Trade in Goods

Table of Contents

GATT

The 1994 General Agreement on Tariffs and Trade (GATT) modernises and updates the original GATT 1947 agreement taking account of the changes and developments over the various rounds since then. In strict terms, the World Trade Organization is not the successor to the old GATT organisation and does not service the old GATT agreement.

In practice, GATT 1994 has replaced GATT 1947. Most of the previous decisions in relation to the older GATT continue to apply and have a precedential effect.

Some provisions of GATT give direct rights to citizens and corporations, allowing them to challenge state actions in certain cases. These include rights to prohibit the state from taking action contrary to the agreement itself. Further rights may be extended by bilateral treaties or domestic legislation.

Basic Principles

Two fundamental principles of the GATT are that treatment granted to states must not be discriminatory and that states must accord the most favoured nation treatment/status to all states. They must therefore apply their tariff rules equally to all members.

Any advantage, favour, privilege or immunity granted to a product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for territories of all other members.

The rule is subject to exception including

permitted anti-dumping and anti-subsidy measures.
customs union and free trade areas
protection of national security, public health, safety and welfare

Developing States

There are exceptions for developing states. The GATT principles encourage developed states not to require reciprocity in negotiations from developing states. Preference may be given to developing states.

The Generalised System of Preferences allows developing countries to export most products to a developed country on a non-reciprocal basis. Developing countries are permitted to extend tariff preferences between themselves without extending them to developed countries.

National Treatment

The principle of national treatment requires imported goods, once lawfully imported, to be treated in the same manner as domestic goods. They must not be treated any less favourably for example, as regards consumer laws, regulations and requirements in relation to the sale, offering for sale, marketing, transportation, distribution and use.

There are exceptions to the national treatment rules. Pre-1947 preferences may be permitted to remain in effect in some limited cases. Discrimination is allowed by government entities in procuring goods for governmental purposes. but not otherwise. Subsidies may be paid to domestic producers, subject to limits.

Tariff Only

States may only protect their goods through tariffs. Quotas and other hidden restrictions that are de facto block trade or affect the price mechanism are prohibited. Internal taxes must not be disguised tariffs. Tariffs must be collected at the point of importation only.

There were a number of exceptions to the principle.

Temporary export prohibitions and restrictions may be allowed to relieve critical shortages of food stocks and essential products,
Export and import restrictions relating to the application of standards or regulations for classifying grading and marketing commodities are permitted.
Quantitative restrictions on imports of agricultural and fishery products are permitted to stabilise the national market.
Quantitative restrictions are permissible to safeguard the balance of payments.

States are obliged to work towards the reduction of tariffs. Tariff reductions are negotiated and then recorded. The states agree the maximum amount that they may set. This is then binding. This rate must also be extended to all GATT members.

Transparency

States must respect the principle of transparency. States must disclose their rules and regulations, and practices internationally to allow exporters to comply. They must try to endeavour to simplify import and export formalities.

The Convention on Nomenclature for Classification of Goods in Customs Tariffs was agreed in 1950. The Customs Cooperation Council administers the Convention. It has been ratified by most states.

It provides a harmonised system for categorising and scheduling tariffs. Explanatory notes are published by the CCC.

Regional Groups

GATT encourages states to participate in regional free trade areas and customs unions. Free trade areas are groups of states that eliminate tariff barriers between themselves and maintain their own tariffs regarding third states. A customs union involves both the elimination of tariff barriers and a single customs tariff.

Groups must not establish higher duties or more restrictive commercial regulations in relation to other WTO states when they enter such agreements and unions. Groups of states must notify the WTO of the proposed arrangement.

The transitional arrangements themselves are subject to the above requirement. The WTO ensures the rules of the group/organisation are compatible with the GATT agreement. After the establishment of a customs union, the GATT rules apply to the area as a whole rather than to the individual states.

Commodity Arrangments

Commodity arrangements are permitted to stabilise the production and supply of basic commodities such as fuel, ores, foodstuff, and goods that require minimal industrial processing before use. They include many basic crops and commodities, including bananas, cocoa, coffee, copper, cotton, handfibres, iron ore, juite, phosphates, , rubber, sugar, tea, tin, timber and vegetable oils.

States may engage in commodity arrangements involving import and export, which are approved by GATT. The organisations created by commodity agreements operate outside the auspices of the World Trade Organisation and the UN organisations.

There is typically a council in which representatives of the states concerned participate together, with a permanent secretariat. They may support supply and price. Prices may be set. Expert quotas may apply in cases of oversupply. There may be international stocks maintained by a central body.

Safeguards

States may impose emergency safeguards if there is a serious threat to one of its domestic industries. The state must notify the WTO of the use of the so-called “escape” clause.

This applies were there is a surge in imports coming from other state(s). The state may impose restrictive measures on a temporary basis. The state using the clause must notify the WTO and consult with the other states.

States must negotiate equivalent concessions to restore the previous balance or retaliation may be permitted under the GATT. Concessions may be withdrawn.

