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Analysis of export restraints disputes as trade policy within the GATT and WTO regime

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Since GATT and WTO foundation, some disputes have occurred between their full member regarding the adoption of export restrictions, which has generated a neo-protectionism or "reverse protectionism", which is not yet properly regulated within the multilateral trading system. This article aims to present an analysis of the export restrictions in international trade. For this, all the disputes raised to date on tariff measures and non-tariff measures applied to the export of goods under the GATT and WTO regime are identified. Therefore, we concluded that it is necessary for the WTO to develop trade policies that properly regulate export restrictions in international trade.
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Analysis of Export Restraints Disputes as Trade Policy within the
GATT and WTO Regime
Jose Jaime Baena Rojas, Tecnológico de Antioquia (TDEA), Medellín, Colombia,
jbaenaro1@tdea.edu.co
Jose Alejandro Cano, Universidad de Medellín, Medellín, Colombia, jacano@udem.edu.co
Abstract
Since GATT and WTO foundation, some disputes have occurred between their full member
regarding the adoption of export restrictions, which has generated a neo-protectionism or “reverse
protectionism”, which is not yet properly regulated within the multilateral trading system. This article
aims to present an analysis of the export restrictions in international trade. For this, all the disputes
raised to date on tariff measures and non-tariff measures applied to the export of goods under the
GATT and WTO regime are identified. Therefore, we concluded that it is necessary for the WTO to
develop trade policies that properly regulate export restrictions in international trade.
Keywords
: Reverse Protectionism, Neo-Protectionism, Export Restraint, Multilateral Trading
System, GATT, WTO.
Introduction
When World War II ended, the international system led some new initiatives for boosting many
issues especially in international trade field; thus in this sense in 1947 raised the General Agreement
on Tariffs and Trade (GATT) as a regulatory framework besides to keep under control the customs
tariffs and other trade barriers. All this for guarantee a free trade environment and even establish the
applicable procedures to resolve the trade disputes (Marceau, 2015). Successively in 1995 was
celebrated the Marrakesh Agreement Establishing the World Trade Organization (WTO) which along
with GATT completed the multilateral trading system developing economic policies and also
promoting the markets liberalization at world level.
In this way, the WTO has managed to build a solid structure trough, where fully members have
perceived a reliable system to establish any reclaim or formal lawsuit. All of this, in the middle of the
dispute settlement body (DSB) which manages all the legal controversies among full member, when
some of them perceive any break rule of the GATT or complementary legal texts (Guohua, Mercurio,
& Yongjie, 2005). In this way, the DSB is also charged for establishing an official decision according
to the interpretation of the normative provisions of the multilateral trading system where trade
policies are applied, usually related with tariff barriers (TBs) or non-tariff barriers (NTBs).
Indeed,
nowadays some those disputes are related with an unusual trade phenomenon called “reverse
protectionism” where countries adopt TBs o NTBs to restraint the exports (Baena, 2016), due to the
troubles of the current international trade regulatory framework of the GATT, provisions, and legal
texts within WTO (Karapinar, 2011). Additionally, this issues for solving disputes also respond to
policy-making and political will among the fully members in the multilateral trading system (Nelson,
2015).
Therefore, some
unprecedented scenarios have appeared, for instance, the WTO has requested for the
new members some special commitments in their accession protocols, besides, the full members of
the multilateral trading system are including clauses in their trade agreements for regulating the trade
policies related with export restraints (Torres, 2013) (Korinek & Bartos, 2012) (Huang, 2012).
However, it raises serious doubts about a parallel legislation and the real regulatory framework
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capability of the GATT provisions, the legal texts and other rules administered by the WTO for
regulating this matter (Anania, 2013) (Baena, 2016).
In this sense, this article aims to highlights the reverse protectionism and/or the export restraints role
as a trade phenomenon and trade policy; all this, analyzing the disputes presented within the DSB
related with TBs and NTBs and showing their impact on the world protectionism.
The Export Restraints A Trend Into the International Trade?
In recent years, a traditional issue has become crucial due to the relevance of analyzing the
international trade dynamic where countries, driven by uncertainty over the recent global crisis, have
adopted many protectionist measures. Thus, the TBs and NTBs can be highlighted as a strategy for
managing this complicated scenario which makes this situation more relevant (Irwin, 2011) (Baena,
Montoya, & Torres, 2017).
