International Trade Law and World Trade Law - Assignment Example

Student's Name: Course Name and Number: Instructor's Name: Date Submitted: Question 1: The possible legal issues from the perspective of International Trade Law identifying both statutory and judicial authorities that are relevant to adequately deal with these issues The action by Australian authorities to introduce higher tax rate on Japanese car imports caused negative impact on trade between the two states. However, such actions by governments to impose discriminatory tax with 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 lacks 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.1However, in cases where the regulatory measures serves to discriminate against international trade, violating Article III, the government imposing such regulations should justify its discriminatory acts by providing a concrete prove that such discrimination is necessary to achieve 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. Imposition of 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.2 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, introduction of 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. In the determination of tax or regulatory legitimacy, GATT requires the measures introduced to fit the objective product differences or be within the neutral system of taxation.3 Moreover, there was no credible criterion to distinguish the two categories of cars, thus making the Australian luxury tax fail the basic test. Over the years, GATT has confirmed that Article III provides that all imports should be accorded similar competitive opportunities, but does not guarantee trade flows. Further, it discourages levy of high taxes on imports particularly in areas where a state lacks significant production as this only serves to shield local manufacturers from external competition. Question 2: Advice as to whether Australia can adopt such tax measure and policy and the grounds that Japan need to establish in order to obtain possible remedies- refer to the interpretation of ‘like products’ and ‘less favorable treatment by the Appellate Body General Agreement on Tariffs & Trade (GATT) provided that, products distinction under Article III cannot be used in justification of treatment of two similar domestic and foreign products. However, the Appellate body suggested that, different treatment of both domestic and foreign products can be justified through “like products test” provided in Article III: 2.4 The test of likeness includes factors such as; 1) whether the items under question are commercially interchangeable 2) Whether the products have the same end -use 3) their physical similarity and lastly, 4) whether such items are classified in the same category of customs tariffs globally. The Article provided that, all regulatory measures should give equal treatment to like products. Article III: 2 prohibit explicit discrimination portrayed by Australian authorities since such protectionist measures rendered Japan cars less favorable compared to those locally manufactured. According to Appellate body, all the cars are considered as like products, but the $ 30,000 threshold subjected Japanese cars to higher taxes thus violating Article III: 2. Article III: 2 explicitly states that, like products should not be subjected to different tax rates that could amount to protectionism. Article III tend to protect against tariff concessions that could make some of the products more favorable than others thus distorting trade neutrality and competitiveness in the international trade. However, enacting the tax measures introduced by Australian authorities could amount to subverting Article III. In spite of the price threshold, the two categories of cars remained as like products and features such as styling, color and technology variations could not change the end-use. Further, both categories of cars provided substitutable alternatives leaving competition to be based on the grounds of safety, size and price. However, the price variation only did not affect the product end use and thus could not form a solid base for adoption of such regulatory measure. However, considering GATT history and established precedent, distinguishing products based on objective criterion that is legitimate should not be considered inconsistent with Article III. As could have been the case here, the Australian authorities considered the car alike if they were priced at $ 30,000 or below or were above the $ 30,000 threshold. Price was considered as the regulatory criterion and in this sense, Australia, could adopt the measure only if all cars above the threshold are treated alike regardless of the origin.5 The provisions of Article III give Japan a better ground to instigate legal proceeding against Australia for the 30% tax burden on its exports. As such, Japan can argue that its exports are more the same as the local products and therefore, no need of favorable treatment for the local production. If Japan could justify that both cars were like products, then Australian authorities could be obliged to tax the imports at similar rate to that of cheaper domestic cars. Further Article III: 2 provide that, different tax rates on competing like products are not acceptable particularly if the tax difference is aimed at protecting domestic products. The Australian authorities must have experienced direct competition from luxury Japanese