Chapters 9,14,15 IBL

GATT Article 24

States that provisions of the Agreement shall not prevent the formation of a customs union or free trade area.

Customs Union

A trade agreement under which member countries agree to allow free trade among themselves while imposing a common external tariff on imports from non-member countries.

•The purpose of a customs union or of a free trade area should be to facilitate trade between territories and not to raise barriers to the trade of other WTO trade countries

Free Trade Area

A region where a group of countries have signed a free trade agreement allowing goods to be traded across borders with no tariffs.

Models of economic integration

•Federal model

•Free trade area

•Customs union

•Common market

NAFTA

North American Free Trade Agreement, created in 1994, comprising the United States, Canada, and Mexico, aimed at promoting free trade.

• Largest free trade area in the world

• Canadian and the US are each other’s largest trading partners

The North American Free Trade Agreement

•Not a customs union or common market, like the EU

•NAFTA Trade and Tariff Provisions: NAFTA fosters trade and lowers/eliminates tariffs and barriers to trade: commercial travel, the environment, worker safety, child labor

Mexico-US Trade

$583B in 2015 for two-way trade

•U.S. exported $267.2B to Mexico in goods and services

•U.S. imported $316.4 from Mexico in good and services

•48% of all imports into Mexico are from U.S.

National Treatment Rule

A principle that requires imported goods to be treated no less favorably than domestically produced goods once they have cleared customs.

•Elimination of Non-Tariff Borders:

•Prohibits new export taxes on goods

•Customs user fees were eliminated in 1999

•Continuing Non-tariff Barrier

Rules of Origin

Criteria used to determine the nationality of a product for the purposes of international trade.

• NAFTA tariffs apply only to goods that originate in NAFTA country

Tariff Shift Test

A method used to determine whether a good qualifies as originating from a NAFTA country by assessing if it underwent a change in tariff classification.

NAFTA Article 415

applies to goods wholly produced or obtained in North America; goods may not contain any non-NAFTA parts or materials (usually limited to animal, vegetable or mineral)

•Producer must be able to document all inputs to raw materials mined, grown, or born in North America. (NAFTA certificate of origin)

Annex 401 Tariff Shift Rule of Origin

Non-North American goods or materials can be “transformed” into a product of North America if each non-NA input undergoes either:

•A Tariff Shift

•Regional Value Content Requirement (usually requires 50-60%)

•Or both TS and RVC

NAFTA Certificate of Origin

Required for commercial shipments unless under $2500 U.S., $1000 Mexico and $1600 CAD. Done by exporter

Tariff Rate Quotas

Trading arrangements that allow a specific quantity of goods to be imported at a lower tariff rate.

Mexican Standards and Technical Obligations

Set out in Annex 311 to NAFTA which includes marketing and labeling rules.

• Mexican labeling is controversial

• Items Not Requiring Marks (incapable or too expensive)

Prohibition of Export Taxes

NAFTA prohibits new export taxes on goods to facilitate trade.

Trade in motor vehicles and parts

Automobiles and parts: 2004 eliminated all duties on parts originating in North America; duties will continue on used cars

Government Procurement of Sectoral Issues

•Maintain national defense and weapons exceptions

•Greater than $50,000 and construction projects greater than $6.5 million

•Bids from all suppliers in NAFTA countries must be treated without discrimination

Trade in Agriculture

•Canada is the United States’ largest agricultural trading partner

•All tariffs were eliminated January 2008

•Certain sensitive produce will be regulated by tariff rate quotas

Trade in textiles and apparel

NAFTA phased out tariffs on textiles in 2004 on goods that meet North American Value content requirement

•WTO Agreement on Textiles and Clothing in 2005 is now expired and China is taking over, becoming the world leader of low-cost textile production

Emergency Safeguard Measures

Actions taken to protect domestic industries only when increased quantities of a particular good are a substantial cause of serious injury, or threat, to a domestic industry producing a like or directly competitive product

• More limited under GATT/WTO rules

Trade in Services: Transportation

• Almost 90% of goods from Mexico move by rail or truck

• Mexican trucks limited to 25 miles in U.S.

