Preferential Trade Agreement and Procedure for Bringing a Claim Under the Dispute Settlement Board

Introduction

The preferential trade agreements are an exception from the most favored nation principles of the world trade organization which require member nations treat each other equally and normally according to WTO regulations countries in the organization cannot discriminate countries to trade with as well as the trade rates. However, the preferential trade agreement allows is an exception that allows countries to cooperate in trade tariffs and allows countries to have unilateral agreements on duties that are below the common tariffs for the WTO members (Capling, 2008).

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The argument to Keep the Exception

The preferential trade agreements have significant benefits especially to the member countries especially for the developing countries because they give trade concessions between member countries at more friendly tariffs. The preferential trade agreements allow countries to operate more efficiently by reducing transportation costs and allowing countries to share on areas such as technology and human resources more efficiently compared to the terms available under WTO (Capling, 2008).

The argument against Preferential Trade Agreements

The PTA operates contrary to the WTO principles of equality in trade and countries economic partnerships principles. Most of the Preferential Trade Agreements aims at increasing cooperation between countries even in the absence of comparative advantages between the countries. For instance, PTA between developing countries hinders their ability to gain more from trade by trading common items instead of diversifying their trade with the developed countries which offer them the more comparative advantage. In this case, the PTA cause discrimination against WTO member countries which causes tension in the multilateral trading system established by the WTO hence, the PTAs should be discontinued to promote multilateral trading system coherence between countries (Capling, 2008).

Generalized System of Preferences authorized under the Enabling Clause

The argument to Keep the Exception

The Generalized System of Preferences is an exception under the enabling clause under GATT which allows countries to have better tariffs for products that are from developing countries. Therefore, the Generalized System of Preferences should be allowed to continue because it allows the poor countries to create wealth and develop through trade which helps the developing countries to improve the living standards of their people (Howse, 2002).

Argument for Abolishment

The Generalized System of Preferences should be abolished because it leaves out many important products from the developing countries such as agriculture and manufactured products such as textile and leather products. Generalized System of Preferences leads to unsustainable development and high pollution in the developing countries due to lack of production regulations and will have negative impacts on the countries in the future such as environmental pollution, unemployment due to overexploitation of natural resources and depletion of important resources for the benefits of the developed countries. The Generalized System of Preferences should be abolished to ensure sustainability of development in the developing countries (Howse, 2002).

B

Comparative advantage refers to the economic activity that a country can produce more efficiently than another activity. Comparative advantage exists in absolute and comparative levels. The absolute comparative advantage is the advantage gained by a country that requires fewer inputs to create a product. On the other hand, comparative advantage is where countries are able to produce goods that they have lower domestic opportunity costs than other countries and they in-turn use the products to exchange with goods that have higher domestic cost compared to other nations and would be more costly to produce them locally (Hunt & Morgan, 1995). Traal, in this case, does not have any comparative advantage when compared to Magrathea because Magrathea has the ability to produce both the towels and the tea at lower domestic opportunity cost compared to Traal which has a high domestic opportunity cost in producing both towels and tea.

C

Vogsphere can impose a heavy tariff on the internet provided legal services because it has unbound limitations on national treatment which means that the cross-country legal service provider will not be treated as equal as the domestic legal provider. Therefore, the limitation on national treatment which is unbound allows Vogsphere to impose a heavy tariff on over the internet legal services which are considered as cross-border services (Hoekman, 1996).

Vogsphere commitment on the presence of natural person limitation on national treatment is none which indicates that one cannot be required to find a Vogon national to serve as the majority partner in case of a satellite office in Vogsphere (Hoekman, 1996). In this case, one will ignore the market access limitation which limits foreign equity participation to 49%.

Lastly, the limitation on national development on cross-border supply is unbound which will apply and allows Vogsphere to charge non-nationals a 10,000 cap for business trips provided services. In this case, there is freedom to access the market but there is a limitation on national treatment like Vogon nationals, therefore, the cap will apply (Hoekman, 1996).

References

Capling, A. (2008). Preferential trade agreements as instruments of foreign policy: an Australia-Japan free trade agreement and its implications for the Asia Pacific region. The Pacific Review, 21(1), 27-43.

Hoekman, B. (1996). Assessing the general agreement on trade in services. The Uruguay Round and the developing countries, 1(996), 89-90.

Howse, R. (2002). Back to Court after Shrimp/Turtle-Almost but Not Quite Yet: India's Short-Lived Challenge to Labor and Environmental Exceptions in the European Union's Generalized System of Preferences. Am. U. Int'l L. Rev., 18, 1333.

