M2 e

Online Course Of
Introduction to the WTO
e-
WTO E-Learning
Copyright 2012 Visit the website: http://etraining.wto.org
Module 2
The basic principles of the WTO
Non-discrimination
The MFN principle The national treatment principle
Surveillance of national trade policies through the Trade Policy Review Mechanism Domestic publication of trade regulations Notification of trade measures to the WTO Other transparency mechanisms and tools
More open and predictable trade

The progressive reduction and binding of tariffs The reduction of other barriers to trade The general elimination of quantitative restrictions
Special treatment for less developed Members WTO development dimension

Who benefits from special and differential treatment (S&D) in the WTO? Why developing and LDC Members need S&D? How does the WTO provide special treatment?
Transparency
Legal Basis How does the WTO enhance transparency in international trade?
Summary
M2: The basic principles of the WTO |
Introduction
As you studied in Module 1, the WTO facilitates the smooth flow of global trade through the administration and monitoring of a rules-based system. This set of rules is embodied in the WTO Agreements. The WTO Agreements consist of several legal documents covering a wide range of trade-related issues including agriculture, food safety, services and intellectual property. At the heart of all these Agreements are a number of basic principles which constitute the foundation of the multilateral trading system (MTS). The basic principles of the WTO are: Non-discrimination More open and predictable trade Transparency Special treatment for less-developed members In this module, you will study the basic principles of the WTO.
M2: The basic principles of the WTO | Introduction
Non Discrimination
Non-discrimination is a fundamental principal of the WTO. It has two components: The Most-favoured nation (MFN) principle: treating other WTO members equally The National treatment principle: treating foreigners and locals equally These two principles apply to trade in goods, trade in services and traderelated aspects of intellectual property rights. This module will focus on the non-discrimination principle as applied in the context of trade in goods. The National treatment principle
The Mostfavoured nation (MFN) principle
M2: The basic principles of the WTO | Non Discrimination
The Most-favoured nation (MFN) principle
The MFN principle ensures non-discrimination between trading partners. If a WTO member grants to a country an advantage, it has to give such advantage to all WTO members. Members of the WTO can be seen as members of a club. One of the fundamental rules of the club is that each member will grant all other members the best possible treatment it grants to any trading partner. In general, the MFN principles ensures that every time a WTO member lowers a trade barrier or opens up a market, it has to do so for the like goods or services from all WTO members without regard of the members' economic size or level of development. It is worth noting that the MFN principle requires to accord to WTO members any advantage given to any other country - member or not of the WTO. The opposite is not an obligation: a WTO member could give an advantage to other members, without having to accord such an advantage to non WTO members. There are important exceptions to the MFN principle, which will be explained later on.
Background information and materials
Supplementary information: Legal Underpinnings: http://www.swisslearn.org/wto/module3/e/start.htm Understanding the WTO Principles of the system: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_ e.htm
Legal Basis
The MFN principle is so important, that it is contained in the first article (Article I) of the GATT for trade in goods. The MFN principle is contained in Article II of the GATS for trade in services. In the context of trade in services, the MFN principle applies to services and services suppliers. Article 4 of the TRIPS Agreement contains the MFN principle as applicable to trade-related aspects of intellectual property rights. In the context of TRIPS, the MFN principle applies to nationals, including both natural and legal persons. These provisions will be explained in Module 4, which introduces the GATS and the TRIPS Agreement. Now, lets see how the MFN principle in Article I of the GATT applies through a practical example:
Background information and materials Legal documents: Article I of the GATT: http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.ht m#articleI Article II of the GATS: http://www.wto.org/english/docs_e/legal_e/26gats_01_e.htm#ArticleII Article 4 of the TRIPS Agreement: http://www.wto.org/english/docs_e/legal_e/27trips_03_e.htm
Example
Suppose that Vanin and Medatia are WTO members, while Tristat is not. Assume that Vanin applies a 20% tariff on imports of tomatoes coming from all WTO members. Medatia is a big exporter of tomatoes interested in increasing its exports of tomatoes to Vanin. During a WTO negotiating round, Medatia seeks to negotiate the customs duty rate on tomatoes with Vanin. After long and difficult bilateral meetings, Vanin agrees to give Medatia duty-free access for tomatoes (0% tariff).
DOES VANIN HAVE TO EXTEND THE 0% TARIFF ON TOMATOES TO ALL WTO MEMBERS? Yes. According to the MFN principle, Vanin has to extend the 0% tariff (duty-free access) on like tomatoes from all WTO members, because all WTO members should enjoy the most favourable treatment for tomatoes granted by Vanin. COULD VANIN APPLY A 10% TARIFF ON IMPORTS OF TOMATOES FROM TRISTAT (NON- WTO MEMBER), WHILE PROVIDING DUTY-FREE ACCESS FOR TOMATOES (0% TARIFF) TO WTO MEMBERS? Yes. Vanin can give an advantage to a product from the WTO members, without having to extend such advantage to non members. In other words, only WTO members benefits from the most favourable treatment.
COULD VANIN APPLY A 10% TARIFF ON IMPORTS OF TOMATOES FROM WTO MEMBERS, WHILE PROVIDING DUTYFREE ACCESS FOR TOMATOES (0% TARIFF) FROM TRISTAT (NON-MEMBER)?
No. All WTO members must benefit from the better treatment given to "any" country (member or not).
One relevant issue is whether the tomatoes from Medatia are like products vis--vis tomatoes from other members. If they are not like products, different treatment may be applied. In the example, we are assuming that the tomatoes from Medatia and those from other WTO members are like products and therefore, the benefit (0% tariff) shall apply to all members.
It is important to note that there are different exceptions to the MFN principle. If one of the permitted exceptions to the MFN principle applies, Vanin would not need to extend the 0% tariff given to tomatoes from Medatia to all other members.
Main elements of the MFN principle
The MFN principle requires WTO Members that:
Any advantage under Article I granted to any country
Shall be accorded "immediately and unconditionally"
To like products of all other members
ANY ADVANTAGE UNDER ARTICLE I GRANTED TO ANY COUNTRY
Additional information - List of measures covered by Article I:1 of the GATT(MFN principle): Any kind of charges imposed on importation or exportation Any kind of charges imposed in connection with importation or exportation Any charges imposed on the international transfer of payments for imports and exports The method of levying such duties and charges
Remember our example above. Suppose now that Vanin decides to eliminate some import formalities applicable to imports of tomatoes. Can Vanin eliminate such import formalities only for tomatoes imported from Medatia? No. The MFN principle applies to any advantage under Article I of the GATT, that is, a broad range of measures in relation to importation and exportation, as well as internal measures. Since the MFN principle also applies to all formalities in connection with exportation or importation, Vanin has to extend the advantage (elimination of some import formalities for tomatoes) to all WTO members.
All rules and formalities in connection with importation and exportation Internal taxes or other internal charges (covered in Article III.2) All laws, regulations and requirements affecting internal sale, offering for sale, purchase, transportation, distribution or use of any product (covered in Article III.4)
Supplementary information and background materials: WTO Analytical Index Article I of the GATT: http://www.wto.org/english/res_e/booksp_e/analytic_index_ e/gatt1994_01_e.htm#article1C
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SHALL BE ACCORDED "IMMEDIATELY AND UNCONDITIONALLY
Supplementary information and background materials:
This means that once a WTO member has granted an advantage to imports from any country (member or not of the WTO), it must immediately and unconditionally grant that advantage to imports of like products from all WTO members. The advantage may not be subject to reciprocity or made conditional on whether a member has certain legislation or undertakes a certain action.
WTO Analytical Index Article I of the GATT: http://www.wto.org/english/res_e/booksp_e/analytic_index_ e/gatt1994_01_e.htm#article1C
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How to know whether two products are "like products"? GATT/WTO case law has used four criteria in determining whether the products at issue are like products. Which are these criteria?
TO LIKE MEMBERS PRODUCTS OF ALL OTHER
The essence of the MFN principle is that like products should be treated equally, irrespective of their origin. In other words, products which are "not" like products may be treated differently. In the example above, Vanin would have to extend the benefit provided for tomatoes from Medatia (0% tariff) to all other WTO members only if the tomatoes from Medatia are like products vis--vis tomatoes from other members. The term like product is not defined in the GATT. It is also used in other provisions both in the GATT and in other WTO Agreements. Hence, you will see the term like products many times in this course.
red apple = green apple : like products?
The criteria for determining likeness are not spelled out in the WTO Agreements. Four criteria have been used in several WTO dispute settlement cases (*): The physical characteristics of the products (nature, properties and quality) The products end uses Consumers tastes and habits The customs classification of the products The concept of like products will be further explained in the next section, which introduces the national treatment principle.
(*) Note: It is important to note that these four criteria do NOT constitute a closed list. In other words, there could be other criteria which may be relevant in determining whether the products at issue are "like products", depending on the particular case. Supplementary information and background materials
rum
vodka
like products?
WTO Analytical Index Article I of the GATT: http://www.wto.org/english/res_e/booksp_e/analytic_inde x_e/gatt1994_01_e.htm#article1C
RUM
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Benefits of the MFN principle

