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HANDBOOK ON ACCESSION TO THE WTO: CHAPTER 5

Substance of Accession Negotiations

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5.2 Rules

Quantitative import restrictions, including prohibitions, quotas, and licensing systems

The WTO provisions demonstrate a strong preference for the use of price-based measures to protect domestic production over quantity-based restrictions on imports. The basic WTO principles are simple. While Members may use customs duties, but should be prepared to negotiate for their reduction or elimination,²⁵⁰ they may only use quantitative restrictions, including prohibitions, quotas and restrictive licenses in specific, carefully defined cases. However, these exceptions are quite numerous and further provisions are required to govern the application of the permitted restrictions.²⁵¹ A number of these exceptions are dealt with in other sections of this Handbook, for instance those dealing with balance of payments; safeguards; technical regulations; and sanitary and phytosanitary measures.

A separate WTO Agreement on Import Licensing Procedures deals specifically with import licensing, defined as the administrative procedures used for the operation of import licensing regimes requiring the submission of an application to a government body as a prior condition for importation. They may themselves create obstacles to trade. The Agreement distinguishes between automatic and non-automatic procedures. Automatic procedures are deemed not to have trade-restrictive effects if specified conditions are met and must, for instance, be granted in all cases within ten working days. Non-automatic licenses should not have trade-restrictive or distortive effects on imports additional to those caused by the imposition of the restriction itself.²⁵²

Quantitative restrictions directly affect access to markets and members of Working Parties have scrutinized any restrictions carefully in order to reach a judgment on their compatibility with the WTO rules.

The language of Protocol commitments varies and the nearest that can be found to a core commitment on quantitative restrictions and import licensing requirements reads as follows: “The representative of [X] confirmed that [it] would, from the date of accession, eliminate and shall not introduce, re-introduce or apply quantitative restrictions on imports, or other non-tariff measures such as licensing, quotas, bans, permits, prior authorization requirements, licensing requirements and other restrictions having equivalent effect that cannot be justified under the provisions of the WTO Agreement. [X] further confirmed that the legal authority of the government of [X] to suspend imports and exports or to apply licensing requirements that could be used to suspend, ban, or otherwise restrict the quantity of trade will be applied from the date of accession in conformity with the requirements of the WTO, in particular Articles XI, XII, XIII, XVIII, XIX, XX and XXI of the GATT 1994, and the multilateral trade agreements on Agriculture, Application of Sanitary and Phytosanitary Measures, Import Licensing Procedures, Safeguards and Technical Barriers to Trade.”²⁵³

Many Reports also contain commitments to bring specific restrictions into conformity with WTO rules. One Working Party Report contains a list of specific import licenses, quotas and import tendering requirements imposed at the national and sub-national levels to be phased out over periods of up to three years and detailed commitments on the procedures and criteria to be used in order to ensure non-discriminatory allocation and utilization of the measures.²⁵⁴ A number of Reports provide for transitional periods.²⁵⁵ One Report provides that the acceding country “would not introduce any other import quotas in future”.²⁵⁶

One set of Protocol commitments provides that the duration of validity of import licenses shall be increased to one year and that the country concerned shall provide an initial notification.²⁵⁷

Customs Valuation

The aim of the WTO rules in this area is to lay down a fair, uniform and neutral system for the valuation of goods for customs purposes that precludes the use of arbitrary or fictitious customs values.²⁵⁸ The relevant rules are contained in Article VII of the GATT 1994 and the WTO Agreement on the Implementation of Article VII of the GATT 1994, including its Interpretative Notes. The Customs Valuation Agreement provides that the basis for the valuation of the goods being imported should, to the greatest extent possible, be “the transaction value, i.e. the price actually paid or payable for the goods when sold for export to the country of importation”, suitably adjusted. When the transaction value cannot be determined, the Agreement establishes a hierarchy of alternative valuation methods and the conditions under which these may be used. Certain valuation practices, including the use of minimum customs values, are specifically prohibited under the Agreement.²⁵⁹

These are key GATT provisions, as the valuation of goods has a direct impact on access to markets. The rules are there not only to ensure that the benefits derived from tariff bindings are protected but also to provide predictability so that traders know, with a reasonable degree of certainty, how much duty they will pay.

