Getting to know trade and investment policy may be a tough challenge for those who are new to the topic. The breadth of issues covered by it and its fast evolution keep even the experts on their toes. To make this task easier for anyone wishing to polish their trade policy know-how, we decided to select the most commonly used phrases, terms or abbreviations and explain them.
A – Amber Box
Under WTO law, agricultural subsidies are classified into ‘boxes’, depending on the magnitude of distortion which they create. Green Box subsidies – such as environmental and pest control support - produce no distorting effects, and are not prohibited under WTO law. Amber Box subsidies by contrast, which encourage the increase of production, are constrained by WTO limits, due to their price decreasing effect in international trade. Not to be confused with Blue Box subsidies which do not have the effect of increasing production and are not forbidden. For example, payments directly to farmers based on production would be Amber Box, whilst payments which aim to limit production – to 85% or less of base production – would be considered to fall within the Blue Box.
B – Bananas
That’s right, the fruit that most of you have on your tables or eat every now and then has been a subject of the most important trade disputes in the world. In addition to being the 18th most valuable crop in the world, bananas formed a series of cases brought against the European Community at the WTO, culminating in EC-Bananas III. These cases concerned the assignment of quotas by the EC towards Caribbean exporters, in order to meet commitments made during post-colonial transitions. A finding against the EC led to imports of bananas from third countries.
C – CETA
The Comprehensive Economic and Trade Agreement between Canada was signed on 30th October 2016, following a last minute compromise to enable the province of Wallonia to give its assent. If this had not happened, then Belgium would have been unable to assent, and the EU as a whole would not have been able to ratify the treaty.
Described as a ‘Deep and Comprehensive Treaty’, CETA eliminated 98% of tariffs on goods between Canada and the EU, as well as addressing trade in services between the two countries. Legal services are not excluded from the agreement – unlike, for example, supply of audio visual services in Europe, and of cultural industries in Canada, as per Article 9.2 of the CETA - thus provision of legal services between the EU and Canada should be accorded by each party: ”treatment no less favourable than that it accords, in like situations, to its own service suppliers and services.”(Article 9.3 of the CETA). More specifically, CETA also addresses (in its Chapter 10) the entry into each state of persons for the purposes of doing business, and requires, in Article 26.2, both the EU and Canada to establish a joint committee on Mutual Recognition of Professional Qualifications.
D – Disciplines
Disciplines are the ‘rules’ of the WTO. National treatment and non-discrimination, for example, are both considered ‘Key Disciplines’.
E – EU
The European Union has been a member of the WTO in its own right since 1995. Although each member state is also a WTO member, the TFEU gave the EU Commission exclusive competence over trade-in-goods policy, and thus the Commission speaks for all members at WTO meetings.
The question of whether post- Brexit Britain will automatically revert to being a ‘full’ member of the WTO is not contentious; The UK was a founding member of GATT, the 1948 precursor to the WTO, continues to be a member in its own right, and Maika Oshikawa – head of the WTO’s accession negotiations – has said that the UK will not need to reapply. That being said, if a ‘hard Brexit’ becomes reality, and the UK has to revert to trading on WTO rules, then a new political consensus will need to be forged between the UK and remaining members of the WTO as to the particular tariffs and subsidies which Britain will apply. One theme that has come out of the Brexit discussions is that the UK would be likely to duplicate the EU tariff regime, while seeking to subsequently reduce tariffs with other WTO members. This however will effectively bind the UK to not introducing higher tariffs than currently in place. C.f. Ratchet
F – Fork in the Road
In investment treaties, a ‘Fork-in-the-Road’ clause states that a party bringing a claim must choose to do so either in the domestic courts of the defendant state, or via arbitration. Once action has been brought in one forum, the other route is blocked, although exceptions do exist to allow ‘contract- based’ claims to be brought at the same time as ‘treaty-based’ claims. C.f. ISDS
G – GATS
Whereas the original trading agreement, GATT, addressed goods, as its name suggests, GATS – the General Agreement on Trade in Services – extended the multilateral trading regime to cover international service provision. Article III of the GATS imposes a transparency obligation on members to notify the Council for Trade in Services at least annually of “all legal or regulatory changes that significantly affect trade in sectors where specific commitments have been made”. The aim of this is to ensure that new barriers to trade in services are not being erected. It is important to note that the agreement does not define a ‘service.’ Instead, it sets out four modes of delivery of services. This terminology is now used across the world in various trade negotiations. C.f Modes
H- Harmonized System
The Harmonized System is a common set of 6-digit codes, under which all traded goods are classified. Each code is itself a more specific example of a broader family, composed of two to four digits; 10 for examples denotes ‘cereals’, 1004 denotes ‘oats’ and finally 100410 is used for “oats seed”. Countries are free to extend in more detail beyond six digits for their own national purposes.
