Non

discrimination

between

countries:

THE MFN

TREATMENT.

FREE TRADE

Through

Negotiation.

Non

discrimination

within a

country:

NATIONAL

TREATMENT

PREDICTABILI

TY :

Through binding

COMPETITION ww

w.S

tud

sP

lan

et.c

om

MFN TREATMENT :

Every member has to be treated equally with out any discrimination. If a

member grants

favour ie., lowers Customs Duty rate for a product favoring one country,

then same lower duty should be applicable to all other W.T.O members

.favour one favour all.

For example BANANA WAR.

*The EC (European Community) charged lower duty on bananas imported

from

AFRICIAN CARIBBEAN PACIFIC (ACP) , when compared to duties levied

on bananas from

Americas.

*The complaining countries were the United States , Ecuador , Guatemala

& Honduras besides

Mexico.

ww

w.S

tud

sP

lan

et.c

om

INTRODUCTION:

The dispute evolved in EU‟s 1993 Regulatory Regime

for banana imported into EU. E.U wise Banana Trade

Regime had a system of a Tariff Rate Quota (TRQ)

based on the Country of Origin. Bananas from the

ACP countries had duty free entry into the EU up to

85,77,000 metric tons . This quota was allocated to each

of producing countries on the basis of their historic

exports to EU. While ACP Bananas , in excess of quota,

were levied 750 ECU per metric tons . Non –ACP

bananas wear subjected to a duty of ECU 100 per

metric tons on imports of up to 2 million metric tone and

ECU 850 on imports of above the amount .

ww

w.S

tud

sP

lan

et.c

om

The dispute was between two powerful members of QUAD(US,EU,JAPAN and CANADA) who were confronting each other from

the area of currency trade (Euro vs US$ ) to Military Understandings .

Some members of the EC appear to be inclined towards the belief that

countries can flourish more in Bipolar World than Uni- polar one .

The dispute involved article 1 of GATT 1994, the Most Favored Nations

The DSB‟s Appellate Body , hearing the dispute in 1997, indicated that

the MFN philosophy transcended any Preferential Trade Agreement or

understanding that contracting parties might have out side the WTO

agreement . The Appellate Body did not agree with EC‟s stand that

Preferential Trade with African countries .

Aligned with the main complaint , the United States , wear as in the

days of small countries like Ecuador , Guatemala & Honduras. The

only big member in this group was NAFTA member, Mexico.

ww

w.S

tud

sP

lan

et.c

om

ABOVE 85,77,000

750 ECU/PMT

AFRICAN CARIBBEAN

PACIFIC (ACP)

UPTO 85,77,000

ZERO DUTY

C

E

I

L

I

N

G

DUTY

ENTITLEMENT

ww

w.S

tud

sP

lan

et.c

om

C

E

I

L

I

N

G

DUTY

ENTITLEMENT

NON- ACP COUNTRIES

UPTO

20,00,000

100

ECU/PMT

ABOVE

20,00,000

850

ECU/PMT

ww

w.S

tud

sP

lan

et.c

om

NON- ACP COUNTRIES

GAUTEMALA

USA

ECUADOR MEXICO

HONDURAS

ww

w.S

tud

sP

lan

et.c

om

1993 May 19 GATT panel finds against EC member state restrictions (banana-1)

EC blocks the panel report from being adopted by GATT council

1994 Jan 18 GATT panel finding go against EC’s new regulations 404 (banana-2)

1994 Feb 07 EC blocks the (banana-2) panel report from being adopted by GATT council

1995-1996 New WTO dispute settelment provision prevents one member from blocking

panel findings in 1995 . In 1996 equdor , guatemala & honduras and US (g-5)

bring formal WTO cases

1997 May 22 WTO panel finds many goods and services violation of EC regime (banana 3 )

1997 Sept 9 WTO panel body up holds the findings of EC

1997 Spt 25 WTO dispute body adopts panel and appellate body reports

1998 Jan 08 WTO arbitrator gives until jan 1, 1999 . to complys WTO ruling

1998 June 26 European agriculture adopts modification to banana measures and

unilaterally declares them WTO conistent.

1998 Dec 18 Ecudor request re-establishment of original panel to acess weather EC

measures are WTO – conistent

1999 Jan 12 Original panel reconvened

1999 May 6 Panel report adopted .

1999 April 9 The united states requested that the DBS authorise suspension of concession

to the level of nulification and impaiment , ie.,US$191.4million

2000 Mar 24 The arbitrator report on Ecudor request for suspenssion of concession

circulated to members

2000 May 18 DBS authorises Ecudor to suspension of concession to EC

2001 Nov 14 Doha Ministrial waiver of article 1 & 13 , new TRQ Regime

ww

w.S

tud

sP

lan

et.c

om

NATIONAL TREATMENT : Treating imported and domestically

produced goods equally .

