1.

The Treaty of Versailles and Economic Nationalism

Introduction

The aftermath of World War I marked a dramatic shift in international political and
economic arrangements. Chief among the instruments shaping this transition was the
Treaty of Versailles (1919), which sought to impose peace on the defeated Central
Powers—most notably, Germany. However, the Treaty’s economic provisions had
long-reaching and destabilizing effects on global trade, industry, and diplomacy. It became
a catalyst for rising economic nationalism, protectionist trade regimes, and ultimately laid
the groundwork for the breakdown of liberal economic order, making it a foundational
moment in the study of global trade law and institutions.

The Economic Provisions of the Treaty of Versailles

The Treaty imposed severe reparations obligations on Germany under Articles 231 to 247,
assigning the sole responsibility for the war and demanding financial and material
compensation to Allied powers. In total, reparations demanded were valued at 132 billion
gold marks, an amount economically unsustainable for post-war Germany. To meet these
obligations, the German government resorted to massive borrowing and currency printing,
resulting in hyperinflation by 1923 and a collapse of public trust in monetary institutions.

Besides reparations, Germany faced:

●​ Loss of key industrial territories (e.g., Alsace-Lorraine to France, coal-rich Saar

Basin under League of Nations control).​

●​ Shipping and merchant fleet confiscations.​

●​ Trade restrictions, including the surrender of overseas markets and colonies.​

These punitive measures shattered Germany’s ability to engage in free trade, restricted its
access to raw materials, and dislocated its production chains.
The Global Spread of Economic Nationalism

The Treaty’s repercussions extended well beyond Germany. Its economic framework
contributed to the fragmentation of international markets and ushered in an era of
economic nationalism across Europe and the United States. Countries that had once
promoted liberal trade policies pivoted towards tariff walls, import quotas, currency
controls, and state-led industrial policies.

Examples include:

●​ The United States’ Smoot-Hawley Tariff Act (1930), which raised import duties on
over 20,000 goods, igniting retaliatory tariffs globally.​

●​ The emergence of autarkic regimes in countries like Italy and Japan, where
self-sufficiency was pursued at the cost of international trade cooperation.​

●​ Germany’s bilateral trade treaties under Nazi leadership, designed to bypass

multilateral trade rules and pursue closed economic blocs.​

In effect, economic nationalism became the dominant economic ideology, undermining

collective trade governance and fueling the economic rivalries that would contribute to the
outbreak of World War II.

The Legal Vacuum and Failure of Economic Diplomacy

The Treaty of Versailles failed to provide a global institutional framework for trade
regulation. While it birthed the League of Nations, this body had no competence over
trade.

1.2 The Havana Charter and the Rise and Fall of the
International Trade Organization (ITO)

Introduction

In the wake of World War II, global powers recognized that economic instability had played
a decisive role in the outbreak of two devastating wars. To prevent a recurrence, the Allied
nations sought to establish robust international institutions that would govern not only
peace and security (via the United Nations) and finance (via the IMF and World Bank), but
also global trade. This ambition culminated in the drafting of the Havana Charter (1948),
which laid the legal and philosophical foundation for the International Trade Organization
(ITO)—an institution that was never realized. The story of the ITO is one of grand vision,
legal innovation, and geopolitical disappointment. Yet, its failure shaped the architecture of
global trade law for decades to come.

The Havana Charter: Origins and Framework

The United Nations Conference on Trade and Employment, held in Havana, Cuba, in
1947–48, resulted in the Havana Charter for an International Trade Organization. The
Charter was meant to establish the ITO as a specialized UN agency, complementing the
Bretton Woods institutions in governing the international economic order.

The Havana Charter was ambitious in scope and legal structure. It proposed binding
commitments across four domains:

1.​ Rules on Trade Liberalization: Like the GATT, it promoted the reduction of tariffs,
elimination of discriminatory practices, and most-favored-nation (MFN) treatment.​

2.​ Control of Restrictive Business Practices: It included legal obligations on

corporations to avoid cartels, monopolistic behavior, and abuse of
dominance—elements now familiar in modern antitrust law.​

3.​ Employment and Development Objectives: The Charter aimed to align trade policy
with full employment, fair labor standards, and development of less developed
countries (LDCs).​

4.​ Governance and Dispute Resolution: It envisioned a central secretariat, dispute

resolution mechanisms, and a regular review process—prefiguring elements of the
WTO.​

The ITO was thus conceived not only as a trade liberalization body, but also as an
institution for economic justice, equitable development, and anti-monopoly oversight.

Opposition and Collapse: The U.S. Rejection

Despite global enthusiasm, the ITO’s legal and political fate was sealed by the United States
Congress, which refused to ratify the Havana Charter. Several reasons underpinned this
rejection:
 ●​ Domestic Sovereignty Concerns: U.S. lawmakers feared that binding international
rules on employment, business practices, and development would infringe on
domestic policy autonomy.​

●​ Corporate Lobbying: American business interests were alarmed by the Charter’s

antitrust and labor provisions.​

●​ Cold War Realpolitik: In the emerging ideological contest with the Soviet Union,
U.S. policymakers prioritized military and strategic alliances over multilateral
economic governance.​

Without the participation of its principal architect and economic hegemon, the ITO project
collapsed.

Legal Legacy: From ITO to GATT and Eventually the WTO

Although the ITO never came into force, its legal DNA persisted. During the Havana
negotiations, negotiators had provisionally agreed on a narrower framework—the General
Agreement on Tariffs and Trade (GATT, 1947)—as a stop-gap arrangement. When the ITO
failed, GATT became the de facto global trade regime.

Unlike the ITO, GATT:

●​ Focused solely on trade in goods (excluding labor, investment, and services).​

●​ Had no formal institutional structure or secretariat.​

●​ Relied on consensus-based diplomacy and ad hoc dispute resolution.​

Despite these limitations, GATT’s flexibility allowed it to govern global trade for nearly five
decades, culminating in the Uruguay Round (1986–1994) and the eventual birth of the
World Trade Organization (WTO) in 1995—a structure that absorbed many of the ITO’s
original legal principles, especially in dispute resolution and trade in services.

Conclusion: A Missed Opportunity or a Necessary Evolution?

The Havana Charter and the ITO represent a moment of visionary multilateralism in
international legal history—a bold attempt to construct a comprehensive legal system for
trade, development, and fairness. Its collapse was not due to legal deficiencies, but
geopolitical realities and domestic resistance, especially in the United States.

Nonetheless, the ideas embedded in the Charter found delayed success. Many of its
provisions re-emerged in WTO law, modern trade agreements, and global governance
discourse. As such, the fall of the ITO was not the end, but rather a deferred beginning of
rule-based international trade law.

Pre-Debate Reflection

Before entering into discussion or debate on the ITO, scholars should consider:

●​ What would the international legal order look like today had the ITO succeeded?​

●​ Would global economic inequality be lower if development and labor standards were
enshrined earlier?​

●​ Can modern trade law revisit the holistic spirit of Havana, or is it forever bound to
fragmented diplomacy?

1.3 GATT 1947: Legal Innovation or Political Compromise?

The General Agreement on Tariffs and Trade (GATT) of 1947 was born from the ashes of
failed multilateral efforts—most notably the Havana Charter and the International Trade
Organization (ITO). It was initially a provisional treaty, yet it would become the
cornerstone of global trade governance for nearly five decades. The legal character and
political underpinnings of GATT 1947 remain a topic of deep academic debate: Was GATT a
legal innovation or a political compromise?

Legal Innovation: Creating Predictable Trade Rules

On one hand, GATT marked a radical legal innovation. For the first time, a multilateral
treaty codified binding obligations for contracting parties concerning tariffs,
non-discrimination, and trade dispute settlements. Its core principles—like Most Favoured
Nation (MFN) treatment and National Treatment—enshrined the ideas of equality and
fairness in international trade law. Article XX, providing general exceptions, reflected a
nuanced balance between free trade and national sovereignty.
Furthermore, GATT institutionalized reciprocal tariff reductions, a practice that had
previously relied on bilateral negotiations. The legal discipline of binding tariff
concessions under Article II created a framework where states could enforce each other's
commitments through a legalistic, albeit soft, dispute settlement mechanism. Although the
original system lacked a full adjudicative body, Panels were established, and decisions
were often respected.

In this sense, GATT functioned as a proto-constitutional document for global trade

governance, laying down the legal DNA for what would later become the World Trade
Organization (WTO).

Political Compromise: The Result of Diplomatic Necessity

However, the political origins and context of GATT must not be ignored. The agreement
was never intended to be a full-fledged organization. It was a stop-gap arrangement,
signed by just 23 countries, to preserve tariff concessions negotiated during the ITO
drafting process. The collapse of the ITO meant that GATT had to operate without a formal
institutional backbone.

The absence of enforceable dispute resolution, the limited scope of trade disciplines (e.g.,
excluding agriculture and services), and flexibility for developing countries under Part IV
(added in 1965) all point to political compromises rather than purely legal intentions.

Moreover, the United States’ hegemony in the postwar order played a central role. GATT
reflected American commercial interests—supporting freer trade but on terms the U.S.
could control without being subject to a supranational authority. This hegemonic stability
theory interpretation sees GATT as a soft-power extension of U.S. diplomacy rather than an
autonomous legal order.

GATT’s Dual Character: A Functional Hybridity

In truth, GATT was neither purely a legal innovation nor just a political compromise—it
was both. Its legalistic design gave it legitimacy, while its pragmatic flexibility allowed it to
survive for decades. GATT’s success lies in its adaptive capacity, serving both as a
rule-based regime and a diplomatic forum for negotiation and dispute resolution.

This dual character is visible in how developing countries participated: while GATT
provided special and differential treatment, it did not coerce developing states into rapid
liberalization. This political accommodation would later be challenged in the more
legalized WTO framework.

Pre-Debate / Discussion Conclusion

As we examine the nature of GATT 1947, two interpretive paths emerge: one views it as the
first step toward a rule-bound global trade constitution, while the other sees it as a
contingent political compromise driven by postwar realism and American dominance.
Before we proceed into the Uruguay Round and the birth of the WTO, consider this: Can a
regime born out of political necessity mature into a robust legal order? Or will its
foundational compromises haunt its legitimacy in the 21st century?

1.4 GATT and the Foundations of Global Trade

Liberalization
The General Agreement on Tariffs and Trade (GATT), signed in 1947, was a monumental
step in establishing a multilateral framework for international trade. It emerged from the
ashes of the failed Havana Charter and the International Trade Organization (ITO),
becoming the de facto institution for global trade governance during the mid-20th century.
GATT laid the legal and institutional foundation for the liberalization of global trade,
promoting rules-based commerce, tariff reductions, and peaceful dispute settlement.

Origins and Purpose

In the wake of World War II, the world economy was deeply fractured, and protectionist
policies had proven disastrous in the 1930s. To foster economic recovery and prevent
future conflict, 23 nations initially signed the GATT to create predictability, stability, and
fairness in trade. Though not a fully-fledged international organization, GATT operated as
a contractual mechanism among member countries to lower trade barriers and resolve
disputes.

Key Principles

GATT was built on several cardinal principles that endure in trade law even today:

1.​ Most-Favoured-Nation (MFN) – Each member must treat all other members
equally in terms of trade concessions.​
 2.​ National Treatment – Imported goods must be treated no less favorably than
domestically produced goods once they enter the market.​

3.​ Transparency – Members were required to publish their trade regulations and
conform to agreed rules.​

4.​ Tariff Bindings and Reductions – Commitments were made to cap tariffs and
negotiate their reduction over multiple “rounds.”​

The Rounds of Negotiation

From 1947 to the 1990s, GATT conducted multiple negotiation rounds, including:

●​ Kennedy Round (1964–67) – Introduced anti-dumping rules.​

●​ Tokyo Round (1973–79) – Addressed non-tariff barriers.​

●​ Uruguay Round (1986–94) – Culminated in the creation of the World Trade

Organization (WTO) in 1995.​

Each round deepened liberalization, incorporated more countries, and modernized trade
rules to reflect global realities.

Limitations of GATT

Despite its success, GATT had several structural weaknesses:

●​ No institutional backbone – It lacked the full legal authority or enforcement power

of an international organization.​

●​ Limited scope – GATT mainly governed trade in goods and excluded services,
intellectual property, and agriculture for most of its life.​

●​ Inequality in negotiations – Developing nations often lacked the capacity to engage

in complex talks dominated by developed countries.​

These shortcomings eventually led to its replacement by the WTO, which retained GATT’s
principles but gave them institutional and legal form.
Conclusion for Pre-Debate or Discussion

GATT served as the launchpad for modern trade liberalism, balancing economic
cooperation and national interest in a fractured post-war world. It fostered unprecedented
economic growth and interdependence, yet struggled to adapt to evolving global
complexities. Before we debate whether institutions like the WTO have fulfilled GATT’s
promise, we must ask: Did GATT truly promote equitable global prosperity, or did it simply
institutionalize the dominance of developed economies under the guise of free trade?

1.5 Creation of the WTO and the Legal Evolution from

GATT (1947 to 1995)
The establishment of the World Trade Organization (WTO) in 1995 marked a watershed
moment in the legal architecture of global trade. It was not merely a continuation of the
General Agreement on Tariffs and Trade (GATT, 1947), but a juridical transformation—from
a provisional agreement among contracting parties to a permanent international
organization with binding legal authority. This evolution reshaped the landscape of global
economic governance.

From GATT to WTO: The Legal Transition

The Uruguay Round (1986–1994) was the eighth and most ambitious round of multilateral
trade negotiations under GATT. The round aimed to address GATT’s limitations—such as its
weak dispute settlement system and narrow scope. The culmination of this round was the
Marrakesh Agreement, which officially established the WTO on 1 January 1995.

Key Legal Changes from GATT to WTO:

Feature GATT (1947) WTO (1995)

Legal Status Provisional Full-fledged international organization

agreement

Scope Mainly goods Goods, services (GATS), intellectual property

(TRIPS)
 Dispute Non-binding, slow Binding rulings with appellate process (DSB)
Settlement

Enforcement Political pressure Legal sanctions and cross-retaliation allowed

Membership Contracting parties Members with equal legal rights

The WTO Agreement Structure: A Legal Constitution for Trade

The WTO legal framework is built around a "Single Undertaking"—members must accept
all multilateral agreements. It includes:

●​ GATT 1994: Updated and incorporated form of the original GATT 1947​

●​ GATS: General Agreement on Trade in Services​

●​ TRIPS: Trade-Related Aspects of Intellectual Property Rights​

●​ DSU: Dispute Settlement Understanding​

●​ TPRM: Trade Policy Review Mechanism​

These agreements provide a coherent legal framework, codifying trade rules and dispute
procedures across multiple domains of commerce.

The Dispute Settlement Revolution

One of the most critical evolutions was the shift from a diplomacy-based system under
GATT to a quasi-judicial system under WTO.

●​ Under GATT, consensus was required to adopt a panel report, allowing losing
parties to block decisions.​
 ●​ Under WTO, negative consensus applies: a panel or Appellate Body ruling is
adopted unless all members oppose it.​

●​ The Dispute Settlement Body (DSB) now functions as a permanent tribunal with
binding enforcement powers.​

Legal implication: The WTO introduced rule-based enforcement and reduced the risk of
unilateral trade retaliation, increasing predictability and legitimacy in global trade.

Continuity and Change: Is GATT Dead?

While the WTO replaced GATT as an institution, GATT 1994 remains a core part of WTO
law. It includes:

●​ The text of GATT 1947 (incorporated with modifications)​

●​ All GATT legal instruments agreed before 1994​

●​ Protocols, decisions, and understandings added during the Uruguay Round​

Thus, GATT lives on not as an institution, but as a foundational legal document—a

"constitutional text" in WTO jurisprudence.

Jurisprudential Legacy

The evolution from GATT to WTO saw the rise of international trade law as a discipline.
WTO case law has clarified legal doctrines such as:

●​ Non-violation complaints​

●​ Nullification or impairment​

●​ Legitimate expectations of market access​

●​ Necessity tests under GATT Article XX​

Scholars now analyze WTO law with the rigour of public international law, recognizing its
binding force, precedential value, and impact on domestic legal systems.

Conclusion for Legal Scholars and Diplomats

The transformation from GATT to WTO was not simply bureaucratic—it was a legal
revolution. It replaced voluntary cooperation with binding law, diplomatic discretion with
legal predictability, and institutional fragmentation with a coherent regime. But as the 21st
century unfolds—with debates on digital trade, climate policy, and rising nationalism—the
question persists:​
Can the WTO's legal framework adapt, or will it face the same fate as GATT—reformed,
replaced, or rendered irrelevant?

1.6 General Agreement on Tariffs and Trade (GATT):

Structure, Principles, and Limitations
The General Agreement on Tariffs and Trade (GATT), established in 1947 as a result of the
post-WWII efforts to promote international economic cooperation, laid the groundwork for
what would later become the World Trade Organization (WTO). Although originally
conceived as a temporary mechanism until the International Trade Organization (ITO)
could be launched, the failure of the ITO made GATT the de facto global trade institution
for nearly five decades.

