My Business Ideas

The managing director of the Four X Company is concerned about the implications concerning the issues mentioned below. As a legal advisor, I have been asked to address the issues in terms of research and analysis of GATT/WTO principles and structure. My purpose is to advise the Four-X company on the action that the country of Fargo may take against the country of Narnia under GATT/WTO Law, specifically, whether it can challenge the Designer Tax.
I think that the Four X company does can challenge the Designer Tax, because it is was introduced in contradiction with the theories of international trade. Besides, the government of the country of Narnia did not have the sovereignty to impose this tax on imported products, and ignore it with similar products produced locally.
In this paper I am going to discuss the concepts of international trade and the implications of corresponding law in order to find the appropriate decision that could help the Four X company to cope with the problem.
Trade Theories
Theories other than comparative advantage have been advanced to explain why nations trade. During the past twenty years, a new trade theory has been hypothesized by economists. The new position is referred to as the theory of increasing returns. This term is short for "increasing returns to scale" and is synonymous with "economies of scale." 1 This theory holds that trade happens in order to take advantage of economies of scale. Industries in two trading countries can achieve lower unit costs by producing large volume and spreading the high start-up expenses over the entire volume produced. If the countries did not trade with each other and relied on the domestic markets only, they might not be able to reach the highest level of scale economies. International trade will result in the volume, which will produce greater economies of scale.
Such a theory explains why nations trade the same product with each other. Location results in the higher economies of scale. For example, the Japanese and the United States trade automobiles with each other, but the Japanese locate their factories in the United States because of the larger market and better economies of scale. Similarly, car companies locate their production in Germany instead of France because the German automobile market is larger than the French market.
Other Reasons for International Trade
Kim and Kim discuss a number of reasons why such specialization increases production and, thus, national and personal income. 2 Among these are: (1) since natural skills among peoples are different, if each specialized in his or her natural skill, the total of their output would be greater than if both tried to do the other person's skill; (2) even if the skills of each person are identical, specialization is still better because it increases production and so each person's skills will improve from repetition; (3) specialization results in the simplification of tasks because it can lead to mechanization and the advent of large-scale machinery; (4) specialization by each person saves time because neither person loses time by shifting from one skill to another.
Other motives for international trade include economies of scale from the synergistic effect when the whole becomes worth more than the individual parts. In addition, the differences in tastes among the citizens of different countries lead to trade that can satisfy these various tastes.
International trade has become increasingly important to the world economy. Trade accounts for about 25 percent the world gross domestic product (GDP). It is growing at twice the rate of any other economic sector.
In short, the international flows of goods and capital that underlie international finance are critically important to the well-being of the world's nations. United Nations statistics show that the ratio of world exports to total gross domestic product has consistently increased since 1970. Much of this growth in world trade can be attributed to the liberalization of trade and investment because of reductions in tariffs, quotas, currency controls, and other restrictions on the flow of international payments. In addition, the advances in communications and transportation facilities and their concomitant reductions in cost have also facilitated the growth in international trade. Much of the trade liberalization has been accomplished by the implementation of several regional economic agreements and organizations.
Regional Economic Agreements
Several regional economic agreements or organizations have been established since the end of World War II for the purpose of facilitating an expansion of trade. The governments involved in these efforts have recognized the value of expanded trade. Some of these blocs have committed to the major objective of reducing or eliminating trade barriers such as tariffs and quotas. Others have gone further and have established political as well as economic institutions.
Many of the regulatory measures are in an evolving state. Some are in the stages of development or negotiation - in the form of "advisory resolutions" or "voluntary guidelines." But in many instance, the regulations are legally binding treaties. The form in which they currently exist is often an indication of the next step to be taken in the international regulatory process. Yesterday's studies lead to today's "voluntary guidelines," which, in turn, become the basis for the treaties and directives of tomorrow.
