National Treatment Obligation Research Articles

Comparative Analysis of Indonesia’s Minimum Capital Requirements for Foreign Direct Investment

This research seeks to examine the compatibility of the Indonesian minimum capital requirement for foreign direct investment companies (FDI) with the national treatment obligation under international investment agreements (IIAs). The requirement is compared with investment requirements under Australian and Austrian Law. This research combines the normative legal research method with law and economics by conducting cost and benefit analysis (CBA). The national treatment protects foreign investors from less favorable treatment against domestic investors. The minimum capital requirement is contrary to national treatment because it is only applicable to FDI companies. However, not every IIA involving Indonesia provide a national treatment clause. To determine violation, the two-tier test must be conducted by analyzing the scope of the obligation and applicable exception. Some IIAs provide exceptions where a state can give different treatment to foreign investors for the sake of public interest. Indonesia justifies this requirement because it gives several benefits namely preventing foreign investors from controlling vital sectors, protecting MSMEs from unfair competition, and ensuring liquidity. Nevertheless, the benefits cannot be achieved due to weak supervision. The requirement can be easily circumvented through nominee agreements. Based on CBA, the requirement creates more harm than good. It is promiscuously applied to all business fields and is more burdensome compared to investment requirements in Australia and Austria. The solution proposed is either improving supervision or adjusting the requirement to be more consistent with the national treatment. The government can also protect national interests by empowering MSMEs and using more relevant criteria.

Government Procurement Defence Under GATT 1994 Article III:8(a): A Critical Review of the Turkey-Pharmaceutical Products Dispute

This article critically reviews the Turkey-Pharmaceutical Products Dispute, focusing on the question of whether Turkey’s drug insurance reimbursement scheme can be regarded as government procurement, which would allow Turkey’s drug production localization policy to be exempt from national treatment obligation. Both the panel (on the account that there was no ownership by the government) and the arbitrators (on the account that there was insufficient control of pharmaceutical products subject to the dispute), ruled against Turkey’s government procurement defence. In contrast, this article argues that given rising health costs and repeated global pandemics which compel governments to build up sufficient national production capability of health products to facilitate timely supply of medical products, it would be desirable to take a broad approach towards interpreting the scope of Article III:8(a) with respect to the pharmaceutical sector, granting greater policy space for member governments. pharmaceuticals, government procurement, national treatment, Article III:8(a) derogation, drug insurance reimbursement, domestic localization policy, health policy, Turkey

The Growing Thicket of Multi-layered Procurement Liberalization Between WTO GPA Parties, as Evidenced in Post-Brexit UK

The World Trade Organisation (WTO) Government Procurement Agreement (GPA) has created the most comprehensive plurilateral system for procurement-related trade liberalization. However, there has been a proliferation of free trade agreements (FTAs) regulating public procurement liberalization, including between GPA parties. Such FTAs seek to bypass or go beyond the GPA on a bilateral basis, or with a more limited plurilateral remit. Such FTAs tend to follow a ‘GPA+’ approach to provide incremental trade liberalization based on the substantive provisions of the GPA. However, there is a trend of substantive divergence between the GPA regulatory baseline and the FTA regulation of crucial issues, such as the national treatment obligation or access to remedies. This is also true of FTAs involving the European Union (EU) or, recently, its former Member State, the UK. This creates a situation of potential conflict of treaty norms that has so far received limited attention. This article focuses on the resolution of conflicts between GPA and FTA substantive provisions under the 1969 Vienna Convention on the Law of Treaties (VCLT), using the UK’s post-Brexit FTAs as a case study. It argues for a rationalization of the system by extending the use of incorporation by reference of the GPA in FTAs involving GPA parties. World Trade Organisation, Government Procurement Agreement, Free Trade Agreements, public procurement, national treatment, access to remedies, conflict of treaty norms, Vienna Convention on the Law of Treaties, interpretation, variable geometry

Regulators’ Mindsets, Ingroup Favoritism, and the National Treatment Obligation in World Trade Organization Law

