The Contract Law of Australia - Article Example

International Business Law Answer 1 Advice for Aussie Décor Under the contract law of Australia, seller shall not be liable for loss or damage due to delay in manufacture, shipment, or delivery resulting from any cause beyond seller's direct control or due to compliance with any regulations, orders, acts, instructions, or priority requests of any government authority, acts of God, acts or omissions of the purchaser, fires, floods, epidemics, weather, strikes, factory shutdowns, embargoes, wars, riots, delays in transportation, delay in receiving materials from seller's usual sources, and any delay resulting from any such cause shall extend shipment or delivery date to the extent caused thereby and seller shall be repaid its additional expenses resulting from such delay. In the case of delay lasting more than eight weeks, seller has the right to cancel contract. Receipt of merchandise by the Buyer shall constitute a waiver of any claims for delay. In this case, Porcelain Vases Company of Hong Kong is not liable for the delay (two days) for the loading on board by the carriers. In the meantime, a typhoon hit Hong Kong during those two days and many of the boxes of porcelain vases got wet and after arriving of MV Bardon in Brisbane Aussie Décor, only 2500 out of 3000 boxes with vases inside were delivered and 100 of these were in very bad condition and not suitable for sale. But other 500 porcelain vases were not delivered by the Porcelain Vases Company of Hong Kong. For the delivery of only 2500 out of 3000 porcelain vases is the violation of the contract, in this matter, the Aussie Décor will get remedy under Article 51 of the Convention of the International Sale of Goods (CISG). Article 51 says that if the seller delivers only a part of the goods or if only a part of the goods delivered is in conformity with the contract, articles 46 to 50 of the Convention apply in respect of the part which is missing or which does not conform. Since the Porcelain Vases Company of Hong Kong did not fulfill the all part of the contract for non-delivery of the 500 porcelain vases, the Aussie Décor may declare the contract voided under Article 49 of the CISG. The Aussie Décor Company will notify the Porcelain Vases Company of Hong Kong about the part delivery of porcelain vases. The Aussie Décor Company loses the right to rely on the provisions of article 41 or article 42 if Aussie Décor does not give notice to the seller specifying the nature of the right or claim of the third party within a reasonable time after he has become aware or ought to have become aware of the right or claim.1 So, the delivery of the 3000 porcelain vases do not conform with the contract and the price has already been paid, the Aussie Décor Company may reduce the price of 500 porcelain vases equal to 10000 Australian Dollar. Would the use of an alternative Incoterm affect the outcome and if so, how? The INCOTERMS 2000 bears for the trade contract responsibilities and liabilities between buyer and seller. It is invaluable and a cost-saving tool. The exporter and the importer need not undergo a lengthy negotiation about the conditions of each transaction. In this case, the Porcelain Vases Company in Hong Kong agreed to sell Aussie Decor in Brisbane 3000 porcelain vases on CIF Brisbane INCOTERMS 2000. In the case of CIF Brisbane INCOTERMS 2000, the Porcelain Vases Company in Hong Kong (seller) bears the cost of shipping the goods to the named destination port, however the risk of loss or damages are borne by the Aussie Decor in Brisbane (buyer) at transfer of title.  There are the only exception to this is that the Porcelain Vases Company in Hong Kong (seller) has insured the 3000 porcelain vases (goods) (by procuring marine insurance) against loss or damage while they are being carried by the ship under provision of the INCOTERMS 2000. While a typhoon hit Hong Kong during those two days and many of the boxes of porcelain vases got wet, and 100 out of 2500 porcelain vases were in very bad condition and not suitable for sale (other 500 porcelain vases were not delivered by the Porcelain Vases Company) marine insurer will compensate the Aussie Decor Company. There are currently 13 INCOTERMS in use. If the Porcelain Vases Company of Hong Kong agreed to sell Aussie Decor in Brisbane any on EXW Brisbane INCOTERMS 2000, FCA Brisbane INCOTERMS 2000, FAS Brisbane INCOTERMS 2000, FOB Brisbane INCOTERMS 2000, CFR Brisbane INCOTERMS 2000, DES Brisbane INCOTERMS 2000 and DEQ Brisbane INCOTERMS 2000 in lieu of CIF Brisbane INCOTERMS 2000 the outcome of this situation will be altered in the following ways: In case of agreement to sell on EXW Brisbane INCOTERMS 2000, Aussie Decor Company could be responsible for loading the goods on container at premises of the Porcelain Vases Company in Hong Kong, and for the subsequent costs and risks of typhoon. In case of agreement to sell on FCA Brisbane INCOTERMS 2000, the Porcelain Vases Company of Hong Kong only liable to deliver the goods into the custody of the first carrier, and this is where typhoon risk passes from Porcelain Vases Company to Aussie Decor Company. In case of agreement to sell on FAS Brisbane INCOTERMS 2000, Aussie Decor Company could be responsible for typhoon risk. In case of agreement to sell on FOB Brisbane INCOTERMS 2000, Aussie Decor Company could have responsibility of insurance but the risk of typhoon occurs when the goods pass the ship's rail at the port of shipment. While a typhoon hit in the Hong Kong Port the risk did not pass to the Aussie Decor Company. If it would be an agreement to sell on CFR Brisbane INCOTERMS 2000, the risk of typhon passed to the Aussie Decor Company when the goods passed the ship's rail at the port of Hong Kong which means that