WTO Disputes Involving Chile - Assignment Example

WTO DISPUTES INVOLVING CHILE By Name Course Instructor Institution Location Date WTO Disputes Involving Chile The World Trade Organization (WTO) has formulated the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU) to govern dispute settlement procedures. As such, the DSU is applied uniformly (with certain exceptions) to contentions that emerge within the framework of all WTO agreements. In essence, the primary function of the WTO dispute settlement mechanism is to resolve differences regarding the interpretation of current agreements. Another function is to dissuade member states from contravening multilateral trade rules through their actions (WTO 2006). Therefore, the WTO dispute resolution mechanism has become an integral part of a well-functioning and sound multilateral trade system. Member states are increasingly using the WTO litigation process to challenge policies that considered detrimental to trade relations between and among countries. WTO mandates all its members to respect trade rules and policies in the interest of a more reliable and safer multilateral trade system (WTO 2006). Thus, member states have agreed unanimously they will resolve potential violations through the WTO dispute settlement mechanisms instead of pursuing unilateral measures. The WTO policies and regulations demand its members to comply with the agreed procedures, in addition to abiding by the decisions made regarding trade dispute settlement (Schiff 2002). The submission of a complaint by member states before the WTO dispute settlement mechanism has become an efficient technique for applying pressure on other states to reform their trade policies. Such pressure is more effective where there are violations involved, but states can also lodge non-violation complaints (WTO 2006). Therefore, the legal instruments of the WTO dispute settlement mechanism initiate complaints that culminate into litigation. Consequently, these actions employ political decisions to pursue trade objectives; hence, heightening the link between political and legal aspects of the dispute resolution processes (Lamy 2006). WTO Trade Disputes Involving Chile Chile may be considered a minor actor in international trade, although its export sector accounts for approximately 50% of its GDP. Accordingly, Chile has formulated a trade policy in an effort to solve potential trade disagreements with its partners quickly, efficient and inexpensively (Holland et al. 2003). Nevertheless, this policy also serves as a dissuasive mechanism that prevents the adoption of measures that might collude with internationally agreed upon dispute resolution mechanisms. Chile is a member state to the WTO dispute settlement mechanism and has been involved in WTO trade disputes. Chile has been both a complainant and respondent in ten WTO trade disputes. This number represents close to three percent of all WTO disputes by DS numbers (WTO 2006). The EU-Chile Swordfish Case The EU-Chile dispute has been a longstanding case (about ten years) involving Chile (respondent) and the European Communities (complainant). The dispute arose when Chilean law prohibited the transit and unloading of swordfish catches that contravene Chilean conservation rules. However, the European Communities (EC) responded to this prohibition through the initiation of a WTO dispute settlement against the country in April 2000. The EC claimed that Chile had violated Article V, paragraphs three to four of GATT 1994, which guarantees freedom of movement. In addition, the EC also quoted Article XI paragraph one of GATT 1994, which prohibits non-tariff import barriers against member states (WTO 2006). The consultation between the two parties failed and in consequence, the EC requested the formation of a WTO panel. The panel was granted in December 2000. However, Chile questioned the competence of WTO to resolve this case. In effect, Chile asserted the status of lex specialis based on its substantive and procedural rules pursuant to the law of the sea. Chile would then initiate proceedings against the EC through the institution of the arbitral tribunal, which was in accordance with Article 287 paragraph three of the United Nations Convention on the Law of the Sea (UNCLOS). The parties eventually preferred the International Tribunal for the Law of the Sea to handle the dispute through the creation of a special chamber instead of the arbitral tribunal (WTO 2006). Chile’s main concern was that overharvesting of the swordfish on the high seas adjacent to its exclusive economic zone (EEZ) would diminish the stock of swordfish, which is an endangered species. Thus, had decided to impose a ban on fishing swordfish inside and outside the 200-mile around the EEZ. Accordingly, the country