Understanding the complexities of international trade is essential for effectively navigating the global marketplace. Trade in goods, particularly the nuances of tariffs, quotas, and market access, is pivotal in shaping economic relationships between nations. In this blog, we’ll delve into key aspects of tariff concessions, quantitative restrictions, and the rules governing market access under the WTO framework.
Tariff concessions for market access
As a result of the tariff negotiations, member states agree to bound tariffs. Each member state’s schedule of concessions contains the bound tariffs. As part of its commitments under the WTO accords, each Member State is required to adhere to its schedule of concessions. Each Member State’s schedule of concessions must be considered in order to comprehend its responsibilities regarding trade in commodities.
Any bound tariff is a legally binding pledge by the relevant Member State to keep it below the bound rate. A Member State pledges to offer treatment equal to that specified in its concession schedule. Furthermore, a Member State is prohibited from levying customs duties above the set tariff. According to the Appellate Body, a Member State shall be subject to “less favourable” treatment under Article II:1(a) if it imposes customs taxes that are higher than those specified in its schedule of concessions under Article II:1(b).
The particular Member State would not be permitted to increase the duty over £1.50 per kilogramme or above 15% on the value of the good in question, using the previously given example of specific and ad valorem tariffs. The Member State may apply a lower rate than the bound tariff. The applicable tariff is the name given to this rate. The Member State could impose a tariff of less than £1.50 per kilogramme or less than 15% on the value of the good by using the same particular and ad valorem tariff example. Member States can only use an applicable tariff if applied to every Member State. The application is to blame for this.
The Appellate Body also made it clear that a Member State may impose an obligation of a different kind than the ones listed in its schedule of concessions, so long as it only leads to a higher charge than what is specified in the schedule. As long as the ad valorem charge does not surpass £1.50 per kg, a Member State may impose an ad valorem duty using the specific tariff example of £1.50 per kg that the Member State has scheduled.
Access to markets—other fees or costs
According to Article II:1 (b), imported goods are exempt from all other taxes and fees of any sort that are applied to or related to the importation in excess of the specified tariffs.
According to the General Agreement on Tariffs, 1994’s Understanding on the Interpretation of Article II:1(b), a Member State’s schedule of concessions must include any additional levies and charges.
They cannot be imposed if they are not documented. Neither Article II:1(b) nor the Understanding on the Interpretation of Article II:1(b) of the GATT 1994 provides an explanation of these additional duties and charges.
According to the Panel, “any fee or charge that is in connection with importation and that is not an ordinary customs duty, nor a tax or duty as listed under Article II:2 (internal tax, anti-dumping duty, countervailing duty, fees or charges commensurate with the cost of services rendered) would qualify for a measure as a ‘other duties or charges’ under Article II:1(b)”.
These additional fees and taxes include, for instance:
- Import surcharges are levied on top of regular customs duties.
- Security deposit, which must be paid at the time of importation, and
- excise taxes—taxes on specific goods, including jewellery, cigarettes, and alcoholic drinks
Other Member States can contest a Member’s commitment under Article II:1(b) even if they have included these additional taxes and duties in their schedule of concessions.
Market access—quotas
What does a quantitative constraint mean?
Although the phrase “quantitative restriction” is not defined explicitly, it is implicitly defined in Article XI:1.
According to Article XI:1, no limitation or prohibition other than tariffs, taxes, or charges may be imposed or maintained by import or export licenses, quotas, or other measures.
Any restriction on imports or exports imposed at the time or point of importation/exportation and limits the amount of imports or exports is generally referred to as a quota or quantitative restriction.
One example of a quota is when a Member State restricts the importation of a good to 100,000 kg annually.
Some more instances of quantitative restrictions:
- prohibitions
- prohibitions except under defined conditions
- a global quota
- a global quota allocated by the country
- a bilateral quota
- automatic licensing
- non-automatic licensing
- quantitative restrictions made effective through state-trading operations
- mixing regulations
- minimum price triggering a quantitative restriction and
- voluntary export restraints
Crucially, this list is not all-inclusive. All actions that would forbid or restrict imports, exports, or sales for export are subject to Article XI:1. Therefore, rather than being an internal measure, it is a border measure.
Prohibition on quantitative restrictions
Article XI:1 forbids the installation or maintenance of quotas. The Panel has made it clear that one of the central tenets of the GATT system is the ban on quotas. Prohibitions, quotas, and licensing—collectively referred to as quantitative restrictions—are therefore forbidden. The only allowed restrictions on trade in goods are tariffs, taxes, and levies. Since quantitative constraints place stringent limits on imports, they are forbidden. If they were permitted, the negotiated tariff bindings would be compromised.
