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Dictionary of Trade Policy

A-D   E-L   M   N   O   P   Q   R   S-Z

 

CENTRAL
WTR SUBSCRIBERS ONLY
TIMELINE OF TRADE POLICY
ANALYSES OF TRADE POLICY
POLITICAL ECONOMY CLASSICS
WTO AGREEMENTS
U.S. AGREEMENTS
U.S. LAWS
KEY U.S. DOCUMENTS
CALENDAR OF EVENTS

 


Managed Trade

Trade that is controlled or influenced by governments through quotas, state-trading enterprises, or other interventionist and discriminatory means. It is antithetical to free trade, and related to industrial policy.

 

Maquiladora

A form of export-processing zone found in Mexico and other Latin American countries. The term is often shortened to maquila.

 

Margin

 

Margin of Preference

The benefit extended by preferences (either a regional trade arrangement or a non-reciprocal preferential program), as measured by the difference between the MFN rate and the preferential rate. These margins tend to decline over time with the negotiated reductions in MFN rates. GATT Article I explicitly permits some margins of preference to be maintained, and these are further defined under Ad Article I to mean “the absolute difference between the most-favoured-nation rate of duty and the preferential rate of duty for the like product, and not the proportionate relation between those rates.”

See also preference erosion.

 

Marine Mammal Protection Act (MMPA)

One of the early causes of controversy in the linkage between trade and environmental protection. In 1991 the United States placed an embargo on tuna imports from countries that fail to protect dolphins when fishing in the eastern tropical Pacific Ocean. The import ban was then successfully challenged in the GATT.

Click here to see the law in its current, amended form.

 

Market Access

The general category of instruments and issues affecting access to a country’s market, especially tariffs and quantitative restrictions. Market-access negotiations are the most traditional topic in trade policy, and are to be distinguished from more complex and politically difficult questions regarding “beyond the border” measures. See the market-access provisions of the Doha Ministerial Declaration. In the Doha Round, market-access negotiations are being conducted under three rubrics: non-agricultural market access, agriculture (where it is one of the three pillars), and trade in services. See the CENTRAL guide to Market Access.

 

Market Disruption

Section 406 of the Trade Act of 1974 (19 USC 2436) establishes a special and selective safeguard provision that applies only to imports from non-market economies. It can be invoked whenever imports from these countries are found to disrupt the market.

 

Market Failure

The inability of a system of private markets to provide public goods either at all or at the most optimal level. The free-rider problem dissuades prospective providers from offering goods or services. Market failure is commonly held to provide a case for collective or government action to improve allocative efficiency.

 

Market Promotion Program

A U.S. program that provides funds for the promotion of commodities in foreign markets (e.g., by underwriting the costs of advertising).

 

Marketing Orders

A U.S. program under which standards are set for certain agricultural commodities, specifying the grades that must be met regarding size, appearance, etc. These orders are generally imposed on the basis of national treatment, and hence can exclude from the U.S. market any imported produce that fails to meet the specified standard.

 

Marks of Origin

Markings on products that indicate their country-of-origin (e.g., “Made in Australia” or “Product of Brazil”). The purpose of such laws is generally to encourage consumers to buy the products of national industries. Marking requirements were the original impetus for the development of rules of origin, and by the Second World War they were employed by many countries. These marks were the subject of the Madrid Agreement for the Prevention of False and Fallacious Indications of Origin, as negotiated in 1891 and amended in later decades, as well as GATT Article IX and the 1958 GATT Recommendation on Marks of Origin. Some marking requirements also require that more detailed information be given regarding the domestic content of a product.

 

Mark-up

In WTO negotiations, an adjustment by which a putative "bound rate" is produced for specific products on which a country has no binding. For example, a "mark-up" of 20 percentage points (or any other agreed value) might be added to the applied rate. This is an especially necessary step whenever (a) the modality for a tariff negotiation is some type of formula cut, (b) those cuts are made on the basis of the bound rate, but (c) some countries have no bindings for some of their tariff lines. The concept behind the mark-up is that most countries have at least some water in their tariffs, but this is not always the case.

In the U.S. legislative system, the process by which a committee in the U.S. Congress considers a bill. The mark-up session may result in a bill being amended, approved, rejected, discharged with a recommendation that it be rejected, or discharged without a formal recommendation. See also non-markup.

 

Marrakesh Agreement

The aggregate of agreements reached in the Uruguay Round, the final step of which was the Marrakesh ministerial meeting of 1994. The Marrakesh Protocol to GATT 1994 is the legal instrument that incorporates the schedules of concessions and commitments on goods negotiated under the Uruguay Round.

 

Material Injury

Antidumping and countervailing duties can generally be applied only if the dumped or subsidized products are found to cause or threaten material injury to the domestic industry. Material injury is generally defined in U.S. law to mean harm which is not inconsequential, immaterial, or unimportant. For the more specific guidance in law, see 19 USC 1677(7). In the United States this injury test is conduced by the U.S. International Trade Commission. While all countries are granted an injury test by the United States in antidumping investigations, this test is not granted in countervailing duty investigations to countries that are either not WTO members or have not otherwise secured a legal right to such a test.

 

Measure

The generic term used to describe the various instruments through which states regulate or otherwise affect trade. As used in GATS Article XXVIII, it is defined to mean “any measure by a Member, whether in the form of a law, regulation, rule, procedure, decision, administrative action, or any other form.”

 

Member

While countries were referred to as “contracting parties” to the temporary and provisional GATT, they are bona fide members of the definitive WTO. Note that for purposes of U.S. law, a WTO member is defined in section 2(10) of the Uruguay Round Agreements Act as “a state, or separate customs territory (within the meaning of Article XII of the WTO Agreement), with respect to which the United States applies the WTO Agreement” (emphasis added). This definition excludes countries with respect to which the United States has invoked non-application, meaning those that are subject to the Jackson-Vanik amendment.

 

Member-Driven

WTO officials often take pains to stress that theirs is a member-driven organization, as opposed to one in which the staff wields strong, independent authority. A common cliché holds that international organizations can be only as successful as allowed by the political will of their members. Article VI of the Agreement Establishing the WTO provides that “the Director-General and the staff of the Secretariat shall not seek or accept instructions from any government or any other authority external to the WTO,” “shall refrain from any action which might adversely reflect on their position as international officials,” and “shall respect the international character of the responsibilities of the Director-General and of the staff of the Secretariat and shall not seek to influence them in the discharge of their duties.”

 

Memorandum of Understanding (MOU)

An agreement between states, usually on relatively narrow or technical matters. While most MOUs can be considered treaties within the international meaning of that term, in the United States they are generally treated as executive agreements. In some cases MOUs are meant only to give general guidance or establish broad agreement on a principle, and are not intended to be binding upon the signatories.

 

Mercantilism

Historically, the system of trade employed by most European powers during the 16th through the 18th centuries. It was based on the belief that government intervention can maintain a favorable balance of trade (where a country’s exports are greater than imports) and to promote domestically produced manufactured goods from raw materials (instead of importing the manufactured goods). A country’s success could be judged by the amount of specie that it accumulated.

While it has been several generations since bona fide mercantilism was a common practice among major trading powers, several artifacts of that strategy remain part of the trade regime. These include duty drawback programs, the practice of tariff escalation, and the pervasive practice of judging competitiveness and success through the balance of trade (even on a product- or country-specific basis). The term is also used, albeit inaccurately, as a synonym for protectionism. Properly defined, protectionism is concerned solely with imports and, unlike mercantilism, is indifferent to exports.

The term “mercantilism” is now generally employed as an epithet among liberal economists, who use it to describe the views of unschooled economic nationalists. Note however Keynes’ more sympathetic treatment of the mercantilists’ economic ideas (if not the political implications of these ideas) in Chapter 23 of The General Theory of Employment Interest and Money (1935).

 

MERCOSUR

This Southern Market (Mercado Común del Sur) aspires to be a common market among Argentina, Brazil, Paraguay, and Uruguay, although it is still at the stage of a customs union. It was created by the Treaty of Asunción in 1991. Chile and Bolivia are associate members.

 

Millenium Deveopment Goals

The United Nations General Assembly adopted in 2000 a resolution (55/2) known as the United Nations Millennium Declaration. This set of "Millenium Development Goals" includes several items that are directly or indirectly related to trade policy, but the legal status of these goals is subject to some dispute.

 

Ministerial

In any international organization or conference, a ministerial is a meeting held at the level of ministers (or Cabinet secretaries in the U.S. system). A ministerial conference of the WTO, for example, will be attended by ministers of commerce (or the agency with jurisdiction over trade), the USTR, and so forth. Ministerials are below the summit level, but above the deputy and working levels.

 

Ministerial Conference

Article IV of the Agreement Establishing the WTO provides for “a Ministerial Conference composed of representatives of all the Members” that “shall meet at least once every two years.” The conference is to “carry out the functions of the WTO and take actions necessary to this effect,” and “shall have the authority to take decisions on all matters under any of the Multilateral Trade Agreements.” See also General Council.

The WTO has held six ministerial conferences since its foundation: Singapore (1996), Geneva (1998), Seattle (1999), Doha (2001), Cancún (2003), and Hong Kong (2005). Ministerial meetings will generally lead to the production of a ministerial declaration, and may also deal with deliverables. See the Major Documents of the Doha Ministerial Conference.

 

Ministerial Declaration

The communiqué issued at a ministerial meeting. In the GATT/WTO system, the most important purposes of a ministerial declaration are to launch a new round of negotiations, contribute to the successful completion of one that is already underway, or deal with the implementation of a recently completed round. See the text of the Doha Ministerial Declaration.

