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International Trade Law

November 12, 2022

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This article is written by Sanjana Santhosh, a law student at Christ (Deemed to be University), Bengaluru. The article explains the history towards the formation and the objective behind setting up institutions, such as the World Trade Organisation (WTO), UNCITRAL, and their respective roles in international trade law.

It has been published by Rachit Garg.

Table of Contents

History towards the formation of the World Trade Organization (WTO)

International Trade Organization (ITO)

An international organisation for the regulation of commerce that was never given the opportunity to come into being was going to be named the International Trade Organization (or simply ‘ITO’ for short). GATT members worked tirelessly to establish the ITO by having the Havana Charter ratified in 1947–1948, post-World War II. Unfortunately, the Havana Charter was never approved since the United States Congress failed to approve it, largely due to resistance within the United States at the end of 1950. Although the International Trade Organization (ITO) was never formally established, its predecessor, the General Agreement on Tariffs and Trade (GATT), had a considerable impact on the development of the World Trade Organization (WTO). The development of the idea that would become the ITO also marks a watershed moment in the evolution from moral internationalism to institutional internationalism, two distinct schools of thought on the subject of trade liberalism. The proposed standards for employment, commodity agreements, restrictive business practices, international investment, and services were all included in the original ITO Charter, demonstrating the ambitious nature of the document. At the United Nations Conference on Trade and Employment held in Havana, Cuba in 1947, the objective was to establish the ITO.

The Havana Charter of 1948 was the outcome of a follow-up meeting conducted in Havana, Cuba after the GATT was signed on 30 August 1947 and became effective on 1 January 1948 as part of the Geneva Conference. The purpose of this Charter is to create a legal entity that can carry out the terms of the General Agreement. Among the many guiding concepts outlined in the Charter were:

That all barriers to free trade must be dismantled and all subsidies must be done away with; and that there should be no special treatment for any country;
That all citizens should be subject to the same internal taxes and rules;
Export subsidies should be used only in extraordinary circumstances, and all subsidies should be subject to international consultation;
That international agreements meant to safeguard primary commodity producers in the event of surplus production should address anomalies rather than exacerbate them;
If export restrictions or price controls are unavoidable, they should be temporary;
That both producing and consuming nations should have an equal say in how agreements are made and enforced.

It was proposed that the Charter’s promises be carried out by a supranational body (the International Trade Organization, or ITO) independent of the United Nations. Countries involved in the negotiations did not approve of the Havana Charter. The 53 countries involved in the negotiations were divided on the Charter, with the less developed countries raising the following concerns:

That the proposed Charter took a pessimistic rather than an optimistic stance regarding its approach to the fundamental problems of international commerce;
That in certain instances, quotas and subsidies should be authorised in order to encourage industrialization;
The developing nations put up a fierce fight against participating in the international consultation on subsidies.

The political climate in the United States had shifted significantly in the years following World War II, and as a result, the country had no desire to ratify the Havana Charter. The US business community also believed that the Charter would not help in reducing trade barriers because of its many loopholes. The United States’ lack of interest in presenting the Charter to Congress for approval proved fatal. Consequently, the negotiating countries failed to ratify the ITO Charter, and there was a head-on confrontation between those who were devoted to the idea of a free, multilateral trade system on the one hand, and those who placed the whole emphasis on full employment programmes on a national basis. In 1955, the Organization for Trade Cooperation (OTC) was established as another attempt to create an institutional foundation for GATT. Yet another futile attempt. Although the Havana talks did not result in a new international trade organisation, the General Agreement was still in effect according to the Protocol of Provisional Application.

The fact that it only addresses a limited number of issues pertaining to tariffs was one of the primary contributors to the low level of opposition to the General Agreement. Other key aspects include:

That the commitments outlined in the Agreement were for a shorter period of time; that a contractual party may withdraw from the agreement by providing a notice of withdrawal of sixty days; and
That the Agreement does not require specific legislation to be passed by a majority of the contractual parties, as it is through executive authority that they continue to be contracting parties; this is because the executive authority allows them to continue to be contracting parties.

Therefore, the inability of the Havana Charter to enter into force was a very significant factor in the operation of, and the process leading up to the establishment of, the Agreement. Because of the practical necessities involved, the parties who entered into the Agreement were compelled to carry out, step by step, some of the responsibilities that the ITO would have been responsible for if the Havana Charter had been in effect. This aspect, in conjunction with the necessity to find ways and means to cope with the challenges arising out of the execution of the Agreement, contributed to the progressive evolution of the Agreement. As a result, it evolved from being a straightforward international trade and tariff agreement into an organisation that possesses a variety of its own internal organs.

General Agreement on Tariffs and Trade (GATT)

Following the end of World War II, political and business leaders throughout the world began negotiations for increased economic cooperation, which ultimately led to the signing of the General Agreement on Tariffs and Trade in 1947. (hereafter “GATT”). These negotiations resulted in the establishment of the International Monetary Fund and the International Bank for Reconstruction and Development; nonetheless, it was considered that the Bretton Woods institutions needed to be supplemented by an entity dealing with commerce. The United States and the United Kingdom, who led the negotiations for the Havana Charter that would incorporate an international trade organisation (hereinafter “ITO”), were of the opinion that trade liberalisation was necessary to avoid the protectionism of the inter-war years, which had been harmful to the majority of economies. They led the negotiations for the Havana Charter that would incorporate an international trade organisation (hereinafter “ITO”). The United States of America and the United Kingdom had the same goal in mind when it came to the future of British imperial preferences; the United States wanted British tariffs to be cut, while the United Kingdom wanted British imperial preferences to end.

