A principle of non discrimination of the most favoured nation

 

THE SCOPE OF A NON-DISCRIMINATION PRINCIPLE.

Non-discrimination is a key concept in WTO law and policy. There are two main principles of non-discrimination in WTO law: the most-favored-nation (MFN) treatment obligation and the national treatment obligation[1]. In simple terms, the MFN treatment obligation prohibits a country from discriminating between countries; the national treatment obligation prohibits a country from discriminating against other countries.

Discrimination between, as well as against, other countries was an important characteristic of the protectionist trade policies pursued by many countries during the economic crisis of the 1930s. Historians now regard these discriminatory policies as an important contributing cause of the economic and political crises that resulted in the Second World War. Discrimination in trade matters breeds resentment among the countries, manufacturers, traders and workers discriminated against. Such resentment poisons international relations and may lead to economic and political confrontation and conflict. In addition, discrimination makes scant economic sense, generally speaking, since it distorts the market in PRINCIPLES OF NON-DISCRIMINATION 370 favour of products and services that are more expensive and/or of a lesser quality. Eventually, it is the citizens of the discriminating country that end up ‘paying the bill’ for the discriminatory trade policies pursued. The importance of eliminating discrimination in the context of the World Trade Organization is highlighted in the Preamble of the WTO Agreement where the ‘elimination of discriminatory treatment in international trade relations’ is identified as one of two main means by which the objectives of the WTO may be attained.

The aim of non-discrimination principle is to allow all individuals an equal and fair prospect to access opportunities available in a society. This principle essentially means that individuals who are in similar situations should receive similar treatment and not be treated less favourably simply because of a particular ‘protected’ characteristic that they possess.

REQUIREMENT FOR APPLICATION OF NON-DISCRIMINATION PRINCIPLE

Most Favoured Nations.

The most favoured nation obligation is situated as an underlying factor in the commercial relation of nations[2]. It forbids WTO Members from discrimination among other WTO Members[3] .It means, that WTO Member must accord to other WTO Member any advantage, favour, privilege or immunity granted to any other country. This clause has been termed as “the cornerstone of all modern commercial[4] ”.In former bilateral treaties between two states it was typical for the most favoured nation clause to require each state as a party of the treaty to accord to the other state any advantage covered by the treaty that it accorded to the third state. The most favoured nation status was awarded by one nation to another typically in bilateral treaties and after its multilateralization any receiving nation was granted all trade advantages that any other nation also received. The effect was that nation with the most favoured nation status was not discriminated against and was not treated worse than any other nation with most favoured nation status[5].

National Treatment

The second notion of equal treatment and another pillar of the multilateral trading system shielded by the WTO is the principle of national treatment. Being one of the fundamental market access principles of the GATT/WTO system, it imposes an obligation of like treatment concerning domestic and imported goods[6] . The national treatment obligation prohibits WTO Members from discrimination against other WTO Members[7]. It represents legal obligation which impinge most directly on the domestic policies and internal politics of WTO Members governments[8]. Goods and services produced domestically shall not have more favourable treatment than those imported from other WTO member countries and custom territories.

EXCEPTIONS OF NON-DISCRIMINATION PRINCIPLE

The generalization system of preferences (GSP), provided for in part four of the GATT in favour of developing countries entails preferences that would otherwise violate the MFN principle. An instrument called the “Enabling Clauses” (1979) provides that the GSP may function notwithstanding Article I:1 of the GATT. The enabling clause and its relation to article 1 have recently been the subject of interpretation by the Appellate Body in the EC- Tariff preferences case.

General Agreement on Tariffs and Trade, Article xx “general exceptions” can allow departures from MFN, but there is in that article another “soft” MFN obligation. Quantitative restrictions often pose an important conceptual challenge to the MFN principle. If a licensing system is used that is based on a system of auctioning licenses to the highest bidder, then MFN seems realized. But as is often the case, when quotas or licenses are allocated on a geographical or basis even if they are related to historical trading patterns then to some extent MFN is not completely fulfilled, because different countries or enterprises will have different types of fixed rights.

