SCHOOL OF LAW

RENAISSANCE UNIVERSITY, INDORE (M.P)

INTERNATIONAL TRADE LAW

LL.M SEMESTER – 2
RENAISSANCE LAW COLLAGE

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UNIT – 1
INTRODUCTION TO INTERNATIONAL TRADE

INTRODUCTION:

What Is Trade?
Trade is a basic economic concept involving the buying and selling of goods and services,
with compensation paid by a buyer to a seller, or the exchange of goods or services between
parties. Trade can take place within an economy between producers and consumers.

Meaning and Concept of International Trade:

International trade is referred to as the exchange or trade of goods and services between
different nations. This kind of trade contributes and increases the world economy. The most
commonly traded commodities are television sets, clothes, machinery, capital goods, food,
raw material, etc.
International trade has exceptionally increased, which includes services such as foreign
transportation, travel and tourism, banking, warehousing, communication, distribution, and
advertising. Other equally important developments are the increase in foreign investments and
production of foreign goods and services in an international country.
These foreign investments and productions help companies to come closer to their
international customers, thus serving them with goods and services at a very low rate.
All the mentioned activities are parts of international business. It can be concluded by saying
that international trade and production are two aspects of international business, which is
growing day by day across the globe.

Reasons for International Trade

“For the only way in which a durable peace can be created is by world-wide
restoration of economic activity and international trade”
- James Forrestal

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In today’s world, economic life has become more complex and diversified. No country can

live in isolation and claim to be self-sufficient. Even countries with different ideologies,

culture, and political, social and economic structure have trade relations with each other. The

aim of international trade is to increase production and to raise the standard of living of the

people. International trade helps citizens of one nation to consume and enjoy the possession
of goods produced in some other nation.

(1) Production

 It is not possible for every single country to produce equally at a cheap cost.
 That is why international trade is taken into account.
(2) Factors of production

 Factors of production include labour, capital, and raw material for producing
goods and services that are available at different rates in different countries.
(3) Cost of production

 Each country finds it advantageous to produce only those goods and services
that can be produced efficiently.
 The rest of the activities are assigned to other countries at a lower cost.
(4) Resource distribution

 Many times, companies face problems due to the limitation of natural resources.
 There is an unequal distribution of the resources in the country.

Examples

 Different countries are specialised in different sectors like in India, Maharashtra is

involved in textiles, West Bengal in jute products, Haryana and Punjab in food
products, Kerala in spices, etc.
 Same is categorised for other countries.

Characteristics of International Trade:

Separation of Buyers and Producers:

In inland trade producers and buyers are from the same country but in foreign trade they
belong to different countries.

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Foreign Currency:

Foreign trade involves payments in foreign currency. Different foreign currencies are involved
while trading with other countries.

Restrictions:

Imports and exports involve a number of restrictions but by different countries. Normally,

imports face many import duties and restrictions imposed by importing country. Similarly,
various rules and regulations are to be followed while sending goods outside the country.

Need for Middlemen:

The rules, regulations and procedures involved in foreign trade are so complicated that there

is a need to take the help of middle men. They render their services for smooth conduct of
trade.

Risk Element:

The risk involved in foreign trade is much higher since the goods are taken to long distances
and even cross the oceans.

Law of Comparative Cost:

A country will specialise in the production of those goods in which it has cost advantage. Such

goods are exported to other countries. On the other hand, it will import those goods which
have cost disadvantage or it has no specific advantage.

Governmental Control:

In every country, government controls the foreign trade. It gives permission for imports and
exports may influence the decision about the countries with which trade is to take place.

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Difference between Domestic and International Trade:

Parameters Domestic trade International trade

Nationality of Under this, people of one Under this, people from different
buyers and sellers nation work in their nations work in the international
respective domestic market. market.

Nationality of Stakeholders like suppliers, Stakeholders like suppliers, producers,

other producers, employees, employees, middlemen, etc., are of
stakeholders middlemen, etc., are of the different nations.
same nation.

Mobility of factors Factors of production like Factors of production like capital and
of production capital and labour are mobile labour are mobile across the different
across one nation. nations.

Heterogeneous Usually, customers are Customers are not homogeneous in

customers homogeneous in the the international market due to
domestic market. different religion, caste, language, etc.

Risks Under this, a nation is This may be a barrier to international

subjected to the political trade as different nations have
risks within the nation. different political risks.

Policies It is subjected to different It is subjected to different policies and

policies and regulations, and regulations, and laws of multiple
laws of a single nation. nations.

Currency Only one currency is There is involvement of more than

involved. one currency.

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International Economic Law

International economic law regulates the international economic order or economic relations

among nations. However, the term ‘international economic law’ encompasses a large number

of areas. It is often defined broadly to include a vast array of topics ranging from public

international law of trade to private international law of trade to certain aspects of international
commercial law and the law of international finance and investment.

International Economic Relation;

International economic law regulates the international economic order or economic

relations among nations. The International Economic Relations field focuses on the

consequences of the economic interaction among countries. These interactions include trade in

goods, services, assets, ideas, and macroeconomic spill over effects, as well as the effects of

rules, regulations and policies like tariffs, trade quotas, controls on the international flow of

capital and the exchange rate regime. There are important consequences of these interactions

including unemployment and inflation, the rise or fall of particular industries, and the outcomes

for different categories of workers. These affect national welfare, economic stability, inequality
and political movements, which in turn affect economic policymaking.

The basis of international economic law

International economic law is based on the traditional principles of international law such as:

 Pacta sunt servanda

 Freedom

 Sovereign and sovereign equality

 Reciprocity
 Economic sovereignty.

It is also based on modern and evolving principles such as:

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 The duty to co-operate

 Permanent sovereignty over natural resources

 Preferential treatment for developing countries in general and

 The least-developed countries in particular.

The sources of international economic law are the same as those sources of international law
generally outlined in Article 38 of the Statute of the International Court of Justice.

Sources of international economic law are also sources of general international law, as

codified in Article 38 of the Statute of the International Court of Justice (ICJ). List of
international law sources. They are:

 Treaties;
 International customs;
 General principles of law;
 Judicial decisions of international courts and tribunals and the teachings of the most
highly qualified international lawyers as subsidiary means for determining the rules of
law.

What Is International Trade Theory?

International trade theories are simply different theories to explain international trade. Trade is
the concept of exchanging goods and services between two people or entities. International
trade is then the concept of this exchange between people or entities in two different countries.
In more recent centuries, economists have focused on trying to understand and explain these
trade patterns.
To better understand how modern global trade has evolved, it’s important to
understand how countries traded with one another historically. Over time, economists have
developed theories to explain the mechanisms of global trade. The main historical theories are
called classical and are from the perspective of a country, or country-based. By the mid-
twentieth century, the theories began to shift to explain trade from a firm, rather than a country,
perspective. These theories are referred to as modern and are firm-based or company-based.
Both of these categories, classical and modern, consist of several international theories.

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Absolute vs. Comparative Advantage: An Overview

Absolute Advantage
The differentiation between the varying abilities of companies and nations to produce goods
efficiently is the basis for the concept of absolute advantage. Absolute advantage looks at the
efficiency of producing a single product.

This analysis helps countries avoid the production of products that would yield little or no
demand, leading to losses. A country’s absolute advantage, or disadvantage, in a particular
industry, can play an important role in the types of goods it chooses to produce.

As an example, if Japan and Italy can both produce automobiles, but Italy can produce sports
cars of a higher quality and at a faster rate with greater profit, then Italy is said to have
an absolute advantage in that particular industry.

In this example, Japan may be better served to devote the limited resources and manpower to
another industry or other types of vehicles, such as electric cars, in which it may enjoy an
absolute advantage, rather than trying to compete with Italy's efficiency.

Comparative Advantage
Comparative advantage takes a more holistic view, with the perspective that a country or
business has the resources to produce a variety of goods. The opportunity cost of a given
option is equal to the forfeited benefits that could have been achieved by choosing an available
alternative in comparison.

In general, when the profit from two products is identified, analysts would calculate the
opportunity cost of choosing one option over the other.

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For example, assume that China has enough resources to produce either smartphones or
computers. China can produce 10 computers or 10 smartphones. Computers generate a higher
profit.

Therefore, the opportunity cost is the difference in value lost from producing a smartphone
rather than a computer. If China has to choose between producing computers over
smartphones it will select computers.

Legal Aspect of International Trade:

In the modern times of globalization where there are thousands of companies that engage in
business that comprises millions of customers, which makes it difficult for companies to have
a separate of rules and regulations and have a separate contract for every individual. This
resulted in the emergence of the Standard form of Contract, which consists of several terms
and conditions which restrict the liability of the party of the contract. The individuals can hardly
bargain with the set of rules and conditions lay down; the only option is to accept it or reject it.
Hence, some rules and regulations are created for uniformly during international relations and
international trade. The parties to a contract are allowed to choose both international law and
the governing law for their contracts

Contracts are considered “international" when two or more states conclude an

agreement (see United Nations Convention on Contracts for the International Sale of Goods
(Vienna, 1980) (Article 1 (1), Principles on the Law Choice in International Trade Contracts
(2015) ("The Hague Principles"), Article 1 (2). The parties to a contract are allowed to choose
both international law and the governing law for their contracts. If the parties fail to choose
an applicable law, a court that accepts the jurisdiction of the dispute will have to apply the
relevant rules of the conflict of international private law to determine which law is applicable
to the contract, including any international instrument that may be implemented in absentia.
In the international trade practice, it is common for parties to choose arbitration as a method
for settling disputes (Schwenzeretal., 2012). International trade arbitration may be particularly
popular because unlike court rulings there is a single almost inclusive regime for enforcing
foreign arbitration decisions.

 The united nations commission on international trade law (UNCITRAL); The

UNCITRAL Model Law on Arbitration, is an international legal framework that
provides a set of provisions on international commercial arbitration conduct and
management.
In 1966, the United Nations General Assembly created the Commission on
International Trade Law (UNCITRAL). The goal is to promote foreign trade by
harmonizing the numerous international trade law bodies in nations around the globe.
At present, it is the principal legal body of the United Nations that deals with
international trade. Currently, UNCITRAL is made up of 60 member nations.
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 Convention on contracts for the international sale of goods (CISG); In 1980, the CISG
(Convention on Contracts for the International Sale of Goods) was confirmed and
became active in 1988. It provides for the rule of international sales contracts with a
homogenous law.
The CISG came into force from January 1 1988. Thus, CISG became a
successful international instrument, providing even rules for Trade across the Globe.

 The international chamber of commerce (ICC); Its purpose is to promote international

trade and investment and the market economy system, but one unique function of the
ICC is to serve as world’s foremost institution in the resolution of international business
disputes through the ICC’s own International Court of Arbitration.

 Foreign Corrupt Practices Act; The Foreign Corrupt Practices Act (FCPA) is a federal
law that prevents any person or company in the United States from making a corrupt
payment to a foreign official to obtain or keep business. In other words, bribery is as
illegal overseas as it is in this country for Americans.