According to Bernitz & Ringe (2010), the protectionism can be considered a trade policy whose
function is to assist the national industry with competitiveness troubles; therefore, the central
governments adopt different measures such as TBs and NTBs. All this usually with the conviction of
reducing the foreign trade flows in the local market; thus, the protectionism even can be understood
as a national security strategy that finally allows a country keeping its own national industry
functioning.
However, Baena (2016) argues that the export restraints are different to trade policy, because in this
case the central governments adopt measures such as TBs and NTBs to avoid the national production
that can be exported. Then, the trade policy aims that a country keeps its domestic supply available
for other industries that need some raw materials, or keeps its domestic supply available for the local
population as a national security strategy. It is important to remark that some countries are currently
starting to manage their resources with a particularly concerning, this due to the dramatic situation
generated for the depletion of some strategic resources for the international trade and for the present
economic model (Tardif, 2014) (Valero & Valero, 2010).
In this sense, the international trading system is witness of a trend where some countries, and
members of WTO, are adopting these export restraints in some products. All of this considering the
depletion of some raw materials and other matters related to the possibility of taking control of the
international prices, and taking into account the scenarios generated by this phenomenon where
countries can become the only one that can supply these raw materials and products around the world
in a sort of international cartel (Bolotova, 2015). For this reason, the absence of a clear regulatory
framework raises new challenges for the WTO and the GATT provision into the ministerial
conferences; whereby it is necessary to define the boundaries of the export restraints as trade policy
within the international trade system (Karapinar, 2011).
Consequently, the export restraints are currently being used by countries that argue political, social,
and economic reasons. Thus, according to Table 1, these measures are related with the revenue
growth, the promotion of downstream industries, the diversification in the exports, the price
fluctuation, among other issues, which are related to national security (Mildner & Lauster, 2011)
(Anania, 2013).
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Table 1: Reasons whereby countries usually adopts export restraints
TBs or Tariff Measures NTBs or Non-Tariff Measures
a. Improve the terms of trade for a
country that supplies a significant
share of the world market, raising the
price to import countries.
b. Stabilize the final price of
consumption through the reorientation
of the national supply towards the
domestic market.
c. Stabilize intermediate consumer prices
and the development of processing
industries through taxes on primary
products, to subsidize value-added
industries.
d. Increase public revenues as an
alternative to internal taxation.
e. Redistribute income to favor national
consumers but to the detriment of
domestic producers.
f. Stabilize export earnings through fixed
and variable tax rates.
a. Protect and promote national processing and/or processing
industries with raw materials and cheap inputs.
b. Protect and promote national processing and/or processing
industries with raw materials and cheap inputs.
c. Control inflationary pressures and ensure domestic supply,
especially with agricultural products for food security.
d. Counter the tariff escalation of importing countries.
Source: Based on Bouet & Laborde (2010)
Thus, the export restraints as trade policy are growing stronger where the national industry gets
government support because it can guarantee the national supply of some raw materials for further
processing. Then this situation can be understood as a strategy for national security where it is also
guaranteed the proper political and economic functioning of governments and organizations, avoiding
any adverse scenario (Matsushita, 2011) (Solleder, 2013).
In any case, it is important to remark that according to Lambert & Rueffer (2010) all these measures
are recent considering their failure to regulate in the GATT and the legal texts, mainly, due to the
unusual historical adoption by countries in the international trade. Maybe this can be the primary
explanation about why the international trading system has not developed a complete legal
framework; nevertheless, this not means that the WTO must ignore the export restraints issue because
is not far-fetched to imaging new monopolies scenarios given the resources depletion worldwide.
Consequently, the export restraints issue has been addressed already within the WTO and the DSB
where, for instance, China and the United States have participated in different disputes. Thus, China
is adopting TBs and NTBs for their exports of rare earth elements and other raw materials, and this
situation is harming the national industry of the United States. Then, it is clear that the United States
do not produce these resources, which means that China as a leading global producer of these raw
materials has finally the ability to affect global supply and pricing as happens with other cases
(Mayberry, 2016).
Likewise, all this unusual protectionism has begun to be measured and monitored effectively by some
international entities; see Table 2, which tries to explain the effects of these measures on international
trade for TBs and NTBs, and especially their different identified categories among a remarkable
inventory (UNCTAD, 2012) (OECD, 2012).