Why members have committed themselves to extend concessions made to one trading partner to all WTO members? How do members benefit from the MFN principle? The MFN Principle:
Ensures equal access to international markets:
The MFN principle ensures all members, including small developing members, that they will benefit from the best trading conditions provided by other members however this may sometimes arise problems of free-riding *. Maximizes efficiency: by ensuring that each country will import from the most efficient supplier. Without the MFN principle, the importing country would impose higher tariffs or other trade barriers on the products coming from the most efficient supplier in order to protect its industry. The imposition of higher barriers would lead to inefficiencies because the most efficient firms would be punished and production would be shifted to a less efficient firm in another exporting country. Reduces the cost of administration of trade rules: by requiring equal treatment among Members, the MFN principle promotes the simplification of procedures and requirements related to importation and exportation. Minimizes costs of trade negotiations: countries negotiate one multilateral agreement instead of several bilateral agreements. Supplementary information and background materials: (*) Free rider: the term is used to imply that a country which does not make any trade concessions, profits, nonetheless, from tariff concessions made by Other Countries under the MFN principle (Goode, Walter, Dictionary of Trade Policy Terms, Fifth Edition). World Trade Report 2007, p.133-137: http://www.wto.org/english/res_e/publications_e/wtr07_e.htm Economic Underpinnings: http://www.swisslearn.org/wto/module4/e/start.htm 13
Exceptions to the MFN principle
The Enabling Clause also allows developing members to subscribe preferential agreements on trade in goods among them, without complying with the requirements provided in Article XXIV of the GATT. The main exceptions to the MFN principle, including the conditions for their application, will be introduced in Module 3. As mentioned before, there are important exceptions to the MFN principle. For example, a member may provide preferential treatment only to some countries within a free trade area or customs union, without having to extend such better treatment to all members. This exception is contained in Article XXIV of the GATT (for trade in goods) and in Article V of the GATS (for trade in services). It will be explained in Module 3. Another important exception enables developed members to give "unilaterally" preferential treatment to goods imported from developing countries and leastdeveloped countries (LDCs), without having to extend such better treatment to other members.
This exception is contained in the Enabling Clause, which constitutes one of the main provisions on special and differential treatment for developing and LDC members.
Additional Information - Main exceptions to the MFN principle: Specific exceptions to the MFN principle: Historical Preferences (Article I:2 I:4 of the GATT): these preferences were significant when the GATT 1947 was negotiated, but their importance has faded over the years. Frontier Traffic (Article XXIV:3 of the GATT 1994): advantages accorded by members to "adjacent countries" in order to facilitate frontier transactions constitute an authorized derogation to the MFN principle. As with the historical preferences, the importance of this derogation is very limited. Horizontal exceptions also applicable to other WTO principles will be explained in Module 3.
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The National Treatment Principle
The national treatment principle constitutes the second component of the non-discrimination pillar. The national treatment principle ensures non-discrimination between domestic and foreign products, services or nationals. In general, it prohibits a member from favouring its domestic products over the imported like products of other members once imported products have entered the domestic market. The objective of the national treatment principle is to provide equality of competitive conditions for imported products in relation to domestic products. As with the MFN principle, there are also exceptions that apply to the national treatment principle.
Supplementary information and background materials: Supplementary information: Legal Underpinnings: http://www.swisslearn.org/wto/module3/e/start.htm Understanding the WTO Principles of the system: http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_ e.htm
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Legal basis
Article III of the GATT embodies the national treatment principle for trade in goods (Click on here to see Article III of the GATT). For trade in services, the national treatment principle is contained in Article XVII of the GATS. Under the GATS, the national treatment obligation is not a general obligation. It applies only to sectors listed in the individual member's schedules of commitments and subject to the limitations contained therein. Article 3 of the TRIPS Agreement provides the national treatment principle with respect to trade-related aspects of intellectual property rights. The national treatment principle as applied to trade in services and trade-related aspects of intellectual property will be explained in Module 4, which introduces the GATS and the TRIPS Agreement.
Now, lets take a closer look at Article III of the GATT.

Supplementary information and background materials: Legal documents: Article III of the GATT: http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm #articleIII
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Difference between the national treatment principle and the MFN principle
While the MFN principle seeks to ensure that a WTO member does not discriminate between like products originating in, or destined for, other WTO members, the national treatment principle addresses the nondiscriminatory treatment to be applied to imported and domestic products.
MFN
National Treatment
Non-discriminatory treatment between products of WTO Members
Non-discriminatory treatment between imported and domestic products
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Example
Suppose that Vanin -a WTO member- adopts a regulation which imposes a sales tax of 20% on imported soft drinks and a sales tax of 1% on domestic soft drinks. In addition, Vanin applies a special package requirement for the internal transportation of imported soft drinks contained in glass bottles that this country does not apply to domestically produced soft drinks contained in glass bottles.
Vanin Sales tax to soft drinks Imported soft drinks 20% Domestic soft drinks 1%
CAN VANIN APPLY A SALES TAX OF 20% TO IMPORTED SOFT DRINKS AND A SALES TAX OF 1% TO DOMESTIC SOFT DRINKS? CAN VANIN IMPOSE A SPECIAL PACKAGE REQUIREMENT ONLY TO IMPORTED SOFT DRINKS CONTAINED IN GLASS BOTTLES? In both cases, the answer is No. Based on the assumption that the domestic and imported products are like products, Vanin cannot apply its internal measures in a way that it favours its domestic products over the imported products of other WTO members. The national treatment principle as set forth in Article III of the GATT applies to internal measures, including both internal taxes and internal regulations. The sales tax of 20% constitutes an internal tax, while the special package requirement for the internal transportation of imported soft drinks contained in glass bottles constitutes an internal regulation.
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Main Elements
THE NATIONAL TREATMENT PRINCIPLE APPLIES ONLY TO INTERNAL MEASURES
Internal measures include: Article III:2 Internal taxation Article III:4 Internal laws, regulations and requirements affecting the internal sale, transportation, distribution or use of products
The national treatment principle only applies to internal measures, as opposed to border measures (e.g. tariffs). In general, the national treatment principle applies once a product has entered the domestic market (*).
(*) Note: It should be noted that the Ad note to Article III clarifies that an internal measure may be applied at the border on imported goods.
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a. Internal taxation (Article III:2) : Article III: 2 applies the national treatment principle to internal taxation (e.g. sales tax, value added tax). It contains two levels of obligations regarding internal taxation depending on whether imported and domestic products can be considered: like products (first sentence of Article III:2); or directly competitive or substitutable (second sentence of Article III:2). products
If the domestic and imported products are not "like products" under Article III: 2 first sentence, they may still be "directly competitive or substitutable" under Article III: 2 second sentence, given the broader scope of the term "directly competitive or substitutable". Therefore, even if there is no breach of the national principle under Article III: 2 first sentence, it may be still necessary to consider if there is an infringement of Article III: 2 second sentence.
Supplementary information and background materials: WTO Analytical Index Article III of the GATT: http://www.wto.org/english/res_e/booksp_e/analytic_inde x_e/gatt1994_e.htm#article3
What is the difference between "like products" and directly competitive or substitutable products?
Like products vs. directly competitive or substitutable products
The term like products under Article III:2 first sentence should be considered as a subset of directly competitive or substitutable products under Article III:2 second sentence (*)
(*) The determination of whether two products are like products or directly competitive or substitutable products should be made on a case-by-case basis. M2: The basic principles of the WTO | Non Discrimination
directly competitive or substitutable products = imperfectly substitutable

