WTO and International Trade Law

The multilateral trading system that emerged at the close of the Second World War rests on two propositions. First, that openness in cross-border trade in goods and services, secured by binding rules and predictable institutions, is conducive to peace and welfare. Second, that the rules will be enforceable only if there is a neutral institutional forum in which violations can be alleged and adjudicated. The General Agreement on Tariffs and Trade (GATT) of 1947 supplied the rules but was always intended as a provisional arrangement pending the entry into force of an International Trade Organization (ITO) — a project that died with the United States Senate's refusal to ratify the Havana Charter. The institutional gap was filled half a century later by the Marrakesh Agreement of 15 April 1994, which created the World Trade Organization with effect from 1 January 1995. India was a founding member, having been a contracting party to the GATT since 8 July 1948 — a fact relevant to the broader exposition in the chapter on subjects of international law. The chapter that follows situates the WTO within the broader sources of international law studied in the chapter on sources of international law and within the institutional architecture of the post-1945 order surveyed in the chapter on international organisations — UN system; it is an integral part of the International Law for Judiciary notes.

The chapter that follows covers the historical evolution of the GATT, the institutional architecture established at Marrakesh, the substantive disciplines of GATT 1994 (most-favoured-nation treatment, national treatment, prohibition of quantitative restrictions), the major plurilateral and multilateral agreements (GATS, TRIPS, TRIMs, SPS, TBT, AoA), the Dispute Settlement Understanding, and the place of the WTO obligations in Indian constitutional and statutory practice.

Historical evolution — the GATT 1947 and the road to Marrakesh

The 1944 Bretton Woods Conference produced two of the three institutional pillars of the post-war international economic order — the International Bank for Reconstruction and Development and the International Monetary Fund. The third pillar — an International Trade Organization — was to have been created by the Havana Charter of 1948. The Charter was never ratified. In its place, a portion of the Charter dealing with tariff concessions and trade rules — the General Agreement on Tariffs and Trade — was applied provisionally from 1948 by a Protocol of Provisional Application. GATT operated on the basis of bilateral tariff negotiations under the unconditional most-favoured-nation principle, by which the most favourable benefit obtained by one State was extended to all other contracting parties. GATT had no formal constitution, no Council and no court; it operated through periodic Rounds of negotiations.

Eight Rounds were held under GATT — Geneva (1947), Annecy (1949), Torquay (1951), Geneva (1956), the Dillon Round (1960–61), the Kennedy Round (1964–67), the Tokyo Round (1973–79) and the Uruguay Round (1986–94). The Uruguay Round was the most ambitious. It culminated in the Marrakesh Agreement Establishing the World Trade Organization, signed on 15 April 1994 and entered into force on 1 January 1995. The Agreement made the WTO an institution with international legal personality. It created a single undertaking — every member acceded to the entire package of agreements annexed to the Marrakesh Agreement, ending the so-called "GATT à la carte". And it gave the multilateral trading system its first compulsory dispute-settlement procedure. The transition from the temporary GATT to the permanent WTO is one of the major institutional events in twentieth-century international law and an instructive case study for the chapter on the law of treaties — formation, validity and termination.

The institutional architecture under the Marrakesh Agreement

The WTO is governed by the Marrakesh Agreement and its four Annexes. Annex 1A contains the multilateral agreements on trade in goods (the GATT 1994 and twelve associated agreements); Annex 1B is the General Agreement on Trade in Services (GATS); Annex 1C is the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS); Annex 2 is the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU); Annex 3 is the Trade Policy Review Mechanism; and Annex 4 contains the plurilateral agreements that bind only some members.

The principal organs are the Ministerial Conference (the supreme organ, meeting at least once every two years and composed of representatives of all members), the General Council (which discharges the Conference's functions in the intervals between Conferences and which also convenes as the Dispute Settlement Body and as the Trade Policy Review Body), the Council for Trade in Goods, the Council for Trade in Services, the Council for TRIPS, and a Secretariat at Geneva headed by a Director-General. Decision-making, under Article IX of the Marrakesh Agreement, is by consensus — the practice continued from the GATT — and only where consensus cannot be reached is a vote taken; in that event each member has one vote. Amendments to the Marrakesh Agreement and to certain core provisions require an even higher degree of consensus.