The most ambitious effort so far is the draft code of conduct for multinational corporations, which is being developed by a commission of the Economic and Social Council. About two-thirds of the code's 71 provisions have been agreed upon.
The language of the code would make any sensible company think twice before investing overseas. An example is the provision that multinational corporations should "avoid practices, products, or services which cause detrimental effects on cultural patterns and socio-cultural objectives as determined by government." Where is the historical perspective of the authors of the code? Over the centuries, civilization has been advanced by the transnational (to use that deadly term) flow of science, art, music, literature, and--yes--culture and commerce. Moreover, should the UN encourage the governments of its member nations to set "socio-cultural objectives" and require private enterprise to follow the "cultural patterns" set by government? This is not a traditional function of government regulation in a free society: It is a mechanism used by totalitarian rules to enforce their power.
Key concepts of sovereignty
What I intend to do is to examine certain key concepts of sovereignty, and discuss their roles in the context of international law generally, international relations, other disciplines, and, of course, with a focus on the relationship to international economic law which often means the WTO.
National government leaders and politicians as well as special interest representatives too often invoke the term's sovereignty to mislead needed debate. Likewise, international elites of ten assume that "international is better, " and this, we can also say, is not always the case. What is needed is a close analysis of the policy framework that can get us away from these preconceived "mantras. " (Jackson, 2001) My objective is to try to shed some light on these policy debates, or in some cases, policy dilemmas, and to describe some of the policy framework that needs to be addressed.
The subject has been extensively addressed in different kinds of frameworks, or academic disciplines. For example, I have been educated by a number of books from political science and international relations disciplines, many of which have important insights and have helped me in my thinking. (Liftin, 1998)However, in many of those works, I have found the focus was on how to describe the concept of "sovereignty" and how it operated in the past and present in international relations. I intend to address a somewhat different question, namely, I want to consider the question of what, if any, are the valid issues raised in so-called "sovereignty" debates, and how can we analyze those issues for future impact on policy.
There has already been a considerable amount of literature concerning the issue of "sovereignty, " and various concepts to which it might refer. Most of this literature is very critical of the idea of "sovereignty" as it has generally been known. For example, one eminent scholar has described the concept as "organized hypocrisy. " (Jackson, 2000) This same author writes that there are at least four different meanings of sovereignty (some of which overlap). He describes: "domestic sovereignty, referring to the organization of public authority within a state and to the level of effective control exercised by those holding authority; interdependent sovereignty, referring to the ability of public authorities to control trans-border movement; international legal sovereignty, referring to the mutual recognition of states or other entities; and Westphalian sovereignty, referring to the exclusion of external actors from domestic authority configurations. " (Jackson, 2000)
Some other authors have described sovereignty as being more valuable for aims of oratory and persuasion than of law and science. Still others have explored sovereignty as a "social construct, " saying "numerous practices participate in the social construction of a territorial state as sovereign, including the stabilization of state boundaries, the recognition of territorial states as sovereign, and the conferring of rights onto sovereign states. " The approach of these authors seems to be that there are no particularly inherent characteristics in the concept of sovereignty, but it depends very much on the custom and practices of nation-states and international systems.
Thus, the concept of sovereignty seems quite often to be extremely, and perhaps purposefully, misleading, and a crutch to politicians and media to avoid the tough and very complex (as we see below) thinking that should be taken up about real policy issues that are involved.
In the area of trade policy, many specific instances can be cited as use of constructs to avoid some of the implications of "sovereignty concepts. " Perhaps a striking example is the General Agreement on Tariffs and Trade (GATT) and now, WTO, criteria for membership, which do not focus on a "sovereign entity, " but instead on "an independent customs territory."
How the law of GATT and WTO help in resolving the issue
Three basic principles therefore in GATT tariff negotiations: (1) such negotiations are to be on a reciprocal and mutually advantageous basis; (2) concessions are to be bound; and (3) they are to be applied on an MFN basis (through Article I of the GATT). The first two of these principles have tended to apply to developed countries only. Until recently, developing countries have not been required to offer reciprocal concessions or to bind their tariff rates.