International Trade and Globalization:

Changes in policy and immense changes, as well as new developments, in the field of
technology, have resulted in the growth spurt that has eventually led to melting down of
international boundaries and led to the global outreach of products and services. Major policy
changes have opened up the markets domestically and internationally, and now local products
are competing with international products.
If we look at the current market situation we can easily see that those countries who
adopted an open approach towards international brands, and opened up their markets to
compete with foreign products, have gained a lot from globalisation. Their economies have
received an upward thrust that has catapulted their growth story in a hitherto unimaginable
way.

WHAT IS GLOBALIZATION?

Globalization is the increase in the flow of goods, services, capital, people, and ideas across
international boundaries.

“We live in an age of globalization,”

says Harvard Business School Professor Forest Reinhardt, who teaches Global Business.
“That is, national economies are ever more tightly connected with one another than ever
before.”

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WHAT DOES IT MEAN TO BE AN INTERNATIONAL BUSINESS?

An international business is any company that operates and produces or sells goods between
two or more countries. There are three ways a business can be considered international:

 It produces goods domestically and sells domestically and internationally.

 It produces goods in a different country but sells domestically.
 It produces goods in a different country and sells domestically and internationally.

IF YOUR BUSINESS FALLS INTO ONE OF THESE CATEGORIES, THERE ARE

TWO TYPES OF INTERNATIONAL BUSINESS MODELS TO CONSIDER:

 Transnational
 Multinational.

Transnational corporations have offices in multiple countries, each responsible for a different
facet of the organization. For instance, marketing may be based in London, research and
development in Bogota, and software development in New York.

Multinational corporations also have offices in multiple countries, but unlike transnational
corporations, each is a microcosm of the larger organization. This means each office has, for
example, its own leadership, marketing, sales, research and development, technology, and
human resources teams. An example of a multinational corporation is PepsiCo, which has 32
offices across 24 countries.

Codification and development of International Trade law by League of

Nations and United Nations

According to Article 13, paragraph (1)(a), of the Charter of the United Nations, the General
Assembly is mandated to encourage the progressive development of international law and its
codification. The progressive development of international law encompasses the drafting of
legal rules in fields that have not yet been regulated by international law or sufficiently
addressed in State practice. In contrast, the codification of international law refers to the more
precise formulation and systematization of rules of international law on subjects that have
already been extensively covered by State practice, precedent and doctrine.

The League of Nations

The activities of the League of Nations with respect to the unification of the law of
international trade related mainly to negotiable instruments and to international
commercial arbitration. Reference is made below to several of the more important
instruments which were formulated under the auspices of the League.

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The Geneva Conventions on the unification of the law relating to bills of

exchange (1930) and to cheques (1931)

On 7 June 1930, three conventions on the unification of the law relating to bills of exchange
were signed at Geneva, and on 19 March 1931 three further conventions on the unification of
the law relating to cheques were signed at Geneva. The most important of these conventions
are the Convention providing a Uniform Law for Bills of Exchange and Promissory Notes and
the Convention providing a Uniform Law for Cheques. The others deal with conflict of law
rules and provisions of national stamp legislation relating to these types of negotiable
instruments.

The Geneva Conventions have achieved a significant unification of the law of negotiable
instruments. The uniform law relating to both types of negotiable instruments has been
introduced into the municipal legislation by sixteen countries, viz., Brazil, Denmark, Finland,
France, Germany, Greece, Hungary, Italy, Japan, Monaco, the Netherlands, Norway, Poland,
Portugal, Sweden and Switzerland. In addition, Austria, Belgium and the USSR have accepted
the Uniform Law on Bills of Exchange only, and Nicaragua has introduced the Uniform Law
on Cheques only.

The countries belonging to the common law system did not take part in this unification of the
law of negotiable instruments, nor have any of these countries given effect to these uniform
laws in its territory.

The Geneva Protocol on Arbitration Clauses of 1923 and the Geneva Convention
on the Execution of Foreign Arbitral Awards of 1927

The Protocol deals with the recognition of arbitration agreements; each of the Contracting
States undertakes to recognize the validity of such agreements between party’s subject to the
jurisdiction of different Contracting States. The Convention provides that an arbitral award
made pursuant to an arbitration agreement covered by the Protocol shall be recognized as
binding and shall be enforceable in the territories of the Contracting States, subject to certain
conditions, among them the condition of reciprocity.

The Protocol has been ratified by fifty-three countries and the Convention by forty-four
countries. These two arrangements have been the foundation for the acceptance of international
commercial arbitration as the most practical method of settling disputes arising from
transactions of international trade.

The United Nations

The United Nations has been engaged in activities in this field on a worldwide as well as
on a regional scale. The most important world-wide activities have been on the subject of
international commercial arbitration, industrial property legislation and transit trade of
land-locked countries. Activities on a regional scale have been performed by the United

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Nations regional economic commissions, notably in the areas of standardization of trade

documents, international contracts and commercial arbitration.
The Convention on the Recognition and Enforcement of Foreign Arbitral
Awards of 1958

The growing intensity of modern international trade and the concomitant need to develop
facilities for arbitration caused the international business community to consider the Geneva
arrangements as inadequate. In response to this situation, the Economic and Social Council, on
the initiative of the International Chamber of Commerce, decided to convene a diplomatic
conference in New York to conclude a new Convention.
The Convention there adopted on 10 June 1958 is designed to supersede the Geneva
arrangements and, at the same time, to make more effective the international recognition of
arbitration agreements and the recognition and enforcement of foreign arbitral awards.
The United Nations Convention represents a definite advance over the Geneva arrangements
in that it facilitates to a considerable degree the enforcement of foreign arbitral awards. First,
it abolishes, in principle, the requirement of reciprocity, although a State may declare that it
will apply the Convention to awards made only in the territory of other Contracting States
(article 1 (3)). Secondly, it abolishes the requirement of double exequatur which in many
countries is a serious obstacle to the enforcement of foreign arbitral awards (article V (1) (e)).
Thirdly, it is no longer necessary for the recognition of an arbitration agreement or for the
enforcement of an arbitral award that the parties should be subject to the jurisdiction of different
contracting States (articles I (1) and 11 (1)).

The United Nations Convention came into force on 7 June 1959. Thirty-one States have
become parties to it.

Industrial property legislation

Since 1961 the United Nations General Assembly has had before it the problem of the
role of industrial property legislation in facilitating the transfer of patented and unpatented
technological and managerial know-how to developing countries. At its sixteenth session,
the General Assembly adopted resolution 1713 (XVI) on the role of patents in the transfer
of technology to underdeveloped countries, in which it requested the Secretary-General
to study the issues involved, including specifically, the effects of patents on the economy
of developing countries; patent legislation in selected developed and developing
countries; and the characteristics of the patent legislation of developing countries in the
light of economic development objectives.

United Nations regional economic commissions

The functions of the United Nations regional economic commissions, which have been
established in accordance with resolutions of the Economic and Social Council, are to

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assist in raising the level of economic activity in their respective regions and to strengthen
economic relations on both an intraregional and an interregional level.
United Nations Conference on Trade and Development (UNCTAD)
It was established in 1964 as an intergovernmental organization intended to promote the
interests of developing states in world trade. The organization's goals are to: "maximize
the trade, investment and development opportunities of developing countries and assist
them in their efforts to integrate into the world economy on an equitable basis". UNCTAD
was established by the United Nations General Assembly in 1964 and it reports to the UN
General Assembly.

It was based on concerns of developing countries over the international market, multi-
national corporations, and great disparity between developed nations and developing
nations. The United Nations Conference on Trade and Development was established to
provide a forum where the developing countries could discuss the problems relating to
their economic development. The organisation grew from the view that existing
institutions like GATT (now replaced by the World Trade Organization(WTO)),
the International Monetary Fund (IMF), and World Bank were not properly organized to
handle the particular problems of developing countries.

Hence, it was established as an organ of the General Assembly in 1964 by

General Assembly resolution 1995 (XIX). A number of particular problems in the area of
trade have been dealt with by UNCTAD. The Convention on Transit Trade of Land-
Locked Countries was adopted at New York on 8 July 1965 by the Conference of
Plenipotentiaries on Transit Trade of Land-Locked Countries, which had been convened
by the General Assembly of the United Nations in pursuance of a recommendation by
UNCTAD.

Centre for Industrial Development

The functions of the Centre for Industrial Development are, inter alia, to promote and co-
ordinate activities within the United Nations system of organizations in the field of
industrialization and to carry out research and the preparation of studies in the field of
industrialization.

***

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UNIT – 2
DISPUTE SETTLEMENT MACHANISM

INTRODUCTION
The World Trade Organization (WTO) is responsible for maintaining the free flow of trade
between its member countries. WTO, in the form of Dispute Settlement Undertaking (DSU),
provides an instrument for the settling of trade disputes between the parties. The dispute
generally arises when any member country violates any provision of WTO agreement which
other member countries think unreasonable.

This dispute settlement process is the outcome of the Uruguay round (1996-1994). This
mechanism provides a speedy resolution of a trade dispute. This settlement system applies to
all disputes covered under the WTO agreement. The Dispute Settlement Body (DSB) is
responsible for DSU to resolve a dispute between parties.

The Dispute Settlement Understanding

The Dispute Settlement Understanding (DSU) officially known on rules and procedure
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. There
had been total 314 complaints brought by the member of WTO. 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.

Stages in settlement of trade disputes

 Stage 1: Consultations (Article 4 of the DSU)
 Stage 2: Establishment of Panels (Articles 6, 8 and 11 of the DSU)
 Stage 3: Selection of panellists (Article 8 of the DSU)
 Stage 4: Procedure of Panel (Articles 10 and 12 of the DSU)
 Stage 5: Interim report (Article 15 of the DSU)
 Stage 6: Appeal (Article 17 of the DSU)
 Stage 7: Acceptance of report by Dispute Settlement Body (Article 30 of the DSU)

Consultations
The DSU permits a WTO Member to consult with another Member regarding “measures
affecting the operation of any covered agreement taken within the territory” of the latter. If a

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WTO Member requests consultations with another Member under a WTO agreement, the latter
Member must enter into consultations with the former within 30 days. If the dispute is not
resolved within 60 days, the complaining party may request a panel.

Establishment of Panels
If no satisfactory solution is reached through consultation between the member countries, the
complaining member may request for the establishment of panels in writing to the Dispute
Settlement Body including a summary of the case and issues involved.
The panel is established at the second meeting of DSB at which request appears as an
agenda item of the meeting. The Panel's role is to assist the Dispute Settlement Body in settling
the issue at hand.

Selection of Panellists
The panel is ordinarily composed of three persons. The WTO Secretariat proposes the names
of panelists to the disputing parties, who may not oppose them except for “compelling reasons”
(Art. 8.6).
If there is no agreement on panelists within 20 days from the date that the panel is
established, either disputing party may request the WTO Director-General to appoint the
panel members.