this agreement is cannot be used for containerised sea shipments. In this case, the vases in the cardboard boxes were not in a container and were left standing on the docks for two days until they were loaded on board by the carriers. So, an agreement to sell on CFR Brisbane INCOTERMS 2000 could be appropriate in that situation. An agreement to sell on DES was better than agreement to sell on CIF Brisbane INCOTERMS 2000. Where the vases are delivered ex ship, the passing of risk does not occur until the ship has arrived at the Brisbane port of in Australia and the vasels made available for unloading to the Aussie Decor Company. The Porcelain Vases Company of Hong Kong paid the same freight and insurance costs as he would under a CIF arrangement. The DES agreement to sell and DEQ agreement to sell were also better for the Aussie Decor Company. The following Figure shows the comparison between the Risk of Buyer and Risk of Seller and also compares between the cost of Buyer and cost of Seller. Figure 1. Comparison of different INCOTERMS 2000 EXW                                                     FCA                                                     FAS                                                     FOB                                                     CFR                                                     CIF                                                     CPT                                                     CIP                                                     DES                                                     DEQ                                                     DDU                                                     DDP                                                         - At Cost of Seller   - At Risk of Seller     - At Cost of Buyer   - At Risk of Buyer Source: http://www.agsworld.com/Main/Development/Tools/Incoterms2000/tabid/80/Default.aspx Answer 2 At first, for the import of raw material from Thailand, Malaysia, Indonesia and the Philippines, the Chief Executive Officer of a firm in Sydney Australia will issue a contract of sale or agreement to sell to Thailand’s raw material company and another contract of carriage between his firm and Thailand’s port freight. Thus the Chief Executive Officer of a firm will perform 4 contract of sale or agreement of contract among the concerned countries for the import of raw material. And in this manner, the Chief Executive Officer of a firm will perform 4 contract of carriage among the concerned countries’ port freight for as carrier of raw material. On the other hand, the finished goods will be exported to ports in the United States, Europe and the Middle East. So, the Chief Executive Officer of a firm will contract, for delivery of exported finished goods, to the Sydney’s port freights. A set of full documents including bill of lading (may be electronic or through bill of lading), invoices, transport documents, insurance document and government documents and other certificates of origin and export licenses must be prepared by the Chief Executive Officer of the firm in Sydney, Australia for the transportation to the overseas recipient. The Chief Executive Officer of a firm in Sydney Australia will decide how types of INCOTERMs agreement are faverouble to his company. For the import of raw material from Thailand, Malaysia, Indonesia and the Philippines, the Chief Executive Officer of a firm in Sydney Australia must open the LC on against concerned countries’ local Bank. Then necessary documents i.e., a duly signed commercial invoice; a full set of on board bills of lading evidencing shipment from concerned countries’ ports; a stamped certificate of insurance covering carriage from port warehouse to port warehouse and a certificate confirmation of the goods have to be prepared. All goods imported into a country must pass custom. Passing customs usually means paying a certain sum of money at the port of entry based on the type and value of the goods. Answer 3 (a) The UCP rules are regularly reviewed and updated when necessary to reflect current banking and trade practice. The UCP remains the most successful set of private rules for trade ever developed.2 Uniform Customs and Practice for Documentary Credits, ICC Publication No.600 (UCP 600) is the fully revised rules covering the use of documentary letters of credit produced by the International Chamber of Commerce.3  The total length of Articles reduced to 39 articles rather than 49 as in UCP 500. The UCP 600 only contains 39 articles as compare to 49 articles in UCP 500 by the reduction in the number of articles from 49 to 39. By the language of the father of UCP 600 that it contains significant changes to the existing rules, including:4 A reduction in the number of articles from 49 to 39; New articles on “Definitions” and “Interpretations” providing more clarity and precision in the rules; A definitive description of negotiation as “purchase” of drafts of documents; The replacement of the phrase “reasonable time” for acceptance or refusal of documents by a maximum period of five banking days. Moreover, there are 7 Articles from UCP 500 have been given a new facelift, i.e. Article 9, 13, 14, 21, 23, 37 and 48. The major changes made to UCP 500 are: 5 “Reasonable time” and “without delay” have been deleted and banks are simply allowed a definite 5 days to examine documents and assert any discrepancies (Articles 14(b) & 16(d) of UCP 600). This would mean the processing, either making payment of rejecting payment must be made within 5 days only. New rule regarding when addresses of applicant and beneficiary must be as in the L/C (Article 14(j) of UCP 600). This article allows the address of the seller or buyer on the invoice need not be the same as indicated in the LC. It can be a different