A SHORT COURSE IN INTERNATIONAL TRADE LAW

1. A SHORT COURSE IN INTERNATIONAL TRADE LAW Professor David A. Gantz University of Arizona, James E. Rogers College of Law Hanoi, August 2004 gantz@law.arizona.edu Sponsored by The U.S.-Vietnam Trade Council Education Forum usvtc@usvtc.org

2. I. Introduction • Teaching int’l trade law is difficult: • Issues are complex • Too much material to cover adequately in a 3 hour one semester course • There are constant important changes from year to year • Case study is required for understanding of WTO’s Appellate Body, even for civil lawyers

3. I. Introduction, cont’d. • Definition of international trade law (not the same as int’l commercial law) • GATT/WTO History • Basic Principles – GATT/WTO • Exceptions to GATT/WTO Principles • Art. XXIV, FTAs and the VBTA • WTO Accession

4. I. Introduction, cont’d. • Doha Development Round • Rules of Origin and Customs Issues • Trade in Agricultural Products • Textiles and Clothing • Trade Remedies – Dumping, Subsides, Safeguards • WTO Dispute Settlement

5. I. Introduction, cont'd. • Intellectual Property • Trade in Services • Standards and Phytosanitary Measures • TRIMS • Developing Countries and World Trade

6. II. GATT and the WTO • WTO, with over 146 members, became effective in 1995 • WTO replaces GATT, which governed world trade from 1947-1994 • Marrakesh Agreement Establishing the WTO has various annexes: • GATT and other trade in goods agreements • General Agreement on Trade in Services • TRIPS Agreement • Dispute Settlement Understanding • Trade Policy Review Mechanism

7. GATT/WTO, cont’d. • Plurilateral Agreements (government contracts, civil aircraft, bovine meat, dairy products) • All but Plurilateral Agreement are mandatory for all WTO Members • WTO is an international organization • Voting in theory may be by 2/3 vote, but in practice all decisions are by consensus

8. III. Core GATT Principles • Unconditional Most Favored Nation Treatment (Art. I) • Tariff Bindings (limit on tariff levels on product by product basis) (Art. II) • Non-discrimination with regard to internal taxes and rules, regulations, etc. (Art. III)

9. III. Core Principles, cont’d. • Requirement of transparency for trade-related laws, regulations, rulings, etc. (Art. X) • Prohibition against most quantitative restrictions (quotas) (Art. XI)

10. IV. Exceptions • Balance of payments problems (Arts. XII, XVIII) • Special treatment of developing nations • General exceptions (Art. XX) • Protection of public morals • Necessary to protect human, animal or plant life or health • Relating to trade in gold or silver

11. IV. Exceptions, cont’d. • Compliance with customs, competition, intellectual property and fair trade laws • Products of prison labor • Protection of national treasures of historical or archeological value • Conservation of exhaustible natural resources • Obligations under commodity agreements

12. IV. Exceptions, cont’d. • Art. XX “chapeau” limits use of exceptions to situations where there is no arbitrary or unjustifiable discrimination or disguised restriction on international trade.

13. IV. Exceptions, cont’d. • Actions a Member “considers necessary for the protection of its national security interests.” (Art. XXI)

14. V. FTAs, Customs Unions and RTAs • Exception to MFN and other GATT obligations for FTAs and Customs Unions (Art. XXIV), with conditions: • Covers substantially all trade among members • Elimination of barriers within a reasonable payment of time • No increase in tariff or non-tariff barriers for non-members

15. V. FTAs, cont’d. • Regional Trade Agreements (RTAs) have proliferated – nearly 300 notified to WTO • US, Mexico, Canada, EU, now Japan and Korea, among those concluding RTAs • ASEAN – AFTA • NAFTA – North America

16. V. FTAs, cont’d. • VBTA is not a “free” trade agreement, but contains some of same elements involving not only trade, but investment, services, transparency, business facilitation, safeguards • VBTA requires important changes in Vietnamese legal system, courts, regulatory process, etc.

