​INTERNATIONAL TRADE LAW

1.UNIFORM RULES ON CONTRACT OF SALE:​ A contract of sale is a legal contract. It is

a contract for the exchange of goods, services or property that are subject of exchange from
seller to buyer for an agreed upon value in money paid or the promise to pay the same. All the
requirements of a valid contract such as:
-Free consent
-Consideration
-Existence of minimum two parties
-Competency of parties
-Lawful object etc. must be fulfilled and if any of the essential elements of a valid contract of
sale is absent, then the contract of sale will not be valid.

Following standards of international law are applied to the international sale of contract:-
1) U. N. Convention on Contracts for the International Sale of Goods (CISG) it is also known
as Vienna Convention.
2) UNIDROIT (International Institute for the Unification of Private Law) Principles of
International Commercial Contracts.
3) Uniform Law for the International Sale of Goods (ULIS)

CISG​ was developed by UNCITRAL (United Nations Commission on International Trade Law)
and it was signed in Vienna in 1980. It came into force as a multilateral treaty on 1st Jan, 1988. It
allows exporters to avoid choice of law issues, as the CISG offers accepted substantive rules on
which contracting parties, courts and the arbitrators may rely, unless excluded by the express
terms of a contract. CISG is deemed to be incorporated into applicable domestic laws with
respect to a transaction in goods between parties from different contracting states.

The purpose of the CISG is to provide a modern, uniform and fair regime for contracts
for the international sale of goods. Thus, the CISG contributes significantly to introducing
certainty in commercial exchanges and decreasing transaction costs. The contract of sale is the
backbone of international trade in all countries, irrespective of their legal tradition or level of
economic development. The CISG is therefore considered one of the core international trade law
conventions whose universal adoption is desirable. The CISG provides a neutral body of rules
that can be easily accepted in light of its transnational nature and of the wide availability of
interpretative materials.

UNIDROIT Principles​ set forth the general rules for international commercial contracts. They
may be applied when the parties have agreed that their contracts be governed by general
principles of law.

UNIDROIT Principles are in harmony with CISG. The UNIDROIT Principles on International
Commercial Contracts provide a ‘gap-filling’ role to supplement CISG, so long as it supports a
principle deduced from the Convention. Its purpose is to study needs and methods for
modernizing, harmonizing and coordinating private and in particular commercial law as between
States and groups of States and to formulate uniform law instruments, principles and rules to
achieve those objectives. Its tasks are:

-To prepare draft laws and conventions that can be introduced in different countries (i.e.
countries that are a member of UNIDRIOT) based on comparative research.
-To compare laws.
-To organize conferences

UNIDROIT's purpose is to identify the needs and methods for harmonization and modernization
of commercial law as applied between parties of different states and to promote coordination of
commercial law between states by formulating uniform law instruments, principles, and
guidelines to achieve these objectives. The Principles have been used as a reference when
negotiating international contracts, and they have been used as a tool to create hard law in many
countries around the world that used the Principles as a model or simply as inspiration in making
domestic reforms.

ULIS​ was a creation of UNIDROIT.

- ​TYPES OF SALE CONTRACT​: A sale contract defines the roles and responsibilities of the
parties to each other. Without a sale contract one cannot define exporters and importers rights
and obligations. Under international business transactions exporters and importers define their
roles and responsibilities of each other with sales contracts. A sale contract is a legally binding
document for both parties.

(1) CIF (COST, INSURANCE & FREIGHT): ​It is a term of the contract of sale of goods
being shipped where the seller pays the cost of the insurance and transport of the goods to
the destination; legal delivery occurs when the goods cross the ship's rail in the port of shipment.
Under a CIF contract, the seller is responsible for supplying the goods, insuring them and
shipping them: hence "cost, insurance and freight". A CIF contract therefore involves the seller
entering into not only a sale contract but also, at a later date, insurance and carriage contract. The
seller, therefore, fixes a price to cover all these costs and it is he who carries the risk of
fluctuations in insurance and freight costs.
Under a CIF contract, the seller undertakes to be responsible for transportation and insurance
cover to a named port of destination, while the buyer agrees to pay, not against delivery of the
goods but against the tender of the shipping documents. This is perhaps the first indication that
such a contract may in fact be a contract for the sale of documents. The seller fulfils his part of
the bargain by tendering the correct documents; he does not have to ensure the arrival of the
goods, but is under a negative duty not to prevent them being delivered. He can therefore
demand payment on tender of the documents. Documents play a central role in the CIF contract
and it is this that gives the contract its special characteristics or alternatively it is that that makes
this a contract for the sale of documents. The seller performs the contract by tendering to the
buyer the bill of lading, insurance policy and invoice (together with any other documents
required by the contract, such as a certificate of quality or origin). These documents represent the
goods, and protect the buyer against most risks of loss during transit. They enable him to deal
with the goods before they arrive at the port of destination. Transfer of the bill of lading operates
as constructive delivery of the goods and may pass to the buyer title to the goods, the right to
obtain possession, and rights of action against the carrier in the event of loss, delay etc.; the
policy of insurance gives protection against the perils of the sea. The importance of the
documents is illustrated by the rule that allows the seller to tender documents even after the
goods they represent have been damages or lost.