address within the same country. This would give some advantage to trading parties when Back to back or transferable LC is used where middleman is involved. Issuing bank now is allowed to refuse documents and then release them upon obtaining waiver of discrepancies (Article 16(c)(iii) of UCP 600). This article allows seller to provide instruction on the remitting schedule on how the discrepant documents should be dealt with when Issuing Bank rejects them. This somehow would give seller some ‘control’ over the discrepant documents especially when dealing with high value commodities. Bank nominated to incur a deferred payment undertaking is now authorized both to incur such an undertaking and to make a prepayment. Before this, only confirming bank can make prepayment. This would give banks an additional constraint. The word "negotiation” is being further defined which means the purchase by the nominated bank of drafts (drawn on a bank other than the nominated bank) and/or documents under a complying presentation, by either advancing or agreeing to advance funds to the beneficiary. There are 5 articles of UCP 500 that have not found their way into UCP 600. These are:6 Article 8 and Article 6 (part) which refer to revocable letters of credit. The limited usage of such instruments in today’s letter of credit business led to the overall viewpoint that there was no necessity to cover same in UCP 600. If an applicant or bank desire to issue a revocable credit in the future, they have two options, (1) issue the credit subject to UCP 600 and incorporate all the conditions applicable to the revocability or, (2) issue the revocable credit subject to UCP 500. Article 38, under the heading ‘Other Documents’, was removed at a very early stage of the revision process. The usage of the content of this article was seen as marginal at best. Articles 5 and 12 (Instructions to Issue / Amend Credits and Incomplete or Unclear Instructions). These articles were seen as representing standard requirements that should be expected of banks in the establishment of letters of credit, thus not requiring specific rules under UCP 600. There are 6 articles in UCP 600 that are not found in UCP 500. These are: 7 Definitions (Article 2); Interpretations (Article 3); Advising of Credits and Amendments (Article 9); Nomination (Article 12); Complying Presentation (Article 15); and Original Documents and Copies (Article 17). The result is 39 Articles, as opposed to UCP 500’s 49 Articles and a more streamlined and easier to read document that should facilitate better understanding, application and interpretation of the rules on a global basis. However, as a whole, this revision opens up more space for trading parties to adjust themselves comfortably and putting a great burden on banks. It emphasizes more on the function of the LC as a mechanism of payment. The doctrine of strict compliance now has been relaxed, as long as the data content do not in contrary to the LC, it will be accepted by banks. It gives a good reason why LC should be used as a method of trade settlement. So far, Asian region account for 31% of LC used in trade. Answer 3 (b) UCP 500, Article 13(A) provides that banks must examine all documents stipulated in the Credit with reasonable care, to ascertain whether or not they appear, on their face, to be in compliance with the terms and conditions of the Credit. Compliance of the stipulated documents on their face with the terms and conditions of the Credit, shall be determined by international standard banking practice as reflected in these Articles. The negotiating bank then transmits the documents to the issuing bank, which ‑ then inspects them for accuracy, irregularities, and discrepancies against the letter of credit.8 Indeed, banks deal mainly in the appearance of documents. Article 14 requires that the issuing bank "determine on the basis of the documents alone whether or not they appear on then face to be in compliance with the terms and conditions of the credit." To the following situation, Johnson Bros Co. Ltd. in Brisbane, Australia receives a letter of credit from Bula Co. Ltd. in Suva, Fiji covering “ABC laptop computers” and a certificate confirming that the computers were made in Australia and are less than 6 months old. (i.e. 2006/2007 stock)”. Johnson Bros Co. Ltd. in Brisbane, Australia completes an invoice which has been signed but only 1 copy has been provided and the computers are referred to only as “laptop computers”. Bank of Brisbane has paid Johnson Bros Co. Ltd. under the credit and has sent the supporting documentation to Bank of Suva with an invoice for its payment. On receipt of the documentation, the Bank of Suva has noticed the following: the commercial invoice has been signed but only 1 copy has been provided and the computers are referred to only as “laptop computers”; the bill of lading dated 20 February is for 150 computers; the certificate of insurance has not been stamped; the confirmation certificate does not state that the computers were made in Australia and refers to them as “recent stock” and not 2006/2007 stock. The description of the goods in the commercial invoice must correspond with the description in the Credit.9 In all other documents, the goods may be described in general terms not inconsistent with the description of the goods in the Credit.10 Here the documents sent to the Bank of Suva show a vast discrepancy on question of “600 ABC laptop computer” in three consignees. The language used in the bill of lading, “150 laptop computers" in one consignment is a major mistake, discrepancy and not consistent with the full language used to describe the laptop computers in the letter of credit. The prevailing rule established by the courts for examining documents is the strict compliance rule.11 