The document provides an overview of the World Trade Organization (WTO) and its multilateral trade agreements, highlighting its role as a key international organization amidst global economic changes. It outlines the importance of educating governmental officials on the WTO system to enhance their participation in multilateral trade negotiations and foster economic development. Various modules cover crucial topics such as trade in goods, market access rules, dispute settlement mechanisms, and the relationship between trade and environmental issues.

1. WTO E-Learning
WTO E-Learning – Copyright © February 2014
The WTO
Multilateral Trade
Agreements

3. Abstract
The WTO is often seen as a model international organization and a cornerstone of international economic
regulation. It provides its Members with a common set of multilateral trade rules which become more valuable
as globalization creates commercial interdependence, which is a factor for growth, development and poverty
reduction. The value of the system has been confirmed by its growing number of Members, which has risen
from 23 at the outset to 153 Members today.
1
The global trading system is undergoing a period of transition. Shifting economic circumstances, major
advances in technology and the emergence of new players on the global scene all underscore that we are at
the corner of big changes. Within this context, governments are more aware than ever of the need to have a
contingent of officials who understand the WTO system and are experts in working with the WTO Agreements.
Their aim is to have officials who contribute to their country’s ability to fully participate in the multilateral trade
negotiations and to use the WTO system to further social and economic development.
Upon these objectives, MTA is targeted to governmental officials working on WTO-related issues who would like
to deepen their understanding of the WTO system, including the economic and legal rationale behind its main
disciplines and the relationship between the different WTO Agreements. The WTO Multilateral Trade
Agreements course will provide them with a good understanding of the WTO, including its main rules - both
obligations and exceptions – and its surveillance mechanisms. The Course will also look at cross-cutting issues
such as the relationship between trade and environment and the interplay between regional trade agreements
and the WTO. The special provisions aimed at compensating developing and least-developed country Members
for disadvantages experienced will be addressed horizontally through all the Course.
1
As of September 2008. As of that date, 29 countries were in the process of acceding, including 12
least-developed countries.

5. List of Tables and Figures
MODULE 1 INTRODUCTION TO THE WORLD TRADE ORGANIZATION (WTO) .............................................. 1
TABLE 1: ROUNDS OF TRADE NEGOTIATIONS UNDER THE AUSPICES OF THE GATT.......... 8
FIGURE 1: ORGANIZATIONAL STRUCTURE OF THE WTO ................................................ 15
FIGURE 2: ACCESSION NEGOTIATIONS....................................................................... 33
TABLE 2: THE BASIC STRUCTURE OF THE WTO AGREEMENTS ...................................... 38
MODULE 2 TRADE IN GOODS - NON-DISCRIMINATION PRINCIPLE: MOST FAVOURED NATION (MFN)
AND NATIONAL TREATMENT IN THE GENERAL AGREEMENT ON TARIFFS AND TRADE
(GATT) 1994 ............................................................................................................ 47
TABLE 1: CANADA – CERTAIN MEASURES AFFECTING THE AUTOMOTIVE INDUSTRY ....... 60
TABLE 2: SUMMARY OF THE KEY FINDINGS OF THE PANEL/APPELLATE BODY................. 61
TABLE 3: JAPAN – TAXES ON ALCOHOLIC BEVERAGES ................................................ 76
TABLE 4: EUROPEAN COMMUNITIES – MEASURES AFFECTING ASBESTOS AND
ASBESTOS-CONTAINING PRODUCTS ........................................................... 77
TABLE 5: SUMMARY OF THE KEY DECISIONS OF THE APPELLATE BODY ......................... 79
MODULE 3 TRADE IN GOODS - RULES ON MARKET ACCESS: TARIFF AND NON-TARIFF BARRIERS
(NTBS)..................................................................................................................... 85
TABLE 1: THE URUGUAY ROUND INCREASED NUMBER OF BINDINGS PERCENTAGES OF
TARIFFS BOUND BEFORE AND AFTER THE 1986-94 TALKS ............................. 95
TABLE 2: NEGOTIATION HISTORY: INDUSTRIAL PRODUCTS......................................... 96
FIGURE 1: WTO SCHEDULE OF CONCESSIONS ............................................................100
TABLE 3: WHAT IF THERE IS NO AGREEMENT? ..........................................................103
FIGURE 2: THE WELFARE EFFECTS OF A QUOTA ON IMPORTING COUNTRIES..................109
TABLE 4: EC - REGIME FOR THE IMPORTATION, SALE AND DISTRIBUTION OF BANANAS115
TABLE 5: SUMMARY OF THE KEY FINDINGS OF THE PANEL/APPELLATE BODY................116
MODULE 4 OVERVIEW OF WTO AGREEMENTS ON TRADE IN GOODS (ANNEX 1A OF THE AGREEMENT
ESTABLISHING THE WTO)........................................................................................... 129
TABLE 1: REDUCTION COMMITMENTS ON AGRICULTURAL PRODUCTS REACHED DURING
THE URUGUAY ROUND NEGOTIATION.........................................................147
TABLE 2: NOTIFICATION OF SPS MEASURES & TBT MEASURES ...................................166
MODULE 5 TRADE REMEDIES....................................................................................................... 195
FIGURE 1: CONDITIONS FOR THE APPLICATION OF ANTI-DUMPING MEASURES ..............200
FIGURE 2: THE SCM AGREEMENT: TWO TRACKS .........................................................214
TABLE 1: MONITORING BODIES AND NOTIFICATION REQUIREMENTS ..........................231
MODULE 6 GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) ..................................................... 243
TABLE 1: EXAMPLE: FINAL LIST OF ARTICLE II MFN EXEMPTIONS................................254
TABLE 2: AN OVERVIEW OF A SCHEDULE..................................................................259
TABLE 3: SCHEDULE OF SPECIFIC COMMITMENTS .....................................................276

6. MODULE 8 EXCEPTIONS TO WTO RULES: GENERAL EXCEPTIONS, SECURITY EXCEPTIONS,
REGIONAL TRADE AGREEMENTS (RTAS), BALANCE-OF-PAYMENTS (BOPS) & WAIVERS.......... 319
TABLE 1: US – GASOLINE (US – STANDARDS FOR REFORMULATED AND
CONVENTIONAL GASOLINE .......................................................................335
TABLE 2: SUMMARY OF THE KEY FINDINGS OF THE PANEL AND THE APPELLATE BODY ..337
MODULE 9 WTO DEVELOPMENT DIMENSION: DOHA DEVELOPMENT AGENDA, AID FOR TRADE, THE
ENHANCED INTEGRATED FRAMEWORK (EIF) AND TECHNICAL ASSISTANCE (TA) AND
TRAINING (OR TRTA) ................................................................................................ 361
FIGURE 1: AID FOR TRADE .......................................................................................383
MODULE 10 SURVEILLANCE IN THE WTO: DISPUTE SETTLEMENT SYSTEM & TRADE POLICY REVIEW
MECHANISM.............................................................................................................. 393
FIGURE 1: TWO WAYS OF RESOLVING DISPUTES UNDER THE DSU................................400
FIGURE 2: ADJUDICATING BODIES ............................................................................402
FIGURE 3: FLOW CHART OF THE DISPUTE SETTLEMENT PROCESS.................................410
FIGURE 4: CONSULTATIONS .....................................................................................411
FIGURE 5: PANEL STAGE ..........................................................................................412
FIGURE 6: APPELLATE REVIEW..................................................................................415
MODULE 11 CROSS-CUTTING ISSUES ............................................................................................. 437
TABLE 1: COVERAGE OF THE GOVERNMENT PROCUREMENT AGREEMENT AND ITS
STRUCTURE.............................................................................................450
MODULE 12 SUMMARY AND CONCLUSIONS....................................................................................... 463
FIGURE 1: ORGANIZATIONAL STRUCTURE OF THE WTO ...............................................466
TABLE 1: THE WTO AGREEMENTS ............................................................................467
FIGURE 2: SUBJECTS OF THE MFN AND NATIONAL TREATMENT PRINCIPLES*.................469
FIGURE 3. ANALYSIS OF LIKENESS UNDER ARTICLE III OF THE GATT 1994....................472
TABLE 2: AN OVERVIEW OF A WTO MEMBER'S SCHEDULE ..........................................480
TABLE 3: MAIN ELEMENTS OF PROTECTION OF THE TRIPS AGREEMENT .......................483
FIGURE 4: MAIN STAGES OF THE WTO DISPUTE SETTLEMENT PROCESS ........................492
FIGURE 5: DEVELOPING COUNTRY AND LDC MEMBERS IN THE WTO..............................494

7. Acronyms
ACP African, Caribbean and Pacific countries
AMS Aggregate Measurement of Support
ATC Agreement on Textiles and Clothing
BFA Banana Framework Agreement
BOP Committee on Balance-of-Payment Restrictions
BOPS Balance-of-Payments
CBD Convention on Biological Diversity
CODEX Codex Alimentarius Commission
CRTA Committee on Regional Trade Agreements
CTD Committee on Trade and Development
CTE Committee on Trade and Environment
CTG Council for Trade in Goods
CTS Council for Trade in Services
DDA Doha Development Agenda
DF Donor Facilitator
DSB Dispute Settlement Body
DSU Dispute Settlement Understanding
EC European Communities
EEC European Economic Community
EIA Economic Integration Agreement
EIF Enhanced Integrated Framework
EIFTF EIF's Trust Fund
EPA Environmental Protection Agency
ESA Endangered Species Act
EU European Union
FDI Foreign Direct Investment
FPS Focal Points
FTA Free Trade Agreement
GATS General Agreement on Trade in Services
GATT General Agreement on Tariffs and Trade
GDP Gross Domestic Product
GI Geographical Indication

8. GPA Agreement on Government Procurement
GSP Generalized System of Preferences
HS Harmonized System
IF Integrated Framework
IMF International Monetary Fund
INRS Initial Negotiating Rights
IPIC Intellectual Property in Respect of Integrated Circuits
IPPC International Plant Protection Convention
IPRS Intellectual Property Rights
ITA Agreement on Information Technology
ITC International Trade Centre
ITO International Trade Organization
ITTC Institute for Training and Technical Cooperation
LDCS Least-Developed Countries
MEAS Multilateral Environmental Agreements
MFA Multifibre Arrangement
MFN Most Favoured Nation
MTS Multilateral Trading System
NAFTA North American Free Trade Agreement
NAMA Non-Agricultural Market Access
NDPS National Development Plans
NFIDCS Net Food-Importing Developing Countries
NGMA Negotiating Group on Market Access
NGOS Non-Governmental Organizations
NIAS National Implementation Arrangements
NIUS National Implementing Units
NSC National Steering Committee
NTBS Non-Tariff Barriers
ODCS Other duties and charges
OECD Organisation for Economic Cooperation and Development
OIE International Office of Epizootics
PPMS Processes and Production Methods
PRSP Poverty Reduction Strategy Paper
PSI Agreement on Preshipment Inspection
QRS Quantitative Restrictions
RTAS Regional Trade Agreements

9. RTPCS Regional Trade Policy Courses
SAT Substantially All the Trade
S&DT Special and Differential Treatment
SCM Subsidies and Countervailing Measures
SMES Small and Medium Enterprises
SPS Sanitary and Phytosanitary Measures
SSG Special Agricultural Safeguard
TA Technical Assistance
TBT Technical Barriers to Trade
TM Transparency Mechanism for Regional Trade Agreements
TNC Trade Negotiations Committee
TPCS Trade Policy Courses
TPRB Trade Policy Review Body
TPRM Trade Policy Review Mechanism
TRIMS Trade- Related Investment Measures
TRIPS Trade-Related-Aspects of Intellectual Property Rights
TRQS Tariff-Rate Quotas
TRTA Trade-Related Technical Assistance
UNCTAD United Nations Conference for Trade and Development
UNDP United Nations Development Programme
UNEP United Nations Environmental Programme
US United States
VAT Value Added Tax
WCO World Customs Organization
WGPR Working Party on GATS Rules
WGTCP Working Group on the Interaction between Trade and Competition Policy
WHO World Health Organization
WIPO World Intellectual Property Organization
WP Working Party
WPDR Working Party on Domestic Regulation
WPGR Working Party on GATS Rules
WTO World Trade Organization

11. Table of Contents
MODULE 1 INTRODUCTION TO THE WORLD TRADE ORGANIZATION (WTO) .............................................. 1
I. INTRODUCTION TO THE WTO......................................................................................... 3
I.A. WHAT IS ''WTO''? ........................................................................................ 3
I.B. PRINCIPLES OF THE WTO............................................................................. 4
II. HISTORICAL BACKGROUND OF THE WTO: FROM THE GATT TO THE WTO ............................ 7
III. OBJECTIVES OF THE WTO ........................................................................................... 10
IV. FUNCTIONS OF THE WTO ............................................................................................ 12
IV.A. ADMINISTRATION OF THE WTO AGREEMENTS .............................................. 12
IV.B. FORUM FOR NEGOTIATIONS....................................................................... 12
IV.C. SETTLEMENT OF TRADE DISPUTES .............................................................. 12
IV.D. SURVEILLANCE OF NATIONAL TRADE POLICIES ............................................ 13
IV.E. COORDINATION WITH RELEVANT INTERNATIONAL ORGANIZATIONS .............. 13
IV.F. TECHNICAL ASSISTANCE (TA) .................................................................... 13
V. ORGANIZATIONAL STRUCTURE OF THE WTO ................................................................. 15
V.A. THE MINISTERIAL CONFERENCE ................................................................. 16
V.B. THE GENERAL COUNCIL ............................................................................. 21
V.C. THE COUNCILS ......................................................................................... 23
V.D. SUBSIDIARY BODIES................................................................................. 23
V.E. THE WTO SECRETARIAT............................................................................. 24
V.F. DECISION-MAKING AT THE WTO................................................................. 25
V.G. ON-GOING NEGOTIATIONS: THE DOHA DEVELOPMENT AGENDA (DDA)........... 27
V.H. ACCESSION OF NEW MEMBERS................................................................... 30
VI. THE WTO AGREEMENTS .............................................................................................. 36
VI.A. THE FINAL ACT ......................................................................................... 36
VI.B. THE AGREEMENT ESTABLISHING THE WTO .................................................. 36
VI.C. MULTILATERAL AGREEMENTS ON TRADE IN GOODS – ANNEX 1A.................... 38
VI.D. GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) – ANNEX 1B............... 39
VI.E. AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS
(TRIPS) – ANNEX 1C.................................................................................. 40
VI.F. THE DISPUTE SETTLEMENT UNDERSTANDING (DSU) -ANNEX 2 ...................... 40
VI.G. TRADE POLICY REVIEW MECHANISM (TPRM) -ANNEX 3 ................................. 40
VII. SUMMARY.................................................................................................................. 42

12. MODULE 2 TRADE IN GOODS: NON-DISCRIMINATION PRINCIPLE: MOST FAVOURED NATION (MFN)
AND NATIONAL TREATMENT IN THE GENERAL AGREEMENT ON TARIFFS AND TRADE
(GATT) 1994 ............................................................................................................ 47
I. INTRODUCTION.......................................................................................................... 49
II. THE MFN PRINCIPLE WITH REGARD TO TRADE IN GOODS............................................... 50
II.A. ARTICLE I:1 OF THE GATT 1994 (MFN PRINCIPLE) ........................................ 51
II.B. EXPLANATION AND INTERPRETATION OF ARTICLE I:1 OF THE GATT 1994
(MFN PRINCIPLE) ...................................................................................... 51
II.C. EXCEPTIONS............................................................................................. 56
III. THE NATIONAL TREATMENT PRINCIPLE WITH REGARD TO TRADE IN GOODS .................... 62
III.A. ARTICLE III OF THE GATT 1994 (NATIONAL TREATMENT PRINCIPLE)............... 62
III.B. EXPLANATION AND INTERPRETATION OF THE NATIONAL TREATMENT
PRINCIPLE................................................................................................ 63
III.C. EXCEPTIONS............................................................................................. 72
IV. SUMMARY.................................................................................................................. 81
MODULE 3 TRADE IN GOODS: RULES ON MARKET ACCESS: TARIFF AND NON-TARIFF BARRIERS
(NTBS)..................................................................................................................... 85
I. INTRODUCTION.......................................................................................................... 87
II. TARIFF BARRIERS....................................................................................................... 88
II.A. WHAT IS A TARIFF?................................................................................... 88
II.B. TARIFF SCHEDULES................................................................................... 91
II.C. WTO NEGOTIATIONS ON TARIFFS ............................................................... 92
II.D. WTO SCHEDULES OF CONCESSIONS (GOODS) ............................................. 98
II.E. OTHER PROVISIONS OF ARTICLE II OF THE GATT AIMING TO PRESERVE THE
VALUE OF TARIFF CONCESSIONS...............................................................104
III. NON-TARIFF BARRIERS (NTBS)...................................................................................107
III.A. WHAT IS A QUANTITATIVE RESTRICTION (QR)?...........................................107
III.B. ARTICLE XI:1 OF THE GATT 1994...............................................................110
III.C. WHAT ABOUT TARIFF-RATE QUOTAS (TRQS)? .............................................111
III.D. PROVISIONS THAT ALLOW DEROGATION FROM THE GENERAL PROHIBITION OF
QUANTITATIVE RESTRICTIONS (QRS).........................................................112
III.E. NON-DISCRIMINATORY ADMINISTRATION OF QUANTITATIVE RESTRICTIONS
(QRS) (ARTICLE XIII OF THE GATT 1994)....................................................113
III.F. DOHA NEGOTIATIONS ..............................................................................118
IV. SUMMARY.................................................................................................................124
MODULE 4 OVERVIEW OF WTO AGREEMENTS ON TRADE IN GOODS (ANNEX 1A OF THE AGREEMENT
ESTABLISHING THE WTO)........................................................................................... 129
I. INTRODUCTION.........................................................................................................131
I.A. STRUCTURE OF THE AGREEMENT ESTABLISHING THE WTO...........................131
I.B. ANNEX 1A: THE MULTILATERAL AGREEMENTS ON TRADE IN GOODS..............131

13. II. THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) 1994 ..................................132
II.A. INTRODUCTION .......................................................................................132
II.B. PROVISIONS OF THE GATT 1994 (AS A MODIFIED VERSION OF GATT 1947) ...132
II.C. OTHER LEGAL INSTRUMENTS.....................................................................133
II.D. URUGUAY ROUND UNDERSTANDINGS.........................................................134
II.E. CONFLICT BETWEEN A PROVISION OF THE GATT 1994 AND A PROVISION OF A
MULTILATERAL AGREEMENT ON TRADE IN GOODS (ANNEX 1 A)....................134
III. THE MULTILATERAL AGREEMENTS ON TRADE IN GOODS................................................136
III.A. THE AGREEMENT ON AGRICULTURE ...........................................................137
III.B. THE AGREEMENT ON SANITARY AND PHYTOSANITARY MEASURES (THE SPS
AGREEMENT) ...........................................................................................150
III.C. THE AGREEMENT ON TECHNICAL BARRIERS TO TRADE (THE TBT AGREEMENT)157
III.D. RULES FOR THE VALUATION OF GOODS AT CUSTOMS – ARTICLE VII OF THE
GATT 1994 & AGREEMENT ON CUSTOMS VALUATION ...................................171
III.E. FEES AND FORMALITIES CONNECTED WITH IMPORTATION AND EXPORTATION –
ARTICLE VIII OF THE GATT 1994................................................................174
III.F. PUBLICATION AND ADMINISTRATION OF TRADE REGULATIONS – ARTICLE X
OF
THE GATT 1994........................................................................................175
III.G. TRADE FACILITATION ...............................................................................176
III.H. AGREEMENT ON IMPORT LICENSING PROCEDURES ......................................179
III.I. AGREEMENT ON PRESHIPMENT INSPECTION (PSI) .......................................181
III.J. AGREEMENT ON RULES OF ORIGIN ............................................................181
III.K. AGREEMENT ON TRADE-RELATED INVESTMENT MEASURES (TRIMS) ..............183
III.L. AGREEMENT ON TEXTILE AND CLOTHING (ATC AGREEMENT) ........................186
IV. SUMMARY.................................................................................................................188
MODULE 5 TRADE REMEDIES....................................................................................................... 195
I. INTRODUCTION.........................................................................................................197
II. ANTI-DUMPING .........................................................................................................199
II.A. SUBSTANTIVE REQUIREMENTS FOR THE APPLICATION OF ANTI-DUMPING
MEASURES ..............................................................................................200
II.B. PROCEDURAL REQUIREMENTS FOR THE APPLICATION OF ANTI-DUMPING
MEASURES ..............................................................................................209
III. SUBSIDIES & COUNTERVAILING MEASURES (SCM) .......................................................213
III.A. THE SUBSIDIES AND COUNTERVAILING MEASURES (SCM) AGREEMENT: TWO
TRACKS ..................................................................................................213
III.B. DISCIPLINES ON SUBSIDIES .....................................................................215
III.C. PROCEDURE FOR THE APPLICATION OF COUNTERVAILING MEASURES ...........220
III.D. SPECIAL AND DIFFERENTIAL TREATMENT ...................................................221
IV. SAFEGUARD MEASURES .............................................................................................224

14. IV.A. RELATIONSHIP BETWEEN ARTICLE XIX OF THE GATT 1994 AND THE AGREEMENT
ON SAFEGUARDS .....................................................................................224
IV.B. PROCEDURE FOR THE APPLICATION OF SAFEGUARD MEASURES....................225
V. MONITORING BODIES AND NOTIFICATION REQUIREMENTS ...........................................230
VI. COMPARATIVE CHART: ANTI-DUMPING, COUNTERVAILING AND SAFEGUARD MEASURES...232
VII. SUMMARY.................................................................................................................237
MODULE 6 GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) ..................................................... 243
I. INTRODUCTION.........................................................................................................245
II. HISTORICAL BACKGROUND OF THE GATS ....................................................................246
III. THE GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)...........................................248
III.A. BASIC PURPOSE OF THE GATS...................................................................248
III.B. SCOPE OF APPLICATION OF THE GATS........................................................248
IV. MEMBERS' GATS OBLIGATIONS...................................................................................252
IV.A. GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) PROVISIONS -
UNCONDITIONAL AND CONDITIONAL GENERAL OBLIGATIONS .....................252
IV.B. SCHEDULES OF SPECIFIC COMMITMENTS – MARKET ACCESS & NATIONAL
TREATMENT.............................................................................................258
IV.C. MODIFICATION OF A SCHEDULE ................................................................264
IV.D. ANNEXES & RELATED INSTRUMENTS ON SPECIFIC SERVICE SECTORS ...........266
V. EXCEPTIONS.............................................................................................................270
VI. PROGRESSIVE LIBERALIZATION & NEGOTIATION MANDATES .........................................271
VI.A. PROGRESSIVE LIBERALIZATION.................................................................271
VI.B. BUILT-IN AGENDA....................................................................................273
VII. SUMMARY.................................................................................................................278
MODULE 7 AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIPS
AGREEMENT) ............................................................................................................ 281
I. INTRODUCTION.........................................................................................................283
II. INTELLECTUAL PROPERTY RIGHTS (IPRS).....................................................................284
II.A. WHAT ARE INTELLECTUAL PROPERTY RIGHTS (IPRS)?..................................284
II.B. WHY ARE IPRS PROTECTED?......................................................................285
III. THE AGREEMENT ON TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS
– (THE TRIPS AGREEMENT) .......................................................................................286
III.A. TRIPS: MAIN FEATURES – GENERAL PROVISIONS AND BASIC
PRINCIPLES (PART I)................................................................................287
III.B. SUBSTANTIVE PROTECTION OF IPRS (PART II)............................................291
III.C. TRIPS AND PUBLIC HEALTH.......................................................................303
III.D. IPRS ENFORCEMENT (PART III)..................................................................306
III.E. OTHER PROVISIONS.................................................................................308
III.F. IMPLEMENTATION ....................................................................................310

15. IV. MONITORING BODIES: COUNCIL FOR TRIPS.................................................................312
IV.A. MONITORING THE OPERATION OF THE AGREEMENT.....................................312
IV.B. CONSULTATIONS .....................................................................................312
IV.C. FORUM FOR FURTHER NEGOTIATION OR REVIEW ........................................312
V. SUMMARY.................................................................................................................314
MODULE 8 EXCEPTIONS TO WTO RULES: GENERAL EXCEPTIONS, SECURITY EXCEPTIONS, REGIONAL
TRADE AGREEMENTS (RTAS), BALANCE-OF-PAYMENTS (BOPS) & WAIVERS ........................ 319
I. INTRODUCTION.........................................................................................................321
II. GENERAL EXCEPTIONS...............................................................................................323
II.A. GENERAL EXCEPTIONS IN THE GENERAL AGREEMENT ON TARIFFS AND
TRADE (GATT) 1994 .................................................................................323
II.B. GENERAL EXCEPTIONS IN THE GENERAL AGREEMENT ON TRADE IN SERVICES
(GATS)....................................................................................................333
II.C. TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIPS)
AGREEMENT ............................................................................................335
III. SECURITY EXCEPTIONS..............................................................................................339
III.A. SECURITY EXCEPTIONS IN THE GENERAL AGREEMENT ON TARIFFS AND
TRADE (GATT) 1994 .................................................................................339
III.B. SECURITY EXCEPTIONS IN THE GENERAL AGREEMENT ON TRADE IN
SERVICES (GATS) ....................................................................................340
III.C. SECURITY EXCEPTIONS IN THE AGREEMENT ON TRADE-RELATED ASPECTS
OF INTELLECTUAL PROPERTY RIGHTS (TRIPS).............................................340
IV. REGIONAL INTEGRATION ...........................................................................................341
IV.A. THE WELFARE EFFECTS OF REGIONAL TRADE AGREEMENTS (RTAS)...............342
IV.B. REGIONAL INTEGRATION IN THE GENERAL AGREEMENT ON TARIFFS AND
TRADE (GATT) 1994 .................................................................................343
IV.C. REGIONAL INTEGRATION IN THE GENERAL AGREEMENT ON TRADE IN
SERVICES (GATS) ....................................................................................347
IV.D. REGIONAL TRADE AGREEMENTS (RTAS) AND THE MULTILATERAL TRADING
SYSTEM ..................................................................................................348
IV.E. REGIONAL TRADE AGREEMENT (RTAS) AND TRANSPARENCY.........................349
V. BALANCE-OF-PAYMENTS (BOPS) EXCEPTIONS ..............................................................351
V.A. BALANCE-OF-PAYMENTS (BOPS) IN THE GATT 1994.....................................351
V.B. BALANCE-OF-PAYMENTS (BOPS) IN THE GENERAL AGREEMENT ON TRADE IN
SERVICES (GATS) ....................................................................................352
VI. WAIVERS..................................................................................................................354
VII. SUMMARY.................................................................................................................357
MODULE 9 WTO DEVELOPMENT DIMENSION: DOHA DEVELOPMENT AGENDA, AID FOR TRADE, THE
ENHANCED INTEGRATED FRAMEWORK (EIF) AND TECHNICAL ASSISTANCE (TA) AND
TRAINING (OR TRTA) ................................................................................................ 361
I. INTRODUCTION.........................................................................................................363

16. II. SPECIAL & DIFFERENTIAL TREATMENT FOR DEVELOPING COUNTRIES .............................364
II.A. WHO ARE DEVELOPING COUNTRIES IN THE WTO? .......................................364
II.B. WHAT DOES SPECIAL AND DIFFERENTIAL TREATMENT MEAN?.......................364
II.C. PROVISIONS ON SPECIAL & DIFFERENTIAL TREATMENT ...............................367
II.D. THE ENHANCED INTEGRATED FRAMEWORK (EIF).........................................374
II.E. MONITORING BODIES...............................................................................377
III. DOHA DEVELOPMENT AGENDA (DDA) ..........................................................................379
III.A. DEVELOPMENT ASPECTS OF THE DOHA DEVELOPMENT AGENDA (DDA) ..........379
III.B. AID FOR TRADE .......................................................................................382
III.C. WTO TRADE-RELATED TECHNICAL ASSISTANCE ..........................................384
IV. SUMMARY.................................................................................................................388
MODULE 10 SURVEILLANCE IN THE WTO: DISPUTE SETTLEMENT SYSTEM & TRADE POLICY REVIEW
MECHANISM.............................................................................................................. 393
I. INTRODUCTION.........................................................................................................395
II. THE DISPUTE SETTLEMENT SYSTEM (DSS) ...................................................................396
II.A. OBJECTIVES AND FUNCTIONS OF THE WTO DISPUTE SETTLEMENT SYSTEM....396
II.B. MAIN FEATURES OF THE WTO DISPUTE SETTLEMENT MECHANISM.................398
II.C. THE PROCESS OF THE WTO DISPUTE SETTLEMENT SYSTEM ..........................409
II.D. SPECIAL & DIFFERENTIAL TREATMENT UNDER THE WTO DISPUTE SETTLEMENT
SYSTEM ..................................................................................................419
II.E. NEGOTIATIONS: REVIEW OF THE DSU........................................................421
III. THE TRADE POLICY REVIEW MECHANISM (TPRM)..........................................................425
III.A. OBJECTIVES OF THE TPRM ........................................................................425
III.B. SCOPE OF REVIEWS .................................................................................426
III.C. THE TPRM IN PRACTICE ............................................................................427
III.D. THE TPRM & DEVELOPING COUNTRIES .......................................................430
IV. SUMMARY.................................................................................................................431
MODULE 11 CROSS-CUTTING ISSUES ............................................................................................. 437
I. INTRODUCTION.........................................................................................................439
II. TRADE AND ENVIRONMENT ........................................................................................440
II.A. ARE MEMBERS ALLOWED UNDER WTO RULES TO ADOPT MEASURES AIMED AT
PROTECTING THE ENVIRONMENT? .............................................................441
II.B. WHAT ABOUT THE EFFECT OF ENVIRONMENTAL MEASURES ON TRADE?.........442
II.C. WTO DISPUTES CONCERNING ENVIRONMENTAL MEASURES..........................442
II.D. THE DOHA MANDATE ON TRADE AND ENVIRONMENT ...................................444
III. TRADE AND GOVERNMENT PROCUREMENT ...................................................................448
III.A. THE PLURILATERAL AGREEMENT ON GOVERNMENT PROCUREMENT) ..............449
III.B. WORKING GROUP ON TRANSPARENCY IN GOVERNMENT PROCUREMENT ........453
III.C. MULTILATERAL NEGOTIATIONS ON SERVICES PROCUREMENT.......................454

17. IV. TRADE AND INVESTMENT ...........................................................................................455
IV.A. THE WORKING GROUP ON THE RELATIONSHIP BETWEEN TRADE AND
INVESTMENT ...........................................................................................455
IV.B. THE TRADE-RELATED INVESTMENT MEASURES (TRIMS) AGREEMENT.............456
IV.C. INVESTMENT AND THE GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)457
V. TRADE AND COMPETITION POLICY ..............................................................................458
V.A. COMPETITION POLICY AND TRADE .............................................................458
V.B. THE WORKING GROUP ON THE INTERACTION BETWEEN TRADE AND
COMPETITION POLICY...............................................................................459
VI. SUMMARY.................................................................................................................461
MODULE 12 SUMMARY AND CONCLUSIONS....................................................................................... 463
I. WHAT IS THE WORLD TRADE ORGANIZATION (WTO)?...................................................465
II. NON-DISCRIMINATION IN THE WTO ............................................................................469
II.A. MFN FOR GOODS, SERVICES AND INTELLECTUAL PROPERTY.........................470
II.B. NATIONAL TREATMENT FOR GOODS, SERVICES AND INTELLECTUAL
PROPERTY ...............................................................................................470
III. TRADE IN GOODS: MARKET ACCESS............................................................................473
III.A. TARIFF BARRIERS ....................................................................................473
III.B. NON TARIFF BARRIERS (NTB)....................................................................473
IV. AGRICULTURE...........................................................................................................477
V. TRADE IN SERVICES ..................................................................................................479
VI. TRADE–RELATED ASPECTS OF INTELLECTUAL PROPERTY RIGHTS (TRIPS) .......................482
VII. EXCEPTIONS TO WTO RULES ......................................................................................485
VII.A. GENERAL EXCEPTIONS..............................................................................485
VII.B. SECURITY EXCEPTIONS ............................................................................487
VII.C. REGIONAL INTEGRATION ..........................................................................487
VII.D. BALANCE-OF-PAYMENTS (BOPS) ................................................................488
VII.E. WAIVERS ................................................................................................488
VII.F. TRADE REMEDIES.....................................................................................490
VIII. DISPUTE SETTLEMENT AND SURVEILLANCE IN THE WTO ...............................................492
VIII.A. DISPUTE SETTLEMENT ..............................................................................492
VIII.B. TRADE POLICY REVIEW MECHANISM (TPRM) ...............................................493
IX. TRADE AND DEVELOPMENT.........................................................................................494
X. CROSS-CUTTING ISSUES ...........................................................................................496
X.A. TRADE AND ENVIRONMENT .......................................................................496
X.B. GOVERNMENT PROCUREMENT, TRADE AND INVESTMENT AND TRADE AND
COMPETITION POLICY...............................................................................496
BIBLIOGRAPHY: .............................................................................................................................. 499

19. 1
Introduction to the World Trade
Organization (WTO)
ESTIMATED TIME: 2 hours
OBJECTIVES OF MODULE 1
To introduce:
 the historical background of the WTO;
 the objectives, functions, and organizational structure of the WTO;
 the decision-making in the WTO;
 the process of accession of new Members to the WTO;
 the ongoing Doha Round of negotiations; and,
 the WTO Agreements.
MODULE
1
MODULE
1

21. 3
I. INTRODUCTION TO THE WTO
I.A. WHAT IS ''WTO''?
IN BRIEF
WTO is the acronym for World Trade Organization. The WTO came into being in 1995 and was created
after the culmination of long intense negotiations which took place under the auspices of the General
Agreement on Tariffs and Trade (GATT).
AN ORGANIZATION FOR TRADE LIBERALIZATION
The WTO is an organization for liberalizing trade. Trade liberalization is the main approach that the WTO
has adopted to help Member countries achieve economic growth and raise living standards.
However, the WTO recognizes Members' right to maintain trade barriers, subject to the conditions provided in
the WTO Agreements. Such trade barriers are considered to serve legitimate objectives, such as the protection
of human, animal or plant life or health or the protection of consumers. In so doing, a balance is struck
between trade liberalization and the flexibility Members need to meet their policy objectives.
A FORUM FOR TRADE NEGOTIATIONS
The WTO provides a multilateral forum for Member governments to negotiate rules of international trade.
Thus, the WTO was born out of negotiations and everything the WTO does is the result of negotiations. The
WTO is currently host to new negotiations under the Doha Development Agenda (DDA) launched in 2001.
A SET OF INTERNATIONAL TRADE RULES
These rules are contained in the WTO Agreements which were signed by the bulk of the world's trading nations
and have binding effects on them. Thus, the WTO Agreements lay down the legal ground rules for
international commerce between WTO Members. They cover trade in goods, trade in services and
trade-related aspects of intellectual property rights (TRIPS). However, it is important to note that the WTO
Agreements constitute an international agreement, as such, bind only states and separate customs territories.
A PLACE FOR SETTLING TRADE DISPUTES
The WTO is also a place for settling trade disputes between Member countries. The WTO's procedure for
resolving trade disputes is vital for enforcing the rules and for ensuring that trade flows smoothly.

22. 4
Who can be Members of the WTO?
International organizations are normally made up of sovereign states, that is also the case for the WTO. The
vast majority of WTO Members are states; however, also separate customs territories that meet certain
requirements can become Members of the WTO (see section on Accession).
According to their level of development, WTO Members are grouped as "developed country Members" or
"developing country Members". In addition, some developing country Members are "least-developed
countries" (LDCs). As you will study in Module 9, the provisions applicable to developing country Members
apply to LDC Members, but LDC Members enjoy additional rights.
To find a list of the WTO Members, please refer to:
http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm
I.B. PRINCIPLES OF THE WTO
MOST-FAVOURED-NATION (MFN) PRINCIPLE: TREATING FOREIGNERS
EQUALLY
Under the WTO Agreements, a country should not discriminate between its trading parties. According
to the MFN principle, any advantage, favour, privilege or immunity granted by a Member to any product
originating in or destined for any other country shall be accorded immediately and unconditionally to the like
product of all Members.
The MFN principle is one of the cornerstones of the WTO. It is embodied in Article I of the GATT 1994
which will be studied in Module 2, Article II of the General Agreement on Trade in Services (GATS) and
Article 4 of the TRIPS Agreement, which will be studied in Modules 6 and 7, respectively. However, as we will
see, in each Agreement the principle is applied slightly different.
NATIONAL TREATMENT PRINCIPLE: TREATING FOREIGNERS AND
LOCALS EQUALLY
Within national territory, WTO Members cannot favour domestic products over imported products
(Article III of the GATT 1994). The principle of national treatment also applies, with some differences, to trade
in services (Article XVII of the GATS) and intellectual property protection (Article 3 of the TRIPS Agreement).
The national treatment principle will be explained in Modules 2 (Goods), 6 (GATS) and 7 (TRIPS).

23. 5
GENERAL PROHIBITION OF QUANTITATIVE RESTRICTIONS (QRS)
As you will study in Module 3, WTO Members cannot prohibit, restrict or limit the quantity of products
authorized for importation or exportation (Article XI of the GATT 1994), subject to limited exceptions. This
principle does not apply in this way in the context of the GATS and the TRIPS.
OBSERVANCE OF BINDING LEVELS OF TARIFF CONCESSIONS (GOODS)
AND OF SPECIFIC COMMITMENTS (SERVICES)
Minimum market access conditions are guaranteed by commitments undertaken by Members regarding
customs duties (tariff concessions for goods - Article II of the GATT 1994) and market access for the supply of
services (specific commitments - Article XVI of the GATS). They will be explained in detailed in Modules 3
(Goods) and 6 (GATS).
TRANSPARENCY
It is fundamentally important that regulations and policies are transparent. For example, as you will
study in different Modules, WTO Members are required to inform the WTO and fellow-Members of specific
measures, policies or laws through regular "notifications". In addition, the WTO conducts periodic reviews of
individual Members’ trade policies through the Trade Policy Review Mechanism (TPRM), which will be
introduced in Module 10.

24. 6
Why free trade ?
The economic case for an open trading system based on multilaterally agreed rules not only rests on
commercial common sense, but it is also supported by evidence: the experience of world trade and
economic growth since the Second World War. During the first 25 years after the war, world economic
growth averaged about five per cent per year, a high rate that was partly the result of lower
trade barriers. World trade grew even faster, averaging about 8 per cent during this period.
The data show a statistical link between freer trade and economic growth. Economic theory points to
strong reasons for the link. All countries, including the poorest, have assets — human, industrial, natural,
financial — which they can employ to produce goods and services for their domestic markets or to compete
overseas. Economics tells us that we can benefit when these goods and services are traded. Simply put,
the principle of "comparative advantage" says that countries prosper first by taking advantage of
their assets in order to concentrate on what they can produce best, and then by trading these
products for products that other countries produce best. In other words, liberal trade policies —
policies that allow the unrestricted flow of goods and services — sharpen competition, motivate
innovation and breed success.
The principle of comparative advantage, which dates back to classical economist David Ricardo, is the most
powerful and widely accepted economic theory underlying the case for open trade. To illustrate this, let's
first look at a simple case - a case of absolute advantage. Suppose country A is better than country B at
making wines, and country B is better than country A at making bicycles. Thus, it would be an obvious case
that each country will specialize in the products that it can produce most efficiently and then trade their
products. In this scenario, country A will concentrate on the production of wines and import bicycles from
country B while country B will concentrate on the production of bicycles and import wines from country A.
But what if a country is bad at making everything? Can countries still benefit from trade? According to
Ricardo's Principle of ''Comparative Advantage'', the answer is yes.
Let's change the scenario a bit and assume that country A is better than country B in making both products
– wines and bicycles. Let's further assume that country A is much more superior at making wines and only
slightly superior at making bicycles. Then country A should still invest resources in what it does best —
producing wines — and export the product to B. B should still invest in what it does best — making bicycles
— and export that product to A, even if it is not as efficient as A. Both would still benefit from the trade. A
country does not have to be best at anything to gain from trade.

25. 7
II. HISTORICAL BACKGROUND OF THE WTO:
FROM THE GATT TO THE WTO
While legally distinct from the GATT, you will see that the WTO and the GATT are inter-related.
II.A. WHAT IS THE GATT?
IN BRIEF
The GATT is an international trade agreement concluded in 1947. It contains rules and obligations
that governed trade in goods for almost fifty years between its "CONTRACTING PARTIES". From 1948 to
1994, before the WTO was created, the GATT provided the legal framework for the bulk of world
trade.
The negotiation of the GATT dates back to the 1940's. It was part of the post-war project to reconstruct a
multilateral system of world trade through the elimination of discrimination, the reduction of tariffs and the
dismantlement of other trade barriers. The initial objective was to create an International Trade
Organization (the ITO) to handle the trade side of international economic cooperation, which was meant to
join the two "Bretton Woods'' institutions, the World Bank and the International Monetary Fund (IMF).
The project went on two tracks: (1) drafting a Charter for an International Trade Organization (the ITO); and,
(2) launching tariff negotiations on a multilateral basis.
The GATT was never intended to be an international organization but only to be a subsidiary agreement under
the ITO Charter. Nevertheless, the ITO did not materialize and the GATT came into force by means of a
Provisional Protocol, signed on 30 October 1947 and effective since 1 January 1948. The signatory countries to
the Protocol agreed to apply the provisions contained in the GATT until the ITO could take over its
administration. Hence, for 47 years, the GATT served as a de facto international organization, taking
up some of the functions originally intended for the ITO.
The GATT developed rules for a multilateral trading system (MTS) through a series of trade
negotiations or rounds. From 1947 to 1994, the GATT CONTRACTING PARTIES organized eight rounds of
negotiations. The early rounds dealt mainly with tariff reductions on goods, but later rounds included other
areas, such as, anti-dumping and non-tariff barriers.
The last round lasted from 1986 to 1994 and is generally known as the "Uruguay Round", which led to the
creation of the WTO in 1994. The Uruguay Round brought about the biggest reform to the world trading
system since the GATT was established. Since 1995, the WTO has performed the role of an
international organization for trade rules. The table below lists the rounds, the subjects covered and the
number of contracting parties that participated in each one, respectively.

26. 8
ROUNDS OF TRADE NEGOTIATIONS UNDER THE AUSPICES OF THE GATT
Year Place/Name Subjects Covered Parties
1947 Geneva Tariffs 23
1949 Annecy Tariffs 13
1951 Torquay Tariffs 38
1956 Geneva Tariffs 26
1960-1961 Geneva, Dillon Round Tariffs 26
1964-1967 Geneva, Kennedy
Round
Tariffs and anti-dumping measures 62
1973-1979 Geneva, Tokyo Round Tariffs, non-tariff measures, "framework"
agreements:
 first negotiations on non-tariff
barriers;
 creation of plurilateral codes; and
 creation of the Enabling Clause –
i.e. the "Decision on Differential
and More Favourable Treatment,
Reciprocity and Fuller Participation
of Developing Countries".
It supplemented the Generalized
System of Preferences (GSP)
which was adopted before the
Tokyo Round in 1971 and
extended further and differential
treatment and more favourable
treatment in favour of developing
countries.
102
1986-1994 Geneva, Uruguay
Round
Tariffs, non-tariff measures, rules, services,
TRIPS, dispute settlement, textiles, agriculture,
creation of WTO, etc.
123
Table 1: Rounds of trade negotiations under the auspices of the GATT
Participants in the Uruguay Round concluded the Round by adopting the "Final Act Embodying the Results of
the Uruguay Round of Multilateral Trade Negotiations" ("the Final Act"). After the Final Act follows the
"Marrakesh Agreement Establishing the World Trade Organization" ("the Agreement Establishing the WTO")
and its four Annexes, which will be introduced below (See Section V.H. ''Overview of the WTO Agreements'').

27. 9
The GATT still exists as the WTO's treaty for trade in goods. The Agreement Establishing the WTO
and its Annexes will be referred to as ''the WTO Agreements'' in this course.

28. 10
III. OBJECTIVES OF THE WTO
IN BRIEF
In the Preamble to the Agreement Establishing the WTO, the parties to the Agreement recognize the
objectives they wish to attain through the MTS:
 raise living standards;
 ensure full employment;
 ensure a large and steadily growing volume of real income and effective demand; and,
 expand the production of and trade in, goods and services, while allowing for the optimal
use of the world's resources in accordance with the objective of sustainable development.
The Agreement also recognizes the need for "positive efforts to ensure that developing countries,
and especially the least-developed among them, secure a share in the growth in international
trade commensurate with … their economic development".
The Preamble to the Agreement Establishing the WTO encapsulates its objectives. It declares:
Preamble to the Agreement Establishing the WTO
The Parties to this Agreement
Recognizing that their relations in the field of trade and economic endeavour should be conducted with a
view to raising standards of living ensuring full employment and a large and steadily growing volume of real
income and effective demand and expanding the production of and trade in goods and services while
allowing for the optimal use of the world's resources in accordance with the objective of sustainable
development seeking both to protect and preserve the environment and to enhance the means for doing so
in a manner consistent with their respective needs and concerns at different levels of economic
development
Recognizing further that there is need for positive efforts designed to ensure that developing countries and
especially the least developed among them secure a share in the growth in international trade
commensurate with the needs of their economic development. Being desirous of contributing to these
objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial
reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in
international trade relations..
The objectives of the WTO are not fundamentally different from those contained in the Preamble to the GATT
1947. In this way, it recognizes the importance of continuity with the previous GATT system. It is noteworthy
that although the objectives of the WTO do not mention trade liberalization as the means to establish
free-trade between Members, the drafters considered "substantial reduction of tariffs and other barriers to
trade and the elimination of discriminatory treatment in international trade relations" as important steps to

29. 11
achieving such objectives. Trade expansion is thus not seen as an end in itself, but as an instrument
to promote growth and development.
The WTO adds three new dimensions to the objectives in the Preamble of the GATT 1947, including:
Three New Dimensions in the Preamble to the Agreement Establishing the WTO
 the expansion of "the production of and trade in goods and services" to take into
consideration the extension of the coverage of the WTO subject matters. While the GATT
covered only trade in goods, under the WTO coverage was expanded to another subject area
– trade in services (see the GATS Agreement);
 "the objective of sustainable development seeking both to protect and preserve the
environment and to enhance the means for doing so"; and,
 the "development dimension" aiming at helping "developing countries and especially the
least-developed among them secure a share in the growth in international trade
commensurate with the needs of their economic development".
The Preamble to the Agreement Establishing the WTO provides an important legal basis for the interpretation
of the WTO Agreements.

30. 12
IV. FUNCTIONS OF THE WTO
IN BRIEF
The WTO fulfils its objective by:
 administering the trade agreements between its Members;
 serving as a forum for trade negotiations;
 settling international trade disputes among its Members;
 reviewing Members' trade policies;
 ensuring greater coherence in global economic policy-making, including cooperating with
the IMF and the World Bank; and,
 provide technical assistance (TA) to developing country Members.
Article III of the Agreement Establishing the WTO explains the functions of the WTO. These include:
IV.A. ADMINISTRATION OF THE WTO AGREEMENTS
The WTO Agreements lay down the legal ground rules for international commerce and codes of conduct for
WTO Members. Thus, the first function of the WTO is to facilitate the implementation, administration
and operation, and further the objectives of these Agreements.
IV.B. FORUM FOR NEGOTIATIONS
The WTO provides a permanent institutional forum for multilateral negotiation and cooperation on
trade-related policies among its Members. Although the WTO is specifically charged with providing the
forum for negotiations on matters already covered by the WTO Agreements, negotiations under the auspices of
the WTO may be extended to "new issues" to be disciplined by WTO Agreements.
IV.C. SETTLEMENT OF TRADE DISPUTES
The WTO also acts as a forum for the settlement of trade disputes between its Members in accordance
with the disciplines and procedures elaborated in the Dispute Settlement Understanding (DSU) (the
DSU, found in Annex 2 to the Agreement Establishing the WTO).
A dispute arises when a Member country believes another Member is acting in a manner that is inconsistent
with its WTO commitments and considers that any benefits accruing to it directly or indirectly under the WTO
Agreements are being impaired by measures taken by such Member. When Members are unable to reach a

31. 13
mutually agreed solution to a dispute arising under one of the WTO covered Agreements, they may seek
recourse to the WTO dispute settlement mechanism. We will study the WTO dispute settlement mechanism in
Module 10.
IV.D. SURVEILLANCE OF NATIONAL TRADE POLICIES
This function underscores the role of the WTO in the transparency mechanism designed by Members during the
Uruguay Round. All WTO Members are subject to review under the Trade Policy Review Mechanism (TPRM)
and the frequency of each country’s review varies according to its share of world trade. The regular
surveillance of national trade policies through the TPRM provides a means of encouraging
transparency both domestically and at the multilateral level.
The reviews take place in the Trade Policy Review Body which is actually the WTO General Council —
comprising the WTO’s full membership — operating under special rules and procedures. The reviews are
therefore essentially peer-group assessments. We will further explain the TPRM in Module 10.
IV.E. COORDINATION WITH RELEVANT INTERNATIONAL
ORGANIZATIONS
This function identifies the "coherence mandate" as one of the objectives of the WTO. Cooperation with the
IMF and the World Bank, as well as their affiliated agencies, is essential since it is an important factor that
WTO Members need to consider when they enter into negotiations to design an international regulatory
framework with regard to economic policy. Cooperation with other international organizations would allow the
WTO to achieve "greater coherence in global economic policymaking".
Article V of the Agreement Establishing the WTO also lays down rules for the WTO to establish "effective
cooperation with other intergovernmental organizations that have responsibilities related to those of the WTO"
and the possibility for the WTO to consult and cooperate "with non-governmental organizations concerned with
matters related to those of the WTO".
IV.F. TECHNICAL ASSISTANCE (TA)
In Doha Ministerial, in November 2001, Members confirmed that technical cooperation and capacity building
are core elements of the development dimension of the multilateral trading system. They instructed the
Secretariat, in coordination with other relevant agencies, to support domestic efforts for mainstreaming trade
into national plans for economic development and strategies for poverty reduction (Doha Ministerial
Declaration, paragraph 38).
The delivery of WTO technical assistance shall be designed to assist developing and least-developed countries
and low-income countries in transition to adjust to WTO rules and disciplines, implement obligations and
exercise the rights of membership, including drawing on the benefits of an open, rule-based MTS.

32. 14
EXERCISES
1. What is the relationship between the ITO and the GATT?
2. What does the Preamble of the Agreement Establishing the WTO provide and why is it important?
3. What are the objectives of the WTO?
4. What are the main functions of the WTO?
5. Please briefly explain the WTO's function as a forum for trade negotiations.
6. What is ''coherence mandate''? Where is it provided in the Agreement Establishing the WTO? What is the
main reason that the Agreement Establishing the WTO lays down ''coherence mandate'' for the WTO?
7. In which round of trade negotiations was services first included in the MTS?

33. 15
V. ORGANIZATIONAL STRUCTURE OF THE WTO
The WTO is a member-driven organization. WTO Members established a working structure for the
WTO to allow them to monitor the implementation and the development of the WTO. All WTO
Members may participate in all Councils, Committees, Bodies, except Appellate Body, Dispute Settlement
panels, Textiles Monitoring Body, and plurilateral committees. The WTO Secretariat is made up of
international officers and its main task is to supply technical support for the various councils and committees.
Figure 1: Organizational Structure of the WTO

34. 16
IN BRIEF
The Ministerial Conference is the topmost decision making body in the WTO. It is composed by
representatives of all WTO Members and shall meet at least once every two years. The Ministerial
Conference may take decisions on all matters under all multilateral WTO Agreements, in accordance with
the decision-making procedures contained in the Agreement Establishing the WTO.
The second tier in the decision-making structure of the WTO is the General Council, which is also
formed by representatives of all Member countries, usually Ambassadors or Permanent
Representatives, based in Geneva. It adopts decisions on behalf of the Ministerial Conference on all
WTO affairs when the Conference is not in session. It also meets as the Trade Policy Review Body
(TPRB) and the Dispute Settlement Body (DSB).
In the third level are three subsidiary councils – Council for Trade in Goods (Goods Council), Council
for Trade in Service (GATS Council) and Council for Trade-Related Aspects of Intellectual Property Rights
(TRIPS Council) -, which operate under the general guidance of the General Council and are responsible
for the workings of the WTO Agreements dealing with their respective areas of trade. They consist of all
WTO Members and have subsidiary bodies.
Finally, the Secretariat of the WTO headed by a Director-General appointed by the Ministerial Conference
has no decision making powers. Its main duties include, among others, to supply technical support
for the various councils and committees, to provide TA to developing countries and to provide
legal assistance in the dispute settlement process. Contrary to the WTO Bodies explained above, the
WTO Secretariat is integrated by international officers who cannot seek or accept instructions from any
government or any other authority external to the WTO in the discharge of their duties.
V.A. THE MINISTERIAL CONFERENCE
As mentioned above, the Ministerial Conference is the topmost decision-making body in the WTO. It is
composed by representatives of all WTO Members and shall meet at least once every two years. The
Ministerial Conference may take decisions on all matters under all multilateral trade agreements, in accordance
with the decision-making procedures contained in the Agreement Establishing the WTO.
The chronology of sessions of the Ministerial Conference is as follows:
V.A.1. SINGAPORE MINISTERIAL - DECEMBER 1996 /FIRST SESSION/
SINGAPORE
During the First WTO Ministerial Conference, which took place in Singapore in December 1996, Ministers
adopted the Singapore Ministerial Declaration (WT/MIN(96)/DEC) and reinforced their commitment to abide
by WTO rules in their trade relations.

35. 17
Ministers decided to start exploratory talks on four topics, which came to be called "the Singapore Issues":
 trade and investment;
 trade and competition policy;
 trade facilitation; and,
 transparency in government procurement.
Ministers also adopted a comprehensive and integrated WTO Plan of Action for the Least-Developed
Countries (LDCs) that became the basis for a coordinated effort to facilitate the integration of LDCs into the
world economy. This plan of action was followed by a high-level meeting organized by the WTO in
collaboration with the United Nations Conference for Trade and Development (UNCTAD), the International
Trade Centre (ITC), the World Bank, the United Nations' Development Programme (UNDP) and the IMF on
assistance to LDCs, which took place in 1997 and led to the establishment of the Enhanced Integrated
Framework (EIF).
Furthermore, a plurilateral Ministerial Declaration on Trade in Information Technology Products (referred to
as the ITA initiative - WT/MIN(96)/16) was also adopted by certain Members with a view to expand trade in
IT products. This resulted in unilateral decisions by the parties to improve market access for these products
(on an MFN basis).
V.A.2. GENEVA MINISTERIAL - MAY 1998 / SECOND SESSION /
SWITZERLAND
During the Second WTO Ministerial Conference, which took place in Geneva in May 1998, Ministers adopted a
Ministerial Declaration (WT/MIN(98)/DEC) that underlined the importance of the multilateral rule-based
trading system, celebrated the 50th Anniversary of the GATT and reaffirmed the commitments and
assessments made in Singapore.
Ministers also adopted a Declaration on Global Electronic Commerce (WT/MIN(98)/DEC/2). This declaration
launched the discussions on a comprehensive work programme to examine all trade-related global electronic
commerce issues. Ministers also undertook to continue the practice of not imposing customs duties on
electronic transactions.
V.A.3. SEATTLE MINISTERIAL - NOVEMBER-DECEMBER 1999 / THIRD
SESSION / UNITED STATES OF AMERICA
At the Third WTO Ministerial Conference, which took place in Seattle in December 1999, Ministers did not
reach an agreement to adopt any Decision or Declaration.

36. 18
V.A.4. DOHA MINISTERIAL - NOVEMBER 2001 /FOURTH SESSION /
QATAR
At the Fourth Ministerial Conference, which took place in Doha in November 2001, Ministers agreed to launch
new negotiations and to work on other issues, in particular the implementation of the present WTO
Agreements. They adopted a Ministerial Declaration (WT/MIN(01)/DEC/1 ''Doha Declaration'') that
launched the "Doha Development Agenda" (DDA), which contains a work programme listing 21 subjects
for negotiations. All these subjects being negotiated form part of a "single undertaking", which in practical
terms means "nothing is agreed until everything is agreed" (explained in Section V.H.2.1). The negotiations
currently take place in the Trade Negotiation Committee and its subsidiaries. Other work under the work
programme takes place in other WTO Councils and Committees.
a. MAIN ISSUES CONTAINED IN DOHA DECLARATION
1. BUILT-IN AGENDA AND NEW ISSUES
The work programme contained in the Doha Ministerial Declaration includes the following subjects:
 implementation–related issues and concerns (paragraph 12);
 agriculture (paragraphs 13 and 14);
 services (paragraph 15);
 market access for non-agricultural products (NAMA) (paragraph 16);
 trade-related aspects of intellectual property rights (paragraphs 17 to19);
 relationship between trade and investment (paragraphs 20 to 22, one of the Singapore
Issues);
 interaction between trade and competition policy (paragraphs 23 to 25, one of the Singapore
Issues);
 transparency in government procurement (paragraph 26 –one of the Singapore Issues);
 trade facilitation (paragraph 27; one of the Singapore Issues);
 WTO rules: anti-dumping measures, subsidies and countervailing measures and regional trade
agreements (RTAs) (paragraphs 28 and 29);
 Dispute Settlement Understanding (DSU) (paragraph 30);
 trade and environment (paragraphs 31 to33);
 electronic commerce (paragraph 34); and,
 other issues (small economies (paragraph 35); trade, debt and finance (paragraph 36); trade and
transfer of technology (paragraph 37); TA and capacity-building (paragraph 38); LDCs (paragraph 42
and 43); special and differential treatment (paragraph 44).

37. 19
2. DEVELOPING COUNTRIES
Ministers stressed the importance of ensuring that developing countries, and especially the
least-developed among them, secure a share in the growth of world trade commensurate with the
needs of their economic development (paragraphs 2 and 3). Several mandates were set out in the Doha
Declaration to achieve this objective. They include:
 examine the issue related to trade and technology transfer so as to increase flows of
technology to developing countries (paragraph 37);
 to ensure that WTO TA and capacity-building programmes are designed to assist developing
countries, LDCs and low-income countries in transition to adjust to WTO rules (paragraphs 38
to 41);
 commit to the objective of duty-free, quota-free market access for products originating from
LDCs and to consider additional measure for progressive improvements in market access for
LDCs (paragraphs 42 and 43); and,
 to review all special and differential treatment provisions which give developing countries special rights
so as to strengthen them and make them more precise (paragraph 44).
3. IMPLEMENTATION-RELATED ISSUES AND CONCERNS
Ministers approved a Decision related to the difficulties particularly developing country Members face
in implementing several provisions contained in the WTO Agreements. In Doha, Ministers agreed to
adopt around 50 decisions clarifying the obligations of developing country Members with respect to issues
including agriculture, subsidies, technical barriers to trade (TBT), trade-related investment
measures (TRIMS) and rules of origin. These implementation-related issues and concerns were spelt out
in paragraph 12 of the Doha Declaration itself, a separate Ministerial ''Decision on Implementation-Related
Issues and Concerns'' (WT/MIN(01)/17) and a "Compilation of Outstanding Implementation Issues Raised
by Members" (JOB(01)/152/Rev.1).
The Ministers established a two-track approach. Those issues for which there was an agreed negotiating
mandate in the declaration would be dealt with under the terms of that mandate. Those implementation issues
where there is no mandate to negotiate, would be taken up as “a matter of priority” by relevant WTO councils
and committees.
b. DECLARATION ON THE TRIPS AGREEMENT AND PUBLIC HEALTH
Ministers stressed the importance of implementing and interpreting the TRIPS Agreement in a way that
supports public health (paragraph 17). In this respect, they adopted a ''Declaration on the Agreement on
Trade-Related Aspects of Intellectual Property Rights and Public Health'' (WT/MIN(01)/DEC/2) in which
they clarified the relationship between the necessity to protect intellectual property rights and the
right of governments to protect public health. Ministers agreed that the TRIPS Agreement does not and
should not prevent WTO Members from taking measures to protect public health.
The Declaration urges the TRIPS Council to find a solution to the problems countries may face in making use of
compulsory licensing if they have little or no pharmaceutical manufacturing capacity (this was achieved in
August 2003, see Module 7 - TRIPS Agreement). The Declaration also extends the deadline for
least-developed countries to apply provisions on pharmaceutical patents until 1 January 2016.

38. 20
c. DECISIONS ON WAIVERS
Ministers adopted a Decision on a Waiver for EU-ACP Partnership Agreement which allowed the EU to continue
giving preferential market access for products coming from African, Caribbean and Pacific (ACP) countries until
31 December 2007 (WT/MIN(01)/15). Another waiver was adopted to also allow the EC to allocate a
separate tariff quota of 750,000 tonnes for bananas of ACP origin until 31 December 2005
(WT/MIN(01)/16). A short explanation of what constitutes a "waiver" is provided in Section V.F.2
(decision-making in the WTO).
Several other Decisions were also adopted at the 4th Session of the Ministerial Conference.
V.A.5. CANCUN MINISTERIAL - SEPTEMBER 2003 /FIFTH SESSION /
MEXICO
During the Fifth Ministerial Conference, which took place in Cancún (Mexico) in September 2003, the main task
was to assess the progress in the DDA negotiations. Ministers adopted a statement in which they
reaffirmed their commitments to complete the negotiations under the DDA. However, Ministers failed
to reach a consensus on how to proceed with negotiations in key areas like agriculture and NAMA. In addition,
they did not agree on template agreements, known as “Modalities” for the Singapore Issues (the term
''Modalities'' is explained below – see Part V.G. ''Ongoing Negotiations: Doha Development Agenda").
After the Cancún Ministerial Conference ended in deadlock, WTO Members in Geneva began efforts to put the
negotiations and the rest of the work programme back on track. Work intensified in the first half of 2004
whereas real progress on agriculture and the Singapore issues was not evident until 1 August 2004 with a set
of decisions in the General Council (sometimes called the ''July 2004 Package'' - WT/L/579) which dropped
all Singapore Issues but trade facilitation from the negotiation table. Members reaffirmed the
Ministerial Declarations and Decisions adopted at Doha and the full commitment to give full effect to them and
agreed on a framework to focus the negotiations and raise them to a new level.
V.A.6. HONG KONG MINISTERIAL - DECEMBER 2005 / SIXTH SESSION /
HONG KONG - CHINA
The Sixth Ministerial Conference was held in Hong Kong, China, in December 2005. The main task before
Members in Hong Kong was to settle a range of questions aimed at shaping the final agreement of the DDA
initiated in 2001.
The Conference culminated in the adoption of a Ministerial Declaration (WT/MIN(05)/DEC) reaffirming the
Ministerial Declarations and Decisions adopted at Doha and the General Council Decision of 1 August 2004
- the ''July 2004 Package''.
The Hong Kong Ministerial Declaration saw progress on a number of issues including:
 the elimination of all export subsidies in agriculture by the end of 2013;
 an agreement on duty-free, quota-free access to developed country markets for cotton from
LDCs;

39. 21
 developed country Members and developing country Members in a position to do so will provide
duty-free, quota-free market access for at least 97 per cent of products originating from LDC
Members;
 a framework for full modalities in agriculture and NAMA; and,
 in services, agreement on a text pointing positively forward in the negotiations.
Ministers agreed also to create a new WTO work programme on ''Aid-for-Trade'' which should aim to help
developing countries, particularly LDCs, to build the supply-side capacity and trade-related infrastructure that
they need to assist them to implement and benefit from WTO Agreements and more broadly to expand their
trade (Hong Kong Declaration, paragraph 57).
Ministers met again at the end of June (2006) in order to advance and if possible, conclude the negotiations
under the DDA; however an agreement was not reached. For further information on current negotiations, see
Part V.G. ''Ongoing Negotiations: Doha Development Agenda''.
V.A.7. NOVEMBER – DECEMBER 2009 / 7TH MINISTERIAL CONFERENCE /
GENEVA (SWITZERLAND)
The general theme for discussion at the 7th Ministerial Conference, which took place in Geneva in 2009, was
"The WTO, the Multilateral Trading System and the Current Global Economic Environment".
The Ministerial Conference did not constitute a negotiating session, but instead a platform for Ministers to
review the functioning of the WTO, including the Doha Round of negotiations. There was strong convergence
on the importance of trade and the Doha Round to economic recovery and poverty alleviation in developing
countries. Ministers reaffirmed the need to conclude the Round in 2010 and for a stock-taking exercise to take
place in the first quarter of 2010. It was pointed out that while priority is being given to agriculture and
non-agricultural market access (NAMA), it is important to advance on other areas of the agenda, including
services, rules and trade facilitation. Members also held substantive discussions on a wide range of issues –
from monitoring and surveillance to LDC-specific issues, accessions, regional trade agreements and Aid for
Trade.
V.A.8. DECEMBER 2011 / 8TH MINISTERIAL CONFERENCE / GENEVA
(SWITZERLAND)
The Eighth Ministerial Conference was held in Geneva, Switzerland, from 15 to 17 December 2011. In parallel
to the Plenary Session, three Working Sessions took place with the following themes: “Importance of the
Multilateral Trading System and the WTO”, “Trade and Development” and “Doha Development Agenda”. The
Conference approved the accessions of Russia, Samoa and Montenegro. In the final session, Ministers adopted
a number of decisions.

40. 22
V.A.9. DECEMBER 2013 / 9TH MINISTERIAL CONFERENCE / BALI
(INDONESIA)
At the Ninth Ministerial Conference held in Bali, Indonesia, from 3 to 7 December 2013, Ministers adopted the
Bali Ministerial Declaration and decisions (“Bali Package”). The Bali Package comprises a series of decisions
aimed at streamlining trade, allowing developing countries more options for providing food security, boosting
least-developed countries’ trade and helping development more generally. Ministers also adopted a number of
routine decisions and accepted Yemen as a new member of the WTO.
The decisions adopted include:
Trade Facilitation
 Agreement on Trade Facilitation — Ministerial Decision — WT/MIN(13)/36 — WT/L/911
Agriculture
 General Services — Ministerial Decision — WT/MIN(13)/37 — WT/L/912
 Public Stockholding for Food Security Purposes — Ministerial Decision — WT/MIN(13)/38 —
WT/L/913
 Understanding on Tariff Rate Quota Administration Provisions of Agricultural Products, as
Defined in Article 2 of the Agreement on Agriculture — Ministerial Decision — WT/MIN(13)/39
— WT/L/914
 Export Competition — Ministerial Declaration — WT/MIN(13)/40 — WT/L/915
Cotton
 Cotton — Ministerial Decision — WT/MIN(13)/41 — WT/L/916
Development and LDC issues
 Preferential Rules of Origin for Least-Developed Countries — Ministerial Decision —
WT/MIN(13)/42 — WT/L/917
 Operationalization of the Waiver Concerning Preferential Treatment to Services and Service
Suppliers of Least-Developed Countries — Ministerial Decision — WT/MIN(13)/43 — WT/L/918
 Duty-Free and Quota-Free Market Access for Least-Developed Countries — Ministerial Decision
— WT/MIN(13)/44 — WT/L/919
 Monitoring Mechanism on Special and Differential Treatment — Ministerial Decision —
WT/MIN(13)/45 — WT/L/920
The Bali Ministerial Declaration and decisions can be found here: https://mc9.wto.org/
V.B. THE GENERAL COUNCIL
The General Council is the second tier in the decision-making structure of the WTO. It is also formed by
representatives from all Member countries, usually Ambassadors or Permanent Representatives, based in
Geneva. It adopts decisions on behalf of the Ministerial Conference on all WTO affairs when the
Conference is not in session.

41. 23
The General Council also meets as:
 the Trade Policy Review Body (TPRB) (Article IV:4 of the Agreement Establishing the WTO), with a
different Chairperson, to carry out trade policy reviews as mandated by the Decision on the TPRM; and,
 the Dispute Settlement Body (DSB) (Article IV:3 of the Agreement Establishing the WTO), with a
different Chairperson to administer the rules in the DSU. The DSB has the authority to establish panels,
adopt panel and Appellate Body reports, oversee the implementation of rulings and recommendations,
and authorize the suspension of concessions under the Agreements for which disputes can be settled
according to the DSU, i.e. the "covered agreements". The WTO dispute settlement mechanism will be
introduced in Module 10, together with the TPRM.
V.C. THE COUNCILS
In the third level are three subsidiary councils – the Council for Trade in Goods (Goods Council), the Council
for Trade in Service (GATS Council) and the Council for TRIPS (TRIPS Council), - which operate under the
general guidance of the General Council and are responsible for the workings of the WTO Agreements dealing
with their respective areas of trade. They consist of all WTO Members. The three subsidiary councils
are:
 the Council for Trade in Goods (normally referred to as the Goods Council) oversees all the
issues related to the Agreements on trade in goods. The Goods Council has eleven committees
working on specific subjects (such as agriculture, market access, subsidies and anti-dumping
measures). These committees are composed of all Members;
 the Council for Trade in Services (normally referred to as the GATS Council) oversees all
issues related to the GATS Agreement. The GATS Council has bodies dealing with financial
services, domestic regulations, GATS rules and specific commitments. However, it does not
have a fixed number of subsidiary bodies. For example, the Negotiating Group on Basic
Telecommunications was dissolved in February 1997 when its work was completed; and,
 the Council for TRIPS (normally referred to as the TRIPS Council) oversees issues related to
the TRIPS Agreement.
V.D. SUBSIDIARY BODIES
Six other bodies report to the General Council. The scope of their coverage is smaller, so they are referred to
as "Committees" (Article IV:7 of the Agreement Establishing the WTO). They cover issues such as trade and
development, trade and environment, regional trade arrangements and administrative issues. Participation is
open to all WTO Members.
The Doha Ministerial Conference in 2001 decided to create a new Trade Negotiations Committee (TNC) to
oversee the Doha Round of negotiations. The Doha Ministerial Declaration empowered the TNC to create
subsidiary negotiating bodies to handle individual negotiating subjects. It operates under the authority of the
General Council.
Two more subsidiary bodies dealing with the plurilateral agreements (which are not signed by all WTO
Members - see Section V.H – The WTO Agreements) keep the General Council informed of their activities
regularly (Article IV:8 of the Agreement Establishing the WTO).

42. 24
The Committees, Working Groups or Working Parties, which focus on specific issues and report to the General
Council, are:
 Committee on Trade and Development (CTD);
 Committee on Trade and Environment (CTE);
 Committee on RTAs (CRTA);
 Committee on Balance-of-Payment (BOP) Restrictions (BOP Committee);
 Committee on Budget, Finance and Administration;
 Trade Negotiations Committee (TNC);
 Working Parties on Accession;
 Working Group on Trade, Debt and Finance; and,
 Working Group on Trade and Technology Transfer.
V.E. THE WTO SECRETARIAT
Article VI of the Agreement Establishing the WTO provides a Secretariat of the WTO (hereinafter referred to as
''the Secretariat'') headed by a Director-General appointed by the Ministerial Conference. The Secretariat is
located in Geneva and has around 630 regular staff. Since decisions are taken by Members only, the
Secretariat has no decision-making powers. Its main duties are to supply technical and professional support
for the various councils and committees, to provide technical assistance for developing countries, to monitor
and analyze developments in world trade, to provide information to the public and the media and to organize
the ministerial conferences. The Secretariat also provides legal assistance in the dispute settlement process
and advises governments wishing to become Members of the WTO.
The Secretariat staff includes individuals representing about 70 nationalities. The professional staff is
composed mostly of economists, lawyers and others with a specialization in international trade policy. There is
also a substantial number of personnel working in support services, including informatics, finance, human
resources and language services. All Secretariat staff shall be exclusively international in character and shall
not seek or accept instructions from any government or any other authority external to the WTO in the
discharge of their duties.

43. 25
V.F. DECISION-MAKING AT THE WTO
IN BRIEF
The WTO continues GATT's tradition of making decisions not by voting but by consensus. Where
consensus is not possible the WTO Agreement allows for voting – Decisions of the Ministerial
Conference and the General Council shall be taken by a majority of the votes cast and on the basis of "one
country one vote".
The Agreement Establishing the WTO envisages four specific situations involving voting: interpretation of
the multilateral trade agreements; decisions on waivers; decisions to amend most of the provisions of the
multilateral agreements (depending on the nature of the provision concerned and binding only for those
Members which accept them); and decisions to admit a new Member.
V.F.1. CONSENSUS
The WTO is a Member-driven, consensus-based organization. Consensus is defined in footnote 1 to Article IX
of the Agreement Establishing the WTO, which states "The Body concerned shall be deemed to have decided by
consensus on a matter submitted for its consideration, if no Member present at the meeting when the
decision is taken, formally objects to the proposed decision".
V.F.2. VOTING IF CONSENSUS NOT REACHED
Where a decision cannot be reached by consensus, the Agreement Establishing the WTO permits
voting. At meetings of the Ministerial Conference and the General Council, each Member of the WTO shall
have one vote. Except as otherwise provided, where a decision cannot be arrived at by consensus, the matter
at issue shall be decided by voting (Article IX of the Agreement Establishing the WTO). Decisions of the
Ministerial Conference and the General Council shall be taken by a majority of the votes cast, unless otherwise
provided in the Agreement Establishing the WTO or in the relevant multilateral trade agreement (those WTO
Agreements that apply to all WTO Members). As we will see in Section V.H, most of the WTO Agreements
enter into this category.
Article IX of the Agreement Establishing the WTO envisages voting, whenever a decision cannot be reached by
consensus, voting can be exercised in the following situations:
a. INTERPRETATIONS
Three fourths majority of WTO Members in the Ministerial Conference or the General Council can adopt an
interpretation of the Agreement Establishing the WTO and of the multilateral trade agreements
(Article IX:2 of the Agreement Establishing the WTO). In the case of an interpretation of a multilateral trade
agreement in Annex 1, they shall exercise their authority on the basis of a recommendation by the Council
overseeing the functioning of the Agreement.

44. 26
b. WAIVERS
In exceptional circumstances, the Ministerial Conference may decide, by three fourths, to waive an
obligation imposed on a Member by the Agreement Establishing the WTO or any of the multilateral trade
agreements (Article IX:3 of the Agreement Establishing the WTO).
c. AMENDMENTS
Any Member of the WTO may initiate a proposal to amend the provisions of the Agreement Establishing
the WTO or the multilateral trade agreements in Annex 1 by submitting such proposal to the Ministerial
Conference, which shall decide by consensus to submit the proposed amendment to the Members for
acceptance. If consensus is not reached, the Ministerial Conference shall decide by a two-thirds majority
according to the rules set forth in Article X of the Agreement Establishing the WTO.
The rules applicable to decisions on amendments vary depending on the provision subject to amendment.
Amendment to certain provisions of the WTO Agreements (e.g. Article IX of the Agreement Establishing the
WTO, Article I - MFN Principle - and Article II - Schedules of Concessions - of the GATT 1994) shall take effect
only upon acceptance by all Members.
d. ACCESSION
Article XII of the Agreement Establishing the WTO provides that decisions on accession of new WTO
Members are taken by Ministerial Conference and by a two thirds majority of all WTO Members (in practice
however, decisions on accession have been taken by consensus in accordance with WTO practice).
e. FINANCIAL REGULATIONS AND ANNUAL BUDGET ESTIMATE
Article VII:3 of the Agreement Establishing the WTO provides that the financial regulations and the annual
budget estimate are adopted by a two-thirds majority of the General Council comprising more than half of the
Members of the WTO.
NOTE
Where the European Union (EU) exercise their right to vote they shall have a number of votes equal to the
number of their member States which are Members of the WTO.
V.F.3. FORMAL AND INFORMAL MEETINGS
Since decisions in the WTO are generally made by consensus, without voting, WTO informal consultations
play a vital role in bringing the diverse interests of its Members towards reaching an agreement.

45. 27
Some informal meetings include the full Membership, such as those of the heads of delegations. However
difficult issues are discussed effectively in smaller groups. One practice is for the Chairperson of a negotiating
group to attempt to forge a compromise by holding consultations with delegations in twos or threes, or in
groups of 20 to 30 delegations ensuring that the full spectrum of Members' views and interests are
represented. Some variable geometry may be needed depending on the issues being discussed.
These smaller meetings have to be handled with sensitivity. The key is to ensure that the process is
transparent, keeping everybody informed even if they are not in a particular consultation or meeting, and
that they have an opportunity to participate or to provide input (it must be "inclusive").
Some meetings take place in the "Green Room". The "Green Room" is an expression taken from the informal
name of the Director-General's conference room at the WTO building. The term refers to meetings of 20 to 40
delegations, which are convened by a Committee Chairperson, as well as by the Director-General and can take
place elsewhere, such as at Ministerial Conferences.
In the end, decisions have to be taken by all Members and by consensus. However, informal
consultations play a vital role in generating consensus to facilitate formal decisions in the Councils
and Committees. Formal meetings are the forums for exchanging views, putting the positions of all Members
on the record, and ultimately adopt decisions. These formal and informal meetings form the basis of
negotiations in the WTO.
V.G. ON-GOING NEGOTIATIONS: THE DOHA DEVELOPMENT
AGENDA (DDA)
As stated earlier, the 4th Ministerial Conference was held in Doha, Qatar, in November 2001. In Doha,
Members decided to launch a new round of negotiations and adopted the DDA and its accompanying
work programme.
The Doha Ministerial Declaration, which sets the current negotiating mandate, required WTO Members to set
up the TNC, which supervises the current negotiations under the authority of the General Council. As
explained above, all the subjects being negotiated form part of a "single undertaking", which in practical
terms means "nothing is agreed until everything is agreed" (explained in Section V.H.2.1).
Doha Negotiations
Currently, negotiations are taking place:
in new negotiating groups, on:
 market access for non-agricultural products (NAMA);
 WTO rules (anti-dumping, subsidies, regional trade agreements); and,
 trade facilitation.

46. 28
Doha Negotiations
in existing bodies, on:
 agriculture: in special sessions of the Agriculture Committee;
 services: in special sessions of the GATS Council;
 geographical indications (TRIPS): in special sessions of the TRIPS Council. Other TRIPS
issues are addressed in regular TRIPS Council meetings;
 Dispute settlement understanding (DSU): in special sessions of the DSB;
 Environment: in special sessions of the CTE; and,
 Negotiations on outstanding implementation issues: in relevant bodies according to
paragraph 12 of the Doha Ministerial Declaration.
Negotiations on Agriculture and NAMA are at the heart of the DDA. At the start, participants have to
reach agreement on "modalities" for the negotiations. There is probably no single agreed definition of the
term "modalities". It is widely used throughout the DDA negotiations, but it often means different things in the
different negotiating bodies. At its most simple it could be defined as guidelines and formulas on how WTO
Members will apply their new commitments. For example, on tariffs, modalities set how much they should be
reduced and the length of the time period for the reduction.
Considerable emphasis is placed on special and differential treatment (S&DT) for developing
countries. The principle of S&DT is an integral part of the WTO Agreements (this principle will be explained in
detail in Module 9). All negotiations and other aspects of the DDA work programme are to fully
incorporate this principle. In addition, according to the Doha Declaration (paragraph 44) and the Decision
on Implementation-Related Issues and Concerns, all S&DT provisions are to be reviewed to make them more
precise, effective and operational. These reviews are carried out in special sessions of the CTD.

47. 29
EXERCISES
8. Please arrange the following WTO bodies in hierarchical order:
(a) General Council;
(b) Committee on Agriculture;
(c) Council for Trade in Goods; and,
(d) Ministerial Conference.
9. Please state the function of the following WTO bodies:
(a) General Council;
(b) Committee on Agriculture;
(c) Council for Trade in Goods; and,
(d) Ministerial Conference.
10. What did the WTO Ministers agree in Doha specifically dealing with the Agreement on TRIPS?
11. Please briefly explain the decision-making rules at the WTO.

48. 30
V.H. ACCESSION OF NEW MEMBERS
V.H.1. WHAT IS THE ACCESSION PROCESS?
States or separate customs territories wishing to become a Member of the WTO have to go through
an accession process involving multilateral and bilateral negotiations. The WTO accession process
aims to ensure that acceding new Members become full and effective players from their first day of
Membership. The accession process is one of learning and preparation for WTO membership.
But how does this process work? Article XII of the Agreement Establishing the WTO governs the accession
process to the WTO.
Accession to the WTO: Some Figures
The WTO came into force on 1 January 1995 with 128 original Members. Since then, around 30
governments have joined the multilateral trading system (MTS).
V.H.2. WHO CAN BECOME A MEMBER OF THE WTO?
States and separate customs territories can become WTO Members. International organizations are normally
made up of sovereign States, this is also the case of the WTO. However, Article XII opens up a possibility for
trading partners who are not fully-fledged sovereign States to accede, subject to two conditions: 1. they must
be separate customs territories; and, 2. they must possess full autonomy in the conduct of their external
commercial relations. Separate customs territories have the same rights and obligations as any other Member.
Examples of separate customs territories are Macao, China and Hong Kong, China. To find the list of WTO
Members, see: http://www.wto.org/english/thewto_e/whatis_e/tif_e/org6_e.htm
For more information on accessions, see: http://www.wto.org/english/thewto_e/acc_e/acc_e.htm
V.H.3. HOW IS THE ACCESSION PROCESS?
Each accession is unique and negotiated on a case-by-case basis. The terms of accession always
depend on the legal and institutional framework of the acceding government and are different for each
applicant.
Although Article XII does not prescribe specific procedures to join the Organization, a set of procedures has
been developed by the Secretariat in consultation with WTO Members and also through customary practice.

49. 31
V.H.4. THE PROCESS FOR ACCESSION
a. FIRST STEP: REQUEST FOR ACCESSION
The acceding government needs to send a written request expressing its wish to join under the procedures of
Article XII of the Agreement Establishing the WTO. The request is circulated to all WTO Members and
transmitted to the Chairman of the General Council for consideration at a future meeting.
b. SECOND STEP: ESTABLISHMENT OF A WORKING PARTY
The General Council then establishes a Working Party (WP). It is open to all WTO Members, who may join
at any stage of the process. International organizations, acceding governments and non-acceding
governments having observer status can attend formal WP meetings as observers. The mandate of the WP is
to examine the application and to submit to the General Council or Ministerial Conference recommendations,
which may include a Draft Protocol of Accession. Once the WP is established, the applicant government
becomes an observer to the General Council, with the rights and obligations that this entails.
c. THIRD STEP: ACCESSION NEGOTIATIONS
Acceding governments must be equipped for two types of negotiations, which proceed more or less in parallel:
1. Multilateral Negotiations: on WTO rules and disciplines. They take place within the framework of
the WP.
2. Bilateral Negotiations: on conditions of access to the applicant’s market for goods and services. These
negotiations take place on a one-to-one basis between interested Members and the acceding
government.
In addition, plurilateral negotiations may take place to facilitate multilateral negotiations at the WP level. A
draft Report containing the result of the negotiations is then approved by the WP.
The accession procedures are outlined in document WT/ACC/1, which was developed by the Secretariat in close
consultation with Members as a practical, non-binding, guide.
1. MULTILATERAL NEGOTIATION
As mentioned above, these negotiations take place within the framework of the WP and cover all WTO
Agreements.
FACT-FINDING PHASE
Its purpose is to collect information on the applicant's foreign trade regime and to provide a basis for the
negotiation of its terms of entry into the WTO. The applicant has first to submit a "Memorandum" on its
foreign trade regime, which is circulated to all WTO Members (the format of the Memorandum can be found in
Attachment I of document WT/ACC/1). In addition, it has to submit other supporting documents and

50. 32
information during the accession process. WTO Members can make questions on the issues covered in the
Memorandum to the acceding government, who has to provide written answers.
WORKING PARTY MEETING
The WP Members begin the examination of the applicant's foreign trade regime on the basis of the
Memorandum, the questions and replies and other documents submitted by the acceding government with a
view to seeking any further clarifications.
The first meetings of the WP continue the fact-finding process, including the identification of areas of possible
inconsistency with the WTO Agreements. As the information-gathering stage advances, and in order to ensure
the transparency of the process, the Secretariat is often requested to circulate a Factual Summary of Points
Raised - an informal document summarizing discussions in the WP. This document gradually develops into a
draft WP Report. The WP Report includes the commitments on the general rules to be accepted by the
acceding country.
2. BILATERAL NEGOTIATIONS
Bilateral meetings are held with interested WP Members to negotiate tariff bindings (maximum level of customs
duty to be levied on imported goods) and services commitments.
SUBMISSION AND REVISION OF OFFERS
Bilateral negotiations start after the acceding government has submitted initial offers on goods and services to
the Secretariat for consultation by Members. These negotiations take place usually on the fringes of WP
meetings.
BILATERAL AGREEMENT
Once an agreement has been reached with a Member (usually after several rounds of negotiations), a bilateral
agreement is signed.
DRAFT GOODS AND SERVICES SCHEDULES
The Secretariat consolidates all bilateral agreements (which remain confidential) into Draft Goods and Services
Schedules (the Members' Schedules are explained in Module 3 – Market access for goods - and Module 6 –
Services - respectively).
PLURILATERAL NEGOTIATIONS
In addition, certain issues of multilateral and systemic interest are discussed plurilaterally, i.e. in informal
consultations with a number of interested Members. This is typically the case for discussion on the technical
aspects of domestic support and export subsidies in agriculture.

51. 33
Figure 2: Accession negotiations
d. FINAL STEP: APPROVAL OF THE ACCESSION PACKAGE
The "Accession package" represents the result of both the multilateral and bilateral negotiations. The
accession package includes the draft Report; the Draft Decision to be taken by the General
Council/Ministerial Conference, inviting the applicant to accede; the Draft Protocol of Accession, which sets
out the terms on which the applicant will be invited to accede; and, draft goods and services schedules.
As mentioned above, the accession package is first approved by the WP and then presented to the General
Council/Ministerial Conference for approval. Although Article XII refers to a two thirds majority, since 1995

52. 34
decisions on accession have been taken by consensus in accordance with WTO practice (Art.IX:1 of the
Agreement Establishing the WTO).
Once approved by the General Council, the applicant is free to sign the Protocol of Accession stating that
it accepts the "accession package" subject to ratification in its national Parliament. Thirty days after the
applicant government notifies the WTO Secretariat that it has completed its ratification procedures, the
applicant government becomes a full Member of the WTO.
V.H.5. TECHNICAL ASSISTANCE AND TRAINING
WTO accession involves complex negotiations and the preparation of numerous documents. Technical
assistance plays a key role in helping acceding governments face the challenges of the accession
process. Technical assistance is provided by the WTO Secretariat, WTO Members and other international
organizations (e.g. United Nations Conference on Trade and Development (UNCTAD) and the World Bank).
Technical assistance provided by the WTO Secretariat takes many forms. The Accessions Division assists
acceding governments in the preparation of documents and answers to questions regarding WTO rules and
requirements. These may also include national activities, upon request. Acceding governments may also
participate in WTO trade-related technical assistance (TRTA) and training activities (coordinated by the
Institute for Training and Technical Cooperation (ITTC) - see Module 9) and multi-agency programmes (e.g.
within the Enhanced Integrated Framework (EIF) explained in Module 9).
Requests must be sent to the Director of the Accessions Division and/or to the Director of IITC. Priority is
given to least-developed countries (LDCs).
V.H.6. GUIDELINES FOR LEAST-DEVELOPED COUNTRIES (LDCS)
Noting that none of the LDCs had joined the WTO under the procedures of Article XII since the establishment
of the WTO, at the Doha Ministerial Conference in 2001 Members discussed ways to facilitate the accession of
LDCs (paragraph 42 and 43 - Doha Declaration). As a result, accession was included in the Work Programme
of the Sub-Committee on LDCs.
The implementation of this programme led to the adoption by the General Council of the "Guidelines for
Accession of Least-Developed Countries" in December 2002. The Guidelines include provisions on market
access, WTO rules (special and differential treatment), the process of accession and TRTA. The implementation
of the Guidelines is reviewed on a regular basis and the results are included in the Annual Report of the
Committee on Trade and Development (CTD) to the General Council.

53. 35
NOTE
If you look for more information on Accession, the following links might be useful:
Interactive course on Accession:
http://www.wto.org/english/news_e/news08_e/etraining_june08_e.htm
Handbook on Accession to the WTO:
http://www.wto.org/english/thewto_e/acc_e/cbt_course_e/signin_e.htm
Protocols of Accession on New Members since 1995:
http://www.wto.org/english/thewto_e/acc_e/completeacc_e.htm
EXERCISES
12. Explain briefly who can apply for WTO Membership and the main steps of the process of accession.

54. 36
VI. THE WTO AGREEMENTS
In previous pages, you have seen references to the WTO Agreements. What are these Agreements?
Most of the WTO Agreements were negotiated during the Uruguay Round and signed at the Marrakesh
Ministerial Meeting in April 1994. This "package" includes about 60 agreements and Decisions totalling 550
pages, as well as a major revision of the original GATT. Since 1994, negotiations have produced additional
legal texts such as the Information Technology Agreement (ITA).
VI.A. THE FINAL ACT
The "Final Act Embodying the Results of the Uruguay Round of Multilateral Trade Negotiations" (the "Final
Act") signed in Marrakesh in 1994 could be seen as a cover note to all the WTO Agreements. Everything
else is attached to this.
VI.B. THE AGREEMENT ESTABLISHING THE WTO
After the Final Act, follows the "Marrakesh Agreement Establishing the World Trade Organization" (the
"Agreement Establishing the WTO"), which serves as an umbrella agreement.
The Agreement Establishing the WTO includes provisions on scope, functions and structure of the WTO. It
defines the WTO relationship with other organizations, its Secretariat, budget and contributions, legal status,
decision-making and amendment procedures (including special voting procedures). In addition, it includes
provisions on the definition of original Members and accession of new Members.
The Agreement Establishing the WTO has four Annexes. Annexes 1, 2, and 3 are called "Multilateral
Trade Agreements", while Annex 4 includes the "Plurilateral Trade Agreements". As mentioned earlier,
the Agreement Establishing the WTO and its Annexes will be referred to as ''the WTO Agreements'' in this
course.
According to Article XVI:3 of the Agreement Establishing the WTO, in the event of conflict between a provision
of this Agreement and a provision of any of the multilateral trade agreements (including the GATT 1994, any of
the other multilateral trade agreements on goods, the GATS and the TRIPS), the provision of the Agreement
Establishing the WTO shall prevail to the extent of the conflict.
MULTILATERAL TRADE AGREEMENTS AND "SINGLE UNDERTAKING"
The multilateral trade agreements (Annexes 1, 2 and 3) are applicable to ALL Members and as such
are deemed a "single undertaking" (see box below). Most of the agreements negotiated during the
Uruguay Round are part of this "single package", including the GATT 1994, the Agreement on Agriculture,
the GATS and the TRIPS.
The Schedules of Commitments also form part of the single undertaking. As we will explain in detail in
subsequent Modules, WTO Members make specific commitments during trade negotiations. For GATT 1994,

55. 37
these take the form of binding commitments on tariffs for goods in general and combinations of tariffs and
quotas for some agricultural goods. For GATS, the commitments on market access state how much access
foreign service providers are allowed for specific sectors.
Single Undertaking
Agreements related to GATT 1947 were negotiated during negotiating rounds prior to the Uruguay Round.
In particular, some agreements on non-tariff barriers were negotiated during the Tokyo Round. However,
these agreements were not adopted by all GATT Contracting Parties; they applied only to those countries
who agreed to be bound by them. In the Uruguay Round, a different approach was adopted - it was
decided that the multilateral trade agreements were to be accepted as a whole (bind all WTO
Members). This approach is knows as the "single undertaking".
As mentioned earlier, the concept of "single undertaking", which in practical terms means
"nothing is agreed until everything is agreed", is also being used for negotiations under the DDA.
PLURILATERAL TRADE AGREEMENTS
Despite the single undertaking approach to most agreements, four plurilateral trade agreements were also
negotiated during the Uruguay Round. Plurilateral agreements apply only to those Members who agreed
to be bound by them. The plurilateral agreements negotiated during the Uruguay Round are: Agreement on
Trade in Civil Aircraft; Agreement on Government Procurement; the International Dairy Agreement; and the
International Bovine Meat Agreement. The latter two were terminated at the end of 1997.
IN A NUTSHELL
THE BASIC STRUCTURE OF THE WTO AGREEMENTS
Umbrella THE AGREEMENT ESTABLISHING THE WTO
Goods (Annex 1A) Services (Annex 1B) TRIPS
(Annex 1C)
Agreement GATT 1994 GATS TRIPS
Market Access
Commitments
Other goods
agreements and
annexes (1)
Services annexes (2)
Members' schedules
of commitments
Members' schedules of
commitments (and
MFN exemptions)
Dispute Settlement DISPUTE SETTLEMENT UNDERSTANDING – DSU (Annex 2)

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Transparency TRADE POLICY REVIEW MECHANISM – TPRM (Annex 3)
Plurilateral Commitments Plurilateral trade agreements (Annex 4)
Table 2: The basic structure of the WTO Agreements
VI.C. MULTILATERAL AGREEMENTS ON TRADE IN GOODS –
ANNEX 1A
The Agreements that discipline the trade in Goods (Annex 1A), which are binding to all WTO Members, are the
following:
 General Agreement on Tariffs and Trade (GATT 1994); the GATT 1994, which is a modified
version of the original GATT 1947, sets out the basic goods-related obligations of WTO
Members. It consists of: (1) The provisions of the GATT 1947, as rectified, amended or
modified up to 1 January 1995 (date of entry into force of the Agreement Establishing the
WTO); (2) Protocols and certifications relating to tariff concessions (tariff schedules); (3) The
protocols of accession (to the GATT, up to 31 December 1994); (4) The Decisions on waivers
still in force on 1 January 1995; (5) Understandings on the interpretation of various GATT
provisions; and, (6) Other decisions of the Contracting Parties to GATT 1947. The main
provisions included in the GATT 1994 will be addressed in Module 2 (Non-Discrimination),
Module 3 (Rules on Market Access for Trade in Goods) and Module 8 (Exceptions).
 Agreement on Agriculture; the Agreement on Agriculture deals with market access, domestic
support, and export subsidies for agricultural products listed in Annex 1 of the Agreement.
This Agreement will be introduced in Module 4 (Agreements on Trade in Goods).
 Agreement on Sanitary and Phytosanitary Measures (SPS) (the SPS Agreement); the SPS
Agreement applies to sanitary and phytosanitary measures which may, directly or indirectly,
affect international trade. Members have the right to take sanitary and phytosanitary
measures necessary for the protection of human, animal or plant life or health, provided that
such measures are not inconsistent with the provisions of the SPS Agreement. This Agreement
will be introduced in Module 4.
 Agreement on Textiles and Clothing (ATC, terminated on 1/1/2005); the expiry of the ten-
year transition period (from 1995-2005) of the ATC implementation means that trade in textile
and clothing products is no longer subject to quotas under a special regime outside normal
WTO/GATT rules but is now governed by the general rules and disciplines embodied in the WTO
Agreements.
 Agreement on Technical Barriers to Trade (the TBT Agreement); the TBT Agreement
recognizes countries’ rights to adopt technical regulations and standards, as long as they do
not constitute unnecessary barriers to trade. The TBT Agreement covers technical regulations
not covered by the SPS Agreement. This Agreement will be introduced in Module 4.

57. 39
 Agreement on Trade-Related Investment Measures (the TRIMs Agreement); the TRIMS
Agreement recognizes that certain investment measures can have trade-restrictive and
distorting effects. The Agreement applies only to measures that affect trade in goods. It will
be introduced in Module 4.
 Agreement on Implementation of Article VI of the GATT 1994 (Anti-Dumping Agreement);
the WTO Anti-Dumping Agreement provides disciplines for the application of anti-dumping
measures in case dumped imports are causing or threatening to cause material injury to the
domestic industry of like products. The Agreement on Anti-Dumping will be introduced in
Module 5 (Trade Remedies).
 Agreement on Implementation of Article VII of the GATT 1994 (Agreement on Customs
Valuation); the WTO Agreement on Customs Valuation aims for a fair, uniform and neutral
system for the valuation of goods for customs purposes — a system that conforms to
commercial realities, and which outlaws the use of arbitrary or fictitious customs values. The
Agreement on Customs Valuation will be introduced in Module 4.
 Agreement on Preshipment Inspection; the WTO Agreement on Preshipment Inspection
recognizes that GATT principles and obligations apply to the activities of preshipment
inspection agencies mandated by governments to check shipment details such as price,
quantity and quality of goods ordered overseas. This Agreement will be introduced in Module
4.
 Agreement on Rules of Origin; the Agreement aims at long-term harmonization of rules of
origin (criteria used to define where a product was made). It ensures that such rules do not
have restricting, distorting or disruptive effects on international trade and that they are
administered in a consistent, impartial and reasonable manner. This Agreement will be
introduced in Module 4.
 Agreement on Import Licensing Procedures; the Agreement says import licensing should be
simple, transparent and predictable so as not to become an obstacle to trade. It will be
introduced in Module 4.
 Agreement on Subsidies and Countervailing Measures (the SCM Agreement); the SCM
Agreement disciplines the use of subsidies and regulates the actions countries can take to
counter the effects of subsidies. The SCM Agreement will be introduced in Module 5.
 Agreement on Safeguards, allows WTO Members to restrict imports of a product temporarily if the
domestic industry is injured or threatened with injury caused by a surge in imports. The Agreement on
Safeguards will be introduced in Module 5.
VI.D. GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) –
ANNEX 1B
The GATS, which is also binding to all WTO Members, applies to measures affecting trade in
services. It covers four modes of supply (from the perspective of an importing country): cross border
services; consumption abroad; commercial presence; and movement of natural persons. The GATS consists of
a main text that lays out general obligations and disciplines, annexes dealing with specific sectors and
individual countries' specific commitments to provide access to their markets, including exemptions to the MFN
principle. It has the following annexes:

58. 40
 Annex on Article II Exemptions (List of MFN Exemptions);
 Annex on Movement of Natural Persons Supplying Services under the Agreement;
 Annex on Air Transport Services;
 Annex on Financial Services and Second Annex on Financial Services;
 Annex on Telecommunications and Annex on Negotiations on Basic Telecommunications; and,
 Annex on Negotiations on Maritime Transport Services.
The GATS will be introduced in Module 6.
VI.E. AGREEMENT ON TRADE-RELATED ASPECTS OF
INTELLECTUAL PROPERTY RIGHTS (TRIPS) – ANNEX 1C
The objective of the TRIPS Agreement is the reduction of distortions and impediments to international trade,
promotion of effective and adequate protection of intellectual property rights, and to ensure that measures and
procedures to enforce intellectual property rights do not themselves become barriers to trade. The protection
of intellectual property rights should contribute to the promotion of technological innovation and transfer and
dissemination of technology, to the mutual advantage of producers and users of technological knowledge and
in a manner conducive to social and economic welfare. The TRIPS Agreements is also binding to all WTO
Members.
The TRIPS Agreement will be examined in Module 7.
VI.F. THE DISPUTE SETTLEMENT UNDERSTANDING (DSU) -
ANNEX 2
As mentioned earlier, the WTO acts as a forum for the settlement of trade disputes between its Members. The
rules and procedures of the WTO dispute settlement system are embodied in the "Understanding on Rules and
Procedures Governing the Settlement of Disputes" (the DSU), which applies to all WTO Members. The DSU
Agreement will be introduced in Module 10.
VI.G. TRADE POLICY REVIEW MECHANISM (TPRM) -ANNEX 3
As you studied at the beginning of this Module, one of the functions of the WTO is to administer the TPRM,
applicable to all WTO Members. The TPRM will be explained also in Module 10.

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EXERCISES
13. What does the Agreement Establishing the WTO include?
14. What does ''single undertaking'' mean? Are all agreements under the WTO adopted as a ''single
undertaking''?
15. What are the SPS and TBT Agreements? What are the main objectives of the two Agreements?

60. 42
VII. SUMMARY
During this first Module, you have learnt that the WTO is the successor of the GATT, which was negotiated
and concluded half a century ago. Although the GATT was never intended to be an international
organization but only to be a subsidiary agreement under the ITO Charter, it served as a de facto
organization during the past 50 years, until the WTO came into effect. Several rounds of negotiations,
including the Uruguay Round which created the WTO, took place under the auspices of the GATT.
You have also been taught that in the WTO, trade liberalization is not seen as an end in itself, but instead
as a tool to promote growth and development. Thus, the objective of the WTO - as stated in the Preamble
to the Agreement Establishing the WTO - is to improve the welfare of the peoples of its Member countries
(standards of living, employment, income, etc.) by expanding the production of, and trade in, goods and
services in accordance with the objective of sustainable development and in a manner consistent with the
different levels of economic development. In addition, it recognizes the need for positive efforts to ensure
that developing and least-developed countries secure a share in the growth in international trade
commensurate with their development needs.
You also read that the functions of the WTO are to:
 facilitate the implementation, administration and operation, and further the objectives of
the WTO Agreements (including the plurilateral agreements);
 serve as a forum for trade negotiations;
 administer the (DSU);
 administer the TPRM;
 cooperate with the IMF and the International Bank for Reconstruction and Development
(World Bank) to achieve coherence in global economic policy making; and,
 provide technical assistance to developing country Members.
There are various organs and bodies that make up the structure of the WTO:
Ministerial Conference
|
General Council (also DSB and TPRB)
|
Councils for Goods, Services, TRIPS
|
Committees
|
Subsidiary Bodies

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The negotiation that is currently ongoing is widely known as the ''Doha Round Negotiations'' because it is
based on the Doha Development Agenda and its accompanying work programme adopted at the 4th
Ministerial Conference held in Doha, Qatar, in November 2001.
States and separate customs territories wishing to become a Member of the WTO have to go through an
accession process involving multilateral and bilateral negotiations. Each accession process is unique and
negotiated on a case-by-case basis. The process for accession involves a request of accession, the
establishment of a working party to examine the application of accession, multilateral and bilateral
negotiations and the approval of an accession package (includes the terms of entry of the acceding
government). Special technical assistance is provided to developing and LDCs wishing to become Members
of the WTO.
There are many agreements in the WTO framework. The umbrella Agreement - the Agreement Establishing
the WTO - contains 4 Annexes - Annexes 1, 2, 3 and 4.
Annexes 1, 2, and 3 - the "Multilateral Trade Agreements" are binding on ALL WTO Members.
Annex 1 is divided into three sections:
 Annex 1A (The Multilateral Agreements on Trade in Goods, including the GATT 1994);
 Annex 1B (the GATS); and,
 Annex 1C (the TRIPS Agreement).Annex 2 covers the DSU.
Annex 3 covers the TPRM.
Annex 4 is termed "Plurilateral Trade Agreements". These agreements are ONLY binding on those Members
that accepted them.

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PROPOSED ANSWERS
1. The negotiation of the GATT dates back to the 1940s. It was part of the post-war project to reconstruct a
multilateral system of world trade through the elimination of discrimination, the reduction of tariffs and
the dismantlement of other trade barriers. The project went on two tracks: (1) drafting a Charter for the
ITO; and, (2) launching tariff negotiations on a multilateral basis. The GATT was never intended to be an
international organization but only to be a subsidiary agreement under the ITO Charter. Nevertheless,
the ITO did not materialize and the GATT came into force by means of a Provisional Protocol, signed on
30 October 1947 and effective since 1 January 1948.
2. The Preamble of the Agreement Establishing the WTO lays down the objectives of the WTO which provides
an important legal basis for the interpretation of the WTO Agreements.
3. The objectives of the WTO are listed in the Preamble of the Agreement Establishing the WTO, they are as
follows:
raise living standards;
ensure full employment;
ensure a large and steadily growing volume of real income and effective demand;
expand the production of and trade in, goods and services, while allowing for the optimal use of the
world's resources in accordance with the objective of sustainable development seeking both to
protect and preserve the environment and to enhance the means for doing so in a manner consistent
with their respective needs and concerns at different levels of economic development; and,
make "positive efforts to ensure that developing countries, and especially the least-developed among
them, secure a share in the growth in international trade commensurate with … their economic
development".
4. The main functions of the WTO are listed in Article III of the Agreement Establishing the WTO, they are as
follows:
to facilitate the implementation, administration and operation, and further the objectives of the WTO
Agreements;
serve as a forum for trade negotiations;
settle international trade disputes;
review Members' trade policies;
coordinate with relevant international organizations in global economic policy-making, including the World
Bank and IMF; and,
provide technical assistance (TA) to developing country Members.
5. The WTO provides a permanent institutional forum for multilateral negotiation and cooperation on
trade-related policies among its Members. Although the WTO is specifically charged with providing the
forum for negotiations on matters already covered by the WTO Agreements, negotiations under the
auspices of the WTO may be extended to "new issues" to be disciplined by WTO Agreements.

63. 45
6. ''Coherence mandate'' is set out in Article III(5) of the Agreement Establishing the WTO as the fifth
function of the WTO. It requires the WTO to seek cooperation in global economic policy-making with
other international organizations – the IMF and the World Bank, as well as their affiliated agencies.
Article V of the Agreement also lays down rules for the WTO to establish effective cooperation with other
intergovernmental organizations that have responsibilities related to those of the WTO and the possibility
for the WTO to consult and cooperate with non-governmental organizations concerned with matters
related to those of the WTO.
Cooperation with the international organizations mentioned above is essential since it is an important
factor that WTO Members need to consider when they enter into negotiations to design an international
regulatory framework with regard to economic policy. It will allow the WTO to achieve greater coherence
in global economic policymaking.
7. During the Uruguay Round of negotiations which took place from 1986-1994. WTO Members decided to
bring several new topics under the umbrella of the multilateral trading system. One of these new topics
was services, which is governed by the GATS.
8. (a) Ministerial Conference;
(b) General Council;
(c) Council for Trade in Goods; and
(d) Committee on Agriculture.
9. The Ministerial Conference is the highest authority of the WTO. It meets at least once every two years.
Below the Ministerial Conference in rank is the General Council. It takes all decisions on behalf of the
Ministerial Conference when the Ministerial Conference is not in session. The General Council meets
regularly (in principle, monthly). The General Council reports to the Ministerial Conference.
One of the subsidiary councils below the General Council is the Council for Trade in Goods (CTG). It
oversees the implementation of the multilateral agreements on trade in goods (Annex 1A of the
Agreement Establishing the WTO), and it reports to the General Council.
The Committee on Agriculture is one of several subsidiary bodies of the CTG. According to Article 18.1 of
the Agreement on Agriculture, one of its main functions is to review the progress in the implementation of
commitments negotiated under the Uruguay Round. The current negotiations on Agriculture take place in
special sessions of the Agriculture Committee.
All Members participate in the work of all WTO Bodies.
10. In paragraph 17 of the Doha Declaration on the TRIPS Agreement and Public Health, Ministers stressed
the importance of implementing and interpreting the TRIPS Agreement in a way that supports public
health (paragraph 17). In this respect, they adopted a ''Declaration on the Agreement on TRIPS and
Public Health'' in which they clarified the relationship between the necessity to protect intellectual
property rights and the right of governments to protect public health. Ministers agreed that the TRIPS
Agreement does not and should not prevent WTO Members from taking measures to protect public health.

