Chapter 7 Trade in Goods

 Chapter 7

Trade in Goods

i.              Definitions

1.      Most-favored-nation status

When a GATT member nation sets a favorable tariff rate on a particular type of goods imported from one GATT member, that member nation may not assess a higher tariff on the particular type of goods being imported from any GATT nation.

 

2.      Subsidy

A financial contribution made by a government or other public body that confers a benefit on an enterprise, a group of enterprises, or an industry.

 

3.      Actionable subsidy

A subsidy that may be challenged as trade distorting if it injures the domestic industry of another WTO member state, nullifies or impairs the benefits due another member state, or causes or threatens to cause serious prejudice to the interests of another member state.

 

4.      Safeguard

An emergency action that a WTO member state may take in order to protect its domestic industry from serious injury due to a sudden increase in the quantity of an imported product.

 

5.      Direct effect

The principle whereby a treaty may be invoked by a private person to challenge the actions of a state that is a party to the treaty.

ii.              True or False

1. The World Trade Organization, would officially come into existence on January 1, 1995.    

Answer: True

2. The General Agreement on Tariffs and Trade was substantially rewritten in 1994, and the provisions of GATT 1994 differ dramatically from those of GATT 1947.  Answer: False

3. The Kennedy Round of Multilateral Trade Negotiations (or GATT 1947 “rounds”) established the practice of setting an agenda for and defining the techniques to be used during the negotiations. 

Answer: True

 

4. MFN treatment can be stipulated in domestic legislation and international treaties.

Answer: False

5. None of the provisions of the General Agreement on Tariffs and Trade (GATT 1994) are directly effective; that is, a private person in a suit may invoke none of them.

 Answer: False

5. Unlike the proposed International Trade Organization’s Havana Charter, the WTO Agreement separates institutional arrangements from the substantive provisions governing world trade.  

 Answer: True

7. The most basic goal of the General Agreement on Tariffs and Trade (GATT 1994) is the progressive liberalization of world trade.  Answer: True

8. The World Trade Organization is a new supranational organization with the power to usurp sovereignty from its member states.

Answer: False

9. The General Agreement on Tariffs and Trade’s (GATT 1994’s) “Most Favored Nation Rule” requires a country to treat products equally with its own domestic products once they are inside that border.

Answer: False

10. The General Agreement on Tariffs and Trade’s (GATT 1994’s) “Generalized System of Preferences” allows developing countries to export all (or nearly all) of their products to a participating developed country on a nonreciprocal basis.

Answer: True

11. The General Agreement on Tariffs and Trade (GATT 1994) forbids (with few exceptions) member states from protecting their domestic industries by any means other than tariffs.

Answer: True

12. The General Agreement on Tariffs and Trade (GATT 1994) requires member states to disclose to other member states and the public the rules, regulations, and practices that they follow in their domestic trade systems.

Answer: True

iii.              Multiple Choice

1. The goal of the “Bretton Woods System” was to establish which of the following organizations to administer and harmonize world trade?

a)        The Bank for International Settlements.

b)        The Coordinating Committee on Multilateral Export Controls.

c)        The International Trade Organization.

d)        The Trade Policy Review Board.

Answer: c

2.  The Uruguay Round (1986-1994) of Multilateral Trade Negotiations was devoted to:

a)        adopting new special agreements (e.g., agriculture).

b)        creating a new World Trade Organization.

c)        expanding the GATT principles to new fields (e.g., services and intellectual property).

d)        All of the above.

Answer: d

3.  The World Trade Organization is responsible for which of the following?

a)        Acting as a forum for on-going multilateral trade negotiations.

b)        Implementing, administering, and carrying out the WTO Agreement and its annexes.

c)        Serving as a tribunal for resolving disputes.

d)        All of the above.

Answer: d

4. States that did not become original members of the WTO:

a)        must negotiate terms of entry with the WTO.

b)        must be approved for membership by a simple majority vote (half plus one) of the Ministerial Council.

c)        must be approved for membership by a two-thirds majority vote of the Ministerial Council.

d)        Both a. and c. above.

Answer: d

5.  Which of the following is not one of the main organs of the WTO?

a)        World Intellectual Property Organization.

b)        Council for Trade in Services.

c)        General Conference.

d)        Ministerial Conference.

