Eighth Semester

BA LLB Paper code: LLB 408

Subject: International Trade Law

Unit – I: Trade in Goods I

a. General Agreement on Tariffs and Trade (GATT)
b. Agreement on Agriculture
c. Agreement on Sanitary and Phytosanitary Measures
d. Agreement on Technical Barriers to Trade

Unit-II: Trade in Goods II

a. Agreement on Trade-Related Investment Measures
b. Agreement on Subsidies and Countervailing Measures
c. Anti-dumping Agreement
d. Agreement on Safeguards

Unit – III: Trade in Services

a. General Agreement on Trade in Services
b. Ongoing Multilateral Negotiations

Unit – IV: International Trade Dispute Resolution

a. Nullification or impairment
b. Dispute settlement
c. Enforcement and Remedies
Unit – I: Trade in Goods I
A. General Agreement on Tariffs and Trade (GATT)

General Agreement on Tariffs and Trade (GATT) was a multilateral agreement regulating
international trade. According to its preamble, its purpose was the "substantial reduction of
tariffs and other trade barriers and the elimination of preferences, on a reciprocal and mutually
advantageous basis." It was negotiated during the United Nations Conference on Trade and
Employment and was the outcome of the failure of negotiating governments to create the
International Trade Organization (ITO). GATT was signed by 23 nations in Geneva on October
30, 1947 and took effect on January 1, 1948. It lasted until the signature by 123 nations in
Marrakesh on April 14, 1994 of the Uruguay Round Agreements, which established the World
Trade Organization (WTO) on January 1, 1995.

The original GATT text (GATT 1947) is still in effect under the WTO framework, subject to the
modifications of GATT 1994

Annecy Round: 1949

The second round took place in 1949 in Annecy, France. 13 countries took part in the round. The
main focus of the talks was more tariff reductions, around 5000 in total.

Torquay Round: 1951

The third round occurred in Torquay, England in 1950. Thirty-eight countries took part in the
round. 8,700 tariff concessions were made totaling the remaining amount of tariffs to ¾ of the
tariffs which were in effect in 1948. The contemporaneous rejection by the U.S. of the Havana
Charter signified the establishment of the GATT as a governing world body.

Geneva Round: 1955–59

The fourth round returned to Geneva in 1955 and lasted until May 1956. Twenty-six countries
took part in the round. $2.5 billion in tariffs were eliminated or reduced.

Dillon Round: 1960–62

The fifth round occurred once more in Geneva and lasted from 1960-1962. The talks were named
after U.S. Treasury Secretary and former Under Secretary of State, Douglas Dillon, who first
proposed the talks. Twenty-six countries took part in the round. Along with reducing over $4.9
billion in tariffs, it also yielded discussion relating to the creation of the European Economic
Community (EEC).

Kennedy Round: 1962–67

The sixth round of GATT multilateral trade negotiations, held from 1963 to 1967. It was named
after U.S. President John F. Kennedy in recognition of his support for the reformulation of the
United States trade agenda, which resulted in the Trade Expansion Act of 1962. This Act gave
the President the widest-ever negotiating authority.

As the Dillon Round went through the laborious process of item-by-item tariff negotiations, it
became clear, long before the Round ended, that a more comprehensive approach was needed to
deal with the emerging challenges resulting from the formation of the European Economic
Community (EEC) and EFTA, as well as Europe's re-emergence as a significant international
trader more generally.

Japan's high economic growth rate portended the major role it would play later as an exporter,
but the focal point of the Kennedy Round always was the United States-EEC relationship.
Indeed, there was an influential American view that saw what became the Kennedy Round as the
start of a transatlantic partnership that might ultimately lead to a transatlantic economic
community.

To an extent, this view was shared in Europe, but the process of European unification created its
own stresses under which the Kennedy Round at times became a secondary focus for the EEC.
An example of this was the French veto in January 1963, before the round had even started, on
membership by the United Kingdom.

Another was the internal crisis of 1965, which ended in the Luxembourg Compromise.
Preparations for the new round were immediately overshadowed by the Chicken War, an early
sign of the impact variable levies under the Common Agricultural Policy would eventually have.
Some participants in the Round had been concerned that the convening of UNCTAD, scheduled
for 1964, would result in further complications, but its impact on the actual negotiations was
minimal.

In May 1963 Ministers reached agreement on three negotiating objectives for the round:

(a) Measures for the expansion of trade of developing countries as a means of furthering their
economic development,

(b) Reduction or elimination of tariffs and other barriers to trade, and

(c) Measures for access to markets for agricultural and other primary products.

The working hypothesis for the tariff negotiations was a linear tariff cut of 50% with the smallest
number of exceptions. A drawn-out argument developed about the trade effects a uniform linear
cut would have on the dispersed rates (low and high tariffs quite far apart) of the United States as
compared to the much more concentrated rates of the EEC which also tended to be in the lower
held of United States tariff rates.
The EEC accordingly argued for an evening-out or harmonization of peaks and troughs through
its cerement, double cart and thirty: ten proposals. Once negotiations had been joined, the lofty
working hypothesis was soon undermined. The special-structure countries (Australia, Canada,
New Zealand and South Africa), so called because their exports were dominated by raw
materials and other primary commodities, negotiated their tariff reductions entirely through the
item-by-item method.

In the end, the result was an average 35% reduction in tariffs, except for textiles, chemicals, steel
and other sensitive products; plus a 15% to 18% reduction in tariffs for agricultural and food
products. In addition, the negotiations on chemicals led to a provisional agreement on the
abolition of the American Selling Price (ASP). This was a method of valuing some chemicals
used by the noted States for the imposition of import duties which gave domestic manufacturers
a much higher level of protection than the tariff schedule indicated.

However, this part of the outcome was disallowed by Congress, and the American Selling Price
was not abolished until Congress adopted the results of the Tokyo Round. The results on
agriculture overall were poor. The most notable achievement was agreement on a Memorandum
of Agreement on Basic Elements for the Negotiation of a World Grants Arrangement, which
eventually was rolled into a new International Grains Arrangement.

The EEC claimed that for it the main result of the negotiations on agriculture was that they
"greatly helped to define its own common policy". The developing countries, who played a
minor role throughout the negotiations in this Round, benefited nonetheless from substantial
tariff cuts particularly in non-agricultural items of interest to them.

Their main achievement at the time, however, was seen to be the adoption of Part IV of the
GATT, which absolved them from according reciprocity to developed countries in trade
negotiations. In the view of many developing countries, this was a direct result of the call at
UNCTAD I for a better trade deal for them.

There has been argument ever since whether this symbolic gesture was a victory for them, or
whether it ensured their exclusion in the future from meaningful participation in the multilateral
trading system. On the other hand, there was no doubt that the extension of the Long-Term
Arrangement Regarding International Trade in Cotton Textiles, which later became the Multi-
Fiber Arrangement, for three years until 1970 led to the longer-term impairment of export
opportunities for developing countries.

Another outcome of the Kennedy Round was the adoption of an Anti-dumping Code, which gave
more precise guidance on the implementation of Article VI of the GATT. In particular, it sought
to ensure speedy and fair investigations, and it imposed limits on the retrospective application of
anti-dumping measures.

Kennedy Round took place from 1962-1967. $40 billion in tariffs were eliminated or reduced.

Tokyo Round: 1973–79

Reduced tariffs and established new regulations aimed at controlling the proliferation of non-
tariff barriers and voluntary export restrictions. 102 countries took part in the round. Concessions
were made on $190 billion worth.

Uruguay Round: 1986–94

The Uruguay Round began in 1986. It was the most ambitious round to date, hoping to expand
the competence of the GATT to important new areas such as services, capital, intellectual
property, textiles, and agriculture. 123 countries took part in the round. The Uruguay Round was
also the first set of multilateral trade negotiations in which developing countries had played an
active role.

Agriculture was essentially exempted from previous agreements as it was given special status in
the areas of import quotas and export subsidies, with only mild caveats. However, by the time of
the Uruguay round, many countries considered the exception of agriculture to be sufficiently
glaring that they refused to sign a new deal without some movement on agricultural products.
These fourteen countries came to be known as the "Cairns Group", and included mostly small
and medium-sized agricultural exporters such as Australia, Brazil, Canada, Indonesia, and New
Zealand.

The Agreement on Agriculture of the Uruguay Round continues to be the most substantial trade
liberalization agreement in agricultural products in the history of trade negotiations. The goals of
the agreement were to improve market access for agricultural products, reduce domestic support
of agriculture in the form of price-distorting subsidies and quotas, eliminate over time export
subsidies on agricultural products and to harmonize to the extent possible sanitary and
phytosanitary measures between member countries.

GATT and the World Trade Organization:

Uruguay Round:

In 1993, the GATT was updated (GATT 1994) to include new obligations upon its signatories.
One of the most significant changes was the creation of the World Trade Organization (WTO).
The 75 existing GATT members and the European Communities became the founding members
of the WTO on 1 January 1995. The other 52 GATT members rejoined the WTO in the
following two years (the last being Congo in 1997). Since the founding of the WTO, 21 new
non-GATT members have joined and 29 are currently negotiating membership. There are a total
of 161 member countries in the WTO, with Laos and Tajikistan being new members as of 2013.

Of the original GATT members, Syria and the SFR Yugoslavia have not rejoined the WTO.
Since FR Yugoslavia, (renamed as Serbia and Montenegro and with membership negotiations
later split in two), is not recognised as a direct SFRY successor state; therefore, its application is
considered a new (non-GATT) one. The General Council of WTO, on 4 May 2010, agreed to
establish a working party to examine the request of Syria for WTO membership. The contracting
parties who founded the WTO ended official agreement of the "GATT 1947" terms on 31
December 1995. Montenegro became a member in 2012, while Serbia is in the decision stage of
the negotiations and is expected to become one of the newest members of the WTO in 2014 or in
near future.

Whilst GATT was a set of rules agreed upon by nations, the WTO is an institutional body. The
WTO expanded its scope from traded goods to include trade within the service sector and
intellectual property rights. Although it was designed to serve multilateral agreements, during
several rounds of GATT negotiations (particularly the Tokyo Round) plurilateral agreements
created selective trading and caused fragmentation among members. WTO arrangements are
generally a multilateral agreement settlement mechanism of GATT.

The GATT was concluded in 1947 and is now referred to as the GATT 1947. The
GATT 1947 was last amended, last in 1965. Later on, additional disciplines were
agreed to in side agreements, such as the Tokyo Round agreements, which did not
amend the GATT 1947 as such, but only bound the GATT Contracting Parties that
became a party to these side agreements.
The GATT 1947 was terminated in 1996. However, the provisions of the GATT 1947
as well as all legal instruments concluded under the GATT 1947 are integrated into
the GATT 1994, subject to clarifications brought about by Understandings which also
form integral parts of the GATT 1994.

Scope of Application of the GATT 1994:

The GATT 1994 is one of the multilateral agreements annexed to the WTO
Agreement. It is an international treaty binding upon all WTO Members. The GATT
1994 is only concerned with trade in goods. The GATT 1994 aims at further
liberalizing trade in goods through the reduction of tariffs and other trade barriers and
eliminating discrimination.

Structure of the GATT 1994:

The GATT 1994 is a bizarre agreement. It “assembles” legal provisions from different sources. It
consists of the provisions of the GATT 1947, of legal instruments concluded under the GATT
1947, of Understandings concluded during the Uruguay Round on the interpretation of the
provision of the GATT 1947, and of the Marrakesh Protocol of Tariff Concessions. The GATT
1994 incorporates as is the provisions of the GATT 1947, and yet, it clarifies the nature and
extent of some obligations set out in the GATT 1947 through the so-called “Understandings” and
other legal instruments, including “other decisions” of the Contracting Parties to the GATT,
which also form part of the GATT 1994. Furthermore, it changes the wording to be used when
referring to the provisions of the GATT 1947. For instance, the phrase “Contracting Parties” in
the GATT 1947 is now deemed to read “Members”.

Provisions of the GATT 1994:

The provisions of the GATT 1947, now the provisions of the GATT 1994, consist of 38 articles
numbered in roman digits – which are split up into four parts.
Part I of the GATT 1994 contains Articles I, enshrining the most-favoured-nation treatment
obligation, and Article II, setting out the obligations applicable to the Schedules of Concessions
of each WTO Member.
Part II of the GATT 1994 comprises Articles III through XXIII. Article III establishes the
national treatment obligation. Articles IV to Article XIX cover mainly non-tariff measures, such
as unfair trade practices (dumping and export subsidies), quantitative restrictions, restrictions for
balance-of-payments reasons, state-trading enterprises, government assistance to economic
development, and emergency safeguards measures. In addition, this Part also deals with
numerous technical issues relating to the application of border measures. Articles XX and XXI
deal with the possible exceptions to the GATT 1994, namely the general exceptions and those
for security reasons.
Articles XXII and XXIII provide for dispute settlement procedures, which are further elaborated
in the Understanding on the Principles Governing the Settlement of Disputes.

Part III of the GATT 1994 consists of Article XXIV through Article XXXV. Article XXIV
concerns mainly customs unions and free trade areas and the responsibility of Members for the
acts of their regional and local governments.
Articles XXVIII and XXVIII deal with the negotiation and renegotiation of tariff concessions.
Finally, Part IV of the GATT 1994 is entitled “Trade and Development” and aims to increase
trade opportunities for developing country Members in various ways.

The provisions that deal with the entry into force, accession, amendments, withdrawal, non-
application and joint action are no longer valid because they have been superseded by the
relevant provisions of the WTO Agreement.

Understandings and the Marrakesh Protocol:

The six Understandings are legal documents which have been concluded during the Uruguay
Round with a view to clarifying some obligations set out in the GATT 1947. They concern six
particular GATT provisions, namely, the ones relating to the schedules of concessions, state-
trading enterprises, balance-of- payments exceptions, regional trade agreements, waivers and the
withdrawal of concessions.
Some of these Understandings aim to introduce further “transparency” obligations, while others
seek to refine terms or paragraphs of the concerned GATT article. For instance, the
Understanding on Article II:1(b) requires that the nature and level of any “other duties or
charges” levied on bound tariff items, as referred to in that provision, be recorded in the
Schedules of Concessions annexed to GATT 1994 against the tariff item to which they apply.
The Understanding on Article XVII (on state trading enterprises) sets out notification procedures
and provides for subsequent reviews. The Understanding on Balance-of-Payments Provision
essentially aims to clarify the existing obligations under the provisions of the GATT 1994, but it
also provides for transparency measures and consultation requirements. The Understanding on
Article XXIV regarding regional trade agreements clarifies some of the subparagraphs to Article
XXIV. The Understanding on Waivers sets out the elements to include in the request for a
waiver and explains when and how it is possible to challenge the application of a waiver by a
Member.
Finally, the Understanding on Article XXVIII (concession withdrawal) defines the phrase
“principal supplying interest” of Article XXVIII of the GATT 1994. With respect to the
Marrakesh Protocol to the GATT 1994, it is the legal instrument that incorporates the Schedules
of Concessions and Commitments on Goods negotiated under the Uruguay Round into the
GATT 1994. It confirms their authenticity and sets out their implementation modalities.

The principle of Non-Discrimination in the GATT 1994:

Non-Discrimination: Definition
The principle of non-discrimination, or, in other words, the requirement not to treat less
favourably all “like” products, irrespective of their origin or whether they are imported or
domestic, is the cornerstone of the WTO multilateral trading system. The non-discrimination
obligation contributes to ensuring fair and predictable international trade relations. The principle
of non-discrimination in international trade is two-faceted: it consists of the most-favoured-
nation treatment obligation and the national treatment obligation.

Most-Favoured-Nation Treatment Obligation: Article I

The most-favoured-nation treatment obligation, widely known as the MFN treatment obligation,
requires WTO Members not to discriminate between products originating in or destined for
different countries. In simple terms, Country A should, for example, treat equally, or not
discriminate between a product originating in Country B and a “like” product originating in
Country C.