Similarly, if the documents conform to the contract, the buyer must accept them; if he rejects
them he is in breach of contract even if the goods themselves do not comply with the contract
when they arrive, although if the documents have been accepted, the buyer may reject the goods
themselves if they prove defective. Seller can fulfil a CIF contract by tendering goods already
afloat, which he has either shipped himself, or brought from some other person. All that is
required therefore is that the seller should appropriate to the contract goods which:
(a) have been shipped
(b) comply with the terms of the contract; and
(c) are covered by a contract of carriage to the port of destination and by a policy of insurance

Advantages and Disadvantages of CIF Contract

The advantages for the seller are given below:

-he has the opportunity to increase his profits by making the carriage and insurance
arrangements;
-he retains the right of disposal of the goods until payment is made, thus keeping some level
of security; and
-he does not bear any risk during transit of the goods.
The buyer’s advantages are that he obtains:
-a means to take delivery of the goods;
-a means to trade the goods on or to pledge them as security for finance;
-rights against the carrier and insurer to recover at least the value of the goods if they are
damaged or lost in transit.

The main disadvantages of CIF contract is that risk passes to the buyer at the time of
contract.S20 of the Sale of the Goods Act 1979 provides that, after delivery of the goods risk
passes to the buyer, but in the CIF contract risk passes to the buyer at the time he Pays and takes
up the document. On the other hand, risk passes to the buyer when the seller ships the goods.
However, if the contract is made after the shipment risk passes at the time of contract. This
seems to be very harsh on the buyer. Moreover, the risk passes to the buyer at the time of
shipment, if the goods are damaged while loading into the cargo or the goods are lost in the sea,
though the seller knew that, the goods might be lost when he tenders the shipping document.

FOB (FREE ON BOARD):​ It is a contractual term that refers to the requirement that the seller
deliver goods at the seller's cost via a specific route to a destination designated by the buyer. It
specifying at what point respective obligations, costs, and risk involved in the delivery of goods
shift from the seller to the buyer under the Incoterms 2010 standard published by the
International Chamber of Commerce. FOB is only used in non-containerized sea freight or inland
waterway transport.

"FOB port" means that the seller pays for transportation of the goods to the port of shipment,
plus loading costs. The buyer pays the cost of marine freight transport, insurance, unloading, and
transportation from the arrival port to the final destination.

“FOB” means Free On Board (named port of shipment), e.g. “FOB Newcastle NSW”. It is one of
the most commonly used term (INCOTERMS) in sales contracts involving sea transportation of
goods.

i) The seller must supply the goods and documents stated in the contract of sale. He must load
the goods on board the vessel named by the buyer at the named port of shipment on the date or
within the period stipulated. He must bear all costs and risks of the goods until they have passed
the ship’s rail at the named port of shipment, including export charges and taxes.

iii) FOB is advantageous when the cargo is of a type (e.g. oil) and size that the buyer wishes to
charter a particular vessel, or where foreign currency restrictions compel an importer to use FOB
(e.g. where governments want importers to use national flag vessels).
The FOB contract is based on the loading port, so the buyer is free after loading to resell
the goods, even while they are on the vessel. The FOB invoice price is lower than the CIF
price.
C & F/CFR (COST & FREIGHT): ​Cost refers to the cost of goods and freight refers to all
other costs relating to all the means of transportation of the goods. It means that the seller must
pay the costs and freight necessary to bring the goods to a named port of destination and must
also procure marine insurance against the buyer's risk or loss to the goods during the carriage.
C&F/CFR stands for cost and freight and is always stated as C&F port of importation.

The seller is required to arrange for the carriage of goods by sea to a port of destination &
provide the buyer with the documents necessary to obtain the goods from the carrier.

Cost and Freight (CFR) means that the seller must pay the costs and freight in order to transport
the goods to the port of destination in question. The risk of the loss of or damage to the goods, as
well as any additional costs as a result of events after the goods are delivered onboard the vessel,
transfers from the seller to the buyer when the goods pass the ship’s railing in the shipping port.
The term CFR obliges the seller to clear the goods. This term can only be used for transport by
sea and inland shipping traffic.

