978-1285427041 Chapter 10

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CHAPTER 10

LAWS GOVERNING ACCESS TO FOREIGN MARKETS

CASES IN THIS CHAPTER

Thailand—Restrictions on Importation of Cigarettes

United States – Measures Affecting the Production and Sale of Clove Cigarettes

EC Measures Concerning Meat and Meat Products (Hormones)

United States–Sections 301-310 of the Trade Act of 1974

TEACHING SUMMARY

While businesses certainly value access to foreign markets as a method to increase sales and

their consumer base, there are a number of laws and regulations limiting such access. These

trade and export laws, including provisions in GATT’s Uruguay Round, seek to protect the

health, safety, and sometimes economic interests of importing countries, and they also attempt

to treat exporting countries fairly. These laws address product standards (i.e., technical barriers

to trade), suppliers (such as procurement standards), intellectual property, and dispute

resolution.

Additional Background: Disguised Discrimination. Schieffelin & Co. v. United States, 424

F.2d 1396 (C.C.P.A. 1970). International traders may be confronted with regulations that appear

to be neutral on their face but in fact affect imported products adversely. This disguised

discrimination occurs in many forms. The most common form takes place through the

application of technical regulations and product standards. While appearing to be neutral, these

standards favor domestic products or industries. This form of discrimination is more difficult to

attack under international trade rules, because there is usually a plausible explanation for the

standards, such as health, environmental, safety, or standardization reasons. Internal taxation

rules that are facially neutral can also favor domestic products over imports.

In Schiefflin, the U.S. taxed distilled spirits at $10.50 per “proof gallon” or “wine gallon.” A proof

gallon is a gallon of 100 proof spirits (50% alcohol by volume) whereas a wine gallon is a gallon

of below 100 proof spirits. The tax was due where the spirits were withdrawn from bond, either a

bonded warehouse or a customs bond. U.S. distillers could withdraw the spirits from bond in

bulk (and pay $10.50 per proof gallon), prior to dilution below 100 proof and bottling. Since U.S.

producers typically sold spirits at 85 proof (42.5% alcohol), the effective tax rate on the wine

gallon basis was 85% of $10.50 = $8.93 per wine gallon. The Irish and British exports, however,

exported their product in bottles, usually 86 proof, and were assessed $10.50 per gallon. They

complained that the differential tax violated the rule of national treatment because these virtually

identical products were taxed at different effective rates, i.e., $8.93 and $10.50.

Ultimately, the court found the difference between the taxed commodities: one is underproof, the

other overproof. Just because the spirits both “end up in the hands of consumers bottled and

underproof,” did not mean that they were “like situations.” Therefore, it was this difference,

rather than discrimination, that caused the divergent tax rates. Ask students to read the case

and compare the FCN Treaties discussed.

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Chapter 10: Laws Governing Access to Foreign Markets

— How would the U.S. practice violate either treaty?

— If you were an Irish importer, how would you respond to the above reasoning?

— Could you make a better argument under GATT Article III?

1. What reasons did Thailand give for restricting imports of cigarettes? What GATT provision

did Thailand rely on to restrict cigarette imports?

2. The panel states that GATT permits countries to give priority to human health over trade

liberalization only under certain conditions. What are those conditions?

3. How was the doctrine of “least restrictive trade” used in this case?

4. What alternative means could Thailand have used to achieve its objectives that would not

have singled out imported cigarettes for discriminatory treatment?

Answer: Thailand could have used less discriminatory means to achieve its goals, such as

limits or bans on advertising, bans on smoking in public places, public information and

education programs and utilization of government monopolies to regulate the overall

supply of cigarettes, their prices, and retail availability.

United States – Measures Affecting the Production and Sale of Clove Cigarettes

1. Did the U.S. prohibition on clove cigarettes prohibit the import of Indonesian cigarettes on

its face, or did it merely prohibit a flavor of cigarette that happens to be produced primarily

in Indonesia? Was this de facto or de jure discrimination in this case? How did this affect

the Appellate Body’s decision?

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Chapter 10: Laws Governing Access to Foreign Markets

2. The report (not reproduced here) noted the similarities between Article 2.1 of the TBT

Agreement, under which this dispute was decided, and Article III.4 of GATT 1994. Review

Article III.4 of GATT 1994 in the last chapter and explain the differences between the two

articles. The TBT Agreement applies to “technical regulations” but GATT 1994 applies to a

broader range of discriminatory measures. Explain.

3. What were the options left to the U.S. after this report? What action did the United

States take in response to the report?

4. How well to you think the report balances trade liberalization with a country’s need to

protect public health? How well suited do you think a WTO panel is to determining matters

of public health?

1. What was the role of the panel in settling this dispute under the SPS Agreement? Did it

make its own determination and draw its own scientific conclusions about the effect of beef

hormones on human health, or did it give total deference to the conclusions of the EU

scientists?

2. What factors were taken into account to determine whether a sanitary measure violates

the SPS Agreement?

3. It is an interesting irony in this case, that today many scientists, environmentalists, and

consumer groups in the United States are calling for a similar domestic ban on beef

growth hormones. How do you feel about the use of hormones in beef cattle?

1. What did the panel mean by “unilateralism”?

2. If a trade dispute arises, what is the proper procedure under WTO rules for settling that

dispute?

Answer: States are to utilize the WTO’s Dispute Settlement Understanding. The panel

noted that the United States was permitted to use the Trade Act only as long as that use

was consistent with the WTO dispute settlement procedures.

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Chapter 10: Laws Governing Access to Foreign Markets

3. Answer : China did violate GATS Article XVI:2 (a)that prohibits a country from limiting the

number of service suppliers in service sectors where it has made commitments because

it gave a monopoly to a local processor and imposed an arbitrary requirement on

processors. It did not, however, violate the principle of nondiscrimination The dispute

5. Answer : The USTR is here responding to a petition by Country Music Television (CMT)

because policies and practices of Canada have resulted in denial of cable access of CMT

programming in Canada. The USTR agrees in this “Initiation of Section 302 Investigation”

to conduct an investigation and seek consultations with Canada about this matter. As of

the filing of this notice in the Federal Register, no trade sanctions are being discussed, but

after investigation and consultation, the USTR threatens $500 million in punitive tariffs. If

the matter is covered by U.S. obligations under GATT, the USTR should take the dispute

to the WTO. Congress, in ratifying the Uruguay Round of GATT and the WTO dispute

settlement arrangements, has expressed an intent to use those arrangements rather than

the procedural mechanics set forth in section 302(a) of the Trade Act of 1974, on which

CMT relies as the basis for its petition.

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Chapter 10: Laws Governing Access to Foreign Markets