WORLD TRADE

ORGANIZATION
(PART II)
 Principles of WTO
1. Trade without 3. Predictability
Discrimination or Principles
of Non-discrimination
.
4. Promoting Fair
Competition

2. Freer Trade
5. Encouraging
Development and
Economic Reform
1 Trade without discrimination or
priciples of non-discrimination
Art. I GATT, Art. II GATS, Art. 4 TRIPS (MFN);
Article III GATT, Article XVII GATS, Article 3 (TRIPS) (NT)
 Trade without discrimination or
1
priciples of non-discrimination

A. Most Favored B. National

Nation (MFN) Treatment (NT)
 A Most Favored Nation (MFN)
❑Similar treatment to all members of the WTO
❑Preventing Nationality-based
Each member of the WTO must treat the other
Discrimination members of the WTO fairly as their "most preferred"
This principle aims to ensure the partners.
If a country grants a special favour (such as a lower
equality between states and prohibits
customs duty rate for one of the products) and this
discrimination among member states. country has to do the same for all WTO members

.
EXAMPLE:  1. If Thailand reduces tariffs by 5% for Vietnam, the MFN clause states that all WTO
members will have their tariffs cut by 5% into Thailand.
2. If the US cut the tariff on imports of British trucks to 20%, it also had to reduce tariffs on imported
trucks from all other members to 20%
 A Most Favored Nation (MFN)

✔ Article I General Agreement on Tariffs and Trade (GATT): “any advantage, favour, privilege or
immunity granted by any contracting party to any product originating in or destined for any other
country shall be accorded immediately and unconditionally to the like product originating in or
destined for the territories of all other contracting parties.”
✔ Article II General Agreement on Trade and Services (GATS): “With respect to any measure covered
by this Agreement, each Member shall accord immediately and unconditionally to services and
service suppliers of any other Member treatment no less favourable than that it accords to like
services and service suppliers of any other country;
✔ Article IV Agreement on Commercial Aspects of Intellectual Property Rights (TRIPS).
 A Most Favored Nation (MFN)

❑Exceptions to the MFN Principle

● Enabling Clause: The Generalized System of Preferences (GSP) program is a system that grants
certain products originating in eligible developing countries preferential tariff treatment over
those normally granted under MFN status.
● GATT Art. XXIV: regional integration may be allowed as an exception to the MFN principle to
form custom unions/ free-trade areas (EU, NAFTA, AFTA,....)

.
EXAMPLE:  
1. Within the former EEC, France could permit duty-free entry of goods from its fellow members—such
as Germany and Italy—without extending such duty-free treatment to the products of non-EEC nations.
 A Most Favored Nation (MFN)
❑Exceptions to the MFN Principle
● Non-Application of Multilateral Trade Agreements Between Particular Member States (WTO
Agreement Article XIII)
● Other exceptions:
GATT Article XX: restrictions on imports or exports for the protection of public morals, human, animal
or plant life, etc.
GATT Article XXI: restrictions on imports or exports for security reasons
GATT Article XXV: a contracting party may be waived of its obligation if approved by a two-thirds
majority of the votes and that such majority shall comprise more than half of the contracting parties.

EXAMPLE:  
1. Within the former EEC, France could permit duty-free entry of goods from its fellow members—such
as Germany and Italy—without extending such duty-free treatment to the products of non-EEC nations.
 A Most Favored Nation (MFN)
❑GATT ARTICLE XXIV
- To facilitate trade between members and not to raise barriers to the trade of third parties (Article
XXIV:4);
- The tariffs and other barriers to trade applied to outside countries must not be higher or more
restrictive than they were prior to regional integration (Article XXIV:5(a),(b));
- Tariffs and other barriers to trade must be eliminated with respect to substantially all trade within the
region (XXIV:8(a)(i),(b));
- Promptly notify the contracting parties and provide information regarding the proposed customs
union or free-trade area to enable contracting parties to make reports and recommendations (Article
XXIV:7(a));
- If the formation of a customs union or FTA does not fully comply with the requirements of Arts XXIV:5
to 9, such proposals can be approved by a two-thirds majority (Article XXIV:10)
 B National Treatment (NT)
❑Equal treatment between foreign and domestic products
- The purpose of this principle: equal treatment between foreign and domestic products
- The content of this principle is that imported and similar domestically produced goods must
be treated equally after the foreign goods have entered into the market.

❑The working mechanism of this principle

- Any imported product, after crossing the border, has paid customs duties and other costs at
the checkpoint (if any), begins to enter the domestic market, will enjoy equal (no less
favorable) treatment with similar domestically produced products.
B National Treatment (NT)

❑Example: US - Venezuela

- New U.S air pollution standard that discriminated against imported

gasoline and in favour of domestic factories
- In 1995, Venezuela argued that the rules violated the principle of “national
treatment”
- The panel appointed by the WTO rules in Venezuela’s favor

- US appealed but rejected, therefore, revised its rules

 IN CONCLUSION

◉The MFN principle aims to create fairness, non-discrimination among

exporters of goods, service providers ... of countries A, B, C ... when exporting
to a certain country X.