National Treatment Obligation: Article III

The national treatment obligation, commonly referred to as the NT obligation, requires WTO
Members not to discriminate against imported products once the imported products have entered
the domestic market. In other words, Country A should not treat products imported from Country
B or C less favourably than its own “like” domestic products.

The market access principle in the GATT 1994:

Market Access Barriers: Definition

It is of utmost importance for traders to know whether and under which conditions their products
have access to the markets of other countries. Market access for goods can be impeded or
restricted in various ways. Barriers to market access include tariffs (also referred to as customs
duties), quantitative restrictions (including quotas), other duties and financial charges, and other
non-tariff measures, such as customs procedures, technical regulations, and sanitary and
phytosanitary measures. It is noteworthy that the other non-tariff measures may include internal
measures, while tariffs, other duties and financial charges and quantitative restrictions
specifically concern border measures.
The GATT 1994 and other multilateral trade agreements provide for different rules for these
different barriers. With regard to the applicable rules, this Section covers only the GATT 1994,
but it should be noted that nearly all of the WTO Agreements embrace disciplines regarding
barriers to market access.

In particular, this Section examines the rules on tariffs and tariff concessions, the rules on
quantitative restrictions, the rules on other duties and financial charges, the rules on other tariff
barriers, and finally, the rules on publication and administration of trade regulations.

Tariffs:
Tariffs or customs duties are financial charges imposed on goods at the time of and/or because of
their importation. Market access is conditional upon the payment of these customs duties.
Customs duties are either specific (amount based on weight, volume, etc.), or ad valorem (an
amount based on value). Ad valorem customs duties have become most common. Tariffs or
customs duties are not prohibited under the GATT 1994. This is in sharp contrast with the
general prohibition on quantitative restrictions in Article XI of the GATT 1994. Tariffs represent
the only instrument of protection generally allowed by the GATT 1994. WTO/GATT law has a
clear preference for customs duties. Article XXVIII of the GATT 1994 encourages and calls
upon WTO Members to negotiate the reduction of tariffs.

Quantitative Restrictions:
Quantitative restrictions (QRs) are measures which prohibit or restrict the quantity of a product
that may be imported. A typical example of quantitative restrictions would be a measure
allowing the importation of 10,000 widgets only. This quantitative restriction is also referred to
as a quota. A tariff quota, however, is not a quota and is not considered to be a quantitative
restriction. A tariff quota is a quantity which can be imported at a certain duty. For example, a
Member may allow the importation of 5,000 widgets at 10 per cent ad valorem and any widgets
imported above this quantity at 20 per cent ad valorem. Tariff quotas are not quantitative
restrictions since they do not prohibit or restrict importation. They only subject imports to
varying duties. The GATT 1994 sets out a general prohibition of quantitative restrictions. One of
the main objectives of the GATT 1994 is to protect the domestic industry with tariffs only. The
only permitted restrictions on trade are duties, taxes and other charges, and not prohibitions,
quotas or licensing.

B. Agreement on Agriculture:

The Agreement on Agriculture (AoA) is an international treaty of the World Trade Organization.
It was negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and
entered into force with the establishment of the WTO on January 1, 1995.

While the volume of world agricultural exports has substantially increased over recent decades,
its rate of growth has lagged behind that of manufactures, resulting in a steady decline in
agriculture’s share in world merchandise trade. In 1998, agricultural trade accounted for 10.5 per
cent of total merchandise trade — when trade in services is taken into account, agriculture’s
share in global exports drops to 8.5 per cent. However, with respect to world trade agriculture is
still ahead of sectors such as mining products, automotive products, chemicals, textiles and
clothing or iron and steel. Among the agricultural goods traded internationally, food products
make up almost 80 per cent of the total. The other main category of agricultural products is raw
materials. Since the mid-1980s, trade in processed and other high value agricultural products has
been expanding much faster than trade in the basic primary products such as cereals.

Agricultural trade remains in many countries an important part of overall economic activity and
continues to play a major role in domestic agricultural production and employment. The trading
system plays also a fundamentally important role in global food security, for example by
ensuring that temporary or protracted food deficits arising from adverse climatic and other
conditions can be met from world markets.

Trade policies prior to the WTO:

Although agriculture has always been covered by the GATT, prior to the WTO there were
several important differences with respect to the rules that applied to agricultural primary
products as opposed to industrial products. The GATT 1947 allowed countries to use export
subsidies on agricultural primary products whereas export subsidies on industrial products were
prohibited. The only conditions were that agricultural export subsidies should not be used to
capture more than an “equitable share” of world exports of the product concerned (Article XVI:3
of GATT). The GATT rules also allowed countries to resort to import restrictions (e.g. import
quotas) under certain conditions, notably when these restrictions were necessary to enforce
measures to effectively limit domestic production (Article XI:2(c) of GATT). This exception was
also conditional on the maintenance of a minimum proportion of imports relative to domestic
production.

However, in practice many non-tariff border restrictions were applied to imports without any
effective counterpart limitations on domestic production and without maintaining minimum
import access. In some cases this was achieved through the use of measures not specifically
provided for under Article XI. In other cases it reflected exceptions and country-specific
derogations such as grandfather clauses, waivers and protocols of accession. In still other cases
non-tariff import restrictions were maintained without any apparent justification.

The result of all this was a proliferation of impediments to agricultural trade, including by means
of import bans, quotas setting the maximum level of imports, variable import levies, minimum
import prices and non-tariff measures maintained by state trading enterprises. Major agricultural
products such as cereals, meat, dairy products, sugar and a range of fruits and vegetables have
faced barriers to trade on a scale uncommon in other merchandise sectors.

In part, this insulation of domestic markets was the result of measures originally introduced
following the collapse of commodity prices in the 1930s Depression. Furthermore, in the
aftermath of the Second World War many governments were concerned primarily with
increasing domestic agricultural production so as to feed their growing populations. With this
objective in mind and in order to maintain a certain balance between the development of rural
and urban incomes, many countries, particularly in the developed world, resorted to market price
support — farm prices were administratively raised. Import access barriers ensured that domestic
production could continue to be sold. In response to these measures and as a result of
productivity gains, self-sufficiency rates rapidly increased. In a number of cases, expanding
domestic production of certain agricultural products not only replaced imports completely but
resulted in structural surpluses. Export subsidies were increasingly used to dump surpluses onto
the world market, thus depressing world market prices. On the other hand, this factor, plus the
effects of overvalued exchange rates, low food price policies in favour of urban consumers and
certain other domestic measures, reduced in a number of developing countries the incentive for
farmers to increase or even maintain their agricultural production levels.

Uruguay Round agricultural negotiations:

In the lead-up to the Uruguay Round negotiations, it became increasingly evident that the causes
of disarray in world agriculture went beyond import access problems which had been the
traditional focus of GATT negotiations. To get to the roots of the problems, disciplines with
regard to all measures affecting trade in agriculture, including domestic agricultural policies and
the subsidization of agricultural exports, were considered to be essential. Clearer rules for
sanitary and phytosanitary measures were also considered to be required, both in their own right
and to prevent circumvention of stricter rules on import access through unjustified, protectionist
use of food safety as well as animal and plant health measures.

The agricultural negotiations in the Uruguay Round were by no means easy — the broad scope
of the negotiations and their political sensitivity necessarily required much time in order to reach
an agreement on the new rules, and much technical work was required in order to establish sound
means to formalise commitments in policy areas beyond the scope of prior GATT practice. The
Agreement on Agriculture and the Agreement on the Application of Sanitary and Phytosanitary
Measures were negotiated in parallel, and a Decision on Measures Concerning the Possible
Negative Effects of the Reform Programme on Least-developed and Net Food-importing
Developing Countries also formed part of the overall outcome.

Introduction to the Agreement on Agriculture:

The Agreement on Agriculture, (the “Agreement”), came into force on 1 January 1995. The
preamble to the Agreement recognizes that the agreed long-term objective of the reform process
initiated by the Uruguay Round reform programme is to establish a fair and market-oriented
agricultural trading system. The reform programme comprises specific commitments to reduce
support and protection in the areas of domestic support, export subsidies and market access, and
through the establishment of strengthened and more operationally effective GATT rules and
disciplines. The Agreement also takes into account non-trade concerns, including food security
and the need to protect the environment, and provides special and differential treatment for
developing countries, including an improvement in the opportunities and terms of access for
agricultural products of particular export interest to these Members.

C. Agreement on Sanitary and Phytosanitary Measures:

The Agreement on the Application of Sanitary and Phytosanitary Measures, also known as
the SPS Agreement, is an international treaty of the World Trade Organization. It was
negotiated during the Uruguay Round of the General Agreement on Tariffs and Trade, and
entered into force with the establishment of the WTO at the beginning of 1995. Broadly, the
sanitary and phytosanitary (‘SPS’) measures covered by the agreement are those aimed at the
protection of human, animal or plant life or health from certain risks.

Under the SPS agreement, the WTO sets constraints on member-states' policies relating to food
safety (bacterial contaminants, pesticides, inspection and labelling) as well as animal and plant
health (phytosanitation) with respect to imported pests and diseases. There are 3 standards
organizations who set standards that WTO members should base their SPS methodologies on. As
provided for in Article 3, they are the Codex Alimentarius Commission (Codex), World
Organization for Animal Health (OIE) and the Secreatariat of the International Plant Protection
Convention (IPPC).

The treaty targets ‘scientifically unfounded’ barriers to trade disguised as health and safety
regulations.

The SPS agreement is closely linked to the Agreement on Technical Barriers to Trade, which
was signed in the same year and has similar goals. The TBT Emerged from the Tokyo Round of
WTO negotiations and was negotiated with the aim of ensuring non-discrimination in the
adoption and implementation of technical regulations and standards

History and Framework of the SPS Agreement:

As GATT’s preliminary focus had been lowering tariffs, the framework that preceded the SPS
Agreement was not adequately equipped to deal with the problems of non-tariff barriers (NTBs)
to trade and the need for an independent agreement addressing this became critical.[5] The SPS
Agreement is an ambitious attempt to deal with NTBs arising from cross-national differences in
technical standards without diminishing governments prerogative to implement measures to
guard against diseases and pests

Article 1: General Provisions:

1. This Agreement applies to all sanitary andphytosanitary international trade. Such measures
shall be developed and applied in accordance with the provisions of this Agreement.

2. For the purposes of this Agreement, the definitions provided in Annex A shall apply.

3. The annexes are an integral part of this Agreement.

4. Nothing in this Agreement shall affect the rights of Members under the Agreement on
Technical Barriers to Trade with respect to measures not within the scope of this Agreement.
Article 2: Basic Rights and Obligations:

1. Members have the right to take sanitary and phytosanitary measures necessary for the
protection of human, animal or plant life or health, provided that such measures are not
inconsistent with the provisions of this Agreement.

2. Members shall ensure that any sanitary or phytosanitary measure is applied only to the extent
necessary to protect human, animal or plant life or health, is based on scientific principles and is
not maintained without sufficient scientific evidence, except as provided for in paragraph 7 of
Article 5.

3. Members shall ensure that their sanitary and phytosanitary measures do not arbitrarily or
unjustifiably discriminate between Members where identical or similar conditions prevail,
including between their own territory and that of other Members. Sanitary and phytosanitary
measures shall not be applied in a manner which would constitute a disguised restriction on
international trade.

4. Sanitary or phytosanitary measures which conform to the relevant provisions of this

Agreement shall be presumed to be in accordance with the obligations of the Members under
the provisions of GATT 1994 which relate to the use of sanitary or phytosanitary measures, in
particular the provisions of Article XX(b).

Article 3: Harmonization:

1. To harmonize sanitary and phytosanitary measures on as wide a basis as possible, Members

shall base their sanitary or phytosanitary measures on international standards, guidelines or
recommendations, where they exist, except as otherwise provided for in this Agreement, and in
particular in paragraph 3.

2. Sanitary or phytosanitary measures which conform to international standards, guidelines or

recommendations shall be deemed to be necessary to protect human, animal or plant life or
health, and presumed to be consistent with the relevant provisions of this Agreement and of
GATT 1994.

3. Members may introduce or maintain sanitary or phytosanitary measures which result in a

higher level of sanitary or phytosanitary protection than would be achieved by measures based
on the relevant international standards, guidelines or recommendations, if there is a scientific
justification, or as a consequence of the level of sanitary or phytosanitary protection a Member
determines to be appropriate in accordance with the relevant provisions of paragraphs 1 through
8 of Article 5.(2) Notwithstanding the above, all measures which result in a level of sanitary or
phytosanitary protection different from that which would be achieved by measures based on
international standards, guidelines or recommendations shall not be inconsistent with any other
provision of this Agreement.
4. Members shall play a full part, within the limits of their resources, in the relevant
international organizations and their subsidiary bodies, in particular the Codex Alimentarius
Commission, the International Office of Epizootics, and the international and regional
organizations operating within the framework of the International Plant Protection Convention,
to promote within these organizations the development and periodic review of standards,
guidelines and recommendations with respect to all aspects of sanitary and phytosanitary
measures.

5. The Committee on Sanitary and Phytosanitary Measures provided for in paragraphs 1 and 4
of Article 12 (referred to in this Agreement as the “Committee”) shall develop a procedure to
monitor the process of international harmonization and coordinate efforts in this regard with the
relevant international organizations.

Article 4 : Equivalence:

1. Members shall accept the sanitary or phytosanitary measures of other Members as

equivalent, even if these measures differ from their own or from those used by other
Members trading in the same product, if the exporting Member objectively demonstrates
to the importing Member that its measures achieve the importing Member's appropriate
level of sanitary or phytosanitary protection. For this purpose, reasonable access shall be
given, upon request, to the importing Member for inspection, testing and other relevant
procedures.

2. Members shall, upon request, enter into consultations with the aim of achieving
bilateral and multilateral agreements on recognition of the equivalence of specified
sanitary or phytosanitary measures.

Article 5: Assessment of Risk and Determination of the Appropriate Level of

Sanitary or Phytosanitary Protection:

1. Members shall ensure that their sanitary or phytosanitary measures are based on an
assessment, as appropriate to the circumstances, of the risks to human, animal or plant
life or health, taking into account risk assessment techniques developed by the relevant
international organizations.

2. In the assessment of risks, Members shall take into account available scientific
evidence; relevant processes and production methods; relevant inspection, sampling and
testing methods; prevalence of specific diseases or pests; existence of pest — or disease
— free areas; relevant ecological and environmental conditions; and quarantine or other
treatment.

3. In assessing the risk to animal or plant life or health and determining the measure to
be applied for achieving the appropriate level of sanitary or phytosanitary protection
from such risk, Members shall take into account as relevant economic factors: the
potential damage in terms of loss of production or sales in the event of the entry,
establishment or spread of a pest or disease; the costs of control or eradication in the
territory of the importing Member; and the relative cost-effectiveness of alternative
approaches to limiting risks.

4. Members should, when determining the appropriate level of sanitary or phytosanitary

protection, take into account the objective of minimizing negative trade effects.

5. With the objective of achieving consistency in the application of the concept of

appropriate level of sanitary or phytosanitary protection against risks to human life or
health, or to animal and plant life or health, each Member shall avoid arbitrary or
unjustifiable distinctions in the levels it considers to be appropriate in different
situations, if such distinctions result in discrimination or a disguised restriction on
international trade. Members shall cooperate in the Committee, in accordance with
paragraphs 1, 2 and 3 of Article 12, to develop guidelines to further the practical
implementation of this provision. In developing the guidelines, the Committee shall take
into account all relevant factors, including the exceptional character of human health
risks to which people voluntarily expose themselves.

