International Trade Policy

International Trade Policy

Part I

Advantages and Disadvantages of the Actions

The growth and sustainability of a business are mostly dependent on various external and internal factors. Factors such as the emergence and obsolescence of technology, politics, the economy, society, and culture bear significant effects on the sustainability of a business enterprise (Issa, Chang & Issa, 78). Business entities are continuously operating within an environment controlled by a variety of external factors. Companies are also affected by internal factors such as strengths and weaknesses, opportunities for growth, and threats that impend and limit growth and expansion of a business entity. WWI and AAA are examples of organizations that operate within the same industry but exhibit different outcomes in terms of growth and sustainability. WWI has, in the recent past, closed five of its plants in the United States while laying off a fifth of its labor force. In contrary, AAA, which operates in Japore, is not only still in operation but has also exhibited growth within the same years of service as WWI. However, WWI argues that AAA has an unfair advantage in various areas, even though the two organizations operate within countries that are members of the WTO. WWI, therefore, considers a variety of strategies, including voluntary export restraint, safeguards, countervailing duties, and alleging violation of WTO laws to maintain its competitive edge with companies such as AAA.

Negotiating a Voluntary Export Restraint

Negotiation of voluntary export restraint is one of the possible actions that WWI can take in its efforts to achieve a competitive advantage over AAA. Voluntary Export Restraints, VERs, refer to an intentional and deliberate action taken by one government to restrict the number of exports into another country to protect the local industries (WTO). VERs limit the number of imports that flood into a local market, hence protecting the domestic producers from unfair competition. The export restraints are examples of non-tariff barriers, alongside other restrictions such as quotas and embargos (WTO). A country that imports certain goods places a request with the exporting country to limit the number of imports to protect local producers and manufacturers. For example, the United States can request and initiate an agreement with Japore to restrict the number of widgets that the United States imports from Japore.

The case study indicates that AAA has a myriad of advantages over WWI as a result of government incentives and a suitable business environment. Consequently, AAA is in a better position to produce widgets that are 10-20 times cheaper than those provided by WWI. As a result of the unfavorable business environment, WWI is incapable of competing on a global scale with other organizations such as AAA. Negotiating a VER with Japore would see the country reduce its imports into the United States, hence allowing local industries such as WWI to improve its performance locally. The United States law and rights under the WTO agreements will enable the country to initiate negotiations for VER with Japore. However, bilateral agreements that offer protection based on other arrangements other than those established by the WTO are prohibited by members of the World Trade Organization.

The prohibition protects various entities from unfavorable business environments that are not regulated by a recognizable body. According to Kagitani and Harimaya (29), WTO prohibits bilateral agreements that are not established on the provisions of the organization’s framework, hence making WTO the primary forum for negotiations of agreements of trade. The WTO may prohibit voluntary export restraints, but there are a few exceptions that countries can exploit. According to Kagitani and Harimaya (30), agreements of the WTO prohibit VER, although two members of the WTO can still use the formal intergovernmental contracts. It is, therefore, imperative to note that while the United States and Japore are not required by the WTO to use legal intergovernmental agreements, such countries can still negotiate voluntary export restraints as members of WTO. Sykes (262) also concurs that while WTO maintains its position as the primary forum for negotiation, a combination of WTO-minus provision and customary international laws can influence the regulations of WTO by explicitly overriding certain trade agreements. While WWI can negotiate VER under these conditions, it is imperative to consider the advantages and disadvantages of this agreement.

The critical advantage of VER negotiations is that it encourages local production in the importing countries due to the improved prices. Locally produced goods do not have to compete with other products that may be cheaper due to the unequal trade provisions within different countries (WTO). Consequently, the provision enhances employment rates, as business sustainability becomes more comfortable with such restrictions. For example, WWI has closed down five of its plants, rendering a fifth of its staff jobless. A VER can improve the survival of WWI, thus employing staff members. However, the imposition of VERs also has negative impacts such as distorted production and consumption behaviors, and unfair trade implications. Based on the above case scenario, negotiation for VER would ensure that the United States increases its export of widgets while reducing its import of the same. However, this predisposes the consumers in the US to limited widgets, as they will consequently have fewer products from which to choose when making purchasing decisions.