AbstractDecision-making processes leading to governmental measures affecting international trade involve socio-cognitive processes, biases, and sociocultural factors. The legal prohibition of discrimination against imported products constitutes a fundamental principle of World Trade Organization (WTO) law, but discrimination against foreign products is widespread. This study explores the contribution of social cognitive and sociological literatures to international trade scholarship concerning the “national treatment” obligation. Ingroup favoritism bias, related cognitive biases, such as confirmation bias, and sociocultural processes, such as “loyalty norms”, facilitate and support discrimination against foreign products.One of the most contested issues regarding the interpretation of GATT Article III concerns the role of regulators’ intention in establishing a violation of this provision. The approach undertaken by the WTO Appellate Body is characterized by a preference for the “objective” test of regulators’ intention (focusing on intention revealed in the regulatory measure itself), and a reluctance to take into account regulators’ “subjective” intentions, discerned from regulators’ statements and a variety of other sources. In contrast to the WTO Appellate Body’s approach, this contribution suggests that once presented with credible evidence regarding key-role regulators’ intentions, manifested in both the regulatory measure itself and in a variety of other items of evidence, it is desirable that WTO tribunals assign adequate probative weight to such intentions. In addition, where it is credibly proven that ingroup favoritism norms prevail in the key role regulator’s social environment, it is advisable to grant some probative weight to such social norms. Assigning a probative weight to regulators’ subjective intentions and relevant norms is justified by the significant influence of intentions and norms on the prospects of discriminatory behavior.The article highlights three principal types of regulators’ mindsets: mindful, mindless, and bias-resisting. Mindful regulators deliberately intend to restrict internal sale of foreign goods through discriminatory measures. Mindless regulators do not aim to discriminate against imported goods, and the disparate impact influences of their regulations are relegated to the background. Bias-resisting regulators intend to grant equal treatment to domestic and imported products and resist ingroup biases.

Interpreting GATS Schedules: Saudi Arabia and Crude Oil Energy Services

The world has become increasingly sensitive to the need to shift away from the utilization of crude oil and other fossil fuels. Nonetheless, the former continues to be a major contributor to the energy industry. Many crude oil-rich nations rely on foreign suppliers to provide them with production know-how and technology services within the ambit of the 1994 General Agreement on Trade in Services. While the General Agreement on Trade in Services (GATS) contains several obligations of importance, the focus here is on the agreement’s market access and national treatment obligations. More narrowly, the Schedule of service sector commitments agreed to by Saudi Arabia, the world’s single largest crude oil exporter, is examined in the context of three important sectors essential to the crude oil industry. The examination is conducted through the lens of the basic interpretive principles articulated in and gleaned from the small handful of World Trade Organization (WTO) adjudicative decisions addressing the matter of GATS Schedule interpretation. This approach illustrates how those principles operate in the context of real language deployed in the actual Schedule of an important energy supplier. market access, national treatment, MA, NT, ‘bound’, ‘unbound’, ‘none’, horizontal, engineering, mining, construction, pipelines, Vienna Convention, CPC, Sectoral Classification, Article XVI, Article XX, Saudi Arabia

Data Localization and the National Treatment Obligation in International Investment Treaties

AbstractData localization hurts foreign investment and brings potential economic advantages to domestic corporations relative to foreign corporations. This leads to the argument that data localization violates the national treatment principle in international investment treaties. By applying the ‘three-step’ approach to assess the legality of data localization with respect to the national treatment principle, this article finds that the legality of data localization depends on certain circumstances, including the domestic catalogues of foreign investment, the definition of data localization in domestic legislation, and whether international investment treaties explicitly or implicitly incorporate data protection through exceptions for the protection of the state's essential security interests, public order, or public morals. China's acceleration of its legislation processes to regulate cross-border data transfer has significant implications for the negotiations and modifications of Chinese international investment treaties.

Fixing flaws in WTO appellate body jurisprudence: the case for uniform interpretation of 'likeness' under most favoured nations and national treatment obligations of GATT

Most favoured nations (MFN) and national treatment (NT) are cornerstones of multilateral trading system designed to ensure fair condition of trade, fair competition and liberalisation purpose of th...

Fixing flaws in WTO appellate body jurisprudence: the case for uniform interpretation of 'likeness' under most favoured nations and national treatment obligations of GATT

Fixing flaws in WTO appellate body jurisprudence: the case for uniform interpretation of 'likeness' under most favoured nations and national treatment obligations of GATT

The Nigerian Oil and Gas Industry Content Development Act and GATT Treaty Obligations: On a Path of Harmony or Discord?

