World Trade Organisation Overview: Structure and Regulations

An introduction to the basic principles of trade

Structure of the WTO agreements

Signed in Marrakesh, the agreement that forms the institutional and legal structure for the World Trade Organisation (WTO) is known as the “umbrella” agreement. It was signed in Marrakesh.

The subsequent set of agreements is exhibited in Annex 1 of the Marrakesh Agreement The three agreements outlined below, namely the General Agreement on Tariffs and Trade 1994 (GATT 1994), the General Agreement on Trade in Services (GATS), and the Agreement on Trade-related Aspects of Intellectual Property Rights (TRIPS Agreement), respectively, establish the fundamental guidelines for liberalising trade in goods, services, and intellectual property rights, along with any appropriate exclusions.

It should be emphasised that to obtain a complete picture of trade in either products or services, two extra layers for the General Agreement on Tariffs and Trade (GATT) 1994 and the General Agreement on Trade in Services (GATS) must be considered.

Additional agreements or annexes to the GATT of 1994, such as the Agreement on Agriculture or the Agreement on the Application of Sanitary and Phytosanitary Measures, regulate particular industries or facets of the trade in goods.

The schedule of commitments for each Member State, which includes legally binding promises on tariffs, complements this. Several of the GATS’s annexes, like the ones on financial services and the movement of natural persons, address particular service industries. The calendar of commitments each Member State makes about the services that are liberalised further complements this.

Every Member State’s compliance with the regulations is subject to the WTO’s periodic Trade Policy Reviews, and these agreements and their annexes are all subject to the WTO’s dispute settlement process.

Basic principles of trade in goods: Introduction

The GATT 1947 served as the model for the GATT 1994 and has the same fundamental ideas. They are as follows:

  • The principle of non-discrimination comprises the Most Favoured Nation (MFN) principle and the rule of national treatment.
  • the notion of legally enforceable national tariffs
  • the ban on protective measures other than tariffs, with certain exceptions
  • growing involvement from emerging nations, and
  • transparency

Non-discrimination: The Most Favoured Country (MFN)

The MFN concept, the first tenet of the non-discrimination principle, is contained in Article 1 of the GATT 1994. According to the MFN principle, a Member State must instantly and unconditionally accord all other Member States the same favourable treatment if it gives one Member State to another more favour than it does to any other Member State.

Suppose Member State “A” lowers the customs charge that must be paid on a product imported from Member “B,”. In that case, Member State “A” is required to instantly and unconditionally lower the customs duty that must be paid on that same product imported from all other Member States. As a result, discrimination against the other Member States is prohibited. All import-related customs duties and fees are subject to the MFN principle or duty.

There are also many exceptions to the MFN principle. The most significant of which are:

  • The Article XX General Exception
  • The Customs Union or Free Trade Area Exception (Article XXIV:5)
  • Article XXI’s Security Exemption, and
  • The Enabling Clause (the 1979 Decision on Reciprocity, Fuller Participation, Differential and More Favourable Treatment of Developing Countries)

A Member State may deviate from the MFN principle under the General Exception for various purposes, including safeguarding public morals, human, animal, or plant life, or health; conserving an exhaustible natural resource; or ensuring adherence to specific laws or regulations.

The Free Trade Area Exception allows Member States to create a customs union or free trade area, in which case, almost all trade between them will not be subject to more significant trade restrictions than those imposed on third nations. Therefore, without enacting more onerous trade restrictions, Member States can have more open commerce amongst members of a customs union or free trade agreement. Since the customs union or free trade area members discriminate against members of other member states, there is an exception to the MFN principle.

The Security Exception offers a broad exemption to the most-favourable-nation rule. For example, a member state will not be considered to have violated the principle if it takes the actions to safeguard its vital security interest. These actions may include those related to combat operations, other international emergencies, or the trafficking of weapons and ammunition.

In turn, the Enabling Clause justifies the preferences developed country Member States offer to developing country Member States. It gives developed Member States the latitude to treat developing Member States differently and more favourably, so long as that treatment complies with the requirements outlined in the Enabling Clause.

National Treatment: Non-discrimination

National Treatment, stated in Article III of the GATT 1994, is the second pillar of the non-discrimination concept. An ideal complement to the MFN rule is the National Treatment rule. Similar items are treated equally with those of the importing Member State under the National Treatment rule, in contrast to the MFN rule, which places products from all Member States on an equal footing when imported into a Member State.