I. Structure of GATT

The GATT was not an international organization in the formal sense; rather, it was a
multilateral treaty with a secretariat based in Geneva, Switzerland. The structure was:

●​ Contracting Parties: Nations that agreed to the provisions of GATT. These parties
periodically convened in Rounds of Negotiation to reduce trade barriers.​

●​ Secretariat: Provided administrative and technical support but lacked enforcement

authority.​

●​ Working Parties and Panels: Set up for dispute resolution and to handle specific
trade issues.​
 ●​ Negotiating Rounds: Including key ones like the Kennedy Round, Tokyo Round,
and the transformative Uruguay Round.​

II. Core Principles of GATT

GATT was built on several foundational principles that aimed to liberalize trade and reduce
protectionist barriers:

1.​ Most Favoured Nation (MFN) Principle​

Each member must extend any trade concession offered to one nation to all other
GATT members equally.​

2.​ National Treatment​

Once goods enter a country, they must be treated no less favorably than
domestically produced goods, avoiding internal discrimination.​

3.​ Reciprocity​
Trade liberalization was pursued on a mutual basis—reductions in tariffs were
expected to be balanced between members.​

4.​ Transparency​
Trade policies needed to be published and predictable; members had to notify the
GATT of changes in trade policy.​

5.​ Tariff Binding​

Members committed to maximum tariff levels, known as bindings, which could only
be increased through compensation or negotiation.​

III. GATT's Limitations

Despite its success in lowering tariffs and increasing global trade, GATT had notable
weaknesses:

1.​ Limited Scope​

GATT covered trade in goods only, excluding services, intellectual property, and
investment.​
 2.​ Weak Enforcement​
GATT lacked a formal dispute enforcement mechanism. Its panel rulings were
non-binding and often ignored by powerful states.​

3.​ Exemptions and Loopholes​

Developing countries were often exempted from key provisions, and many
countries implemented voluntary export restraints, non-tariff barriers, and
agricultural subsidies that bypassed GATT rules.​

4.​ Non-institutional Nature​

GATT was not a formal organization and lacked legal personality, limiting its ability
to negotiate or act independently.​

5.​ Developing Country Marginalization​

While GATT allowed for special and differential treatment, developing nations
often felt sidelined in decision-making processes dominated by the US and
European nations.​

Conclusion (for pre-debate or discussion)

GATT served as the cornerstone of postwar trade liberalization, helping to rebuild and
expand the global economy. However, its institutional fragility, limited legal force, and
incomplete coverage ultimately demanded reform. As students of trade law, we must now
reflect on this critical transition—did GATT’s informal, consensus-driven model sow the
seeds for inclusive globalization, or did it allow dominant powers to shape trade to their
advantage? This is the question we take forward into our debate.

1.6 General Agreement on Tariffs and Trade (GATT):

Structure, Principles, and Limitations
The General Agreement on Tariffs and Trade (GATT), established in 1947 as a result of the
post-WWII efforts to promote international economic cooperation, laid the groundwork for
what would later become the World Trade Organization (WTO). Although originally
conceived as a temporary mechanism until the International Trade Organization (ITO)
could be launched, the failure of the ITO made GATT the de facto global trade institution
for nearly five decades.
I. Structure of GATT

The GATT was not an international organization in the formal sense; rather, it was a
multilateral treaty with a secretariat based in Geneva, Switzerland. The structure was:

●​ Contracting Parties: Nations that agreed to the provisions of GATT. These parties
periodically convened in Rounds of Negotiation to reduce trade barriers.​

●​ Secretariat: Provided administrative and technical support but lacked enforcement

authority.​

●​ Working Parties and Panels: Set up for dispute resolution and to handle specific
trade issues.​

●​ Negotiating Rounds: Including key ones like the Kennedy Round, Tokyo Round,
and the transformative Uruguay Round.​

II. Core Principles of GATT

GATT was built on several foundational principles that aimed to liberalize trade and reduce
protectionist barriers:

1.​ Most Favoured Nation (MFN) Principle​

Each member must extend any trade concession offered to one nation to all other
GATT members equally.​

2.​ National Treatment​

Once goods enter a country, they must be treated no less favorably than
domestically produced goods, avoiding internal discrimination.​

3.​ Reciprocity​
Trade liberalization was pursued on a mutual basis—reductions in tariffs were
expected to be balanced between members.​

4.​ Transparency​
Trade policies needed to be published and predictable; members had to notify the
GATT of changes in trade policy.​
 5.​ Tariff Binding​
Members committed to maximum tariff levels, known as bindings, which could only
be increased through compensation or negotiation.​

III. GATT's Limitations

Despite its success in lowering tariffs and increasing global trade, GATT had notable
weaknesses:

1.​ Limited Scope​

GATT covered trade in goods only, excluding services, intellectual property, and
investment.​

2.​ Weak Enforcement​

GATT lacked a formal dispute enforcement mechanism. Its panel rulings were
non-binding and often ignored by powerful states.​

3.​ Exemptions and Loopholes​

Developing countries were often exempted from key provisions, and many
countries implemented voluntary export restraints, non-tariff barriers, and
agricultural subsidies that bypassed GATT rules.​

4.​ Non-institutional Nature​

GATT was not a formal organization and lacked legal personality, limiting its ability
to negotiate or act independently.​

5.​ Developing Country Marginalization​

While GATT allowed for special and differential treatment, developing nations
often felt sidelined in decision-making processes dominated by the US and
European nations.​

Conclusion (for pre-debate or discussion)

GATT served as the cornerstone of postwar trade liberalization, helping to rebuild and
expand the global economy. However, its institutional fragility, limited legal force, and
incomplete coverage ultimately demanded reform. As students of trade law, we must now
reflect on this critical transition—did GATT’s informal, consensus-driven model sow the
seeds for inclusive globalization, or did it allow dominant powers to shape trade to their
advantage? This is the question we take forward into our debate.

1.8 WTO in the 21st Century: New Frontiers and Emerging Challenges

The World Trade Organization (WTO), founded in 1995, has played a pivotal role in shaping
global trade norms and fostering economic integration. However, as the 21st century
unfolds, the WTO finds itself at a crossroads. Global economic power dynamics have
shifted, digital technologies have disrupted conventional trade, and new
challenges—climate change, pandemics, and geopolitical conflicts—have intensified. These
developments are testing the WTO’s adaptability and legitimacy like never before.

The Multipolar Trade Order

Unlike the post-Cold War unipolar moment when the WTO was born, the 21st century has
witnessed the rise of China, the resurgence of industrial policy in the U.S., and the
assertion of Global South coalitions. Trade disputes between the U.S. and China, especially
over subsidies, technology transfer, and intellectual property, have paralyzed the WTO
Appellate Body since 2019. The absence of consensus over dispute resolution has eroded
faith in the WTO's enforcement mechanisms.

Digital Trade and E-commerce

The rise of digital trade, data flows, and artificial intelligence has rendered many WTO
rules outdated. While some countries advocate for binding rules on data localization,
cross-border data flows, and platform regulation, others—especially developing
economies—fear a new form of digital colonization. The WTO has attempted to address
these issues through initiatives like the Joint Statement Initiative on E-commerce, but they
remain outside the formal negotiating agenda due to disagreements over the mandate.

Climate, Trade, and Sustainability

Climate change has emerged as a critical global priority, and countries are beginning to
link trade policy with environmental goals. The European Union’s Carbon Border
Adjustment Mechanism (CBAM) and proposals for green industrial subsidies challenge
the existing WTO principles of non-discrimination and national treatment. At the same
time, developing countries demand policy space to pursue growth without trade sanctions
tied to climate targets. This tension could either fracture global trade or push the WTO to
modernize its environmental mandate.

Pandemics and Supply Chain Resilience

The COVID-19 pandemic exposed the fragility of global supply chains and the inequity of
vaccine distribution. Proposals to waive intellectual property rights under the TRIPS
Agreement for pandemic-related products sparked sharp debates between developed and
developing countries. The pandemic has also reignited calls for rebalancing globalization
in favor of resilience over efficiency, with many countries advocating for onshoring and
friend-shoring, which could reshape trade flows.

Geoeconomics and Weaponization of Trade

Trade has increasingly become a tool of strategic competition. From the U.S. CHIPS Act to
EU restrictions on critical minerals exports to China, economic policy is being deployed for
national security aims. This weaponization of trade undermines the WTO’s foundational
principle: that trade disputes should be solved through rules, not power politics. The
blurred line between economic and security concerns makes it harder for WTO panels to
adjudicate such disputes.

Conclusion (Pre-Debate Discussion Prompt)

The WTO stands at a turning point. It must navigate the choppy waters of digital
disruption, ecological urgency, geopolitical tensions, and a fractured global order. Will it
emerge as a revitalized institution leading 21st-century trade governance, or will it retreat
into irrelevance as plurilateralism and protectionism take over? As we move to debate the
WTO’s future, let us consider: Is reform possible without consensus? Can trade remain
rules-based in a world that is in

Chapter 2: The Legal Foundations of

the Multilateral Trading System
2.1 Genesis of the GATT 1947: Temporary Framework, Lasting
Impact
The General Agreement on Tariffs and Trade (GATT), signed in 1947, was originally
envisioned as a provisional mechanism pending the establishment of the International
Trade Organization (ITO). While the ITO never materialized, GATT became the de facto
legal framework governing global trade for nearly five decades.

The GATT's legal text laid the foundational principles of international trade law:
non-discrimination (MFN and national treatment), reciprocity, transparency, and
progressive liberalization of trade. Though technically a treaty without an organization,
the GATT 1947 functioned with a secretariat, dispute settlement procedures, and regular
rounds of negotiations.

The post-war geopolitical context, particularly the Cold War, gave urgency to economic
cooperation among capitalist economies. GATT operated on a contractual, rule-based
approach, managing the commercial relations of member states through a combination of
tariff bindings and legal exceptions, such as safeguard clauses and security exceptions.

Even though it lacked the institutional structure of a full-fledged organization, the GATT's
jurisprudence and institutional practices deeply influenced the development of the WTO
in 1995. Its legacy remains embedded in the WTO's legal texts, especially through the GATT
1994, which incorporates much of the 1947 agreement by reference.

creasingly power-based?

2.2 The WTO Agreement: Legal Status, Structure, and

Framework Principles

Legal Status of the WTO Agreement

The Marrakesh Agreement Establishing the World Trade Organization, signed on 15 April
1994 and entered into force on 1 January 1995, transformed the multilateral trading system
from a provisional arrangement under GATT into a comprehensive legal and institutional
entity — the World Trade Organization (WTO).

Unlike the GATT 1947, which was a plurilateral treaty with a limited institutional base, the
WTO Agreement created an international organization with legal personality, binding on
its Members. Every WTO Member is bound by a single undertaking: it must accept all
multilateral agreements annexed to the WTO Agreement as a condition of membership.
This marked a decisive shift from the à la carte approach of GATT to a coherent, integrated
legal framework.
Structural Composition of the WTO Agreement

The WTO Agreement is composed of several parts and annexes, which together create a
complex and layered structure:

●​ Preamble: Declares the objectives of raising standards of living, ensuring full

employment, and sustainable development through reciprocal and mutually
advantageous trade arrangements.​

●​ Articles I–XVI: Establish the legal structure of the WTO, including rules on
membership, decision-making, institutional functions, and the dispute settlement
and trade policy review mechanisms.​

●​ Annex 1A: Incorporates the Multilateral Agreements on Trade in Goods, including

GATT 1994, Agreements on Agriculture, SPS, TBT, Anti-Dumping, Customs
Valuation, and others.​

●​ Annex 1B: Covers the General Agreement on Trade in Services (GATS).​

●​ Annex 1C: Contains the Agreement on Trade-Related Aspects of Intellectual

Property Rights (TRIPS).​

●​ Annex 2: Establishes the Dispute Settlement Understanding (DSU) — a cornerstone

of WTO legal enforcement.​

●​ Annex 3: Provides for the Trade Policy Review Mechanism (TPRM).​

●​ Annex 4: Encompasses Plurilateral Trade Agreements, which are optional and

binding only on signatory Members.​

Framework Principles

The WTO framework is built on several fundamental legal principles that serve as the
bedrock of its operations:

1.​ Most-Favoured-Nation Treatment (MFN) – Article I of GATT and equivalent

provisions in GATS and TRIPS require equal treatment among all WTO Members,
ensuring non-discrimination.​

2.​ National Treatment – Once goods or services enter a Member's market, they must
be treated no less favorably than domestic like products (Article III GATT, Article
 XVII GATS).​

3.​ Transparency – Members must publish trade regulations and notify changes. The
TPRM supports accountability and surveillance.​

4.​ Binding Commitments – Tariff schedules and services commitments are legally
binding, limiting the use of discretionary protection.​

5.​ Prohibition of Quantitative Restrictions – Article XI of GATT prohibits quotas and

similar non-tariff barriers, barring exceptions.​

6.​ Special and Differential Treatment (SDT) – Provides developing and

least-developed countries with flexibilities, longer transition periods, and technical
assistance.​

7.​ Rule-Based Dispute Settlement – Under the DSU, members have access to a
quasi-judicial system with appellate review, promoting predictability and legal
certainty.

2.3 From GATT to WTO: Institutional Transformation and

Legal Continuity
The transformation from the General Agreement on Tariffs and Trade (GATT) to the
World Trade Organization (WTO) in 1995 marked a watershed moment in international
trade governance. While GATT had served as a provisional legal instrument since 1948, the
WTO emerged as a permanent institution with a broader scope, stronger enforcement
mechanisms, and deeper legal structure. This shift represented both institutional
evolution and an effort at legal continuity.

I. Historical Context of the Shift

GATT was initially conceived as part of the Havana Charter (1948), which aimed to establish
the International Trade Organization (ITO). When the ITO failed to materialize, GATT took
on a de facto governance role for global trade, focusing primarily on reducing tariffs and
preventing discriminatory trade practices. However, GATT lacked:

●​ An institutional framework (it wasn’t a formal organization),​

 ●​ A permanent secretariat (services were provided by the UN),​

●​ Binding dispute resolution mechanisms,​

●​ Coverage over services, intellectual property, and investment.​

With the rise of globalization, non-tariff barriers, and the increasing complexity of trade,
GATT’s limitations became increasingly evident, especially during the Uruguay Round
(1986–1994), which set the stage for the WTO’s creation.

II. Key Institutional Transformations

The establishment of the WTO on 1 January 1995, through the Marrakesh Agreement,
represented a significant legal and structural evolution from GATT:

GATT WTO

A treaty, not an A full-fledged international organization

organization

No legal personality Legal personality with member obligations

Focused mainly on goods Covers goods, services (GATS), and IP (TRIPS)

Weak dispute settlement Binding, rule-based dispute resolution

mechanism

Provisional application Permanent structure with a governing body

The WTO institutionalized many of GATT’s principles (like non-discrimination,

most-favoured-nation, and national treatment) while expanding them to new areas.
III. Legal Continuity and the Status of GATT 1947

Despite the transition, GATT 1994—a part of the WTO Agreement—incorporates GATT 1947
“as rectified, amended or modified”. This ensures that the legal precedent and
jurisprudence developed over the decades under GATT 1947 remain influential in
interpreting WTO law. Key points of legal continuity include:

●​ Adoption of past panel reports for interpretative guidance,​

●​ Retention of core GATT disciplines (e.g., Article XX exceptions),​

●​ Continuation of tariff bindings from the original schedules.​

This continuity provides legal stability, ensures predictability in trade, and respects the
acquis of international trade law developed since 1947.

IV. Legal and Political Implications

The WTO is not merely a successor; it is an evolution of GATT. It reflects the changing
demands of the global trading system, while striving to maintain legal integrity and
coherence with past frameworks. However, the transformation was not without resistance:

●​ Some developing countries feared increased obligations,​

●​ Concerns arose over sovereignty vs. institutional power,​

●​ Legal scholars debated whether the WTO represented a “constitutional moment” in

international law.​

Despite these challenges, the WTO has largely succeeded in legitimizing multilateralism,
codifying norms, and streamlining dispute resolution.

Conclusion for Pre-Debate/Discussion

The transformation from GATT to WTO represents a rare case of successful institutional
evolution in international law. While some view the WTO as merely GATT-plus, others
argue it reflects a paradigmatic shift in global economic governance. Should international
institutions always evolve from soft frameworks like GATT to legalistic bodies like the
WTO? Or do such transformations risk alienating smaller economies?

Debate Prompt: Does the legal continuity between GATT and the WTO strengthen
or constrain the adaptability of the global trading system in the 21st century?

2.4: The WTO Dispute Settlement Understanding (DSU)

The Dispute Settlement Understanding (DSU) is a cornerstone of the World Trade
Organization (WTO) legal system. It provides a formal mechanism through which member
states resolve trade disputes and ensures that rules are enforced consistently.

1. Origins and Evolution

The DSU evolved from the GATT dispute resolution mechanism, which was often criticized
for being slow, non-binding, and subject to political interference. The WTO, established in
1995, introduced a binding and more structured dispute resolution process via the DSU. It
marked a historic shift from diplomacy-based resolution to a quasi-judicial model.

2. Key Features of the DSU

a. Compulsory Jurisdiction

Any WTO member can bring a case against another if it believes there has been a violation
of WTO agreements. Once initiated, the process cannot be unilaterally stopped by the
respondent.

b. Stages of the Dispute Process

1.​ Consultation (Art. 4) – The first step is a mandatory 60-day consultation period.​

2.​ Panel Formation (Art. 6–12) – If consultations fail, a panel is formed to hear the
case.​

3.​ Appellate Review (Art. 17) – Panel rulings can be appealed before the Appellate
Body.​

4.​ Implementation and Compliance (Art. 21) – If the ruling is upheld, the offending
member must comply.​
 5.​ Retaliation (Art. 22) – If compliance does not occur, the complainant may request
retaliation (e.g., suspension of concessions).​

c. Time-Bound Process

The DSU process is designed to be completed in roughly 12–15 months, ensuring timely
justice.

3. Legal Principles

●​ Rule of Law: The DSU enforces WTO agreements through codified procedures,
enhancing predictability.​

●​ Prohibition of Unilateral Measures: Members must not take matters into their own
hands but use the DSU instead.​

●​ Equal Footing: All members—whether developed or developing—have equal legal

standing in dispute resolution.​

4. Role of the Appellate Body

The Appellate Body was a seven-member permanent body that reviewed panel reports. It
ensured consistency in the interpretation of WTO law. However, since 2019, it has become
non-functional due to the U.S. blocking appointments, creating a crisis in WTO dispute
resolution.

5. Impact and Criticism

Impact:

●​ Over 600 disputes have been brought since 1995.​

●​ Countries like Brazil, India, and China have actively used the system.​

●​ It has prevented trade wars by ensuring rule-based outcomes.​

Criticism:

●​ Allegations of judicial overreach by the Appellate Body.​

●​ Delayed compliance by some states.​

●​ Growing concern about developing countries' capacity to litigate effectively.​

6. Reform Proposals

●​ Restoration of the Appellate Body with clearer rules on scope and timelines.​

●​ Capacity-building for developing countries.​

●​ Introduction of alternative dispute resolution (ADR) mechanisms for faster

settlements.​

Conclusion for Pre-Debate or Discussion

The WTO's Dispute Settlement Understanding remains the most advanced mechanism in
international economic law. Yet, its current crisis poses a threat to multilateralism. As
members debate the future of the system, the choice is stark: revive rule-based
governance or risk a return to power-based trade politics. In the upcoming discussion,
consider whether the DSU needs reform or replacement and how to ensure justice,
accessibility, and enforceability in global trade law.