 

Ministry of International Trade and Industry (MITI)

The Japanese ministry responsible for trade policy.

 

Modalities

The basic framework by which a specific aspect of a negotiation will be conducted. For example, the modalities for a tariff negotiation might variously be based on request-offer or formula negotiations, and each of these broad modalities might be further specified (e.g., a formula-based modality might be based upon the Swiss formula, or a tiered version of the Swiss formula, with certain specified coefficients, etc.). Depending on the precision of these modalities and the amount of "wiggle room" that they provide for (e.g., whether and to what extent countries can take specific products off the table), the modalities might determine most or all of the results of a negotiation. While modalities might ideally be devised at the very start of a negotiation, negotiators can sometimes spend years dealing with this issue. That has been the case for the Doha Round's goods negotiations: Whereas the Doha Ministerial Declaration (2001) called for negotiations on agricultural and non-agricultural goods, and stated that the modalities were to be decided by the time of the next ministerial conference in 2003, those modalities were still being negotiated six years later. Modalities can thus be seen in some instances to be the trade policy equaivalent of the famous negotiations over "the shape of the negotiating table" in the Paris Peace Talks of the Vietnam War, in which the contending parties spent years debating who would have a seat at the table and how that table would be configured.

 

Modes

The General Agreement on Trade in Services distinguishes between four “modes” under which services are traded. They are as follows:

Mode 1, Cross-Border Supply: The supply of a service “from the territory of one Member into the territory of any other Member.” The service crosses the border, but both the provider and the consumer stay home. This mode is comparable to the export of a good.

Mode 2, Consumption Abroad: The supply of a service “in the territory of one Member to the service consumer of any other Member.” The consumer physically travels to another country to obtain the service.

Mode 3, Commercial Presence: The supply of a service “by a service supplier of one Member, through commercial presence in the territory of any other Member” (i.e., investment through the establishment of a branch, agency, or wholly-owned subsidiary).

Mode 4, Presence of Natural Persons: The supply of a service “by a service supplier of one Member, through presence of natural persons of a Member in the territory of any other Member.” Private persons temporarily enter another country to provide services.

These four modes allow countries to specify any restrictions that they wish to make on their commitments. For any given service, a country can set limits mode-by-mode with regard to its MFN and national-treatment commitments. In other words, countries have eight separate opportunities to indicate how they will treat foreign service providers in any given sector (i.e., two types of reservations in each of four modes of delivery). See also unbound and none.

 

Monopoly

An industry in which there is a single supplier of the good or service, and thus there is no competition. Monopolies tend to be both highly profitable (see monopoly rents) and inefficient.

 

Monopoly Rents

The rents that accrue from monopoly control of a good or service. Aristotle related a tale showing that the ancients, although innocent of more complicated economic ideas, understood the relationship between scarcity and price. The philosopher Thales the Milesian, according to the Politics (Book I, Chapter 11), forecast a great harvest for olives and “gave deposits for the use of all the olive presses in Chios and Miletus, which he hired at a low price because no one bid against him. When the harvest-time came, and many were wanted all at once and of a sudden, he let them out at any rate which he pleased, and also made a quantity of money. Thus he showed the world that philosophers can easily be rich if they like.”

 

Montreal Ministerial Conference

The mid-term review of progress in the Uruguay Round held in Montreal, Canada, in December 1988. Frameworks for completing the negotiations were agreed in 11 out of the 15 negotiating areas, with no agreement reached on frameworks for agriculture, intellectual property, textiles, and safeguards.

 

Moral Hazard

The effect of certain types of insurance systems in causing a divergence between the private marginal cost of some action and the marginal social cost of that action, thus resulting in an allocation of resources that is not optimal. Put in simpler terms, a person with collision insurance is more likely ceteris paribus to be a reckless driver than a person without insurance because that person will not be held financially liable for any accidents.

 

Most Favored Nation (MFN)

The rule of non-discriminatory treatment between trading partners. GATT Article I provides this general rule; see also GATS Article II, Article 4 of the TRIPs Agreement, and comparable provisions of many other trade agreements. Together with national treatment (GATT Article III), this is one of the two central principles of the GATT/WTO system.

This term is no longer used in the United States. Congress mandated in 1998 that the centuries-old phrase be replaced by “normal trade relations” (NTR). This was done primarily because legislators had grown tired of a misunderstanding that perennially arises in annual debates over China’s status in U.S. trade policy. They were obliged to explain this terminology to irate but ill-informed constituents who demanded to know why China should be “the most favored trading partner” of the United States (and in decades past had faced the same issue with respect to Yugoslavia and the Soviet Union). Legislators find it politically easier to express their support for treating certain controversial partners on the same “normal” basis as nearly all other U.S. trading partners. From a practical perspective, there is no difference between NTR and MFN.

See also autonomous liberalization, binding, and regional trade arrangements.

The origins and evolution of the MFN doctrine date back to before the mercantilist era, when traders in medieval Europe sought privileges and physical protection from princes. It eventually developed as a matter of course to seek the “most favored” treatment that a prince had extended to any other trader. The same concept gradually entered the trade treaties between states, and by 1625 when Grotius wrote De Jure Belli Ac Pacis — generally recognized as the first treatise on international law — he could assert the MFN principle as a matter of general usage. “It is supposed to be generally agreed among mankind,” he wrote in Chapter II Section XXI, “that the privileges, which any nation grants promiscuously to the subjects of foreign powers or countries, are the common right of all.” Grotius offered no examples of this principle in positive law, however, and also appeared to contradict this point in a later passage (Chapter XV Section V). More than two more centuries would pass before the unconditional MFN principle was commonly included in European commercial treaties.

Note that in British English the word “favored” has a stray “u” in it (“favoured”), and that this spelling is used in the WTO and most other international organizations, whereas in American English the “o” has the courage to stand alone.

 

Multifiber Arrangement (MFA)

More formally known as the Arrangement Regarding International Trade in Textiles, this trade-restricting agreement had precursors in the early 1960s and gradually evolved into an extensive network of bilateral import-quota arrangements the set the terms of access for developing countries’ textile and apparel exports to industrialized countries. It was terminated by the Uruguay Round Agreement on Textiles and Clothing, although the quotas established under the MFA will not be fully eliminated until 2005. See also Committee for the Implementation of Textile Agreements.

 

Multifunctionality

The idea that agriculture has many functions in addition to producing food and fiber, such as environmental protection, landscape preservation, rural employment, cultural heritage, etc. This notion, which is advanced by Japan and some European countries, is seen by the advocates of agricultural trade liberalization as a disguised effort to maintain high levels of protection. It can be compared to the cultural exception.

 

Multilateral Agreement on Investment (MAI)

An agreement that was under negotiation in the OECD in the late 1990s, but was never completed due to disagreements among the parties over inter alia issues related to nationalization, a cultural exception, and a security exception.

See the draft negotiating text of the agreement from 1998.

 

Multilateral Agreements on Trade in Goods

The agreements that are mandatory for all WTO members, forming part of the single undertaking reached in the Uruguay Round (together with other instruments such as GATS). They are to be distinguished from the plurilateral agreements. As enumerated in Annex 1A of the Agreement Establishing The World Trade Organization, these multilateral agreements consist of the following instruments:

General Agreement on Tariffs and Trade 1994

Agreement on Agriculture

Agreement on the Application of Sanitary and Phytosanitary Measures

Agreement on Textiles and Clothing

Agreement on Technical Barriers to Trade

Agreement on Trade-Related Investment Measures

Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994

Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade 1994

Agreement on Preshipment Inspection

Agreement on Rules of Origin

Agreement on Import Licensing Procedures

Agreement on Subsidies and Countervailing Measures

Agreement on Safeguards

 

Multilateral Environmental Agreements

A series of international agreements on environmental matters that can affect trade obligations. Major examples include the Convention on International Trade in Endangered Species of Wild Fauna and Flora, the Montreal Protocol on Substances that Deplete the Ozone Layer, and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal. NAFTA Article 104 provides that the terms of listed environmental agreements take precedence over NAFTA in the event of any conflicts, but also provides “that where a Party has a choice among equally effective and reasonably available means of complying with such obligations, the Party chooses the alternative that is the least inconsistent with the other provisions of this Agreement.” See also sustainable development.

 

Multilateral Trade Agreements

See Multilateral Agreements on Trade in Goods.

 

Multilateralism

The negotiation of agreements on a multilateral basis (i.e., with a large number of countries representing more than one region of the world). By contrast with unilateralism, bilateralism, regionalism, and plurilateralism, this approach is non-discriminatory. GATT and the WTO are the prime examples of multilateralism in trade. Note however that the distinction between multilateralism and plurilateralism is sometimes difficult to define in practice, considering the fact that the GATT began with just 23 countries, and even today there are a few countries that are neither in the WTO nor seeking to accede (e.g., North Korea).

 

Mutual Recognition Agreement (MRA)

An international agreement between two or more partners under which they extend recognition to the determinations made by one another’s standards bodies. See for example the Agreement on Mutual Recognition Between the United States of America and the European Community (1997). See also the recognition provisions for licensing and certification of services providers in GATS Article VII.

 

NAFTA Parity

Access to the U.S. market on the same terms that Mexico receives under NAFTA. Central American and Caribbean countries began to seek this soon after NAFTA entered into force in 1994, and won major expansions in the scope of the Caribbean Basin Initiative in 2000. The principal benefit of NAFTA parity treatment is in the textile and apparel sector. See the NAFTA parity provisions in Title II of the Trade and Development Act of 2000.

 

NAMA

See non-agricultural market access.

