The evolution of the non-discrimination principle in international trade

НазваниеThe evolution of the non-discrimination principle in international trade
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The way from GATT 1947 to establishment of WTO and the evolution of the non-discrimination principle in this period

As mentioned above, the contemplated ITO never entered into force and international trade relations were supposed to be ruled under the auspices of provisionally accepted GATT 1947. Although this agreement was concluded as a temporary solution, in reality it administered international trade relations for almost five decades. It remained without an institutional or international body within the creation of the WTO in spite of the fact, that the 1955 review session brought a draft of new organizational protocol under which an “Organization for Trade Cooperation” (OTC) was suggested to be established to provide a needful institutional framework for the GATT 1947325.

The former text of the GATT 1947 was, with some changes, incorporated in later GATT 1994 which is currently in force. Therefore, for almost half a century, the basic legal principles (including principle of non-discrimination) contained in the GATT 1947 remained much as they were formulated in the period after the Second World War. However, the daily international trade practice was different than as envisaged by these basic principles and in the history several voices alerted that the GATT 1947 should have been modified to eliminate the existing discriminatory practices and to promote fair and equitable trade practices326. As I will explain in further text, some additions which have influenced the scope and use of the non-discrimination principle were made in the form of a section on development added to the original GATT 1947 text in 1960s and plurilateral agreements in the 1970s.

The non-discrimination principle was, after the Second World War, legally embodied into the text of GATT 1947 and became one of the fundamental elements of multilateral trading system. It certainly contributed to support the application of the idea that economic decisions should be made on a rational basis in order to improve the welfare of individuals and societies327. When the WTO was established in 1995, the non-discrimination principle was carried under the auspices of this global international organization as one of the key ideas. These five decades between conclusion of the GATT 1947 and creation of the WTO were in the sign of enormous development in international trade relations done through the so called “multilateral trade rounds”328. The GATT trading system evolved through these rounds and they also prepared the soil for creation of the WTO329. The main tools accompanying these rounds were considered to be sustainable trade liberalization and elimination of trade discrimination. It is also considered, that the biggest leaps forward in international trade liberalization have come through these rounds330. The main logic behind this system is often described as “better deal for different needs331”.Because many international agreements and provisions intervening into the evolution of the non-discrimination principle have its origin in this period the following text introduces this topic more closely.

The first multilateral trade round was held in 1947 in Geneva and its outcome was already described above. It introduced GATT 1947 with embodied principle of non-discrimination in the form of the most favoured nation and national treatment obligation as well as other legal provisions. About 23 countries participated in this round. In the spring of 1949, the Contracting Parties of the GATT 1947 organized a significant round of tariff negotiations at Annency, in France. In 1951, another round in Torguay took place, followed by Geneva round in 1956. By this time, the chance that the ITO comes into force became negligible332. In 1960 – 1961 Dillon round was held as the last round concerned only with tariffs reduction. The latter rounds dealt, apart from tariff reductions, also with non-tariff barriers to trade. However, it became much more difficult to value trade concessions made in the field of non-tariff trade commitments because they vary from country to country.

Apart from further tariff reduction, the Kennedy Round in 1964 – 1967 brought kind of anti-dumping agreement and section on development. This section was added to the GATT 1947 after pressure of developing countries and created a new part IV named “Trade and Development”333. By 1960s, it had become apparent that the gap between the economic situation of the industrial world and developing countries was constantly increasing. Although, no specific evidence of a general tendency towards discrimination in trading relations with the developing countries was found, some factors did exist that were detrimental to the terms of trade of less developed countries334. In particular, it was high incidence of trade barriers faced by developing countries supported by unfavourable price trends. Therefore, the newly created part IV of the GATT 1947 included provisions on the concept of non-reciprocal335 preferential treatment of developing countries. It was meant to create more trade opportunities for developing countries336. It was considered as the only major change in the text of the articles of GATT 1947 subsequent to the 1954 – 1955 Review Session during the Ninth Session of Contracting Parties. The Tokyo Round lasted 1973 – 1979 with 102 participating countries and was the first major attempt to resolve the non-tariff trade barriers and to improve the whole system. It also continued the long term efforts to progressively reduce tariffs. The results included an average of one-third cut in customs duties in some of the major industrial markets and a number of legal texts so called “Tokyo Codes337and “Enabling Clause338”. This clause was adopted in 1979 as legal justification enabling developed members to give differential and more favourable treatment to developing countries. It constitutes the legal basis for the Generalized System of Preferences (GSP)339, regional agreements (RTAs)340 among developing countries and for the Global System of Trade Preference (GSTP)341.

