Non‐Tariff Measures  ESTIMATED TIME: 4 hours 

OBJECTIVES OF MODULE 5

To present the multilateral negotiations on Non-Tariff Measures (NTMs) under the

auspices of the GATT.

To explain GATT disciplines on Quantitative Restrictions (QRs)

To explain GATT/WTO disciplines on Non-Tariff Measures (NTMs) resulting from the

Uruguay Round.

MODULE

5

2

MODULE 5 NON-TARIFF MEASURES ............................................................................. 1 I. INTRODUCTION............................................................................................................ 3 II. GATT NEGOTIATIONS ON NON-TARIFF MEASURES.............................................................. 4 III. QUANTITATIVE RESTRICTIONS ...................................................................................... 7

III.A. GENERAL PROHIBITION OF QUANTITATIVE RESTRICTIONS................................... 7 III.B. INTERPRETATION AND APPLICATION OF ARTICLE XI:1 OF THE GATT 1994 ........... 10 III.C. EXCEPTIONS TO THE GENERAL PROHIBITION OF QUANTITATIVE RESTRICTIONS .. 14 III.D. TARIFF QUOTAS VS. QUOTAS .......................................................................... 16 III.E. NON-DISCRIMINATORY ADMINISTRATION OF QUANTITATIVE RESTRICTIONS ....... 16

IV. OTHER NON-TARIFF BARRIERS .................................................................................... 24 IV.A. SANITARY AND PHYTOSANITARY MEASURES & TECHNICAL BARRIERS TO TRADE .. 24 IV.B. PUBLICATION AND ADMINISTRATION OF TRADE REGULATIONS .......................... 29 IV.C. FEES AND FORMALITIES CONNECTED WITH IMPORTATION AND EXPORTATION..... 30 IV.D. FREEDOM OF TRANSIT.................................................................................... 32 IV.E. CUSTOMS VALUATION .................................................................................... 34 IV.F. RULES OF ORIGIN .......................................................................................... 38 IV.G. IMPORT LICENSING PROCEDURES.................................................................... 43 IV.H. PRESHIPMENT INSPECTION............................................................................. 46 IV.I. TRADE-RELATED INVESTMENT MEASURES (TRIMS)............................................ 49

V. SUMMARY.................................................................................................................. 53

3

I. INTRODUCTION  

Besides tariffs, several non-tariff measures could also restrict or even impede market access of goods, some of

which can be legitimately introduced and maintained by WTO Members, as long as they are applied in a WTO

consistent manner.

There is no agreed definition in the WTO of what constitutes a "non-tariff measure" nor a "non-tariff barrier"

neither is there consistency in the way both terms have been used in the past. Although both terms are often

used interchangeably, the term "non-tariff measure" (NTM) has been preferred throughout this course1. While

the application of NTMs does not always restrict trade, they often result in unnecessary restrictions or undue

barriers, which explains the utilisation of the term "non-tariff barrier" (NTBs).

The type of measures covered by these terms varies significantly and includes all measures other than tariffs

which can have an impact on trade in goods. Measures covered by WTO Agreements include: quantitative

restrictions (e.g. quotas), and other NTMs (e.g. lack of transparency in trade regulation, arbitrary application of

trade regulations, customs formalities, technical barriers to trade, practices of customs valuation, etc.).

During the last GATT Rounds of negotiations, Contracting Parties made considerable efforts to eliminate NTBs

that were used solely for protectionist purposes or, in those cases where they were applied to pursue a

legitimate objective (e.g. to protect health or the environment), to minimize their trade distorting effects.

Having examined GATT/WTO negotiations and disciplines on tariffs, including those on tariff reductions and

tariff bindings in Module 3, and the procedure regarding the modification or withdrawal of tariff concessions

and other concessions in Module 4, this Module focuses on NTMs, including:

i. Negotiations on NTMs during GATT trade rounds;

ii. GATT disciplines on quantitative restrictions (QRs); and,

iii. GATT/WTO rules on non-tariff measures (NTMs).

The ongoing negotiations on non-agricultural market access (NAMA) - including both tariffs and NTBs - will be

studied in Module 6.

1 The term "non-tariff barrier" (NTB) is, nevertheless, used whenever this course cites GATT/WTO texts or

refers to specific occasions where the term NTB was originally employed.

4

II. GATT NEGOTIATIONS ON NON‐TARIFF MEASURES 

IN BRIEF 

While the GATT 1947 already contained some provisions on non-tariff measures (NTMs), it was not until the

Kennedy Round (1964 - 1967) that GATT Contracting Parties decided to go beyond tariffs and address NTMs

in the context of a multilateral round. In the following GATT Rounds (the Tokyo Round and the Uruguay

Round), NTMs remained on the agenda of negotiations and received extensive attention. The most

important achievement resulting from these negotiations and in particular from the Uruguay Round, was the

conclusion of a number of multilateral agreements, which set out specific disciplines on different types

of NTMs.

THE ʹʹKENNEDY ROUNDʹʹ  

With the progressive reduction of tariffs brought about by the early GATT Tariff Conferences, it was perceived

that governments were gradually shifting to other forms of measures to restrict market access for goods and

protect their domestic industries. GATT Contracting Parties recognized that the benefits resulting from tariff

reductions and tariff bindings would only be effective if they could not be undermined by the application of

other measures. Therefore, effective trade liberalization required that not only tariff barriers had to be

reduced, but that there was a growing necessity to agree on multilateral disciplines to address NTMs.

The Kennedy Round was the first GATT Round where NTMs were addressed as part of the multilateral

negotiations in addition to tariffs. However, the results in this Round were rather modest due to the

considerable reluctance of some negotiating parties to assume new commitments in this new field. At the end

of this Round, Contracting Parties were only able to produce an Anti-dumping Code (the 1967 International

Anti-Dumping Code), which, however, applied only to those parties which agreed to be bound by it.

Contracting Parties also made efforts to identify NTMs through an exercise of notification of the barriers they

encountered in their trade relations. The result was a non-exhaustive list including 18 categories of measures

involving issues such as escape clauses, anti-dumping, customs valuation, government procurement policies,

residual quantitative restrictions, administrative and technical regulations, subsidies, etc. On the basis of that

list, an inventory of quantitative restrictions and other non-tariff barriers (NTBs) was drawn up shortly after the

Kennedy Round.

THE ʹʹTOKYO ROUNDʹʹ  

Compared to the modest results on NTBs during the Kennedy Round, the Tokyo Round took a broader look at

trade rules and focused on addressing what was considered the most important NTBs facing exports at that

time.

The results of this round were considered to be one of the major accomplishments in trade negotiations since

the creation of the GATT. The Tokyo Round negotiations on NTMs led to:

5

the amendment of the Anti-dumping Code that had originally been negotiated during the Kennedy

Round; and,

the conclusion of new "Codes", including the Code on Customs Valuation, the Code on Import Licensing

Procedures, the Code on Government Procurement, the Code on Subsidies and Countervailing

Measures, and the Code on Technical Barriers to Trade.

Instead of providing legal disciplines applicable to all Contracting Parties, these Codes were drafted as stand-

alone agreements that obliged only those Contracting Parties that became party to them. In most cases, only

a relatively small number of GATT Contracting Parties (mainly developed countries) subscribed to these Codes.

However, the operation of the MFN principle meant that even those GATT Contracting Parties who had not

signed the Codes generally enjoyed the same benefits of the Codes as those Parties who had signed them.

This diminished the incentives for joining the Codes, creating a "free-rider" problem. 2

Furthermore, the Tokyo Round did not tackle some NTBs that impeded considerably the exports of developing

countries, such as NTBs on textiles and clothing products, consumer electronics, agricultural goods and

foodstuffs, etc.

Despite these limitations, the result of the negotiations during the Tokyo Round injected an important impetus

for the further negotiation of NTMs during the Uruguay Round.

TO KNOW MORE... THE TOKYO ROUND CODES 

Some of the most relevant codes included:

The Code on Customs Valuation

The Valuation Code established a positive system of Customs Valuation based on the price actually paid or

payable for the imported goods. It was signed by more than 40 Contracting Parties. The Code was

replaced by the WTO Agreement on Implementation of Article VII of the GATT 1994 (explained in the next

section of this Module) after the conclusion of the Uruguay Round.

Import Licensing Code

The Code was aimed at preventing import licensing procedures from unnecessarily hindering international

trade. During the Uruguay Round, it was revised to strengthen the disciplines on transparency and

notifications. The WTO Agreement on Import Licensing will be introduced later on in this Module.

2 In this context, the term "free-rider" is used to describe a situation in which a country who does not make

any trade concessions, enjoys, nonetheless from the concessions made by other countries owing to the MFN

principle. From an economic perspective, free riders do themselves harm because they deny themselves the

benefits of trade liberalization (Goode Walter, Dictionary of Trade Policy Terms (2007), Fifth Edition, p. 181).

The Code on Government Procurement, however, remained a plurilateral instrument and its benefits were not

extended to non-signatory Members.

6

TBT Code or "Standards Code"

The Standards Code laid down the rules for preparation, adoption and application of technical regulations,

standards and conformity assessment procedures. Only 32 GATT Contracting Parties signed the Code.

The WTO Agreement on Technical Barriers to Trade (TBT Agreement) – explained in the second part of

this Module - has strengthened and clarified the provisions of the Standards Code.

Anti-Dumping Code

The Anti-Dumping Code provided more guidance about the determination of dumping and of injury than

did Article VI of the GATT 1947. It also set out in detail certain procedural and due process requirements

that must be fulfilled in the conduct of investigations. Nevertheless, the Code represented only a general

framework for countries to follow in conducting investigations and imposing duties. The Code was later

replaced by the WTO Agreement on Anti-Dumping (introduced in Module 2 – see section on trade

remedies).

THE ʹʹURUGUAY ROUNDʹʹ  

One of the motivations behind the decision to launch the Uruguay Round was the GATT Contracting Parties'

awareness that NTMs were becoming increasingly important. In the Uruguay Round Ministerial Declaration,

negotiating parties set out as one of the objectives to reduce or eliminate NTBs, including quantitative

restrictions (paragraph D of the Ministerial Declaration). The Uruguay Round brought several significant

achievements on addressing NTMs, including:

the amendment of the Codes adopted during the Tokyo Round;

the conclusion of several new Agreements to deal with other forms of NTMs, including the ''Agreement

on Preshipment Inspection'', the ''Agreement on Rules of Origin'', the ''Agreement on Trade-related

Investment Measures'', the ''Agreement on the Application of Sanitary and Phytosanitary Measures'',

the ''Agreement on Textiles and Clothing'', and the ''Agreement on Safeguards''; and,

A new "Part III" was included in the Schedules of concessions to record commitments in respect of

NTMs. Eleven Members made concessions by including specific commitments on areas such as the

removal of import licensing requirements, elimination of quantitative restrictions and tendering

requirements, reform of import licensing systems, eliminate import bans and phase out tariff-rate

quotas, etc.

A major innovation of the Uruguay Round was the introduction of the principle of ''single undertaking''.

According to this principle (explained in Module 1), all Members were required to accept the Multilateral Trade

Agreements concluded during the Uruguay Round as a whole, that is, as a single package. In other words, no

Member had the possibility to opt out of some Agreements. Thus, while the Tokyo Round Codes were

applicable to signatories only, all of the Uruguay Round Multilateral Trade Agreements were binding on all WTO

Members.

EXERCISES:

1. What is the main difference between the Tokyo Round Codes and the Multilateral Trade Agreements

resulting from the Uruguay Round, besides the differences in substantive content?

7

III. QUANTITATIVE RESTRICTIONS  

IN BRIEF  

Quantitative restrictions (QRs), which are one of the best-known NTBs, can be defined as specific limits on

the quantity or value of goods that can be imported (or exported) during a specific time period. The most

common QRs are prohibitions and quotas.

As explained in Module 3, under the GATT/WTO framework, tariffs are allowed as a form of protection as

long as they do not exceed the bound levels and are applied on an MFN basis. However, Members are

generally prohibited from applying QRs. The rationale of favouring tariffs over quantitative restrictions and

other forms of NTBs is because tariffs are considered to be more transparent and less trade distorting.

Article XI:1 of the GATT 1994 provides the general elimination of quantitative restrictions and "other

measures" instituted or maintained by a Member on the importation, exportation or sale for export of

products (other than duties, taxes or other charges consistent with GATT/WTO rules).

Despite the general rule prohibiting QRs, there are exceptions which allow the imposition of QRs in certain

circumstances and subject to certain conditions. Whenever authorized under WTO rules, QRs must be

imposed on a non-discriminatory basis according to Article XIII of the GATT.

III.A. GENERAL PROHIBITION OF QUANTITATIVE RESTRICTIONS 

According to Article XI:1 of the GATT 1994, quantitative restrictions should NOT be maintained by WTO

Members. In other words, a WTO Member cannot, as a general rule, impose quantitative restrictions on the

goods imported from or exported to another Member. The only protective barriers that WTO Members can

institute or maintain are "duties, taxes or other charges" consistent with GATT/WTO rules – explained in

previous Modules. Consequently, any form of "restriction", whether "quotas, import or export charges or other

measures", is inconsistent with Article XI:1. This being said, it should also be noted that there are several

exceptions which allow Members to impose quantitative restrictions under certain circumstances and subject to

specific requirements. 3

Article XI:1 of the GATT 1994 provides:

Article XI:1 of the GATT 1994 – General Elimination of Quantitative Restrictions

1. No prohibitions or restrictions other than duties, taxes or other charges, whether made effective through

quotas, import or export licences or other measures, shall be instituted or maintained by any contracting

party on the importation of any product of the territory of any other contracting party or on the

exportation or sale for export of any product destined for the territory of any other contracting party.

3 For further information, please refer to document JOB/MA/6.

8

This Article contains the following main elements:

as a general rule, WTO Members are obliged not to institute or maintain any prohibitions or restrictions

on imports or exports at the time or point of importation or exportation;

such prohibitions or restrictions may include quotas, import or export licences as well as "other

measures", meaning the scope of this provision is very wide;

the only barriers that WTO Members are allowed to institute or maintain are "duties, taxes or other

charges" compatible with GATT rules as already discussed in previous Modules.

III.A.1. WHY PROHIBITING QUANTITATIVE RESTRICTIONS? 

It is considered that the general prohibition of quantitative restrictions in Article XI of the GATT 1994

constitutes one of the cornerstones of the GATT/WTO (Turkey – Textile, Panel Report, para. 9.63).

1  THE WELFARE EFFECTS OF QUANTITATIVE RESTRICTIONS 

A quota restricts the quantity that can be imported of a given good over a given period of time. The welfare

effects of an import quota are illustrated below. In general, the effects of an import quota are similar to the

effects of an import tariff (explained in Module 3), although there are some differences. The figure below

illustrates the welfare effects of an import quota.

THE WELFARE EFFECTS OF AN IMPORT QUOTA ON A SMALL IMPORTING COUNTRY

9

The Figure uses the demand and supply analysis to illustrate the welfare effects of an import quota of 10,000

units under condition of perfect competition. We assume that Medatia is a small importing country so that its

import quota cannot affect the world price. We also assume that Medatia's domestic industry is competitive

with or without the quota.

In the absence of the quota, consumers of Medatia would buy Do at the given world price Pw (£100) per unit.

Domestic producers would supply So, while (Do – So or 25,000 – 5000) would be imported from other

countries.

Suppose the government imposes an import quota. This prevents the domestic economy from importing as

much as before. After the imposition of the quota, the imports would be automatically limited to (D1 – S1 or

20,000 – 10,000) units. The effect of the quota is that, at existing prices, demand will exceed supply. In order

to satisfy demand, domestic suppliers would have to produce any quantity demanded in excess of the quota.

The domestic supply curve is represented in bold. A quota has the effect of shifting the supply curve to the

right by the amount of the quota whenever the price is above the world price. Since the cost of producing

these extra units is strictly higher than the costs of importing them, the domestic price will increase Pq (£120),

leading to an effect similar to the one of a tariff.

Consumers surplus: Area a+b, consumers loose c+d+e+f+h

Producer surplus: Area g+c

Deadweight loss / Net welfare loss : Area d+h

Who gains the part of consumer loss represented by area e+f? Quota Rent: area e+f

As you studied in Module 3, with a tariff, this area is collected by the government. However, in the case of a

quota, area e+f (the "rent") may be "captured" by those holding a license to import.

