GENERAL AGREEMENT ON TARIFF AND TRADE (GATT)

Core Principles

QRs in WTO

When QRs can be used

INDIA and QRs

Impact on INDIA

WHAT IS WTO?

    Non discrimination between countries: the MFN treatment

    Freer trade: gradually through negotiations

    Predictability: through bindings

    Promoting competition

     DECISION MAKING IN WTO

• GATT practice of consensus decision making continues.

     MEMBERS OF WTO

USA

India

Bulgaria

Bangladesh

Russia

Japan

UAE

Latvia

Guinea

Nepal

Korea

Jordan

Maldives

Vietnam

Canada

Angola

Bhutan

• Does not prevent member states from establishing their own trade and non-trade policy objectives.

• Does not require them to eliminate all barriers to import of goods and services.

• Does not direct national administrative and procedural system.

• Does not require member states to have a uniform set of trade regulations.

• Every Economic activity will be influenced by agreements emanating from Geneva.

• Market access will improve with lowering of tariffs and dismantling of other import restrictions

• Trade and investment

• Trade and labour

• Trade and environment

• Trade facilitation

• Trade and competition policy

• Electronic commerce

• Transfer of technology

• MFN rule

• Binding commitments on tariff

• Removal of QRs and NTBs

• Transparency

• Physical restrictions on the import and export of goods prohibited

• Tariff to be used to control imports and protect domestic industry

• Quotas, import and export licenses are the main QRs

• To relieve critical shortages of food or other essential products

• To maintain standards in the international market

• Security, public morals, health

• Subsidised supplies of agricultural products to disadvantaged persons

• Protection of patents, trade marks, etc

• Safeguard measures: serious injury to domestic industry

• Regulation of gold and silver trade

• By countries having an adverse balance of payments position

• US, Australia, New Zealand, EC take India to DSB on India’s QRs on agricultural, textile and industrial products.

• Panel rules against India. India loses appeal regarding plea of adverse bop.

• Settles with others except us.

• Arbitration fixes removal of QRs by 1.4.2001.

• Removal of all QRs by April 2001 except 520 items where QRs are maintained under Article XX and XXI of GATT (protection of human, arrival or plant life, health, public morals, security reasons etc.)

• All product categories will be hit but food and food products, textile and consumer goods expected to be hit most.

• Though average tariff in developed world is 3.8 %, but have tariff peaks with frequency for goods of interest.

• Textile, clothing, leather goods, marine products, processed foodstuffs, agricultural products still have high tariffs.

• Tariff escalation for these products.

• 40% on finished goods, 25% on intermediate goods.

• Under Information Technology agreement (ITA) 0% tariff on 217 Information Technology Products by 2003

• Agreement on Sanitary And Phytosanitary Measures

• Agreement on Technical Barriers To Trade

• Agreement on Textiles And Clothing*

• Agreement on Trade Related Investment Measures

• Agreement on Safeguards

• Agreement on Subsidies And Countervailing Measures

• Agreement on Anti Dumping Measures

• Customs Valuation

• Pre-shipment Inspection

• Agreement on rules of origin

• Import licensing procedures

• Information Technology agreement

• General Agreement On Trade In Services (GATS)

• Basic Telecommunications

• Financial Services

• Movement of Natural Persons

• Maritime Transport

• Professional Services

• Trade related aspects of Intellectual Property Rights

• Dispute settlement

• Trade Policy Review mechanism

       Market access

• Tariffs only regime

• Non tariff border measures replaced by tariffs

• Tariffs to be reduced by 36% over six years by developed countries and 24% over ten years by developing

Domestic support

• 20% reduction in AMS for developed countries over 6 years

• 13% for developing countries over 10 years

       Export subsidies

• Reduction of 36% below 1986-90 base period level over six Years - for developed countries

• For developing countries - 24% reduction over ten years

• To ensure safe food

• To prevent spread of diseases and pests among plants and animals

• Requirements of specific treatment or processing of food

• Setting of maximum allowable levels of pesticide residues

• Permitting use of certain additives

       Examples of SPS Measures

• Restrictions imposed by Japan on apples, cherries, nectarines and walnuts

• Quarantine requirement imposed by Australia for imports of salmon from Canada

• EU prohibiting use of substances having hormonal action.

• Eggs and Poultry product from EC banned into USA

       Accepted Standards

• Food safety: joint FAO/WHO Alimentarius commission (CODEX).

