CHAPTER 12CHAPTER 12

International Trade

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INTRODUCTIONINTRODUCTION

Managers are increasingly faced with doing business in a global environment. This chapter begins with the presentation of a framework for understanding U.S. trade law and policy, highlighting certain aspects of U.S. trade law and policy and process, domestic trade laws, and U.S. participation in international agreements, such as NAFTA and WTO. The final section discusses the European Union and its plan for economic, monetary, and political integration.

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U.S. TRADE POLICY: THREE PERSPECTIVES

U.S. TRADE POLICY: THREE PERSPECTIVES

Economy Theory1. Objective of U.S. trade policy is the promotion of free and fair trade.2. Elimination of government regulations to ensure real market costs of goods.

Practical and Political Perspective1. Traditional competing interests (export vs. import industries).2. Plus, add managers’ duty to maximize shareholder value.3. Now, environment and human health are concerns.4. Major battle between proponents of WTO and those who are concerned with national sovereignty.

Legal Perspective1. U.S. laws that govern implementation of treaties and governmental actions.2. Congress and Executive Branch check and balance.

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STRUCTURE OF U.S. GOVERNMENTAL

REGULATION OF TRADE

STRUCTURE OF U.S. GOVERNMENTAL

REGULATION OF TRADE Role of Congress

1. Power to regulate all aspects of commerce with foreign nations.2. Imports restricted by tariffs and treaties.3. Exports may be facilitated by federal subsidy (wheat) and tax breaks.4. What role do state and local governments play?

The Role of the President—has broad power to negotiate trade agreements. Administrative Agencies.

1. U.S. Trade Representative, Department of Commerce, Department of State, Department of Treasury, U.S. International Trade Commission.2. The Interagency Committee.3. U.S. Export-Import Bank—helps subsidize U.S. exporters.

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THE ROLE OF CONGRESS

THE ROLE OF CONGRESS

Case 12.1 Synopsis--Crosby v. National Foreign Trade CouncilMassachusetts passed a law barring state governmental entities from buying goods or services from companies doing business with Burma. Later, the U.S. Congress enacted federal legislation imposing mandatory and conditional sanctions on Burma. The Massachusetts law was inconsistent with the new federal legislation. The National Foreign Trade Council sued on behalf of its several members claiming that the Massachusetts law unconstitutionally infringed on federal foreign affairs power, violated the Foreign Commerce Clause of the U.S. Constitution, and was preempted by the subsequent federal legislation. The district and appeals courts ruled in favor of the Council, and the Commonwealth appealed.

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ISSUE: Did Massachusetts exceed the scope of its authority by passing a law barring state entities from purchasing goods or services from companies doing business in Burma? HELD: AFFIRMED. The Massachusetts law is preempted, and its application unconstitutional under the Supremacy Clause of the U.S. Constitution. State law must yield to a congressional act if Congress intends to occupy the field, or to the extent of any conflict with a federal statute.

THE ROLE OF CONGRESS

THE ROLE OF CONGRESS

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THE ROLE OF THE PRESIDENT

THE ROLE OF THE PRESIDENT

Case 12.2 Synopsis. Consumers Union v. Kissinger, (1974).To assist the U.S. steel industry, President Richard Nixon (through Henry Kissinger) sought to reduce steel imports from Japan and Europe by convincing foreign producers to limit their exports to the United States. The undertakings to do so were voluntary, and no attempt was made by the United States to legally enforce them. Consumers Union, believing that U.S. consumers were hurt by this restriction on supplies of foreign steel, sued the secretary of state. It argued that the president had, in effect, regulated foreign commerce without any specific statutory delegation of authority from Congress and, thus, exceeded his authority. CONTINUED

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THE ROLE OF THE PRESIDENT

THE ROLE OF THE PRESIDENT

Case 12.2 Synopsis. (Cont’d).

ISSUE: Did President Nixon act within his powers in negotiating nonbinding, voluntary undertakings by foreign producers to reduce their exports to the United States? HELD: YES, the export restraints by the foreign producers were upheld. The president did not exceed his constitutional authority, because the export restraints were accomplished through an informal, voluntary agreement. The restraints were not legally binding on the foreign exporters, and they were not enforced by U.S. authorities.

