International Trade Regulation Oxicorp Case - P. 6.1 Victor H. Bouganim WCL, American University

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 2 OXICORP Case P. 6.1, Textbook, p. 327 F Oxicorp trades with Non-Market Economies (NME) and Transition Economies (TE). F This is a business planning problem focusing on China. F Concerns about business risks while trading with NME/TE economies.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 3 OXICORP Concerns F Concern over the level of risk OXICORP faces in trading heavily in goods from NME and TE countries –China and Russia –Specific goods and U.S. tariff levels F What tariff levels apply to manufactured products imported into the U.S. which do not qualify for MFN tariff treatment?

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 4 “Most Favored Nation” F Any advantage, favor, privilege or immunity granted by a member to any other country (or its nationals) shall be accorded immediately and unconditionally to all members (or their nationals). Exceptions F Members entering: –Customs unions –Free trade areas –Regional arrangements F Preferential treatment –Under-developed countries

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 5 US Tariff Schedule - 1

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 6 US Tariff Schedule - 2

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 7 Reduced Tariff Levels F A - Generalized System of Tariff Preferences F B - Automotive products F C - Civil aircraft F CA - Canada F E - Caribbean Basin Initiative F IL - Israel F J - Andean Trade Preference Act F MX - Mexico

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 8 Jackson-Vanik Amendment F Jackson-Vanik Amendment to the Trade Act of 1974 governs –Most favored nation (MFN) tariff status granted to NMEs and TEs if their emigration and other policies are approved by U.S.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 9 Effects of Jackson-Vanik Amendment Trade Act 1974, 19 USC § 2432 Sec. 402 [Mats. p. 675] F Linkage between human rights and trade F Power of president to waive the emigration rights requirements of the Trade Act if objectives of act promoted –Waivers are reviewed and mostly renewed annually: The case of China –1998: Change from MFN to NTR - Normal Trade Relations.

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 10 The Evolution of GATT/WTO Demeret, p. 329 F 1947 GATT only intended to cover interim period until Havana Charter executed –GATT based on MFN principle –Treat imports the same as domestic products with some exceptions F Havana Charter never entered into force because U.S. never ratified it

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 11 The Tokyo Round F as result of U.S. initiative –Objective: reduction of non-tariff barriers F Codification technique employed –Problem: each agreement had its own dispute resolution procedure u Resulted in “balkaniztion” of GATT or “GATT a la carte”

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 12 Uruguay Round F Completed in 1994 F WTO formed F Puts an end to the GATT “a la carte” F Countries able to accept multilateral agreements addressing their domestic concerns

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 13 WTO Agreement F Includes several multilateral agreements addressing agriculture, textiles, antidumping, subsidies, services, IP, etc. F Goals of WTO: implement and administer current agreements, and serves as a forum for negotiating further trade agreements F Dispute resolution

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 14 WTO Structure Director General Secretariat Committee on Trade & Development Committee on Balance of Payment on Balance of Payment Restrictions Committee on Budget, Finance & Administration Ministerial Ministerial Conference Trade Policy Review Body Dispute Settlement Body Council for Trade in Goods Council for Trade in Services Council for TRIPs General Council

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 15 WTO Decision Making F Ministerial Conference: meets biennially equal voting weight for all WTO members Responsible for all WTO functions F General Council: executive authority for daily operations equal voting weight to all WTO members Power to adopt interpretations of covered agreements Includes the Dispute Settlement Body (DSB) and Trade Policy Review Body (TPRB) F Committees: accountable to the above

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 16 Class Discussion F What is the relationship between WTO membership and “Most Favored Nation” status? F How does the European Union affect the WTO? F How do regional agreements affect the goals of the WTO?

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 17 Bhala on Free Trade F Examines the WTO in a broad economic context F “system friction” between economies of Europe, Japan and U.S. – regional differences affect global trade F Bhala’s three conclusions concerning current global trading system: –No such thing as free trade at law –Gap between developing and developed nations –Persistent doubts about the benefits of free trade

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 18 GATT/WTO Membership for China F 1986: China applies to rejoin GATT after 40 year absence F Why? – WTO membership increases export. Also Chinese attempt to join major international organizations after reentry to world community in 1970s F Communism: How does this affect relationships with other WTO members?

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 19 China’s WTO Accession F In 1999 and 2000 China intensified its bilateral negotiations with WTO member governments. F It is expected that WTO Ministers will take a decision on China's terms and conditions of entry into the WTO at the Doha Ministerial Conference in November F Will China accede as a developing or developed country?

© 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 20 OXICORP and China Accession to WTO F Would adherence by the Chinese to the Dispute Settlement Understanding (DSU) be a plus to OXICORP? To China? To the U.S.? F If admitted, which of the Uruguay Round agreements and understandings would bind China? Does it matter whether China is accorded “developing country” status?