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Table 2: Inventory and categories of export restraints
TBs Inventory NTBs Inventory
a. Export Duty: Customs tax on products when leaving
the customs territory.
b. Tax on exports: Only applies to products intended
for export.
c. Export surcharge: Additional tax to the export tariff
that is applied on the products when leaving the
customs territory.
d. Reference of the export prices: Minimum allowable
price for exports.
e. Reference to the export prices: Minimum allowable
price for exports.
a. The Safeguards: Prohibition on the export of
specific products or special emergency
measure.
b. Quotas: Limits that limit the value or volume
of exports.
c. Licenses or permits to export: Requirements to
obtain an approval or a government permit to
export products.
d. Dual price system: Application of different
prices for a product when it is exported or
when it is also sold to the domestic market.
e. Customs clearance restriction: Specification of
ports and/or access points to export.
f. National market obligation: Agreement
between a company and the State to guarantee
a fraction of production to the domestic
market.
g. Captive mining: Approval of the State for the
exploitation of mines, guaranteeing exclusive
production for the domestic market.
h. Other restrictions not previously specified:
Measures that influence de jure or de facto in
the level or direction of exports of goods and
raw materials.
Source: Based on UNCTAD (2012) & OECD (2012)
Thus, there are many different measures for export restraints and big challenges for the international
trading system where the WTO need to add some new rules that allow completing the GATT
provisions and all its legal texts. In this way, that kind of protectionism could be controlled better,
and the full members would have clear guidelines for adopting new trade policies, besides
establishing the boundaries for the regulation of their trade flows, including the exports, where food
and raw materials prices increase rapidly (ICTSD, 2012).
Although the export restraints are not a typical mechanism in the international trade, some initiatives
within the international trading system defend the idea that countries must adopt TBs or customs
taxes for the exports (Mildner & Lauster, 2011). Considering that regulatory framework for the
exports is not the same for the imports, which is more regulated in the WTO, it would be
appropriated to increase the government revenues through customs taxes regardless internal taxes as
income taxes or any other tax burden due to their impact on the local economy. For this reason, and
besides to achieve standardization similarly to the imports case, the WTO should strive to regulate
the export taxes as happens in the case of the import taxes. All of this with the intention that full
members establish "bound tariffs" or customs taxes limits for each product, which would allow
overcome many of this still unsolved issues (Ya Qin, 2012).
Unfortunately, many of these issues are difficult to solve because there is not still any commitment
for solving them. Indeed, in the last negotiation rounds within the GATT and the multilateral trading
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system it has not been possible to conclude successfully about this topic, because of a lack of political
will among the full members (Francois, Van-Meijl, & Van-Tongeren, 2005) (Donizeti, 2009) (Jones,
2010).
Considering the current troubles in the regulative framework within the trading system, the WTO is
seeking to deal with their normative gaps, pushing the new applicants to sign in their accession
protocols a commitment for not adopting export restraints as a final condition to get the approval for
be full members of the WTO. However, this requirement seems discriminatory for the new full
members because there is not any commitment like this for the long-standing members (Gu, 2012).
Also, some countries by their own, are nowadays signing on their trade agreements some clauses
specifying inability of the members for using any TBs or NTBs as export restraints. Therefore, these
measures are being regulated with a parallel regulatory framework, which reveals a scenario with
remarkable problems within the GATT provision and the legal text with this matter (Korinek &
Bartos, 2012) (Huang, 2012) (Hoon, 2013).
According to Karapinar (2011), the GATT provisions and the legal texts apparently address this issue
in the article “XI: General Elimination of Quantitative Restrictions". This article requires the WTO
full members to remove all their prohibitions and quantitative restrictions for the exports except those
temporary measures to prevent or relieve critical shortages of food and essential products.
Notwithstanding, the article is not sufficiently detailed to determinate the particular circumstances,
the scope, the duration and even the boundaries for adopting all these measures. Furthermore, Baena
(2016) adds that the GATT article “VIII: Fees and Formalities connected with Importation and
Exportation” contends that all the TBs or any kind of customs taxes “shall not represent an indirect
protection to domestic products”. However, the effects of these measures do not imply the same
results as the imports case. Therefore, it is possible to perceive a remarkable gap in this legal system
and the lack of a ban for the TBs, understood as export restraints, whereupon can be generated
different interpretations about that.
It should be noticed that according to the article 12 “Disciplines on Export Prohibitions and
Restrictions” of the Agreement on Agriculture as a legal text of the GATT, full members must report
to the Committee on Agriculture of the WTO about the nature and the duration of these measures
(Hoda & Gulati, 2007). Unfortunately, Jackson (2000) argues that this legal text has not succeeded
either in improving the legal situation due to this rule applies only for food products. Besides, the
legal texts in the WTO was the result of negotiation rounds and can be understood as discretionarily
agreements incorporated by full members according to their needs.