The Tokyo Round brought series of agreements on non-tariff barriers in some cases interpreting existing provisions of GATT 1947, in others introducing entirely new issues. Because there was no obligation to subscribe to these agreements, only relatively small number of GATT “members” became a contracting party.

By the 1980s, the system needed rigorous overhaul. The GATT 1947 was no longer as relevant to the needs of world trade as it had been in the period of its born after the Second World War. World trade had become far more complex and globalized than 40 years before. During those several decades, the world trading system came through several fundamental economic changes which were inevitable and welcomed as a motor for economic growth and development. Open international trade was considered as a key to sustained growth and trade restrictions and protectionism were seen to act only as a brake on the ability of economies to profit from the new technology and grow. Moreover, the free trade has been seen as a key element in the intensification of globalization in the past few decades and the essential question to be answered remains: “Does the WTO drive globalization or does it respond to it?”342

Trade in services, intellectual property rights and investment, which were not covered by GATT 1947 rules, were of significant interest to more and more countries. Other areas of trade were found not regulated sufficiently and many loopholes in the multilateral system were heavily exploited, as for instance it happened in agriculture343. Even the institutional structure and dispute settlement system were causing problems. This led to the Uruguay Round of multilateral trade negotiations from 1986 to 1994 and finally to the creation of the WTO and new set of agreements. For majority of the delegations participating on the Uruguay Round negotiations the major goal was to create new a international organization and they were prepared to take on an extraordinary range and depth of obligations. The persuasions of that era, was that the best way to address global problems would be through a new multilateral body, while the growing number of global economic, environmental and social problems, were beyond the capacity of the IMF, the World Bank or GATT 1947. The security of the people and the planet was threatened due to the fact that these institutions were created to address the global problems of the 1920s and 1930s344.

The GATT 1947 had been created as a consequence of recognition that previous attempts to liberalize trade and open markets had not been fulfilled. For the whole period of its existence, it had been the evolving instrument regulating international trade. It went through periodic changes and extensions to the rules, through evolving interpretations, and through more new countries acceding to liberalize trade and put their policies under the disciplines of this agreement345. What had been further lacking was an effective rules-based system to protect the value of tariff concessions and enforce the trade obligations. To date, Contracting Parties of GATT 1947 agreed that it is in their vital national interests to be part of a new trading system and its institutional structure – the WTO346. It brought participation of over 120 governments and their results were contained in 26, 000 pages of legal texts and national commitments347. Several Tokyo Codes were amended and turned into multilateral commitments accepted by all WTO members. Only four remained plurilateral348. By 1992, the perspectives for the Uruguay Round were still doubtful. Since the 1947, the GATT system has set up seven multilateral trade negotiations and none of them experienced total failure. In case that the Uruguay Round would fail, the ability of sovereign economic powers to collectively manage their economic exchanges would be in danger. The role of trade-liberalizing agreements – forward momentum must be maintained or stability is lost – was again acknowledged349.

The Uruguay Round brought a new concept of taking commitments on fully multilateral basis where all WTO members have the obligation to subscribe to the agreements. Also the new automated system of dispute settlement based on the negative (reverse) consensus350 was introduced351. One of other achievements was an increase of the amount of trade under binding commitments which created significantly higher degree of market security for traders and investors and strengthen the scale of the non-discrimination principle. The new commitments in services proceeded on the basis of the “positive-list” approach and widened the spectrum of multilaterally covered trade areas352. The interest of access the WTO and become new members during the Uruguay Round proved that the multilateral trading system was recognized as fundamental instrument for economic and trade reform and development353. In relation with the conclusion of the Doha Round, the multilateral trading system significantly broadened and deepened its agenda to take into account new realities in international economic relations354.