Who benefits from the "rent" depends on the method for allocating quota shares, unless these are auctioned

off. In other words, the welfare effects of a quota will depend on how the importing government allocates the

legal right to import.

It is worth noting that, in practice, governments might distribute the quota shares based on historical market

shares to importers, who collect the quota rents. Thus, the existence of a quota can provide incentives for

importers to engage in inefficient activities aimed at maximising their quota shares. In addition, a quota

grants discretion as to how a government allocates import licenses. As a result, quotas are considered less

transparent and might entail additional inefficiencies, which is why tariffs are commonly seen as a better

means of protection (see also section below).

Based on: World Trade Report 2009, pages 60 - 61.

10

2.  THE TRADE EFFECTS OF QUANTITATIVE RESTRICTIONS 

The trade effects of an import quota are also different from the trade effects of a tariff in the following aspects:

Import quotas are more trade-restrictive than tariffs -- while an import quota imposes an

absolute limit on imports of goods, an import tariff does not impose limitations on the quantity or value

of imports. If domestic demand increases imports increase in the case of a tariff, but not in the case of

a quota.

Import quotas are more trade-distortive than tariffs -- the imposition of a tariff on an MFN basis

would allow the source of the imports from the most efficient foreign supplier. However, in the case of

a quota, the source of the imports is dependent upon to whom the license to import is allocated, not

the most efficient foreign supplier.

The administration of an import quota is less transparent and more costly than a tariff --

who benefits from the «rent» depends on the administration of the quota licences. Moreover, in the

presence of licensing systems, administration and compliance costs can be very high.

It is more difficult to compare trade policies across countries in the case of a quota than in

the case of a tariff. Furthermore, it is more difficult to measure the trade effect of a quota than that

of a tariff.

These differences between an import quota and a tariff provide an explanation of why tariffs were preferred in

the WTO as a policy instrument of protection over quantitative restrictions. In fact, it should be noted that the

general prohibition of QRs performs a systemic function in the MTS, namely, that of preserving the value of

tariff concessions. The market access conditions achieved through GATT/WTO tariff negotiations would be

easily undermined if Member governments were free to impose restrictions or limitations on the quantity or

value of imports.

III.B. INTERPRETATION AND APPLICATION OF ARTICLE XI:1 OF THE GATT 1994 

The obligations contained in Article XI:1 have been interpreted by GATT/WTO panels and the Appellate Body in

a number of cases. The main issues that have been dealt with include the following:

III.B.1. THE SCOPE OF ARTICLE XI:1 

1.  COVERAGE OF ARTICLE XI:1  

By referring to restrictions ''made effective through quotas, imports or export licenses or other measures'',

Article XI:1 provides for a wide coverage of measures. In Japan – Trade in Semi-conductors, the GATT

Panel stated that the wording of Article XI:1 is comprehensive: it applies to all measures instituted or

maintained by a Member prohibiting or restricting the importation, exportation or sale for export of products

other than measures that take the form of duties, taxes or other charges (Japan-Trade in Semi-conductors,

GATT Panel Report, para. 104).

11

The Council for Trade in Goods, in a 1996 Decision (G/L/59, Annex), provided an illustrative list of the ways in

which QRs could be made effective. This list includes: prohibitions, prohibitions except under defined

conditions, global quota, global quota allocated by country, bilateral quota (i.e. anything less than a global

quota), automatic licensing, non-automatic licensing, QRs made effective through state-trading operations,

mixing regulation, minimum price triggering a QR, and voluntary export restraints (i.e. an agreement between

an exporting country and an importing country, where the former voluntarily limits the quantity of its exports).

Examples of Measures within the Scope of Article XI:1 of the GATT 1994

The following measures have been found to fall within the scope of Article XI:1 by GATT/WTO panels:

In Japan - Trade in Semi-conductors, the Panel found that export licensing practices by Japan,

leading to delays of up to three months in the issuing of licences for semi-conductors destined for

Contracting Parties other than the US, constituted restrictions on the exportation of such products

inconsistent with Article XI of the GATT (Japan – Trade in Semi-conductors, GATT Panel Report,

para. 118);

The Panel in US - Shrimp found that the US acted in a manner inconsistent with Article XI of the

GATT 1994 by imposing an import ban on shrimp and shrimp products harvested by vessels of

foreign nations where such exporting country had not been certified by US's authorities as using

methods not leading to the incidental killing of sea turtles above certain levels (US – Shrimp, Panel

Report, para. 7.16);

The Panel in India – Quantitative Restrictions found that India's measures, including its

discretionary import licensing system – where licences were not granted in all cases, but rather

on unspecified "merits" - , were quantitative restrictions within the meaning of Article XI:1 of the

GATT 1994 (India - Quantitative Restrictions, Panel Report, para. 5.130);

In India- Autos, the Panel found that India's trade balancing requirement, which limited the

amount of imports in relation to an export commitment, acted as a restriction on importation

within the meaning of Article XI:1 of the GATT 1994 and thus, was inconsistent with Article XI:1 of

the GATT 1994 (India – Autos, Panel Report, para. 7.278).

2.  DE JURE & DE FACTO RESTRICTIONS 

Article XI:1 of the GATT 1994 covers both de jure restrictions and de facto restrictions. A measure is

restrictive de jure when it is clear from the wording of the legal instrument. On the other hand, a measure is

restrictive de facto when, although not apparent from the wording of the legal instrument, it has in practice

effects which are similar as those stated in Article XI:1.

In Argentina - Hides and Leather, the EEC argued that Argentina's measure was inconsistent with Article XI:1

by allowing the presence of domestic tanners' representatives in the customs inspection procedures for hides

destined for export operations, and thus, imposing de facto restrictions on exports of hides. The Panel held

that there can be no doubt that the disciplines of Article XI:1 extend to restrictions of a de facto nature

(Argentina - Hides and Leather, Panel Report, para. 11.17).

12

3.  PRIVATE ACTIONS ATTRIBUTABLE TO GOVERNMENTS AND NON‐BINDING MEASURES 

Since the GATT is an international agreement among governments, only quantitative restrictions imposed by

governments are, in principle, covered by Article XI:1. However, there can be instances in which certain

private behaviours have strong ties to some governmental actions and thus, could fall into the purview of

Article XI:1 of the GATT 1994. In addition, non-mandatory measures or informal instructions issued by a

government may constitute restrictions under the purview of Article XI of the GATT 1994 if they operate in a

manner "equivalent" to mandatory measures (see box below).

Example of Private Actions attributable to Governments and Non-Binding Measures :

Japan - Trade in Semi-Conductor (GATT Panel Report)

In Japan – Trade in Semi-Conductor, the Japanese government requested Japanese producers and exporters

of semi-conductors not to export semi-conductors at prices below company-specific costs to certain third

countries to implement its Arrangement concerning Trade in Semi Conductor Products with the US.

The EEC considered that such measures constituted restrictions within the meaning of Article XI:1 of the

GATT. Japan contended that there were no governmental measures limiting the right of Japanese producers

and exporters to export semi-conductors at any price they wished. The Government's measures were not

legally binding and therefore, did not fall under Article XI:1. Thus, according to Japan, exports were limited

by private enterprises in their own self-interest and such private action was outside the purview of

Article XI:1 (Japan – Trade in Semi-Conductor, GATT Panel, para. 102).

The Panel recognized that not all non-mandatory requests could be regarded as measures within the

meaning of Article XI:1.

In this regard, it stated that in order to determine whether the measures taken in this case would be such as

to constitute a contravention of Article XI, the presence of two criteria was essential (Japan – Trade in

Semi-Conductor, GATT Panel Report, paras. 108 -109):

(i) there were reasonable grounds to believe that sufficient incentives or disincentives existed for

non-mandatory measures to take effect; and,

(ii) the operation of the measures to restrict export of semi-conductors at prices below company-

specific costs was essentially dependent on government action or intervention.

After considering various factors relating to the Japanese exporting system of semi-conductors (e.g.

statutory requirement for exporters to submit information on export prices, the systematic monitoring of

companies and product-specific costs and export prices), the Panel concluded that "an administrative

structure had been created by the Government of Japan which operated to exert maximum possible

pressure on the private sector to cease exporting at prices below company-specific costs". The Panel

considered that the complex of measures exhibited the rationale as well as the essential elements of a

formal system of export control. The only distinction in this case was the absence of formal legally binding

obligations in respect of exportation or sale for export of semi-conductors. However, the Panel concluded

that this amounted to a difference in form rather than substance because the measures were operated in a

manner equivalent to mandatory requirements. Therefore, the Panel concluded that the complex of

measures constituted a coherent system restricting the sale for export of monitored semi-conductors at

prices below company-specific costs to markets other than the US, inconsistent with Article XI.1

(Japan - Trade in Semi-Conductor, GATT Panel, para. 117).

13

4.  RESTRICTIONS MADE EFFECTIVE THROUGH ʺSTATE – TRADING OPERATIONSʺ 

Restrictions made effective through state-trading operations may also be found inconsistent with Article XI:1 of

the GATT 1994. This is made clear in the Ad Note to Articles XI, XII, XIII, XIV and XVIII, which provides that

throughout Articles XI, XII, XIII, XIV and XVIII, the terms "import restrictions" or "export restrictions" include

restrictions made effective through state-trading operations.

One should however note that the mere fact that imports are effected through state-trading enterprises would

not in itself constitute a restriction. Rather, for a restriction to be found to exist, it should be shown that the

operation of the state-trading entity is such as to result in a restriction (India – Quantitative Restrictions, Panel

Report, para. 5.134).

In Korea – Beef, the Panel found, in a ruling not reviewed by the Appellate Body, that in the special case where

a state-trading enterprise possesses an import monopoly and a distribution monopoly, any restriction it

imposes on the distribution of imported products will lead to a restriction on importation of the particular

product over which it has a monopoly. In other words, the effective control over both importation and

distribution channels by a state-trading enterprise means that the imposition of any restrictive measure,

including internal measures, will have an adverse effect on the importation of the products concerned. The Ad

Note to Article XI therefore prohibits a state-trading enterprise enjoying monopoly rights over both importation

and distribution from imposing any internal restriction against such imported products (Korea – Beef, Panel

Report, para. 751).

III.B.2. BORDER MEASURES VS. INTERNAL MEASURES 

Despite the broad coverage of Article XI:1 of the GATT, one should note that it applies to "border measures" as

opposed to "internal measures" (which are subject to the national treatment rule embodied in Article III:4 of

the GATT).

Article III:4 of the GATT 1994

4. The products of the territory of any Member imported into the territory of any other Member shall be

accorded treatment no less favourable than that accorded to like products of national origin in respect

of all laws, regulations, transportation, and requirements affecting their internal sale, offering for sale,

purchase, transportation distribution or use. The provisions of this paragraph shall not prevent the

application of differential internal transportation charges which are based exclusively on the economic

operation of the means of transport and not on the nationality of the product (...).

Nevertheless, the Ad Note to Article III of the GATT 1994 provides the possibility that a measure ''enforced or

collected in the case of an imported product at the time or point of importation'' may be treated as an internal

measure and thus governed by Article III. Thus, in practice, it may not always be easy to decide whether a

measure should be categorized as a border measure within the meaning of Article XI:1 or an internal measure

within the meaning of Article III of the GATT 1994.

In India – Autos (DS146, DS175), India argued that its trade balancing requirement (which limited the value of

imports to the value of exports) was not a border measure and thus, did not constitute restrictions on

importation within the meaning of Article XI:1. In India's view, this measure was within the scope of Article III

14

(paras. 7.218-7.219). The Panel stated that Articles III and XI of GATT 1994 have distinct scopes of

application. It concluded that ''it cannot be excluded a priori that different aspects of a measure may affect the

competitive opportunities of imports in different ways, making them fall within the scope either of Article III

(where competitive opportunities on the domestic market are affected) or of Article XI (where the opportunities

for importation itself, i.e. entering the market, are affected), or even that there may be, in perhaps exceptional

circumstances, a potential for overlap between the two provisions" (India – Autos, Panel Report,

paras. 7.223-7.224).

III.C. EXCEPTIONS TO THE GENERAL PROHIBITION OF QUANTITATIVE RESTRICTIONS 

Exceptions that allow the derogation from the general prohibition of QRs can be classified into two categories:

(i) exceptions to the general prohibition of QRs contained in Article XI:2 of the GATT 1994; and, (ii) exceptions

to the general prohibition of QRs contained in other GATT/WTO provisions.

III.C.1. EXCEPTIONS IN ARTICLE XI 

The exceptions provided for in Article XI:2 of the GATT 1994 include:

1. export prohibitions or restrictions temporarily applied to prevent or relieve critical shortage of

foodstuffs or other products essential for the exporting Member (Article XI(2)(a) of the GATT 1994);

2. import and export prohibitions or restrictions necessary to the application of standards or regulations

for the classification, grading or marketing of commodities in international trade (Article XI(2)(b) of

the GATT 1994); and,

3. import restrictions on [agricultural and]* fisheries products necessary to the enforcement of

governmental measures which operate to restrict the domestic production of certain products or to

remove a temporary surplus of certain domestic products (Article XI(2)(c) of the GATT 1994).

Thus, Article XI:2 sets special circumstances where it would be necessary for Members to derogate from the

principle of general elimination of QRs. However, it is worth pointing out that these specific exceptions were

rarely invoked.

*Note

The exception contained in Article XI:2(c) of the GATT 1994 created a quasi-general derogation for

agricultural policies and measures relating to fishery products, and constituted the essential provision which

led to the "special treatment" for agriculture before the Uruguay Round. The "agricultural exception" ended

when the WTO Agreement on Agriculture entered into force. The WTO Agreement on Agriculture superseded

Article XI:2(c) of the GATT. Article 4 of the Agreement on Agriculture provides, among other things, that

quotas must be transformed into tariffs (a process normally called "tariffication"). Consequently,

quantitative restrictions remain possible only on fishery products, which are treated as non-agricultural

products in the framework of the WTO. In those cases, the rules on non-discriminatory administration of

quantitative restrictions provided in Article XIII of the GATT 1994, explained below, also apply.

15

III.C.2. OTHER EXCEPTIONS 

Besides Article XI:2 of the GATT 1994, there are also other provisions contained in the GATT /WTO Agreements

which allow Members to derogate from the general prohibition of QRs, subject to certain requirements. You

studied them in Module 2. They include the following:

General Exceptions (Article XX of the GATT 1994);

Security Exceptions(Article XXI of the GATT 1994);

Regional Trade Agreements (Article XXIV of the GATT 1994);

Balance of Payments and temporary application of quantitative restrictions in a discriminatory manner

(Articles XII, XVIII.B and XIV of the GATT 1994);

Waivers (Article IX:3 of the Marrakesh Agreement Establishing the WTO);

Safeguard measures in the form of quotas (Article XIX of the GATT 1994 and the Agreement on

Safeguards) 4;

A number of provisions on Special and Differential Treatment, which can be found throughout the WTO

Agreements (e.g. Article XVIII:2(b) of the GATT 1994 - see also Module 2).

Exemption applicable to Textile and Clothing – No longer in force

Textiles and clothing were, until some years ago, exempted from Article XI of the GATT. Instead, they were

subject to the Agreement Regarding International Trade in Textiles (more commonly referred to as the

Multi-Fibre Arrangement, or the "MFA") (1974-1994) and a series of bilateral agreements, which were

phased-out and integrated into the GATT 1994 disciplines by the WTO Agreement on Textiles and Clothing

("ATC") (1995-2005). The ATC expired on 1 January 2005.

The MFA allowed the application of quotas under a special regime, which managed trade through quotas.

Under such regime, textile and clothing products were subject to import quotas, where importing countries

were allowed to discriminate between exporters of these products. The applicable rules were very peculiar

and included "flexibility" provisions for the use of these quotas, such as the "carry-over" (possibility to use

afterwards an unused portion of the quota), "carry-forward" (possibility to use in an anticipated manner

part of the quota from the following year) and "swing" of the quotas (possibility to exchange part of one

quota for a part in the quota of a different product).

The ATC negotiated in the Uruguay Round was aimed at gradually integrating the textiles and clothing sector

into the GATT, with the last quota being lifted on the 1 January, 2005. The expiry of the ten year transition

period of ATC implementation meant that trade in textile and clothing products is no longer subject to

quotas under a special regime outside normal GATT/WTO rules, but rather governed by the general rules

and disciplines embodied in the MTS. Accordingly, the quotas came to an end and importing countries of

textiles and clothing are no longer able to discriminate between exporters.