6. Without prejudice to paragraph 2 of Article 3, when establishing or maintaining

sanitary or phytosanitary measures to achieve the appropriate level of sanitary or
phytosanitary protection, Members shall ensure that such measures are not more trade-
restrictive than required to achieve their appropriate level of sanitary or phytosanitary
protection, taking into account technical and economic feasibility.(3)

7. In cases where relevant scientific evidence is insufficient, a Member may

provisionally adopt sanitary or phytosanitary measures on the basis of available
pertinent information, including that from the relevant international organizations as
well as from sanitary or phytosanitary measures applied by other Members. In such
circumstances, Members shall seek to obtain the additional information necessary for a
more objective assessment of risk and review the sanitary or phytosanitary measure
accordingly within a reasonable period of time.

8. When a Member has reason to believe that a specific sanitary or phytosanitary

measure introduced or maintained by another Member is constraining, or has the
potential to constrain, its exports and the measure is not based on the relevant
international standards, guidelines or recommendations, or such standards, guidelines or
recommendations do not exist, an explanation of the reasons for such sanitary or
phytosanitary measure may be requested and shall be provided by the Member
maintaining the measure.

Article 6: Adaptation to Regional Conditions, Including Pest — or Disease — Free

Areas and Areas of Low Pest or Disease Prevalence:

1. Members shall ensure that their sanitary or phytosanitary measures are adapted to the
sanitary or phytosanitary characteristics of the area — whether all of a country, part of a
country, or all or parts of several countries — from which the product originated and to
which the product is destined. In assessing the sanitary or phytosanitary characteristics
of a region, Members shall take into account, inter alia, the level of prevalence of
specific diseases or pests, the existence of eradication or control programmes, and
appropriate criteria or guidelines which may be developed by the relevant international
organizations.

2. Members shall, in particular, recognize the concepts of pest — or disease-free areas

and areas of low pest or disease prevalence. Determination of such areas shall be based
on factors such as geography, ecosystems, epidemiological surveillance, and the
effectiveness of sanitary or phytosanitary controls.

3. Exporting Members claiming that areas within their territories are pest — or disease-
free areas or areas of low pest or disease prevalence shall provide the necessary
evidence thereof in order to objectively demonstrate to the importing Member that such
areas are, and are likely to remain, pest— or disease—free areas or areas of low pest or
disease prevalence, respectively. For this purpose, reasonable access shall be given,
upon request, to the importing Member for inspection, testing and other relevant
procedures.

Article 7: Transparency:

Members shall notify changes in their sanitary or phytosanitary measures and shall
provide information on their sanitary or phytosanitary measures in accordance with the
provisions of Annex B.

Article 8: Control, Inspection and Approval Procedures:

Members shall observe the provisions of Annex C in the operation of control, inspection
and approval procedures, including national systems for approving the use of additives
or for establishing tolerances for contaminants in foods, beverages or feedstuffs, and
otherwise ensure that their procedures are not inconsistent with the provisions of this
Agreement.

Article 9: Technical Assistance:

1. Members agree to facilitate the provision of technical assistance to other Members,

especially developing country Members, either bilaterally or through the appropriate
international organizations. Such assistance may be, inter alia, in the areas of processing
technologies, research and infrastructure, including in the establishment of national
regulatory bodies, and may take the form of advice, credits, donations and grants,
including for the purpose of seeking technical expertise, training and equipment to allow
such countries to adjust to, and comply with, sanitary or phytosanitary measures
necessary to achieve the appropriate level of sanitary or phytosanitary protection in their
export markets.

2. Where substantial investments are required in order for an exporting developing

country Member to fulfil the sanitary or phytosanitary requirements of an importing
Member, the latter shall consider providing such technical assistance as will permit the
developing country Member to maintain and expand its market access opportunities for
the product involved.

Article 10: Special and Differential Treatment:

1. In the preparation and application of sanitary or phytosanitary measures, Members

shall take account of the special needs of developing country Members, and in particular
of the least-developed country Members.

2. Where the appropriate level of sanitary or phytosanitary protection allows scope for
the phased introduction of new sanitary or phytosanitary measures, longer time-frames
for compliance should be accorded on products of interest to developing country
Members so as to maintain opportunities for their exports.

3. With a view to ensuring that developing country Members are able to comply with
the provisions of this Agreement, the Committee is enabled to grant to such countries,
upon request, specified, time-limited exceptions in whole or in part from obligations
under this Agreement, taking into account their financial, trade and development needs.

4. Members should encourage and facilitate the active participation of developing

country Members in the relevant international organizations.

Article 11: Consultations and Dispute Settlement:

1. The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied
by the Dispute Settlement Understanding shall apply to consultations and the settlement
of disputes under this Agreement, except as otherwise specifically provided herein.

2. In a dispute under this Agreement involving scientific or technical issues, a panel

should seek advice from experts chosen by the panel in consultation with the parties to
the dispute. To this end, the panel may, when it deems it appropriate, establish an
advisory technical experts group, or consult the relevant international organizations, at
the request of either party to the dispute or on its own initiative.

3. Nothing in this Agreement shall impair the rights of Members under other
international agreements, including the right to resort to the good offices or dispute
settlement mechanisms of other international organizations or established under any
international agreement.

Article 12:Administration:

1. A Committee on Sanitary and Phytosanitary Measures is hereby established to

provide a regular forum for consultations. It shall carry out the functions necessary to
implement the provisions of this Agreement and the furtherance of its objectives, in
particular with respect to harmonization. The Committee shall reach its decisions by
consensus.

2. The Committee shall encourage and facilitate ad hoc consultations or negotiations

among Members on specific sanitary or phytosanitary issues. The Committee shall
encourage the use of international standards, guidelines or recommendations by all
Members and, in this regard, shall sponsor technical consultation and study with the
objective of increasing coordination and integration between international and national
systems and approaches for approving the use of food additives or for establishing
tolerances for contaminants in foods, beverages or feedstuffs.

3. The Committee shall maintain close contact with the relevant international
organizations in the field of sanitary and phytosanitary protection, especially with the
Codex Alimentarius Commission, the International Office of Epizootics, and the
Secretariat of the International Plant Protection Convention, with the objective of
securing the best available scientific and technical advice for the administration of this
Agreement and in order to ensure that unnecessary duplication of effort is avoided.

4. The Committee shall develop a procedure to monitor the process of international

harmonization and the use of international standards, guidelines or recommendations.
For this purpose, the Committee should, in conjunction with the relevant international
organizations, establish a list of international standards, guidelines or recommendations
relating to sanitary or phytosanitary measures which the Committee determines to have
a major trade impact. The list should include an indication by Members of those
international standards, guidelines or recommendations which they apply as conditions
for import or on the basis of which imported products conforming to these standards can
enjoy access to their markets. For those cases in which a Member does not apply an
international standard, guideline or recommendation as a condition for import, the
Member should provide an indication of the reason therefor, and, in particular, whether
it considers that the standard is not stringent enough to provide the appropriate level of
sanitary or phytosanitary protection. If a Member revises its position, following its
indication of the use of a standard, guideline or recommendation as a condition for
import, it should provide an explanation for its change and so inform the Secretariat as
well as the relevant international organizations, unless such notification and explanation
is given according to the procedures of Annex B.

5. In order to avoid unnecessary duplication, the Committee may decide, as appropriate,

to use the information generated by the procedures, particularly for notification, which
are in operation in the relevant international organizations.

6. The Committee may, on the basis of an initiative from one of the Members, through
appropriate channels invite the relevant international organizations or their subsidiary
bodies to examine specific matters with respect to a particular standard, guideline or
recommendation, including the basis of explanations for non-use given according to
paragraph 4.

7. The Committee shall review the operation and implementation of this Agreement
three years after the date of entry into force of the WTO Agreement, and thereafter as
the need arises. Where appropriate, the Committee may submit to the Council for Trade
in Goods proposals to amend the text of this Agreement having regard, inter alia, to the
experience gained in its implementation.

Article 13: Implementation:

Members are fully responsible under this Agreement for the observance of all
obligations set forth herein. Members shall formulate and implement positive measures
and mechanisms in support of the observance of the provisions of this Agreement by
other than central government bodies. Members shall take such reasonable measures as
may be available to them to ensure that non-governmental entities within their
territories, as well as regional bodies in which relevant entities within their territories are
members, comply with the relevant provisions of this Agreement. In addition, Members
shall not take measures which have the effect of, directly or indirectly, requiring or
encouraging such regional or non-governmental entities, or local governmental bodies,
to act in a manner inconsistent with the provisions of this Agreement. Members shall
ensure that they rely on the services of non-governmental entities for implementing
sanitary or phytosanitary measures only if these entities comply with the provisions of
this Agreement.

Article 14: Final Provisions:

The least-developed country Members may delay application of the provisions of this
Agreement for a period of five years following the date of entry into force of the WTO
Agreement with respect to their sanitary or phytosanitary measures affecting
importation or imported products. Other developing country Members may delay
application of the provisions of this Agreement, other than paragraph 8 of Article 5 and
Article 7, for two years following the date of entry into force of the WTO Agreement
with respect to their existing sanitary or phytosanitary measures affecting importation or
imported products, where such application is prevented by a lack of technical expertise,
 technical infrastructure or resources.

D. Agreement on Technical Barriers to Trade:

The Agreement on Technical Barriers to Trade, commonly referred to as the TBT Agreement, is
an international treaty administered by the World Trade Organization. It was last renegotiated
during the Uruguay Round of the General Agreement on Tariffs and Trade, with its present form
entering into force with the establishment of the WTO at the beginning of 1995, binding on all
WTO members.

Purpose:

The TBT exists to ensure that technical regulations, standards, testing, and certification
procedures do not create unnecessary obstacles to trade. The agreement prohibits technical
requirements created in order to limit trade, as opposed to technical requirements created for
legitimate purposes such as consumer or environmental protection. In fact, its purpose is to
avoid unnecessary obstacles to international trade and to give recognition to all WTO members
to protect legitimate interests according to own regulatory autonomy, although promoting the use
of international standards. The list of legitimate interests that can justify a restriction in trade is
not exhaustive and it includes protection of environment, human and animal health and safety.

Structure of the Agreement on Technical Barriers to Trade:

The TBT Agreement can be divided into five parts. The first part defines the scope of the
Agreement which includes “all products, including industrial and agricultural” but not sanitary
and phytosanitary measures. The second part sets out the obligations and principles concerning
technical regulations. The third part addresses conformity and assessments of conformity. The
fourth part deals with information and assistance, including the obligation of nations to provide
assistance to each other in drafting technical regulations. Lastly the fifth part provides for the
creation of the Committee on Technical Barriers to Trade and sets out the dispute settlement
limitation of the acceptance of conformity assessment results to those produced by designated
bodies in the exporting Member.

Unit-II: Trade in Goods II:

A. Agreement on Trade-Related Investment Measures:

The Agreement on Trade-Related Investment Measures (TRIMs) are rules that apply to the
domestic regulations a country applies to foreign investors, often as part of an industrial policy.
The agreement was agreed upon by all members of the World Trade Organization. The
agrepement was concluded in 1994 and came into force in 1995. The WTO was not established
at that time, it was its predecessor, the GATT (General Agreement on Trade and Tariffs. The
WTO came about in 1994-1995. Policies such as local content requirements and trade balancing
rules that have traditionally been used to both promote the interests of domestic industries and
combat restrictive business practices are now banned. Trade-Related Investment Measures is the
name of one of the four principal legal agreements of the WTO trade treaty. TRIMs are rules that
restrict preference of domestic firms and thereby enable international firms to operate more
easily within foreign markets.

How it came in action:

In the late 1980s, there was a significant increase in foreign direct investment throughout the
world. However, some of the countries receiving foreign investment imposed numerous
restrictions on that investment designed to protect and foster domestic industries, and to prevent
the outflow of foreign exchange reserves.

Examples of these restrictions include local content requirements (which require that locally
produced goods be purchased or used), manufacturing requirements (which require the domestic
manufacturing of certain components), trade balancing requirements, domestic sales
requirements, technology transfer requirements, export performance requirements (which require
the export of a specified percentage of production volume), local equity restrictions, foreign
exchange restrictions, remittance restrictions, licensing requirements, and employment
restrictions. These measures can also be used in connection with fiscal incentives as opposed to
requirement. Some of these investment measures distort trade in violation of GATT Articles III
and XI, and are therefore prohibited.

Until the completion of the Uruguay Round negotiations, which produced a well-rounded
Agreement on Trade-Related Investment Measures (hereinafter the "TRIMs Agreement"), the
few international agreements providing disciplines for measures restricting foreign investment
provided only limited guidance in terms of content and country coverage. The OECD Code on
Liberalization of Capital Movements, for example, requires members to liberalize restrictions on
direct investment in a range of areas. The OECD Code's efficacy, however, is limited by the
numerous reservations made by each of the members.

In addition, there are other international treaties, bilateral and multilateral, under which
signatories extend most-favored-nation treatment to direct investment. Only a few such treaties,
however, provide national treatment for direct investment. The Asia-Pacific Economic
Cooperation Investment Principles adopted in November 1994 are general rules for investment
but they are non-binding.

Article 1: Coverage:
This Agreement applies to investment measures related to trade in goods only (referred to in
this Agreement as "TRIMs").
Article 2: National Treatment and Quantitative Restrictions:
1.Without prejudice to other rights and obligations under GATT 1994, no Member shall apply
any TRIM that is inconsistent with the provisions of Article III or Article XI of GATT 1994.
2.An illustrative list of TRIMs that are inconsistent with the obligation of national treatment
provided for in paragraph 4 of Article III of GATT 1994 and the obligation of general
elimination of quantitative restrictions provided for in paragraph 1 of Article XI of GATT 1994
is contained in the Annex to the Agreement.
Article 3: Exceptions:
All exceptions under GATT 1994 shall apply, as appropriate, to the provisions of this
Agreement.
Article 4: Developing Country Members:
A developing country Member shall be free to deviate temporarily from the provisions of Article
2 to the extent and in such a manner as Article XVIII of GATT 1994, the Understanding on the
Balance-of- Payments Provisions of GATT 1994, and the Declaration on Trade Measures Taken
for Balance-of- Payments Purposes adopted on 28 November 1979 (BISD 26S/205-209) permit
the Member to deviate from the provisions of Articles III and XI of GATT 1994.
Article 7:Committee on Trade-Related Investment Measures
1. A Committee on Trade-Related Investment Measures (referred to in this Agreement as
the "Committee") is hereby established, and shall be open to all Members.
The Committee shall elect its own Chairman and Vice-Chairman, and shall meet not less than
once a year and otherwise at the request of any Member.
2. The Committee shall carry out responsibilities assigned to it by the Council for Trade in
Goods and shall afford Members the opportunity to consult on any matters relating to the
operation and implementation of this Agreement.
3. The Committee shall monitor the operation and implementation of this Agreement and
shall
report thereon annually to the Council for Trade in GoodS.

Article 8: Consultation and Dispute Settlement

The provisions of Articles XXII and XXIII of GATT 1994, as elaborated and applied by the
Dispute Settlement Understanding, shall apply to consultations and settlement of disputes under
this agreement.

B. Agreement on Subsidies and Countervailing Measures:

Overview of rules:
(1) Subsidies and Countervailing Measures:
Subsidies have been provided widely throughout the world as a tool for realizing government
policies, in such forms as grants (normal subsidies), tax exemptions, low interest financing,
investments and export credits. There are six primary categories of subsidies, divided by
purpose: 1) export subsidies, 2) subsidies contingent upon the use of domestic over imported
goods, 3) industrial promotion subsidies, 4) structural adjustment subsidies, 5) regional
development subsidies, and 6) research and development subsidies. By beneficiary, there are two
primary categories: 1) subsidies that are not limited to specific businesses or industries (non-
specific subsidies), and 2) subsidies that are limited to specific businesses and industries (specific
subsidies). Although governments articulate ostensibly legitimate goals for their subsidy
programmes, it is widely perceived that government subsidies may give excessive protection to
domestic industries. In such cases, subsidies act as a barrier to trade, by distorting the
competitive relationships that develop naturally in a free trading system. Exports of subsidized
products may injure the domestic industry producing the same product in the importing country.
Similarly, subsidized products may gain artificial advantages in third- country markets and
impede other countries’ exports to those markets.
Because of this potential the WTO Agreements prohibit with respect to industrial goods any
export subsidies and subsidies contingent upon the use of domestic over imported goods, as
having a particularly high trade-distorting effect. Furthermore, even for subsidies that are not
prohibited, it allows Member countries importing subsidized goods to enact countermeasures,
such as countervailing duties if such goods injure the domestic industry and certain procedural
requirements are met . For agricultural products, the WTO Agreements requires obligations such
as reducing export subsidies and domestic supports.