However, it became apparent that negotiations for a comprehensive international trade organisation would take some time, so a group of states decided to negotiate a parallel separate arrangement of a more modest scale. The arrangement will focus on reducing state barriers to trade, particularly tariffs, in order to realise early gains for states resulting from trade liberalisation. This will allow states to realise early gains from trade liberalisation. Therefore, it is time to begin discussions on a potential trade treaty that may eventually become a part of the ITO and would involve participation from one of its chapters.

The GATT deliberations were wrapped up in a little under a year with both the American and British delegations serving as leaders. This was accomplished despite the fact that the American and British points of view were significantly different from one another. Both the United States and the United Kingdom were concerned about the need to remove trade discrimination; however, they had different opinions regarding the approach that would be most effective in doing so. The principal negotiators at GATT were economists, and the provisions of the final agreement they reached reflected the conventional thought of the day regarding the financial benefits of engaging in international trade. In October 1947, a member of the American delegation who was also an economist wrote the final language, and on January 1, 1948, GATT went into provisional effect.

Twenty-three countries signed GATT at its inception. There were 128 GATT members at the time it was merged into the World Trade Organization (hereafter “WTO”). Governments working on behalf of a separate customs territory possessing full autonomy in the conduct of its external economic dealings were also eligible to join GATT alongside fully sovereign states (Article XXXIII). This meant that Hong Kong could join the GATT as a member.

Core obligations

Non-discrimination

With the goal of the considerable reduction of tariffs and other barriers to trade and to the eradication of discriminatory treatment in international business, GATT’s preamble makes its intentions clear. The initial three articles of GATT form the backbone of these objectives. Article I establishes the non-discrimination principle in the form of “generic most favoured nation treatment” (MFN) as follows: “Any benefit, favour, privilege, or immunity granted by one contracting party to an item manufactured in or destined for another contracting party’s territory must be granted immediately and unconditionally to an identical item manufactured in or destined for all other contracting parties’ territories. This regulation is applicable whether the item was manufactured in or destined for the specified country.”

Article II makes clear that any benefit granted to a contracting party must be extended to all contracting parties. This is especially clear with regard to tariffs. This article of the Agreement states that the parties shall not impose duties on imports from the other parties in excess of the duties set forth in their respective Tariff Schedules attached to the Agreement. Tariff schedules like these emerged from talks about free trade agreements (GATT) at the time. Multilateralizing the MFN obligation, which had previously been present exclusively in bilateral treaties, was accomplished by applying the MFN concept to all contracting parties in this fashion.

The national treatment concept, the second pillar of non-discrimination, is embodied in Article III. Paragraph 1 outlines the fundamental principle of national treatment, which states that imported items must not be treated differently from native products, whether through taxes, rules, or regulations. Paragraph 2 makes it clear that taxes on imported goods cannot be higher than taxes on “similar domestic products.” Paragraph 4 further prohibits states from treating imported goods less favourably than native goods in the application of their “laws, rules, and standards.”

Quantitative Restrictions on Import and Export

The goal of the GATT was to reduce trade barriers by allowing tariffs that would be gradually reduced through negotiations. Other border controls, such as quotas, were likewise acknowledged to be unnecessary and hence called for elimination. Article XI states that while “duties, taxes, and charges” are permitted, “prohibitions or restrictions” on the import or export of products or their sale for export are not. Many situations, including agricultural trade and responses to emergency food shortages, are not covered by this general rule. However, increasingly stricter constraints on import and export controls under the WTO are grounded in Article XI.

Safeguards

When countries reduce tariffs, the domestic output may suffer from increasing import competition in ways that were not anticipated. As a result of increasing imports causing or threatening to cause substantial injury to local producers of like or directly competitive products, Article XIX allowed contracting parties to take “safeguard” action by suspending the obligation or concession that resulted in the higher imports. Article XIX details the requirements for using this authority, such as giving notification to the GATT contracting parties in advance.

The contribution of GATT

Despite being temporary and provisional, GATT operated for nearly 50 years before being merged into the World Trade Organization (WTO). The Uruguay Round of Multilateral Trade Negotiations, which established the World Trade Organization, had little effect on GATT. Instead, it formalised the GATT as a part of the GATT 1994 group of multinational accords governing trade in products. This included the General Agreement on Tariffs and Trade (GATT) of 1947, any legal agreements that came into effect during GATT’s operational period, any and all protocols and certifications of tariff concessions under GATT, any and all protocols of accession, any and all waivers granted under GATT, and any and all Understandings on the interpretation of specific provisions of GATT. In short, the GATT 1994 agreement brought everything that had happened under GATT into the World Trade Organization. The original GATT from 1947 is still in effect but is now incorporated into GATT 1994. All of these agreements came to be known as “the GATT acquis” within the World Trade Organization.

