CAVENDISH UNIVERSITY – ZAMBIA

ASSIGNMENT BRIEF AND FEEDBACK FORM

LECTURER NAME:

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CUZ
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DL STUDENT
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1
ASSIGNMENT NUMBER:

21/08/2024
DATE HANDED OUT:

DATE DUE IN: 25/09/2024

ASSIGNMENT BRIEF
The world Trade organization is one of the most important international
institutions of the contemporary world. Although it is a fairly young organization,
officially beginning its existence only in January 1995, the original trading system
is almost half a century older than the organization itself. To understand the
WTO, it is necessary to know about its history, particularly the General
Agreement on Tariffs and Trade 1947, which remains the bedrock of the world
trading system. This assignment highlights the History and Birth of the GATT
1947 leading up to the establishment of the WTO, it further explains the Most
Favoured Nation Clause in the context of Africa and the rest of the global trading
community.

THE GENERAL AGREEMENT ON TARIFFS AND TRADE 1947

Following the disastrous effects of the first and Second World War, the global
economy came to a halt with very little to no trade taking place across
international borders. The General Agreement on Tariffs and Trade was enacted
as an attempt to reduce the number of tariffs and trade barriers and to foster
international trade in the years following World War II. It was signed in 1947 by
over 100 countries and has served the international community for decades. Prior
to its establishment, the International community had the idea of creating an
agreement that would ensure post war stability and avoid a repeat of the
mistakes of the recent past, thus from 1948 to 1994, the GA provided rules for
much of the world trade and presided over periods that saw some of the most
highest growth rates in international commerce. It seemed well established, but
throughout those 47 years, it was a provisional agreement and organization. 1

The original intention was to create a third institution to handle the trade side of
international economic cooperation, joining the two “Bretton Woods” institutions,
the World Bank and the International Monetary Fund. Over 50 countries
participated in the negotiations to create an International Trade Organisation
(ITO) as a specialized agency of the United Nations. The draft Charter was
ambitious, it extended beyond world trade disciplines, to include rules on
1
wto.org/English/thewto_e/whatis_e/tif_e/fact4_e.htm
employment, commodity agreements, restrictive business practices, international
investment, and services. The aim was to create the ITO at a UN Conference on
Trade and Employment in Havana Cuba in 1947.

The post-World War II period marked an important turning point in international

trade negotiations, as 15 countries initiated discussions in December 1945 aimed
at reducing and binding customs tariffs. These nations sought to kick-start trade
liberalization and address the lingering effects of protectionist measures
implemented in the 1930s. The inaugural round of negotiations culminated in a
comprehensive set of trade regulations and 45,000 tariff concessions impacting
$10 billion worth of trade, representing approximately one-fifth of global trade
volume. As the agreement was formalized on October 30, 1947, the group had
expanded to include 23 founding members, collectively referred to as
"contracting parties."

The tariff concessions, outlined in a Protocol of Provisional Application, were

slated to take effect by June 30, 1948, giving rise to the establishment of the
General Agreement on Tariffs and Trade (GATT). Notably, the 23 founding
members were also involved in the broader negotiations pertaining to the
International Trade Organization (ITO) Charter, with GATT stipulating their
acceptance of certain trade rules outlined in the draft. This provisional
acceptance was intended to safeguard the negotiated tariff concessions, while
also outlining the prospective relationship between GATT and the ITO Charter,
acknowledging the latter's uncertain fate. 2

Subsequently, the Havana conference commenced in November 1947, shortly

after the signing of GATT. Although the ITO Charter was ultimately agreed upon
in Havana in March 1948, challenges arose in securing ratification in various
national legislatures. Notably, significant opposition emerged within the US
Congress, leading to the announcement by the United States government in 1950
that it would not pursue Congressional ratification of the Havana Charter.
Consequently, the ITO ceased to materialize, leaving the GATT as the sole
multilateral instrument governing international trade until the establishment of
the World Trade Organization (WTO) in 1995.

Over the ensuing five decades, the fundamental legal tenets of the GATT
remained largely unchanged from their 1948 origins. Notable developments
included the incorporation of a development-focused section in the 1960s, the
2
https://www.brookings.edu/wp-content/uploads/2016/07/selfenforcingtrade_chapter.pdf
introduction of "plurilateral" agreements with voluntary membership in the
1970s, and ongoing efforts to further reduce tariffs. Notably, multilateral
negotiations, known as "trade rounds," facilitated substantial progress in
international trade liberalization under the auspices of the GATT. 3 In the early
years, the GATT trade rounds concentrated on further reducing tariffs. Then, the
Kennedy Round in the mid-sixties brought about a GATT Anti-Dumping
Agreement and a section on development. The Tokyo Round during the seventies
was the first major attempt to tackle trade barriers that do not take the form of
tariffs, and to improve the system. The eighth, the Uruguay Round of 1986-94,
was the last and most extensive of all. It led to the WTO and a new set of
agreements.