Procedure of Panel
Where after the examination, a solution has been reached between the parties, the panel shall
submit a written report to the Dispute Settlement Body which shall have a brief description of
the case along with the solution which has been reached. Where the solution has not been
found, the panel shall send a written report to the Dispute Settlement Body mentioning its
findings of the case and recommendations, if any, it makes.

Interim report
The panel shall issue a draft report to the parties. The parties have to submit their comments in
writing after receiving the draft report within the period set by the panel.
The panel shall issue an interim report, including its findings in the draft report
and its new findings and conclusion. Both the parties, within the time given the panel may
submit its written request to revise its interim report accordingly.

Appeal
Either of the parties unsatisfied with the ruling of the panel report can appeal to the Standing
Appellate Body established by the Dispute Settlement Body.
The proceeding of the Appellate Body shall not exceed 60 days from the date a party to the
dispute notifies its intention of appealing to the Appellate Body to the Dispute Settlement Body.

Acceptance of report by Dispute Settlement Body

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The Dispute Settlement Body has to either accept the Appellate Body report or reject it within
a maximum period of 30 days after receiving such a report. The report can only be rejected
unanimously.

General Agreement on Tariffs and Trade: an understanding

The General Agreement on Tariffs and Trade (GATT), which was signed on October 30, 1947,
by 23 nations, was a legal agreement that aimed to reduce trade barriers by abolishing or
decreasing quotas, tariffs, and subsidies while retaining considerable restrictions. The GATT
was created to help the world economy recover after World War II by rebuilding and
liberalising global commerce. On January 1, 1948, the GATT came into effect. It has been
developed since then, culminating in the founding of the World Trade Organization (WTO) on
January 1, 1995, which integrated and expanded it. By this time, 125 countries had signed on
to its accords, which covered almost 90% of world commerce.

The GATT was established to set out regulations to eliminate or limit the
costliest and inefficient characteristics of the pre-war protectionist period, notably quantitative
trade barriers like trade restrictions and quotas. The agreement also established a mechanism
for resolving international commercial disputes, as well as a framework for multilateral tariff
reduction discussions. In the post-war years, the GATT was seen as a great success. Trade
without discrimination was one of the GATT’s major accomplishments. Every GATT
signatory was to be treated on an equal footing with the others.

GATT Article XX Exceptions

Purpose:

 Allow WTO members to adopt and maintain measures that aim to promote or protect
important societal values and interests
 Even if the measures are inconsistent with other rules of the GATT (and are hence trade
restrictive)
 Allow WTO members, under specific conditions, to give priority to certain societal
values and interests over trade liberalisation, market access and / or discrimination rules

Core principles of the GATT

 Most-favoured nation
 Tariff reductions and bindings
 National treatment
 Tariffs preferred
 Transparency

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ARTICLE XX GENERAL EXCEPTION;

Subject to the requirement that such measures are not applied in a manner which would
constitute a means of arbitrary or unjustifiable discrimination between countries where the
same conditions prevail, or a disguised restriction on international trade, nothing in this
Agreement shall be construed to prevent the adoption or enforcement by any contracting
party of measures:

(a) necessary to protect public morals;

(b) necessary to protect human, animal or plant life or health;

(c) relating to the importations or exportations of gold or silver;

(d) necessary to secure compliance with laws or regulations which are not inconsistent with
the provisions of this Agreement […]

(e) relating to the products of prison labour;

(f) imposed for the protection of national treasures of artistic, historic or archaeological
value;

(g) relating to the conservation of exhaustible natural resources if such measures are made
effective in conjunction with restrictions on domestic production or consumption;

(h) undertaken in pursuance of obligations under any intergovernmental commodity

agreement […]

(i) Involving restrictions on exports of domestic materials necessary to ensure essential

quantities of such materials […]

(j) essential to the acquisition or distribution of products in general or local short supply
[…

ARTICLE XXI SECURITY EXCEPTIONS:

Nothing in this Agreement shall be construed

A. To require any contracting party to furnish any information the disclosure of which it
Considers contrary to its essential security interests; or

For example, the Security Council imposed extensive sanctions on Iraq throughout the 1990s
due to its failure to comply with UN weapons inspections. No question of WTO legality arose
as Iraq was and is not a WTO member. Nevertheless, such sanctions would have been legal
under Article XXI(c) if Iraq had been a member of the WTO.

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B. To prevent any contracting party from taking any action which it considers necessary for
The protection of its essential security interests

i. Relating to fissionable materials or the materials from which they are derived;

ii. Relating to the traffic in arms, ammunition and implements of war and to such traffic
in other goods and materials as is carried on directly or indirectly for the purpose of
supplying a military establishment;

iii. Taken in time of war or other emergency in international relations; or

C. To prevent any contracting party from taking any action in pursuance of its obligations under
the united nations charter for the maintenance of international peace and security.

What is the WTO?

The World Trade Organization (WTO) is the only global international organization dealing
with the rules of trade between nations. At its heart are the WTO agreements, negotiated and
signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is
to help producers of goods and services, exporters, and importers conduct their business.

The Four Main Principles of the World Trade Organisations:

To understand WTO, we have to identify the basic four principles, which govern the
mechanism of the organization. The four principles are

o Non-discrimination,
o Reciprocity,
o Market access,
o Fair Competition.

FUNCTIONS
With these objectives in mind, WTO is performing following functions:
 It shall facilitate the implementation, administration, and operation of the WTO trade
agreements, such as multilateral trade agreements and plurilateral trade agreements.
 It shall provide a forum for liberalization negotiations among its members concerning
their multilateral trade relations.
 It shall administer the ‘dispute settlement procedure’ so as to handle trade disputes.
 It shall monitor national trade policies (including trade policy review mechanism).

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 It shall cooperate with various international organizations like the IMF and the world
bank with the aim of achieving greater coherence in global economic policy-making.
 It shall provide technical assistance and training for members of the developing
countries.

Dispute Settlement Body

The task of ensuring that all Members live up to their commitments and that there is a common
understanding of the nature of those commitments is a central part of the work of the WTO.
WTO’s procedure is a mechanism which is used to settle trade dispute under the Dispute
Settlement Understanding (DSU). A dispute arises when a member government believes that
another member government is violating an agreement which has been made in the WTO. And
the dispute settlement under WTO not only ensures security and predictability to the
multilateral trading system but is also concerned with the situations where a Member seeks
remedy for damage to its trade interests caused by the actions/inactions of other members.
There are different stages of dispute settlement under WTO which are as follows:

 Consultations
 Establishing a Dispute Panel
 Implementing of Panel and Appellate Body Ruling

Agreement

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The WTO agreements cover goods, services and intellectual property. They spell out the
principles of liberalization, and the permitted exceptions. They include individual countries’
commitments to lower customs tariffs and other trade barriers, and to open and keep open
services markets. They set procedures for settling disputes. They prescribe special treatment
for developing countries. They require governments to make their trade policies transparent by
notifying the WTO about laws in force and measures adopted, and through regular reports by
the secretariat on countries’ trade policies.

These agreements are often called the WTO’s trade rules, and the WTO is often
described as “rules-based”, a system based on rules. But it’s important to remember that the
rules are actually agreements that governments negotiated.

Difference between GATT and WTO

The most significant list of differences between GATT and WTO have been discussed
hereunder:

1. The GATT is an international multilateral treaty signed by 23 countries to promote

international commerce and eliminate trade obstacles between countries. WTO, on
the other hand, is a worldwide organisation that replaced GATT and regulates
international commerce between member countries.
2. GATT is a basic agreement with no institutional structure, but it does have a small
secretariat. WTO, on the other hand, is a permanent organisation with a secretariat.
3. In the GATT, the participating countries are referred to as contracting parties,
whereas in the WTO, they are referred to as member nations.
4. GATT agreements are temporary in nature, with the government having the option
of treating them as permanent commitments after 47 years. WTO obligations, on the
other hand, have been in place since the outset.
5. The WTO’s scope is broader than the GATT’s in the sense that the GATT’s
regulations apply only when products are traded, unlike the WTO, which has laws
that apply to both commodities and services, as well as parts of intellectual property.
6. The GATT agreement is essentially multilateral, although it is subsequently
expanded to include plurilateral agreements. WTO accords, on the other hand, are
completely multilateral.

TRADE RELATED INSTITUTION:

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IMF and the World Trade Organization

The IMF and the WTO are international organizations with about 150 members in common.
While the IMF’s central focus is on the international monetary and financial system, and the
WTO’s is on the international trading system, both work together to ensure a sound system for
global trade and payments.

Objectives of the IMF and the WTO in Common

The International Monetary Fund (IMF) is an international organization of 189 member

countries that works to ensure the stability of the international monetary and financial system.
The IMF’s mandate includes facilitating the expansion and balanced growth of international
trade, promoting exchange stability, and providing the opportunity for the orderly correction
of countries’ balance of payments problems. The IMF was established in 1945.

The World Trade Organization (WTO) is an international organization of 164 members that
deals with the rules of trade between nations. With Russia’s accession in August 2012, the
WTO encompasses all major trading economies. The WTO works to help international trade
flow smoothly, predictably, and freely, and provides countries with a constructive and fair
outlet for dealing with disputes over trade issues. The WTO came into being in 1995,
succeeding the General Agreement on Tariffs and Trade (GATT) that was established in 1947.

The work of the IMF and the WTO is complementary. A sound international financial system
is needed to support vibrant international trade, while smoothly flowing trade helps reduce the
risk of payments imbalances and financial crisis. The two institutions work together to ensure
a strong system of international trade and payments that is open to all countries. Such a system
is critical for enabling economic growth, raising living standards, and reducing poverty around
the globe.

How the IMF and the WTO work together?

The IMF and the WTO work together on many levels, with the aim of ensuring greater
coherence in global economic policymaking. A cooperation agreement between the two
organizations, covering various aspects of their relationship, was signed shortly after the
creation of the WTO;

 Regular consultation
 Technical assistance and training
 Fund assistance for trade liberalization
 High-level coordination

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United Nations Conference on Trade and Development (UNCTAD)

Foundation

 In the early 1960s, growing concerns about the place of developing countries in
international trade led many of these countries to call for the convening of a full-
fledged conference specifically devoted to tackling these problems and identifying
appropriate international actions.

 Its work focuses on the following key areas: Least Developed Countries and Special
Programmes; Globalization, interdependence and development; international trade
and commodities; investment and enterprise; and technology and trade logistics. This
work often results in analysis and recommendations that can inform national and
international policy-making processes and promote economic policies to end global
economic inequalities and generate people-centred sustainable development.

 The first United Nations Conference on Trade and Development (UNCTAD) was
held in Geneva in 1964.

Given the magnitude of the problems at stake and the need to address them, the
conference was institutionalized to meet every four years, with intergovernmental
bodies meeting between sessions and a permanent secretariat providing the necessary
substantive and logistical support.

