B.A. LL.B.(HONS.

) 5 YEAR COURSE EIGHTH SEMESTER

International Trade Law CODE NO.1775A

UNIT-I: TRADE IN GOODS-I

General Agreement on Tariffs & Trade (GATT), Agreement on Agriculture, Agreement

on Sanitary & Phytosanitary Measures, Agreement on Technical Barriers to Trade

TRADE IN GOODS-I

General Agreement on Tariffs & Trade (GATT)

The General Agreement on Tariffs and Trade (GATT), which was signed on October 30,
1947, by 23 nations, was a legal agreement that aimed to reduce trade barriers by abolishing
or decreasing quotas, tariffs, and subsidies while retaining considerable restrictions. The
GATT was created to help the world economy recover after World War II by rebuilding and
liberalising global commerce. On January 1, 1948, the GATT came into effect. It has been
developed since then, culminating in the founding of the World Trade Organization
(WTO) on January 1, 1995, which integrated and expanded it. By this time, 125 countries had
signed on to its accords, which covered almost 90% of world commerce. The GATT is
overseen by the Council for Trade in Goods (Goods Council), which is made up of
representatives from all WTO member nations. Market access, agriculture, subsidies, and
anti-dumping measures are among the topics addressed by the council’s ten committees. This
article helps the readers understand GATT in a better way.

General Agreement on Tariffs and Trade: an understanding

The GATT was established to set out regulations to eliminate or limit the most costly and
inefficient characteristics of the pre-war protectionist period, notably quantitative trade
barriers like trade restrictions and quotas. The agreement also established a mechanism for
resolving international commercial disputes, as well as a framework for multilateral tariff
reduction discussions. In the post-war years, the GATT was seen as a great success. Trade
without discrimination was one of the GATT’s major accomplishments. Every GATT
signatory was to be treated on an equal footing with the others.

The ‘most-favoured-nation’ concept, as it is known, has been carried over into the WTO.
There were escape provisions in place, allowing nations to negotiate exclusions if tariff

1
reduction would disproportionately hurt domestic producers. When it came to determining
tariffs, most countries used the most-favoured-nation approach, which virtually supplanted
quotas. Other broad requirements were consistent customs laws and each signatory nation’s
commitment to negotiate tariff reductions upon another’s request. Contracting nations might
change agreements if their local producers incurred disproportionate losses as a result of trade
concessions, according to an escape clause.

History behind the General Agreement on Tariffs and Trade

The GATT’s main focus was on resolving individual trade concerns affecting specific
commodities or trading states, although large multilateral trade conferences were conducted
on a regular basis to hammer out tariff reductions and other issues. From 1947 to 1993, seven
such “rounds” were held, beginning with those in Geneva in 1947 (concurrent with the
signing of the general agreement), Annecy, France, in 1949, Torquay, England, in 1951, and
Geneva in 1956 and again in 1960–62. The Kennedy Round (1964–67), the Tokyo
Round (1973–79), and the Uruguay Round (1986–94) were the most important rounds, all
held in Geneva. These agreements were successful in lowering average tariffs on industrial
goods throughout the world from 40% of their market value in 1947 to less than 5% in 1993.

The Uruguay Round was the most comprehensive collection of trade liberalization accords
ever negotiated by the GATT. At the end of the round, a global trade deal was signed that
dropped tariffs on industrial products by an average of 40%, decreased agricultural subsidies,
and contained ground-breaking new accords on services trade. The agreement also
established the World Trade Organization (WTO) as a new and stronger global organization
tasked with monitoring and regulating international trade. With the completion of the
Uruguay Round on April 15, 1994, GATT ceased to function. The WTO established its
principles and the numerous trade agreements achieved under its auspices.

GATT Articles that are included in the Final Act have been provided hereunder:

1. Article II (Schedules of Concessions): Agreement to record “additional levies or

charges” paid in addition to the recorded tariff in national schedules and bind them
at the levels in effect at the time the Uruguay Round Protocol was signed.

2
2. Article XVII (State-trading Enterprises): By enforcing stricter notification and
review procedures, they will be able to keep a closer eye on their operations.

3. Articles XII and XVIII:B (Balance-of-payments provisions): Agreement that

contracting parties should impose balance-of-payments limitations in the least
trade-distorting way possible, preferring price-based measures such as import
surcharges and import deposits over quantitative limits. The agreement was also
reached on protocols for GATT Balance-of-Payments (BOP) Committee
discussions and notification of BOP measures.

4. Article XXIV (Customs Unions and Free-Trade Areas): Agreement defining

and reinforcing the criteria and processes for evaluating the implications of new or
expanded customs unions or free-trade zones on third parties. In the event that
contracting parties join a customs union and wish to increase a binding tariff, the
agreement defines the method to be followed to achieve any necessary
compensating adjustment. Contracting parties’ duties in relation to actions
implemented by regional or local governments or authorities within their
jurisdictions are also defined.

5. Article XXV (Waivers): Agreement on new processes for awarding exemptions

from GATT disciplines, including the specification of termination dates for any
future waivers and the fixation of expiry dates for current waivers. However, the
major clauses addressing the granting of exemptions are included in the WTO
Agreement.

6. Article XXVIII (Modification of GATT Schedules): Agreement on new

processes for discussing compensation when tariff bindings are amended or
removed, including the establishment of a new negotiating right for the nation
whose exports are dominated by the goods in issue. Smaller and developing
nations will be better able to engage in discussions as a result of this.

7. Article XXXV (Non-application of the General Agreement): After entering

tariff discussions with each other, an agreement to allow a contracting party or a
newly acceding nation to exercise GATT’s non-application provisions against the
other party. Any use of the WTO Agreement’s non-application provisions must
apply to all multilateral agreements, according to the agreement.

3
Agreements under GATT

1. Agreement on Agriculture: The Agriculture Agreement (AoA) is a World Trade

Organization (WTO) international treaty. It was negotiated at the Uruguay Round
of the General Agreement on Tariffs and Trade, and it went into effect on January
1, 1995, when the WTO was established.

2. Agreement on Sanitary and Phytosanitary Measures: The Sanitary and

Phytosanitary Measures Agreement lays down the groundwork for food safety as
well as animal and plant health requirements. It empowers countries to create their
own standards, which should only be used to preserve human, animal, plant life or
health.

3. Agreement on Textiles and Clothing: The Uruguay Round of Trade Negotiations

produced the Agreement on Textiles and Clothing (ATC). From the date of the
WTO Agreement’s entrance into effect, all existing textile and garment trade
barriers were to be disclosed and abolished over a 10-year period.

4. Agreement on Technical Barriers to Trade Agreement on Trade Related

Aspects of Investment Measures: Certain investment measures can limit and
distort trade, according to the Trade-Related Investment Measures
Agreement (TRIMS). It stipulates that members of the WTO may not take any
action that discriminates against foreign products or results in quantitative limits,
both of which are in violation of fundamental WTO principles.

5. Agreement on Implementation of Article VI (Anti-dumping): In written

applications for anti-dumping relief, the Anti-Dumping Agreement establishes
requirements for evidence of dumping, injury, and causality, as well as other
information about the product, industry, importers, exporters, and other matters,
and specifies that, in special circumstances when authorities initiate without a
written application from domestic industry, they shall proceed only if they have
sufficient evidence of dumping, injury, and causality.

6. Agreement on Implementation of Article VII (Customs Valuation): The

WTO Agreement on customs valuation aspires for a fair, uniform, and impartial
system for valuing products for customs purposes, one that is based on business
reality and prohibits the use of false or arbitrary customs values.

4
7. Agreement on Preshipment Inspection: Private firms are hired to examine
shipping data such as pricing, quantity, and quality of items bought from another
country. The Preshipment Agreement acknowledges that the GATT Agreement’s
principles apply to the aforementioned action.

8. Agreement on Rules of Origin Agreement on Import Licensing

Procedures: Import licencing should be straightforward, clear, and predictable,
according to the Agreement on Import Licensing Procedures, so that it does not
constitute a trade barrier. It also explains how nations should inform the WTO
when they implement new or amend current import licencing processes.

9. Agreement on Subsidies and Countervailing Measures: The World Trade

Organization’s (WTO) Agreement on Subsidies and Countervailing
Measures (Subsidies Agreement) establishes standards for the use of government
subsidies as well as the implementation of remedies to address subsidised trade
that has negative commercial consequences.

10. Agreement on Safeguards: The Safeguards Agreement establishes the

regulations for using safeguard measures under Article XIX of the GATT 1994.
Safeguard measures are described as ‘emergency’ procedures taken in response to
increasing imports of certain items that have caused or threatened to cause
substantial harm to the domestic industry of the importing Member.

11. General Agreement on Trade in Services (GATS): The Uruguay Round’s

outcomes went into force in January 1995, and one of the most significant
successes was the founding of the GATS. The GATS was founded on the same
principles as its merchandise trade counterpart, the General Agreement on Tariffs
and Trade (GATT) with the purpose of establishing a credible and reliable system
of international trade rules, ensuring fair and equitable treatment of all participants
(principle of non-discrimination), stimulating economic activity through
guaranteed policy bindings and promoting trade and development through
progressive liberalisation.

12. Agreement on Trade Related Aspects of Intellectual Property Rights,

Including Trade in Counterfeit Goods: The TRIPS Agreement mandated that
WTO members must offer a minimum degree of protection to the intellectual
property of other WTO members. Copyrights, trademarks, patents, geographical

5
 indications (GI), industrial and layout designs, and concealed information (trade
secrets) are among the topics covered in the TRIPS Agreement.

The Uruguay Round

The Uruguay Round was the last of eight completed rounds of the GATT. Discussion for the

round began in Montevideo, Uruguay, in 1986, and it was hoped that the round would be

completed by 1990. However, impasses were frequent, and the round was not finalized until

1994. One reason for the delay is that this round incorporated many new issues in the

negotiations.

In earlier rounds, the primary focus was always a continuing reduction in the bound tariff rates

charged on imported manufactured goods. As a result of seven completed GATT rounds, by the

mid-1980s tariffs in the main developed countries were as low as 5 percent to 10 percent and

there was less and less room for further liberalization. At the same time, there were a series of

trade issues that sidestepped the GATT trade liberalization efforts over the years. In those areas—

like agriculture, textiles and apparel, services, and intellectual property—trade barriers of one

sort or another persisted. Thus the ambitious objective of the Uruguay Round was to bring those

issues to the table and try to forge a more comprehensive trade liberalization agreement. The

goals were reached by establishing a series of supplementary agreements on top of the traditional

tariff reduction commitments of the GATT. A few of these agreements are highlighted next.

Agreement on Agriculture (AoA)

 The Agreement on Agriculture (AoA) is a WTO treaty that was negotiated during the
Uruguay Round of the General Agreement on Tariffs and Trade (GATT) and formally
ratified in 1994 at Marrakesh, Morocco. The AoA came into effect in 1995.
Agreement on Agriculture was negotiated during the Uruguay Round (1986-1994).
 It is an agreement to reform the agriculture sector and to address the subsidies and
high trade barriers that distort agricultural trade.
 The WTO Agreement on Agriculture came into force in 1995.
Aim of the Agreement on Agriculture (AoA):
 The overall aim is to establish a fairer trading system that will increase market access
and improve the livelihoods of farmers around the world.

6
  The agreement will create a level playing field for farmers around the world,
particularly those in poor countries and cannot compete with rich countries that
artificially boost their exports through subsidies.
 The long-term goal of the AoA is to establish a fair and market-oriented agricultural
trading system and to initiate a reform process through the negotiations and ensuring
strengthened and more operationally effective rules and discipline
Important provisions of Agreement on Agriculture:
 The Agreement on Agriculture mentions that it will apply to agricultural
products.
The term Agricultural products not only cover the basic products such as wheat,
milk and live animals but also covers the derived products such as bread, butter, oil
and the processed products such as chocolate, yogurt, wines, spirits and tobacco
products, fibres such as cotton, wool and silk etc.
 The Agreement on Agriculture has three major pillars. They are:
 Market access
 Domestic support (subsidies)
 Export subsidies/competition
 The Agriculture Committee oversees the implementation of the Agreement. The
committee is made up of WTO members and usually meets three or four times a year.
 The commitment under the agreement are based on special and differential
treatment (Giving flexible and different timeline for developing and Least developed
countries in implementing the terms)
 The Agreement also has a Special Safeguard Mechanism (SSM). SSM means
there is an option available for countries to impose
additional temporary duties on imports when there is a surge in imports at a lower
price.
What is Market Access?
 Market access means the right which exporters have to access a foreign market. In
simple terms, this provision calls for access to imported agricultural goods in the
member countries.
 Market Access includes provisions on tariffication, tariff reduction and trade
facilitation in agriculture.

7
  Tariffication: Tariffication is the process of conversion of all non-tariff market
protection measures such as quotas, sanitary requirements, licences etc into the
tariff equivalents.
 Tariff reduction:
 After the tariffication, Tariff reduction provision mentions the amount of tariff
reduction required from countries.
 Developed countries have to reduce tariffs by 36% from tariffication
with the minimum rate of tariff reduction of 15% for each item over a 6-
year period.
 But the Developing countries were required to reduce tariffs by 24% from
tariffication over the next 10 years.
 Least-developed country Members were required to bind all agricultural
tariffs, but not to undertake tariff reductions.
 Tariff concessions for imports to be maintained at 1986-1988 level at least
(‘existing’ market access);
 Trade facilitation:
 This provision called for a certain percentage of agricultural products should
be met from the imported agricultural products in domestic consumption.
 Developed Countries must provide access to at least 5% of imported
agricultural products in domestic consumption by the year 2000.
 Developing countries have to provide the same but by the year 2004 only.
 Least developed countries are exempted from this provision
What is Domestic support or Domestic Subsidies?
 Domestic support refers to the government subsidies that guaranteed Minimum Price
(or Input subsidies) which are provided at the domestic level either directly or
product-specific or both.
 Domestic Subsidies are generally categorized into 3 boxes:
Green Box Subsidies:
 These are the subsidies that don’t distort free trade or distort the free trade at
a very minimal or negligible level.
 The example for subsidies are publicly funded government programmes
including expenditure on agriculture research and development, agricultural
training, subsidies under environmental programmes etc.

8
  Green box subsidies are non–price supportive thus are exempted from the
calculation of Aggregate Market Support (AMS).
Blue Box Subsides:
 Blue box subsidies are direct payments under production limiting
programmes. According to the WTO, the Blue Box is the “amber box subsidy
with conditions” attached.
 The Blue box subsidies aim towards limiting production, by imposing
production quotas or requiring farmers to set aside part of their land.
 Blue Box subsidies are also exempted from calculation of AMS.
Amber Box Subsides:
 These are the subsidies that are trade-distorting in nature and need to be
curbed at any cost.
 The Amber Box contains the category of domestic subsidy that is
scheduled to reduce based on the formula called “Aggregate Measure of
Support” (AMS).
 The AMS is the amount of money spent by governments on agricultural
production, except the money spent in the Blue Box, Green Box and ‘de
minimis’ level.
‘Minimis’ level
The minimum level prescribed in AoA towards product specific and non-product
specific (Amber box) subsides. For Developed countries the de minimis level is 5% and for
developing countries it is 10%.
Special and Differential Box subsidies
This is a special and differential box that does not apply to developed countries but applicable
to developing and Least Developed Countries.
These are the subsidies provided by the government to encourage agricultural and rural
development activities in the country.
Export subsidies
 Export subsidies are special incentives provided by governments to encourage
increased foreign sales. These may be in Cash or in kind.
 These subsidies include
 cash payments
 disposal of government stocks at below-market prices

9
  subsidies financed by producers or processors as a result of government actions
such as assessments
 marketing subsidies
 transportation and freight subsidies
 subsidies for commodities contingent on their incorporation in exported products
 Export subsidies gradually have to be reduced to 36% of the value and 21% over a
volume in the six years 1995-2000, compared with the reference period of 1986-1988,
for developed countries and for developing countries it was fixed 24% and 14%
respectively over the period of 10 years.
Peace Clause
 Developed countries criticised the developing and LDC’s food security
programmes (public stock holding programmes) as a trade distorting subsidy. Since
the negotiation went on among countries a temporary peace clause was
introduced in Bali Package 2013.
 The ‘peace clause’ said that no country would be legally barred from food security
programmes even if the subsidy breached the limits specified in the WTO agreement
on agriculture.
 This ‘peace clause’ was expected to be in force for four years until 2017, by the time a
permanent solution to the problem was found.
The recent developments:
 Members continue to conduct negotiations for further reform.
 In 2015 at Nairobi Ministerial conference, members adopted a historic decision to
abolish agricultural export subsidies and to set rules for other forms of farm export
support in the future.

10
Agreement on Sanitary and Phytosanitary Measures

The Agreement on the Application of Sanitary and Phytosanitary Measures (the "SPS
Agreement") entered into force with the establishment of the World Trade Organization on 1
January 1995. It concerns the application of food safety and animal and plant health
regulations.

This introduction discusses the text of the SPS Agreement as it appears in the Final Act of the
Uruguay Round of Multilateral Trade Negotiations, signed in Marrakesh on 15 April 1994.
This agreement and others contained in the Final Act, along with the General Agreement on
Tariffs and Trade as amended (GATT 1994), are part of the treaty which established the
World Trade Organization (WTO). The WTO superseded the GATT as the umbrella
organization for international trade. The WTO Secretariat has prepared this text to assist
public understanding of the SPS Agreement. It is not intended to provide legal interpretation
of the agreement.

Problem: How do you ensure that your country’s consumers are being supplied with food
that is safe to eat — "safe" by the standards you consider appropriate? And at the same time,
how can you ensure that strict health and safety regulations are not being used as an excuse
for protecting domestic producers?

The Agreement on the Application of Sanitary and Phytosanitary Measures sets out the basic
rules for food safety and animal and plant health standards. It allows countries to set their
own standards. But it also says regulations must be based on science. They should be applied
only to the extent necessary to protect human, animal or plant life or health. And they should
not arbitrarily or unjustifiably discriminate between countries where identical or similar
conditions prevail. Member countries are encouraged to use international standards,
guidelines and recommendations where they exist. However, members may use measures
which result in higher standards if there is scientific justification. They can also set higher
standards based on appropriate assessment of risks so long as the approach is consistent, not
arbitrary. The agreement still allows countries to use different standards and different
methods of inspecting products.

Features

All countries maintain measures to ensure that food is safe for consumers, and to prevent the
spread of pests or diseases among animals and plants. These sanitary and phytosanitary

11
measures can take many forms, such as requiring products to come from a disease-free area,
inspection of products, specific treatment or processing of products, setting of allowable
maximum levels of pesticide residues or permitted use of only certain additives in food.
Sanitary (human and animal health) and phytosanitary (plant health) measures apply to
domestically produced food or local animal and plant diseases, as well as to products coming
from other countries.

Protection or protectionism

Sanitary and phytosanitary measures, by their very nature, may result in restrictions on trade.
All governments accept the fact that some trade restrictions may be necessary to ensure food
safety and animal and plant health protection. However, governments are sometimes
pressured to go beyond what is needed for health protection and to use sanitary and
phytosanitary restrictions to shield domestic producers from economic competition. Such
pressure is likely to increase as other trade barriers are reduced as a result of the Uruguay
Round agreements. A sanitary or phytosanitary restriction which is not actually required for
health reasons can be a very effective protectionist device, and because of its technical
complexity, a particularly deceptive and difficult barrier to challenge.

The Agreement on Sanitary and Phytosanitary Measures (SPS) builds on previous GATT
rules to restrict the use of unjustified sanitary and phytosanitary measures for the purpose of
trade protection. The basic aim of the SPS Agreement is to maintain the sovereign right of
any government to provide the level of health protection it deems appropriate, but to ensure
that these sovereign rights are not misused for protectionist purposes and do not result in
unnecessary barriers to international trade.