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U.S. LAWS AFFECTING IMPORTS

U.S. LAWS AFFECTING IMPORTS

Tariffs1. Ad Valorem Tariffs - importer must pay percentage (a “duty”) of the value of imported merchandise.2. Federal Law.

The Harmonized Tariff Schedule - two basic rates of duty. Country of Origin - tariffs vary depending on the country of origin.

- Substantial Transformation. Tariff Classifications Customs Valuation and Laws

1. Customs Valuation.2. Transaction Value (price on the sales invoice).

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Tariff Preferences Generalized System of Preferences - assists developing

nations with exports. Import Relief Laws.

1. President can raise tariffs if there are unfair trade practices.2. U.S. International Trade Commission investigates.

Anti-Dumping Law - found in Tariff Act of 1930 - relieves U.S. industries injured by foreign nations “dumping” cheap products in the market.

The Countervailing Duty Law.

U.S. LAWS AFFECTING IMPORTS

U.S. LAWS AFFECTING IMPORTS

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IMPORT RELIEF LAWS

IMPORT RELIEF LAWS

Case 12.3 Synopsis. Presidential Decision Under Section 201: Lamb Imports, Statement by the President, July 7, 1999.

The U.S. lamb industry lodged a complaint that a surge in cheap lamb imports from Australia and New Zealand were causing serious injury to the U.S. lamb market. The ITC launched a thorough investigation of lamb imports under Section 201 of the Trade Act of 1974, concluding that lamb imports had increased nearly 50 percent between 1993 and 1997, with a rapid increase through 1999. The ITC concluded that lamb imports were a substantial cause of serious injury to the domestic industry and it unanimously recommended that trade restrictions be imposed on lamb imports for four years. ISSUE: Would imposing trade restrictions on lamb imports be detrimental to the national economic interest? RESULT: President Clinton agreed and the recommendation by the ITC to provide relief for the U.S. lamb industry was accepted.

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Section 337 of the Tariff Act of 1930. Section 406 of the Tariff Act of 1930. Section 232 of the Tariff Act of 1930. The Buy American Act - federal agencies must

give preference to American made products unless their price is a certain percentage higher than an import.

U.S. LAWS AFFECTING IMPORTS

U.S. LAWS AFFECTING IMPORTS

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FOREIGN TRADE ZONES

FOREIGN TRADE ZONES

Merchandise may be imported directly into the zone for demonstration purposes and may be re-exported with no duties.

No duties owed until merchandise leaves zone. Parts may be assembled in the zone without paying duties. Only the finished product leaving the zone pays duties.

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U.S. LAWS AFFECTING EXPORTS

U.S. LAWS AFFECTING EXPORTS

Section 301of the Trade Act of 1974 - addresses foreign unfair trade practices.

U.S. Trade Representative investigates Relationship between Section 301 and WTO The Export Administration Act of 1979.

1. Regulates export of technology and other products that impact National Security.2. Export Licenses for Goods and Technology.

The Arms Export Control Act Export Trading Companies : 1. Certificate that exempts company treble

damages and criminal actions or 2. Permits Export-Import Bank to guarantee loans.

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INTERNATIONAL TRADE REGIMES INTERNATIONAL TRADE REGIMES

U.S.-Israel Free Trade Agreement - all tariffs eliminated in 1995.

The Trade and Development Act of 2000 - includes Africa and Caribbean.

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THE NORTH AMERICAN FREE

TRADE AGREEMENT

THE NORTH AMERICAN FREE

TRADE AGREEMENT World’s Largest Free Trade Zone between U.S., Mexico and

Canada. Process to remove Tariffs (“Duty Free”).

1. Categories “A” (e.g., automobiles), “B” (e.g., textiles) and “C” (capital goods).

2. Elimination of customs. Prohibits new restrictions on investment. Protects Intellectual Property rights

- Berne Convention (copyrights).- Paris Convention for Protection of Industrial Property Rights (patents).

Environmental Sanctions.

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FREE TRADE AREA OF THE AMERICAS (FTAA) 

FREE TRADE AREA OF THE AMERICAS (FTAA) 

Initiated by thirty-four countries to create a Free Trade Area by 2005.

Agriculture, services, investment, government procurement, intellectual property, subsidies, competition policies and dispute settlement.

Fast-Tracking Negotiating Authority.

