Practical Application of GATT - Essay Example

MEMORANDUM Name: Course: Tutor: Date: MEMORANDUM DEPARTMENT OF TRADE, REPUBLIC OF PARADISO Memo to Minister from the Legal Counsel The Ministry of Trade’s efforts to elevate Paradiso’s status through various schemes and initiatives is highly commendable. Paradiso, just like other countries affiliated to the World Trade Organisation joined the body with an aim to address challenges arising from its trading activities with other countries. It is therefore important as it is necessary that Paradiso implements its proposed development strategies in conformity with the General Agreements of Trade and Tariffs (GATT) and the World Trade Agreements. However, the GATT and the World Trade Agreements are complex and lengthy as they are legal texts that encompass a broad range of activities. It is convenient that all the parties involved in planning and implementation avoid a situation where the proposed development strategies are implemented and subsequently contradict the law. It is therefore important that the trading system principles related to the aforementioned agreements are understood and a comparison be made to ascertain whether the proposed development strategies contravene the agreements. These principles are the basis of the multilateral trading system. The principles are identified thus (a) Trading with each other without discrimination; (b) Free trade; (c) Forecasting through binding agreements and transparency; (d) Enhancing fair competition; and (e) Promoting economic reform and development.1 Principles on Trade without Discrimination There are two key areas of interest within trade without discrimination: The nation most favoured i.e equal treatment of other people; and national treatment, that is equal treatment of locals and foreigners. Based on the first segment, that is, the nation most favoured, the agreements state that a member country cannot discriminate any of its trading partners.2 For instance, if a country offers special favour to one of its trading partners, such as reduction of customs duty rate on any of their products, the same applies to all countries affiliated to the World Trade Organisation. This principle is referred to as the most favoured nation treatment. It is crucial to note that this principle is the first article with regards to the GATT and the World Trade Agreements which deal with trade in goods. Even though the principle is treated a bit differently in each of the agreements, the agreements address all the key areas of trade covered by the World Trade Organisation. This principle presents a challenge to Paradiso’s policy on discrimination of computer imports from Korea. This is evident in the proposed policy statement that no import license should be offered for computers originating from that country. Paradiso being a member of the World Trade Organisation is obliged to conform to the institution’s agreements.3 As such, the country has to comply with the institution’s basic principle against discrimination of one member country by another member country. According to the principle highlighted above, no country is allowed to offer special favours to another member country and overlook another member country4, a move that is clear on the proposed policy discriminating against Korea and issuing import licenses to other countries. To this end, it is necessary that Paradiso re-aligns this proposed policy so as to conform with the World Trade Organisation’s principle in this regard. Discrimination against computer products from Korea by the Paradiso government could also be legitimate subsequent to carrying out a pre-shipment inspection to ascertain the products’ quality. This is a measure applied by developing countries in an effort to safeguard its national interests. This implies that Paradiso can base its discrimination against Korean products on negative feedback from the pre-shipment inspection concerning commodities to be imported. The Pre-shipment Inspection Agreement acknowledges that the GATT principles and obligations are applicable to the pre-shipment inspection agency’s activities mandated by the government.5 Import Licensing Systems Import licensing systems are subject to the World Trade Organisation disciplines. The Agreement on Procedures of Import Licensing states that import licensing ought to be simple, open, and predictable.6 For instance, the agreement requires that member nations should publish adequate information for traders to ascertain why and how the licenses are issued. It also defines the procedures to be followed by countries seeking to notify the World Trade Organisation when they change the existing import licensing procedures or introduce new procedures. The agreement provides the outline to be followed by member countries in evaluating licence applications. It is also worth mentioning that the ministry’s strategy on introducing an import licensing scheme for companies importing computers should be done in conformity with the agreements espoused from the World Trade Organisation agreements. Whatever strategic decision that the ministry seeks to implement should not override nor contravene these agreements. Exceptions of the Most Favoured Nation Principle It is worth noting that the most favoured nation principle allows a few exceptions. For instance, member nations can set up a free trade agreement only applicable to products traded amongst the group, subsequently discriminating against goods from those nations outside the group. Alternatively, developing nations can be granted special access to their markets. As well, a nation can impose barriers against products deemed to be unfairly traded from certain nations. On services, countries are authorised, under special circumstances, to discriminate member nations. It is also of importance to point out that these exceptions are only authorised under stringent conditions.7 This implies that Paradiso can defend its proposed policy discriminating against Korea on grounds of