64. 46
11. Decisions at the WTO are normally taken by consensus. However, in cases where a decision cannot be
arrived at by consensus, the Agreement Establishing the WTO permits voting. As far as formal voting is
concerned, Article IX of the Agreement Establishing the WTO states that at meetings of the Ministerial
Conference and the General Council, each Member of the WTO shall have one vote. Decisions of the
Ministerial Conference and the General Council shall be taken by a majority of the votes cast, unless
otherwise provided in the Agreement or in the relevant multilateral trade agreement.
12. International organizations are normally made up of sovereign states, this is also the case of the WTO.
However, Article XII opens up a possibility for separate customs territories who are not fully-fledged
sovereign States to accede, subject to two conditions: 1. they must be separate customs territories,
and; 2. they must possess full autonomy in the conduct of their external commercial relations. Separate
customs territories have the same rights and obligations as any other Member.
The accession process includes the following main stages: 1. Request for accession (from the government
wishing to join the WTO); 2. establishment of a working party open to all WTO Members (to examine the
application and submit recommendations to the General Council or Ministerial Conference; 3. accession
negotiations (multilateral negotiation on WTO rules and disciplines and bilateral negotiations on conditions
of market access for goods and services); and approval of the accession package by WTO Members
(represents the result of both multilateral and bilateral negotiations).
13. The Agreement Establishing the WTO has four Annexes.
Annex 1 is divided into three sections:
Annex 1A (the Multilateral Agreements on Trade in Goods, including GATT 1994);
Annex 1B (Agreement on Trade in Services - GATS);
Annex 1C (Agreement on Trade-Related Aspects of Intellectual Property Rights - TRIPS).
Annex 2 contains the Dispute Settlement Understanding - DSU.
Annex 3 contains the rules governing the Trade Policy Review Mechanism (TPRM).
Annex 4 governs the Plurilateral Trade Agreements.
14. The "single undertaking" is a new approach adopted during the Uruguay Round. According to it, the
multilateral agreements negotiated were to be accepted as a whole (as a single package). The GATT
1994 and the other multilateral agreements on trade in goods, the GATS and the TRIPS Agreement are
part of this single undertaking. Therefore, according to the single undertaking, the multilateral trade
agreements are applicable to ALL WTO Members. Despite the single undertaking approach to most WTO
Agreements, there are four plurilateral trade agreements which were also negotiated during the Uruguay
Round, which bind only those Members who accepted them. These are the Agreement on Trade in Civil
Aircraft, the Agreement on Government Procurement, the International Dairy Agreement and the
International Bovine Meat Agreement. The latter two were terminated at the end of 1997.
The concept of "single undertaking" is also being used for negotiations under the DDA.
15. The SPS Agreement applies to sanitary and phytosanitary measures which may, directly or indirectly,
affect international trade. Members have the right to take SPS measures necessary for the protection of
human, animal or plant life or health, provided that they are not inconsistent with the provisions of the
SPS Agreement. Instead, the TBT Agreement applies to technical regulations not covered by the SPS
Agreement. It recognizes Members’ right to take measures necessary to protect legitimate objectives, as
long as they do not constitute unnecessary barriers to international trade.

65. 47
Trade in Goods
Non-Discrimination Principle: Most Favoured
Nation (MFN) and National Treatment in the
General Agreement on Tariffs and Trade
(GATT) 1994
ESTIMATED TIME: 4 hours
OBJECTIVE OF MODULE 2
Explain the non-discrimination principle embodied in the MFN and National Treatment, in
the context of international trade in goods.
MODULE
2

67. 49
I. INTRODUCTION
Non-discrimination is a fundamental principle of the World Trade Organization (WTO) and is embodied in the:
 Most Favoured Nation Treatment; and,
 National Treatment.
As you studied in Module 1, multilateral rules and principles were agreed back in 1947 to govern trade in goods
between GATT Contracting Parties. After the conclusion of the Uruguay Round and the entry into force of the
Marrakesh Agreement Establishing the WTO (1 January 1995), the basic principle of non-discrimination
formulated in the GATT 1947 remained fundamentally unchanged. Since 1995, this principle has been
embodied in the updated GATT (called "GATT 1994"), which is now the WTO Agreement governing trade in
goods.
In Module 2, we will explain the non-discrimination principle in the context of trade in goods, incorporated in
Article I (MFN) and in Article III (national treatment) of the GATT 1994. This Module will frequently
make reference to the jurisprudence of the WTO (WTO Panel and Appellate Body decisions) that have dealt
with the interpretation of these principles.
Besides the GATT 1994, the MFN and national treatment principles also apply to trade in services (Articles II
and XVII of the General Agreement on Trade in Services (GATS)) and to trade-related aspects of intellectual
property rights (TRIPS) (Articles 4 and 3 of the TRIPS Agreement). As you will study in Module 6 (GATS), the
national treatment principle applies in the context of trade in services only to the extent that WTO Members
have made explicit commitments. Furthermore, as you will study in Module 7 (TRIPS), the TRIPS Agreement
also incorporates the national treatment principle of some WIPO Conventions.

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II. THE MFN PRINCIPLE WITH REGARD TO TRADE
IN GOODS
IN BRIEF – THE MFN PRINCIPLE
Pursuant to the MFN principle embodied in the WTO Agreements, WTO Members cannot normally
discriminate between their trading partners. If a Member grants a country an advantage (such as a
lower tariff on one of its products), it must grant this advantage immediately and unconditionally
to all WTO Members.
Members of the WTO can be seen as Members of a club. One of the fundamental rules of the club is that each
Member will grant all other Members the best possible treatment it grants to any trading partner, whether or
not a Member of the club. Hence, each Member is guaranteed to receive the best possible treatment from
each of its fellow-Members (subject to some important exceptions described below). The MFN obligation is
therefore a cornerstone of the GATT 1994 and one of the pillars of the WTO trading system (EC - Tariff
Preferences, Appellate Body Report, para. 101).
Example: The MFN Principle
Assume that in Rauritania – a WTO Member - the MFN tariff applicable to tomatoes from all WTO Members is
10%. Medatia – another WTO Member - is a big tomato producer interested in increasing its exports of
tomatoes to Rauritania.
Imagine that, during a WTO negotiating round, Medatia initiates tariff negotiations on tomatoes with
Rauritania. After long and difficult bilateral meetings, Rauritania agrees to give Medatia a duty free access
(0% tariff) for tomatoes. However, according to the MFN principle, Rauritania should extend the 0% tariff
on tomatoes to all WTO Members. This is because all WTO Members should enjoy the most favourable
treatment for tomatoes granted by Rauritania.
Therefore, for trade in goods, the MFN principle requires each Member to extend to all other WTO
Members treatment no less favourable than the treatment it accords to imports from any other
country - Member or not of the WTO.

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II.A. ARTICLE I:1 OF THE GATT 1994 (MFN PRINCIPLE)
Article I:1 of the GATT 1994 contains the specific rules on MFN treatment for goods:
Article I:1 of the GATT 1994: General MFN Treatment
With respect to customs duties and charges of any kind imposed on or in connection with importation or
exportation or imposed on the international transfer of payments for imports or exports, and with respect to
the method of levying such duties and charges, and with respect to all rules and formalities in connection
with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of
Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product
originating in or destined for any other country shall be accorded immediately and unconditionally to the like
product originating in or destined for the territories of all other CONTRACTING PARTIES.
Besides Article I:1, the MFN principle is also reflected in other GATT 1994 provisions, such as Article IX:1
(marks of origin) and Article XIII (non-discriminatory administration of quantitative restrictions (QRs)). These
provisions will be explained later on in the relevant Modules.
II.B. EXPLANATION AND INTERPRETATION OF ARTICLE I:1
OF THE GATT 1994 (MFN PRINCIPLE)
II.B.1. RATIONALE BEHIND THE MFN PRINCIPLE
Why have governments committed themselves to extending concessions made to one trading partner to all
Members of the WTO? What benefit do they obtain from restricting themselves in this manner?
The object and purpose of the MFN principle is to prohibit discrimination among like products originating in
or destined for different countries (Canada – Autos, Appellate Body Report, para. 84).
Imagine a world with three countries where one country produces and imports the same good from two other
countries. In each of these three countries, one single firm produces and/or exports the relevant good. An
incentive for discrimination will arise if the firm of one of these countries is more efficient and productive than
the other competing firms. The most efficient and productive firm will therefore be able to export/sell its goods
at a lower price than its competitors to/in the importing country. The importing country may therefore want to
impose higher tariffs on the cheaper goods from the country with the most efficient and productive firm in
order to protect its industry. This concern does not arise vis-à-vis the goods imported from the other exporting
country with a less efficient and productive firm. Additionally, this most efficient and productive firm may have
higher returns and the importing country government may want to impose higher tariffs on that firm as this
approach generates higher tariff revenues. With respect to the allocation of world production, this leads to
inefficiencies because the most efficient firm is punished and production is shifted to its less efficient
counterpart in the other exporter country and/or the domestic firm of the importing country. In such a
situation, the MFN principle would make it impossible for the importing country to discriminate among
producers. By doing so, it promotes an efficient allocation of world production.

70. 52
Discrimination also increases costs of transaction. Assume each country sets different tariffs for imports
coming from different trading partners. If a company in a country wants to import raw materials or
components for its own production, in order to be competitive, it would have not only to look at the different
prices in different countries but also at the different tariff rates charged on imports by each of these countries.
If a country discriminates among its different trading partners by applying different rates of protection, there
would be different "world prices" (or terms of trade) applying to each. On the other side, countries will have to
spend time and money determining the origin of products, since the tariff and customs rules would vary
according to each country. With MFN, countries have to charge the same duty rates and other customs
formalities to imports from all countries.
The prohibition of discrimination in Article I:1 also serves as an incentive for concessions, negotiated
reciprocally, to be extended to all other Members on an MFN basis (Canada – Autos, Appellate Body Report,
para. 84). Let's assume that Rauritania agrees to decrease its tariff rate for carrots from Medatia (an efficient
producer of carrots) to ten per cent in exchange for Medatia's commitment to reduce its tariff rate for apples.
Rauritania may later agree to apply a lower tariff rate of five per cent to carrots originating from Vanin. As a
result, firms in Rauritania will start importing carrots from Vanin, instead of Medatia. In the absence of the
MFN rule, the benefits obtained by Medatia will be eroded via trade diversion to Vanin. As a consequence,
Medatia would have no incentive to engage in negotiations and the scope of trade deals would be accordingly
diminished. Instead, with MFN, the lower tariff rates provided by Rauritania to Vanin will be extended to
Medatia, so that Medatia's carrots will also benefit from the lower tariff rate (five per cent).
MFN tempers the potential for concession diversion in two ways. Firstly, by requiring non-discriminatory
behaviour by Rauritania to Medatia, it ensures that the market access bargained by Medatia is not diverted
entirely to one of its competitors at a later stage. Secondly, if Rauritania is bound by MFN, any concession it
offers to Vanin must be extended to all Vanin's competitors. Any further trade deal negotiated by Rauritania
will amount to further reciprocal liberalization. This removes Rauritania's incentive to negotiate subsequently,
encouraging this country to make an optimal deal in the first place.
Based on: World Trade Organization (WTO), World Trade Report 2007, Geneva: WTO, p. 133 – 137.
Rationale Behind the MFN Principle
The MFN principle works to:
 Maximize efficiency.
 Minimize transaction costs (related rules for the issuance of certificates of origin, direct
shipment requirements and other relevant administrative producers can impose significant
costs on both enterprises and governments, but, in accordance with MFN countries apply the
same rules to imports from all countries).
 Promote further reciprocal liberalization (this benefits particularly small developing
countries, which benefit from the most favoured treatment provided to other Members).
 Minimize costs of trade negotiations (negotiating one multilateral agreement instead of
several bilateral agreements).

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TO KNOW MORE... HISTORY OF THE MFN CLAUSE
The inclusion of clauses relating to non-discriminatory treatment in trade agreements can be traced back to
the 12th century, with the first reference to the phrase "MFN" appearing at the end of the 17th century. The
emergence of the concept of non-discrimination stemmed from the decline in mercantilism and from a desire
to link commercial treaties through time and among states. In the intervening period up until the formation
of the GATT, bilateral and plurilateral MFN trade deals were conducted utilizing both the conditional form of
MFN, where concessions were granted on the condition of receiving adequate compensation, and the
unconditional form, where concessions were granted without reciprocal compensation.
The wave of liberalism that swept Europe in the second half of the 19th century engendered widespread use
of the unconditional form of MFN. The United States, however, being a relative newcomer to international
trade, retained the conditional form at that time. Following the end of the First World War, the United States
experienced a considerable increase in demand for its exports from Europe. Therefore, in the 1920s US MFN
policy changed to that of unconditional MFN in a bid to entice other countries to do the same with respect to
the United States, thus reducing discrimination against US exports. The modern day version of MFN,
enshrined in WTO [law and] jurisprudence, is a direct descendant of the [unconditional] MFN clauses in
bilateral agreements between the United States and its trading partners.
World Trade Organization (WTO), World Trade Report 2007, Geneva: WTO, p. 132.
II.B.2. SCOPE OF APPLICATION OF THE MFN RULE: DE JURE & DE FACTO
DISCRIMINATION
The jurisprudence has interpreted that a measure may be discriminatory not only in law (de jure), but
also in fact (de facto). A measure discriminates de jure when it is clear from the wording of the legal
instrument that it provides an advantage to a product from a Member or non-Member, without extending such
advantage to like products from all WTO Members. When the discrimination does not appear on the text or
face of the legal instrument, it can still be de facto, or in practice, discriminatory. De facto discrimination
occurs when an apparently neutral legal instrument, is in effect or in fact, discriminatory. To establish de facto
discrimination, all the facts relating to the application of the measure must be reviewed. For example, imagine
Medatia, a WTO Member, enacts a measure whereby imported milk from cows raised in pastures above 1000
feet pays a higher tariff than imported milk from cows raised in pastures at the sea level. Suppose now that
Tristat, another WTO Member, is the only country that exports to Medatia milk from cows raised in pastures
above 1000 feet, while other WTO Members export to Medatia milk from cows raised in pastures at the sea
level.
In Canada-Autos, the Appellate Body ruled that the scope of Article I:1 of the GATT 1994 covers both de jure
and de facto discrimination. The measure at issue was Canada's import duty exemption granted to motor
vehicle imports which met certain requirements (See Case Study 1).

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II.B.3. THE MFN PRINCIPLE: THREE-TIER TEST
The MFN Principle: Three-Tier Test
The analysis of inconsistency of a measure with the MFN principle is a three-tier test. One needs to check
these three elements to find an inconsistency:
 Any advantage, favour, privilege or immunity covered by Article I:1 of the GATT 1994;
 Like products; and,
 The advantage at issue is not granted immediately and unconditionally to the like products
concerned.
a. ANY ADVANTAGE, FAVOUR, PRIVILEGE OR IMMUNITY COVERED BY ARTICLE I:1
Article I:1 covers a broad range of measures in relation to exportation and importation as well as internal
measures. Such measures include the following:
 Customs duties;
 any kind of charges imposed on importation or exportation;
 any kind of charges imposed in connection with importation or exportation;
 any charges imposed on the international transfer of payments for imports and exports;
 the method of levying such duties and charges;
 all rules and formalities in connection with importation and exportation;
 internal taxes or other internal charges (covered in Article III.2);
 all laws, regulations and requirements affecting internal sale, offering fore sale, purchase,
transportation, distribution or use of any product (covered in Article III.4).
Both Panels and the Appellate Body have interpreted Article I:1 as covering a wide range of measures. In
Canada – Autos, the Appellate Body stated that the wording of Article I:1 refers not to some advantages
granted with respect to the subjects that fall within the scope of Article I:1, but to "any advantage"; not to
some products, but to "any product'; and not to like products from some other Members, but to like products
originating in or destined for "all other" Members (See Case Study 1).
NOTE
Recall that these advantages not only concern those granted by WTO Members to other Members, but also
those granted by WTO Members to non-WTO Members. Hence the use of the broader term "any other
country" in Article I:1.

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b. LIKE PRODUCTS
As explained by the Appellate Body in EC – Bananas III, the essence of the MFN obligation is that "like
products" should be treated equally, irrespective of their origin (EC – Bananas III, Appellate Body
Report, para. 190). This means that products which are not "like products" may be treated differently. The
term "like products" is not defined in the GATT 1994, although it is used in other provisions both in the GATT
1994 and in other WTO Agreements. For example, the concept of "like products" appears in Articles II, III, VI,
IX, XI, XIII, XVI and XIX of the GATT 1994. As it will be explained further on, the concept of "like products"
may have different meanings depending on its context in the various provisions of the WTO Agreements (see
the "accordion analogy" below).
GATT/WTO case law has set up four criteria that should be considered in determining whether the
imported and domestic products are "like products". All these criteria (except for "the customs
classification of the product" - see box below) were taken from the Report of the Working Party on Border Tax
Adjustments adopted by the GATT Contracting Parties in 1970. As we will see, such criteria have been
developed mainly by WTO adjudicating bodies in the context of Article III (National Treatment). In
EC - Asbestos, the Appellate Body emphasized that these four criteria do not constitute a "closed list" and
that they are simply tools to assist in the task of sorting and examining the relevant evidence (EC - Asbestos,
Appellate Body Report, paras 101-103).
Criteria applied in the analysis of "Like Products"
The four criteria employed by the GATT 1994/WTO adjudicating bodies in determining "like products" under
Article I:1 are:
1. The product's end uses
2. Consumers' tastes and habits
3. The product's nature, properties and quality (physical characteristics)
4. The customs classification of the products
Example: Criteria applied in the analysis of "Like Products" under Article I:1 (MFN Principle)
As mentioned above, the concept of "like products" has been subject to interpretation by some GATT
Working parties and panels. In Spain - Tariff Treatment Of Unroasted Coffee, a GATT Panel concluded that
various types of unroasted coffee falling into different tariff classifications and thus, under different tariff
rates under the Spanish tariff regime were ''like'' products (Spain - Tariff Treatment Of Unroasted Coffee,
GATT Panel Report, paras. 4.6-4.9). The Panel applied three of the four criteria mentioned above to
the various types of unroasted coffee to determine if they constitute "like products".
With respect to the physical characteristics of the products, the Panel examined if the organoleptic
differences resulting from geographical factors, cultivation methods, the processing of the beans, and the
genetic factor were sufficient reasons to allow for a different tariff treatment. It pointed out that it was not
unusual in the case of agricultural products that the taste and aroma of the end-product would differ
because of one or several of the above-mentioned factors.

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The Panel furthermore found relevant to its examination of the matter that unroasted coffee was mainly, if
not exclusively, sold in the form of blends, combining various types of coffee, and that coffee in its end-use,
was universally regarded as a well-defined and single product intended for drinking. The Panel noted that no
other GATT contracting party applied its tariff regime - customs classification of the product - in respect
of unroasted, non-decaffeinated coffee in such a way that different types of coffee were subject to different
tariff rates. Based on this reasoning, the Panel concluded that the various types of unroasted coffee
were ''like'' products within the meaning of Article I:1 of the GATT.
c. THE IMMEDIATE AND UNCONDITIONAL GRANTING OF THE ADVANTAGE TO THE
LIKE PRODUCTS CONCERNED
The third element in the three-tier test is the granting of the advantage "immediately and unconditionally".
This means that once a WTO Member has granted an advantage to imports from any country, it must
immediately and unconditionally grant that advantage to imports of like products from all WTO
Members.
In Indonesia – Autos, the measure at issue was "The 1993 Programme" that provided import duty reductions
or exemptions on imports of automotive parts based on the local content per cent; and "The 1996 National Car
Programme" that provided various benefits such as luxury tax exemption or import duty exemption to
qualifying (local content etc.) cars or Indonesian car companies. In this case the Panel held that, according to
GATT/WTO case-law, the right of Members "cannot be made conditional on any criteria not related to the
imported product itself". The existence of such conditions is inconsistent with the provisions of Article I:1
which require that tax and customs duty advantages accorded to products of one Member be accorded to
imported like products from other Members "immediately and unconditionally" (Indonesia – Autos, Panel
Report, paras. 14.145-14.147).
II.C. EXCEPTIONS
II.C.1. EXCEPTIONS TO THE PROVISIONS CONTAINED IN THE WTO
AGREEMENTS –INCLUDING THE MFN PRINCIPLE
There are a number of provisions that allow WTO Members to derogate from most or some provisions
contained in the WTO Agreements, including the MFN principle. These will be covered in detail in Modules 8
(Exceptions) and 9 (Development Dimension). They include:
 General exceptions (Article XX of the GATT 1994);
 Security exceptions (Article XXI of the GATT 1994);
 Balance of payment exceptions and temporary application of quantitative restrictions
in a discriminatory manner (Articles XII, XVIII.B, and XIV of the GATT 1994);
 Waivers (Article IX:3 of the Agreement Establishing the WTO); and,
 A number of provisions on special and differential treatment, which can be found
throughout the WTO Agreements.

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II.C.2. EXCEPTIONS TO THE MFN PRINCIPLE
The specific exceptions to the MFN principle are listed below. The most important exceptions are the first two
related to Regional Integration and the "Enabling Clause".
a. REGIONAL INTEGRATION (ARTICLE XXIV OF THE GATT 1994)
Article XXIV of the GATT 1994 allows a WTO Member to grant more favourable treatment to its trading
partners within a customs union or a free trade area without extending such treatment to all WTO Members,
subject to certain conditions. This exception will be explained in detail in Module 8 (Exceptions).
b. 1979 DECISION ON DIFFERENTIAL AND MORE FAVOURABLE TREATMENT,
RECIPROCITY AND FULLER PARTICIPATION OF DEVELOPING COUNTRIES (THE
"ENABLING CLAUSE")
The Enabling Clause also allows WTO Members to depart from the MFN principle. This Clause "enables"
developed country Members to derogate from the MFN principle in order to grant preferential tariff treatment
to imports from developing country Members under certain conditions. The Enabling Clause also "enables"
developing country Members to depart from the MFN principle to negotiate regional agreements among them.
The Enabling Clause will be explained in detail in Module 9 (WTO Development Dimension).
c. HISTORICAL PREFERENCES (ARTICLE I:2 – I:4 OF THE GATT 1994)
Very few "historical preferences" exist today. The few preferences which derogate from the MFN principle and
which can be maintained, are remnants of the particular situations which existed back in the GATT 1947. For
this reason they are called "historical" preferences. It should be emphasized that these preferences were
significant when the GATT 1947 was negotiated, but their importance has faded over the years.
d. FRONTIER TRAFFIC (ARTICLE XXIV:3 OF THE GATT 1994)
Advantages accorded by Members to "adjacent countries" in order to facilitate frontier transactions constitute
one authorized derogation to the MFN principle. It should nevertheless be emphasized that this derogation
refers to the facilitation of transactions in the vicinity of the frontier and cannot cover a trade agreement
governing the entire territories of two neighbouring countries. As with the historical preferences, the economic
impact of this derogation is very limited.

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ILLUSTRATION – MFN PRINCIPLE FOR GOODS
SCENARIO
Let us assume that Vanin, Tristat and Medatia are WTO Members. In the past, Vanin (a developed country
Member) used to classify all beers under the same tariff heading subject to a customs duty of 15 per cent.
Recently, Vanin authorities enacted a new customs law which reclassifies beers under different tariff
sub-headings, according to their level of alcohol. According to this law, Vanin applies different customs
duties: a 10 per cent ad valorem customs duty on beers with a level of alcohol below three per cent and
a 25 per cent ad valorem customs duty on beers with a level of alcohol equal or above three per cent.
Vanin applies these customs duties to all countries, except to Medatia, to which it applies a two per cent
ad valorem customs duty on beers with a level of alcohol below three per cent and a ten per cent
ad valorem customs duty on beers with a level of alcohol equal or above three per cent, pursuant to a
free trade area formed with this country.
Vanin does not produce beer. Instead, it imports this product from many WTO Members. However, beer
with a level of alcohol equal or above three per cent is only imported from Tristat and Medatia. Tristat
believes that Vanin's new customs law violates the MFN principle.
The chart below summarizes the customs rates applied by Vanin:
Good: Beer Countries exporting
beer to Vanin
Customs Rate
applicable to all
WTO Members
Customs Rate
applicable to
Medatia
< 3% alcohol Many WTO Members 10% 2%
≥ 3% alcohol Only Tristat and
Medatia
25% 10%
QUESTION
Assuming you were an expert on WTO law, what would you advise Tristat to argue before a WTO Panel?

77. 59
PROPOSED ARGUMENT
TRISTAT, the complainant, may argue as follows:
THE MFN PRINCIPLE
The MFN principle laid down in Article I:1 of the GATT 1994 requires Vanin to extend, immediately and
unconditionally, any advantage that it gives to products imported from any Member (including Medatia) or
non-Member to ''like'' products imported from Tristat. According to Article I:1, Tristat needs to
demonstrate the fulfilment of three elements: 1) the application of the lower customs duty constitutes
an advantage, favour, privilege or immunity covered by Article I:1; 2) beer with a level of alcohol below
three per cent and beer with a level of alcohol equal or above three per cent are ''like products'' under
Article I:1; and, 3) the advantage granted to imported beers with a level of alcohol below three per cent
(lower customs duty) is not being extended, immediately and unconditionally, to beers with a level of alcohol
equal or above three per cent imported from Tristat.
ADVANTAGE OF THE TYPE COVERED BY ARTICLE I:1
Tristat will not find it difficult to demonstrate that the advantages granted by Vanin through lower customs
duties are covered by Article I:1, which expressly includes "customs duties".
LIKE PRODUCTS
Tristat could argue that beers with a level of alcohol below 3 per cent and beers with a level of alcohol equal
or above three per cent are ''like products'' within Article I:1 by proving that all these beers share
substantially the same physical characteristics, end-uses, are perceived by consumers as like products, and
that WTO Members classify them under the same tariff headings.
GRANTING OF THE ADVANTAGE IMMEDIATELY AND UNCONDITIONALLY TO LIKE PRODUCTS
Tristat may argue that the lower customs duty of ten per cent for beers with a level of alcohol below three
per cent is not extended to beers with a level of alcohol equal or above three per cent, which is subject to a
customs duty of 25 per cent.
DE FACTO DISCRIMINATION
Vanin might raise a rebuttal, claiming that its measure does not discriminate between like products, but
instead applies different customs duties to different products.
The counter-argument for Tristat could be that the Appellate Body has ruled that Article I:1 covers both
de jure and de facto discrimination. Tristat could argue that Vanin's customs law is de facto discriminatory
since it has the effect of discriminating against beer with a level of alcohol equal or above three per cent
from Tristat by applying a higher customs duty to this product, while applying a lower customs duty to beer
with a level of alcohol below three per cent (a "like" product). Except for Medatia, Tristat is the only WTO
Member that exports beer with a level of alcohol equal or above three per cent to Vanin.
ARTICLE XXIV OF THE GATT 1994 –REGIONAL INTEGRATION
Regarding the preferential treatment provided to imports of beers from Medatia, Vanin may argue that such
treatment is justified by Article XXIV, which enables WTO Members to depart from the MFN principle to form
customs unions and free trade areas subject to certain conditions.

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CASE STUDY
CASE STUDY 1: CANADA - AUTOS
(Canada – Certain Measures Affecting the Automotive Industry)
(DS139, DS142)
PARTIES AGREEMENTS TIMELINE OF THE DISPUTE
Complainants Japan,
European
Union
GATT 1994 Establishment of
Panel
1 February 1999
General Agreement on
Trade in Services (GATS)
Circulation of
Panel Report
11 February 2000
Respondent Canada Agreement on Subsidies
and Countervailing
Measures (SCM Agreement)
Circulation of
Appellate Body
Report
31 May 2000
Adoption 19 June 2000
Table 1: Canada – certain measures affecting the automotive industry
IN A NUTSHELL
Canada granted an import duty exemption for motor vehicle imports and imported motor vehicle parts and
materials by certain manufacturers which met the Canadian Value Added ("CVA") requirements and certain
production to sales ratio requirements. Other manufacturers which did not meet these requirements were
subject to a 6.1 per cent import duty.
The Panel found that Canada violated Article I:1 of the GATT 1994 by granting the import duty exemption to
motor vehicles from some countries but not to motor vehicles from all other WTO Members. On appeal,
Canada argued that Article I:1 did not prohibit the imposition of "origin-neutral terms and conditions on
importation that apply to companies as opposed to the products they import".
The Appellate Body upheld the Panel's finding that the duty exemption was inconsistent with the MFN
treatment obligation under Article I:1 on the grounds that Article I:1 covers not only de jure but also de
facto discrimination and that the duty exemption at issue was in practice given only to the imports from a
small number of countries in which an exporter was affiliated with eligible Canadian manufacturer/importers.

79. 61
SUMMARY OF THE KEY FINDINGS OF THE PANEL/APPELLATE BODY
1. The object and purpose
of Article I:1 – the MFN
clause (Appellate Body
Report, para. 84)
 To prohibit discrimination among like products originating
in or destined for different countries.
 Serves as an incentive for concessions, negotiated
reciprocally, to be extended to all other Members on an
MFN basis.
2. The scope of Article I:1
(Appellate Body, para. 79)
 Covers both de jure and de facto discrimination
Not restricted only to cases in which the failure to accord an "advantage"
to like products of all other Members appears on the face of the measure,
or can be demonstrated on the basis of the words of the measure.
Article I:1 also applies to measures which, on their face, are "origin-
neutral".
3. How was de facto
discrimination found in
this case? (Appellate Body
Report, para. 85)
The measure maintained by Canada accorded the import duty exemption
to certain motor vehicles entering Canada from certain countries. These
privileged motor vehicles were imported by a limited number of
designated manufacturers who were required to meet certain
performance conditions. In practice, this measure did not accord the
same import duty exemption immediately and unconditionally to like
motor vehicles of all other Members.
4. Article XXIV – an
exception to Article I:1
(Panel Report, paras.
10.52-10.57)
Canada invoked an Article XXIV exception with respect to a certain import
duty exemption, found to be inconsistent with Article I of the GATT 1994.
The Panel rejected this defence because, on the one hand, Canada was
not granting the import duty exemption to all North American Free Trade
Agreement (NAFTA) manufacturers and because, on the other hand,
manufacturers from countries other than the United States and Mexico
were being provided duty-free treatment. Canada did not appeal this
finding of the Panel.
Table 2: Summary of the key findings of the panel/appellate body
EXERCISES
1. Art. I.1 of the GATT 1994 provides that: "With respect to customs duties … any advantage … granted by
any Member to any product originating in or destined for any other COUNTRY shall be accorded
immediately and unconditionally."
Why did the drafters of Article I.1 of the GATT 1994 refer to "any other COUNTRY" and not "any other
MEMBER"?
2. What are the main objectives of the MFN principle?
3. Explain the three-tier test applicable for determining a violation of Article I:1 of the GATT 1994.
4. Which is the criteria to determine whether two products are "like products"?

80. 62
5. Which types of advantages are covered by the MFN principle?
III. THE NATIONAL TREATMENT PRINCIPLE WITH
REGARD TO TRADE IN GOODS
IN BRIEF
The National Treatment Principle prohibits a Member from favouring its domestic products over the imported
products of other WTO Members.
III.A. ARTICLE III OF THE GATT 1994 (NATIONAL TREATMENT
PRINCIPLE)
In this section, we will explain the national treatment principle, which constitutes the second component of the
non-discrimination pillar of the WTO. The national treatment principle for goods is provided in Article III of the
GATT 1994. The relevant parts of Article III are paragraphs 1, 2 and 4 as well as the explanatory Ad Note to
Article III, second sentence.
Article III of the GATT 1994: National Treatment on Internal Taxation and Regulation
General Principle
1. Members recognize that internal taxes and other internal charges, and laws, regulations and
requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use
of products, and internal quantitative regulations requiring the mixture, processing or use of products
in specified amounts or proportions, should not be applied to imported or domestic products so as to
afford protection to domestic production.
Internal Taxation
2. The products of the territory of any Member imported into the territory of any other Member shall not
be subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of
those applied, directly or indirectly, to like domestic products. Moreover, no Member shall otherwise
apply internal taxes or other internal charges to imported or domestic products in a manner contrary to
the principles set forth in para. 1.
Ad Note to Article III:2, second sentence
3. A tax conforming to the requirements of the first sentence of para. 2 would be considered to be
inconsistent with the provisions of the second sentence only in cases where competition was involved
between, on the one hand, the taxed product and, on the other hand, a directly competitive or
substitutable product which was not similarly taxed.

81. 63
Internal Regulation
4. The products of the territory of any Member imported into the territory of any other Member shall be
accorded treatment no less favourable than that accorded to like products of national origin in respect
of all laws, regulations, transportation, and requirements affecting their internal sale, offering for sale,
purchase, transportation distribution or use. The provisions of this paragraph shall not prevent the
application of differential internal transportation charges which are based exclusively on the economic
operation of the means of transport and not on the nationality of the product.
Difference Between the National Treatment Principle and the MFN Principle
According to the national treatment principle, each Member shall treat imports no less favourably than it
treats like domestically produced goods. Whilst the MFN principle seeks to ensure that a WTO
Member does not discriminate between like products originating in, or destined for, other WTO
Members, the national treatment principle addresses the non-discriminatory treatment to be
applied to imported and domestic like products.
III.B. EXPLANATION AND INTERPRETATION OF THE
NATIONAL TREATMENT PRINCIPLE
III.B.1. RATIONALE BEHIND ARTICLE III
What would happen if a government imposed an internal regulation that costs foreign competitors much more
than domestic industries to meet?
Negotiated tariff bindings (the maximum level of customs duty to be levied on products imported into a
Member) are effective only if Members cannot undermine their market access commitments by using other
internal measures. But a large number of internal measures, sometimes not directly trade-related, can have
effects that are very similar to tariffs and the use of such policies can therefore offset tariff concessions.

82. 64
Assume a country binds itself not to increase tariffs on bicycles beyond 15 per cent. An internal tax which
applies only to imported products would improve the competitiveness of domestic producers of bicycles with
respect to foreign producers and the market access that foreign governments had expected to gain through
tariff bindings would be partly or entirely offset. Therefore, goods that can enter a country's territory thanks to
reduced border barriers, such as tariffs, should not be discriminated against once they have entered that
territory.
The purpose of Article III of the GATT 1994 is therefore to prohibit or limit the use of trade restricting or
distorting trade policy measures by requiring non-discriminatory treatment between imported and domestic
goods. In this regard, in examining the consistency of the Japanese taxation on liquor products with
Article III:2, the Appellate Body in Japan - Alcoholic Beverages II explained that the purpose of Article III is to
avoid protectionism in the application of internal tax and regulatory measures. Towards this end, Article III
obliges WTO Members to provide equality of competitive conditions for imported products in relation to
domestic products (Japan - Alcoholic Beverages II, Appellate Body Report, pages 16-17).
Rationale Behind the National Treatment Principle
The national treatment principle embodied in Article III of the GATT 1994 works to:
 Avoid protectionist measures.
 Maintain equality of competitive conditions.
 Protect tariff bindings.
III.B.2. SCOPE OF COVERAGE
a. DE JURE AND DE FACTO DISCRIMINATION
As with the MFN principle, the scope of the national treatment principle also covers both de jure
and de facto discrimination. A measure is de jure discriminatory when discriminatory treatment between
imported and domestic like products is clear from the wording of the legal instrument. When the
discrimination is not clear on the text or face of the legal instrument, it can still be de facto, or in practice,
discriminatory. In the case of the national treatment principle, de facto discrimination occurs when a legal
instrument in effect or in fact favours domestic products over imported like products. As explained when
referred to the MFN principle, to establish de facto discrimination, all the facts relating to the application of the
measure must be reviewed.
Cases where de facto discrimination was found are Japan – Alcoholic Beverages II, Korea - Alcoholic Beverages
and Chile – Alcoholic Beverages. These cases involved internal measures which, although not making an
explicit reference to the origins of products, had the effect of affording protection to domestic products
vis-à-vis "like" or "directly competitive or substitutable" imported products.

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Example: De Facto Discrimination under Article III of the GATT 1994
In Chile - Alcoholic Beverages, the Appellate Body held that the cumulative consequence of the New Chilean
System was that approximately 75 per cent of all domestic production of the distilled alcoholic beverages at
issue would be located in the fiscal category with the lowest tax rate, whereas approximately 95 per cent of
the directly competitive or substitutable imported products would be found in the fiscal category subject to
the highest tax rate (Chile - Alcoholic Beverages, Appellate Body Report, para. 67).
b. APPLIES ONLY TO INTERNAL MEASURES
The national treatment obligation only applies to internal measures as opposed to border
measures. Distinguishing between an internal measure and a border measure may not always be easy. The
Ad Note to Article III of the GATT 1994 clarifies that an internal measure may nevertheless be
applied at the border on imported goods.
Ad Note to Article III
Any internal tax or other internal charge, or any law, regulation or requirement of the kind referred to in
paragraph 1, which applies to an imported product and to the like domestic product and is collected or
enforced in the case of the imported product at the time or point of importation, is nevertheless to be
regarded as an internal tax or other internal charge, or a law, regulation or requirement of the kind referred
to in paragraph 1, and is accordingly subject to the provisions of Article III.
In Argentina - Hides and Leather, the Panel addressed the question whether an Argentinean value added tax
(VAT), was an "internal measure" within the meaning of Article III:2 of the GATT 1994. Based on the text of
Article III and its Ad Note, the Panel found that such measure was indeed an internal measure within the
meaning of Article III inter alia because the VAT, although applied at the border, was chargeable to an internal
transaction. Furthermore, in accordance to the Ad Note to Article III, the fact that the VAT was collected "at
the time or point of importation" did not preclude it from being characterized as an "internal tax measure"
under Article III:2 of the GATT 1994 (Argentina - Hides and Leather, Panel Report, paras. 11.145).
c. BOUND AND UNBOUND MEASURES
The national treatment principle extends to bound and unbound measures. In this regard, the
Appellate Body in Japan-Alcoholic Beverages II, held that Article III is a general prohibition on the use of
internal taxes and other internal regulations that clearly extends to products not bound under
Article II - Schedule of Concessions (for trade in goods, in general, the Schedules of concessions consist of a
list of products for which a bound tariff has been agreed by the Member concerned – the Schedules will be
studied in Module 3) (Japan-Alcoholic Beverages II, Appellate Body Report, p. 17).

84. 66
III.B.3. INTERPRETATION OF ARTICLE III
a. ARTICLE III:1 GENERAL OBLIGATION
The general principle set out in Article III:1 informs the rest of Article III and serves as a guide to
understanding and interpreting the specific obligations contained in the other paragraphs of
Article III. However, as we will see below, Article III:1 applies to the first and second sentences of
Article III:2 and Article III:4 in different ways.
In Japan - Alcoholic Beverages II, the Appellate Body examined the Panel's finding of inconsistency of the
Japanese Liquor Tax Law with both sentences of Article III:2. The Appellate Body found that Article III:1
constitutes part of the context for Article III:2. In this regard, it stated that Article III:1 articulates a general
principle that internal measures should not be applied so as to afford protection to domestic production, which
informs the rest of Article III. The purpose of Article III:1 is to establish this general principle as a guide to
understanding and interpreting the specific obligations contained in Article III:2 and in the other paragraphs of
Article III, while respecting, and not diminishing, the meaning of the words used in those other paragraphs
(Japan - Alcoholic Beverages II, Appellate Body Report, pages 16-18 – see Case Study 2).
b. ARTICLE III:2 - INTERNAL TAXATION
Article III:2 applies the general non-discrimination principle set out in paragraph 1 to internal taxation. WTO
jurisprudence has distinguished two levels of obligations regarding internal taxation depending on
whether imported and domestic products can be considered "like products" or "directly
substitutable products". In this respect, the first sentence of paragraph 2 deals with the internal taxation of
"like products" while the second sentence (by cross reference with the relevant Ad Note) deals with the internal
taxation of "directly competitive or substitutable products" (See Japan-Alcoholic Beverages II – Case Study 2).
If the products under consideration cannot be considered "like products" within Article III:2, first sentence, it
can still be further examined whether they may be "directly competitive or substitutable" according to
Article III:2, second sentence, given the broader scope of the latter.
1. ARTICLE III:2 - FIRST SENTENCE
Two - tier test under Article III:2 - First Sentence
The analysis of consistency of a measure with the first sentence of Article III:2 constitutes a two-tier test.
One needs to check the following two elements to find an inconsistency:
 The imported and domestic products are like products; and,
 The imported products are taxed in excess of the domestic products.
The requirement to meet the two-tier test mentioned above was confirmed by the Appellate Body, among
other cases, in Japan - Alcoholic Beverages II, Korea - Alcoholic Beverages and Chile – Alcoholic Beverages.

85. 67
a. The imported and domestic products are "like products"
As indicated above while explaining the MFN principle (see Section II.B.3), WTO adjudicating bodies have
mainly analysed the concept of like products in the context of Article III:2 and III:4 of the GATT 1994.
Criteria used for the determination of "Like Products"
The four criteria employed by the GATT/WTO jurisprudence in determining "likeness" under Article III:2 first
sentence are the following:
1. The product's end uses
2. Consumer tastes and habits
3. The product's properties, nature and quality
4. The customs classification of the product
As mentioned earlier, these four criteria were analysed by the Appellate Body for the first time in
Japan-Alcoholic Beverage II, where it referred to the Working Party on Border Tax Adjustment, which
developed the basic approach for interpreting "like or similar products" (criteria 1, 2 and 3 of the box above).
In this dispute, the Appellate Body held that the interpretation of the term ''like product'' should be examined
on a case-by-case basis. In relation to the second sentence dealing with "directly competitive or substitutable
products", the Appellate Body further ruled that the term "like product" under the first sentence of
Article III:2 should be construed narrowly (Japan-Alcoholic Beverage II, Appellate Body Report,
pages 19-20).
As mentioned above, the Appellate Body has stated that these criteria do not constitute a "closed list" and that
they are simply tools to assist in the task of sorting and examining the relevant evidence. The adoption of a
particular framework to aid in the examination of evidence does not dissolve the duty or the need to examine,
in each case, all of the pertinent evidence (EC - Asbestos, Appellate Body Report, paras. 101-103).
b. The imported products are taxed "in excess of" the domestic products
The taxes levied on imported products cannot exceed those levied on like domestic products.
According to the Appellate Body in Japan-Alcoholic Beverages II, even the smallest amount of "excess" would
be too much. The prohibition of discriminatory taxes in Article III:2, first sentence, is not conditional on a
"trade effects test’" nor is it qualified by a de minimis standard. Thus, the slightest margin of excessive taxing
will constitute an infringement, even if the margin is de minimis (Japan-Alcoholic Beverages II, Appellate Body
Report, page 25).
2. ARTICLE III:2 - SECOND SENTENCE
As mentioned above, if a product does not meet the narrow definition of "like product", it may still be
"directly competitive or substitutable". Therefore, if there is no violation of Article III:2, first sentence,
one must still consider if there is an infringement of Article III:2, second sentence.

86. 68
In Japan – Alcoholic Beverages II, the Appellate Body explained the three-tier test to be used under
Article III:2, second sentence, and distinguished this test from the one applicable under the first sentence.
This distinction, in the view of the Appellate Body, is a result of the explicit reference to Article III:1 in the
second sentence of Article III:2. Accordingly, the Appellate Body found that three separate issues must be
addressed to determine whether an internal tax measure is inconsistent with Article III:2, second sentence
(Japan – Alcoholic Beverages II, Appellate Body Report, page 26).
Three - tier test under Article III:2- Second Sentence
The analysis of consistency of a measure with the second sentence of Article III:2 constitutes a three-tier
test. One needs to check the following three elements to find an inconsistency:
 The imported and domestic products are directly competitive or substitutable;
 the domestic and imported products are not similarly taxed; and,
 the dissimilar taxation is applied to so as to afford protection to domestic production.
a. The imported and domestic products are "directly competitive or substitutable"
The second sentence of Article III:2 applies to competitive or directly substitutable products. This is a much
broader concept than likeness in the first sentence: whereas the first sentence applies only to
products that are perfectly substitutable, the second sentence is broad enough to include products
that are imperfectly substitutable. In Korea - Alcoholic Beverages, the Appellate Body concluded that the
term "like products'' should be considered as a subset of "competitive or substitutable product" under the
second sentence of that Article (Korea - Alcoholic Beverages, Appellate Body Report, para. 118).
In interpreting the term "directly competitive or substitutable products", the Appellate Body in Japan - Alcoholic
Beverages II found that it did "not seem inappropriate" to consider the competitive conditions in the relevant
market, nor did it seem inappropriate to examine elasticity of substitution as one means of examining the
relevant markets (Japan - Alcoholic Beverages II, Appellate Body Report, p. 25). In addition, in
Korea - Alcoholic Beverages, the Appellate Body considered that competition in the market place is a dynamic,
evolving process and thus, the concept of "directly competitive or substitutable" implies that the competitive
relationship between products is not to be analyzed exclusively by reference to current consumer preferences
(Korea - Alcoholic Beverages, Appellate Body Report, para. 114).
b. The domestic and imported products are "not similarly taxed"
In the first sentence, even the slightest difference in tax between imported and domestic products will lead to
inconsistency with the national treatment obligation. This is not the case with regard to the second sentence
where the requirement is that the product must be "similarly taxed". In Japan-Alcoholic Beverages II, the
Appellate Body interpreted the term "not similarly taxed" as requiring taxation exceeding the de minimis
threshold. Accordingly, the difference in tax must be more than de minimis to constitute an
infringement of the national treatment obligation in Article III:2 second sentence (Japan-Alcoholic
Beverages II, Appellate Body Report, pages 26-27).

87. 69
c. The dissimilar taxation is applied "so as to afford protection" to domestic production
If it is established that a dissimilar taxation is applied, it must thereafter be established that this was applied
"so as to afford protection" to domestic production. Thus, although "so as to afford protection" needs not to be
established independently in a finding of a violation with Article III:2, first sentence, it shall be established
under the second sentence of that Article.
The Appellate Body stated in Japan - Alcoholic Beverages II that an examination of whether dissimilar taxation
has been applied "so as to afford protection" requires a comprehensive and objective analysis of the structure
and application of the measure in question on domestic production as compared to imported products. The
very magnitude of the tax differentials may be evidence of the protective application of a national fiscal
measure.
The Appellate Body has also held that the subjective intent of legislators and regulators of a particular
measure, in this case reducing the consumption of alcoholic beverages, is irrelevant for ascertaining whether a
measure is applied "so as to afford protection" (Japan - Alcoholic Beverages II, Appellate Body Report,
pages 27-31). In a subsequent dispute, Chile - Alcoholic Beverages, the Appellate Body refused to accept
explanations of policy objectives which were not ascertainable from the objective design, architecture and
structure of the measure (Chile - Alcoholic Beverages, Appellate Body Report, para. 71).
Example: Measure Applied "so as to afford protection" under Article III:2, Second Sentence
In Korea - Alcoholic Beverages, the Appellate Body held that because there were virtually no imported sochu
in Korea "the beneficiaries of this internal tax structure are almost exclusively domestic producers".
Therefore, the tax operated in such a way that the lower tax brackets covered "almost exclusively" domestic
production, whereas the higher tax brackets embraced "almost exclusively" imported products. In light of
the foregoing, the Appellate Body upheld the Panel's finding that the Korean measures were applied "so as
to afford protection" to domestic production (Korea - Alcoholic Beverages, Appellate Body Report,
paras. 150 - 154).
c. ARTICLE III:4 - INTERNAL LAWS, REGULATIONS AND REQUIREMENTS RELATED TO
INTERNAL SALE, TRANSPORTATION, DISTRIBUTION OR USE
The national treatment obligation in Article III:4 of the GATT 1994 is concerned with measures affecting the
internal sale, offering for sale, purchase, transportation, distribution, or use of the imported product.
Three-tier test under Article III:4
The analysis of consistency of a measure with Article III:4 constitutes a three-tier test. One needs to check
the following three elements to find an inconsistency:
 The imported and domestic products at issue are like products;
 The measure at issue is a law, regulation, or requirement affecting their internal sale,
offering for sale, purchase, transportation, distribution, or use; and,
 The imported products are afforded less favourable treatment than like domestic products.

88. 70
These three elements were explained inter alia by the Appellate Body in Korea - Various Measures on Beef and
EC-Asbestos. See Case Study 3.
a. The imported and domestic products are "like products"
The scope of likeness in Article III:4 has been found by the Appellate Body to be somewhat wider than that in
the first sentence of Article III:2. This is because the scope of the first sentence of Article III:2 must be read
in light of its relationship with the second sentence of Article III:2, something that does not apply to
Article III.4. In EC-Asbestos, the Appellate Body ruled that the scope of likeness in Article III:4, although
broader than the first sentence of Article III:2, is certainly not broader than the combined products
scope of the two sentences of Article III:2. This different standards were further explained by the
Appellate Body in Japan – Alcoholic Beverages and EC - Asbestos using the accordion analogy (see box below).
Analysis of Likeness under Article III of the GATT 1994: The Accordion Analogy
The accordion of "likeness" stretches and squeezes in different places, as different provisions of
the WTO Agreements are applied. The width of the accordion in any one of those places must be
determined by the particular provision in which the term "like" is encountered as well as by the context and
the circumstances that prevail in any given case to which that provision may apply (Japan - Alcoholic
Beverages, Appellate Body Report, page 23 and EC - Asbestos, Appellate Body Report, paras. 98-99).
Regarding the criteria for determining "likeness" under Article III:4, the Appellate Body confirmed in
EC-Asbestos the following criteria: (i) the product's end uses; (ii) consumers' tastes and habits; (iii) the
product's nature, properties, and quality; and, (iv) the customs classification of the products
(EC-Asbestos, Appellate Body Report, paras. 101-103). As mentioned above, these criteria are simply tools to
assist in the task of sorting and examining the relevant evidence.

89. 71
Example: ''Like Product'' under Article III:4
In EC - Asbestos, the Appellate Body held that carcinogenicity or toxicity was a physical difference to be
taken into account in the determination of "likeness" between chrysotile asbestos fibres and PCG fibres, and
linked this criterion to the criterion of competitive relationship between the products at issue. It also
emphasized the significance of toxicity of a product in relation to consumers' behaviour (EC - Asbestos,
Appellate Body Report, para. 114).
b. The measure is a law, regulation or requirement affecting the internal sale, offering for sale,
purchase, transportation, distribution, or use of the products
Article III:4 relates to all laws, regulations, and requirements affecting the internal sale, offering for sale,
purchase, transportation, distribution or use of products. In Canada-Autos, the Panel, in a finding
subsequently not addressed by the Appellate Body, held that the word "affecting" in Article III:4 of the GATT
1994 has been interpreted to cover not only laws and regulations which directly govern the conditions of sale
or purchase but also any laws or regulations which might adversely modify the conditions of competition
between domestic and imported products (Canada-Autos, Panel Report, paras. 10.80 and 10.84 - 10.85).
The Panel also held in Canada-Autos that a measure can be subject to Article III:4 even if compliance with it is
not mandatory as it also applies to conditions that an enterprise voluntarily accepts in order to receive an
advantage (Canada-Autos, Panel Report, para. 10.73).
c. The imported products " are afforded less favourable treatment"
The national treatment obligation requires that imported and domestic products are given equal treatment in
terms of competitive opportunities. Therefore, if a measure gives imported products "less favourable
treatment" than it gives to like domestic products, the measure will be inconsistent with the national treatment
obligation under Article III:4.
The Appellate Body held in Korea - Various Measures on Beef that a formal difference in treatment between
imported and like domestic products is not necessary, nor sufficient, to demonstrate a violation of Article III:4.
Whether or not imported products are treated "less favourably" than like domestic products should be assessed
instead by examining whether a measure modifies the conditions of competition in the relevant market to the
detriment of imported products (Korea-Various Measures on Beef, Appellate Body Report, paras. 135-137).
In EC – Bananas, Regime for the Importation, Sale and Distribution of Bananas, the Appellate Body held that
Article III:4 does not specifically refer to Article III:1 and therefore, a determination of whether there has been
a violation of Article III:4 does not require a separate consideration of whether a measure "affords protection
to domestic production'' (EC – Bananas, Regime for the Importation, Sale and Distribution of Bananas,
Appellate Body Report, para. 216). However, in EC - Asbestos, it stated that the term "less favourable
treatment" expresses the general principle in Article III:1 that internal regulations ''should not be
applied...so as to afford protection to domestic production" (EC - Asbestos, Appellate Body Report,
para. 100).

90. 72
Example: Finding on' 'Less Favourable Treatment'' under Article III:4
In Korea – Various Measures on Beef, the Appellate Body held that as a consequence of the introduction of
the Korean dual retail system for beef, "the existing small retailers had to choose between, on the one hand,
continuing to sell domestic beef and renouncing the sale of imported beef or, on the other hand, ceasing to
sell domestic beef in order to be allowed to sell the imported product". Apparently, the vast majority of the
small meat retailers chose the first option. The result was the virtual exclusion of imported beef from the
retail distribution channels through which domestic beef (and until then, imported beef) was distributed to
Korean households and other consumers throughout the country (Korea – Various Measures on Beef ,
Appellate Body Report, paras. 145-146).
III.C. EXCEPTIONS
As with the MFN rule, there are exceptions that allow WTO Members to derogate, among others, from the
national treatment principle, as well as specific exceptions that apply only to this principle.
III.C.1. EXCEPTIONS TO THE PROVISIONS CONTAINED IN THE WTO
AGREEMENTS – INCLUDING THE NATIONAL TREATMENT
PRINCIPLE
These exceptions are the same mentioned for the MFN principle and will be covered in detail later in Modules 8
(Exceptions) and 9 (Development Dimension). They include:
 General exceptions (Article XX of the GATT 1994);
 Security exceptions (Article XXI of the GATT 1994);
 Balance of payment exceptions and temporary application of quantitative restrictions
in a discriminatory manner (Articles XII, XVIII.B, and XIV of the GATT 1994);
 Waivers (Article IX:3 of the Agreement Establishing the WTO); and,
 A number of provisions on special and differential treatment, which can be found
throughout the WTO Agreements.
III.C.2. EXCEPTIONS TO THE NATIONAL TREATMENT PRINCIPLE
Specific exceptions only related to the national treatment principle can be summarized as follows:
a. GOVERNMENT PROCUREMENT (ARTICLE III:8A OF THE GATT 1994)
Advantages or preferences can be accorded to domestic products over imported ones if government agencies
purchase such products for government purposes and not for commercial resale or use in the production of
goods for commercial sale.

91. 73
The Plurilateral Agreement on Government Procurement contains specific rules pertaining to the opening of the
procurement process by government entities to international competition. The rights and obligations it
contains, because of its plurilateral nature, only bind the Members that have ratified it (to know more about
the Plurilateral Agreement on Government Procurement, see Module 11).
b. SUBSIDIES TO DOMESTIC PRODUCERS (ARTICLE III:8B OF THE GATT 1994)
Governments can provide subsidies (including payments to domestic producers derived from the proceeds of
internal taxes or charges applied consistently with the provisions of Article III) exclusively to domestic
producers. GATT Contracting Parties and WTO Members considered that the practice of granting production
subsidies was not necessarily illegal.
In the Tokyo and Uruguay Rounds the GATT CONTRACTING PARTIES introduced progressively additional
disciplines on the use of subsidies. Subsidies and their use are now regulated by the Agreement on Subsidies
and Countervailing Measures and by the Agreement on Agriculture (subsidies limited to agricultural products).
Note also that Members have the right to take certain "corrective measures" – one of them being
countervailing measures - against imported subsidized products which cause injury to a Member's domestic
industry producing "like products". Such duties are collected at the border in addition to, and independently
of, tariffs. Countervailing measures will be addressed in Module 5 (Trade Remedies).
c. INTERNAL MAXIMUM PRICE CONTROL MEASURES (ARTICLE III:9 OF THE
GATT 1994)
Members recognize that internal maximum price control measures, even though conforming to the other
provisions of this Article, can have effects prejudicial to the interests of the Members supplying imported
products. Accordingly, Members applying such measures shall take account of the interests of exporting
Members with a view to avoiding to the fullest practicable extent such prejudicial effects.
d. CINEMATOGRAPH FILMS (ARTICLES III:10 AND IV OF THE GATT 1994)
As an exception to the National Treatment principle, negotiators of the GATT retained the possibility of giving
preferences to products emanating from the national movie industry (exposed cinematograph films). National
preferences are governed by the provisions of Article IV, and take the form of internal quantitative regulations
in "screen quotas".
This provision must now be read together with specific commitments taken by Members in the audiovisual
sector in the GATS Agreement.

92. 74
ILLUSTRATION - NATIONAL TREATMENT FOR GOODS
SCENARIO
Let us assume that Vanin and Tristat are WTO Members. Recently, Vanin promulgated a regulation which
imposes a sales tax of 20 per cent on cars with fuel efficiency below 12.5 miles per gallon (mpg) and a sales
tax of two per cent on cars with fuel efficiency equal or above that amount.
GOOD - CARS SALES TAX
Cars with fuel efficiency
< 12.5 miles per gallon (mpg)
20%
Cars with fuel efficiency
= or > 12.5 mpg
2%
Cars with fuel efficiency below 12.5 mpg are also subject to a ban on advertising, which does not apply to
cars with fuel efficiency equal or above 12.5 mpg. Tristat is a main car exporter to Vanin. All cars
manufactured in Tristat are with fuel efficiency below 12.5 mpg. Vanin only produces cars with fuel
efficiency above 12.5 mpg. Tristat believes that Vanin's regulation violates the national treatment principle
under the WTO.
QUESTION
Assume you are an expert on WTO law what would you advise Tristat to argue before a WTO Panel?
PROPOSED ADVICE
Tristat's argument could be as follows:
National Treatment Principle
Article III of the GATT 1994 embodies the national treatment principle, which prohibits a Member from
favouring its domestic products over the imported products of other WTO Members.
Internal Taxation - Article III:2
With respect to the sales tax, Tristat can invoke Article III:2, which covers internal taxation. Tristat might
argue that even though the sales tax does not make explicit reference to the origin of the products, it is de
facto discriminatory. In this regard, it may argue that the tax has the effect of affording protection to
domestic products by imposing a sales tax of two per cent on domestic cars with fuel efficiency above
12.5 mph, while applying a higher tax of 20 per cent on "like" or "directly competitive or substitutable"
imported cars with fuel efficiency below 12.5 mph. In other words, it is contrary to the principle of national
treatment since in effect or in fact the sales tax favours domestic cars over imported cars.

93. 75
 Two–tier test under Article III:2 first sentence
To make a case of violation of Article III:2, first sentence, Tristat will have to demonstrate that:
1) domestic cars with fuel efficiency equal or above 12.5 mph and imported cars with fuel efficiency
below 12.5 mph are "like" products; and 2) imported cars with fuel efficiency below 12.5 mph are taxed
"in excess of" domestic cars with fuel efficiency equal or above 12.5 mph. To show "likeness" Tristat
might argue that they have the same end-uses, share substantially the same physical characteristics,
that consumers normally treat them as perfectly substitutable, and that they are subject to the same
tariff classification.
 Three –tier test under Article III:2, second sentence
If Tristat fails to establish that domestic cars with a fuel efficiency equal or above 12.5 mph and imported
cars with a fuel efficiency below 12.5 mph are ''like'' products under Article III:2, first sentence, it can
still invoke the second sentence of that Article and argue that they are ''directly competitive or
substitutable'' products (which has a broader coverage than ''like'' products). Then, Tristat would have
to demonstrate that: 1) imported and domestic cars with different fuel efficiency are directly competitive
or substitutable products; 2) domestic and imported products are not similarly taxed; and 3) such
dissimilar taxation is applied as to afford protection to domestic production. Tristat could argue that
even when the measure does not differentiate between imported and domestic products, due to the
design and structure of the measure it has the effect of affording protection to domestic cars (all cars
originating from Vanin are subject to a sales tax of two per cent, while only imported cars, including
those from Tristat, are subject to a higher sales tax – 20 per cent).
Advertising ban – Article III:4
With respect to the ban on advertising, Tristat can invoke Article III:4, which covers internal regulations.
To make a case of violation of Article III:4, Tristat would have to demonstrate that: 1) the measure is a
law, regulation, or requirement affecting the internal sale, offering for sale, purchase, transportation,
distribution, or use of the imported products (i.e. cars with fuel efficiency below 12.5 mph); 2) imported
and domestic products are "like products"; and 3) imported products are afforded less favourable
treatment. Tristat could argue that because of the advertising ban, cars from Tristat are treated less
favourably than domestic cars since the ban on advertising is only applicable to imported cars.

94. 76
CASE STUDIES
CASE STUDY 2: JAPAN-TAXES ON ALCOHOLIC BEVERAGES II
(Japan – Taxes on Alcoholic Beverages)
(DS8, DS10, DS11)
PARTIES AGREEMENTS TIMELINE OF THE DISPUTE
Complainants Canada,
European Union,
United States
GATT 1994 Establishment of
Panel
27 September
1995
Circulation of
Panel Report
11 July 1996
Respondent Japan Circulation of AB
Report
4 October 1996
Adoption 1 November 1996
Table 3: Japan – taxes on alcoholic beverages
IN A NUTSHELL
Japanese Liquor Tax Law classified various alcoholic beverages into different categories on the basis of the
alcohol content of the product and established a system of internal taxes applicable to all liquors at different
tax rates depending on the category they fell in. The tax law at issue taxed shochu at a lower rate than
other alcoholic beverages, including vodka and others such as liqueurs, gin, genever, rum, whisky and
brandy.
The Panel found that vodka and shochu were "like" products and that by taxing vodka in excess of shochu,
Japan was in violation of its obligation under Article III:2, first sentence. The Panel also found that shochu
and whisky, brandy, rum, gin, and other liqueurs were directly competitive or substitutable products
according to Article III:2, second sentence, and that Japan, by not taxing them similarly, was acting in a
manner inconsistent with its obligation under Article III:2, second sentence. Japan appealed both findings.
The Appellate Body upheld the Panel's finding that vodka was taxed in excess of shochu, and found the
measure inconsistent with Art. III:2, first sentence. It also upheld the Panel's finding that shochu and
whisky, brandy, rum, gin and other liqueurs were not similarly taxed so as to afford protection to domestic
production, concluding that the measure was in violation of Art. III:2, second sentence.

95. 77
CASE STUDY 3: EC-ASBESTOS
(European Communities – Measures Affecting Asbestos and Asbestos-Containing Products)
(DS135)
PARTIES AGREEMENTS TIMELINE OF THE DISPUTE
Complainants Canada, GATT 1994
Agreement on
Technical Barriers
to Trade (TBT
Agreement)
Establishment of Panel 25 November 1998
Circulation of Panel Report 18 September 2000
Respondent European
Union
Circulation of AB Report 12 March 2001
Adoption 5 April 2001
Table 4: European Communities – Measures Affecting Asbestos and Asbestos-Containing Products
IN A NUTSHELL
The French government adopted Decree No. 96-1133, which imposed a ban on all variety of asbestos fibres.
The Panel found that chrysotile asbestos fibres and polyvinyl alcohol, cellulose and glass fibres ("PCG fibres")
are "like products" under Article III:4. The Panel also found that cement-based products containing
chrysotile asbestos fibres are "like" cement-based products containing PCG fibres. Having found that the
products at issue are like products under Article III:4, the Panel continued to examine the alleged ''less
favourable treatment'' and found that imported asbestos and asbestos-containing products were treated less
favourably than the domestic "like" products. In the light of the findings, the Panel concluded that the
measure was contrary to Article III:4.
On appeal, the European Union argued, among other issues, that the inquiry into the physical properties of
products must include a consideration of the risks posed by the product to human health.
The Appellate Body reversed the Panel's findings that "it is not appropriate" to take into consideration the
health risks associated with chrysotile asbestos fibres in examining the "likeness" under Article III:4 and
reversed the Panel's finding that cement-based products containing chrysotile asbestos fibres and
cement-based products containing PCG fibres are "like products" under Article III:4 of the GATT 1994.
Accordingly, it reversed the Panel's finding that the measure was inconsistent with Article III:4 of the
GATT 1994.

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SUMMARY OF THE KEY DECISIONS OF THE APPELLATE BODYLEGALELEMENTS
Japan – Alcoholic Beverages II EC – Asbestos
Article III:2 of the GATT
1994, First Sentence
Article III:2 of the GATT
1994, Second Sentence
Article III:4 of the GATT
1994
1. Imported and domestic
products are ''like products''
 Should be construed
narrowly
 Should be determined
separately for each tax
measure in each case
 Should be determined by
the particular provision in
which the term "like" is
encountered.
How was likeness analyzed?
''...vodka and shochu shared
most physical characteristics.
... except for filtration, there is
virtual identity in the definition
of the two product. ... a differ-
rence in the physical charac-
teristic of alcoholic strength of
two products did not preclude a
finding of likeness especially
since alcoholic beverages are
often drunk in diluted form.''
Furthermore, ''vodka and
shochu were currently classified
in the same heading in the
Japanese tariffs'' (Panel report,
para. 6.23; Appellate Body
report, ps. 19-23).
1. Imported and domestic
products are ''directly
competitive or substitutable
products''
 Is broader in scope than
''like product''
 Should be determined on a
case-by-case basis
 The competitive relation-
ship between the products
at issue in a relevant market
is an important factor.
How was this element
determined in this case?
1. There is a high degree of
price-elasticity between
shochu, on the one hand,
and five brown spirits
(Scotch whisky, Japanese
whisky, Japanese brandy,
cognac, North American
whisky) and three white
spirits (gin, vodka and
rum), on the other.
2. The 1989 Japanese tax
reform, which disadvanta-
ged domestically produced
whisky, led to a rise of both
shochu's and foreign
produced whisky's market
shares in Japan. Shochu
and foreign whisky were in
fact capturing the market
share lost by domestically
produced whisky.
This proves that there is
elasticity of substitution
between whisky and
shochu.
(Panel report, paras. 6.28-6.32;
Appellate Body report, p. 25)
1. Imported and domestic
products are ''like products''
 Broader than the first
sentence of Article III:2;
NOT broader than the
combined product scope of
the two sentences of
Article III:2.
 A determination about the
nature and extent of a
competitive relationship
between and among
products.
How was "likeness" in
Article III:4 determined in
this case?
1. Highly significant physical
difference exists between
chrysotile asbestos fibres
(which are carcinogenic or
toxic in humans, following
inhalation) and PCG fibres
(which do not share these
properties, at least to the
same extent).
2. Due to the lack of evidence,
the Appellate Body couldn't
conclude what proportion of
all end-uses for chrysotile
asbestos and PCG fibres
overlap.
3. Canada presented no
evidence on consumers'
tastes and habits regarding
chrysotile asbestos and PCG
fibres.
4. Chrysotile asbestos fibres
and the various PCG fibres
all have different tariff
classifications.
(Appellate Body report paras.
134-141)

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SUMMARY OF THE KEY DECISIONS OF THE APPELLATE BODYLEGALELEMENTS
2. The taxes applied to the
imported products are ''in
excess of'' those applied to
the like domestic products.
 Even the smallest amount of
"excess" is too much
2. The directly competitive
or substitutable imported
and domestic products are
''not similarly taxed''.
 Must be more than de
minimis
 De minimis must be deter-
mined on a case-by-case
basis
2. The imported products
are afforded ''less favourra-
ble treatment'' than domes-
tic like products.
 Expresses the general
principle, in Article III:1,
that internal regulations
"should not be applied … so
as to afford protection to
domestic production".
3. The dissimilar taxation of
the directly competitive or
substitutable imported and
domestic products is
''applied so as to afford
protection to domestic
production''.
 Legislative or regulatory
purpose is NOT relevant
 Requires a comprehensive
and objective analysis of the
design, the architecture,
and the revealing structure
of a measure.
How was this element
determined in this case?
''...the combination of customs
duties and internal taxation in
Japan has the following impact:
on the one hand, it makes it
difficult for foreign produced
shochu to penetrate the
Japanese market and, on the
other, it does not guarantee
equality of competitive
conditions between shochu and
the rest of "white" and "brown"
spirits.
Thus, through a combination of
high import duties and
differentiated internal taxes,
Japan manages to "isolate"
domestically produced shochu
from foreign competition, be it
foreign produced shochu or any
other of the mentioned white
and brown spirits.'' (Panel
report, para. 6.35; Appellate
Body report, p. 31)
Table 5: Summary of the key decisions of the appellate body

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EXERCISES
6. What are the main objectives of the national treatment principle?
7. What are the legal elements for finding a violation of Article III:2, first sentence and second sentence?
8. What are the legal elements for finding a violation of Article III:4?

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IV. SUMMARY
NON-DISCRIMINATION –TRADE IN GOODS
As you learned in this Module, there are two non-discrimination principles: MFN and national treatment.
Under the GATT 1994, the "subject" group of the MFN principle and the national treatment principle is
"goods".
For goods, the MFN principle prohibits discrimination between like products originating from, or destined for
other WTO Members, while the national treatment principle prohibits discrimination between imported and
domestic like products. Both principles apply to all goods and cover de jure and de facto discrimination. To
find an inconsistency of the non-discrimination principles under the GATT 1994, different tests apply.
For the MFN principle, Article I:1 sets out a three-tier test. One needs to check the following elements to
find an inconsistency: (1) any advantage, favour of privilege covered by Article I.1; (2) the products at issue
should be ''like'' products; and, (3) the advantage at issue is not immediately and unconditionally granted to
the like product concerned.
The test applicable to the national treatment principle varies according to the paragraph and/or sentence
of Article III concerned: Article III:1 (General Principle), Article III:2 (Internal Taxation) first sentence or
second sentence, and Article III:4 (Internal Laws, Regulations and Requirements Related to Internal Sale,
Transportation, Distribution or Use).
To establish an infringement of Article III:2, first sentence, one must demonstrate that: (1) the imported
and domestic products are like products; and, (2) the imported products are taxed in excess of the domestic
products. To establish an infringement of Article III:2, second sentence, one must demonstrate that:
(1) the imported and domestic products are directly competitive or substitutable; (2) the domestic and
imported products are not similarly taxed; and, (3) the dissimilar taxation is applied so as to to afford
protection to domestic production. Finally, to establish an infringement of Article III:4, one must
demonstrate that: (1) the imported and domestic products at issue are "like products"; (2) the measure at
issue is a "law, regulation, or requirement affecting the internal sale, offering for sale, purchase,
transportation, distribution, or use" of the imported products; and (3) the imported products are afforded
less favourable treatment.
The determination of ''like products'' and ''directly competitive or substitutable products'' should be made on
a case-by-case basis. "Like product" is a subset of ''directly competitive or substitutable product'' and thus,
has a narrower scope than the latter. Moreover, the scope of the term ''like product'' itself may vary from
provision to provision. In this respect, the scope of "like products" in Article III:4 covers a broader product
scope than the same term in Article III:2 first sentence, but it is not broader than the combined product
scope of the two sentences of Article III:2 ("like products" in the first sentence plus "directly competitive or
substitutable products" in the second sentence).
The term ''in excess of'' under Article III:2, first sentence, imposes a different standard than that one
imposed by the term ''not similarly taxed' contained in the Ad Note of the second sentence of that Article.
While in the former, even the slightest margin of excessive taxing will constitute an infringement (even if it
is de minimis); the latter requires excessive taxation (more than de minimis).

100. 82
To establish an infringement of Article III:2, second sentence, it is necessary to demonstrate that the
dissimilar taxation is applied "so as to afford protection''. It mainly requires a comprehensive and objective
analysis of the design, architecture and structure of the measure. Article III:4 requires a demonstration that
imported products are afforded "less favourable treatment", which expresses the general principle that
internal regulations should not be applied "so as to afford protection''.
There are a number of exceptions to the provisions in the WTO Agreements and specific exceptions that
allow Members to depart from the MFN and national treatment principles, subject to certain requirements,
which will be explained in the corresponding Modules. Some of the most important are those contained in
Article XX of the GATT 1994 (General Exceptions) and, in the case of the MFN principle, Article XXIV of the
GATT 1994 (Regional Integration) and the Enabling Clause.

101. 83
PROPOSED ANSWERS
1. If Article I.1 of the GATT referred to any other "MEMBER", this would mean that a Member granting an
advantage to products originating in a country which is not a WTO Member, would not need to extend
such advantage to the products of other WTO Members.
Instead, the MFN principle requires each Member to extend all other WTO Members treatment no less
favourable than the treatment it accords to imports from any country – Member or not of the WTO.
2. The MFN rule works to:
maximize efficiency;
minimize transaction costs (related rules for the issuance of certificates of origin, direct shipment
requirements and other relevant administrative procedures can impose significant costs on both
enterprises and governments, but with MFN countries apply the same rules to imports from all
countries);
promote further reciprocal liberalization (this benefits particularly small developing countries, which
benefit from the most favoured treatment provided to other Members);
minimize costs of trade negotiations (negotiating one multilateral agreement instead of several bilateral
agreements).
3. The analysis of consistency of a measure with the MFN principle constitutes a three-tier test. One needs
to check all the three following elements to find a violation: (i) any advantage, favour of privilege covered
in Article I.1; (ii) the products at issue are ''like'' products; and, (iii) the advantage at issue is not
immediately and unconditionally granted to the like products concerned.
4. GATT/WTO case law has set up four criteria that should be considered in determining "likeness": the
product's end uses; consumers' tastes and habits; the product's nature, properties and quality (physical
characteristics), and the customs classification of the products. These criteria do not constitute a closed
list. Instead, they are simply tools to assist in the task of sorting and examining the relevant evidence
according to the case.
5. According to Article I:1 of the GATT 1994, the MFN principle covers a broad range of measures in relation
to exportation and importation, as well as internal measures. Such measures are: customs duties; any
kind of charge imposed on or in connection with importation or exportation; any charge imposed on the
international transfer of payments for imports and exports; the method of levying such duties and
charges; the rules and formalities in connection with importation and exportation, internal taxes or other
internal charges (covered in Article III:2); all laws, regulations and requirements affecting internal sale,
offering for sale, purchase, transportation, distribution or use of any product (covered in Article III.4).
6. The purpose of the national treatment principle embodied in Article III is to:
avoid protectionist measures;
maintain the equality of competitive conditions; and,
protect tariff commitments.

102. 84
7. To establish an infringement of the first sentence of Article III:2, one must demonstrate that: (1) the
imported and domestic products are "like" products; and, (2) the imported products are taxed in excess
of the domestic products.
To establish an infringement of the second sentence, one must demonstrate that: (1) the imported and
domestic products are "directly competitive or substitutable"; (2) the domestic and imported products are
not similarly taxed; and, (3) the dissimilar taxation is applied so as to afford protection to domestic
production.
8. To establish an infringement of Article III:4, one must demonstrate that: (1) the imported and domestic
products at issue are "like products"; (2) the measure at issue is a "law, regulation, or requirement
affecting their internal sale, offering for sale, purchase, transportation, distribution, or use"; and, (3) the
imported products are afforded less favourable treatment.

103. 85
Trade in Goods:
Rules on Market Access: Tariff and Non-Tariff
Barriers (NTBs)
ESTIMATED TIME: 5 hours
OBJECTIVES OF MODULE 3
 Explain tariff barriers and tariff schedules;
 explain how tariff barriers are dealt within the General Agreement on Tariffs and
Trade (GATT)/World Trade Organization (WTO) framework by introducing the
outcome of the Uruguay Round on tariff negotiations, including tariff reductions
and tariff "bindings";
 introduce the WTO Schedules of concessions; and,
 introduce Non-Tariff Barriers (NTBs) with a focus on Quantitative Restrictions
(other NTBs will be studied in Module 4).
MODULE
3

105. 87
I. INTRODUCTION
Market access for goods in the WTO stands for the totality of government-imposed conditions under which a
product may enter a country under non-discriminatory conditions. It is often, but not exclusively, determined
by border measures, such as tariffs, tariff rate quotas (TRQs), and quantitative restrictions (QRs).
Most WTO Agreements have rules on market access that apply to both, agricultural products
(defined in Annex 1 of the Agreement on Agriculture) and to non-agricultural products (all other products).
As you certainly imagine, there is a wide variety of measures which influence market access for goods. The
two main categories of barriers to market access for goods are:
(1) Tariffs; and,
(2) non tariff barriers (NTBs).
The progressive reduction of tariff and NTBs, together with non-discrimination and transparency (which
we have introduced in Module 2), constitute one of the main objectives of the WTO. The aim of
multilateral trade negotiations has been to make market access more liberal, as well as more predictable.
In this Module, we will first examine the main issues relating to tariff barriers. We will start by presenting
tariff and tariff schedules. We will, then, study how tariff barriers are dealt within the GATT/WTO framework,
by introducing the outcome of the Uruguay Round on tariff negotiations (reductions of tariffs and tariff
''bindings'') and elaborating the relevant WTO rules on tariffs (in particular Article II of the
GATT 1994 - Schedules of Concessions).
We will, finally, explain some of the main issues surrounding the concept of NTBs, with a focus on QRs. Other
NTBs will be elaborated in Module 4.
The Committee on Market Access, established by the General Council in January 1995, is the WTO Body in
charge of monitoring market access related issues for goods.

106. 88
II. TARIFF BARRIERS
II.A. WHAT IS A TARIFF?
What is a Tariff?
A tariff is a financial charge in the form of a tax, imposed on goods transported from one customs
area to another (often from one country to another).
Tariffs, also referred to as "customs duties", are the most commonly used and visible measures that determine
market access for goods. Although tariffs on imports are the most common, there are also countries that apply
tariffs on exports. Historically, the main interest of the GATT and the WTO has been on import tariffs and are
the ones described in this section.
Import tariffs give a price advantage to similarly produced local goods and provide revenue for governments,
as the entry of the good is conditional upon the payment of the custom duty. There are several ways in which
tariffs can be classified. Following the manner in which tariffs are calculated, they can be specific,
ad valorem, mixed, compound or "technical".
TARIFF/DUTY TYPE DESCRIPTION EXAMPLE
Specific Calculated based on a unit of measure such
as the weight, volume, etc. of the goods.
US$ 5 per kilogramme
Ad valorem Calculated as a percentage of the value of
the goods.
7% (so the duty on a car worth
US$ 7,000 would be US$ 490)
Mixed Calculated as an alternative between an ad
valorem duty and a specific duty.
7% or US$ 5 per kilogramme
whichever is less
7%, but not more than US$ 5
per kilogramme
Compound Calculated as an ad valorem duty to which
an specific duty is added or, less frequently,
subtracted.
7% plus US$ 5 per kilogramme
"Technical" / other Some duties (sometimes referred to as
"technical" duties) are calculated based on
specific contents, the duties payable by its
components or by making reference to the
duties applicable to certain related items.
US$ 0.55/kg on the manganese
content
US$ 0.48 each plus 4.6% on the
case plus 3.5% on the battery

107. 89
TARIFF/DUTY TYPE DESCRIPTION EXAMPLE
Difference between tariffs and other charges that may be levied at the Border
It is important to note the difference between tariffs and other charges that may be levied at the border on
imports:
 A tariff is not an ''internal tax'' (e.g. value added tax). The latter is mainly regulated by
Article III:2 of the GATT 1994 on National Treatment (studied in Module 2);
 a tariff is not a ''fee'' or ''charge'' associated with an import service. The latter are mainly
regulated by Article VIII of the GATT 1994 on Fees and Formalities connected with
Importation and Exportation (which will be studied in Modules 4);
 a tariff is not an "other duty and charge" in the sense of the second sentence of
Article II(1)(b) of the GATT 1994, which includes those taxes levied on imports in addition
to the customs duties (we will study "other duties and charges" (ODCs) - and relevant GATT
rules later in this Module); and,
 a tariff is not an "antidumping" or "countervailing duty" (which will be studied in
Module 5 on Trade Remedies).
II.A.1. THE EFFECT OF A TARIFF
As explained above, tariffs are sometimes used by governments to protect their domestic industries from the
competition of imports (as a barrier to market access) or to collect revenue. However, tariffs may also impose
costs on countries applying them. What are the economic effects of tariffs?
The imposition of import tariffs increases the domestic price of the imported good. This usually brings gains
for domestic producers of the good as well as the government, but also losses for consumers (who will buy less
of the product since the price is higher) and for other domestic producers who use that good as an input. In
economic theory, this is called the welfare effect of a tariff.
The following graph explains, from an economic perspective, the effect of tariffs on small importing countries.
As we will see, the net welfare effect of the tariff is negative for the importing country because the losses
incurred by consumers cannot be fully offset by the gains of the domestic producers and the government.

108. 90
THE WELFARE EFFECT OF AN IMPORT TARIFF ON A SMALL IMPORTING COUNTRY
Price
Quantity
SD
Pt
Po
0 So S1 D1 Do
A
B
C
D Tarif
f
Tariff
The graph illustrates the welfare effect of a tariff on a small importing country unable to affect world prices.
Without a tariff, consumers in the importing country would buy Do at the price Po. Domestic producers
would supply So and the rest (Do - So) would be imported from other countries.
With a tariff, consumers in the importing country would buy D1 (since the tariff would lead to a higher price
(Pt), the quantity demanded would be lower than Do) at price Pt (Po plus the tariff). Domestic producers
would supply S1 (since the price they can get thanks to the tariff is higher, they will produce more than So)
and the remaining quantity (D1 – S1) (which would consequently be lower than Do - So) would be
imported from other countries.
 Consumers lose: Area A+B+C+D [consumers have to pay more due to the increase of
both the price of the imports and the price of domestic substitute products]
 Producers gain: Area A [part of the consumer loss is captured by domestic producers who
gain from the increase of their sale prices]
 Government gain: Area C [part of the consumer loss is captured by domestic government
as the increase of revenues from the tariff]
BUT What about the loss represented by Area B+D ?
Net national loss as a result of the tariff: Area B+D
No one captures the parts of consumers’ loss represented by area B+D, which are normally called
deadweight loss. Thus, for the country the net welfare effect of the tariff is negative.

109. 91
II.B. TARIFF SCHEDULES
What is a Tariff Schedule?
The term "tariff schedule" is commonly used to refer to the combination of structured lists of products
description and their corresponding customs duties.
Since tariffs and products vary greatly, it is necessary to classify the imported products in order to know what
tariff level applies. These tariff systems depend on product descriptions contained in a classification system to
ascertain the level of applicable tariff to each product. The combination of these structured lists of products
description and their corresponding customs duties are normally referred as a "tariff schedule".
Most tariff schedules (including national tariff schedules and the WTO Schedules - explained later on) are based
on the Harmonized Commodity Description and Coding System (Harmonized System (HS)) – see box
below. Appendix 1 provides an example of a national tariff schedule.
What is the Harmonized System (HS)?
The HS was established through the International Convention on the Harmonized Commodity Description
and Coding System, which entered into force on 1 January 1988. It is administered by the World Customs
Organization (WCO). The HS constitutes an international classification system which provides for
the systematic and uniform classification of goods.
The HS coding system defines product categories, providing standard codes up to six digits for identifying
products. Beyond that, countries can introduce national distinctions for charging differentiated duties,
collecting statistics and other purposes. The broadest categories are Chapters identified by two digits (e.g.
Chapter 04 is dairy products, eggs and other edible animal products). These are then sub-divided into
"Headings, identified by four digits, and "subheadings", identified by six digits. In this system, the higher
the number of digits, the more detailed the category (e.g. 0403 is a group of products derived from milk,
0403.10 is yoghurt, 0403.10.11 could be a tariff line at the national level to classify low-fat yoghurt, etc).
There was no obligation under the GATT, nor is there now under the WTO, for Members to adopt the
HS or to implement subsequent amendments of the HS in their Schedules of concessions. The only
obligation for WTO Members is to keep the authentic texts of their WTO Schedules of concessions up to date
and their national tariffs in conformity with such Schedules. This is important because it would otherwise be
very difficult for traders to compare the duty being charged by the Member in practice with the corresponding
concession in its WTO Schedule.
Nevertheless, most of the WTO Members have used the HS to describe their concessions in their
corresponding Schedule of concessions on goods (see box below). The HS has also been used as the
basis for tariff negotiations. Having a common nomenclature provides a similar description of the goods
which ensures that any given good in different national jurisdictions will fall within the same tariff sub-heading
(i.e. the same tariff classification), making it easier to establish and compare concessions across countries.
Therefore, all the issues related to the HS have a direct impact on the WTO Schedules.

110. 92
TO KNOW MORE ABOUT THE HARMONIZED SYSTEM...
As of 16 August 2007 there were 85 WTO Members (counting the EU-27 as one) which were contracting
parties to the HS Convention and practically all the remaining 39 WTO Members apply it de facto (i.e. in
spite of not being parties to it).
The HS is subject to periodic review by the Harmonized System Committee of the WCO every four or five
years and has been amended four times in 1992, 1996, 2002 and 2007 respectively. All of these have lead
to Members having to reflect those changes into their Schedules of concessions (often referred to as
"transposition"). The WTO General Council established new procedures in 2001 for the introduction of
HS2002 changes in the Schedule of concessions (WT/L/407) and in 2006 for the introduction of HS2007
changes (WT/L/673).
II.C. WTO NEGOTIATIONS ON TARIFFS
The WTO does not prohibit the use of tariffs. However, there is the recognition that they often constitute
serious obstacles to trade and, hence, that negotiations on a reciprocal and mutually advantageous basis are of
great importance to the expansion of international trade.
It is for this reason that Article XXVIIIbis (1) of the GATT 1994, which contains the original mandate in this
regard provided in the GATT 1947, calls for tariff negotiations to take place from time to time, with a view to
achieving a substantial reduction of the general level of tariffs and other charges on imports and exports and in
particular the reduction of high tariffs. This Article also provides that these negotiations should take place with
due regard to the objectives of the WTO and taking into account the varying needs of individual Members.
Tariff negotiations in the GATT/WTO are normally directed towards the reduction of tariffs or the
inclusion of new "bindings" in a Member's Schedule.
In practice, most tariff negotiations have taken place in the context of negotiating rounds, which were
launched by the GATT Contracting Parties (see Module 1) or, more recently, by the WTO Membership (i.e. the
Doha Development Agenda (DDA)). Tariff negotiations have also taken place in the context of plurilateral
negotiations, such as the 1996 Agreement on Information Technology (ITA), as well as the negotiations for
accession to the WTO (see Module 11).

111. 93
Principles on Tariff Negotiations
Tariff negotiations are based on the following principles:
RECIPROCITY AND MUTUAL ADVANTAGE
Article XXVIIIbis of the GATT 1994 provides for reciprocity and mutual advantage with regard to tariff
negotiations. According to this principle, where a Member requests another Member to reduce its
tariffs on certain products, it must also be prepared to reduce its own tariffs on products of
export interest to the other Members.
However, the "reciprocity and mutual advantage" principle does not apply in the same manner to
negotiations between developed and developing Members. For example, Article XXXVI:8 of the GATT
codifies in the multilateral trading system (MTS) the concept of "non-reciprocity" in trade negotiations
between developed and developing and least-developed country (LDC) Members. According to it, developed
Members should not expect reciprocity for commitments made by them in trade negotiations to reduce or
remove tariffs and other barriers to the trade of developing Members. This has permitted these developing
Members to undertake lower levels of binding and higher overall tariff protection. Another example is the
"Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing
Countries" (the ''Enabling Clause''), which provides that developed Members shall not seek, neither shall
developing Members be required to make concessions that are inconsistent with the latter's development,
financial and trade needs (we will explain this concept more in detail in Module 9). More recently, the Doha
Ministerial Declaration provides negotiations shall take fully into account the special needs and interests
of developing and LDC Members, including through less than full reciprocity in reduction commitments
(Doha Declaration, para. 16).
MFN TREATMENT
According to the MFN treatment obligation set out in Article I:1 of the GATT 1994 (studied in Module 2), any
tariff reduction a Member grants to any country must be extended to all WTO Members
immediately and unconditionally.
PREDICTABILITY ON TARIFF CONCESSIONS – TARIFF BINDINGS
Predictable access to markets for goods and services is an essential principle of the WTO and it is fulfilled
through various provisions, and in particular Article II of the GATT 1994. This Article provides that each
Member shall accord to the commerce of the other Members treatment no less favourable than that provided
for in the appropriate Part of its Schedule of concessions. As it will be seen in the next section, the
"bindings" or "bound duties" are one of the most important elements to be found in these Schedules. The
bindings are sometimes accompanied by terms, conditions or qualifications that also determine the market
access conditions which are applicable in that market. Since any modification to a WTO Schedule requires
full consensus, the bindings are not easily changed. Therefore, security and predictability are achieved
through the inclusion of a Members' commitments (the bindings in particular) in legal
instruments (i.e. the Schedules) which are not easily changed. If somebody wants to know what are
the special conditions applicable to a certain product in a certain Member, that Member's Schedule is often
the best place to start.

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II.C.1. WHAT IS A "BOUND TARIFF"?
What is a Bound Tariff?
A "bound tariff" is a tariff for which there is a legal commitment not to raise it above a certain
level. The bound level of the tariff is the maximum level of customs duty to be levied on products imported
into a Member. Once a rate of duty is bound, it may not be raised without compensating the affected
Members. The tariff concessions or "bindings" of each WTO Member are set out in that particular WTO
Member's Schedule of concessions on goods.
As we saw in Module 1, abiding by the binding levels of tariff concessions is one of the basic principles under
the MTS. "Tariff Bindings'' prevent governments from undoing the liberalization that has been achieved
through negotiations and ensure minimum market access conditions amongst WTO Members. The tariff
concessions or "bindings" of each WTO Member are set out in that particular WTO Member's Schedule of
concessions on goods.
As mentioned above, the "bound levels" are often agreed upon during tariff negotiations, which can be
carried out bilaterally or can be determined by "target levels" that are to be met by "tariff cuts" (these
concepts will be explained in the next Section). Acceding countries also have to negotiate their Schedule of
concessions in the market access negotiations that take place during the accession process.
A country can change its bindings, but only after negotiating with its trading partners and
compensating them for loss of trade according to Article XXVIII of the GATT 1994 (we will explain the
procedure for the modification of Schedules later on).
II.C.2. DIFFERENCE BETWEEN "BOUND TARIFF" AND "APPLIED TARIFF"
As we saw above, ''bound tariffs'', as specified in Members' WTO Schedules of concessions, act as ceilings on
the tariffs that Members can impose. Members cannot apply a tariff which is higher than the bound levels
specified in their Schedule of concessions, as they would otherwise be in breach of Article II(1)(b) of the GATT
1994. However, Members "may" apply a tariff which is lower than the bound level.
What is an Applied Tariff?
An applied tariff is the duty that is actually charged on imports on a Most Favoured Nation (MFN)
basis. Applied Tariffs, as specified in Members' national tariff schedules, can be below but not higher than
the bound tariffs specified in the WTO Members' Schedules of concessions.
Therefore, an ''applied tariff'' for a product can differ from the ''bound tariff'' for that product as long as the
''applied levels" are not higher than the ones indicated in the Schedule of concessions. For example, a Member
having a bound level of 50 per cent may impose any applied duty level it wishes according to its trading policy,
as long as it is not higher than 50 per cent. The difference between "bound" and "applied" levels is often
referred to in the jargon as "binding overhang" or "water".

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II.C.3. A REVIEW OF PREVIOUS GATT NEGOTIATIONS ON TARIFFS
In Module 1, we have learned that the GATT Contracting Parties organized eight rounds of trade negotiations
from 1947 to 1994, which culminated in the establishment of the WTO at the eighth negotiation round – the
Uruguay Round (1986-1994). During the eight GATT rounds of trade negotiations, tariffs were
progressively bound and reduced, with more progress being made in the manufacturing sector than
in agriculture.
Although tariffs have come down significantly in developed Members, many developing and LDC Members did
not make much use of the MTS to bind or reduce their tariffs. This situation changed significantly in the
Uruguay Round. One significant outcome of the Uruguay Round on tariff negotiations was that many
developing Members significantly increased their binding coverage or "number" of bound tariffs.
Some of them also committed to reduce their bound levels.
THE URUGUAY ROUND INCREASED NUMBER OF BINDINGS PERCENTAGES OF TARIFFS BOUND
BEFORE AND AFTER THE 1986-94 TALKS
Before After
Developed countries 78% 99%
Developing countries * 21% 73%
Transition economies 73% 98%
(These are percentages of tariff lines, so they are not weighted according to trade volume or
value)
Source: The Results of the Uruguay Round of Multilateral Trade Negotiations: Market Access for
Goods and Services — Overview of the Results, Geneva, 1994.
* Results shown are for a sample of 21 developing countries.
Table 1: The Uruguay Round increased number of bindings percentages of tariffs bound before and
after the 1986-94 talks
It is worth noting that NOT all goods have a bound tariff rate. Whether or not a tariff line is bound has
been the subject to trade negotiations amongst WTO Members. In agriculture, 100 per cent of products
have bound tariffs, although some of these continue to be very high.
WTO Members are nevertheless obliged to apply their tariffs to products imported from other WTO
Members on a non-discriminatory basis irrespective of whether the products are bound or unbound
(MFN principle).

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II.C.4. TECHNIQUES OF TARIFF NEGOTIATIONS
The history of the GATT is also the history of techniques of tariff negotiations. A variety of methods have been
used in negotiating tariff reductions. As mentioned above, Article XXVIIIbis of the GATT 1994 sets the broad
guidelines under which tariff negotiations should be undertaken. This Article notes that negotiations may be
carried out on a selective product-by-product basis or "by the application of such multilateral procedures as
may be accepted by the contracting parties concerned."
NEGOTIATION HISTORY: INDUSTRIAL PRODUCTS
Round Developed Countries Developing Countries
From the GATT until the
Dillon Round (1947 - 1961)
request / offer request / offer
Kennedy (1964 - 1967) Linear cut formula (50% cut),
but allowed less than formula
cuts for a few products and
exceptions
request / offer
Tokyo (1973 - 1979) The ''Swiss formula'' was applied
with different coefficients
(14-16); exceptions were
allowed
request / offer
Uruguay
(1986 - 1994)
Agreement on an average
reduction of at least one-third
(i.e. (33.3%). Some also
participated in some sectoral
agreements (zero for zero and
harmonization)
request / offer
ceiling bindings
Table 2: Negotiation history: industrial products
a. BILATERAL ITEM-BY-ITEM/COUNTRY-BY-COUNTRY OR "REQUEST-OFFER"
TECHNIQUE
This is the oldest traditional negotiating technique, whereby submission of "request lists" (specified product
by product) is followed by "offer lists". This technique, sometimes referred to as "request-offer", required that
countries participating in the negotiation would request concessions in the products in which they
were likely to be the principal suppliers to the country from which the concession was being asked.
This was the only technique used in GATT negotiations until and including the Dillon Round (1961-1962).
However, it turned out to be extremely burdensome because of the involvement of thousands of specific
products in the negotiation. This approach is still being used for bilateral negotiations during a Round, and in
the process of accession of new WTO Members.

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b. "FORMULA" TECHNIQUE
The so-called "formula" approach involves tariff reductions which are calculated in a mathematical, as
opposed to an individually negotiated, manner. This approach has been favoured since the 1960s, in
particular because it allows for simplified negotiations across a large number of countries. Although there are
many ways in which these could be classified, one could begin differentiating them by looking at whether or
not they are applied on a line-by-line basis.
A formula is said to be applied on a "line-by-line" basis when the final bound is determined as a function of the
existing binding of a product. A significant weakness of the ''linear technique'' is that it fails to narrow down the
disparity between peak tariffs and low tariffs. Has a 50 per cent cut of a 100 per cent tariff the same effect on
trade as a 50 per cent cut of a ten per cent tariff? Obviously NO. After the cut of the 100 per cent high tariff,
the tariff still remains high.
On the other hand, there are "tariff dependent" formulas, where the percentage reduction in tariff rates
depends on the initial tariff rate subject to negotiations. It includes the so-called harmonization formulas
which have the effect of reducing the dispersion of the applicable tariff, one example of which is the "Swiss
formula" (see box below). By applying the harmonization formula, one could expect to bring the final tariffs
closer together by steeper cuts on higher tariffs. The Swiss formula is being used in the Doha Round of
Negotiations on tariff reductions for non-agricultural products.
''Swiss Formula''
Narrowing the gap between high and low tariffs is called harmonizing the tariffs, which is achieved through
reducing the "high" duties in a higher percentage than the "low" duties. The “Swiss formula” is a special
kind of harmonizing method. It is called "Swiss Formula" because it was proposed by Switzerland during the
Tokyo Round.
THE ''SWISS FORMULA''
Z = A*X
(A+X)
X = initial tariff rate (also called base rate)
A = the coefficient, which is the only variable to be negotiated
Z = the resulting lower tariff rate which will constitute the new final bound tariff
A key feature of the formula is the ''coefficient'' (variable A), which determines the maximum
final tariff rate. How the Swiss formula coefficient defines the maximum final tariff?
From the formula, Z=AX/(A+X), as the initial tariff X rises to infinity, X/(A+X) approaches 1, resulting in
Z=Ax1.

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DO YOU THINK IT IS COMPLICATED? IT IS NOT. LET’S SEE A PRACTICAL EXAMPLE
A coefficient of A = 20 applied to an initial tariff of 100% produces a final “bound” tariff of about 16.7%.
(20*100) / (20 + 100) = 2000 / 120 =
16.7%
If we apply the same coefficient (20) to an initial tariff of 10%, the final tariff will be 6.7%.
(20*10)/ (20 + 10) = 200 / 30 = 6.7%
Conclusion: the tariff line with the higher tariff has made a percentage cut of around 83.3%,
while the tariff line with the lower tariff has made a lower percentage cut of about 3.3%. There
was an harmonization effect since while the high duty of 100 was ten times the low duty of 10
(100 / 10 = 10), the new high duty is only 2.5 times the new low duty (16.7 / 6.7 = 2.5).
Formulas which are not applied on a line-by-line basis include approaches such as the average cuts (where a
Member could fulfil the agreed reduction by cutting very little the tariffs on some products and compensating
with higher cuts on others) and the target average techniques (where the agreement is to reduce the tariffs
"to" a new agreed average).
NOTE
There are many other approaches to tariff cutting formulas. See WTO document TN/MA/S/3/Rev.2
and TN/MA/S/13 prepared by the Secretariat.
Although many Members have proposed different formulas for tariff cuts, most proposals endorse the
harmonization approach which reduces higher rates by proportionately more than lower rates. As mentioned
above, the current Doha round negotiation on tariff reductions for both industrial products and
agricultural products is also based on the harmonization approach (Swiss Formula) for developed
and several developing Members.
II.D. WTO SCHEDULES OF CONCESSIONS (GOODS)
What are the WTO Schedules of concessions?
For trade in goods, in general, the Schedules of concessions consist of a list of products for which a
"bound tariff" has been agreed by the Member concerned.

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WTO negotiations produce general rules that apply to all Members and specific commitments made by
individual Members. The specific commitments are listed in documents called "Schedules of concessions",
which reflect specific tariff concessions ("bound tariffs", which we have introduced above) and other
commitments that each Member has given in the context of trade negotiations, such as the Uruguay Round.
These concessions are granted on a MFN basis.
Article II:1(b) of the GATT requires a Member to refrain from imposing ordinary customs duties in excess of
those provided for in that Member's Schedule. This obligation is subject to the terms, conditions or
qualifications set forth in those Schedules.
The products listed in the Schedules are usually identified by a code and its description is usually based on the
HS (explained above). Each Member has its own Schedule identified by a unique roman number, except
for Members that are part of a customs union (e.g. European Union), that may have a Schedule together with
the other members of the union. Appendix 2 provides an example of a Member's WTO Schedule of
concessions.
The Schedules have sections for "agricultural" and "other products" (see box below – Structure of a
Member's Schedule). Agricultural products are defined in Annex 1 of the Agreement on Agriculture and
everything else are the "other products". "Other products" are referred to as "non-agricultural"
products in the context of the Doha negotiations.
Difference between "Agricultural Products" and "Other Products"
"Agricultural Products"
Defined in Annex 1 of the Agreement on
Agriculture
As you will see in Module 4— the definition covers not
only basic agricultural products such as wheat, milk
and live animals, but also the products derived from
them such as bread, butter and meat, as well as all
processed agricultural products (e.g. chocolate and
sausages).
"Other Products" or
"Non-Agricultural Products"
They include manufacturing products, fuels and mining
products, fish and fish products, and forestry products.
You can find WTO Members' Schedules of Tariff Concessions in:
http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_e.htm

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The Schedules of concessions are legal instruments which are annexed to the Marrakech Protocol to
the GATT 1994 and form an integral part of the legally binding commitments made by WTO
Members. In the case of countries that acceded to the organization after the establishment of the WTO, their
Schedules are part of their Protocols of Accession annexed to the GATT 1994 (see Module 11).
Figure 1: WTO Schedule of concessions
* ODC - "Other Duties and Charges (explained below)
** TRQ - Tariff-Rate Quotas (we will study TRQ later on, while explaining Non-Tariff Barriers)
NOTE: The WTO Schedule of concessions we present in Annex 2 of this Module concerns ''Part I – MFN Rates''
only. Specifically, we present the MFN Rates of ''Section II - Other Products''. An example of ''Section I –
Agricultural Products'' will be provided in Module 4.
TO KNOW MORE... CASE LAW ON WTO SCHEDULES OF CONCESSIONS
"IN EXCESS OF" AND TYPE OF DUTY
In Argentina – Textile and Apparel, Argentina applied a system of minimum "specific" import duties (known
as "DIEM") on textiles and apparel, which was different from the "ad valorem" bound rate duty (35%)
specified in Argentina's Schedule of concessions.
The Panel found that Argentina had acted inconsistently with Article II by virtue of applying a different type
of import duty than set out in its Schedule. The Appellate Body reversed the Panel's finding and concluded
that the application of a type of duty different from the type provided for in a Member's Schedule is
inconsistent with Article II:1(b), first sentence, of the GATT 1994 "to the extent that it results in ordinary
customs duties being levied in excess of those provided for in that Member's Schedule".

119. 101
Accordingly, the Appellate Body found Argentina's measure was inconsistent with Article II:1(b) on the
ground that the possibility remains that there is a "break-even" price below which the ad valorem equivalent
of the customs duty collected is in excess of the bound ad valorem rate of 35 per cent" (Argentina – Textile
and Apparel, Appellate Body Report, paras. 48-55). In other words, they lost because they were charging in
practice more than their bound duty.
“SUBJECT TO THE TERMS, CONDITIONS OR QUALIFICATIONS SET FORTH IN THOSE SCHEDULES"
In EC – Bananas III, the European Union had included in its WTO Schedule a concessions which would allow
the EU to deviate from its obligations under Article XIII of the GATT 1994 (which requires tariff quotas to be
allocated on a non-discriminatory basis – we will introduce tariff quotas later in this Module).
The Appellate Body held that Article II allows Members to incorporate into their Schedules acts yielding
rights under the General Agreement, but not acts diminishing its own obligations under that Agreement. In
other words, the inclusion of this concession in its Schedule does not permit the EU to act inconsistently with
the requirements of the GATT 1994 (EC – Bananas III, Appellate Body Report, paras. 154-158).
II.D.1. MODIFICATION OF SCHEDULES
A negotiated tariff binding may become too onerous to maintain over time due to changing circumstances. In
such cases, a WTO Member is allowed to modify its tariff bindings.
If a Member wishes to modify a concession (e.g. impose a higher customs duty than the bound rate) in its
Schedule, it has the following two alternatives:
 Request a ''waiver'' that will allow it to suspend the concerned tariff concession on a
temporary basis. According to Article IX(3) of the Agreement Establishing the WTO, any
WTO obligation (including the level of the tariff concession) can be TEMPORARILY "waived" -
where the Member has, under exceptional circumstances, received specific authorization from
WTO Membership (the conditions for obtaining waivers will be explained in Module 8);
 Renegotiate its tariff concession in order to modify or withdraw it on a permanent basis
according to Article XXVIII of the GATT. Renegotiation of concessions is subject to compensation. It is
governed by the rules and provisions in Article XXVIII of the GATT 1994, including the Note Ad
Article XXVIII, the GATT 1994 Understanding on the Interpretation of Article XXVIII (explained below),
and the 1980 Procedures for Modification and Rectification of Schedules of Tariff Concessions.
RENEGOTIATION UNDER ARTICLE XXVIII OF THE GATT 1994
The renegotiation of any tariff concession requires compensating Members holding special rights ''in order to
maintain a general level of reciprocal and mutually advantageous concessions not less favourable to trade than
that provided for in this agreement prior to such negotiations'' (Article XXVIII:2 of the GATT). In other words,
to seek to increase a particular tariff binding, the requesting Member must negotiate with some of the
interested Members and agree on a compensation for them, which could consist in decreasing the tariff
binding(s) on another item or other items.

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According to Article XXVIII, there are only a few Members entitled to participate in a renegotiation, referred to
in there as ''Members primarily concerned'', which include: (i) Members with "Initial Negotiating Rights'' (INR
Members); and, (ii) Members that have a ''Principal Supplying Interest'' (PSI Members). Members with a
''Substantial Interest'' (SI Members) are entitled to consultations.
MEMBERS WITH "INITIAL
NEGOTIATING RIGHTS''
(INR)
MEMBERS THAT HAVE A
"PRINCIPAL SUPPLYING
INTEREST" (PSI)
MEMBERS WITH A
''SUBSTANTIAL INTEREST''
(SI)
Members Primarily concerned
Entitled to negotiate and seek compensation
Entitled to ''consultation''
 Members with whom
the concession was
initially negotiated
in a bilateral manner
(See above
explanation on
request/offer)
 "by negotiation and
agreement with any
contracting party
with which such
concession was
initially
negotiated..."
 (Article XXVIII:1)
 There are criteria to determine
principal suppliers:
 Based on "import shares" –
"...with any other contracting
party determined by the
CONTRACTING PARTIES to have
a PSI", which is defined as a
Member having ''...a larger share
in the market of the applicant
contracting party than a
contracting party with which the
concession was initially
negotiated or would...have had
such a share in the absence of
discriminatory QRs by the
applicant contracting party''
(Paragraph 1(4) of the Ad Note to
Article XXVIII)
 Based on "export shares" - may
exceptionally determine that a
Member has a PSI ''if the
concession in question affects
trade which constitutes a major
part of the total exports of such
contracting party'' (Paragraph
1(5) of the Ad Note to
Article XXVIII & paragraph 1 of
the Understanding on
Article XXVIII of the GATT)
 "The expression “substantial
interest” is not capable of
a precise definition and
accordingly may present
difficulties for the
[Members]. It is,
however, intended to be
construed to cover only
those contracting parties
which have, or in the
absence of discriminatory
quantitative restrictions
affecting their exports
could reasonably be
expected to have, a
significant share in the
market of the contracting
party seeking to modify or
withdraw the concession
(paragraph 1(7) of the Ad
Note to Article XXVIII)
 Recognized in practice if
import share > 10% (See
TAR/M/16)

121. 103
Paragraph 3 of the Understanding on GATT Art XXVIII
In the determination of which Members have a ''PSI'' or ''substantial
interest'', only trade in the affected product which has taken place on a
MFN basis in a three year period shall be taken into consideration. In other
words, a ''PSI'' or substantial interest cannot be granted to Members whose
exports are benefiting from preferential treatment from the Member
requesting tariff modification.
WHAT IF THERE IS NO AGREEMENT?
 The affected Member could ''withdraw'' similar
concessions if no agreement is reached and the
modification is nevertheless implemented by the
applicant Member; (Article XXVIII:3(a)).
 Withdrawal would have to be on an MFN basis.
 But runs risk of similar modifications by other
Members in ''retaliation'.'
Withdraw of similar concessions
on a MFN basis if no agreement
is reached and the modification
is nevertheless implemented by
the applicant Member
(Article XXVIII:3(b)).
Table 3: What if there is no agreement?
Finally, one should distinguish the process of "modification" of tariff Schedules explained above from
the procedure of "rectification" of the Schedule. In this regard, the GATT Contracting Parties adopted a
decision on the “Procedures for Modification and Rectification of Schedules of Tariff Concessions” in 1980 which
provides that changes resulting from formal rectification could be certified by the Director-General if no
objection is raised by another Member within 3 months (L/4962). The expedited procedure is however subject
to the following conditions:
 The rectification is limited to a purely formal character of Scheduled concessions, which do not
alter the scope of the concessions;
 If objections are raised, Member could end up in Article XXVIII of the GATT renegotiations.

