Customs Law, International
- International customs law — Tariffs — Most-favoured-nation treatment (MFN) — Specific trade agreements — Goods
Published under the auspices of the Max Planck Foundation for International Peace and the Rule of Law under the direction of Rüdiger Wolfrum.
A. Concept and Basic Problems
1 International customs law is a branch of international economic law (International Economic Law), comprising the international obligations undertaken by States—as well as supranational entities, eg the European Community (‘EC’), and customs territories, eg Taiwan—with respect to the legal regulation, administration, and control of customs duties and other means of control of the trans-frontier movement of goods. Like other branches of international economic law, international customs law obligations derive from treaties. To the extent that States have not limited their sovereign powers by treaty (Sovereignty), they are free to determine unilaterally the national customs duties. The list comprising the rates of duties imposed by a State with respect to the various categories (classes) of goods is the so-called tariff. However, the terms ‘tariffs’ and ‘customs duties’ are generally used interchangeably. Customary international law plays a very limited role, eg regarding certain exemptions granted to diplomats (Immunity, Diplomatic). The exemptions may, however, be ascribed to comity rather than to binding obligations recognized by customary international law.
2. Basic Problems
(a) The Purpose of Customs Duties
2 Customs duties are an indirect tax imposed on goods by reason of the fact that they cross national boundaries. ‘They seem to have been called customs, as denoting customary payments, which had been in use from time immemorial’ (Adam Smith 878–79). They serve two purposes: a) a source of State revenue, of special importance if the State has difficulty collecting direct tax from its citizens. According to a World Bank study of selected countries (World Bank Group), customs revenue in 2001 ranged between 0.9% and 71.5% of total tax revenue, with lower rates in developed countries and higher rates in developing ones (De Wulf and Sokol Part I, Annex 1A); b) protection of local industry from its foreign competitors, originally in line with mercantilist views that nations gain from export promotion and import restrictions. Such protection is sometimes deemed necessary for the development of new domestic industries, for a limited period of time, of special importance for developing countries (‘DCs’) wishing to protect their ‘infant industries’ from established, powerful foreign competitors. In the past, States have also imposed retaliatory customs duties, aimed at forcing other countries to lower their tariff. If a customs duty is matched by corresponding excise duties, levied on competing domestic products, and adjusted to the necessities of national expenditure, the import duties serve revenue purposes. On the other hand, if customs duties have no domestic counterpart, this may indicate that the protective motive prevails.
(b) Economic Theory
3 Economic theory emphasizes that, in the common interest, States should adopt a liberal approach to international trade. They should not use tariff or non-tariff barriers to trade to protect local competing industries. Under the principle of most-favoured-nation (‘MFN’) treatment (Most-Favoured-Nation Clause), tariff concessions should be extended on a non-discriminatory basis to all States (States, Equal Treatment and Non-Discrimination). In order to ensure their revenue-collecting purpose, customs duties should be supplemented with corresponding excise duties on domestic produce.
4 The protection of domestic industries by the State exerts a price. Inefficient patterns of both production and consumption are fostered, as it is the inefficient industries that need to rely on protection, and the other unprotected ones that end up bearing the costs of protection. Those least able to absorb the economic burden of protection are the exporters, whom protection in fact taxes (see Clements and Sjaastad). They must sell on the world markets and can hardly pass any increase in costs on to their consumers, as their competitors would then undercut them. This situation is aggravated by the strong connection which usually exists between exported goods and imported ones. Exporting industries must, in many cases, use as inputs goods manufactured by protected industries.
5 Furthermore, the observation has correctly been made that ‘international trade disputes’ among States are often, in fact, conflicts of interests wholly within the domestic domain (Röpke 15). The interests of the producers of raw materials, components, unfinished goods, and end-products, conflict with each other, and all of them conflict with the interests of consumers in having the best choice in acquiring goods at the most competitive prices. Politicians in democracies all over the globe, whether belonging to the legislature or to the executive branch, would readily offer protection to pressure groups in return for buying political support. ‘Dispensing gratuities at the expense of somebody else who cannot be readily identified became the most attractive way of buying majority support’ (Hayek 103).
(c) The Role of International Trade Rules
6 Even though each State stands to benefit economically, first and foremost, from applying a liberal foreign trade regime on an autonomous basis, it is only by ‘tying their hands to the mast’, that States make themselves capable of resisting the siren-like temptations to yield to interest groups at home (Petersmann  221). Reciprocal international treaties improving access to foreign markets attract political support, especially from exporting industries, more readily than policies of unilateral free trade, which cannot, by their own operation, open the foreign markets to them. Customs duties are considered less harmful than other barriers to trade, as they are transparent, give only a limited measure of protection, and the income generated is collected by the government directly. Unlike subsidies, they do not require government funds. By elevating the domestic price, they distort both production and consumption patterns. However, they do not detach the domestic price from the world market price, as is the case with quantitative restrictions. Therefore, the thrust of international trade rules is to channel, to the extent possible, all other border protection measures against imports into tariffs, and then negotiate agreements on tariff reductions, in which parties commit to limit their tariffs on particular items to the level negotiated (‘tariff bindings’). Most tariffs are ad valorem, ie calculated as a percentage of the value of the imported goods. Other types are ‘specific tariffs’, a flat charge imposed per unit or quantity of imported goods; ‘mixed tariffs’, combining the two types of tariffs (eg 10 cents per kg plus 7% of value); ‘tariff quotas’, in which the tariff rate depends upon the quantity of goods already imported (eg subjecting the first 2000 tons to a tariff of 10%, and all additional imports to 20%); and ‘technical quotas’, applied in particular to agricultural products, calculated on the basis of complex technical factors, such as alcohol or sugar content.
(d) The Basic Principles of the WTO/GATT Legal Order
7 In the past six decades, the General Agreement on Tariffs and Trade (1947 and 1994) (‘GATT’) has provided the principal legal framework for the development of long-term international legal obligations, which constrain governments from imposing measures that restrain or distort international trade in goods. The GATT is not a single agreement, but rather a series of numerous agreements, protocols, decisions, etc, reflecting the constant need for further interpretation and elaboration of the basic rules and the exceptions thereto. Since the restructuring of the GATT and the creation in January 1995 of the World Trade Organization (WTO) to carry forward the GATT’s work, the WTO members had to accept all multilateral agreements as a package deal rather than the menu GATT à la carte from which they could pick and choose previously.
8 Under GATT/WTO law, States are free to decide whether, and to what extent, they are willing to commit themselves to tariff bindings. The commitments undertaken are supplemented by two broad non-discriminatory obligations: a) the unconditional MFN clause (Art. I GATT), which requires every contracting party to apply all tariffs, whether covered by a concession or not, as well as all other rules and formalities applying to the import and export of like products, to all other contracting parties on a non-discriminatory basis; b) the national treatment (‘NT’) clause (Art. III GATT; National Treatment, Principle), which requires each State to treat imports originating in other contracting parties no worse than ‘like products’ of domestic origin under internal taxation and regulatory measures.
9 The GATT provides also for exceptions to the General Rules, most notably those relating to customs unions and free trade areas, as well as special preferences applicable to DCs, on a non-reciprocal basis—the so-called special and differential treatment. Given that these exceptions are discriminatory by nature, they require rules of origin, except in the case of customs unions (see para. 40 below), to ensure that only goods originating in the country to which preference has been granted will benefit from the special treatment.
(e) Classification and Valuation of Goods for Customs Purposes
10 The classification, valuation, and the determination of origin are the decisive factors for assessing the customs duties to be levied on imported products. To enable meaningful tariff negotiations, reliable trade statistics, as well as the free flow of goods in general (Goods, Free Circulation of), on the one hand, and the control of illicit trade in certain goods (eg endangered species, ozone-depleting substances), on the other, under rules which are clear, predictable, and transparent, harmonization is required on an international level. Whereas valuation is dealt with under the GATT, classification is, in principle, treated by the World Customs Organization (WCO). However, because ‘like products’ must be treated equally under WTO/GATT rules, questions of the proper classification—and, consequently, ‘likeness’—of goods are also being dealt with in GATT/WTO case-law (see paras 86–90 below).
(f) Customs Formalities and Procedures
11 International standards are dealt with by both the WCO and the WTO.
(g) Customs Boundaries and Customs Zones in International Law
12 The power of a State to impose customs duties within its territory is a feature of State sovereignty. Consequently, with a few exceptions, national boundaries and customs boundaries are nowadays identical. Under Art. 24 Territorial Sea and the Contiguous Zone Convention 1958 (Territorial Sea), coastal States may enforce their customs regulations also in the contiguous zone within 12 miles from the territorial baseline (Baselines). Under the 1982 United Nations Convention on the Law of the Sea (‘UNCLOS’; see also Conferences on the Law of the Sea), the exclusive economic zone was extended to 24 miles (Art. 33), and control by the coastal States has been specifically applied to bordering straits (Art. 42), and to artificial islands, installations, and structures within the exclusive economic zone (Art. 60).
13 The few exceptions to the coincidence of national and customs boundaries are due to historical, geographical, and political reasons. Those concern territories detached from their home State, which are excluded from the customs territory of their home State (customs exclaves) and included in the customs territory of another (the host) State (customs enclaves). Thus, eg the Italian town of Campione is an enclave in the canton of Ticino, Switzerland, and, although under Italian sovereignty, it is included in the Swiss customs territory. The Swiss village of Samnuan could initially only be reached from Austria and, consequently, was excluded from the Swiss customs territory in 1892, yet was not re-included therein after being connected to Switzerland by road in 1912. Exclaves and enclaves raise special problems requiring international cooperation among States.
14 Free zones or other customs facilities (Free Ports) may be provided to land-locked States by agreement with the coastal State (Art. 128 UNCLOS ; see also Transit of Goods over Foreign Territory). The term ‘free zone’ has been defined in Annex F1 of the 1973 Convention on the Simplification and Harmonization of Customs Procedures (‘Kyoto Convention’; see paras 55–56 below), in force since 1979, as ‘a part of the territory of a State where any goods introduced are generally regarded, insofar as import duties and taxes are concerned, as being outside the Customs territory and are not subject to the usual customs control’. It has been noted that the term is interchangeable with ‘free port’ and with ‘free warehouse’ (ibid). In the WCO Revised Kyoto Convention of 2000 (‘Revised Kyoto Convention’), in force since February 2006, ‘free zones’ are defined in Specific Annex D Chapter 2. Free zones do not affect the customs territory, and are based either upon a bilateral agreement between the establishing and the beneficiary States, or upon a unilateral act of the establishing State (Unilateral Acts of States in International Law).
B. Historical Evolution of Legal Rules
1. The Evolution in the Second Half of the 19th Century
15 Although commercial treaties can be traced to antiquity, the historical evolution of the modern legal rules has its firm roots in the diverging approaches to trade adopted by sovereign States since the middle of the 19th century. The coincidence of political and economic boundaries is a relatively modern phenomenon, too. The Austrian tariff was unified in 1775; the common tariff of the United States (‘US’) was adopted in 1789, the unified French tariff was adopted in 1790 following the French Revolution; the tariffs of Great Britain and Ireland were adopted in 1801; the tariffs pertaining to Switzerland, Denmark, and Russia by the middle of the 19th century; and all German States by 1871.