The United Nations General Assembly is the parent organisation of the United Nations
Conference on Trade and Development (UNCTAD). Moreover, UNCTAD is a permanent body
of the United Nations.
United Nations Conference for Trade and Development (UNCTAD) deals with trade issues,
investments and other matters concerning development. United Nations Conference Trade and
Development goals are:

1. The development opportunities, investments and trade of developing countries are to

be maximized.
2. The efforts of developing countries to integrate into the world economy on an equitable
basis would be assisted by UNCTAD.

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Participation of WTO in UNCTAD's Activities

The WTO follows and participates, as an observer, in the meetings of the UN Commission on
Science, Technology and Development and UNCTAD's Commission on Investment,
Technology and Related Financial Issues, and other related Expert Group meetings.
The WTO is also represented at UNCTAD's Trade and Development Board, as well as at the
Commission on Trade in Goods and Services, and Commodities.
The WTO also attends the annual Joint Advisory Group on the International Trade Centre
UNCTAD/WTO.

REGIONAL TRADE AGREEMENTS

Regional trading agreements refer to a treaty that is signed by two or more countries to
encourage the free movement of goods and services across the borders of its members. The
agreement comes with internal rules that member countries follow among themselves. When
dealing with non-member countries, there are external rules in place that the members adhere
to.

Regional trade agreements (RTAs) have risen in number and reach over the years, including a
notable increase in large plurilateral agreements. Non-discrimination among trading partners
is one of the core principles of the WTO; however, RTAs, which are reciprocal preferential
trade agreements between two or more partners, constitute one of the derogations and are
authorized under the WTO, subject to a set of rules. Information on RTAs notified to the WTO
is available in the RTA Database.
What’s it: Regional trade agreement is a trade agreement between various countries in a specific
geographic area. The agreement is usually about the elimination of trade barriers between these
countries.
Such agreements can take various forms, ranging from the simplest such as the free trade area to
the most complex, an economic union, or a monetary union.

The agreements usually include various internal rules, which apply only to member
countries. When dealing with non-member countries, they may apply uniform rules. Or, members
may have different trade policies with non-member countries, as in free trade area agreements. It
depends on what stage they reach an agreement.

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Types of Regional Trade Agreements

There are six stages of a regional trade agreement. Among others are:

1) Preferential trading area

2) Free trade area
3) Customs union
4) Common market
5) Economic union

1. Preferential Trade Areas

The preferential trading agreement requires the lowest level of commitment to reducing trade
barriers, though member countries do not eliminate the barriers among themselves. Also,
preferential trade areas do not share common external trade barriers.

2. Free Trade Area

In a free trade agreement, all trade barriers among members are eliminated, which means that
they can freely move goods and services among themselves. When it comes to dealing with
non-members, the trade policies of each member still take effect.

3. Customs Union
Member countries of a customs union remove trade barriers among themselves and adopt
common external trade barriers.

4. Common Market
A common market is a type of trading agreement wherein members remove internal trade
barriers, adopt common policies when it comes to dealing with non-members, and allow
members to move resources among themselves freely.

5. Economic Union
An economic union is a trading agreement wherein members eliminate trade barriers among
themselves, adopt common external barriers, allow free import and export of resources, adopt
a set of economic policies, and use one currency.
***

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UNIT – 3
TRADE IN GOODS: MARKET ACCESS IN THE WTO

The Concept of Tariffs

International trade increases the number of goods that domestic consumers can choose from,
decreases the cost of those goods through increased competition, and allows domestic
industries to ship their products abroad. While all of these effects seem beneficial, it has been
argued that free trade isn't beneficial to all parties.

A tariff is a tax imposed by one country on the goods and services imported from another
country.

Tariff, also called customs duty, tax levied upon goods as they cross national boundaries,
usually by the government of the importing country. The words tariff, duty, and customs can
be used interchangeably.

Who Collects a Tariff?

In simplest terms, a tariff is a tax. It adds to the cost borne by consumers of imported goods
and is one of several trade policies that a country can enact. Tariffs are paid to the customs
authority of the country imposing the tariff.

It is important to recognize that the taxes owed on imports are paid by domestic consumers
and not imposed directly on the foreign country's exports. The effect is nonetheless to make
foreign products relatively more expensive for consumers, but if manufacturers rely on
imported components or other inputs in their production process, they will also pass the
increased cost on to consumers.

Often, goods from abroad are cheaper because they offer cheaper capital or labour costs; if
those goods become more expensive, then consumers will choose the relatively costlier
domestic product. Overall, consumers tend to lose out with tariffs, where the taxes are
collected domestically.

Who Benefits from Tariffs?

The benefits of tariffs are uneven. Because a tariff is a tax, the government will see increased
revenue as imports enter the domestic market. Domestic industries also benefit from a
reduction in competition, since import prices are artificially inflated.

Unfortunately for consumers—both individual consumers and businesses—higher import

prices mean higher prices for goods. If the price of steel is inflated due to tariffs, individual
consumers pay more for products using steel, and businesses pay more for steel that they use
to make goods. In short, tariffs and trade barriers tend to be pro-producer and anti-consumer.

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The effect of tariffs and trade barriers on businesses, consumers, and the government shifts
over time. In the short run, higher prices for goods can reduce consumption by individual
consumers and by businesses. During this period, some businesses will profit, and the
government will see an increase in revenue from duties.

In the long term, these businesses may see a decline in efficiency due to a lack of competition,
and may also see a reduction in profits due to the emergence of substitutes for their products.
For the government, the long-term effect of subsidies is an increase in the demand for public
services, since increased prices, especially in foodstuffs, leave less disposable income.

Common Types of Tariffs

There are several types of tariffs and barriers that a government can employ:

 Specific tariffs
 Ad valorem tariffs
 Compound tariff

Specific Tariffs
A fixed fee levied on one unit of an imported good is referred to as a specific tariff. This tariff
can vary according to the type of goods imported. For example, a country could levy a $15
tariff on each pair of shoes imported, but levy a $300 tariff on each computer imported.

Ad Valorem Tariffs
The phrase "ad valorem" is Latin for "according to value," and this type of tariff is levied on
a good based on a percentage of that good's value. An example of an ad valorem tariff would
be a 15% tariff levied by Japan on U.S. automobiles.

The 15% is a price increase on the value of the automobile, so a $10,000 vehicle now costs
$11,500 to Japanese consumers. This price increase protects domestic producers from being
undercut but also keeps prices artificially high for Japanese car shoppers.

Hence, the key difference is that a specific tariff is linked to the number of units coming in.
This is in contrast to Ad valorem tariffs which solely look at the value.

Compound Tariffs
A compound tariff is essentially a combination of both an ad valorem and specific tariff. So
it includes both a cost per unit, e.g. $1 per kilogram, as well as a set percentage on the value
of the good, for instance, 10 percent.

Sum Up –

 Tariffs are a type of protectionist trade barrier that can come in several forms.

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 While tariffs may benefit a few domestic sectors, economists agree that free trade
policies in a global market are ideal.
 Tariffs are paid by domestic consumers and not the exporting country, but they have
the effect of raising the relative prices of imported products.
 Other trade barriers include quotas, licenses, and standardization, all seeking to make
foreign goods more expensive or available in a limited supply.

Quotas
Quotas are deemed to be an absolute limit on the number of units of a particular product, or
products, which can be imported over a specified period of time. The quotas can also apply to
exports.

A variation of this is the tariff rate quota, which allows a specific quantity of a particular
merchandise to be either imported or exported at a reduced rate over a given period of time.

In the US, quotas are usually established by Presidential proclamations or Executive

Orders. In essence, quotas are a form of protectionism, which either imposes a limit on the
imports of particular products from another country or limits the amount of exports.

Quotas limit the supply, and therefore the price of quota-restricted imported goods is higher.
In theory this process should make it easier for domestic producers to compete.

What is TRQ?
TRQ stands for Tariff Rate Quota. The TRQ is a mechanism that allows a set quantity of
specific products to be imported. These specific items are as per the particular custom
notification associated with it. Tariff quotas are used on a wide range of products, but most are
in the agriculture sector. Cereals, meat, fruit and vegetables, and dairy products are the most
common, and sugar is also protected in most producing countries.

Tariff-rate quotas (TRQs or tariff quotas) are predetermined quantities of goods which
can be imported at a "preferential" (i.e. lower) rate of customs duty ("in quota tariff rate"). Once
the TRQ has been filled, one can continue to import the product without limitation but paying
a higher tariff rate.

 SCOPE
TRQs are applicable only to Agriculture products and included in schedules concessions
and commitments under the WTO.
 RECENT SYSTEM

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In a trade notification, the Directorate General of Foreign Trade (DGFT) mentioned that it has
developed a new online module for processing applications called the e-TRQ System. DGFT
has introduced an online system for traders who seek tariff rate quota (TRQ) for imports, a
move aimed at promoting ease of doing business in the country.
Now, all applications seeking TRQ for imports are required to submit their application
online.

Quantitative restrictions
Quantitative restrictions are explicit limits which are usually expressed by volume, giving the
amount of a specified product or commodity which may be imported into a particular country.
The term may also be used to describe the total amount of those goods which may be imported
from any given supplying country.

When compared with tariffs, quantitative restrictions are more predictable. They are, in
effect, quotas, which can also be used to favour particular sources of supply. In the majority of
cases the General Agreement on Tariffs and Trade (GATT) prohibits the use of quantitative
restrictions, except those which are specifically cited under Articles XX and XXI.

THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992

9A. Power of Central Government to impose quantitative restrictions. —

(1) If the Central Government, after conducting such enquiry as it deems fit, is satisfied that
any goods are imported into India in such increased quantities and under such conditions as to
cause or threaten to cause serious injury to domestic industry, it may, by notification in the
Official Gazette, impose such quantitative restrictions on the import of such goods as it may
deem fit:

Provided that no such quantitative restrictions shall be imposed on any goods originating
from a developing country so long as the share of imports of such goods from that country does
not exceed three per cent. or where such goods originate from more than one developing
country, then, so long as the aggregate of the imports from all such countries taken together
does not exceed nine per cent. of the total imports of such goods into India.

(2) The quantitative restrictions imposed under this section shall, unless revoked earlier, cease
to have effect on the expiry of four years from the date of such imposition: Provided that if the
Central Government is of the opinion that the domestic industry has taken measures to adjust
to such injury or threat thereof and it is necessary that the quantitative restrictions should
continue to be imposed to prevent such injury or threat and to facilitate the adjustments, it may
extend the said period beyond four years:

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Provided further that in no case the quantitative restrictions shall continue to be imposed
beyond a period of ten years from the date on which such restrictions were first imposed.

(3) The Central Government may, by rules provide for the manner in which goods, the import
of which shall be subject to quantitative restrictions under this section, may be identified and
the manner in which the causes of serious injury or causes of threat of serious injury in relation
to such goods may be determined.

