International Business Transactions -- Chapter 2 International Business Treaties

tariff-rate quotas

(TRQs) not absolute; hybrid between import duties and quotas permit specific quantity of imported goods to enter a country at a reduced duty rate (or possibly duty-free) and quantities in excess of that amount enter at a higher duty rate can have multiple TRQs for same class of goods

3 Bretton Woods Institutions

1) International Monetary Fund; 2) International Bank for Reconstruction and Development (World Bank); and 3) (was to be) the International Trade Organization

Hull Formula

Capital exporting states --- states position that int. law requires a state that has expropriated a foreign national's investment to provide prompt, adequate, and effective compensation for the investment

indirect expropriation

Using a variety commercial interference measures that incrementally and cumulatively begin to permanently destroy the economic value of the investment... when state regulation imposes costs on foreign investor that reduce profitability of the investment

Dispute Settlement Understanding (DSU)

WTO framework (uruguay round) for the settlement of trade disputes between member states;

DSB Appellate Body

WTO members may appeal a DSB ruling to a panel of this ______ body, which may uphold, modify or reverse the panel's legal findings. Final and binding (unless DSB unanimously rejects it)

ad valorem duties

based on a percentage of the determined value of the imported goods

Joint Venture (JV)

business firm owned by 2 or more unaffiliated parties, usually through the creation of a separate, jointly-owned subsidiary allows parties to pool resources in pursuit of mutually beneficial enterprise

Capital-importing states

developing countries import far more foreign investment capital than wealthy countries relative to their national incomes

Like products

for purposes of determining whether differential taxes are discriminatory, Factors are: - products end-uses in a given market - consumer's tastes and habits, which change from country to country and - the product's properties, nature and quality ALSO determined by cross price elasticity

opportunity cost

loss of a potential gain from another alternative when one alternative is chosen; basis of many business decisions

cross-price elasticity of demand

measure of responsiveness of demand for one good to a change in the price of another good. The more consumers consider goods substitutable, the larger the change in consumption of one good when the price of the other good falls

Moral Hazard

problem facing both private investors and states seeking to attract private investment occurs when a person takes more risks OR accepts greater costs because that person knows someone else will bear them

comparative advantage

states benefit from producing whatever goods they can at the lowest opportunity cost, regardless of whether they have an absolute advantage in producing those goods

Capital-exporting states

states that export more investment than they recieve from their wealthier counterparts

absolute advantage

the ability a state to produce more of a good or service than competitors using the same amount of resources (to produce it more efficiently)

International Trade Organization

the not actually formed Bretton Woods institution; intended to oversee the liberalization of global trade (US objected)

mercantilism

theory that an empire best serves its own interests with high exports, few or no imports, and the accumulation of precious metals

protectionism

trade strategy; uses import barriers like high customs duties to deter imports and encourage local manufacturing

General Agreement on Trade in Services (GATS)

A WTO agreement governing the international trade of services, whether performed remotely or within host state non discrimination obligation, but no requirement of auto market access to all services... WTO members may decide not to make market access or other trade concessions with respect to specific service sectors

Generalized System of Preferences (GSP)

A mechanism by which some industrialized states began in the 1970s to give tariff concessions to third world states on certain imports; an exception to the most-favored nation (MFN) principle in favor of developing countries** **self-defined by WTO members to claim benefits

Guarantee of fair and equitable treatment

BITs often contain higher order of security for foreign investments relating to harm by act or neglect of the host state broader and more ambiguous scope: outrage, bad faith, wilful neglect of duty, or insufficiency of gov'tl action so far short of international standards that every reasonable and impartial man would readily recognize its insufficiency articulated differently by different bodies!

Guarantee of full protection and security

BITs often contain higher order of security for foreign investments relating to harm by act or neglect of the host state clear meaning: requires host state take reasonable policing measures to protect the foreign investor and its investment against crime and lawlessness

International Bank for Reconstruction and Development (World Bank)

Bretton Woods institution; role is to provide loans and technical assistance to countries for economic development

International Monetary Fund (IMF)

Bretton Woods institution; role is to stabilize currency exchange rates so that the states may productively borrow money and engage in trade with each other

Scedule of Commitments

GATS requires WTO members to submit this "positive list" of service sectors to which foreign market access and national treatment obligations will apply lists service sectors that will be open to foreign trade and invst. and limitations that the member state intends to impose on foreign access to that market and on national treatments

Schedules of concessions

GATT 1947 set forth, significantly reduced customs duties imposed by state parties, negotiated state-by-state, product-by-product for tens of thousands of products; Each state published lists of products for reduced duties, rates of import duties, special charges or other barriers to import for each, and the concessions granted for each, if any.

MFN (Most Favored Nation) Principle

GATT principle that prohibits states from granting better trade concessions to some WTO members than they do to others I.e. prohibits import and export regulations that discriminate between products from different WTO member states See GATT art. I.

WTO (organization of the body)

HQ in Switzerland. 164 state parties (almost every major world economy) Ministerial conference composed of reps from each contracting party. Conference's daily business run through 3 bodies: General council, Dispute Settlement Body, and the Trade Policy Review Body. + Secretariat to assist WTO members in negotiation and dispute resolution

World Trade Organization (WTO)

International organization derived from the General Agreement on Tariffs and Trade (GATT) that promotes it free trade around the world. Supervisory institution established for future trade negotiations and a strong enforcement mechanism. Forum for new negotiations and interpreting those in force.

national treatment

Prohibits internal regulations that discriminate against imported products in favor of domestic products nondiscrimination principle to ensure that after goods have cleared customs and entered the importing country, they are not disadvantaged by discriminatory municipal laws and regulations GATT art. III.

Agreement on Trade Related Investment Measures (TRIMS)

NOT a general international investment treat. Limits ability of WTO members to disadvantage foreign investment within their territories through certain kinds of trade restrictions and discrimination 1. requires WTO members to afford national treatment to foreign investments affecting trade; aka no regulation on foreign investors that is more burdensome than regulations on domestic investors 2. prohibits quantitative restrictions on importation of goods that may be used in foreign investment 3. NO MFN requirement for investments

Dispute Settlement Body

Under DSU, parties unable to resolve their disputes amicably may request appointment of a panel of the _____. Panel will review complaint/rebuttal, conduct hearing and issue a binding report that cannot be blocked by respondent. Only ____ acting unanimously can block a panel report. Ruling will not award damages, will recommend that WTO member bring itself into compliance Failure to conform = authorized to retaliate by withdrawing equivalent trade concessions until they comply

Uruguay Round

a trade agreement to dramatically lower trade barriers worldwide; included treaty that created the World Trade Organization

Foreign Direct Investment

active commitment and management of assets in a foreign country for purposes of earning a return (greater committment of resources and acceptance of risk than just a K for sale of goods) 4 elements 1) investor's contribution of capital to an investment project 2) a time period during which a profit is expected to result 3) in which the investor undertakes operational risks 4) with the result of contributing to the economic development of the host state

GAAT (General Agreement on Tariffs and Trade)

adopted in 1947; no supervisory or enforcement mechanism, treaty that became basis for successive rounds of trade negotiations to lower import duties and reduce other barriers to trade; established elaborate set of disciplines to govern international trade in goods

Calvo Doctrine

capital-importing states adhered to position expressed by argentinian diplomat, that HOST states have exclusive jx over foreign investments in their territory and have no obligation under int. law to compensate a private foreign investor for expropriation beyond what it considers reasonable in its discretion

Federal Arbitration Act

establishes a strong federal public policy in favor of recognition of foreign arbitral awards by U.S. courts Panel awards are likely to be upheld in court absent extreme circumstances

expropriation

host state taking an entire firm, or substantially all of its business assets, for its own use, for the use of its own nationals, or simply in order to dissolve the foreign owned business

Agreement on Technical Barriers to Trade (TBT Agreement)

imposes disciplines on national product specification rules that affect imports from other WTO contracting parties Most of these disciplines are concerned that such specifications do not artificially distort international trade Article 2: ensure that technical regulations of products (voltage, energy efficiency, consumer safety, etc.) do not pose unnecessary barriers to international trade DOES NOT IMPOSE obligations directly on private manufacturers, only makes it more likely that State will adopt such standards into their domestic laws

Bilateral investment treaty (BIT)

most common form of treaty, covers only investments b/w nationals of the 2 State parties; designed to reduce risks of FOREIGN direct investment, extends protection to invesotrs of each party as well as investments themselves common after 1959 to encourage foreign investment most are b/w capital exporting + capital importing states 3 purposes 1) establish nondiscrim principles for treatment of investments in the state parties 2) guarantee a minimum standard of protection of foreign investments in the territory of the state parties to the treaty, even if they are not related to int. trade in goods (relates most to state expropriation of the investment) 3) establish a mechanism to resolve disputes between investor and host state (to overcome moral hazard)

Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)

most comprehensive multilateral IP treaty in the world Scope: commits WTO members to adopt broad range of IP protections and harmonizes those protections; binding standards for copyright, trade secret, trademarks, etc. MFN and National Treatment obligations MINIMUM standards for IP protections, States can always do more

Treaties of Friendship, Commerce, and Navigation (FCN Treaties)

most contain diverse clauses relating to bilateral trade; friendly diplomacy; access to waterways MORE recently adding provisions relevant to international investment (right to own property in other state, prohibition of taking property without due process, etc.)

3 ways to trade services internationally

movement of 1) persons --> people travel to provide service in person 2) products --> ex. modifications or contract manufacturer service in another country 3) information --> generating and sending information

host state

national recipient of foreign investment

investor state

national source of foreign investment

GATT 1947 Principles

nondiscrimination among GATT parties in trade preferences and internal taxation; restrictions on market access barriers such as import quotas or burdensome import licensing procedures; limitations on shutting down trade to protect currency values; and limitations on the granting of export subsidies or the use of competitive policy to restrict trade; Harmonize procedures for importation: method of appraising value of imported goods for purpose of calculating customs duties, rules for determinig country of origin

direct expropriation

occurs when host state fully deprives a foreign investor of ownership, control, or both, of its investment means host state transfers title to the investment to itself or its designee, comes right to the company's profits and (usually) the right to control the investment's business operations even if title reamins with investor, occurs when host state effectively deprives investor of control

WTO plurilateral treaties

optional treaties, not all WTO members are a party to this kind of treaty

import quotas

quantitative restrictions, set maximum limit on the quantity of goods that may be imported into a country over a specific period, usually one year. Historically used by States to protect domestic industries for foreign import competition

Model BITs

since 2004, US has published ______ that generally reflects preferred US practice. USTR used model as a template for negotiating investment treaties with other states contains non discrimination principles purpose = allow investors to make efficient decisions about how to allocate their capital between the state parties to the BIT