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The Regulation of
International Trade
SPHA 511, John Ries
Topics
• The General Agreement on Tariffs and Trade
(GATT)
• WTO dispute resolution
• Health and technical standards
• The General Agreement of Trade in Services
(GATS)
• Trade-Related Intellectual Property (TRIPs)
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Globalization
• International trade and investment has
been growing over time. Of course, world
output (GDP) has grown over time as well.
• Globalization occurs when international
transactions increase more rapidly than
GDP
• The WTO is given much credit (and
blame) for trade expansion
Growth of trade and GDP (1975=100)
1700
1500
Goods
1300
GDP
1100
Services
900
700
500
300
20
05
20
03
20
01
19
99
19
97
19
95
19
93
19
91
19
89
19
87
19
85
19
83
19
81
19
79
19
77
19
75
100
The World Trade Organization (WTO)
• An international institution, the WTO came into
being in 1995.
• 153 members as of July, 2008
• Least developed countries and developing
countries are given special consideration (e.g.,
extra time to adhere to WTO rules).
•
Afghanistan
Algeria
Andorra
Azerbaijan
Bahamas
Belarus
Bhutan
Bosnia and Herzegovina
Comoros
Equatorial Guinea
Ethiopia
Iran
Iraq
Kazakhstan
Lao People's Democratic Republic
Lebanese Republic
Liberia, Republic of
Libya
Montenegro
Russian Federation
Samoa
Sao Tomé and Principe
Serbia
Seychelles
Sudan
Tajikistan
Uzbekistan
Vanuatu
Yemen
Non-members
Regional Trade Agreements (RTAs)
• WTO’s Dictionary of Trade Policy Terms:
“actions by governments to liberalize or facilitate
trade on a regional basis, sometimes through
free-trade areas or customs unions”.
– Free trade areas: tariffs eliminated on goods
produced within the region
– Customs unions: common outside tariff established
• RTAs can cover goods and/or services. They
include dispute resolution mechanisms and may
establish regional rules on investment,
competition, environment and labour.
Year
2004
2000
1996
1992
1988
1984
1980
1976
1972
1968
1964
1960
1956
1952
1948
No. of RTAs
RTAs in Force
RTAs in force by date of entry into force
200
150
100
50
0
European Union
Trade Diversion
• RTAs provide preferential treatment to insider countries
(i.e., Mexico in the NAFTA) and can divert trade from
outsiders (China).
– Example: China and Mexico export toys to the US subject to a
50% tariff. China's per-unit cost is $100 (price after tariff $150)
and Mexico's is $120 ($180). US consumers buy from China and
consumers pay $150.
– Now Mexico and the US enter into a free trade agreement. Now
US consumers buy from Mexico for $120. Trade is diverted from
China to Mexico. Consumers are $30 better off but the
government has lost $50 in tariff revenues.
WTO agreements
• The WTO oversees three important
agreements—GATT, GATS, and TRIPs
• The 1994 Uruguay Round also
generated the
– Agreement on Agriculture,
– Agreement on Clothing and Textiles,
– Agreement on Technical Barriers to Trade,
– Agreement on Sanitary and Phytosanitary
Standards.
The General Agreement on Tariffs and Trade (GATT)
• The rules of international trade have been
developed principally in the context of the
General Agreement on Tariffs and Trade
(GATT).
• Three primary functions of GATT
– Establish standards: provides for a common set of
rules for the conduct of international trade policy.
– Settlement of disputes. GATT provides an impartial
forum for trade disputes.
– Sponsor tariff reductions (8 rounds so far).
Tariffs
• Each country has their own tariff schedule
• Tariffs vary by importing country and by
product
• Because of RTAs and other preferential
tariff treatments, they also depend on the
exporting country
Canadian tariffs by HS category
Canadian tariffs by tariff treatment
CUSTOMS TARIFF-SCHEDULE
95-5
Canadian
byUnit
tariff
treatment
Description oftariffs
Goods
of MFN
Applicable
Tariff Item SS
95.06
Meas.
Tariff Preferential Tariffs
Articles and equipment for general physical exercise, gymnastics,
athletics, other sports (including table tennis) or
outdoor games, not specified or included elsewhere in this
chapter; swimming pools and paddling pools.
- Snow -skis and other snow ski equipment:
9506.11
-- Skis
PAR
Free
UST, CCCT, LDCT,
9506.11.10 00 --- Downhill
GPT, MUST, CIAT,
CT:Free
9506.11.90
--- Other
10 ----- Cross Country............PAR
20 ----- Snowboards..……….NMB
90 ----- Other ...........................PAR
7.5%
UST, CCCT, LDCT,
MT, MUST, CIAT,
CT: Free GPT:5%
Rules of origin (ROOs)
• ROOs are tariff-treatment and product specific
and can be extremely complicated.
• For non-RTA treatments, a certain percentage of
the ex-factory price of the good must originate in
beneficiary countries. Additionally, the good
must be directly shipped from a beneficiary
country. The critical value content varies by
treatment: 50% for MFN treatment, 60% for
GPT, and 40% for the LDCT.