Exceptions

Exceptions are allowed to the general obligations in relation to imports and exports. They must not be arbitrary or unjustified. They must not discriminate be a disguised restriction on international trade. Steps may be taken that are necessary

to protect morals,
to protect human, animal, plant life or health,
relate to gold or silver in some cases,
secure compliance with laws that are not inconsistent with GATT
relate to prison labour,
protect national treasures of historic, artistic, and archaeological value,
relate to the conservation of exhaustible natural resources,
undertaken in accordance with an intergovernmental commodity agreement,
involve restrictions on domestic material exports needed by the domestic processing industry during periods when the domestic price has fallen below world prices as part of a government stabilisation plan
are essential to acquiring products in short supply
to maintain essential security interests
to fulfil certain duties under the UN Charter for the Maintenance of International Peace and Security.

Other WTO Agreements

The WTO arrangements include agreements relating to such matters as

customs valuation,
pre-ship inspection,
technical barriers to trade,
sanitary and sanitary measures,
trade-related investment,
import, export licensing,
subsidies and countervailing measures,
anti-dumping
agriculture,
textiles and clothing.

Customs VAle

The customs valuation code harmonizes rules on the determination of valuation in import and export. They are designed to provide a transparent, clear and fair method of valuation.

The principal method of valuation is the transaction value of the items concerned. This is the price paid for the import together with certain other costs, including packaging, commissions, royalty license fees and proceeds of disposal.

If the transaction value cannot be determined where for example, due to the connection of the parties, there are a number of other methods which may be used. One method involves the transaction value of identical goods exported to the same importing country at that time. If this does not determine the value, then the transaction value of similar items may be considered.

If these are not available, a deductive valuation method may be used. It is based and the price paid for the greatest number of units sold to unrelated persons in the importing country.

Another method is derived from the sum of the cost, and value of materials, including construction, processing, profit and overhead customarily applied and charges for handling. If none of these methods applies, a derived value may be used. This involves the application of whichever method fits best in these circumstances.

Inpections & Certification

Some states, particularly developing states, require pre-shipment inspection of price, quantity, quality, customs classification and other characteristics. It is designed to prevent fraud and evasion of duty. The agreement on pre-shipping inspection allows developing states to use these processes.

Steps are provided to prevent harmful impacts on trade. Inspections must be non-discriminatory. They must be carried out in the state of export or manufacture. Standards must be defined in the purchase agreement. The process must be conducted in a transparent manner.

Information, guidelines and regulations relating to the requirements must be readily available. Information received must be kept private. Conflicts of interest must be avoided between contractors undertaking the activities. Unreasonable delays must not be permitted.

Contract prices may only be rejected if it is believed that it is wrong in accordance with certain guidelines. The prices of goods being exported must be compared to the price of identical or similar goods offered for sale in the same country of exportation at around the same time under competitive and comparable conditions of sale in conformity with customary international practices.

States using PSI must ensure that their rules are applied non-discriminately and transparently. Technical assistance must be afforded. disputes between exporters and PSI entities must be resolved by agreement. If not, either party may refer to an independent review panel.

Restricted Goods

The United Nations Educational Scientific and Cultural Organisation, UNESCO, the International Institution of the Unification of Private Law, UNIDROIT, Organisation of American States and other bodies sponsor conventions relating to the control of the transfer of cultural artefacts. Cultural property is property immovable or movable that is of great importance to the cultural heritage of all people.

No theft, pillage or appropriation of cultural property may take place during armed conflict. A 1970 UNESCO Convention provides for the import, export and transfer of cultural property. States must take all steps to return stolen cultural property to the state of origin.

Export and import restrictions are permissible for reasons of national security. During the Cold War, US and Western European states restricted exports of a variety of commodities to Eastern European countries. This ceased after the end of the Cold War in the 1990s.

Weapons

In 1996 33 countries approved an arrangement on export controls for conventional arms and dual-use goods. Further states have ratified it. It promotes transparency, exchange of information and responsibility in the transfer of such goods.

States agree not to contribute to the development and enhancement of military capabilities that undermine regional security. States must maintain a list of objects subject to export control.

There are a number of other export control programs. The Australia Group was established to deal with concerns regarding the proliferation of chemical and biological warfare materials.

Members meet annually to share information on dangers and risks and harmonise export controls in order to reduce the transfer of material that could be used in such weapons.

Nuclear

The Treaty on the Non-Proliferation of Nuclear Weapon Exports Committee requires exporters to require International Atomic Energy Agency safeguards as a condition for the supply of nuclear materials. The safeguards require the peaceful end-user assurance and assurance that it will not be re-exported to a non-treaty, non-nuclear weapon state.

The nuclear suppliers’ group consists of members of nuclear power countries and seeks to prevent the proliferation of nuclear weapons by maintaining control lists for nuclear exports. It seeks to ensure that trade does not contribute to proliferation.

Sanctions

The United Nations Charter authorises the Security Council to impose sanctions on states which threaten international peace. Actions have been taken against South Africa, Rhodesia and Iraq in the past.