All things considered, imported goods cannot be treated differently from domestic goods once they have been imported and all relevant import duties have been paid. Therefore, internal taxes or other fees may be less for imported goods than for domestic ones. According to this, the rules and legislation governing the selling, acquisition, transit, distribution, or utilising of imported items may not be less advantageous than using indigenous products. The National Treatment principle covers discriminatory internal measures (once the good has crossed a border).

Like the MFN principle, there are several exceptions to the national treatment rule. The three most frequently used exceptions are the Security Exception (Article XXI), the General Exception (Article XX), and the Government Procurement (Article III:8(a)). For the purposes of government procurement, Member States may preferentially treat domestic goods above imported goods under the Government Procurement Exception. The items that qualify for the government procurement exception are:

• Those not bought to be used in the manufacturing of goods for commercial sale, or

•  For government use only and not for commercial resale

This makes it an exception to the National Treatment Principle since domestic goods could be given preferential treatment over imported items regarding government procurement.

Tariff obligations

The notion of tariff bindings, which provide certainty, is introduced in Article II:1(a). As a result, a Member State is prohibited from increasing taxes or offering concessions beyond what is specified in its schedule of obligations. As a result, every Member State maintains a list of every good together with the appropriate tariff. The bound rate is the name given to this tariff. The highest amount of import duty that a particular Member State may impose on imported products is known as the bound rate. However, if this more favourable applied rate is applied to all Member States, Member States are free to impose a rate lower than the bound rate, or the so-called applied rate. The MFN’s provisions apply if a rate is applied to only some Member States.

Some exceptions to the general rule are that a Member State cannot exceed its agreed bound rate. The exceptions include Article II:2, Customs Fees Exception, Article XXVIII, Modification of Concessions Exception, Internal Tax, Anti-dumping Duties or Countervailing Duty, and Article IX:3 Waiver.

There are several reasons why the Internal Tax, Anti-dumping Duties or Countervailing Duty, Customs Fees Exception is required. First, if a domestic product is subject to an internal tax and is implemented in compliance with the principle of national treatment, Member States have the authority to levy an internal tax on imported goods. Second, Article II:2 permits the importing Member State to impose anti-dumping duties or countervailing measures to counteract the effect of the dumping or subsidisation in cases of unfair trade where an investigating authority of an importing Member State has determined that imported products are either dumped or subsidised. In some cases, the additional levies (countervailing or anti-dumping duties) applied could be higher than the bound rate specified in the schedule of the importing Member State.

A Member State may also employ Article XXVIII; however, it might be challenging to do so. A Member State may amend its schedule of concessions under Article XXVIII. One person cannot take this action alone. To make up for the bound rate being exceeded, the Member State will need to negotiate with the other affected Member States and is anticipated to grant equivalent concessions on other items. If no agreement is achieved, a Member State may still unilaterally exceed the bound rate; however, the concerned Member States will have the option to rescind substantially equal concessions.

Finally, a Member State that wishes to surpass a bound rate may consider whether the Marrakesh Agreement’s Article IX:3 waiver might be helpful. As to Article IX.3 of the WTO Ministerial Conference’s Institutional Structure, a decision to waive an obligation imposed on a Member State may be made in extraordinary circumstances, subject to the approval of three-quarters of the Member States.

Duty to merely keep tariffs in place

The adoption of quotas, or quantitative limits, import or export licences, and other measures, in any form, are forbidden by Article XI:1. Only tariffs, taxes, and other levies are permitted under Article XI:1. Ensuring that duties – along with taxes and other charges – are the only type of protection that goods may have been the goal of Article XI:1.

The ban on quantitative limits is subject to various exceptions. For instance, quotas may be temporarily implemented under Article XI:2 to avert or alleviate a severe food crisis. Another example is when the investigating body of an importing Member State has completed a safeguard investigation and is thus permitted by Article XIX and the Agreement on Safeguards to enforce temporary quotas. Another example would be if a Member State were having problems with its balance of payments. Under Article XII, the Member State may, in such circumstances, temporarily limit the amount or value of commodities that are allowed for import.

Growing involvement from underdeveloped nations

The GATT 1947 has a section on trade and development. The goals and guiding principles of the GATT of 1994 are outlined in Article XXXVI, which aims to support Member States that are developing countries. Article XXXVI:8, which reflects the principle of non-reciprocity in discussions between developed and developing Member States, contains a crucial idea. Developed nations are not obliged to make concessions, and developing nations are not obligated to seek them out.