The five core disciplines of GATT 1994

Five disciplines anchor the GATT 1994 regime. The first and most important is the most-favoured-nation (MFN) principle in Article I. Any advantage, favour, privilege or immunity granted by one contracting party to a product originating in or destined for any other country must be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties. The principle is the multilateral antithesis of the bilateral trade-deal architecture of the inter-war period. It has historic exceptions for free-trade areas and customs unions under Article XXIV — the basis on which the EU customs union, NAFTA/USMCA, ASEAN Free Trade Area and SAFTA operate without violating MFN.

The second discipline is national treatment in Article III. Once goods have entered a member's market and the duty applicable to them has been paid, internal taxes and regulations must not afford protection to domestic production. Imported goods must be accorded treatment no less favourable than that accorded to like products of national origin. The doctrinal framework — "like products", protective application, less-favourable treatment — has been the subject of a substantial body of jurisprudence developed by the panels and the Appellate Body, including the foundational Japan — Alcoholic Beverages (1996) and EC — Asbestos (2001) reports.

The third discipline is the general prohibition on quantitative restrictions in Article XI. Members may protect their industries through tariffs, which are transparent and progressively reducible through negotiation, but not through quotas, import or export prohibitions or licensing schemes that operate as restrictions. The exceptions in Article XI(2) — short-supply foodstuffs, agricultural products subject to domestic supply management — are narrow.

The fourth discipline is binding tariff concessions under Article II read with each member's Schedule. A tariff once bound cannot be raised above the bound level except after re-negotiation under Article XXVIII and the payment of compensation in the form of equivalent concessions on other tariff lines. India's tariff bindings are recorded in its Schedule XII to the GATT 1994.

The fifth discipline is the obligation of transparency in Article X — the requirement that laws, regulations, judicial decisions and administrative rulings of general application affecting trade in goods be published promptly and administered in a uniform, impartial and reasonable manner. Article X(3)(b) requires members to maintain or institute judicial, arbitral or administrative tribunals or procedures for prompt review and correction of administrative action relating to customs matters — an obligation discharged in India through the appellate machinery of the Customs Act, 1962 and the Customs Excise and Service Tax Appellate Tribunal.

The general exceptions in Article XX

Article XX permits members to depart from the GATT disciplines in pursuit of legitimate non-trade objectives, subject to the chapeau requirement that measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade. The grounds in Article XX cover, among others, public morals, the protection of human, animal or plant life or health, the importation or exportation of gold or silver, compliance with laws and regulations not inconsistent with GATT, products of prison labour, the protection of national treasures of artistic, historic or archaeological value, and the conservation of exhaustible natural resources. The Article XX(b) and (g) jurisprudence — including the US — Shrimp reports of 1998 and 2001 — has shaped the relationship between the trade regime and the protection of the environment, a topic developed in the chapter on international environmental law — Stockholm, Rio and Paris. A separate "security exceptions" provision in Article XXI permits members to take action they consider necessary for the protection of their essential security interests — invoked in disputes that intersect with the rules on State jurisdiction over economic activity.

The General Agreement on Trade in Services (GATS)

The GATS, contained in Annex 1B, was a major innovation of the Uruguay Round. It extends MFN and (more importantly) national treatment disciplines to international trade in services, defined in Article I(2) of the GATS as the supply of a service from the territory of one member into the territory of any other (Mode 1, cross-border supply); in the territory of one member to the service consumer of any other (Mode 2, consumption abroad); by a service supplier of one member through commercial presence in the territory of any other (Mode 3, commercial presence); and by a service supplier of one member through the presence of natural persons of a member in the territory of any other (Mode 4, presence of natural persons). India's Schedule of specific commitments under the GATS lists the services sectors in which India has accepted market-access and national-treatment obligations.