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THE WTO AND GATTTHE WTO AND GATT U.S. participates in various bilateral and regional trade agreements and

WTO (the successor to GATT). WTO is the principal multilateral institution regulating international trade

with 135 member nations. WTO requires member nations to participate in:

1. Goods and Services.2. Intellectual Property Rights.3. Dispute Settlement.4. Trade Policy Reviews.

Basic Principles for WTO.1. Most Favored Nation Treatment.2. Bound Tariffs - once lowered cannot be raised again.3. National Treatment - members may not discriminate against “like products.

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View From Cyberspace: WTO Tackles Electronic Commerce.

Non-Tariff Barriers – in some cases have replaced tariffs as a means of protecting domestics industries threatened by import competition.

Environmental and Health Exceptions.1. Article XX of GATT construed very narrowly. 2. Agreement on Application of Sanitary and Phytosanitary Measures (SPS) .

THE WTO AND GATTTHE WTO AND GATT

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AGREEMENT ON APPLICATION OF SANITARY AND PHYTOSANITARY

MEASURES (SPS)

AGREEMENT ON APPLICATION OF SANITARY AND PHYTOSANITARY

MEASURES (SPS) Case 12.5 Synopsis. EC Measure Concerning Meat And Meat Products

(Hormones), World Trade Organization Appellate BodyWTO Docs. WT/DS26/AB/R, WT/DS46/ABR (Jan. 16, 1998).

The European Union banned the import of all meat from cattle treated with any of six growth hormones. The United States and Canada claimed that the hormone ban was not based on convincing scientific evidence and conflicted with the SPS Agreement. ISSUE: Under what circumstances can a WTO member set a level of consumer protection higher than international health standards? HELD: The WTO Appellate Body held that WTO members have a sovereign and autonomous right to set a level of sanitary protection for their own consumers that exceeds international health standards, as long as the sanitary measures are based on a scientific risk assessment. The EU ban was inconsistent with the requirements of the SPS Agreement.

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WTO Dispute Settlement Procedures- U.S. most active participant in WTO dispute resolution.- Panel created by complaining party that issues report.- Enforcement of WTO decisions.- Timetable.

China’s WTO Accession- U.S. approved Permanent Normal Trade Relations in 2000.- Linkage between U.S.-China trade and human rights

policies.

THE WTO AND GATTTHE WTO AND GATT

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FUTURE DIRECTION OF U.S. TRADE POLICY

FUTURE DIRECTION OF U.S. TRADE POLICY Seattle WTO Summit failed to move future

agenda forward. Protection of environment, workers rights

and human rights in the agenda. What about jurisdiction, competition and

investment policies?

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THE EUROPEAN UNION

THE EUROPEAN UNION

No customs or tariffs between member nations. EU negotiates international trade agreements but approval is

allowed by individual nations. EU Competition Law.

- Boeing’s acquisition of McDonnell-Douglas which affected EU’s Omnibus.

- AOL acquisition of Time Warner. The European Commission - Executive branch of EU. Council of Ministers - Legislative branch of EU.

- Regulations- Directives- Decisions

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THE EUROPEAN UNION(CONT’D)

THE EUROPEAN UNION(CONT’D)

European Court of Justice—Judicial branch of EU.1. Failure to Comply.2. Annulment.3. Failure to Act.4. Civil Liabilities.5. Preliminary Rulings.

Court of First Instance The European Central Bank and EMU

- The “Euro.”- European Monetary Union.

Challenges to EU

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THE RESPONSIBLE MANAGER

THE RESPONSIBLE MANAGER

Engaging in International Trade– Planning in Advance for Import-

Export.– Removal of Barriers in Mexico and

Europe causes increased competition in United States.

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NEW TRADE WAR: SEATTLE 1999

NEW TRADE WAR: SEATTLE 1999

WTO will continue to symbolize loss of sovereignty, environmental protections, human rights abuse.

Do developing nations really get a good deal from WTO?

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REVIEWREVIEW1. What relationship should U.S.-China trade have with human rights

policies? 2. Should the U.S. trade with countries where fundamental rights to

speech and religion are not protected? 3. Do the protests at Seattle 1999 have merit? Are the rich getting

richer and the poor becoming more disenfranchised? 4. Under NAFTA, how does the average U.S citizen benefit? How does

the average Mexican citizen benefit? Does U.S.-Mexican trade really benefit the entire country or only a few wealthy Mexican families and U.S. multinational companies?