Chapter one introduction to international trade law

Class 1.Meaning and theories of international trade.

Meaning of international trade.

Concerning the meaning of international trade, it is defined with the context of the world trade
organization (WTO).therefore; international trade law is just a part of public international law
which regulates the behavior of states with regard to trade relationship in the form of import and
export by which good or service or certain kinds of good within which intellectual property is
embodied. There are some measures or regulations which can be taken by states to influence
import/export relations like tariff, different subsidy, quantitative restriction, custom duty and
others. If the tariff rate is very high, the final value of the product will be very high. So, this
product may not be able to compete with domestically produced goods. By fluctuating the tariff
rate, states will try to influence the direction of export and import. Therefore, international trade
tries to regulate how states can impose tariff. So in general term, these regulations or measures
which are taken by states that directly influences the volume or direction of imports are regulated
by international trade. Export subsidy is a subsidy which is given by a government either for
government owned enterprises or for private enterprises based on the motive of encouraging
exports. Therefore, this is not a pure function of a market. It is because of a government
intervention that this companies export their product. This means the government is trying to
influence the volume of exports from its domestic manufacturers. Under international trade law,
export subsidies are totally prohibited. Therefore, international trade law tries to regulate export
subsidy or certain kinds of regulation adopted by government which influences trading activities
by private act. A quantitative restriction is a restriction on the volume of imports. Under the
context of WTO, it also works on the volume of exports. In case of quantitative restriction as
well as tariff increase, we are increasing the welfare of domestic producers but we are harming
consumers. Because, consumers are not able to get products or services with lesser price plus we
are restricting the variety of product available for them. Quantitative restriction again totally
prohibited under international trade law unless within some exceptional circumstances.
Therefore, international trade law tries to regulate measures of member states which are
influencing directly or indirectly on the volume or price of imports or exports. There are also
certain kinds of domestic measures which are applicable within the territory of states. it may be
fiscal measures, measures having a financial liquidation or non fiscal measures. Fiscal measures
may be tax, and other measures which requires producers to pay a certain some of money
directly or indirectly. A non fiscal measures may also includes like environmental regulations or
sanitary standards, technical regulations and the like. This may also affects directly or indirectly
imports and exports. There is national treatment rule which is part of non discrimination
principle under WTO. According to this principle, imported products as well as domestically
produced product should be treated similarly. There are also other kinds of measures like a
contingent protection. Contingent protection is a protection applicable when there is subsidy,
damping and import surge or importing principles. If subsidy is harming once domestic
industries, a certain country may take counter bally duty. Before taking counter bailing duty, that
country may be pass through length process. Counter bailing measure means the measures that
tries to neutralize the effect of the subsidy. Tariff under WTO is not prohibited. But, the tariff
rate is binding. This contingent protection allows countries to deviate from their tariff schedule
to counter/act the effect of the subsidy. If it Is not possible for a country to use a counter bailing
measure blindly, there are detailed rules to use a counter bailing duty, an anti-dumping duty and
safeguard measure. Both anti-dumping duty and counter bailing measures allow member
countries to increase their tariff rate. Safeguard measure allows a combination of increasing
tariff. If that is not possible, it is possible to restrict quantitatively since it is allowed under
certain circumstances. So, every measure by a certain member state that directly or indirectly
influences import or exports is coming under the regulation of international trade.

Theories of international trade.

There are two theories of international trade. The first one is absolute advantage theory and the
other is comparative advantage theories. Absolute advantage theory is developed by Adam Smith
who has the very well known book known as the wealth of nations. Countries are trying to
protect their domestic market by withdrawing from more liberalized trade. By the time of Adam
Smith, British was a protectionist country and there was a very high tariff for imported product.
So, he was tried to explain to British people how they can benefit by allowing more imports in to
the British market. Both theorists, Adam Smith as well as Devid Recardo were using labor as
major import of production. The following example can be for comparative advantage. In
country X, 1labor can produce 10 KG tea and 25 KG coffee per day. In country Y, again 1 labor
can produce 15 KG t and 10 KG coffee per day. Therefore, under absolute advantage theory, the
theory state that a country producing a certain product with a lesser real cost can import that
product to a country that produced the same product at a higher real cost and again the country is
better of if it import the product that it produces at a higher labor cost than another country.
Concerning tea, one labor in country X can produce 10 KG of tea. In the same labor one labor
can produce 15 KG for country Y. in this example, country Y can produce at a lessor cost.
Therefore, it is better for country Y to export tea to country X. when countries have a different
real ever cost than their trading partner, it is better for country to export a product which it
produces at a lesser cost than its trading partner and import a product which it produces a higher
labor cost than its trading partner. So, In this case, country X can produce coffee at a lesser labor
cost than country Y. country X also is better of if it produces coffee to country Y and country Y
is better of if it imports from country X.

Devid Recardo came in to develop an absolute advantage theory and he came as a critic of the
absolute advantage theory. The basic shortcoming of the absolute advantage theory is that it
cannot explain the trade between these two countries as when a situation like this occurs. But,
Recardo believes that even when a certain country can produce all products at a lesser cost than
all other trading partners , it can still benefit from trading with other countries. Opportunity cost
is highly important because resource are scarce. So, comparatively, when absolute advantage
believes the product which is produced at lesser cost can be exported, advantage theory state that
the sector of product which have a lesser opportunity cost shall be exported.

Class 2. A product which can be produced in lower cost can be exported than another country. If
a country is producing a certain products with lower cost than another country, it is better for the
country producing that product in lower cost to export the same product, the country producing
the same product at higher cost and the cost is going to be measured either in terms of the
amount of labor time taken to produce or spent to produce a product. Value and price are not the
same in their economic terms but for ease of understanding, it is better to consider value to be the
same as a price. This theory of labor as holding factor of production, there are a number of factor
of production. Factor of production means a certain kind of input of production. There are labor,
technology, capital human expertees and land as factors of production which are required in
arriving at a certain kind of final produce. So, according to labor theory, it is only labor which is
considered to be an input for producing a certain product. Other factor of production are by
themselves influence a value of a product. The theory also state that commodities exchange for
one another inproportion to the number of hours required for their production. Example, within
country T, one product C can be exchanged for two teas. Therefore, according to Adam Smith,
for trade to take place between two countries, their must be a difference in the real cost of
producing a certain product. DevidRecardo tries to remedy the problems inherent in absolute
advantage. He also tries to explain the gain from trade that country can possibly collect even
when such kind of situation occurs. Trade depends on comparative advantage and not on
absolute advantage and one nation can have profitable trade with another nation even though its
real costs are higher or lower in every commodity. Countries like Ethiopia may fined itself in a
disadvantage if we are comparing the cost of production of each of the product which we
produce with developed countries since developed countries have more and strong factor of
productions. The cost of the missed chances or the cost that incur because of the selection buying
a certain product that due to resource limitation is known as an opportunity cost. this the concept
of opportunity cost is applied on micro economic. But DevidRecardo tried to introduce this
concept even macro decision at stake level. For ease of understanding, the following can be
better elastration. One labor produces ten KG of tea in country X and thirty KG of coffee in
country X again, five KG of tea in country Y and twenty KG of coffee in country Y. according to
this elastration, country X is in absolute advantage. If country Y chooses to produce tea, twenty
five KG of coffee is going to lose. This is the opportunity cost for country Y. for the same
product, if country X chooses to consentrated in the product of tea, it is going to lose thirty KG
of coffee. In Ethiopia, it takes three labor hour to produce one barer of wine and it takes ten labor
hours to produce one bot of closs.

Class 3. For the same product, to produce one barer of wine, in Kenya it requires two labor
hours. In this elastration, Kenya is the efficient producer of wine. Because, it requires less labor
time to produce one of barer of wine in Kenya than Ethiopia. With respect to closs, in Ethiopia, it
requires ten labor hours to produce one bot of closs. Whereas, it requires four labor hours in
Kenya to produce the same unit of closs.Therefore, assuming that exchange is only taken place
within the boundary of Ethiopia, one bot of closs can buy 3.6 wine.because, by using three labor
hours, it is possible to produce one barer of wine and we have ten hours of labor to produce one
bot of closs and this same amount of hour can be divided ten by three. So, acording to
comparative advantage theory, Kenya has absolute advantage cost since it can produce with
lesser labor hour than Ethiopia both wine and closs. Kenya will benefit from specializing in the
production of closs because in relative to wine, closs is more cheaper in Kenya. Ethiopia also has
a comparative cost advantage over Kenya in terms of wine. When we say a certain country must
specialize in the cheaper product, labor must be transformed from less efficient sector to the
more efficient sector. So, since closs is the more expensive sector and wine is the cheaper sector
in Ethiopia,labor will be from the production of closs to the production of wine. If there are so
many countries in the competition, when those countries can specialize in their absolute cost
advantage, there will be always a surplus and this surplus is beneficial for the world in general
and it is also beneficial for consumers as well. Because, consumers will enjoy more of both
products and they will also enjoy the quality of the product since Ethiopia is the most efficient in
production of wine and it can be produced with list cost and it can be available with cheaper
price. There was an approach known as mercantilism. It considers exportation as a benefit and
importation as a loss. That is why in around 17 th centuries, protectionism was the fassion. By
this, countries were trying to protecting their market either by using high tariff rate or by using
quantitative restriction or by totally banning importation. There are a number of other theorist
which were tried to further elaborate absolute advantage as well as comparative advantage by
which tried to explain the possibility of trading with multiple countries and multiple product.

Class 4.The limitations of the classical trade theories.

The common limitations of both theories are the followings. First they assume only two
countries. But it is known that in the actual world there are more than two countries which are
trading each other. The other common limitation is they try to explain trade with two products.
The other problem is they consider only a labor as an input for production. Even the value of the
product is measured in terms of labor embodiment. But in the actual scenario, it is possible to
consider an inputs like capital, land and different technological level or advancement. With
respect of labor, they considered labor to be homogeneous or similar in a certain country. By
homogeneous it is saying example, if a certain labor was working in production of tea, the same
labor which were working in the sector of tea can also engage in the production of coffee. They
didn’t see the difference between the labor skills needed to produce coffee and the labor skills
needed to produce tea. Therefore, it is not possible easily transform labor from tea production to
coffee production without incurring a certain cost which is known as adjustment cost in trade
terms. Labor cannot homogenous and the skills requires for various sectors are different like
specialized knowledge and skill. Therefore, it is not possible to move labor from one sector to
another sector without incurring a certain cost. at list we must train displaced workers to adopt
with new skills or jobs or need of requirements and for this reason labor cannot be homogenous.
With respect to absolute advantage theory, we cann’t explain a trade between two countries in
which one country is in absolute advantage over the production of cost product. The limitation
with respect to comparative advantage theory relates with its recommendation to a certain
country to specialize in the production of only certain one product. Specialization is against
export diversification. For instance, if a country is relying its income in the income that it is
collected from trading in a very few products, and if there is any problem with those products
like sanitary issue, natural disaster, i.e. drought or different climate variability,the country will
collapse totally because there is no other major trading items that country can use to get a foreign
currency. So, income source must be diversified. If there is no diversified income source, there is
always a price fluctuation and it in the majority of cases affects primary product which are
unprocessed products these are in the majority of cases agricultural products. This is the major
limitation of comparative advantage. In other direction, there is two different countries with two
different products. In both absolute and comparative advantages theory, countries are dealing
with two different types. But in the real world, a trade can take place in similar products.

Debate on trade and free trade.