Justification of measures

The SPS Agreement, while permitting governments to maintain appropriate sanitary and
phytosanitary protection, reduces possible arbitrariness of decisions and encourages
consistent decision-making. It requires that sanitary and phytosanitary measures be applied
for no other purpose than that of ensuring food safety and animal and plant health. In
particular, the agreement clarifies which factors should be taken into account in the
assessment of the risk involved. Measures to ensure food safety and to protect the health of
animals and plants should be based as far as possible on the analysis and assessment of
objective and accurate scientific data.

12
International standards

The SPS Agreement encourages governments to establish national SPS measures consistent
with international standards, guidelines and recommendations. This process is often referred
to as "harmonization". The WTO itself does not and will not develop such standards.
However, most of the WTO’s member governments (132 at the date of drafting) participate
in the development of these standards in other international bodies. The standards are
developed by leading scientists in the field and governmental experts on health protection and
are subject to international scrutiny and review.

International standards are often higher than the national requirements of many countries,
including developed countries, but the SPS Agreement explicitly permits governments to
choose not to use the international standards. However, if the national requirement results in a
greater restriction of trade, a country may be asked to provide scientific justification,
demonstrating that the relevant international standard would not result in the level of health
protection the country considered appropriate.

Adapting to conditions

Due to differences in climate, existing pests or diseases, or food safety conditions, it is not
always appropriate to impose the same sanitary and phytosanitary requirements on food,
animal or plant products coming from different countries. Therefore, sanitary and
phytosanitary measures sometimes vary, depending on the country of origin of the food,
animal or plant product concerned. This is taken into account in the SPS Agreement.
Governments should also recognize disease-free areas which may not correspond to political
boundaries, and appropriately adapt their requirements to products from these areas. The
agreement, however, checks unjustified discrimination in the use of sanitary and
phytosanitary measures, whether in favour of domestic producers or among foreign
suppliers.

Alternative measures

An acceptable level of risk can often be achieved in alternative ways. Among the alternatives
— and on the assumption that they are technically and economically feasible and provide the
same level of food safety or animal and plant health — governments should select those
which are not more trade restrictive than required to meet their health objective. Furthermore,
if another country can show that the measures it applies provide the same level of health

13
protection, these should be accepted as equivalent. This helps ensure that protection is
maintained while providing the greatest quantity and variety of safe foodstuffs for consumers,
the best availability of safe inputs for producers, and healthy economic competition.

Risk Assessment

The SPS Agreement increases the transparency of sanitary and phytosanitary measures.
Countries must establish SPS measures on the basis of an appropriate assessment of the
actual risks involved, and, if requested, make known what factors they took into
consideration, the assessment procedures they used and the level of risk they determined to
be acceptable. Although many governments already use risk assessment in their management
of food safety and animal and plant health, the SPS Agreement encourages the wider use of
systematic risk assessment among all WTO member governments and for all relevant
products.

Transparency

Governments are required to notify other countries of any new or changed sanitary and
phytosanitary requirements which affect trade, and to set up offices (called "Enquiry Points")
to respond to requests for more information on new or existing measures. They also must
open to scrutiny how they apply their food safety and animal and plant health regulations.
The systematic communication of information and exchange of experiences among the
WTO’s member governments provides a better basis for national standards. Such increased
transparency also protects the interests of consumers, as well as of trading partners, from
hidden protectionism through unnecessary technical requirements.

A special Committee has been established within the WTO as a forum for the exchange of
information among member governments on all aspects related to the implementation of the
SPS Agreement. The SPS Committee reviews compliance with the agreement, discusses
matters with potential trade impacts, and maintains close co-operation with the appropriate
technical organizations. In a trade dispute regarding a sanitary or phytosanitary measure, the
normal WTO dispute settlement procedures are used, and advice from appropriate scientific
experts can be sought.

14
 1. The application of sanitary and phytosanitary measures, in other words, food
safety and animal and plant health standards, is the subject of this agreement. The
agreement acknowledges that governments have the right to take sanitary and
phytosanitary measures, but that they should only be used to protect human,
animal, or plant life or health, and that they should not be used arbitrarily or
unjustifiably to discriminate between members where identical or similar
conditions exist.

2. Members are urged to base their sanitary and phytosanitary measures on

international standards, guidelines, and recommendations where they exist, in
order to harmonize sanitary and phytosanitary measures as much as practicable.
Members may, however, keep or implement measures that result in higher criteria
provided there is a scientific basis or if consistent risk judgments are made based
on an adequate risk assessment. The Agreement lays forth the processes and
criteria for risk assessment and determining suitable levels of sanitary and
phytosanitary protection.

3. Members are required to recognize other countries’ sanitary and phytosanitary

measures as equivalent, if the exporting nation can show the importing country
that its measures provide an acceptable degree of health protection.

Agreement on Technical Barriers to Trade

The Technical Barriers to Trade (TBT) Agreement aims to ensure that technical regulations,
standards, and conformity assessment procedures are non-discriminatory and do not create
unnecessary obstacles to trade. At the same time, it recognises WTO members' right to
implement measures to achieve legitimate policy objectives, such as the protection of human
health and safety, or protection of the environment. The TBT Agreement strongly encourages
members to base their measures on international standards as a means to facilitate trade.
Through its transparency provisions, it also aims to create a predictable trading environment.

One of the objectives of the Agreement on Technical Barriers to Trade (TBT) of the World
Trade Organization (WTO) is to ensure that technical regulations, product standards and
“conformity assessment procedures” (testing and certification procedures) do not create
unnecessary obstacles to trade.

15
The TBT Agreement was negotiated during the Uruguay Round of Multilateral Trade
Negotiations, which was concluded in April of 1994. It expanded on a more limited standards
code which was adopted in a previous round of trade negotiations. All WTO members are
Parties to the TBT Agreement, which entered into force on January 1, 1995, and which has
no expiration date.

Who benefits from this Agreement?

Any company in a WTO member country that is involved in international trade can benefit
from certain provisions of the TBT Agreement. The Agreement contains transparency
provisions that seek to reduce discriminatory or trade restrictive measures at an early stage in
the regulatory process, so that U.S. companies are not faced with unnecessary obstacles to
trade. These provisions contain notice and comment provisions that allow interested parties to
request copies, review and comment on proposed technical regulations, standards and
conformity assessment procedures that may have an impact on trade.

Non-discrimination

The TBT Agreement states that with respect to technical regulations, standards, and
conformity assessment procedures, WTO Member governments shall ensure that products
imported from another WTO country are accorded national treatment and most favored
nation (MFN) treatment. (National treatment means treatment no less favorable than that
accorded to like products of national origin; MFN means treatment no less favorable than that
accorded to like products originating in any other country.)

Technical Regulations and Standards

The TBT Agreement makes a distinction between technical regulations and standards:
technical regulations are mandatory measures imposed by governments, whereas standards
are voluntary measures. Both terms are understood to cover measures based upon:

 product characteristics;
 process and production methods related to product characteristics
 Terminology, symbols, packaging, marking and labelling requirements as they apply
to a product, process or production method.

16
According to the Agreement, WTO Member governments, wherever possible, shall specify
technical regulations and standards in terms of performance rather than design or descriptive
characteristics.

The TBT Agreement recognizes that no government should be prevented from adopting
technical regulations and standards to fulfil a legitimate objective. The Agreement has
identified the following list as examples of legitimate objectives: national security, protection
of human, animal or plant life or health, or the environment, and prevention of deceptive
practices. In adopting measures to achieve such goals, however, governments should ensure
that they do not create unnecessary obstacles to trade.

To this end, the Agreement states that technical regulations shall be no more restrictive than
necessary to fulfil the government’s legitimate objectives. If relevant international standards
exist, the Agreement states that WTO Member governments shall use them as the basis for
their technical regulations except where such a standard is ineffective or inappropriate to
meet that government’s legitimate objective. (There is a presumption under the TBT that a
technical regulation based on an international standard is less likely to be an obstacle to
trade.) Where international standards do not exist, or where they are inappropriate (for
example, for climatic or geographical reasons or because of fundamental technological
problems) and may affect international trade, Member governments shall give other WTO
Members advance notification of any technical regulations they intend to adopt and allow a
reasonable time for interested parties to comment through the National Enquiry Point.
The TBT National Enquiry Point, located at the Department of Commerce’s National
Institute of Standards (NIST), can request copies of draft regulations and transmit technical
comments to the originating country.

With regard to standards, with which compliance is voluntary, the TBT Agreement contains a
“Code of Good Practice for the Preparation, Adoption and Application of Standards”, which
is a voluntary code that can be adopted by any standardizing body in a WTO member
country. The Code provides that standardizing bodies shall use international standards as the
basis for the standards that they develop except where such international standards would be
ineffective or inappropriate. The standardizing bodies shall also publish their work programs
at least once every six months. Before adopting a standard, they shall allow a period of 60
days for the submission of comments by interested parties in other WTO member countries.

17
Conformity Assessment Procedures

“Conformity assessment” is the procedure used to determine whether a product fulfills the
requirements of a technical regulation or a standard. In the context of the TBT Agreement,
conformity assessment includes:

 testing a product, process or service by a laboratory;

 certification, by a certification body, that a product, process or service conforms to
specified regulatory requirements;
 assessment of the quality management system of an individual manufacturer by a
recognized quality assurance registrar; or
 accreditation procedures for the institutions that perform the functions listed above;
 supplier’s declaration of conformity.

WTO Member Countries shall ensure that the conformity assessment procedures are
prepared, adopted and applied in a non-discriminatory manner. To this end, products
originating in the territory of other Members shall be accorded both national treatment and
most favored nation treatment.

To ensure that conformity assessment procedures do not create unnecessary obstacles to

international trade, the TBT Agreement also provides that:

 foreign suppliers should be provided, on request, with information on the processing

period and documentation required for assessing the conformity of the products that
they wish to export;
 fees charged to foreign suppliers should be equitable in relation to those charged to
domestic suppliers;
 the siting of testing facilities and the selecting of samples for testing should not cause
inconvenience to foreign suppliers; and
 conformity assessment procedures should provide for a review of complaints
regarding the implementation of those procedures.

Dispute Settlement

Disputes between governments over the implementation of the TBT Agreement by a WTO
Member, can be addressed by those governments in accordance with the WTO Dispute

18
Settlement Understanding. Information on the WTO dispute settlement procedures is
available in the Exporter’s Guide to that Understanding. To register to receive automatic e-
mails of WTO TBT notifications via Export Alert! contact the National Institutes of
Standards and Technology. If you have questions about this Agreement or how to use it, you
can e-mail the Office of Trade Agreements Negotiations and Compliance, which will forward
your message to the Commerce Department’s Designated Monitoring Officer for the
Agreement. You can also contact the Designated Monitoring Officer at the following address:

TBT Committee

TBT Committee work involves two broad areas:

 Review of specific measures WTO members/observers use the TBT Committee to

discuss specific trade concerns (STCs) — specific laws, regulations or procedures
that affect their trade, usually in response to notifications. Essentially, members
raise STCs to find out more about the scope and implementation of each other's
regulations in light of the core TBT obligations. The discussion is mostly about
measures in the pipeline, but can also be about the implementation of existing
measures.
 Strengthening implementation of the TBT Agreement
Members exchange experiences on the implementation of the Agreement with a
view to making implementation more effective and efficient. This discussion
revolves around generic, cross-cutting themes, including transparency, standards,
conformity assessment and good regulatory practice.

Meetings of the TBT Committee

The Committee usually holds three formal meetings per year. These are sometimes
preceded by workshops or thematic sessions. Meetings are open to all WTO members
and observer governments. International intergovernmental organizations — several
of them standardizing bodies — also participate as observers in the Committee. See
also rules of procedure for meetings of the Committee and guidelines for observer
status. The current chair of the TBT Committee is Mr. Anwar Hussain SHAIK
(India).

19
Annual reviews

The Committee is mandated to conduct an annual review of activities relating to the

implementation and operation of the TBT Agreement, including notifications, specific trade
concerns, technical assistance activities, and TBT related disputes. The latest Annual
Review report was circulated in March 2022.

Triennial reviews

Every three years, WTO members are mandated to review the work of the TBT Committee,
taking into consideration changes and new challenges in the area of standards and
regulations. The Ninth Triennial Review of the Operation and Implementation of the TBT
Agreement was completed at the 10-12 November 2021 meeting of the TBT
Committee. Further details, including the adopted report, proposals, timeline and background
information are here.

Transparency is a cornerstone of the TBT Agreement and consists of three core elements:

 notifications
 establishment of enquiry points
 Publication requirements.

This toolkit contains information on the transparency obligations and procedures, and related
work in the Committee, as well as other resources.

B.A. LL.B.(HONS.) 5 YEAR COURSE EIGHTH SEMESTER

International Trade Law CODE NO.1775A

UNIT-II: TRADE IN GOODS-II

Agreement on Trade Related Investment Measures, Agreement on Subsidies &

Countervailing Measures, Anti-dumping Agreement, Agreement on Safeguards

Agreement on Trade Related Investment Measures

The agreement on Trade-Related Investment Measures or “TRIMs” acknowledges that

investment measures can control and twist trade. These states World Trade Organisation
members might not apply any measure that differentiates or leads to quantitative restrictions,

20
both of which disobey any fundamental WTO rules. A list of restricted TRIMS is a part of
this agreement. The TRIMS Committee looks after the operation and execution of this
agreement and allows members the chance to consult on any appropriate matters. Agreement
on TRIMs resulting from Uruguay recognises that certain investment measures may cause
restrictive effects on international trade in goods.

Objectives of Trade-Related Investment Measures

TRIMs believe that there is a strong connection between trade and investment. The goal
of trade-related investments measures is to give fair treatment to all investing members across
the world. As the TRIMs deal says, members have to inform the World Trade Organization
(WTO) council to buy and sell various services and goods of their current TRIMs that are
incompatible with the agreement.

Main Features of TRIMs

 It only applies to investment measures related to goods trade.

 This doesn’t apply to service trade.

 It doesn’t regulate the entry of foreign industry or investment.

 It is about the discriminatory treatment of imported/exported products.

 Concern measures were applied to both foreign domestic firms.

 A transition period of 2 years in the case of developed countries, 5 years in the case of
developing countries and 7 years in the case of LDCs, from the date this agreement
came into effect, which is 1st January 1995.

 The main obligation contained in this agreement is that members shall not apply any
trade-related investment major that is inconsistent with Article III (national treatment)
or Article XI (general elimination of quantitative restrictions) of the GATT.

The TRIMs agreement has directly restricted the following.

Local Content Requirement

Local content requirement is the measure that if a developed country wants to trade their
products in a developing country. Then the developing country wishes to agree on that deal if
and only if it uses one of the domestic items on their product. It means that the growth of

21
domestic products will increase. For example, suppose a mobile brand wants to sell its
products in India. However, India agrees if only the brand uses the battery made in India. If
that mobile brand agrees to this agreement, the value of ‘made in India’ batteries will increase
gradually, which is India’s benefit.

However, that mobile brand doesn’t get proper profit because of purchasing those domestic
products or using those products. In other words, a developing country is restricting
developed countries from trading their products.

Trade Balancing Requirements

Trade balancing measures require that an enterprise’s purchase of imported products is

equivalent to the quantity or worth of exported products. In simple words, someone from
India has a business of desi ghee, and they export it in foreign.

However, they want to expand their business and import foreign cheese. Then, Indian
government gave them the condition that they could import the same amount of foreign
cheese as the amount of desi ghee they export. Basically, balancing the import and export
amount of product or trade is called Trade Balancing.

However, the government is restricting the individual as per the TRIMs agreement.

Foreign Exchange Restrictions

These include measures restricting importation by limiting access to foreign exchange.

Domestic Sales Requirements

By using domestic sales requirements, many nations restrict the export of domestic products
and distort trade. Because of this, the value of those products gradually decreases. As a result,
the production of those products is highly available in the market.

Developing countries are permitted to retain Trade-Related Investment Measures by virtue of

the economic development needs of developing countries. In TRIMs, some restrictions are
overlooked for the developing countries’ economic needs.

Agreement on trade related investment matters

The Agreement on Trade Related Investment Measures (TRIMs) is one of Agreements

covered under Annex IA to the Marrakech Agreement, signed at the end of the Uruguay

22
Round (UR) negotiations. The Agreement addresses investment measures that are trade
related and that also violate Article III (National treatment) or Article XI (general elimination
of quantitative restrictions) of the General Agreement on Tariffs and Trade. An illustrative
list of the measures that are violative of the provisions of the Agreement is annexed to the
text of the Agreement. These pertain broadly to local content requirements, trade balancing
requirements and export restrictions, attached to investment decision making.
Provisions on elimination of notified TRIMs by WTO Members, and transition periods
The Agreement requires all WTO Members to notify the TRIMs that are inconsistent with the
provisions of the Agreement, and to eliminate them after the expiry of the transition period
provided in the Agreement. Transition periods of two years in the case of developed
countries, five years in the case of developing countries and seven years in the case of LDCs,
from the date of entry into force of the Agreement (i.e. 1st January 1995) are provided in the
Agreement.

Temporary deviation on BOP grounds

The Agreement allows developing countries to deviate temporarily from its provisions on
balance of payments (BOP) grounds (as per the provisions of Article XVIII.B of GATT,
1994).

India’s notified TRIMs

As per the provisions of Art. 5.1 of the TRIMs Agreement India had notified three trade
related investment measures as inconsistent with the provisions of the Agreement:

 Local content (mixing) requirements in the production of News Print,

 Local content requirement in the production of Rifampicin and Penicillin – G, and

Dividend balancing requirement in the case of investment in 22 categories consumer goods.

Such notified TRIMs were due to be eliminated by 31st December, 1999. None of these
measures is in force at present. Therefore, India does not have any outstanding obligations
under the TRIMs agreement as far as notified TRIMs are concerned.

Present Status
The transition period allowed to developing countries ended on 31st December, 1999.
However, Art. 5.3 provides for extension of such transition periods in the case of individual
members, based on specific requests. In such cases individual Members have to approach the
Council for Trade in Goods with justification based on their specific trade, financial and
development needs. Accordingly 9 developing countries (Malaysia, Pakistan, Philippines,

23
Mexico, Chile, Colombia, Argentina, Romania and Thailand) have applied for extension of
transition period in respect of certain TRIMs which had been notified by them. Examination
of their requests is underway in the Council for Trade in Goods of WTO.

 India had proposed during the Seattle Ministerial Conference that:

 Extension of transition period for developing countries should be on a multilateral
basis and not on an individual basis;
 Another opportunity should be provided to developing countries to notify un-notified
TRIMs and maintain them for an extended transition period;
 The Seattle Ministerial Conference was inconclusive and no decision could be taken
on the proposals.

Mandated Review of the Agreement

Art. 9 of the Agreement envisage its review within five years of its coming into operation, i.e.
by 1-1-2000. The Council for Trade in Goods is to review the operation of the Agreement
and, as appropriate, propose to the Ministerial Conference amendments to its text. The
process of review has started but no specific proposals have been made by any Member as
yet.

Investment Policy and Competition Policy

In the course of this review, the Council for Trade in Goods shall consider whether the
Agreement should be complemented with the provisions on investment policy and
competition policy. The Singapore Ministerial Conference which established the two parallel
Working Groups to study the relationship between Trade and Investment on the one hand and
Trade and Competition Policy on the other had stipulated that future negotiations, if any,
regarding multilateral disciplines in these areas will take place only after explicit consensus
decision by the Members. The Working Group process is still on.