122. 104
II.E. OTHER PROVISIONS OF ARTICLE II OF THE GATT
AIMING TO PRESERVE THE VALUE OF TARIFF
CONCESSIONS
There are other provisions under GATT Article II that aim at preserving the value of tariff concessions. For
example, the second sentence of Article II:1 (b) – explained below - allows Members to apply other duties and
charges, in addition to customs duties, subject to certain requirements. Article II:3 prohibits Members from
altering their methods of determining dutiable value or methods of converting currencies so as to impair the
value of tariff concessions and Article II:6 provides that currency revaluations should not undermine the value
of such concessions.
II.E.1. OTHER DUTIES AND CHARGES (ODCS)
What are "Other Duties and Charges"?
Members may impose "other duties and charges", which include all taxes levied on imports in addition
to customs duties, subject to their inscription in the Schedule of concessions.
As explained before, the "bound rate" of customs duty indicated in the Schedule of concessions represents the
maximum customs duty that WTO Members have committed to levy on imports from other Members. Other
Duties and Charges (ODCs) may be imposed in addition to the "ordinary customs duty". However, for ODCs to
be permitted, they must be recorded in the Schedule and they must not exceed the level indicated therein.
The Understanding on the Interpretation of Article II.1(b) of the GATT, clarifies the types of duties and charges
that can be collected in addition to the "ordinary customs duties". It states that "in order to ensure
transparency of the legal rights and obligations deriving from paragraph 1(b) of Article II, the nature and level
of any ''other duties or charges'' levied on bound tariff items, as referred to in that provision, shall be recorded
in the Schedules of concessions annexed to GATT 1994 against the tariff item to which they apply ...". Thus, if
ODCs were not recorded in a Member's Schedule but are nevertheless levied, they are inconsistent
with Article II:1 (b). However, the inclusion of an ODC in a Member's Schedule of concessions does not
necessarily guarantee its consistency. WTO Members are free to challenge any ODC even though it has been
inscribed in a Member's Schedule.
Examples of "Other Duties and Charges" (ODCs)
 Import surcharge, i.e. a duty imposed on an imported product in addition to the ordinary
custom's duties.
 Security deposit to be made on the importation of goods.
 "Excise tax" on luxury items"

123. 105
EXERCISES
1. What is the difference between a tariff and a tariff schedule?
2. What is the difference between a "bound tariff" and an "applied tariff"?
3. What are the basic principles and rules governing tariff negotiations?
4. In Tristat's Schedule of Tariff Concessions, the bound duty for television set is ten per cent. Can Tristat
apply a tariff different from the 10 per cent listed in its Schedule?
5. Is the "bound tariff" the only charge Tristat may levy on imported television set?
6. What are the requirements for a Member who is seeking to renegotiate its tariff bindings?

124. 106
ILLUSTRATION – TARIFF BARRIERS
SCENARIO
Imagine that Vanin, Medatia and Tristat are WTO Members. During a GATT/WTO negotiations round, Vanin
made a commitment to bind its tariff on trucks (tariff item HS 9101.29) at five per cent ad valorem. In
addition to that, Vanin has not included in its Schedule of Tariff Concessions any other charges on trucks.
After the negotiation, Vanin reclassifies trucks to another tariff line (tariff item HS 9101.29.92) which applies
a MFN tariff rate of ten per cent ad valorem. In addition to the tariff, Vanin also applies a security deposit of
two per cent ad valorem for imported heavy trucks.
QUESTION
Tristat believes that Vanin's customs law violates its obligations under the WTO. Assume you are an expert
on WTO Law what would you advise Tristat to determine before initiating a dispute? What would be your
arguments before a WTO panel?
PROPOSED ARGUMENTS
Vanin violates Article II:1(b) and the Understanding on the Interpretation of Article II.1(b) of the
GATT 1994.
Schedule of Concessions (GATT 1994 - Article II)
According to Article II:1(b) first sentence, Members are required to apply a tariff not higher than the one
specified in their Schedules of concession (bound tariff). The application of a type of duty different from the
type provided for in a Member's Schedule is inconsistent with Article II:1(b), first sentence, of the GATT
1994 if it results in ordinary customs duties being levied in excess of those provided for in that Member's
Schedule.
Tristat might argue that the application of the new custom duty (ten per cent ad valorem) is inconsistent
with Article II:1(b) since it results in ordinary customs duties being levied in excess of those provided for in
Vanin's Schedule.
Other Duties and Charges (ODCs)
The Understanding on the Interpretation of GATT Article II.1(b) requires WTO Members to specify in their
Schedules of concession ODCs that they will be imposed in addition to customs duties. Thus, if ODCs were
not recorded in a Member's Schedule but are nevertheless levied, they are inconsistent with Article II:1 (b).
In this case, Vanin did not specify any ODCs in its Schedule. However, in practice, Vanin applies a security
deposit of two per cent ad valorem for imported heavy trucks in addition to the tariff.

125. 107
III. NON-TARIFF BARRIERS (NTBS)
What is a Non-tariff Barrier (NTB)?
There is no agreed definition of what constitutes a NTB. However, NTBs include, in principle, all measures
other than tariffs used to protect a domestic industry.
Non-tariff barriers can also restrict or even impede market access of goods. They include:
(i) quantitative restrictions (such as quotas); and,
(ii) other non-tariff measures (including, lack of transparency in trade regulation, unfair and arbitrary
application of trade regulations, customs formalities, technical barriers to trade and arbitrary practice of
customs valuation).
It is worth noting that several provisions in the GATT and WTO Agreement aim at eliminating or, in those cases
where a non-trade concern can be legitimately pursued by Members, minimizing the trade effect of non-tariff
measures. In those cases where non-tariff measures are based on a legitimate goal (e.g. measures
to protect the environment, measures for sanitary or phytosanitary (SPS) reasons), Members need
to follow specific provisions to ensure their compatibility with WTO rules (we will study these
provisions in the following Modules).
In this Module, we will only focus on QRs which are governed by Articles XI and XIII of the GATT 1994. In
addition, we will introduce tariff-rate quotas (which differ from QRs).
Most WTO Agreements dealing with other NTBs, such as the Agreement on Sanitary and Phytosanitary
Measures and the Agreement on Technical Barriers to Trade (TBT), will be introduced n Module 4.
III.A. WHAT IS A QUANTITATIVE RESTRICTION (QR)?
What is a Quantitative Restriction (QR)?
A QR can be defined as a restriction on imports or exports enforced at the time or point of
importation, such as a prohibition or a quota.
There is no explicit definition of the term "quantitative restriction" in the WTO. An implicit definition is
provided by Article XI:1 of the GATT 1994, which proscribes any prohibition or restriction other than duties,
taxes or other charges, whether made effective through quotas, import or export licences or other measures
on the importation of any product of the territory of any other contracting party or on the exportation or sale
for export of any product destined for the territory of any other contracting party.
The Council for Trade in Goods, in a 1996 Decision (G/L/59, Annex) provides an illustrative list of QRs. This
list includes: prohibition, prohibition except under defined conditions, global quota, global quota allocated by
country, bilateral quota (i.e. anything less than a global quota), automatic licensing, non-automatic licensing,

126. 108
QRs made effective through state-trading operations, mixing regulation, minimum price triggering a QR, and
"voluntary" export restraint.
III.A.1. GENERAL ELIMINATION OF QUANTITATIVE RESTRICTIONS (QRS)
(ARTICLE XI OF GATT 1994)
The general elimination of QRs is regulated by Article XI of the GATT (for trade in goods) and Article XVI of the
GATS (for trade in services). We will only discuss Article XI of the GATT in this Module while leaving Article XVI
of the GATS to Module 6.
According to Article XI:1 of GATT, QRs should NOT be maintained by WTO Members. In other words,
a WTO Member cannot, as a general rule, impose import or export prohibitions or restrictions in quantities or
value on the goods of another Member. The only protective barriers that WTO Members can institute or
maintain are "duties, taxes or other charges" compatible with the GATT rules already discussed. Consequently,
QRs, whether "quotas, import or export charges or other measures", are a violation of the rule in Article XI:1.
This being said, there are exceptions to this rule in Article XI and other provisions of the GATT 1994.
III.A.2. RATIONALE BEHIND THE GENERAL ELIMINATION OF
QUANTITATIVE RESTRICTIONS (QRS)
As we have seen in Module 1, the general prohibition of QRs is a basic principle of the WTO. According to the
Panel in Turkey – Textiles, ''the prohibition on the use of QRs forms one of the cornerstones of the GATT
system'' (Turkey – Textiles, Panel Report, para. 9.63)
The rationale behind the general prohibition of QRs under Article XI is to protect expectations of WTO
Members as to the competitive relationship between their products and those of the other
Members. Thus, as with the national treatment rule, Article XI is not only to protect current trade but also to
create the predictability needed to plan future trade (US – Taxes on Petroleum and Certain Imported
Substances, GATT Panel Report, para. 5.2.2).
Furthermore, combined with the non-discrimination principles (studied in Module 2), the general prohibition of
QRs also serves to preserve the value of tariff concessions. Since QRs impose absolute limits on imports,
the enhanced market access resulting from the negotiation of tariff concessions and bindings will be easily
undermined if they are not prohibited.
The general prohibition of QRs reflects the preference for tariffs over QRs among forms of border
protection. The reason that tariffs are treated as the preferred form of protection over QRs is because QRs
impose absolute limits on imports while tariffs do not. Quantitative restrictions tend to be more trade
distorting (not always allow the most efficient competitor to supply imports) and less transparent than
tariffs since the allocation of QRs can be problematic (Turkey – Textiles, Panel Report, para. 9.63).

127. 109
Therefore, the prohibition on QRs provided in Article XI works to:
 Protect expectations of WTO Members.
 Preserve the value of tariff concessions.
 Promote transparency.
The welfare effects of a quota on importing countries are illustrated below. The graph also explains why tariff
barriers are preferred as a policy tool of protection before QRs.
THE WELFARE EFFECTS OF AN IMPORT QUOTA ON A SMALL IMPORTING COUNTRY
Price
Quantity
SD
Pt
Po
0 So S1 D1 Do
A B C D Tarif
f
Quota
Tariff
Figure 2: The Welfare Effects of A Quota on Importing Countries
The graph illustrates the welfare effects of a quota on an importing country.
The effect of a quota of the size (S1 – D1) corresponds to the effect of a tariff (Po - Pt).
As with a tariff, Area B + D continues to represent the net loss caused by the quota. However, contrary to
a tariff, in the case of a quota the Area C does not represent revenue for the government. Instead, it
represents the revenue for those holding a license to import (quota rent). The welfare effects of a
quota depend on how the importing government allocates the legal rights to import. The one that obtains
the quota licenses gets the gains represented by Area C.

128. 110
TO KNOW MORE.. WHY TARIFFS ARE PREFERRED BY ECONOMISTS AS A POLICY
INSTRUMENT OF PROTECTION OVER QRS?
 No government revenue: A tariff gives rise to government revenue whereas a quota gives
rise to rents (equivalent in amount) to the holders of import licenses.
 Dynamic effects: With a tariff an increase in demand is met by an increase in imports
whereas with a quota an increase in demand increases the rents and the costs of the quota.
 Costs of administration and compliance: In the presence of licensing systems,
administration and compliance costs can be very high. This is one more reason to prefer
tariffs to import quotas.
Based on: Marc Bacchetta, Overview of the Economics of International Trade, Economic Research and
Analysis, WTO, Geneva, 2001.
III.B. ARTICLE XI:1 OF THE GATT 1994
Article XI:1 of the GATT – General Elimination of Quantitative Restrictions (QRs)
1. No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through
quotas, import or export licences or other measures, shall be instituted or maintained by any contracting
party on the importation of any product of the territory of any other contracting party or on the exportation
or sale for export of any product destined for the territory of any other contracting party.
III.B.1. BROAD COVERAGE
Article XI does not limit to prohibit QRs. The list of measures in Article XI:1 is not exhaustive.
Article XI:1 refers to restrictions ''made effective through quotas, imports or export licenses or
other measures''. In Japan - Trade in Semi-conductors, the Panel ruled that ''the wording of Article XI:1 is
comprehensive: It applies to all measures instituted or maintained by a Member prohibiting or restricting the
importation, exportation or sale for export of products other than measures that take the form of duties, taxes
or other charges" (Japan - Trade in Semi-conductors, GATT Panel Report, para. 104).
The GATT/WTO panels have consistently given a broad interpretation to measures covered by Article XI:1 so
that in principle, any quantitative restriction other than duties, taxes or other charges can fall into the scope of
Article XI:1.
III.B.2. COVERS DE JURE & DE FACTO RESTRICTIONS
Article XI:1 covers both de jure restrictions and de facto restrictions. A restriction is de jure when it is
clear from the wording of the legal instrument. When a measure apparently not restrictive has in practice
similar effects as those noted in Article XI:1, it is said that it is de facto restrictive. In such case, the measure
might be prohibited under Article XI:1.

129. 111
In Argentina - Hides and Leather, the European Union argued that Argentina's measure was inconsistent with
Article XI:1 by allowing the presence of domestic tanners' representatives in the customs inspection
procedures for hides destined for export operations, and thus, imposing de facto restrictions on exports of
hides. The Panel held that there can be no doubt that the disciplines of Article XI:1 extend to restrictions of a
de facto nature (Argentina - Hides and Leather, Panel Report, para. 11.17).
In the same case, the Panel found that although actual trade effects did not have to be proven in order to
establish a violation of Article XI:1, trade effects carried weight, as an evidentiary matter, for establishing the
existence of a de facto restriction (Argentina - Hides and Leather, Panel Report, paras. 11.20 – 11.21).
III.B.3. BORDER MEASURES VS. INTERNAL MEASURES
Despite the wide coverage of Article XI:1, one should however note that Article XI applies to "border
measures" as opposed to "internal measures", which are subject to Article III:4 (National Treatment –
Internal Regulation).
Nevertheless, according to the Ad Note to Article III of the GATT 1994 (National Treatment), a measure
''enforced or collected in the case of an imported product at the time or point of importation'' may be treated
as internal measures and thus, governed by Article III. In Module 2, we examined this issue while explaining
the scope of coverage of Article III.
III.C. WHAT ABOUT TARIFF-RATE QUOTAS (TRQS)?
What are a TRQs?
Tariff-rate quotas (or tariff quotas) are predetermined quantities of goods which can be imported
at a "preferential" (i.e. lower) rate of customs duty ("in quota tariff rate"). Once the TRQ has
been filled, one can continue to import the product without limitation but paying a higher
tariff rate.
One must distinguish between quotas, which are generally prohibited, and TRQs which are
considered tariffs and allowed under certain circumstances. While the former consists of a limit on a
volume, the latter consists of two duties and a volume. Tariff-rate quotas are predetermined quantities of
goods which can be imported at a "preferential" (i.e. lower) rate of customs duty ("in quota tariff rate"). Once
the TRQ has been filled, one can continue to import the product without limitation – so it is not a QR – but at a
higher tariff rate ("out-of-quota tariff rate"). In a TRQ, specific quantities of goods may be imported at
different tariff levels. Tariff-rate quotas will also be explained in Module 4, which introduces the Agreement on
Agriculture.
While several TRQ volumes are distributed on an MFN basis, the WTO Schedules of some Members include a
"quota allocation" element in some of them. The allocation of the TRQ should follow the disciplines in
Article XIII:5 of the GATT 1994 (introduced below), which provides that TRQs should be applied similarly
to products from all origins and allocations should respond as closely as possible to the expected markets share

130. 112
that would have existed in the absence of TRQs (Article XIII:2 of the GATT 1994). In EC - Bananas III, the
Panel - in a finding not reviewed by the Appellate Body - held that the object and purpose of Article XIII:2 is to
minimize the impact of a TRQ regime on trade flows by attempting to approximate under such measures the
trade shares that would have occurred in the absence of the TRQ (EC – Bananas, Panel Report, para. 7.68).
The following diagram shows what a tariff-quota might look like:
Example: TRQ
Imports entering under the TRQ (up to 1,000 tons) are generally charged ten per cent. Imports entering
outside the TRQ are charged 80 per cent.
III.D. PROVISIONS THAT ALLOW DEROGATION FROM THE
GENERAL PROHIBITION OF QUANTITATIVE
RESTRICTIONS (QRS)
III.D.1. EXCEPTIONS TO WTO RULES – INCLUDING THE GENERAL
PROHIBITION OF QRS
As with the non-discrimination rules which we introduced in Module 2, there are a number of provisions that
allow WTO Members to derogate, among other provisions, from the general prohibition of QRs as provided in
Article XI:1 of the GATT 1994. These will be covered in detail later in subsequent Modules and include:
 General exceptions;
 security exceptions;
 safeguard measures;
 balance-of-payment (BOP) exceptions;
 waivers; and,
 regional integration exceptions.

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III.D.2. EXCEPTIONS TO THE GENERAL PROHIBITION OF QRS
The specific exceptions to the general prohibition against the use of QRs are:
1. Prevent critical shortage of foodstuffs or other essential products (Article XI(2)(a) of the GATT 1994);
2. Import and export prohibitions or restrictions necessary to the application of standards or regulations for
the classification, grading or marketing of commodities in international trade (Article XI(2)(b) of the
GATT 1994);
3. Uphold import restrictions on agricultural and fisheries products (Article XI(2)(c) of the GATT 1994).
With respect to Article XI(2)(a), the drafters of the GATT 1994 realized that in specific circumstances
(shortages or surplus of goods domestically produced) one could derogate from the general prohibition of QRs
to prevent or deal with critical situations.
The exception contained in Article XI:2(c) created a quasi-general derogation for agricultural policies and
measures relating to fishery products, and constituted the essential provision which led to the "special
treatment" for agriculture before the Uruguay Round. However, the "agricultural exception" ended when the
WTO Agreement on Agriculture entered into force. The WTO Agreement on Agriculture superseded GATT 1994
Article XI:2(c). Article 4 of the Agreement on Agriculture provides, among other things, that quotas must be
transformed into tariffs (in a process called "tariffication" – which we will introduce in Module 4).
Consequently, under the WTO Agreements, QRs remain possible under this exception only on fishery products.
As we will see in Module 4, fish, and fish products are not covered by the WTO Agreement on Agriculture.
III.E. NON-DISCRIMINATORY ADMINISTRATION OF
QUANTITATIVE RESTRICTIONS (QRS) (ARTICLE XIII OF
THE GATT 1994)
Article XIII is basically a provision relating to the administration of restrictions authorized as exceptions to one
of the most basic GATT provisions - the general elimination of QRs contained in Article XI of the GATT 1994.
Accordingly, where authorized by the GATT, QRs must be imposed on a non-discriminatory basis. In
other words, the Member imposing the QRs is not allowed to favour any country over another. The Member is
expected to impose them across the board. The imported products at issue must be ''similarly'' restricted from
the different countries involved. As mentioned above, Article XIII also applies to TRQs (para. 5).
Article XIII:2 provides that in applying import restrictions to any product, Members shall aim at a distribution
of trade in such product approaching as closely as possible the shares which the various Members might be
expected to obtain in the absence of such restrictions. As mentioned earlier, in EC - Bananas III, the Panel, in
a finding not reviewed by the Appellate Body, held that the object and purpose of Article XIII:2 is to minimize
the impact of QRs on trade flows.
In this regard, Article XIII:2(d) allows Members to allocate tariff quota shares to specific supplier
countries. However, according to the chapeau of Article XIII:2, the allocation of quotas between exporting
Members must aim to ensure that QRs do not distort ordinary trade flows. To ensure this, the allocation of
quotas should correspond as closely as possible to the expected market shares that would have
existed in the absence of quotas.

132. 114
Article XIII:2(d) further specifies the treatment that, in case a quota is allocated among specific supplier
countries, must be given to Members with "a substantial interest in supplying the product
concerned". For those Members, the Member proposing to impose restrictions may seek agreement with
them as provided in Article XIII:2(d), first sentence. If that is not reasonably practicable, then it must assign
shares in the quota (or TRQ) to them on the basis of the criteria specified in Article XIII:2(d), second sentence.
Allocations of country-specific shares to Members not having a substantial interest in supplying the product
may be allowed but must meet the requirements of Article XIII:1 and the chapeau of Article XIII:2(d) (see
EC – Bananas III, Panel Report paras. 7.71-7.73).
NOTE
The administration of QRs and TRQs is also subject the WTO Agreement on Import Licensing Procedures.
We will examine this Agreement in Module 4.

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CASE STUDY
CASE STUDY 1: EC – BANANAS III
(EC - Regime for the Importation, Sale and Distribution of Bananas)
(DS27)
PARTIES AGREEMENTS TIMELINE OF THE DISPUTE
Complainants Ecuador,
Guatemala,
Honduras,
Mexico, United
States
GATT 1994: Arts. I,
III, X, XIII
GATS: Arts. II, XVII
Agreement on
Import Licensing
Procedures:
Art. 1.3
Lomé Waiver(*)
(*) A definition of
"waiver" is provided
in Modules 1 and 8.
Establishment
of Panel
8 May 1996
Circulation of
Panel Report
22 May 1997
Respondent European Union Circulation of
AB Report
9 September 1997
Adoption 25 September 1997
Table 4: EC - Regime for the importation, sale and distribution of bananas
MEASURE AND PRODUCT AT ISSUE
 Measures at issue: The European Union(
1
) regime for the importation, distribution and sale
of bananas, introduced on 1 July 1993 and established by EEC Council Reg. 404/93.
 Products at issue: Bananas imported from third countries(
2
).
(1) European Communities (EC) – Regime for the Importation, Sale and Distribution of Bananas.
(2) Third countries are those countries other than (i) 12 African, Caribbean and Pacific ("ACP") countries who
have traditionally exported bananas to the EU; and, (ii) ACP countries that were not traditional suppliers of
the EU market.

134. 116
SUMMARY OF THE KEY FINDINGS OF THE PANEL/APPELLATE BODYADMINISTRATIONOFTARIFF-RATEQUOTAS
GATT 1994: Art. XIII
(Non-Discriminatroy
Administration of
Quantitative
Restrictions)
The Appellate Body upheld the Panel's finding that the allocation of tariff
quota shares to some Members not having a substantial interest in
supplying bananas, but not to others, was inconsistent with Art. XIII:1.
The Appellate Body also agreed with the Panel that the BFA tariff quota
reallocation rules(
3
), under which a portion of a tariff quota share not used
by one BFA country could be reallocated exclusively to other BFA countries,
were inconsistent with Articles XIII:1 and XIII:2 of the GATT 1994,
chapeau.
(3) The Framework Agreement on Bananas (BFA).
Lomé Waiver The Appellate Body reversed the Panel's finding and found that the Lomé
Waiver does not apply to (i.e. exempt) violations of Articles XIII of the
GATT 1994 given that the Waiver refers only to Art. I:1 of the GATT 1994
and that waivers must be narrowly interpreted and be subject to "strict
disciplines".
GATT 1994: Art. I (The
MFN Principle)
The Appellate Body upheld the Panel's finding that the activity function
rules, which applied only to licence allocation rules for imports from other
than traditional ACP countries, were inconsistent with Article I:1 of the
GATT 1994. The Appellate Body also agreed with the Panel that the EU
export certificate requirement accorded an advantage to some Members
only, i.e. the BFA countries, in violation of Article I:1. In an issue not
appealed to the Appellate Body, the Panel found that tariff preferences for
ACP countries were inconsistent with Article I:1, but that they were
justified by the Lomé Waiver.
GATT 1994: Art. III:4
(National Treatment -
Internal Regulation)
The Appellate Body agreed with the Panel that the EU procedures and
requirements for the distribution of licences for importing bananas from
non-traditional ACP suppliers were inconsistent with Article III:4 of the
GATT 1994.
GATT 1994: Art. X:3(a)
and Agreement on
Import Licensing
Procedures: Art. 1.3
The Appellate Body reversed the Panel's findings of violations of
Article X:3(a) of the GATT 1994 and Art. 1.3 of the Agreement on Import
Licensing Procedures, on the grounds that these provisions applied only to
the administrative procedures for rules, not the rules themselves.
GATS: Arts. II (MFN)
and XVII (National
Treatment)
The Appellate Body upheld the Panel's finding that the EU measures were
inconsistent with Articles II and XVII of the GATS because they were
discriminatory, and clarified that the "aim and effect" of a measure is
irrelevant under Articles II and XVII of the GATS.
Table 5: Summary of the key findings of the Panel/Appellate Body

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ILLUSTRATION – QUANTITATIVE RESTRICTIONS (QRS)
SCENARIO
Suppose that Alba, Vanin and Tristat are WTO Members. Alba is a traditional producer and exporter of
watches. In Vanin and Tristat, watch industries were established just two years ago. However, with rapid
innovation of technology, Vanin's and Tristat's watch industries have reduced their production costs quickly
and have become strong competitors in the world market.
In Alba, the average sale price of watches was US$ 250 per watch. Even with Alba's importing tariff on
watches, Vanin and Tristat were able to sell their watches in Alba at an average of US$ 180 per watch. As a
consequence, Alba's watch producers were losing both local and international markets to Vanin's and
Tristat's watch producers.
Recently, Alba approved a Guide which provides that all watch importers are requested to submit
information of imported watches in regard to their material, price, amounts, resell prices as well as the
supply and demand forecasts. Due to the operation of the Guide, Alba's watch importers are suffering from
extra costs (associated with, among others, the employment of experts to gather and analyze the required
information). As a result, the number of watches imported from Vanin is reduced and in fact limited to
500,000 per year and 50,000 per year for watches imported from Tristat.
QUESTION
Both Vanin and Tristat believe that Alba's Guide constitutes a restriction to imports. Assume you are an
expert on WTO Law, what would you advise Vanin and Tristat to argue before a WTO panel?
PROPOSED ANSWER
The argument could be as follow:
Alba's Guide is inconsistent with Article XI:1 of the GATT 1994, which requires Members to eliminate QRs in
the form of quotas, import or export licenses, or other measures.
The wording of Article XI:1 is comprehensive since it applies to all measures instituted or maintained by a
Member prohibiting or restricting the importation, exportation or sale for export of products other than
measures that take the form of duties, taxes or other charges (Japan - Trade in Semi-conductors).
Moreover, Article I:1 covers both de jure and de facto discrimination. Thus, Vanin and Tristat could argue
that the Guide, which makes prohibitive the importation of watches by requesting all watch importers to
submit detailed information regarding imported watches, constitutes a restriction covered by Article XI:1 of
the GATT.
Thus, Vanin and Tristat can argue that the Guide is effectively restricting the importation of watches from
Vanin and Tristat.

136. 118
III.F. DOHA NEGOTIATIONS
Negotiations on the reduction of tariffs in agriculture and non-agricultural market access (NAMA) are part
of the mandates in the current Doha Round of negotiations.
III.F.1. NEGOTIATIONS ON NON-AGRICULTURAL MARKET ACCESS
(NAMA)
As set out in the Doha Ministerial Declaration, the current negotiations on NAMA products aim "to reduce or
as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks, high tariffs,
and tariff escalation as well as NTBs in particular on products of export interest for developing
countries" (see box below). Product coverage shall be comprehensive and without a priori exclusions.
The negotiations shall take fully into account the special needs and interests of developing and LDC
Members, including through less than full reciprocity in reduction commitments, in accordance with
the relevant provisions of Article XXVIIIbis of GATT 1994 (Tariff Negotiations) and other relevant WTO
provisions on special and differential treatment (Doha Ministerial Declaration, para. 16).
In addition, Members agreed to launch negotiations aimed at ''the reduction or, as appropriate,
elimination of tariff and NTBs to environmental goods...'' (Doha Ministerial Declaration, para. 31 - see
also Module 11 on Trade and Environment).
In Hong Kong, Ministers reaffirmed the importance of special and differential treatment and less than full
reciprocity in reduction commitments. With regard to modalities for tariff reduction, they agreed to adopt a
Swiss formula with coefficients that satisfy the mandate in paragraph 16 of the Doha Ministerial Declaration.
Members also agreed that developed Members and developing Member in a position to do so will provide
duty-free quota-free market access for at least 97 per cent of products originating from LDCs (Hong Kong
Declaration, Annex F).

137. 119
Non-Agricultural Market Access (NAMA) – Tariff Barriers
At Doha Ministerial, Ministers agreed to launch tariff-cutting negotiations on all non-agricultural products.
The aim is to reduce, or as appropriate eliminate tariffs, including the reduction or elimination of tariff peaks,
high tariffs, and tariff escalation, in particular on products of export interest to developing countries (Doha
Ministerial Declaration, para 16).
Tariff Peaks and High Tariffs
There is no agreed definition as to what constitutes a tariff peak or a high tariff, and there were lengthy,
unsuccessful discussions in this respect at the beginning of the Doha Round of negotiations. "National
peaks" refer to relatively high tariffs, usually defined as individual tariff rates that exceed three times the
national import-weighted average rate, while "international peaks" are commonly defined in absolute terms
as those tariffs at 15 per cent and above. Both absolute and relative high levels of protection usually hint at
sensitivities in those products.
A tariff qualifying as a "national peak" in a country with a relatively low national average tariff might not be
a "national peak" in another country with a higher national average tariff. For example, in some developed
countries, applied tariff rates in excess of nine per cent often qualify as a national peak, whereas in a
developing country a tariff of 24 per cent may not qualify as a peak (because their average is much higher
than that of developed countries).
"Tariff Escalation" occurs when tariff levels increase with the degree of processing. It happens when higher
import duties are applied on semi-processed products than on raw materials, and higher still on finished
products. This practice discourages the development of processing activity in the countries where raw
materials originate. An example is provided below.
Tariff Escalation

138. 120
TO KNOW MORE... NON AGRICULTURAL MARKET ACCESS (NAMA) – NTBS
Non-Agricultural Market Access (NAMA) – NTBs
As explained above, the Doha Ministerial Declaration mandates also the reduction or as appropriate the
elimination of NTBs. Discussions between 2002 – 2005 focused in the identification, categorization and
examination of the various NTBs through a notifications-based inventory. The majority of NTBs pertain to
TBT, measures related to Articles VIII and X of the GATT 1994 (now covered by negotiations on trade
facilitation – see Module 11) and SPS measures.
In Hong Kong, Ministers took note that Members were developing bilateral, vertical and horizontal
approaches to the NTB negotiations, and that some NTBs were being addressed in other fora including other
Negotiating Groups. Most importantly, they recognized the need for specific negotiating proposals and
encouraged participants to make such submissions as quickly as possible. These proposals started being
submitted in 2006.
To know more about the Doha Round of negotiations on NAMA products, please refer to:
http://www.wto.org/english/tratop_e/markacc_e/markacc_negoti_e.htm
The negotiations take place in the Negotiating Group on Market Access (NGMA).
III.F.2. NEGOTIATIONS ON AGRICULTURAL MARKET ACCESS
As you saw in Module 1, in Doha, Members also agreed to negotiations on further substantial reductions in
tariffs for agricultural products (Doha Ministerial Declaration, paras. 13-14). The Doha Round of negotiations
on market access for agricultural products will be introduced in Module 4.
EXERCISES
7. Tristat applies a TRQ of 1 metric ton (MT) on paper. What does this mean?

139. 121
APPENDIX 1: EXAMPLE OF A COUNTRY'S APPLIED TARIFF SCHEDULE
Source: United States International Trade Commission, Tariff Information Centre - Harmonized Tariff Schedule
of the United States 2008, SECTION XVI: MACHINERY AND MECHANICAL APPLIANCES; ELECTRICAL
EQUIPMENT; PARTS THEREOF; SOUND RECORDERS AND REPRODUCERS, TELEVISION IMAGE AND SOUND
RECORDERS AND REPRODUCERS, AND PARTS AND ACCESSORIES OF SUCH ARTICLES – Chapter 85 ''Electrical
machinery and equipment and parts thereof; sound recorders and reproducers, television image and sound
recorders and reproducers, and parts and accessories of such articles''.
http://hotdocs.usitc.gov/docs/tata/hts/bychapter/0800c85.pdf, retrieved on 10 January 2008.
General Notes
The schedule has three sub-columns under the ''Rates of Duty'' which contain different tariff rates applicable
to imports from different origins. The "General" sub-column of column 1 sets forth the general or normal
trade relations (NTR) rates which apply to most countries. The "Special" sub-column of column 1 reflects
rates of duty under one or more special tariff treatment programs and countries specified in this column will
receive preferential tariff treatment (normally tariff free).

140. 122
APPENDIX 2: EXAMPLE OF A WTO MEMBER'S SCHEDULE OF TARIFF
CONCESSIONS
This Schedule is authentic only in the English language
PART I – MOST-FAVOURED NATION TARIFF
SECTION II – Other Products
Tariff item
number
Description of
products
Base rate of
duty (U/B)
Bound rate of
duty
Implementatio
n period
INR Other
duties and
charges
1 2 3 4 5 6 7
0301 LIVE FISH
0301.10 ornamental fish US$10/Tonne (U) US$5/Tonne (U) 1995/2004 5%
0301.9
0301.91 Trout
(Salmo trutta,
Salmo gairdneri,
Salmo clarki,
Salmo
aguabonita,
Salmo gilae)
100% 50% 1995
0301.92 Eels (anguilla
spp.)
66% (U) 50% or US$90 1995/2004 US$5/kg
0301.93 carp 66% (U) 50% 1995/2004
0301.99 other: 66% (U) (U) 2000

141. 123
General Notes
Column 1 (Tariff item number) & Column 2 (Description of products): Reflect the tariff code and
product description used by the Member. It often refers to the International Convention on the HS which was
established under the auspices of the World Customs Organization (WCO) (former Customs Cooperation
Council) – explained above.
Column 3 (Base rate of duty): This column reflects the starting-point from which the tariff cuts takes
place as part of the Modalities for the negotiations. In the Uruguay Round, Members were also requested to
indicate a "B" (if the tariff line was previously bound), or an "U" if the tariff line was previously unbound. In
case of the latter, the level of the applied rate on 1 September 1986 was chosen as the base period.
Column 4 (Bound rate of duty): This column reflects the final bound rate that would be valid from the end
of the implementation period (if any – Column 5). The final bound level is valid from 1st January of the year
indicated in column 5 (if there are two years, from the latest one) and valid indefinitely until changed
through a new round of negotiations or a GATT Article XXVIII renegotiation. Paragraph 2 of the Marrakesh
Protocol to the GATT 1994 provides that the reductions shall take place in equal annual reductions, unless
otherwise specified in the Schedule.
Column 5 (Implementation period): This column reflects the year "from" and "to" in which the tariff
reduction will take place. It refers 1st January of the year concerned.
Column 6 (Initial negotiating rights (INRs): Indicates the Members holding initial negotiating rights on
the concession, if any. Rights can be invoked in the context of GATT Art. XXVIII renegotiation of
concessions.
Column 7 (ODCs): Inscribed in Members' Schedules according to the “Understanding on the Interpretation
of Art. II:1(b) of the GATT 1994". ODCs can be imposed in addition to the "ordinary customs duty".

142. 124
IV. SUMMARY
There is a wide variety of measures which influence market access for goods. The two main categories are
tariffs and NTBs. Both tariffs and NTBs can constitute obstacles to international trade in goods. The WTO
regulates both of these barriers.
TARIFFS
A tariff or "customs duty" is a financial charge in the form of a tax, imposed on goods transported from one
customs area to another, often from one country to another. Tariffs are the most common and widely used
barrier to market access for goods. The WTO does not prohibit the use of tariffs. However, there is the
obligation on Members to negotiate on tariff concessions and ''bindings''. During the eight GATT
rounds of trade negotiations from 1947 to 1994, tariffs have been significantly reduced and most tariff lines
have been bound. Negotiations on the reduction of tariffs in agriculture and NAMA are part of the mandates
in the current Doha Round negotiation under the auspices of the WTO.
''Bound'' tariff rates are listed in Members' WTO Schedules of concessions. WTO Members are obliged
to adhere to the bound tariff rates in their Schedules. However, the applied tariff of a particular product (as
reflected in a Member's national tariff schedule) can be different from the bound tariff rate for that product
as specified in the Member's WTO Schedule of concessions. In other words, a WTO Member is free to apply
any tariff level, as long as it is not higher than the bound level recorded in its Schedule.
A negotiated tariff binding may become too onerous to maintain over time due to changing circumstances.
In such cases, a WTO Member is allowed to modify the concessions in its Schedule by using the
renegotiation procedures outlined in Article XXVIII of the GATT provided that the Member compensates
the Members holding special rights (principal supplier, INRs holder and Members with substantial interest).
"Other duties and charges" may be imposed in addition to the "ordinary customs duty". However, for
ODCs to be allowed, they MUST be registered in the Schedule and they must not exceed the level indicated
therein. Thus, if ODCs were not recorded in a Member's Schedule, but are nevertheless levied, they are
inconsistent with Article II:1 (b).
NON–TARIFF BARRIERS (QRS)
Non-tariff barriers can take various forms. These include, in principle, all measures other than tariffs used to
protect a domestic industry. Non-tariff barriers include QRs (such as quotas) and other NTBs (including lack
of transparency in trade regulation, SPS measures and TBT). In this Module, we focused on WTO rules
on QRs (Article XI), administration of QRs and tariff-rate quotas (Article XIII).
Quantitative restrictions are generally prohibited under the WTO because they tend to be less
transparent and more trade-distorting than tariffs. Thus, the only protective barriers that WTO Members can
institute or maintain are "duties, taxes or other charges" compatible with the GATT rules. The
non-exhaustive list of measures in Article XI:1 indicates that any measure having an effect similar to those
noted in Article XI:1 might be prohibited. It should, however, be recalled that there are exceptions to this
general principle.

143. 125
Where authorized by the GATT, QRs must however be imposed on a non-discriminatory basis in
accordance with Article XIII of the GATT. In other words, the Member imposing the QRs is not allowed to
favour any country over another. The Member is expected to impose them across the board.
Contrary to QRs, Tariff-rate quotas (TRQs) are allowed. TRQs constitute predetermined quantities of
goods which can be imported at a "preferential" rate of customs duty ("in quota tariff rate"). TRQs are
different from QRs in the sense of GATT Article XI because once the TRQ has been filled, one can continue to
import the product without limitation (although at a higher tariff rate - "out-of-quota tariff rate"). The rules
on the non-discriminatory administration set out in Article XIII apply to TRQs as well.
OTHER FORMS OF NTBS WILL BE DISCUSSED IN DETAIL IN MODULE 4.
The current Doha Round Negotiations on NAMA aim to reduce or as appropriate eliminate tariffs as well
as NTBs in particular on products of export interest for developing countries.

144. 126
PROPOSED ANSWERS
1. A tariff or customs duty is a financial charge in the form of a tax, imposed on goods transported from one
customs to another (often from one country to another). Tariffs can also be imposed on exports. A tariff
schedule refers to the combination of a structured list of products description and their corresponding
customs duties. Most national tariff schedules reflect the structure in the HS.
2. A bound level of the tariff is the maximum level of customs duty to be levied on products imported into a
Member. A bound tariff can differ from an applied tariff as a Member can apply a different (lower) tariff
than the one it committed to apply as a maximum. Thus, Members can apply lower customs duties
("applied tariff level") but they cannot apply customs duty at a level higher than the one indicated in their
WTO Schedule of tariff concession (bound tariff level).
3. (1) The principle of reciprocity and mutual advantage;
(2) the MFN Treatment obligation; and,
(3) predictability
The principle of reciprocity and mutual advantage requires that, where a Member requests another
Member to reduce its tariffs on certain products, it must also be prepared to reduce its own tariffs on
products of export interest to the Member to whom the request is made. However, the reciprocity and
mutual advantage principle does not apply in the same manner to negotiations between developed and
developing Members. For example, according Article XXXVI:8 of the GATT, developed Members should
not expect reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs
and other barriers to the trade of developing Members. The MFN principle requires that any tariff
reduction a Member grants to any country must be extended to all WTO Members immediately and
unconditionally. Finally, security and predictability in trade in goods are achieved through the periodic
rounds of negotiations and the commitments embodied in the "binding of tariffs" made during these
negotiation rounds.
4. Yes. Tristat can apply a tariff different from the one listed in its WTO Schedule of tariff concessions in two
circumstances.
(1) Tristat may have an applied tariff not higher than the bound tariff in its Schedule. However, if Tristat
offers a lower rate to Vanin for example, it must apply this rate to all Members.
(2) Tristat may charge a higher tariff than the bound rate in its Schedule to any non-Member, such as
Rauritania, since WTO obligations do not extend to non-Members.
5. No. Tristat may, in addition to tariffs, also charge:
"Other duties and charges," if they are listed in its Schedule;
internal taxes (i.e. Value Added Tax);
trade remedy measures (i.e. countervailing or anti-dumping duties), subject to the conditions provided in
the relevant WTO Agreements for the application of such measures; and,
customs fees for services rendered.

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6. First, the renegotiation of any tariff concession requires compensating the exporting Members. In other
words, to seek to increase a particular tariff binding, the requesting Member must negotiate with
interested Members and agree to compensate, that is to decrease tariff binding(s) on another item or
other items. According to Article XXVIII, Members who are entitled to participate in renegotiations are
those ''Members primarily concerned'' which include Members with "Initial Negotiating Rights'' (INR
Members) and Members having a "Principal Supplying Interest (PSI). The requesting Member should also
consult with Members that have a ''substantial interest'' in a concession if one wishes to withdraw or
modify a concession. Second, the WTO Members participating in the renegotiation of the concession
''shall endeavour to maintain a general level of reciprocal and mutually advantageous concessions not less
favourable to trade than that provided for in this Agreement prior to such negotiations.''
7. Tariff-Rate Quotas allow for a two-tiered administration of customs duties. A predetermined amount of a
given product can be imported at a "preferential" rate. Once that amount has been exceeded, all
additional imports are subject to a higher rate (usually the MFN or "bound" rate). In reality there is no
maximum limit on imports.
In our example, Tristat has a TRQ of one MT on paper. Paper from zero to one MT can be imported at a
preferential rate of, for example, two per cent (in quota bound duty). When the one MT quota is filled,
paper can be imported at the MFN rate, for example, ten per cent (out-of-quota bound duty). However,
there is not restriction on the quantity of paper than can be imported.

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Overview of WTO Agreements on
Trade in Goods (Annex 1A of the
Agreement Establishing the WTO)
ESTIMATED TIME: 6 hours
Introduction & GATT 0.5 hour
Section 1 3.5 hours
Section 2 2 hours
OBJECTIVES OF MODULE 4
 Review the structure of the WTO Agreements on trade in goods;
 review the relationship between the General Agreement on Tariffs and Trade
(GATT) 1947 and GATT 1994 and explain the relationship between GATT 1994 and
other multilateral agreements on trade in goods included in Annex 1A;
 provide an overview of the Agreement on Agriculture, the Agreement on the
Application of Sanitary and Phytosanitary (SPS) Measures and the Agreement on
Technical Barriers to Trade (TBT); and,
 provide key features of the other WTO Agreements on Trade in Goods in Annex 1
concerned mainly with Non-Tariff Barriers (NTBs).
MODULE
4

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I. INTRODUCTION
I.A. STRUCTURE OF THE AGREEMENT ESTABLISHING THE
WTO
In Module 1, you studied the Marrakesh Agreement Establishing the WTO (the Agreement Establishing the
WTO), which contains four Annexes – Annexes 1, 2, 3 and 4.
The Agreements in Annexes 1, 2, and 3 constitute "Multilateral Trade Agreements", as they are binding on all
WTO Members. In this Module, we will only study the main disciplines of the Multilateral Agreements on
Trade in Goods included in Annex 1 A. The objective is to provide you with a comprehensive introduction to
these Agreements. Annex 1 B (Services), Annex 1 C (Trade-Related Aspects of Intellectual Property Rights
(TRIPS)) and Annexes 2 and 3 (Dispute Settlement and Trade Policy Review Mechanism) will be introduced in
Modules 6, 7 and 10 respectively.
I.B. ANNEX 1A: THE MULTILATERAL AGREEMENTS ON
TRADE IN GOODS
In Module 1, we have introduced the various Multilateral Agreements on Trade in Goods contained in
Annex 1A. They are:
 GATT 1994
 Agreement on Agriculture;
 Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement);
 Agreement on Textiles and Clothing;
 Agreement on Technical Barriers to Trade (TBT Agreement);
 Agreement on Trade-Related Investment Measures (TRIMS Agreement);
 Agreement on Implementation of Article VI of GATT 1994 (Anti-Dumping Agreement);
 Agreement on Implementation of Article VII of GATT 1994 (Customs Valuation);
 Agreement on Preshipment Inspection (PSI);
 Agreement on Rules of Origin;
 Agreement on Import Licensing Procedures;
 Agreement on Subsidies and Countervailing Measures (SCM Agreement);
 Agreement on Safeguards.
NOTE
In this Module, we will introduce all the Agreements mentioned above, except the Anti-Dumping Agreement,
the Agreement on Subsidies and Countervailing Measures and the Agreement on Safeguards, which deal
with trade remedies and will be introduced in Module 5.

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II. THE GENERAL AGREEMENT ON TARIFFS AND
TRADE (GATT) 1994
II.A. INTRODUCTION
As you studied in Module 1, the original GATT, now referred to as GATT 1947, provided the rules of the
multilateral trading system (MTS) from 1 January 1948 until the WTO entered into force on 1 January 1995.
These rules, which dealt only with trade in goods, were supplemented and modified by many instruments
adopted between 1948 and 1995 in multilateral negotiations, including protocols of accession, waivers and
other decisions. The GATT 1947 is no longer in force and has been superseded by the GATT 1994,
which is based on the GATT 1947.
The GATT 1994 consists of:
 The provisions of the GATT 1947, as amended or modified up to 1 January 1995 (date of
entry into force of the Agreement Establishing the WTO) – See box below;
 protocols and certifications relating to tariff concessions;
 the protocols of accession (to the GATT up to 31 December 1994);
 the Decisions on Waivers still in force on 1 January 1995;
 understandings on the interpretation of various GATT provisions; and,
 other decisions of the Contracting Parties to GATT 1947.
II.B. PROVISIONS OF THE GATT 1994 (AS A MODIFIED
VERSION OF GATT 1947)
The most important component of the GATT 1994 is the original GATT 1947 as rectified, amended or modified
up to 1 January 1995. Although the GATT 1947 is legally distinct from, and has been superseded by, the GATT
1994, many of its key elements, including post-1948 legal instruments, have been carried over to the GATT
1994 without change. The Most Favoured Nation (MFN) rule (Article I of the GATT) and the national treatment
rule (Article III of the GATT) – introduced in Module 2, were laid down in the original GATT 1947. The principle
of observance of binding levels of tariff concessions (Article II of the GATT) and the principle of general
prohibition of quantitative restrictions (QRs) (Article XI of the GATT) introduced in Module 3, were also included
in the original GATT 1947 and have been incorporated into GATT 1994. The structure of the core GATT 1994 is
shown in the chart below:

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PART MAIN PROVISIONS SUBJECT
Part I Article I
Article II
Most Favoured Nations (MFN) (Module 2)
The Schedule of Concessions (Module 3)
Part II Article III
Articles IV, V, VII to XVI
Articles VI and XIX
Articles XX and XXI
Articles XXII and XXIII
National Treatment (Module 2)
Non-Tariff Measures (Module 3)
Trade Remedies (Module 5)
General and National Security Exceptions (Module 8)
Consultations and Dispute Settlement (Module 10)
Part III Articles XXIV
Article XXVIII and XXVIII bis
Regional Integration (Module 9)
Negotiation and Renegotiation of Tariffs (Module 3)
Part IV Articles XXXVI to XXXVIII Trade and Development (Module 9)
Several provisions contained in the original GATT 1947 are elaborated in detail by the corresponding
multilateral agreements on trade in goods contained in Annex 1A. For example, the Agreement on
Implementation of Article VI of the GATT 1994 (Anti-Dumping Agreement) elaborates the rules on antidumping
laid down in Article VI of the GATT. The same applies to the Agreement on Customs Valuation, which further
elaborates the rules on valuation for customs purposes laid down in Article VII of the GATT 1994.
II.C. OTHER LEGAL INSTRUMENTS
The GATT 1994 also contains other legal instruments which entered into force under the GATT 1947 and were
incorporated into the GATT 1994. They are:
 Protocols and certifications relating to tariff concessions. All tariff concessions bound
throughout the prior (GATT) tariff negotiations remain valid and continue to bind the respective
Members (explained in Module 3);
 protocols of accession (to the GATT up to 31 December 1994). States and Customs
territories that became Contracting Parties to the GATT between 1948 and 1994 had to
negotiate the conditions of their accession to the GATT. These conditions and commitments
are contained in protocols of accession, which form an integral part of the GATT 1994.
Similarly, the protocol of accession of Members that joined the organization after its
establishment are an integral part of the Agreement Establishing the WTO (explained in Module
11); and,
 decisions on waivers still in force on 1 January 1995. A waiver is a permission granted by Members
permitting a WTO Member to not comply with its obligation(s) under WTO rules. Waivers have time
limits and extensions have to be justified (which will be explained in Module 8);

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The Marrakesh Protocol to the GATT 1994, which incorporates the Schedules of concessions and
commitments on goods negotiated under the Uruguay Round and is different from the Agreement Establishing
the WTO, is also part of the GATT 1994.
II.D. URUGUAY ROUND UNDERSTANDINGS
The GATT 1994 also contains several Uruguay Round Understandings, which constitute clarifications to
GATT provisions that participants adopted in the Uruguay Round.
TO KNOW MORE... UNDERSTANDINGS THAT FORM PART OF THE GATT 1994
 Understanding on the Interpretation of Article II:1(b) of the GATT 1994, which contains
provision son "Other duties and Charges" (ODCs) (introduced in Module 3).
 Understanding on the Interpretation of Article XVII of the GATT 1994, which contains
provisions governing the activities of "state trading enterprises".
 Understanding on Balance-of-Payments (BOP) Provisions of the GATT 1994; Article XII and
XVIII:B of the GATT 1994 contain provisions on measures that Members are allowed to take
when they experience difficulties with their BOPs (which will be introduced in Module 8).
 Understanding on the Interpretation of Article XXIV of the GATT 1994, which contains
provisions governing Members right to enter into regional agreements (customs unions or
free-trade areas) (which will be introduced in Module 8).
 Understanding in Respect of Waivers of Obligations under the GATT 1994; Article IX.3 of the
Agreement Establishing the WTO contains clarifications of the procedure for the grant of
waivers (introduced in Modules 1 and 3 and explained in Module 8).
 Understanding on the Interpretation of Article XXVIII of the GATT 1994, which contains
provisions governing the modification of Schedules (introduced in Module 3).
II.E. CONFLICT BETWEEN A PROVISION OF THE GATT 1994
AND A PROVISION OF A MULTILATERAL AGREEMENT
ON TRADE IN GOODS (ANNEX 1 A)
A General interpretative note to Annex 1A clarifies that in the event of conflict between a provision of the GATT
1994 and a provision of another Agreement in Annex 1A, the provision of that other Agreement (i.e. not the
GATT 1994) shall prevail to the extent of the conflict.
As an example, in EC-Asbestos, the Panel held that technical regulations which simultaneously fall under the
TBT Agreement and the GATT should be first reviewed under the TBT Agreement (EC-Asbestos, Panel report,
para. 8.16)

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NOTE
Recall in Module 1 we have studied that, in the event of a conflict between a provision of the Agreement
Establishing the WTO and a provision of any of the Multilateral Trade Agreements (including the GATT 1994),
the provision of the Agreement Establishing the WTO shall prevail to the extent of the conflict (Article XVI:3
of the Agreement Establishing the WTO).
EXERCISES
1. What does Annex 1A of the Agreement Establishing the WTO contain?
2. What matters are covered by the core GATT 1994 (as a modified version of the GATT 1947)?
3. For trade in goods, in case of conflict between a provision in the GATT and a provision in one of the
Multilateral Agreements on Trade in Goods, which provision prevails?

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III. THE MULTILATERAL AGREEMENTS ON TRADE
IN GOODS
We have introduced the GATT 1994 which is included in Annex 1A of the Agreement Establishing the WTO.
Now we will introduce the other Multilateral Agreements on Trade in Goods incorporated in Annex 1A. It is
structured in Sections 1 and 2, as follows:

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III.A. THE AGREEMENT ON AGRICULTURE
III.A.1. INTRODUCTION
Agricultural trade remains in many countries an important part of overall economic activity and continues to
play a major role in domestic agricultural production and employment (this is particular true for many
developing countries). The Agreement on Agriculture aims at reforming trade in agriculture, envisaging a fair
and market-oriented system.
The Agreement allows governments to support their rural economies, but preferably through policies that are
less "trade-distorting". It also allows some flexibility in the way commitments are implemented by developing
countries, which did not have to cut their subsidies or lower their tariffs as much as developed countries, and
had extra time to implement their obligations. Least-developed countries (LDCs) were completely exempted
from those reduction commitments. Besides that, Members agreed on special provisions that deal with the
interests of developing countries that rely on imports for their food supplies.
What is "distortion"?
The WTO Dictionary of Trade Policy Terms defines distortion as "a measure, policy or practice that shifts the
market price of a product above or below what it would be if the product were traded in a competition
market. Measures causing distortions include subsidies, import restrictions and restrictive business
practices". In the context of agricultural trade this would mean that producers, industries, importers,
exporters and consumer's decisions are influenced by factors other than competitive market conditions.
III.A.2. NEGOTIATIONS ON AGRICULTURE ... FROM GATT UP TO THE
URUGUAY ROUND
Prior to the Uruguay Round, the GATT 1947 rules (including accession conditions and waivers), permitted GATT
CONTRACTING PARTIES to retain greater protection for agricultural products than for industrial goods. The
GATT 1947 allowed countries to resort to import restrictions (such as import quotas) and to agricultural export
subsidies, under certain conditions. In the case of export subsidies, the only condition was that the subsidy
should not be used to capture more than an "equitable share" of world exports of the product concerned
(Article XVI:3). As a result, agricultural trade became highly distorted. In addition, there were only few
market-opening commitments made for agriculture so the degree of ''binding'' achieved was far less than for
industrial products (only one third of agriculture products had bound tariff rates).
The Uruguay Round negotiations on agriculture represented a major break with the past. The resulting
Agreement requires WTO Members to commit to long-term reform and to assume specific commitments to
improve market access and reduce trade-distorting subsidies in agriculture. These commitments are contained
in Members' WTO Schedules and were implemented over a six year period - 10 years for developing countries -
that began in 1995 (a summary of these commitments is presented in a Table at the end of this section).
Participants agreed to initiate negotiations for continuing the reform process one year before the end of the

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implementation period, i.e. by the end of 1999. These talks have now been incorporated into the broader
negotiating agenda set at the 2001 Ministerial Conference in Doha, Qatar.
The rules and disciplines in the Agreement on Agriculture are complemented by an undertaking to continue the
reform process through negotiations. Currently, WTO Members are negotiating based on the mandate in
Article 20 of the Agreement on Agriculture and in conjunction with the mandate of the Doha Development
Agenda (DDA).
NOTE
To know more about on-going negotiations in agriculture... (and other key issues of the so-called DDA),
please have a look at documents in the "Doha" Section of our Online Library and Module 9 (WTO
Development Dimension).
III.A.3. MAIN DISCIPLINES PROVIDED IN THE AGREEMENT
Scope of Application of the Agreement on Agriculture
The Agreement defines in its Annex 1 agricultural products by reference to the harmonised system of
product classification (HS – Explained in Module 3) — the definition covers not only basic agricultural
products such as wheat, milk and live animals, but the products derived from them such as
bread, butter and meat, as well as all processed agricultural products such as chocolate and
sausages. The coverage also includes wines, spirits and tobacco products, fibres such as cotton, wool and
silk, and raw animal skins destined for leather production. Fish and fish products are not included, nor are
forestry products.
The three "pillars" to which the new rules and commitments as set out in the Agreement apply are:
THE THREE "PILLARS" UNDER THE AGREEMENT ON AGRICULTURE
I. Market Access: trade restrictions confronting imports (tariff and NTBs);
II. Domestic Support: subsidies and other programmes, including those that raise or guarantee
farmgate prices and farmers’ incomes; and,
III. Export Competition: includes export subsidies and other methods used to make exports
artificially competitive.

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a. MARKET ACCESS
Market Access
The general rules regulating market access on agricultural products as set out in the Agreement are:
 Tariffication –transform non-tariff border measures into tariffs, reflecting substantially the
same level of protection (Article 4.2);
 commitments on tariffs and tariff quotas - maintain existing import access levels and
ensure minimum-access opportunities (Schedule of tariff concessions);
 special safeguard – allows the imposition of an additional duty under certain circumstances
(available for those Members that reserved the right to use the safeguard measure in their
Schedules) (Article 5);
 special treatment – allows certain Members to maintain non-tariff border measures on
certain products in exceptional circumstances (Annex 5).
1. THE PROHIBITION OF NON-TARIFF BORDER MEASURES
The new market access rule for agricultural products is a "tariff only" system (Article 4.2). Before the Uruguay
Round, some agricultural imports were restricted by non-tariff border measures which were mainly in the form
of quantitative import restrictions or import quotas. All these non-tariff measures were to be either removed
or to be replaced by tariffs, reflecting substantially the same level of protection. This process of converting
non-tariff measures to tariffs is called "tariffication". Besides tariffs, the Agreement allows the application of
tariff-rate quotas (TRQs), explained in Module 3.
Article 4.2 does not prevent the application of non-tariff import restrictions consistent with the provisions of the
GATT or other WTO Agreements, such as those permitted under the SPS Agreement.
2. SCHEDULE OF COMMITMENTS
Each WTO Member has a "Schedule" of tariff concessions covering all agricultural products (Article 4.1) (an
example of WTO Member's Schedule of commitments on agricultural products has been provided at the end of
this Module – Appendix 1). These concessions, reached during the Uruguay Round negotiations, are an
integral part of the GATT 1994.
The Schedule sets out the maximum tariff that can be imposed on the importation of each individual
agricultural product entering into the territory of the Member concerned. The tariffs in the Schedules include
those from the tariffication process. In some cases, these are considerably higher than industrial tariffs,
reflecting the incidence of agriculture-specific non-tariff measures prior to the WTO. Many developing
countries have bound their previously unbound tariffs at "ceiling" levels, i.e. at levels higher than the applied
rates prior to the WTO.
Article 4.1 does not prevent the application of higher customs duties than those included in the Schedule,
consistent with the provisions of the GATT and WTO Agreements under exceptional circumstances, such as
anti-dumping, countervailing and safeguard measures (see Module 5).

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3. TARIFF-RATE QUOTAS (TRQS)
It was foreseen that the conversion of non-tariff measures into tariffs by using the 1986 to 1988 reference
price could result in high tariff levels. Therefore, a system of TRQs, meaning lower tariffs within the quotas
and higher tariff rates for quantities outside the quotas, was agreed so as to maintain existing import access
levels and to provide minimum-access opportunities (See graph below). These tariff quotas are specified in the
WTO Members' Schedules. Article XIII (explained in Module 3) and the Agreement on Import Licensing
Procedures (will be explained in Section 2 of this Module) govern the distribution of TRQs between supplying
Members. Basically, Article XIII provides that import restrictions should be applied in a non-discriminatory
manner.
4. SPECIAL TREATMENT
The Agreement contains a ''special treatment'' clause in Annex 5, under which four countries were permitted,
subject to strictly circumscribed conditions, to maintain non-tariff border measures on certain products during
the implementation period, with the possibility of extension but subject to further negotiations. As one of the
conditions, market access in the form of progressively increasing import quotas had to be provided for the
products concerned. The products and countries concerned are rice in the case of Japan, Korea and the
Philippines and cheese and sheepmeat in the case of Israel.
The special treatment has lapsed for Japan and Israel, but Korea and the Philippines have extended their
special treatment for rice (Members are required to notify if they are seeking to extend the special treatment –
see G/AG/W/63).
5. SPECIAL SAFEGUARD
As a third element of the tariffication package, Members are entitled to invoke the special safeguard provisions
(Article 5 of the Agreement) provided that: (i) non-tariff barriers (NTBs) have been ''tariffied''; and, (ii) the
Member has reserved the right to apply the special safeguard measure in its Schedule (by inscribing the
symbol ''SSG'' next to the tariff line in its Schedule). The right to make use of the special safeguard measures
has been reserved by 36 Members.
The special safeguard for agricultural products allows the imposition of an additional tariff where certain criteria
are met. The criteria involve either a specified surge in imports (volume trigger), or, a fall of the import price
below a specified reference price (price trigger) determined on a shipment by shipment basis. In case of the
volume trigger, the higher duties only apply until the end of the year in question. In case of the price trigger,

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any additional duty can only be imposed on the shipment concerned. The additional customs duties cannot be
applied to imports taking place within tariff quotas.
This special safeguard is different from the general safeguard provided in Article XIX of the GATT 1994 and the
Agreement on Safeguards. The latter is applicable not only to agricultural products, but to all products and it is
subject to different conditions, as we will see in Module 5.
b. DOMESTIC SUPPORT
Not all subsidies distort trade to the same extent. However, production-related subsides, such as price support
measures, are deemed to encourage over-production in some countries and distort world market prices.
The Agreement distinguishes between two categories of domestic support: (i) support with no, or minimal,
distortive effect on trade, not subject to reduction commitments; and, (ii) trade-distorting support, subject to
limits/''bindings'' and reduction commitments (often referred to as "Amber Box" measures). For example, the
provision of subsidies by a government for agricultural research or training is considered to be one of the
former type, while government buying-in at a guaranteed price ("market price support") falls into the latter
category.
Under the Agreement on Agriculture, all domestic support in favour of agricultural producers is subject to rules.
The general rules regulating domestic support for agricultural products as set out in the Agreement are:
Domestic supports with NO or MINIMAL
distortive effect - NOT subject to the
''bindings'' and reduction commitments
Article 7 & Annex 2 (''Green Box'' measures):
government services such as research,
disease control, infrastructure and food
security.
Article 6.5 (''Blue Box'' measures): certain direct
payments to farmers where the farmers are
required to limit production.
Article 6.4: domestic supports that are de
minimis.
Article 6.2: measures of assistance adopted by
developing countries.
Domestic Support with distortive effect and
SUBJECT to the ''bindings'' and reduction
commitments
Articles 3.1, 3.2 & 6 (''Amber Box'' measures):
trade-distorting domestic support in favour of
agricultural producers should not exceed the
commitment levels specified in Members' Schedules
and are subject to Aggregate Measurement of
Support (AMS) reduction commitments specified in
the Schedules.

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The agricultural package of the Uruguay Round has fundamentally changed the way domestic support in favour
of agricultural producers was treated under the GATT 1947.
1. DOMESTIC SUPPORT WITH NO OR MINIMAL DISTORTIVE EFFECT - NOT SUBJECT TO THE
REDUCTION COMMITMENTS
1.1 GREEN BOX
The Agreement on Agriculture sets out a number of general and measure-specific
criteria which, when met, allow those measures to be placed in the Green Box
(Annex 2) category. These measures are exempted from reduction commitments
and, indeed, can even be increased without any financial limitation under the
WTO. The fundamental criteria are that the measures must have no, or at most
minimal, trade-distorting effects on production. In addition, they must be
provided through a publicly-funded government programme (including
government revenue foregone) not involving transfers from consumers and must
not have the effect of providing price support to producers.
The Green Box covers many government service programmes including general services provided by
governments, public stockholding programmes for food security purposes and domestic food aid - as long as
the fundamental criteria and some other measure-specific criteria are met by each measure concerned. The
Green Box also provides for the use of direct payments to producers which are not linked to production
decisions, i.e. although the farmer receives a payment from the government, this payment does not influence
the type or volume of agricultural production ("decoupled").
The Green Box applies to both developed and developing country Members; but in the case of developing
countries, special treatment is provided in respect of governmental stockholding programmes for food security
purposes and subsidized food prices for urban and rural poor.
1.2 BLUE BOX
Direct payments under production limiting programmes (often referred to as
"Blue Box" measures) are exempted from commitments if such payments are:
(i) based on fixed area and yields; or, (ii) made on 85% or less of the base level
of production; or, (iii) livestock payments are made on a fixed number of head
(Article 6.5).
1.3 MEASURES OF ASSISTANCE ADOPTED BY DEVELOPING COUNTRIES
The type of support that fits into the developmental category are measures of assistance, whether direct or
indirect, designed to encourage agricultural and rural development that are an integral part of the development
programmes of developing countries (Article 6.2). They include: (i) investment subsidies which are generally
available to agriculture in developing country Members; (ii) agricultural input subsidies generally available to
low-income or resource-poor producers in developing country Members; and, (iii) domestic support to
producers in developing country Members to encourage diversification from growing illicit narcotic crops.
1.4 DE MINIMIS

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Article 6.4 establishes de minimis thresholds under which both the reduction commitments and the ''bindings''
specified in Members' Schedules do not apply.
According to the de minimis provision, any domestic support not covered by the exempted categories
described above, must be maintained within the relevant product-specific and non-product-specific de minimis
levels (five per cent for developed countries and ten per cent for developing countries). Unless that Member
has Amber Box commitments as explained below.
2. DOMESTIC SUPPORT WITH TRADE-DISTORTING EFFECT - SUBJECT TO REDUCTION
COMMITMENTS
2.1 AMBER BOX
All domestic support measures considered to distort production and trade, with
the exceptions discussed above, fall into the "Amber Box". They include measures
to support prices (provided either through administered prices - involving
transfers from consumers - or through certain types of direct payments from
governments), input subsides or subsidies directly related to production
quantities. These domestic support measures should not exceed the commitment
levels specified in Members' Schedules and were subject to reduction
commitments specified in Members' Schedules (Article 3.2).
Any domestic support that cannot be included in the categories exempt from reduction (''Green Box'',
Development Measures and ''Blue Box''), had to be accommodated within the ceilings set by the Total
Aggregate Measurement of Support (Total AMS) and/or the de minimis provisions of the Agreement set
out in Article 6.4.
The AMS includes all product-specific support and non-product-specific support in one single figure. Members
with a Total AMS had to reduce base period support by 20 per cent over six years (developed country
Members) or 13.5 over ten years (developing country Members). The details for AMS calculations are specified
in Annex 3 of the Agreement on Agriculture.

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Notify your Domestic Supports
Article 18.2 of the Agreement on Agriculture requires all Members to notify the extent of their domestic
support measures to the Committee on Agriculture. This requires:
All Members
 a list of all measures that fall into the exempted categories (the ''Green Box'', the
development programmes, and direct payments under production-limiting programmes - the
''Blue Box'').
 make annual notifications, except for LDC Members, which are required to notify every two
years.
 notify any modifications of existing or new measures in the exempted categories.
Members with Scheduled AMS Commitments
 calculations of Total AMS, including the de minimis claims, and a notification of the Current
Total AMS for Members that have scheduled domestic support reduction commitments.
Members without Scheduled AMS Commitments
 if a Member does not have scheduled AMS commitments and provides Amber Box subsidies,
it must justify that such support falls within its de minimis levels.
c. EXPORT COMPETITION
Export Competition
 General prohibition of export subsidies unless the subsidies are specified in a Member’s
Schedule (Article 3.3 & Article 8);
 Reduction commitments – when the right to use export subsidies is scheduled, the
agreement requires WTO Members to cut both the amount of money they spend on export
subsidies as well as the quantities of exports that receive subsidies (Article 3.3 &
Article 9.1);
 Anti-circumvention – aimed at preventing the circumvention of the export subsidy
commitments and set out criteria for food aid donations and export credits (Article 10.1);
 Special treatment for certain transport and marketing subsidies in developing countries
(Article 9.4);
 Peace Clause (Expired in 2003): restricted other Members rights to challenge export
subsidies which were within a Member's Schedule (Article 13).
Before the Uruguay Round negotiation, export subsidies for agricultural products were only subject to limited
disciplines (Article XVI of the GATT 1947). This situation changed after the entry into force of the Agreement
on Agriculture, which allows the use of export subsidies only in two situations: (i) if a Member has reserved

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the right to use export subsides in their respective Schedules, subject to the limits and reduction
commitments specified in the Schedule; or, (ii) if developing countries provide export subsidies consistent
with the special and differential treatment provisions. In all other cases, the use of export subsidies for
agricultural products is prohibited.
Why PROHIBIT Export Subsidies?
The negative effects of export subsidies on agriculture have been analyzed by international organizations,
many WTO Members, as well as independent economists and academic institutions. Exporters that receive
export subsidies enjoy an advantage, since they can, for example, sell below the cost of production.
In most cases the subsidy depends on the difference between the world and domestic prices, which means
the exporter can always match or undercut exporters in other countries. This in turn increases
competition for other exporters or for domestic producers in the importing country.
Besides reducing prices and undercutting unsubsidised exporters in other countries, export subsidies also
amplify world market price variations. As the level of subsidy usually depends on the difference
between domestic and world market prices, if world market prices fall the subsidy increases and supply from
the subsidised exporter can remain the same, or even increase. In addition, supply from the subsidising
country is not affected by market prices as the subsidy increases or decreases as prices fall or rise. This
exaggerates the swings in world prices by reducing supply in times of high prices and increasing it in times
of low prices.
The Agreement on Agriculture does not provide a definition of "subsidy". However, the SCM Agreement
provides that three elements must be met for a subsidy be deemed to exist: (i) there is a financial
contribution; (ii) by a government or any public body within the territory of a Member; and, (iii) a benefit is
thereby conferred. The disciplines in the SCM Agreement only apply to specific subsidies, i.e. a subsidy
available only to an enterprise, industry or group of enterprises or industries within the jurisdiction of the
granting country (see also Module 5).
The general rules on export competition as set up in the Agreement are:
1. REDUCTION COMMITMENTS APPLICABLE TO EXPORT SUBSIDES INCLUDED IN THE
SCHEDULE
As mentioned above, the Agriculture Agreement prohibits export subsidies on agricultural products unless the
subsidies are specified in the Member’s lists of commitments. Where they are listed, the agreement requires
WTO Members to cut both the amount of money they spend on export subsidies and the quantities of exports
that receive subsidies.
Article 1(e) of the Agreement defines ''export subsidies'' as subsidies contingent upon export performance.
Article 9.1 provides a list of examples of export subsidies subject to reduction commitments, while Article 10.1
prohibits the use of export subsidies not listed in Article 9.1 in a manner which results in, or which threatens to
lead to, circumvention of export subsidy commitments.
Twenty-five WTO Members (counting the European Commission (EC) as one) can subsidize exports, but only
for products on which they have commitments to reduce these subsidies. These Members cannot: (i) introduce

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new subsidies for products not listed in their Schedules; (ii) exceed the limits in their Schedules; or,
(iii) transfer existing commitments to other agricultural products.
In EC – Sugar, the Appellate Body stated that the commitments specified in a Members' Schedule must be in
conformity with the provisions of the Agreement on Agriculture (EC-Sugar, Appellate Body Report, para. 216).
2. EXPORT SUBSIDES ALLOWED UNDER SPECIAL AND DIFFERENTIAL TREATMENT
PROVISIONS
Article 9.4 allowed developing countries to use subsidies aimed at reducing the cost of marketing, including
internal and external transport, as well as handling and processing costs, provided that they are not applied in
a manner that would circumvent export subsidy reduction commitments.
This exemption is one of the special and differential treatment provisions of the Agreement on Agriculture and
was only available during the implementation period. At the Hong Kong Ministerial Meeting, Ministers decided
that "developing country Members will continue to benefit from the provisions of Article 9.4 for five years after
the end-date for elimination of all forms of export subsidies" according to the negotiations in the Doha Round.
Notify your Export Subsidies
All Members must notify annually their export subsidies to the Committee on Agriculture on an annual basis.
 Members without reduction commitments - notification involves only a statement to the
effect that export subsidies on agricultural products have not been used.
 Members with reduction commitments – notification involves the annual use of subsidies
in terms of both volume and budgetary outlays.
Likewise, total exports of agricultural products must be notified by Members with reduction commitments as
well as by a number of other "significant exporters" as defined by the Committee. In addition, as part of the
anti-circumvention provisions, Members must notify the use of food aid on an annual basis if such aid is
granted.

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REDUCTION COMMITMENTS ON AGRICULTURAL PRODUCTS REACHED DURING
THE URUGUAY ROUND NEGOTIATION
Implementation Period Developed Countries 6 Years:
1995 - 2000
Developing Countries 10
Years: 1995 - 2004
Tariffs
Average cut for all
agricultural products
-36% -24%
minimum cut per product -15% -10%
Domestic Support
Total AMS cuts for sector
(base period: 1986- 88)
-20% -13.3%
Export Subsidies
Cut in budgetary outlays -36% -24%
Cut in subsidized quantities
(base period: 1986-90)
-21% -14%
Table 1: Reduction commitments on agricultural products reached during the Uruguay
Round negotiation
III.A.4. SPECIAL AND DIFFERENTIAL TREATMENT TO DEVELOPING AND
LEAST-DEVELOPED COUNTRIES (LDCS) UNDER THE AGREEMENT
ON AGRICULTURE
GENERAL  Significant improvement in market access
conditions for agricultural products of interest to
developing country Members.
 Ministerial Decision on Measures Concerning the
Possible Negative Effects of the Reform
Programme on Least-Developed and Net Food-
Importing Developing Countries.

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DOMESTIC SUPPORT  Lower reduction commitments & longer
implementation periods (Schedules of Commitments).
 Greater de minimis allowance (10% compared to 5%
for developed countries, Article 6.4).
 Exclusion of some domestic support policies (measures
of assistance) from the reduction commitments
(Article 6.2).
EXPORT SUBSIDIES  Lower reduction commitments & longer
implementation periods (Schedules of Commitments).
 Possibility to use transportation and marketing-cost
reduction subsidies during a certain period
(Article 9.4).
The Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on
Least-Developed and Net Food-Importing Developing Countries (NFIDCs) recognizes the possibility
that during the implementation of the reform programme embodied in the Agreement on Agriculture, the
least-developed and net food-importing developing countries may experience negative effects in terms of the
availability of adequate supplies of basic foodstuffs from external sources on reasonable terms and conditions,
including short-term difficulties in financing normal levels of commercial imports of basic foodstuffs. The
Ministers therefore agreed to a number of mechanisms to ameliorate the situation.
III.A.5. RELATIONSHIP BETWEEN THE AGREEMENT ON AGRICULTURE
AND OTHER WTO AGREEMENTS
Relationship between the Agreement on Agriculture and Other WTO Agreements
 The provisions of GATT 1994 and of other Multilateral Agreements on Trade in Goods
(Annex 1A) shall apply subject to the provisions of the Agreement on Agriculture
(Article 21.1 of the Agreement on Agriculture).
 The SCM Agreement applies to all goods, including agricultural goods. However, in the
case of agricultural products, the SCM Agreement applies subject to the provisions of the
Agreement on Agriculture. In US - Upland Cotton, the Appellate Body interpreted that
agricultural subsidies are subject to the SCM Agreement "except to the extent that the
Agreement on Agriculture contains specific provisions dealing specifically with the same
matter" (para. 530-533). The relationship between the two Agreements will be further
explained in Module 5 during our study on the SCM Agreement.
 The Agreement on Agriculture and the SPS Agreement are closely related. Their
relationship will be addressed while introducing the SPS Agreement.
 Article XIX of the GATT and the Agreement on Safeguards apply to agricultural products.
 Article VI of the GATT and the Agreement on Anti-Dumping apply to agricultural
products.

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EXERCISES
4. What are the main changes introduced with the Agreement on Agriculture resulting from the Uruguay
Round?
5. What are the main provisions on special and differential treatment to developing countries and LDCs
under the Agreement on Agriculture?

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III.B. THE AGREEMENT ON SANITARY AND PHYTOSANITARY
MEASURES (THE SPS AGREEMENT)
III.B.1. INTRODUCTION
How can governments ensure that consumers within their territory are being supplied with food that is safe to
eat - "safe" by the standards they consider appropriate? And at the same time, how can governments ensure
that strict health and safety regulations are not being used as an excuse for protecting domestic producers?
Sanitary and phytosanitary (SPS) measures may result in restrictions to trade. All governments accept the fact
that some trade restrictions may be necessary to ensure food safety and animal and plant health protection.
However, sanitary and phytosanitary measures sometimes go beyond what is needed for health protection and
could be used to shield domestic producers from economic competition. Such pressure is likely to increase as
other trade barriers were reduced as a result of the Uruguay Round agreements.
The Agreement on Sanitary and Phytosanitary Measures (SPS) builds on previous GATT rules to restrict the use
of unjustified sanitary and phytosanitary measures for the purpose of trade protection. It is a separate
agreement covering the basic rules on food safety, as well as animal and plant health. The SPS Agreement
explicitly recognizes the right of governments to take measures to protect human, animal and plant life or
health, as long as these are based on science, are necessary for the protection of health, and do not
unjustifiably discriminate among foreign sources of supply.
III.B.2. OBJECTIVE OF THE SPS AGREEMENT
The multilateral framework which guides SPS measures aims to improve the phytosanitary situation in all
Members (human, animal and plant life or health), while minimizing negative effects on trade. Thus, the SPS
Agreement aims to strike a balance between the two.
The Preamble of the SPS Agreement recognises:
 No Member should be prevented from adopting or enforcing measures necessary to protect
human, animal or plant life or health; and,
 Members are not required to change their appropriate level of protection of human, animal or plant
life or health;
At the same time SPS measures are not to be applied in a manner that constitutes:
 A means of arbitrary or unjustifiable discrimination between Members where the same
conditions prevail; or,
 a disguised restriction on international trade.

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III.B.3. THE SCOPE OF APPLICATION OF THE SPS AGREEMENT
a. SUBSTANTIVE SCOPE
The SPS Agreement applies to all SPS measures that directly or indirectly affect international trade
(Article 1.1). SPS measures as set out in Annex A of the SPS Agreement include those which have the purpose
to protect, within the territory of a Member:
 Animal or plant life o health from risks arising from the entry, establishment or spread of pets,
diseases, disease-carrying or disease-causing organisms;
 human or animal life or health from risks arising from additives, contaminants, toxins or
disease-causing organisms in food, beverages or feedstuffs;
 human life or health from diseases carried by animals, plants or products thereof, or from the
entry, establishment or spread of pests; or,
 a country from damage caused by the entry, establishment or spread of pests.
Sanitary and phytosanitary (SPS) measures are also taken to protect the health of fish and wild fauna, as well
as of forests and wild flora, from the risks stated above.
b. ACCORDING TO THE "TYPE OF MEASURE"
Annex A states that SPS measures include all relevant laws, decrees, regulations, requirements and procedures
including, inter alia, end product criteria; processes and production methods (PPMs - explained in the box
below); testing inspection, certification and approval procedure; quarantine treatments including those
associated with transport of animals or plants; and, packing and labelling requirements directly related to food
safety.
c. ACCORDING TO THE "BODY" SUBJECT TO THE AGREEMENT
The SPS Agreement applies to all levels of government, including central, local and regional governmental
bodies, as well as to non-governmental bodies (Article 13).
d. TEMPORAL SCOPE
The SPS Agreement applies to existing SPS measures adopted before and after the entry into force of the SPS
Agreement (EC – Hormones, Appellate Body Report, para. 128).
Processes and Production Methods (PPMs)
Processes and production methods (PPMs) are referred to product standards focused on the production
methods rather than product characteristics. The term was originated in the GATT Agreement on TBT of
1979 Annex 1A, Article 2.12. Processes and production methods (PPMs) are commonly classified into two
categories: product-related and non-product related. The first category includes PPMs used to assure
the functionality or quality of the product, or to safeguard the consumer who uses the product.

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The second one refers to PPMs that are not detectable in the final products and are often designed to
achieve a social purpose, like for example the protection of the environment.
Besides the SPS Agreement, the TBT Agreement and some GATT provisions (Articles III and XX) are also
concerned with PPMs.
Many SPS measures concern product-related PPMs, because it is often more effective to ensure the
safety of a final product by requiring that it be produced and processed appropriately. The first dispute
which addressed the SPS Agreement, EC - Hormones (WT/DS21 and WT/DS48) dealt with PPMs. The EU
requirements prohibited the use of growth-promoting hormones in the production of cattle for meat
purposes. This prohibition was questioned by Canada and the United States, in part, because three of the
hormones identified in the dispute were naturally occurring hormones, and some level of these was found in
all beef, whether or not the cattle had been treated for growth-promotion or other purposes
III.B.4. BASIC DISCIPLINES OF THE SPS AGREEMENT
The basic rights and obligations are set out in Article 2 of the Agreement and are elaborated in subsequent
articles. Article 2.1 provides that Members have the right to adopt SPS measures to achieve their
self-determined appropriate level of protection. However, the right to adopt SPS measures to achieve a
self-determined level of protection is accompanied by basic obligations.
Basic Disciplines of the SPS Agreement
The right to adopt SPS measures to achieve a self-determined level of protection is accompanied by basic
obligations. Essentially Members may adopt SPS measures provided the measures:
 Are applied only to the extent necessary to protect human, animal or plant life or health
(Article 2.2);
 are based on scientific principles and not maintained without sufficient scientific evidence,
except emergency or provisional measures (Article 2.2 – further elaborated in Article 3.3);
and,
 do not unjustifiably or arbitrarily discriminate between Members where identical or similar
conditions prevail, including their own territory and that of other Members; and are not
applied in a manner which would constitute a disguised restriction on international trade
(Article 2.3).
a. THE MEASURE MUST BE "NECESSARY" TO PROTECT HUMAN, ANIMAL OR PLANT
LIFE OR HEALTH
Article 2.2 of the SPS Agreement requires an SPS measure to be applied only to the extent necessary to
protect human, animal or plant life or health.

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The ''Necessity'' requirement is further elaborated in Article 5.6 and Footnote 3 of the SPS Agreement.
Article 5.6 obliges Members to adopt measures "not more trade restrictive than required" to achieve the
appropriate level of SPS protection, considering technical and economic feasibility. For example, if a country
wants to avoid the introduction of an insect associated with fruit imports, requiring fumigation might be a less
trade-restrictive alternative to an import ban.
The Appellate Body in Australia - Salmon (para. 194) agreed with the Panel that Article 5.6 contains a
three-pronged test for determining whether a measure is more trade restrictive than required. This is the case
if there is another SPS measure which: (i) is reasonably available taking into account technical and economic
feasibility; (ii) achieves the Member's appropriate level of SPS protection; and, (iii) is significantly less
restrictive to trade than the SPS measure contested.
The concept of necessity has never been tested in dispute settlement proceedings in the SPS context.
However, there has been an evolving interpretation of necessity in the context of Article XX of the GATT 1994
(General Exception), paragraphs (b) and (d).
In Brazil-Retreaded Tyres, the Appellate Body ruled that the determination of whether a measure is
'"necessary" involves in every case a process of weighing and balancing a series of factors which prominently
include: (i) the contribution made by the measure to the achievement of its objective; (ii) the importance of
the interests or values at stake; and, (iii) the trade-restrictiveness of the measure. An explanation of each of
these criteria is found in Module 8 (Exceptions).
b. BASED ON "SCIENTIFIC EVIDENCE"
The requirement under Article 2.2 that a SPS measure must have a scientific basis and not be maintained
without sufficient scientific evidence is the cornerstone of the SPS Agreement and is further elaborated in
Articles 5.1 and 5.2 on risk assessment.
Where a measure conforms to an internationally developed standard, as will be explained below on
Harmonization, the measure is presumed to be based on sufficient scientific evidence and a Member may not
need to provide further evidence. However, for a measure not based on an international standard, Members
need to provide not only evidence but also a risk assessment. Thus, Members have two options to show that
their measures are based on science. They may either:
(i) base their measures on international standards (Article 3.1); or,
(ii) base their measures on scientific risk assessment (Article 3.3).
As the Appellate Body stated in EC – Hormones (para. 177), the requirement on scientific evidence (combined
with the requirements of a risk assessment under Article 5.1) is essential for the maintenance of the delicate
and carefully negotiated balance in the SPS Agreement between the shared interests of promoting international
trade and of protecting life and health of humans, animals and plants.
1. HOW MUCH EVIDENCE IS ''SUFFICIENT''?
As explained by the Appellate Body in Japan - Agricultural Products II (para. 73), for evidence to be sufficient,
there must be a sufficient or adequate relationship between the SPS measure and the scientific evidence
available. This has to be determined on a case-by-case basis and will depend upon the particular

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circumstances of the case, including the characteristics of the measure at issue and the quality and quantity of
scientific evidence.
The burden of proof rests with the complaining party to raise a prima facie case that there is "not sufficient
scientific evidence" for the measure. The Member adopting the Measure has then to bring forward the
scientific evidence on which it has based its SPS measure (Japan – Agricultural Products II, Appellate Body
report para. 137).
2. IS IT ALLOWED TO APPLY A MEASURE WITHOUT SUFFICIENT SCIENTIFIC EVIDENCE?
In the fields of food safety, plant and animal health protection, precaution in the face of scientific uncertainty
and incomplete scientific knowledge has long been addressed through the use of safety margins and
provisional measures. Precaution is a notion which supports taking protective action before there is scientific
proof of a risk; that is, action may be taken in order to protect society against potential risks, without waiting
for the conclusive results of scientific analysis (to know more about the precautionary approach or principle see
the box below).
Article 5.7 of the SPS Agreement allows Members to adopt provisional SPS measures in cases where the
scientific evidence available is insufficient. The Appellate Body in Japan - Agricultural Products II (para. 73)
has ruled that four conditions must be cumulatively met for this provision to be legitimately invoked: (i) an
Article 5.7 SPS measure must be imposed in respect of a situation where relevant scientific information is
insufficient; (ii) the provisional measure must be adopted on the basis of available pertinent information;
(iii) the Member adopting the measure must seek to obtain the additional information necessary for a more
objective assessment of risk; and, (iv) the Member must review the SPS measure accordingly within a
reasonable period of time.
Provisional measures could be taken, for example, as an emergency response to a sudden outbreak of an
animal disease suspected of being linked to imports, while further information about the source of the outbreak
and its extent are gathered. Another example is the case of new food processing techniques where sufficient
evidence regarding safety does not yet exist.
The SPS Agreement and the Precautionary Principle
The "precautionary principle", or "precautionary approach", has been incorporated into several international
environmental agreements, and some claim that it is now recognized as a general principle of international
environmental law. In EC - Hormones, the Appellate Body noted that the "precautionary principle" was
reflected in the SPS Agreement, but that it did not override the specific obligations in the
Agreement. The Appellate Body considered that the notion of precaution was, in particular, incorporated in
paragraph 6 of the Preamble, Article 3.3, and Article 5.7 of the SPS Agreement.

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c. BASING MEASURES ON INTERNATIONAL STANDARDS - HARMONIZATION
1. PROVISIONS RELATING TO HARMONIZATION
Harmonization is a central discipline in the SPS Agreement and takes place in situations when Members base
their SPS measures on relevant international standards, guidelines or recommendations (Article 3.1), or when
Members recognize each other's measures as equivalent (Article 4). Note that, even with harmonization, each
Member adopts its own measure to reflect its appropriate level of protection, but without necessarily doing a
risk assessment.
According to Article 3.4 and Annex A(3) of the SPS Agreement, there is an express recognition of three
standard-setting bodies as relevant for SPS-related purposes: (i) the Codex Alimentarius Commission (Codex)
for food safety; (ii) the International Office of Epizootics (OIE) for animal health and zoonoses (now named the
World Organization for Animal Health); and, (iii) the International Plant Protection Convention Secretariat
(IPPC) for plant health. The SPS Committee can identify other relevant international standard-setting
organizations, but has not done so to date. The Agreement encourages Members to participate, within the
limits of their resources, in the work of relevant international organizations for the development and review of
standards, guidelines and recommendations, which have equal status under the SPS Agreement (Article 3.4).
2. ''BASED ON'' INTERNATIONAL STANDARDS
The Appellate Body in EC – Hormones has interpreted that the term ''based on'' is quite different from
"conform to". While Members are required to base their measures on international standards, there is no
mandatory rule requiring Members to "conform to" international standards. To be treated as "based on", a
measure may adopt some, not necessarily all, of the elements of the international standard (EC-Hormones,
Appellate Body Report, para. 165).
Although ''conform to'' international standards, guidelines or recommendations is not mandatory, measures
which conform to them are "presumed" to be necessary and be consistent with the SPS Agreement
(Article 3.2). Nonetheless, Members are still entitled to challenge SPS measures based on international
standards, guidelines and recommendations by claiming, for example, that the measure is applied in a manner
that results in a violation of the SPS Agreement.
3. CAN A MEASURE RESULT IN A HIGHER LEVEL OF PROTECTION BEYOND INTERNATIONAL
STANDARDS?
There is an explicit authorization for Members to introduce or maintain an SPS measure which results in a
higher level of protection than would be achieved by measures based on the relevant international standards,
guidelines or recommendations (Article 3.3). However, Members can do so only if: (i) there is a scientific
justification; or , (ii) as a consequence of the level of SPS protection a Member determines to be appropriate,
in accordance with the relevant provisions of Article 5 (risk assessment).
According to footnote 2 of the SPS Agreement, there is a scientific justification if, on the basis of an
examination and evaluation of available scientific information in conformity with the relevant provisions of the
SPS Agreement, a Member determines that the relevant international standards, guidelines or
recommendations are not sufficient to achieve its appropriate level of SPS protection.

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4. RISK ASSESSMENT
Members do not always base their measures on internationally-agreed standards because they may desire to
adopt SPS measures that achieve a higher (or lower) level of health protection than that achieved by the
international standards or, because there are no relevant international standards to use as a basis.
Article 5.1 sets out the basic obligations which require Members to ensure their SPS measures to be based on
risk assessment, as appropriate to the circumstances, taking into account the techniques developed by the
relevant international organizations. The requirement that SPS measures shall be based on a risk assessment
is qualified by the sentence "as appropriate to the circumstances", which provides for a certain degree of
flexibility in meeting the requirements of Article 5.1. As stated by the Panel in Australia – Salmon, the manner
of carrying out a risk assessment may vary according to the source and subject of the risk, product involved,
origin and destination, including country specific situations.
In EC - Hormones, the Appellate Body clarified the following aspects of the obligations of undertaking a risk
assessment: (i) the requirement that an SPS measure be ''based on'' a risk assessment is a substantive
requirement – that is, there must be a rational relationship between the measure and the risk assessment
(para. 193); (ii) the risk need not to be quantified but can be expressed qualitatively (para. 186); (iii) it is not
sufficient for a risk assessment to show a general risk of harm (paras. 199-200); and, (iv) Members may base
their measures on a risk assessment carried out by another Member or by relevant international organizations
(para. 190).
The risk assessment and the results of the risk assessment have to sufficiently warrant the SPS measure. The
only qualified exception to this rule is contained in Article 5.7, which allows Members to adopt provisional SPS
measures in cases where the scientific evidence available is insufficient (examined above).
d. NON-DISCRIMINATION
As mentioned at the beginning, SPS measures shall not: (i) arbitrarily or unjustifiably discriminate;
(ii) between Members, including between the Member imposing the measure and other Members; (iii) if
identical or similar conditions prevail. In EC – Hormones, the Appellate Body identified these three elements,
cumulative in nature, necessary to find a violation of Article 5.5 (paras. 214-215).
In Australia – Salmon (Article 21.5), the Panel found that discrimination under this Article may occur not only
between like products, but also between different products if these pose the same or similar health risks (which
would justify them being treated in the same way) (para. 7.112).
This non-discrimination provision is complemented by Article 5.5 on ''Consistency'', according to which each
Member shall avoid arbitrary or unjustifiable distinctions in the levels it considers to be appropriate in different
situations, if such distinctions result in discrimination or a disguised restriction on international trade.

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III.B.5. RELATIONSHIP BETWEEN THE SPS AGREEMENT AND OTHER WTO
AGREEMENTS
Relationship between the SPS Agreement and Other WTO Agreements
 The provisions of the TBT Agreement do not apply to SPS measures as defined in Annex A
of the SPS Agreement (Article 1.5 of the TBT Agreement and Article 1.4 of the SPS
Agreement). The relationship between the two Agreements will be further elaborated after
our explanation of the TBT Agreement.
 The SPS Agreement complements the Agreement on Agriculture by bringing more
"discipline" to very specific areas (such as food safety and the protection of human, animal
and plant life or health from pests or diseases) and ensuring governments do not go beyond
what is necessary for the accomplishment of SPS objectives (Article 14 of the Agreement on
Agriculture). Furthermore, SPS measures cover sanitary and phytosanitary risks arising
from all goods in international trade whereas the product coverage of the Agreement on
Agriculture is limited to agricultural products listed in Annex 1 of the Agreement.
 The SPS Agreement further elaborates on Article XX(b) of the GATT 1994. Furthermore,
SPS measures which conform to the relevant provisions of the SPS Agreement shall be
presumed to be in accordance with the obligations of the Members under the provisions of
GATT 1994, which relate to the use of SPS measures, in particular Article XX(b).
III.C. THE AGREEMENT ON TECHNICAL BARRIERS TO TRADE
(THE TBT AGREEMENT)
III.C.1. INTRODUCTION
In recent years, the number of technical regulations and standards adopted by countries has grown
significantly. Technical regulations and standards are important, but they can vary from country to country.
Having many different regulations and standards makes life difficult for producers and exporters. If the
standards are set arbitrarily, they could be used as an excuse for protectionism.
Rationale Behind the TBT Agreement
Although it is difficult to give a precise estimate of the impact on international trade of the need to comply
with different foreign technical regulations and standards, it certainly involves significant costs for producers
and exporters. In general, these costs arise from the translation of foreign regulations, hiring of technical
experts to explain foreign regulations, and adjustment of production facilities to comply with the
requirements. In addition, there is the need to prove that the exported product meets the foreign
regulations. The high costs involved may discourage manufacturers from trying to sell abroad.

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In the absence of international disciplines, a risk exists that technical regulations and standards could be
adopted and applied solely to protect domestic industries.
Indeed, technical measures may well have the aim to correct for market failures like information
asymmetries or network externalities and well-designed standards can play an important role in
guaranteeing the smooth functioning of markets. Technical measures however, are also likely to affect the
outcome of international transactions and thus trade. If they are designed to do so, i.e. if technical
measures are employed as a “disguised” form of protectionism, this would be in conflict with the principles of
the multilateral trading system. The challenge for the system is to strike a balance between the right to
take measures to achieve a legitimate objective, and the obligation not to create unnecessary obstacles
to trade.
III.C.2. OBJECTIVE OF THE TBT AGREEMENT
According to the Preamble of the TBT Agreement, it is intended to ensure that technical regulations, standards
and conformity assessment procedures do not constitute unnecessary barriers to international trade. It
recognizes that no country shall be prevented from taking measures necessary to ensure, among others: the
quality of exports; the protection of human, animal or plant life or health; the protection of the environment;
the prevention of deceptive practices. Members may protect other legitimate objectives while using the
measures prescribed under the TBT Agreement.
These measures shall not be applied in a manner which would constitute a means of arbitrary or unjustifiable
discrimination between countries where the same conditions prevail or a disguised restriction on international
trade.
III.C.3. THE SCOPE OF APPLICATION OF THE TBT AGREEMENT
a. SUBSTANTIVE COVERAGE
The TBT Agreement applies to technical regulations, standards and conformity assessment procedures (See
Article 1.1 and Annex 1):
 Technical Regulations: measures which lay down product characteristics or their related
processes and production methods, with which compliance is mandatory;
 standards: measures approved by a Recognised Body that provide, for common and repeated
use, rules, guidelines or characteristics for products or related processes and production
methods, with which compliance is voluntary (i.e. not mandatory);
 conformity Assessment Procedures: procedures used, directly or indirectly, to determine
the fulfilment of relevant requirements contained in technical regulations or standards.
The Appellate Body has set out three criteria that a regulation must meet to fall within the definition of
"technical regulation" in the TBT Agreement: (i) the document must apply to an identifiable product or group

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of products; (ii) the document must lay down one or more characteristics of the product; and, (iii) compliance
with the product characteristics must be mandatory'' (EC – Sardines, Appellate Body, para. 176).
The TBT Agreement does regulate technical regulations and standards focused on PPMs, when these are
related to the characteristics of products covered by the TBT Agreement (see definition above). The issue
whether the Agreement covers PPMs not-related to the characteristics of products (PPMs that are not
detectable in the final product) has been subject of a complex debate among Members. To know more about
PPMS (see the explanatory box included for the SPS Agreement).
It is important to know the scope of application of the TBT Agreement, to be able to verify if it applies to a
certain measure, since there are two other WTO Agreements, the GATT 1994 and the SPS Agreement which
also regulate technical and internal measures (such as domestic technical regulations). The TBT Agreement
applies to goods - services are excluded from its coverage. Additionally, according to Article 1.5, the TBT
Agreement does NOT apply to SPS measures as defined in Annex A of the SPS Agreement (the differences
between the SPS and TBT Agreement are explained at the end of this section). Furthermore, Article 1.4 of the
TBT Agreement provides that it is not applicable to purchasing specifications prepared by government bodies
for production or consumption requirements of governmental bodies, which are covered by the plurilateral
Agreement on Government Procurement (see Module 11).
b. PRODUCT COVERAGE
The TBT Agreement applies to all products, including industrial and agricultural products (Article 1.3).
c. INSTITUTIONAL COVERAGE
As in the case of the SPS Agreement, the TBT Agreement applies to a wide range of bodies, both governmental
and non-governmental. Members are responsible for the implementation of the TBT Agreement, but their
obligation to ensure compliance varies according whether if it is a central, local or regional body, or a
non-governmental entity.
d. TEMPORAL COVERAGE
The TBT Agreement applies to measures currently in legal force, regardless of the date they were enacted by
the Member.
III.C.4. MAIN DISCIPLINES OF THE TBT AGREEMENT
Main Disciplines Provided in the TBT Agreement
The main disciplines provided in the TBT Agreement are:
 Non-discrimination;
 avoidance of unnecessary obstacles to international trade;
 harmonisation and equivalence;

178. 160
 transparency; and,
 special and differential treatment, including technical assistance (TA) to developing
country and LDCs Members.
a. NON-DISCRIMINATION
As we discussed in Module 2, Articles I and III of GATT 1994 contain the two components of the core principle
of non-discrimination: the Most-Favoured Nation (MFN) and the National Treatment principles.
These two principles are also incorporated into the TBT Agreement – Article 2.1 (for technical regulations),
Annex 3 (D) (for standards), and Article 5.1.1 (for conformity assessment procedures). According to these
articles, the overall examination of compliance of the non-discrimination principles under the TBT Agreement
involves the determination of "likeness" between products and the determination of whether "no less
favourable treatment" ("access" in the case of conformity assessment procedures) has taken place between
these products.
b. AVOIDANCE OF UNNECESSARY OBSTACLES TO INTERNATIONAL TRADE
With respect to technical regulations, Article 2.2 of the TBT Agreement provides that Members shall ensure that
technical regulations are not prepared, adopted or applied with a view to or with the effect of creating
unnecessary obstacles to international trade.
Thus, as it was the case of the SPS Agreement, the TBT Agreement sets out a ''Necessity'' requirement, that
is, technical regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective.
Such legitimate objectives include, inter alia: national security requirements; the prevention of deceptive
practices; and protection of human health or safety, animal or plant life or health, or the environment. This
list of legitimate objectives is not exhaustive. The concept of necessity has never been tested in dispute
settlement in the TBT context. Although the concept of necessity in the TBT Agreement does not have the
same application and meaning as in Article XX, paragraphs (b) and (d), the criteria developed for the
interpretation of the latter might provide useful guidance (see Module 8).
While assessing the necessity of a measure to fulfil a legitimate objective, Members shall take into account the
risks that the non-fulfilment of that legitimate objective would create. In assessing such risks, relevant
elements of consideration are, inter alia: available scientific and technical information, related processing
technology or intended end-uses of products.
c. USE OF INTERNATIONAL STANDARDS - HARMONIZATION
The TBT Agreement does not define harmonization, but the importance of international standards is recognized
in the Agreement and its Preamble. As with the SPS Agreement, the harmonization effort takes place in the
TBT Agreement when WTO Members base their regulations, standards or conformity assessment procedures on
the relevant international standards, guidelines or recommendations, or when WTO Members recognize each
other's measures as equivalent (equivalence will be addressed below).

179. 161
1. USE OF INTERNATIONAL STANDARDS
When a WTO Member decides to create a new TBT measure - or revise one which is already in place - it should
start its task by verifying if an international standard exists for the product and/or measure in question. If it
exists, the WTO Member has the obligation to base its measure on international standards, unless the
relevant international standard is an ineffective/inappropriate means to fulfil a legitimate objective
(Articles 2.4, 5.4 and Annex 3(F) of the TBT Agreement). The possibility to depart from international
standards when these are ineffective constitutes a difference with the SPS Agreement.
International standards (guides and recommendations) are those prepared by international standardizing
bodies (ISB). The TBT Agreement offers a broad definition of an "international body or system" as ''body or
system whose membership is open to the relevant bodies of at least all Members'' (Annex 1.4).
As with the SPS Agreement, whenever a technical regulation is prepared for one of the legitimate objectives
listed in Article 2.2 and is in accordance with relevant international standards, it will be "presumed" (rebuttably
presumed in the case of the TBT Agreement) to meet the ''Necessity'' requirement (Article 2.5). However,
WTO Members have the right to challenge any technical regulation which they believe does constitute an
unnecessary obstacles to international trade. Additionally, Article 2.5 also stipulates that Members, upon
request, shall explain the justification of the measures they are preparing, adopting or applying.
WTO Members are also required to play a full part, within the limits of their resources, in the preparation of
international standards, guides and recommendations by appropriate international standardizing bodies, with a
view to harmonizing technical regulations (Article 2.6). A similar provision exists for conformity assessment
procedures (Article 5.5).
Regarding the burden of proof, in EC- Sardines, the Appellate Body held that the complainant (seeking a ruling
on the inconsistency with Article 2.4) has the burden of proving that: (i) an international standard has not
been used ''as a basis for'' a TBT measure at issue; and, (ii) the international standard is effective and
appropriate to fulfil the ''legitimate objectives'' pursued by the respondent through the TBT measure
(para. 275).
2. EQUIVALENCE AND MUTUAL RECOGNITION
Equivalence refers to the situation whereby a WTO Member accepts a technical regulation from another WTO
Member as equivalent, even if it differs from its own, provided that it adequately fulfils the objective of its own
regulation. It does not require measures to be identical (Article 2.7).
The TBT Agreement encourages Members to engage in mutual recognition of each other's conformity
assessment procedures (Article 6.3). In this respect, two or more Members may enter into Mutual Recognition
Agreements which involve the reciprocal acceptance of the results of conformity assessment procedures taking
place in the territory of Members concerned.

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III.C.5. RELATIONSHIP BETWEEN THE SPS AGREEMENT AND THE TBT
AGREEMENT
SPS AGREEMENT TBT AGREEMENT
Similarities
 requirement that a measure shall not be more
trade-restrictive than necessary;
 basic obligations of non-discrimination;
 encourage the use of international standards in order
to promote harmonization;
 requirements for the advance notification of proposed
measures and the creation of information offices or
"enquiry points" (so-called transparency requirements
– explained below);
 special and differential treatment to developing and
least-developed countries (explained below); and,
 special provisions regarding dispute settlement.
Differences
SCOPE OF COVERAGE
all measures, whose purpose is
to protect human or animal life
or health from food-borne risks;
human health from animal or
plant-carried diseases; animals
and plants from pests or
diseases; or to prevent other
damage from pests.
all technical regulations,
standards and conformity
assessment procedures, except
when these are SPS measures
as defined by the SPS
Agreement. (Example:
requirements for
pharmaceuticals or the labelling
of cigarettes.)
TBT OR SPS? AN EXAMPLE – ORANGES:

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SPS AGREEMENT TBT AGREEMENT
OBJECTIVES
exhaustive list of objectives:
only be applied to the extent
necessary to protect human,
animal or plant life or health
from food-borne risks, animal or
plant-carried diseases, pests.
non-exhaustive list of legitimate
objectives: may be applied and
maintained to fulfil a legitimate
objective, including the
protection of human health or
safety, the protection of the
environment or the prevention
of deceptive practices.
DEFERENCE TO INTERNATIONAL STANDARDS & SCIENCE
WTO Members are obliged to use
international standards unless
they can show a specific
scientific justification based on a
risk assessment.
International standardizing
bodies are explicitly mentioned
in the SPS Agreement (Codex,
OIE, IPPC).
WTO Members have the
obligation to base their measure
on international standards,
unless the relevant international
standard is an inappropriate or
ineffective means to fulfil a
legitimate objective.
Does not explicitly identify
international standardizing
bodies.
III.C.6. SPECIAL AND DIFFERENTIAL TREATMENT UNDER THE SPS
AGREEMENT AND THE TBT AGREEMENT
Both the SPS Agreement and the TBT Agreement acknowledge the particular difficulties and challenges that
developing country Members may face in the formulation and implementation of SPS measures and TBT
measures. Several provisions were envisaged to assist them in this regard.
a. IMPLEMENTATION OF THE SPS AGREEMENT AND THE TBT AGREEMENT
Both Agreements require Members to pay consideration to the financial, trade and development needs
(including lack of technical expertise, infrastructure and resources) of developing country Members
in the implementation of the Agreements (Article 10.3 of the SPS Agreement and Article 12.2 of the TBT
Agreement).
Under the SPS Agreement and the TBT Agreement, the Committee is enabled to grant developing
countries, upon request, specified time – limited exceptions in whole or in part from the obligations
under the Agreement (Article 10.3 of the SPS Agreement and Article 12.8 of the TBT Agreement).

