COURSE ON WTO LAW AND JURISPRUDENCE PART I: BASIC WTO LEGAL PRINCIPLES Tariffs Session 2 11 October 2018
ARTICLE II:1 OF THE GATT 1994 Article II:1(a) of the GATT provides: Each [Member]shall accord to the commerce of the other [Members] treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement.
ARTICLE II:1 OF THE GATT 1994 (CONT.) Article II:1(b) of the GATT provides: The products described in Part I of the Schedule relating to any [Member], which are the products of territories of other [Members], shall, on their importation into the territory to which the Schedule relates, and subject to the terms, condition or qualifications set forth in that Schedule be exempt from ordinary customs duties in excess of those set forth and provided herein. Such products shall also be exempt from all other duties or charges of any kind imposed on or in connection with the importation in excess of those imposed on the date of this Agreement or those directly and mandatorily required to be imposed thereafter by legislation in force in the importing territory on that date.
ARTICLE II:1 OF THE GATT 1994 (CONT.) The provisions of Article II are important because they preserve the balance of tariff concessions. The Appellate Body stated: A basic object and purpose of the GATT 1994, as reflected in Article II, is to preserve the value of tariff concessions negotiated by a Member with its trading partners, and bound in that Member's Schedule. Once a tariff concession is agreed and bound in a Member's Schedule, a reduction in its value by the imposition of duties in excess of the bound tariff rate would upset the balance of concessions among Members. Appellate Body Report, Argentina Textiles, para. 47.
ORDINARY CUSTOMS DUTIES What is an "ordinary customs duty"? The WTO agreements do not define an "ordinary customs duty". Black's Law Dictionary defines it as a duty imposed by a government on imported or exported goods (para.1468)
Tariff/Duty Type Description Example(s) Specific Ad valorem Mixed Compound "Technical" / other Based on a unit of measure such as the weight, volume, etc. of the goods. Percentage of the value of the goods. Alternative between an ad valorem duty and a specific duty. An ad valorem duty to which a specific duty is added. Based on specific contents, or on duties that apply to related products or components. Based on chart produced by WTO Market Access Division 5 dollars per kilogram. 7% (so the duty on a car worth US$7,000 would be US$490). 7% or 5 dollars per kilogram whichever is less; 7%, but not more than 5 dollars per kilogram. 7% + 5 dollars per kilogram. For batteries: 0.55 /kg on the manganese content; 48 each + 4.6 % on the case + 3.5 % on the battery.
ORDINARY CUSTOMS DUTIES (CONT.) Tariff rate quotas: 100$ There are at least two levels of tariffs 5 $ Tariff differentiation is based on volumes imported 10000 t
ORDINARY CUSTOMS DUTIES (CONT.) Not all products are subject to tariff concessions. Tariff concessions are set out in a Member's Schedule of Concessions. Each WTO Member has a separate Schedule of Concessions (special case: the EU). Pursuant to Article II:7 of GATT, a Member s Schedule of Concessions is an integral part of this agreement. Note that Article XII Member s Schedules of Concessions in goods and services become Schedules of the GATT/GATS, respectively, according to Section II of each WTO Accession Protocol.
ORDINARY CUSTOMS DUTIES (CONT.) Each Schedule has four parts: Part I MFN Concessions Section IA tariffs on agricultural products Section IB - tariff quotas on agricultural products Section II other products Part II Preferential concessions Part III Concessions on non-tariff measures Part IV Specific commitments on domestic support and export subsidies on agricultural products
ORDINARY CUSTOMS DUTIES (CONT.) The most salient elements in Part I of a Schedule are the following: Tariff item number. Description of the product. Bound rate of duty. Initial Negotiating Rights (INRs), current and historical. Other duties or charges. Special Safeguards (SSG) (for agriculture products). Determining a Member s concession on a particular tariff line could involve the examination of several legal instruments. http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_tabl e_e.htm
ORDINARY CUSTOMS DUTIES (CONT.) Can a Member, which has bound an ad valorem customs duty, apply a specific customs duty instead? VS Argentina Textiles and Apparel (DS56): Article II:1(b) does not state whether the type of duty applied may differ from that listed in the Schedule. Argentina bound an ad valorem duty of 35 percent on textiles. However, it applied a specific minimum duty (DIEM). The panel found that as the binding was in ad valorem terms, Argentina could not apply a specific minimum duty. The Appellate Body found that Article II:1(b) requires Members to refrain from applying duties above bindings.
ORDINARY CUSTOMS DUTIES (CONT.) "the structure and design of the Argentine system is such that for any DIEM, no matter what ad valorem rate is used as the multiplier of the representative international price, the possibility remains that there is a 'break-even' price below which the ad valorem equivalent of the customs duty collected is in excess of the bound ad valorem rate of 35 percent." "It is possible for a Member to design a specific duty system containing a "ceiling" or "cap" on the level of duty applied: ensuring that the equivalent ad valorem rate remained below the binding." Appellate Body Report, Argentina Textiles, paras. 41-56.