The impact of GATT 1947, however, was not limited to its inclusion in GATT 1994. The multilateral trade agreements negotiated by the World Trade Organization (WTO) during the Uruguay Round largely expanded upon existing terms of the General Agreement on Tariffs and Trade (GATT). The sanitary and phytosanitary, antidumping, subsidy, countervailing, and safeguard agreements were among these. These agreements stem from individual clauses in GATT 1947, but they do not nullify the original treaty. Defining how the WTO’s multilateral trade agreements relate to GATT’s existing provisions has been a thorny issue in their interpretation.

GATT 1947 also established the framework for a new system of international commerce through, first, tariff negotiations and, second, dispute settlement:

Tariff negotiations

Recognizing that lowering tariffs was crucial to fostering growth in international trade, Article XXVIII bis allowed GATT contracting parties to lead talks on such reductions. It stipulated that tariff discussions might be conducted on a product-by-product basis, with the participation of parties that conduct a significant amount of commerce with each other being crucial to the success of the negotiations. With this, the importance of MFN was formally acknowledged. As per Article I of the GATT, all parties to the agreement would be made privy to the terms reached between the respective parties.

One of GATT’s most fruitful contributions was the elimination of tariffs through negotiated trade. After eight “rounds” of negotiations during the GATT era, the Uruguay Round produced the World Trade Organization (WTO). Bilateral negotiations were held at first, with each country identifying others for whom it was willing to lower duties in exchange for reciprocal duty reductions that benefited the asking country. Tariff “bindings” were the negotiated reductions in tariffs that resulted from these talks. In subsequent “rounds,” negotiations tended to be multilateral, and “across-the-board” tariff cuts were agreed upon. The United States, Europe, and Japan, the world’s three largest economies, dominated these deliberations.

Tariffs on industrial items were reduced by over 40 percent as a result of GATT negotiations. During the later stages of negotiations, pledges to lower non-tariff barriers to trade were a regular topic of discussion. The issue of antidumping was discussed in the Kennedy Round (1964–1967), and agreements (“codes”) were reached on this topic, as well as on subsidies in government procurement and technical barriers to trade, in the Tokyo Round (1973–1979). A state’s GATT responsibilities did not necessarily include enforcing these codes. Each code required individual state agreement, and none were ever accepted by all GATT signatories. However, the more thorough treatment of the matters addressed by these rules can be found in the WTO agreements.

Dispute settlement

From a simple judgement by the chair on a dispute to the formation of a working team to investigate the issue and provide recommendations to the contracting parties, to a more formal structure with a three-person “panel,” GATT’s dispute resolution procedures changed over time. The panel was tasked with conducting an investigation into the matter, attempting to mediate a resolution between the contending parties, and ultimately advising the contracting parties on whether there had been nullification or impairment and making a recommendation for the resolution of the dispute. After receiving written submissions from the parties, GATT panels would hold two sessions with them, provide an interim report for the parties to review and comment on, and then provide a final report. This procedure, with some modifications, forms the basis of the dispute settlement mechanism adopted in the WTO’s Understanding on Dispute Settlement. When interpreting WTO accords, WTO panels sometimes look to GATT panel judgments as precedents.

To make matters worse, GATT 1947’s consensus-based approach to resolving disputes was rarely followed. It was necessary to reach an agreement among all parties in order to form a panel, and agreement was also needed in order to accept the panel’s final recommendation. This meant that in each situation the opposing party had to agree, and in the event of the panel report’s recommendation, the losing party had to agree. Under the new WTO dispute settlement system, the consensus rule was reversed, making a unanimous agreement both necessary for the establishment of a panel and necessary for the rejection of the panel’s recommendation. As a result, the GATT dispute settlement mechanism was adopted by the WTO and made into a mandatory and binding procedure.

There was never any meaningful use of concession withdrawal as a form of retaliation during GATT. In one instance, reprisal was approved but never carried out. Authorised removal of concessions, however, has taken on a considerably larger role under the World Trade Organization.

GATT rounds

Eight rounds of negotiations have taken place since the GATT’s creation, leading to a number of changes to the original agreement and, eventually, the formation of the World Trade Organization (WTO), which includes several new accords. Tariffs were the primary focus during the first five rounds of negotiations. The Kennedy Round was the sixth and first to focus on removing non-tariff obstacles. Non-tariff obstacles were the primary focus of the 1970s Tokyo Round, the first major negotiating round. In addition, as time went on in the first few decades of the GATT and tariffs were greatly decreased, non-tariff obstacles became increasingly crucial. Nine separate non-tariff measure special agreements were concluded at the Tokyo Round. There were even ‘codes’ for some of them. The Ministerial Meeting in Tokyo, Japan, in September 1973 marked the beginning of this Round. It was a comprehensive set of trade preferences for developing nations that included reductions in tariffs on anti-dumping goods, subsidies, non-tariff obstacles, technical standards, and framework agreements. The signing of the Four Plurilateral Agreements in the Tokyo Round was the most notable event. These agreements include topics such as civil aviation, government procurement, bovine meat, and dairy products. It was quickly decided that the Rounds needed to continue after the Tokyo Conference ended so that new information could be considered and policies could be updated properly. In light of this, in 1982, a Ministerial Conference was called to kick off a new round, but it was also unsuccessful. The United States, though, keeps trying to kick off fresh negotiations. The United States and other major industrialised countries pushed for the inclusion of services, intellectual property, some investment measures, and agriculture in the General Agreement. The Ministerial Conference in Punta del Este, Uruguay, in September 1986, laid the groundwork for a new trade negotiation, sometimes known as the Uruguay Round. Canada proposed in 1990 that a new organisation be formed and given the name “World Trade Organization,” which was not on the agenda of the Punta del Este Declaration.