4 Pursuant to Article XIX of the GATT 1994 and the Agreement on Safeguards, Members may apply safeguard

measures, among others, in the form of quotas, in case of a surge of imports that causes, or threatens to

cause, serious injury to the domestic industry producing like of directly competitive products. See also

Module 2.

16

III.D. TARIFF QUOTAS VS. QUOTAS 

Under the WTO, one must distinguish between quotas and tariff quotas (also referred to as "tariff-rate quotas"

or TRQ), as the former are generally prohibited whereas the latter are a form or tariff and are, therefore,

allowed under the WTO Agreements.

A TRQ is a two-tiered tariff tied with a quantity under which, predetermined quantities of goods can be

imported at a "preferential" (i.e. lower) rate of customs duty over a given period of time ("in-quota" rate).

Once the TRQ volume has been filled, one can continue to import the product without limitations but paying a

higher tariff rate ("out-of-quota" rate). In other words, one could import any quantity of the product by paying

the out-of-quota tariff. This is different from a quota where the main feature is an absolute limit on the

volume that could be imported (i.e. imports above the prescribed quantity are prohibited, even if willing to pay

a much higher import tariff). As a result, TRQs are considered to be less trade restrictive than quotas.

While several TRQ volumes are distributed on an MFN basis, the Schedules of some Members include a "quota

allocation" element which is subject to the disciplines provided in Article XIII of the GATT 1994 (explained

below).

The Figure below gives an example of a TRQ. In this example, imports entering under the TRQ (up to 1,000

tons) have to pay a 10% tariff. Imports entering outside the TRQ (out of quota imports) have to pay a 80%

tariff.

III.E. NON‐DISCRIMINATORY ADMINISTRATION OF QUANTITATIVE RESTRICTIONS  

In cases where the use of a QR is allowed, as well as in the case of TRQs, there are requirements applicable to

their administration which are contained in Article XIII of the GATT 1994:

Article XIII: Non-discriminatory Administration of Quantitative Restrictions

1. No prohibitions or restrictions shall be applied by any Member on the importation of any product of the

territory of any other Member or on the exportation of any product destined for the territory of any

other Member, unless the importation of the like product of all third countries or the exportation of the

like product to all third countries is similarly prohibited or restricted.

17

2. In applying import restrictions to any product, contracting parties shall aim at a distribution of trade in

such product approaching as closely as possible the shares which the various contracting parties might

be expected to obtain in the absence of such restrictions and to this end shall observe the following

provisions:

(a) Wherever practicable, quotas representing the total amount of permitted imports (whether allocated

among supplying countries or not) shall be fixed, and notice given of their amount in accordance with

paragraph 3 (b) of this Article;

(b) In cases in which quotas are not practicable, the restrictions may be applied by means of import

licences or permits without a quota;

(c) Contracting parties shall not, except for purposes of operating quotas allocated in accordance with

subparagraph (d) of this paragraph, require that import licences or permits be utilized for the

importation of the product concerned from a particular country or source;

(d) In cases in which a quota is allocated among supplying countries the contracting party applying the

restrictions may seek agreement with respect to the allocation of shares in the quota with all other

contracting parties having a substantial interest in supplying the product concerned. In cases in which

this method is not reasonably practicable, the contracting party concerned shall allot to contracting

parties having a substantial interest in supplying the product shares based upon the proportions,

supplied by such contracting parties during a previous representative period, of the total quantity or

value of imports of the product, due account being taken of any special factors which may have

affected or may be affecting the trade in the product. No conditions or formalities shall be imposed

which would prevent any contracting party from utilizing fully the share of any such total quantity or

value which has been allotted to it, subject to importation being made within any prescribed period to

which the quota may relate.*

(...)

5. The provisions of this Article shall apply to any tariff quota instituted or maintained by any contracting

party, and, in so far as applicable, the principles of this Article shall also extend to export restrictions.

Article XIII:1 of the GATT 1994 sets out the basic principle of non-discrimination in the administration of

quantitative restrictions and TRQs, which is the other side of the coin of the MFN principle, studied in Module 2.

Accordingly, where authorized, QRs must be imposed on a non-discriminatory basis. That is, no import

restriction shall be applied to one Member's products unless the importation of like products from other

Members is similarly restricted. In other words, a Member may not limit the quantity of imports from some

Members, but not from others. The Member is expected to impose such restrictions in a non-discriminatory

manner.

Article XIII:2 of the GATT 1994 provides that in applying import restrictions to any product, Members shall aim

at a distribution of trade in such product approaching as closely as possible the shares which the various

Members might be expected to obtain in the absence of such restrictions. In EC - Bananas III, the Panel, in a

finding not reviewed by the Appellate Body, held that the object and purpose of Article XIII:2 is to minimize

the impact of QRs on trade flows (EC - Bananas III, Panel Report, para. 7.86 – See Case Study).

18

In this regard, Article XIII:2(d) provides for the possibility of allocating tariff quota shares to specific supplier

countries. However, according to the chapeau of Article XIII:2, the allocation of quotas between exporting

Members must aim to ensure that QRs do not distort ordinary trade flows. To ensure this, the allocation of

quotas should correspond as closely as possible to the expected market shares that would have existed in the

absence of quotas.

Article XIII:2(d) further specifies the treatment that, in case a quota is allocated among specific supplier

countries, must be given to Members with "a substantial interest in supplying the product concerned". For

those Members, the Member proposing to impose restrictions may seek their agreement as provided in

Article XIII:2(d), first sentence. If that is not reasonably practicable, then it must assign shares in the quota

(or tariff quota) to them on the basis of the criteria specified in Article XIII:2(d), second sentence.

Allocations of country-specific shares to Members not having a substantial interest in supplying the product

may be allowed, but it must meet the requirements of Article XIII:1 and the chapeau of Article XIII:2(d)

(EC - Bananas III, Panel Report, paras. 7.71-7.73).

In EC – Poultry, the Appellate Body stated that even when a TRQ is the result of compensation negotiations

under Article XXVIII (Modification of Schedules – studied in Module 4), it must be administered in a non-

discriminatory manner (EC – Poultry, Appellate Body Report, para. 100). The Appellate Body also agreed with

the Panel that TRQ shares must be calculated on the basis of "total imports", including imports coming from

non-Members (EC – Poultry, Panel Report, paras. 230-232; Appellate Body Report, para. 106).

Note

See also the section on the Agreement on Import Licensing Procedures below.

EXERCISES:

2. What are quantitative restrictions (QRs)?

3. What are the different trade effects between an import quota and an import tariff?

4. What measures may fall within the scope of Article XI:1 of the GATT 1994?

5. What is a tariff quota (TRQ) and what are the differences between a TRQ and a QR?

6. Please summarize the WTO disciplines on the administration of QRs and TRQs.

19

CASE STUDY 

CASE STUDY 1 : EC – BANANAS III

(EC - Regime for the Importation, Sale and Distribution of Bananas) (DS27)

Parties Agreements Timeline of the dispute

Establishment

of Panel

8 May 1996 Complainants Ecuador,

Guatemala,

Honduras,

Mexico, United

States (US)

Circulation of

Panel Report

22 May 1997

Circulation of

Appellate Body

Report

9 September

1997

Respondent European

Communities

(EC)

Articles I, III, X and XIII of the

GATT 1994

Articles II and XVII of the

GATS

Article 1.3 of the Agreement on

Licensing Procedures

Lomé Waiver (*)

Adoption 25 September

1997

(*) A definition of waiver is provided in Module 2.

Measure and Product at Issue 

Measures at issue: The EC' regime for the importation, distribution and sale of bananas, introduced on

1 July 1993 and established by Council Regulation 404/93 (Regulation 404/93).

Products at issue: Bananas imported from third countries.

Factual Aspects 

The EC's regime for the importation, distribution and sale of bananas established by Regulation 404/93 applied

different import regimes to three categories of imports: (i) traditional imports from twelve ACP countries;

(ii) non-traditional imports from ACP countries which are defined as both any quantities in excess of traditional

quantities supplied by traditional ACP countries and any quantities supplied by ACP countries which are not

traditional suppliers of the EC; and, (iii) imports from third (non-ACP) countries.

20

The EC applies the following tariffs to these banana imports:

EC Tariff Treatment of Banana Imports

Category of Banana Imports Source/Definition Tariffs Applied

Traditional ACP bananas Bananas within country-specific

quantitative limits totalling

857,700 tonnes established for

each of 12 ACP countries.

Duty-free.

Non-traditional ACP bananas Either ACP imports above the

traditional allocations for

traditional ACP countries or any

quantities supplied by ACP

countries which are non-

traditional suppliers.

Duty-free up to 90,000 tonnes,

divided into country-specific

allocations and an "other ACP

countries" category;

ECU 693 per tonne for

out-of-quota shipments in

1996/97.

Third-country bananas Imports from any non-ACP

source.

ECU 75 per tonne up to 2.11

million tonnes as provided in

the EC Schedule. An additional

353,000 tonnes were made

available in 1995 and 1996.

Country-specific allocations

were made for countries party

to the Framework Agreement

on Bananas (BFA), plus an

"others" category;

ECU 793 per tonne for out-of-

quota shipments in 1996/97.

See Panel Report, para. 6.7.

Summary of the key findings of the panel/appellate body related to this part of the course

1. General principle under

Article XIII:1 of the GATT 1994

Article XIII:1 sets out a basic principle of non-discrimination in

the administration of both quantitative restrictions and tariff

quotas. Article XIII:1 stipulates that the importation or

exportation of a product of a Member can only be prohibited or

restricted if the importation of the like product of all third

countries or the exportation of the like product to all third

countries is similarly prohibited or restricted (EC-Banana III,

Appellate Body Report, para. 160).

21

Summary of the key findings of the panel/appellate body related to this part of the course

2. Allocation of tariff-quotas among

Members not having a substantial

interest in supplying bananas to

the EC

The allocation to Members not having a substantial interest

must be subject to the basic principle of non discrimination.

When this principle of non-discrimination is applied to the

allocation of tariff quota shares to Members not having a

substantial interest, it is clear that a Member cannot, whether

by agreement or by assignment, allocate tariff quota shares to

some Members not having a substantial interest while not

allocating shares to other Members who likewise do not have a

substantial interest. To do so is clearly inconsistent with the

requirement in Article XIII:1 that a Member cannot restrict the

importation of any product from another Member unless the

importation of the like product from all third countries is

"similarly" restricted (EC-Banana III, Appellate Body Report,

para. 161).

The allocation of tariff quota shares, whether by agreement or

by assignment, to some, but not to other, Members not having

a substantial interest in supplying bananas to the EC is

inconsistent with the requirements of Article XIII:1 of the

GATT 1994 (EC-Banana III, Panel Report, para. 7.89;

Appellate Body Report, para. 162).

3. Tariff quota reallocation rules of

the BFA

Pursuant to the reallocation rules of the BFA, a portion of a

tariff quota share not used by the BFA country to which that

share is allocated may, at the joint request of the BFA

countries, be reallocated to the other BFA countries. These

reallocation rules allow the exclusion of banana supplying

countries, other than BFA countries, from sharing in the

unused portions of a tariff quota share. Thus, imports from

BFA countries and imports from other Members are not

"similarly" restricted (EC-Banana III, Appellate Body Report,

para. 163).

The tariff quota reallocation rules of the BFA are inconsistent

with the requirements of Article XIII:1 of the GATT 1994.

Moreover, the reallocation of unused portions of a tariff quota

share exclusively to other BFA countries, and not to other non

BFA banana-supplying Members, does not result in an

allocation of tariff quota shares which approaches "as closely

as possible the shares which the various Members might be

expected to obtain in the absence of the restrictions".

Therefore, the tariff quota reallocation rules of the BFA are

also inconsistent with the chapeau of Article XIII:2 of the

GATT 1994 (EC-Banana III, Panel Report, para. 7.70 and 7.89;

Appellate Body Report, para. 163).

22

ILLUSTRATION 

General  Prohibition  of  Quantitative  Restrictions  (QRs)  and  Non‐Discriminatory Administration  of  QRs  &  Tariff  Quotas  (TRQs)  –  Articles XI:1  and  XIII  of  the GATT 1994 

SCENARIO  

Suppose that Medatia, Vanin and Tristat are WTO Members. For many years, Medatia has been one of the

main producers and exporters of Liquid-Crystal Displays (LCDs) in the world. In 2002, Vanin and Tristat began

to produce LCDs with new designs and higher quality. Due to low labour costs, both countries have been able

to keep their costs of production relatively low.

From 2003, LCDs produced in Vanin and Tristat started to compete with those produced in Medatia in both the

world market and Medatia's local market. Thanks to cost advantage, LCD producers in Vanin and Tristat are

able to export their products to Medatia at lower prices than Medatia's domestically-made LCDs. Vanin's LCDs

accounted for two per cent (20,000 units) of all LCDs imported by Medatia in 2003 and 2004, and Tristat's

accounted for five per cent (50,000 units) of all LCDs imported by Medatia during the same period of time.

QUESTION 1 

In 2004, Medatia published Regulation 200 - 2004, which requires that one LCD be exported for each LCD

imported in a given year. According to the regulation, if the amount of exports do not exceed the volume of

imports at any time, an importer may still import LCDs, but the importer would be requested to pay a deposit

at that time to ensure that the export requirement would be met at the end of the year.

Since the regulation was published, Medatia has imported fewer LCDs due to the requirement to pay the

deposit. In particular, the volume of LCD imports in 2005 from Vanin and Tristat decreased to 10,000 units

and 30,000 units respectively. In 2006, volumes declined further to 8,000 units from Vanin and 20,000 units

from Tristat.

Both Vanin and Tristat consider that Medatia's Regulation 200 – 2004 constitute a restriction on imports of

LCDs. Vanin and Tristat have decided to seek recourse before the WTO dispute settlement system under the

DSU. They hold consultations with Medatia with a view to reach a mutually agreed solution; however no

agreement was reached among the parties. Vanin and Tristat opt to request the establishment of a WTO

panel. What would you advise Vanin and Tristat to argue before the panel?

PROPOSED ARGUMENT 

Vanin and Tristat may argue that Medatia's Regulation 200 – 2004 is inconsistent with Article XI:1 of the

GATT 1994 because it constitutes a measure that has the effect of restricting importation of LCDs. Their

argument could be as follows:

The regulation is within the scope of coverage of Article XI:1 of the GATT 1994. By referring to restrictions

made effective through quotas, import or export licences or "other measures", Article XI:1 of the GATT 1994

covers a wide range of measures (see Japan-Trade in Semi-conductors, GATT Panel Report, para. 104). In this

23

regard, they may argue that "any form of limitation imposed on, or in relation to importation constitutes a

restriction on importation within the meaning of Article XI:1 of the GATT 1994" (see India – Autos, Panel

Report, para. 7.257).

Vanin and Tristat may contend that the measure is WTO-inconsistent because it requires an importer to pay a

deposit if the one-export-per-import threshold is not maintained. It is worth noting that Article XI:1 covers not

only de jure but also de facto restrictions (see Argentina – Hides and Leather, Panel Report, para. 11.17).

When a measure that is not restrictive on its face nevertheless has similar effect in practice to those stated in

Article XI:1, the measure is de facto restrictive. Although the regulation does not impose any numerical limit

on imports of LCDs, it has the effect of restricting the importation of LCDs from Vanin and Tristat. In this

regard, the condition to pay a deposit in order to ensure that the export requirement is met at the end of the

year works to limit the amount of imports in relation to the amount of exports of LCDs by making the

importation more onerous than if the condition had not existed, thus generating a disincentive to imports (see

India – Autos, Panel Report, para. 7.264 – 7.281). Vanin and Tristat may argue that, since the promulgation

of the regulation, the imports of LCDs have decreased from 20,000 and 50,000 units to 10,000 and 30,000

units respectively.

QUESTION 2 

At the beginning of 2008, Medatia was granted a waiver by the WTO Membership under Article IX:3 of the

Agreement Establishing the WTO. The waiver allows Medatia to impose a global quota of 500,000 units per

year on the imports of LCDs for the following three years (namely from 2008 to 2010). Medatia allocates the

quota as follows: 20,000 for Vanin; 5,000 for Tristat; and, 475,000 for the rest of the supplying countries.

Tristat is unsatisfied with the allocation of the quota and has asked for your advice.