(a) The Pursuit of Unilateral Free Trade
16 Following the repeal of the Corn Laws in 1845, ie the repeal of the tariffs on imported grain, Great Britain embarked on a long period of free trade. The teachings of Adam Smith had underlined that mercantilism—ie the pursuit by States of a trade policy which maximizes exports in order to create a trade surplus that, when converted to gold and silver, would increase the nation’s wealth—was harmful to the economy in general. By collecting direct (income) tax for revenue-raising, Great Britain had also the fiscal autonomy necessary to uphold such a policy. According to British policy, tariffs were best fixed unilaterally by each State according to its interests. The British interest was to collect tariff duties only from a few items for the purpose of generating revenue, but not to use tariffs to protect domestic produce or discriminate against imports. The downside of this policy was that, to the extent that Great Britain wanted to prevent the increase of tariffs on the continent, it did not have the tariff leverage needed for such negotiations.
(b) Bilateral and Regional Trade Agreements
17 The British general policy notwithstanding, Great Britain nonetheless signed, for political reasons, a commercial treaty with France in 1860 (the Cobden–Chevalier Treaty), which substantially lowered the tariff barriers between them. Prior to the signing of this treaty, conditional MFN clauses were common in commercial treaties (Treaties of Friendship, Commerce, and Navigation). Under a conditional MFN clause, each party undertakes to extend to imports from the other party any advantage that it will grant to the imports from any other country, gratuitously, if that privilege was gratuitous, and on the same or equivalent conditions, if it was granted under certain conditions.
18 By contrast, the Cobden–Chevalier Treaty included an unconditional MFN clause, which extended automatically to the other party any concession granted by that party to another State, thus ensuring that benefits granted under the treaty would not be undermined by better benefits granted to other nations in the future. Although the conditional MFN clause may seem more equitable, it could hardly ever be put to practice because of the difficulty of assessing equivalent concessions, and has consequently fallen into disuse over the years (see para. 24 below). The Cobden–Chevalier Treaty provided a model for a whole network of commercial treaties, which were interlocked through MFN clauses entitling the signatories to the lowest duties to which any two of them had agreed. Consequently, these bilateral treaties established in fact a network that was multilateral. Historically, one consequence of the MFN principle for tariff negotiations has been the tendency of States to use ever narrower classifications of goods. A classic example is provided by the 1904 Swiss–German Treaty reducing German tariffs on the imports of ‘large dapple mountain cattle or brown cattle reared at a spot at least 300 meters above sea level and having at least one month’s grazing each year at a spot at least 800 meters above sea level’ (Jackson  151).
19 By 1871, all German States, under Prussian leadership, joined the Zollverein (German Customs Union), dismantling the tariffs among the German States and creating a common external tariff. The Zollverein took part in the European commercial treaties network. Prussia negotiated the commercial agreements on behalf of the Zollverein, however, prior to 1867, the binding of the other Zollverein members required the consent of each. In 1867, a federal customs council was established, and binding decisions were adopted by majority vote. Following the proclamation of the German Empire in 1871, the Zollverein was merged into the new Empire.
20 In the latter part of the 19th century, free trade was hampered by protectionist policies which could not be overcome through a system of bilateral treaties. Setbacks to reciprocity and to liberal trade, in general, followed the Franco–Prussian War (1870–71), as well as the onset of depression (1873–79). Germany adopted a protectionist policy, raising its tariffs. Other European States followed suit. In the wake of the Civil War, the US raised its tariffs drastically, introducing a protectionist tariff schedule. Great Britain remained the only country faithful to free trade.
2. The Evolution in the First Half of the 20th Century
21 Following World War I, States on both sides of the Atlantic, resorted to unilateral protectionist measures under the pressure of economic conditions. In 1927, the League of Nations convened the first World Economic Conference, which drafted the Geneva Convention on Import and Export Prohibition and Restriction (1927), a first attempt at establishing a multilateral framework for the regulation of trade. The Final Report of the Conference stated that although tariffs were ‘within the sovereign jurisdiction of the separate States’, they nevertheless ‘are not a matter of purely domestic interest but greatly influence the trade of the world’ (World Economic Conference, ‘Final Report’ 31). The convention itself does not mention customs duties, however the US, upon signing the convention, added an interpretative reservation in line with the Final Report, stating that the convention does not affect the tariff systems of the participating countries. The convention never came into effect, however can be considered the precursor of the GATT 1947 Agreements.
22 Another initiative of the League of Nations was the adoption of the Convention on Classification of Goods (‘Geneva Nomenclature’). The draft nomenclature was produced in 1931, and revised in 1937, in the form of the 1937 Draft Customs Nomenclature of the League of Nations. Its development was stopped by World War II.
23 Rather than liberalize, the US enacted the Smoot–Hawley Tariff of 1930, which set the highest tariffs in US history, extending protection to all interest groups who sought it. Europe retaliated with restrictive tariffs of its own. Great Britain abandoned its long time policy of free trade, introduced a protective tariff in 1932, and negotiated the 12 interlocking bilateral Ottawa Agreements of 1932 concerning tariff preferences for the British Commonwealth and India, while increasing tariffs on goods imported from other countries. France followed this example with tariff preferences for its colonies (Colonialism). Japan created a trading bloc in South-East Asia. The preferential agreements among the members of these trading blocs can hardly be termed ‘reciprocal’, because they were, in fact, imposed by the mother country, reflecting the latter country’s needs and aspirations, without being properly ‘negotiated’. The 1932 Ottawa preferential agreements—in force until 1937—were an exception, in that preferences given to the dominions could not be compromised without their consent.
24 In view of the reaction to its protective tariff, the US enacted the Reciprocal Trade Agreements Act (1934), which contained key strategic concepts underlying trade liberalization (Dam  4–6). Having noticed that logrolling in the Congress on individual tariff items had led to such a general increase in US tariffs, Secretary of State Cordell Hull successfully advocated the insertion in this act of congressional advance authorization for executive branch (presidential) negotiation of trade agreements. Another important aspect of the Hull approach was the inclusion in the bilateral agreements of the unconditional MFN, rather than the conditional MFN (see para. 18 above). Although conditional MFN seemed to promise reciprocal concessions rather than unilateral ones, in practice it was too complicated to be applied to dozens of countries on thousands of products. The Reciprocal Trade Agreements Act (1934) thus provided the framework for negotiating bilateral agreements in which the US offered substantially reduced tariffs, to be extended on the basis of MFN clauses. Although, when adopted, the act could not reverse the trade policies of most countries which went in the opposite direction, its key concepts have played a cardinal role in post-World War II trade agreements.
3. The Post-World War II Evolution
(a) The Havana Charter and the International Trade Organization
25 Following World War II, a first attempt was made to create an international organization for international trade under the auspices of the UN, next to the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD), forming together the three pillars of the Bretton Woods system (Bretton Woods Conference ). Three successive conferences, held from 1946 to 1948, yielded what became known as the Havana Charter (1948), intended to establish the International Trade Organization (‘ITO’). The Havana Charter included, in addition to the chapter on ‘Commercial Policy’, also, inter alia, chapters on ‘Employment and Economic Activity’, ‘Restrictive Business Practices’, and ‘International Governmental Commodity Agreements’, as well as organizational and procedural provisions. With respect to customs duties, Art. 17 Havana Charter provided a framework for tariff negotiations, on a reciprocal basis, among the Member States; Art. 16 Havana Charter provided for a general unconditional MFN, subject to a list of preferences, enumerated in Art. 16 (2) Havana Charter, which could be maintained under certain conditions. However, the signatory countries agreed, under US pressure, that the colonial preferences should be ‘eliminated’, after being first reduced through a process of reciprocal negotiations. Article 15 Havana Charter exempted from the MFN obligations agreements which are in the interest of economic development, however such agreements required approval by 2/3 majority vote of the ITO members, present and voting. Article 44 Havana Charter exempted from the MFN obligations customs unions, free trade areas, and interim agreements.
26 The establishment of the ITO should have achieved free, non-discriminatory trade by the Member States undertaking to abide by a code strictly prohibiting all non-tariff barriers and severely limiting governments from interfering with the free flow of private trade. The ITO would have been charged with interpreting and enforcing the international economic law code which would have become the constitution of international trade. Unfortunately, the unstable economic and financial environment of international trade at the time was unfavourable to the promulgation of such a code. Even within the US, which proposed and first drafted the Havana Charter, sufficient political support for such far-reaching goals could not be found.
(b) GATT (1947)–GATT (1994)
27 The GATT was originally designed to record the results of a tariff conference, to be conducted under the auspices of the ITO. However, when it became clear that the US would not ratify the Havana Charter, the GATT assumed the commercial policy role originally contemplated for the ITO. Initially, it was confined to the identification of the common interests of the various States and the working out of solutions that would be mutually acceptable and, consequently, by nature, compromising. The basic treaty of GATT (1947) has never technically come into force, but rather been applied by force of the ‘Protocol of Provisional Application’. contracting parties were defined as ‘governments’ rather than ‘nations’ (Art. XXVI GATT). ‘Customs territories’ were eligible to be contracting parties (Art. XXVI (5) (c) GATT). In 1994, following the Uruguay Round negotiations (see para. 34 below), the WTO/GATT 1994 Agreements, including a series of multilateral agreements, were adopted as a whole by all WTO members—States or separate customs territories.
(i) Tariff Concessions
28 The GATT contracting parties are not required to lower their tariffs. However, once a concession is made on a particular item, that item becomes ‘bound’ against increase above the agreed level (Art. II GATT). The commitments undertaken are contained in national schedules of concessions, appended to the GATT as an integral part thereof by reference in Art. II GATT. The national schedules differ from each other according to the commitments undertaken by each country. To prevent the undermining of the concessions, bound products must be exempt from all other duties or charges of any kind imposed in connection with their importation, except for fees and other charges which are ‘commensurate with the cost of services rendered’ (ibid). In addition, concessions may not be undermined by new methods of valuing goods or by reclassification of goods (see para. 78 below). A country’s GATT tariff schedule of concessions may differ from its national tariff; whereas the GATT schedule specifies the maximum tariff which may be applied, the national tariff specifies the actual rate applied for each product. With respect to products not included in the schedule of concessions, a country may impose any customs rate that it considers appropriate. In 1999, the WTO Secretariat launched the Consolidated Tariff Schedules (‘CTS’) Project, which contains, in one listing, in electronic and standardized form, all the tariff and agricultural commitments of all WTO members, as well as all the updates with respect to tariff concessions, in the latest nomenclature adopted by each member. The CTS database is only a working tool and has no legal status. However, before inclusion in the database, the pertinent Member State has to review the consolidated file which contains its concessions.
(ii) Tariff Negotiations
29 Article XXVIII GATT (1994) provided for tariff negotiations to be carried out ‘on a reciprocal and mutually advantageous basis’. Although ‘reciprocity’ is not defined in the agreement, it is nonetheless one of its most important features. In principle, it means that each country seeks to obtain from other countries tariff concessions that match the concessions to which it commits itself. Measuring the trade effects of the tariff concessions made by a country is very difficult and imprecise, because many factors, not related to the tariff concession, affect the terms of trade much more than a tariff cut. Furthermore, what countries really wish to achieve through reciprocal concessions, is a similar amount of future trade, the calculation of which requires the use of figures not readily available or even suspect (Jackson  147–48).