• Animal health: office of international Des Epizooties (DIE)

• Plant health: FAO Plant Protection Convention (IIPC)

• Encouragement to use international standards

• National standard can be higher than international standards if there is scientific justification

• To establish enquiry points

• Technical Regulations And Standards For Packaging, Marketing, Labelling, Testing, Should Not Create Barriers To Trade

• To enable members to prevent fraud, protect national security, human and plant health

• Harmonising with international standards, mutual recognition

• Transparency

• Increasingly being used as NTBs

• What is an international standard ?

• Developing countries are not considered while fixing standards by international bodies

• Developing countries do not have appropriate technology & capacity of international standard

• Improper notifications

• Till 1995, textiles and clothing were outside the purview of multilateral agreements

• Exports to many developed countries subject to quantitative restrictions

• Brought under multilateral discipline replacing the erstwhile multi fibre agreement

• Special treatment to LDCS

• Transition period safeguards

• Ten year schedule included in the agreement to phase out QRs in four stages

• Integrated Products To Include Products From Each Segment, Namely, Tops And Yarn, Fabrics, Made Up Textile Products And Clothing

• However, no meaningful integration of products of india’s interest. All items back-loaded to the last year of phase out schedule (2005)

• Transitional safeguards, anti dumping measures, discriminatory rules of origin nullifies impact

Yarn

8.46 %

8 %

3.26 %

2.64 %

Fabric

3.44 %

2.51 %

3.91 %

12.19 %

Made-up

2.39 %

4.54 %

8.40 %

2.55 %

Apparel

1.92 %

1.98 %

2.55%

31.27%

Total

16.21 %

17.03 %

18.11%

48.65%

• No measure to be taken that are inconsistent with article III (national treatment in taxation and regulation) and article XI (quantitative restrictions: quotas, licensing, restrictions, ban) of GATT 1994.

• To be read with Trade & Investment

• Exception: National Security

     TRIMS - CASE LAW

         EC & US vs India : Automotive Sector

     Complains:

• Requires local content

• License granted to only local JV companies

• Require Export Balancing

• Local Content requirement

• Trade balancing requirements viz. Limiting use of import content in proportion to export.

• Restriction on Import to an amount or value of product exported

• Exchange Restrictions.

• Domestic Sales requirement.

• Protection against sudden surge in imports

• Should cause or threat of serious injury to the domestic industry

• Also concerns issues like structural adjustment,compensation,retaliation

• Requires consultations with WTO as well the exporting country at different levels

• Compensation, retaliation come into play if measure continues beyond 3 years

• Does not refer to unfair trade practices like dumping, export subsidies.

• Means whether domestic industry is injured or threatened by increased imports.

• Determination of injury shall take into account increase in imports, share taken of domestic industry, changes in levels of sales, production, profits, employment, capacity utilisation

• A financial contribution is provided

• Contribution made by government or public body within territory of member

• Contribution confers a benefit

• Specific subsidies subject to agreement

• Enterprise specificity

• Industry specificity

SUBSIDIES

     Three subsidies spelt out:-

subsidies are prohibited

subsidies are permitted but actionable

permitted and non-actionable

subsidies include income tax exemption under 80HHC, DEPB scheme or providing special rate of interest on export credit.

PROHIBITED SUBSIDIES

• Subsidies for Export Performance

• Subsidies for Import Substitution

subsidies are basically three:

• Assistance to industrial research but covering not more than 75 per cent of the costs of industrial research or 50 per cent of the costs of pre-competitive development.

• Assistance to disadvantaged regions based on unemployment and per capita criteria.

• Assistance to promote adaptation of existing facilities. It is a one time non-recurring measure and is limited to 20 per cent of the cost of adaptation

• Subsidies May Not Be Given If They Cause Injury To Domestic Industry Of Another Country;

• Nullification Of Benefits Of Gatts 94 And Serious Prejudice To Interest Of Another Country

• Non-actionable subsidies

• General and not specific subsidy

• Research

• Development of backward areas

• Protection of environment

• Green Subsidies or non-actionable or permitted subsidies even if limited to specific industry/enterprise are:

(a) assistance for industrial research upto 75 % cost or 50 % costs of pre-competitive development activity

(b) assistance to geographically contiguous disadvantaged regions, i.e., areas whose per capita income is 85 % of the country, or has 10% more unemployment.

(c) one time assistance (20%) for adoption of existing facilities to new environmental requirements imposed by law no subsidy for replacement or operating machinery.

 can be continued till 2003 subject to conditions that:

(A) no increase from 1992 level.

(B) phase out in eight years.

(C) if exports exceed 3.25 % of world exports for 2 consecutive years, phase out in 2 years

• Import Substitution Subsidies can continue for developing for 8 years, economies in transition 7 years, developed countries 5 years.