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

TRIPS is the most consequential element of the Uruguay Round for developing countries. It binds every WTO member to provide minimum standards of intellectual-property protection across copyright, trademarks, geographical indications, industrial designs, patents (including pharmaceutical product patents under Article 27), layout-designs of integrated circuits, undisclosed information and the control of anti-competitive practices in contractual licences. India brought its patent law into TRIPS-compliance through the Patents (Amendment) Acts of 1999, 2002 and 2005 — the last of which introduced product patents for pharmaceuticals, subject to the Section 3(d) limitation that mere new forms of known substances are not patentable absent enhancement of efficacy. The validity of Section 3(d) was upheld by the Supreme Court in Novartis AG v. Union of India (2013) 6 SCC 1, which held that Section 3(d) was both TRIPS-compliant and a permissible exercise of the flexibility recognised in the 2001 Doha Declaration on the TRIPS Agreement and Public Health. The Doha Declaration affirmed that the TRIPS Agreement does not and should not prevent members from taking measures to protect public health and that, in particular, the Agreement should be interpreted and implemented in a manner supportive of the right of WTO members to protect public health and, in particular, to promote access to medicines for all.

Other Annex 1A agreements

Beyond the GATT 1994, Annex 1A contains twelve associated agreements. The Agreement on Agriculture (AoA) liberalises agricultural trade through three pillars — market access, domestic support and export competition. The Agreement on the Application of Sanitary and Phytosanitary Measures (SPS) governs measures to protect human, animal or plant life or health from food-borne risks and the entry, establishment or spread of pests and diseases. The Agreement on Technical Barriers to Trade (TBT) governs technical regulations and standards. The Agreement on Trade-Related Investment Measures (TRIMs) prohibits investment measures inconsistent with Articles III and XI of the GATT 1994 — including local-content requirements and trade-balancing requirements. The Agreement on Anti-Dumping (Article VI of the GATT 1994 implementation) governs the imposition of anti-dumping duties; the Agreement on Subsidies and Countervailing Measures (SCM) governs subsidies and countervailing duties; the Agreement on Safeguards governs emergency import-relief measures. The Agreement on Customs Valuation, the Agreement on Pre-shipment Inspection, the Agreement on Rules of Origin, the Agreement on Import Licensing Procedures and the Agreement on Trade Facilitation (added in 2014) complete Annex 1A.

The Dispute Settlement Understanding (DSU)

The DSU in Annex 2 is the central institutional achievement of the Uruguay Round. It establishes the Dispute Settlement Body (the General Council convened in dispute-settlement mode), which has the exclusive authority to establish panels, to adopt panel and Appellate Body reports, to maintain surveillance of the implementation of recommendations and rulings, and to authorise the suspension of concessions and other obligations. Where consultations between the disputants under Article 4 fail, the complainant may request the establishment of a panel under Article 6. The panel — three trade-policy experts in their personal capacity — issues a report under Articles 11 and 12. The report is automatically adopted by the DSB unless every member objects (the so-called "reverse consensus" rule), or unless an appeal is filed. The Appellate Body of seven members hears appeals on issues of law and legal interpretation and issues an Appellate Body report under Articles 17 to 19. The DSU's central innovations over the GATT predecessor are compulsory jurisdiction, fixed time-limits for each stage and the reverse consensus rule that effectively makes adoption automatic.

The DSU is in significant institutional difficulty since 11 December 2019, when the Appellate Body fell below quorum because of the United States' continuing block on appointments. WTO members have responded with a Multi-Party Interim Appeal Arbitration Arrangement (MPIA) under Article 25 of the DSU; India is not a participant in the MPIA. The crisis has accelerated debates about reform of the system, including specifically about the ambit and standard of review of the Appellate Body's review jurisdiction.

