International Trade Law

Looking at the US-China Trade War with emphasis on Art XXI

Posted on 3 Jul 20193 Jul 2019 by The Law Blog

Invocation of Tariffs by the USA

President Trump gave his assent to impose duties of 25% on steel and 10% on aluminium imports through Presidential Proclamations on March 8, 2018. The power to impose such tariffs are provided to the POTUS under is section 232 of the Trade Expansions Act, 1962 which permits the executive to limit imports of products for national security purposes. Under this statute, citizens can petition the government to apply import restraints and the government must respond within one year by restricting imports or by providing reasons to not do so. The decision is based on investigations initiated by the Secretary of Commerce that determine the effects of imported products on the national security of the US. To determine whether the import restrictions are justified, the Secretary and the President should consider factors involving national defence requirements as well as examine the impact of imported articles on the economic welfare of the internal economy and domestic industries; the provision also emphasizes on the close relation of economic welfare to national security.

The President Proclamations justified the tariffs on the ground that the imported articles threaten the “closure of the domestic steel production facilities” and reduce their ability “to meet national security production requirements in a national emergency.” Initially, Canada and Mexico were exempted from the tariffs; subsequently, the US went on to grant temporary exemptions to the European Union, South Korea, Australia, Argentina, and Brazil.

Article XXI: Its Scope, Nature and Reviewability

Article XXI is the national security exception under the GATT which allows the Member States to take certain measures which would otherwise be prohibited under the garb of protecting the national security interest. The article provides exceptions in the following manner: (a) members are excluded from disclosure of information which it considers to be contrary to its essential security interests; (b) any action that a member state takes which it considers necessary for the protection of its essential security measures relating to regulation of fissionable materials, regulation of traffic and in arms and any action in pursuance of UN Charter obligations relating to maintenance of international peace and security is excluded; or (c) it contains a vaguely worded clause that allows for an action taken in time of war or other emergency in international relations. Few questions that arise with respect to Article XXI are: How near or impending should the threat be? Is there any threshold of necessity under Article XXI? To help me with these questions, I searched for cases and previous instances wherein this exception had been used.

Previous Invocations of Article XXI

Article XXI was invoked for the first time by the US to justify its sanction against Czechoslovakia. Czechoslovakia challenged the invocation of the provision in a broad way by the US. Although the challenge was rejected on substantive grounds, it is significant that the US did not challenge outside review of the invocation. However, there was a shift from this position in a case where the application of Article XXI as a justification for the US embargo on all transactions relating to imports from Nicaragua and exports to Nicaragua was challenged by Nicaragua. It was argued by the US that the language is self-judging. The GATT panel refused to exercise jurisdiction and asserted that it had no authority to examine the correctness of invocation of Article XXI. A similar line of argument was taken by the US in its submissions in the Russia—Traffic in Transit case, where it argued that a Member has the “discretion and responsibility” to decide “what is required to protect the security of its nation and citizens.” Article XXI was also invoked by the US to justify the presidential proclamation issued in 1962 which imposed an embargo on trade with Cuba. Most recently, Qatar requested consultations with UAE, Bahrain, and Saudi Arabia post imposition of the trade embargo against Qatar by these countries. Subsequently, Qatar asked for the establishment of panels. While Qatar has argued that the measures are against GATT, GATS, and TRIPS, UAE has argued that it is in the interest of its national security as Qatar funds terrorist organizations. Once again, the contention is with respect to the self-judging character/non-reviewability of Article XXI.

Arguments advanced by China

China has requested for consultations with the US and asserted that the measures are, inter alia, are inconsistent with the Agreement of Safeguards on the ground that there was a failure to provide a reasoned and adequate explanation for the imposition of tariffs and non-compliance with the procedural requirements. Additionally, it has argued that selective application of the measure is inconsistent with the obligation under Article I:1 of GATT. By doing so, China has negated the claim that it falls under Article XXI. It also provides an advantage to China because under Article 8.1 of the Safeguards Agreement, an affected country can request for consultations and the parties may agree for compensation for adverse effects of the measure. On failure to reach an agreement within 30 days of consultations, the exporting members are entitled to suspend, on 30 days written notice, “the application of substantially equivalent concessions or other obligations under GATT 1994, to the trade of the Member applying the safeguard measure.” The EU, India, Russia, and Thailand have requested to join the consultations.

