410 Quiz Ch 9 and 14

Quantitative Restrictions:

Balance of Payments Exception and Developing Countries - occurs when a country's outflow of foreign exchange exceeds its receipts. Countries might try to preserve foreign exchange reserves through limited trade and financial transactions

Canada-U.S. Trade

Canada and U.S. are each other's largest trading partners

The North American Free Trade Area

Comprised of United States, Canada, and Mexico - Largest free trade area in the world - GDP $21 trillion & 481 million people - NAFTA created in 1994 under President Clinton

Agricultural Rules of Origin

tariff protection only if originate in NAFTA countries - including milk used for butter, cheese, yogurt or ice cream

Direct Non-tariff Barriers (disfavored)

- Embargoes - Quotas - Import licensing schemes

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 - WTO Reports are persuasive but not binding legal precedent

Question becomes: What is a like good? Look at:

(i) the physical properties of the products; (ii) the extent to which the products are capable of serving the same or similar end-uses; (iii) the extent to which consumers perceive and treat the products as alternative means of performing particular functions in order to satisfy a particular want or demand; and (iv) the international classification of the products for tariff purposes

Mexico-U.S. 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. and 80% of all exports from Mexico go to US

Labor provisions

- 40-45% of automobile parts must now be made by workers earning $16/hour by 2023 - Canada opens its dairy market to US farmers

Most Favored Nation (MFN) Status

- 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 - New Terminology: MFN is now called Normal Trade Relations or NTR

Transportation - controversial

- Almost 90% of goods from Mexico move by rail or truck - Goal was to simplify cross border transportation by eliminating fees, delays and costs associated with intermediate transfer of cargo at border which used to occur when Mexican trucks were limited to 25 miles in U.S.

Tariff Concessions, Bound Rates, and Tariff Schedules

- Article II of GATT calls for member nations to cooperate in lowering tariffs - reciprocal - Tariff bindings are capped at agreed rates and published in tariff schedules

Trade in Agriculture

- Canada is the United States' largest supplier of agricultural trading & Mexico is its third largest trading partner - All tariffs were eliminated January 2008 - Certain sensitive produce will be regulated by tariff rate quotas (corn, beans, sugar...)

Rules of Origin

- Critical to NAFTA implementation. NAFTA tariffs apply only to goods that originate in NAFTA country - Use tariff shift test test rather than substantial transformation test to determine whether item is from one of the three countries (each component must have undergone a tariff classification change = tariff shift)

Emergency Action to Protect Domestic Industry (NAFTA Safeguards)

- Emergency action may be taken 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 - The country imposing the safeguard must agree to trade compensation with exporting country (substantially equivalent effects) - Needs consent from country exporting goods *included due to concern of economic disruption or job loss.

North American Free Trade Law

- GATT Art. 24 states " the provisions of the Agreement shall not prevent...the formation of a customs union or free trade area" - 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

Import licensing

- GATT Art. XI prohibits "prohibitions or restrictions other than duties, taxes or other charges." - Import Licensing is often used as a disguised protectionist measure - After WWII many countries required importers to follow complex licensing schemes as a form of protectionism- often disallowed as arbitrary and discriminatory. - Some restrictions allowed if needed to protect public policy goals including protecting human, animal, or plant health, preserving national treasures etc....

Trade Law

- GATT Article XI prohibits quotas on exports. - "Rare earth elements" - elements that have magnetic and conductive properties - such as minerals used in cell phones and other electronics - countries are rightfully allowed to conserve their own natural resources but must do so in a non-discriminatory fashion (can't allow for ownuse but not others)

Indirect Non-tariff Barriers

- Laws - Regulations - often apply to food, cosmetics etc.... - Rules of administrative agencies *note, these look non-discriminatory on their face but usually aren't when applied

Reinforces major trade principles:

- Multilateral trade negotiations - Transparency/ predictability of trade opportunities - Reciprocal tariff reductions and bound commitments - Nondiscrimination and unconditional MFN - National treatment - once goods enter a country treated same as host country's products - Elimination of quotas and other non-tariff barriers - Dispute resolution - agree to use WTO and not retaliate

Goods Wholly Produced or Obtained in North America

- 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)

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, listed on NY Stock Exchange

National Treatment

- NAFTA has similar provision to GATT: once goods arrive from another NAFTA country, they are treated without discrimination and no differently than domestic goods (National Treatment Rule) - Elimination of Non-Tariff Borders: - Prohibits new export taxes on goods - Customs user fees were eliminated in 1999 - Continuing Non-tariff Barrier disputes

