ITL

1. Introduction - why is ITL required?

Considering no country is self-su cient, the interdependence among countries led to the
growth of trade. Trade, in turn, led to the exchange of goods and services. International
trade is a major source of economic revenue for any nation that is considered a world
power. Without  international trade, nations would be limited to the goods and services
produced within their own  borders. So to maintain uniformity in international system,
international trade law is required. Thus, as no country could develop in isolation, the
activity of exchanging goods and services among nations is known as ITL.

1.1 Growth of ITL

(i) Growing interdependence of nations.

(ii) At present, closed economies are rare. Almost all nations have open economies.

(iii) However, the degree of openness varies from country to country.

(iv) Issues regarding the development in regional and international specialisation in

international trade.

(v) No country is self-su cient

1.2 Importance of International Trade Law

i) Proper allocation of economic resources among the countries

ii) Proper adjustment of prices for buyer and seller

iii) Movement of currencies

iv) Regulation of exports and imports.

2. De nition

2.1 Paul A Samuelson

ITL is a mechanism which o ers consumption possibility frontiers that can give us more of the
goods over our own domestic production can possibly o er.

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 2.2 David Ricardo

ITL is a tool which “will very powerfully contributes to the increase of the mass of commodities
and therefore, the sum of enjoyments”.

2.3 Prof. Schwarzenegger

A branch of public international law that encompasses such matters as the ownership and
exploitation of natural resources, the production & distribution of goods, invisible economic or
nancial transactions and currency and nance.

2.4 Deductions from the Definitions

i) International Trade is a kind of international economic transformation which includes

commodities, technologies and services which promotes welfare.

ii) It enhanced the national frontier by promoting international frontiers, thereby granting a higher
level of satisfaction to consumers in the market.

3. International trade and economic growth relation

Can’t nd anywhere

4. Comparison - ITL, IEL, IBL, ITL, & international

commercial law

ITL

- International trade law focuses on how countries conduct trade in goods and services across
national borders. The international, regional and national organizations address the export and
import issues that arise in the international trade in goods and services. Institutions also
provide assistance and support through market and country reports, and economic analyses
promoting international trade.

- General Issues covered in ITL: Tari Regulations, Cross-border transactions including

movement of services, Capital and Labor. Subsidies, Anti-Dumping.

- Institutions: International Trade law is developed and regulated by various institutions with
speci c objectives of combating the aforementioned general issues. These institutions include
ITO, GATT, WTO.

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IEL

- A broad interpretation of IEL could encompass both the conduct of sovereign states in
international economic relations, and the conduct of private parties involved in cross-border
economic and business transactions. IEL is derived from many sources. National, regional, and
international law (public and private), policy and customary practices are all components of IEL.
IEL encompasses a wide spectrum of subjects including trade in goods and services, nancial
law, economic integration, development law, business regulation and intellectual property.

- General Issues covered in IEL: Markets, Interdependency, Role of States Intervention & Non-
Intervention, Economic Development, Trade Theories, Permanent Sovereignty over natural
resources, Nationalization and Expropriation of foreign owned property.

- Scope:
1. Covers broad subjects like: Law of Economic Transactions, Government Regulations of
Economic Matters and Related Legal Relationships including Litigation and International
Institutions for Economic Relations.

2. Int. Economic Law cannot be separated or compartmentalized from general or public Int. Law.
The activities and cases relating to IEL contain much practice, which is relevant to general
principles of Int. Law.

3. George Schwarzenberger said, “IEL as a branch of Public Int. Law that encompassed such
matters as the ownership and exploitation of natural resources, the production and distribution of
goods, invisible economic or nancial transactions and currency and nance”. He emphasized
economic sovereignty.

4. Ignaz Seidl, Hohenveldern, says, “IEL, in its widest meaning, refers to those rules of Public Int.
Law, which directly concern economic exchange between the subjects of Int. Law. He expanded
the scope by saying, economic exchanges involve not only states but also multilateral enterprises
or arrangements between states and nationals of other states”. He has emphasized on relative
sovereignty.