I – ISDS
Investor-to-State Dispute Settlement is a common provision of investment treaties. It allows investors of one party to seek arbitration against their host state, i.e. another party to the treaty. The use of the ISDS is not new and dates back to the 1960s. Although its origin was predominantly to ensure the impartial conduct of international arbitration, the world has changed since then and the ISDS has begun attracting controversy. Its opponents claim that it lacks transparency and would have allowed foreign companies to litigate against EU governments if national legislation threatened their business interests. Its proponents say it provides a neutral and efficient forum for dispute resolution. They add that in practice tribunals are reluctant to rule against government legislation, save in cases where discrimination between parties has occurred.
In case of the EU, part of the controversy is caused by the relationship between the jurisdiction of the independent tribunal and the EU law. After all, there are matters covered by an investment agreement that are also covered by the EU law. And since investment became part of the EU competence under the Lisbon Treaty, the question of the autonomy of the EU has gained importance.
In the run up to the signing of the CETA agreement, part of the objection of Wallonia involved the inclusion of an ISDS clause. In part in response to criticism from civil society, the EU and Canada have agreed an ‘Investment Court System’ to place investor state disputes arising from CETA on a more judicial footing, such as by appointing a permanent pool of judges and providing a more extensive appeal mechanism.
J- “Job Killer”
This, along with “worst trade deal maybe ever signed anywhere” is how President Trump has described North American Free Trade Agreement (NAFTA), in the context of the loss of US jobs in manufacturing during the time it has been in force. This standpoint is of course disputed, primarily as it fails to take into the growth of automation in manufacturing during the same time period, and fails to weigh job losses with broader economic benefits. At one point, it was speculated that Trump would sign an executive order to renegotiate NAFTA, but that position seems to have softened, albeit not without some highly charged tweets concerning dairy and softwood, and diplomatic efforts from the Mexican and Canadian heads of state.
K – Keynes
John Maynard Keynes was a British economist whose ideas had a profound impact on the theory and practice of macroeconomics and the economic policies of governments. Taking a broad view, the WTO stems from John Maynard Keynes’s proposals for the post WWII world financial order. The subsequent Bretton Woods conference, in 1944, recommended the reduction of obstacles to international trade, leading to a proposed an ‘international trade organisation’, in conjunction with the International Monetary Fund, and the World Bank. The ITO, however, failed to pass the US Senate, and the less ambitious General Agreement on Tariffs and Trade (GATT) was passed in its place. The scope of GATT was extended by the 1995 Uruguay Round of negotiations, leading to the WTO.