According to this view, the terms of the documents presented to the issuing bank must strictly conform to the requirements of the letter of credit.12 But the thrust of the rule is that every provision of the bill of lading, commercial invoice, insurance policy, and other required shipping documents must match the letter of credit. Even a small discrepancy can cause the bank to reject the documents. If the issuing bank pays against documents that contain a discrepancy, then the bank cannot seek reimbursement from the account party, its customer.13 In this case the Bank of Suva decides to reject the document; it must notify the negotiating bank within seven banking days.14 Since the Bank of Brisbane has paid Johnson Bros Co Ltd under the credit and has sent the supporting documentation to Bank of Suva with an invoice for its payment. Since, in this case, the Bank of Brisbane has paid Johnson Bros Co Ltd and that bank did not conform to the letter of credit, as the Bank of Brisbane will be liable to its customer, Bula Co Ltd in Suva, Fiji, for doing so.15 Under the Article 14 of UCC 50016, following acts may be appropriate in the above situation for the Bank of Suva: The Bank of Suva, upon receipt of the documents The Bank of Suva must determine on the basis of the documents alone whether or not they appear on their face to be in compliance with the terms and conditions of the Credit. If the documents appear on their face not to be in compliance with the terms and conditions of the Credit, The Bank of Suva may refuse to take up the documents.17 If the Bank of Suva decides to refuse the documents, it must give notice to that effect by telecommunication or, if that is not possible, by other expeditious means, without delay but no later than the close of the seventh banking day following the day of receipt of the documents. Such notice shall be given to the bank of Brisbane from which it received the documents, or to the Beneficiary, if it received the documents directly from him. 18 The Bank of Suva shall then be entitled to claim from the remitting bank refund, with interest, of any reimbursement which has been made to that bank.19 Answer 4 There are some advantages to expand venture as an export basis in India and China on legal perspective. The following are few of the major advantages of exporting: Increased sales and profits: Selling goods and services to a market the company never had before boost sales and increases revenues. Additional foreign sales over the long term, once export development costs have been covered, increase overall profitability. Enhanced domestic competitiveness: Most companies become competitive in the domestic market before they venture in the international arena. Being competitive in the domestic market helps companies to acquire some strategies that can help them in the international markets. Gain global market shares: By going international, the company will participate in the global market and gain a piece of the huge international marketplace. Diversification: Selling to multiple markets allows company to diversify its business and spread its risk. As a result, company is not be tied to changes within the domestic market or of one specific country. Lower Per Unit Costs: Capturing an additional foreign market of India and China will usually expand production to meet foreign demand. Increased production can often lower per unit costs and lead to a more effiecient use of existing capacities. Compensation for seasonal demands: The Company which products or services are only used during certain seasons domestically may be able to sell its products or services in India and China markets during different times of the year. Potential for company expansion: The Company who venture into the export business usually have to have a presence or representation in the market of India and China. This might require additional personnel and thus lead to expansion. Sell excess production capacity: This Company who has excess production for any reason can probably sell its products in the market of India and China and not be forced to give deep discounts or even dispose of its excess production. New Knowledge and Experience: Going international can yield valuable ideas and information about new technologies, new marketing techniques and foreign competitors in India and China. The gains can help a company's domestic as well as foreign businesses. Product life cycle expansion: Many products go through various cycles namely introduction, growth and maturity before declining signifying the end of their usefulness in a specific market. Once a product reaches its mature stage in a given market, it can be introduced to a different market where it will be perceived as new. However, Exporting can help the Australian company in following ways: enhance domestic competitiveness increase sales and profits gain global market share exploit corporate technology and know-how extend the sales potential of existing products stabilize seasonal market fluctuations enhance potential for corporate expansion sell excess production capacity gain information about foreign competition While the advantages of exporting far outweigh the disadvantages, the company faces the following challenges when venturing into India and China. Extra costs: Because it takes more time to develop extra markets, and the pay back periods are longer, the up-front costs for developing new promotional materials, allocating personnel to travel and other administrative costs associated to market a product can strain the meager financial resources of the Company. Product modification: When exporting, company may need to modify its products to meet foreign country (India and China) safety and security codes, and other import restrictions. At a minimum, modification