Lecture 7

1. Lecture 7 • TRADE IN GOODS • Topics covered: • The World Trade Organization • The General Agreement on Tariffs and Trade of  1994 • Multilateral Trade Agreements

2. JUDGE JUDY READY TO RULE-- Case: Nissho Iwai American Corp. v. Nike (specialty case): +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

3. A. THE WORLD TRADE ORGANIZATION • The WTO Agreement • Came into effect January 1, 1995 • Establishes a legal framework to administer various trade pacts. • Originally the trade pacts negotiated under the old General Agreement on Tariffs and Trade organization, including the General Agreement on Tariffs and Trade of 1947 (GATT 1947 - now slightly revised and renamed GATT 1994).

4. A. THE WORLD TRADE ORGANIZATION • Structure of the WTO • The main organs of the WTO are: • Ministerial Conference: the WTO's supervisory and policy making organ. • General Council: • Also functions as the WTO's: • Dispute Settlement Body. • Trade Policy Review Body.

5. A. THE WORLD TRADE ORGANIZATION • Structure of the WTO (cont.) • The main organs of the WTO are: (cont.) • Council for Trade in Goods. • Council for Trade in Services. • Council for Trade-Related Aspects of Intellectual Property Rights. • Other: Secretariat headed by a Director-General.

6. B. THE GATT 1994 • Purpose of the GATT Rules: to progressively liberalize world trade. • This is done by giving WTO member states: • Equal access to markets • Reciprocity in trade concessions. • Transparent and stable trading conditions.

7. B. THE GATT 1994 • The Principles Underlying the GATT Rules • Nondiscrimination: International trade should be conducted without discrimination. • The basic "principle" of GATT. • Given expression in the articles as the "most-favored-nation" rule and the "national treatment" rule. • The Most Favored Nation Rule: Requires each contracting party to apply its tariff rules equally to all other parties. • General exceptions to the MFN rule.

8. B. THE GATT 1994 • General exceptions to the MFN rule. (cont.) • Contracting states may take actions to counter dumping and subsidization. • Contracting states may join together to create customs unions and free trade areas. • Contracting states may restrict imports to protect public health, safety, welfare and national security. • Special exceptions for developing member states. • Generalized System of Preferences allows developed countries to grant preferential treatment to developing countries, and to do so on a nonreciprocal bases. • South-South Preferences allows developing countries exchange tariff preferences among themselves without extending the same preferences to developed countries.

9. B. THE GATT 1994 • The Principles Underlying the GATT Rules (cont.) • Nondiscrimination: International trade should be conducted without discrimination. (cont.) • The National Treatment Rule: Requires a country to treat products equally with its own domestic products once they are inside its borders. • Definition: "national treatment" by a state means according to the nationals of another state treatment equivalent to that which the state accords to its own nationals. • Interpretation: Products must be treated equally vis-à-vis their "content"; they may not be discriminated against because of the way in which they were made.

10. B. THE GATT 1994 • The National Treatment Rule: (cont.) • Exceptions: • Member states may maintain preferences that existed at the time they became signatories of the GATT. • Member states may discriminate in the procurement of goods by government agencies. • Member states may discriminate in the payment of subsidies to domestic producers. • Member states may discriminate in the screening of domestically produced movies.

11. JUDGE JUDY READY TO RULE-- Case: Japan –Taxes on Alcoholic Beverages: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

12. B. THE GATT 1994 • The Principles Underlying the GATT Rules (cont.) • Protection Through Tariffs: WTO member states may only protect their domestic industries through the use of tariffs. • May not use quotas or other quantitative restrictions which block the function of the price mechanism (Art. XI). • Tariffs may only be collected "at the time or point of importation" (Art. II). • Purpose: To ensure that internal taxes are not disguised as tariffs.

13. B. THE GATT 1994 • The Principles Underlying the GATT Rules (cont.) • Transparency: Governments of WTO member states must disclose to the public, and to other governments, the rules, regulations and practices they follow in their domestic trade systems. • Simplification: The members are obliged to work toward simplifying their import and export formalities.

14. JUDGE JUDY READY TO RULE-- Case: Measures Affecting Importation of Salmon: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

15. B. THE GATT 1994 • Temporary and Permanent Exceptions to the GATT Rules • The Escape Clause (or GATT "safety valve"): Allows a WTO member state to avoid, temporarily, its GATT 1994 obligations when there is a surge in the number of imports coming from other member states that threatens a domestic industry. • An injured member may impose emergency, restrictive trade measures.

16. B. THE GATT 1994 • Temporary and Permanent Exceptions to the GATT Rules (cont.) • The Escape Clause (cont.) • Prerequisites: • It must determine that a domestic industry is threatened. • It must notify the WTO of its planned action. • It must consult with the affected exporting member state to arrange for compensation.

17. B. THE GATT 1994 • Temporary and Permanent Exceptions to the GATT Rules (cont.) • The Escape Clause (cont.) • If a notifying country fails to negotiate, the injured exporting state is authorized to "retaliate." • The injured state may withhold "substantially equivalent concessions" in order to restore the previous balance of trade between the two countries. • Procedures for engaging in consultations and for withholding concessions are set out in the Safeguards Agreement.

