Part a Question 2 Marker Comments in Brackets

Part A Question 2 –– Marker Comments in Brackets

1. The Aus gov is advised that whether the protection on child labour is consistent with its WTO obligations will be contingent on:

1) Breach of a discipline:  ArtIII  ArtXI  AdArtIII  ArtI

2) Finding an exception:  ArtXX

Breach

As Aus had prohibited the use of child labour domestically, the prohibition on imports may be an internal regulation on a good imposed at the border. Thus whether the case falls under ArtIII will depend on AdArtIII.

AdArtIII

Where an internal measure regulates the production of a product because of a concern arising from the production process that is disconnected to the physical quality of the good AdArtIII will not apply (Tuna – Dolphin). [tick]

The regulation of child labour is a production process regulation. Goods produced using child labour may be as physically good as products produced with adult labour. The measure is not connected with the physical quality of the good (Tuna – Dolphin). [tick]

AdArtIII does not apply. Hence breach will be contingent on ArtXI. [tick]

Quantitative limitations are prohibited (XI). Whether XI is breached is a matter of substance not form (Japan – Semi-conductors). As the Aus law defines a child as 16 and Chinese law defines child as 12 no products may be imported. This is an operational quantitative limitation (Japan – Semi-conductors). [No – pretty clear on its face].

ArtXI = breach.

By prohibiting the imports of China, Aus is giving other nations a relative advantage. The MFN principle prohibits preferential treatment not afforded 'immediately and unconditionally' (ArtI). Breach of ArtI is a question of substance (Canada – Automobiles), and discrimination based on human rights will breach ArtI (Indonesia – Automobiles). [tick]

ArtI = breach.

Defences

Aus may have a defence to its breaches of WTO disciplines under the general exceptions in ArtXX.

Test: XX (Shrimp – Turtle)

1. Does the measure breach the paragraphs? 2. Does the measure breach the chapeau?

Paragraphs

XX(b) –– The Protection of Human Life

Aus may argue that by prohibiting child labour it is attempting to preserve human life in China. The main problem with such an argument is 'extra-territoriality' and the 'necessity' test.

Necessity

The measure taken by Aus will not be 'necessary' to protect human life if another alternative measure would achieve the same result that is less trade restrictive (EC – Asbestos). Factors in determining 'less trade restrictive' include;  Importance of the measure being pursued;  The extent to which trade is affected;  Whether alternatives are reasonably afforded;

These factors amount to a proportionality type test of necessity (US – Gambling; Dominican Republic – Cigarettes).

Although the measure (prohibition) is highly trade restrictive, it is difficult to see how Aus could have pursued their policy through any other means. Analogising with EC – Asbestos a complete prohibition on child labour at a domestic level probably mandates a complete prohibition on imports. The only other measure would have been multi-lateral negotiations, which Aus did not participate in. The lack of adoption may affect necessity [tick], but it is likely that the measure was necessary.

Extra-territoriality of XX(b)

Tuna–Dolphin I held that XX(b) can have no extra-territorial operation. Tuna – Dolphin II held that is may, 'in principle', have extra-territorial operation. Analogising the test with that adopted by the AB in Shrimp – turtle, the most coherent method to determine the validity of an extra-territorial measure under XX(b) is whether there is a 'broad nexus of connection' between the imposing member and the protection of the human life.

It is likely that there is a sufficiently broad connection between Chinese children and Aus children [the connection is b/w Chinese children and ???] to satisfy the test. The relevant connections are the age of the workforce, but given the AB's reluctance to assert an extra-territorial operation for XX(b) it is unlikely that the connection is close enough.

Conclusion

Paragraph XX(b) = not cleared

[XX(a)?]

Chapeau

1. Unjustifiable Discrimination (Shrimp – Turtle)

 A failure to engage in multi-lateral negotiations to allow for 'different conditions existing in other countries to be taken into account' = breach of chapeau (Shrimp – Turtle)  Aus has failed to engage in multilateral negotiations –– did not participate in ILO treaty building process. As such it is possible that Aus has failed to take into account China status as a developing country. There is unjustifiable discrimination. [tick].

