FAVOUR ONE, FAVOUR ALL- MFN UNDER GATT AND GATS

By- Anjanee Goel

Non-discrimination is a key rule of the multilateral trading framework and is perceived in the Preamble to of the WTO Agreement as a key instrument to accomplish the goals of the WTO. WTO nations communicate their aspiration to eradicate discriminatory management in international trade relations through the preamble. Non discrimination in the WTO is personified by two standards, namely, the most favoured nation (MFN) treatment and the national treatment obligation. A country grants the most favoured nation clause to a different country in case if it is keen in increasing trade with that nation.

Underneath the WTO agreements, nations cannot normally differentiate between their trading associates. If one nation awards any other nation a special favour, for instance, a inferior customs duty rate for one of their goods, then it will have to do the equivalent for all WTO nations.

MFN under GATT (article 1)

The universal consequence of Article I.1 is to construct the responsibility among WTO Members to provide each others’ like products the most excellent existing market access opportunities with no discrimination in fact or in law.

A detailed reading of the provision reveals that the key elements of the MFN principle are:

  1. Any advantage, favour of privilege covered in Article I.1.

In EC Bananas case, license allocation rules for imports, procedural as well as regulatory prerequisite were held to be advantages. In Canada-Autos Case, a wider Scope of the words ‘advantage’ and ‘product’ in clause were given.

  • Like products.

In Spanish Unroasted Coffee case, criteria to determine likeness of product were provided:

  • the characteristics of the products;
  • their end-use;
  • Tariff regime of other members; and
  • Consumers’ tastes and habits.
  • The immediate and unconditional grant of the advantage at issue to the like products concerned.

In Indonesia Autos Case, tax benefits and custom duties were held to be restrictive on achieving a certain local content value for the completed car.

Exceptions (GATT)

  1. General Exceptions

Article XX of GATT 1994 perceives that legislatures may need to apply and implement measures for purposes, for example, the insurance of public ethics; human animal or plant life and wellbeing; and the protection of nationwide treasures.

In Shrimp and turtle case the appellant party stated that Article XX (b) and (g) were implied only to forestall maltreatment of environmental protection laws to weaken the multilateral trading framework. Measures which were taken by the US qualified for temporary justification under this article yet failed to meet the essentials of the Chapeau.

  • Security exceptions

GATT Article XXI expresses that a WTO Member is permitted to take any action which it finds vital for the protection of its fundamental security interests or in execution of its responsibilities under the United Nations Charter for the preservation of universal harmony and security.

  • Balance of payment exceptions
  • Regional Integration (GATT article XXIV) through custom associations or free trade territories liberalizes trade amongst nations within the regional areas, while keeping up the trade barriers with nations outside the region or districts.
  • S&D for developing countries- Part 4 of the GATT incorporates articles on the idea of non-reciprocity in trade negotiations among developed and budding nations, that is, when developed countries award trade concessions to budding nations they ought not to anticipate the developing countries to make coordinating proposals in consequently.
  • GATT guidelines on safeguards are in Article XIX and XII. Article XII of the GATT Agreement accommodates the introduction of provisional limitations to protect the balance-of-payments.

MFN under GATS (article 2)

Under GATS, if a nation permits foreign competition in a segment, equivalent opportunities in that sector ought to be provided to service providing organizations from all other WTO nations. This is applicable regardless of whether the nation has made no particular commitment to provide foreign organizations access to its markets underneath the WTO.

MFN is applicable on all services; however some special provisional exceptions have been permitted. When GATS came into enforcement, various nations already had privileged agreements in services that they had marked with trading associations. WTO members felt it was important to keep up with these preferences briefly. They gave themselves the option to keep giving increasingly favorable treatment to specific nations in particular services by listing “MFN exceptions” alongside their first sets of responsibilities.

Exceptions (GATS)

Aside from some universally applicable exemption clauses there are basically three instruments that take into consideration exceptions from, or provide overrides over, the MFN obligation in services buying-selling:

  1. Economic Integration Agreements (EIAs) in accordance with Articles V and V bis of the GATS;
  2. Recognition measures identified with standards, certificates etc.  under  Article VII; and
  3. Exceptions under MFN treatment as accessible under Article II: 2 and the related Annex. 

Conclusion

  1. Reduces transaction costs
  2. Promotes additional reciprocal liberalization
  3. Increased effectiveness in the world economy
  4. Stabilization of the Multilateral Trading framework
  5. Reduction of the expense of maintaining the Multilateral Trading framework

Short notes

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