• Actionable Subsidies, Where Serious Prejudice Is Implied, If Given Will Attract Countervailing Duties From Others

    WHEN IS SERIOUS PREJUDICE DEEMED?

(a) if subsidy is greater than 5 % of the value of the product.

(b) if it is given to cover operating losses of an industry/enterprise except as one time measure for long term solutions/avoid social problems.

(c) Debt forgiveness.

    WHEN DOES SERIOUS PREJUDICE APPLY?

• Displace or impede import of like product in the country or in a third country; results in significant price undercutting, lowering of price, loss of sales, prevention of price rise.

• For primary goods if there has been increase in market share above previous 3 years’ level.

    CASE LAWS:

• SRI LANKA VS. BRAZIL (23.2.96):
  Countervailing duty on coconut.

• CANADA VS. BRAZIL (23.7.98):
  Subsidies to Brazilian aircraft.

• USA VS AUSTRALIA (9.11.97):
  Australian subsidy on textile, clothing and footwear scheme.

• CHILE VS. USA (5.8.98):
  Countervailing duty on salmon.

• USA VS. CANADA (25.3.98):
  Dairy Product Subsidy By Canada

AGREEMENT ON ANTI DUMPING MEASURES

• Article VI of GATT, Tokyo round

• Dumping per se is not illegal

• For illegality, three conditions are necessary:

• Dumping
  

• Injury to domestic industry

• Causal link between the two

     DEFINITION OF DUMPING

• Exporting a product lower than normal value

     DETERMINING NORMAL VALUE

• Cost of production plus markups

• Export price in a third market

• Domestic sale price

• Like product

• Constructed price

     ESSENTIAL FEATURES

• Deals with the price behaviour of exporters and not the exporting country as a whole

• Dumping exists when export price is less than the normal value

• Injury to domestic industry & causal link are required to be proved

• De-minimis levels provided (2% for dumping margin, 3% for export volumes of a country and 7% for all dumped imports from all countries)

CASE

COST OF PRODUCTION

PRICE OF PRODUCT
IN COUNTRY A

PRICE OF PRODUCT IN
COUNTRY B

1

10

50

20

2

10

5

5

CASE 1: DIFFERENTIAL PRICE

CASE 2: BELOW AVERAGE COST PRICE - DUMPING

• written application

• supported by producers more than 25% of total production

• supporting to be more than 50%

• Investigation, de minimis levels, opportunity to the other party, provisional duty

• duty to be not more than margin of dumping

• unbleached cotton item (India vs EC, 3.8.98)

• (India vs. South Africa, 1.4.99) on ampicillin and amoxycillin by Ranbaxy

• Against India- stainless steel bright bars, ropes and cables, wires, unbleached cotton fabrics, potassium permanganate

• For India- chemicals, rubber, steel, acrylic fibre, caustic soda, toys, dry cell batteries, paracetamol, zinc oxide, compact fluorescent lamps (CFL), vitamin C

• By India's anti dumping cell: (1992 to March, 2002)

• cases investigated :          117

• Final duty recommended:       87

• Preliminary duty recommended:       23

• Cases under investigation:       7

• Sets rules for valuation of imports.

• Six methods:

• To be applied sequentially

• Burden of proof on importers

• Indian Laws In Conformity With Agreement

• Transparent regime

• For rejecting value given by importer, customs has to give reasons in writing. Clear guidelines available for computing value

• Relates to criteria to determine where a product is made.

• Linked to trade measures such as quotas, preferential tariffs, anti-dumping action, countervailing measure.

• Preferential : criteria to enjoy tariff preferences & other trade benefits

• Non-preferential :

• application of duty rates to imported goods

• application of anti-dumping or countervailing duties

• Implementation of voluntary exports restraints

• Govt . Procurement

• Country of origin marking

• Origin labeling for consumer protection

• Compilation of trade statistics

• It is a necessary tool- no positive or negative effect

List Of Services

• Business

• Communication

• Construction

• Distribution

• Educational

• Environmental

• Financial (insurance and banking)

• Health related and social

• Tourism and travel

• Recreational and sporting

• Transport

• Many clauses of GATT to apply - MFN, RTAS, transparency, BOP leverage

• Each member to give schedule measures - internal restrictions

• Not a one shot measure but through progressive liberalisation

Four Modes Of Services

• Cross border supply of services - supply moves to another country (eg.telephone calls)

• Consumption abroad - consumer moves to another country ( eg.tourism)

• Commercial presence - supply through branches in another country (eg.foreign bank)

• Movement of natural persons ( eg. Indian software professionals)