Under which conditions are WTO members allowed to slap a tariff on foreign goods?

Question

Under which conditions are WTO members allowed to slap a tariff on foreign goods? I know China has protected its economy with tariffs and so did the EU against American goods, but I was wondering if it was illegal under the WTO, because everyone seem to do it as if it were legal, and lately the U.S. started doing the same. So under which conditions is it legal to do so?

Answer 1

There are at least five well-known cases:

• The most obvious one is if authorised by the WTO itself following dispute resolution. (Article 22 of DSU.) Since the WTO doesn't have a way enforce its dispute resolution decisions by itself, if (following dispute resolution) a country whose measures are judged in violation of WTO rules doesn't abide the WTO judgment, the complainant can request the WTO to retaliate; the WTO then approves an amount, which the complainant implements.

The rest of the cases I discuss below are "state contingencies", in which a country initiates measures without asking for WTO's permission first.

In three more cases a country can impose temporary discriminatory tariffs, i.e. just against one trade partner:

• National security (GATT article XXI). E.g. during a war. This article actually doesn't specify tariffs specifically, but has a pretty broad formulation "any action which it considers necessary". Rarely (but recently) invoked to impose tariffs. More often invoked for quantitative restrictions.

• Anti-dumping duties (GATT article VI). If a country, following its own investigation determines that a foreign product is being dumped onto its market.

• Countervailing duties (GATT article VI and article XVI). If a country, (again) following its own investigation determines that a trade partner is illegally subsidizing some exports, it can impose such countervailing duties.

Finally, among the well-known measures there are also:

• Safeguard measures (GATT article XIX). A country can invoke exceptional circumstances like a massive increase in imports to impose additional tariffs on every import in some area. Unlike anti-dumping and countervailing duties, these safeguard measures cannot (or rather should not) discriminate one trade partner from another.

The last three categories (anti-dumping, countervailing and safeguard measures) are often enough disputed by the countries against which they are enacted, i.e. they end up going through the WTO dispute resolution. More recently, national security exceptions have been challenged too through the dispute resolution mechanism.

There exist another reason for which quotas, but not extra tariffs can be imposed:

• for balance of payments reasons (GATT articles XII and XVIII for developed and respectively developing countries), e.g. a country is running out of foreign currency. There's a WTO surveillance mechanism for these invocations, and they can also be challenged through dispute resolution. Some scholars consider these balance-of-payments reasons as safeguards as well, even though technically they are separate.

As James K said in a comment, the rules governing these are complex, so this is just an overview.

There is for example a GATT Subsidies Code adopted in the Tokyo round, which is used as the yardstick for determining if the subsidies violate the WTO rules. There's also an Agreement on Subsidies and Countervailing Measures (aka the SCM Agreement) which spells out what the countervailing duties can look like. For anti-dumping measures there's a separate Agreement on Implementation of Article VI of GATT 1994 (aka the Anti-dumping Agreement). Finally there's also (an Uruguay round) Agreement on Safeguards.

For further reading see for example:

• Mavroidis, P.C., Trade in Goods: The GATT and the other WTO agreements regulating trade in goods (2nd edition), Oxford University Press, 2012

• Matsushita et al. The World Trade: Organization Law, Practice, and Policy (3rd edition), Oxford University Press, 2015

There are entire chapters in these books for the main categories of anti-dumping, countervailing and safeguard measures; the dispute resolution is also covered extensively, including (WTO-approved) retaliations.