17. VI. WTO Accession • WTO Rules permit any Member who wishes to negotiate bilateral agreement with prospective members • Most favorable results of those agreements combined in a single WTO accession agreement • Two thirds majority vote required for new members, but to date all accepted by consensus

18. VI. WTO Accession • US, EU, Korea, Japan, China, Australia, etc. realize Vietnam will be a major world trader, and thus are seeking many market-opening concessions • Bilateral agreements have been reached to date only with Cuba; nearly 20 more remain

19. VI. WTO Accession • In June, Vietnam significantly improved its accession offer: • Average bound tariff reduced from 22% to 18% • Greater services market-opening • Reduction in tariff rate quotas and other exceptions • If all goes well, Vietnam could become a WTO Member during 2005

20. VII. Doha Development Agenda • Efforts to Initiate new Round failed in Seattle in 1999, due to concerns of developing members and indecision in US and EU • Doha round launched in November 1999, but progress to date has been minimal

21. VII. Doha, cont’d. • Impasse at Cancun based on following still unresolved issues: • Inclusion of Singapore Issues (investment, competition, transparency in government procurement, trade facilitation) • Agricultural production and export subsidies • Agricultural market access • Extent to which developing countries will be expected to make new commitments

22. VII. Doha, cont’d. • “Group of 20” led by Brazil, India, now exercises considerable leadership over many developing countries; unclear whether G-20 will be an effective negotiating force or simply a bar to further progress

23. VII. Doha, cont’d. • US presidential election, changes in EU Commission (November) and recent accession of 25 new EU members (May) make progress in Doha negotiations unlikely before mid-2005

24. VIII. Rules of Origin/Customs • Eventual WTO Agreement on Non-Preferential rules will likely use the tariff-shift approach • In substance this is similar to U.S. principle of “substantial transformation” • Uniformity in R/O important to facilitate world trade

25. VIII. R/O, Customs, cont’d. • Preferential rules as in NAFTA and AFTA may use several approaches • Tariff shift • Wholly produced locally • Local content (50% - 60% in NAFTA, 40% AFTA) • Specific component, e.g., color TV picture tube

26. VIII. R/O, Customs, cont’d. • Harmonized System, used by US, Vietnam and most other nations, provides uniformity of classification for more than 5,000 six digit commodity groups • Uniformity facilitates trade and collection of customs duties

27. IX. Agricultural Trade • Farmers are protected in every nation; highest levels of protection are in EU, US and Japan, but are also found in China, Brazil, India and Mexico, among others • GATT 1947 contained many exceptions for agriculture, and did not effectively regulate agricultural product trade

28. IX. Agricultural Trade, Cont’d. • Agreement on Agriculture reduces but does not eliminate agriculture subsidies • Green box (non-distorting) subsidies aren’t significantly restricted • Blue Box (less-trade-distorting) direct payments not tied to production – less restricted • Amber Box (most restricting) tied to production, are reduced • Export subsidies are significantly limited

29. IX. Agricultural Trade, Cont’d. • After expiration of “Peace Clause,” agricultural subsidies are now restricted under SCM Agreement • Agricultural subsidies prohibited if they exceed Members’ commitments under AoA • Otherwise, actionable under SCM Agreement only if adverse effects are shown.

30. X. Textiles and Clothing • For many decades, under Multi-Fiber Agreement, developed countries have imposed quotas on textiles and apparel from developing nations • Under ATC, all such quotas will have been phased out as of January 1, 2005, although high tariffs may remain

31. X. Textiles/Clothing, cont’d. • Although ATC strongly supported by country Members during Uruguay Round, many are now concerned • Since China, India and a few other large producers are no longer subject to quotas, and are highly efficient producers, smaller, less efficient producers may not be able to compete.

32. X. Textiles/Clothing, cont’d. • Problem is particularly serious for small producers in Caribbean, Central America and Sub-Saharan Africa • Vietnam remains subject to U.S. quotas until she becomes a member of WTO, adversely affecting competitive position in world textile market

33. XI. Trade Remedies - Safeguards • GATT, Art. XIX contains “escape clause” permitting reimposition of tariffs or quotas as a result of increasing imports causing serious injury to domestic producers • Such language found in GATT 1947 and most other trade agreements

34. XI. Safeguards, cont’d. • Another requirement is “unforeseen circumstances,” unexpected surges as a result of tariff concessions, which is difficult to prove. • WTO Agreement on Safeguards provides detailed procedural and substantive requirements for initiation of safeguard measures