3. Is the measure a disguised restriction on international trade

If good faith negotiations, and co-operations in international relations have been entered into then it is less likely that the measure is a disguised restriction (Shrimp – Turtle). Aus has not engaged in good faith co-operation. The measure is also an aggressive unilateral measure, taken without reference to international standards (ILO Treaty). It is likely that the measure ill be perceived as a disguised restriction on trade. [tick]

Conclusion

As the terms of the paragraphs and the chapeau have not been met it is unlikely that the Aus gov will have a defence to its breaches under XX. [tick]

2. What response the Aus gov can take to Chinese interest-free loans will depend upon whether they are a subsidy capable of giving rise to a remedy under the GATT and the Subsidies Agreement.

1. Are the Loans Subsidies?

A government practice involving a direct transfer of funds (including a loan) (1.1(a)(i) SA) will be a subsidy if a benefit is conferred (1.1(b)). As the loans are 'interest – free' it is highly likely that the subsidised industries are obtaining a benefit unobtainable on market terms. [case?]

The loans are subsidies.

What kind of subsidy are they?

As the subsidies are not directed at export performance (3.1(a)) or domestic use (3.1(b)) they are not prohibited.

Specific

The subsidy is not expressly granted to any industry or enterprise (2.1(a)). However if, when judged by its actual operation, a subsidy is discriminatory it will be specific (2.1(c)).

As 85% of the subsidies are being granted to a particular industry, IT, it is likely that it is an operationally specific subsidy (2.1(c)).

Is the subsidy Actionable?

2 grounds for actionable subsides relevant here

1. A subsidy is actionable if it causes injury to the Aus industries (5(a)). The relevant definition of 'injury' is that same as CVD def in Art15 (footnote 11 5.a).

Injury is determined according to the volume, effect and consequential impact of the subsidy (15.1).

Volume

On the facts there is no significant increase in subsidised imports (15.2).

Effect

A significant price undercutting compared to domestic producers is an effect indicative of injury (15.2).

The Chinese imports sell at 25% less than Aus products. This is a significant price undercutting.

Consequential Impact: 15.4

Factors Indicating Consequential Impact

1. Decline in sale, profits and market share.  No Facts.

2. Actual negative effects on cash flow, growth and employment  The Aus domestic market has grown significantly in the last 12 months. Domestic producers have increased staffing levels and are attracting large amounts of investment.  There is no consequential impact on the Aus domestic market as a result of the subsidy. As there is no injury to the domestic market, Aus cannot impose a CVD on subsidised imports. [tick]

"Serious Prejudice"

If the subsidy causes serious prejudice to the interests of another it is actionable (5(c)). Serious prejudice includes the displacement of a like product into the market of the subsidiary member (6.3(a)). [tick]

Aus has lost a 10% market share in the Chinese market. This loss is consistent with the period of the subsidiary being granted and is in the like industry. It is likely that the subsidy has caused Aus serious prejudice under 6.3(a). [tick]

Remedy

Aus may apply for a track 2 (multilateral) remedy to affect the impact of the displacement subsidy.

Aus must consult with Chinese (7.2), the may refer to DSB (7.4) who may recommend China withdraw the subsidy (7.8). if there is no withdrawal DSB may authorise Aus to impose a tariff on Chinese goods entering Aus as a counter- measure (7.9).

If a unilateral remedy can be applied China's status as a developing country should be taken into account (27.2, 27.2(a)).

3) Aus may take action in response to China's trade practices, if Chinese producers are dumping and Aus has a right to impose anti-dumping duties.

Is there dumping?

 Normal calculations is price of goods in export market and price in import market (2.1 DA).

However, as XSC (China) is selling to a subsidy 2.3 applies. Price to the associate must be disregarded 2.3. Thus the $600 sale per unit to XS(Aus) does not represent the accurate import sale price. [tick]

Dumping

 Chinese market = $500 per unit  Aus market = $300 per unit  Dumping margin = $200

There is dumping. The next element is which there has been material injury to the Aus market.