The imposition of a safeguard under US law

The imposition of safeguards is another option that is available to countries experiencing adverse business outcomes on the local and global levels as a result of inequality in business environments. Safeguards are restraints imposed on international trade and other economic activities to protect local communities from aggressive competition from foreign companies (WTO). The imposition of safeguards ensures that domestic manufacturers and producers flourish as much as their foreign counterparts. Article 2 of the WTO defines safeguard measures as a set of actions that may be taken by a country to impose restrictions or limits on the number of imports allowed in that country to protect the importing member’s domestic industry (WTO). Safeguards are imposed as temporary measures to allow local industries to adjust and become as competitive as their foreign counterparts and may comprise of a combination of practices.

Restrictions on imports and increase of duties are some of the measures that comprise safeguards. Restrictions on imports involve limiting the number of products that enter the importing country’s market. At the same time, the imposition of a duty on imported goods increases the cost, hence discouraging the purchase of such products over domestically-produced goods (Sykes 262). It is therefore considered a violation of the WTO rules when a country imposes safeguards for a product that is not fundamentally threatened by imports; however, safeguards sare based on a particular guiding principle of temporality. WTO also asserts that safeguards must be temporary and should only be imposed when the restricted products have been shown to threaten the survival of a competing domestic industry. WTO also requires that restrictions are applied on a non-selective basis, while progressive liberalization is maintained when the safeguard is in effect. Besides, the imposing country is required to compensate the members whose business is grossly affected by the safeguard.

Countries can impose safeguards under either of the following two categories: provisional and definitive measures. According to the WTO, absolute safeguard measures comprise tariffs and quotas that define the level to which tariff rates should be set and the quantitative restrictions that quotas should adopt, respectively. Provisional safeguards, on the other hand, are imposed based on the preliminary evidence that the imports cause substantial damage to the existence and survival of local industries. It is therefore imperative that organizations

In this case scenario, WWI can consider the imposition of a safeguard under the US law, as the country is a member of the WTO, hence covered under these provisions. AAA produces its widgets under more favorable economic and business environments, therefore making their products cheaper, compared to the widgets provided by WWI. Stringent measures imposed on enterprises such as WWI in the United States increases the cost of production, hence the high prices of widgets from the company operating from the US. Safeguards would protect WWI from unfair competition with other companies such as AAA, thus ensuring business survival. WWI can justify the imposition of safeguards by arguing that in the last few years, five plants have been closed down as a result of a harsh business environment. Closure of plants and laying off of employees is an indication that a business is not performing well. However, WWI should be in a position to prove that the decline in performance is directly related to the importation of cheaper widgets from Japore. Countries should also consider the advantages and disadvantages of imposing safeguards.

Commitment to optimum binding tariffs and concessions allows the importing country to adjust accordingly and to enhance its competitiveness against foreign companies. Safeguards enable organizations to not only improve but also to gain essential skills on how to remain competitive on an international and global level. This strategy is also disadvantageous, particularly to the importing countries, as they are required to offer the exporting countries compensation (WTO). The compensation amounts can be particularly challenging to achieve, especially in cases where the importing country is developing or low-income.

Imposition of Countervailing Duties under the US Law

The WTO establishes a variety of measures to protect local and foreign industries from exploitation while ensuring that business operates under optimum conditions. Countervailing duties are implemented to discipline the utilization of subsidies while regulating actions that countries can adopt to address the effects of subsidies (WTO). Countervailing taxes are entrenched within Part V of the SCM Agreement and outlines the particular requirements that must be met before the imposition of countervailing measures. According to the WTO, the provision also outlines the procedural requirements that should be observed during the imposition and maintenance of the countervailing measures. A countervailing duty is utilized by a country whose local products are affected by subsidized imports.

Countries may implement subsidies on imported products to enhance access to consumers through affordable prices. Subsidies play a central role in promoting economic development in developing countries and in the transformation of economies that are centrally-planned (WTO). The subsidies are meant to encourage the movement of goods and services within a disadvantaged market and to provide an avenue of income to small scale traders. However, the subsidies can hurt the flourishing small economies by inhabiting the consumption of locally produced/manufactured goods. In such cases, a countervailing duty is implemented to address this issue.