The introduction of a market-access commitment reflects the fact that the contestability of service markets is frequently restricted by measures that apply to both foreign and domestic entities. The market-access article explicitly covers a number of such measures that were felt to be of particular importance. To a degree it is the equivalent of GATT Article XI, which prohibits the use of QRs. Note, however, that the market-access obligation overlaps with the national-treatment requirement, as prohibited measures may be discriminatory as well as non-discriminatory (e.g. limitations on foreign equity participation violates market access and is discriminatory). This overlap creates potential for confusion and disputes.
Other GATS obligations address issues such as transparency, recognition of licenses and certification of service suppliers, policies regarding payments and transfers for services, domestic regulation, and the behavior of public monopolies. Article III (Transparency) requires all Members to establish enquiry points to provide specific information concerning any laws, regulations, and administrative practices respecting services covered by the Agreement. Article VI (Domestic Regulation) requires that Members establish disciplines to ensure that qualification requirements, technical standards, and licensing procedures are based on objective and transparent criteria, are no more burdensome than is necessary to ensure the quality of the services concerned, and do not constitute a restriction on supply in themselves (thereby possibly circumventing a specific commitment). Article XI requires Members to refrain from applying restrictions on international transfers and payments for current transactions relating to their specific commitments - it does not apply generally.
In 1964 GATT adopted a specific legal framework within which the concerns of developing countries could be addressed. Part IV dealt specifically with trade and development and contained three new articles XXXVI to XXXVIII. Article XXXVI stated that Contracting Parties should provide, 'in the largest possible measure', more favorable and acceptable market access conditions for products of export interest to developing countries, notably primary products and processed or manufactured products. Paragraph 8 of the article addressed the principle of less than full reciprocity by specifying that developing-country members 'should not be expected' to make contributions that would be inconsistent with their level of development in the process of trade negotiations. The Alcoholic Beverages case addressed differences in domestic taxation between shochu, a white spirit of largely (but not exclusively) domestic manufacture in Japan, and various white and brown spirits and liqueurs such as vodka, gin, whisky, brandy, rum, and others, which were usually imported. The law was "facially neutral" in the sense that all shochu, domestic or imported, was taxed equally, and all the other beverages, domestic or imported, were taxed equally. The rates applied to the latter products, however, were higher than the rates applied to shochu. The issue was whether the different categories of product should be considered "directly competitive or substitutable," and thus whether the differences in rates of taxation violated GATT requirements to tax like imported and domestic products equally and not to tax directly competitive or substitutable products so as to afford protection to domestic production. The panel found, and the Appellate Body affirmed, that the imported products were "like" or "directly competitive or substitutable" with shochu, and that the differences in taxation violated GATT Article III. The case therefore stands as a successful attack on facially neutral measures with a discriminatory effect against imports in Japan. However, the difference in treatment among the products in this case was clear on the face of the tax law. There was no dispute that the law treated the different products differently, only whether those differences in treatment were legally actionable because of the products being "like" or "directly competitive or substitutable." The case therefore offers little comfort for trying to address in the WTO the types of facially neutral measures in Japan in which proof of the existence of the measure and its discriminatory or market restrictive effect is indirect, complicated, or highly fact-dependent.
Of key significance to developing country exporters is the creation of trade barriers against the foreign products due to the way of production. Mexico won the case at the GATT against the US ban on the imports of tuna which consider to be caught in nets that were unfriendly to dolphin, and the shrimpturtle case had analogous result, but both of the cases made the GATT/WTO quite unpopular with the environmental groups.