Possible repercussions and Way Forward-

Although there is an element of self-determination with respect to measures under Art XXI which rarely seen in any other GATT provision, the exercise of determination is still subject to good faith as held by the ICJ in Djibouti v. France. However, Simon Lester has argued that the US can justify that its measure was taken in good faith since section 232 contains an elaborate procedure. The invocation of Article XXI for non-economic reasons is against the intention of the drafters as well as the Ministerial Declaration of 1982. The measures have prompted responses by nations; the European Union has launched its safeguard investigation and is contemplating action against the US, while China has imposed heavy duties on a list of US products. Further, the China-US relations have worsened with a parallel dispute regarding US’ allegations on China’s theft of trade secrets and forced technology transfers. In this regard, the highly contested views about the scope of Article XXI are required to be settled by a panel body to bring in clarity and to prevent the use of Article XXI for any restrictive measure.

Furthermore, as an agreement is unlikely to be reached between the Parties, it could ask a dispute panel to rule on the tariffs – which generally takes about 18 months. An Airbus-Boeing dispute, for example, took more than a decade to produce a final ruling. This is would be highly undesirable for China and the other Member States while affording the time to the USA. Ultimately, the judges in the WTO’s dispute settlement process could rule that the United States should end the tariffs. Washington could refuse to implement such a ruling but would then face the possibility of sanctions.

With the dispute thus not seeming to head to a satisfactory conclusion for either Party, it is suggested that fiscal measures could be a better alternative to achieve economic welfare as opposed to tariffs.

ABOUT THE AUTHOR

Advik Rijul Jha

Advik Rijul Jha is a Fourth Year (BA LLB) student at Jindal Global Law School, OP Jindal Global University, Sonipat, Haryana.

International Trade Laws: Inception and its significance ever since

Posted on 1 Nov 2017 by The Law Blog

In ancient period, the International Law was governed by ‘inter-racial’ relationships in all communities. Different communities governed by different religions decided to abide by certain general principles of law which would be acceptable by all on the grounds of humanity and which would lead the society into good code of conduct for the treatment of diplomatic envoys, declaration and termination of war, regulation of welfare within and outside of one’s nationality, the conclusion of treaties, and related matters connected with international relations.

The term ‘International Law’ was first coined by Jeremy Bentham in 1780. It means ‘law of nations’ which corresponds to French and German equivalents ‘Droit International’ or ‘Droit des genes‘; ‘Internationales Recht’ or ‘volkerecht’ respectively. As defined by Sir Cecil Hurst, “International Law is the aggregate of rules which determines the rights which one State is entitled to claim on behalf of itself, or its nationals against another State.”

In the period of globalization and modernization, no country can imagine to operate or survive on their own. Every country has to depend on other countries for the import or export of raw materials and other essential goods for the proper development of its economy. In the primitive times, it was the barter system which helped people of different trades to survive. Now, in the modern times, it has been upgraded with more sophisticated, dignified, and reliable method of the binding written conventional rules aided by different countries for the sole aim of a good code of conduct.

The developing countries generally export raw materials to the developed countries and are dependent on them for their finished goods. International trade is vital for the economic development of the country, raising the living standards of the people and strengthening the position of the country in the international sphere. International trade laws have mainly three objectives:

Attainment of foreign policy objectives
To increase country’s capabilities
To create spheres of influence.