like products = perfectly substitutable
Directly competitive or substitutable products
Like products
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The same criteria explained for determining "likeness" under the MFN principle are relevant for determining whether the imported and domestic products are like products in the context of the national treatment principle: The physical characteristics of the products (nature, properties and quality) The products end uses Consumers tastes and habits The customs classification of the products Instead, the determination of whether the imported and domestic products are directly competitive or substitutable involves analysing the competitive conditions in the relevant market.
Other differences between Article III:2, first sentence, and Article III:2, second sentence of the GATT
Article III:2, first sentence
Like Products The imported products are taxed "in excess of" the domestic products (the smallest amount of excessive taxing will constitute an infringement of the national treatment principle)
Article III:2, second sentence Directly Competitive/Substitutable Products domestic and imported products are not "similarly taxed" (more than de minimis) "so as to afford protection to domestic production
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b. Internal laws, regulations and requirements affecting the internal sale, transportation, distribution or use of products Article III:4 applies the national treatment principle to all laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution, or use of products. This provision requires WTO Members to treat imported products "no less favourable" than domestic like products.
The scope of likeness in Article III: 4 is broader than the first sentence of Article III: 2, but certainly not broader than the combined products scope of the two sentences of Article III: 2.
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Exceptions to the National Treatment principle
Specific exceptions to the national treatment principle (goods):
Government procurement (Article III:8A GATT) Subsidies to domestic producers (Article III:8B GATT) Internal maximum price control measures (Article III:9 GATT) Cinematographic films (Article III:10 and IV of GATT)
The horizontal exceptions, also applicable to other WTO principles, will be explained in Module 3.
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More open and predictable trade
Lowering trade barriers is one of the most obvious means of encouraging trade. These trade barriers include customs duties ("tariffs"), as well as import bans or quotas. However, there are also several other measures that could restrict or even impede market access for goods and services.
In this Module, we will focus on those barriers affecting market access for trade in goods. Market access for trade in services, only applicable to committed sectors and subject to the listed limitations, will be addressed in Module 4.
WTO Members have recognized that the substantial reduction of tariffs and other barriers to trade constitutes, together with the non-discrimination principle, a key instrument to achieve the objectives of the WTO.
This section will introduce the main WTO rules related to the reduction or elimination of trade barriers, namely: The reduction and binding of tariffs The reduction of other barriers to trade The general elimination of quantitative restrictions
The reduction and binding of tariffs The general elimination of quantitative restrictions
The reduction of other barriers to trade
Supplementary information and background materials: Preamble of the Agreement Establishing the WTO: http://www.wto.org/english/docs_e/legal_e/04-wto_e.htm ELearning courses: Market Access and NAMA negotiations course
M2: The basic principles of the WTO | More open and predictable trade
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The progressive reduction and binding of tariffs
Tariffs, also known as "customs duties", are the most visible and commonly used trade barrier for goods. Import tariffs give a price advantage to similarly produced local goods and provide revenue for governments, as the entry of the goods is conditioned upon the payment of the customs duty. Therefore, tariffs are sometimes used by governments to protect their domestic industries from the competition of imports (as a barrier to market access). Under the GATT/WTO, the use of tariffs is not prohibited however, Members have committed to carry out multilateral negotiations periodically with a view to substantially reducing the general level of tariffs and other charges on imports and exports. But that's not all. The value of tariff reductions would not guarantee enhanced and predictable market access conditions if Members could freely increase them after the negotiations. Thus, Members also agreed to bind their tariffs at the reduced levels and to record such tariff bindings in their WTO Schedules of concessions.
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What is a tariff?
In the context of international trade, a tariff or customs duty is a financial charge in the form of a tax, imposed at the border on goods going from one customs territory to another. Tariffs applied to imports are usually collected by customs officials of the importing country when goods are cleared through customs for domestic consumption. Although tariffs can also be imposed on exports, import tariffs are the most common type of tariffs and have been the main focus of attention of GATT/WTO negotiations.
Supplementary information: WTO website More information on Tariffs: http://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm
TYPES OF TARIFFS
There are different types of tariffs, depending on the way they are calculated. Two of the most common types of tariffs used are ad valorem tariffs and specific tariffs. Ad valorem tariff A tariff calculated on the basis of the value of the imported good, expressed as a percentage of such value. Example: 10% ad valorem An ad valorem tariff of 10% on an imported truck worth US$ 1000 would lead to a requirement to pay US$ 100 as customs duty. Specific tariff An specific tariff is a tariff calculated on the basis of a unit of measure, such as weight or volume, of the imported good. Example: US$ 20 per ton A tariff of US$ 20 per ton on an imported truck of 1 ton in weight would lead to requirement to pay US$ 20 as customs duty.
Trade economists commonly share the view that ad valorem duties are preferable over non-ad valorem duties (all tariffs other than ad valorem tariffs e.g. specific tariffs) mainly because the former are more transparent than the latter.
M2: The basic principles of the WTO | More open and predictable trade 26
WHAT ARE THE WELFARE EFFECTS OF AN IMPORT TARIFF?
Tariffs are sometimes used by governments to protect their domestic industries from the competition of imports or to collect revenue. A tariff levied on an imported product imposes costs on both, the country "exporting" the product and the country "importing" that product and imposing the tariff. Costs on the country "exporting" the product Producers of the good at issue (exporters) would face worse market access conditions in the importing country than as it would be in the absence of the tariff. Costs on the "importing" country imposing the tariff The imposition of import tariffs increases the domestic price of the imported good. This usually brings gains for domestic producers of the good and the government in the importing country, but also losses for consumers (who will buy less of the product since the price is higher) and for other domestic producers who use that good as an input. In economic theory, this is called the welfare effect of a tariff (see below). Overall, in the case of a small importing country, international trade theory shows that the country as a whole will lose and national welfare will be reduced by the imposition of a tariff. That is because the costs incurred by consumers are higher than the gains obtained by the domestic producers and the government.
A tariff is equivalent to a tax that foreign exporters have to pay in order to sell the good in the domestic market. The application of the tariff increases the price of the imported good, thereby making it more expensive in the domestic (importing) market. The increase in the price discourages the importation of the good.
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EXAMPLE: EFFECTS OF AN IMPORT TARIFF ON A SMALL IMPORTING COUNTRY UNABLE TO AFFECT WORLD PRICES
In the case of a small country, international trade theory shows that the country as a whole will lose and national welfare will be reduced by the imposition of a tariff. This is mainly because the tariff cost for domestic consumers outweighs the gains for domestic producers and the government. The graph below illustrates this. Suppose initially that there are no tariffs. Then, consumers in this country pay the world price to consume. Suppose that the government decides to levy a tariff on the imports of rice. The imposition of a tariff will, first of all, increase the domestic price of the imported good. People who want to consume rice will now have to pay the world price plus the tariff. Domestic consumers of rice will, therefore, be worse off, as they will have to pay more, if they want to consume the same quantity of rice as before. On the other hand, domestic producers of rice will gain, because they will be able to sell rice at a higher price. The government will also gain, as it will be able to collect tariff revenue.
Supplementary information and background materials: See also self-training course - The WTO: economic underpinning: http://www.swisslearn.org/wto/module4/e/start.htm
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Additional information : Welfare effect of a tariff on a small importing country unable to affect world prices
The graph illustrates the welfare effect of a tariff on a small importing country unable to affect world prices under conditions of perfect competition. National economic welfare consists of consumer surplus (the difference between the willingness to pay and the actual price the consumer pays), producer surplus (the sum of profits earned by domestic suppliers) and government tariff revenue. Consumer demand is represented by demand curve D and producers in a competitive market are represented with supply curve S. Without a tariff: consumers in the importing country would buy Do at the price Po. Domestic producers would supply So and the rest (Do - So) would be imported from other countries. Consumer surplus is given by the sum of a, b, c, d, e and f whereas producer surplus is given by g. With a tariff per unit at price Pt (Po + tariff): consumers in the importing country would buy D1 (since the tariff would lead to a higher price, Pt, the quantity demanded would be lower than Do). Domestic producers would supply S1 (since the price they can get thanks to the tariff is higher, they will produce more than So) and the remaining quantity (D1 S1, which would be lower than Do So) would be imported from other countries. With a tariff: Consumer surplus: Area a+b, consumers loose c+d+e+f [consumers have to pay more due to the increase of both the price of the imports and the price of domestic substitute products] Producer surplus: Area g+c [part of the consumer loss is captured by domestic producers who gain from the increase of the sale prices] Government revenue: Area e [part of the consumer loss is captured by the government - revenue resulting from the tariff] BUT What about the loss represented by Area d+f ? Net national loss as a result of the tariff: Area d+f. No one captures the consumers loss represented by area d+f, which is normally called "deadweight loss". As a result of the price increase, some consumers are driven out of the market and this loss is captured by triangle f. The increase of domestic production entails costs that exceed the costs of the imports they replace. The loss of surplus associated with domestic production is captured by triangle d. Thus, for the country the net welfare effect of the tariff is negative.
Based on: World Trade Report 2009, page 60.