The main aim of the active members of accession Working Parties has been to ensure as far as possible that the WTO rules on valuation are implemented in full from the date on which new Members accede. The baseline Protocol commitment is therefore: “The representative of [X] confirmed that [it] would implement the provisions of the WTO, including the Agreement on the Implementation of Article VII, concerning customs valuation in full from the date of accession to the WTO.”²⁶⁰

This commitment has frequently been augmented by reference to the WTO Customs Valuation Committee Decisions which interpret the basic provisions. Decision 3.1 on the Treatment of Interest Charges in Customs Value of Imported Goods deals with the way in which interest charges should be treated in customs value. Paragraph 2 of Decision 4.1 on the Valuation of Carrier Media Bearing Software for Data Processing Equipment provides that, exceptionally, the customs value of imported carrier media bearing data or instructions may be either the transaction value or only the cost or value of the carrier medium itself and not the value of the data or instructions.²⁶¹ Some Members have asked that acceders implement these Decisions and that only the cost of the carrier medium itself would be accounted for in the customs value. Recent practice has varied however. In some cases the Protocol commitment has required acceders to implement not only Article VII of GATT 1994 and the Customs Valuation Agreement but also Decision 3.1 and paragraph 2 of Decision 4.1.²⁶² On the other hand, certain Protocol commitments do not specify which option the acceder concerned will choose for the valuation of carrier media when implementing the Decisions²⁶³ and three other recent commitment paragraphs, two of which relate to LDCs, make no mention of these Decisions.²⁶⁴ Two Reports conclude that the new Member concerned would apply the provisions of the Decision on the Valuation of Carrier Media as soon as practicable but in any event no later than two years from the date of accession.²⁶⁵

In some cases acceders have accepted a commitment making clear that, as an international agreement, the provisions of the WTO Customs Valuation Agreement would supersede domestic law after accession.²⁶⁶ WTO Members have wanted to identify any deficiencies in existing legislation and to verify that all relevant legislation would conform to WTO requirements by the date of accession of the new Member concerned, as is clear from a number of commitment paragraphs.²⁶⁷

Members have wanted to see that all the provisions of the Customs Valuation Agreement will be observed but they have been particularly vigilant in ensuring that new Members conform to certain of these provisions, focussing, for instance, on the necessity of eliminating and not reintroducing any prohibited valuation methods, such as the use of minimum customs values and any system of reference prices or fixed valuation schedule applied in lieu of the transaction value.²⁶⁸ The implementation of some other provisions, for instance those relating to the valuation of cinematographic films, the posting of bonds for prompt clearance of goods, the right of appeal to an independent administrative tribunal, have also received particular attention.

Some of the Protocol commitments specifically state that the provisions of the Customs Valuation Agreement would be implemented in full from the date of accession to the WTO “without recourse to any transitions”.²⁶⁹

Working parties have granted transitional periods for the implementation of the Agreement on Customs Valuation to the two LDCs that have so far acceded, in pursuance of the Guidelines for the Accession of LDCs after providing a detailed Action Plan with a time table for full implementation of the Custom Valuation Agreement. In the discussion of such requests, some members expected that legislation on the valuation of imports for customs and taxation purposes conforming to the requirements of the Agreement would be examined by the Working Party before a decision was taken on the terms of accession of the applicant requesting a transitional period and would be enacted promptly thereafter. In one case it was made clear the use of any prohibited methods of valuation beyond the products currently listed in its legislation should not be expanded, and the prohibited methods of valuation should not otherwise be used.²⁷⁰ Tonga was also granted a transitional period on similar conditions.²⁷¹

Rules of Origin

Rules of origin are required for the implementation of any measures which distinguish between imports from different countries, such as most-favoured-nation treatment, anti-dumping and countervailing duties, safeguard measures, free trade areas and preferential schemes. GATT 1947 had no provisions on the subject despite the effect that such rules had on international trade. The negotiation of the WTO Agreement on Rules of Origin was a recognition of their importance. However, its main provisions govern only non-preferential rules of origin and its programme for the harmonization of rules of origin has not yet produced agreed results. The Agreement lays down certain disciplines and procedural requirements for publication and notification. It provides, for instance, the right to request an advance assessment of origin, even before trade in the good concerned has begun.²⁷² An annex to the Agreement sets out a “common declaration” with respect to preferential rules of origin.