is often necessary to satisfy the importing country's labeling or packaging requirements. Financial risk: Collections of payments using the available methods (open-account, prepayment, consignment, documentary collection and letter of credit) are not only more time-consuming than for domestic sales, but also more complicated. Thus, the Company must carefully weigh the financial risk involved in doing international transactions. Export licenses and documentation: Though the trend is toward less export licensing requirements, the facts that the Company have to obtain an export license to export its goods make them less competitive. In many instances, the documentation required to export is more involved than for domestic sales. Market information: Finding information on foreign markets is unquestionably more difficult and time-consuming than finding information and analyzing domestic markets. In less developed countries, for example, reliable information on business practices, market characteristics and cultural barriers may be unavailable or very limited. Cultural and language barriers: Cultural and language barriers might make it especially hard to gauge a seller's honesty or intentions.20 In comparison, there are certain disadvantages to exporting. The Australian Company may be required to: develop new promotional material subordinate short-term profits to long-term gains incur added administrative costs allocate personnel for travel wait longer for payments modify your product or packaging apply for additional financing obtain special export licenses These disadvantages may justify a decision to forego exporting at the present time. For example, if your company's financial situation is weak, attempting to sell into foreign markets may be ill-timed. On the other hand, the Company has been successful selling abroad even before it has made any sales domestically. As you can see, there are no hard-and-fast rules as to which businesses should export, and which should not. The options available for Export and Domestic Business Before expansion the company’s ventures in India and China as a export business, it must carefully assess the advantages and disadvantages of exporting. Whether it is unintentional or deliberate move, the company need to evaluate and carefully assess the advantages and challenges of exporting before expansion on legal perspective. The Company must realize that entering an export business requires careful planning, some capital, market know-how, a quality product, competitive pricing, management commitment and realizing the challenges and opportunities of foreign markets. While there are no hard-and-fast rules that can help companies make decision to export or not and to become successful, understanding the advantages and challenges of exporting can help a smooth entry into new markets, keep pace with competition and eventually realize profit. On the other hand, all buyers would like to be able to buy on open credit terms, or on open account in domestic sales, for the seller who has had an opportunity to learn the creditworthiness of the buyer, sales are often made on, say, 30-day open account terms.21 Answer 5 Do the following governmental rules conform to GATT/WTO obligations? • a country charges a higher tariff on the import of motor vehicles if they do not have airbags for safety purposes. The country does not require domestic manufacturers to fit cars with airbags. The above situation is related to the GATT 1994 Agreement on Technical Barriers to Trade. A country may make laws or regulations that are imposed for the protection of public health, safety or welfare. The agreement recognizes countries' rights to adopt the standards they consider appropriate - for example, for human, animal or plant life or health, for the protection of the environment or to meet other consumer interests.22 So, in accordance with the Agreement on Technical Barriers to Trade, a country may charge a higher tariff on the import of motor vehicles if they do not have airbags for safety purposes. But members are not prevented from taking measures necessary to ensure their standards are met.23 In order to prevent too much diversity, the agreement encourages countries to use international standards where these are appropriate, but it does not require them to change their levels of protection as a result.24 There is a law and regulation affecting a product’s characteristics, for example, performance, design, construction, chemical composition, materials packaging or labeling that must be met before a product can be sold in a country (Schaffer 2005 at p. 317). This provision that all technical regulations shall be applied on a non-discriminatory basis and must not create on unnecessary obstacle to trade, that is, they must not be more trade restrictive than is necessary to protect, for example, public health or safety. Moreover, members are not prevented from taking measures necessary to ensure their standards are met. In order to prevent too much diversity, the agreement encourages countries to use international standards where these are appropriate, but it does not require them to change their levels of protection as a result." 