The two controlling holder of international trade laws are:

The GATT, 1947 (The General Agreement on Tariff and Trade, 1947)
The World Trade Organisation

The GATT – The convention of GATT requires that any proposed change in the tariff or any other policy, of a member country, should not be undertaken without the consent of other member parties to the agreement and all the member countries should have a common goal to reduce the tariffs and other barriers of the international trade, which should be negotiated within the framework of GATT. The Preamble of the GATT mentions four following objectives:

1) raising the standard of living

2) utilization of the resources of the world

3) ensuring full employment and steady growing full volume of real income and effective demand

4) expansion of production and international trade

The World Trade Organisation – The WTO shall facilitate the implementation, administration of the objectives of the Multilateral Trade Agreements and it shall also provide the forum for negotiations among its members concerning their multilateral trade relations in matters dealt with under the agreement of GATT. It shall also administer the Trade Policy Review Mechanism (TPRM). It also administers the rules and procedures regarding the rules and procedures of settling disputes between the member countries. Some of the agreements are mentioned below:

US – India Strategic Partnership

1) A historic agreement on Civil Nuclear Cooperation – it addresses India’s surging energy needs for its growing economy.

2) Economy – US – India cooperation to enhance job creation and economic growth, support economic reform and liberalization, develop a bilateral business climate supportive of trade and investment and improve market access for goods and services.

India – EU Relationship

1) Develop and preserve a dynamic agricultural sector

2) High-Level Trade Group to study their bilateral trade and investment relationship.

3) Exchange information and initiate a dialogue on regulatory policy including Mutual Recognition Agreements (MRAs) and domestic regulations and market access issues related to services.

4) Joint Working Group on Sanitary and Phytosanitary (SPS) and Technical Barriers to Trade (TBTs).

The developments that international trade law has gained over years of coming into action are:

Cooperation among countries – Countries now cooperate with each other through bilateral agreements, treaties and international organisations. It encourages to take a mutual decision for the benefit of not only one country, but also of various other countries.
Growth in emerging markets – Developing countries like India, South America and other parts of Asia have increased their trade potential globally. With such developments, international trade holds a significant position nowadays.
Dynamic approach – Developments in science and information technology has upgraded the way international trades or business has been carried out over the years.
Liberty to transport goods and services internationally – Producers have become more efficient by competing against foreign companies. Though governments have imposed various restrictions on such cross-border movements, it is for the advantage and benefit of such companies.
Importing scarce resources – International trade can help a country to import any such scarce resources which are abundant in other countries.

The effectiveness with which international trade can be used as an instrument at an international level solely depends upon a country’s economic development and political scenario. It increases real incomes and consumption which eventually leads to curtail unemployment and foster economic growth.

International trade law has made a fair contribution to the south in the 19^th and 20^th centuries and in the 21^st century it is an integral part of the globalized world and has contributed tremendously over the years, and has given its own share of prosperity.

ABOUT THE AUTHOR

SOMANKA GHOSH

Somanka is a fifth-year law student pursuing BA LLB in Calcutta University. She’s also pursuing a diploma course in Entrepreneurship and Business Laws. After interning in various law firms in Calcutta High Court and gaining experiences about the practicalities of legal practice, she’s now keen to test her theories. An enthusiast and diligent worker, she’s also a good researcher and writer.

Environmental Law, International Trade Law

The Guise of Climate change and Protectionist Trade Laws

Posted on 26 Sep 201726 Sep 2017 by The Law Blog

Protectionism involves any attempt by a country to impose restrictions on trade in goods and services. Countries resort to protectionism in ways that are not obvious and meddle with the forces of a free market (demand and supply) for the benefit of their domestic economy.

Protectionism is illegal under the WTO rules; but developed countries, with support from radical green NGOs (funded by them), have adopted restrictive trade policies on the ground of environmental concerns with respect to their trade with developing countries.

Green NGOs originally emerged as influential agencies in identifying environmental and health hazardous products, produced or manufactured by humans, but now are being used by developed countries to safeguard their business interest under the guise of environmental issues.[1]

To stop the entry of products from developing countries to compete with their domestic products, restrictive environmental compliance for all kind of products- Agri, Auto, Electrical and Electronics etc, are put in place, which are very difficult for developing countries to meet due to non-availability of high technology and cost-effectiveness.

