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Multilateral Trade Agreements
In addition to GATT 1994, there are 13 other Agreements on Trade in Goods annexed to the WTO
Agreement: Nine of these deal with regulatory matters; two are sectoral agreements that extend
GATT to certain types of goods not covered under GATT 1947; one is a program to devise a new
agreement; and one is a protocol.
The most significant aspect of these agreements is that they have to be acceded to by all WTO
member states. Disputes between member states over their application are now uniformly
governed by the WTO Dispute Settlement Understanding.
Customs Valuation – The Agreement on Implementation of Article VII of GATT 1994 (Customs
Valuation Code) is designed to harmonize the methods used by WTO member states to determine
the value of those goods. Its detailed rules are meant to provide for a fair, neutral, and uniform
system of customs valuation. A primary method and fallback methods are established.
The primary method of customs valuation is to figure the transaction value of the imported item.
This is based on “the price actually paid or payable for the goods when sold for export to the
country of importation” plus certain amounts reflecting packing costs, commissions paid by the
buyer, any royalties or license fees paid by the buyer, and any resale, disposal, or use proceeds
that accrue to the seller.
If the transaction value of imported items cannot be fairly determined, then fallback methods are
used. The first such method involves determining the transaction value of identical goods sold for
export to the same importing country at about the same time. If this value cannot be established,
then the second method is to determine the transaction value of similar items sold for export to
the importing country at about the same time. If neither of these values can be ascertained, the
deductive value method is used. In this case, the customs value is based on the price actually paid
for the greatest number of units sold to unrelated persons in the importing country at about the
same time.
Under the fourth method, the computed value is derived from the sum of (a) the cost or value of
the materials, including the cost of fabrication or processing; (b) the profit and overhead that
customarily apply to the particular goods in the exporting country; and (c) charges for handling,
transportation, and insurance. Finally, if none of these methods can be applied, a derived value is
used. This is determined by applying whichever of the other methods best fits and adjusting it to
the particular circumstances.
Preshipment Inspection – Developing states frequently engage private companies to verify
price, quantity, quality, customs classifications, and other characteristics of goods before the
goods are shipped from other states. This preshipment inspection (PSI) is meant to prevent over-
and underinvoicing and fraud, and thus prevent the flight of capital and the evasion of customs
duties. The Agreement on Preshipment Inspection authorizes developing states to make use of
PSI, but it also tries to limit its harmful trade effects.
Central to the PSI process is the verification of prices. The PSI Agreement allows an entity
engaged to carry out PSI activities to reject a contract price it believes wrong only if the entity
follows certain guidelines.
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Trade in Goods
The states in which PSI activities are carried out have certain obligations. These states must
ensure that their laws and regulations relating to PSI activities are applied nondiscriminatorily
and transparently. If requested, they also must offer to provide technical assistance to the states
engaging in PSI activities within their territories.
Disputes between an exporter and an entity engaged to carry out PSI activities are to be resolved
by mutual accord. If not, either party may refer the matter for review to an independent review
body.
Technical Barriers to Trade – The Agreement on Technical Barriers to Trade (TBT Agreement)
establishes rules governing the way WTO member states draft, adopt, and apply technical
regulations and standards to ensure that they (1) provide an appropriate level of protection for the
life and health of humans, animals, and plants, as well as for the environment; (2) prevent
deceptive practices; and (3) do not create unnecessary obstacles to trade.
Technical regulations are mandatory laws and provisions specifying (1) the characteristics of
products; (2) the processes and production methods for creating products; and (3) the
terminology, symbols, packaging, marking, or labeling requirements for products, processes, or
production methods.
Standards are voluntary guidelines that specify the same kind of requirements. Conformity
assessment procedures include the sampling, testing, and inspecting of products; their evaluation,
verification, and assurance of conformity; and their registration, accreditation, and approval.
All products, including agricultural and industrial products, are covered by the TBT Agreement,
but purchasing specifications related to the production or consumption requirements of
governmental bodies and sanitary and phytosanitary measures are not. The TBT Agreement
applies to local governments and NGOs, and central governments are required to take “reasonable
measures” to see that these bodies do so.
Sanitary and Phytosanitary Measures – The Agreement on the Application of Sanitary and
Phytosanitary Measures (SPS Agreement) is meant to complement the Agreement on Technical
Barriers to Trade by defining the measures that may be taken by WTO member states to protect
human, animal, and plant life and health.
