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  • International law and finance :Question Number One: limit 1000 words and mark 15%. The fundamental legal pillars of multilateral trade liberalisation under the WTO are the principles of non-discrimination. Explain these principles and their

International law and finance :Question Number One: limit 1000 words and mark 15%. The fundamental legal pillars of multilateral trade liberalisation under the WTO are the principles of non-discrimination. Explain these principles and their Essay Example

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September 7, 2011.

Question 1: The basic principles of WTO

Non-discriminatory most-favored-nation treatment

Nondiscrimination has two main elements: the most-favored-nation (MFN) rule, and the national treatment principle. The Non-Discriminatory Treatment or the Most Favored Nation (MFN) Treatment is the most significant and key principle of the WTO. This principle means that any benefit, favor, dispensation or immunity approved by one WTO member to another ought to be approved right away and unreservedly to all other members. In the case of goods, MFN treatment applies to customs duties, additional border duties and charges, rules and regulations regarding the importation and exportation, methods of levying customs duties, as well as international transfers of payments for imports and exports. MFN treatment also applies to trade services. A WTO member is under the obligation to offer similar treatment right away and unreservedly to all WTO members that it gives to any given nation in respect to any measure applicable to services. In a similar manner, for intellectual property rights, any merit, favor, privilege or immunity approved by a WTO member to the nationals of one country has to be granted right away and unreservedly to the nationals of all WTO members (Islam, 2006). For instance, there was trade liberalization by the Korean government under the IMF program. Through this, Korea implemented three policies: foreign exchange liberalization, capital account liberalization and trade liberalization. An exchange rate policy adopted freely flexible exchange rate systems by abolishing daily exchange rate bands. Between April, 1999 and January, 2001, the Korean government liberalized foreign currency transaction of companies and financial firms and also permitted foreign currency transaction of individuals. It also permitted foreign financial institutions to take part in mergers and acquisitions of domestic monetary firms, and raised the ceilings on aggregate foreigners’ ownership of listed Korean shares (Khalid, Levy & Saleem, 1999).

National treatment demands that foreign goods once they have satisfied whatever boundary measures that are in place, be treaded no less favorably, in terms of internal (indirect) taxation than like or directly competitive domestically produced goods (Art. III, GATT). This means that all goods being imported in a country ought to be subjected to taxes, charges, as well as regulations that are ‘no less favorable’ than those that apply to similar goods of domestic origin (Hoekman, & Kosteck, 2001). The MFN rule applies unconditionally. However, exceptions are made for the formation of free trade areas or customs unions and for preferential treatment of developing countries; MFN is a basic pillar of the WTO. The main reason for the exception is economic: if policy is not discriminative between foreign suppliers, importers and clients will have an inducement to use the lowest-cost foreign dealer (Hoekman, & Kosteck, 2001).

MFN as well offers smaller nations with an assurance that superior countries will not take advantage of their market power by raising taxes against them in periods when times are appalling and domestic industries are clamoring for security or, otherwise, give particular countries privileged treatment for foreign policy reasons. For instance, under the Uruguay Round Agreements, agriculture together with textiles and apparel, are the sectors in which the developing countries achieved the greatest improvement in market access. This was the most contentious negotiating area. Limited gains were agreed upon, and agriculture was fully incorporated for the first time into the disciplines of the GATT. Through these negotiations, it was noted that a significant portion of world barriers to agricultural trade was not tariffs but rather quantitative restrictions or other non-tariff measures. The major achievement that came to solve the above problem was the conversion of these to tariffs. Again, the agreement called for reduction of these tariffs over time. Third, the agreement addressed the distortions introduced via domestic subsidies to farmers. Finally, restrictions were imposed on the use of export subsidies. Therefore tariffs were introduced in place of bans and quotas to improve market access (Khalid, Levy & Saleem, 1999).

National treatment makes sure that liberalization commitments are not offset through the obligation of domestic duty and comparable procedures. The prerequisite that overseas goods be treated no less favorably than challenging locally produced goods offers foreign dealers better assurance concerning the regulatory setting in which they ought to function. The national treatment principle has frequently been invoked in dispute settlement cases brought to the GATT. It is an extremely comprehensive rule: the responsibility applies whether or not a particular duty obligation was made, and it takes into account duty and other policies, which ought to be applied in a nondiscriminatory manner to similar local and foreign goods. It is as well irrelevant whether a policy hurts an exporter. What is more important is the existence of discrimination, not its effects (Bossche, Peter Van den, 2008).

Reciprocity is a key component of the negotiation process. It reflects both a need to limit the extent for free-riding that may occur due to the MFN regulation together with a need to acquire ‘payment’ for trade liberalization in the form of enhanced admittance to overseas markets. The costs of liberalization commonly are intense in particular industries, which frequently will be well structured and contrasting the reductions in protection. Reimbursement, although in the cumulative normally higher than expenses, accrue to a much larger set of agents, who therefore do not have a great personal inducement to systematize themselves politically. In such circumstances, the ability to point to reciprocal, sector-specific export gains might assist in selling the liberalization politically. Acquiring a reduction in overseas import difficulties as a quid pro quo for a diminution in domestic trade limitations provides particular export-oriented local benefit that will gain from liberalization an inducement to support it in local political markets. In relation to this, for a country to bargain, it is important that the gain from doing so be bigger than the gain obtainable from independent liberalization. It is the role of reciprocal concessions to make sure that such gains are achievable (Hoekman, & Kosteck, 2001).