Implementing countervailing duties requires that the importing country conducts extensive investigations to ascertain that the imported goods are hurting the domestic economy. According to the WTO, the surveys conducted for countervailing duties are similar to the inquiry required for anti-dumping action. The decision on whether a product’s subsidy is hurting the domestic injury is based mainly on the results of the investigations, which is why the importing country must conduct thorough investigations regarding the number of subsidies imposed on the product in question. WWI would then be required to present evidence beyond doubt, demonstrating how the importation of AAA’s products is hurting its survival. Similar to the other actions, countervailing duties also bear significant advantages and disadvantages that should be critically analyzed before implementation.

While countervailing allows the importing country to salvage its domestic industries, it limits the consumers’ access to a wide range of affordable products.  Certain subsidies are essential in promoting local trade, mainly when small and medium business owners depend on the subsidized products for business. However, countervailing duty may lead to the recall of some subsidies, making the previously subsidized products expensive and unaffordable to the medium and small scale business entities. It is, therefore, crucial for countries to critically analyze the benefits and disadvantages of this course of action before implementation.

Action Alleging Violation of WTO Rules

Unscrupulous organizations flout rules set out by the governing institutions to gain an unfair advantage against their competitors. To ensure that no organizations are disadvantaged as a result of the disobedience of rules in business, several governing bodies and institutions are mandated to implement and enforce laws that ensure all players adhere to the standards. WTO and GATT are examples of organizations that are responsible for establishing rationality within the business environment by ensuring that all organizations adhere to the rules. WTO is mainly accountable for developing multilateral systems that govern trade collectively for the different members (Vidigal 16). The WTO was established as a fully-fledged institution to replacement to the underperforming GATT. The mandate of WTO encompasses the administration of the covered agreements and provision of a common framework that defines how members should conduct their trade relations (Vidigal 16). In addition to the implementation and administration of the structure, WTO also offers a platform for negotiations.

Members of WTO often encounter disagreements related to multilateral trade relations. During such conflicts, WTO steps in to provide a forum for negotiations among its members. Disgruntled members can file complaints with the WTO against members who have violated the rules as set out by the WTO. The United States, on behalf of WWI, can file a formal complaint with the WTO against Japore, on behalf of AAA. The claim should highlight the violations believed to have been committed by AAA, accompanied by sufficient evidence. For example, in the given case study, AAA has established its manufacturing plant within a depressed region where rail and port infrastructure has been built for the sole benefit of AAA. Also, AAA remains the only significant employer in the area, although it is not clear whether employee remuneration is at par with the other employers.

While WWI is responsible for providing medical insurance to its employees, Japore publicly finances health insurance for AAA’s employees, hence gaining an unfair advantage over WWI. The United States can file a complaint alleging action against Japore for violation of the WTO rules. Filing for action against Japore can be particularly advantageous to WWI in that the company will experience fair trade practices. However, the company may also experience strained business relations with not only Japore but also with other countries.

Conclusion

Fairtrade practices are essential in not only protecting fellow business entities but also in protecting the consumer against illegal products. The WTO plays a significant role in establishing rules and regulations of international trade among its members. The institution also offers a forum for negotiations between its members, facilitating efficient dispute settlement. Different approaches can be adopted to enhance competitive advantage among organizations operating within an international level. The imposition of VERs, safeguards, countervailing duties, and taking action against a company believed to be violating WTO rules are some of the strategies that organizations can use to ensure fair trade practices. It is, however, essential for organizations to critically evaluate the advantages and disadvantages of these actions before implementation to ensure that the measures do not affect their trade relations with other countries.

Part II

• D is a developed country in the membership of WTO. Given that B is a developing country and its charged half the price of a developed country, D’s tariff rate widgets will be 10% because of its economic status and membership in WTO. Conversely, tariff rates from X, a developing country, will be the same as those of B at 5%.

