Midterm report the non discrimination principles in international economic law

112 MEN under the GATS ¢ Meaning and Purpose At the same time, there is the GATS MFN obligation, outlined in Article IT General Agreement on Trade in Services; this obligation applies to

THE NON-DISCRIMINATION PRINCIPLES

IN INTERNATIONAL ECONOMIC LAW

Course : International Trade Law

TABLE OF CONTENTS

INTRODUCTION cccccssscssssssssssssesssssssssscsssnesnscsssasenssassassassassnesessasenssessassesesassnesenesens 1 CHAPTER I: LITERATURE REVIEW OF THE NON-DISCRIMINATION PRINCIPLES IN INTERNATIONAL ECONOMIC LAN ae 2 1.1 Most-Favoured-Nation Treatment (MEN) Là c c2 neo 2 1.1.1 MEN under GATT 1994 Q2 2 2112111112111 101 1111111211101 1 g1 Hye 2

1.2 National Treatment (NTT) L2 201122112 2112 1110 12 t1 HH ke 4 1.2.1 7 NTunder GATT 1994 2 c2 21116221121 121 1111111111111 11 18111111111 1 Hee 4 1.2.2) NT under the GATS Q01 011211211111 111 11111111111 11 111110111111 1k ch 5 CHAPTER II: NATIONAL TREATMENT IN VIETNAM - JAPAN ECONOMIC PARTNERSHIP AGREEMENT (VJEPA) AND UNITED STATES-MEXICO- CANADA AGREEMENT (USMCA) ng ng 04.180.000 000 7 2.1 National treatment under Article ITI:4/XX GATT and Article 14.4 USMCA 7 2.1.1 Comparison between Article IIl:4/XX GATT and Article 14.4 USMCA 7 2.1.2 Justification on public policy grounds cece cece ce cnteeeenseeeeee 9 2.2 National treatment under the GATS Article XVII and Article 8.11 EVFTA 11 2.2.1 Comparison between GATS Art XVIII and Article 8.11 EVFTA ll 2.2.2) NT application of EVFTA ccc ccc ccc ccccscecceceteeceseeeeceaseesteesenseees 14 CONCLUSION ecccssssssscsssssscsssessesessessesessssssscsessesessesssseesesessesesassessesesseeassesaesecenaes 18 REEERENCCE co ch HO HH HH HC HH HH HH TA 50.1000 080.0180.010 1.10810 0800 19

NT requirements, the focus will shift to GATT and GATS case law of both WTO panel and appellate bodies, provisions of international agreements, and scholarly research However, these principles of non-discrimination of the MFN and National treatment differ in their application with respect to trade in goods and services, although they are not exclusive in their application

Not counting the introduction, conclusion, and references, the report consists of:

Chapter 1: Literature review of the Non-Discrimination principles in International Economic Law

Chapter 2: National Treatment in Vietnam- Japan Economic Partnership Agreement (VJEPA) and United States- Mexico- Canada Agreement (USMCA)

Although free trade agreements (e.g., EVFTA, USMCA ) and GATT, GATS contain provisions for MFN and NT, the concepts do not apply in the same way As a result, some modifications in all sectors may be required if the concept of trade liberalisation

in the aforementioned areas 1s to be realized

We would like to express our profound gratitude to Ph.D Vu Thi Kim Ngan for your dedication and thoughtful instructions Throughout our report- making process, we tried our best to offer a high quality report However, because of limited insights into the application of MFN and NT, we inevitably made mistakes We are looking forward for your feedback, so that we can improve and provide more satisfying report m the future

CHAPTER I: LITERATURE REVIEW OF THE NON- DISCRIMINATION PRINCIPLES IN INTERNATIONAL

The tense politics preceding and during World War I had caused the MFN principle to

be lost or nearly lost Nonetheless, the principle was vigorously revived after the war, with the introduction of the General Agreement on Tariffs and Trade (GATT 1947) The MEN 1s a generally binding obligation under GATT 1947 Any treatment given to one member is immediately extended to all other members This is also mentioned in some WTO agreements GATT officially added this statute to Article 1 of the GATT in 1948

e Function of MFN

MEN treatment allows countries to import from the most efficient supplier by requiring that any favorable treatment and trade restrictions to one country be extended to all other countries immediately and unconditionally Therefore, MFN increases

predictability and hence trade and mvestment

MEN lowers the cost of upholding the multilateral trading system This allows WTO Members to reduce the costs of monitoring and negotiating unfair treatment

