minist_e.htm
 To find out more about the General Council:
http://www.wto.org/english/thewto_e/gcounc_e/gcounc_e.htm
 Understanding the WTO – Basics:
http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact1_e.htm

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 LESSON 3
What are the basic principles of the WTO?

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 Introduction
MODULE 1: LESSON 3 32

The WTO facilitates the smooth flow of global trade through the administration of a rules-based system. These rules are
contained in the WTO Agreement, which consists of several legal documents covering a wide range of trade-related
issues. The WTO Agreement can be seen as a set of rights and obligations that apply to the Members of the WTO. The
Agreement is based on a number of basic principles, which constitute the foundation of the MTS. The basic principles
of the WTO are:

 Non-discrimination (most-favoured nation and national treatment)

 More open and predictable trade
 Transparency
 Development dimension

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 III.A: Non-discrimination principles
MODULE 1: LESSON 3 33

III.A.1: Most-favoured nation (MFN)

The MFN principle ensures non-discrimination between or among like products, and services and nationals
with respect to the protection of intellectual property. If a Member grants an advantage to a product, service or a
national from another WTO Member, it has to do the same with respect to like products, services or, for IP, nationals
from all other WTO Members.

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 III.A: Non-discrimination principles
MODULE 1: LESSON 3 34

III.A.1: Most-favoured nation (MFN)

The MFN principle requires a WTO Member to accord to all WTO Members any advantage given to any other country (Member or not of
the WTO). However, a WTO Member could give an advantage to other WTO Members, without having to accord the same advantage to
non-Members (only WTO Members benefit from MFN treatment). The MFN principle ensures that WTO Members that may have less
bargaining power are able to benefit from the best trading conditions resulting from the negotiations. It also reduces the transaction costs
associated with market access. The MFN principle is subject to some important exceptions, which will be explained in Lesson IV.
For trade in goods (Article I of the GATT 1994), any advantage, favour or privilege granted by any Member to any product originated in
or destined for any other country shall be accorded immediately and unconditionally to the "like product" originating in or destined for all
other Members. The MFN principle covers a broad range of measures in relation to exportation and importation of goods, as well as
internal measures. GATT/WTO case law has set up criteria for determining whether the imported and domestic products are "like
products“.
For trade in services (Article II of the GATS), the GATS requires WTO Members to extend immediately and unconditionally to services
and services suppliers of any other Member treatment no less favourable than that accorded to "like services and services suppliers" of
any other country. The MFN principle is applicable to any measure -- as defined in Article I of the GATS -- that affects trade in services in
any sector falling under the Agreement, whether or not specific commitments have been undertaken. WTO Members are allowed to
maintain measures inconsistent with the MFN principle if these were inscribed in a List of Article II-Exemptions annexed to their Schedules
of specific commitments in services.
For TRIPS-related issues (Article 4 of the TRIPS Agreement), the MFN principle requires that, with regard to the protection of
intellectual property, any advantage, favour, privilege or immunity given by a Member to the nationals of any other Member(s) shall be
accorded immediately and unconditionally to the "nationals" (natural and juridical persons) of all other Members. This principle is common
to all categories of intellectual property covered by the TRIPS Agreement.

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 III.A: Non-discrimination principles
MODULE 1: LESSON 3 35

III.A.2: National treatment

The national treatment principle ensures non-discrimination between domestic and foreign products, services
and between foreign and domestic nationals with respect to the protection of intellectual property. In general,
the national treatment principle prohibits a Member from favouring its domestic goods and services over the imported
“like” goods and services from other Members, once the latter have entered the domestic market. The objective is to
provide equality of competitive conditions between domestic and foreign producers and service providers. As with the
MFN principle, there are also exceptions that apply to the national treatment principle, which will be explained in
Lesson IV.