There are persuasive debates in both sides. These may be considered as benefits or as
justifications for free trade. In the majority of cases, there is no pure free market economic
system in the real world and rather there is mixed economic system. By free trade, it means that
trade is free from any kinds of barriers either tariff barriers or non tariff barriers. Some
scholars are preferring to free trade by which there will be barriers or obstacles to trade but
should be at reduced level. Therefore, according to various agreements, free trade can benefits
countries because it creates economies of scale. Economies of scale is to mean enlargement of
market. For instance, let’s say trade is liberalized between two countries. A producer in country
A which was able to satisfy consumers in country A only will have an additional market in
country B. therefore, it can create effective demand. This company in country A will try to
satisfy the demand of consumers in country A as well as others country consumers. For
companies, there is fixed cost or variable cost to produce. So, countries will benefit from free
trade because, companies can increase their market size due to they will have access to the
market of other countries. This is one explanation. The other and the second explanation is
diversification of products available for consumers. By diversification we mean that if the
market of a certain country is opened, products will be imported from different countries and
they will compete in this local market and consumers will have the opportunity to have to choose
from this available products. The third justification is enhancing innovation and technology
transfer. Because, it is inherent in free trade to intensify competition. Invention is just a creation
of new product or process and innovation in the majority of cases refers to commercialization or
industrial application. Specially ennovation is related to processes which can be used to reduce
cost of production. So ultimately, consumers will benefit from quality as well as reduced price
that resulted from innovation. With respect to technology transfer, if someone is opening trade he
is able to have trading machines and other products in which technology is involved. There is a
concept known as reverse engineering and it is to mean by which there is a certain final product
and that will be decomposed. After that, scientists or engineers or farmacy physicians will try to
look in to the components of the final product by breaking down the elements of the product and
come up with the certain product.In general, for better understanding of the over all benefit of
free trade particularly for consumers, the efficient producer will always win the compitition.
Efficient producer means a scenario by which a producer using the list cost to arrive at a certain
output. Therefore, if the market is free, each country will specialize in a product that it can
produce efficiently and consumers will be finally benefited. So, it is the efficient producer who
will win the market due to its products are cheaper than less efficient producer and he is the one
who avail the products with the best quality for consumers. It is only free trade by which free
from tariff, quantitative restriction and subsidy that can provide effective environment for
competition.

Justification against free trade.

The first justification is if the market is opened freely by exposing them for foreign competition,
in the products which are produced by infant industries will totally loses the competition and
close their manufacturers and industries. This also will create a serious problem for economy.
The other justification is effect on the income distribution. This relates with theories of absolute
advantage and comparative advantage theory. A certain country cannot be self sufficient and the
natural endowment may be scares or their may be difference in human expert or technological
level and others. So, some sector's may be efficient while the other sectors are inefficient.
Therefore, for a country having half of its sector efficient and half of its sector inefficient, when
market is opened the sector which are high efficient producer can compete with foreign products
or local market and the producer can maximize their income. If efficient producer can maximize
their income, they can pay better bonus or salary for their employees. However, assuming that
there are less efficient producers and if the market is opened or if tariff is increased or avoided, if
the countries who produces the product with the cheaper price and better quality imports those
product to the less efficient producers, the product of the less efficient sector will be harmed
since that sector is being subsidized. That is what it meant by income distribution. When market
is free, there may be a problem of income distribution and this also favor most efficient sector
and harms less efficient sectors. This also creates social crises by which the employees in less
efficient sector will not have income and their may be dependency of families or children or
elders at the end who all will be harmed. Therefore, free trade is not good if there is no
mechanism by which winners can compensate the losers like in the forms of progressive
taxation, social security payment, labor market adjustment, and so on. But, the supporters of fre
trade suggests that it is true that there may be winners and losers in free trade but the over all
benefit will out way the over all cost or the over all disadvantage. However, this may not be true
always particularly for country like Ethiopia who cann’t afford to pay social security benefit for
an employed workers or for workers who are losing their jobs. Adjustment cost means a cost
that a country may incur to benefit the sectors that are harmed by the competition. These are
some of the argument for and against free trade.

Class5. World bank and international monitary fund (IMF) were established by Britten hood
conference which took place in America in 1945. The world bank has part in its organization
known as IBRD (international bank for reconstruction and development). It was established
mainly to construct a war and war affected crises. This IBRD latter became world bank which
provides long term loans for countries which are members to it. IMF also provides short term
loans and by which it was aimed to assist countries with a balance of payment problem which
may have result in their liberalization policies. Balance of payment is related to importation and
exportation. If the value of export is greater than import, there is a positive trade balance during
stable financial position. However, if the value of export is less than the value of import, there is
a negative trade balance and a balance of payment problem or trade defecit. There was another
international organization which was proposed to be established together with world bank and
IMF. Because there was an attempt to liberalize trade by reducing tariff. The basic tenets of these
institutions are liberalization and deregulation. Deregulation may be in the form of having less
stringent regulation. liberalization and deregulation were sometimes conditions to get funds from
the world bank. Latter, it was highly influenced by the need to attract foreign direct investment.
By this foreign direct investment, a host country which produces cheaper compliance cost will be
able to attract foreign direct investment and this itself also will be done in form of deregulation.
Deregulation leads to ffamous fenomenan known as res to bottom. It doesn’t mean that these two
policies are the only policies which are propagated by world bank and IMF. Environmental
criteria is incorporated. Deregulation involves privatization. Brittenhood is highly criticized and
one of the challenge is the policies which were implemented by world bank and IMF are against
the interests of the developing countries which was witnessed by Joseph Stiplete who is resigned
from being a leader of the institution. Because, the plain field is not even and uniform.Developed
countries are more competitive than developed countries. And in a liberalized market, companies
of the developed world can eat the companies of list developed country therefore, in an
environment where the plain field is not even, it is not appropriate to liberalize market or
deregulating business environment and their must be something to be done for the protection of
industries operating in developing countries. This was a very critics of Joseph. Together with the
Brittenhoods institutions and with the UN, who took the political order, the international trade
organization came in to existence (ITO). It was the US who was actively trying to establish ITO
and there was a charter known as Havana charter which was took place in 1945. It was based on
this charter that ITO was supposed to be established. Even though the US was trying to establish,
it was still born. Together with ITO,countries were negotiating tariff reduction based on the
general agreement on tariff and trade. General agreement on trade (GAT) was concluded in 1947
and came in to force in 1948. It was supposed under ITO. However, ITO never came in to
existance and it was GAT which was operating throughout 1947—1994. It was supposed that
IMF and world bank will take of the financial issues and the ITO will deliver on the legalization
issues or the multilateralization difference. Even though the ITO can be established without
USA, at that time there was a conclusion of an international organization without USA and china
is equivalent to no organization. The reason is first, there is a need of financial support from
those countries and second, if it is not able to get access to the US market which is one of the
lucrative market, it is difficult and has no meaning to establish that institution. GAT actioned as a
cohasi institution. As we can understand from the preamble of GAT 1947, there was aiming that
a reciprocal reduction in tariff through successive negotiations. Even before the first half
negotiations, 1986 by which it is the year where the Uruguay round established world trade
organization(WTO), there were seven rounds of negotiations. So, GAT served as both a defacto
institution and a legal framework that regulates international trade. When we say GAT was a
defacto, it has no power to decide and to be influencial. There was also a director general which
wasn’t frequently mate. There were also dispute settlement bodies. At that time, six codes and
three another separate agreements which regulate non tariff barriers were introduced in Tokyo
rounds. But, no institution were able to implement since GAT was primarly aimed at setting a
legal framework for multilateral trading system. The interest to be bound is based on lacartey
approach by which contracting parties can chooses from the available agreement. Because, GAT
was not in an effective institutional position to require compliance of contracting parties about
these rules introduced in the multilateral trading system. GAT 1947 was through a number of
changes. The issue of non tariff barriers coming in to effect after the sixth round of negotiation.
GAT was basically aimed at only regulating trading goods or merchandise of trade. The Uruguay
round is started in Uruguay but it took more than eight years and therefore it was not taken place
in that country throughout the negotiation by that time. The Uruguay round was aimed at in
establishing an institution which will be enforce the implementation of agreements; secondly,
there was an issue of agriculture and textile; there was also a need to have a single dispute
settlement system and also there were a need to include a new sectors. These are four agendas of
Uruguay round negotiation. Concerning new institution, the Uruguay round came up with WTO.
The issue of agriculture and textile were included in GAT. The single dispute settlement system
also is established by the dispute settlement understanding. With regard to new sectors, the
Uruguay round negotiation was able to come up with an agreement that deals with trade and
services known as GATS (general agreements on trade and services). It was also able to
incorporate agreement on trade related intellectual property rights. Therefore, in addition to
trading goods, WTO will be in charge of overseen the implementation of multilateral trade goods
in trading services and in trade related aspect of intellectual property right. These two new
sectors services and TRIPES are added principally for the interest of developed world while
others preferred by developing countries.

Class6. There was an agreement on provisional application of GAT 1947. According to this
agreement, GAT serves as an semi institution but it was defective. One of its defects is its
inability to require of member state to adherence of all the legal instruments that were came out
of Tokyo round. GAT 1947 served as an cohasi institutional structure. Because, the ITO was
never realized and it was intended to provide an institutional framework for the implementation
of GAT 1947 and its annexes. The annex includes schedule of consession. Schedule of
consession is an instrument where by a country provides the bound rate applied for imported
products from all WTO members. For each products, there were a certain rate of tariff and it was
part of GAT 1947. The agreement on the reduction of tariff was replaced by schedule of
concession. It is a table of concession that includes a systemic classification known as a
harmonized system classification of goods. One of the problem of GAT was limitation on
coverage as the name indicates it applied only with respect to trading goods. But, at the end of
1980s, especially in the developed world trading services were contributing lots for a countries’
GDP as well as for employment question. The contribution of service trade was further enhanced
by the advancement in science and technology specially information communication technology.
Therefore, it was possible to provide services without usual limitations of space and time.

The structure of WTO.

The economic integration after world war II was enhanced by globalization. In globalized world,
there was integrated financial market and foreign direct investment. Therefore, rather than a
bilateral agreement with every state, it is better to come up with multilateral trading systems. The
institutional structure provided by GAT 1947 was not able to deal with increasing a very
dynamic economic events in 1990s. therefore, states were come up with an institutional structure
known as WTO. The negotiation was started in 1986 and they were not able to agree on the
institutional structure of WTO until 1994. The other introduction by Uruguay round is the
inclusion of new sectors in the multilateral trading system. These sectors are service by
agreement on GATS and agreement on trade related aspects of intellectual property rights. These
sectors were highly protested by developing countries and even opposed by European
union(EU). The developing countries protested it because they had an interest in the inclusion of
trading agricultural product. The developing states also supports those sectors specially TRIPS
because their IP assets like industrial design, copyrighted work, or patented enventions are more
than their general assets. So, lastly they put as an option that their must be a reduction in export
subsidy of agreecultural products. EU was against this proposal because it has agreecultural
policy at that time which was highly subsidizing domestic producers. Finally, they came up with
GATS and TRIPS to be included under the WTO structure. With respect to dispute settlement
understanding, there were a single third party adjudication by an institution which is established
under WTO. Adjudication was mandatory and what separates the dispute settlement
understanding of GAT 1994 or WTO from GAT 1947 is under GAT 1947, the final report is
adopted by the full member of WTO. The adoption must be by consensuses of all and if one
party refuses, the final report is rejected. So, it is very difficult to adopt the final report and at list
the loser party makes it vato. This makes the GAT 1994 very effective and its structure under
WTO reversed this kind of adoption.

The legal structure under WTO.

There are two types of agreements administrated under WTO. The first is the multilateral trade
agreement.