prohibited transit and unloading of swordfish from Chilean and foreign vessels in its ports. However, the conflicting parties agreed to withdraw the case on 28 May 2010. This dispute highlights the contestations that often arise between economic interests and environmental conservation. The involvement of parallel UNCLOS and WTO proceedings is an exemplar of this problem (Lamy 2006). Notwithstanding these contestations, the parties should have simply applied Article XX of the GATT 1994 to resolve this case. In essence, this legislative instrument states “... no Agreement shall be construed to prevent the adoption or enforcement -by any contracting party- of measures necessary to protect human, animal or plant life or health” (WTO 2006). Within the context of this provision, the commissioner to the WTO dispute resolution panel viewed Chile’s prohibition as aiming to regulate exploitation of sea resources in the South Pacific. Hence, Chile’s actions were construed to imply “reduction of threat to animal life.” The determination of this case would have set precedence for other states to choose the most appropriate procedures (whether the UNCLOS tribunal or the WTO panel). Such determination is especially crucial when economic issues clash with conservation efforts in protected zones (Axelrod 2014; Lamy 2006). Chile-Price Band System Argentina (complainant) brought this dispute to the World Trade Organization (WTO) following Chile’s (respondent) tariff reclassification regarding its price band system (PBS) in 1999. Consequently, the reclassification exercise led to the rise in customs duties for edible vegetable oils, oil seeds, wheat flour, wheat and sugar. The Argentine’s complaint challenged two types of policies by the Chilean government: a ‘price band system’ and safeguard measures (Bagwell & Staiger 2002). The WTO panel formed to adjudicate over this dispute ruled in favor of Argentina on both sets of measures. First, the price band system had contravened Article II of GATT 1994 and Article IV of the Agriculture Agreement. Second, the safeguard measures violated Article XIX of GATT 1994 and a variety of provisions concerning the Safeguards Agreement (WTO 2006). The Chilean government did not contest the ruling on the safeguards measures but appealed the final determination on its price band system. The Appellate Body would then reverse the finding concerning the violation under Article II of GATT 1994. However, the body affirmed substantially that the price band system had violated Article 4 of the Agriculture Agreement. Chile acknowledged its intention to comply with the ruling. Arbitration pursuant to Article 21.3 of the DSU determined 23 December 2003 as expiry date that signified the reasonable period for compliance (WTO 2006). The principal issue that emerged from this case was the difficulty of converting the country’s price band system into conventional tariffs. Just like Chile and other member states, Argentina also had a price band system, and this issue has received much attention in WTO dispute settlement (Nordstrom 2001). Chile-Taxes on Alcoholic Beverages European Communities (complainants) brought this dispute before WTO regarding Chile’s (respondent) tax measures on 25 March 1998. The tax decisions imposed an excise tax based on different rates under the ‘Transnational System’ (type of product e.g. whisky and pisco) and the ‘New Chilean System’ (degree of alcohol content e.g. 350C or 360C). The products under dispute were all distilled spirits that were falling within HS heading 2208. These products included Chile’s domestic spirit (pisco) and other imported products such as vodka, rum, whisky and gin, among others. Canada, Mexico, Peru and the United States were the third parties to this dispute (WTO 2006). The WTO panel determined that Chile had violated the national treatment principle under Art. III: 2, second sentence. The panel further established that Chile’s new and transnational tax regimes were inconsistent with the mentioned article. The appellate body upheld this decision subsequently by asserting that Chilean pisco and imported distilled spirits were not taxed similarly even though they were directly substitutable and competitive products (Holland et al. 2003). The view taken by the appellate body was that Chile had failed to draw comparisons between domestic and imported products based on a comparative analysis of taxation on both products over the full range of categories. In contrast, the Chilean government had made these comparisons within each category (WTO 2006). Antidumping Chile (complainant) also brought a charge against China (respondent) for dumping due to a perceived trade imbalance in favour of China. Japan, European Communities and the United States were the principal third parties in