B.A. LL.B. (Five Years) Sem 10 International Trade Economics 2015 Dec Question Paper with Solutions

For full marks, cover: the meaning of the most favoured nation (MFN) clause and its unconditional form; its history (bilateral treaties, the Cobden-Chevalier Treaty of 1860, the inter-war failure of conditional MFN, its place as Article I of GATT); its legal standing in the WTO (GATT Article I:1, GATS Article II, TRIPS Article 4; protection from amendment under Marrakesh Article X:2); the case for MFN as the basic principle: economic (efficiency, comparative advantage, lower negotiating costs, multilateralised concessions), political (equality, protection of small countries, fewer trade wars) and legal (a yardstick for every other rule), with cases (Colombia: Ports of Entry, European Communities: Tariff Preferences); the case against or the qualifications: free riding, the exceptions (customs unions and free trade areas, Turkey: Textiles; preferences for developing countries; waivers; trade remedies; GATS exemptions), the growth of regional and plurilateral deals; a balanced verdict; India's view; a conclusion.

Legal standing in the WTO

1. Goods: GATT Article I:1.
2. Services: GATS Article II requires treatment no less favourable than that given to like services and suppliers of any other country. Members could list exemptions at entry.
3. Intellectual property: TRIPS Article 4.
4. Entrenchment: Article X:2 of the Marrakesh Agreement protects these provisions. An amendment to GATT Article I, GATS Article II:1 or TRIPS Article 4 takes effect only when all members accept it. No other WTO rule enjoys such protection.

The case for MFN as the basic principle

A. Economic arguments.

1. Efficiency. Because all suppliers face the same tariff, buyers choose the cheapest and best source, not the most favoured one. Trade follows comparative advantage.
2. Lower negotiating costs. A country negotiates a concession once, and it applies to all. There is no need for hundreds of separate bargains.

2. It reaches discrimination in fact as well as in law, and covers procedures and formalities, not only tariffs.

Colombia: Ports of Entry (WT/DS366/R, adopted 20 May 2009). Colombia required textiles, clothing and footwear arriving from Panama and its Colon Free Zone to use only two ports, with advance declarations and payment. The panel held, among other findings, that the advance declaration requirement breached Article I:1, since it did not apply to goods from other countries. Panama won on every claim. MFN thus covers customs formalities, not only duty rates.

European Communities: Tariff Preferences (WT/DS246/AB/R, adopted 20 April 2004). The European GSP gave extra preferences to twelve countries under a drug arrangement but excluded India. The Appellate Body held that the Enabling Clause is an exception to Article I:1, which the defending member must justify. Extra preferences must be open to all similarly placed developing countries. India won. The case shows MFN as the default rule from which every preference must be justified.

1. customs unions and free trade areas (GATT Article XXIV; GATS Article V), covering substantially all trade among their members;
2. preferences for developing countries under the Enabling Clause of 1979;
3. historical preferences under Article I:2, frozen at old margins;
4. waivers under Article IX:3 of the Marrakesh Agreement;
5. trade remedies: anti-dumping and countervailing duties fall on particular sources;
6. the general and security exceptions in Articles XX and XXI; and
7. GATS exemptions listed by members at entry.

Turkey: Textiles (WT/DS34/AB/R, adopted 19 November 1999). On forming a customs union with the European Communities, Turkey imposed quotas on Indian textiles. The Appellate Body held that Article XXIV justifies a measure only if the union could not have been formed without it. India won. Even the regional exception is tightly limited.

3. The growth of regional deals. Hundreds of free trade agreements now exist. For many goods, a growing share of trade moves at preferential rather than MFN rates.

Conclusion. The MFN clause requires each member to treat all others as well as its best-treated partner, immediately and unconditionally. It promotes international trade by making trade efficient, spreading negotiated concessions to all, simplifying tariffs and protecting small countries from discrimination. That is why it is Article I of GATT and why it can be amended only by all members. Its exceptions, for regional integration, development and trade remedies, show that it is a basic principle rather than an absolute rule. On balance, the statement that MFN is the basic principle for the promotion of international trade is justified.