2.5: General Agreement on Trade in Services (GATS)

The General Agreement on Trade in Services (GATS), established during the Uruguay
Round of negotiations and coming into force with the creation of the WTO in 1995, marked
the first multilateral legal framework governing international trade in services. While
trade in goods had long been regulated under the GATT framework, GATS expanded global
trade rules into a vast and rapidly growing sector—services.
Core Features of GATS

1.​ Scope and Coverage​

GATS applies to all services except those supplied in the exercise of governmental
authority (e.g., police, military, public education). It covers:​

○​ Cross-border supply (Mode 1)​

○​ Consumption abroad (Mode 2)​

○​ Commercial presence (Mode 3)​

○​ Presence of natural persons (Mode 4)​

2.​ MFN (Most Favoured Nation) Principle​

Countries must treat service suppliers from all WTO members equally, unless they
have listed specific exemptions.​

3.​ National Treatment​

Member countries must treat foreign service providers the same as domestic ones,
subject to specific commitments listed in national schedules.​

4.​ Transparency and Predictability​

Members are required to publish all relevant regulations and provide mechanisms
for inquiry and review, enhancing transparency in service regulations.​

5.​ Progressive Liberalization​

GATS is based on the idea of gradual liberalization, allowing members to
undertake commitments over time through rounds of negotiations.​

Implications for Global Trade

●​ Opening of Sectors: Countries opened various service sectors, including

telecommunications, finance, education, tourism, and IT.​

●​ Dispute Resolution: GATS provides a basis for WTO dispute settlement in

service-related conflicts.​
 ●​ Balance of Sovereignty and Openness: Members retain the right to regulate
services but must do so in a manner that does not undermine commitments.​

Criticism and Challenges

●​ Unequal Access: Developing nations argue that developed countries have not
sufficiently liberalized sectors like Mode 4 (movement of people).​

●​ Regulatory Sovereignty: Critics warn that GATS can infringe on a nation’s right to
regulate services for public interest, especially in health, water, and education.​

●​ Limited Gains for the Global South: Many developing countries find the promised
gains from GATS participation to be asymmetric and elusive.​

Conclusion: Pre-Discussion Prompt

As nations continue to rely heavily on services—both digitally and traditionally—the GATS

framework remains critical. However, it raises fundamental questions:

Can trade in services be liberalized equitably without compromising national

sovereignty? Does GATS truly benefit all, or does it reinforce global
asymmetries?

These issues continue to shape debates on the future evolution of GATS and its relevance in
the digital age.

2.6: Agreement on Trade-Related Investment Measures

(TRIMS)
The Agreement on Trade-Related Investment Measures (TRIMS) was introduced during
the Uruguay Round and became one of the key annexes of the WTO framework in 1995. It
aims to ensure that investment policies do not distort or restrict international trade,
particularly in the context of foreign direct investment (FDI).
Purpose and Background

Many countries previously used investment-related measures (like local content

requirements or trade balancing rules) to protect domestic industries. While these might
support local development goals, they can also distort trade flows and violate national
treatment or market access principles under GATT.

TRIMS seeks to strike a balance between attracting FDI and ensuring such measures do
not unfairly restrict trade.

Key Features of TRIMS

1.​ Prohibited Measures​

The TRIMS Agreement prohibits investment measures that are inconsistent with
basic GATT Articles III (National Treatment) and XI (Quantitative Restrictions).
Examples of prohibited TRIMS include:​

○​ Local Content Requirements: Mandating firms to use a certain proportion

of domestic goods.​

○​ Trade Balancing Requirements: Forcing companies to balance imports with

exports.​

○​ Foreign Exchange Restrictions: Tying imports to the availability of foreign

exchange earned by the company.​

○​ Export Requirements: Making investment conditional on exporting a certain

percentage of production.​

2.​ Transparency​
Members were required to notify existing non-compliant TRIMS at the time of
accession and to phase them out within a transition period (2 years for developed, 5
years for developing, and 7 years for least-developed countries).​

3.​ No Independent Dispute Settlement​

TRIMS is enforced through WTO's dispute settlement body, but it does not create a
separate mechanism.​
TRIMS and Developing Countries

●​ Many developing nations had long relied on such measures to build self-sufficiency
and industrial base.​

●​ Under TRIMS, several of these tools are now prohibited, leading to concerns about
policy space.​

●​ For example, India was challenged by the United States at the WTO for imposing
local sourcing requirements in its solar power sector.​

Case Studies

●​ India – Solar Cells Dispute (DS456)​

The U.S. challenged India’s domestic content requirement for solar power projects.
WTO ruled it violated TRIMS and GATT obligations.​

●​ Indonesia – Importation of Horticultural Products, Animals and Animal Products

(DS477/478)​
TRIMS-related elements in Indonesia’s regulatory regime were ruled inconsistent
with WTO rules.​

Criticism and Challenges

●​ Policy Autonomy: TRIMS is often criticized for restricting the developmental

flexibility of countries seeking to build up domestic industries.​

●​ Lack of Positive Agenda: Unlike the Trade-Related Aspects of Intellectual Property

Rights (TRIPS), TRIMS lacks a framework for positive support or technology
transfer.​

●​ Investment Protection Gap: TRIMS regulates trade-related investment measures

but does not provide broader investment protections like those found in Bilateral
Investment Treaties (BITs).​
Conclusion: Discussion Catalyst

As investment becomes increasingly global and strategic, countries must ask:

Do TRIMS rules enhance economic efficiency at the cost of developmental

sovereignty? Should the WTO revisit TRIMS to reflect new global investment
realities?

These questions shape ongoing trade and investment debates in both WTO negotiations
and bilateral trade agreements.

2.7 Rise of WTO Legalism and Proliferation of Disputes

Introduction

As the World Trade Organization (WTO) matured into the 21st century, one of its most
distinctive features became the increasing legalism within its dispute settlement process.
Unlike the diplomatic, often consensus-driven model of the GATT era, the WTO
institutionalized a rule-based legal framework that began to attract a greater number of
disputes and legal challenges from both developing and developed members. This rise in
legalism reflects a broader transformation in global trade governance — from power-based
negotiation to law-based adjudication.

From Negotiated Diplomacy to Adjudicated Law

In the GATT era, trade disputes were often resolved through behind-the-scenes diplomacy
and political bargaining. However, the WTO Dispute Settlement Understanding (DSU),
established in 1995, formalized a judicialized system comprising panels, an Appellate Body,
and a binding enforcement mechanism. This allowed members to:

●​ Enforce rights independent of power status​

●​ Rely on case law and jurisprudence to define obligations​

●​ Utilize third-party rights during disputes​

This shift made the WTO more predictable but also more litigious, especially among
trade-heavy nations.
Proliferation of Disputes

Since its creation, the WTO has seen over 600 disputes initiated — a massive increase
compared to GATT's 300 cases over nearly five decades. Some key trends include:

●​ Frequent litigants: The USA, EU, China, Brazil, and India have become active
complainants and respondents.​

●​ Systemic engagement: Even small and medium economies have begun utilizing the
WTO system to challenge unfair practices.​

●​ Diverse subject matter: Disputes now involve anti-dumping, intellectual property,

technical barriers to trade (TBT), subsidies, agriculture, and environmental
regulations.​

Legalism as Strategy

The WTO’s legal infrastructure empowered members to use litigation strategically. For
instance:

●​ Retaliation is now legally authorized through arbitration and DSB sanction.​

●​ Countries use litigation to signal norms to other members (e.g., Brazil’s challenge
to US cotton subsidies).​

●​ Legal precedents from WTO rulings help shape domestic law and inform regional
trade agreements.​

Criticisms and Challenges

Despite its benefits, the rise in legalism has drawn criticism:

●​ Access asymmetry: Poorer nations may lack legal capacity to engage meaningfully.​

●​ Delay and deadlock: The Appellate Body’s dysfunction since 2019 has frozen
appeals.​
 ●​ Judicial activism: The U.S. and others have accused the Appellate Body of
overstepping its mandate and “creating law” rather than interpreting it.​

Moreover, legalism has increased the cost and complexity of dispute resolution, favoring
nations with deeper legal expertise, resources, and strategic depth.

Conclusion: For Pre-Debate/Discussion

The WTO’s shift toward legalism has brought transparency, predictability, and
accountability to global trade governance. However, it also raises essential questions about
equity, accessibility, and the political legitimacy of judicialized international trade. Should
WTO return to more diplomatic means of conflict resolution? Or does the rule of law
require strict adherence, even at the cost of inclusivity?

As we prepare to debate these questions, we must weigh whether the legal path ensures
justice or merely advantages those best equipped to wield it.

3.1 From GATT to WTO: Legal Transition

The transition from the General Agreement on Tariffs and Trade (GATT) 1947 to the World
Trade Organization (WTO) 1995 marked not merely a change in institutional design, but a
profound shift in international trade law and dispute settlement structure.

Under GATT, dispute resolution was ad hoc, largely diplomatic, and required consensus
for adoption of rulings, allowing powerful states to block outcomes. With the WTO, a
rule-based legal order was institutionalized. The Dispute Settlement Understanding
(DSU) of the WTO introduced binding legal decisions, automatic adoption of panel
rulings, and the Appellate Body, creating a quasi-judicial structure.

This transformation signaled the rise of legalization and juridification of international

economic relations, as WTO Members now accepted the supremacy of rules over unilateral
power in settling trade disputes.

3.2 The Dispute Settlement Understanding (DSU): A Rules-Based

Revolution

The Dispute Settlement Understanding (DSU) is often regarded as the crown jewel of the
WTO legal system. It introduced a mandatory, rule-based, and time-bound dispute
resolution framework, replacing the flexible and often ineffective system under GATT 1947.
Key Features:

1.​ Automaticity: Unlike GATT, where consensus was required to adopt panel rulings
(allowing parties to block decisions), under the DSU, panel and Appellate Body
rulings are automatically adopted unless there is a consensus against adoption—an
almost impossible outcome.​

2.​ Appellate Body: The DSU established a permanent Appellate Body to review legal
interpretations of panel reports, ensuring coherence, consistency, and the
development of precedent-like jurisprudence in WTO law.​

3.​ Time-bound Process: The DSU introduced strict timelines for consultations, panel
proceedings, appeals, and compliance reviews, promoting procedural efficiency.​

4.​ Enforceability: If a Member fails to comply with rulings, the complainant may seek
retaliation in the form of trade sanctions—an enforcement tool absent under GATT.​

5.​ Legalism vs. Diplomacy: The DSU shifted trade dispute settlement from a primarily
diplomatic negotiation model to a legal adjudication model, prioritizing
predictability, transparency, and equality before the law.​

Significance in Global Economic Governance:

The DSU's creation marked a turning point in international law, embedding judicial-style
processes in a domain traditionally governed by diplomacy and power politics. Smaller and
developing countries gained legal leverage against economically stronger nations, thereby
strengthening the legitimacy of the global trading order.

However, the DSU has also faced criticism—particularly from the United States—for
allegedly judicial overreach and for its inflexibility in handling politically sensitive cases.
These tensions culminated in the Appellate Body paralysis in 2019, when the U.S. blocked
appointments, effectively freezing the highest tier of WTO dispute resolution.

3.3 Key Cases in WTO Jurisprudence: Law in Action

Understanding WTO law requires analyzing landmark cases that have shaped the
interpretation and enforcement of trade rules. These disputes illustrate how legal
principles operate in practice, how states use litigation as a form of diplomacy, and how
precedent-like reasoning emerges within a non-precedent system.
Case 1: US – Shrimp (WT/DS58)

●​ Issue: The U.S. imposed a ban on shrimp imports from countries that did not use
turtle-excluder devices to protect endangered sea turtles.​

●​ Legal Questions: Whether this violated Article XI (quantitative restrictions) and

Article XX (general exceptions) of GATT 1994.​

●​ Ruling:​

○​ The measure violated WTO rules because it was applied in a discriminatory

manner, not because the environmental objective was invalid.​

○​ The Appellate Body emphasized the need for transparent, flexible, and
non-discriminatory application of environmental measures.​

●​ Impact: Introduced the concept of “chapeau test” in Article XX, balancing sovereign
policy space with trade obligations. It strengthened environmental concerns within
WTO law.​

Case 2: EC – Hormones (WT/DS26/48)

●​ Issue: The EU banned imports of hormone-treated beef, citing public health

concerns. The U.S. and Canada challenged this as unscientific under the SPS
Agreement.​

●​ Legal Questions: Could WTO Members adopt measures based on precaution

without sufficient scientific evidence?​

●​ Ruling:​

○​ The EU violated the SPS Agreement by not providing a risk assessment

based on international standards or sufficient scientific data.​

●​ Impact: The case emphasized that WTO Members must justify health and safety
regulations scientifically, not politically. It also revealed the clash between public
health policy and trade liberalization.​
Case 3: Brazil – Tyres (WT/DS332)

●​ Issue: Brazil restricted imports of retreaded tyres to protect the environment and
public health.​

●​ Legal Questions: Whether such restrictions violated GATT Article XI and whether
they could be justified under Article XX(b).​

●​ Ruling:​

○​ The measure was conditionally allowed under Article XX(b), provided it was
applied consistently and proportionately.​

●​ Impact: The case showed how developing countries could use environmental and
health exceptions in WTO law, provided they passed the necessity and
non-discrimination tests.​

Case 4: US – Steel Safeguards (WT/DS248–259)

●​ Issue: The U.S. imposed safeguard measures on various steel products, citing injury
to domestic industry.​

●​ Legal Questions: Whether the measures complied with the Safeguards Agreement.​

●​ Ruling:​

○​ The Appellate Body held that the U.S. measures violated WTO rules, as there
was insufficient evidence of serious injury and inadequate justification.​

●​ Impact: Reinforced that protectionist safeguards must meet strict legal criteria,
and cannot be used as veiled protectionism.​

Case 5: China – Rare Earths (WT/DS431/432/433)

 ●​ Issue: China restricted exports of rare earth metals, citing environmental and
conservation policies.​

●​ Legal Questions: Whether these restrictions violated China's Accession Protocol

and GATT provisions.​

●​ Ruling:​

○​ The restrictions violated WTO law; China could not invoke GATT exceptions
inconsistently while maintaining dual pricing and discrimination.​

●​ Impact: The case highlighted the importance of WTO-plus obligations from

accession protocols and China’s systemic integration into WTO law.​

These cases together have:

●​ Shaped WTO jurisprudence.​

●​ Balanced the rights of sovereign nations with their multilateral obligations.​

●​ Clarified the scope of exceptions, scientific evidence, and non-discrimination.​

●​ Influenced ongoing debates on Appellate Body reform, sovereignty vs

globalization, and the future of multilateral trade governance.

3.4 The Most-Favoured-Nation (MFN) Principle

I. Introduction

The Most-Favoured-Nation (MFN) principle is one of the cornerstones of the multilateral

trading system under the WTO. Enshrined in Article I of the GATT 1994, it mandates that
any advantage, favour, privilege, or immunity granted by a WTO member to a product of
another country must be extended immediately and unconditionally to like products of
all other WTO members.

This principle ensures non-discrimination among trading partners and aims to promote
multilateralism by discouraging exclusive trade preferences.
II. Legal Framework

Article I:1 of GATT 1994 provides:

“With respect to customs duties and charges of any kind... 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.”

The MFN clause:

●​ Applies to both imports and exports.​

●​ Covers not only tariffs, but also quotas, licensing, and other trade-related
regulations.​

●​ Is automatic and unconditional, unless otherwise allowed through exceptions.​

III. Purpose and Rationale

●​ Promotes Equality: Prevents economic coercion or discrimination.​

●​ Reduces Trade Distortions: Encourages trade on equal terms.​

●​ Supports Predictability and Stability: Businesses and governments operate with

clearer expectations.​

IV. Exceptions to MFN

While MFN is a general rule, several exceptions exist:

1.​ Regional Trade Agreements (RTAs) under GATT Article XXIV.​

2.​ Generalized System of Preferences (GSP) under the Enabling Clause—allows

developed countries to grant preferential access to developing countries.​
 3.​ Waivers granted by the WTO under Article IX:3.​

4.​ Security Exceptions under GATT Article XXI.​

5.​ Balance-of-payments exceptions and temporary safeguard measures under

specific WTO provisions.​

V. Key Case Studies

A. EC – Bananas III (DS27)

●​ Issue: EU’s preferential treatment to ACP countries violated MFN obligation.​

●​ Holding: WTO Appellate Body ruled the EU’s regime discriminated against Latin
American banana producers, breaching Article I:1.​

●​ Significance: Reinforced that preferential regimes outside permitted exceptions are

unlawful under WTO law.​

B. Canada – Autos (DS139, DS142)

●​ Issue: Import duty exemption only applied to vehicles of certain

countries/manufacturers.​

●​ Ruling: Canada’s measure violated MFN principle by offering benefits selectively.​

C. US – MFN Footwear Case (Pre-WTO)

●​ Background: U.S. imposed tariffs on Japanese footwear but not on other countries'.​

●​ Conclusion: Violated MFN under GATT 1947, reaffirming non-discrimination even

when pressures are bilateral.​

VI. Challenges in Application

 ●​ Hidden discrimination: Rules may appear neutral but affect countries differently in
practice.​

●​ GSP abuse or strategic selectivity.​

●​ Complexity in RTAs and how they interact with MFN obligations.​

●​ Digital trade and services: Difficulty applying MFN uniformly when value chains
and platforms dominate.​

VII. Conclusion for Pre-Debate Discussion

The MFN principle, though foundational, must constantly evolve with the changing trade
landscape. As developing countries seek preferential treatment and mega-regional trade
agreements proliferate, the WTO must balance non-discrimination with developmental
justice. A key discussion point remains: Should economic equity or legal equality take
precedence in trade law today?

