International Law of Trade - Case Study Example

INTERNATIONAL TRADE LAW Name Course Instructor 12 October 2012 Introduction The case to be analyzed and discussed depicts three countries: Australia, Japan and Papua New Guinea. The borne of contention is the decision by Australia to impose tax on imports under the new enacted Australian Tariff Amendment Act 2010. Enactment of this Act results in dissatisfaction of Australia’s bilateral partners, where they view the imposition of tax and implementation of the policy to be contrary to the international law of trade, specifically as postulated by General Agreement on Tariffs and Trade (GATT). Therefore, the aim of the essay is to provide concise analysis and discussion of international law of trade as it applies to events that take place in the case scenario. Hence, the desire is to establish the position of Australia, Japan and Papua New Guinea in context of the matters at hand, as explained, analysed and solved within the frameworks of international trade laws. Question One: Possible legal issues raised in the scenario A number of legal issues arise and present in the case scenario of study that require investigation and analysis. First, the need to determine the ‘superiority’ of Australian Tariff Amendment Act 2010 as it applies to bilateral partners. The second legal issue is to determine the viability of assertion made by Japan that the two products being taxed separately by Australia are ‘like products’ hence require non-discriminatory tax regime. The aspect therefore, makes it necessary to investigate and determine how international trade law defines like products and unlike products, especially in the context of Japan and Australia. The fourth legal issue is to evaluate the legal viability of Japan’s legal battle, given that the purpose of Article III of GATT is not to prohibit contracting parties from differentiating between products for policy purposes unrelated to the production of domestic production. Another legal issue arises from the Australia’s activities with regard to enactment of a new importation policy, and the selective behaviour it exhibits when dealing with New Zealand and possibly Papua New Guinea. Therefore, the primary aim is to evaluate the applicability of this new import policy in regard to international trade laws. Statutory and judicial authorities relevant to deal with the issues The legal issues that are present in the current scenario involve countries in bilateral relationships. As a result, the nature and extent of the legal issues require international statutory and judicial authorities to arbitrate the issues between the countries. International commercial disputes that involve parties in an international perspective, that is, if the dispute depicts two or more countries, are handled by statutory and judicial authorities, established and supervised by World Trade Organization-WTO1. Subsequently, the World Trade Organization (WTO) has an established Dispute Settlement Body that oversees settlement of all international commercial disputes involving member countries of WTO2. WTO has established clear procedures that have to be followed by all concerned parties in resolving trade disputes at hand, and the Dispute Settlement Body has become critical in ensuring rules and regulations of WTO are enforced to ensure international trade is not disrupted. World Trade Organization has direct judicial authorities to intervene in the trade disputes between country members, but the Dispute Settlement Body has become like a ‘General Council’ of WTO that has been vested with powers to supervise mediation, discussion, or arbitration between countries in trade disputes3. The body operates based on set rules and regulations that member countries have consented to. Besides, the body conducts its activities within a specified timeline. Dispute Settlement Body is composed of all the members of WTO, who at same time have given the body mandate to establish dispute ‘settlement panels’4. The panels are composed of diverse experts who have the role to carry out investigations and recommend to the Dispute Settlement Body on the appropriate actions or solutions to undertake in any type of trade dispute at hand. But, even with the recommendations, the Dispute Settlement Body has the final power to decide whether to accept or reject the recommendations by the panels. In the case where the Dispute Settlement Body accepts the recommends, it become involved in key areas of monitoring, implementation and possesses powers to retaliate when a country party to the resolutions violates the agreements. Besides, the decision to have panels is normally inevitable when countries involved fail to find meaningful ground from the consultative opportunities they are granted5. In the initial stage, the involved parties are given opportunity to consult between themselves in order to arrive at amicable and consensual ground. It is only when this initiative fails that the parties are given chance to panels. Panels operate like tribunals, but unlike in the case of tribunals, panel members are selected through consultations and agreement between countries that are part to the dispute6. It is only in circumstances where the two countries do not agree that WTO become involved in helping identify and select panel members. In most cases panel members are 3-5, chosen from different countries, and have mandate to hear member country complains and examine diverse evidence to ascertain between the members who are actually on the wrong side or right side. When this has been done panel members establish a report with recommendations that is later forwarded to the Dispute Settlement Body7. The Dispute Settlement Body can only reject the panel’s report and recommendations through consensus. Question Two: Advice to Australia and Japan: Australia’s justify its action to impose the differentiated taxes on the cars based on the Article III of General Agreement on Tariffs and Trade 1994 (GATT). Specifically, Australia’s argument is that the differentiated taxes are not applied so as to afford protection to domestic production; where Australia believes that it has not violated any law or clause defined in Article 111 of GATT. On the other hand, Japan pursues its case based on argument that automobiles costing over $30,000 are like products to automobiles costing less. This argument is supported by Japan in such way that the country argues that automobiles have the same end use, basic physical characteristics, and tariff classification. Further, a mere difference in price between the imported and domestic products is not sufficient for those products to be considered unlike for the purposes of General Agreement on Tariffs and Trade (GATT). Given this two positions taken by the two countries in dispute, it is important to evaluate a number of recommendations by the Appellate Body on such similar cases in the previous periods. Appellate Body decisions in the past can be used to analyse this situation, specifically the Appellate decisions concerning Dominican Republic vs. Honduras (Import and Sale of Cigarettes)8, Philippines vs. European Union (Taxes on Distilled Spirits)9, and USA vs. Indonesia (Measures Affecting the Production and Sale of Clove Cigarettes)10. According to these trade dispute and issues, the accused were in most cases found to have violated specific violations of GATT 1994 and Agreement on Technical Barriers to Trade (ATBT)11. The borne issue in these disputes touched on the aspect of ‘like products’ and ‘less favourable treatment’. As a result, decisions and recommendations by the Appellate Bodies were that member countries (the accused) in the cases had in deed violated, ignored or underestimated certain provisions in these laws. In the case of Philippines vs. European Union (Taxes on Distilled Spirits), it was established that Philippines had in deed acted in inconsistent manner with regard to its obligations that are clearly prescribed under Article III: 2, first sentence and second sentence, of the GATT 199412. The Appellate Body concluded that: 1…“through its excise tax, the Philippines subjects imported distilled spirits made from raw materials other than those designated in its legislation to internal taxes in excess of those applied to like domestic spirits made from the designated raw materials, and is thus acting in a manner inconsistent with Article III:2, first sentence, of the GATT 1994”13. 2…“through its excise tax, the Philippines applies dissimilar internal taxes on domestic distilled spirits made from designated raw materials and to directly competitive or substitutable imported distilled spirits made from other raw materials in a manner so as to afford protection to the Philippine domestic production of distilled spirits and is thus acting in a manner inconsistent with Article III: 2, second sentence, of the GATT 1994”14. Therefore, based on this WTO, Appellate Body decision, together with Appellate’s recommendations regarding Dominican Republic vs. Honduras (Import and Sale of Cigarettes) and USA vs. Indonesia (Measures Affecting the Production and Sale of Clove Cigarettes), it can be concluded that it is not advisable for Australia to adopt such a tax measure and policy. On the other hand, in order to establish the grounds that Japan needs to establish in order to obtain possible remedies to the trade issues at hand, analysis of decisions and observations made by different Appellate Bodies are evaluated. Specifically, analysis is based on observations made by panel members in the Philippines vs. European Union (Taxes on Distilled Spirits) case. In the case, Philippines vs. European Union (Taxes on Distilled Spirits), panel members noted that in order to establish whether a member has acted inconsistently with regard to the first sentence of Article III: 2, of the GATT 1994, two steps need to be followed or accomplished: whether imported and domestic products can be regarded to be like products, and whether the imported products are discriminately taxed higher than the domestic products15. Therefore, if answers to these two conditions are ‘yes’ then a violation of Article III: 2, first sentence, of GATT 1994, is said to have occurred. The WTO settlement bodies rules of guidance postulate that in determining ‘like products’, under Article III: 2, first sentence; determination has to be conducted on a case-by-case basis, based on examination of key and relevant factors or characteristics16. The factors to incorporate include the primary properties of the products in dispute, the nature and quality of products, the end use of the products in the specific given market, consumers tastes and habits in the specific given countries, and the tariff classification in specific country17. Therefore, these are issues Japan needs to analyze in order to establish the ground to obtain possible remedies. Question Three: Advise to Hi Tech: Policy and legal consideration for export in Australia In order to export to the Australian, countries involved have an obligation to understand the Australian import and export laws and policies. In this case, it is important for countries to understand the Australian Quarantine Act of 190818. The Quarantine Act 1908, gives the Director of Animal and Plant Quarantine powers to initiate measures in terms of policy or legal measures that guide importation activities in the country. As a result, a country like Papua New Guinea has to understand and analyze all the existing Australian regulations on all fresh fruits and vegetables. Apart from this, Papua New Guinea can opt to use the non-discrimination principles under international trade law (ITL) to argue its case on the perceived discrimination arising from the actions the Director of Animal and Plant Quarantine of Australia has adopted in deciding to establish a new policy for the importation of bananas from overseas. When this route is taken by Papua New Guinea, then the country can base its argument guided by World Trade Organisation principles as found in the GATT 1994, specifically the sanitary and phytosanitary (SPS) measures, embodied in the GATT SPS Agreement19. At the same time, Papua New Guinea can enhance its case-argument by incorporating international trade laws contained in the GATT 1994 Agreement on Import Licensing Procedures, which regulate how trade licenses are administered among member countries20. Consultation is the right way for Hi Tech to deal with Australia, but given that Hi Tech does not have prior experience in trading with Australia, numerous challenges may be encountered in this new form of trade relationship if right steps are not taken and member partners do not identify their rights and scope of relationship. As a result, it is necessary and more fruitful for Hi Tech (Papua New Guinea) to engage WTO in invoking the non-discrimination principles of ITL that Australia has to observe and respect. In involving the WTO in this matter, Hi Tech needs to ensure that WTO establishes a dispute settlement panel that should be mandated to examine the Australian quarantine measures. In doing so, the panel should be able to interpret Article XI of the GATT 1994 regarding the elimination of quantitative barriers. At the same time, Hi Tech needs to seek the panel’s interpretation of the provisions of the two GATT Agreements: the SPS Agreement and the Agreement on Import Licensing. More importantly, Hi Tech should seek the WTO panel to interpret sections and clauses in the SPS Agreement such as Article 5, Article 2.2, Article 2.3, Article 5.5, and Article 621. These Articles dwell on international standards that Australia and Papua New Guinea need to adhere to, principles of nondiscrimination, and regional conditions that affect both countries in their bilateral relationship. Therefore, Hi Tech should be in a position to demand that the WTO panel establish whether policy initiative adopted by Australia meet the requirements of a WTO-consistent SPS measures. Other issues that may arise in evaluating legal issues A number of other issues are likely to emerge in the evaluation and determination of legal issues that arise in the Australia’s obligation with regard to importing bananas under international trade law. For instance, Australia might appeal some of the recommendations and decisions of the WTO panel investigating the country’s level or extent it has gone in violating the relevant Articles in the GATT 1994 and SPS Agreement. Australia’s position on the recommendations regarding its inconsistency to the phytosanitary measures is likely to be informed by the provisions in the Article 5(2) and 5(3)22.The provisions advise member countries to develop and implement phytosanitary measures it deems necessary based on appropriate assessment procedures of the impact of imports and the economic consequences of such imports on the country. Although the SPS Agreement goes ahead to advise the member countries to initiate and implement measures that does not appear to discriminate other members, the provision remains largely unclear with regard to what might actually be termed an act of discrimination with regard to what each country decides to develop and implement as measures. At the same time, although the provisions are largely reasonable it might become challenging in determining the level of violation Australia has done in relation to its phytosanitary measures due to what can be termed as ‘scientific uncertainty’ in terms of the scientific assessment that a country has to undertake before implementing its phytosanitary measures23. Therefore, although the Appellate Body, and to extent WTO is likely to establish that Australia has violated specific provisions of the SPS 24Agreement, it is clear that Australia may bring up a strong appeal case based on some previous observations made by Appellate Bodies in a number of disputes. One notable case in this category is the Japan vs. USA (Measures Affecting Agricultural Products), the Appellate Body ruled that: 1…. “Pursuant to the first sentence of Article 5.7, a member may provisionally adopt an SPS measure if this measure is imposed in respect of a situation where ‘relevant scientific information is insufficient’, and adopted ‘on the basis of available pertinent information’ by a member”25. 2…. “Pursuant to the sentence of Article 5.7, such a provisional measure may not be mentioned unless the member who adopted the measure ‘seek[s] the…measure accordingly within a reasonable period of time”26. Conclusion The trade actions that Australia has initiated in terms of dealing with Japan, New Zealand and Papua New Guinea, clearly show that international trade laws have to be invoked in finding amicable solutions that give both parties equal treatment and fairness. Nevertheless, before the matter can proceed to WTO panels, Australia and disputing countries are given an opportunity to consult and reach an agreement that is satisfactory to both of them. It is only when this leeway elapses that international trade body, WTO, is likely to get involved. As established in the paper, Dispute Settlement Body is the one likely to handle the issues raised by member countries by establishing a panel of experts to provide recommendations on the appropriate way forward for the countries in dispute. In providing recommendations, the panel of experts relies most on international laws: GATT 1994, SPS Agreement, and Agreement on Technical Barriers to Trade (ATBT). Therefore, it is paramount for the involved parties to have adequate information regarding how their issues can be addressed in the international trade laws, especially in circumstances consultations between or among the countries fail to bear tangible fruits. Bibliography Australian Legal Information Institute. Commonwealth Consolidated Acts: Quarantine Act 1908. 2012. World Trade Organization. Sanitary and Phytosanitary Measures: Understanding the WTO Agreement on Sanitary and Phytosanitary Measures. 1998. World Trade Organization. Appellate decisions concerning Dominican Republic vs. Honduras (Import and Sale of Cigarettes). 2005. World Trade Organization. Philippines vs. European Union (Taxes on Distilled Spirits). 2011. World Trade Organization. Dispute Settlement. 2012. World Trade Organization. Understanding the WTO: Settling Disputes. 2012. World Trade Organization. USA vs. Indonesia (Measures Affecting the Production and Sale of Clove Cigarettes). 2012. World Trade Organization. World Trade Organization Legal Texts. 2012. World Trade Organization. Agreement on Import Licensing Procedures. 2012. World Trade Organization. The WTO Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement). 2012. Read More