Academic journal article Stanford Journal of International Law

Preferential Trade Arrangements and the Erosion of the WTO's MFN Principle

Academic journal article Stanford Journal of International Law

Preferential Trade Arrangements and the Erosion of the WTO's MFN Principle

Article excerpt

I.    INTRODUCTION
II.   THE MFN PRINCIPLE
III.  GENERAL AGREEMENT ON TARIFFS AND TRADE 1994
IV.   INTERPRETATION OF ARTICLE XXIV BY GATT AND THE WTO
V.    GATT AND WTO FTA REVIEW PROCESSES
VI.   WTO DISPUTES INVOLVING ARTICLE XXIV
VII.  A DE FACTO TRUCE
VIII. RECENT PROLIFERATION OF FTAS
IX.   IMPLICATIONS FOR THE GLOBAL TRADING SYSTEM
X.    CHALLENGE FOR THE WTO
XI.   WTO DISPUTE SETTLEMENT
XII.  WORKING PARTY PROCESS
XIII. DOHA ROUND
XIV.  U.S. TRADE POLICY
XV.   CONCLUSION

I. INTRODUCTION

In The Wealth of Nations, eminent economist Adam Smith, in a voice that despite the passage of over two centuries still drips with contempt, observed that the efforts of international trade negotiators do not "belong so much to the science of a legislator, whose deliberations ought to be governed by general principles which are always the same, as to the skill of that insidious and crafty animal, vulgarly called a statesman or politician whose councils are directed by the momentary fluctuations of affairs." (1)

But these momentary fluctuations of affairs are one of the charms of trade law, which unlike some other aspects of the legal profession, does not consist of going through endless boxes of discovery documents for cases that never go to trial, or fashioning ever more intricate financial transactions and securities for Wall Street financial barons to sell to aging retirees and gullible small town mayors. Instead, trade law is a changing and curious mixture of U.S. law, international law, economics, international diplomacy, negotiating strategies, and vulgar politics.

The topic of this symposium is the erosion of the World Trade Organization's (WTO) most favored nation (MFN) principle, but more broadly it is an opportunity to explore what has led to the current proliferation of free trade agreements (FTAs); what this trend is doing to the multilateral trading system; and what if anything can be done to turn back the clock. And while there may be a legal dimension to any solutions, the answers lie equally in the spheres of politics, trade policy, and international negotiations.

II. THE MFN PRINCIPLE

The unconditional most favored nation principle is one of the cornerstones of the multilateral trading system. The concept of most favored nation dates back to Renaissance commercial treaties. (2) MFN has been part of U.S. commercial policy since the early days after independence. The first U.S. commercial treaty, which was signed with France on February 6, 1778, stated in Article III that if either the United States or France should grant a commercial concession to a third party, the other "shall enjoy the same favor, freely, if the concession was freely made, or on allowing the same concession, if the concession was conditional." (3) In his Farewell Address, President George Washington declared: "Harmony, liberal intercourse with all nations are recommended by policy, humanity, and interest. But even our commercial policy should hold an equal and impartial hand: neither seeking nor granting exclusive favors or preferences...." (4) In the eighteenth and nineteenth centuries, U.S. support for MFN reflected a sense by many Americans that U.S. merchants were disadvantaged by discriminatory colonial preferences erected by the major European powers. (5) Accordingly, in 1843, Secretary of State Daniel Webster instructed the new U.S. Envoy to China, Caleb Cushing, that: "[Y]ou will signify, in decided terms and a positive manner, that the government of the United States would find it impossible to remain on terms of friendship and regard with the Emperor, if greater privileges or commercial facilities should be allowed to the subjects of any other government than should be granted to the citizens of the United States." (6) U.S. MFN rights with China were secured in the Treaty of 1844. (7) MFN was one of the core tenets of the U.S. "Open Door" Policy of the late nineteenth and early twentieth centuries, (8) and the third of President Wilson's Fourteen Points in his proposal for the formation of the League of Nations after World War I. …

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