182. 164
TO KNOW MORE... PECULIARITY OF THE SPS AGREEMENT
Longer implementation periods (Article 14) - Compliance with SPS rules and principles was delayed for
LDcs (five years) and for other developing countries (two years) with respect to their SPS measures.
b. PREPARATION AND APPLICATION OF SPS MEASURES AND TBT MEASURES
Both Agreements require Members to take into account the special needs of developing country
Members in the preparation and application of SPS measures and TBT measures. Such measures
shall not create unnecessary obstacles to exports from developing countries (Article 10.1 of the SPS
Agreement and Article 12.3 of the TBT Agreement).
TO KNOW MORE... PECULIARITY OF EACH AGREEMENT
The SPS Agreement allows longer time-frames for compliance in cases of phased introduction of a new
SPS measures by developing country Members (Article 10.2).
TBT Agreement
 Recognizes that developing Members shall not be expected to use international standards as
a basis for their technical regulations or standards, when these are not appropriate to their
development, financial and trade needs (Article 12.4).
 Allows developing country Members to adopt TBT measures aimed at preserving indigenous
technologies and production methods and processes compatible with their development
needs (Article 12.4).
 Members shall take reasonable measures as may be available to them to ensure that
standardizing bodies, upon request of developing countries, examine the possibility of, and if
practicable, prepare international standards for products of special interest to developing
countries (Article 12.6).

183. 165
c. TECHNICAL ASSISTANCE
Both Agreements requires that in the provision of technical assistance, special consideration should be
paid to developing countries (Article 9 of the SPS Agreement and Articles 11 & 12.7 of the TBT Agreement).
Technical assistance covers:
TO KNOW MORE... PECULIARITY OF EACH AGREEMENT
Technical assistance covers:
SPS Agreement: processing technology, research or infrastructure, and may take the form of technical
advice, training and equipment to allow such countries to adjust and comply with SPS measures.
TBT Agreement: the preparation of technical regulation; the establishment of national standardizing
bodies, establishment of regulatory bodies or bodies for the assessment of conformity with technical
regulations, etc. Priority should be given to the needs of the least-developed country Members (Article 11).
Technical assistance is also provided at an informal level when governments seek additional information or
legal advice directly from the WTO Secretariat. The Secretariat regularly assists Members in developing an
effective understanding of SPS and TBT provisions, including the notification procedures, and helps them to
appreciate their roles, responsibilities, rights and obligations in the context of the Agreements.
III.C.7. TRANSPARENCY PROVISIONS UNDER THE SPS AGREEMENT AND
THE TBT AGREEMENT
The SPS and TBT Agreement include the following main obligations on transparency (Article 7 and Annex B of
the SPS Agreement, and Article 2.9, 2.10, 2.11, 2.12, 5.6, 5.7, 5.8, 5.9 and 10 of the TBT Agreement,
paragraph C J, L and O of the Code of Good Practice):
 Notification of proposed SPS measures and TBT technical regulations or conformity assessment
procedures to the relevant Committee through the WTO Secretariat, according to the chart
below.
 Notification in case of SPS and TBT measures adopted for urgent reasons.
 Allow a reasonable interval of time between the publication of the SPS measure or technical
regulation or conformity assessment procedure and its entry into force to allow producers to
adapt to the new measures (except in urgent circumstances).
 Publish all adopted SPS regulations and TBT technical regulations and conformity assessment
procedures.
 Establish enquiry points responsible for providing information and documents to interested Members.
In addition, the TBT Agreement contains provisions for the notification of the agreements between WTO
Members related to technical regulations, standards or the acceptance of conformity assessment results, to the
WTO Secretariat. It also set out transparency obligations related to standards.

184. 166
In particular:
 Standardizing bodies shall notify their acceptance of the Code of Good Practice.
 Standardizing bodies shall notify the existence of a work programme.
 Standardizing bodies shall allow a period of 60 day for comments on draft standards.
 Adopted standards have to be published.
NOTIFICATION OF SPS MEASURES & TBT MEASURES
Common Features Peculiarities
TBT Agreement
General Rule Notify proposed SPS measures (Annex B(5)) /
proposed TBT regulations (Article 2.9) or
conformity assessment procedures (Article 5.6)
which are not substantially the same as the
content of relevant international standards and
have a significant effect on trade of other
Members (see Item F in G/SPS/7/Rev.1 and
page 15 in G/TBT/1/Rev.8).
Publish all adopted SPS regulations and TBT
technical regulations (Annex B of the SPS
Agreement and Article 2.11 of the TBT
Agreement).
Local Governments are required
to notify technical regulations
and conformity assessment
procedures which have not been
previously notified by their
central government authorities
(Articles 3.2 and 7.2 of the TBT
Agreement).
 Notify agreements between
Members on issues related to
technical regulations, standards
or conformity assessment
procedures which may have a
significant effect on trade
(Article 10.7 of the TBT
Agreement).
Emergency
Situation
When urgent problems of health protection arise
or threaten to arise (Annex B(6) of the SPS
Agreement) / urgent problems of safety, health,
environmental protection and national security
arise or threaten to arise (Articles 2.10 and 5.7 of
the TBT Agreement), Members may not notify the
proposed SPS or TBT measures, provided that:
 Immediately notify Members
through the Secretariat indicating
the objective of the measure and
the nature of the urgent problem
(see Item G in G/SPS/7/Rev.1).
 Upon request, provide copies of
regulation to other Members.
 Allow Members to make
comments in writing and take
these into account.
Table 2: Notification of SPS measures & TBT measures

185. 167
TO KNOW MORE... NOTIFICATION FORMATS
Note there are notification formats adopted by the SPS and TBT Committees for the purpose of notification.
Different notification formats should be used for the notification of different measures.
Notification of Technical Regulations and Conformity Assessment Procedures (G/TBT/1/Rev.8)
Notification of Standards (G/TBT/W/4/Rev.1)
Notification of SPS Measures (G/SPS/7/Rev.2)
Recommended Procedures for Implementing the Transparency Obligations of the SPS Agreement
(Draft G/SPS/W/215/Rev.2)
APPENDIX 1: EXAMPLE - WTO SCHEDULE OF COMMITMENTS
(AGRICULTURAL PRODUCTS)
This Schedule is authentic only in the English language
PART I – MOST-FAVOURED NATION (MFN) TARIFF
SECTION I – Agricultural Products
SECTION I – A Tariffs
Tariff item
number
Description
of products
Base rate
of duty
(U/B)
Bound
rate of
duty
Implementa-
tion period
Special
safeguard
Initial
Negotiating
Rights
Other
duties
and
charges
1 2 3 4 5 6 7 8
0101 Live horses,
asses, mules
and hinnies
0101.20.10 Asses 12%+1454
ECU/T
7.7%+931
ECU/T
SSG

186. 168
SECTION I – B TARIFF QUOTAS
Description
of products
Tariff Item
Number(s)
Initial quota Final quota Implementa-
tion period
INR* Other terms and
conditions
quantity tariff
rate
quantity tariff
rate
1 2 3 4 5 6 7
Live bovine
animals
0102.90.30 Ex 34.300 t
(product
weight)
10% 34.300 t
(product
weight)
10% "High quality" meat,
with or without bone,
allocated to supplying
countries as follows:
Argentina 17.000 t;
USA / Canada 10.000 t;
Australia 5.000 t;
Uruguay 2.300 t
* INR= Initial Negotiating Rights
EXERCISES
6. What is the purpose of the SPS Agreement?
7. What is the purpose of the TBT Agreement?
8. What are the main similarities and differences between the SPS Agreement and the TBT Agreement?

187. 169
ILLUSTRATION
SCENARIO
Let us assume that Vanin and Tristat are WTO Members. Vanin is a major exporter of apples and Tristat a
major importer of apples. Last year, Vanin's producers of apples experienced loss derived from increasing
competition and decreasing international prices for apples, as well as the spread of a pest that affected apple
crops in Vanin.
At the beginning of this year, the government of Vanin approved Law No. 1858 (known as the "Apple
Support Reform" – ASR), which launched a government programme directed to provide support to apple
producers by providing payments contingent on exports. During the Uruguay Round of negotiations, Vanin
did not inscribe any export subsidies for apples in its Schedule of commitments.
With the support of the ASR program, Vaninian apple producers started increasing their production and
exports of apples. They also increased the use of pesticides for prevention of another spread of pests in
their apple farms.
In face of the growing amount of imported apples with high levels of pesticides residue, Tristat promulgated
a regulation setting a maximum residue level (MRL) for all imported apples. In addition, it requested a
labelling for each apple informing the materials used to grow it, aiming at protecting the health of
consumers. Worth to mention that Codex Alimentarius Commission has set a MRL for pesticides in apples,
however it is not clear whether Tristat has based its measure on the Codex standard or not.
Tristat believes that Vanin's ASR program violates the WTO Agreement on Agriculture. Vanin claims that
Tristat's regulation is not consistent with the WTO Agreements.
QUESTION
Assume you are an expert on WTO law, what would you advise Tristat to argue before a WTO Panel? For
Vanin, which WTO Agreements would you consider relevant to its claim?
PROPOSED ANSWERS
Vanin's Apple Support Reform "ASR" - payments contingent on exports
Article 1(e) of the Agreement on Agriculture defines "export subsidies" as subsidies contingent upon export
performance. Thus, Tristat can argue that the payments contingent on exports provided by Vanin to apple
producers constitute export subsidies.
Article 8 of the Agreement provides that each Member undertakes not to provide export subsidies otherwise
than in conformity with the Agreement and with the commitments as specified in that Member's Schedule.
Articles 3.3 states that Members shall not provide export subsidies listed in Article 9.1 in respect of the
agricultural products or group of products of its Schedule in excess of the budgetary outlay and quantity
commitment levels specified therein.

188. 170
Accordingly, the payments contingent on exports provided by Vanin to apple producers shall be listed in
Vanin's Schedule and, if so, they shall be provided within the limits set out in such Schedule. Since Vanin
did not inscribe any export subsidy for apples in its Schedule of commitments, the ASR programme providing
payments contingent on exports to apple producers would be inconsistent with the Agreement on
Agriculture.
Tristat's regulations which requires to reduce the amount of pesticides to the MRLs and disclose
the materials used to grow apples for the purpose of protecting the health of consumers
Vanin can invoke the SPS Agreement. The SPS Agreement covers all measures, whose purpose is to
protect, among others, human, animal or plant life or health within the territory of the Member from risks
arising from additives, contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs
(Annex A). Thus, Tristat's regulation which requires all imported apples to reduce the amount of pesticides
to the MRLs during their growth and to be attached with labels disclosing the materials having been used to
grow apples for the purpose of protecting the health of consumers could be argued as an SPS measure
covered by the SPS Agreement.
For Tristat's measure to be in conformity with the SPS Agreement, it will need to meet certain requirements:
(i) be applied only to the extent necessary to protect human, animal or plant life or health; (ii) be based on
sufficient scientific evidence; and, (iii) does not unjustifiably or arbitrarily discriminate between Members
where identical or similar conditions prevail; and not be applied in a manner which would constitute a
disguised restriction on international trade. Regarding the second requirement (based on scientific
evidence), the measure would be presumed to be based on sufficient scientific evidence if it conforms to an
international standard. Otherwise, Tristat will need to provide not only scientific evidence but also risk
assessment in order to be in conformity with the SPS Agreement.
Remember that, under the SPS Agreement, Members are allowed to apply a measure without sufficient
evidence only if the evidence available is insufficient. In such cases, Members are allowed to apply
provisional measures subject to the requirements provided in Article 5.7 of the SPS Agreement.
Note that labelling requirements may also fall under the TBT Agreements, which covers all technical
regulations, standards and conformity assessment procedures, except when these constitute SPS measures
as defined in the SPS Agreement. Since the labelling requirement applied by Tristat is covered by the SPS
Agreement, the TBT Agreement will not apply.

189. 171
III.D. RULES FOR THE VALUATION OF GOODS AT CUSTOMS –
ARTICLE VII OF THE GATT 1994 & AGREEMENT ON
CUSTOMS VALUATION
III.D.1. INTRODUCTION
Customs valuation is the procedure applied to determine the customs value of imported goods when the
rate of duty is ad valorem. In this case, the customs value is essential to determine the duty to be paid on
an imported good.
The Agreement on Customs Valuation aims for a fair, uniform and neutral system for the valuation of goods for
customs purposes — a system that conforms to commercial realities, and which outlaws the use of arbitrary or
fictitious customs values.

190. 172
Why are the rules on custom valuation only relevant when referred to ad valorem duties?
As we saw in Module 3, customs duties can be designated in either specific or ad valorem terms or as a mix
of the two. In case of a specific duty, a concrete sum is charged for a quantitative description of the good,
for example USD 1 per item or per unit. The customs value of the good does not need to be determined, as
the duty is not based on the value of the good but on other criteria. In this case, no rules on customs
valuation are needed and the Agreement on Customs Valuation does not apply.
In contrast, an ad valorem duty depends on the value of a good. Under this system, the customs valuation
is multiplied by an ad valorem rate of duty (e.g. five per cent) in order to arrive at the amount of duty
payable on an imported item.
III.D.2. RATIONALITY BEHIND THE AGREEMENT ON CUSTOMS
VALUATION
For importers, the process of estimating the value of a product at customs presents problems that can be just
as serious as the actual duty rate charged. Access to the importing Member's market can be denied if the duty
payable at customs is inflated because the imported goods are overvalued by the customs authorities.
Importers may also face increasing transaction costs derived from the lack of uniformity on customs valuation
rules.
Without the Agreement on Customs Valuation, the outcome of the tariff negotiation would be undermined if the
importing countries are allowed to adopt valuation rules and methodology arbitrarily and discretionarily. In
other words, the arbitrary adoption of valuation rules could constitute a non-tariff barrier, which would offset
the effects of tariff concessions.
III.D.3. HISTORICAL BACKGROUND
The GATT CONTRACTING PARTIES has attempted to standardize the practice of customs valuation since 1947.
Article VII:2(a) of GATT 1947 only required that the value for customs purposes of imported merchandise
should be based on the actual value of the imported merchandise on which the duty is assessed and should not
be based on the value of merchandise of national origin or on arbitrary or fictitious values. This provision left
room for considerable different methods of valuing goods and for arbitrary and protectionist procedures.
Therefore, in the Tokyo Round negotiations, new rules were negotiated on customs valuation with the aim to
establish a predictable system that would reflect commercial realities as closely as possible. Accepted by most
developed countries, but by less than a dozen developing countries, it became one of the plurilateral codes
governing non-tariff trade measures. This Code was re-examined during the Uruguay Round and replaced by
the WTO Agreement on Implementation of Article VII (Agreement on Customs Valuation). In contrast to the
Tokyo Code, the Agreement on Customs Valuation is binding for all WTO Members.

191. 173
III.D.4. MAIN RULES ON CUSTOMS VALUATION
The Agreement on Customs Valuation aims for a fair, uniform and neutral system for the valuation of
goods for customs purposes, which conforms to commercial realities and outlaws the use of arbitrary or
fictitious customs values. It provides a set of valuation rules, expanding and giving greater precision to the
provisions on customs valuation in the original GATT.
a. BASIC PRINCIPLE – METHOD 1
The primary basis for customs value under this Agreement is "transaction value", defined in Article 1 as the
price actually paid or payable for the goods when sold for export to the country of importation,
adjusted in accordance with Article 8 which provides, inter alia, when certain specific elements are incurred by
the buyer but are not included in the price. The transaction value is the first and most important method of
valuation referred in the Agreement.
Customs valuation based on the transaction value method is mainly based on documentary input from the
importer. Article 17 of the Agreement on Customs Valuation confirms that customs administrations have the
right to request further information in cases where they have reasons to doubt the accuracy of the declared
value of imported goods. The "Decision Regarding Cases Where Customs Administrations Have Reasons To
Doubt The Truth Or Accuracy Of The Declared Value" spells out the procedures to be observed in such cases.
If the reasonable doubt still exists after reception of further information (or in absence of a response), customs
may decide that the value cannot be determined according to the transaction value method. Before a final
decision is taken, customs must communicate its reasoning to the importer, who, in turn, must be given
reasonable time to respond. In addition, the reasoning of the final decision must be communicated to the
importer in writing.
b. OTHER METHODS
For cases in which there is no transaction value (for example, there is no sale or an invoice), or where the
transaction value is not acceptable as the customs value because the price has been distorted as a result of
certain conditions (specified in Article 1 of the Agreement), the Agreement on Customs Valuation lays down
five other methods of customs valuation, to be applied in the prescribed hierarchical order:
 Method 2 - Transaction Value of Identical Goods (Article 2): the customs value is
determined on the basis of the transaction value of previously imported identical goods.
 Method 3 – Transaction Value of Similar Goods (Article 3): the customs value is
determined on the basis of the transaction value of previously imported similar goods.
 Method 4 – Deductive Method (Article 5): the customs value is determined on the basis of
the price at which the imported goods or identical or similar goods are sold to an unrelated
buyer in the country of importation minus certain deductions.
 Method 5 – Computed Method (Article 6): determines the customs value on the basis of the
cost of production (value of the materials and fabrication), plus an amount for profits and
general expenses.

192. 174
 Method 6 – Fall Back Method (Article 7): determines the customs value using reasonable
means consistent with the principles and general provisions of the Agreement and Article VII of
GATT (available only if none of the other methods can be used).
c. SPECIAL AND DIFFERENTIAL TREATMENT
The Agreement on Customs Valuation recognizes the particular difficulties and challenges that developing
country Members may face in the implementation of the Agreement and thus, provides special and differential
treatment to them (see Article 20 and Annex 3 of the Agreement).
 Longer Implementation Periods: developing country Members (which were not party to the
Tokyo Round Code) were allowed to delay application of the provisions of the Agreement for 5
years from the date on which the developing country became a member of the WTO
(Article 20.1). An extension of the five-year period is also allowed based on request from such
developing country Members, which must show good cause (Annex III:1).
 Technical Assistance (TA) from developed country Members: under Article 20.3 developed
country Members shall furnish, on mutually agreed terms, technical assistance to developing country
Members that so request. On this basis, developed country Members shall draw up TA programmes
which may include, inter alia, training of personnel, assistance in preparing implementation measures,
access to sources of information regarding customs valuation methodology and advice on the
application of the provisions of the Agreement.
The Agreement on Customs Valuation also allowed developing country Members to make reservations to some
provisions of the Agreement (which are not applicable to them) as well as to request a special application of
certain provisions.
III.E. FEES AND FORMALITIES CONNECTED WITH
IMPORTATION AND EXPORTATION – ARTICLE VIII OF
THE GATT 1994
III.E.1. INTRODUCTION
Article VIII of GATT 1994 includes specific legal obligations applicable to fees and formalities and to the
penalties that may be imposed for breaches of customs procedures. It also recognizes the need to
reduce the number and complexity of import and export-related fees and formalities.
The aim of Article VIII is to help expedite the movement, release and clearance of goods by preventing the use
of fees and formalities as a form of non-tariff barrier. In order to lower transaction costs for traders, fees and
formalities should not be applied in a manner which would restrict the flow of goods across
borders.

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III.E.2. MAIN PROVISIONS
Article VIII:1(a) makes clear that the disciplines set forth in Article VIII apply to all fees and charges of
whatever character imposed on or in connection with importation or exportation except for: (i) import and
export duties; and, (ii) internal taxes within the scope of Article III of GATT 1994. It also applies to import and
export formalities. Typical fees and charges include licence fees and inspection fees, while import-related
formalities refer to requirements relating to the documentation needed for import and customs clearance.
Article VIII of GATT 1994 includes the following obligations:
 Fees and charges shall be limited in amount to the approximate cost of services rendered and
shall not represent an indirect protection to domestic products or a taxation of imports or
exports for fiscal purposes (Article VIII:1(a));
 recognizes the need for reducing the number and diversity of fees and charges
(Article VIII:1(b));
 recognizes the need for minimizing the incidence and complexity of import and export
formalities and for decreasing and simplifying import and export documentation requirements
(Article VIII:1 (c));
 requires Members to review the operation of their laws and regulations, upon request by
another Member, in the light of Article VIII (Article VIII:2); and,
 prohibits the imposition of "substantial" penalties for minor breaches of customs regulations or
procedural requirements - e.g. omission or mistake in customs documentation which is easily
rectifiable - (Article VIII:3).
III.E.3. ARTICLE VIII AND TRADE FACILITATION
In July 2004, WTO Members formally agreed to launch negotiations on trade facilitation on the basis of
modalities contained in Annex D of the so-called “July 2004 Package” (see below). Under this mandate,
Members are directed to clarify and improve the following Articles of the GATT 1994: Article V (Freedom of
Transit), Article VIII (Fees and Formalities connected with Importation and Exportation), and Article X
(Publication and Administration of Trade Regulations).
III.F. PUBLICATION AND ADMINISTRATION OF TRADE
REGULATIONS – ARTICLE X OF THE GATT 1994
III.F.1. INTRODUCTION
We have made frequent reference to the principle of transparency during our previous Module on the basic
principles of the WTO - Module 1. We also have learned that the principle of transparency is embodied in many
WTO Agreements, such as the SPS Agreement and the TBT Agreement.
Article X of GATT 1994 lays down the general transparency obligation in the publication and
administration of trade regulations.

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III.F.2. MAIN RULES
In essence, Article X requires Members to:
 Publish their trade-related laws, regulations, rulings and agreements in a prompt and
accessible manner (Article X:1);
 refrain from enforcing measures of general application prior to their publication (Article X:2);
and,
 administer the above-mentioned laws, regulations, rulings and agreements in a uniform,
impartial and reasonable manner. In this context, parties are required to institute or maintain
tribunals or procedures for, inter alia, the prompt review and correction of administrative action
relating to customs matters (Article X:3).
III.F.3. ARTICLE X AND TRADE FACILITATION
As with Article VIII (Fees and Formalities connected with Importation and Exportation), Article X is part of the
trade facilitation negotiations, which will be further examined below.
III.G. TRADE FACILITATION
NEGOTIATIONS ON TRADE FACILITATION
Once formal trade barriers come down, other issues become more important. For example, companies need to
be able to acquire information on other countries’ importing and exporting regulations and how customs
procedures are handled. Cutting red-tape at the point where goods enter a country and providing easier
access to this kind of information are two ways of "facilitating" trade".
The 1996 Singapore Ministerial Conference instructed the WTO Goods Council to start exploratory and
analytical work on the simplification of trade procedures in order to assess the scope for WTO rules in this
area" (Singapore Ministerial Declaration, para. 21).
In July 2004, WTO Members formally agreed to launch negotiations on trade facilitation, on the basis of
modalities contained in Annex D of the so-called "July Package" – Decision adopted by the General
Council on 1 August 2004 - WT/L/579). The negotiations on trade facilitation should be completed under
the overall Doha Development Agenda timeline. In the Hong Kong Ministerial, Members reaffirmed the
mandate and modalities for the negotiations on trade facilitation contained in Annex D of the July Package.

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Why Trade Facilitation?
The main objective for businesses and traders is to lower their transaction costs by increasing
their profit margins and saving time in concluding their business transactions. Saving time and money are
the two main determinant factors for businesses to succeed. Some of the main problems traders face
include excessive documentation requirements, burdensome border-crossing procedures, transport and
transit impediments especially for landlocked countries, and lack of transparency and predictability in trade
laws and regulations. As we will see, addressing these problems is what the negotiations on trade
facilitation is all about.
Negotiations on Trade Facilitation are seen as a necessary complement to broader liberalization
efforts –essential to reap the full benefits of freer trade.
1. Clarify and Improve Relevant Aspects of Articles V, VIII and X of the GATT 1994
Members are directed to clarify and improve Article V (Freedom of Transit), Article VIII (Fees and
Formalities connected with Importation and Exportation), and Article X (Publication and
Administration of Trade Regulations) of the GATT 1994 with a view to further expediting the movement,
release and clearance of goods, including goods in transit ("July package", Annex D, para. 1).
2. Technical Assistance and Capacity Building
The negotiations also aim to enhance TA and capacity-building on trade facilitation ("July Package",
Annex D, para. 1). It was also recognized that the provision of TA and support for capacity-building is vital for
developing and LDC Members to enable them to fully participate in and benefit from the negotiations.
Members, in particular developed countries, therefore commit themselves to adequately ensure such support
and assistance during the negotiations. Support and assistance should also be provided to help developing and
LDC Members implement the commitments resulting from the negotiations, in accordance with their nature and
scope ("July Package", Annex D, paras. 5 and 6).
As an integral part of the negotiations, Members shall seek to identify their trade facilitation needs and
priorities, particularly those of developing and LDC Members, and shall also address the concerns of
developing and LDC Members related to cost implications of proposed measures ("July Package", Annex D,
paras. 4).
3. What are WTO Trade Facilitation Needs Assessments?
According to paragraph 4 of Annex D of the July Package, a TA programme has been established to assist WTO
Members and Observers in conducting trade facilitation self assessments. The main objectives of the
self-assessments are to identify TRTA/capacity-building needs and priorities for the implementation
of a future WTO Agreement on Trade Facilitation and to participate more efficiently in WTO trade
facilitation negotiations. The needs-assessment programme is a joint undertaking by the WTO Secretariat
and relevant international organizations (in particular the World Bank, World Customs Organization (WCO),
UNCTAD, Organisation for Economic Cooperation and Development (OECD) and International Monetary
Fund (IMF)).

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More specifically, the needs-assessment process will help each country to: 1. identify the compliance level for
each proposed trade facilitation measure; 2. determine its national negotiation position for each proposed
measure; 3. identify any special and differential treatment, TRTA and capacity-building needs and priorities;
4. develop the capacity to continue the assessment of needs and priorities; and, 5. provide more effective
continued assistance to Geneva-based negotiators as negotiations progress.
Needs, priorities and implementation capacities vary from country-to country. Participants of needs
assessments have identified many benefits gained as a result of the assessments. Some of these
benefits include: (i) the results provide a snapshot of the country's current trade facilitation situation;
(ii) better understanding of the proposed measures; (iii) the country is better prepared for implementation;
and, (iv) better understanding of the role and status of various border agencies and of the private sector.
A guide to assist developing and LDC Members to carry out their needs-assessments can be found in document
TN/TF/W/143/Rev.2.
4. Special and Differential Treatment
The results of the negotiations shall take fully into account the principle of special and differential
treatment for developing and LDC Members. Members recognize that this principle should extend beyond
the granting of traditional transition periods for implementing commitments. In particular, the extent and the
timing of entering into commitments shall be related to the implementation capacities of developing and LDC
Members.
It is further agreed that developing and LDC Members would not be obliged to undertake investments in
infrastructure projects beyond their means, in particular, LDC Members will only be required to undertake
commitments to the extent consistent with their individual development, financial and trade needs or their
The speed and scope of work in the area of trade facilitation, as in many other areas, will depend on progress
in other areas, mainly in the Agriculture and NAMA negotiations.
Why is Trade Facilitation important for Developing Countries?
Development aspects are at the heart of the WTO negotiations on trade facilitation. Lowering
trade-related transaction costs can result in a significant improvements in a country's ability to
compete in the global economy. This applies to all developing Members and in particular to landlocked
developing and LDC Members.
The range of benefits that can be realized by taking measures to facilitate trade include improved revenue
collection, improved border controls and security, lower administration costs, more trade and foreign
investment and enhanced competitiveness of domestic business in its home markets as well as in export
markets.
Developing countries also stand to benefit greatly from the aspired increase in transparency and
predictability of the trading environment.
The importance of development aspects in the trade facilitation negotiations is reflected in the negotiating
mandate, which includes the enhancement of TRTA and capacity-building, as well as the recognition of the
principle of special and differential treatment for developing country Members.

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TO KNOW MORE ABOUT TRADE FACILITATION, PLEASE REFER TO
http://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm
A compilation of Members' proposals on trade facilitation can be found in document TN/TF/W/43 and its
respective revisions.
III.H. AGREEMENT ON IMPORT LICENSING PROCEDURES
III.H.1. INTRODUCTION
Import licensing can be defined as administrative procedures requiring the submission of an
application or other documentation (other than those required for customs purposes) to the relevant
administrative body as a prior condition for importation of goods.
The Agreement on Import Licensing Procedures provides a set of principles and detailed rules intended to
prevent licensing procedures from being an obstacle to trade. The main objectives of the Agreement
are to simplify and bring transparency to import licensing procedures, to ensure their fair and equitable
application and administration, as well as to prevent that these procedures are applied in a manner that they
have restrictive or distortive effects on imports.
The Agreement on Import Licensing Procedures is related to Article X (Publication and Administration of Trade
Regulations), Article XI (General Elimination of QRs) and Article XIII (Non-discriminatory Administration of
Quantitative Restrictions (QRs)) of the GATT 1994, which you have studied in Module 3.
III.H.2. HISTORICAL BACKGROUND
The Tokyo Round Import Licensing Code was one of the agreements covering non-tariff measures concluded
during the multilateral trade negotiations held between 1973 and 1979. The Agreement on Import Licensing
Procedures is a revised version of the Tokyo Code and is binding on all WTO Members.
III.H.3. MAIN PROVISIONS
The Agreement contains provisions that apply specifically to non-automatic or automatic licensing, as well as
general provisions that apply to both types of import licensing.

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a. GENERAL PROVISIONS
The Agreement contains the following general rules, applicable to all types of import licensing procedures:
 Neutral application, fair and equitable administration: import licensing procedures shall
be applied neutrally and administered in a fair and equitable manner (Article 1.3). Applications
are not to be refused for minor documentation errors as well as omissions or mistakes in
documentation or procedures made without fraudulent intent or gross negligence (Article 1.7).
 publication of Rules and Procedures: rules and all information concerning procedures for
the submission of applications are to be published, whenever practicable, 21 days prior to the
effective date of the requirement but in all events not later than the effective date (Article 1.4
(a)).
 simple Forms and Procedures: applications forms, renewal forms and procedures are to be simple
(Articles 1.5 and 1.6). Applicants are to be allowed a reasonable period to submit licence applications.
Institution or changes in import licensing procedures have to be notified and Members shall
complete the annual questionnaire before 30 September each year (Article 7.3 of the Agreement on Import
Licensing Procedures, see also Annex to G/LIC/3).
b. TYPES OF IMPORT LICENSING
According to the Agreement, licenses are classified as:
1. AUTOMATIC IMPORT LICENSING
Import licensing procedures where the approval of the application is granted in all cases. Their objective
generally refers to collecting statistical and other factual information on imports (Article 2.1). It is subject to
the following rules: (i) automatic licensing procedures are not to be administered in such a way as to have
restrictive effects on imports; (ii) any person fulfilling the legal requirements should be equally eligible to apply
for and obtain import licenses (no discrimination); and, (iii) the application shall be approved immediately on
receipt when feasible or within a maximum of 10 working days (Article 2.2 (a)).
2. NON-AUTOMATIC IMPORT LICENSING
Non-automatic import licensing procedures are the ones not falling within the definition contained in
paragraph 1 of Article 2. They are used, among other policy objectives, to administer QRs and TRQs justified
within the WTO legal framework (explained in Module 3). Non automatic import licensing procedures must not
have restrictive or distortive effects on imports, additional to those caused by the imposition of the restriction
and shall correspond in scope and duration to the measure they are used to implement (Article 3.2). These
procedures are also subject, among others, to the following conditions: (i) Members are to publish all relevant
information concerning the granting and allocation of licences (Article 3.3); (ii) in the case of quotas allocated
among supplying countries, the Member applying the restrictions shall promptly inform all other Members
having and interest in supplying the product concerned (Article 3.5(c)); (iii) applications are subject to the
non-discrimination principle (Article 3.5(e)); and, (iv) the period for processing applications shall not be longer
than 30 days if applications are considered as and when received, or no longer than 60 days if applications are
considered simultaneously (Article 3.5 (f)).

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III.I. AGREEMENT ON PRESHIPMENT INSPECTION (PSI)
III.I.1. INTRODUCTION
Pre-shipment inspection (PSI) is the practice of verifying shipment details (essentially price, quantity and
quality), at the point of exportation, of goods to be shipped overseas. The verification is carried out by private
entities hired by importing governments for this purpose.
PSI companies are mostly used by developing countries and countries in transition to verify quantity and
quality as well as to prevent capital flight, commercial fraud and customs duty evasion (by ensuring that the
value is not under or over declared), as well as to compensate for inadequacies in administrative
infrastructure.
III.I.2. BASIC PROVISIONS
The Preamble of the Agreement on Preshipment Inspection recognizes the need of some developing countries
to make use of PSI for as long and in so far as it is necessary to verify the quality, quantity or price of goods.
It assumes that the inspection entity will be a private company. There is no obligation for a WTO Member to
use PSI or to allow a government entity of another country to operate in its territory (Footnote 1 of the
Agreement).
The PSI Agreement applies to all government-mandated PSI activities (Article 1.1). It aims to establish a
framework of rights and obligations, based on non-discrimination and transparency, to provide guidelines for
the use of government-mandated inspection (as opposed to contracts by commercial firms) for quality,
quantity and price of goods destined for export to a country of import (Articles 1.3 & 2.1). The Agreement also
provides specific obligations to "Importing PSI-user Members" and "Exporting Members" (Articles 2 and 3).
Article 4 of the Agreement on Preshipment Inspection establishes an independent review procedure —
administered jointly by an organization representing PSI agencies and an organization representing exporters
— to resolve disputes between an exporter and a PSI agency.
III.J. AGREEMENT ON RULES OF ORIGIN
III.J.1. INTRODUCTION
Made in...
Suppose the production of a bicycle experienced the following process. All raw materials (e.g. alloy steels)
were from Vanin and then were further processed in Tristat, where the alloy steels were welded
mechanically so as to increase the availability of light and inexpensive frames. Finally, all of the processed
components (such as wheels, brakes and chains) were shipped to Alba for final assembling. How should
Medatia, an importing country of bicycles, decide which country these bicycles come from?

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Many traded products include materials or components from more than one country, or are products that
underwent processing in several countries. Rules of origin are applied to determine the country of
origin of an imported good in such situations. The Agreement on Rules of Origin aims at the
harmonization of non-preferential rules of origins and ensuring that such rules do not themselves
create unnecessary obstacles to trade. Rules of origin are important because they are used:
 To determine whether imported products shall receive MFN treatment or not;
 to implement instruments of commercial policy such as anti-dumping and safeguard measures
(see Module 5);
 to determine which countries are entitled to import quotas (may have been filled for some
supplying countries, but not for others);
 for the application of labelling and marking requirements;
 for statistical reasons; and,
 for government procurement.
III.J.2. BASIC PROVISIONS
Before the Uruguay Round, there were no specific provision in the GATT 1947 concerning rules of origin of
goods in international commerce. The GATT Contracting Parties gradually realized that the diversity of rules of
origin applied by each Party resulted in uncertainty and misuse of these rules. This is the reason why the
Agreement on Rules of Origin was adopted by all Members during the Uruguay Round.
a. GENERAL OBLIGATIONS – DISCIPLINES DURING THE TRANSITIONAL PERIOD
Until the harmonization program (explained below) is completed, Members shall ensure that rules of origin and
the requirements to be fulfilled, including the specifications related to the substantial transformation test (see
box below), are clearly defined (Article 2(a)).
The Agreement also requires Members to ensure that their rules of origin are: (i) transparent; (ii) do not have
restricting, distorting or disruptive effects on international trade; (iii) administered in a consistent, uniform,
impartial and reasonable manner; and, (iv) based on a positive standard (they state what does confer origin,
rather than what does not); (v) published (laws, regulations, judicial decisions and administrative rulings);
(vi) provide assessment of origin upon request of an exporter with a justifiable cause; and, (vii) subject to
prompt revision in case of administrative action.

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Methods for Determining Origin
Where more that one country is involved in the production of a good, most customs administrations apply
rules of origin according to which the origin of the good shall be conferred upon the country where the last
substantial transformation has been carried out. The following criterions are used to decide what a
substantial transformation is:
 Change of tariff classification: criterion attributes origin to a country if the product was
sufficiently changed as to move its customs classification from one heading to another.
Members using this criterion must clearly specify the subheadings or headings within the
tariff nomenclature that are addressed by the rule.
 ad valorem percentage: measures how much value was added to the product in that
particular country. The method for calculating the ad valorem percentage shall be
specified; and,
 manufacturing or processing operation: origin depends on specific technical processes
that can be considered as an essential part in the production of the product. The operation
that confers origin on the good concerned shall be precisely specified.
b. HARMONIZATION
For the longer term, the Agreement aims for common (“harmonized”) rules of origin among all Members,
except in some kinds of preferential trade — for example, countries setting up a free trade area are allowed to
use different rules of origin for products traded under their free trade agreement.
The programme of negotiations between Members mandated by the Agreement began in July 1995 and was to
end three years later, however negotiations are still going on. It is being conducted by a Committee on Rules
of Origin in the WTO and a Technical Committee under the auspices of the World Customs Organization (WCO).
The outcome will be a single set of rules of origin to be applied under non-preferential trading conditions by all
Members in all circumstances. The negotiating texts are contained in documents G/RO/45-series. Its
consolidated text is contained in document G/RO/W/111/Rev.2. The results of the harmonization programme
are to be approved by the Ministerial Conference and they then become an annex to the Agreement.
III.K. AGREEMENT ON TRADE-RELATED INVESTMENT
MEASURES (TRIMS)
III.K.1. INTRODUCTION
Governments sometimes impose requirements on enterprises so that the goods they produce, for example,
incorporate a minimum proportion of domestically produced inputs (limiting the use of imported inputs – local
content requirements), or limit the importation by an enterprise of products used in its local production. Such
requirements can affect international trade.

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The objectives of the TRIMs Agreement include the progressive liberalization of world trade and to facilitate
investment across international frontiers so as to increase the economic growth of all trading
partners, particularly developing country Members, while ensuring free competition.
III.K.2. HISTORICAL BACKGROUND
The Charter for the International Trade Organization (ITO Charter), contained provisions on the treatment of
foreign investment as part of a chapter on economic development. As we have seen in Module 1, the ITO
Charter was never ratified and only its provisions on commercial policy were incorporated into the GATT.
Probably, the most significant development with respect to investment before the Uruguay Round was a ruling
by a Panel in a disputes settlement procedure - Canada — Administration of the Foreign Investment Review Act
(FIRA) (see box below).
The mandate of the Uruguay Round included the elaboration of provisions to avoid trade-restrictive and
trade-distorting effects of investment measures. The emphasis placed in this mandate on trade effects made it
clear that the negotiations were not intended to deal with the regulation of investment as such. Due to the
disagreement among participants (developed and developing countries), the negotiations were limited to an
interpretation and clarification of the application to TRIMS of GATT provisions on national treatment for
imported goods (Article III) and on quantitative restrictions on imports or exports (Article XI).
III.K.3. SCOPE & BASIC OBLIGATIONS
The coverage of the Agreement is limited to TRIMS related to trade in goods (Article 1). The disciplines of the
TRIMs Agreement focus on discriminatory treatment of imported and exported products and do not govern the
issue of entry and treatment of foreign investment.
A local content requirement imposed on both, domestic and foreign enterprises, is inconsistent with the TRIMs
Agreement because it involves discriminatory treatment of "imported products" in favour of "domestic
products". The fact that there is no discrimination between domestic and foreign "investors" in the imposition
of the requirement is irrelevant under the TRIMs Agreement.
Article 2.1 of the Agreement requires Members not to apply any "TRIMs" that are inconsistent with Article III
(National Treatment) and Article XI (General Elimination of Quantitative Restrictions) of the GATT 1994.
The term "TRIMs" is not defined in the Agreement however, it contains in an Annex an illustrative list of
measures that are inconsistent with GATT Article III:4 or Article XI:1 of the GATT. The measures listed in the
Annex can be classified in:
 Measures Inconsistent with GATT Article III:4: concern the purchase or use of
products by an enterprise. They include: (i) local content TRIMs, which require the purchase
or use by an enterprise of products of domestic origin or from any domestic source (local
content requirements); and, (ii) trade-balancing TRIMs, which limit the purchase or use of
imported products by an enterprise to an amount related to the volume or value of local
products that it exports. In both cases, the inconsistency with Article III:4 of GATT 1994
results from the fact that the internal measure subjects the purchase or use of imported
products to less favourable conditions than the purchase or use of domestic products.

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 Measures Inconsistent with GATT Article XI:1: concern the importation or exportation of
products by an enterprise. They cover border measures: (i) That restrict the importation by an
enterprise of products used in its local production in general terms or to an amount related to the
volume or value of local production exported by the enterprise; (ii) restriction of imports in the form of
a foreign exchange balancing requirement (the ability to import products used in or related to local
production is limited by restricting the enterprise's access to foreign exchange); and, (iii) restrictions on
the exportation of or sale for export by an enterprise, whether specified in terms of particular products,
volume or value of products or in terms of a proportion of volume or value of its local production.
Members are also required to notify to the Council for Trade in Goods (CTG) any TRIMs that are not in
conformity with the Agreement (Article 5.1). Article 5.2 provides that these notified WTO-inconsistent TRIMs
are to be phased out in accordance with the transitional period (until 1 January 1997 for developed country
Members; 1 January 2000 for developing country Members and 1 January 2002 for least-developed country
Members). These transitional periods may be extended (upon request made to the CTG) in the case of a
developing country or least-developed country Members which demonstrates particular difficulties in
implementing the provisions of the TRIMs Agreement (Article 5.3).
Finally, Article 3 of the TRIMs Agreement provides that all exceptions under GATT 1994 shall apply, as
appropriate, to the provisions of the Agreement.
TO KNOW MORE... GATT DISPUTE RELATED TO TRIMS – BEFORE THE URUGUAY ROUND
AND THE TRIMS AGREEMENT
Canada — Administration of the Foreign Investment Review Act (FIRA): A GATT dispute settlement Panel
considered a complaint by the United States regarding certain types of undertakings, which were required
from foreign investors by the Canadian authorities as conditions for the approval of investment projects.
These undertakings pertained to the purchase of certain products from domestic sources (local content
requirements) and to the export of a certain amount or percentage of output (export performance
requirements). The Panel concluded that the local content requirements were inconsistent with the national
treatment obligation of Article III:4 of the GATT 1947 but that the export performance requirements were
not inconsistent with GATT obligations. The Panel emphasized that at issue in the dispute before it was the
consistency with the GATT of specific trade-related measures taken by Canada under its foreign investment
legislation and not Canada's right to regulate foreign investment per se.
The panel decision in the FIRA case was significant because it confirmed that existing obligations under the
GATT were applicable to performance requirements imposed by governments in an investment context in so
far as such requirements involve trade-distorting measures. At the same time, the Panel's conclusion that
export performance requirements were not covered by the GATT also underscored the limited scope of
existing GATT disciplines with respect to such trade-related performance requirements.
III.K.4. TRADE-RELATED INVESTMENT MEASURES (TRIMS)... URUGUAY
ROUND AND BEYOND
Article 9 of the TRIMs Agreement stipulates that, not later than five years after the date of entry into force of
the Agreement, the CTG shall review the operation of the Agreement.

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The TRIMs Agreement was included in the Doha Round of negotiations as part of the ''Implementation-Related
Issues and Concerns'' (Paragraph 6 of the Ministerial ''Decision on Implementation-related Issues and
Concerns'' (WT/MIN(01)/17)).
The WTO Ministerial Conference held in Singapore in 1996, established working groups on trade and
investment and on trade and competition "having regard to the existing WTO provisions on matters related to
investment and competition policy and the built-in agenda in these areas, including under the TRIMs
Agreement". However, as we have introduced in Module 1, all Singapore issues (including investment), except
for trade facilitation, have been dropped from the negotiation table by the General Council in 1 August 2004.
The relationship between trade and investment will be further explained in Module 11.
III.L. AGREEMENT ON TEXTILE AND CLOTHING (ATC
AGREEMENT)
III.L.1. INTRODUCTION
Textiles, like agriculture, was one of the hardest-fought issues in the WTO, as it was in the former GATT
system. In the past, large portion of textiles and clothing exports from developing countries to the industrial
countries were subject to quotas under a special regime outside normal GATT rules. Under the ATC
Agreement, WTO Members committed themselves to remove the quotas by 1 January 2005 and integrating the
sector fully into GATT rules.
III.L.2. MULTIFIBRE ARRANGEMENT (MFA) 1974 - 1994
From 1974 until the end of the Uruguay Round, the trade was governed by the Multifibre Arrangement (MFA).
This provided for the application of "selective" quantitative restrictions when surges in imports of particular
products caused, or threatened to cause, serious damage to the industry of the importing country.
The quotas were the most visible feature. The Multifibre Arrangement was a major departure from the basic
GATT rules, particularly the principle of non-discrimination and the general preference for customs tariffs
instead of measures that restrict quantities (see Module 2 "The Principles of Non-Discrimination" and Module 3
"Tariff and Non-Tariff Barriers").
On 1 January 1995, it was replaced by the ATC Agreement, which set out a transitional process for the ultimate
removal of these quotas.
III.L.3. THE WTO AGREEMENT ON TEXTILES AND CLOTHING (ATC)
1995 - 2004
The ATC Agreement was a transitional agreement aimed at integrating the textiles and clothing sector into the
GATT, which lapsed on 1 January 2005.

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The expiry of the ten year transition period of ATC implementation means that trade in textile and clothing
products is no longer subject to quotas under a special regime outside normal WTO/GATT rules. Instead, this
sectors is now governed by the general rules and disciplines embodied in the multilateral trading system.
Accordingly, the quotas came to an end and importing countries are no longer able to discriminate between
exporters.
EXERCISES
9. Which is the most important method of valuation referred in the WTO Agreement on Customs Valuation?
10. Explain briefly why is trade facilitation important for international trade and what is being negotiated on
trade facilitation in the Doha Round of Negotiations.
11. What are the objectives of the Agreement on Import Licensing Procedures?
12. What is meant by rules of origin and when are these rules used?
13. What kind of investment measures does the TRIMS Agreement prohibit?

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IV. SUMMARY
In this Module, we examined most of the Multilateral Agreements on Trade in Goods as contained in
Annex 1A of the Agreements Establishing the WTO.
The General Agreement on Tariffs and Trade 1994 (GATT 1994) as one of the most important
Agreements contained in Annex 1A, sets out the basic goods-related obligations of WTO Members. As a
modified/updated version of the original GATT 1947, it maintains the principal rules contained in GATT 1947,
such as the MFN and the national treatment principles. The GATT 1994 also contains the most important
rules regulating tariffs and non-tariff barriers, which are further elaborated in the corresponding Multilateral
Agreements on Trade in Goods. In addition, the GATT 1994 contains other instruments and Uruguay Round
Understandings. In the event of conflict between a provision of the GATT 1994 and a provision of another
Agreement in Annex 1A, the provision of that other agreement (i.e. not the GATT 1994) shall prevail to the
extent of the conflict.
While most sectors of trade were incrementally liberalized over the years, trade in agricultural products
remained subject to restrictions and distortions due to high tariffs, few tariff ''bindings'', import quotas,
market-distorting domestic subsidies and export subsidies. The Agreement on Agriculture concluded
during the Uruguay Round negotiation, represented a major break with the past. Members committed to set
tariff bindings to agricultural products and assumed reduction commitments on tariffs. Members also
committed to reduce trade-distorting subsidies in agricultural products. It is important to remind that
agricultural products are also subject to other WTO Agreements, such as the Agreement on Subsidies and
Countervailing Measures and the Agreement on Safeguards (both explained in Module 5). However, in case
of conflict between the rules of the Agreement on Agriculture and any provision under other Multilateral
Agreement on Trade in Goods contained in Annex 1 A, the Agreement on Agriculture prevails.
All countries maintain SPS measures to ensure that food is safe for consumers, and to prevent the spread of
pests or diseases among animals and plants. However, SPS measures can constitute barriers to trade when
these are imposed for protectionist purposes. Similarly, technical regulations, standards and conformity
assessment procedures, may constitute unnecessary barriers to international trade. The SPS Agreement
and the TBT Agreement recognize the WTO Members' rights to impose SPS and TBT measures to the
extent necessary to achieve legitimate purposes as envisaged in each Agreement, subject to some
conditions. One of the most important conditions is that such measures cannot be applied in a manner
which would constitute a means of arbitrary or unjustifiable discrimination between countries where the
same conditions prevail or a disguised restriction on international trade.
The SPS Agreement and the TBT Agreement have common features, but also differ in substantive aspects.
While the TBT Agreement covers technical regulations aimed at the fulfilment of a non-exhaustive list of
legitimate objectives, the SPS Agreement covers only measures concerned with the protection of human,
animal or plant life or health. Under the SPS Agreement, WTO Members are obliged to use international
standards unless they can show a specific scientific justification based on a risk assessment. Instead, under
the TBT Agreement, WTO Members have the obligation to base their measures on international standards,
unless the relevant international standard is an inappropriate or ineffective means to fulfil a legitimate
objective. Due to the above-mentioned differences between the two Agreements, it is important to
determine which agreement applies in face of a particular measure. In this regard, measures covered by the
SPS Agreement are expressly excluded of the scope of application of the TBT Agreement.

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Besides those measures regulated by the SPS Agreement and the TBT Agreement, there are other measures
that could constitute non-tariff barriers to international trade, including: the arbitrary adoption of customs
valuation rules; excessive fees and formalities connected with importation and exportation; discriminatory
administration of laws, regulations, administrative and judicial decisions of general application; the unfair
and inequitable administration of import licenses and pre-shipment inspection; as well as arbitrary rules of
origin. All these measures are regulated by the corresponding WTO Agreements on Trade in Goods
contained in Annex 1A.
The objectives of these Agreements are to prevent those measures from constituting non-tariff barriers,
which would offset the effects of tariff concessions. They aim to ensure non-discrimination and transparency
in the course of the application and administration of these measures. Some of them (such as the
Agreement on Customs Valuation and the Agreement on Rules of Origin) are intended to harmonize
Members' practice in particular fields of international trade so as to reduce transaction costs as well as to
eliminate arbitrary practices.
This Module also introduced the negotiations on trade facilitation, which are directed to clarify and improve
some of the provisions on non-tariff barriers contained in the GATT 1994 (freedom of transit, customs fees
and formalities and publication of trade regulations). These negotiations are seen as a necessary
complement to broader liberalization efforts – essential to reap the full benefits of freer trade. Lowering
trade-related transaction costs can result in a significant improvement in a country's ability to compete in
the global economy. This stands to all Members, but particularly to developing and LDC Members.
Finally, trade-related investment measures may impede international trade and competition. The
Agreement on Trade-related Investment Measures (TRIMs) aims for the progressive liberalization of world
trade and to facilitate investment across international frontiers so as to increase the economic growth of all
trading partners, particularly developing country Members, while ensuring free competition. The Agreement
does not govern the issue of entry and treatment of foreign investment. Instead, it targets TRIMs which
provide discriminatory treatment between imported and exported products and thus, are inconsistent with
Article III:4 or Article XI:1 of the GATT 1994. The TRMS Agreement does not address discriminatory
treatment between domestic and foreign investors or among foreign investors .
There are three Agreements contained in Annex 1A that we did not examine in this Module. These three
Agreements, which will be examined in Module 5, include the Agreement on Anti-Dumping, the Agreement
on Subsidies and Countervailing Measures and the Agreement on Safeguards. The Agreements contained in
Annex 1B (General Agreement on Trade in Services (GATS)) and Annex 1C (Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS) will be examined in Modules 6 and 7 respectively. It is worth
noting that the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU)
contained in Annex 2 applies to disputes concerning any measures contained in the Agreements mentioned
above. The DSU will be examined in Module 10, together with the Trade Policy Review mechanism (TPRM)
contained in Annex 3.

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PROPOSED ANSWERS
1. Annex 1A attached to the Agreement Establishing the WTO contains the Multilateral Agreements on Trade
in Goods. These Agreements are the following:
 General Agreement on Tariffs and Trade (GATT) 1994;
 Agreement on Agriculture;
 Sanitary and Phytosanitary (SPS) Agreement;
 Agreement on Textiles and Clothing (ATC Agreement);
 Technical Barriers to Trade (TBT) Agreement;
 Trade-Related Investment Measures (TRIMS) Agreement;
 Agreement on the Application of Article VI of GATT 1994 (Anti-Dumping);
 Agreement on the Application of Article VII of GATT 1994 (Customs Valuation);
 Agreement on Pre-shipment Inspection (PSI);
 Agreement on Rules of Origin;
 Agreement on Import Licensing Procedures;
 Subsidies and Countervailing Measures (SCM) Agreement; and,
 Agreement on Safeguards.
2. The most important component of the GATT 1994 is the original GATT 1947 as rectified, amended or
modified up to 1 January 1995. Although the GATT 1947 is legally distinct from and has been superseded
by the GATT 1994, many of its key elements, including post-1948 legal instruments, have been carried
over to the GATT 1994 without change. The core provisions of the GATT 1994 (as a modified version of
GATT 1947) are the following:
 The MFN principle (Article I);
 the Schedule of Concessions (Article II);
 the National Treatment principle (Article III);
 disciplines on NTBs (Articles IV, V, VII to XVI);
 trade remedies (Articles VI and XIX);
 general and national security exceptions (Articles XX and XXI);
 consultation and dispute settlement (Articles XXII and XXIII);
 regional integration (Article XXIV);
 negotiation and renegotiation of tariff concessions (Article XXVIII and XXVIII bis); and,
 trade and development (Articles XXXVI to XXXVIII).

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3. A general interpretative note to Annex 1A clarifies that "in the event of conflict between a provision of the
GATT 1994 and a provision of another Agreement in Annex 1A, the provision of that other agreement (i.e.
not the GATT 1994) shall prevail to the extent of the conflict". Consequently, in case of conflict between
a provision of the GATT 1994 and a special provision contained in any of the Multilateral Agreements on
Trade in Goods, the latter overrides the provision of the GATT 1994.
4. Groundbreaking agreements were reached on trade in agriculture.
With respect to market access, all quantitative restrictions and other non-tariff measures affecting trade
in agriculture were eliminated and converted into tariffs. Each WTO Member has now a Schedule of tariff
concessions which include the "bound tariffs" for agricultural products.
With respect to domestic support, trade-distorting domestic support –in favour of agricultural producers
(often referred to as ''Amber Box'') should not exceed the commitment levels specified in Members'
Schedules and are subject to reduction commitments specified in Members' Schedules.
Export subsidies are generally prohibited under the WTO (except for those export subsidies consistent
with the special and differential treatment provisions), unless the subsidies are specified in a Member’s
list of commitments. The export subsidies listed shall remain within the limits provided in the Schedule
and cannot be transferred to other agricultural products. Moreover, where they are listed, the agreement
requires WTO Members to cut both the amount of money they spend on export subsidies and the
quantities of exports that receive subsidies.
5. The Agreement on Agriculture recognizes the special situation faced by some Members in relation to food
security and provides for special and differential treatment for developing countries. It includes:
 Significant improvement in market access conditions for agricultural products of interest to
developing country Members; and,
 Ministerial Decision on Measures Concerning the Possible Negative Effects of the Reform
Programme on Least-Developed and Net Food-Importing Developing Countries.
For domestic support:
 Lower reduction commitments & longer implementation periods (Schedules of Commitments);
 greater de minimis allowance (ten per cent compared to five per cent for developed countries:
Article 6.4); and,
 exclusion of some domestic support policies (measures of assistance) from the reduction
commitments (Article 6.2).
For export subsidies:
 Lower reduction commitments & longer implementation periods (Schedules of commitments);
and,
 possibility to use transportation and marketing-cost reduction subsidies during a certain period
(Article 9.4).
6. The SPS Agreement aims to improve the human health, animal health and phytosanitary situation in all
Members, while minimizing negative effects on trade. Thus, the SPS Agreement aims to strike a balance
between the two.

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Annex A of the SPS Agreement defines SPS measures as those measures taken to protect human, animal
or plant life from risks arising from additives, contaminants, toxins or disease-causing organisms in their
food; or to protect a country from the damage caused by the entry, establishment, or spread of pests.
The right to adopt SPS measures to achieve a self-determined level of protection is accompanied by basic
obligations. Members may adopt an SPS measure provided that: (i) the measure is applied only to the
extent necessary to protect human, animal or plant life or health; (ii) it is based on sufficient scientific
evidence; and, (iii) it does not constitute a disguised restriction on international trade.
7. The TBT Agreement seeks to ensure that technical regulations, standards and conformity assessment
procedures do not constitute unnecessary barriers to international trade, while recognizing the right of
Members to take regulatory measures to achieve their legitimate objectives, inter alia: national security
protection of human health, protection of animal or plant life or health, protection of the environment,
prevention of deceptive practices. This list of legitimate objectives is not exhaustive. Members may
protect other legitimate objectives while using the measures prescribed under the TBT Agreement,
subject to the conditions provided therein (mainly non-discrimination and avoidance of unnecessary
obstacles to trade).
At the same time, it encourages the use of international standards, as well as the harmonization and
mutual recognition of technical regulations, standards and procedures for conformity assessment.
8. Similarities - both the SPS Agreement and TBT Agreement:
 Require a measure not to be more trade-restrictive than necessary and not to constitute a
means of arbitrary or unjustifiable discrimination between Members where identical or similar
conditions prevail or be applied in a manner that constitutes a disguised restriction on
international trade;
 encourage the use of international standards in order to promote harmonization;
 contain requirements for the advance notification of proposed measures and the creation of
information offices (so-called transparency requirements);
 contain provisions aiming at providing special and differential treatment to developing and
least-developed countries; and,
 contain special rules on dispute settlement.
Differences:
 Under the SPS Agreement, SPS measures may only be applied to the extent necessary to
protect human, animal or plant life or health from food-born risks, animal or plant-carried
diseases and pests (exhaustive list of objectives). Under the TBT Agreement, technical
regulations, standards and conformity assessment procedures may be applied and maintained
to fulfil a legitimate objective, inter alia to protect human health or safety, to protect the
environment or the prevention of decesptive practices (non-exhaustive list of objectives); and,
 under the SPS Agreement, WTO Members are compelled to use international standards unless they can
show a specific scientific justification based on an assessment of the possible risk. In contrast, under
the TBT Agreement, WTO Members have the obligation to base their measures on international
standards, unless the relevant international standard is an inappropriate means to fulfil a legitimate
objective.
9. The Agreement on Customs Valuation provides that the primary basis for customs value is "transaction
value", defined in Articles 1 as the price actually paid or payable for the goods when sold for export to the

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country of importation adjusted in accordance with Article 8 which provides, inter alia, for adjustments in
cases where certain specific elements are incurred by the buyer but are not included in the price. The
transaction value is the first and most important method of valuation referred in the Agreement.
10. Trade facilitation is seen as a necessary complement to broader liberalization efforts –essential to reap
the full benefits of freer trade. Some of the main problems traders face include excessive documentation
requirements, burdensome border-crossing procedures, transport and transit impediments especially for
landlocked countries, and lack of transparency and predictability in trade laws and regulations. The
negotiations on trade facilitation address these problems. Lowering trade-related transaction costs can
result in a significant improvement in a country's ability to compete in the global economy. This applies
to all developing country Members and in particular to landlocked developing and LDC Members.
The negotiations on trade facilitation are aimed to: 1. clarify and improve relevant aspects of Articles V
(freedom of transit), VIII (fees and formalities connected with importation and exportation) and X
(publication and administration of trade regulations) of the GATT 1994; 2. technical assistance and
capacity-building (includes technical support and assistance during the negotiations and for the
implementation of the commitments resulting from the negotiations). According to paragraph 4 of
Annex D of the July Package, a TA programme has been established to assist WTO Members and
Observers in conducting trade facilitation self assessments.
11. The main objectives of the Agreement on Import Licensing Procedures are to:
 Simplify and bring transparency to import-licensing procedures;
 ensure fair and equitable application and administration of such procedures; and,
 prevent that procedures applied for granting import licenses have in themselves restrictive or
distortive effects on imports.
12. Since many traded products include materials or components from more than one country, or are
products that underwent processing in several countries, rules of origin are applied to determine the
country of origin of an imported good. The Agreement aims at the harmonization of non-preferential
rules of origins and at ensuring that such rules do not themselves create unnecessary obstacles to trade.
Rules of origin are important because they are used: (i) to determine whether imported products shall
receive MFN treatment or preferential treatment - the latter occurs, for example, when products come
from a free trade area (see Module 8); (ii) to implement instruments of commercial policy such as
anti-dumping and safeguard measures (see Module 5); (iii) to determine which countries are entitled to
import quotas (may have been filled for some supplying countries, but not for others); (iv) for the
application of labelling and marking requirements; (v) for statistical reasons; and (v) for government
procurement.
13. The TRIMS Agreement recognizes that certain investment measures may restrict and distort trade. The
Agreement does not deal with the regulation of investment as such, but instead provides disciplines that
focus on discriminatory treatment of imported and exported products. Members committed under the
TRIMS Agreement not to apply any investment measure which is inconsistent with Article III (National
Treatment) and Article XI (General Elimination of Quantitative Restrictions) of GATT 1994. An illustrative
list of TRIMs, considered inconsistent with these provisions, is annexed to the Agreement.

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Trade Remedies
ESTIMATED TIME: 5 hours
OBJECTIVES OF MODULE 5
Present an overview of the disciplines and conditions provided in the WTO Agreements
with regard to:
 the application of anti-dumping measures;
 the use of subsidies and the application of countervailing measures; and,
 the application of safeguard measures.
MODULE
5

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I. INTRODUCTION
In Module 2, you studied the basic principles on non-discrimination applicable to trade between WTO Members:
The Most-Favoured-Nation (MFN) and National Treatment principles. In Module 3, you studied the WTO rules
regarding tariff and non-tariff barriers (NTBs). Regarding tariff barriers, you learned that WTO Members have
committed to maximum bound tariff rates. In addition, you now know that there is a general prohibition on
quantitative restrictions (QRs) (such as quotas).
The WTO Agreements include provisions which allow Members to depart from the rules mentioned above,
subject to certain conditions. You will study most of these provisions in Module 8 (Exceptions). In this Module,
you will study only those provisions concerned with:
 The application of anti-dumping measures taken against injurious dumping;
 the use of subsidies and the application of countervailing measures to counteract injurious
subsidization; and,
 the application of safeguard measures in case of a surge of imports that causes, or threatens to
cause, serious injury.
World Trade Organization (WTO) Members have retained their right to impose trade remedies, such as
anti-dumping and countervailing duties, to correct the competitive imbalances created by unfair trade practices
- dumping and subsidies -,when these cause injury. They have also agreed on multilateral disciplines
governing the granting of subsidies. Members are also allowed to apply safeguard measures in case of a surge
of imports that causes, or threatens to cause, serious injury. Unlike anti-dumping and countervailing
measures, the application of safeguard measures does not depend on unfair trade practices.
This Module will present an overview of the WTO disciplines and conditions for the application of anti-dumping
measures; subsidies and countervailing measures; and safeguard measures. The Specialized Course on Trade
Remedies will develop further the rules applicable to these mechanisms.
Disputes arising regarding the granting of subsidies and the application of anti-dumping, countervailing and
safeguard measures are subject to the Understanding on Rules and Procedures Governing the Settlement of
Disputes (DSU), which will be introduced in Module 10. The Agreement on Subsidies and Countervailing
Measures (SCM Agreement) also contains some special rules that apply to disputes involving subsidies.
Rationale behind trade remedies – A policy perspective
At first sight, it might seem that trade remedies "go against" trade liberalization. One may ask: Why have
Members agreed on rules that provide them the right to restrict trade temporarily? What role do trade
contingency measures -in the form of trade remedies- play in trade agreements?
Trade liberalization around the world has reduced tariff rates to low levels, producing "winners" and "losers"
in each country. However, countries typically do not have identifiable mechanisms for extracting part of the
income gains from the "winners" in order to compensate the "losers" from trade liberalization. Furthermore,
economic circumstances may evolve in a way which makes the maintenance of policies in favour of trade
liberalization untenable because of large adjustment costs.

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Rationale behind trade remedies – A policy perspective
In light of these considerations, trade agreements may provide governments with a means to depart
temporarily from certain core obligations contained therein under well defined conditions. Safeguard,
anti-dumping and countervailing measures are alike to the extent that they can be used temporarily to
"shield" vulnerable sectors from the consequences of lower tariff protection in certain circumstances.
Without the possibility of applying these measures, political pressures may build up to a point where
protectionist forces would be able to engineer a permanent reversal of trade liberalization. Accordingly,
trade remedies may be considered as a pragmatic –and temporary - tool to deal with the costs of
adjustment resulting from trade liberalization as well as to deflate the build-up of domestic
pressures against liberalization.
Based on: World Trade Organization (WTO), World Trade Report 2007, Geneva: WTO p. 152-153.

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II. ANTI-DUMPING
IN BRIEF
Article VI of the General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on the
Implementation of Article VI of GATT 1994 – the "Anti-Dumping Agreement" - explicitly authorize the
imposition of anti-dumping measures by WTO Members, under certain conditions.
Anti-dumping measures are unilateral remedies which may be applied by a Member after conducting an
investigation where it has been determined that an imported product is being "dumped" and that
dumped imports are causing or threatening to cause "material injury" to a domestic industry
producing like products (or would materially retard the establishment of a domestic industry).
Anti-dumping measures normally are applied in the form of customs duties on imports of the product
concerned from a particular source in excess of bound rates. Anti-dumping measures may also take
the form of a price undertaking.
The identification of dumping involves a price comparison between a product's "normal value" and its
"export price". A product is to be considered as being "dumped" (introduced into the commerce of another
country at less than its "normal value"), if the "export price" of the product when sold in the importing
country is less than its "normal value", that is, the comparable price, in the ordinary course of trade, for the
like product in the market of the exporting country.
The Anti-Dumping Agreement sets forth certain substantive requirements that must be fulfilled in order
to impose an anti-dumping measure, as well as detailed procedural requirements regarding the conduct
of anti-dumping investigations, the imposition of anti-dumping measures and the review of the measures. A
failure to respect the substantive or procedural requirements can be taken by the exporting Member to the
WTO dispute settlement mechanism.
The Agreement does not condemn the practice of dumping unless it causes injury to the domestic
industry in the importing country.

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II.A. SUBSTANTIVE REQUIREMENTS FOR THE APPLICATION
OF ANTI-DUMPING MEASURES
Conditions for the Application of Anti-dumping Measures
The Anti-Dumping Agreement provides that an anti-dumping measure shall be applied only after
determining, pursuant to an investigation initiated and conducted in conformity with the provisions of the
Agreement, the three following cumulative conditions:
 Dumped imports;
 injury to the domestic industry producing the like product; and,
 causal link between the dumped imports and the injury.
Figure 1: Conditions for the Application of Anti-Dumping Measures
a. DETERMINATION OF DUMPING
1. WHAT IS DUMPING ?
What is Dumping?
Dumping is a form of price discrimination, which takes place when the price of a product when exported to
another country is less than the price of that same product when sold in the market of the exporting country
(Article VI of the GATT and Article 2.1 of the Anti-Dumping Agreement).
In the simplest of cases, one identifies dumping simply by comparing prices in two markets. However, the
situation is rarely that simple. According to the Anti-Dumping Agreement, dumping is calculated on the
basis of a fair comparison between the normal value (the price of the imported product in the “ordinary
course of trade” in the country of origin or export) and the export price (the price of the product in the
importing country). Article 2 contains detailed provisions governing the calculation of normal value and export
price and elements of the fair comparison that must be made.

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In order to make such a comparison, the investigating authority will have to determine the "like product" in
the domestic market of the exporter. Article 2.6 of the Anti-Dumping Agreement provides a definition of "like
product", which will be developed later on to explain the concept of "like product" in the context of the injury
analysis.
2. NORMAL VALUE
2.1 GENERAL RULE
The normal value is generally the price, in the ordinary course of trade, for the like product at issue
when destined for consumption in the exporting country market (Article 2 of the Anti-Dumping
Agreement).
A complicated question in anti-dumping investigations is the determination whether sales in the exporting
country market are made in "the ordinary course of trade". The Agreement defines the specific
circumstances in which home market sales at prices below the cost of production may be considered as not
made in the "ordinary course of trade" and thus may be disregarded in the determination of normal value
(Article 2.2.1).
When there are no sales of the like product in the ordinary course of trade in the domestic market of the
exporting country, or the sales are so low in volume that they do not permit a proper comparison of home
market prices and export prices, it may not be possible to determine the normal value on this basis.
The Anti-Dumping Agreement provides alternative methods for the determination of normal value in such
cases.
2.2 ALTERNATIVE METHODS
Article 2.2 provides two alternatives for the determination of normal value. According to them, the margin of
dumping shall be determined by comparison with:
(i) the comparable price of the like product when exported to an appropriate third country
(provided that this price is representative); or,
(ii) the constructed normal value of the product, which is calculated on the basis of the cost of
production, plus a reasonable amount for administrative, selling and general costs and profits.
In relation to the determination of a constructed normal value, the Anti-Dumping Agreement contains rules
governing the information to be used in determining the amounts for costs, expenses, and profits, the
allocation of these elements of constructed value to the specific product in question and adjustments for
particular situations such as start-up costs and non-recurring cost items.
2.3 SPECIAL SITUATIONS
Where products are not imported directly from the country of origin, but are exported to the importing
Member from an intermediate country, Article 2.5 of the Anti-Dumping Agreement provides that the normal
value shall normally be determined on the basis of sales in the market of the exporting country. However,
comparison may be made with the price in the country of origin if, for example, the product is not produced in

220. 202
the exporting country, there is no comparable price for the product in the exporting country or the product is
merely transhipped through the exporting country. In such cases, the normal value may be determined on the
basis of the price of the product in the country of origin and not the price in the exporting country.
In the situation where a product is imported from a non-market economy (economy where the government
has a complete or substantially complete monopoly of its trade and where all domestic prices are fixed by the
State), the Anti-Dumping Agreement recognizes, through a reference in Article 2.7, that a strict comparison
with home market prices may not be appropriate.
3. EXPORT PRICE
3.1 GENERAL RULE
The export price will normally be based on the transaction price at which the foreign producer sells the
product to an importer in the importing country. However, the Agreement recognizes that this transaction
price may not be appropriate for purposes of comparison in certain cases.
Article 2.3 of the Agreement allows the use of an alternative method for determining an appropriate export
price where: (i) there is no export price for a given product, for instance, if the export transaction is an internal
transfer, or if the product is given in exchange for another product (barter transaction); or, (ii) the transaction
price at which the exporter sells the product to the importing country is unreliable because of an association
or a compensatory arrangement between the exporter and the importer or a third party.
3.2 ALTERNATIVE METHOD
When the transaction price cannot be used, the export price can be based on a constructed export price
determined on the basis of the price at which the imported product is first resold to an independent buyer. If
the imported product is not resold to an independent buyer, or is not resold as imported, the authorities may
determine a reasonable basis on which to calculate the export price.
4. FAIR COMPARISON BETWEEN NORMAL VALUE AND EXPORT PRICE
The basic requirements for a fair comparison are that the prices being compared are those of sales made at the
same level of trade, normally the ex-factory level (to avoid the distorting effect of factors such as transport,
insurance, etc), and of sales made at as nearly as possible the same time (Article 2.4).
To ensure that prices are comparable, the Anti-Dumping Agreement requires that adjustments be made to
either the normal value, or the export price, or both, to account for differences in the product, or in the
circumstances of sale, in the importing and exporting markets. What sorts of factors require an adjustment?
Due allowance must be made in each case, on its merits, for differences in conditions and terms of sale,
taxation, quantities, physical characteristics and other differences affecting price comparability.

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Example: Adjustment to the Export Price
A producer may sell "on sight" in its domestic market, while on its export market it may give 30 days credit.
In this case, the investigating authority could adjust the export price by deducting from it the cost relating to
the credit given by the exporter. In this example, no adjustment would be made to the normal value
because selling "on sight" implies no cost to the producer.
The Agreement also provides specific rules on the adjustment to be made if the comparison of normal value is
to a constructed export price. In those cases, allowances for costs, including duties and taxes, incurred
between importation and resale, and for profits accruing, should also be made. Where the comparison of
normal value and export price requires conversion of currency, the Agreement provides specific rules governing
that conversion (Article 2.4.1).
Investigating authorities shall inform the parties of the information needed to ensure a fair comparison, for
instance, information regarding adjustments, allowances and currency conversion, and may not impose an
"unreasonable burden of proof" on parties.
5. CALCULATION OF THE MARGIN OF DUMPING
The Agreement contains rules governing the calculation of dumping margins. The existence of margins of
dumping during the investigation phase shall normally be established on the basis of: (i) a comparison of a
weighted average normal value with a weighted average of prices of all comparable export
transactions; or, (ii) a comparison of normal value and export prices on a transaction-to-transaction
basis (Article 2.4.2). A different basis can be used if a pattern exists of export prices differing significantly
among different purchasers, regions or time periods, and if the investigating authorities provide an explanation
as to why such difference cannot be taken into account appropriately by the use of a weighted
average-to-weighted average or transaction-to-transaction comparison. In such a situation, the weighted
average normal value can be compared to the export prices on individual transactions.
Example: Formula for Calculating the Margin of Dumping - Comparison of a weighted average
normal value with a weighted average of prices of all comparable export transactions
Normally, the margin of dumping is expressed as a percentage of the adjusted weighted average export
price. Thus, the difference between the "adjusted weighted average normal value" and the "adjusted
weighted average export price" is divided by the "adjusted weighted average export price".

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Example: Assume the adjusted weighted average normal value is US$ 4.50/kg and the adjusted weighted
average export price is US$ 4.15/kg. According to the formula, the margin of dumping would be:
4.50 - 4. 15
_____________ = 8.43%  Margin of Dumping
4.15
The Agreement requires that a dumping margin be calculated for each exporter. However, it is
recognized that this may not be possible in all cases, and thus the Agreement allows investigating
authorities to limit the number of exporters, importers, or products individually considered and impose an
anti-dumping duty on sources not investigated on the basis of the weighted average dumping margin actually
established for the exporters or producers actually examined. The investigating authorities are precluded from
including in the calculation any dumping margins that are de minimis, zero or based on the facts available
rather than a full investigation, and must calculate an individual margin for any exporter or producer who
provides the necessary information during the course of the investigation.
The Agreement also makes provision for the assessment of anti-dumping duties on exports from producers or
exporters who were not sources of imports considered during the period of investigation. In this case, the
investigating authorities are required to conduct an expedited review to determine a specific margin of
dumping attributable to the exports of such a "new shipper".
TO KNOW MORE... PERIOD OF DATA COLLECTION FOR DUMPING INVESTIGATIONS
Although the Anti-dumping Agreement refers to the period of data collection for dumping investigations
("period of investigation"), it does not establish any specific period of investigation, nor does it establish
guidelines for determining an appropriate period of investigation for the examination of either dumping or
injury. The document "Recommendation Concerning the Periods of Data Collection for Anti-Dumping
Investigations" (G/ADP/6), adopted by the Committee on Anti-Dumping, provides that this period normally
should be twelve months, and in any case no less than six months, ending as close to the date of initiation
as is practicable.
EXERCISES
1. What is dumping? How is it calculated?
2. Summarize the methods available for calculating the normal value.
3. Summarize the methods available for calculating the export price.
4. What main requirement does the Anti-Dumping Agreement impose for the comparison between normal
value and export price?

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b. DETERMINATION OF MATERIAL INJURY AND CAUSAL LINK
Determination of Material Injury and Causal Link
After determining the existence of dumping and before imposing anti-dumping measures, the Anti-Dumping
Agreement requires WTO Members to determine:
 Material injury to the domestic industry producing the like product; and,
 Causal link between the dumped imports and the injury.
1. SOME IMPORTANT CONCEPTS
1.1. LIKE PRODUCTS
The concept of "like product" is defined in Article 2.6 of the Anti-Dumping Agreement as a product which is
identical, i.e. alike in all respects to the product under consideration, or, in the absence of such a
product, another product which, although not alike in all respects, has characteristics closely
resembling those of the product under consideration.
The determination of "like products" in the context of the injury analysis involves examining the imported
product or products that are alleged to be dumped, and then establishing what domestically produced product
or products are the appropriate "like products". This determination is important because it forms the basis of
determining which companies constitute the domestic industry, which will be the basis of the investigation and
determination of injury and causal link.
As we saw in the previous section, the definition of "like product" is also relevant to the determination of
dumping. However, it is worth noting that when referred to the determination of dumping, the product under
consideration is the good produced in the exporting country.
1.2 DOMESTIC INDUSTRY
Article 4 of the Anti-Dumping Agreement defines the term "domestic industry" to mean the domestic
producers as a whole of the like products or those of them whose collective output of the products
constitutes a major proportion of the total domestic production of those products.
The Agreement recognizes that, in certain circumstances, it may not be appropriate to include all producers of
the like product in the domestic industry. Thus, Members are permitted to exclude from the domestic industry
producers related to the exporters or importers under investigation, and producers who are themselves
importers of the allegedly dumped product (Article 4.1(i)).
The Agreement also contains special rules that allow, in exceptional circumstances, consideration of injury to
producers comprising a "regional industry". The territory of a Member may, for the production in question,
be divided into two or more competitive markets and the producers within each market may be regarded as a
separate industry if the producers within that market sell all or almost all of their production of the like product
in that market, and demand for the like product in that market is not to any substantial degree supplied by
producers of the like product located outside that market. Articles 4.1(ii) and 4.2 contain special rules
applicable to such cases.

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2. DETERMINATION OF INJURY
The Anti-Dumping Agreement provides that, in order to impose anti-dumping measures, the investigating
authorities of the importing Member must make a determination of "injury". Footnote 9 of the Anti-Dumping
Agreement specifies three types of "injury": (i) material injury to a domestic industry, (ii) threat of
material injury to a domestic industry, or, (iii) material retardation of the establishment of a domestic
industry. This section will focus mainly on the first one (material injury). The Agreement does not
provide guidance on the third one (material retardation), which has rarely been invoked.
2.1 MATERIAL INJURY
Article 3.1 of the Anti-Dumping Agreement requires that a determination of injury must be based on positive
evidence and involve an objective examination of both: (a) the volume of dumped imports and the effect
of the dumped imports on prices in the domestic market for like products; and, (b) the consequent impact of
the dumped imports on domestic producers of the like products.
In US Hot-Rolled Steel, the Appellate Body stated that the term "positive evidence" relates to the quality of the
evidence that authorities may rely upon in order to justify an injury determination. It further explained that
the word "positive" means that the evidence must be of an affirmative, objective and verifiable character
and that it must be credible (US Hot-Rolled Steel, Appellate Body Report, para. 192).
a) Dumped Imports
Article 3.2 requires investigating authorities to consider whether there has been a significant increase in
dumped imports, either in absolute terms or relative to production or consumption in the domestic industry.
The Agreement also requires investigating authorities to consider whether there has been significant price
undercutting by the dumped imports as compared with the price of the like product of the importing
Member; or whether the effect of dumped imports is "otherwise" to depress prices to a significant degree, or to
prevent price increases which otherwise would have occurred, to a significant degree.
The Anti-Dumping Agreement does not specify comprehensively or precisely how the investigating authorities
are to evaluate the volume and price effects of dumped imports. Thus, investigating authorities have to
develop analytical methods for undertaking the consideration of these factors, according to the particular
circumstances of each case.
b) Impact of Dumped Imports
Article 3.4 provides that, in examining the impact of dumped imports on the domestic industry, the authorities
are to evaluate all relevant economic factors having a bearing upon the state of the domestic
industry. It includes a list of factors which must be considered, such as: actual or potential declines in sales,
profits, output, market share, productivity, return on investments, utilization of capacity; factors affecting
domestic prices; the magnitude of the margin of dumping; actual and potential negative effects on cash flow,
inventories, employment, wages, growth, ability to raise capital or investments.
The list is not exhaustive and no one or several of these factors can necessarily give decisive guidance.
Other factors may be deemed relevant in a given situation. In this regard, in US- Hot Rolled Steel, the
Appellate Body opined that the obligation of evaluation of Article 3.4 imposed on investigating authorities is not
confined to the listed factors, but extends to all relevant economic factors (US- Hot Rolled Steel, Appellate

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Body Report, para. 194). The Agreement expressly provides that no single factor or combination of factors will
necessarily lead to either an affirmative or negative determination. Thus, investigating authorities have to
evaluate which factors are relevant, and which are important, in light of the circumstances of the particular
case at issue.
2.2 THREAT OF MATERIAL INJURY
The Anti-Dumping Agreement provides that a determination of threat of material injury shall be based on
facts, and not merely on allegation, conjecture, or remote possibility. Furthermore, the change in
circumstances which would create a situation where dumped imports would cause material injury must be
clearly foreseen and imminent (Article 3.7).
The Agreement sets forth factors to be considered in the evaluation of threat of material injury including: a
significant rate of increase of dumped imports into the domestic market, the capacity of the exporter(s), the
likely effects of prices of dumped imports on domestic prices and inventories of the product being investigated.
Article 3.8 also provides that, with respect to cases where injury is threatened by dumped imports, the
application of anti-dumping measures shall be considered and decided with special care.
3. CAUSAL LINK BETWEEN DUMPED IMPORTS AND INJURY
Article 3.5 requires a demonstration that there is a causal relationship between the dumped imports and
the injury to the domestic industry producing the like product. It must be demonstrated that the
dumped imports, through the effects of dumping, are causing injury. This demonstration must be based on an
examination of all relevant evidence before the investigating authority.
This provision requires investigating authorities to examine any known factors other than dumped
imports which may be causing injury to the domestic industry at the same time. The Anti-Dumping
Agreement provides examples of such "other" factors (contraction in demand, changes in the patterns of
consumption, developments in technology, export performance and productivity of the domestic industry),
which may be relevant, and specifies that injury caused by these other factors must not be attributed to
dumped imports (non-attribution requirement). As held by the Appellate Body in US-Hot Rolled Steel, this
requires separating and distinguishing the injurious effects of the other factors from the injurious effects of
dumped imports. Investigating authorities must determine what evidence is, or may be, relevant in a particular
case in their evaluation of causation (US-Hot Rolled Steel , Appellate Body Report, paras. 222-223).
4. CUMULATIVE ANALYSIS
Cumulative analysis refers to the consideration of dumped imports from more than one country on a combined
basis in assessing whether dumped imports are causing injury to the domestic industry. Since such analysis
will increase the volume of imports whose impact is being considered, there is a greater possibility of an
affirmative determination in a case involving cumulative analysis. Article 3.3 establishes the conditions in
which a cumulative evaluation of the effects of dumped imports from more than one country may be
undertaken.

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TO KNOW MORE... INJURY INVESTIGATION PERIOD
As in the case of dumped imports, the determination of material injury requires an analysis over a period of
time which is often called injury investigation period. The Anti-Dumping Agreement contains no rules on this
period although the "Recommendation Concerning The Periods of Data Collection for Anti-Dumping
Investigations" (G/ADP/6) calls on Members to use for the injury investigation a data collection period of at
least three years, which should include the entirety of the period of data collection for the dumping
investigation.
EXERCISES
5. Explain briefly the three substantive conditions to be met before the application of an anti-dumping
measure.
6. How is "material injury" determined in anti-dumping investigations?

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II.B. PROCEDURAL REQUIREMENTS FOR THE APPLICATION
OF ANTI-DUMPING MEASURES
The Anti-Dumping Agreement establishes: detailed requirements for the initiation and conduct of
investigations; the application and duration of provisional and definitive anti-dumping measures; and the
review of anti-dumping measures.
a. GENERAL REQUIREMENTS
 INITIATION OF INVESTIGATION AT THE REQUEST OF THE DOMESTIC INDUSTRY: the
Anti-Dumping Agreement specifies that investigations should generally be initiated on the basis
of a written request submitted "by or on behalf of a domestic industry". This requirement
includes numerical limits to guide investigating authorities in determining whether there is
sufficient support by domestic producers to conclude that the request is made by or on behalf
of the domestic industry (the so-called "standing" requirement). For example, the application
shall be considered to have been made "by or on behalf of the domestic industry" if it is
supported by those domestic producers whose collective output constitutes more than 50 per
cent of the total production of the like product produced by that portion of the domestic
industry expressing either support for or opposition to the application. No investigation shall
be initiated when domestic producers expressly supporting the request account for less than 25
per cent of total production (Article 5.4). In addition, "in special circumstances", investigating
authorities may initiate an investigation ex officio, without a written application by or on behalf
of a domestic industry.
 EVIDENTIARY REQUIREMENTS FOR INITIATION: in respect of initiation, the Anti-
Dumping Agreement provides requirements for the contents of an application, in terms of
evidence of dumping, injury and causation, as well as other information regarding the product,
price, industry, importers, exporters, etc (Article 5.2). The investigating authorities shall
examine the evidence to determine whether it is sufficient to justify the initiation of an
investigation. An application shall be rejected and an investigation terminated promptly as
soon as the authorities concerned are satisfied that there is not sufficient evidence of either
dumping or of injury to justify proceeding with the case. When authorities initiate without a
written application from a domestic industry (ex officio), they shall proceed only if they have
sufficient evidence of dumping, injury and causal link to justify initiation (Article 5.3 and
Article 5.6).
 DUE PROCESS, TRANSPARENCY AND PUBLIC NOTICE: interested parties shall have an
adequate opportunity to defend their interests and to participate in the investigation (Article 6).
In addition, authorities are required to ensure the transparency of proceedings. The
Agreement includes requirements for public notice by investigating authorities of the initiation
of investigation, preliminary and final determinations and undertakings. This includes
disclosing information regarding the product, the margin of dumping and the basis for the
determinations (Article 12). Article 6 of the Anti-Dumping Agreement also contains provisions
to protect the confidentiality of certain information.
 MAXIMUM DURATION OF THE INVESTIGATION: as a general rule, investigations should be
completed within one year, and in no case more than 18 months, after initiation (Article 5.10).

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 JUDICIAL REVIEW: the Anti-Dumping Agreement requires Members to provide for judicial review of
final determinations relating to the application of anti-dumping measures (Article 13).
Further guidance on the conduct of investigations is contained in two Annexes to the Agreement, which set
forth rules for the on-the-spot investigations and for the use of best information available in the event a party
refuses access to, or does not provide, requested information, or significantly impedes the investigation.
b. TERMINATION OF INVESTIGATION WITHOUT MERIT
Article 5.8 of the Anti-Dumping Agreement provides for immediate termination of investigations in the event
there is not sufficient evidence of either dumping or injury, the margin of dumping is de minimis (less
than two per cent, expressed as a percentage of the export price) or the volume of imports is negligible
(the volume of dumped imports from a particular country is found to be less than three per cent of total
imports of the like product; unless imports which individually account for less than three per cent collectively
account for more than seven per cent of imports of the like product in the importing country).
c. UNDERTAKINGS
Article 8 of the Anti-Dumping Agreement contains rules on the offering and acceptance of undertakings from
any exporter to revise its prices or to cease exports at dumped prices, in lieu of the imposition of
anti-dumping duties. It establishes the principle that undertakings between any exporter and the importing
Member may be entered into, but only after a preliminary affirmative determination of dumping, injury and
causation has been made. It also establishes that the acceptance of price undertakings is voluntary on the
part of both exporters and investigating authorities. In addition, an exporter may request that the
investigation be continued after an undertaking has been accepted. If a final determination of no dumping, no
injury or no causation results, the undertaking shall automatically lapse, except in cases where such a
determination is due in large part to the existence of a price undertaking.
d. PROVISIONAL MEASURES
Article 7 of the Anti-Dumping Agreement provides rules for the imposition of provisional measures. These
rules include the requirement that authorities make a preliminary affirmative determination of dumping, injury,
and causation before applying provisional measures, as well as the requirement that no provisional measures
may be applied sooner than 60 days after initiation of an investigation. Provisional measures may take the
form of a provisional duty or, preferably, a security by cash deposit or bond equal to the amount of the
preliminarily determined margin of dumping. The Anti-Dumping Agreement also contains time limits for the
imposition of provisional measures — generally four months, with a possible extension to six months at
the request of the exporter (when authorities examine whether a duty lower than the margin of dumping would
be sufficient to remove injury, these periods may be six and nine months, respectively).
e. APPLICATION OF ANTI-DUMPING DUTIES
Anti-dumping measures take the form of customs duties, which may be in excess of the bound tariff provided
in the Schedule of concessions of the Member applying the measure. The Anti-Dumping Agreement provides
that it is desirable that the imposition of the duty be permissive and that the duty be less than the margin of
dumping if such "lesser duty" would be adequate to remove the injury to the domestic industry. In any case,

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anti-dumping duties cannot exceed the margin of dumping calculated during the investigation
(Article 9.3). The Agreement provides specific ways to ensure that excessive duties are not collected.
The Anti-Dumping Agreement sets forth the general principle that both provisional and final anti-dumping
duties may be applied only as of the date on which the determinations of dumping, injury and causation have
been made. However, recognizing that injury may have occurred during the period of investigation, or that
exporters may have taken actions to avoid the imposition of an anti-dumping duty, Article 10 contains rules for
the retroactive imposition of anti-dumping duties in specified circumstances.
f. DURATION AND REVIEW OF ANTI-DUMPING MEASURES
Article 11 of the Anti-Dumping Agreement establishes rules for the duration of anti-dumping measures and
requirements for periodic review of the continuing need, if any, for the imposition of the measures.
As a general principle, an anti-dumping measure shall remain in force only as long as and to the
extent necessary to counteract dumping which is causing injury (Article 11.1). Investigating authorities
are required to review the need for continued imposition of anti-dumping measures, on their own initiative or,
provided that a reasonable period of time has elapsed since the imposition of the measure, upon request by
any interested party which submits positive information substantiating the need for a review.
Article 11.3 (known as the "sunset clause") provides that anti-dumping measures shall normally terminate no
later than five years after first being applied, unless a review initiated prior to that date establishes that the
expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury. The duty may
remain in force pending the outcome of such a review. This five-year "sunset" provision also applies to price
undertakings.
g. SPECIAL AND DIFFERENTIAL TREATMENT
Article 15 of the Anti-Dumping Agreement recognizes that special regard must be given by developed country
Members to the special situation of developing country Members when considering the application of
anti-dumping measures under the Anti-Dumping Agreement. Possibilities of constructive remedies provided for
by the Anti-Dumping Agreement shall be explored before applying anti-dumping duties where they would affect
the essential interests of developing country Members. Discussing what might be encompassed by the phrase
"constructive remedies provided for by this Agreement", the Panel in EC - Bed Linen mentioned the examples
of the imposition of a "lesser duty" or a price undertaking (EC - Bed Linen, Panel Report, para. 6.229).
EXERCISES
7. Assuming that all the substantive requirements for the application of anti-dumping measures are met,
what is the maximum level of anti-dumping duty that a Member can impose on dumped imports?
8. What is the maximum duration of anti-dumping measures?
9. Enumerate the steps of an anti-dumping investigation (use the chart presented in the next page as a
guide).

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The chart shows the different stages in an anti-dumping investigation. This chart also applies to the
investigation conducted for the application of countervailing measures and, to a lesser extent, to
the investigation for the application of safeguard measures (explained in the following sections of this
Module).
Reference: Czako, J., Human, J. and Miranda, J. (2003), A Handbook on Anti-Dumping Investigations, World
Trade Organization, Cambridge: Cambridge University Press, p. 10.

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III. SUBSIDIES & COUNTERVAILING MEASURES
(SCM)
IN BRIEF
The SCM Agreement - addresses two separate but closely related matters: (i) the multilateral disciplines
on the use of subsidies; and, (ii) the conditions under which Members may apply countervailing
measures. The SCM Agreement contains a definition of "subsidy", which applies in both of these
areas.
The multilateral disciplines govern whether, and what kind of, a subsidy may be granted by a
Member. The SCM Agreement currently classifies subsidies into two categories: prohibited and
actionable.
Countervailing measures are unilateral tools, which may be applied by a Member after conducting a
domestic investigation in which it has been determined that subsidized imports are causing or
threatening to cause injury to the domestic industry producing the like products. As in the case of
anti-dumping, countervailing measures are normally applied in the form of customs duties in excess of
bound rates. An exporting Member affected by the measures may challenge a failure to comply with any of
the requirements for the imposition of countervailing measures by using the WTO dispute settlement
mechanism.
The SCM Agreement applies to all goods, that is both agricultural and industrial products. As you
learned in Module 4, the Agreement on Agriculture provides disciplines on trade-distorting subsidies relating
to agricultural products. As we will see, there are specific provisions regulating the interaction
between the SCM Agreement and the Agreement on Agriculture when referring to agricultural goods.
III.A. THE SUBSIDIES AND COUNTERVAILING MEASURES
(SCM) AGREEMENT: TWO TRACKS
The main object and purpose of the SCM Agreement is to increase and improve GATT disciplines relating to
the use of both subsidies and countervailing measures (US - Carbon Steel, Appellate Body Report,
para. 73). Therefore, the SCM Agreement can be seen as "two agreements in one".
III.A.1. MULTILATERAL DISCIPLINES ON SUBSIDIES
The SCM Agreement provides multilateral disciplines governing whether, and what kind of, a subsidy may
be provided by a Member. Certain subsidies are prohibited and all other specific subsidies may be challenged if
they cause adverse effects to the interests of other Members.
These rules are enforced through the WTO dispute settlement mechanism, in accordance with the
Dispute Settlement Understanding (DSU) – see Module 10. This is also called the "multilateral track". In

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this regard, the SCM Agreement contains special or additional rules and procedures that supplement or replace
the rules of the dispute settlement mechanism provided in the DSU. The invocation of the multilateral track
may end with the withdrawal of the subsidy or the removal of its adverse effects, depending on the
case.
III.A.2. COUNTERVAILING MEASURES
The SCM Agreement also allows Members to apply countervailing measures after conducting a domestic
investigation according to the criteria set forth in the SCM Agreement (also called "unilateral" or
"domestic" track). As we will see below, countervailing duties can only be applied when subsidized imports
are causing injury or threatening to cause injury to the domestic industry producing the like product. The
SCM Agreement also provides procedural requirements that regulate the conduct of countervailing
investigations. As in the case of anti-dumping, a failure to comply with any of the requirements for the
imposition of countervailing measures can be challenged by the exporting Member through the WTO
dispute settlement mechanism.
Figure 2: The SCM Agreement: Two tracks

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III.B. DISCIPLINES ON SUBSIDIES
III.B.1. DEFINITION OF "SUBSIDY"
For a measure to be covered by the SCM Agreement, it has to fall under the definition of subsidy provided in
Article 1 of the SCM Agreement and meet the "specificity" requirement provided in Article 2.
Definition of "Subsidy"
The definition of "subsidy" contains three elements which must be satisfied for a subsidy to be covered by
the SCM Agreement (Article 1). There must be:
 A financial contribution;
 By a government or any public body within the territory of a Member;
 Which confers a benefit.
All three elements must be satisfied in order for a subsidy to exist.
Specificity Requirement
The disciplines in the SCM Agreement only apply to "specific" subsidies (Article 2) — i.e. a subsidy
available only to an enterprise, industry, group of enterprises, or group of industries within the jurisdiction of
the granting authority.
a. FINANCIAL CONTRIBUTION
Under the SCM Agreement, a subsidy may only exist where a measure takes the form of a "financial
contribution", or where there is any form of income or price support in the sense of Article XVI of
GATT 1994. Article 1 contains a list of measures that are deemed to provide a financial contribution.
These include direct transfers of funds (e.g. grants, loans, and equity infusion) and potential direct transfers of
funds or liabilities (e.g. loan guarantees). A financial contribution also exists where government revenue that
is otherwise due is foregone or not collected (e.g. fiscal incentives such as tax credits); where a government
provides goods or services other than general infrastructure, or purchases goods; or where a government
entrusts or directs a private body to carry out these functions.
If a measure confers regulatory - but not financial - advantages, it would not constitute a subsidy. For
instance, assume that a government temporarily exempts a manufacturing facility in financial difficulties from
the obligation to observe anti-pollution laws. To the extent that there is no element of financial contribution,
this would not constitute a subsidy.

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b. BY A GOVERNMENT OR ANY PUBLIC BODY
In order for a financial contribution to be a subsidy, it must be made by - or with the entrustment or direction
of - a government or any public body within the territory of a Member. The SCM Agreement applies not
only to measures of national governments, but also to measures of sub-national governments and of such
public bodies as state-owned companies.
A financial contribution made by a private body may still fall under the definition provided in Article 1.1 of the
SCM Agreement if a government or public body entrusts or directs a private body, that is, if the contribution is
made pursuant to the government's instructions. For example, if a private non-governmental organization
(NGO) gives technical and financial assistance to coffee growers in certain WTO Members in Africa, it would be
a case of private, not governmental, assistance, presumably unless the financial contribution was made at the
direction of a government or public body within the territory of the WTO Member.
c. CONFERS A BENEFIT
A financial contribution by a government is not a subsidy unless it confers a "benefit". The word ''benefit'', as
used in Article 1.1 of the SCM Agreement, is concerned with the ''benefit to the recipient'' and not with the
''cost to government'' (Canada – Aircraft, Appellate Body Report, paras. 154-155.
In many cases, as in the case of a cash grant, the existence of a benefit and its value may be clear. In some
cases, however, the issue of benefit is more complex. For example, when does a loan, an equity infusion or
the purchase by a government of a good confer a benefit?
Although the SCM Agreement does not provide comprehensive guidance on these issues, the Appellate Body
has stated in Canada – Aircraft that the existence of a benefit is to be determined by comparison with
the market-place (i.e., whether the recipient has received a financial contribution on terms more favourable
than those available to the recipient in the marketplace) (Canada – Aircraft, Appellate Body Report, para. 157).
Thus, for example, if a government makes a loan to a manufacturer on conditions equivalent to those that the
manufacturer could obtain from private banks, there is a financial contribution but no benefit; under these
conditions, the loan would not constitute a subsidy.
In the context of countervailing duties, Article 14 of the SCM Agreement provides some guidance with respect
to determining whether certain types of measures confer a benefit. While that provision furnishes contextual
guidance for the meaning of "benefit", as regards multilateral disciplines, the meaning of "benefit" is not fully
resolved.
d. SPECIFICITY
Even if a measure is a subsidy within the meaning of the SCM Agreement, it nevertheless is not subject to the
SCM Agreement unless it has been "specifically" provided to an enterprise or industry or group of
enterprises or industries. The basic principle is that only a subsidy that distorts the allocation of
resources within an economy should be subject to disciplines. Where a subsidy is widely available within an
economy, such a distortion in the allocation of resources is presumed not to occur.

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There are four types of "specificity" within the meaning of the SCM Agreement:
(i) Enterprise-specificity -a government targets a particular enterprise or enterprises for subsidization;
(ii) industry-specificity –a government targets a particular enterprise or enterprises for subsidization;
(iii) regional-specificity –a government targets producers in specified parts of its territory for
subsidization; and,
(iv) prohibited subsidies – i.e. export subsidies and domestic content subsidies are deemed to be specific.
The SCM Agreement covers not only subsidies which are de jure specific (their specific nature is derived from
an explicit limitation by the granting authority or the legislation pursuant to which the granting authority
operates), but also those that are de facto specific (the specific nature of the subsidy is derived from the
facts and circumstances surrounding its application; in other words, the subsidy is "in fact" specific). In this
regard, Article 2.1(c) of the SCM Agreement provides that if there are reasons to believe that the subsidy may,
in fact, be specific, other factors listed in the Agreement - such as the use of a subsidy programme by a limited
number of certain enterprises, predominant use by certain enterprises, and the manner in which discretion has
been exercised by the granting authority in the decision to grant a subsidy - may be considered. Information
on the frequency with which applications for a subsidy are refused or approved and the reasons for such
decisions are also to be considered. The extent of diversification of economic activities within the jurisdiction of
the granting authority, as well as the length of time during which the subsidy programme has been in
operation are to be taken into account.
III.B.2. CATEGORIES OF SUBSIDIES COVERED BY THE SUBSIDIES AND
COUNTERVAILING MEASURES (SCM) AGREEMENT
Categories of Subsidies Covered by the SCM Agreement
The SCM Agreement defines two categories of subsidies
*
:
1. Prohibited; and,
2. Actionable.
All specific subsidies fall into one of these categories.
*
The SCM Agreement originally contained a third category: non-actionable subsidies. This category existed
for five years, ending on 31 December 1999 (the possibility for its extension, originally envisaged in
Article 31 of the Agreement, did not occur).

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a. PROHIBITED SUBSIDIES
Article 3 of the SCM Agreement includes two categories of prohibited ("red-light") subsidies:
 Export Subsidies: subsidies contingent, in law or in fact, whether solely or as one of several
other conditions, upon export performance (a detailed illustrative list of export subsidies is
contained in Annex 1 of the SCM Agreement). The mere fact that a subsidy is granted to
enterprises which export shall not, for that reason alone, be considered to be an export subsidy
within the meaning of this provision (see footnote 4 of the SCM Agreement).
 Import Substitution Subsidies: subsidies contingent, whether solely or as one of several other
conditions, upon the use of domestic over imported goods.
Any subsidy falling under the provisions of Article 3 shall be deemed to be specific. These two categories are
prohibited because they are presumed to distort international trade, and are therefore most likely to have
adverse effects on the interest of other Members. They may be challenged through the WTO dispute
settlement mechanism (multilateral track) on the basis of special accelerated procedures and, if the
subsidy is found to be prohibited, it must be withdrawn without delay. Since these subsidies are most likely to
cause adverse effects, there is no need for the complaining Member to demonstrate the existence of any trade
effects. Rather, the main focus is on the nature of the subsidy itself. Prohibited subsidies may also be subject
to countervailing measures (unilateral or domestic track) if subsidized imports are causing injury to the
domestic industry.
b. ACTIONABLE SUBSIDIES
Most subsidies, such as many production subsidies, fall in the category of "actionable subsidies" (so-called
"yellow-light" subsidies). Actionable subsidies are not prohibited. However, they are subject to
challenge, either through multilateral dispute settlement or through countervailing action, in the
event that they cause adverse effects to the interests of another Member. Thus, in addition to the
existence of a specific subsidy, the complaining Member has to show that this specific subsidy causes adverse
effects. The SCM Agreement defines three types of adverse effects these subsidies can cause:
 INJURY: subsidized imports cause injury to a domestic industry in the territory of the
complaining Member. This type of adverse effect can be challenged both at the unilateral level
through countervailing action or at the multilateral level through the WTO's dispute settlement
mechanism. However, only one form of relief (either countervailing duty or an authorized
countermeasure) is applicable.
 SERIOUS PREJUDICE: usually arises where the effect of a subsidy is (i) displacement or
impedance of the complaining Member's exports, either in the market of the subsidizing
Member or in a third country market; or, (ii) significant price undercutting, price suppression or
depression or lost sales of the complaining Member's product in a given market; or, (iii) an
increase in the subsidizing Member's world market share in a subsidized primary product or
commodity.
 Therefore, serious prejudice can serve as the basis for a complaint related to harm to a
Member's interests in its export markets. Accordingly, in the three instances of serious
prejudice, the subsidy can be challenged only through the multilateral track. The SCM
Agreement sets out situations where factors other than the subsidization appear to explain the
displacement or impeding of a complaining Member's exports and where serious prejudice
therefore should not be found to exist. Annex V sets out procedures for developing information

237. 219
concerning serious prejudice in a dispute.
 NULLIFICATION OR IMPAIRMENT OF BENEFITS (accruing under the GATT 1994): arises
most typically where the improved access to a market that is presumed to flow from a bound
tariff reduction is undercut by subsidization in that market. As with serious prejudice,
nullification and impairment can serve as the basis for a complaint related to harm to a
Member's exporting interests, in this case in respect of the importing country's market. Thus,
the subsidy can only be challenged through the multilateral track.
Relationship between the SCM Agreement and the Agreement on Agriculture
Article 21 of the Agreement on Agriculture establishes that the provisions of GATT 1994 and of other
Multilateral Trade Agreements in Annex 1A to the WTO Agreement –including the SCM Agreement - shall
apply subject to the provisions of the Agreement on Agriculture.
Article 3.1 of the SCM Agreement prohibits export and import-substitution subsidies "except as provided in
the Agreement on Agriculture". In US - Upland Cotton, the Appellate Body stated that agricultural subsidies
are subject to the SCM Agreement "except to the extent that the Agreement on Agriculture contains specific
provisions dealing specifically with the same matter" (US - Upland Cotton, Appellate Body Report, paras.
530-533). Thus, for example, agricultural export subsidies that are fully consistent with the
provisions of the Agreement on Agriculture are not prohibited under Article 3 of the SCM
Agreement. They can be countervailed.
Article 13 of the Agreement on Agriculture, known as the "Peace Clause", provided that during the
implementation period specified in that Agreement (until 2004), special rules regarding subsidies for
agricultural products were to be applied. Since the implementation period has already expired, the Peace
Clause is not applicable anymore.
EXERCISES
10. Why is the SCM Agreement considered "two agreements in one"?
11. Explain briefly the elements that must be satisfied for a subsidy to be covered by the SCM Agreement.
12. Describe the categories of subsidies covered by the SCM Agreement, indicating the tracks available to
challenge each one.
13. What happens in case of conflict between a provision of the SCM Agreement and a provision of the
Agreement on Agriculture?

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III.C. PROCEDURE FOR THE APPLICATION OF
COUNTERVAILING MEASURES
The SCM Agreement provides substantive and procedural requirements for the application of
countervailing measures. These requirements are similar to those applicable to anti-dumping
investigations. To avoid repetition, we will focus only on those aspects that differ or only apply to
countervailing measures.
III.C.1. SUBSTANTIVE REQUIREMENTS
Conditions for the Application of Countervailing Measures
According to Part V of the SCM Agreement, a Member may impose a countervailing measure only after
determining, pursuant to an investigation, the existence of the three following cumulative requirements:
 Subsidized imports;
 Material injury to the domestic industry producing the like product, threat of material injury
or material retardation of the establishment of a domestic industry; and,
 Causal link between the subsidized imports and the injury.
We have examined injury and causal link before, when explaining anti-dumping investigations. These concepts
have almost the same meaning in the countervailing context. The main difference is that in the case of
countervailing measures, the issue to be determined is whether there are "subsidized imports" (instead of
"dumped imports").
As explained above, the definition of a subsidy contains three basic elements: a financial contribution; by a
government or any public body within the territory of a Member; which confers a benefit. All three of these
elements must be satisfied in order for a subsidy to exist. In addition, the subsidy must be specific.
III.C.2. PROCEDURAL REQUIREMENTS
As in the case of the Anti-Dumping Agreement, the SCM Agreement contains detailed rules regarding the
initiation and conduct of countervailing investigations, the imposition of preliminary and final countervailing
measures, the use of price undertakings and the duration of the measures. A key objective of these rules is to
ensure the transparency of investigations, due process (e.g. that all interested parties have a full opportunity
to defend their interests); and that investigating authorities adequately explain the bases for their
determinations.
Most of the procedural rules that apply in the case of the Anti-Dumping Agreement apply also to the SCM
Agreement. Some notable differences particular to the SCM Agreement include: the de minimis
threshold (subsidy < one per cent ad valorem - when met, an investigation shall be terminated immediately –
Article 11.9); the period of time preliminary measures may remain in force (Article 17.4); and the types of
undertakings that may be entered into (Article 18).