Member states may protect the life and health of living things, but they may not do so as a
disguised means for restricting international trade, nor may they act arbitrarily to unjustifiably
discriminate between states where identical or similar conditions exist. In addition, the measures
taken must generally be justified by scientific evidence.
Case 7-4: Australia—Measures Affecting Importation of Salmon
Facts: Australia appealed from a Panel Report holding that Australia had violated Article 5.5 of
the WTO’s SPS Agreement by establishing unjustifiable distinctions in the levels of sanitary
protection it required on imports of Pacific salmon as compared to imports of herring used as bait,
and imports of live ornamental finfish.
Issue: Had Australia acted inconsistently with its obligations under Article 5.5?
Holding: Yes.
Law: To show that a WTO member state has acted inconsistently with Article 5.5, the following
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Explanation: (1) Australia’s levels of sanitary protection for Pacific salmon were quite
restrictive. Its levels of protection for herring and finfish were not so restrictive. The Panel in
ascertaining Australia’s compliance with Article 5.5 could compare these different criteria
Order: The Panel’s findings are upheld.
Trade-Related Investment Measures – The Agreement on Trade-Related Investment Measures
(TRIMs Agreement) is aimed at facilitating foreign investment and eliminating some of the
provisions commonly found in foreign investment laws that distort or reduce international trade.
In particular, the agreement forbids provisions in investment laws that discriminate unfavorably
against foreigners and that impose quantitative restrictions on the use of foreign products by
foreign-owned local enterprises.
Import-Licensing Procedures – The Agreement on Import-Licensing Procedures seeks to ensure
that import-licensing procedures are neutral in their application and administered in a fair and
equitable manner.
Forms and procedures are to be as simple as possible and applicants should have to deal only with
a single administrative body. Import licenses are not to be denied because of minor errors in
completing the application; nor are imports to be barred because of minor deviations in the value,
quantity, or weight designated on the license.
Anti-dumping – The Agreement on Implementation of Article VI of GATT 1994, or the
Anti-dumping Code, replaces codes negotiated during the Tokyo and Kennedy Rounds. The
current code defines dumping in the following way: “A product is to be considered dumped, i.e.
introduced into the commerce of another country at less than its normal value, if the export price
of the product exported from one country to another is less than the comparable price, in the
ordinary course of trade, for the like product when destined for consumption in the exporting
country.”
Significantly, the Anti-dumping Code does not prohibit dumping. It recognizes instead that the
dumping of imports may be countered through the application of anti-dumping duties, but only if
an investigation determines that the dumped imports cause or threaten to cause material injury to,
or materially retard the establishment of, a domestic industry within the importing country.
Provisional measures may be imposed after an investigation has been initiated, a preliminary
determination has been made of dumping and consequential injury to a domestic industry, and the
authorities concerned believe that such measures are necessary to prevent injury being caused
during the course of the investigation.
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Final anti-dumping duties may be imposed at the discretion of the authorities concerned upon the
completion of an investigation and a final determination that dumping, injury, and a causal link
between them exist.
Case 7-5: Nippon Steel Corporation v. United States
Facts: In 2000, the United States International Trade Commission (ITC) found that the domestic
Issue: Is there substantial evidence to support the ITC’s determination of affirmative material
injury from the dumping of certain Japanese steel imports?
Holding: Yes.
Law/ Explanation: The Federal Circuit uses “substantial evidence” review of the entire
administrative record, including ITC determinations, as the appellate review standard for the trade
Order: The Federal Circuit reverses the Court of International Trade’s decisions in Nippon IV
and Nippon V and instructs the CIT to vacate the ITC’s negative material injury and negative
threat of material injury determinations and reinstate the Commission’s affirmative material
injury determination.
Subsidies and Countervailing Measures – A subsidy is a financial contribution made by a
government (or other public body) that confers a benefit on an enterprise, a group of enterprises,
or an industry. Examples of subsidies are:
direct transfers of funds (e.g., grants, loans, and equity infusions),
potential direct transfers of funds (e.g., loan guarantees),
the foregoing of revenues (e.g., tax credits),
the providing of goods or services (other than general infrastructure), and
the conferring of any form of income or price support.
