However, if the proposal will affect Members’ rights and obligations, the amendment is

only effective for those members who have accepted it. Importantly, the Ministerial
Conference may decide by a three-quarters m majority of the Members that any amendment
is of such a nature that any Member which has not accepted it within a period specified by
the Ministerial Conference must either withdraw from the WTO or remain a member only
with the consent of the Ministerial Conference.

Furthermore, Article X:2 states that certain fundamental provisions must be unanimously
adopted by all members before they can take effect, such as Article IX of the WTO
Agreement (Decision-making); Articles I and II of GATT (MFN and tariff schedules);
Article II:1 of GATS (MFN); and Article 4 of TRIPS (MFN).

Chapter Three

The Fundamental principles of International Trade Law

1. Non-Discrimination principle
In essence, this principle has two components, namely the Most-Favoured-Nation (MFN)
rule and national treatment, where their precise nature and scope differ across different
agreements of the organisation.

1.1 MFN---- Treating other people equally:

Under the WTO agreements, countries cannot normally discriminate between their trading
partners. Granting someone special favour such as lower customs duty rate for one of their
products. If you do for one country, you have to do the same for all other WTO members
equally. Therefore, Products made in one-member country be treated no less favourably
than a like or similar good that has originated from any other country. In other words, a
concession made by one party to another must be applicable or ‘multilateralised’ to all
other parties. In general, MFN means that every time a country lowers a trade barrier or
opens up a market, it has to do so for the same goods or services from all its trading partners
--- whether rich or poor, weak or strong.

14
In addition to GATT, MFN is also a priority in the GATS (Article 2 of GATS) and the
TRIPS (Article 4 of TRIPS).

Policy rationale

The main theoretical-political argument advanced in favour of MFN treatment is that non-
discrimination in international trade is a corollary of the principle of sovereign equality of
nations, as expressed in Article 2(1) of the United Nations Charter. Thus, the general rule
of interstate economic relations in a global organization such as the WTO should be equal
treatment, that is, MFN treatment.

Unconditional MFN not only provides a mechanism for the automatic removal of
distortions that would otherwise hamper comparative advantage, it also guards against
erosion of existing trade concessions through ‘favours’ granted to some, but not all states.
In particular, the MFN-obligation provides a ‘multiplier effect’ which assures that any
advantage accorded to one state will spread throughout the multilateral trading system.
MFN therefore may reduce corruption and the ‘buying’ of special favours; it also protects
against retaliatory ‘tit for tat’ cycles of animosity between trading partners (as the treatment
due to more distant friends is never to be lesser than the one enjoyed by close friends).

These significant advantages must be weighed against the one big (real or imagined)
disadvantage of MFN, which is that ‘free riders’ may take advantage of the system by
claiming the benefits of trade liberalization while keeping their own markets closed.26
Along with MFN, therefore, WTO law addresses the ‘free rider’ through mechanisms such
as holding periodic ‘rounds’ of trade negotiations which are not successfully concluded
until all members are reasonably satisfied by the trade concessions made.

Article XVI:4 of the WTO Agreement requires every member to ensure the conformity of
its laws, regulations, and administrative procedures with its obligations under GATT. Thus,
GATT Article I:1 and all other MFN clauses impose a restriction
onthefreedomofsovereignstatestotakecertainmeasurestheymaydeemappropriate: A WTO
member may not treat its ‘friends’ better than other members unless it decides to enter in
to a GATT Article XXIV-consistent preferential trade agreement.

Have a look at The MFN Provisions under Article I.1 of the GATT 1947 and GATT 1994
as follows:

With respect to customs duties and charges of any kind imposed on or in connection with
importation or exportation or imposed on the international transfer of payments for
imports or exports, and with respect to the method of levying such duties and charges, and
with respect to all rules and formalities in connection with importation and exportation,
and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any
15
advantage, favour, privilege or immunity granted by any contracting party to any product
originating in or destined for any other country shall be accorded immediately and
unconditionally to the like product originating in or destined for the territories of all other
contracting parties.

