INTRODUCTION
National treatment and most favoured nation principles both incorporated under General Agreement on Tariffs and Trade (GATT) 1947 to regulate the international trade between the Nation Members. These two are the core principle of the General Agreement on Trade and Tariff (GATT), although the GATT is replaced by the WTO. The Uruguay round leads to Marrakesh agreement which established the WTO on 1st January 1995. These two basic fundamental principles of GATT 1947 continuously remain the same in the WTO and taken the same position under the world trade organisation (WTO) agreement as in GATT.
Article I and III of GATT deal with the most favoured nation and national treatment respectively.
Both principles are used only at the international level. National treatment is an integral part of the various agreement deal with WTO. National treatment along with the most favoured nation is one of the cornerstones of the WTO trade law. The WTO integrates GATT principles and provides a more robust structural basis for their application and extension.
WHAT IS WORLD TRADE ORGANIZATION ( WTO)[1]
WTO is an international organisation in the world that deal with trade regulation among the nations. WTO established in 1995 under the Marrakesh Agreement. It administers the trade agreement negotiated by its member, in GATT, GATS, and TRIPs.
The conclusion of the Uruguay round of GATT negotiated leads to the formation of WTO.
OBJECTIVES OF WTO
- Implementing a new system of world trade.
- To promote world trade in a manner that benefits every country.
- To increase the level of production and productivity
- Ensuring the level of employment in the world
FUNDAMENTAL PRINCIPLE OF WTO
- Most favoured nation treatment
- National treatment
- Reduce trade barriers
- Trade system should provide more privileges and advantage to less developed countries.
- The trading system should be predictable with foreign companies.
SUBJECTS OF WTO
- Agricultural
- Services
- Non-agricultural
- Intellectual property rights
- Trade and environment
- Dispute settlement
The WTO integrates GATT principles and provides a more robust structural basis for their application and extension. The WTO has replaced the GATT as the umbrella organisation for international trade, but the provisions of the GATT remains in force as one of the WTO agreement.
WHAT IS GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT)[2]
GATT is a multilateral agreement between the various countries which has a purpose to promote international trade between countries, reduce tariffs, and other trade barriers.
PURPOSE OF GATT
- Substantial reduction of tariffs and other trade barriers
- Elimination of preferences, on a reciprocal; and mutually advantageous basis.
- To expand international trade and bring about economic prosperity.
OBJECTIVES OF GATT
- Raising living standard
- Ensuring full employment
- Reducing and eliminating trade barriers
- Expanding the production of goods and their exchange
The GATT was first addressed at the united nation conference on trade and employment and was the result of a failure of the international trade organisation (ITO) negotiation between the government.it was signed on 30th October 1947 in Geneva by 23 nations and come into effect on 1st January 1948.
Each GATT member expected to open their market equally for other member nation and eliminate the discrimination. GATT 1994 is the amended form of GATT 1947. GATT 1994 contains the provisions of GATT 1947.
THE FUNDAMENTAL PRINCIPLE OF GATT
There are four fundamental principles of GATT
- Most favoured nation treatment
- National treatment
- Protection through tariffs
- Dispute settlement
MOST FAVOURED NATION (MFN)
“The most favourable market access offered to anyone country must be offered to all other member countries”.[3]
The MFN principle is that country do not differentiate between the trading partners; all WTO member must always be granted favourable treatment that a nation gives to its trading partner.
MFN’s principle is also that whenever certain rights are given to any member nation by another WTO member nation, then the other WTO member nations must be given the same Rights with similar goods.
Article 1 of the GATT deals with the most favoured nation treatment;
It is an obligation to all contracting parties that customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.[4]
Any concession granted by the contracting party to a product of another country “shall be accorded immediately and unconditional to be like product originating in or destined for the territories of all other contracting parties”.
OBJECTIVES OF MFN
- To promote trade
- Provide and encourage fair trade opportunity
- Maximise the efficiency
- Promote further reciprocal liberalization
ESSENTIAL OF MFN
- any advantages, favour, privileges or immunity granted by the contracting parties
- Like product
- Shall be accorded immediately and unconditional to be like product originating in or destined for the territories of all other contracting parties.