An example is The Korean Soju case. The issue was consistency of two Korean tax laws : The Korean

Liquor Tax Law 1949 & The Korean Education Tax Law of 1982 with

National Treatment Principle of WTO .

ww

w.S

tud

sP

lan

et.c

om

Item KOREAN LIQUOR TAX EDUCATION

Diluted soju 35 10

Distilled soju 50 10

Whisky 100 30

Brandy 100 30

General distilled liquor (vodka,gin,rum) 80 30

General distilled liquor containing whisky

or brandy

100 30

Liquor 50 10

Other liquors

-with 25% or more alc.

-with less than 25% alc.

-which contain 20% or more whisky or

brandy

80 30

70 10

100. 30

VAT in

%

ww

w.S

tud

sP

lan

et.c

om

The EC, the complaining country argued that these two laws

favored the Korean local sprits called „SOJU‟ and discriminated

the imported sprits and liqueurs , thus protecting the soju from

the competition from imported Whisky, Rum, Brandy and Vodka.

Under the Education Tax 1990 a Tax Surcharge was levied on the

sale of variety of items , including most Alcoholic Beverages . for

alc. Beverage The applicable rate was determined by the reference

to another tax –tax applied liquor rate ,fro those assed liquor tax

rate 80% or greater ,the law imposed an education sur tax

calculated aas30% of the liquor tax imposed. For alcoholic

beverages assessed a liquor tax rate of less than 80% , the law

imposed an education tax of 10 % of the liquor tax imposed.

The net result, according to the EC ,was that SOJU

overwhelmingly dominated the Korean Spirits Market.the 1996

sales of SOJU amounted to 810 million liters , which represented

as much as 94% of the Distilled Spirit Market .

ww

w.S

tud

sP

lan

et.c

om

The original panel recommended that

1.The SOJU, a traditional Korean Alc.Beverage and

imported products such as Whisky, Brandy, Rum, Vodka,

Gin, Tequila and liqueurs were directly substitutive

products.

2. These products competing for a share of the same

market were being taxed dissimilary and

3. The dissimilar Taxation resulted in a protection to the

locally produced SOJU over the imported products.

ww

w.S

tud

sP

lan

et.c

om

The Korean made the following observations with respect to physical

character end use, place of consumption and pricing .

1. SOJU and the imported products not physically identical merely

because they shared the essential feature of being distilled alc. Korea

argued that if similarity in raw materials used or the method of

manufacture were the criteria for putting products under the same

category, then paint thinners and ridding alcohol could also be

deemed to directly competing products.

2. SOJU had a different flavor when compared to the imported

products.

3. Diluted SOJU was consumed along with meals , which was not so

the case with the other products in question.

4. The huge price difference between diluted SOJU and most of the

imported beverages also indicated they were competing for different

segments of the market and thus it would not be proper to use the

reasoning of directly competing or substitutable products.

ww

w.S

tud

sP

lan

et.c

om

The EC reply was as follows;

1.The face that a (minor) difference such as flavour had been

mentioned by Korea to differentiate between the domestic and

imported products was proof enough to suggest that products were

nearly identical. The EC cited the example fo a purchaser choosing a

green colored tie rather then a red one since he preferred the green

color, according to the EC, was a relatively minor feature of neckties

and this difference in colors did not make the different color ties other

then directly competing products.

2.The original panel was right in accepting the EC‟s example of generic

and branded aspirin and rejecting Korea‟s example of tap and bottled

water. The two aspirins were identical or nearly identical products, but

it was open to question whether the two waters, tap and bottled, had

close physical characteristics though they had the same physical

appearance.

ww

w.S

tud

sP

lan

et.c

om

3. As regards to the contention of Korea that SOJU and the imported

beverages had to be on a different footing as the former was drunk with meals

and at homes or friends‟ places while the western spirits were standalone

drinks consumption at restaurants and bars, the EC argued that a NIELSEN

STUDY had indicated that 5.8%of Korean respondents drank whisky with

meals.

The APPELLATE body was of the view that common characteristics, end-uses

and channels of distribution and prices confirmed the correctness of the

original panel grouping SOJU and the imported beverages as directly

competitive or substitutable products.

With the appellate body confirming this aspect of the argument, the next

conclusion on the protection being given to the native Korean brew was only

matter of course due to the substantial tax differentials between SOJU and the

imported western-style spirits. The Appellate Body recommended that the

Dispute Settlement Body request Korea to bring the Korean Liquor Tax Law of

1949 and the Korean Education Tax Law of 1982 into conformity with its WTO

obligations.”

ww

w.S

tud

sP

lan

et.c

om

•There was another dispute involving Korea under the same

“National Treatment” issue. This was „Korea-measures affecting

imports of fresh, chilled and frozen beef‟

•. Beef imported into Korea was distributed under conditions not

applicable to domestic beef. Ed This dual retail system ensured that:

Imported beef was displayed separately in those department stores

and supermarkets that were authorized to sell such beef:

Foreign beef shops had to bear a sign with the words “specialized

imported beef store”.

•Foreign beef imported had to undergo additional requirements,

such as having to bear details regarding the end-consumer, the

contract number and the importer bringing in the foreign beef:

ww

w.S

tud

sP

lan

et.c

om

• Generally, a more stringent record keeping practice

was needed in the case of foreign beef.

The Appellate body hearing the dispute also upheld

the original panel‟s original conclusion that Korea‟s

dual retail system was inconsistent with Article: III:4

of the GATT1994.