3.5 The National Treatment Principle

I. Introduction

The National Treatment Principle is a foundational non-discrimination rule in WTO law,

codified in Article III of the GATT 1994. It mandates that WTO Members must not treat
imported goods less favourably than like domestic goods after the goods have entered
their market. The principle is essential for ensuring competitive equality and preventing
protectionist internal regulation.

Unlike the MFN principle, which prohibits discrimination between trading partners,
National Treatment (NT) prohibits discrimination between imported and domestic goods.

II. Legal Text – Article III:4, GATT 1994

“The products of the territory of any contracting party imported into the territory
of any other contracting party shall be accorded treatment no less favourable than
 that accorded to like products of national origin in respect of all laws, regulations
and requirements affecting their internal sale, offering for sale, purchase,
transportation, distribution or use.”

This forms the backbone of the NT obligation concerning internal regulatory measures. A
similar NT obligation exists in:

●​ Article XVII of the GATS (services)​

●​ Article 3 of TRIPS (intellectual property rights)​

III. Structure of a National Treatment Violation Test

To establish a violation under Article III:4, WTO jurisprudence has developed a three-part
legal test:

1.​ Likeness of Products​

○​ Are the imported and domestic products “like” each other?​

○​ Factors considered: physical properties, end-uses, consumer preferences,

tariff classifications.​

2.​ Treatment Less Favourable​

○​ Does the measure provide less favourable treatment to the imported

product compared to the domestic one?​

○​ This includes both de jure (formal) and de facto (actual) discrimination.​

3.​ Effect on Conditions of Competition​

○​ The measure must adversely alter the competitive conditions for imported
products.​

If all three are satisfied, the measure is WTO-inconsistent unless justified under GATT
exceptions (e.g., Article XX).
IV. Key Case Law

A. Japan – Alcoholic Beverages II (WT/DS8,10,11)

●​ Issue: Japan imposed lower taxes on domestic shōchū compared to imported spirits
like vodka and whisky.​

●​ Ruling: The products were “like” or “directly competitive,” and the measure altered
competitive conditions, violating NT.​

●​ Impact: One of the most cited NT rulings. Introduced the “likeness” and
“competitive relationship” tests.​

B. Korea – Beef (WT/DS161,169)

●​ Issue: Korea maintained a dual retail system that favoured domestic beef.​

●​ Ruling: De facto discrimination against imported beef; NT violation found.​

●​ Significance: Emphasized that NT applies to regulatory structure, not just formal

language.​

C. EC – Asbestos (WT/DS135)

●​ Issue: France banned asbestos but not its domestic substitutes.​

●​ Ruling: Products were not “like” due to health risks. NT not violated.​

●​ Significance: Added public health as a factor in the likeness analysis.​

V. Broader Interpretation: Beyond Formal Equality

WTO panels and the Appellate Body have emphasized substance over form. A law that is
neutral in language may still violate National Treatment if it systematically disadvantages
imports.

This has extended the NT obligation to:

●​ Technical Barriers to Trade (TBT) under the TBT Agreement​

 ●​ Internal taxes, labeling, packaging, and licensing systems​

●​ Digital and environmental regulation with potential trade impacts​

VI. Critiques and Debates

●​ Overreach vs Underreach: Critics argue NT jurisprudence sometimes interferes

with legitimate domestic regulation (e.g., public health or environmental rules).​

●​ Regulatory Chill: Fear of WTO rulings may deter countries from enacting bold
domestic laws.​

●​ Developing Country Concerns: Domestic industry protection mechanisms often

run afoul of NT.​

VII. Conclusion: For Pre-Discussion Reflection

The National Treatment Principle reflects a delicate balance: preventing covert

protectionism while preserving regulatory autonomy. It raises critical questions:

Should WTO Members be given more flexibility when pursuing legitimate

social policies that may inadvertently disadvantage imports? Or must
competitive neutrality always prevail?

This principle will continue to be tested in future disputes as governments regulate more
assertively in fields like health, climate, and technology.

3.6 Dispute Settlement Understanding (DSU): Mechanisms and Reform

Debates

The Dispute Settlement Understanding (DSU) is the legal framework within the WTO that
governs how trade disputes between member countries are resolved. Often regarded as the
“crown jewel” of the WTO, the DSU provides structured procedures and a rule-based
approach to ensure consistency, fairness, and enforceability in resolving conflicts arising
from alleged breaches of WTO agreements.
Mechanism of DSU

1.​ Consultations: The first step involves mandatory consultations between the
disputing parties. This is a diplomatic process aimed at resolving the issue without
formal adjudication.​

2.​ Panel Formation: If consultations fail, a panel of independent trade law experts is
established. The panel examines the evidence, hears both sides, and produces a
report with findings and recommendations.​

3.​ Appellate Review: Either party may appeal the panel's decision to the Appellate
Body. The appeal process is limited to issues of law and legal interpretation.​

4.​ Adoption and Compliance: Once the Appellate Body (if involved) issues its ruling, it
is adopted by the Dispute Settlement Body (DSB) unless all WTO members oppose it.
The losing party must comply or negotiate compensation. If not, retaliatory
measures (e.g., tariffs) can be authorized.​

Strengths of the DSU

●​ Ensures legal predictability and stability in global trade.​

●​ Prevents unilateral retaliation by providing a multilateral forum.​

●​ Enhances trust among members by promoting rules over power.​

Challenges and Crisis

1.​ Appellate Body Paralysis: Since 2019, the United States has blocked appointments
to the Appellate Body, rendering it non-functional. As of now, the WTO lacks a final
adjudication mechanism, undermining enforcement.​

2.​ Lengthy Procedures: Dispute resolutions can take years, which delays justice and
leaves trade uncertainty unresolved.​

3.​ Compliance Gaps: Some powerful states ignore rulings, eroding credibility.​
Reform Debates

●​ Restoring the Appellate Body: There's consensus on its revival, but debates
continue over transparency, term limits, and scope of judicial review.​

●​ Timeframe Reforms: Suggestions include stricter deadlines to improve efficiency.​

●​ Remedies Reform: There’s growing demand to go beyond retaliation and explore

restorative remedies that address structural trade imbalances.​

Conclusion (Pre-Debate Prompt)

The DSU was created to enforce discipline in the world trade order and protect weaker
economies from being bullied. Yet, as the paralysis of its Appellate Body shows, even the
strongest legal instruments can falter under geopolitical strain. The debate now lies in
whether the WTO can reinvent its legal machinery for a multipolar world or if it risks
becoming obsolete.​
→ Should the WTO shift toward more political mediation and less legalism, or is judicial
neutrality the only safeguard in an era of trade wars?

3.7 The Role of Developing Countries in WTO Legal Battles

Despite comprising the majority of WTO members, developing countries often find
themselves at a structural disadvantage within the legal architecture of the WTO. This
section explores how these countries engage in WTO litigation, their challenges, landmark
victories, and ongoing reform demands to make the system more equitable.

Historical Imbalance in Participation

●​ Underrepresentation: Between 1995 and 2015, over 60% of all WTO disputes were
initiated by a few major players—mainly the US, EU, Canada, and Japan. Least
Developed Countries (LDCs) initiated fewer than 1% of cases.​

●​ Legal Resource Gap: Developing countries often lack trained trade litigators, data
analysis teams, and the financial resources to sustain long disputes.​
Key Structural Challenges

1.​ High Cost of Litigation: Mounting a single WTO dispute can cost over $1 million
USD, often out of reach for smaller economies.​

2.​ Fear of Retaliation: Smaller countries fear backlash from economically dominant
defendants, discouraging formal complaints.​

3.​ Technical Complexity: WTO law involves deep technical knowledge in economics,
agriculture, intellectual property, etc., which many developing country officials are
not trained in.​

Landmark Victories by Developing Countries

●​ Brazil – Cotton Case (DS267)​

Brazil successfully challenged US subsidies to cotton farmers, proving they
distorted global cotton prices and hurt Brazilian exports. The US was forced to pay
over $750 million in compensation and reform its programs.​

●​ India – Solar Panel Dispute (DS456)​

The US challenged India's domestic content requirement for solar power projects.
Though India lost the case, the dispute mobilized domestic legal reform and boosted
India’s use of WTO law in counterclaims.​

●​ Ecuador – Bananas Dispute​

Ecuador joined a coalition against the EU's banana import regime, ultimately
securing fairer market access despite being a small Latin American country.​

Legal Capacity-Building Measures

1.​ Advisory Centre on WTO Law (ACWL)​

Provides low-cost legal aid to developing countries. Its impact has been significant
in enabling smaller nations to participate in litigation.​
 2.​ South-South Legal Coalitions​
Informal legal alliances have formed among developing countries to share expertise
and build negotiation strategies.​

3.​ Technical Assistance by WTO Secretariat​

WTO conducts training, internships, and knowledge-sharing forums, though
effectiveness varies.​

Reform Demands by the Global South

●​ Legal Aid Fund Expansion: Creation of a WTO-wide pooled litigation fund for
LDCs.​

●​ Capacity Building: Increased South-based WTO law training programs (outside

Geneva).​

●​ Bias Review Mechanism: Proposals exist to allow review of bias in panel and
Appellate Body decisions.​

Conclusion (Pre-Debate Prompt)

For WTO law to be truly global, it must empower the voices of those historically left out.
Legal equality without economic and technical parity can entrench existing hierarchies.​
→ Should the WTO mandate automatic legal aid and representation for LDCs in disputes? Or
should law follow capacity, letting geopolitics dictate trade justice?

3.8 Environmental Law and Trade: Conflict or Cohesion?

The intersection of international environmental law and WTO law has become one of the
most debated legal battlegrounds of the 21st century. As global concerns about climate
change, pollution, and biodiversity rise, countries have adopted environmental trade
measures—some of which have sparked WTO disputes. This section explores the core
conflicts, key case law, and legal doctrines governing this clash.

I. Legal Tension: Trade Liberalization vs Environmental Protection

 ●​ WTO Objective: Promote free, non-discriminatory trade.​

●​ Environmental Objective: Allow states to regulate and restrict trade for

environmental conservation.​

⚖️ Conflict: Can a country ban imports or apply restrictions on environmental

grounds without violating WTO obligations?

II. Key WTO Legal Provisions

1.​ GATT Article XX (General Exceptions)​

Allows trade-restrictive measures justified under:​

○​ (b): Protection of human, animal, or plant life or health​

○​ (g): Conservation of exhaustible natural resources​

2.​ TBT Agreement (Technical Barriers to Trade)​

Disciplines product standards and regulations, ensuring they do not create
unnecessary obstacles to trade.​

3.​ SPS Agreement (Sanitary and Phytosanitary Measures)​

Applies to food safety and animal/plant health—commonly invoked in
environmental disputes.​

III. Landmark WTO Environmental Cases

1.​ US – Shrimp (DS58)​

○​ Issue: US banned shrimp imports caught without turtle-excluder devices.​

○​ Outcome: WTO Appellate Body ruled that while the objective was valid
under Article XX(g), the US violated chapeau of Article XX due to
discriminatory enforcement.​
 ○​ Impact: Cemented the need for even-handed application of environmental
rules.​

2.​ EC – Asbestos (DS135)​

○​ Issue: France banned asbestos imports. Canada challenged under TBT and
GATT.​

○​ Ruling: Ban was allowed under Article XX(b) due to health risks.​

○​ Principle: WTO accepted scientific evidence and precautionary principle in

favor of environmental and health protection.​

3.​ Brazil – Retreaded Tyres (DS332)​

○​ Brazil banned used tyre imports citing environmental disposal hazards.​

○​ Finding: WTO allowed the ban under Article XX(b), though Brazil had to
apply it consistently.​

IV. The Evolving Doctrine: Green Exceptions in WTO Law

●​ Legitimacy vs Least-Trade Restrictive​

Panels assess:​

○​ Is the environmental goal legitimate?​

○​ Is the measure necessary or overly trade-restrictive?​

●​ Scientific Evidence Test​

Used especially under SPS to assess risk justification.​

●​ Consistency Requirement (Chapeau of XX)​

States must apply environmental measures without arbitrary or unjustifiable
discrimination.​
V. Modern Controversies & Future Debates

1.​ Carbon Border Adjustment Mechanisms (CBAMs)​

○​ EU’s plan to tax carbon-heavy imports has drawn WTO scrutiny.​

○​ Legal issue: Whether such taxes are protectionist or fall under GATT XX(g).​

2.​ Eco-Labeling and Green Standards​

○​ Product labeling based on sustainability (e.g., "deforestation-free") may

violate TBT rules.​

3.​ Climate Clubs and Trade Blocks​

○​ Countries forming alliances based on climate targets may trigger WTO

challenges.​

4.​ Environmental Dispute Panels?​

○​ Ongoing proposals for specialized green adjudicators within WTO to handle

such cases.​

Conclusion (Pre-Debate Prompt)

Trade and environmental goals need not conflict—yet WTO’s legal doctrine must evolve or
risk irrelevance in the green century.​
→ Should WTO rules be rewritten to prioritize climate change mitigation? Or should
environmental policy stay in UNEP/Paris and not “pollute” trade law?

3.9 – The Appellate Body Crisis and the U.S. Dispute

The Appellate Body (AB) of the WTO, once hailed as the crown jewel of the multilateral
trading system, has been in a state of dysfunction since 2019. This crisis, triggered by the
United States' persistent refusal to approve new judges to the Body, has effectively
paralyzed the WTO’s ability to enforce its rulings. The dispute has implications not only for
dispute resolution but also for the future authority of the WTO as a rules-based system.

Origins of the Crisis:

The U.S. has long voiced dissatisfaction with the functioning of the Appellate Body, citing
concerns such as:

●​ Judicial overreach: The U.S. claims that the AB has often interpreted WTO
agreements in ways that go beyond what member states agreed to.​

●​ Delays in rulings: Many AB decisions have exceeded the 90-day time limit set by the
WTO, undermining procedural discipline.​

●​ Reappointments without consensus: The U.S. opposes the practice of automatically

extending the terms of members whose terms have expired.​

Implications:

●​ Erosion of Binding Dispute Resolution: With only one judge remaining (three are
needed to hear a case), the AB cannot function. This weakens enforcement of WTO
rules.​

●​ Proliferation of Plurilateral or Bilateral Dispute Systems: In the absence of a fully

operational AB, members like the EU have adopted interim arrangements such as
the Multi-Party Interim Appeal Arbitration Arrangement (MPIA).​

●​ Rise of Unilateralism: Countries may resort to unilateral trade measures without

fear of enforceable rulings.​

Legal Tensions:

The U.S. has argued that the WTO’s dispute system should serve its members, not behave
like an international court expanding its own power. Critics, however, contend that the U.S.
is attempting to weaken multilateralism in favor of power-based bargaining, undermining
weaker nations’ ability to hold stronger ones accountable.

Current Developments:

As of 2025, despite numerous proposals to reform the dispute settlement mechanism,

consensus remains elusive. Several members have proposed reforms including:

●​ Clarifying the AB’s interpretative authority​

 ●​ Instituting term limits and procedural transparency​

●​ Ensuring binding timelines​

But the U.S. has not lifted its block, leaving the system in limbo.

Conclusion for Pre-Debate/Discussion:

The Appellate Body crisis reveals fundamental tensions between sovereignty, legitimacy,
and institutional constraint. As global trade becomes more contested and multipolar, can a
binding multilateral system survive without enforceable rules? Or is a shift toward more
flexible, decentralized, or plurilateral mechanisms inevitable?

Suggested debate motions:

●​ "This house believes the WTO Appellate Body should be permanently replaced with
an arbitration-based model."​

●​ "The U.S. position on the Appellate Body undermines the rule of law in global trade."

3.10 – China’s Role in the WTO: Trade Giant or Systemic Challenger?

Since joining the WTO in 2001, China has transformed from a marginal trading economy
into the world’s largest exporter and second-largest economy. Its membership has brought
significant gains in global trade volumes and investment, but also mounting tensions over
the compatibility of its state-led economic model with WTO norms.

Key Themes:

1. Accession and Commitments:

Upon accession, China agreed to:

●​ Liberalize its market access in goods and services.​

●​ Phase out agricultural subsidies and industrial protection.​

 ●​ Accept WTO disciplines on transparency, subsidies, and intellectual property
(TRIPS).​

However, critics argue that China’s implementation has been selective, and it continues to
maintain opaque state control over key sectors via state-owned enterprises (SOEs) and
non-market practices.

2. Trade Practices and Complaints:

China has faced multiple WTO disputes concerning:

●​ Forced technology transfers (allegedly required for market access).​

●​ Excessive subsidies to sectors like steel, solar, and EVs.​

●​ Lack of IP enforcement, especially regarding patents and digital goods.​

●​ Non-tariff barriers, such as data localization requirements and administrative

licensing.​

Despite losing some disputes, China often complies with the letter but not the spirit of
WTO rulings, exploiting ambiguities in WTO law.

3. China’s Use of the WTO System:

Ironically, China has aggressively used the WTO dispute system:

●​ Filed numerous complaints, especially against the U.S. and EU.​

●​ Argued for strict rule-based interpretations when it serves its interests.​

●​ Sought developing country status, gaining benefits like longer timelines and more
subsidies.​

4. The “Systemic Rivalry” Narrative:

Western countries, particularly the U.S. and EU, now frame China as a “systemic rival”:

●​ They claim its economic model poses structural threats to market-based

competition.​

●​ There's concern about dual circulation (China’s inward economic pivot) and export
dumping.​

The U.S.-China trade war, Section 301 tariffs, and the decoupling trend are direct
responses to the perceived limits of WTO enforcement against China.

5. Reform Proposals and Pushback:

Several WTO members have proposed:

●​ Stricter rules on industrial subsidies.​

●​ Clearer criteria for developing country status.​

●​ Transparency mandates for SOEs.​

China rejects many of these proposals, accusing the West of protectionism and economic
containment.

Conclusion:

China’s rise has both energized and destabilized the WTO. It benefits enormously from the
system while often challenging its norms. The fundamental question is:​
Can the WTO evolve to incorporate different economic models, or must it enforce
conformity to liberal capitalism?