The Uruguay Round of negotiations had taken over four years to be prepared and lasted for 7.5 years. The end of these negotiations brought a massive change in the legal structure of the international trade institutions355. It was considered to be the most ambitious world-wide trade negotiation which appeared until then356. Some scholars viewed the round even as the most far reaching negotiation ever on any economic subject357. It brought many positive results for the multilateral trading system. The footsteps of the experience with the trade liberalization of trade in goods were finally used to approach free trade also in services358. The conclusion of the Uruguay Round, when the WTO was established, brought a new era in international trade regulation. Era, when the significant step towards the creation of coherent system of global economic governance centered at this new international organization was completed359.

To sum up, concerning sectoral reform commitments, the Uruguay Round achievements were greatest in manufacturing, modest in agriculture, and smallest in services. Advanced economies agreed to lower tariffs on manufactures by 45 per cent on goods from other advanced economies and 30 per cent on goods from developing countries, on average. Developing countries agreed to lower manufacturing tariffs by almost 30 per cent on goods from both groups of countries360. However, all was not well and to conclude the round, many compromises had to be made and many issues had to be left for a later solution. With the development of multilateral trading system, new problems came up. Already the Tokyo Round in 1970s was designed to solve some of these; however, its achievements were limited. It was a significant sign of difficult times to come in the future. The fact that the history was not mistaken is evidenced in the current deadlock of Doha Round.

Creation of the WTO and carrying the non-discrimination principle forward into that system

Almost fifty years of work on the international trade system and negotiations accompanied by several multilateral trade rounds were, in 1995, consolidated and supported by the creation of the WTO. This international organization with global impact is considered as a Member-driven successor of GATT 1947 administering the non-discrimination principle361.Its creation highlighted the biggest reform of international trade since after the Second World War and in fact brought to life – in an updated version - the failed attempt to create ITO in 1948. The descriptions of the WTO in the literature can be found frequently362. Some authors also call it “the reincarnation of the GATT into a fully-fledged international organization, the WTO, which became a symbol of the emergence of a more global economic system. The WTO constituted new major player not only in the conduct of trade relations but also in global governance363”.Others see WTO as “one of the greatest achievements in its creation and substance in multilateralism giving the testimony about the capacity of the world community of nations to undertake substantial obligations and legal responsibilities that foster interdependence364or consider the creation of the WTO as “the most dramatic advance in multilateralism since the inspired period of institution building of the late 1940s”365. Sutherland366 sees the WTO as “the only multilateral institution created explicitly for a global and wholly interdependent economy”. And finally Petersmann367 introduces WTO as “the most ambitious attempt in history at promoting welfare-increasing policies through international guarantees of freedom, non-discrimination and rule of law in the ever more important field of worldwide economic relations. On the other hand, it is well known fact that part of the public associates the WTO with unease and anxieties from disturbing global economic and political phenomenon of change368.

WTO was born out of negotiations as a place where member governments should be able to solve the trade problems face to face. This organization constitutes form of institutionalizing international trade rules on a multilateral basis369. It deals with the rules of trade among nations on a global level with the idea that everything that WTO does should be also the result of negotiations. These rules were negotiated and signed by the majority of world’s trading nations and they provide the legal ground for international commerce. These rules are embodied in the contracts binding governments to initiate their trade policies within certain limits370. Although these contracts are on a level of international public law, they directly influence producers, exporters, importers or customers and might change their daily life helping them to conduct their business or spending while on the other hand allowing governments to meet environmental371 and social objectives. The ideology of the WTO system is to let trade flow as freely as possible as long as there are no undesirable side effects372. The characteristic of the WTO rules is the predictability and transparency. One of the main tools how to achieve WTO aims is trade liberalization and elimination of trade discrimination, however in some circumstances it also supports legitimate policy goals connected with the need of maintaining trade barriers. These might be concerned with protection of customers, prevention of disease spread or protection of the environment373.

As I already mentioned, the most favoured nation and national treatment obligations originated in bilateral trade agreements. The contribution of the GATT 1947 framework and later, the WTO, is in multilateralising these principles. According to Petersmann, the transition from GATT 1947 to the WTO can be considered as the most successful example for the constitutionalisation of a global organization based on “constitutional principles of freedom and non-discrimination, rule of law, compulsory adjudication and check and balances between legislative, executive and judicial powers”374.