239. 221
III.D. SPECIAL AND DIFFERENTIAL TREATMENT
The SCM Agreement recognizes that subsidies can play an important role in economic development
programmes of developing country Members, and thus, provides special and differential treatment to such
Members (Part VIII, Article 27). Differing levels of development among countries mean differing levels
of obligations and transition periods with regard to the SCM Agreement.
III.D.1. MULTILATERAL DISCIPLINES ON SUBSIDIES
The SCM Agreement recognizes three main categories of developing country Members:
(i) least-developed country Members (LDCs), (ii) certain Members identified in Annex VII(b) of the Agreement
until such time as their growth national product (GNP) per capita has reached US$ 1,000 per year, and
(iii) other developing countries. In addition, certain Members benefit from time-limited and
programme-specific special and differential treatment in respect of export subsidies, flowing from Article 27.4
of the Agreement to decisions taken at the Doha Ministerial Conference and related decisions adopted by the
SCM Committee.
Generally, the lower a Member's level of development, the more favourable the treatment it receives with
respect to certain subsidies disciplines. For example, in respect of export subsidies:
 Least-developed countries (LDCs) are exempt from the general prohibition on export subsidies;
 Members with a GNP per capita of less than US$ 1000 per year listed in Annex VII are also
exempt from the general prohibition. Pursuant to the Doha Ministerial Declaration on
Implementation-related Issues and Concerns, Annex VII includes Members that are listed
therein until their GNP per capita reaches US $1,000 in constant 1990 dollars for three
consecutive years, pursuant to a defined methodology based on recent World Bank data (see
G/SCM/38, Appendix 2). Since 2003, the WTO Secretariat has circulated notes updating the
GNP per capita of Members listed in Annex VII (see G/SCM/110 documents); and,
 Other developing country Members had an eight-year period (i.e. until 2003) to phase out their export
subsidies (they were subject to a "standstill" commitment – i.e. they could not increase the level of their
export subsidies during this period). However, as mentioned, certain Members who are neither LDCs,
nor among those Members listed in Annex VII, still benefit from programme-specific and time-limited
exemptions from the prohibition on export subsidies, flowing from Article 27.4 of the SCM Agreement,
decisions taken at the Doha Ministerial Conference and related decisions adopted by the General Council
and the SCM Committee. From 2007, this particular exemption related to certain export subsidy
programmes of the following Members: Antigua & Barbuda; Barbados; Belize; Costa Rica; Dominica;
Dominican Republic; El Salvador; Fiji; Grenada; Guatemala; Jamaica; Jordan; Mauritius; Panama;
Papua New Guinea; St. Kitts and Nevis; St. Lucia; St. Vincent & the Grenadines; and Uruguay. Such
exemption from the prohibition is subject to a "standstill" obligation and annual review by the SCM
Committee, and may last no longer than 31 December 2015 (see General Council Decision, WT/L/691).
A developing country Member otherwise exempt from the prohibition on export subsidies may nevertheless
become subject if it reaches export competitiveness in any product.
The prohibition on import substitution subsidies did not apply to LDCs for a period of eight years from the
date of entry into force of the WTO Agreement, while developing Members had a period of five years to phase

240. 222
out their import substitution subsidies. Currently, the SCM Agreement does not provide for any exemption
from the general prohibition on import substitution subsidies.
There is also more favourable treatment with respect to actionable subsidies. For example, the invocation of
serious prejudice claims against developing country Members is more limited and certain subsidies related to
developing country Members' privatization programmes are not actionable multilaterally. Such special
treatment is subject to certain notification requirements. Members in the process of transformation from a
centrally-planned to a market, free-enterprise economy (economies in transition) were given a seven-year
period to phase out prohibited subsidies, if notified. These Members also received special and differential
treatment with respect to actionable subsidies.
III.D.2. COUNTERVAILING MEASURES
With respect to countervailing measures, Article 27 provides that developing country Members' exporters are
entitled to more favourable treatment with respect to the termination of investigations where:
(a) The overall level of subsidies granted upon a product does not exceed two per cent of the per-unit value of
the product (for other Members, the de minimis level is one per cent). Until 2003, for developing Members
that had eliminated their export subsidies before the end of the transition period and for Annex VII
Members, the de minimis level was three per cent; and,
(b) the volume of the subsidized imports of a developing country Member is less than four per cent of the total
imports, unless the imports from developing country Members whose individual share is less than four per
cent, collectively account for more than nine per cent of the total imports of the like product in the
importing Member.
TO KNOW MORE... DOHA NEGOTIATIONS
In the light of experience and of the increasing application of anti-dumping and countervailing measures by
Members, at the Doha Ministerial Conference, Members agreed to launch negotiations aimed at
clarifying and improving disciplines under the Anti-Dumping Agreement and the SCM Agreement,
while preserving the basic concepts, principles and effectiveness of these Agreements and their instruments
and objectives, and taking into account the needs of developing and least-developed participants
(Doha Declaration, para. 28). Participants shall also aim to clarify and improve WTO disciplines on fisheries
subsidies, taking into account the importance of this sector to developing countries (Doha Declaration,
para. 28). We note that fisheries subsidies are also referred to in paragraph 31 of the Doha Declaration on
trade and environment (see also Module 11). At the Hong Kong Ministerial Conference , Ministers reaffirmed
their commitment to the negotiations on rules (Hong Kong Declaration, para. 28). These negotiations take
place in the Rules Negotiating Group.

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EXERCISES
14. Explain briefly the provisions on special and differential treatment included in the SCM Agreement.

242. 224
IV. SAFEGUARD MEASURES
IN BRIEF
Article XIX of the GATT 1994 and the Agreement on Safeguards (or "Safeguards Agreement") allow Members
to apply safeguard measures only after determining, pursuant to an investigation carried out in
accordance with such rules, that a product is being imported in such increased quantities and under
such conditions as to cause or threaten to cause serious injury to the domestic industry producing
like or directly competitive products. While the Safeguards Agreement does not expressly delimit the
possible form of a safeguard measure, it envisages that safeguard measures may take the form of tariffs
above the bound rate or quantitative restrictions.
Unlike anti-dumping and countervailing measures, the application of safeguard measures does not require
an unfair trade action. Instead, the objective of safeguard measures is to provide a temporary remedy
while facilitating structural adjustment of the industry adversely affected by increased imports,
thereby enhancing competition in international markets. An affected WTO Member may challenge another
Member's failure to comply with any of the requirements provided for the imposition of safeguard measures
through the WTO dispute settlement mechanism.
The provisions on safeguard measures apply to all products, including agricultural goods. As we
studied in Module 4, the Agreement on Agriculture also contains rules for the application of a special
safeguard for agricultural goods subject to certain requirements; this differs from the provisions
governing the application of the general safeguard mechanism studied in this Module.
IV.A. RELATIONSHIP BETWEEN ARTICLE XIX OF THE GATT
1994 AND THE AGREEMENT ON SAFEGUARDS
Safeguard measures were available under Article XIX of the GATT 1947 (the so-called "escape clause"). The
general provisions on safeguards contained in Article XIX of the GATT 1947 (superseded by Article XIX of the
GATT 1994) were clarified and reinforced by the Agreement on Safeguards adopted during the Uruguay
Round.
Some clarity about the relationship between Article XIX of the GATT 1994 and the Agreement on Safeguards is
provided in Articles 1 and 11.1(a) of the Agreement on Safeguards: the Safeguards Agreement establishes
rules for the application of safeguard measures (i.e. those measures provided for in Article XIX); and a Member
shall not take or seek any emergency action on imports of particular products as set forth in Article XIX of
GATT 1994 "unless such action conforms with the provisions of that Article applied in accordance with [the
Safeguards Agreement]".
Thus, any safeguard measure imposed after the entry into force of the WTO Agreements must
comply with the provisions of both the Agreement on Safeguards and Article XIX of the GATT 1994
(Korea - Dairy, Appellate Body Report, para. 77).

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As we will see, in addition to the conditions provided in the Agreement on Safeguards (explained below),
Article XIX of the GATT 1994 provides that the increase in imports has to occur as a result of unforeseen
developments and of the effect of the obligations incurred by a Member under the GATT 1994,
including tariff concessions.
IV.B. PROCEDURE FOR THE APPLICATION OF SAFEGUARD
MEASURES
IV.B.1. SUBSTANTIVE REQUIREMENTS
Article 2.2 of the Agreement on Safeguards provides that safeguard measures shall be applied to a product
being imported irrespective of its source. Thus, safeguard measures must be applied, in principle, on an
MFN basis. Article 2 also sets forth the conditions under which safeguard measures may be applied.
Conditions for the Application of Safeguard Measures
Safeguard measure may only be applied as a result of unforeseen developments and of the effect of the
obligations incurred by a contracting party under the GATT (Article XIX of the GATT 1994). According to
Article 2 of the Agreement on Safeguards, a Member may apply a safeguard measure only after determining,
pursuant to an investigation, the existence of the following conditions:
 Increased quantity of imports in absolute or relative terms;
 Serious injury caused, or threatened to be caused, to the domestic industry producing the
"like or directly competitive" products; and,
 Causal link between the increased imports and the injury.
a. RESULT OF UNFORESEEN DEVELOPMENTS AND OF THE EFFECT OF THE OBLIGATIONS
INCURRED UNDER THE GATT 1994
According to Article XIX of the GATT 1994, a safeguard measure may only be applied as a result of unforeseen
developments and of the effect of the obligations incurred by a Member under the GATT, including tariff
concessions.
In this regard, the Appellate Body has stated that safeguard measures may only be taken in circumstances not
reasonably expected when the Member bound its tariff levels (Argentina- Footwear, Appellate Body
Report, paras. 91-96). According to the Appellate Body, the existence of unforeseen developments is a
"pertinent issue of fact and law" under Article 3.1 of the Safeguards Agreement; hence, the published report
of the competent authorities must contain a "finding" or "reasoned conclusion" on unforeseen
developments (US- Lamb, Appellate Body Report, para. 76).

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b. INCREASED IMPORTS
As noted, the determination of increased quantity of imports that a Member must make before it may apply a
safeguard measure can be of either an absolute increase or an increase relative to domestic production.
In Argentina – Footwear, the Appellate Body stated that the increase in imports must have been recent,
sudden, sharp and significant enough, both quantitatively and qualitatively, to cause or threaten to
cause injury (Argentina – Footwear, Appellate Body Report, para. 131).
c. SERIOUS INJURY
Before a safeguard measure can be imposed, the WTO Member must have determined that serious injury is
caused or is threatened to be caused to the domestic industry producing the like or directly
competitive product. Article 4.1(a) of the Agreement on Safeguards defines serious injury as "a
significant overall impairment in the position of a domestic industry" and a "threat of serious injury" as
"serious injury that is clearly imminent", "based on facts, and not merely on allegation, conjecture or remote
possibility". If serious injury is not found, a safeguard measure nevertheless can be applied if a threat of
serious injury is found.
In determining injury or threat thereof, a "domestic industry" shall be understood to mean "the producers as a
whole of the like or directly competitive products operating within the territory of a Member, or those whose
collective output of the like or directly competitive products constitutes a major proportion of the total
domestic production of those products" (Article 4.1(c)). This definition is broader than the one provided for
the application of anti-dumping and countervailing measures, since it may include not only producers of "like
products" but also producers of "directly competitive products".
In determining whether serious injury is present, investigating authorities are to "evaluate all relevant
factors of an objective and quantifiable nature having a bearing on the situation of that industry"
(Article 4.2(a); see e.g. Argentina – Footwear, Appellate Body Report, paras. 136, 138). Article 4.2(a)
provides that competent authorities shall evaluate, in particular: the rate and amount of the increase in
imports of the product concerned in absolute and relative terms, the share of the domestic market taken by
increased imports, changes in the level of sales, production, productivity, capacity utilisation, profits and losses
and employment of the domestic industry.
The standard of "serious injury" required for the application of safeguard measures is higher than
the "material injury" envisaged in the Anti-Dumping Agreement and the SCM Agreement. According
to the Appellate Body, this accords with the object and purpose of the Agreement on Safeguards since the
application of a safeguard measure does not depend upon "unfair" trade actions, as is the case with
anti-dumping or countervailing measures (US – Lamb, Appellate Body Report, para. 124).
d. CAUSAL LINK BETWEEN THE INCREASED IMPORTS AND INJURY
The determination of serious injury cannot be made unless there is objective evidence of the existence of a
causal link between increased imports of the product concerned and serious injury.

245. 227
Further, when factors other than increased imports are causing injury to the domestic industry at the
same time, such injury must not be attributed to increased imports (the so-called "non-attribution
requirement") (Article 4.2(b)).
However, this does not require that increased imports be ''sufficient'' to cause, or threaten to cause, serious
injury. Nor does this require that increased imports ''alone'' be capable of causing, or threatening to cause,
serious injury. The causal link between increased imports and serious injury may exist, even though
other factors are also contributing, at the same time, to the situation of the domestic industry.
According to the Appellate Body, the non-attribution language in Article 4.2(b) means "that the effects of
increased imports, as separated and distinguished from the effects of other factors, must be examined to
determine whether the effects of those imports establish a "genuine and substantial relationship of cause and
effect" between the increased imports and serious injury" (US – Wheat Gluten Safeguard, Appellate Body
Report, para. 67; and, US – Lamb, Appellate Body Report, paras. 168-170).
IV.B.2. PROCEDURAL REQUIREMENTS
As mentioned above, as with the other trade remedy measures, a crucial pre-condition to be satisfied before a
safeguard measure can be imposed is that an investigation must be conducted by competent authorities in
accordance with established procedures (Article 3). The investigations under the Agreement on Safeguards
have to fulfil certain requirements, which are similar to those provided for the investigations on anti-dumping
and countervailing measures. The main rules applicable to safeguard investigations are the following:
 TRANSPARENCY, DUE PROCESS PROVISIONS AND PUBLIC INTEREST: the Agreement
on Safeguards requires publication of a report on the case explaining the investigating
authorities' findings and reasoned conclusions on all pertinent issues of fact and law, including
a demonstration of the relevance of the factors examined. In addition, investigating authorities
are required to provide reasonable public notice of the investigation to all interested parties
(importers, exporters, producers, etc.) and hold public hearings or provide other appropriate
means for interested parties to present their views, including on the issue of whether or not the
application of a safeguard measure would be in the public interest (see Articles 3.1 and
4.2(c)).
 PROVISIONAL MEASURES: in critical circumstances where delay would cause damage which
it would be difficult to repair, a provisional safeguard measure may be imposed if there is clear
evidence and a preliminary determination that increased imports have caused or are
threatening to cause serious injury. Such measures should take the form of tariff increases to
be promptly refunded if the subsequent investigation does not determine that increased
imports have caused or threatened to cause serious injury to the domestic industry. The
duration of the provisional measure shall not exceed 200 days. The period of application of
any provisional measure must be included in the total period of application of the safeguard
measure (Article 6).
 CONFIDENTIAL INFORMATION: the Agreement contains specific rules for the handling of
confidential information in the context of an investigation. In general, there is a basic
obligation to respect the confidentiality of any information which is by nature confidential or
which is provided on a confidential basis, upon good cause being shown (Article 3.2).
 CONSULTATIONS: a Member proposing to apply or extend a safeguard measure shall provide

246. 228
adequate opportunity for prior consultations with those WTO Members having a
substantial interest as exporters of the product concerned (Article 12.3).
 APPLICATION OF SAFEGUARD MEASURES: other than the general requirement that
safeguard measures be applied only to the extent necessary to remedy or prevent serious
injury to facilitate adjustment, the Agreement provides no guidance as to how the level of
safeguard measures in the form of an increase in the tariff above the bound rate should
be set. In the case of quantitative restrictions, the level must not be below the actual
import level of the most recent three respresentative years for which statistics are available,
unless there is clear justification that a different level is necessary to prevent or remedy
serious injury (Article 5.1). The Agreement governs how quota shares are to be allocated
among supplier countries based on past market shares (Article 5.2(a)).
 MAXIMUM DURATION: the maximum duration of any safeguard measure is four years,
unless it is extended in consistency with the Agreement's provisions. In particular, a measure
may be extended only if it is found, through a new investigation, that its continuation is
necessary to prevent or remedy serious injury, and only if evidence shows that industry is
adjusting (Articles 7.1 and 7.2). The total period generally cannot exceed eight years (Art.
7.3), although for developing countries it may last a maximum of 10 years (Article 9.2).
Safeguard measures in place for longer than one year must be progressively liberalized at
regular intervals during the period of application. Any measure of more than three years
duration must be reviewed at mid-term. If appropriate, based on that review, the Member
applying the measure must withdraw it or increase the pace of its liberalization (Article 7.4).
 PAYMENT OF COMPENSATION: a Member proposing to apply a safeguard measure must
endeavour to maintain a substantially equivalent level of concessions and other obligations
with respect to affected exporting Members. To do so, any adequate means of trade
compensation may be agreed among the affected Members through consultations.
Absent such agreement on compensation within 30 days, the affected exporting Members
individually may suspend equivalent concessions and other obligations, unless the Council for
Trade in Goods disapproves (Articles 8.1 and 8.2). The right to suspend concessions cannot be
exercised during the first three years of application of a safeguard measure if the measure is
taken based on an absolute increase in imports, and otherwise conforms to the provisions of
the Agreement (Article 8.3).
 RE-APPLICATION OF SAFEGUARD MEASURES: special rules limit re-application of
safeguard measures to a given product (Articles 7.5 and 7.6).
IV.B.3. PROVISIONS ON SPECIAL AND DIFFERENTIAL TREATMENT
Developing country Members receive special and differential treatment with respect to other Members'
safeguard measures, in the form of a "de minimis" import exemption. That is, where imports from a single
developing country Member account for no more than three per cent of the total imports of the product
concerned, and provided that developing country Members below this threshold on an individual basis do not
collectively account for more than nine per cent of those imports, such imports shall be excluded from the
measure (Article 9.1).

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As Members applying these measures, developing country Members also receive special and differential
treatment with regard to permitted duration of extensions, and with respect to re-application of
measures (Article 9.2).
EXERCISES
15. Explain the difference between the objective of the Agreement on Safeguards and the objective of
Agreement on Anti-Dumping.
16. Enumerate the substantive requirements for the application of safeguard measures. How do they differ
from the substantive requirements provided for the application of anti-dumping and countervailing
measures?

248. 230
V. MONITORING BODIES AND NOTIFICATION
REQUIREMENTS
MONITORING BODIES AND NOTIFICATION REQUIREMENTS
ANTI-DUMPING
MEASURES
SUBSIDIES AND
COUNTERVAILING
MEASURES
SAFEGUARD
MEASURES
MONITORING
BODY
Committee on Anti-
Dumping Practices
Committee on Subsidies and
Countervailing Measures
Committee on
Safeguards
Reporting to the Council for Trade in Goods, these Committees provide Members with
the opportunity to discuss any matters relating to the Agreements, including
Members' notifications of laws and regulations and the application of
anti-dumping/countervailing/safeguard measures (Article 16 of the Anti-Dumping
Agreement, Article 24 of the SCM Agreement and Article 13 of the Agreement on
Safeguards).
MAINNOTIFICATIONREQUIREMENTS
LEGISLATION Notify to the relevant Committee domestic laws and procedures governing the
initiation and conduct of investigations concerning the application of
anti-dumping/countervailing/safeguard measures (including the texts of the
regulations), as well as any modification to such measures (Articles 16.5 and 18.5 of
the Anti-Dumping Agreement, Articles 25.12 and 32.6 of the SCM Agreement, and
Article 12.6 of the Agreement on Safeguards).
In addition, for SUBSIDIES:
Notify all specific subsidies (at
all levels of government and
covering all goods sectors,
including agriculture) to the
Committee (Articles 25 and 26).
On the periodicity of notifications,
Article 25.1 provides for annual
submission; at past SCM
Committee meetings, the Chair
has noted Members' views that
their resources would be best
utilized by giving maximum
priority to submitting new and full
subsidy notifications every two
years and by de-emphasizing the
review of updating notifications in
the intervening years.

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MONITORING BODIES AND NOTIFICATION REQUIREMENTS
ANTI-DUMPING
MEASURES
SUBSIDIES AND
COUNTERVAILING
MEASURES
SAFEGUARD
MEASURES
ADOPTION OF
MEASURES
Notify to the Committee, without delay, all preliminary or final anti-
dumping/countervailing/safeguard actions taken. Members shall also submit, on
a semi-annual basis, reports of any action taken within the preceding six months
(Article 16.4 of the Anti-Dumping Agreement, Article 25.11 of the SCM Agreement.)
(See also Article 12 of the Agreement on Safeguards).
In addition:
Notify domestic authority
competent to initiate and
conduct AD investigations
(Article 16.5 of the
Anti-Dumping Agreement).
In addition:
Notify domestic authority
competent to initiate and
conduct countervailing
duty investigations
(Article 25.12 of the SCM
Agreement).
In addition:
Notify initiation of an
investigation and results
of consultations
(Articles 12.1 and 12.5 of
the Agreement on
Safeguards). Also if a
measure does not apply to
one or more developping
countries in accordance to
Article 9 (Article 9.1 of the
Agreement on Safeguards).
Table 1: Monitoring bodies and notification requirements
NOTIFICATION FORMATS
Anti-Dumping Agreement: Semi-annual report (G/ADP/1), Preliminary and final anti-dumping actions
(G/ADP/2).
SCM Agreement: Subsidies (G/SCM/6, Rev. 1), Laws and regulations (G/SCM/N/1), Semi-annual report
(G/SCM/2).
Agreement on Safeguards: Initiation of an Investigation (G/SG/N/6), Safeguard measure not applied to one
or more developing countries (G/SG/1), Decision to apply measures, including provisional measures and
consultations with Members (G/SG/1).

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VI. COMPARATIVE CHART: ANTI-DUMPING,
COUNTERVAILING AND SAFEGUARD
MEASURES
ANTI-DUMPING
MEASURES
COUNTERVAILING
MEASURES
SAFEGUARD
MEASURES
Objective To counteract dumping
causing injury to the
domestic industry
To counteract subsidization
that is causing injury to the
domestic industry
To prevent or remedy
serious injury to the
domestic industry caused
by a surge of imports
(no unfair practice) and
give time to facilitate
adjustment to
competition
Nature of the
Measure
Discriminatory
(non-MFN)
Discriminatory (non-MFN) Non-discriminatory
(MFN, in principle)
Substantive
Requirements
1.Dumped Imports
2. Material Injury
3. Causal link
1. Subsidized Imports
2. Material Injury
3. Causal link
1. Increased Imports
2. Serious Injury
3. Causal link
In addition, the measure
must be applied as a
result of unforeseen
developments and of
the effect of the
obligations incurred by
a contracting party
under the GATT.
Product
Coverage
Like Products Like Products Like or Directly
Competitive Products
Basis of the
Measure
Margin of Dumping Margin of Subsidy Necessity to prevent
or remedy serious
injury and facilitate
adjustment
Recipient of the
Measure
Products of Enterprises
practicing dumping
Products of Enterprises
benefiting from subsidies
granted by Members
Products of
Enterprises of
Members

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ANTI-DUMPING
MEASURES
COUNTERVAILING
MEASURES
SAFEGUARD
MEASURES
Form of the
Measure
Anti-dumping duty (may
exceed bound tariff rate)
Countervailing duty (may
exceed bound tariff rate)
Among others, tariff
duty increase (may
exceed bound tariff
rate) or quota
Duration of the
Measure
Provisional Measure:
a maximum of 4 months or
6 months (on decision of
the authority and upon
request).
Final Measure:
in principle, only as long as
and to the extent necessary
to counteract dumping
causing injury; however,
termination no later than
5 years from imposition
unless determination, in a
review initiated prior to that
date, that expiry of the duty
would be likely to lead to
continuation or recurrence
of dumping and injury.
Provisional Measure:
a maximum of 4 months.
Final Measure:
in principle, only as long as and
to the extent necessary to
counteract subsidization causing
injury; however, termination no
later than 5 years from
imposition unless determination,
in a review initiated prior to that
date, that expiry of the duty
would be likely to lead to
continuation or recurrence of
subsidization and injury.
Provisional Measure:
a maximum of 200 days.
Final Measure:
4 years
(can be extended to 8
years – 10 years for
developing country
Members).
Compensation to
affected
Members
NO NO YES (sometimes)
Special and
Differential
Treatment
Special regard to the
situation of developing
countries.
De minimis: exclusion of
imports from developing
countries if less than 4% of total
imports and 9% collectively.
De minimis: exclusion of
imports from developing
countries if less than 3%
of total imports and 9%
collectively.
As Members applying
measures: duration of
extensions; and re-
application of measures.

252. 234
ILLUSTRATION - TRADE REMEDIES
SCENARIO
Let us assume that Medatia and Vanin are WTO Members. VaninVegi is a producer of vegetables in Vanin.
Due to the excessive production of tomatoes in the world during the current year and the increased
availability of tomatoes on the international market, VaninVegi is unable to sell its tomatoes. If VaninVegi
does not find a market for its tomatoes, it will face great losses.
VaninVegi decides to sell its tomatoes in Medatia at prices below the market price for tomatoes of similar
quality in Medatia. VaninVegi prices 1 kg of tomatoes at $1.00 in Medatia, while it prices the same tomatoes
at $US 2 in Vanin.
Medatian tomato producers are experiencing a slump in their tomato sales. They consider that the reason
for this is the imports of tomatoes from Vanin at lower prices.
QUESTION 1
Assume you are an expert on WTO law and Medatian tomato producers ask for your advice on what type of
trade remedy they can request their government to apply to imports of tomatoes from Vanin.
PROPOSED ADVICE
Medatian tomato producers may request their government to impose anti-dumping measures on tomatoes
from Vanin.
As you know, the objective of anti-dumping measures is to offset the adverse effects caused by dumped
imports. A product is considered to be dumped when it is introduced into the commerce of another country
at less than its "normal value". The "normal value" is the sales price of the imported product in the country
of export, in this case Vanin.
According to the facts of the case, VaninVegi prices 1kg of tomatoes at US$1 in Medatia, while the "normal
value" of the same tomatoes in Vanin is US$ 2. Since the price of tomatoes in Medatia is less than the
normal value in Vanin, tomato producers in Vanin may want to request the initiation of an investigation for
the application of anti-dumping duties to VaninVegi tomatoes.
In order to do so, they will have to present a written request and provide evidence of dumping, injury and
causation as well as other information regarding the product, industry, importers, exporters and other
matters. The request must meet the "standing" threshold set out in the Anti-Dumping Agreement: it has to
be supported by those domestic producers of tomatoes whose collective output constitutes more than 50
per cent of the total production of tomatoes produced by that portion of the domestic tomato industry in
Medatia expressing either support for or opposition to the application (no application may be initiated when
domestic producers expressly supporting the application account for less than 25 per cent of the total
production of the like product produced by the domestic industry).

253. 235
QUESTION 2
Assume you are the authority in charge of anti-dumping investigations in Medatia: what would you have to
do after receiving the request of the domestic producers of tomatoes for the application of anti-dumping
measures to VaninVegi tomatoes?
PROPOSED ANSWER
The Anti-Dumping Agreement sets forth certain substantive requirements that must be fulfilled in order to
determine whether the imposition of an anti-dumping measure would be permitted, as well as procedural
requirements, including evidentiary requirements regarding the initiation and conduct of anti-dumping
investigations.
PROCEDURAL REQUIREMENTS APPLICABLE TO THE INITIATION OF THE INVESTIGATION
The authorities must first examine the accuracy and adequacy of the evidence provided in the application to
determine whether there is sufficient evidence to justify the initiation of the investigation (an application
shall be rejected and an investigation shall be terminated promptly as soon as the authorities concerned are
satisfied that there is not sufficient evidence of either dumping or of injury to justify proceeding with the
case). The investigating authority would also have to confirm satisfaction of the "standing" requirement..
Assuming that the application is determined to contain sufficient evidence to justify initiation and the
standing requirement is met...
SUBSTANTIVE REQUIREMENTS DURING THE INVESTIGATION
The investigating authority will have to determine the existence of: 1. Dumped Imports, 2. material injury
or threat of material injury caused to the domestic industry producing the "like product"; and, 3. causal link
between dumped imports and the injury.
1. DUMPED IMPORTS (*)
The authority has to determine whether VaninVegi is exporting its tomatoes to Medatia at a price below the
price for the same tomatoes in Vanin. Dumping is calculated on the basis of a fair comparison between the
normal value of tomatoes (usually the sales price in the exporter's domestic market- Vanin) and the export
price (the price of the product in the country of import- Medatia). The Agreement provides rules for the
calculation of the normal value and the export price. Authorities have to make a "fair comparison" between
these two figures; this means that the normal value and the export price shall be compared at the same
level of trade (normally ex-factory level) and in respect of sales made at as nearly as possible the same
time. Adjustments may be needed to either or both the normal value and the export price in order to
ensure a fair comparison. Then, the margin of dumping has to be calculated based on a comparison of the
weighted average normal value to the weighted average of all comparable price export prices, or a
transaction –to-transaction comparison of normal value and export price (or, in certain circumstances, a
weighted average normal value to individual export transaction prices).
2. MATERIAL INJURY (*)
After determining dumping, the authority has to determine whether domestic tomato producers in Medatia
are suffering material injury.

254. 236
This analysis must be based on positive evidence and involve an objective examination of the volume of
dumped imports and their effect on prices in the domestic market, as well as the effect of such dumped
imports on the domestic producers of tomatoes. In the evaluation of the impact of dumped imports, the
authority must evaluate all relevant economic factors bearing upon the state of the domestic tomato
producers, including those factors listed in the Agreement.
3. CAUSAL LINK
In addition to determining dumping and injury to the domestic industry, it is necessary to demonstrate that
there is a causal relationship between the dumped imports of tomatoes and the injury to the domestic
industry of these products, before applying anti-dumping measures. This examination requires investigating
authorities to examine any known factor other than dumped imports, which may be causing injury to the
domestic tomato producers.
APPLICATION OF ANTI-DUMPING MEASURES
After making a preliminary determination that dumped imports are causing injury to the domestic industry
producing tomatoes, the investigating authority may apply provisional anti-dumping measures, under the
conditions and for the duration envisaged in the Agreement. After making a final determination that
dumped imports are causing injury to the domestic industry of tomatoes, pursuant to an investigation
meeting the procedural requirements provided in the Agreement (e.g. evidence requirements, transparency
provisions, judicial review, etc.) the investigating authority may apply final anti-dumping measures, in the
form of tariff duties above the bound level to tomatoes from VaninVegi (possibilities concerning undertakings
may also be explored). In the event that final anti-dumping measures are applied, they shall terminate no
later than five years from imposition, unless a review initiated prior to that date establishes that expiry of
the duty would be likely to lead to continuation or recurrence of dumping and injury.
(*) For the purposes of the illustration, the tomatoes concerned are presumed to be "like products.

255. 237
VII. SUMMARY
The WTO Agreements allow Members to apply three types of trade remedies (anti-dumping, countervailing
and safeguard measures), which permit them to depart from certain obligations contained in the WTO
Agreements. However, such remedies may only be applied after a domestic investigation is conducted and
certain substantive and procedural requirements provided in the respective Agreement are met.
These three mechanisms share many similarities, but also differ in some aspects. While anti-dumping
measures are applied against injurious "dumping", the objective of countervailing measures is to offset the
injurious effect of "subsidies". Both "dumping" and "subsidies" are considered unfair trade practices.
Dumping is an action by private firms, and thus, is not prohibited by the Anti-Dumping Agreement; the
Agreement governs the imposition of anti-dumping measures.
In contrast, in the case of subsidies, it is the government, a government agency or a private body following
government's instructions which provides the subsidy. Thus, the SCM Agreement includes both disciplines
on the use of subsidies as well as upon the use of countervailing measures by WTO Members. In this
regard, it classifies subsidies into two categories: prohibited and actionable. Both types of subsidies might
be challenged through the WTO dispute settlement mechanism; although in the case of actionable subsidies,
it must be demonstrated that these cause adverse effects.
On the other hand, unlike anti-dumping and countervailing measures, the application of safeguard measures
does not depend on unfair trade practices. Rather, safeguard measures may be imposed when a surge of
imports causes injury to a domestic industry. The objective of safeguard measures is to prevent or remedy
serious injury and facilitate structural adjustment of the industry adversely affected by an increase of
imports.
The similarities between these measures extend to the substantive requirements for their application. In the
case of anti-dumping and countervailing measures, it is necessary to show that dumped imports/subsidized
imports are causing or threatening to cause material injury to the domestic industry producing the like
products. For the application of safeguard measures these requirements differ. Instead, it is necessary to
show that increased imports are causing or threaten to cause serious injury to the domestic industry
producing the like or directly competitive products.
Before the imposition of anti-dumping, countervailing or safeguard measures, investigating authorities must
determine that the three substantive elements mentioned above are met. Moreover, investigating
authorities have to comply with a number of procedural requirements (conditions for the initiation of
investigations, evaluation of evidence, application of provisional measures, transparency provisions, duration
and review of the measures, etc). The procedural requirements provided for the three measures are fairly
similar, although there are also important differences, especially in the context of safeguard measures.
Members may decide to apply an anti-dumping, countervailing or safeguard measure, as the case may be,
only if the investigation establishes that the three substantive requirements are met. For all three
mechanisms, the measures may take the form of an increased tariff above the bound level. In addition, the
Agreement on Safeguards allows Members to apply a quantitative restriction, subject to certain conditions.

256. 238
There are also important differences with respect to whom the measures will apply. While anti-dumping
duties would be applied to the products of enterprises found to be practicing dumping, countervailing duties
would be placed on products of enterprises benefiting from the subsidies. Since safeguard measures have to
be applied, in principle, on an MFN basis, they will have to target the imports of the like or directly
competitive products of all affected WTO Members (in the context of special and differential treatment, only
products coming from developing countries may be excluded under certain circumstances). In addition, a
Member applying safeguard measures would have to offer compensation to the affected Members according
to the provisions of the Agreement.

257. 239
PROPOSED ANSWERS
1. Dumping is a form of price discrimination, which takes place when the price of a product when exported
to another country is less than the price of that same product when sold in the market of the exporting
country. Dumping is calculated on the basis of a fair comparison between the normal value (the price of
the imported product in the “ordinary course of trade” in the country of origin or export) and the export
price (the price of the product in the country of import).
2. The normal value is generally the price, in the ordinary course of trade, for the like product at issue when
destined for consumption in the exporting country market. However, in cases where there are no sales of
like product in the ordinary course of trade in the domestic market of the exporting country or the sales
are so low in volume that they do not permit a proper comparison of home market prices and export
prices, the normal value can be determined in two other ways: A. the comparable price of the like product
when exported to a third country (provided that price is representative); or B. the constructed normal
value of the product, which is calculated on the basis of the cost of production, plus a reasonable amount
for administrative, selling and general costs and profits.
3. The export price will normally be based on the transaction price at which the foreign producer sells the
product to the importing country. However, in cases where there is no export price for a given product or
the transaction price at which the exporter sells the product to the importing country is unreliable
because of an association or a compensatory arrangement between the exporter and the importer or a
third party, the export price could be determined by reference to the price at which the imported product
is first resold to an independent buyer. If the imported product is not resold to an independent buyer, or
is not resold as imported, the authorities may determine a reasonable basis on which to calculate the
export price.
4. The basic requirement is a fair comparison between the normal value and the export price. Accordingly,
the prices being compared shall be those of sales made at the same level of trade, normally the
ex-factory level (to avoid the distorting effect of factors such as transport, insurance, etc), and of sales
made at as nearly as possible the same time. To ensure that prices are comparable, the Anti-Dumping
Agreement requires that adjustments be made to either the normal value, or the export price, or both, to
account for differences affecting price comparability in the product, or in the circumstances of sale, in the
importing and exporting markets.
5. The three conditions are:
 The existence of dumped imports: dumping is determined on the basis of a fair comparison
between the normal value (the price in the country of origin or export) and the export price
(the price of the product in the country of import);
 the finding of injury: the dumped imports result in material injury to a domestic industry
producing the like products, threat of material injury to a domestic industry, or material
retardation of the establishment of a domestic industry; and,
 the finding of causation: the injury is caused by the dumped imports, including an assessment of any
known factor other than dumped imports which may be causing injury to the domestic industry at the
same time. Injury caused by these other factors must not be attributed to dumped imports.

258. 240
6. The determination of injury to the domestic industry producing the like products in an anti-dumping
investigation shall be based on positive evidence and involve an objective examination of both: (a) the
volume of dumped imports and the effect of the dumped imports on prices in the domestic market for like
products; and, (b) the consequent impact of the dumped imports on domestic producers of like products.
The volume effects of the dumped imports shall be assessed by considering whether there has been a
significant increase in the dumped imports either in absolute terms or relative to production or
consumption in the importing Member. The price effects of the dumped imports would be assessed by
examining whether there has been significant price undercutting by the dumped imports as compared
with the price of a like product of the importing Member; or whether the effect of dumped imports is
"otherwise" to depress prices to a significant degree, or to prevent price increases, which otherwise would
have occurred, to a significant degree. The determination of the impact of the dumped imports on
domestic producers of like products involves the examination of those factors enumerated in Article 3.4 of
the Anti-dumping Agreement, such as: actual or potential declines in sales, profits, output, market share,
productivity, return on investments, utilization of capacity; factors affecting domestic prices; the
magnitude of the margin of dumping; actual and potential negative effects on cash flow, inventories,
employment, wages, growth, ability to raise capital or investments. This list is not exhaustive nor can
one or several of these factors give decisive guidance; thus, investigating authorities are required to
examine all other relevant economic factors.
7. The Agreement establishes the general principle that it is desirable that the imposition of anti-dumping
duties by Members is permissive, even if all the requirements for imposition have been met. In any case,
anti-dumping duties cannot exceed the margin of dumping calculated during the investigation. Moreover,
the Agreement provides that it is desirable that the duty be less than the margin of dumping if such
"lesser duty" would be adequate to remove the injury to the domestic industry.
8. As a general principle, an anti-dumping measure shall remain in force only as long as and to the extent
necessary to counteract dumping which is causing injury. Investigating authorities are required to review
the need for continued imposition of anti-dumping measures, on their own initiative or, provided that a
reasonable period of time has elapsed since the imposition of the measure, upon request by any
interested party which submits positive information substantiating the need for a review. Article 11.3
(known as the "sunset clause") provides that anti-dumping measures shall normally terminate no later
than five years after first being applied, unless a review initiated prior to that date establishes that the
expiry of the duty would be likely to lead to continuation or recurrence of dumping and injury.
9. An anti-dumping investigation may involve the following steps:
A. Initiation of Investigation on the basis of a Request of the Domestic Industry; B. preliminary
determination of dumping, injury, and causation – (if affirmative) provisional measures or price
undertakings may be put in place; and C. final determination of dumping, injury, and causation – (if
affirmative) imposition of definitive anti-dumping duties.
10. The main object and purpose of the SCM Agreement is to increase and improve GATT disciplines relating
to the use of both subsidies and countervailing measures. Thus, the SCM Agreement addresses two
separate but closely related matters: (i) the multilateral disciplines on the use of subsidies; and (ii) the
conditions under which Members may apply countervailing measures.

259. 241
11. There are four elements that have to be established before a subsidy can be identified: 1. a financial
contribution (is granted); 2. by a government or any public body within the territory of a Member; and,
3. a benefit is thereby conferred (to a recipient). In addition, a subsidy as found by applying the three
criteria mentioned above would not be subject to the SCM Agreement unless it is specific, that is, it has
been specifically provided to an enterprise or industry or group of enterprises or industries.
12. The SCM Agreement provides two types of subsidies:
 Prohibited subsidies: subsidies granted contingent upon export performance or upon the use of
domestic over imported goods. Such subsidies are challengeable through either multilateral
track - through the invocation of the WTO dispute settlement mechanism - or (if they are
causing injury to the domestic industry of the importing Member) unilateral track - through
countervailing action; and,
 actionable subsidies (not prohibited): subsidies that cause adverse effects to a WTO Member. There are
three types of adverse effects: 1. those which cause injury to the domestic industry – challengeable
through either multilateral or unilateral track; 2. those which cause serious prejudice to a Member's
exporting interests –challengeable through multilateral track only; and, 3. those resulting in nullification
or impairment of benefits accruing under GATT 1994 - related to harm to a Member's exporting interest
- challengeable through multilateral track only.
13. The provisions of GATT and of other Multilateral Trade Agreements in Annex 1A of the WTO Agreement
(including the SCM Agreement) apply subject to the provisions of the Agreement on Agriculture
(Article 21 of the Agreement on Agriculture); thus the Agreement on Agriculture prevails over the SCM
Agreement in cases of conflict.
14. The SCM Agreement recognizes that subsidies can play an important role in the economic development of
developing country Members, and thus provides special and differential treatment to such Members. In
general, the lower a Member's level of development, the more favourable the treatment it receives with
respect to subsidies disciplines as well as when faced with countervailing duties. Those special and
differential provisions grant (or granted) longer periods to phase out export and import substitution
subsidies. There is also more favourable treatment with respect to actionable subsidies. Regarding
countervailing measures, the Agreement recognizes that developing country Members' exporters are
entitled to more favourable treatment with respect to the termination of investigations when the level of
subsidization granted upon a product or the volume of the subsidized imports is de minimis according to
the Agreement.
15. Both the Anti-Dumping Agreement and the Agreement on Safeguards grant Members the right to impose
measures inconsistent with certain provisions of the GATT. However, the former aims to remedy the
injury to domestic industries caused by unfair trade practices, while the latter is intended to prevent or
remedy serious injury and facilitate structural adjustment of the industry injured by increased imports.
16. Safeguard measures must be applied as a result of unforeseen developments and of the effect of the
obligations incurred by a Contracting Party under the GATT. Three conditions are required to be met
before the application of a safeguard measure:
 Increased quantity of imports in absolute or relative terms;
 serious injury caused or threatening to be caused to the domestic industry of "like or directly
competitive" products; and,
 causal link between increased imports and injury caused to the domestic industry.

260. 242
Four main differences can be identified: 1. while dumping and subsidies have to be found before the
imposition of anti-dumping and countervailing measures respectively, increased quantity of imports are
the first requirement for the application of a safeguard measure; 2. the application of a safeguard
measure requires the finding of unforeseen developments which is not required in the anti-dumping and
countervailing investigation; 3. while the imposition of anti-dumping and countervailing measures require
the finding of material injury to a domestic industry of like product, the application of a safeguard
measure will require that serious injury caused not only to the like product, but also to directly
competitive products; and, 4. while anti-dumping and countervailing measures can be applied to a
particular source of imports, safeguard measures must be applied, in principle, on an MFN basis.

261. 243
General Agreement on Trade in
Services (GATS)
ESTIMATED TIME: 4 hours
OBJECTIVES OF MODULE 6
 Introduce the GATS as contained in Annex 1B to the Marrakesh Agreement
Establishing the WTO (the Agreement Establishing the WTO);
 explain the general principles and disciplines set out in the GATS;
 introduce the provisions governing the scheduling of commitments under the
GATS; and,
 explain briefly the mandate for progressive liberalization of trade in services as
contained in the GATS.
MODULE
6

263. 245
I. INTRODUCTION
As we saw in Module 1, the Agreement Establishing the WTO has four Annexes. Annexes 1, 2, and 3, are called
"Multilateral Trade Agreements" because they apply to all the WTO Members.
 Annex 1 is divided into three sections:
 Annex 1A (The Multilateral Agreements on Trade in Goods);
 Annex 1B (General Agreement on Trade in Services (GATS)); and,
 Annex 1C (Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)).
The Multilateral Agreements on Trade in Goods as contained in Annex 1A has been discussed in Modules 2–4.
Now we will focus on Annex 1B – the GATS. Annex 1C – the –TRIPS Agreement will be introduced in Module 7.
In this Module, we will start by presenting a brief overview of the historical background of the GATS and the
basic principles of the Agreement. Then we will introduce the Members' obligations contained in the text of the
Agreement, its Annexes, and Members' Schedules of Specific commitments. Finally, we will introduce briefly
the concepts and issues involved in the ongoing negotiations on services market access and rules.
The Council for Trade in Services (CTS) is the WTO body in charge of overseeing the functioning of the
GATS.

264. 246
II. HISTORICAL BACKGROUND OF THE GATS
IN BRIEF
The GATS is a relatively new agreement compared to the General Agreement on Tariffs and Trade (GATT),
which entered into force in 1948. For almost half a century, the multilateral rules on international trade
dealt only with trade in goods.
The GATS is the first multilateral trade agreement to cover trade in services. Its creation was one of
the major achievements of the Uruguay Round of trade negotiations, from 1986 to 1993. All Members of the
World Trade Organization (WTO) are signatories to the GATS and have to assume the resulting obligations.
II.A. WHY AN AGREEMENT ON TRADE IN SERVICES?
The need for a trade agreement in services has long been questioned. Large segments of the services
economy, from hotels and restaurants to personal services, have traditionally been considered as domestic
activities. Other sectors, from rail transport to telecommunications, have been viewed as classical domains of
government ownership and control, given their infrastructural importance and the perceived existence, in some
cases, of natural monopoly situations. A third important group of sectors, including health and education, are
considered in many countries as governmental responsibilities, which should not be left to the rough and
tumble of markets.
Nevertheless, some services sectors, in particular international finance and maritime transport, have been
largely open for centuries — as the natural complements to merchandise trade. Other large sectors have
undergone fundamental technical and regulatory changes in recent decades, opening them to private
commercial participation and reducing or eliminating barriers to entry. The emergence of the Internet has
helped to create a range of internationally tradable services — from e-banking to distance learning — that were
unknown only two decades ago. Distance-related barriers that had previously disadvantaged suppliers and
users in remote locations have been reduced or even eliminated. A growing number of governments has
gradually exposed previous monopoly domains to competition (e.g. telecommunication).
Services represent the fastest growing sector of the global economy, currently accounting for about
60 per cent of world production and employment and nearly 20 per cent of world trade. Not
surprisingly, the world's largest and most advanced economies, including the United States, Japan and most
European Union (EU) Member States, are among the most important suppliers and importers of services.
However, an increasing number of developing countries have also built up export-oriented services industries,
capitalizing for example on their comparative advantage in tourism or on growing demand in adjacent
countries for financial and other infrastructural services.
This reflects a basic change in attitudes. The traditional framework of public service increasingly proved
inappropriate for operating some of the most dynamic and innovative segments of the economy. Given the
continued momentum of world services trade, the need for internationally recognized rules became
increasingly pressing.

265. 247
Why is the Liberalization of Services Important?
It is impossible for any country to prosper today under the burden of an inefficient and expensive service
infrastructure. Producers and exporters of any product need access to efficient banking, insurance,
telecommunications and transport systems in order to be competitive. In markets where supply is
inadequate, imports of essential services can be as vital as imports of basic commodities. Therefore, the
benefits of services liberalization extend far beyond the service industries themselves; they are
felt through their effects on all other economic activities.
To know more about the benefits of service liberalization, see:
http://www.wto.org/english/tratop_e/serv_e/gats_factfiction3_e.htm
TO KNOW MORE... DISTINGUISHING BETWEEN TRADE IN GOODS AND TRADE IN
SERVICES
In face of the increasing need for internationally recognized rules on services trade, one would wonder
whether the GATT rules governing goods trade could simply be extended to services. The answer tends to
be in the affirmative as far as some basic principles are concerned, including non-discrimination or the
concept of bound conditions of access, but is negative if some inherent differences of services, and services
trade, are taken into account:
 Goods are storable and the production and consumption of goods normally take place at
different times. In contrast, services are not normally storable and the production and
consumption of services often take place simultaneously. As a consequence, the supply of
services normally requires much more producer-user interaction than goods do.
 Many services are heavily regulated. Governments are involved, for example, to ensure
compliance with social policy objectives (health, education), to guarantee access to basic
networks (pipelines, rails), and to enforce necessary prudential rules (banking, insurance).
 Market access for goods is generally restricted by tariffs. However, access conditions for
services are mainly determined by non-tariff barriers such as domestic regulations or quotas.
 Goods are tangible while services are not. Many domestic regulations focus on the service
providers rather than on the services themselves (e.g. in the form of licensing and
qualification requirements).

266. 248
III. THE GENERAL AGREEMENT ON TRADE IN
SERVICES (GATS)
III.A. BASIC PURPOSE OF THE GATS
The Preamble of the GATS sets out three main objectives:
Main Objectives of the GATS
 to establish a multilateral framework of principles and rules for trade in services;
 to expand trade under conditions of transparency and progressive liberalisation;
 to promote the economic growth of all trading partners and the development of developing
countries.
The GATS not only aims to liberalize international trade in services, but also recognizes Members' right to
maintain and develop new regulations to meet national policy objectives, and the particular need of
developing countries to exercise this right.
Requiring compliance with technical standards or qualification requirements, which may be intended to ensure
the quality of the service or the protection of public interest, are legitimate forms of domestic policy
intervention. Thus, the GATS does not entail deregulation.
III.B. SCOPE OF APPLICATION OF THE GATS
III.B.1. BROAD COVERAGE
Article I:1 of the GATS sets out the scope of the Agreement. Coverage is broad as the Agreement applies to
any measure applied by a WTO Member "affecting" trade in services. "Affecting" means that the scope
of the Agreement encompasses not only measures designed to regulate trade in services directly, but also any
other measures that might incidentally affect the supply of a service. The term ''measure'' is defined to
include:
(i) any action taken at any level of government as well as by non-governmental bodies to which
regulatory powers have been delegated (Article I:3(a)); and,
(ii) any form of measure including a law, regulation, rule, procedure, decision, administrative action, or
any other form (Article XXVIII of the GATS).
According to the Appellate Body, there are two things that must be assessed before consideration is given to
the consistency of a measure with the provisions of the GATS: (1) whether there is "trade in services" in the
sense of Article I:2 (see below) and (2) whether the measure at issue "affects" such trade in services within

267. 249
the meaning of Article I:1 (Canada – Auto, Appellate Body Report, para. 155). Thus, no measures are
excluded a priori from the scope of the GATS.
III.B.2. MODES OF SUPPLY
The GATS does not define ''services'', Article I:2 defines ''trade in services'' as the supply of a service
through any of the four modes of supply:
MODES OF SUPPLY OF SERVICES EXAMPLES
Mode 1 - CROSS-BORDER SUPPLY (a type of
transaction analogous to trade in goods):
from the territory of one Member into the
territory of any other Member.
Service provided without the movement of
either the service provider or the service
receiver
A user in country A (service receiver) receives
services from abroad (service provider in country B)
through its telecommunications or postal
infrastructure. Such supplies may include
consultancy or market research reports,
tele-medical advice, distance training, or
architectural drawings.
Mode 2 - CONSUMPTION ABROAD: in the
territory of one Member to the service
consumer of any other Member (consumer
moves to the territory of another country and
buys services there).
Service provided through the movement of the
service receiver to the country where the
service provider locates
Nationals of country A (service receiver) have
moved abroad (service provider in country B) as
tourists, students, or patients to consume the
respective services.
Mode 3 - COMMERCIAL PRESENCE: by a
service supplier of one Member, through
commercial presence, in the territory of any
other Member.
Service provided through the establishment of
a commercial presence by the service provider
in the service receiving country
Service provider in country B establishes a
commercial presence in the territory of country A.
The service is provided within country A by a
locally-established affiliate, subsidiary, or
representative office of a foreign-owned or -
controlled company (bank, hotel group,
construction company, etc.).

268. 250
MODES OF SUPPLY OF SERVICES EXAMPLES
Mode 4 — PRESENCE OF NATURAL PERSONS:
by a service supplier of one Member, through
the presence of natural persons of a Member
in the territory of any other Member.
Service provided through the movement of the
individual service provider to the country
where the service receiver locates
A foreign national of country B provides a service
within A as an independent supplier (e.g.,
consultant, health worker), contractual service
supplier, intra-corporate transferee of a
transnational company, or employee of a locally
established foreign service supplier (e.g.
consultancy firm, hospital, construction company).
Business visitors and services salespersons are not
directly engaged in the delivery of a service but are
often also included in Members' mode 4
commitments.
As we will see latter on, for purposes of structuring their commitments, WTO Members have generally used a
classification system comprised of 12 core Service Sectors:
Business services (including professional services and computer services);
Communication services;
Construction and related engineering services;
Distribution services;
Educational services;
Environmental services;
Financial services (including insurance and banking);
Health-related and social services;
Tourism and travel-related services;
Recreational, cultural and sporting services;
Transport services; and,
Other services not included elsewhere.
III.B.3. CARVE-OUTS
Despite the broad coverage of the GATS, Article I:3(b) explicitly excludes its application to services
provided in the exercise of governmental authority. For a service to fall under this exclusion, it has to be
supplied neither on a commercial basis, nor in competition with one or more service suppliers (Article I:3(c)).
Typical examples may include police, fire protection, monetary policy operations, mandatory social security
schemes, and tax and customs administration.
Also excluded from coverage are measures affecting air traffic rights and directly related services. We
will deal more closely with the air transport sector during our introduction to the GATS Annex on Air Transport
Services.
SERVICE
SECTORS

269. 251
EXERCISES
1. What are the main objectives of the GATS?
2. What does the phrase "any measures affecting trade in services" mean?
3. Describe the four modes of supply and provide one example for each one.

270. 252
IV. MEMBERS' GATS OBLIGATIONS
WTO Members' Obligations under the GATS
A WTO Member's obligations under the GATS are defined by:
 the Agreement itself, including general obligations applying to all Members;
 Annexes addressing particular policy concerns or the particularities of individual service
sectors and modes;
 Members' Schedules of specific commitments specifying market access and national
treatment commitments per sector and mode of supply as well as additional commitments, if
any.
IV.A. GENERAL AGREEMENT ON TRADE IN SERVICES (GATS)
PROVISIONS - UNCONDITIONAL AND CONDITIONAL
GENERAL OBLIGATIONS
General obligations under the GATS can be divided into two categories: unconditional and
conditional obligations. As you will see, many GATS Articles contain both types of obligations.
Unlike specific commitments on market access and national treatment, Members cannot modify or
negotiate the extent to which general obligations are applied. Each Member has to respect such
general obligations in full.
IV.A.1. UNCONDITIONAL OBLIGATIONS
Unconditional obligations apply immediately to all Members and to all service sectors, irrespective of the
existence of specific commitments. They include in particular:
Most-Favoured-Nation (MFN) Treatment Article II
Transparency (e.g., general publication and
information requirement)
Article III:1, 4
Domestic Regulation (availability of legal
remedies)
Article VI:2
Monopolies & Exclusive Suppliers Article VIII:1
Business Practices Article IX:2

271. 253
IV.A.2. CONDITIONAL OBLIGATIONS
Conditional obligations bind a Member only in those sectors or sub-sectors where it has undertaken a
specific commitment.
Transparency Article III:3
Domestic Regulation Articles VI: 1, 3, 5, 6
Monopolies Article VIII:2
Payments and Transfers Article XI
IV.A.3. EXPLANATION OF GATS PROVISIONS
a. MOST-FAVOURED-NATION (MFN) TREATMENT & EXEMPTIONS (ARTICLE II)
The GATS requires WTO Members to extend immediately and unconditionally to services and service suppliers
of any other Members "treatment no less favourable than that accorded to like services and service suppliers of
any other country". Accordingly, Members shall grant to all WTO Members the best treatment granted to any
other country, whether or not the latter is a Member of the WTO, except where the departure from the MFN
treatment is permitted by the relevant GATS provision (see below).
The MFN obligation is applicable to any measure - as defined in Article I of the GATS - that affects trade
in services in any sector falling under the Agreement, whether specific commitments have been
undertaken or not. As with the MFN rule under the GATT, the GATS MFN rule covers both de jure and de
facto discrimination (EC - Banana III, Appellate Body Report, paras. 232-233).
However, derogations from the MFN obligation are possible in the form of Article II-Exemptions. WTO
Members were allowed to maintain measures inconsistent with MFN if these were inscribed in a List of
Article II (MFN) Exemptions. The list had to be submitted at the date of entry into force of the Agreement.
New exemptions can only be granted to new Members at the time of accession or, in the case of current
Members, by way of a waiver under Article IX:3 of the Agreement Establishing the WTO.
Each Member is required to provide five types of information for each exemption listed: (i) description of
the sector or sectors in which the exemption applies; (ii) description of the measure, indicating why it is
inconsistent with Article II; (iii) the country or countries to which the measure applies; (iv) the intended
duration of the exemption; and, (v) the conditions creating the need for the exemption.
The MFN exemptions are subject to periodic review in the CTS. Until now, two periodic reviews have been
conducted by the CTS in 2000 and 2006, respectively. The next review will be conducted in 2010.

272. 254
EXAMPLE: FINAL LIST OF ARTICLE II MFN EXEMPTIONS
SECTOR OR SUB-
SECTOR
Description of measure
indicating its inconsistency
with Article II
Countries to
which the
measure applies
Intended
duration
Conditions
creating the
need for the
exemption
Audiovisual
Services
Production and
distribution of
cinematographic
works and
television
programs
Measures based upon
government-to-government
framework agreements on
coproduction of audiovisual
works, which confer national
treatment to audiovisual
works covered by these
agreements, in particular in
relation to distribution and
access to funding.
All countries with
whom cultural
cooperation may
be desirable.
Indefinite The aim of such
agreements is to
promote cultural
links between
countries
concerned.
Table 1: Example: final list of article II MFN exemptions
The GATS also allows groups of Members to enter into economic integration agreements (Article V) – explained
below - , and to recognize foreign regulatory standards, criteria for authorization, licensing or certification of
services suppliers (Article VII), subject to certain conditions. Measures covered under Article V and Article VII
do not need coverage as MFN exemptions. The same applies to discriminatory measures taken in exceptional
circumstances (Article XIV) or so-called prudential measures in financial services (Annex on Financial Services).
b. TRANSPARENCY (ARTICLE III)
Transparency is one of the fundamental principles of the WTO. Sufficient information about potentially relevant
rules and regulations is critical to the effective implementation of the GATS. Thus, each Member is required to
comply with:
Unconditional Obligations (Articles III:1 & 4) Conditional Obligations (Article III:3)
 publish promptly and at the latest by the
time of their entry into force (except in
emergency situations), measures of
general application;
 respond promptly to all requests for
information from other Members on any
measure; and,
 establish enquiry point where WTO
Members can obtain this information.
 inform the Council of
Trade in Services (CTS) of
the introduction of any
new, or any changes to
existing laws, regulations
or administrative
guidelines which
significantly affect trade
in services covered by
specific commitments.

273. 255
c. INCREASING PARTICIPATION OF DEVELOPING COUNTRIES (ARTICLE IV)
Nearly four-fifths of WTO Members are developing countries. The GATS recognizes the major role of
developing Members in services trade both as exporters and importers of services, notwithstanding the fact
that their share of international trade in services, is still relatively small in general.
The GATS recognizes the special needs of developing Members by providing in Article XIX:2 that the process
of liberalization shall take place with due respect for national policy objectives and the level of
development of individual Members, both overall and in individual sectors. Developing Members have
the flexibility to open fewer sectors and liberalize fewer types of transactions.
The GATS intends to promote the increasing participation of developing Members in services trade.
Members through negotiated specific commitments relating, inter alia, to the liberalization of market access in
sectors and modes of supply of export interest to them. Special priority must be given to LDCs (Article IV:3)
whose difficulty in making specific commitments is to be taken particularly into account.
d. DOMESTIC REGULATION (ARTICLE VI)
Regulations that are not intended to serve protective purposes under Articles XVI and XVII, may nevertheless
restrict trade. Such restrictive effects may be justified in view of a prevailing policy objective, or they may be
due to excessive and/or inefficient intervention. In cases where specific commitments have been made, the
GATS seeks to preserve the value of these commitments.
Unconditional Obligations (Articles VI:2) Conditional Obligations (Articles VI:1, 3, 5, 7)
 service suppliers in all sectors
shall have access to judicial,
arbitral or administrative
tribunals or procedures for the
prompt review of decisions
affecting trade in services, and,
when justified, appropriate
remedies. In addition,
Members shall ensure that
administrative reviews are
objective and impartial.
 all measures of general application affecting
trade in services must be administered in a
reasonable, objective and impartial manner;
 applications for supplying a service must be
considered within a reasonable period of time;
 qualification requirements and procedures,
licensing requirements and technical
standards shall be based on objective and
transparent criteria, not constitute
unnecessary barriers to trade in services and,
in the case of licensing criteria, not in
themselves restrict trade in services;
Note: Ongoing negotiations are aimed at
developing appropriate disciplines. Pending
their outcome, a standstill applies.
 establish adequate procedures to verify the
competence of professionals of other
Members.

274. 256
EXAMPLES OF MEASURES THAT MAY FALL UNDER THE SCOPE OF ARTICLE VI:4 DISCIPLINES - DOMESTIC
REGULATION
Requirements for obtaining a license
The applicant must demonstrate an adequate financial base & technical capacity to supply the
services.
 Criteria relating to financial base:
minimum capital requirement of US $50,000
 Criteria relating to technical capacity:
At least 2 staff must be certified engineers
Implication: A license can be denied if the applicant does not satisfy the criteria, even if
commitments with no limitations are scheduled for that service.
e. RECOGNITION (ARTICLE VII)
Notwithstanding the MFN requirement, Article VII of the GATS provides scope for Members, when applying
standards or granting licenses, certificates, etc., to recognize the education, experience or certification a
supplier has obtained abroad. This may be done through harmonization, based upon an agreement with the
country concerned or may be accorded autonomously. However, such recognition is subject to the following
conditions:
 must not be exclusive, i.e. other Members are to be afforded an opportunity to negotiate
their accession to such agreements or to negotiate comparable ones; or in the event of
autonomous recognition, to demonstrate that their requirements should be recognized as well
(Article VII:2);
 must not be applied as a means of discrimination between trading partners in the
application of standards or criteria for the authorization, licensing or certification of services
suppliers, or as a disguised trade restriction (Article VII:3); and,
 use of multilaterally agreed criteria – in appropriate cases, Members shall work in cooperation with
relevant organization towards the establishment of common international standards and criteria
(Article VII:5).
All Members are required to notify to the CTS their recognition measures and any significant changes, stating
whether these are based on agreements or granted autonomously. Members are also required to inform the
CTS, as far in advance as possible, of the opening of negotiations on an agreement relating to mutual
recognition in order to provide adequate opportunity to any other Member to indicate its interest in
participating.

275. 257
f. MONOPOLIES & EXCLUSIVE SUPPLIERS AND CERTAIN BUSINESS PRACTICES
(ARTICLE VIII & ARTICLE IX)
The Agreement defines “monopoly supplier of a service” as a person, public or private, which has been
authorized or established in the Member concerned, formally or in effect, as the sole supplier of that service
(Article XXVIII(h)).
To varying degrees, governments around the world have involved monopolies or exclusive suppliers in the
provision of certain basic services. There may be different, and perfectly legitimate, motivations for such
arrangements.
Services supplied by monopolies often constitute inputs to other service activities. Obvious examples are:
telecommunications; financial services; and transport. Article VIII does not prohibit the maintenance of a
monopoly or the granting of exclusive rights to supply a service, but is meant to ensure that the behaviour
of such service suppliers is always consistent with the general obligations and specific
commitments of the Member concerned. Business practices other than those falling under the
monopoly-related provisions of Article VIII that restrain competition and thereby restrict trade are covered by
Article IX.
UNCONDITIONAL OBLIGATIONS
(Articles VIII:1 & IX:2)
CONDITIONAL OBLIGATIONS
(Articles VIII:2 & VIII:4)
 ensure that monopolies or exclusive
service providers do not act in a manner
inconsistent with the MFN obligation and
specific commitments; and,
 consult with any other Member, upon
request, with a view to eliminating
business practices, other than monopolies.
 ensure that a monopoly does not abuse its
monopoly position to act in a manner
inconsistent with the commitments, in services
it provides outside its scope of exclusivity; and,
 notify the formation of new monopolies to the
CTS (of service covered by its existing specific
commitments) and negotiate compensatory
adjustments with other Members (in
accordance with Article XXI).
g. PAYMENTS AND TRANSFERS (ARTICLE XI)
Article XI:1 of the GATS requires Members to allow international transfers and payments for current
transactions relating to services covered by their specific commitments. In other words, the purpose of the
commitments must not be frustrated by preventing the movement of the funds necessary to supply the
service. Furthermore, Article XI:2 prohibits Members from restricting capital transactions inconsistently with
their specific commitments, except for balance-of-payments reasons (Article XII - see below) or at the request
of the International Monetary Fund (IMF).

276. 258
IV.B. SCHEDULES OF SPECIFIC COMMITMENTS – MARKET
ACCESS & NATIONAL TREATMENT
As noted above, a WTO Member's obligations under the GATS consist of the provisions of the Agreement itself ,
its Annexes and the Schedules of Specific Commitments.
As with the Members' Schedules of tariff concessions for trade in goods, each WTO Member is required
under the GATS to submit a Schedule of specific commitments for trade in services (Article XX of the
GATS). However, the GATS Schedules are quite different from the Goods Schedules (an example of GATS
Schedule has been provided in Appendix 1). The Schedules of Specific Commitments form an integral part of
the GATS.
What is a Schedule of Specific Commitments in Services?
A Schedule of specific commitments in services is a legal instrument which specifies the sectoral and
modal commitments undertaken by each individual Member.
Each Member of the WTO is required to submit a Schedule which contains market access and national
treatment commitments as well as any additional commitments. By scheduling specific commitments ,
a Member guarantees other Members minimum conditions of access on an MFN basis, comparable to a
tariff binding under the GATT. Since these are ceiling bindings, Members are not prevented from being
more 'generous' (or less discriminatory) in practice.
Commitments can only be withdrawn or modified after negotiation and agreement on any
compensatory adjustment with affected countries. Such modifications of commitments must be
implemented on an MFN basis. New commitments and improvements to existing ones can be
scheduled at any time.
Article XX:1 of the GATS requires each Schedule to specify, inter alia:
 terms, limitations and conditions on market access;
 conditions and qualifications on national treatment;
 undertakings relating to additional commitments;
 implementation timeframe (where appropriate); and,
 the date of entry into force of such commitments.
IV.B.1. STRUCTURE OF A SCHEDULE
All Schedules conform to a standard format which is intended to ensure comparability. Commitments in a
Schedule are organized by sector and by mode of supply. For each sector or sub-sector inscribed, the
Schedule must indicate, with respect to the four modes of supply set out in Article I, any limitations on
market access or national treatment which may be maintained.

277. 259
A commitment therefore consists of eight entries which indicate the presence or absence of market
access and/or national treatment limitations with respect to each mode of supply (an example of a
Schedule is provided below).
To avoid lengthy repetition throughout the sectors covered, most Schedules are divided in two parts. Part I
(''horizontal commitments'') contains limitations which apply to all service sectors included in the
Schedule. The purpose of having such a section is to avoid repeating the same entry many times in the
Schedule Part II presents the sector-specific commitments.
The GATS approach to scheduling commitments is commonly known as a "positive –list" approach since each
individual Member decides which sector and modes to commit, and how much market access and national
treatment to provide.
AN OVERVIEW OF A SCHEDULE
Modes of supply: 1) Cross-border supply; 2) consumption abroad; 3) commercial presence; and,
4) presence of natural persons.
SECTOR OR SUB-
SECTOR
Limitations on
market access
Limitations on
national treatment
Additional
commitments
I. HORIZONTAL COMMITMENTS
"All sectors included
in this Schedule" or
kept blank
Covering only those
modes for which
horizontal limitations
are inscribed.
Covering only those
modes for which
horizontal limitations
are inscribed.
Optional
(kept blank when no
additional
commitment)
II. SECTOR-SPECIFIC COMMITMENTS
SECTOR
DESIGNATION
1)
2)
3)
4)
Covering all four
modes in each service
sector or sub-sector
identified in column 1.
1)
2)
3)
4)
Covering all four
modes in each service
sector or sub-sector
identified in column 1.
Table 2: An overview of a schedule

278. 260
Entries in Schedules tend to conform to uniform conventions. ''None'', when used in the sector-specific part of
the Schedule, means that there are no limitations specific to this sector under the relevant mode except the
conditions set out in the horizontal section. ''Unbound'' means that a Member remains free in a given sector
and mode of supply to introduce or maintain measures inconsistent with market access or national treatment.
In cases where a commitment is made with limitations, the entry should describe concisely the elements which
make it inconsistent with Articles XVI (market access) and Article XVII (national treatment).
NOTE
All Schedules of Specific Commitments for WTO Members can be obtained from the WTO website:
http://tsdb.wto.org/default.aspx
IV.B.2. EXPLANATION OF THE SCHEDULE
a. SERVICES SECTOR - COLUMN 1
As mentioned above, Members undertake specific commitments in those sectors listed in their
Schedules only (positive list approach).
SERVICES SECTOR – COLUMN 1 CLASSIFICATION OF SERVICE SECTORS (GNS/W/120)
There is no mandatory nomenclature
of service sectors and therefore, in
principle, Members are allowed to use
their own definitions. In practice, in
the great majority of Schedules,
commitments are structured in
accordance with the Services Sectoral
Classification List as contained in
document MTN.GNS/W/120 which
consist of 12 broadly defined sectors
and close to 160 sub-sectors (see
column on the right).
In most cases, the sectoral entries
are accompanied by numerical
references to the provisional United
Nations Central Product Classification
system (CPC) which gives a detailed
explanation of the services covered
by each listed sector or sub-sector.
Where this is not possible, Schedules
are meant to provide a sufficiently
detailed definition to avoid any
1. Business services — professional, computer and related,
research and development, real estate, rental/leasing without
operators and other business services;
2. Communication services — postal, courier,
telecommunication, audiovisual and other communication
services;
3. Construction and related engineering services —
general construction for buildings and civil engineering,
installation, assembly building completion and finishing work;
4. Distribution services — commission agents', wholesale
trade and retailing services, franchising;
5. Educational services — primary, secondary, higher and
adult education;
6. Environmental services — sewage, refuse disposal,
sanitation and similar services;
7. Financial services — insurance, banking and other
financial services;
8. Health-related and social services — hospital, other
human health and social services;

279. 261
SERVICES SECTOR – COLUMN 1 CLASSIFICATION OF SERVICE SECTORS (GNS/W/120)
ambiguity.
One should note that a precise
definition of sectors or sub-sectors is
critical as it defines the scope of a
commitment.
9. Tourism and travel-related services — hotel and
restaurants, travel agencies and tour operators, and tourist
guides services;
10. Recreational, cultural, and sporting Services —
entertainment, news agency, libraries, archives, museums,
sporting services;
11. Transport services — maritime, internal waterways,
air, space, rail, road, pipeline and auxiliary transport
services; and,
12. “Other” services.
Example
A Member wishes to make a commitment in the sub-sector of ''Medical and dental services''. In the
Classification List, this service falls under "Professional Services" within "Business Services". The
Classification List also contains the relevant CPC category, 9312, where a more detailed description can be
found. In its Schedule, the Member would thus make the following entry in the "Business
Services"/"Professional Services" section:
Medical and dental services (CPC 9312)
It would also be possible to limit the commitment to certain segments of this particular sub-sector or to
specified regions of the country, which would then need to be indicated.
b. SPECIFIC COMMITMENTS
1. MARKET ACCESS
Services and service suppliers of any Member are guaranteed access to the market of another Member no
less favourable than specified in the latter's Schedule. Should a Member wish to maintain market access
restrictions on a sector that has been committed in a Schedule, it may do so but must inscribe it as a
limitation.
Article XVI:2 contains an exhaustive list of six types of such restrictions; four are quantitative in nature
(sub-paragraphs a-d), one relates to limitations on the form of legal entity (sub-paragraph e) and another one
to the existence of foreign equity ceilings (sub-paragraph f).

280. 262
TYPES OF RESTRICTIONS EXAMPLES
a) Number of service suppliers  number of licenses for universities is limited to 8 in total;
 issuance of licenses is based on an economic needs test; and,
 nationality requirements for suppliers of services (equivalent to
zero quota for foreigners)
b) Value of service transactions or
assets Assets of foreign bank
subsidiaries limited to 25% of
total domestic assets of all banks
Assets of foreign bank subsidiaries limited to 25% of total domestic
assets of all banks
c) Number of service operations or
quantity of service output
Restrictions on the number of branches that may be operated by each
bank; limitations on total broadcasting time available for foreign films
d) Number of natural persons
employed
Number of foreign bank clerks limited to five per cent of total bank
staff
e) Type of legal entity or joint
venture
Foreign suppliers are permitted only to establish joint-stock or limited
liability companies
f) Participation of foreign capital Foreign equity participation limited to 49%
The QRs can be expressed in numerical terms or operated in the form of an economic needs test. Entries
providing for such tests should indicate the main criteria on which they are based.
The QRs specified in sub-paragraphs (a) to (d) refer to maximum limitations. Minimum requirements such as
those common to licensing criteria (e.g. minimum capital requirements for the establishment of a corporate
entity) do not fall within the scope of Article XVI.
In US - Gambling, the Appellate Body stated that, by prohibiting the cross-border supply of gambling and
betting services where specific commitments had been undertaken, the US was acting in a manner inconsistent
with its market access commitments (Art. XVI:1 and 2) since such a prohibition amounted to a "zero quota"
(US - Gambling, Appellate Body Report, paras. 251-252).
2. NATIONAL TREATMENT
Article XVII requires that, in scheduled sectors, services and service suppliers of any other Member are granted
no less favourable competitive opportunities than those accorded to a Member's own like services
and service suppliers. Any departures would need to be inscribed as a limitation on national
treatment.
The national treatment rule covers cases of both de jure and de facto discrimination. The former relates
to measures that discriminate explicitly on the basis of supplier's origin (e.g. domestic producers of audiovisual

281. 263
services are given preferred access to frequencies for transmission), while the latter concerns measures which,
while not formally distinguishing on the basis of origin or nationality, effectively offer less favourable treatment
to foreign service suppliers (e.g. prior residency is required for the issuance of a licence to supply a service).
See also explanation on de jure and de facto discrimination on trade in goods (Module 2).
Unlike Article XVI, Article XVII does not contain an exhaustive list of the types of measure which would
constitute limitations. However, looking into current Schedules, it appears that Members commonly consider
the following cases to be relevant (Guidelines for the Scheduling of Specific Commitments under the GATS,
S/L/92 *):
TYPES OF LIMITATION EXAMPLES
Subsidies Eligibility for R&D subsidies reserved to nationals.
Tax measures A federal excise tax is imposed on insurance
premiums paid to non-domestically incorporated
companies.
Discriminatory fees, charges, etc. Charges taken for port services may be higher for
foreign than for national-flag vessels.
Nationality and/or residency requirements The majority of board members must be citizens
(permanent residents) of the country concerned.
Licensing and qualification requirements Barristers and commercial lawyers in national law
are required to be graduates of national
universities.
Technology transfer/training requirements Foreign service suppliers must train a certain
number (percentage) of nationals.
Local content requirements Preferential use of local services that are available
at competitive prices and levels of quality.
Ownership of property/land Foreigners are not permitted to own land.
* The objective of the Guidelines for the Scheduling of Specific Commitments under the GATS, adopted by the
CTS on 23 March 2001 (S/L/92) –, is to explain, in a concise manner, how specific commitments should be set
out in Schedules in order to achieve precision and clarity. It is based on the view that a common format for
Schedules as well as standardization of the terms used in Schedules are necessary to ensure comparable and
unambiguous commitments. The content of the Guidelines should not be considered as a legal interpretation
of the GATS.

282. 264
TO KNOW MORE... OVERLAP BETWEEN MARKET ACCESS AND NATIONAL TREATMENT
RESTRICTIONS
A Member may wish to maintain measures which are inconsistent with both Articles XVI (market access) and
XVII (national treatment). Article XX:2 stipulates that such measures shall be inscribed in the column
relating to Article XVI. Thus, while there may be no limitation entered in the national treatment column, the
Member may be entitled to operate a discriminatory measure inscribed in the market access column. In
accordance with Article XX:2, any such measure is also to be regarded as scheduled under Article XVII and
subject to the provisions of that Article.
3. ADDITIONAL COMMITMENTS
According to Article XVIII a Member may make commitments with respect to measures affecting trade in
services not subject to scheduling under Articles XVI and XVII. Entries in this last column are not
obligatory. Such commitments can include, but are not limited to, undertakings with respect to qualifications,
technical standards, licensing requirements or procedures, and other domestic regulations that are consistent
with Article VI. Additional commitments are expressed in the form of undertakings, not limitations.
IV.C. MODIFICATION OF A SCHEDULE
The purpose of commitments on services, comparable to tariff concessions under the GATT, is to ensure
stability and predictability of trading conditions. However, as with the case for Goods Schedules,
modifications of GATS Schedules may also be negotiated against compensation of affected trading
partners in accordance with Article XXI of the GATS.
Article XXI provides a framework of rules for modifying or withdrawing specific commitments. The relevant
provisions may be invoked at any time after three years have lapsed from the date of entry into force of a
commitment. In the absence of emergency safeguard measures, which are still under negotiation, this waiting
period is reduced to one year under certain conditions. It is thus possible for Members, subject to
compensation, to adjust their commitments to new circumstances or policy considerations. At least three
months' notice must be given of the proposed change. The compensation to be negotiated with affected
Members consists of more liberal bindings elsewhere that "endeavour to maintain a general level of mutually
advantageous commitments not less favourable to trade" than what existed before.
Application must be on a MFN basis. If the negotiations fail, Article XXI allows for arbitration. If the arbitrator
finds that compensation is due, the proposed changes in commitments must not be put into effect until the
compensatory adjustments are made.
In 1999, the CTS enacted detailed procedures for the modification of Schedules pursuant to Article XXI (see
S/L/80). Improvements to Schedules, i.e. inscription of new sectors or removal of existing limitations, are
subject to more streamlined procedures, laid down in document S/L/84.

283. 265
EXERCISES
4. What are the different types of obligations under the GATS? Explain how they differ from each other.
5. Describe the structure of a Member's Schedule of Commitments under the GATS. Explain the meaning of
"none" and "unbound".
6. Classify the following measures according to the type of market access or national treatment limitation:
a. Annual quota for licensing foreign medical practitioners;
b. The majority of directors must be nationals;
c. Commercial presence limited to joint-stock companies;
d. Licence for a new restaurant based on an economic needs test;
e. Investment grants available only for domestically-owned firms.

284. 266
IV.D. ANNEXES & RELATED INSTRUMENTS ON SPECIFIC
SERVICE SECTORS
IN BRIEF
GATS Annexes form an integral part of the Agreement (Article XXIX). Trade in services is much more
diverse than trade in goods. Several Annexes thus address the particularities of individual service sectors
and modes and/or further refine relevant provisions of the GATS. They concern:
 Most Favoured Nations Exemptions;
 Air transport services;
 Movement of natural persons;
 Telecommunications; and,
 Financial services.
Several other Annexes mandated post-Uruguay Round negotiations in certain areas. Following the
conclusion of these negotiations, they are no longer applicable.
IV.D.1. AIR TRANSPORT SERVICES
The Annex on Air Transport Services specifies that the Agreement does not apply to measures affecting traffic
rights nor to services directly related to the exercise of such rights. Only three activities in that sector are
expressly covered by the GATS:
 aircraft repair and maintenance services;
 the selling and marketing of air transport services; and
 computer reservation system services.
The Annex contains a definition of these sub-sectors and provides for periodic reviews (at least every five
years) with a view to the wider application of the GATS to air transport.
NOTE
To learn more about current state of play and Members' commitments on air transport services
see http://www.wto.org/english/tratop_e/serv_e/transport_e/transport_air_e.htm.

285. 267
IV.D.2. MOVEMENT OF NATURAL PERSONS (MODE 4)
The Annex on Movement of Natural Persons Supplying Services under the Agreement deals with
natural persons (as opposed to juridical persons) who supply services in the territory of another Member.
It is made clear that the Agreement does not apply to measures regarding citizenship, residence or
employment on a permanent basis, or to persons who travel abroad looking for work. Visa
requirements per se are not inconsistent with obligations or commitments under the Agreement.
The Annex confirms that Members are still allowed to regulate the entry of natural persons into their territory
and impose border controls, provided that such measures do not nullify or impair the benefits accruing under a
specific commitment.
NOTE
To learn more about current state of play and Members' commitments on movement of natural persons
see http://www.wto.org/english/tratop_e/serv_e/mouvement_persons_e/mouvement_persons_e.htm.
IV.D.3. TELECOMMUNICATION SERVICES
The Annex on Telecommunications recognises the particular role of telecommunications as a distinct sector of
economic activity and an infrastructural backbone for many other activities (e.g. e-banking, distance learning).
Access to telecommunications is crucial to the commercial viability of other services. The Annex requires
each Member to ensure that the service suppliers of any other Member have reasonable and
non-discriminatory access to public telecommunications networks and services for the supply of a
service listed in its Schedule. The Annex also includes provisions on transparency and technical cooperation
for developing countries.
NOTE
To learn more about current state of play and Members' commitments on telecommunications services
see http://www.wto.org/english/tratop_e/serv_e/telecom_e/telecom_e.htm.
IV.D.4. FINANCIAL SERVICES
Financial services include: (i) insurance and insurance-related services; (ii) banking; and, (iii) other financial
services.

286. 268
The Annex on Financial Services adapts some of the basic provisions of the GATS to the specificities of the
financial sector. The Annex also includes a set of definitions and a detailed list of financial services that have
been used by many Members in the preparation of their Schedules of specific commitments in this sector.
Possibly the most important substantive provision of the Annex relates to prudential measures. Members are
allowed to take measures which may not conform with the provisions of the GATS in order to protect
investors, depositors and policy holders, and to ensure the integrity and stability of the financial system. Such
measures must not be used, however, as a means of avoiding the Member's commitments or obligations under
the GATS.
Other specific provisions in the Annex relate, inter alia, to the protection of individual customer information and
other confidential or proprietary information. Further, the Annex explicitly lists certain activities, including the
monetary operations of central banks, that are deemed to constitute 'governmental services' for the purposes
of Article I:3 (section III.B.3).
The Understanding on Commitments in Financial Services (LT/UR/U/1) contains an alternative approach
for scheduling market access and national treatment commitments that can be used by Members on an
optional basis. It contains certain formula-type undertakings to liberalize particular sub-sectors and activities
(e.g. government purchases of financial services from foreign established banks) that apply automatically
unless specifically excluded by the Member concerned. Most OECD countries and a number of other Members
have chosen to schedule on the basis of the Understanding.
NOTE
To learn more about current state of play and Members' commitments on financial services
see http://www.wto.org/english/tratop_e/serv_e/finance_e/finance_e.htm.
IV.D.5. PROFESSIONAL SERVICES
Professional services include legal services, accounting, architectural services, medical and dental services, as
well as services provided by mid-wives, nurses, physiotherapists and para-medical personnel. These
sub-sectors have been covered in the Schedules of Specific Commitments of Members to a varying degree.
It was felt towards the end of the Uruguay Round that, because of the importance of regulation for professional
services, commitments on market access and national treatment alone would not be sufficient to allow for
effective access. For this reason, the Ministerial Decision on Professional Services (LT/UR/D-5/7)
established a Working Party on Professional Services in order to develop additional disciplines governing the
regulation of professional services within the framework of Articles VI and VII. The Decision stipulated that as
a matter of priority the Working Party would deal with the accountancy sector, which includes accounting,
auditing and bookkeeping services.
As a result, the CTS approved in December 1998 the Disciplines on Domestic Regulation in the
Accountancy Sector – not yet in force - (S/L/64) to facilitate trade in accountancy services by ensuring that
domestic regulations affecting these services meet the requirements of Article VI:4 of the GATS. A core

287. 269
feature of the disciplines is their focus on (non-discriminatory) regulations that are not subject to scheduling
under Articles XVI (Market Access) and XVII (National Treatment). The relevant CTS Decision (S/L/63)
provides that the "accountancy disciplines" are applicable only to Members who have scheduled specific
commitments on accountancy. The disciplines are to be integrated into the GATS, together with any new
results the Working Party on Domestic Regulation (WPDR) may achieve in the interim, at the end of the current
Round.
In addition, the Guidelines for Mutual Recognition Agreements or Arrangements in the Accountancy
Sector (S/L/38) adopted in May 1997, provide practical guidance for governments, negotiating entities or
other entities entering into mutual recognition negotiations on accountancy services. The objective of the
guidelines is to make it easier for parties to negotiate recognition agreements and for third parties to negotiate
their accession to these agreements or to negotiate comparable ones.
NOTE
To learn more about current state of play and Members' commitments on professional services, see:
http://www.wto.org/english/tratop_e/serv_e/accountancy_e/accountancy_e.htm (Accountancy services);
http://www.wto.org/english/tratop_e/serv_e/advertising_e/advertising_e.htm (Advertising services);
http://www.wto.org/english/tratop_e/serv_e/architecture_e/architecture_e.htm (Architectural and
engineering services);
http://www.wto.org/english/tratop_e/serv_e/computer_e/computer_e.htm (Computer and related services);
http://www.wto.org/english/tratop_e/serv_e/legal_e/legal_e.htm (Legal services).

288. 270
V. EXCEPTIONS
As in the case of the GATT, the GATS also allows Members to introduce measures, which would otherwise be
inconsistent with relevant GATS obligations, subject to certain requirements. These provisions are mainly
contained in Article XIV (General Exceptions). The measures concerned must not be used, however, as a
means of arbitrary or unjustifiable discrimination between countries where like conditions prevail, or a
disguised trade restriction. Article XIV bis deals with security exceptions. The GATS also allows Members to
restrict international transactions for the purpose of safeguarding their BOPs (Article XII). These exceptions
will be explained more in detail in Module 8.
Article V of the GATS (Economic Integration) allows the creation of preferential trade agreements. If relevant
conditions are met, such agreements are deemed compatible with the MFN requirement in Article II, despite
the preferential elements involved – see box below. The same applies to recognition agreements or
arrangements relating to foreign licenses, qualifications, etc. which are governed by Article VII.
Exception for Economic Integration Agreements (Article V of the GATS)
Like in the case of GATT Article XXIV for goods, the GATS also allows Members to depart from the MFN
principle in order to enter into agreements to liberalize trade in services among each other. Article V of the
GATS provides that these agreements shall have “substantial sectoral coverage” and provide for the
"elimination of substantially all discrimination” between participants in the sense of Article XVII
(National Treatment). Furthermore, such agreements must not raise the overall level of trade barriers
vis-à-vis other Members of the WTO.
Module 8 on Exceptions will elaborate further on economic integration agreements under the GATS.
As mentioned earlier, the Annex on Financial Services also allows Members to take measures which may not
conform with the provisions of the GATS in order to protect investors, depositors and policy holders, and to
ensure the integrity of the financial systems (prudential measures). However, such measures must not be
used as a means of avoiding the Member's commitments or obligations under the GATS.

289. 271
VI. PROGRESSIVE LIBERALIZATION &
NEGOTIATION MANDATES
VI.A. PROGRESSIVE LIBERALIZATION
The Uruguay Round marked only a first step in a longer-term process of services liberalization within the
multilateral framework. The importance of the Round lays less in its improving actual market conditions, but in
creating a completely new system of rules and disciplines for future trade liberalization.
Article XIX of the GATS mandates Members to enter into successive rounds of negotiations in services with a
view to achieving a progressively higher level of liberalization. As provided for in Article XIX:1, the first such
round begun in early 2000.
Article XIX:3 requires Members, before the beginning of each round, to carry out an assessment of trade in
services in overall terms and on a sectoral basis, for the purpose of establishing the negotiating guidelines and
procedures for the round. Such Guidelines and Procedures for the Services Negotiations have been
adopted by the CTS in March 2001 (S/L/93). The Assessment of Trade in Services has remained a standing
item on the agenda of the Council for Trade in Services (Special Session).
Based on relevant GATS Articles, the Negotiating Guidelines further specify the objectives, scope and
methods for the negotiations. Major elements include a reaffirmation of the right to regulate and to
introduce new regulations on the supply of services, the overarching principle of flexibility for developing and
least-developed countries, as well as the preservation of the existing structure and principle of the GATS. It
refers to the "Request-Offer Approach" as the main method of negotiation.
TO KNOW MORE... REQUEST-OFFER APPROACH
PREPARING REQUESTS
Requests may be addressed to a group of participants or to an individual Member. They may be
intended to achieve the inclusion of sectors that are not covered by a current schedule, the removal or
relaxation of existing limitations on market access or national treatment; the inscription of additional
commitments; and the removal of MFN exemptions.
A request may be presented in the format of a simple letter; there is no generally agreed format,
nor are there any common notification requirements.
PREPARING OFFERS
Offers would normally address the same issues as listed above, taking into account the requests received
and the Member's growth, developmental and other relevant policy objectives.

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Offers normally consists of a draft schedule of commitments, with the relevant changes inscribed
in existing Schedules. Members have used, as a starting-point, consolidated Schedules that incorporate
not only the Uruguay Round outcome, but any later amendments and extensions, including those resulting
from the negotiations on basic telecommunications and financial services. The draft offers constitute
negotiating documents with no legal status and have no binding effects on the participant
concerned.
Offers are circulated among all Members. This is useful for transparency purposes, but also from an
institutional point of view because, if implemented, the changes proposed would be applied on an MFN basis.
The Doha Ministerial Declaration of November 2001 contains target dates for the circulation of initial requests
(30 June 2002) and initial offers (31 March 2003) of specific commitments, and envisages all negotiations,
which form part of a single undertaking, to be concluded not later than 1 January 2005. For well-known
reasons, these expectations did not materialize.
In keeping with another mandate under Article XIX:3, the Negotiating Guidelines of 2001 were complemented
later by the "Modalities for the Special Treatment for Least-Developed Country Members". The
Modalities are intended to ensure "maximum flexibility" for LDCs in the negotiations. Moreover, all
Members are committed, inter alia, to exercising restraint in seeking commitments from LDCs as well as, in
preparing their own Schedules, giving special priority to sectors and modes of export interest to them. In turn,
LDCs are called upon to indicate their priority sectors and modes so that these can be taken into account.
Referring to Mode 4, Members envisage, to the extent possible and consistently with Article XIX of the GATS,
to undertake commitments on that mode taking into account "all categories of natural persons identified by
LDCs in their requests".
The Hong Kong Ministerial Declaration of December 2005 reaffirms key principles and objectives of the services
negotiations and calls on Members to intensify the negotiations in accordance with the objectives, approaches
and timelines set out in Annex C to the Declaration. The Ministerial Declaration also acknowledges that LDCs
are not expected to undertake new commitments.
Annex C contains a more detailed and ambitious set of negotiating objectives than any previous such
document. While ensuring appropriate flexibility for individual developing country Members, it provides a
framework for the offering of new or improved commitments under each mode of supply, the
treatment of MFN exemptions, and the scheduling and classification of commitments. Among other
things, the Annex also calls on Members to develop methods for the full and effective implementation of the
Modalities for the Special Treatment for LDC Members. With respect to negotiating approaches, Annex C
affirmed that in addition to bilateral negotiations, request-offer negotiations should also be pursued on a
plurilateral basis and provides guidelines for the conduct of these negotiations. In keeping with this
mandate, several rounds of plurilateral negotiations have been conducted since it was adopted.
The CTS (meeting in “special session”) is the body responsible for overseeing the negotiations. All subsidiary
bodies, such as the WPDR and the Working Party on GATS Rules, report to the CTS.

291. 273
NOTE
To learn more about current Doha Round negotiations on services
see http://www.wto.org/english/tratop_e/serv_e/s_negs_e.htm.
VI.B. BUILT-IN AGENDA
The GATS itself provides for continued negotiations in four rule-making areas which could not be completed
within the timeframe of the Uruguay Round (‘built-in agenda’). These negotiations concern the
development of disciplines on domestic regulation, pursuant to Article VI:4, as well as emergency
safeguards, subsidies and government procurement. While the former negotiations are conducted in the
WPDR, the latter three areas are addressed in the Working Party on GATS Rules (WGPR).
Built-in Agenda
Domestic Regulation
Due to the importance of the domestic regulatory environment as a context for trade, the CTS has been
given a particular negotiating mandate in Article VI:4 so as to develop, in appropriate bodies, any necessary
disciplines to prevent domestic regulations (qualification requirements and procedures, technical standards,
and licensing requirements) from constituting unnecessary barriers to trade. The disciplines envisaged
under Article VI:4 are intended to ensure that domestic regulations are, inter alia: (a) based on objective
and transparent criteria, such as competence and the ability to supply the service; (b) not more burdensome
than necessary to ensure the quality of the service; and, (c) in the case of licensing procedures, not in
themselves a restriction on the supply of the service.
Pending the entry into force of the disciplines under Article VI:4 and in cases where a measure does not
either fall into the scope of Article XVI or is not discriminatory within the meaning of Article XVII, Members
are subject to the (temporary) disciplines of Article VI:5.
Emergency Safeguards
Emergency safeguards in services may be expected to allow for the temporary suspension of market access,
national treatment and/or any additional commitments that have been assumed in individual sectors. A
safeguards clause might be used to ease adjustment pressures in situations where a particular industry is
threatened by a sudden, unforeseen increase in foreign supplies. Any such mechanism, should it be agreed
to by Members, would need to be based on the principle of non-discrimination.
While the negotiating mandate in Article XIV of the GATS refers to the "question of emergency safeguard
measures", it also provides that the results shall enter into effect within three years from the establishment
of the WTO. This deadline has been extended several times since and was last renewed on 17 March 2004
(S/L/159).

292. 274
Subsidies
Like other measures affecting trade in services, subsidies are already subject to the GATS. The
unconditional general obligations, including MFN treatment, thus apply. In scheduled sectors, these are
complemented in particular by the national treatment obligation, subject to any limitations that may have
been inscribed, and a variety of conditional obligations.
Article XV of the GATS mandates negotiations on disciplines that may be necessary to avoid trade-distortive
effects. The appropriateness of countervailing measures shall also be addressed.
Government Procurement
Article XIII provides that the MFN obligation (Article II) and any existing commitments on market access and
national treatment (Articles XVI and XVII) do not apply to the procurement of services for governmental
purposes. This Article also contains a negotiating mandate.
VI.B.1. DOMESTIC REGULATION
Due to the importance of the domestic regulatory environment as a context for trade, the CTS has been given
a particular negotiating mandate in Article VI:4 so as to develop, in appropriate bodies, any necessary
disciplines to prevent domestic regulations (qualification requirements and procedures, technical
standards, and licensing requirements) from constituting unnecessary barriers to trade.
The disciplines envisaged under Article VI:4 are intended to ensure that domestic regulations are, inter alia:
(a) based on objective and transparent criteria, such as competence and the ability to supply the service;
(b) not more burdensome than necessary to ensure the quality of the service; (c) in the case of licensing
procedures, not in themselves a restriction on the supply of the service.
Pending the entry into force of the disciplines under Article VI:4 and in cases where a measure does not either
fall into the scope of Article XVI or is not discriminatory within the meaning of Article XVII, Members are
subject to the (temporary) disciplines of Article VI:5. Accordingly, Members shall not apply licensing and
qualification requirements and technical standards that would nullify or impair specific
commitments in a manner inconsistent with the above criteria and which could not reasonably have
been expected at the time when the relevant commitments were made.
EXERCISES
7. Does the Annex on Movement of Natural Persons Supplying Services under the Agreement applies to
measures regarding employment on a permanent basis or to people who travel abroad looking for work?
8. Explain the negotiating mandate in Article VI:4 of the GATS concerning domestic regulation.

293. 275
APPENDIX 1: EXAMPLE OF A SCHEDULE OF SPECIFIC COMMITMENTS
SCHEDULE OF SPECIFIC COMMITMENTS
Modes of supply: 1) Cross-border supply 2) consumption abroad 3) commercial presence 4)
presence of natural persons
SECTOR OR
SUB-SECTOR
Limitations on market access Limitations on national
treatment
Additional
commitments
I. HORIZONTAL COMMITMENTS
ALL SECTORS
INCLUDED IN THIS
SCHEDULE
1), 2), 3), 4) Unbound for
subsidies and grants.
3) Foreign firms must be locally
incorporated.
All juridical persons are required to
have a licence issued by the relevant
authorities.
3), 4) Foreign natural and
juridical persons are not
allowed to own land.
4) Unbound, except for measures
concerning the entry and maximum
stay of two years of natural persons
who possess knowledge that is
necessary for the provision of the
service and fall within the following
categories:
4) Unbound, except for
measures concerning the
categories of natural
persons referred to in the
market access column.
Intra-Corporate Transferees (ICT):
Only for Executives, Managers and
Specialists. ICTs must be natural
persons of another Member who are
being temporarily transferred in the
context of the supply of a service
through commercial presence in the
territory of another Member. They
must have been employed by a
juridical person of a Member for a
period of not less than one year prior
to the transfer.
The number of foreign employees of
an enterprise may not exceed 15%
of the total.

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II. SECTOR-SPECIFIC COMMITMENTS
1. BUSINESS SERVICES
A. Professional Services
(a) Legal Services
Legal consultant's
advisory services on
international public
law and home
country law (part of
CPC 861)
1) Unbound
2) None
3) None
4) Unbound, except as indicated in
the horizontal section.
1) Unbound
2) None
3) None
4) Unbound, except as
indicated in the horizontal
section.
(b) Accounting,
Auditing and
Bookkeeping
Services (CPC 862)
1) Unbound
2) Unbound
3) Maximum 49% foreign equity
participation.
4) Unbound, except as indicated in
the horizontal section.
1) None
2) None
3) None
4) Unbound, except as
indicated in the horizontal
section.
(h) Medical and
Dental Services
(CPC 9312)
1) Unbound *
4) Unbound, except as indicated in
the horizontal section.
1) Unbound
2) Public medical
insurance programmes
do not cover cost of
medicare supplied
abroad.
3) Obligation to have a
training programme for
auxiliaries.
4) Unbound, except as
indicated in the horizontal
section.
Table 3: Schedule of specific commitments
* Due to lack of technical feasibility.

295. 277
Note
 In the case of a sector-specific restriction, the entry must be read as the combination of the
horizontal limitation, if any, and the sector-specific restriction unless explicitly provided
otherwise.
 All exemptions to MFN obligation are recorded in the List of Article II MFN Exemptions.
 Uniform terminologies are used for the Schedule:
''None'' - means that there are no limitations on market access and/or national treatment;
''Unbound'' means that the Member has undertaken no obligations under the mode concerned,
thus retaining full policy discretion. The omission of a sector from a Schedule is tantamount to a
(hypothetical) situation where a Member inscribes ''unbound'' for all modes under both market
access and national treatment and not assuming any additional commitments; and,
''Unbound*'' (unbound due to lack of technical feasibility) – where transactions under a
particular mode of supply may not be technically feasible (e.g. cross-border supply of hair-dressing
services/ bridge-building services); should such supplies become feasible, the legal status of this
entry ("unbound") remains unaffected.

296. 278
VII. SUMMARY
In response to the increasing need for an internationally recognized rules on services trade, the GATS was
negotiated and concluded during the Uruguay Round of Negotiations. The GATS is the first Multilateral
Trade Agreement to cover trade in services. All WTO Members are subject to the rules and disciplines set
out in the GATS.
The GATS aims to establish a multilateral framework of principles and rules for trade in services, expand
trade under conditions of transparency and progressive liberalization and to promote the economic growth
of all trading partners and the development of developing countries. At the same time, the GATS
recognizes Members' rights to maintain and develop domestic regulations which are necessary to pursue
national policy objectives and the particular need of developing countries to exercise this right. Thus, the
GATS does not entail deregulation.
A WTO Member's obligations under the GATS are defined by: (1) the Agreement itself; (2) annexes
addressing the particular policy concerns or the particularities of individual services sectors and modes;
and, (3) Members' Schedules of Specific Commitments specifying market access and national
commitments per sector and mode of supply as well as additional commitments, if any.
The GATS contains unconditional and conditional obligations. Unconditional obligations apply to all
Members and across all service sectors (e.g. MFN), while conditional obligations apply only to those
sectors where the Member concerned has undertaken specific commitments. Several Articles contain
both types of obligations (e.g. transparency and domestic regulation).
Each WTO Member is required to submit a Schedule of specific commitments. Schedules may vary widely
in their sector scope and the levels of commitments implied, reflecting Members' national policy objectives
and constraints. However, there is a common format consisting of four columns: Description of the
Sector; Commitments on Market Access (Article XVI); Commitments on National Treatment (Article XVII);
and Additional Commitments (Article XVIII), if any. Members are free to inscribe six specified types of
limitations on market access and any departures from national treatment under the four modes of supply.
Domestic regulations not falling under Articles XVI or XVII must not be scheduled. They are nevertheless
subject to certain disciplines set out in Article VI of the GATS. Commitments may be modified in
accordance with specified procedures (Article XXI).
A Member may maintain a measure inconsistent with the MFN principle, provided that such a measure is
listed in, and meets the conditions of, the Annex on Article II Exemptions. Thus, the GATS allows for
several departures from the MFN requirement, in addition to a range of general exceptions. For example,
the MFN rule is waived in the case of economic integration agreements (Article V) and recognition
measures (Article VII) that comply with certain criteria.
The Agreement seeks to promote the progressive liberalization of world services trade through successive
rounds of negotiations.

297. 279
PROPOSED ANSWERS
1. The main objectives of the GATS are: (i) to establish a multilateral framework of principles and rules for
trade in services; (ii) the expansion of trade under conditions of transparency and progressive
liberalization, and (iii) to promote the economic growth of all trading partners and the development of
developing countries.
2. The use of the term "affecting" means that the scope of the GATS encompasses not only measures
designed to regulate trade in services directly, but also any other measure that might incidentally affect
the supply of a service. Thus, no measures are excluded a priori from the scope of the GATS as defined
by its provisions.
3. Mode 1: Cross-border supply: From the territory of one Member into the territory of any other Member
(Example: A user in country A (service receiver) receives services from abroad (service provider in
country B) through its telecommunications or postal infrastructure).
Mode 2: Consumption abroad: In the territory of one Member to the service consumer of any other
Member (Example: Nationals of country A (service receiver) have moved abroad (service provider in
country B) as tourists, students, or patients to consume the respective services).
Mode 3: Commercial presence: By a service supplier of one Member, through commercial presence, in
the territory of any other Member (Example: The service is provided within country A by a
locally-established affiliate, subsidiary, or representative office of a foreign-owned and — controlled
company (bank, hotel group, construction company, etc.)).
Mode 4: Presence of natural persons: By a service supplier of one Member, through the presence of
natural persons of a Member in the territory of any other Member (Example: A foreign national of country
B provides a service within A as an independent supplier (e.g. consultant, health worker) or employee of
a service supplier (e.g. consultancy firm, hospital, construction company)).
4. Unconditional obligations apply immediately to all Members and across all sectors, irrespective of the
existence of specific commitments. Conditional obligations bind a Member only in those sectors or
sub-sectors where it has undertaken a specific commitment.
OBLIGATIONS UNCONDITIONAL CONDITIONAL
Most-favoured-nation treatment Article II
Transparency Articles III:1 & 4 Article III:3
Domestic Regulation Article VI:2 Articles VI:1, VI:3, VI:5, VI:6
Monopolies & Exclusive Suppliers Article VIII:1 Article VIII:2
Other Business Practices Article IX:2
Payments and Transfers Article XI

298. 280
5. All Schedules conform to a standard format which is intended to ensure comparability. Commitments in a
Schedule are organized by sector and by mode of supply. For each sector or sub-sector inscribed, the
Schedule must indicate, with respect to the four modes of supply set out in Article I, any limitations on
market access or national treatment which may be maintained.
Most Schedules are divided in two parts. Part I (''horizontal commitments'') contains limitations which
apply to all service sectors included in the Schedule. The purpose of having such a section is to avoid
repeating the same entry many times in the Schedule. Part II presents the sector-specific commitments.
A commitment therefore consists of eight entries which indicate the presence or absence of market access
and/or national treatment limitations with respect to each mode of supply.
Entries in Schedules tend to conform to uniform conventions. ''None'', when used in the second or
sector-specific part of the Schedule, means that there are no limitations specific to this sector except the
conditions set out in the horizontal section. ''Unbound'' means a Member remains free in a given sector
and mode of supply to introduce or maintain measures inconsistent with market access or national
treatment.
6. a) Annual quota for foreign medical practitioners (Market Access, limitations on the number of service
suppliers);
b) the majority of directors must be nationals (National Treatment);
c) commercial presence limited to joint-stock companies (Market Access, restriction or requirement
regarding type of legal entity or joint venture);
d) licence for a new restaurant based on an economic needs test (Market Access, limitations on the
number of service suppliers); and,
e) investment grants available only for domestically owned firms (National Treatment).
7. The Annex on Movement of Natural Persons Supplying Services under the Agreement deals with the
movement of natural persons (as opposed to juridical persons) who supply services in the territory of
another Member. It is made clear that the Agreement does not apply to measures regarding citizenship,
residence or employment on a permanent basis, or to people who travel abroad looking for work.
8. Due to the importance of the domestic regulatory environment as a context for trade, the CTS has been
given a particular negotiating mandate in Article VI:4 to develop, in appropriate bodies, any necessary
disciplines to prevent domestic regulations (qualification requirements and procedures, technical
standards, and licensing requirements) from constituting unnecessary barriers to trade.
The disciplines envisaged under Article VI:4 are intended to ensure that domestic regulations are, inter
alia: (a) based on objective and transparent criteria, such as competence and the ability to supply the
service; (b) not more burdensome than necessary to ensure the quality of the service; and, (c) in the
case of licensing procedures, not in themselves a restriction on the supply of the service.
Pending the entry into force of the disciplines under Article VI:4 and in cases where a measure does not
either fall into the scope of Article XVI or is not discriminatory within the meaning of Article XVII,
Members are subject to the (temporary) disciplines of Article VI:5. Accordingly, Members shall not apply
licensing and qualification requirements and technical standards that would nullify or impair specific
commitments in a manner inconsistent with the above criteria and which could not reasonably have been
expected at the time when the relevant commitments were made.