2.INCOTERMS:

Incoterms, or "international commercial terms," are trade terms published by the International
Chamber of Commerce (ICC). They are commonly used to ease domestic and international trade
by helping traders to understand one another. The Incoterms or International Commercial Terms
are a series of pre-defined commercial terms published by the International Chamber of
Commerce (ICC) relating to international commercial law. They are widely used in International
commercial transactions or procurement processes as the use in international sales is encouraged
by trade councils, courts and international lawyers.

The Incoterms rules are intended primarily to clearly communicate the tasks, costs, and risks
associated with the global or international transportation and delivery of goods. Incoterms inform
sales contracts defining respective obligations, costs, and risks involved in the delivery of goods
from the seller to the buyer, but they do not themselves conclude a contract, determine the price
payable, currency or credit terms, govern contract law or define where title to goods transfers.

It cover a wide range of responsibilities and obligations for a seller and buyer in an
international sales contract, including:
• Which party is responsible for the different costs during the whole process
• Where the goods should be picked up from and transported to
• Who bears the ‘risk’ in the case of any loss or damage to goods at any specific point in an
international journey
• Which party is responsible for loading or unloading goods and for arranging and paying for
inspections to the freight
• Who is responsible for producing documentation, submitting export and import customs
entries, or arranging export and import licences, as well as a range of other contractual
obligations
The Incoterms rules are accepted by governments, legal authorities, and practitioners worldwide
for the interpretation of most commonly used terms in international trade. They are intended to
reduce or remove altogether uncertainties arising from different interpretation of the rules in
different countries. As such they are regularly incorporated into sales contracts worldwide.
"Incoterms" is a registered trademark of the ICC.

Thus, INCOTERMS define the trade contract responsibilities and liabilities between a buyer and
a seller. They cover who is responsible for paying freight costs, insuring goods in transit and
covering any import/export duties, for example. They are invaluable as, once importer and
exporter have agreed on an INCOTERM, they can trade without discussing responsibilities for
the costs and risks covered by the term. The terms determine who pays the cost of each
transportation segment, who is responsible for loading and unloading of goods, and who bears
the risk of loss at any given point during an international shipment.

3.INDIAN BILL OF LADING ACT 1856

A bill of lading serves as evidence for a contract of affreightment. This usually arises when a
ship owner, or other person authorized to act on his behalf employs his vessel as a general ship
by advertising that he is willing to accept cargo from people for a particular voyage.

The broad categories may be stated as follows:

i. The Hague Rules.
ii. The Hague/Visby amendments.
iii. The Hamburg Code.
iv. Hybrid systems based on the Hague/Visby and Hamburg regimes.

Functions of the Bill of Lading

1. Bill of lading as a receipt

When the bill of lading in the hands of the shipper, it becomes a receipt for the quantity of goods
received, the condition of goods received and leading marks.

2. Bill of lading as evidence of contract of carriage

In the hands of the shipper a bill of lading serves as evidence of the contract of carriage though it
contains the terms of carriage.
3. Bill of lading as contract of carriage
Upon endorsement to a third party, the bill of lading is a contract of carriage, but so far as the
holder of the bill is the shipper, the bill of lading can be evidenced only as a carriage of contract.

4. Bill of lading as document of title

Until goods are physically delivered, the possession of the bill of lading is deemed to be
constructive possession of the goods. Transfer of the bill of lading is deemed to be constructive
possession of the goods.

4.GATT & WTO:

The General Agreement on Tariffs and Trade (GATT) covers international trade in goods. The
workings of the GATT agreement are the responsibility of the Council for Trade in Goods
(Goods Council) which is made up of representatives from all WTO member countries. The
purpose of GATT was to eliminate harmful trade protectionism. By removing tariffs, GATT
boosted international trade. The agreement was designed to provide an international forum that
encouraged free trade between member states by regulating and reducing tariffs on traded goods
and by providing a common mechanism for resolving trade disputes.

The World Trade Organization (WTO)​ is an intergovernmental organization that regulates

international trade. The WTO officially commenced on 1 January 1995 under the Marrakesh
Agreement, signed by 123 nations on 15 April 1994, replacing the General Agreement on Tariffs
and Trade (GATT), which commenced in 1948. It is the largest international economic
organization in the world. The WTO deals with regulation of trade in goods, services and
intellectual property between participating countries by providing a framework for negotiating
trade agreements and a dispute resolution process aimed at enforcing participants' adherence to
WTO agreements, which are signed by representatives of member governments and ratified by
their parliaments.

The WTO provides a platform that allows member governments to negotiate and resolve trade
issues with other members. The WTO was created through negotiation, and its main focus is to
provide open lines of communication concerning trade between its members.

