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Trade Rules. The “take-away” for this lecture The world trading system has rules. The World Trade Organization (WTO) is the “referee” supervising international trade. While tariffs are decreasing, contingent protection (dumping/countervailing duties) are increasing.

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Trade Rules

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Trade Rules

  • The “take-away” for this lecture

    • The world trading system has rules. The World Trade Organization (WTO) is the “referee” supervising international trade.

    • While tariffs are decreasing, contingent protection (dumping/countervailing duties) are increasing.

    • Barriers to service trade are being reduced.

    • Non-tariff barriers remain (next lecture)


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International trade law

  • The source of international trade law are International treaties

  • When a nation signs international treaties and they are approved by the legislature (when necessary), they become domestic law.


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The World Trade Organization (WTO)

  • An international institution, the WTO came into being in 1995.

  • 153 members as of July, 2008

  • Three important agreements and accompanying Councils

    • The GATT -- Council on Trade in Goods

    • The General Agreement of Trade in Services -- Council of Trade in Services

    • Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement) -- Council for TRIPs


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AfghanistanAlgeriaAndorraAzerbaijanBahamasBelarusBhutanBosnia and HerzegovinaComorosEquatorial GuineaEthiopiaIranIraqKazakhstanLao People's Democratic RepublicLebanese RepublicLiberia, Republic ofLibyaMontenegroRussian FederationSamoaSao Tomé and PrincipeSerbiaSeychellesSudanTajikistanUzbekistanVanuatuYemen

Non-members


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WTO

  • The 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.


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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).


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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).


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GATT trade rounds


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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 should receive equal tariff treatment.

  • Article II: Tariff bindings: nations agree to keep tariff levels at or below bindings.

  • 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.


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Antidumping and countervailing duties

  • Article VI of the GATT allows national authorities to impose antidumping or countervailing duties when dumped or subsidized exports cause or threaten material injury to domestic producers.

  • To impose a duty, national authorities must

    • establish that dumping or subsidization has occurred and

    • establish that the dumping or subsidization are causing or threatening to cause material injury.

  • the antidumping duty (AD) and countervailing duty (CVD) offset the dumping or subsidy.


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Dumping

  • Definition: Dumping is the act of charging a price to the export market that is less than the normal (fair) value.

  • Who is involved?

    • Domestic producers that believe that foreign firms are dumping goods can request an investigation by its national authorities.

    • The targets of antidumping petitions can be specific producers or all producers in a particular country.


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Antidumping Targets


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Antidumping Initiators


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Dumping/subsidy cases are handled by domestic agencies


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The export price and normal value

  • The export price is the price charged abroad excluding transport costs and taxes (FOB price).

  • Normal value: `the comparable price, in the ordinary course of trade, for the like product when destined for consumption in the exporting country.'

    • Home-market price: This is the price charged by the exporter in its own country.

    • Third-country export price: This is the price the exporter sells to third countries.

    • Constructed-cost: The normal price is constructed as the sum of average variable production costs plus overhead plus a "reasonable" profit margin.


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Case: Chinese waterproof footwear

  • [Since] a submission had not been received from the government of China. As such, the Canadian Customs and Revenue Agency (CCRA) could not determine whether the footwear industry in China is operating under the conditions of an open market economy.

  • Accordingly, the CCRA contacted 31 producers in five potential surrogate countries in an attempt to obtain information which could be used to establish normal values.

  • Unfortunately, none of the producers who responded produce waterproof footwear similar to the products being imported from China.

  • In the absence of sufficient information from the government of China and the producers in the surrogate countries, the normal values were estimated on the basis of the best available information, which, in this case, was the information supplied in the complaint. (from CCRA website)


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Establishing material injury

  • Three steps

    • define the goods being dumped and identify domestic producers of like products;

    • determine whether that industry is being injured; and

    • determine whether dumping is causing the injury.


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Duration

  • In accordance with WTO rules, the antidumping orders expire after five years. A request can be made to extend the duties past five years which can only occur if it is established that ending the duty will result in injury to the domestic industry.


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Appeals

  • Appeals can be made with the relevant national authority in each country.

  • Countries can take cases to WTO dispute resolution. NAFTA provides dispute resolution for contested antidumping orders. In both cases, panels can only rule on whether to laws are applied in conformance to GATT rules. Non-conformance will result in the cases sent back to national authorities for further review.


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Assessment of duties

  • Duty collection after the final determination varies across authorities.

    • Canada: Duties are owed on an entry-by-entry basis equalling the actual margin of the dumping (difference between the export price shown on the invoice and the normal price).

    • United States: The duty is collected then the actually liability is calculated at year's end. If goods enter at the normal price, the duty is refunded.

  • Producers will always choose to raise the price after a final positive determination so that no duties are owed. Thus, very few antidumping duties are actually kept by authorities.


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Strategies for Coping with Antidumping

  • Exit the market

  • Circumvent: Produce locally

  • Give in and raise the price to the normal level: higher prices may increase profits if your rivals also raise price

  • Fight: You may win in court: About 1/3rd of U.S. dumping cases end with a negative decision


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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 non-market conditions.” (WTO website)


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GATS: Most favoured nation principle

  • MFN applies to all services

    • “with respect to any measure covered in this Agreement, each member shall accord immediately and unconditionally to services and service suppliers of any other Member treatment no less favourable than it accords to like services and service suppliers of any other country.”


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GATS: National treatment

  • National treatment does not apply to all sectors. It only applies for sectors where a country has made a specific commitment. Even when a sector appears in the schedule of commitments, a member may choose to limit national treatment.

  • The GATS states, “in the sectors covered by its schedule, and subject to any conditions and qualifications set out in the schedule, each member shall give treatment to foreign services and service suppliers treatment, in measures affecting supply of services, no less favourable than it gives to its own services and suppliers.”


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WTO service schedule


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