Memorandum: Practical Application of GATT - Assignment Example

Assignment 2 Memorandum: Practical Application of GATT Name Course Affiliation Professor Date MINISTRY OF EXTERNAL TRADE MEMORANDUM To: Minister for External Trade From: Legal Counsel Paradiso has been noted to be one of the most encouraging developing countries in terms of economic development and implementation of proper governance and leadership. Despite this fact, the rate of growth of the economy has not been as fast and as steady as we would have liked it to be. This has thus necessitated a change. A change can be made through the import - export regulations and local trade in the country. As a result of this, the minister of external trade has come up with proposed courses of action to help change the economic situation of Paradiso as a country and help it develop in general. Paradiso has been a member of World Trade Organization as from the year 2001. The World Trade Organization has been playing a critical role in the supervision and liberalization of international trade1. This is through the introduction of laws and tariffs that govern trade2. This in turn makes Paradiso liable to the rules and regulations of trade that must be abided to by all World Trade Organization member states. As the legal counsel to the minister of external trade in Paradiso, I received an advance copy of the proposed measures to develop trade and the general economy of Paradiso from the minister of external trade. The memorandum from the minister was with a request for the analysis of the proposed actions to ensure that they comply with two important institutions that is: General Agreement on Tariffs and Trade (GATT) and secondly the World Trade Organization. This memorandum takes into consideration all the proposed actions critically. Whether or not the actions comply with the GATT and WTO rules of trade is analysed and recommendations on possible amendments made. 1. Proposal to encourage foreign investment and development of the computer industry through introduction of import licence schemes and banning of imports from Korea. The primary objective of this action is to see that there is an establishment a concrete computer industry in Paradiso. However, there is stiff competition from other countries such as Korea. The computers from Korea are of good quality and cheaper compared to those that are manufactured in Paradiso. The introduction of import licensing scheme is so far the best option to control the activities involving the importation of computers. Not only will the government of Paradiso be able to know the number of computers that are being imported but also it will be in a position to know the quality and thus help it to avoid counterfeit products from reaching our markets. Import licensing will also help reduce cases of dumping in the country. The use of the import licensing system is also in line with GATT and WTO regulations only that the restriction is under special circumstances. This will be imposing a quota and creating a no tariff barrier of quotas, thus the creation of a non-tariff barrier in the form of a quantitative restriction. This is contained in Article XI of GATT3 which makes it very clear that such restrictions are not allowed, except only in special circumstances. On the other hand, banning imports from Korea is not in correspondence with the GATT and WTO regulations. According to the principles of the trading system that are upheld by WTO, there should be absolutely no discrimination in trade by any of the member states4. As such, imposing trade restrictions to Korea for no reason that is valid to the WTO is against the regulations set. All countries in the World Trade Organization body should be given a fair share in the trade whatsoever. According to the special circumstances that come with the exceptions outlined in Article XI (2) and Article XII, the situation in which we are in presently does not validate these import restrictions. It is true that in Paradiso we are facing deteriorating balance of payments and there is great need for us to develop import replacement industries and the use of the computer industry will serve this purpose. However, Article XII does not allow quantitative restrictions for the purposes of developing import replacement industries Recommended amendment It is evident that the growth and development of the computer industry is of fundamental importance in the economy of Paradiso. It cannot be stated otherwise. This therefore necessitates that the plan to develop this industry should go on as planned without alterations or disturbances that may make it stall and thus not achieve its desirable objectives. The government can despite all this follow keenly the imports of computers into the country without imposing quantity restrictions for the trading community. The aspect of demand and supply will be left to control the market with minimal government involvement. While Article XII5 does not allow quantitative restrictions so as to encourage the development of import replacement industries, it does recognize that restrictions can be put in place to help protect the balance of payments from the external forces that may affect it negatively hence cause an unfavourable balance of payment. On the other hand, the Article also states expressly that the measures put in place “must not exceed those necessary…to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves”…or to restore severely depleted reserves. Import duties on computers can as a result be raised (to an acceptable level by the World Trade Organization) such that the cost of purchasing these gadgets within Paradiso is more affordable compared to that of imports. The quality of the computers that will be manufactured locally must however be comparable to the international standards and fair price so as not to develop the computer industry at the expense of the consumers. This is because the consumers’ welfare must also be taken into consideration. 