It has also maintained trade barriers when it makes sense to do so in the global context.
Therefore, the WTO attempts to provide negotiation mediation that benefits the international
economy.

How does the WTO differ from the GATT?

The WTO is not simply a continuation of the GATT; it has a completely different character. The
main differences are as follows:
• The GATT was a series of rules, a multilateral agreement without an institutional foundation
and with just an ad hoc secretariat, originating from the attempt to establish an International
Trade Organization in the 1940s. The WTO is a permanent institution with its own secretariat.
• The GATT was applied on a “provisional basis” even if, after more than 40 years of existence,
governments came to regard it as a permanent commitment. Commitments entered into under the
aegis of the WTO exist in their own right and are permanent.
• The GATT rules applied to trade in goods. The WTO covers not just goods, but also trade in
services and trade-related aspects of intellectual property rights.
• The GATT was originally a multilateral instrument but, towards the 1980s, several new
agreements of a plurilateral and hence optional nature were added to it. The agreements on which
the WTO is founded are almost all multilateral and therefore carry with them commitments to
which all Members have subscribed.
• The WTO system for the settlement of disputes is faster and more automatic, and thus less
susceptible to blockages than the former GATT system. The implementation of the decisions
resulting from the WTO settlement of disputes will be better assured.

The WTO fulfils five essential tasks:

1. Administration of the new multilateral trade agreements.
2. Provision of a forum for fresh negotiations.
3. Settlement of disputes.
4. Surveillance of national trade policies.
5. Cooperation with other international bodies in drawing up of economic policies at the
global level.

5.GATT​ -
Had three main provisions: The most important requirement was that each member must
confer most favored nation status to every other member. That means all members must be
treated equally when it comes to tariffs. It excluded the special tariffs among members of the
British Commonwealth and customs unions. It permitted tariffs if their removal would cause
serious injury to domestic producers.
Second, GATT prohibited restriction on the number of imports and exports. The exceptions
were:
-When a government had a surplus of agricultural products.
-If a country needed to protect its balance of payments because its foreign exchange reserves
were low.
-Developing countries that needed to protect fledgling industries.
-In addition, countries could restrict trade for reasons of national security. These included
protecting patents, copyrights and public morals.
The third provision was added in 1965. That was because more developing countries joined
GATT, and it wished to promote them. Developed countries agreed to eliminate tariffs on
imports of developing countries to boost their economies. It was also in the stronger countries'
best interests in the long run.
That’s because it would increase the number of middle-class consumers throughout the world.

6.BILL OF EXCHANGE (BOE):

A written, unconditional order by one party (the drawer) to another (the drawee) to pay a certain
sum, either immediately (a sight bill) or on a fixed date (a term bill), for payment of goods and/or
services received.

Use of BOE:​ Bills of exchange primarily act as promissory notes in international trade; the
seller, or exporter, in the transaction addresses the bill of exchange to the buyer, or importer. A
third entity, typically a bank, is party to many bills of exchange to help guarantee payment or
receipt of funds.

Essentials of a Bill of Exchange:

1. It must be in writing.
2. It must contain an order to pay. The order to pay must be in very clear and certain terms.
3. The order contained in the bill must be unconditional: The fact of the order being
unconditional must appear on the face of the bill with reasonable certainty and also order to pay
should not be made dependent upon any contingency. In case of the order being conditional the
instrument will not be a valid bill of exchange.
4. The bill must be signed by the maker (drawer) otherwise it will become an inchoate
instrument and therefore, legally in effective.
5. Three parties are necessary for a bill of exchange. (a) Drawer : The person who makes or
draws the bill.
6. It must contain an order to pay a certain sum and that to in money only and not anything else.

Kinds of the Bill Exchange:

1.Inland and foreign Bills:​ A bill which is
(i) drawn or made in India and also made payable in India or
(ii) drawn or made in India upon any person resident in India, although it may be made payable
in a foreign country, is deemed to be an inland bill.

Example: A bill of exchange drawn in Bombay and made payable in Delhi, although the drawee
may be residing outside India. Or a bill of exchange drawn in Madras on a person resident in
Delhi, although it may be made payable outside India.
A bill which is not an inland bill, is deemed to be a foreign bill.
Example: A bill of exchange drawn in India, on a person residing outside India and made
payable outside India.
A bill drawn outside India and made payable in India.
A bill drawn outside India, on a person residing in India.

2.Accommodation Bill:​ They are not real bills and do not represent acknowledgement of an
actual debt. They are drawn, accepted and subsequently discounted from a bank for
accommodating a friend.