PROPOSED ARGUMENT 

Article XIII:1 sets forth the basic principle of non-discrimination in the administration of both QRs and TRQs. It

stipulates that the importation or exportation of a product of a Member can only be prohibited or restricted if

the importation of the like product of all third countries or the exportation of the like product to all third

countries is similarly prohibited or restricted (see EC-Banana III, Appellate Body Report, para. 160).

In this regard, Article XIII:2(d) provides for the possibility to allocate quota shares to specific supplier

countries. However, according to the chapeau of Article XIII:2, the allocation of quotas between exporting

Members must aim to ensure that QRs do not distort ordinary trade flows.

Tristat may argue that Medatia's allocation of the quota is inconsistent with the chapeau of Article XIII:2 of the

GATT 1994, which requires the allocation of quotas to approach ''as closely as possible the shares which the

Members might be expected to obtain in the absence of the restrictions''. According to the share of imports of

LCDs from Vanin and Tristat in 2003 and 2004, Vanin's imports accounted for five per cent, while Tristat's

accounted for two per cent of units. Under the current measure, Vanin's share of the quota is four per cent

and Tristat's share is one per cent. Therefore, Tristat may argue that it should be allocated more imports

according to the share it might be expected to obtain in the absence of the restriction.

24

IV. OTHER NON‐TARIFF BARRIERS  

IN BRIEF  

In addition to quantitative restrictions, several other non-tariff measures (NTMs) could also have the effect

of restricting market access of goods and therefore become trade barriers. Some of the measures covered

by WTO Agreements include, for example, technical barriers to trade, lack of transparency in trade

regulations, customs formalities and arbitrary practices of customs valuation. As mentioned at the

beginning of this Module, in those cases where NTMs are based on a legitimate goal (i.e. measures to

protect the environment or health), Members need to meet specific conditions set out in the WTO

Agreements to ensure the application of these measures do not result in barriers to trade.

A number of NTMs are currently subject to WTO multilateral disciplines applicable to all Members, including

inter alia the following:

Agreement on Sanitary and Phytosanitary Measures

Agreement on Technical Barriers to Trade

Article V of the GATT 1994 on Freedom of Transit

Article VII of the GATT 1994 and the Agreement on Customs Valuation

Article VIII of the GATT 1994 on Fees and Formalities connected with Importation and Exportation

Article X of the GATT on Publication and Administration of Trade Regulations;

Agreement on Rules of Origin

Agreement on Preshipment Inspection

Agreement on Import Licensing Procedures

Agreement on Trade Related Investment Measures

IV.A. SANITARY AND PHYTOSANITARY MEASURES & TECHNICAL BARRIERS TO TRADE 

Sanitary and phytosanitary measures, as well as technical regulations, standards and conformity assessment

procedures, may restrict market access for goods. Members recognize that such measures may be necessary

to serve legitimate objectives, such as to ensure food safety or to protect human, animal or plant life or health.

However, they also recognize that these measures may sometimes go beyond what is needed to protect such

objectives and be used to shield domestic producers from foreign competition. Some believe that the interest

to use such types of measures for protectionist purposes are likely to increase whenever import tariffs on

goods are reduced.

The Agreement on Sanitary and Phytosanitary Measures (SPS Agreement) and the Agreement on Technical

Barriers to Trade (TBT Agreement) aim to strike a balance between the need to have recourse to such

measures to pursue legitimate goals and the need to avoid disguised restrictions or unnecessary obstacles to

25

international trade. They explicitly recognize the right of Members to meet legitimate policy objectives, as long

as they do not create unnecessary obstacles to trade and do not unjustifiably discriminate against products

from other Members.

IV.A.1. SCOPE OF APPLICATION OF THE SPS AGREEMENT 

The SPS Agreement applies to any measure whose purpose is to protect within the territory of a Member (See

Annex A of the SPS Agreement):

(a) to protect animal or plant life or health within the territory of the Member from risks arising from the

entry, establishment or spread of pests, diseases, disease-carrying organisms or disease-causing

organisms;

(b) to protect human or animal life or health within the territory of the Member from risks arising from

additives, contaminants, toxins or disease-causing organisms in foods, beverages or feedstuffs;

(c) to protect human life or health within the territory of the Member from risks arising from diseases

carried by animals, plants or products thereof, or from the entry, establishment or spread of pests; or

(d) to prevent or limit other damage within the territory of the Member from the entry, establishment or

spread of pests.

Noteworthy to mention that for the coverage and application of the SPS Agreement what matters is not the

type of goods at stake, but rather the objective of the measure and that it directly or indirectly affects

international trade.

For the purpose of the SPS Agreement "animals" includes fish and fauna; and "plants" includes forests and wild

flora.

IV.A.2. OBJECTIVES AND MAIN DISCIPLINES OF THE SPS AGREEMENT 

The SPS Agreement recognizes Members' rights to apply any measure necessary to protect human, animal or

plant life or health from sanitary and phytosanitary risks, while minimizing any negative and unnecessary

effects on trade. Therefore, Members' rights to adopt SPS measures to achieve the level of protection they

deem appropriate are subject to certain conditions. Accordingly, Members may adopt SPS measures provided

these measures:

(i) are applied only to the extent necessary to protect human, animal or plant life or health

(Article 2.2. of the SPS Agreement);

(ii) are based on scientific principles and not maintained without sufficient scientific evidence, expect

where relevant scientific evidence is insufficient (Article 2.2 and 5.7 of the SPS Agreement); and,

(iii) do not unjustifiably or arbitrarily discriminate between Members where identical or similar

conditions prevail, including their own territory and that of other Members, and are not applied in

a manner which would constitute a disguised restriction on international trade (Article 2.3 of the

SPS Agreement).

With the view of facilitating international trade, the SPS Agreement fosters the harmonization of Members' SPS

measures by requesting that they base their measures on the international standards, guidelines and

26

recommendations elaborated by the Codex Alimentarius Commission (Codex), the World Organisation for

Animal Health (OIE) and the International Plant Protection Convention (IPPC) whenever they exist (Article 3.1

of the SPS Agreement). Notwithstanding, Members may introduce or maintain an SPS measure which results in

a higher level of protection than what would be achieved by measures based on the relevant international

standards, guidelines and recommendations. However, these measures shall only be maintained if a proper

scientific justification exists, in accordance with the provisions on risk assessment (Article 3.3 of the SPS

Agreement).

The SPS Agreement also envisions that a Member accepts an SPS measure from another Member as equivalent

to his if such measure achieves its appropriate level of sanitary or phytosanitary protection (Article 4 of the

SPS Agreement).

IV.A.3. SCOPE OF APPLICATION OF THE TBT AGREEMENT 

The TBT Agreement applies to all technical regulations, standards and conformity assessment procedures that

apply to trade in goods –i.e. to both agricultural and industrial products (Article 1.3 and Annex 1 of the TBT

Agreement). The TBT Agreement covers:

Technical regulations: which lay down product characteristics or their related processes and production

methods, with which compliance is mandatory.

Standards: which, approved by a recognized body which provide for common and repeated use, rules

guidelines or characteristics for products or related processes and production methods, with which

compliance is voluntary.

Conformity assessment procedures, which are used, directly or indirectly, to determine the fulfilment of

relevant requirements contained in technical regulation or standards (e.g. testing, verification,

inspection and certification).

The TBT Agreement does NOT cover sanitary or phytosanitary (SPS) measures as defined in Annex A of the

SPS Agreement (See Article 1.5 of the TBT Agreement).

IV.A.4. MAIN OBJECTIVES OF THE TBT AGREEMENT 

The main objective of the TBT Agreement is to ensure that technical regulations, standards and conformity

assessment procedures do not create unnecessary obstacles to international trade. For this purpose, technical

regulations shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of

the risks non-fulfilment would create. Such legitimate objectives are, inter alia: national security

requirements; the prevention of deceptive practices; protection of human health or safety, animal or plant life

or health, or the environment (Article 2.2 of the TBT Agreement). However, measures adopted to fulfil such

legitimate objectives shall comply with the provisions of the TBT Agreement, including not be applied in a

manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the

same conditions prevail or a disguised restriction on international trade (Preamble and Article 2.1 of the TBT

Agreement).

Harmonization takes place in the TBT Agreement when WTO Members base their regulations, standards or

conformity assessment procedures on the relevant international standards, guidelines or recommendations; or,

27

when a Member recognizes another Member's measure as equivalent, provided that the measure adequately

fulfils the objectives of its own regulation (Articles 2.4 and 2.7 of the TBT Agreement). Members shall use

international standards as a basis for their technical regulations except when such international standards

would be an effective or inappropriate means for the fulfilment of the legitimate objectives pursued (Article 4 of

the TBT Agreement).

IV.A.5. OTHER PROVISION CONTAINED IN THE SPS AND TBT AGREEMENT 

Both the SPS Agreement and the TBT Agreement set transparency obligations. These obligations include the

notification of proposed (draft) SPS measures, technical regulations, conformity assessment procedures, and

emergency SPS measures. Except for emergency SPS measures, Members shall allow a reasonable interval of

time between the publication of the measure and its entry into force so as to enable interested parties in other

Members to adapt to the new measure. The Agreements also provide for the publication of adopted measures

and the creation of "enquiry points" or information offices (Annex B(5) of the SPS Agreement; Articles 2.9 -

2.12 & 5.6 - 5.9 & 10 of the TBT Agreement).

The SPS Agreement and the TBT Agreement contain several provisions on special and differential treatment for

developing and LDC Members. These provision are aimed at assisting these countries with difficulties and

challenges that they may face which are related to the implementation of the Agreements (See Articles 9, 10

& 14 of the SPS Agreement; Articles 11 & 12 of the TBT Agreement).

The Committee on Sanitary and Phytosanitary Measures is the WTO body in charge of carrying out the

functions necessary to implement the provisions of the SPS Agreement. In the case of the TBT Agreement, the

Committee on Technical Barriers to Trade is the body in charge of the administration of the Agreement. Both

Committees provide a regular forum for consultations among Members on any matters relating to the operation

of each Agreement.

IV.A.6. SIMILARITIES AND DIFFERENCES BETWEEN THE SPS AGREEMENT AND THE TBT AGREEMENT 

SPS AGREEMENT TBT AGREEMENT

SIMILARITIES Requirement that a measure shall not be more trade-restrictive than necessary to

fulfil a legitimate objective (according to each Agreement, see below objectives)

Basic obligations of non-discrimination

Encourage the use of international standards in order to promote harmonization

Requirements for the advance notification of proposed measures and the creation

of information offices or "enquiry points" (transparency requirements)

Special and differential treatment for developing and least-developed country

Members

28

SPS AGREEMENT TBT AGREEMENT

SCOPE OF COVERAGE

All measures, whose purpose is to

protect human or animal life or health

from food-borne risks; human health

from animal or plant-carried diseases;

animals and plants from pests or

diseases, or disease-causing

organisms; and, Members' territories

from pests.

All technical regulations, standards

and conformity assessment

procedures that apply to trade in

goods –i.e. to all agricultural and

industrial products. Sanitary and

phytosanitary measures, as defined by

the SPS Agreement, are expressly

excluded from its scope of application.

OBJECTIVES

Exhaustive list of objectives: only be

applied to the extent necessary to

protect human, animal or plant life or

health from food-borne risks, animal

or plant-carried diseases, pests.

Non-exhaustive list of legitimate

objectives: may be applied and

maintained to fulfil a legitimate

objective, including the protection of

human health or safety, the protection

of the environment or the prevention

of deceptive practices.

DEFERENCE TO INTERNATIONAL STANDARDS

DIFFERENCES

WTO Members are obliged to use

international standards unless they

can show a specific scientific

justification based on a risk

assessment.

WTO Members have the obligation to

base their technical regulations on

international standards, unless the

relevant international standard is an

inappropriate or ineffective means to

fulfil a legitimate objective.

PRODUCTS SPS MEASURES TBT MEASURES

Fruit Regulation on treatment of imported

fruit to prevent the spread of pests

Regulation on quality, grading,

packaging and labelling of imported

fruit

Food (labelling) Regulation directly related to food

safety

Regulation on nutrition facts

Bottled Water Materials that can be used for human

health safety reasons

Requirement: no residues of

disinfectant, so water is not

contaminated

Permitted sizes to ensure standard

volume

Permitted shapes to allow stacking and

displaying

29

IF YOU WANT TO KNOW MORE ...  

For more information on the SPS Agreement and the TBT Agreement you may register in the eTraining

specialized course on "Sanitary and Phytosanitary Measures" and "Technical Barriers to Trade in the WTO"

respectively.

IV.B. PUBLICATION AND ADMINISTRATION OF TRADE REGULATIONS 

Transparency is a fundamental principle underlying the MTS. Provisions on transparency are spread across the

range of WTO Agreements. Not having timely access to the relevant regulations may constitute a barrier to

trade and favour incumbent traders over the new comers. Traders need to know what are the applicable rules

in order to be able to abide by them. Increased risks derived from the uncertainty of not having the right

information may result in a higher cost of doing business or even in their exclusion from the market.

Article X of the GATT 1994 lays down the general transparency obligation in the publication and administration

of trade regulations (introduced in Module 2). According to this Article, WTO Members are required to:

publish their trade-related laws, regulations, judicial decisions and administrative rulings of general

application and agreements affecting international trade policy in a prompt and accessible manner as to

enable governments and traders to become acquainted with them (Article X:1);

refrain from enforcing certain measures of general application (e.g. increasing duties or imposing new

or more burdensome requirements) prior to their publication (Article X:2); and,

administer the above-mentioned laws, regulations, decisions and rulings in a uniform, impartial and

reasonable manner. In this context, parties are required to institute or maintain independent tribunals

or procedures for, inter alia, the prompt review and correction of administrative action relating to

customs matters (Article X:3).

The Appellate Body in EC - Poultry stated that Article X relates to the publication and administration of laws,

regulations, judicial decisions and administrative rulings of general application, rather than the substantive

content of such measures (EC – Poultry, Appellate Body Report, para. 115).

The term ''of general application'' contained in Article X:1 has been interpreted by GATT and WTO panels, as

well as the Appellate Body. In US – Underwear, the Appellate Body agreed with the Panel that the term ''of

30

general application'' refers to any measures whose restraint "affects an unidentified number of economic

operators, including domestic and foreign producers". If for instance the restraint was addressed to a specific

company or applied to a specific shipment, it would not qualify as a measure of general application

(US - Underwear, Panel Report, para. 7.65; Appellate Body Report, p. 21). In Japan – Film, the Panel stated

that the term "general application" should extend to "administrative rulings in individual cases where such

rulings establish or revise principles or criteria applicable in future cases" (Japan – Film, Panel Report,

para. 10.388).

IV.C. FEES AND FORMALITIES CONNECTED WITH IMPORTATION AND EXPORTATION  

Besides import and export duties and taxes within the purview of Article III of the GATT 1994, there are other

fees and charges imposed on or in connection with importation or exportation. Imports and exports are also

subject to formalities and documentation requirements imposed by the government of the importing/exporting

country. The aim of Article VIII of the GATT 1994 is to prevent the use of fees and formalities as a form

of NTB.

IV.C.1. THE OBJECTIVE AND SCOPE OF ARTICLE VIII OF THE GATT 1994 

The objective of Article VIII is to discipline the types of fees and charges imposed by a Member on its imports

or exports. It also recognizes the need to reduce the number and complexity of import and export related fees

and formalities. In order to lower transaction costs for traders, fees and formalities should not be applied in a

manner which would restrict the flow of goods across borders.

Article VIII of the GATT 1994 applies to all fees and charges of whatever character imposed on or in connection

with importation or exportation, except for: (i) import and export duties regulated by Article II; and,

(ii) internal taxes within the scope of Article III of the GATT 1994 (Article VIII:1(a) of the GATT 1994). Thus,

Article VIII applies to a residual category of fees and charges. It also applies to import and export formalities

and requirements. An illustrative list of such fees and formalities is provided in Article VIII:4, including those

related to: (a) consular transactions, such as consular invoices and certificates; (b) quantitative restrictions;

(c) licensing; (d) exchange control; (e) statistical services; (f) documents, documentation and certification;

(g) analysis and inspection; and, (h) quarantine, sanitation and fumigation.

Examples of Fees and Charges and Import-related Formalities under the Scope of Article VIII of

the GATT 1994

Typical fees and charges that would fall within the scope of Article VIII include license fees, document fees,

stamp fees and inspection fees. Examples of import-related formalities that would fall within the scope of

Article VIII include requirements relating to the documentation needed for import and to the procedures to

be followed for customs clearance.