Finally, imports from all WTO Members are treated equally, lowering the cost of determining the origin of a substance and thus improving economic efficiency

111 MEN under GATT 1994

The MFN rules require that a good, service, or service provider in one WTO Member State not be treated less favorably than a 'like' good, service, or service provider originating in any other Member State Finally, there can be most favored’ members among WTO members because they must all be treated equally

e Meaning and Purpose

The MEN principle of GATT prohibits Members from discriminating among ‘like’ products from other Members by requiring GATT members to treat imports and domestic products equally Furthermore, under MFN treatment, WTO members must

extend any benefits to all WTO members immediately and unconditionally Any WTO member who provides preferential treatment to another partner 1s obligated to give the same treatment to all WTO members

e Scope and Application

The MFN Rule's Scope of Application: De Facto & De Jure Discrimination.: The GATT MEN principle has been interpreted to mean that a measure can be

discriminatory in law (de jure) but also in practice (de facto)

The measure in EC-BANANA III was the European Communities’ import regime for bananas, which treated bananas from Latin American countries less favorably than from former European colonies or African — Caribbean Pacific bananas Article I (1) of the GATT addresses not only 'in law' but also 'in fact' discrimination As a result, it appears that Article I (1) applies not only to 'origin-based' measures but also to measures that appear to be origin-neutral but discriminatory on the surface As a result,

it was rejected in Canada-Auto, just as the Panel had done when Canada argued that Article I (1) does not apply to measures that appear to be 'origin-neutral' on the surface

112 MEN under the GATS

¢ Meaning and Purpose

At the same time, there is the GATS MFN obligation, outlined in Article IT (General Agreement on Trade in Services); this obligation applies to measures affecting trade in services that fall within the scope of GATS agreements

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Discrimination against any WTO member based on the product's "national origin or destination" is prohibited under the MFN obligation Furthermore, membership in the WTO is not required for the recipient country that was granted preferential treatment for the MFN obligation to apply

e Scope and Application

All levels of government are covered by GATS Furthermore, trade in services refers to four modes of service supply: Cross-border trade (Mode 1), consumption abroad (Mode 2), commercial presence (Mode 3), and temporary movement of natural persons (Mode 4)

The first issue concerning the GATS application is said to have arisen in the context of Canada — Periodicals Canada contended that a tax equal to 80% of the value of all advertisements in so-called split-run periodicals was a measure affecting trade in services Furthermore, Canada believed that the measure could only be reviewed under the GATS's national treatment obligation, for which no commitments on advertising

3

services were made The Panel and the Appellate Bodies rejected Canada's arguments, concluding that the obligations of both agreements are cumulative and coexist, rather than the obligations of one agreement, GATS, superseding those of the GATT 1.2 National Treatment (NT)

e History of NT

The national treatment obligation requires a WTO Member to treat foreign products, services and service suppliers not less favourably than it treats ‘like’ domestic products, services and service suppliers Pursuant to the national treatment obligation, a WTO Member is not allowed to discriminate against foreign products, services and service suppliers For trade in goods, the national treatment obligation has general application

to all trade By contrast, for trade in services, the national treatment obligation does not have such general application

® Function of NT

To begin with, WTO law mainly covers trade in goods and services and the main purpose of the multilateral trading system treaty is to broaden the platform Moreover, the function of national treatment in WTO law is to ensure Members do not circumvent their tariff reduction commitments at the border by enacting discriminatory taxes and internal measures once goods have been cleared in customs In addition, as outlined above, national treatment has the function of equalizing the competitive opportunities between imported and domestic products and services to avoid protectionism