Radical green NGOs and monopoly-rent-seeking businesses have partnered with governments for imposing statutes and regulations to demonize certain products and use discriminatory double standards. For example, EU and U.S. regulations have unjustifiably categorized a number of agricultural production methods as “illegal” or a “threat to biodiversity.”

Trade restrictive measures by the U.S. and E.U. on the production of forestry products, GMOs, palm oil and many other traded products in the developing countries hinder future job creation, and higher living standards as tens of millions of men and women rely on the jobs and economic growth that export industries provide.

The Forest Stewardship Council (FSC) funded by EU countries and by dozens of green NGOs, was established to promote the responsible management of the world’s forests. FSC certification has now become a scheme that disproportionately protects the interests of Western paper producers to the detriment of the developing world.

FSC certification requires producers to provide meticulously updated management plans and monitor forest conditions. The technologically advanced West faces far fewer hurdles in complying with the standards that it lays down than the still-developing African and Asian Counties.

The lack of FSC certification can impair the image of a company’s products across the board other than the fact that complying with these requirements makes the otherwise cheap foreign products less competitive in the market.[2]

Links between the Green NGOs and their allies in the governments of developed countries points undoubtedly towards mala fide intentions of developed countries. Environmental groups and other NGOs have formed alliances with European Commission directorates, U.S. government agencies, and U.S. and European agribusinesses. European Commission gave more than 66 million to environmental NGOs between 1998 and 2009 and about 600,000 to WWF Europe in 2009.[3] The campaigns of these NGOs, may not directly support Europe’s domestic industries, but undoubtedly helps to shame their foreign competitors.

U.S. federal government has imposed a ban on import of illegal timber and timber products by way of amendments to the Lacey Act[4]. The regulations impose more barriers to the entry into the U.S. market in the name of environment protection. These new compliance requirements assert that the same economic and technological advancement in the Western world are the norm in the developing world. The expensive due diligence requirements put developing-world competitors, at a distinct disadvantage as they will lose their competitive advantage because of cheaper labour and more widely available resources.

Ironically, homegrown U.S. wood products will not be subject to these new requirements, which means that the U.S. Congress has de facto subsidized domestic timber-related products.[5]

At present, it appears that measures taken by developed countries to tackle climate change has definitely a protectionist purpose and has been adversely affecting the business interest of developing countries.

WTO has to ensure that green protectionism is put in check and only those policies which safeguard the business interests of all stakeholders are allowed for governance of free international trade.

[1] The Heritage Foundation,“Green Protectionism“, August 11, 2010, at http://www.heritage.org/environment/commentary/green-protectionism.

[2] Editors of E/The Environmental Magazine, “Which Wood Should We Buy?” The Daily Green, April 1, 2010, at http://www.thedailygreen.com/environmental-news/latest/sustainable-wood-460410 (November 18, 2010).

[3] Ooi Tee Ching, “Billion-Dollar Trade War Fuels Vegetable Oil Politics,” Business Times, October 23, 2010, at http://www.btimes.com.my/Current_News/BTIMES/articles/jemut/Article (November 18, 2010).

[4] The Lacey Act, 16 U.S. Code §§ 3371–3378 (2010).

[5] International Network for Environmental Compliance and Enforcement, “Recent Amendments to U.S. Lacy Act Should Help Protect Forests Worldwide,” October 23, 2008, at http://www.inece.org/climate/ClimateComplianceAlert_LaceyAct.pdf (November 18, 2010).

ABOUT THE AUTHOR

TANVI SINGH

Tanvi Singh is a fourth-year Law student pursuing B.Com. LL.B. (Hons.) at Gujarat National Law University. Tanvi believes that deductions and deliberations must be made sincerely based on well-researched information. Her academic interests are in the field of International Trade Law, Law and Economics, Contracts and Arbitration.