India in the WTO — selected practice

India has been an active disputant in the WTO, both as complainant and respondent. As complainant, India successfully challenged United States measures concerning solar cells and modules (DS510 in part, although the WTO panel found largely against the US local-content requirement) and the European Union's anti-dumping measures on a number of Indian exports. As respondent, India has faced challenges to its measures on solar cells (DS456), to its quantitative restrictions on agricultural and industrial products (DS90), to its automotive sector measures (DS146) and to its export-related measures (DS541). India is also a third-party participant in many disputes, particularly those bearing on TRIPS flexibilities relevant to pharmaceutical access and on agricultural subsidies relevant to food security under the Public Stockholding initiative. The interaction with general international law on responsibility for breach is examined in the broader literature surveyed in the chapter on customary international law and general principles.

The interface between WTO obligations and Indian domestic law follows the dualist position. WTO obligations bind India on the international plane and are made enforceable in domestic courts only through implementing legislation. The Patents Act, 1970 (as amended), the Trade Marks Act, 1999, the Copyright Act, 1957 (as amended), the Geographical Indications of Goods (Registration and Protection) Act, 1999 and the Protection of Plant Varieties and Farmers' Rights Act, 2001 collectively give effect to the TRIPS obligations. The Customs Tariff Act, 1975, gives effect to India's tariff bindings; the Foreign Trade (Development and Regulation) Act, 1992, supplies the framework within which import and export regulations consistent with WTO disciplines are made. The Indian Supreme Court's general approach to international economic obligations is set out in Novartis (2013), in Vishaka v. State of Rajasthan (1997) 6 SCC 241 (on the use of unincorporated treaties as aids to construction) and in Gramophone Co. of India v. Birendra Bahadur Pandey (1984) 2 SCC 534 (on the doctrine of harmonious construction with international law). The deeper Indian-law account is in the chapter on implementation of international treaties in Indian courts and in the chapter on the Indian Constitution and international law.

Special and differential treatment for developing members

The WTO regime acknowledges that the costs of liberalisation and rule-compliance fall unevenly between developed and developing members. Several agreements contain Special and Differential Treatment (SDT) provisions: longer transition periods, lower obligations, technical and capacity-building assistance, and the recognition of specific developmental needs. The Decision of 28 November 1979 on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries (the Enabling Clause) provides a permanent legal basis for the Generalised System of Preferences (GSP) under which developed members may extend non-reciprocal preferences to developing-country imports. The Doha Round, launched at the Fourth Ministerial Conference in 2001, was billed as the "Doha Development Agenda" and centred on agricultural-trade liberalisation, services liberalisation and SDT issues. The Round has not been concluded; agricultural negotiations remain particularly contested. The 2013 Bali Ministerial Conference produced the Trade Facilitation Agreement (which entered into force on 22 February 2017) and an interim peace clause for India's Public Stockholding programme for food security.

Regional trade agreements and the WTO

The proliferation of free-trade agreements and customs unions tests the consistency of the multilateral system. Article XXIV of the GATT 1994 permits regional arrangements provided that duties and other restrictive regulations of commerce are not on the whole higher or more restrictive than those previously applicable, and that the arrangement substantially covers all trade between the constituent territories. India is a party to the South Asian Free Trade Area (SAFTA) under the 2004 Islamabad Agreement, to the ASEAN-India Trade in Goods Agreement (2009) considered in the chapter on regional organisations — SAARC, ASEAN, EU, AU, and to a number of bilateral free-trade and comprehensive economic partnership agreements with Sri Lanka, Singapore, South Korea, Japan, Malaysia, the United Arab Emirates and Australia, among others. India is not a party to the Regional Comprehensive Economic Partnership (RCEP), having withdrawn from negotiations in November 2019.

Conclusion

The WTO regime is the most institutionally developed of the international economic-law systems. Its substantive disciplines — MFN, national treatment, prohibition on quantitative restrictions, binding tariff concessions and transparency — translate the central insight of post-war trade theory (that openness is conducive to welfare) into operational obligations. Its dispute-settlement system, the most successful of any international compulsory-jurisdiction regime, has been in difficulty since the Appellate Body lost quorum in 2019; reform is the principal item on the institutional agenda. For Indian practice, the key points are India's status as a founding member, the implementing legislation that gives effect to TRIPS and other obligations, the Supreme Court's affirmation of TRIPS flexibilities in Novartis (2013), and the dualist position under which WTO obligations bind India internationally but require enabling statutes to bind individuals in Indian courts.