Injury

Material injury is something less than serious injury (US – Lamb). Factors relevant to the determination of injury are:  Volume, affect and consequential impact of dumped products (3.1)  All factors must be considered by the domestic authority (US – Hotrolled Steel) [tick]

Volume

There are no facts.

Effect (3.2)

There is a $50 price undercutting of the domestically produced goods ($350 vs $300). This is likely to be an undercutting but may not be a significant undercutting.

Consequential Impact (3.4)

Factors

 There has been a decline in sale by Aus producers.  There has been layoffs is Aus.  There is injury.

Causation

A causal connection between the dumping and the injury must be proven. The same test as safeguards is to be applied (US – Hotrolled Steel).  Genuine and substantial connection and non-attribution.

 The main causal problem for Aus is that the decline in Aus market precedes the dumping, as it has been 3 years. It is likely that the dumping in the last 12 months may have contributed slightly, [tick] but the material injury suffered has been the result of actions occurring prior to the dumping.

 Aus us advised that there is a causal problem with the dumping. If there is no problem then they must have 'special regard' to China as a developing country (15). In applying an ADD the duty cannot be more than $200 (9.3) and a lesser amount is preferred (9.2).

[Really well done]

80 Part B Question 1

The stalling of the present WTO trading round in Doha is largely the result of dissatisfaction on behalf of developing countries at the inability of the WTO to aid development. part 1 of this paper investigates how the multilateral system purports to protect trading and environmental concerns. Part 2 evaluates the success of these purported protections, concluding that, as it is presently constituted, the WTO system gives insufficient protection to both development and environmental concerns. This essay concludes by noting that to a large extent the failure of the WTO to protect development and environment is reflective of a broader failure of the international governance system, and the envisaged separation of powers at an international level.

Part 1: Multilateralism, Trade and Economics

The economic model used to support free trade envisages a specific position for both development and environment concerns. The theories of free market efficiency, comparative advantage and mutual efficiency gains are expressed through the various GATT disciplines. Most favoured nation (ArtI) and national treatment (ArtIII) attempt to defray the ability for countries to act in a protectionist manner and defeat the comparative advantages of producers in other countries.

The net benefit of this liberalisation is, purportedly, efficiency gains, leading to a efficient allocation of resources and the strengthening of the global economy.

Efficiency Gains: LDC's

The theory of comparative advantage holds that if each country exploits its comparative advantage in production, producers will experience wealth growth. This has particular relevance for LDC's, as the theory suggests that by exploiting comparative advantages, LDC's may develop. In this manner the WTO is incidentally concerned with promoting development through allowing the free exercise of market forces via the prevention of protectionism.

Efficiency Gains: The Environment

The WTO system lends less credence to the ability of market forces to directly protect the environment, the only protection afforded is purely incidental to the larger goals of mutual efficiency gains from free and specialised trade. If resources are efficiently distributed then there will be less scope fro wasteful production process, that leads to environmental abuse (Skeen). Additionally, multilateral negotiation can be seen as a method of alleviating the environmentally abusive aspects of production and trade via greater scrutiny of nations methods (a similar point is made in reference to human rights protection by Lim). The WTO –– Development and Environment: Conclusion

Any protection of the environment, of stimulation of development, is located within the basic economic assumption that underlie the multilateral trading system. As such, any protection is purely incidental and is plagued by the flaws in the economic assumption of 'no externalities.'

[this is good, but only part of the story as the GATT deviates from these goals for the purposes of development and environmental protection]

Part 2 will investigate how the particular treatment of development and environment concerns by the WTO system fails to live up to expectations.