The review of the Agreement is likely to address the following issues:

Issues related to the operation of the Agreement during the last five years, and
Issues related to the coverage of the Agreement
Issues related to the operation of the Agreement
Art. 4 provides that a developing country Member shall be free to deviate temporarily from
the obligations arising out of this agreement to the extent and in such a manner as Art. XVIII
of GATT 1994, the Understanding on the Balance of Payments Provisions of GATT 1994,
and the Declaration on Trade Measures Taken for Balance of Payments Purpose adopted on

24
28th November, 1979. Issues related to operationalization of this provision would be raised
by developing countries;

The question of transition period of five years for developing countries has ended before the
review of the operation of the Agreement. The issue of transition periods and the need for
general exemption, rather than based on individual request, is a matter of concern for
developing countries;

Art. 5.3 which provides for request for extension of transition period on individual basis,
stipulates that such Members should demonstrate particular difficulties in implementing the
provisions of the Agreement. This leaves the decision to the discretion of WTO Members.
There is likely to be demand for objective criteria;

The role of the Committee on Trade–Related Investment Measures has so far been confined
to monitoring the notification requirements. A changed role could be considered.

Issues related to the coverage of the Agreement

The present agreement prohibits trade related investment measures that are violative of Art.
III and Art. XI of the General Agreement on Tariffs and Trade. Local content requirements,
trade balancing requirements, and export restrictions are prohibited. The efforts of developing
countries would be to reduce the prohibitions in view of the experience of these countries
based on the operation of the agreement. Developing countries (the Like Minded Group) have
submitted certain proposals in this regard in the context of review of implementation of the
Uruguay Round Agreements. The TRIMs Agreement has been found by the developing
countries to be standing in the way of sustained industrialization of developing countries,
without exposing them to balance of payment shocks, by reducing substantially the policy
space available to these countries. Developed countries, on the other hand, have been arguing
for a further expansion in the list of prohibited TRIMs.

Agreement on Subsidies & Countervailing Measures

The Agreement on Subsidies and Countervailing Measures are popularly known as “SCM
Agreement” which addresses two separate concepts but the importance of putting both the
concepts in the same agreements is that they are closely related topics and one is the action of
other principles. Subsidies are the multilateral disciplines regulated by SCM Agreement of
WTO whereas countervailing measures are the kind of remedy for damage caused by
subsidy.

25
Multilateral disciplines are the rules regarding international trade and implicate the right and
obligation to member nations. The most important part of this agreement is that although the
set of rules by WTO is related to multilateral practice and countervailing duties are unilateral
practices where one nation imposes countervailing duties on that member who tries to affect
the importer’s country market by the means of providing subsidies to its domestic market.
The action of investigation can be carried by the victim country and can raise a complaint to
WTO Dispute Resolution Body (DSB) with their investigation reports either to warn or
impose countervailing duties on the accused nation.

Structure of the SCM Agreement

Unlike all the structure of all contracts, agreements, acts etc., the SCM Agreement also has a
very basic structure of agreement which divides the agreements into different parts which are:

 Part I: Like most of the structures Part- I of this agreement also contains
definitions and certain other aspects. Part I of these agreements specifically
contains the definitions of Subsidies, the definition of specificity and speaks about
the extent of application of subsidies which specifically deals with an enterprise or
industry or group of industries and other such enterprises.

 Part II & Part III: This part of this agreement divides all the specific subside into
two different categories that are prohibited & actionable subsidies. Both the parts
of these agreements also deal with the effects of these subsidies, remedy and a
DSB authority to grant a remedy for violation of this part of the agreement.
Conclusively we may assume that this part of the agreement has rules and
regulations for different aspects.

 Part V: This part of the agreement deals with the procedural requirements, rules
etc.for application or executing Countervailing measures. It also contains various
topics such as application of article VI of GATT 1994, the procedure of
investigation & evidence of the event, consultation & approaching DSBs etc.

 Part VI & Part VII: It includes institution such as committee on subsidies &
countervailing measures, subsidiary bodies, notification & surveillance by those
regulatory bodies for implementing SCM Agreement.

26
  Part VIII: This part deals with rules and regulations related to special treatments to
different kinds of countries like developed, under-developed, developing, LDC’s
etc.

 Part X & Part XI: Both these part only deals with the principles of DSB and final
provisions.

Subsidy

As discussed above, Article 1 (Part I) of the SCM Agreement defines Subsidies. The general
definition of subsidies can be understood with a simple word that is ‘financial aid/ help’,
which means any kind of financial aid/ help can be considered as ‘subsidies’. The SCM
Agreement has mentioned three conditions and explains that all of the conditions are to be
fulfilled, then only the action will be considered as a subsidy, where the conditions are-

 There must be a financial contribution either by the government or by any of the

public body within the territory of the member nation; and

 If the action is consistent with Article XVI of GATT 1994, which means if there is
any form of income or price support.

 After any financial contributions, there must a benefit.

The application of this agreement requires financial contributions such as loan, financial
incentives, special grants etc., and explains that any financial contribution even from the sub-
governments is considered as subsidies if they raise any benefit to the recipient.

Part I, also talks about the specificity, which means all the financial aid to enterprise or
industry or group of such industries will only be considered as subsidies and such specificity
of subsidies are only considered under SCM Agreement. Article 2 of the SCM Agreement
explains different types of specificity which are as follows:

 Enterprise- Under this type of specificity the financial contributors are only
concerned with aiding specific company or a specific set of companies.

 Industry- Under this type of specificity the contributors such as government and
public body aim a particular sector of the industry for giving them financial help
and benefit.

27
  Regional- It is a condition when the government is helping industry/ company
located in some specific geographical area and subsidies them with benefits.

 Prohibited- Here, in this case, the government is aiming at providing subsidies to

all such goods which are exported to different countries.

Categories of Subsidies

1. Prohibited Subsidies– The SCM Agreement prohibits any government from

providing any subsidies-

 Which are contingent with respect to law or fact upon export performance. These
kinds of subsidies are often called export subsidies.

 Which are contingent with respect to law or facts upon giving any protectionism of
domestic goods over imported goods. These kinds of subsidies are often
called local content subsidies.
These are the two kinds of subsidies covered under prohibited subsidies.

The important part to be considered here is that the scope of such subsidies are relatively low
as all the developed nations have already adopted this but it becomes challenging with
developing or LDC countries. The SCM Agreement not only has the dos and don’ts rather it
also comes with sanction with respect to a violation of rules laid down in the SCM
Agreements which are dealt with DSB of WTO.

2. Actionable Subsidies– The SCM Agreement does not prohibits any nations from
taking actions on actionable subsidies rather they can be restricted and are
subjected only when any nations bring an action in terms of challenging either
through DSB or through Countervailing Duties. The actionable subsidy has three
adverse effects on the member nation which are:-

 They cause injury to the domestic market of the member nations.

 Serious Prejudice to the interest of other members- It means when the government
is helping and giving subsidies more than 5% to cover any operating loss of any
industry or sector by the process of directly forgiving them from any government

28
 debts. The effects of granting such subsidies cause displacement of other net
exporter countries to the importing country of Like Products.

 Nullification or Impairment- it is a process of damaging the importer country’s

benefits and expectations from other member nations of WTO through another
country’s or third country’s change in its trade regime not according to the GATT/
WTO Agreements obligation.

3. Non- Actionable Subsidies– It is a kind of subsidy which is neither prohibited nor

restricted by GATT/ WTO and does not permit any of the member nations to
impose countervailing duties against them. It is observed that most of the subsidies
are either restricted or prohibited by the GATT/ WTO and whosoever overrule
these guidelines agreed in the agreement then they are subjected to countervailing
measures by other member nations especially by the affected nations. However,
Non- actionable subsidies are not subject to these tariffs (Countervailing duties)
like environmental subsidies, agricultural subsidies, scientific subsidies etc.

Countervailing Duties/ Measures (CVDs)

Subsidies are explained briefly and the parts which only talks about the Subsidies of the SCM
Agreement, but remedies to all these restricted activities are introduced from Part V of the
SCM Agreement. Part V specifically defines what countervailing measures are and how do
they work. WTO counts Countervailing Measures as a safeguard from all those practising
subsidies which are either restricted or prohibited under the SCM Agreement. The WTO
explains it as a kind of tariffs imposed on imported goods to counterbalance the subsidies
enjoyed by the producers in the exporting country either by their government of any public
body.

CVDs are the counterbalance tariff to maintain a balance between domestic producers and
other foreign producers of the like product because the subsidies producers can afford to sell
it at a relatively lower price than that of other producers because all the producers don’t get
the same or even such types of subsidies by their government or any public body. If these are
left unchecked, then there could be a great possibility that these subsidized imports may
severely affect any importer country like deflation/ inflation, loss of employment etc., that’s
the only reason why GATT/ WTO has reflected the concept of CVDs in the agreement and

29
mentioned that these export subsidies are unfair trade practice and must be restricted or
prohibited.

Part V of the SCM Agreement has mentioned a substantive rule to check if the imported
goods can be subjected in imposing CVDs, the rules contain three essentials to establish the
objective of imposing CVDs on imported goods which are as follows:-

 To impose CVDs on any imported goods the importer country has to determine
whether there are any subsidies provided to the producers in their country by their
government or any such public body.

 When these subsidize goods are imported in the country they must create some
threat to their domestic market.

 There must be a direct causal link between subsidized goods and a threat to the
domestic market.
Part V of the SCM Agreement also contains rules and procedure of conducting an
investigation for the purpose of imposing CVDs. Apart from this, it is very important to
understand the concept of ‘Sunset’ and ‘Judicial Review’. Where ‘Sunset’ means CVDs will
be collapse automatically after every 5 years and can be continued only after the condition
that if the importer country determines that the exporter country still not following the key
regulations of the SCM Agreement. Whereas ‘Judicial Review’ is the power given under
Article 23 that GATT/ WTO member can create an independent tribunal to review the
decisions of investigation authority or investigation panel of GATT/ WTO with respect to the
domestic law of the country only if the country has its own national legislation or law relating
to CVDs.

Special or Preferential Treatment

Part VIII specifically deals with the social treatment for nations other than developed nations.
It is also observed that subsidies play a vital role in economic stability & development and
also helps in improving the living standard and other such standards in the country.

Article 27 of the SCM Agreement provides that Article 3 (Para 1.a) does not apply to the
developing nations for the period 5 years from the commencement of WTO, and it does not
applies to least developing nations (LDC) for a period of 8 years from the commencement of

30
WTO, which practically means that now it applies to all the member nations equally and no
favourable treatment is given with respect to Import Subsidies. Although LDCs & member
nations with less than $1000 capita income per year are totally exempted from the list and can
enjoy freedom over export subsidies.

The SCM Agreement has categorised the member nations into three different categories
which are:

1. Least Developing Nations(LDCs).

2. Member nation with less than $1000 capita income per year.

3. Any other developing country not falling into the categories discussed above.
It is noted that there is no favourable treatment with respect to non-actionable subsidies.

Notification and Surveillance

WTO has surveillance on every member nation and mandates rules that every member nation
have to notify the SCM committee regarding their internal policies related to Subsidies and
Countervailing Measures. Where the member nations has to notify SCM Committee
regarding their Subsidies and Countervailing legislations and law within their country, with
the SCM agreement these member nations have to notify the SCM Committee regarding all
such aspects under Article 25 (Notification of Subsidies to SCM Committee) and under
Article 36.2 (Notification of Countervailing Measures to SCM Committee).

The member nations have to notify the SCM Committee every 3 years with all the latest
amendments or any new regulations or any activity related to Subsidies in their country for
the purpose of an extensive review by the SCM Committee. Whereas in the case of
Countervailing Measures the member nations have to notify all the countervailing actions
taken on every basis like pre or final actions; and the member also has to notify the SCM
Committee regarding their respective authority and their legislation that who and how these
authorities have imposed any countervailing measures.

Dispute Settlement

31
It is the most crucial and important part of any law and no law can function properly unless it
is benefited by any such regulatory body and here, in this case, Dispute Settlement
Understanding is the regulatory body for governing or deciding any disputes related to SCM
Agreement. Article 30 of Part X of SCM Agreement speaks about the Dispute Settlement
Understanding and DSU is the only international body, which is responsible for consultations
and settlement of disputes. The agreement contains all the special rules and procedures for
the settlement of disputes arising in respect of this SCM Agreement.

Anti-dumping Agreement

WTO defines dumping as “a firm is said to dump if it sells its product in another country at a
price less than the normal value. It does not matter whether a foreign firm sells at a higher or
lower price than the domestic ones; as long as the price charged in the domestic country is
below that in its own country, the firm can be held dumping.” The Ministry of Commerce and
Industry responsible for free and fair trade in India considers dumping to occur ‘When the
export price of the goods imported in India is less than the normal value of the like articles
sold in the domestic market.’

Normal Value of a good is the price comparable at which a good is sold in the domestic
market of the exporting country or territory. In the above given example, it would be the price
of the toy in the Chinese domestic market. The difference between the two prices is called
Margin of Dumping. Today, dumping is universally considered an unfair business practice as
goods of the same quality ought to be sold at the same price everywhere, exception to legal
practices like import tariff and local taxes that may cause variation in the price of the product.

Antidumping on the international plane

Even though the League of Nations performed research of dumping as early as 1922,
antidumping was not controlled by international law till the creation of GATT in 1947.
GATT Article VI “condemned” dumping yet did not make it illegal.

Antidumping was only challenged once by GATT in the 1950s. This was Italy’s response to
Sweden’s antidumping decision over Italian nylon stockings. Various areas of antidumping,
on the other hand, continued to pique GATT’s interest, with its expert groups studying
them. However, it wasn’t until the Kennedy Round (1963) that anti-dumping proceedings

32
were given serious consideration. At the time, there was a lot of worry about the US
antidumping statute and how it was being applied.

The international anti-dumping regulations are set out in (a) GATT Article VI and (b) the
World Trade Organization’s Anti-Dumping Agreement. The Anti-dumping Code of the
Tokyo Round was updated through the Uruguay Round, creating the new Anti-dumping
Agreement. In order to assess the damage to production and calculate dumping margins, the
processes used in the Tokyo Round Anti-dumping Code were extremely technical and
complex, thus an amendment was needed. Because the Code does not reflect the complexities
of current international trade, a new amendment is necessary. The lack of information in the
Code resulted in a lack of effective disciplines and encouraged the inclination to misuse the
Anti-dumping provisions, necessitating a modification.

Antidumping is a private policy, not a state policy. Countervailing duty is a device that one
contender can use against another — like marketing, product design, or price discounting. It
is harnessing the power of the state to represent a personal interest: a method by which one
contender can use the state’s power to gain a competitive edge over another competitor…
The sole stipulation is that the beneficiary’s interest must be domestic, while the ostensible
victims must be international.”

The Anti-dumping Committee (AD Committee) of the World Trade Organization (WTO)
meets twice a year to discuss anti-dumping actions. The AD Committee’s responsibilities
include reviewing countries’ anti-dumping implementation legislation for compliance with
the Agreement, hearing reports on countries’ anti-dumping measures, and researching anti-
dumping policies and practices. The AD Committee reports annually on the execution and
administration of the AD Agreement to the Council for Trade in Goods, which is
immediately subordinate to it.

Existing Legal Framework

The current set of laws in India that deal with curbing the practice of dumping are derived
from:

33
International laws: such as Article 6 of GATT (General Agreement on Tariffs and
Trade), It lays down certain principles to be followed by member countries for imposition of
reliefs such as anti-dumping duties and certain other safeguards.

Local laws: Such as Section 9A and 9B of Customs and Tariffs Act, 1975 (Amended 1995)
and The Anti-dumping rules such as (Identification, Assessment and Collection of Anti-
dumping Duty on Dumped Articles and for Determination of Injury) Rules of
1995, Section 9A of customs and tariffs Act 1975 states:

Policy Recommendations: Recommendations by Designated Authority, Ministry of

Commerce and Industry, Government of India. Investigative recommendations by Ministry of
Finance. Both the ministries have in past recommended changes in Anti-dumping laws such
as the 1993 recommendation was incorporated in 1975 act by an amendment.

Who can complain of dumping?

Anti-dumping measures are used in most countries by the state to protect its domestic players
in the market. So in India as well a dumping investigation can be initiated on a complaint by
a “Domestic Industry.”

Ministry of Commerce and Industry defines Domestic Industry as, Producers of Like Articles
as a whole or those producers whose cumulative output constitutes a major chunk of total
Indian production.[4] The complaint has to be in the form of written Application by or on
behalf of Domestic Industry.

Implementation of Law

For a domestic player to get relief under the current Anti-dumping laws, it must show
material injury caused by dumping. The material injury cannot be based on future threats or
conjectures. Material injury can be established by when the following gets established :

Step 1 Volume Effect: The authorities examine the increase in the import of dumped
materials either in absolute terms or in relation to production or consumption in India and its
effect on the domestic players. If the volume is high in either terms than the next step is
reached.

34
Step 2 Price Effect: The vast inflow of material goods in the market leads to decrease in the
prices of overall goods (By the law of demand and supply) and further thwart the domestic
players from making profits. Once this is established the final stage is of establishing a causal
link.

Step 3 Casual Link: A causal link must be there between the material injury suffered and the
dumped goods. This step also takes into regard other factors such as general productivity of
the domestic player, if the general productivity is itself low then the causal link cannot be
said to exist.

When all the three conditions are met, it is ascertained that the domestic industry has faced
material injury on account of dumping and is accordingly provided relief.

Reliefs Available

Imposition of Anti-dumping Duties: Anti-dumping duties are the most common form of
remedy provided against dumping. These duties are imposed in non-cooperative exporters
and are usually at very high rates as being a form of penalty.

Lesser Duty under GATT provisions: By GATT, members cannot impose higher duties
than the margin of dumping, some most of the nations impose duties proportion to the injury
suffered. The rate is determined at which is adequate to mitigate or remove the injury to the
domestic industry.

Injury Margin: Injury margin is the difference between the fair selling price due to the
domestic industry and landed cost of the product accused of being dumped. Governments can
adopt different courses of relief going by the magnitude of injury margin.

De Minimis Margins: These margins are adopted keeping in regard the notions of fair
competition and providing adequate opportunities to world players to tap the domestic market
keeping aligned with the ethos of globalisation. Under the principle any exporter accused of
dumping, if the margin of dumping is less than 2% of the export price of the product in
question is immune from Anti-dumping laws even if all the three steps are satisfied.

35
Further the investigations carried out under the current laws are restricted to those countries
whose dumped imports are more than 3% of the total imports of the country. China in most of
the cases takes advantage of this principle to defend itself against the accusations of dumping.

Get Undertakings from exporter: If dumping is proved, then government of India among
the available measures can ask the exporter concerned to revise the prices to remove
dumping. If the exporter agrees to it then under the GATT provisions the investigations
against that country need to be suspended.

Why is Anti-dumping Laws Important?

Anti-dumping measures have assumed much more importance today than any time in the
past, with the advent of globalisation and Liberalization Foreign trade has been growing
exponentially. Every day new players are entering new markets of the world it thus becomes
necessary for every nation to protect its domestic players from unfair practices. A majority of
the countries today make effective use of Anti-dumping measures. Dumping is a menace to
the domestic market and to the economy as a whole for any country. Some of the grave
consequences if dumping goes on unchecked are:

 Decline in the output of domestic players due to losses faced by the arrival of
cheap products in the market. Another consequence being a decline in
productivity.

 Loss of Market Share for indigenous Products, which in turn hampers the
secondary sector of the economy. Our country suffers worse from this sort of
dumping.

 Increasingly reduced returns on investments due to losses in the market.