Answer: a

6. Those provisions of the General Agreement on Tariffs and Trade (GATT 1994) which are directly effective are:

               a)              all of the numbered articles.

               b)              those provisions added in 1994 that are different from those of GATT 1947.

               c)              those provisions that prohibit a member state from taking action contrary to the General Agreement.

               d)              those provisions that require a member state to take some positive action to implement the General Agreement.

Answer: c

7.    The principle of “nondiscrimination” is implemented in the General Agreement on Tariffs and Trade (GATT 1994) by which of the following rules?

a)        The “most-favored-nation” rule.

b)        The “national treatment” rule.

c)        Both a. and b. above.

d)        The “protection through tariffs” rule.

Answer: c

8.  Specific subsidies are subsidies that target:

a)        a specific enterprise or industry.

b)        enterprises or industries that have a specified income level.

c)        individuals with specified educational qualifications.

d)        All of the above.   

Answer: a

9. Which of the following are exceptions to the General Agreement on Tariffs and Trade’s (GATT 1994’s) “National Treatment Rule”?

a)        Member states may discriminate in the payment of subsidies to domestic producers.

b)        Member states may discriminate in the procurement of goods by government agencies and subsidization.

c)        Member states may discriminate in the screening of domestically produced movies.

d)        All of the above.

Answer: d

10. Which of the following are exceptions to the General Agreement on Tariffs and Trade’s (GATT 1994’s) “Most Favored Nation Rule”?

a)        Member states may join together to create customs unions and free trade areas.

b)        Member states may restrict imports to protect public health, safety, welfare, and their national security.

c)        Member states may take actions to counter dumping and subsidization.

d)        All of the above.

Answer: d

 

iv.              Short answers

1. There are some disciplines of Agreement on Subsidies and Countervailing Measures (SCM Agreement) stipulate the subsidies, please explain the disciplines apply and not apply to the subsidies.

Answers: The Agreement on Subsidies and Countervailing Measures (SCM Agreement) clearly states that its “disciplines” (i.e., member state obligations) apply only to “specific” subsidies—that is, subsidies that target

(1) a specific enterprise or industry,

(2) specific groups of enterprises or industries, or

(3) enterprises in a particular region.

The disciplines do not apply to

(1) nonspecific subsidies,

(2) certain specific subsidies defined in the agreement, and

(3) agricultural subsidies (which are governed by the Agreement on Agriculture).

 

2. What are the categories of specific subsidies? How to use Actionable subsidies?

Answers: Specific subsidies (i.e., those regulated by the SCM Agreement) are divided into three categories:

(1) prohibited subsidies (informally referred to as red subsidies), and

(2) actionable subsidies (yellow),

(3) nonactionable subsidies.

Actionable subsidies (yellow subsidies) are subsidies that may or may not be trade distorting, depending on how they are applied (thus the reason for their designation as yellow). They are defined as specific subsidies that, in the way they are used,

(1) injure a domestic industry of another member state,

 (2) nullify or impair benefits due another member state under GATT 1994, or

 (3) cause or threaten to cause “serious prejudice” to the interests of another member state. WTO member states are discouraged, but not forbidden, from using actionable subsidies.

v.              Case analysis

1. The Snicker Company, the largest manufacturer of Snickerdoodles in State F, decided about two years ago to enter the cookie market in State G. Several small companies in State G manufacture Snickerdoodles, but the market has traditionally been very small. When Snicker entered State G’s market, it undertook a widespread advertising campaign to promote Snickerdoodle consumption and to encourage consumers to try its product by publishing coupons in newspapers that allowed purchasers to buy Snicker’s Snickerdoodles below their actual cost. As a consequence of this campaign, the sales of Snickerdoodles in State G have skyrocketed. In addition, the sales of Snickerdoodles manufactured by State G firms have more than tripled. State G’s Snickerdoodle manufacturers are, nonetheless, displeased, because their market share has gone from 100 percent to 30 percent in two years. Concerned with this loss, they have asked State G to impose anti-dumping duties on Snicker, since its snickerdoodles are being sold below cost. Both State F and State G are members of the WTO. Should State G impose anti-dumping duties on Snicker? Explain.

Answer:

 Prior to antidumping obligations can be forced, three things should be set up: unloading (i.e., selling an item beneath its "typical worth"),material injury to a homegrown industry, and a causal association between the unloading and the injury. In this issue, there was unloading (deals underneath genuine expense), yet no material injury. The all out number of deals of the homegrown contenders expanded. (Note: They ought to say thanks to Snicker instead of suing Snicker!).