31

IV.C.2. MAIN DISCIPLINES OF ARTICLE VIII 

Article VIII includes specific obligations applicable to fees and charges, and to the penalties that may be

imposed for breaches of customs procedures. It also recognizes the need to reduce the number and the

complexity of import and export-related fees and formalities. It provides the following:

fees and charges shall be limited in amount to the approximate cost of services rendered and shall not

represent an indirect protection to domestic products or a taxation of imports or exports for fiscal

purposes (Article VIII:1(a));

recognizes the need for reducing the number and diversity of fees and charges (Article VIII:1(b));

recognizes the need for minimizing the incidence and complexity of import and export formalities and

for decreasing and simplifying import and export documentation requirements (Article VIII:1(c));

requires Members to review the operation of their laws and regulations, upon request by another

Member (Article VIII:2); and,

prohibits the imposition of "substantial" penalties for minor breaches of customs regulations or

procedural requirements - e.g. omission or mistake in customs documentation which is easily

rectifiable - (Article VIII:3).

IV.C.3. INTERPRETATION OF ARTICLE VIII:1(A) 

Article VIII:1(a) contains the principal legal obligations imposed under Article VIII of the GATT 1994.

According to this provision, all fees and charges under the purview of Article VIII:

1. shall be "limited in amount to the approximate cost of services rendered"; and,

2. shall "not represent an indirect protection to domestic products or a taxation of imports or exports for

fiscal purposes".

In US - Customs User Fee, the Panel stated that the phrase "services rendered" can be understood to refer to

government regulatory activities performed in connection with the importation and customs entry processes,

such as the processing and clearing of documents and goods, and inspections (US - Customs User Fee, GATT

Panel Report, para. 76 – 77). The Panel also noted that, in determining whether fees are limited in amount to

the cost of services, "revenues must be measured against the costs of the period in which the revenues are

collected" (US - Customs User Fee, GATT Panel Report, para. 111).

In examining the consistency of ad valorem customs merchandise processing fees with no upper limits with

Article VIII, the Panel in US - Customs User Fee concluded that the term "cost of services rendered" in

Article VIII:1(a) must be interpreted to refer to the cost of the customs processing for the individual entry in

question and accordingly, that the ad valorem fee was inconsistent with Article VIII:1(a) "to the extent that it

caused fees to be levied in excess of such cost" (US – Customs User Fee, GATT Panel Report, paras. 86). In

another dispute, Argentina – Textiles and Apparel, the Panel stated that an unlimited ad valorem charge on

imported goods violates the provisions of Article VIII because such a charge cannot be related to the cost of

the service rendered. For example, high-price items necessarily will bear a greater tax burden than low-price

goods, even if the service accorded to both is essentially the same (Argentina – Textiles and Apparel, Panel

Report, para. 6.75).

32

TO KNOW MORE... RELATIONSHIP BETWEEN ARTICLE VIII AND ARTICLE II (SCHEDULE OF CONCESSIONS) OF THE GATT 1994: US ‐ CUSTOMS USER FEE (GATT PANEL REPORT) 

The relationship between Article VIII:1 and Article II was considered in US – Customs User Fee.

According to that Panel, Article II:2 authorizes governments to impose three types of non-tariff charges

above the tariff-binding ceiling, including "fees or other charges commensurate with the cost of services

rendered" (Article II:2(c)). In the view of the Panel, no difference in meaning was intended between the

exception in Article II:2(c) and the phrase "fees and charges … limited in amount to the approximate cost

of services rendered" in Article VIII:1(a).

IV.D. FREEDOM OF TRANSIT 

Article V of the GATT 1994 addresses freedom of transit. It regulates the conditions a Member may impose on

goods transported through its territory by another Member to foreign destinations. The basic objective is to

allow for freedom of transit through the territory of each Member for transport to or from the territory of other

Members.

IV.D.1.  SCOPE AND PROVISIONS CONTAINED IN ARTICLE V OF THE GATT 1994 

Article V of the GATT 1994 provides two main obligations:

(i) not to hinder traffic in transit by imposing unnecessary delays or restrictions or by imposing

unreasonable charges; and,

(ii) to accord MFN treatment to transiting goods of all Members.

Article V covers only goods (including baggage), vessels and other means of transport, which are considered

goods in transit within the meaning of Article V:1. The coverage of Article V extends to the assembly and

disassembly of vehicles and mobile machinery, if solely undertaken for convenience of transport. It does not

include however, transport of persons nor grazing livestock. The provisions of Article V shall not apply to the

operation of aircraft in transit, but shall apply to air transit of goods - including baggage - (paragraph 7).

Article V states the following:

Freedom of transit- it requires each Member to allow free movement through its territory for traffic in

transit to or from the territory of another Member (paragraph 2). Such transit shall be granted "via the

routes most convenient for international transit" (the duty to grant freedom of transit does not extend

to all routes).

Right of every Member to require traffic in transit through its territory to enter at the proper custom

house (paragraph 3).

Traffic coming from or passing through the territory of another Member "shall not be subject to any

unnecessary delays or restrictions", except in cases of failure to comply with applicable customs laws

and regulations. Furthermore, this traffic "shall be exempted from customs duties and from all transit

duties or other charges imposed in respect of transit", except for charges for transportation or those

commensurate with administrative expenses entailed by transit or with the cost of services rendered

33

(paragraph 3). Such charges and regulations shall be "reasonable", having regard to the conditions of

the traffic (paragraph 4)5.

MFN treatment to traffic in transit with respect to all charges, regulations and formalities in connection

with transit (paragraph 5). With regard to transportation charges, the principle laid down in

paragraph 5 refers to like products being transported on the same route under like conditions (Ad note

to Article V).

Each Member shall treat products, which have been in transit through the territory of another Member,

no less favourably than products transported from their place of origin to their destination without

going through the territory of such other Member. The report of the Technical Sub-Committee (U.N.

Doc. E/PC/T/C.II/54/Rev.1, p.11) held that while paragraphs 2 – 5 of Article V cover the treatment to

be given by a Member to products in transit through its territory between any other Member and a

third country, paragraph 6 covers the treatment to be given by a Member to products cleared from

customs within its territory after transit through any other Member.

Articles V, VIII and X of the GATT 1994 and the Doha Negotiations on Trade Facilitation

In July 2004, WTO Members formally agreed to launch negotiations on trade facilitation on the basis of

modalities contained in Annex D of the so-called “July 2004 Framework”. Under this mandate, Members are

directed to, among others, clarify and improve the following Articles of the GATT 1994: Article V (Freedom of

Transit), Article VIII (Fees and Formalities connected with Importation and Exportation), and Article X

(Publication and Administration of Trade Regulations) – explained above. To date, Members have submitted

several proposals which provide the basis for the on-going negotiations. The negotiations should be

completed under the overall Doha Development Agenda (DDA) timeline.

For more information on the Doha negotiations on trade facilitation, please refer to the WTO website on

trade facilitation at: http://www.wto.org/english/tratop_e/tradfa_e/tradfa_e.htm. You may also find WTO

briefings on trade facilitation negotiations at: http://www.swisslearn.org/wto/module6/e/start.htm.

EXERCISES:

7. Please summarize the main similarities and differences between the SPS Agreement and the TBT

Agreement.

8. What are the main disciplines on fees and formalities imposed on importation and exportation as set out

in Article VIII of the GATT 1994?

9. Why is Article X of the GATT 1994 important in ensuring open trade?

5 The word "charges" includes charges for transportation by Government-owned railroads or Government-

owned modes of transportation.

34

IV.E. CUSTOMS VALUATION 

IN BRIEF 

For importers, the process of estimating the value of a product at customs presents problems that can result

in barriers to trade just as serious as the actual duty rate charged. Customs valuation is the procedure

applied to determine the customs value of imported goods when the rate of duty is ad valorem. In this case,

the customs value is essential to determine the duty to be paid on an imported good. The value of tariff

bindings in ad valorem form would be seriously compromised if governments were free to determine the

value of imported goods through whatever method they wanted. The Agreement on Customs Valuation (CV)

aims for a fair, uniform and neutral system for the valuation of goods for customs purposes — a system that

conforms to commercial realities, and which outlaws the use of arbitrary or fictitious customs values.

IV.E.1. WHY AN AGREEMENT ON CUSTOMS VALUATION? 

The Agreement on Customs Valuation is relevant for tariffs which are in ad valorem form, or which have an ad

valorem component (including mixed and compound tariffs) (see Module 3).

In case of a specific duty, the customs value of a good does not need to be determined for purposes of levying

the import tariff, as the duty is not based on the value of the good but on a quantitative description of the

good (e.g. US$ 1 per item or per unit). In this case, no rules on customs valuation are needed.

In the case of ad valorem duties, the value of the good is crucial in determining the amount that needs to be

paid in monetary terms. The amount to be paid on an imported good is normally calculated as follows: the

customs valuation is multiplied by an ad valorem rate of duty (e.g. five per cent). For more information on the

different kinds of tariffs, see Module 3 -Types of Tariffs).

The need for multilateral disciplines on customs valuation can be attributed to the following two reasons:

Customs valuation can constitute serious obstacles to market access for goods - since the applied tariff

rate is dependent upon the value of a good, the rules applicable to the determination of the value of a

good in customs presents problems that can be just as serious as the actual duty rate to be applied.

Access to the importing Member's market can be denied if the duty payable at customs is inflated

because the imported goods are overvalued by the customs authorities. Furthermore, the lack of

uniformity on customs valuation rules would incur additional transaction costs on importation.

For example:

If a good is valued at $15, the amount payable would be $15 * 5 / 100 = $0.75. But if the same good

is valued at $30, the amount payable would be $30 * 5 / 100 = $1.50. This is the reason why

importers have an incentive to try to undervalue the price of the good (i.e. to pay less), while customs

authorities have an incentive to overvalue it (i.e. to be paid more).

35

Customs valuation can undermine the value of tariff concessions – the outcome of tariff negotiations

would be seriously undermined if the importing countries are allowed to adopt valuation rules and

methodology arbitrarily and discretionarily. In other words, the arbitrary adoption of valuation rules

could constitute a NTB, which would diminish or even take away the worth of tariff concessions. This

would frustrate the predictability and security achieved through the bindings.

IV.E.2. HISTORICAL BACKGROUND 

Before the conclusion of the Agreement on Customs Valuation during the Uruguay Round, Article VII of the

GATT laid down the general principles for an international system of valuation. It stipulated that the value for

customs purposes of imported merchandise should be based on the actual value of the imported merchandise

on which the duty is assessed, or of like merchandise, and should not be based on the value of merchandise of

national origin or on arbitrary or fictitious values. This provision left room for considerably different methods of

valuing goods and for arbitrary protectionist procedures.

The Tokyo Round Valuation Code concluded in 1979, established a new system of Customs Valuation that

would reflect commercial realities as closely as possible. However, as a stand-alone agreement, the Tokyo

Round Valuation Code was applicable only to those Contracting Parties that had signed and ratified it. This

Code was re-examined during the Uruguay Round and replaced by the multilateral Agreement on

Implementation of Article VII (Agreement on Customs Valuation), which applies to all WTO Members.

IV.E.3. MAIN DISCIPLINES ON CUSTOMS VALUATION 

Unlike the Code, the Uruguay Round Agreement on Customs Valuation is binding on all WTO Members. The

Agreement on Customs Valuation aims for a fair, uniform and neutral system for the valuation of goods for

customs purposes, that is, a system that conforms to commercial realities and outlaws the use of arbitrary or

fictitious customs values. It provides a set of valuation rules, expanding and giving greater precision to the

provisions on customs valuation in the GATT.

The Agreement provides that customs valuation shall, except in specified circumstances, be based on the price

paid or to be paid, as agreed between the buyer and the seller, of the goods to be valued. This price is

generally shown in the invoice. For cases where the transaction value cannot be determined or is not accepted

by customs authorities as customs value, the Agreement lays down five other methods of customs valuation.

METHODS OF CUSTOMS VALUATION

Method 1 – Transaction Value (main method)

Method 2 -Transaction Value of Identical Goods

Method 3 – Transaction Value of Similar Goods

Method 4 – Deductive Method

Method 5 – Computed Method

Method 6 – Fall Back Method

36

1.  BASIC PRINCIPLE – METHOD 1 (TRANSACTION VALUE) 

The transaction value is the first and most important method of valuation referred in the Agreement. The

"transaction value" is defined in Article 1 as the price actually paid or payable for the goods when sold for

export to the country of importation, adjusted in accordance with Article 8 which provides, inter alia,

adjustment when certain specific elements are incurred by the buyer but are not included in the price.

According to the Interpretative Note to Article 1, the price actually paid or payable is the total payment made

or to be made by the buyer to or for the benefit of the seller for the imported goods. It includes all payments

made as a condition of sale of the imported goods by the buyer to the seller, or by the buyer to a third party to

satisfy the obligation of the seller. The payment need not necessarily take the form of money, it may be made

directly or indirectly. An example of indirect payment would be the settlement by the buyer, whether in whole

or in part, of a debt owed by the seller.

The customs value is the transaction value if all of the following conditions have been fulfilled:

There must be evidence of a sale for export to the country of importation (i.e. commercial invoices,

contracts, purchase orders, etc.).

There must be no restriction on the disposition or use of the goods by the buyer, other than restrictions

which: (i) are imposed or required by law in the country of importation; (ii) are limited to the

geographic area in which the goods may be resold; (iii) do not substantially affect the value of the

goods.

The sale or price must not be subject to conditions or considerations for which a value cannot be

determined with respect to the goods being valued. Some examples are provided in the Interpretative

Note to Article 1:1(b).

No part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer will accrue

directly or indirectly to the seller, unless adjustment can be made in accordance with provisions in

Article 8.

Sufficient information is available to enable the specific adjustments to be made under Article 8 to the

price paid or payable.

The buyer and seller are not related (the definition of related persons is found in Article 15), but even if

so, the use of the transaction value is acceptable if the importer demonstrates that the relationship did

not influence the price, or the transaction value closely approximates a test value.

As mentioned above, customs valuation based on the transaction value method is mainly based on

documentary input from the importer. Article 17 of the Agreement on Customs Valuation confirms that

customs administrations have the right to request further information in cases where they have reasons to

doubt the accuracy of the declared value of imported goods. The "Decision Regarding Cases where Customs

Administrations have Reasons to Doubt the Truth or Accuracy of the Declared Value" spells out the procedures

to be observed in such cases. In this regard, customs may ask the importer to provide further explanation that

the declared value represents the total amount actually paid or payable for the imported goods, adjusted in

accordance with Article 8. If the reasonable doubt still exists after reception of further information (or in

absence of a response), customs may decide that the value cannot be determined according to the transaction

value method. Before a final decision is taken, customs authorities must communicate their reasoning to the

importer, who, in turn, must be given reasonable time to respond. In addition, the reasoning of the final

decision must be communicated to the importer in writing.

37

2.  OTHER METHODS  

For cases in which there is no transaction value (e.g. there is no sale or an invoice), or where the transaction

value is not acceptable as the customs value because the price has been distorted as a result of certain

conditions – specified in Article 1 of the Agreement-, the Agreement lays down five other methods of customs

valuation, to be applied in the prescribed hierarchical order:

Method 2 -Transaction Value of Identical Goods (Article 2): the customs value is determined on

the basis of the transaction value of previously imported identical goods if the goods are: (i) the same

in all respects including physical characteristics, quality, and reputation; (ii) produced in the same

country as the goods being valued; and, (iii) produced by the producer of the goods being valued. For

this method to be used, the goods must be sold for export to the same country of importation as the

goods being valued. The goods must also be exported at or about the same time as the goods being

valued.

Method 3 – Transaction Value of Similar Goods (Article 3): the customs value is determined on the

basis of the transaction value of previously imported similar goods if: (i) gods closely resembling the

goods being valued in terms of component materials and characteristics; (ii) goods which are capable

of performing the same functions and are commercially interchangeable with the goods being valued;

and, (iii) goods which are produced in the same country as and by the producer of the goods being

valued. Similarly to method 2, for method 3 to be used, the goods must be sold to the same country of

importation as the goods being valued. The goods also must be exported at or about the same time as

the goods being valued.