In GAT 1947, there was an attempt to remove the problem and result of the lacartey approach
and come up with a new approach which Is known as a single undertaking approach. It means a
membership under WTO is contingent upon accepting all the multilateral trade agreements. So,
the mere fact that once a state joined WTO entails that state assumes obligations under all
multilateral trade agreement. Art 2/2 of the Marrakesh is about custom’s valuation. Free
shipment inspection is an inspection that will be conducted before goods which are supplied for
exportation. This is incorporated under multilateral trade agreements. Agreement on rules of
origin is an agreement is applied to determine the nationality of a certain product. Safeguards
measure is incorporated in art 19 of GAT 1994 and it is a measure against excessive
importation.the last multilateral agreement is the trade policy review mechanism. This
agreement is aiming at ensuring the continuing adherence of WTO members to multilateral
agreements. Countries are expected to make their policies and laws consistence with the
obligation under international law. Therefore, the policy and laws of WTO member will be
revised by a trade policy review body. the period of review is varied according to the level of
development of a WTO members. By this, first the country will submit its own revise of its laws
and policies.person from the dead policy review body will collect the information by visiting the
member state and they will come up with their own report. Reporting mechanism is the means to
ensure transparency. Members cannot have a reservation on any provision of multilateral trade
agreement. The second set of agreement under WTO is prulilateral agreement. This agreement
is stated on art 2 para 3 of Marrakesh agreement. There are four prulilateral agreements. Those
are: agreement on trade, civil and craft, agreement on government procurement, international
dairy agreement and international bovine agreement. They impose obligation for those members
who specifically accepted them and these are available based on lacartey approach. The furst two
agreements are only serving as unilateral agreement currently. The other two agreements are
expired in 1997. Member to these agreements are only for WTO members, the single
undertaking approach is not included under prulilateral agreement. There is one additional
multilateral trade agreement and it is among the trading goods agreements i.e. agreement on
trade facilitation recently. It is further enforcing the transparency requirement.

Institutional structure.

The ministerial conference is the highest body under WTO which meets at list once in a year.
There are eleven mistrial conferences. The activity of each mistrial conference will be
undertaken by the general council. It is composed of all WTO members. The trade policy review
mechanism is implemented by trade policy review body. This same general council will convene
as a trade policy review body to adopt a review report. But, a trade policy review body has a
separate chair person. The general council dispute settlement body will have also its own chair
person. It will meet to adopt the decision of panel and appellate body. The dispute settlement
panel is an ad-hoke panel. All WTO members will participate in all council and committee
except the appellate dispute settlement body.the appellate body is composed of seven members.
According to art 7, panel is an ad-hoke committee composed of either three or five members but,
the decision of the panel will be adopted by dispute settlement body.under the general council,
there are three main councils and it go in line with the multilateral trade agreement. In addition to
these three councils, there are also three committees which are directly answerable for the
general council. every acceding country will have a protocol of accession. It may have a WTO
plus obligation or minus obligation. Accusation protocol will be applicable for non original
members. In the majority of cases, countries assume a WTO plus obligation by their accusation
protocol and the notable example is china. Utinia is notable example with respect to WTO minus
obligations.

Chapter two. The core principles and obligations under WTO. (GAT)

Class7. Introduction.

There are five major principles under WTO. The first principle that comprises the two further
elements is non-discrimination. It has two components that are the most favored nation
treatment and national treatment obligation. The second principle is tariff binding. The
third one is elimination of quantitative restriction. The fourth one and the final is the
transparency. For convenience, it is possible to take them as four but actually there are five core
principles and obligations which are applied almost in all sectors which are regulated under
WTO. With respect to elimination of WTO, it is only applied for trading goods. But others
principles will be applicable for TRIPS, or trading services, as well as for others agreements
under GAT 1994. The most favored nation treatment is not a new concept for WTO and it has
been dealt starting from 17th century historically. This obligation is an obligation that requires
treating all members equally. Most favored means the most favorable treatment available for a
certain country must be available for all WTO members unconditionally. If any kind of more
favorable treatment provided for a certain country, that favorable treatment must be
multilateralized for all recently 164 WTO members which are not party to bilateral negotiations.
The most favored nation treatment is provided under art 1 GAT. It has its own historical reason.
It has two economic and political dimension. Part of the reasons why countries entered in to the
second world war was a certain kind of trade war. There was beg your neighbor policy and
countries were retaliating by using different kinds of trade names. Therefore, lastly the
understanding of the contracting parties was that if we treat all members alike or equally, we can
avoid further large scale war from being realized. This also indicates most favored nation
obligation incorporated a non-discrimination. The most favored nation treatment is incorporated
even in more other articles of GAT and more other articles that regulate trading goods like art 1
and art 2 of GAT, article 4 of TRIPS and others.
The second principle is the national treatement principle or obligation which is under art 3, art
15, art 17 of GAT and art 3 of TRIPS. This national treatement principle caries with it just non
discrimination principle under the most favoured nation treatement but it applies in relation to
domestic product. According to the national treatement obligation, imports must be treated
equally with domestic products. While the comparison in most favored nation treatement is
among WTO members, with respect to the national treatement principle it is with a member
versus other countries. So, most favored nation treatement prohibits discrimination among
importing countries but, national treatement obligation prohibits descrimination between
domestically produced products and imported product. Sso in general, non discrimination
principle requires equality of treatement among WTO members and equality of treatement
among imported and domestically produced products. Any kind of discrimination based on the
origin of the product falls under national treatement obligation. The most favored nation
treatement obligation also requires a members not to descrimination between products based on
the country of origin. The only custum’s territory in our world where there is no payment of
duties is Hong-kong. By providing equal treatement, most favored nation treatement creates
equal competitive condition for all businesses. In addition to that, by extending the non-
descrimination principle to the national condition, the most favored nation treatement as well as
the national treatement obligation creates equality of competitive condition.

The third principle is tariff binding. Ofcourse one of the major purpose of WTO is reduction of
tariff. It serves as the way of protecting domestic market. It can also be used to generate public
revenue. There is a concept known as tariffication. Tarrification means if one state aiming to
protect its own domestic market by using non tariff measures like sanitary and standard
measures, that state is expected to avoid those barriers and shall convert them to tariff. The main
reason why tariff is the prefered way of protecting market and why it is endorsed under WTO is
because of its transparency and easiness to monitar. Non tariff barriers like sanitary measures
may be transparent based on the requirements under WTO but it is difficult to monitar. After the
conclusion of a certain multilateral negotiation, countries will draw their own tariff schedule.
They arrived at a certain level of tariff and this level of tariff is part of the WTO agreement.
Therefore that will be a maximum tariff rate that one state can apply on imported products.
Countries cannot increase beyond the bound level. The bound level is the level of tariff which is
agreed upon at the conclusion of multilateral trade negotiations. A one who increases the tariff
level beyond the bound level, it is subject to payment of compensation. But, it can provide a
lower rate. the level of tariff which is agreed upon at the conclusion of multilateral trade
negotiation is known as bound level. any kind of tariff rate which is applied by that country
below that level is known as applied rate. It is possible to have a rate which is different from the
bound level but it cann’t go beyond the bound level. that is what we mean by tariff binding. As
per art 2 of the GAT, this insures predictability and certainity in the world market.

Elimination of quantitative restriction is the fourth pillar and principle of WTO. This principle is
dealt under art 11 of GAT. Accordingly, members cannot determine the quantity of products and
goods to be imported or exported. The basic principal provision for market access purpose is the
tariff binding principle under art 2 of the GAT. Other principles are there to guard against the
erosion of value of the tariff negotiation. Therefore, quantity cannot be restricted and the
restriction is both for imported product and exported products. Importation and exportation will
be cooperating based on the law of supplying demand and the price will be determined based on
the law of supplying the market. Price will not be sky rocketed based on artificial shortage of the
products. Holding is among one of unfair trade practices and it is strictly prohibited under the
Ethiopian trade competition and consumer protection proclamation. The implication of
quantitative restriction by the government has the same. If quantity is restricted, there will be an
artificial shortage of products and consumer will be harmed.

The last principle is transparency. It is under art 10, art 3, art 63 ofGAT and Art 63 of TRIPS.
With respect to GAT, what the obligation of transparency requires is publication of rules,
regulations, policies and strategies of general application which will have an impact on trade. It
also must be readily available for consultation. To this effect, for countries there are a number of
requirements to establish or open inquiry points in addition to publication. Inquiry points are just
centralized institution or system, which answers questions and inquiries from members.
Transparency is all about making rules available for all WTO members by which member states
will take care not to expose themselves like if there is any rule which is inconsistence with WTO
obligations. Transparency is further reinforced under trade facilitation agreement in art 1up to 3
specially in art 1. There is also trade policy review mechanism under WTO whereby the policies
of WTO members will be reviewed and published.

Class 8. According to art 1/para1 of GAT 1947, there are four government measures,
which are subject to the discipline of art 1. The first one is custom and duties; the second is the
method of levying such duties or custums by which in other words known as evaluation method,
the third is rules and procedures applied to exportation and importation and the fourth is about
internal decrees where the law cross refers to art 3. So, concerning these four actions measures
by the government, there is a duty of most favored nation. With respect to national treatement
principle, if the internal regulations and charges are applied in discriminatory custom and duties
and discrimination based on the country of origin, it will fall under the scope of art 1 and will be
considered as the violation of art 1 and not a violation of art 3. There is six types of evaluation
methods under WTO. They are applied in order of the existence in the agreement of art 7.
Example, when a certain product is imported from a certain state, the principle under the
agreement for the interpretation of art 7 is valuation must be based on the transaction value (TV).
There are different types of valuing a certain product and there are different methods of imposing
duties. Any advantages, favor, privelage or immunity related to four types of measures granted
by any contracting party to any product originated or destained for any other country shall be
accorded immediately and unconditionally to the like product originating in or destained for the
territories for other countries. There are two types of most favored nation treatement (MFN
treatement). The first one is conditional MFN treatement which is well known even before GAT
1947. It requires that example let’s say there will be a bilateral agreement with A and B in this
bilateral agreement, they agree for MFN treatement of each other. Netherland is major importer
of flowers. Ethiopia and kenya and most other east African and southern African countries like
Zimbabwe are engaging in horticulture production. First, Ethiopia and netherland enter in to
bilateral investment agreement and as part of the result of negotiation, netherlands agreed after
the conclusion of the bilateral negotiation Ethiopia will pay only 15% when it exports its flowers
to netherland while it was 30% tariff before the bilateral investment negotiation. Now, Ethiopia
was enjoying this 15 % difference of reduction. Latter after six monthes of this bilateral
investment treaty, netherland came to contact Kenyan officials they arrived at bilateral
investement treaty and as the result of that treaty, Kenyan exporters will pay only 10 % when
they want to export their flowers to the netherland’s market. The treaty is more favorable for
kenya than Ethiopia. Therefore, Ethiopia cannot claimme the treatement of its horticulture
exports to the netherland’s market if it also consists the same terms like Kenya. So, if in their
bilateral investement treaty the MFN treatement is conditional, Ethiopia can claimme the 10 %
tariff rate only if certain conditions are fulfilled. That condition may be from Netherlands to get
the same consations from Ethiopia. under the MFN treatement incorporated in the WTO
framework, condition is not allowed. This means, unconditional MFN treatement which is
incorporated under art 1 of GAT provides that the result of bilateral negotiation should be
multilaterlized for all WTO members without any delay and condition. Before the introduction of
unconditional MFN treatment under WTO, countries were using conditions as a means of
protecting their market and as a means of discriminating politically unwanted other states.
Conditional MFN treatement obligation was the source of trade war and is also time taking and
complicate relationship. So, making MFN treatement obligation unconditional makes managing
trade agreements very easy. Since negotiation requires better burgaining power and small
countries do not have that power, they will be benefited from unconditional MFN treatement
obligation. Small countries in a sence in termms of population, or market size, or economic
development. A major producer doesn’t benefit anything if it cann’t get access to a market that
provide a huge demand. This is one rational for MFN treatement and the other rational is
avoiding unnecessary trade divertion. The basic purpose of MFN treatement is avoiding non-
descrimination based on country origin of a certain product. If one state is avoiding
discrimination among other states, it is avoiding unnecessary trade divultion in a sence that less
efficient producers will not benefit from the discriminatory treatement in their favor. By applying
similar conditions for similar products originating from all WTO members, we are avoiding
unnecessary trade divultion and we are allowing most efficient producers to prevail in the
market. The most efficient producers also will avail its products with lower prices and this
insures the welfare of consumers. Not only from lower prices, consumer also will be benefited
from better quality. And again, by not discriminating between countries, we are broadening the
options for consumers. These are some of the underlined reason why WTO incorporates MFN
treatement which is unconditional.