The Nigerian Oil and Gas Industry Content Development Act of 2010 prescribe local content requirements to promote the patronage of Nigerian products and services by operators in the oil and gas industry. Local content requirements however appear to violate obligations under the World Trade Organization’s (WTO) General Agreement on Tariffs and Trade (GATT) (1994) of which Nigeria is a member. This article examines provisions of the Act and Nigeria’s obligations under the GATT with a view to determining whether the provisions of the Act are in violation of GATT obligations, and whether those violations are covered by any of the exemptions under the GATT. The article finds that sections 10(1) (a), 11(1), 12 and 13 of the Act, which favor the use of local products and materials for projects in the oil and gas industry, contravene the national treatment obligations under Article III of GATT. The article also finds section 53 of the Act to be in violation of the obligation to ensure the general elimination of quantitative restrictions under Article XI:1 of GATT. However, the article suggests that GATT exemptions justify Nigeria’s application of local content measures in the industry. Nigeria can rely on Article XVIII of GATT to apply local content measures for the purpose of promoting economic development and improving living standards in the country. Besides, Nigeria can rely on Articles XII: 1/2 and XIX:1 of GATT to apply local content measures that restrict fabricated/welded metal products imports in order to prevent a serious decline in monetary reserves and also safeguard domestic producers of similar products from “serious injury” that may arise from the increased imports of such products.
 Keywords: GATT; Local content requirements; Nigeria; WTO obligations; Oil and gas industry.

WTO GATS 분쟁사례연구: 미 · 중 전자지불서비스분쟁(DS413)

This paper aims to provide an analysis of WTO DSB Panel Report in China-Certain Measures Affecting Electronic Payment Services (DS413). In 2010, the United States initiated the case alleging that China had violated its market access and national treatment commitments under the GATS. The main issues include classification of the services, scope of China’s GATS commitments, and measures inconsistent with China’s market access obligation and national treatment obligation. This paper proceeds as follows. After the introduction in ChapterⅠ, ChapterⅡ provides the background of the dispute and procedural history. ChapterⅢ presents legal claims and major issues raised by the United States. ChapterⅣdiscusses the key findings in the panel report. The panel found that certain Chinese measures violated its GATS obligations by restricting foreign EPS suppliers. After adoption of the panel report, measures at issue were repealed or invalidated by the relevant Chinese government agencies.

Technology Transfer Contracts and the TRIPS: Interpreting High and Low Consensus Norms

China’s rules and practices in relation to technology transfer have been of long-standing concern to its trading partners. These concerns are most strongly evident in the United States Trade Representative’s section 301 Report which foreshadowed the imposition of substantial increased tariffs on Chinese goods; a move which was quickly mirrored by China. This article subjects some of these concerns to legal scrutiny. Particular attention is given to China’s treatment of grantback clauses in technology transfer contracts which speak to the ownership of improvements made to \licensed technology. China’s outgoing and recently revised rules are evaluated under two questions. The first is whether China’s rules are discriminatory contrary to the Trade-Related Aspects of Intellectual Property Rights (TRIPS) national treatment obligation. The second is the extent to which states are free under the TRIPS to interfere with freedom of contract in technology transfer. The article identifies a shift as between the two questions from high consensus, to low consensus norms. While the prohibition on discrimination must be strictly interpreted and applied, other TRIPS provisions which touch upon the control of anti-competitive practices in technology licensing, do not remotely reflect a stable international consensus. Interpretations of these provisions should therefore seek to accommodate different approaches, rather than presume that they reflect and prioritize one approach to the exclusion of others. technology transfer, technology licensing, grantback clauses, TRIPS, national treatment

Der Nichtdiskriminierungsstandard der Inländergleichbehandlung im Internationalen Investitionsrecht

Non-discrimination in the form of national treatment constitutes a cornerstone of international investment law. Its overall goal is the prevention of protectionist measures favouring domestic investors. While national treatment obligations are commonly included in bilateral and multilateral international investment agreements, the respective provisions on national treatment are not always identical. Despite the differences in wording, investment tribunals have developed a relatively uniform three-step test to determine whether a state has violated the national treatment obligation. Firstly, the tribunals assess whether a foreign investor is in ‘like circumstances’ or ‘like situations’ with a domestic comparator; secondly, they identify whether there has been unequal treatment between the foreign and domestic investors; and thirdly, they examine if legitimate reasons serve as a justification for the difference in treatment. Given the lack of explicit provisions on justifications in international investment agreements, tribunals often tend to incorporate the question whether a justification for unequal treatment exists in the ‘like circumstances’-test.