Standard Protocol commitments establish that the new Member will observe the provisions of the Agreement on Rules of Origin, paying particular attention to the clauses regarding the issuance of assessments of the origin of imports and to the need for these to be incorporated in domestic law by the date of accession. A baseline commitment reads: “The representative of [X] confirmed that from the date of accession [X’s] preferential and non-preferential rules of origin would comply fully with the WTO Agreement on Rules of Origin, and that the requirements of Article 2(h) and Annex II, paragraph 3(d) of the Agreement, which require provision upon request of an assessment of the origin of the import and outline the terms under which it will be provided, would be established in [X’s] legal framework prior to accession”.²⁷³ Commitments sometimes specify that these assessments would be issued by the relevant government authorities “or preshipment inspection agencies acting on their behalf”.²⁷⁴

The Protocol commitment of one LDC recorded that it would be able to comply fully with the provisions of the WTO Agreement on Rules of Origin in the application of preferential and non-preferential rules of origin after enactment of its new Customs Law and its implementing regulations, no later than 1 January 2005.²⁷⁵

Other customs formalities

This section deals with Customs formalities not dealt with under other headings. The range of these formalities can best be seen from the coverage of the World Customs Organization’s International Convention on the Simplification and Harmonisation of Customs Procedures (Kyoto Convention), especially from its annexes on individual procedures. These formalities are the subject of negotiation in the WTO under the heading of Trade Facilitation.

The main provision of the WTO is GATT 1994, Article VIII:1(c), which contains rules on formalities imposed on or in connection with importation (and exportation) as well as the fees and charges dealt with above.

Applicants are invited to provide information on these customs formalities. Under this heading they should, for instance, indicate whether they are a party to WCO Kyoto Convention, which of the annexes to this Convention they have accepted and whether they have signed the Draft Protocol on the Amendment of this Convention. They should also provide information on any steps taken to simplify customs procedures, to make these more transparent, and to improve the enforcement capability of customs services.

The customs procedures of most general interest to WTO Members are dealt with in other sections dedicated to them. However, some of the formalities in this residual section may attract their attention. Members have, in at least one case, wished to assure themselves that applicants have control of their customs territory and would be able to enforce the WTO provisions and terms of their accession package.²⁷⁶ If difficulties have been reported Members may also ask questions concerning efforts to combat smuggling and to limit incentives to smuggling and the discretion allowed customs officials. One acceding country, urged to establish prompt, simplified and more transparent customs procedures including the enforcement capability of border measures, confirmed that customs procedures had already been reformed to facilitate trade and investment and to ensure compliance with its international obligations, without, however, entering into a Protocol commitment on the subject.²⁷⁷ An LDC confirmed that its government was in the process of establishing a dispute settlement mechanism within its customs service to accept and act upon complaints about customs practices from traders and governments and undertook a Protocol commitment to pass a law to establish this by a specified date: this mechanism was authorized in a new Customs Law and would be established prior to a specific date.²⁷⁸ Finally, several Working Party Reports record that the countries concerned do not maintain any requirements for notarization, authentication or consularization of trade documents.²⁷⁹

Preshipment Inspection

Some governments, mainly of developing countries and countries in transition, have used preshipment inspection companies for the mandatory inspection and verification of the quality, quantity, price of goods to be exported to their countries. Exports are sometimes also subject to this sort of preshipment inspection (PSI). The purpose of this type of PSI is to compensate for inadequacies in administrative infrastructures and to safeguard national interests (e.g. prevention of capital flight, commercial fraud, or customs duty evasion). However, the activities of the PSI companies concerned may themselves hinder or distort international trade. The WTO Agreement on PSI recognizes both that developing countries may need to use PSI and that the activities of PSI companies contracted or mandated by governments should be brought under multilateral disciplines.

