Introduction to Trade Policy

Aluisio Lima-Campos, Juan Gaviria

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138676756
• eBook ISBN: 9781317196624
• Edition: 1
• Topic: Law
• Subtopic: Commodities
• Index: Law

Introduction to Trade Policy provides a comprehensive overview of the rules and regulations that govern trade flow. It discusses the trade policy formulation process of major international economic players, and analyzes existing trade policy tools that countries may resort to in order to take advantage of the benefits of international trade and to protect themselves against its dangers, as well as their implications for trade policy, law and negotiations.

In Section I, the book explores the ways in which interest groups interact with government and legislators to shape trade policies. By developing an analytical view of trade policy formulation systems in the U.S., European Union, the BRICS countries (Brazil, Russia, India, China and South Africa), Canada, Mexico and Australia, the book will help the reader to gain a better understanding of these countries' trade policy developments and also to apply such learning to the analysis of the trade policy formulation of any other countries. Section II goes on to explain how trade policy tools are used by governments to achieve trade and other policy objectives, while Section III analyses trade in services and the multilateral trade rules on Intellectual Property. Finally, Section IV uses hypothetical case studies in simulation exercises to illustrate trade policy decision-making and trade agreement negotiations in a bilateral, plurilateral and multilateral setting.

This is the ideal introduction to international trade policy formulation for students and professionals in the areas of law, politics, economics and public policy who are seeking to develop a global view of international trade, gain insights into trade negotiations and understand the motivations behind the policies and actions of governments regarding international trade issues. This book is also the ideal companion to any traditional legal casebook on international trade or on international economic law.

Section II
Trade policy tools

After discussing trade policy formulation under the most relevant WTO members, Section II, covering Chapters 10 to 16, analyzes the trade policy tools that countries have use to make the most out of International Trade, such as market access, trade remedies, regulatory measures, dispute settlement, trade agreements, and International Trade negotiations. In essence, this section will cover all WTO agreements, preferential trade agreements and negotiations techniques.

10
Market Access

Chapter 10 is a short text summarizing the main legal rules in International Trade applicable to tariffs, customs procedures, trade facilitation, and tariff preference programs.

10.1 Tariffs

Tariffs can be ad valorem (expressed as a percentage to be applied over the value of imports) or specific (expressed as a value per kg or per lb or per unit etc.). They were the main subject of GATT 1947, where the most important goal was to reduce tariffs. Recall from Chapter 1 the notion of competitive advantage: even if a country is the most efficient at manufacturing two kinds of goods (i.e., fabricating them at the lowest expense), such a situation is not Pareto efficient.¹ That is, this country might obtain a benefit specializing in only one kind of product while importing the other good from another country, which will also obtain a net gain.² In any event, countries having different production costs is not enough to maximize the benefits resulting from eliminating or at least reducing barriers limiting the free movement of goods. Tariffs, needless to say, are the most common trade barrier.

Recall also that during the time elapsing between the two world wars, when the Great Depression heavily hit many people and businesses across the world, several countries attempted to encourage domestic growth and employment by raising tariffs, i.e., by making imports more expensive in comparison with local output.³ In another illustration of the famous prisoner dilemma (where each player adopts a strategy that maximizes its individual payoff but that, when other agents take the same decision, reduces the collective payoff),⁴ this nationalistic trend significantly reduced International Trade and, as a consequence, made countries worse off.⁵

Shortly after the end of the Second World War, many countries realized that restricting International Trade was a bad idea.⁶ As a result, several countries signed the Havana Charter which established the ITO. Nonetheless and since such treaty was never ratified, the ITO did not come into being and countries settled for a less ambitious trade agreement, GATT 1947.⁷ Coupled with The National treatment principle (no discrimination between domestic and foreign output), the other pillar of this agreement was the so-called MFN principle, enshrined in GATT Art. 1, whose paragraph 1 reads (the original text is not underlined):

With respect to customs duties and charges of any kind imposed on or in connection with importation or exportation or imposed on the international transfer of payments for imports or exports, and with respect to the method of levying such duties and charges, and with respect to all rules and formalities in connection with importation and exportation, and with respect to all matters referred to in paragraphs 2 and 4 of Article III, any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.

In short, the MFN principle means that any trade concession that a GATT Member (nowadays, a WTO Member), such as a tariff reduction, makes to any other Member shall be immediately extended to all other WTO Members. Of course, there are some exceptions to this principle, such as Preferential Trade Agreements.⁸

In any event, notice that Art. I (the most favored nation principle) is not in itself granting any trade benefit or obligation to GATT or WTO Members. GATT Art. II is the legal rule that makes reference to a schedule of concessions, detailed in one of the annexes of this agreement, and by which GATT Members (nowadays WTO Members) have lowered their tariffs since this agreement entered in legal force.

Under the WTO, Member Countries are subject to bound tariffs, which are specific commitments made by individual member governments that represent the maximum MFN tariff a country can impose on a given product line.⁹ Another type is the tariff rate quota (TRQ), which combines a lower tariff to be applied up to a certain product’s import quantity with a much higher tariff to be applied to any quantity exceeding the previous limit.¹⁰

10.2 Customs procedures

By definition, International Trade entails that goods must be transported from the exporting country to the importing one and, therefore, that some procedures must be followed at the importing countries’ borders, i.e., the customs procedures.¹¹

In particular, the authorities of the importing country usually verify if the goods being imported comply with all the legal requirements before authorizing their nationalization. Such requirements are, among others, evidence of the payment of tariffs, certificates of origin, compliance with sanitary and phytosanitary requirements, and transportation documents.¹²

Naturally, reducing tariffs might not increase International Trade in the desired levels if traversing the customs areas is a burdensome, red-tape filled and time consuming task for exporters. Because of that, not only many countries have unilaterally streamlined their customs procedures but there is also a multilateral agreement on this topic,¹³ which is explained in further detail in the next section.

10.3 Trade facilitation

Generally speaking, trade facilitation means the reduction of both the cost and time necessary for goods to move across national borders. Nowadays, and since there have been a significant progress in the reduction of tariffs since the inception of GATT almost 70 years ago, the so-called non-tariff barriers (as its name suggests, they are any barrier other than a tariff) are perhaps the main obstacle to International Trade. Regardless of whether it is the result of inefficiency or, alternatively, purposely imposed to obtain an unfair advantage over imports, red tape is one of the leading examples of non-tariff barriers. Of course, customs procedures are not going to completely disappear since importing countries need to keep their rights to control the goods coming into their territories in order to make effective their regulatory and public policies, i.e., to avoid the importation of goods that do not comply with the payment of taxes, that are not safe for consumers or for the environment or, in general, that do not comply with other requirements. In any event, and needless to say, the expenses coming from a delayed importing process may vanish any gains obtained from the reduction of tariffs or, more generally, from International Trade and, consequently, discourage many companies from conquering foreign...

Table of contents

• Cover
• Title
• Copyright
• CONTENTS
• List of figures
• List of tables
• Abbreviations
• SECTION I Trade policy
• SECTION II Trade policy tools
• SECTION III GATS and TRIPS agreements
• SECTION IV Trade policy simulations
• Epilogue: Trade under attack
• References
• Index