 

National Security

The argument is often made that excessive reliance upon the international market is unwise, to the extent that countries may lose their capacity to provide such critical goods as fuel for their populations (food security), producers (energy security), or military establishments. In response to these concerns, international agreements and domestic laws generally provide for national security exceptions. See also homeland security.

 

National Trade Estimate (NTE)

The NTE is an annual report produced by USTR that catalogs objectionable aspects of U.S. trading partners’ regimes. It is similar in certain respects to the Trade Policy Review Mechanism of the WTO. Click here to see the text of the law. Although this report series has been required only since enactment of the Trade and Tariff Act of 1984 (click here to see the text of the law), its roots go back to Thomas Jefferson’s Report on The Privileges And Restrictions on The Commerce of The United States in Foreign Countries (1793).

 

National Treatment

A rule of nondiscrimination requiring that the firms and persons in another country be treated on the same basis as the country’s own firms and persons. National-treatment provisions tend to be more precisely defined (and therefore limited) than MFN provisions, so as to permit countries to continue to discriminate in favor of their nationals on other matters that do not fall within the definition of the principle. For example, the national-treatment provision in GATT Article III applies to “internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions.” While these are important matters, they do not cover all potentially discriminatory measures that countries might employ. National-treatment provisions are found in GATS Article XVII, Article 3 of the TRIPs Agreement, and many other agreements.

 

Nationalization

The expropriation of a foreign investment by the host government.

 

Natural Person

An actual human being, to be distinguished from a juridical person. Under GATS, the presence of natural persons is the fourth of four modes by which services can be provided.

See the Third Protocol to GATS on Movement of Natural Persons, which was preceded by the Decision on Negotiations on Movement of Natural Persons.

 

Negative List

One approach to the identification of measures that are subject to the terms of an agreement is a negative list: All items are affected except those that are explicitly listed. This is a less restrictive approach than the positive list. The negative-list approach can also be called "bottom-up."

 

Negotiating Authority

An easily misunderstood term in the constitutional law of U.S. trade policy that actually refers to the authority by which agreements are dealt with after they have been negotiated. From a constitutional perspective, there are no limitations on the president’s authority to negotiate with foreign countries, nor is the executive under any legal obligation to obtain advance approval from Congress before entering into negotiations on trade or other matters. What is at issue are the terms by which any agreements are subsequently approved and implemented. This is particularly true for any agreement that requires changes in domestic law (i.e., are not self-executing) through the enactment of implementing legislation. The only form of negotiating authority that is explicitly recognized by the Constitution is the Treaty Power. Moreover, the Commerce Clause explicitly provides that the regulation of commerce is a congressional prerogative. Both the RTAA authority for tariff agreements and the fast-track authority for tariff and non-tariff agreements are newer forms of negotiating authority that facilitate action by either bypassing Congress (in the case of the RTAA) or expediting its procedures (in the case of the fast track). These authorities treat agreements not as treaties but as executive agreements or congressional-executive agreements.

Negotiating authority in the United States is now known as "trade promotion authority."

 

Negotiating Objectives

The goals of a country in international negotiations. In the years before the development of modern communications, the preparation of formal instructions for one’s negotiators was the first — and often the most important — step in the process of reaching an agreement.

The political significance of formal U.S. negotiating objectives has risen with the controversial character of trade policy. During the decades preceding the 1990s, the executive and legislative branches rarely disagreed much over the setting of these objectives (although there were some notable disputes arising in instances where the executive was accused of not adequately consulting with Congress or exceeding its authority). The significance of formal objectives increased tremendously with the emergence of substantial domestic disagreements over the proposed linkages between trade, labor, and environmental objectives. The inability of members of Congress to come to agreement on appropriate U.S. objectives in these areas has been the principal impediment to a new grant of negotiating authority. For examples of negotiating objectives, see those specified by the U.S. Congress in the trade acts of 1974 and 2002.

 

NES, NESOI, or NESI

See “not elsewhere specified.”

 

Net Food-Importing Developing Countries (NFIDCs)

The countries that meet the definition of this self-explanatory term, as listed in WTO document G/AG/5/Rev.8 (22 March 2005), are the least-developed countries plus Barbados, Botswana, Côte d'Ivoire, Cuba, Dominica, Dominican Republic, Egypt, Gabon, Honduras, Jamaica, Jordan, Kenya, Mauritius, Mongolia, Morocco, Namibia, Pakistan, Peru, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines, Senegal, Sri Lanka, Trinidad and Tobago, Tunisia, and Venezuela.

 

Neutrality

The position taken by a country that does not ally itself with any of the belligerents in an actual or potential conflict. Neutrality is a well-developed area of international law; see for example the Convention Respecting The Rights And Duties Of Neutral Powers And Persons In Case Of War On Land, the Convention Concerning the Rights and Duties of Neutral Powers in Naval War, and the Convention Relating To The Status of Enemy Merchant Ships At The Outbreak of Hostilities. It nevertheless has only indirect effects on the law of trade because most actions that countries might take in a state of war fall within the scope of the security exception (GATT Article XXI). Questions of neutrality have nevertheless affected such issues as the dispute over extraterritorial measures and the decision of some countries to join or remain in the European Free Trade Association rather than the European Union or its predecessors. Neutrality also played a role the delayed Swiss entry into GATT; despite the fact that it was the host country, Switzerland did not join until 1967.

 

New International Economic Order (NIEO)

Developing countries proposed in the 1960s and 1970s that a new order be established in which market forces were not the sole determinants of trade. This entailed inter alia protection via import substitution industrialization, international commodity agreements, special and differential treatment, and other forms of intervention. The NIEO received formal approval in U.N. General Assembly resolutions in the early 1970s.

 

New Round

A new round of multilateral trade negotiations, and the first held under the auspices of the WTO. A new round was supposed to be launched at the Seattle Ministerial in 1999, but that meeting failed to produce consensus. See the major documents of the Doha Ministerial Conference, which succeeded where Seattle failed. See also built-in agenda.

Note however that some countries object to the use of the term “round,” which is associated with the past. The term appears nowhere in the Doha Ministerial Declaration, but is nevertheless commonly employed to describe the new negotiations.

 

Newly Industrialized Economy (NIE)

An economy that has risen from developing to industrialized status. Although there is no formal listing of these countries, by general consensus it includes (at a minimum) the Asian “tigers” Hong Kong, Korea, Singapore, and Taiwan. A more expansive list might include Argentina, Brazil, Indonesia, Malaysia, Mexico, and others. This term is generally preferred to “newly industrialized country” because neither Hong Kong nor Taiwan are independent countries. One consequence of becoming a NIE may be the loss of preferential treatment through graduation from the Generalized System of Preferences.

 

NGO

See non-governmental organization.

 

Nomenclature

The division and classification of products in a tariff schedule. See also Harmonized System.

 

Non-Actionable Subsidy

A subsidy that cannot form the basis of a complaint under the countervailing duty law. Non-actionable subsidies are addressed in Part IV of the Agreement on Subsidies and Countervailing Measures. See also actionable subsidies and prohibited subsidies.

 

Non-Agricultural Market Access (NAMA)

Market-access negotiations for goods other than agricultural products. While somewhat unwieldy, this terminology is more precise than the older and somewhat misleading reference to "industrial products" (which sounds more like "manufactured products" than "all goods that do no not fall within the definition of agricultural products"). It is anticipated that the modalities for the Doha Round NAMA negotiations will be based on a tiered version of the Swiss formula. See also the CENTRAL guide to Market Access.

 

Non-Application

GATT Article XXXV, now replaced by WTO Article XIII, permits an existing contracting party to “opt out” from applying the GATT/WTO to a new entrant (and vice versa). Non-application can be invoked only at the time of accession; existing WTO members may not withdraw WTO treatment unilaterally. In effect, it allows one country to pretend as if another country were not a member of the WTO. This “non-application” provision was added to GATT in 1948, in order to deal with a political dispute between India and Pakistan on the one hand and South Africa on the other. Article XXXV was a political compromise that served the broader objective of widening GATT membership by allowing any pair of countries to act as if the other party were not in GATT. A total of 85 invocations of GATT Article XXXV were in effect between 1948 and 1995 (the final year of GATT’s existence). In addition to three Arab countries’ invocations with respect to Israel, the principal uses of this clause involved Japan (which was based primarily on economic rather than political concerns), South Africa, and — in the cases of South Korea and the United States — certain non-market economies. All invocations of GATT Article XXXV by the United States involved countries that are subject to the Jackson-Vanik Amendment. Most of these invocations were subsequently withdrawn, and all but one (by the United States with respect to Romania) expired with the end of the GATT. The United States has invoked WTO Article XIII for each acceding country that was (at the time of accession) subject to the Jackson-Vanik law. In the special case of China, Congress enacted a law in 2000 that provided for the graduation of that country from Jackson-Vanik upon the completion of its accession to the WTO. See also non-market economies.

 

Non-Discrimination

See discrimination.

 

Non-Governmental Organization (NGO)

An entity that is neither a governmental agency nor a for-profit firm. Business groups and labor unions might technically considered to be NGOs, but the term is used primarily to mean those environmental organizations, citizens’ groups, and consumer organizations that are more recent entrants in the trade policy debate. NGOs form a part of civil society. Only states have formal representation in the WTO, but efforts have been made to improve NGOs’ access to information and capacity to express their views to policymakers. See also transparency.