We can sort-out the following main Elements of MFN from the above provision of GATT

I. Its scope of coverage – custom duties and charges (treaty terminology for
tariffs); the methods of levying such duties and charges (Example: method of
calculating countervailing duties or the administration of tariff quotas must not
be administered on discriminatory basis) ; all rules and formalities and internal
taxation and regulations covered by Article III (2) (4)
II. The ‘any advantage, favour, privilege or immunity’ granted to both Members
and non-Members – broad coverage

What is an ‘advantage, favour, privilege or immunity’? As the GATT is a

commercial agreement, one would be inclined to state that those terms try to
capture any effect that benefits market access (border measures) or otherwise
influences competitive relationships with other foreign products (border
measures and internal measures), thus creating ‘more favourable competitive
opportunities for products from one member than for products from another
member, thereby affecting their commercial relationship.

III. Accorded immediately and ‘unconditionally’ – By virtue of the MFN

obligation, WTO members must extend any advantage immediately and
unconditionally to all WTO members. The term immediately is very strict; less
ambitious options, like ‘without delay’ or ‘within a reasonable period of time’
would have been less demanding, suggesting that any WTO member has an
operative right to demand equal treatment from the moment of first granting of
the advantage in question. The term unconditionally means that any advantage
given to another trading partner must be accorded to all WTO members,
whether or not any conditions are associated with that advantage.

IV. The ‘like product’-Unlike products may lawfully be treated very differently

The term like product has not received an authoritative definition in the text of the
GATT. Clearly, ‘like products’ are characterized by common traits and show identical
or similar characteristics. Given the purpose of Article I to protect the equality of
competitive opportunities, the determination of likeness is really a determination of
competitive relationships between different products.

16
 Nevertheless, under well-established case law, all ‘like-product’ analyses have to
consider the following four elements (none of these criteria are determinative, as the
determination of likeness ‘will always involve an unavoidable element of individual,
discretionary judgement), in order to ‘make a determination about the nature and extent
of a competitive relationship between and among the products’:

• the product’s end-uses in a given market;

• consumers’ tastes and habits, which change from country to country;

• the product’s properties, nature, and quality; and

• tariff classification- ‘tariff classification can be a helpful sign of product similarity’

The first three of these criteria go back to the report of the Working Party on Border
Tax Adjustments adopted by the GATT contracting parties in 1970, while fourth one
was introduced by the Appellate Body in Japan—Alcohol II case.

1. Formal interpretative approach - focus on tariff classification and physical product

characteristics;

2. Functional approach – emphasize on degree of substitutability from the perspective

of consumers;

3. The third one is hypothetical like-product analysis - assumption of existence of a

like product where discrimination is origin-based or impossible to compare;

4. Comparing ‘like products’ under Article I and III of the GATT – Whether the
concept of ‘like product’ for purposes of claims under Article I involving internal
measures (internal tax measures and international regulations) should correspond
to the concept of like product for purpose of claims under Article III (2)(4)?
Conflicting interpretations

VI. de jure and de facto trade discrimination

 De jure trade discrimination: explicitly differentiates between products on the

basis of their origin

 De facto trade discrimination: not explicitly linked to the origin of the products
but result in discrimination between products originating in different countries

GATT Article I does not distinguish between de jure or de facto discrimination. In line with
developments in other areas of law, especially of economic law, the Appellate Body does
not limit the catchment area of the MFN obligation to the most obvious, that is, explicit,
discriminatory measures. Rather, it is the discriminatory effect that really matters. Thus, in
Canada—Autos, the Appellate Body explained:

17
[T]he words of Article I:1 do not restrict its scope only to cases in which the failure to
accord an “advantage” to like products of all other Members appears on the face of the
measure, or can be demonstrated on the basis of the words of the measure. Neither the
words “de jure” nor “de facto” appear in Article I:1.... [W]e observe [further] that
ArticleI:1does not cover only “in law”, or dejure, discrimination. [Rather,] Article I:1
covers also “in fact”, or de facto, discrimination. Like the Panel, we cannot accept Canada’s
argument that Article I:1 does not apply to measures which, on their face, are “origin-
neutral”.