World Trade Organization (WTO)

The World Trade Organization (WTO) is an intergovernmental organisation responsible for regulating commercial activity between countries. The World Trade Organization (WTO) is built around a system of multilateral agreements that regulate the commercial exchange of goods, services, and ideas across national borders. The objective is to facilitate unhindered, predictable, and free trade. The World Trade Organization (WTO) succeeded the General Agreement on Tariffs and Trade (GATT), which was established in 1947 in anticipation of its replacement by a United Nations (UN) specialised agency to be known as the International Trade Organization (ITO). The liberalisation of trade and the elimination of barriers and tariffs that followed the creation of WTO were huge successes for the global economy. Yet, progress has not been made without difficulties. While the World Trade Organization (WTO) has been instrumental in advancing globalisation and increasing trade, there is always room for improvement.

History

Following World War II, international financial institutions such as the World Bank and the International Monetary Fund (IMF) were established. As part of the original plan for international economic cooperation, a third institution was to be established to oversee the commerce component. The International Trade Organization (ITO) is a specialised agency of the United Nations that was negotiated by over fifty different countries. Employment regulations, commodities agreements, restrictive trade practices, foreign direct investment, and service provision were all under the purview of the proposed ITO Charter. The goal had been to establish the International Trade Organization (ITO) at the 1947 United Nations Conference on Trade and Employment in Havana, Cuba. The plan, however, was never implemented. In the meanwhile, 23 nations began discussing trade in 1947 at the Geneva Conference. This deal, dubbed the General Agreements on Trade and Tariffs (GATT), was scheduled to take effect on January 1, 1948.

As a result of the Uruguay Round of Trade Talks in 1994, the World Trade Organization was established. It succeeded GATT, which had been in effect since the post-war era of the 1940s. The agreement’s stated goals include the elimination of import limits and the reduction of tariffs. However, GATT was never meant to be a permanent arrangement. While the World Commerce Organization (WTO) eventually replaced it as the dominant multilateral pact governing international trade, the GATT remained in effect for almost 45 years. They weren’t a global trading bloc, either. Nevertheless, it was able to attract about 130 signature parties. Rounds of negotiations, extra codes and arrangements, interpretations, waivers, reports by dispute-settlement panels, and council decisions all contributed to GATT’s continuous existence. The GATT governments walked a long road to establish the World Trade Organization. This took place during the Uruguay Round of talks, which took place between 1986 to 1994.

On April 15th, 1994, 111 out of 125 member states signed the final document, marking the completion of the round. As of January 1, 1995, 81 states had ratified it, representing more than 90% of global commerce. Not only did the round result in the creation of the World Trade Organization, but it also resulted in a broadening of multilateral accords governing trade and a restructure of relevant institutions. It is also credited with bringing services and intellectual property under the system of multilateral accords by concluding the General Agreement on Trade in Services (GATS) and the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). The GATT of 1948 was also superseded by the GATT of 1994. The World Trade Organization (WTO) is designed to replace GATT by fostering a more equal footing for all commodities and services. It understands the significance of redressing the economic structure’s inherent inequalities. The World Economic Organization was formed to eliminate discrimination in international trade relations and to ensure that tariffs and other trade obstacles are significantly reduced.

The primary goal of the WTO was to act as a global organisation that facilitates trade between countries and manufacturers of goods. Specifically, this was planned to be made possible by WTO accords, which are negotiated and signed by the vast majority of the world’s trading states. Contractual in nature, these agreements lay the groundwork for international trade and investment. As commerce and business around the world expanded rapidly in the 1980s, it became clear that GATT was not designed or structured to handle the myriad of new issues that had arisen in international trade.

Origin and structure of WTO

The initial members of the WTO are the state parties to GATT 1947 and the European Communities that accept the Agreement and the Multilateral Trade Agreements (MTA) attached to GATT 1994, and the Schedules of Specific Commitments annexed to GATS. Through the process of accession, additional states might join the organisation. The World Trade Organization (WTO) is the leading international organisation for commercial exchanges. As of June 2014, 160 countries were members. China and Russia, two traditionally conservative nations, are now full members of the World Trade Organization. Both China in 2001 and Russia in 2012 joined the World Trade Organization after being closely monitored for several years to determine if they would alter their trade and tariff policies to conform with WTO standards. A Director-General leads the WTO Secretariat. The Ministerial Conference, composed of delegates from WTO member states, acts as the organisation’s highest authority.

Every two years, ministers get together for a Ministerial Conference. This body makes the institution’s final decisions. To make a call under GATT 1947, all parties involved must agree. Ministerial Conference and General Council decisions under WTO are reached through unanimous agreement. However, if member states were unable to come to an agreement, a majority vote would be used to make a decision. In the organisation, the General Council plays a chief executive role. Aside from the General Council, there are additional subordinate councils. Other subsidiary entities exist in addition to the Council for Trade in Goods and the Council for Trade in Services and the Trade Related Intellectual Property Rights (TRIPS) Agreement. Committees on trade and development, balance of payments restrictions, and budget and finance are only a few examples. WTO, unlike GATT, has an international legal personality.

