Lecture 2: MFN
GATT ART. I - MFN - Most essential
I:1 In respect to all duties, charges, internal arrangements - any privilege or advantage given to any
state's products, have to be extended to like products of every WTO member immediately, and
unconditionally. (Paraphrase, not a quote)
EC-Seals: as long as such distinctions do not result in a detrimental impact on the competitive
opportunities for like imported products. In case-law conditions for lawful preferences not triggering
MFN.
Scope
-Internal and external measures - all measures whether tariffs, selling arrangements, or licencing
-Like products (will be in a separate note in NT)
-Foreign products - discrimination against domestic production is not touched upon here.
Why does MFN matter?
One of the top aims of WTO is liberalization of trade - which MFN is a perfect tool for. If trade is
liberalized between two states, instantly the advantages are disseminated upon all other members.
This offers, especially to smaller nations, an opportunity to partake in global trade on more even
ground.
The Enabeling clause exception.
Enabling clause: (Whole is 3 pages long, found in the folder)
Notwithstanding the provisions of Article I of the General Agreement ,
contracting parties may accord differential
and more favourable treatment to developing countries,
without according such treatment to other contracting parties.
In this case General Agreement referes to GATT.
Enabeling clause is an exception to MFN in which the developed states are allowed to create a set of
preferences towards which only developing states have access. Those preferences do not have to
involve all of the developing world, but rather have to be open to all states fulfilling
non-discriminatory conditions
EC-TARIFF PREFERANCES - case dealing specifically with this requirement.
The EU has introduced a set of tariff exceptions for certain countries based primarily in North Africa.
There the appeleat body found out
a) measures did violate Art. I
b) the enabling clause is an exception which would justify the violation
c) due to lack of objective conditions for other nations to also partake in the decreased tariffs, this
,enabling clause cannot be invoked, ergo enabling clause to be invoked always requires a set of
objective criteria.
Regionalism exception - Art. XXIV
Art. XXIV:4 Members recognize that customs unions and free trade areas are a desirable way to
liberalize trade in a limited area, and thus allow for creation of those areas of advantages without
violations of MFN;
but, those states cannot raise new barriers to trade through the ascension, nor increase the old ones.
TURKEY-TEXTILES deals with such a rise of barriers to trade due to ascension.
Turkey, upon joining the EEA (European Economic Area) increases its tariff upon textiles.
This was deemed by the appeleat body to be in violation of MFN because.
In its investigation appeleat body deemed that the consistency with GATT depends on a) whether the
entity is a free trade area/customs union based on XXIV:8, and whether the specific requirements of
that entity require such a restrictive measure.
Difference between customs union and free trade area
FTA - no internal trade barriers between members
Customs Union - no internal trade barriers between members + common tariff policy.
EU IS NEITHER - Sui Generis, and member of WTO in itself.
CANADA-AUTOS case
Canada has included a decreased tariff rate for certain manufacturers which were located in NAFTA,
further, they have introduced a duty exemption for ‘Canadian Value Added’ products (mixture
requirement)
It was justified with art. XXIV, which was promptly rejected by the panel for the reason of chosen
states outside of NAFTA having access to the same advantages. Thus it was deemed in violation of
MFN
, LECTURE 3: NT
Art. III:1 No internal scheme of taxation, or regulation which is made to provide
advantages/protection to domestic produce is allowed. - General prohibition
III:2 (Fiscal measures) - no tax in excess to that of those of domestic products under GATT. Only
problematic if it is implemented so as to afford protection. ERGO taxes can be different if
non-excessive.
III:4 (Non-fiscal measures) Ban on differential and discriminatory treatment of foreign products.
Equal effective opportunities.
By itself, the national treatment obligation does not demand treatment which would be equal in
application and aim to be given to foreign products.
Rather it requires the effective opportunities be equal, as an outcome of the scheme applied. (United
States - Section 337 panel’s report).
So as to afford protection
SATAP can be confirmed if a) the tax system is differential b) in a substantive way, c) general design
of law should be enough to determine whether or not is there an attempt to provide protection (Korea
Alcohol). Support by quoting Japan - Alcohol II if Korea insufficient
Art. III:2, second sentence: (i) whether imported and domestic products are directly
competitive or substitutable products;
(ii) whether the directly competitive or substitutable imported and domestic products are not similarly taxed; and
(iii) whether the dissimilar taxation of the directly competitive or substitutable imported and domestic products is applied so
as to afford protection to domestic production.
Direct competitiveness or substitability
Art. III:2 does not talk of only products which are the same, but extends it to products which are
Directly competitive or substitutable towards each other (domestic to foreign).
Whether goods are DCS or not can be determined on the basis of evaluation of
Economic indicators - Japan - Alc Bev. II
Non-Economic - Korea - Alc. - offers a ‘test’of whether or not the goods are able to satisfy the same
want/need.