Class 9. The basic problem with unconditional MFN treatment under WTO is there is a
possibility for free rider. So, for this probability, MFN treatment is considered as an obstacle for
further trade liberalization specially trade liberalization at scale of two or three countries or at
micro scale. For this reason, the main obstacle for multilateral trade negotiation is MFN
treatment. Ofcourse it is not an absolute obligation and there are a number of exceptions for it.
One of the exceptions is a regional trade agreements under art 24 of GAT. That means if regional
trade agreement is exception for MFN treatment, members cannot free ride from the negotiation
result. There is a very serious requirement under art 24 by which the regional trade agreement
must take the form of either free trade area or a custums union. There are authors of international
trade law who suggest the unconditional MFN treatment is possible for the proliferation for the
increasing the number of regional trade agreements. The MFN treatement is also regarded as an
obstacle for the success of the doha development agenda of the current round trade negotiation
under WTO. One of the elements of MFN agreement under art 1 is likeness between the products
which are subject to discriminatory treatments. So, discriminating based on the difference in the
characteristics of product is possible. It is only like product which deserve like protection or the
same kind of treatment. But the question is how we determine weather certain goods are like or
not. Under the WTO legal system, like products are mentioned in different provisions like art 1,
art 2, art 3, art 13, and the like. Like products in different provisions work as accordion and in
some provisions, it will be stretched that is to mean it will be understood very broadly or in some
other provisions, it will be understood very narrowly. There is a bit relaxed or broader definition
of like product under art 1. Because, working parties before the establishment of WTO as well as
panel and appealate body determines that for the purpose of art 1, we would rely on tariff
classification to determine likeness. Therefore, for the purpose of art 1, products which are under
the same tariff classification is considered to be like products. There are the parameter which will
also be applicable with respect to art 1. If two products are different in the physical
characteristics, it is legitimate to classify them in different tariff categories. But if the
classification is not based on their physical characteristics, it is interpreted to be a disguised
descrimination or a discrimination in the name of tariff classification.

The second principle under GAT is tariff binding. Bound level is a tariff rate in the member
countries tariff schedule beyond which cannot increase.if they are applying tariff rate other than
the bound level, that rate is known as applied rate. Art 2/para1/A state that each contracting party
or each member shall aport to the comense or other contracting parties treatment no less
favorable than that provided for in the appropriate part of schedule annex to this agreement. A
bound itom is an itom for which a tariff rate is agreed. It may not be possible to agree on the term
of every itom and it is only bound itoms which are subject to the regulation of art 2. But that
doesn’t mean a certain country can discriminate between countries by applying different rate for
unbound itoms. Art 1 takes care for that itoms because it applies for bound and unbound itoms.
So, if the tariff difference is with respect to unbound itoms, art 1 will be applicable and this
means member countries are discriminating among other member. So, the term of reference for
art 2 is the tariff schedule. Since art 2 refers tariff schedule, if itoms are unbound, the tariff
schedule is not going to be considered. Because, those itoms are unbound itoms. But, it is not
possible to discriminate between countries that trade is unbound itoms, because, MFN treatment
prohibits discrimination based on origin weather the itom is bound or unbound itom. Ofcourse no
one cann’t have a tariff rate beyond the bound level. but it is possible to modify or withdraw
modifying is increasing and withdrawing is totally making that bound itom to be unbound. It is
exercising one’s sovereignty in its absolute sense. But it is subject to payment of compensation.
The payment of compensation is not in terms of money. Rather, a country who increased its
bound tariff level is expected to decreese tariff rate on itoms of export interest. According to art
28, countries are classified in to three. First there are countries with which the negotiation was
taken place in the first round of negotiation.

Class 10. Art 2/para/1/A is about tariff rate. Therefore, the major obligation under tariff binding
which is provided under para2/1/A doesn’t include lists of charges which are incorporated under
para2 of the same article. Under para2 A, there are internal tax and in B there are anti-dumping
and counter-bailing duty. In C there are service charges. Internal taxes may be imposed at the
border and if this internal taxes applied on imported products are imposed in the same manner
with domestic products, it is possible for member countries. So, art 2/para1/A on the principle of
tariff binding is applicable only to tariff rates anti-dumping and counter-bailing duties are also
known as contingence measures. There are two types of measures. The first is the default
measure. the default measure is the normal tariff rate which is included in the tariff schedule.
When tariff rates are not efficient in regulating some types of anti-competitive practice, it is
possible for countries to take contingent measures. Ofcourse damping practice is not prohibited
under WTO. But if there is dumping and if some kinds of requirements are mate, member
countries can take anti-dumping measure. Damping margin is the difference between the normal
value minus the damping value. Anti-dumping measure is essentially increase of tariff rate. This
is an allowed increase of tariff rate and it constitute exception to art 2 i.e. principle. Currently the
country which is well known for its dumping practice is China. That exception of increasing
above the bound level is only with respect to the product which is dumped. Its purpose is only to
neutralize the effect or can be rendered null and void so that injured domestic producers can now
effectively compete with dumped products. The same is tru with respect to counter-bailing duty.
Counter-bailing duty is just to mean tariff. Tariff is also known as custom duty or simply duties.
A counter-bailing duty is a duty which is applied on subsidized product. Even though there is no
outrite prohibition of dumping practice, there are some types of subsidies which are
automatically prohibited under WTO. For other types of subsidy, countries can take counter-
bailing duties with the same as anti-dumping measures. It is just increasing the duty rate or the
tariff rate with respect to the subsidized products to the purpose of neutralizing the effect of
subsidy. Contingent measure is made when only dumping or subsidy occurs. Otherwise, the
default measure always applied. Service charges are not regulated under art 2. Anti-dumping
duty is stated in art 6 and agreement on the interpretation of dumping and anti-dumping duties.
Counter-bailing duty also is under art 16. There is also a separate agreement on subsidies and
counter-bailing duties. Service charge must be commensurate with the value of the service given.
Service charges are charges not with the intent of profit and only to facilitate the service. Service
charge is prescribed again in art 8 of GAT. How do we determine the difference between tariff
rates and service charges and other duties and charges? Art 2/para1/B talks about tariff rate
which is applied on the basis of MFN. The tariff schedule relates only with ordinary custums
duties. The ordinary custums duties are custums duties which are expressed in particular form
and which may take some five forms. One form is advalorum duty. It is percentage to be
calculated based on the value of the product. Specific duty is a duty based on a unit of imported
product like KG, tone, quibic meter and so on. Compound duty is the mix of two i.e. advalorum
and specific product. Technical duty is some technical content of imported product specially be
determined by professionals by which sometimes they are discouraged. Alternative duty is duty
which relates with minimum or maximum of the imported product. Advalorum duty is the most
applied method to calculate ordinary custums duty. The possible expectation to do is determining
the value of the imported product checking for the tariff schedule to the rate which is applied.
Compound product has an advalorum as a basis and specific duty will be added. So, if the duty is
expressed in a particular form, it is going to be lebeled as ordinary custums duties. These are the
forms of the ordinary custums duties which are recognized under the WTO’s dispute settlement
mechanism. This is regulated as per art 2/para1/A or para1/B of the first sentence. Art 2/para1 B
of the second sentence talks about other duties and charges. With respect to this, it stated that
such products should also be exempt from all other duties of charges of any kind imposed on or
in connection with the importation in excess of those imported on the debt of this agreement. So,
this means other duties and charges must be included in the tariff schedule. Ofcourse there is no
conclusive definition on what constitute other duties and charges so far. However, what the
WTO appealate body and panel stands for is that we can exclude the three which are internal tax,
anti-dumping duty and service charges from other charges but there is no exhaustive lists as to
what constitute it. So ingeneral, any duties other than ordinary custums duties and other than the
internal taxes, anti-dumping duty counter-bailing duties and service charges can be recognized as
other duties and charges. These other duties must be entered in to tariff schedule and they cann’t
be increased after they are incorporated in that tariff schedule. New duties and charges cannot be
introduced without members being agreed in the successive round of negotiation. They can be
included in the tariff schedule but they can be challenged under for compatebility with other
WTO rules and principles. The mere fact that other duties and charges are included in the tariff
schedule doesn’t make them legitimate duties and charges. As it is stated above, there are five
methods to determine ordinary custums duties and one method of determination of ordinary
custums duties cannot be changed to another type of method of ordinary custums duties this
means example, if the kinds of method which is incorporated in the tariff schedule is advalorum,
it cann’t be changed to specific duty. That is what incorporated under para3. Because, the value
of the tariff consation will be highly eroded and uncreditable. By doing so, we are not
maintaining the integrity of the tariff binding. Market access based on advalorum will not be the
same with market access which will be based on specific duty. Changing or altering of the value
of calculating duties as well as exchange rate is totally prohibited under para3 of WTO. Para4 is
about import monopolies by the government. It is the same with the artificial shortage of
products. This is prohibited because it serves as an alternative form of protection and if the
government have monopoly on imported and exported products, it is another form of protection
so that domestic producers will be In a better position to have the market share. Para6 is about
currency evaluation and it must be rade with para3 of the same article.