What is a tariff binding?
A "bound tariff" is a tariff for which a WTO Member accepts a legal commitment not to raise it above a certain level. In the WTO, Members commit to ''bind'' their tariffs (often during negotiations), and the "bound rate" represents the maximum level of import duty that can be levied on a product imported into that Member. It is worth noting that not all goods have a bound tariff rate in the WTO. Whether or not a tariff lines is bound has been the subject of trade negotiations amongst WTO Members, including the on-going Doha round of negotiations.
Share of tariff lines bound (%) 100% +95 < 100% +35 < 95% +15 < 35% < 15% Total No. of Members 54* 28 14 12 17 125* Developed countries 2* 7 0 0 0 9* Developing countries 43 17 12 5 7 84 LDCs 9 4 2 7 10 32
CAN A MEMBER "APPLY" A TARIFF THAT IS DIFFERENT FROM THE "BOUND LEVEL"? A Member can apply a tariff that is different from the ''bound tariff'' for that product as long as the applied level is NOT higher than the bound level. An ''applied tariff'' is the duty that is actually charged on imports on an MFN basis. Although bindings represent a maximum tariff level that can be imposed on the importation of a good, in practice Members often charge a rate below that maximum level. The difference between "bound" and "applied" levels is often referred to in the jargon as "binding overhang" or "water".
Background materials:
Legal documents: Article II:1 of the GATT: http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.h tm#articleII
Overview of tariff bindings after the Uruguay Round and Percentage increase in the number of bindings after the Uruguay Round. Source: WTO Secretariat M2: The basic principles of the WTO | More open and predictable trade
(*) Counting the EC-27 and its Member states as one, as well as Switzerland and Liechtenstein as one.
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Additional information : Pre- and post-Uruguay Round binding coverage for agricultural and non-agricultural products.
Agricultural products Percentage of tariffs lines bound Pre UR Developing economies Transition economies 17 57 Post UR 100 100 Percentage of imports under bound rates Pre UR 22 59 Post UR 100 100 Non Agricultural products Percentage of tariffs lines bound Pre UR 21 73 Post UR 73 98 Percentage of imports under bound rates Pre UR 13 74 Post UR 61 96
Latin America
Central Europe Africa Asia
36
49 12 15
100
100 100 100
74
54 8 36
100
100 100 100
38
63 13 16
100
98 69 68
57
68 26 32
100
97 90 70
Source: World Trade Report 2007

Supplementary information: Legal Underpinnings: http://www.swisslearn.org/wto/module3/e/start.htm Tariff databases: Consolidated Tariff Schedules (CTS) Database: contains all WTO Members' concessions on goods, including bound tariffs : http://tariffdata.wto.org and http://iaf.wto.org) The Integrated Data Base (IDB): provides annual information on tariffs (including applied tariffs) and on imports. http://tariffdata.wto.org and http://iaf.wto.org)
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EXAMPLE
Suppose that Vanin is a WTO Member who made a commitment to bind its tariff on bicycles at 10% ad valorem.
CAN VANIN APPLY A 12% AD VALOREM TARIFF ON BICYCLES IMPORTED FROM OTHER WTO MEMBERS? No. Vanin cannot apply a tariff that is higher than the bound level (i.e. 10% ad valorem) CAN VANIN APPLY A 15% AD VALOREM TARIFF TO RAURITANIA (A NON-WTO MEMBER)? Yes. Vanin may apply a higher duty to bicycles imported from non-WTO Members. CAN VANIN APPLY A 5% AD VALOREM TO IMPORTED BICYCLES? Yes. Vanin can apply a tariff that is lower than the bound level. But reMember that such "lower" tariff has to be applied on an MFN basis, that is, to like bicycles imported from all WTO Members.
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Where are tariff bindings recorded?: The WTO Schedules of concessions
WTO negotiations normally produce general rules that apply to all Members and specific commitments. The specific commitments are recorded in documents called Schedules of concessions (*). For trade in goods, the WTO Schedules of concessions record each Member's tariff bindings, and other concessions () resulting from trade negotiations. These concessions are granted on an MFN basis.
(*)Note: It should be noted that Members' specific commitments on trade in services (market access and national treatment) have been incorporated in the WTO Schedules on commitments for trade in services, which will be explained in Module 4.
Glossary: Other concessions: other concessions include "other duties and charges". Other duties and charges (ODCs) comprise all taxes levied on imports in addition to the customs duties (some times called "para-tariffs"), and can only be charged if they were recorded in the Member's WTO Schedule of concessions (Article II:1(b) of the GATT 1994). Examples of ODCs include "temporary import surcharges" and "revenue taxes". Harmonized Commodity Description and Coding System (Harmonized System): Most Members' Schedules of concessions for goods are based on the Harmonized System, which is an international product nomenclature for the description, classification and coding of goods developed and administered by the World Customs Organization (WCO).
Each Member has its own WTO Schedule of concessions, except for Members that are part of a customs unions (e.g. the European Union), that may have a single common Schedule for all the Members of the union. Most WTO Members' Schedules of concessions on goods are based on the Harmonized Commodity Description and Coding System - HS.
The Schedules form an integral part of the binding commitments made by WTO Members and cannot be easily changed. In that way, the Schedules of concessions provide predictability of market access for goods.
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Background information: Legal documents: Article II:1 of the GATT: http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm #articleII
Supplementary information: WTO website WTO Schedules of concessions (goods): http://www.wto.org/english/tratop_e/schedules_e/goods_sch edules_e.htm WTO website Get Tariff data: http://www.wto.org/english/tratop_e/tariffs_e/tariff_data_e. htm WTO Tariff database (Members' bound and applied tariffs): http://tariffdata.wto.org
WTO website Members' WTO Schedules of concessions: http://www.wto.org/english/docs_e/legal_e/legal_e.htm#sch edules