MOST FAVOURED NATION CLAUSE

The Most-Favoured Nation (MFN) clause is a treaty provision that requires

countries to treat each other as well as them treat third parties. In the African
context, the African Continental Free Trade Area (AfCFTA) has a conditional MFN
clause that is based on reciprocity. This means that countries must give each
other preferences that are no less favourable than those given to third parties. 4

Under the World Trade Organisation agreements, countries cannot normally

discriminate between their trading partners. The MFN principle demands that if
you grant someone a special favour, such as lower customs duty rate for one of
their products, and you have to do the same for all other WTO members. The
panel in the Japan-Alcoholic beverages case established the principle that, “like
products should be treated equally, regardless of their origin’, this principle is
deeply rooted in the Most Favoured Nation Clause of the GATT 1994. 5

By design, MFN clauses are intended to ensure a level playing field amongst
various players in international trade agreements. However, where an operative
MFN clause is interpreted in light of a free trade agreement, it has the
unintended consequence of harming the local market if unregulated. A case point
is Article 18 of the AfCFTA. Article 18 provides that parties shall accord to each
other on a reciprocal basis, preferences that are no less favourable that those
accorded to third parties. The practical implications of this section are that if

3
https://guides.law.columbia.edu/c.php?g=1221777&p=8966854
4
Rita M. Tsorme, Joseph Amoah, (2023), World Trade Review: Economics Law International Institutions, Volume 23,
African Continental Free Trade Agreement’s Conditional Most Favoured Nation: A Necessary Compromise?, Cambridge
University Press
5
Japan - Taxes on Alcoholic Beverages, WT/DS8/R, WT/DS10/R (1996)
State Party A has entered into a trade with region X that revokes the imposition
of duty on Cars, State A is required to extend to all AfCFTA States parties such
preferential treatment. The net effect of this is that countries who have not
acceded to a free- trade area (FTA) agreement such as the AfCFTA, would be
wary of entering into such a treaty so as to protect their local markets.
Conversely, countries that have already acceded to FTA Agreements would be
wary of entering into EPA’s with foreign states for the same reason. As a result,
levels of industrialization and economic development would be stifled without the
access to markets guaranteed EPAs. For instance, The Standard Chartered Bank
v Tanzania Case6 showcased the application of the Most Favoured Nation
principle in international investment law. Standard Chartered Bank (SCB), a UK-
based investor, had invested in Tanzania's National Microfinance Bank (NMB)
through a subsidiary. When Tanzania terminated NMB's license and seized its
assets, SCB claimed that this action breached the UK-Tanzania Bilateral
Investment Treaty (BIT). Invoking the MFN clause in the UK-Tanzania BIT, SCB
argued that Tanzania's treatment of its investment was less favourable than that
accorded to investors from other countries. Specifically, SCB pointed to more
favourable treatment granted to investors under Tanzania's BITs with other
countries, such as Germany and the Netherlands. The MFN clause allowed SCB to
import these more favourable terms into its own investment agreement. The
tribunal upheld SCB's claim, ruling that Tanzania's actions constituted indirect
expropriation and breached the fair and equitable treatment (FET) standard.

In applying the MFN clause, the tribunal found that Tanzania had indeed accorded
more favourable treatment to investors from other countries, and that SCB was
entitled to similar treatment. This decision reinforced the principle that investors
should receive equal treatment, regardless of their country of origin. The
tribunal's application of the MFN principle had significant implications. It ensured
that SCB received compensation for Tanzania's breach, including damages of
$22.5 million and the return of NMB's seized assets. This outcome underscores
the importance of MFN clauses in protecting investors from discriminatory
treatment and promoting fair competition.

CONCLUSION

In summary, this assignment provides an overview of the historical background

of the General Agreement on Tariffs and Trade (GATT) and its evolution into the
6
ICSID Case No. ARB/10/12, 2012
World Trade Organization (WTO). The writer has also emphasized one of the
fundamental principles that govern global trade under the WTO, which is the
principle of non-discrimination, particularly through the Most Favoured Nation
(MFN) clause. Additionally, the assignment delved into the implications of this
principle within the context of Africa and the broader global trading system.

REFERENCES

STATUTES

General Agreement on Tariffs and Trade 1947

Agreement Establishing the African Continental Free Trade Area

CASE LAW

Standard Chartered Bank v. Tanzania, ICSID Case No. ARB/10/12 (2012) ICSID
Tribunal, Award, September 12, 2012

Japan - Taxes on Alcoholic Beverages, WT/DS8/R, WT/DS10/R (1996)

OTHER WORKS

Rita M. Tsorme, Joseph Amoah, (2023), World Trade Review: Economics Law
International Institutions, Volume 23, African Continental Free Trade Agreement’s
Conditional Most Favoured Nation: A Necessary Compromise?, Cambridge
University Press.

https://wto.org/English/thewto_e/whatis_e/tif_e/fact4_e.htm

https://www.brookings.edu/wp-content/uploads/2016/07/selfenforcingtrade_chapter.pdf
https://guides.law.columbia.edu/c.php?g=1221777&p=8966854