MODULE

2
ExceptionstotheBasicPrinciples,
TradeRemediesandDispute
SettlementintheWTO
ESTIMATEDTIME:4hours

OBJECTIVES OF MODULE 2

Present WTO rules on trade remedies and unfair trade: Anti-dumping measures
and subsidies and countervailing measures;

explain the exceptions to the basic principles;

give an overview of the Dispute Settlement System in the WTO.

I. RULESONUNFAIRTRADE
Increased imports from one country can be caused by changes in consumer preferences or by improvements in
the competitiveness of the companies producing the imports vis--vis national companies producing like
products. However, increasing imports can be cause by "unfair" practices or "unfair" competition.

Consequently, WTO Members have retained their right to take protective measures to correct the competitive
imbalances created by unfair practices. The rationale behind the idea is not to create additional barriers to
trade but rather, to restore, in a targeted manner, "fair" competitive conditions as if the cause of the unfair
competition were eliminated.

GATT Article VI governs the use of anti-dumping measures and also constitutes the basis for the use of
countervailing measures. It is complemented by the Agreement on the Implementation of Article VI of GATT
1994 (the Anti-dumping Agreement) for anti-dumping measures, and the Agreement on Subsidies and
Countervailing Measures ("SCM Agreement") adopted in the Uruguay Round.

This section looks at the WTO rules with respect to dumping and subsidization as elaborated by the Anti
dumping and SCM Agreements.

I.A. ANTIDUMPINGMEASURES

INBRIEF

The Agreement on Implementation of Article VI of the GATT 1994 (The Anti-dumping Agreement) defines
dumping as the introduction of a product into the commerce of another country at less than its normal
value.

INDETAIL

Dumping is, in general, a situation of international price discrimination, where the price of a product when sold
in the importing country is less than the price of that product in the market of the country exporting the
product.

GATT Article VI governs the use of anti-dumping measures, and the multilateral agreement on the
Implementation of Article VI of GATT 1994 (the Anti-dumping Agreement) further elaborated the principles in
Article VI on the investigation, determination, and application, of anti-dumping duties (after the Uruguay
Round).

In addition to rules governing the determination of dumping, injury, and causal link, the Agreement sets forth
detailed procedural rules for the initiation and conduct of investigations, and the imposition, duration and
review of measures.

In the simplest scenario, one can identify dumping by comparing the price of a product in two markets to
determine whether there is a difference in prices in those markets. However, the situation is rarely that simple,
and in most cases it is necessary to undertake complex analytical steps to determine the appropriate price in
the market of the exporting country (the "normal value") and the appropriate price in the market of the
importing country (the "export price") to be able to make a comparison.

Article VI of GATT and the Anti-dumping Agreement explicitly authorize a Member to impose specific anti
dumping duties on imports (in addition to import tariffs), when the importing Member demonstrates that
dumping is causing or is threatening to cause material injury to a domestic industry, or would materially retard
the establishment of a domestic industry.

I.B. SUBSIDIES&COUNTERVAILINGDUTIES

GATT Article VI also constitutes the basis for the use of countervailing measures. It is complemented by the
Agreement on Subsidies and Countervailing Measures (SCM Agreement).

INBRIEF

The SCM Agreement is intended to complement the Agreement on Interpretation and Application of Articles VI,
XVI and XXIII which was negotiated in the Tokyo Round (the Subsidies Code) and GATT Article XVI.

The SCM Agreement applies to agricultural and industrial products, except for the subsidies exempt under the
Agriculture Agreement's "Peace Clause", which expired at the end of 2003. The SCM Agreement contains the
rules on subsidies, while the Agreement on Agriculture contains specific rules governing the use of agricultural
subsidies (to be studied from Module 3 onwards).

Note

Article VI:3 of the GATT 1994 defines "countervailing duties":

"The term countervailing duty shall be understood to mean a special duty levied for the purpose of offsetting
any bounty or subsidy bestowed, directly or indirectly, upon the manufacture, production or exports of any
merchandise."

The definition of subsidies under the SCM Agreement contains three elements which must be satisfied in order
for a subsidy to exist:

a financial contribution;

by a government or any public body within the territory of a Member;

which confers a benefit.

The disciplines in the agreement only apply to specific subsidies. They can be production or export subsidies.
The SCM Agreement initially established three categories of subsidies. Firstly, it deemed the "red" subsidies or
"prohibited", which are:

contingent, in law or in fact, upon export performance;

contingent upon the use of domestic over imported goods.

Prohibited subsidies are subsidies that require recipients to meet certain export targets, or to use domestic
goods instead of imported goods. (Non-actionable subsidies are non-specific subsidies, or specific subsidies for
research and pre-competitive development activity, assistance to disadvantaged regions, or certain types of
assistance for adapting existing facilities to new environmental laws or regulations. Under the provision of
Article 31 of the SCM Agreement, the category of non-actionable subsidies ended as of the year 2000. A
detailed list of export subsidies is annexed to the SCM Agreement (Annex I).) They are subject to dispute
settlement procedures and if it is found that the subsidy is indeed prohibited, it must be immediately
withdrawn.

Second, it deemed the "yellow" subsidies to be "actionable". The SCM Agreement stipulated that no Member
should use subsidies to cause "adverse effects" to the interests of other signatories, i.e. it should not cause:

injury to the domestic industry of another Member;

nullification or impairment to benefits accruing directly or indirectly to other signatories under the
General Agreement (in particular the benefits of bound tariff concessions);

serious prejudice to the interests of another Member.

Actionable subsidies are subsidies contingent, whether solely or as one of several other conditions, upon the
use of domestic over imported goods ("local content subsidies").

Members affected by actionable subsidies may refer the matter to the Dispute Settlement Body. In the event
that it is determined that such adverse effects exist, the subsidizing Member must withdraw the subsidy or
remove the adverse effects.

And third, it deemed the green subsidies to be "non-actionable". These are subsidies which are either non-
specific, or specific subsidies involving assistance to industrial research and pre-competitive development
activity, assistance to disadvantaged regions, or certain types of assistance for adapting existing facilities to
new environmental requirements imposed by law and/or regulations. The SCM Committee was to review the
operation of these categories of subsidies before the end of 1999. Members were not able to reach consensus
on this matter, so the provisions lapsed. Therefore presently, all subsidies are either prohibited (red) or
actionable (yellow)

The SCM Agreement states that a country can:

use the WTO dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its
adverse effects; or

launch its own investigation and ultimately charge extra duties ("countervailing duty") on subsidized
imports that are found to be hurting domestic producers.

Countervailing measures do not need to be pre-authorized by the WTO membership before a Member can
impose them. However, the Member imposing them must first conduct an investigation and must find from the
investigation that the conditions for the application of the measure meet the criteria in the SCM Agreement.
The substantive criteria requires a Member not to impose a countervailing measure unless it determines that
there exists:

(i) subsidized imports;

(ii) injury to a like domestic industry, or threat thereof, is occurring; and

(iii) a causal link between the subsidized imports and the injury.

The level of the countervailing duty should be only what is necessary to offset the subsidization. There are
detailed procedural rules governing the conduct of countervailing investigations, as well as the imposition and
continuation of countervailing measures. For instance:

Countervailing duties are to be terminated immediately where the amount of a subsidy is de minimis
(less than 1% ad valorem) or where the volume of (actual or potential) subsidized imports or the injury
is negligible.

Investigations are to be concluded within one year after they are imposed, and should not last more
than 18 months, except in exceptional circumstances.