2. Proposal to scrutinize all foreign direct investments through the introduction of regulation to govern investment by foreigners Direct foreign investments play a rather critical role in the development of Paradiso’s economy. As such it should and must be encouraged by the ministry of foreign trade. Despite all this, the country must ensure that the foreign investors do not fleece the country off its natural and human resources. According to the principles of trade in the World Trade Organization, there should be reciprocity among the member states. As such, the investors have a responsibility to ensure that their investments will benefit Paradiso. The element of partnerships in these investments with Paradisian people will ensure that the relationship is symbiotic and everyone is giving and receiving. The measures will also apply across the board and not imposed on specific foreign investors. It is within the best interest of the country for the investors to categorically state their intentions with Paradiso. In this action plan there is nothing which is against the regulations of GATT and WTO. Recommended amendment In order to be absolutely sure of the benefit levels that Paradiso and the investors will b e getting from these trade agreements, there will be stated percentages of the partnership. This will be in form of both capital investment and labour. The minimum and the maximum investments by foreigners must also be stipulated for clear cut lines on trade. 3. Proposal to establishment better trade relations with European countries & the United States of American and eliminating poor quality white goods from China through raising tariffs in Asian countries and reduction of tariffs in Europe and the United states. This course of action (the imposition of discriminatory tariffs) is also against the GATT and WTO rules and regulations and will thus breach two of the fundamental principles of GATT which revolve around tariffs and favouring of states. One of the principles in GATT and WTO is that a country is bound by its tariff bindings. As such, a country cannot raise tariffs above its bound levels. Paradiso has to abide by these rules. There are however special circumstances that can allow this for instance following an anti-dumping finding. If the tariffs on imported white goods from China Korea and Japan are increased, it would be a breach of the undertakings under Article II6. This is because the tariffs were not previously set well below the current binding levels. Secondly, reducing the tariffs for white goods from Europe and USA would be a clear breach of the Most-Favoured Nation rule in Article I and would amount to unacceptable discrimination against some of its GATT partners7. As much as all the member states of the WTO must be treated fairly, there is provision of favours to some states. However, this should be clearly stipulated and the countries must treat each other favourable. The most favoured countries are those in the developing world. The most favoured nation clause allows for better relationships between states but not at the expense of other partners in the World Trade Organization. As such, this option will be a breach of the regulations by GATT and WTO. Recommended amendment It is clear that Paradiso have an intention to trade more with United States of America and countries from Europe. As such, these intentions can be made to these countries without necessarily trumping on the feet of the Chinese and other Asian counterparts. The import tariffs of white goods from United States and countries in Europe can be reduced considerably in the option of Most Favoured Nation Article. Also, the import tariffs of white goods from Asian countries such as China, Japan and Korea must not be raised. To handle the aspect of cheap and substandard quality white goods from China, the government of Paradiso should impose a total ban on these products. There should be a quality assurance body that satisfies all the imported goods from all the countries are of international standards. It is also worth noting that it is easier for Paradiso to trade with the Asian countries such as China and Japan than European countries and the United States of America. This is due to the reason that Asian countries have mass market for products that can be exported from Paradiso. However, the European countries and America have more opportunities in terms of funding which can help develop Paradiso faster as compared to the funding opportunities in the Asian countries. This can therefore give an implication that the decision whether to completely disregard the eastern world in favour of the western world should and must be well thought out to avoid negative consequences for the economy of Paradiso as a country. 