Balance of Payment

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Cristel Moriau

Introduction to International Economic Law

Academiejaar: 2009-2010

Balance- of- payment – exception in the WTO

| | |Background | |The WTO is the principal regulator of the commercial pillar of the international economic system. The influence of this Organization | |is considerable, as it has a system of compulsory jurisdiction of disputes for the 153 members. If you become a member of the WTO, | |you have to accept that disputes will be settled by it. [1] | |This entire commercial multilateral GATT-system consists of four fundamental principles. The first one being that even though it is | |required that Member States open their borders to trade, they still can protect their national production against foreign | |concurrence, provided that this protection is assured by moderate custom duties. For this, quantitative restrictions are prohibited, | |except in certain circumstances, as will be discussed in the balance- of- payments-exception (see infra). | |The second rule provides the reduction and elimination of custom duties and other barriers to trade. These reduced rights are then | |indicated in the concession list of every Member State, which must be respected. | |The third rule is the Most-Favored-Nation-treatment-principle: this implies that States shall not be discriminatory with the States | |they import from or export to: when a State gives an advantage to a product from another State it must handle all same products from | |other States according to the same favorable treatment. This rule is not absolute as exceptions are possible when regional | |arrangements are made. | |The fourth rule consists of the national treatment-principle: once a product is imported and brought on the market of a State after | |complying the custom duties-rules, they shall not be applied a more disadvantaged treatment than national similar products.[2] | |A general definition of ‘Balance- of- Payments (BOP)’ | |The balance-of-payments[3] records all financial transactions that are made between consumers, firms and the government in a country | |with other actors all around the world. The BOP indicates how much is being spent by consumers and firms on imported goods and | |services, and how great firms are doing in exporting to other States and markets. It is an important way to measure the relative | |performance of a State in the global economy. [4] | |A State’s balance-of-payments is also commonly defined as the record of transactions between its residents and non-residents over a | |period. With each transaction every amount involved is entered on each of the two sides of the BOP accounts. Consequently, the sums | |of the two sides of the complete balance-of-payments accounts should always be the same, and in this sense BOP always balances.[5] |

The BOP in the WTO

The BOP-rules in the WTO were designed to provide a justification for restrictive measures, which generally would be inconsistent with the obligations of the Member States under the GATT provisions. The rules were sharpened over fifty years, culminating in the Understanding of 1994, by this becoming a legal part of GATT. [6]

Every restriction to trade must be in compliance with the rules of the commercial multilateral system....
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