Interestingly, most favoured nation clauses initially represented a certain form of discrimination because before their multilateralisation, only a few nations could benefit from them. The later generalization of most favoured nation under the auspices of the GATT/WTO system made a principle of non-discrimination and equal treatment375 from that obligation. The other important evolutionary aspect is that the application of these non-discriminatory principles became essentially unconditional376.

Since the creation of the multilateral trading system after the Second World War, the governmental trade policies relate and are based on various GATT/WTO provisions. The European Union determines the multilateral trading system as “a global public good” which helps to set up framework for long-term economic prosperity and persistence377. The impact is enormous: from 23 GATT Contracting Parties at the beginning in 1947, the number has grown to 153 WTO Members at the time of drafting this dissertation thesis. Their trade policies are regulated by international economic law based on the idea of non-discrimination. However the non-discrimination principle has its limitations, in the sense of various exceptions and different approaches in interpreting its elements as will be explained later.

Already in 1970s John Jackson378 wrote the following idea which proved to be very correct:

Even if the institution of GATT were to go out of existence or change into a new form, it is clear that the GATT language of treaty obligations will continue to have an important influence on any international attempt to regulate or co-ordinate trade policy. Just as GATT language is drawn heavily from prior bilateral trade treaties, future trade treaties will draw on GATT language. The interpretations and practice that have grown up around this language therefore have an importance that goes beyond the institutional of GATT. The GATT is the most significant collection of international trade that exists and some of this language has already had an important influence on other treaties and institutions.”

It happened exactly as Jackson said: many of the GATT 1947 provisions were taken or at least inspirited by the prior bilateral trade treaties and these provisions later became fundamental parts of WTO law and influenced also other treaties and institutions dealing with co-ordination of trade policies379. The WTO is perceived as a legal successor of GATT 1947 and institutional outcome of the Uruguay Round. This global international organization was brought to life through the Marrakesh Agreement380. Together with the agreement, its annexes create important legal foundation for the non-discrimination principle in the new trade millennium. Former text of GATT 1947 was taken over and together with some changes and amendments created the new agreement concluded in Uruguay Round named GATT 1994381. The norms in GATT 1994 are essentially identical to GATT 1947382. Trade with services fall under the regulation of GATS383 and some aspects of intellectual property rights regulation were embodied in TRIPS Agreement384. All above mentioned agreements encompass the main elements of the non-discriminatory principle and other non-discriminatory provisions. Moreover, the new DSU385 agreement brought effective tools for non-discrimination obligations enforcement. The new dispute settlement surely brought bigger protection to the non-discrimination principle and its enforcement newly based on automatic progress between particular stages of the dispute and the binding decisions of the Dispute Settlement Body386. With the creation of the WTO the multilateral trading system gained a whole new dimension and coverage of the non-discrimination principle including its effective enforcement. As one can understand from the facts mentioned in the text above, many things changed in the last 64 years. Pauwelyn387summarises the most important changes as following:

  • membership in the multilateral trade system has expanded from 23 to 153388 members

  • world trade has expanded enormously being 27 times the level of 1950 in 2005

  • tariffs and customs duties on imports of industrial goods have been significantly lowered389

  • the number of preferential trade agreements (PTAs) has exploded from just a few in 1950s to approximate number 300 nowadays

  • country shares in world trade have dramatically changed

  • big changes in what is being traded and how

  • the production moved to the chains

  • political forces that oppose free trade shifted

At the same time, the reality today is that the WTO shielding the global world trading system is far from the postwar vision of non-discrimination of the GATT 1947 architects. This best illustrates the reference to the EU trade policy under which the most favoured nation tariffs are fully applicable to only several trading partners390. All the others were granted only concessional market access under Article XXIV of the GATT 1994 or Enabling Clause, GSP schemes, “Everything but Arms” and other relationships. Making the long story short, the cardinal goal of the WTO is to increase global welfare and standard of living by helping the citizens of its Members to gain the most benefit from participation in the global economy391.

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