Debate Frames / Questions:

●​ “Should China lose its developing country privileges in the WTO?”​

 ●​ “Is China weaponizing WTO rules for strategic advantage?”​

●​ “Can the WTO survive with China as a core member without reforming its rules?”

Chapter 4.1 – WTO Dispute Settlement Mechanism: The

Legal Backbone of Global Trade
The Dispute Settlement Understanding (DSU) is the enforcement engine of the WTO. It
ensures that members comply with their trade obligations by providing a legal, rule-based
system for resolving conflicts. It's been called the “crown jewel” of the WTO—yet in recent
years, it's under severe strain.

Key Features of the Dispute Settlement System (DSS)

1.​ Legal Foundation:​

1.​ Governed by the Dispute Settlement Understanding (DSU).​

2.​ Applies to all covered agreements: GATT, GATS, TRIPS, etc.​

2.​ Stages of Dispute:​

1.​ Consultations (60 days) – Diplomacy to settle disputes quietly.​

2.​ Panel Establishment (45 days) – If talks fail, a 3-member panel is formed.​

3.​ Panel Report (6–9 months) – Legal ruling is made.​

4.​ Appellate Body Review (2–3 months) – Optional appeal on legal grounds.​

5.​ Adoption and Implementation – Ruling becomes binding unless consensus

blocks it.​

6.​ Retaliation / Compensation – If compliance fails, the complaining party may

impose sanctions.​

Strengths of the System

 ●​ Automaticity: Panels are established unless there is a consensus against them.​

●​ Binding Rulings: Decisions are enforceable through trade retaliation.​

●​ Rule-based: Law over power – even small states like Ecuador or Antigua have won
cases against powerful economies like the U.S.​

●​ Precedent Building: Though not formal stare decisis, prior rulings are highly
persuasive.​

Appellate Body Crisis (2019–Present)

●​ The Appellate Body (AB), which hears appeals, was paralyzed in 2019 when the U.S.
blocked appointments to its members.​

●​ Without the AB, panel rulings can be appealed “into the void”, freezing
enforcement.​

●​ Why did the U.S. block it?​

○​ Claims AB overstepped its mandate (judicial activism).​

○​ Delays in rulings and alleged bias.​

○​ Concerns about AB creating de facto new laws rather than interpreting

existing ones.​

Workarounds and Innovations

●​ Multi-Party Interim Appeal Arrangement (MPIA):​

○​ A substitute appellate mechanism created by the EU, China, and 50+

members.​

○​ Excludes the U.S, but provides continuity for others.​

 ●​ Bilateral settlements and arbitration-based resolution are increasing.​

Power Dynamics in DSS

●​ Asymmetric Capacity:​

○​ Wealthy states can better litigate and retaliate.​

○​ Smaller states may win rulings but lack the leverage to enforce them.​

●​ China and the U.S.:​

○​ China: Both defendant and complainant in many major cases.​

○​ U.S.: Both a major abuser and defender of the rules.​

Key Case Study for Mastery:

EC – Hormones (Beef Ban Case):

●​ EU banned hormone-treated beef.​

●​ U.S. and Canada challenged it.​

●​ WTO ruled against EU.​

●​ EU refused to comply fully → U.S. imposed retaliatory tariffs.​

Shows limits of legal victory when enforcement is politically costly.

Conclusion:
The DSS is still functional, but the Appellate Body paralysis is eroding credibility. Without
restoration or reform, the WTO risks becoming a zombie institution—alive in name but
dead in enforcement.

4.2 The WTO Appellate Body Crisis: Origins, Impacts, and

Future Implications

Introduction

The World Trade Organization (WTO) Appellate Body (AB) has long served as the
cornerstone of the multilateral dispute settlement mechanism. Established to ensure that
disputes between members are resolved based on legal principles rather than political
muscle, the AB was instrumental in fostering trust in the rules-based global trading
system. However, starting in the late 2010s, a series of events—primarily led by the United
States—led to a crisis that ultimately paralyzed the AB. This chapter dissects the origins of
the crisis, its legal and institutional implications, and the broader risks it poses to
multilateralism and the rule of law in global trade.

Historical Background of the Appellate Body

The Appellate Body was created in 1995 under Article 17 of the Understanding on Rules and
Procedures Governing the Settlement of Disputes (DSU). It comprises seven members who
serve four-year terms and adjudicate appeals on panel reports concerning WTO law. The
body was intended to provide consistency in legal interpretation and safeguard the
credibility of dispute settlement outcomes.

For over two decades, the AB handled hundreds of disputes with efficiency and legal
coherence, contributing significantly to WTO jurisprudence and trust in the system.

Origins of the Crisis

The AB crisis began when the United States—under both the Obama and Trump
administrations—refused to agree to the appointment or reappointment of AB members.
By December 2019, the body lacked the quorum of three members necessary to adjudicate
cases. The main U.S. grievances included:
 1.​ Judicial Overreach: The U.S. claimed the AB routinely interpreted WTO agreements
beyond the clear meaning of texts, creating "new obligations" for members.​

2.​ Delays in Rulings: The AB often failed to issue decisions within the prescribed
90-day window.​

3.​ Term Extensions: The AB allowed members to continue serving on cases beyond
their term expiry, which the U.S. viewed as unauthorized.​

4.​ Binding Precedent: Although WTO law does not formally recognize precedent, the
AB’s approach increasingly mimicked common-law systems, setting de facto
precedent.​

These criticisms were not universally accepted but were sufficient to justify a unilateral
blockade by the U.S.

Legal and Institutional Impact

●​ Paralysis of Dispute Settlement: Without a functioning AB, members can appeal

panel rulings “into the void,” effectively nullifying enforcement.​

●​ Rise in Unilateralism: Countries may revert to power-based retaliation rather than

legal remedies.​

●​ Erosion of Legal Certainty: The absence of appellate review weakens consistency

and predictability in WTO law.​

●​ Dispute Settlement Reform Deadlock: Attempts to reform the AB mechanism (such

as the Walker Process or EU-Canada “MPIA” substitute) remain incomplete.​

Global Reactions and Workarounds

●​ Multi-Party Interim Appeal Arrangement (MPIA): Led by the EU and joined by

around 50 countries, MPIA acts as a stopgap appellate mechanism, using retired AB
judges.​
 ●​ Reform Proposals: Suggestions include narrowing AB scope, codifying timelines,
and enhancing transparency. However, these remain non-consensual.​

●​ Diplomatic Fragmentation: The crisis mirrors broader geopolitical rifts, where

trust in multilateral institutions is weakening.​

Future Implications

1.​ Systemic Risk to the WTO: Without a reliable dispute mechanism, the WTO risks
becoming irrelevant.​

2.​ Strengthening Regionalism: Countries may increasingly resort to regional trade

agreements with their own dispute bodies (e.g., USMCA).​

3.​ Legitimacy Crisis: If legal obligations can be ignored or appealed into voids, the
rule of law erodes, replaced by economic power politics.​

4.​ Opportunity for Reform: Paradoxically, the crisis has mobilized discussions on
reforming not just the AB, but the entire WTO governance structure.​

Conclusion for Pre-Debate / Discussion

The WTO Appellate Body crisis is not merely a legal stalemate—it is a test of whether the
global community is willing to preserve a rules-based multilateral trading order or
surrender to the logic of unilateralism and economic nationalism. As WTO members
prepare to reform or reinvent the dispute system, the debate must consider not just
procedural tweaks but the philosophical balance between sovereignty, justice, and global
economic interdependence. Will the AB be restored with legitimacy, or is the age of
cooperative dispute settlement over? This is the defining question of our times in
international economic law.

4.3 WTO Panels and Appellate Body

The Dispute Settlement Understanding (DSU) of the World Trade Organization (WTO) is
often referred to as the "crown jewel" of the multilateral trading system. At the heart of
this mechanism lie two crucial institutions: the Panels and the Appellate Body. These
entities serve as the judicial arms of the WTO, ensuring that member states adhere to
agreed rules and resolve disputes in a structured and rules-based manner.

WTO Panels

Composition and Purpose​

WTO panels are ad hoc tribunals composed of three (sometimes five) independent trade
experts, typically nominated from a pre-approved list or agreed upon by the disputing
parties. The panel's role is to examine the facts of a case, interpret WTO agreements, and
determine whether a WTO member has violated its commitments.

Procedure​
When a dispute arises and consultations fail, a complaining member may request the
establishment of a panel. The panel follows a structured process:

1.​ Written submissions by the parties​

2.​ Oral hearings with rebuttals and clarifications​

3.​ Questions from the panel to parties​

4.​ Circulation of the interim report, followed by comments​

5.​ Final report issued to the Dispute Settlement Body (DSB)​

The panel’s findings are not binding until adopted by the DSB, unless appealed.

Appellate Body

Structure and Jurisdiction​

Established under Article 17 of the DSU, the Appellate Body (AB) consists of seven
members serving staggered four-year terms. They are appointed by consensus and act as
a standing body for appeals. The AB’s jurisdiction is limited to issues of law and legal
interpretation—not factual determinations—arising from panel reports.

Appeals Process​
Once a panel report is issued, either party may appeal. The AB reviews:
 ●​ Interpretation of WTO law​

●​ Legal reasoning used by the panel​

●​ The consistency of the panel’s conclusions with WTO agreements​

The Appellate Body typically delivers its final report within 90 days. Once adopted by the
DSB, its ruling becomes binding.

Crisis of the Appellate Body (Post-2019)

Since 2017, the Appellate Body has faced a crisis, primarily due to the United States
blocking appointments of new members, citing concerns over judicial overreach and
procedural delays. By December 2019, the body was paralyzed due to insufficient
members to hear appeals (minimum of 3 required). This led to a “void” in the appeals
system, with disputes being stuck at the panel stage or entering legal limbo.

Reform proposals include:

●​ Clarifying the scope of AB review​

●​ Time-limited rulings​

●​ Increased transparency and accountability​

●​ Addressing the concerns of powerful members like the U.S.​

Importance of Panels and Appellate Body

●​ Legal certainty: They uphold the predictability and consistency of international

trade law.​

●​ Peaceful resolution: They provide an alternative to unilateral retaliation or trade

wars.​
 ●​ Rule of law: Their existence strengthens the idea that international trade is
governed by rules, not might.​

Pre-Debate Conclusion

The functioning of WTO panels and the Appellate Body lies at the core of the global
trading order’s credibility. As the multilateral system faces political resistance and
institutional paralysis, especially regarding appeals, the central debate for future trade
diplomacy is whether the WTO can evolve its dispute system to balance sovereignty,
efficiency, and legalism. Will reform revive the system—or must nations seek alternatives
outside the WTO framework?

4.4 WTO Jurisprudence and the Evolution of Legal Norms in Trade Law

The World Trade Organization (WTO) has become one of the most influential international
bodies in shaping the legal architecture of global trade. While often regarded as a forum for
negotiation and dispute settlement, the WTO's judicial branch—especially the Appellate
Body—has played a central role in interpreting, refining, and even expanding upon the legal
norms underpinning international economic relations. This process has led to what many
scholars refer to as “WTO Jurisprudence”—a growing body of case law and interpretative
reasoning that gives texture, predictability, and legal coherence to the multilateral trading
system.

1. Judicial Interpretation as a Source of Law

Although WTO law is primarily codified in its agreements (e.g., GATT 1994, GATS, TRIPS),
the way these provisions are applied and interpreted by panels and the Appellate Body has
essentially transformed them into living instruments. WTO panels and the Appellate Body
have developed methods of treaty interpretation based on the Vienna Convention on the
Law of Treaties (VCLT), particularly Articles 31 and 32, which emphasize the “ordinary
meaning,” “context,” and “object and purpose” of treaty texts.

Notable cases—such as US–Shrimp, EC–Hormones, and Brazil–Tyres—demonstrated how

the WTO adjudicatory bodies have infused normative values like sustainable development,
public health, and consumer safety into their legal reasoning. As such, WTO jurisprudence
has emerged not just as a reflection of trade rules, but as an evolving repository of
economic and legal philosophy.

2. Precedent and the Role of Case Law

Formally, WTO jurisprudence is not based on a doctrine of precedent (stare decisis).

However, in practice, previous decisions—particularly from the Appellate Body—carry
significant persuasive authority. Panels frequently cite earlier rulings to maintain legal
consistency and predictability. The Appellate Body itself has emphasized the importance of
respecting previous decisions “absent cogent reasons.”

This implicit respect for precedent contributes to the evolution of legal norms. For
example, repeated interpretations of “like products” under GATT Article III have shaped an
increasingly nuanced understanding of non-discrimination in domestic regulation.
Similarly, the jurisprudence around “necessity” tests and the “chapeau” of GATT Article XX
has added layers of sophistication to the legal balancing of trade and non-trade values.

3. The Legalization of Trade Politics

WTO jurisprudence has also advanced the legalism of international trade politics. Through
binding dispute resolution, member states are constrained by rules and legal
interpretations rather than unilateral economic power or political maneuvering. This
transformation from power-based to rules-based governance enhances the legitimacy of
the trading system.

However, it also raises concerns about the scope of judicial activism. Critics argue that the
Appellate Body sometimes engages in legal overreach—interpreting texts beyond their clear
terms or effectively rewriting the agreements. The backlash from the United States, which
ultimately blocked appointments to the Appellate Body, stems in part from such criticisms
of judicial overreach.

4. Legal Norms Beyond Trade

WTO jurisprudence has influenced legal reasoning in areas beyond trade. For instance,
interpretations of national treatment, most-favored-nation obligations, and exceptions for
environmental and public health concerns have been referenced in investment arbitration,
regional trade agreements (RTAs), and even domestic court decisions. WTO rulings have
also interacted with other branches of international law, including human rights law,
environmental law, and intellectual property law.

This cross-pollination has contributed to the constitutionalization of global economic

governance, wherein WTO rules and jurisprudence increasingly form part of a broader
legal framework governing global interactions.

5. The Future of WTO Jurisprudence

The crisis of the Appellate Body—sparked by political gridlock and accusations of judicial
activism—threatens the continuity and expansion of WTO jurisprudence. As of 2025, the
Appellate Body remains dysfunctional, and interim solutions like the Multi-Party Interim
Appeal Arbitration Arrangement (MPIA) have emerged to fill the gap. However, these
measures are limited in scope and legitimacy.

The evolution of WTO jurisprudence now depends on member consensus over the proper
role of legal interpretation in global trade governance. Whether the WTO will return to a
functioning appellate mechanism or transform into a more political institution remains an
open question.

Conclusion for Pre-Debate/Discussion

WTO jurisprudence stands at the crossroads of international law, trade politics, and
institutional legitimacy. On the one hand, its evolution has brought coherence, fairness,
and predictability to global trade. On the other hand, it has raised legitimate questions
about the balance between legal interpretation and state sovereignty. As we approach the
future of trade governance, we must ask: Should WTO adjudicators be empowered to refine
the law, or should their role be limited to strict textual interpretation? And how can we
preserve the rule of law in trade without provoking institutional paralysis?

4.5 Dispute Settlement Understanding (DSU): Mechanism and Evolution

The Dispute Settlement Understanding (DSU) is often referred to as the "crown jewel" of the
World Trade Organization (WTO) framework. It provides a structured, legalistic, and
binding process for resolving trade disputes between member states. The DSU ensures that
trade conflicts are managed through dialogue, adjudication, and compliance rather than
unilateral retaliation or trade wars, upholding the rule-based multilateral trading system.
I. Origin and Legal Foundation

The DSU was established as Annex 2 of the Marrakesh Agreement, which created the WTO
in 1995. It replaced the weaker, less enforceable dispute settlement mechanisms of the
General Agreement on Tariffs and Trade (GATT) 1947. Unlike GATT’s consensus-based
approach, which allowed any party (including the losing one) to block decisions, the DSU
introduced a negative consensus rule, making it nearly automatic for dispute panels and
Appellate Body reports to be adopted unless all WTO members agree otherwise.

II. Structure of the DSU Mechanism

The DSU process follows a set sequence designed to encourage diplomatic resolution
before legal adjudication:

1.​ Consultations (Article 4): The first step, where parties must attempt to resolve the
dispute bilaterally. If unsuccessful within 60 days, a panel can be requested.​

2.​ Establishment of a Panel (Articles 6–8): A panel of independent experts is

appointed to examine the case and issue findings.​

3.​ Panel Report (Article 12): After examination, the panel circulates its report. If not
appealed within 60 days, it becomes binding.​

4.​ Appeal (Article 17): Either party may appeal to the Appellate Body on issues of law.
The decision of the Appellate Body is final.​

5.​ Adoption of Reports (Article 16): Panel and Appellate Body reports are adopted
unless there is a consensus against it.​

6.​ Implementation and Compliance (Articles 21–22): The losing party is expected to
implement the ruling. If it fails to do so within a “reasonable period of time,” the
complainant may seek retaliatory measures (e.g., suspending concessions).​

III. Key Principles

●​ Rule of Law: The DSU is grounded in legal discipline, offering members

predictability and fairness.​
 ●​ Time-bound Procedure: The entire process, from consultation to implementation,
is bound by timeframes, aiming to resolve disputes swiftly.​

●​ Binding Outcomes: Decisions are enforceable, and compliance is monitored.​

●​ Retaliation as a Last Resort: If compliance fails, the system permits retaliation (e.g.,
tariffs), but only after DSU authorization.​

IV. Successes and Impact

The DSU has significantly reduced trade tensions among major economies. Over 600
disputes have been brought before the WTO since 1995. Major cases include:

●​ EC – Bananas (DS27): A landmark case involving preferences to former colonies.​

●​ US – Steel Safeguards (DS248): Where the WTO ruled against U.S. protectionist
steel tariffs.​

●​ China – Rare Earths (DS431): Challenging China’s export restrictions on raw

materials.​

The credibility of the WTO has heavily relied on this neutral, legalistic method of dispute
resolution.

V. Current Crisis and Appellate Body Paralysis

Since December 2019, the Appellate Body has been non-functional due to the U.S. blocking
appointments, citing concerns over judicial overreach and delays. This has created a crisis
of enforceability, as appeals can now result in “appeal into the void,” stalling the dispute’s
resolution.