(2) Legal Framework:

Concerning the legal framework for subsidies, the basic principles are provided in Articles VI
and XVI of the GATT. Furthermore, there is the Agreement on Subsidies and Countervailing
Measures (hereinafter the “Subsidies Agreement”) as the implementation agreement for
subsidies in general. The Subsidies Agreement was negotiated during the Uruguay Round to
provide new disciplines in place of the Agreement on the Interpretation and Application of
Articles VI, XVI, and XXIII of the General Agreement on Tariffs and Trade (hereinafter the
“Subsidies Code”) adopted during the Tokyo Round. Compared to the Subsidies Code, the
Subsidies Agreement provides more explicit definitions of subsidies and stronger, clearer
disciplines on countervailing duty. There have also been some sector-specific discussions of
subsidies. The Uruguay Round resulted in the Agreement on Agriculture, which includes
provisions for reducing domestic subsidies and exports subsidies for agricultural products.
Running parallel to the Uruguay. Round were negotiations on subsidy disciplines in individual
industries, particularly revisions to the Agreement on Trade in Civil Aircraft and a Multilateral
Steel Agreement (MSA). These negotiations have not been concluded. The Subsidies Agreement
provides a definition of subsidies and classifies of three categories of subsidies according to
purpose and nature. Furthermore, the Agreement defines the relationship between countervailing
measures and rem.edies for each type of subsidy, provides special and differential treatments for
developing country members, and provides transitional arrangements for members in the process
of transformation from a centrally- planned economy to a market economy. Below is a more
detailed outline of the more important aspects of the Subsidies Agreement.

Definition of Subsidies (Article 1):

In the Subsidies Agreement, a subsidy shall be deemed to exist if: “there is a financial
contribution (i.e., a fiscal burden) by a government or any public body within the territory of a
Member” or “there is any form of income or price support in the sense of Article XVI of GATT
1994,” and “a benefit is thereby conferred.” Actions constituting “financial contributions”
include:
(a) Direct transfers of funds (for example, grants, loans and equity infusions) and potential direct
transfers of funds or liabilities (for example, government guarantees).
(b) Foregoing or non-collection of government revenue that is otherwise due (for example, fiscal
incentives such as tax credits).
(c) Government provision of goods or services (other than infrastructure) or government
purchases of goods.
(d) Government making payments to a funding mechanism or entrusting or directing a private
body to carry out one or more of the type of functions above which would normally be vested in
the government and which in practice does not differ from practices normally followed by
governments.

Categories of Subsidies:
The Subsidies Agreement defines three categories of subsidies according to purpose and nature:

1) subsidies that are prohibited outright (hereinafter “red-light subsidies”),

2) subsidies that are not prohibited but which may be subject to countervailing measures
(hereinafter “yellow-light subsidies”), and
3) subsidies that are neither prohibited nor subject to countervailing measures (hereinafter
“green-light subsidies”). It also defines the relationship between countervailing measures and
remedies for each type of subsidy.

(a) Red- light Subsidies:

Red-light subsidies mean prohibited subsidies. With certain exceptions, such a preferential
treatment for developing countries and transitional economies, all red-light subsidies must be
eliminated (Article 3). If a red-light subsidy is granted, it may be subject to the remedies for red-
light subsidies (Article 4). Furthermore, the remedies for red-light subsidies may be invoked in
parallel with countervailing measures; however, with regard tothe effects of a particular subsidy
in the domestic market of the importing member, only one form of relief (either a countervailing
duty or the defined remedies) shall be available. There are two categories of red subsidies: export
subsidies and subsidies contingent upon the use of domestic over imported goods. The Subsidies
Agreement illustrates the following measures as export subsidies.
- Measures which provide direct subsidies contingent upon export performance.
- Measures which involve a bonus on exports, such as currency retention schemes.
- Measures which treat internal transport and freight charges on export shipments on terms more
favourable than for domestic shipments.
- Measures which provide products or services for use in the production of exported goods on
terms or conditions more favourable than for domestic consumption.
- Measures which allow the full or partial exemption, remission or deferral specifically related to
exports, of direct taxes or social welfare charges.
- Measures which allow the exemption or remission, in respect of exported products, of indirect
taxes in excess of those levied in respect of like products when sold for domestic consumption.
- Measures which provided export credit guarantees or insurance programmes at premium rates
which are inadequate to cover the long-term operating costs and losses of the programmes.
- With some exceptions, government export credits granted at rates below those which the
government actually has to pay for the funds so employed, or the payment by them of all or part
of the costs incurred by exporters or financial institutions in obtaining credits, in so far as they
are used to secure a material advantage in the field of export credit terms.

(b)Yellow-light Subsidies:
Yellow-light subsidies are not prohibited per se but may be subject to the remedies for yellow
subsidies if they cause adverse effects, such as serious injury (“serious prejudice”) to other
countries (Article 7). Furthermore, the remedies for yellow-light subsidies may be invoked in
parallel with countervailing measures; however, with regard to the effects of a particular subsidy
in the domestic market of the importing member, only one form of relief (either a countervailing
duty or the defined remedies) shall be available.

(c)Green-light Subsidies:
Green-light subsidies are neither prohibited nor subject to countervailing measures. Green-light
subsidies includes non-specific subsidies and those specific subsidies has meet certain conditions
found below. Specific green-light subsidies include research and development subsidies, regional
development subsidies, and environmental conservation subsidies that have been reported to the
Committee before they take effect, reviewed by the WTO Secretariat, and approved by the
Committee. Furthermore, specific green-light subsidies may be subject to the remedies for green-
light subsidies (Article 9) if they cause damage which would be difficult to repair to the domestic
industry of a member.

- Research and Development Subsidies:

Among research and development subsidies, those for industrial research must cover no more
than 75 percent of expenses; those for pre-competitive development activities, no more than 50
percent. There are also limits on the uses to which funds can be put within this context, for
example, to cover wage costs.

- Regional Development Subsidies :

This includes assistance to disadvantaged areas within a member's borders when it is provided
under a general regional development scheme. However, the subsidy should not have specificity
within the region, and the region involved must have an unemployment rate that is at least 10
percent higher than the national average or income that is at least 15 percent lower.

- Environmental Conservation Subsidies:

Environmental conservation subsidies to promote the upgrade of existing equipment to new
environmental criteria set forth in legislation are permitted when such upgrades would impose
heavy constraints or financial burdens on companies and the subsidy meets the following
conditions: one-time only, covering no more than 20 percent of expenses; subsidy does not cover
the cost of replacing or operating equipment; subsidy is directly linked to and proportionate to a
firm's planned reduction of nuisances and pollution; subsidy does not cover any manufacturing
cost savings which may be achieved; and subsidy is available to all firms which can adopt the
new equipment and/or production processes.

Countervailing Measures (Articles 10 to 23):

Countervailing measures may be used for red-light and yellow-light subsidies when imports of
subsidized goods harm a competing domestic industry. They are used to offset the effect of the
subsidy by, for example, imposing a countervailing duty (limited to the amount of the subsidy)
on the import of subsidized goods or securing quid pro quo commitments from the subsidizing
country (that it will abolish or restrict the subsidy, or that exporters will raise prices).
Countervailing duties may only be applied after an investigation has been initiated and
conducted according to procedures specified in the Agreement. Countervailing duties are also
subject to a "sunset clause" and a "de minimis clause".

C. Anti-dumping Agreement:

Part I: Article 1: Principles:

An anti-dumping measure shall be applied only under the circumstances provided for in
Article VI of GATT 1994 and pursuant to investigations initiated and conducted in accordance
with the provisions of this Agreement. The following provisions govern the application of
Article VI of GATT 1994 in so far as action is taken under anti-dumping legislation or
regulations.

Part I: Article 2 : Determination of Dumping:

2.1 For the purpose of this Agreement, a product is to be considered as being dumped, i.e.
introduced into the commerce of another country at less than its normal value, if the export price
of the product exported from one country to another is less than the comparable price, in the
ordinary course of trade, for the like product when destined for consumption in the exporting
country.

2.2 When there are no sales of the like product in the ordinary course of trade in the domestic
market of the exporting country or when, because of the particular market situation or the low
volume of the sales in the domestic market of the exporting country, such sales do not permit a
proper comparison, the margin of dumping shall be determined by comparison with a
comparable price of the like product when exported to an appropriate third country, provided that
this price is representative, or with the cost of production in the country of origin plus a
reasonable amount for administrative, selling and general costs and for profits.

2.2.1 Sales of the like product in the domestic market of the exporting country or sales to a
third country at prices below per unit (fixed and variable) costs of production plus
administrative, selling and general costs may be treated as not being in the ordinary course of
trade by reason of price and may be disregarded in determining normal value only if the
authorities determine that such sales are made within an extended period of time in substantial
quantities and are at prices which do not provide for the recovery of all costs within a reasonable
period of time. If prices which are below per unit costs at the time of sale are above weighted
average per unit costs for the period of investigation, such prices shall be considered to provide
for recovery of costs within a reasonable period of time.

2.2.1.1 For the purpose of paragraph 2, costs shall normally be calculated on the basis of records
kept by the exporter or producer under investigation, provided that such records are in
accordance with the generally accepted accounting principles of the exporting country and
reasonably reflect the costs associated with the production and sale of the product under
consideration. Authorities shall consider all available evidence on the proper allocation of costs,
including that which is made available by the exporter or producer in the course of the
investigation provided that such allocations have been historically utilized by the exporter or
producer, in particular in relation to establishing appropriate amortization and depreciation
periods and allowances for capital expenditures and other development costs. Unless already
reflected in the cost allocations under this sub-paragraph, costs shall be adjusted appropriately
for those non-recurring items of cost which benefit future and/or current production, or for
circumstances in which costs during the period of investigation are affected by start-up
operations.
2.2.2 For the purpose of paragraph 2, the amounts for administrative, selling and general costs
and for profits shall be based on actual data pertaining to production and sales in the ordinary
course of trade of the like product by the exporter or producer under investigation. When such
amounts cannot be determined on this basis, the amounts may be determined on the basis of:
(i) the actual amounts incurred and realized by the exporter or producer in question in respect of
production and sales in the domestic market of the country of origin of the same general category
ofproducts;
(ii) the weighted average of the actual amounts incurred and realized by other exporters or
producers subject to investigation in respect of production and sales of the like product in the
domestic market of the country of origin;
(iii) any other reasonable method, provided that the amount for profit so established shall not
exceed the profit normally realized by other exporters or producers on sales of products of the
same general category in the domestic market of the country of origin.

2.3 In cases where there is no export price or where it appears to the authorities concerned that
the export price is unreliable because of association or a compensatory arrangement between the
exporter and the importer or a third party, the export price may be constructed on the basis of the
price at which the imported products are first resold to an independent buyer, or if the products
are not resold to an independent buyer, or not resold in the condition as imported, on such
reasonable basis as the authorities may determine.

2.4 A fair comparison shall be made between the export price and the normal value. This
comparison shall be made at the same level of trade, normally at the ex-factory level, and in
respect of sales made at as nearly as possible the same time. Due allowance shall be made in
each case, on its merits, for differences which affect price comparability, including differences
in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and
any other differences which are also demonstrated to affect price comparability. In the cases
referred to in paragraph 3, allowances for costs, including duties and taxes, incurred between
importation and resale, and for profits accruing, should also be made. If in these cases price
comparability has been affected, the authorities shall establish the normal value at a level of trade
equivalent to the level of trade of the constructed export price, or shall make due allowance as
warranted under this paragraph. The authorities shall indicate to the parties in question what
information is necessary to ensure a fair comparison and shall not impose an unreasonable
burden of proof on those parties.
2.4.1 When the comparison under paragraph 4 requires a conversion of currencies, such
conversion should be made using the rate of exchange on the date of sale, provided that when a
sale of foreign currency on forward markets is directly linked to the export sale involved, the rate
of exchange in the forward sale shall be used. Fluctuations in exchange rates shall be ignored
and in an investigation the authorities shall allow exporters at least 60 days to have adjusted their
export prices to reflect sustained movements in exchange rates during the period of investigation.

2.4.2 Subject to the provisions governing fair comparison in paragraph 4, the existence of
margins of dumping during the investigation phase shall normally be established on the basis of
a comparison of a weighted average normal value with a weighted average of prices of all
comparable export transactions or by a comparison of normal value and export prices on a
transaction-to-transaction basis. A normal value established on a weighted average basis may be
compared to prices of individual export transactions if the authorities find a pattern of export
prices which differ significantly among different purchasers, regions or time periods, and if an
explanation is provided as to why such differences cannot be taken into account appropriately
by the use of a weighted average-to-weighted average or transaction-to-transaction comparison.

2.5 In the case where products are not imported directly from the country of origin but are
exported to the importing Member from an intermediate country, the price at which the products
are sold from the country of export to the importing Member shall normally be compared with
the comparable price in the country of export. However, comparison may be made with the price
in the country of origin, if, for example, the products are merely transshipped through the
country of export, or such products are not produced in the country of export, or there is no
comparable price for them in the country of export.

2.6 Throughout this Agreement the term “like product” (“produit similaire”) shall be interpreted
to mean a product which is identical, i.e. alike in all respects to the product under consideration,
or in the absence of such a product, another product which, although not alike in all respects, has
characteristics closely resembling those of the product under consideration.

2.7 This Article is without prejudice to the second Supplementary Provision to paragraph 1 of
Article VI in Annex I to GATT 1994.

Part I: Article 3: Determination of Injury:

3.1 A determination of injury for purposes of Article VI of GATT 1994 shall be based on
positive evidence and involve an objective examination of both (a) the volume of the dumped
imports and the effect of the dumped imports on prices in the domestic market for like products,
and (b) the consequent impact of these imports on domestic producers of such products.

3.2 With regard to the volume of the dumped imports, the investigating authorities shall
consider whether there has been a significant increase in dumped imports, either in absolute
terms or relative to production or consumption in the importing Member. With regard to the
effect of the dumped imports on prices, the investigating authorities shall consider whether there
has been a significant price undercutting by the dumped imports as compared with the price of a
like product of the importing Member, or whether the effect of such imports is otherwise to
depress prices to a significant degree or prevent price increases, which otherwise would have
occurred, to a significant degree. No one or several of these factors can necessarily give decisive
guidance.

3.3 Where imports of a product from more than one country are simultaneously subject to anti-
dumping investigations, the investigating authorities may cumulatively assess the effects of such
imports only if they determine that (a) the margin of dumping established in relation to the
imports from each country is more than de minimis as defined in paragraph 8 of Article 5 and
the volume of imports from each country is not negligible and (b) a cumulative assessment of the
effects of the imports is appropriate in light of the conditions of competition between the
imported products and the conditions of competition between the imported products and the like
domestic product.

3.4 The examination of the impact of the dumped imports on the domestic industry concerned
shall include an evaluation of all relevant economic factors and indices having a bearing on the
state of the industry, including actual and potential decline in sales, profits, output, market share,
productivity, return on investments, or utilization of capacity; factors affecting domestic prices;
the magnitude of the margin of dumping; actual and potential negative effects on cash flow,
inventories, employment, wages, growth, ability to raise capital or investments. This list is not
exhaustive, nor can one or several of these factors necessarily give decisive guidance.