this dispute. Chile became suspicious regarding the volume of imports from China on 18 May 2008 and determined that China’s actions were in contravention to the laws governing their bilateral trade relations (WTO 2006). The global economic crises had weakened Chilean economic system, and China was taking advantage of this situation to dump its products in the country. Consequently, Chile requested the establishment of a WTO panel to investigate these claims and make a determination (Schiff 2002). The economic rationality has made Chile susceptible to unfavourable international trade, and it increasingly uses WTO laws to resolve disputes over trade imbalances with its partners. The WTO panel accused China of violating WTO’s rules on the trade balance between member states on three accounts. First, China had acted inconsistently with WTO trade rules by duping its goods in Chile. Second, China had breached the WTO rules by increasing its import taxes, unlike Chile. Third, China’s exports to Chile breached WTO’s rules of fair trade because given that they surpassed the volumes that Chile exports to China. On the other hand, the panel rejected two claims that Chile had made against China: China had reduced import tax to other countries, and China had restructured its market (WTO 2006). Both China and Chile reached an agreement regarding the anti-dumping dispute in December 2009. During this process, China had admitted to the violation but blamed it on the global crisis. The countries drafted proper rules of an agreement to avert similar situations in the future. The main condition imposed by the panel was that it would sanction any country that breaches the contract of agreement (Holland et al. 2003). The Chilean government has to promote feasible trade with its trade partners through the adoption of the ANZCERTA concept. The aim of this concept is to regulate WTO laws in order to make them favourable for trade. ANZCERTA particularly focuses on regulating trade imbalances (antidumping) with its trade partners. Chile’s position is that WTO should be strict on countries promoting unfair competition in the global trading system (Schiff 2002). Conclusion The Chilean trade market has experienced rapid expansion at the global scene; thus, giving it a competitive edge in value prices. However, the country is affected negatively when the value of imports exceeds that of exports. As such, Chile has formulated a trade policy that encompasses a number of objectives. The principal goals are stimulating the competitiveness and efficiency of local producers, minimizing the level of any anti-export bias within the tariff structure and promoting regional economic cooperation. The government considers the attraction of foreign investment, as well as ensuring permanent and secure access to foreign markets as essential components in its economic growth. Accordingly, the country has intensified efforts aimed at negotiating a new preferential trade agreement. Chile adopted the WTO Agreements in 1995 through the Supreme Decree No. 16 of the Ministry of Foreign Affairs. These agreements are integral within the Chilean national legislation and may be invoked before Chilean courts. The WTO agreements may take precedence over domestic legislation in cases where they contain a greater degree of specificity. However, this condition should fulfil three factors: setting new rules covering issues beyond the scope of domestic legislation, regulating subjects or institutions whose rules contradict with prior domestic legislation, and when covering the same issues. Moreover, the principle of derogation applies during the enactment of WTO agreements, but these agreements should not supersede the validity of the existing law whose provisions neither conflict nor contradict newer laws. References Axelrod, M 2014, ‘Clash of the treaties: responding to institutional interplay in European Community-Chile swordfish negotiations’, European Journal of International Relations, DOI: 10.1177/1354066113499386. Bagwell, K & Staiger, RW 2002, The economics of the world trading system, MIT Press: Cambridge MA. Holland, D, Figueroa, E, Alvarez, R, & Gilbert, J 2003, ‘On the removal of agricultural price bands in Chile: a general equilibrium analysis’, Central Bank of Chile, Working Papers No. 244. Lamy, P 2006, ‘The place of the WTO and its law in the international legal order’, European Journal of International Relations, vol. 17, no. 5, pp. 969-984. Nordstrom, H 2001, ‘Do variable levies beggar thy neighbor?, European Journal of Political Economy 17, pp. 420-430. Schiff, M 2002, ‘Chile’s trade policy: an assessment’, Central Bank of Chile, Working Papers No. 151. World Trade Organization 2006, WTO dispute settlement: one-page case summaries, WTO Publications: Geneva. Read More