Ministerial Conferences
• Every two years, high ranking representatives
from each member meet to set new agendas.
• The most recent meeting was in Hong Kong in
December 2005. Previous meetings were
located in Cancun, Doha, and Seattle.
– Recent meetings are considered failures as
the members could not agree on pushing
forward agricultural reforms proposed in the
Doha meetings.
Fundamental GATT Articles
• Article I. Most-favoured-nation (MFN)
(non-discrimination) principle. All WTO
members should grant to the products
of member countries treatment no less
favourable than that accorded to
products of any other country. This
implies all members treated equally.
– Regional trade agreements are given
exemption.
Fundamental GATT Articles (cont)
• Article II: Tariff bindings: nations agree
to keep tariff levels at or below bindings
(ceilings).
• Article III. National treatment: imports
treated the same as (like) domestic
goods once tariffs have been paid.
Nations cannot use taxes of other
methods to impede imports.
WTO dispute resolution
• The WTO offers dispute resolution when on member
believes another member is violating an agreement. A
WTO panel is formed and issues a ruling based on
interpretation of WTO rules.
• Panels: The Director General of the WTO proposes 3
(sometimes 5) panelists from different countries from a
roster of panelist put forward by the members.
• Appeals are possible (to a WTO Appellate Body).
• Non-compliance with a panel ruling can result in
compensatory (retaliatory) tariffs levied against the
violating country.
Non-tariff barriers: Violations of national treatment
• Article III requires that "once goods have
entered a market (i.e. after applicable duties
have been paid), they must be treated no less
favourably than “like” domestically produced
goods.”
• This means that governments are not allowed to
adopt regulations or set taxes in such as way as
to "afford protection" to the domestic industry.
• Cases
– Canadian tax on (foreign) split-run magazines
– Japanese low tax on shochu and high tax on
vodka/whiskey
Agreement on Technical Barriers to Trade (TBT)
• Rules established to prevent governments from
adopting standards whose purpose is to protect
domestic producers
– Standards should address essential performance
criteria (i.e., safety) and not written to match the
design features of domestic products
– Imports must have equal access to testing and
certification systems
– Nations should accept tests performed by competent
foreign organizations
– Regulations should be transparent
TBT Agreement
• Unnecessary obstacles to trade can result when
(i) a regulation is more restrictive than necessary
to achieve a given policy objective, or (ii) when it
does not fulfill a legitimate objective.
– Article 2.2 of the Agreement specifies that legitimate
objectives include inter alia: national security
requirements, prevention of deceptive practices,
protection of human health or safety, protection of
animal and plant life or health or the environment.
» www.wto.org/english/tratop_e/tbt_e/tbt_info_e.htm
Stockwell Day toughens stance
on meat dispute
• What is the US law that Day objects to?
• Why was the law enacted?
• Why is the law a problem for Canadian
livestock producers?
• What are the estimates of the harm that
the law will cause Canadian producers?
• What are Canada’s options?
Agreement on Sanitary and
Phytosanitary Standards
• Nations set food safety standards to protect
consumers. The SPS Agreement requires:
– Members must base their SPS measures on
“international standards, guidelines, or
recommendations… However, members may use
measures which result in higher standards if there is
scientific justification.”
– All measures must be based on risk assessments that
take into account “risk assessment techniques
developed by relevant international organizations.”
What is the allowable level of risk? The Agreement
requires economic cost-benefit analysis.
• Major battles:
– Hormone treated beef, GM food
Biotechnology in Agriculture Confronts
Agreements in the WTO
• What are GMOs? What are the primary GMO
crops and what country is the leading producer?
• What countries require labeling of GMOs?
• How does EU regulation of GMOs differ from
that of the U.S.? What is the relevance of
product versus process regulation?
• Why does the U.S. object to labeling
requirements?
• What are the complaints against the EU
regulatory process?
General Agreement of Trade in Services
• The GATS is a rather weak document. Many sectors are
excluded and there is considerable variation in the
sectors that individual countries were willing to commit to
liberalizing. However, GATS is a starting point and
subsequent negotiations are aimed at generating more
comprehensive liberalization of services. Subsequent to
the GATS, further agreements liberalizing services have
be signed (e.g., the 1997 Telecommunications
Agreement).
• “GATS excludes ‘services supplied in the exercise of
governmental authority’. These are services that are
supplied neither on a commercial basis nor in
competition with other suppliers. Cases in point are
social security schemes and any other public service,
such as health or education, that is provided at nonmarket conditions.” (WTO website)
NAFTA and health care
• Social Services
• Type of Reservation: National Treatment (Articles
1102, 1202) Most-Favored-Nation Treatment (Article
1203) Local Presence (Article 1205) Senior Management
and Boards of Directors (Article 1107)
• Description:Cross-Border Services and Investment
• Canada reserves the right to adopt or maintain any
measure with respect to the provision of public law
enforcement and correctional services, and the following
services to the extent that they are social services
established or maintained for a public purpose: income
security or insurance, social security or insurance, social
welfare, public education, public training, health, and
child care.