30 Regarding the tariff negotiating process, Art. XXVIII bis GATT provides that the negotiations may be carried out on a ‘selective product-by-product basis’ or ‘by application of such multilateral procedures as may be accepted by the contracting parties concerned’. The first five tariff negotiating rounds—ie Geneva (1947), Annecy (1948), Torquay (1950), Geneva (1956), and the ‘Dillon Round’, Geneva (1960–61)—had a bilateral character, following the ‘principal supplier’ rule. Only the principal supplier—ie the country exporting the largest volume—of a particular product could request a concession. In the second stage, each country would analyse the requests submitted to it and prepare an ‘offer list’, indicating the tariff concessions it would make if its own requests were treated favourably. This method ensured that the interests of the party standing to gain most of the MFN clause would be taken care of first. Furthermore, because the principal supplier had most to gain, it could also be expected to offer the greatest reciprocal concession in return. Nonetheless, the first tariff rounds were concluded in multilateral negotiations. At the end of the bilateral phase, last minute balancing of all concessions granted and received took place. During this phase, requests for additional concessions were permitted. In addition, contracting parties could offer bindings to more than one other party and obtain in return greater compensation. Thus, the multilateral phase contributed to a greater tariff reduction than that obtained through the bilateral negotiations. The participation of all major trading partners in each round in this kind of negotiating process constituted a major improvement over the 19th century truly bilateral trade negotiations of trade agreements. However, by the time of the Dillon Round, the product-by-product method had become too voluminous to handle. The process was further encumbered by the European Community (‘EC’), which had to first negotiate internally a common position among its Member States with respect to each product.
31 During the Kennedy Round of trade negotiations (1964–67), the ‘product-by-product’ method was replaced by the linear method, which assumed that all contracting parties would reduce tariffs by a prescribed percentage on all tariff lines—ie all single items included in a country’s tariff schedule—in casu 50% of most tariffs. States were allowed to make lists—restricted to a ‘bare minimum’—of products which they sought to exclude from the linear reduction, in return for which other contracting parties were entitled to demand and negotiate appropriate concessions. However, because the ‘bare minimum’ was undefined, some contracting parties made long lists of exceptions and only Austria, Denmark, Sweden, and Switzerland made none. Four developed States, namely Australia, Canada, South Africa, and New Zealand, were exempted from making offers on the basis of the linear method, because their foreign trade depended, to a large extent, on the export of agricultural products and raw materials, which were not included in the linear offers. The agriculture sector was treated separately, due to the multiplicity of the tariff—mainly, tariff-quota—and non-tariff trade barriers which prevented international trade from developing. Likewise, sector discussions—instead of across-the-board tariff reductions—were contemplated for aluminium, chemicals, pulp and paper, steel and textiles. Consequently, these States considered that if they were required to offer 50% tariff cuts on their industrial products, they would not be able to obtain reciprocal concessions from other developed countries.
32 The DCs were also exempted from making offers based on the linear technique. With respect to those, the Kennedy Round added Part IV GATT taking account of their needs by recognizing that they cannot be expected to offer reciprocal concessions, or be required to make the linear reduction of tariffs (International Law Development through International Organizations, Policies and Practice). A waiver adopted in 1971 authorized the creation of the Generalized System of Preferences (‘GSP’), allowing developed States to grant developing ones preferential access to their markets in deviation from the MFN clause. Imports benefiting from GSP-treatment have since substantially increased their market share in world trade. However, trade restrictions in areas such as agriculture and textile and clothing remained relatively disadvantageous to DCs.
33 The Tokyo Round (1973–79) added to the linear method an algebraic formula—the so-called Swiss formula—taking account of the ‘disparities issue’, encountered when States having an original low tariff on a product are required to lower the tariff by the same rate as those having a very high tariff which, even if reduced by the same percentage, would still offer substantial protection. This was the case especially with the EC, the common external tariff of which tended to average the tariff rates of its Member States, resulting with a more uniform tariff, without tariff ‘peaks’, with respect to which a 50% tariff cut could be offered without entirely compromising the protection of domestic production.
34 The tariff negotiations of the Uruguay Round (1986–94) employed both the product-by-product method as well as the Tokyo Round ‘Swiss’ formula, resulting in a significant increase in the number of bound tariff lines—from 78% to 99% in the case of developed States and from 22% to 72% in the case of developing States—with overall customs rates falling in developing States from an average level of 6.3% to 3.9% (Jackson, Davey, and Sykes 405 et seq). In addition, multilateral agreements were concluded with respect to agriculture and textiles (see para. 66 et seq below). An Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994 was also adopted, aiming to clarify the distinction between ‘ordinary customs duties’ and ‘other duties and charges’, of any kind imposed on or in connection with importation in excess of those imposed, from which bound products must be excempt, in so far as those are in excess of those provided in the schedule of concessions of the importing state. According to the Understanding, not only ordinary customs duties but also other duties or charges imposed on imported goods, must be reflected in the schedule of concessions.
35 The Doha Round (Agenda for Development) negotiations, initiated in 2001, have not yet been concluded. An Agreement on Trade Facilitation, adopted by Ministers in Bali, Indonesia on 3–6 December 2013, providing for faster, transparent and more efficient customs procedures, as well as technical assistance and capacity building in this area, will come into force upon its ratification by two thirds of the WTO members (see paras 57 and 83 below).
36 Article I GATT stipulates a broad MFN clause, applicable to all tariffs, bound and unbound, as well as to all other rules and formalities imposed in connection with importation or exportation. Article II GATT adds a special MFN clause with respect to tariff bindings, requiring members to ‘accord to the commerce of the other contracting parties treatment no less favourable than that provided for in the appropriate Part of the appropriate Schedule annexed to this Agreement’.
37 Article III GATT prescribes the NT clause, to ensure that tariff concessions are not nullified via internal taxes or charges, as well as other kinds of regulation and formalities that discriminate between imports and domestically produced like goods. Under Art. XI GATT quantitative restrictions are basically forbidden and, consequently, no provision has been made for ‘trade negotiations’ with respect to those. Article VII GATT stipulates some general rules regarding the valuation of goods for customs purposes, however much room has been left for inconsistent valuation methods among the Contracting States. Article VIII GATT provides that all fees and charges of whatever character—apart from customs duties and internal taxes—must be ‘limited in amount to the approximate cost of services rendered’.
38 Article XIX GATT, the so-called ‘escape clause’, allows for a measure of flexibility, by allowing a contracting party to take, within certain limitations, emergency action if, as a result of a concession, serious injury is caused, or threatened, to domestic producers. Likewise, Art. XXVIII GATT allows contracting parties to withdraw concessions in special circumstances, provided that they negotiate and undertake compensating concessions instead.
(iv) Exceptions to MFN
39 The Grandfather Clause ‘saved’ arrangements that had already been in effect at the time of the signing of the Protocol of Provisional Application, for example the British Commonwealth system of imperial preference. The Grandfather Clause was not carried forward into the GATT 1994.
40 In a customs union, customs duties and other restrictive regulations of commerce are eliminated as between the Member States, and a common external tariff is established with respect to third countries. Consequently, as soon as goods enter the customs union, they benefit generally from the free movement of goods, regardless of their State of origin. In a free trade area, the members abolish customs duties and other restrictive regulations of commerce between them without, however, establishing a common external tariff. Consequently, the benefits of free trade in such an arrangement must be confined to goods originating in a Member State (see para. 46 below). Article XXIV GATT exempts both of these types of regional integration from the MFN clause, provided that the internal customs duties and other restrictive regulations of commerce are eliminated on substantially all the trade between the constituent territories in products originating in such territories. In the case of customs unions, it is further required that the common external duties and other restrictive regulations of commerce, imposed when the customs union is established, shall not on the whole be higher or more restrictive than their general incidence prior to its formation. The Uruguay Round Understanding on Art. XXIV requires that the valuation of the general incidence of the duties applied before and after the formation of a customs union will be ‘based upon an overall assessment of weighted average tariff rates and of customs duties collected’ (GATT, ‘Understanding on Art. XXIV’ 32 para. 2), using the applied rates of duties rather than the bound ones. In Turkey–Textiles (1999), the WTO Appellate Body held that the onus of proof that this requirement has been met has to be discharged by the constituent members of the customs union (Turkey–Textiles para. 58).
41 Article XXV (5) GATT allows the contracting parties to waive an obligation imposed upon a contracting party ‘[i]n exceptional circumstances not elsewhere provided for in this Agreement’ (Waiver). Approval by 2/3 majority of the votes cast, which also comprises more than half of the contracting parties, must be obtained. Under the GATT (ed), (1947), 115 original waiver decisions had been made by the contracting parties, in addition to numerous decisions extending or amending prior waiver decisions, with only two requests denied (GATT WTO Analytical Index 887). Unless extended, all waivers granted under the GATT 1947 expired on their termination date or, at the latest, at the end of 1996. Waivers of an obligation under one of the WTO multilateral trade agreements may only be granted by the ministerial conference in exceptional circumstances, and provided that a 3/4 majority of the members is obtained. The WTO General Council reviews annually all waivers granted for a period exceeding one year in order to determine whether the ‘exceptional circumstances’ still exist. Among the waivers granted under the GATT (1947) and GATT (1994) are the ten-year waiver granted in 1971, authorizing the implementation of the GSP (see para. 42 below) with respect to all DCs; the waiver for the US Caribbean Basin Economic Recovery Act (1983); and the waiver granted to the EC in 1994 for the Fourth Lomé Convention (Lomé/Cotonou Conventions).
42 The Tokyo Round ‘Enabling Clause’, adopted by the GATT contracting parties in 1979 and entitled officially the ‘Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries’, explicitly enables—without however obliging—contracting parties to grant, inter alia, preferential tariff treatment to products originating in DCs in accordance with the 1971 decision on the GSP. The GATT contracting parties have not adopted a formal definition of the term ‘developing country’. However, Art. XVIII (1) GATT refers to ‘those contracting parties the economy of which can only support low standards of living and are in the early stages of development’.