Transparency at the multilateral and national levels is essential to reduce domestic pressures for protection and to enforce agreements ( GATT, 1985). Efforts to increase transparency and examine Members trade policies take up a large part of the institution's time. The approach is inspired by what Professor Bhagwati has called the 'Dracula principle': problems may disappear once light is thrown on them ( Bhagwati, 1988). Transparency provisions of the WTO relate to both the acts of the WTO itself, and the actions of its Members. As far as the WTO itself is concerned, most important WTO documents are made public. 1 WTO decisions, panel findings, and other major documents of the WTO bodies are published in a series entitled Basic Instruments and Selected Documents (BISD) edited by the WTO Secretariat in Geneva. The Secretariat also prepares regular newsletters and publishes ad hoc studies on particular aspects of the multilateral trading system.
Under GATT -1947 smaller trading nations often perceived a lack of transparency concerning agreements reached between the major players in either MTNs or with respect to the settlement of bilateral disputes or trade issues. While bilateral agreements regarding specific trade issues are not necessarily a matter of concern, they may be detrimental to the interests of third parties who are left to determine the potential effects of the deal on their exporters. More important in terms of generating controversy has been the practice on the part of large traders of coming to an agreement between themselves and then attempting to present the deal as a fait accompli in a negotiating group in an MTN or in the Council.
Turning to transparency of Members' policies, the WTO requires that all trade laws and regulations are published. Article X of the GATT, Article III of the GATS, and Article 63 of the TRIPs Agreement all require that all relevant laws, regulations, judicial decisions, and administrative rulings are made public. There are many notification requirements embodied in the Articles of the Multilateral and Plurilateral Agreements, all of which require the existence of appropriate bodies or agencies that have responsibility for satisfying them. A consolidated notification, including all changes in laws, regulations, policy statements, or public notices, must be provided each year by WTO Members to the Secretariat. So-called enquiry points must be created that have the responsibility for answering questions and providing relevant documents regarding health and product standards.
Under the GATS, at least once a year Members must inform the Council for Trade in Services of the introduction of new - or changes to existing - laws, regulations, or administrative guidelines which significantly affect trade in services covered by their specific commitments. By 1997 each Member must establish one or more enquiry points to provide specific information to other Members, upon request, on all relevant measures of general application which pertain to or affect the operation of the GATS. Members must also establish judicial, arbitral, or administrative tribunals or procedures which provide, at the request of an affected service supplier, for prompt, objective, and impartial review of administrative decisions affecting trade in services.
The WTO also has important surveillance activities. The WTO itself periodically reviews the trade-policy and foreign-trade regimes of Members. Matters of interest to developing countries are reviewed in the Committee on Trade and Development. Multilateral surveillance of trade restrictions for balance-of-payments purposes takes place in the Committee on Balance of Payments Restrictions. The Textiles Surveillance Body reviews bilateral agreements on trade in textiles involving MFA countries and the Textile Committee oversees the phasing out of the Multifibre Arrangement (MFA). Several Committees that oversee the functioning of specific agreements conduct surveillance of the relevant policies of Members at intervals of between every three months and every two years.
The effective resolution of trade disputes is vital for the smooth functioning of the trading system. The growing number of trade disputes in the 1980s and early 1990s was variously attributed to the intensification of trade conflicts resulting from changing patterns of comparative advantage, in conjunction with the existence of vaguely worded GATT provisions and differences in their interpretation (subsidies, agriculture). Certain disputes were essentially attempts to contest existing provisions with a view to clarifying them.
Conclusion
According to the issues discusses above, we see that the government officials of the country of Narnia were not legally authorized to imposed the Designer Tax on the imported products of Four X company from the country of Fargus. Their decision was intended to be justified by the fact that Four X company used artificial flavors in their products which are dangerous for health, but the this Tax also should be imposed on products that are sweetened, and the beverages produced locally were not the subject of this tax in spite of being sweetened.
As WTO is taking part in resolving trade disputes, the Four X company can argue about the justness on application the new Designer Tax to its products, while it is not applied to the similar products produced locally. WTO might help in resolving this conflict, and allow the Four X company to challenge the Designer Tax.
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Article Source: ArticlesBase.com - International Trade