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The new American president Donald Trump had indicated during his campaign to levy punitive duties of up to 45 percent on Chinese goods to levy the playing field for U.S manufacturers. How do you analyze the possibility and extent for the U.S to carry out such policy from WTO perspective? (30 marks)
Country A is a WTO developed country Member. It has recently been under attack from its local community that its trade liberalization policy leads to a large loss of domestic competitiveness in relevant markets. In order to increase local employment and achieve its sustainable development goal in the coming years, the new government elected is considering a series of actions. Please analyze the legality of each of the following measures with respect to WTO law.
(1) in the automobile sector: any passenger car manufacturer wishing to import automotive parts or kits is required to sign a Memorandum of Understanding (MOU) with the Board of Foreign Trade. A failure to sign the MOU could not be allowed into the market. A requirement in the MOU provides that a company's exports be equal in value to its imports. (20 marks)
The question to be answered here is whether the above measure can be described as a restriction on importation, as the measure does not have a formal quantitative restriction but only set out certain conditions for importation which make the importation more onerous than if the condition had not existed, thus generating a disincentive to import. As far as the trade-balancing requirement in concerned, it is a condition placed on the importation of a product. The panel in the case India-Autos concluded that although a trade-balancing condition does not set an absolute numerical limit on the amount of imports that can be made, it does limit the value of imports that can be made to the value of exports that the signatory intends to make over the life of the MOU. A restriction does not need to be a blanket prohibition or a precise numerical limit, since the term "restriction" cannot merely mean "prohibitions on importation", and Article 11 of the GATT 1994 expressly cover both "prohibition or restriction".
(2) in the banking sector: The number of domestic employees employed by the foreign firm in the free-trade zone of Country A shall not be lower than 60% of that of its total employees. Note that Country A has made specific commitments under the GATS for financial services. With regard to restrictions on market access and national treatment in the banking sector, the Schedule states "none". (25 marks)
In this case, Country A has made specific commitments under the GATS for financial services, which according to the CPC system, includes banking services. With regard to the banking sector, Country A had stated "none" in its Schedule, which means that Country A has made a full commitment and therefore it cannot seek in any way to limit market access or national treatment through measures inconsistent with Articles 16 and 17. However, upon entering into a free-trade agreement, Country A has required that the number of domestic employees employed by the foreign firm in the free trade zone of Country A shall not be lower than 60% of that of its total employees. This requirement constitutes as a limitation on national treatment, as it mandates the foreign firms to employ a said amount of domestic workers, effectively protecting the job opportunities of domestic workers in Country A.
Question 1
Example answer:
One of the core pillars of the WTO system is the non-discrimination principle embedded in Article 1 of the GATT 1994. It prescribes the MFN obligation to all member countries. The core essence of the MFN obligation is that all WTO members are obliged to give one another's like products the best existing market access opportunities, without discrimination in law or in fact. Since America is a WTO member, it has to play by the WTO rules. By levying punitive duties on Chinese goods only , President Trump is infringing on Article 1 of the GATT 1994 as he is discriminating against Chinese goods. Therefore, President Trump cannot levy punitive duties solely on Chinese products.
According to Article 2 of the GATT 1994, imported products shall be exempt from ordinary custom duties in excess of the amount set forth in the importing member's schedule. This means that members cannot levy ordinary custom duties that exceed the bound tariff rate. However, members can also apply "other duties and charges" (ODCs) to the imported products, in addition to the ordinary custom duties. To do so, a member must register the ODC in its schedule, and the ODC actually applied must not exceed the level indicated in the schedule. Therefore, if President Trump wants to levy additional duties on Chinese goods, he must register the ODC in its schedule, and in applying this ODC he must also conform to the MFN treatment, which is to levy the same ODC on imported products from the other WTO members.
Another possibility of levying punitive duties on Chinese goods is through the the application of safeguard measures. A safeguard measure is applied to remedy serious injury in the domestic industry of an importing member , and it can be in the form of additional tariffs or quantitative restrictions. To apply a safeguard measure, President Trump must adhere to the rules of the Safeguard Agreement. According to Article 2 of the Safeguard Agreement, a member may apply a safeguard measure to a product only if the member has determined that such product is being imported into its territory in increased quantities, and such increased imports are causing or threatening serious injury to the domestic injury that produces like or directly competitive products. Furthermore, according to Article 3 of the Safeguard Agreement, President Trump must conduct an investigation to ensure that the above said substantial requirements are met. As a conclusion, President Trump can only apply a safeguard measure on Chinese products only when he has fulfilled the substantive and procedural rules of the Safeguard Agreement.
President Trump can also levy punitive duties on Chinese goods through the imposition of anti-dumping measures. The imposition of an anti-dumping measure is to remedy serious injury caused by dumped products into the commerce of an importing member, and can only take the form of anti-dumping duties. According to Article 6 of the GATT 1994, an anti-dumping duty can only be applied when a dumped product is causing or threatening to cause material injury to the domestic industry of an importing member. To apply an anti-dumping measure, President Trump has to adhere to the rules the Agreement on Implementation of Article VI.Therefore, President Trump has to conduct an investigation pursuant to Article 5 of the agreement to determine if there is serious injury to the domestic injury as defined in Article 3. Only when President Trump has determined that the Chinese goods are being dumped into America, and that these goods are causing or threatening material harm to the domestic industry can he impose an anti-dumping measure on the Chinese goods.
