Incoterms_® and Commercial Contracts

Volume One of this series introduces business interests to the international and regional rules applicable to trade in goods and services, as well as to aspects of trade such as intellectual property rights and dispute settlement. Businesses that have an understanding of the history of the General Agreement on Trade and Tariffs (GATT) and the World Trade Organization (WTO) will find it easier to appreciate how they can benefit economically from the international trade regime. The international trade regime responds to many business interests and can be harnessed to increase exports or, conversely, to protect domestic markets. It has developed over 70 years to meet the needs of producers of goods, service providers and the holders of intellectual property rights. It is based in large part on the value of increased competition, which provides consumers with greater choice and lower prices.

In order to expand trade opportunities for the business community, governments have negotiated reductions in tariffs and other trade barriers, and enacted rules that provide regulatory fairness. These rules increase predictability and certainty, and make it easier for businesses to gain access for their products in foreign markets.

Not only do the rules help “lock in” the results of negotiations, they can provide an effective basis for removing discriminatory barriers applied by another Member to limit the import of goods and services. For example, as a result of one WTO Appellate Body decision supported by major western alcoholic beverage manufacturers,¹Japan removed its tariff on imported spirits and also equalised its excise tax, which had discriminated heavily against imported alcoholic spirits in favour of a domestically produced spirit called shochu. The spirits industry has since encouraged similar actions that resulted in the removal of discriminatory tax regimes in Chile, Korea and the Philippines.²Another WTO Appellate Body decision served as a basis for the removal of discriminatory US regulations, supported by US petroleum refiners, that favoured domestic over foreign petroleum refiners.³Foreign petroleum refiners, working through their governments, played a role in achieving this result.

Nevertheless, contrary to what many in the general public think, WTO rules are not always used to open markets. WTO rules allow domestic industries to petition their government for protection, usually in the form of additional duties against imports that are causing them harm. The rules aim to ensure that the protection is provided in a fair manner. The WTO rules also give considerable leeway to Member governments to enact regulations designed to protect health, safety and the environment that may limit market access for certain imported products. These regulations are sometimes subject to abuse and can be challenged in the WTO.

The WTO features a relatively strong dispute settlement system. Regional trade agreements also feature dispute settlement systems of varying strength. The WTO dispute settlement system, and those of most RTAs, are open only to governments, so that businesses can only access them by working through governments. In contrast, investment agreements, to be discussed in Volume Two of this series, often give business direct access to various tribunals.

This volume deals with international trade and contains the following chapters that deal with trade in goods:

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• Chapter One provides an introduction to the world trading system, including the economic and political benefits of trade, the evolution of the system as it exists today, the structure and functioning of the WTO, and the growing significance of regional trade agreements (RTAs) and preferential trade arrangements (PTAs);
• Chapter Two discusses the fundamental rules governing international trade, as enshrined in the General Agreement on Tariffs and Trade;
• Chapter Three explains how customs authorities determine the amount of duties due on imports and also discusses other customs issues;
• Chapter Four describes two WTO Agreements that deal with non-tariff barriers in the form of regulations designed to protect our food and beverage supply, the environment, consumers, workers, etc.;
• Chapter Five discusses the WTO rules relating to subsidies;
• Chapter Six discusses the various ways in which industries can obtain relief from imports that are causing them harm;
• Chapter Seven discusses the special rules applicable to trade in agricultural goods;
• Chapter Eight describes the regime covering government procurement;
• Chapter Nine discusses export controls and sanctions; This volume also contains chapters dealing with trade in services, intellectual property, and dispute settlement:
• Chapter 10 describes the rules applicable to trade in services;
• Chapter 11 discusses the international trade rules relating to intellectual property rights;
• Chapter 12 describes the way in which disputes are settled in the WTO and under RTAs; Volume One concludes with case studies:
• Chapter 13 contains four case studies, three of which illustrate how the WTO dispute settlement system was used to remove trade barriers, with the fourth showing how powerful industries can use trade remedy laws to inhibit trade and protect their interests.

Business Guidance is set forth in shaded boxes in bold and italic type.

Case descriptions and brief legal analyses appear in text boxes introduced with a title in bold type.