Waivers can sometimes authorize departures from MFN, two examples of this are United States- Canada Automotive Products Agreement (which allows a free trade area for automotive products) and the united states preferences granted to the Caribbean basis. The generalized system of preferences program to favor trade of less developed countries operated under the benefit of a waiver from GATT MFN from 1971 to 1981. Later it was presumed to be authorized by the Tokyo Round understanding, called the “enabling clauses” but officially entitled the understanding on “. Differential and more favorable treatment, reciprocal and fuller participation of developing countries”.

According to a principal of non discrimination, the countries are suppose not to discriminate other countries in trade, but when happen the country get punished for the breach of any agreement, the countries in GATT, can be punished through discriminated by other states.

BIBLIOGRAPHY

BOOKS/JOURNALS

1.Snyder, C. R. The Most Favoured Nation Clause and Recent Trade Practices. Political Science Quarterly, vol. 55, no. 1, 1940, pp. 77 - 97.

2.Van den Bossche, P. The Law and Policy of the World Trade Organization: Text, Cases and Materials. Cambridge: Cambridge University Press, 2006, p. 308.

3.Hornbeck, S. The Most Favoured Nation Clause in Commercial Treaties. Bulletin of the University of Wisconsin, vol. 6, n. 2, 1910, pp. 339 - 367.

4.Bhala, R., Kennedy, K. World Trade Law: The GATT-WTO System, Regional Arrangements, and U.S. Law. Charlottesville: Lexis Law Publishing, 1998, pp. 60 – 64.

5.Matsushita, M., Schoenbaum, T., Mavroidis, P. The World Trade Organization: Law, Practice, and Policy. Oxford: Oxford University Press, 2006, 2nd edition, p. 234 - 235.

6.Van den Bossche, P. The Law and Policy of the World Trade Organization: Text, Cases and Materials. Cambridge: Cambridge University Press, 2006, p. 308

ONLINE SOURCES

http://phase1.nccr-trade.org/images/stories/mira/WTO%20-%20Chapter%204_non-discrimination.pdf

https://ecampus.wto.org/admin/files/Course_179/Module_531/ModuleDocuments/eWTO-M2-R1-E.pdf

http://scholarship.law.georgetown.edu/cgi/viewcontent.cgi?article=1003&context=imbr_2010

LONG TERMS

WTO- World Trade Organization

GATT- General Agreement on Tariffs and Trade

GSP- Generalized System of Preferences

MFN- Most Favoured Nation

NT- National Treatment

TRIPS- Agreement on Trade Related Aspect of Intellectual Property Rights

EC- European Community

EEC- European Economic Community

[1] Article one of General Agreement on Tariffs and Trade on General Most-Favoured-Nation Treatment provide that, “With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III,* any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties”.

[2] Snyder, C. R. The Most Favoured Nation Clause and Recent Trade Practices. Political Science Quarterly, vol. 55, no. 1, 1940, pp. 77 - 97.

[3] Van den Bossche, P. The Law and Policy of the World Trade Organization: Text, Cases and Materials. Cambridge: Cambridge University Press, 2006, p. 308.

[4] Hornbeck, S. The Most Favoured Nation Clause in Commercial Treaties. Bulletin of the University of Wisconsin, vol. 6, n. 2, 1910, pp. 339 - 367.

[5] Bhala, R., Kennedy, K. World Trade Law: The GATT-WTO System, Regional Arrangements, and U.S. Law. Charlottesville: Lexis Law Publishing, 1998, pp. 60 – 64.

[6] Matsushita, M., Schoenbaum, T., Mavroidis, P. The World Trade Organization: Law, Practice, and Policy. Oxford: Oxford University Press, 2006, 2nd edition, p. 234 - 235.

[7] Van den Bossche, P. The Law and Policy of the World Trade Organization: Text, Cases and Materials. Cambridge: Cambridge University Press, 2006, p. 30

[8] Jackson, J. H. World Trade and the Law of GATT: A Legal Analysis of the General Agreement on Tariffs and Trade. New York: The Bobbs-Merrill Company, 1969, p. 273