If developing countries so desire, they can accept all of the concessions made and negotiated by rich countries without reciprocating. This is possible according to the principle of non-reciprocity. Therefore, there is no exchange of value. Renegotiating any legally binding tariff concessions is also subject to the principle of non-reciprocity.

Furthermore, by giving developing Member States preferential treatment over developed Member States, the Enabling Clause permits them to stray from their MFN responsibilities. The Doha Development Agenda, often known as the Doha Round of discussions, was centred around the concerns of developing Member States.

Transparency

Article X of the GATT 1994 also mentions multilateral transparency and review, as does the Marrakesh Agreement and the Annex on the Trade Policy Review Mechanism. Trade rules (laws, regulations, court decisions, and administrative rulings of general application) may be published in accordance with Article X. It further stipulates that all trade laws must be implemented consistently, fairly, and within a reasonable administrative framework. Additionally, tribunals for the impartial examination of any executive action pertaining to trade legislation must be established or maintained by Member States.

Introduction

The GATS encompasses all of the fundamental ideas of trade in services. The fundamental tenets of the initiative are the following:

  • Transparency
  • Binding service obligations
  • Limited limitation on quantitative constraints
  • Non-discrimination

Non-discrimination: The Most Favourable Country

GATS Article II:1 contains the MFN principle. The MFN idea is similar to the GATT, as stated in the GATS. Therefore, according to the MFN principle, each Member State shall instantly and unconditionally grant to services and service providers of all Member States no less advantageous treatment than it accords to any other Member State. Therefore, discrimination against other Member States may be prohibited. Other Member States shall receive the same treatment, without conditions, as soon as one or more Member States receive more favourable treatment.

There are also many exceptions to the MFN principle. The most significant of which are:

Member states may include MFN exemptions in their schedule of commitments using the Article II:2 exception. A Member State may violate the MFN principle without breaking it if it has included an exemption for a specific service or service provider in its schedule.

A deal that further liberalises trade in services can be entered into by Member States thanks to the Economic Integration exemption. If the agreement satisfies the following requirements:

  • There must be extensive coverage in the agreement. This implies that a sizable number of service sectors must be covered. Additionally, a sizable amount of trade between the members should be covered under the agreement. Finally, it needs to encompass a significant portion of how a service is supplied, and
  • The agreement must state that discrimination based on national origin must either cease or be considerably reduced. Therefore, the agreement should eliminate (significantly) any situations in which a domestic service or supplier receives preferential treatment over a foreign service or supplier.

Member states are permitted to integrate their labour markets under Article V bis. According to the GATS, a service can be delivered in four ways. The motion of a live individual is the fourth mode. Therefore, some Member States’ integration of their labour markets may go against the MFN concept. An exception to MFN is granted under Article V bis, provided that the labour integration agreement:

  • Releases members’ citizens from the need for residency and employment permits, and
  • Is sent to the WTO Council on Trade in Services’ institutional structure.

If a Member State applies the General Exception in a way that does not discriminate between Member States, it can breach the MFN principle for various reasons. This exception would apply for the following:

  • If taking such action is required to uphold public order or safeguard morality.
  • If the action is required to safeguard the health of people, animals, or plants.
  • If the action is required to ensure adherence to rules and legislation that are compliant with the GATS.
  • If the goal of the action is to prevent double taxation.

According to Article XIV bis, a Member State may take any action required to uphold its fundamental security interest or carry out any duty outlined in the UN Charter regarding preserving world peace and security.

Last but not least, a Member State that wishes to go above and beyond any pledge made may think about how the Marrakesh Agreement’s Article IX:3 waiver might help. As per Article IX.3, the WTO Ministerial Conference’s Institutional Structure has the authority to waive an obligation imposed on a Member State in exceptional circumstances, subject to the approval of three-quarters of the Member States.

Discrimination-Free National Approach

The National Treatment principle is included in Article XVII. Foreign services are placed on an equal footing with domestic services in the importing Member State by the National Treatment principle. Foreign services are permitted to be handled like domestic services after they comply with all border measures. Usually, this kind of care is provided by legislation, rules, policies, or procedures.