The obligations placed on PSI user governments by the Agreement include non-discrimination, transparency, protection of confidential business information, the avoidance of conflicts of interest by the PSI agencies, avoidance of unreasonable delay and the use of specific guidelines for conducting price verification. The obligations of exporting contracting parties include non-discrimination in the application of domestic laws and regulations, prompt publication of such laws and regulations, and the provision of technical assistance where requested on mutually agreed terms.

This subject is primarily important for applicants that operate a mandatory system of PSI. Normally, Members have been interested in finding out whether acceding governments have concluded contracts with PSI firms. They have also wanted to find out if acceding governments have considered using the services of PSI enterprises and whether a legislative framework for the use of PSI exists. Requests have been made for a description of any PSI services provided. Members have wanted to establish that any mandatory PSI will only be used until such time as the customs authorities were able to carry out the activities performed by PSI companies. Particular attention has been paid in some Working Parties on the fees charged by PSI entities.²⁸⁰ Questions have also been asked about provisions ensuring the transparency of PSI activities and the possibility of appealing decisions of PSI entities to the courts. Some members have been interested in establishing that an acceding government was prepared to take responsibility for the activities of the PSI enterprises that operated in its name and to ensure that they observed WTO provisions.²⁸¹

The Protocol commitments of acceders that did not use PSI have been relatively brief. Some early Reports committed them to ensure that the operation of PSI firms would be consistent with the provisions of the Agreements on PSI and Customs Valuation.²⁸² Some others added a commitment to observe GATT 1994 Articles VIII (fees related to the approximate cost of the services rendered) and X (transparency).²⁸³

The Protocol commitment of the first user government to accede was much broader in scope.²⁸⁴ User governments can expect to be asked to undertake a commitment along the following lines: “The representative of [X] stated that, from the date of accession to the WTO, [it] would ensure that the requirements of the Agreement on Preshipment Inspection were met in full. He further confirmed that [X] would ensure that the operations of any preshipment inspection companies retained by [X] met the requirements of the WTO agreements, including the Agreements on Technical Barriers to Trade, Sanitary and Phytosanitary Measures, Import Licensing Procedures, Customs Valuation, Rules of Origin, Implementation of Article VI (anti-dumping), Subsidies and Countervailing Measures, Safeguards and Agriculture. The establishment of charges and fees would be consistent with Article VIII of the GATT 1994, and [X] would ensure that the due process and transparency requirements of the WTO agreements, in particular Article X of the GATT 1994, would be satisfied.”²⁸⁵ One recently acceded country that did not use PSI and was not considering its use accepted a similar commitment.²⁸⁶

Two user governments received somewhat different treatment.²⁸⁷

Anti-dumping, Countervailing, Safeguard Measures

Anti-dumping duties and countervailing measures are used to counteract the effects of dumping and subsidization respectively. Safeguard measures are imposed on imported products that cause or threaten to cause injury to domestic producers.

The WTO lays down rules disciplining the imposition of these measures. Anti-dumping duties may, for instance, not exceed the margin of dumping and countervailing duties may only offset the subsidies granted in exporting countries. Both may only be imposed on imports that cause or threaten material injury to domestic producers. These measures are unusual in the WTO in that they are levied only to the dumped or subsidized imports and not on an MFN basis. The WTO also disciplines the use of safeguard measures, which must be imposed on a most-favoured-nation basis.²⁸⁸