Method 4 – Deductive Value (Article 5): the customs value is determined on the basis of the unit

price at which the imported goods or identical or similar goods are sold to an unrelated buyer in the

greatest aggregate quantity in the country of importation minus certain deductions. According to the

Interpretative Note to Article 4, "the unit price at which ... goods are sold in the greatest aggregate

quantity" means the price at which the greatest number of units is sold to unrelated persons at the first

commercial level after importation at which such sales take place (the Interpretative Note provides

some examples). The buyer and the seller in the importing country must not be related and the sale

must take place at or about the time of importation of the goods being valued. If no sale took place at

or about the time of importation, it is permitted to use sales up to 90 days after importation of the

goods being valued.

Method 5 – Computed Value (Article 6): the customs value is determined on the basis of the cost of

production of the goods being valued (value of the materials and fabrication), plus an amount for profit

and general expenses usually reflected in sales from the country of exportation to the country of

importation of goods of the same class or kind. Computed value is the sum of the following elements:

(i) production cost (value of materials and fabrication); (ii) profit and general expenses; and, (iii) other

expenses to be added. The sequence of methods 4 and 5 can be switched at the request of the

importer (not however at the discretion of the customs officer).

Method 6 – Fall Back Method (Article 7): when the customs value cannot be determined under any

of the previous methods, it may be determined using reasonable means consistent with the principles

and general provisions of the Agreement and of Article VII of GATT, and on the basis of data available

in the country of importation. To the greatest extent possible, this method should be based on

previously determined values and methods with a reasonable degree of flexibility in their application.

38

3.  SPECIAL & DIFFERENTIAL TREATMENT AND OTHER PROVISIONS 

The Agreement on Customs Valuation recognizes the particular difficulties and challenges that developing

country Members may face in the implementation of the Agreement and thus, contains provisions for special

and differential treatment of developing countries and for technical assistance (see Article 20 and Annex 3 of

the Agreement).

Longer Implementation Periods: developing country Members (which were not party to the Tokyo

Round Code) were allowed to delay application of the provisions of the Agreement for 5 years from the

date on which the developing country became a member of the WTO (Article 20.1). An extension of

the five-year period is also allowed based on request from such developing country Members, which

must show good cause (Annex III:1).

Technical Assistance (TA) from developed country Members: under Article 20.3 developed

country Members shall furnish, on mutually agreed terms, technical assistance to developing country

Members that so request. On this basis, developed country Members shall draw up TA programmes

which may include, inter alia, training of personnel, assistance in preparing implementation measures,

access to sources of information regarding customs valuation methodology and advice on the

application of the provisions of the Agreement.

The Agreement on Customs Valuation also allowed developing country Members to make reservations to some

provisions of the Agreement (which would not be applicable to them) as well as to request special application

of certain provisions.

Note

The Committee on Customs Valuation of the Council for Trade in Goods (CTG) is the body in the WTO in

charge of monitoring the implementation of the Agreement on Customs Valuation. The Agreement also

establishes a Technical Committee on Customs Valuation under the auspices of the World Customs

Organization (WCO), which is responsible for technical questions concerning the Agreement.

IV.F. RULES OF ORIGIN 

IN BRIEF 

Rules of origin concern the criteria used to determine the country of origin of an imported product. They are

important because the specific applicable duties and restrictions may depend upon the actual source of

imports. Furthermore, many of the provisions in the GATT 1994 apply to the extent a product "originating"

in a Member is affected. Take the following example.

Assume the production of pianos experienced the following process. All raw materials (e.g. striking steel

strings and soundboards) were from Country A and then were further processed in Country B.

Subsequently, all of the processed components were shipped to County C for final assembling, before been

exported to Country D. Suppose Country D applies different tariff rates to imports from Countries A, B and

39

C (Countries A is not a WTO Member, B benefits from preferential treatment and C is a WTO Member

subject to MFN import rates). The applicable tariff rate will be dependent upon the determination of the

origin of the pianos. How should Country D decide which country the pianos come from? How Country D

should determine whether the imported pianos shall receive MFN treatment or not?

The rules for determining the origin of imported goods may constitute obstacles to trade or make trade

unpredictable because of their overly restrictive nature, because of their wide variation and complexity

across countries, or simply because some countries do not have comprehensive non-preferential rules of

origin. Furthermore, depending upon how rules or origin are designed, they can have a significant impact on

investment and trade flows. They can also raise the administrative costs to firms of doing business

(including complying with paperwork requirements) and they also generate administrative and surveillance

costs for national customs authorities.

The Agreement on Rules of Origin aims at the harmonization of non-preferential rules of origins and at

ensuring that such rules do not themselves create unnecessary barriers to trade.

Note

The Agreement established a Committee on Rules of Origin within the framework of the WTO, which meets

at least once a year to review the implementation and operation of the Agreement. A Technical Committee

on Rules of Origin was also created under the auspices of the World Customs Organization.

IV.F.1. WHY AN AGREEMENT ON RULES OF ORIGIN? 

“Rules of origin” are the criteria used to define where a product was made. They are an essential part of trade

rules because a number of policies discriminate between exporting countries: quotas, preferential tariffs,

anti-dumping actions, countervailing duty (charged to counter export subsidies), and more. Rules of origin are

also used to compile trade statistics, and for “made in ...” labels that are attached to products. This is

complicated by globalization and the way a product can be processed in several countries before it is ready for

the market.

In spite of their importance as a vehicle for the application of trade rules, rules of origin may also be misused

as a means of protection and discriminatory treatment to similar goods. In fact, the lack of non-preferential

rules of origin or their complexity increases trading costs. Moreover, overly restrictive rules may also impose

unreasonable requirements which are difficult or impossible to comply with, making preferential market access

more difficult. Finally, the disparity in the rules applied by different countries may also result in the

discriminatory and unfair treatment of similar goods.

The determination origin of an imported product is not always simple and straightforward. Many traded

products include materials or components from more than one country, or are products that underwent

processing in several countries. Rules of origin are applied to determine the country of origin of an imported

good in such situations. Their importance is derived from the fact that duties and restrictions in several cases

depend upon the source of imports.

40

Rules of origin are used:

to determine whether imported products shall receive MFN treatment or not;

to determine which countries are entitled to import quotas (which may have been filled for some

supplying countries, but not for others);

to implement instruments of commercial policy such as anti-dumping and safeguard measures;

for the application of origin marking;

for trade statistics;

for government procurement; and,

for other non-preferential commercial policy instruments in which rules of origin are used.

The WTO Agreements do no prescribe a single method for the determination of origin to be applied by all WTO

Members. There is in fact wide variation in the practice of governments with regard to the rules of origin. In a

globalizing world it has become even more important that a degree of harmonization is achieved in these

practices of Members.

Before the Uruguay Round, there were no specific rules concerning the determination of the country of origin of

goods in international commerce. Each GATT Contracting Party was free to apply its own origin rules, and

could even maintain several different rules of origin depending on the purpose of the particular regulation.

The GATT Contracting Parties gradually realized that the diversity of rules of origin applied by each Party

resulted in uncertainty and misuse of these rules. The increased number of disputes concerning origin and the

realisation about the importance of rules of origin as potential barriers led to the adoption of the Agreement on

Rules of Origin by all Members during the Uruguay Round. The Agreement mandates WTO Members to

negotiate a single set of rules of origin to be applied under non-preferential trading conditions by all Members

in all circumstances (the ''Harmonization Work Programme'' (HWP)). Pending the conclusion of discussions for

such a harmonisation, the Agreement enumerates general principles which Members must consider when

designing and implementing their transitional rules of origin.

IV.F.2. SCOPE OF COVERAGE AND MAIN DISCIPLINES 

The Agreement on Rules of Origin aims for single ("harmonized") non-preferential rules of origin among all

Members, and to ensure that such rules do not themselves create unnecessary obstacles to trade.

Article 1 of the Agreement on Rules of Origin defines rules of origin as those laws, regulations and

administrative determinations of general application applied to determine the country of origin of goods

provided such rules of origin are not related to the granting of tariff preferences. Therefore, the Agreement

covers rules of origin used in non-preferential commercial policy instruments, such as MFN treatment, anti-

dumping, countervailing and safeguard measures, origin marking requirements and any discriminatory

quantitative restrictions (allowed as exceptions and in accordance to WTO rules) or tariff quotas, as well as

those used for trade statistics and government procurement.

The objective of harmonization does not cover rules of origin applied by Members to determine whether goods

qualify for preferential treatment under contractual or autonomous trade regimes leading to the granting of

tariff preferences going beyond the application of Article I:1 of the GATT 1994. For example, Members setting

41

up a free trade area are allowed to use different rules of origin for products traded under their free trade

agreement. These preferential rules of origin are subject however, to separate principles governing their use

(see Annex II of the Agreement on Rules of Origin – Common Declaration with Regard to Rules of Origin).

The multilateral disciplines on rules of origin as set out in the Agreement are two folds: 1. general obligations

to be applied during the transitional period, i.e. before the conclusion of the ''Harmonization Work Programme''

(HWP); and 2. disciplines after the entry into force of the HWP.

1  DISCIPLINES DURING THE TRANSITIONAL PERIOD  

Until the harmonized program is completed, Members are required to ensure that national rules of origin:

i. are clearly defined, i.e. are transparent, including the specifications related to the substantial

transformation test (see box below);

ii. are not used as a trade policy instrument;

iii. do not themselves create restrictive, distorting or disruptive effects on international trade and do not

require the fulfilment of conditions not related to manufacturing or processing of the product in

question;

iv. applied to trade are not more stringent than those applied to determine whether a good is domestic,

and do not discriminate between Members (the MFN principle). However, with respect to rules of

origin applied for government procurement, Members are not obliged to assume additional

obligations other than those already assumed under the GATT 1994 (the national treatment

exception for government procurement contained in Article III:8);

v. are administered in a consistent, uniform, impartial and reasonable manner;

vi. rules of origin are based on a positive standard (i.e. state what does confer origin, rather than what

does not). Negative standards are permissible either as part of a clarification of a positive standard

or in individual cases where a positive determination of origin is not necessary;

vii. are published promptly (laws, regulations, judicial decisions and administrative rulings relating to

rules of origin), and, assessments of origin are issued, upon request of an exporter with a justifiable

cause, as soon as possible but no later than 150 days after such request (such assessments shall

remain valid for three years);

viii. new rules of origin or modifications thereof do not apply retroactively;

ix. are subject to prompt revision - in case of administrative action in relation to the determination of

origin - by judicial, arbitral or administrative tribunals or procedures independent of the authority

issuing the determination; and,

x. confidential information is not disclosed without the specific permission of the person providing such

information, except to the extent that this may be required in the context of judicial proceedings.

Methods for Determining Origin – Substantial Transformation Test

While not being a requirement of the WTO Agreement on RoO, most customs administrations confer origin to

imported goods according the country where the last substantial transformation of that good has been

carried out. The following criterions are used to decide what a substantial transformation is:

42

Change of tariff classification: criterion attributes origin to a country if the product was sufficiently

changed as to move its customs classification from one tariff line to another. Members using this

criterion must clearly specify the subheadings or headings within the tariff nomenclature that are

addressed by the rule.

Ad valorem percentage: measures how much value was added to the product in that particular

country. The method for calculating the ad valorem percentage shall be specified; and,

Manufacturing or processing operation: origin depends on specific technical processes that can be

considered as an essential part in the production of the product. The operation that confers origin on

the good concerned shall be precisely specified.

2.  DISCIPLINES AFTER THE TRANSITIONAL PERIOD 

As from the conclusion of the HWP, a single set of rules of origin will apply under non-preferential trading

conditions by all Members in all circumstances. The principles explained above (including transparency,

non-discrimination and independent review of administrative actions concerning determination of origin) will

continue to apply after the conclusion of the HWP (Article 3 of the Agreement on Rules of Origin).

3.  HARMONIZATION 

The programme of negotiations between Members mandated by the Agreement began in July 1995 and was to

end three years later. Negotiations, however, are still going on. It is being conducted by the Committee on

Rules of Origin in the WTO and a Technical Committee under the auspices of the WCO. The negotiating texts

are contained in documents G/RO/45 -series and the consolidated text is contained in document

G/RO/W/111/Rev.5. The results of the harmonization programme are to be approved by the Ministerial

Conference and they then become an annex to the Agreement.

TO KNOW MORE... THE ʹʹHARMONIZATION WORK PROGRAMMEʹʹ (HWP) 

As from the conclusion of the HWP, non-preferential rules of origin will be harmonized and Members will

be bound to apply an agreed set of rules of origin for all purposes covered by Article 1 of the Agreement.

In this regard, a country to be determined as the origin of a particular good is either the country where

the good has been wholly obtained or, when more than one country is concerned in the production of the

good, the country where the last substantial transformation has been carried out (Article 3(a)).

As explained above, the work is being conducted both in the WTO Committee on Rules of Origin (CRO) in

Geneva and in the WCO Technical Committee (TCRO) in Brussels. The TCRO is to work, on a product

sector basis of the HS nomenclature, on the following matters:

DEFINITIONS OF GOODS BEING WHOLLY OBTAINED

The objective of the Work Programme is to provide harmonized definitions of the goods that are to be

considered as being wholly obtained in one country, as well as of the minimal operations or processes

that do not by themselves confer origin to a good.

43

LAST SUBSTANTIAL TRANSFORMATION

CHANGE OF TARIFF HEADING

The Work Programme aims at elaborating, based on the criteria of substantial transformation, on the use

of the change of tariff classification when developing harmonized rules of origin for particular products or

sectors, including the minimum change within the nomenclature that meets this criterion.

SUPPLEMENTARY CRITERIA

The Work Programme should elaborate supplementary criteria, on the basis of the criterion of substantial

transformation, in a manner supplementary or exclusive of other requirements, such as ad valorem

percentages (with the indication of its method of calculation) or processing operations (with the precise

specification of the operation).

The CRO considers the input of the TCRO with the aim of endorsing the TCRO's interpretations and

opinions, and, if necessary, refining or elaborating on the work of the TCRO and/or developing new

approaches. Upon completion of all the work in the TCRO, the CRO is to consider the results in terms of

their overall coherence (Article 9.3).

IV.G. IMPORT LICENSING PROCEDURES 

IN BRIEF 

Import licensing can be defined as administrative procedures requiring the submission of an application

or other documentation (other than those required for customs purposes) to the relevant administrative

body as a prior condition for importation of goods.

The Agreement on Import Licensing Procedures establishes disciplines on users of import licensing systems

with the principal objective of ensuring that procedures applied for granting import licences do not in

themselves restrict trade. It aims to simplify, clarify and minimize the administrative requirements

necessary to obtain import licences.

Accordingly, Members shall ensure that the administrative procedures used to implement import licensing

procedures are in conformity with the relevant GATT provisions, with a view to preventing trade distortions

that may arise from their inappropriate operation, taking into account the economic development purposes

and financial needs of developing country Members.

IV.G.1. WHY AN AGREEMENT ON IMPORT LICENSING PROCEDURES? 

The Agreement on Import Licensing Procedures aims at ensuring that the procedures applied for granting

import licensing do not constitute unnecessary barriers to trade in goods.

44

The disciplines contained in the Agreement include publication and notification of import licensing procedures,

fair and equitable application and administration, simplification of procedures, as well as the provision that

foreign exchange necessary to pay for licensed imports shall be made available to licence holders on the same

basis as to importers of goods not requiring import licences. It also provides time limits for processing licence

applications, publication of information concerning licensing procedures and notification.

In addition, the Agreement establishes the Committee on Import Licensing which meets as necessary to afford

Members the opportunity to consult on any matters related to the operation of the Agreement or the

furtherance of its objectives; and, to seek clarification on import licensing procedures maintained by other

Members and/or on the notifications submitted.

The Agreement on Import Licensing is binding on all WTO Members.

IV.G.2. MAIN DISCIPLINES 

The WTO Agreement on Import Licensing Procedures aims to simplify and bring transparency to such

procedures; to ensure their fair and equitable application and administration; and, to prevent restrictive or

distortive effects on imports derived from the application of these procedures. The Agreement also contains

specific provisions applicable to both automatic and non-automatic import licensing procedures, as well as

transparency provisions.

1.  GENERAL PROVISIONS 

Definition: import licensing is defined as administrative procedures (those referred to as "licensing" as

well as other similar administrative procedures) requiring the submission of an application or other

decumentation (other than that required for customs purposes) to the relevant administrative body

as a prior condition for importation into the customs territory of the importing Member

(Article 1.1).