 

Non-Market Economy (NME)

Sometimes called economies in transition, this term applies to Communist or state-controlled economies (most of which are now in transition towards market status). During the Cold War, a few NMEs managed to accede to GATT on special terms. Most NMEs face special methodologies under the AD law. While they used to be exempt from the CVD law in the United States that is no longer the case, as was made definitively clear by the 2012 amendments to the CVD law.

In the United States there is no formal list of countries that are considered to be NMEs; determinations as to a country’s status are made on a case-by-case basis, in response to the filing of AD or CVD petitions, and graduation from the list is also petition-driven. A nonmarket economy country is any foreign country that the Department of Commerce determines does not operate on market principles of cost and pricing structures. The department considers the following factors about a foreign country in making these decisions: (1) the extent to which the currency is convertible; (2) the extent to which wage rates are determined by free bargaining between labor and management; (3) the extent to which joint ventures or foreign investment are permitted; (4) the extent of government ownership or control of means of production; (5) the extent of government control over allocation of resources and over price and output decisions of enterprises; and (6) other factors the Department considers appropriate. Most NMEs were also subject to the Jackson-Vanik Amendment.

For the definition of an NME in U.S. trade-remedy law (and thus the criteria by which such a country can be found to have become a market economy), see 19 USC 1677(18).

 

Non-Markup

In the special procedures of the fast track, the process by which congressional committees translate the terms of a trade agreement into implementing legislation is referred to a “non-markup” because (unlike an ordinary markup) this step takes place before the bill is formally submitted to Congress by the president.

 

Non-Paper

Alternatively known as an “informal communication,” this is a proposal or text that is circulated informally among WTO delegations for discussion. It is comparable to the U.S. practice of the “trial balloon,” in which an informal suggestion is made without attaching the prestige or the commitment of the originating party to the contents of the proposal. Non-papers and trial balloons are both easily denied or abandoned if they meet a sufficiently negative response, but a favorable reception can lead to more formal promotion of the initiative. See also instructions.

 

Non-Reciprocal Preferences

Preferential treatment that is extended on a one-way basis, as in the case of the Generalized System of Preferences and other programs based on special and differential treatment for developing countries. To be distinguished from reciprocal preferences that are extended via regional trade arrangements. See also tiering.

 

Non-Resident Countries

Countries that are members of the WTO but do not have permanent missions in Geneva. The country's representation might be handled either through the home country or through one of its other missions (typically Brussels or London). Note that the WTO missions of least-developed countries receive a subsidy from the Government of Switzerland; non-residency thus tends to be more common among countries that are very poor but not least-developed.

 

Non-Tariff Barrier (NTB)

A border measure other than a tariff. In addition to quantitative restrictions, NTBs include such measures as sanitary and phytosanitary requirements, technical barriers, and so forth, and arguably include trade-remedy orders as well.

 

Non-Violation

Under WTO dispute-settlement procedures, nullification or impairment arising from actions that are not direct violations of WTO obligations. For example, in 1991 a GATT panel agreed with the U.S. argument that subsidies to the oilseeds industry had the effect of nullifying or impairing the duty bindings that the European Economic Community had made on this product.

 

None

In devising its schedule of services commitments under GATS, a country may use the term “none” to indicate that for certain sectors under one or more mode of delivery it makes no limits on its binding commitments. This means that all of the country’s measures are bound, and that its trading partners have unrestricted access to the country’s market for that sector and mode. The opposite of none is “unbound” (i.e., no bindings).

 

Normal Trade Relations (NTR)

See MFN.

 

Normal Value

In antidumping investigations, this is the term applied to the adjusted price of the foreign like product in the home or third-country (comparison) market, or to the constructed value of the subject merchandise. Investigators compare the normal value to the export price or constructed export price to determine the margin of dumping, if any. For the meaning of this term in the context of U.S. antidumping law, see the definition given in 19 USC 1677b.

 

North American Free Trade Agreement (NAFTA)

NAFTA is an FTA among Canada, Mexico, and the United States. The agreement was negotiated in 1991-1992; approved and supplemented by “side agreements” on labor, the environment, and import surges in 1993; and entered into effect in 1994. It represents a quantitative and qualitative expansion upon a 1988 predecessor agreement between Canada and the United States, two countries that were already responsible for the world’s largest bilateral trade relationship. NAFTA differs from the U.S.-Canada FTA in several respects, not the least of them being the inclusion of a developing country in the partnership. The agreement nevertheless contains few specific provisions for S&D treatment, and in some important respects it can be considered the very antithesis of a traditional, developmentalist pact. All parties are expected to meet an equivalent level of obligations, although NAFTA does contain transitional measures and allows for certain exceptions. NAFTA also has much more extensive provisions on such matters as intellectual property rights, trade in services, and investment. The agreement is something more than a bare-bones FTA, but is still — for want of a common external tariff or fully free trade in factor movements — something less than a customs union or common market.

Click here to see the agreement, and here to see the U.S. implementing legislation for it.

 

“Not Elsewhere Specified” (NES)

Usually abbreviated as NES or in other variations (e.g., NESI or NESOI mean “not elsewhere specified or indicated”), this is tariff jargon for “other.” For example, if successive tariff items provide classifications for “tricycles, red” and “tricycles, blue,” the item for “tricycles, NES” would mean “all tricycles other than those that are red or blue.”

 

Notification

The procedure of informing the WTO membership of some aspect of the country’s trade policies. Many provisions of WTO agreements require the notification of existing or newly adopted measures, but this is an obligation that many members tend to honor more in the breach than in the observance. See the Decision on Notification Procedures,

 

Nuisance Tariff

A tariff that is so low that it costs the government more to collect it than the revenue it generates. Contrast with confiscatory duty.

 

Nullification or Impairment

The dispute-settlement procedures provided under GATT Article XXIII are triggered whenever a country believes that “any benefit accruing to it directly or indirectly under this Agreement is being nullified or impaired or that the attainment of any objective of the Agreement is being impeded.”

 

Observer

Although not explicitly provided for under GATT 1947, the GATT and now WTO have two types of observers. These include other international organizations as well as governments (especially those representing countries that are in the process of accession).

The international organizations in the WTO that enjoy observer status include the United Nations, the United Nations Conference on Trade and Development (UNCTAD), the International Monetary Fund (IMF), the World Bank, the Food and Agricultural Organization (FAO), the World Intellectual Property Organization (WIPO), and the Organization for Economic Co-operation and Development (OECD). It is a matter of some controversy that the Arab League has not been granted observer status. A continuing dispute over this matter has delayed the granting of observer status to the secretariats of multilateral environmental agreements.

The rule observed in the WTO is that observers must start accession negotiations within five years of attaining this status; an exception to this rule is made for the Holy See.

 

Office of the U.S. Trade Representative (USTR)

A specialized agency within the Executive Office of the President. It is responsible for developing and coordinating U.S. policy on trade and investment, and leading or directing negotiations with other countries on such matters. The U.S. Trade Representative acts as the principal trade advisor, negotiator, and spokesperson for the president on trade and related investment matters. Through an interagency structure, the USTR coordinates trade policy, resolves agency disagreements, and frames issues for presidential decision. The agency has offices in Washington and in Geneva.

Despite the fact that the agency is actually a part of the White House, the USTR is sometimes seen as more a creature of Congress than the president. The agency owes its very existence to members of Congress who forced the Kennedy administration to establish the Special Trade Representative in 1962. The purpose of this agency, which was renamed the USTR in 1979, was to reduce the influence of diplomatic concerns in U.S. trade policy. There have been a few occasions in the past when presidents have considered eliminating the agency altogether (usually at the suggestion of the secretary of commerce), only to drop the proposal after the trade committees in Congress raised strong objections. The USTR has several specific responsibilities under U.S. trade law, one of them being the preparation of an annual report specifying the trade policy agenda for the coming year. The USTR is also required by law to produce an annual National Trade Estimate report, administer the Generalized System of Preferences, and investigate complaints against foreign unfair trade practices under the Section 301 retaliatory trade law.

The USTR's webpage is at http://www.ustr.gov/.

 

Official Gazette

Most countries have an official publication for the rules, determinations, and other announcements of their agencies and institutions. In the United States this publication is the Federal Register. Although GATT/WTO rules do not explicitly require that countries have such a publication, GATT Article X provides that, “Laws, regulations, judicial decisions and administrative rulings of general application, made effective by any contracting party, pertaining to” various trade-related matters “shall be published promptly in such a manner as to enable governments and traders to become acquainted with them.” See also transparency.

 

Offshore Processing

The assembly or other processing of goods in facilities located in another country, usually in formal export processing zones. Provisions of law in the home country of the firm that conducts this offshore operation may encourage or facilitate the transaction (e.g., through tax incentives). In the United States, provisions that are still commonly called the 806/807 program (after the sections in the now-defunct Tariff Schedule of the United States) generally exempt the reimported products from tariffs on their U.S. content.

 

Omnibus Trade and Competitiveness Act of 1988

An omnibus trade bill that inter alia granted the fast-track authority used to negotiate the Uruguay Round agreements and the free trade agreements with Canada and Mexico, and revised the reciprocity and trade-remedy laws. Click here for links to the major provisions of the law.

Click on the links below to access the principal provisions of this law, as amended by later omnibus trade bills:
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Omnibus Trade Bills

Unlike many other countries, where the writing of a new law dealing with trade (or any other subject in public policy) begins by repealing the previous statute, in the United States new laws tend to consist primarily of amendments to the existing statutes. Many aspects of U.S. trade law therefore consist of modifications to statutes that date back (directly or indirectly) to the 19th or even the 18th centuries. These amendments are typically enacted in the form of omnibus bills that include provisions dealing with a wide variety of trade-related issues, especially grants of negotiating authority, changes to the trade-remedy and reciprocity laws, and programs affecting specific products and sectors. Notable omnibus trade bills of the last half-century include the Trade Expansion Act of 1962, the Trade Act of 1974, the Trade and Tariff Act of 1984, the Omnibus Trade and Competitiveness Act of 1988, and the Trade and Development Act of 2000. Some omnibus trade bills principally consist of the implementing legislation for trade agreements, such as the Trade Agreements Act of 1979 and the Uruguay Round Agreements Act of 1994.