Countervailing duties have to be terminated within five years of their imposition (sunset clause) unless
the authorities determine, on review, that the removal of the duty would be likely to lead to a
continuation or recurrence of subsidization and injury.

Generally, countervailing duties are used when a Member wants to protect its domestic market against
subsidized imports. However, in some cases, countervailing duties may not be the appropriate way to correct
imbalances created by subsidies granted by a government to products.

A Member may also want to complain about the subsidized product in an export market or in a third-market
where two or more Members' exports compete. In these cases, the only way to redress and recreate a "fair"
competitive environment is for the country granting the subsidies to suspend or modify its subsidization
program.

Part V of the SCM Agreement provides that WTO Members may resort to countervailing duties to counteract
the effects of two categories of subsidies: prohibited and actionable.

It applies to agricultural goods as well as industrial products, except when the subsidies conform to the
Agreement on Agriculture. Article 13 of the Agreement on Agriculture establishes that, during the
implementation period specified in that Agreement (until 1 January 2004), special rules regarding subsidies for
agricultural products are to be applied.

The provisions of the Agreement on Subsidies and Countervailing Measures firmly state that issues of
agricultural subsidies are subject primary to the Agreement on Agriculture and only secondary to the SCM
Agreement. Thus:

Export subsidies which are in full conformity with the Agreement on Agriculture are not prohibited by
the SCM Agreement, although they remain countervailable, that is, a countervailing duty can be
charged by the importing country if damage is proved.

Domestic support measures which are in full conformity with the Agreement on Agriculture are not
actionable multilaterally, i.e. through the WTO dispute settlement procedures, although they also may
be subject to unilateral countervailing duties on proof of injury and causation.
 Finally, domestic support measures which fall under the "Green box" of the Agreement on Agriculture
are not actionable multilaterally nor can they be subject to unilateral countervailing measures. After the
implementation period, the SCM Agreement will apply to subsidies for agricultural products subject to
the provisions of the Agreement on Agriculture, as set forth in its Article 21.

EXERCISES:

1. Tristat would like to impose a countervailing measure on wood paste under the SCM Agreement. What are
the three things that Tristat must find in its investigation before it can impose the countervailing
measure?

2. What methods can Tristat use to correct imbalances created by subsidies?

II. EXCEPTIONSTOTHEBASICPRINCIPLES

II.A. HORIZONTALEXCEPTIONS

INBRIEF

This section illustrates the circumstances under which a WTO Member can invoke the general exception and
security exceptions; explain how a Member's obligations can be "waived" in exceptional circumstances; explain
how the WTO Agreements regulate Regional Trade Agreements (RTAs) and how RTAs and the multilateral
trade rules are linked.

INDETAIL

WTO Members shall not discriminate (MFN and national treatment) and follow certain rules, for example, they
cannot withdraw "liberalization commitments/concessions" without following pre-determined rules.

Nevertheless, in certain circumstances, Members have the right to derogate from these obligations. The
category of exceptions discussed in this module is horizontal in nature - they allow a Member to derogate from
any of the GATT, GATS and TRIPS obligations (as opposed to the specific exceptions, such as those which were
mentioned in relation to MFN and National Treatment).

In the category of horizontal exceptions, we will examine:

a) general exceptions;

b) security exceptions;

c) economic emergency exceptions safeguards & balance of payment exceptions;

d) waivers; and

e) regional integration exceptions the rules governing regional and free trade agreements.

II.A.1. GENERALEXCEPTIONSINTHEGATT
GATT Article XX governs the use of the General Exception for trade in goods. Article XX recognizes that
governments may need to apply and enforce measures for purposes such as the protection of public morals;
human animal or plant life and health; and the protection of national treasures.

The GATT 1994 does not prevent governments from adopting and enforcing such measures. However
measures adopted under the general exceptions provisions must not constitute a means of arbitrary or
unjustifiable discrimination nor should they be disguised restrictions on international trade.
 GATT Article XX: General Exceptions

Subject to the requirement that such measures are not applied in a manner which would constitute a means
of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a
disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the
adoption or enforcement by any Member of measures:

(a) necessary to protect public morals;

(b) necessary to protect human, animal or plant life or health;

(c) relating to the importations or exportations of gold or silver;

(d) necessary to secure compliance with laws or regulations which are not inconsistent with the
provisions of this Agreement, including those relating to customs enforcement, the enforcement of
monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade
marks and copyrights, and the prevention of deceptive practices;

(e) relating to the products of prison labour;

(f) imposed for the protection of national treasures or artistic, historic or archaeological value;

(g) relating to the conservation of exhaustible natural resources if such measures are made effective in
conjunction with restrictions on domestic production or consumption;

(h) undertaken in pursuance of obligations under any intergovernmental commodity agreement which
conforms to criteria submitted to Members and not disapproved by them or which is itself so
submitted and not so disapproved;

(i) involving restrictions on exports of domestic materials necessary to ensure essential quantities of
such materials to a domestic processing industry during periods when the domestic price of such
materials is held below the world price as part of a governmental stabilization plan; Provided that
such restrictions shall not operate to increase the exports of or the protection afforded to such
domestic industry, and shall not depart from the provisions of this Agreement relating to non-
discrimination;

(j) essential to the acquisition or distribution of products in general or local short supply; Provided that
any such measures shall be consistent with the principle that all Members are entitled to an
equitable share of the international supply of such products, and that any such measures, which are
inconsistent with the other provisions of the Agreement shall be discontinued as soon as the
conditions giving rise to them have ceased to exist. The Members shall review the need for this sub-
paragraph no later than 30 June 1960.

GATT Article XX permits Members to take certain measures, otherwise prohibited by GATT provisions, subject
to stipulated conditions.

1) The first condition is that the contemplated measure must fit under one of the 10 categories in sub
paragraphs (a)-(j) of Article XX. For example, sub-paragraphs (a), (b), and (d) indicate that the measures
sought to be taken by Members must be necessary either to, protect public morals; human, animal or plant life
or health; or to secure compliance with certain laws or regulations.

For those three categories, there is an imperative "necessity" test that must be satisfied for the measures to be
consistent with Article XX. The determination of whether a measure, though not indispensable, may
nevertheless be considered "necessary", involves a weighing and balancing of factors, such as:

The importance of the common interests or values protected by the measure;

The efficacy of the measure in achieving the intended policies;

The impact of the measure (law or regulation) on imports especially vis--vis its like domestic products.

Specific instances of Members invoking Article XX include reference to paragraph (a) (public morals) to justify
import bans on religious grounds. Frequent references are also made to the exception governing measures
aimed at protecting the environment in paragraphs (b) and (g).

WTO jurisprudence has established that Members have the right to determine the level of health or
environmental protection they deem appropriate. This Principle is reiterated in the TBT and SPS Agreements
for the measures covered by those agreements. Furthermore, there is no requirement in Article XX of the GATT
1994 to quantify the risk to human life or health. A risk may be evaluated in either quantitative or qualitative
terms.

2) The second condition refers to the opening paragraph of Article XX (the "chapeau of Article XX"). Measures
covered under the General Exceptions must not be applied in a manner that would constitute a means of
arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised
restriction on international trade.

Consequently, before certain measures are used to derogate from GATT rules, they must meet the
requirements of the chapeau i.e. they have to be "applied" in a manner that does not create "arbitrary or
unjustifiable discrimination". The chapeau of Article XX of GATT aims to prevent the use of derogation
measures to unjustifiably impede the market access rights of other Members.