299. 281
Agreement on Trade-Related
Aspects of Intellectual Property
Rights (TRIPS Agreement)
ESTIMATED TIME: 4 hours
OBJECTIVES OF MODULE 7
 Introduce the Agreement on Trade-Related Aspects of Intellectual Property Rights
(TRIPS Agreement) as contained in Annex 1C to the Marrakesh Agreement
Establishing the WTO;
 to explain what are Intellectual Property Rights (IPRs) and why they are protected;
 to examine the general provisions and basic principles set out in the TRIPS
Agreement; and,
 to introduce the substantive standards of intellectual property protection,
enforcement and other provisions contained in the TRIPS Agreement.
MODULE
7

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I. INTRODUCTION
As seen in Module 1, the Marrakesh Agreement Establishing the WTO (the Agreement Establishing the WTO)
has four Annexes. Annexes 1, 2, and 3, which include the "Multilateral Trade Agreements", are applicable to
all WTO Members.
 Annex 1 is divided into three sections:
 Annex 1A (The Multilateral Agreements on Trade in Goods);
 Annex 1B (General Agreement on Trade in Services (GATS)); and,
 Annex 1C (Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS)).
The Multilateral Agreements on Trade in Goods as contained in Annex 1A have been introduced in Modules
2 - 4. We also have studied the GATS – Annex 1B - in Module 6. Now, we will introduce Annex 1C – the TRIPS
Agreement.
The TRIPS Agreement, which entered into force on 1 January 1995, is binding on each Member of the WTO
from the date the WTO Agreement becomes effective for it. However, the TRIPS Agreement gave original
Members transitional periods, which depend on the level of their development, to bring themselves into
compliance with its rules*.
The Council of TRIPS administers the TRIPS Agreement and is open to all WTO Members. The Council
reports to the WTO General Council.
In this Module, we will explain what Intellectual Property Rights (IPRs) are and why they are protected. Then,
we will present the general provisions and basic principles of the TRIPS Agreement, as well as the substantive
standards of intellectual property protection, enforcement and other provisions contained in the Agreement.
The Specialized Course on TRIPS will develop further the disciplines provided in the TRIPS Agreement.
*Any transition periods for acceding countries are set out in their protocols of accession. See also Transitional
Periods.

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II. INTELLECTUAL PROPERTY RIGHTS (IPRs)
II.A. WHAT ARE INTELLECTUAL PROPERTY RIGHTS (IPRs)?
What are IPRs?
Intellectual property rights (IPRs) are the rights given to persons over the creations of their minds. They
usually give the creator an exclusive right over the use of his/her creation for a certain period of time. IPRs
are customarily divided into two main areas: 1. copyright and rights related to copyright; and, 2. industrial
property.
II.A.1. COPYRIGHT AND RIGHTS RELATED TO COPYRIGHT
The rights of authors of literary and artistic works (such as books and other writings, musical compositions,
paintings, sculptures, computer programs and films) are protected by copyright, for a minimum period of
50 years after the death of the author. Also protected through copyright and related rights (sometimes
referred to as "neighbouring rights") are the rights of performers (e.g. actors, singers and musicians),
producers of phonograms (sound recordings) and broadcasting organizations.
II.A.2. INDUSTRIAL PROPERTY
Industrial property can usefully be divided into two main areas:
One area can be characterized as the protection of distinctive signs, in particular trademarks (which distinguish
the goods or services of one undertaking from those of other undertakings) and geographical indications
(which identify a good as originating in a place where a given characteristic of the good is essentially
attributable to its geographical origin). Trademark protection may last indefinitely, provided the sign in
question continues to be distinctive. The same is true of a geographical indication that continues to identify
the geographical origin.
Other types of industrial property are protected primarily to stimulate innovation, design and the creation of
technology. In this category fall inventions (protected by patents; in a number of countries, innovations that
could embody lesser technical progress than patentable inventions may be protected by utility models),
industrial designs and trade secrets. The protection is usually given for a finite term (typically 20 years in the
case of patents).

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II.B. WHY ARE IPRs PROTECTED?
 Encourage and reward creative work - The main social purpose of protection of copyright
and related rights is to encourage and reward creative work. This is also relevant to protection
in other areas (e.g. industrial designs and patents);
 Technological Innovation - IPRs are designed to provide protection for the results of
investment in the development of new technology, thus giving the incentive and means to
finance research and development activities;
 Fair Competition - The protection of distinctive signs (such as trademarks) and other IPRs
aims to stimulate and ensure fair competition among producers;
 Consumer Protection - The protection of distinctive signs should also protect consumers, by
enabling them to make informed choices between various goods and services; and,
 Transfer of Technology - A functioning intellectual property regime should also facilitate the
transfer of technology in the form of foreign direct investment, joint ventures and licensing.
BALANCE OF RIGHTS AND OBLIGATIONS
It should also be noted that the exclusive rights given to the owners of intellectual property are generally
subject to a number of limitations and exceptions, aimed at balancing the legitimate interests of right holders
and of users.
EXERCISES
1. Why are IPRs protected?

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III. THE AGREEMENT ON TRADE-RELATED
ASPECTS OF INTELLECTUAL PROPERTY
RIGHTS – (THE TRIPS AGREEMENT)
IN BRIEF
The TRIPS Agreement is to date the most comprehensive multilateral agreement on intellectual property. It
contains specific provisions in the following areas of intellectual property: copyright and related rights (i.e.
the rights of performers, producers of sound recordings and broadcasting organizations); trademarks;
geographical indications; industrial designs; patents, including the protection of new varieties of plants; the
layout designs of integrated circuits; and undisclosed information, including trade secrets and test data.
The Agreement consists of seven parts:
 I. General provisions and basic principles (such as national treatment and most-favoured
nation
treatment (MFN), and exhaustion of IPRs);
 II. Substantive standards of intellectual property protection;
 III. Enforcement;
 IV. Procedures for the acquisition and maintenance of IPRs;
 V. Dispute prevention and settlement;
 VI. Transitional arrangements; and,
 VII.Institutional arrangements.
In respect of each of the main areas of intellectual property regulated by the TRIPS Agreement, Part II of the
Agreement sets out the minimum standards of protection to be provided by each Member. Each of the main
elements of protection is defined, namely the subject-matter to be protected, the rights to be conferred and
permissible exceptions to those rights, and, where applicable, the minimum duration of protection.
The Agreement sets these standards by requiring, first, that the substantive obligations of the main
conventions of the World Intellectual Property Organization (WIPO), the Paris Convention for the Protection of
Industrial Property ("Paris Convention") and the Berne Convention for the Protection of Literary and Artistic
Works ("Berne Convention") in their most recent versions, must be complied with. With the exception of the
provisions of the Berne Convention on moral rights, all the substantive provisions of these conventions are
incorporated by reference and thus become obligations under the TRIPS Agreement between Members. The
relevant provisions are to be found in Articles 2.1 and 9.1 of the TRIPS Agreement, which relate, respectively,
to the Paris Convention and to the Berne Convention.
Secondly, the TRIPS Agreement contains a substantial number of additional obligations on matters where the
pre-existing conventions are silent or were seen as being inadequate. The TRIPS Agreement is thus sometimes
referred to as a "Berne and Paris-plus Agreement".

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Part III of the Agreement deals with domestic procedures and remedies for the enforcement of intellectual
property rights. The Agreement lays down certain general principles applicable to all IPR enforcement
procedures. In addition, it contains provisions on civil and administrative procedures and remedies, provisional
measures, special requirements related to border measures and criminal procedures. These provisions specify,
in a certain amount of detail, the procedures and remedies that must be available so that right holders can
effectively enforce their rights and also provide for safeguards against the abuse of such procedures and
remedies as barriers to legitimate trade.
Part IV of the Agreement contains general rules on procedures related to the acquisition and maintenance of
IPRs.
Part V of the Agreement deals with dispute prevention and settlement. The Agreement makes disputes
between Members about the respect of obligations contained in it, whether in the field of substantive standards
or in the field of enforcement, subject to the WTO's dispute settlement procedures.
Part VI of the Agreement contains provisions on transitional periods, transfer of technology and technical
cooperation.
Part VII deals with institutional arrangements and certain cross cutting matters such as the protection of
existing subject matter.
III.A. TRIPS: MAIN FEATURES – GENERAL PROVISIONS AND
BASIC PRINCIPLES (PART I)
III.A.1. MINIMUM STANDARDS AGREEMENT
The TRIPS Agreement sets out the minimum standards of protection to be provided by each Member.
Article 1.1 makes it clear that Members may, but are not obliged to, implement in their law more extensive
protection than required by the Agreement, provided that such protection does not contravene its provisions.
Article 1.1 further clarifies that Members are free to determine the appropriate method of implementing the
provisions of the TRIPS Agreement within their own legal system and practice.
III.A.2. BENEFICIARIES
As in the main pre-existing intellectual property conventions, the basic obligation on each WTO Member is to
accord the treatment in regard to the protection of intellectual property provided for under the Agreement to
persons of other Members. Article 1.3 defines who these persons are. These persons are referred to as
"nationals" but include persons, natural or legal, who have a close attachment to other Members without
necessarily being nationals. The criteria for determining which persons must thus benefit from the treatment
provided for under the Agreement are those laid down for this purpose in the main pre-existing intellectual
property conventions of WIPO, applied of course with respect to all WTO Members whether or not they are
party to those conventions.

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III.A.3. NATIONAL AND MFN TREATMENT
The rules on most favoured nation (MFN) and national treatment of foreign nationals can be found in
Articles 3 and 4 of the TRIPS Agreement. These rules are common to all categories of intellectual property
covered by the Agreement.
a. NATIONAL TREATMENT AND EXCEPTIONS
Article 3 on national treatment requires each Member to accord to the nationals of other Members treatment
no less favourable than that it accords to its own nationals with regard to the protection of intellectual
property. In respect of the national treatment obligation, the exceptions allowed under the four pre existing
WIPO treaties (Paris and Berne Conventions, the International Convention for the Protection of Performers,
Producers of Phonograms and Broadcasting Organizations ("Rome Convention") and the Treaty on Intellectual
Property in Respect of Integrated Circuits (IPIC)) are also allowed under TRIPS.
An important exception to national treatment is the so-called comparison of terms for copyright protection
allowed under Article 7(8) of the Berne Convention as incorporated into the TRIPS Agreement. If a Member
provides a term of protection in excess of the minimum term required by the TRIPS Agreement, it does not
need to protect a work for a duration that exceeds the term fixed in the country of origin of that work. In
other words, the additional term can be made available to foreigners on the basis of "material reciprocity".
In respect of performers, producers of phonograms and broadcasting organizations, this obligation applies only
in respect of rights provided under the TRIPS Agreement.
There are some conditions on the use of national treatment exceptions in the case of judicial and
administrative procedures.
b. MOST-FAVOURED NATION (MFN) AND EXCEPTIONS
Article 4 on MFN treatment requires that, with regard to the protection of intellectual property, any advantage,
favour, privilege or immunity granted by a Member to the nationals of any other Member shall be accorded
immediately and unconditionally to the nationals of all other Members.
Where exceptions to national treatment allow material reciprocity, a consequential exception to MFN treatment
is permitted under Article 4(b) and (c). Further limited exceptions to MFN are allowed under Article 4(a)
concerning international agreements on judicial assistance or law enforcement of a general nature and under
Article 4(d) concerning international agreements related to intellectual property that entered into force before
1 January 1995.
In addition, Article 5 of the TRIPS Agreement provides that national and MFN treatment obligations do not
apply to procedures provided in multilateral agreements concluded under the auspices of WIPO relating to the
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III.A.4. EXHAUSTION
What is "exhaustion"?
The term "exhaustion" refers to the generally accepted principle in intellectual property law that a right
owner's exclusive right to control the distribution of a protected item lapses after the first act of distribution.
In many countries, once the item has been put on the market by or with the consent of the right owner, the
exclusive distribution right is "exhausted" (the principle is referred to in some jurisdictions as the "first sale
doctrine") and further circulation of that item can no longer be controlled by the right holder.
In simple terms, exhaustion describes the fact that once you have legitimately obtained e.g. a
copyright-protected DVD or a patented mobile phone, you are free to further sell, transfer or otherwise
distribute it without further authorization from the right holder. This does not, of course, affect any other
exclusive rights the right holder may enjoy, for example to authorize activities such as reproduction or
communication to the public.
While it is generally accepted that IPRS are exhausted within the jurisdiction where the first sale took place,
are such rights exhausted when the first sale takes place outside the jurisdiction in question? The answer to
this depends on whether a country applies a regime of national or international exhaustion and thereby
prevents or allows so-called parallel importation.
National exhaustion means that the distribution right of the IPR owner is only considered exhausted if he has
put the protected item on the market in that country. His distribution right would not be considered exhausted
with regard to protected items that he had put on the market in another country, so that he can still control
the sale or import of such items into the first country. Thus, parallel imports of products first sold on other
markets are illegal in a country with a national exhaustion regime.
In contrast, if a country has an international exhaustion regime, this means that the right owner's distribution
right in that country is exhausted regardless of where the first act of distribution took place. Therefore, in
countries with an international exhaustion regime, parallel imports are legally possible.
Article 6 of the TRIPS Agreement provides that, for the purposes of dispute settlement under the TRIPS
Agreement, nothing in the Agreement shall be used to address the issue of the exhaustion of intellectual
property rights, provided that the national and MFN treatment obligations are complied with. This was clarified
in the 2001 Ministerial Declaration on the TRIPS Agreement and Public Health. It confirmed that the effect of
the TRIPS provisions relevant to exhaustion of intellectual property rights was to leave each Member free to
establish its own regime for exhaustion without challenge, subject to the MFN and national treatment
provisions of Articles 3 and 4.
III.A.5. GENERAL GOALS: PREAMBLE OF THE TRIPS AGREEMENT
The general goals of the TRIPS Agreement are contained in the Preamble of the Agreement. These goals
include the reduction of distortions and impediments to international trade, promotion of effective and
adequate protection of intellectual property rights, and ensuring that measures and procedures to enforce
intellectual property rights do not themselves become barriers to legitimate trade.

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III.A.6. OBJECTIVES OF THE TRIPS AGREEMENT
The TRIPS Agreement
Article 7 - Objectives
The protection and enforcement of intellectual property rights should contribute to the promotion of
technological innovation and to the transfer and dissemination of technology, to the mutual advantage of
producers and users of technological knowledge and in a manner conducive to social and economic welfare,
and to a balance of rights and obligations.
The general goals contained in the Preamble of the Agreement should be read in conjunction with Article 7,
entitled "Objectives". Article 7 reflects the search for a balanced approach to IPR protection in the societal
interest, taking into account the interests of creators and inventors. Intellectual property rights (IPR)
protection is expected to contribute not only to the promotion of technological innovation, but also to the
transfer and dissemination of technology in a way that benefits all stakeholders and that respects a balance of
rights and obligations.
III.A.7. PRINCIPLES OF THE TRIPS AGREEMENT
The TRIPS Agreement
Article 8 - Principles
1. Members may, in formulating or amending their laws and regulations, adopt measures necessary to
protect public health and nutrition, and to promote the public interest in sectors of vital importance to their
socio-economic and technological development, provided that such measures are consistent with the
provisions of this Agreement.
2. Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be
needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which
unreasonably restrain trade or adversely affect the international transfer of technology.
Article 8, entitled "Principles", recognizes the rights of Members to adopt measures for public health and other
public interest reasons and to prevent the abuse of intellectual property rights, provided that such measures
are consistent with the provisions of the TRIPS Agreement.
EXERCISES
2. Is a Member free to provide higher levels of protection than those required under the TRIPS minimum
standards?
3. Explain the difference between national exhaustion and international exhaustion.

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III.B. SUBSTANTIVE PROTECTION OF IPRs (PART II)
III.B.1. COPYRIGHT
What are copyright and related rights?
The term copyright is usually used to refer to the rights of authors in their literary and artistic works.
Related rights are the rights of performers (e.g. actors, singers and musicians), producers of phonograms
(sound recordings) and broadcasting organizations. The main purpose of protecting copyrights and related
rights is to encourage and reward creative work.
a. INCORPORATION OF THE SUBSTANTIVE PROVISIONS OF THE BERNE CONVENTION
(1971)
During the Uruguay Round negotiations, it was recognized that the Berne Convention already, for the most
part, provided adequate basic standards of copyright protection. Thus it was agreed that the point of
departure should be the existing level of protection under the latest Act, the Paris Act of 1971, of that
Convention.
The point of departure is expressed in Article 9.1 of the TRIPS Agreement, under which Members are obliged to
comply with the substantive provisions of the Paris Act of 1971, i.e. Articles 1 through 21 of the Berne
Convention (1971) and the Appendix thereto. However, Members do not have rights or obligations under the
TRIPS Agreement in respect of the rights conferred under Article 6bis of that Convention, i.e. the moral rights
(the right to claim the authorship and to object to any derogatory action in relation to a work, which would be
prejudicial to the author's honour or reputation), or of the rights derived there from.
b. CLARIFICATIONS AND ADDITIONAL OBLIGATIONS
In addition to requiring compliance with the basic standards of the Berne Convention, the TRIPS Agreement
clarifies and adds some specific points.
c. WHAT IS THE SUBJECT MATTER TO BE PROTECTED?
Copyright protects "literary and artistic works". This expression includes "every production in the literary,
scientific and artistic domain, whatever may be the mode or form of its expression". Such works include
computer programs and databases (Article 10).
Copyright protection does not cover any information or ideas contained in a work; it only protects original
expressions (Article 9.2).
The TRIPS Agreement covers three categories of related rights: protection of performers, producers of
phonograms (sound recordings) and broadcasting organizations.

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d. WHAT ARE THE RIGHTS CONFERRED ON HOLDERS OF COPYRIGHT AND RELATED
RIGHTS?
The economic rights of an author of a work include, inter alia, the reproduction right; rental rights (Article 11);
rights of public performance, broadcasting and communication to the public; and rights of translation and
adaptation. As noted above, authors' moral rights are not covered by the TRIPS Agreement.
Performers have the possibility of preventing certain unauthorized acts, such as fixation of their live
performance on a phonogram and its unauthorized broadcasting (Article 14.1). Producers of phonograms have
an exclusive reproduction right (Article 14.2) and a rental right (Article 14.4). Broadcasting organizations have
the right to prohibit certain acts in respect of their broadcasts, such as re-broadcasting (Article 14.3).
e. WHAT ARE THE PERMISSIBLE EXCEPTIONS TO THESE RIGHTS?
The provisions of the Berne Convention as incorporated into the TRIPS Agreement allow free uses for certain
specified purposes, such as quotation, illustration for teaching purposes, and reporting of current events. They
also allow limitations to the reproduction right. Minor exceptions can be made to the public performance right.
Non voluntary licences can be applied to broadcasting and communication to the public of works broadcast, as
well as to the recording of musical works. Developing countries may provide compulsory licences, subject to
certain conditions, in respect of reproduction and translation of works for educational purposes.
Article 13 of the TRIPS Agreement is a clause governing limitations and exceptions. It sets out the so called
"three step test". It permits limitations or exceptions to exclusive rights only if three conditions are met:
(1) the limitations or exceptions are confined to certain special cases; (2) they do not conflict with a normal
exploitation of the work; and, (3) they do not unreasonably prejudice the legitimate interests of the right
holder.
As regards related rights, a Member may provide certain specific limitations such as private use. In general, it
may also provide for the same kinds of limitations as it provides for in respect of literary and artistic works
(Article 14.6).
f. THE TERM OF PROTECTION
In general, the minimum term of copyright protection is the life of the author and fifty years after his death
(Article 12). As regards related rights, the term of protection is at least 50 years for performers and producers
of phonograms, and 20 years for broadcasting organizations (Article 14.5).
EXERCISES
4. Are computer programs to be protected by copyright under the TRIPS Agreement?
5. Does copyright protection cover the ideas contained in a work?
6. Explain the "three-step test" set out in Article 13 of the TRIPS Agreement.

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III.B.2. TRADEMARKS
What is a trademark?
A trademark is a sign, or a combination of signs, which is used to distinguish the goods or services of one
enterprise from those of others.
The obligations of Members with respect to standards concerning the availability, scope and permissible
limitations of trademark protection are given in Articles 15 and 21 in Section 2 of Part II of the TRIPS
Agreement and in the substantive provisions of the Paris Convention incorporated into the Agreement by
reference in Article 2.1.
a. WHAT IS THE SUBJECT MATTER TO BE PROTECTED?
Signs that are capable of distinguishing the goods or services of one undertaking from those of others are
eligible for trademark protection. There are no constraints on the types of signs to be protected as a
trademark (such as words, numbers, figurative elements or combinations of colours) but Members may make
registration of signs dependent on visual perceptibility. Where a sign is not inherently capable of distinguishing
goods and services, Members may limit registration to cases where the sign has acquired distinctiveness as a
result of use (Article 15.1).
While the conditions for the filing and registering of a trademark are in principle determined by the domestic
legislation of each Member country, there are a number of common rules that have to be observed by all
Members
Examples of Trademarks from different Members
b. WHAT ARE THE RIGHTS CONFERRED BY A TRADEMARK?
In a Member, the owner of a registered trademark must at least be able to prevent the unauthorized use of an
identical or similar sign on similar goods or services in the course of trade, which would create a likelihood of
confusion among consumers as to whether those goods or services originate from the right holder's
undertaking.

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HYPOTHETICAL EXAMPLES: TRADEMARK RIGHTS (whether the use of a sign on particular
products causes a likelihood of confusion with a registered trademark)
EXAMPLE 1
Duly registered for "document delivery services, paper envelopes and wrapping material".
Used for the products "refreshments, especially fruit juices and ice cream".
While the sign used (namely Ferdex) is very similar to the registered sign FedEx, the products on which it
is used are quite different. An overall assessment could come to the conclusion that hardly any consumer
would think that a fruit juice labelled "Ferdex" could possibly come from the provider of the document
delivery services FedEx, and that therefore, there is no likelihood of confusion.
EXAMPLE 2
Duly registered for "restaurant and catering services; especially self-service restaurants, foods,
drinks, refreshments; paper wrappings, entertainment services".
Used for "hot self-service meals obtainable from machines in gas stations on
motorways or bus stations in cities".
Although the signs used are quite dissimilar, the strong similarity of the products for which they are used
may well result in a situation where consumers might believe that a hot self-service meal labelled Donald's
Burger that can be obtained from a machine at a bus station comes from the same enterprise that runs
self-service restaurants under the trademark M-I'm loving it. Thus an overall assessment of the situation
may well result in the view that here there is a likelihood of confusion.
If the trademark is considered a well known trademark, such protection would apply even if the trademark is
not registered in the country where protection is claimed and, in certain circumstances, extend to use of such
signs also on products which are not similar to those in respect of which the trademark is registered
(Article 16).
EXAMPLE: WELL-KNOWN TRADEMARK
Take the trademark "COCA-COLA", which is known in almost all markets beyond
its main product (i.e. non-alcoholic beverages). Now imagine, someone else
would start selling designer clothes under the label "COCA-COLA" – i.e. use the
mark on goods not similar to those for which the original mark is registered. Because of the wide consumer
knowledge of this mark, consumers may still wonder whether the beverage producer "COCA COLA" had now
started also producing clothes under the same trademark. This confusion in the market could negatively
affect the interests of the owner of the well, known trademark.

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c. WHAT ARE THE PERMISSIBLE EXCEPTIONS TO THESE RIGHTS?
The TRIPS Agreement provides in Article 17 a general clause which sets out the criteria that permissible
exceptions to trademark rights must meet. Under this provision, Members are allowed to provide for limited
exceptions to trademark rights if these take into account the legitimate interests of the right owner and those
of third parties. This is a variation of the "three-step test" also applied in the copyright, industrial design and
patent areas as can be seen from the relevant sections of this chapter.
Article 20 provides that the use of the trademark in the course of trade must not be unjustifiably encumbered
by special requirements.
While Members can set conditions on how trademark rights can be licensed and transferred, they must ensure
that compulsory licences are not available for trademark rights and that the transfer or assignment of a
trademark is possible without (i.e. independently of) the transfer of the corresponding business (Article 21).
d. THE TERM OF PROTECTION
The initial term of protection for trademarks in Members must be a minimum of seven years, which must be
renewable indefinitely (Article 18). This means that protection of a trademark, provided that it is continuously
renewed, may last for an indefinite period of time.
If Members require the actual use of a trademark for maintaining its registration, a period of at least three
years of uninterrupted non use must be allowed before the registration of a trademark is cancelled
(Article 19.1).
EXERCISES
7. What is the subject matter to be protected by trademarks?

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III.B.3. GEOGRAPHICAL INDICATIONS
What is a geographical indication?
A geographical indication (GI) identifies a good as originating in a particular region or locality in the territory
of a WTO Member, where a given quality, reputation or other characteristic is essentially attributable to its
geographical origin (e.g, "Champagne", or "Roquefort" from France or "Tequila" from Mexico).
a. WHAT IS THE SUBJECT MATTER FOR PROTECTION?
The TRIPS Agreement requires Members to provide protection for geographical indications, which are defined
under Article 22.1 as indications which identify a good as originating in the territory of a Member, or a region
or locality in that territory, where a given quality, reputation or other characteristic of the good is essentially
attributable to its geographical origin. This definition has been interpreted or implemented by Members in
various ways. The main requirement is that there is a linkage between the quality, reputation or other
characteristics of the good and its geographical origin as identified by the GI. Appellations of origin are a
special category of geographical indication. The definition is limited to goods.
Examples of GIs:
Example 1 - Pinggu Peach is a GI for peaches from Pinggu region, registered as a
certification mark in China; Chinese GI logo for GIs registered as certification marks at
the Chinese Trademark Office:
Example 2 - Café de Colombia: "Denominación de origen" and certification mark in
Colombia; PDO in the EU; certification mark in the US and several other countries (picture
on the right: see symbol ®):
b. WHAT ARE THE CONDITIONS FOR GRANTING PROTECTION?
The TRIPS Agreement does not specify the legal form that the protection to be provided should take. It leaves
it to Members to determine if and where the acquisition and maintenance of protection should depend on
meeting prior procedural requirements and formalities. In practice various means of protecting geographical
indications are used by Members, including: laws on business practices (e.g., on unfair competition and on
consumer protection); trademark law (i.e. certification or collective marks); and, sui generis (i.e. a system
created specially for this purpose) GI laws.
c. WHAT ARE THE RIGHTS CONFERRED?
The TRIPS Agreement requires two basic forms of protection to be available in respect of all GIs: against use in
a manner that would mislead the public as to the true origin of the product; and against use that would
constitute an act of unfair competition within the meaning of Article 10bis of the Paris Convention
(Article 22.2).

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Under Article 23, the level of protection required for geographical indications for wines and spirits is higher. It
is not dependent on meeting tests of misleading the consumer or unfair competition and applies even if the
true place of origin is indicated or the use is accompanied by certain qualifying terms such as "type" or "kind",
or the use is in translation. Under both Article 22 and Article 23, the right to take action must be available to
any interested party, i.e. not only the right holder but also, for example, distributors.
Under Article 22.3, where a geographical indication is used as, or in, a trademark for goods not originating
from the place identified by that indication, Members are required to provide legal means to reject the
application for, or to invalidate the registration of, that trademark if that use would mislead the public as to the
true origin of the goods.
Under Article 23.2, the use of a geographical indication as, or in, a trademark, on a wine or spirit not
originating from the place identified by that geographical indication must as a general rule be prevented,
whether or not the public would be misled.
Protection against the use of a homonymous geographical indication (i.e. geographical indications that are
identical but designate different geographical areas) must be provided where it would mislead the public as to
the true origin of the goods. For wines, the Members concerned will have to determine the practical conditions
for the co-existence of homonymous GIs, notably in order to avoid the public being misled (Article 23.3).
The question of whether the additional protection required under Article 23 for GIs for wines and spirits should
be extended to other products is being addressed as an outstanding implementation issue pursuant to
paragraph 12 of the Doha Ministerial Declaration (WT/MIN(01)/DEC/1).
d. WHAT ARE THE EXCEPTIONS TO THESE RIGHTS?
Article 24 provides for a range of exceptions to the protection that would otherwise have to be given, notably
in respect of terms that have become generic in the local language, certain prior trademark rights and certain
other forms of prior use that pre-date the TRIPS Agreement.
The exceptions are accompanied by a commitment on the part of Members to be willing to enter into
negotiations, bilaterally or multilaterally, including about the continued applicability of the exceptions. A
specific role is also given to the Council for TRIPS to review the application of the TRIPS rules in this area and
consult about compliance issues.
e. NEGOTIATIONS ON A GI REGISTER
Article 23.4 gives the TRIPS Council the mandate to negotiate a multilateral system of notification and
registration of GIs for wines eligible for protection in those Members participating in the system, with a view to
facilitating their protection.
The negotiations are presently being pursued in the Doha Round, where the mandate has been extended to
cover spirits as well.

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EXERCISES
8. What is a geographical indication?
9. Are all geographical indications subject to the same protection?
10. What is the mandate in Article 23.4 of the TRIPS Agreement?

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III.B.4. INDUSTRIAL DESIGNS
What is an industrial design?
The term "industrial design" is generally understood to refer to the ornamental or aesthetic aspect of an
article.
The TRIPS Agreement provides in Articles 25 and 26 that at least 10 years' protection must be available for
independently created industrial designs that are new or original.
Textile designs, which typically have a short life cycle, are particularly liable to copying and require protection
in large numbers, are given special attention: requirements for obtaining protection should not unreasonably
impair the possibility of gaining that protection (Article 25.2).
Owners of protected designs must be able to prevent the unauthorized manufacture, sale or importation, for
commercial purposes, of articles bearing or embodying a design which is a copy of the protected design
(Article 26.1).
The language on permissible exceptions to the rights conferred on the owner of industrial designs tracks
closely that in Articles 13, 17 and 30 and is drawn from the so-called three-step test referred to first under the
copyright section above (Article 26.2).
The duration of protection available shall amount to at least 10 years (Article 26.3).
III.B.5. PATENTS
What is a patent?
A patent is the title given to the intellectual property right that is granted to protect inventions. It gives
inventors an exclusive right to prevent others from exploiting the patented invention, during a limited period
of time.
a. WHAT IS THE SUBJECT MATTER TO BE PROTECTED?
The TRIPS Agreement requires Members to make patents available for any inventions, whether products or
processes, in all fields of technology without discrimination, subject to the tests of novelty, inventiveness and
industrial applicability. It also requires that patents be available and patent rights enjoyable without
discrimination as to the place of invention and whether products are imported or locally produced
(Article 27.1).
Members shall require that an applicant for a patent disclose the invention in a manner sufficiently clear and
complete for the invention to be carried out by a person skilled in the art and may require the applicant to

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indicate the best mode for carrying out the invention known to the inventor at the filing date or, where priority
is claimed, at the priority date of the application (Article 29.1).
Examples of Inventions
b. WHAT ARE THE PERMISSIBLE EXCLUSIONS TO PATENTABLE SUBJECT MATTER?
There are three permissible exclusions allowed to the basic rule on patentability. One is for inventions contrary
to ordre public or morality; Members may refuse to patent inventions dangerous to human, animal or plant life
or health or seriously prejudicial to the environment. The use of this exception is subject to the condition that
the commercial exploitation of the invention must be prevented and this prevention must be necessary for the
protection of ordre public or morality (Article 27.2).
The second exclusion is that Members may exclude from patentability diagnostic, therapeutic and surgical
methods for the treatment of humans or animals (Article 27.3(a)).
The third exclusion under Article 27.3(b) is that Members may exclude plants and animals other than micro
organisms and essentially biological processes for the production of plants or animals other than non biological
and microbiological processes. However, any country excluding plant varieties from patent protection must
provide an effective sui generis system of protection. They may also opt for a combination of patents and sui
generis protection. Article 27.3(b) was made subject to review four years after entry into force of the
Agreement. The review started in 1999 and is continuing.
Under the review and subsequently under a mandate agreed at Doha, the Council for TRIPS has examined also
the relationship between the TRIPS Agreement and the Convention on Biological Diversity (CBD) as well as the
protection of traditional knowledge and folklore. The relationship between the TRIPS Agreement and the CBD
has also been addressed as an outstanding implementation issue pursuant to paragraph 12 of the Doha
Ministerial Declaration.
c. WHAT ARE THE RIGHTS CONFERRED ON PATENT OWNERS?
The exclusive rights that must be conferred by a product patent are the ones of making, using, offering for
sale, selling, and importing for these purposes. Process patent protection must give rights not only over use of
the process but also over products obtained directly by the process. Patent owners shall also have the right to
assign, or transfer by succession, the patent and to conclude licensing contracts (Article 28).
If the subject matter of a patent is a process for obtaining a product, the judicial authorities shall have the
authority to order the defendant to prove that the process to obtain an identical product is different from the

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patented process, where certain conditions indicating a likelihood that the protected process was used are met
(Article 34).
d. WHAT ARE THE PERMISSIBLE EXCEPTIONS TO THESE RIGHTS?
Exceptions to patent rights can be placed into two categories: limited exceptions and other uses without the
authorization of the right holder which cover compulsory licences and government use.
1. LIMITED EXCEPTIONS
Members may provide limited exceptions to the exclusive rights conferred by a patent, provided that such
exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably
prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties
(Article 30). The exception is thus subject to a variation of the "three-step test" referred to in the copyright
section above.
2. COMPULSORY LICENCES
Compulsory licensing, including government use without the authorization of the right holder, are allowed
without limitation as to grounds but subject to conditions aimed at protecting the legitimate interests of the
right holder. The conditions are mainly contained in Article 31. These include the obligation, as a general rule,
to grant such licences only if an unsuccessful attempt has been made to acquire a voluntary licence on
reasonable terms and conditions within a reasonable period of time; to pay adequate remuneration in the
circumstances of each case, taking into account the economic value of the licence; and that decisions be
subject to judicial or other independent review by a distinct higher authority. Members may relax certain of
these conditions in cases of emergency and public non-commercial use and where compulsory licences are
employed to remedy practices that have been established as anticompetitive by a legal process. See also the
section on TRIPS and Public Health below.
e. WHAT IS THE MINIMUM PERIOD OF PATENT PROTECTION TO BE ACCORDED?
The term of protection available shall not end before the expiration of a period of 20 years counted from the
filing date (Article 33). An opportunity for judicial review of any decision to revoke or forfeit a patent shall be
available (Art. 32).
EXERCISES
11. Do Members have to impose an obligation on patent applicants to "disclose" the working of an invention?
12. Can a Member refuse to provide patent protection to plant varieties?
13. Can a Member grant compulsory licenses as an exception to a patent owner's exclusive rights?

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III.B.6. LAYOUT-DESIGNS
What is a layout-design?
A layout-design is the three-dimensional layout of an integrated circuit (or "chip").
TREATY ON INTELLECTUAL PROPERTY IN RESPECT OF INTEGRATED CIRCUITS (IPIC TREATY)
The TRIPS Agreement requires Members to protect the layout-designs ("topographies") of integrated circuits in
accordance with the provisions of the IPIC Treaty, together with the additional provisions of Articles 36 and 38
of the TRIPS Agreement. These articles relate to the term of protection, the treatment of innocent infringers,
the applicability of the protection to articles containing infringing integrated circuits, and compulsory licensing.
Members are to consider unlawful, if not authorized by the right-holder of the design, the reproduction and the
importation, sale or other commercial distribution of a protected layout design, of integrated circuits
incorporating such a design, or of articles which contain such integrated circuits (Article 36).
Innocent infringers, who import, sell or distribute integrated circuits that use unlawfully-copied layout-designs,
must not be held to have acted unlawfully. They may sell remaining stocks after having been notified of the
infringement, upon payment of a reasonable royalty to the right-holder (Article 37.1).
As regards compulsory licensing, the same conditions apply as those applying in the patent area under
Article 31. This includes the provision that in the area of semiconductor technology compulsory licences can
only be granted for public non commercial use or to remedy anti competitive practices (Article 37.2 read with
Article 31(c)).
The protection is to last for a minimum of 10 years counted from the date of filing an application for
registration or from the first commercial exploitation, wherever it occurs in the world (Article 38).
III.B.7. UNDISCLOSED INFORMATION
What is undisclosed information?
Undisclosed information refers to trade secrets and certain test or other data submitted to government
agencies.
The TRIPS Agreement requires Members to provide for the protection of information that is secret, has
commercial value and has been subject to reasonable steps to keep it secret. A person lawfully in control of
such information must have the possibility of preventing it from being disclosed to, acquired by, or used by
others without his consent in a manner contrary to honest commercial practices, including at least breach of
contract, breach of confidence, inducement to breach of contract or confidence, as well as the acquisition of
undisclosed information by third parties who knew or were grossly negligent in failing to know that such
practices were involved in the acquisition (Articles 39.1 and 39.2).

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The TRIPS Agreement requires Members to protect against unfair commercial use undisclosed test or other
data whose submission is required by governments as a condition of approving the marketing of
pharmaceutical or agricultural chemical products which use new chemical entities. Members are also required
to protect such data against disclosure, except where necessary to protect the public, or unless steps are taken
to ensure that the data is protected against unfair commercial use (Article 39.3).
III.B.8. ANTI-COMPETITIVE PRACTICES
What are anti-competitive practices?
Anti competitive practices are practices or conditions that may, in particular cases, constitute an abuse of
intellectual property rights having an adverse effect on competition in the relevant market.
The TRIPS Agreement recognizes, in Article 40, the right of Members to take measures to prevent or control
anti competitive abuses of IPRs as long as these measures are consistent with the TRIPS Agreement. The
Agreement establishes a consultation procedure for mutual assistance between Members in such cases.
III.C. TRIPS AND PUBLIC HEALTH
What does the Doha Declaration on the TRIPS Agreement and public health say?
The Doha Declaration on the TRIPS Agreement and Public Health (WT/MIN(01)/DEC/2) responded to concerns
about the possible implications of the TRIPS Agreement for public health, in particular access to patented
medicines. It emphasized that the TRIPS Agreement does not and should not prevent Members from taking
measures to protect public health. It reaffirmed the right of Members to use, to the full, the provisions of the
TRIPS Agreement that provide flexibility for this purpose.
The Declaration also made it clear that the TRIPS Agreement should be interpreted and implemented in a way
that supports Members' right to protect public health and, in particular, to promote access to medicines for all.
Further, it highlighted the importance of the objectives and principles of the TRIPS Agreement regarding the
interpretation of its provisions.
Moreover, the Declaration clarified some of the flexibilities contained in the TRIPS Agreement, in particular that
each Member: is free to determine the grounds upon which compulsory licenses are granted; has the right to
determine what constitutes a national emergency or other circumstances of extreme urgency, recognising that
public health crises, including those relating to HIV/AIDS, tuberculosis, malaria, and other epidemics, can
represent such circumstances; and is free to establish its own exhaustion regime without challenge - subject to
the general TRIPS provisions that prohibit discrimination on the basis of the nationality of persons.
In the Declaration, Members also agreed to provide least-developed country (LDC) Members of the WTO with
an extension of their transition period until the beginning of 2016* for protecting and enforcing patents and
rights in undisclosed information with respect to pharmaceutical products. While emphasizing the flexibility in
the TRIPS Agreement to take measures to promote access to medicines, the Declaration recognized the

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importance of IP protection for developing new medicines and reaffirmed the commitments of Members in the
TRIPS Agreement.
* For more details, see Transitional Periods.
What is the paragraph 6 system about?
In its paragraph 6, the Doha Declaration recognized the problem of countries with insufficient or no
manufacturing capacities in the pharmaceutical sector in making effective use of compulsory licensing when
they need to call upon sources of supply from generic producers in third countries where the medicines
needed are patent protected. In order to solve this problem, a General Council Decision of 30 August 2003
established the so called Paragraph 6 System (WT/L/540, Corr.1).
A General Council Decision of 6 December 2005 (WT/L/641) transformed the waivers contained in the 2003
Decision into a permanent amendment to the TRIPS Agreement and submitted it to Members for acceptance.
Both decisions were adopted in the light of a Chairman's statement setting out several key shared
understandings of Members on how the Decision would be interpreted and implemented.
The Paragraph 6 System provides for three distinct derogations from the obligations set out in
subparagraphs (f) and (h) of Article 31 with respect to pharmaceutical products, subject to certain
conditions:
 First, a derogation from the obligation of an exporting Member under Article 31(f) to the
extent necessary for the purposes of production and export of the needed pharmaceutical
products to those countries that do not have sufficient capacity to manufacture them. This
waiver is subject to certain conditions to ensure transparency in the operation of the system
and that only countries with insufficient domestic capacity import under it, and to provide for
safeguards against the diversion of products to markets for which they are not intended;
 Second, a derogation from the obligation under Article 31(h) on the importing country to
provide adequate remuneration to the right holder in situations where remuneration in
accordance with Article 31(h) is being paid in the exporting Member for the same products.
The purpose of this waiver is to avoid double remuneration of the patent owner for the same
product consignment; and,
 Third, a further derogation from the obligation under Article 31(f) on any developing or
least-developed country that is party to a regional trade arrangement at least half of the
current membership of which is made up of countries presently on the United Nations list of
least-developed countries. The purpose of this waiver is to enable such countries to better
harness economies of scale for the purposes of enhancing purchasing power for, and
facilitating the local production of, pharmaceutical products.

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EXERCISES
14. Did the clarifications provided by the Doha Declaration on the TRIPS Agreement and Public Health only
address public health problems resulting from HIV/AIDS, tuberculosis and malaria?
15. What was the problem recognized in paragraph 6 of the Doha Declaration?

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III.D. IPRS ENFORCEMENT (PART III)
What is enforcement?
Infringement of an IPR occurs when an act is undertaken which is inconsistent with the rights of the owner
of the IPR and which is not subject to an admissible exception. Enforcement procedures allow the right
holder to take effective action against the infringement of IPRs.
III.D.1. WHAT ARE THE GENERAL OBJECTIVES OF THE TRIPS
ENFORCEMENT PROVISIONS?
Under Article 41, enforcement procedures, which Members are required to make available under the TRIPS
Agreement, are to permit prompt and effective action against any act of infringement of intellectual property
rights covered by the Agreement. The general obligations contained in Article 41 also aim to ensure that
certain basic principles of due process are met, in particular with respect to fair and equitable procedures and
the right to appeal. They further stipulate that enforcement procedures are to be applied in a manner which
avoids the creation of barriers to legitimate trade and provides for safeguards against their abuse. Finally,
they address some general understandings about resource constraints and the relation with other areas of law
enforcement.
III.D.2. WHAT ARE THE OBLIGATIONS WITH RESPECT TO CIVIL AND
ADMINISTRATIVE PROCEDURES?
The obligations provide that a right holder must be able to initiate civil judicial or, where applicable,
administrative procedures against an IPR infringer. Those procedures must be fair and equitable (Article 42).
Certain rules on evidence are established (Article 43). Members are required to provide judicial authorities
with the authority to award three types of remedies: injunctions, damages and other remedies, such as
destruction or disposal of infringing goods outside the channels of commerce (Articles 44-46). As part of the
safeguards against abuse, the obligations include provision for indemnification of the defendant where
enforcement procedures have been abused by the right holder (Article 48).
III.D.3. WHAT ARE THE OBLIGATIONS ON PROVISIONAL MEASURES?
Provisional measures are temporary injunctions which constitute an important tool pending the solution of a
dispute at a trial. The TRIPS Agreement under Article 50 obliges Members to allow their judicial authorities to
order prompt and effective provisional measures to take action against alleged infringements. Those measures
aim to prevent an IPR infringement from occurring and to preserve relevant evidence concerning the alleged
infringement. Given the nature of these measures, most of the obligations on provisional measures concern
certain procedural and other safeguards against the abuse of such measures.

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III.D.4. WHAT ARE THE OBLIGATIONS ON BORDER MEASURES?
Border measures enable the right holder to obtain the cooperation of customs administrations to intercept
infringing goods at the border and to prevent the release of such goods into circulation. The TRIPS Agreement
makes this mandatory at least in regard to imports of counterfeit trademark and pirated copyright goods;
Members may also make them available for infringement of other IPRs and infringing goods destined for
exportation (Article 51). Border measures are subject to certain procedural requirements and safeguards
against abuse, similar to those applying to provisional measures (Articles 52-58). As regards remedies, the
competent authorities must be empowered to order the destruction or disposal outside the channels of
commerce of infringing goods (Article 59).
III.D.5. WHAT ARE THE OBLIGATIONS WITH RESPECT TO CRIMINAL
PROCEDURES?
Under the TRIPS Agreement Article 61, Members are obliged to provide for criminal procedures and penalties
to be applied in cases of wilful trademark counterfeiting or copyright piracy on a commercial scale. Their
application to other cases of IPR infringement is optional. In terms of remedies, the agreement stipulates that
sanctions available must include imprisonment and/or monetary fines, and, in appropriate cases, also seizure,
forfeiture and destruction of the infringing goods and of materials and equipment used to produce them.
EXERCISES
16. Explain the general objectives of the TRIPS enforcement provisions.

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III.E. OTHER PROVISIONS
III.E.1. ACQUISITION AND MAINTENANCE OF IPRS
On the whole, the TRIPS Agreement does not deal in detail with procedural questions concerning the
acquisition and maintenance of intellectual property rights. Article 62 in Part IV of the Agreement contains
some general rules on these matters, the purpose of which is to ensure that unnecessary procedural difficulties
in acquiring or maintaining intellectual property rights are not employed to impair the protection required by
the Agreement. Certain more specific rules are to be found in the sections of Part II dealing with individual
categories of IPRs and in the provisions of the Paris Convention and the IPIC Treaty incorporated by reference.
III.E.2. TRANSITIONAL ARRANGEMENTS
1 JANUARY 1995: ENTRY INTO FORCE
The TRIPS Agreement gives all WTO Members transitional periods so that they can meet their obligations under
it. The transitional periods, which depend on the level of development of the country concerned, are contained
in Articles 65 and 66.
1 JANUARY 1996: DEVELOPED COUNTRIES + NON-DISCRIMINATION (ALL MEMBERS)
Developed country Members have had to comply with all of the provisions of the TRIPS Agreement since
1 January 1996.
Moreover, all Members, even those availing themselves of the longer transition periods, have had to comply
with the national and MFN treatment obligations as of 1 January 1996 (Article 65.1).
1 JANUARY 2000: DEVELOPING COUNTRIES & ECONOMIES IN TRANSFORMATION
For developing countries, the general transition period was five years, i.e. until January 2000. The Agreement
allowed countries in transition from a centrally-planned into a market economy to delay application until 2000,
if they met certain conditions (Article 65.2,3).
PHARMACEUTICAL AND AGRICULTURAL CHEMICALS
Under Article 65.4 developing countries were allowed to delay the application of the provisions on product
patents in areas of technology not so protected as of 1.1.2000 by a further period of five years, namely up to
1.1.2005.
However, in respect of pharmaceutical and agricultural chemical products, any Member not providing patent
protection had to allow the filing of patent applications as of the date of entry into force of the WTO
Agreement, sometimes referred to as a "mailbox" (Article 70.8). If certain conditions are met, as specified in

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Article 70.9, exclusive marketing rights have to be made available to applicants under Article 70.8, pending the
final decision on patent grant.
LEAST-DEVELOPED COUNTRIES (LDCS)
Article 66.1 originally provided LDC Members a transitional period until 1 January 2006, with an extension upon
a duly motivated request.
Pursuant to the Doha Declaration on the TRIPS Agreement and Public Health (see above), the TRIPS Council
decided in 2002 to extend the transition period for LDCs for certain obligations with respect to pharmaceutical
products until 1 January 2016. This Decision can be found in document IP/C/25.
Supplementing this Decision, the General Council adopted a waiver for the same period in respect of the
obligations of LDC Members under Article 70.9 concerning exclusive marketing rights. Thus, while LDC
Members availing themselves of the extended transition period are required to provide a "mail box" if they do
not already provide patent protection for pharmaceutical products, the obligations in respect of exclusive
marketing rights for such products have been waived until 1 January 2016. This decision can be found in
document WT/L/478.
In 2005, upon a request of LDCs, the TRIPS Council extended the general transitional period for LDCs until
1 July 2013. This Decision calls for enhanced technical cooperation and capacity building by developed country
Members and by the WTO in cooperation with WIPO and other international organizations. It provides that
LDC Members will ensure that any changes in their laws, regulations and practice made during the additional
transitional period do not result in a lesser degree of consistency with the provisions of the TRIPS Agreement.
It is without prejudice to the earlier extension with respect to pharmaceutical products and to the right of LDC
Members to seek further extensions. This Decision is contained in document IP/C/40.
ACCEDING COUNTRIES
Any transition periods for acceding countries are set out in their protocols of accession. With the exception of
LDCs, newly acceded countries have generally agreed to apply the TRIPS Agreement as of the date of entry
into force of their membership in the WTO.
III.E.3. PROTECTION OF EXISTING SUBJECT MATTER
An important aspect of the transition arrangements under the TRIPS Agreement is the treatment of subject
matter existing at the time that a Member starts applying the provisions of the Agreement (e.g. already
existing works, inventions or distinctive signs). These rules are contained in Article 70.
As provided in Article 70.2, the rules of the TRIPS Agreement generally apply to subject-matter existing on the
date of the application of the Agreement for the Member in question (i.e. at the end of the relevant transition
period) and which is protected in that Member on that date, or which is still capable of meeting the criteria for
protection (e.g. undisclosed information or distinctive signs not yet protected as trademarks). There are
additional requirements in respect of pre-existing copyrighted works and phonograms based on the provisions
in Article 18 of the Berne Convention incorporated by reference into the TRIPS Agreement.

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III.F. IMPLEMENTATION
III.F.1. NOTIFICATION
IN BRIEF
The TRIPS Agreement obliges Members to make certain notifications to the Council for TRIPS. These
notifications facilitate the Council's work of monitoring the operation of the Agreement and promote the
transparency of Members' laws and policies on intellectual property protection. In addition, Members
wishing to avail themselves of certain flexibilities provided in the Agreement that relate to the substantive
obligations have to notify the Council.
a. LAWS AND REGULATIONS BY WHICH MEMBERS GIVE EFFECT TO THE AGREEMENT'S
PROVISIONS
Article 63.2 of the TRIPS Agreement requires Members to notify the laws and regulations by which they give
effect to the Agreement's provisions. This Article specifies that the purpose is to assist the TRIPS Council in its
review of the operation of the Agreement.
The Council has agreed that laws and regulations should be notified without delay as of the time that the
corresponding substantive TRIPS obligation starts to apply. Also any subsequent amendments should be
notified without delay. These procedures can be found in document IP/C/2.
b. CHECKLIST OF ISSUES ON ENFORCEMENT
Given the difficulty of examining legislation relevant to many of the enforcement obligations in the TRIPS
Agreement, Members have undertaken, in addition to notifying legislative texts, to provide information on how
they are meeting these obligations by responding to a Checklist of Issues on Enforcement. This questionnaire
can be found in document IP/C/5.
c. MEMBERS WISHING TO AVAIL THEMSELVES OF CERTAIN OPTIONS PROVIDED IN THE
AGREEMENT
Articles 1.3 and 3.1 allow Members to avail themselves of certain options in regard to the definition of
beneficiary persons and national treatment, provided that notifications are made to the Council for TRIPS.
Article 4 on MFN treatment provides that, with regard to the protection of intellectual property, any advantage,
favour, privilege or immunity granted by a Member to the nationals of any other country shall be accorded
immediately and unconditionally to the nationals of all other Members. According to sub paragraph (d) of that
Article, exempted from this obligation are any advantage, favour, privilege or immunity accorded by a Member
deriving from international agreements related to the protection of intellectual property which entered into
force prior to the entry into force of the WTO Agreement, provided that such agreements are notified to the

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Council for TRIPS and do not constitute an arbitrary or unjustifiable discrimination against nationals of other
Members.
d. CONTACT POINTS
Article 69 of the Agreement requires Members to establish and notify contact points in their administrations for
the purposes of cooperation with each other aimed at the elimination of trade in infringing goods.
e. NOTIFICATION PROVISION UNDER THE BERNE AND ROME CONVENTIONS
A number of notification provisions of the Berne and Rome Conventions are incorporated by reference into the
TRIPS Agreement but without being explicitly referred to in it. A Member wishing to make such notifications
has to make them to the Council for TRIPS, even if the Member in question had already made a notification
under the Berne or the Rome Convention in regard to the same issue. All of the notifications referred to above
are circulated in IP/N – series of documents that are available at the WTO Documents Online database at
http://docsonline.wto.org/.
More details on the notification obligations can be found in the Technical Cooperation Handbook on Notification
Requirements in the TRIPS Agreement (WT/TC/NOTIF/TRIPS/1).
III.F.2. TECHNICAL COOPERATION
Article 67 of the TRIPS Agreement requires developed country Members to provide, on request and on mutually
agreed terms and conditions, technical and financial cooperation in favour of developing and LDC Members.
According to this provision, the objective of such cooperation is to facilitate the implementation of the
Agreement. The Article specifies that such assistance shall include assistance in the preparation of laws and
regulations on the protection and enforcement of intellectual property rights as well as on the prevention of
their abuse, and support regarding the establishment or reinforcement of domestic offices and agencies
relevant to these matters, including the training of personnel.
In order to ensure that information on available assistance is readily accessible and to facilitate the monitoring
of compliance with the obligation of Article 67, developed country Members have agreed to present
descriptions of their relevant technical and financial cooperation programmes and to update this annually.
For the sake of transparency, intergovernmental organizations, such as WIPO and the World Health
Organization (WHO), have also presented, on the invitation of the Council, information on their activities.
The information from developed country Members, intergovernmental organizations and the WTO Secretariat
on their technical cooperation activities in the area of TRIPS is available on the WTO Documents Online
database at http://docsonline.wto.org/ series of documents.
The TRIPS Council has agreed that each developed country Member should notify a contact point for technical
cooperation on TRIPS, in particular for the exchange of information between donors and recipients of technical
assistance. These notifications are being circulated in IP/N/7 series of documents, which are available on the
WTO Documents Online database at http://docsonline.wto.org.

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IV. MONITORING BODIES: COUNCIL FOR TRIPS
IV.A. MONITORING THE OPERATION OF THE AGREEMENT
The Council for TRIPS, open to all Members of the WTO, is the body responsible for the administration of the
Agreement and in particular for monitoring the operation of the Agreement.
One of the key mechanisms for monitoring is the examination of each Member's national implementing
legislation by other Members, in particular at the end of its transition period. The notifications made pursuant
to Article 63.2 discussed above form the basis for these reviews. The procedures for these reviews provide for
written questions and replies prior to the review meeting, with follow-up questions and replies during the
course of the meeting. At subsequent meetings of the Council, an opportunity is given to follow up points
emerging from the review session which delegations consider have not been adequately addressed. The
records of these reviews are circulated in IP/Q – series of documents, which are available on the WTO
Documents Online database at http://docsonline.wto.org/.
IV.B. CONSULTATIONS
The TRIPS Council constitutes a forum for consultations on any problems relating to the TRIPS Agreement
arising between countries, as well as for clarifying or interpreting provisions of the Agreement.
IV.C. FORUM FOR FURTHER NEGOTIATION OR REVIEW
The WTO constitutes a forum for negotiations among its Members concerning their multilateral trade relations
in the area of intellectual property, as in other areas covered by the WTO Agreement. Certain specific areas of
further work are called for in the text of the TRIPS Agreement ("built-in agenda"). These areas include: the
negotiation of a multilateral system of notification and registration for geographical indications for wines; the
review of Article 27.3(b) (which concerns the option to exclude from patentability certain plant and animal
inventions); and the examination of the applicability to TRIPS of non-violation complaints under the dispute
settlement process. Furthermore, the Doha Ministerial Declaration and the Declaration on the TRIPS
Agreement and Public Health, both adopted in 2001, and certain subsequent ministerial declarations have
given specific tasks to the Council's regular and special sessions.
Negotiations on the GI register are being pursued in the special session of the TRIPS Council. Work on the
relationship between the TRIPS Agreement and the CBD takes place in the regular session of the Council. In
addition, consultations on two outstanding implementation issues, namely on the extension of the higher level
of protection required for GIs for wines and spirits to other products and the relationship between the TRIPS
Agreement and the CBD have been undertaken, pursuant to paragraph 12 of the Doha Ministerial Declaration
and subsequent Declarations. For further and more updated information, please visit the WTO website.

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EXERCISES
17. List the main functions of the Council for TRIPS.

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V. SUMMARY
Intellectual property rights (IPRs) are the rights given to persons over the creations of their minds. They
usually give the creator an exclusive right over the use of his/her creation for a certain period of time. The
purpose of protection of IPRs is to encourage and reward creative work, encourage technological innovation,
stimulate and ensure fair competition, inform and protect consumers, as well as to facilitate transfer of
technology. The exclusive rights given to the owners of intellectual property are generally subject to a
number of limitations and exceptions, aimed at balancing the legitimate interests of right holders and of
users.
The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) is an integral
Part of the WTO Agreements and it is biding on each Member of the WTO. It is to date the most
comprehensive multilateral agreement on intellectual property. The TRIPS Agreement contains certain
general provisions and basic principles, such as national and most-favoured-nation treatment, and
exhaustion of rights.
The TRIPS Agreement contains specific provisions in the following areas of intellectual property: copyright
(protects literary and artistic works) and related rights (i.e. the rights of performers, producers of sound
recordings and broadcasting organizations); trademarks (signs capable of distinguishing the goods and
services of one enterprise from those of other enterprise); geographical indications (signs used on goods to
state that a production originated in a geographical area possess qualities or reputation due to its place of
origin); patents (inventions), including the protection of new varieties of plants; industrial designs; the
layout-designs of integrated circuits; and undisclosed information, including trade secrets and test data.
In respect of each of these areas of intellectual property, the Agreement sets out the minimum standards of
protection to be provided by each Member. Each of the main elements of protection is defined, namely the
subject-matter to be protected, the rights to be conferred and permissible exceptions to those rights, and,
when applicable, the minimum duration of protection. The Agreement sets these standards by requiring,
first, that the substantive obligations of the main conventions of the World Intellectual Property Organization
(WIPO) must be complied with. Most of the substantive provisions of these conventions are incorporated by
reference and thus become obligations under the TRIPS Agreement between Members. The TRIPS
Agreement contains a substantial number of additional obligations on matters where the pre-existing
conventions are silent or were seen as being inadequate.
The Doha Declaration on the TRIPS Agreement and Public Health responded to concerns about the possible
implications of the TRIPS Agreement for public health, in particular access to patented medicines. In its
paragraph 6, the Doha Declaration recognized the problem of countries with insufficient or no manufacturing
capacities in the pharmaceutical sector in making effective use of compulsory licensing when they need to
call upon sources of supply from generic producers in third countries where the medicines needed are patent
protected.
The TRIPS Agreement also requires Members to make available enforcement procedures to permit prompt
and effective action against any act of infringement of intellectual property rights covered by the Agreement.
These include: the principles of due process; obligations with respect to civil and administrative procedures
and remedies; adoption of provisional measures; special border measures; and, criminal procedures.
Enforcement procedures are to be applied in a manner which avoids the creation of barriers to legitimate
trade and provides for safeguards against their abuse.

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The TRIPS Agreement gives Members transitional periods, which differ according to their stages of
development, to bring themselves into compliance with its rules. Least-developed country Members
continue to benefit from extended transitional periods. It also contains provisions on transfer of technology
and technical cooperation
The Council for TRIPS, open to all WTO Members, is the body in charge of administering the TRIPS
Agreement. Members are required to make certain notifications to the Council for TRIPS. These
notifications facilitate the Council's work of monitoring the operation of the Agreement and promote the
transparency of Members' laws and policies on intellectual property protection.

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PROPOSED ANSWERS
1. IPRs are granted to the creators for many reasons: (i) To encourage and reward creative work; (ii) to
stimulate technological innovation; (iii) to ensure fair competition; (iv) for consumer protection; and,
(v) to facilitate the transfer of technology. The exclusive rights given to the owners of intellectual
property are generally subject to a number of limitations and exceptions, aimed at balancing the
legitimate interests of right holders and of users.
2. Yes, under Article 1.2 of the TRIPS Agreement Members may, but are not obliged to, implement in their
law more extensive protection than required by the Agreement, provided that such protection does not
contravene its provisions. They still need to respect the national and MFN treatment obligations.
3. National exhaustion means that the distribution right of the IPR owner is only considered exhausted if he
has put the protected item on the market in that country. His distribution right would not be considered
exhausted with regard to protected items that he had put on the market in another country, so that he
can still control the sale or import of such items into the first country. Thus, parallel imports of products
first sold on other markets are illegal in a country with a national exhaustion regime. In contrast, if a
country has an international exhaustion regime, this means that the right owner's distribution right in that
country is exhausted regardless of where the first act of distribution took place. Therefore, in countries
with an international exhaustion regime, parallel imports are legally possible.
4. Yes. According to Article 10 of the TRIPS Agreement, computer programs and databases are protected by
copyright.
5. No. Copyright protection does not cover any information or ideas contained in a work; it only protects
original expressions.
6. Article 13 of the TRIPS Agreement is a clause governing limitations and exceptions. It sets out the so
called "three step test". It permits limitations or exceptions to exclusive rights only if three conditions are
met: (1) The limitations or exceptions are confined to certain special cases; (2) that they do not conflict
with a normal exploitation of the work; and (3) that they do not unreasonably prejudice the legitimate
interests of the right holder.
7. Signs that are capable of distinguishing the goods or services of one undertaking from those of others are
eligible for trademark protection. There are no constraints on the types of signs to be protected as a
trademark (such as words, numbers, figurative elements or combinations of colours) but Members may
make registration of signs dependent on visual perceptibility. Where a sign is not inherently capable of
distinguishing goods and services, Members may limit registration to cases where the sign has acquired
distinctiveness as a result of use.
8. A geographical indication identifies a good as originating in a particular region or locality in the territory of
a WTO Member, where a given quality, reputation or other characteristic is essentially attributable to its
geographical.
9. No. The TRIPS Agreement requires two basic forms of protection to be available in respect of all GIs:
against use in a manner that would mislead the public as to the true origin of the product; and, against
use that would constitute an act of unfair competition within the meaning of Article 10bis of the Paris

335. 317
Convention (Article 22.2). Under Article 23 of the TRIPS Agreement, the level of protection required for
geographical indications for wines and spirits is higher. It is not dependent on meeting tests of
misleading the consumer or unfair competition and applies even if the true place of origin is indicated or
the use is accompanied by certain qualifying terms such as "type" or "kind", or the use is in translation.
10. Article 23.4 gives the TRIPS Council the mandate to negotiate a multilateral system of notification and
registration of GIs for wines eligible for protection in those Members participating in the system, with a
view to facilitating their protection. The negotiations are presently being pursued in the Doha Round,
where the mandate has been extended to cover spirits as well.
11. Yes. Members shall require that an applicant for a patent disclose the invention in a manner sufficiently
clear and complete for the invention to be carried out by a person skilled in the art and may require the
applicant to indicate the best mode for carrying out the invention known to the inventor at the filing date
or, where priority is claimed, at the priority date of the application.
12. Yes. Article 27.3(b) allows members to exclude plant and animal inventions from patenting. However,
Members must provide for the protection of plant varieties, either by patents or by an effective sui
generis system (i.e. a system created specially for this purpose) or by any combination of the two.
13. Yes. A Member could grant compulsory licences subject to the conditions laid down in Article 31 of the
TRIPS Agreement.
14. No. Paragraph 1 of the Declaration opts for a more open-ended language, recognizing the gravity of the
public health problems, especially, but not limited to, those resulting from HIV/AIDS, tuberculosis,
malaria and other epidemics.
15. In its paragraph 6, the Doha Declaration recognized the problem of countries with insufficient or no
manufacturing capacities in the pharmaceutical sector in making effective use of compulsory licensing
when they need to call upon sources of supply from generic producers in third countries where the
medicines needed are patent protected. Paragraph 6 is meant to address a legal problem faced by the
exporting country (generic supplier) where the medicine is patent-protected.
16. Enforcement procedures, which Members are required to make available under the TRIPS Agreement, are
to permit prompt and effective action against any act of infringement of intellectual property rights
covered by the Agreement. The general obligations contained in the Agreement also aim to ensure that
certain basic principles of due process are met, in particular with respect to fair and equitable procedures
and the right to appeal. Enforcement procedures are to be applied in a manner which avoids the creation
of barriers to legitimate trade and provides for safeguards against their abuse. Finally, they address
some general understandings about resource constraints and the relation with other areas of law
enforcement.
17. The Council for TRIPS has the following main functions: (1) To monitor the operation of the TRIPS
Agreement, (2) to review national laws and regulations; and, (3) to constitute a forum for consultations
on any problem relating to the TRIPS Agreement and for negotiations among its Members concerning
their multilateral trade relations in the area of intellectual property.

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Exceptions to WTO Rules:
General Exceptions, Security Exceptions,
Regional Trade Agreements (RTAs),
Balance-of-Payments (BOPs) & Waivers
ESTIMATED TIME: 4 hours
OBJECTIVES OF MODULE 8
 Explain the general exceptions available to the Members under the WTO
Agreements and the conditions for their application;
 introduce the exceptions for the protection of Members' essential security interests;
 explain the rules on regional integration contained in the WTO Agreements; and,
 introduce the BOP exception and waivers.
MODULE
8

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I. INTRODUCTION
As indicated in Modules 1-3, WTO Members are subject to several general obligations set out in the
General Agreement on Tariffs and Trade 1994 (GATT 1994).
The Most-Favoured-Nation (MFN) principle requires Members not to discriminate among imported products
from other Members. The national treatment principle requires Members not to discriminate against imported
products as opposed to domestic products. In regard to market access for goods, Members are required to act
in accordance with their scheduled commitments on tariffs and not to apply tariffs beyond the bound levels
unless these are renegotiated. In addition, Members are not generally allowed to impose quantitative
restrictions (QRs) on market access for goods. Furthermore, Members are required to ensure that their
non-tariff barriers (NTBs) (such as customs formalities) do not constitute unnecessary obstacles to trade.
Nevertheless, in certain circumstances, WTO Members may derogate from these obligations, provided
that they comply with certain conditions. These exceptions, which will be examined in this Module,
include:
 General exceptions - Right to take measures, for example, necessary to protect human,
animal or plant life or health, which may restrict trade in goods (GATT 1994). Such measures
cannot constitute a means of arbitrary or unjustifiable discrimination between countries where
the same conditions prevail, or a disguised restriction on international trade. Similar general
exceptions also apply to trade in services (General Agreement on Trade in Services (GATS),
whereas there are no general exceptions as such under the Agreement on Trade-Related
Aspects of Intellectual Property Rights (TRIPS Agreement);
 Security exceptions - Right to take measures to protect essential national security interests,
which may restrict trade in goods (GATT 1994). Similar security exceptions are allowed under
the GATS and the TRIPS;
 Exceptions for Regional Trade Agreements (RTAs) - Right to depart from the MFN
principle in order to grant preferential treatment to goods (GATT 1994) or service suppliers
(GATS) from trading partners within a customs union or a free trade area without extending
such treatment to all WTO Members;
 Balance-of-payments (BOP) – Right to take measures to safeguard a Member's external
financial position and its BOPs; and,
 Waivers - Temporary waivers granted with the authorization of the other Members, in
exceptional circumstances.

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
EXCEPTIONS ARTICLES
General Exceptions Article XX of the
GATT 1994
Article XIV of the GATS No general exceptions
provision under the
TRIPS
Security Exceptions Article XXI of the
GATT 1994
Article XIVbis of the
GATS
Article 73 of the TRIPS
Agreement
RTAs Article XXIV of the
GATT 1994; and
“Understanding on the
Interpretation of
Article XXIV of the
GATT 1994”
Paragraph 2(c) of the
Enabling Clause*
Article V of the GATS No provision on RTAs
under the TRIPS
BOPs Articles XII & XVIII:B
of the GATT 1994; and,
"Understanding of the
BOPs Provisions of the
GATT 1994"
Article XII of the GATS No BOP provision
under the TRIPS
Waivers Article IX:3 of the Marrakesh Agreement Establishing the WTO
(WTO Agreement establishing the WTO)
Besides, remember that Members are allowed to apply trade defence mechanisms – see Module 5 - to
remedy a situation of unfair competition (anti-dumping and countervailing measures) or a surge of imports
(safeguard measures) when these are causing injury, subject to certain requirements. Even if these measures
are not referred to as exceptions, they allow Members to impose, for example, tariffs above the bound levels or
QRs (depending on the measure).
The rules on special and differential treatment for developing countries and least-developed country (LDC)
Members, which address the special difficulties that these countries may face in implementing the WTO
Agreements, will be introduced in Module 9.
* Paragraph 2(c) of the 1979 Decision on Differential and More Favourable Treatment, Reciprocity and Fuller
Participation (the "Enabling Clause") allows developing country Members to conclude among themselves RTAs
on trade in goods.

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II. GENERAL EXCEPTIONS
IN BRIEF
Article XX of the GATT 1994 governs the use of the general exception for trade in goods. It recognizes that
Members may need to apply measures for purposes such as the protection of public morals;
human animal or plant life or health; and, the conservation of exhaustible natural resources.
However, any measure adopted under the general exceptions provision must meet the requirements set
out in the sub-paragraphs of Article XX – depending on the objective of the measure - and its
introductory paragraph ("the Chapeau"). According to the Chapeau of Article XX, the measure must
not be applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail or a disguised restrictions on international trade.
II.A. GENERAL EXCEPTIONS IN THE GENERAL AGREEMENT
ON TARIFFS AND TRADE (GATT) 1994
Article XX of the GATT 1994 permits Members to take certain measures, otherwise prohibited by GATT 1994
provisions, subject to stipulated conditions. The purpose of Article XX is to ensure that commitments
undertaken by the Members under the covered Agreements do not hinder the pursuit of legitimate policy
objectives, such as the protection of human, animal or plant life or health, or the conservation of exhaustible
natural resources. In addition, measures taken under Article XX must be applied by the Members in a manner
consistent with the Chapeau of that provision.
In this regard, the Appellate Body Report has stated that the exceptions listed in Article XX -paragraphs (a)
to (j) relate to all of the obligations under the GATT 1994 (including not only the MFN and national
treatment principles, but others as well) (US – Gasoline, Appellate Body Report, p. 24; US – Shrimp, Appellate
Body Report, para. 121).
NOTE
A summary of the US-Gasoline case is provided at the end of this section.

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II.A.1. STRUCTURE OF ARTICLE XX –TWO-TIER TEST
Article XX of the GATT 1994: Two-Tier Test
In order to be justified under Article XX, a GATT 1994-inconsistent measure must go through a two-tier test:
 The measure at issue must fall under one of the exceptions – sub-paragraphs (a) to (j) -
listed under Article XX - each sub-paragraph concerns different objectives and contains
different requirements; and,
 The measure must be applied in a manner that satisfies the requirements of the Chapeau of
Article XX.
(US – Gasoline, Appellate Body Report, p. 22)
The order of the test cannot be reversed because it reflects the fundamental structure and logic of
Article XX of the GATT 1994 (US – Shrimp, Appellate Body Report, paras. 119). Therefore, in assessing an
Article XX claim, panels should always start the analysis with the particular exception(s) invoked by a party
(sub-paragraph(s)) and only after the measure at issue has been found to be falling within the scope of the
claimed exception(s), should they consider whether the application of the measure satisfies the conditions of
the Chapeau (EC – Asbestos, Panel Report, para. 6.20; US – Shrimp (Article 21.5), Panel Report, paras.
5.27-5.28).
II.A.2. APPLICATION AND INTERPRETATION OF EXCEPTIONS –
ARTICLE XX (B), (D) AND (G)
As stated by the Appellate Body Report, paragraphs (a) to (j) comprise measures that constitute exceptions to
substantive obligations established in the GATT 1994, because the domestic policies embodied in such
measures have been recognized as important and legitimate in character (US-Shrimp, Appellate Body Report,
para. 121). WTO Members have invoked the exceptions provided in Article XX to justify policies, among
others, designed to protect human, animal or plant life or health -paragraphs (b)-, to secure compliance with
laws or regulations -paragraphs (d)-, or to conserve exhaustible natural resources -paragraph (g). GATT
1994/WTO case law has set up criteria for the interpretation of these paragraphs. Our study of Article XX will
focus on the exceptions provided in paragraphs (b), (d) and (g).
The Appellate Body Report has ruled that, under the GATT 1994, it is within the authority of a WTO Member to
set the public health or environmental objectives it seeks to achieve (US – Gasoline, Panel Report, para. 7.1;
Appellate Body Report, p. 30); as well as the level of protection that it wants to obtain, through the policy it
chooses to adopt (EC – Asbestos, Appellate Body Report, para. 168; Brazil – Retreaded Tyres, Appellate Body
Report, para. 140). However Members are bound to implement these objectives through measures
consistent with the requirements provided in Article XX of the GATT 1994.

343. 325
In general, there are two steps in the application of Article XX exceptions under the sub-paragraphs
(prior to further assessment under the Chapeau):
a. Identify whether the policy pursued through the measure falls within the range of policies
provided in sub-paragraphs (a) to (j) of Article XX, for example, designed to protect human,
animal or plant life or health (XX(b)), to secure compliance with laws or regulations which are not
inconsistent with the provisions of the GATT 1994 (XX(d)), or to conserve exhaustible natural
resources (XX(d)) (see also box below).
Article XX of the GATT 1994: General Exceptions
Subject to the requirement that such measures are not applied in a manner which would constitute a means
of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a
disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any Member of measures:
(a) Necessary to protect public morals;
(b) necessary to protect human, animal or plant life or health;
(c) relating to the importations or exportations of gold or silver;
(d) necessary to secure compliance with laws or regulations which are not inconsistent with the
provisions of this Agreement, including those relating to customs enforcement, the enforcement of
monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents,
trade marks and copyrights, and the prevention of deceptive practices;
(e) relating to the products of prison labour;
(f) imposed for the protection of national treasures or artistic, historic or archaeological value;
(g) relating to the conservation of exhaustible natural resources if such measures are made effective in
conjunction with restrictions on domestic production or consumption;
(h) undertaken in pursuance of obligations under any intergovernmental commodity agreement which
conforms to criteria submitted to Members and not disapproved by them or which is itself so
submitted and not so disapproved;
(i) involving restrictions on exports of domestic materials necessary to ensure essential quantities of
such materials to a domestic processing industry during periods when the domestic price of such
materials is held below the world price as part of a governmental stabilization plan; provided that
such restrictions shall not operate to increase the exports of or the protection afforded to such
domestic industry, and shall not depart from the provisions of this Agreement relating to
non-discrimination; and,
(j) essential to the acquisition or distribution of products in general or local short supply; provided that
any such measures shall be consistent with the principle that all Members are entitled to an
equitable share of the international supply of such products, and that any such measures, which
are inconsistent with the other provisions of the Agreement shall be discontinued as soon as the
conditions giving rise to them have ceased to exist. The Members shall review the need for this
sub paragraph no later than 30 June 1960.

344. 326
b. Determine whether the legal elements of the relevant paragraph are met. This examination
comprises, for example, the "necessity test" for paragraphs (b) and (d), and the analysis if
a measure "relates to" for paragraph (g).
LEGAL TEXT LEGAL ELEMENTS
Article XX (b): Necessary to protect human,
animal or plant life or health
(1) the policy in respect of the measures for which
the provision is invoked falls within the range of
policies designed to protect human, animal or
plant life or health; and,
(2) the inconsistent measures for which the
exception is being invoked is "necessary" to fulfil
the policy objective.
(US – Gasoline, Panel Report, para. 6.20)
Article XX (d): Necessary to secure
compliance with laws or regulations which are
not inconsistent with the provisions of this
Agreement, including (...)
(1) the measure must be one designed to secure
compliance with laws or regulations that are
not themselves inconsistent with some
provision of the GATT 1994; and,
(2) the measure must be "necessary" to secure
such compliance.
(Korea – Beef, Appellate Body Report, para. 157)
Article XX (g): Relating to the conservation of
exhaustible natural resources if such
measures are made effective in conjunction
with restrictions on domestic production or
consumption
(1) the measure is concerned with the
conservation of exhaustible natural resources;
(2) the measure "relates to" the conservation of
"exhaustible natural resources"; and,
(3) the measure is made effective in
conjunction with restrictions on domestic
production or consumption.
(US – Shrimp, Appellate Body Report, paras. 127,
135, 143-145)

345. 327
a. IDENTIFICATION OF THE POLICY PURSUED THROUGH THE MEASURE
1. PROTECTING HUMAN, ANIMAL OR PLANT LIFE OR HEALTH - ARTICLE XX (B)
There are several cases where panels and the Appellate Body have ruled that certain measures fell within the
range of policies designed to protect human, animal or plant life or health. The following box includes some
examples.
Examples of Measures Falling Within the Scope of Article XX(b) of the GATT 1994
In Thailand – Cigarettes, a GATT Panel acknowledged that:
 "smoking constitutes a serious risk to human health and that consequently measures
designed to reduce the consumption of cigarettes fall within the scope of Article XX(b)"
(Thailand – Cigarettes, GATT Panel Report, para. 73).
In the two Tuna disputes, a GATT Panel and the parties accepted - implicitly in US – Tuna (Mexico), explicitly
in US – Tuna (European Economic Community (EEC)) - that:
 the protection of dolphin life or health was a policy that could fall under
Article XX(b) (US - Tuna (Mexico), GATT Panel Report, unadopted, paras. 5.24-5.29; US –
Tuna (EEC), GATT Panel Report, unadopted, para. 5.30).
In US – Gasoline, the Panel and the parties agreed that:
 "the policy to reduce air pollution resulting from the consumption of gasoline was a policy
within the range of those concerning the protection of human, animal and plant life or health
mentioned in Article XX(b)" (US – Gasoline, Panel Report, para. 6.21).
In EC – Asbestos, the Panel found and subsequently the Appellate Body confirmed that:
 ''chrysotile-cement products pose a risk to human life or health'' and thus "the EU policy of
prohibiting chrysotile asbestos falls within the range of policies designed to protect human
life or health" (EC – Asbestos, Panel Report, paras. 8.186, 8.193-8.194; Appellate Body
Report, para. 162).
In Brazil – Retreaded Tyre, the Panel found and subsequently the Appellate Body confirmed that:
 the Brazilian policy of reducing exposure of the risks to human, animal, and plant life and
health arising from the accumulation of waste tyres falls within the range of policies covered
by Article XX (b) (Brazil – Retreaded Tyres, Panel Report, para. 7.115; Appellate Body
Report, para. 134).
2. SECURING COMPLIANCE WITH LAWS OR REGULATIONS WHICH ARE NOT INCONSISTENT
WITH THE PROVISIONS OF THE GATT 1994 - Article XX(d)
To find a measure falling within the policy range of Article XX (d), the measure must be designed to secure
compliance with laws or regulations which are not inconsistent with the provisions of the GATT 1994.
A GATT Panel in EEC – Parts and Components, interpreted the phrase "to secure compliance" with laws and
regulations to mean "to enforce obligations under laws and regulations" (para. 5.17). The Appellate Body

346. 328
further clarified that a measure can be said to be designed ''to secure compliance'' when it is suitable or
capable of securing compliance with the relevant laws and regulations, even if the measure cannot be
guaranteed to achieve its result with absolute certainty. The Appellate Body also noted that the ''use of
coercion'' is not a necessary component of the measure (Mexico – Taxes on Soft Drinks, Appellate Body
Report, para. 74).
With respect to the term ''laws or regulations'', the Appellate Body stated that the use of the word
"including" clearly denotes that Article XX (d) is susceptible of application in respect of a wide variety of laws
and regulations to be enforced (Korea – Beef , Appellate Body Report, para. 162). This term covers rules that
form part of the domestic legal system of a WTO Member, including "rules deriving from international
agreements that have been incorporated into the domestic legal system of a WTO Member or have direct effect
according to that Member's legal system" (Mexico – Taxes on Soft Drinks, Appellate Body Report, para. 79).
3. CONSERVATION OF EXHAUSTIBLE NATURAL RESOURCES - ARTICLE XX(G)
Article XX(g) concerns measures taken in pursuit of conservation of exhaustible natural resources. In
US - Shrimp, the Appellate Body held that the text of Article XX(g) covers not only the conservation of
"mineral" or "non-living" natural resources, but also living species, which are in principle "renewable",
and are in certain circumstances indeed susceptible of depletion, exhaustion and extinction, frequently because
of human activities (US – Shrimp, Appellate Body Report, para. 128).
Examples of Measures Falling Within the Scope of Article XX(g) of the GATT 1994
In several GATT/WTO cases, various measures have been found falling into the range of policies of
Article XX(g), including those to conserve: tuna (US – Canadian Tuna, GATT Panel Report, para. 4.9);
salmon and herring stocks (Canada – Herring and Salmon, GATT Panel Report, para. 4.4); dolphins
(US - Tuna (EEC), GATT Panel Report, unadopted, para. 5.13); clean air (US – Gasoline, Panel Report,
para. 6.37); and, sea turtles (US – Shrimp, Appellate Body Report, para. 134).
b. SPECIFIC REQUIREMENTS UNDER ARTICLE XX(B), (D) & (G)
Different terms are used in respect of the different categories of measures described in paragraphs (a) to (i) of
Article XX. According to the Appellate Body, the use of different terms reflects different kind or degree
of connection or relationship between the measure under appraisal and the state interest or policy
sought to be promoted or realized (US – Gasoline, Appellate Body Report, pages 17 and 18).
1. ''NECESSITY TEST" UNDER ARTICLE XX(B) AND (D) - ''WEIGHING-AND-BALANCING''
PROCESS
Paragraphs (b) and (d) of Article XX set forth a "necessity test": the measures at issue must be necessary
either "to protect human, animal or plant life or health" (XX(b)) or to "secure compliance with laws or
regulations" (XX(d)). In Thailand – Cigarettes, the Panel concluded that the term "necessary" has the same
meaning under paragraphs (b) and (d) (Thailand – Cigarettes, GATT Panel Report, para. 74).
The ordinary meaning of the word ''necessary'' has been clarified in Korea – Beef, where the Appellate Body
stated that the reach of this word is not limited to what is "indispensable" or "of absolute necessity" or

347. 329
"inevitable". The term "necessary" refers to a range of degrees of necessity. At one end of this continuum lies
"necessary" understood as "indispensable"; at the other end, is "necessary" taken to mean as "making a
contribution to". A "necessary" measure, in this continuum, is located significantly closer to the pole of
"indispensable" than the opposite pole of "making a contribution to" (Korea – Beef , Appellate Body Report,
para. 161). The Appellate Body further explained that determining whether a measure is ''necessary'' within
the meaning of Article XX(d) ''involves in every case a process of weighing and balancing a series of factors
(Korea – Beef , Appellate Body Report, para. 164) (see box below).
The "Necessity Test " under paragraphs (a), (b) and (d) of Article XX of the GATT 1994
The "necessity test" involves a process of "weighing and balancing" a series of relevant factors, in
particular:
 The contribution made by the measure to the achievement of its objective;
 the importance of the interests or values at stake;
 the trade-restrictiveness of the measure.
(Brazil – Retreaded Tyres, Appellate Body Report, para. 178)
In addition, the measure has to be compared with possible available alternatives, which may be less
trade restrictive while providing an equivalent contribution to the achievement of the objective pursued
(Brazil- Retreaded Tyres, Appellate Body Report, para. 156).
The weighing and balancing is a holistic operation that involves putting all the variables of the equation
together and evaluating them in relation to each other after having examined them individually, in order to
reach an overall judgement (Brazil – Retreaded Tyres, Appellate Body Report, para. 182).
The Appellate Body has explained that a contribution exists "when there is a genuine relationship of ends and
means between the objective pursued and the measure at issue" (Brazil – Retreaded Tyres, Appellate Body
Report, para. 210). The contribution must not be "marginal or insignificant"; rather, the measure must be "apt
to make a material contribution to the achievement of its objective" (Brazil – Retreaded Tyres, Appellate Body
Report, para. 150).
The Appellate Body also has observed that the more vital or important the common interests or values
pursued, the easier it would be to accept as "necessary" a measure designed to achieve those ends
(Korea - Beef, Appellate Body Report, para. 162). In this respect, the Appellate noted that the preservation of
human life and health is of a value both "vital" and "important in the highest degree" (EC – Asbestos, Appellate
Body Report, para. 172).
2. WHAT IMPLIES THE ANALYSIS OF "POSSIBLE AVAILABLE ALTERNATIVES"? –
ARTICLE XX(B) AND (D)
In order to qualify as an alternative, a measure must be not only less trade restrictive than the
measure at issue, but should also "preserve for the responding Member its right to achieve its
desired level of protection with respect to the objective pursued" (US – Gambling, Appellate Body
Report, para. 308).

348. 330
The Appellate Body has observed that an important aspect of determining whether a WTO-consistent
alternative measure is "reasonably available" is the extent to which such alternative measure contributes to the
realization of the end pursued (Korea – Beef, Appellate Body Report para. 166). Furthermore, an alternative
measure which is impossible to implement is not a "reasonably available" alternative. In US - Gambling, the
Appellate Body stated that an alternative measure may be found not to be reasonably available "where it is
merely theoretical in nature, for instance, where the responding Member is not capable of taking it, or where
imposes an undue burden on that Member, such as prohibitive costs or substantial technical difficulties"
(US - Gambling, Appellate Body Report, para. 308).
3. ''RELATING TO...'' AND ''...MADE EFFECTIVE IN CONJUNCTION WITH RESTRICTIONS ON
DOMESTIC PRODUCTION OR CONSUMPTION'' UNDER ARTICLE XX(g)
''RELATING TO...''
Article XX(g) requires that the measure sought to be justified be one which "relates to" the conservation of
exhaustible natural resources. This term imposes a lower standard than the term "necessary to" (i.e. the
"necessity test" is more difficult to demonstrate). In making this determination, the Appellate Body essentially
looks into the relationship between the measure at stake and the legitimate policy of conserving exhaustible
natural resources. Specifically, the Appellate Body stated that a measure would qualify as "relating to the
conservation of natural resources" if the measure exhibited a "substantial relationship" with, and was not
merely "incidentally or inadvertently aimed at" the conservation of exhaustible natural resources
(US - Gasoline, Appellate Body Report, page 19). The fact that the design of the measure at issue is not
disproportionately wide in its scope and reach in relation to the policy objective of protection and conservation
of exhaustible natural resources would support the finding that the means and ends relationship between the
measure at issue and the policy objective pursued is a close and real one (US – Shrimp, Appellate Body Report,
para. 141).
''...MADE EFFECTIVE IN CONJUNCTION WITH RESTRICTIONS ON DOMESTIC PRODUCTION OR CONSUMPTION''
Article XX (g) contains as an additional requirement that the measure at stake be "made effective in
conjunction with restrictions on domestic production or consumption". According to the Appellate Body, this is
a requirement that the measures concerned impose restrictions, not just in respect of imported products at
issue but also with respect to domestic products at issue. This requirement of even-handedness does not
necessarily mean identical treatment of domestic and imported products at stake. The clause "if made
effective in conjunction with restrictions on domestic production or consumption" is not intended to establish
an empirical "effects test" for the availability of the Article XX (g) exception (US – Gasoline, Appellate Body
Report, pages 20-21).
II.A.3. INTERPRETATION AND APPLICATION OF ARTICLE XX – THE
CHAPEAU
Once a measure satisfies the conditions set by one or more of the sub-paragraphs of Article XX, the panel or
the Appellate Body will turn to the application of the Chapeau of Article XX. The Chapeau requires that in order
to be justified under one of the sub-paragraphs of Article XX, measures must not be "applied in a manner
which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same
conditions prevail, or a disguised restriction on international trade".

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The Chapeau of Article XX of the GATT 1994
The Chapeau of Article XX requires that measures covered by an exception be not administered in a manner
that would constitute:
1. Arbitrary discrimination between countries where the same conditions prevail;
2. unjustifiable discrimination between countries where the same conditions prevail; or,
3. a disguised restriction on international trade.
(US – Shrimp, Appellate Body Report, para. 150)
In US-Gasoline, the Appellate Body held that "arbitrary discrimination", "unjustifiable discrimination" and
"disguised restriction" on international trade may, accordingly, be read side-by-side. They impart meaning to
one another (US-Gasoline, Appellate Body Report, p. 24).
The purpose and object of the Chapeau is generally the prevention of abuse of the exceptions of
Article XX. Moreover, the Chapeau by its express terms addresses, not so much the questioned measure or
its specific contents as such, but rather the manner in which that measure is applied. The Chapeau serves to
ensure that Members’ rights to avail themselves of exceptions are exercised in good faith to protect interests
considered legitimate under Article XX, not as a means to circumvent one Member’s obligations towards other
WTO Members (Brazil – Retreaded Tyres, Appellate Body Report, para. 215).
a. "ARBITRARY OR UNJUSTIFIABLE DISCRIMINATION BETWEEN COUNTRIES WHERE
THE SAME CONDITIONS PREVAIL"
In order for a measure to be applied in a manner which would constitute "arbitrary or unjustifiable
discrimination between countries where the same conditions prevail", three elements must exist. First, the
application of the measure must result in discrimination. Second, the discrimination must be arbitrary or
unjustifiable in character. Third, this discrimination must occur between countries where the same conditions
prevail (US – Shrimp, Appellate Body Report, para. 150).
In regard to the requirement of discrimination, the Appellate Body stated that the nature and quality of this
discrimination cannot logically refer to the same standard(s) by which a violation of a substantive obligation of
the GATT 1994 has been determined to have occurred (e.g. under Article I – MFN principle - or Article III -
national treatment principle- of the GATT 1994). The question of whether inconsistency with a substantive rule
existed is different from the question arising under the Chapeau of Article XX as to whether that inconsistency
was nevertheless justified (US – Gasoline, Appellate Body Report, p. 22-23).
With respect to the phrase "between countries where the same conditions prevail", the Appellate Body
observed that the notion of discrimination under the Chapeau of Article XX refers to conditions in importing or
exporting countries (i.e. discrimination between foreign countries on the one hand and the home country on
the other) or only to conditions in various exporting countries (US – Shrimp, Appellate Body Report,
para. 150).
In Brazil – Retreaded Tyres, the Appellate Body stated that the analysis of whether the application of a
measure results in arbitrary or unjustifiable discrimination involves and analysis that relates primarily to the

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cause or the rationale of the discrimination (Brazil – Retreaded Tyres, Appellate Body Report, para. 225). In
addition, it held that there is arbitrary or unjustifiable discrimination when the reasons given for this
discrimination bear no rational connection to the objective falling within the purview of a paragraph of
Article XX, or would go against that objective (Brazil – Retreaded Tyres, Appellate Body Report, para.
226 - 230). The effects of discrimination might be relevant, but is not the determinant factor.
Example: Finding on "Arbitrary or Unjustifiable Discrimination" – US – Shrimp Case
In US – Shrimp, the US imposed an import ban on shrimps or shrimp products through Section 609 except
for those harvested either under conditions that do not adversely affect sea turtles or in waters subject to
the jurisdiction of a nation currently certified pursuant to Section 609. The Appellate Body found that the
measure was "related to" the conservation of exhaustible natural resources, and therefore was covered by
Article XX(g). However, while examining whether the US measure satisfied the requirements of the
Article XX Chapeau, the Appellate Body Report found that the ban constituted "arbitrary" and
"unjustifiable" discrimination. In its finding of "unjustifiable" discrimination (whether the measure at
issue discriminated between those countries that had been certified and, consequently, could export shrimp
to the US and those non-certified countries that were subject to the import ban) the Appellate Body found
the following omissions:
1. The failure of the US to engage in serious negotiations across-the-board - the US failed to
engage in serious negotiations with all the Members exporting shrimp to the US with the objective of
concluding bilateral or multilateral agreements for the protection and conservation of sea turtles. Before
enforcing the import ban- while the US negotiated with some Members, it did not negotiate with other
Members (US – Shrimp, Appellate Body Report, paras. 166-172). The requirement for serious negotiation
does not require the conclusion of an agreement (US – Shrimp 21.5, Appellate Body Report, para. 134);
2. lack of flexibility of the measure– the measure did not take into account the different situations which
may exist in different exporting countries. The measure required “essentially the same” regulatory program
to exporting Members as that adopted by the US, without any inquiry into the appropriateness or
effectiveness of such program (US – Shrimp, Appellate Body Report, paras. 163-165).
b. "A DISGUISED RESTRICTION ON INTERNATIONAL TRADE"
Three criteria have progressively been introduced by GATT/WTO jurisprudence in order to determine whether
a measure is a disguised restriction on international trade:
 Whether the contested measure is published or not – In US – Gasoline, the Appellate
Body considered that concealed or unannounced restriction in international trade does not
exhaust the meaning of "disguised restriction" (US-Gasoline, Appellate Body Report, p. 25);
 the consideration of whether the application of a measure also amounts to arbitrary
or unjustifiable discrimination - deciding whether the application of a particular measure
amounts to "arbitrary or unjustifiable discrimination" may also be taken into account in
determining the presence of a "disguised restriction on international trade". Furthermore,
disguised restriction embraces restrictions amounting to arbitrary or unjustifiable discrimination
in international trade (US - Gasoline, Appellate Body Report, p. 24);

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 the examination of "the design, architecture and revealing structure" of the measure
at issue – in EC – Asbestos the Panel examined as an additional requirement the "design,
architecture and revealing structure" of the measure in order to discern the protective
application of the measure (EC – Asbestos, Panel Report, para. 8.236);
II.B. GENERAL EXCEPTIONS IN THE GENERAL AGREEMENT
ON TRADE IN SERVICES (GATS)
Under the GATS, general exceptions are set out in Article XIV which permits Members to maintain inconsistent
measures including on services and service suppliers, if the measure meets the conditions related to any of the
policy purposes in sub-paragraphs (a) - (e).
Article XIV of the GATS is similar to Article XX of the GATT 1994, although there are certain
differences. Both of these provisions affirm the right of Members to adopt measures which will otherwise be
inconsistent with WTO obligations set out in other provisions, provided that certain conditions are satisfied.
Similar language is used in both provisions, notably the term "necessary" (paragraphs (a), (b) and (c))
and the requirements set out in the introductory clause ("the Chapeau").
Due to the similarities between Article XX of the GATT 1994 and Article XIV of the GATS, the Appellate Body
has found previous decisions under Article XX of the GATT 1994 relevant for the analysis under Article XIV of
the GATS (US – Gambling, Appellate Body report, para. 291). Therefore, Article XIV of the GATS, like
Article XX of the GATT 1994, contemplates a "two-tier test":
Two-Tier Test under Article XIV of the GATS
A GATS inconsistent measure must go through the following two-tier test:
 The challenged measure must fall within the scope of one of the paragraphs of
Article XIV- the measure must address the particular interest specified in that paragraph
and there shall be a sufficient nexus —or "degree of connection"—between the measure and
the interest protected (the required nexus is specified in the language of the paragraphs
themselves, through the use of terms such as "necessary to"); and,
 the measure must satisfy the requirements of the Chapeau of Article XIV.
(US – Gambling, Appellate Body Report, para. 292)
Sub-paragraphs (a), (b) and (c) of Article XIV of the GATS indicate that the measure must, in similar terms to
Article XX of the GATT 1994, be "necessary" either to protect pubic morals, or to maintain public order
(a specific definition of this term is in the accompanying footnote); to protect human health , animal or
plant life or health; or to secure compliance with laws or regulations which are not inconsistent
with the provisions of the GATS. Therefore, the "necessity test", as explained for Article XX of the
GATT 1994 , also applies under sub-paragraphs (a), (b) and (c) of Article XIV of the GATS. Until now, only
Article XIV (a) has been interpreted by WTO adjudicating bodies (see box below).

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Example: US-Gambling - Measure necessary to protect public morals or to maintain public order
(Article XIV(a) of the GATS)
In Module 6, we have seen, through a case study on US – Gambling, that the Appellate Body upheld the
Panel's finding that the US measures relating to gambling and betting services were inconsistent with
Articles XIV:1 and XIV:2 of the GATS. The US however defended its measures as "necessary to protect
public morals or to maintain public order" within the meaning of Article XIV(a). The Appellate Body applied
the two-tier tests explained above and considered relevant decisions under Article XX of the GATT 1994:
 Article XIV(a) – public morals defence: upheld the Panel's finding that the US measures were
designed "to protect public morals or to maintain public order" within the meaning of
Article XIV(a), but reversed the Panel's finding that the US had not shown that its measures
were "necessary" (the Panel erred in considering consultations with Antigua to constitute a
"reasonably available" alternative measure). Instead, the Appellate Body found that the
measure was "necessary" and that the US had made a prima facie case showing "necessity"
while Antigua had failed to identify any other alternative measures that might be
"reasonably available".
However, not all exceptions included in Article XX of the GATT 1994 are included in Article XIV of the GATS.
Conversely, Article XIV of the GATS contains some general exceptions which are not listed in Article XX of the
GATT 1994. In this regard, Article XIV of the GATS contains the following exceptions in paragraphs (d) and
(e), which are specific to trade in services:
Article XIV of the GATS – sub-paragraphs (d) and (e)
(d) measures inconsistent with Article XVII of the GATS, provided that the difference in treatment is
aimed at ensuring the equitable or effective imposition or collection of direct taxes in respect of
services or services suppliers of other Members.
(e) measures inconsistent with Article II of the GATS, provided that the difference in treatment is the
result of an agreement on the avoidance of double taxation or provisions on the avoidance of double
taxation in any other international agreement or arrangement by which the Member is bound.
Paragraph (d) provides that Members can still take measures, otherwise inconsistent with the national
treatment principle (Article XVII of the GATS), if the measure facilitates the collection of direct taxes. Such
differential treatment, which appears to be less favourable to foreign service providers than for national ones,
are authorized only where their purpose is to ensure that the imposition of direct taxes is "equitable and
effective".
According to paragraph (e), measures that do not conform with the MFN principle (Article II of the GATS) can
still be taken if their purpose is to put into effect agreements to avoid double-taxation.

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II.C. TRADE-RELATED ASPECTS OF INTELLECTUAL PROPERTY
RIGHTS (TRIPS) AGREEMENT
There are no general exceptions as such under the TRIPS Agreement. However, as we have studied in
Module 7 (TRIPS Agreement), some provisions may apply to specific situations where protection is not
required. See for example Article 13 (copyrights and related rights), Article 17 (trademarks), Article 24
(geographical indications) and Articles 27.2, 27.3, 30 and 31 (patents).
CASE STUDY
CASE STUDY: ARTICLE XX OF THE GATT 1994
US – GASOLINE (US – Standards for Reformulated and Conventional Gasoline)
(DS2)
PARTIES AGREEMENTS TIMELINE OF THE DISPUTE
Complainants Brazil and
Venezuela
GATT 1994
Art. III & XX
Establishment of Panel 10 April 1995
(Venezuela)
Circulation of Panel
Report
31 May 1995 (Brazil)
Respondent US Circulation of AB Report 29 January 1996
Adoption 29 April 1996
Table 1: US – Gasoline (US – Standards for reformulated and conventional gasoline
IN A NUTSHELL
This dispute concerns the Clean Air Act, a law designed to prevent and control air pollution in the US.
Following a 1990 amendment to the Clean Air Act, the Environmental Protection Agency (EPA) promulgated
the Gasoline Rule on the composition and emissions effects of gasoline to ensure that pollution from the
combustion of gasoline did not exceed 1990 levels. From 1 January 1995, the Gasoline Rule permitted only
gasoline of a specified cleanliness ("reformulated gasoline") to be sold to consumers in the most polluted
areas of the country. In the rest of the country, only gasoline no dirtier than that sold in the base year of
1990 ("conventional gasoline") could be sold. The Gasoline Rule applied to all US refiners, blenders and
importers of gasoline. The EPA regulation provided two different sets of baseline emissions standards.
First, a domestic refiner was required to establish an "individual baseline", which represented the
quality of gasoline produced by that refiner in 1990. Second, the EPA established a "statutory baseline",
intended to reflect average US 1990 gasoline quality.

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The statutory baseline was assigned to those refiners who had not been in operation for at least six months
in 1990, and to importers and blenders of gasoline. Venezuela and Brazil claimed that the Gasoline Rule
was prejudicial to their exports to the US and that it favoured domestic producers since it imposed a
stricter burden on foreign gasoline producers. Accordingly, the Gasoline Rule was inconsistent with
Articles III of the GATT 1994 and was not covered by Article XX.
The Panel found that the US measure treated foreign gasoline "less favourably" than "like" domestic
gasoline, in violation of Article III:4 of the GATT 1994; and that it was not justified under any of three
exceptions in GATT 1994 Article XX (paragraphs (b), (d) and (g)) that were invoked by the US. The US
appealed the Panel Report but limited its appeal to the Panel's interpretation of Article XX of the
GATT 1994.
On appeal, the Appellate Body modified the Panel's reasoning, finding that the US law fell within the
terms of Article XX(g). However, the Appellate Body then found that the law was not justified by
Article XX, because the law did not satisfy the requirements of the Chapeau.
SUMMARY OF THE KEY FINDINGS OF THE PANEL AND THE APPELLATE BODY
ARTICLEXXOFTHEGATT–GENERALEXCEPTIONS
1. The general
features of
Article XX
 Two-tier tests 1. the measure at issue must come under one or
another of the particular exceptions - paragraphs (a) to (j) - listed
under Article XX; and, 2. it must also satisfy the requirements of the
Chapeau of Article XX (Appellate Body Report, page 22);
 different terms ("necessary" or "relating to"): used in different
sub-paragraphs of Article XX indicate different kinds or degrees of
connection or relationship between the measure under appraisal and
the state interest or policy sought to be promoted or realized
(Appellate Body Report, page 17);
 burden of proof: demonstrating that a measure provisionally justified
as being within one of the exceptions of Article XX rests on the party
invoking the exception (Appellate Body Report, page 22-23).
2. Provisional
Justification under
Article XX(g)
 A policy to reduce the depletion of clean air was a policy to conserve a
natural resource within the meaning of Article XX(g) (Panel Report,
para. 6.37);
 a measure would qualify as "relating to the conservation of natural
resources" if the measure exhibited a "substantial relationship" with,
and was not merely "incidentally or inadvertently aimed at" the
conservation of exhaustible natural resources (Appellate Body Report,
page 18);

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 the term "made effective in conjunction with restrictions on domestic
production or consumption" implies a requirement that the measures
concerned impose restrictions, not just in respect of imported products
at issue but also with respect to domestic products at issue. However,
it does not necessarily mean identical treatment of domestic and
imported products (Appellate Body Report, page 20-21).
3. The Chapeau of
Article XX
 Object and purpose of the Chapeau: is generally the prevention of
abuse of the exceptions of Article XX. The Chapeau concerns the
application of the measure at issue rather than the measure itself
(Appellate Body Report, page 22);
 three elements: (a) "arbitrary discrimination" (between countries
where the same conditions prevail); (b) "unjustifiable discrimination"
(between countries where the same conditions prevail); or,
(c) "disguised restriction" on international trade (Appellate Body
Report, page 23);
 unjustifiable discrimination: would be one that could have been
"foreseen" and that was not "merely inadvertent or unavoidable"
(Appellate Body Report, page 28);
 disguised restriction: whether the application of a particular measure
amounts to arbitrary or unjustifiable discrimination may also be taken
into account in determining the presence of a disguised restriction on
international trade (Appellate Body Report, page 25).
Table 2: Summary of the key findings of the Panel and the Appellate Body

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EXERCISES
1. Briefly describe the different exceptions to WTO rules studied in this Module.
2. Explain the structure of Article XX of the GATT 1994 (General Exceptions).
3. Explain the difference between the term "necessary" under Articles XX(b) and XX(d) and "relating to"
under Article XX(g) of the GATT 1994.
4. Can Vanin (a WTO Member) apply a measure under Article XX of the GATT 1994, which bans the imports
from some, but not all WTO Members?
5. Explain the object and purpose of the Chapeau of Article XX of the GATT 1994.

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III. SECURITY EXCEPTIONS
IN BRIEF
A WTO Member is allowed to take any action which it considers necessary for the protection of its
essential security interests or in pursuance of its obligations under the United Nations Charter for the
maintenance of international peace and security. Members are not required to furnish information, the
disclosure of which would be contrary to their essential security interests.
III.A. SECURITY EXCEPTIONS IN THE GENERAL AGREEMENT
ON TARIFFS AND TRADE (GATT) 1994
For trade in goods, Article XXI of the GATT 1994 ("Security Exceptions") allows Members to take certain
measures, otherwise prohibited by the GATT 1994, to protect essential security interests. Article XXI has three
paragraphs (a), (b), and (c), which provide the following:
 Paragraph (a) refers to the disclosure of information that the WTO Member would consider
contrary to its essential security interests.
 Paragraph (b) prescribes the condition under which a Member may take any action it
considers "necessary for the protection of its essential security interests" including those
relating to:
 fissionable materials or the materials from which they are derived;
 the traffic in arms, ammunition and implements of war and to such traffic in other goods and
materials as is carried on directly or indirectly for the purposes of supplying a military
establishment;
 taken in time of war or other emergency in international relations.
 Paragraph (c) allows Members to take actions in pursuance of their obligations under the United
Nations (UN) Charter for the maintenance of international peace and security. This is a reference to
Chapter VII of the UN Charter.
Article XXI does not contain an obligation for Members to notify measures taken pursuant to the Security
Exception. However, a Decision adopted by the GATT CONTRACTING PARTIES in 1982 (1982 Decision) states
that "subject to the exception in Article XXI(a), WTO Members should be informed to the fullest extent possible
of trade measures taken under Article XXI" (L/5426).

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III.B. SECURITY EXCEPTIONS IN THE GENERAL AGREEMENT
ON TRADE IN SERVICES (GATS)
For trade in services, the relevant provision is Article XIVbis of the GATS. The wording of Article XIVbis of the
GATS is almost identical to Article XXI of the GATT 1994 (explained above), which governs the security
exceptions for trade in goods, and the concepts do not differ in both instances.
However, unlike Article XXI of the GATT 1994, under the GATS there is an obligation to notify the measures
taken under the security exceptions for trade in services. In this regard, the second paragraph of
Article XIVbis of the GATS provides that the Council for Trade in Services (CTS) "shall" be informed to the
fullest extent possible of measures taken under paragraph 1(b) and (c) and their termination.
III.C. SECURITY EXCEPTIONS IN THE AGREEMENT ON TRADE-
RELATED ASPECTS OF INTELLECTUAL PROPERTY
RIGHTS (TRIPS)
For TRIPS, Article 73 of the TRIPS Agreement governs the use of the "Security Exceptions". As in the case of
the GATS, the wording of Article 73 of the TRIPS Agreement is identical to the provision governing trade in
goods (Article XXI of the GATT 1994) and the application of the concept is the same as for trade in goods and
trade in services. There is no explicit obligation to notify measures taken pursuant to Article 73 of the TRIPS
Agreement.
EXERCISES
6. Explain briefly under which circumstances a Member may invoke Article XXI of the GATT 1994.