3.5 It must be demonstrated that the dumped imports are, through the effects of dumping, as set
forth in paragraphs 2 and 4, causing injury within the meaning of this Agreement. The
demonstration of a causal relationship between the dumped imports and the injury to the
domestic industry shall be based on an examination of all relevant evidence before the
authorities. The authorities shall also examine any known factors other than the dumped imports
which at the same time are injuring the domestic industry, and the injuries caused by these other
factors must not be attributed to the dumped imports. Factors which may be relevant in this
respect include, inter alia, the volume and prices of imports not sold at dumping prices,
contraction in demand or changes in the patterns of consumption, trade restrictive practices of
and competition between the foreign and domestic producers, developments in technology and
the export performance and productivity of the domestic industry.

3.6 The effect of the dumped imports shall be assessed in relation to the domestic production of
the like product when available data permit the separate identification of that production on the
basis of such criteria as the production process, producers’ sales and profits. If such separate
identification of that production is not possible, the effects of the dumped imports shall be
assessed by the examination of the production of the narrowest group or range of products,
which includes the like product, for which the necessary information can be provided.

3.7 A determination of a threat of material injury shall be based on facts and not merely on
allegation, conjecture or remote possibility. The change in circumstances which would create a
situation in which the dumping would cause injury must be clearly foreseen and imminent. In
making a determination regarding the existence of a threat of material injury, the authorities
should consider, inter alia, such factors as:

(i) a significant rate of increase of dumped imports into the domestic market indicating the
likelihood of substantially increased importation;

(ii) sufficient freely disposable, or an imminent, substantial increase in, capacity of the exporter
indicating the likelihood of substantially increased dumped exports to the importing Member’s
market, taking into account the availability of other export markets to absorb any additional
exports;

(iii) whether imports are entering at prices that will have a significant depressing or suppressing
effect on domestic prices, and would likely increase demand for further imports; and

(iv) inventories of the product being investigated.

No one of these factors by itself can necessarily give decisive guidance but the totality of the
factors considered must lead to the conclusion that further dumped exports are imminent and
that, unless protective action is taken, material injury would occur.

3.8 With respect to cases where injury is threatened by dumped imports, the application of anti-
dumping measures shall be considered and decided with special care.

Part I: Article 4: Definition of Domestic Industry:

4.1 For the purposes of this Agreement, the term “domestic industry” shall be interpreted as
referring to the domestic producers as a whole of the like products or to those of them whose
collective output of the products constitutes a major proportion of the total domestic production
of those products, except that:

(i) when producers are related to the exporters or importers or are themselves importers of the
allegedly dumped product, the term “domestic industry” may be interpreted as referring to the
rest of the producers;
(ii) in exceptional circumstances the territory of a Member may, for the production in question,
be divided into two or more competitive markets and the producers within each market may be
regarded as a separate industry if (a) the producers within such market sell all or almost all of
their production of the product in question in that market, and (b) the demand in that market is
not to any substantial degree supplied by producers of the product in question located elsewhere
in the territory. In such circumstances, injury may be found to exist even where a major portion
of the total domestic industry is not injured, provided there is a concentration of dumped imports
into such an isolated market and provided further that the dumped imports are causing injury to
the producers of all or almost all of the production within such market.
4.2 When the domestic industry has been interpreted as referring to the producers in a certain
area, i.e. a market as defined in paragraph 1(ii), anti-dumping duties shall be levied only on the
products in question consigned for final consumption to that area. When the constitutional law
of the importing Member does not permit the levying of anti-dumping duties on such a basis, the
importing Member may levy the anti-dumping duties without limitation only if (a) the exporters
shall have been given an opportunity to cease exporting at dumped prices to the area concerned
or otherwise give assurances pursuant to Article 8 and adequate assurances in this regard have
not been promptly given, and (b) such duties cannot be levied only on products of specific
producers which supply the area in question.

4.3 Where two or more countries have reached under the provisions of paragraph 8(a) of
Article XXIV of GATT 1994 such a level of integration that they have the characteristics of a
single, unified market, the industry in the entire area of integration shall be taken to be the
domestic industry referred to in paragraph 1.

4.4 The provisions of paragraph 6 of Article 3 shall be applicable to this Article.

Part I: Article 5: Initiation and Subsequent Investigation:

5.1 Except as provided for in paragraph 6, an investigation to determine the existence, degree
and effect of any alleged dumping shall be initiated upon a written application by or on behalf of
the domestic industry.

5.2 An application under paragraph 1 shall include evidence of (a) dumping, (b) injury within
the meaning of Article VI of GATT 1994 as interpreted by this Agreement and (c) a causal link
between the dumped imports and the alleged injury. Simple assertion, unsubstantiated by
relevant evidence, cannot be considered sufficient to meet the requirements of this paragraph.
The application shall contain such information as is reasonably available to the applicant on the
following:

(i) the identity of the applicant and a description of the volume and value of the domestic
production of the like product by the applicant. Where a written application is made on behalf of
the domestic industry, the application shall identify the industry on behalf of which the
application is made by a list of all known domestic producers of the like product (or associations
of domestic producers of the like product) and, to the extent possible, a description of the volume
and value of domestic production of the like product accounted for by such producers;
(ii) a complete description of the allegedly dumped product, the names of the country or
countries of origin or export in question, the identity of each known exporter or foreign producer
and a list of known persons importing the product in question;
(iii) information on prices at which the product in question is sold when destined for
consumption in the domestic markets of the country or countries of origin or export (or, where
appropriate, information on the prices at which the product is sold from the country or countries
of origin or export to a third country or countries, or on the constructed value of the product) and
information on export prices or, where appropriate, on the prices at which the product is first
resold to an independent buyer in the territory of the importing Member;
(iv) information on the evolution of the volume of the allegedly dumped imports, the effect of
these imports on prices of the like product in the domestic market and the consequent impact of
the imports on the domestic industry, as demonstrated by relevant factors and indices having a
bearing on the state of the domestic industry, such as those listed in paragraphs 2 and 4 of
Article 3.

5.3 The authorities shall examine the accuracy and adequacy of the evidence provided in the
application to determine whether there is sufficient evidence to justify the initiation of an
investigation.

5.4 An investigation shall not be initiated pursuant to paragraph 1 unless the authorities have
determined, on the basis of an examination of the degree of support for, or opposition to, the
application expressed by domestic producers of the like product, that the application has been
made by or on behalf of the domestic industry. The application shall be considered to have been
made “by or on behalf of the domestic industry” if it is supported by those domestic producers
whose collective output constitutes more than 50 per cent of the total production of the like
product produced by that portion of the domestic industry expressing either support for or
opposition to the application. However, no investigation shall be initiated when domestic
producers expressly supporting the application account for less than 25 per cent of total
production of the like product produced by the domestic industry.

5.5 The authorities shall avoid, unless a decision has been made to initiate an investigation, any
publicizing of the application for the initiation of an investigation. However, after receipt of a
properly documented application and before proceeding to initiate an investigation, the
authorities shall notify the government of the exporting Member concerned.

5.6 If, in special circumstances, the authorities concerned decide to initiate an investigation
without having received a written application by or on behalf of a domestic industry for the
initiation of such investigation, they shall proceed only if they have sufficient evidence of
dumping, injury and a causal link, as described in paragraph 2, to justify the initiation of an
investigation.

5.7 The evidence of both dumping and injury shall be considered simultaneously (a) in the
decision whether or not to initiate an investigation, and (b) thereafter, during the course of the
investigation, starting on a date not later than the earliest date on which in accordance with the
provisions of this Agreement provisional measures may be applied.

5.8 An application under paragraph 1 shall be rejected and an investigation shall be terminated
promptly as soon as the authorities concerned are satisfied that there is not sufficient evidence of
either dumping or of injury to justify proceeding with the case. There shall be immediate
termination in cases where the authorities determine that the margin of dumping is de minimis,
or that the volume of dumped imports, actual or potential, or the injury, is negligible. The
margin of dumping shall be considered to be de minimis if this margin is less than 2 per cent,
expressed as a percentage of the export price. The volume of dumped imports shall normally be
regarded as negligible if the volume of dumped imports from a particular country is found to
account for less than 3 per cent of imports of the like product in the importing Member, unless
countries which individually account for less than 3 per cent of the imports of the like product in
the importing Member collectively account for more than 7 per cent of imports of the like
product in the importing Member.

5.9 An anti-dumping proceeding shall not hinder the procedures of customs clearance.

5.10 Investigations shall, except in special circumstances, be concluded within one year, and in
no case more than 18 months, after their initiation.

Part I: Article 9: Imposition and Collection of Anti-Dumping Duties

9.1 The decision whether or not to impose an anti-dumping duty in cases where all requirements
for the imposition have been fulfilled, and the decision whether the amount of the anti-dumping
duty to be imposed shall be the full margin of dumping or less, are decisions to be made by the
authorities of the importing Member. It is desirable that the imposition be permissive in the
territory of all Members, and that the duty be less than the margin if such lesser duty would be
adequate to remove the injury to the domestic industry.

9.2 When an anti-dumping duty is imposed in respect of any product, such anti-dumping duty
shall be collected in the appropriate amounts in each case, on a non-discriminatory basis on
imports of such product from all sources found to be dumped and causing injury, except as to
imports from those sources from which price undertakings under the terms of this Agreement
have been accepted. The authorities shall name the supplier or suppliers of the product
concerned. If, however, several suppliers from the same country are involved, and it is
impracticable to name all these suppliers, the authorities may name the supplying country
concerned. If several suppliers from more than one country are involved, the authorities may
name either all the suppliers involved, or, if this is impracticable, all the supplying countries
involved.

9.3 The amount of the anti-dumping duty shall not exceed the margin of dumping as established
under Article 2.

9.3.1 When the amount of the anti-dumping duty is assessed on a retrospective basis, the
determination of the final liability for payment of anti-dumping duties shall take place as soon as
possible, normally within 12 months, and in no case more than 18 months, after the date on
which a request for a final assessment of the amount of the anti-dumping duty has been made.
Any refund shall be made promptly and normally in not more than 90 days following the
determination of final liability made pursuant to this sub-paragraph. In any case, where a refund
is not made within 90 days, the authorities shall provide an explanation if so requested.
9.3.2 When the amount of the anti-dumping duty is assessed on a prospective basis, provision
shall be made for a prompt refund, upon request, of any duty paid in excess of the margin of
dumping. A refund of any such duty paid in excess of the actual margin of dumping shall
normally take place within 12 months, and in no case more than 18 months, after the date on
which a request for a refund, duly supported by evidence, has been made by an importer of the
product subject to the anti-dumping duty. The refund authorized should normally be made
within 90 days of the above-noted decision.
9.3.3 In determining whether and to what extent a reimbursement should be made when the
export price is constructed in accordance with paragraph 3 of Article 2, authorities should take
account of any change in normal value, any change in costs incurred between importation and
resale, and any movement in the resale price which is duly reflected in subsequent selling prices,
and should calculate the export price with no deduction for the amount of anti-dumping duties
paid when conclusive evidence of the above is provided.

9.4 When the authorities have limited their examination in accordance with the second sentence
of paragraph 10 of Article 6, any anti-dumping duty applied to imports from exporters or
producers not included in the examination shall not exceed:

(i) the weighted average margin of dumping established with respect to the selected exporters or
producers or,
(ii) where the liability for payment of anti-dumping duties is calculated on the basis of a
prospective normal value, the difference between the weighted average normal value of the
selected exporters or producers and the export prices of exporters or producers not individually
examined, provided that the authorities shall disregard for the purpose of this paragraph any zero
and de minimis margins and margins established under the circumstances referred to in
paragraph 8 of Article 6. The authorities shall apply individual duties or normal values to
imports from any exporter or producer not included in the examination who has provided the
necessary information during the course of the investigation, as provided for in
subparagraph 10.2 of Article 6.

9.5 If a product is subject to anti-dumping duties in an importing Member, the authorities shall
promptly carry out a review for the purpose of determining individual margins of dumping for
any exporters or producers in the exporting country in question who have not exported the
product to the importing Member during the period of investigation, provided that these
exporters or producers can show that they are not related to any of the exporters or producers in
the exporting country who are subject to the anti-dumping duties on the product. Such a review
shall be initiated and carried out on an accelerated basis, compared to normal duty assessment
and review proceedings in the importing Member. No anti-dumping duties shall be levied on
imports from such exporters or producers while the review is being carried out. The authorities
may, however, withhold appraisement and/or request guarantees to ensure that, should such a
review result in a determination of dumping in respect of such producers or exporters, anti-
dumping duties can be levied retroactively to the date of the initiation of the review.

Part I: Article 10: Retroactivity:

10.1 Provisional measures and anti-dumping duties shall only be applied to products which enter
for consumption after the time when the decision taken under paragraph 1 of Article 7 and
paragraph 1 of Article 9, respectively, enters into force, subject to the exceptions set out in this
Article.

10.2 Where a final determination of injury (but not of a threat thereof or of a material retardation
of the establishment of an industry) is made or, in the case of a final determination of a threat of
injury, where the effect of the dumped imports would, in the absence of the provisional
measures, have led to a determination of injury, anti-dumping duties may be levied retroactively
for the period for which provisional measures, if any, have been applied.

10.3 If the definitive anti-dumping duty is higher than the provisional duty paid or payable, or
the amount estimated for the purpose of the security, the difference shall not be collected. If the
definitive duty is lower than the provisional duty paid or payable, or the amount estimated for the
purpose of the security, the difference shall be reimbursed or the duty recalculated, as the case
may be.

10.4 Except as provided in paragraph 2, where a determination of threat of injury or material

retardation is made (but no injury has yet occurred) a definitive anti-dumping duty may be
imposed only from the date of the determination of threat of injury or material retardation, and
any cash deposit made during the period of the application of provisional measures shall be
refunded and any bonds released in an expeditious manner.

10.5 Where a final determination is negative, any cash deposit made during the period of the
application of provisional measures shall be refunded and any bonds released in an expeditious
manner.

10.6 A definitive anti-dumping duty may be levied on products which were entered for
consumption not more than 90 days prior to the date of application of provisional measures,
when the authorities determine for the dumped product in question that:

(i) there is a history of dumping which caused injury or that the importer was, or should have
been, aware that the exporter practises dumping and that such dumping would cause injury, and

(ii) the injury is caused by massive dumped imports of a product in a relatively short time which
in light of the timing and the volume of the dumped imports and other circumstances (such as a
rapid build-up of inventories of the imported product) is likely to seriously undermine the
remedial effect of the definitive anti-dumping duty to be applied, provided that the importers
concerned have been given an opportunity to comment.

10.7 The authorities may, after initiating an investigation, take such measures as the withholding
of appraisement or assessment as may be necessary to collect anti-dumping duties retroactively,
as provided for in paragraph 6, once they have sufficient evidence that the conditions set forth in
that paragraph are satisfied.
10.8 No duties shall be levied retroactively pursuant to paragraph 6 on products entered for
consumption prior to the date of initiation of the investigation.

Part I: Article 13 : Judicial Review:

Each Member whose national legislation contains provisions on anti-dumping measures shall
maintain judicial, arbitral or administrative tribunals or procedures for the purpose, inter alia, of
the prompt review of administrative actions relating to final determinations and reviews of
determinations within the meaning of Article 11. Such tribunals or procedures shall be
independent of the authorities responsible for the determination or review in question.

Part I: Article 14: Anti-Dumping Action on Behalf of a Third Country:

14.1 An application for anti-dumping action on behalf of a third country shall be made by the
authorities of the third country requesting action.

14.2 Such an application shall be supported by price information to show that the imports are
being dumped and by detailed information to show that the alleged dumping is causing injury to
the domestic industry concerned in the third country. The government of the third country shall
afford all assistance to the authorities of the importing country to obtain any further information
which the latter may require.