The combined effect of the chapeau and the enumerated provisions of Article XX are to set out a two-level test
that a proposed measure must pass before it is deemed consistent with Article XX, and therefore qualify as an
exception to the obligations in the GATT:

The first test is whether the policy fulfils the criteria in Article XX (a)-(j).

The second test is whether, when it fulfils those criteria, it satisfies the "Chapeau test". That is, is the
measure being applied "arbitrarily", "unjustifiably", or as a "disguised restriction on trade"? (The latter
being the most stringent test).

These provisions attempt to strike a "balance" between the market access rights of some Members and the
need to ensure that other Members' right to invoke these exceptions are not rendered illusory. While Members
have a prima facie right to maintain measures necessary to enforce health policies for example, criteria have
been developed to ensure that Members demonstrate their good faith and not apply measures in a
discriminatory manner or as a disguised restriction on trade.
EXERCISES:

3. Can Vanin maintain an environmental measure banning the imports from some, but not all WTO
Members?
II.A.2. SECURITYEXCEPTIONINTHEGATT
A Member is allowed to take any action, which it considers necessary for the protection of its essential security
interests or in pursuance of its obligations under the United Nations Charter for the maintenance of
international peace and security. Members are not required to furnish information, the disclosure of which
would be contrary to their essential security interests.

EXERCISES:

4. What is a security exception?

II.B. SAFEGUARDMEASURES

II.B.1. INTRODUCTION
WTO Members have the right to take safeguard measures, which derogate from obligations on a temporary
basis and under certain conditions.

The right to apply safeguard measures reflects the recognition that in some situations, certain measures
(tariffs that exceed bindings or quantitative restrictions) may be available to WTO Members to conditionally,
and temporarily protect domestic industry against unforeseeable and unexpected economic circumstances.
Unlike anti-dumping and countervailing measures, the application of safeguards do not depend on "unfair
trade" actions.

To ensure that this right to take safeguard measures does not undermine the basic market access disciplines
central to the WTO system, Members have outlined conditions for, and placed limits on their use.

Specific safeguard provisions are found in the GATT and sectoral agreements, for trade in goods, as well as in
the GATS for trade in services.

The conditions and applicable principles are included in:

GATT Article XIX (General Safeguard) which is clarified and complemented by the Agreement on
Safeguards (an integral part of the WTO Agreement);

GATT Arts. XII and XVIIIB (Balance-of-Payment provisions); and

Article 5 of the Agreement on Agriculture, which is an integral part of the WTO Agreement (Special
Safeguard for some agricultural products).

II.B.2. GENERALSAFEGUARDS

INBRIEF

Safeguard measures can take the form of an increased tariff (customs duty) at a higher level than the bound
rate, or a quota. In principle, the MFN Principle must be observed, as safeguard measures have to be applied
irrespective of the source of imports.

A WTO member may impose a safeguard measure (i.e.), temporarily restrict imports of a product) to protect
a domestic industry from an increase in imports of a product which causes or threatens to cause serious
injury to the domestic industry.

Safeguard measures were always available under the GATT (Article XIX). However, they were infrequently
used, and some governments preferred to protect their industries through "grey area" measures (for
example, "voluntary" export restraint arrangements on products such as cars, steel and semiconductors).
INDETAIL

a. GATTARTICLEXIX
GATT Article XIX contains the provisions on general safeguards, and was clarified and reinforced by the
adoption of the WTO Agreement on Safeguards in the Uruguay Round. The WTO Safeguards Agreement broke
new ground in prohibiting grey area measures and setting time limits ("sunset clause") on all safeguard
actions.

Emergency Action on Imports of Particular Products

1. (a) If, as a result of unforeseen developments and of the effect of the obligations incurred by a Member
under this Agreement, including tariff concessions, any product is being imported into the territory of that
Member in such increased quantities and under such conditions as to cause or threaten serious injury to
domestic producers in that territory of like or directly competitive products, the Member shall be free, in
respect of such product, and to the extent and for such time as may be necessary to prevent or remedy
such injury, to suspend the obligation in whole or in part or to withdraw or modify the concession.

b. AGREEMENTONSAFEGUARDS
The Agreement on Safeguards, stipulates:

Article 1 (General Provision): This Agreement establishes rules for the application of safeguard measures
which shall be understood to mean those measures provided for in Article XIX of GATT 1994.

Article 2 (Conditions): 1. A Member may apply a safeguard measure to a product only if that Member has
determined, pursuant to the provisions set out below, that such product is being imported into its territory in
such increased quantities, absolute or relative to domestic production, and under such conditions as to cause
or threaten to cause serious injury to the domestic industry that produces like or directly competitive
products. 2. Safeguard measures shall be applied to a product being imported irrespective of its source.

Article 3 (Investigation): 1. A Member may apply a safeguard measure only following an investigation

a) Recognition of the Exception

The core principle is in Article 2. It provides that "A Member may apply a safeguard measure" establishing the
right to derogate from the disciplines (in GATT Article II and GATT Article XI).

b) Conditions for its application

The reference to unforeseen developments in GATT Article XIX indicates that safeguard measures cannot be
taken in normal economic situations but only in circumstances, not reasonably foreseen when the Member
bound its tariff levels. Hence, a Member may only invoke a safeguard measure if the situation is unforeseen.
GATT Article XIX in addition provides: " if, , any product is being imported in such increased quantities
and under such conditions "; and the Agreement on Safeguards Article 2.1 provides: " if, that such
product is being imported in such increased quantities, absolute or relative to domestic production, and
under such conditions "

The reference to increased quantities being imported, either in absolute or in relative terms, is an indication of
a surge in imports. Surge in imports should be examined in the light of: (1) the relevant period prior to the
safeguard measure to be undertaken and (2) like domestic product.

GATT Article XIX and Agreement on Safeguards Article 2.1 provides: " to cause or threaten (to cause) serious
injury to domestic producers" "Serious injury" is another concept central to the use of safeguard measures.
Before a safeguard measure can be imposed, the Member must have determined that:

The quantity of imported products has increased (see above);

The domestic industry that produces like or directly competitive products is suffering serious injury or is
there is a threat it will suffer serious injury; and

The cause of the serious injury (or threat thereof) is the increase in imports (causality link).

"Serious injury or threat thereof" is described in more detail in the Agreement on Safeguards. According to
Article 3, " A Member may apply a safeguard measure only following an investigation "

A crucial pre-condition to be satisfied before a safeguard measure can be imposed is that an "investigation"
must be conducted. The purpose of the investigation is to determine, at a preliminary stage, whether the
situation in a Member country warrants the imposition of a safeguard measure.

Safeguard investigations under the Agreement on Safeguards has to fulfil certain requirements such as, it must
include public notice for hearings and other appropriate means for interested parties to present evidence,
including on whether a measure is in the public interest.

A Member may apply safeguard measures only for the time necessary to prevent or remedy serious injury and
to facilitate adjustment. The period shall not exceed four years, unless it is extended under paragraph 2 of
Article 7. The period may be extended if the safeguard measure continues to be necessary to prevent or
remedy serious injury and that there is evidence that the industry is adjusting. The total period a safeguard
measure is applied, including the period of application of any provisional measure, initial application, and any
extension thereof, shall not exceed eight years.

In critical circumstances, a provisional safeguard measure may be imposed if there is a preliminary

determination that an industry suffers serious injury. Article 3 of the Agreement on Safeguards contains the
detail of the procedure. The provisional measure should not exceed 200 days.