Role of WTO in promoting international trade law

The World Trade Organization is a global body in charge of coordinating commercial activity between nations. In contrast to other tripods, this one has a specific function. Firstly, it aims to promote progressive trade liberalisation and the removal of regulatory obstacles that states erect on the import and export of goods and services, which distort trade flows and reduce economic prosperity and development. Second, it is a venue where member nations meet to negotiate the terms of trade liberalisation treaties that are binding on all members. This forum is referred to as a “round.” Last but not least, the World Trade Organization aims to establish uniform standards of conduct to make international trade more open and predictable. The WTO’s policies and agreements are defined and determined by the organisation’s guiding principles. Of them, the MFN and the National Treatment Principle are the most well-known. The MFN provision is the cornerstone of WTO’s nondiscrimination among states, since it mandates that members treat all other members of the Agreement the same way they would treat any other country with respect to any tariff or concession on a particular commodity. Once commodities enter a member state, all members are obligated to treat them the same as if they were produced in that country. This is known as the “national treatment principle.”

To counteract the negative effects of tariff cuts and other forms of trade liberalisation, this provision prohibits states from using domestic regulations to discriminate against imported goods. To name only a few of the six main goals of the WTO:

establishing and enforcing norms for commerce between nations;
hosting a forum where additional trade liberalisation can be discussed and monitored;
settling commercial disputes;
increased openness to input in policy-making;
allowing for coordination with other important international economic organisations engaged in world-wide economic management; and
assisting emerging economies in realising the full potential of international trade.

WTO has been successful in finalising various trade agreements that liberalise trade between governments. A higher amount of international trade is a direct effect of this achievement. Over the previous eight years, this growth has been estimated at over 25%. More rounds of negotiations are ongoing in a variety of trade and service industries, raising the possibility of additional expansion. The members of these states have persisted in keeping the doors of commerce wide open. For instance, since China joined the WTO in 2001, her simple average tariff has reduced from almost 40% in 1985 to under 10% at present.

As major developing markets continue to open up, more options exist for countries to sell their goods. Clearly, this is a sign of progress. The World Trade Organization (WTO) regime has been credited with laying the groundwork for and fueling the growth of globalisation by facilitating the unrestricted exchange of commodities, services, technology, and capital among nations. Divergent trade regulations and a lack of reciprocity have previously hampered the expansion of international trade by creating obstacles including trade barriers, financial aid, piracy, and most notably, the violation of intellectual property rights. In order to ensure a seamless transition to more liberal trade regimes, WTO provides a worldwide forum for governments to meet and solve these concerns and devise mechanisms to guarantee generally acceptable answers. It has been argued that the industrialised countries that have the financial, industrial, and technological resources to compete in a global economy benefit disproportionately from the World Trade Organization’s triumphs in promoting free trade. It’s disheartening to see that the gains from the 25% boost in global commerce don’t trickle down equally to developing and developed nations.

However many people live in underdeveloped nations, and their share of global trade is a pitiful 0.05%. Instead of the “free” trade that the WTO promotes, developing nations would rather have “free and fair” trade between nations. Developed nations have rendered their market inaccessible to developing nations through the use of tariffs and non-tariff barriers, even though developing nations are supposed to eliminate trade obstacles and make their market accessible to developed nations. As an example, the US government has maintained its policy of providing substantial subsidies to the country’s agriculture sector. The conclusion is that non-supported agricultural exports from developing countries will have a hard time competing with their subsidised US counterparts.

Principles of International Trade Law

Most-favoured-nation (MFN) Principle

“Most-Favoured-Nation” (“MFN”) treatment — mandates that all members offer each other the same tariff and regulatory treatment that is accorded to the product of any one member at the time of import or export of “similar products,” regardless of which member initially provides such benefits. If nation A (a WTO member) agrees with country B (which need not be a WTO member) to lower the tariff on product X to five percent through talks, this “tariff rate” must also apply to all other WTO members under the MFN rule. To rephrase, if a member state favours one member nation on a given subject, it must treat all members equally on that same topic. The concept of MFN care has been around for quite some time. An MFN clause was commonly included in bilateral trade agreements prior to the GATT, and this helped considerably liberalise trade. However, restrictions were imposed in the 1930s that made it harder for the MFN principle to be put into practice. These actions allegedly contributed to the fragmentation of the global trading system into blocs. As a result of the lessons learnt from this blunder, an unconditional MFN clause was incorporated into the GATT after World War II. This was done on a multilateral basis, and it has helped maintain international trade stability. In this context, the MFN principle is especially important to uphold as a cornerstone of the multilateral trade system. The MFN principle must be protected by using exceptions to regional integration consistently.

Legal Framework

When it comes to tariffs, export and import rules, domestic taxes and fees, and other domestic regulations, GATT Article 1.1 requires WTO Members to offer MFN treatment to products of other WTO Members. What this means is that the most favourable treatment offered to the products of any state must be applied to the “like” products of all WTO Members. If an importing country openly applies different tariff rates to “similar items” from an exporting country, they are breaking GATT Article 1.1. When an importing country gives differing treatment to products that are considered to be “similar products,” this constitutes a violation of Article 1.1 even if there is no discrimination against the product of another Member. De facto discrimination is a common term to describe this. For instance, a government may impose a different tax on one type of unroasted coffee compared to another type, but this differential tariff may only affect imports from certain countries if the two types of coffee beans are not considered to be “similar products.” That might be breaking the MFN rule 1. In the SPF (“spruce, pine, and fir”) case involving Japan, the idea of comparable items was rigorously interpreted. The legality of tariff classifications would be proven to the degree that it did not discriminate against the same products from different WTO Member countries, the panel in that decision acknowledged, recognising that each WTO Member can exercise wide discretion as to tariff classifications.