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 III.A: Non-discrimination principles
MODULE 1: LESSON 3 36

III.A.2: National treatment

For trade in goods (Article III of the GATT 1994), the national treatment principle prohibits a WTO Member from favouring its
domestic products over a group of imported “like” products of other Members. The national treatment applies to internal
measures, as opposed to border measures (e.g. tariffs). It covers internal taxation (e.g. sales tax, value added tax), and internal
laws, regulations and requirements affecting the internal sale, transportation, distribution or use of products. Goods that can enter
a Member's customs territory thanks to reduced border barriers should not be put in an uncompetitive position due to the
application of internal measures.
In the area of services (Article XVII of GATS), the national treatment principle refers to non-discrimination between, on the one
hand, domestically produced services or domestic service providers and, on the other hand, imported services or foreign service
providers. The national treatment principle applies in the context of trade in services only to the extent that WTO Members have
made explicit commitments. The GATS requires that, in scheduled sectors, services and service suppliers of any other Member
are granted no less favourable competitive opportunities than those accorded to a Member's own "like services and services
suppliers". Any departure from this rule would need to be inscribed as a limitation on national treatment in the Schedule of
specific commitments of the Member concerned.
The TRIPS Agreement (Article 3) requires that each Member accord to the nationals of other Members treatment no less
favourable than it accords to its nationals with regard to the protection of intellectual property. The exceptions to the national
treatment principle allowed under the four pre-existing World Intellectual Property Organization (WIPO) Conventions (Paris,
Berne Rome and IPIC*) are also allowed under the TRIPS Agreement. (*) Note: Treaty on Intellectual Property in Respect of
Integrated Circuits.

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 III.B: More open and predictable trade
MODULE 1: LESSON 3 37

III.B.1: Trade in goods

Lowering trade barriers is one of the most obvious means of encouraging trade. Trade barriers include customs duties
("tariffs"), as well as import bans or quotas. However, there are also several other measures that could restrict or
impede market access for goods and services. WTO Members have recognized that the substantial reduction of
tariffs and other barriers to trade, together with the non-discrimination principle, are key instruments to
achieve the objectives of the WTO. For instance, the main WTO provisions on market access for trade in goods
cover:

 The progressive reduction and binding of tariffs

 The elimination of quantitative restrictions
 The reduction of other barriers to trade

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 III.B: More open and predictable trade
MODULE 1: LESSON 3 38

III.B.1: Trade in goods

The progressive reduction and binding of tariffs (Article II of the GATT 1994): Under the GATT/WTO, the use of tariffs is not prohibited;
however, Members have committed to carry out multilateral negotiations periodically with a view to substantially reducing the general level of
tariffs and other charges on imports and exports. WTO Members had also agreed to bind their tariffs at the reduced levels and to record such
tariff bindings, together with other concessions, in their WTO Schedules of concessions. Members may apply a tariff which is lower than the
“bound” level; however, they cannot exceed the bound levels specified in their Schedules of concessions. If a Member applies a lower tariff, it
has to grant that benefit to all Members according to the MFN principle. Tariff bindings provide predictability and security with respect to market
access for goods mainly through their inclusion in the Schedules, which are not easily changed. In order to modify their tariff concessions, a
Member has to negotiate with other Members holding special rights.

The elimination of quantitative restrictions (Article XI of the GATT 1994): WTO Members cannot, as a general rule, apply quantitative
restrictions (e.g. bans or quotas) on the goods imported from or exported to another Member. While tariffs are allowed as long as they do not
exceed the scheduled bound levels and are applied on an MFN basis, quantitative restrictions are generally prohibited (quantitative restrictions
impose absolute limits on imports, tariffs do not). Despite the general rule prohibiting quantitative restrictions, there are some exceptions which
allow their imposition in certain circumstances. In those cases, quantitative restrictions must be applied on a non-discriminatory basis, according
to Article XIII of the GATT.

