1. International Trade Regulation Sunrise Case - P. 6.4 Victor H. Bouganim WCL, American University

2. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 2 SUNRISE F This is a business planning problem focusing on Japan F Rising value of the Yen has hurt Sunrise’s price competitiveness F Possible solutions include manufacture abroad F Concerns: tariffs

3. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 3 Sunrise Concerns F Once assembled in the U.S. or Europe, does NAFTA or EU policy apply? –Regional trade agreements –WTO monitoring of regional agreements u Governed by Article XXIV of GATT

4. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 4 SUNRISE Questions F What critical distinctions exist between free trade areas and customs unions? –Is one more preferable than the other from its perspective as a potential foreign investor? F How would a dispute about the safety of SUNRISE bikes be treated?

5. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 5 Regional Trade Agreements F Free Trade Area –Removal of tariffs, quotas and other barriers to trade among participating parties –Preserve trade barriers with third-party states F Custom Union –Removal of trade barriers among participating parties –In addition: create common tariffs and trade policies with third-party states F Common Market –In addition: free movement of resources among members

6. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 6 GATT/WTO Approval F Free trade area and custom union proposals must receive GATT/WTO approval F Binding recommendations are possible to bring the proposals into conformity with Article 24 F Article 24 manages the internal trade- creating and external trade-diverting effects of regional economic groups

7. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 7 GATT, Art. XXIV Mats. p. 100 F Formation of free trade areas and custom unions will be approved, provided that - –duties and other regulations imposed on third- party states ‘ shall not on the whole be higher or more restrictive’ prior to such formation. –elimination on internal tariffs on ‘substantially all’ products originating in the custom union or the free trade area member states.

8. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 8 Regional Agreements F Between 1947 and 1994, a total of 108 regional agreements were notified to the GATT. F Attention has shifted to non-tariff barriers because the importance of tariffs reduced with regional agreements F Few regional agreements cover services, agriculture and the protection of intellectual property rights F Practically all WTO countries have signed regional trade agreements with other countries

9. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 9 Committee on Regional Trade Agreements F Established in 1996 - study regionalism of trade and examine future trade agreements F Committee has studied NAFTA, the enlargement of the E.U., and others F Committee will address biennial reporting procedures for parties to regional agreements

10. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 10 EU - European Union F 15 member sates F Goals –Economic integration –Ultimately - political union –Removal of customs –Free competition –Harmonized laws The 4 freedoms F Free movement of –Goods –Services –Persons –Capital F Free movement of information?

11. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 11 The European Union F Based on customs union – free movement of goods, customs duties eliminated amongst member nations F Quantitative restrictions prohibited between members except for emergency situations F Free circulation: for those goods originating in member nations or which have lawfully entered it

12. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 12 Procureru du Roi v. Dassonville F European Court of Justice, 1974 F Belgium could not block the importation via France of Scotch whiskey F Any national rule capable of hindering internal trade is generally forbidden (no quotas) F But member states can impose reasonable rules so public is not harmed

13. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 13 Nontariff Barriers in E.U. F NTB’s have become the biggest trade barriers in Europe (and the rest of the world) F National restraints for: –Public morality concerns –Environmental protection –Protection of national treasures –Protection of property

14. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 14 Commission v. Fed. Rep. of Germany F E.C. Court of Justice, 1987 F German restrictions on beer ingredients F German legislation prohibited ingredients other than malted barley including preservatives F German prohibition was too drastic, contrary to principle of proportionality

15. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 15 Cassis de Dijon (1979) F Cassis formula – principle of mutual reciprocity F National measures resulting in restraint of trade prohibited: –Minimum and maximum retail pricing controls –Compulsory patent licensing

16. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 16 EU and NAFTA F Economic integration associations F Focus on regional development of nations with common interests F EU and NAFTA suggest that economic development will depend as much on regional trade agreements as on the worldwide WTO

17. © 2001 Victor H. Bouganim, WCL, American University IBT - Intro - 17 Class Discussion F Does it matter where a plant is located, Europe or the U.S.? F What are the implications when a car is manufactured by a Japanese company in the U.S., but sold in Canada? F Would Japan be an ideal trade partner for the U.S.?