The Agreement on Subsidies and Countervailing Measures, or SCM Agreement, replaces the
1979 Subsidies Code concluded at the Tokyo Round. The SCM Agreement clearly states that its
“disciplines” apply only to “specific” subsidies; that is subsidies that target:
a specific enterprise or industry,
specific groups of enterprises or industries, or
enterprises in a particular region.
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Trade in Goods
The disciplines do not apply to (1) nonspecific subsidies, (2) certain specific subsidies defined in
the agreement, and (3) agricultural subsidies (which are governed by the Agreement on
Agriculture).
Categories of Specific Subsidies
Specific subsidies are divided into two categories: (1) prohibited subsidies (informally referred to
as red subsidies), and (2) actionable subsidies (yellow). The agreement originally contained a
third category: nonactionable subsidies. This category existed for five years, ending on December
31, 1999, and was not extended.
Prohibited subsidies (red subsidies) are subsidies that either (1) depend upon export performance
or (2) are contingent upon the use of domestic instead of imported goods. Actionable subsidies
(yellow subsidies) are subsidies that may or may not be trade distorting, depending on how they
are applied. They are defined as specific subsidies that, in the way they are used, (1) injure a
domestic industry of another member state, (2) nullify or impair benefits due another member
state under GATT 1994, or (3) cause or threaten to cause “serious prejudice” to the interests of
another member state.
Remedies and Countervailing Measures
A WTO member state that believes that its domestic industries have been injured by either
prohibited subsidies or actionable subsidies is given four options: (1) do nothing, (2) request
consultations, (3) seek a remedy from the WTO, or (4) independently impose countervailing
duties.
If an injured member state chooses to do nothing, neither the WTO nor any other member state is
entitled to intervene. To obtain a remedy from the WTO, a member state claiming an injury must
first consult with the subsidizing member state. If the two states are unable to find a mutually
acceptable solution, either one may refer the matter to the WTO’s Dispute Settlement Body
(DSB) for the latter to set up a Panel.
If the Panel concludes that there is a prohibited subsidy, it will recommend the subsidy’s
withdrawal; if it concludes that there is an actionable subsidy, it will recommend that the
subsidizing member state either remove the subsidy’s adverse effects or withdraw the subsidy. If
neither party appeals to the DSB’s Appellate Body, the DSB must promptly adopt the report
(unless it rejects it by consensus). If there is an appeal, the Appellate Body’s decision must be
unconditionally observed.
Case 7-6: United States—European Communities—Measures Affecting Trade in Large Civil
Facts: The United States complained that the European Union was providing illegal subsidies to
Airbus companies in violation of Articles 3, 5, and 6 of the SCM Agreement and Articles III:4,
XVI:1, and XXIII:1 of GATT 1994. The measures at issue in this dispute are more than 300
separate instances of alleged subsidization, over a period of almost 40 years, by the European
Communities and four of its member States, France, Germany, Spain and the United Kingdom,
with respect to large civil aircraft (“LCA”) developed, produced and sold by the company known
today as Airbus SAS. The measures that are the subject of the U.S. complaint may be grouped
into five general categories: (i) “Launch Aid” or “member State Financing” (LA/MSF); (ii) loans
from the European Investment Bank; (iii) infrastructure and infrastructure-related grants; (iv)
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corporate restructuring measures; and (v) research and technological development funding. The
United States claims that each of the challenged measures is a specific subsidy within the
meaning of Articles 1 and 2 of the SCM Agreement, and that the European Communities and the
four member States, through the use of these subsidies, cause adverse effects to the U.S. interests
within the meaning of Articles 5 and 6 of the SCM Agreement. In addition, the United States
claims that seven of the challenged LA/MSF measures are prohibited export subsidies within the
meaning of Article 3 of the SCM Agreement.
Issue: Were the subsidies, which were provided by members of the European Union to Airbus
companies, prohibited under the SCM Agreement and GATT 1994?
Holding: Yes.
Law / Explanation: The WTO panel considered whether subsidies provided by members of the
Order: The panel recommended the immediate withdrawal of all subsidies found to be
prohibited.
If a member state does not comply with a DSB-adopted report or Appellate Body decision, the
DSB will authorize (unless it agrees by consensus not to do so) a complaining member state to
adopt countervailing measures. A countervailing measure is defined in the SCM Agreement
simply as a duty specially levied to offset a subsidy.
