International Trade Regulation Oxicorp Case - P. 6.1

1. International Trade RegulationOxicorp Case - P. 6.1 Victor H. Bouganim WCL, American University

2. OXICORP CaseP. 6.1 , Textbook, p. 327 • Oxicorp trades with Non-Market Economies (NME) and Transition Economies (TE). • This is a business planning problem focusing on China. • Concerns about business risks while trading with NME/TE economies.

3. OXICORP Concerns • Concern over the level of risk OXICORP faces in trading heavily in goods from NME and TE countries • China and Russia • Specific goods and U.S. tariff levels • What tariff levels apply to manufactured products imported into the U.S. which do not qualify for MFN tariff treatment?

4. Any advantage, favor, privilege or immunity granted by a member to any other country (or its nationals) shall be accorded immediately and unconditionally to all members (or their nationals). Exceptions Members entering: Customs unions Free trade areas Regional arrangements Preferential treatment Under-developed countries “Most Favored Nation”

5. US Tariff Schedule - 1

6. US Tariff Schedule - 2

7. A - Generalized System of Tariff Preferences B - Automotive products C - Civil aircraft CA - Canada E - Caribbean Basin Initiative IL - Israel J - Andean Trade Preference Act MX - Mexico Reduced Tariff Levels

8. Jackson-Vanik Amendment • Jackson-Vanik Amendment to the Trade Act of 1974 governs • Most favored nation (MFN) tariff status granted to NMEs and TEs if their emigration and other policies are approved by U.S.

9. Effects of Jackson-Vanik AmendmentTrade Act 1974, 19 USC § 2432Sec. 402 [Mats. p. 675] • Linkage between human rights and trade • Power of president to waive the emigration rights requirements of the Trade Act if objectives of act promoted • Waivers are reviewed and mostly renewed annually: The case of China • 1998: Change from MFN to NTR - Normal Trade Relations.

10. The Evolution of GATT/WTODemeret, p. 329 • 1947 GATT only intended to cover interim period until Havana Charter executed • GATT based on MFN principle • Treat imports the same as domestic products with some exceptions • Havana Charter never entered into force because U.S. never ratified it

11. The Tokyo Round • 1974-79 as result of U.S. initiative • Objective: reduction of non-tariff barriers • Codification technique employed • Problem: each agreement had its own dispute resolution procedure • Resulted in “balkaniztion” of GATT or “GATT a la carte”

12. Uruguay Round • Completed in 1994 • WTO formed • Puts an end to the GATT “a la carte” • Countries able to accept multilateral agreements addressing their domestic concerns

13. WTO Agreement • Includes several multilateral agreements addressing agriculture, textiles, antidumping, subsidies, services, IP, etc. • Goals of WTO: implement and administer current agreements, and serves as a forum for negotiating further trade agreements • Dispute resolution

14. General Ministerial Council Conference Committee Trade Policy Dispute Settlement on Trade Review Body Body & Development Committee on Budget, Finance Council for Director & Administration Trade in Goods General Committee on Balance of Payment Council for Restrictions Trade in Services Secretariat Council for TRIPs WTO Structure

15. WTO Decision Making • Ministerial Conference: • meets biennially • equal voting weight for all WTO members • Responsible for all WTO functions • General Council: • executive authority for daily operations • equal voting weight to all WTO members • Power to adopt interpretations of covered agreements • Includes the Dispute Settlement Body (DSB) and Trade Policy Review Body (TPRB) • Committees: • accountable to the above

16. Class Discussion • What is the relationship between WTO membership and “Most Favored Nation” status? • How does the European Union affect the WTO? • How do regional agreements affect the goals of the WTO?

17. Bhala on Free Trade • Examines the WTO in a broad economic context • “system friction” between economies of Europe, Japan and U.S. – regional differences affect global trade • Bhala’s three conclusions concerning current global trading system: • No such thing as free trade at law • Gap between developing and developed nations • Persistent doubts about the benefits of free trade

18. GATT/WTO Membership for China • 1986: China applies to rejoin GATT after 40 year absence • Why? – WTO membership increases export. Also Chinese attempt to join major international organizations after reentry to world community in 1970s • Communism: How does this affect relationships with other WTO members?

19. China’s WTO Accession • In 1999 and 2000 China intensified its bilateral negotiations with WTO member governments. • It is expected that WTO Ministers will take a decision on China's terms and conditions of entry into the WTO at the Doha Ministerial Conference in November 2001. • Will China accede as a developing or developed country?

20. OXICORP and China Accession to WTO • Would adherence by the Chinese to the Dispute Settlement Understanding (DSU) be a plus to OXICORP? To China? To the U.S.? • If admitted, which of the Uruguay Round agreements and understandings would bind China? Does it matter whether China is accorded “developing country” status?