Class 11. Other non-descrimination principles as well as the principle of quantitative restriction
are trying to protect the integrity of the value of tariff consation which is provided under art 2.
MFN treatmenbt prohibits a kind of horizontal discrimination which is the discrimination
between member states by presumption of there is equality between states. Art 1 which is MFN
treatment under GAT also regulates itoms which are not included in the tariff schedule. Likeness
with respect to art 1 is determined by the tariff classification under art 2. National treatment
obligation is a principle or core obligation wich is also part of the non-descrimination obligation
by which the prohibition is vertical discrimination which is imported product versus domestically
produced products. Art 3/para1 provides the general principle that guides the other eight
paragraphs in the art 3 and it cannot be considered as an operative part of the article. Art 3/para2
is about fiscal regulation or regulation that relates with charges and duties. There is additional
article art 3/para2 which was incorporated throughout successive negotiation. Articles which
have a symbol of astris are accompanied by additional explanation. It is not possible to use
internal taxes as tools of protection of market. The standing of WTO is to protect one’s own
market, it must be done in the form of tariff rate. The only form of protection which is not
prohibited under WTO is tariff. This is clearly stated under art 3/para1 of GAT 1994. The
incident will be transferred to consumers from a trader that is subject to 20 % VAT and 10 %
VAT is not equal. So they will not compete in the market if the government applied
discriminatory tax regime on imports so that the competitive environment is distorted. Underr art
3, it is not possible to discriminate between products which are produced by an environmental
friendly companies and non-friendly companies. This is subject to the current Doha negotiation
round. Memberscountries are expected to treat imported and domestic products equally and taxes
and other charges as well as other types of regulations cannot be used to afored protection for
domestic productions. So, it allows internal regulation as a means of protection. There are two
parts for art 3/para2 i.e. first and second sentence. The first sentence should be understood in
tandum with the additional art 3/para2. As a general remark, it is better to identify between
border tax and internal tax. A border tax is a tax which is applied solely on imports and an
internal tax is a tax which is applied within the territory of a certain state. A border tax is
regulated under art 2. Any kind of discrimination with respect to border tax will be either part of
art 2 or if the itom is not a bound itom, it will be under art 1. If it is an internal tax, the
consistency of that internal tax must be examined under art 3. So, art 3 is applied only with
respect to an internal taxes which are applied both imported products and domestic products.
There is no law that prohibits to favor imported products and discourage domestic products.
Under the first sentence of art 3, it has strict application in terms of likeness test and in terms of
discrimination. It is expected to interpret likeness very narrowly. Discrimination with respect to
products which is not currently available for other countries will be strictly disciplined under art
3/para2 first sentence. Any kind of discrimination between imported and domestically produced
products very seriously regulated in art 3. The prohibition is not based on a trade effect lists. This
means example, it is not expected to explain that because of the introduction of tax regulation,
the volume of imports are reduced by a certain proportion. The mere fact that it is discriminatory
on its faith is sufficient to prohibit that kind of discrimination and there is no need of to go-
through lengthee base of trade effect. The prohibition is not qualified by a demines exception. Or
in other words, there is no tolerable amount of discrimination. Even a very minor level of
discrimination and difference will be strictly disciplined. But, the exception of the tolerable
amount will be applied for the second sentence of art 3/para2. For the purpose of the second
sentence, likeness is understood to be directly competitive or substitutable products.

Class 12. Tariff is equivalent to custums duty. But, any effect a certain country can’t successfully
produce can also be set of berry by using internal tariff. Art 3 tries to regulate internal regulations
generally and countries have a freedom as a means of exercising the economic sovereignty. So,
art 3 doesn’t prohibit countries to introducing rules or regulations that regulates business
relations within the territory. But, what art 3 requires is where a certain law or regulation is
introduced, for territorial application, it must be applied without discriminating domestically
produced products and imported products. Art 3 applies to fiscal and non-fiscal regulations.
Fiscal regulations are under art 3/1/para2 and non-fiscal regulations are regulated under art
3/1/para4. Fiscal regulations are regulations that introduce a new tax or modify existing taxes or
other charges. There is no lists of non-fiscal regulations but art 3/para4 prescribed as to what
kinds of internal regulations are regulated. There are differents of standards of review under art
3/para2first sentence and second sentence. According to art 3/para2first sentence, for a country
to establish violation of that provision, there is a requirement that imported and domestically
produced products are taxed in excess of domestic products. Under art 3/para2 second sentence,
imported and domestic products are directly competitive or substitutable products and the second
test is if they are not similarly taxed and the third is the regulation or the tax scheme are
introduced so as to afored protection for domestic production. A measure which is consistence
with art 3/para2 first sentence may violate art 3/para2 second sentence. That is why there is
different standards of review under both sentences. Para2 has three requirements. These are: first,
the products must be directly competitive or substitutable. second, they are not similarly taxed.
Third, the tax regime is introduced to afford protection. We used like products while using
directly competitive and substitutable products in the second sentence. We are also using in
excess of in the first sentence while we are using the not similarly taxed threshold in the second
sentence. If there are a potential possibilities by the consumers to substitute one product for
another products, it will come under the scope of the second sentence and it will be examined
under that paragraph. When we see the competition of two goods, it is not only dealing with
actual competition but also potential possible competition in the future. There is a possibility of
competition and that is why the term directly competitive is used and it may be substitutable but
it may not be determined by price elasticity of demand. It is among one of the methodologies by
which a panel of appealate body can use to determine weather two products are directly
competitive or substitutable product. But, this price elasticity of demand is not the only
determining factor to decide either in favour or against in the issue. Price elasticity of demand is
better for substitutable products. A very minor change in price will result in shift of concerning
from one product to another product. If their price has a big difference, it is difficult to use that
test and that is why the appellate body is not using the cross-price elasticity or elasticity of
demand in general. The second test to proof that weather art 3/para2 second sentence violated or
not is imported products and domestic products are not similarly taxed. Or in other words,
imported products are taxed more than domestic products what makes it different from art
3/para2 second sentence is under the second sentence, there is some demines level or tax
difference which is tolerated. The substantial increase in price of one product may drive
consumers to shift their consumption from one product to another product. When there is a
demines level which is not determined by any cases that WTO intertained as to its insignificant
and it is decided on case by case basis since the products in competition are different on case by
case basis. Therefore, there is a tenndency to tolerat certain tax differentiation between imported
and domestically produced products. However, if there is a substantial tax difference between
those goods, there is a presumption that this tax scheme is introduced with the purpose of
affording the protection for domestic production. So, the amount of tax differential matters to
decide weather the regulation is introduced with the purpose of protecting domestic production.

The first sentence requires the likeness test to be passed and in excess test to be proofed. For a
certain WTO member to establish violation of art 3/para2 first sentence, the imported product
and domestic product must be like products. Likeness is a sub-set of directly competitive and
substitutable product. Directly competitive and substitutable products is broader than the
measurement of likeness. There is a working party report on border tax arrangement. One aspect
of this arrangement is defining likeness. There are four characteristics or measurements, which
were applied under the working party report. The first is physical characteristics. The second is
Consumers’ test and preference. The third one is will use. In this respect, the products may be
different in the physical characteristics but they have the same kind of utility. The fourth is tariff
classification. According to the first requirement adjustment, two products in question will be
considered to be like if they share the same physical characteristics. With regard to the
consumers’ test and preferences, it is providing alternative criteria to determine likeness and not
cumulative criteria. Even though two products do not share the same kind of physical
characteristics, consumers may have similar characteristics or tests. According to the utility test,
consumers may have difference tests or products may have difference physical characteristics but
if they have the same use they can be considered as like products. The major criteria to determine
under the MFN treatment is the tariff classification. The tariff classification has chapters and has
two digits. If two products are sharing the same tariff nomenclature, they will be considered as
like products.products which are listed under the same nomenclature at the sixth digit lebel can
safely be considered as like products. Because, the sixth digit lebel is the most specific lebel of
tariff nomenclature detail as it is fined and accepted by a number of countries. Generally, directly
competitive products and substitutable products are broader. Therefore, we may use the same
kind of parameters to identify both. Criterias which are applied to determine the likeness of
product can also be applied to determine the directly competitive or substitutable products. So,
likeness under art 3/para2 first sentence is broader than likeness under art 3/para2 second
sentence.

The second requirement other than likeness to establish violation of the first sentence is in
excess. A single arithmetic difference of tax will result the establishment of the third requirement
i.e. the tax regime is introduced to afford domestic protection. Therefore, there is no demines
requirement which is tolerated under the first sentence. So, any kind of arithmetic difference
between the taxes applied will be sufficient to proof that imported products are taxed in excess of
domestic products. That is why there is no specific reference to paragraph 1 under the additional
article as well as under the same paragraph.

Class 13. Art 3/para3 is not currently enforced. Grandparent principle is excluding previous
national as well as bilateral agreements from the application of a newly introduced legal
instruments. There is one regulation under art 3/para5 which is certainly included. There is two
types of non-fiscal regulations which are clearly excluded from application of the national
treatment obligation under para10. This includes government procurement laws and laws related
to subsidy. government procurement laws is a government law which regulates the behavior of
states in purchasing goods and services. There are four prulilateral agreement under WTO and
those of two agreements are only applicable currently. So, for those who are members of this
prulilateral agreements, government procurement law is not lawful under WTO but totally
excluded from the application of the provision of art 3 as per art 3/para8. Art 5 is about
regulation with respect to quantity or local content requirement. Therefore, except the two types
of regulations which are expressly excluded from the unbit of art 3, all other non-fiscal measures
are regulated under this provision. So, discrimination based on non fiscal measures other than
government procurement law and subsidy are prohibited under art 3. it is not practically possible
to have an exhaustive list of non-fiscal regulations which may potentially affect trade. Because
of that difficulty, GAT established founding members deliberately avoided listing a type of non-
fiscal measures. But, they provide some kinds of indicative characteristics of non-fiscal measures
under this paragraph. Having regulation that applied to distribution of products by the
government has no problem with WTO. The application of art 3 of prohibition comes in to
picture when the law that regulates distribution of products unfairly discriminate between
imported and domestic products. The second sentence of art 3/para4 permits price discrimination
based on means of transportation. So, one trader cannot claime that the same kind of payment
when his/her goods are transported by any means of transportation may be within track or train.
Under para5, no contracting party shall establish or maintain any internal quantitative regulation
related to the mixture, processing or use of products specified amounts or proportions which
requires directly or indirectly that any specified amounts or proportions of any products which is
the subject of the regulation must be supplied from domestic sources. This may go in line with
the import substitution policy. Developing and developed countries deny import substitution
policy and export diversification. Export diversification is to reduce dependency on a certain
goods and services and to diversify means of income or means of gaining hard currency. Import
substitution policy includes various in goods. The reason of prohibition under art 5 is it affects
trade’s rate or it reduce the volume of import. This reduction is the result of government
intervention and not the result of market force. In addition to that, by doing this, it is indirectly
undermining the market access which was actioned through successive negotiation and which
lebeled bound under art 2. The second para states that more over no contracting party shall
otherwise apply internal quantitative regulations in a manner contrary to the principle set force in
para1. It is known that art 3/para1 enforce all other paragraphs. In other words, by second
paragraph of art 3/para5, member countries of WTO cannot use such kinds of non-fiscal
regulation so as to afford protection for domestic producers. Para6 is not applicable currently.
Under para7, no internal quantitative regulation relating to the mixture, processing or use of
products in specified amounts or proportion shall be applied in such a manner as to allocate any
such amount of proportion among external source of supply only. Para9 doesn’t prohibit the
imposition of maximum price card by states. Rather, when countries are introduceing rules with
related to such kinds of standards, they should have concern with other trading factors so as to
minimize the adverse effect of that rules specially on those who are importing that specific
products.

Prohibition of quantitative restriction is the fourth fundamental principle or obligation under

GAT. Again, this also is introduced to maintain the integrity of market access under art 11. Art
11 state that no prohibitions or restrictions other than duties, taxes and charges weather made
effective through quotals imports or exports licenses 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 of sale for export of any product destained for the
territory of any other contracting party. Therefore, the quantity to imported or exported must be
determined by market force and not by the government. Market force is to mean supply and
demand. However, it is not an absolute prohibition and there are exceptions under para2 of the
same article. It laid down in A about permission of temporary prohibition or quantitative
restriction of exports of products wich are considered as essential good stuffs to the exporting
contracting party particularly at the time of shortage. In C, there is preference to fishery and
agricultural products. There is a separate agreement on agriculture, or shortly (AOA) which
prohibits any kind of quantitative restriction on the importation of agricultural products which
was introduced during the Uruguay round. For this reason, art 11/2/C only applies with respect to
fisheries.
Class 14. In addition to these exceptions, there may be a safeguard measure. It is a measure taken
by countries when there is unpresedently or accidentally increase in the volume of imports as a
result of being a member to WTO. So, when there is a very huge increase in a volume of imports,
a country may restrict the quantity to be imported to its market. When there is a quantity
restriction, that restriction must be applied on a non-discriminatory manner as provided in art 13.
When the volume which is permited to be imported to a certain country is reduced, that reduction
must be admissible and in non-discriminatory bases. Example, a country is expected to take in to
consideration as to a share of a country which is going to export to its. This is not the only
consideration to be taken in to account while applying the obligation under art 13 and the interest
of major supply and a potential of new supplies should also be considered.