See also the reading entitled The Legislative Process and the Fast Track.

 

Open Door

U.S. policy towards China in the late 19th and early 20th centuries was based on opposition to the establishment of restrictive spheres of interest, advocating instead that the outside powers each have access to the territory — and markets — of all of China.

 

Open Regionalism

An approach to integration in which regional trade arrangements are viewed as instruments of regional and multilateral liberalization, rather than as tools of discrimination against third parties. An RTA that is based upon these principles, such as the Andean Community, will work to eliminate barriers to trade among its members while also engaging as a bloc in either regional or multilateral negotiations. Open regionalism also means in theory, though not always in practice, that non-members are welcome to negotiate for accession to the RTA.

 

Open Skies

In trade diplomacy, the proposal that (cabotage laws notwithstanding) countries negotiate agreements to provide access to one another’s air transportation markets. In Cold War diplomacy, the proposal that the skies of the United States and Soviet Union be open to one another’s surveillance aircraft.

 

Operation of the Trade Agreements Program (OTAP)

The U.S. International Trade Commission and its predecessor, the Tariff Commission, has produced annual reports reviewing events in U.S. trade policy since the 1930s. These reports, which are now issued under the title of The Year in Trade, are the best almanac of policy for recent or historical research into developments in U.S. trade law and policy.

 

Opportunity Cost

The cost of a decision measured as some alternative that is foregone. For example, the opportunity cost of additional schooling is, in the short run, measured by the earnings that are foregone during that period. In the long run, the opportunity cost of working instead of attending more school might be greater.

 

Orderly Marketing Arrangement (OMA)

Another name for a voluntary restraint agreement.

 

Organization for Economic Cooperation and Development (OECD)

Established in 1961, the OECD is the successor to the post-war Organization for European Economic Cooperation (the administrator of Marshall Plan aid in Europe). The member countries of the OECD are the most economically advanced industrial democracies. They are Australia, Austria, Belgium, Canada, Chile, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Israel, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States.

The organization provides a forum in which to discuss and develop economic and social policy. It does not constitute a regional trade arrangement, but can be seen as a form of plurilateralism. While the principal function of the OECD is to serve as a sort of think tank for its member states, it has also been a negotiating forum for a few agreements dealing with energy, investment, and other topics. These include the failed Multilateral Agreement on Investment, the Arrangement on Guidelines for Officially Supported Export Credits, and the Convention on Combating Bribery of Foreign Public Officials.

The OECD has observer status in the WTO.

In addition to being used to identify the organization, the term “OECD countries” is often used as shorthand to mean “the largest and most economically advanced countries.” If one were to refer (for example) to education policies in the OECD countries, the reference may have nothing to do with any initiative currently under consideration within the OECD, but may instead be used to identify a certain class of countries that is to be contrasted with developing countries or economies in transition

See the Convention on the Organization for Economic Cooperation and Development (1960).

The OECD webpage is at http://www.oecd.org.

 

Organization of American States (OAS)

Successor to the Pan American Union, the OAS was established in 1948 as a regional organization for the Western Hemisphere. Its membership includes all countries from Canada to the Southern Cone of South America; Cuba’s membership is in suspension. 

Click here to see the OAS Charter.

The OAS webpage is at http://www.oas.org/en/default.asp.

 

Organization of Petroleum Exporting Countries (OPEC)

OPEC is a cartel composed of thirteen oil-producing countries. Formed in 1960 at the initiative of Venezuela, this Vienna-based organization has the ability — when its members overcome the public-goods problem that is endemic in cartels — to exercise considerable influence over the global supply and price of oil. The current members of OPEC are Algeria, Angola, Ecuador, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela.

The OPEC webpage is at http://www.opec.org/opec_web/en/.

 

Outsourcing

The practice of contracting for the performance of economic activities outside of the firm. The term is most often used to mean outsourcing of operations in another country. In the United States, outsourcing in service sectors (e.g., call centers and computer programming) is increasingly controversial.

 

Overseas Private Investment Corporation

A self-sustaining agency of the U.S. Government, OPIC's purpose is to promote economic growth in developing countries and emerging markets by encouraging U.S. private investment.

The OPIC webpage is at http://www.opic.gov/.

 

Panel

An appointed body of the WTO that investigates and make recommendations to the Dispute Settlement Body on trade disputes between WTO member countries. A panel typically consists of three individuals not from the disputing countries. Panel findings can be appealed to the Appellate Body.

 

Parallel Imports

Also known as “grey market” goods, these are imports into a country by someone other than the authorized importer. For example, a widget manufacturer in Japan might enter into an arrangement under which one Australian importer has the exclusive right to market those widgets, but another Australian firm might conduct parallel imports by purchasing Japanese widgets in Indonesia and shipping them along to Australia. Such imports tend to undermine the benefits that an importer hoped to obtain through an exclusive license with the manufacturer.

 

Paris Convention for the Protection of Industrial Property

An agreement concluded in 1883 on protection of industrial property such as patents, trademarks, and appellations of origin. It provides for national treatment in signatories’ patent and trademark laws. Unlike the Berne Convention, it permits exception from patent coverage for foods, drugs, and chemicals. It is administered by WIPO.

Click here to see the text of the agreement.

 

Part IV

Added to GATT in 1966, this section provides for special and differential treatment for developing countries. Part IV consists of articles XXXVI through XXXVIII. For the predecessor to Part IV see GATT Article XVIII.

 

Patent

A patent is a form of intellectual property that allows it owners to monopolize the production of an invention for a limited period. The term is derived from litterae patentes (that which is open or disclosed) and is thus to be distinguished from lettre de cachet (that which is kept secret). Patents are thus to be made known to the public, even though the exploitation of the patent is, for a limited time, reserved for the patent-holder. See also compulsory licensing.

 

Peace Clause

Also known as the “due restraint” provision, Article 13 of the Uruguay Round Agreement on Agriculture provided that green box domestic support measures could not be the subject of countervailing duty petitions or other action under the Agreement on Subsidies and Countervailing Measures, nor could they be subject to dispute-settlement actions based on non-violation claims. This provision expired at the end of 2003.

 

Peaks

See tariff peaks.

 

Performance Requirements

Restrictions that are placed on foreign investments requiring that they meet certain goals. For example, a foreign investor might be obliged to make some specified level of purchases in the host country, or employ a certain number of local staff. Export performance requirements are generally banned under the Uruguay Round Agreement on Trade-Related Investment Measures.

 

Peril Points

During the late 1940s and 1950s Congress generally limited its grants of negotiating authority to the president by requiring that he not exceed the “peril points” in tariff negotiations. These points, which were calculated by the Tariff Commission, defined the level at which any further reductions in the tariff on an item would be harmful to the U.S. industry.

 

Perishable Products

Some U.S. laws provide for expedited consideration of safeguard measures when the subject products are perishable. These goods are defined, for example, in a provision of the Andean Trade Preferences Act (19 U.S.C. 3203(d)(5)) to include (A) live plants and fresh cut flowers provided for in chapter 6 of the Harmonized Tariff Schedules; (B) fresh or chilled vegetables provided for in headings 0701 through 0709 (except subheading 0709.52.00) and heading 0714 of the HTS; (C) fresh fruit provided for in subheadings 0804.20 through 0810.90 (except citrons of subheadings 0805.90.00, tamarinds and kiwi fruit of subheading 0810.90.20, and cashew apples, mameyes colorados, sapodillas, soursops and sweetsops of subheading 0810.90.40) of the HTS; or (D) concentrated citrus fruit juice provided for in subheadings 2009.11.00, 2009.19.40, 2009.20.40, 2009.30.20, and 2009.30.60 of the HTS. See also the equivalent provisions of the Caribbean Basin Economic Recovery Act (19 U.S.C. 2703(f)(5)).

 

Permanent Normal Trade Relations (PNTR)

While nearly all trading partners enjoy normal trade relations with the United States, some countries receive NTR treatment on a conditional basis under the terms of the Jackson-Vanik amendment. They have conditional NTR treatment; all other countries that have NTR relations enjoy this status on a permanent (i.e., unconditional) basis.

 

Petitioner

In a trade-remedy case, the party that files the complaint with the administering authority. The petitioner may consist of a single firm or trade union, an industry association, or an ad hoc group that is formed for purposes of pursuing the complaint. A petitioner must have standing in order for the petition to be accepted. See also respondent.

 

Piracy

An assault upon the trading system and property rights, either literally (in the original sense of the term) or figuratively (in the metaphoric application of the term to the field of intellectual property). Immanuel Kant may have been the first to use the term in its current sense when he wrote in his treatise on The Science of Right (1790) that the “[u]nauthorized printing and publication of books is … forbidden — an act of counterfeit and piracy — on the ground of right.” See also copyright and Special 301.

Old-fashioned piracy may be less in vogue than the electronic variety, but it has not disappeared altogether. The South China Seas continue to be dangerous waters for merchantmen.

 

Pirated Copyright Goods

Defined in a footnote to the TRIPs Agreement to mean "any goods which are copies made without the consent of the right holder or person duly authorized by the right holder in the country of production and which are made directly or indirectly from an article where the making of that copy would have constituted an infringement of a copyright or a related right under the law of the country of importation."