25 A country may impose technical rules about packaging, product definitions, labeling, etc. without discrimination. In the context of international trade, such rules may also be used as non-tariff trade barriers. Now in this situation a country does not require domestic manufacturers to fit cars with airbags in the domestic market. Motor cars in another country produced without airbag, so this type of “technical” rule would effectively ban the sales of motor cars for own market. Such rules violate WTO provisions that require countries to treat imports and domestic products equivalently and not to advantage products from one source over another, even in indirect ways. It should be emphasized that WTO rules do not require member countries to harmonize rules or adopt international standards — only that there must be some scientific basis for the rules that are adopted.26 There are two cases related to Technical Barriers to Trade Agreement.27 Do the following governmental rules conform to GATT/WTO obligations? • a domestic law prohibits the import of cheese that costs less than $5 per kilo, arguing that low price cheese could be a health hazard Answer Since health and safety objectives are set by each individual country's government, you are right in that there is no single global framework. Both developed and developing countries will be able to designate a certain number of products as sensitive products, with the possibility of implementing lower tariff reductions on these products than the tiered formula would require. The above situation is pertinent to the GATT 1994 Agreement on Technical Barriers to Trade. A country may make laws or regulations that are imposed for the protection of public health, safety or welfare. The agreement recognizes countries' rights to adopt the standards they consider appropriate - for example, for human, animal or plant life or health, for the protection of the environment or to meet other consumer interests.28 So, in accordance with the Agreement on Technical Barriers to Trade, a domestic law may prohibit the importof cheese that costs less than $5 per kilo, arguing that low price cheese could be a health hazard. A distinguishing feature of technical barriers is their legitimate use by governments to protect consumers’ health, recognize citizen preferences in packaging and labeling, and protect the environment from the establishment of non-indigenous pests and diseases. As such, technical barriers have the potential to increase national welfare, even without consideration of terms-of-trade effects, when legitimate externalities or other market failures are addressed.29 The object of the TBT Agreement is to "to ensure that technical negotiations and standards, as well as testing and certification procedures, do not create unnecessary obstacles to trade".30 There have been several notorious cases31 where governments or groups have tried to ban the importof something that is undesirable, but have been prevented from doing so by the WTO on the grounds that this would be to interfere with the freedom of trade. "Under the World Trade Organisation it becomes illegal for a country to put barriers in the way of free trade, even if it considers that trade potentially hazardous for its people. Laws to safeguard the environment, health and safety standards, human rights or local economies are liable to be declared illegal..."32 "WTO rules run roughshod over local laws and regulations. The WTO agenda relentlessly pursues the elimination of any strictures on the free flow of trade, including how a product is made, by whom it is made, and what happens when it is made. … Nor can environmental destruction, habitat loss, toxic waste production, and the presence of transgenic materials or synthetic hormones be used as the basis to screen or stop goods from entering a country.33 All technical regulations shall be applied on a non-discriminatory basis and must not create on unnecessary obstacle to trade, that is, they must not be more trade restrictive than is necessary to protect, for example, public health or safety. Do the following governmental rules conform to GATT/WTO obligations? • a country decides to no longer treat a designated developing country as such and hence it loses its tariff preferences Tariff preferences by developed countries in favour of developing countries are welcome, because they further trade and growth in developing countries. World Trade Organization (WTO) Members must grant immediate and unconditional most-favored-nation (MFN) treatment to the products of other Members with respect to tariffs and other trade-related measures.34 The Doha Round of the WTO negotiations should not neglect this aspect of trade relations between developed and developing countries. They may be even more welcome if they are given without reciprocity. But these tariff preferences can create trade distortions among developing countries, thus defeating the basic objective of promoting trade for developing countries. There are four categories of these special preferences. 1) Preferences for certain regions, mostly as a result of a historical close relationship between developed and less advanced developing countries; 2) Special preferences applied by all developed countries in favour of developing countries, such as the Generalised System of Preferences (GSP); 3) Special preferences applied to least developed countries; and 4) Special preferences given by developed countries to developing countries to pursue non-economic objectives, such as fighting the narcotics trade. The Most Favored Nation (MFN) clause in Article I of the General Agreement on Tariffs and Trade (GATT) forbids Member countries from pursuing discriminatory trade policies against one another. Indeed, the language in the 1947 Agreement, subsumed within the 1994 Marrakesh Agreement establishing the World Trade Organization (WTO) is quite unequivocal.35 "With respect to customs duties and charges of any kind...any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties" (GATT 1994, p. 486). 