UNIVERSITI UTARA MALAYSIAGMUL 5063INTERNATIONAL TRADE LAW : UNIVERSITI UTARA MALAYSIAGMUL 5063INTERNATIONAL TRADE LAW Prepared by :
Hj Omar Ismail 804385
Azman Haron 805652
Haznita Hashim 803672
Suzana Awang 802284 OUTLINES : OUTLINES History of International Trade Law
Sources of International Law
International organization and agreements affecting trade
Resolving international disputes
Issues on competition law and policy International Trade Law : International Trade Law International Trade Law deals with the rules and regulations that are required for carrying out international trade relations between different countries.
The rules are also applicable for private companies that carry out trade relations with other companies across international borders.
The modern laws on international trade is rooted in the law of merchants on land ( lex mercatoria) and the law of seas (lex maritima).
A practice that helps facilitate the movement of goods and technology across borders. Import-export laws, trade laws, and tax laws are involved, many of which are derived from treaties and national statutes. What is WTO : What is WTO The World Trade Organization (WTO) is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments.
The goal is to help producers of goods and services, exporters, and importers conduct their business Slide 5: Location : Geneva, Switzerland
Established :1 January 1995
Membership : 153 countries on 23 July 2008
Budget : 189 million Swiss francs
Secretariat staff : 625
Created by : Uruguay Round
(1986- 94) Functions:
• Administering WTO trade
• Forum for trade negotiations
• Handling trade disputes
• Monitoring national trade policies
• Technical assistance and
training for developing countries
• Cooperation with other
international organizations GATT and the WTO History : GATT and the WTO History 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
Dispute Settlement Understanding
Trade Policy Review Mechanism WTO MEMBER’ s COUNTRIES : WTO MEMBER’ s COUNTRIES GATT/WTO General Principles : GATT/WTO General Principles Slide 9: 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 Core GATT Principles : Core GATT Principles 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 Slide 11: Requirement of transparency for trade-related laws, regulations, rulings, etc. (Art. X)
Prohibition against most quantitative restrictions (quotas) (Art. XI) WTO Accession : 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 Slide 13: 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 Slide 14: SOURCES OF INTERNATIONAL LAW Sources of International Law : Sources of International Law The most important source is found in bilateral and multilateral treaties between nations
Treaties are agreements between countries, which may be bilateral (between two countries) or multilateral (involving more than two countries); also called conventions, covenants, compacts, or protocols
United Nation’s International Court of Justice creates law when it decides disputes Slide 16: There are 3 main sources on International Trade Law which are :
General principle Treaties : Treaties Treaties can play the role of contracts between two or more parties, such as an extradition treaty or a defence pact.
They can also be legislation to regulate a particular aspect of international relations, or form the constitutions of international organisations. Whether or not all treaties can be regarded as sources of law, they are sources of obligation for the parties to them. Article 38(1)(a), which uses the term "international conventions", concentrates upon treaties as a source of contractual obligation but also acknowledges the possibility of a state expressly accepting the obligations of a treaty to which it is not formally a party.
For a treaty-based rule to be a source of law, rather than simply a source of obligation, it must either be capable of affecting non-parties or have consequences for parties more extensive than those specifically imposed by the treaty itself. Custom : Custom Article 38.1(b) of the ICJ Statute refers to "international custom" as a source of international law, specifically emphasizing the two requirements of state practice plus acceptance of the practice as obligatory or opinio juris sive necessitatis (usually abbreviated as opinio juris).
Derived from the consistent practice of (originally) Western states accompanied by opinio juris (the conviction of States that the consistent practice is required by a legal obligation), customary international law is differentiated from acts of comity by the presence of opinio juris (although in some instances, acts of comity have developed into customary international law, i.e. diplomatic immunity). Treaties have gradually displaced much customary international law. This development is similar to the replacement of customary or common law by codified law in municipal legal settings, but customary international law continues to play a significant role in international law. General Principles : General Principles The scope of general principles of law, to which Article 38(1) of the Statute of the ICJ refers, is unclear and controversial but may include such legal principles that are common to a large number of systems of municipal law. Given the limits of treaties or custom as sources of international law, Article 38(1) may be looked upon as a directive to the Court to fill any gap in the law and prevent a non liquet by reference to the general principles.