Likeness
For Art. III:4 (And MFN) (likeness is a subcategory of DCS) instead likeness is tested in accordance
with the ancient Border tax adjustment-case
- Physical characteristics
- Consumer tastes and habits
- End-uses
- Tariff classification
GATT ART. I - MFN - Most essential
I:1 In respect to all duties, charges, internal arrangements - any privilege or advantage given to any
state's products, have to be extended to like products of every WTO member immediately, and
unconditionally. (Paraphrase, not a quote)
EC-Seals: as long as such distinctions do not result in a detrimental impact on the competitive
opportunities for like imported products. In case-law conditions for lawful preferences not triggering
MFN.
Scope
-Internal and external measures - all measures whether tariffs, selling arrangements, or licencing
-Like products (will be in a separate note in NT)
-Foreign products - discrimination against domestic production is not touched upon here.
Why does MFN matter?
One of the top aims of WTO is liberalization of trade - which MFN is a perfect tool for. If trade is
liberalized between two states, instantly the advantages are disseminated upon all other members.
This offers, especially to smaller nations, an opportunity to partake in global trade on more even
ground.
The Enabeling clause exception.
Enabling clause: (Whole is 3 pages long, found in the folder)
Notwithstanding the provisions of Article I of the General Agreement ,
contracting parties may accord differential
and more favourable treatment to developing countries,
without according such treatment to other contracting parties.
In this case General Agreement referes to GATT.
Enabeling clause is an exception to MFN in which the developed states are allowed to create a set of
preferences towards which only developing states have access. Those preferences do not have to
involve all of the developing world, but rather have to be open to all states fulfilling
non-discriminatory conditions
EC-TARIFF PREFERANCES - case dealing specifically with this requirement.
The EU has introduced a set of tariff exceptions for certain countries based primarily in North Africa.
There the appeleat body found out
a) measures did violate Art. I
b) the enabling clause is an exception which would justify the violation
c) due to lack of objective conditions for other nations to also partake in the decreased tariffs, this
,enabling clause cannot be invoked, ergo enabling clause to be invoked always requires a set of
objective criteria.
Regionalism exception - Art. XXIV
Art. XXIV:4 Members recognize that customs unions and free trade areas are a desirable way to
liberalize trade in a limited area, and thus allow for creation of those areas of advantages without
violations of MFN;
but, those states cannot raise new barriers to trade through the ascension, nor increase the old ones.
TURKEY-TEXTILES deals with such a rise of barriers to trade due to ascension.
Turkey, upon joining the EEA (European Economic Area) increases its tariff upon textiles.
This was deemed by the appeleat body to be in violation of MFN because.
In its investigation appeleat body deemed that the consistency with GATT depends on a) whether the
entity is a free trade area/customs union based on XXIV:8, and whether the specific requirements of
that entity require such a restrictive measure.
Difference between customs union and free trade area
FTA - no internal trade barriers between members
Customs Union - no internal trade barriers between members + common tariff policy.
EU IS NEITHER - Sui Generis, and member of WTO in itself.
CANADA-AUTOS case
Canada has included a decreased tariff rate for certain manufacturers which were located in NAFTA,
further, they have introduced a duty exemption for ‘Canadian Value Added’ products (mixture
requirement)
It was justified with art. XXIV, which was promptly rejected by the panel for the reason of chosen
states outside of NAFTA having access to the same advantages. Thus it was deemed in violation of
MFN
, LECTURE 3: NT
Art. III:1 No internal scheme of taxation, or regulation which is made to provide
advantages/protection to domestic produce is allowed. - General prohibition
III:2 (Fiscal measures) - no tax in excess to that of those of domestic products under GATT. Only
problematic if it is implemented so as to afford protection. ERGO taxes can be different if
non-excessive.
III:4 (Non-fiscal measures) Ban on differential and discriminatory treatment of foreign products.
Equal effective opportunities.
By itself, the national treatment obligation does not demand treatment which would be equal in
application and aim to be given to foreign products.
Rather it requires the effective opportunities be equal, as an outcome of the scheme applied. (United
States - Section 337 panel’s report).
So as to afford protection
SATAP can be confirmed if a) the tax system is differential b) in a substantive way, c) general design
of law should be enough to determine whether or not is there an attempt to provide protection (Korea
Alcohol). Support by quoting Japan - Alcohol II if Korea insufficient
Art. III:2, second sentence: (i) whether imported and domestic products are directly
competitive or substitutable products;
(ii) whether the directly competitive or substitutable imported and domestic products are not similarly taxed; and
(iii) whether the dissimilar taxation of the directly competitive or substitutable imported and domestic products is applied so
as to afford protection to domestic production.
Direct competitiveness or substitability
Art. III:2 does not talk of only products which are the same, but extends it to products which are
Directly competitive or substitutable towards each other (domestic to foreign).
Whether goods are DCS or not can be determined on the basis of evaluation of
Economic indicators - Japan - Alc Bev. II
Non-Economic - Korea - Alc. - offers a ‘test’of whether or not the goods are able to satisfy the same
want/need.
Likeness
For Art. III:4 (And MFN) (likeness is a subcategory of DCS) instead likeness is tested in accordance
with the ancient Border tax adjustment-case
- Physical characteristics
- Consumer tastes and habits
- End-uses
- Tariff classification