WTO website More information about WTO Schedules of concessions (goods): http://www.wto.org/english/tratop_e/schedules_e/goods_sch edules_table_e.htm
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EXAMPLE OF A WTO SCHEDULE OF CONCESSIONS FOR TRADE IN GOODS
Column 1 (Tariff item number) & Column 2 (Description of products): reflects the tariff code and the product description used by the Member. It often refers to the Harmonized System (HS) Nomenclature, which was established under the auspices of the World Customs Organization (WCO). Column 3 (Base rate of duty): reflects the starting-point from which the tariff cuts takes place as part of the Modalities for the negotiations. The tariff rate can be bound "B" or unbound "U".
Column 4 (Bound Rate of Duty): records what is probably the most important outcome of tariff negotiations, that is, the final bound tariff rates to be achieved at the end of the implementation period (if any Column 5). In the example, Member X has made a commitment to bind its tariffs on carp at 5.0 % ad valorem. Column 5 (Implementation Period): reflects the year "from" and "to" in which the tariff reduction will take place. It refers to 1st January of the year concerned.
Member X This Schedule is authentic only in the English Language PART I MOST-FAVOURED NATION TARIFF SECTION II Other Products
Tariff Item Number Description of Products Base Rate of Duty Ad valorem (%) Other U/B Bound Rate of Duty Ad valorem (%) Other Implementation Period From To Initial Negotiating Right (INR) Other Duties and Charges Other Terms and Conditions
1 03010 0301.10.00
0301.90.00 0301.93.00
2 Live Fish: Ornamental fish Other live fish: Carp
3
$5/kg B 0.0
4
1995
5
2004
6
Member Z
7
2%
0.0
5.0
Member W & Member Y (...)
$5/kg
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EXAMPLE OF A WTO SCHEDULE OF CONCESSIONS FOR TRADE IN GOODS
In the example, the tariff concession on "ornamental fish" made by Member X will be implemented in 10 equal reductions, starting on 1st January 1995. After the end of the designated implementation period (1st January 2001), tariffs are not allowed to be applied on "ornamental fish" beyond the level specified in Column 4. Column 6 (Initial negotiating rights (INRs): indicates the Members holding initial negotiating rights on the concession, if any. Rights can be invoked in the context of GATT Article XXVIII renegotiation of Concessions.
Column 7 (ODCs): specifies other duties and charges (ODCs) inscribed in Members' Schedules according to the Understanding on the Interpretation of GATT Article II:1(b)". Column 8 (Other terms and conditions): wherever necessary, clarifications or comments regarding the scope of the concessions shall be included in the Schedule.
Member X This Schedule is authentic only in the English Language PART I MOST-FAVOURED NATION TARIFF SECTION II Other Products
Tariff Item Number Description of Products Base Rate of Duty Ad valorem (%) Other U/B Bound Rate of Duty Ad valorem (%) Other Implementation Period From To Initial Negotiating Right (INR) Other Duties and Charges Other Terms and Conditions
1 03010 0301.10.00
0301.90.00 0301.93.00
2 Live Fish: Ornamental fish Other live fish: Carp
3
$5/kg B 0.0
4
1995
5
2004
6
Member Z
7
2%
0.0
5.0
Member W & Member Y (...)
$5/kg
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Why governments agree to reduce and bind their tariffs?
Enhanced market access and predictability for traders As tariff barriers are reduced in both developed and developing countries, increased market access opportunities will allow Members to improve welfare by expanding export volumes and revenues and through better access to their markets for imports. Tariff negotiations are not only about negotiating tariff reductions, but also about negotiating tariff bindings. Tariffs bindings provide predictability to traders by setting an upper limit on the amount of duty that can be levied on a product. In other words, traders know that the import tariff that they will have to pay for a product cannot be higher than the bound level recorded in the Schedule of concessions for that product. Tariff negotiations shall be held on a reciprocal and mutually advantageous basis Tariff negotiations shall be held on a reciprocal and mutually advantageous basis (Article XXVIII bis of the GATT). This requirement is normally referred to as ''reciprocity''. Generally, this requirement implies that negotiations for the reduction of tariffs should achieve a result that is mutually beneficial to all participants. However, the principle of reciprocity does not apply in the same manner to tariff negotiations between developed and developing country Members since it has been adapted to take account of the principle of special and differential treatment. This involves requiring from developing countries ''lesser'' liberalization than from developed countries in multilateral rounds of negotiations a principle originally referred to as "non-reciprocity" or, more recently, as "less-than-full reciprocity". This principle will be explained in the last section of this module.
Any tariff reduction granted by a Member to any country must be extended to all WTO Members (MFN principle) The MFN principle plays an important role in enhancing market access for goods. With respect to tariff negotiations, the MFN rule serves to avoid concession-erosion after tariff negotiations (see example below). In addition, for developing countries and others with little bargaining power in the negotiations, the MFN principle ensures that they will benefit from the best tariff treatment resulting from the negotiations.
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Can Members modify their tariff bindings?
Tariff concessions can be modified or withdrawn through renegotiations, subject to certain rules and procedures. The possibility of allowing for such modifications stems from the consideration that a negotiated tariff binding may become too cumbersome to maintain at times due to changing circumstances. Renegotiations should aim to reach compensatory agreement with Members holding special rights in order to maintain the balance of rights and obligations achieved prior to such renegotiations (Article XXVIII of the GATT). Such compensation could consist, for example, in the reduction of bound tariff rate(s) applicable to another product(s) of interest to the Members concerned.
Supplementary information: Legal documents: Article XXVIII of the GATT: http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.htm #articleXXVIII
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The reduction of other barriers to trade
With the progressive reduction of tariffs, it was perceived that governments were gradually shifting to other forms of measures to restrict market access for goods and protect their domestic industries. These measures may take different forms and include: quantitative restrictions (e.g. quotas), arbitrary application of trade regulations, excessive customs formalities, and technical barriers to trade, etc. 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. As a result of the Uruguay Round, Members agreed on a number of Agreements which set out specific disciplines on non-tariff measures (all measures other than tariffs that may restrict trade). In general, they impose disciplines on the application and administration of these measures so that they would not constitute unnecessary barriers to international trade.
One of the best-known forms of non-tariff barriers are quantitative restrictions (quotas), which will be introduced in the next section of this Module. Module 4 will introduce the WTO Agreements that set out specific disciplines on other types of non-tariff measures.
Supplementary information: E-Learning courses: Market Access and NAMA negotiations course
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The general elimination of quantitative restrictions
WTO Members cannot, as a general rule, impose quantitative restrictions (e.g. bans or quotas) on the goods imported from or exported to another Member. While tariffs are allowed as long as they do not exceed the bound levels and are applied on a non-discriminatory basis, quantitative restrictions are generally prohibited. It should be noted however that there are exceptions which allow the imposition of quantitative restrictions in certain circumstances and subject to specific conditions (for example, they cannot be applied in a discriminatory manner, according to the MFN principle).
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What is a quantitative restriction?
Quantitative restrictions 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 quantitative restrictions are prohibitions and quotas.
LEGAL BASIS
EXAMPLE Suppose that Vanin is a WTO Member. After determining the potential market for watches in Vanin, this country decides to adopt a new regulation which limits the amount of imported watches to 10,000 per year.
The general prohibition of quantitative restrictions is contained in Article XI:1 of the GATT. This principle also applies to trade in services (Article XVI of the GATS), although in a different manner, as it will be explained in Module 4. It does not apply to trade-related aspects of intellectual property rights.
WOULD THIS MEASURE CONSTITUTE A QUANTITATIVE RESTRICTION IN THE SENSE OF ARTICLE XI:1 OF THE GATT? Yes. The measure applied by Vanin constitutes a limitation on the amount of goods imported (import quota) and thus, a quantitative restriction according to Article XI:1 of the GATT.
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Why are quantitative restrictions generally prohibited?
In general, the effects of an import quota are similar to the effects of an import tariff, although there are some important differences. The figure below illustrates the welfare effects of an import quota on a small importing country. The trade effects of an import quota are 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.
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 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. The market access conditions achieved through GATT/WTO tariff negotiations would be easily undermined if Members were free to impose restrictions or limitations on the quantity or value of imports.
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.
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Additional information : The welfare effect on an import quota on a small importing country
The figure illustrates 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 (120) 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), leading to an effect similar to the one of a tariff. Consumer 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? In the case of 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. 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. Based on: World Trade Report 2009, pages 60-61.
Main Elements
ARTICLE X:1 APPLIES ONLY TO "BORDER" MEASURES Article XI: 1 of the GATT only applies to "border measures" (as opposed to internal measures). As you studied in the previous section, internal measures are instead subject to the national treatment principle set forth in Article III of the GATT. ARTICLE X:1 COVERS A "BROAD RANGE" OF BORDER MEASURES By referring to import or export restrictions made effective through "quotas, imports or export licenses or other measures", Article XI:1 of the GATT provides for a wide range of measures. Article X:1 applies to all measures applied by a Member prohibiting or restricting the importation, exportation or sale for export of products (other than duties, taxes or other charges compatible with GATT rules). The Council for Trade in Goods, in a 1996 Decision provided an illustrative list of the ways in which quantitative restrictions could be made effective (G/L/59, Annex).
EXAMPLE
Suppose that Vanin decides to impose to all watch importers the requirement to submit to customs authorities detailed information on the production and sale of watches (including information on productions costs, materials used for their production, sale prices) as a condition for the importation of watches. No watch can be imported into Vanin without the fulfilment of this requirement. Since the adoption of this regulation, the volume of watches imported from other WTO Members has decreased notably due to the burdensome requirement to submit detailed information on the production and sale of watches.
WOULD THIS MEASURE CONSTITUTE A QUANTITATIVE RESTRICTION IN THE SENSE OF ARTICLE XI:1 OF THE GATT? The measure may constitute a quantitative restriction. ReMember that the scope of Article XI:1 is very broad. It covers any border measure which has the effect of restricting or limiting the importation of goods in the terms set forth in Article XI.
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What about "tariff quotas"?
What would happen if now Vanin decides to apply a preferential tariff rate of 5% to watches up to 3,000 units. Beyond 3,000 units, Vanin allows the importation of watches, but applying a higher import tariff of 70%. WOULD THIS MEASURE CONSTITUTE A QUANTITATIVE RESTRICTION IN THE SENSE OF ARTICLE XI:1 OF THE GATT? No. The measure applied by Vanin constitutes a tariff quota, which is different from a quota. Tariff quotas are a form or tariff and, therefore, are allowed under the WTO Agreements. A tariff quota is a two-tiered tariff under which, predetermined quantities of goods can be imported at a "preferential" (lower) rate of customs duty over a given period of time ("in-quota" rate). Once the tariff quota volume has been filled, one can continue to import the product without limitations but paying a higher tariff rate ("out-of-quota" rate).
DIFFERENCE BETWEEN A "QUOTA" AND A "TARIFF QUOTA In the example (tariff quota), Vanin is not imposing any numerical limitation on the amount of watches that can be imported. Instead, Vain is providing better market access through a preferential duty (5%) for imported watches up to 3,000 units. Once this tariff quota volume has been filled, one can continue importing watches into Vanin without limitations but paying a higher tariff rate (70%). This is different from the quota first applied by Vanin, which imposed an absolute limit on the quantity of watches that could be imported (up to 10,000). Imports above 10,000 were prohibited, even if willing to pay a much higher tariff.
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Exceptions
As mentioned above, there are exceptions to the principle of general elimination of quantitative restrictions: Specific exceptions contained in Article XI of the GATT: 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)). 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)). 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)). Other Exceptions contained in other GATT/WTO provisions: they allow Members to depart from the main WTO principles, including the general prohibition of quantitative restrictions. These exceptions will be explained in Module 3.
(*) Note: the "agricultural exception" ended when the WTO Agreement on Agriculture entered into force. Therefore, quantitative restrictions remain possible only on fishery products, which are treated as non-agricultural products in the framework of the WTO. Their administration is subject to the rules on non-discrimination (see below).
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Non-discriminatory administration of quantitative restrictions (applied as an exception) and tariff quotas