Neutral application, fair and equitable administration: Members shall apply import licensing procedures

neutrally and administer them in a fair and equitable manner (Article 1.3). Applications shall not be

refused for minor documentation errors in respect of omissions or mistakes in documentation or

procedures made without fraudulent intent or gross negligence; no penalties greater than necessary to

serve as a warning shall be imposed (Article 1.7). Upon importation, licensed goods shall not be

refused for minor variations in value, quantity or weight from the amount designated on the licence due

to incidental differences during shipment or for other minor differences consistent with normal

commercial practices (Article 1.8).

Transparency provisions: (i) publication of rules and procedures - rules and all information concerning

procedures for the submission of applications, including the eligibility of applicants, the administrative

bodies to be approached and the lists of products subject to import licensing shall be published,

whenever practicable, 21 days prior to the effective date of the requirement but, in all events, not later

than such effective date (Article 1.4(a) and/or 8.2(b)); (ii) institution and/or changes – notification of

import licensing procedures or changes therein shall include information, such as: the list of products,

administrative bodies for applications, indication of the type of import licensing procedure (automatic or

non-automatic), the administrative purpose or the measure being implemented through the licensing

procedure (depending on the type of licensing procedure) and its expected duration (Article 5);

45

(iii) annual questionnaire - Members shall complete the annual questionnaire (Annex to G/LIC/3) before

30 September each year describing each licensing system, identifying the purpose and coverage, the

procedures, eligibility of applicants, and the documentation and other requirements to apply for a

licence (see also Article 7.3).

Simple forms and procedures: applications forms and renewal forms shall be simple (Article 1.5).

Applicants shall be allowed reasonable period of time to submit their applications and, where there is a

closing date for their submission, this period should be at least 21 days. The number of administrative

bodies which an applicant has to approach in connection with an application shall not exceed three

(Article 1.6).

2.  SPECIFIC PROVISIONS 

The Agreement refers to two types of import licensing procedures:

2.1 AUTOMATIC IMPORT LICENSING

Automatic import licensing procedures are defined in Article 2.1 as import licensing where approval of the

application is granted in all cases. The administrative purpose is generally to collect statistical and other

factual information on imports. They shall not be administered in such a manner as to have restricting effects

on imports. Therefore: (i) any person fulfilling the legal requirements should be equally eligible to apply for

and obtain import licences (non-discrimination); and, (ii) the application shall be approved immediately on

receipt when feasible or within a maximum of 10 working days (Article 2.2 (a)).

2.2. NON-AUTOMATIC IMPORT LICENSING

Non-automatic import licensing procedures are defined in Article 3.1 as import licensing not falling within the

definition of automatic import licensing. They are used, among other policy objectives, to administer

quantitative restriction (QR) and tariff quotas (TRQs) justified within the WTO legal framework (explained in the

previous section of this Module).

Non-automatic import licensing procedures must not have restrictive or distortive effects on imports, additional

to those caused by the imposition of the restriction and shall correspond in scope and duration to the measure

they are used to implement (Article 3.2). These procedures are also subject, among others, to the following

conditions: (i) Members shall publish sufficient information for other Members and traders concerning the

granting and allocation of licences (Article 3.3) and in the case of Members administering quotas, they shall

publish the overall amount of quotas to be applied by quantity and/or value, the opening and closing dates of

quotas and any change thereof within the time periods specified in the Agreement (Article 5(a)(b));

(ii) applications are subject to the non-discrimination principle (Article 3.5(e)); (iii) the period for processing

applications shall not be longer than 30 days if applications are considered upon receipt (first-come first-served

basis), or no longer than 60 days when considered simultaneously (Article 3.5(f)); and, (iv) the period of

validity shall be reasonable and shall not preclude imports from distant sources (Article 3.5(g)).

46

Note

As mentioned above, the Committee on Import Licensing, established under Article 4 of the Agreement,

meets as necessary to afford Members the opportunity to consult on any matters related to the operation of

the Agreement or the furtherance of its objectives, and to seek clarification on import licensing procedures

maintained by other Members and/or on the notifications submitted.

The Agreement on Import Licensing Procedures contains four provisions dealing with transparency:

Articles 1.4(a); 8.2(b); 5 and 7.3. In accordance to these, there are three types of notifications under the

Agreement: Type 1 notifications, which are circulated in the document symbol series G/LIC/N/1/Country

Code and consecutive number, and which refer to notifications submitted by Members under Articles 1.4(a)

and/or 8.2(b); Type 2 notifications, which are circulated in document symbol series G/LIC/N/2/Country

Code and consecutive number, and which refer to notifications submitted under Article 5; and, Type 3

notifications, which are circulated in document symbol series G/LIC/N/3/Country Code and consecutive

number, and which refer to the responses to the Annual Questionnaire under Article 7.3 of the Agreement.

IV.H. PRESHIPMENT INSPECTION 

IN BRIEF 

Preshipment inspection (PSI) is the practice of verifying shipment details (essentially price, quantity and

quality), at the point of exportation, of goods to be shipped overseas. The verification is carried out by

private entities hired by importing governments for this purpose.

Preshipment inspection companies are mostly used by developing countries and economies in transition to

verify quantity and quality, as well as to prevent capital flight, commercial fraud and customs duty evasion

(by ensuring that the value of imports is not under or over declared). They also serve to compensate for

inadequacies in administrative infrastructure.

The Preamble of the Agreement on Preshipment Inspection recognizes the need of some developing country

Members to make use of PSI for as long and in so far as it is necessary to verify the quality, quantity or

price of imported goods. It also recognizes the need for such programmes to be carried out without giving

rise to unnecessary delays or unequal treatment. Similar emphasis is laid on the objective of transparency

of the operation of PSI entities and of laws and regulations relating to PSI.

IV.H.1. WHY AN AGREEMENT ON PSI? 

Since the second half of last century, private-sector buyers and sellers have resorted to PSI to ensure that the

quantity and quality of the goods to be traded conform to the specifications of the sales contract. However,

government-contracted, comprehensive PSI service is a recent phenomenon, with the first of such contracts

47

signed only in the 1960s. Some 35 governments in Asia, Africa and Latin America currently use the services of

PSI companies.

In general, PSI companies have mainly two functions:

(i) conformity of goods with the terms of the sales contract - To ensure the conformity of the

goods with the terms of the sales contract or invoice, which usually requires a physical inspection

of the goods; and,

(ii) verification of invoice price - To verify that the declared invoice price is not fraudulent, i.e. to

verify that there has been no under- or over-invoicing. The main objective is to prevent capital

flight which takes place through over-invoicing and/or to ensure that there is no loss in customs

revenue as a result of undervaluation or miss-classification of the good.

A number of subsidiary services might also be provided by a PSI company and include, inter alia, the

verification of origin of the product, maintenance of data for statistical purposes, technical assistance and

training.

Before the Uruguay Round and the adoption of the Agreement on Preshipment Inspection, there were no

specific multilateral disciplines on PSI. The Preamble of the Agreement recognizes the need for developing

countries to have recourse to PSI as long and in so far as it is necessary to verify the quality, quantity or price

of imported goods. It also recognizes the need for the programmes to be carried out without giving rise to

unnecessary delays or unequal treatment. Equal emphasis is laid on the objective of transparency of the

operation of PSI entities and of laws and regulations relating to PSI.

IV.H.2. SCOPE OF COVERAGE AND DISCIPLINES 

The Agreement on Preshipment Inspection defines PSI activities as all activities relating to the verification of

the quality, the quantity, the price, including currency exchange rate and financial terms, and/or the customs

classification of goods to be exported to the territory of the user Member (Article 1.3). The Agreement applies

to all PSI activities carried out on the territory of Members (i.e. in the country of export prior to exportation)

whether such activities are contracted or mandated by the government (as opposed to contracts by

commercial firms), or any government body, of a Member (Article 1.1). There is no obligation for a WTO

Member to use PSI or to allow a government entity of another country to operate in its territory (Footnote 1 of

the Agreement).

The Agreement sets out obligations on the "user Member" (i.e. those using the services of PSI entities) and on

exporter Members. However, most provisions of the Agreement contain obligations for user Members. The

Agreement also establishes an independent review procedure to resolve disputes between an exporter and a

PSI agency.

1.  OBLIGATIONS ON USER  MEMBERS 

The obligation of PSI-user Members include:

non-discrimination – PSI activities shall be carried out in a non-discriminatory manner and the

procedures and criteria employed in the conduct of these activities shall be objective and applied on an

equal basis to all exporters affected by such activities (Article 2.1);

48

governmental requirements – respect the provisions of Article III:4 of the GATT 1994 (national

treatment principle applicable to internal laws, regulations and requirements related to internal sale,

transportation, distribution or use) to the extent these are relevant (Article 2.2);

site of inspection – PSI shall tale place in the customs territory from which the goods are exporter or, if

that is not possible, the customs territory in which the goods are manufactured (Article 2.3);

standards – quantity and quality inspections are performed in accordance with the standards defined by

the seller and the buyer in the sales contract – in the absence of such standards, relevant international

standards apply (Article 2.4);

transparency – PSI activities shall be conducted in a transparent manner. Among others, Members

shall ensure that, when initially contacted by exporters, PSI entities provide to the exporters a list of all

the information which is necessary for the exporters to comply with inspection requirements. Members

shall also publish promptly all applicable laws and regulations relating to PSI (Articles 2.5 - 2.8);

avoid unreasonable delay – ensure that PSI entities avoid unreasonable delays in inspection of

shipments. In this regard, the Agreement prescribes some time-limits (Articles 2.15 - 2.19);

protection of confidential business information – ensure that PSI entities treat all information received

in the course of the PSI as business confidential in so far as such information is not already published,

generally available to third parties, or otherwise in the public domain. In addition, user Members shall

ensure that PSI entities do not request exporters to provide information on, among others,

manufacturing data related to patented, licensed or undisclosed processes, internal pricing and profit

levels (Articles 2.9 - 2.13);

price verification – PSI shall conduct price verification, in order to prevent over and under – invoicing

and fraud, according to the guidelines contained in the Agreement (Article 2.20).

2.  OBLIGATIONS ON EXPORTING MEMBERS 

The obligation of exporter Members include: (i) non-discrimination in the application of domestic laws and

regulations relating to PSI (Article 3.1); (ii) prompt publication of those laws and regulations (Article 3.2); and,

(iii) offer to provide technical assistance to user Members, if requested (Article 3.3).

3.  INDEPENDENT REVIEW PROCEDURE 

The Agreement provides for an independent review procedure to resolve disputes between an exporter and a

PSI agency (Article 4). The Independent Entity (IE) was established for this purpose through a Decision by the

WTO General Council on 13 December 1995 as a subsidiary body of the Council for Trade in Goods

(WT/L/125/Rev.1). It is administered by the WTO and is constituted by the International Federation of

Inspection Agencies (IFIA), representing PSI agencies, and the International Chamber of Commerce (ICC),

representing exporters. The independent review procedure under the Agreement on PSI , conducted by the IE,

is unprecedented in WTO terms, because both parties to the dispute are private entities. The obligation on

governments under the Independent Review Procedures is to take "such reasonable measures as may be

available to them to ensure fulfilment of the provisions and objectives'' (G/PSI/WP/W/1). Finally, it is worth

pointing out the right of Members to bring to the WTO dispute settlement system a matter which has already

been the subject to the independent review procedure. As of 2010, two cases have been brought before the IE.

The results of these two cases are contained in WTO documents G/PSI/IE/R/1 and G/PSI/IE/R/2.

49

IV.I. TRADE‐RELATED INVESTMENT MEASURES (TRIMS) 

IN BRIEF 

Prior to the Uruguay Round negotiations, the linkage between trade and investment received little attention in

the framework of the GATT. The Agreement on Trade-Related Investment Measures (TRIMS), resulting from

the Uruguay Round, recognizes that certain investment measures may cause restrictive and distorting effects

on international trade in goods.

The TRIMS Agreement aims at the expansion and progressive liberalization of world trade and the facilitation

of investment across international frontiers so as to increase the economic growth of all trading partners,

particularly developing country Members, while ensuring free competition.

The TRIMS Agreement sets out rules on certain investment measures that have a distorting effect on trade

in goods. In particular, the TRIMS Agreement provides that such trade-related investment measures are

subject to Article III (National Treatment) and Article XI (General Elimination of Quantitative Restrictions) of

the GATT 1994. The TRIMS Agreement does NOT deal with investment as such.

IV.I.1. HISTORICAL BACKGROUND 

The Charter for the International Trade Organization (ITO Charter), contained provisions on the treatment of

foreign investment as part of a chapter on economic development. As you studied in Module 1, the ITO

Charter was never ratified and only its provisions on commercial policy were incorporated into the GATT.

Probably, the most significant development with respect to investment before the Uruguay Round was a ruling

by a panel in a disputes settlement procedure - Canada — Administration of the Foreign Investment Review Act

(FIRA) (see box below).

The mandate of the Uruguay Round included the elaboration of provisions to avoid trade-restrictive and trade-

distorting effects of investment measures. The emphasis placed in this mandate on trade effects made it clear

that the negotiations were not intended to deal with the regulation of investment as such. Due to the

disagreement among participants, the negotiations were limited to an interpretation and clarification of the

application to TRIMS of GATT provisions on national treatment for imported goods (Article III) and on

quantitative restrictions on imports or exports (Article XI).

IV.I.2. SCOPE AND MAIN DISCIPLINES 

The disciplines of the TRIMs Agreement focus on discriminatory treatment of imported and exported products

and do not govern the issue of entry and treatment of foreign investment. For example, a local content

requirement imposed in a non-discriminatory manner on domestic and foreign enterprises is inconsistent with

the TRIMs Agreement because it involves discriminatory treatment of imported products in favour of domestic

products. The fact that there is no discrimination between domestic and foreign investors in the imposition of

the requirement is irrelevant under the TRIMs Agreement.

50

The coverage of the Agreement is defined in Article 1, which states that the Agreement applies to investment

measures related to trade in goods only (Article 1). The main obligation set out in the TRIMS Agreement is

that Members shall NOT apply any TRIM that is inconsistent with the provisions of Article III (national

treatment of imported products) or Article XI (General elimination of quantitative restrictions on imports or

exports) of the GATT 1994 (Article 2.1).

Although the term "trade-related investment measures" ("TRIMs") is not defined in the Agreement, it contains in

an Annex an Illustrative List of measures that are inconsistent with Article III:4 (paragraph 1) or Article XI:1

(paragraph 2) of the GATT 1994.

1.  TRIMS INCONSISTENT WITH ARTICLE III:4 OF GATT 1994 

TRIMS identified in paragraph 1 of the Illustrative List as being inconsistent with Article III:4 concern the

purchase or use of products by an enterprise. In this regard, paragraph 1(a) of the Illustrative List covers TRIMs

which require the purchase or use by an enterprise of products of domestic origin or domestic source (local

content requirements), while paragraph 1(b) covers trade-balancing TRIMs which limit the purchase or use of

imported products by an enterprise to an amount related to the volume or value of local products that it exports.

Both the local content TRIMS and the trade-balancing TRIMS result in less favourable treatment to imported

products than that accorded to domestic products.

2.  TRIMS INCONSISTENT WITH THE GENERAL ELIMINATION OF QUANTITATIVE 

RESTRICTIONS OF ARTICLE XI:1 OF GATT 1994 

TRIMS identified in paragraph 2 of the Illustrative List as being inconsistent with Article XI:1 of GATT 1994

concern the importation or exportation of products by an enterprise.

Paragraph 2(a) of the Illustrative List covers measures which limit the importation by an enterprise of products

used in its local production in general terms or to an amount related to the volume or value of local production

exported by the enterprise (trade-balancing QRs on importation). There is a conceptual similarity between this

paragraph and paragraph 1(b) in that they both cover trade-balancing measures. The difference is that

paragraph 1(b) deals with internal measures affecting the purchase or use of products after they have been

imported, while paragraph 2(a) deals with border measures affecting the importation of products.

Measures identified in paragraph 2(b) of the Illustrative List involve a restriction of imports in the form of a

foreign exchange balancing requirement, whereby the ability to import products used in or related to local

production is limited by restricting the enterprise's access to foreign exchange to an amount related to the

foreign exchange inflows attributable to the enterprise.

Paragraph 2(c) covers measures involving restrictions on the exportation of or sale for export by an enterprise,

whether specified in terms of particular products, volume or value of products or in terms of a proportion of

volume or value of its local production (trade-balancing QRs on exportation). Since paragraph 2 applies the

provisions of Article XI:1 of GATT 1994, it deals only with measures that restrict exports. Other measures

relating to exports, such as export incentives and export performance requirements, are therefore not covered

by the TRIMs Agreement.