 

Pluralism

The belief that it is beneficial to have multiple interests represented in a society or polity. The United States is an example of a pluralist society, and pluralism forms part of the philosophical foundation of the U.S. Constitution. For the classic statement of pluralism, see James Madison's essay in The Federalist Number 10.

 

Plurilateralism and Plurilateral Trade Agreements

In one meaning, a form of trade agreement that is more than bilateral, less than multilateral, and not exactly regional. The OECD can be said to be a plurilateral organization, to be distinguished from other groups that are regional (e.g., the OAS), organized on a sectoral basis (e.g., OPEC), or are nearly universal in their multilateralism (e.g., the United Nations or the WTO).

In another meaning, the few WTO agreements that fall outside of the scope of the single undertaking. Annex 4 of the WTO Agreement listed the four plurilateral agreements in existence when the WTO came into effect. Only two agreements — the Agreement on Trade in Civil Aircraft and the Agreement on Government Procurement — remain plurilateral agreements that are still in effect. The International Dairy Agreement and the International Bovine Meat Agreement are now defunct. All other Tokyo Round codes became multilateral obligations when the WTO was established in 1995.

 

Policy Coherence

A term often used to express the concern that the programs of the various international financial and economic organizations may lack consistency (i.e., are not "coherent"). For example, a country might be under pressure to make commitments to the International Monetary Fund and/or the World Bank that establish obligations on taxes, tariffs, government spending, etc., that go beyond, or even come into direct conflict with, its commitments in the World Trade Organization.

See the Declaration on the Contribution of the World Trade Organization to Achieving Greater Coherence in Global Economic Policymaking.

 

Political Economy

A term that is sometimes meant as a synonym for "economics," but may mean more specifically the theory or practice of economic policy. In political science the field of international political economy is a separate area of research.

 

Portfolio Investment

Investment in stocks and bonds. It is to be distinguished from the “bricks and mortar” form of foreign direct investment.

 

Positive Agenda

A term given to the active engagement of developing countries in trade negotiations, as an alternative to the policy of opposing new negotiations. As promoted by UNCTAD, the positive agenda is based upon the idea that developing countries have more to gain by responding to industrialized countries’ demands by proposing demands of their own.

 

Positive List

One approach to the identification of measures that are subject to the terms of an agreement is a positive list: Only those items that are explicitly on the list are affected. This is a more restrictive approach than the negative list. The positive-list approach can also be called a "top-down" approach.

 

Positive Sum

The possibility of mutual gains from interaction. Contrast with zero sum.

 

Prebisch Thesis

A “dependency” theory of economic development developed by Raúl Prebisch and other Latin American social scientists, based on the “center-periphery” relationship among nations. Developing countries were suppliers of raw materials (the primary sector) for manufacturers in the metropolitan countries, and the declining terms of trade for primary products condemned these countries to a peripheral and dependent role in the world economy. Prebisch concluded that some degree of trade protection was necessary if these countries were to enter a self-sustaining development path. He argued for import-substitution industrialization.

See Prebisch's classic 1964 report Towards a New Trade Policy for Development (large PDF file).

 

Preferences

Special advantages extended by countries to imports from particular trading partners, usually by admitting their goods duty-free or at rates below those imposed on imports from other supplying countries. These exceptions to the MFN principle can be offered either on a reciprocal basis through regional trade arrangements or through non-reciprocal preferences. GATT Article I.2, as supplemented by annexes A through F, grandfathered many preferential arrangements that were in effect in 1947. The Generalized System of Preferences was legalized by the Enabling Clause, while other preferential programs such as the Cotonou Agreement and the Caribbean Basin Initiative, have been granted separate waivers under the terms of GATT Article XXV. See also margin of preference.

 

Preference Erosion

The process by which the preferential access that one country enjoys in another's market is eroded through multilateral liberalization. For example, suppose that Peru enjoys duty-free access to the Japanese market for sweaters, but that the Japanese MFN tariff on this item is 20%. That 20% margin of preference will be eroded (cut in half) if Japan agrees to reduce its MFN tariff to 10%.

 

Presence of Natural Persons

Mode 4 of four modes of delivering services under GATS. A natural person, acting alone or as an employee of a service supplier, provides a service while present in a foreign market. Because this mode of supply is closely related to immigration, it is a source of controversy. See the GATS Annex on Movement of Natural Persons Supplying Services Under the Agreement.

 

Preshipment Inspection

The practice of employing specialized private companies to inspect shipments in the country of origin to determine whether they meet the terms of an invoice. The main purpose is to avoid fraud, but the practice is criticized in some quarters as a non-tariff barrier to trade. It is subject to the disciplines of the Agreement on Preshipment Inspection, Article 1 of which defines the practice as “all activities relating to the verification of the quality, the quantity, the price, including currency exchange rate and financial terms, and/or the customs classification of goods to be exported to the territory of the user Member.”

 

Price Band

A mechanism by which tariffs may be imposed in order to maintain a domestic support price for an agricultural commodity when international prices are lower. The band is defined by upper and lower prices that determine whether and at what level these tariffs will be imposed.

 

Primary Sector

The sector that produces raw agricultural, fishery, mineral, and forest products, as distinct from the secondary and tertiary sectors.

 

Principal Supplier

A norm under which participants in the request-offer process would negotiate a tariff concession only with the country that was the principal foreign supplier of that item in the global market. Any concessions granted, however, would then be extended to all countries that received MFN treatment. The principal-supplier rule operated to the disadvantage of smaller countries, as it reduced the scope of concessions that negotiators were willing to consider. See GATT Article XXVIII. This status is less significant today, when many tariff negotiations are conducted on the basis of formula cuts or zero-for-zero deals.

 

Prison Labor

GATT Article XX(e) provides a general exception for measures “relating to the products of prison labour.” This provision permits countries to employ measures such as those found in U.S. trade laws since 1890 under which the products of convict labor are denied entry. Other countries that enacted such provisions before the negotiation of GATT included Australia, Canada, Great Britain, New Zealand, and South Africa. Also known as convict labor. The U.S. law on this topic is 19 USC 1307.

 

Privatization

The devolution of state-owned enterprises to private control.

 

Proces-Verbal

In diplomacy, this term is most commonly used to refer to a text that sets out agreed corrections to a treaty that was already signed. The original use of the term came from the ver batim report of a meeting.

 

Process Patent

A process or method that consists of an act, operation, or step or series thereof performed upon a specified subject matter to produce a physical result.

 

Producer Subsidy Equivalent (PSE)

A measure of government support to agricultural producers. The PSE is calculated as the percentage of the producer’s total revenue that is directly or indirectly attributable to government transfers. Unlike the aggregate measurement of support, the PSE is an analytical measure that is not directly related to WTO members’ commitments under the Agreement on Agriculture.

 

Producers

Those who produce the goods or provide the services that are purchased and used by consumers.

 

Product Cycle

A model developed by Raymond Vernon to explain the sequence by which multinational corporations move from exports to investment to imports. The cycle begins when enterprises generate new products and processes in a highly developed country, which they export to other markets. When the firms’ export position is threatened they establish overseas subsidiaries to exploit what remains of their advantage. Even this position eventually erodes, and the product is ultimately imported into the originating country either by the foreign subsidiaries or by their rivals. Compare with the process of creative destruction.

 

Prohibited Subsidy

A subsidy that is prohibited under the Agreement on Subsidies and Countervailing Measures. These include export subsidies and subsidies that are contingent upon the use of domestic over imported goods. Prohibited subsidies are addressed in Part II of the agreement. See also actionable subsidies and non-actionable subsidies.

 

Protection

The isolation of an industry from international competition, generally through the imposition of border measures such as tariffs and quotas. See also protectionism and free trade.

 

Protectionism

The use of tariffs, non-tariff barriers, or other policy instruments to restrict imports with the intention of aiding domestic industries. When pursued absolutely, protectionism takes the form of autarky; when it is combined with a policy of export promotion, protectionism can be viewed as latter-day mercantilism. Although protectionism is often promoted simply as a form of rent-seeking activity on the part of industries that seek to restrict import competition, it can also be part of a broader approach to public policy. In the late 18th Century Alexander Hamilton advanced the notion of providing temporary protection for infant industries in a developing economy, an idea that was taken up in the mid- and late 20th Century by the advocates of import substitution industrialization. Protectionism is also associated with economic nationalism.

This doctrine is opposed by the advocates of free trade. According to the liberal economic view of trade, all countries stand to gain from the greater productivity brought about through the exploitation of comparative advantage and an international division of labor. From the time of Adam Smith, economists have seen protectionism as a self-defeating policy that isolates an economy and its industries from competition and the process of creative destruction. Note also Bastiat’s observation in The Law (1850) that “protectionism, socialism, and communism are basically the same plant in three different stages of its growth. All that can be said is that legal plunder is more visible in communism because it is complete plunder; and in protectionism because the plunder is limited to specific groups and industries.”

 

Protocol

In diplomacy, the term usually denotes a treaty that amends or supplements an existing treaty; such instruments may also stand alone. See for example the protocols to the General Agreement on Trade in Services, such as the Third Protocol (Movement of Natural Persons) and the Fifth Protocol (Financial Services). The term also means the rules of official etiquette governing the interactions between diplomats.

 

Provisional Application

See definitive application.