Why MFN - how to justify the MFN

(I) The political rationale
A. To promote better international relations
‘MFN principle promotes better international relation since it avoids the bitterness and
tensions that may result from discriminatory policies’
B. To facilitate international economic cooperation in two respects
1. To reduce transaction costs of cooperation; 2. To prevent subsequent ‘defecting’
5. Economic implications of the MFN Principle
[Link] effect
2. ‘trade creation’ vs. ‘trade diversion’
(IV) III. Challenges of MFN

1. free riding vs. reciprocity

2. more ‘costly’ to the granting country
3. equity implication – ‘MFN principle favors the more developed (and more cost-
efficient) countries’ – income distribution justice

Exceptions to the MFN principle

However, some exceptions to MFN are allowed. For example, countries can set up a
free trade agreement that applies only to goods traded within the group ---
discriminating against goods from outside. Or they can give developing countries
special access to their markets. Or a country can raise barriers against products that
are considered to be traded unfairly from specific countries. And in services,
countries are allowed, in limited circumstances, to discriminate.

I. Historical preferences (Article I (2) (4) of GATT)

II. Antidumping and countervailing duties (Article VI of the GATT, AD and SCM
Agreement)
III. Some quantitative restrictions (Article XII or Article XVIII of the GATT by virtue
of Article XIV)
IV. Authorized trade measures (Article XXIII, Article XIX(3)(a) safeguard provision
of the GATT)
V. Waiver clause (Article IX of the WTO Agreement)
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 VI. The Enabling Clause or the generalized system of preferences (GSP) (Part IV of
the GATT)
VII. Article XXIV of the GATT - Regional or Preferential Trade Agreements (RTAs or
PTAs)
VIII. Article XX of the GATT – the General Exceptions
IX. National Security Exceptions (Art. XXI of the GATT

1.2 National Treatment-Treating foreigners and locals equally

National Treatment principle maintains that Imported and locally-produced goods should
be treated equally at least after the foreign goods have entered the market. For example, a
good, a service, a service provider, an investor, an intellectual property right, or a (juridical
or physical) person owning an (intellectual or other) property right—must be treated by a
regulating state like their domestic (‘national’) equivalent. This principle of “national
treatment” (giving others the same treatment as one’s own nationals) is also found in all
the three main WTO agreements (Article 3 of GATT, Article 17 of GATS, and Article 3
of TRIPS).

In other words, NT requires that foreign goods that have fulfilled the necessary border
measures should not be treated less favourably than domestically produced like or directly
comparative goods.

This means that foreign goods must be subject to internal taxes and charges of the country
that apply to the like or similar goods produced domestically and that it would give greater
certainty to foreign suppliers with regards to the environment in which they operate.
National treatment only applies once a product, service or item of intellectual property has
entered the market. Therefore, charging customs duty on an import is not a violation of
national treatment even if locally-produced products are not charged an equivalent tax.

Suggested Criteria's are:

 Functional similarity
 Consumer tests and habits
 Product quality and property

Exceptions to NT
Art 3/8/ of GATT provides certain exceptions:
A. Government procurement: -
 GATT Article III:8(a) permits governments to purchase domestic products
preferentially, making government procurement one of the exceptions to the
national treatment rule. This exception is permitted because WTO Members
recognize the role of government procurement in national policy. For example,
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 there may be a security need to develop and purchase products domestically, or
government procurement may, as is often the case, be used as a policy tool to
promote smaller business, local industry or advanced technologies.
B. Domestic Subsidies
GATT Article III:8(b) allows for the payment of subsidies exclusively to domestic
producers as an exception to the national treatment rule, under the condition that it is not
in violation of other provisions in Article III and the Agreement on Subsidies and
Countervailing Measures.
The reason for this exception is that subsidies are recognized to be an effective policy tool,
and is recognized to be basically within the latitude of domestic policy authorities.
C. Infant industry exception
GATT Article XVIII:C
Members in the early stages of development can raise their standard of living by promoting
the establishment of infant industries, but this may require government support and the
goal may not be realistically attainable with measures that conform to the GATT. In such
cases, countries can use the provisions of GATT Article XVIII:C to notify WTO Members
and initiate consultations.
D. The cinematographic film screen quota exceptions.

Article III (10) of GATT, internal regulation is allowed.