In cases where the use of a quantitative restriction is allowed, as well as in the case of tariff quotas, there are requirements applicable to their administration. The basic requirement is that, where authorized, quantitative restrictions must be imposes on a nondiscriminatory basis (Article XIII of the GATT). That is, a Member cannot limit the quantity of imports from some Members, but not from others. In applying import restrictions to any product, Members shall aim at a distribution of trade 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).
See also section on the Agreement on Import Licensing Procedures (Module 4).
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Transparency
Surveillance of national trade policies through the Trade Policy Review Mechanism
Transparency is another fundamental principle of the WTO. It is important that trade policies and regulations are made accessible to governments and, in particular, traders, as to allow them to know what are the trade rules around the world. Transparency has also a systemic importance. It allows the monitoring of Members trade measures and practices as well as their impact on the multilateral trading system. This section will introduce the principle of transparency and the different WTO mechanisms and tools to enhance transparency of international trade. Module 5 will develop further on these mechanisms and tools.
Legal Basis
How does the WTO enhance transparency in international trade?
Domestic publication of trade regulations
Notification of trade measures to the WTO
Other transparency mechanisms and tools
Supplementary information: Understanding the WTO- Transparency http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact 2_e.htm
M2: The basic principles of the WTO | Transparency
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Legal Basis
Most WTO Agreements include transparency obligations. The general principle on transparency for trade in goods is set forth in Article X of the GATT (explained below). As you will see later on in this course, most WTO agreements on trade in goods include transparency obligations. For trade in services, the transparency provision is provided in Article III of GATS, and in the case of traderelated aspects of intellectual property rights, in Article 63 of the TRIPS Agreement.
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How does the WTO enhance transparency in international trade?
The WTO mechanisms and tools to enhance transparency include mainly those directed to keep the WTO Membership informed about individual Members policies and practices having an impact on trade (internal transparency - within the WTO). The principle of transparency applies to trade in goods, trade in services and trade-related aspects of intellectual property rights. There are also a number of initiatives and programmes directed to inform the general public, including academics and civil society, about WTOs activities (external transparency). In Doha Ministerial Conference, Members reaffirmed the importance of ensuring internal transparency (see Doha Ministerial Declaration, para. 10). While emphasizing the intergovernmental character of the organization, they committed to making the WTO's operation more transparent, including through more effective and prompt dissemination of information and to improve dialogue with the public.
This Module will introduce the mechanisms to keep the WTO and its Members informed. It is worth noting that some of these mechanisms have also the effect of improving external transparency.
Internal transparency: keeping the WTO informed Review of Members national trade policies through the Trade Policy Review Mechanism Domestic publication of Members trade regulations Notification of Members trade measures to the WTO Other transparency mechanisms
External transparency: keeping the public informed Initiatives and programmes aimed at informing the general public about WTOs activities.
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Surveillance of national trade policies through the Trade Policy Review Mechanism
As explained in Module 1, one of the functions of the WTO is to implement the Trade Policy Review Mechanism (TPRM). The TPRM was an early result of the Uruguay Round being provisionally introduced into GATT in 1989. With the creation of the WTO in 1995, it was made permanent and broadened to cover also trade in services and trade- related aspects of intellectual property rights. The reviews focus on Members domestic trade policies and practices taking into account Members wider economic and developmental needs their policies and objectives, and the external economic environment that they face. The reviews take place in the Trade Policy Review Body (TPRB), which is the General Council operating under special rules and procedures, and comprises all WTO Members. The reviews are not intended to serve as a basis for the enforcement of specific obligations under the WTO Agreements, for dispute settlement procedures or to impose new commitments on Members.
Supplementary information: WTO website Trade Policy Reviews: http://www.wto.org/english/tratop_e/tpr_e/tpr_e.htm Brief introduction: http://www.wto.org/english/tratop_e/tpr_e/tp_int_e.htm
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The TPRM review process

What are the objectives of the TPRM? The main objectives of the TPRM are (*): the smoother functioning of the MTS by achieving greater transparency and understanding of Members' trade policies and practices enable the collective appreciation and evaluation of the full range of individual Members' trade policies and practices and their impact on the MTS contribute to improved adherence by all Members to rules, disciplines and commitments made under the WTO Agreements Who is subject to the TPRM? All WTO Members are subject to review under the TPRM. The frequency of each Members review varies according to its share of world trade. The reviews have two broad results: they enable outsiders to understand a Members trade policies and practices and they provide feedback to the reviewed Member. When do the reviews take place? The frequency of reviews of a Member is defined by the Member's share of world trade in goods and services: the four biggest traders (the European Union, the United States, Japan and China) are examined once every two years. the next 16 countries with a lesser share in world trade are reviewed every four years. all other Members (most developing Members and economies in transition) are reviewed every six years, with the possibility of a longer interim period for LDCs.
(*) Note: Annex 3 of the Agreement Establishing the WTO, paragraph A.
M2: The basic principles of the WTO | Transparency 52
What is subject to review? The reviews focus on the extent to which individual trading entities follow basic WTO principles concerning transparency of trade policies, non-discrimination in treatment of trading partners, the pattern of protection and the extent to which tariffs only are used as measures of protection in trade in goods. They also consider restrictions used in trade in services, the record of adherence to the MTS and participation in dispute settlement. How it works? For each review two documents are prepared: A report written independently by the WTO Secretariat: it follows a format, which contains summary observations. It is mainly based on official information and comments provided by the Member under review. A policy statement by the Member under review: it takes the form of a policy statement, which outline the objectives and main directions of trade policies. These two documents, which form the basis of the review, are then discussed by the WTOs full Membership in the TPRB. Both documents and the proceedings of the TPRBs meetings are published shortly afterwards.
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The TPRM and developing Members
The TPRM is a valuable tool for the development of trade policies in developing and LDC Members. Given the fact that these Members may confront with particular difficulties in adjusting their domestic policies in compliance with the WTO Agreements, a trade policy review would assist them to undertake a process of selfassessment, including an examination of their participation in the WTO. Preparation for and participation in a trade policy review can be onerous for small developing countries. The WTO Secretariat may assist the Member concerned during the review process.
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Domestic publication of trade regulations
The WTO Agreements require the prompt publication of domestic laws, regulations, judicial decisions, administrative rulings and international agreements affecting trade in such a manner as to enable governments and traders to become acquainted with them. This general obligation related to the domestic publication of trade regulations is provided in Article X of the GATT. Members shall also refrain from enforcing certain measures (e.g. increasing a rate of duty or imposing more burdensome requirements on imports) before their publication. Article X also requires Members to administer their traderelated regulations in a uniform, impartial and reasonable manner.
Supplementary information: Legal documents: Article X of the GATT: http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm #articleX
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Notification of trade measures to the WTO
WTO Members are required to notify to other Members, through the WTO Secretariat, about their trade-related policies, laws and measures. Notification requirements are found throughout the WTO Agreements. In addition, some WTO Agreements require Members to allow a reasonable interval between the publication of a regulation and its entry into force in order to allow time for producers to adapt to the new regulation. Sometimes they also require the establishment of enquiry or contact points (offices within each Member) where foreign traders can acquire information on trade Members' trade regulations. As you studied in Module 1, there are different WTO bodies in charge of the administration of the WTO Agreements. These bodies provide Members with the opportunity to discuss any matters relating to the measures notified under the WTO Agreements. WTO notifications will be further explained in Module 5.
Supplementary information: TA Handbook on notifications: http://docsonline.wto.org/DDFDocuments/t/WT/TCNOTIF/INF 1.WPF
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Other transparency mechanisms and tools
There are many other transparency mechanisms or instruments in the WTO. One of these mechanisms is the Transparency mechanism for regional trade agreements (explained in Module 5). The WTO also provides information on diverse trade-related matters through its various databases.
Examples of WTO databases: Consolidated Tariff Schedules (CTS) Database: contains all WTO Members' concessions on goods, for example, bound tariffs (http://tariffdata.wto.org and http://iaf.wto.org) The Integrated Data Base (IDB): provides annual information on tariffs (including applied tariffs) and on imports (http://tariffdata.wto.org and http://iaf.wto.org) Sanitary and phytosanitary Measures (SPS) Information Management System (IMS): a database of WTO information on SPS (http://spsims.wto.org). The SPS Agreement will be introduced in Module 4. Technical Barriers to Trade (TBT) Information Management System (IMS): (http://tbtims.wto.org). The TBT Agreement will be introduced in Module 4. Global Technical Assistance Database (GITAD): provides general information on technical assistance and capacity building programmes provided by different institutions to developing countries, LDCs and other beneficiary countries (http://gtad.wto.org)
WTO Databases
The WTO databases constitute practical working tools which provide standardized and consolidated information to the Members and in some cases, also to the public general. They are particularly useful for developing and LDC Members that often have fewer resources than the more advanced economies to maintain and analyse such information.
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Special treatment for less developed Members WTO development dimension