The fifth principle and obligation is transparency. This is fined under art 10 of GAT.
Transparency serves for the purpose of availing policies for public view. It requires publications
of regulations, rules, administrative decisions and other decisions of general application as one
example. This is one aspects of obligation with respect to transparency. The second aspect of the
transparency obligation under WTO Is providing appeal mechanism for decisions which is free
from the influence of an executive branch of the government. The third dimention of
transparency under art 10 is establishing enquiry point for further information and clarification.
Payment for such kinds of services must be initiative or must be commensurate with the service
provided as stated in art 8 which prescribed about fees and charges. The payment must be a
mechanism to raise a profit but must be a mechanism to satisfy customers. The trade policy
review report, a one who has the most comprehensive report that one can get about the trade
policy of a certain country is the most active committee under WTO.the transparency obligation
is primerly taken over by trade facilitation agreement shortly known as (TFA) and art 10 is now
losing its significance because, there is a further detail of the transparency obligation under the
newly introduced trade facilitation agreement which came in to force in February 2017. These
are all about principles and obligations under WTO.

Exceptions for the obligations under WTO.

Since WTO obligations are somehow have dstrict application, there are a kinds of exceptions
under WTO which tries to minimize the pressure imposed by the principles just like as safety-
valves. Safety valve is a valve which is used to ease pressure. Even though the major concern of
GAT or WTO, trade is not the only public good or policy that countries want to persue. There are
other requiring competing public policies like health policy, public moral, environmental issues,
human right issue, public order and others. When there is a conflict between trade policy and
other policies, there are GAT provisions that tries to establish hierarchical relationship between
trade policy on one hand and those other policies on the other hand. Among those exceptions,
general exceptions are under art 20 and 40, for security exceptions, it can be refered from GAT
art 21 and art 14 B of additionally, TRIPS is in art 73, for regional trade agreement, it is in art 24
of GAT and art 5. In relation to GAT art 24, there is understanding of the interpretation. Under
the structure of art 20, there is an introductory paragraph which is also known as shapu . There
are also provisional exceptions which are ten in number from A to J. there is a mandatory
sequence to be followed when a country wants to justify its deviations from WTO obligations
under art 20. When a country takes a measure that contradict these five principles and
obligations, it is expected to justify its measure under art 20 or other exceptional clauses. The
first mandatory sequence to be folllowed is the measure should come under the perview of
specific exception from A to J requirements. If that measure passes the test of the provisional
exceptions, it must be tested against the shapu. Art 20/paraA states that the purpose of the shapu
is protecting the abuse of provisional exceptions from A to J.this means it is possible to introduce
measures which is against the WTO principles if it is justified from A to J. but, it must not be
against the introductory part or this exceptions must not be abused in the name of this policy
objectives. The term necessary in this provision means it is almost closs to the only measure
available to achieve specific objectives. in relating to is a kind of having a rational connection or
it is logically connected to do something. Even though it is not the only means but it contributes
for the achievement of a certain policy objectives. therefore, the standard of test with necessary
is more narrower and stricter than the standard of test for relating to. A measure can pass the test
of necessity when that measure is the only measure which can atain the policy objectives as per
the decision by the panel and appellate body.

There is no universal agreed definition about what constitute public moral. There is a concept
known as negative integration under WTO. A measure which is taken by one country to protect
public moral may not be applied to other country. Banning on importation of donkey meat can be
justified under art 20/A. but, shutting down in any country for a mere reason that countries
communities are not accustomed with eating donkey meat doesn’t make sense. The next sub
provision of justification also is using the same standards by which measures that are necessary
to protect humans, animals or plant life of health can be justified under sub art B. sub C relates
with the importation of exportation of gold of silver. In D, again the term necessity is used and it
says necessary to secure compliance with laws or regulations that are not inconsistence to the
provision of this agreement including those relating to customs enforcement, the enforcement
incorporated under para4 of art 2, art 17, the protection of patents, trademarks and copyrights and
the prevention of deceitful practices. E is about product of prison labor. This may apply with
respect to products produced by prisoners or a final products but inputs are supplied by prisoners.
It is possible for countries to restrict importation of products which are produced by prisoners or
importation of products whose inputs are gathered from prison labor. The reason may be prison
labor is a forced labor and they do not be paid and gain any profits of income for their work
during their prison time. F is about imposition for the protection of national treasure for artistics
or historical or archeological value. The reason is these products have non-monitary value than
monitary value. G is about measures relating to conservation of exhaustible natural resources and
if such measures are made effective in conjunction with restrictions of domestic production or
consumptions. When the depletion rate is faster than the reproduction rate, that kind of living
organism can be categorized under exhaustible natural resource. The measure which we
introduce to protect exhaustible natural resource must be equally applied domestically.

Class 15. I is about government stablization plan. Under this sub provision, the requirement is
there is some kind of government stabilization plan and there is a price difference between global
price versus local price. So, art 20/I works when the global price is greater than the local price
for some kinds of products. When local price is lower than the global price, traders may tend to
export products than availing that products locally. But the government may have stabilization
plan and if these products are very important inputs for domestic processing, government may
restrict the volume of product which will be exported or on the other hand, government may
require from local producers or traders to avail parts of their products domestically. This kinds of
measures violate the principle of prohibition on quantitative restriction. So, government can
apply export restriction in violation of art 11 when products are in short supply either locally or
generally. The structure of art 20 is a two tire structure. When a certain state tries to justify its
violation of basic principles under art 20, it is required first to justify its measures under specific
provisions from A to J. and secondly, to justify its measures under shapu. This is a mandatory
sequence when a government violate art 1, 2, 3, 11, or 10 as per art 20.Shapu is the introductory
part of art 20 which requires states to refrain from unjustifiable or arbitrary restriction (a
restriction without well-founded rational). This means the measures which are justified under A
to J must be justifiable and reasonable.

Regional trade agreements.

In organizational chart of WTO, there are two committees. These are a committee on trade and
development and a committee on regional trade agreements. a committee on trade and
development focusing on regional trade agreements entered in to based on the enabling clause.
regional trade agreements entered in to based on the enabling clause must be notified for the
committee on trade and development. Regional trade agreement under art 24 also must be
notified to the committee on regional trade agreement. It is possible to look para4 of art 24 to
understand the basic requirement of regional trade agreement under art 24. It laid down at list
two requirements for customs union and free trade area to be consistance with art 24. The first
one Is internal requirement it is member countries to a free trade areas or customs union are
required to libralized trade among themselves. The second is the external requirement and it is
about refraining from increasing trade barriers on non-members. The third requirement which is
not mentioned in art 24 is the requirement to notify to the committee on regional trade
agreement. Apart from those two requirements, there is a pree and post analysis. This means the
analysis as to what was the condition before the establishment of a free trade area or customs
union and what is the trade condition after establishment of the free trade area or customs union.
If a certain customs union or free trade area is increasing trade barriers before the establishment
of it for non-members, it will fail the test of art 24 para4 and it will not be recognized as an
agreement which ssatisfies art 24. So, a trade situation which is before the establishment of
customs union and after the establishment should be at list similar averagely. According to
external requirement, it should not create additional berdon for non members. Free trade area is
an area which liberalize trade between members for goods will be moving between members
freely for example without paying tariff. But members may take their autonomy in their trade
relationship with non members. A custom union is one step added to the free trade area. In
addition to liberalizing trade between themselves, they will have uniform custom’s territory
which is applied similarly to all non-member countries. The members to custom’s union have
common external tariff plus free trade among members. For free trade areas, there is only free
trade among members but there is no common external tariff. However, as the name itself
indicates, for customs union, there is a common external tariff and which is applied uniformly
for all countries which are not members to the customs union. While EU is the example of
customs union, north American free trade area (NAFTA) is the good example of free trade area.
A free trade among members only both in the case of customs union or in the case of free trade
area is contravenes with MFN treatment. In general, these regional trade agreements are specific
exception for art 1, MFN treatment. Para6 is again about external requirement. The trade
condition after the establishment of free trade area or a customs union is more burdensome and
more trade restrictive than it was before, the members of free trade areas or customs union are
required to compensate other non-members in terms of reducing that burdensome. It is possible
to deviate from external requirement as far as members of a customs union or free trade area are
ready to compensate non-members. That compensation is not in terms of money and rather it is
in terms of reducing tariff in terms of products which are of interests for non-members. The
notification requirement is under para7 of art 24. Before the establishment of a committee on
regional trade agreement, the notification will be done directly to the GAT councel and an
adhoke working party should be established to evaluate the consistency of the customs union or
free trade area with art 24. But now that responsibility is taken over by the committee on regional
trade agreement. According to para8, a custom territory may be a country or it may also be a
certain part of a sovereign state, which has autonomy in trade deals like hong-kong and Taiwan.
To be a member of WTO, it is not required to be a sovereign state. The basic characteristics of a
customs union that differentiates from free trade area is it applies a single external tariff or
common external tariff for all trading partners. That is a very difficult political process and that
is why there is no much customs union. It is MFN which is the foundation of multilateral trade
agreements. But now MFN is highly eroded and highly undermind because of the proliferation of
increasing number of free trade areas and customs union. Free trade areas are no more regional
trade agreements as assumed to be an agreement between countries with the geographical
proximity. Now regional trade agreements are known as preferential trade agreements. Because,
they preferred members to non-members. In other words, they treat members more favorably
than non-members and they are discriminatory in nature. According to para8, these regional
trade agreement is expected to constitute substantially all trading activities. So, a customs union
or a free trade area cannot be entered with respect to a certain sector for the mere purpose of
libralizing trade in one single activity . but the major question of particular interest for countries
like Ethiopia or other list developed members of WTO is if a preferential trade agreement
excludes agricultural products, can we call it just satisfying the requirement of substantially all
trade? This is still a debate which is not solved. In general, the followings two are the
requirements. First, tariff among members must be eliminated totally and that is what to mean by
free trade among members. Second, the agreement must be incorporate all substantial trades
which may be explained in terms of percentage or in other mechanism. So, these two
requirements are satisfied, it is to mean that the internal requirement will be satisfied.