International Business Law

International Business Law basically deals with Antitrust/competition concerns, the environment,
emerging issues in electronic commerce, and taxation. The resources of regulation include
national laws, government agency rules, policies, guidelines, and the status of a country in
relation to pertinent treaties or international conventions. International Business Law includes
European Commission- Competition, US Antitrust Laws— The Sherman Act, 1889, Indian
Competition Act etc.

International or Transnational Commercial Law

Modern Int. Commercial law has evolved through the principles of Lex Mercatoria-Law of
Merchants. This means, a medieval body of customary rules that were used in international
commercial transactions to supplement the then incomplete commercial law of states. Before the
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 rise modern state system, the Lex Mercatoria was common in all European States. This law that
was applied in settling the merchants disputes through their own courts, known as, Pepowder
Courts, which operated like modern Private International Arbitration.

In 19th & 20th Century states developed their own commercial laws. For example, Uniform
Commercial Code in USA; The Sale of Goods Act in Britain; Code of de Commerce in France.
Codi cation and development of commercial law also started.

Relationship between ITL and IL

1. International Trade law was not seen as state practice because it was a transaction between
individuals. Whereas principles of International law evolved or emerged from state practice.

2. Economic and Trade law is treaty based not customary law. Whereas Int. Law is based on
customary principles.

3. Int. Trade law is based on promotion on individual economic exchange and promotion of
individual welfare. Whereas int. law is based on state centric or state oriented i.e., relations
between states--- [***State Welfare].

4. Int. law is based on the concept of state sovereignty or political sovereignty. Whereas
economic and trade law are based on economic sovereignty.

5. Territorial or State borders are important to Int. law. Whereas Int. trade law is about getting rid
of state and state borders.

6. According to Prof. Carreau, “classical IL was founded on the notion of state sovereignty.
Whereas the concept of interdependence is fundamental to economic and trade law”.

7. According to Prof. Colliard, “there were Int. economic relations, organizations and there were
int. rules about both (Int. Law & Int. Economic law) and thus reality of Int. Economic law is beyond
question.

Distinction between ITL and Other Disciples

• International Economic Law

International Economic Law includes a wide range of subjects like trade in goods and services,
nancial law, economic integration, development law, business regulation and intellectual
property. It covers Law of Economic Transactions, Government regulations of economic matters
and related legal relationships including litigation and international institutions for economic
relations.

• International Financial and Development Law

International Financial Law considers the role of central banks including regional banks in
international economic relations and the development of economic and monetary policy. This is
achieved through international economic institutions like IMF, Organization for Economic
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Cooperation and Development (OECD) etc. IFL covers issues like balance of payments, foreign
exchange, in ation etc. International Development Law aims to promote social and economic
development through nancial assistance to developing countries. This is achieved through:-

World Bank which consists of IBRD, IDA and ICSID. They o er loans advice and other assistance
to developing countries. Regional Development Banks like Asian Development Bank, Islamic
Development Bank. UN and its Initiative on Global Development like UNCTAD and UNIDO.

• International Business Law

It deals with Antitrust/Competition concerns, the environment concerns, emerging issues in

electronic commerce and taxation. The resources of regulation include national laws, govt.
Agencies, rules, policies and guidelines.

• International Commercial Law

It mainly evolved through the principles of Lex Mercatoria- Law of the Merchants. It
supplemented the then incomplete commercial law of the States. Now various states have
developed their own laws. Eg. Uniform Commercial Code in U.S.A., The Sale of Goods Act in
Britain, Code of de Commerce in France.

5. History - Ancient, Medieval & Modern

Ancient Period

- Trade existed before the nation states came into being and even before international law came
into picture.

- Around 2000 BC: at that time trade existed; it was basically in terms of exchange by barter
system but not as a profession. Commercial activity was considered as a disruption of to
domestic life exposing the citizens to bad manners and corrupt morals of barbarians. If a
person wants to encourage commercialisation of trade, it was looked down upon.

- Around 400 BC, Plato had given an idea of division of labour and also an idea of universal
economy. He said that “God has created the seas, geographical separation and diversity” and
whatever natural endowment was given by him was to encourage trade. The Kingdoms of
Egypt, Babylonia and Mesopotamia also encouraged this trade.