◉The NT principle aims to create fairness and non-discrimination between

the goods and services of the enterprise in State A and those of State X in the
market of country X, after the goods and services of the enterprise of State A
“
have penetrated (through the customs, the taxes and other expenses (if any)
have been paid at the border gate) into the market of country X
2
Freer Trade
and Market Access
 2 Freer Trade and Market Access
❑Concessions in tariff and non-tariff barriers
- Step by step and by negotiation, concessions in tariff reductions and removal of
non-tariff barriers are made through negotiation, ultimately becoming
commitments to implement.
❑ Purpose: to implement the goals of trade and investment liberalization, open
markets, promote exchange, exchange and trade in goods.
❑ Content of implementation: lowering trade barriers to encourage trade
(including customs duties (or tariffs), remove non-tariff barriers (prohibitions,
restrictions, quotas, simple licensing procedures, ect).
 2 Freer trade and Market Access

⮚ However, due to the development level of each economy of each country, the
"resistance" of each economy to the pressure of foreign goods inflow due to
market opening is different advantages that also bring difficulties, requiring
gradual adjustment of domestic production.
⮚ Therefore, the WTO agreements have been passed with provisions allowing
member countries to gradually change their policies through a gradual
liberalization roadmap.
3 Predictability
 3 Predictability
❑Purpose:
Member States have an obligation to ensure the stability and foreseeable of their
trade mechanisms, policies and regulations in order to create favorable conditions
for investors and businesses. Foreigners can understand the roadmap to change
policies and the content of tax and non-tax commitments of the host country. Since
then, foreign businesses can easily plan their business and investment plans
without the sudden change of policy that harms their business plan.
 3 Predictability
◉ Tariff Reduction Agreement
- Members grant preferential tariff treatment and concession to each other.
- But to be sure of this agreement, the agreed tax rate will be recorded on a tariff list.
These are called bound rates (“binding”)
- When countries agree to open their markets for goods or services, they “bind”
their commitments. Sometimes countries tax imports at rates that are lower than
the bound rates. Frequently this is the case in developing countries. In developed
countries the rates actually charged and the bound rates tend to be the same.
 3 Predictability
◉Non-tariff: It is a measure using quotas or other quantitative restrictions such as
quota management.
◉Both tariff and non-tariff measures easily lead to corruption, abuse of power,
difficulties for businesses and hindering free trade.
◉=> Therefore, the WTO requires member countries' governments to clearly and
publicly ("transparently") disclose their trade management mechanisms, policies and
measures to allow the relevant parties make recommendations.
4
Promoting Fair
Competition
 4 Promoting Fair Competition

❑In some necessary cases, the WTO does allow member countries to maintain
protectionism through tariffs, in limited circumstances, other forms of protection.
❑Purpose: To limit the negative effects of unfair competition measures such as
dumping, subsidies ... or other protective measures.
❑ Content of implementation: the WTO tries to define which cases are fair
competition, which cases are unfair, and from which measures such as retaliation,
self-defense and anti-dumping; or how governments can respond, in particular by
charging additional import duties calculated to compensate for damage caused by
unfair trade.
 Encouraging Development
5
and Economic Reform
 5
Encouraging Development
and Economic Reform
❑The number of WTO members that are developing countries and countries in the process of
economic transition accounts for more than 3/4 🡪 Therefore, the WTO allows developing
countries to enjoy a number of economic incentives.

❑Purpose: Encouraging economic development and economic reform in developing countries and
economies of transition to be made easier.

❑Content: WTO gives developing countries certain flexibility and preferences in implementing
WT agreements).
 5
Encouraging Development
and Economic Reform
❑Example: The WTO allows developing
countries to have a longer implementation
transition period for them to adjust their
policies. In addition, the WTO decided that
underdeveloped countries would enjoy more
and more technical assistance.
 Vietnam’s Commitments with
6
WTO Principles
 5 Vietnam’s Commitments

❑Vietnam’s attempt to reform its economic and legal system in order to accelerate its
economic development and the challenges it is facing as a result of its membership of
the WTO.
❑ Vietnam was one of the last ASEAN countries to conclude WTO accession, Vietnam
had to present more favourable terms than the other regional countries, like China,
Cambodia and Nepal, in order to conclude the bilateral and multilateral agreements
with other WTO members. For example, Import tax was required to be deducted at
the highest level for the textile industry (63.2% following MFN); 38.4% for fish and
aquaculture products; …
 5 Vietnam’s Commitments

❑ By following the common worldwide rules, improvements in the domestic economic

sector and the national legal system in Vietnam will be forced. Accession to WTO
membership requires transparency in government and strengthens the national legal
system. Under the commitments to the WTO, Vietnam amended and promulgated 25
law codes and ordinances by the end of 2006. According to the national legislative
programme, in the years to come, around 100 law codes and ordinances will be
amended and promulgated in order to reform the Vietnamese economy and national
legal system.
QUESTION
Are statements below correct or incorrect?

1. MFN and NT of WTO are principles that are

only applied in the area of trading goods.

2. In all cases, a member country is not allowed to

discriminate between trade partners and if a
special status is granted to one trade partner, the
country is required to extend it to all members of
the WTO.
Thank you!