 Reduced wages for the workers on account of decrease in the overall prices of the
goods (Price effect comes into play)

 Adverse effects on cash flow are also observed due to dumping. Further due to
the losses faced by domestic producers a market’s ability to raise capital gets
severely hampered. In toto, we can say the citizens loose the incentive to enter
the market which is detrimental to any economy.
Agreement on Safeguards

36
he Agreement on Safeguards (“SG Agreement”) sets forth the rules for application of
safeguard measures pursuant to Article XIX of GATT 1994. Safeguard measures are defined
as “emergency” actions with respect to increased imports of particular products, where such
imports have caused or threaten to cause serious injury to the importing Member's domestic
industry.

The Agreement on Safeguards (“SG Agreement”) sets forth the rules for application of
safeguard measures pursuant to Article XIX of GATT 1994. Safeguard measures are defined
as “emergency” actions with respect to increased imports of particular products, where such
imports have caused or threaten to cause serious injury to the importing Member's domestic
industry. Such measures, which in broad terms take the form of suspension of concessions or
obligations, can consist of quantitative import restrictions or of duty increases to higher than
bound rates.

Major guiding principles of the Agreement with respect to safeguard measures are that such
measures must be temporary; that they may be imposed only when imports are found to cause
or threaten serious injury to a competing domestic industry; that they be applied on a non-
selective (i.e., most-favoured-nation, or “MFN”, basis; that they be progressively
liberalized while in effect; and that the Member imposing them must pay compensation to the
Members whose trade is affected.

The SG Agreement was negotiated in large part because GATT Contracting Parties
increasingly had been applying a variety of so-called “grey area” measures (bilateral
voluntary export restraints, orderly marketing agreements, and similar measures) to limit
imports of certain products. These measures were not imposed pursuant to Article XIX, and
thus were not subject to multilateral discipline through the GATT, and the legality of such
measures under the GATT was doubtful. The Agreement now clearly prohibits such
measures, and has specific provisions for eliminating those that were in place at the time the
WTO Agreement entered into force.

In its own words, the SG Agreement, which explicitly applies equally to all Members, aims
to: (1) clarify and reinforce GATT disciplines, particularly those of Article XIX; (2) re-
establish multilateral control over safeguards and eliminate measures that escape such
control; and (3) encourage structural adjustment on the part of industries adversely affected
by increased imports, thereby enhancing competition in international markets.

37
Structure of the Agreement

The Agreement consists of 14 articles and one annex. In general terms, it has four main
components: (1) general provisions (Articles 1 and 2); (2) rules governing Members'
application of new safeguard measures (i.e., those applied after entry into force of WTO
Agreement (Articles 3-9)); (3) rules pertaining to pre-existing measures that were applied
before the WTO's entry into force (Articles 10 and 11); and (4) multilateral surveillance and
institutions (Articles 12-14).

General provisions

Article 1 establishes that the SG Agreement is the vehicle through which measures may be
applied pursuant to Article XIX of GATT 1994. That is, any measure for which the coverage
of Article XIX (which allows suspension of GATT concessions and obligations under the
defined “emergency” circumstances) is invoked, must be taken in accordance with the
provisions of the SG Agreement. The Agreement explicitly does not apply to measures taken
pursuant to other provisions of GATT 1994, to other Annex 1A Multilateral Trade
Agreements, or to protocols and agreements or arrangements concluded within the
framework of GATT 1994. (Art. 11.1(c))

Conditions for Application of Safeguard Measures

Article 2 sets forth the conditions (i.e., serious injury or threat thereof caused by increased
imports) under which safeguard measures may be applied. It also contains the requirement
that such measures be applied on an MFN basis. Rules governing new safeguard measures
(applied after entry into force of WTO Agreement)

Investigative Requirements

New safeguard measures may be applied only following an investigation conducted by

competent authorities pursuant to previously published procedures. Although the Agreement
does not contain detailed procedural requirements, it does require reasonable public notice of
the investigation, and that interested parties (importers, exporters, producers, etc.) be given
the opportunity to present their views and to respond to the views of others. Among the topics
on which views are to be sought is whether or not a safeguard measure would be in the public
interest. The relevant authorities are obligated to publish a report presenting and explaining
their findings on all pertinent issues, including a demonstration of the relevance of the factors

38
examined. The Agreement also contains specific rules for the handling of confidential
information in the context of an investigation.

Factual Basis for Determination of Serious Injury or Threat Thereof

The Agreement defines “serious injury” as significant impairment in the position of a

domestic industry. “Threat of serious injury” is threat that is clearly imminent as shown by
facts, and not based on mere allegation, conjecture or remote possibility. A “domestic
industry” is defined as the producers as a whole of the like or directly competitive
products operating within the territory of a Member, or producers who collectively account
for a major proportion of the total domestic production of those products.

In determining whether serious injury or threat is present, investigating authorities are

to evaluate all relevant factors having a bearing on the condition of the industry, and are not
to attribute to imports injury caused by other factors. Factors that must be analyzed are the
absolute and relative rate and amount of increase in imports, the market share taken by the
increased imports, and changes in level of sales, production, productivity, capacity utilization,
profits and losses, and employment of the domestic industry.

Application of Measures

Safeguard measures may only be applied to the extent necessary to remedy or prevent serious
injury and to facilitate adjustment, within certain limits. If the measure takes the form of a
quantitative restriction, the level must not be below the actual import level of the most recent
three representative years, unless there is clear justification for doing otherwise. Rules also
apply as to how quota shares are to be allocated among supplier countries, as to compensation
to Members whose trade is affected, and as to consultations with affected Members.

The maximum duration of any safeguard measure is four years, unless it is

extended consistent with the Agreement's provisions. In particular, a measure may be
extended only if its continuation is found to be necessary to prevent or remedy serious injury,
and only if evidence shows that the industry is adjusting. The initial period of application plus
any extension normally cannot exceed eight years. In addition, safeguard measures in place
for longer than one year must be progressively liberalized at regular intervals during the
period of application. If a measure is extended beyond the initial period of application, it can
be no more restrictive during this period than it was at the end of the initial period, and it
should continue to be liberalized.

39
Any measure of more than three years duration must be reviewed at mid-term. If appropriate
based on that review, the Member applying the measure must withdraw it or increase the pace
of its liberalization. Under critical circumstances, defined as circumstances where delay
would cause damage that would be difficult to repair, provisional measures may be imposed.
Such measures may be in the form of tariff increases only, and may be kept in place for
a maximum of 200 days. In addition, the period of application of any provisional measure
must be included in the total period of application of a safeguard measure.

Repeated application of safeguards with respect to a given product is limited by the

Agreement. Ordinarily, a safeguard may not be applied again to a product until a period equal
to the duration of the original safeguard has elapsed, so long as the period of non-application
is at least two years.

Nonetheless, if a new safeguard measure has a duration of 180 days or less, it may be applied
so long as one year has elapsed since the date the original safeguard measure was introduced,
and so long as no more than two safeguard measures have been applied on the product during
the five years immediately preceding the date of introduction of the new safeguard measure.

Concessions and Other Obligations

In applying a safeguard measure, the Member must maintain a substantially equivalent level
of concessions and other obligations with respect to affected exporting Members. To do so,
any adequate means of trade compensation may be agreed with the affected Members. Absent
such agreement, the affected exporting Members individually may suspend substantially
equivalent concessions and other obligations. This latter right cannot be exercised during the
first three years of application of a safeguard measure if the measure is taken based on an
absolute increase in imports, and otherwise conforms to the provisions of the Agreement.

Developing Country Members

Developing country Members receive special and differential treatment with respect to other
Members' safeguard measures, and with respect to applying their own such measures. A
safeguard measure shall not be applied to low volume imports from developing country
Members, that is, where a single developing country Member's products account for no more
than 3 percent of the total subject imports, as long as products originating in those low-
import-share developing country Members collectively do not exceed 9 percent of imports.

40
In applying safeguard measures, developing country Members may extend the application of
a safeguard measure for an extra two years beyond that normally permitted. In addition, the
rules for re-applying safeguard measures with respect to a given product are relaxed for
developing country Members.

Rules governing pre-existing measures (applied before the WTO's entry into force)

Pre-existing measures imposed pursuant to GATT Article XIX that were in effect at the time
of the WTO Agreement's entry into force are to be terminated no later than eight years after
they were first applied, or five years after the entry into force of the WTO Agreement,
whichever comes later.

Pre-existing “grey area” measures that were in effect at the time of the WTO's entry into
force are to be brought into conformity with the SG Agreement or phased out — pursuant to
timetables to have been presented to the SG Committee by 30 June 1995 — within four years
of the WTO's entry into force (i.e., by December 31, 1998). Although all Members had the
right to an exception with respect to a single specific measure, whereby they would have had
until December 31, 1999 for the required phase-out, no Member other than the EC (whose
single exception is contained in the Annex to the Agreement itself) exercised this option.

Multilateral surveillance and institutions

Multilateral oversight of the use of safeguard measures is conducted through notification

requirements, as well as through the creation of a Committee on Safeguards charged with
reviewing safeguard notifications, among other duties.

Members are required to notify the Committee of initiations of investigations into the
existence of serious injury or threat and the reasons therefore; findings of serious injury or
threat caused by increased imports; and decisions to apply or extend safeguard measures.
Such notifications are required to contain the relevant information on which the decisions are
based. Members are required, before applying or extending a safeguard measure, to provide
an adequate opportunity for consultations with Members who have substantial interests as
exporters of the product. The aims of such consultations shall include review of information
as to the facts of the situation, exchanging views on the proposed measures, and reaching an
understanding as to maintaining a substantially equivalent level of concessions and
obligations. Provisional measures must be notified before being applied,

41
and consultations must be initiated immediately after such measures are applied. The results
of consultations, mid-term reviews of measures taken, compensation, and/or suspension of
concessions, must be notified immediately to the Council for Trade in Goods through the
Safeguards Committee by the Member concerned.

Members are obligated to notify their own laws, regulations and administrative procedures to
the Committee, as well as their own pre-existing Article XIX and grey area measures.
Members also are entitled to counter notify other Members' relevant laws and regulations,
actions, or measures in force. Members are not obligated to disclose confidential information
in their notifications. The Committee's role generally is to monitor (and report to the Council
for Trade in Goods on) the implementation and operation of the Agreement, to review
Members' notifications, and to make findings as to Members' compliance with respect to the
procedural provisions of the Agreement for the application of safeguard measures, to assist
with consultations, and to review proposed retaliation. Consultations and disputes arising
under the Agreement are to be conducted in accordance with Articles XXII and XXIII of
GATT 1994 as elaborated by the Dispute Settlement Understanding.

B.A. LL.B.(HONS.) 5 YEAR COURSE EIGHTH SEMESTER

International Trade Law CODE NO.1775A

UNIT-III: TRADE IN SERVICES

General Agreement on Trade in Services, On-going Multilateral Negotiations

General Agreement on Trade in Services

The creation of the GATS was one of the landmark achievements of the Uruguay Round,
whose results entered into force in January 1995. The GATS was inspired by essentially the
same objectives as its counterpart in merchandise trade, the General Agreement on Tariffs
and Trade (GATT): creating a credible and reliable system of international trade rules;
ensuring fair and equitable treatment of all participants (principle of non-discrimination);
stimulating economic activity through guaranteed policy bindings; and promoting trade and
development through progressive liberalization.

While services currently account for over two-thirds of global production and employment,
they represent no more than 25 per cent of total trade, when measured on a balance-of-
payments basis. This seemingly modest share should not be underestimated,

42
however. Indeed, balance-of-payments statistics do not capture one of the modes of service
supply defined in the GATS, which is the supply through commercial presence in another
country (mode 3). Furthermore, even though services are increasingly traded in their own
right, they also serve as crucial inputs into the production of goods and, consequently, when
assessed in value-added terms, services account for about 50 per cent of world trade.

All WTO members are at the same time members of the GATS and, to varying degrees, have
assumed commitments in individual service sectors. The GATS applies in principle to all
service sectors, with two exceptions.

Article I (3) of the GATS excludes “services supplied in the exercise of governmental
authority”. These are services that are supplied neither on a commercial basis nor in
competition with other suppliers. Cases in point are social security schemes and any other
public service, such as health or education that is provided at non-market conditions.

Furthermore, the Annex on Air Transport Services exempts from coverage measures
affecting air traffic rights and services directly related to the exercise of such rights. The
GATS distinguishes between four modes of supplying services: cross-border trade,
consumption abroad, commercial presence, and presence of natural persons. Cross-border
supply is defined to cover services flows from the territory of one member into the territory
of another member (e.g. banking or architectural services transmitted via telecommunications
or mail);

Consumption abroad refers to situations where a service consumer (e.g. tourist or patient)
moves into another member's territory to obtain a service; Commercial presence implies that
a service supplier of one member establishes a territorial presence, including through
ownership or lease of premises, in another member's territory to provide a service (e.g.
domestic subsidiaries of foreign insurance companies or hotel chains); and

Presence of natural persons consists of persons of one member entering the territory of
another member to supply a service (e.g. accountants, doctors or teachers). The Annex on
Movement of Natural Persons specifies, however, that members remain free to operate
measures regarding citizenship, residence or access to the employment market on a
permanent basis. The supply of many services often involves the simultaneous physical
presence of both producer and consumer. There are thus many instances in which, in order to
be commercially meaningful, trade commitments must extend to cross-border movements of

43
the consumer, the establishment of a commercial presence within a market, or the temporary
movement of the service provider.

The GATS expressly recognizes the right of members to regulate the supply of services in
pursuit of their own policy objectives. However, the Agreement contains provisions ensuring
that services regulations are administered in a reasonable, objective and impartial manner.

Obligations under the GATS

Obligations contained in the GATS may be categorized into two broad groups: general
obligations that apply to all members and services sectors, as well as obligations that apply
only to the sectors inscribed in a member's schedule of commitments. Such commitments are
laid down in individual schedules whose scope may vary widely between members. The
relevant terms and concepts are similar, but not necessarily identical to those used in the
GATT; for example, national treatment is a general obligation in goods trade and not
negotiable as under the GATS.

(a) General obligations

MFN treatment: Under Article II of the GATS, members are held to extend immediately and
unconditionally to services or services suppliers of all other members “treatment no less
favourable than that accorded to like services and services suppliers of any other country”.
This amounts to a prohibition, in principle, of preferential arrangements among groups of
members in individual sectors or of reciprocity provisions which confine access benefits to
trading partners granting similar treatment.

Derogations are possible in the form of so-called Article II-exemptions. Members were
allowed to seek such exemptions before the Agreement entered into force. New exemptions
can only be granted to new members at the time of accession or, in the case of current
members, by way of a waiver under Article IX:3 of the WTO Agreement. All exemptions are
subject to review; they should in principle not last longer than 10 years. Furthermore, the
GATS allows groups of members to enter into economic integration agreements or to
mutually recognize regulatory standards, certificates and the like if certain conditions are met.

Transparency: GATS members are required, among other things, to publish all measures of
general application and establish national enquiry points mandated to respond to other
members' information requests. Other generally applicable obligations include the

44
establishment of administrative review and appeals procedures and disciplines on the
operation of monopolies and exclusive suppliers.

(b) Specific commitments

Market access: Market access is a negotiated commitment in specified sectors. It may be

made subject to various types of limitations that are enumerated in Article XVI(2). For
example, limitations may be imposed on the number of services suppliers, service operations
or employees in the sector; the value of transactions; the legal form of the service supplier; or
the participation of foreign capital.

National treatment: A commitment to national treatment implies that the member concerned
does not operate discriminatory measures benefiting domestic services or service suppliers.
The key requirement is not to modify, in law or in fact, the conditions of competition in
favour of the member's own service industry. Again, the extension of national treatment in
any particular sector may be made subject to conditions and qualifications.

Members are free to tailor the sector coverage and substantive content of such commitments
as they see fit. The commitments thus tend to reflect national policy objectives and
constraints, overall and in individual sectors. While some members have scheduled less than
a handful of services, others have assumed market access and national treatment disciplines
in over 120 out of a total of 160-odd services. The existence of specific commitments triggers
further obligations concerning, among other things, the notification of new measures that
have a significant impact on trade and the avoidance of restrictions on international payments
and transfers.

Each WTO member is required to have a Schedule of Specific Commitments which identifies
the services for which the member guarantees market access and national treatment and any
limitations that may be attached. The Schedule may also be used to assume additional
commitments regarding, for example, the implementation of specified standards or regulatory
principles. Commitments are undertaken with respect to each of the four different modes of
service supply.

Most schedules consist of both sectorial and horizontal sections. The “Horizontal Section”
contains entries that apply across all sectors subsequently listed in the schedule. Horizontal
limitations often refer to a particular mode of supply, notably commercial presence and the
presence of natural persons. The “Sector-Specific Sections” contain entries that apply only to

45
the particular service. The majority of current commitments entered into force on 1 January
1995, i.e. the date of entry into force of the WTO. New commitments have since been
scheduled by participants in extended negotiations (see below) and by new members that
have joined the WTO.

The GATS permits members in specified circumstances to introduce or maintain measures in

contravention of their obligations under the Agreement, including the MFN requirement or
specific commitments. The relevant article provides cover, among other things, for measures
necessary to:

 protect public morals or maintain public order;

 protect human, animal or plant life or health; or
 secure compliance with laws or regulations not inconsistent with the Agreement
including, among other things, measures necessary to prevent deceptive or
fraudulent practices.

Moreover, the Annex on Financial Services entitles members, regardless of other provisions
of the GATS, to take measures for prudential reasons, including for the protection of
investors, depositors, policy holders or persons to whom a fiduciary duty is owed by a
financial service supplier, or to ensure the integrity and stability of the financial system.

Finally, in the event of serious balance-of-payments difficulties members are allowed to

temporarily restrict trade, on a non-discriminatory basis, despite the existence of specific
commitments.

Special provisions for developing countries

Developing country interests have inspired both the general structure of the Agreement as
well as individual articles. In particular, the objective of facilitating the increasing
participation of developing countries in services trade has been enshrined in the Preamble to
the Agreement and underlies the provisions of Article IV. This Article requires
members, among other things, to negotiate specific commitments relating to the
strengthening of developing countries' domestic services capacity; the improvement of
developing countries' access to distribution channels and information networks; and the
liberalization of market access in areas of export interest to these countries.

46
While the notion of progressive liberalization is one of the basic tenets of the GATS,
Article XIX provides that liberalization takes place with due respect for national policy
objectives and members' development levels, both overall and in individual sectors.
Developing countries are thus given flexibility for opening fewer sectors, liberalizing fewer
types of transactions, and progressively extending market access in line with their
development situation. Other provisions ensure that developing countries have more
flexibility in pursuing economic integration policies, maintaining restrictions on balance of
payments grounds, and determining access to and use of their telecommunications transport
networks and services. In addition, developing countries are entitled to receive technical
assistance from the WTO Secretariat.

14. Are the results of the extended sectoral negotiations in telecommunications and financial
services legally different from other sector-specific commitments?

No. The results of sectoral negotiations are new specific commitments and/or MFN
exemptions related to the sector concerned. Thus, they are neither legally independent from
other sector-specific commitments nor constitute agreements different from the GATS. The
new commitments and MFN exemptions have been incorporated into the existing Schedules
and Exemption Lists by way of separate protocols to the GATS.

WTO GENERAL AGREEMENT ON TRADE IN SERVICES

The General Agreement on Trade in Services of the World Trade Organization (WTO),
commonly known as the GATS, established a multilateral framework of rules and principles
for trade in services, a large and fast-growing segment of world trade. It also set in motion a
process for the progressive removal of restrictions on international services trade.