OTHER DUTIES AND CHARGES (ODCs) What are "other duties and charges" ("ODCs")? No definition. In practice, any duty or charge "in addition" to an ordinary customs duty. Wide variety of charges, such as development taxes, foreign exchange fees, revenue duties, etc. Article II:1(b), second sentence: products listed in the Schedules cannot be subject to ODCs unless (i) they were imposed at the date of the GATT or (ii) they were mandatorily required to be imposed at that date. In Peru Agricultural Products the Appellate Body upheld the Panel's finding that the PBS additional duties are "variable import levies" in the Agreement on Agriculture. Not an "ordinary customs duty" and therefore an "other duty or charge" within the meaning of Article II:1(b) of the GATT 1994, second sentence. Upheld Panel's finding. Appellate Body Report, Peru Agricultural Products, paras. 5.74, 6.6.b.
OTHER DUTIES AND CHARGES (ODCs) (CONT.) How do we know if a Member has ODCs? Prior to the WTO Agreement: no record of the level and nature of ODCs. Thus, a complainant has to show that the ODC was not in place or required under domestic legislation of the importing Member as of the time when the concession was made. Now, pursuant to the Understanding on the Interpretation of Article II:1(b), all ODCS have to be recorded for transparency reasons. The date as of which ODCs are bound is 15 April 1994.
OTHER DUTIES AND CHARGES (ODCs) (CONT.) Dominican Republic Cigarettes (DS 302) VS In 2003 and 2004, the Dominican Republic introduced (i) a transitional surcharge and (ii) a foreign exchange fee on the importation of certain goods. The panel found that the two measures were applied in addition to ordinary customs duties and therefore were not in the nature of ordinary customs duties. The Dominican Republic claimed that the measures were covered by a notification it made pursuant to the Understanding on the Interpretation of Article II:1(b).
OTHER DUTIES AND CHARGES (ODCs) (CONT.) Also, the Dominican Republic's notification (pursuant to the Understanding) was made with respect to the Selective Consumption Tax, (which is an internal measure) not with respect to any of the charges at issue. The panel concluded then that there was no legally valid recording of ODCs in the Dominican Republic's Schedule of Concessions as required by the Understanding. Thus, "[f]or all legal and practical purposes, what was notified by the Dominican Republic in document G/SP/3 is equivalent to 'zero' in the Schedule." Therefore, it found that both were ODCs "applied in excess of the level zero pursuant to the Schedule", and were inconsistent with Article II:1(b), second sentence. Panel Report, Dominican Republic Cigarettes, paras. 7.23 7.103; 7.106 7.122)
OTHER DUTIES AND CHARGES (ODCs) (CONT.) Apart from the imposition of ordinary customs duties in excess of bound rates or the imposition of non-permitted ODCs, in what other manners can the value of concessions be undermined? Reclassification of a product under a different heading having a higher ordinary customs duty (EC Chicken Cuts). Modification of criteria for the valuation of goods (ad valorem duties) (Colombia Indicative Prices and Ports Restrictions).
OTHER DUTIES AND CHARGES (ODCs) (CONT.) Article II:2 exempts certain measures from Article II:1: a) a charge equivalent to an internal tax imposed consistently with the provisions of paragraph 2 of Article III in respect of the like domestic product or in respect of an article from which the imported product has been manufactured or produced in whole or in part; b) any anti-dumping or countervailing duty applied consistently with the provisions of Article VI; c) fees or other charges commensurate with the cost of services rendered.
MODIFICATION OF TARIFFS
APPLICABLE LEGAL INSTRUMENTS Article XXVIII of GATT 1994 Article XXVIII of the GATT 1994 (main provision on modification of schedules) Ad Notes to Article XXVIII (clarify definitions and procedures) Understanding on Article XXVIII (definition of Principal Supplying Interest ( PSI ); conversion of unlimited tariff concession into TRQ) 1980 Instruments 1980 Procedures for Negotiations under Article XXVIII ( 1980 Guidelines ) (procedures for the negotiation of modification of schedules) 1980 Procedures for Modification and Rectification of Schedules of tariff concessions ( 1980 Procedures ) (procedures for certification of rectifications of purely formal character and certification following substantive modifications)
TYPES OF CHANGES MODIFICATION/WITHDRAWAL - Renegotiation/withdrawal of concessions - Increases in bound rates resulting from formation of a customs union (GATT Art. XXIV:6) - Amendments to reflect latest version of Harmonized System RECTIFICATION - Rectifications of purely formal character - New concessions resulting from plurilateral arrangements (e.g. ITA) CERTIFICATION
TYPES OF CHANGES MODIFICATION/ WITHDRAWAL Art. XXVIII RENEGOTIATIONS CERTIFICATION (i) Article XXVIII 1980 Guidelines (ii) 1980 Procedures RECTIFICATION (purely formal) CERTIFICATION (i) 1980 Procedures
WHEN CAN YOU MODIFY? There are designated three-year periods (beginning on 1 January 1958) during which WTO Members can notify their interests to modify their schedules. The current three-year period is 1 January 2018 31 December 2020. Cyclical Renegotiation (Article XXVIII:1) Authorization must be requested between three and six months before start of the three-year period. Negotiations must conclude by end of the period. No need to reserve rights in advance. Renegotiation in "special circumstances" (Article XXVIII:4) Request for authorization at any time. Must be approved by CTG. Complete negotiations within 60 day period (can be extended by CTG) Renegotiations following a reservation (Article XXVIII:5) WTO Members having reserved their right at the beginning of the period may renegotiate at any time. Most common.