• Full access was to happen by 2000 for trucks and busses but did not—Clinton delayed; Bush implemented—finally in Obama era

• See the In the matter of Cross Border Trucking case: NAFTA Arbitral Panel held U.S. restrictions on Trucking industry violated NAFTA 2001; as of 2009 Congress failed to gather enough support to implement NAFTA cross-border rules

Trade in services: Telecommunications

• NAFTA eliminated all tariffs on telephones, cellular phones, and trade in telecommunications equipment by 2004

• Mexico’s telephone system was a government monopoly until 1990. Now it is private, exchanged on NY Stock Exchange

Cross Border Investments

NAFTA minimizes restrictions

•However still some restrictions (national security and particular industries)

•NAFTA’s Investment Provisions

•NAFTA’s Open Investment Policies

•Environmental Measures Applicable to Investments

Article 1110

A provision in NAFTA that protects investors from expropriation without compensation.

NAFTA and Intellectual Property Rights

Usually protected by international treaties (GATT/TRIPS) and enforced by NAFTA

•Trademarks

•Copyrights

•Patents

•Enforcements and Penalties

Other NAFTA Provisions

•Environmental Cooperation and Enforcement

•NAAEC calls for three countries to cooperate in protecting the environment

•Labor Cooperation and Worker Rights

•Antitrust and Competition Policy

•Rights to Temporary Entry

Productions Sharing: Assembly Plants and Maquiladoras

Process of spreading manufacturing and assembly operations across borders is called production sharing

•Allows countries to do what they do best. Proximity to U.S. makes process efficient

Maquiladora

Manufacturing plants in Mexico that are allowed to operate duty-free and with lower tariffs.

Assembly Plant Tariff Rules

Samsonite Corp. v. United States(1989) case; bending and processing of steel strips in Mexico was a step in manufacturing and not a minor operation incidental to assembly and therefore did not qualify

NAFTA Fair Trade Commison

Supervises agreement implementation

•Arbitral Panels

•Antidumping and Countervailing Duty Cases.

Issues related to the maquila industry

Migration of Mexican workers to border regions creates social and health problems, crime is becoming an epidemic

•Also great damage to the environment, especially the Rio Grande river

•Recent Trends (away from Mexico): The impact of China, and impact of CAFTA-DR

Treaty of Rome

The treaty signed in 1957 that created the European Community.

Single European Act

An act that set a 1992 deadline for achieving a single market within the European Union.

Maastricht Treaty

The 1993 treaty that established the European Union and laid the groundwork for a monetary union.

Treaty of Lisbon

The 2009 treaty that significantly restructured the European Union.

Disadvantages to further expansion

• May pose threat to western European dominance

• May be drain on resources

Advantages to further expansion

•Greater security for European continent

•Minimizes likelihood of armed conflict

•Promotes democracy, rule of law, and human rights

•Gives members greater access to new markets

Structure of the EU - European Council

The institution that defines the EU's overall political direction and priorities.

• Council of Ministers of the EU sits in Brussels, Belgium, the “capital” of the EU

• The European Commission of the EU is the executive body carrying out the decisions of the council

European Parliament

The directly elected parliamentary institution of the EU.

The Court of Justice of the EU in Luxembourg is the final arbiter of EU law

•Distinctions Among Institutions

Harmonization

The process of creating common standards among member states in the EU.

Treaty of Rome Four Principal Means to harmonize laws

• A regulation shall have general application

• Adirective shall be binding as to the result to be achieved

• A decision shall be binding upon those to whom addressed

• Recommendations and opinions have no binding force

Free Movement of Goods

The principle that allows goods to move freely across EU member states without tariffs.

Prohibits customs duties and taxes on imports and exports; also quantitative restrictions or other non-tariff barriers

Free Movement of Services

The prohibition of restrictions on services provided by nationals of one member state to another.

Free Movement of Capital

The principle that allows the free flow of capital between EU member states.

Free Movement of People

The right of EU residents to travel, work, study, and live in any member state.

Common Agricultural Policy

The EU policy aimed at supporting farmers and ensuring food security in the European Union.

Consumer Protection

Measures to ensure safety standards, fair business practices, and prevent misleading advertising.

