Introduction: International Trade and Investment Law Fall 2017 Joyner
Public International Law—Law that binds states in obligations with each other.
Legal instruments (frequently treaties) are what create the legal obligations for those that sign on.
States obligate themselves to abide by the treaty provisions.
If the treaty contains a dispute settlement mechanism, the state is bound by the mechanism AND the result.
Government measures that impact international trade (regulatory barriers):
Bans
Tariffs—taxes on imports/ exports
Countries impose tariffs to make money and increase the price of foreign goods to protect domestic production or to punish some country they don’t like.
Customs duties, etc.
Non-tariff barriers to trade
Frequently in the health and safety realm. The scope of which is limited only by the imaginations of customs officials.
EX: France limited the importation of VCRs: they could only come in through an inland port (importers had to fly them in: increased costs, etc.)
Common language/ labeling requirements.
All barriers and practices have same effect:
Used to artificially enhance the competitive ability of some products over others in a marketplace.
Non-market forces that, either through enhancing one product’s ability or decreasing another’s product ability, artificially alter the market.
Increase the cost of getting products to market. Beneficial for domestic producers: the point-of-sale price of foreign goods is increased, decreasing the marketability for each product.
Comparative Advantage
Idea that countries are naturally more efficient at producing some goods and services than other countries. If every country puts all their resources into those most efficient products and trades for the rest, everyone will be operating at the most efficient rate through specialization
Producing/ Consuming at the most efficient level; international interdependence.
Essentially deals with efficient allocation of resources.
General Agreement on Tariffs and Trade (GATT)—Overall Outline
Three fundamental purposes:
Channel all trade barriers into tariffs (make quantitative)—Article XI
Bind tariffs in a transparent manner (easier to regulate and deal with) –Article II
Through non-discrimination rules, lower tariffs generally
MFN
Exceptions
Preferential Trade Agreements (PTAs)
Treatment of Agricultural subsidies (generally exempt from prohibition of subsidies)
TRIPS (offers protectionism and non-competition: completely contrary to the idea of comparative advantage)
National Treatment
Underlying Tensions Throughout class:
Producers’ interests are often in conflict with consumers. This difference is often hard to harmonize.
Keeping out imports does harm to consumers by keeping prices higher, but it helps domestic producers. Regulatory agencies in government are often motivated to protect domestic producers even if they are harming consumers.
Introduction: The Modern Trade Debate Among Economists
Historical Background
Post-WWI analysis found that the punitive provisions imposed against Germany after WWI (Treaty of Versailles) crippled Germany economically. This played a direct role in the rise of the Nazis and Hitler.
Found a direct link between economic security and peace: when countries are prosperous, they are less likely to fight with each other.
1952: Coal and Steel Organizations Agreement
First treaty linking European economies: chose to interconnect these industries because they are so related to military function. Interconnecting them allows countries to know if one country is building up their military, etc.
Bretton Woods Conference—late 1940s—created the World Bank, the IMF, AND
General Agreement on Tariffs and Trade (GATT)
Point was to make countries interdependent on each other.
Most Favored Nation Treatment (MFN): Do unto all others as you do to your most favored nation.
Exception: if a country is really efficient at producing something (e.g., Columbia and coffee) –might be able to set a high tariff on all imported coffee.
National Treatment
Secondary rule that is meant to make sure that MFN works properly.
Makes sure that the good done by MFN at the border isn’t undone by internal regulations/ taxes/ etc. (e.g. domestic regulations on labeling: “sugar from Haiti: if you buy this, you have blood on your hands.”
Theory of Comparative Advantage
Trying to level the playing field for everyone by reducing regulatory barriers to trade. When the barriers are reduced, those that are most efficient at producing certain goods will be encouraged to do that and will allocate resources as such. There is an incentive to specialize and trade for everything else.
Theory is that it produces globalization (globalized interdependent economy), promotes efficient allocation of resources, and “brings all the boats higher” (higher global prosperity).
Proponents focus mostly on the macro level: interdependence/ efficiency.
There are detractors, who argue (focus on the micro level: comparative advantage does have transaction costs/ externalities on real people):
There are winners and losers; not everyone profits the same:
Some in developed countries have many arguments against:
That it promotes outsourcing (it becomes rational and later necessary to move offshore)—can’t protect domestic production (or make domestic goods more competitive) by artificially raising price of materials that are made in countries with much lower costs of production (less regulations, cultural differences with what people are willing to work for, government subsidies for healthcare/ pensions, etc.).
“Trade agreements are an unholy alliance between Wall Street and Washington.”
“Free trade” in developed countries means cutting salary benefits, etc. to stay competitive (Winners –developed country consumers and foreign workers; Losers – developed country manufacturers, lost jobs, etc.)
Some in developing countries also have arguments against it:
Sweatshops – the WTO creates an incenti
or [in their tariff bindings].”
Ad valorem tariffs (more typical) – expressed as a percentage of value (5% ad valorem).
Specific Duty – Imposes duty based on weight, volume, or quantity (14¢ per kg).
Tariff numbers correspond to the harmonized tariff system that was a treaty organization and has now become, in effect, the standard system across all tariff bindings.
States will use the same number to refer to the same products UP TO SIX DIGITS (past this, there is no standard; states can get more and more specific).
EC – Customs Classification of Chicken Cuts
FACTS
EC makes a lot/ eats a lot of chicken. Designed tariff binding in a somewhat protectionist way on imported chicken (40-60%). Brazil figured this out and started putting salt on the chicken before they exported it (labeled as salted chicken). EU figured it out, denied to recognize this as salted meat, and treated it as regular meat (higher tariff).
The EU definitely MEANT salted means salted for preservation, but the judges can’t say this and must go through this exercise of interpretation. Comes up with a different result.
Say that the tariff classification is not characterized exclusively by preservation. It is not clear that salted meat only encompasses meat that is only done for preservation. So any meat that has been sufficiently salted for any reason, such that its “character has been altered by the addition of salt,” should be covered by the salted meat tariff rate.
BOTTOM LINE: States do get to set categories beyond the six digit harmonization schedule, but with respect to the MFN rule, a panel will give very little deference to the state’s own interpretation of the binding; it will take its ordinary meaning. (Don’t expect to set and interpret your own binding).
(Opinion is defensible with regard to treaty interpretation, but probably just fit reasoning to fix what they thought was wrong behavior.)
So it worked, all Brazil had to do was put some salt on the meat, and it went from a level of 55% to a level of 15%.
Joyner thinks, while not illegal, the 55% rate was protectionist, and the court did not like it.
Vienna Convention
A treaty should be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
Don’t resort to the history, etc. unless the textual interpretation is ambiguous, obscure, absurd.