A state may independently impose countervailing duties so long as it follows the procedures
specified in the SCM Agreement.
Developing States and States Transitioning to Market Economies
Developing states are given special treatment in the SCM Agreement. The least developed states
and developing states with a per capita income of less than U.S. $1,000 are allowed to use
subsidies based on export performance and were given until the year 2003 to phase out subsidies
based on domestic content. Other developing states were required to phase out both kinds of
subsidies by the end of 1999.
Safeguards – Safeguards are emergency actions that a WTO member state may take to protect its
domestic industries from serious injury from a sudden increase in the quantity of an imported
product. Until the Agreement on Safeguards was adopted with the inauguration of WTO, the
provisions of Article XIX (entitled “Emergency Actions on Imports of Particular Products”) of
GATT 1947 governed safeguards.
A WTO member state may apply safeguard measures against a product only after conducting an
official investigation to determine that the product is being imported into its territory in such
increased quantities and under such conditions as to cause or threaten to cause serious injury to
the domestic industry that produces like or directly competitive products. The measures must then
be applied to a product (1) regardless of its origin and (2) only for the time and to the extent
necessary to prevent or remedy serious injury and to facilitate adjustment.
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To encourage domestic industries to make adjustments, any safeguard measure that is to last
longer than one year must be progressively liberalized at regular intervals over its lifetime. If it is
to last for more than three years, a review must be made by its midterm to determine if the
measure should be withdrawn or liberalized more quickly. The WTO Safeguards Committee
meets twice a year to review all safeguard actions and notifications by member nations.
Agriculture – The Agreement on Agriculture establishes guidelines for “initiating a process of
reform of trade in agriculture.” Its ultimate goal is the establishment of a market-oriented system
for trade in agricultural products that is free of restrictions and distortions.
To begin the process of reform, the agreement:
specifies the agricultural products it governs;
requires that nontariff barriers to agricultural imports be converted into customs tariffs;
defines permissible forms of domestic supports;
defines export subsidies;
phases in initial reductions in tariffs, impermissible domestic support measures, and export
subsidies during a six-year implementation period (developing countries are given a 10-year
period); and
progressively integrates international trade in agricultural products into the GATT system.
The agricultural products governed by the agreement include foodstuffs (except for fish and fish
products), hides, skins, animal hairs, raw cotton, raw flax, raw hemp, raw silk, and certain related
products. Domestic agricultural support measures and export subsidies for agricultural products
can sometimes restrict or distort trade. The Agreement on Agriculture provides for the gradual
phasing-in of member state obligations.
Textiles and Clothing – The Agreement on Textiles and Clothing is designed to eliminate the
current system of special arrangements governing international trade in these products. Prior to its
adoption, a series of collateral arrangements had been entered into by the states principally
involved in the clothing and textiles trade that created an exception to the GATT principle of
protection through tariffs. The Agreement on Textiles and Clothing provided for the complete
elimination of the Multi-Fiber Arrangement at the end of a 10-year transition period.
Rules of Origin – Rules of origin are important in implementing such trade policy instruments as
antidumping and countervailing duties, origin marking, and safeguard measures. The Agreement
on Rules of Origin is essentially a program outlining procedures for bringing about an
international system of harmonized rules of origin. Rules of origin are the laws, regulations, and
administrative procedures used by states to determine the country of origin of goods.
According to the guidelines set out in the Agreement on Rules of Origin, the resulting rules of
origin are to be:
coherent;
objective, understandable, and predictable;
administered in a consistent, uniform, impartial, and reasonable manner;
applied equally to each member state’s nonpreferential commercial policy instruments; and
based on a positive standard.
II. Chapter Questions
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Trade in Goods
Customs Valuations
1. Students’ answers may vary. Possible answers include:
If the transaction value of the widgets cannot be fairly determined, then fallback methods are
used. The first such method involves determining the transaction value of identical widgets sold
for export to the same importing country at about the same time. If this value cannot be
Under the fourth method, the computed value is derived from the sum of (a) the cost or value of
the materials, including the cost of fabrication or processing; (b) the profit and overhead that
©2013 Pearson Education, Inc. Publishing as Prentice Hall