There is one area, nevertheless, where it diverges greatly from the GATT. The National Treatment principle under the GATS is limited to services that a Member State has expressly mentioned in its schedule of obligations. As a result, a Member State must specify which version of the national treatment principle applies to a given service. The National Treatment principle will only apply to that service if there is a listing of it, and the Member State may treat its own service provider better.

There are a few more exceptions to the National Treatment concept, which are as follows:

Regarding the Most Favoured Nation concept, the General, Security, and Waiver exceptions are all the same. A Member State may alter its concession timetable in accordance with Article XXI. Any Member State that may be impacted by a potential amendment may ask to negotiate with the Member State making the modification. Preserving the same degree of unrestricted trade in services would be the goal of the negotiations.

Crucially, any agreed-upon compensatory concession must subsequently be provided on an MFN basis. As a result, the negotiated, more advantageous treatment will be granted to all Member States. Arbitration may be referred to if an agreement cannot be reached. Following that, the modifying Member State will be required to agree to compensation in accordance with the arbitration’s rulings.

Other Member States are free to alter their obligations against the modifying Member State if the Member State disregards the arbitration’s rulings. Member States’ obligations may be retaliatorily amended, but only against the altering Member State and not based on the most-favourable nation (MFN) doctrine. The modifying Member State may carry out the suggested alteration unless a request for negotiations is made.

Binding services commitments

The idea that requires Member States to list the particular commitments they make in a schedule to the GATS is outlined in Article XX:1. Three primary promises that could be made in this regard:

  • Horizontal Commitments
  • Market Access Commitments, and
  • National Treatment Commitments

The GATS has far more freedom than the GATT, which requires Member States to accept commitments on all commodities. Limitations or obligations outlined in a Member State’s schedule of commitments apply to all sectors covered by Horizontal Commitments. The precise promises about national treatment and market access must be interpreted with it. One common illustration of a horizontal commitment would be a rule requiring local ownership for international service providers to establish a commercial presence in a Member State’s market.

Another change from the GATT is the Market Access Commitments in the GATS. As tariffs must be bound, Member States of the GATT accept obligations to market access for all goods. Member states can choose which services or service sectors to accept market access commitments on under the GATS. A Member State’s service is not subject to any obligation regarding market access if it does not include a commitment in its schedule of commitments.

There is yet another distinction, too. When commodities are exchanged, they physically pass through borders. This is when the market access metric comes into play. Services are more freely traded than goods under the GATS. There are four ways that a service can be provided that are recognised by the GATS. These four modes consist of:

Mode 1: Cross-border supply. The provider and the customer stay in their respective markets while the service travels across borders. An example is when a legal services provider gives a contract to a client who lives abroad.

Mode 2: Overseas consumption. To use a service in that market, the customer travels across borders. A consumer travelling to a different market to receive medical care is an example of Mode 2.

Mode 3: Existence of commerce. The provider of services launches a business venture in an overseas market. An illustration of Mode 3 would be if a legal practice opened up shop abroad, and

Mode 4: Movement of natural persons. The individual who travels to a foreign market to give the service is known as the service provider. An illustration would be a solicitor from the UK going to Belgium to offer legal services.

Given that there are four ways in which services can be sold, market access under the GATS entails more than only transacting business across borders (as per Mode 1). Every service a member state chooses to commit to can have market access commitments scheduled for each of these supply modalities.

Only those services that a Member State has expressly named in its schedule of National Treatment obligations will be covered by the National Treatment principle. Member states may, therefore, impose restrictions on the application of the national treatment principle to committed services. Every supply mode can have this done. The fact that a Member State requires foreign service providers to obtain licences or register under discriminatory terms is a common restriction on the National Treatment principle.

There are the following exclusions from the legally binding commitment:

Member states can make additional commitments in addition to their horizontal Market Access and National Treatment commitments. A Member State’s schedule of obligations must also include the Additional obligations. Typically, Additional Commitments deal with rules pertaining to a particular service’s standards, qualifications, and licencing outside Market Access or National Treatment Commitments.

Limited prohibition on quantitative restrictions

There is a restricted ban on quotas under the GATS. The idea is that only the services and industries that a Member State has committed to are exempt from quotas. A Member State may set aside quotas under its Market Access Commitments. After this is completed, the quotas will then apply to services trade with that Member State. The limited prohibition on quantitative limits is subject to the following exceptions, in addition to scheduling quotas on Market Access Commitments:

Transparency

Article III of the GATS also mentions multilateral transparency and review, as does the Marrakesh Agreement and its Annex on the Trade Policy Review Mechanism. All applicable measures that concern or impact the GATS’s operation must be promptly published by the member states. Any new laws (including administrative guidelines and regulations) that a Member State establishes or alters must be promptly reported to the WTO Council on Trade in Services Institutional Structure, if not annually. Additionally, Member States have an obligation to reply quickly to inquiries from other Member States seeking further details on policies that impact the GATS’s functionality.