E. general exceptions
F. security exceptions

2. Reciprocity principle
It requires that if one country made tariff concessions, then the other country should do the
same. The principle that each country should offer concessions on its own tariffs so that it
could get tariff reductions from its trading partners complemented international trade
theory which had for long demonstrated that tariffs hurt most of the countries that had
imposed them. This principle has important political economy implications, i.e. when
bargaining is reciprocal then it will suit the interests of exporters of a given country and

20
their support will make it politically acceptable, which would not have been the case if the
country had undertaken unilateral tariff reductions.
3. Principle of Enforceable Commitments
Liberalisation commitments and agreements will not be practical if they are not enforced.
These tariff commitments made by the WTO members are listed in schedules and
established ceilings. In the case of goods, these binding commitments amount to ceilings
on customs tariff rates.

Once these tariff commitments are bound and ceilings are established, they could not be
nullified nor impaired unless the trading partners first negotiate to this effect. The result
of these enforceable commitments is that traders will be able to secure a higher degree of
market access and they would also contribute in improving the predictability and stability
of international trade.

4. Principle of Transparency
Another way to improve the predictability and stability of international trade is through
making trade rules as clear and public (transparent) as possible. The exchange of
information and views must be allowed and the resolution of potential conflicts in an
efficient manner must be permitted. WTO members must publish their trade policies,
establish and maintain institutions that regulate administrative decisions concerning trade,
respond to requests of information by others and notify changes in trade policies to
WTO. The regular inspection of national trade policies through the TPRM provides a
further means of encouraging transparency, both domestically and at the multilateral
level.
5. Safety Conditions principle
Through this principle, one could see that the WTO is not entirely a ‘free trade’
institution. The system, according to this principle, allows tariffs and in extreme
circumstances, other forms of protection. Member governments are required to restrict
trade in specific conditions presented in these three provisions.
The first are articles that allow the use of trade measures to attain non-economic
objectives. These include policies formulated to protect public health or national security
and those that protect industries that could be harmed by competition from imports.
The second are articles set forth for ensuring ‘fair competition’. These provisions give the
right to impose “countervailing duties on imports that have been dumped”. The objective
of fair competition, however, is in direct conflict with market accessibility because
governments, in order to attain ‘fairness’ usually implement trade barriers.
21
The third articles are those that allow intervention in trade for economic reasons which
are considered serious like balance of payment deficits or government desire to support
infant industries.
6. Promoting fair competition :

The WTO is sometimes described as a “free trade” institution, but that is not entirely
accurate. However, the system does allow tariffs and, in limited circumstances, other forms
of protection. More accurately, it is a system of rules dedicated to open, fair and undistorted
competition.
The rules on non-discrimination --- MFN and national treatment --- are designed to secure
fair conditions of trade. So too are those rules on dumping (exporting at below cost to gain
market share) and subsidies. The issues are complex, and the rules try to establish what is
fair or unfair, and how governments can respond, in particular by charging additional
import duties calculated to compensate for damage caused by unfair trade.
Many of the other WTO agreements aim at to support fair competition: e.g. in agriculture,
intellectual property, services. The agreement on government procurement (a “plurilateral”
agreement because it is signed by only a few WTO members) extends competition rules to
purchases by thousands of government entities in many countries.

7. Encouraging development and economic reform:

The WTO system contributes to development. On the other hand, developing countries
need flexibility in the time they take to implement the system’s agreements. And the
agreements themselves inherit the earlier provisions of GATT that allow for special
assistance and trade concessions for developing and least developed countries.
Over three quarters of WTO members are developing countries and countries in transition
to market economies. At the end of the Uruguay Round, developing countries were
prepared to take on most of the obligations that are required of developed countries. But
the agreements did give them transition periods to adjust to the more unfamiliar and
difficult WTO provisions, particularly so for the poorest, least developed countries.
A ministerial decision adopted at the end of the Uruguay Round says “better-off countries”
should accelerate implementing market access commitments on goods exported by the
least-developed countries, and it seeks increased technical assistance for them.

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 Chapter Three
WTO’s Dispute Settlement Mechanism

Dispute settlement is the most important side to the WTO’s work. Trade relations often
involve conflicting interests. Agreements, including those negotiated in the WTO system,
often need interpretation. The most harmonious way to settle these
disputes/differences/conflicts is through some neutral procedure --- arbitral process ---
based on an agreed legal foundation. E.g. Through arbitration under the arbitration law of
the contracting nations. That is the purpose behind the dispute settlement process written
into the WTO agreements.