In response, some members (e.g., EU, Canada) formed the Multi-Party Interim Appeal
Arbitration Arrangement (MPIA) to preserve two-tiered dispute settlement in a voluntary
framework.
VI. Challenges and Reform Needs

1.​ Restoring the Appellate Body: Without it, the legitimacy of WTO enforcement is
undermined.​

2.​ Time Delays: Originally designed to resolve disputes in under a year, actual
durations are often much longer.​

3.​ Participation of Developing Countries: While the system is accessible,

capacity-building and legal aid are still needed for least-developed countries.​

4.​ Balancing Sovereignty and Multilateralism: Some members feel the DSU
constrains domestic policy freedom.​

Conclusion: A Pre-Discussion Note

The DSU represents one of the most robust international legal systems ever constructed.
Yet, its current impasse threatens the rules-based order it was built to uphold. As trade
tensions rise and power rivalries intensify, the future of multilateralism may hinge on
whether WTO members can agree on meaningful reform.

Pre-Discussion Provocation:​
Is the DSU a relic of an idealistic globalism, or is it a critical institution worth saving and
modernizing? Should retaliation remain a legitimate enforcement mechanism, or do we need a
new paradigm for compliance in global trade governance?

4.5 Dispute Settlement Understanding (DSU): Mechanism and Evolution

The Dispute Settlement Understanding (DSU) is often referred to as the "crown jewel" of the
World Trade Organization (WTO) framework. It provides a structured, legalistic, and
binding process for resolving trade disputes between member states. The DSU ensures that
trade conflicts are managed through dialogue, adjudication, and compliance rather than
unilateral retaliation or trade wars, upholding the rule-based multilateral trading system.

I. Origin and Legal Foundation

The DSU was established as Annex 2 of the Marrakesh Agreement, which created the WTO
in 1995. It replaced the weaker, less enforceable dispute settlement mechanisms of the
General Agreement on Tariffs and Trade (GATT) 1947. Unlike GATT’s consensus-based
approach, which allowed any party (including the losing one) to block decisions, the DSU
introduced a negative consensus rule, making it nearly automatic for dispute panels and
Appellate Body reports to be adopted unless all WTO members agree otherwise.

II. Structure of the DSU Mechanism

The DSU process follows a set sequence designed to encourage diplomatic resolution
before legal adjudication:

1.​ Consultations (Article 4): The first step, where parties must attempt to resolve the
dispute bilaterally. If unsuccessful within 60 days, a panel can be requested.​

2.​ Establishment of a Panel (Articles 6–8): A panel of independent experts is

appointed to examine the case and issue findings.​

3.​ Panel Report (Article 12): After examination, the panel circulates its report. If not
appealed within 60 days, it becomes binding.​

4.​ Appeal (Article 17): Either party may appeal to the Appellate Body on issues of law.
The decision of the Appellate Body is final.​

5.​ Adoption of Reports (Article 16): Panel and Appellate Body reports are adopted
unless there is a consensus against it.​

6.​ Implementation and Compliance (Articles 21–22): The losing party is expected to
implement the ruling. If it fails to do so within a “reasonable period of time,” the
complainant may seek retaliatory measures (e.g., suspending concessions).​

III. Key Principles

●​ Rule of Law: The DSU is grounded in legal discipline, offering members

predictability and fairness.​

●​ Time-bound Procedure: The entire process, from consultation to implementation,

is bound by timeframes, aiming to resolve disputes swiftly.​
 ●​ Binding Outcomes: Decisions are enforceable, and compliance is monitored.​

●​ Retaliation as a Last Resort: If compliance fails, the system permits retaliation (e.g.,
tariffs), but only after DSU authorization.​

IV. Successes and Impact

The DSU has significantly reduced trade tensions among major economies. Over 600
disputes have been brought before the WTO since 1995. Major cases include:

●​ EC – Bananas (DS27): A landmark case involving preferences to former colonies.​

●​ US – Steel Safeguards (DS248): Where the WTO ruled against U.S. protectionist
steel tariffs.​

●​ China – Rare Earths (DS431): Challenging China’s export restrictions on raw

materials.​

The credibility of the WTO has heavily relied on this neutral, legalistic method of dispute
resolution.

V. Current Crisis and Appellate Body Paralysis

Since December 2019, the Appellate Body has been non-functional due to the U.S. blocking
appointments, citing concerns over judicial overreach and delays. This has created a crisis
of enforceability, as appeals can now result in “appeal into the void,” stalling the dispute’s
resolution.

In response, some members (e.g., EU, Canada) formed the Multi-Party Interim Appeal
Arbitration Arrangement (MPIA) to preserve two-tiered dispute settlement in a voluntary
framework.

VI. Challenges and Reform Needs

 1.​ Restoring the Appellate Body: Without it, the legitimacy of WTO enforcement is
undermined.​

2.​ Time Delays: Originally designed to resolve disputes in under a year, actual
durations are often much longer.​

3.​ Participation of Developing Countries: While the system is accessible,

capacity-building and legal aid are still needed for least-developed countries.​

4.​ Balancing Sovereignty and Multilateralism: Some members feel the DSU
constrains domestic policy freedom.​

Conclusion: A Pre-Discussion Note

The DSU represents one of the most robust international legal systems ever constructed.
Yet, its current impasse threatens the rules-based order it was built to uphold. As trade
tensions rise and power rivalries intensify, the future of multilateralism may hinge on
whether WTO members can agree on meaningful reform.

Pre-Discussion Provocation:​
Is the DSU a relic of an idealistic globalism, or is it a critical institution worth saving and
modernizing? Should retaliation remain a legitimate enforcement mechanism, or do we need a
new paradigm for compliance in global trade governance?

You said:

4.6

ChatGPT said:

4.6: WTO and the Environment — Balancing Trade and Sustainability

Introduction

The intersection of international trade and environmental protection has become one of
the most dynamic and debated aspects of WTO governance. As global trade expanded, so
too did environmental degradation, prompting questions about the WTO's role in balancing
economic development with sustainability imperatives. The WTO, while primarily a trade
body, cannot remain indifferent to the environmental consequences of liberalization.
Trade-Environment Tensions

The WTO was not initially designed to be an environmental institution. Yet, many of its
rules—especially those related to non-discrimination, tariffs, and technical barriers—can
indirectly impact environmental regulation. One of the central tensions lies in ensuring
that environmental measures do not become disguised protectionism.

For example:

●​ Shrimp-Turtle Case (US – Import Prohibition of Certain Shrimp and Shrimp

Products): The U.S. banned shrimp imports caught without turtle excluder devices.
The WTO ruled this environmental protection was acceptable in principle, but the
U.S. had applied it in a discriminatory manner—highlighting the fine line between
genuine environmental concern and unjust trade discrimination.​

WTO’s Environmental Provisions

While the WTO lacks a specific environmental mandate, it embeds sustainability through
several avenues:

●​ Preamble of the Marrakesh Agreement mentions sustainable development and the

protection and preservation of the environment.​

●​ Article XX of GATT allows for exceptions to trade rules for environmental

protection under certain conditions.​

●​ Technical Barriers to Trade (TBT) Agreement and Sanitary and Phytosanitary

Measures (SPS) recognize environmental and health protection as legitimate
objectives.​

Additionally, many WTO Members are also signatories to Multilateral Environmental

Agreements (MEAs) like the Paris Agreement, Montreal Protocol, and the Convention on
Biological Diversity. However, conflicts occasionally arise when trade obligations and MEAs
seem to contradict.

The Committee on Trade and Environment (CTE)

Established in 1995, the CTE serves as the principal forum for dialogue between trade and
environmental policies. Its role is not to create new rules, but to ensure greater coherence
and transparency. It has explored:

●​ How WTO rules relate to MEAs​

●​ The impact of environmental measures on market access​

●​ Eco-labelling, climate change, and circular economy practices​

Evolving Areas of Debate

As the world transitions toward green economies, new issues emerge:

●​ Carbon Border Adjustment Mechanisms (CBAMs): Countries like the EU are

considering tariffs on carbon-intensive imports to prevent "carbon leakage." While
justified on environmental grounds, developing nations view them as a new form of
trade barrier.​

●​ Fossil Fuel Subsidy Reform: Subsidies distort trade and harm the environment.
WTO reform discussions now include the phasing out of such subsidies.​

●​ Green Industrial Policy: Government support for renewable energy and clean tech
(e.g., solar panel subsidies) can violate WTO subsidy rules unless carefully designed.​

●​ Plastic Waste Trade: The international trade in plastic waste has drawn criticism
for exporting environmental harm to poorer countries.​

Developing Countries’ Concerns

Developing nations often fear that stringent environmental standards can:

●​ Serve as hidden protectionism​

●​ Raise compliance costs​

 ●​ Reduce competitiveness​

●​ Restrict access to green technology due to Intellectual Property Rights (TRIPS)

constraints​

Hence, the WTO must ensure that sustainable trade does not deepen global inequality.

Climate Change and the WTO

There is increasing pressure for the WTO to take a more active role in climate action. This
includes:

●​ Supporting green goods and services liberalization​

●​ Promoting sustainable supply chains​

●​ Enabling climate-smart agriculture and energy transitions​

Some propose a “WTO Climate Waiver”, allowing countries to pursue aggressive climate
measures without violating trade rules—akin to waivers granted during emergencies.

Conclusion

WTO’s engagement with environmental issues is no longer optional—it is essential. As

global crises like climate change and biodiversity loss intensify, trade must evolve to
support, not undermine, sustainability. The WTO must walk the tightrope between
preventing protectionism and promoting environmental responsibility.

Pre-Discussion Prompt:​
Should the WTO become a formal actor in enforcing climate standards? Or would that
transform it into a body beyond its legitimate trade mandate?

4.7 WTO and the Global South: Persistent Asymmetries in the Global Trade Regime

The World Trade Organization (WTO), while designed to foster a rules-based global trading
system, has long faced criticism from the Global South for perpetuating asymmetries
rooted in historical inequities and structural imbalances. These disparities have created
conditions wherein developing countries, despite being formal members of the WTO,
continue to face systemic disadvantages in both negotiations and implementation of trade
agreements.

1. Structural Imbalances in Negotiating Power

Developing countries often lack the legal, institutional, and financial capacities required to
effectively negotiate complex trade deals. In contrast, developed countries bring large
teams of experienced trade lawyers and negotiators to WTO rounds, thereby shaping rules
that often reflect their economic interests. This imbalance became apparent during the
Uruguay Round, where key intellectual property provisions and liberalization agendas
disproportionately favored advanced economies.

2. Agricultural Protectionism and the Double Standard

A major point of contention lies in the area of agriculture. Developed countries, particularly
in the European Union and the United States, continue to subsidize their agricultural
sectors heavily. These subsidies distort global markets, making it difficult for small farmers
in the Global South to compete. Meanwhile, these same countries advocate for the removal
of trade barriers in developing economies, showcasing a persistent double standard.

3. Implementation Challenges and Compliance Burdens

WTO compliance often requires developing countries to overhaul legal and administrative
frameworks, which can be a monumental task with limited resources. The Agreement on
Trade-Related Aspects of Intellectual Property Rights (TRIPS) and Trade Facilitation
Agreement (TFA), for example, place significant regulatory burdens on least-developed
countries (LDCs), without adequate provisions for technical assistance or transition
periods.

4. Special and Differential Treatment (SDT): Promise vs. Practice

The WTO includes provisions for Special and Differential Treatment, aimed at giving
developing countries flexibility in implementing obligations. However, in practice, these
measures have been weak, non-binding, or inconsistently applied. Many developing
nations argue that SDT should be legally enforceable and tailored to reflect the specific
development needs of countries at different stages of growth.

5. The Doha Development Agenda: A Stalled Opportunity

Launched in 2001, the Doha Round was billed as a "Development Round" meant to address
concerns of the Global South. However, it has been effectively stalled since 2008, primarily
due to disagreements between developed and developing countries on issues such as
agricultural subsidies and industrial tariffs. The collapse of Doha represents a missed
opportunity to rebalance the global trade system in favor of equity and inclusion.

6. Dispute Settlement: Accessibility and Equity

While the WTO’s Dispute Settlement Mechanism (DSM) is one of the most advanced in
international law, access to it remains limited for developing countries. The high cost of
litigation, lengthy proceedings, and reliance on expert legal counsel disproportionately
benefit wealthier nations. Additionally, retaliatory measures—should a case be won—are
often impractical for poorer countries to enforce against more powerful economies.

7. Reform and the Path Forward

Calls for WTO reform have grown louder, especially from the Global South. Key proposals
include:

●​ Making SDT more operational and legally binding.​

●​ Increasing representation of LDCs in WTO decision-making bodies.​

●​ Capping and phasing out trade-distorting agricultural subsidies in developed

countries.​

●​ Ensuring access to dispute resolution support mechanisms for developing nations.​

●​ Strengthening capacity-building and aid-for-trade initiatives.​

Conclusion: A Postcolonial Trade Order?

The WTO, while symbolizing multilateralism, is still haunted by the ghosts of colonialism
and neoliberal economic hegemony. For the organization to remain legitimate and relevant,
it must confront the deep-rooted asymmetries that disadvantage the Global South. A
reimagined WTO—one that acknowledges historical injustices and delivers tangible
equity—could pave the way for a truly inclusive global trade order.

Pre-Debate Closing Thought:​

As we transition into dialogue, we must ask—can the WTO evolve into a platform of true
global equity, or will it continue to reflect the interests of the powerful under the guise of
universality?

4.8 Exceptions to GATT

While the General Agreement on Tariffs and Trade (GATT) stands for non-discrimination
and the progressive reduction of trade barriers, it also recognizes that strict adherence to
its rules may not always be feasible or desirable. As such, GATT provides for
exceptions—circumstances under which WTO members may deviate from core obligations
without violating their commitments.

1. General Exceptions (Article XX)

Article XX of GATT provides a list of general exceptions that allow members to adopt
measures contrary to GATT rules under specific justifications, including:

●​ Public Morals: Measures necessary to protect public morals.​

●​ Human, Animal, or Plant Life or Health: Measures necessary to protect life or

health.​

●​ Exhaustible Natural Resources: Measures relating to the conservation of

non-renewable natural resources.​

●​ Compliance with Laws: Measures necessary to secure compliance with laws or

regulations not inconsistent with GATT (e.g., anti-fraud or customs enforcement).​

●​ Protection of National Treasures: Measures related to the protection of national

artistic, historical, or archaeological treasures.​

These exceptions are subject to the chapeau of Article XX, which requires that such
measures are not applied arbitrarily or as disguised protectionism.

2. Security Exceptions (Article XXI)

Article XXI allows members to take actions they consider necessary for the protection of
essential security interests, including:

●​ Actions during times of war or emergency in international relations.​

●​ Measures relating to fissionable materials or traffic in arms.​

●​ Actions taken to protect critical national infrastructure or military establishments.​

This provision gained attention in recent trade disputes, such as the US–Steel and
Aluminum tariffs case, testing the boundaries of national security justifications.
3. Balance of Payments Exceptions (Articles XII and XVIII: B)

Countries facing balance-of-payments difficulties may impose trade restrictions to

safeguard their external financial stability. These exceptions:

●​ Allow developing and developed countries to apply quantitative restrictions (QRs)

temporarily.​

●​ Must be reported to the WTO's Committee on Balance-of-Payments Restrictions.​

This ensures members do not misuse economic crises as an excuse for protectionism.

4. Regional Trade Agreements (Article XXIV)

GATT permits the formation of customs unions and free trade areas (FTAs), such as:

●​ The European Union (EU)​

●​ NAFTA/USMCA​

●​ ASEAN Free Trade Area (AFTA)​

Although they violate the MFN (Most-Favoured-Nation) principle by offering better terms
to certain members, Article XXIV allows such arrangements as long as:

●​ Tariffs and other restrictions are eliminated on substantially all trade within the
group.​

●​ External trade barriers with non-members are not raised.​

5. Waivers (Article XXV)

Under special circumstances, WTO members can obtain a waiver from GATT obligations by
a three-fourths majority vote. These waivers are:

●​ Time-bound and subject to annual review.​

●​ Examples include preferential treatment for developing countries under the

Enabling Clause.​
6. Preferential Treatment for Developing Countries

While not strictly an exception, the Enabling Clause (1979) allows developed countries to
grant non-reciprocal preferential treatment to developing and least-developed countries
(LDCs), such as:

●​ Generalized System of Preferences (GSP)​

●​ Special treatment in services and technical barriers.​

This aims to level the playing field and support integration of weaker economies into the
global trade system.

Conclusion

The exception clauses in GATT represent a pragmatic balance between rules-based

multilateralism and national sovereignty. While they permit flexibility, they also demand
responsibility and transparency. In WTO litigation, these exceptions are often subject to
intense scrutiny, ensuring that their invocation is genuine and not a smokescreen for
protectionism. Thus, these provisions uphold the delicate equilibrium between
liberalization and legitimacy in the global trading system.

4.9 Exceptions to GATT Obligations

The General Agreement on Tariffs and Trade (GATT), while principally rooted in promoting
liberalized trade and non-discrimination, recognizes the necessity of exceptions to
preserve national interests, public policy concerns, and equitable trade practices. These
exceptions are pivotal in allowing Member States a degree of sovereign regulatory freedom
while operating within the multilateral trading system.

A. General Exceptions (Article XX)

Article XX provides a list of policy-based exceptions that justify measures otherwise

inconsistent with GATT obligations, so long as such measures are not applied in a manner
that constitutes arbitrary or unjustifiable discrimination or a disguised restriction on trade.
Key subparagraphs include:

●​ (a) Measures necessary to protect public morals.​

 ●​ (b) Measures necessary to protect human, animal, or plant life or health.​

●​ (d) Measures necessary to secure compliance with laws or regulations not

inconsistent with GATT provisions.​

●​ (g) Measures relating to the conservation of exhaustible natural resources, if such

measures are made effective in conjunction with restrictions on domestic
production or consumption.​

These general exceptions require a two-tier test:

1.​ Whether the measure falls under the scope of one of the listed subparagraphs.​

2.​ Whether it satisfies the chapeau of Article XX, i.e., it must not be applied in an
arbitrary or unjustifiably discriminatory manner.​

B. Security Exceptions (Article XXI)

Article XXI permits Members to take any action they consider necessary for the protection
of their essential security interests, particularly:

●​ In time of war or other emergency in international relations;​

●​ Relating to the traffic in arms, ammunition, and implements of war;​

●​ Taken in pursuance of obligations under the United Nations Charter for the
maintenance of international peace and security.​

Recent jurisprudence, such as Russia – Transit (DS512), clarified that Article XXI is not
self-judging, and its invocation is subject to panel review to assess good faith and objective
criteria.