Cross Border Investments

- NAFTA minimizes restrictions - However still some restrictions (national security and particular industries)

NAFTA's Investment Provisions

- NAFTA's Open Investment Policies - investors can open and purchase companies in all 3 countries - Environmental Measures Applicable to Investments - concern upon enactment that U.S. companies would take advantage of less stringent environmental protection lawsin Mexico so NAFTA discourages investments that would relax "domestic health, safety or environmental measures"

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

Organization of the WTO

- Overseen by the Ministerial Conference which appoints the Director-General - Headquartered in Geneva

Production Sharing: Assembly Plants and the Mexican 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 - Issues Related to the Mexican Maquila Industry - Migration of workers to border regions can create social and health problems due to overcrowding issues - Assembly plant tariff rules apply - calculated on the value of the newly assembled article minus the value of the U.S. parts - only applies to assembled goods, not fabricated goods.

NAFTA Certificate of Origin

- Required for commercial shipments unless under $1000 US. Done by exporter - Marketing and labeling rules covered in Annex 311 - not the same in each country *some items are exempt from labeling such as those incapable of being marked, disproportionate cost, original works of art...

What are some of the Reasons for Regulating Imports?

- Revenue - Protection of domestic industry (plants and animals) - Retaliation against foreign trade barriers - Protection of resources (cultural, religious, traditional values) - Political motivations

NAFTA Fair Trade Commission

- Supervises agreement implementation - Arbitral Panels - countries must first try to negotiate, if unsuccessful can call for an arbitral panel. Panels have 5 members who are experts in trade or law. Hear both sides then recommend a solution. - Antidumping and Countervailing Duty Cases - go before proper administrative agency in home country

Cultural Expression?

- The UN Convention on the Protection and Promotion of the Diversity of Cultural Expressions was signed by 144 nations and states that "nations may adopt measures aimed at protecting and promoting the diversity of cultural expression within its territory..." goal is to preserve culture and heritage of own country - France is key supporter. How is this done? - U.S. did not sign stating that U.S. "is a multicultural society that values diversity...Governments deciding what citizens can read, hear, or see denies individuals the opportunity to make independent choices about what they value." - Should countries be allowed to limit influence of foreign cultures in their communities and encourage domestic expression? Concern about sameness to the world? Concern about discrimination? Are motives important? - Influence of American culture around the world via movies, music, fast food restaurants, chain stores....

USMCA

- Updated version of NAFTA Passed in U.S. with bipartisan support - Mexico (June 2019) and US (January 2020) Canada (March 2020) *watch video clip on Canvas - Went into effect in July 2020

Intellectual Property Rights

- Usually protected by international treaties (GATT/TRIPS) and enforced by NAFTA - Trademarks - 10 years - Copyrights - 50 years originally, now 70 (USMCA) - Patents - 20 years from application, 17 years from grant - Enforcements and Penalties - each country enforces its own rules - No citizenship requirements and all rights are freely transferable.

The World Trade Organization

- WTO replaced GATT in 1995 - WTO is an umbrella organization that sets rules of international trade and dispute resolution - 164 nations are members - Representatives from all member nations meet every 2 years

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 - Once goods enter a nation they are entitled to be treated the same as "like" goods that originated in that nation

History of GATT (con't)

- in 1947 23 nations signed General Agreement on Tariffs and Trade (GATT). One of the commitments was to conduct multilateral trade negotiations to reduce tariffs and non tariff barriers (NTB) - continue to this day - Kennedy Round (1964-1967): 62 nations participated more tariff cuts, mainly in manufactured goods - Uruguay Round (1986-1994): tried to address failure of GATT to address service and IP issues, created WTO - Doha Development Round (2001-today): negotiate agricultural subsidies, deal with IP, also developing countries' struggles with complying with WTO agreements

Two Exceptions to Normal WTO Trade Rules

1) Trade Preferences for Developing Countries - better thanNTR (MFN) - Generalized System of Preferences - Eligibility for Generalized System of Preference Status e.g., 120 nations - U.S. Caribbean Basin Initiative - U.S. Preferences for Africa 2) Exceptions for preferential treatments within: a)Free Trade Areas: two or more countries party to a free trade agreement (NAFTA - now USMCA) b) Customs Unions: free trade area with a common external tariff - Examples: Andean Community of Nations, Asian Free Trade Initiative, Middle East Economic Integration - EU is a customs union + a common market - includes free movement of money & labor + monetary union

Free trade area

2 or more countries that eliminate trade barriers for goods produced internally ex. NAFTA/USMCA