The Financial Crisis Factors

•Liberal extension of credit

•High-risk lending practices

•2008 global recession

•Collapse of some real estate markets

•Lack of strong central financial authority

The Financial Crisis EU’s Response

•European Stability Mechanism, a permanent funding program

•European Fiscal Compact demands a balanced budget

•Greater integration of banking and financial sectors and budgetary processes predicted

NAFTA

North American Free Trade Agreement, which has stimulated regional agreements and free trade.

Trade barrier

is any impediment to trade in services or goods
• Import trade barrier is any impediment, direct or indirect, to the entrance or sale of imported goods or services

What are some of the Reasons for Regulating Imports?

Revenue
Protection of domestic industry
Retaliation against foreign trade barriers
Protection of resources

Direct non-tariff barriers

• Embargoes
• Quotas
• Import licensing schemes

Indirect Non-tariff barriers

• Laws

• Regulations

• Rules of administrative agencies

Multilateral trade negotiations

reduce tariffs and nontariff barriers (NTB)
• Kennedy Round: more tariff cuts
• Uruguay Round: GATT to WTO
• Doha Development Round: negotiate
agricultural subsidies

History of GATT

• International Monetary Fund
• World Bank
• United Nations
• International Trade Organization

WTO replaced GATT in 1995

• WTO is an umbrella organization that sets rules of international trade and dispute resolution
• Organization of the WTO →
• Overseen by the Ministerial Conference
which appoints the Director-General

Major principles of WTO Trade Law

• Multilateral trade negotiations
• Transparency/predictability of trade opportunities
• Reciprocal tariff reductions and bound commitments
• Nondiscrimination and unconditional MFN
• National treatment
• Elimination of quotas and other non-tariff barriers
• Dispute resolution

Tariff Concessions, Bound Rates, and Tariff Schedules

• Article II of GATT calls for member nations to cooperate in lowering tariffs
• Tariff bindings are capped at agreed rate and published in tariff schedules
• See the GATT European Economic Community--Import Regime for Bananas (1995)

Most favored nation (MFN) Trade

• Agreement to treat products (or services) from that country with lowest tariff rates that it gives to similar products imported from its other MFN trading partners
• In U.S., MFN granted by Congress
• According to WTO, all member nations are
entitled to MFN status

Unconditional MFN

if a member extends privilege to another member then that privilege automatically is extended to all members
• Exceptions to MFN Trading Status
• New Terminology: MFN is now Normal
Trade Relations or NTR

National Treatment provisions in GATT

National Treatment provisions in GATT are intended to ensure that imported products will not be subject to discriminatory treatment under the laws of the importing nation
• See the Japan--Taxes on Alcoholic Beverages
(1996 WTO)

GATT permits tariffs to

regulate imports but not quotas or other quantitative restrictions
• Import Licensing and Customs Procedures
• Quotas and Quantitative Restrictions
• Tariff-Rate Quotas

GATT Article XI

prohibits quotas on exports.
• “Rare earth elements” discussion
• See China v. U.S., Canada, the EU, and
Japan dispute at WTO. Decision in 2014
was against China

Quantitative restrictions

Balance of Payments Exception and Developing Countries
• See the India—Quantitative Restrictions
on Imports of Agricultural, Textile, &
Industrial Products (1999) case

WTO Dispute-Settlement Procedures

• Dispute mechanisms and procedures attempt to avoid retaliation or “trade wars”
• Have quasi-judicial process for resolving disputes when deadlocked
• Only a government can bring a “complaint” against another government
See the European Communities-Regime for the Importation, Sale, and Distribution of Bananas case (1997); U.S. could call for the convening of a WTO panel to question European Community import barriers
• WTO Reports as Legal Precedent

Exceptions to Normal WTO Trade Rules

• Trade Preferences for Developing Countries
• Generalized System of Preferences
• Eligibility for GSP Status e.g., 120 nations
• U.S. Caribbean Basin Initiative
• U.S. Preferences for Africa

• Free Trade Areas: two or more countries party to a free trade agreement
• Customs Unions: free trade area with a common external tariff
• Examples: Andean Community of Nations, Asian Free Trade Initiative, Middle East Economic Integration