Agreement on Safeguards Article 5.1 level of the safeguard measure

"A Member shall apply safeguard measures only to the extent necessary to prevent or remedy serious injury
and to facilitate adjustment"
The level of the safeguard measure is strictly limited and is determined by the extent necessary to remedy or
prevent the threat of serious injury to a Member's market. However, "extent necessary to prevent or remedy
serious injury" is not easy to determine. Generally, where quantitative restrictions are imposed, they should
normally not reduce the quantities of imports below the annual average for the last three representative years
for which statistics are available, unless clear justification is given that a different level of restriction is
necessary to prevent or remedy the serious injury or threat thereof. For a developing country, the safeguard
measures it adopts may last a maximum of 10 years.

The Safeguards Agreement also introduced a "sunset clause" limiting the duration of WTO safeguard measures
to a maximum of four years. A Member can impose a safeguard measure only after it has determined that all
the requirements for its imposition have been satisfied.

c. GATTART.XIISAFEGUARDMEASURESINSITUATIONSOFBALANCEOF
PAYMENT(BOP)DIFFICULTIES

INBRIEF

Pursuant to Article XII, XVIII:B and the "Understanding of the Balance-of-Payments Provisions of the GATT
1994", a Member may apply import restrictions for balance-of-payments reasons.

The basic condition for invoking Article XII is to "safeguard the [Member's] external financial position and its
balance-of-payments".

Article XVIII:B mentions the need to "safeguard the [Member's] external financial position and ensure a level
of reserves adequate for the implementation of its programme of economic development".

Both Articles refer to the need to "restore equilibrium on a sound and lasting basis". They require Members
to relax restrictions as conditions improve, and to eliminate them when conditions no longer justify that they
be maintained.

Together with the Understanding on Balance-of-Payments, GATT Article XII and GATT Article XVIII contain
disciplines on measures that can be taken by Members to safeguard their balance of payments.

INDETAIL

GATT Contracting Parties considered that it was appropriate to have this exception as some Contracting Parties
encountered balance-of-payments problems.

The text of Article XII was part of the initial text of the GATT 1947. It was amended in 1955 when Section B of
Article XVIII was added to clarify how developing countries could use safeguard measures for BOP purposes. At
that time, a working party was established to report on specific proposals regarding the use of quantitative
restrictions for BOP, economic development, and other purposes. These provisions entered into effect in 1957.

In addition, Article XII and XVIII:B were amplified by:

detailed consultation procedures introduced in 1970;

 "simplified" consultation procedures for developing countries introduced in 1972; and

provisions on the application of the Articles and consultation procedures in the 1979 Declaration on
Trade Measures Taken for Balance-of-Payment Purposes.

This extended GATT examination from quantitative restrictions alone to all trade measures taken for BOP
purposes.

During the Uruguay Round negotiations, the final complementary provision was added through the
Understanding on BOP Provisions, which sought to clarify the "BOP Provisions". In it, Members "confirmed that
they shall" seek to avoid the imposition of new quantitative restrictions for balance-of-payments purposes
unless, because of a critical balance-of-payments situation, price-based measures cannot arrest a sharp
deterioration in the external payments position. They also agreed that "not more than one type of restrictive
import measure taken for balance-of-payments purposes may be applied on the same product".

EXERCISES:

5. Can Alba, rely on newspaper statements relating to increased quantities of imports, and take a decision to
impose a general safeguard measure in the form of quantitative restrictions against products from Vanin?

6. What are the main differences between Article XII and Article XVIII:B?
II.C. WAIVERS

General exceptions, security exceptions and safeguards are not the only provisions which Members can use to
maintain measures inconsistent with the WTO principles. They can also derogate from their obligations where
they obtain waivers, which we are about study.

INBRIEF

What is a waiver?

A waiver is a permission granted by WTO Members allowing another WTO Member to not comply with its
normal commitments. Waivers are time-bound. They have time limits and extensions have to be justified.

INDETAIL

In "exceptional circumstances", a WTO Member may be authorized by the other Members to derogate, for a
specific time and under certain conditions, from any provision of the WTO Agreements. These derogations,
called "waivers", are governed by the WTO Agreement and are applicable to trade in goods, trade in services
and trade-related aspects of intellectual property rights. Waivers are governed by Article IX of the Marrakesh
Agreement (establishing the WTO).

A waiver is used when there are no other provisions which would allow a Member to derogate from a WTO
principle or a specific provision.

Waivers are granted by the WTO membership, through a decision of the Ministerial Conference (in most cases,
the decision is adopted by the General Council in between Conference sessions). Consequently, a waiver may
be viewed as a "negotiated right", whereas there is no need to negotiate to take a general exception in GATT
Article XX and GATS Article XIV.

While a provision of the general (or security) exceptions may be invoked to justify a measure otherwise
inconsistent with GATT, a waiver (granted by the WTO membership) should generally not be disputed unless
the Member fails to comply with the conditions of the waiver or if its application leads to a non-violation
complaint.

Waivers are usually temporary so, when they are granted, a definite time-period is set for termination. Waivers
may be granted in exchange for compensation. If granted for more than a one-year period, a waiver must be
reviewed annually to establish if the exceptional circumstances warranting its grant still exist.

EXERCISES:

7. Can a WTO Member waive its obligations for more than one year?
II.D. REGIONALINTEGRATION

When a WTO Member joins a regional trade agreement (RTA), it normally grants more favourable conditions to
trade from other parties to that arrangement than to trade from other Members, it departs from the guiding
principle of non-discrimination in Article I of GATT, Article II of GATS, and in other provisions in the WTO
Agreement.

INGATT

INBRIEF

Generally a WTO Member is in breach of its obligations where it grants preferential and more favourable
treatment to products originating in a select group of countries. Nevertheless the WTO, as did the GATT, allows
its Members to enter into RTAs, under the rules and conditions in:

GATT Article XXIV (paragraphs 4-10), complemented by the Understanding on the Interpretation of
Article XXIV of the GATT 1994 (the "Understanding"), for customs unions and free trade areas covering
trade in goods;

the 1979 GATT Decision on Differential and More Favourable Treatment, Reciprocity and Fuller
Participation of Developing Countries (the "Enabling Clause", paragraphs 2(d), 3 and 4); and

GATS Article V, governing economic integration agreements liberalizing trade in services (for both
developed and developing countries). Unlike in the GATT, in the GATS the special and differential
treatment for developing countries is contained in the text of Article V.

Other non-generalized preferential schemes, for example non-reciprocal preferential agreements involving
developing and developed countries, require Members to seek a waiver from WTO rules.

ILLUSTRATION

GATTArticleXXIV

Let us assume that Alba, Vanin and Medatia are WTO Members, and that they concluded an interim agreement
to establish a Customs Union (CU) in which the tariffs on all imports between them are to be brought to zero
within a transitional 10-year period.

Tariff preferences which they give to each other, but not to Tristat (another WTO Member), would appear
contrary to the MFN Principle. However, GATT Article XXIV allows Alba, Vanin and Medatia to form a CU and to
grant preferences to each other if two main conditions are respected: first, the CU must be fully compatible
with GATT Article XXIV, and second the tariff preference (or any other measure inconsistent with GATT rules)
must be "necessary" for the formation of the CU. Without this, the CU could not be formed.