Binding and Enforceable Commitments

Liberalization commitments and accords to abide by certain regulations of the game will have little or no value if they cannot b enforced. The non-discrimination standard, embodied in Articles I (on MFN) and III (on national treatment) of the GATT, is significant in making sure that market admittance obligations are put into practice and upheld. Other GATT articles carry out a supporting responsibility, including Article II (on schedules of concessions). The tariff obligations made by WTO members in a multilateral trade concession as well as on attainment are specified in schedules (lists) of negotiations. These lists institute ‘ceiling bindings’: the member involved cannot increase duties above bound levels without negotiating reimbursement with the main suppliers of the goods concerned. The MFN rule then makes sure that such compensation – normally reductions in other duties – extends to all WTO members, increasing the cost of breaking a promise (Hoekman, & Kosteck, 2001).

Immediately the tariff commitments are bound, it is crucial that there be no option to other, nontariff, actions that have the consequence of invalidating or weakening the value of the tariff dispensation. Several GATT articles such as Article VII (custom valuation), and Article XI try to guarantee that this does not happen. Article XI, in particular, forbids quantitative limitations on imports and exports, while the Agreement on Subsidies and Countervailing of production subsidies on imports that significantly damage domestic contestants. As a part of the comprehensive economic policy program for structural reforms, the Korean government accepted to set a timetable in line with WTO obligations to eliminate trade-relate subsidies, restrictive import licensing and the import diversification program. It also promised to streamline and improve the transparency of the import certification processes (Khalid, Levy & Saleem, 1999).

Whenever a country observes that measures adopted by another country have the consequence of nullifying or weakening negotiated market admittance obligations or the disciplines of the WTO, it might bring this case to the attention of the government concerned and ask that the policy be changed. If amicable solution is not attained, the complaining government may bring into play WTO dispute settlement process, which involves the establishment of panels of unbiased experts charged with establishing whether a contested action violates the WTO (Matsushita, Schoenbaum, and Mavroidis, 2003).


Enforcement of obligations demands admittance to information on the trade rules that are maintained by members. The accords administered by the WTO thus integrate mechanisms designed to facilitate communication between WTO members on issues. Transparency is a basic pillar of the WTO, and it is a lawful commitment, rooted in Article X of the GATT and Article III of the GATS (WTO, 2000).

Question 2: Exceptional cases in complying with non-discriminatory principles within WTO members

The MFN rule applies unconditionally. However, exceptions are made for the formation of free trade areas or customs unions and for preferential treatment of developing countries; MFN is a basic pillar of the WTO. The main reason for the exception is economic: if policy is not discriminative between foreign suppliers, importers and clients will have an inducement to use the lowest-cost foreign dealer (Hoekman, & Kosteck, 2001). Even though MFN applies to all services, there are a number of special temporary exemptions that are allowed. When GATS came into force, several countries already had preferential agreements in services that they had signed with trading partners, either bilaterally or in small groups. WTO members also agreed to maintain these preferences. The gave themselves the right to continue giving more favorable treatment to particular countries in special services activities by listing ‘MFN exemptions’ alongside their first sets of commitments. Nevertheless, for the MFN principle to be protected, the exemptions are only made once and nothing can be added to the lists (Finger, and Schuler, 2003).

The WTO is based on the universal principles of equal rules for all. However, the several exemptions for special and differential treatment and provisions maintaining the pre-GATT discriminatory practices have always existed in the GATT/WTO system. The WTO endorses the results that suppose to benefit all WTO Members in the name of a more integrated global economy. On the contrary, in the name of national welfare, nations present requirements that frequently conflict with those of their trading partners. It is virtually not possible for the weak nations to press forward their interests if they are at odds with the position expressed by the powerful industrialized states (Lanoszka, 2001).

For instance if a country is bringing products that are viewed as harmful to health of the nation into which they are taking the goods, the country may be prohibited from importing those goods. Other instances are cases where a certain country has been given a tender to supply some goods, if the country importing the goods feels that the supplier is getting late and that the damages that may be caused by delays would be difficult to repair, the importer may offer the contract to another country that will be able to supply the goods timely. The example case of discrimination in GATT 1947 law happened to involve the protection of US intellectual property rights holder under section 337 of the US Tariff Act of 1930 (Lanoszka, 2001).


Bossche, Peter Van den, (2008). The Law and Policy of the World Trade Organization: Text, Cases and Materials, Cambridge University Press.

Finger, J. M. and Schuler, P. (2003). Implementation of Uruguay Round commitments: The development challenge. In Developing countries and the WTO??? A pro-active agenda, ed. Bernard Hoekman and Will Martin, 115-29. Boston: Blackwell Publishing.

Hoekman, B. & Kosteck (2001). The WTO: Functions and Basic Principles. The World Trade Organization.

Islam, M R, (2006). International Trade Law of the WTO, Oxford University Press.

Khalid, R., Levy P. & Saleem, M (1999). The World Trade Organization and the Developing Countries. Vienna, Austria. Retrieved September 7, 2011 from http://www.ofid.org/publications/PDF/pamphlet/pamphlet31.pdf

Lanoszka, A. (2001). Autonomy and Domination within the Global Trade System: Developing Countries in the Quest for a Democratic WTO. Retrieved September 7, 2011 from http://www.globalautonomy.ca/global1/servlet/Xml2pdf?fn=RA_Lanoszka_Domination

Lanoszka, A. (2001). The WTO accession process??? Negotiating participation in a globalizing economy. Journal of World Trade 35 (4): 575-602.

Matsushita, M., Schoenbaum, T. J. and Mavroidis, P. C. (2003). The World Trade Organization: Law, practice and policy. Oxford: Oxford University Press.

Negotiations, Cambridge University Press.

WTO, (2000). The Legal Texts: The Results of the Uruguay Round of Multilateral Trade