While the dimensions of the briefly stated dispute

regarding the Korean policy on imported beef could

have been clear enough, the Soju dispute had

marketing dimensions as well since the panels had

to make a finding on directly competing or

substitutable products.

ww

w.S

tud

sP

lan

et.c

om

Free Trade through negotiation.

The barriers like tariffs and measures such as import bans or quotas that selectively restrict import quantities

The Canadian Dairy case

This issue is regarding Govt. Policy that enabled Canadian exporters of cheese and its products to procure milk at advantage price

“The price which the exporters paid for milk was lower when compared to the milk prices prevailing in Canada‟s domestic market”

The US and NEW ZEALAND argued such that such a govt. policy was not in conformity with Canada‟s export subsidy commitments under the agreement on agriculture .

Introduction: milk production in Canada was governed by a quota system

ww

w.S

tud

sP

lan

et.c

om

Market Sharing Quota ( MSQ) all in million hector.

Marketing

year

1995/96 1996/97 1997/98 1998/98

MSQ level 44.2 44.2 43.3 44.7

ww

w.S

tud

sP

lan

et.c

om

The Canadian milk producers were assigned a domestic

sale quota

Milk produce with in the quota was sold in Canadian

market the domestic market milk recording to New

Zealand was sold C$ 49.48 and c$56.06 per hectoliter the

average figure cited by united state was Canadian

c$52.92 per hectoliter

Milk production beyond this quota could not be sold

within Canada.

This over production milk has to be sold as commercial

Export Milk (CEM)to processors exporting dairy

products.

ww

w.S

tud

sP

lan

et.c

om

These export processors were able to get the commercial

export milk at lower price as compare to milk sold in the

domestic market according to Canada it self the price

ranged from C$19.06 toC$36.86 per hectoliter of

commercial export milk

The only way a producer could dispose of the over quota

milk in the domestic market was by selling it as animal

feed

This situation of govt. influenced policies enabling

processor to get the milk at lower price for export of dairy

products according to the US and NZ was not in

conformity with article 9.1 (a)& (c)

On export subsidy commitments of the agreement on

agriculture .

ww

w.S

tud

sP

lan

et.c

om

Findings of the Appellate Body, the compliance panel made the

fallowing conclusion:

1. Payments provision of milk at discounted prices to dairy

processors for export constituted payments within the meaning of

9.1(c)

2. By virtue of Govt. action : The procedures of over quota milk had

no other alternative but to sell to export processors at lower price . A

dairy producer was, in principle, prevented from marketing his milk

in the domestic market out side the quota allotted to him but

governmental action, these producers would have preferred to sell

the milk in the domestic market and realize a higher price

ww

w.S

tud

sP

lan

et.c

om

3. Simultaeously, processors who diverted CEM into domestic market were penalized presence of these conditions substantiated the reasoning and other dairy products this action of the royal dairy Commission, according to the compliance panel, fell within the meaning of export subsidy , commitment of article of 9.1(c)

4. Payment on the export of agriculture product: Only a contract for exports allowed dairy processors to have access to the lower priced commercial export milk an export processor functioned out side the regulatory frame work of price floors and quota ceiling applicable to domestic market milk transaction in Canada.

ww

w.S

tud

sP

lan

et.c

om

Given below is the simulation of the findings of the Appellate

Body

Canada has modified the at Dairy Regulatory Regime so that

market forces are at work in respect of the sale of dairy

products.

The original panel had taken international price and domestic

price as the bench marks for determine subsidy. These bench

mark prices may not be true indicators for calculating subsides

that may be given by a government to a product.

A better bench mark will be the total cost of production, which

will ensure determination of the cost that may be subsidized by

a government particularly in relation to exports .

A direct subsidizing connectivity has to be established to prove

non conformity to WTO commitments.

ww

w.S

tud

sP

lan

et.c

om

Panel report of July-11-2001 and Dec-20-2002.

Given the Canadian Govt‟s Quota on domestic sale of milk ,the

producers had to choose at the second best option available

and that was selling the excess at a lower price C$ 30 per

hectolitre to export processors compared to C$53 per

hectoliter that local market sales would fetch . How ever,

selling selling at was better alternative to destroying the milkThe panels also pointed to the Canadian dairy commissions (CDC),

prohibition on diversion of CEM , to the domestic market .the CDC had

the “seizure power “over such diverted milk .more ever, in such

instance the buyers of milk could end up paying the higher domestic

price in addition to the CEM price already paid

ww

w.S

tud

sP

lan

et.c

om

There was also the issue of cross-subsidization of CEM . the fact that domestic sales of milk ensured 40% higer returnment that milk producer could afford to sell at a lower price to export processors . the Canadian system ensured that producers who sold milk at a lower price to export processors where compensated by a higer domestic price this higher enabled milk producers to derive the advantage of marginal costing in sales of commercial export milk

The panel found inconsistency with article 9.1(C) of the agreement on agriculture and recommended that the DSB request Canada to bring its measures in conformity which the WTO agreement.

ww

w.S

tud

sP

lan

et.c

om