The Fact and Number (WTO Annual Report pp. 104-112)

 On 10 November 2016, the 500th dispute was submitted to the WTO (Pakistan
filed a request for consultations with South Africa regarding South Africa’s
provisional anti-dumping duties on cement from Pakistan). The total of 500
disputes over the 20-year history of the WTO;

 In 2015, the DSB adopted 11 panel reports, compared with nine reports in
2014. The DSB also adopted eight Appellate Body reports against seven
reports the year before;

 During 2015, WTO members made three such requests for arbitration to
determine the reasonable period of time for implementation

 The DSB adopted four compliance panel reports and three Appellate Body
compliance reports during 2015

 Also during 2015, the DSB authorized Canada and Mexico to take retaliation
measures against the United States. The arbitrator set the value of retaliation
– the value of the concessions or other obligations that can be suspended – at
CA$ 1,054.729 million annually for Canada and US$ 227.758 million annually
for Mexico

 In May 2015, the European Union and Indonesia informed the DSB that, in
light of the mutually agreed solution reached by Indonesia and the United
States in the “US — Clove Cigarettes” dispute, the European Union had
withdrawn its request for consultations pursuant to Article 22.2 (suspension
of concessions

Dispute settlement under the GATT/WTO system has transformed over the years from one
that emphasizes negotiation and mediation, to one that favors adjudication. Initially,
disputes were decided at regular GATT member meeting, by countries that based their
decision on what would be in their best interests. In the 1950’s, a ‘panel’ system became

23
the norm. The Panel system has been incorporated into the WTO, with some important
modifications, and the addition of the Appellate Body.

WTO, this system proved unworkable due to delays in implementation of decision, and
various blocking tactics used by losing parties.

Governing the Settlement of Disputes (DSU) was implemented during the Tokyo Round
in 1980, with some important modifications during the Uruguay Round. It is implemented
by the Dispute Settlement Body (DSB) of the WTO.

Who Can Bring A WTO Dispute?

• WTO DSU - Government-to-Government
I. Only WTO Members can bring disputes and have standing as third parties or
participants;
II. Need to show “substantial interest” (Art. 10 DSU) and dispute needs to be
“fruitful” (Art. 3.7 DSU);
III. Private actors: companies (producers) industry associations

3.1 Principles of the Dispute Settlement System

The Dispute Settlement Understanding sets out the WTO’s philosophy on dispute
settlement in its General Principles Article 3.
Article 3.2 establishes the central principles of the WTO dispute settlement system. The
system is the “central element in providing security and predictability to the multilateral
trading system”; it serves to “preserve the rights and obligations of Members”; it cannot
“add to or diminish the rights” of members provided under other agreements; and it must
clarify existing provisions of the GATT/WTO agreements according to “customary rules
of interpretation of public international law”.
Article 3.3 establishes that the “prompt settlement of disputes” is the central aim of the
dispute settlement system, as this is necessary to preserving the balance of rights and
obligations of contracting parties. In light of this aim,
Article 3.7 provides that the “positive solutions” should be sought. The hierarchy of those
positive solutions is as follows: (1) a mutually agreed upon solution; a (2) the withdrawal
of the measures concerned (if they are inconsistent with the provisions of any of the
covered agreements; and finally (3) retaliation against those measures as a last resort.
3.1.1 Procedural Aspects of Dispute Settlement
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The dispute settlement procedure under the DSU is divided into four stages: (1)
Consultation; (2) the Panel Process; (3) the Appellate Process; and (4) Implementation of
a Decision.
a. Consultation Article 4.1
First, parties must attempt to resolve their disputes through consultation before entering
into the official dispute settlement system. If parties do not reach an agreement, the
complaining party may request the formation of a Panel.
b. The Panel Process Article 6.1
The DSB has the obligation of establishing the Panel at the DSB meeting following the
date that the request was made.