Other barriers to trade: The progressive reduction of tariffs has given rise to other forms of measures restricting market access for goods and
services and protecting domestic industries. In the WTO, a number of GATT provisions and Agreements on trade in goods set out specific
disciplines on non-tariff measures (all measures other than tariffs that may restrict trade). In general, they impose disciplines on the application
and administration of such measures so that they do not constitute unnecessary barriers to international trade. The agreements include, for
example, the Agreement on the Application of Sanitary and Phytosanitary (SPS) Measures, the Agreement on Technical Barriers to Trade
(TBT), the Agreement on Customs Valuation and the Agreement on Import Licensing Procedures.

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 III.B: More open and predictable trade
MODULE 1: LESSON 3 39

III.B.2: Trade in services Key provisions:

Articles XVI and XVII of the GATS

As with Members' Schedules of tariff concessions for goods, each WTO Member is required under the GATS to
submit a Schedule for trade in services. By scheduling commitments, a Member guarantees other Members
minimum conditions of access on an MFN basis, comparable to a tariff binding under the GATT. Since these
are ceiling bindings, Members are not prevented from being more 'generous' in practice. The GATS does not prescribe
the sector scope or the level of liberalization. It is up to each Member to decide which sectors it wishes to open, the
extent of market access being given in those sectors (e.g. whether any restrictions apply on foreign ownership), as well
as any limitations on national treatment (e.g. whether some rights granted to local companies will not be granted to
foreign companies).
Schedules may vary widely in terms of the sector scope and the level of commitments undertaken, reflecting Members'
national policy objectives and constraints. Similarly to the Schedules on tariff concessions for goods, commitments in
services can only be withdrawn or modified after negotiations and agreement on any compensatory adjustment with
affected Members.

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 III.C: Transparency
MODULE 1: LESSON 3 40

Transparency obligations ensure that policies and

regulations affecting trade are made accessible to Internal transparency: keeping the WTO informed
governments and traders from all WTO Members.
Transparency also has a systemic importance as it
 Review of Members’ national trade policies through
allows the monitoring of Members’ trade measures
the Trade Policy Review Mechanism
and practices, and their impact on the MTS. Most
 Domestic publication of Members’ trade regulations
WTO Agreements include transparency obligations. The
 Notification of Members’ trade measures to the WTO
general principle on transparency for trade in goods is set
 Other transparency mechanisms
forth in Article X of the GATT 1994. Transparency in the
WTO can be characterized as “internal” or “external”:

External transparency: keeping the public informed

 Initiatives and programmes aimed at informing the

general public about WTO’s activities.

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 III.D: Development dimension
MODULE 1: LESSON 3 41

Trade plays an important role in promoting economic growth and reducing poverty in the developing world. More than
two thirds of WTO Members are developing or least-developed countries (LDCs). The WTO Agreement, in its
preamble and throughout its agreements, recognizes the particular situation of these countries, in particular
by providing special and differential treatment (S&D) in favour of developing-country and LDC Members. S&D
provides special flexibilities or rights to developing countries and LDCs to help them benefit from trade liberalization and
integrate into the MTS. It is considered a useful tool to address the economic and developmental asymmetries among
Members.

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 III.D: Development dimension
MODULE 1: LESSON 3 42

The WTO addresses the special needs of developing countries and LDCs in the following ways:

S&D provisions in the form of special flexibilities or rights for developing countries and LDCs, which are spread across the WTO Agreement.
For instance, they include longer periods for developing countries and LDCs to implement their obligations and measures to increase their
trading opportunities.

Capacity building programmes such as Aid for Trade and WTO trade-related technical assistance (TRTA) activities are aimed at helping
developing and least-developed country Members to participate in the WTO and to benefit from trade liberalization.

The Committee on Trade and Development (CTD), its Sub-Committee on LDCs and other subsidiary bodies are the focal points for the
coordination of work related to trade and development in the WTO.

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 Test your knowledge!
MODULE 1: LESSON 3 43

Complete the following sentences with the corresponding WTO principle and its main elements.