Protecting Investors from Expropriation

Article 1110 protects investors from expropriation without compensation also provides property taken must be used for a public purpose

Trade in Motor Vehicles and Parts

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

Balance is important

Each country wants to protect own national interest by balancing trade barriers with free trade

GATT European Economic Community--Import Regime for Bananas (WTO Panel 1995)

Facts: EEC negotiated tariff rates with developing countries that export bananas at a 20% ad valorem rate. In 1991 a complex licensing scheme is imposed increasing tariffs between 20-180% for Latin American countries. These countries protested that these changes violated GATT's Art. II tariff concession provisions and MFN principles. Issue: Did the EEC's change in its tariff rates violate Art. II? Holding: Yes Reasoning: The EEC had deprived the Latin American countries of the benefits under the schedule of concessions, they had bargained for and planned for those rates.

India—Quantitative Restrictions on Imports of Agricultural, Textile, & Industrial Products (1999)

Facts: For 50 years prior to case, India placed complex controls on imports of various goods. U.S. claimed they were arbitrary and discriminatory and in many cases resulted in an import ban. India claimed they were needed to protect its balance of payments and economic development. Issue: Are India's quantitative restrictions and licensing schemes justified to preserve its balance of payments? Holding: No Reasoning: India's restrictions were discriminatory, not rules based and no longer justified to protect its balance of payments.

Japan--Taxes on Alcoholic Beverages (1996 WTO)

Facts: Japan taxes liquor sold in Japan based on ten different categories of beverages. Shochu and vodka share many characteristics but vodka and other imported liquors fall into a category taxed 7 or 8 times higher. U.S., E.U. and Canada brought this case alleging Japan's classification violated GATT national treatment provisions. Issue: Was Japan violating national treatment provisions of GATT by treating Shochu different from imported spirits? Holding: Yes Reasoning: Shochu is a like product and directly competitive and substitutable with the imported liquors and thus should be treated the same. WTO panel looked at how it was made and tariff schedules.

Kirk v. New York(NY D.C. 2008)

Facts: Kirk, a Canadian veterinarian, wants to obtain a veterinary license in N.Y. He has an entry visa that permits him to live and work in the U.S. on a temporary basis. NY denies him a license because its laws only allow veterinary licenses for U.S. citizens or those lawfully admitted for permanent residence in U.S. Kirk challenges the law. Issue: Is NY's licensing requirement inconsistent with NAFTA regulations? Holding: Yes Reasoning: State law conflicts with NAFTA and therefore violates the Supremacy Clause and is invalid.

Normas

Mexican standards and technical obligations - often more strict and burdensome than U.S. or Canadian rules - dictates content, form, size and appearance of labels.

Metal Clad Corp v. MexicoInternational Center for the Settlement of Investment Disputes (2000)

Facts: Mexican Co., Coterin, received a permit to build a hazardous waste treatment plant, Metal Clad, a U.S. Co., acquired Coterin after it was assured by several Mexican government authorities that all required permits had been granted. The state governor later designates the land the treatment plant is on, a protected ecological and wildlife area. Metal Clad requests an arbitral panel to recover the $16.5 million it lost. Issue: Was Mexico's conversion of a hazardous waste facility into a wildlife preserve an expropriation? Holding: Yes Reason: Mexico's regulations were not transparent, its actions were unfair and resulted in an indirect appropriation of Metal Clad's property, therefore Mexico must pay Metal Clad the $16.5+ million it lost.

Samsonite Corp. v. United States (Fed. Cir. 1989)

Facts: Samsonite assembled luggage in Mexico for import into U.S. Samsonite shipped steel strips from U.S. to Mexico that were then bent and processed to make handles. Samsonite claimed this was an assembly making them eligible for a tariff deduction upon import back into the U.S. The U.S. said the bending and processing of the steel strips in Mexico was a step in manufacturing and not a minor operation incidental to assembly and therefore did not qualify. Issue: Were the steel strips being changed into handles an assembly rather than a fabrication making them eligible for the tariff savings? Answer: No. Reasoning: It was a fabrication, not a mere assembly and not eligible for duty-free treatment. Went from being a 5-inch strip of steel to a curved handle.

