Presentation 2 - Sessions 3 4 - Trade Wto Related Il6041 PDF

Sessions 3 & 4
Dr. Solomon Abay

International Economic Law 1
International Economic Law
International trade law, the WTO and related issues
Dr. Solomon Abay

Introduction
The regime for liberalization of trade in goods
Dr. Solomon Abay

Introduction
Dr. Solomon Abay

The Theories of International Trade – Two Sets of Fundamental
Questions
1. Rationale for trade

Why do nations trade?
What is the gain from trade?
2. Basis for trade

What is the basis for trade?
What are the determinants of trade?
Different theories have emerged based on the answers they give to

the aforementioned fundamental questions of international trade
Dr. Solomon Abay

The Theories of International Trade – The List of Theories
2(1) Pre-Classical Theory
Mercantilism
2(2) Classical Theories
Adam Smith’s Absolute Cost Advantage theory
David Ricardo’s Comparative Cost Advantage theory
2(3) Neoclassical Theories
• Ricardian theory and
• Heckscher-Ohlin-Samuelson (HOS theory) (also called factor
proportions /factor endowments/ theory)
2(4) The New Explanations
• New Trade Theory (NTT)
• New New Trade Theory (NNTT)
• Gravity Model of Trade
• Ricardo–Sraffa Trade Theory
2(5) Product Life Cycle Theory
Dr. Solomon Abay

The Theories of International Trade – Summary of the Theories
Mercantilism proposed that a country should try to export more than it

imports, in order to receive gold. The main criticism of mercantilism is that
countries are restricted from import, a prevention of international trade.
Adam Smith developed the theory of absolute cost advantage that a country
should produce goods or services if it uses a lesser amount of labor than
another country.
David Ricardo stated in his theory of comparative cost advantage that a

country should specialize in producing and exporting products in which it
has a comparative (relative production cost) advantage and it should import
goods in which it has a comparative (relative production cost) disadvantage
compared to another country.
The Ricardian theory re-formulated the comparative advantage theory to

many countries and many commodities case.
The Heckscher-Ohlin-Samuelson (HOS) theory of factor endowments

advocated that a country should produce and export goods that require
resources (factors) that are abundant in the home country.
Dr. Solomon Abay

The Theories of International Trade - Summary of the Theories - contd.
The New Trade Theory focused on the role of increasing returns (returns to
scale, economies of scale, imperfect competition) and network effects in
international trade.
The New New Trade Theory (NNTT) focused on the roles and diversities of
competitive enterprises rather than sectors or resources in international
trade.
The Gravity Model of Trade focuses on bilateral trade flows based on the
economic sizes of two nations, and the distance between them.
The Ricardo–Sraffa Trade Theory extends the Ricardian theory to include

not only labor but also inputs of materials and intermediate goods.
Raymond Vernon's product life cycle theory explained international trade in

terms of shifting location of production. It emphasized that a company will
begin to export its product and later take on foreign direct investment as the
product moves through its life cycle. Eventually a country's export becomes
its import.
Dr. Solomon Abay

The Concerns and Problems in Focus in International Trade Law
Concerns
Trade relations across borders – market access to trade
Domestic trade legislation at the inter-face of borders
Domestic legislation having bearing on international trade
Problems in Focus
Quantitative restrictions
Tariffs
Non-tariff barriers (e.g. state trading, customs procedures)
Unfair trade practices (e.g. subsidies)
Trade related measures (e.g. intellectual property rights, investment protection)
Discriminatory practices
Dr. Solomon Abay

The Concerns and Problems … Contd.
Hence, the following functions of WTO:

Provision of substantive codes of conduct directed at reduction of tariff and
other barriers to trade and elimination of discrimination in international trade
Provision of institutional framework for administration of the substantive
codes of conduct
Follow up of implementation of substantive codes through:
Mechanism for dispute settlement in international trade matters
Surveillance of national trade policies and practices
Provision of forum for negotiation of further trade liberalization and
improvement
Cooperation with IMF and the World Bank Group in order to achieve greater
coherence in global economic-policy making
Dr. Solomon Abay

The Goals of International Trade Law and the WTO
The goals
Securing access to foreign markets through:
Reduction of tariffs & other barriers to trade
Elimination of discriminatory treatment
to
Facilitate higher standards of living, full employment, growing volume of real income
and demand, and expansion of production and trade in goods and services in the
economies of member states
Why these goals:

The economic theory of comparative advantage and other trade theories
The legal-political theory of transnational economic rights /freedom/ of the individual
Qualifications
Optimal use of world resources
Sustainable development
Share of developing and least developed countries from growth of international trade
that reflects the needs of their economic development
Dr. Solomon Abay

The Major Sources of International Trade Law
Treaty rules
Soft law
Growing body of case law
Dr. Solomon Abay

The Contents and Nature of the WTO Framework
Contents of the framework

Refer to the ‘Legal texts’ link from website of the WTO
Included are
The Marrakesh Agreement as umbrella agreement,
Several (multilateral & plurilateral) agreements as annexes to the Marrakesh
Agreement,
Member country commitments, and
Soft laws (decisions, declarations, etc.)
Nature of the framework

A code for state conduct instead of detailed prescription of substantive
regulatory rules,
Hence, member states’ discretion to set their own market regulations
No concern with the totality of trade issues
Only the perspective of trade liberalization, and
Only the inter-face of national trade legislation, not the national legislation itself and
cross-cutting matters
Dr. Solomon Abay

Break
Dr. Solomon Abay

The Regime for Liberalization of Trade in Goods
Dr. Solomon Abay

The Regime for Liberalization of Trade in Goods
The structure of obligations
General obligations – GATT 1994
Obligations specific to particular subject matters & sectors – specialized agreements
Commitments – schedules of commitments of member countries
Dr. Solomon Abay

The General Obligations in GATT 1994
Not to impose quantitative restrictions on importation and exportation

No complete prohibition
No partial prohibition (quota)
Not to undermine tariff commitments

Tariffs tolerated, but tariff rate reduction through successive rounds of trade
negotiation; Uruguay round negotiations resulted in:
40% reduction of tariffs
tariff schedules (annexed to the Uruguay Round Marrakech Protocol to form part of
GATT 1994)
Hence, member states’ duties to impose tariffs only up to the rate they committed in
their tariff schedules (the ‘bound’ rate)
No duty or charge to be imposed on bound tariff items that is not recorded in

the tariff schedule
Dr. Solomon Abay

The General Obligations in GATT 1994 … Contd.
Respecting most-favored-nation (MFN) treatment standard

Not to discriminate between members (regarding customs duties & charges,
international transfer of payments, and other rules and formalities) in relation
to the importation or exportation of like products
Respecting national treatment standard

To accord same treatment to like products in the domestic market whether
imported or domestic
To avoid protectionism to domestic products through taxes and regulations
To avoid discrimination in the domestic market through taxes and charges
Hence, to provide equality of competitive conditions for like imported
products in relation to domestic products
Transparency
To publish all trade and trade-related measures
Hence, to ensure certainty, predictability and accountability of government
measures
Dr. Solomon Abay

The Obligations Regarding Customs and Allied Procedures
Refer to:
Article II of GATT 1994
The Customs Valuation Agreement on Implementation of Article II (of GATT
1994)
The Pre-shipment Inspection Agreement
The Rules of Origin Agreement
The Import Licensing Agreement
The Customs and Allied Procedures should:

not be discriminatory
not operate as disguised protectionist measures
not undermine the integrity of quantitative and tariff commitments
be transparent
be subject to principles of due process
Dr. Solomon Abay

The Obligations Regarding Non-Tariff Barriers (State Trading Activities &
Standards)
State Trading Activities

Refer to:
Article XVII of GATT 1994
The Understanding on State Trading Enterprises (Article XVII of GATT 1994)
The Plurilateral Agreement on Government Procurement
State trader should:

not discriminate in the exportation or importation of products
take into account commercial considerations in its decision making (unless
import is for immediate or ultimate governmental consumption)
State procurement should:

not discriminate between suppliers
Dr. Solomon Abay

Standards) … Contd.
Standards
Refer to:
Article XX(b) of GATT 1994
The Agreement on Sanitary and Phytosanitary Measures
The Agreement on Technical Briers to Trade
Sanitary and phytosanitary measures should:

be based on scientific principles accompanied by assessment of risk, not
arbitrary
not unjustifiably discriminate between members
not constitute disguised restrictions on international trade or trade protection
respect basic principles of good administration, such as should not lead to
undue delay, should be reasonable.
Dr. Solomon Abay

Standards)
Standards … Contd.
Technical regulations and standards should:
not discriminate between products of national and foreign origin and
between products of foreign origin
not result in unnecessary obstacles to international trade
be necessary and based on scientific requirements
respect international standards when these exist
relate to product performance, not to the design or descriptive characteristics
of the product
respect the code of good practice (for preparation, adoption and application)
included in the Agreement
Dr. Solomon Abay