1. The ________ principle ensures that Members do not discriminate between their trading partners. It applies with
respect to ________ and ________.

2. According to ________ a Member that has agreed to bind its tariff for pianos at 10% cannot apply a higher tariff on
pianos (e.g. 30%).

3. The ________ principle ensures that Members do not favour ________ products over the products imported from
other Members. It applies with respect to internal taxes and ________.

4. ________ Members enjoy special flexibilities under the WTO Agreement, such as longer transitional periods to
meet their obligations.

5. ________ is very important as it allows Member governments and traders to be informed about other Members’
policies affecting trade. Based on this principle, each Member’s trade policies are reviewed under the ________.
Each Member is also informed about other Members’ trade regulations through ________ to the WTO.

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 Test your knowledge!
MODULE 1: LESSON 3 44

Answer:

1. The MFN principle ensures that Members do not discriminate between their trading partners. It applies with
respect to imports and exports.

2. According to Art.II.1 GATT a Member that has agreed to bind its tariff for pianos at 10% cannot apply a higher
tariff on pianos (e.g. 30%).

3. The NT principle ensures that Members do not favour domestic products over the products imported from other
Members. It applies with respect to internal taxes and regulations.

4. Developing and least-developed Members enjoy special flexibilities under the WTO Agreement, such as
longer transitional periods to meet their obligations.

5. Transparency is very important as it allows Member governments and traders to be informed about other
Members’ policies affecting trade. Based on this principle, each Member’s trade policies are reviewed under
the TPRM. Each Member is also informed about other Members’ trade regulations through notifications to
the WTO.

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 III.E: Takeaway messages from Lesson 3
MODULE 1: LESSON 3 45

Lesson 3 has discussed the following key points:

 The basic market access principles of the WTO include: Non-discrimination (most-favoured nation and national
treatment), more open and predictable trade, transparency and the development dimension.
 The MFN principle ensures non-discrimination between trading partners. If a WTO Member grants to a Member an
advantage, it has to extend such advantage to all WTO Members.
 The national treatment principle ensures non-discrimination between domestic and foreign products, services or
nationals with regard to the protection of intellectual property.
 WTO Members have recognized that the substantial reduction of tariffs and other barriers to trade, together with
the non-discrimination principle, are key to achieving the objectives of the WTO.
 Each WTO Member is required under the GATS to submit a Schedule for trade in services. By scheduling
commitments, a Member guarantees other Members minimum conditions of access on an MFN basis, comparable
to a tariff binding under the GATT.
 Transparency obligations ensure that policies and regulations affecting trade are made accessible to governments
and traders from all WTO Members. Transparency also has a systemic importance as it allows the monitoring of
Members’ trade measures and practices, and their impact on the MTS.
 More than two thirds of WTO Members are developing countries or LDCs. The WTO Agreement recognizes the
particular situation of these countries and the link between trade and development by providing them special and
differential treatment (S&D).
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 III.F: Suggested readings and resources
MODULE 1: LESSON 3 46

References for Lesson 3:

Main legal documents:

 Articles I, II and III of the GATT:
http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm#articleI

Supplementary information:
 Legal Underpinnings:
http://www.swisslearn.org/wto/module3/e/start.htm
 Understanding the WTO – Principles of the system:
http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.ht
 Understanding the WTO – Principles of the system:
http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm
 WTO website – Who are developing members in the WTO?
http://www.wto.org/english/tratop_e/devel_e/d1who_e.htm
 Link to Understanding the WTO – developing countries:
http://www.wto.org/english/thewto_e/whatis_e/tif_e/dev1_e.htm
 List of LDC members:
http://www.wto.org/english/thewto_e/whatis_e/tif_e/org7_e.htm
 WTO – website – Work programme on small economies
http://www.wto.org/english/tratop_e/devel_e/dev_wkprog_smalleco_e.htm
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 LESSON 4
Basic principles: what are the main exceptions to WTO
obligations?