While more countries have adopted anti-dumping, countervailing duty and safeguard legislation than used to be the case, WTO agreements do not oblige Members of the organization to adopt a legislative framework for the imposition of these measures, nor to impose them, and members of accession Working Parties do not press applicants to do so. Working Parties rapidly evolved a fairly similar approach to Protocol commitments in these cases. Applicants may expect to be asked to accept a commitment along the following lines: “The representative of [X] confirmed that [X] would not apply any anti-dumping, countervailing or safeguard measures to imports from WTO Members until it had notified and implemented appropriate laws in conformity with the provisions of the WTO Agreements on the Implementation of Article VI, on Subsidies and Countervailing Measures and on Safeguards. He confirmed that [X] would ensure that such legislation would be in full conformity with the relevant WTO provisions, including Articles VI and XIX of the GATT 1994 and the Agreement on the Implementation of Article VI, the Agreement on Subsidies and Countervailing Measures and the Agreement on Safeguards. After such legislation was implemented, [X] would only apply any anti-dumping duties, countervailing duties and safeguard measures in full conformity with the relevant WTO provisions”.²⁸⁹

Working Parties have usually not insisted that pre-existing laws and regulations which do not comply with the WTO obligations be amended before accession, but have maintained that such laws and regulations not be used until they were brought into conformity.

In two cases some Members noted that the applicants concerned were continuing the process of transition towards a full market economy and that under those circumstances, in the case of imports from those countries into a WTO Member, special difficulties could exist in determining cost and price comparability in the context of anti-dumping investigations and countervailing duty investigations. The acceding countries concerned agreed that importing WTO Members might, under some circumstances, use alternative methodologies in determining price comparability under Article VI of the GATT 1994 and the Anti-Dumping Agreement and in identifying and measuring the subsidy benefit under the Agreement on Subsidies and Countervailing Measures. The use of alternative methodologies in determining price comparability will expire once the acceding country concerned establishes, under the national law of the importing WTO Member, that it is a market economy and, in any event, at the end of a transition period of 15 years in one case and 12 years in the other.²⁹⁰

Notes:

250. WTO Article III:2, Agreement on Agriculture Article 4:1 and 2, GATT Article XXVIII bis. back to text
251. The following are among the relevant provisions. GATT 1994. Basic prohibition: Article XI:1. Exceptions: Articles XII, XVIII, XIX, XX, XXI. Administration of Restrictions: Articles VIII, X, XIII, XIV, XV. Multilateral Agreements. Agreement on Agriculture, Agreement on Safeguards, Agreement on Technical Barriers to Trade, Agreement on Sanitary and Phytosanitary Measures, Agreement on Import Licensing Procedures. back to text
252. Agreement on Import Licensing Procedures. back to text
253. Croatia, para 73. See also Tonga, para 84; Viet Nam, para 227; Saudi Arabia, paras 155 and 158; Nepal, para 50; Cambodia, para 82; FYROM, para 107; Armenia, para 87; Chinese Taipei (same subject, different commitment), para 73; Moldova, para 83; Lithuania, para 71; Jordan, para 88; Latvia, para 59; Kyrgyz Republic, para 60. back to text
254. China, paras 122-136, 421, Protocol I, 7 and 8. See also Viet Nam, paras 206-227. back to text
255. Bulgaria, para 45; Chinese Taipei, para 71; FYROM, para 107; Cambodia, para 77. back to text
256. Oman, para 57. back to text
257. Armenia, paras 80 and 86. back to text
258. Agreement on the Implementation of Article VII of the GATT, Preamble. back to text
259. Agreement on the Implementation of Article VII of the GATT, Articles 1:1 and 8. back to text
260. In some cases, reference is also made to Article VII of GATT 1994. See Viet Nam, para 238; Saudi Arabia, para 164; FYROM, para 111; Armenia, para 97; Moldova, para 90; Lithuania, para 80; Croatia, para 83; Oman, para 64; Albania, para 74; Georgia, para 69; Jordan, para 94; Estonia, para 71; Latvia, para 62; Kyrgyz Republic, para 63. back to text
261. VAL/8, 10 October 1984. back to text
262. Saudi Arabia, para 164; FYROM, para 111; Armenia, para 97; Moldova, para 90; Oman, para 64; Albania, para 74; Georgia, para 69; Estonia, para 71. back to text
263. China, para 143; Croatia, para 83; Jordan, para 94; Latvia, para 62; Bulgaria, para 73. back to text
264. Nepal, paras 53 and 57; Cambodia, para 93; Chinese Taipei, paras 78 and 80.  back to text
265. Viet Nam, para 238; China, para 143. back to text
266. Moldova, para 90; Albania, para 74; Estonia, para 71; Kyrgyz Republic, para 63; Bulgaria, para 73. back to text
267. See, for example: Saudi Arabia, para 164; Armenia, para 97; Chinese Taipei, paras 78 and 80; Moldova, para 90; Lithuania, para 80; Croatia, para 83; Albania, paras 73 — 75; Georgia, para 69; Panama, para 35. back to text
268. For prohibited valuation methods, see Agreement on the Implementation of Article VII of the GATT, Article 7:2. Viet Nam, para 238; China, para 140; Moldova, para 90; Lithuania, para 79; Oman, para 64; Estonia, para 71; Kyrgyz Republic, para 63; Panama, para 34. back to text
269. Saudi Arabia, para 164; Chinese Taipei, para 80; Croatia, para 83; Georgia, para 69; Jordan, para 94; Latvia, para 62. back to text
270. This paragraph is based mainly on the experience of Cambodia and Nepal. For the relevant commitments, see Cambodia, paras 89 — 93 and Nepal, paras 53 — 57. back to text
271. Tonga, paras 89 — 91. back to text
272. Agreement on Rules of Origin, Article 2(h) and Paragraph 3(d) of Annex II. back to text
273. Moldova, para 94. See also Tonga, paras 95 and 96; Viet Nam, para 244; Saudi Arabia, para 167; Nepal, para 68; FYROM, para 115; Armenia, para 102; Chinese Taipei, para 82; China, paras 100, 101 and 102; Lithuania, para 86; Croatia, para 88; Oman, para 67; Albania, para 79; Georgia, para 73; Jordan, para 100. back to text
274. Armenia, para 102; Croatia, para 88. back to text
275. Cambodia, para 96. back to text
276. Croatia, paras 90 and 91. back to text
277. Viet Nam, paras 245 to 247. back to text
278. Cambodia, para 99. back to text
279. Cambodia, para 97; Nepal, para 69; FYROM, para 117; Estonia, para 72; Panama, para 22. This issue is sometimes dealt with under the heading “Fees and Charges for Services Rendered” (see that section above). back to text
280. Cambodia, para 103 and Georgia, para 75 respectively. back to text
281. On this last point, see for example, Moldova, para 96. back to text
282. Panama, para 36; Mongolia, para 45; Ecuador, para 29. The PSI Agreement refers to the Agreement on Customs Valuation in its footnote 4. back to text
283. Nepal, para 71; Chinese Taipei, para 84; Moldova, para 96; Jordan, para 103. Tonga, para 98 and Albania, para 81 provide exceptions, each undertaking, for instance, to “take full responsibility to ensure that such enterprises operating on its behalf complied with the provisions of WTO Agreements”. back to text
284. Georgia, paras 74 to 76. back to text
285. See Saudi Arabia (no longer a user at the date its Report was adopted), para 174; Armenia, para 104; Georgia, para 76. back to text
286. Viet Nam, para 250. back to text
287. For details, see Cambodia, para 105; China, paras 145 and 146. back to text
288. Main relevant WTO provisions. Anti-Dumping: GATT Article VI and the Agreement on Implementation of Article VI of GATT, Ministerial Decisions and Declaration Relating to the Agreement on Implementation of that Agreement adopted by the Trade Negotiations Committee on 15 December 1993. Countervailing measures: GATT 1994 Article XVI and the Agreement on Subsidies and Countervailing Measures. Safeguards: GATT 1994 Article XIX and Agreement on Safeguards. back to text
289. Saudi Arabia, para 178. See also Tonga, para 100; Viet Nam, para 253; Cambodia, para 108; Nepal, para 75; FYROM, para 122; Armenia, para 106; Moldova, para 98; Lithuania, para 91; Croatia, para 99; Oman, para 73; Albania, para 84 and 86; Georgia, para 78; Jordan, para 107; Estonia, para 78; Latvia, para 66; Kyrgyz Republic, para 70. back to text
290. Viet Nam, paras 254 and 255; China, Protocol I.15. back to text

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