14.3 In considering such an application, the authorities of the importing country shall consider
the effects of the alleged dumping on the industry concerned as a whole in the third country; that
is to say, the injury shall not be assessed in relation only to the effect of the alleged dumping on
the industry’s exports to the importing country or even on the industry’s total exports.

14.4 The decision whether or not to proceed with a case shall rest with the importing country. If
the importing country decides that it is prepared to take action, the initiation of the approach to
the Council for Trade in Goods seeking its approval for such action shall rest with the importing
country.

Part II: Article 17: Consultation and Dispute Settlement:

17.1 Except as otherwise provided herein, the Dispute Settlement Understanding is applicable
to consultations and the settlement of disputes under this Agreement.

17.2 Each Member shall afford sympathetic consideration to, and shall afford adequate
opportunity for consultation regarding, representations made by another Member with respect to
any matter affecting the operation of this Agreement.
17.3 If any Member considers that any benefit accruing to it, directly or indirectly, under this
Agreement is being nullified or impaired, or that the achievement of any objective is being
impeded, by another Member or Members, it may, with a view to reaching a mutually
satisfactory resolution of the matter, request in writing consultations with the Member or
Members in question. Each Member shall afford sympathetic consideration to any request from
another Member for consultation.

17.4 If the Member that requested consultations considers that the consultations pursuant to
paragraph 3 have failed to achieve a mutually agreed solution, and if final action has been taken
by the administering authorities of the importing Member to levy definitive anti-dumping duties
or to accept price undertakings, it may refer the matter to the Dispute Settlement Body (“DSB”).
When a provisional measure has a significant impact and the Member that requested
consultations considers that the measure was taken contrary to the provisions of paragraph 1 of
Article 7, that Member may also refer such matter to the DSB.

17.5 The DSB shall, at the request of the complaining party, establish a panel to examine the
matter based upon:

(i) a written statement of the Member making the request indicating how a benefit accruing to it,
directly or indirectly, under this Agreement has been nullified or impaired, or that the achieving
of the objectives of the Agreement is being impeded, and
(ii) the facts made available in conformity with appropriate domestic procedures to the
authorities of the importing Member.

17.6 In examining the matter referred to in paragraph 5:

(i) in its assessment of the facts of the matter, the panel shall determine whether the authorities’
establishment of the facts was proper and whether their evaluation of those facts was unbiased
and objective. If the establishment of the facts was proper and the evaluation was unbiased and
objective, even though the panel might have reached a different conclusion, the evaluation shall
not be overturned;
(ii) the panel shall interpret the relevant provisions of the Agreement in accordance with
customary rules of interpretation of public international law. Where the panel finds that a
relevant provision of the Agreement admits of more than one permissible interpretation, the
panel shall find the authorities’ measure to be in conformity with the Agreement if it rests upon
one of those permissible interpretations.

17.7 Confidential information provided to the panel shall not be disclosed without formal
authorization from the person, body or authority providing such information. Where such
information is requested from the panel but release of such information by the panel is not
authorized, a non-confidential summary of the information, authorized by the person, body or
authority providing the information, shall be provided.

D. Agreement on Safeguards:
Article 1: General Provision:

This Agreement establishes rules for the application of safeguard measures which shall be
understood to mean those measures provided for in Article XIX of GATT 1994.

Article 2: Conditions:

1. A Member may apply a safeguard measure to a product only if that Member has determined,
pursuant to the provisions set out below, that such product is being imported into its territory in
such increased quantities, absolute or relative to domestic production, and under such conditions
as to cause or threaten to cause serious injury to the domestic industry that produces like or
directly competitive products.

2. Safeguard measures shall be applied to a product being imported irrespective of its source.

Article 3: Investigation:

1. A Member may apply a safeguard measure only following an investigation by the competent
authorities of that Member pursuant to procedures previously established and made public in
consonance with Article X of GATT 1994. This investigation shall include reasonable public
notice to all interested parties and public hearings or other appropriate means in which importers,
exporters and other interested parties could present evidence and their views, including the
opportunity to respond to the presentations of other parties and to submit their views, inter alia,
as to whether or not the application of a safeguard measure would be in the public interest. The
competent authorities shall publish a report setting forth their findings and reasoned conclusions
reached on all pertinent issues of fact and law.

2. Any information which is by nature confidential or which is provided on a confidential basis

shall, upon cause being shown, be treated as such by the competent authorities. Such information
shall not be disclosed without permission of the party submitting it. Parties providing
confidential information may be requested to furnish non-confidential summaries thereof or, if
such parties indicate that such information cannot be summarized, the reasons why a summary
cannot be provided. However, if the competent authorities find that a request for confidentiality
is not warranted and if the party concerned is either unwilling to make the information public or
to authorize its disclosure in generalized or summary form, the authorities may disregard such
information unless it can be demonstrated to their satisfaction from appropriate sources that the
information is correct.

Article 4: Determination of Serious Injury or Threat Thereof:

1. For the purposes of this Agreement:

(a) “serious injury” shall be understood to mean a significant overall impairment in the position
of a domestic industry;
(b) “threat of serious injury” shall be understood to mean serious injury that is clearly imminent,
in accordance with the provisions of paragraph 2. A determination of the existence of a threat of
serious injury shall be based on facts and not merely on allegation, conjecture or remote
possibility; and

(c) in determining injury or threat thereof, a “domestic industry” shall be understood to mean the
producers as a whole of the like or directly competitive products operating within the territory of
a Member, or those whose collective output of the like or directly competitive products
constitutes a major proportion of the total domestic production of those products.

2. (a) In the investigation to determine whether increased imports have caused or are threatening
to cause serious injury to a domestic industry under the terms of this Agreement, the competent
authorities shall evaluate all relevant factors of an objective and quantifiable nature having a
bearing on the situation of that industry, in particular, the rate and amount of the increase in
imports of the product concerned in absolute and relative terms, the share of the domestic market
taken by increased imports, changes in the level of sales, production, productivity, capacity
utilization, profits and losses, and employment.

(b) The determination referred to in subparagraph (a) shall not be made unless this investigation
demonstrates, on the basis of objective evidence, the existence of the causal link between
increased imports of the product concerned and serious injury or threat thereof. When factors
other than increased imports are causing injury to the domestic industry at the same time, such
injury shall not be attributed to increased imports.
(c) The competent authorities shall publish promptly, in accordance with the provisions of
Article 3, a detailed analysis of the case under investigation as well as a demonstration of the
relevance of the factors examined.

Article 5: Application of Safeguard Measures:

1. A Member shall apply safeguard measures only to the extent necessary to prevent or remedy
serious injury and to facilitate adjustment. If a quantitative restriction is used, such a measure
shall not reduce the quantity of imports below the level of a recent period which shall be the
average of imports in the last three representative years for which statistics are available, unless
clear justification is given that a different level is necessary to prevent or remedy serious injury.
Members should choose measures most suitable for the achievement of these objectives.

2. (a) In cases in which a quota is allocated among supplying countries, the Member applying
the restrictions may seek agreement with respect to the allocation of shares in the quota with all
other Members having a substantial interest in supplying the product concerned. In cases in
which this method is not reasonably practicable, the Member concerned shall allot to Members
having a substantial interest in supplying the product shares based upon the proportions, supplied
by such Members during a previous representative period, of the total quantity or value of
imports of the product, due account being taken of any special factors which may have affected
or may be affecting the trade in the product.

(b) A Member may depart from the provisions in subparagraph (a) provided that consultations
under paragraph 3 of Article 12 are conducted under the auspices of the Committee on
Safeguards provided for in paragraph 1 of Article 13 and that clear demonstration is provided to
the Committee that (i) imports from certain Members have increased in disproportionate
percentage in relation to the total increase of imports of the product concerned in the
representative period, (ii) the reasons for the departure from the provisions in subparagraph (a)
are justified, and (iii) the conditions of such departure are equitable to all suppliers of the product
concerned. The duration of any such measure shall not be extended beyond the initial period
under paragraph 1 of Article 7. The departure referred to above shall not be permitted in the case
of threat of serious injury.

Article 6: Provisional Safeguard Measures:

In critical circumstances where delay would cause damage which it would be difficult to repair, a
Member may take a provisional safeguard measure pursuant to a preliminary determination that
there is clear evidence that increased imports have caused or are threatening to cause serious
injury. The duration of the provisional measure shall not exceed 200 days, during which period
the pertinent requirements of Articles 2 through 7 and 12 shall be met. Such measures should
take the form of tariff increases to be promptly refunded if the subsequent investigation referred
to in paragraph 2 of Article 4 does not determine that increased imports have caused or
threatened to cause serious injury to a domestic industry. The duration of any such provisional
measure shall be counted as a part of the initial period and any extension referred to in
paragraphs 1, 2 and 3 of Article 7.

Article 7: Duration and Review of Safeguard Measures:

1. A Member shall apply safeguard measures only for such period of time as may be necessary to
prevent or remedy serious injury and to facilitate adjustment. The period shall not exceed four
years, unless it is extended under paragraph 2.

2. The period mentioned in paragraph 1 may be extended provided that the competent authorities
of the importing Member have determined, in conformity with the procedures set out in
Articles 2, 3, 4 and 5, that the safeguard measure continues to be necessary to prevent or remedy
serious injury and that there is evidence that the industry is adjusting, and provided that the
pertinent provisions of Articles 8 and 12 are observed.

3. The total period of application of a safeguard measure including the period of application of
any provisional measure, the period of initial application and any extension thereof, shall not
exceed eight years.
4. In order to facilitate adjustment in a situation where the expected duration of a safeguard
measure as notified under the provisions of paragraph 1 of Article 12 is over one year, the
Member applying the measure shall progressively liberalize it at regular intervals during the
period of application. If the duration of the measure exceeds three years, the Member applying
such a measure shall review the situation not later than the mid-term of the measure and, if
appropriate, withdraw it or increase the pace of liberalization. A measure extended under
paragraph 2 shall not be more restrictive than it was at the end of the initial period, and should
continue to be liberalized.

5. No safeguard measure shall be applied again to the import of a product which has been subject
to such a measure, taken after the date of entry into force of the WTO Agreement, for a period of
time equal to that during which such measure had been previously applied, provided that the
period of non-application is at least two years.

6. Notwithstanding the provisions of paragraph 5, a safeguard measure with a duration of

180 days or less may be applied again to the import of a product if:

(a) at least one year has elapsed since the date of introduction of a safeguard measure on the
import of that product; and

(b) such a safeguard measure has not been applied on the same product more than twice in
the five-year period immediately preceding the date of introduction of the measure.

Article 14: Dispute Settlement:

The provisions of Articles XXII and XXIII of GATT 1994 as elaborated and applied by the
Dispute Settlement Understanding shall apply to consultations and the settlement of disputes
arising under this Agreement.

Unit – III: Trade in Services:

A. General Agreement on Trade in Services:

GENERAL AGREEMENT ON TRADE IN SERVICES

Introduction:

Members, Recognizing the growing importance of trade in services for the growth and
development of the world economy; Wishing to establish a multilateral framework of principles
and rules for trade in services with a view to the expansion of such trade under conditions of
transparency and progressive liberalization and as a means of promoting the economic growth of
all trading partners and the development of developing countries; Desiring the early achievement
of progressively higher levels of liberalization of trade in services through successive rounds of
multilateral negotiations aimed at promoting the interests of all participants on a mutually
advantageous basis and at securing an overall balance of rights and obligations, while giving due
respect to national policy objectives; Recognizing the right of Members to regulate, and to
introduce new regulations, on the supply of services within their territories in order to meet
national policy objectives and, given asymmetries existing with respect to the degree of
development of services regulations in different countries, the particular need of developing
countries to exercise this right; Desiring to facilitate the increasing participation of developing
countries in trade in services and the expansion of their service exports including, inter alia ,
through the strengthening of their domestic services capacity and its efficiency and
competitiveness; Taking particular account of the serious difficulty of the least-developed
countries in view of their special economic situation and their development, trade and financial
needs; Hereby agreeas follows:

PART I: SCOPE AND DEFINITION:

Article I: Scope and Definition

1.This Agreement applies to measures by Members affecting trade in services.

2. For the purposes of this Agreement, trade in services is defined as the supply of a service:

(a) from the territory of one Member into the territory of any other Member;

(b) in the territory of one Member to the service consumer of any other Member;

(c) by a service supplier of one Member, through commercial presence in the territory of any
other Member;

(d) by a service supplier of one Member, through presence of natural persons of a Member in
the territory of any other Member.

3. For the purposes of this Agreement:

(a) "measures by Members" means measures taken by:

(i) central, regional or local governments and authorities; and

(ii) non-governmental bodies in the exercise of powers delegated by central, regional or local
governments or authorities;
In fulfilling its obligations and commitments under the Agreement, each Member shall take such
reasonable measures as may be available to it to ensure their observance by regional and local
governments and authorities and non-governmental bodies within its territory;

(b)"services" includes any service in any sector except services supplied in the exercise of
governmental authority;

(c) "a service supplied in the exercise of governmental authority" means any service which is
supplied neither on a commercial basis, nor in competition with one or more service suppliers.

PART II

GENERAL OBLIGATIONS AND DISCIPLINES

Article II

Most-Favoured-Nation Treatment:

1.With respect to any measure covered by this Agreement, each Member shall accord
immediately and unconditionally to services and service suppliers of any other Member
treatment no less favourable than that it accords to like services and service suppliers of any
other country.

2. A Member may maintain a measure inconsistent with paragraph provided that such a measure
is listed in, and meets the conditions of, the Annex on Article II Exemptions.

3.The provisions of this Agreement shall not be so construed as to prevent any Member from
conferring or according advantages to adjacent countries in order to facilitate exchanges limited
to contiguous frontier zones of services that are both locally produced and consumed.

Article III: Transparency:

1. Each Member shall publish promptly and, except in emergency situations, at the latest by
the time of their entry into force, all relevant measures of general application which
pertain to or affect the operation of this Agreement. International agreements pertaining
to or affecting trade in services to which a Member is a signatory shall also be published.
2. Where publication as referred to in paragraph 1 is not practicable, such information shall
be made otherwise publicly available.
3. Each Member shall promptly and at least annually inform the Council for Trade in
Services of the introduction of any new, or any changes to existing, laws, regulations or
administrative guidelines which significantly affect trade in services covered by its
specific commitments under this Agreement.
 4. Each Member shall respond promptly to all requests by any other Member for specific
information on any of its measures of general application or international agreements
within the meaning of paragraph 1.

Each Member shall also establish one or more enquiry points to provide specific
information to other Members, upon request, on all such matters as well as those subject
to the notification requirement in paragraph 3. Such enquiry points shall be established
within two years from the date of entry into force of the Agreement Establishing the
WTO (referred to in this Agreement as the "WTO Agreement"). Appropriate flexibility
with respect to the time-limit within which such enquiry points are to be established may
be agreed upon for individual developing country Members. Enquiry points need not be
depositories of laws and regulations.

5. Any Member may notify to the Council for Trade in Services any measure, taken by any
other Member, which it considers affects the operation of this Agreement.

Disclosure of Confidential Information:

Nothing in this Agreement shall require any Member to provide confidential information, the
disclosure of which would impede law enforcement, or otherwise be contrary to the public
interest, or which would prejudice legitimate commercial interests of particular enterprises,
public or private.