359. 341
IV. REGIONAL INTEGRATION
IN BRIEF
WTO Members are allowed, under certain conditions, to depart from the MFN principle in order to grant
preferential treatment to their trading partners within a customs union or a free trade area, without
extending such treatment to all WTO Members.
By definition, parties to an RTA offer each other more favourable treatment in trade matters than to the rest of
the world (including WTO Members). The coverage and depth of such preferential treatment varies from one
RTA to another. Most RTAs go beyond tariff elimination to include regulations on non-tariff barriers and other
trade policies areas such as customs matters, standards, trade remedies, and dispute settlement; several
agreements also cover services and intellectual property, as well as matters not yet covered by the WTO
Agreements, such as competition policy, government procurement, investment and provisions on environment
and labour. Depending on the WTO legal provision utilized to notify an RTA, trade barriers may be completely
abolished in intra-RTA or merely reduced.
Article XXIV of the GATT 1994 and Article V of the GATS allow WTO Members to depart from the MFN rule
to grant more favourable treatment to their trading partners within a customs union or a free trade area
without extending such treatment to all WTO Members, subject to certain requirements.
In addition, paragraph 2(c) of the 1979 Decision on Differential and More Favourable Treatment,
Reciprocity and Fuller Participation of Developing Countries (the "Enabling Clause") allows
developing country Members to conclude among themselves RTAs on trade in goods subject to more flexible
requirements than those contained in Article XXIV of the GATT 1994. The Enabling Clause also provides for
some preferential schemes, other than RTAs, subject to certain circumstances (we will study the ''Enabling
Clause'' in Module 9).
On 6 February 1996, the General Council established the Committee on Regional Trade Agreements
(CRTA).
Regional Trade Agreements: Some Figures...
The number of RTAs involving WTO Members has increased in the recent years. As of November 2008, 418
RTAs have been notified to the GATT or the WTO, 227 of which are currently in force against only 101 in
2005 *. The total number of RTAs currently in force and involving WTO Members is however estimated to
be significantly higher, since not all RTAs have been notified. As of November 2008, more than half of all
WTO Members were party to three or more RTAs. Free trade areas are more prevalent than customs unions
and account for 82 per cent of all RTAs currently in force. Regional Trade Agreements (RTAs) concluded
among developing countries account for 36 per cent of the total.
* The number includes notifications made under Article XXIV of the GATT 1994, the Enabling Clause
(introduced in Module 9) and Article V of the GATT 1994.

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IV.A. THE WELFARE EFFECTS OF REGIONAL TRADE
AGREEMENTS (RTAS)
The reduction in intra-regional trade barriers stimulates intra-regional trade. Trade among the parties of a RTA
is thus bound to increase (this is known as "trade creation"). To the extent that this expanded trade
substitutes imports for higher cost domestic products, economic efficiency is increased. But part of the intra-
regional trade expansion may be at the expense of trade from cheaper sources outside of the RTA (causing
"trade diversion").
If the additional trade among the partners is a result of trade diversion, a country can suffer a welfare loss.
Whether a country gains or loses from entering into an RTA will depend on the balance between the
trade creating and trade diverting effects of the RTA. To know more, see the example provided in the
box below.
TO KNOW MORE... REGIONAL TRADE AGREEMENTS: TRADE CREATION AND TRADE
DIVERSION
Consider a three-country model, where the home country (Medatia) is assumed to be small compared to its
partner (Vanin) and the rest of the world (W). Medatia faces an infinitely elastic supply at prices pp and
pw; that is, at these prices Medatia can import whatever quantity it demands, but it cannot affect the price.
Before forming a free trade agreement (FTA), Medatia is assumed to have a non-discriminatory ad valorem
tariff (t) on imports. Assume Tristat is the least-cost source of foreign supply, before the FTA. Then,
Medatia will import Do-Qo at the price Ph = Pw(1+t).
Price
Quantity
SD
Ph
Pp
0 Q1 Qo Do D1
A B C D Tarif
fGPw
Tariff

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Suppose now that Medatia and Vanin form a FTA. Medatia will now import from Vanin, since pp is less
than ph (since as a result of the FTA, Medatia's goods do no pay any tariff when imported to Vanin).
Consumers will now pay pp and imports will rise to D1-Q1. As a result of the FTA, overall imports increase
by Qo-Q1 plus D1-Do and domestic prices fall.
 Consumers gain as they can consume a higher quantity for a lower price (the area
A+B+C+D represents this gain).
 Producers lose (area A).
 Government loses tariff revenue (area C+G).
The area B + D represents the welfare increase from the trade creation effect of the FTA.
BUT What about the loss represented by area G ?
The area G represents the welfare loss from the trade diverting effect of the FTA.
Area G represents the additional cost of importing Do-Qo from the higher-priced (pp) partner instead of the
cheaper (pw) world market.
The overall welfare effects of an FTA will depend on the difference between the increased welfare
from trade creation (areas B + D ) and the decrease in welfare from trade diversion (area G). In
this example, the FTA increases overall trade, but the welfare effect is ambiguous.
Based on: World Trade Organization (WTO), World Trade Report 2007, Geneva: WTO, pages 138 – 139.
IV.B. REGIONAL INTEGRATION IN THE GENERAL
AGREEMENT ON TARIFFS AND TRADE (GATT) 1994
For trade in goods, Article XXIV of the GATT 1994, complemented by the Understanding on the Interpretation
of Article XXIV of the GATT 1994 (the "Understanding"), contains the rules and disciplines applicable to
customs unions and free trade areas, as well as to interim agreements that lead to the formation of a customs
union or a free trade area.
Article XXIV:4 provides that a customs union, free trade area or an interim agreement should aim to facilitate
trade between the constituent territories and not to raise barriers to the trade of third parties. The
purposive language contained in Article XXIV:4 sets out two main requirements that the parties to an RTA have
to meet in order for their agreement to benefit from the MFN derogation; the first one is an internal
requirement relating to what is expected from the parties with respect to intra-trade liberalization; the second
one is an external requirement relating to the avoidance of negative effects to third parties as a result of the
formation of the RTA.

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IV.B.1. CONDITIONS FOR THE FORMATION OF CUSTOMS UNIONS AND
FREE TRADE AREAS UNDER THE GATT 1994: INTERNAL
REQUIREMENTS
Conditions for the Formation of RTAs under Article XXIV of the GATT 1994: Internal Requirements
Article XXIV allows WTO Members to depart from the MFN principle in order to grant preferential treatment
to their trading partners within a customs union or a free trade area subject to the following internal
requirements:
 For free trade areas and customs unions: apart from a few exceptions permitted under
certain other Articles of the GATT 1994 (XI, XII, XIII, XIV, XV and XX), the duties and other
restrictive regulations of commerce are to be eliminated with respect to substantially all the
trade between the parties of a customs union or free trade area or at least with respect to
substantially all the trade in products originating in such territories (Article XXIV:8); and,
 only for customs unions: in addition, to qualify as a customs union its members should apply
substantially the same duties and other regulations of commerce to trade with non-
members.
Article XXIV:8 states that apart from a few exceptions permitted under certain other Articles of the GATT 1994
(XI, XII, XIII, XIV, XV and XX), the duties and other restrictive regulations of commerce are to be eliminated
with respect to substantially all the trade between the parties of a customs union or free trade area or at
least with respect to substantially all the trade in products originating in such territories. In addition, to qualify
as a customs union its members should apply substantially the same duties and other regulations of
commerce to trade with non-members. In practice, this condition implies a common external tariff and trade
policy.
There is no agreement as to what it is required by the parties to an RTA in order to fulfil the conditions set out
in Article XXIV:8. Disagreement persists on the precise meaning of "substantially all the trade" (SAT) and on
what constitutes "other restrictive regulations of commerce" since neither Article XXIV nor the Understanding
defines these concepts. With respect to the latter it is clear that the RTA must eliminate restrictive trade
regulations on intra-party trade, however, disagreement persists among Members on whether this list of
bracketed exceptions is exhaustive or merely illustrative. In particular, the fact that Article XIV on the
imposition of safeguard measures (studied in Module 5) is not included has been interpreted by some Members
to mean that safeguard actions are not allowed in an RTA (and by extension neither are allowed other trade
remedies such as anti-dumping). However, this view is not shared by all Members and the practice indicates
that most RTA do indeed contain provisions on intra-RTA trade remedies.
With respect to the SAT requirement, there exists neither an agreed definition of the percentage of trade to be
covered by a WTO-consistent RTA, nor an agreed methodology for the calculation of the SAT requirement, i.e.
whether the assessment should be made on the basis of a percentage of liberalized tariff lines, trade values or
both. Another issue of disagreement is whether such term would imply that no particular sector - or major
sector - should be excluded; the Uruguay Round added a reference, in the Preamble of the Understanding, to
the fact that the contribution of regional trade agreements to the expansion of world trade is "increased if the
elimination between the constituent territories of duties and other restrictive regulations of commerce extends

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to all trade, and diminished if any major sector of trade is excluded". However, the practice of excluding
sensitive sectors from RTA liberalization continues and the issue is yet to be resolved.
Likewize the interpretation of SAT remains outstanding in spite of some clarification with respect to the term
given by the Appellate Body in Turkey – Textiles, where it held that "substantially all trade" is not the same as
all the trade but is something considerably more than merely some of the trade (Turkey – Textiles, Appellate
Body Report, para. 48).
The issue of interpretation and clarification of the WTO legal text on RTAs and in particular of the terms
referred to earlier form the subject of discussion among Members in the context of the Doha Round of
Negotiations.
IV.B.2. CONDITIONS FOR THE FORMATION OF CUSTOMS UNIONS AND
FREE TRADE AREAS UNDER THE GATT 1994: EXTERNAL
REQUIREMENTS
Conditions for the Formation of RTAs under Article XXIV of the GATT 1994: External
Requirements
Article XXIV allows WTO Members to depart from the MFN principle in order to grant preferential treatment
to their trading partners within a customs union or a free trade area subject to the following external
requirements:
 For free trade areas: the duties and other regulations of commerce imposed on third–parties
at the formation of the free trade area or an interim agreement leading to it should not be
higher or more restrictive than those existing prior to its formation (Article XXIV:5(b)); and,
 for customs unions: the duties and other regulations of commerce shall not on the whole be
higher or more restrictive than the general incidence of the duties and other regulations of
commerce applied prior to its formation (Article XXIV:5(a)).
As mentioned earlier, Article XXIV:4 provides that the purpose of a customs union or of a free trade area
should be to facilitate trade between the constituent territories and not to raise barriers to the trade of other
Members. In Turkey – Textiles, the Appellate Body interpreted that Article XXIV:4 informs the other relevant
paragraphs of Article XXIV, including paragraph 5 (Turkey – Textiles, Appellate Body Report, para. 57). The
Understanding on Article XXIV explicitly reaffirms this purpose and states that the constituent members should
"to the greatest possible extent avoid creating adverse affects on the trade of other Members".
For customs unions, the Understanding provides that the comparison under Article XXIV:5(a) of the level of
protection shall be based upon an overall assessment of weighted average of tariff rates and of customs duties
collected prior to, and at, the institution of the customs union or the interim agreement leading to the customs
union. For this purpose, the duties and charges to be taken into consideration shall be the applied tariffs. For
other regulations of commerce, whose quantification and aggregation may be difficult, the examination of
individual measures, regulations, products covered and trade flows affected may be required.

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IV.B.3. OTHER REQUIREMENTS FOR THE FORMATION OF CUSTOMS
UNIONS AND FREE TRADE AREAS UNDER THE GATT 1994
In addition to the conditions set out in Article XXIV:8 and XXIV:5, other requirements include provisions
on interim agreements and transition periods, tariff renegotiations in the context of the formation
of a customs unions, and transparency provisions (see below).
With respect to the former, Article XXIV:5(c) states that an interim agreement must include a plan and
schedule for the formation of a customs union or a free trade area within "a reasonable length of time," defined
by paragraph 3 of the Understanding as not exceeding 10 years except in exceptional circumstances.
As for tariff renegotiations in the context of the formation of a customs unions, Article XXIV:6 provides that in
cases where, in the context of the formation of a customs union, a Member proposes to increase any bound
rate, the procedures for modification of schedules set forth in Article XXVIII shall apply. As clarified by the
Understanding, the following requirements apply:
 The process of negotiation must be commenced before tariff concessions are modified or
withdrawn upon the formation of a customs union or an interim agreement leading to a
customs union (paragraph 4);
 the negotiations will be entered into in good faith with a view to achieving mutually satisfactory
compensatory adjustment (paragraph 5);
 affected Members shall take due account of reductions of duties on the same tariff line made
by other parties of the customs union. Only if such reductions do not provide the necessary
compensatory adjustment, the customs union would provide compensation, which may take
the form of reductions of other tariff lines (paragraph 5); and,
 where an agreement cannot be reached within a reasonable period, the customs union shall be free to
modify or withdraw the concession and affected Members shall then be free to withdraw substantially
equivalent concessions (paragraph 5).
Paragraph 12 of the Understanding states that the provisions regarding dispute settlement may be invoked
with respect to any matters arising from the application of those provisions of Article XXIV relating to customs
unions, free trade areas or interim agreements.
TO KNOW MORE...INTERPRETATION OF THE SCOPE OF THE EXCEPTION TO MFN
PROVIDED BY ARTICLE XXIV OF THE GATT 1994 REGARDING CUSTOMS UNIONS:
TURKEY-TEXTILES
In Turkey - Textiles, the Appellate Body reviewed the Panel's finding that Article XXIV did not justify the
imposition by Turkey of quantitative restrictions on imports of certain textile and clothing products from
India upon the formation of a customs union with the European Union.
According to the Chapeau of Article XXIV:5, the provisions of the GATT 1994 shall not prevent, as between
the territories of contracting parties, the formation of RTAs that comply with the requirements provided
therein.

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In this regard, the Appellate Body held in this case that Article XXIV can justify the adoption of a measure
which is inconsistent with certain other GATT 1994 provisions only if (paras. 58-59):
(i) The measure is introduced upon the formation of a customs union that fully meets the requirements of
sub-paragraphs 5(a) and 8(a) of Article XXIV; and,
(ii) only to the extent that the formation of the customs union would be prevented if the introduction of the
measure were not allowed.
IV.C. REGIONAL INTEGRATION IN THE GENERAL
AGREEMENT ON TRADE IN SERVICES (GATS)
Article V of the GATS provided for the formation of "Economic Integration Agreements" and it s modelled to a
large extent on Article XXIV of the GATT 1994. Article V:4 of the GATS states that any agreement liberalizing
trade in services must be designed to "facilitate trade between parties".
CONDITIONS FOR THE FORMATION OF ECONOMIC INTEGRATION
AGREEMENTS UNDER ARTICLE V OF THE GATS
Conditions for the Formation of Economic Integration Agreements under Article V of the GATS
Article V allows WTO Members to enter into an agreement to further liberalize trade in services, provided
that such an agreement meets the following conditions:
 Substantial sectoral coverage- in terms of number of sectors, volume of trade affected and
modes of supply. In particular, there should no a priori exclusion of any mode of supply
(Article V:1(a) and footnote 1);
 absence or elimination of substantially all discrimination among the parties - in the sectors it
covers, by eliminating existing discriminatory measures and/or preventing the introduction
of new or more discriminatory measures (Article V:1(b)); and,
 the agreement should not result in new trade barriers to other WTO Members - it shall
facilitate trade between the parties and shall not raise the overall level of barriers to trade in
services in respect of any WTO Member outside the agreement within the respective sectors
or subsectors compared to the level applicable prior to such an agreement (Article V:4).
Article V:3 provides some flexibility in favour of developing countries parties to an economic integration
agreement (EIA) in evaluating whether all conditions by a given agreement are met. In particular
Article V:3(a) provides flexibility with respect to the requirements contained in paragraph 1, and in particular
with respect to the absence or elimination of all discrimination between the parties. Article V:3(b) grants

366. 348
flexibility in the case of RTA involving only developing countries with respect to the requirements of Article V:6
on "substantive business operations".
Articles V:5 and V:8 state that if the establishment of the RTA, or its subsequent enlargement, leads to a party
in the agreement to withdraw its specific commitments set out in the Schedule, this party shall enter into
negotiations to provide compensation to other Members (non-parties in the agreement). However, no
compensation is due from non-parties for trade benefits they gain from the agreement.
In addition, Article Vbis relates to, and provides similar legal cover for, agreements on labour markets
integration. Its main condition is that citizens of parties to the arrangement should be exempt from residency
and work permit requirements.
IV.D. REGIONAL TRADE AGREEMENTS (RTAS) AND THE
MULTILATERAL TRADING SYSTEM
RTAs and the Multilateral Trading System
The issue relating to whether RTAs are "stumbling blocs" or "building blocks" to the MTS is still subject
to hot debate.
On one hand, by their very nature, RTAs are discriminatory: they are a departure from the MFN principle, a
cornerstone of the MTS. There is the risk that RTAs may promote trade diversion rather than trade creation
(see box on RTAS: trade creation and trade diversion). In addition, they may reinforce vested interests to
maintain preferences margins.
Furthermore, the increase in RTAs has produced the phenomenon of overlapping membership - the
coexistence in a single country of differing trade rules applying to different RTA partners. This can hamper
trade flows merely by the costs involved for traders in meeting multiple sets of trade rules. Moreover, the
proliferation of RTAs, especially as their scope broadens to include policy areas not regulated multilaterally,
increases the risks of inconsistencies in the rules and procedures among RTAs themselves, and between
RTAs and the multilateral framework. Finally, the proliferation of RTAs may crowd out negotiating resources
necessary to achieve further multilateral liberalization.
On the other hand, RTAs can complement the MTS and serve as a catalyst for further liberalization. They
may act as laboratories of international cooperation, reducing political opposition to multilateral liberalization
at the domestic level. RTAs have allowed groups of countries to negotiate rules and commitments that go
beyond what was possible at the time multilaterally. Some of these rules have paved the way for agreement
in the WTO. Services, intellectual property, environmental standards, investment and competition policies
are all issues that were raised in regional negotiations and later developed into agreements or topics of
discussion in the WTO. However, it must be noticed that there are certain important areas in international
trade that cannot be addressed through RTAs (e.g. the elimination of export subsidies).
An RTA's effects on global trade liberalization and economic growth are not clear given that the regional
economic impact of RTAs is ex ante inherently ambiguous. Their net economic impact will certainly depend
on its own architecture and the choice of its major internal parameters (in particular, the depth of trade
liberalization and sectoral coverage).

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To ensure that RTAs be building blocks rather than obstacles to the MTS, they should help trade
flow more freely among the countries in the group without barriers being raised on trade with
the outside world.
Based on: World Trade Organization (WTO), World Trade Report 2007, Geneva: WTO, p. 312 – 320.
IV.E. REGIONAL TRADE AGREEMENT (RTAS) AND
TRANSPARENCY
As part of the negotiations in the Doha Round of Negotiations, the General Council adopted the Decision on a
"Transparency Mechanism for Regional Trade Agreements" (WT/L/671) on 14 December 2006.
The adoption by the General Council of a new Transparency Mechanism for Regional Trade Agreements (TM)
has resulted in a number of important procedural changes in the treatment of RTAs within the WTO framework.
The TM, which applies to all RTAs whether notified under Article XXIV of the GATT 1994, Article V of the GATS
or the Enabling Clause, is being implemented on a provisional basis in accordance with paragraph 47 of the
Doha Ministerial Declaration, and will be replaced by a permanent mechanism to be adopted as part of the
Doha Round of Negotiations. An explanation of the key elements of the TM, together with an assessment of its
first year of operation, is outlined below.
The TM clarifies existing transparency requirements as contained in the WTO provisions on RTAs such as
notification of RTAs, consideration of the RTA by the WTO, and subsequent notification and reporting. It also
adds new elements such as the early announcement requirement for RTAs either under negotiation or signed,
but not yet in force. With respect to notification, the TM strengthens existing provisions on notification by
stipulating that notification is to take place "as early as possible ... and ... before the application of preferential
treatment between the parties" (emphasis added).
The most notable development, however, is the responsibility given to the WTO Secretariat to prepare factual
presentations of all notified RTAs covering trade in goods or services. The factual presentation, which replaces
the standard format furnished by the parties to an RTA, is a detailed summary of an RTA and contains data on
the trade environment of the RTA parties, a description of the RTA's regulatory features, and details of the
tariff, trade and regulatory liberalization envisaged over the transition period of the RTA. It is prepared on the
Secretariat's own responsibility, in full consultation with the parties, and cannot be used as a basis for dispute
settlement procedures or to create new rights and obligations for Members. The purpose of the factual
presentation is to produce objective, homogenous reports containing no value judgement which are used by
Members in their "consideration" of an RTA under review. With respect to "subsequent notification and
reporting", the TM supplants the largely dysfunctional RTA biennial reporting schedule by providing that the
required notification of changes affecting the implementation or operation of an RTA should take place as soon
as possible after changes occur. At the end of the RTA's implementation period, the parties should submit a
short written report on the realization of liberalization commitments in the RTA.
Under the new Mechanism, the CRTA is the responsible body for RTAs notified under Article XXIV of the GATT
1994 or Article V of the GATS. RTAs in trade in goods concluded among developing countries only may be
notified under either Article XXIV of the GATT 1994 or the Enabling Clause. Regional Trade Agreements (RTAs)

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notified under the Enabling Clause are the responsibility of the Committee on Trade and Development (CTD),
convening in dedicated session (which will be explained in Module 9).
NOTE
To know more about the TM and the factual presentations prepared by the WTO Secretariat, please
refer to: http://www.wto.org/english/tratop_e/region_e/trans_mecha_e.htm
EXERCISES
7. What is the purpose of RTAs according to Article XXIV:4 of the GATT 1994?
8. Explain briefly the conditions applicable to the formation of FTAs under Article XXIV of the GATT 1994.
9. What is the difference between "trade creation" and "trade diversion"? Why are these terms related to
RTAs?
10. Explain the main objectives of the TMs for RTAs.

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V. BALANCE-OF-PAYMENTS (BOPS) EXCEPTIONS
IN BRIEF
Under WTO rules, Members are allowed under certain circumstances and subject to specific conditions, to
adopt import restrictions otherwise inconsistent with the WTO rules in order to safeguard their external
financial position and their balance-of-payments (BOPs).
V.A. BALANCE-OF-PAYMENTS (BOPS) IN THE GATT 1994
Article XII and Article XVIII:B of the GATT 1994, together with the Understanding on Balance-of-Payments
Provisions of the GATT 1994 allow WTO Members to take measures in order to safeguard their external
financial position and their balance-of-payments. While the basic condition for invoking Article XII is to
safeguard the Member's external financial position and its BOPs, Article XVIII:B refers to Members (within the
scope of paragraph 4) experiencing BOPs difficulties arising mainly from efforts to expand their internal
markets as well as from the instability in their terms of trade. In this regard, paragraph 2 of Article XVIII:B
refers to the need of these Members to safeguard their external financial position and to ensure a level of
reserves adequate for the implementation of their programmes of economic development. Article XII can be
invoked by all Members and Article XVIII:B only by developing country Members. Article XVIII:B
contains less stringent criteria than Article XII.
Article XII:2 – which can be invoked by all Members- states that import restrictions "shall not exceed those
necessary: (i) to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves"; or,
(ii) "...in the case of a Contracting Party with very low monetary reserves, to achieve a reasonable rate of
increase in its reserves". Instead, Article XVIII:B:9 – which can be invoked by developing country Members
only - omits the word "imminent" from the first condition and refers to an "inadequate" level rather than a
"very low" level of reserves ("adequate" is defined as "adequate for the implementation of its programme of
economic development"). Both Articles require Members to progressively relax the restrictions as conditions
improve, and eliminate them, when conditions no longer justify their maintenance.
In general, measures taken for BOPs purposes have to be temporary, preferably price-based, administered in a
transparent manner and apply to the general level of imports (i.e. avoid sectoral specificity).
Who determines when there is a serious decline in a Member's monetary reserves?
The CONTRACTING PARTIES in reaching their final decision in cases involving the criteria set forth in
paragraph 2 (a) of Article XII or in paragraph 9 of Article XVIII, shall accept the determination of the
International Monetary Fund (IMF) as to what constitutes a serious decline in the contracting party's
monetary reserves, a very low level of its monetary reserves or a reasonable rate of increase in its monetary
reserves, and as to the financial aspects of other matters covered in consultation in such cases.

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TO KNOW MORE... UNDERSTANDING ON THE BOPS PROVISIONS OF THE GATT 1994
In the Understanding on BOPs, the Members have confirmed the following main commitments:
 Announce publicly, as soon as possible, time schedules for the removal of restrictive
import measures taken for BOPs purposes and to explain why, if they do not do so
(paragraph 1);
 give preference to those measures which have the least disruptive effect on trade - such
measures are referred to as price-based measures and can be applied for BOPs purposes
notwithstanding the provisions of Article II of the GATT 1994 – Schedule of Concessions-
(paragraph 2);
 justify why price-based measures are not adequate if they have chosen to impose
QRs, as well as not apply more than one type of restrictive trade measure to the same
product (paragraph 3); and,
 not to apply restrictive import measures in excess of what is necessary to address
the BOPs situation, as well as administer restrictions in a transparent manner (paragraph 4).
Members are required to notify to the General Council the introduction of, or any changes to, restrictive
import measures introduced for BOPs purposes, as well as any modifications in time schedules for the removal
of such measures, no later than 30 days after their announcement. Consultations with the Committee on
BOPs Restrictions are expected immediately after taking action or, in circumstances in which prior consultation
is practicable, before doing so (Articles XII:4 and XVIII:12). A Member maintaining such restrictions is
required to consult annually or biennially. A Member adversely affected by these restrictions may initiate
consultations if they are inconsistent with the WTO relevant provisions on BOPs.
V.B. BALANCE-OF-PAYMENTS (BOPS) IN THE GENERAL
AGREEMENT ON TRADE IN SERVICES (GATS)
Article XII of the GATS allows Members to introduce restrictions on trade in services, as an exceptional
measure and notwithstanding any specific commitments they have assumed, in order to safeguard their BOPs
position. This provision can be invoked in the event of serious BOPs and external financial difficulties, or if
there is a threat of such difficulties. Such restrictions may include restrictions on payments or transfers which
would otherwise be prohibited by Article XI of the GATS (payments and transfers).
It is recognized that particular pressures on the BOPs of a Member in the process of economic development or
economic transition may require the use of restrictions to ensure, inter alia, the maintenance of a level of
financial reserves adequate for the implementation of its programme of economic development or economic
transition.
Any Member invoking Article XII and introduces restrictions to safeguard its BOPs, must meet the following
conditions (Article XII:2): (i) not discriminate among services and service suppliers of different Members;
(ii) be consistent with the Articles of the Agreement of the International Monetary Fund (IMF); (iii) avoid
unnecessary damage to the commercial, economic and financial interests of other Members and not exceed the

371. 353
level necessary to address the BOPs situation; and, (iv) be temporary, and be phased out progressively as the
BOPs improves.
Finally, as with the GATT 1994, Members are required to promptly notify the restrictions to the General
Council of the WTO, if they adopt restrictions to safeguard its BOPs under the GATS. They shall also consult
promptly with the Committee on BOPs on restrictions adopted (Article XII:5).

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VI. WAIVERS
As we have presented in Module 1, in "exceptional circumstances", a WTO Member may be authorized by the
other Members to derogate, for a specific time and under certain conditions, from a provision contained in the
Agreement Establishing the WTO or any of the Multilateral Trade Agreements. These derogations, called
"waivers", are applicable to trade in goods, trade in services and TRIPS. Waivers are governed by Article IX:3
of the Agreement Establishing the WTO. A waiver is normally used when there are no other provisions which
would allow a Member to derogate from a WTO principle or a specific provision.
While there is no need to negotiate before adopting a general exception under Article XX of the GATT 1994 or
Article XIV of the GATS, waivers shall be granted by three fourths of the Members, through a decision of the
Ministerial Conference (see Module 1). Consequently, in contrast to such exceptions, a waiver may be viewed
as a "negotiated right".
Waivers are temporary so, when they are granted, a definite time-period is set for termination. Moreover, if
granted for more than a one-year period, a waiver must be reviewed annually to establish if the exceptional
circumstances warranting its grant still exist.
EXERCISES
11. What is the difference between a "waiver" and the other exceptions studied in this Module?

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ILLUSTRATION
SCENARIO
Suppose that Vanin and Tristat are WTO Members. Recently, Vanin promulgated a regulation which imposes
a ban on cars with fuel efficiency below 12.5 miles per gallon (mpg).
Tristat exports cars to Vanin, its major importer. Most of the cars Tristat produces are with fuel efficiency
below 12.5 mpg. Vanin does not produce cars with fuel efficiency below 12 mpg.
Tristat considers that Vanin's regulation is inconsistent with Article XI of the GATT 1994 (General Elimination
of Quantitative Restrictions).
Vanin argues that its measure is aimed at protecting human, life and health as well as reducing air pollution.
QUESTION
Assume you are a legal expert on WTO Law, what defences or WTO exception(s) may Vanin invoke and what
arguments could this country make under such exception(s)?
PROPOSED ADVICE
Vanin can invoke Article XX of the GATT 1994 (General Exceptions) to justify its measure in case it is found
inconsistent with Article XI of the GATT 1994 (General Elimination of Quantitative Restrictions) – studied in
Module 3.
Under Article XX, Vanin must establish first, that its regulation is provisionally justified under Article XX(b)
and/or Article XX(g); and second, that the application of the regulation complies with the Chapeau of
Article XX.
ARTICLE XX OF THE GATT 1994 – GENERAL EXCEPTIONS
ARTICLE XX (B) - "NECESSARY TO PROTECT HUMAN, ANIMAL OR PLANT LIFE OR HEALTH"
Vanin needs to establish that: 1. the policy in respect of the measures for which the provision was invoked
falls within the range of policies designed to protect human, animal or plant life or health, and, 2. the
inconsistent measures for which the exception is being invoked is "necessary" to fulfil such policy objective -
"necessity test" - (US – Gasoline, Panel Report, para. 6.20).
Accordingly, Vanin may claim that its regulation is pursuing the objective of protection of human health by
reducing vehicle emissions. As you studied in this Module, the "necessity test" involves a process of
weighing and balancing a series of factors, in particular: i. the contribution made by the measure to the
achievement of its objectives, that is, the protection of human, animal or plant life or health; ii. the
importance of the interests or values at stake; and, iii. the trade-restrictiveness of the measure
(Brazil - Retreaded Tyres, Appellate Body Report, para. 178).

374. 356
In this regard, Vanin may argue that the measure makes a contribution to the objective since its application
is reducing pollution in forms of emissions posing risk to human life or health. In addition, Vanin may argue
that the ban is applied to preserve human life and health, considered of a value both "vital" and "important
in the highest degree" (EC- Asbestos, Appellate Body Report, para. 172).
With respect to possible alternative measures (less trade restrictive) that Tristat might propose, Vanin would
have to show that these alternatives do not contribute equivalently to the achievement of the objective
pursued (protection of human health by reducing vehicle emissions). In order to qualify as an alternative, a
measure must be not only be less trade restrictive than the measure at issue, but should also "preserve for
the responding Member its right to achieve its desired level of protection with respect to the objective
pursued" (US – Gambling, Appellate Body Report, para. 308). In addition, depending on the alternative
measures proposed by Tristat, Vanin may argue that such measures impose an undue burden on it, e.g.
prohibitive costs (US – Gambling, Appellate Body Report, para. 308).
ARTICLE XX (G) "RELATING TO THE CONSERVATION OF EXHAUSTIBLE NATURAL RESOURCES"
Under XX(g), Vanin has to demonstrate that the measure at issue: 1. is concerned with the conservation of
exhaustible natural resources, 2. "relates to" the conservations of exhaustible natural resources, and, 3. the
measure is made effective in conjunction with restrictions on domestic production or consumption.
Vanin can claim that its regulation is concerned with the conservation of exhaustible natural resources since
it is aimed at the conservation of clean air, a policy that falls within Article XX(g) (see US – Gasoline, Panel
Report, para. 6.37). Vanin also needs to demonstrate that the measure at issue exhibits a "substantial
relationship" with, and is not merely "incidentally or inadvertently aimed at", the conservation of clean air
(US – Gasoline, Appellate Body Report, page 19). Furthermore, to comply with the third requirement, Vanin
will have to show that a similar restriction applies to cars produced in Vanin.
CHAPEAU OF ARTICLE XX OF THE GATT 1994
Vanin also has to demonstrate that its regulation satisfies the requirement of the Chapeau. In this respect,
Vanin shall demonstrate that its regulation is not applied in a manner that constitutes: 1. arbitrary or
discrimination between countries where the same conditions prevail; 2. unjustifiable discrimination between
countries where the same conditions prevail; or, 3. a disguised restriction on international trade.
A measure would be considered to be applied in a manner that constitutes "arbitrary or unjustifiable
discrimination between countries where the same conditions prevail" if: 1. the application of the measure
results in discrimination; 2. the discrimination is arbitrary or unjustifiable in character; 3. this discrimination
occurs between countries where the same conditions prevail (US – Shrimp, Appellate Body Report,
para. 150).

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VII. SUMMARY
In certain circumstances, WTO Members are allowed to adopt measures that will otherwise be inconsistent
with their WTO obligations, subject to certain conditions.
The general exceptions as set out in Article XX of the GATT 1994 and Article XIV of the GATS allow
Members to take measures necessary to protect legitimate policy objectives such as the protection of public
morals, the protection of human, animal or plant life or health or the conservation of exhaustible natural
resources. In this regard, it has been recognized that the WTO rules are not intended to impede Members
from pursuing such legitimate objectives or to choose the appropriate level of protection. However, the
measures adopted for the protection of such objectives have to comply with the requirements provided in
Article XX of the GATT 1994 and Article XIV of the GATS, respectively. In general, such measures must
have a nexus with the objectives pursued (the degree of connection and conditions differ according to each
provision in Article XX and XIV), as well as not lead to arbitrary or unjustifiable discrimination between
countries where the same conditions prevail or constitute a disguised restriction to international trade
(conditions set by the Chapeau of both Articles).
In contrast to the general exceptions, the security exceptions apply not only to goods and services, but
also to trade-related aspects of intellectual property (TRIPS). According to the security exceptions, a WTO
Member can take any action necessary for the protection of its essential security interests despite the
inconsistency of such action with its obligations under the GATT 1994, the GATS or the TRIPS.
In addition, under Article XXIV of the GATT 1994 and Article V of the GATS, WTO Members are allowed to
depart from the MFN principle in order to provide preferential access to their trading partners under RTAs –
"customs unions" or "free trade areas" (for trade in goods) or economic integration arrangements (for trade
in services). The formation of such RTAs is subject to some internal and external requirements, including to
facilitate trade between the constituent territories and not to create trade barriers toward other Members
(third-parties) higher or more restrictive than those existing before the formation of the RTA. Other
requirements comprise provisions on interim agreements and transition periods, tariff renegotiations in the
context of the formation of a customs unions, and transparency provisions (including the Transparency
Mechanism for RTAs).
In addition, Members are allowed to apply import restrictions in order to safeguard their external financial
position and for BOPs reasons. Finally, in exceptional circumstances, a WTO Member may be authorized by
the other Members to derogate for a specific time and under certain conditions, from a provision contained in
the Agreement Establishing the WTO or any Multilateral Trade Agreement. These derogations called
"waivers" are applicable to trade in goods, trade in services and TRIPS.

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PROPOSED ANSWERS
1. In this Module, we studied the main horizontal exceptions applicable to the GATT 1994, the GATS and the
TRIPS Agreement. These are:
 General Exceptions (Article XX of the GATT 1994 and Article XIV of the GATS) - Right to take
measures, for example, necessary to protect human, animal or plant life or health. Such
measures cannot constitute a means of arbitrary or unjustifiable discrimination between
countries where the same conditions prevail or a disguised restriction on international trade.
There are no general exceptions as such under the TRIPS Agreement;
 Security Exceptions (Article XXI of the GATT 1994, Article XIVbis of the GATS and Article 73 of
the TRIPS) - Right to take measures to protect essential national security interests;
 Regional Trade Agreements (RTAs) (Article XXIV of the GATT 1994 and Article V of the GATS) -
Right to depart from the MFN principle in order to grant preferential treatment to goods (GATT
1994) or service suppliers (GATS) to trading partners within a customs union or a free trade
area (for goods) or an economic integration agreement (for trade in services) without
extending such treatment to all WTO Members. This right is subject to certain conditions;
 Balance-of-Payment (BOP) (Articles XII & XVIII of the GATT 1994 and Article XII of the GATS)–
Right to take measures to safeguard a Member's external financial position and its BOPs; and,
 Waivers (Article IX of the Agreement Establishing the WTO) - Temporary waiver granted with the
authorization of the other Members, in exceptional circumstances;
2. Article XX comprises ten sub-paragraphs and an introductory clause (the Chapeau). Accordingly,
Article XX provides a two-tier test: A. The measure at issue must fall under one or another of the
particular exceptions – sub-paragraphs (a) to (j) - listed under Article XX - each sub-paragraph concerns
different objectives and contains different requirements; and, B. the measure must also satisfy the
requirements imposed by the Chapeau of Article XX. The order of the two tests cannot be reversed.
3. According to the Appellate Body, the ''necessity test'' under Article XX (b) & (d) involves in every case a
process of weighing and balancing a series of factors which prominently include: A. the contribution
made by the measure to the achievement of its objective; B. the importance of the interests or values at
stake; and C. the trade-restrictiveness of the measure at issue. In addition, the measure has to be
compared with possible available alternative, which may be less trade restrictive while providing an
equivalent contribution to the achievement of the objective pursued.
As the ''necessity test'', the ''relating to'' test under Article XX(g) also requires the assessment of the
relationship between the measure at issue and the objective pursued. The ''relating to'' test is less
stringent than the ''necessity test''. A measure will qualify as relating to the conservation of natural
resources if the measure exhibited a substantial relationship with, and is not merely incidentally or
inadvertently aimed at the conservation of exhaustible natural resources.
4. In principle, the answer is NO (unless there is an objective justification for making such distinction- see
also Brazil-Retreaded Tyres, Appellate Body Report, para. 225-230). According to the Chapeau, measure
under Article XX must not be "applied in a manner which would constitute a means of arbitrary or
unjustifiable discrimination between countries where the same conditions prevail" or a disguised
restriction to international trade.

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5. The object and purpose of the Chapeau is generally the prevention of abuse of the exceptions of
Article XX. It serves to ensure that Members’ rights to avail themselves of exceptions are exercised in
good faith to protect interests considered legitimate under Article XX, not as a means to circumvent one
Member’s obligations towards other WTO Members. It does not concern the questioned measure or its
specific content as such, but rather the manner in which that measure is applied.
6. A WTO Member is allowed to take any action which it considers necessary for the protection of its
essential security interests (such as those relating to fissionable materials; or traffic in arms, ammunition
and implements of war; or those taken in time of war or other emergency in international relations); or in
pursuance of its obligations under the United Nations Charter for the maintenance of international peace
and security. Furthermore, Members are not required to furnish information, the disclosure of which
would be contrary to their essential security interests.
7. Article XXIV:4 of the GATT 1994 provides that the purpose of a customs union or of a free trade area
should be to facilitate trade between the constituent territories and not to raise barriers to the trade of
other Members. The Understanding on Article XXIV explicitly reaffirms this purpose and states that the
constituent members should "to the greatest possible extent avoid creating adverse affects on the trade
of other Members".
8. Article XXIV of the GATT 1994 allows the formation of free trade agreements under certain internal and
external requirements: 1. With regard to the internal requirements, Article XXIV:8 states that apart from
a few exceptions, the duties and other restrictive regulations of commerce are to be eliminated with
respect to "substantially all trade" between the parties or at least with respect to substantially all the
trade in products originating in such territories; and 2. with regard to the external requirements, the
duties and other regulations of commerce imposed on third-parties at the formation of the free trade area
or an interim agreement leading to it should not be higher or more restrictive than those existing prior to
its formation (Article XXIV:5(b).
In addition to the conditions set out in Article XXIV:8 and XXIV:5, other requirements include provisions
on interim agreements and transition periods , as well as transparency provisions.
9. Trade creation refers to the increase in trade within RTAs due to the reduction in intra-regional trade
barriers. To the extent that this expanded trade substitutes imports for higher cost domestic products,
economic efficiency is increased. However, the formation of RTAs may also cause trade diversion, which
takes place when the most efficient suppliers of goods or services from outside the RTA are replaced by
less efficient sources coming from parties to the RTA. Thus, if the additional trade among the partners is
a result of trade diversion, a country can suffer a welfare loss. Whether a country gains or loses from
entering into an RTA will depend on the balance between the trade creating and trade diverting effects of
the RTA.
10. The transparency mechanism, adopted by the General Council on 14 December 2006, provides for early
announcement of any RTA and type of information to be submitted by the parties to the WTO. The
mechanism, which applies to all RTAs, is being implemented on a provisional basis in accordance with
paragraph 47 of the Doha Ministerial Declaration. Members will consider the notified RTAs on the basis of
a factual presentation prepared by the WTO Secretariat on its own responsibility and in full consultation
with the parties. The purpose of the factual presentation is to produce objective, homogeneous reports
containing no value judgement which are used by Members in their consideration of an RTA under review.

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11. There are four main differences between a waiver and other horizontal exceptions:
 Negotiated exception - Waivers are granted by the WTO Membership, through a decision of the
Ministerial Conference. Consequently, a waiver may be viewed as a "negotiated right",
whereas there is no need to negotiate to take a general exception under Article XX of the GATT
1994 or Article XIV of the GATS (the latter are however subject to the conditions set forth in
each provision);
 not disputable - While a provision of the general exceptions may be invoked to justify a
measure otherwise inconsistent with the GATT 1994 or the GATS, a waiver should generally not
be disputed unless the Member fails to comply with the conditions of the waiver;
 subject to a limited time - Waivers are usually temporary so, when they are granted, a definite
time-period is set for termination; and,
 subject to annual review - If granted for more than a one-year period, a waiver must be
reviewed annually to establish if the exceptional circumstances warranting its grant still exist.

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WTO Development Dimension:
Doha Development Agenda, Aid for Trade,
the Enhanced Integrated Framework (EIF)
and Technical Assistance (TA) and Training
(or TRTA)
ESTIMATED TIME: 4 hours
OBJECTIVES OF MODULE 9
 Present the main elements of the development dimension of the Doha Round of
Negotiations;
 present the legal provisions regarding Special & Differential Treatment for
developing and least-developed country (LDCs) Members;
 introduce the mandate and concept of the EIF and ''Aid for Trade''; and,
 introduce WTO trade-related TA and training, including the role of the Institute for
Training and Technical Cooperation (ITTC).
MODULE
9

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I. INTRODUCTION
The majority of WTO Members are developing countries. They play an increasingly important and active
role in the WTO because of their numbers, because they are becoming more important in the global economy,
and because they increasingly look to trade as a vital tool in their development efforts.
However, many developing countries (in particular, the least-developed among them) face particular difficulties
in implementing their WTO commitments and benefiting from trade liberalization.
The link between trade and development has been recognized explicitly by WTO Members in the WTO
Agreements. In the Preamble to the Marrakesh Agreement Establishing the WTO (the Agreement Establishing
the WTO), Members recognize the need for positive efforts designed to ensure that developing countries, and
in particular the least-developed among them, secure a share in the growth in international trade
commensurate with the needs of their economic development. Furthermore, at the Doha Ministerial
Conference, in November 2001, Trade Ministers launched the Doha Development Agenda (DDA). With this
Agenda, WTO Members have placed development issues and the interests of developing countries at the heart
of the current Doha Round of Negotiations.
This Module will introduce to the participant the following:
 Special and differential treatment for developing and LDC Members as provided in various
WTO Agreements and Decisions;
 The main elements of the DDA as they pertain to trade and development;
 The Enhanced Integrated Framework (EIF) for least-developed countries;
 Aid for Trade, a new WTO work programme agreed by Ministers at the Hong Kong Ministerial,
aimed at helping developing countries, in particular the least-developed, to build the trade
capacity and infrastructure they need to benefit from trade liberalization; and,
 WTO’s trade-related technical assistance (TRTA) activities and programmes which are geared
towards sustainable trade capacity-building in beneficiaries.
Matters related to trade and development are treated in almost all WTO bodies on an issue/or
agreement-specific basis. However, the Committee on Trade and Development (CTD) and its
Sub-Committee on LDCs, both of which comprise of all WTO Members, are the two WTO bodies that deal
exclusively with questions related to trade and development.

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II. SPECIAL & DIFFERENTIAL TREATMENT FOR
DEVELOPING COUNTRIES
II.A. WHO ARE DEVELOPING COUNTRIES IN THE WTO?
There is no WTO definition of "developed" or "developing" countries. Members decide for themselves if they are
to be considered "developing countries". This is known as the principle of "self-election". However, other
Members can challenge the decision of a Member to make use of provisions available to developing countries.
Regarding LDCs, the WTO recognises as such those countries which have been designated as
"least-developed countries" by the United Nations Economic and Social Council. The criteria used by
the United Nations to designate such countries include: (i) Low income; (ii) weak human assets; and,
(iii) economic vulnerability.
For more information on the designation of LDCs, see:
http://www.unctad.org/Templates/Page.asp?intItemID=3618&lang=1
II.B. WHAT DOES SPECIAL AND DIFFERENTIAL TREATMENT
MEAN?
Trade plays an important role in fostering economic growth and reducing poverty in developing
countries. In the Preamble to the Agreement Establishing the WTO, Members recognize that their relations in
the field of trade and economic endeavour should be conducted with a view to raising standards of living,
ensuring full employment and a large and steadily growing volume of real income and effective demand, and
expanding the production of and trade in goods and services, while allowing for the optimal use of the world's
resources in accordance with the objective of sustainable development. Furthermore, they recognize the "need
for positive efforts designed to ensure that developing countries, and in particular the least-developed among
them, secure a share in the growth in international trade commensurate with the needs of their economic
development".
The concept of special and differential treatment for developing countries remains as important today, if not
more so, than it was during the General Agreement on Tariffs and Trade (GATT). What began as a recognition
of the need to provide flexibilities to those countries whose economies supported "low standards of living" or
those in "early stages of development" in Article XVIII of the GATT, has evolved over time into numerous
provisions offering flexibilities across the different WTO Agreements.
In the initial years of the GATT, developing Contacting parties did not benefit from special and differential
treatment. The need for developing countries to be granted additional flexibilities to compete on a level playing
field with industrial countries gained prominence after the recognition, by newly independent developing
countries who acceded to the GATT in the 1950s, that their capacity to make use of the rules to develop was
not the same as that of the more industrialised nations. As a result, CONTRACTING PARTIES agreed to
Article XVIII of the GATT, which allows developing countries to deviate from their tariff commitments for
purposes of establishing a particular industry and to apply import restrictions for balance-of-payments (BOPs)
purposes. Subsequently, other provisions such as those included in Part IV of the GATT and the "Enabling

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Clause" (explained later on), were introduced with a view to, among others, increase the trading opportunities
of developing countries and LDCs.
The Uruguay Round marked a new approach to the concept of special and differential treatment. By
accepting the "single undertaking", developing countries like other then GATT Members, agreed to the whole
spectrum of rights and obligations under the WTO Agreements. These new obligations included the binding of
tariffs as well as commitments that extend beyond traditional GATT-type border measures, such as trade in
services and trade-related aspects of intellectual property rights (TRIPS). The non-discrimination principle,
embodied in the Most Favoured Nation (MFN) and National Treatment principles, has been a cornerstone of the
GATT and now the WTO. However, many WTO provisions call for the granting of preferential market access for
developing countries, temporarily or permanent exceptions from certain rules, as well as the provision of TA to
developing country Members. All the provisions giving developed country Members the possibility to treat
developing countries more favourably than other WTO Members as well as those which give developing country
Members special rights to deviate from their obligations are referred to as "special and differential treatment
provisions".
The rationale behind the concept of special and differential treatment as envisaged in the WTO Agreements is
that developing countries are disadvantaged in their participation in international trade. Many developing
countries produce mainly raw materials and primary commodity exports, affected by low prices and price
volatility. In addition, they often lack the resources to overcome natural obstacles to trade or to address
market failures, as well as the institutional development required to manage the cost of implementing certain
WTO obligations (see box below). Special and differential treatment is considered a useful tool which
recognizes the economic and developmental asymmetries among countries in order to provide
special advantages to developing countries to help them benefit from trade liberalization and
integrate into the multilateral trading system (MTS).

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Why do Developing Countries require special and differential treatment?
The following arguments are commonly made regarding the special situation of developing countries and the
special treatment they require:
 Certain developing countries produce a limited number of products. In order to increase
their production base, they would need to diversify into non-traditional sectors. However,
such countries may suffer from market imperfections (e.g. lack of transparency, imperfect
competition) that are not present in developed countries. In particular, new industries are
associated with learning-by-doing costs and incur higher costs of production for an initial
time period than established producers (infant industry argument). Thus, WTO Members
recognize that, under specific circumstances, developing Members may need to take
protective or other measures affecting imports. For example, Article XVIII:2 of the GATT
allows Contacting Parties (now WTO Members) whose economies can only support low
standards of living and are in a lower stage of development, to maintain sufficient flexibility
in their tariff structure to be able to grant the tariff protection required for the establishment
of a particular industry;
 developing countries are sometimes confronted with limited market outlets due to a small
domestic market size or due to high trade barriers in other markets. In order to improve
productivity, new industries in developing countries eventually need to be exposed to
competition. In the presence of economies of scale, local markets cannot sustain a large
number of producers; and,
 developing countries are resource-constrained. This has at least three major consequences:
(i) Developing countries find it harder to adjust to the impact of trade liberalization (they
lack the transfer mechanisms to compensate the losers); (ii) they also face supply-side
constraints which may prevent their industries from taking advantage of new trading
opportunities, for instance, due to an inadequate transport infrastructure; and, (iii) the cost
of implementation of certain obligations are associated with certain administrative and
infrastructure implications that may strain developing countries capacities. In this regard,
WTO rules provide longer transitional periods for developing Members to implement the WTO
Agreements and accompanying reforms (e.g. Articles 65.2 and 65.4 of the TRIPS
Agreement). Furthermore, the new WTO programme on "Aid for trade" (agreed by the
Members at the Hong Kong Ministerial and explained later on) will help developing Members,
particularly LDCs, to build the supply-side capacity and trade-related infrastructure they
need to implement and benefit from the WTO Agreements.
Based on: World Trade Organization (WTO), World Trade Report 2007, Geneva: WTO p. 143-145.
It has been argued that special and differential treatment has not been an effective instrument to
promote development in all developing country Members. According to some Members and
commentators, special and differential treatment has not met its objective of helping most developing country
Members (including the LDCs) to fully integrate into the MTS. Instead, in their view, special and differential
treatment has contributed to trade distortions and rewarded inefficient producers. In addition, they argue that
special and differential treatment provisions do not address appropriately the fact that policy interests and
constraints of developing countries vary considerably from country to country. However, for other Members
including the vast majority of developing countries, special and differential treatment is necessary for them to

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increase and diversify their exports, while improving market access for products of potential interests to them.
Furthermore, most developing country Members consider special and differential treatment as a fundamental
tool to enable them to comply with their WTO commitments and fully participate in the WTO.
II.C. PROVISIONS ON SPECIAL & DIFFERENTIAL TREATMENT
The universe of special and differential treatment provisions consists of more than 145 provisions spread
across the different WTO Agreements and Decisions. A comprehensive overview of these provisions can be
found in the document "Implementation of Special and Differential Treatment Provisions in WTO Agreements
and Decisions" (WT/COMTD/W/77). All these provisions (including the provisions of the GATT and the
''Enabling Clause'' as presented below), generally referred to as "special and differential treatment provisions",
can be divided into six categories:
(1) Provisions aimed at increasing trade opportunities of developing
countries;
(2) provisions which require WTO Members to safeguard the interests of
developing Members when adopting protective trade measures;
(3) provisions allowing flexibility of commitments, of action and use of
economic and commercial policy instruments;
(4) provisions granting longer transitional periods for the implementation
by developing Members of various commitments flowing from the Agreements;
(5) provisions on TA to developing countries in the implementation of their
commitments as well as in their efforts to reap full benefits from trade
liberalization; and,
(6) provisions relating specifically to LDCs.
Provisions under which WTO Members should safeguard the interest of developing country Members are the
most numerous in the WTO Agreements, followed by flexibility provisions and those provisions aimed at
expanding the trade opportunities of developing country Members. The extent to which developing
country Members have recourse to these provisions varies across the range of WTO Agreements
and Decisions. As we will see later on, the WTO provisions on special and differential treatment are
currently under revision within the Doha Round of Negotiations with a view to strengthening them and
making them more precise, effective and operational (Doha Declaration, para. 44). In addition, new special
and differential treatment provisions are being negotiated across the different WTO Agreements.
II.C.1. PART IV OF THE GATT 1994 ("TRADE AND DEVELOPMENT")
In the period between 1957 and 1964, a large number of initiatives were taken in favour of developing country
Members (Reports, Declarations and Programmes), which finally lead up to the addition of Part IV to the GATT

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with the entry into force of the "Protocol Amending the GATT to Introduce Part IV on Trade and Development"
on 27 June 1966. Part IV of the GATT 1994 comprises three provisions: Article XXXVI (Principles and
Objectives), Article XXXVII (Commitments) and Article XXXVIII (Joint Action).
Part IV recognizes the need for a rapid and sustained expansion of the export earnings of the LDCs. To this
effect, developed country Members are called upon to take a number of actions, on a "best endeavour basis"
(provisions expressing intent rather than binding obligations, e.g. "to the extent possible"). These include
according high priority to the reduction and elimination of barriers to products currently or
potentially of particular interest to developing Members, including customs duties and other restrictions
which differentiate unreasonably between such products in their primary and processed forms
(Article XXXVII:1(a)).
Part IV also codifies in the MTS the concept of "non-reciprocity" in trade negotiations between developed and
developing country Members. The concept of non-reciprocity relates to developed country Members not
expecting reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and
other barriers to the trade of developing country Members. This has permitted developing countries, for
example, to undertake lower levels of tariff binding (see also Module 3).
II.C.2. THE 1979 DECISION ON DIFFERENTIAL AND MORE FAVOURABLE
TREATMENT, RECIPROCITY AND FULLER PARTICIPATION OF
DEVELOPING COUNTRIES ("ENABLING CLAUSE")
a. 1971 WAIVER
In 1971, the GATT CONTRACTING PARTIES adopted a waiver to give legal effect through GATT rules to the
unanimous agreement reached in the United Nations Conference on Trade and Development (UNCTAD) for a
mutually acceptable and non-reciprocal Generalized System of Preferences (GSP). The waiver was
granted temporally for 10 years to permit developed Contacting Parties to accord preferential treatment to
products originating in developing countries, without extending such treatment to like products of other
Contacting Parties, subject to certain conditions (L/3545). Tariff Preferences granted under the GSP were
temporary and voluntary in nature.
For more information about "waivers" and the conditions applicable to them, see Section II.C.4 of this Module
and Module 8.
b. DIFFERENTIAL AND MORE FAVOURABLE TREATMENT UNDER THE ENABLING
CLAUSE
The ''Enabling Clause'' consolidated the concept of "differential and more favourable treatment" for
developing Members as well as the principle of non-reciprocity in trade negotiations. Unlike the
Waiver in the 1971 Decision, the Enabling Clause provided a permanent legal basis for developed Contracting
Parties to accord preferential treatment to products originating in developing countries. Since the Enabling
Clause was adopted in 1979 under the GATT, it applies only to trade in goods.

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The main objective of the Enabling Clause is to increase commercial opportunities for developing Members. Its
most significant provision enables developed Members to accord, on a voluntary basis, differential and more
favourable treatment to developing Members as a departure from the MFN principle, subject to
certain conditions. This provision is the WTO legal basis for the GSP (see paragraph 2(a) below). Under the
GSP, developed country Members offer non-reciprocal preferential treatment (such as zero or lower duties) to
products originating in developing country Members. The Enabling Clause allows for:
 Preferential tariff treatment accorded by developed contracting parties to products
originating in developing countries in accordance with the GSP (paragraph 2(a));
 differential and more favourable treatment with respect to the provisions of the GATT
concerning non-tariff measures governed by the provisions of instruments multilaterally
negotiated under GATT (now WTO) auspices (paragraph 2(b));
 less-developed Contacting Parties to enter into regional or global arrangements
amongst themselves (i.e. agreements among developing country Members only) for the
mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which
may be prescribed by the Contacting Parties, for the mutual reduction or elimination of non-
tariff measures, on products imported from one another (paragraph2(c)); and,
 special treatment for the least developed among the developing countries in the context of any
general or specific measures in favour of developing countries (paragraph2(d)).
In 1999, Members adopted a waiver (until 30 June 2009) authorizing developing country Members to offer
tariff preferences to imports from LDC Members without having to offer a similar preference to imports from
other developed and developing countries. This expanded the scope of the Enabling Clause to cover
preferences given by developing country Members to goods from LDC Members (WT/L/304).
c. CONDITIONS FOR APPLYING THE ENABLING CLAUSE
Conditions for Applying the Enabling Clause
Any differential and more favourable treatment under the Enabling Clause:
a) Shall be designed to facilitate and promote the trade of developing countries and not to raise barriers to
or create undue difficulties for the trade of any other Contacting Parties;
b) shall not constitute an impediment to the reduction or elimination of tariffs and other restrictions to trade
on a most-favoured-nation basis; and,
c) shall in the case of such treatment accorded by developed Contacting Parties to developing countries be
designed and, if necessary, modified, to respond positively to the development, financial and trade needs
of developing countries.
In addition, any Member taking action to introduce, modify or withdraw from an agreement providing such
favourable treatment shall notify the Members and afford adequate opportunity for prompt consultations.
The Enabling Clause has less restrictive conditions than those provided in Article XXIV of the GATT, which
allows WTO Members to grant more favourable treatment to its trading partners within a customs union or a

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free trade area without extending such treatment to all WTO Members (you studied Article XXIV – Regional
Integration- in Module 8).
In the case of regional or global arrangements entered into amongst less-developed Members (agreements
exclusively among developing countries or South-South agreements), sub paragraph 2(c) creates a right for
developing country Members to enter into such arrangements without necessarily meeting the criteria set forth
in Article XXIV of the GATT. These arrangements (e.g. free trade agreements) may be notified to the WTO
under the Enabling Clause.
Case Law on the "Enabling Clause": EC-Tariff Preferences
In EC-Tariff Preferences, the Appellate Body agreed with the Panel that the Enabling Clause is an
"exception" to Article I.1 of the GATT, which embodies the MFN Principle.
In this case, the measure at issue was the EU's GSP scheme for developing countries and economies in
transition. In particular, special arrangements (Drug Arrangements) under the scheme to combat drug
production and trafficking only applied to the products originated in 12 beneficiary countries and not to the
like products originating in other Members, including those originating in India.
The Appellate Body concluded that the Drug Arrangements were not justified under paragraph 2(a) of the
Enabling Clause, as the measure, inter alia, did not set out any objective criteria, that, if met, would allow
for other developing country Members "that are similarly affected by the drug problem" to be included as
beneficiaries under the measure.
Although upholding the Panel's conclusion, the Appellate Body reversed the Panel's reasoning and found that
not every difference in tariff treatment of GSP beneficiaries necessarily constituted discriminatory treatment.
Granting different tariff preferences to products originating in different GSP beneficiaries is allowed under the
term "non-discriminatory" in footnote 3 to paragraph 2 of the Enabling Clause, provided that the relevant
tariff preferences respond positively to a particular "development, financial or trade need" and are made
available on the basis of an objective standard to "all beneficiaries that share that need".
II.C.3. SPECIFIC PROVISIONS UNDER THE WTO AGREEMENTS
The Uruguay Round marked a new approach to the "development dimension". The universe of special
and differential treatment includes provisions spread across the different Multilateral Agreements on Trade in
Goods (including the GATT 1994); the General Agreement on Trade in Services (GATS); the Agreement on
TRIPS; the Dispute Settlement Understanding (DSU); and various Ministerial Decisions (a summary of these
provisions can be found in: http://www.wto.org/english/tratop_e/devel_e/anexii_e.doc). As mentioned above,
these provisions on special and differential treatment can be classified into six categories, according to the
objective they pursue.
a. INCREASE TRADE OPPORTUNITIES OF DEVELOPING COUNTRY MEMBERS
These provisions consist of actions to be taken by Members to increase the trade opportunities of developing
country Members. These provisions are frequently, though not always, in "best endeavour" language
(e.g. "to the extent possible", Members "should").

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Examples are Articles XVIII and XXXVI-XXXVIII of the GATT 1994; the "Decision on Measures Concerning the
Possible Negative Effects of the Reform Programme on Least-Developed and Net-Food Importing Developing
Countries" (NFIDCs); Articles IV:1 and IV:2 of the GATS; and, paragraph 2(a) of the Enabling Clause. Lets
take a closer look at two of them: Article XXXVII of the GATT 1994 and Article IV:1 of GATS.
As mentioned above, in Article XXXVII:1 of the GATT 1994, developed Members of WTO have committed
themselves to accord high priority to the reduction and elimination of barriers to products currently or
potentially of particular export interest to developing countries, including customs duties and other
restrictions which differentiate unreasonably between such products in their primary and in their processed
forms.
Article IV:1 of GATS stipulates that the increasing participation of developing country Members in world
trade shall be facilitated through the negotiation of specific commitments, relating to the
strengthening of their domestic service capacity and its efficiency and competitiveness through access to
technology on a commercial basis; the improvement of their access to distribution channels and information
networks; and the liberalization of market access in sectors and modes of supply of export interest to them.
Overall, a broad question that seems to arise in relation to this class of provision concerns the extent to which
these provisions have contributed to increasing developing countries' trade opportunities (considering that
many of them do not constitute obligations on the part of developed country Members), how this may be
assessed, and, if they have not contributed to increasing developing countries' trade opportunities, what else
may be done.
b. SAFEGUARD THE INTERESTS OF DEVELOPING COUNTRY MEMBERS
These provisions concern either actions to be taken by Members, or actions to be avoided by Members,
so as to safeguard the interests of developing country Members. More than half of these provisions are
mandatory. An example of a mandatory provision is found in Article 9.1 of the Agreement on Safeguards.
According to this provision, safeguard measures "shall not be applied" against products originating in
developing countries if share of imports is not in excess of three per cent, and if developing country Members
with less than three per cent share do not account collectively for more than nine per cent of imports.
Questions raised regarding the effectiveness of these provisions are similar to those raised in relation to the
"trade opportunities" class.
TYPE OF PROVISIONS EXAMPLES RELEVANT MODULE
Provisions to Safeguard the
Interest of Developing
Country Members
Agreement on Sanitary and
Phytosanitary Measures (SPS
Agreement), Articles 10.1, 10.4
Module 4
Agreement on Subsidies and
Countervailing Measures (SCM
Agreement), Articles 27.1
and 27.15
Module 5

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TYPE OF PROVISIONS EXAMPLES RELEVANT MODULE
Anti-Dumping Agreement,
Article 15
Module 5
Agreement on Safeguards,
Article 9.1
Module 5
DSU, Articles 4.10, 8.10, 12.10,
12.11, 21.2, 21.7, and 21.8
Module 10
c. FLEXIBILITY OF COMMITMENTS, OF ACTION AND USE OF POLICY INSTRUMENTS
These provisions relate to: (i) actions developing country Members may undertake through exemptions from
disciplines otherwise applying to the membership in general; (ii) exemptions from commitments otherwise
applying to Members in general; or, (iii) reduced level of commitments developing country Members may
choose to undertake when compared to Members in general.
Their importance may be understood in terms of their actual or potential role in facilitating the integration of
trade and trade policy into the pursuit of wider development policy objectives. These types of provisions
are especially important in those areas and agreements where WTO rules have extended beyond
traditional GATT-type border measures. In almost all cases, flexibility takes the form of individual
provisions which Members may choose, or not, to exercise.
TYPE OF PROVISIONS EXAMPLES RELEVANT MODULE
Provisions providing
Flexibility of Commitments,
of Action and Use of Policy
Instruments
GATT 1994, Article XVIII,
Sections A, B C and D
Modules 8 and 9
Agreement on Agriculture,
Articles 6.2, 6.4, 9.2(b)(iv), 9.4,
12.2, 15.1
Module 4
SCM Agreement,
Articles 27.2 (a) and Annex VII;
Article 27.4; 27.7; 27.8, 27.9;
27.10; 27.11, 27.12, and 27.13
Module 5
GATS, Articles V:3 and XIX:2 Modules 6 and 9
As mentioned earlier, Article XVIII of the GATT 1994 (Government Assistance to Economic Development), as
interpreted by various Declarations and Decisions over time, allows developing country Members to:
(a) maintain sufficient flexibility in their tariff structure to be able to grant the tariff protection

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required for the establishment of a particular industry; and, (b) apply restrictions for
balance-of-payments (BOPs) purposes "in a manner which takes full account of the continued high level of
demand for imports likely to be generated by their programmes of economic development" (the exception for
BOPs purposes was explained in Module 8). While Sections A and B of Article XVIII were expected by the
drafters to be sufficient to enable developing country Members to meet the requirements of their economic
development, it was recognized that there may be circumstances where no measure consistent with these
provisions is practicable, and special procedures were laid down in Sections C and D of the Article to deal with
those cases.
The main exception is the GATS, where in addition to individual provisions, flexibility is built into the overall
structure of the agreements providing flexibility on an individual, case-by-case basis through negotiated
commitments. As we have studied in Module 6, the "positive list" approach of the GATS means that
developing countries themselves decide in which sectors to make liberalization commitments.
Article XIX:2 of the GATS provides that in the negotiations for specific commitments in the process of
liberalization, there shall be appropriate flexibility for individual developing country Members for opening fewer
sectors, liberalizing fewer types of transactions, progressively extending market access in line with their
development situation and, when making access to their markets available to foreign service suppliers,
attaching such access conditions aimed at achieving the objectives of increasing their participation in world
trade.
d. LONGER TRANSITIONAL PERIODS
These provisions relate to time-bound exemptions from generally applicable disciplines. Most of the
transition time periods in the various agreements have elapsed.
In some cases, the provisions, in addition to specifying a time-period, include modalities through which an
extension might be sought. Transition time periods were an innovation of the Uruguay Round. They reflected
the recognition that Members could incur transition costs to implement the WTO Agreements and
accompanying reforms.
TYPE OF PROVISIONS EXAMPLES RELEVANT MODULE
Provisions granting Longer
Transitional Periods
Agreement on Agriculture,
Article 15.2
Module 4
SCM Agreement,
Articles 27.2 (a) , 27.4; 27.14,
27.5, 27.6 and 27.11,
Module 5
TRIPS Agreement, Articles 65.2
and 65.4
Module 7

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e. TECHNICAL ASSISTANCE
Many WTO Agreements provide for technical assistance to developing country and LDC Members. The WTO
Agreements where these provisions feature prominently tend to be those which require significant levels of
capacity for their implementation. Technical assistance may be given directly by developed country Members
on a bilateral basis or under the technical cooperation programme of the WTO Secretariat.
WTO TA is a key component of the development dimension of the multilateral trading system and
thus, it will be explained more in detail in Section III.B. Its objective is to empower developing countries and
LDCs to mainstream trade into their national development plans and strategies and to strengthen their
knowledge base.
f. LEAST-DEVELOPED COUNTRIES (LDCS)
All the provisions for differential and more favourable treatment of developing country Members
are also applicable to LDC Members. Many provisions, however, contain additional benefits for LDC
Members (see document "Special and Differential Treatment for LDCs", WT/COMTD/W/135). Some of these
decisions are explained below.
TYPE OF PROVISIONS EXAMPLES RELEVANT MODULE
STUDIED IN:
Provisions that contain
additional benefits for LDC
Members
Agreement on Agriculture,
Article 15.2, 16.1 and 16.2
Module 4
Agreement on Technical Barriers
to Trade, Article 11.8
Module 4
GATS, Articles IV:3 and XIX:3 Module 6
TRIPS, Article 66.1 and 66.2 Module 7
II.D. THE ENHANCED INTEGRATED FRAMEWORK (EIF)
The (enhanced) Integrated Framework (E)(IF) is the mechanism available to LDCs to help them use trade as
an instrument of national development. "Trade" is used here in the wide sense of "producing and selling
abroad". The EIF, formerly the IF, is an international partnership that was established to support LDC
governments in trade capacity-building and integrating trade issues into overall national development
strategies. Through the IF, multilateral agencies such as the International Monetary Fund (IMF), International
Trade Centre (ITC), United Nations Conference on Trade and Development (UNCTAD), United Nations
Development Programme (UNDP), the World Bank and WTO combine their efforts with those of LDCs, their
donors and other development partners to respond to the trade development needs of LDCs so they can
become full and active players and beneficiaries of the MTS.

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The IF was launched in October 1997 at the High-Level Meeting on LDC's Trade Development organised by the
WTO in recognition of the supply side constraints facing LDCs. Since then, it has been constantly approved
and has led to the current EIF. In fact, at the WTO Ministerial Conference in Hong Kong, in 2005, Ministers
reaffirmed their commitment to better integrate LDCs into the MTS, and that the vehicle for doing so would be
an enhanced IF, enhanced through increased financial resources to implement action plans, strengthened in-
county capacities to manage, implement and monitor IF progress, and a more effective governance of the IF.
Please note that the EIF is not a new initiative but an enhanced (improved) version of the IF that has been in
place since its inception. The EIF applies to all IF beneficiaries. Almost all LDCs are currently beneficiaries of
the (E)IF.
The objectives of the EIF are:
 To mainstream trade into LDCs' national development plans (NDPs) such as PRSPs;
 to assist in the coordinated delivery of TRTA in response to needs identified by LDCs; and,
 to develop the capacity of LDCs to trade, including through capacity-building and addressing supply
constraints.
The EIF is designed to be the overarching mechanism available to LDCs to map out the totality of their trade
priorities (upstream and down stream) and approach their donor community to seek collaboration and
necessary financing.
The key principles at the core of the EIF:
 Country-ownership of the process; the LDCs have the lead;
 tripartite partnership: LDCs, EIF Agencies, Donors and other development partners;
 demand-driven and tailor-made approach; and,
 participatory approach, especially by involving the private sector at all stages.
The EIF process consists of four phases, namely:
 Awareness-building on the importance of trade for development in the beneficiary LDC; and
establishing/strengthening of the in-country IF governance structure;
 preparing a Diagnostic Trade Integration Study (DTIS or DTIS update) to identify constraints to
overall competitiveness and supply chains and sectors of greatest export potential. The DTIS
includes an action matrix – a list of trade priorities – for better integration into the global
trading system as well as write-up on the LDC’s strategy for IF implementation, and executing
this strategy;
 with respect to mainstreaming trade into the national development strategy; and,
 with respect to seeking financing from the development partners for priority actions requiring
external funding.

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TO KNOW MORE... THE EIF
The EIF process has a global as well as an in-country governance structure and a multilateral Trust Fund
attached to it.
The Trust Fund manager of the enhanced IF is UNOPS: UN Office for Project Services, taking over from
UNDP which was the Trust Fund manager for the IF Trust Fund.
The EIF has two global governing bodies: the Integrated Framework Steering Committee (IFSC) and the
Integrated Framework Board (Board) whose meetings take place at the WTO. At the global level, the EIF
also has an Executive Secretariat (ES) administratively housed in the WTO and headed by an Executive
Director (ED).
The governance at the in-country level is ensured by the National Implementation Arrangements (NIAs).
One of the key elements of the EIF is building strong in-country capacities in LDCs to manage, implement
and monitor the EIF process, and by so doing, to use trade as an engine for growth. This is reflected in the
provision to finance National Implementing Arrangements through the Trust Fund of the EIF (through Tier 1
of the EIF Trust Fund). Specifically, beneficiary countries are expected to set up National Implementing
Units (NIUs) to assist the Focal Points (FPs) in coordinating among the various government agencies and
the private sector on trade and IF issues, helping with donor coordination, and preparing and implementing
projects, as well as monitoring the overall progress of the IF process in country. The national EIF
programme is overseen by the National Steering Committee (NSC), providing the much needed support at
the political level. The NSC, FP and NIU are supported by a Donor Facilitator (DF).
Funding of the actions identified in the DTIS and its Action Matrix and requiring financial resources is done
trough three separate channels:
 The EIF's Trust Fund (EIFTF);
 local/regional/multilateral donors active in the respective EIF beneficiary LDC; or,
 the national budget.
To obtain funds through the EIFTF: the EIFTF consists of two financing arrangements: Tier 1; and Tier 2.
Activities proposed for EIFTF funding (rather than for local/regional/multilateral Donor action or national
budget) should be translated into Tier 1 or Tier 2 projects. Project proposals should be designed and adopted
at the local level before submission for approval by the Board. Specific procedures to ensure accountability
and country ownership apply. Please refer to the EIF Website: www.integratedframework.org or the EIF
Executive Secretariat for information on detailed procedures.
To obtain funds from your local/regional/multilateral donor action: it is advisable that throughout the EIF
process in your country you keep your local donor community abreast and involve them early on so they can
incorporate your trade priorities into their aid cycles and assist you in project design. Mainstreaming the
DTIS and its Action Matrix into your national development plan such as PRSPs will greatly facilitate this as
donors often look to these plans for their overall aid programming.
For more information on the IF, see: http://www.integratedframework.org.

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WAIVERS
Besides legal provisions stated explicitly in WTO Agreements, actions in favour of developing country Members,
individually or as a group, may also be taken under "waivers" (e.g. "The Decision on Waiver regarding
Preferential Tariff Treatment for LDCs" - see above). As we studied in Module 8, the Ministerial Conference
may decide, in exceptional circumstances, to waive an obligation imposed on a Member by the Agreement
Establishing the WTO (Article IX:3 of the Agreement Establishing the WTO).
II.E. MONITORING BODIES
As mentioned earlier, most WTO bodies from time to time deal with specific issues of importance to developing
country Members. However, there are two WTO bodies which deal exclusively with questions related to trade
and development: The CTD and its Sub-Committee on LDCs. All WTO Members are also Members of the CTD
and the Sub-Committee on LDCs.
II.E.1. THE COMMITTEE ON TRADE AND DEVELOPMENT (CTD)
The CTD is the focal point for consideration and coordination of work on development in the WTO. As such it is
the forum where any WTO Member can bring up any matter related to development in the WTO context. If a
developing country Member has a concern with respect to a specific provision of a particular WTO Agreement it
is normally dealt with in the WTO body responsible for that Agreement whereas all broader, cross-cutting and
systemic development matters are raised in the CTD.
The CTD keeps under continuous review the participation of developing countries in the multilateral trading
system. It also reviews the application of the special provisions in the WTO Agreements in favour of
developing countries. The CTD also receives notifications under the Enabling Clause (e.g. regarding the GSP or
regional trade agreements among developing country Members).
In addition to holding between four and five regular meetings a year to discuss development concerns of WTO
Members, the CTD can meet in different formats. In order to better manage its work, it meets in regular
session, special session or dedicated session. The CTD special sessions concern the DDA negotiations on
Special and Differential Treatment provisions whereas the dedicated session focuses on the work programme
for small and vulnerable economies (for more detail see below). Since 2006, the CTD also holds sessions on
Aid for Trade (also below).
II.E.2. SUB-COMMITTEE ON LDCS
As a subsidiary body to the CTD, the Sub-Committee on LDCs, is the focal point within the WTO for
consideration of any matter relating to issues of interest to LDCs, including the implementation of the WTO
Work Programme for the LDCs (WT/COMTD/LDC/11, see the section below on LDCs in the DDA). The
Sub-Committee reports to the CTD.

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EXERCISES
1. How is a Member classified as "developing" or "least developed" in the WTO?
2. Explain what the Enabling Clause is and list the four types of differential and more favourable treatment
for developing countries included therein.
3. List the six categories used to classify the provisions on special and differential treatment. Give one
example for each one.

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III. DOHA DEVELOPMENT AGENDA (DDA)
At the Doha Ministerial Conference, in November 2001, Trade Ministers launched the DDA placing the needs
and interests of developing country Members at the heart of the WTO's work programme. Ministers stressed
the importance of ensuring that developing countries, and especially the LDCs among them, secure a
share in the growth of world trade commensurate with the needs of their economic development
(WT/MIN(01)/DEC/1). Several specific mandates were set out in the Doha Declaration to achieve this
objective. These include:
III.A. DEVELOPMENT ASPECTS OF THE DOHA DEVELOPMENT
AGENDA (DDA)
III.A.1. IMPLEMENTATION-RELATED ISSUES AND CONCERNS
As explained in Module 1, "implementation related-issues and concerns” refers to problems raised
particularly by developing country Members about the implementation of the current WTO
Agreements. Some of this implementation issues were settled through negotiations at or before the Doha
Ministerial. However, many other implementation issues of concern to developing countries have not been
settled. These issues became an integral part of the work programme of the DDA.
The Implementation-related issues were spelt out in paragraph 12 of the Doha Declaration itself and a
separate Ministerial ''Decision on Implementation-related Issues and Concerns'' (WT/MIN(01)/17). This
Decision refers to several provisions on several matters including agriculture, SPS, textiles and clothing, TBT,
anti-dumping, customs valuation and TRIPS, where Members face problems with implementation.
III.A.2. SPECIAL AND DIFFERENTIAL TREATMENT
Members reaffirmed that provisions for special and differential treatment are an integral part of the
WTO Agreements. They agreed that all special and differential treatment provisions (studied in Section II.C
of this Module) should be reviewed with a view to strengthening them and making them more precise,
effective and operational (Doha Declaration, para. 44).
In this regard, the Doha Declaration (together with the "Decision on Implementation-Related Issues and
Concerns", WT/MIN(01)/17) mandates the CTD to identify which of those special and differential treatment
provisions are mandatory and to consider the legal and practical implications of making mandatory those
which are currently non-binding. In addition, the CTD is to consider ways in which developing country
Members, particularly the LDCs, may be assisted to make best use of special and differential treatment (Doha
Declaration, para. 12). This mandate has been reaffirmed in the Hong Kong Ministerial Conference (Hong Kong
Declaration, paras. 35-38 - WT/MIN(05)/DEC).

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III.A.3. LEAST-DEVELOPED COUNTRIES (LDCS)
In Doha, Members recognized that the integration of LDCs into the MTS requires meaningful market access,
support for the diversification of their production and export base and TRTA and capacity-building. Shortly
after Doha, Members adopted a Work Programme for LDCs (WT/COMTD/LDC/11) which is designed to respond
to the LDC specific issues and concerns. The Work Programme contains seven elements: (i) market access for
LDCs; (ii) trade-related technical assistance and capacity-building initiatives for LDCs; (iii) providing, as
appropriate, support to agencies assisting with the diversification of LDCs production and export base;
(iv) mainstreaming, as appropriate, into WTO's work the trade-related elements of the LDC-III Programme of
Action, as relevant to WTO's mandate; (v) participation of LDCs in the MTS; (vi) accession of LDCs to the WTO;
and, (vii) follow-up to WTO Ministerial Decisions/Declaration.
In Doha, Members committed themselves to the objective of duty-free, quota-free market access for
LDCs' products and to consider additional measure for progressive improvements in market access
for LDCs (Doha Declaration, paras. 42-43). Furthermore, in the Hong Kong Ministerial, Members agreed to
take additional measures to provide effective market access, both at the border and otherwise, including
simplified and transparent rules of origin so as to facilitate exports from LDCs. Members also agreed that
developed country Members and developing country Members in a position to do so will provide duty-free,
quota-free market access for at least 97 per cent of products originating from LDCs (Hong Kong Declaration,
Annex F) (see also box below: Development Aspects of the DDA in Market Access – Agriculture, Non
Agricultural Market Access (NAMA) and Services).
III.A.4. SMALL AND VULNERABLE ECONOMIES
Small economies face particular challenges in their participation in world trade, for example, lack of economies
of scale or limited natural resources. In Doha, Members agreed to examine issues relating to the trade of
small economies. The objective is to frame responses to the trade-related issues identified for the fuller
integration of small, vulnerable economies into the MTS, without creating a sub-category of WTO
Members (Doha Declaration, para. 35). The Doha Declaration mandates the General Council to examine these
problems and make recommendations to what trade-related measures could improve the integration of small
economies. This mandate was confirmed in Hong Kong (Hong Kong Declaration, para. 41). Small economies
have also been active in defending their interests in both the DDA negotiations and in various WTO
committees. Proposals made since 2001 by the proponents of small and vulnerable economies have been
compiled in document WTCOMTDSEW22R2 and represent progress to date with the Small Economies' Work
Programme
III.A.5. TECHNICAL COOPERATION AND CAPACITY BUILDING
Members recognized that technical cooperation and capacity building are core elements of the
development dimension of the MTS, and that the delivery of WTO TA shall be designed to "assist
developing and LDCs and low-income countries in transition to adjust to WTO rules and disciplines, implement
obligations and exercise the rights of membership, including drawing on the benefits of an open, rules-based
MTS'' (Doha Declaration, para. 38). The critical importance of trade capacity-building was confirmed by
Ministers in Hong Kong (Hong Kong Declaration, para 38). Section III.B will explain more in detail WTO TRTA.

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III.A.6. AID FOR TRADE
In Hong Kong, Ministers agreed to create a new WTO work programme on "Aid for Trade" aimed at helping
developing countries, particularly LDCs, to build the supply-side capacity and trade-related
infrastructure that they need to implement and benefit from WTO Agreements and more broadly to
expand their trade (Hong Kong Declaration, para. 57). The Aid for Trade initiative will be explained in more
in detail in the next section.
Development Aspects of the DDA in Market Access (Agriculture, NAMA and Services)
Agriculture plays an important role in the development of many WTO Members. However, many of the
world's agricultural producers are currently disadvantaged because of high tariffs and competition from
producers that receive high levels of domestic or export-related support. In the negotiations, developing
country Members stand to gain from the reduction of tariff barriers and the expansion of tariff rate
quotas in both, developed and developing country Members. Other issues of importance for
developing countries include the special agricultural safeguard (SSG), the flexibility to designate an
appropriate number of "special products", preference erosion and tropical products. Besides market access,
developing country Members will also gain from the elimination of all forms of export subsidies and
disciplines on all export measures with equivalent effect to be completed by the end of 2013 (Hong Kong
Declaration, para. 6). In Hong Kong, Members also agreed to address cotton ambitiously, expeditiously and
specifically, within the agriculture negotiations. In this regard, they agreed that developed countries will
give duty-free and quota-free access for cotton exports from LDCs, from the commencement of the
implementation period, and that all forms of export subsidies for cotton would be eliminated by developed
countries in 2006, (Hong Kong Declaration, para. 11).
Trade in NAMA accounts for more than 90 per cent of world trade in goods. In Doha, Members agreed to
negotiations which shall aim to reduce or as appropriate eliminate tariff peaks, high tariffs and tariff
escalation (explained in Module 3), as well as non-tariff barriers, in particular on products of export
interest to developing countries. In this regard, product coverage shall be comprehensive and without a
priori exclusions. The negotiations shall take fully into account the special needs and interests of developing
and LDC Members, including through less than full reciprocity in reduction commitments, in
accordance with the relevant provisions of Article XXVIIIbis of GATT 1994 (Tariff Negotiations) and other
relevant WTO provisions on special and differential treatment (Doha Declaration, para. 16).
In Hong Kong, Ministers agreed that developed country Members and developing country Member in a
position to do so will provide duty-free, quota-free market access for at least 97 per cent of products
originating from LDCs, defined at the tariff line level, no later than the start of the
implementation period of the Doha Round (Hong Kong Declaration, Annex F).
As for the development dimension in the Services negotiations, developing countries stand to gain
considerably from the further opening of trade in services, both on the part of their trading partners and in
terms of their own policy regime. The negotiations on trade in services shall be conducted with a view to
promoting the economic growth of all trading partners and the development of developing
countries and LDCs (Doha Declaration, para. 15). In this regard, particular attention will be given to
sectors and modes of supply of export interest to developing countries (Hong Kong Declaration,
paras. 26 – 27). With regard to LDCs, Members shall implement the LDC modalities (TN/S/13) and give
priority to the sectors and modes of supply of export interest to LDCs, particularly with regard to movement
of service providers under Mode 4 -movement of natural people- (explained in Module 6).

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Least-developed country Members are not expected to undertake new commitments (Hong Kong
Declaration, para. 47). To know more on the development aspects of the DDA, see document
WT/COMTD/W/143/Rev.3.
III.B. AID FOR TRADE
Although the volume of aid for TRTA and capacity-building has been increasing steadily since the launch of the
DDA, the need for further assistance has been widely recognized by the international community. Aid for
Trade was created as a complement to the DDA.
III.B.1. WHAT IS "AID FOR TRADE"?
''Aid for Trade'' is about helping developing countries to increase their exports of goods and services,
to integrate into the MTS, and to benefit from liberalized trade and increased market access.
Trade has the potential to be an engine for growth in developing countries. However, as explained at the
beginning of this Module, many developing countries face barriers that prevent them from benefiting from the
world trading system. Some of these barriers, which the Doha Round of Negotiations aims to reduce or
eliminate (e.g. tariff and non-tariff barriers), are in export markets. However, internal barriers, such as
inadequate financing or poor infrastructure can be just as difficult for exporters to overcome. Aid
for Trade is aimed at targeting these supply-side constraints.
Effective Aid for Trade will enhance growth prospects and reduce poverty in developing countries, as well as
complement multilateral trade reforms and distribute the global benefits more equitably across and within
developing countries. It is recognized that Aid for Trade cannot be a substitute for the development benefits
that will result from the successful conclusion of the DDA, particularly on market access. However, it can be a
valuable complement to the DDA.
Aid for Trade includes the following four main areas:
Technical assistance — helping countries to formulate trade policies, develop trade
strategies, negotiate more effectively and implement outcomes;
infrastructure - building the roads, ports, and telecommunications that link domestic
and global markets;
productive Capacity — investing in industries and sectors so countries can diversify
exports and build on comparative advantages; and,
adjustment Assistance — helping with the transition costs from liberalization, such
as those derived from tariff reductions, etc.

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Figure 1: Aid for Trade
III.B.2. WHAT ROLE DOES THE WTO PLAY IN AID FOR TRADE?
As you know, the WTO delivers TA and capacity-building, but cannot deliver development assistance since it is
not a development agency (such as the World Bank, Regional Development Banks or other development
agencies). However, the WTO plays a catalytic role by ensuring that the agencies responsible for
development understand the trade needs of WTO Members, and encouraging them to work together
in addressing such needs.
This is related to the "coherence mandate" provided in Article III:5 of the Agreement Establishing the WTO.
According to it, one of the functions of the WTO is to promote coherence in global economic policy-making and
to work with the World Bank, the IMF and other international actors to deliver a more coordinated international
policy.
III.B.3. MONITORING AID FOR TRADE
The Director-General of the WTO carried out a wide series of consultations throughout 2006 on appropriate
mechanisms to secure additional financial resources for Aid for Trade. His consultations focused in particular
on how the WTO could best cooperate with intergovernmental financial, development agencies and main
bilateral donors to support the expansion of their programmes of assistance for trade-related projects.
WTO Members mandated work on Aid for Trade, as adopted at the Hong Kong Ministerial Conference, was
followed by the creation of a Task Force on Aid for Trade, which was established by the WTO
Director-General and endorsed by the General Council in 2006. The Task Force made recommendations on
"how to operationalize Aid for Trade" and on "how Aid for Trade might contribute most effectively to the
development dimension of the DDA" (WT/AFT/1).
The mandate also gave a monitoring role to the WTO. This role will consist of global reviews held in the WTO's
General Council.

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Monitoring and evaluation takes place on three levels:
 Global level (using data compiled by the Organization of Economic Cooperation and
Development (OECD)-Development Aid Committee’s Creditor Reporting System (CRS)
database) to assess whether additional resources are being delivered, to identify where gaps
lie, to highlight where improvements should be made and to increase transparency on pledges
and disbursements;
 donor level (based on donor self-assessments), to share best practices, to identify areas for
improvement and to increase transparency on pledges and commitments; and,
 country and regional level (also self-assessments) to provide a more focused, country-specific
perspective on whether trade needs are being met, financial resources are being provided and whether
Aid for Trade is effective.
The Global Aid for Trade Review was the focal point of WTO's monitoring mandate in 2007. It brought
together, partner countries, donors and those who've received aid, to examine and discuss what's been done
and what should be done in the future. In 2008, the CTD gave a green light to the Aid for Trade Roadmap for
2008 — featuring national and sub-regional Aid for Trade reviews in Africa, Latin America and the Caribbean,
and Asia and the Pacific. These were organized with the participation of the African Development Bank
(http://www.afdb.org), the Inter-American Development Bank (http://www.iadb.org) and the Asian
Development Bank (http://www.adb.org). The 2nd Global Review was held in June 2009.
NOTE
For more information on the WTO' work program on Aid for trade, see:
http://www.wto.org/english/tratop_e/devel_e/a4t_e/aid4trade_e.htm
The 1st Global Review of Aid for Trade in 2007 has been conducted collaboratively by the OECD and the
WTO, see:
http://www.wto.org/english/tratop_e/devel_e/a4t_e/a4t_at_a_glance07_e.pdf
III.C. WTO TRADE-RELATED TECHNICAL ASSISTANCE
Trade capacity-building is a core function of the WTO Secretariat as a whole. The new orientation in
WTO TRTA is geared towards sustainable trade capacity-building in beneficiaries. Its objective is to empower
developing and LDCs with mainstreaming trade into their national development plans and
strategies and to strengthen their knowledge base. Trade-related technical assistance is the WTO's
contribution to the operationalization of the Aid for Trade Initiative.
Within the WTO Secretariat, the ITTC is responsible for the design, coordination, and implementation of WTO
TRTA activities. Current efforts are geared towards enhancing the quality and impact of the Secretariat’s
TRTA. The regular body overseeing TRTA activities is the CTD.

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III.C.1. WHO CAN BENEFIT FROM WTO TRADE-RELATED TECHNICAL
ASSISTANCE
WTO's TRTA programmes and activities are primarily geared towards government officials from
developing and LDC Members and acceding countries, who are responsible for WTO-related issues,
including the implementation of the WTO Agreements and the Doha Round of Negotiations. Efforts are being
channelled to gradually reach a broader audience, including academia, civil society, parliamentarians and
private sector representatives.
III.C.2. OBJECTIVES OF WTO TECHNICAL ASSISTANCE AND TRAINING
WTO's main objective is to assist beneficiary countries to:
 Support domestic efforts to mainstream trade into national plans for economic development
and strategies for poverty reduction;
 enhance institutional and human capacity in the field of trade;
 integrate more fully into the MTS;
 exercise the rights of WTO Membership; and,
 fully participate in multilateral trade negotiations.
III.C.3. THE WTO TECHNICAL ASSISTANCE AND TRAINING PLAN
In order to achieve its objectives, ITTC prepares a biennial Technical Assistance and Training Plan ("The
TA Plan"), which provides the WTO Secretariat's backbone for the delivery of all activities.
The TA Plan identifies the types of activities delivered by the WTO Secretariat and sets out the
objectives for the planning and delivery of such activities for the period concerned (see TA Plan
2008-2009, WT/COMTD/W/160). The TA Plan normally foresees a number of specific activities, mostly at
regional level, to be delivered within a given year. It also foresees the possibility of additional activities at the
national level on the basis of specific requests by Members. The TA Plan is adopted by the CTD
III.C.4. TECHNICAL ASSISTANCE ACTIVITIES
The TA Plan features a range of activities or "products", which can be used in the delivery of TRTA and
training as well as some programmes. Each product targets different needs, objectives, audiences and
levels of knowledge. Given the different nature of the TA and training activities proposed and the objectives
for each product, it is important that, prior to enrolling a participant on a specific course, the needs of the
participant and the expected benefits for the beneficiary country are carefully assessed.
The products can broadly be grouped in five categories: (to know more on each product see:
http://www.wto.org/english/tratop_e/devel_e/train_e/course_details_e.htm).

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WTO
Trade-Related
Technical
Assistance
Products
1. General WTO-related TA and training: activities designed to offer a broad
understanding of all WTO-related matters. Most of the products within this
category are directed to government officials with a broad overall WTO
responsibility and a general knowledge of the WTO. They include the Geneva-
based Trade Policy Courses (TPCs), as well as the field based Regional Trade
Policy Courses (RTPCs), lasting up to twelve weeks.
2. Specialized and advanced TA and training: this category addresses specific
topics geared mainly towards specialists. They may cover any WTO subject, including
NAMA, SPS measures, services negotiations, dispute settlement. The main purpose is
to address issues that cannot be covered in the general courses. They include national
and/or regional seminars and workshops, as well as courses, and can be held in Geneva
or in the field. This category includes, inter alia, a Programme for Government Senior
Officials and a Course on Trade Negotiations Skills.
3. E-Learning programme: the e-Learning Programme takes full advantage of
information technology and the Internet as a complement or alternative to traditional
training face-to-face programmes. It does not require the simultaneous presence of
trainees and trainers in Geneva or elsewhere. Each type of product targets different
categories of participants and meets distinct needs. It includes the eTraining
Programme, which provides interactive courses over the internet for government
officials (courses such as this one and specialized courses on specific WTO matters,
such as agriculture, SPS measures, trade remedies and TRIPS). It also includes a
number of computer-based self-training modules available online through the WTO
Webpage or on CD-ROM/DVDs.
4. Academic support for training and capacity-building: this programme is part of
the Secretariat's effort to develop partnerships with the trade policy-related academic
community in Member countries. These partnerships are designed to promote "joined
up" capacity-building, simultaneously enhancing the academic capacity for such training
in developing countries and promoting WTO-relevant research intended to strengthen
their negotiating capacity. It ranges from national workshops for academics to a PhD
support programme.
5. Trainee programmes and internships: the objective of these programmes is to
build human capacities in a systematic and cumulative manner. They provide an
opportunity to officials to get first hand exposure to the functioning of the MTS and/or
to provide support to the respective beneficiaries' permanent missions or to the
coordinators of selected WTO regional groups. They include the Netherlands Trainee
Programme, the Mission Internship Programme and the WTO Regional Coordinator
Internship.

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III.C.5. SPECIFIC ACTIVITIES FOR LEAST-DEVELOPED COUNTRIES (LDCS)
The main challenge for the WTO is to assist LDCs to integrate into the MTS and to benefit from progressive
liberalization in world trade. Another challenge is to assist LDCs to participate fully in the negotiating process
of the DDA.
Least-developed countries are associated with over 40 per cent of all TRTA delivered, including national
activities held in LDCs, regional seminars, workshops and training activities to which LDCs are invited. Thus, in
line with the Doha Declaration, priority attention is and will continue to be given to LDCs. Some products are
specifically or largely geared towards LDCs, for example those delivered under the EIF, the three week
Introduction Courses for LDCs, Geneva Weeks, the Reference Centres Programme and the Netherlands Trainee
Programme.
NOTE
For more information on the WTO's TRTA activities and the ongoing and forthcoming training activities, see
http://www.wto.org/english/tratop_e/devel_e/teccop_e/tct_e.htm
EXERCISES
4. What is the DDA? Give examples to show how developmental issues were placed at the heart of the
negotiating agenda.
5. What is the WTO striving to achieve under the mandate of Aid for Trade?
6. Explain the main objective of WTO's TRTA and training and who can benefit from it.

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IV. SUMMARY
Developing countries face particular difficulties in implementing and taking advantage of the WTO
Agreements and trade liberalization. The WTO Agreements recognize this particular situation and the link
between trade and development by providing special and differential treatment in favour of developing and
LDC Members. Moreover, with the launch of the DDA in 2001, WTO Members have placed development
issues and the interests of developing countries at the heart of the current WTO's work. Within the WTO,
the CTD and its Sub-Committee on LDCs are the two bodies that deal specifically with development-related
matters.
The provisions on special and differential treatment in favour of developing country Members included in the
WTO Agreements and Decisions intend to address the special needs of these countries. According to their
objective, such provisions can be divided in six categories: (1) provisions aimed at increasing trade
opportunities (e.g. require to accord high priority to the reduction and elimination of barriers to products of
particular export interest to developing countries); (2) safeguard the interest of developing country
Members; (3) flexibility of commitments, of action and use of policy instruments (e.g. to maintain sufficient
flexibility in their tariff structure to be able to grant the tariff protection required for the establishment of a
particular industry); (4) longer transitional period for implementation; (5) technical assistance; and,
(6) special provisions for LDCs. However, some of these provisions, specially those contained in categories
1 and 2, have been rarely invoked or used by developing country Members.
One of the main Decisions on special and differential treatment, known as the "Enabling Clause",
consolidated the principle of "non-reciprocity" in trade negotiations. According to this principle, developed
country Members should not expect reciprocity for commitments made by them in trade negotiations to
reduce or remove tariffs and other barriers to the trade of developing country Members.
The Enabling Clause is an "exception" to the MFN principle embodied in Article I of the GATT 1994. The
most significant provision of the Enabling Clause is that which enables developed country Members to offer -
on a voluntary basis - more favourable tariff treatment to imports from developing country Members,
without the obligation to extend such treatment to other WTO Members, subject to some conditions.
Another important provision of the Enabling Clause relates to global or regional arrangements among
developing country Members (explained in Module 8).
In launching the DDA in 2001, Ministers stressed the importance of ensuring that developing countries, and
especially the least-developed countries among them, secure a share in the growth of world trade
commensurate with the needs of their economic development. In the Doha Round of Negotiations,
developing country Members stand to gain, among others, from improved market access in developed
markets and expanded opportunities in other developing countries. In addition, several specific mandates
were set out, such as to address the problems particularly developing country Members face in the
implementation of the WTO Agreements, and to review all special and differential treatment provisions with
a view to make them more precise, effective and operational.
In 2005, at the Hong Kong Ministerial, Ministers entrusted the WTO Director-General with a work
programme on ''Aid for Trade'', which is aimed at helping developing countries to build the supply-side and
trade-related infrastructure they need to implement and benefit from liberalized trade and increased market
access. It is recognized that Aid for Trade can be a valuable complement to the DDA.

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In this regard, the WTO plays a catalytic role by ensuring that the agencies responsible for development
understand the trade needs of WTO Members, and encouraging them to work together in addressing such
needs.
Another core element of the development dimension of the MTS is WTO trade-related TA aimed at
empowering developing country and LDC Members mainstreaming trade into their national development
plans and strategies and to strengthen their knowledge base. To this end, the ITTC designs and coordinates
TRTA and training activities and programmes within the WTO.
Least-developed countries receive special attention in the WTO. All the WTO Agreements recognize that they
must benefit from the greatest possible flexibility. The provisions for special and differential treatment for
developing country Members also apply to LDC Members. In October 1997, the Integrated Framework (now
Enhanced Integrated Framework -EIF) was launched to support LDC governments in trade capacity building
and integrating trade issues into their overall national development strategies.

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PROPOSED ANSWERS
1. There is no WTO definition of "developing" country. The principle of "self-election" applies, that is,
Members decide for themselves if they are to be considered "developing countries". Other Members may
challenge the decision of a Member to make use of provisions available to developing countries. With
respect to LDCs, the WTO recognises as such those which have been designated as "least-developed
countries" by the United Nations Economic and Social Council.
2. The ''Enabling Clause'' consolidated the principle of non-reciprocity in trade negotiations. The main
objective of the Enabling Clause is to increase commercial opportunities for developing Members. Its most
significant provision enables developed Members to accord, on a voluntary basis, differential and more
favourable treatment to developing Members as a departure from the MFN principle, subject to certain
conditions.
The Enabling Clause allows for: (i) preferential tariff treatment accorded by developed Contacting Parties
to products originating in developing countries in accordance with the Generalized System of Preferences
(GSP) - under the GSP, developed country Members offer non-reciprocal preferential treatment (such as
zero or lower duties) to products originating in developing country Members; (ii) differential and more
favourable treatment with respect to the provisions of the GATT concerning non-tariff measures governed
by the provisions of instruments multilaterally negotiated under the WTO auspices; (iii) less-developed
Contacting Parties to enter into regional or global arrangements amongst themselves for the mutual
reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed
by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff measures, on
products imported from one another; and, (iv) special treatment for the least developed among the
developing countries in the context of any general or specific measures in favour of developing countries.
3. The provisions on special and differential treatment can be classified into six categories: (1) provisions
aimed at increasing trade opportunities of developing countries (e.g. Article VI of the GATS); (2)
provisions which require WTO Members to safeguard the interests of developing Members when adopting
protective trade measures (e.g. Article 10.1 of the SPS Agreement); (3) provisions allowing flexibility of
commitments, of action and use of economic and commercial policy instruments (e.g. Article XVIII of
GATT 1994); (4) provisions granting longer transitional periods for the implementation by developing
Members of various commitments flowing from the Agreements (e.g. Article 65.2 of the TRIPS
Agreement); (5) provisions on TA to developing countries in the implementation of their commitments as
well as in their efforts to reap full benefits from trade liberalization (e.g. Article 67 of the TRIPS
Agreement); and, (6) provisions relating specifically to LDCs (e.g. Article 11.8 of the TBT Agreement).
4. At the Doha Ministerial Conference, WTO Members launched the DDA which placed the needs and
interests of developing Members at the heart of the WTO's work programme. In the DDA, developing
country Members stand to gain, among others, from improved market access in developed markets and
expanded opportunities in other developing countries. In addition, several specific mandates were set
out, such as to address the problems particularly developing country Members face in the implementation
of the WTO Agreements, to review all special and differential treatment provisions with a view to make
them more precise, effective and operational, to adopt a work programme for LDCs directed to respond to
the LDC specific issues and concerns, to examine issues relating to the trade of small economies and to
create a new programme on Aid for Trade. In addition, they recognized that technical cooperation and
capacity-building are core elements of the development dimension of the MTS.

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5. In Hong Kong, Ministers agreed to create a new WTO work programme on "Aid for Trade" aimed at
helping developing countries, particularly LDCs, to build the supply-side capacity and trade-related
infrastructure that they need to implement and benefit from WTO Agreements and more broadly to
expand their trade. Aid for Trade is about helping developing countries to increase their exports of goods
and services, to integrate into the MTS, and to benefit from liberalized trade and increased market access.
It includes four main areas: (i) technical assistance; (ii) infrastructure; (iii) productive capacity; and,
(iv) adjustment assistance. Aid for Trade was created as a complement to the DDA.
6. Its objective is to empower developing and LDCs to mainstream trade into their national development
plans and strategies and to strengthen their knowledge base. Priority attention is given to LDCs.
Furthermore, TRTA is the WTO contribution to the operationalization of the Aid for Trade Initiative. WTO's
TRTA programmes and activities are primarily geared towards government officials from developing and
LDC Members and acceding countries, who are responsible for WTO-related issues, including the
implementation of the WTO Agreements and the Doha Round of Negotiations. Efforts are being
channelled to gradually reach a broader audience, including academia, civil society, parliamentarians and
private sector representatives.

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Surveillance in the WTO:
Dispute Settlement System & Trade Policy
Review Mechanism
ESTIMATED TIME: 3 1/2 hours
OBJECTIVES OF MODULE 10
 Present the WTO Dispute Settlement System in accordance with the Understanding
on Rules and Procedures Governing the Settlement of Disputes (DSU) as contained
in Annex 2 to the Marrakesh Agreement Establishing the WTO; and,
 introduce the WTO Trade Policy Review Mechanism (TPRM) as contained in Annex 3
to the Marrakesh Agreement Establishing the WTO.
MODULE
10

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I. INTRODUCTION
As you studied in Module 1, the Marrakesh Agreement Establishing the WTO (the "Agreement Establishing the
WTO") has four Annexes. Annexes 1, 2, and 3, which include the "Multilateral Trade Agreements", apply to all
the WTO Members.
From Modules 2 to 9, you have studied the main rules set out in various WTO Agreements contained in
Annex 1 to the Agreement Establishing the WTO, including those regulating international trade in goods
(Annex 1A), international trade in services (Annex 1B), and trade-related aspects of intellectual property rights
(Annex 1C).
In this Module, we will introduce Annexes 2 and 3 to the Agreement Establishing the WTO, which set out the
rules relating to two of the main functions of the WTO:
 Annex 2 - Understanding on Rules and Procedures Governing the Settlement of Disputes
(The DSU); and,
 Annex 3 - Trade Policy Review Mechanism (TPRM).
Annex 2 relates to the function of providing a forum for the settlement of disputes between WTO Members.
The dispute settlement system plays an important role in the multilateral trading system (MTS) by enforcing
and clarifying the legal obligations contained in the WTO "covered Agreements" (that is, most importantly, the
Agreement Establishing the WTO, and the Agreements in Annexes 1 and 2). Annex 3 provides for regular
surveillance of national trade policies through the TPRM.
The first part of the Module will provide you with an overview of the main functions and objectives of the WTO
dispute settlement system, its main features and the process for settling trade disputes among WTO Members
as set forth in the DSU. The second part will explain the functioning of the TPRM, including its main objectives
and the collective review process undertaken on the trade policies of all Members.
Why is the WTO dispute settlement system important?
The best international agreement is not worth very much if its obligations cannot be enforced when one of
the signatories fails to comply with such obligations. An effective mechanism to settle disputes thus
increases the practical value of the commitments the signatories undertake in an international
agreement. The fact that the WTO Members established the current dispute settlement system during the
Uruguay Round of multilateral trade negotiations underscores the high importance they attach to compliance
by all Members with their obligations under the WTO Agreement.
Settling disputes in a timely and structured manner is important. It helps to prevent the detrimental effects
of unresolved international trade conflicts and to mitigate the imbalances between stronger and weaker
players by having their disputes settled on the basis of rules rather than having power determine the
outcome. Most people consider the WTO dispute settlement system to be one of the major results of the
Uruguay Round. After the entry into force of the WTO Agreement in 1995, the dispute settlement system
soon gained practical importance as Members frequently resorted to using it.

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II. THE DISPUTE SETTLEMENT SYSTEM (DSS)
IN BRIEF
Typically, a dispute arises when a WTO Member adopts a trade policy measure that one or more
Members consider to be inconsistent with the obligations set out in the WTO Agreements. Any
Member that feels aggrieved is entitled to have resort to the WTO dispute settlement system to challenge
such a measure.
The WTO dispute settlement system constitutes one of the major outcomes of the Uruguay Round. The
system underscores the rule of law and makes the trading system more secure and predictable. By doing
so, it provides a mechanism through which WTO Members can ensure that their rights under the WTO
Agreements can be enforced.
The dispute settlement procedure is based on clearly-defined rules, including a timeframe for completing
a case. First rulings are made by a panel. Appeals based on points of law are possible. The rulings
of panels and the Appellate Body have to be adopted by WTO Members through the Dispute Settlement
Body (DSB). However, the point is not to pass judgement. The priority is to settle disputes through
mutually agreed solutions if possible.
The rules and procedures of the WTO dispute settlement system are embodied in the DSU, which applies to
all WTO Members.
II.A. OBJECTIVES AND FUNCTIONS OF THE WTO DISPUTE
SETTLEMENT SYSTEM
The main functions and objectives of the WTO dispute settlement system can be summarized as follows:
PROVIDE SECURITY AND PREDICTABILITY TO THE MTS
The WTO dispute settlement system is a central element in providing security and predictability to the MTS
(Article 3.2 of the DSU). Member states, and, more particularly private economic operators, need to have a
stable and predictable framework of rules for their commercial activities. The WTO dispute settlement system
aims to provide a fast, efficient, dependable, and rule-oriented system to resolve disputes about the application
of the provisions of the WTO covered Agreements.
PRESERVE THE RIGHTS AND OBLIGATIONS OF WTO MEMBERS
The dispute settlement system provides a mechanism through which WTO Members can ensure that their
rights under the WTO covered Agreements can be enforced. The rulings of the bodies involved are intended to
reflect and correctly apply the rights and obligations as they are set out in the WTO Agreements.