1. If widgets produced in X are branded in B, they will still be charged a tariff rate of 5 percent. Although the production process takes place in two countries, A only charges tariff to one country from which it is receiving widgets.
2. B is a developing country as X; thus, if X pays a duty of 5%, B should also be charged a similar rate of 5%. C is a former non-market economy; it can be rated analogous to developing countries at a 5% tariff rate.
3. On estimate, if A charged 4% from D, B and C should also pay a tariff of 4% because it is fair given their low economic status to A and D. (182 words)

2)  Likeness

WWI could adopt the voluntary export restraint (VER) as a measure to protect its domestic market from AAA imports. Although GATT does not support it, this option often applies, although it’s a threat to developing countries. Voluntary export restraint (VER) would be beneficial for WWI as AAA currently exports 35 units of Widgets to the U.S. market. The trade compares weakly with only five groups of widgets shipped by WWI to Japore. Ideally, WWI may lose the market for widgets to Japore, but this represents only a small portion compared to the domestic market exploited by AAA. VER would be the best option for WWI to protect its local market from AAA exports.

The company could opt to evoke the U.S. trade Act of 1974 that provides for the undertaking a safeguard action on imports to the U.S. The firm must prevail upon the president to make such a judgment on the basis that import of widgets from the Japore is hurting the local economy. The challenge with this decision is that WWWI still controls a large domestic market share for widgets; AAA sold 35 units compared to 100 units sold by WWI in 2019.

The company can consider countervailing action under the United States Tariff Act of 1930. Under this legislation, WWI may petition the government to stop widget imports from Japore because AAA benefits from local subsidies. In this regard, AAA enjoys an unfair advantage in trade in the U.S. Authorities in the U.S. must confirm the extent of dumping and the degree of injury to the local economy.

The firm could challenge the action as to challenging the WTO rules due to the unfair advantage the country enjoys at home. The firm could petition the WTO to allow for fair trade by requesting the Japore government to stop subsidies and health insurance. Retracting subsidies may be a challenge because they comprise aspects of local laws based on national policy.

The interpretation of ‘like products’ under GATT is critical to a decision regarding the preference of products. The definition of like products falls under the WTO, GATT, Most Favoured Nation, and National Treatment article III. Products that differ under the WTO/GATT agreements must comply with non-discrimination in the national economy. The question is whether a foreign product found to be ‘like’ a domestic product should receive similar treatment. The definition of likeness by the trade bodies is, however, subject to myriad ambiguities and occasions case-by-case judgment.

There are different criteria for assessing the likeness of a product that may determine its acceptance in a foreign market. At the outset, the physical features of a product define the ‘likeness.’ In this connection, the widgets may not show marked tangible differences and may be categorized under ‘likeness’ in the U.S. economy. WWI must adopt the process and production methods because these give AAA unfair advantage in trade in the US. A raft of institutional measures ensures that AAA experiences comparatively low costs of production. Japore has a policy of providing health universal health insurance. Besides, the country offers subsidies that enhance the competitiveness of AAA in the U.S. market. Consequently, the company can afford to sell its widgets at a lower price, thus subjecting WWI to unfair competition. WWI dies not to enjoy these benefits and must pay for the health insurance of her workers and doesn’t experience any subsidies. In this regard, the company prices its widgets at a higher price. The difference in the process of production offers an undue advantage for AAA’s products. WWI must use the likeness definition to bar AAA from accessing the U.S. market. Although WWI claims tat her widgets are superior based on a secret ingredient, invoking the likeness definition due to physical characteristics will protect the company’s domestic market and enhance its profitability(630 words).

3) Difference OF National treatment clauses of GATS from GATT

The Most Favored Nation (MFN) is a policy of multilateral trading developed after WWII. It replaces the challenges of power-based policies that ensure that trading rights do not depend on the economic strength or political clout of trade partners. Under GATS, MFN extends to any measure affecting trade-in services in sectors falling under the agreement. This clause applies regardless of the existence of any prior agreements.

National Treatment is a clause enshrined under the International law of GATS that has mainly applied to intellectual property. The law requires equal treatment of both local and foreign traders. In this regard, a country that seeks to offer benefits to its citizens must also extend the favor to citizens of other countries who reside in the state. By extension, both imported and exported products must receive equal treatment, especially after the entry of foreign products into the country. However, the rule only applies once the product has entered the domestic market. Countries that charge import duty, therefore, do not violate the provisions of the National treatment.