36 In 2004, the WTO Appellate Body ruled that the Clause allows developed countries to offer different treatment to developing countries, but only if identical treatment is available to all similarly situated GSP beneficiaries.37 There are some exceptions to the MFN rule, which allow countries to apply lower tariffs to imports from particular countries. WTO rules allow, for example, regional trade agreements (such as the European Community, or the North American Free Trade Agreement). Authorisation can be given provided the proposed agreements meet specified requirements, including one requiring that tariffs on substantially all trade should be eliminated between the parties.38 The Enabling Clause has thus created a permanent legal basis for trade preferences provided by developed countries, both generally for all developing countries under GSP regimes, and also for specific more preferential treatment of the least-developed countries. On the other hand, there is no absolute legal requirement in GATT for providing any given trade preferences. In other words, developed countries can and should provide trade preferences for developing countries, but they are not legally bound to do so. As a result, trade preferences under the GSP continue to be granted unilaterally by the developed countries concerned, and so can always be changed, and even withdrawn completely, without violating GATT/WTO commitments. While MFN tariffs, where bound in the Schedules of the importing countries concerned, are legal commitments that cannot be changed without following the respective GATT rules, trade preferences for developing countries are not so bound and hence can, as far as GATT/WTO rules are concerned, be changed unilaterally by the developed countries granting them. Do the following governmental rules conform with GATT/WTO obligations? a country decides to reduce its tariff rates by 5% in relation to any country that does not apply illegal trade barriers to its own exports. Answer Say for example, the Australia imports shirts from Bangladesh, India and China. If the Australia imposes 5 per cent duty on import of shirts from Bangladesh, the MFN principle requires it to impose the same duty on shirts imported form India and China. In other words, it cannot give favourable treatment to one country and less favourable treatment to others. Of course, the MFN treatment is not confined to tariffs. Rather it covers all internal taxes and regulations, such as quantitative trade restrictions, value added tax and rules governing import and export of products. It is obvious that the MFN clause aims at providing a level playing field to products of the WTO members in export markets. Such a level-playing field lies at the heart of multilateralism as against bilateralism or regionalism where countries discriminate among their trade partners. A fundament principle of the multilateral trade system established by the General Agreement of Tariffs and Trade (GATT) and its successor, the World Trade Organisation (WTO) is non-discrimination. The principle has two aspects: 'national' and the 'most favoured nation' (MFN) treatment. The national treatment principle prohibits a member country from discriminating between domestically produced goods and those imported from another member with regard to the application of internal taxes. The purpose is to provide a level playing field for both locally made products and those made abroad once they are in the customs territory of the importing country. The principle of the MFN treatment deals with the way a member country deals with imports from two or more other members. Contrary to the popular view, the MFN does not mean giving special treatment to imports from another country. Rather the actual meaning of the MFN is opposite to this. What MFN means is not discriminating among goods or services imported from other member countries. The principle enjoins upon members that any favourable treatment given to one member of the WTO, such as lower tariffs, shall be extended to import of similar products from all other member countries. The WTO allows more than one exception to the MFN principle. These are: 1. Under the Generalised System of Preferences (GSP), imports from developing countries to the markets of developed counties are given preferential tariff treatment not available to similar imports from other developed countries. 2. Imports from several developing and the least developed countries (LDCs) are given duty free access to the markets of the European Union (EU). 3. Under the multifiber arrangement, import of textile and clothing (T&C) products from a number of developing countries to the markets of developed countries are subject to quantitative restrictions on trade. However, no such restrictions are applied to exports from other developed countries. The quantitative restrictions will be completely lifted by the end of this year. 4. Article XXIV of the GATT allows Pakistan and India to depart from particular provisions of the Agreement in their bilateral relations pending the establishment of trade ties between them on a definitive basis. It is under this clause that Pakistan has not given MFN status to India, though the latter has extended such status to the former. 5. Under Article XXIV of the GATT, a member of a regional trade agreement can give discriminatory treatment to imports originating from other members as against imports originating from other WTO countries who are not a member of that RTA. 6. Under Article V of the General Agreement in Trade in Services, countries can open their economies to import of services from other countries on a bilateral or regional basis over and above their obligations to other countries under this agreement. But under the Enabling Clause, “Notwithstanding the provisions of Article I of the General Agreement, contracting parties may accord differential and more favourable treatment to developing countries, without according such treatment to other contracting parties”. Answer 6 Trade liberalisation can follow various tracks -- unilateral, bilateral, regional and multilateral.39 In contrast