18. B. THE GATT 1994 • Temporary and Permanent Exceptions to the GATT Rules (cont.) • Permanent Exceptions: GATT 1994 allows WTO member states to implement certain public policies that are in conflict with its general goal of liberalizing trade. • General Exceptions: A WTO member state may implement certain public policies contrary to its GATT obligations so long as this is not done as "a means or or unjustifiable discrimination" or as "a disguised restriction on international trade." (GATT Art. XX) • A state may take measures contrary to GATT which:

19. B. THE GATT 1994 • Temporary and Permanent Exceptions to the GATT Rules (cont.) • Permanent Exceptions: (cont.) • General Exceptions: (cont.) • A state may take measures contrary to GATT which: • Are necessary to protect public morals. • Are necessary to protect human, animal, or plant life, or health. • Relate to the importation or exportation of gold or silver. • Are necessary to secure compliance with laws or regulations which are not inconsistent with the General Agreement.

20. B. THE GATT 1994 • Temporary and Permanent Exceptions to the GATT Rules (cont.) • Permanent Exceptions: (cont.) • General Exceptions: (cont.) • A state may take measures contrary to GATT which: • Relate to the products of prison labor. • Protect national treasures of artistic, historic, or archaeological value. • Relate to the conservation of exhaustible natural resources. • Are undertaken in accordance with an

21. B. THE GATT 1994 • Temporary and Permanent Exceptions to the GATT Rules (cont.) • Permanent Exceptions: (cont.) • General Exceptions: (cont.) • A state may take measures contrary to GATT which: • Involve restrictions on exports of domestic materials needed by a domestic processing industry during a period when the domestic price is held below world prices as part of a governmental stabilization plan. • Are essential to acquiring products in short supply.

22. B. THE GATT 1994 • Temporary and Permanent Exceptions to the GATT Rules (cont.) • Permanent Exceptions: (cont.) • Security Exceptions: GATT Art. XXI allows WTO member states to avoid any obligation which is either: • Contrary to an essential security interest, or • In conflict with duties imposed by the United Nations Charter for the maintenance of international peace and security. • Note: Most of the exceptions listed in of Articles XX and XXI may be invoked only if they are "necessary" or "essential" to the member state.

23. JUDGE JUDY READY TO RULE-- Case: U.S. v. Elkins: +Court +Facts +Legal Significance +Parties +Rational +Issue +Result

24. C. MULTILATERAL TRADE AGREEMENTS • Antidumping Code. • Formal name: Agreement on Implementation of Article VI of GATT 1994. • Dumping defined: the introduction into the commerce of another country of a product at less than its normal value.

25. C. MULTILATERAL TRADE AGREEMENTS • Antidumping Code. (cont.) • Scope of Antidumping Code: • Dumping is not forbidden. • States may take antidumping measures to counter dumping -- but only if: • They conduct an investigation. • They determine that the dumped products cause or threaten to cause material injury to, or materially retard the establishment of, a domestic industry within the importing country.

26. C. MULTILATERAL TRADE AGREEMENTS • Agreement on Subsidies and Countervailing Measures (SCM Agreement) specifies the actions a WTO member state may take to counterbalance an improper subsidy. • Subsidy defined: a financial contribution made by a government or other public body that confers a benefit on an enterprise, group of enterprises, or an industry. • Only "specific subsidies" are subject to the "disciplines" of the SCM Agreement.

27. C. MULTILATERAL TRADE AGREEMENTS • Agreement on Subsidies and Countervailing Measures (SCM Agreement) (cont.) • Only "specific subsidies" are subject to the "disciplines" of the SCM Agreement. (cont.) • Specific subsidies are subsidies that target: • A specific enterprise or industry. • A group of enterprises or industries. • Enterprises in a particular region.

28. C. MULTILATERAL TRADE AGREEMENTS • Agreement on Subsidies and Countervailing Measures (SCM Agreement) (cont.) • Categories of Specific Subsidies. • Prohibited subsidies ("red" subsidies) are subsidies that either: • Depend upon export performance, or • Are contingent upon the use of domestic instead of imported goods.

29. C. MULTILATERAL TRADE AGREEMENTS • Agreement on Subsidies and Countervailing Measures (SCM Agreement) (cont.) • Categories of Specific Subsidies. (cont.) • Actionable subsidies ("yellow" subsidies) are subsidies that are trade distorting because, in the way they are used, they: • Injure a domestic industry of another member state. • Nullify or impair benefits due another member state under GATT 1994. • Cause or threaten to cause "serious prejudice" to the interests of another member state.

30. C. MULTILATERAL TRADE AGREEMENTS • Agreement on Subsidies and Countervailing Measures (SCM Agreement) (cont.) • Categories of Specific Subsidies. (cont.) • Nonactionable subsidies ("green" subsidies) are subsidies that either: • Are not nonspecific. • Are infrastructural subsidies that involve government funding to: • Assist (but not fully cover) the cost of business research activities. • Aid disadvantaged regions. • Help existing facilities adapt to new environmental requirements.

31. C. MULTILATERAL TRADE AGREEMENTS • Agreement on Subsidies and Countervailing Measures (SCM Agreement) (cont.) • Actions an injured state may take: • Do nothing. • Request consultations with the subsidizing state. • Ask the WTO to authorize it to impose countervailing duties. • Independently impose countervailing duties. • Must follow the same procedures used for imposing antidumping duties.

32. Clause of the Week Attorneys Fees Clause