C. Balance-of-Payments Exceptions (Article XII & XVIII:B)

These provisions allow developing and developed Members alike to impose trade
restrictions to protect their external financial position and balance-of-payments. Such
measures must be temporary, nondiscriminatory, and consistent with the principles of the
GATT. The Balance-of-Payments Committee under the WTO oversees such measures.

D. Regional Trade Agreements (Article XXIV)

GATT permits the formation of customs unions and free trade areas, provided:

●​ Duties and regulations are eliminated on substantially all trade among members of
the RTA;​

●​ Duties and regulations on trade with non-members are not higher or more
restrictive than before the agreement.​

Thus, Article XXIV acts as a controlled exception to the MFN principle, allowing
preferential treatment within RTAs under strict disciplines.

E. Waivers (Article XXV:5)

Under exceptional circumstances, the Ministerial Conference may waive a Member’s

obligation under GATT, subject to a three-fourths majority vote. Waivers are usually
time-bound and conditional, used sparingly and only when justified.

Conclusion: Legal and Strategic Implications

The exceptions under GATT illustrate the dynamic tension between trade liberalization
and sovereign regulatory autonomy. While the rules-based system aims to limit
protectionism, the exceptions provide necessary flexibility. However, these must be invoked
judiciously to avoid undermining the system’s credibility. For litigators and trade
diplomats, mastering the nuances of these exceptions is crucial in shaping both defensive
and offensive strategies at the WTO dispute settlement body.

5.1 Legal Structure of GATT 1994

The General Agreement on Tariffs and Trade (GATT) 1994 is the legal cornerstone of the
multilateral trading system under the World Trade Organization (WTO). It incorporates,
updates, and supersedes the original GATT 1947 provisions and forms one of the key
annexes to the Marrakesh Agreement establishing the WTO.

1. Relationship Between GATT 1947 and GATT 1994

●​ GATT 1994 is not a new agreement but rather a reinterpretation and enhancement
of GATT 1947.​

●​ It includes:​
 ○​ The provisions of GATT 1947, as they existed on 1 January 1995.​

○​ Legal instruments adopted under GATT 1947 (decisions, waivers, and

understandings).​

○​ New provisions added during the Uruguay Round negotiations (1986–1994).​

2. Structure of GATT 1994

GATT 1994 is found in Annex 1A of the WTO Agreement. It includes:

●​ GATT 1947 text (Articles I–XXXV): Foundational principles of non-discrimination

(e.g., MFN, National Treatment), tariff bindings, transparency, etc.​

●​ Uruguay Round Understandings: Interpretative notes clarifying and modifying how

provisions should be applied (e.g., Understanding on Article XVII on State Trading
Enterprises).​

●​ Protocols of Accession: Specific commitments made by countries when joining the

WTO.​

●​ Decisions and Waivers: Legal instruments granted to members with special

conditions.​

3. Legal Characteristics

●​ Binding Nature: GATT 1994 provisions are enforceable under the WTO Dispute
Settlement Understanding (DSU).​

●​ Hierarchy: While GATT 1994 is fundamental, it coexists with other WTO agreements
(e.g., GATS, TRIPS) which have equal legal standing under the WTO umbrella.​

●​ Interpretation: WTO panels and the Appellate Body rely on Vienna Convention on
the Law of Treaties (VCLT) principles when interpreting GATT provisions.​

4. Key Differences from GATT 1947

Feature GATT 1947 GATT 1994

 Legal Form Provisional Binding under WTO

Dispute Settlement Diplomatic, ad Rules-based, binding

hoc decisions

Institutional No organization Administered by the WTO

Framework

Enforcement Weak Strong (via DSU)

5. Integration into the WTO

●​ GATT 1994 is inseparable from the WTO Agreement. It functions within the broader
legal framework of:​

○​ Annex 1A: Multilateral Agreements on Trade in Goods (including SPS, TBT,

AoA).​

○​ Annex 2: Dispute Settlement Understanding (DSU).​

○​ Annex 3: Trade Policy Review Mechanism (TPRM).​

●​ All WTO members are bound by GATT 1994; it is not optional.​

6. Significance

●​ GATT 1994 remains the legal bedrock of world trade in goods.​

●​ It has been vital in reducing trade barriers, promoting transparency, and laying the
groundwork for the modern dispute resolution system.​

●​ Despite evolving trade challenges, its basic principles—most-favored-nation (MFN)

and national treatment—remain central to the WTO legal order.​

5.2 List of Key Provisions and Jurisdiction under GATT 1994

Introduction

The General Agreement on Tariffs and Trade (GATT) 1994 is a foundational legal text in the
WTO framework. While GATT 1947 laid the groundwork for multilateral trade, GATT 1994
incorporated and updated these rules under the WTO. This section enumerates the key
provisions of GATT 1994 and outlines its legal jurisdiction within the WTO system.

A. Key Provisions of GATT 1994

1.​ Article I – Most Favoured Nation (MFN) Treatment​

○​ Ensures non-discriminatory treatment by requiring that any advantage

given to one member must be extended to all others.​

○​ Core to the multilateral nature of GATT.​

2.​ Article II – Schedules of Concessions​

○​ Legally binding tariff commitments.​

○​ Prevents unilateral increase of tariffs above agreed levels.​

3.​ Article III – National Treatment on Internal Taxation and Regulation​

○​ Prevents discrimination against imported goods once inside the domestic

market.​

○​ Prohibits internal taxes or regulations applied in a way that protects

domestic production.​

4.​ Article VI – Anti-Dumping and Countervailing Duties​

○​ Allows imposition of duties to offset injurious dumping or subsidies.​

○​ Basis for the WTO Anti-Dumping and SCM Agreements.​

5.​ Article XI – General Elimination of Quantitative Restrictions​

○​ Prohibits quotas and other non-tariff barriers on imports and exports.​

 ○​ With exceptions (e.g., balance-of-payments crises).​

6.​ Article XVI – Subsidies​

○​ Obligates transparency and control over state subsidies.​

○​ Now elaborated through the WTO’s SCM Agreement.​

7.​ Article XX – General Exceptions​

○​ Provides for policy exceptions (e.g., public morals, human health,

conservation).​

○​ Subject to the "chapeau" to prevent disguised restrictions.​

8.​ Article XXI – Security Exceptions​

○​ Allows measures taken for national security reasons.​

○​ Historically rarely invoked, but now subject to increased scrutiny (e.g.,

Russia–Transit case).​

9.​ Article XXIV – Regional Trade Agreements (RTAs)​

○​ Permits customs unions and free trade areas under strict conditions.​

○​ Subject to WTO surveillance and notification.​

10.​ Article XXVIII – Modification of Schedules​

●​ Procedures for renegotiating tariff commitments.​

●​ Protects affected members through compensation mechanisms.​

11.​ Annexes and Understandings​

●​ GATT 1994 includes legal instruments:​

○​ GATT 1947,​
 ○​ Legal instruments adopted between 1947 and 1994,​

○​ Protocols of Accession,​

○​ Schedules of Concessions,​

○​ Understandings on Article II and Article XXIV.​

B. Jurisdiction of GATT 1994

1.​ Scope of Jurisdiction​

○​ Governs trade in goods only.​

○​ Core legal pillar alongside GATS (services) and TRIPS (IP rights).​

2.​ Binding Nature​

○​ GATT 1994 is enforceable through the WTO Dispute Settlement Mechanism

(DSM).​

○​ Panel and Appellate Body decisions interpret GATT obligations

authoritatively.​

3.​ Jurisdiction Over WTO Members​

○​ Applies to all WTO members equally and mandatorily.​

○​ Members are bound by schedules and concessions under GATT as part of

WTO accession.​

4.​ Overlap with Other Agreements​

○​ Interpreted consistently with other WTO agreements (e.g., TBT, SPS).​

○​ Conflicts resolved through harmonious interpretation principles (per EC –

Hormones).​
 5.​ Customary International Law​

○​ Panel and Appellate Body sometimes rely on VCLT principles, especially for
treaty interpretation (Articles 31–33 VCLT).​

6.​ Extraterritorial Reach​

○​ Limited, but some provisions apply to measures with a trade effect even if
taken outside the territory (e.g., export bans).​

Conclusion

GATT 1994 remains the cornerstone of WTO trade in goods. Its provisions are detailed,
far-reaching, and enforced with legal precision. Together with its dispute resolution
mechanisms, GATT not only disciplines tariff measures but also regulates non-tariff
practices, internal taxation, subsidies, dumping, and even regional agreements. Its legal
jurisdiction forms the spine of global trade jurisprudence.

5.3 Case Study: Japan – Taxes on Alcoholic Beverages

(WT/DS8, DS10, DS11)

Background

In 1995, Japan's taxation system on alcoholic beverages became the subject of dispute when
the European Communities, Canada, and the United States filed complaints under GATT
1994 and the WTO Dispute Settlement Understanding (DSU). The crux of the dispute
centered around differential internal taxes imposed by Japan on imported alcoholic
beverages such as vodka and whisky as compared to domestically-produced shōchū, a
traditional Japanese distilled beverage.

Legal Issues Raised

1.​ Violation of Article III:2 of GATT 1994 (National Treatment Principle)​

This provision prohibits WTO members from applying internal taxes or charges
that afford protection to domestic production. Complainants alleged that shōchū
received tax advantages over imported "like" or "directly competitive or
substitutable" alcoholic products.​
 2.​ Scope of "Like Products" and "Directly Competitive or Substitutable Products"​

○​ The panel and Appellate Body examined how to interpret "like" and "directly
competitive" alcoholic beverages.​

○​ The interpretation required an economic and market analysis of consumer

preferences and product characteristics.​

3.​ Article III:1 (General Principle of National Treatment)​

This provision underpinned Article III:2 and was key in interpreting whether the
taxation scheme was a protective measure.​

WTO Panel and Appellate Body Rulings

●​ The Panel Report (released July 1996) found that Japan's tax structure violated GATT
Article III:2, as it discriminated against imported alcoholic beverages.​

●​ Japan contended that the distinction in taxes was based on alcohol content,
traditional practices, and production costs.​

●​ The Appellate Body upheld the Panel’s findings, offering critical legal clarification
on:​

○​ The definition of "like products" (requiring high similarity in properties,

nature, and use).​

○​ The economic criterion for "directly competitive or substitutable" products.​

○​ The need to assess protective intent or effect via objective criteria, rather
than subjective government motives.​

Key Legal Precedents Set

●​ This case solidified GATT Article III:2 as a substantive limit on WTO members'
taxation discretion.​
 ●​ It emphasized objective market-based criteria over subjective state reasoning.​

●​ It became a reference point for:​

○​ The interpretation of domestic tax measures under GATT/WTO rules.​

○​ Application of the "less favorable treatment" test.​

○​ The analytical framework to judge indirect tax discrimination.​

Impact on Japan and International Trade Law

●​ Japan had to revise its liquor tax laws to ensure non-discrimination.​

●​ The decision demonstrated the WTO’s role in regulating internal policies that
affect trade.​

●​ It signaled the strength and clarity of the Dispute Settlement Body and Appellate
Review system post-1995.​

Scholarly Reflections

●​ Scholars noted this case as a landmark in WTO jurisprudence, offering early and
robust clarification of national treatment under GATT 1994.​

●​ It also showed how cultural or traditional justifications, such as protecting

indigenous products like shōchū, would be weighed strictly against WTO legal
standards.​

●​ The ruling was seen as a constraint on disguised protectionism under domestic

regulatory measures.​

Conclusion for Legal Debate/Pre-Discussion

 Does WTO law provide adequate flexibility to respect cultural and traditional
product distinctions, or does it excessively prioritize trade liberalization over
national identity and sovereignty?

The Japan – Alcoholic Beverages case invites an exploration of the balance

between free trade principles and national autonomy in tax policy. Is all
differentiation protectionist, or can there be space for benign cultural
exceptions within GATT Article III?

5.4 The Likeness Test under GATT Jurisprudence

Introduction

The concept of "likeness" is central to the interpretation and application of GATT

provisions, particularly Articles I and III. It plays a pivotal role in determining whether two
products should be treated equally under the principles of Most-Favoured-Nation (MFN)
and National Treatment. The “likeness test” is a legal standard developed through WTO
jurisprudence to assess whether products are “like” each other for the purpose of
evaluating trade-related measures.

Origin and Importance

The term "like products" appears in several provisions of the GATT 1994, including:

●​ Article I:1 – MFN treatment​

●​ Article III:2 – National treatment on internal taxation​

●​ Article III:4 – National treatment on internal regulation​

Each context requires a distinct legal analysis, though the core issue remains: are the
products so similar that differential treatment is discriminatory?

The Criteria of Likeness

WTO panels and the Appellate Body have developed a set of four non-exhaustive and
non-cumulative criteria to determine "likeness." These were first outlined in the Japan –
Alcoholic Beverages II case and remain influential:
 1.​ Physical Properties​

○​ Examines product composition, ingredients, and appearance.​

○​ Example: Whether two alcoholic drinks are both grain-based or distilled can
be relevant.​

2.​ End-Uses​

○​ Looks at how products are used by consumers.​

○​ If products are substitutable for the same use, they are more likely to be
considered “like.”​

3.​ Consumer Preferences and Perceptions​

○​ Assesses how consumers view the products.​

○​ If the public considers two goods interchangeable, this leans toward

likeness.​

4.​ Tariff Classification​

○​ While not determinative, similar treatment under customs codes is

indicative of likeness.​

Key Case: Japan – Alcoholic Beverages II

In this case, Japan taxed imported alcoholic beverages such as vodka and gin at a higher
rate than traditional Japanese products like shochu. The Appellate Body found that despite
differences in taste and alcohol content, the imported and domestic products were “like”
under Article III:2, first sentence, due to their similar end-uses and interchangeability in
consumer perception.

●​ Finding: The taxation measure was inconsistent with GATT Article III:2 because it
provided dissimilar taxation for like products.​
Evolution and Flexibility of the Test

The likeness test is not a strict formula. The WTO has emphasized a case-by-case
approach, noting that the economic context, market structure, and evidence from domestic
markets all affect the outcome.

For example:

●​ In EC – Asbestos, health risks were considered to distinguish between asbestos and

non-asbestos products.​

●​ In US – Clove Cigarettes, cultural consumption patterns affected the assessment of

likeness.​

Likeness vs. Directly Competitive or Substitutable Products

Where products are not found to be “like,” the broader standard of “directly competitive or
substitutable” (DCS) products under Article III:2, second sentence, may still apply. This
allows for scrutiny even when physical differences exist but market substitution is evident.

Conclusion

The “likeness test” is a sophisticated legal tool used to uphold the foundational GATT
principles of non-discrimination. It balances economic evidence, consumer behavior, and
market realities to determine whether differential treatment of products is justified. Its
flexible application underscores the WTO’s commitment to fairness while allowing for
national regulatory diversity.

5.5 The Necessity Test and Balancing in WTO Law

The "necessity test" is a critical component of WTO jurisprudence, particularly under

exceptions clauses such as GATT Article XX and GATS Article XIV. It determines whether
a trade-restrictive measure, taken by a Member State, is justifiable in light of legitimate
policy objectives like public health, environment, or security, even if it otherwise breaches
WTO rules. This test is complemented by a balancing exercise, where the WTO
adjudicators weigh the trade impact against the importance of the policy goal and the
availability of less trade-restrictive alternatives.
A. Origins and Application of the Necessity Test

The necessity test evolved through case law, beginning prominently with the Thailand –
Cigarettes (1990) case and further developed in Korea – Beef (2000) and Brazil –
Retreaded Tyres (2007).

The Appellate Body (AB) interprets "necessary" not as “indispensable,” but as “significantly
contributing to the objective,” subject to the following considerations:

1.​ Importance of the Objective​

Is the policy objective—such as protection of human life, public morals, or
environmental conservation—vital or of high societal value?​

2.​ Contribution to the Objective​

Does the measure genuinely contribute to the stated goal, or is it merely symbolic
or ineffective?​

3.​ Trade-Restrictiveness​
How much does the measure restrict trade? The more restrictive it is, the more
justification is needed.​

4.​ Availability of Alternatives​

Are there reasonably available WTO-consistent (or less inconsistent) alternatives
that achieve the same policy goal?​

B. The Balancing Exercise

The WTO Panels and Appellate Body weigh these elements together in a
proportionality-style analysis. The greater the importance of the policy and the more
effective the measure, the more likely it is to be found necessary—even if it's quite
trade-restrictive.

This was clarified in Brazil – Retreaded Tyres, where the Appellate Body stated that the
necessity of a measure involves “a process of weighing and balancing a series of factors,”
and then determining if a WTO-consistent alternative exists that is “reasonably available”
and achieves the same result.

C. Case Study: Korea – Beef (2000)

South Korea had a dual retail system for beef, separating domestic and imported beef sales.
The Appellate Body found the measure not “necessary” under GATT Article XX(d) (for
securing compliance with laws against false representations), because less trade-restrictive
alternatives—like enhanced labeling requirements—were available.

D. Challenges with the Necessity Test

●​ Ambiguity and Subjectivity: The test is flexible but may be unpredictably applied.​

●​ Burden of Proof: Once a prima facie case is made, the burden often shifts between
the complainant and the respondent regarding alternatives.​

●​ Regulatory Chill: Some critics argue that fear of WTO challenges may discourage
countries from enacting socially progressive or environmentally friendly
regulations.​

Conclusion

The necessity test and balancing approach embody the WTO's attempt to reconcile trade
liberalization with sovereign regulatory autonomy. It ensures that Members do not use
policy objectives as a disguised form of protectionism, but also guards their right to
regulate in the public interest. As global challenges—such as climate change and
pandemics—intensify, the evolving jurisprudence of necessity will remain a focal point of
WTO law and legal reform.

