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Basic Principles of WTO

2007-10-24 Source:WTO: A Teaching Course

The basic principles of the multilateral trading system, as embodied in the WTO Agreement, derive mostly from the principles that constituted the foundations of the GATT. Trade without discrimination is one of these basic principles, guaranteed through the operation of various clauses included in the multilateral agreements on trade in goods, in the GATS, and in the TRIPs Agreement. It includes the Most-Favored-Nation Clause and National Treatment. Besides, there are principles of Transparency, Free Trade and Fair Competition, etc.

2.1 The Most-Favored-Nation treatment

The most-favored-nation clause has been the pillar of the system since the inception of the GATT in 1947. The Contracting Parties to the GATT 1947 were bound to grant to the products of other contracting parties treatment no less favorable than that accorded to products of any other country. Members of the WTO have entered into similar commitments, under the GATT 1994 (Article I) for trade in goods, under the GATS (Article II) in relation to treatment of service suppliers and trade in services, and under the TRIPs Agreement (Article 4) in regard to the protection of intellectual property.

2.2 National treatment

The national treatment principle condemns discrimination between foreign and national goods or services and service suppliers or between foreign and national holders of intellectual property rights. GATT 1994 and the TRIPS Agreement provide for national treatment as one of the main commitments of WTO Members. Imported goods, once duties have been paid, must be given the same treatment as like domestic products in relation to any charges, taxes, or administrative or other regulations (GATT Article 3). With regard to the protection of intellectual property rights, and subject to exceptions in existing international conventions, Members of WTO are committed to grant to nationals or other Members treatment no less favorable than that accorded to their own nationals (Article III). GATS, however, due to the special nature of trade in services, deals with national treatment under its Part III, Specific Commitments, (Article XVII ), where national treatment becomes a negotiated concession and may be subject to conditions or qualifications that Members have inscribed in their schedules on specific commitments in trade in services.

2.3 Transparency

Provisions on notification requirements and the Trade Policy Review Mechanism are set out in the WTO Agreement and its Annexes, with the objective of guaranteeing the fullest transparency possible in the trade policies of its Members in goods, services and the protection of intellectual property rights. Article X of GATT 1994 deals with the publication and administration of trade regulations; Article III of GATS sets out provisions on transparency as one of the general obligations and disciplines under that agreement; and Article 3 establishes transparency rules for the TRIPs Agreement.

2.4 Predictable and growing access to markets

Predictable and growing access to markets for goods and services is an essential principle of the WTO. This principle is fulfilled through various provisions so as to guarantee security, predictability and continued liberalization of trade.

2.5 Trade in goods

In the case of goods, a basic GATT postulate is that tariffs should normally be the only instrument used to protect domestic industry. Furthermore, tariffs should be predictable and stable

2.5.1 Binding of tariff

Security and predictability in trade in goods are achieved through the commitments embodied in the "binding of tariffs". A "bound" tariff is a tariff in respect of which there is a legal commitment not to raise it beyond the bound level. The binding of a tariff at a level higher than the tariff actually applied is considered as a legitimate concession. In this case, the concession is the binding itself, that is, the commitment not to raise the tariff beyond that level. The developed countries have normally bound their tariffs at the applied levels. By contrast, and consistently with open market policies, developing countries have adopted commitments on "ceiling bindings", that is, bindings at levels higher than the applied rates. This has allowed developing countries to substantially increase their bound commitments, thus underpinning their open markets policies, while keeping a certain margin for protection in case of need.

2.5.2 Prohibition of quantitative restrictions

As a general rule, quantitative restrictions are prohibited under the GATT 1994. However, in some cases, such as safeguard action, quantitative restrictions can be introduced under strictly defined criteria.                                                           "

2.5.3 Tariff negotiations: progressive reduction in protection

In the past, tariff negotiations were launched periodically under the auspices of the GATT. These negotiations served to reduce progressively the level of tariff protection in many countries now Members of the WTO. Tariff negotiations will remain important in the future, particularly in relation to agricultural products, where all nontariff barriers have been eliminated and substituted by tariffs, in many cases at very high levels

2.5.4 Emergency import measures: safeguards

A safeguard measure is an import restriction which can be adopted in emergency circumstances, when imports have increased in such quantities and conditions that they are the cause of serious injury or threat of such injury to a domestic industry producing a like or directly competing product. An agreement on safeguards, setting out conditions and criteria for these actions, is one of the multilateral trade agreements. Measures affecting prices, that is tariffs, are preferable to quantitative restrictions. However, quantitative re- strictions can be applied as safeguard measures in specific cases.

2.5.5 Tariff renegotiations: compensation

The contractual nature of a bound tariff concession lies in the fact that the tariff rate cannot be increased beyond the bound level. However, countries would not enter into this kind of commitment without the possibility of revision when the situation of a domestic industry so requires. The GATT 1994 allows for the possibility of renegotiations. A Member desiring to withdraw or modify tariff bindings has to renegotiate them with other interested Members and provide compensation, that is, substantially equivalent tariff concessions on other products.

2.6 Trade in services

The General Agreement on Trade in Services (GATS) establishes a multilateral framework of principles and rules for trade in services with a view to the expansion of such trade under conditions of transparency and progressive liberalization, and as a means to promote the economic growth of all countries and the development of developing countries. Through general obligations and principles, the negotiation of specific commitments, and the commitment to launch further rounds of negotiations on trade in services, the GATS seeks to achieve predictable and growing access to markets for services.

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