43 Countries introducing a GSP programme must notify and consult with the GATT. In line with Art. XXXVI (8) GATT, no reciprocity obligation is imposed upon the DCs. However, the Enabling Clause introduced also the graduation principle, according to which the differential treatment should be modified ‘to respond positively to the development, financial and trade needs of developing countries’ (GATT, ‘Enabling Clause’ 191 para. 3). The US, the European Union, and Japan are the leading donors of tariff concessions. A number of DCs have also established tariff preference programmes for least developed countries (‘LDCs’), and some regional trade arrangements (‘RTAs’) among DCs have been notified under the Enabling Clause. Pre-Uruguay Round economic assessments of the Enabling Clause were mixed (Kennedy  1545–46). Following a re-examination of the differential and more favourable treatment of DCs in the Uruguay Round, the Enabling Clause was not abandoned, yet pressure was put on many newly industrialized DCs to relinquish their special status within the GATT/WTO. With respect, however, to LDCs ‘recognized as such by the UN’, the Decision on Measures in favour of LDCs was adopted, as part of the Final Act Embodying the Results of the Uruguay Round. The decision states that ‘consideration shall be given to further improve GSP and other schemes for products of particular interest to least-developed countries’ (GATT, ‘Decision on Measures in Favour of Least-Developed Countries’ 440 para. 2). Thus, eg, within the framework of Doha Development Agenda, at the WTO Hong Kong Ministerial Conference in 2005, a comprehensive decision was adopted to provide a duty free and quota free (‘DFQF’) market access to all products from all LDCs (WTO Ministerial Conference Declaration, Annex F: ‘Special and Differential Treatment’ 36, ‘Decision on Measures in Favour of Least-Developed Countries’). Even though the implementation date of the decision has not yet arrived, it has been reported that nearly all developed WTO Member States have provided access to the decision threshold of at least 97% of products originating from the LDCs (Priyadarshi and Rahman 291).
(v) Customs Valuation
44 Most customs are ad valorem (see para. 6 above). Consequently, the method of valuation may influence substantially the amount of customs, as well as the protection of domestic production. Article VII GATT, provides that ‘the value for customs purposes of imported merchandise should be based on the actual value of the imported merchandise on which duty is assessed, or like merchandise, and should not be based on the value of merchandise of national origin or on arbitrary or fictitious values’. This provision was insufficient to harmonize the wide disparities in national practices permitted by Art. VII GATT, for example the US valuation of goods for customs purposes was so complex that many countries considered it a non-tariff barrier to trade (Jackson, Davey, and Sykes 431). During the Tokyo Round, an Agreement on Implementation of Article VII (the ‘Customs Valuation Code’) was adopted. It was based on both the Brussels Convention on the Valuation of Goods for Customs Purposes (1950), adopted by the Member States of the Customs Co-operation Council (‘CCC’; see also para. 54 below), as well as the US different system, adding much that was new and not based on either system. However, as with other Tokyo Round codes, not all GATT contracting parties acceded to it. By now, however, all WTO members are bound by its provisions, after having been incorporated, almost unchanged, in the Uruguay Round (Annex 1 ‘Agreement on Implementation of Art. VII’ GATT ).
45 The Customs Valuation Code establishes a cascade of alternative valuation methods, arranged by order of priority: a) the ‘transaction value’ of the goods, ie the price actually paid or payable for the goods with adjustments for specified costs, charges, and expenses incurred which are not reflected in the price actually paid for the goods—eg selling commissions, containers cost, packing costs, royalties, and licence fees related to the goods to be paid by buyer. Other adjustments relate, for example, to the transport cost to the port or place of importation and insurance costs; b) if the transaction value cannot be determined—the transaction value of identical goods sold for export to the same country of importation and exported at circa the same time as the imported goods; c) if neither (a) nor (b) can be determined—the transaction value of similar goods sold for export to the same country of importation and exported at circa the same time as the imported goods; d) if none of the above can be determined—the value will be calculated on the basis of the unit price at which the imported goods, or identical or similar goods, are sold in the greatest aggregate quantity, at circa the time of importation of the goods being valued. Alternatively, the importer may opt to have the goods valued on the basis of a ‘constructed value’, ie the sum of the cost or value of materials and fabrication or other processing involved plus a sum covering profit and general expenses plus the cost or value of other expenses necessary to reflect the valuation, as detailed in the Uruguay Round Agreement; e) special valuation rules apply to transactions between related parties if, upon examination of the circumstances surrounding the sale, the customs administration considers that the relationship influenced the price.
(vi) Rules of Origin
46 Rules of origin provide the criteria according to which it is determined where a product was made. They are necessary in order to compile trade statistics, apply country-of-origin marking, and also for the administration of non-tariff trade laws, eg quota administration (see paras 6, 31 above). If tariffs were only applied among all WTO members on a uniform, MFN basis, WTO members would have only had to draft non-preferential rules, ie those used in non-preferential commercial policy instruments, such as MFN or safeguard measures under Art. XIX GATT. Those would have served to determine whether the imported goods originated in a WTO member, and are therefore eligible to MFN treatment because Art. I GATT provides that MFN treatment must be accorded by contracting parties ‘to the like product originating in…territories of all other contracting parties’. However, the landscape is much more complex. Numerous trade agreements have been concluded as exceptions to the MFN principle, eg free trade agreements and agreements with DCs under which a tariff preference has been granted (see para. 40ff above). Consequently, even among them, WTO members apply different tariffs to goods originating in a country benefiting from a preferential trade agreement than those applied on an MFN basis. Furthermore, because the purpose of preferential trade agreements is to benefit specific trade partners, special rules of origin are designed for each preferential agreement, in order to take care of the special interests and needs of beneficiary countries, conferring origin on members under circumstances that would not have conferred origin under the non-preferential rules of origin. These preferential rules of origin are not extended on an MFN basis to all WTO members.
47 The landscape is further complicated by the fact that WTO members apply also different sets of non-preferential rules of origin. The GATT rules have left it to each importing country to determine, according to its domestic law, for the purpose of the MFN provision, whether goods in fact originate in a particular country. Goods resulting from materials and labour of two or more countries are a case in point. With respect to those, generally the ‘last substantial transformation’ standard applies to determine origin, ie the country where the last substantial transformation has taken place is regarded as the country of origin. WTO members use the following three methods, cumulatively or alternatively, to ascertain whether substantial transformation occurred (see introduction to Annex D1 Kyoto Convention, para. 55 below; Imagawa and Vermulst 605–9): a) an ad valorem test, which requires that a certain percentage of value added in the last production process is necessary to confer originating status. There are numerous differences among WTO members with respect to the calculation of the constituent elements of the percentage criterion. Another disparity is due to the use made by some countries of rules requiring a certain domestic content, as compared to rules allowing a certain import content used by others. Although theoretically the two calculation methods should yield the same result, in practice this is not always so. The ‘import content’ rules are easier to apply because they are based on the prices paid by the producers which can be verified by checking the invoices, thus leaving the customs authorities of the importing country with less discretion. A drawback of the ad valorem method is the penalizing of low-cost and efficient industries where labour costs are lower than those obtaining in high-cost and inefficient industries because, under this method, their operations may not add up to conferring originating status; b) the change of tariff heading according to Harmonized System [‘HS’] nomenclature test (see para. 51 ff below). If, as a result of the manufacturing process, the product becomes classified under a different heading of the HS (usually HS-4) from the classification of the components from which it was made, that process will confer originating status. This method is transparent, precise, objective, easily applicable, and does not leave room for discretion. However, it has to be born in mind that the HS is a double-purpose classification system, designed for the compilation of statistics data as well as classification of goods. Consequently, States have applied two lists of exceptions to this method: (i) a list of products with respect to which a change of tariff heading is not sufficient to confer origin; (ii) a list of exceptions in which processing suffices to confer origin, even if it does not lead to a change in the tariff heading; c) the technical test, which prescribes the kinds of processing that may (a positive test) or may not (a negative test) confer originating status. The negative test is problematic in that it leaves it unclear what kind of processing would confer originating status. The positive test has the advantage that it is the most adequate to deal with the specific circumstances of certain products. However, it is open to abuse due to domestic interests.
48 The WTO Agreement on Rules of Origin, adopted in the Uruguay Round, calls for the harmonization of non-preferential rules of origin only. The harmonization work programme is conducted by a Committee on Rules of Origin in the WTO and a Technical Committee under the auspices of the WCO. The work programme should have ended by 1998, however many difficulties were encountered (Imagawa and Vermulst 614–19). Its work will result in the adoption of a single set of rules of origin to be applied under non-preferential trading conditions by all WTO members in all circumstances. As of June 2014, the rules have not yet been harmonized, and the WTO members are divided on whether or not to work towards the completion of the negotiations. In the most recent committee meeting, on 10 April 2014, the committee agreed on steps to implement the Decision on Preferential Rules of Origin for the Least Developed Countries (‘LDCs’) adopted at the 9th Ministerial Conference in Bali last December. However, even prior to harmonization of the rules, the agreement subjects WTO members to certain disciplines which they are obliged to observe—WTO members may not use rules of origin to pursue trade objectives either directly or indirectly; the rules must not create restrictive, distorting, or disruptive effects on international trade; they must not be more stringent in respect of imports and exports than in respect of domestic goods; and they may not discriminate between WTO members; they must be applied in a consistent, uniform, impartial, and reasonable manner, be based upon positive standards—ie standards which determine what confers origin rather than what does not—be publicly available and not retroactive. It is noteworthy that, although the agreement covers all rules of origin used in non-preferential trade for whatever purpose, footnote 1 to the agreement provides that this is without prejudice to determinations made for the purpose of defining ‘domestic industry’ or ‘like products of domestic industry’. This provision means that, inter alia, there is no requirement that the like product manufactured by a domestic industry must have the required domestic content to be considered as having domestic origin. It has pertinently been pointed out that this provision opens an enormous loophole (Imagawa and Vermulst 610).
49 With respect to preferential trade, the WTO Agreement on Rules of Origin allows members to use different rules of origin for products traded under such agreements. The agreement just sets a number of binding disciplines, in essence those applicable to non-preferential rules which are also consistent with a preferential regime. However, important key disciplines have been omitted, eg the specification of rules concerning which goods are considered as wholly obtained in a certain country—and therefore originating there—as well as the specification of substantial transformation rules, thus reserving discretion to WTO members with respect to preferential rules of origin.
(c) The Customs Co-operation Council Convention 1952
50 In 1947, 13 European governments set up a Study Group to examine the possibility of establishing an inter-European customs union. In 1948, the Study Group decided to establish a Customs Committee, which was the predecessor of the CCC, an intergovernmental organization based in Brussels. In 1952, the convention formally establishing the CCC—since 1994 informally renamed WCO—came into force. The WCO aims at ‘promoting an honest, transparent and largely predictable customs environment’ (WCO, ‘World Customs Organization in Brief’ 2). It has contributed significantly to the development of international customs law in key areas.
(i) Customs Classification
51 In order to make international trade statistics meaningful and facilitate international trade flows and tariff negotiations, the CCC developed a classification system—the Brussels Tariff Nomenclature (‘BTN’), which replaced the ‘Geneva Nomenclature’ (para. 22 above). By 1967, all leading GATT Contracting States, except the US and Canada, had adopted the BTN. In 1970, the US and Canada joined the CCC, following which the CCC developed the Convention on the Harmonized Commodity Description and Coding System (1983), usually referred to as the HS. The HS is also important for the identification by customs authorities of substances, the trade in which is restricted under non-WTO international agreements. Pertinent examples are the Washington Convention on the International Trade in Endangered Species of Wild Fauna and Flora (1973) (‘CITES’), the Montreal Protocol on Substances that Deplete the Ozone Layer (1987), and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and their Disposal (1989).
52 The HS contains chapters, headings, and sub-headings referring to categories of goods. The headings are given a four-digit numerical code, the first two digits identifying the chapter to which an item belongs, and the latter two showing the number of the heading in the chapter. Sub-headings are identified by two further digits. Products under the HS are classified on the basis of likeness. Six General Rules are included for the interpretation of the HS. The official interpretation of the HS is contained in five volumes of Explanatory Notes published by the WCO. The Explanatory Notes are not binding legally, nonetheless they are considered by the WTO Dispute Settlement Panels and the Appellate Body as a means of interpretation (see paras 63, 70 below; see also World Trade Organization, Dispute Settlement). The WCO maintains, amends, and updates the HS on a regular basis and takes measures to ensure its uniform interpretation.
53 Contracting States must use all headings and sub-headings, together with their numerical codes, without addition or modification, and apply the HS General Rules of Interpretation. However, they are allowed to establish, in their customs tariff, sub-divisions classifying goods beyond the level of the HS, provided that any such sub-division is added and coded at a level beyond that of the six-digit numerical code set out in the annex to this convention. There is close cooperation between the WTO and the WCO with respect to the HS. The WTO has an observer status at the WCO HS Committee, and the WCO Nomenclature and Classification Division has an observer status at the meetings of the WTO Market Access Committee(International Organizations or Institutions, Observer Status).
(ii) Customs Valuation
54 The CCC developed the Convention on the Valuation of Goods for Customs Purposes (1950), which was superseded by the Customs Valuation Code of the GATT Tokyo Round (see para. 44 above).
(iii) Simplification and Harmonization of Customs Procedures
55 The ‘Kyoto Convention’ (1973) (see para. 60 below), which is in force since 1974, is administered by the WCO Permanent Technical Committee. This convention has 31 annexes on different aspects of customs law. As of June 2014, 63 countries are contracting parties to the Kyoto Convention.
56 The Revised Kyoto Convention (2000), in force since 2006, is likewise administered by the WCO Permanent Technical Committee. As of June 2014, 92 countries are contracting parties to the ‘Revised Kyoto Convention’, among them the EU and the US.
57 The harmonization and simplification of customs procedures has also been undertaken by the WTO within the framework of the Doha Round. An Agreement (not yet in force) on Trade Facilitation, adopted by Ministers in Bali, Indonesia on 3–6 December 2013, provides for faster, transparent and more efficient customs procedures, as well as technical assistance and capacity building in this area (see para. 83 below).
(iv) WCO SAFE Framework of Standards
58 National customs administrations are faced with ever growing legitimate international trade, on the one hand, and illicit cross-border movement of counterfeit merchandise, illegally exported cultural property, weapons of mass destruction, endangered species, currency, hazardous waste, and people, as well as terrorist threats, on the other (Endangered Species, International Protection; Hazardous Wastes, Transboundary Impacts; Terrorism). International traders expect customs procedures to be uniform, predictable, transparent and efficient. Governments expect them to provide safety and security. By developing the SAFE Programme, the WCO has undertaken the effort to standardize customs control efforts, with the aim of improving security and facilitating the flow of international trade. The programme involves customs-to-customs network arrangements, as well as customs–business partnerships. In addition, it builds on national, regional, and international governmental organizations that have border control responsibilities (Border Controls). The Revised Kyoto Convention underlies many of the concepts, such as risk management, that are found in the WCO SAFE Framework of Standards. An important feature is the shifting of control of high-risk outbound export cargo to the export country, which, on the basis of a request made by the importing country, should inspect the cargo—preferably by using non-intrusive detection equipment—prior to loading on a conveyance for exportation.
(v) Technical Assistance to DCs
59 The WCO’s mission is ‘to enhance the effectiveness and efficiency of Customs administrations’ by harmonizing and simplifying customs procedures (WCO, ‘Our Profile’ [17 February 2009]). To that end, the WCO provides technical assistance and support for capacity building in DCs, that would help their customs administration to be able to offer their governments enhanced trade facilitation as well as effective customs control, including the implementation of the WCO SAFE Framework of Standards.
(d) UN Economic Commission for Europe Conventions
60 The UN Economic Commission for Europe (‘UNECE’) was set up in 1947 by the UN Economic and Social Council (United Nations, Economic and Social Council (ECOSOC)). It is one of five regional commissions of the UN (United Nations, Regional Commissions). As of June 2014, it has 56 Member States. The UNECE also sets out norms, standards, and conventions to facilitate international cooperation within and outside the region. Three important treaties have been concluded under its auspices: the UNECE Convention on the International Transport of Goods under Cover of TIR Carnets (‘TIR Convention’) of 1975, revised in 2006. Under the terms of this convention, goods carried across national frontiers are examined only at the beginning and end of their journey (Transit of Goods over Foreign Territory). The TIR Convention was originally intended for road transport only. Due to the expansion of multimodal transport, the convention was revised in 1975 to allow the TIR carnet to be used also for railway transport as long as a part of the journey is effected by means of road transport: the UNECE Convention on the Harmonization of Frontier Control of Goods (1982); and the Kyoto Convention and Kyoto Revised Convention, administered by the WCO (see paras 55–56 above).
C. Current Legal Situation
1. GATT 1994–The Consolidation and Prevalence of WTO Law
61 As at June 2014 there are 159 WTO members and 25 States having observer status, of which all but the Holy See must start accession negotiations within five years of becoming observers. Whereas, in general, international law requires States to fulfil their international obligations but does not make any specific requirement as to the way in which a State will do so (International Law and Domestic (Municipal) Law), Art. XVI (4) WTO Agreement, requires all members to ensure the conformity of their laws, regulations, and administrative procedures with their WTO obligations. Consequently, improper implementation as well as non-implementation is itself a violation.
2. Tariff Bindings
62 Tariff bindings extend to the majority of internationally traded goods. When interpreting the scope of a concession made by a Contracting State, there is need ‘to ascertain the common intentions of the parties’ (EC–Certain Computer Equipment [‘LAN’]  para. 84), account being taken of the legitimate interests of both the exporting and the importing countries. Tariff negotiations are a process of reciprocal demands and concessions and, ‘while each Schedule represents the tariff commitments made by one Member, they represent a common agreement among all Members’ (ibid para. 109; see also para. 70 below). According to a WTO Appellate Body decision (Argentina–Textiles and Apparel ), members may switch from one particular form of import tariffs to another, for example from tariffs calculated ad valorem to specific tariffs, as long as duties are not charged in excess of the bound rate.
63 The WTO Appellate Body held that, because the tariff schedules of concessions are an integral part of the WTO Agreement, the only rules which may apply to their interpretation are the General Rules of Interpretation of the Vienna Convention on the Law of Treaties (1969) (‘Vienna Convention’; see also EC–LAN para. 84). Although the HS is not, formally, part of the WTO Agreement, as it has not been incorporated into that agreement, the WTO Appellate Body held (EC–Chicken Cuts [12 September 2005] para. 195) that the concept of ‘context’, under Art. 31 (2) Vienna Convention, is not limited to the treaty text, ie the WTO Agreement, but may also extend to ‘any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty’, and to ‘any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty’. Moreover, the HS may qualify as a ‘relevant rule…of international law applicable in the relations between the parties’ within the meaning of Art. 31 (3) Vienna Convention. In applying the Vienna Convention rules, the HS, its General Rules of Interpretation, and its Explanatory Notes, as well as the decisions of the HS Committee of the WCO, have to be taken account of (EC–LAN para. 89).
64 In EC–Chicken Cuts (2005), both the WTO Panel and the Appellate Body held that the EC violated Art. II GATT (1994) by reclassifying frozen chicken cuts which were salted for purposes other than long-term preservation, following which they no more benefited from the bound tariff undertaken by the EC with respect to ‘meat and edible meat offal, salted, in brine, dried or smoked’ (EC–Chicken Cuts [12 September 2005] para. 142) and, instead, were placed under a different HS heading, pertaining to ‘fresh, chilled or frozen poultry’, which was subject to much higher customs duties (ibid para. 144). The reclassification was challenged by Brazil and Thailand, because the HS heading first used for this product did not mention ‘long-term preservation’ (ibid para. 6). The salted chicken cuts in question were not traded at the time of the conclusion of the Uruguay Round, and were only exported to the EC from the complaining countries since 1996 and 1998, respectively. The reclassification took place in 2002. Neither the WTO Panel nor the Appellate Body figured out the logic in the grouping of ‘salted’ with the other criteria mentioned in the heading first applied to chicken cuts. The WCO, to which the WTO Panel presented a number of questions concerning the customs classification, provided very partial information. The WCO HS Committee had not considered classification issues relating to the two headings relevant to this case. General Rule of Interpretation 3 (a), which the WTO Panel and Appellate Body, surprisingly, considered inapplicable in casu, addresses the situation where goods are prima facie classifiable under two headings. In such cases the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific. In this case, according to the WCO, the original heading could be considered more specific due to the use of ‘salted’—and, consequently, the processing is the important factor—whereas the new heading could be considered more specific because it applied to ‘poultry’. The WTO Panel and Appellate Body did not consider that, if General Rule 3 (a) could not solve the problem, then it should be accepted that the EC had a margin of discretion, allowing it to choose to apply either classification. Instead, by applying the Vienna Convention rules of interpretation, they held the EC to be in violation (see Horn and Howse’s criticism 18).
3. Agriculture and Textiles
65 These two sectors, of special importance to DCs, due to their labour-intensive character, which had originally been excluded from the General Rules, were brought within their ambit in the Uruguay Round.
66 The Multilateral Agreement on Agriculture sought to increase market access by providing, first, for the ‘tariffication’ of the barriers to trade, ie the conversion of almost all non-tariff barriers—eg quantitative import restrictions, variable import levies, discretionary import licensing, non-tariff measures maintained through State-trading enterprises, voluntary export restraints—into ordinary customs duties. Tariffs could be expressed as either specific or ad valorem rates. The tariffs resulting from the tariffication process would then be reduced by 36% over six years, with a minimum cut of 15% for any product, in the case of developed members, and by 24% over 10 years in the case of DCs. LDCs were only required to tariffy and bind their tariffs, however, not to undertake reduction commitments. A further exemption from tariffication was granted with respect to primary agricultural products, which are the predominant commodity in a DC’s diet. In practice, however, when calculating the new tariffs in the first phase, members exaggerated in their evaluation of the tariff equivalents of the previous barriers to trade, leading to what has been referred to as ‘dirty tariffication’, resulting in tariffs that were even more protective of local agricultural produce. To counter this effect, to a certain extent, members were required to include minimum and current access requirements for all tariffied products in their schedules—calculated originally at 3% of domestic production, to increase to at least 5% over the six-year implementation period. This commitment was implemented by tariff-rate quotas, the lower rate applying to the current or minimum access requirement.
67 The Multilateral Agreement on Textiles and Clothing, adopted in 1994, was a transitional agreement, in effect until 1 January 2005, a date by which the textiles and clothing sectors had to be fully integrated into the GATT (1994). However, by imposing tariffs, WTO members may still restrain the trade in textiles and clothing. Indeed, tariff protection prior to the Doha Round has been much higher for textile and clothing products than for manufactured goods in developed as well as DCs.
4. The MFN and NT Principles
68 The non-discriminatory MFN and NT clauses require that ‘like products’ originating in the territory of other members, should be treated equally, except when these obligations are specifically waived or are otherwise not applicable as a result of the operation of specific provisions of GATT, eg the customs unions exception. The concept of the ‘like product’ is an essential component of both the MFN (Arts I, II GATT) and the NT (Art. III GATT) clauses, which are the most pertinent provisions on this subject-matter as regards customs duties.
69 Violations of the MFN (Art. I GATT) obligation were dealt with by GATT Panels: a) in Spain–Tariff Treatment of Unroasted Coffee (1981), a GATT Panel held that, by reclassifying different types of coffee in a way which adversely affected coffee imported from Brazil, Spain violated its MFN obligation under Art. I GATT. Spain had made no tariff commitment with respect to coffee and, in principle, it could have reclassified this commodity. However, by making a reclassification which discriminated among ‘like products’ it committed a violation. When deciding the question of ‘likeness’, the Panel observed that the differences between various types of coffee in aroma and taste did not justify such discrimination, even if domestic consumer habits and preferences drew a clear distinction between the different types; b) in Canada/Japan–Tariff on Imported Spruce-Pine-Fir (SPF) Dimension Lumber (1989), Canada argued that, because ‘dimension lumber’ was a term recognized by the Canadian, US, and Japanese industries, all lumber falling within this term should be considered ‘like products’. However, the GATT Panel held that Japan’s different treatment of dimension lumber imports from Canada was not inconsistent with its obligations under Art. I GATT on MFN, because dimension lumber did not belong to any internationally accepted customs classification. Even if Canada, Japan, and the US applied such a standard, this did not suffice to make all such lumber ‘like products’. The two decisions cannot be easily reconciled.
70 A violation of the obligation of Art. II GATT on MFN was considered in EC–LAN (1998), which concerned a complaint brought by the US against the reclassification by the EC of computer equipment associated with local area networks (‘LAN’) as telecommunications equipment rather than ‘automated data processing’ (‘ADP’) machines. The EC tariff schedule did not refer explicitly to LAN equipment, and the Panel was unable to decide the question of classification solely on the basis of the ordinary meaning of the terms used in the schedule. In an effort to find the common intentions of the EC and the US during the Uruguay Round negotiations (see para. 62 above), the Appellate Body checked the practice of the parties during the Uruguay Round, but found out that the EC Member States did not follow a uniform practice at the time. The Appellate Body then turned to supplementary texts, including the HS, its General Rules of Interpretation, the Explanatory Notes, as well as the 1997 decision by the WCO HS Committee, which ruled in favour of the US, that a personal computer with a television and audio capabilities was properly classified as an ADP (see WCO HS Committee, Classification Opinion 8471.49, ‘Amendments to the Compendium of Classification Opinions’  91).
71 With respect to the NT clause (Art. III GATT), suffice it to mention here that WTO case-law has emphasized that the concept of ‘like products’ is to be interpreted differently in this context than in the context of the MFN clauses. In EC–Asbestos (2001), the Appellate Body reiterated previous GATT decisions that the definition of ‘like products’ in Art. III (2) GATT, should be construed narrowly, ‘so as not to condemn measures that its strict terms are not meant to condemn’ (EC–Asbestos para. 95). However, in construing Art. III (4) GATT, the same interpretive considerations do not arise. Therefore, ‘given the textual difference between Arts III (2) and III (4) GATT, the “accordion” of “likeness” stretches in a different way in Article III (4)’ (ibid para. 96).
5. Exceptions to MFN
(a) The Grandfather Clause
72 The old Grandfather rights, referred to in Art. I GATT (1947) (see para. 39 above), have by and large become irrelevant over the years and the WTO/GATT 1994 Agreements do not provide for the authorization of such rights any more.
(b) Regional Trade Agreements
73 By January 2014, 583 RTAs had been notified to the WTO/GATT. Of these, 411 notifications were made under Art. XXIV GATT 1947 or GATT 1994; 39 under the Enabling Clause; and 133 under Art. V GATS. 377 RTAs were in force. The overall number of RTAs in force has been increasing steadily, a trend likely to be strengthened by the many RTAs currently under negotiations. Of these RTAs, Free Trade Agreements (‘FTAs’) and partial scope agreements account for 90%, while customs unions account for 10%. Almost all WTO members are parties to RTAs. The notification of an RTA, however, does not mean that it is justified under Art. XXIV GATT. The Committee on Regional Trade Agreements is the WTO organ which receives notifications and examines the compatibility of the RTA with the WTO General Agreement. In addition, WTO members may challenge the compatibility of an RTA with the GATT by initiating proceedings under the WTO Dispute Settlement Understanding (‘DSU’).
(c) Preferential Treatment of DCs
74 During the Uruguay Round, even though the DCs, which are not LDCs, were given extended transition periods to implement Uruguay Round commitments, they were not exempted from most of the substantive commitments. Special tariff treatment is of limited value, because it depends upon the policies of donor States, which may choose to graduate the beneficiary developing country. In addition, the overall reduction of tariff rates through the multiple tariff negotiations marginalizes the benefit to DCs from preferential tariff treatment.
75 In EC–Tariff Preferences (2004), the WTO Panel considered that developed countries must give identical tariff preferences under GSP schemes to all DCs without any differentiation. The Appellate Body reversed this part of the decision, holding that, because the Enabling Clause uses the term ‘differential and more favourable treatment’, developed countries may design schemes that ‘respond positively to the development, financial and trade needs of the developing countries’ (EC–Tariff Preferences para. 162–65). That said, however, the requirement that the GSP scheme must be non-discriminatory means that the developed country must ‘ensure that identical treatment is available to all similarly-situated GSP beneficiaries’ (ibid para. 173). In casu, the Appellate Body held that an EC GSP arrangement did not meet the requirements of the Enabling Clause. The GSP+ programme issued subsequent to the WTO decision has been criticized as not meeting the criteria set by the Appellate Body for compliance with WTO law (for more on this see Bartels (2007)).
(d) Special Preferential Treatment of LDCs
76 Article XI (2) WTO Agreement, provides that the LDCs recognized as such by the UN will only be required to undertake commitments and concessions which are consistent with their development and capabilities. As of June 2014, the UN recognizes 48 such countries, 33 of which have become WTO members. The Decision on Measures in favour of LDCs assures ‘expeditious implementation of all special and differential measures taken in favour of least-developed countries’ (GATT, ‘Decision on Measures in favour of Least-Developed Countries’ 440 para. 2). It further provides that ‘consideration shall be given to further improve GSP and other schemes for products of special interest to least-developed countries’ (ibid). As with DCs, however, tariff preferential treatment may not be very helpful due to the marginalization of the benefit by tariff rates reductions.
6. Classification of Goods
77 The WCO has 179 members. As of July 2012, 142 countries, as well as the EU, are contracting parties to the HS Convention. According to the WCO, more than 200 countries and economic regions, representing more than 98% of world trade, classify goods according to the HS nomenclature. This is a significant improvement over the situation prevailing until 1989, when most countries adopted the HS but, most significantly among major trading countries, the US had not. The HS Nomenclature provided the basis for Uruguay Round Tariff Negotiations. It underwent its third major revision in 2007 and its fourth in 2012. Given that only the first six digits are uniform (HS-6), and further subdivisions are allowed as long as the structure of the HS is maintained, WCO members, including especially large and important trade nations, for example Canada, Japan, Russia, the US, are using 10 digits, while others, such as Australia, China, Switzerland, are using 8 digits. The EU applies the Common Customs Tariff, an 11-digits system, comprising the 10-digits, tariff integré de la Communauté (‘Taric’) plus a further subdivision (an 11th digit) if there is a national purpose in one of the EU Member States. The Taric consists of the EU combined statistical and customs nomenclature, the so-called CN (HS-6 plus 2 CN sub-headings), to which two further subdivisions, needed by numerous aspects of the EC customs duties system, eg tariff suspensions, quotas, preferences, anti-dumping and countervailing duties, valuation matters, and various restrictions and prohibitions relating to the import and export of goods. The eleventh and twelfth digits are used by Member States to indicate domestic measures, eg VAT and excise duties. Occasionally, additional codes of four digits may be used for the application of specific Community regulations which are not coded, or not entirely coded at the ninth and tenth digit (Lyons 130–34; Fabio para. 2.07).
78 Given that classification affects the applicable tariff rates, it has been recognized by a GATT Panel (Germany–Sardines ) that even a legitimate tariff reclassification which does not violate any commitment undertaken under the General Agreement, may still nullify or impair the reasonable expectations of a party, by adversely affecting the value of concessions obtained by the latter in reliance on its reasonable expectations regarding the tariff imposed on the product in question. In such a case, the complaining contracting party may bring a claim for compensation under Art. XXIII GATT (see para. 28 above). Reclassification which causes ‘like products’ to be treated differently may be challenged as violating MFN obligations (see para. 68 et seq above).
7. Valuation of Goods for Customs Purposes
79 The Multilateral Customs Valuation Agreement (‘CVA’) is identical to the Tokyo Round Code on that subject, but is now binding on all members. In Colombia–Indicative Prices and Restrictions on Ports of Entry (20 May 2009), the panel held that Colombia’s enactment of legal rules that made use of indicative prices, mandating their use in determining the customs duties to be collected on importation, were inconsistentent as such with the obligation to apply the valuation methods established in the CVA (paras 7.74 et seq).
8. Rules of Origin
80 As of June 2014, the goal of harmonizing the non-preferential rules of origin among WTO members has not yet been achieved, although much of the core work had already been done. As indicated at the Committee on Rules of Origin meeting on 26 September 2013, WTO members continued to be divided on whether or not to work towards the completion of negotiations for harmonized non-preferential rules of origin.
81 It has been observed that in RTAs specific and more stringent rules of origin are often applied to sensitive products, eg textile and clothing, making it more difficult for exporters to achieve the necessary regional content levels (Audet 276). Consequently, manufacturers must source their inputs from regional partners, a process which encourages vertical integration of the production chain but does not necessarily reflect the least costly choice of suppliers, thus adversely affecting the manufacturer’s competitiveness. Furthermore, the determination of regional content for products requiring multiple components may be so difficult as to make it too costly for suppliers, who may consequently choose to forego the preferential arrangements altogether.
9. Trade Facilitation, Customs Procedures and Formalities
82 As of February 2014, 92 WCO members are contracting parties to the Revised Kyoto Convention. Article VIII GATT limits customs fees to the cost of services rendered. The WTO Agreement on Import Licensing Procedures improves the transparency and predictability of such procedures.
83 In December 2013, after more than nine years of negotiations within the context of the Doha round, WTO members reached consensus on a Trade Facilitation Agreement at the Bali Ministerial Conference. The final agreement contains provisions for faster and more efficient customs procedures through effective cooperation between customs and other authorities on trade facilitation and customs compliance issues. In particular, its Section I foresees the enhancement of the existing discipline concerning transparency (Arts 1–5), customs fees (Art. 6) and freedom of transit (Art. 11) (see also Transit of Goods over Foreign Territory). It also contains provisions for technical assistance and capacity building in DCs and LDCs in this area (Section II). A newly established Preparatory Committee was mandated to ensure the expeditious entry into force of the agreement and to prepare for its efficient operation. The agreement will enter into force after its ratification by two thirds of WTO members.
10. Dispute Settlement
84 A major feature of the WTO Agreements is the Understanding on Rules and Procedures Governing the Settlement of Disputes, whereby all members agreed to submit their differences to a well-defined legal process, which can be initiated by any member without the other party being able to block either its establishment or the adoption of the decisions of the Panels or the Appellate Body. The frequent use of the dispute settlement mechanism by developed countries as well as DCs and LDCs is a sign of the members’ confidence in the system and in its integrity.
(1) Any dispute between contracting parties concerning the interpretation or application of this Convention shall, so far as possible, be settled by negotiation between them.
(2) Any dispute which is not so settled shall be referred by the Parties to the dispute to the Harmonized System Committee which shall thereupon consider the dispute and make recommendations for its settlement.
D. Special Legal Problems
1. Customs Classification–WTO v WCO Competences
86 No system of classification is complete. New products appear on the market and even existing products may sometimes be classified under different headings, due to their contents; properties; different types of processing, as in EC–Chicken Cuts (2005); or because they are multi-purpose, as in EC–LAN (1998). A classification which would aim at classifying all existing products with complete accuracy, not to mention new ones which are not within its purview, is bound to be too difficult to negotiate, contain an almost infinite list of tariff lines, and be by far too cumbersome and difficult to apply. Consequently, classification systems, including the HS, settle for an incomplete classification, supplemented by General Rules of Interpretation, Explanatory Notes, and a dispute settlement mechanism.
87 The question of classification of goods for customs purposes is dealt with by both the WTO and the WCO. However, these two legal systems pursue different objectives. The WCO is the only intergovernmental organization exclusively focused on customs matters. The WTO, on the other hand, is the only global international organization dealing with the rules of trade between nations. The HS Convention obliges its contracting parties to adopt the HS system, which classifies products according to ‘likeness’. However, Art. 9 HS Convention provides that WCO contracting parties do not assume any obligation with respect to tariff rates. In converse, WTO members are not required to adopt any particular classification system. They must however give ‘like products’ identical treatment. The WTO has no competence with regard to classification under the HS, and disputes over the classification of goods should be solved under the WCO dispute settlement mechanism (see para. 85 above). Yet, the WTO Panels and the WTO Appellate Body are called upon to decide questions of classification indirectly, by deciding whether the products in question are ‘like products’, deserving identical treatment. In EC–LAN (1998), the WTO Panel and Appellate Body had the benefit of a previous decision of the HS Committee regarding the proper classification of the LAN equipment. Such was not the case in EC–Chicken Cuts (2005). The WCO considered that the complainants should have first turned to the WCO and have the HS Committee decide the case. However, the WTO Panel and Appellate Body considered that, once seised of a case, Art. 11 DSU, entitled ‘Function of Panels’, prevented the Panel from abdicating its responsibility to the Dispute Settlement Body (EC–Chicken Cuts [30 May 2005] para. 7.56). The Panel, with whom the Appellate Body concurred, held that the proper classification was the one used previously, to which a much lower tariff applied.
88 This decision raises the following questions:
a) what would be the case if, subsequent to a WTO decision, a contradictory WCO decision would be given, or, conversely, if the WTO Appellate Body reaches, in a future case, a decision which is incompatible with a previous WCO decision?
b) More generally, is there room for two different dispute settlement mechanisms to settle similar questions, or should a procedure be created whereby classification questions would only be made by the WCO, with the WTO accepting the results as binding for the purpose of the WTO as well? In this respect, it has to be mentioned, that almost all WTO members are also WCO members, and that, furthermore, the Uruguay Round tariff concessions were negotiated on the basis of HS nomenclature. Consequently, the questions are not theoretical.
89 Regarding the first question, it appears that, in a purely technical sense, the contracting parties would be able to accommodate both decisions, without violating the rules of either WCO or WTO. If, for example, in the future the HS Committee adopts a decision that the proper classification of the chicken cuts should be ‘fresh or frozen poultry’, rather than ‘salted meat’, the EC shall, of course, have to change its classification accordingly. However, in order to comply with the decision of the WTO, it would have to create a sub-category—allowed under WCO rules—under which the customs duties charged will not exceed the bound rate for ‘salted meat’. The WTO Panels and Appellate Body do not decide the question of classification directly, because that is not within their jurisdiction. They may, however, reach a decision that a certain product should be charged the same duties as another ‘like product’ even if, under a WCO HS Committee decision, these products must be classified under different headings. Once again, the technical solution to this problem would be the establishment of a sub-category for the product at issue that will enable compliance with both the WTO and the WCO decisions. Such a solution, however, is unsatisfactory, because, in the next step, to take the chicken cuts case as a pertinent example, a complaint may be brought before the WTO demanding that the lower tariff be now extended to all ‘like products’ which include not only the sub-category but also the whole of that category, that is ‘all fresh or frozen poultry’. The more appropriate solution would seem to be that, in cases of ambiguity, WTO Panels should limit their standard of review and allow a substantial margin of discretion to the WTO members to decide the classification. If the legitimate expectations of a WTO member have been nullified or impaired by the reclassification, it may bring a claim for compensation (see para. 78 above). However, no such complaint can be brought with respect to a new product which was not within the purview of the parties when negotiating tariff concessions.
90 Regarding the second question, it is submitted that, because the WTO and the WCO pursue different objectives (see para. 87 above), there is room for maintaining both dispute settlement mechanisms, without either being required to follow blindly the decisions of the other. For example, WTO decisions regarding the concept of ‘like products’, are based not only on the objective ‘likeness’ of the products, as that is perceived by the WCO and the HS, but also, and sometimes more importantly, on the object and purpose of the WTO rule under consideration (see para. 71 above). Furthermore, in EC–LAN (1998), the WTO Appellate Body held that, when deciding a case in which questions of classification are involved, proper account must be taken of the HS classification, the General Rules of Interpretation, the Explanatory Notes, as well as the HS Committee decisions: a practice which it followed in that case. In appropriate cases, the WTO may invite a submission from the WCO as it had done in EC–Chicken Cuts (2005). The cooperation between the WCO and the WTO, that is already taking place (see para. 53 above), is very important in diminishing the magnitude of the problem.
2. Customs Aspects of the Proliferation of RTAs and Preferential Agreements
91 The proliferation of RTAs and preferential agreements since the establishment of the WTO has become a serious, systemic challenge to the world trading system. The success of the WTO in attracting 153 members, developed, DCs, and LDCs alike, to negotiate multilateral agreements on the basis of consensus, has also been the source of ever increasing difficulties in reaching agreement among all members on any given subject, as evidenced by the Doha Development Round negotiations. These in turn have caused the pendulum to shift back in the direction of bilateral and regional treaties, inviting power politics and replacing a harmonized system with one which is fragmented and lacking in transparency. Developed States are finding it easier and more profitable, perhaps also more in the interests of the multinational business community, to negotiate around the WTO. LDCs, too, are negotiating RTAs among themselves, improving thereby their bargaining power in the fragmented system.
92 Insofar as customs rules are concerned, this means additional administrative complexity, because each preferential agreement uses a different set of rules of origin, specific to that agreement (see para. 46 above). Complexity adds cost and inhibits trade. However, as soon as the barrier becomes high enough, it may drive exporters to forego the preference and pay the MFN duty. Therefore, the cure to this problem seems to be the continued effort to reduce MFN trade barriers, thus creating an incentive for international traders to maintain the world trading system under the General Agreement (Palmeter 355).
93 Even if it is recognized that RTAs and preferential agreements are politically unavoidable, it is important to scrutinize them for compliance with the conditions set in Art. XXIV GATT for MFN clause exception, or with the Enabling Clause, as the case may be. WTO dispute settlement proceedings could provide the proper interpretation of the rule of law. However, such complaints have not been forthcoming. The decision of the Appellate Body in the complaint brought by India regarding the EC–Turkey Customs Union (Turkey–Textiles ) is instructive. The WTO Panel stopped short of verifying whether Turkey had discharged the onus of proof that, inter alia, the duties and other regulations of commerce imposed upon the establishment of its customs union with the EC were not on the whole higher or more restrictive than the general incidence of duties and regulations of commerce applicable in the constituent territories prior to the formation of such union. The Panel maintained that ‘it is arguable’ that Panels do not have jurisdiction to assess the overall compatibility of a customs union with the requirements of Art. XXIV GATT, and that, further, in this case, such an examination was unnecessary on grounds of judicial economy, because the case could be solved on other grounds. Given that this issue was not appealed, the Appellate Body left this question open (Turkey–Textiles para. 60). However, the Appellate Body set in this case strict rules for the assessment of the existence of a customs union, according to which the constituent parties of the customs union are obliged to discharge the onus of proof that all requirements of Art. XXIV GATT have been met. This means a much more stringent standard of review than the rather loose one adopted by GATT/WTO members heretofore.
94 International customs law is a rapidly developing area of international law. Two international organizations have played a formidable role. The WTO/GATT has developed a legal order based upon multilateral negotiations and agreements, fostering predictability, transparency, and participation, thus contributing to the replacement of power-oriented and ‘beggar-thy-neighbour’ policies with rule-oriented ones. States no more need to impose retaliatory customs duties aimed at forcing other countries to lower their tariff. Reductions can be negotiated much more skilfully within the framework of multilateral tariff negotiations. The WCO has developed a classification system, which serves as the basis for all tariff negotiations, as well as customs standards and procedures, which enhance the smooth flow of international trade, on the one hand, while controlling illicit trade and enhancing safety and security, on the other. The WTO and the WCO have different and complementary areas of competence that do not overlap. Close cooperation between them is an important aspect of present, as well as future, development.
- WO Henderson The Zollverein (CUP Cambridge 1939).
- J Viner The Customs Union Issue (Carnegie Endowment for International Peace New York 1950).
- W Röpke International Order and Economic Integration (Reidel Dordrecht 1959).
- JH Jackson World Trade and the Law of GATT: A Legal Analysis of the General Agreement on Tariffs and Trade (Bobbs-Merrill Indianapolis 1969).
- KW Dam The GATT: Law and International Economic Organization (University of Chicago Press Chicago 1970).
- A Smith An Inquiry into the Nature and Causes of the Wealth of Nations (1776) (rep. Clarendon Oxford 1976).
- FA Hayek Law, Legislation and Liberty vol 3, The Political Order of a Free People (University of Chicago Press Chicago 1979).
- KW Clements and LA Sjaastad How Protection Taxes Exporters (Trade Policy Research Centre London 1984).
- E-U Petersmann Constitutional Functions and Constitutional Problems of International Economic Law: International and Domestic Foreign Trade Law and Foreign Trade Policy in the United States, the European Community and Switzerland (University Press Fribourg Fribourg 1991).
- JH Jackson The World Trading System: Law and Policy of International Economic Relations (2nd edn MIT Press Cambridge Mass 1997).
- D Palmeter ‘Rules of Origin in Regional Trade Agreements’ in P Demaret and others (eds) Regionalism and Multilateralism after the Uruguay Round: Convergence, Divergence, and Interaction (European Interuniversity Press Brussels 1997) 341–55.