5.6 Case Law: Canada – Measures Affecting the Export of

Civilian Aircraft (WT/DS70)

Dispute Overview and Legal Significance

The Canada – Aircraft case, initiated by Brazil in 1998, is a landmark dispute that centers on
subsidies provided by the Canadian government to its civil aircraft manufacturer,
Bombardier, allegedly in violation of the Agreement on Subsidies and Countervailing
Measures (SCM Agreement). Brazil claimed that Canada's Export Development
Corporation (EDC) and Technology Partnerships Canada (TPC) programs violated Articles
1, 3, and 5 of the SCM Agreement by granting prohibited export subsidies.
Panel and Appellate Body Findings

1. Definition of Subsidy (Article 1, SCM Agreement)

The Panel and the Appellate Body emphasized that a “subsidy” under Article 1 consists of:

●​ A financial contribution by a government or public body (e.g., direct transfer of

funds, loan guarantees, foregone revenue),​

●​ That confers a benefit on the recipient.​

They ruled that Canada’s low-interest loans under TPC and financing from EDC did
constitute financial contributions and conferred a benefit—thus qualifying as subsidies.

2. Prohibited Subsidies (Article 3, SCM Agreement)

The programs in question were found to be export contingent, meaning they were
conditioned on export performance—a per se violation of Article 3.1(a).

3. Adverse Effects (Article 5)

Although the Panel did not make a ruling under Article 5 (serious prejudice), the mere fact
of export contingency under Article 3 made the measures automatically prohibited,
irrespective of actual trade distortion.

Broader Jurisprudential Impact

This case remains a cornerstone of WTO subsidy law, particularly in:

●​ Defining “benefit” in subsidy evaluation,​

●​ Clarifying the standard of evidence for export contingency,​

●​ Reinforcing strict interpretation of Article 3 prohibitions, making the SCM

Agreement more robust against disguised state support.​

It also reinforced transparency obligations and emphasized the need for countries to
justify state financing mechanisms, especially in sensitive sectors like aerospace,
agriculture, and heavy industry.
Pre-Debate/Discussion Prompt:

●​ Should WTO subsidy rules allow more leeway for state support in high-tech or
strategic industries like aerospace?​

●​ Does the SCM Agreement unduly restrict the developmental policy space of
emerging economies?

to measures that restrict or limit the quantity, value, or destination of exports. These
measures can include:

●​ Export bans​

●​ Export quotas​

●​ Export taxes or duties​

●​ Voluntary export restraints (VERs)​

Under WTO rules, particularly the General Agreement on Tariffs and Trade (GATT) 1994,
export restraints are generally discouraged or prohibited, depending on the form and
effect of the measure.

Relevant Legal Provisions

Article XI:1 of GATT 1994 – General Elimination of Quantitative Restrictions

"No prohibitions or restrictions other than duties, taxes or other charges... shall be
instituted or maintained by any contracting party on the exportation or sale for
export of any product..."

●​ This article bans all quantitative restrictions on exports, including quotas and
bans, except for those permitted under Article XI:2 or other exceptions (e.g.,
security exceptions under Article XXI).​

Article XI:2 – Exceptions

Permits export restrictions temporarily:

 ●​ To prevent or relieve critical shortages of essential products.​

●​ For products necessary for the application of standards or regulations (e.g.,

conservation).​

SCM Agreement

In cases where export restraints are used to distort the market or affect pricing
mechanisms (e.g., through dual pricing), they may be examined under the Subsidies and
Countervailing Measures Agreement, though this is complex and debated.

Export Restraints vs. Export Taxes

●​ Export taxes are not prohibited under WTO law.​

●​ However, export quotas and bans are strictly regulated.​

●​ Members like China have been challenged for imposing export restrictions under
Article XI (e.g., in China – Raw Materials and China – Rare Earths).​

Case Law Example: China – Measures Related to the Exportation of Rare

Earths (WT/DS431)

●​ The WTO Panel and Appellate Body found that China's export quotas and licensing
requirements on rare earths violated Article XI:1, and the justifications under
Article XX(b) and (g) were rejected due to lack of even-handedness and necessity.​

Policy Concerns

●​ Export restraints are often used to control inflation, protect domestic industries,
or conserve natural resources.​
 ●​ WTO rules strike a balance by allowing temporary measures, but permanent or
protectionist restraints violate trade norms.​

●​ The legal burden of proof lies with the export-restricting country to show that any
exception applies.​

Conclusion

Export restraints under WTO law are tightly regulated and presumed inconsistent unless
clearly justified under narrowly defined exceptions. Members must ensure that such
measures do not arbitrarily discriminate or serve disguised protectionist goals.

Chapter 6: Dispute Settlement in the WTO

Framework

6.1 Introduction to the WTO Dispute Settlement System

The Dispute Settlement Understanding (DSU) is often regarded as the “crown jewel” of the
WTO system. It provides a legal and institutional framework through which WTO
members resolve trade disputes in a rules-based, binding, and time-bound manner.

The system replaced the less effective GATT 1947 system, which lacked binding
enforcement. The WTO DSU has strengthened the legal rigor, transparency, and
compliance obligations of international trade law.

6.2 Objectives and Core Principles

The DSU operates under the following guiding principles:

●​ Prompt Settlement of disputes​

 ●​ Security and Predictability of the multilateral trading system​

●​ Rule of Law and Due Process​

●​ Member-driven system (no unilateral retaliation)​

●​ Peaceful resolution through consultation before litigation​

These principles are enshrined in Article 3 of the DSU.

6.3 Dispute Settlement Process (Step-by-Step)

1. Consultations (Article 4)

●​ The complaining Member requests consultations with the respondent Member.​

●​ Minimum 60 days for resolution through dialogue.​

●​ Most disputes are resolved at this stage.​

2. Panel Establishment and Proceedings (Articles 6–11)

●​ If consultations fail, a Panel is established by the Dispute Settlement Body (DSB).​

●​ Panel examines the facts and law and issues a final report.​

●​ Panelists are independent experts, not diplomatic representatives.​

3. Appellate Body Review (Article 17)

●​ Either party can appeal findings of law.​

●​ The Appellate Body (AB) consists of 7 jurists who serve 4-year terms.​

●​ AB can uphold, reverse, or modify Panel findings.​

4. Adoption of Reports (Article 16 & 17.14)

●​ Reports are adopted automatically unless rejected by consensus (reverse consensus

rule).​

●​ Makes the system virtually binding on Members.​

5. Implementation and Compliance (Article 21)

●​ Losing Member must comply within a reasonable period of time (RPT).​

●​ Surveillance by the DSB ensures compliance.​

6. Enforcement and Retaliation (Article 22)

●​ If Member fails to comply, the winning party may request retaliatory measures
(e.g., suspension of concessions).​

●​ Must be authorized by the DSB.​

6.4 Jurisdiction and Standing

●​ Only WTO Members have standing (States, not corporations).​

●​ Disputes must involve alleged violations of WTO agreements.​

●​ Panels and AB cannot make law—they must interpret the text.​

6.5 Legal Nature and Binding Effect of Rulings

●​ Rulings are binding only on the parties involved.​

●​ However, they create legal precedents (de facto stare decisis).​

 ●​ Failure to comply may result in retaliatory measures but not monetary penalties.​

6.6 Criticism and Reform Debates

●​ Appellate Body Crisis: Since 2019, the US has blocked appointments to the AB,
rendering it non-functional.​

●​ Accusations of judicial overreach, lack of transparency, and delay in

implementation.​

●​ Ongoing discussions around DSU reform, multi-party interim appeal arbitration

(MPIA).​

6.7 Notable Disputes and Precedents

●​ US – Shrimp (environmental exceptions, Article XX)​

●​ EC – Bananas (non-discrimination under GATT)​

●​ US – Steel Safeguards (safeguard measures, Articles XIX and Agreement on

Safeguards)​

●​ Brazil – Tyres (health and environmental protection vs. trade liberalization)​

6.8 Conclusion
The WTO dispute settlement mechanism provides a structured, impartial, and legally
enforceable way to resolve global trade conflicts. Despite challenges, it remains a model for
international adjudication, blending diplomacy and law under a multilateral framework.
7.1 GATS Architecture and Modes of Supply

The General Agreement on Trade in Services (GATS), adopted during the Uruguay Round of
negotiations and entering into force in 1995, marked the first multilateral legal framework
to govern international trade in services under the WTO. Unlike goods, services are
intangible, often consumed and produced simultaneously, and regulated heavily at the
domestic level. The GATS represents an effort to bring coherence, predictability, and
gradual liberalization to global service markets while safeguarding national regulatory
autonomy.

I. Architectural Pillars of GATS

The GATS is structured around three main components:

A. Framework Agreement

This sets out the general obligations and disciplines applicable to all WTO Members. It
covers transparency, MFN (Most-Favoured-Nation) treatment, domestic regulation, and
progressive liberalization principles.

●​ MFN Obligation: Unlike GATT’s MFN principle, which is general and automatic,
GATS allows exemptions listed in a schedule.​

●​ Transparency: Members are obligated to publish all relevant measures that affect
trade in services.​

B. Annexes

There are specific annexes covering:

●​ Movement of natural persons (Mode 4)​

●​ Financial services​

●​ Telecommunications​

●​ Air transport services​

●​ Maritime transport services​

These annexes tailor the general obligations to sector-specific realities.

C. Schedules of Specific Commitments

Each WTO Member submits a schedule detailing:

●​ Market access commitments (Article XVI)​

●​ National treatment commitments (Article XVII)​

●​ Limitations or conditions (if any)​

These commitments are negotiated bilaterally but applied on an MFN basis, creating a
hybrid system of binding commitments with room for regulatory flexibility.

II. Modes of Supply under GATS

The GATS defines trade in services based on four Modes of Supply, categorizing the
cross-border movement of services and service suppliers. Each Mode reflects the route
through which a service can be supplied internationally.

Mode Definition Example

Mode 1: Cross-border Service flows across borders An architect in India emailing

supply without movement of consumer blueprints to a client in
or supplier. Canada.

Mode 2: Consumption Consumer moves to another A student from Brazil studying

abroad country to consume a service. in Australia.

Mode 3: Commercial A foreign service supplier A U.S. bank opening a branch

presence establishes a presence in another in Singapore.
country.
 Mode 4: Presence of Individuals travel temporarily to An Indian software engineer
natural persons provide a service. working in Germany on a
project basis.

Each mode presents unique regulatory, legal, and political challenges, especially regarding
labor mobility, taxation, and market access.

III. Legal Implications and Regulatory Scope

●​ Progressive Liberalization: Unlike GATT, GATS does not mandate full liberalization.
It envisions successive rounds of negotiations to deepen commitments over time.​

●​ Right to Regulate: GATS recognizes Members' right to regulate services to meet

national policy objectives, including developmental and social goals.​

●​ MFN Flexibility: Through MFN exemptions and horizontal limitations in schedules,

Members preserve regulatory space.​

●​ No General National Treatment Obligation: National treatment is only applicable

where a commitment has been specifically undertaken.​

IV. Challenges and Critiques

1.​ Imbalance of Commitments: Developing countries often perceive that

commitments under GATS disproportionately favor developed nations.​

2.​ Regulatory Sovereignty Concerns: Domestic regulators may find themselves

constrained by international obligations, especially in sensitive sectors like health
or education.​

3.​ Mode 4 Restrictions: Labor mobility remains highly restricted, undermining full
realization of GATS objectives.​
V. Conclusion

GATS represents a landmark in international economic law, extending WTO disciplines into
the services domain. Its architecture is deliberately flexible, aiming to reconcile
liberalization with domestic autonomy. However, the challenge remains to deepen
commitments meaningfully while ensuring equitable benefits across all WTO Members,
particularly for the Global South. The classification into four modes of supply helps
operationalize trade in services but also reveals stark differences in access and regulation,
requiring continual dialogue and reform.

7.2 Most-Favoured-Nation (MFN) Treatment in GATS

Introduction

The Most-Favoured-Nation (MFN) principle is a cornerstone of the multilateral trading

system. Under the General Agreement on Trade in Services (GATS), MFN ensures that
each WTO Member treats services and service suppliers of all other Members no less
favorably than it treats any other country’s services or service suppliers.

This concept, while borrowed from GATT 1994, takes on a nuanced and more flexible role
under GATS due to the nature of services trade and its regulation through national policies
and licensing regimes.

Legal Text: Article II of GATS

Article II:1 of GATS reads:

“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.”

Key elements:

●​ Immediate and unconditional application​

●​ Applies to all covered services, regardless of whether they are listed in a Member’s
schedule of commitments​

●​ Like services and service suppliers must be treated equally​

Scope and Features

●​ Horizontal Obligation: Unlike market access or national treatment which apply only
to sectors a Member commits in its schedule, MFN applies across all sectors,
irrespective of specific commitments.​

●​ Automatic Application: Members must apply MFN treatment without requiring a

reciprocal concession.​

●​ "Like Services" Debate: As with GATT, the interpretation of “like” is complex and
fact-intensive. It involves the nature of the service, the mode of supply, and
competitive relationships.​

MFN Exemptions (Annex on Article II Exemptions)

Recognizing that many countries had pre-existing bilateral or regional agreements before
GATS, GATS allows Members to list specific exemptions from MFN treatment:

●​ Filed at the time of accession or GATS entry into force​

●​ Subject to review every 5 years​

●​ Intended to be temporary​

Examples:

●​ Preferential treatment to services under a regional agreement like the EU​

●​ Aviation services treated differently under bilateral air agreements​

Case Study: Canada – Autos (DS139, DS142)

While not directly under GATS, the logic of MFN was extended in the Canada – Autos case.
Canada’s preferential treatment to suppliers from Japan under an import quota system was
found inconsistent with MFN obligations under GATT.

This indirectly influenced how MFN obligations are analyzed under GATS, especially where
preferential treatment arises under existing trade agreements.

Challenges in Application

●​ Regulatory diversity: Services are heavily regulated (e.g., financial, education,

telecom), making equal treatment more difficult to standardize.​

●​ Mode-specific discrimination: Some countries may favor domestic over foreign

providers in a particular mode (e.g., Mode 3: commercial presence), violating MFN if
not exempted.​

●​ Overlap with FTAs: Regional trade agreements (RTAs) challenge the universality of
MFN unless justified under GATS Article V.​

Conclusion

MFN in GATS lays the foundational principle of non-discrimination and global uniformity
in services trade. Yet its built-in flexibilities through exemptions and regulatory
interpretations distinguish it from its GATT counterpart. As the services sector grows in
complexity and cross-border integration, the MFN obligation will remain a key point of
contention and harmonization in WTO jurisprudence.

7.3 Legal Obligations under Article II, XVI, and XVII of the
GATS
The General Agreement on Trade in Services (GATS), as part of the WTO framework,
establishes a multilayered set of legal obligations on member states. The three most
important substantive provisions governing service trade liberalization and regulation
include Article II (MFN), Article XVI (Market Access), and Article XVII (National
Treatment). Together, they create a legal scaffolding for service trade commitments and
regulatory discipline.
Article II: Most-Favoured-Nation (MFN) Treatment

Legal Obligation:

●​ Requires that each WTO Member accord immediately and unconditionally to

services and service suppliers of any other Member treatment no less favourable
than it accords to like services and service suppliers of any other country.​

Key Points:

●​ Applies horizontally to all services sectors, regardless of specific commitments.​

●​ Permits Article II exemptions at the time of entry into force of the GATS—these are
limited and scheduled.​

●​ Discrimination based on origin, where present, must be justifiable under an MFN

exemption list.​

Illustration:

●​ If Country A allows a tax exemption on legal consulting services to Country B’s

firms, it must also extend that to all WTO Members unless it has an MFN exemption.​

Article XVI: Market Access

Legal Obligation:

●​ Prevents Members from maintaining six forms of quantitative restrictions in sectors

where specific market access commitments are made. These include:​

1.​ Limitations on number of service suppliers.​

2.​ Limitations on the total value of service transactions or assets.​

3.​ Limitations on the total number of service operations or quantity of output.​

 4.​ Limitations on the total number of natural persons employed.​

5.​ Measures which restrict or require specific types of legal entity or joint
venture.​

6.​ Limitations on foreign capital participation.​

Key Points:

●​ Applies only in sectors listed in a Member’s Schedule of Commitments.​

●​ Violations occur irrespective of whether the measures are discriminatory or not

(even non-discriminatory quotas can breach Article XVI).​

Illustration:

●​ If India has made a commitment in telecommunications services and sets a cap on

the number of foreign firms allowed, it may breach Article XVI(2)(a).​

Article XVII: National Treatment

Legal Obligation:

●​ Requires each Member, in committed sectors, to treat foreign services and service
suppliers no less favourably than its own like services and service suppliers, in
respect of all measures affecting the supply of services.​

Key Points:

●​ Applies only where specific national treatment commitments are scheduled.​

●​ The focus is on de facto and de jure discrimination.​

●​ Even formally identical treatment may violate Article XVII if it modifies the
conditions of competition to the disadvantage of the foreign supplier.​

Illustration:
 ●​ If a country allows only local law firms to advertise while banning foreign firms
from doing so, this would be a breach of Article XVII, even if the legal text does not
mention nationality.​

Combined Impact and Legal Architecture

●​ These three Articles interact sequentially and conditionally:​

○​ Article II applies by default.​

○​ Articles XVI and XVII apply only to scheduled commitments.​

●​ Violations are adjudicated by WTO panels and the Appellate Body.​

●​ Members often use limitations or reservations in their schedules to shield

measures from challenge under Articles XVI and XVII.​

Conclusion

Articles II, XVI, and XVII of the GATS represent a delicate balance between liberalization
and regulatory sovereignty. While Article II sets the global baseline for non-discrimination,
Articles XVI and XVII allow Members to tailor liberalization sectorally and conditionally.
The legal obligations they impose are enforceable, nuanced, and central to the
jurisprudence and functioning of international trade in services under the WTO.