4. Proposal to improve the competitiveness of the motorcycle manufacturing industry through the introduction of emergency duty to imports from competing countries such as Vietnam and Taiwan. It is a well known fact that the imports of motorcycles in Paradiso from Taiwan and Vietnam has been on the constant increase, a clear indication that product dumping has been taking place over the years. However, the course of action of introducing emergency duty will be a breach of the GATT and WTO agreements. While Article VI8 clearly recognizes that dumping of goods is an unfair trading practice and is unethical9 also, it is clear from the Agreement on Implementation of Article VI that action can only be taken against dumped goods following an inquiry carried out in accordance with the procedures in the Agreement. As such, there is a clear guideline for the determination of the dumping allegations through an inquiry. This inquiry must clearly demonstrate that dumping has occurred. This will be proven by demonstrating that the domestic industry has suffered or is threatened with material injury and that the dumping has caused the material injury or given rise to the threat of it. Without such an inquiry, any dumping duties imposed (like the proposed ones) would be unlawful and the Paradiso would be likely to face a challenge to the new legislation through the dispute resolution process. Recommended amendments The government of Paradiso should first carry out an inquiry to prove that the dumping of motorbike products from countries like Taiwan and Vietnam has actually taken place. If the dumping allegations are proven to be true, the dumping duties can then be implemented. However, the dumping duties must be no higher than the dumping margin and should be set at such a level that the injury is no longer being caused or threatened. This according to GATT’s Article IV10 on dumping of products. As much as this can be applied, it will not solve much of the problem. In order for the competitiveness in the motorcycle industry to be enhanced, the local manufacturers will have to greatly improve on their quality and price. The government can also raise the import duties of the motorbikes to ensure that the local manufacturers get a competitive advantage over the imports. The local markets should also be sensitized on a controlled importation of motorbikes and the use of locally based solutions. 5. Proposal to protect the all important citrus industry through introduction of domestic taxation (to protect from domestic market) and banning of orange fruit and frozen concentrated orange juice from North and South America for five years (to protect the industry from the red necked orange worm). This measure will be unlawful if implemented. According to the Domestic Treatment Rule in Article III from paragraph 211, discriminatory domestic taxation of this kind is simply not acceptable. The government of Paradiso has a critical role to play in order to make the lives of its citizens better. Imposing such taxations will be infringing on the rights of the people of Paradiso to a free and fair taxation system. It is very clear that the citrus industry plays an important role in the growth and development of the economy of Paradiso and this must be protected. However, the rights of the domestic market must not be infringed upon in the process. The sudden emergence of the red necked worms in Pasadena South California is a threat to Paradiso’s citrus market. The ban on imports should however be made such that it suits the circumstances as this is an extreme measure that can be taken to be an unfair treatment in trade by the World Trade organization. Recommended amendment The action to be taken requires that the local market for citrus should be developed. In order to protect the market in the country for citrus fruits, the government of Paradiso needs to increase the production to take into consideration the needs for both the domestic market and the export market. As such, there will be no unfair and discriminatory taxation systems an aspect which the World Trade Organization has been fighting against12. The ban on imports of oranges and frozen concentrated orange juice from north and South America must also be carefully looked into. As much as the red necked orange worms pose a grave threat to the citrus industry which is an important part of the economy of Paradiso, the ban should not be for five years but until when the situation is resolved and normalcy returns. The intention by the Paradiso government to trade with the European nations and America must be maintained. Not stipulating the exact number of years will give the impression of good will to trade as compared to the stated five years. Conclusion In a nut shell, the government of Paradiso must develop the trade relationships with the other countries in the World Trade Organization. As such, all the actions that are taken that pertain to international trade must be in line with these rules set out by the GATT and WTO. This is not just for the benefit of the WTO but also for Paradiso. The entire named proposal by the minister is in the interest of Paradiso as a country. For continuous progress and development to be assured, Paradiso must also have something to offer to the world as they received. Fostered relationships with the western world should be encouraged while trade with the countries from the east maintained. Paradiso is free as a country to trade with any other nation as long as the relationship is beneficial to the development. However since it is a member of the international body, that is, the WTO, adjustments have to be made to take into consideration the interest of the other member states so as to ensure fairness13 and mutualism14 in all aspect without fear or favour. The liberalization and super vision of the international market by WTO15 will ensure protection of Paradiso from more economically powerful countries in the first world which may try to take advantage of our developing nation. As such, the minister can look at the analysis of the adherence of the proposal and the recommended amendments for further considerations. Signed: Legal Counsel for Ministry for External Trade Read More