Case Study on the World Trade Organization

Introduction

January 1, 1995, was when the World Organization (WTO) was erected and in the world's trade body it emerges to be the most powerful. WTO has one thirty-three hundred member countries and thirty-three nations with the status of the observer who has made an application for membership. It promotes, adjudicates and monitors international trade on behalf of members to set up a free trade system. The agreements involved are complex and lengthy since they are texts which are legal and do cover a broad range of activities like agriculture, clothing, and textiles. The primary purpose of being a member of this association is because member nations can experience economic growth as well as fair competition in international markets. Therefore, this paper aims at conducting a case study about the World Trade Organization (WTO).

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Question 1

In WTO agreements, nations cannot usually discriminate between their partners in trading; thus different people should be treated equally. According to the Concession Schedule, it is evident that country A is committed to the maximum biding tariff rate of 10% on the candles imported. Therefore, imposing 8% tariffs on candles imported from Country B and 10% from Country C is within the margin and making it consistent with the agreement because the tariff rate does not exceed the maximum binding one as provided. However, by a detailed insight, Country A is violating the WTO Agreements principle of conducting trade without discrimination between the trading partners (Moberg 2014). The policy requires when granting a special favor, it should not be one way, but the same to all members of WTO and it is named as most-favored-nation (MFN) treatment (Article 2) of GATT.

Under the MFN, nations concur to nondiscrimination against other World Trade Organization member countries. Therefore, A lowering the tariff on candles imported to eight percent then it must have to charge eight percent on imports from other members of WTO that includes Country C, the trading partner of A. Hence preferential and discriminatory treatment for some nations is not allowed at all under the WTO agreements. However, country B can be seen to be a preferred trading partner of A since it has lower tariff charge of eight percent as compared to the ten percent of importing candles from country C being a proof of discrimination against some members something that WTO does not entirely support. Although several exceptions are allowed like free trade agreement, they are carried on stringent conditions under WTO (Moberg 2014). Therefore, its non-existence means that county A might be protecting the domestic industries which are emerging while at the same time balancing trade with other nations, but it should be worried about the retaliation from the other countries.

Question 2

Country A has the obligation under the World Trade Organization (WTO) agreements to ensure equal treating of locals and foreigners under the National treatment principle. Once the goods or products enter the market, they should be fairly treated whether they are local or foreign commodities. Therefore, the additional special charge of two percent which is imposed on candles imported from country B while no such expense on domestic products in country A is inconsistent with its obligation under the WTO agreements. It does not matter whether they are local or imported candles; therefore, once country B candles enters the market they need to be treated the same, and it also applies to those imported from country C, but it should be noted that it is after the products enter the market of Country A (Hufbauer & Cimino-Isaacs 2015). Also, it should be noted that country A imposing Custom duty on the imports of the candles and not doing the same on the locally produced candles is not a violation of the principle of national treatment.

In Article III of the GATT 1947, the national treatment policy is correctly stipulated that its objective is to ensure that the use of internal taxes and other regulations as an alternate for tariff protection is prohibited; thus, it is the basic GATT/WTO principle. Therefore, anything that country A deprives country B products should also deny its products, and any privilege to its commodities should also be a privilege to country B goods. It is, therefore, means any special charge that it imposes on the candles imported from country B, for instance, the two percent should be equally charged to its locally produced candles as well as the ones from country C as long as they have entered its market (Hufbauer & Cimino-Isaacs 2015). Since it is not a fair justification to argue that they are trying to cover the difference in tariffs between country B and C, but to country C it might sound to be fair; however, it is a violation of the fundamental General Agreement on Tariffs and Trade (GATT) or World Trade Organization (WTO) national treatment principle.

In the other hand, if country A primary objective is to ensure just treatment between its trading partner, it could have done it before the candles had crossed its border to its market through abiding with the principle of most-favored-nation (MFN) treatment via carrying out trade without preferential or discrimination of any member (Hufbauer & Cimino-Isaacs 2015). Having reached its market the act of imposing a special charge to country B candles is a violation of the national treatment principle hence making this measure inconsistent with its obligation to World Trade Organization agreements.