HOW TO MODIFY A GOODS SCHEDULE? Initiating Member submits notification to Secretariat for circulation in a Secret document to all WTO Members. Notification must include: i. List of items intended to be modified/withdrawn with corresponding tariff lines; ii. iii. Intention to modify (increase duty/convert to TRQ/convert to tariff) or withdraw; Statistics of imports by country of origin for past three years. Advise parties primarily concerned (INRs, PSI) it is ready to enter into negotiations on compensatory adjustments.
WTO MEMBERS WITH RIGHTS TO NEGOTIATIONS OR CONSULTATIONS 1. INITIAL NEGOTIATING RIGHTS ( INRs ) Member that had originally negotiated the concession. - Right to negotiations 2. PRINCIPAL SUPPLYING INTEREST ( PSI ) - Right to negotiations - Member with the largest share of imports in the requesting Member's market over the past three years; or - Member with the highest ratio of exports affected by the concession. Only MFN trade. 3. SUBSTANTIAL INTEREST ( SI ) No specific definition. 10% of trade - Right only to consultations
PSI, SI EXERCISE: WTO Member X notifies its intention to renegotiate its tariff concession for poultry. Who has PSI and SI? Value (in thousand euros) Quantity (in tons) 2003 2004 2005 Average 2003 2004 2005 Average 2003-2005 2003-2005 Total 223,338.4 120.2 5,911.8 76,456.8 137,693.0 427.8 3,271.7 47,130.8 Switzerland 4.9 1.6 0.2 0.1 Nicaragua 0.7 0.2 0.0 0.0 Bulgaria 1.3 0.4 0.1 0.0 Ukraine 9.4 3.1 20.0 6.7 USA 149.5 18.3 55.9 26.0 1.5 9.2 Brazil 138,846.2 87.7 5,887.4 48,273.8 88,764.4 423.8 3,231.1 30,806.4 Bolivia 0.1 0.0 0.0 0.0 Argentina 2,289.4 763.1 1,432.7 477.6 Israel 11.8 7.9 4.1 8.0 1.5 2.0 0.6 1.4 Thailand 82,040.2 0.5 27,346.9 47,468.3 0.1 15,822.8 China 0.1 0.0 0.2 0.1 Australia 0.1 0.0 0.0 0.0 N. det. Extra 10.9 3.6 20.0 6.7
NEGOTIATION PROCESS I. Claim of interest Members with INRs, PSIs or SIs communicate their claim in writing within 90 days of the notification. If initiating Member recognises the claim, it constitutes a determination within the meaning of Article XXVIII:1. What if claim of interest is not recognized? (discussed later). II. Negotiations Bilateral negotiations between initiating Member and Members with INR & PSI and consultations with Members with SI. Upon conclusion, initiating Member notifies Secretariat and with initialled joint letter and final report, then circulated to all WTO Members. III. Certification Initiate procedures to reflect resulting changes in its Schedule using 1980 Procedures.
NEGOTIATION PROCESS What if the PSI or SI claim of interest is not recognised? Member making the claim can refer the matter to the General Council for determination (para. 4 of 1980 Procedures). What happens if the General Council does not make a determination? Honduras and Guatemala raised the non-recognition of rights at General Council. Agenda item from 2005 to 2009. EU Poultry (China) (DS492): China challenged EU failure to determine it as an SI holder. Panel found that: (i) it had jurisdiction over this matter; and (ii) the EU did not violate Article XXVIII because China did not export the relevant product during the reference period.
WHAT IF NO AGREEMENT? Initiating Member can implement its modification or withdrawal even without agreement (Article XXVIII:3). It is an absolute right. But Members with INRs, PSIs and SIs can withdraw equivalent concessions (retaliate) to restore balance of concessions. If agreement with INRs/PSIs reached, but SI not "satisfied", SI can retaliate separately.
MODALITIES OF RETALIATION Retaliation should be on items on which the initiating Member (EU) has an INR in the Schedule of the Member with the claim of interest (Affected Member). This requires looking at the Schedule of Concessions of the affected Member. Claiming Member has to give 30 days notice. Retaliation: - must take place no later than six months after the modification or withdrawal of the concession; - may be applied for as long as the initiating Member maintains its modified Schedule.
1980 PROCEDURES FOR CERTIFICATION Detailed procedures for certifying purely formal rectifications or modifications resulting from action taken under Article II, Article XVIII, Article XXIV, Article XXVII or Article XXVIII. Changes that do not alter the scope of a concession or rectifications of a purely formal character communicated to DG to be certified. Objections must be provided to DG within 3 months. Objections can be filed if draft Schedule does not correctly reflect the modifications agreed to, or if the proposed rectification is not purely of a formal nature. Certifications shall record date of entry into force/effective date.