(4) For the purposes of this section—

(a) “developing country” means a country notified by the Central Government in the Official
Gazette, in this regard;

(b) “domestic industry” means the producers of goods (including producers of agricultural
goods)

(c) “serious injury” means an injury causing significant overall impairment in the position of a
domestic industry;

(d) “threat of serious injury” means a clear and imminent danger of serious injury.]

Article XI:1 of the GATT 1994 “General Elimination of Quantitative

Restrictions” -

1. No prohibitions
2. or restrictions other than duties, taxes or other charges,
3. whether made effective through quotas, import or export licences or other measures,
4. shall be instituted or maintained by any Member on the importation of any product of
the territory of any other Member
5. or on the exportation or sale for export of any product destined for the territory of any
other Member.

Tariff Barriers Vs Non-Tariff Barriers

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BASIS FOR
TARIFF BARRIERS NON-TARIFF BARRIERS
COMPARISON

Meaning Tariff Barriers implies the taxes Non-tariff barriers cover all the
or duties imposed by the restrictions other than taxes
government on its imports, so as imposed by the government on its
to provide protection to its imports, so as to provide protection
domestic companies and increase to the domestic companies and
government revenue. discriminate new entrants.

Permissibility World Trade Organization World Trade Organization

allowed the imposition of tariff abolished the imposition of import
barriers to its member nation but quotas and voluntary export
at a reasonable rate only. restraints.

Nature Explicit Implicit

Form Taxes and Duties Regulations, Conditions,

Requirements, Formalities, etc.

Revenue Government receives revenue No revenue is received by the

government

Affects It affects the price of imported It affects the quantity or price or

goods. both of the imported goods.

Monopolistic As the government charges The monopolistic organization

Organizations import duty, monopolistic groups charges high prices through low
can be controlled. output.

Profit High profits made by the Importers can make more profits.
importers can be controlled.

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Definition of Tariff Barriers

When two countries trade in the goods, a certain amount is charged as a fee by the country, in
which goods are entered, so as to provide revenue to the government as well as raise the price
of foreign goods, so that the domestic companies can easily compete with the foreign items.
This fee is in the form of tax or duty, which is called a tariff barrier.

The amount of tax or duty charged as tariff is added to the cost of the import, which makes the
foreign goods more expensive, whose price is ultimately borne by the consumer of the
products. The tariff is paid to the customs authority of the country in which goods are sent. It
includes:

 Export Duties
 Import Duties
 Transit Duties
 Specific Duties
 Ad-valorem Duties
 Compound Duties
 Revenue Tariffs
 Protective Tariffs
 Countervailing and Anti-dumping Duties

As we have discussed, tariff barriers have two-fold objective – on the one hand, it helps in
increasing government revenue and on the other hand, it provides protection and support to the
local industries and companies against foreign competition.

It also facilitates the conservation of foreign exchange reserves. Tariff barriers often help in
reducing dependency on international items and increases self-sufficiency.

Definition of Non-Tariff Barriers

Non-tariff barriers refer to non-tax measures used by the country’s government to restrict
imports from foreign countries. It covers those restrictions which lead to prohibition,
formalities or conditions, making the import of goods difficult and decrease market
opportunities for foreign items.

These are quantitative and exchange control that affects the trade volume or prices, or both.

What are Non-Tariff Barriers?

Non-tariff barriers are trade barriers that restrict the import or export of goods through means
other than tariffs. The World Trade Organization (WTO) identifies various non-tariff barriers
to trade, including import licensing, pre-shipment inspections, rules of origin, custom delayers,
and other mechanisms that prevent or restrict trade.

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Developed countries use non-tariff barriers as an economic strategy to control the level of trade
they conduct with other countries. When making decisions on the non-tariff barriers to
implement in international trade, countries base the barriers on the availability of goods and
services for import and export, as well as the existing political alliances with other trade
partners.
Developed countries may elect to release other countries from being subjected to
additional taxes on imported or exported goods, and instead create other non-tariff barriers with
a different monetary effect.

SUM UP –

 Non-tariff barriers refer to any measures, other than customs tariffs, that regulate
imports or exports into a country.
 Industrialized countries use non-tariff barriers to protect local industries against foreign
competition.
 Common examples of non-tariff barriers include licenses, quotas, embargoes, foreign
exchange restrictions, and import deposits.

WTO Agreement on Agriculture

Introduction;
After over 7 years of negotiations the Uruguay Round multilateral trade negotiations were
concluded on December 15, 1993 and were formally ratified in April 1994 at Marrakesh,
Morocco. The WTO Agreement on Agriculture was one of the many agreements which were
negotiated during the Uruguay Round.
The implementation of the Agreement on Agriculture started with effect from 1.1.1995. As per
the provisions of the Agreement, the developed countries were to complete their reduction
commitments within 6 years, i.e., by the year 2000, whereas the commitments of the developing
countries were to be completed within 10 years, i.e., by the year 2004. The least developed
countries were not required to make any reductions.
The products which are included within the purview of this agreement are what are normally
considered as part of agriculture except that it excludes fishery and forestry products as well as
rubber, jute, sisal, abaca and coir.

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These negotiations are being conducted in special sessions of the WTO Committee on
Agriculture (COA) at Geneva. The following are the broad parameters for carrying out
negotiations:
 Experience of member countries in implementation of reduction commitments till date;
 The effects of reduction commitments on World Trade in Agriculture;
 Non trade concerns, special and differential treatment to developing country members
and the objective of establishing a fair and market oriented agricultural trading system;
and Identifying further commitments necessary to achieve the long-term objectives of
the Agreement.

Product coverage
The Agreement defines in its Annex 1 agricultural products by reference to the harmonised
system of product classification — the definition covers not only basic agricultural products
such as wheat, milk and live animals, but the products derived from them such as bread, butter
and meat, as well as all processed agricultural products such as chocolate and sausages. The
coverage also includes wines, spirits and tobacco products, fibres such as cotton, wool and silk,
and raw animal skins destined for leather production. Fish and fish products are not included,
nor are forestry products.

Salient Features
The WTO Agreement on Agriculture contains provisions in 3 broad areas of agriculture and
trade policy: Market Access, Domestic Support and Export Subsidies
Market Access
This includes tariffication, tariff reduction and access opportunities. Tariffication means that
all non-tariff barriers such as quotas, variable levies, minimum import prices, discretionary
licensing, state trading measures, voluntary restraint agreements etc. need to be abolished and
converted into an equivalent tariff. Ordinary tariffs including those resulting from their
tariffication were to be reduced by an average of 36% with minimum rate of reduction of 15%
for each tariff item over a 6 year period. Developing countries were required to reduce tariffs
by 24% in 10 years. Developing countries as were maintaining Quantitative Restrictions due
to balance of payment problems, were allowed to offer ceiling bindings instead of tariffication.
Domestic Support
For domestic support policies, subject to reduction commitments, the total support given in
1986-88, measured by the Total Aggregate Measure of Support (total AMS), should be reduced
by 20% in developed countries (13.3% in developing countries). Reduction commitments refer
to total levels of support and not to individual commodities.

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Policies which have no or at most minimal, trade distorting effects on production are excluded
from any reduction commitments (‘Green Box’-Annex 2 of the Agreement on Agriculture
www.wto.org. The list of exempted green box policies includes such policies which provide
services or benefits to agriculture or the rural community, public stock-holding for food
security purposes, domestic food aid and certain de-coupled payments to producers including
direct payments to production limiting programmes, provided certain conditions are met.
Special and Differential Treatment provisions are also available for developing
country members. These include purchases for and sales from food security stocks at
administered prices. Developing countries are permitted untargeted subsidised food
distribution to meet requirements of the urban and rural poor. Also excluded for developing
countries are investment subsidies that are generally available to agriculture and agricultural
input subsidies generally available to low income and resource poor farmers in these countries.
Export Subsidies
The Agreement contains provisions regarding member’s commitment to reduce Export
Subsidies. Developed countries are required to reduce their export subsidy expenditure by 36%
and volume by 21% in 6 years, in equal instalment (from 1986 –1990 levels). For developing
countries, the percentage cuts are 24% and 14% respectively in equal annual instalment over
10 years. The Agreement also specifies that for products not subject to export subsidy reduction
commitments, no such subsidies can be granted in the future.

CONCLUSION
The former GATT system, now replaced by the World Trade Organization and the agreements
in the Uruguay Round package, was centred on the General Agreement on Tariffs and Trade
itself. The General Agreement, as negotiated in 1947 among its 23 original participants, laid
down central principles to constrain and guide national trade policies, and provided the basis
on which governments were able to carry forward and extend their multilateral cooperation on
trade.
The World Trade Organization has taken over from the General Agreement as the basis
for institutional cooperation and dispute settlement on trade matters among its members. But
the core principles of the GATT are still in place, and the Uruguay Round package cannot be
understood except in relation to them.

***

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UNIT – 4
NON-TARIFF BARRIERS

INTRODUCTION

A significant change in the global trading regime since the 1970s has been the rise in
protectionism, particularly in the industrialised countries. This protectionism implies a
structural shift from the use of more transparent protective measures such as tariffs and quota
to less transparent non-tariff barriers (NTBs). These NTBs include voluntary export restraints,
antidumping and countervailing duties, and various administrative measures. The effect of
tariff reduction by the industrial countries was almost nullified by the new NTBs imposed
towards imports from developing countries.

Non-Tariff Barriers: An Overview

NTBs normally include quotas, licences or other types of surveillance, price administration,
restraints on purchases of foreign goods, and administration of any non-trade controls in a way
intended to deter imports. The most important are quotas which exist on a formal basis: import
controls, fully quantified (the best known example being textiles and clothing) or in some cases
(as in agricultural trade) subject to variations with production or prices.

There are also a variety of semi-official import controls that amount to NTBs,
including voluntary export restraints imposed through government negotiation, or industry-to-
industry negotiations with or without government acknowledgement, assistance, or threats of
enforcement; and even greyer areas of restraint, such as surveillance backed by threats that
transgress unspoken agreements. Limits will be imposed, and greater formal control will be
imposed.

DEFINITION
Baldwin defines a non-tariff trade distorting policy as 'any measure (public or private) that
causes internationally traded goods and services, or resources devoted to the production of
these goods and services, to be allocated in such a way as to reduce potential real world income'.

Ingo Walter, in search of a more workable definition, starts with the proposition that, in the
broadest sense, NIBs to international trade encompass all private and governmental policies
and practices that serve to distort the volume, commodity composition or direction of trade in
goods and services.

“Non-tariff measures (NTMs) are policy measures, other than ordinary customs tariffs, that can
potentially have an economic effect on international trade in goods, changing quantities traded,
or prices or both”. (UNCTAD, 2010)

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What is a non-tariff barrier?

A non-tariff barrier is any measure, other than a customs tariff, that acts as a barrier to
international trade.