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 Introduction
MODULE 1: LESSON 4 48

WTO Members may, in certain circumstances, deviate from their main obligations and apply trade restrictive
measures, provided that they comply with certain conditions. Such trade restrictions are considered to serve
legitimate objectives such as the protection of health or the environment. The exceptions provide flexibility for the
Members to meet their policy objectives. The main exceptions include:

 General exceptions
 Regional trade agreements (RTAs)
 Enabling clause
 Trade remedies (safeguard, CVD, AD)
 Balance of payments
 Security exceptions
 Waivers

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 IV.A: General exceptions
MODULE 1: LESSON 4 49

Key provisions:
Article XX of the GATT 1994 and Article XIV of the GATS

The purpose of the general exceptions is to ensure that commitments undertaken by Members under the WTO
Agreement do not hinder their pursuit of legitimate policy objectives. A WTO Member may invoke a general exception
when one of its measures has been found to be inconsistent with a provision of the GATT 1994 or the GATS. An
exception may apply, for example, with regard to a measure that is necessary to protect human, animal or plant
life or health, or that relates to the conservation of exhaustible natural resources. The general exceptions allow
Members to derogate from their WTO obligations provided that certain conditions are met.

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 IV.A: General exceptions
MODULE 1: LESSON 4 50

For trade in goods, the general exceptions are set forth in Article XX of the GATT 1994. Article XIV of the GATS provides similar exceptions
applicable to trade in services. In order to be justified under one of these provisions, a measure must first meet the requirements of one of the
sub-paragraphs of Article XX of the GATT 1994 or Article XIV of the GATS; and second, it must meet the requirements of the “chapeau” (or
introductory paragraph) of the provision, namely that the measure does not constitute arbitrary or unjustifiable discrimination between countries
where the same conditions prevail, or a disguised restriction on international trade.
It is up to each WTO Member to set the policy objectives that it seeks to achieve and the level of protection that it wants to obtain. However,
Members are bound to implement these objectives through measures that are consistent with the WTO rules. The “chapeau” of Article XX of
the GATT 1994 and Article XIV of the GATS serves to ensure that Members’ right to avail themselves of the general exceptions is exercised in
good faith.

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 IV.B: Regional trade agreements
MODULE 1: LESSON 4 51

Key provisions:
Article XXIV of the GATT 1994 and Article V of the GATS

Members are allowed to provide preferential treatment to their trading partners within a customs union or a
free trade area (goods), or with regard to economic integration arrangements (services), without having to
extend such treatment to all WTO Members, subject to certain conditions. The purpose of a customs union or a
free trade area should be to facilitate trade among the parties to the RTA and not to raise barriers to the trade with other
WTO Members. The Agreement provides internal and external conditions to RTAs. These agreements shall be in line
with the objectives of the MTS, and not constitute obstacles to trade. Other requirements comprise provisions on interim
agreements and transparency provisions.

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 IV.B: Regional trade agreements
MODULE 1: LESSON 4 52

For trade in goods, Article XXIV of the GATT 1994 provides the legal basis for RTAs while economic integration agreements on trade in
services are subject to Article V of the GATS. In addition, the Enabling Clause (paragraph 2c) allows developing country Members to conclude
agreements on trade in goods among themselves, subject to more flexible requirements than those contained in Article XXIV of the GATT
1994. The Transparency Mechanism for RTAs applies to all RTAs, whether notified under the GATT, the GATS or the Enabling Clause.

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 IV.C: The “Enabling Clause”
MODULE 1: LESSON 4 53

Key legal instrument:

Decision on Differential and More Favourable Treatment, Reciprocity
and Fuller Participation of Developing Countries (L/4903)

The Enabling Clause constitutes an S&D provision, which aims at increasing the commercial opportunities for
developing and LDC Members. It authorizes developed-country Members to grant enhanced market access to products
from developing countries, without having to give such ‘differential and most favourable treatment’ to other Members. In
that sense, the Enabling Clause operates as an ‘exception’ to the MFN treatment obligation in Article I:1 of the
GATT 1994, which normally requires that such treatment be extended to all Members ‘immediately and
unconditionally’.