Class 16. The other channel by which members of WTO can establish preferential trade
agreement is the enabling clause of 1979. Under the enabling clause, there are two types of
agreements. These are the general system of preferences and a south cooperation or agreements
among developing and list developed countries. Art 2 of the enabling clause has four
paragraphs , (A, B, C D). the generalize system of preference is provided under art 2/ A. the
second mechanism is provided in art 2/C. The generalize system of preference is an agreement
between a developed country and developing countries. Practically, there is an agreement
between developed countries and list developing countries which is also known as north-south
cooperation. North particularly represents the developed world and south represents developing
world. such kinds of agreements include everythings but arms (EBA) provided by european
union for sub-saharan african countries. There is African growth opportunity act (AGOA), which
is an agreement between US and sub-saharan African countries,which was introduced in 2000
and runs to 2015,which is extended to another ten or fifteen years. This is a unilateral decision by
US or by EU or by any other developed country to provide a preferencial treatment for products
originated from list developed countries. This is non-reciprocal kind of treatment. Ofcourse there
are conditions but these conditions are not trade conditions. EBA is an opportunity for
developing countries to import to European countries any products except for arms which seems
a very ambitious or attractive agreement for sub-saharan countries. But, African and other
developing countries were not able to get a European market because there are very serious
sanitary standards. Very few countries are able to get this opportunity. AGOA is an opportunity
for products originated from sub-saharan African countries to export that product to US with low
or with no tariff. This is one example of preferential trade agreement which is provided as per the
generalized system of preference. The second is a south-south cooperation or an agreement
among developing and list developing countries. Most of these agreements in Africa are failed
under this category. E.g, Ethiopia and ECOWAS, Ethiopia and COMESA and Ethiopian and
ECAS. There is a continental free trade area, which is in the process of establishment aiming to
subsume all African countries and forming one continent wise free trade area and it is partner
and supported by AU. This also is non-reciprocal agreement. Preferencial treatment or
preferencial trade agreement is a legitimate discrimination of other WTO members permited by
the enabling clause to the exception of the most favored nation under art 1 of WTO. Preferencial
trade agreement established through enabling clause are supervised by the committee on trade
and development. As we can understand from the wording of art 24, there are more or less
clearer requirements for the establishment of free trade areas and customs union. However, there
is no such criteria’s weather south-south cooperation are in line with the certain kinds of
discipline which lists the element of south-south cooperation agreements and against which their
consistency will be evaluated. The enabling clause came by work of the united nation conference
on trade and development (UNCOTD). It is introduced with the view of ensuring fuller
participation of developing and list developed countries in international trade or in global trade.
Either because of regional trade agreements or preferencial trade agreement like for members of
free trade areas or custom union, tariff is and other charges are zero liberalization is not required
not only with respect to tariff but with other trade regulation purposes as it inferred from art 24.
In preferencial trade agreement, there is a generalized system of preference whereby specified
beneficiaries will get a preferencial tariff. Example, if the MFN tariff is 10%, the preferencial
trade may be 5% for beneficiaries only. When the exception to certain principle is enlarged, that
principle becomes by itself exception. considering those agreements, there are more than 500
preferencial trade agreements which constitute exception for most favored nation treatment.
Therefore, countries are turning away from the multilateral trade arrangement and favoring
preferencial trade agreement. This is partly because, MFN treatment encourages free-riding.
There are other political reasons as well. Because of the proliferation of preferencial trade
agreements, the current doha development agenda or around of negotiation is not able to arrive at
a certain decision. There are some limitations on preferencial trade agreements. First, the margin
of preference is narrow. Margin of preference is a margin between tariff applied on MFN basis
and tariff applied on preferencial trade. Second, even though it is not reciprocal in terms of trade
consation, there are requirements imposed by developed countries like environmental standards
and IP protection and right of US and EU democratization is very maximized. The third
limitation is products of interests for developing countries are excluded like agricultural
products, textile and the like. These products are of special interests for developing countries
because they have a comparative advantage in producing agricultural products, textile and shoe.
Generalized system of preference lists beneficiaries and lists the products which are qualified the
preferencial treatment. Fourthly, there are a kinds of safeguards and free safeguard systems when
the volume increases. Fifthly, this is only available untill they are graduated.

There are security exceptions under art 21. Security exceptions related with explosive materials,
security matters, and specifically related with publication or transparency. With relation to
transparency, if any measures have positive or negative implication on trade, they must be
published. But, information having security implication can be omitted from that transparency
requirement. Balance of payments exception is uhnder art 12 and art 18/B of GATS. It relates
with deflation of foreign currency reserve. Example, if certain countries’ foreign currency is
highly deflated, that country can deviate from art 1 or art 11 of any other obligations under
WTO. But, this is only temporary measure until external financial condition of that state is
becoming healthy. Under the organizational chart, there is specific committee on balance of
payment which will moniter still these conditions are not avoided to allow a certain country to
deviate from its obligation under WTO because of its balance of payments problem. When those
conditions are aliviated, that deviation must be avoided. These are not the only agreements and
there is also another understanding on the interpretation of art 12 which talks about notification
monitoring by the whole. Waver is under art 9/3 of the Marakhash agreement. Waver is a total
derogationn from WTO obligation and it is based on special majority decision. This right will be
given only when country cannot make use of those exceptions. If the remedy that is justified by a
certain country cannot be gained to the use of it may be art 20 exceptions or through the use of
regional trade agreement art 24, or security exceptions or balance of payment exceptions, the last
resort will be a temporary relief from observing WTO obligations. This is subject to very
regorious procedures and so that it is difficult to say waver is provided so far. The major
exceptions under WTO are this.

Chapter three. Technical barriers to trade.

Since tariff is fixed and substantially reduced, the only tool that is leftfor countries to protect
their market is non-tariff measures. During the sixth round of multilateral trade negotiation, (the
kenedi round), damping, one of non-tariff measures is came in to picture. During the seventh
round of negotiation which is the Tokyo round, technical barriers to trade which are a number of
others including sanitary and fyto-sanitary measures, import licencing, free-sheeping inspection
and others were came in to picture. However, they were not enforced by all members of GAT.
Because, membership of this course were optional and it was available on lacarty approach.
Sanitary and fyto-sanitary measure recognizes members’ soverign right to take measures for the
protection of human, animal, and plant life of health. But, what the agreement on sanitary and
fyto-sanitary measure requires from the government is it must use those measures only to the
extent necessary to protect human and animal or plant life. In other words, they are required from
discrimination while applying these measures. When a measure that is aiming at the protection of
human and animal or plant life coming in to picture, it will be scrutinized first under sanitary and
fyto-sanitary measures and not under GAT art 20/B. if it is consistence with the agreement, it is
presumed to be consistence with art 20/B. so, sanitary and fyto-sanitary measures are
elaborations of GATS exceptions specially art 20/B. The measure part includes art 2, 5, 3 and
annex A/1. By sanitary, it is to refer to animal and human being and by fyto-sanitary, it is to refer
plant. In this respect, WTO works with three international organizations. These are: first, codex
sanimentarious commission which is an international institution established jointly by FAO and
WTO which highly deals with food safety relating to issues of life and health of human being.
Second, “OIT” the French abriviation wich is an organization for animal health. Third, issues
relating with the plant life or helth are developed by secretariat of the international plant
protection convention (IPPC). Sanitary and fyto-sanitary standards established by these three
international organizations are open for membership to all WTO members and it recognizes
those standards if these setting organizations are open for all WTO members because all WTO
members must be able to participate in the standard setting process. That is under annex A 1.
There are four types of measures which are considering as sanitary and fyto-sanitary measures.
The first two are entirely foccus on the protection of human and animals. Sanitary and fyto-
sanitary measures include all relevant laws, decrees, regulations, requirements and procedures
including end product criteria as to what should a certain end product fulfill to rich at consumers.
So, the process and production method will be highly monitored. testing is a Testing by taking a
certain sample, it is checked weather there is a risk which may be fall from sub art A to D.
inspection is certification of approval procedures and quarantine treatment. Quarantine treatment
is a separate place where animals with suspicious disease will be required to stay temporarily and
get treated so that they will not be able to transmit the disease.

Class 17. Art 2/para1 of sanitary and fyto-sanitary agreement is providing members with the
sovereignty to do sanitary and fyto-sanitary measures. While para 2 recognizes the right of WTO
members to use sanitary and fyto-sanitary measures, one of the obligation under this agreement
is also mentioned under para 2 of the same provision of the same agreement. It says that
members shall ensure that any sanitary and fyto-sanitary measures are made to extent of
necessary and based on scientific principles and the required scientific procedures are mentioned
under art 5. Sub 3 specified that these measures should be applied equally for all WTO members
and should also be applicable in the same manner for domestic productions. Under art 2 of para4,
there is a provision that establishes the relationship between the agreement of sanitary and fyto-
sanitary measures art 20/B of GAT. The other important factor of article with respect to sanitary
and fyto-sanitary measure relates with harmonization. Harmonization is incorporated under
WTO through the agreement of sanitary and phyto-sanitary measures because, there are a
number of sanitary and fyto-sanitary standards which are peculiar to a single country. It is very
difficult to look in to sanitary and phyto-sanitary of measures of each members and therefore
there should be moving towards harmonizing those measures and having international standards
which will be the same with respect to all WTO members. Therefore, when traders or producers
want to export their products, they will look in to some international standards rather than
looking in to sanitary and phyto-sanitary measures of each and every members of WTO. For
harmonization, there are those three organizations which dealt in previous class. So, members are
encouraged and not required to adopt the international standards developed by these
organizations where there is standard that covers a particular types of health risk. There is an
ensentives for members who are adopted the standards developed by these organizations as
provided under art 3/para1. In relation to this case, basic sanitary and phyto-sanitary measure of
international standard doesn’t mean that having identical mesure or identical SPS application
with international standards. It is to mean at list some basic elements of a countries SPS measure
and international standards must be similar or countries must base their risk assessment. The
second paragraph of art 3 state that sanitary or phyto-sanitary measure which conform with
international standards or guydline or recommendations which is a necessary to protect human,
animals, or plant life should be consistence with the element of this provision or GAT 1994. This
requires identical measure with the international standards and that is why countries are
encouraged to adopt those standards, guydlines, and recommendations developed by
international organizations. If they have those an identical SPS measure developed by codex,
OIA or IPPC, they are presumed to be necessary for the protection of animals and plant life of
health and they are presumed to be GAT consistence. Countries having identical SPS measure
fulfills the requirements of art 2/para2, para3, and they are also considered to be inline with the
GAT relevant provision of art 20/B. under para3, member countries are at liberty to adopt a
certain kinds of SPS measure which is aiming at to be safety a higher standards than international
standards. But, doing so will entail member countries to satisfy some requirements such as
scientific justifications and they must follow the requirement under art 5 and those are mentioned
under para3. Banning importation of those riskable products is the highest and harshest measure
of sanitary and phyto-sanitary measures. Ethiopia has only standards for limited products which
are focusing specially for products wich are destained for exportation. Art 5/para7 deals with
circumstances where a scientific evidence is not sufficient to determine positively or negatively
the health hazard of a certain products. Scientific uncertainty is not lack of evidence but lack of
sufficient evidence. There must be some evidence which shows that product may have bad
consequence on health and that evidence is not conclusive and if it is conclusive, it is possible to
apply the principle of precautionary measure. If it is uncertain, there is a situation of taking a
temporary precautionary measure until it will be arrived at a conclusive a scientific evidence.
Under art 1, there are two types of technical barriers standards i.e. standardization of conformity
or assessment. Art 13 applies to all products including industrial and agricultural products. Types
of measures like technical regulations, standards and conformity assessment procedures are
subject to the disciplin of the agreement technical barriers to trade. Technical regulations are
mandatory standard that products are required to satisfy before riching to the consumers. There is
no substantive difference between technical regulation and standards. The only difference is
while technical regulation is mandatory, standards are voluntary. Conformity assessment
procedure is a procedure by which a certain product is examined against the standards which are
provided in technical regulation or provided under the voluntary standards. Example, packaging
or leveling. ISO is a voluntary standards. It is international standard organization and that
organization develops standards for certain products if someone is fulfilling that standards, it
awards a certificate that evidences that he is satisfied their voluntary standards. These measures
may be required or introduced by government either to protect the life of animals or plant and
human beings or to ensure that a certain exports are meeting a certain quality or to protect
environment or to protect consumers from decentful practiced by producers. Art 1/5 is about the
relationship between SPS and TBT. This TBT do not applied to sanitary and phyto-sanitary
measures can be fined as A of the agreement on the application of sanitary and phyto-sanitary
measures. This is the mutual exclusive relation between SPS and TBT. If technical regulations,
standards or conformity assessment procedures are aiming at the protection of animal, plant or
human life, or satisfies the requirement of annex 1/A,B,C and D, it is governed by SPS measure.
With regard to objectives, art 2.2 is not exhaustive and is elastrative.