The Economic Structure of International Investment Agreements with Implications for Treaty Interpretation and Design

This paper develops an economic theory of international investment agreements, applies it to explain central features of modern investment treaties, and uses it to address a number of prominent issues in international investment litigation. The paper argues that investment agreements have a dual function – to overcome international externalities akin to the “terms of trade” externality associated with protectionism in international trade, and to enable capital importing countries to commit more effectively to eliminate inefficient risks to foreign investors that uneconomically raise the cost of imported capital. Core features of typical investment agreements perform both functions to some degree, and an understanding of their relative importance helps to explain why the predominant approach to investment agreements is bilateral or minilateral rather than multilateral. The economic analysis also sheds light on a number of controversies in investor-state dispute settlement, including jurisdictional issues relating to the definition of “investor” and “investment,” the scope and interpretation of the national treatment and most-favored nation obligations, the evolution of the “fair and equitable treatment” obligation, the meaning of “expropriation,” and the current controversy over the interface between international investment law and domestic regulation. It also offers an explanation for recent trends in treaty provisions in response to some controversial arbitral decisions.

Empirical analysis of the national treatment obligation under the WTO: The case of Japanese shochu

The national treatment obligation, along with the most favored nation obligation, is an important principle of non-discrimination adopted by the World Trade Organization. It requires that foreign products be treated no less favorably than national products. This paper empirically examines the 1996 WTO recommendation that a Japanese distilled alcoholic beverage, shochu, be classed as a “directly competitive or substitutable product” with regard to other distilled drinks, and thus that not taxing similarly be in violation of its national treatment obligation. Demand estimates obtained from a random-coefficient discrete-choice model reveal that a substitution pattern of shochu is far more complicated than that presumed by the WTO. Upon the WTO recommendation, Japan made all distilled alcoholic beverages be taxable at the same level. Our simulation analysis indicates that the tax revision, while it reduced the tax revenue, improved Japanese national welfare.

Legal Analysis of the Scope of Like Circumstancess Concept under NAFTA National Treatment of Investments Obligation

This paper seeks to shed some light on the meaning and scope of the National Treatment Obligation ‘like circumstances’ concept under the NAFTA jurisprudence. It acknowledges without argument that the term ‘like circumstances’ admits to a variety of interpretations in literal terms, but argues by jurisprudential analysis that some factors ought to be taken into considerations in determining whether two investors or investments are in ‘like circumstance’ in the NAFTA context. One has to consider whether there is a competitive relationship between the foreign investor and its chosen domestic comparator; whether the two investments or investors are bound by the same legal regimes given the peculiarity of their business objectives, including but not limited to their product or service line; and the legitimacy of the measure in issue to determine when two investments are in like circumstances. This analysis should begin with the presence of a competitive relationship between the foreign investment and its domestic comparator. Only then would a further inquiry be made as to the legitimacy of the measure in issue. This is achieved by considering the connection between the measure in issue and an existing State regulation which is not being challenged by the foreign investor. To develop the thesis of this research, this paper is divided into three parts. Part I contains a brief introduction on the nature of national treatment, and then proceeds to highlight the centrality of ‘like circumstances’ in a breach of national treatment claim. Part II analyzes NAFTA case law on like circumstances, with a view to elaborating the various tests adopted by tribunals in deciding whether a foreign investor is in like circumstances with its identified domestic comparators. My analysis of the essential factors to be taken into consideration in the evaluation of ‘like circumstances’ is also contained in Part II. The final part includes the author’s conclusion and recommendations.

The Shochu Conundrum: Economics and the General Agreement on Tariffs and Trade Article III

This article will discuss the National Treatment obligation contained in Article III of the General Agreement on Tariffs and Trade (GATT) 1994 as applied in precedential tax discrimination cases. Case law has not taken a firm stance on the economic versus legal interpretation of the likeness/ directly competitive or substitutable criterion or the principle of ‘so as to afford protection’ captured in Article III.2. After examining the case law on discriminatory taxation, I conclude that the National Treatment obligation in trade agreements is imperfect. Nonetheless, National Treatment is a critical component of these agreements, and the international trade order would collapse under the weight of protectionism were it not imposed. In order to ensure the efficacy of National Treatment, the determination of likeness/directly competitive or substitutable and protective application must consider market forces in addition to legal precedent. Economic indicators including elasticity of substitution and cross-price elasticity of the products in question are suitable measures of substitutability and are therefore the most accurate method of quantifying Article III violations.