to the new world economic order contemplated by the founders of the Bretton-Wood system and the GATT/WTO in the aftermath of World War II, which was to be based on the non-discriminatory and all-encompassing principles of Multilateralism, we now have a fragmented multitude of bilateral and regional arrangements in most of the important fields of international economic regulation: international trade, international investment and international taxation.40 It is matter of concern that the ability of the WTO to maintain the GATT's unsteady yet distinct momentum towards liberalism, and as we contemplate the emergence of world-scale RlAs--the EU, NAFTA, FTAA, APEC and, possibly, TAFTA-- this question has never been more pressing.41 Multilateralism is truly at a crossroad. Prompted partly by a lack of progress in the WTO negotiations, a host of bilateral trade negotiations are in progress. Bilateral agreements among large players lead to further marginalization of excluded low-income countries. In this global setting, restoring the effectiveness of multilateralism through the WTO is essential. Doing so will rest in the coming decade both on the substance of its rules and on the transparency and inclusiveness of the process through which they are achieved. Countries emerging as centers of global growth, and poor countries large and small, will only buy into a rules-based world trade system if they are brought into making its decisions. The new rules of the game must be written jointly by rich, middle-income, and poor nations, not just by a few powerful members.42 Regional and bilateral agreements have rocketed since 1994. By early 2003, over 150 regional trade agreements (RTAs) had been notified to the WTO (and its predecessor GATT), with at least 100 of them notified after 1994.43 However, the progress of the WTO over the last 10 years clearly indicates that trade liberalisation under the multilateral regime is at best uncertain and slow. 44 A total of 285 RTAs had been notified to the WTO by 2003, 215 of which are in force today, and the number will exceed 300 by 2007 if another 60 RTAs currently under negotiation and 30 at a proposal stage are concluded.45 Last one decade has seen RTAs explosion. At present more than 300 RTAs are operational or under negotiations. There is hardly any WTO member which is not a signatory to an RTA.46 The last few years, Asia has seen an outburst of bilateral and regional treaties in the field of International Economic Law, in general, and in International Trade, in particular. 47 Nonetheless, the last five years have seen a dramatic growth in the number of bilateral and regional Free Trade Agreements. As you know, Australia has been an active participant in this field.48 Australia has four existing comprehensive bilateral trade agreements. Three of these—with Thailand, Singapore and the United States—have come into force in the last three years, while the Australia-New Zealand Closer Economic Relations Trade Agreement came into force in 1983 (building on a series of earlier preferential trade agreements). Australia is also negotiating four additional agreements—three bilateral agreements, with the United Arab Emirates, Malaysia and China, and a regional agreement involving the Association of South-East Asian Nations (or ‘ASEAN’) and New Zealand.49 The WTO remains at the centre of the international trading system—it might be said that reports of the death of multilateralism are exaggerated.50 As we have seem regionalism affects multilateralism through its effects on the bevahiour and performance of the member countries, but perhaps more directly it also affects the interactions between countries within the international economy and community.51 ‘There are several reasons why regionalism may enhance external trade liberalization in developing countries. First, since the multilateral system has not brought about any significant tariff reduction in developing countries, regional agreements may serve as an enforcement mechanism for a broader reform package. Second, regionalism may set the stage for competitive liberalization. If external tariffs are relatively high, then costly trade diversion, resulting from a South-South agreement, will provide countries with an additional incentive to liberalize. Third, it may be that some products are simply easier to liberalize than others, and these products tend to be liberalized both regionally and multilaterally’.52 Global trade liberalization occurs through a variety of channels, not all of which appear to be in harmony with one another. While every major nation is now a member of the World Trade Organization (WTO) and a participant in its complex process of multilateral trade liberalization, an average WTO member also belongs to six preferential trade agreements (PTAs) (World Bank, 2005). This is clearly unsatisfactory since we need to understand why countries enter into bilateral agreements when multilateral trade liberalization is an option. 53 BIBLIOGRAPHY Alibaba.com, http://resources.alibaba.com/topic/42748/How_to_face_the_change_of_UCP_600_.htm?va=0 Bacon, Rachel. (2006). “Review of developments in international trade law by the Attorney-General’s Department”, this is presented on International Trade Law Symposium, 3–4 March 2006, Canberra. http://www.ag.gov.au/www/agd/agd.nsf/Page/Trade_lawInternational_Trade_Law_Symposium Collyer, Gary. “2007-the Year of UCP 600”, UCP600 Newsletter, Iss. 1, February, 2007. http://www.standardchartered.com.sg/cib/trade/pdf/UCP600_newsletter_issue_1.pdf Courtaulds North America, Inc. v. North Carolina National Bank, 2 Lloyd's Rep 49 (1927). Courtaulds North America, Inc. v. North Carolina National Bank, 2 Lloyd's Rep 49 (1927). Estevadeordal, Antoni. 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