Chapter four. Trade remedies.

There are three types of trade remedies. A trade remedy is a concern applicable when market is
not functioning well because of some practices which amounts to unfair practice. From unfair
trade practices which are regulated under WTO, two are dumping and subsidy. So, the two trade
remedies that are allowed in WTO because of these two unfair trade practices are known as unti-
dumping duties and countervailing duties. A safeguard measure is a measure taken by
government specially with respect to tariff or quota. This is allowed in response to unpredictable
increase in the volume of imports which is the result of the country being the member of WTO
by which the tariff rate is highly reduced. For this measure, there is no affiliated practice
exersized by the private traders or by government. When the tariff rates are lower, there is a
market access created and there may be an increase in the volume of import which are very
damaging that threaten to cause a serious enjury to a competing industry producing like products.
When such situation is occurred, countries can temporarily increase their tariff rate with respect
to those products by violation of art 2 of GAT. This is an exception of tariff binding when there
is a causal link between the increase in the volume of import and the damage or the enjury
caused to the domestic industry producing like products as provided in art 19 of GAT and on
separate agreement on further explanation of art 19 of GAT relating to safeguard measure. It
doesn’t relate with any kind of unfair trade practice. But, dumping is a saling below normal price
and it is among one of unfair trade practice regulated under WTO. It is a welfare enhancing
practice for consumers. In relation to anti-dumping duties, again art 2 is violated. Predatory
dumping is a dumping practice whereby private firms are aiming at totally avoiding their
competitors from market. There are three ways by which a normal price can be determined. First,
a home market price. The difference between the price of home market and the price of the
product in the importing market is known as margin of dumping. Anti-dumping duty is imposed
to neutralize that difference or to avoid the negative impact caused on domestic competing
industries. Duties that must be imposed on that particular dumping product must be
commensurate with the margin of dumping. But sometimes, the product available in the home
market may be very small which is a commercially non-viable amount and at this time, there is a
second mechanism which is a third country price and a constructive normal price value.in this
case, if the price in the third country market is better than the price in importing country, there is
a clear case of dumping. This the third country is considered as a normal price. The third method
by which we can determine a normal price is a constructive normal value which we can arrive at
by taking in to consideration the cost of production, plus cost of transportation, plus a profit
margin. Then this constructive normal value is greater than the value in importing market, again
there is clear case of dumping. The other requirement that a country is required to fulfill is
weather this dumping causes a material enjury to a domestic market. In the majority of cases,
anti-dumping investigation is initiated by private competing industry organizations. This
competing industry will inform to the relevant authority in that country that it is being injured by
the dumped product and based on that initiation, the relevant authority will investigate the
damping practice. After that, that relevant authority will impose anti-dumping duty. This is
inferred from art 2, and 3 of the agreement on dumping. Counter-vailing duties have the same
function with anti-dumping duty. It is simply increasing the tariff rate with respect to subsidized
product to counter act the effect of subsidy when that subsidy causes a material enjury for a
competing industry.

Class 18. Subsidy is in art 1 of the agreement on subsidy and counter-vailing measures. There are
two requirement for subsidy to exist. There must be a financial contribution from a government
or a non-governmental body or private entity deligated by government for specific industry and
that financial contribution must benefit the recipients. Under art 1.2, for a subsidy to be a
counter-vailable, it must be specific. A general subsidy cannot be subject to a counter-vailing
measure. Specific is a reference to a certain enterprise or a certain industry or sector to the
exclusion of others. Prohibitive subsidy is in art 3. Prohibitive subsidies are provided in art 3/1/A
and B. One is subsidy which is contingent on export performance and the other is subsidy based
on import subsidy under 3/1/B. these are prohibited weather they are specific or general. Subsidy
based on import subsidy means subsidy given for a certain producer for choosing domestic or
over imported products. In this case, if one trader is using inputs produced domestically than
imported products. He will get financial assistance from the government since subsidy is a means
of insentifizing producers to use local products rather than imported products. Import subsidy
may related to art 11 of GAT by which an indirect quantitative restriction that may negatively
impact the market access for other WTO members which they gain through the reciprocal
reduction of tariff. It may also be considered as indirect increase of tariff. This excludes
agricultural products as clearly provided under the introductory part of art 3. There are separate
agreement that regulates subsidy with respect to agricultural products. So, agreements on subsidy
and couhnhter-vailing measures applies only with respect to non-agricultural products. Other
than prohibited subsidies, there are actionable and non-actionable subsidies. Actionable subsidies
is under art 5, 6 and 7. Non-actionable subsidies also is in art 8. This non-actionable
classification is no more important because of expiring in 1999. Actionable subsidies are specific
subsidies which must cause serious material enjury on domestic products. They will pass through
the similar procedure with respect to dumping.

Chapter five. Trading services.

Trading service is one of the two new sectors that were introduced in the Uruguay round. The
time and place limitation which is inherent in human nature was hugely reduced because of the
advancement in science and technology. This enabled services to be tradable and they are
incorporated in the Uruguay round multilateral trade negotiation. But, for the majority of
developing and list developed countries, the provision of trading services was very minimal and
it was not possible to have a liberalized trade market of trading services. therefore, to clief
developing and list developing countries which doesn’t have advanced service sector, they are
aiming at progressive liberalization through time. There are only two types of obligation under
trading services. these are general obligations which are core obligations and conditional
obligation. The general obligations under WTO and GATS are only the most favored nation
treatment rule and transparency. While MFN treatment is under art 2, transparency is under art 3.
There are exceptions for these obligations. What makes most favored nation treatment under
WTO different from most favored nation treatment GAT is MFN under GAT applies to services.
MFN obligation is a non-discrimination obligation by which member countries to WTO are
required to treat in the same manner services and service supplies of all WTO members. There
are eleven grand classification of services under WTO. The conditional obligations are two.
Those are a national treatment obligation and specific or conditional commitment. With regard to
modes of service supply under art 1, even though there is no direct definition for service, there is
in direct service by following the modal approach. There are four types of modes of service
supply under art 1/2 and these are cross-border supplies, consumption abroad, commercial
presence and movement of natural person. for ease of understanding, cross-border supply is a
service by which the service itself cross the border; this mode of service, the service supplier is
in a certain country while consumers are in another country. Tele-medecin is a health service
provided by using information communication technology. This is one example of cross-border
supply. In consumption abroad, consumers cross the border; in commercial presence, there are
affiliates or subsidiaries and it is service supplied by individuals as their capacity or as the
employee of one company. The engineering institution from china. Movement of natural person
is a situation by which a person may come from any country to certain country and being
emploid in one service providing institution. The individual is either an independent service
provider (sole-proprietor) or it may be an employee of either domestic service providers or
providers through commercial presence.

Class 19. Since one inherent characteristics of service is its intangibility, it is difficult to apply
tariff on services. the purpose of specific commitment is imposing limitation on trading services.
because of operating of GATS through progressive liberalization, that is why there is only 2 and
even necessarily 1 obligation. There are two types of specific commitment. First, horizontal
limitations (sector specific commitments). These are commitments or limitations applied across
all sectors or across all modes of service supply. Second, sector specific commitments are
commitments which are applied only with respect to sector which a country attaches a certain
kind of condition or limitation. The level of commitment is of three type. Those are: a
commitment expressed by non, a commitment expressed by unbound and commitments which
are expressed by using other words or which is also known as conditional commitment. Non
means full commitment. Unbound means no commitment which is the lowest level of
commitment under GATS. a sector to which non commitment is open for condition and
commitment of national treatment will be applicable. Consumption abroad is unbound. This
means no commitment of any kind has been made. That also means the sector is closed for
competition. For commercial presence, maximum foreign equity speck is fourty-nine. Example,
if the commitment of Ethiopia with regard to mode 3 is expressed as a maximum foreign equity
speck is fourty-nine, there is a possibility for foreign investor that engages in service provision to
come to Ethiopia and establish a certain kind of affiliat or subsidiary but the equity participation
or the share of foreign holder cannot exceed fourty-nine percent. The remaining equity can be
covered either by government or individuals from ethiopia. with respect to full commitment, art
16 and 17 will be applicable. National treatment and market access provision is dependent on the
terms of once country schedule of specific commitment. That is why they are not general or core
obligation.

Chapter six agreements on trade related aspect on intellectual property rights (TRIP).

The agreement covers seven types of IP rights. it also tries to regulate unfair trade practices as
they are related to IP rights. This was again the other new sector that was included under the
multilateral trading sector after the end of Uruguay round. Because of the increasing of IP assets,
multinational companies operating in developing countries were enforcing their government for
the inclusion of IP rights under GAT or under WTO in general. The reason why these companies
and their governments are required the inclusion of IP under WTO is world intellectual property
organization (WIPO) doesn’t have a strong enforcement mechanism. There are most favored
nation principle under art 4 and the national treatment obligation under art 3. The departure from
GAT is those principles are applied for nationals of individuals. exceptions are provided in the
form ofcompensary licensing. The most contentious part of TRIP is issues related with patent
and public health. Art 7 and 8 laids down basic principles and objective of TRIP and which are
not operated by themselves. These principles cannot use to have a decision on once favor. With
regard to patent, most of the poor countries do not have the capacity to imitate the chemical
structure of a certain drug and produce that product. To address this issue, there is a doha
declaration on trade and public health this declaration allows countries which do not have the
capacity to produce generic drugs to give a compensary license to another country even though
patent right involves a monopoly on the importation of once invention. There is an additional
article which is art 31/B that is designed to address the public health concern of developing
countries. The other problem with respect to patent is diseases affecting poor countries are
usually neglected. With respect to those seven IP rights, minimum standards are set. It is only
minimum conditions which are setted under TRIP and national legislations,and other
international agreements can come-up with a more stringent terms of IP rights protection. This
means example: WTO members cannot provide less duration of protection of than setted by
other international agreements but they can make it more than the standards setted.

Chapter seven. Dispute settlements understanding (DSU).

There are covered agreements under WTO for this. Of-course DSU starts with peaceful
consultation. Example, it is possible for WTO members in addition to terms of TRIPS, to make
use the provision of other international agreements which are incorporated under TRIP.
Customary international law, juscojense, and there are a number of other source of law which
will be applicable by the panel and appellate body including the Vienna conventions and the law
of treaties specially with related to art 31. The forum for consultation will be either provided by
WTO or other of the two parties. When parties to the dispute are not able to solve their dispute
peacefully, they can refer the case to the panel which is an adhoke committee of three which is
the composed of experts from various disciplines based on the nature of specific cases. If parties
are satisfied with the decision of the panel, that decision will be adopted by disputes settlement
body (DSP) which is composed of all WTO members. If parties are not satisfied with the
decision of the panel, they can appeal to the appellate body which have seven experts and
permanent institution contrary to the panel. Experts of appellate body will have a determined
tenure and appointed for specific period of time and they will have a chance to be reelected again
for one more term. The decision of appellate body will be final after it is adopted by the DSB.
Adoption is based on the principle of negative consensus. Then, the decision will be came-up
with certain kind of recommendation for a party which violate WTO’s obligation. But, there is
no enforcement mechanism. If the WTO member is not willing to adhere to the recommendation
of the panel or appellate body, it can use a unilateral retaliatory action that may cause a
comparable damage to the interest of member who violated a right.