3.Bill in sets:​ Foreign bills are generally drawn in set of 3 each and each set is called vice. In
order to avoid miscarriage during transit, they are drawn in different parts and each part is
transmitted separately. All these parts, as a whole constitute a complete bill.

4.Duplicate Bill:​ In case a bill of exchange has been lost the holder can ask for a duplicate bill
by furnishing security to the drawer to indemnity him against loss in case the lost bill is found
again (S.45A).

7.LETTER OF CREDIT:

A letter of credit is a document from a bank that guarantees payment. There are several types of
letters of credit, and they provide security when buying and selling. In the event that the buyer is
unable to make payment on the purchase, the bank will be required to cover the full or remaining
amount of the purchase.

There are several types of letters of credit, and they provide security when buying and selling.

Seller protection:​ If a buyer fails to pay a seller, the bank that issued a letter of credit will pay
the seller if the seller meets all of the requirements in the letter. This provides security when the
buyer and seller are in different countries.

Buyer protection: ​Letters of credit can also protect buyers. If you pay somebody to provide a
product or service and they fail to deliver, you might be able to get paid using a standby letter of
credit. That payment can be a penalty to the company that was unable to perform, and it’s similar
to a refund, allowing you to pay somebody else to provide the product or service needed.

8.COMMERCIAL ARBITRATION IN INDIA-

Commercial arbitration is a means of settling disputes by referring them to a neutral person, an

arbitrator, selected by the parties for a decision based on the evidence and arguments presented
to the arbitration tribunal. International commercial arbitration is an alternative method of
resolving disputes arising out of commercial transactions between private parties across national
borders that allows the parties to avoid litigation in national courts.

For this reason it inspires the confidence of Foreign Investors to invest in India and reassure
international investors in the reliability of the Indian legal system to provide an expeditious,
cheaper and flexible dispute resolution mechanism.

There have been amendments in the Arbitration and Conciliation Act. Till 1996, there were three
statutes on arbitration in India i.e., the Arbitration (Protocol and Convention) Act, 1937, the
Indian Arbitration Act, 1940 and the Foreign Awards (Recognition and Enforcement) Act, 1961.

9.WORLD TRADE ORGANIZATION (WTO) & GENERAL AGREEMENT ON

TARIFFS & TRADE (GATT)

FORMATION OF WTO:​ The World Trade Organization (WTO) is an intergovernmental

organization that regulates international trade. The WTO officially commenced on 1 January
1995 under the Marrakesh Agreement, signed by 123 nations on 15 April 1994, replacing the
General Agreement on Tariffs and Trade(GATT), which commenced in 1948. It is the largest
international economic organization in the world. The WTO deals with regulation of trade in
goods, services and intellectual property between participating countries by providing a
framework for negotiating trade agreements and a dispute resolution process aimed at enforcing
participants' adherence to WTO agreements, which are signed by representatives of member
governments and ratified by their parliaments.
WTO is a permanent organization which has been established on the basis of an international
treaty approved by participating countries. It achieved the international status like IMF and
IBRD, but it is not an agency of the United Nations Organization (UNO).

WTO Agreements:​ The WTO’s rule and the agreements are the result of negotiations between
the members.
(a) Goods:​ It all began with trade in goods. It has annexes dealing with specific sectors such as,
agriculture and textiles and with specific issues such as, state trading, product standards,
subsidies and action taken against dumping.

(b) Services:​ Banks, insurance firms, telecommunication companies, tour operators, hotel chains
and transport companies looking to do business abroad can now enjoy the same principles of free
and fair that originally only applied to trade in goods. These principles appear in the new General
Agreement on Trade in Services (GATS).
(c) Intellectual Property: ​The WTO’s intellectual property agreement amounts to rules for trade
and investment in ideas and creativity. The rules state how copyrights, patents, trademarks,
geographical names used to identify products, industrial designs, integrated circuit layout designs
and undisclosed information such as trade secrets “intellectual property” should be protected
when trade is involved.

(d) Dispute Settlement:​ The WTO’s procedure for resolving trade quarrels under the Dispute
Settlement Understanding is vital for enforcing the rules and therefore, for ensuring that trade
flows smoothly.

(e) Policy Review:​ The Trade Policy Review Mechanism’s purpose is to improve transparency,
to create a greater understanding of the policies that countries are adopting and to assess their
impact.

10.ROLE OF WTO IN INTERNATIONAL TRADE:

The World Trade Organization (WTO) is one of the three international organizations (the other
two are the International Monetary Fund and the World Bank Group) which by and large
formulate and co-ordinate world economic policy. It can be argued that the WTO plays a
particularly significant role in the promotion of free international trade.

