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International Trade Economics
Previous Year Question Paper with Solution
B.A. LL.B. (Five Years) · Sem 10
2016 Dec Examination
munotes.in
Mumbai
B.A. LL.B. (Five Years) Sem 10 International Trade Economics 2016 Dec Question Paper with Solutions
First published on munotes.in on 21 October 2026.
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The question paper reproduced here is the paper as set by Karnataka State Law University at the 2016 Dec examination.
Contents
The questions below are the paper as Karnataka State Law University set it at the 2016 Dec examination, in the order it was set.
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2016 Dec examination, reproduced as Karnataka State Law University set them, in the order it set them. Long reading passages are shortened to their first and last lines and our summary; the original paper prints them in full. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 13 questions answered
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
Q1Explain the principle of 'Most Favoured Nation Treatment' and what are the exceptions to it ?[16]
Answer
For full marks, cover: the origin of the MFN clause in commercial treaties and the shift from conditional to unconditional MFN; the principle: Article I:1 of GATT 1994 broken into its five elements, its scope, de jure and de facto discrimination (European Communities: Bananas III, Canada: Autos, Colombia: Ports of Entry); MFN in services (GATS Article II) and intellectual property (TRIPS Article 4); its entrenchment (Marrakesh Article X:2); why it is an essential principle (economic, political and practical reasons); the exceptions, each with its legal basis, its conditions and a case: historical preferences, customs unions and free trade areas (Turkey: Textiles), the Enabling Clause (European Communities: Tariff Preferences), waivers, trade remedies, general and security exceptions (United States: Shrimp, Russia: Traffic in Transit), non-application, frontier traffic, the GATS and TRIPS exemptions; what is NOT an exception (safeguards); a table; an assessment of how far the exceptions have eroded the rule; a conclusion.
Origin of the principle
The most favoured nation clause grew up in the commercial treaties of the seventeenth to nineteenth centuries. A state promised a partner the best treatment it gave any third country. The Cobden-Chevalier Treaty of 1860 between Britain and France spread such clauses across Europe.
Two forms were used. Under conditional MFN, a later concession passed to the partner only if it paid an equivalent price. Under unconditional MFN, it passed automatically. The conditional form bred bargaining and suspicion between the wars. GATT 1947 therefore adopted the unconditional form and made it Article I.
The principle
Article I:1 of GATT 1994 has five elements:
- "any advantage, favour, privilege or immunity": any benefit at all, however small;
- "granted by any contracting party": by any member;
- "to any product originating in or destined for any other country": even a non-member;
- "shall be accorded immediately and unconditionally": without delay and without asking anything in return; and
- "to the like product" originating in or destined for all other members.
Scope. It covers customs duties and charges on imports and exports and the method of levying them. It covers all rules and formalities of importing and exporting. It also reaches the internal taxes and regulations covered by Article III, so a tax break given to one country's goods must go to all.
Discrimination in law and in fact. A measure breaches MFN if it names countries, and also if it is neutral on paper but favours some countries in practice.
European Communities: Bananas III (WT/DS27/AB/R, adopted 25 September 1997). The EC gave tariff quotas and licensing advantages to bananas from African, Caribbean and Pacific countries over Latin American bananas. The Appellate Body held that the regime breached Articles I and XIII of GATT, and the GATS. Ecuador was later authorised to suspend TRIPS concessions in retaliation.
Canada: Autos (WT/DS139/AB/R, adopted 19 June 2000). Canada's duty exemption for vehicles was origin-neutral on paper. In practice it reached only the vehicles of a few countries' manufacturers. The Appellate Body held that Article I:1 also catches such de facto discrimination.
Colombia: Ports of Entry (WT/DS366/R, adopted 20 May 2009). Colombia confined imports of textiles, apparel and footwear arriving from Panama to two ports, with advance declaration and payment. The panel held that the two-port rule breached Article XI:1. The advance declaration, demanded only of goods from Panama, breached Article I:1.
Beyond goods. GATS Article II applies MFN to services and service suppliers, subject to each member's one-time list of exemptions. TRIPS Article 4 applies it to the protection of intellectual property, subject to four listed exemptions.
Entrenchment. Article X:2 of the Marrakesh Agreement protects Article I of GATT, Article II:1 of GATS and Article 4 of TRIPS. They can be amended only with the acceptance of all members.
Why MFN is an essential principle
Economic reasons. Goods are bought from the cheapest efficient supplier, not the most favoured one. Every concession spreads to all members, so tariffs fall faster.
Political reasons. All members, large and small, stand on an equal footing. Small countries gain from bargains struck by large ones. The discrimination that soured relations in the 1930s is ruled out.
Practical reasons. One tariff applies to all members, so customs work is simpler and rules of origin matter less.
