LLM Group 2 Business Law Global Trade Under World Trade Organisation 2015 Question Paper with Solutions

For full marks, cover: the purposes as stated, then the four legal instruments through which they were to be achieved, because those instruments are the measure of success; then the record round by round with figures; then the failures, which are failures of coverage rather than of design; and a verdict.

The General Agreement on Tariffs and Trade was signed at Geneva on 30 October 1947 by twenty three countries and applied from 1 January 1948 under a Protocol of Provisional Application. It was Chapter IV of the Havana Charter for an International Trade Organization, detached and brought into force early so that the tariff concessions negotiated at Geneva in 1947 would take effect without waiting for the Charter's ratification. The Charter died in the United States Senate in 1950, and the fragment became the whole system for forty seven years.

The four instruments, which are how the purposes became law

Article II and the Schedules of Concessions. A binding is a promise not to exceed a stated rate on a stated product, and the Schedules annexed under Article II are made an integral part of the Agreement. The value of a binding is predictability rather than the level: an importer can plan around a bound rate, and an unbound rate can be raised overnight. India's applied rates remain well below its bindings on most industrial lines, which is why the Indian information technology tariff dispute, DS582, turned on whether the goods fell inside a binding at all.

Article I, most favoured nation treatment. Any advantage granted to a product of any other country must be extended immediately and unconditionally to the like product of every contracting party. This is what multilateralises a bilateral bargain and what makes joining a round worthwhile.

Article III, national treatment. Internal taxes and regulations must not be applied so as to protect domestic production, so that a member cannot take back inside the border what it conceded at it.

On membership it succeeded beyond its design. Twenty three original contracting parties became one hundred and twenty eight by the end of 1994, and the successor organisation had one hundred and sixty six members by 2026. A body created as the remnant of an unratified charter became the framework of nearly all world trade.

On technique it produced two durable inventions. Reciprocity multilateralised by MFN, which makes liberalisation self spreading; and the settlement of complaints by reasoned panel report against agreed rules, which is the direct ancestor of the modern dispute system.

The failures, each with its evidence

The Protocol of Provisional Application and the grandfather clause. Because the Agreement applied provisionally, Part II, Articles III to XXIII, applied only "to the fullest extent not inconsistent with existing legislation". Domestic law already enacted prevailed indefinitely. The waiver granted to the United States in 1955 under the Agricultural Adjustment Act, permitting agricultural quotas contrary to Article XI, was never withdrawn.

Fragmentation was the fifth failure. The Tokyo Round's nine codes bound only their signatories, so the same conduct could be lawful against one partner and unlawful against another. The single undertaking of Annexes 1 to 3 was written to end that.

The verdict, and the case that proves it

Measured against its own purposes GATT succeeded almost completely on tariffs, substantially on predictability and non discrimination in industrial goods, and hardly at all where its own waivers and derogations had removed the rule. The failures were failures of coverage and enforcement, not of principle: the rules of 1947 were re-enacted almost unchanged as GATT 1994, which is the strongest possible testimonial to them.

Two figures, and the counterfactual, which is how the success should really be measured

The first figure is binding coverage, not the tariff level. By the close of the Uruguay Round almost all industrial tariff lines of the developed members were bound, and a large majority of developing members' lines were bound for the first time. A bound line is a legal ceiling, so the significance is that protection ceased to be a matter of executive discretion and became a matter of treaty obligation. That change is invisible in an average tariff figure and it is the more durable of the two achievements.

The second figure is participation. Twenty three contracting parties in 1947 became one hundred and twenty eight by the end of 1994, and thirty six further accessions have been completed since. Governments do not undertake a decade of legislative reform to join an arrangement they regard as ornamental, so accession is the best available revealed preference test of whether GATT worked.

Conclusion. The basic purposes of GATT were to raise living standards, employment and real income by the substantial reduction of trade barriers and the elimination of discrimination, and they were translated into four instruments: the bound Schedule under Article II, most favoured nation treatment under Article I, national treatment under Article III and the prohibition of quotas under Article XI. On the first, eight rounds cut industrial tariffs from about forty per cent to under four, and membership grew from twenty three to one hundred and twenty eight, which is success on a scale no other economic institution can claim.

On the second, the rule held for industrial goods and was suspended for agriculture by the 1955 waiver and for textiles by the Multi Fibre Arrangement, while voluntary export restraints grew up beside Article XI and the grandfather clause in the Protocol of Provisional Application protected inconsistent domestic law throughout. The system's own remedy was unusable, as the two unadopted Tuna Dolphin reports show. GATT therefore achieved its purposes to the exact extent that its instruments were allowed to operate, and its failures are the agenda of the Uruguay Round, which is the most that can honestly be said and a great deal more than most institutions achieve in half a century.