Standards)
Standards … Contd.
The actual procedures for assessment of conformity to the technical
regulations and standards should:
not discriminate
not be unnecessary obstacles to international trade
be expeditious
protect confidentiality and legitimate commercial interests of parties
Dr. Solomon Abay

The Obligations Regarding ‘Unfair Trade Practices’ (Subsidies & Dumping)
Refer to:
Articles XVI and VI of GATT 1994
The Agreement on Subsidies and Countervailing Measures
The Agreement on Anti-dumping
Members should not provide subsidies and exercise dumping since these distort
the conditions of competition in free market
Remedies: When subsidies are provided and dumping occurs, members may
assess injury to the domestic industry upon initiation of the domestic industry (a
private applicant) and take the following in order to off-set the impact of the
subsidy or dumping:
Impose countervailing duty on the subsidized imported goods or, through the dispute
settlement procedure, seek withdrawal of the subsidy or take appropriate
countermeasure (Note: prohibited, actionable and non-actionable subsidy)
Impose anti-dumping duty on the dumped imported goods or accept from the exporter
price undertaking or undertaking to cease exportation of the product
Dr. Solomon Abay

The Obligations Regarding Trade-Related Measures (Monetary, Investment &
Development)
Monetary matters
Refer to: Articles XV of GATT 1994
WTO and member states to consult and co-operate with the IMF on matters
of the latter’s jurisdiction
Members not to frustrate the provisions of GATT 1994 through exchange
measures, nor to undermine the Articles of Agreement of IMF through trade
measures
Investment
Refer to:
The Agreement on Trade-Related Investment Measures (TRIMS)
TRIMS not to be used in a manner so as to undermine the national treatment
standard and the elimination of quantitative restrictions
Dr. Solomon Abay

The Obligations Regarding Trade-Related Measures (Monetary,
Investment & Development) … Contd.
Development
Refer to:
The preamble, Art. XVIII, Pt. IV and several provisions of GATT 1994
Developed members to accord differential and more favorable treatment
to developing countries
Developing members to accord favorable treatment to each other
The different levels of development of countries to be taken into account
in the undertaking of various WTO obligations
World resources to be used optimally in accordance with the objective of
sustainable development
Developing members to be allowed to deviate from the GATT 1994
provisions in order to take measures that may allow them to implement
programs of development
Dr. Solomon Abay

The Emergency Measures and Exceptions Recognized by GATT 1994
The Emergency Measures

Refer to:
Articles XI(2)(a), XII, XIX , XXI of GATT 1994
The Agreement on Safeguards
The understanding on Balance-of-payments
The Safeguard Clauses in the Agreement on Agriculture
The Safeguard Clauses in the Agreement on Textiles and Closing
A member may impose tariffs or quantitative restrictions when it determines that
a certain good is being imported in such increased quantities so as to cause
serious injury to the domestic industry producing the product or a directly
competitive product
A member may impose restrictions to safeguard its balance of payments when
there is imminent threat or serious decline in its monetary reserves or to
facilitate increase of its reserves when they are low
A member may impose restrictions to prevent or relieve critical shortage of
foodstuffs or other products of importance and for essential national security
reasons
Dr. Solomon Abay

The Emergency Measures and Exceptions Recognized by GATT 1994 …
Contd.
The Exceptions
General
Refer to: Articles XIV, XXIV AND Pt IV of GATT 1994
The following are not subject to the MFN obligation:
Preferential arrangements that have existed for historical reasons (in relation to
former colonies or between neighboring countries)
Preferential arrangements for the benefit of developing countries (due to bilateral
agreements between the developed and developing countries or unilateral
measures of the developed countries) and preferential arrangements as between
developing countries
Arrangements within customs unions, free-trade areas and similar arrangements
Dr. Solomon Abay

The Emergency Measures and Exceptions Recognized by GATT 1994
The Exceptions … Contd.