35. XI. Safeguards, cont’d. • Many countries, such as US, exempt FTA partners from global safeguards, although WTO Appellate Body has made this very difficult. • Developing country exports are exempted if a country represents under 3% of total exports, or developing countries in the aggregate, under 9%

36. XI. Safeguards, cont’d. • US – Steel Safeguards confirmed that only increased imports throughout the period of investigation would be sufficient justification for safeguards. • FTA members who were major producers– Mexico and Canada– could not be excluded if their imports were covered in the investigation

37. XI. Safeguards, cont’d. • Difficulties with regard to showing that imports were cause of serious injury, FTA issues, unforeseen circumstances, makes a WTO legal safeguards action by Member nations unlikely. • U.S. has special safeguards for “market disruption” for NMEs; lower standard

38. XII. Trade Remedies - Dumping • Dumping most common of trade remedies; over 100 WTO Members have AD laws, as does Vietnam • Most common users are US, India, EU, Australia and Argentina • To impose AD duty, domestic industry needs to show dumping, and material injury

39. XII. Dumping, cont’d. • WTO AD Agreement defines dumping as price discrimination between foreign and domestic markets • More logical focus on sales below production cost, or predatory pricing, is not used • AD laws best seen as a safety valve for freer trade worldwide

40. XII. Dumping, cont’d. • Normal Value (NV) (usually price in home market) compared to Export Price (EP) • If EP is lower than NV, difference is dumping margin, with de minimis level of 2% • AD Agreement provides detailed procedural protections and substantive rules for national investigating authorities

41. XII. Dumping, cont’d. • Under AD Agreement and national laws, various adjustments are to be made to NV and EP so as to provide a “fair comparison.” • Adjustment for freight, circumstances of sale, differences in merchandise are designed to result in a fair comparison at the “ex factory” level

42. XII. Dumping, cont’d. • Non-Market economy countries, such as Vietnam and China, are treated differently • US, EU assume that various materials and production costs (input data) are not set by market forces, but through government decisions, and are therefore untrustworthy

43. XII. Dumping, cont’d. • Instead, Commerce (or the Commission) uses a “surrogate,” normally a market economy country such as India or Bangladesh that is a significant producer of the product, and is at a similar level of development • In theory this seems reasonable, but the lack of detailed public data from producers in the surrogate country permit Commerce to make many assumptions or adjustments that may be adverse to NME country producers.

44. XII. Dumping, cont’d. • China, in its Accession Agreement with the United States, accepted the concept of NME treatment for 15 years! • US and China had recent discussions as to how China can become a market economy for AD purposes (like Russia) but it likely will take many years to change

45. XII. Dumping, cont’d. • Commerce initially determined that Vietnam would be given NME treatment as part of Basa/Catfish, based on: • Government intervention in economy • Non-convertibility of dong • Controls on foreign investment and investors • Use of government pricing committees • Discriminatory treatment of SOEs • Restrictions on private land ownership • Weak rule of law

46. XII. Dumping, cont’d. • While the surrogate approach is used for NV, Vietnamese (and most Chinese), exporters have been given “separate rates” for determining EP • This is based on Commerce determination that the exporters determine selling prices without government direction or interference.

47. XII. Dumping, cont’d. • In BASA/Catfish, Commerce used input data from India and Bangladesh, and found margins of approximately 36-64% • The US International Trade Commission found material injury, based on the significant increases in Vietnamese imports over three years, and lower prices in the U.S. market

48. XII. Dumping, cont’d. • While small producer countries are exempt from AD injury findings if they have imports which are less than 3% individually or less than 7% in the aggregate (Art. 5.8), Vietnam was responsible for a far larger share of total U.S. imports.

49. XII. Dumping, cont’d. • In Shrimp, Commerce found preliminary AD margins of 12.11% to 19.60% for most Vietnamese producers, although a group of others received 93.13% margins • A Bangladeshi company was used as the surrogate for most input prices

50. XII. Dumping, cont’d. • Final AD determination could result in higher or lower margins, after verification in Vietnam and a hearing in Washington • If final AD margins are found, likely that USITC will find material injury, as Vietnam source imports (and those from five others, China, Brazil, Ecuador, India, Thailand) are rapidly increasing, while the U.S. domestic producer market share is decreasing.