These include:

 Regulations: Any rules which dictate how a product can be manufactured, handled, or
advertised
 Rules of origin: Rules which require proof of which country goods were produced in
 Quotas: Rules that limit the amount of a certain product that can be sold in a market.

Non-tariff barriers may take the following forms:

1. Protectionist barriers

Protectionist barriers are designed to protect certain sectors of domestic industries at the
expense of other countries. The restrictions make it difficult for other countries to compete
favourably with locally produced goods and services. The barriers may take the form of
licensing requirements, allocation of quotas, antidumping duties, import deposits, etc.

2. Assistive policies

Although assistive policies are designed to protect domestic companies and enterprises, they
do not directly restrict trade with other countries, but they implement actions that can impede
free trade with other countries. Examples of assistive barriers include custom procedures,
packaging and labelling requirements, technical standards and norms, sanitary standards, etc.

International companies must meet the requirements before they can be allowed to export or
import certain goods into the market. The governments also help domestic companies by
providing subsidies and bailouts so that they can be competitive in the domestic and
international markets.

3. Non-protectionist policies

Non-protectionist policies are not designed to directly restrict the import or export of goods
and services, but the overall outcomes may lead to free trade restrictions. The policies are
primarily designed to protect the health and safety of people and animals while maintaining
the integrity of the environment.

Examples of non-protectionist policies include licensing, packaging and labelling

requirements, plant and animal inspections, import bans for specific fishing or harvesting
methods, sanitary rules, etc.

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Types of Nontariff Barriers

Examples of Non-Tariff Barriers

Licenses
Countries may use licenses to limit imported goods to specific businesses. If a business is
granted a trade license, it is permitted to import goods that would otherwise be restricted for
trade in the country.

Quotas
Countries often issue quotas for importing and exporting both goods and services. With
quotas, countries agree on specified limits for products and services allowed for importation
to a country. In most cases, there are no restrictions on importing these goods and services
until a country reaches its quota, which it can set for a specific timeframe. Additionally, quotas
are often used in international trade licensing agreements.

Embargoes
Embargoes are when a country–or several countries–officially ban the trade of specified goods
and services with another country. Governments may take this measure to support their
specific political or economic goals.

Import deposit
Import deposit is a form of foreign trade regulation that requires importers to pay the central
bank of the country a specified sum of money for a definite period. The amount paid should
be equal to the cost of imported goods.

Sanctions
Countries impose sanctions on other countries to limit their trade activity. Sanctions can
include increased administrative actions–or additional customs and trade procedures–that
slow or limit a country’s ability to trade.

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Voluntary Export Restraints

Exporting countries sometimes use voluntary export restraints. Voluntary export restraints set
limits on the number of goods and services a country can export to specified countries. These
restraints are typically based on availability and political alliances.

Sum Up –

 A nontariff barrier is a trade restriction–such as a quota, embargo or sanction–that

countries use to further their political and economic goals.
 Countries usually opt for nontariff barriers (rather than traditional tariffs) in
international trade.
 Nontariff barriers include quotas, embargoes, sanctions, and levies.

DOMESTIC SUBSIDIES

Subsidies are grants given to domestic industries to help them develop and compete with
foreign producers. Through subsidies, domestic producers can charge less for their goods
without losing money due to outside grants.

What is a domestic subsidy?

 A domestic subsidy is any form of government financial help to domestic businesses

 The subsidy helps firms to lower their costs and thus become more competitive in home
and overseas markets Impact of domestic subsidies

Domestic producers

 Domestic producers gain from the subsidy – they get the world price + a subsidy
 Higher revenues will lift profits and might therefore lead to a higher share price.
Increased output creates the possibility of economies of scale
 Evaluation: Risk of a dependency culture emerging – i.e. businesses relying on the
subsidies rather than taking their own steps to become more competitive by increasing
productivity, eliminating inefficiency and accelerating the pace of process/product
innovation.

Consumers

 Assuming that the subsidy is not large enough to change the world price, not direct
effect on the prices that consumers pay for their products
 They may face higher taxes if expensive subsidies take up a high percentage of
government spending

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Government

 Subsidy can be an effective non-tariff barrier to reduce the volume of imports by

encouraging domestic production
 Unlike a tariff, a subsidy does not generate tax revenues directly.
 Increased spending on subsidies may cause a growing budget deficit

The Subsidies in International Trade?

Although governments articulate ostensibly legitimate goals for their subsidy programmes, it
is widely perceived that government subsidies may give excessive protection to domestic
industries.

Subsidies, in this situation, operate as a trade barrier by distorting the competitive

interactions that naturally emerge in a free trading economy. Exports of subsidised products
may harm the domestic sector in the importing country that produces the same product.
Subsidized products may also gain artificial advantages in third-country markets, preventing
other countries from exporting to those markets.

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).

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.

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INTRODUCTION OF IMPORT POLICY

Export Import Policy or better known as Exim Policy is a set of guidelines and instructions
related to the import and export of goods. The Government of India notifies the Exim Policy
for a period of five years (1997 2002) under Section 5 of the Foreign Trade (Development and
Regulation Act), 1992. The current policy covers the period 2002 2007. The Export Import
Policy is updated every year on the 31st of March and the modifications, improvements and
new schemes becomes effective from 1st April of every year. All types of changes or
modifications related to the Exim Policy is normally announced by the Union Minister of
Commerce and Industry who coordinates with the Ministry of Finance, the Directorate General
of Foreign Trade and its network of regional offices.

Export and Import trade is regulated by Directorate General of Foreign

Trade (DGFT), it is a body functioning under the Ministry of Commerce and Industry,
Department of Commerce, Government of India. DGFT is the regulator, promotor and
facilitator of Import and Export. DGFT implements the policies and procedure from time to
time for Export and Import.

What are Import Tariffs?

Import tariffs are taxes charged by the customs authority on the importation of goods into a
country. Usually, the value of the imported goods determines the amount that will be levied on
them. In some context, import tariffs also means import duties, customs duties, tariffs or import
tax.

 A tariff or duty (the words are used interchangeably) is a tax levied by governments on
the value including freight and insurance of imported products. Different tariffs applied
on different products by different countries.
 National sales and local taxes, and in some instances customs fees, are often charged in
addition to the tariff.
 The tariff, along with the other assessments, is collected at the time of customs
clearance in the foreign port. Tariffs and taxes increase the cost of your product to the
foreign buyer and may affect your competitiveness in the market.

Import Licensing Requirements

Over the last decade, India has steadily made it easier to import products. Most items fall
within the scope of India’s EXIM Policy regulation of Open General License (OGL). This
means that they are deemed to be freely importable without restrictions and without a
license, unless they are regulated by the provisions of the Policy or any other law.

Imports of items not covered by OGL are regulated and fall into three categories: banned or
prohibited items, restricted items requiring an import license, and “canalized” items,

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importable only by government trading monopolies and subject to Cabinet approval regarding
timing and quantity.

GOVERNMENT PROCUREMENT
Government procurement accounts for 10-15 per cent of the GDP of an economy on average.
It constitutes a significant market and an important aspect of international trade. The WTO's
work on government procurement aims to promote transparency, integrity and competition in
this market.

Government procurement is the process by which the government acquires the

goods and services it needs by purchasing from commercial businesses. Since agencies of the
government use taxpayer money, there are a number of regulations on how to use it properly
and responsibly. Therefore, they must draw up legal contracts with suppliers in order to
proceed. Prices must be pre-negotiated and fair, based on a predetermined set of terms and
conditions. Businesses that have products and services that the government wants to line up to
bid on and receive work contracts, and must prove their viability and legitimacy in order to
earn and keep them.

What are sanitary and phytosanitary in International trade?

The Agreement on the Application of Sanitary and Phytosanitary Measures is one of the final
documents approved at the conclusion of the Uruguay Round of the Multilateral Trade
Negotiations. It applies to all sanitary (relating to animals) and phytosanitary (relating to plants)
(SPS) measures that may have a direct or indirect impact on international trade. The SPS
agreement includes a series of understandings (trade disciplines) on how SPS measures will be
established and used by countries when they establish, revise, or apply their domestic laws and
regulations.

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Sanitary and Phytosanitary (SPS) and Technology Non-Tariff Barriers to

Trade
Sanitary and phytosanitary (SPS) measures are the laws, rules, standards, and procedures that
governments employ to protect humans, animals, and plants from diseases, pests, toxins, and
other contaminants. Examples include meat and poultry processing standards to reduce
pathogens, residue limits for pesticides in foods, and regulation of agricultural biotechnology.
Technical barriers to trade (TBT) cover technical regulations, product standards, environmental
regulations, and voluntary procedures relating to human health and animal welfare. Examples
include trademarks and patents, labeling and packaging requirements, certification and
inspection procedures, product specifications, and marketing of biotechnology. SPS and TBT
measures both comprise a group of widely divergent standards and standards-based measures
that countries use to regulate markets, protect their consumers, and preserve natural resources.

According to the World Trade Organization (WTO), SPS and TBT measures have
become more prominent concerns for agricultural exporters and policy makers, as tariff-related
barriers to trade have been reduced by various multilateral, regional, and bilateral negotiations
and trade agreements. The concerns include whether SPS and TBT measures might be used to
unfairly discriminate against imported products or create unnecessary obstacles to trade in
agricultural, food, and other traded goods.

DIGITAL TRADE BARRIERS

What is Cross-border data flows?
Cross-border data flows are an increasingly essential element of international trade. Data flows
not only support trade in goods, making production and distribution more effective and less
costly, but such flows are in fact the vehicle for trading digital services across borders. As trade
in global digital services has increased dramatically in recent years, so have global data flows.

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Key Barriers to Digital Trade

Digital trade is a broad concept, capturing not just the sale of consumer products on the Internet
and the supply of online services, but also data flows that enable global value chains, services
that enable smart manufacturing, and myriad other platforms and applications. Some portion
of nearly every business is digitally enabled, and every industry leverages digital technology
to compete internationally.

But in recent years, many governments have sought to control digital trade in blunt and
disruptive ways. Some of these government actions are explicitly protectionist; others have
imposed unnecessary burdens on digital trade while seeking to address legitimate public policy
goals. The NTE organizes its discussion of digital trade barriers for each country into four
categories:

 Data Localization Barriers: Including unnecessary requirements to store data within

a particular jurisdiction or locate computing facilities locally, as well as outright bans
on cross-border data flows.

 Technology Barriers: Including requirements to meet onerous and unnecessary

security standards and requirements to disclose encryption algorithms or other
proprietary source code.

 Barriers to Internet Services: Including inappropriate application of old regulatory

regimes to new business models and unreasonable burdens on Internet platforms for
non-IP-related liability for user-generated content and activity.

 Other Barriers: Including issues surrounding electronic authentication and

signatures, internet domain names, digital products, electronic payment platforms, and
other discriminatory practices.

GLOBAL DATA GOVERNANCE

Policymakers should provide multiple mechanisms to transfer personal data, encourage firms
to improve consumer trust through greater transparency about how they manage data, support
the development of global data-related standards, and provide more assistance to developing
countries to help with digital economy policy.

Digital Free Trade:

Policymakers should support rules that protect data flows, prohibit data localization, and only
allow narrow exceptions to these provisions at e-commerce negotiations at the World Trade
Organization (WTO). Policymakers should also create new tools to enact retaliatory measures
against countries that enact data localization and other digital protectionist rules. Policymakers
should encourage national and global bodies to conduct surveys about the firm-level impact of
data localization. Trade negotiators should develop transparency and good regulatory practices

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provisions to ensure opaque regulatory rulemaking can’t be used to enact barriers to data flows
and digital trade.

THE CONCEPTS OF STANDARDS, CERTIFICATION AND LABELLING

STANDARDIZATION

One of the main objectives of standardization is usually that everybody adheres to the same
standards, i.e. the same procedures or product specifications. This may ease logistical
procedures, facilitate trade, prevent consumer deception and improve quality. It is easy to see
how standardization facilitates trade and other logistical procedures, if only by looking at the
complications that different weight measurement systems can cause. However, increase in
quality is not an automatic result of standardization. This will only be achieved when the
advocated standard is a "high" standard, i.e. the requirements are an improvement in relation
to common practice.

STANDARDS

Standards are defined by ISO as

“Documented agreements containing technical specifications or other precise criteria to be used

consistently as rules, guidelines or definitions, to ensure that materials, products, processes and
services are fit for their purpose”.

From this definition it becomes clear that standards are not only used for standardization, but
also as "guidelines", i.e. for capacity building.

Product standards are specifications and criteria for the characteristics of

products. Process standards are criteria for the way the products are made. Social and
environmental standards in agriculture are essentially process standards. These process criteria
might or might not influence the characteristics of the end products.

Standards that discriminate against imports and no transparent or discriminatory

requirements for showing conformity to standards can create significant non-tariff trade
barriers.

There is evidence to indicate that significant barriers to global trade are embedded in existing
standards and will continue to grow in complexity.

This conclusion is based, in part, on observations such as the following:

(1) standards that differ from international norms are employed as a means to protect domestic
producers; (2) restrictive standards are written to match the design features of domestic
products, rather than essential performance criteria; (3) there remains unequal access to testing

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and certification systems between domestic producers and exporters in most nations; (4) there
continues to be a failure to accept test results and certifications performed by competent foreign
organizations in multiple markets; and (5) there is a significant lack of transparency in the
systems for developing technical regulations and assessing conformity in most countries.

CERTIFICATION

Certification is a procedure by which a third party gives written assurance that a product,
process or service is in conformity with certain standards. Certification can be seen as a form
of communication along the supply chain. The certificate demonstrates to the buyer that the
supplier complies with certain standards, which might be more convincing than if the supplier
itself provided the assurance.

Trade Barrier Example; Verification of U.S. Country of Origin Certificates

On July 1, 2020, the Food and Safety Standards Authority of India (FSSAI) placed temporary
holds on consignments of a wide range of U.S. food and agricultural products, including
almonds and apples, questioning the validity of the Country of Origin (COO) certificates
accompanying those products. If FSSAI formally implements a policy that does not accept
COO certificates from U.S. chambers of commerce or does not recognize documents issued by
freight forwarders and shippers, a significant portion of U.S. agricultural exports could be
prevented from entering the Indian market

LABELLING

A certification label is a label or symbol indicating that compliance with standards has been
verified. Use of the label is usually controlled by the standard-setting body. Where certification
bodies certify against their own specific standards, the label can be owned by the certification
body.

While the certificate is a form of communication between seller and buyer, the label is a form
of communication with the end consumer.

Labelling Requirements as Trade Barrier;

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On October 2, 2020, FSSAI notified to the WTO an amendment to the Food Safety and
Standards (Packaging and Labelling) Regulations, 2011, which modifies labelling
requirements for packaged foods containing sweeteners. The amendment requires warning
labels for various kinds of sweeteners stating “Not recommended for children, pregnant and
lactating mothers,” and “Contains non-caloric sweetener and for calorie conscious.” The
United States submitted comments to India’s WTO TBT Enquiry Point on the amendment and
continues to monitor India’s plans for finalizing changes to the amendment.

Dairy Products

India imposes onerous requirements on dairy imports. India continues to insist that dairy
products intended for food be derived from animals that have never consumed any feeds
containing internal organs, blood meal, or tissues of ruminant origin, and that exporting
countries certify to these conditions. India has explained that its position is based on religious
and cultural grounds.

***

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UNIT – 5
TRADE REMEDIES: ANTI-DUMPING DUTIES

INTRODUCTION TO TRADE REMEDY MEASURES

The fundamental principles of the GATT/WTO system are reciprocity and non-discrimination.
However, a number of exceptions to GATT’s non-discrimination rule exist, like trade remedies
measures, government procurement, and regional trading agreements. This book deals with
trade remedies measures. The trade remedies measures refer to trade restrictions, which can be
introduced under specific circumstances, providing protection from imports beyond the
protection granted by the tariff schedules negotiated as part of GATT. These measures thus
represent an exception to the GATT/WTO fundamental principles of reciprocity and non-
discrimination.

Temporary restrictions allowed by the WTO are anti-dumping duties, countervailing duties,
and safeguard measures, (tariffs to assist with balance of payments problems, tariffs to protect
infant industries, or tariffs for emergency protection). Permanent exceptions are general
waivers from binding obligations, which –in contrast with the other mechanisms – must be
formally approved by the WTO Council.

Countervailing duties and anti-dumping duties are special offsetting import taxes
allowed by the WTO under specific circumstances of unfair competition (export subsidies or
dumping on the part of trading partners), conditional on a detailed investigation showing that
the domestic industry is being hurt. These are discriminatory measures, in that they are just
applied against one trading partner. Safeguard measures are temporary trade restrictions
protecting an industry from fair competition, beyond the protection afforded by tariffs
negotiated as part of GATT. They are non-discriminatory measures as they are applied to all
trade partners.

What is Dumping?

WTO defines dumping as “a firm is said to dump if it sells its product in another country
at a price less than the normal value. It does not matter whether a foreign firm sells at a
higher or lower price than the domestic ones; as long as the price charged in the domestic
country is below that in its own country, the firm can be held dumping.”

The most widely accepted definition of dumping is - an act of charging a lower price for a good
in a foreign market than one charges for the same good in a domestic market, such that the
foreign market is "injured". This is referred to as selling at less than “fair value”.

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In economics, "dumping" is understood as any kind of predatory pricing, and a form of price
discrimination. The word dumping is now widely used in the context of international trade,
where dumping is defined as the practice of selling a good in other country at a lower price
than in the domestic market or for a lower price than its cost of production. The term, on one
hand has negative connotation for few, but on the other hand it is seen as beneficial for
consumers by advocates of free market who believe that use of protectionism to prevent
‘dumping’ would have net negative consequences. Advocates for workers and labourers
however, believe that safeguarding businesses against predatory practices, such as dumping,
help alleviate some of the harsher consequences of free trade between economies at different
stages of development.

Export Price means the price of the article exported from the exporting country or territory and
in cases where there is no export price or where the export price is unreliable because of
association or a compensatory arrangement between the exporter and the importer or a third
party.

Normal Value means the comparable price, in the ordinary course of trade, for the like Article
when meant for consumption in the exporting country or territory.

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A normal value may be determined where there are no sales of the like article in the ordinary
course of trade in the domestic market of the exporting country or territory, such sales do not
permit a proper comparison, the normal value shall be either-

1. comparable representative of the like article when exported from the exporting country
or territory or an appropriate third country; or
2. the cost of production of the said article in the country of origin along with reasonable
addition for administrative, selling and general costs, and for profits,

Anti-dumping duties -What are they?

Anti-dumping duties are tariffs imposed by an importing country on imports of a product that
has been dumped into its domestic market by some exporting firms. Such tariffs are
supplementary to those agreed within the GATT and only applied to dumping firms; they thus
represent an exception to the WTO fundamental principle of non-discrimination. These
measures retaliate against actions carried out by individual firms rather than countries, contrary
to the case of countervailing duties.

In very general terms, dumping is the practice of selling exports at an ‘unfairly’ low price,
which is a situation where an exporting firm sells its production in the importing country at a
price below those applied to identical or ‘like’ products in the country of the exporter.
Specifically, if the firm sells in the importing country at an average price below a benchmark
related to either the price or the average costs of production in the home country, the exported
product is said to be ‘dumped’. In principle, antidumping duties are measures against unfair
competition.

Countervailing Duties-What are they?

The terms ‘Subsidies and countervailing duties’ are used together as the measures of
countervailing duty that are taken against the subsidies available to exporters of foreign
countries.
Countervailing duties (duties offsetting subsidies) do two things: they discipline the
use of subsidies, and regulate the actions that countries can take to counter the effects of
subsidies.

The term countervailing means to offset the effect of (something) by countering it with
something of equal force.

In international trade the term that is commonly used is ‘Countervailing measures’. The effect
which are required to be offset are the effects of subsidy bestowed upon by any country or
territory directly or indirectly upon the manufacture or production of their country which, on

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export, adversely hurts the domestic manufacturers and producers. The countering of the effect
of the threat of injury and injury is carried on by imposition of countervailing duty in terms of
domestic laws based upon policies and guidelines laid down in GATT.

Procedural requirements

Overview
A principal objective of the procedural requirements of the AD Agreement is to ensure
transparency of proceedings, a full opportunity for parties to defend their interests, and
adequate explanations by investigating authorities of their determinations. The extensive and
detailed procedural requirements relating to investigations focus on the sufficiency of petitions
(through minimum information and “standing” requirements) to ensure that meritless
investigations are not initiated, on the establishment of time periods for the completion of
investigations, and on the provision of access to information to all interested parties, along with
reasonable opportunities to present their views and arguments. Additional procedural
requirements relate to the offering, acceptance, and administration of price undertakings by
exporters in lieu of the imposition of anti-dumping measures.
The AD Agreement requires investigating authorities to give public notice of
and explain their determinations at various stages of the investigative process in substantial
detail. It also establishes rules for the timing of the imposition of anti-dumping duties,
the duration of such duties, and obliges Members to periodically review the continuing need
for anti-dumping duties and price undertakings. There are detailed provisions guiding the
imposition and collection of duties under various duty assessment systems, intended to ensure
that anti-dumping duties in excess of the margin of dumping are not collected, and that
individual exporters are not subjected to anti-dumping duties in excess of their individual
margin of dumping. Article 13 of the AD Agreement requires Members to provide for judicial
review of final determinations in anti-dumping investigations and reviews. Other provisions
establish that Members may, at their discretion, take anti-dumping actions on behalf of and at
the request of a third country, and recognise that “special regard” must be given by developed
country Members to the situation of developing country Members when considering the
application of anti-dumping duties.

LEGAL FRAMEWORK OF ANTI DUMPING IN INDIA

1. The principle of imposition of anti-dumping duties was propounded by the Article VI of

General Agreement on Tariffs and Trade (GATT) 1994 – Uruguay Round
2. Indian legislation in this regard is contained in Section 9A and 9B (as amended in 1995) of
the Customs Tariff Act, 1975
3. Further regulations are contained in the Anti-Dumping Rules [Customs Tariff
(Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for
Determination of Injury) Rules, 1995]

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4. The Designated Authority for conducting investigations pertaining to Anti-Dumping issues

and on basis thereof, for forwarding its recommendations is the Ministry of Commerce,
Government of India.
5. The responsibility for Imposition and Collection of duties as imposed /recommended by the
Adjudicating authority is imposed upon the Ministry of Finance, Government of India. Section
9A of the Customs Tariff Act, 1975 (hereinafter referred to as “the Act”) as amended in 1995
and the Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on
Dumped Articles and for Determination of Injury) Rules, 1995 (hereinafter referred to as “the
Rules”) framed thereunder form the legal basis for antidumping investigations and for the levy
of anti-dumping duties. These are in consonance with the WTO Agreement on anti-dumping
measures. These rules form the legislative framework for all matters relating to dumping of
products, which include the substantive rules, rules relating to practice, procedure, regulatory
mechanism and administration.

REGULATORY FRAMEWORK

Anti-dumping, anti-subsidies and countervailing measures in India are administered by the

Directorate General of Anti-dumping and Allied Duties (“DGAD”) functioning in the
Department of Commerce in the Ministry of Commerce and Industry and the same is headed
by the “Designated Authority”. The Central Government may, by notification in the Official
Gazette, appoint a person not below the rank of a Joint Secretary to the Government of India
or such other person as that Government may think fit as the Designated Authority. In India,
there is a single authority — DGAD designated to initiate necessary action for investigations
and subsequent imposition of anti-dumping duties. The Designated Authority is a quasi-judicial
authority notified under the Customs Act, 1962. A senior level Joint Secretary and Director,
four investigating officers and four costing officers assist the DGAD.

Besides, there is a section under the DGAD headed by the Section-Officer to deal
with the monitoring and coordination of die functioning of the DGAD. The Designated
Authority’s function, however, is only to conduct die anti-dumping/anti subsidy and
countervailing duty investigation and make recommendation to the Government for imposition
of anti-dumping or anti subsidy measures. Such duty is finally imposed/levied by a Notification
of the Ministry of Finance.
Thus, while the Department of Commerce recommends the Anti-dumping duty, it is
the Ministry of Finance, which levies such duty. The law provides that an order of
determination of existence, degree and effect of dumping is appealable before the Customs,
Excise and Gold (Control) Appellate Tribunal (CEGAT) — a judicial tribunal. It reviews final
measures and is independent of administrative authorities. This is consistent with the WTO
provision of independent tribunals for appeal against final determination and reviews. No
appeal will lie against the preliminary findings of the Authority and the provisional duty
imposed on the basis thereof. The appeal to the CEGAT should be filed within 90 days.

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INVESTIGATION PROCESS

 A dumping investigation can normally be initiated only upon receipt of a written

application by or on behalf of the Domestic Industry. "Domestic Industry" means the
Indian producers of Like Articles as a whole or those producers whose collective output
constitutes a major proportion of total Indian production.
 In order to constitute a valid application, the following two conditions have to be satisfied:

i. The domestic producers expressly supporting the application must account for not
less than 25% of the total production of the Like Article by the Domestic Industry
in India; and

ii. The domestic producers expressly supporting the application must account for more
than 50% of the total production of the Like Article by those expressly supporting
and those opposing the application.

Application should be submitted to the Designated Authority in the Ministry of Commerce in

the prescribed form. An application for anti-dumping investigation needs to contain such
information as is reasonably available to the applicant on the following:
 the identity of the applicant and a description of the volume and value of the domestic
production of the like product by the applicant;
 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;
 information on prices at which the product in question is sold when destined for
consumption in the domestic market of the country or countries of origin or export;
 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.

Stages in the Investigative Process

On receipt of an application by the Designated Authority, the application is dealt with
in the following stages:

i. Preliminary Screening

The application is scrutinized to ensure that it is adequately documented and provides

sufficient evidence. In case it is not adequate, then the deficiency letter is issued
normally within 20 days of the receipt of the application.

ii. Initiation

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When the Designated Authority is satisfied that there is sufficient evidence in the
application with regard to dumping, Material Injury and Causal Link, a public notice is
issued initiating an investigation to determine the existence and effect of the alleged
dumping. The Designated Authority also notifies the diplomatic representative of the
Government of proceeding to initiate the investigation.

iii. Access to Information

The Authority provides access to the non-confidential evidence presented to it by

various interested parties in the form of a public file, which is available for inspection
after receipt of the responses.

iv. Preliminary Findings

The Designated Authority shall expeditiously proceed with the conduct of the
investigation and shall, in appropriate cases, make a preliminary finding containing the
detailed information on the main reasons behind the determination. The preliminary
finding will normally be made within 150 days of the date of initiation.

v. Provisional Duty

A provisional duty not exceeding the Margin of Dumping may be imposed by the
Central Government on the basis of the preliminary finding recorded by the Designated
Authority.

The provisional duty can be imposed only after the expiry of 60 days from the date of
initiation of investigation.

The provisional duty will remain in force only for a period not exceeding 6 months,
extendable to 9 months under certain circumstances.

vi. Oral Evidence

Interested parties who participate in the investigations can request the Designated
Authority for an opportunity to present the relevant information orally. However, such
oral information shall be taken into consideration only when it is subsequently
reproduced in writing. The Authority may grant oral hearing anytime during the course
of the investigations.

vii. Final Determination

The final determination is normally made within 150 days of the date of preliminary
determination.

viii. Disclosure of Information

The Designated Authority will inform all interested parties of the essential facts, which
form the basis for its decision before the final finding is made.

ix. Time Limit for Investigation Process

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The normal time allowed by the statute for conclusion of investigation and submission
of final findings is 1 year from the date of initiation of the investigation. The above
period may be extended by the Central Government by another 6 months.

x. Termination

The Designated Authority may suspend or terminate the investigation in the following
cases-

1. if there is a request in writing from the Domestic Industry at whose instance the
investigation was initiated;

2. when there is no sufficient evidence of dumping or injury;

3. if the Margin of Dumping is less than 2% of the Export Price;

4. the volume of dumped imports from a country is less than 3% of the total imports of
the Like Article into India or the volume of dumped imports collectively from all such
countries is less than 7% of the total imports;

5. injury is negligible.

ANALYSIS OF SOME OF THE ANTI-DUMPING CASES IN INDIA:

In Reliance Industries Ltd. vs. Designated Authority & Others , the purpose of
section 9A of customs Tariff Act, 1975 was interpreted and it was observed that, an industrial
base that created in India after independence has definitely resulted in some progress. The
purpose of section 9A can therefore easily be seen. The purpose was that our industries which
had been built up after independence with great difficulties must not be allowed to be destroyed
by unfair competition which is adopted by the foreign companies. This is done by selling goods
at a very low price for some time so that the domestic industries cannot compete and are thereby
destroyed, and after such destruction has taken place, prices are again raised.

The purpose of section 9A is, therefore to maintain a level playing field and
prevent dumping, while allowing for healthy competition. The purpose is not protectionism in
the classical sense (as proposed by the German economist Friedrich List in his famous book,
National System of Political Economy‟ published in 1841) but to prevent unfair trade practices.
The 1995 amendment to section 9A was apparently made in pursuance to art VI of the GATT
which permitted Anti-dumping measures as an instrument of fair competition.

Automotive Tyre Manufaturers vs. The Designated Authority & Others

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The appellant in this appeal were automotive tyre manufacturers association (ATMA), an
association representing domestic tyre manufacturing units who import Nylon Tyre Cord
Fabric (NTCF) from various countries, including china, as one of their basic raw materials for
manufacture of tyres.

In 2003 ASFI filed an application under Anti-Dumping Rules 1995 before designated
authority praying for imposition of Anti-dumping duty under section 9A of Customs Act 1975,
on imports of NTCF from China. In their application ASFI had specifically contended that
China being a Non-market economy country, normal value of the export price from that country
had to be determined as per the principle contemplated in para 7 of Annexure I to the 1995
Rules.

Taking cognizance of the application the DA initiated investigation and recommended

imposition of Anti-dumping duty on exports from china. This recommendation was accepted
by Central Government and duty was notified and imposed. The court in this case considered
the nature of anti-di=umping investigations and it to be a quasi-judicial function. It was also
held that principles of natural justice must be followed during the investigation proceedings.

M/S Haridas Exports vs. All India Float Glass Manufacturers Association

This case is an appeal against orders passed by the Monopolies and Restrictive Trade Practices
Commission, where an Indonesian manufacturer of float glass had been restrained from
exporting the same to India at allegedly predatory prices. This case provided an opportunity
for the Supreme Court to clarify the relationship between MRTP and Anti-Dumping Law.

Supreme Court held that the Anti-dumping provisions in the Customs Tariff Act do
not oust the jurisdiction of MRTP Commission. The two acts operate in different fields and
have different purposes. The Import Control ACT and Customs Tariff Act are concerned with
the imports of goods into India and the duty which would be imposed on the imported items.
Imports may be allowed under OGL (open general licence) where no specific licence for import
is required. Whether to allow import or not and the terms on which an item may be exported is
a matter of policy and regulated by law.

Designated Authority vs. Haldor Topsoe A/S.

A petition was filed before the Designated Authority (Anti-dumping) Ministry of commerce
alleging that the respondent was indulged in dumping in India of six types of catalysts.
Therefore, the Authority initiated proceedings against the respondent.

The Supreme Court held that, in this case, this Authority has come to the specific
conclusion that the respondent had preferred not to disclose the details of its export price of the
catalysts concerned to an appropriate third country, even though the same was available with
the respondent. it was also noted that the reasons advanced by the respondent for not furnishing

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the information was not worthy of acceptance. The authority further observed that by
withholding the necessary information which the respondent was bound to have disclosed,
respondent had not cooperated with the investigation and had caused impediments in
determination of the normal value. In these circumstances, it has to be held that the authority
was justified in proceeding to determine the normal value of the subject catalysts on the basis
of “best judgment assessments” as contemplated under Rules.

Commissioner of Customs, Bangalore vs. M/S G.M. & others

The question of law in this case was whether Anti-dumping duty imposed with respect to
imports made during the period between the expiry of the provisional Anti-dumping duty and
the imposition of the final Anti-dumping duty is legal and valid. It was held in this case that in
the circumstances of present case despite dumping and material injury to the domestic industry,
differential duty cannot be collected from the importer.

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