Quantitative limits or tariff quotas on any product must be implemented in a non-discriminatory manner with respect to like products, as per GATT Article XIII. It also requires WTO members to assign shares in a manner as close as possible to what would be the case if import restrictions and tariff quotas did not exist. MFN treatment in the implementation of quantitative constraints is provided for in Article XIII, which also serves to supplement the rules established in Article I.

“States Trading Enterprises” means:

Government-owned businesses that are run by a WTO member.
WTO Members that buy or sell imports or exports from private companies that have been awarded exclusive or special advantages.

Using their monopoly power, these companies risk violating the rules of international trade by engaging in practices like imposing quotas or discriminating against the country of origin of their imports. Members of the World Trade Organization are obligated by Article XXVII of the GATT to adhere to the non-discrimination norms, which include the MFN rule.

Exceptions to the MFN principle

Regional Integration (GATT Article XXIV)

Trade within regions that have integrated through customs unions or free trade areas is liberalised, while trade barriers with nations outside of the region or regions are maintained. As a result, the MFN principle may be violated as a result of regional integration if it causes differences in treatment between countries within and outside the region. This goes against the liberalisation of trade and could have unintended consequences for countries beyond the region. Therefore, regional integration may be permitted as an exception to the MFN requirement only if the following conditions are met, as stated in GATT Article XXIV. The first step is to eliminate tariffs and other trade obstacles for almost all regional trade. Second, after regional integration, tariffs and other trade obstacles applied to non-regional countries must not be higher or more restrictive than they were before.

Generalised System of Preferences

Commodities from poor nations can take advantage of reduced tariff rates than would be the case under MFN status due to the Generalised System of Preferences (GSP). The Generalised System of Preferences (GSP) is a set of preferences given to developing countries in order to boost their export revenues and aid in their economic growth. The “Generalised System of Preferences” (GSP) is outlined in a June 1971 resolution made by the GATT. The “Differential and More Favourable Treatment, Reciprocity, and Fuller Participation of Developing Countries” or “Enabling Clause” decision from the GATT in 1979 provides the legal basis for the grant of GSP benefits. Among the many features of the GSP are: To begin, preferential tariffs are not limited to countries that have a common political or historical bond (like the countries of the British Commonwealth). Second, it only helps countries that are struggling economically. Finally, it’s a perk industrialised nations hand down to their poorer counterparts.

Member states not applying multilateral trade agreements (WTO Article XIII)

If either of the following two requirements is met, then “this Agreement and the Multilateral Trade Agreement in Annexes 1 and 2 shall not apply as between any Member and any other Member,” as stated in the Marrakesh Agreement Establishing the World Trade Organization (the WTO Agreement):

Earlier invocation of Article XXXV of GATT 1947, which was effective as between founding Members Members of the WTO that were Members to GATT 19475, or Article XXXV of GATT 1947 had been invoked and was effective as between original Members of the WTO.
The Ministerial Conference must approve the agreement on the terms of accession between a Member and another Member that has acceded under Article XII if the Member not consenting to the application has notified the Ministerial Conference of this fact prior to the approval of the agreement on the terms of accession.

A violation of the MFN principle occurs when a Member State fails to apply for benefits that are available to other Members. To address issues that may arise as a result of accession, the provisions of Article XIII were drafted. If the MFN norm were properly enforced, country B would have to grant MFN status to all the other Members upon joining the Agreement, and the other Members would have to grant the same to country B.

While country A is already a member of the WTO, it is possible that it might not choose to have new member B inherit its rights and responsibilities as a WTO member. Due to the fact that two-thirds of the current membership is enough to approve an applicant’s entrance to the WTO, it is possible that nation A will be coerced into granting MFN status to country B. Country A’s preferences can be honoured by WTO Article XIII, which prevents a WTO partnership between Country A and Country B. However, if more than a third of the membership, including country A, has reasons for not having a WTO relationship with country B (in which case they will object to the accession itself), then WTO Article XIII provides a method for the admission of country B by providing for non-application. U.S. officials informed the General Council in January 1995 that their country will not be applying the MTAs listed in Annexes 1 and 2 to Romania. However, the United States withdrew their invocation in February 1997. Additionally, the United States informed Mongolia, the Kyrgyz Republic, and Georgia that it would not apply the aforementioned accords to them. This notification was withdrawn for Mongolia in July 1999, for the Kyrgyz Republic in September 2000, and for Georgia in January 2001.