 

Public Goods

A special class of goods that share two key characteristics. First, they are non-excludable, meaning that no one can be prevented from enjoying them. For example, clean air and safe streets are both non-excludable; if they are clean and safe for anyone they are clean and safe for everyone. Second, a public good is non-rivalrous in consumption, meaning that one person’s consumption of that good does not diminish its availability to others. A road sign is non-rivalrous; the information that one person gets from reading it does not interfere with anyone else’s navigation. Many socially desirable services have characteristics of public goods (but may not always be “pure” public goods).

Public goods are highly susceptible to market failure. A rational, profit-seeking entrepreneur will hesitate to provide a good or service when self-interested consumers can “free ride” at the expense of whoever made the initial investment. One solution to the public-goods problem is for the state to provide them. Public goods such as education, national defense, and highways can be funded through the general revenues and made available to all citizens. Some advocates go beyond the notion that public goods might or should be provided by the state, to the bolder declaration that they must of necessity be government monopolies. This position further requires that a country isolate from the market any service sector that has been identified as a public good, block investment by private firms (domestic or foreign), and keep the issue “off the table” in GATS.

These assertions speak to a recurring debate in the economic literature. Paul Samuelson, whose seminal work inspired this field of inquiry, objected when his scholarship was interpreted to imply that private goods should be produced only by private firms and public goods should be produced only and directly by government. The objections are more forcefully stated by those who believe that “government failure” or “policy failure” are just as significant problems as market failure. Authors in this tradition stress that the market can indeed be harnessed for the voluntary provision of public goods.

 

Public Health

Human health is among the areas covered by the general exception in GATT Article XX(b). The Declaration on the TRIPs Agreement and Public Health approved at the Doha Ministerial Conference notes that the that the TRIPs Agreement “does not and should not prevent Members from taking measures to protect public health.”

 

Public Morals

GATT Article XX(a) provides a general exception for measures “necessary to protect public morals.” Although not specifically defined in the General Agreement, the provision would permit (for example) restrictions on imports of pornography. This is an issue in which international cooperation predates the GATT. The Arrangement Relative to the Repression of the Circulation of Obscene Publications was negotiated in 1910 and remains in force. The agreement provides for cooperation among countries to “[c]entraliz[e] all information which may facilitate the tracing and repressing of acts constituting infringements of [countries’] municipal law as to obscene writings, drawings, pictures or articles.” The Government of France was the coordinating body for this agreement until 1949, when a protocol was negotiated to transfer these functions to the United Nations.  

 

Published Works

Article 3(3) of the Berne Convention defines “published works” to mean “works published with the consent of their authors, whatever may be the means of manufacture of the copies, provided that the availability of such copies has been such as to satisfy the reasonable requirements of the public, having regard to the nature of the work. The performance of a dramatic, dramatico-musical, cinematographic or musical work, the public recitation of a literary work, the communication by wire or the broadcasting of literary or artistic works, the exhibition of a work of art and the construction of a work of architecture shall not constitute publication.”  

 

Quad

The four most influential members of the WTO: Canada, the European Union, Japan, and the United States. The Quad is not a formal organization, but meetings of its members — whether at the ministerial, ambassadorial, or working level — are often needed to break impasses in negotiations. See also green room and Group of Seven.

 

Quantitative Restrictions

Instruments that explicitly limit the value or volume of a specified commodity that may be imported into a country, sometimes also indicating the amounts that may be imported from each supplying country. In addition to quotas, other forms of QRs include tariff-rate quotas, voluntary export restraints, and voluntary restraint agreements. The quota may be applied on a selective basis, with varying limits set on a country-specific basis, or on a global basis that is first-come, first-served. Not all QRs are said to be binding, in a practical if not a legal sense. GATT Article XI generally prohibits the use of quantitative restrictions, as modified by the terms of articles XII, XIII, and XIV.

 

Quota

The simplest form of quantitative restriction. Import quotas might variously be allocated on a country-specific or a global basis, administered by the exporting country (see voluntary export restraint) and/or by the importing country (see voluntary restraint agreement), and could be either auctioned or made available on a first-come, first-served basis. A quota might not necessarily be binding in the economic sense of that term.

 

Quota Rent

The rent that accrues to one who has the right (often by license) to trade in goods that are subject to quota. The rent will be real only if the quota is binding.

 

Race to the Bottom

Opponents of trade liberalization sometimes contend that a market-oriented economy will work to the detriment of workers and consumers by encouraging producers to do anything necessary to cut costs. The “race to the bottom” may be further accelerated if governments are inspired to attract prospective investors by promising the least intrusive regulatory environments. This competition will, it is argued, mean that workers are paid less, products are less safe, environmental standards are lax or poorly enforced, etc. See also sustainable development and labor rights.

 

Ratification

The formal approval of a treaty by one of its signatories. The term is commonly misused in the United States to refer to the requirement under the Treaty Power of the Constitution that a treaty receive the advice and consent of two-thirds of the Senate. It is not the Senate that ratifies the treaty; only the president has this power, subject to the approval of the Senate.

 

Raw Material

Primary goods such as ores, agricultural products, fish, and timber. They are used to produce intermediate products and finished goods. Raw materials are ont type of fungible good. See also commodities.

 

Realism

This term has had a variety of meanings in the history of philosophy and political ideas. In contemporary political science it is generally presented as a counterpoint to liberalism. Where liberal ideology is based upon the belief that people are (or can be) essentially good, realism is premised upon a pessimistic view of human nature. Prominent realist thinkers include Thucydides, Niccolo Machiavelli, Thomas Hobbes, and Hans Morgenthau.

While liberalism is closely associated with support for open markets, the correspondence between realist political concepts and economic policy is less exact. Realists believe in the need for a strong state and are concerned over dependence on foreign sources of supply, both of which imply concerns over the implications of free trade. Many proponents of classical mercantilism associated trade restrictions with national power. The theory of hegemonic stability, however, offers a rationale for open markets that is attractive to realists (provided that they are citizens of the hegemon).

 

Reciprocal Trade Agreements Act of 1934 (RTAA)

This law gave the president of the United States the authority to negotiate bilateral tariff-reduction executive agreements and to implement them by proclamation. It was renewed eleven times, and formed the basis of U.S. negotiating authority through the mid-1960s. The RTAA approach could not be easily applied to issues more complicated than tariffs and other border measures. Its successor is the fast track, which deals with both tariff and non-tariff matters. Click here to see the 1955 version of this law, which technically remains on the books but is no longer operative.

 

Reciprocity

A bedrock principle of the GATT/WTO system that is nevertheless not precisely defined. The preamble to GATT 1947 notes that the contracting parties to the agreement were “desirous of contributing to [the stated] objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade,” but the terms reciprocal and reciprocity are used in only a few subsequent parts of the agreement and are nowhere defined. One of the more difficult aspects of this term is that developing countries generally demand that negotiations be based on “less than full reciprocity in reduction commitments,” and this broad formulation is frequently expressed in ministerial declarations and other documents, but is virtually impossible to quantify. Like other vague concepts such as justice and pornography, we may not know how to define it but we know it when we see it. Reciprocity has come generally to be regarded as the totality of commitments and concessions among the member states, as well as the general principle that these commitments are made in a process of give-and-take. In the end, the meaning of reciprocity and any variation upon it (less-than-full or otherwise) is in the eye of the beholder: If both I and my negotiating partner think that we have struck a fair and mutually beneficial deal, then we have achieved the requisite level of reciprocity.

In U.S. usage, the term refers to a policy based on the conduct of negotiations under the threat of retaliation. In this approach a country seeks to enforce its economic rights by threatening or imposing sanctions unilaterally rather than by offering to negotiate mutually beneficial agreements. For example, the United States may threaten Colombia with the imposition of tariffs on coffee unless Colombia agrees to reduce or eliminate the tariffs that it imposes on computers. The objective might alternatively be to convince the trading partner to terminate an export subsidy, or to require compliance with some other trade-related objective (e.g., protection of patents or resolution of an investment dispute). Reciprocity is power politics applied to trade. Examples of U.S. reciprocity laws include Section 301, Special 301, and Super 301. See also the National Trade Estimate.

Liberal economists are sometimes discomforted to find that Adam Smith approved of such a retaliation-based approach to opening foreign markets. In an oft-cited passage of The Wealth of Nations he observed that “when some foreign nation restrains by high duties or prohibitions the importation of some of our manufactures into their country … we should impose the like duties and prohibitions upon the importation of some or all of their manufactures into ours,” insofar as “[t]he recovery of a great foreign market will generally more than compensate the transitory inconveniency of paying dearer during a short time for some sorts of goods.”

 

Red Box

See boxes.

 

Re-Export

Goods that physically enter a country but generally do not enter its customs territory and are not consumed in that country. They are instead shipped from that country to some third country, generally in entrepôt trade. Data on re-exports are included in total exports, but not in domestic exports.

 

Regional Industries

For the meaning of this term in the context of U.S. antidumping and countervailing duty law, see the definition given in section 1677 of Title 19 of the U.S. Code.

 

Regional Trade Arrangement (RTA)

RTAs are discriminatory arrangements between two or more countries that provide (at a minimum) for free trade among the members in substantially all trade. They depart from the general principles of the multilateral system, but are permitted under the terms of GATT Article XXIV. That article sets two major requirements for RTAs. First, they must cover “substantially all the trade between the constituent territories” of the RTA. The second standard is that the tariffs and commercial regulations on third countries that are “imposed at the institution of” an RTA “shall not on the whole be higher or more restrictive than the general incidence of the duties and regulations of commerce applicable” before its formation. Trading partners must be compensated for any increased tariffs upon the establishment or enlargement of an RTA. See also the related rules set by GATS Article V.