Growing involvement from underdeveloped nations

Article IV includes measures aimed at boosting the involvement of developing nations in the trade of services. Particularly, developed nations will:

  • Assist emerging nations in enhancing the capacity of their domestic services to boost productivity and competitiveness.
  • Help developing nations’ service exports gain access to information networks and distribution channels.
  • Liberalise market access to supply chains and service industries that are relevant to emerging nations.

Regarding support facilitation and liberalisation, developed countries will prioritise the least developed nations.

Introduction to Intellectual Property

The fundamentals of intellectual property rights as they apply to trade are included in the TRIPS Agreement. The non-discrimination principle, with exceptions allowed, and the exhaustion principle are two fundamental tenets. Member states are required by the TRIPS Agreement to create a minimum level of protection for intellectual property rights.

Non-discrimination: The Most Favourable Country

The notion of MFN is found in Article 4 of the TRIPS Agreement. Under both the GATT and the GATS, the MFN premise is the same. According to the MFN concept, citizens of various Member States must be treated equally by their fellow Member States. Suppose a Member State gives a national of one Member State a favour, advantage, privilege, or immunity. In that case, it must promptly and unconditionally treat the nationals of all other Member States equally. For instance, if Member State A chooses to accept and uphold trademarks that Member State B has issued as of a specific date, Member State A must provide other Member States’ citizens with the same benefits.

There are certain exceptions to the MFN principle. These are:

  • Article 73 of the TRIPS Agreement (Security Exception), and

The GATT and the GATS both have identical Security Exceptions and Waivers. The MFN concept has exceptions in Articles 4(a) through 4(d). Any benefit, favour, or immunity granted by a Member State is exempt from the MFN principle:

  • Originated from a global agreement on broad law enforcement or judicial assistance (i.e., not limited to intellectual property protection).
  • Given in accordance with the guidelines of the Rome or Berne Conventions.
  • Regarding the rights of artists, phonogram manufacturers, and broadcasting companies that the TRIPS Agreement doesn’t cover.
  • Originating from before the Marrakesh accord international accord on the protection of intellectual property rights.

Discrimination-Free National Approach

According to Article 3 of the TRIPS Agreement, Member States are required to treat citizens of other Member States equally to those of their own. The GATT and GATS both adhere to the same national treatment premise. Foreign nationals shall have the same protection for their intellectual property rights as citizens of Member States. The four previous World Intellectual Property Organisation treaties contain the following exceptions to the national treatment principle:

  • The Paris Convention (1967)
  • The Berne Convention (1971)
  • The Rome Convention (1961), and
  • Treaty on Intellectual Property in Respect of Integrated Circuits (1989)

The Non-discrimination Exception

The principles of MFN and National Treatment are exempted under Article 5 of the TRIPS Agreement. Only the acquisition and upkeep of intellectual property rights are crucial to its application. Therefore, the processes outlined in multilateral agreements of the World Intellectual Property Organisation pertaining to the acquisition or maintenance of intellectual property rights are not covered by the concepts of MFN and National Treatment.

Using up all available rights

The idea of “exhaustion” refers to the widely recognised legal theory in intellectual property that the owner’s rights in their creations expire upon distribution. Suppose the intellectual property owner could regulate the product’s subsequent disposal after the initial distribution; that is the “exhaustion” question. The Member States were unable to reach a consensus about the applicability of either an international or national exhaustion rule. The owner of an intellectual property right’s distribution rights is only deemed to have used them under the national regime when the protected object is sold in that country. On the other hand, under the international framework, the owner of an intellectual property right exhausts its rights in all countries once the object is placed in a protected market.

Since the agreement could not be achieved, Article 6 of the TRIPS Agreement makes it clear that each Member State has significant latitude in handling the exhaustion issue. Article 6 states that the TRIPS Agreement will not be used to address the exhaustion issue for dispute settlement purposes. Member States are free to create their own exhaustion regimes without being subject to dispute resolution. This is valid as long as the MFN and National Treatment principles are followed.

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