- PT Marsh Bargaining on Europe: Britain and the First Common Market 1860–1892 (Yale University Press New Haven 1999).
- A Hoda Tariff Negotiations and Renegotiations under the GATT and the WTO: Procedures and Practices (CUP Cambridge 2002).
- DLM Kennedy and JD Southwick (eds) The Political Economy of International Trade Law: Essays in Honour of Robert E Hudec (CUP Cambridge 2002).
- KW Dam ‘Cordell Hull, the Reciprocal Trade Agreement Act, and the WTO’ in JM Olin (ed) Law & Economics Working Paper No 228 2d Series (October 2004).
- IS Forrester and T Kaul ‘Tariff Classification’ in PFJ Macrory AE Appleton and MG Plummer (eds) The World Trade Organization: Legal, Economic and Political Analysis vol 1 (Springer New York 2005) 1581–99.
- IS Forrester and OE Odarda ‘The Agreement on Customs Valuation’ in PFJ Macrory AE Appleton and MG Plummer (eds) The World Trade Organization: Legal, Economic and Political Analysis vol 1 (Springer New York 2005) 531–72.
- H Imagawa and E Vermulst ‘The Agreement on Rules of Origin’ in PFJ Macrory AE Appleton and MG Plummer (eds) The World Trade Organization: Legal, Economic and Political Analysis vol 1 (Springer New York 2005) 601–78.
- K Kennedy ‘Special and Differential Treatment of Developing Countries’ in PFJ Macrory AE Appleton and MG Plummer (eds) The World Trade Organization: Legal, Economic and Political Analysis vol 1 (Springer New York 2005) 1523–70.
- PFJ Macrory AE Appleton and MG Plummer (eds) The World Trade Organization: Legal, Economic and Political Analysis vols 1–3 (Springer New York 2005).
- PC Mavroidis The General Agreement on Tariffs and Trade: A Commentary (OUP Oxford 2005).
- E-U Petersmann and J Harrison (ed) Reforming the World Trading System: Legitimacy, Efficiency and Democratic Governance (OUP Oxford 2005).
- L De Wulf and JB Sokol (eds) Customs Modernization Handbook (World Bank Washington DC 2005).
- D Audet ‘Smooth as Silk? A First Look at the Post MFA Textiles and Clothing Landscape’ (2007) 10 JIEL 267–84.
- L Bartels ‘The WTO Legality of the EU’s GSP+ Arrangement’ (2007) 10 JIEL 869–86.
- I Wind ‘HS 2007: What’s It All About?’ (2007) 2 Global Trade and Customs Journal 79–86.
- H Horn and RL Howse ‘European Communities: Customs Classification of Frozen Boneless Chicken Cuts’ (2008) 7 World Trade Review 9–38.
- T Lyons EC Customs Law (2nd edn OUP Oxford 2008).
- C Weerth ‘Basic Principles of Customs Classifications under the Harmonized System’ (2008) 3 Global Trade and Customs Journal 61–67.
- S Inamo Rules of Origin in International Trade (CUP Cambridge 2009).
- R Wolfrum PT Stoll and HP Hestermeyer (eds) WTO—Trade in Goods (Nijhoff Leiden 2011).
- M Fabio Customs Law of the European Union (4th edn KLI Alphen aan den Rijn 2012).
- PC Mavroidis Trade in Goods—The GATT and the Other WTO Agreements Regulating Trade in Goods (2nd edn OUP Oxford 2012).
- S Priyadarshi and T Rahman ‘Least-Developed Countries in the WTO: Growing Voice’ in A Narlikar M Daunton and RM Stern (eds) The Oxford Handbook on the World Trade Organization (OUP Oxford 2012) 275–300.
- JH Jackson WJ Davey and AO Sykes Legal Problems of International Economic Relations: Cases, Materials, and Text on the National and International Regulation of Transnational Economic Relations (6th edn West St Paul 2013).
- Agreement on Interpretation and Application of Articles VI, XVI and XXIII of the General Agreement on Tariffs and Trade 1947 (signed 12 April 1979, entered into force 1 January 1980) 1186 UNTS 204.
- Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal (done 22 March 1989, entered into force 5 May 1992) 1673 UNTS 57.
- Convention for the Abolition of Import and Export Prohibitions and Restrictions (signed 8 November 1927) (1931) 25 AJIL Supp 121.
- Convention Establishing a Customs Co-operation Council (signed 15 December 1950, entered into force 4 November 1952).
- Convention on the Harmonized Commodity Description and Coding System (done 14 June 1983, entered into force 1 January 1988)  OJ L198/3.
- Convention on the International Trade in Endangered Species of Wild Fauna and Flora (CITES Convention) (signed 3 March 1973, amended 22 June 1979) 993 UNTS 243.
- Convention on the International Transport of Goods under Cover of TIR Carnets (TIR Convention) (done 14 November 1975) 348 UNTS 13.
- Convention on the Simplification and Harmonization of Customs Procedures (Kyoto Convention) (done 18 May 1973, entered into force 1974) 950 UNTS 269.
- Convention on the Territorial Sea and the Contiguous Zone (done 29 April 1958, entered into force on 10 September 1964) 516 UNTS 205.
- Convention on the Valuation of Goods for Customs Purposes (Brussels Convention) (signed 15 December 1950, entered into force 28 July 1953) 171 UNTS 305.
- GATT Canada/Japan–Tariff on Imports of Spruce, Pine, Fir (SPF) Dimension Lumber Japan–Report of the Panel (adopted 19 July 1989) BISD 36S/167.
- GATT, Decision on Differential and More Favourable Treatment, Reciprocity and Fuller Participation of Developing Countries (‘Enabling Clause’), in GATT (ed), The Texts of Tokyo Round Agreements (GATT Geneva 1986) 191.
- GATT Germany–Treatment by Germany of Imports of Sardines–Report of the Panel (adopted 31 October 1952) BISD 1S/53.
- GATT, Ministerial Decisions and Declarations adopted by the Trade Negotiations Committee: Decision on Measures in Favour of Least-Developed Countries (15 December 1993) in World Trade Organization (ed), The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (GATT Secretariat Geneva 1994) 440.
- GATT Spain–Tariff Treatment of Unroasted Coffee–Report of the Panel (adopted 11 June 1981) BISD 28S/102.
- GATT, Understanding on Implementation of Article XXIV of the General Agreement on Tariffs and Trade 1994 in Marrakesh Agreement Establishing the World Trade Organization (Annex 1A) (15 April 1994) (ed), in World Trade Organization (ed), The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (GATT Secretariat Geneva 1994) 26.
- GATT, Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994, in World Trade Organization (ed), The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (GATT Secretariat Geneva 1994) 23.
- GATT (ed) WTO Analytical Index: Guide to GATT Law and Practice (6th edn WTO Geneva 1995).
- General Agreement on Tariffs and Trade (adopted 30 October 1947, entered into force 1 January 1948) 55 UNTS 187.
- General Agreement on Tariffs and Trade 1994 (adopted 15 April 1994, entered into force 1 January 1995) 1867 UNTS 190.
- Havana Charter for an International Trade Organization (done 24 March 1948) UN Doc E/CONF.2/78, 3.
- Marrakesh Agreement Establishing the World Trade Organization (adopted 15 April 1994, entered into force 1 January 1995) 1867 UNTS 154.
- Montreal Protocol on Substances that Deplete the Ozone Layer (adopted 16 September 1987, entered into force 1 January 1989) 1522 UNTS 3.
- United Nations Convention on the Law of the Sea (concluded 10 December 1982, entered into force 16 November 1994) 1833 UNTS 396.
- United Nations Economic Commission for Europe, ‘Convention on the Harmonization of Frontier Control of Goods’ (done 21 October 1982) UN Doc ECE/TRANS/55/Rev.1.
- Vienna Convention on the Law of Treaties, (concluded 23 May 1969, entered into force 27 January 1980) 1155 UNTS 331.
- World Customs Organization (ed) Explanatory Notes to the Harmonized System with Amending Supplements vols 1–5 (4th ed World Customs Organization Brussels 2007).
- World Customs Organization Harmonized System Committee ‘Amendments to the Compendium of Classification Opinions’ 22nd Session (13 November 1998).
- World Customs Organization, ‘International Convention on the Harmonized System’ (done 14 June 1983).
- World Customs Organization, ‘International Convention on the Simplification and Harmonization of Customs Procedures’ (Revised Kyoto Convention) (as amended).
- World Customs Organization, ‘Our Profile’.
- World Customs Organization (ed) SAFE Framework of Standards (World Customs Organization Brussels 2007).
- World Customs Organization ‘World Customs Organization in Brief’.
- World Economic Conference, World Economic Conference Final Report of 23 May 1927 (Acland Ottawa 1928).
- WTO, Agreement on Agriculture (signed 15 April 1994, entered into force 1 January 1995) 1867 UNTS 410.
- WTO, Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994 (15 April 1994), in World Trade Organization (ed), The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (GATT Secretariat Geneva 1994) 172.
- WTO, Agreement on Import Licensing Procedures (15 April 1994), in World Trade Organization (ed) The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (GATT Secretariat Geneva 1994) 223.
- WTO, Agreement on Rules of Origin.
- WTO, Agreement on Textiles and Clothing (15 April 1994), in World Trade Organization (ed) The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (GATT Secretariat Geneva 1994) 73.
- WTO, Argentina–Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items (27 March 1998) WT/DS56/AB/R.
- WTO, Colombia–Indicative Prices and Restrictions on Ports of Entry (20 May 2009) WT/DS366/R.
- WTO, Draft Consolidated Text of Non-Preferential Rules of Origin (23 May 2008) G/RO/W/111/Rev.2.
- WTO, EC–Conditions for the Granting of Tariff Preferences to Developing Countries (7 April 2004) WT/DS246/AB/R.
- WTO, EC–Customs Classification of Certain Computer Equipment (5 June 1998) WT/DS67/AB/R.
- WTO, EC–Customs Classification of Frozen Boneless Chicken Cuts (30 May 2005) WT/DS269/R.
- WTO, EC–Customs Classification of Frozen Boneless Chicken Cuts (12 September 2005) WT/DS269/AB/R.
- WTO, EC–Measures Affecting Asbestos and Asbestos-Containing Products (12 March 2001) WT/DS135/AB/R.
- WTO Ministerial Conference ‘Agreement on Trade Facilitation: Ministerial Decision of 7 December 2013’ (done 11 December 2013, not yet entered into force) WT/MIN(13)/36, WT/L/911.
- WTO Ministerial Conference ‘Doha Work Programme: Ministerial Declaration’ (18 December 2005) WTO Doc WT/MIN(05)/DEC.
- WTO, Turkey–Restrictions on Imports of Textile and Clothing Products (22 October 1999) WT/DS34/AB/R.
- WTO, Understanding on Rules and Procedures Governing the Settlement of Disputes (15 April 1994) (ed) in World Trade Organization (ed), The Results of the Uruguay Round of Multilateral Trade Negotiations: The Legal Texts (GATT Secretariat Geneva 1994) 354.