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They must not add to or diminish the rights and obligations provided in the WTO Agreement (Articles 3.2 and
19.2 of the DSU, see also US – Certain EC products, Appellate Body Report, para. 92).
CLARIFY PROVISIONS OF THE WTO AGREEMENTS THROUGH
INTERPRETATION
The precise scope of the rights and obligations contained in the WTO Agreement is not always evident from a
mere reading of the legal texts. Legal provisions are often drafted in general terms so as to cover a multitude
of individual cases. In addition, legal provisions in international agreements often lack clarity because they are
compromise formulations resulting from multilateral negotiations. Thus, in most cases, the answer can be
found only after interpreting the provision at issue. The dispute settlement system is intended to clarify the
provisions of the WTO covered Agreements in accordance with customary rules of interpretation of
public international law (Article 3.2 of the DSU, see also US – Certain EC products, Appellate Body Report,
para. 92). These customary rules of interpretation will be explained later on.
As we saw in Module 1, Members have the right to seek authoritative interpretation of provisions of a WTO
Agreement through decision-making. Article IX:2 of the Agreement Establishing the WTO provides that the
Ministerial Conference and the General Council have the exclusive authority to adopt interpretations of the
WTO Agreement. While the interpretations of the Ministerial Conference and the General Council are applicable
to all WTO Members, the interpretation of the adjudicating bodies under the DSU are legally binding only upon
the parties in respect of the subject matter of a specific dispute.
FAVOUR MUTUALLY AGREED SOLUTIONS
Although the dispute settlement system is intended to uphold the rights of aggrieved Members and to clarify
the scope of the rights and obligations, the primary objective of the system is not to make rulings. A solution
mutually acceptable to the parties to a dispute, and consistent with the WTO Agreements is clearly
to be preferred. Adjudication is to be used only when the parties cannot work out a mutually agreed
solution. To promote mutually agreed solutions, the DSU requires formal consultations as the first stage of any
dispute. Even when the case has progressed to the stage of adjudication, a bilateral settlement always
remains possible (Articles 3.7 and 11 of the DSU).
DETAILED PROCEDURES AND PROMPT SETTLEMENT OF DISPUTES
The DSU emphasizes that the prompt settlement of disputes is essential to the effective functioning of the WTO
and for the maintenance of a proper balance between the Members' rights and obligations (Article 3.3 of the
DSU). Accordingly, the DSU sets out in considerable detail the procedures and corresponding
deadlines to be followed in resolving disputes. As you will see, if a case is adjudicated, it should normally
take no more than nine months for a panel ruling and no more than 12 months if the case is appealed
(Article 20 of the DSU). The DSU provides shorter timeframes in cases of urgency (e.g. perishable goods).
Furthermore, some provisions allow a party to move forward with the case even in the absence of agreement
of the other party (e.g. Article 6.1 of the DSU).

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SECURE WITHDRAWAL OF INCONSISTENT MEASURES
If it is not possible for Members to reach a mutually agreed solution, the first objective of the dispute
settlement system is to secure the withdrawal of measures which have been found to be inconsistent
with a provision of the WTO covered Agreements (Article 3.7 of the DSU).
II.B. MAIN FEATURES OF THE WTO DISPUTE SETTLEMENT
MECHANISM
A procedure for settling disputes existed under Articles XXII and XXIII of the old General Agreement on Tariffs
and Trade (GATT) 1947. Several of the principles and practices that evolved in this dispute settlement
mechanism were, over the years, codified in decisions and understandings of the CONTRACTING PARTIES of
GATT 1947.
The DSU, as the legal basis of the WTO dispute settlement system, adheres to the principles for the
management of disputes developed under the GATT 1947 (Article 3.1 of the DSU). However, the DSU
modifies and elaborates upon the old GATT rules and procedures on dispute settlement. Compared
to the old GATT dispute settlement procedure, the DSU introduced several innovative features and
improvements which make the WTO dispute settlement system quasi-judicial in nature. First, there is assured
access to these procedures. Second, there is near automaticity in decision-making in certain key issues
related to settlement of individual disputes (for example, panel establishment and adoption of panel and
Appellate Body reports by the DSB). Third, the DSU provides an integrated framework, that is, a single
general dispute mechanism which applies to disputes arising under all covered Agreements with only minor
variations. Fourth, the DSU provides a detailed procedure for each stage of the dispute, with specific
timeframes and deadlines. Finally, there is provision for appellate review.
II.B.1. WHO CAN PARTICIPATE IN A WTO DISPUTE ?
Only WTO Member governments have the right to participate in the dispute settlement system. The
WTO Secretariat, WTO observer countries, other international organizations, and regional or local governments
are NOT entitled to initiate dispute settlement proceedings in the WTO.
a. PARTIES (COMPLAINANT VS. RESPONDENT)
The DSU sometimes refers to the Member government bringing a dispute as the “complaining party” or the
“complainant”. The terms “responding party” or “respondent” are commonly used to refer to the Member
government whose measure is challenged by the complainant in the dispute. A dispute may also involve more
than one WTO Member as complainant (Article 9 of the DSU).
b. THIRD PARTIES
A WTO Member that is neither the complainant nor the respondent may be interested in the matter of a
dispute. Such Member may participate as a "third party". They enjoy some rights, such as to have the

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opportunity to be heard by the panel and to make written submissions, provided that they have a "substantial
interest" in the matter before a panel and they have notified such interest to the DSB (Article 10.2 of the DSU).
If a third party considers that a measure, already the subject of a panel, nullifies or impairs benefits accruing
to it under any covered Agreement, it may initiate a dispute settlement procedure on its own merit. The
participation as "third party" offers important advantages, especially to developing country Members, who can
gain valuable experience in the dispute settlement proceedings without getting directly involved as a party.
Are private parties or non governmental organizations allowed to participate in a WTO dispute?
Since only WTO Member governments can bring disputes, it follows that private individuals or companies do
NOT have direct access to the dispute settlement system, even if they may often be the ones (as exporters
or importers) most directly and adversely affected by the measures allegedly violating the WTO Agreement.
The same applies to non governmental organizations (NGOs) with a general interest in the matter in dispute.
As we will see later on, Article 13 of the DSU provides panels the right to seek information and technical
advice from any individuals or bodies which they deem appropriate. According to WTO jurisprudence,
Article 13 permits panels to accept and consider or reject unsolicited amicus curiae briefs (see
US – Shrimp, Appellate Body Report, paras. 105 - 110; and, EC – Sardines, Appellate Body Report, paras.
165 & 167). The term "amicus curiae briefs" refers to submissions received from entities which
are not a party or third party of a WTO dispute. These submissions may come from non governmental
organizations, including industry associations or university professors.
There are divergent views among Members on whether non governmental organizations may play
a role in WTO dispute settlement proceedings, including on whether WTO adjudicating bodies may
accept and consider amicus curiae briefs.
To date, only a few panels have in fact made use of their discretion to accept and consider unsolicited
amicus curiae briefs, after consulting with the parties. Since panels have no obligation to consider these
briefs, amicus curiae have no legal right to participate before a panel. However, such briefs may be
considered when presented attached to the submission of a party (complainant or respondent) (see e.g.
Appellate Body Report, US - Shrimp, paras. 89 - 110).
II.B.2. WAYS OF SETTLING DISPUTES UNDER THE DISPUTE SETTLEMENT
UNDERSTANDING (DSU)
The WTO dispute settlement mechanism provides for two main ways of resolving disputes: 1. Mutually
Agreed Solution; or, 2. Adjudication.

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Figure 1: Two Ways of Resolving Disputes under the DSU
With the exception of arbitration, adjudication cannot be requested until consultations have taken
place or unsuccessful attempts to consult have been made. The DSU contains rules and procedures to
be followed by WTO Members for both consultations and adjudications.
a. MUTUALLY-AGREED SOLUTIONS
As mentioned above, the DSU favours solutions mutually acceptable to the parties to the dispute, provided that
they are consistent with the WTO Agreements (Article 3.7 of the DSU). Mutually agreed solutions to matters
formally raised under the consultation and dispute settlement provisions of the covered Agreements must be
notified to the DSB and the relevant Councils and Committees, where any Member may raise any point relating
thereto (Article 3.6 of the DSU).
1. CONSULTATIONS
The objective of consultations is to allow parties to obtain satisfactory adjustment of the matter before
resorting to any further action (Article 4.5 of the DSU). Each Member undertakes to accord sympathetic
consideration to, and afford adequate opportunity for, consultation regarding any representation made by
another Member concerning measures affecting the operation of any WTO Agreement (Article XXII of the
GATT 1994; Article XXII of the General Agreement on Trade in Services (GATS); and Article 4.2 of the DSU).
Consultations allow parties to clarify the facts of the matter, thus dispelling misunderstandings as to the actual
nature of the measure and claim at issue.
2. GOOD OFFICES, CONCILIATION AND MEDIATION
Unlike consultations, good offices, conciliation and mediation are not a compulsory stage in the WTO dispute
settlement process. Article 5 of the DSU provides for good offices, conciliation and mediation to be
undertaken voluntarily if the parties to the dispute agree. They are strictly confidential and do not
diminish the position of either party in any subsequent dispute settlement procedure. Good offices, conciliation
and mediation may begin at any time and be terminated at any time.

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b. ADJUDICATION
Adjudication under the DSU can be by a panel (Articles 6 to 16 of the DSU), the Appellate Body (Article 17 of
the DSU) in case of appeal of the panel report, or an arbitrator (Article 25 of the DSU).
Panel and Appellate Body reports have, where applicable, to contain the recommendation that a measure
which was found inconsistent with a WTO Agreement be brought into conformity with that Agreement. These
reports may also suggest ways in which the Member concerned could implement the recommendations
(Article 19 of the DSU)
II.B.3. BODIES AND ENTITIES INVOLVED IN THE WTO DISPUTE
SETTLEMENT PROCESS
a. DECISION MAKING - THE DSB
As we saw in Module 1, the General Council discharges its responsibilities under the DSU through the DSB,
which consists of representatives of all WTO Members (Article IV:3 of the Agreement Establishing the WTO).
The DSB is responsible for administering the DSU, i.e. for overseeing the entire dispute settlement
process.
1. MAIN FUNCTIONS OF THE DSB
The DSB has the authority to establish panels of experts to consider a case, to adopt panel and Appellate Body
reports, maintain surveillance of the implementation of rulings and recommendations, and to authorize the
suspension of concessions under the covered Agreements when a Member does not comply with a ruling
(Article 2.1 of the DSU).
2. DECISION-MAKING IN THE DSB AND NEGATIVE CONSENSUS RULE
The general rule is for the DSB to take decisions by consensus, as is the case for all decision-making in the
WTO (see Module 1). However, a radically different procedure is followed in decision-making at some key
stages in the dispute settlement process: establishment of a panel; adoption of panel and Appellate Body
reports; and authorization for suspension of concessions or other obligations. At these stages the decision to
accept the request, or adopt the report is taken unless there is a consensus against it; so-called "negative
consensus". It contrasts sharply with the ''positive consensus'' rule applied in the old GATT dispute
settlement system, where a consensus was required for the adoption of a ruling. The negative consensus rule
constitutes one of the major outcomes of the WTO dispute settlement system.
Example: "negative consensus rule" vs. "positive consensus rule"
Imagine that Medatia and Tristat are two WTO Members. Suppose that in a dispute between Medatia and
Tristat a panel found that Tristat is applying an internal regulation in a manner that discriminates against
imported products from Medatia in favour of like domestic products from Tristat. Accordingly in its final
report the panel concludes that Tristat is acting in a manner that is inconsistent with the national treatment
obligation provided in Article III:4 of the GATT 1994 (see Module 2). If Tristat does not appeal the report
the next step would be the adoption of the report by the DSB.

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According to the negative consensus rule the DSB will adopt the report unless all WTO Members represented
at the meeting of the DSB (including Medatia – the "winning" party) decide against the adoption of the
report (Article 16.4 of the DSU). As you may have noticed in practice this rule allows the report to be
adopted quasi-automatically. After the establishment of a panel the adoption of a panel report by the DSB is
the second key instance in which the decision-making rule of negative consensus applies in the WTO dispute
settlement system. The quasi-automatic adoption of a panel report pursuant to the negative consensus rule
is important because the panel's report only becomes binding after the DSB has adopted it.
It contrasts sharply with the positive consensus rule applied in the old GATT dispute settlement mechanism
where, by analogy, a consensus from all WTO Members represented at the meeting of the DSB would be
required for the adoption of a ruling. The opposition of only one Member would be enough to block the
adoption of a ruling. In our example, under the positive consensus rule, Tristat - the "losing" party - would
be able to block the adoption of the report.
b. ADJUDICATING BODIES
Figure 2: Adjudicating Bodies
1. PANELS
Where the Members concerned cannot find a mutually agreed solution through consultations, the DSB must, at
the request of a party of the dispute, establish a panel. The panel must review the factual and legal
aspects of the case and submit a report to the DSB.
Panels consist normally of three (and possibly up to five) experts who examine the legal and factual aspects of
the case and submit a report to the DSB. The panel's report includes its conclusions as to whether the
challenged measure is consistent or not with the WTO covered Agreements (Article 11 of the DSU). There is
no permanent panel at the WTO; instead, a different panel is composed for each dispute.
Who can be called to serve on a panel?
Panels are to be composed of well-qualified governmental and/or non-governmental individuals. The
selection of panelists is made with a view to ensuring the independence of the panel's members, a
sufficiently diverse background and a wide spectrum of experience (Article 8.2 of the DSU). Citizens of
WTO Members whose governments are parties of the dispute, or third parties, as defined in the DSU, may not

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serve on a panel concerned with that dispute, unless the parties of the dispute agree otherwise (Article 8.3 of
the DSU). The WTO Secretariat maintains an indicative list of names from which panelists may be chosen.
The panel stage will be explained while describing the WTO process for settling disputes (Section II.C).
2. THE APPELLATE BODY
Panel reports can be appealed by either party in a dispute. The Appellate Body is entrusted with the task
of reviewing the legal aspects of the reports issued by panels. The Appellate Body may uphold, modify
or reverse the legal findings and conclusions of the panel (Article 17.6 of the DSU). In doing so, it also provides
consistency of decisions, which is in line with the objective of providing predictability to the system. The
Appellate Body is the second and final stage in the adjudicatory part of the dispute settlement system.
The Appellate Body is composed of seven Members who are appointed by consensus by the DSB, to serve for
a four-year term, with the possibility of being reappointed once (Article 17.2 of the DSU). Thus, unlike the
panels, the Appellate Body is a permanent body. It shall comprise persons of recognized authority, with
demonstrated expertise in law, international trade and the subject matter of the WTO covered Agreements
generally. The Appellate Body membership must be broadly representative of the WTO membership
(Article 17.3 of the DSU). The appellate review process will be also examined in Section II.C.
3. ARBITRATORS
Arbitration, as an alternative to dispute resolution through panel and Appellate Body procedures, may be
resorted to by parties to a dispute, through mutual agreement (Article 25 of the DSU). The DSU does not
contain detailed procedures regarding resort to arbitration. Parties of the dispute are free to apply the rules
and procedures they deem appropriate through mutual agreement. An agreement to resort to arbitration shall
be notified to all Members sufficiently in advance of the actual commencement of the arbitration process. The
parties to the proceeding shall agree to abide by the arbitration award. Arbitration awards shall be notified to
the DSB and the relevant Council or Committee.
As we will see later on, arbitration may also be used during the stage of implementation of - and alleged
non-compliance with - DSB recommendations (to establish the reasonable period of time for implementation
and/or to determine the level of suspension of benefits in case of non-compliance). The stage of
implementation and non-compliance will be explained in Section II.C.
c. EXPERTS
Disputes often involve complex factual questions of a technical or scientific nature, for instance when the
existence or degree of a health risk related to a certain product is the subject of contention between the
parties. As mentioned earlier, according to Article 13 of the DSU, panels have the right to seek
information and technical advice from any individuals or bodies which they deem appropriate. To
know more about the right to seek information and technical advice from experts, see the next box.

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TO KNOW MORE... RIGHT TO SEEK INFORMATION AND TECHNICAL ADVICE FROM
EXPERTS
Panels may seek information from any relevant source, but before seeking information from any individual
or body within the jurisdiction of a Member, the panel must inform that Member. In addition, some
provisions in the covered Agreements explicitly authorize or require panels to seek the opinions of experts
when they deal with questions falling under such Agreements (e.g. Articles 14.2, 14.3 of the DSU and
Annex 2 of the Agreement on Technical Barriers to Trade (TBT)).
With respect to a factual issue concerning a scientific or other technical matter raised by a party to a
dispute, panels may request an advisory report in writing from an expert review group (Article 13.2 of the
DSU). Rules for the establishment of expert review groups and their procedures are contained in Appendix 4
of the DSU. Final reports of expert review groups are issued to the parties to the dispute. Expert review
groups only have an advisory role.
d. THE SECRETARIAT
As explained in Module 1, the WTO Secretariat, among others, provides assistance in the dispute
settlement process.
1. ROLE OF THE DIRECTOR-GENERAL
GOOD OFFICES, CONCILIATION AND MEDIATION
The Director-General of the WTO may, acting in an ex officio capacity, offer good offices, conciliation or
mediation with a view to assisting Members in settling a dispute (Article 5.6 of the DSU).
APPOINTMENT OF PANELISTS
The Director-General may also be requested, in certain circumstances, to appoint panel members. Upon
receiving a request from either party to the dispute, the Director-General must determine the composition of
the panel in consultation with the Chairman of the DSB and the Chairmen of the relevant Councils or
Committees, after consulting the parties to the dispute. The Director-General must appoint the panelists
whom he or she considers most appropriate in accordance with the DSU and any other special or additional
rules or procedures of the covered Agreement(s) concerned in the dispute.
APPOINTMENT OF ARBITRATORS
The Director-General may appoint an arbitrator during the stage of implementation to establish a reasonable
period of time for implementation and/or to determine the level of suspension of concessions (footnote to
Articles 21.3(c) and 22.6 of the DSU).

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2. SECRETARIAT STAFF
The Secretariat staff ensure the administrative support of the DSB. The Secretariat also assists Members in
respect of dispute settlement at their request (Article 27.2 of the DSU).
The Secretariat assists panels, especially on the legal, historical and procedural aspects of the matters dealt
with by the panels, but also with respect to secretarial and technical support (Article 27.1 of the DSU). The
Secretariat staff assisting a panel is usually composed of a secretary to the panel and a legal officer. As we will
see later on when we address the provisions on special and differential treatment included in the DSU, in
addition to conducting training courses for interested Members concerning dispute settlement procedures and
practices, the Secretariat also provides additional legal advice and assistance in respect of dispute settlement
to developing country Members.
TO KNOW MORE... RULES OF CONDUCT
Under the DSU, the "players" in the dispute settlement process are subject to certain rules aimed at
ensuring due process and unbiased recommendations and rulings.
Rules of Conduct for the Understanding on Rules and Procedures Governing the Settlement of Disputes (the
Rules of Conduct, WT/DSB/RC/1) are applicable to "covered persons", which include panel members,
Appellate Body members, experts assisting panels, arbitrators and Secretariat staff.
Under the Rules of Conduct, covered persons are required to be independent and impartial, to avoid direct or
indirect conflicts of interest, and to respect the confidentiality of proceedings of bodies pursuant to the
dispute settlement mechanism, in order to ensure that the integrity and impartiality of that mechanism is
maintained. In particular the covered persons are required to disclose the existence or development of any
interest, relationship or matter that he or she could reasonably be expected to know and that is likely to
affect, or give rise to justifiable doubts as to, that person's independence or impartiality.
II.B.4. SUBSTANTIVE SCOPE OF THE DISPUTE SETTLEMENT SYSTEM
THE COVERED AGREEMENTS
The WTO dispute settlement system applies to all disputes brought pursuant to the consultation and dispute
settlement provisions of the WTO Agreements listed in Appendix 1 of the DSU (Article 1.1 of the DSU). These
Agreements are referred to as the "covered Agreements" in the DSU and they include the Agreement
Establishing the WTO, as well as basically all the Agreements annexed thereto (GATT, GATS, Trade-Related
Intellectual Property Rights (TRIPS), the DSU and Plurilateral Trade Agreements) with the exception of the
TPRM in Annex 3. Many matters brought before the DSB include alleged violations of more than one covered
Agreement.
However, there are two exceptions to the general application of the DSU. First, in cases where there are so-
called ''special and additional rules and procedures'' on dispute settlement contained in the covered
Agreements (e.g. in the Agreement on Subsidies and Countervailing Measures (SCM)), they prevail over the
rules in the DSU to the extent that there is a conflict between the two (Appendix 2 of the DSU). Second, the

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applicability of the DSU to the Plurilateral Trade Agreements - in Annex 4 of the WTO Agreement Establishing
the WTO - is subject to the adoption of a decision by the parties to each of these Agreements setting out the
terms for the application of the DSU to the individual Agreement, including any special and additional rules or
procedures (Appendix 1 of the DSU).
Interpretation of the WTO "covered Agreements" and the customary rules of interpretation of
public international law
As mentioned earlier, the precise scope of the rights and obligations contained in the WTO Agreements is not
always evident from a mere reading of the legal texts. Therefore, Article 3.2 of the DSU recognizes the need
to clarify the rights and obligations of Members under the WTO covered Agreements pursuant to
"customary rules of interpretation of public international law''.
While customary international law is normally unwritten, the Vienna Convention on the Law of Treaties
(VCLT) has codified in Articles 31, 32 and 33 some of these customary rules of treaty
interpretation. Although Article 3.2 of the DSU does not refer directly to such provisions, the Appellate
Body has recognized their status of "rule of customary or general international law" (US – Gasoline, p. 17;
Japan – Alcoholic Beverages II, pages 10-12). WTO adjudicating bodies make frequent reference to these
rules when interpreting provisions contained in the covered Agreements. These legal interpretations are
legally binding only on the parties and in respect of the subject matter of a specific dispute.
The text of the VCLT can be found at:
http://untreaty.un.org/ilc/texts/instruments/english/conventions/1_1_1969.pdf
II.B.5. EXCLUSIVE JURISDICTION OF WTO DISPUTE SETTLEMENT BODIES
Article 23 of the DSU states that Members shall have recourse to, and abide by, the rules and procedures of
the DSU when they seek redress of a violation of obligations under the covered Agreements.
The DSU promotes the use of a multilateral system of dispute settlement in place of unilateralism
(unilateral actions by Members in the resolution of trade conflicts). This multilateral system is based on the
principles for the management of disputes developed under Articles XXII and XXIII of GATT 1947 (and now of
GATT 1994), as further elaborated and modified by the DSU (Article 3.1 of the DSU).
Besides excluding unilateral actions by the Members, Article 23 of the DSU also precludes the use of other
fora for the resolution of disputes regarding any provision of the WTO covered Agreements. In other
words, the WTO dispute settlement mechanism has primacy over outside fora as far as the adjudication of
disputes and the enforcement of WTO law is concerned.
Therefore, WTO adjudicating bodies have exclusive jurisdiction to adjudicate rights and obligations
under the WTO covered Agreements. Furthermore, a panel is not in a position to choose freely whether or
not to exercise such jurisdiction. According to the Appellate Body, a decision by a panel to decline to exercise
validly established jurisdiction would seem to "diminish" the right of a complaining Member to "seek the
redress of a violation of obligations" within the meaning of Article 23 of the DSU and would not be consistent
with a panel's duties under the DSU (Mexico – Taxes on Soft Drinks, Appellate Body Report, paras. 52-53).

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II.B.6. WHAT ARE THE DIFFERENT TYPES OF COMPLAINTS UNDER THE
WTO DISPUTE SETTLEMENT SYSTEM ?
As explained above, Articles XXII and XXIII of the GATT 1994 are the original legal basis for GATT/WTO dispute
settlement system. They contain ''consultation and dispute settlement'' provisions which are nowadays set out
in more detail in the DSU.
Article XXIII retains its significance mainly for specifying in paragraph 1 (a to c) the conditions under which
the complainant can invoke the dispute settlement system. Accordingly, a WTO Member can resort to the
dispute settlement system if it considers that any benefit accruing to it directly or indirectly under the
Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is
being impeded as the result of one of the three scenarios or types of complaint specified below:
a. violation complaint: the respondent fails to carry out its obligations under the GATT 1994 or
other covered Agreement. In the case of violation of a WTO covered Agreement, nullification or
impairment is presumed to exist (Article 3.8 of the DSU);
b. non-violation complaint: a WTO-consistent measure frustrates the benefit a Member
legitimately expects from another Member under the WTO covered Agreements (for an example see
Japan- Film, DS44); and,
c. situation complaint: situation other than those mentioned in subparagraphs (a) and (b).
Among these, the so-called "violation complaint" is by far the most frequent. Only a few cases have been
brought on the basis of an allegation of non-violation nullification or impairment of trade benefits. No
"situation complaint" has ever resulted in a panel or Appellate Body report based on Article XXIII:1(c) of the
GATT 1994.
With respect to WTO Agreements falling under Annex 1A of the Agreement Establishing the WTO (dealing with
trade in goods), the complainant generally has to demonstrate that benefits accruing to it under a WTO
Agreement have been nullified or impaired by another Member's measure, whether or not the measure violates
a provision of the covered Agreement (Article XXIII:1 of the GATT 1994).
With respect to trade in services, under the GATS (Annex 1B of the WTO Agreement), the failure by any
Member to carry out its obligations or specific commitments under GATS gives another Member the right to
have recourse to the DSU (Article XXIII:1 of the GATS). Nullification or impairment of a benefit which could be
reasonably expected to accrue to a Member under a specific commitment can be alleged in the absence of a
conflict with the provisions of GATS (Article XXIII:3 of the GATS). Regarding the TRIPS Agreement, in
principle, the three types of complaints as explained above apply to it. However, Article 64.2 of the TRIPS
Agreement excluded "non-violation" and "situation complaints" for the first five years from the entry into force
of the WTO Agreement. This "moratorium" has been extended several times, while the TRIPS Council has
continued its examination of the scope and modalities of such complaints with a view to making
recommendations.

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EXERCISES
1. Summarize the main objectives and functions of the WTO dispute settlement system as envisaged in
the DSU.
2. Can private parties or NGOs participate in WTO disputes?
3. Explain briefly the main functions of the DSB, the panel and the Appellate Body.
4. What are the "covered Agreements"?

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II.C. THE PROCESS OF THE WTO DISPUTE SETTLEMENT
SYSTEM
In order to promote the settlement of disputes, the DSU sets out in considerable detail the procedures and the
timetable for the various stages of a dispute.
STAGES OF THE WTO DISPUTE SETTLEMENT PROCESS
There are three main stages to the WTO dispute settlement process:
(i) Consultations between the parties;
(ii) Adjudication by panels and, if applicable, by the Appellate Body; and,
(iii) Implementation of the ruling, which includes the possibility of suspending concessions or other
obligations in the event of failure by the losing party to implement the ruling.

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Figure 3: Flow chart of the Dispute Settlement Process
The flow chart above illustrates the main stages and timeframes of the WTO dispute settlement
process. As shown in the chart, the sum of the underlined timeframes represents the approximate total time
generally needed to settle a WTO dispute.
TOTAL TIME FOR REPORT ADOPTION
For the adjudicating stage (from ''the establishment of the panel'' to ''the adoption of panel/Appellate Body
report''), it normally takes 9 months without appeal, and 12 months with appeal (Article 20 of the DSU).

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II.C.1. CONSULTATIONS
As mentioned earlier, the preferred objective of the DSU is for the Members concerned to settle the dispute
between themselves in a manner that is consistent with the WTO Agreements (Article 3.7 of the DSU).
Accordingly, bilateral consultations are the first stage of formal dispute settlement.
Figure 4: Consultations
a. OBJECTIVES AND MAIN FEATURES
Consultations are subject to Article 4 of the DSU and any relevant WTO covered Agreements. As mentioned
earlier, their objective is to allow parties to obtain satisfactory adjustment of the matter before resorting to
further actions (Article 4.5 of the DSU). They are a mandatory stage of the WTO dispute settlement process.
Consultations have a confidential character (Article 4.6 of the DSU). Nevertheless, any mutually agreed
solutions reached even during this stage must be notified to the DSB and the relevant Councils and
Committees, where any Member may raise any point relating to them (Article 3.6 of the DSU). Even when
consultations have failed to resolve the dispute, it always remains possible for the parties to find a mutually
agreed solution at any later state of the proceedings.
b. PROCEDURE FOR CONSULTATIONS
1. REQUEST FOR CONSULTATIONS
The complaining Member addresses the request for consultations to the responding Member. It
must also notify the request to the DSB and to relevant Councils and Committees overseeing the
Agreement(s) in question (Articles 4.3 & 4.4 of the DSU). The request must be made in writing and shall give
the reasons for the request, including identification of the measures at issue and an indication of the
legal basis of the complaint (Article 4.4 of the DSU). The request for consultations formally initiates a dispute
in the WTO.
The Member to which a request for consultation is made, is required, unless otherwise mutually agreed, to
reply to the request within ten days after the date of its receipt and to enter into consultations in good faith
within a period of no more than 30 days after the date of receipt. If the requested Member does not do so, the
Member that requested consultations may proceed directly to request the establishment of a panel (Article 4.3
of the DSU).

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2. REQUESTS BY THIRD PARTIES
A third party requesting to join consultations must have a substantial trade interest. However, such a third
party may participate at the consultation stage only if consultations were requested pursuant to Article XXII:1
of GATT 1994, Article XXII:1 of GATS, or corresponding provisions of the covered Agreements, and if the
Member to which the request is made agrees that the third party has a substantial trade interest (Article 4.11
of the DSU). The request must be addressed to the other Members and the DSB within ten days after the
circulation of the request for consultations.
3. TIMEFRAMES
The consultations stage shall take a minimum of 60 days (unless both parties agree to conclude it earlier).
This means that the complainant is entitled to request the establishment of a panel after this period, although
very often it takes more time. In cases of urgency (e.g. perishable goods), this stage takes a minimum of
30 days.
II.C.2. ADJUDICATION
If the consultations have failed to settle the dispute, the complaining party may request the
establishment of a panel to adjudicate the dispute. The adjudicating stage is intended to resolve the
legal dispute. The process of adjudication starts before a panel and may continue before the Appellate Body if
one of the parties decides to appeal the report of the panel. As we will see, the rulings of the adjudicating
bodies are binding for the parties after their adoption by the DSB.
Figure 5: Panel Stage
a. PANEL
1. REQUEST FOR THE ESTABLISHMENT OF A PANEL
A request for the establishment of a panel must be made in writing and indicate whether consultations were
held, identify the specific measures at issue and provide a brief summary of the legal basis of the
complaint sufficient to present the problem clearly (Article 6.2 of the DSU). The content of the request of
establishment of a panel is crucial since it defines and limits the scope of the dispute.
The panel will be established at the latest at the DSB meeting following that at which the request
first appears as an item on the agenda of the DSB, unless the complaining party no longer requests it or
the DSB decides by consensus at that meeting not to establish a panel (Article 6.1 of the DSU). If the

431. 413
complaining party so requests, a special meeting of the DSB must be convened for the purpose of establishing
the panel within 15 days of the request, provided that at least ten days' advance notice is given (footnote 5 to
Article 6.1 of the DSU).
2. CONSTITUTION OF A PANEL
A panel is considered to be properly constituted after the terms of reference have been agreed upon and the
panelists have been selected (Articles 7 and 8 of the DSU).
Panels usually have standard terms of reference (to examine, in light of the relevant provisions in the
covered Agreements cited by the parties, the matter referred to the DSB by the complaining party), unless the
parties to the dispute agree otherwise within 20 days from the establishment of the panel (Article 7.1 of the
DSU). The DSB may authorize its Chairman to draw up special terms of reference in consultation with the
parties to the dispute (Article 7.3 of the DSU) –a s an example, see Brazil – Desiccated Coconut, DS22).
The composition of the panel (Article 8 of the DSU) takes place once the panel has been established by the
DSB. As explained earlier, potential candidates must meet certain requirements in terms of qualifications.
Panels are composed of three panelists unless the parties to the dispute agree, within ten days from the
establishment of the panel, to a panel composed of five panelists (Article 8.5 of the DSU). The Secretariat
proposes nominations for the panel to the parties to the dispute. The parties to the dispute must not oppose
nominations except for compelling reasons (Article 8.6 of the DSU). If there is no agreement on the
composition of the panel within 20 days after the date of its establishment, either party may request the
Director-General to determine the composition of the panel by appointing panelists, in consultation with
the Chairman of the DSB and the Chairman of the relevant Council or Committee (Article 8.7 of the DSU).
Where more than one Member requests the establishment of a panel related to the same matter, the DSB
should, whenever feasible, establish a single panel to examine these complaints taking into account the rights
of all Members concerned (Article 9.1 of the DSU).
3. PANEL PROCESS
FIRST STEP  ORGANIZATIONAL MEETING
Panel procedures are primarily set out in Article 12 and Appendix 3 of the DSU. During a first "organizational"
meeting, the panel, guided by the suggested timetable in Appendix 3 of the DSU, determines its in consultation
with the parties (Article 12.3 of the DSU).
SECOND STEP  SUBMISSIONS AND ORAL HEARINGS
Parties exchange written submissions, and the panel convenes at least two hearings where parties are entitled
to present their views orally and where the panel may seek clarifications and ask questions. Panels have the
right to ask written questions. Third parties with a substantial interest in the matter before the panel, and who
have notified their interest to the DSB, are to be granted an opportunity to be heard by the panel and make
written submissions (Article 10.2 of the DSU).

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THIRD STEP  PREPARATION OF THE PANEL REPORT
Once written submissions have been received and the parties and third parties have been heard, the panel
issues the draft descriptive part of its panel report (containing facts and arguments) for comments in
writing by the parties (Article 15.1 of the DSU). In accordance with the proposed timetable in Appendix 3 of
the DSU, parties are invited to make comments on the draft descriptive part (within two weeks).
After the receipt of comments on the descriptive part, the panel issues its interim report containing the
revised descriptive part and the findings of the report. Parties are again invited to make comments and may
request an interim review meeting of the panel further to argue specific points raised with respect to the
interim report. This is the interim review stage (Article 15 of the DSU). The final report must contain a
reference to all the arguments raised by the parties during the interim review stage (Article 15.3 of
the DSU).
Panel deliberations are confidential. reports of panels are drafted without the presence of the parties to the
dispute, in the light of the information provided, and the statements made. The opinions expressed in the
panel report by individual panelists are anonymous (Article 14 of the DSU). Where a decision cannot be
arrived at by consensus, the matter at issue has to be decided by a majority of the panelists.
FOURTH STEP  FINAL REPORT
The panel issues its final report to the parties within two weeks following the interim review meeting, if one is
held, and circulates it to all WTO Members once the report has been translated into all three of the official
languages of the WTO (English, French and Spanish).
TIMEFRAMES
As a general rule, panels are required to issue the final report to the parties within six months from the date
when the composition and the terms of reference of the panel have been agreed upon. In cases of urgency,
the panel is to aim to issue its report to the parties to the dispute within three months from its constitution
(Article 12.8 of the DSU). When the panel considers that it cannot issue its report within six months, or three
months in case of urgency, it must inform the DSB in writing of the reasons for the delay and provide an
estimate of the period within which it will issue its report. In any case, the examination is to be completed
within nine months of the establishment of the panel (Article 12.9 of the DSU). Appendix 3 DSU provides a
proposed timetable for panel work.
Accelerated procedures with shorter time periods apply under the Agreement and Subsidies and Countervailing
Measures, with respect to dispute settlement on prohibited subsidies and actionable subsidies (see Articles 4
and 7 of the SCM Agreement).
4. ADOPTION OF THE PANEL REPORT
A panel report may be considered for adoption 20 days after it is circulated to all the Members (Article 16.1 of
the DSU). It shall be adopted at a DSB meeting within 60 days after the date of circulation of a
panel report to the Members, unless a party to the dispute formally notifies the DSB of its decision to
appeal or the DSB decides by consensus not to adopt the report (Article 16.4 of the DSU).

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Figure 6: Appellate Review
b. APPELLATE REVIEW
1. WHO CAN APPEAL?
The Appellate Body is responsible for hearing appeals from panel decisions (Article 17 of the DSU). Only
parties to the dispute, not third parties, may appeal a panel report. Third parties which have notified the
DSB of a substantial interest in the matter before the panel may make written submissions to, and be given an
opportunity to be heard by, the Appellate Body (Article 17. 4 of the DSU).
Any appeal of a panel report must occur before the report is adopted by the DSB. The appeal process
begins when a party to the dispute formally notifies the DSB of its decision to appeal (Article 16.4 of the DSU).
2. WHAT CAN BE SUBJECT TO APPEAL?
Appeals are limited to issues of law covered in the panel report and legal interpretations developed by
the panel (Article 17.6 of the DSU). The Appellate Body must address, but also limit its review to, each of the
issues of law covered by the panel report and the legal interpretations developed by the panel which were
appealed during the appellate proceeding (Articles 17.6 and 12 of the DSU). The Appellate Body may uphold,
modify or reverse the legal findings and conclusions of the panel (Article 17.13 of the DSU).
3. TIMEFRAME
The Appellate Body shall generally complete its review process within 60 days. In no case shall it exceed 90
days (Article 17.5 of the DSU).
c. ADOPTION OF APPELLATE BODY REPORT
An Appellate Body report must be adopted by the DSB and unconditionally accepted by the parties to the
dispute unless the DSB decides by consensus not to adopt the Appellate Body report within 30 days following
its circulation to Members. In case of appeal, the panel and the Appellate Body reports will be
adopted by the DSB together (Article 17.14 of the DSU). As mentioned above, the panel and Appellate
Body reports will only be binding upon the parties after adopted by the DSB.

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II.C.3. IMPLEMENTATION & NON-COMPLIANCE
In the WTO, there is no independent policing body responsible for enforcing the recommendations of
panels and the Appellate Body. The DSB, which is composed of all WTO Members, supervises the
implementation of panel and Appellate Body reports (Article 2 of the DSU). The DSU states that prompt
compliance with the recommendations or rulings of the DSB is essential in order to ensure the effective
resolution of disputes (Article 21.1 of the DSU).
a. SURVEILLANCE AND IMPLEMENTATION OF REPORTS
At a meeting within 30 days after the adoption of the report, the "losing" Member has to inform the DSB
of its intentions to implement the recommendations and rulings of the DSB and whether it is able to comply
immediately with the recommendations and rulings.
1. IMPLEMENTATION WITHIN A "REASONABLE PERIOD OF TIME"
If it is impracticable to comply immediately, the party will be granted a reasonable period of time to
comply. This reasonable period of time can be decided in three different ways: (i) proposed by the
Member concerned with the approval of the DSB (Article 21.3(a) of the DSU); or, (ii) agreed upon by the
parties within 45 days after the adoption of the report (Article 21.3(b) of the DSU); or, (iii) determined by
arbitration within 90 days after the adoption of the report (Article 21.3(c) of the DSU).
When the reasonable period of time is arbitrated, a guideline for the arbitrator is that the reasonable period of
time to implement the panel or Appellate Body recommendations should not exceed 15 months from the date
of adoption of a panel or Appellate Body report (may be shorter or longer, depending upon the particular
circumstances).
The period from the date of establishment of a panel by the DSB until the date of determination of the
reasonable period of time is also not to exceed 15 months, unless the parties to the dispute agree otherwise.
Unless the DSB decides otherwise, the issue of implementation is placed on the agenda of the DSB, six
months following the date of establishment of the reasonable period of time. It remains on the DSB’s
agenda until the issue is resolved.
2. DISAGREEMENT ON IMPLEMENTATION
If there is disagreement as to the consistency with the WTO Agreement of measures taken to comply with DSB
recommendations, a party may have recourse to the dispute settlement procedures, referring the matter to the
initial panel wherever possible for expedited adjudication (Article 21.5 of the DSU).

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b. NON COMPLIANCE
In cases of non-compliance, parties may agree to compensation. In the absence of such agreement, the
"winning" Member may suspend concessions or other obligations, but only after obtaining the prior
authorization from the DSB. Compensation and the suspension of concessions or other obligations are
temporary measures available in the event that the recommendations and rulings are not implemented within
the reasonable period of time. Neither compensation, nor the suspension of concessions, nor other obligations
are preferred to the full implementation of a recommendation to bring a measure into conformity with the
covered Agreements (Article 22.1 of the DSU).
1. FIRST STEP  VOLUNTARY COMPENSATION
If the WTO Member concerned fails within the reasonable period of time to bring the measure found to be
inconsistent with the covered Agreement into compliance in accordance with the recommendations, that
Member must, if so requested, enter into negotiations with a view to agreeing on mutually acceptable
compensation (Article 22.2 of the DSU). This compensation does not mean monetary payment; it means
that the respondent is supposed to offer a benefit, for example a tariff reduction, which is equivalent to the
benefit that the respondent has nullified or impaired by applying its measure. The compensation is
voluntary and, if granted, must also be consistent with the covered Agreements.
2. SECOND STEP  SUSPENSION OF CONCESSIONS
Authorization for suspension of concessions or other obligations may be sought from the DSB by the Member
concerned if no satisfactory compensation has been agreed upon within 20 days after the date of expiry of the
reasonable period of time. The DSB is required to grant such authorization within 30 days of the expiry of
the reasonable period of time unless it decides by consensus to reject the request.
CONDITIONS FOR THE SUSPENSION OF CONCESSIONS OR OTHER OBLIGATIONS
As a general principle, the complaining party should first seek to suspend concessions or other obligations with
respect to the same "sector"(s) as that in which nullification or impairment has been found. If it is not
practicable or effective to do so in the same sector(s), the suspension of concessions or other obligations may
be made in other sector(s) under the same Agreement. If even that is not practicable and the circumstances
are serious enough, the complaining party may seek to suspend concessions or obligations under another
Agreement. This is referred to as "cross-retaliation". For these purposes, "sectors" are classified in three
categories: (i) goods (comprises all goods); (ii) services – as identified in relevant GATS documents; and,
(iii) intellectual property as categorized in relevant sections of the TRIPS Agreement) (see Article 22.3(f) of the
DSU). The "Agreements" are: (i) for goods, the Agreements listed in Annex 1A of the Agreement Establishing
the WTO (as well as in Annex 4, as applicable); (ii) with respect to services, the GATS; and, (iii) with respect to
intellectual property rights, the TRIPS Agreement.
The level of suspension of obligations authorized by the DSB must be "equivalent" to the level of
nullification or impairment – that is, it may not go beyond the harm caused by the respondent (Article 22.4
of the DSU). The suspension of obligations is prospective (it includes only the time-period after the DSB
has granted the authorization-not the period of the dispute or maintenance of the measure).

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DISAGREEMENT ON THE LEVEL OF SUSPENSION OF CONCESSIONS
In case of disagreement regarding either the equivalence of the level of nullification with the level of
suspension or the conditions applicable to cross-retaliation, arbitration may be requested (Articles 22.6 and 7
of the DSU). Such arbitration shall be carried out by the original panel, if members are available, or by an
arbitrator appointed by the Director-General, and shall be completed within 60 days after the date of expiry of
the reasonable period of time. Concessions or other obligations shall not be suspended during the course of
the arbitration (Article 22.6 of the DSU).
c. SURVEILLANCE UNTIL FINAL IMPLEMENTATION
As mentioned above, surveillance by the DSB is an important feature of the dispute settlement mechanism of
the WTO. The DSB must continue to keep under surveillance the implementation of adopted
recommendations or rulings, including those cases where compensation has been provided or concessions
or other obligations have been suspended but the recommendations to bring a measure into conformity with
the covered Agreements have not been implemented (Article 22.8 of the DSU).
EXERCISES
5. What are the main stages in a WTO dispute?
6. Explain the consultation stage during the settlement of a WTO dispute.
7. Describe the adjudication stage during a WTO dispute.
8. What is the respondent required to do in case of a successful violation complaint? What can the
complainant Member do if the respondent (losing Member) fails to do so?

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II.D. SPECIAL & DIFFERENTIAL TREATMENT UNDER THE WTO
DISPUTE SETTLEMENT SYSTEM
Developing country Members have been active participants in the dispute settlement system since 1995, both
as complainants and respondents. They have initiated disputes against developed country Members, but also
against other developing country Members. Furthermore, the participation of developing countries as third
parties has been quite frequent. By contrast, least-developed country (LDC) Members have so far had a very
low level of involvement in dispute settlement.
Why is the WTO dispute settlement system important for developing countries?
It is generally agreed that the existence of a compulsory multilateral dispute settlement system is
itself a significant benefit for developing country and small economies. Such a system, to which all
Members have equal access and in which decisions are made on the basis of rules rather than on the
basis of economic power, empowers developing countries and smaller economies by placing "the weak"
on a more equal footing with "the strong".
At the same time, it is clear that developing country Members wanting to avail themselves of the benefits of
the dispute settlement system, face considerable burdens. For example, developing countries, especially the
smaller ones, often do not have a sufficient number of specialized human resources who are experts in the
intricacies of the substance of WTO law or the dispute settlement procedures.
The ability of developing country Members to make effective use of the dispute settlement
system is essential for them to be able to reap the full benefits they are entitled to under the
WTO Agreement.
As with the special and differential treatment for developing country, as provided in various WTO Agreements
(see Module 9), the DSU also addresses the particular status of developing country Members and LDC Members
through additional or privileged procedures and legal assistance during the WTO dispute settlement process.
In general, developing countries may choose a faster procedure, request longer time limits, or request
legal assistance. WTO Members are encouraged to give special consideration to the situation of developing
country Members. The provisions on special and differential treatment include:
II.D.1. ACCELERATED PROCEDURE AT THE REQUEST OF A DEVELOPING
COUNTRY MEMBER
The Decision of 5 April 1996 (the 1996 Decision, BISD 14S/18) operates in cases where a complaint based
on any of the covered Agreements is brought by a developing country Member against a developed country
Member (Article 3.12 of the DSU). Among others, the 1966 Decision provides good offices conducted by the
Director-General with a view to facilitate a solution, as well as reduced timeframes. In case of conflict between
a provision of the DSU and a provision of the 1966 Decision, the latter prevails.

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II.D.2. SPECIAL CONSIDERATION OF A LDC MEMBER INVOLVED IN A
CASE
Particular consideration shall be given to the special situation of LDC Members at all stages of the dispute.
Members are to exercise due restraint in bringing a dispute against LDC Members. The Director-General or the
Chairman of the DSB are required, upon request by a LDC Member, to offer their good offices, conciliation or
mediation to help the parties to settle the dispute, before having to resort to requesting the establishment of a
panel. If a measure adopted by a LDC Member has been found to be inconsistent with WTO rules, complaining
parties are to exercise due restraint in asking for compensation, or seeking authorization to suspend the
application of concessions or other obligations (Article 24 of the DSU).
II.D.3. ADDITIONAL LEGAL ADVICE AND ASSISTANCE
While the Secretariat assists Members in respect of dispute settlement at their request, there may also be a
need to provide additional legal advice and assistance in respect of dispute settlement to developing country
Members. To this end, the Secretariat must make available a qualified legal expert from the WTO technical
cooperation services to any developing country Member which so requests. This expert must assist the
developing country Member in a manner ensuring the continued impartiality of the Secretariat (Article 27.2 of
the DSU).
II.D.4. SPECIFIC PROVISIONS DURING THE DISPUTE SETTLEMENT
PROCESS
 During consultations – Members should give special attention to the particular problems and
interests of developing country Members in consultations (Article 4.10 of the DSU). If the
measure subject to consultations was taken by a developing country Member, the parties may
agree to extend the regular period for consultations. If there is no agreement, the DSB
chairperson may extend the time-period (Article 12.10 of the DSU);
 Composition of panels - at least one panelist should be selected from a developing country
Member in a dispute between a developing country Member and a developed country Member,
if the developing country Member so requests (Article 8.10 of the DSU);
 During the panel stage – if the developing country is the respondent, the panel must accord
to it sufficient time to prepare and present its defence (Article 12.10 of the DSU). In addition,
if the developing country raises rules on special and differential treatment of the DSU or the
covered Agreements, the panel report must explicitly indicate the form in which these rules
have been taken into account (Article 12.11 of the DSU);
 During implementation - particular attention should be paid to matters affecting the interest of
developing country Members (e.g. in the determination of the reasonable period of time (Article 21.2 of
the DSU). The DSB shall consider what further action it might take in addition to surveillance, which
would be appropriate to the circumstance, if a matter relating to implementation has been raised by a
developing country Member (Article 21.7 of the DSU). To take such action, the DSB should take into
account the trade coverage of the challenged measures and its impact on the economy of the
developing country Member (Article 21.8 of the DSU).

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Some of the provisions mentioned above have been applied very frequently, but others have not yet had any
practical relevance. A general criticism is that several of these rules are not very specific. These provisions
are currently under review, within the process of review of the DSU (see below), with a view to
strengthening them and making them more precise and effective.
The Advisory Centre on WTO Law (ACWL)
The Advisory Centre on WTO Law (ACWL) provides legal advice on WTO law support in WTO
dispute settlement proceedings and training in WTO law to developing countries economies in
transition LDCs and accession candidates. For legal assistance in WTO dispute settlement proceedings
these countries pay discounted rates at varying levels that depend on the level of economic development
and on whether they are members of the ACWL. The ACWL is an intergovernmental organisation separate
and independent from the WTO. For more information on the ACWL see http://www.acwl.ch/e/index_e.aspx.
II.E. NEGOTIATIONS: REVIEW OF THE DSU
The DSU review began in 1997. In Doha in 2001, the Members agreed to negotiations on improvements and
clarifications of the DSU. The Doha Ministerial Declaration states that the review of the DSU is not part of the
single undertaking (paragraph 30 of the Doha Ministerial Declaration). This means that the process of review
of the DSU is not tied to the success or failure of the other negotiations mandated by the Doha Ministerial
Declaration. Despite intensive negotiations, Members were unable to conclude negotiations by the end of the
deadline (May 2003), which was then extended by the General Council at its meeting in July 2003. The
on-going process of review of the DSU includes diverse matters such as:
 Extension of third parties' rights- they would also have, among others, the right to receive
copes of all parties' submissions before the issuance of the interim report and the right to
attend all substantive panel meetings;
 The issue of "sequencing" - refers to the order in which two phases of the procedure – the
compliance proceeding and the suspension of obligations - should occur when the complainant
considers that the respondent has failed to comply fully with the final rulings, considering the
timeframes provided in the DSU for each phase;
 Remand - would allow the Appellate Body to request the DSB to remand the issue to the
original panel when there are insufficient factual findings in the panel report to address an
issue on appeal;
 Special and differential treatment for developing country Members;
 Transparency - of dispute settlement proceedings;
 Remedies in case of non-compliance.
Until now, there has been no agreement among the Members on any of these issues.
EXERCISES
9. What are the benefits of the WTO dispute settlement system for developing Members?.

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ILLUSTRATION - THE WTO DISPUTE SETTLEMENT SYSTEM
SCENARIO
Let us assume that Medatia is a developed country Member and Tristat is a developing country Member of
the WTO. At the same time both countries are signatories to a bilateral free trade agreement which among
others includes a dispute settlement mechanism to resolve trade disputes derived from such agreement.
Recently Medatia imposed an import ban on cars originating in Tristat. Tristat believes that Medatia's import
ban has violated its obligation under Article XI:1 of the GATT 1994 and intends to bring the dispute to the
WTO dispute settlement system. However Medatia insists that the dispute should be resolved through the
dispute settlement mechanism provided in the bilateral free trade agreement between them which includes a
provision similar to Article XI:1 of the GATT 1994.
Tristat and Medatia held diplomatic meetings with a view to resolve the dispute however no agreement was
reached among the parties.
QUESTION
Assume you are a senior officer at the Ministry of Foreign Affairs of Tristat and an expert on WTO law and
you are consulted on whether Tristat can bring this dispute to the WTO. If so what is the process that
Tristat may go through by resorting to the WTO dispute settlement system?
ADVICE
1. JURISDICTION OF THE WTO DISPUTE SETTLEMENT SYSTEM
Article 23 of the DSU states that Members shall have recourse to the rules and procedures of the DSU when
they seek redress of a violation of obligations under the covered Agreements. Therefore, Tristat is
entitled to bring the dispute to the WTO.
2. WTO DISPUTE SETTLEMENT PROCESS
To resort to the WTO dispute settlement system, Tristat should go through the following stages:
CONSULTATIONS (MINIMUM 60 DAYS)
Tristat shall first address a request for consultations in writing to Medatia on the import ban. It must also
notify the request to the DSB and the Goods Council. In the request for consultations, Tristat shall give the
reasons for the request, including identification of the measures at issue (import ban) and an indication of
the legal basis of the complaint (e.g. Article XI:1 of the GATT 1994). If Tristat and Medatia reach a mutually
agreed solution, the process ends (once this mutually agreed solution has been notified to the DSB and the
relevant Councils and Committees pursuant to Article 3.6 of the DSU). However, if there is no agreement
among the parties, Tristat is entitled to continue to the next stage of the proceeding (adjudication).

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PANEL (9 MONTHS)
If the consultation fails to settle the dispute within 60 days, Tristat can request the establishment of a panel,
which must indicate whether consultations were held, identify the specific measures at issue and provide a
brief, but sufficiently clear, summary of the legal basis of the complaint. The request must be made in
writing and is addressed to the Chairman of the DSB.
A panel will be normally established at the second DSB meeting where the request is made unless the DSB
decides by consensus not to establish it. The panel normally consists of 3 panelists proposed by the
Secretariat in consultation with the parties. If the parties do not agree on the composition of the panel,
Tristat can request the Director-General of the WTO to compose the panel.
During the panel stage, Tristat is required to present its case and arguments in writing and orally to the
panel and to Medatia before and at the first and second oral hearings. After the panel issues the draft
descriptive part of its report - which contains only the descriptive section (includes facts and arguments) -
Tristat (and Medatia) are entitled to make comments on the draft within a period of time set by the panel.
The panel will then issue its interim report - which includes both the descriptive part and its findings and
conclusions – to the parties. Either party may submit a written request for the panel to review precise
aspects of the interim report and may request a further meeting with the panel. Subsequently, the panel
will issue its final report which will be submitted to Tristat and Medatia first and later be circulated to all WTO
Members. The report becomes binding after it is adopted by the DSB within 60 days after its circulation,
unless one of the parties decides to appeal the report.
APPELLATE BODY (60-90 DAYS)
Before the adoption of the panel report, either party can appeal issues of law covered in the panel report and
legal interpretations developed by the panel by submitting a notification of its decision to appeal to the DSB.
During the appeal, Tristat is required to set out in detail its arguments in writing and, thereafter, before the
Appellate Body division in an oral hearing. The Appellate Body may uphold, modify or reverse the legal
findings and conclusions of the panel. The Appellate Body report will be circulated to all WTO Members and
be adopted, together with the panel report, by the DSB 30 days following its circulation, unless there is a
consensus not to do so.
IMPLEMENTATION
If Medatia's import ban is found to be inconsistent with Article XI:1 of the GATT 1994, it would be required
to bring its measure into conformity with such provision. If immediate compliance is not possible, the
reasonable period of time for implementation can be agreed upon by Tristat and Medatia or be decided by an
arbitrator (should not exceed 15 months). Tristat can raise the issue of implementation at any time in the
DSB, which is responsible for surveillance of implementation of rulings. After the lapse of the reasonable
period of time for implementation, if there is disagreement among the parties on whether Medatia has
implemented the report, Tristat is entitled to request the establishment of a compliance panel, which will
decide whether Medatia has brought its measure into conformity with WTO rules.

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NON-COMPLIANCE
In case Medatia fails to bring its measure into conformity, Tristat is entitled to request that Medatia agree
upon compensation (for example a tariff reduction). If Tristat and Medatia fail to agree on satisfactory
compensation, Tristat can request permission from the DSB for the suspension of its concessions or other
obligations vis-à-vis Medatia. If such authorization is granted, Tristat may suspend its tariff concessions or
other obligations under the WTO vis-à-vis Medatia up to a level equivalent to the level of nullification of
impairment caused by the measure at issue.
Last but not least, Tristat should note that it always remains possible for the parties (Tristat and Medatia) to
find a mutually agreed solution at any state of the proceedings after consultation.

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III. THE TRADE POLICY REVIEW MECHANISM
(TPRM)
IN BRIEF
As explained in Module 1 one of the functions of the WTO is to implement the Trade Policy Review
Mechanism (TPRM) provided for in Annex 3 to the Agreement Establishing the WTO. The TPRM was an
early result of the Uruguay Round being provisionally introduced into GATT in 1989 following the Mid-Term
Review of the Uruguay Round. With the creation of the WTO in 1995 it was made permanent and broadened
to cover also services trade and intellectual property.
The TPRM is the only WTO forum where all aspects of trade policies come under discussion by the
whole membership. The Mechanism constitutes an objective independent evaluation of the trade and
economic situation of Members. All WTO Members are subject to review under the TPRM. The
frequency of each Member’s review varies according to its share of world trade.
The reviews take place in the Trade Policy Review Body (TPRB) which is the WTO General Council
operating under special rules and procedures. In practice the reviews have two broad results: they enable
outsiders to understand a Member’s trade policies and practices and they provide feedback to the
reviewed Member.
III.A. OBJECTIVES OF THE TPRM
Surveillance of national trade policies is a fundamentally important activity running throughout the work of
the WTO. At the centre of this work is the Trade Policy Review Mechanism (TPRM). The main objectives of the
TPRM as set out in Annex 3 of the Agreement Establishing the WTO (paragraph A) include:
 the smoother functioning of the multilateral trading system by achieving greater transparency
and understanding of the trade policies and practices of Members;
 contribute to improved adherence by all Members to rules, disciplines and
commitments made under the Multilateral Trade Agreements and, where applicable, the
Plurilateral Trade Agreements; and,
 enable the collective appreciation and evaluation of the full range of individual Members' trade policies
and practices and their impact on the functioning of the multilateral trading system.
The reviews focus on Members’ trade policies and practices. But they also take into account the Members’
wider economic and developmental needs, their policies and objectives, and the external
environment that they face. The review of broad macroeconomic and structural policies attempts to place
trade and trade-related policies in their broader policy setting, thereby contributing to a better assessment of
their impact on the functioning of the multilateral trading system.

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The TPRM is NOT, however, intended to serve as:
 a basis for the enforcement of specific obligations under the Agreements,
 for dispute settlement procedures, or,
 to impose new commitments.
Benefits of the Trade Policy Review Mechanism (TPRM)
BENEFITS FOR THE MULTILATERAL TRADING SYSTEM
The TPRM has increased transparency in the trade policies and practices of GATT and WTO Members. It has
frequently illuminated areas of WTO obligations that may have received insufficient attention to date and
thus helped to ensure that these are addressed. The Mechanism has covered virtually all players in the WTO
trading system and has highlighted the most significant trends.
BENEFITS FOR THE MEMBER UNDER REVIEW
The TPRM has stimulated the internal evaluation of trade policies in Members, particularly in developing
countries. The Review process strengthens the hands of domestic agencies promoting trade and economic
efficiency, improves the understanding of the role played by each domestic agency in trade policy
formulation and implementation, supports trade reforms and, thus, helps individual Members to become
better WTO citizens.
OTHER BENEFITS
The reviews conducted (365 by the end of 2008, out of which 57 under GATT) have highlighted interlinkages
between trade and internal economic reform, the inter-sectoral effects of protection (and liberalization), and
their implications for the multilateral system. Many reviews have also illustrated the importance of "new"
issues such as the relationship between trade and competition policy, and the trade impact of investment
measures.
III.B. SCOPE OF REVIEWS
Reviews in the TPRM highlight the extent to which individual trading entities follow basic WTO principles
concerning:
 transparency of trade policies;
 non-discrimination in treatment of trading partners;
 the degree of stability and predictability of trade policies;
 the pattern of protection and the extent to which tariffs only are used as measures of
protection in trade in goods;
 restrictions used in trade in services;
 the record of adherence to the multilateral trading system, and participation in dispute
settlement.

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III.C. THE TPRM IN PRACTICE
III.C.1. FREQUENCY OF REVIEWS
Trade Policy Reviews are an exercise in which Member countries’ trade and related policies are subject to
periodic reviews. The frequency of reviews of a Member is related to its weight in the multilateral
trading system, as defined by the Member's share of world trade in goods and services. On this basis,
Members are reviewed under one of three different cycles:
 the four biggest traders — the European Union, the United States, Japan and China (the
"Quad") — are examined once every two years.
 the next 16 countries with a lesser share in world trade are reviewed every four years.
 the rest of the Membership (most developing country Members and economies in transition) are
reviewed every six years, with the possibility of a longer interim period for least-developed
country (LDCs) Members.
In 1994, flexibility of up to six months was introduced into the review cycles. Accordingly, all WTO Members
are to come under review over a period of time. However, variations in trade in goods and services flows may
alter the ranking of Members and thus their review cycles, for example as a result of changes in commodity
prices. The accession of new Members to the WTO could also affect the position of existing Members in all the
three review cycles.
III.C.2. BASIS FOR REVIEWS
For each review, two documents are prepared:
1 A detailed report written independently by the WTO Secretariat in the Trade Policies Review
Division; and,
2. A policy statement by the Member under review.
These two documents, which form the basis of the a review, are then discussed by the WTO’s full membership
in the TPRB. Both documents and the proceedings of the TPRB’s meetings are published shortly afterwards.
a. WTO SECRETARIAT REPORT
The Secretariat report focuses on the trade policies and practices of the Member under review, seen, to the
extent necessary, in the context of the evolution of overall macro-economic and structural policies in a
representative period up to the present date. The aims and structure of the report are essentially the same for
all Members, variations reflecting the Members' frequency of review and economic characteristics.

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1. STRUCTURE OF THE SECRETARIAT REPORT
Most secretariat reports are prepared following a format containing a "Summary Observations" which
summarizes the report and presents the Secretariat's perspective on the Member's trade policies, and four
chapters:
 I. The economic environment (covering major features of the economy, recent economic
performance, trade patterns in goods and services, evolution of foreign investment, and
economic outlook);
 II. Institutional aspects of trade and investment policy-making, including participation
in multilateral and regional agreements, and trade disputes and consultations;
 III. Trade policies and practices by measure (covering all types of measures directly
affecting imports and exports of goods and services, as well as production, and measures
affecting production and trade);
 IV. Trade policies and practices by sector (e.g. agriculture, forestry, fisheries, manufacturing,
mining, energy and services).
2. MEMBER'S PARTICIPATION IN THE SECRETARIAT REPORT
The report is based on official information and comments provided by the authorities, complemented
by material from other sources deemed appropriate by the Secretariat. All chapters of the Secretariat
report are checked for factual accuracy with the Member concerned, although the Secretariat retains final
responsibility for their contents.
The "Summary Observations" (which are in effect the Secretariat's conclusions on the trade policies being
reviewed) are not shown to the Member under review until the report is ready to be issued to all Members.
b. MEMBER'S POLICY STATEMENT
Reports by Members under review take the form of policy statements which aim to outline the objectives and
main directions of trade policies, in a forward-looking perspective. A statement may also contain a succinct
presentation of recent trends and problems, including those encountered in foreign markets. Statements are
typically between 10 and 30 pages. The actual form and length are in the last instance determined by the
Member under review.
III.C.3. THE TPRM REVIEW PROCESS
A TPRM review consists of several steps whose timing is agreed between the Secretariat and the Member
under review. The following general sequence may be identified:
1. Set a date for the review meeting of the TPRB - it is crucial for the Secretariat and the Member
under review to agree right at the beginning of the process upon the date for the review meeting of the
TPRB, as that largely determines the timing of other steps, given the time required to complete various
tasks and the rules of procedure agreed by WTO Members.
In the case of LDC Members, but also increasingly so in the case of other developing country Members
and under certain specific circumstances (such as in the case of the very first review of the Member), the

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Secretariat may have a first visit to the Member under review, among others, to introduce the TPRM and
to collect information (see below). The visit counts as one of the annual national activities that all
developing country Members are entitled to ask for at the WTO.
2. Collection of information - a request for information is prepared by the WTO Secretariat and is sent to
the Member under review, which will then have some four to six weeks to prepare and provide
information, including official publications and other official data on core issues.
3. Preparation of the Secretariat Report - the Secretariat drafts its report, progressively submitting all
chapters to national authorities of the Member under review for verification and comments. After visiting
the capital (see below), the Secretariat then incorporates the comments by the authorities and finalizes
its draft. The Secretariat report and the policy statement are circulated, after translation, five weeks
before the review meeting;
4. Visit to the capital - a Secretariat team undertakes a visit of one week to ten days to the Member under
review for discussions with the authorities. The visit takes place on the basis of the preliminary draft of
the Secretariat report. The Secretariat's team often consults also with private sector organisations
(Chambers of Manufacturers, Commerce, etc) and research institutes;
5. Review meeting conducted by the TPRB – the TPRB review takes place in two sessions (each typically
of half a day). For the general procedure of the TPRB review meeting, see the Box below; and,
6. Publication of documents - the Secretariat report and the Member's policy statement are published
after the review meeting, along with the minutes of the meeting and the text of the TPRB Chairperson's
Concluding Remarks delivered at the conclusion of the meeting. All these documents can be found at
http://www.wto.org/english/tratop_e/tpr_e/tpr_e.htm.
The Trade Policy Review Body (TPRB) Review Meeting
Trade policy reviews are undertaken by the Trade Policy Review Body (TPRB), which is the WTO General
Council in another guise and comprises all the WTO Membership. A discussant is chosen from the
membership to act in his/her personal capacity to stimulate the debate in the TPRB. Intergovernmental
organizations (e.g. IMF, World Bank, OECD, UNCTAD) may attend the meetings as observers. Members
should submit written questions to the Member under review at least two weeks before the first session of
the review meeting, to allow time to prepare replies. These questions have to be answered in writing by the
start of the first session. All other questions have to be answered, in principle, during the second session.
The TPRB review meeting is normally conducted in the following process:
First session: the Member under review makes an initial statement, which provides an overview of
policies, noting any new developments since the completion of the reports by the Secretariat and the
Member under review), followed by the statement by the discussant and remarks and additional
questions from Members.
Second session: the Member under review provides a summary of its answers, and replies to
additional questions, followed by the comments by Members and the Chairperson's concluding
remarks.

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III.D. THE TPRM & DEVELOPING COUNTRIES
III.D.1. IMPORTANCE OF THE TPRM FOR DEVELOPING COUNTRIES
The TPRM is a valuable tool for the development of trade policies in developing Members and LDC
Members. Given the fact that these Members may confront with particular difficulties in adjusting their
domestic policies in compliance with the multilateral trade rules, a trade policy review would assist them to
undertake a process of self-assessment, including an examination of their participation in the multilateral
trading system and their engagement with the WTO. Members that are in an active process of trade policy
reform also have a valuable opportunity to present the process and its results. Furthermore, the preparation
of the review and discussion during the review, can help them to encourage substantial trade policy-making in
directions foreseen in the WTO Agreements and contribute to a Member's greater integration into the MTS.
III.D.2. SPECIAL SUPPORT PROVIDED TO DEVELOPING COUNTRY
MEMBERS IN THE TPRM
Preparation for and participation in a trade policy review can be onerous for small developing countries that
may have little practical experience in addressing the implications of the Uruguay Round Agreements. In this
regards, the WTO Secretariat may assist the Member concerned during the review process. Assistance has
been provided in the past to countries under review by the Trade Policy Review Division as well as the Institute
for Training and Technical Cooperation.
III.D.3. SPECIAL PROVISIONS IN THE TPRM
Specific procedures for LDC Members are included in paragraphs C and D of Annex 3 of the Agreement
Establishing the WTO:
 Paragraph C(ii) provides that a longer period (than six years between reviews) may be fixed for
LDC Members;
 Paragraph D requires particular account to be taken of difficulties presented to LDC Members in
compiling their reports; and,
 Paragraph D includes provisions for technical cooperation to be provided, on request, to
developing country Members and in particular to the LDC Members.
EXERCISES
10. What are the objectives of the WTO TPRM?

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IV. SUMMARY
In this Module we have studied the two main mechanisms of surveillance provided in the WTO Agreements:
the Dispute Settlement Mechanism and the Trade Policy Review Mechanism (TPRM). While the
dispute settlement mechanism is aimed at providing a forum for the settlement of disputes between WTO
Members the objective of the TPRM is to facilitate the smooth functioning of the MTS by enhancing the
transparency of Members' trade policies through periodic peer-group assessments carried out by all WTO
Members.
As compared to its predecessor - the dispute settlement mechanism provided in the GATT 1947 - the
mechanism agreed in the Uruguay Round and embodied in the Dispute Settlement Understanding (DSU)
offers unquestionably more advantages to the WTO Members. Contrary to the GATT 1947, the DSU provides
near automaticity in decision-making in certain key issues related to the settlement of disputes for example
panels establishment and adoption of panel and Appellate Body reports by the DSB. In addition the DSU
provides one single procedure with clearly-defined rules for the resolution of trade disputes among the
Members and the possibility to appeal the reports of the panels. In doing so the DSU provides an effective
mechanism to settle disputes which has contributed to the stability and predictability of the MTS. This
constitutes a significant benefit for all Members and specially for developing Members who can have resort to
a mechanism in which decisions are made on the basis of rules.
Only WTO Member governments have standing to initiate dispute settlement proceedings. They can act
either as "complainant" or "respondent" (enjoy full rights) or "third parties" (enjoy some rights - explained
below). Other entities have no legal right to participate in WTO dispute settlement proceedings, although
adjudicating bodies may deem appropriate to accept or consider their submissions in certain cases and after
consulting with the parties.
The dispute settlement process applies to all disputes brought under the covered Agreements and includes
three main stages: 1. consultations; 2. adjudication (panels and in case of appeal the Appellate Body); and,
3. implementation. A dispute starts formally with a request for consultations. The objective of this stage is
to give the parties an opportunity to discuss the matter and find a mutually agreed solution consistent with
the WTO Agreements (preferred solution). If an agreed solution is not possible the complainant my request
the establishment of a panel which after composed will make an objective assessment of the matter in order
to submit a report with its rulings and recommendations. Either party may appeal the report of the panel
but only with respect to issues of law. The Appellate Body main function is to correct legal errors of the
panels and provide consistency of decisions contributing in this way with the stability and predictability of
the system. The recommendations of the panels and Appellate Body have to be adopted by the DSB before
becoming binding for the parties to the dispute. As explained above this adoption is quasi-automatic due to
the negative consensus rule. Approximately the total time of a dispute is 12 months (up to the panel stage)
and one year and three months (if there is appeal).
Besides the complainant and the respondent other Members with a substantial interest on the matter in
dispute may participate as "third parties" during the whole process and enjoy some rights. To participate in
consultations, they require to have a substantial trade interest (imposes a higher standard than substantial
interest - the latter is requested to participate in the panel stage) and the approval of the party to which the
request for consultations was addressed.

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The last stage concerns the implementation of the reports of the adjudicating bodies, after their adoption by
the DSB, which maintains surveillance of the implementation of the rulings until their compliance. If
immediate compliance is not possible, the respondent has a reasonable period of time to comply. The DSU
provides to the complainant remedies applicable in case of non compliance with the reports: trade
compensation and suspension of concessions. The suspension of concessions is a remedy of last resort,
which has been used only in few occasions. These remedies are only temporary since the main objective of
the system is to secure the withdrawal of the measure found inconsistent with the WTO covered
Agreements.
While the dispute settlement mechanism is only activated after a dispute arises among the Members in order
to resolve it, the TPRM is a permanent mechanism which applies to all Members on a rotary basis and
involves a peer group assessment of each Members' trade policies and practices and their impact on the
functioning of the MTS. Contrary to the dispute settlement mechanism, the TPRM is not intended to
evaluate individual Members compliance to specific rules. Furthermore, it cannot serve as a basis for dispute
settlement procedures. The frequency of the reviews depends to the Members' share of world trade in
goods and services and is based on two documents, a written report prepared independently by the
Secretariat and a policy statement by the Member under review. These two documents are discussed by the
Trade Policy Review Body, composed by the WTO Membership.

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PROPOSED ANSWERS
1. The WTO dispute settlement system aims to:
 provide security and predictability to the MTS by enforcing the rule of law;
 preserve the rights and obligations of WTO Members through a mechanism to enforce those
rights;
 clarify rights and obligations through interpretation when there is no clarity on the rules; and,
 promote mutually agreed solutions and secure prompt solution to a dispute.
2. No. Only WTO Member governments have access to the WTO dispute settlement system. They can take
part either as a "party" or as "third parties". The DSU refers to the Member bringing a dispute as the
“complaining party” or the “complainant” while the terms “respondent” or “defendant” are commonly used
to refer to the Member whose measure is being challenged in the dispute. A WTO Member that is neither
complainant nor the respondent may be interested in the matter to a dispute and participate as third
party. Third parties may participate in the different stages of the procedure and enjoy some rights (e.g.
an opportunity to be heard by panels and to make written submissions provided they have a substantial
interest in the matter). If a third party considers that the measure at issue nullifies or impairs the
benefits accruing to it, it may make its own request for the establishment of a panel.
3. The Dispute Settlement Body (the DSB - the General Council in another guise), which consists of all WTO
Members, is responsible for overseeing the entire dispute settlement process. Furthermore, the DSB has
the sole authority to establish “panels” of experts to consider the case, and to adopt the reports of the
adjudicative bodies (panels and Appellate Body). It monitors the implementation of the rulings and
recommendations, and has the power to authorize the suspension of benefits when a country does not
comply with a ruling.
Panels and the Appellate Body are the bodies adjudicating a WTO dispute. The panel is like a first
instance court which makes findings on facts and legal issues, while the Appellate Body, which is the
second and final stage in the adjudicatory part of the dispute settlement system, is established to review
the legal aspects of the reports issued by panels. Unlike panels, which are composed for each dispute,
the Appellate Body is a permanent body. The WTO Secretariat provides technical assistance and
administrative support to panels and to the Appellate Body, as well as administrative support to the DSU.
It also provides additional legal advice and special training courses on dispute settlement to developing
Members.
4. The DSU applies to all disputes brought under the ''covered Agreements'' as listed in Appendix 1 of the
DSU, which includes the Agreement Establishing the WTO, as well as all the Agreements annexed thereto
(GATT 1994, GATS, TRIPS, DSU and Plurilateral Agreements). Many matters brought before the DSB
include alleged violations of more than one covered Agreement.

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However, there are two exceptions to the general application of the DSU. First, in cases where there are
so-called ''special and additional rules and procedures'' on dispute settlement contained in the covered
Agreements, which take preference over the rules in the DSU in case of conflict between the two.
Second, although the Plurilateral Trade Agreements contained in Annex 4 to the Agreement Establishing
the WTO are part of the covered Agreement within the coverage of the DSU, the applicability of the DSU
to the Plurilateral Trade Agreements is subject to the adoption of a decision by the parties to each of
these agreements setting out the terms for the application of the DSU to the individual agreement,
including any special and additional rules or procedures.
5. There are three main stages to the WTO dispute settlement process:
i) Consultations between the parties with a view to reach a mutually agree solution consistent with the
WTO Agreements;
ii) Adjudication by panels and, if applicable, by the Appellate Body; and,
iii) Implementation of the ruling, which includes the possibility of countermeasures in the event of failure
by the losing party to implement the ruling.
6. Consultations give the parties an opportunity to discuss the matter and to find a satisfactory solution
without resorting to litigation. It is a compulsory stage of settling a WTO dispute. The request for
consultations made by the complaining Member formally initiates a dispute in the WTO. The complaining
Member must address a request for consultations to the responding Member, and also notify such request
to the DSB and to relevant Councils and Committees overseeing the covered Agreement(s) in question. If
consultations help the parties reach mutually agreed solution to the dispute, the dispute settlement
process ends. However, either where the respondent fails to reply to the request and enter into
consultations in good faith or consultations took place but fail to settle the dispute, the complaining
Member can request for the establishment of a panel to settle the dispute.
7. The adjudicating stage involves the panel stage and, in case of appeal of the panel report, the Appellate
Review stage.
 The panel stage starts with the submission of the request for the establishment of a panel by
the complaining Member. Then a panel will normally be established at the second DSB
meeting where the request is made unless the DSB decides by consensus not to do so. It is
followed by the selection of panellists (3 or up to 5) well-qualified individuals who shall meet
certain requirements in terms of expertise and independence. The parties are then required to
present their cases and arguments in writing and orally at the first and second oral hearing.
The panel will then issue its report containing its findings and conclusions. The panel report
will be circulated to all WTO Members and adopted within 60 days (but no earlier than 20 days)
after its circulation, unless a DSB consensus rejects it or either party to the dispute appeals the
report.
 The Appellate Body stage starts with the submission of a notification of decision to appeal to
the DSB by either party to the dispute before the adoption of the panel report. The Appellate
Body is limited to review issues of law covered in the panel report and legal interpretations
developed by the panel. The appellant and the appellee are required to exchange their
allegations and rebuttals, and to answer questions posed by the Appellate Body during an oral
hearing. The Appellate Body will then prepare its final report, which will be circulated to all
WTO Members and thereafter adopted with the panel report by the DSB unless there is a
consensus not to do so. The Appellate Body may uphold, modify or reverse the legal findings

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and conclusions of the panel.
8. In case the measure at issue in the dispute is found to be inconsistent with WTO law, the respondent is
required to bring the measure into compliance. If immediate compliance is not possible, the reasonable
period of time for implementation can be agreed upon the parties or be decided by an arbitrator. After
the lapse of the reasonable period of time for implementation, if there is disagreement among the parties
regarding the implementation of the report, the complaining party may request the establishment of a
compliance panel to decide whether the measure implemented complies with the rulings. If the
respondent persists with the non-compliance, a compensation may be agreed by the parties. If there is
no agreement on a satisfactory compensation, the complainant is entitled to request to the DSB
permission for the suspension of concessions or other obligations to the other party up to a level
equivalent to the level of nullification or impairment caused by the measure at issue.
9. The existence of a compulsory multilateral dispute settlement system constitutes a significant benefit for
all WTO Members, particularly for developing country Members. A dispute settlement mechanism to
which all Members have equal access, the decisions are made on the basis of rules rather than on the
basis of economic power, and which decisions are binding (after their quasi-automatic adoption)
empowers developing countries and small economies by placing "the weak" on a more equal footing with
"the strong". The ability of developing Members to make effective use of the dispute settlement system is
essential for them to be able to reap the full benefits they are entitled to under the WTO Agreements.
10. The main objectives of the TPRM as set out in Annex 3 of the Agreement Establishing the WTO
(paragraph A) include: (i) the smoother functioning of the MTS by achieving greater transparency and
understanding of the trade policies and practices of Members; (ii) contribute to improved adherence by all
Members to rules, disciplines and commitments made under the multilateral WTO Agreements; and,
(iii) enable the collective appreciation and evaluation of the full range of individual Members' trade
policies and practices and their impact on the functioning of the MTS. The TPRM is not meant to serve as
a basis for enforcement of specific obligations or to impose new commitments.

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Cross-Cutting Issues
ESTIMATED TIME: 2 hours
OBJECTIVES OF MODULE 11
This Module will introduce subjects that cut across the agreements and some newer
agenda items, including:
 explain the link between trade and environment and introduce the main aspects of
the WTO Agreements related to the environment;
 explain why government procurement is an important aspect of international trade
and introduce the Plurilateral Agreement on Government Procurement;
 explain the relationship between trade and investment; and,
 explain the relationship between trade and competition policy.
MODULE
11

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I. INTRODUCTION
From Modules 2 to 9, we have studied the main rules set out in various WTO Agreements contained in Annex 1
to the Marrakesh Agreement Establishing the WTO (the Agreement Establishing the WTO), including those
regulating international trade in goods (Annex 1A), international trade in services (Annex 1B) and trade-related
aspects of intellectual property rights (TRIPS) (Annex 1C).
This Module will focus on some important cross-cutting issues. It will start explaining the link between trade
and environment from a double perspective, the impact of trade on the environment and the impact of
environmental policies on trade.
As you studied in Module 1, the "Singapore Issues" include trade facilitation, transparency in government
procurement, trade and investment and trade and competition policy. From these four "issues", only the first
one, trade facilitation, remains in the Doha Round of Negotiations. Due to their importance and close
relationship with international trade, the Singapore Issues (except for trade facilitation, which was introduced
in Module 4) will be introduced in this Module. In this regard, it has to be considered that many provisions in
the WTO Agreements already address some of these issues, although partially (e.g. the Trade-Related
Investment Measures - TRIMS Agreement – studied in Module 4). The Module will also introduce the
Plurilateral Agreement on Government Procurement, applicable only to those Members that agreed to be bound
by it.

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II. TRADE AND ENVIRONMENT
The link between trade and environment, consisting of both, the impact of trade on the environment, as
well as the impact of environmental policies on trade, was recognized as early as 1970. On one side,
there was growing international concern regarding the impact of economic growth on social development and
the environment, on the other, some developing countries were concerned that environmental protection
policies could become obstacles to trade, as well as constitute a new form of protectionism.
Allowing for the optimal use of the world’s resources in accordance with the objective of sustainable
development and seeking to protect and preserve the environment are fundamental to the WTO. These
goals, enshrined in the Preamble of the Agreement Establishing the WTO, go hand in hand with the WTO’s
objective to reduce trade barriers and eliminate discriminatory treatment in international trade relations.
WTO Members recognize, however, that the WTO is not an environmental protection agency. Its
competence in the field of trade and environment is limited to trade policies and to the trade-related aspects
of environmental policies which have a significant effect on trade.
In April 1994, a Ministerial Decision on Trade and Environment was adopted, calling for the establishment of a
Committee on Trade and Environment (CTE). In November 2001, at the Doha Ministerial Conference,
Members agreed to launch negotiations on certain issues related to trade and environment.
How does Trade Liberalization Support the Environment?
For WTO Members, the aims of upholding and safeguarding an open and non-discriminatory MTS, on the one
hand, and acting for the protection of the environment and the promotion of sustainable development, on
the other, can and must be mutually supportive (Marrakesh Decision on Trade and Environment).
An important element of the WTO’s contribution to sustainable development and protection of the
environment comes in the form of furthering trade opening in goods and services to promote economic
development, and by providing stable and predictable conditions that enhance the possibility of innovation.
This promotes the efficient allocation of resources and economic growth that in turn provide additional
possibilities for protecting the environment. From the point of view of developing countries, where poverty
is the number one policy preoccupation and the most important obstacle to environmental protection, the
opening up of world markets to their exports is essential. WTO Members recognize that trade liberalization
for developing country exports is necessary in helping developing countries generate the resources they
need to protect the environment.
The importance of trade’s contribution to efforts on sustainable development and the environment has been
recognized in such forums as the 1992 Rio Summit, 2002 Johannesburg Summit and 2005 UN World
Summit.

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II.A. ARE MEMBERS ALLOWED UNDER WTO RULES TO ADOPT
MEASURES AIMED AT PROTECTING THE
ENVIRONMENT?
While there is no specific agreement in WTO dealing with the environment, Members can adopt trade-
related measures aimed at protecting the environment provided a number of conditions are fulfilled
to avoid the misuse of such measures.
In general terms WTO rules, with their fundamental principles of non-discrimination, transparency and
predictability, help set the framework for Members to design and implement measures to address
environmental concerns. Moreover, WTO rules, including specialized agreements such as the Agreement on
Technical Barriers to Trade (TBT) (which deals with product regulations), and the Agreement on Sanitary and
Phytosanitary Measures (SPS) (which concerns food safety and animal and plant health), provide scope for
environmental objectives to be followed and for necessary trade-related measures to be adopted (see box
below).
Examples of Provisions in the WTO Agreements dealing with Environmental Issues
 Article XX of the GATT 1994: certain policies affecting trade in goods are exempt from GATT
rules under certain conditions. Two exceptions are relevant to environmental protection:
sub-paragraph (b) – measures necessary to protect human, animal or plant life or health;
and sub-paragraph (g) - measures relating to the conservation of exhaustible natural
resources - (studied in Module 8).
 Agreement on TBT, Article 2.2: Members may adopt technical regulations to fulfil a
legitimate objective, including inter alia the protection of human health or safety, animal
or plant life or health, or the environment, provided that they are not more trade-restrictive
than necessary to fulfil a legitimate objective (studied in Module 4).
 Agreement on SPS Measures, Article 2.1: Members have the right to take SPS measures
necessary for the protection of human, animal, plant life or health, provided that such
measures are not inconsistent with the provisions of the SPS Agreement (studied in Module
4).
 Agreement on Agriculture, Annex 2: Domestic support measures with minimal impact on
trade (known as "green box" policies) are excluded from reduction commitments contained
in Annex 2 of the Agreement. These include expenditures under environmental
programmes, provided that they meet certain conditions (studied in Module 4).
 General Agreement on Trade in Services (GATS), Article XIV: Members are allowed to
apply measures necessary to protect human, animal or plant life or health, subject to certain
requirements (studied in Module 6).
 Agreement on TRIPS, Article 27: Members may exclude from patentability inventions, the
prevention within their territory of the commercial exploitation of which is necessary to
protect ordre public or morality, including to protect human, animal or plant life or health or
to avoid serious prejudice to the environment, provided that such exclusion is not made
merely because the exploitation is prohibited by their laws (studied in Module 7).

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II.B. WHAT ABOUT THE EFFECT OF ENVIRONMENTAL
MEASURES ON TRADE?
Members generally consider that the protection of the environment and health are legitimate policy objectives.
However, it is also acknowledged that environmental requirements set to address such objectives could affect
exports adversely.
As explained earlier, an important element of the WTO's contribution to sustainable development comes in the
form of furthering trade opening in goods and services to promote the efficient allocation of resources,
economic growth and increased income levels that in turn provide additional possibilities for protecting the
environment. Therefore, improved market access – specially to developing countries' products - is key to the
goal of achieving sustainable development.
WTO rules set up the appropriate balance between the right of Members to take regulatory measures,
including trade restrictions, to achieve legitimate policy objectives (e.g. protection of human, animal or plant
life or health, and conservation of exhaustible natural resources) and the rights of other Members under
basic WTO trade disciplines. For example, Article XX of the GATT 1994 on General Exceptions lays out a
number of specific instances in which Members may be exempted from GATT rules. The provision seeks,
among other things, to ensure that environmental measures are not applied arbitrarily and are not used as
disguised protectionism (see Module 8).
II.C. WTO DISPUTES CONCERNING ENVIRONMENTAL
MEASURES
Under the GATT, six panel proceedings involving an examination of environmental measures were issued
(US - Canadian Tuna; Canada – Salmon and Herring; Thailand – Cigarettes; US - Tuna (Mexico); US – Tuna
(EEC); US - Automobiles), although three were not adopted by GATT CONTRACTING PARTIES (US - Tuna
(Mexico); US - Tuna (EEC); US - Automobiles).
Since the entry into force of the WTO in 1995, the WTO Dispute Settlement Body (studied in Module 10)
has dealt with a number of disputes concerning environment-related trade measures. Such
measures have sought to achieve a variety of policy objectives - from conservation of sea turtles from
incidental capture in commercial fishing to the protection of human health from risks posed by air pollution (we
saw some of these disputes in Module 8, while explaining the General Exceptions contained in Article XX of the
GATT 1994). WTO jurisprudence has affirmed that WTO rules do not take precedence over environmental
concerns.

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Some WTO Environment–related disputes
 US – Gasoline (DS4);
 US - Shrimp (DS58/DS335);
 EC - Asbestos (DS235);
 EC — Approval and Marketing of Biotech Products (DS291/DS292/DS293); and,
 Brazil – Tyres (DS332).
Example of an Environment – Related Dispute: US- Shrimp (DS58)
Sea turtles have been adversely affected by human activity, either directly (exploitation of their meat, shells
and eggs), or indirectly (incidental capture in fisheries, pollution of the oceans). Sea turtles are
characterized as highly migratory species (they migrate between their foraging and their nesting grounds).
The US Endangered Species Act of 1973 ("ESA") lists as endangered or threatened the five species of sea
turtles occurring in US waters and prohibits their take within the US, within the US territorial sea and the
high seas. Pursuant to the ESA, the United States required that shrimp trawlers used "turtle excluder
devices" (TEDs) in their nets when fishing in areas where there was a significant likelihood of encountering
sea turtles.
Section 609 of Public Law 101-162, enacted in 1989 by the US, prohibited that shrimp harvested with
technology that might adversely affect certain sea turtles be imported into the US, unless the harvesting
nation was certified to have a regulatory programme for the conservation of sea turtles and an incidental
take rate comparable to that of the US, or that the particular fishing environment of the harvesting nation
did not pose a threat to sea turtles. In practice, countries having any of the five species of sea turtles within
their jurisdiction and harvesting shrimp with mechanical means had to impose on their fishermen
requirements comparable to those borne by US shrimpers, essentially the use of TEDs at all times, if they
wished to be certified and export shrimp products to the US.
In early 1997, India, Malaysia, Pakistan and Thailand brought a joint complaint against the US ban. They
argued that the import prohibition on shrimp and shrimp products was inconsistent inter alia with Article XI:I
(General Elimination of Quantitative Restriction, see Module 3) and Article I:1 (Most Favoured Nation (MFN)
Treatment) of the GATT 1994. The US claimed that its measure was justified under Article XX(b) and XX(g).
The panel found that the ban imposed by the US was inconsistent with Article XI and could not be justified
under Article XX. The US appealed the Panel Report. The Appellate Body ruled that the measure at stake
qualified for provisional justification under Article XX(g), but failed to meet the requirements of the chapeau
of Article XX, and, therefore, was not justified under Article XX (see also Module 8 on Exceptions). The
Appellate Body found that the sea turtles involved constituted "exhaustible natural resources" for purposes
of Article XX(g), and that Section 609 was a measure "relating to" the conservation of an exhaustible natural
resource (US-Shrimp, Appellate Body Report, paras. 134 and 142).

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It ruled however, with regard to the chapeau of Article XX, that discrimination resulted not only when
countries in which the same conditions prevail were treated differently, but also when the application of the
measure at issue did not allow for any inquiry into the appropriateness of the regulatory programme for the
conditions prevailing in the exporting countries. In this regard, the failure of the US to engage India,
Malaysia, Pakistan and Thailand, as well as other Members exporting shrimp to the US, in serious,
across-the-board negotiations with the objective of concluding bilateral or multilateral agreements for the
protection and conservation of sea turtles, before unilaterally enforcing the import prohibition against the
shrimp exports of those Members, was taken into account (US-Shrimp, paras. 165 - 166).
II.D. THE DOHA MANDATE ON TRADE AND ENVIRONMENT
The current Doha Round of negotiations gives Members a chance to achieve an even more efficient allocation
of resources on a global scale through the continued reduction of obstacles to trade. In this regard, it is
considered that trade liberalization in certain sectors has the potential to yield benefits for the MTS,
benefits for development and benefits for the environment (win-win-win situation).
II.D.1. TRADE AND ENVIRONMENT NEGOTIATIONS - SPECIAL SESSION
OF THE COMMITTEE ON TRADE AND ENVIRONMENT (CTE)
At the Doha Ministerial Conference, WTO Members reaffirmed their commitment to environmental protection,
and agreed to embark on a new round of trade negotiations, including negotiations on certain aspects of the
linkage between trade and environment (Doha Declaration, para. 31):
(i) the relationship between existing WTO rules and specific trade obligations set out in multilateral
environmental agreements (MEAs) – a number of MEAs contain specific trade obligations (e.g. measures
that prohibit trade in certain species or products, or that allow countries to restrict trade in certain
circumstances);
(ii) procedures for regular information exchange between MEA Secretariats and the relevant WTO
committees; and,
(iii) the reduction or, as appropriate, elimination of tariff and non-tariff barriers to "environmental goods and
services" (to know more about negotiations on "environmental goods and services" see box below).
Members shall also clarify and improve WTO disciplines on fisheries subsidies, taking into account the
importance of this sector to developing countries (Doha Declaration, para. 28). These negotiations are taking
place in the Negotiating Group on Rules.

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Environmental Goods and Services
Under the ongoing negotiations on mutual supportiveness of trade and the environment, WTO Members are
working to eliminate trade barriers in the goods and services that can benefit the environment - for
example catalytic converters, air filters or consultancy services on wastewater management. Facilitating
access to products and services in this area can help improve energy efficiency, reduce greenhouse gas
emissions and have a positive impact on air quality, water, soil and natural resources conservation. As a
result of these negotiations, domestic purchasers, including business and governments at all levels, will be
able to acquire environmental technologies at lower costs. This will also encourage the use of environmental
technologies, which can in turn stimulate innovation and technology transfer.
The negotiations on environmental goods and services are conducted in the Negotiating Group on Market
Access for Non-Agricultural Products (NAMA) and the Council for Trade in Services, respectively.
NOTE
For more information on trade and environment negotiations, see:
http://www.wto.org/english/tratop_e/envir_e/envir_negotiations_e.htm
II.D.2. WORK PROGRAMME OF THE THE COMMITTEE ON TRADE AND
ENVIRONMENT (CTE) - REGULAR
In addition to launching new negotiations, the Doha Declaration requested the CTE, in pursuing work on all
items of its Work Programme – contained in the 1994 Marrakesh Decision on Trade and Environment -, to
focus on three of those items (Doha Declaration, para. 32):
(i) The effect of environmental measures on market access, specially in relation to developing countries and
in particular the least-developed among them, and those situations in which the elimination or reduction
of trade restrictions and distortions would benefit trade, the environment and development (win-win-win
situations);
(ii) relevant provisions of the TRIPS Agreement, discussions on this matter include the relationship between
the TRIPS Agreement and the Convention on Biological Diversity (CBD) (see also Module 7 on the TRIPS
Agreement); and,
(iii) labelling requirements for environmental purposes (to know more about "eco-labels" see box below).

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Labelling Requirements for Environmental Purposes – Eco Labels
The use of eco-labels by governments, industry and non-governmental organizations (NGOs) is increasing.
Members generally agree that voluntary, participatory, market-based and transparent labelling schemes are
potentially efficient economic instruments to inform consumers about environmentally friendly
products. Moreover, they tend to be less trade restrictive than other instruments.
However, environmental labelling schemes could be misused for the protection of domestic markets.
Hence, these schemes need to be non-discriminatory and not result in unnecessary barriers or disguised
restrictions on international trade.
Another concern is the growing complexity and diversity of environmental labelling schemes, which
raises difficulties, particularly for developing country Members and specially for Small and
Medium Enterprises (SMEs), in export markets. In this regard, it has been recognized that there is a
need to better involve developing countries in the setting of environmental standards and regulations,
whether at national or international level.
Other items in the CTE agenda include the relationship between the provisions of the MTS with respect to
transparency of trade measures used for environmental purposes and environmental measures and
requirements which have significant trade effects and the issue of the export of domestically prohibited goods.
II.D.3. TECHNICAL ASSISTANCE AND ENVIRONMENTAL REVIEWS
Members have also recognized the importance of TA and capacity-building in the field of trade and
environment to developing countries, in particular the least-developed among them. In this regard,
they have encouraged that expertise and experience be shared with Members wishing to perform
environmental reviews at the national level (Doha Declaration, para. 33).
Technical assistance activities in the field of trade and environment are delivered mainly in the form of regional
workshops for government representatives from trade and environment ministries, and organized in
cooperation with Secretariats of the United Nations Environmental Programme (UNEP), UNCTAD and MEAs).
II.D.4. SUSTAINABLE DEVELOPMENT
The Doha Declaration also provides that the CTD and the CTE, within their respective mandates, shall act as a
forum to identify and debate developmental and environmental aspects of the negotiations, in order
to help achieve the objective of having sustainable development appropriately reflected.
The CTE Regular decided to pursue a sectoral approach and received briefings by the Secretariat on relevant
developments in the following areas of the negotiations: Agriculture (WT/CTE/GEN/8 and Suppl.1), market
access for NAMA (WT/CTE/GEN/9 and Add.1), Rules (WT/CTE/GEN/10 and Suppl.1) and Services
(WT/CTE/GEN/11 and Suppl.1).

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NOTE
For more information on the work of the CTE Regular, see:
http://www.wto.org/english/tratop_e/envir_e/wrk_committee_e.htm
EXERCISES
1. The relationship between trade and environment can be seen from two different angles. Explain how the
WTO deals with both of them.

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III. TRADE AND GOVERNMENT PROCUREMENT
Given the considerable size of the procurement market and the benefits produced by increased competition for
domestic and foreign stakeholders, government procurements is an important aspect of international trade. In
the WTO, work on government procurement takes place on three different tracks:
 The Plurilateral Agreement on Government Procurement (GPA) — signed by some WTO
Members, and administered by a plurilateral Committee;
 work on transparency in government procurement — carried out by a Working Group
comprising all WTO Members (this work is currently on hold pursuant to the
Decision of the General Council of 1 August 2004, also known as the "July package"); and,
 multilateral negotiations on government procurement in services pursuant to
Article XIII:2 of GATS — handled by the Working Party on GATS Rules.
Why is government procurement an important aspect of international trade?
The procurement of goods and services by government agencies plays a key role in development and
economic growth. In most countries, government agencies are – collectively – the single biggest purchaser
of goods and services, ranging from basic commodities to high-technology equipment and specialized
services.
Public procurement accounts for an average 15-20% of Gross Domestic Product (GDP) in developed
countries (OECD, The Size of Government Procurement Markets, 2001). In developing and transition
economies, the proportion of GDP accounted for by public procurement can be substantially higher, in the
range of 40-50% (William E. Kovacic, Competition Policy, Consumer Protection, and Economic Disadvantage,
25 Washington University Journal of Law & Policy, 2007).
Since public resources are scarce, the efficiency of the procurement process is a crucial aspect of
procurement regimes. However, governments sometimes face political pressure to favour domestic
suppliers over their foreign competitors. As you studied in Module 3 on Market Access, measures aimed to
limit import competition cause distortions that may limit choice, increase prices and discourage economic
efficiency. The same applies to government procurement. Open, transparent and non-discriminatory
procurement is generally considered to be the best tool to optimise competition among suppliers, resulting in
a more efficient use of resources.

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III.A. THE PLURILATERAL AGREEMENT ON GOVERNMENT
PROCUREMENT)
III.A.1. OVERVIEW OF THE AGREEMENT ON GOVERNMENT
PROCUREMENT (GPA)
Early efforts to develop international trade rules on government procurement were undertaken in the OECD
framework. This matter was brought into the Tokyo Round of Trade Negotiations in 1976. As a result, the first
Agreement on Government Procurement was signed in 1979 and entered into force in 1981. It covered central
government entities and procurement of goods only. It was amended in 1987, with this amended version
entering into force in 1988.
The current GPA was negotiated in parallel with the Uruguay Round and came into force on 1 January 1996. It
is the only Agreement in the WTO focusing on government procurement. It is a plurilateral agreement and,
therefore, it applies only to those Members who have agreed to be bound by it and is administered by the
Committee on Government Procurement
Currently 40 WTO Members are party to the GPA (January 2008)
Canada, Chinese Taipei, (pending deposit of ratification instrument) the European Union, including its
27 member States, Hong Kong, China, Iceland, Israel, Japan, Korea, Liechtenstein, the Kingdom of the
Netherlands with respect to Aruba, Norway, Singapore, Switzerland, the United States.
The text of the GPA contains general rules and obligations for the liberalization and governance of public
procurement markets, which consist of the following main elements:
 Guarantees of national treatment and non-discrimination for the goods, services and suppliers
of Parties to the GPA with respect to procurement of covered goods, services and construction
services that are "covered by the GPA" (see below);
 minimum standards regarding national procurement processes, which are intended to ensure
that the Parties' procurements are carried out in a transparent and competitive manner that
does not discriminate against the goods, services or suppliers of other Parties;
 additional requirements regarding transparency of procurement-related information (e.g.
relevant statutes and regulations);
 procedures dealing with modifications and rectifications of Parties' coverage commitments;
 requirements regarding the availability and nature of bid challenge procedures (i.e. domestic
review) to be put in place by all Parties to the GPA;
 the application of the WTO Dispute Settlement Understanding in this area; and,
 a "built-in agenda" to improve the provisions in the GPA, extend coverage and eliminate the remaining
discriminatory measures applied by Parties.
For each Party, the coverage of the Agreement is defined by Schedules, which are set out in Appendix I. Each
Party's Appendix I defines the coverage of the GPA and is structured as follows:

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COVERAGE OF THE GOVERNMENT PROCUREMENT AGREEMENT AND ITS STRUCTURE
Annex 1 contains the list of central government entities
Annex 2 contains the list of sub central government entities
Annex 3 contains the list of all other entities that procure in accordance with the provisions of the
Agreement
Annex 4 contains the list of specific services, whether listed positively or negatively, which covered
by the Agreement
Annex 5 contains the list of covered construction services
Table 1: Coverage of the government procurement agreement and its structure
NOTE
While all goods are – in principle – covered by the GPA, covered services and construction services are listed
in Annexes 4 and 5.
In addition, the Annexes of most Parties contain General Notes that provide more details on the application of
the GPA to specific sectors. The Annexes also indicate the threshold values, expressed in "Special Drawing
Rights" (SDRs) above which individual procurements are subject to the GPA disciplines.
TO KNOW MORE... WHAT IS A SPECIAL DRAWING RIGHT? (BLUE BOX)
The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official
reserves of member countries. Special drawing rights are allocated to member countries in proportion to
their IMF quotas. The SDR also serves as the unit of account of the IMF and some other international
organizations. Its value is based on a basket of key international currencies. For more details, please visit
the IMF Website.
III.A.2. THE EXPANDING MEMBERSHIP OF THE GOVERNMENT
PROCUREMENT AGREEMENT (GPA)
Let's recall that the GPA is a plurilateral agreement, meaning that not all Members of the WTO are bound by it.
Currently, 40 WTO Members are covered by the GPA. However, the membership of the Agreement is in the
process of expanding to cover important emerging and developing markets and several WTO Members are in
the process of acceding to the Agreement. The accession process starts with the submission of an application
for accession and includes two main steps:

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 The verification of the acceding Member's procurement legislation as regards compliance with
the GPA disciplines; and,
 negotiations on the coverage offer of the acceding Member with GPA Parties.
TO KNOW MORE... WTO MEMBERS ACCEDING TO THE GPA (JANUARY 2008)
 China
 Jordan
 Moldova
TO KNOW MORE... PENDING ACCESSIONS TO THE GPA
 Albania
 Georgia
 the Kyrgyz Republic
 Oman
 Panama
 Armenia
 Croatia
 the Former Yugoslav Republic of Macedonia
 Mongolia
 Saudi Arabia
With a view to streamlining the accession process, the Committee has adopted a Checklist of Issues for the
provision of information by applicant governments to the Agreement (GPA/35) and agreed on an indicative
time-frame for accession negotiations and arrangements for reporting on the progress of work
(GPA/W/109/Rev.2).
Special and Differential Treatment
Pursuant to Articles V and XVI of the GPA, special and differential treatment is available for developing
countries both during the accession process and after becoming a Party to the Agreement.

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The work on accessions to the GPA has helped to clarify the potential benefits to WTO Members from joining
the Agreement in addition to related costs and challenges. In broad terms, the main benefits are likely to be:
 assured access to the procurement markets of other GPA Parties;
 enhanced competition (including international competition) and improved governance in the
acceding country's domestic procurement markets;
 coordination and harmonization of procurement policies;
 attraction of inbound foreign direct investment by companies interested in the procurement
markets; and,
 the opportunity to participate in discussions on and influence the future evolution of the Agreement.
The main costs of accession are likely to include the direct costs of preparing an offer and negotiating with the
existing Parties, as well as the institutional costs relating to the implementation of the GPA, including the
adoption of related legislation and the adjustment of domestic firms to foreign competition. Of course, the
relative magnitude of these costs may depend partly on the terms of accession that are negotiated.
Important information
The costs associated with accession to the GPA may be substantially reduced when an acceding WTO
Member has already put in place, a transparent and non-discriminatory procurement system. It has become
clear that many WTO Members have implemented far-reaching reforms. This may have been done as a
result of a regional trade agreement or unilaterally, out of their own national interest. In either case, such
countries would appear to have already undergone the main costs of GPA accession.
III.A.3. ONGOING NEGOTIATIONS
The GPA contains a built-in commitment to further negotiations (Article XXIV:7(b) and (c)) The purpose of
these negotiations is three-fold:
 to improve and update the Agreement in the light, inter alia, of developments in information
technology and procurement methods;
 to extend the coverage of the Agreement; and,
 to eliminate remaining discriminatory measures.
Another important objective of the negotiations is to facilitate accession to the GPA by additional WTO
Members, particularly developing countries. The negotiations under the GPA are not part of the Doha
Development Agenda.
The negotiations have been under way for several years. They have been conducted in a series of informal
plurilateral meetings, supplemented by bilateral meetings between Parties, principally on coverage issues (i.e.
market access).
In December 2006, an understanding was reached by negotiators in Geneva on the text of a revised
Agreement on Government Procurement (GPA/W/297). This is a provisional agreement subject to a final legal
check (rectification process), which was completed in 2007, and to a mutually satisfactory outcome to the
negotiations on coverage.

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TO KNOW MORE... REVISED AGREEMENT ON GOVERNMENT PROCUREMENT
In general, the revised text of the GPA is based on the same principles and contains the same main
elements as the existing Agreement. Nonetheless, it significantly improves the existing provisions,
particularly:
 Revised wording of the provisions of the Agreement with a view to making them more
streamlined, easier-to-understand and user-friendly;
 updated provisions to take into account developments in current government procurement
practice, notably the use of electronic tools;
 additional flexibility for Parties' procurement authorities has been built into the revised GPA,
for example by permitting shorter notice periods when electronic tools are used;
 more explicit recognition of the significance of government procurement for governance and
development, and of its shared purpose with other international instruments and initiatives
in this regard; and,
 transitional measures ("special and differential treatment") for developing countries that
become Parties to the Agreement have been more clearly spelled out.
III.B. WORKING GROUP ON TRANSPARENCY IN
GOVERNMENT PROCUREMENT
At the Singapore Ministerial Conference in 1996, Ministers decided to set up a Working Group to conduct a
study on transparency in government procurement practices, taking into account relevant national policies,
and, based on this, to develop elements suitable for inclusion in an appropriate agreement.
TO KNOW MORE... WORKING GROUP ON TRANSPARENCY IN GOVERNMENT
PROCUREMENT
The Working Group on Transparency in Government Procurement was established to carry out this mandate
carried out a study of twelve issues relating to a potential agreement, covering the following broad
subject-areas:
 the definition of government procurement and the scope and coverage of a potential
agreement;
 the substantive elements of a potential agreement on transparency in government
procurement, including various aspects of access to general and specific procurement-
related information and procedural matters;
 compliance mechanisms of a potential agre