The exceptions
1. Historical preferences (Article I:2 to I:4). Preferences existing in 1947, mainly imperial preference, could continue at their old margins. They are now effectively spent.
2. Customs unions and free trade areas (Article XXIV). Members may form unions and free trade areas that free substantially all the trade between them. The common or remaining barriers to outsiders must not on the whole become higher. Interim agreements need a plan and schedule. GATS Article V does the same for services.
Turkey: Textiles (WT/DS34/AB/R, adopted 19 November 1999). On forming its customs union with the EC, Turkey imposed quotas on Indian textiles. The Appellate Body held that Article XXIV covers a measure only if the union could not be formed without it. Turkey could not show that, and India won.
3. The Enabling Clause (1979). Developed members may grant lower tariffs to developing countries under the Generalised System of Preferences. Developing countries may also exchange preferences among themselves, and the least developed may receive special treatment.
European Communities: Tariff Preferences (WT/DS246/AB/R, adopted 20 April 2004). India challenged the EC's drug-arrangement preferences, granted to twelve countries only. The Appellate Body held that extra preferences must answer an objective development need, and be open to all similarly placed countries.
4. Waivers (Marrakesh Article IX:3). The Ministerial Conference may waive an obligation in exceptional circumstances, normally by consensus. A waiver needs a three-quarters majority if voted, and is reviewed every year (Article IX:4).
5. Trade remedies (Article VI). Anti-dumping and countervailing duties fall on particular exporters or countries, since they answer dumping or subsidies from a particular source.
6. General exceptions (Article XX). Measures to protect public morals, health, exhaustible natural resources and other listed values may depart from MFN. The chapeau forbids arbitrary or unjustifiable discrimination between countries where the same conditions prevail.
United States: Shrimp (WT/DS58/AB/R, adopted 6 November 1998). The US banned shrimp caught without turtle-excluder devices. The ban could fall within Article XX(g), but the US failed the chapeau. It had negotiated with some countries and not others, and applied its rules rigidly.
7. Security exceptions (Article XXI). A member may take action it considers necessary for its essential security interests, for example in time of war or other emergency in international relations.
Russia: Traffic in Transit (WT/DS512/R, adopted 26 April 2019). The panel held that Article XXI is not wholly self-judging. Whether a war or other emergency in international relations exists is for the panel to decide, and the member must act in good faith. Russia succeeded on the facts.
8. Non-application (Marrakesh Article XIII). A member may refuse consent, when either joins, to the agreements applying between it and a new member. It then need not apply them to that member.
9. Frontier traffic (Article XXIV:3). Advantages to adjacent countries to ease frontier traffic are allowed.
10. Services and intellectual property. GATS allows the listed Article II exemptions and economic integration agreements. TRIPS Article 4 exempts, among others, advantages from general judicial assistance treaties and from intellectual property agreements in force before the WTO and notified.
What is not an exception. Safeguard measures under Article XIX must be applied to a product irrespective of its source (Safeguards Agreement, Article 2.2). They restrict trade, but they respect MFN.
The exceptions at a glance
| Exception | Basis | Key condition | Case |
|---|---|---|---|
| Historical preferences | GATT I:2 to I:4 | 1947 margins only | None |
| Regional agreements | GATT XXIV; GATS V | Substantially all trade; no higher barriers | Turkey: Textiles |
| Development | Enabling Clause | Objective need; open to all similar | European Communities: Tariff Preferences |
| Waivers | Marrakesh IX:3 | Exceptional; reviewed yearly | None |
| Exception | Basis | Key condition | Case |
|---|---|---|---|
| Trade remedies | GATT VI | Dumping or subsidy with injury | None |
| General exceptions | GATT XX | Chapeau: no arbitrary discrimination | United States: Shrimp |
| Security | GATT XXI | Emergency; good faith | Russia: Traffic in Transit |
Has the exception swallowed the rule?
Over 350 regional trade agreements are now in force and notified. Preferential tariffs cover a large part of world trade. The EU, ASEAN and India's own agreements depart from MFN within their membership. Yet MFN still governs trade between members without such agreements. Every exception must be justified against it, and the cases read them narrowly. MFN therefore remains the rule, though a rule with many doors.
Conclusion. MFN, in its unconditional form in Article I:1, requires every member to give all members the best treatment it gives any country. This applies in law and in fact. It extends to services and intellectual property and can be amended only with the acceptance of all members. It is an essential principle because it promotes efficient trade, equality and simplicity. Its exceptions serve regional integration, development, fair trade, non-trade values and security. Each is strictly read, as Turkey: Textiles, European Communities: Tariff Preferences and United States: Shrimp show, so MFN remains the foundation of the system.
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