- Any advantages, favour, privileges or immunity granted by the contracting parties
A wide range of advantages and privileges granted by the contracting parties under GATT are
- Custom duties
- Charges of any kind imposed on importation and exportation
- Charges of any kind imposed on the international transfer of payments for import and export, etc.
- Like product
The concept “like product” is explained by the appellate body which states that “like product” should be treated equally regardless of their origin. The product which is not “like product” does not come ambit of the MFN principle and that maybe treat differently.
- Characteristics of like product
- Physical Characteristics
- Consumer taste and preferences
- Tariff application
- Shall be accorded immediately and unconditional to be like product originating in or destined for the territories of all other contracting parties.
This means that if the member of the WTO has given the advantage or other privileges to imports from any other country, that the member of WTO shall be accorded immediately and unconditional extend that advantage to all other members of WTO nations as regards the importation of all the same product from all WTO member.
EXCEPTION
There are two main types of an exception under GATT namely
- General exception
- Security exception
- General Exception–
Article XX allows an exception to measure which the contracting party feels necessary to protect:[5]
- Public order;
- Human, animal or plant life or health;
- Trade-in gold and silver
- Secure compliance of law and regulation not inconsistent to GATT
- Relating to a product of prison labour
- Imposed for the protection of national treasures of artistic, historic or archaeological value.
- Relating to the conservation of exhaustible natural resource essential to the acquisition of product in general or local short supply
- Security Exception –
Nothing in this agreement shall be construed[6]
(a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or
(b) To prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests.
(i) Relating to fissionable materials or the materials from which they are derived;
(ii) Relating to the traffic in arms, ammunition and implements of war and such traffic in other goods and materials as is carried on directly or indirectly to supply a military establishment;
(iii) Taken in time of war or other emergencies in international relations; or
(c) To prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.
NATIONAL TREATMENT
Under the national treatment, a member should not discriminate its domestic product and import product. In other words, giving the same treatment as one’s own nation.
Article III of the GATT deals with the national treatment principle and its states that imported and local goods should be treated equally. And the same should be applied to foreign and domestic service, and the foreign and local trademarks, copyrights and patents.
National treatment only applies once a product, service or item of intellectual property has entered the market.
Therefore, charging customs duty on an import is not a violation of national treatment even if locally-produced products are not charged an equivalent tax.
This rule prevents countries from taking discriminatory measures on imports on the one hand, and to prevent countries from offsetting the effects of tariff through non-tariff measures.
OBJECTIVE OF NATIONAL TREATMENT
- To promote trade at international level.
- Ensure the equal level of treatment.
EXCEPTION [7]
There are few exceptions to this are:-
- Government Procurement: – The provisions of this Article shall not apply to laws, regulations or requirements governing the procurement by governmental agencies of products purchased for governmental purposes and not with a view to commercial resale or to use in the production of goods for commercial sale.
- Domestic Subsidies: – The provisions of this Article shall not prevent the payment of subsidies exclusively to domestic producers, including payments to domestic producers derived from the proceeds of internal taxes or charges applied consistently with the provisions of this Article and subsidies effected through governmental purchases of domestic products.
- Promoting The Establishment Of Infant Industries: – member van raises the standard of living of its people by promoting establishing of infant industries. Article XVII: C procedure allows both border measures and violation of the national treatment obligation to promote domestic infant industries.
CONCLUSION
The most favoured nation and national treatment are the cornerstones of the GATT/WTO and the various other treaties. Both the principle states that a WTO member should not discriminate the other WTO member in respect of goods and services. These two principles used only at an international level. Through these two principles, all the WTO member received equal treatment irrespective of their nationality. Under most favoured nation treatment, any concession granted by the contracting party to a product of another country “shall be accorded immediately and unconditional to be like product originating in or destined for the territories of all other contracting parties”.
And under the national treatment principle, the imported and local goods should be treated equally.
[1] International trade law, Niharika Vij
[2] International trade law, Niharika Vij
[3] International trade law, Niharika Vij
[4] Article I, GATT, 1947
[5] Article XX, GATT, 1947
[6] Article XXI, GATT,1947
[7] International trade law, Niharika Vij
This Article is Auhored by RASHMI RAWAT, 4th YEAR And BBA-LLB Student at Fairfield Institute of Management and Technology, New Delhi.
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