Trade in Goods

1. Trade in Goods Gilles Leblanc Canada-India Trade Simulation June 20-24, 2011

2. Introduction • Trade in goods provisions in international trade agreements set out the terms and conditions under which goods produced in or exported from one party to an agreement will benefit from the agreement when imported into the territory of another party • Trade in goods at core of international trade negotiations • Often associated with negotiation of tariff reductions • Generally comprise broader range of issues associated with the trading of goods CTPL Certificate Program

3. THE GATT FOUNDATION • Article XXVIIIbis of GATT provides for tariff negotiations to be conducted from time to time among WTO members on a reciprocal and mutually advantageous basis with a view to reduce the general level of tariffs and NTBs   • It also provides that such negotiations may be carried out on a selective product by product basis or by the application of such multilateral procedures as may be agreed to by members

4. THE GATT FOUNDATION • Article XXVIII bis also calls for the taking into account of the needs of developing countries for a more flexible use of tariff protection to assist their development and to maintain tariffs for revenue purposes • Furthermore, Part IV of the GATT stipulates that developed countries are not to expect reciprocity from developing countries in trade negotiations.

5. PAST MULTILATERAL EXPERIENCES • In earlier GATT Rounds, pursued approach - product by product approach. • Essentially a series of bilateral negotiations with results being extended to all members • With time and growing membership, approach became less practical and countries with lower level of duties quickly considered it did not yield mutually advantageous results

6. PAST MULTILATERAL EXPERIENCES • In Kennedy and following Rounds, mixed approach of a multilateral procedure and product by product pursued • Under multilateral procedure or formula approach, often incorporating some tariff harmonizing element, all parties would aim at cutting tariffs by a certain set percentage to achieve some degree of reciprocity • Greater and less than formula cuts and exceptions also negotiated to achieve mutually advantageous results. • Product by product approach prevailed in agriculture until the Uruguay Round and yielded modest results until then • Developing countries generally expected to contribute consistent with their level of development

7. THE CASE OF FTAs • GATT Article XXIV allows for the formation of Free Trade Areas (FTAs) between two or more countries provided tariffs and other restrictive regulations are eliminated on substantially all the trade between the parties • Modalities in MTNs do not neatly apply in FTA negotiations, but still parties will need to agree on some approach to the elimination of tariffs

8. FTA RELATED CONSIDERATIONS • In FTA tariff negotiations, issues are essentially the pace of elimination and the treatment of special situations • Reciprocity considerations – each party needs to be able to sell the results domestically – and the level of development of the parties involved will be factors playing in the negotiations on modalities • Free Trade Agreements negotiated by the parties with other countries will often be used as models/benchmark for negotiations. They may also act as constraints.

9. FTA RELATED CONSIDERATIONS • Specific tariff issues to address and other related issues that may come up in trade in goods negotiations include: Choice of base date and rate (e.g. bound versus applied) Rules of origin National treatment Valuation Duty drawback Performance based duty waivers QRs Customs User fees Country of origin marking requirements Export taxes General exceptions provisions Repairs Temporary importations

10. FTA RELATED CONSIDERATIONS • Which of these issues may be raised will depend for many on the interests of the parties involved • Procedurally, parties will often agree on time lines for the conclusion of negotiations and will generally establish negotiating groups to conduct negotiations in parallel on several different fronts.

11. RULES OF ORIGIN (ROO) • Highly technical but essential element of Free Trade Agreements • They will in fact determine the conditions to be met for a particular good to be considered as originating in the FTA territory and entitled to preferential tariff treatment.

12. RULES OF ORIGIN • Three basic situations encountered: • goods wholly originating in one country (e.g. potatoes, logs, oil) • goods produced from inputs originating in the FTA • goods from inputs from a third country • First two situations are straightforward. In the third situation, transformation of the inputs into a different product in the FTA territory will be required for the FTA provision to apply – issue is how much transformation

13. RULES OF ORIGIN • Essentially two rules-based approaches to deal with the issue of transformation - the change in tariff heading, and - the content requirement (value added requirement) • Former approach simpler more straightforward. Combination of two may be used for certain goods and some special rules may be needed for particular goods • ROO generally the subject of a full chapter in FTA Agreements touching on a range of related matters and of a chapter on their customs administration

14. Special protection • Transitional tariff-related safeguard provisions often negotiated • They set out the conditions that must be met for border action to be taken and lay out the procedures to be followed for any action to be taken. They are generally based on WTO safeguard provisions

15. Special protection • Other issues that may be raised in relation to trade in goods in FTA negotiations include - TBT, - anti-dumping and subsidies/countervail, and - global safeguards. • Generally when negotiations take place on these particular issues, they reiterate the application of the existing WTO rules, accompanied sometimes by some procedural improvements

16. AGRICULTURE Agriculture no less sensitive in an FTA context than in a multilateral one • Sector has traditionally seen a good level of government involvement in its support in many countries • Some restrictions reflect long standing domestic policies that have the strong support of domestic stakeholders and are not GATT inconsistent • Some issues can be difficult to negotiate in an FTA without compromising a party’s position in other international fora or because they require a global solution, e.g. agricultural subsidies at WTO

17. SOME PRACTICAL CONSIDERATIONS • Before entering into/suggesting negotiations, important for parties to clearly establish their position in terms of their wants and sensitivities • A sense of the other parties’ interests also important – experience with the trading relationship, available trade data and knowledge of the content of FTAs negotiated by the other party will help in that regard • Consultations with domestic industry and other interested stakeholders important element of any goods negotiations. • Once engaged, needs to be prepared to make compromises

18. CONCLUSION • The GATT rules applying to FTA negotiations are pretty clear and appear simple. • They will nonetheless present difficult challenges that could prevent an agreement from being reached • Political will and a good understanding of each other’s constraints will help achieve results. This will still not guarantee success