121 NT under GATT 1994

¢ Meaning and Purpose

The NT prohibits any of the member nations from favouring or giving any advantages

or raising any benefits to their domestic products/ goods over imported products of other member nations Article III of GATT 1994 specifically deals with NT and explains the secondary need of NT after MFN pminciples to fight against any discrimination of imported products NT has been well defined under paragraph 1, 2 &

4 of Article III and 2nd sentence of Article III

e Scope

Just like the MFN principle, the scope of the NT also covers the scope of de jure and de facto discrimination of imported products A stance is de jure discriminatory when discrimination can clearly be seen between imported and domestic like products in term of a legal manner And when the discrimination is very much clear on the face of

a legal instrument that it doesn’t have any complexity to understand, then it can be de

facto discrimination The most important part of NT is that it only applies to internal measures, and it does not border on imported goods

e Application

It seems that any discrimination by one party in favor of a product onginating in another party’s market for the product through border measures is seen as affecting the access of the parties not so favored to the same market Obviously, Article I of the GATT prohibits such discrimination as it uses the phrases such as ‘like products’ to limit the set of products within which prohibition applies and Article HI prohibits such discrimination among products within a set that 1s specific to each relevant paragraph

of the Article, if such discrimination is applied ‘so as to as to afford protection to the domestic product’

1.2.2 NT under the GATS

e Meaning and Purpose

In the same fashion, NT is also featured as a principle in the General Agreement on Trade in Services (GATS), as set out in the Article XVII of GATS NT applies in respect to services and service suppliers The obligation of NT is to guarantee access and treat all 'like' services and service suppliers equally and without discrimination The obligations in GATT and GATS are different; the National Treatment of the GATS (General Agreement on Trade in Services) is not a general application as is NT under GATT, because the obligation of NT in Article XVII in GATS does not apply generally

to all measures impacting trade in services The latter obligation applies only to cases where the countries of GATS have explicitly committed to grant the NT in regard to specific service sectors

e Scope

NT applies with respect to services and service suppliers This principle is considered

to have wider scope than the NT in GATT However, while the NT in GATT is concemed with products, NT under GATS is concemed not only with products but also service suppliers NT under GATS is more limited in application than NT under GATT because while NT in GATT applies to cross-border commerce, NT under GATS applies only to scheduled sectors, and these too are subject to limitations

e Application

The GATS outlines this principle in Article XVII It has been surmised that the National treatment principle of the GATS, like that of the GATT, refers to equal treatment for foreign and domestic providers, or equal competitive opportunity where

identical services are on offer This principle of non-discrimination is that fundamental concept of trade that binds Members Furthermore, it has been opined that trade in service is of substantial and growing importance to the world and national economies, hence its introduction at the Uruguay Round However, the GATS and its National treatment obligation seem to have come into effect before WTO Members were willing

to completely eliminate discriminatory measures in service trade, and as a result, it is argued that the negotiators faced (and still face) significant challenges when having to draft a comprehensive set of rules governing the multilateral trade in services, and as a result the accomplishment has been a complex one

CHAPTER II: NATIONAL TREATMENT IN VIETNAM - JAPAN ECONOMIC PARTNERSHIP AGREEMENT (VJEPA) AND UNITED STATES-MEXICO-CANADA AGREEMENT

(USMCA)

2.1 National treatment under Article III:4/XX GATT and Article 14.4 USMCA

211 Comparison between Article ITT:4/XX GATT and Article 14.4 USMCA

® Article Il GATT states that:

“I The Contracting Parties recognize that [ ] laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use

of products, [ ] should not be applied to imported or domestic products so as to afford protection to domestic production [ |”

“4 The products of the terntory of any 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 [ ]”

Similarly, Article 14.4 USMCA indicates that:

“1 Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.”