In earlier stages of the development of international law, rules were frequently drawn from municipal law. In the 19th century, legal positivists rejected the idea that international law could come from any source that did not involve state will or consent, but were prepared to allow for the application of general principles of law, provided that they had in some way been accepted by states as part of the legal order. Slide 20: Thus Article 38(1)(c), for example, speaks of general principles "recognised" by states. An area that demonstrates the adoption of municipal approaches is the law applied to the relationship between
international officials and their employing organisations, although today the principles are regarded as established international law.
The significance of general principles has undoubtedly been lessened by the increased intensity of treaty and institutional relations between states. Nevertheless, the concepts of estoppel and equity have been employed in the adjudication of international disputes. For example, a state that has, by its conduct, encouraged another state to believe in the existence of a certain legal or factual situation, and to rely upon that belief, may be estopped from asserting a contrary situation in its dealings. Slide 21: The principle of good faith was said by the ICJ to be "one of the basic principles governing the creation and performance of legal obligations". Similarly, there have been frequent references to equity. It is generally agreed that equity cannot be employed to subvert legal rules (that is, operate contra legem).
This "equity as law" perception is reinforced by references to equitable principles in the text of the United Nations Convention on the Law of the Sea 1982, though this may be little more than an admission as to the existence, and legitimation, of the discretion of the adjudicator.
However, the principles of estoppel and equity in the international context do not retain all the connotations they do under common law. The reference to the principles as "general" signify that, if rules were to be adapted from municipal law, they should be at a sufficient level of generality to encompass similar rules existing in many municipal systems. Principles of municipal law should be regarded as sources of inspiration rather than as sources of rules of direct application. Slide 22: INTERNATIONAL ORGANIZATIONS Slide 23: World Trade Organization (WTO)
Report on Doha
Hague Conference on Private International Law
International Chamber of Commerce (ICC)
UN Commissions on International Trade Law (UNCITRAL)
International Labor Organization (ILO) International Organization for Standardization (ISO)
UN Conference on Trade and Development (UNCTAD)
World Customs Organization (WCO)
Trade and Development Center
Organization for Economic Co-operation and Development (OECD)
International Monetary Fund (IMF)
Dispute Settlement Slide 24: AGREEMENTS AFFECTING TRADE Rules of Origin/Customs : 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 Slide 26: Preferential rules as in NAFTA and AFTA may use several approaches
Wholly produced locally
Local content (50% - 60% in NAFTA, 40% AFTA)
Specific component, e.g., color TV picture tube Slide 27: 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 Agricultural Trade : 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 Slide 29: 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 Slide 30: 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. Textiles and Clothing : 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 Slide 32: 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. Slide 33: 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 Trade Remedies - Safeguards : 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 Slide 35: 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 Slide 36: 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% Slide 37: 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 Slide 38: 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 Trade Remedies - Dumping : 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 Slide 40: 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 Slide 41: 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 Slide 42: 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 Slide 43: 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 Slide 44: 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. Slide 45: 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 Slide 46: 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 Slide 47: 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. Slide 48: 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 Slide 49: 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. Slide 50: 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 Slide 51: 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. Trade Remedies – Subsidies : Trade Remedies – Subsidies US doesn’t bring countervailing duty (CVD) actions against NMEs
US may nevertheless bring WTO actions against Vietnam (once Vietnam is a member) in WTO DSB against Vietnam’s prohibited or actionable subsides under Parts II and III of SCM Agreement Slide 53: Subsidy defined (Art. 1 of SCM Agreement) as financial contribution that confers a benefit on recipient
Actionable or “yellow light” subsidies are domestic subsidies that are “specific” and cause injury, “nullification or impairment” or serious prejudice. (Arts. 5,6) Slide 54: Export (“Red Light”) subsidies are prohibited under Art. 3 except for least developed developing countries.