Medieval Period

With the emergence of “Lev Mercatonia” (Law of merchants), a uniform set of rules and
regulations was developed to which merchants would be bound to in Italy and Rome. Lex
mercatoria originated from the international economies relations ourishing in Western Europe in
the 11th century.

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- Under Roman law, Jus Gentium (law governing the economic relations between foreigners and
Roman citizens) and Jus Civilis (Law of Citizens) encouraged the development of a common
law between nations regarding trade;

Modern Period

- The era of modern international trade law started in the late 17th century and gained
momentum in the beginning of the 18th century.

- At the start of the modern era the practice of mercantilism still prevailed, mainly
because of the colonies. Various countries like USA, France and Portugal depended on
their colonies for the growth of their trade and economies.

Free Trade
- Basic free trade started gaining momentum - 19th century especially in England. After
India came under the direct control of the British government, the monopoly of East
India Company was done away with. Likewise, free trade was encouraged in other
colonies of Britain. Free trade is usually most strongly supported by the most
economically powerful nations, though they often adopt selective protectionism for
those industries which are strategically important.

Great Depression
- Led to the decline of the idea of free trade

- Domestic industries will stop ourishing if unrestricted free trade continues

- Policy of protectionism grew

Recession
- Strong domestic pressure to increase tari s to protect domestic industries

WWI & II
- Destruction of economies

- At the end of both the wars huge reparations paid by Germany severely a ected its 
economy. During 1917, Russian Revolution in Russia changed the way countries traded
with  each other and their economic structure forever.

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- There was rise of Socialism. U.S.S.R. encouraged trade only among the States which
formed it. It discouraged any contact whatsoever  with the capitalist powers.

- League of Nations creation - could not help much. It set up ILO to deal with the labour
relations and mandate system to deal with colonies of the defeated nations.

Post World Wars

- After the W.W.II many steps were taken, esp. by the Allied powers to regulate trade to
boost their economies wrecked by the consequences of the war. UN was established
to protect the “future generations from the scourge of war”. E orts were made to
establish an international trade organisation. However, this goal never came to fruition
and GATT, instead, was established as a temporary arrangement.

- Creation of GATT: Laws and regulations for int trade; however, since it’s an agreement,
there was no dispute resolution mechanism. GATT was unsuccessful as it lacked “pith”
(implementation mechanism). However, it continued to function for some decades
before it was replaced by the WTO.

- WTO, on the other hand, has a dispute resolution mechanism. Hence, WTO was the
recognised int body and int trade was recognised.

• Regional trade also gained momentum

• Preferential trade, free trade agreements

- Now various regional trade organizations have been established like MERCOSUR in
South America, the North American Free Trade Agreement (NAFTA) between the United
States,  Canada and Mexico, and the European Union between 27 independent states
to regulate trade  between them.

6. Theories

(A) Classical Theories

i) MERCANTILISM
- Mercantilism: According to this theory the prosperity of a nation depends upon its supply of
capital and the  global volume of trade is unchangeable; prosperity of nations depends on
supply of goods or capital. Supply is created through exchange or trade. Global volume of
trade is unchangeable. Economic assets should be strong to gain wealth out of exchange. It is
represented through “bullion”. Bullion is the reserves of gold and silver.

- Balance of trade must be positive with other nations to increase wealth.

- Beggar the neighbour principle - pro t at the cost of other nations.

- Theory which focuses on generation of wealth by pro table balances.

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- Promotes development of a governmental power on cost of other nations

- Protectionism (protecting local goods) in trade by trade barriers (tari and non-tari barriers)

- Mercantile theory developed medieval period which paved the way for WTO.

II) THEORY OF ABSOLUTE ADVANTAGE

Adam Smith in his book ‘The Wealth of Nations’ (1776) states that a nation’s standard of living 
indicates its wealth and not the governments stock of precious metals. Reaction against 
mercantilist notions. Facets of the theory are as follows:

- Economic prosperity of a nation is measured through the standard of living of people and
not bullion.

- Nation can gain wealth out of mutual relations with nations - hence, negates beggar dime
principle.

- Goods produced at a lower cost with high productivity - this is when production of goods
is at absolute advantage.

- If a country has an absolute advantage of goods, it can trade with a country which doesn’t
have absolute advantage. Hence, there will be mutual bene t through trade.

III) THEORY OF COMPARATIVE ADVANTAGE

- Propounded by David Ricardo

- Principle of political economy

- It is the extinction of theory of absolute advantage

- He argues that any two countries can very  well gain by trading even if one of the countries is
having an absolute advantage in both the goods over another provided that the extent of
absolute advantage is di erent in the two commodities in question

- Example: England produces a given quantity of cloth with the labor of 100 men and it produces
a given quantity of wine with the labor of 120 men. Now, Portugal produces the same quantity
of cloth  with the labor of 90 men and the same quantity of wine with the labor of 80 men. So,
here, Portugal enjoys an absolute advantage over England in the production of both cloth and
wine. That means it can produce a given quantity of cloth or wine with fewer labor inputs than
England. According to the theory, trade will still be mutually advantageous when England 
exports to Portugal the cloth produced by the labor of 100 men in exchange for wine produced 
by the labor of 80 Portuguese, as England has imported wine that would require the labor of
120  Englishmen to produce. And Portugal also would gain by this transaction by exporting
wine  produced by 80 men’s labor, than cloth that it would require 90 of her labourers to
produce.

England Portugal

100 unit 100 units

Cloth; Wine Cloth; Wine

100 men, 120 men 90 men, 80 men

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 Similarly the law of comparative advantage can be explained with the help of another simpler
example where a lawyer is contemplating the hiring of a typist for his law o ce. Here, two cases 
can be distinguished, rst, where the lawyer’s typing is totally inadequate and second, where the
lawyer can type faster and more accurately than any other professional typist available in the 
market. Now, the comparative advantage theory relates to this second case where the lawyer is
better o hiring the typist. For the lawyer the income from exporting legal services to others is
greater than the cost of importing the typing services. The lawyer makes more money by
specializing in the production of legal services, exporting these services and importing the typing 
services, than he could make by doing both the tasks himself.

Hence, Comparative advantage is when a country procures a good or service for a low
opportunity cost, then other countries’ opportunity cost measures a trade o .

A nation with a comp advt makes the trade o worth it. The bene ts of buying this good or
service outweigh the disadvantage but the good or service has a low opportunity cost for other
counters to import.

(B) Modern theories

i) Heckscher-Ohlin theory
- This model is a theory is economics that countries export what they an most e ciently
and plentifully produce.

- The model emphasises the exportation of goods requiring factors of production that a
country has in abundance. It also emphasises the importation of goods that a nation
cannot produce as e ciently.

- The model evaluates the equilibrium of trade between two countries that have varying
specialities and natural resources.

- The model explains how a nation should operate in trade when resources are
imbalanced throughout the world.

- The model is not limited to commodities but also incorporates other production factors
such as labour.

ii) Product Life Cycle Theory

- Propounded by Raymond Vernon

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- The Product Life Cycle Theory is an economic theory that was developed by Raymond
Vernon in response to the failure of the Heckscher-Ohlin model to explain the observed pattern
of international trade.

- The term product life cycle refers to the length of time from when a product is introduced to
consumers into the market until it's removed from the shelves. This concept is used by
management and by marketing professionals as a factor in deciding when it is appropriate to
increase advertising, reduce prices, expand to new markets, or redesign packaging. The
process of strategising ways to continuously support and maintain a product is called product
life cycle management.

- The theory suggests that early in a product's life-cycle all the parts and labor associated with
that product come from the area where it was invented. After the product becomes adopted
and used in the world markets, production gradually moves away from the point of origin. In
some situations, the product becomes an item that is imported by its original country of
invention. A commonly used example of this is the invention, growth and production of
the personal computer with respect to the United States.

- The stages in a product's life cycle in respect to the Product Life Cycle Theory:

• Introduction: new products are introduced to meet local needs and new products are all rst
exported to similar countries, i.e., countries with similar needs, preferences and incomes.
• Growth: a copy product is produced elsewhere and introduced in the home country to
capture growth in the home market. This moves production to other countries, usually on
the basis of cost of production.
• Maturity: In the maturity stage of the Product life cycle, the product is widely known and
many consumers own it. In the maturity phase of the product life cycle, demand levels off
and sales volume increases at a slower rate. There are several competitors by this stage
and the original supplier may reduce prices to maintain market share and support sales. In
addition, foreign demand for the product grows, but it is associated particularly with other
developed countries, since the product is catering to high-income demands.
• Decline: This occurs when the product peaks in the maturity stage and then begins a
downward slide in sales. Eventually, revenues drop to the point where it is no longer
economically feasible to continue making the product. Poor countries constitute the only
market for the product at the decline stage. Thus, almost all declining products are
produced in the least developed countries.

iii) Opportunity Cost Theory

- The opportunity cost is what has been given up in order to have some quantity of
another commodity. For instance, if India has to reduce the production of cotton by 2
lakh bales in order to raise the production of wheat by 1 lakh tons, then the opportunity
cost of one unit of wheat is two units of cotton (1W = 2C).

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 - Gottfried Haberler made use of opportunity cost curve to express the opportunity cost
of one commodity in terms of the other.

- Haberler’s opportunity cost theory rests upon the following main assumptions:

(i) The economic system is in a state of full employment equilibrium.

(ii) There is perfect competition in commodity and factor markets.

(iii) Price of each commodity equals the marginal cost of producing it.

(iv) Price of each factor equals its marginal productivity.

(v) The supply of factors is xed. (vi) The state of technology is given.

(vii) There are two trading countries A and B.

(viii) Each country produces two commodities, say X and Y.

(ix) Each country has two productive factors- capital and labour.

(x) There is perfect factor mobility within each country.

(xi) The factors of production are perfectly immobile between the two countries.

(xii) Neither of the two countries imposes any restrictions upon international trade.

On the basis of the above assumptions, it is possible to determine the opportunity cost
curve or the production possibility curve of any country.

7. Article Concepts (Refer article to understand various

concepts and above sub-topics)

a. Trade barrier

Reasons for Trade Barriers

- Infant Industries Protection

- Domestic Employment

- National Economic Security

Types of Trade Barriers

- Tari Barriers (Border Tax: Before they enter the country)

- Tax on imported items

- Types:

1. Speci c Tari s: speci c unit of products are taxed

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 2. Ad Valorem Tari s: a xed percentage which is imposed on the value of the
goods

- Non-Tari Barriers (Technical Barriers/Administrative Barriers - once goods enter the

domestic barrier)

- Types:

1. License

2. Import Quota: Restriction on the amount of imports

3. Voluntary Export Restraint: Reciprocal VER; Quantitative restrictions

4. Local Content Requirement: Govt. can form rules on foreign products

manufacturing (% that is made locally and % that is to be exported). Done to
protect local industries.

b. protectionism

c. Trade Policy (TP) + Trade Preferences

- Trade policy seeks to regulate trade.

- It is speci c to each country. Often determined by domestic factors, such as political

status - some of the earliest models explaining trade policy have focused on “pressure
group politics”.

- Objective of TP: to boost economic structure of a country

- Adam Smith may have been one of the rst to recognise that the subversion of the
national interest in free trade is the frequent outcome of collusion among businessmen.
(The corporate lobby determines trade policies that need to be adopt by a country,
even if it goes against national interests).  

- The theories of trade preferences:

1. Factoral Theory (FT)

• Factoral theories rely on the Stopler-Samuelson theorem (1941)

• Assumption: Perfect competition in countries and constant returns (pro t from

investment). Free trade depends on factors of production.

• Under his condition, a rise in the relative prices of goods, which led to rise in the
returns, given by factors of production.

• It describe the relationship between the prices of production and their relative
rewards.

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 • Stopler-Samuelson: If the factors of prod. are scarce, it will led to protectionism. If
the factors of prod. are abundant, it will led to free trade.

2. Sectoral or rm-based theories of preferences.

• Developed by David Ricardo and Jacob Viner. Called the “Ricardo-Viner Model”.

• Also called the speci c-factors model.

• Focuses on the sectors of industry.

• Distinguished between mobile (eg: labour) and immobile factors (plant, machinery) of
production

• Pressure groups, individual actors and consumers are factors taken into account for
formulating trade policies.

d. Political Institutions

- A number of scholars have argued that political institutions, rather than preferences, are crucial
in explaining trade policy.

- Political institutions aggregate preferences which led to distinct trade policies.

- Political institutions led to the existence of “insulation”.

- Administrative capacity helps shape trade policy. It is well established that developed countries
tend to have fewer trade barriers compared to lesser developed countries.

- Large institutional di erences in countries’ political regime types also may be associated with
di erent trade policy pro les. Some scholars have argued that democratic countries are less
likely to be able to pursue protectionist policies.

- Structure of the government and nature of the party system helps shape trade policies. Party
systems interact with the govt structure. Examples:

• countries with highly polarized party systems (India and USA), in which the main parties are
separated by large ideological di erences, may experience huge swings in policy and
generally produce unsustainable trade reforms.

• countries with large numbers of parties (Belgium, Kosovo, Columbia government) may
frequently experience coalition governments, which may be unable to change the status
quo.

- Insulation is an important technique to participate in int. trade.

- Scholars who focus on preferences tend to argue that institutions are often shaped by the
preferences of those in power.

- Many of the countries that have embraced trade liberalization have also democratized. Mexico
is a prime case.

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 - Hence, trade democratisation less to rush to free trade. This leads to increase in political
competition, which in turn, leads to trade liberalisation.

e. International Politics

- Trade policy is not only a ected by domestic forces.

- Theory of hegemonic stability (HST) posited that when the international system or economy
was dominated by one country, a hegemon, then free trade would be most likely

- Critics of HST: Conybeare (1984) has shown that large countries should favour optimal
tari s, not free trade, even if others retaliate. Others have claimed that small numbers of
powerful countries could maintain free trade just as well as a single hegemon could.

- Aspects of the international security environment best explain the pattern of trade. Countries
that are military allies trade more with each other, and that this is especially true of countries
within the same alliance in a bipolar system.

- Presence and in uence of international institutions also e ects trade policy.

- A number of institutions provide support for an open, multilateral trading system; these include
the GATT and its successor, the WTO, as well as the IMF and World Bank. Certainly the
presence of institutions like the GATT and IMF have added leverage to arguments for trade
liberalization; the IMF and World Bank, for instance, have often made loans conditional on trade
policy reform.

- The creation of the WTO out of the GATT Uruguay Round represents a step toward the deeper
institutionalization of an open trading system. This change could be associated with growing
pressure for domestic trade liberalization. By the early 1990s, many countries were already
convinced that trade liberalization was the right policy.

- This is also led to the regionalisation of trade. Although regional trade institutions may have a
more ambiguous e ect on the multilateral system, some of them, including the EU, NAFTA, and
ASEAN, seem to have positive e ects on lowering trade barriers and reinforcing unilateral
moves toward freer trade. 

- All in all, most arguments hypothesize that the presence of political institutions should be
associated with a freer trade environment; moreover, they imply that the depth and breadth of
these institutions should be positively related to trade liberalization and the expansion of trade.

- Critiques: The constant presence of international institutions to guide trade, such as the GATT
and IMF, is a poor explanation for the global change in policy that has occurred since the
1980s. These international institutions, however, may help to ensure that this liberalization
process is not easily reversible.

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 f. Effect of Trade on Countries and the International System

Scholars seek to examine the e ects of countries choosing to either liberalise or protect their
economies. Three aspects of the domestic political economy come into play:

1. Trade liberalisation can change domestic preferences about trade: As countries liberalise, the
tradable sector of the economy should grow along with exposure to international economic
pressures. Increasing openness to trade changes preferences domestically. Openness raises
the potential number of supporters of free trade as exporters and multinational rms multiply;
it may also reduce import-competing rms as they succumb to foreign competition. Trade
liberalisation has a positive feedback e ect on policy preferences and political strategies of
domestic producer groups. As industries adjust to more competitive market conditions, the
likelihood that they will demand protection in the future will reduce.

2. The character of national political institutions a ects the increase/decrease in trade:

Increasing exposure to international trade may thus create demands for more government
intervention and a larger welfare state, which in turn are necessary to sustain public support
for an open economy. 

3. Countries and their political relations with other countries when they are more open to the
international economy: Scholars opine that increased trade promotes peace between
countries. Increases in trade ows among countries (or between pairs of them) decrease the
chances that those countries will be involved in political or military con icts with each other.

8. GATT and WTO

History of GATT (not great notes for this part tbh, just Google it)

- GATT is an international agreement that regulates international trade.

- GATT was signed by 23 nations in 1948.

- The basic aim of GATT was to regularise trade.

- GATT was formed after the disastrous WWII.

- UN ECOSOC received a proposal from USA and EU which wanted a regulatory authority for
trade.

- The outcome of UN Conference on Trade and Employment, 1946: A preparatory committee

was formed which drafted a proposal for the establishment of International Trade Organisation.

- In 1948, the Havana Charter for an International Trade Organization was drafted.

- Member States entered into trade negotiations to reduce tari s as they were anxious about
liberalisation.

- The UN ECOSOC’s Interim Commission (ICITO) was set up with the aim to speed up the
formation of ITO.

- However, the US did not ratify to the formation of ICITO and thus, ICITO was never formed

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Reasons for Rush for Free Trade

- Free Trade: Helps developed countries

- Fair trade helps under developed countries

- Rodrick: Free Trade Anomaly in global politics?

- GATT went through trade negotiations

- Why were multilateral trade negotiations held?

- In order to have consensus in trade agreements

- Product Approach consensus - tax based on the products

Negotiations Timeline:

1. 1947: Geneva Round (1st Trade Negotiation): Tari reduction (basic aim of this round)

2. 1949: Second Trade Negotiation: Annecey Round: Tari reduction

3. 1950: Third: Torquoy, England Round: Tari reduction

4. 1956 Fourth Round: Geneva II: Tari reduction; admission of Japan (major
development)

5. 1960 Dillon Round: Tari Concession

6. 1964 Kennedy Round: Tari Reduction and Anti-Dumping

7. 1973 Tokyo Round: Tari Barriers and Non-Tari barriers

8. 1986 Uruguay Round: Issues vis-a-vis developing countries; trade in services was
introduced; International IPR regime; dispute settlement mechanism; textiles; market
access to agriculture; creation of WTO.

9. Doha Round: Tari Barriers and Non-Tari barriers; standards of labour; agriculture;
environment; competition laws; investment (such as FDI). Some say Doha Round has
not concluded; Some say Doha has concluded and Singapore Round has started.

10. 1994: GATT was replaced and WTO was created.

Aims of GATT

1. Liberalisation of Trade: Encouraged and emphasised on free trade.

• Reduction of tari s

• Removal of quotas

• Open market access

• Policy of non-discrimination adoption

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GATT’s Implementation

1. Trade Negotiations

• Bilateral Trade Negotiations (between 2 members)

• Multilateral Trade Negotiations (between more than 2 members)

2. Regionalisation of Trade found in GATT - regional agreements

• Formulation of QUAD (After Uruguay Rounds): Comprising of USA, Japan, Canada

and EU.

• Cairns Group of Fair Trading Nations

- Liberalisation of agriculture

- Fair trading for South East Asian/developing countries

Drawbacks of GATT

- Lacks detail.

- Entry and exit of countries as parties??

- Lacks Institutional structure.

Principles of GATT

MOST FAVOURED NATION (MFN)

Meaning
- Implies Uniform and Non-Discriminatory treatment.

- If a country gives favourable treatment to one country regarding a particular issue, it must treat
all Members equally with respect to the same issue.

Provisions of GATT and MFN

- Elaborated in Art I, XIII, XXVII, XXIV, XXV of GATT (write all in Roman numerals in the exam)
- Art I of GATT: provides for WTO Members to extend MFN treatment to like products of other
WTO Members regarding tari s, regulations on exports and imports, internal taxes and
charges, and internal regulations.

