1. A SHORT COURSE IN INTERNATIONAL TRADE LAW
Professor David A. Gantz
University of Arizona,
James E. Rogers College
of Law
Hanoi, August 2004
Sponsored by
The U.S.-Vietnam Trade Council Education Forum

2. I. Introduction Teaching int’l trade law is difficult:
Issues are complex
Too much material to cover adequately in a 3 hour one semester course
There are constant important changes from year to year
Case study is required for understanding of WTO’s Appellate Body, even for civil lawyers

3. I. Introduction, cont’d.
Definition of international trade law (not the same as int’l commercial law)
GATT/WTO History
Basic Principles – GATT/WTO
Exceptions to GATT/WTO Principles
Art. XXIV, FTAs and the VBTA
WTO Accession

4. I. Introduction, cont’d. Doha Development Round
Rules of Origin and Customs Issues
Trade in Agricultural Products
Textiles and Clothing
Trade Remedies – Dumping, Subsides, Safeguards
WTO Dispute Settlement

5. I. Introduction, cont'd. Intellectual Property Trade in Services
Standards and Phytosanitary Measures
TRIMS
Developing Countries and World Trade

6. II. GATT and the WTO
WTO, with over 146 members, became effective in 1995
WTO replaces GATT, which governed world trade from
Marrakesh Agreement Establishing the WTO has various annexes:
GATT and other trade in goods agreements
General Agreement on Trade in Services
TRIPS Agreement
Dispute Settlement Understanding
Trade Policy Review Mechanism

7. GATT/WTO, cont’d.
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

8. III. Core GATT Principles
Unconditional Most Favored Nation Treatment (Art. I)
Tariff Bindings (limit on tariff levels on product by product basis) (Art. II)
Non-discrimination with regard to internal taxes and rules, regulations, etc. (Art. III)

9. III. Core Principles, cont’d.
Requirement of transparency for trade-related laws, regulations, rulings, etc. (Art. X)
Prohibition against most quantitative restrictions (quotas) (Art. XI)

10. IV. Exceptions Balance of payments problems (Arts. XII, XVIII)
Special treatment of developing nations
General exceptions (Art. XX)
Protection of public morals
Necessary to protect human, animal or plant life or health
Relating to trade in gold or silver

11. IV. Exceptions, cont’d.
Compliance with customs, competition, intellectual property and fair trade laws
Products of prison labor
Protection of national treasures of historical or archeological value
Conservation of exhaustible natural resources
Obligations under commodity agreements

12. IV. Exceptions, cont’d.
Art. XX “chapeau” limits use of exceptions to situations where there is no arbitrary or unjustifiable discrimination or disguised restriction on international trade.

13. IV. Exceptions, cont’d.
Actions a Member “considers necessary for the protection of its national security interests.” (Art. XXI)

14. V. FTAs, Customs Unions and RTAs
Exception to MFN and other GATT obligations for FTAs and Customs Unions (Art. XXIV), with conditions:
Covers substantially all trade among members
Elimination of barriers within a reasonable payment of time
No increase in tariff or non-tariff barriers for non-members

15. V. FTAs, cont’d.
Regional Trade Agreements (RTAs) have proliferated – nearly 300 notified to WTO
US, Mexico, Canada, EU, now Japan and Korea, among those concluding RTAs
ASEAN – AFTA
NAFTA – North America

16. V. FTAs, cont’d.
VBTA is not a “free” trade agreement, but contains some of same elements involving not only trade, but investment, services, transparency, business facilitation, safeguards
VBTA requires important changes in Vietnamese legal system, courts, regulatory process, etc.

17. VI. 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

18. VI. WTO Accession
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

19. VI. WTO Accession
In June, Vietnam significantly improved its accession offer:
Average bound tariff reduced from 22% to 18%
Greater services market-opening
Reduction in tariff rate quotas and other exceptions
If all goes well, Vietnam could become a WTO Member during 2005

20. VII. Doha Development Agenda
Efforts to Initiate new Round failed in Seattle in 1999, due to concerns of developing members and indecision in US and EU
Doha round launched in November 1999, but progress to date has been minimal

21. VII. Doha, cont’d.
Impasse at Cancun based on following still unresolved issues:
Inclusion of Singapore Issues (investment, competition, transparency in government procurement, trade facilitation)
Agricultural production and export subsidies
Agricultural market access
Extent to which developing countries will be expected to make new commitments

22. VII. Doha, cont’d.
“Group of 20” led by Brazil, India, now exercises considerable leadership over many developing countries; unclear whether G-20 will be an effective negotiating force or simply a bar to further progress

23. VII. Doha, cont’d.
US presidential election, changes in EU Commission (November) and recent accession of 25 new EU members (May) make progress in Doha negotiations unlikely before mid-2005

24. VIII. 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

25. VIII. R/O, Customs, cont’d.
Preferential rules as in NAFTA and AFTA may use several approaches
Tariff shift
Wholly produced locally
Local content (50% - 60% in NAFTA, 40% AFTA)
Specific component, e.g., color TV picture tube