The role of WTO in international trade is as stipulated in the Agreement establishing it (Article
III of the Agreement establishing WTO) and includes:

1. Facilitating the implementation, administration and operation and furthering the objectives of
the agreement establishing it and other Multilateral Trade Agreements and providing the
framework for the implementation, administration and operation of the Plurality Trade
Agreements. (Article III of the Agreement establishing WTO)

2. Providing the forum for negotiations among its Members concerning their multilateral trade
relations in matters dealt with under the agreements in the Annexes to the Agreement setting it
up and for the results of such negotiations as may be decided by the Ministerial Conference.
(Article III of the Agreement establishing WTO)

3. Administering the Understanding on Rules and Procedures Governing the Settlement of

Disputes or the Dispute Settlement Understanding which is Annex 2 to the agreement setting it
up. (Article III of the Agreement establishing WTO)

4. Administering the Trade Policy Review Mechanism in Annex 3 of the agreement setting it up.
(Article III of the Agreement establishing WTO)
5. Cooperating as appropriate with the International Monetary Fund and the International Bank
for Reconstruction and Development [a.k.a. the World Bank] with a view to achieving greater
coherence in global economic policy making. (Article III of the Agreement establishing WTO).

Objectives:
The important objectives of WTO are:
1. To improve the standard of living of people in the member countries.
2. To ensure full employment and broad increase in effective demand.
3. To enlarge production and trade of goods.
4. To increase the trade of services.
5. To ensure optimum utilization of world resources.
6. To protect the environment.
7. To accept the concept of sustainable development.

The main functions of WTO are discussed below​:

1. To implement rules and provisions related to trade policy review mechanism.
2. To provide a platform to member countries to decide future strategies related to trade and
tariff.
3. To provide facilities for implementation, administration and operation of multilateral and
bilateral agreements of the world trade.
4. To administer the rules and processes related to dispute settlement.
5. To ensure the optimum use of world resources.
6. To assist international organizations such as, IMF and IBRD for establishing coherence in
Universal Economic Policy determination.

Key Differences between GATT and WTO

The points given below explain the difference between GATT and WTO in detail:
1. GATT refers to an international multilateral treaty, signed by 23 nations to promote
international trade and remove cross-country trade barriers. On the contrary, WTO is a global
body, which superseded GATT and deals with the rules of international trade between member
nations.
2. While GATT is a simple agreement, there is no institutional existence, but have a small
secretariat. Conversely, WTO is a permanent institution along with a secretariat.
3. The participating nations are called as contracting parties in GATT, whereas for WTO, they
are called as member nations.
4. GATT commitments are provisional in nature, which after 47 years the government can make
a choice to treat it as a permanent commitment or not. On the other hand, WTO commitments are
permanent, since the very beginning.
5. The scope of WTO is wider than that of WTO in the sense that the rules of GATT are applied
only when the trade is made in goods. As opposed to, WTO whose rules are applicable to
services and aspects of intellectual property along with the goods.
6. GATT agreement is primarily multilateral, but plurilateral agreement is added to it later. In
contrast, WTO agreements are purely multilateral.
7. The domestic legislation is allowed to continue in GATT, while the same is not possible in the
case of WTO.
8. The dispute settlement system of GATT was slower, less automatic and susceptible to
blockages. Unlike WTO, its dispute settlement system is very effective.

11.STRUCTURE OF WTO:

Ministerial Conference
WTO is headed by the Ministerial Conference who enjoys absolute authority over the institution.
It not only carries out functions of the WTO but also takes appropriate measures to administer
the new global trade rules. It is integrated by representatives of all WTO Members and shall
meet at least once in every two years. It is the chief policy-making body of WTO and any major
policy changes, such as a decision to alter competition policy or to rewrite the WTO agreement,
require its approval.
General Council

In addition to these, the structure of the WTO consists of a General Council to oversee the WTO
agreement and ministerial decisions on a regular basis. It is also formed by the representatives of
all WTO Members and acts on behalf of Ministerial Conference whenever the Conference is not
in sessions. The General Council also meets as the Dispute Settlement Body and the Trade
Policy Review Body. The Council sits in its headquarters Geneva, Switzerland usually once a
month.
Trade Councils

Besides General Council, there is the Council for Trade in Goods, the Council for Trade in
Services, the Council for Trade-Related Intellectual Property Rights (TRIPS). These Councils
and their respective subsidiary bodies perform their respective functions. Each member has one
vote. Decision-making is made by consensus. If consensus is not reached then majority voting
plays the crucial rate.
Trade Committees