51

3.  OTHER PROVISIONS 

Members are also required to notify to the Council for Trade in Goods (CTG) any TRIMs that are not in

conformity with the Agreement (Article 5.1). Article 5.2 provides that these notified WTO-inconsistent TRIMs

are to be phased out in accordance with the transitional period (until 1 January 1997 for developed country

Members; 1 January 2000 for developing country Members and 1 January 2002 for least-developed country

Members). These transitional periods may be extended (upon request made to the CTG) in the case of a

developing country or LDC Members which demonstrates particular difficulties in implementing the provisions

of the TRIMS Agreement (Article 5.3).

Article 3 of the TRIMs Agreement provides that all exceptions under the GATT 1994 shall apply, as appropriate,

to the provisions of the TRIMs Agreement (i.e. the general exceptions provided in Article XX of the GATT).

Trade-related Investment Measures (TRIMS)... Uruguay Round and beyond

Article 9 of the TRIMS Agreement stipulates that, not later than five years after the date of entry into force

of the Agreement, the CTG shall review the operation of the Agreement.

The TRIMs Agreement was included in the Doha Round of negotiations as part of the

''Implementation-Related Issues and Concerns'' (Paragraph 6 of the Ministerial ''Decision on

Implementation-related Issues and Concerns'' (WT/MIN(01)/17)).

The WTO Ministerial Conference held in Singapore in 1996, established working groups on trade and

investment and on trade and competition "having regard to the existing WTO provisions on matters related

to investment and competition policy and the built-in agenda in these areas, including under the TRIMs

Agreement". However, as explained in Module 1, all Singapore issues (including investment), except for

trade facilitation, have been dropped from the negotiation table by a General Council decision of

1 August 2004.

TO KNOW MORE... GATT DISPUTE RELATED TO TRIMS – BEFORE THE URUGUAY ROUND AND THE TRIMS AGREEMENT: CANADA — ADMINISTRATION OF THE FOREIGN INVESTMENT REVIEW ACT (FIRA) 

In Canada — Administration of the Foreign Investment Review Act (FIRA), a GATT dispute settlement Panel

considered a complaint by the United States regarding certain types of undertakings, which were required

from foreign investors by the Canadian authorities as conditions for the approval of investment projects.

These undertakings pertained to the purchase of certain products from domestic sources (local content

requirements) and to the export of a certain amount or percentage of output (export performance

requirements).

The Panel concluded that the local content requirements were inconsistent with the national treatment

obligation of Article III:4 of the GATT 1947 but that the export performance requirements were not

inconsistent with GATT obligations. The Panel emphasized that at issue in the dispute before it was the

consistency with the GATT of specific trade-related measures taken by Canada under its foreign investment

legislation and not Canada's right to regulate foreign investment per se.

52

The Panel decision in the FIRA case was significant because it confirmed that existing obligations under the

GATT were applicable to performance requirements imposed by governments in an investment context in

so far as such requirements involve trade-distorting measures. At the same time, the Panel's conclusion

that export performance requirements were not covered by the GATT also underscored the limited scope of

existing GATT disciplines with respect to such trade-related performance requirements.

EXERCISES:

10. Why disciplining customs valuation is important for trade in goods?

11. What is the main purpose of the Agreement on Rules of Origin?

12. Explain the objective of the Agreement on Import Licensing Procedures and list the general disciplines

contained in it.

53

V. SUMMARY 

Besides tariffs, various forms of non-tariff measures (NTMs) could also restrict or even impede market

access of goods, some of which can be legitimately introduced and maintained by WTO Members, as long as

they are applied in a WTO consistent manner.

There is no definition of "non-tariff measure" nor of "non-tariff barrier", neither is there consistency in the

way both terms have been used in the past. While the application of NTMs does not always restrict trade,

they often result in unnecessary restrictions or undue barriers, which explains the utilisation of the term

"non-tariff barrier" (NTBs) The type of measures covered by the these terms varies significantly and

includes all measures other than tariffs which have an impact on trade in goods.

The early GATT Rounds of negotiations focused mainly on tariffs. With the progressive reduction of tariffs

brought about by the early GATT Rounds, it was perceived that governments were gradually shifting to other

forms of measures to restrict market access for goods and protect their domestic industries. The Kennedy

Round was the first Round of negotiations where NTMs were addressed as part of the multilateral

negotiations in addition to tariffs. The negotiations on NTMs continued in the following GATT Rounds (the

Tokyo Round and the Uruguay Round). The most important achievement was the conclusion of a number of

Multilateral Agreements at the end of the Uruguay Round, which set out specific disciplines on different

forms of NTMs. These disciplines provide to eliminate non-tariff barriers (NTBs) used solely for protectionist

purposes and, in those cases where NTMs are applied to pursue a legitimate objective (e.g. to protect health

or the environment), to minimize their trade distorting effects.

One of the best-known forms of NTBs are quantitative restrictions (QRs), which can be defined as specific

limits on the quantity or value of goods that can be imported –or exported- during a specific time period

(e.g. a prohibition or a quota). According to Article XI:1 of the GATT 1994, quantitative restrictions on

imports or exports should not be maintained by WTO Members at the time or point of importations. Thus,

under the WTO framework, while tariffs are allowed as a form of protection as long as they do not exceed

the bound levels and are applied on an MFN basis, QRs are generally prohibited because they are considered

less transparent and more trade distorting. Deviations from the general prohibition of QRs are allowed

under specific conditions. Whenever QRs are permitted as an exception, QRs must be imposed on a

non-discriminatory basis according to Article XIII of the GATT 1994. These requirements apply equally to

the administration of tariff quotas which constitute a form of tariff and thus, are allowed under WTO rules.

In addition to QRs, several other NTMs could also have the effect of restricting market access of goods.

Some of the measures covered by the WTO Agreements include, for example, technical barriers to trade,

arbitrary and non-transparent trade regulations, excessive fees and complex formalities imposed on

importation (or exportation), restrictive rules of origin, customs formalities, arbitrary customs valuation rules

and non-transparent import licensing procedures. In general, the multilateral disciplines, as set out in

various WTO Agreements contained in Annex 1A of the Agreement Establishing the WTO, require WTO

Members to ensure non-discrimination and transparency in the course of the application and administration

of these measures so that they would not constitute unnecessary barriers to international trade in goods. In

addition, some of them are intended to harmonize Members' practice in particular fields of international

trade so as to reduce transaction costs as well as to eliminate arbitrary and unreasonable practices (i.e. the

Agreement on Customs Valuation and the Agreement on Rules of Origin). Others promote harmonization by

encouraging Members to use international standards. (i.e. the SPS Agreement and the TBT Agreement).

54

In addition, the SPS Agreement puts special emphasis on science, requiring SPS measures to be based on

scientific principles and not to be maintained without sufficient scientific evidence.

The reduction or elimination of NTBs affecting trade in non-agricultural goods is an integral part of the

objectives of the ongoing Doha Round of Negotiations, equally important as the reduction of tariffs

(paragraph 16 of the Doha Ministerial Declaration). The Doha negotiations on NTBs will be introduced in

Module 6.

55

PROPOSED ANSWERS:

1. Compared to the Tokyo Round, a major change in the Uruguay Round was the introduction of the

principle of ''single undertaking''. According to this principle, all Members were required to accept the

Multilateral Trade Agreements concluded during the Uruguay Round as a whole (as a single package): no

Member had the possibility to opt out of some Agreements. Thus, while the Tokyo Round Codes were

applicable to signatories only, the Uruguay Round Multilateral Trade Agreements are binding on all WTO

Members.

2. Quantitative restrictions (QRs) can be defined as specific limits on the quantity or value of goods that can

be imported (or exported) during a specific period, such as a prohibition or a quota. Under the

GATT/WTO framework, while tariffs are allowed as a form of protection, as long as they do not exceed the

scheduled bound levels and are applied on an MFN basis, Members are generally prohibited from applying

QRs because they impose absolute limits on imports (while tariffs do not).

3. The trade effects between an import quota and an import tariff are different in the following aspects:

Import quotas are more trade-restrictive than tariffs -- while an import quota imposes an

absolute limit on imports of goods, an import tariff does not. If domestic demand increases,

imports increase in the case of a tariff, but not in the case of a quota;

Import quotas are more trade-distortive than tariffs -- the imposition of a tariff on an MFN basis

would allow the source of the imports from the most efficient foreign supplier. However, in the

case of a quota, the source of the imports is dependent upon the allocation of import licenses,

not the efficiency of foreign suppliers;

The administration of an import quota is less transparent and more costly than a tariff -- who

benefits from the «rent» depends on the administration of the quota licences. Moreover, in the

presence of licensing systems, administration and compliance costs can be very high; and,

It is more difficult to compare trade policies across countries in the case of a quota than in the

case of a tariff. Furthermore, it is more difficult to measure the trade effects of a quota than of a

tariff.

4. By referring to restrictions ''made effective through quotas, imports or export licenses or other

measures'', Article XI:1 provides for a wide coverage of measures. In principle, it applies to all measures

instituted or maintained by a Member prohibiting or restricting the importation, exportation or sale for

export of products other than "duties, taxes or other charges".

The Council for Trade in Goods, in a 1996 Decision (G/L/59, Annex), provided an illustrative list of the

ways in which QRs could be made effective. This list includes: prohibitions, prohibitions except under

defined conditions, global quota, global quota allocated by country, bilateral quota (i.e. anything less than

a global quota), automatic licensing, non-automatic licensing, QRs made effective through state-trading

operations, mixing regulation, minimum price triggering a QR, and voluntary export restraints (i.e. an

agreement between an exporting country and an importing country, where the former voluntarily limits

the quantity of its exports).

5. Under the WTO, one must distinguish between quotas and TRQs, as the former are generally prohibited

whereas the latter are a form of tariff and therefore, allowed under the WTO Agreements. A TRQ is a

two-tiered tariff tied with a quantity under which, predetermined quantities of goods can be imported at a

"preferential" (i.e. lower) rate of customs duty over a given period of time ("in-quota" rate). Once the

TRQ volume has been filled, one can continue to import the product without limitations but paying a

56

higher tariff rate ("out-of-quota" rate). In other words, one could import any quantity of the product by

paying the out-of-quota tariff. This is different from a quota where the main feature is an absolute limit

on the volume that could be imported (i.e. imports above the prescribed quantity are prohibited, even if

willing to pay a much higher import tariff). As a result, TRQs are considered to be less trade restrictive

than quotas.

6. Article XIII:1 sets out the basic principle of non-discrimination in the administration of both QRs and

TRQs, which is another expression of the MFN principle. Accordingly, where authorized, QRs must be

imposed on a non-discriminatory basis, that is, no import restrictions shall be applied to one Member's

products unless the importation of like products from other Members is similarly restricted. In other

words, a Member may not limit the quantity of imports from some Members but not from others. The

Member is expected to impose such restrictions across the board.

Article XIII:2 of the GATT 1994 provides that in applying import restrictions to any product, Members

shall aim at a distribution of trade in such product approaching as closely as possible the shares which the

various Members might be expected to obtain in the absence of such restrictions. Article XIII:2(d)

provides for the possibility of allocating tariff quota shares to specific supplier countries. However,

according to the chapeau of Article XIII:2, the allocation of quotas between exporting Members must aim

to ensure that QRs do not distort ordinary trade flows. Article XIII:2(d) further specifies the treatment

that, in case a quota is allocated among specific supplier countries, must be given to Members with "a

substantial interest in supplying the product concerned".

7. Similarities:

requirement that a measure shall not be more trade restrictive than necessary to fulfil a

legitimate objective (according to each Agreement);

basic obligation of non-discrimination;

encourage the use of international standards in order to promote harmonization;

requirements for the advance notification of proposed measures and the creation of information

offices or "enquiry points" (transparency requirements); and,

special and differential treatment for developing and least-developed Members.

Differences:

The SPS Agreement covers all measures, whose purpose is to protect human or animal life or

health from food-borne risks; human health from animal or plant-carried diseases; animals and

plants from pests or diseases, or disease-causing organisms; and, Members' territories from

pests. Instead, the TBT Agreement covers all technical regulations, standards and conformity

assessment procedures that apply to trade in goods (SPS measures covered by the SPS

Agreement are expressly excluded from the scope of application of the TBT Agreement).

The SPS Agreement contains a exhaustive list of objectives (SPS measures shall be applied only

to the extent necessary to protect human, animal or plant life or health from food-borne risks,

animal or plant-carried diseases, pests), while the TBT Agreement includes a non-exhaustive list

of objectives including the protection of human health or safety, the protection of the

environment or the prevention of deceptive practices.

57

Under the SPS Agreement, WTO Members are obliged to use international standards unless they

can show a specific scientific justification based on a risk assessment. According to the TBT

Agreement, WTO Members have the obligation to base their technical regulations on international

standards, unless the relevant international standard is an inappropriate or ineffective means to

fulfil a legitimate objective.

8. The main disciplines on fees and formalities imposed on importation and exportation as set out in

Article VIII of the GATT 1994 include:

fees and charges shall be limited in amount to the approximate cost of services rendered and

shall not represent an indirect protection to domestic products or a taxation of imports or exports

for fiscal purposes (Article VIII:1(a));

the need for reducing the number and diversity of fees and charges (Article VIII:1(b));

the need for minimizing the incidence and complexity of import and export formalities and for

decreasing and simplifying import and export documentation requirements (Article VIII:1 (c));

the requirement for Members to review the operation of their laws and regulations, upon request

by another Member (Article VIII:2); and,

the prohibition of "substantial" penalties for minor breaches of customs regulations or procedural

requirements - e.g. omission or mistake in customs documentation which is easily rectifiable

(Article VIII:3).

9. Article X of the GATT lays down the general transparency obligation in the publication and administration

of trade regulations. Transparency is a fundamental principle underlying the MTS. Not having timely

access to the relevant regulations may constitute a barrier to trade and favour incumbent traders over the

new comers. Traders need to know what are the applicable rules in order to be able to abide by them.

Increased risks derived from the uncertainty of not having the right information may result in a higher

cost of doing business or even in their exclusion from the market.

10. The need for multilateral disciplines on customs valuation can be attributed to the following two reasons:

(i) Customs valuation can constitute serious obstacles to market access for goods. For importers, the

rules applicable to the determination of the value of a good in customs presents problems that can be just

as serious as the actual duty rate to be applied when such tariff is dependent upon the value of the good

(ad valorem tariffs). Access to the importing Member's market can be denied if the duty payable at

customs is inflated because the imported goods are overvalued by the customs authorities. Furthermore,

the lack of uniformity on customs valuation rules would incur additional transaction costs on importation.

(ii) Customs valuation can undermine the value of tariff concessions. The outcome of tariff negotiations

would be seriously undermined if the importing countries are allowed to adopt valuation rules and

methodology arbitrarily and discretionarily. In other words, the arbitrary adoption of valuation rules could

constitute a NTB, which would diminish or even take away the worth of tariff concessions. This would

frustrate the predictability and security achieved through the bindings.

11. Rules of origin concern the criteria used to determine the country of origin of an imported product. Their

importance is derived from the fact that duties and restrictions may depend upon the actual source of

imports. Furthermore, many of the of the provisions in the GATT 1994 apply to the extent a product

"originating" in a Member is affected. Thus, the rules for determining the origin of imports may constitute

unnecessary obstacles to trade in goods or make trade unpredictable because of their overly restrictive

nature, because of their wide variation and complexity across countries or simply because some countries

do not have comprehensive non-preferential rules of origin. The Agreement on Rules of Origin aims at the

58

harmonization of non-preferential rules of origins and at ensuring that such rules do not themselves

create unnecessary obstacles to trade.

12. The Agreement on Import Licensing Procedures is aimed at ensuring that the procedures applied for

granting import licensing do not constitute unnecessary barriers to trade in goods. The disciplines

contained in the Agreement include publication and notification of import licensing procedures, fair and

equitable application and administration, simplification of procedures, as well as the provision that foreign

exchange necessary to pay for licensed imports shall be made available to licence holders on the same

basis as to importers of goods not requiring import licences. It also provides time limits for processing

licence applications, publication of information concerning licensing procedures and notification. In

addition, the Agreement establishes the Committee on Import Licensing which meets as necessary to

afford Members the opportunity to consult on any matters related to the operation of the Agreement or

the furtherance of its objectives; and, to seek clarification on import licensing procedures maintained by

other Members and/or on the notifications submitted.