26. VIII. R/O, Customs, cont’d.
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

27. IX. 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

28. IX. Agricultural Trade, Cont’d.
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

29. IX. Agricultural Trade, Cont’d.
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.

30. X. 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

31. X. Textiles/Clothing, cont’d.
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.

32. X. Textiles/Clothing, cont’d.
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

33. XI. 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

34. XI. Safeguards, cont’d.
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

35. XI. Safeguards, cont’d.
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%

36. XI. Safeguards, cont’d.
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

37. XI. Safeguards, cont’d.
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

38. XII. 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

39. XII. Dumping, cont’d.
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

40. XII. Dumping, cont’d.
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

41. XII. Dumping, cont’d.
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

42. XII. Dumping, cont’d.
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

43. XII. Dumping, cont’d.
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.

44. XII. Dumping, cont’d.
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

45. XII. Dumping, cont’d.
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

46. XII. Dumping, cont’d.
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.

47. XII. Dumping, cont’d.
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

48. XII. Dumping, cont’d.
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.

49. XII. Dumping, cont’d.
In Shrimp, 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

50. XII. Dumping, cont’d.
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.

51. XIII. 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

52. XIII. Subsidies
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)

53. XIII. Subsidies
Export (“Red Light”) subsidies are prohibited under Art. 3 except for least developed developing countries.
Certain subsidies (Art. 8) were from specifically excluded; “Green Light” subsidies were certain environmental, regional and R&D subsidies.

54. XIII. Subsidies
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)

55. XIV. 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

56. XIV. WTO Disputes, cont’d.
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

57. XIV. WTO Disputes, cont’d.
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)

58. XIV. WTO Disputes, cont’d.
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

59. XIV. WTO Disputes, cont’d.
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 for interpretation

60. XIV. WTO Disputes, cont’d.
AB process almost always concluded in 3 months
DSB normally adopts decision within a month or less
Thus, total DSB process takes months in normal circumstances

61. XIV. WTO Disputes, cont’d.
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

62. XIV. WTO Disputes, cont’d.
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

63. XIV. WTO Disputes, cont’d.
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

64. XV. Intellectual Property
TRIPS Agreement is comprehensive treatment of IP issues
TRIPS initially was favored by developed nations, who are highly competitive in high technology exports
TRIPS opposed by developing world, due to enforcement problems and concerns over pharmaceutical products

65. XV. TRIPS, cont’d. Major elements of TRIPS: National treatment
Obligatory accession to IP treaties
Minimum standards for registration of patents, trademarks, etc.
Minimum standards for local enforcement against piracy, including criminal penalties
Binding WTO dispute settlement

66. XV. TRIPS, cont’d.
Developing countries received special grace periods for TRIPS implementation:
Until 2000 for most developing countries
Until 2005 for least developed countries

67. XV. TRIPS, cont’d.
US 301 and Special 301 remedies– used largely against IP violations– arguably aren’t really necessary now
US has option of seeking enforcement of IP/TRIPS rules in DSB, and imposing sanctions if responding Member does not comply
For not WTO members, such as Vietnam, Section 301 actions are a serious risk

68. XV. TRIPS, cont’d.
Section 337 mechanism– used to bar entry of goods to US that violate a US patent– still under use
Law requires an extensive and costly administrative proceeding before USITC
Prevailing party can obtain exclusion order, or cease and desist order

69. XVI. General Agreement on Trade in Services
Objective of GATS is to apply GATT principles for trade in goods to trade in services
Area is of major importance to US, EU, Japan, Canada, because they are more competitive in services worldwide than in manufacturing.

70. XVI. GATS, cont’d. GATS has broad but not universal coverage:
MFN treatment is complete
Transparency is required
National treatment depends on individual Member schedules
Degree of market access can be limited in schedules, e.g., 49% ownership for foreign banks

71. XVI. GATS, cont’d.
Financial services negotiations completed in Dec. 1997; 104 Members made at least some market opening commitments, representing 95% of trade in financial services
Commitments generally reduce regulatory requirements, grandfather existing operations

72. XVI. GATS, cont’d.
US GATS obligations are incorporated by reference in VBTA
Telecommunications services negotiations concluded in Feb. 1997; 69 governments made commitments; again, 95% of global telecommunications market is covered.

73. XVI. GATS, cont’d.
Negotiations are continuing to achieve “progressively higher level of liberalization” as specified in GATS, art. XIX:1
Significant progress awaits success of Doha Round in other areas.

74. XVII. Standards and Sanitary/Phytosanitary Measures
Technical Barriers to Trade (TBT) Agreement designed to preserve Members’ ability to implement standards, without their unjustified use to restrict trade
In most instances, national standards are to be based on agreed international standards.

75. XVII. TBT/SPS, cont’d. Disagreements subject to WTO dispute settlement
SPS Agreement deals with protection of “human, animal and plant life or health from risks” of pests, diseases, additives, etc.
National measures must meet these health related goals, avoid protectionism

76. XVIII. Trade-Related Investment Measures
TRIMs Agreement is limited, compared to bilateral investment treaties and similar comprehensive agreements
Effectively applies only to “performance requirements” and imposes certain transparency requirements

77. XVIII. TRIMS, cont’d.
Examples of prohibited performance requirements (TRIMS Annex) include:
requirements to use domestic parts and components for local manufacturing, over imported materials
Permitting export volumes based on the volume of local production

78. XIX. Developing Countries and World Trade
Special treatment under the WTO is given to developing countries:
Arts. XXXVI-XXXVII of GATT, “Trade and Development”
Higher de minimis levels under AD Agreement, SCM Agreement, Safeguards Agreement
“Enabling Clause” permitting discrimination for Generalized System of Preferences, AGOA, etc.

79. XIX. Developing Countries, cont’d.
Doha Development Agenda may bring “special and differential treatment” for developing countries, if and when negotiations are concluded.