National Treatment Principle

As a corollary to the principle of most-favoured-nation treatment (MFN), national treatment (GATT Article III) is a cornerstone of the WTO Agreement. In accordance with the national treatment rule, members cannot provide unequal treatment to similar imported goods and similar domestic ones. Some clauses of the GATT and the TRIPS Agreement are very similar. This rule is meant to prevent countries from using tariffs or other forms of non-tariff barriers to try and counteract the impacts of other forms of protectionist trade policy. To illustrate the latter, suppose that Member A lowers its import tariff on product X from 10% to 5%, only to afterwards implement a 5% domestic consumption tax on imported product X, thus nullifying the effect of the 5% reduction in tariff. With the national treatment rule in place, WTO members are required to treat imported goods no less favourably than they treat items of national origin, effectively removing “hidden” domestic trade obstacles. To keep the scales of justice in the international trading system in equilibrium, it is crucial that all parties adhere to this concept.

Gatt Article III

WTO members are bound by Article III of the GATT to treat all other WTO members as if they were domestic customers. Members are prohibited from using tariffs, quotas, or other quantitative restrictions on imports or domestic production as a means of protecting domestic industry in accordance with Article III:1.

Article III:2 of the WTO Agreement states that WTO Members shall not discriminate between imported goods and “similar” local goods, or between imported goods and “a directly competitive or substitutable product,” with respect to internal taxes or other internal charges. Article III:4 states that when it comes to domestic rules and regulations, Members shall not treat imported items less favourably than they treat “similar products” of national origin.

GATT panel reports have used a variety of criteria, such as tariff classifications, the product’s end uses in a specific market, customer preferences, and the product’s features, nature, and quality, to determine the resemblance of “like products.” Reports by WTO panels and the Appellate Body both include the same basic notion.

Exceptions to Article III

While GATT’s national treatment principle is fundamental, the following are exceptions:

Government procurement

One of the exceptions to the national treatment rule is government procurement, which is allowed under GATT Article III:8(a). Members of the World Trade Organization allow for this exemption because they value public procurement’s contribution to national policy-making. There could be a need to create and buy items at home for security reasons, or government procurement could be used as a policy instrument to favourably influence the economy by favouring niche markets, domestic manufacturers, and cutting-edge technologies.

While the GATT created an exception for government procurement from the national treatment requirement, the Uruguay Round resulted in an Agreement on Government Procurement that requires signatories to provide national treatment for government procurement. While membership in the Agreement on Government Procurement is encouraged, it is not required of WTO members.

In fact, most of the countries that have signed on are the ones that have the most advanced economies. Therefore, the national treatment rule applies only to those who have signed the Agreement on Government Procurement, while the usual exception remains in effect for everyone else.

Domestic subsidies

To avoid violating other sections of Article III and the Agreement on Subsidies and Countervailing Measures, GATT Article III:8(b) permits the payment of subsidies only to domestic producers as an exception to the national treatment requirement. Subsidies are exempted from the rule since they are a valid instrument of policy and fall mostly within the purview of national policymakers.

Yet, the Agreement on Subsidies and Countervailing Measures set stringent limits on the use of subsidies due to the possibility of adverse effects on trade.

GATT Article XVIII:C

Promoting the construction of newborn businesses can help members in the early stages of growth increase their standard of life, although this may require government backing, and the goal may not be practically feasible with policies that conform to the GATT. In such a circumstance, a country may use GATT Article XVIII:C to notify WTO Members and begin discussions. The GATT’s Articles I, II, and XIII are the only ones with which these countries are not authorised to take actions that are inconsistent with, but only after discussions have been conducted and under particular constraints. In order to support native infant industries, the GATT Article XVIII:C procedure permits both border measures and violations of the national treatment commitments, in contrast to the trade restrictions for balance of payment reasons in GATT Article XVIII:B.

Malaysia used GATT Article XVIII:C as justification for enforcing import limits on polyethylene as part of its import permit system for petrochemical products.

Although Singapore initially complained to the WTO about this action by Malaysia, it later withdrew its concerns. As a result, neither a panel nor the Appellant Body had the chance to rule on the matter.

Other Exceptions to National Treatment

The exception on screen quotas of cinematographic films under Article III:10 and Article IV is an example of an exception that is specific to national treatment. The national treatment requirement is subject to the exceptions and waivers outlined in Articles XX and XXI of the GATT and Article IX of the WTO.

United Nations Commission on International Trade Law (UNCITRAL)

To facilitate international trade and investment in today’s globally integrated economy, a solid cross-border legal framework must be established and regularly updated. UNCITRAL’s mandate is to promote the progressive harmonisation and modernisation of the law of international commerce, and the organisation plays a pivotal role in building that framework. In order to accomplish this, UNCITRAL proposes and advocates for the adoption of legislative and non-legislative instruments in several crucial areas of commercial law. UNCITRAL texts are created through a collaborative worldwide effort. UNCITRAL’s procedures and working methods ensure that its texts are widely accepted as offering solutions appropriate to many countries at various stages of economic development because its membership is structured to be representative of different legal traditions and levels of economic development.

UNCITRAL works closely with other international and regional organisations that are involved in its work programme and the subject of international trade and commercial law in order to carry out its mandate and enable the exchange of ideas and information.

UNCITRAL is an organisation created in 1966 which shall have for its aim the promotion of the progressive harmonisation and unification of the law of international commerce. To make the activities of the Commission more widely known and publicly available, it gave the Secretary-General permission to publish the first Yearbook in 1969. Beginning with its founding in 1968 and continuing through 1970, UNCITRAL’s first Year Book was released in 1971.

