The paper 'International Trade Law and World Trade Law' is a great example of a Macro and Microeconomics Assignment. The action by Australian authorities to introduce a higher tax rate on Japanese car imports caused a negative impact on trade between the two states. However, such actions by governments to impose a discriminatory tax with the intent of giving the local manufacturers a competitive advantage in most cases hurt international trade. Misuse of regulatory measures by local authorities for protectionism purpose is indispensable especially where the commercial interests of the foreign state lack political support in the state enacting the regulations.
Nonetheless, the authorities should maintain an acceptable balance between international trade and legitimate regulatory measures that will not sour the trade relationship with other member countries under the auspices of (General Agreement on Tariffs and Trade) GATT. GATT provision to guard against protectionism is contained in Articles III and XX. Article 111 deals with domestic taxation of imports and other domestic trade regulations imposed on imports. The Article provides that internal regulations and taxes must not favor domestic products. This is an anti-discriminatory rule commonly known in GATT principles as the “ national treatment” principle.
However, in cases where the regulatory measures serve to discriminate against international trade, violating Article III, the government imposing such regulations should justify its discriminatory acts by providing concrete proof that such discrimination is necessary to achieve the legitimate regulatory purpose. Article XX of GATT provides an exception to Article III. It provides that, discriminatory regulatory measures may be justified if they are exclusively for the achievement of legitimate social pursuits. The imposition of a 30% tax on, all vehicles worth more than $ 30,000, as opposed to the 10% tax on locally manufactured cars is a clear sign of explicit discrimination.
Regrettably, all cases of explicit discrimination constitute a wrong as it turns out to be more burdensome on foreign products as compared to their local counterparts. Moreover, explicit discrimination appears to be a deliberate policy thus likely to cause legal tussles between the concerned parties. Article 30 of European Commission law gives a directive against such restrictions. However, GATT still remains silent on explicit discriminatory measures.
The 30% tax is imposed on cars above a threshold of $30,000 and thus can be considered as a luxury tax. However, the high rate imposed on Japanese cars made them more expensive and thus rendering them less competitive to the Australian less expensive cars. Such imposition of discriminatory tax rate goes against Article III, which prohibits the imposition of taxes on imports that exceed the ones applied locally. Nonetheless, both categories of motor vehicles are considered as “ like products” and therefore, the introduction of an artificial tax for vehicles costing more than $ 30,000 meant imposition of punitive tax while at the same time exempting Australian motor vehicles by subjecting them to lower tax rate.
By this, the Australian Authorities violated Article III. Despite cars imported from Japan being deemed as a luxury product, the Australian authorities violated Article III, since the price threshold introduced served to protect local production. In addition, the $ 30,000 threshold lacked a basis for any tax policy as it was not even part of the general system of excise taxes nor did it support any objective product variations.
Case: 112/84. (1985). Humblot v Directeur des Services fiscaux, E.C.R. 1367.
Congressional Research Service. (17 June 1987). The Library of Congress, History and Economics of Australia. Excise Taxation of Luxury Goods, pg. 4.
Hormones Appellate Body Report, supra note 58, paras. 239-246.
Hudec, R.E. (June 1983). Enforcing International Trade Law. The Evolution of the Modern GATT Legal System, 3(2):438.
Lester, S. et al. (2008). World Trade Law Text, Materials and Commentary. Oxford: Hart Publishing.
Temple, B. & Sloane, I. (May 1991). Economic Effects of the Automobile Taxation. Luxury Tax, 5(3): 5.