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

For full marks, cover: non-discrimination as the foundation of world trade law and its two pillars; MFN treatment: meaning, origin (conditional and unconditional clauses), Article I:1 of GATT 1994 element by element, de jure and de facto discrimination (Canada: Autos), MFN in services and intellectual property (GATS Article II, TRIPS Article 4, European Communities: Bananas III), the main exceptions (Article XXIV, the Enabling Clause and European Communities: Tariff Preferences, Articles XX and XXI, waivers), and why MFN matters; national treatment: meaning, Article III paragraph by paragraph (III:1, III:2 with both sentences, III:4, III:5, III:8), the cases (Japan: Alcoholic Beverages, Korea: Alcoholic Beverages, European Communities: Asbestos, India: Autos, India: Solar Cells), national treatment in GATS, TRIPS and TRIMs, and why it is a pillar of equality; how the two work together; India; a table; a conclusion.

Article I:1 of GATT 1994, element by element.

1. Scope. It covers customs duties and charges on imports and exports, and the method of levying them. It also covers rules and formalities, and the internal matters in Article III:2 and III:4.
2. Any advantage, favour, privilege or immunity. The words are wide. They cover tariff rates, quotas, licences, procedures and tax treatment.
3. Granted to any product of any other country. The advantage counts even if given to a non-member.
4. Immediately and unconditionally. The benefit cannot be delayed or made to depend on a return concession.
5. Like product. The comparison is between like products, judged by physical properties, end uses, consumer tastes and tariff classification.

De facto discrimination. A measure neutral on its face can still breach Article I.

Canada: Autos (WT/DS139/AB/R and WT/DS142/AB/R, adopted 19 June 2000). Canada exempted certain car makers from import duty if they met value added and production conditions. In practice only cars from the United States and the makers' own affiliates benefited. The Appellate Body held that Article I:1 catches discrimination in fact as well as in law. Japan and the European Communities won.

3. Historical preferences (Article I:2), such as old Commonwealth preferences, which may not exceed their 1947 margins.
4. General and security exceptions (Articles XX and XXI).
5. Waivers granted under Article IX:3 of the Marrakesh Agreement.
6. Trade remedies. Anti-dumping and countervailing duties fall on particular sources.

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 that included Pakistan but left out 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 meet an objective development need and be open to all similarly placed countries. India won.

Why MFN matters.

1. Equality among nations. Small and poor members get the same tariff as the most powerful.
2. Multilateralism. A concession given to one is given to all, so bargains spread across the system.
3. Efficiency. Goods come from the cheapest supplier, not the politically favoured one.

• Second sentence, with the Ad Note. Imports must not be taxed dissimilarly from directly competitive or substitutable domestic products, if that affords protection.

Japan: Alcoholic Beverages (WT/DS8/AB/R and related reports, adopted 1 November 1996). Japan taxed its spirit shochu far more lightly than imported vodka, whisky and brandy. The Appellate Body held vodka and shochu like products, so the higher tax on vodka breached the first sentence. Whisky, brandy and other spirits were directly competitive with shochu. The heavier taxes on them were protective and breached the second sentence. The complainants won.

Korea: Alcoholic Beverages (WT/DS75/AB/R and WT/DS84/AB/R, adopted 17 February 1999). Korea taxed soju lightly and western spirits heavily. It argued that imports were too few to compete. The Appellate Body held that potential as well as present competition counts. A protective tax itself suppresses the imports. The complainants won.

3. Laws and regulations (Article III:4). Imports must receive treatment no less favourable than like domestic products under all laws, regulations and requirements on their sale, purchase, transport, distribution or use. The test is whether the measure changes the conditions of competition against imports.

India: Solar Cells (WT/DS456/AB/R, adopted 14 October 2016). India's National Solar Mission required developers selling power to government agencies to use Indian-made cells and modules. The Appellate Body held this a breach of Article III:4 and TRIMs Article 2.1. The procurement exception failed, because the government bought electricity, not cells. India lost.

National treatment in other agreements.

• GATS Article XVII: national treatment for services, but only in sectors a member lists in its schedule, subject to its conditions.
• TRIPS Article 3: foreign nationals get no less favourable intellectual property protection than nationals.
• TRIMs Article 2: investment measures inconsistent with Article III, such as local content rules, are banned.

Why national treatment is a pillar of equality.

1. Equal competitive opportunity. Imports compete on price and quality, not under hidden handicaps.
2. It protects tariff bindings. Without it, a member could cut its tariff and then add an internal tax, undoing the concession.
3. It stops disguised protection through taxes, standards and distribution rules.

India

India has used both principles to its advantage. It won European Communities: Tariff Preferences on MFN. It lost India: Autos and India: Solar Cells on national treatment. Both cases show that a local content condition, however worthy its aim, cannot survive Article III:4.

Summary table