Article IV: Increasing Participation of Developing Countries:

1. The increasing participation of developing country Members in world trade shall be

facilitated through negotiated specific commitments, by different Members pursuant to
Parts III and IV of this Agreement, relating to:
(a) the strengthening of their domestic services capacity and its efficiency and
competitiveness, inter alia through access to technology on a commercial basis;
(b) the improvement of their access to distribution channels and information networks; and
(c) the liberalization of market access in sectors and modes of supply of export interest to
them.
2. Developed country Members, and to the extent possible other Members, shall establish
contact points within two years from the date of entry into force of the WTO Agreement
to facilitate the access of developing country Members' service suppliers to information,
related to their respective markets, concerning:
(a) commercial and technical aspects of the supply of services;

B. Ongoing Multilateral Negotiations:

The General Agreement on Trade in Services (GATS) mandates WTO member governments
to progressively liberalize trade in services through successive rounds of negotiations. Under
the mandate of Article XIX, the latest round of negotiations began in January 2000. In March
2001 the Guidelines and Procedures for the Negotiations on Trade in Services were adopted
by the Council for Trade in Services. At the Doha Ministerial Conference in November 2001
the services negotiations became part of the “single undertaking” under the Doha
Development Agenda, whereby all subjects under the negotiations are to be concluded at the
same time

Negotiations process:

Negotiations in the Doha Round are being conducted essentially on two tracks:

• bilateral and/or plurilateral negotiations to improve market conditions for trade in

services — this mostly involves improving specific commitments on market access and
national treatment (i.e. ensuring that privileges given to local companies are also given to
foreign companies) and promoting most-favoured nation treatment (more equal treatment
among WTO members)
• multilateral negotiations among all WTO members to establish any necessary rules and
disciplines (such as on domestic regulation, emergency safeguard measures, government
procurement and subsidies) which will apply to the whole WTO membership, with
certain special provisions for developing and least-developed countries.

Proposals for the negotiations:

At the start of the negotiations, WTO members tabled proposals regarding both the structure
and the contents of the negotiations. These proposals highlight the main areas of interest for
individual members and/or groups of members. Often the proposals provide background
information and suggestions for improving trade conditions in a particular sector. Currently,
there are virtually no new proposals being tabled as work has moved on to the request-offer
process.

Special Sessions:

The Council for Trade in Services (meeting in “special session”) is the body responsible for
overseeing the negotiations. All subsidiary bodies, such as the Working Party on Domestic
Regulation and the Working Party on GATS Rules, report to the Council. The current chair is
Ambassador Gabriel DUQUE (Colombia).

Unit – IV: International Trade Dispute Resolution:

A. Nullification or impairment:
Types of complaints and required allegations in GATT 1994:
The GATT 1994 contains “consultation and dispute settlement provisions” in both Articles XXII
and XXIII. However, it is Article XXIII:1(a) to (c) which sets out the specific circumstances in
which a (WTO) Member is entitled to a remedy. Article XXIII:2 originally specified the form
that this remedy could take, but the consequences of a successful recourse to the dispute
settlement system nowadays are set out in more detail in the DSU. Article XXIII of GATT 1994
therefore retains its significance chiefly for specifying in paragraph 1 the conditions under which
a Member can invoke the dispute settlement system. Article XXIII:1 of GATT 1994 states:

“Nullification or Impairment:”

1. If any contracting party should consider that any benefit accruing to it directly or
indirectly under this Agreement is being nullified or impaired or that the attainment of
any objective of the Agreement is being impeded as the result of:

a. the failure of another contracting party to carry out its obligations under this Agreement,
or

b. the application by another contracting party of any measure, whether or not it conflicts
with the provisions of this Agreement, or
c. the existence of any other situation, the contracting party may, with a view to the
satisfactory adjustment of the matter, make written representations or proposals to the
other contracting party or parties which it considers to be concerned. Any contracting
party thus approached shall give sympathetic consideration to the representations or
proposals made to it.”

The different types of complaints under Article XXIII:1 of GATT 1994:

In subparagraphs (a), (b) and (c), Article XXIII:1 provides for three alternative options (i.e. (a)
“or” (b) “or” (c)) on which a complainant may rely. However, Article XXIII:1 starts with an
introductory clause containing the condition that a Member “consider that any benefit accruing
to it directly or indirectly under this Agreement is being nullified or impaired or that the
attainment of any objective of the Agreement is being impeded”. This must be the result of one
of the scenarios specified in subparagraphs (a), (b) and (c).

The first, and by far, the most common comp aint is the so-called “violation complaint” pursuant
to Article XXIII:1(a) of GATT 1994. This complaint requires “nullification or impairment of a
benefit” as a result of the “the failure of another [Member] to carry out its obligations” under
GATT 1994. This “failure to carry out obligations” is just a different way of referring to a legal
inconsistency with, or violation of, the GATT 1994. There also needs to be “nullification or
impairment” as a result of the alleged legal inconsistency.

The second type of complaint is the so-called “non-violation complaint” pursuant to Article
XXIII:1(b) of GATT 1994. A non-violation complaint may be used to challenge any measure
applied by another Member, even if it does not conflict with GATT 1994, provided that it results
in “nullification or impairment of a benefit”. There have been a few such complaints both under
GATT 1947 and in the WTO.

The third type of complaint is the so-called “situation complaint” pursuant to Article XXIII:1(c)
of GATT 1994. Literally understood, it could cover any situation whatsoever, as long as it
results in “nullification or impairment”. However, although a few such situation complaints have
been raised under the old GATT, none of them has ever resulted in a panel report. In the WTO,
Article XXIII:1(c) of GATT 1994 has not so far been invoked by any complainant.

Given the admissibility of “non-violation” and “situation complaints”, the scope of the WTO
dispute settlement system is broader than that of other international dispute settlement systems
which are confined to adjudicating only violations of agreements. Simultaneously, the WTO
dispute settlement system is narrower than those other systems, in the sense that a violation must
also result in nullification or impairment (or possibly the impeded attainment of an objective).
This particularity of the system for settlement of international trade disputes reflects the
intention to maintain the negotiated balance of concessions and benefits between the WTO
Members. It was GATT practice and it is now WTO law that a violation of a WTO provision
triggers a rebuttal presumption of nullification or impairment of trade benefits (Article 3.8 of the
DSU).

In summary, the WTO dispute settlement system provides for three kinds of complaints: (a)
“violation complaints”, (b) “non-violation complaints” and (c) “situation complaints”. Violation
complaints are by far the most frequent. Only a few cases have been brought on the basis of an
allegation of non-violation nullification or impairment of trade benefits. No “situation
complaint” has ever resulted in a panel or Appellate Body report based on Article XXIII:1(c) of
GATT 1994.

Violation complaint:

As outlined above, a violation complaint will succeed when the respondent fails to carry out its
obligations under GATT 1994 or the other covered agreements, and this results directly or
indirectly in nullification or impairment of a benefit accruing to the complainant under these
agreements. If it can be established before a Panel and the Appellate Body that these two
conditions are satisfied, the complainant will “win” the dispute.

In practice, the first of these two conditions, the violation, plays a much more important role
than the second condition, nullification or impairment of a benefit. This is due to the fact that
nullification or impairment is “presumed” to exist whenever a violation has been established.
This presumption evolved in GATT jurisprudence and is today codified in Article 3.8 of the
DSU. Article 3.8 is concerned only with violation complaints (“where there is an infringement”).
The presumption set out in this article relates to nullification or impairment once it has been
established that there is a breach of an obligation. The presumption does not address the question
whether there is such a violation, and it should not be confused with this question.

The effect of the legal presumption is that of a reversal of the burden of proof. The concept of a
legal presumption and the language in the last sentence of Article 3.8 of the DSU imply that the
presumption set out by Article 3.8 of the DSU can be rebutted. However, there has been no
single case of a successful rebuttal in the history of GATT and the WTO to date. GATT panels
rejected all attempts to demonstrate that there was no actual trade impact. For instance, the fact
that an import quota had not been fully utilized was insufficient for proving the absence of
nullification or impairment of benefits because quotas give rise to increased transaction costs
and uncertainties that could affect investment plans. In another case, a panel rejected the claim
that the GATT-inconsistent measure caused no or insignificant trade effects arguing that the
national treatment requirement in GATT 1947 did not protect expectations on export volumes,
but expectations on the competitive relationship between imported and domestic products. The
Appellate Body has endorsed this reasoning. One GATT panel went as far as to observe that the
presumption had, in practice, operated as an irrefutable presumption.

In the practice of the WTO dispute settlement system, panels typically cite Article 3.8 of the
DSU (other than disputes brought under the GATS) once they have concluded that the defendant
has violated a rule of a covered agreement. Unless the defendant (exceptionally) makes an
attempt to rebut the presumption, panels dedicate no more than a brief paragraph at the end of
their reports to the issue of nullification or impairment. It should be noted that the types of
complaints brought under the GATS are slightly different.

B. Dispute settlement:

UNDERSTANDING THE WTO: SETTLING DISPUTES:

Dispute settlement is the central pillar of the multilateral trading system, and the WTO’s unique
contribution to the stability of the global economy. Without a means of settling disputes, the
rules-based system would be less effective because the rules could not be enforced. The WTO’s
procedure underscores the rule of law, and it makes the trading system more secure and
predictable. The system is based on clearly-defined rules, with timetables for completing a case.
First rulings are made by a panel and endorsed (or rejected) by the WTO’s full membership.
Appeals based on points of law are possible.

However, the point is not to pass judgement. The priority is to settle disputes, through
consultations if possible. By January 2008, only about 136 of the nearly 369 cases had reached
the full panel process. Most of the rest have either been notified as settled “out of court” or
remain in a prolonged consultation phase — some since 1995.

Principles: equitable, fast, effective, mutually acceptable

Disputes in the WTO are essentially about broken promises. WTO members have agreed that if
they believe fellow-members are violating trade rules, they will use the multilateral system of
settling disputes instead of taking action unilaterally. That means abiding by the agreed
procedures, and respecting judgements.

A dispute arises when one country adopts a trade policy measure or takes some action that one
or more fellow-WTO members considers to be breaking the WTO agreements, or to be a failure
to live up to obligations. A third group of countries can declare that they have an interest in the
case and enjoy some rights.

A procedure for settling disputes existed under the old GATT, but it had no fixed timetables,
rulings were easier to block, and many cases dragged on for a long time inconclusively. The
Uruguay Round agreement introduced a more structured process with more clearly defined
stages in the procedure. It introduced greater discipline for the length of time a case should take
to be settled, with flexible deadlines set in various stages of the procedure. The agreement
emphasizes that prompt settlement is essential if the WTO is to function effectively. It sets out
in considerable detail the procedures and the timetable to be followed in resolving disputes. If a
case runs its full course to a first ruling, it should not normally take more than about one year —
15 months if the case is appealed. The agreed time limits are flexible, and if the case is
considered urgent (e.g. if perishable goods are involved), it is accelerated as much as possible.

The Uruguay Round agreement also made it impossible for the country losing a case to block
the adoption of the ruling. Under the previous GATT procedure, rulings could only be adopted
by consensus, meaning that a single objection could block the ruling. Now, rulings are
automatically adopted unless there is a consensus to reject a ruling — any country wanting to
block a ruling has to persuade all other WTO members (including its adversary in the case) to
share its view.

Although much of the procedure does resemble a court or tribunal, the preferred solution is for
the countries concerned to discuss their problems and settle the dispute by themselves. The first
stage is therefore consultations between the governments concerned, and even when the case
has progressed to other stages, consultation and mediation are still always possible.

How are disputes settled?

Settling disputes is the responsibility of the Dispute Settlement Body (the General Council in
another guise), which consists of all WTO members. The Dispute Settlement Body has the sole
authority to establish “panels” of experts to consider the case, and to accept or reject the
panels’ findings or the results of an appeal. It monitors the implementation of the rulings and
recommendations, and has the power to authorize retaliation when a country does not comply
with a ruling.

• First stage: consultation (up to 60 days). Before taking any other actions the countries
in dispute have to talk to each other to see if they can settle their differences by
themselves. If that fails, they can also ask the WTO director-general to mediate or try to
help in any other way.
• Second stage: the panel (up to 45 days for a panel to be appointed, plus 6 months for
the panel to conclude). If consultations fail, the complaining country can ask for a panel
to be appointed. The country “in the dock” can block the creation of a panel once, but
when the Dispute Settlement Body meets for a second time, the appointment can no
longer be blocked (unless there is a consensus against appointing the panel).

Officially, the panel is helping the Dispute Settlement Body make rulings or recommendations.
But because the panel’s report can only be rejected by consensus in the Dispute Settlement
Body, its conclusions are difficult to overturn. The panel’s findings have to be based on the
agreements cited.

The panel’s final report should normally be given to the parties to the dispute within six
months. In cases of urgency, including those concerning perishable goods, the deadline is
shortened to three months.

The agreement describes in some detail how the panels are to work. The main stages are:

• Before the first hearing: each side in the dispute presents its case in writing to the
panel.
• First hearing: the case for the complaining country and defence: the complaining
country (or countries), the responding country, and those that have announced they
have an interest in the dispute, make their case at the panel’s first hearing.
• Rebuttals: the countries involved submit written rebuttals and present oral arguments
at the panel’s second meeting.
• Experts: if one side raises scientific or other technical matters, the panel may consult
experts or appoint an expert review group to prepare an advisory report.
• First draft: the panel submits the descriptive (factual and argument) sections of its
report to the two sides, giving them two weeks to comment. This report does not
include findings and conclusions.
• Interim report: The panel then submits an interim report, including its findings and
conclusions, to the two sides, giving them one week to ask for a review.
• Review: The period of review must not exceed two weeks. During that time, the panel
may hold additional meetings with the two sides.
• Final report: A final report is submitted to the two sides and three weeks later, it is
circulated to all WTO members. If the panel decides that the disputed trade measure
does break a WTO agreement or an obligation, it recommends that the measure be
made to conform with WTO rules. The panel may suggest how this could be done.
• The report becomes a ruling: The report becomes the Dispute Settlement Body’s
ruling or recommendation within 60 days unless a consensus rejects it. Both sides can
appeal the report (and in some cases both sides do).

Appeals:

Either side can appeal a panel’s ruling. Sometimes both sides do so. Appeals have to be
based on points of law such as legal interpretation — they cannot reexamine existing
evidence or examine new issues. Each appeal is heard by three members of a permanent
seven-member Appellate Body set up by the Dispute Settlement Body and broadly
representing the range of WTO membership. Members of the Appellate Body have four-
year terms. They have to be individuals with recognized standing in the field of law and
international trade, not affiliated with any government. The appeal can uphold, modify or
reverse the panel’s legal findings and conclusions. Normally appeals should not last more
than 60 days, with an absolute maximum of 90 days. The Dispute Settlement Body has to
accept or reject the appeals report within 30 days — and rejection is only possible by
consensus.

C. Enforcement and Remedies:

Introduction to WTO Dispute Resolution:

The WTO's Dispute Settlement Understanding (DSU) evolved out of the ineffective
means used under the GATT for settling disagreements among members. Under the
GATT, procedures for settling disputes were ineffective and time consuming since a
single nation, including the nation, whose actions were the subject of complaint, could
effectively block or delay every stage of the dispute resolution process. It remains to be
seen whether countries will comply with the new WTO dispute settlement mechanism,
but thus far the process has met with relative success.

The DSU was designed to deal with the complexity of reducing and eliminating non-tariff
barriers to trade. A non-tariff trade barrier can be almost any government policy or
regulation that has the effect of making it more difficult or costly for foreign competitors
to do business in a country. In the early years of the GATT, most of the progress in
reducing trade barriers focused on trade in goods and in reducing or eliminating the tariff
levels on those goods. More recently, tariffs have been all but eliminated in a wide variety
of sectors. This has meant that non-tariff trade barriers have become more important
since, in the absence of tariffs, only such barriers significantly distort the overall pattern
of trade-liberalization. Frequently, such non-tariff trade barriers are the inadvertent
consequence of well meaning attempts to regulate to ensure safety or protection for the
environment, or other public policy goals. In other cases, countries have been suspected
of deliberately creating such regulations under the guise of regulatory intent, but which
have the effect of protecting domestic industries from open international competition, to
the detriment of the international free-trade regime.