RTAs take three principal forms: free trade agreements (FTAs), customs unions (CUs), and common markets. While FTAs are generally restricted to the elimination of trade barriers, the other forms of RTAs aim at deeper economic integration. CUs and common markets both have common external tariffs, and are more prone than FTAs to act as trade blocs. All RTAs have the potential to impose exclusion costs on third parties through trade diversion. FTAs can be relatively easy to negotiate, even for countries that are separated by vast distances, but CUs tend to be negotiated only by countries that are either contiguous or at least in the same vicinity. In some cases, a CU may even move the members towards true political union; this was the case for the German zollverein and the trade agreements that the United States negotiated with Texas and Hawaii.

See the provisions on RTAs in the Doha Ministerial Declaration.

 

Regionalism

The reduction of trade barriers between countries in the same region. Regional trade arrangements constitute a major exception to the MFN principle of non-discrimination in GATT.

 

Related Parties

For the meaning of this term in the context of U.S. antidumping and countervailing duty law, see the definition given in 19 USC 1677.

 

Remand

An order from a court requiring that an administrative authority reconsider a decision. In the context of U.S. trade-remedy laws, the Court of International Trade can remand a decision to either the International Trade Administration (dumping or subsidy determinations) or the U.S. International Trade Commission (injury determinations). The North American Free Trade Agreement allows review panels to order remands of determinations made by the Canadian, Mexican, or U.S. authorities.

 

Rent and Rent-Seeking

A super-normal profit. Microeconomic theory holds that rates of profit tend to be uniform throughout an economy; any above-normal profit will cause entrepreneurs to enter that market, and competition among them will drive prices and profits back to an equilibrium point. The persistent presence of abnormally high profits in an industry can be taken as prima facie evidence that the industry has succeeded in some form of rent-seeking activity, either on a private basis (either the establishment of a monopoly or collusive, anticompetitive practices in an oligopoly) or through state intervention. Protectionism is one form of rent-seeking activity, in which tariffs or other barriers are imposed to reduce or even eliminate foreign competition in the domestic market. See also competition policy.

 

Repatriation of Capital

The right of a foreign investor to transfer funds from the host country to the home country (or anywhere else).

 

Request-Offer

Request-offer is the oldest approach (or modality) to the conduct of tariff negotiations. It entails the exchange of commitments on a product-by-product basis between two countries, which are then multilateralized through the operation of the MFN principle. For example, Japan might offer to reduce its tariffs on dairy products if New Zealand reduces its tariffs on radios. These negotiations are generally conducted on an MFN principle, meaning that if these two countries strike such a bargain, they do so on a non-discriminatory basis (i.e., the results are extended to all other trading partners).

The request-offer method was better suited to purely bilateral negotiations than it was to the new, multilateral environment of the GATT. It was a time-consuming and relatively haphazard way of producing commitments, and heavily relied on the initiative of individual countries. It also left relatively little role for countries that were small and/or developing, insofar as the initiative lay with the principal supplier of any given product. The utility of such an approach declines as the number of countries and products increases. Request-offer was largely supplanted by the formula-cut approach in the Kennedy and Tokyo rounds. It nevertheless made a comeback at the Uruguay Round (1986-1994), where the U.S. negotiators resisted the use of formula negotiations outside of the zero-for-zero context (although other countries were free to employ formulas in their own negotiations).

While request-offer has fallen out of favor in goods negotiations, where formula cuts are now the preferred alternative, this is still the method of choice in services negotiations.

Tariff negotiations are provided for in GATT Article XXVIII bis, which allows both for negotiations “carried out on a selective product-by-product basis” as well as “the application of such multilateral procedures as may be accepted by the contracting parties concerned.”

 

Reservation

In general, a limitation that a country places on the commitments made in a treaty or other international agreement. Defined in Article 2 of the Vienna Convention on the Law of Treaties to mean "a unilateral statement, however phrased or named, made by a State, when signing, ratifying, accepting, approving or acceding to a treaty, whereby it purports to exclude or to modify the legal effect of certain provisions of the treaty in their application to that State." In GATS commitments, for example, countries can specify reservations with respect to their commitments under each of four modes of delivery. In the United States the Senate has special authority under the Treaty Power (in practice if not in the explicit terms of the Constitution), under which it can inter alia declare reservations to treaties that are about to be ratified. The practice of grandfathering (a form of reservation) was common during the period that GATT was applied provisionally, but the rules of the WTO — which are applied definitively — are stricter. See also the reservations in NAFTA, such as those taken by Mexico with respect to trade in energy goods in Annex 602.3 and Canada’s cultural exception.

 

Respondent

The defendant in a trade-remedy case; the opponent of the petitioner. Respondents can include foreign exporters as well as domestic importers.

 

Restrictive Business Practices

Acts or behavior of enterprises that abuse a dominant economic position and limit access to markets or otherwise unduly restrain competition. Such practices include collusion to fix export or import prices, to allocate markets or customers, to practice discriminatory pricing, to set prices at which export goods can be resold, or to otherwise restrict imports and exports. A non-binding (or voluntary) code of conduct negotiated in UNCTAD, the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices, lists business practices to be avoided and recommends steps that enterprises and governments should take to discourage such activity.

 

Retaliation

The imposition of a trade restriction by one country in response to another country’s actions. Retaliation might be undertaken in various contexts, including a trade war, under the reciprocity laws, or after obtaining a ruling from a dispute-settlement panel (in which case retaliation is considered an undesirable alternative to either a change in the losing country’s laws or its compensation to the winning party).

 

Revenue Duties

Tariffs that are designed to raise revenue rather than to provide protection to a domestic industry. Such duties are typically imposed either on luxury items or on non-essential foods and beverages.

 

Reverse Preferences

Tariff advantages once offered by developing countries to imports from certain developed countries that granted them preferences in turn. Reverse preferences characterized trading arrangements between the European Community and the African, Caribbean, and Pacific countries.

 

Rider

In U.S. legislative parlance, an amendment to a bill. The bill that becomes a legislative “vehicle” may attract many “riders.” The Byrd Amendment is one such example. See the reading entitled Summary of the U.S. Legislative Process and Advantages of the Fast-Track Procedures.

 

Right of Establishment

The right of a foreign direct investor to establish an operation in another country. The right of establishment is at issue in negotiations on investment, such as bilateral investment treaties, as well as services negotiations (under mode 3 of the GATS).

 

Risk Assessment

According to Annex A of the Agreement on the Application of Sanitary and Phytosanitary Measures, "The evaluation of the likelihood of entry, establishment or spread of a pest or disease within the territory of an importing Member according to the sanitary or phytosanitary measures which might be applied, and of the associated potential biological and economic consequences; or the evaluation of the potential for adverse effects on human or animal health arising from the presence of additives, contaminants, toxins or disease-causing organisms in food, beverages or feedstuffs."

 

Rollback

See standstill and rollback.

 

Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations

One of the intellectual property treaties that is administered by WIPO and partially incorporated into WTO law via the TRIPs Agreement. Click here to see the text of the agreement.

 

Round

Cycles of multilateral trade negotiations. The GATT sponsored eight such rounds. The first five were relatively brief negotiations that focused primarily on tariffs, while the Kennedy, Tokyo, and Uruguay rounds were lengthy, multi-issue talks. The Doha Round is the first such undertaking of the WTO. See also built-in agenda.

 

RTAA

See Reciprocal Trade Agreements Act of 1934.

 

Rules of Origin

Rules of origin are the criteria used to determine the nationality of a product. All trade, whether it is conducted on preferential or non-preferential bases, require such rules to determine the country-of-origin for imported goods. They are even more important when a country has a two-column tariff schedule, as they determine whether products imported from a country can be eligible for preferential treatment. Rules might variously be based upon the principle of substantial transformation, a change in tariff heading, specified processes, minimum levels of value-added, or some combination of these requirements.

See Annex D.1 of the Kyoto Convention, which establishes guidance on ROOs. A provision in this annex defines the term ""rules of origin" to mean "the specific provisions, developed from principles established by national legislation or international agreements ("origin criteria"), applied by a country to determine the origin of goods."

The definition given in Article 1 of the Agreement on Rules of Origin relates solely to non-preferential rules of origin: “[T]hose laws, regulations and administrative determinations of general application applied by any Member to determine the country of origin of goods provided such rules of origin are not related to contractual or autonomous trade regimes leading to the granting of tariff preferences going beyond the application of paragraph 1 of Article I of GATT 1994.”Like several other Uruguay Round agreements, the Agreement on Rules of Origin is notable for the number of issues that it left up to the WTO built-in agenda for resolution. Its work program has yet to be completed. The agreement established a harmonization program to produce a set of principles making ROOs objective, understandable, and predictable. It stipulated that the work program to harmonize non-preferential ROOs should be completed within three years of initiation. Due to the complexity of many issues raised, however, WTO members were unable to meet the 1998 deadline. They first extended the schedule and committed to complete the task by late 1999. That deadline, too, came and passed without definitive action.

ROOs are especially important to the operation of FTAs, where the challenge lies in devising ROOs that are strict enough to achieve the intended purpose of limiting the benefits of the FTA to the bona fide products of its member countries (i.e., preventing trade deflection) without being so strict that they either discourage compliance or provide incentives for trade and investment that would not otherwise be rational and efficient. ROOs are also necessary for the administration of other regulations, such as marking requirements and trade-remedy laws.

 

Rules-Based System

To be distinguished from a power-based system such as mercantilism. A system based on rules is one in which countries enjoy sovereign equality, establish consensual agreements that lay out the legal ground rules for their relations, and can bring any disputes that arise among them to an impartial body for judgment and arbitration.