Specific
Refer to: Articles XI(2) and XX of GATT 1994
A member may impose quantitative restrictions to:
Protect its internal value system (public morals, national treasures of artistic,
historic or archeological value)
Ensure compliance to national regulations not inconsistent with GATT 1994
Preserve its tangible and intangible wealth and economic system (e.g. to preserve
exhaustible natural resources; human, animal or plant life or health, intellectual
property; gold and silver; to ensure the marketing of commodities in international
trade)
So long as these restrictions are not:
Unjustifiably discriminatory
Disguised restrictions on international trade
Arbitrary
A member may impose import restrictions on agricultural or fisheries
products to control the domestic market in like products and to control the
production of animal based domestic produce
Dr. Solomon Abay

The Treatments Accorded by WTO Framework to Some Special Sectors
(Agriculture & Textile)
Two special regimes because of:
Problem of national protectionism
Refer to:
The Agreement on Agriculture
The Agreement on Textiles and Closing
The Plurilateral Agreements related to agriculture: the International Diary
Agreement and the International Bovine Meet Agreement
Main focus
Free market orientation and regulation in that light in the sectors
Facilitation of cooperation and coordination of policies, including price
stabilization in the sectors
Dismantling barriers to trade in the sectors
Reduction of support to domestic producers in the sectors
Establishing fair system of export competition in the sectors
Integrating the regulation of international trade in the sectors into the WTO
framework
Scheduling members’ commitments to realize these
Dr. Solomon Abay

Thank You!
Dr. Solomon Abay


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Sessions 3 & 4

Dr. Solomon Abay

International trade law, the WTO and related issues

Dr. Solomon Abay

 The regime for liberalization of trade in goods

Dr. Solomon Abay

Dr. Solomon Abay

1. Rationale for trade

2. Basis for trade

 Different theories have emerged based on the answers they give to

Dr. Solomon Abay

Dr. Solomon Abay

 Mercantilism proposed that a country should try to export more than it

 David Ricardo stated in his theory of comparative cost advantage that a

 The Ricardian theory re-formulated the comparative advantage theory to

 The Heckscher-Ohlin-Samuelson (HOS) theory of factor endowments

Dr. Solomon Abay

 The Ricardo–Sraffa Trade Theory extends the Ricardian theory to include

 Raymond Vernon's product life cycle theory explained international trade in

Dr. Solomon Abay

Dr. Solomon Abay

 Hence, the following functions of WTO:

Dr. Solomon Abay

 Why these goals:

Dr. Solomon Abay

Dr. Solomon Abay

 Contents of the framework

 Nature of the framework

Dr. Solomon Abay

Dr. Solomon Abay

The Regime for Liberalization of Trade in Goods

Dr. Solomon Abay

 The structure of obligations

 General obligations – GATT 1994

 Obligations specific to particular subject matters & sectors – specialized agreements

 Commitments – schedules of commitments of member countries

Dr. Solomon Abay

 Not to impose quantitative restrictions on importation and exportation

 Not to undermine tariff commitments

 No duty or charge to be imposed on bound tariff items that is not recorded in

Dr. Solomon Abay

 Respecting most-favored-nation (MFN) treatment standard

 Respecting national treatment standard

Dr. Solomon Abay

 The Customs and Allied Procedures should:

Dr. Solomon Abay

State Trading Activities

 State trader should:

 State procurement should:

Dr. Solomon Abay

 Sanitary and phytosanitary measures should:

Dr. Solomon Abay

Dr. Solomon Abay

Dr. Solomon Abay

Dr. Solomon Abay

Dr. Solomon Abay

Dr. Solomon Abay

The Emergency Measures

Dr. Solomon Abay

Dr. Solomon Abay

The Exceptions … Contd.

Dr. Solomon Abay

Dr. Solomon Abay

The regime for liberalization of trade in goods

Different theories have emerged based on the answers they give to

Mercantilism proposed that a country should try to export more than it

David Ricardo stated in his theory of comparative cost advantage that a

The Ricardian theory re-formulated the comparative advantage theory to

The Heckscher-Ohlin-Samuelson (HOS) theory of factor endowments

The Ricardo–Sraffa Trade Theory extends the Ricardian theory to include

Raymond Vernon's product life cycle theory explained international trade in

Hence, the following functions of WTO:

Why these goals:

Contents of the framework

Nature of the framework

The structure of obligations

General obligations – GATT 1994

Obligations specific to particular subject matters & sectors – specialized agreements

Commitments – schedules of commitments of member countries

Not to impose quantitative restrictions on importation and exportation

Not to undermine tariff commitments

No duty or charge to be imposed on bound tariff items that is not recorded in

Respecting most-favored-nation (MFN) treatment standard

Respecting national treatment standard

The Customs and Allied Procedures should:

State trader should:

State procurement should:

Sanitary and phytosanitary measures should: