In this lesson, you’re expected to learn about:
– WTO, GATT, NAFTA
– subsidies, duties, and provisions
– the EU and other regional groups
International trade law is a very complex and an ever expanding area. There are basically four levels of international trade relationships: unilateral measures (national law), bilateral relationships, plurilateral agreements*, and multilateral arrangements (GATT/WTO).
In this lesson, the scope of international trade laws includes:
– World Trade Organization (WTO)
– North American Free Trade Agreement (NAFTA)
– The European Union (EU)
– Other regional groups
Trade liberalization refers to the efforts of governments to reduce tariffs and non-tariff barriers to trade.
In 1995, the Geneva-based World Trade Organization (WTO) was created to administer the rules and to assist in settling trade disputes between its member nations. All WTO nations are entitled to normal trade relations with one another. This is referred to as Most Favored Nation (MFN) trading status.
This means that a member country must charge the same tariff on imported goods as, and not a higher one than, that charged on the same goods coming from other WTO member countries. Trade liberalization has led to increased economic development and an improved quality of life around the world.
The WTO is an organization for liberalizing trade. It’s a forum for governments to negotiate trade agreements and a place for them to settle trade disputes by operating a system of trade rules.Essentially, the WTO is a place where member governments go, to try to sort out the trade problems they face with each other. The first step is to talk. The WTO was born out of negotiations, and everything the WTO does is the result of negotiations.
The bulk of the WTO’s current work comes from the 1986-94 negotiations called the Uruguay Round and earlier negotiations under the General Agreement on Tariffs and Trade (GATT). The WTO is currently the host to new negotiations, under the “Doha Development Agenda” launched in 2001.
Implementation of the Uruguay Round agreement
The Uruguay Round of negotiations meant to:
– further open markets by reducing tariffs worldwide by one-third;
– improve WTO procedures over unfair trade practices;
– broaden WTO coverage by including areas of trade in services, intellectual property rights, and trade-related investment that previously were not covered; and
– provide increased coverage to the areas of agriculture, textiles and clothing, government procurements, and trade and the environment.
The Doha Development Agenda
The WTO launched a new round of negotiations in Doha, Qatar in 2001 to conclude in 2004 but collapsed in 2006 due to major differences between parties.
The renewed negotiations were designed to lower trade barriers among poor nations and help them in exporting agricultural products and textiles and to improve labor-intensive industries. The goal was to integrate poor nations with rich nations into the global trading system.
Agreement for Market Access
The main contribution of the market access agreements would be to significantly lower, or eliminate, tariff and nontariff barriers and to expand the extent of tariff bindings, on industrial products among WTO signatories.
The global economic impact of this agreement is substantial.
Provisions for Subsidies and Countervailing Duties
Subsidies essentially lower a producer’s costs or increase its revenues. A subsidy is financial assistance provided to domestic or foreign producers by their respective governments in the form of cash payments, low-interest loans, tax-breaks, and price supports.
Consequently, producers may sell their products at lower prices than their competitors from other countries. Subsidies to firms that produce or sell internationally traded products can distort international trade flows.
The US has historically provided fewer industrial subsidies than most countries, and it has sought to eliminate trade-distorting subsidies provided by foreign governments.
Countervailing duty laws can address some of the adverse effects that subsidies can cause. Countervailing duties are special customs duties imposed to offset subsidies provided on the manufacture, protection, or export of a particular good.
The agreement would create for the first time three categories of subsidies and remedies:
(1) prohibited subsidies (known as the “red-light” category)
(2) actionable subsidies (known as the “yellow-light” category)
(3) nonactionable subsidies (known as the “green-light” category)
1) Prohibited subsidies include subsidies to encourage exports, including de facto export subsidies and subsidies contingent on the use of local content.
2) Actionable subsidies are domestic subsidies against which remedies can be sought if they are shown to distort trade.
3) Nonactionable subsidies include those that are not specific (i.e., not limited to an enterprise or industry or group of enterprises or industries).
Subsidies also are nonactionable if they fall into three classes:
– certain government assistance for research and precompetitive development activity
– certain government assistance for disadvantaged regions
– certain government assistance to adapt existing plants and equipment to new environmental requirements
Dumping is generally considered to be the sale of an exported product at a price lower than that charged for the same or a like product in the “home” market of the exporter.This practice is thought of as a form of price discrimination that can potentially harm the importing nation’s competing industries.
Dumping may occur as a result of exporter business strategies that include:
– trying to increase an overseas market share,
– temporarily distributing products in overseas markets to offset slack demand in the home market,
– lowering unit costs by exploiting large-scale production, and
– attempting to maintain stable prices during periods of exchange rate fluctuations.
A safeguard is a temporary import control or other trade restriction a country imposes to prevent injury to domestic industry caused by increased imports.The new Safeguard Agreement would require that safeguard measures be limited to an eight-year period for developed countries and ten years for developing countries. It provides for suspending the automatic right to retaliate to a safeguard measure for the first three years.
However, it would maintain the requirement that safeguards be applied on an MFN basis rather than being applied selectively (applied to just the country or countries causing injury to the domestic industry).
Agreement on Trade-Related Aspects of Intellectual Property Rights
The World Intellectual Property Organization (WIPO), a UN specialized agency, is a world body whose mission is to promote the protection of intellectual property rights throughout the world through cooperation among countries and, where appropriate, in collaboration with international organizations and to ensure administrative cooperation among the intellectual property unions.