From two national treatment provisions above, the two important pillars of the National treatment principle are nationality discrimination and public policy justification We will base on these pillars to distinguish between Articles HI:4/xX GATT and Article 14.4 USMCA Nationality discrimination in USMCA and GATT case-law focuses on a relatively structured analysis of the discriminatory/protectionist effect of the measure under consideration involving such factors as: likeness, nationality imbalance and less Savourable treatment

e Likeness

Regarding the analysis of nationality discrimination a determination of likeness has mostly concentrated on the nature and extent of the competitive relationship between products or investors, even though the definition of ‘likeness’ may have various roles in

the operation of the NT principle In line with NT principle ‘s function of to tackling discriminatory or protectionist measures, only products or investors that are in a competitive relationship in the marketplace can be impacted by the less favourable treatment accorded to a sub-category of those products or investors

Similar to GATT 1994, USMCA would incorporate nondiscrimination provisions, requiring that each country accord the investors and investments of another country treatment no less favorable than that it accords, in like circumstances, to its own investors or the investors of any other country throughout the lifecycle of the investment With regard to the potentially broad definition of “like circumstances”, USMCA tribunals state that firstly the comparison is related to investors and investment in the “same business or economic sector” For greater certainty, whether treatment is accorded in “like circumstances” under this Article depends on the totality

of the circumstances, including whether the relevant treatment distinguishes between investors or investments on the basis of legitimate public welfare objectives While indirect (also known as regulatory) expropriation is included, the proposed USMCA affirms that nondiscriminatory regulatory actions designed to protect legitimate public welfare objectives would not constitute mdirect expropriation except in “rare circumstances,” similar to language in more recent U.S FTAs

¢ Nationality imbalance

An apparent distinction between the nationality discrimination analysis under USMCA Chapter 14 and the GATT lies in the type of “nationality imbalance” required in the two systems So far, according to the very few cases determined under USMCA Chapter 14 dispute settlement mechanism, a breach of the NT obligation may be established by figuring out that the national measure under review affords less favorable treatment to the foreign investor (that has brought the claim) compared to the treatment afforded to at least one domestic investor operating in the same business sector This means that nationality discrimination is established simply by demonstrating that one foreign investor has been given less favorable treatment compared to at least one domestic competitor (or investor operating in the same sector)

This approach to the issue of “nationality discrimination”, stmply concentrating on the treatment afforded to a foreign investor compared to that given to a domestic investor, can move the concept of national treatment very close to the principle of equality Practically, rather than making a comparison between the different treatment of two similarly-situated investors as it would occur under an examination of equality, this

interpretation of the NT principle requires a comparison between one foreign and one domestic entity operating in the same business sector

e Less favorable treatment

With a view to determining whether a measure gives “less favorable treatment” to foreign investors or products, USMCA tribunals pay attention to that measure’s

“adverse effect” on foreign investors (and their investments) or on foreign products, while intent does not seem to be an indispensable factor Apart from that, in line with

NT principle’s function of providing equality of opportunities or expectations, this statement should not be read to require a demonstration of “actual” detrimental impacts; rather “potential” devastating influences are sufficient

With a view to determining whether a measure gives “less favorable treatment” to foreign investors or products, USMCA tribunals pay attention to that measure’s

“adverse effect” on foreign investors (and their investments) or on foreign products, while intent does not seem to be an indispensable factor Apart from that, in line with

NT principle’s function of providing equality of opportunities or expectations, this statement should not be read to require a demonstration of “actual” detrimental impacts; rather “potential " devastating influences are sufficient It is also important to note that though USMCA seems to be a tri-partite treaty only applying to the U.S and Mexico This means that it only protects Mexican nationals investing in the U.S and U.S nationals investing in Mexico Nonetheless, the current investments in Canada and investments made by Canadian investors will be protected under the existing NAFTA regime for 3 years after the USMCA comes into force

2.1.2 Justification on public policy grounds

A finding of nationality discrimination isn't enough under NT Policy may foster nationality prejudice Before considering the two conditions required by the USMCA and WTO judges for granting this public policy explanation, it is necessary to study nationality discrimination and public policy rationale

® Relationship between discrimination and justification

USMCA Chapter 14's public policy argument differs from GATT's In USMCA Chapter 14 on Investment, despite the lack of a provision expressly allowing States to justify on public policy their national measures that afford less favorable treatment to foreign investors, USMCA tribunals have interpreted the “in like circumstances" language in Article 14.4 as a de facto public policy justification mechanism If a foreign investor is treated less favorably than a domestic investor because of a reasonable public policy, then the NT requirement is not violated Article 14.4's "in like