Stage Description Timeline

Stage 1 Bilateral consultations between the complainant and the 2 months

respondent

Stage 2 Legal examination: a panel of three legal experts approved 6-9 months
by the disputing governments

Stage 3 An appellate stage 2-3 months

Stage 4 Implementation of the rulings subject to negotia

1. Composition of the Panel

Panels consist of three individuals, who are selected by the DSB Secretariat. Parties have
the right to reject the Secretariat’s proposed panelists for compelling reasons (i.e. DSU

25
8.6). If no panel is set up within 20 after establishment of the panel, either party may request
the Director General to appoint the panelists.
Examples of panelists are well-qualified governmental officials, former Secretariats, or
trade academics or lawyers (i.e. DSU 8.1). The panelists cannot be individuals from any
of the parties to the dispute or third parties (i.e. DSU 8.3). Panelists serve in their individual
capacities, rather than as governmental or organizational representatives (i.e. DSU 8.9).
Finally, it is important to note that in disputes involving developing countries, the
developing country has the right to demand at least one panelist from another developing
country (i.e. DSU 8.10).
2. Responsibilities of the Panel Article 7
Article 11 defines more generally the responsibilities of the Panel. It provides that the
primary responsibility of the Panel is to assist the DSB in discharging its responsibilities
under the DSU. A Panel must make an “objective assessment of the matter before it,
including an objective assessment of the facts of the case and the applicability of and
conformity with the relevant covered agreements… ‘Objective assessment’ means that
both parties are treated with fundamental fairness, and are granted due process.
3.1.2 Adoption of Panel Reports
One of the fundamental weaknesses of the dispute settlement system prior to the
implementation of the DSU was its procedure for the adoption of Panel Reports. Under
the previous rules, Panel Reports had to be adopted by consensus of the GATT Council.
That meant that even the losing party to a dispute could vote to refuse to adopt a Panel
Report. This was a major weakness in what many believed to be an otherwise successful
dispute settlement system. One major consequence of this weakness was that it caused
economically powerful countries (namely the United States) to lose faith in the system.
This in turn caused these countries to take unilateral action, which undermined the rules-
based system as a whole.
With the DSU came a fundamental change in the procedure to adopt Panel Reports. Under
DSU Article 16, Panel Reports are presumed adopted unless the DSB decided by
consensus not to adopted the report. This is known as ‘reverse-consensus.’ Furthermore,
DSU 23.2(a) requires contracting members to use the dispute settlement system when
resolving disputes. These were significant changes, and have had the effect of a much more
stable and authoritative dispute settlement system, and have limited countries’ ability to
act unilaterally.
26
 C The Appellate Process
The Appellate Body consists of seven members, three of which are selected randomly to
sit for each appeal. The DSU grants parties the right to lodge an appeal under DSU 17.4.
The Appellate Body is “limited to issues of law covered in the panel report and legal
interpretations developed by the panel.” (DSU 17.6). The Appellate Body has the power
to uphold, modify, or reverse the legal findings and conclusions of the panel (i.e. DSU
17.13).
d. Implementation of a Decision
If it is determined that a complaint is justified, the Panel or Appellate Body will recommend
the offending party to withdraw the measure. If this recommendation is not
implemented within a reasonable amount of time, the injured party may seek
compensation or withdraw concession previously made to the offending party; this is
known as ‘retaliation’ (i.e. DSU 22.1).
3.1.2 GATT Article XXIII: The Substantive Aspects of Dispute Settlement
While the DSU provides the procedural rules of dispute settlement under the WTO, GATT
XIII is the principal substantive dispute settlement provision. Even though it is a GATT
article, other agreements either expressly incorporate it, or use a provision quite
similar to it.
GATT XXIII reads: Nullification of Impairment
1. If any contracting party should consider that any benefit accruing to it directly or
indirectly under the Agreement is being nullified or impaired or that the attainment of
any objective of the agreement is being impeded as the result of
(a) the failure of another contracting party to carry out its obligations under this
Agreement, or
(b) the application by another contracting party of any measure, whether or not it conflicts
with the provisions of this Agreement, or
(c) the existence of any other situation,
the contracting party may…make written representations or proposals to the other
contracting party… which it considers to be concerned.
In other words, if a member considers that XXIII:1(a),(b) or (c) have been fulfilled, it may
initiate dispute settlement proceedings.
Look closely at XXIII:1(a) and (b). Dispute settlement under the GATT can generally be
divided into two categories: ‘violation’ cases (XXIII:1(a)) and ‘non-violation’ cases
27
(XXIII:1(b)). ‘Violation’ cases are disputes where one contracting member alleges that
another is violation its obligations under the GATT (or other relevant agreement).
Interestingly in ‘non-violation’ cases, a contracting member essentially claims that another
is required to change its behavior, even though it is not violating an obligation of the GATT.
3.1Violation Cases
A contracting member that believes another contracting is acting in a manner that violates
the GATT, or any other agreement, may bring a claim under Article XXIII:1(a). Almost
all cases coming before GATT/WTO Panels have been violation cases.
In order to establish a violation case, the complaining member must establish that:
(1) A benefit is being nullified or impaired;
(2) Another member is breaching an obligation; and
(3) This breach of obligation is causing the nullification or impairment of a benefit.
A breach of an obligation was a prima facie cause of a nullification or impairment of
a benefit:
where measures are applied in conflict with the provisions of GATT and are not permitted
under the terms of the relevant protocol under which the GATT is applied by the
contracting party, the action would , prima facie, constitute a case of nullification or
impairment and would ipso facto require consideration of whether the circumstances are
serious enough to justify the authorization of suspension of concessions.
Thus, while the legal elements are distinct, in most, if not all cases, a complaining party
that establishes a breach (or ‘violation’) of a GATT obligation, has prima facie
established the other two elements. This presumption is sometimes called the ‘Uruguay
Presumption,’ and it has been incorporated into the DSU at Article 3.8. eg. United
States—Taxes on Petroleum and Certain Imported Substances.
3.2Non-Violation Cases