European Communities-Regime for the Importation, Sale, and Distribution of Bananas (WTO 1997)

Facts: The European Community was the world's largest importer of bananas with 2/3s coming from Latin America. Banana growers in Africa, the Caribbean, and Pacific (ACP countries) were having a hard time competing with the Latin American countries so EC created tariff and other barriers against non-ACP importers. U.S., along with several Latin American countries, challenged EC restrictions before WTO. EC argued that because U.S. was not a grower or exporter of bananas it could not bring the challenge, U.S. argued that because several of its companies that grow and export bananas were harmed by the regulations they could challenge and call for a WTO Panel. Issue: Does the U.S. have standing to call for the convening of a WTO panel challenging EC's import barriers on bananas even though its exports were not directly affected? Holding: Yes Reasoning: WTO member nations have broad discretion in deciding whether to bring a case against another member under GATT rules and it is within each country's discretion to determine whether such an action would be "fruitful." U.S. is a producer of bananas and could be an exporter, the restrictions could also affect its internal banana market because it could affect supply and prices of bananas worldwide.

In the matter of Cross Border Trucking (NAFTA 2001)

Facts: The U.S. prohibited Mexican trucks from carrying goods to their final destination instead requiring goods from Mexico to be transferred between 3 trucking firms, one in Mexico, one to transfer across the border and one to travel throughout U.S. The U.S. said this policy was for safety reasons because Mexico does not have the same regulations on its trucks or drivers. Mexico said U.S. was unfairly treating its trucks differently than those in the U.S. and Canada and brought a challenge before the NAFTA Arbitral Panel. Issue: Did the U.S. restriction on Mexican trucks violate NAFTA? Holding: Yes Reasoning: The U.S. restrictions on the Mexican trucking industry violated NAFTA. Allleged inadequacies in Mexican safety regulations were not sufficient reasons to justify blanket ban, U.S. could still hold Mexican-owned trucking companies and drivers to all U.S. regulations and safety standards.

tariff vs quota

GATT permits tariffs to regulate imports but not quotas or other quantitative restrictions

History of GATT

In 1944 Allied nations met at Bretton Woods Conference in New Hampshire to determine how to revitalize and rebuild world's economy in wake of WWII. Out of the meeting came: - International Monetary Fund - World Bank - United Nations - International Trade Organization *never materializes

Trade in Textiles and Apparel

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

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%)

Environmental Cooperation and Enforcement

North American Agreement in Environmental Cooperation calls for three countries to cooperate in protecting the environment but does not set any standards

Government Procurement

North American companies can compete for contracts to supply goods and services to agencies of all 3 governments - Maintain national defense and weapons exceptions - Applies to contracts greater than $77,533 and construction projects greater than $10 million - Bids from all suppliers in NAFTA countries must be treated without discrimination

Skippy case

Skippy wanted to use "Made in U.S.A." label but made from peanut slurry that came from Canada, Court said no - transforming of peanut slurry into peanut butter not enough of transformation to warrant label

intellectual Property (changes under USMCA)

a) Copyright protection extended to 70 years beyond life of author (vs 50) b) Prohibits duties on digital economy items like ebooks and music c) Protects internet companies from liability for content users produce

Tariffs

ad valorem (based on value of goods) or flat (generally the least restrictive type)

Sunset Clause

all terms of agreement expire after 16 years and is subject to review every 6 years.

Binational Panels

appeals from administrative orders in countries are brought here.

Extraordinary Challenge committees

appeals from binational panels come here - only to see if panel was biased, guilty of misconduct or exceeded its powers, authority or jurisdiction. Comprised of impartial judges and former judges.

Country of Origin rules

automobiles now must have 75% of components manufactured in member states to qualify for zero tariffs (up from 62.5%)

Financial services

banks, insurance companies and other financial service firms can open branches throughout

Exceptions to MFN Trading Status

countries who are charged with human rights abuses or terrorist activity, etc... can lose MFN status

Labor Cooperation and Worker Rights

does not set standards but requires countries to enforce those they already have.

Unconditional MFN:

f a member extends privilege to another member then that privilege automatically is extended to all members *can't play favorites

Common market

facilitates free competition among goods and services, can also have a common currency ex. EU

Customs union

free trade in all goods, even those just traveling through, also has a common external tariff ex. EU

Federal model

highly integrated common market ex. United States

Quota

is a quantitative restriction on imports; - absolute quota sets a predetermined limit either based on value or amount of goods, - zero quota is an absolute ban; - allocated quota is when the amounts are allocated among different countries

Trade barriers

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. Examples: tariffs, national standards, quotas etc....

Rights to Temporary Entry

no common labor market but does allow temporary entry for those engaged in certain business dealings (investors, research, sales, traders, other professionals etc...)

Tariff-Rate Quotas

not an actual quota but a tariff where the amount changes based on the quantity of a good imported - higher numbers equals higher tariffs