Regulatory Consistency Requirements in International Trade

One of the most challenging tasks for international trade agreements is to distinguish protectionist regulation from legitimate policies. An important set of tools in this regard may be termed regulatory consistency requirements. These include the national treatment obligation of GATT, which requires that imported goods be treated no less favorably than like domestic goods by regulators. Further consistency requirements were introduced at the formation of the WTO, requiring among other things that importing nations not make arbitrary distinctions in their approaches to similar problems in a manner that disadvantages imports. These consistency requirements allow challenges to domestic regulation based on disparate policies toward different products and industries (such as beef and pork, or salmon and baitfish). This paper explores the economic logic and legal scope of consistency requirements in WTO law, and argues that inter-industry consistency obligations are largely unhelpful both in theory and in practice for the identification of protectionist regulation.

The Interpretation of ‘Treatment No Less Favourable’ Under Article III:4 of the GATT 1994 and Article 2.1 of the TBT Agreement: A Comparative Analysis

In recent years, the World Trade Organization has witnessed several disputes dealing with the national treatment obligation under Article 2.1 of the Agreement on Technical Barriers to Trade. This obligation has not been interpreted in the same way as in Article III:4 of the General Agreement on Tariffs and Trade of 1994. Indeed, the Appellate Body has developed a legal standard for the term ‘treatment no less favourable’ under Article 2.1 of the TBT Agreement that differs from the one in Article III:4 of the GATT 1994. After describing the different legal standards under these two provisions and their respective application in the case law, this article reflects upon several questions. In particular, it examines the treatment of de jure/de facto discrimination under the TBT Agreement as compared to the GATT 1994, the exact meaning of ‘legitimate regulatory distinction’ as a non-treaty term created by the Appellate Body for purposes of Article 2.1 of the TBT Agreement, and the implications of the different rules on burden of proof for a complainant’s legal strategy when faced with discriminatory technical regulations.

Challenges Facing India's National Solar Energy Development: The Pitfalls of the National Solar Mission and Alternatives Available

In this paper, I argue that domestic content requirements should be removed from India’s Jawaharlal Nehru National Solar Mission (National Solar Mission or Mission) because such requirements are inconsistent with India’s multilateral obligations under the World Trade Organization (WTO). Subsidies that are contingent upon the use of domestic instead of foreign products are inconsistent with the WTO’s Agreement on Subsidies and Countervailing Measures (SCM Agreement) and the National Treatment obligation under Article III of the General Agreement on Tariffs and Trade (GATT) and Article 2 of the Agreement on Trade Related Investment Measures (TRIMs Agreement). The Government of India (or India) should seek alternative measures to promote the development of the country’s renewable energy industries.Governments have recently responded to the impact of climate change and global warming in various ways, from instituting domestic regulatory measures to entering into multilateral agreements with an aim to cut global emissions of greenhouse gases. One of the leading contributors to global warming is the burning of fossil fuels for energy consumption. Fossil fuels not only hurt the environment, they are also non-renewable. Eventually these fuel sources will be depleted. With this in mind, governments have actively attempted to develop renewable energy alternatives that have little to no impact on the environment.To accomplish these goals, many governments across the globe have implemented subsidy schemes to promote renewable energy development within their countries. Many of these subsidy schemes require renewable energy producers to use a certain amount of local resources and labor in order to qualify for the subsidy schemes. While these programs would have the intended effect of developing renewable energy industries within a country, the programs are susceptible to challenges under the WTO. This paper examines why the domestic content requirements of India’s National Solar Mission are inconsistent with India’s WTO obligations and suggests alternative measures available to India that are not susceptible to challenges at the WTO.

The GATT Article III:8(a) Procurement Derogation andCanada – Renewable Energy

This article compares and reviews the panel and Appellate interpretations of the GATT Article III:8(a) procurement derogation in Canada – Renewable Energy. When this derogation is available, discriminatory domestic content requirements fall outside of the general GATT Article III:4 national treatment obligation, and are capable of challenge only under the more limited coverage of the plurilateral Agreement on Government Procurement (GPA). It is argued that the panel’s understanding should be preferred over that of the Appellate to preserve the operation of the derogation in paradigm situations and to avoid the multilateralization of obligations acceded to, or possibly not yet acceded to, under the GPA.