The WTO's strengthened dispute resolution mechanism was designed to have the
authority to sort out this "fine line between national prerogatives and unacceptable trade
restrictions" Several of the supplemental agreements to the GATT created during the
Uruguay Round, such as the SPS Agreement, sought to specify the conditions under
which national regulations were permissible even if they had the effect of restraining
trade. The United States, perhaps more than any other country, has found itself on both
sides of this delicate balance. In 1988, it was the United States who pushed for
strengthening the Dispute Settlement provisions of the GATT during the Uruguay Round,
in part because Congress was not convinced that, "the GATT, as it stood, could offer the
United States an equitable balance of advantage." The concern was that formal
concessions granted to U.S. exports going into other countries would be eroded by hidden
barriers to trade. On the other hand, the United States harbors reservations in regards to its
sovereignty, with much of the negative reaction to the WTO itself centered around the
concern that U.S. laws and regulations may be reversed by the DSU panels or the
Appellate Body.

Critics argued that the WTO would "compel Congress and our states to abandon many
health and environmental standards" if they were at odds with international trade rules.
Particularly, these critics noted that the United States would not have a veto in the WTO
and that each nation would have an equal say in the DSB, which ultimately votes to adopt
or reject panel reports. They further noted that the Appellate Body and the dispute
settlement panels vote in secret, and that they could authorize nations to retaliate against
violations of the trade agreements with unilateral sanctions. It was argued by some that
the cumulative effect of WTO dispute panel decisions would be to erode the sovereignty
of the United States. One of the purposes of this review is to assess the validity of this
claim in light of the actual functioning of the WTO system over the last three years.

OVERVIEW OF THE DISPUTE SETTLEMENT UNDERSTANDING

The Dispute Settlement Understanding (DSU), formally known as the Understanding on

Rules and Procedures Governing the Settlement of Disputes, establishes rules and
procedures that manage various disputes arising under the Covered Agreements of the
Final Act of the Uruguay Round. All WTO member nation-states are subject to it and are
the only legal entities that may bring and file cases to the WTO. The DSU created the
Dispute Settlement Body (DSB), consisting of all WTO members, which administers
dispute settlement procedures. It provides strict time frames for the dispute settlement
process and establishes an appeals system to standardize the interpretation of specific
clauses of the agreements. It also provides for the automatic establishment of a panel and
automatic adoption of a panel report to prevent nations from stopping action by simply
ignoring complaints. Strengthened rules and procedures with strict time limits for the
dispute settlement process aim at providing "security and predictability to the multilateral
trading system" and achieving "[a] solution mutually acceptable to the parties to a dispute
and consistent with the covered agreements." The basic stages of dispute resolution
covered in the understanding include consultation, good offices, conciliation and
mediation, a panel phase, Appellate Body review, and remedies.

Consultation

A member-country may request consultations when it considers another member- country

to have "infringed upon the obligations assumed under a Covered Agreement." If the
respondent fails to respond within ten days or enter into consultations within thirty days,
the complaint "may proceed directly to request the establishment of a panel."

Good Offices, Conciliation and Mediation

Unlike consultation in which "a complainant has the power to force a respondent to reply
and consult or face a panel," good offices, conciliation and mediation "are undertaken
voluntarily if the parties to the dispute so agree." No requirements on form, time, or
procedure for them exist. Any party may initiate or terminate them at any time. The
complaining party may request the formation of panel, "if the parties to the dispute jointly
consider that the good offices, conciliation or mediation process has failed to settle the
dispute." Thus the DSU recognized that what was important was that the nations involved
in a dispute come to a workable understanding on how to proceed, and that sometimes the
formal WTO dispute resolution process would not be the best way to find such an accord.
Still, no nation could simply ignore its obligations under international trade agreements
without taking the risk that a WTO panel would take note of its behavior.

Panel Phase

If consultation, good offices, conciliation or mediation fails to settle the dispute, the
complaining party may request the formation of panel. The DSB shall form a panel,
"unless at that meeting the DSB decides by consensus not to establish a panel." "Panels
shall be composed of well-qualified governmental and/or non-governmental individuals"
"with a view to ensuring the independence of the members," and whose governments are
not the parties to the dispute, "unless the parties to the dispute agree otherwise."( Three
panelists compose a panel unless the parties agree to have five panelists.

The Secretariat proposes nominations for panels that the parties shall not oppose "except
for compelling reasons." If the parties disagree on the panelists, upon the reqest of either
party, "the director-general in consultation with the chairman of the DSB and the
chairman of the relevant council or committees" shall appoint the panelists.

When multiple parties request the establishment of a panel with regard to the same matter,
the DSU suggests a strong preference for a single panel to be established "to examine
these complaints taking into account the rights of all members concerned." The DSU
gives any member that has "a substantial interest in a matter before a panel" (and notifies
"its interest to the DSB") an opportunity "to be heard by the panel and to make written
submissions to the panel."

"The panel shall submit its findings in the form of written report to the DSB." As a
general rule, it shall not exceed six months from the formation of the panel to submission
of the report to the DSB. In interim review stage, the panel submits an interim report to
the parties. The panel "shall hold a further meeting with the parties" if the parties present
written comments. If no comments are provided by the parties within the comment
period, the "report shall be the final report and circulated promptly to the members."
Within sixty days after the report is circulated to the members, "the report shall be
adopted at a DSB meeting unless a party to the dispute formally notifies the DSB of its
decision to appeal or the DSB decides by consensus not to adapt the report."

Appellate Body Review

The DSB establishes a standing Appellate Body that will hear the appeals from panel
cases. The Appellate Body "shall be composed of seven persons, three of whom shall
serve on any one case." Those persons serving on the Appellate Body are to be "persons
of recognized authority, with demonstrated expertise in law, international trade and the
subject matter of the Covered Agreements generally." The Body shall consider only
"issues of law covered in the panel report and legal interpretations developed by the
panel." Its proceedings shall be confidential, and its reports anonymous. This provision is
important because, unlike judges in the United States, the members of the appellate panel
do not serve for life. This means that if their decisions were public, they would be subject
to personal retaliation by governments unhappy with decisions, thus corrupting the
fairness of the process. Decisions made by the Appellate Body "may uphold, modify, or
reverse the legal findings and conclusions of the panel." The DSB and the parties shall
accept the report by the Appellate Body without amendments "unless the DSB decides by
consensus not to adopt the Appellate Body report within thirty days following its
circulation to the members."

Remedies

There are consequences for the member whose measure or trade practice is found to
violate the Covered Agreements by a panel or Appellate Body. The dispute panel issues
recommendations with suggestions of how a nation is to come into compliance with the
trade agreements. If the member fails to do so within the determined "reasonable period
of time," the complainant may request negotiations for compensation. Within twenty days
 after the expiration of the reasonable period of time, if satisfactory compensation is not
agreed, the complaining party "may request authorization from the DSB to suspend the
application to the member concerned of concessions or other obligations under the
Covered Agreements."

Retaliation shall be first limited to the same sector(s). If the complaining party considers
the retaliation insufficient, it may seek retaliation across sectors.The DSB "shall grant
authorization to suspend concessions or other obligations within thirty days of the expiry
of the reasonable time unless the DSB decides by consensus to reject the request." The
defendent may object to the level of suspension proposed. "The original panel, if
members are available, or an arbitrator appointed by the director-general" may conduct
arbitration.

Arbitration

Members may seek arbitration within the WTO as an alternative means of dispute
settlement "to facilitate the solution of certain disputes that concern issues that are clearly
defined by both parties." Those parties must reach mutual agreement to arbitration and the
procedures to be followed. Agreed arbitration must be notified to all members prior to the
beginning of the arbitration process. Third parties may become party to the arbitration
"only upon the agreement of the parties that have agreed to have recourse to arbitration."
The parties to the proceeding must agree to abide by the arbitration award. "Arbitration
awards shall be notified to the DSB and the Council or Committee of any relevant
agreement where any member may raise any point relating thereto."

THE WTO'S DISPUTE SETTLEMENT SYSTEM IN OPERATION

Now that the WTO Dispute Settlement procedures have been in use for three years, it is
possible to make a tentative analysis of the impact of this institutional evolution of the
international trading system. A rich variety of cases have been addressed by the WTO
dispute settlement procedures. (See Figure 1) These include complaints against countries
with economies as small as Guatemala, and as large as the European Union. They have
also targeted countries at vastly different stages of development, including countries like
India at one end of the spectrum and the United States and Japan on the other.

WTO DISPUTE PANELS AND THE BALANCE BETWEEN TRADE

Agreements and National Policy

Since the various agreements that constitute the WTO cover such a wide range of topics,
dispute settlement panelists find that a number of subjects come under their authority. This
places WTO dispute panels in a delicate position. On the one hand they must identify cases
where nations are failing to comply with international trade agreements; on the other, they
must be cautious when making recommendations that reverse the preferences of national
governments.

Thus far, in the decisions of the panels and the Appellate Body, there has been a tendency
to write decisions in a way that minimizes the burden on nations to change their regulations
and laws in order to comply with their WTO trade obligations. This does not mean that
dispute settlement panels have not found nations in violation of the trade agreements.
When they have, however, they have left national governments with a variety of options in
order to come into compliance.

Two cases in which panel reports were adopted reflect the WTO's tendency to avoid
becoming overly involved in the internal regulatory affairs of nations. These cases have
been selected as examples because they have received a lot of attention, but the trend
described can be found in each case where a panel report has been issued. Both examples
are complaints by the United States, one against the European Union (EU) regarding
restrictions on import of hormone treated meat, and the other against Japan regarding the
photographic film industry. In the first case the United States won the concessions it
sought; in the second case the panel found no evidence of violation of the trade agreements.

European Hormone Case

In the European Hormone Case the panel found the scientific evidence for the import
restrictions on beef treated with growth hormones to be insufficient to justify the restriction
on trade, but, in effect, left open a wide variety of ways for the EU to comply. The EU is
conducting further studies in the hopes of justifying the ban. This was a case where the
WTO panel clearly confronted the democratic will of the people, as expressed through their
national legislatures and the European Parliament, since the hormone restrictions were
initially adopted under intense public pressure. The panel sided with the United States by
finding that the provisions were arbitrary and had the effect of restricting trade, but left
options for the EU as well by suggesting that more complete scientific evidence would
justify the ban. Alternatively, the panel indicated that technical changes in the way the
policy is implemented could reduce the policy's negative impact on trade. Still, the panel
was firm in ruling that the current policy is inconsistent with the SPS Agreement, and the
EU will have to make substantive changes to come into compliance. If it does not, the EU
will be required to offer other trading concessions to compensate for losses, some $200
million per year according to the United States. The EU has until 1999 to comply.

Kodak-Fuji Case

The Kodak-Fuji film dispute centers on the distribution system in Japan. In May 1995,
Eastman Kodak, Co. asked the U.S. Trade Representative (USTR) to investigate the
Japanese photographic film and paper market. Kodak charged that Fuji Photo Film, Co.,
Japan's biggest photographic film and paper producer, was involved in "anti-competitive
trade practices" in Japan. Kodak asserted that Fuji, with the support of the Japanese
government, tacitly dominated the consumer film market in Japan using unfair practices.
According to Kodak, Japanese regulations implicitly favored Fuji by making it difficult for
imported consumer photographic film and paper to be marketed in Japanese shops. Kodak
also said that some shops in Japan were not allowed to carry Kodak's products because of
back room deals with Fuji. According to Kodak, this explained why Fuji had a 75 percent
market share in Japan while Kodak had only a 7 percent share in 1996. Kodak estimated its
losses since the 1970s due to the unfair practices at $5.6 billion. Accordingly, Kodak
requested that Japanese regulations be changed in order to break up Fuji's exclusive
distribution system.

In the Kodak-Fuji case, the panel ruled that Japanese regulations predated the reductions in
tariffs that had been negotiated on photographic film. Consequently, those regulations
could not have negated the benefits accruing to the United States in the trade agreement.
This technical ruling allowed the WTO to avoid a far-reaching decision that could have
found Japanese vertical integration of business in conflict with the intent of the WTO
regime. Currently, there is no international standard for anti-trust regulation. If the WTO
dispute settlement panel had found in favor of the United States, it would have been
involved in creating new international obligations, an act not sanctioned by the WTO
Agreement. The ruling suggests that the United States and other nations need not be overly
concerned that the WTO's dispute settlement mechanism will overtly threaten national
sovereignty.

In June of 1995, the United States began to investigate Japanese market barriers for
photographic films and papers, and found that three "liberalization countermeasures"
discriminated against imported goods. The first measure was exclusive wholesaling
arrangements currently dominated by Fuji; the second was the large-stores law enacted in
1974. According to the United States, this law discouraged large stores from carrying film
other than Fuji's. The third discriminatory measure cited involved controls on price
competition and promotion as supervised by the Japanese Fair Trade Commission. After
eleven months of investigation, the United States filed a complaint in the WTO on June 13,
1996, requesting consultations with Japan. The United States argued that the import-
resistant market structure created by the Japanese government violated the national
treatment principle of the GATT Article III. The United States also asserted that Japan's
restrictions on retail operations and promotional activities ran counter to the transparency
standard set out in the GATT Article X, even if Japan appears to offer neutral treatment of
imported goods. The United States also made a "non-violation" claim that these measures
nullify or impair benefits accruing to the United States. A "non-violation" claim is
specifically authorized in the GATT Agreements if the actions of another nation reduce the
value of negotiated trade concessions, even if the specific measure taken by the other
country does not directly violate any of the Articles of the trade agreements. The types of
redress available under such complaints, however, are limited.

Fuji denied Kodak's assertion. Fuji asserted that it had never conspired with the Japanese
government to discriminate against imported goods. Furthermore, Fuji claimed that
Kodak's loss of market share in Japan could be attributed to Kodak for a number of
reasons. First, Kodak failed to introduce innovative products to compete with Fuji's new
products. Second, Kodak's marketing strategy was not superior to that of Fuji's. Third, there
was no bottleneck to block Kodak from the market since it had the same access to
consumers as Fuji. These market channels included selling directly to retailers, selling to
secondary dealers, and selling to smaller retailers through photo finishing labs. Fourth,
Fuji stated that its market share in the United States is only 11 percent while Kodak
dominates the market with a 75 percent share. Thus, the proportion is exactly the reverse of
the situation in Japan suggesting that both Kodak and Fuji have difficulty penetrating the
domestic market of its rival. Therefore, consumers' loyalty to the domestic brand, and not
formal restrictions on trade, can explain low market penetration by foreign competition.
There is also a claim that, although Kodak is cheaper in Japan, customers buy Fuji because
of its investment in innovative products and its creative marketing skills and services.

The United States, failing to reach an agreement with Japan, requested a dispute settlement
panel on September 20, 1996. The panel was tasked to investigate Kodak's allegations that
Japanese regulations had the effect of supporting anti-competitive practices by Fuji film.
After more than a year's investigation, the WTO interim report was submitted on December
5, 1997. The report rejected the U.S. complaint against Fuji. The tribunal arbitration
panelists were from Brazil, Switzerland, and New Zealand. They determined that the
United States had not demonstrated that its WTO rights had been impaired.

Even though the panel did not rule as Kodak would have liked, there is evidence that
Fuji's market share in Japan has diminished from 74 percent in the early 1990s to 67
percent at the end of 1997, though Fuji denies this.The profit margin of the color film
industry in Japan used to be close to 12 percent, compared to 6 percent on overseas sales,
but this has also fallen. Current retail prices for photographic film and paper in Japan
reflect this, with prices about 30 to 40 percent below comparable prices in the United
States. Kodak's market share in Japan now accounts for about 11 percent since it won the
Nagano Olympic Games sponsorship by paying $44 million in 1996. In the Nagano area
where the Games were held, Kodak has doubled its market share to 20 percent. In the
U.S. market, however, Kodak's profits decreased by 25 percent in 1997 from the year
before. Fuji's business in the U.S. market is also improving. Fuji increased its market
share to 14 percent while Kodak had 76 percent of the market. Kodak announced plans to
cut costs by a billion dollars and lay off 10,000 jobs over next two years in order to
remain competitive.

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