Complaining parties have argued that a nullification or impairment of a benefit has been
caused by a measure that does not breach an obligation under the General Agreement.
These are called Article XXIII:1(b) ‘non-violation’ cases. Such cases are extremely rare
The rationale for such claims is an obscure provision, which is rare in the law—
essentially a party attempts to change another’s domestic economic policy, even though
they have not violated any obligation.

28
The idea underlying [the provisions of Article XXIII:1(b)] is that the improved competitive
opportunities that can legitimately be expected from a tariff concession can be frustrated
not only by measures proscribed by the General Agreement but also by measures
consistent with that Agreement. In order to encourage contracting parties to make tariff
concessions they must therefore be given a right of redress when a reciprocal concession
is impaired by another contracting party as a result of the application of any measure,
whether or not it conflicts with the General Agreement.
“The Panel considered that the main value of a tariff concession is that it provides an
assurance of better market access through improved price competition. Contracting
parties negotiate tariff concessions primarily to obtain that advantage. They must
therefore be assumed to base their tariff negotiations.”
3.3.1 Standard of Review
One of the interesting questions with dispute settlement is the standard of review that is
to be applied by WTO Panels. Scattered throughout WTO rules are situations where a
national authority is called upon to make an official determination of the existence of a
certain condition, before it takes some responding action.

29
 Chapter Four
Trade in Services
Introduction
• The General Agreement on Trade in Services (GATS) is the first and only set of
multilateral rules governing international trade in services.
• It was developed in response to the huge growth of the services economy and the
greater potential for trading services brought about by the communications
revolution.
• Services represent the fastest growing sector of the global economy.
• The General Agreement on Trade in Services (GATS) was negotiated under the
Uruguay Round in the Context of single undertaking.
• It lays down rules and disciplines covering multilateral international trade in
services.
• The Agreement came into effect in 1995 and is part and parcel of the WTO
agreements.

4.1 The General Agreement on the Trade in Services (GATS)

The trade in services involves trading intangible goods. As with trading goods, the trade
in services involves producers of the service, and consumers of the service. The
international trade in services involves some international element, although this is not as
clear-cut as with the international trade of goods.

Service covers a wide range of economic activities and WTO secretariat has categorized
this into twelve sectors which are in turn are subdivided 155 sub-sectors. The twelve
sectors include the following:
 Business Services professional or non professional

 Health-Related Services

 Financial Services
 Tourism
 Recreation, Culture & Sport
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