Trade plays an important role in fostering economic growth and reducing poverty in developing countries. However, many developing Members face particular difficulties in benefiting from trade liberalization. Members have recognized the need for positive efforts designed to ensure that developing countries and in particular, the least-developed among them, secure a share in the growth of international trade commensurate with the needs of their economic development. The WTO contributes to development in a variety of ways. In this section, we will introduce the concept of special and differential treatment (S&D) for developing Members and the main provisions and programmes that form part of the "development dimension" of the WTO. The Committee on Trade and Development (CTD), its SubCommittee on LDCs and its subsidiary bodies, are the focal points for consideration and coordination of work related to trade and development in the WTO.
Who benefits from special and differential treatment (S&D) in the WTO?
How does the WTO provide special treatment?
Why developing and LDC Members need S&D?
Supplementary information: Legal basis: Preamble to the Marrakech Agreement Establishing the WTO: http://www.wto.org/english/docs_e/legal_e/04wto_e.htm
M2: The basic principles of the WTO | Special treatment for less developed Members WTO development dimension
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Who benefits from special and differential treatment (S&D) in the WTO?
In general, all developing Members and least-developed country (LDC) Members benefit from S&D in the WTO. The special provisions and programmes for developing Members apply to LDC Members, but LDC Members benefit from additional rights. As you saw in Module 1, there is no agreed definition of what is a "developing country" because the system is based on self-election (Members decide for themselves if they are to be considered "developing countries"). In the case of LDCs, the WTO recognises as such those countries which have been designated by the United Nations Economic and Social Council. Besides developing and LDC Members, there are also other groups of Members that benefit from special treatment or programmes, according to their particular situation. They include: small economies, countries in transition from central planning to market economies and governments in process of accession. It is important to note that these groups do not create a new category or sub-category of Members within the WTO.
Glossary: Small economies: at the Doha Ministerial Conference Members agreed to examine issues related to small economies (paragraph 35 of the Doha Declaration (WT/MIN(01)/DEC/l)). This group of Members, integrated mainly by a group of landlocked countries and small islands, face specific challenges in their participation in world trade. Such challenges include physical isolation and distance from main markets, minimal share of world trade, low productivity and insufficient supply, as well as high transport and transit costs.
Supplementary information
WTO website Who are developing Members in the WTO? http://www.wto.org/english/tratop_e/devel_e/d1who_e.htm Link to Understanding the WTO developing countries: http://www.wto.org/english/thewto_e/whatis_e/tif_e/dev1_e .htm List of LDC Members: http://www.wto.org/english/thewto_e/whatis_e/tif_e/org7_e .htm WTO website Work programme on small economies http://www.wto.org/english/tratop_e/devel_e/dev_wkprog_s malleco_e.htm
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Why developing and LDC Members need S&D?
The rationale behind the concept of special and differential treatment as envisaged in the WTO is that developing countries and LDCs are disadvantaged in their participation in international trade. Many developing countries produce a limited number of products. Furthermore, many of them produce mainly raw materials and primary commodity exports, affected by low prices and price volatility. On the other hand, developing countries are resource-constrained. Therefore, they find it harder to adjust to the impact of trade liberalization (they lack transfer mechanisms to compensate the losers recall Module 1: trade redistributive effects and adjustment costs). Moreover, developing countries often face supply-side constraints which prevent their industries from taking advantage of new trading opportunities, for instance due to inadequate infrastructure. In addition, they lack the institutional and human resources required to manage the cost of implementing certain WTO obligations. It should be noted however, that constraints of developing countries vary considerably from country to country.
Special and differential treatment is considered a useful tool which provides special advantages to developing countries in order to help them take full advantage of trade liberalization and integrate into the MTS.
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How does the WTO provide special treatment?
The WTO contributes to development in a variety of ways. The main WTO provisions, programmes and initiatives in this respect include: Special and differential treatment: in the form of special flexibilities or rights as provided in the various WTO Agreements and decisions. Technical assistance and training: to help these Members better understand WTO rules so that they can better exercise their rights of Membership and negotiate more effectively with their trading partners. Capacity building through other programmes: such as the Aid for Trade initiative and the Enhanced Integrated Framework (EIF) for LDCs. This module will focus on the special and differential treatment provisions for developing and LDC Members. Module 5 will elaborate on WTO technical assistance and training and other capacity building programmes.
Main Capacity building programmes
By WTO Secretariat
In partnership with other organizations Aid for trade (Fact sheet) Enhanced Integrated Framework (Fact sheet) Standards and Trade Development Facility (STDF)
Technical Assistance and Training (Fact sheet) Trade Facilitation (Fact sheet)
Supplementary information: WTO website Trade and Development http://www.wto.org/english/tratop_e/devel_e/devel_e.htm
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Special and differential treatment provisions
In the initial years of the GATT, developing Contacting Parties did not benefit from special and differential treatment as they do today. The Uruguay Round marked a new approach to the concept of special and differential treatment.
This Module will introduce the main provisions on special and differential treatment. Other provisions will be addressed in the following Modules, while introducing the different WTO Agreements.
The universe of special and differential treatment (S&D) provisions consists of more than 145 provisions spread across the different WTO Agreements (for trade in goods, services and trade-related aspects of intellectual property rights), as well as many decisions. These provisions can be classified into different categories according to the objectives they pursue.
The extent to which developing and LDC Members have recourse to these provisions varies across the Agreements. As we will see later on, the WTO provisions on special and differential treatment are currently under revision within the Doha Round of negotiations with a view to make them more effective and operational.
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DIFFERENT CATEGORIES OF S&D PROVISIONS:

Supplementary information:
Provisions aimed at expanding the trade opportunities : they provide high priority to the reduction and elimination of barriers to products of particular interest to developing countries.
WTO website Special and differential treatment provisions: http://www.wto.org/english/tratop_e/devel_e/dev_s pecial_differential_provisions_e.htm