Part 2: Trade and LDC's

As Rodrick notes, the GATT system is largely based upon a highly flawed perspective of development. Integration into the global economic order is seen as an end in itself rather than a benefit of development. As such the multilateral system does not accommodate any room for developmental policies divorced from integration. In most cases, LDC's who have successfully developed have done so through a combination of protectionist measures coupled with stimulation of national industries; compare Haiti with Viet Nam (Rodrick). If this path to development is followed the WTO imposes serious obstacles. [yes, but what about provisions allowing protection] The national treatment principle prevents developing countries from stimulating domestic industries through the imposition of preferential treatment (ArtIII). Quantities limitations result in largely the same difficulties for nations attempting to adopt protectionist measures to stimulate a developing economy. The subsidies agreement imposes serious obstacles to government attempts to stimulate infant industries or promote technological advances.

The attempts to defray these problems in the mechanics of the WTO system have been largely ineffective. Olivaries notes that his is due to the adoption of soft-law exceptions that are largely ignored by MDC's and not strictly enforced by the DSB. Examples of such soft-law instruments are the 'special recognition' provisions in the subsidies and anti-dumping agreement (27.1, 27.2(a) SA) (15 ADA). [tick] [What do these do?] [What about the GATT ones?]

An additional problem for LDC's is encountered in the GATS, and the inability for LDC's to exploit a comparative advantage in law-cost, un-skilled labour. As Some notes the lowest scheduling of services liberalisation under the GATS is cross-border mode of supply. This is the most relevant mode of supply for LDC's as it allows movement of low-skilled workers from LDC's to MDC's. in contrast the most scheduled services are those advantageous to MDC's such as commercial presence and service supply modes. [tick]

As such LDC's expectations of development are defeated through the very disciplines that assume the ability to promote development. LDC's cannot exploit their comparative advantages and are disproportionately exploited by the advantages of MDC's.

[you might have made reference to agriculture and textiles]

WTO and Environment

The most celebrated case for trade and the environment was Shrimp – Turtle, however the ability for the multilateral trading system to protect environmental concerns was only strengthened in the most cursory manner. Although the outcome of Shrimp – Turtle II permitted the US to legally condition market access on adherence to environmental standards it did little to open the door for subsequent environmental measures. The AB resiled from holding that XX(g) (and the XX exceptions more generally) had extra-territorial operation. Rather the Shrimp – Turtle AB focused on the 'broad nexus' of sea turtles to the US. By refusing to give XX(g) a broad extra-territorial operation the AB was, arguably, adhering to a valid interpretation of the GATT (Kelly). However, such an interpretation of XX(g) does little to promote the case of countries attempting to arrest shared environmental abuses, such as global warming, or trans-national pollution.

[Why not? These exceptions would seem to fall w/n the broad nexus]

The application of a proportionality test to 'necessity' in XX(b) also defeats the expectations of nations attempting to protect plant life in a 3rd country through a trade measure. [??]

The WTO –– Development vs Environment

The attempted compromise reached by the AB in Shrimp – Turtle may also have detrimental impact on LDC's. to the extent that XX(g) can protect extra-territorial natural resources, it can only benefit MDC's. LDC's require market access to develop (according to the theories underlying the WTO) and stimulate domestic production. As such the imposition of an XX(g) measure by an MDC necessarily requires LDC's to comply with the environmental standards in MDC's. Low environmental and labour standards may be an LDC's most advantageous comparative advantage over MDCs. The operational effect of the Shrimp – Turtle XX(g) holding has the potential to completely undermine the comparative advantages of LDC's (Kelly).

Part3: WTO –– Environment and Development ––> A Conflict of Ideologies.

The shortcomings in the WTO system in relation to environmental protection and development are predominately the result of a conflict of ideologies. The multilateral trading system, established in GATT ('47) gives utter precedence to an economic conception of development. Developmental advocates, such as Rodrick, see the present system of trade de-regulation as, not only important to assist LDC's development, but as one of the most significant cause of LDC's development abuses. On the other hand, free trade advocates see the implementation of non-economic rationales into trade policy as detrimental to global welfare and consider any consideration of protectionism to be a slippery slope leading to global reversion to the mercantilist era. The same can be said of economic concerns.

The UN and ILO should take a greater role in rectifying environmental and developmental abuses. They should also strengthen international dispute resolution systems to put them on par with the strong arbitral traditional of the WTO.

[A well constructed paper]