National Treatment Principle: Overview of Rules

This article provides an overview of the National Treatment Principle and its rules, which aim to ensure equal treatment for foreign and domestic entities in international trade and investment.

National Treatment Principle: Overview of Rules

Trade between two countries is governed by international trade laws, which are a set of rules and regulations that comprise the code of conduct to be adhered to by the countries that are thereby engaging in trade with one another.

Since the majority of the countries are now a part of the World Trade Organisation (WTO), this branch of law has become a sine qua non for international trading purposes. To ensure the smooth flow of trade globally among countries, WTO ruled out the concept of ‘Non-discrimination’.

This further comprises two principles which are the most-favoured Nation (MFN) and National Treatment. The General Agreement on Tariffs and Trade (GATT), 1994 under Article I, deals with the Most Favoured Nation Principle and Article III deals with the National Treatment Principle. In this article, we shall be discussing the National Treatment Principle in the light of International Trade Law to decipher its meaning, context and usage.

Introduction to National Treatment Principle

The National Treatment Principle, as the name suggests, reinforces the mandate of giving the same treatment to domestic and imported goods. It prohibits any special provisions to be extended to domestic products to curb any discrimination among the goods produced domestically and thereby imported. The idea is to provide a level playing field to both the categories of products and services. This is imbibed in Article III of the General Agreement on Tariffs and Trade (GATT), 1994. It is also imperative to note that this comes after the Most-favoured Nation Principle which is imbibed in Article I.

Paragraphs 1, 2 and 4 of Article III of GATT, 1994 expressly deal with the National Treatment Principle and explain the same. The necessity of treating imported goods in a manner that is similar and rather identical to the treatment that is accorded to domestic products is thereby reiterated by the National Treatment Principle (Article III). Any laws, rules, regulations, or bylaws which differentiate between imported and domestic goods are to be considered as invalid as they would defeat the very objective of the National Treatment Principle.

Holistic Comprehension of ‘non-discrimination’: Most Favoured Nation and National Treatment Principle

It is, however, important to understand that reading the National Treatment Principle (NTP) along with the Most-favoured National Principle (MFN) gives a more holistic comprehension of the idea of ‘non-discrimination’ that WTO has sought to establish via these principles.

A brief understanding of the Most-favoured Nation Principle (MFN) can be gathered from the fact that it propagates the mandate that if any special treatment is granted to the imported goods of any country which is a member of the WTO, then the same also has to be granted to all other members of the WTO.

This principle also seeks to end any discrimination between goods produced in one WTO member country and those produced in another. Countries often invoke the most-favoured Nation Principle and National Treatment Principle during times of WTO disputes. Both the principles complement each other and it is imperative to understand that the National Treatment Principle, is not sufficient to be invoked individually in its entirety.

It can thus be stated that what the National Treatment Principle seeks to achieve at the domestic level, the Most-favoured Nation Principle achieves at the global level.

This is to say, that the underlying concept is non-discrimination, and while the National Treatment Principle ends any potential discrimination between imported and domestic goods, the Most-favoured Nation Principle targets the end of any discrimination between imported goods from two different countries which are also members of the WTO.

The ‘Three-pronged Approach’ of the National Treatment Principle

Importing countries often adopt an approach of protectionism towards their domestic goods and services by way of discriminatorily applying domestic taxes and amending their local regulations for granting national protection to domestic goods. This resultantly, distorts conditions of competition which should fairly occur between domestic and imported goods.

National Treatment Principle targets this catena of policies that are rolled out as a means to deter the ideals of transparent, smooth and easy trade among countries. Article III of GATT as discussed above, impedes the adoption of any such policies that are thereby introduced with malicious intent of unequal treatment by the importing countries.

Now that we have taken an overview and a basic understanding of the National Treatment Principle and the broader concept of ‘non-discrimination’ that it is a part of, let us try to decipher the multifaceted approach that is adopted by the said National Treatment Principle, which will help us to create a roadmap of how this principle propagates non-discrimination between imported goods and domestic goods.

i) Avoidance of ‘protectionism measures’ adopted by countries

This means that in cases where a country attempts to practice protectionism measures, by way of providing special favours or treatment to its domestic products to protect them from a fair competition with the imported goods, the National Treatment Principle is thus applied. The principle prohibits the country from using any such measures that would thereby result in protecting the domestic goods and jeopardising the imported ones.

ii) Maintenance of equality in imported and domestic goods

This once again reinforces the fact that it is important to maintain equality between the goods that are imported from other countries which are WTO members and domestic goods that have been produced within the importing country. This is to ensure that the trade between countries is easy and smooth. Thus, this becomes the second approach that the National Treatment Principle seeks to achieve.

iii) Protection of imported goods from unjust tariffs

To understand this approach, let us take an example:

Laptops for instance are produced in India and China. While India charges the said Laptops for Rs. 20,000; China sells them for Rs. 16,000. So, in this case, India would not be allowed to put unnecessary charges by way of tariffs on the Chinese laptops to curtail the price difference that they are offering.

Thus, the National Treatment Principle assists not only in curtailing discrimination but also in protecting imported goods from any prospective unfair practices by way of unnecessarily imposed tariffs.

Exceptions to the National Treatment Principle

There are a set of exceptions that have been imposed in the case of the National Treatment Principle. These exceptions provide a certain extent of discretion to the countries and thereby allow them to refuse to provide equal treatment to domestic and imported goods. Following are some of the exceptions to this rule, which have been provided under Article III of GATT, 1994 itself:

i) Procurement by Government

If government agencies are involved in the hiring or purchasing of imported goods for their purpose, then the domestic government is empowered to promote its domestic products to prove their competence in comparison with the imported goods. This also involves the aspect that such procurement must be done by the government for government purposes only and not for commercial usage.

ii) Domestic Producers’ subsidy

The government of a country is empowered to provide multiple subsidies to domestic producers to bolster the concept of domestic production in the country. This also would not be considered as being contrary to the National Treatment Principle as it again remains to be an exception.

iii) Cinematograph Films

The amount of discrimination between films produced domestically and internationally is well known. So a country is allowed to promote the films that are made domestically within its national movie industry and even this would not come under the purview of being contrary to the National Treatment Principle as even this is an exception to the said principle.

Other exceptions

There is another set of exceptions to the National Treatment Principle which further permits the domestic government to promote their domestic products and services over and above the imported products and services. Such other exceptions include measures necessary to protect public morals, national security etc.

Conclusion

This article thereby assisted us in understanding what is meant by the concept of ‘non-discrimination’ that is adhered to by WTO. While understanding the same, we were also able to infer that ‘National Treatment’ forms a crucial aspect of this concept as it helps in curbing any potential sorts of discrimination that might take place between goods and services domestically produced and provided with the goods and services that are imported from other WTO member countries.

We have discussed how the main idea is to create a level-playing field for the local as well as imported goods and services. With the help of illustrations we also discussed how a country has the potential of imposing unnecessary tariffs to make trade more restrictive for exporting countries. The same is sought to be neutralised by the National Treatment Principle which is imbibed in Article III of the GATT, 1994. Thus, the importance of the National Treatment Principle is immense, and in concurrence with the Most-favoured Nation Principle - it helps in achieving the non-discrimination motto of WTO.

References

[1] National Treatment, Available Here

[2] Lakshmi Neelakantan, National Treatment principle - Analysis of GATT Article III, Available Here

[3] National Treatment Principle, Available Here

[4] Principles of the trading system, Available Here