Trade Committees are formed for delegation under four authorities, namely:
● Under the terms of one of the Multilateral Trade Agreements
● By one of the Trade Councils
● By the Ministerial Conference
● Under the terms of one of the Plurilateral Trade Agreements
Each committee organizes its own procedures and may establish further subsidiary committees if
it seems fit. They also serve as the forum for discussions on ways to improve trade. And the
Committees meet once every two to three months.
Secretariat

The WTO secretariat (numbering 625 of many nationalities) is headed by Director General who
is appointed by Ministerial Conference. The Secretariat of the WTO is responsible for servicing
the WTO bodies with respect to negotiations and the implementation of agreements. Since
decisions are taken by Members only, Secretariat has no decision making power.
Dispute Settlement Body
The task of ensuring that all Members live up to their commitments and that there is a common
understanding of the nature of those commitments is a central part of the work of the WTO.
WTO’s procedure is a mechanism which is used to settle trade dispute under the Dispute
Settlement Understanding (DSU). A dispute arises when a member government believes that
another member government is violating an agreement which has been made in the WTO. And
the dispute settlement under WTO not only ensures security and predictability to the multilateral
trading system but is also concerned with the situations where a Member seeks remedy for
damage to its trade interests caused by the actions/inactions of other members. There are
different stages of dispute settlement under WTO which are as follows:
1. Consultations
2. Establishing a Dispute Panel
3. Implementing of Panel and Appellate Body Ruling

Functions of the World Trade Organisation:

The WTO was founded on certain guiding principles—non-discrimination, free trade, open, fair
and undistorted competition, etc. In addition, it has a special concern for developing countries.
At the heart of the Organisation are the WTO agreements, negotiated and signed by the bulk of
the world’s trading nations. The goal is to help producers of goods and services, exporters, and
importers conduct their business. The WTO’s overriding objective is to help trade flow
smoothly, frets, fairly, and predictably.
With these objectives in mind, WTO is performing following functions:

1. It shall facilitate the implementation, administration, nd operation of the WTO trade

agreements, such as multilateral trade agreements and plurilateral trade agreements.
2. It shall provide a forum for liberalization negotiations among its members concerning
their multilateral trade relations.
3. It shall administer the ‘Dispute Settlement Procedure’ so as to handle trade disputes.
4. It shall monitor national trade policies (including Trade Policy Review Mechanism).
5. It shall cooperate with various international organizations like the IMF and the World
Bank with the aim of achieving greater coherence in global economic policy-making.
6. It shall provide technical assistance and training for members of the developing countries.
12.MOST FAVOURED NATION (MFN):

"Most favoured nation" (MFN) is a status or level of treatment accorded by one state to another
in international trade.

Trade experts consider MFN clauses to have the following benefits:

-Increases trade creation and decreases trade diversion. A country that grants MFN on imports
will have its imports provided by the most efficient supplier if the most efficient supplier is
within the group of MFN. Otherwise, that is, if the most efficient producer is outside the group of
MFN and additionally, is charged higher rates of tariffs, then it is possible that trade would
merely be diverted from this most efficient producer to a less efficient producer within the group
of MFN (or with a tariff rate of 0). This leads to economic costs for the importing country, which
can outweigh the gains from free trade.

-MFN allows smaller countries, in particular, to participate in the advantages that larger
countries often grant to each other, whereas on their own, smaller countries would often not
be powerful enough to negotiate such advantages by themselves.

-Granting MFN has domestic benefits: having one set of tariffs for all countries simplifies the
rules and makes them more transparent. Theoretically, if all countries in the world confer MFN
status to each other, there will be no need to establish complex and administratively
costly rules of origin to determine which country a product (that may contain parts from all
over the world) must be attributed to for customs purposes. However, if at least one nation lies
outside the MFN alliance, then customs cannot be done away with.

-MFN restrains domestic special interests from obtaining protectionist measures. For example,
butter producers in country A may not be able to lobby for high tariffs on butter to prevent
cheap imports from developing country B, because, as the higher tariffs would apply to every
country, the interests of A's principal ally C might get impaired.

-As MFN clauses promote non-discrimination among countries, they also tend to promote the
objective of free trade in general.

Advantages
MFN status is critically important for smaller and developing countries for several reasons. It
gives them access to the larger market. It lowers the cost of their exports since trade barriers are
the lowest given. That makes their products more competitive.
The country's industries have a chance to improve their products as they service this large
market. their companies will grow to meet increased demand. They receive the benefits of
economies of scale. That, in turn, increases their exports and their country's economic growth.

Disadvantages
The downside of Most Favored Nation status is the country must also grant the same to all other
members of the agreement or the World Trade Organization.
This means they cannot protect their country's industries from cheaper goods produced by
foreign countries. Some industries get wiped out because they just can't compete.
Without tariffs, sometimes countries subsidize their domestic industries. That allows them to
export them for incredibly cheap prices. This unfair practice will put companies out of business
in the trade partner's country. Once that happens, the country reduces the subsidy, prices rise, but
now there's a monopoly. This practice is known as dumping, and it will get you in trouble with
the WTO.