The GATS was a major accomplishment of the Uruguay Round of Multilateral Trade
Negotiations, and it is incorporated as an annex to the Marrakesh Agreement Establishing the
World Trade Organization, which was signed at the Round’s conclusion. That Agreement
along with the GATS entered into force on January 1, 1995. It has no expiration date. All
WTO member governments (offsite link) are subject to the GATS.

The GATS is designed to ensure that the laws and regulations that WTO member
governments apply to services trade are transparent and fair. Its key market-opening element

47
is the Schedule of Specific Commitments that each signatory annexed to the GATS as an
integral part of the Agreement. In these Schedules, which resulted from negotiations that took
place during the Uruguay Round, signatories identified the extent to which they would accord
full market access and national treatment in specific service sectors.

The Schedules, however, were only a first step in the complex process of liberalizing services
trade, and many countries continue to impose limitations and conditions on both market
access and national treatment. These restrictions are specified in each country’s Schedule.
Continuing services negotiations that are taking place under the GATS are aimed at removing
these limitations and conditions.

Who benefits from this Agreement?

Any company in the United States that is interested in supplying a service to a consumer in
(or from) another WTO member country can benefit from the disciplines that have been
established by the GATS and the market-opening negotiations that are being carried out
under its auspices.

Scope and Coverage

All services are covered by the GATS, except those that are supplied by governments on a
non-commercial basis (such as central banking or social security). The GATS applies not just
to the provision of services across borders to consumers in other countries, but also to the
provision of services within countries by foreign suppliers. Article I defines trade in services
in terms of four different modes of supply:

1. Mode 1, cross-border supply from the territory of one WTO member country into the
territory of another (for example, an architect in the U.S. sending plans to a client in
Singapore);
2. Mode 2, consumption abroad (for example, an Australian tourist taking a vacation in
Las Vegas, or an Argentine citizen coming to the United States for health care);
3. Mode 3, commercial presence (for example, the branch of an American bank in South
Africa extending loans to local entrepreneurs); and

48
 4. Mode 4, the presence of “natural persons” for a limited period of time in another
country (for example, the representative of an American software company spending
a month in France installing the firm’s products on a French company’s computers).

The obligations of the GATS apply to “measures by Members affecting trade in services”
(GATS Article I). Measures by Members means measures taken by central, regional and local
governments, and by non-governmental bodies in the exercise of powers delegated by central,
regional or local governments or authorities. Among the general obligations and disciplines
of the GATS are:

(Article II) WTO member governments are obliged to accord MFN treatment to the services
and service suppliers of other member countries. This means that the treatment must be no
less favourable than that accorded to like services and service suppliers of any other country.
The GATS allows countries to maintain measures that are inconsistent with this MFN
principle, provided such measures are listed in and meet the conditions of the GATS Annex
on Article II (MFN) Exemptions. [link to that Annex] More than 70 signatories received
exemptions to do so. These exemptions should not, in principle, last beyond 2004. .

Transparency (Article III) The GATS requires WTO member governments to publish all
relevant measures (laws, regulations, rules, procedures, decisions and administrative actions)
that pertain to the operation of the Agreement. Enquiry points have been established in the
governments of WTO member countries to respond promptly to requests for information
from other member governments.

Domestic Regulation (Article VI) The liberalization of services trade is made particularly
complex by the fact that services are regulated by governments to meet a variety of national
policy objectives, such as health and safety. Such regulation affects the degree to which
services can be traded freely. WTO member governments are obliged to ensure that all
domestic laws, regulations, rules, procedures, decisions and administrative actions affecting
trade in services are administered in a “reasonable, objective and impartial manner”. Member
governments are also expected to have judicial, arbitral or administrative tribunals to which
service suppliers can turn for a prompt review of administrative decisions and, where
justified, for appropriate remedies.

49
One of the most important GATS provisions on domestic regulations is Article VI:4, dealing
with qualification requirements and procedures, technical standards, and licensing
requirements. To ensure that measures taken in these three areas don’t constitute unnecessary
barriers to trade in services, the GATS mandates that any such requirements be based on
objective and transparent criteria and not be “more burdensome than necessary to ensure the
quality of the service.” The GATS stipulates that signatory governments shall not apply
licensing requirements or technical standards in ways that nullify or impair the commitments
that they have made under the Agreement. It also encourages member governments to
undertake negotiations to establish mutual recognition of the educational qualifications of
service suppliers.

In certain specified circumstances, the GATS allow WTO member governments to restrict
services trade in areas where the Member has undertaken specific commitments. As one
example, if a member government is in serious balance of payments difficulties (or
threatened by such difficulties), it can apply emergency safeguards to restrict services trade as
long as such safeguards are non-discriminatory, temporary and phased out as the situation
improves. Negotiations to develop an agreed emergency safeguards mechanism for services
are under way in the GATS Rules Committee.

In addition to these general obligations, the GATS contain specific commitments that bind
those Members making such commitments in their schedules (see below). These
commitments are not general obligations, but result from the negotiating process. The two
most important specific commitments are Market Access and National Treatment:

Market Access (Article XVI): Each WTO Member shall accord to the services and service
suppliers of any other Member treatment no less favorable than that provided for in the
Member’s schedule. Where market access commitments are undertaken, Members shall not
maintain such measures as, inter alia, quotas or other limitations on the number of service
suppliers; limitations on the number of natural persons employed in a particular service
sector; or limitations on foreign capital participation.

National Treatment (Article XVII) in those sectors where a Member makes a commitment in
its schedule, each WTO Member is required to accord national treatment to the services and
service suppliers of other member countries. This means that the treatment must be no less

50
favourable than the treatment that the government accords to its own like services and service
suppliers.

Schedules of Specific Commitments

Each government that signed the GATS drew up a Schedule of Specific Commitments, which
is annexed to the GATS as an integral part of the Agreement. Schedules are generally divided
into the following 12 sectors, which are in turn broken down into some 150 sub-sectors:

 business (including professional and computer) services

 communication services (including postal, courier, telecom, and -audiovisual
services)
 construction and related engineering services
 distribution services (including wholesaling, retailing, and -franchising services)
 educational services
 environmental services
 financial (insurance, banking and securities) services
 health-related and social services
 tourism and travel-related services
 recreational, cultural and sporting services
 transport services (including maritime, air transport, rail and road transport services)
 other services not included elsewhere

The Agreement also includes a section for horizontal commitments, i.e., commitments that
apply across all sectors. For example, Mode 4, and certain Mode 3 commitments are often
scheduled in the horizontal section.

Modes of supply (cross-border, consumption abroad, commercial presence and movement of

natural persons) are specified for each service.

For each service sector, the Schedules describe:

 terms, limits and conditions that the signatory placed on market access for foreign
service suppliers;
 conditions and qualifications that the signatory placed on national treatment for
foreign service suppliers; and

51
  Undertakings relating to additional commitments (for example, on licensing or
standards).

If a country placed no limitations on market access or national treatment for a specific service
sector or mode of supply, it entered “none” in the Schedule. If it wished to make no
commitments to accord market access or national treatment, it entered “unbound”.

By making commitments in their Schedules to liberalize trade in particular service sectors, in

one or more of the four modes of supply, member governments “bound” these commitments,
as tariffs are bound under the GATT. They can only be modified or withdrawn after
negotiations with other Parties. Such negotiations normally involve compensation in the form
of trade concessions of similar value.

On-going Multilateral Negotiations

Sector-specific negotiations on telecommunications and financial services have taken place

since the GATS entered into force. In negotiations on basic telecommunications services,
member countries amended their Schedules of Commitments and MFN exemptions to
provide significant market openings for foreign suppliers of telecommunications services.
The results of these negotiations were incorporated in the Fourth Protocol to the GATS,
which entered into force on February 5, 1998. Two rounds of negotiations have been held on
financial services- the first was concluded in 1995 and the second in 1997. The second round,
in which member countries amended their Schedules of Commitments and MFN exemptions,
resulted in significant market openings for insurance companies, banks and securities firms.
These were incorporated in the Fifth Protocol to the GATS, which entered into force on
March 1, 1999. The substance of the 1997 negotiations can be found in the WTO
Understanding on Commitments in Financial Services on the web site of the Commerce
Department’s Office of Trade Agreements Negotiations and Compliance.

The GATS provided that successive rounds of services negotiations should begin not later
than five years after the entry-into-force of the Agreement, and a new round of services
negotiations was formally launched in Geneva in February, 2000. Six GATS negotiations
were held in 2000, with WTO Members addressing issues ranging from improved services
classifications and increased transparency to mandated reviews of the Air Transport Services
Annex and exemptions to most-favoured-nation treatment.

52
Written into the General Agreement on Trade in Services is a commitment by WTO member
governments to progressively liberalize trade in services. In December 2000, the United
States submitted 12 negotiating proposals addressing 11 service sectors and one cross-
sectoral issue, “movement of natural persons”, and the European Community and Japan also
submitted negotiating proposals identifying trade barriers in nine service sectors. These
negotiating proposals, together with any additional proposals submitted by other Members,
formed the basis for market access negotiations that began in March 2001, under the Council
for Trade in Services. . Also in March, Members sought to finalize negotiating guidelines and
procedures.

These on-going services negotiations were incorporated into the Doha Development Agenda,
launched by the Fourth Ministerial of the WTO in Doha, Qatar, in November of 2001. The
Doha Declaration endorses the work already done, reaffirms the negotiating guidelines and
procedures, and establishes some key elements of the timetable including a deadline for the
submission of requests for market access by June 30, 2002, as well as initial offers by March
31, 2003, while on-going rule-making and other issues continue in the Council’s subsidiary
bodies. Only less than 1/3 of all members have submitted requests and offers as of these
dates.

In September of 2003, the Fifth Ministerial Conference took stock of the on-going
negotiations. Agricultural issues emerged as a serious challenge to progress in the Round
with developing countries demanding greater access to developed country markets.

Multilateral Negotiations

Multilateral trade agreements are trade agreements between three countries or more. The
negotiations lower the tariffs and make import and export simpler for companies. These are
difficult to negotiate because they are among several nations. When all the parties sign, the
same broad reach of these agreements makes them even more robust and reliable compared to
other forms of trade agreements. It is easier to negotiate and sign bilateral agreements
because these are only between the two countries. These do not have as great an impact on
economic development as the multilateral agreements would.

Multilateral agreements, once negotiated, are very effective and powerful. They cover a
wider geographical region that gives the signatories a significant competitive advantage. All

53
nations generally give one another the position of the most-favoured-nation, offering
favourable deals and even the minimum possible tariffs for mutually beneficial trade.
Through making developing nations more competitive the multilateral trade agreements are
improving and supporting the global economy. These agreements regulate the import and
export procedures to conform to set standards which benefit all the member states
economically. The intricacy of such agreements supports those nations who are able to take
advantage of globalization, the countries who are unable to so, often face hardships.

Multilateral agreements are a major part of today’s global trade infrastructure. A multilateral
trade agreement involves three or more countries who wish to regulate trade between their
respective nations without any form of discrimination. Agreements of this nature are usually
intended to lower trade barriers between participating countries and, as a result, increase the
degree of economic integration and cooperation between the various nations. Under the WTO
framework developing countries are given special rights and privileges commonly called
special and differential treatment. These provisions are central to the functioning of world
trade in the present day.

Background

Throughout history, trade and foreign policy remained interwoven, with foreign policy
mostly structured to support commercial interests. For instance, China used its military
superiority in the initial days to protect and retain the Silk Road for its trade significance. The
need for safety and worldwide peace has motivated the nations towards the development of
the global economic structure of today. The international rules governing our multilateral
economic structure was a direct response to World War II, and a willingness to never
experience it again.

The GATT presented the guidelines for most of the international trade from 1948 to 1994.
They governed over periods that have seen some of the maximum rates of growth in world
trade. This did appear quite well-established, but it was a tentative arrangement throughout
these 46 years. The GATT’s first Executive Director was Eric Wyndham White, who held the
office from 1948 to 1968. The establishment of the WTO on 1 January 1995 was labelled as
the largest international trade reform ever since the end of World War II. While the GATT
was mainly concerned with trade in goods, the WTO and its negotiations have also regulated

54
trade in Intellectual Property and services. The WTO ‘s birth also brought additional dispute-
settlement mechanisms.

In 2001, the Doha Round was introduced to bring significant changes to the world trading
system by implementing lower trade barriers and revising trade laws. A fundamental goal of
the Doha Development Agenda was to strengthen the trade prospects of developing nations.

WTO leaders have collaborated to bring substantial changes to the WTO rulebook, in the past
20 years, to enhance the process of international trade. The membership of the WTO has
grown to 164 countries, reflecting more than 98 percent of global trade. The WTO hit a
significant landmark in 2015 with its receiving of the 500th settlement regarding trade
disputes. The WTO’s main decision making entity is the Ministerial Conference which
generally gathers every two years. In December 1996 the WTO conducted its first ministerial
conference in Singapore. The most recent which was the 11th Ministerial Conference was
conducted in December 2017 in Buenos Aires. The present WTO Director-General is
Roberto Azevêdo, who in September 2017 started his second four-year tenure. The World
Trade Organization celebrated its 25th anniversary in 2020.

International trade at present

Regional trading, as per the WTO statistics grew from approximately $290 billion in 1993
over the first two decades to more than $1.1 trillion by 2016. Overall international trade stood
at $39.7 trillion in 2018, which includes trade of about 20.8 trillion dollars in exports and
18.9 trillion dollars in imports. Approximately 46% of the $86 trillion world economy is
driven by trade. Of the goods traded, more than one-fourth are machinery and electronics,
such as computers, boilers, and scientific instruments. Nearly 12 percent were automobiles
and several other means of transport. Then follows oil as well as other fuels, which contribute
about 11%. Chemicals inclusive of pharmaceuticals furthermore add 10% to the total
economy.

In terms of percentage, global trade accounts for about 50% of international economic
activities. World trade unlocks new market opportunities and is exposing nations to products
and services which are in short supply in their domestic economies. Nations that export
usually grow companies that understand how and when to gain a strategic advantage in the

55
global market. Trade deals can improve exports and economic development, but the increased
competition is also harmful to micro, small and domestic businesses.

The world’s largest multilateral agreement is the U.S.-Mexico-Canada Agreement (USMCA,

previously known as the North American Free Trade Agreement or NAFTA), which is
between the United States, Canada, and Mexico and which presently encompasses the
world’s largest free-trade region. It removes all barriers and tariffs between the three nations,
allowing the trade to triple to $1.2 trillion.

U.S. exports in 2019 amounted to $2.5 trillion, contributing 11.7 percent to gross domestic
product. The majority of the manufactured goods produced by the United States economy are
mainly for domestic consumption and are not exported. A major part of the economy also
includes services, although they are harder to export. Irrespective of what the US produces, it
imports much more than it exports. Imports were at $3.1 trillion in 2019 and led the United
States towards having a significant trade deficit. In 2019 global trade deducted $616 billion
from its GDP. Statistics on the U.S.A.’s import and export of products reveal that the
country’s amount of imported goods and services surpass what it is exporting in the global
market.

Owing to the trade war launched by President Donald Trump in March 2018, the trade deficit
has reduced. Trade policies introduced by Trump contain a tariff of 25 percent on import of
steel products and a tariff of 10 percent on aluminium. China, the European Union, Mexico,
and Canada all proposed retaliatory tariffs that affected U.S. exports, and an agreement
eliminating the tariffs was signed in May 2019. Analysts were concerned that Trump might
have started a trade war that could have harmed the global trade and market.

Need for multilateral trade Rules

With the passing of the Second World War generations, the awareness about why peace and
trade were seen as mutually beneficial gradually disappeared. International peace is no longer
a commonly acknowledged basis for the maintenance of the multilateral system of trade. The
evidence cited for the assertion:

56
  that the prevailing geopolitical status is collapsing takes into account the growth in
populism,

 the movement in a substantial number of nations towards increased authoritarian

regimes,

 the considerable number of local armed conflicts and rising border disputes,

 the difficulties encountered because of non-state actors, and

 the major changes in the relative positions of competing centres of power and possible
splits in prevailing alliances between nations.
The multilateral system is claimed to be:

 weakened because of the conflicting economic structures of major trading countries,

 weakened by an increase in unilateral trade policies,

 weakened by disagreements about what is required to encourage global economic

growth,

 weakened by an increase in populism, imperialism, wage disparity, nationalism and a

lack of political will to further liberalize trade by new trade deals,

 weakened by a decline in confidence,

 weakened by rising anxiety that prevailing trade agreements are not mutually
advantageous,

 weakened by the lack of unanimity among all WTO members in terms of the path
ahead, along with an overarching perception that the duration when it was possible to
achieve multilateral agreements has come to an end with one outcome being the
continued growth of bilateral and regional agreements.
There are several strong grounds for hope that the multilateral system of trade will endure
and the WTO with it:

1. By far the majority of international trade shall continue to be carried out in conformity
with WTO agreements made by its members. The repressive trading practices taken up
are irregularities that are unlikely to be sustaining.

57
 2. International trade is increasing and not decreasing. The multilateral trading system
managed to survive a far more major threat, the economic slowdown of 2008 at the
time of the global financial meltdown.

3. None of the 164 member nations have opted out of the WTO. On the opposite, there
are twenty-two countries in the line desiring to gain entry. The trend for many nations
who are inactive WTO membership, is the consistent adoption and incorporation of
market-based reforms, without any exception.

4. The WTO committee’s consistent day-to-day work continues to grow rapidly, trying
to serve a multitude of important tasks massively depended upon by its member
nations.

5. The key focus of the WTO member states is to strengthen the WTO more rather than
making it weaker, reforming the WTO to enhance its response towards both the long-
standing and new technical issues that influence a rapidly developing international
trade system.

6. Though the WTO dispute settlement framework is going towards a dead end, no
member nation has expressed a desire for the end of the system, and rather intense
research has started to identify practical solutions towards the questions raised by its
opposition.

7. Perhaps the greatest source of hope is that the conflicting states still recognize in the
World Trade Organisation, what the architects of the multilateral trade system
believed during its establishment in 1947. They consider it an effective method for
economic development, a greater opportunity to maintain and preserve harmony and
contributing to improved domestic stability and prosperity.

8. WTO membership better represents the interests of the countries. They need trade
rules that have adequate stability that encourages international trade to prosper. The
operation of the multilateral trading system is focused on voluntary compliance with
regulations rather than enforcement through legal compulsions arising from dispute
settlement proceedings.

Advantages

58
Multilateral agreements ensure equal treatment of all signatories. No nation could offer one
nation better trade deals as compared to what it offered to other nations and this helps level
the playing field.

 It is particularly critical for the developing economies as most businesses are small in
scale which makes them less competitive in nature. The status of the most favoured
country provides a nation with the best trade terms from a trading partner. This trade
status is most beneficial for developing countries.

 The second advantage is that each participant will enjoy an increase in trade. They
have low tariffs for their businesses that reduce the cost of their exports.

 The third advantage is that all trading partners are regulated by common export
regulations. Companies save legal expenses because, for each nation, they adhere to
the same laws.

 The fourth advantage would be that nations can negotiate trade agreements at a time
with more than just one nation. A detailed approval process is undertaken for trade
agreements.

 The fifth advantage refers to the developing markets. The nation with the strongest
economy is continuing to benefit from bilateral trade agreements which generally
proves to be a drawback for the countries with developing economies. But by
strengthening the growing markets it will help the developed economies in the future.

Drawbacks

 The most considerable drawback of Multilateral trade agreements is that they are
complex and complicated in nature, which makes them harder to negotiate and thus
are time-consuming. The duration of the talks also means it won’t happen at all.

 The second drawback is that the negotiation details concern business and trade
activities in particular and these are often misunderstood by the public. As a
consequence of which they attract lots of media coverage, debate controversies, and
protests.

 The third drawback of almost any trade agreement is common, some industries and
regions of the nation have to struggle from the lack of trade boundaries.

59
  The fourth drawback is for the smaller businesses of a country. A multilateral deal
provides giant multinationals with a competitive advantage as these corporations
already know how to operate in a global environment.

What is the multilateral framework of International Law?

The multilateral framework of international law in the trade sphere has been laid out through
a series of agreements which started with the General Agreement on Tariffs and Trade and
was continued with subsequent agreements formed in the following rounds, most notably
the Uruguay round. Listed below, are some of the most notable laws that govern international
trade.

The General Agreement on Tariffs and Trade (GATT)

The General Agreement on Tariffs and Trade was the first among a host of multilateral trade
agreements. It was a catalyst for the formation of a multilateral trade framework in
international law. GATT is a legal agreement between a multitude of countries, formed with
the overall purpose of promoting international trade by reducing or eliminating trade barriers
such as tariffs or quotas.

The General Agreement on Trade and Services (GATS)

The General Agreement on Trade in Services (GATS) was formulated as a result of

the Uruguay Round negotiations. This treaty was created to continue building on the
foundations of a multilateral trading system laid by GATT. It was primarily focused on
spreading the GATT ethos to the service sector. This is to provide a framework similar to the
one established by GATT in merchandise trade.

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

This agreement too was formed as a result of the Uruguay round. Through TRIPS a
minimum standard has been set for the regulation of different forms of intellectual
property by nations. TRIPS requires that all WTO members provide copyrights and
trademarks for goods and services in their country. This includes a wide assortment of
products ranging from software and industrial designs to more intricate creations.

60
The Agreement on Agriculture

The WTO Agreement on Agriculture is centred into 3 broad provisions of agriculture and
trade policy. This refers to market access, domestic support and export subsidies. Continuous
and gradual reduction of tariffs was a central element of market access. It also involved the
conversion of non-tariff barriers to tariff duties. Domestic support involves a guaranteed
minimum support price. This was split into three, that is green box, blue box and amber box
subsidies. Export subsidies especially for developing countries was built on the mechanism of
special safeguard mechanisms, which provides some protection for developing markets in the
case of abnormal price surges.

The Agreement on Technical Barriers to Trade

This agreement was formulated to better regulate trade. The Technical Barrier to Trade
(TBT) exists primarily to ensure that technical regulations, standards, testing, and
certification procedures do not create any unnecessary obstacles to trade. That is, they do not
hinder or get in the way of international trade or hinder its smooth functioning.

The Agreement on Trade-Related Investment Measures (TRIMS)

TRIMS is responsible for covering the rules and practices that countries must adhere to
regarding the treatment of foreign investors, this includes foreign investors in private health
delivery and medicine production.

The Agreement on Customs Valuation

The WTO agreement on customs valuation was set up to facilitate a fair, uniform and neutral,
non-biased system for the valuation of goods for customs purposes. That is a system that does
not favour any party over the other. This system strives to work in consideration of the
commercial realities. Furthermore, it outlaws the use of arbitrary or fictitious customs values.

Explain multilateral negotiations

Essentially multilateral trade negotiations are what precede multilateral trade agreements or
rather give rise to them, through various discussions like the ‘rounds’ held by the WTO and

61
GATT before it. In the process of coming to a consensus on what might eventually end up
being a trade deal, there are several negotiations back and forth in regards to demands made
by the different parties. This might even involve the renegotiation of existing agreements
when certain nations feel that it is not in their best interests anymore. The recent renegotiation
of NAFTA to create the United States–Mexico–Canada Agreement (USMCA) is a perfect
example of this.

According to statements from the Trump administration, NAFTA had led to trade deficits,
factory closures, and job losses for the United States. The deal has also been blamed over the
years for job losses in traditionally heavy manufacturing states such as Michigan, and for
holding back wage increases for the existing jobs in that sector. Due to all these issues and
grievances, it was agreed that the three pirates involved (the USA, Canada and Mexico)
agreed to negotiate a more workable trade deal. The new deal is said to have satisfied the
American demand for stricter labour laws. Moreover, there have been stronger environmental
protections put in place. That is the agreement provided for over 600 million dollars to solve
vital issues like the sewage spillovers from Tijuana to San Diego. Other changes include an
increase in the manufacture of vehicle parts from the region and also greater market access
for farmers.

Difference between bilateral and multilateral trade

The main point of difference between multilateral and bilateral trade agreements is in the
number of participants. Multilateral trade agreements involve three or more countries without
any form of discrimination between the various parties involved, meanwhile, bilateral trade
agreements are those which consist of only two countries. Both countries may enjoy certain
advantages in a bilateral agreement. In some cases, they may have favourable import quotas
which are not available to other trading partners and can only be availed by the two nations
who have agreed in the said bilateral contract. The Australia – New Zealand Free Trade
Agreement and the Canada – United States FTA are some prime examples of what we call
bilateral agreements. In general, bilateral trade agreements only provide parties with access to
limited markets as there are only two nations involved in the agreement.

On the other hand, multilateral agreements have a much larger scope and have the capacity to
cover a significantly larger region. However, multilateral talks and even their eventual

62
agreements often tend to be unpredictable. It is often the case that over the years, some
parties might get dissatisfied with the terms of the agreement. A perfect example of this was
the NAFTA. This might result in them backing out which in turn could cause large scale
economic upheaval for their partners. Comparatively bilateral agreements are far less risky
and the negotiations involved often get concluded at a brisk pace. Nevertheless, the scope for
dividends is limited in this form and that is why most countries look to form multilateral
agreements, despite the risk of facing difficulties in negotiation.

The special provisions include:

 Longer periods for implementing agreements and commitments,

 Measures to increase trading opportunities for developing countries,

 Provisions requiring all WTO members to safeguard the trade interests of

developing countries,

 Support to help developing countries build the capacity to carry out WTO work,
handle disputes, and implement technical standards, and

 Provisions related to least-developed country (LDC) Members.’

UNIT-IV: INTERNATIONAL TRADE DISPUTE RESOLUTION’ a) Litigation b)

Arbitration c) UNCITRAL d) Enforcement of Awards

INTERNATIONAL TRADE DISPUTE RESOLUTION

The World Trade Organization (WTO) is responsible for maintaining the free flow of trade
between its member countries. WTO, in the form of Dispute Settlement Undertaking (DSU),
provides an instrument for the settling of trade disputes between the parties. The dispute
generally arises when any member country violates any provision of WTO agreement which
other member countries think unreasonable. This dispute settlement process is the outcome
of the Uruguay round (1996-1994). This mechanism provides a speedy resolution of a trade
dispute. This settlement system applies to all disputes covered under the WTO agreement.
The Dispute Settlement Body (DSB) is responsible for DSU to resolve a dispute between
parties.

63
Stages in settlement of trade disputes

Stage 1: Consultations (Article 4 of the DSU)

Before referring any dispute to mediation or taking any other actions, both the WTO member
countries shall affirm to resolve their disputes through consultation. If a WTO member
requests for consultation with another Member concerning measures affecting the operations
of the former member, the latter member must accept such request within a period 10 days
after the date of receipt of such request and shall enter into consultation within 30 days.

If the consultation fails to provide a satisfactory solution to the problem within 60 days after
the date of receipt of the request for consultation, then the complaining party may request for
construction of the panel. All such requests for consultation and construction shall be notified
in writing including reasons for such requests to the Dispute Settlement Body by the
complaining member.

Stage 2: Establishment of Panels (Articles 6, 8 and 11 of the DSU)

If no satisfactory solution is reached through consultation between the member countries, the
complaining member may request for the establishment of panels in writing to the Dispute
Settlement Body including a summary of the case and issues involved. The panel is
established at the second meeting of DSB at which request appears as an agenda item of the
meeting.

The function of the Panel is to aid the Dispute Settlement Body in resolving the matter in
dispute. The panel assesses the entire dispute, including the facts of the case and issues
involved therein and examines whether it conforms with the covered agreement between the
member countries. The Panel shall provide its final report to the parties within 6 months from
the date when panel procedures start.

Stage 3: Selection of panellists (Article 8 of the DSU)

After the establishment of the panel, the next step is to select panellists. The panellists are
selected by the WTO Secretariat. The parties cannot oppose the selection unless they state

64
reasons satisfactory to the Secretariat. The panel shall consist of three panellists. The parties
can agree to have five panellists on board if they consider necessary within 10 days from the
establishment of the panel.

The WTO Secretariat assists the parties in the selection of panellists by creating a list of all
governmental and non-governmental individuals having certain qualifications from which
panellists may be chosen by the parties.

Members may, at any reasonable time, make an addition to the list of individuals by
suggesting the name of individuals who can assist the parties by providing any information
related to international trade law or any of the matter as covered in the agreement because of
which dispute arose in the first place. The addition to the list can be made only after the
approval of the Dispute Settlement Body.

If panellists are not selected within 20 days after the date of establishment of the panel, the
Director-General, in consultation with the Chairman of Dispute Settlement Body and
Chairman of relevant Council or Committee appoint panellists which they consider
appropriate. The chairman of the Dispute Settlement Body, then informs the members of the
composition of the panel within 10 days.

Stage 4: Procedure of Panel (Articles 10 and 12 of the DSU)

The panellists shall, within one week after the composition of the panel fix a timetable for the
panel process. After this, the panel decides a deadline for written submission to be made by
each party. Each party has to submit its submissions with the secretariat which shall transfer
each submission to the panel and submission made by one party shall be sent to the other
party as well. At the first substantive meeting of the panel, the complaining party shall be the
first to present their case ahead of the responding party.

The third parties who have notified the Dispute Settlement Body having substantial interest in
the subject matter of the dispute are also asked to present their views during the same
meeting. Any rebuttals between the parties shall be made at the subsequent meeting of the
panel. Here, the responding party shall be the first to respond against the complaining party.

65
The parties, before that meeting, have to submit their written rebuttals to the panel. The
panel, if they consider necessary, put any questions before the parties to be answered in the
duration of that meeting.

Where after the examination, a solution has been reached between the parties, the panel shall
submit a written report to the Dispute Settlement Body which shall have a brief description of
the case along with the solution which has been reached. Where the solution has not been
found, the panel shall send a written report to the Dispute Settlement Body mentioning its
findings of the case and recommendations, if any, it makes.

The report has to be sent within six months of its examination. In case of urgency, including
the case of perishable goods, the report has to be sent within three months. The maximum
period during which the report has to send is nine months from the establishment of the
panel.

Stage 5: Interim report (Article 15 of the DSU)

Following the oral arguments and rebuttal that has been performed and examination has been
made, the panel shall issue a draft report to the parties. The parties have to submit their
comments in writing after receiving the draft report within the period set by the panel.

After the expiration of the said period for receiving the comments from the parties, the panel
shall issue an interim report, including its findings in the draft report and its new findings and
conclusion. Both the parties, within the time given the panel may submit its written request to
revise its interim report accordingly.

At the request made by the parties, the panel shall call for a further meeting to discuss the
comments made by the parties to the dispute. If both the parties are satisfied with the solution
reached, then such a revised interim report shall be the final panel report and is circulated
among the members.

In case, the parties are not satisfied with the outcome of the report reached then any
objections of the members shall be considered at the meeting of the Dispute Settlement Body.

66
Such objections have to be reported at least 10 days before the meeting of the Dispute
Settlement Body.

The final report shall be adopted by the Dispute Settlement Body within 60 days from the
date panel report is circulated to the members unless any party to the dispute is unsatisfied
with such report and notifies its decision of appeal to Dispute Settlement Body or the Dispute
Settlement Body unanimously decides not to adopt such report, as the case may be. In case of
an appeal, the report shall deem to be invalid for adoption by the Dispute Settlement Body
unless the Standing Appellate Body provides its Appellate Body Report.

Stage 6: Appeal (Article 17 of the DSU)

Either of the parties unsatisfied with the ruling of the panel report can appeal to the Standing
Appellate Body established by the Dispute Settlement Body. Only parties to the dispute can
appeal to a panel report and not the third parties. Third parties can be allowed to be heard
only in case such third party has notified in writing to the Dispute Settlement Body of its
substantial interest in such dispute.

The proceeding of the Appellate Body shall not exceed 60 days from the date a party to the
dispute notifies its intention of appealing to the Appellate Body to the Dispute Settlement
Body. In case of delay, the maximum period granted to the Appellate Body is 90 days. The
Appellate Body has to submit in writing to the Dispute Settlement Body its reasons for the
delay together with the period within which the final decision is notified.

The Appellate Body will not re-examine any shreds of evidence, issues or previous
arguments but its examination shall be limited to laws covered in the panel report or legal
interpretation evolved by the panellists. The Appellate Body has the power to uphold, modify
or reverse the panel report and provide a conclusive report.

Stage 7: Acceptance of report by Dispute Settlement Body (Article 30 of the DSU)

The Dispute Settlement Body has to either accept the Appellate Body report or reject it
within a maximum period of 30 days after receiving such a report. The report can only be
rejected unanimously.

67
Time framework for Dispute Settlement

STAGE PERIOD

Consultation 60 days

Establishment of panel and selection of Panellists 45 days

Panel report to parties 6 months

Final panel report to WTO members 3 weeks

Dispute settlement body adopts report (without appeal 60 days

Total time (without appeal) 1 year

Appellate body report (if an appeal is made) 60-90 days

Dispute settlement body adopts appellate body report 30 days

Total time (with the appeal) 1 year 3 months

The Director-General

 The Director-General of WTO in his official capacity assists both the parties in
settling their disputes by providing his good offices, conciliation, and mediation.
(Article 5.6 of the DSU)

 In a dispute settlement case involving a least-developed country where a

settlement of the dispute through consultation is a failure, such least-developed
member nation may request the Director-general to provide his good offices,
conciliation, and mediation before requesting for establishment of the panel. The
Director-General, when considered satisfactory, will provide his good offices,

68
 conciliation, and mediation to settle the dispute between the parties. (Article 24.2
of the DSU)

 When there are no panellists appointed by either of the parties to dispute, the
Director-General, at the request of either party, in consultation with the Chairman
of Dispute Settlement Body and Chairman of the relevant Council or Committee,
appoints panellists as he considers appropriate. (Article 8.7 of the DSU)

WTO Secretariat (Article 27 of the DSU)

The Secretariat has the responsibility to select panellists for the panel. It must provide a panel
with all the support they need. The Secretariat also help member countries in dispute by
offering legal assistance by making an available qualified legal expert from the WTO to the
members. The Secretariat also conducts special training courses for members interested in the
dispute settlement mechanism.

Panel

The panel established in the second meeting of Dispute Settlement Body, are bodies
responsible for adjudicating disputes between the parties.

Composition of the panel:

The panel generally consists of three panellists but can be a maximum of five, if the parties
consider it necessary. (Article 8.5 of the DSU)

The Panel shall consist of well-qualified governmental and non-governmental individuals,

including the persons who have served a panel or presented a case to a panel. The panellists
shall be from amongst the persons who have served as a representative of a member or a
contracting party to GATT, 1947 or as a representative to the Council or Committee of any
covered agreement or its predecessor agreement, or in the Secretariat, taught or published on
international trade law or policy, or served as a senior trade policy official of a member. The
parties at dispute can select any individual having the above-mentioned qualifications from
the list created by the Secretariat to the panel to resolve their dispute. (Article 8.1 of the
DSU)

69
Dispute Settlement Body (DSB)

Dispute settlement Body is a body established for resolving the disputes between the
conflicting parties by overseeing the entire dispute settlement mechanism. The General
Council of WTO, which carry out the functions of the Ministerial Conference, renders its
obligations under the Dispute Settlement Understanding through Dispute Settlement Body.
(Article 4.3 of the WTO agreement)

Composition (Article 4.3 of the WTO agreement)

The Dispute Settlement Body consists of a Chairman and representatives of all WTO
members (usually government representatives). [1] The Chairman is usually a leader of the
permanent mission of one of the member countries of WTO. The Chairman is elected with
the consent of all WTO members. [2]

Functions 9 (Article 2 of the DSU)

 The main function of the Dispute Settlement Body is to administer the rules and
procedures which are provided in the Dispute Settlement Understanding.

 It has the authority to establish a panel for adjudication of the dispute between the
parties in the meeting of Dispute Settlement Body unless it is decided in that
meeting not to establish a panel.

 It has to adopt the panel or Appellate Body reports to make these reports binding
on both the parties to the dispute.

 The parties must comply with the rulings and recommendations of the Dispute
Settlement Body. The Dispute Settlement Body will scrutinize the application of
adopted recommendations and rulings by the parties. If the parties do not comply
with these recommendations and ruling within a prescribed period then measures
in the form of compensation and termination of concessions will be adopted by the
Dispute Settlement Body. (Article 21.6 and 22.1 of the DSU)

Time-frame for the decision of Dispute Settlement Body (Article 20 of the DSU)

70
  Where no appeal is preferred by the parties

The Dispute Settlement Body has to render its decision within nine months (i.e., the period
starting from the date of establishment of panel till the adoption of the panel or appellate
body report by the Dispute Settlement Body). If there is a delay on the part of the panel or
Appellate Body in providing its report, then additional period granted will be added to nine
months.

 Where an appeal is preferred by the parties

Where the panel report or the Appellate body report is appealed by the parties, then the
Dispute Settlement Body has to give its decision within 12 months and if there is any delay in
providing the reports, then such an additional period granted will be added to 12 months.

Standing Appellate Body (Article 17 of the DSU)

The Dispute Settlement Body shall be responsible for the establishment of the Appellate
Body. Where the parties are not satisfied with the decision of the panel report, then either of
the parties may appeal to the Appellate Body who shall prove his award in the form of
Appellate Body report which shall ultimately be adopted by the Dispute Settlement Body.

The Appellate body consists of seven persons. But only three of them shall serve in one case.
These three people shall be selected based on rotation. The appointed person shall be in
service for four years and can be re-appointed once. Therefore, a member can serve for a
maximum of eight years. The persons comprising the Appellate body shall be persons of a
recognized authority having expertise in the field of law, international trade and subject
matter of the agreement in dispute. The person shall not be part of any governmental service.
They shall be made themselves available till the end of the dispute.

Arbitration (Article 25 of the DSU)

The parties to a dispute can refer a dispute to arbitration as an alternative means for the
settlement of their dispute. Referring a dispute to arbitration shall be made with the mutual
consent of both the parties. Third parties can be a party to a dispute only after the mutual
consent of the parties in arbitration. The arbitral awards are binding on both the parties and

71
are not appealable. The arbitral award shall be notified to the Dispute Settlement Body and
the Council or Committee.

Litigation

The global economy is producing a large number of international disputes. Litigating across
national borders is often legally complex and difficult to predict. It requires experience and
legal training to coordinate and implement an effective litigation strategy. Members of our
team assist clients in all aspects of cross-border disputes, including:
 coordinating, managing and supervising multijurisdictional litigation and international
arbitration
 securing injunctive and other interim relief in the United States and in foreign
jurisdictions
 dismissing cases filed in inconvenient or improper forums
 enforcing foreign judgments and arbitral awards in the U.S. and vice versa
 determining the most favorable applicable law and resolving conflicts between the
laws of multiple interested jurisdictions
 obtaining evidence in foreign jurisdictions for use in U.S. forums and vice versa
 defending clients involved in multijurisdictional mass tort litigation
 filing and litigating anti-suit injunctions
 selecting capable and effective foreign local counsel
 engaging effective industry and foreign law experts

Limiting the Uncertainty of International Litigation

International litigation is unrestricted in almost every sense – geographically, legally and

linguistically – and is difficult to predict both substantively and procedurally. Through our
experience, size and strategic geographic presence, our team helps clients fully assess and
manage international and foreign disputes. Our goal is to exert control over the international
dispute process, assess the risks and provide solutions. We counsel and represent clients
regarding potential international disputes before litigation is initiated. This includes tailoring
specific arbitration and mediation clauses, selecting the best suitable forum and law, and
protecting and enforcing intellectual property rights.

Transnational Investigations

72
Our team works closely with the firm's in-house Investigative Group, which includes former
federal investigators with experience in gathering intelligence, tracking down witnesses and
obtaining information abroad. Group members maintain a network of contacts throughout the
world that are available to assist in locating individuals and obtaining critical facts.

International Litigation

Members of our team are experienced in international litigation matters involving:

 Act of State Doctrine

 administrative challenges abroad
 Alien Tort Claims Act
 anti-suit injunctions
 arbitration
 bank interventions by foreign regulators
 commercial fraud
 conflicts of law
 dismissals for lack of jurisdiction
 domestication and enforcement of foreign judgments
 Foreign Corrupt Practices Act
 foreign distributorship/representative disputes
 foreign employment and labor disputes
 foreign government litigation
 foreign property expropriation
 Foreign Sovereign Immunities Act
 forum non conveniens doctrine
 interim relief in aid of arbitration proceedings
 international class actions
 international intellectual property
 international investigations
 international mass torts
 jury trials under foreign law
 letters rogatory
 money laundering
 prejudgment remedies abroad
73
  RICO claims
 service of foreign process
 ship arrest
 U.S. government seizures
 white collar crimes

Arbitration
Alternative dispute resolution (ADR) is getting a great deal of attention as the modem way to
resolve controversies out of court. Contrary to popular belief, however, ADR is not new;
arbitration, conciliation, and mediation, three important ADR techniques, have been utilized
for centuries to resolve a myriad of disputes. ADR mechanisms continue to serve as the fora
of choice in many ethnic, cultural, and religious communities. Although litigation is the
primary method of dispute resolution in most western legal systems, alternatives to litigation
are being sought to meet the burgeoning complexity and volume of modern international
trade. The existence and utilization of ADR to resolve international commercial disputes, in
turn, hastens the growth of world trade. The importance of ADR to global commercial
endeavors is evidenced by an international network of ADR support. This support is manifest
through legislation on a state and multistate level, through institutional organizations, and
through various chambers of commerce.

Why are alternatives to the courts so important to the resolution of inter-national trade
disputes? Primarily because ADR provides a neutral ground for parties of mixed nationalities,
with different ethnic and legal systems, to resolve their controversies without fear of
subjectivity by the court system of the forum state. Many disputants also find important the
privacy and confidentiality associated with most ADR mechanisms. ADR has the further
advantage over litigation of resolving disputes with less damage to ongoing business
relations.

Of the various ADR mechanisms available to disputants in international trade matters,

arbitration is by far the most widely used. The reasons for the preference of arbitration are
many. Arbitration is a forum based on party autonomy – the parties to an agreement to
arbitrate mutually shape the process to their needs and practices. Arbitration is final – the
parties agree to be bound by the result. Moreover, the adjudicators, or arbitrators, are experts
in their fields and are chosen by the parties expressly for their expertise. With the full

74
cooperation of the parties, arbitration is faster and less costly than litigation. Finally, it is
supported and enforceable by laws, treaties, and conventions in many nations including the
United States.

Arbitration is not the exclusive means of ADR utilized in international commercial

controversies, however. Mediation enjoys renewed popularity as a forum for settlement with
the aid of neutral third parties. Some of the newer mechanisms, such as the minitrial, are also
being explored as tools for dispute resolution in such matters. The particular ADR
mechanism notwithstanding, the relationship between global commerce and ADR is one of
healthy synergy; innovation and accessibility of ADR processes become increasingly evident
as international trade flourishes.

In Arbitration proceedings disputes is settled by an impartial neutral who is a private person

who is a third party to the dispute, whose decision the parties to disputes have agreed.
Arbitration is not same as judicial proceedings as it is basically an out of court settlement
process. Arbitration only deals with disputes which are civil in nature. The person by whom
the disputes are settled is known as arbitrator or arbiter and the decision given by him is
known as arbitral award. The arbitral award is final and binding on the parties to the dispute
and for the enforcement of such award the party has to move to the court. Arbitration allows
the parties to have a private dispute resolution procedure and avoid national courts.

An arbitral award can never be determined as a contract, it should be determined as a

decision out of a contract. The consent of the parties is not necessarily to be present in a
decision. An award decided has judicial binding effect on the parties. The arbitral award can
be final as well as an interim award.

Characteristics of Arbitration as Alternative Dispute Resolution

 Arbitration is a consensual process of the dispute redressal.

 Arbitration is neutral to the parties to dispute.

 Parties choose their own arbitrator who will act as a neutral to both parties.

 Arbitration is a private proceeding.

 The decision given by arbitrator is final and binding on parties.

75
Process of Arbitration

 Ad-hoc arbitration: Arbitration which is agreed and arranged by the parties at there
own, without the help of any arbitration institution. The proceedings under this are
conducted as per the agreement between the parties. Arbitration can be domestic,
international or foreign.

 Institutional arbitration: When the parties to dispute agrees to have an arbitral

tribunal to administer there dispute, it is known as institutional arbitration. The
proceedings under this are conducted by the terms of the arbitral tribunal and not
on the will of the parties. Arbitration can be domestic, international or foreign.

 Fastrack Arbitration: This arbitration is a time dependent. In Fastrack arbitration

the procedures are conducted in such a way that all the unnecessary methods are
abandoned which are time consuming, this arbitration uphold the simplicity which
is the purpose of arbitration.

Arbitration on basis of Jurisdiction

1. Domestic Arbitration: It is a type of arbitration in which both the parties to dispute

are from the same nation and the dispute between them has to be decided keeping
in view the substantive law of that nation. The dispute must have been arrived and
has to be decided in that nation only.

2. International Arbitration: Is that type of arbitration which happens within the

nation or outside the nation, in contains elements which are foreign in origin in
relation to the parties or the subject of dispute. The law applicable in International
Arbitration can be domestic or foreign, depending upon the terms of contract.

3. Foreign Arbitration: When parties to dispute choose a foreign arbitration or agrees

offshore ad-hoc arbitration, it is known as foreign arbitration. The resulting award
is enforced as a foreign award.

4. Statutory Arbitration: It is a mandatory and compulsory arbitration imposed on the

parties to dispute by the courts. Parties have to abide by the law of the land and the
parties are not allowed to skip this arbitration, consent of parties is also not
required. If the parties doesn’t abide by the decision of the court, strict actions can
be taken against them.

76
Arbitration Agreement

Parties can refer to arbitration only when they have an arbitration agreement, or an arbitration
clause which may be a part of the main agreement between the parties, the agreement or
arbitration clause must be in a written form and which is between two or more parties and
which is intended, consented and signed by the parties. The arbitration agreement between
parties indicates the:

 Seat and place of arbitration,

 Procedure for appointing the arbitrator,

 Number and qualification of arbitrator,

 Language governing arbitration,

 Type of arbitration,

 Name and address of Arbitration institution,

 Procedure of arbitration proceedings.

Evolution and Growth of Law of Arbitration in India

Arbitration in India has a long history. In ancient times, people frequently voluntarily
submitted their disputes for a binding settlement to a council of a community’s wise men —
called the Panchayat. In India, the Panchayati raj system has found its place in different rules.

The Bengal Regulations created modern arbitration law in India in 1772, during the British
rule. Among other items, the Bengal Regulations provided for a court’s recourse to
arbitration in cases for property, partnership deeds, and contract violation, with the consent of
the parties.

Before 1996, India’s arbitration legislation consisted mainly of three statutes: (I) the
Arbitration Act of 1937, (ii) the Indian Arbitration Act of 1940, and (iii) the International
Awards Act of 1961. The 1940 Act was a general law regulating arbitration in India in
compliance with the 1934 English Arbitration Act, and the 1937 and 1961 Amendments were
designed to enact international arbitration awards (the 1961 Act incorporated the 1958 New
York Convention). In an attempt to modernize the obsolete 1940 Act, the government passed

77
the Arbitration and Conciliation Act, 1996 (the 1996 Act). This Act repealed the three
existing laws (the Act of 1937, the Act of 1961 and the Act of 1940). The primary purpose
was to facilitate arbitration as a cost-effective and rapid method for resolving trade disputes.
The Act of 1996 regulates both domestic and international arbitration.

We have experience arbitrating complex disputes under many different rules and
administrative bodies, such as:

 International Chamber of Commerce (ICC)

 International Centre for the Settlement of Investment Disputes (ICSID)
 International Centre for Dispute Resolution (ICDR)
 American Arbitration Association (AAA)
 United Nations Commission on International Trade Law (UNCITRAL)
 London Court of International Arbitration (LCIA)
 Japan Commercial Arbitration Association (JCAA)
 Inter-American Commercial Arbitration Commission (IACAC)
 Centre for Mediation and Arbitration of the Santiago, Chile Chamber of Commerce
 World Intellectual Property Organization Arbitration Centre (WIPO)
 China International Economic and Trade Arbitration Commission (CIETAC)
 Cairo Regional Centre for International Commercial Arbitration (CRCICA)
UNCITRAL

The United Nations Commission on International Trade Law (UNCITRAL) Arbitration

Rules lay down a set of guidelines governing the arbitration procedure. These Rules have
gained global acceptance and have been adopted by several national as well as international
tribunals. For example, the Iran-United States Claims Tribunal followed the procedure laid
down in the UNCITRAL Rules.

The United Nations General Assembly adopted the UNCITRAL Arbitration Rules in 1976.
Since then, these Rules have been modified several times to bring them at par with the
contemporary developments in the field of arbitration. These Rules are framed after
comprehensive discussions with the governments of various countries, along with
intergovernmental discussions and deliberations with international NGOs. It is the duty of the
Secretary General of the United Nations to ensure that the Rules are known and made
available to interested parties and the public at large. A primary reason behind the popularity

78
of these Rules is their application in the Iran United States Claims Tribunal. The Tribunal
which had to settle claims for billions of dollars was governed largely by the UNCITRAL
Rules. However, the agreement did provide that the parties could modify the Rules for the
effective settlement of the dispute.

1976 version

The 1976 version of the UNCITRAL Arbitration Rules were adopted by the United Nations
General Assembly at the 31st Session. The Assembly noted that arbitration had emerged as
an important method for international commercial dispute resolution and laying down the
Rules governing ad hoc arbitration that are acceptable to countries with diverse and distinct
social, economic and legal conditions would result in harmonising international economic
relations. These Rules had been adopted by the ninth session of the United Nations
Commission on International Trade Law. The 1976 Rules facilitated the resolution of private,
commercial, and interstate disputes.

2010 version

These Rules were revised in the year 2010 in order to bring them at par with the
contemporary arbitration requirements and to ensure that the Rules reflected the changes that
had taken place between 1976 and 2010. The United Nations General Assembly
recommended the use of the 2010 Rules at its sixty-fifth session. The Assembly had noted the
need to modify the Rules to meet the changes that had taken place in the three decades since
their enactment and believed that the 2010 version would enhance the efficiency of the Rules.
The 2010 version of the Rules had been adopted by the forty-third session of the United
Nations Commission on International Trade Law.

The modifications to the 1976 versions were the result of extensive deliberations with the
various national governments and other concerned institutions and individuals. After the
introduction of the 1976 version of the Rules, certain arbitral institutions offered to help in
the administration of the Rules. Thus, it was recommended that such institutions should act as
the appointing authorities. The 2010 Rules introduced provisions relating to the liability of
the parties, objection to the nomination of expert witnesses, etc.

79
2013 version

By virtue of the 2013 version, paragraph 4 to Article 1 was introduced. It incorporated

the Rules on Transparency in Treaty-based Investor-State Arbitration. The primary purpose
of incorporating these Rules was to bring transparency to investor-state arbitrations, as they
involve considerable public interest. These transparency-oriented Rules are aimed at ensuring
good governance. It is pertinent to note that the Rules on Transparency can also be applied to
arbitrations that are not covered by the Arbitration Rules.

Rules on Transparency in Treaty-based Investor-State Arbitration

The Rules on Transparency are divided into 8 Articles and are applicable to all investor-state
arbitrations that are based on a treaty and initiated under the Arbitration Rules after April 1st,
2014. However, even if the arbitration commenced prior to the specified date, the Rules on
Transparency can be applied if any of the following conditions are satisfied:

 The disputing parties agree to their application.

 The parties to the concerned treaty agree to their application.

It is pertinent to note that unless the treaty itself provided for any deviation from the Rules on
Transparency, the disputing parties cannot agree to any deviation by virtue of any agreement
or otherwise. A treaty, for the purpose of these Rules, is any bilateral or multilateral treaty
that stipulates the protection of investors or investment and that confers the right on the
investors to undertake arbitration against the other parties. The expression ‘treaty’ would also
include bilateral investment treaties, free trade agreements, cooperation agreements, or
economic integration agreements.

The Tribunal shall, while exercising its discretion, have due regard to the interests of the
public and the interests of the disputing parties in an efficient and fair dispute resolution. The
Rules on Transparency supplement any other applicable arbitration Rules and also prevail
over them in the event of any conflict. The disputing parties are required to inform the
repository of the arbitration, and the repository would make the information regarding the
arbitration available to the public and the concerned economic sector. The repository would
be either the UN Secretary-General or any other institution nominated by UNCITRAL.
Documents such as arbitration notices, statements of claim and defence, further written

80
statements, etc., would be made available in the public domain. The Tribunal can also allow
the submission to be made by a third party. In deciding whether to permit the third person to
make the submission or not, the Tribunal would consider the interest that such a third person
has in the arbitration process and the extent to which his submission would help the Tribunal
in deciding the concerning factual or legal issue.

Similarly, the Tribunal can also allow the submissions to be made by a party that is not
disputed by the treaty. The hearings would be public, except where confidential information
is concerned. In cases where the information is confidential, the documents or hearing would
not be public in nature. Article 7 of the Rules on Transparency provides a list of information
that can be classified as confidential. It includes business information that is of a confidential
nature, any information whose disclosure might restrict law enforcement, information that is
protected by law, and information whose public disclosure is prohibited by virtue of the
treaty itself.

2021 version

The latest version of these Rules is the 2021 version. This version of the Rules was
recommended by the United Nations General Assembly at its seventy-sixth session. The
Assembly had noted the disputed parties had a right to fair treatment and due process, and
this right had to be balanced with the efficiency of the arbitral process. The
UNCITRAL Working Group II worked extensively on the preparation of the Expedited
Rules. However, it is pertinent to note that the Expedited Rules will not be applicable to all
the arbitrations that are instituted under the UNCITRAL Arbitration Rules but only to those
arbitrations where the parties expressly consent to their application.

Objective of the Rules

The Rules are framed in light of the growing use of arbitration as a dispute-settling
mechanism in international commercial relations. The primary purpose of these Rules is to
provide the procedure to be followed for the resolution of international commercial disputes.
The parties to an agreement, that stipulates arbitration as a dispute resolution mechanism,
may prescribe the UNCITRAL Arbitration Rules as the Rules that would govern the

81
arbitration proceedings. Moreover, these Rules provide guidance to the various national
governments in regard to how they can frame their domestic arbitration legislation.

Overview

These Rules are divided into four sections:

 Section 1 deals with the introductory Rules which are contained in Articles 1-6.

 Section 2 deals with the composition of the Arbitral Tribunal which is contained in
Articles 7-16.

 Section 3 deals with the Arbitral proceedings. It covers Articles 17 to 32.

 Section 4 deals with the award by the Tribunal. It covers Articles 33 to 43.

Section I

Article 1 provides that the provisions of the Rules would be applicable where parties agree
that any dispute between them would be subject to arbitration proceedings as provided under
the UNCITRAL Arbitration Rules. The Article further provides that if the Rules are in
conflict with any provision of law that is applicable to the arbitration, then in such a scenario,
the legal provision would prevail over the Rules.

Article 2 provides that any notice of communication, proposal or notification has to be sent to
the party’s designated address. Where no specific address has been designated, physical
delivery to the assessee or the delivery at the place of his habitual residence or business
would suffice. Communication can also be made via electronic means.

Article 3 provides that the party that initiates the arbitration is required to send a notice of the
same to the opposite party. The notice shall contain the parties’ names and details, the
identity particulars of the concerned arbitration agreement, the relief claimed, particulars
about the language of arbitration, the place of arbitration, and the proposed number of
arbitrators.

According to Article 4, the respondent has to communicate his response to the notice within
30 days of its receipt.

82
As per Article 5, the parties have the right to be represented by the persons of their choice,
and they have to communicate the names and other details of such persons to the Tribunal as
well as to the other interested parties.

The appointing authority may be agreed upon by mutual agreement between the parties or by
the Secretary-General of the Permanent Court of Arbitration at the Hague, in case the parties
fail to reach any agreement as stated in Article 6.

Section 1 under the previous versions

Under the 1976 version, there were only 4 Articles in Section 1. Articles 4 and 6 were added
by virtue of the 2010 modification.

The 2013 modification added to paragraph 4 to Article 1 which provided for the application
of UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration.

Under the 2013 version, there were no provisions about the Expedited Arbitration Rules. By
virtue of the 2021 modification, the UNCITRAL Expedited Arbitration Rules were added
through an appendix. Apart from the addition of paragraph 5 to Article 1, the Rules remained
virtually the same as in the 2013 version.

Section II

Article 7 provides that unless the parties agree to have a sole arbitrator, there will be three
arbitrators.

Articles 8 to 10 deal with the appointment of arbitrators. Where the parties agree that there
should be a sole arbitrator but fail to reach any agreement with respect to his appointment
within 30 days of the receipt of the appointment proposal, then the appointing authority shall
be empowered to appoint the sole arbitrator.

Where three arbitrators are to be appointed, one arbitrator would be appointed by each of the
parties, and the two would then appoint a third arbitrator who would be the presiding
authority. Where the claimant or the respondent consists of multiple parties, then in such a

83
scenario the arbitrator from the side of the claimant or respondent, as the case may be, would
be appointed jointly by all the parties.

Articles 11 to 13 deal with the disclosures that the arbitrators are mandated to make. Any
person who is approached to be appointed as an arbitrator is under a duty to disclose all
material facts that may give rise to doubts as to his impartiality. Moreover, the parties are also
entitled to object to the appointment of any person as an arbitrator on grounds of his
independence or impartiality.

The party intending to challenge the appointment of the arbitrator has to send a notice of the
same within 15 days of the appointment. The notice must state the reasons for the challenge
and be communicated to all parties.

The disrupted arbitrator can either withdraw his name from the list of arbitrators or the
appointing authority will decide on the challenge to his appointment. The power to appoint
the substitute arbitrator would be with the party whose nomination has to be substituted
according to Article 14.

By virtue of Article 16, the parties are deemed to have waived their claims against the
arbitrators and the appointing authority, in connection with any act or omission on the part of
these authorities in regard to the arbitration procedure.

Section II under the previous versions

The 1976 versions did not contain Article 16, which deals with the exclusion of the liability
of the appointing authority and the arbitrators.

No material changes were made to Section II by virtue of the 2013 and 2021 modifications.

Section III

The Tribunal has the power to make its Rules for its own procedures. The Tribunal is
required to prepare a provisional timetable of arbitration.

84
Place and language

Articles 18 and 19 deal with the place and language of arbitration, respectively. The place of
arbitration would be determined by the parties. Where the parties fail to determine the place
of arbitration, the Tribunal will decide the place of arbitration.

The Arbitral Tribunal will determine the language that is to be used in the arbitration
proceedings, and the decision of the tribunal will be subject to any agreement that may exist
between the parties.