cars priced & 30,000. Therefore, the punitive tax served to distort competition by protecting local cars by charging high taxes on imported Japanese cars. This made the Japanese exports more expensive thus, violating Article III. If Japan can substantially prove that competition unquestionably existed between the two categories of cars, then there could be a legitimate ground to defend the like products argument. In addition, if Japan can argue it case that Australian customers preferred cars priced above the $ 30,000 threshold, then it could be argued that the introduction of punitive tax on luxury cars was meant to make the Japanese cars less favorable. Question 3: Advice Australia and Japan of other issues that may arise in evaluating legal issues and in determining Australia’s obligation under ITL - Support your argument with special reference to relevant laws and judicial decisions Despite the provisions of Article III, GATT also allowed the freedom to classify items for taxation purposes. As such, Australia can legally challenge Japan’s claim by arguing that such tax measures were intended to impose high taxes on expensive automobiles such that customers falling in this category could suffer tax burden equal to their purchasing ability. Further, Australia could argue that, based on the ability to pay characteristic of a good tax system, it was fair to impose higher taxes on the richer class of automobile users. However, Japan could dispute this by arguing that; such measures could create an opportunity for creative tax officials to introduce multiple tax rates that could transfer the tax burden to exporters thus making their products less favorable. In Humblot V Directeur des Services Fiscaux,6 France imposed a gas tax on imported American gas which was not based on any given criterion resulting to varying taxes on surpassing the set regulatory threshold. The court held that, the provisions of GATT Article III: 2 were not observed in arriving at the tax rate and thus the tax rate was discriminatory and protective. Further, Japan can claim that, Australian authorities could raise the threshold or eliminate it totally for local production to avoid its impact on their business. This would mean that only imports could be subjected to taxation and hence trade at a higher price compared to local production. Question 4: Advice both Australia and Papua about their prospects of success in the WTO dispute settlement system Quarantine Act 1908 in Australia is administered by Australian Quarantine Inspection Service (AQIS) on behalf of Ministry of Agriculture, Fisheries and Forestry. It provides that, all biological imports to Australia should be permitted. The Australian government is keen on import certification to ensure that the risk of importing diseases or pests to Australian soil is minimized. Nonetheless, such screening is normal as different states require imported items to meet some adopted standards to enhance safety and health of their people and for prevention of the environment. However, the Agreement on Technical Barriers to Trade (TBT) requires such mandatory requirements not to cause unwarranted hindrances to international trade.7 As such, the standards should be based on concrete evidence backed by scientific information. Notably, adopted standards that are based on internationally agreed standards do not cause unnecessary barriers to international trade. However, where such standards are based on both climatic and other geographical conditions, it turns to be difficult for the member country to base the standard on international regulations. In such a case, the member state should publish the regulations in question and issue a draft to producers in affected countries for them to give their comments, which should be incorporated when drafting the regulations. Australia require compliance of imported farm products to their sanitary and phytosanitary (SPS) regulations. The idea of these standards is to enhance plant, animal and human safety from pest as well as diseases that might be brought along with imported products. However, the agreement on Technical Barriers to Trade provides that mandatory product standards should not be discriminatory. The Sanitary and phytosanitary regulations especially those guarding against animal and plant diseases are dependent on the prevalence of diseases or pest. More so, the agreement on Sanitary and Phytosanitary, allows states to take precautionary measures when it is beyond doubt that there exists a greater risk of spread of disease. Even though, Australia did not base their quarantine measures on scientific information, the risk of importing pests and diseases from Papua New Guinea (PNG) could have been more prevalent. Further, the measures were based on international import risk assessment methods thus defeating the claim by Papua New Guinea that the measures were aimed at restricting trade between the two states. Moreover, Australia had adopted Quarantine Act 1908 universally which requires all imports to acquire a permit before entering the Australian market. Therefore, based on this information, it could prove difficult for Papua to defend their claim successfully under WTO dispute settlement system as the Australian authorities had acted within international standards and had no intention to limit trade with Papua New Guinea. Reference List 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. Read More