For a CU to be GATT compatible, the duties and trade barriers applicable to "substantially all the trade"
between Alba, Vanin and Medatia must be removed, within a transitional period of 10 years.
Secondly, they must all apply "substantially the same" duties, tariffs and so forth, to trade from other WTO
Members (harmonization of the external trade policy of the CU members, for example through a Common
External Tariff).

Thirdly, they must demonstrate that the duties and other regulations of commerce applicable by CU members
to states not parties to the CU are not overall "higher or more restrictive" than the trade barriers that were
applied prior to formation of the CU.

EXERCISES:

8. Can Alba, Medatia and Vanin enter into an RTA whereby they reduce the tariff rate applicable to all the
trade between them, from 10% to 5%?
II.E. SPECIAL&DIFFERENTIALTREATMENTFOR
DEVELOPINGCOUNTRIES

II.E.1. INTRODUCTION
The majority of WTO Members are developing countries. Members decide for themselves if they are developed
or developing countries (principle of "self-election"). Unlike these two terms, in the WTO, least-developed
countries (LDCs) refer to countries that were designated as such by the United Nations Economic and Social
Council.

Developing and least developed country status in the WTO brings certain rights. For example, there are
provisions in some WTO Agreements which provide developing countries with longer time periods to implement
certain provisions of the agreements or the right to receive technical assistance.

Special and differential treatment of developing countries have been a cornerstone of the GATT system for
decades. It now encompasses non-reciprocity, preferences, and technical assistance, however, it initially
provided the basis only for flexibility for the developing countries in the use of their trade policy instruments.

II.E.2. GATTANDDEVELOPINGCOUNTRIES

PARTIVOFTHEGATT
The GATT, as negotiated in October 1947, did not separately recognize differences among Contracting Parties.
The preamble to the agreement stressed the importance of substantially reducing discriminatory treatment and
emphasised the importance of reciprocal and mutually advantageous arrangements.

However, issues relating to economic development were taken up in the negotiations that took place in Havana
from November 1947 to March 1948 and this resulted in Article XVIII entitled "Government Assistance to
Economic Development and Reconstruction". Only a contracting party ("the economy of which can only support
low standards of living and is in the early stages of development") could have recourse to Sections A, B and C
of the revised Article.

1971WAIVER
In 1971, the GATT Contracting Parties adopted a waiver for the Generalized System of Preferences (GSP) to
give legal effect through GATT rules to the unanimous agreement reached in UNCTAD for a mutually acceptable
system of generalized, non-reciprocal and non-discriminatory preferences (BISD 8S/24). This waiver was for
10 years.

The waiver was authorized to the extent necessary to permit developed Contracting Parties (subject to several
paragraphs of the 1971 Decision) to accord preferential tariff treatment to products originating in developing
countries and territories with a view to extending the preferential tariff treatment to their products without
according such treatment to like products of other Contracting Parties. This was an initial temporary measure
derogating from GATT MFN requirements.
THEENABLINGCLAUSE
The adoption in 1979 in the Tokyo Round of the "Decision on Differential and More Favourable Treatment,
Reciprocity and Fuller Participation of Developing Countries", (the "Enabling Clause") marked a qualitative
jump forward for developing countries as the right of developed countries to provide preferences to imports
from developing countries was made permanent.

The Enabling Clause "enables" Members to derogate from the MFN principle when they grant tariff preferences
to imports from developing and LDC country Members under certain conditions.

Unlike the Waiver in the 1971 Decision, the Enabling Clause is a permanent provision and it constitutes a
concrete contribution to the emergence of special and differential treatment (S&D) for developing countries.

II.E.3. THEOUTCOMEOFTHEURUGUAYROUND
The WTO Agreements reflect an increased recognition of the need to integrate developing countries into the
trading system by extending benefits to them. In the WTO, special and differential treatment ("S&D")
provisions grant special treatment to developing country and LDC Member states and rights for developed
countries to treat developing and LDC countries favourably.

For example, the Preamble to the Marrakesh Agreement recognizes "that there is need for positive efforts
designed to ensure that developing countries, and especially the least developed among them, secure a share
in the growth in international trade commensurate with the needs of their economic development".

The Uruguay Round marked a new approach to the "development dimension". In the WTO agreements, various
sections, specific provisions, and simple references are devoted to special rights for developing countries.
These provisions, called "special and differential treatment" provisions. They grant special rights to developing
countries, and allow developed countries to treat developing countries more favourably than other Members.

EXERCISES:

9. How is a country classified as "developing" or "least developed"?

III. DISPUTESETTLEMENTATTHEWTO
The function of the Dispute Settlement Understanding is to preserve the rights and obligations of Members.

WTO Members can settle their disputes in four ways: (i) consultation or negotiations; (ii) adjudication by
panels and the Appellate Body (in cases where there is an appeal); (iii) arbitration; and (iv) good offices,
conciliation and mediation.

Only Member governments (states or custom's territories) can be party to disputes in the WTO. Private parties
have no standing in WTO procedures- they must rely on their government to bring or defend an action, or to
intervene as a third party.

The flow chart of the WTO Dispute Settlement Process below shows the stages in a typical WTO dispute
settlement case. Below the chart, there is a short explanation of all the various stages through which a dispute
can pass in the (WTO) dispute settlement system.

There are two main ways to settle a dispute once a complaint has been filed in the WTO: (i) the parties find a
mutually agreed solution, particularly during the phase of bilateral consultations; and (ii) through adjudication,
including the subsequent implementation of the panel and Appellate Body reports, which are binding upon the
parties once adopted by the DSB.

There are three main stages to the WTO dispute settlement process: (i) consultations between the parties; (ii)
adjudication by panels and, if applicable, by the Appellate Body; and (iii) the implementation of the ruling,
which includes the possibility of countermeasures in the event of failure by the losing party to implement the
ruling.
Figure 1: WTO dispute settlement timeline
III.A. CONSULTATIONS

The procedures start with consultations between the parties. Members must consult in good faith within 30
days of a formal request for consultations, and the consultations must last at least 60 days from the date of
receipt of the request, unless the parties agree otherwise or the Member addressed by the request refuses to
consult. During this time, the contested issues can be clarified and, hopefully, the dispute can be settled. Other
Member governments can request to join the consultations. All requests for consultations are circulated to all
Members and are available to the public on the WTO website. At any stage, the parties to the dispute may
reach a mutually agreed solution (Article 3.7 of the DSU).

III.B. PANELS

If consultations fail to settle a dispute, the complaining Member may request the establishment of a "panel" to
examine the matter and make such findings as will assist the DSB in making recommendations to secure a
positive solution to the dispute. Other Member governments with a substantial interest in the matter can join
the dispute as third parties (Article 10.2 of the DSU).

WTO Members cannot unilaterally determine that another member has violated their Agreement on
Agriculture (or other) obligation. A WTO Member must prove its claims before an impartial ad hoc panel, and
on appeal if required through the WTO's dispute settlement procedure. Where its claims are upheld, the DSB
will request the offending Member to bring its measures into conformity with its obligations under the
Agreement on Agriculture.

Panels are normally comprised of three persons of appropriate background and experience, and are not citizens
of Members party to the dispute or third parties, unless the parties to the dispute agree otherwise. They serve
in their individual capacity and not as government representatives. They are never serving WTO Secretariat
officials. The parties to the dispute attempt to agree on the composition of the panel based on names proposed
by the Secretariat, failing which the Director-General can determine its composition in consultation with the
parties to the dispute, upon request (Article 8.7 of the DSU). The names of the panellists are published on the
WTO website.