L – Listing (positive or negative)
In trade negotiations, the parties indicate which areas they wish to open up to other parties to the agreement. They can do that using two different techniques, positive or negative list. A positive list is when a party has to indicate (‘positively’) which sectors it will open up. It then has to list all exceptions. A negative list is when a party lists only the exceptions. What is not indicated among the exceptions will be treated as opened up under a given agreement. Further reading: Commission guide
M – Modes (of delivery of services)
Since there exists no definition of services (cf. GATS), trade in services is described in different ‘modes of supply’, describing how the action is carried out. These are: Mode 1 (cross border supply), Mode 2 (consumption abroad), Mode 3 (foreign commercial presence) and Mode 4 (movement of natural persons). In the case of legal services, Mode 1 would apply to the product crossing the border – e.g. a lawyer providing advice by mail, email or fax, Mode 4 by contrast, requires the lawyer providing the service to cross the border. Further reading: GATS Glossary
N – National Treatment
National treatment is an international law principle found in all of the WTO agreements, which requires governments to treat foreigners as they would their own citizens. Thus, conditions of market access, where covered by the agreement, cannot be more onerous for foreign suppliers than domestic ones.
A consequence of strictly applying national treatment could mean that where a government reduces the rights of its own citizens, then it could quite legally do the same to foreigners. As such, a principle of ‘minimum standard’ has been developed, to provide a floor of internationally accepted minimum standard of treatment. This tribunal-led development remains a point of contention between developed and developing nations.
O – Online Dispute Resolution (‘ODR’)
Following the Regulations on Consumer Disputes, the EU Commission has set up an Online Dispute Resolution platform to allow consumers to submit a complaint against a trader where goods or services have been bought online. All online traders selling goods or services to consumers, regardless of whether they market across borders, must provide on their website a link to the ODR platform and an email address of a first contact for consumers.
P – Paragraph 6 Systems
A provision of The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), paragraph 6 systems are waivers allowing for generic medications to be exported to least-developed countries (LDCs), as long as it is not part of a commercial or industrial policy. This was to address criticism of TRIPS that increased patent protection of drugs, contributing to a price rise in LDC markets. Further reading: WTO guide to TRIPS
Q- Quotas, tariff-rate
A quota is a fixed and limited amount or number of products that are officially allowed under a trade agreement. In case of the WTO, most quotas have been eliminated and replaced with so-called tariff-rate quotas (TRQs). The TRQs allow certain quantities inside a quota are charged lower import duty rates, than those outside which can be higher. In effect, a TRQ is a two-tier tariff. Currently, the EU applies TRQs only on agricultural products.
The question of TRQs is one of the hot topics discussed in the context of Brexit. Post- Brexit, the quotas applicable in the context of TRQs will need to be readjusted within the new WTO setting (with the EU and UK as separate members). This is unlikely to be attractive for third country exporters who will lose flexibility of moving supply around as demand in one EU market falls. In order to reduce the likelihood of other WTO members objecting it is predicted that the UK will offer quotas which are slightly greater than their current proportional consumption of existing EU quotas. C.f. Schedules, BreXit.
R – Ratchet
A ratchet clause is a provision through which the parties (to a trade agreement) commit that, if one of them decides in the future to further open up their respective markets in one specific sector, they will not be able to backtrack.
S – Schedule
Schedule is an official list of things that are affected by a trade agreement. While the text of a trade agreement sets out general rules applicable to all parties, the individual parties must include sectors and subsectors that will be affected by it (cf. listing). They do it within ‘schedules of commitments’. In services, for example trade in legal services, this means indicating on what conditions lawyers from jurisdictions covered by the agreement can practise within each other’s territories.
T – TiSA
TiSA stands for Trade in Services Agreement which is currently being negotiated between 23 parties (including the EU and the US). It was designed to advance liberalisation of the global trade in services which would go beyond GATS. The agreement is negotiated within the WTO framework and although it does not include all WTO members, it is designed to include new members in the future (at the moment, it covers the so-called ‘Really Good Friends’ group of developed economies who together represent more than 70% of the global service economy). C.f. Ratchet, Modes.