Frequently asked questions

What is the difference between the GATT 1947 and the GATT 1994?

The GATT 1947 was the original multilateral trade agreement applied provisionally from 1948 under the Protocol of Provisional Application. The GATT 1994 is one of the agreements annexed to the Marrakesh Agreement Establishing the WTO (in Annex 1A). The GATT 1994 incorporates by reference the substantive provisions of the GATT 1947 along with the Uruguay Round Understandings and Decisions on the interpretation of those provisions. After 31 December 1995, the GATT 1947 ceased to apply; the WTO members are bound by the GATT 1994. The text is largely identical, but the legal vehicle and the institutional context have changed.

What does "single undertaking" mean in WTO law?

The Marrakesh Agreement and its Annexes 1, 2 and 3 are accepted by every member of the WTO as a single package; a State cannot pick and choose which of the multilateral agreements to accept. This is the single undertaking principle and it ended the so-called GATT à la carte under which contracting parties to the GATT could choose whether to accept the various Tokyo Round side-agreements. Annex 4 contains the plurilateral agreements, which bind only the members that have accepted them; this is the only formal exception to the single undertaking and it is narrowly contained.

Why was the Appellate Body of the WTO non-functional after December 2019?

The Appellate Body of the WTO consists of seven members appointed by the Dispute Settlement Body for fixed terms. From 2017, the United States blocked the appointment of new Appellate Body members and the reappointment of existing members on the grounds of long-standing concerns about Appellate Body practice — the standard of review applied, the obiter dicta in reports, and the duration of appellate proceedings. By 11 December 2019, only one Appellate Body member remained in office and the body fell below the three-member quorum required for hearing appeals. WTO members responded with the Multi-Party Interim Appeal Arbitration Arrangement under Article 25 of the DSU.

Did Section 3(d) of the Indian Patents Act survive WTO scrutiny?

Section 3(d) of the Indian Patents Act, 1970, as amended in 2005, provides that the mere discovery of a new form of a known substance which does not result in the enhancement of the known efficacy of that substance is not patentable. The Indian Supreme Court in Novartis AG v. Union of India (2013) 6 SCC 1 upheld Section 3(d), holding that it was a permissible exercise of the flexibility recognised in the 2001 Doha Declaration on TRIPS and Public Health and was not inconsistent with India's TRIPS obligations. Section 3(d) has not been the subject of a WTO dispute initiated by another member.

Are WTO obligations directly enforceable in Indian courts?

No, not without enabling legislation. India follows the dualist position. WTO obligations bind India on the international plane but cannot be invoked by individuals in Indian courts unless they have been incorporated into Indian law through legislation. The Patents Act, 1970 (as amended), the Trade Marks Act, 1999, the Copyright Act, 1957 (as amended), the Geographical Indications of Goods (Registration and Protection) Act, 1999 and the Protection of Plant Varieties and Farmers' Rights Act, 2001 collectively give effect to the TRIPS obligations. The Customs Tariff Act, 1975 and the Foreign Trade (Development and Regulation) Act, 1992 implement the trade-in-goods obligations.

What is the role of consensus in WTO decision-making?

Article IX(1) of the Marrakesh Agreement provides that the WTO shall continue the GATT practice of decision-making by consensus. A decision is taken by consensus if no member, present at the meeting when the decision is taken, formally objects to the proposed decision. Where consensus cannot be reached, the matter is decided by voting on the basis of one member, one vote — but in practice, voting is virtually never resorted to. Amendments to the Marrakesh Agreement and to certain core provisions require a two-thirds majority of members and bind only those members that accept them, and amendments that alter the rights and obligations of members require acceptance by every member or do not bind those who refuse.