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 IV.C: The “Enabling Clause”
MODULE 1: LESSON 4 54

The Enabling Clause applies, for instance, to preferential tariff treatment accorded by developed-country Members to products originating in
developing countries under their respective Generalized System of Preferences (GSP) schemes (Paragraph 2(a)). A developed-country
Member may grant additional preferential treatment to some, and not to other, developing country Members, as long as the additional
preferential tariff treatment is available to all similarly-situated developing-country Members, that is, to all those that have the development,
financial and trade needs to which the preferential treatment is intended to respond. The preferences granted are subject to the Transparency
Mechanism for Preferential Trade Arrangements (PTAs). The Enabling Clause also allows developing country Members to conclude
(reciprocal) trade agreements on trade in goods among themselves, without having to extend such treatment to other WTO Members, subject
to certain requirements (Paragraph 2(c)).

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 IV.D: Trade remedies
MODULE 1: LESSON 4 55

WTO Members are allowed to apply trade defence mechanisms to remedy a situation of unfair trade practices (anti-
dumping and countervailing measures) or a surge of imports (safeguard measures). In general, these remedies may be
applied when (dumped/subsidized/increased) imports are causing, or threatening to cause, injury to the domestic
industry producing the like (*) products, subject to certain requirements. Even if these measures are not referred to
generally as ‘exceptions’, they allow Members to depart – exceptionally and temporarily - from certain core
WTO obligations, for instance, by imposing “tariffs” above the bound levels.

TIP!
The application of anti-dumping, countervailing and safeguard measures is subject to the
requirements set out in the Anti-Dumping Agreement, the Agreement on Subsidies and
Countervailing Measures and the Agreement on Safeguards respectively. A Member may
apply these measures following the conduct of an investigation by a domestic investigating
authority pursuant to the procedural requirements set out in the respective Agreements.

(*) In the context of safeguard measures,

the Agreement refers to like or directly
competitive products.

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 IV.E: Other exceptions
MODULE 1: LESSON 4 56

Balance of Payments (Articles XII and Security Exceptions (Articles XXI GATT Waivers (Article IX:3 of the WTO
XVIII:B GATT 1994 and XII GATS) 1994, XIV bis GATS and 73 TRIPS) Agreement)

Members may take measures, such as Members may apply trade-restrictive Members may request the authorization of
quantitative restrictions, to safeguard their measures if such measures are necessary, other Members to derogate from an
external financial position and to protect for instance, to protect essential security obligation contained in the WTO
their balance of payments (BoPs), subject interests, or are taken in pursuance of Agreement or in any of the Multilateral
to specific conditions. While Article XII of obligations under the United Nations Trade Agreements. The decision to
the GATT 1994 can be invoked by all Charter for the maintenance of “waive” an obligation imposed on a
Members, Article XVIII:B is available only international peace and security. The Member is taken by the Ministerial
to developing country Members. categories of measures concerned are Conference (or General Council). Such a
In general, measures taken for BoP broadly defined as: i) measures relating to decision shall state the exceptional
purposes are temporary; they may not fissionable materials; ii) measures relating circumstances of the requesting Member,
exceed what is necessary to address the to trade in arms or in other materials the terms and conditions governing the
BoP problem at hand; and they must related to military use; and iii) measures application of the waiver and the date of
avoid unnecessary damage to the taken in time of war or other emergency in termination. Any waiver granted for a
commercial and economic interests of international relations. period of more than one year is reviewed
other Members. annually.