The parties to the dispute make written submissions and oral statements at meetings with the panel. Third
parties can also make submissions and an oral statement. A panel will normally complete its work within six
months, by publishing a report containing findings of fact and law, with its conclusions. The report is circulated
to all Members and made available to the public on the WTO website. If there is no appeal, it can be proposed
for adoption by the DSB.

III.C. APPEAL

A party to the dispute may appeal the Panel's findings to the Appellate Body, which is a standing body of seven
individuals, three of whom serve on any one case. Member governments appoint Appellate Body Members in
the DSB for four years terms.
Appeals are limited to issues of law covered in the panel report and legal interpretations developed by the
Panel. The parties make written submissions and oral statements at a meeting with the Appellate Body and
third parties may also participate. The Appellate Body completes its work within 90 days, by publishing a
Report containing its findings on the issues raised in the appeal, which may uphold, modify or reverse the legal
findings and conclusions of the panel. The Report is circulated to all Members and made available to the public
on the WTO website.

III.D. ADOPTIONANDIMPLEMENTATIONOFTHEREPORT

The DSB considers the panel report, or the Appellate Body report, after it has been circulated to the Members
and adopts them unless there is consensus not to do so. (Articles 16.4 and 17.14 of the DSU).

III.E. REMEDIES

There are three type of remedies available for breaches of the Agreement on Agriculture:

withdrawal or amendment of the inconsistent measures (final remedy); and

two temporary remedies (in the case of non-compliance with the DSB decision)

compensation, and

suspension of concession (retaliation) (Article 22.1 of the DSU).

III.F. WITHDRAWAL/AMENDMENTOFTHEINCONSISTENT
MEASURES

With the DSB's adoption of the panel (and Appellate Body) report(s), there is a "recommendation and ruling"
by the DSB addressed to the losing party (in the case of a successful violation complaint) to bring itself into
compliance with (WTO) law or to find a mutually satisfactory adjustment. The Member is given a reasonable
period in which to bring the measure into conformity with that agreement. The reasonable period is agreed by
the parties and by arbitration where they do not agree. It varies with the complexity of the cases.

The Member concerned must provide regular status reports on implementation from at least six months after
the date on which the reasonable period of time is established until the issue is resolved (Article 21.6 of the
DSU).

The DSB is the WTO body responsible for supervising the implementation of panel and Appellate Body reports
(Article 2 of the DSU). As in the previous stages of the dispute settlement system, it is the WTO Members,
whose delegates compose the DSB who must take the initiative to place items on the DSB agenda (and not the
WTO Secretariat).

In the overwhelming majority of cases, Members comply with the recommendations in a report as adopted by
the DSB. However, if there is disagreement as to whether a Member has complied (such as disagreement as to
whether amendments made to the law to comply were themselves WTO consistent), the disagreement can be
resolved through another proceeding before a panel, wherever possible this panel will be composed of the
same three persons who formed the original panel. The panel normally completes its work within 90 days, by
publishing another report, which can also be appealed to the Appellate Body, which normally completes its
work within a further 90 days (Article 21.5 of the DSU).

III.G. COMPENSATION

If the implementing Member does not achieve full compliance by the end of the reasonable period of time, it
has to enter into negotiations with the complaining party with a view to agreeing a mutually acceptable
compensation (Article 22.2 of the DSU). This compensation does not mean monetary payment; rather, the
respondent is supposed to offer a benefit, for example a tariff reduction, which is equivalent to the benefit,
which the respondent has nullified or impaired by applying its measure.

The parties to the dispute must agree upon the compensation (Article 22.1 of the DSU).

III.H. SUSPENSIONOFCONCESSION(RETALIATION)

If, within 20 days after the expiry of the reasonable period of time, the parties have not agreed on satisfactory
compensation, the complainant may ask the DSB for permission to impose trade sanctions against the
respondent that has failed to implement the DSB recommendation. Technically, this is called "suspending
concessions or other obligations under the covered agreements" (Article 22.2 of the DSU).

Concessions are, for example, tariff reduction commitments that Members made in multilateral trade
negotiations and which are bound under Article II of GATT 1994. These bound concessions are just one form of
WTO obligations. The most typical form practised so far is the suspension of concessions through the
imposition of tariff surcharges. The complainant is thus allowed to impose countermeasures that would
otherwise be inconsistent with the WTO Agreements, in response to a violation or to non violation nullification
or impairment. This is informally called "retaliation" or "sanctions". Such suspension of obligations takes place
on a discriminatory basis only against the Member that failed to implement.

Retaliation is the final and most serious consequence a non-implementing Member may face in the WTO
dispute settlement system (Article 3.7 of the DSU). Suspending WTO obligations in relation to another Member
requires a previous authorization of the DSB. Although retaliation requires prior approval by the DSB, the
countermeasures are applied selectively by one Member against another.

In principle, the sanctions should be imposed in the same sector as that in which the violation or other
nullification or impairment was found (Article 22.3 (a) and Article 22.3(g) of the DSU). As you saw in Module 1,
the WTO Agreement has 4 Annexes. Annex 1 is subdivided into three. (Annex 1A comprises the GATT 1994
and the other multilateral trade agreements on trade in goods, Annex 1B the GATS, and Annex 1C the TRIPS
Agreement) Within these agreements, sectors are defined.

With regard to the TRIPS Agreement, the categories of intellectual property rights and the obligations under
Part III and those under Part IV each constitute separate sectors. In the GATS, each principal sector as
identified in the current "Services Sectoral Classification List" is a sector. With respect to goods, all goods
belong to the same sector (Article 22.3(f) of the DSU). The general principle is that the complainant should
first seek to suspend obligations in the same sector as that in which the violation or other nullification or
impairment was found. This means that, for example, the response to a violation in the area of patents should
also relate to patents. If the violation occurred in the area of distribution services, then the countermeasure
should also be in this area. On the other hand, a WTO-inconsistent tariff on automobiles (a good) can be
countered with a tariff surcharge on cheese, furniture or pyjamas (also goods).

However, if the complainant considers it impracticable or ineffective to remain within the same sector, the
sanctions can be imposed in a different sector under the same agreement (Article 22.3(b) of the DSU). This
option has no relevance in the area of goods, but, for example, a violation with regard to patents could be
countered with countermeasures in the area of trademarks, and a violation in the area of distribution services
could be countered in the area of health services.

In turn, if the complainant considers it impracticable or ineffective to remain within the same agreement, and
the circumstances are serious enough, the countermeasures can be taken under another agreement
(Article 22.3 (c) of the DSU). The objective of this hierarchy is to minimize the chances of actions spilling over
into unrelated sectors while at the same time allowing the actions to be effective. The possibility of suspending
concessions in other sectors or under another agreement is often referred to as "cross-retaliation".

In 2000, Ecuador got the authorization to cross-retaliate against the European Union in by denying them
protection of related rights, geographical indications and industrial designs. See the case Decision by the
Arbitrators, European Communities Regime for the Importation, Sale and Distribution of Bananas - Recourse
to Arbitration by the European Union under Article 22.6 of the DSU, WT/DS27/ARB/ECU, 24 March 2000 - EC -
Bananas III (Ecuador) (Article 22.6 EC).

III.I. ARBITRATION

Arbitration is available as an alternative to dispute resolution by panels and the Appellate Body (Article 25).
The Parties to the arbitration define the issues referred to arbitration and agree on the rules to be followed.
They must also agree to be bound by the arbitration award. In the EC - Bananas case, the parties used
arbitration to rule on the allocation of TRQs.