Hunt, S. D., & Morgan, R. M. (1995). The comparative advantage theory of competition. The Journal of Marketing, 1-15.

Question 2

Procedure for Bringing a Claim under the Dispute Settlement Board

Before instigating a formal claim, the parties must go through a consultation stage involving bilateral consultations between the parties. This gives the parties a chance to come up with a solution without resorting to litigation (WTO, 2018). If the consultations fail to produce a satisfactory solution within 60 days, the aggrieved party may then bring a claim for adjudication by a panel. The panel stage gives the complainant an opportunity to uphold or protect its rights and benefits under the WTO Agreement (WTO, 2018). A request for the formation of a panel initiates the adjudication process and must be made in writing and addressed to the chairman of the Dispute Settlement Body (DSB).The request determines the scope of the dispute and as a consequence the jurisdiction of the panel. The responding party may block the establishment of a panel in the first DSB meeting to establish such said panel. This was the case under the GATT regime as well (Davey, pg.69). The DSB may decide not to establish the panel by consensus, in which case the negative consensus rule applies. However, if the complainant insists that the panel is established, it must.

While the complaining and responding parties are the primary participants in the dispute, third parties may make written submissions to the panel in that capacity but must have the substantial interest in the matter and must notify the DSB. This was reiterated in the WTO's Appellate Body Report WT/DS27/AB/R of 9 September 1997.

Panels must be composed ad hoc for each individual dispute since there are no permanent panels. The panel must be composed of three panelists unless parties decide to include five panelists. The panel process begins with a submission on preliminary issues before proceeding to written submissions (WTO, 2018). The complainant and respondent then file their first submissions. After written submissions, the panel convenes a first oral hearing referred to as the first substantive meeting. Third parties may also present their views in a special session. After oral submissions, the parties are invited to answer questions from the panel as well as the other parties in order to clarify the legal and factual matters. Written answers to parties' questions must be submitted within 7 days from the day of oral questioning. The panel then goes into internal deliberations to review the dispute and determine a verdict as to its outcome. The panel must submit a final report within two weeks following an interim review of its decision (WTO, 2018). If a party to the dispute is aggrieved by the panel's decision, that party may file for a notice of appeal of the panel's decision. Rule 20 (1) of the Working Procedures, the appellant must file a copy of the notice with the Appellate Body Secretariat.

The Appellate body has its own working procedures which have been adopted over time pursuant to Article 17.9 of the DSU. Written appeal submissions must be filed within 10 days from the issuance of a notice of appeal. The appellate division then shares its findings with other divisional members to ensure consistency in the jurisprudence of the appellate body and drafts a report. There is no interim review at this stage. After the completion of reports, the DSB draws a ruling and recommendation to the losing party to comply with WTO laws or find a mutually satisfactory adjustment. The losing member has a duty to inform the DSB of its intention to implement the recommendations. Where immediate compliance is not possible, the losing member is given a reasonable time to effect such compliance. The limitation of DSB rulings is that enforcement is usually a matter of trade sanctions, which are difficult to impose without undue consequences. In the case of non-compliance, a party may resort to countervailing measures by either compensation or suspension of WTO obligations. However, this undermines the DSU regime and may lead to strenuous diplomatic and trade relations.

Merits of Peru's Case and Recommendation

Peru does not have a claim on the basis of losing global market share because the marketing efforts by the Australian government are not inconsistent with the WTO's market access principles. Global marketing efforts are fully legal as part of fair competition and trade practices. However, Peru does have a claim in light of the abolition of taxes on all domestic sales and the creation of a chartered insurer for local wineries only. These two acts contravene the principles set out in GATT Article III: 2. The insurance policy and tax incentive, while not restrictive on directly substitutable or competitive products protect the domestic production unfairly (WTO, 2018). This contravenes the principles of Article III: 2 as was held in the Japan - Alcoholic Beverages II (DS8, 10, 11) case in which Japan unfairly subsidized domestic vodka (WTO, 2011).

The next course of action for Peru should be to send a request for consultations with Australia and notify the DSB as well as the council overseeing the GATT agreement of the same. If the consultations fail or the Australian government does not act in good faith, Peru may then send a request for the formation of a panel to the chairman of the Dispute Settlement Board in order to initiate adjudication.

References

Davey William J., (1987). Dispute Settlement in Gatt. Fordham International Law Journal, Vol. 11 (1), 1987.

WTO (2011). Japan - Alcoholic Beverages, World Trade Organization, 2011. Retrieved from: https://www.wto.org/english/tratop_e/dispu_e/cases_e/1pagesum_e/ds10sum_e.pdf

WTO (2018). National Treatment on Internal Taxation And Regulation, Worl...