unfair trade. This is based on the fact that Paradiso deems computer imports from Korea as substandard. Therefore, if the government opposes the move to do away with its proposed policy on discriminating against computer imports from Korea, there is a chance that it might successfully defend its implementation of the proposed policy on the basis of unfair trade. Therefore, in a broad sense, the most favoured nation principle implies that each time a nation lowers one or some of its barriers to trade or it opens up a market. This is done on account of other member nations as well.8 That is, the move is applicable to all its trading partners irrespective of whether they are strong, weak, rich or poor. The second part under trading with no discrimination is national treatment, i.e. equal treatment of locals and foreigners. Both local and imported products should be given equal treatment in the market. The same treatment should be applied on domestic and foreign services: local and foreign patent marks, trademarks, and copyrights. The national treatment principle is also present in the World Trade Organisation Agreements and the GATT. Even though the execution of this principle is applied somewhat differently in both agreements, the principle is still effective as both agreements address the key areas of trade covered by the World Trade Organisation.9 National treatment is only applicable after the intellectual property relating to a specific service or product has entered the market.10 Therefore, it is not a contravention of the national treatment policy to charge customs duty on imports even if goods produced locally are not charged the same tax. Emergency Duty Articles, 10, 13, and 15 of the GATT establish disciplines on regulations, particularly on rules concerning emergency safeguard measures. These are temporary restrictions on market access to address market disruption. Safeguard measures offer opportunity to member countries to raise tariffs above the agreed rate on another member country. However, in an effort not to contravene the Most Favoured Nation Principle some form of balance is created. The member country that implements the safeguard measure on another country must compensate this move on another area or several areas until some form of balance is achieved. The balance is attained through lowering tariffs in other areas for those countries that the safeguard measure has been implemented.11 Thus the proposed policy on introducing the emergency duty by Pardiso on motorcycle manufacturers specifically Vietnam and Taiwan is within the legal framework. However, the government is obligated to ascertain other areas in which it will lower tariffs on these countries so as to achieve symmetry and avert contravention of Most Favoured Nation Principle. Tax Reforms Tax reforms and tariffs are crucial in addressing the challenges of high fiscal deficit, a common feature of the Paradiso Government. The government’s move to impose more tax on imports compared to local commodities will be effective in ensuring that the government’s objective to boost the welfare of local traders is achieved. Incidentally, the government’s proposed policy on introducing excise on all spirits and petroleum products, and not subjecting wine and natural gas to excise duty will also increase the local traders’ welfare. From a legal aspect these proposed policies are legitimate considering the fact they are not only aimed at increasing the welfare of local traders but they are also aimed at addressing the country’s challenges of the deteriorating balance of payments. This does not contravene any agreement of the World Trade Organisation or the GATT. This move should be applied with predictability and stability of the government’s trade procedures in mind to foster cordial trade relations with its trading partners.12 Most World Trade Organisation agreements require member countries to disclose contents of their policies and practices to the public within the respective countries or by notifying the World Trade Organisation. To facilitate transparency, there is a trade policy review mechanism that provides constant a watch of national trade policies.13 Hence, with regards to the proposed tax reforms, Paradiso must notify the World Trade Organisation the motive behind this proposal so as to mitigate any disputes that might arise from its trading partners on the move that some might deem discriminatory. Human Health According to Article 20 of the GATT, member countries are allowed to act on trade with an aim to protect human health. The application of this act is only permissible on condition that it is not used to unfairly discriminate another member country under the disguise of protection. There are two particular World Trade Organisation agreements that address the issue of food safety and product standards.14 These agreements provide guidance on how to apply the article without being discriminatory under the disguise of protection. The Government of Paradiso’s policy to ban oranges and frozen concentrated orange juice from North and South America holds solid ground. This follows confirmed reports revealing the presence of red-necked orange worm in an orange grove in Pasadena in the Southern Californian region of the USA. However, this must be done in conformity with the World Trade Organisation agreements. The probability of this ban being legally challenged if Paradiso conforms to the World Trade Organisation agreements is less than if it does so according to its own standards. Groups and Alliances The move by the World Trade Organisation agreements countries in forming groups and alliances is increasingly becoming popular. In several cases countries express their opinion jointly through a negotiating team or a single spokesman. The rising number of coalitions encompassing developing countries depicts the wider spread of bargaining power in the World Trade Organisation. Incidentally, it is deemed as a measure by small or developing countries to amplify their bargaining power in negotiating with their larger partners of trade to ensure that when consultations are held in smaller groups, they are represented. Sometimes these groups accelerate consensus on various issues after they adopt common positions on the same. There are times when formation of these groups is specifically aimed at breaking deadlocks or compromising instead of sticking to the same position.15 There are no hard and fast rules on the impact of these groups in the World Trade Organisation. This means that the ministry’s proposed policy on forming alliances with Bismuth and Bakinsoda in an effort to abolish tariffs on trade between them under a regional customs union is well within the legal context. A typical example is that of the European Union - the most comprehensive and largest group in the World Trade Organisation. The European Union is a customs union with a common external trade tariff and policy.16 This is reflected on Paradiso’s move to develop a common external tariff with Bismuth and Bakinsoda for goods imported from outside the customs union. Foreign Direct Investment Most developing countries actively desire to enhance foreign direct investment through domestic reforms. It is now broadly acknowledged that foreign direct investment under the right conditions can be a significant source of private capital of developing countries. However, to realise this potential needs more than mere liberalisation and protecting the investor. Successful foreign direct investment strategies require incorporation of effective institutional and regulatory provisions in host countries.17 It is on this basis that the ministry’s proposed policy on foreign direct investment be effective in terms of the provisions it creates to attain the benefits that come along with foreign direct investment. Hence the proposed policy by the Government of Paradiso that foreign investment must be on a partnership basis with the Paradisian people is legitimate and appropriate. Free Trade The World Trade Organisation is sometimes referred to as a free trade institution. Even though this bears some accuracy, it is not entirely true. The system does authorise and incorporates tariffs, and other types of protection in special circumstances. From a more accurate perspective, it is a system of rules committed to open, fair, and unperturbed competition.18 The non discrimination rules, that is, national treatment and the most favoured nation principles are designed to ensure fair trade conditions. The fact that the World Trade Organisation principles are designed to ensure fair trade conditions is also evident on dumping and subsidies.19 The issues are complicated and the rules aim at determining what is fair or not, and how countries can respond, particularly by imposing extra import duties aimed at compensating for any damages that might have been brought about by unfair trade practices. More than 75 percent of the World Trade Organisation members are developing nations and nations in a process of transition to market economies. In the first seven and half years of the Uruguay Rounds, more than sixty countries implemented autonomous programmes relating to trade liberalisation. At the same period, transition economies and developing nations were far much influential and active in the negotiations of the Uruguay rounds than in the previous rounds.20 . At the closing stages of the Uruguay Round, developing nations were prepared to assume most of the obligations required from developing nations. However, the agreements offered these countries transition periods so as to adapt to the more unique and perhaps the complicated World Trade Organisation provisions - specifically the least developed countries. A ministerial decision espoused at the end of the Round states that countries deemed as better off ought to amplify market access commitments on exported products by the least developed nations, with attention paid to increasing their technical assistance.21 In the recent past, developed countries have slowly begun to allow quota free and duty free imports for virtually every product from least developed countries. Paradiso should aim at taking advantage of the loops available within the legal framework of the World Trade Organisation in an effort to boost the country’s trade from a multilateral trade perspective. Signed: Legal Counsel Monday 15 March 2011. References World Trade Organisation, Understanding the World Trade Organisation, World Trade Organisation, Geneva Switzerland, 2008. Evans, G 2000. Lawmaking under the trade constitution: A study in legislating by the World Trade Organization, Kluwer Law International Publishers, The Hague, Netherlands. Kerr, W & Gaisford J, Handbook on International Trade Policy, Edward Elgar Publishing. Massachusetts, 2008. Palma, M & Tsamenyi, M, Promoting Sustainable Fisheries: The International Legal and Policy Framework to Combat Illegal, Unreported and Unregulated Fishing, Koninklijke Brill. Leiden, Netherlands, 2010, p. 84. Liu, C. Maritime Transport Services in the Law of the Sea and the World Trade Organisation. Peter Lang. Bern Switzerland, 2009. Parameswaran, B, The liberalization of maritime transport services: with special reference to the WTO/GATS framework, Springer Publishers. Hamburg, Germany, 2004. Organisation for Economic Co-operation and Development, OECD Trade Policy Studies Trading Up: Economic Perspectives on Development Issues in the Multilateral Trading System. OECD Publishing, 2006, pp. 114-118. Bossche, P, The law and policy of the World Trade Organization: text, cases and materials. Cambridge University Press, New York, 2005. Footer, M, An institutional and normative analysis of the World Trade Organisation, Martinus Nijhoff Publishers. Leiden, Netherlands, 2006, pp. 166-167. Telo, M, The European Union and global governance, Taylor & Francis, New York, 2006. Sally, R, New frontiers in free trade: globalization's future and Asia's rising role, Cato Institute, Massachusetts, 2008. Read More