Statement of claim and defence

Articles 20 and 21 deal with the statement of claim and defence, respectively. The claimants
will have to submit a statement of claim, and similarly, the respondents will be required to
submit a statement of defence. By virtue of Article 22, the claim and defence can be amended
or supplemented, provided that such amendment or supplement does not fall beyond the
jurisdiction of the Tribunal and the Tribunal does not consider such supplement or
amendment inappropriate. The burden of proving the evidence will be on the party that relies
on such evidence.

It may be argued that in order to expedite the arbitration procedure, the requirement of
submitting a separate notice of arbitration and statement of claim should be done away with,
and rather a single document combining the arbitration notice and statement of claim must be
served.

The statement of claim would usually contain details such as the name and other particulars
of the concerned parties, the relief sought from the Tribunal, facts supporting the claim, etc.
The defendants are required to file, along with the statement of defence, all the relevant
documents upon which they rely in support of their case. The Tribunal will decide if any
further written statements have to be filed by any of the concerned parties (Article 24).

Objection to jurisdiction

By virtue of Article 23, the Tribunal has the power to decide any objection to the jurisdiction
of the Tribunal. Any dispute regarding the validity or existence of the agreement would also

85
be decided by the Tribunal. Merely because a party has engaged in the arbitrators’
appointment will not preclude him from raising an objection to the jurisdiction of the
Tribunal at a subsequent stage. Similarly, where the parties feel that the Tribunal is acting in
breach of the scope of its authority, they must raise an objection at the earliest possible
moment. The Tribunal can decide on such an objection either at the preliminary stage or in
the final order.

Interim measures

Article 26 empowers the Tribunal to grant interim measures. An interim measure may be
defined as a temporary relief that is awarded to a party at a preliminary stage before the final
order. The following interim measures can be ordered by the Tribunal::

 Maintaining the status quo,,

 Preventing the commission of any act or omission that would prejudice the
arbitration or would harm the arbitration process, and, and

 Ordering the preservation of material evidence.

The party pleading for the interim measure has to prove before the Tribunal that, in the
absence of any interim relief, it would suffer an irreparable loss that would be of a
substantially greater degree as compared to the harm that the opposite party would suffer if
the interim measure is granted.

Evidence and oral hearings

Article 27 deals with the burden of proof and the relevance of evidence. The burden to prove
the facts is on the party that relies on such facts. Any individual may be presented as a
witness by the parties, notwithstanding whether he is a part of the arbitration process or
related to any of the parties to the arbitration. The parties are also entitled to present expert
witnesses before the Tribunal. The Tribunal has the authority to determine the relevance and
admissibility of the evidence.

Article 28 prescribes the procedures for hearings. Tribunal will decide upon the manner in
which the witnesses are to be examined. In the absence of any agreement to the contrary, in-
camera proceedings would be held. The Tribunal has the discretion to order the examination

86
of the witnesses through telecommunication means if the Tribunal believes that the physical
presence of the witnesses is not necessary.

Article 29 deals with the appointment of expert witnesses. The Tribunal shall also be
empowered to appoint independent experts on specific matters after consultation with the
parties. The expert is required to present his qualifications to the parties as well as the
Tribunal. Furthermore, he is required to submit a statement signifying his independence and
impartiality. The parties are entitled to raise any objection to the independence, qualifications
as well as in partiality and the Tribunal will decide on such objection.

Before closing the hearings, the Tribunal is required to ask the parties if there is any further
proof or witnesses that they would like to present before the Tribunal.

Default by the parties

Article 30 contemplates a situation where the parties default in fulfilling their duties. Where
the claimant fails to communicate his statement of claim, the Tribunal will terminate the
arbitration process. On the other hand, if the respondent defaults in communicating either his
response to the arbitration notice or the statement of defence, the Tribunal would proceed
with the arbitration process. Where any party defaults in furnishing the relevant and material
documents or other evidence within the prescribed period of time, the Tribunal will make an
order based on the evidence present before it.

Section III under the previous versions

Under the 1976 version, it was necessary that the award should be made by the Tribunal at
the place of arbitration. There was no provision which empowered the Tribunal to make a
joinder of parties. Under this version, Article 26 dealt with the interim measures and it was
very narrow in scope. It did not provide a clear description of the nature of interim measures
that could be taken by the Tribunal. There was no mention of expert witnesses and Article 27
(the current Article 29) dealing with the experts appointed by the Tribunal did not mention
any requirement to establish their independence.

The 2010 version made several additions aimed at ensuring the speedy settlement of disputes.
Article 17 was modified to provide that any communication made by any party should be

87
communicated to the other parties at the same time. Under Article 17, the Tribunal was
empowered to make a joinder of parties. The 2010 version provided that the award made by
the Tribunal would be deemed to have been made at the place of arbitration.

The 2010 version made it mandatory for the claimant to annex a copy of the concerned
arbitration contract/agreement along with the statement of claim. With respect to the
statement of defence, the Tribunal was empowered to treat the respondent’s response to the
arbitration notice as the statement of defence.

The 2010 version expressly provided that any objection with regards to the Tribunal acting
beyond its authority had to be raised at the outset. This version provided an inexhaustive list
of interim measures that the Tribunal was empowered to take and also expressly clarified the
burden that the party requesting the interim measure had to discharge. It stipulated that expert
witnesses may also be examined by the Tribunal.

The 2010 version laid special emphasis on the independence of the experts appointed by the
Tribunal. The experts have to submit a statement of independence before accepting the
appointment, and the parties are entitled to make an objection on grounds of their
impartiality.

Award

Where there is more than one arbitrator, the order will be decided on the basis of the decision
of the majority of the arbitrators (Article 33). Article 34 provides that the awards made by the
Tribunal would be binding on the parties and that the Tribunal would make separate awards
on distinct issues. The Tribunal will have to state the reasons for determining the award. By
virtue of Article 35, the Tribunal is required to apply the law that is designated by the parties.
The Tribunal has to pass the order on the basis of the agreement that was entered into by the
disputing parties. Where the parties enter into an agreement before the final decision is
pronounced by the Tribunal, the Tribunal can either pass an order terminating the arbitration
process or, at the request of the parties, pass an order recording the settlement reached
between the parties (Article 36).

Interpretation and rectification of the award

88
Articles 37 and 38 deal with the interpretation and correction of the award, respectively. The
party can make a request for the interpretation of the award passed by the Tribunal within a
period of 30 days from the order’s receipt. Moreover, within 30 days of the passing of the
award, the party can request the Tribunal to rectify any clerical, typographical, or
computation error that might have occurred in the order. The Tribunal has to make the
correction within 45 days of the request.

Costs and expenses of arbitrators

Articles 40 to 42 deal with the cost of arbitration. In principle, the cost of arbitration will
have to be borne by the party that loses. However, the Tribunal has the discretion to apportion
the costs among the parties as it deems fit. The cost of arbitration would be fixed by the
Tribunal in the award itself and would include the fees of the arbitrators as well as the
independent expert, if appointed. The Tribunal is required to inform the parties about the
manner in which the expenses and the fees of the arbitrators have been ascertained. The
parties have the authority to raise an objection to such fees or expenses within 15 days of
receiving information about the amount determined by the Tribunal. In the absence of any
appointing authority, the Secretary-General will have the authority to decide on such an
objection.

Section IV under the previous versions

The 1976 version provided that if the domestic arbitration law of any country provided that
the award should be registered by the Tribunal, then the same should be complied with by the
Tribunal within the prescribed time period. This requirement was removed under the 2010
version and this version stipulated that the award could be made public if

 All the parties consent or,

 To the extent, a party is legally obliged to disclose the award or has to disclose it
to claim a legal right.
By virtue of the 2010 modification, the provisions with regard to the calculation of
arbitrators’ fees and expenses were also made more exhaustive. The Tribunal was mandated
to inform the parties of the manner in which the fees and expenses were determined, and the
parties were empowered to object to the amount determined by the Tribunal. .

89
Expedited Arbitration Rules

Article 1 of the UNCITRAL Arbitration Rules provided that the parties may, by mutual
consent, agree to the application of the Expedited Rules. The Expedited Rules are contained
as an Appendix to the Act and are divided into 16 Sections.

The Expedited Rules would be applicable only where the parties agree that the arbitration be
referred to such Rules. Moreover, at any stage of the proceedings, the parties may agree that
the application of the Expedited Rules should be discontinued. The Arbitral Tribunal can also
decide, for reasons to be recorded, upon the request of any party, that the application of the
Expedited Rules should be discontinued.

The claimant is required to communicate to the respondent the statement of claim along with
the notice of arbitration. The respondent has to communicate his response to the arbitration
notice to the claimant within 15 days of the notice’s receipt. In the absence of any agreement
to the contrary, there would be a sole arbitrator who would decide the award and who would
be appointed jointly by the parties.

In order to facilitate expedited proceedings, the Tribunal would be empowered to do away

with the hearings, provided there is no request by the parties to hold hearings. The Tribunal
would also have the discretion to determine whether a written statement is required or not.
The parties can amend or supplement their statements, claims, or defences only after
obtaining the approval of the Tribunal. The award has to be made within 6 months of the
Tribunal’s constitution.

Fast track procedure under Arbitration and Conciliation Act, 1996

The 2021 version of the UNCITRAL Rules provides for a fast-track procedure. The Indian
law also stipulates a fast-track procedure in order to ensure speedy and quick settlement of
disputes. The Arbitration and Conciliation Act, 1996 (hereinafter ‘the Act’) itself provides a
fast-track procedure for arbitration proceedings. The fast-track procedure is provided
under Section 29B.

The parties to the arbitration agreement may decide, in writing, to adopt the fastrack
procedure to govern the arbitration proceedings. The parties will also have the discretion to

90
decide on the appointment of a sole arbitrator. Under this procedure, the Tribunal will have
the power to decide the dispute based on the written submissions of the parties. Only where
the Tribunal finds it necessary to conduct an oral hearing will it hold oral hearings for the
purpose of clarifying certain issues. The Tribunal will also have the power to dispense with
any technical procedures in order to ensure a speedy and expeditious resolution of the
dispute. The Tribunal is under a duty to make an award within 6 months of the initiation of
the arbitration proceedings.

UNCITRAL Rules and ad hoc arbitration in India

There are certain similarities between the UNCITRAL Rules and the Indian Arbitration Act.
For example, Section 19 of the Act provides that the Tribunal will have the power to frame its
own Rules with respect to the admissibility and relevance of the evidence, which is similar to
Article 27 of the UNCITRAL Rules. Similarly, Section 22 provides that the language of the
arbitration proceedings shall be determined mutually by the parties and, where the parties
fail, by the Tribunal. This is similar to Article 19 of the UNCITRAL Rules.

UNCITRAL Rules have increasingly been used in Indian ad hoc agreements. The domestic
legislation governing these ad hoc agreements is the Arbitration and Conciliation Act, 1996.
However, the Act does not provide details and in-depth guidelines on the procedural
particulars of the arbitration.

Ad hoc arbitrations are dependent on the relationship between the parties, which is usually
strained, as evidenced by the parties’ recourse to arbitration to settle their dispute. Thus, clear
guidelines are required to govern ad hoc arbitrations, particularly where the arbitration
contracts are not drafted to deal with all the procedural requirements. The Arbitration Act
fails on many fronts in this regard. It does not provide the particulars that the statement of
claim and defence must contain. The Act does not contemplate a situation where the Tribunal
requires the parties to submit additional written statements besides the statement of claim and
defence. Another drawback of the Act is that it fails to fix a timeline for certain procedural
requirements, such as the filing of the statement of claim and defence.

91
On the other hand, the UNCITRAL Rules, by virtue of Article 20, clearly provide an
inexhaustive list of the particulars that the statement by the claimant must contain. Article 24
of the Rules specifically deals with further written statements.

Resultantly, we see that many arbitration agreements concerning ad hoc arbitration provide
for the incorporation of the UNCITRAL Rules. These Rules have promoted ad
hoc arbitration in India.

International investment arbitration and UNCITRAL Arbitration Rules

The UNCITRAL Arbitration Rules have been predominantly used in international investment
arbitration. These Rules can be applied in international arbitration in the following ways:

1. Through an arbitration clause in the investment agreement.

2. By providing for the application of the Rules in an ad hoc agreement.

Moreover, these Rules would also be applicable where the domestic legislation of the States
receiving the foreign capital provides for the application of UNCITRAL Rules in arbitration.
Certain international trade agreements also confer the right on the disputing investor to
submit the claim for arbitration to the Arbitration Rules. For example, Article 1120 of the
North American Free Trade Agreement confers the right on the investor to make the
UNCITRAL Arbitration Rules applicable to the arbitration.

Enforcement of Awards

The arbitral award or arbitration award refers to an arbitration hearing decision made by an
arbitration tribunal. An arbitral award is equal to a court judgment. An arbitral award may be
non-monetary in nature where the claims of the entire claimant fail and there is no need for
any party to pay any money. An arbitration award may be given for payment of a sum of
money, judgment of any matter to be decided in the arbitration proceedings, injunctive relief,
substantive fulfilment of a contract and rectification, setting aside or cancelling an act or
other document.

The arbitral award shall be defined as any arbitral tribunal’s judgment on the nature of the
dispute referred to it and shall include a temporary, interlocutory or partial arbitral award.
The arbitral tribunal may grant an interim arbitral award on any matter for which it will make

92
a final arbitral award at any time during the arbitral proceedings. The interim award may be
applied in the same way as a final award of arbitration. Unless otherwise decided by the
parties, a party may ask the arbitral tribunal to make an additional arbitral award in respect of
the claims raised in the arbitral proceedings but omitted from the arbitral award within 30
days of receipt of the arbitral award.

An arbitral award can be categorised into:

1. Domestic Award: Domestic award are those awards which are the outcomes of
domestic arbitration. It is confined to the territory of India, the parties should have
a nexus or birth of Indian origin, the territory essentially comes into play for
domestic arbitration purposes. The award given by an arbitral tribunal in India or
an award, even if it is given by a foreign state for a dispute in which both parties
are of Indian origin and the nationality is also regulated by Indian law, also falls
within the scope of domestic arbitration.
Domestic awards are governed by Part I of the Arbitration and Conciliation Act, 1996. A
domestic award is an award granted pursuant to Section 2 to 43 of the Act.

2. Foreign Award: Foreign Award is the outcome of Foreign Arbitration. If the

parties choose a foreign arbitration institution or agree to an ad hoc arbitration
overseas, the award granted after such proceedings shall be referred to as foreign
award.
Part II of the Arbitration and Conciliation Act of 1996 deals with International Arbitration or
Foreign Arbitration. Section 44 of the Act defines with Foreign Award.

Essential Elements of Arbitral Award

 Should be in written form.

 Signed by the Arbitrator.

 Shall contain the reason for the passing of Award.

 Date and place at which the arbitration took place.

Enforcement of Arbitral Award

93
The regulation and execution of decrees in India is regulated by the Civil Procedure Code,
1908 (“CPC”), while the arbitral award procedure in India is governed mainly by the
Arbitration & Conciliation Act, 1996 (“Act”) and the CPC.

For the same way as an Indian court decree, domestic and international awards are enforced.
However, there is a difference depending on the seat of arbitration. Seated arbitral award
(“domestic award”) would be governed by Part I of the Act, enforcement of foreign — seated
awards (“international award”) would be governed by Part II of the Act.[30]

 Enforcement of Domestic Arbitral Award: Until filing for compliance and

execution, an award recipient would have to wait 90 days after receiving the
award. The award may be questioned during the transitional period in compliance
with Section 34 of the Act. When the above time expires, if a court considers the
award enforceable at the execution point, the authenticity of the arbitral award
cannot be questioned any further. Before the recent Law on Arbitration and
Conciliation (Amendment),2015 (Amendment Act), a petition to set aside an
award could equate to a stay in the award execution proceedings. Nevertheless, a
party opposing a award would have to transfer a separate application to demand a
stay on an award execution by virtue of the Amendment Act.

94
  Enforcement of Foreign Arbitral Award: India is a signatory to Geneva
Convention on the Execution of Foreign Arbitral Awards, 1927 (“Geneva
Convention”) and Convention on the Recognition and Enforcement of Foreign
Arbitral Awards, 1958 (“New York Convention”).
If a party receives a binding award from a state signing the New York Convention or the
Geneva Convention and the award is made in a territory recognized by India as a convention
country, the award would then be enforceable in India. In India, implementing a foreign
award is a two-stage procedure begun by filing a request for execution. Initially, a judge will
decide if the award met with the law’s criteria.

Once an award has been considered enforceable, it can be applied as a court order.

At this point, however, parties should be aware of the various obstacles that may occur, such
as frivolous complaints from the opposing party, and provisions such as bringing the award’s
original / authenticated copy and the underlying agreement before the court.

95
Conditions for enforcement of Arbitral Awards (domestic and foreign)

A party may use the following grounds to contest an award. If the other party shows this,
such an award would be made unenforceable.

1. According to the statute, the parties to the settlement were under any disability.

2. The agreement in question did not comply with the law to which the parties are
subject or with the law of the country in which the award was made.

3. The party did not receive a proper notice of appointment from the arbitrator or the
arbitral proceedings or was otherwise unable to bring his case before the arbitral
tribunal.

96
 4. The reward deals with a distinction that does not fall within the terms of the
agreement.

5. Award contains decisions on matters beyond the scope of being referred

arbitration.

6. The arbitral proceedings did not comply with the agreement.

7. The composition of the arbitral body or the arbitral proceedings does not comply
with the law of the country in which the arbitration took place.

8. The award (precisely a foreign award) was not made binding on the parties or was
set aside or revoked by the competent authority of the state in which the award was
made or by the statute of which it was made.

9. Under Indian law, the subject matter of the dispute cannot be resolved by
arbitration. Enforcing the award would be contradictory to India’s public policy.

Limitation Period for Enforcement of Arbitral Award

In the case of domestic arbitral awards, the 1963 limitation law applies to arbitrations
because, according to section 21, the arbitral proceedings in respect of a specific dispute start
on the date on which the respondent receives a petition to refer the dispute to
arbitration. Arbitral awards are deemed to be a decree. The Arbitration Act does not place
any restriction on the execution of a foreign award, and the usual limitation period (12 years)
is likely to apply.

Challenges in Execution of Foreign Arbitral Award in India

Obtaining an award in your favour from an international arbitral tribunal is a bit of a half-won
fight as it still needs to be enforceable in India. There have been various cases in which the
party failed to enforce it in competent Indian courts, despite receiving a favourable award in
an international arbitral tribunal. Therefore, in order to obtain an arbitral award, there is no
way out but to enter into litigation from which all parties at first refrained. It takes time for an
order already issued by an international arbitral tribunal to become effective. Nonetheless,
this path cannot be avoided as it offers more of a formal procedure and guarantees that proper
diligence is applied on behalf of the courts to implement the award.

97
Local government pressure, especially local parties with more political power, may attempt to
cancel the award or the full impact of the award, which could frustrate the award given by the
international arbitration seat.

Part II of the 1996 Indian Arbitration & Conciliation Act (“the Act”) deals with the
enforcement of foreign awards, while Chapter I (Sections 44-52) deals explicitly with the
awards relating to the Convention. According to Section 44(b), a “international award” must
be given in one of those territories as the Government of India may, upon being satisfied with
the existence of reciprocal provisions, by notification in its Official Gazette, declare it to be
the territory in which the Convention is applicable. There is, however, a reason why it is
necessary to remove this provision to obtain gazetted notice in order to bring India’s
arbitration system into accordance with convention norms. Gazetting provisions create
unnecessary confusion about the compliance of international awards given in countries that
are contracting states to the Convention but have not yet been informed in the Gazette.

98