U – Unbound
The term ‘unbound’ refers to commitments in a schedule (cf. schedule, listing). All commitments are bound unless otherwise specified. If a country indicated that some of its commitments are unbound, it means it may wish to remain free to maintain or introduce measures inconsistent with market access or national treatment. Further reading: GATS guide
V- Value Added threshold
A Value Added threshold is designed to prevent exploitation of different tariff rates on products originating in third countries and then traded between parties to a trade agreement. Imported goods from third parties must pass a ‘value added’ threshold before they can be subsequently transferred within the FTA at a zero duty rate. A free trade agreement applies only to goods moving between the parties to that agreement. Thus third party goods, entering one country in the FTA, and subsequently being exported to another country in the FTA, are subject to the tariff regime of that destination country. To pass this threshold, and FTA will usually stipulate that either a certain value of the finished product must have been added in the exporting FTA state, or that the good has been ‘sufficiently processed’. In the EU- South Korea deal, for instance, fibres needed to be ‘spun or knitted’ in the FTA state to be considered to have had sufficient value added to be considered to have originated there. In the case of cars, no more than 45% of the value of the car must have originated from outside the FTA state. Further reading: ECB working paper
W – WTO
The World Trade Organisation is an inter-governmental organisation that regulates international trade. It provides a framework for negotiating trade agreement and resolving disputes between members. It officially commenced on 1 January 1995 under the Marrakesh Agreement, signed the previous year, and which replaced the General Agreement on Trade and Tariffs (GATT). The WTO currently has 164 members which include the entire EU and its individual member states, as well as Russia and China. Its headquarters is located in Geneva.
Continued by the WTO and started under GATT, the negotiations take place within so called rounds. These are multi-issue and multilateral negotiations on trade in goods and services carried out periodically among all members and designed to further liberalise markets. One of such rounds, the Uruguay Round (started in 1986) resulted in the Marrakesh Agreement setting up the WTO.
The latest negotiating round, called Doha Development Round, was begun in 2001. However, since 2008 the negotiations have stalled. One of the main reasons is thought to be the growing divide between the wealthier and poorer members. While the former increasingly desire to link trade in goods with trade in services and intellectual property protection, the latter accuse the EU and USA of prioritising their commercial interests above the world’s poor. C.f. ISDS
X – breXit
Brexit is a term which means the withdrawal of the United Kingdom from the European Union. Although the exact origins of the term remain unclear, its coining has been attributed to Peter Wilding, chairman of British Influence. The term has made a spectacular career reaching the title of the word of the year by Collins Dictionary in 2016.
Brexit and its effect on the UK trade have been widely discussed in the past months. ‘Falling back on WTO rules’ is a phrase which has been heard in contemplation of a failure of the EU and UK to reach an agreement on trade during the two year Article 50 process. As has been seen from various concepts explained in this glossary however, that may not be an automatic process. Although the UK will not need to reapply to join the WTO as it’s already a member, it is unclear if it can inherit the EU quotas and schedules of commitments, i.e. rules that determine the conditions of trade with the rest of the world. And if even if it is possible, it remains unclear what degree of opposition this move will face from other WTO members.
Y – Your pick!
If only. Trade negotiations, especially multilateral ones, are difficult affairs, with each party seeking to maximise their own advantage while minimising negative effects on them. Inevitably this leads to negotiators making compromises, in anticipation of greater benefits from a final agreement. For the Brexit negotiations, this is likely to be particularly tricky, as the parties have, in several areas – like free movement of people, access to the single market, jurisdiction of the Court of Justice – adopted seemingly irreconcilable positions. Prepare to hear some formulation of ‘No Europe à la carte’ repeated frequently over the course of the negotiations.
Z – Zeroing
Where goods are suspected to have been ‘dumped’’ on the market, an investigating authority calculates the dumping margin by getting the average of the differences between the export prices and the home market prices of the product in question. ‘Zeroing’ refers to the practice of the US of disregarding (or setting at zero) instances where the export value exceed the home market value. As this results in an artificially inflated average margin, and thus an increased anti-dumping duty, the EU views this as unfair, and called for a dispute resolution tribunal to be formed to address the issue.