The GATS guidelines on MFN differ from the GATT provisions based on the concept of reciprocity. GATT provides for a reciprocal arrangement where privileges extended to a trading partner under MFN should apply to the group that initiates the negotiation. The MFN status is offered to an international trade partner to ensure fair treatment of all the trade partners under the WTO. A country that confers MFN status to another state must provide privileges and concessions in the agreements. The conferring country must also extend immunity consistent with the provisions guiding the operationalization of GATT. Legislations for MFN under GATS do not require a reciprocal action from the participating nations and focuses on the fair treatment of traders within the national boundaries. (305 words)

4) Dumping Margin

Indeed, Exportia is dumping lawnmowers into the US because its production and service costs are lower than its selling price. In particular, the company sells lawnmowers 400. Yet, its production cost is 380, plus 15 (shipping cost), ten delivery from Seattle to Chicago, 2$ credit cost, and 3 for first exhaust emissions, which add up to $405 worth of production cost. Thus, the selling prices do not reflect the production cost, implying that Exportia is indeed dumping the lawnmowers to the US.  (87 words)

5) Safeguard Authorization by WTO

GATT defines serious injury as a significant aggregate impairment in the position of the domestic market. The metrics of measuring the harm must be objective to ascertain the connection between impairs and injury. The threat of serious injury applies to an imminent threat to the domestic economy. The determination of this threat shall proceed based on facts rather than allegations or conjecture. One of the ways of determining risk to a domestic economy is the rate and amount of imports in both absolute and relative terms. The assessment must demonstrate an adverse impact of the imports on local sales, production, profits and losses, and employment, among other economic impacts.

Some of the injuries experienced by a domestic economy may arise from other factors other than the presence of the exports in question. The determination of injury must, therefore, demonstrate a causal link between increased exports and the occurrence of serious injury. This process rules out the presence of other factors apart from increased import into the country, occasioning the damage. The actual imports don’t have to cause injury but the harm to the economy.

Where there is evidence that other factors are causing the injury, the injury clause does not apply. Serious injury entails the overall impact on the domestic industry as determined by competent authorities.  The authorities must determine the extent of serious injury, including the effects of specific instances on prices. In their judgment, the police may infer to the damage a clause even where there is no evidence of a whole industry decline. In this regard, an evaluation of whether the injury may show positive results even when only a minority of businesses experience a loss.  The authority must determine that the observed trend poses a significant threat amounting to serious injury. The determination of serious injury, therefore, depends upon the discretion of a competent authority rather than a casual observation based on conjecture. (320 words)

6) Case against EU

The national Treatment clause under the WTO agreement defines the treatment of trade partners in export trade. Under these provisions, members must treat trade partners equally, including the imposition of tariff and non-tariff measures. Countries reducing import tariffs on products by five percent, for instance, should not charge a five percent domestic consumption tax on the same product. The clause seeks to level the ground for all trade partners under WTO such that local products do not enjoy a favorable treatment in comparison to imported products. Article III of GATT prohibits members from taking any actions that disadvantage imported goods in favor of those manufactured locally. The import of this provision is that local economies must not apply local taxations, and laws and regulations that adversely affect imported products in a manner that protects local products.

National treatment (NT) under the European Union derives from both WTO agreements and several other regional trade agreements (RTA) that the union has ratified.  The clauses operationalizing the NT in EU influence its economic partnership with her trade partners but collide with the WTO law. The EU RTAs are broader in scope and mostly cover marine transport and intellectual property. The lack of an express economic partnership between the European Union and Japan does not oblige the union to prioritize the National Treatment clause. Although the NT covers Japan under the WTO, the EU must refer to its laws that bind its trade partnership with other countries. The EU, in this regard, is not in breach of the NT clause.