The Panel states that two components must be proven to determine a violation of the ban on quantitative limits.
They are:
- The measure must be included under “quotas, import or export licenses, or other measures.”
- It must be a measure that forbids or restricts the importation, exportation, or sale of any commodity for export.
The terms “prohibition” and “restriction” have been considered by the Appellate Body and several Panels. It has been said that a product would violate the ban on quantitative limitations even if it is theoretically permitted to enter the market without a formal quantitative restriction but only under specific conditions that increase the burden of importation.
A restriction must not be a tight numerical limit or a complete prohibition. It does cover any importation limitation or restriction. The Appellate Body has also clarified that calculating the measure’s limiting effect is unnecessary. The measure’s architecture, design, and revealing structure adequately illustrate the limiting effect. Furthermore, restrictions or prohibitions are forbidden both in law and in practice.
Tariff-rate quotas
Under Article XI:1, a tariff rate or tariff quota is not forbidden and is not regarded as a quantitative restriction. For instance, under a tariff-rate quota, a Member State might impose an ad valorem charge of 5% on the first 100,000 kg of a product before imposing a 15% ad valorem duty on all subsequent products. This is permitted as a tariff-rate quota only applies different levies on imports rather than limiting their amount.
Many tariff-rate quotas are first-come, first-served (MFN) in nature. Nonetheless, quota allocation is a component of specific tariff-rate quotas. Tariff-rate quotas must adhere to Article XIII:5’s rules. Regarding the disciplines, goods from all sources should be subject to the same tariff-rate quotas. Furthermore, such distributions must be as near to the anticipated market shares that would have existed without tariff-rate limitations as feasible.
Exceptions to the rule against quantitative limitations
The ban on quantitative limits is subject to specific clauses that permit an exemption. The following general exclusions are identical to those found in the non-discrimination principle:
- general exception
- security exception
- safeguard measures
- balance of payment exception
- waiver, and
- free trade arrangement exception
Specific exceptions to the ban on quantitative limits are outlined in Article XI:2. Quantitative limitations could be applied:
- as import or export prohibitions or restrictions required to apply standards or regulations for the classification, grading, or marketing of commodities in international trade;
- as export prohibitions or restrictions to prevent a critical shortage of foodstuffs or other products essential to the exporting Member State and
- as import restrictions on agricultural or fisheries products.
The quantitative restriction must be implemented temporarily by Article XI:2(a). As a result, a temporary solution is used to address a transient demand. Furthermore, the shortfall must be related to foodstuffs or other items that are “absolutely indispensable or necessary” for Article XI:2(a) to be applicable. Last but not least, Article XI:2(a) defines “critical shortages” as those essential quantity shortfalls that amount to a situation of decisive importance or reach a crucially significant or decisive stage or a turning point.
The limitations or prohibitions required for implementing any standards or regulations for the classification, grading, or marketing of commodities are covered in Article XI:2(b). The importation or exportation of a product that is not so graded or marked may be prohibited if Member State “A” has grading regulations requiring canned fruit to be graded and marked as either choice or standard grade.
The Agreement on Agriculture has taken effect in place of Article XI:2(c). In particular, Article 4 mandates the tariffication procedure, which transforms quantitative restrictions into regular customs taxes. Therefore, as fish and fisheries products are not covered by the Agreement on Agriculture, Article XI:2(c) only offers an exception to the ban on limits for fishery goods. Quotas on fisheries products may be enforced or maintained by member states.
Administration of quantitative restrictions
When quantitative limits are permitted, they must be applied without discrimination, according to Article XIII:1. Stated differently, all Member States, not just a select few, must be subject to the quantitative constraints. The least trade-distorting approach is required when “quantitative restrictions are used (as an exception to the general ban on their use in Article XI).”
Article XIII:2 addresses the scenario in which imports are subject to permissible quantitative restrictions. In these situations, the Member State imposing the quantitative import restriction will try to give its suppliers the same market share as if the quota had not been imposed.
According to Article XIII:2(a), whenever possible, the quota must be set for all allowed imports. Put another way, the quota should specify the total amount of imports permitted whenever possible. Declaring the total amount of permitted imports is not required if it is impractical; import permits or licenses may be used to impose the quantitative restriction.
It is prohibited to use these import permits in a discriminatory way. All Member States should be able to use the import permission, not just a select few. An applicant Member State may allot a quota by Article XIII:2(d), and in doing so, it may ask all Member States with a significant interest to agree on the allocation of the quotation. If this is not feasible, the applying Member State may distribute the quota to supplying Member States to maintain the supplying Member States’ market share as though there had been no quota.
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