- Art XIII of GATT: non-discriminatory administration of quantitative restriction. Appropriate

notice must be given by countries which impose quotas.

- Art XXVII of GATT: Talks about “withholding of concessions”. Essentially, WTO Members must
act in accordance with the rules of non-discrimination, including the MFN rule.

MFN Rule applies to (must be given non-discriminatory treatment):

- Custom duties on foreign goods

- Import and Export of items and formalities

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 - International transfer of payments

- Method of levying taxes and ad valorem taxes

- Any advantage, favours, immunity, privilege

- Non-discriminatory rule applies only to like products which are originated or destined to any
other country.

Like product
- Not de ned in GATT

- It is a particular relationship or similarity of any other product in a di erent country.

Criteria for “Likeness”

1. Physical Resemblance: material, shape, structure and similarity

2. Functional Likeness: Even if physically not similar, if the functions are similar, it is a like
product.

3. Consumer tests and habits

4. Substitute Ability

5. Tari Application

* Process and production methods are a not a ground for likeness.

Exceptions for MFN

1. Regional Integration (Art XXIV) relates to:

i. Tari s or other barriers to trade must be eliminated with respect to substantially all trade
within the region.

ii. Tari and other barriers to trade applied to outside countries must not be restrictive.

2. Generalised System of Preferences: Preferences (i.e., special measures) given to countries

(known as “bene ciaries”). Introduced by the USA. Underdeveloped, developing countries’ or
countries with historical/political ties’ goods to be given lesser tari s.

3. General Exceptions (Art XX): Lower tari s to be imposed to protect: public morals, life and
health.

4. Frontier tra c with adjacent countries (Art. XXIV): Advantages accorded to adjacent countries,
thereby dissenting for the MFN Rule.

Economic Implications of MFN

1. Increased e ciency of world trade

2. Stabilisation and uniformity of multilateral trade: common platform estb.

3. Reduction of con icts between countries

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 Cases on MFN
1. Spruce, Pine and Fern Case (SPF Case)

- Legal question: Whether Timber from SPF trees is a “like product”?

- Held:

• “Likeness” strictly interpreted.

• Each member of GATT/WTO may exercise “considerably discretion” for tari classi cation

• Legality of classi cation is established to that extent that it did not discriminate against other
WTO members.

2. EU Banana Case

- EU provided preferential treatment to countries in Africa, the Caribbean, and the Paci c (ACP)
regarding tari quotas.

- After the conclusion of the Uruguay Round, the EU put in place a new tari quota regime for
bananas.

- USA, whose companies mainly deal in Latin American bananas, was still unsatis ed with the
new EU regime and alleged that the ACP countries were still provided preferential treatment.

- Following this, a panel was made, consisting of the EU, USA and countries such as Ecuador,
Guatemala, Honduras, and Mexico.

- Appellate Body upheld the Panel ndings to state: EU nations are posing tari rates which are
inconsistent with Art I, II, III, X, XI, and XIII of GATT.

- GATS Agreement on Agriculture also held to be violated.

- Hence, tari must be reduced; EU violated MFN principle.

3. Canada: Measures regarding auto parts Case

- “Auto Pact” (the Agreement Concerning Automotive Products with the United States, which
took e ect in 1966): 3 laws were made on car parts and auto parts

- Canada accorded duty-free treatment to vehicles, provided that importers paid Canadian value-
added rates which were 60% or more.

- Hence, Auto Pact member companies in Canada could import automobiles duty-free so long as
they met the above conditions, while non-members had to pay a 6.1% tari , despite the fact
that all of these companies involved like products and services.

- Japan complained against this practice and a panel was formed to look into the matter.

- Both, the panel and the Appellate Body held that Canada:

- Violated the MFN Rule

- Violated the National Treatment Rule

- Violated GATS

- Hence, import duty was inconsistent and directions were issued to revise the Auto Pact
laws.

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NATIONAL TREATMENT PRINCIPLES