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 Test your knowledge!
MODULE 1: LESSON 4 57

Complete the following statements on exceptions to WTO obligations:

1. Allow Members to meet certain policy objectives considered legitimate subject to specific conditions:
_ _ _ _ _a _ ___e______

2. Permit Members to provide a more favourable treatment on a reciprocal basis to certain chosen Members, subject to certain
requirements, and as an exception to the MFN principle:
____o___ _r___ ____e_____

3. Allows Members to protect their essential security interests:

________ e________

4. Follow a determination that dumping has occurred and has led to an injury or threat of injury to the domestic industry:
_n______i__ _u____

5. Allows developed Members to provide more favourable tariff treatment to developing and LDC Members without having to
extend such treatment to other WTO Members:
_n _ _ _ _ _ _ _ l _ _ _ _

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 Test your knowledge!
MODULE 1: LESSON 4 58

Answer:

1. Allow Members to meet certain policy objectives considered legitimate subject to specific conditions:
GENERAL EXCEPTIONS

2. Permit Members to provide a more favourable treatment on a reciprocal basis to certain chosen Members, subject to certain
requirements, and as an exception to the MFN principle:
REGIONAL TRADE AGREEMENTS

3. Allows Members to protect their essential security interests:

SECURITY EXCEPTION

4. Follow a determination that dumping has occurred and has led to an injury or threat of injury to the domestic industry:
ANTIDUMPING DUTIES

5. Allows developed Members to provide more favourable tariff treatment to developing and LDC Members without having to
extend such treatment to other WTO Members:
ENABLING CLAUSE

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 IV.F: Takeaway messages from Lesson 4
MODULE 1: LESSON 4 59

Lesson 4 has discussed the following key points:

 WTO Members may, in certain circumstances, deviate from their main obligations and apply trade restrictive measures,
provided that they comply with certain conditions.
 WTO Members have the right to take measures which may restrict trade if, for example, such measures are necessary to
protect human, animal or plant life or health, or relate to the conservation of exhaustible natural resources, subject to certain
conditions.
 Members are allowed to provide preferential treatment to their trading partners within a customs union or a free trade area
(goods), or with regard to economic integration arrangements (services), without having to extend such treatment to all WTO
Members, subject to certain conditions.
 The Enabling Clause constitutes an S&D provision, which aims at increasing the commercial opportunities for developing
and LDC Members. It allows developed Members to give preferential treatment on a non - reciprocal basis to goods
originating in developing and LDC Members, without having to extend such treatment to other Members.
 WTO Members are allowed to apply trade defence mechanisms to remedy a situation of unfair trade practices (anti-dumping
and countervailing measures) or a surge of imports (safeguard measures).
 Members may take measures, such as quantitative restrictions, to safeguard their external financial position and balance of
payments (BOPs), subject to specific conditions.
 Members may apply trade-restrictive measures if they are necessary to protect essential security interests, or in pursuance
of their obligations under the United Nations Charter for the maintenance of international peace and security.
 In exceptional circumstances, the Ministerial Conference (or General Council) may decide to ‘waive’ an obligation imposed
on a Member by the WTO Agreement or any of the Multilateral Trade Agreements.

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 IV.G: Suggested readings and resources
MODULE 1: LESSON 4 60

References for Lesson 4:

Main legal documents:

 Article XX of the GATT (General exception):
http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm#articleXX
 Article XXIV of the GATT (Economic integration exception):
http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm#articleXXIV
 Other Articles of the GATT and WTO Agreements:
http://www.wto.org/english/docs_e/legal_e/legal_e.htm#gatt47

Supplementary information:
 Legal Underpinnings:
http://www.swisslearn.org/wto/module3/e/start.htm
 Regional Trade Agreements:
http://www.wto.org/english/tratop_e/region_e/rta_pta_e.htm
 Balance of Payments:
http://www.wto.org/english/tratop_e/bop_e/bop_e.htm
 Anti-dumping:
http://www.wto.org/english/tratop_e/adp_e/adp_e.htm
 Subsidies and Countervailing Measures:
http://www.wto.org/english/tratop_e/scm_e/scm_e.htm
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