WIPO administers a number of international agreements on intellectual property protection, including in particular the Berne Convention for the Protection of Literary and Artistic Works, which provides for copyright protection and the Paris Convention for the Protection of Industrial Property, which provides protection for patents, trademarks, and industrial designs and the repression of unfair competition.
Agreement on Trade in Services
Service industries dominate the U.S. economy and are important contributors to U.S. exports. The U.S. service industry is also the world’s largest exporter of services. International trade in services takes place through various channels, including:
– Cross-border transactions, such as transmission of video, data or other information and the transportation of goods and passengers from one country to another.
– Travel of individual consumers to another country (e.g., services provided to nonresident tourists, students and medical patients).
– Sales of services (e.g., accounting, advertising, and insurance) through foreign branches or other affiliates established in the consuming country.
– Travel of individual producers to another country (e.g., services provided to foreign clients by business consultants, engineers, lawyers etc.)
Agreement on Trade-Related Investment Measures
There is consensus among many, primarily, developed countries that foreign direct investment can have a favorable effect on a host country’s economy.
The foreign direct investment can create jobs, increase tax revenues, and introduce new technologies. It also increases the host country wages and productivity and seems to have a net positive effect on the competitiveness of the host economy.
The North American Free Trade Agreement (NAFTA), which went into effect in January 1994, was intended to facilitate trade and investment throughout North America (United States, Mexico, and Canada).
The idea behind NAFTA was to promote economic growth by easing the movement of goods and services between the U.S., Mexico, and Canada.
It incorporates features such as the elimination of tariff and nontariff barriers. NAFTA also supports the objective of locking in Mexico’s self-initiated, market-oriented reforms. By removing barriers to the efficient allocation of economic resources, NAFTA was projected to generate overall, long-term economic gains for member countries—modest for the United States and Canada and greater for Mexico.
For the United States, this is due to the relatively small size of Mexico’s economy and because many Mexican exports to the US were already subject to low or no duties. Under NAFTA, intra-industry trade and coproduction of goods across the borders were expected to increase, enhancing specialization and raising productivity.
NAFTA also included procedures first to avoid and then to resolve disputes between parties to the agreement. Separately, the three NAFTA countries negotiated and entered into two supplemental agreements designed to facilitate cooperation on environment and labor matters among the three countries.
NAFTA created the largest free trade zone in the world, with 360 million people and an annual gross national product totaling over six trillion dollars.
Major provisions include the following:
– “rules of origin”
– import and export quotas and licenses
– technical standards and certification
– escape clauses
– telecommunications networks
– cross-border trade in services
– antidumping and subsidy laws
– performance requirements
– right to convert and transfer local currencies
– intellectual property rights
– temporary entry visas
Impacts and Implementation of NAFTA
Assessment of NAFTA’s effects is a complex undertaking because the provisions last 10-15 years. As of 2008, NAFTA was fully implemented, and U.S. trade with NAFTA members was in accordance with pre-NAFTA expectations.
At the sector level, there are diverse impacts from NAFTA. Within sectors, these may include increases or decreases in trade flows, hourly earnings, and employment. Economic efficiency may improve from this reallocation of resources, but it creates costs for certain sectors of the economy and labor force, including job dislocation.
In general, NAFTA or broader trade policies cannot be expected to substantially alter overall U.S. employment levels, which are determined largely by demographic conditions and macroeconomic factors such as monetary policy.
The European Union
The European Union (EU) is a supranational* legal regime with its own legislative, administrative, treaty-making, and judicial procedures. To create this regime, many European nations have surrendered substantial sovereignty to the EU.
European Union law has replaced national law in many areas and the EU legal system operates as an umbrella over the legal systems of the member states. The EU is the largest market for exports from the United States.
The tasks of EU include creation of an economic and monetary union with emphasis on price stability with the goal of establishing a Europe without “internal frontiers”.
The Council and the Commission
The Council consists of representatives of the ruling governments of the member states. The European Community Treaty requires the Council to act by a qualified majority on some matters and with unanimity on others.
The Commission is independent of the member states. Its 20 commissioners are selected by council appointment. They do not represent member states or take orders from member state governments. The Commission is charged with the duty of acting only in the best interests of the Union and serves as the guardian of the Treaties. The Commission largely maintains EU relations with the WTO. The Commission also proposes and drafts EU legislation and submits to the Council for adoption.
The major provisions of the EU laws include:- free movement of goods,
– free movement of workers,
– free movement of capital,
– free movement of payments,
– establishment of a monetary system, a tax system, and trade rules with non-member states.
Many nations have already formed regional economic integration to capture the economic gains and international negotiating strength that regionalization can bring.
The following list provides some regions or groups:
• Several groups have been formed in Africa, including UDEA, CEAO, and ECOWAS. The purpose is to establish a common customs and tariff approach toward the rest of the world and to formulate a common foreign investment trade.
• The Association of South East Asian Nations (ASEAN) was formed in 1967 by Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Brunei joined in 1984 and Vietnam in 1995. The Bangkok Declaration, establishing ASEAN as a cooperative association, has little supranational legal machinery to implement its stated goals.
• Regional groups have been established in Latin America and the Caribbean (CARICOM, CACM, LAFTA/LAIA). The Latin American Free Trade Association (LAFTA) had small success in reducing tariffs and developing the region through cooperative industrial sector programs. These programs allocated industrial production among the participating states.
• Gulf Cooperations Council (GCC) was formed between Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates with objectives to establish freedom of movement, a regional armaments industry, common banking and financial systems, a unified currency policy, a customs union, a common foreign-aid program, and a joint, international investment company, the Gulf Investment Corporation.