Question 3

To begin with, the permanent basis higher tariff rate of 10% candles imported from Country B is consistent with the agreement because it does not exceed the maximum binding tariff rate of 10% on the import of candles. Economically, this increase in tariff can be viewed in several dimensions such as deduction in import, higher consumer prices, retaliation, and increased domestic production. Therefore, if the olive oil is considered in general as a multipurpose product since it can be used in candles, applied to the body as a lotion as well as cooking oil, it can be perceived that increasing its tariff on candles in specific, country A intends to reduce and discourage the importation of candles. Through, the reduction of them it means, therefore, the use of olive oil will also go down (Brack 2017). In doing this, only the use of olive oil in candles will be affected without affecting it other purposes which could have been different if the tariff was imposed on olive oil directly because it could have impacted all its function.

The increase can also be viewed in another angle that the government is an attempt to raise its revenue to subsidize the higher price on consumers that might be associated with the increase on importation price of olive oil. It is common that the rise in the cost of importing a commodity leads to increase in the cost of purchasing an individual product in the market and even the local producer start taking advantage of this opportunity to exploit the consumers. Also, country A rising its tariff on the importation of candles can be viewed as a retaliation technique by county A against B. It is because country B, the trading partner might have failed to a bid by the rules of their agreements by raising the olive oil price than usual (Brack 2017). In retaliating, country B will feel the effect and may end up lowering the cost of olive oils to the usual price.

The action can also be as a way to protect the local infant industries which use the olive oil to make candles from the competitive pricing. Given that, the high price of the olive oil might be as a result of ensuring that Country A is not capable of importing the raw olive oil to produce their candles. Since country B is very sure by increasing the price of the olive oil, the cost of producing candles by local industry in country A will also go up, and they will not be able to compete adequately. Therefore, they will end up importing more finished candles from country B since they cannot withstand the high cost of production (Brack 2017). In response, country A increases the tariff imposed on candles imported from country B, and this leads to high revenue to its government because it will be taking advantage of the high rate of importation of candles from B.

At the same time, country B will be protecting its local industry which produces candles from being forced out of the market by the competing price. The high production cost will lead them to overcharging their consumers prices that will be countered by the cheap candles imported from B. In the attempt to lower their prices to compete with their competitor result to them making loses since they will be gaining nothing when the production cost is deducted hence finding it tough to survive in the market (Brack 2017). Therefore, they end up being forced out of the market, but country A measure to increase the tariff to ten percent was a wise idea to counter the mess that could have emerged from the high olive oil prices by country B.

Question 4

The decision by country A to use quantitative restrictions (quotas) on the import of candles with no other justification is an inconsistency with its obligation under the World Trade Organization agreements. The reason of concluding that it is inconsistent with the WTO agreement is because Article XI of the GATT, in general, prohibits any quantitative restrictions on the exportation or the importation of any product by uttering "No prohibitions or restrictions other than duties, taxes or other charges... shall be instituted or maintained by any Contracting Party..." The primary reason for the prohibition is that the quotas are considered to contain a more significant protective impact as compared to tariff measures and more probably they will alter the trade free flow (Hoda 2018). However, a trading partner using tariffs for restriction of imports there is still room to increase exports so long as the foreign commodities turn to be price competitive adequate to conquer the barriers that result from tariffs.

The use of quantitative restrictions makes it impossible to exceed the quota regardless of how competitive the product price might be at that moment. Therefore, the distortion impact by the allowances results to the fundamental principle by GATT of prohibiting them. It is for this prohibition grounds that makes country A measure to use quotas instead of the tariff is an inconsistency with its obligation under the World Trade Organization (WTO) agreements because GATT is against the application of the quantitative restrictions in trade. However, this fundamental principle under GATT has some exceptions and they permit the enforcing of quantitative measures on limited conditions and its only if they are justifiable under the GATT like critical foodstuffs shortages (Article XI:2) or (Article XVII: B) that justify them under balance of payments issues (Hoda 2018). Thus, having been invoked previously by the provisions of GATT, criticizing them as unfair trade measure is not allowed.

Country A failure to provide any other justification which can be justified to be critical under GATT makes its measure to be inconsistent with its obligations under the World Trade Organization agreements by deciding to substitute tariffs with quotas which are prohibited. However, the imposition of the quantitative restrictions (quotas) may be of economic significance to country A, and that might be the reason it has decided to take such action despite the risk involved in it. First, Country A imposing quotas on the importation of candles via the one on one restriction on the number of candles imported enables its domestically produced candles to avoid direct competition. Also, they allow the domestic industry to secure the market share, stabil...