The concept of MFN embodies the principle of non-discrimination which is a basic and key
concept of World Trade Organization. Discrimination between, as well as against, other
countries
was an important characteristic of the protectionist trade policies pursued by many countries
during the economic crisis of 1930s. Historians now regard these discriminatory policies as an
important contributing cause of the economic and political crises that resulted in the Second
World War.
Discrimination in trade matters breeds resentment among the countries, manufacturers, traders
and workers. Such resentment poisons international relations and may lead to economic and
political confrontation and conflict.

MFN: TARIFF BINDINGS

Tariff binding is a Commitment not to increase a rate of duty beyond an agreed level. Once a rate
of duty is bound, it may not be raised without compensating the affected parties.
A barrier to trade is a government-imposed restraint on the flow of international goods or
services.
The most common barrier to trade is a tariff—a tax on imports. Tariffs raise the price of
imported
goods relative to domestic goods (goods produced at home). Thus, Binding a Tariff is a promise
by a country not to raise its tariffs for the foreseeable future. Binding a tariff is considered
favorable for international trade because it gives potential exporters and importers a level of
certainty they otherwise would not have. The World Trade Organization encourages tariff
binding.
In simplest terms, a tariff is a tax. It adds to the cost of imported goods and is one of several
trade
policies that a country can enact.

Here are five of the top reasons tariffs are used:

1. Protecting Domestic Employment:​ The levying of tariffs is often highly politicized. The
possibility of increased competition from imported goods can threaten domestic industries.
These domestic companies may fire workers or shift production abroad to cut costs, which
means higher unemployment and a less happy electorate.

2. Protecting Consumers:​ A government may levy a tariff on products that it feels could
endanger its population.

3. Infant Industries:​ The use of tariffs to protect infant industries can be seen by the Import
Substitution Industrialization (ISI) strategy employed by many developing nations.

4. National Security:​ Barriers are also employed by developed countries to protect certain
industries that are deemed strategically important, such as those supporting national
Security.

5. Retaliation:​ Countries may also set tariffs as a retaliation technique, if they think that a
trading partner has not played by the rules.
13.ESCAPE CLAUSE:
Escape clauses are a regular feature of international agreements. They provide a degree of
‘‘flexibility’’ for dealing with the unpredictable events that sometimes face an institution’s
members. Escape clauses, or ‘‘pressure valves,’’ allow members of an agreement to temporarily
suspend their obligations under that agreement following an exogenous shock, while assuring
other state members a return to compliance in the following period. A sudden surge in imports
that threatens a domestic industry, for instance, might make it politically unfeasible for a country
to keep its borders fully open to trade as dictated by the terms of an international agreement. By
containing the breach within a single period, escape clauses provide governments with a means
of addressing domestic-level exigencies without forsaking the future benefits derived from
international cooperation. The existence of escape clauses introduces a trade-off that goes to the
center of the institutional design question.

The term ‘‘escape clause’’ is used loosely to refer to a wide range of different institutional
devices. Another characteristic of escape clauses is that they are indiscriminate: their effect is felt
across the agreement as a whole. Escape clauses rely precisely on the high cost of renegotiation
of the terms of an agreement, as they serve to preserve the legitimacy of those terms. In this way,
not only do they benefit states facing exigency, but they also serve as insulation of the agreement
as a whole against exogenous shocks affecting individual members.

14.ANTI-DUMPING & COUNTERVAILING DUTIES:

The Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) addresses two
separate but closely related topics: multilateral disciplines regulating the provision of subsidies,
and the use of countervailing measures to offset injury caused by subsidized imports. Binding
tariffs, and applying them equally to all trading partners (most-favoured-nation treatment, or
MFN) are key to the smooth flow of trade in goods. The WTO agreements uphold the principles,
but they also allow exceptions— in some circumstances. The main issue is what actions are
taken against dumping (selling at an unfairly low price), subsidies and special “countervailing”
duties to offset the subsidies and emergency measures to limit imports temporarily, designed to
“safeguard” domestic industries.

If a company exports a product at a price lower than the price it normally charges on its own
home market, it is said to be “dumping” the product. Is this unfair competition? Opinions differ,
but many governments take action against dumping in order to defend their domestic industries.
The WTO agreement does not pass judgment. Its focus is on how governments can or cannot
react to dumping — it disciplines anti-dumping actions, and it is often called the “Anti-Dumping
Agreement”.