Certain subsidies (Art. 8) were from 1995-2000 specifically excluded; “Green Light” subsidies were certain environmental, regional and R&D subsidies. Slide 55: Developing countries, including Vietnam once Vietnam is a member and no longer treated as an NME, receive certain benefits:
Excluded if their exports are 4% or less of import value, 9% or less in aggregate
2% de minimis level instead of 1%
Grace periods for export subsidies (now expired) Slide 56: SETTLEMENT OF DISPUTES Slide 57: In case of any dispute that may arise between countries, the governments of the respective countries are supposed to hear the cases that are filed against them.
An important issue that is a cause of dispute between the countries is the exchange rate.
The Commerce Clause basically solves the disputes.
The fluctuation in the exchange rate may benefit some countries while other countries may run at a loss.
The trading countries list the expected changes in the exchange rate till the contract expires and accordingly they can reassess or divide the contract. WTO Dispute Settlement : WTO Dispute Settlement WTO arguably most successful international dispute settlement mechanism in world history, under WTO’s Dispute Settlement Understanding (DSU)
309 cases filed as of March 2004, with 77 adopted panel or Appellate Body Reports, at least 43 settled cases, most of rest are pending or inactive Slide 59: Both developed countries and developing nations have been claimants and respondents (66% to 33% more or less)
Process under direction of Dispute Settlement Body (DSB) contemplates mandatory consultations, option of conciliation, and then binding WTO panel process Slide 60: Prior to 1995 GATT dispute settlement was unsatisfactory. New system makes major improvements:
Strict time limits for cases, so serious delays are rare
Appellate Body (AB) reviews legal issues in interest of consistency
Panel/AB decisions are automatically adopted in absence of consensus not to adopt (never to date) Slide 61: Panelists are chosen from Member rosters, government or private persons with trade expertise, not nationals of the disputing parties
Panel accepts briefs, holds one or more hearings, renders interim and then a final decision, usually within about 12 months Slide 62: Panel decision may be appealed on issues of law only to AB; about 2/3 of cases go to AB
AB is standing group of seven members chosen for four year (once renewable) terms
AB decisions are usually based on strict textual reading of covered agreements, following VCLT Arts. 31-32 for interpretation Slide 63: AB process almost always concluded in 3 months
DSB normally adopts decision within a month or less
Thus, total DSB process takes 16-20 months in normal circumstances Slide 64: Losing Member has three choices:
Comply with DSB decision (recommended)
Negotiate compensation with prevailing party
Accept retaliation (trade sanctions through higher tariffs) from prevailing Member, as approved by DSB Slide 65: Implementation has been the rule, but there have been exceptions resulting in trade sanctions:
EU – Growth Hormones
EU – Bananas
US – 1916 Antidumping Act
US – Byrd Amendment
US – Foreign Sales Corporations Slide 66: Problems with DSB include:
Difficulties for small countries to use trade sanctions against large countries
Lack of transparency of panel/AB process
Costs of litigation before DSB
Treatment of non-member (NGO) briefs
Inability of WTO Members to effectively supervise AB because of consensus voting requirements SAMPLES OF INT. TRADE LAW CASES : SAMPLES OF INT. TRADE LAW CASES COMPETITION LAW & POLICY : COMPETITION LAW & POLICY as antitrust law, are laws that promote or maintain market competition by regulating anti-competitive conduct
The two largest and most influential systems of competition regulation are United States antitrust law and European Community competition law. National and regional competition authorities across the world have formed international support and enforcement networks. Principle Competition law, or antitrust law, has three main elements: : Principle Competition law, or antitrust law, has three main elements: Prohibiting agreements or practices that restrict free trading and competition between business. This includes in particular the repression of free trade caused by cartels.
Banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal, and many others.
Supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to "remedies" such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing. What is Competition Law? : What is Competition Law? Competition law refers to the framework of rules and regulations designed to foster the competitive environment in a national economy. It consists of measures intended to promote a more competitive environment as well as enactments designed to prevent a reduction in competition. What is Competition Policy? : What is Competition Policy? broadly refers to all laws, government policies and regulations aimed at establishing competition and maintaining the same. It includes measures intended to promote, advance and ensure competitive market conditions by the removal of control, as well as to redress anti-competitive results of public and private restrictive practices. Goals of Competition Policy : Goals of Competition Policy To promote economic efficiency
To correct market failure
To enhance consumer welfare
To achieve higher economic growth
To promote competitiveness in both and domestic and foreign market Basic Market Structure in which the degree of competition affects prices, output and profits. : Basic Market Structure in which the degree of competition affects prices, output and profits. Perfect Competition - This is an ideal or extreme form of competition. It occurs when a market consists of many firms selling an identical product to many buyers.
Monopoly - A market with a sole supplier of a good, service or resource for which there is no close substitute. In addition, there are barriers to entry of new firms. Cont’d : Cont’d Natural Monopoly - A natural monopoly arises from natural barriers to entry (such as a unique source of supply) or situation in which one firm can supply the entire market at a lower price than two or more firms could offer.
Monopolistic Competition - Similar to perfect competition, but rather than firms producing identical products, these are many firms competing against each other by producing similar but slightly different products. Cont’d : Cont’d Oligopoly - One characterized by a small number of firms where quantity sold by any one firm is influenced by its choice in respect of strategic variables ( such as prices, product design, research and development, advertising, and sales locations) and these choices are strongly influenced by other firms in the industry. What are anti-competitive agreements? : What are anti-competitive agreements? Anti-Competitive Agreements – The Hilmer Report (Hilmer 1993) identifies several market outcomes or agreements which can be viewed as anti-competitive Anti-competitive Agreements - contd : Anti-competitive Agreements - contd Horizontal Agreements – agreement that exists between firms (suppliers or consumers) at the same level of production chain
Vertical Agreements – It may vary where firms at different stages of the production chain collude Cont’d : Cont’d Misuse of Market Power – This type of anti-competitive conduct occurs when a single firm in a dominant position in a market misuses its market power. EX: predatory pricing
Mergers and acquisitions - Mergers and acquisitions can constitute inappropriate market behavior where they lead to market outcomes of the types described above Examples of Anti-competitive Conduct : Examples of Anti-competitive Conduct Price-fixing agreement – competitors agree to fix prices at a particular level, use of less obvious devices such as “recommended prices”
Market sharing agreements – agreement among competitors to share a market. Ex: a number of producers may choose to restrict their sales to certain geographic areas, thus developing local monopolies. Cont’d : Cont’d Exclusionary provisions – agreements between competitors to limit dealings with a particular supplier or customer or a particular class of customer. Ex: primary boycotts, secondary boycotts. These actions are taken to prevent new firms from entering the market, or to force existing firms out of the market Regulations that restrict competitive behavior : Regulations that restrict competitive behavior Price control
Advertising restrictions Impact of Regulation : Impact of Regulation Higher prices;
Lower quality goods;
Less consumer choice as a result of reduced competition CONCERN OF COMPETITION LAW/POLICY : CONCERN OF COMPETITION LAW/POLICY Competition laws and policies are meant to address concerns
preventing enterprises from entering into agreements which do not have any beneficial features and which will restrict competition, either amongst themselves or between them and third parties Cont’d : Cont’d controlling attempts by monopolists or dominant firms from abusing their market position and preventing new firms from entering the market Slide 91: THANK YOU