The case against the EU by Japan relates to the contents of the Technical barriers to Trade (TBT) that guides trade transactions of members under GATT.  In the preliminary section, however, countries can take action to protect the domestic market. The EU, under this law, must prove that its decision justifies the reason why it fails to assign national treatment to goods arising from Japan. The technical regulations are not meant to impose unnecessary restrictions for entry of goods but must respond to a legitimate objective of national security and protection of human health, among others. On this account, the EU may be found capable of violation of the National Treatment clause. (374 words)

7) Inadequacy of Remedies Provided for in WTO Dispute

Developing countries have been very active in dispute resolution in WTO involving both the developed countries and other developing countries.  Since 1995, African countries have been complainants in more than a third of the disputes and respondents in approximately two-fifths of the cases. Developing countries face challenges arising from the process of dispute resolution in the WTO. The dispute process can take as long as two years and involves considerable legal processes. Smaller countries cannot participate in these processes to the end due to the scarcity of specialized personnel with a thorough understanding of the litigation intricacies. The experienced officers are often overwhelmed by the operationalization of WTO and have a challenge in attending to disputes. The WTO must revise the procedure for dispute resolution to ensure that developing countries fairly participate and obtain a reasonable verdict.

All WTO member states, apart from the United States and Mozambique, enjoy the same treatment. However, the legal technicalities of settling disputes are unfavorable for resource-strained developing countries. The settlement of conflicts involves great legalization, the precision of rules, and delegations to hear arguments. The processes are not only expensive and are an administrative challenge. Developed countries, on the other hand, are endowed with more resources and are advantaged in participating in litigation of disputes. The WTO must consider the circumstances of developing countries and simplify the dispute resolution process. They must craft new laws that require smaller legal capacity and hasten the process to avoid the accumulation of fees.

The history of conflict resolution shows that developing countries have received less favorable concessions compared to their developed country counterparts. Because of limited resources, developing countries do not participate in cases even as third parties and are thus unfamiliar with the legal processes. Under the current framework, rich countries are more likely to compel developing countries to concede, therefore subjecting them to unfair treatment. (320 words)

8) WTO Dispute Settlement

In a WTO dispute settlement process, a WTO member may challenge a defense by invoking article XX (b).  This article relates to the environmental responsibility of protecting dolphins, the consumption of cigarettes, and reducing risks to human life. Besides, WTO members must also mitigate risks to animal and plant life arising from a collection of waste materials. As a response, the member may prove that he has undertaken the necessary measures to protect life and the environment. The member may also show that he has accomplished steps for the conservation of exhaustible natural resources.

The WTO provides leeway for members to circumvent the law under article XX as long as the member demonstrates the connection between the stated law and the measures he has taken. Paragraph (b) concerns the protection of human and animal and plant life. The process involves the determination of whether an activity qualifies for the protection of human, animal, or plant life. This process has applied to the appeal body and touches contribution made regarding environmental measures to the policy. The company can prove that its impact on the environment is minimal compared to the higher participation it delivers through its processes. This appeal has succeeded previously for a tire retread company in Brazil, where the company proved that its manufacturing model helped reduce pollution by minimizing production volumes.

The member can also prove a relationship between the means and the end. In this regard, he can demonstrate that chosen for production or distribution reasonably relate to the end of environmental protection. The measures under article XX must derive from good faith and not as a disguise to restrict international trade. The report gives other members the right to invoke an exception while respecting the right of other members to engage in business under GATT. The panel could, therefore, evaluate the response based on the degree to which the member proves his action was necessary to protect human, plant, and animal rights and the extent to which his means justified the end of environmental protection. (343 words)

Works Cited

Davey, William J., and Alan O. Sykes. Legal Problems of International Economic Relations: Cases, Materials, and Text on the National and International Regulation of Transnational Economic Relations. Vol. 1. West Group, 1995.

Kagitani, Koichi, and Kozo Harimaya. “Safeguards and voluntary export restraints under the World Trade Organization: The case of Japan’s vegetable trade.” Japan and the World Economy 36 (2015): 29-41.

Sykes, Alan O. “The safeguards mess: A critique of WTO jurisprudence.” World Trade Review, 2.3 (2003): 261-295.

Vidigal, Geraldo. “The Return of Voluntary Export Restraints? How WTO Law Regulates (And Doesn’t Regulate) Bilateral Trade-Restrictive Agreements.” Journal of World Trade 53.2 (2019): 187-210.

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