Legal references and cases are provided in endnotes that follow each chapter. Most citations throughout Part One of the book are to WTO cases. When a citation contains the letters “AB”, it is to an Appellate Body decision. When it contains “R” without “AB”, the decision is that of a WTO panel. Decisions of the GATT contain an “L” or “BISD” in the citation. All WTO and GATT decisions are available on the WTO website.⁴

Volume Two of this series deals with investment agreements and will be introduced by a separate Overview section.

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POSTSCRIPT (May 2017)

There is always a significant difference between a Presidential candidate’s rhetoric on the campaign trail and his statements and actions once in office. This has been particularly marked in the case of President Trump in the field of trade. For example:

Campaign: China is a currency manipulator.
In Office: They are not currency manipulators.

Campaign: “I would do a tax on [imports from China] and the tax should be 45%”
In Office: Apparently dropped.

Campaign: Abrogate NAFTA, “the worst deal maybe ever signed anywhere, but certainly ever signed in this country.”
In Office: NAFTA to be renegotiated.⁵

Campaign: Impose 35% tariff on imports from Mexico.
In Office: Apparently dropped.

Campaign: “I don’t think [the Export-Import Bank] is necessary. [It’s] a sort of a featherbedding for politicians” and “a few companies.”
In Office: “It turns out that, first of all, lots of small companies are really helped, the vendor companies.” “But also, maybe more important, other countries give [assistance]. When other countries give it we lose a tremendous amount of business”.

What accounts for these U-turns? It seems that at present the realist advisors in the White House are setting the main direction of trade policy, although with many interventions by the highly protectionist, “America First” advisers – and Trump himself – who dominated economic issues during the campaign. This could easily change, however. The one thing that is predictable is that Donald Trump is unpredictable. On 29 April President Trump announced that Peter Navarro, one of his leading trade advisers and a strong critic of China’s trade policy, had been appointed to head the new White House Office of Trade and Manufacturing Policy. This may presage a resurgence of protectionist influences. On the same day, he announced a review of all US free trade agreements to determine whether the United States benefited as much as expected from them. If the answer is “no,” he will no doubt seek to renegotiate or terminate them.

It is safe to anticipate that there will be an increased number of trade remedy cases. The recently confirmed US Trade Representative, Robert Lighthizer, and Gilbert Kaplan, the nominee for Under Secretary of Commerce for International Trade (in charge of anti-dumping and countervailing duty cases), spent much of their careers representing petitioning industries (particularly the US steel industry) in trade remedy cases. And Secretary of Commerce Ross has indicated that the Department of Commerce is likely to self-initiate trade cases, something that has only happened a handful of times. Secretary Ross has also suggested that the United States may conduct more safeguard investigations than in the past (the last US safeguard investigation was in 2002). Such investigations are much simpler and faster, as there is no need to show an unfair practice such as dumping or subsidization.⁶A safeguard case on solar cells was filed at the end of April. And an anti-dumping and countervailing duty case against large civil aircraft from Canada was filed by Boeing.

In an unexpected development, in April the Government announced that it was launching investigations to determine whether imports of steel and aluminium are impairing US national security, in which case the United States could impose import relief in the form of tariffs or quotas. There have been few such investigations, particularly in recent years, and very few were successful. However, this investigation could pose a threat to the WTO system. The last time the United States justified action based on national security – the Helms-Burton Act of 1996 – it announced that it would not participate in the EU’S WTO challenge because in the US view, the language of Article XXI of the GATT, authorizing a GATT party to take action that “it considers necessary” for its national security, meant the action could not be challenged in WTO dispute settlement[Page21:]proceedings.⁷Imposition of import relief on steel would undoubtedly be challenged in the WTO. Presumably the United States will again take the position that its action could not be adjudicated by the WTO. If the Appellate Body were to agree with the United States, the door would be open for Members to impose virtually any trade-restrictive action without challenge. If, on the other hand, the United States were to lose, there would be likely to be enormous pressure from some quarters to withdraw from the WTO (although US intellectual property owners, such as Disney, Microsoft and Pfizer, are likely to oppose any move to leave the WTO in order to maintain their ability to protect and enforce their intellectual property rights).

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