III.J. GOODOFFICES,CONCILIATIONANDMEDIATION

The parties to a dispute can agree to use good offices, conciliation or mediation to settle a dispute.

Good offices consist primarily of providing logistical support to help the parties negotiate in a
productive atmosphere.

Conciliation additionally involves the direct participation of an outside person in the discussions and
negotiations between the parties.

In a mediation process, the mediator does not only participate in and contribute to the discussions and
negotiations, but may also propose a solution to the parties. The parties would not be obliged to accept
this proposal.

Good offices, conciliation and mediation may begin at any time (Article 5.3 of the DSU), but not prior to a
request for consultations because that request is necessary to trigger the application of the procedures of the
DSU, including Article 5 (Article 1.1 of the DSU). For example, the parties can enter into these procedures
during their consultations. If this happens within 60 days after the date of the request for consultations, the
complainant must not request a panel before this 60-day period has expired, unless the parties jointly consider
that the good offices, conciliation or mediation process has failed to settle the dispute (Article 5.4 of the DSU).
However, these procedures can be terminated at any time (Article 5.3 of the DSU). If the parties so agree,
these procedures may continue, while the Panel proceeds with an examination of the matter (Article 5.5 of the
DSU).

The proceedings of good offices, conciliation and mediation are strictly confidential, and do not diminish the
position of either party in any following dispute settlement procedure (Article 5.2 of the DSU). This is important
because, during such negotiations, a party may offer a compromise solution, admit certain facts or divulge to
the mediator the outer limit of the terms on which it would be prepared to settle. If no mutually agreed
solution emerges from the negotiations and the dispute goes to adjudication, this constructive kind of flexibility
and openness must not be detrimental to the parties.

III.K. TYPESOFCOMPLAINTS

The WTO system provides for three types of complaints:

violation (Article XXIII:1(a) of GATT 1994);

non-violation (Article XXIII:1(b) of GATT 1994); and

situation complaints (Article XXIII:1(c) of GATT 1994).

These provisions are elaborated in the DSU. In general, disputes in the WTO involve allegations that a country
has violated an agreement or broken a commitment (violation complaint). However, in some situations a
government can go to the DSB even when an agreement has not been violated. These are called a non
violation complaint or situation complaints. "Non-violation" deals with a government's ability to bring a dispute
to the WTO, based on loss of an expected benefit caused by another member's actions even if no WTO
Agreement or commitment has actually been violated. It is allowed if one government can show that it has
been deprived of an expected benefit because of another government's action. A "situation" complaint is
understood to cover any situation that results in nullification or impairment.

The aim of non-violation complaints is to help preserve the balance of benefits struck during multilateral
negotiations. For example, a country may have agreed to reduce its tariff on a product as part of a market
access deal, but later subsidized domestic production so that the effect on the conditions of competition are the
same as the original tariff. A non-violation case against this country would be allowed to restore the conditions
of competition implied in the original deal.

Non-violation complaints are possible in the areas of goods and services, however, Article 64.2 of the TRIPS
Agreement prevents the application of non-violation complaints within the first five years of the entry into force
of the TRIPS Agreement. Article 64.3 of the TRIPS Agreement instructed the Council to examine the extent and
way ("scope and modalities") for non-violation and situation complaints and make recommendations to the
General Council by the end of 1999.
 Note

Important: Dispute Settlement and the Agreement on Agriculture

The Agreement on Agriculture is covered by the DSU. There have been a number or dispute settlement
cases involving the Agreement on Agriculture although there have also been a number of cases which
involved agricultural goods but did not concern the Agreement. Disputes normally cover more than one of
the WTO Agreements. For example, in EC Bananas the GATT, the General Agreement on Trade in Services
and the Agreement on the Import Licensing Procedures were also involved.

Each case also contributed to the understanding of particular provisions of the Agreement on Agriculture. In
particular, the EC Bananas case on Article 4, EC Poultry on the interpretation of Schedules and the use of
the special agricultural safeguard, Korea on domestic support and so on.

You may find a list of the disputes invoking the provisions of the Agreement on Agriculture in the Support
Documents Section.

EXERCISES

10. If an Agreement on Agriculture dispute is decided by adjudication in the WTO, what are the four steps?

11. What are the types of complaints that Members can bring when they allege breach of obligations under
the Agreement on Agriculture?

12. What is the difference between a violation complaint, a non-violation complaint, and a situation
complaint?
IV. SUMMARY

IV.A. RULESONUNFAIRTRADE

ANTI-DUMPING MEASURES, SUBSIDIES & COUNTERVAILING MEASURES

There are similarities between the provisions designed to correct the imbalances created by dumping and
certain subsidies. In both situations, the importing Member can impose a duty to compensate for the unfair
advantage (upon importation and in addition to its import tariffs).

However, dumping a private practice of firms is not prohibited by the WTO provisions. In effect, the
provisions regulate the right of the importing Member to protect its domestic market against "unfairly priced
imports". On the other hand, The provisions prohibit certain types of subsidies. Subsidies are governed by
the SCM Agreement. Subsidies on Agricultural products are governed by the Agreement on Agriculture.

Anti-dumping measures are the conditional right to take measures to correct price distorting practices of
firms. Anti-dumping measures are disciplined by GATT Art. VI and the Anti-dumping Agreement.

Dumping takes place when a product of one firm is introduced into the commerce of another country at less
than the normal value of the product. Investigations have to be conducted to determine the margin of
dumping and to define the level of the anti-dumping duty.

The WTO Agreement on Subsidies and Countervailing Measures regulates the actions countries can take to
counter the effects of subsidies. The SCM Agreement further elaborated the basic principles in Article VI
governing the investigation, determination, and application of countervailing duties. The SCM Agreement
allows Members to challenge through the WTO dispute settlement mechanism the consistency of any
subsidy programme with the WTO rules.

A Member can also use a countervailing measure if it determines that its imports are subsidized, that the
subsidized imports are causing injury to a domestic industry and there is a causal link between the subsidies
and the injury to the domestic industry. The disciplines set out in the SCM Agreement governs only specific
subsidies. The agreement defines two categories of subsidies: prohibited and actionable. It originally
contained a third category - non-actionable subsidies. This category existed for five years and ended on 31
December 1999.
IV.B. EXCEPTIONSTOTHEBASICPRINCIPLES

The WTO obligations not to discriminate, not to withdraw liberalization commitments/concessions etc may
appear to restrict the sovereign rights of Members to exercise full autonomy in trade and economic matters.
However, numerous exceptions allow Members to derogate from these market access disciplines, either
because:

Specific provisions within these disciplines permit them to do so, or

The horizontal exception enables them to do so.

There are general as well as security exceptions relating to goods, services and intellectual property. For
example, Article XIV of the GATS Agreement allows Members to take measures necessary for overriding
policy concerns, including the protection of public morals or the protection of human, animal or plant life or
health. However, such measures must not lead to arbitrary or unjustifiable discrimination or constitute a
disguised restriction to trade. If essential security interests are at stake, Article XIVbis of the GATS
Agreement provides cover.