WTO website Example of provisions on special and differential treatment: http://www.wto.org/english/tratop_e/devel_e/tecco p_e/s_and_d_eg_e.htm A comprehensive overview of S&D provisions can be found in the document "Implementation of Special and Differential Treatment Provisions in WTO Agreements and Decisions" (WT/COMTD/W/77)
Provisions giving more flexibility to developing Members in the use of policy instruments :
they include exceptions from commitments, otherwise applying to the Membership in general.
Provisions giving developing Members longer transitional periods to meet their WTO obligations : they recognize that developing Members may need more time to adjust to and implement their obligations.
Special provisions for LDCs : these Members receive extra attention in the WTO. All WTO Agreements recognize that they must benefit from the greatest possible flexibilities and better-off Members must make extra efforts to lower import barriers on LDCs exports.
M2: The basic principles of the WTO | Special treatment for less developed Members WTO development dimension 63
Main S&D provisions on trade in goods
PRINCIPLE OF "NON-RECIPROCITY" OR LESS THAN FULL RECIPROCITY PART IV OF THE GATT
The concept of non-reciprocity relates to developed Members not expecting reciprocity for commitments made by them in trade negotiations to reduce or remove tariffs and other barriers to the trade of developing Members (Article XXXVI:8, Part IV of the GATT).
Legal Basis: Article XXXVI:8, Part IV of the GATT: http://www.wto.org/english/docs_e/legal_e/gatt47_02_e.h tm#articleXXXVI
The principle of non-reciprocity involves requiring from developing Members "less liberalization" than from developed Members. This principle has permitted developing Members, for example, to undertake lower levels of tariff bindings in multilateral rounds of negotiations. This concept has evolved over time and, more recently, it is normally referred to as "less-than full reciprocity".
ENABLING CLAUSE
The ''Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries" adopted in 1979(*1), is known as the "Enabling Clause". The main objective of the Enabling Clause is to increase commercial opportunities for developing Members (including LDC Members). The Enabling Clause will be explained in Module 3 (Exception).
Legal Basis: Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries http://www.wto.org/english/docs_e/legal_e/enabling1979 _e.htm
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Examples of S&D provisions- according to the different categories of S&D provisions
Provisions aimed at expanding the trade opportunities of developing Members. For example, developed Members have committed themselves to accord high priority to the reduction and elimination of barriers to products currently or potentially of particular export interest to developing Members, including customs duties and other restrictions which differentiate unreasonably between such products in their primary and in their processed forms (Article XXXVII:1(a) of the GATT). Another example of this type of provisions is the Enabling Clause (explained below).
Provisions giving developing Members longer transitional periods to meet their WTO obligations. For example, Article 65 of the TRIPS Agreement authorized developing Members to delay for a further period of four years the date of application of the Agreement.
Special provisions for LDCs. An example is the Decision on "Duty-Free Quota-Free" treatment which provides duty-free and quota-free market access for at least 97 per cent of products originating from LDCs (Annex F of the Hong Kong Ministerial Declaration). This decision will be introduced in Module 5.
Provisions giving more flexibility to developing Members in the use of policy instruments. One example is Article XVIII of the GATT, which allows developing Members to maintain sufficient flexibility in their tariff structure to be able to grant the tariff protection required for the establishment of a particular industry.
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Summary
The WTO Agreements are based on a number of basic principles which constitute the foundations of the MTS. They apply to trade in goods, trade in services and trade-related aspects of intellectual property rights, although not always in the same way. The WTO basic principles are:
Most-favoured nation (MFN) principle

The MFN principle ensures non-discrimination between trading partners. If a WTO Member grants to a country an advantage, it has to give such advantage to all WTO Members. The MFN principles ensures that every time a WTO Member lowers a trade barrier or opens up a market, it has to do so for the like goods or services from all WTO Members without regard of the Members' economic size or level of development. In the case of trade in goods, the objective is to prohibit discrimination among "like products" originating in or destined for other Members (Article I of GATT). National treatment While the MFN principle seeks to ensure that a WTO Member does not discriminate between WTO Members, the national treatment principle, the national treatment principle ensures non-discrimination between domestic and foreign products, services or nationals. For trade in goods, the national treatment principle prohibits a WTO Member from favouring its domestic products over the imported like products of other Members (Article III of GATT). The national treatment principle applies to internal measures.
M2: The basic principles of the WTO | Summary
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More open and predictable trade Lowering trade barriers is one of the most obvious means of encouraging trade. These trade barriers include customs duties ("tariffs"), as well as import bans or quotas. However, there are also several other measures that could restrict or even impede market access for goods and services. The main WTO provisions on market access for trade in goods cover: The progressive reduction and binding of tariffs; The general elimination of quantitative restrictions; and, The reduction of other barriers to trade. Transparency Transparency is another fundamental principle of the WTO. It is important that trade policies and regulations are made accessible to governments and, in particular, traders, as to allow them to know what are the trade rules around the world. Transparency has also a systemic importance. It allows the monitoring of Members trade measures and practices as well as their impact on the multilateral trading system. Special and differential treatment for developing and LDC Members The WTO Agreements recognize the particular situation of developing and LDC country by providing them with special treatment (e.g. in the form of additional flexibilities). The WTO contributes to development in a variety of ways. The WTO Agreements contain special provisions for developing countries, including longer periods to implement their obligations and measures to increase their trading opportunities. The WTO also organizes hundreds of technical assistance activities to help developing Members to better understand and implement WTO rules. Capacity building also involves providing assistance to build the supply-side capacity and infrastructure needed in these countries to expand their trade.
M2: The basic principles of the WTO | Summary 67

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Online Course Of

Introduction to the WTO

The basic principles of the WTO

More open and predictable trade

Special treatment for less developed Members WTO development dimension

M2: The basic principles of the WTO |

M2: The basic principles of the WTO | Introduction

The Mostfavoured nation (MFN) principle

M2: The basic principles of the WTO | Non Discrimination

The Most-favoured nation (MFN) principle

Background information and materials

M2: The basic principles of the WTO | Non Discrimination

M2: The basic principles of the WTO | Non Discrimination

M2: The basic principles of the WTO | Non Discrimination

M2: The basic principles of the WTO | Non Discrimination

Main elements of the MFN principle

The MFN principle requires WTO Members that:

Any advantage under Article I granted to any country

Shall be accorded "immediately and unconditionally"

To like products of all other members

M2: The basic principles of the WTO | Non Discrimination

ANY ADVANTAGE UNDER ARTICLE I GRANTED TO ANY COUNTRY

M2: The basic principles of the WTO | Non Discrimination

SHALL BE ACCORDED "IMMEDIATELY AND UNCONDITIONALLY

Supplementary information and background materials:

WTO Analytical Index Article I of the GATT: http://www.wto.org/english/res_e/booksp_e/analytic_index_ e/gatt1994_01_e.htm#article1C

M2: The basic principles of the WTO | Non Discrimination

WTO Analytical Index Article I of the GATT: http://www.wto.org/english/res_e/booksp_e/analytic_inde x_e/gatt1994_01_e.htm#article1C

M2: The basic principles of the WTO | Non Discrimination

Benefits of the MFN principle

M2: The basic principles of the WTO | Non Discrimination

Exceptions to the MFN principle

M2: The basic principles of the WTO | Non Discrimination

The National Treatment Principle

M2: The basic principles of the WTO | Non Discrimination

Now, lets take a closer look at Article III of the GATT.

M2: The basic principles of the WTO | Non Discrimination

Non-discriminatory treatment between products of WTO Members

Non-discriminatory treatment between imported and domestic products

M2: The basic principles of the WTO | Non Discrimination

M2: The basic principles of the WTO | Non Discrimination

THE NATIONAL TREATMENT PRINCIPLE APPLIES ONLY TO INTERNAL MEASURES

M2: The basic principles of the WTO | Non Discrimination

directly competitive or substitutable products = imperfectly substitutable

Directly competitive or substitutable products

Article III:2, first sentence

M2: The basic principles of the WTO | Non Discrimination

M2: The basic principles of the WTO | Non Discrimination

Exceptions to the National Treatment principle

Specific exceptions to the national treatment principle (goods):

M2: The basic principles of the WTO | Non Discrimination

More open and predictable trade

The reduction of other barriers to trade

The progressive reduction and binding of tariffs

WHAT ARE THE WELFARE EFFECTS OF AN IMPORT TARIFF?

Based on: World Trade Report 2009, page 60.

What is a tariff binding?

Legal documents: Article II:1 of the GATT: http://www.wto.org/english/docs_e/legal_e/gatt47_01_e.h tm#articleII

Source: World Trade Report 2007

Where are tariff bindings recorded?: The WTO Schedules of concessions

WTO website Members' WTO Schedules of concessions: http://www.wto.org/english/docs_e/legal_e/legal_e.htm#sch edules

EXAMPLE OF A WTO SCHEDULE OF CONCESSIONS FOR TRADE IN GOODS

2 Live Fish: Ornamental fish Other live fish: Carp