President Trump can also levy punitive duties on Chinese goods through the imposition of anti-dumping measures. The imposition of an anti-dumping measure is to remedy serious injury caused by dumped products into the commerce of an importing member, and can only take the form of anti-dumping duties. According to Article 6 of the GATT 1994, an anti-dumping duty can only be applied when a dumped product is causing or threatening to cause material injury to the domestic industry of an importing member. To apply an anti-dumping measure, President Trump has to adhere to the rules the Agreement on Implementation of Article VI.Therefore, President Trump has to conduct an investigation pursuant to Article 5 of the agreement to determine if there is serious injury to the domestic injury as defined in Article 3. Only when President Trump has determined that the Chinese goods are being dumped into America, and that these goods are causing or threatening material harm to the domestic industry can he impose an anti-dumping measure on the Chinese goods.
Question 2
(1) in the automobile sector: any passenger car manufacturer wishing to import automotive parts or kits is required to sign a Memorandum of Understanding (MOU) with the Board of Foreign Trade. A failure to sign the MOU could not be allowed into the market. A requirement in the MOU provides that a company's exports be equal in value to its imports. (20 marks)
Example answer:
According to Article 11 of the GATT 1994, members are not allowed to maintain quantitative restrictions that prohibit entirely or limit the quantity of imports or exports. The measure in question here is a requirement to sign a MOU with the Board of Foreign Trade in order to be able to import automotive parts. The legality of this measure depends on whether it constitutes as a quantitative restriction in the sense of Article 11 of the GATT 1994.The question to be answered here is whether the above measure can be described as a restriction on importation, as the measure does not have a formal quantitative restriction but only set out certain conditions for importation which make the importation more onerous than if the condition had not existed, thus generating a disincentive to import. As far as the trade-balancing requirement in concerned, it is a condition placed on the importation of a product. The panel in the case India-Autos concluded that although a trade-balancing condition does not set an absolute numerical limit on the amount of imports that can be made, it does limit the value of imports that can be made to the value of exports that the signatory intends to make over the life of the MOU. A restriction does not need to be a blanket prohibition or a precise numerical limit, since the term "restriction" cannot merely mean "prohibitions on importation", and Article 11 of the GATT 1994 expressly cover both "prohibition or restriction".
In this case, the MOU requirement that an importing company's
exports be equal in value to its value in imports does not seem to appear as a
quantitative restriction on imports, since it does not have an absolute
numerical ceiling and merely states that the trade flows should be balanced.
However, according to the panel report in India-Autos, this requirement
constitutes as a quantitative restriction as it does in fact restrict the
number of automotive cars that a company can import. In other words, the number
of automotive cars a company can import is limited to the number of automotive
cars it wishes to export. If a company does not wish to export any automotive
cars, it would not be able to import any automotive cars. This being said, the
trade-balancing requirement in the MOU is indeed a quantitative restriction
and is therefore inconsistent with Article 11 of the GATT 1994.
(2) in the banking sector: The number of domestic employees employed by the foreign firm in the free-trade zone of Country A shall not be lower than 60% of that of its total employees. Note that Country A has made specific commitments under the GATS for financial services. With regard to restrictions on market access and national treatment in the banking sector, the Schedule states "none". (25 marks)
Example answer:
Paragraph 1 of Article 5 of the GATS Agreement provides that members are allowed to be a party to or enter into an agreement liberalizing trade in services between or among themselves, as long as such agreement fulfill the specified requirements laid out in Paragraph 1(a) to (b). According to paragraph 1(b),such agreement must provide for the absence or elimination of substantially all discrimination between or among the parties, through (i) the elimination of existing discriminatory measures and/or (ii) prohibition of new or more discriminatory measures. This being said, an economic integration agreement between the WTO member countries must be an agreement to facilitate trade between the parties to the agreement, as opposed to an agreement to raise barriers against the trade of services.In this case, Country A has made specific commitments under the GATS for financial services, which according to the CPC system, includes banking services. With regard to the banking sector, Country A had stated "none" in its Schedule, which means that Country A has made a full commitment and therefore it cannot seek in any way to limit market access or national treatment through measures inconsistent with Articles 16 and 17. However, upon entering into a free-trade agreement, Country A has required that the number of domestic employees employed by the foreign firm in the free trade zone of Country A shall not be lower than 60% of that of its total employees. This requirement constitutes as a limitation on national treatment, as it mandates the foreign firms to employ a said amount of domestic workers, effectively protecting the job opportunities of domestic workers in Country A.
As mentioned above, the legality of a free-trade agreement
liberalizing trade in services depends on whether the said agreement fulfill
specific requirements, one of them being the prohibition of new or more
discriminatory measures. In this case, Country A did not have any
discriminatory measure in place prior to the free-trade agreement. The new
discriminatory measure which requires that the number of domestic employees
employed by the foreign firm in the free trade zone of Country A shall not
be lower than 60% of that of its total employees is only introduced after the
free-trade agreement. This being said, The bar for banking services to
flow into Country A has become higher after the free-trade agreement.
Therefore, this free-trade agreement is inconsistent with Article 5 of
the GATS Agreement.
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