GATT Contracting Parties and likewise Members have kept the possibility for Members to take measures to
safeguard their economic interest. Safeguard measures are taken to confront unforeseen circumstances.
GATS rules on safeguards are in Article X (general safeguards) and XII (BOP provisions) of the GATS. Article
XII of the GATS Agreement allows for the introduction of temporary restrictions to safeguard the balance-of-
payments; and a so-called "prudential carve-out" in financial services permits Members to take measures in
order, inter alia, to ensure the integrity and stability of their financial system (Annex on Financial Services,
paragraph 2. However, the disciplines are not as developed as in the GATT. Members are currently
negotiating to define rules on safeguards for trade in services.

When a WTO member enters into a regional integration arrangement through which it grants more
favourable conditions to its trade with other parties to that arrangement than to other WTO members' trade,
it departs from the guiding principle of non-discrimination defined in Article I of GATT, Article II of GATS, and
elsewhere.

WTO Members are however permitted to enter into such arrangements under specific conditions which are
spelled out in three sets of rules:

Paragraphs 4 to 10 of Article XXIV of GATT (as clarified in the Understanding on the Interpretation of
Article XXIV of the GATT 1994) provide for the formation and operation of customs unions and free
trade areas covering trade in goods;

the Enabling Clause (i.e., the 1979 Decision on Differential and More Favourable Treatment,
Reciprocity and Fuller Participation of Developing Countries) refers to preferential trade
arrangements in trade in goods between developing country Members; and

Article V of GATS governs the conclusion of RTAs in the area of trade in services, for both developed
and developing countries.
IV.C. DISPUTESETTLEMENT

WTO Members can settle their disputes in four ways: (i) consultation or negotiations; (ii) adjudication by
panels and the Appellate Body (in cases where there is an appeal); (iii) arbitration; and (iv) good offices,
conciliation and mediation.

The dispute settlement system is based on clearly defined rules, with timetables for completing a case.
Rulings are first made by a panel and appeals based on points of law are possible. Rulings made by a panel
can be appealed to the Appellate Body.
PROPOSED ANSWERS:

1. The government of Tristat must determine that:

(1) there are subsidized imports;

(2) injury to a like domestic industry is occurring; and

(3) there is a causal link between the subsidized imports and the injury.

2. The SCM Agreement provides for two types of remedies:

(a) imposition of countervailing measures; or

(b) recourse to WTO dispute settlement procedures to remove/modify the subsidy programme.

3. Vanin can, if the measure does not violate GATT Article I and/or XIII (MFN for quotas). Additionally in
some circumstances, and pursuant to Article XX a Member is able to maintain measures that otherwise
violates provisions of the GATT.

However, the Member would first need to show that the goal of the measure is recognized by one of the
exceptions listed in sub-paragraphs (a)-(j) of Article XX.

Provided the measure fulfils the criteria in sub-paragraphs (a)-(j) the Member would need to show, in
addition, that the measure is applied in such a way that it does not violate the requirements of the
opening paragraph/chapeau to Article XX. Namely, that the measure is not applied to cause arbitrary or
unjustified discrimination between Members where the same conditions exist and is not applied to
constitute a disguised restriction on trade.

4. A security exception allows a WTO Member to take any action which it considers necessary for the
protection of its essential security interests or in pursuance of its obligations under the United Nations
Charter for the maintenance of international peace and security.

When Members utilize the exception they are not required to furnish any information, the disclosure of
which would be contrary to their essential security interests.

5. No. Alba must first conduct an investigation.

The investigation must show that imports from Vanin have increased in absolute or relative terms
compared to domestic like or directly competing products, and that because of unforeseen developments,
such increased imports are either causing or threatening to cause serious injury to domestic industries
producing like products.

Safeguard measures can take the form of quantitative restrictions (otherwise contrary to GATT Article XI)
or imposition of tariffs above bound level (otherwise contrary to GATT Article II).

In addition to the general safeguard measures, the WTO rules provide for provisions to safeguard
Member's balance of payment.

6. Pursuant to the WTO rules, any trade restrictive measure that a Member take, must be consistent or in
compliance, with the rules of the international trading system. Pursuant to Article XII, XVIII:B and the
"Understanding of the Balance-of-Payments Provisions", a Member may apply import restrictions for
reasons of balance-of-payments problems.
 Article XII is invoked to "safeguard a Member's external financial position and its balance-of-payments";
Article XVIII:B mentions the need to "safeguard a Member's external financial position and ensure a level
of reserves adequate for the implementation of its programme of economic development".

Both Articles refer to the need to "restore equilibrium on a sound and lasting basis". While Article XII
mentions the objective of "avoiding the uneconomic employment of resources", Article XVIII:B refers to
"assuring an economic employment of production resources".

Article XVIII:B contains less stringent criteria than Article XII:

Article XII (paragraph 2) states that import restrictions "shall not exceed those necessary (i) to forestall
the imminent threat of, or to stop, a serious decline in its monetary reserves" or (ii) "...in the case of a
Contracting Party with very low monetary reserves, to achieve a reasonable rate of increase in its
reserves".

Article XVIII:B (paragraph 9) omits the word "imminent" from the first condition and refers to an
"inadequate" level rather than a "very low" level of reserves; "adequate" is defined as adequate for the
implementation of its programme of economic development.

Both Articles require Members to progressively relax the restrictions as conditions improve and eliminate
them when conditions no longer justify their retention.

7. Yes, but only in "exceptional circumstances".

However, pursuant to Article IX.4 of the WTO Agreement, where a waiver is granted for more than one
year, it must be reviewed annually until its termination by the Ministerial Conference. This review requires
the Ministerial Conference (or the General Council) to examine the terms and conditions of the waiver and
to determine whether they have been met by the Member invoking it, and whether the conditions
warranting its grant still exist.

8. Yes.

In a GATT compatible RTA, duties (and other regulations restricting trade) must be eliminated on
substantially all the trade between members of the RTA.

During the transition 10 years period (the interim agreement phase), duties should be phased out and
brought to zero.

However, the Enabling Clause allows developing countries to enter into RTAs among themselves with less
stringent rules.

9. There are no WTO definitions of "developing" or "developed countries". Members "self-elect" their status.

Theoretically, other Members can challenge the application of the provisions on special and differential
treatment to other Members.

The WTO Members recognized as least-developed countries (LDCs), those countries that have been
designated as such by the United Nations.

10. Consultations;

Panel Proceedings;

Appellate Review Proceedings; and

Implementation and enforcement of the recommendations and rulings of the panel/and or Appellate Body,
as adopted by the DSB.
11. Violation Complaints;

Non-violation; and

Situation Complaints.

12. "Violation" complaints involve allegations that a country has violated an agreement or broken a
commitment.

"Non-violation" alleges that, loss of an expected benefit caused by another member's actions (even if no
WTO Agreement or commitment has actually been violated). It is allowed if one government can show
that it has been deprived of an expected benefit because of another government's action, or because of
any other situation that exists.

"Situation" complaints cover any situation that results in nullification or impairment.

The aim is to help preserve the balance of benefits struck during multilateral negotiations. For example, a
country may have agreed to reduce its tariff on a product as part of a market access deal, but later
subsidized domestic production so that the effect on the conditions of competition are the same as the
original tariff. A non-violation case against this country would be allowed to restore the conditions of
competition implied in the original deal.

While non-violation complaints are possible in the areas of goods and services, the TRIPS Agreement set
a temporary moratorium on non-violation and situation complaints. Article 64 prevents the application of
non-violation complaints within the first five years of the entry into force of the TRIPS Agreement. During
that time, the TRIPS Council started looking at the extent and way ("scope and modalities") non-violation
complaints could be applied.