UNCITRAL Arbitration Rules

The UNCITRAL Arbitration Guidelines are extensively utilised in both ad hoc and administered arbitrations because they offer a comprehensive set of procedural rules upon which parties may agree for the conduct of arbitral procedures arising out of their economic relationship. All parts of the arbitration process are addressed in the Rules, from the model arbitration clause to the rules for the nomination and conduct of arbitrators and the arbitration hearing to the rules for the form, effect, and interpretation of the arbitrator’s ruling. There are currently four versions of the Arbitration Rules:

The original version from 1976;
The revised version from 2010;
The version from 2013 that incorporates the UNCITRAL Rules on Transparency for Treaty-based Investor-State Arbitration; and
The version from 2021 incorporates the UNCITRAL Expedited Arbitration Rules.

Established in 1976, the UNCITRAL Arbitration Rules have been utilised in the resolution of a wide variety of disputes, including those between private commercial parties where no arbitral institution is involved, as well as those between States and investors, and between States and commercial parties. For the first time in thirty years, the Commission agreed in 2006 that the UNCITRAL Arbitration Rules needed updating to reflect modern arbitral practice. Aiming to improve the effectiveness of arbitration under the Rules, the amendment made no substantive changes to the text’s organisation, meaning, or drafting style.

As of 15 August 2010, the UNCITRAL Arbitration Rules (as updated in 2010) were in effect. Among the topics covered are procedures for objecting to experts chosen by the arbitral tribunal, liability, and multi-party arbitration or joinder. The Rules include several novel aspects designed to increase procedural efficiencies, such as improved processes for the replacement of an arbitrator, the necessity of reasonableness of fees, and a review system addressing the costs of arbitration. Interim measures are also addressed in further depth.

The text of the Arbitration Rules (as revised in 2010) was updated with a new Article 1, paragraph 4 to incorporate the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (“Rules on Transparency”) for arbitrations initiated pursuant to investment treaties concluded on or after 1 April 2014. The new language makes it crystal clear how the Rules on Transparency are to be used in investor-State arbitrations brought forth pursuant to the UNCITRAL Arbitration Rules. UNCITRAL’s arbitration rules for 2013 are otherwise unaltered from the last major revision, which was completed in 2010.

Article 1, paragraph 5 of the UNCITRAL Arbitration Rules was revised in 2021 to reflect the approval of the UNCITRAL Expedited Arbitration Rules, which are now an integral part of the language of the Arbitration Rules. Where the parties agree, the Expedited Rules shall apply to the arbitration. This paragraph stresses the importance of the parties’ unambiguous consent.

UNCITRAL Model Law on International Commercial Arbitration (1985)

To better accommodate the unique characteristics and requirements of international commercial arbitration, the Model Law is meant to assist States in revising and updating their own laws on the arbitral procedure. It addresses the arbitration agreement, the arbitral tribunal’s membership and jurisdiction, the scope of judicial review, and the acceptance and execution of the judgement reached through arbitration. It reflects the fact that States from all areas and the various legal or economic systems around the world have embraced fundamental components of international arbitration procedures.

The United Nations Commission on International Trade Law (UNCITRAL) plays a vital role in the UN’s legal apparatus. The laws of each country are wildly different from one another. But because of its frequent global scope, arbitration has come to be associated with the international sphere. Therefore, there must be harmony among the states, and within the domestic laws of arbitration that have been incorporated among the various countries. If it doesn’t happen, trade barriers will form, hindering economic growth.

For this reason, it is a key factor in overcoming obstacles. With the needs of international commercial arbitration in mind, it has been drafted to aid states in establishing their domiciliary legislation and updating their arbitration laws. The purpose and goal of contemporary law were to largely do away with worries about national laws being inadequate and legal disparities across states. The United Nations Convention on International Trade Law (UNCITRAL) established its Expedited Arbitration Rules on July 21, 2021, and they went into effect on September 19, 2021. The parties’ preferences are expressed through these regulations.

The UNCITRAL Rules are an all-inclusive set of guidelines on how to run arbitration hearings between two parties that have agreed to use them. The document aims to ensure quality procedures by outlining what is needed in terms of cost-effectiveness and a system for evaluating their efficacy. Model laws, on the other hand, distribute a slew of templates that each country can adopt as part of its own domestic arbitration law. The parties are given the option to determine for themselves which set of rules will apply to any problems that may arise. The rules are generally agreeable and flexible.

The following are the binding principles:

Self-Government of Political Parties:

It establishes a neutral ground where all parties can participate without fear of bias and can exert significant influence over the method used to resolve legal conflicts. Both parties have the flexibility to make changes to the requirements and specifications.

Separability:

Even if the main contract is declared null and void, the arbitration provision remains in effect. An arbitration agreement can be a provision in a contract or a stand-alone agreement, both of which are permissible under the Arbitration and Conciliation Act of 1996.

Competence:

The ability of an arbitration panel to rule within its own jurisdiction is crucial. Several international arbitration conventions recognise this principle.

Territorial principle:

The term “jurisdiction” refers to the geographical area over which a court has authority to rule; thus, the court cannot rule on matters or people who occur outside of its borders.

Enforceability:

It ensures and mandates that the final decision resolving the issue is implemented across the country. In addition, the victors should be allowed to receive credit for the worldwide assets of the vanquished.

References

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International Trade Law

History towards the formation of the World Trade Organization (WTO)

International Trade Organization (ITO)