Hence, when full members of the WTO have any dispute due to the adoption of any controversial
trade policy that apparently undermines the social conditions of the counterparty, the states usually
invocate these GATT provisions and the legal texts at the DSB for supporting their positions as
complainant state against a respondent state. Though, all experts in this field appear to agree that the
GATT provisions and the legal texts posse significant gaps that avoid a proper regulation (Lambert &
Rueffer, 2010).
Methodology
In the first sections of the article, we carried out a literature review based on some academic
databases such Scopus, Web of Science, among others. On the other hand, we consulted some books
which reveal a remarkable academic discussion about the export restraints as the main matter of this
research.
In order to determine the neo-protectionism disputes within the GATT and WTO regime, and also to
establish the content of these TBs and NTBs disputes since the common GATT system, we consulted
to reliable secondary sources
published by the WTO in the "Dispute Settlement" section. Therefore,
the primary information for this study came from official websites of organizations such as the World
Trade Organization (WTO) and successively additional information from United Nations Conference
on Trade and Development (UNCTAD), Global Trade Alert (GTA), the Organization for Economic
Cooperation and Development (OECD), among others.
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Based on the information collected, we developed a qualitative analysis through descriptive tables
and figures in order to identify disputes related to reverse protectionism, including information about
the countries concerned, the restrained product, and the laws invoked. In this sense, it allowed
exposing and describing the issue of reverse protectionism and/or export restraints for goods, as well
as identifying the disputes raised before the WTO that make it possible to understand this
phenomenon and tackle the main concern of this research.
Results and Discussion
Regarding disputes raised within the GATT and WTO, it is observed that 633 disputes have been
registered from the beginning of the multilateral trading system to date, (70 years), as shown in
Figure 1. From these disputes, only 101 belongs to the old GATT regime, and only three disputes are
related to reverse protectionism between 1947 and 1994. On the other hand, 532 disputes belong the
WTO, in which case only 12 disputes are related to reverse protectionism between 1995 and 2017.
Therefore, analyzing the last 70 years, only 15 disputes (2.37%) related to reverse protectionism or
export neo-protectionism have been registered in the multilateral trading system.
Export restriction disputes; 3; 3,0%
Other disputes; 98; 97,0%
GATT (1947-1994)
Export restriction disputes; 12; 2,3%
Other disputes; 520; 97,7%
OMC (1995-2017)
Fig. 1: Neo-protectionism disputes within the GATT and WTO regime
Source: Based on data form WTO (2017c) (2017d)
To analyze the disputes related to exports restraints registered in the GATT regime from its origins
until the end of the Uruguay Round, Table 3 shows the respondent country, appeal, laws invoked, and
complainant country for these disputes.
Table 3:
Disputes in the GATT regime related to BNA neo-protectionist policies
Respondent
country Product Laws invoked Complainant
country Dispute name
United States General
goods
Articles I and XXI
(GATT) Czechoslovakia BISDII/28 (1949)
Canada
Herring and
Salmon,
unprocessed
Articles XI and XX
(GATT) United States BISD35S/98 (1986)
European
Economic
Commission
Waste of
copper Articles XI (GATT) United States BISD37S/200 (1990)
Source: Based on data from WTO (2017d)
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These disputes are related to general goods and merchandise, agricultural products of aquaculture
origin and mineral raw materials. Within the context of disputes, the GATT articles "I: General Most-
Favoured-Nation Treatment", "XI: General Elimination of Quantitative Restrictions", "XX: General
Exceptions" and "XXI: Security Exceptions" were specifically invoked; highlighting that none of the
3 disputes had to do with TB or tariff measures.
When analyzing the disputes related to TB or tariff measures that have been presented within the
WTO, Table 4 shows that the eight disputes have been related to rare earth elements and raw
materials; and in all cases, the country sued has been the People's Republic of China.
In addition, within such disputes, the GATT articles "VII: Valuation for Customs Purposes", "VIII
Rights and formalities concerning import and export" and " XI: General Elimination of Quantitative
Restrictions" were specifically invoked, besides invoking the Protocol of Accession of the People's
Republic of China, where additional commitments were made in this regard.
Table 4:
Disputes within the WTO of TB neo-protectionist policies
Respondent
country Product Laws invoked Complainant
country Dispute name
China
Rare earth
elements
Articles VII, VIII, X and
XI (GATT). Accession
Protocol.
United States
DS394 (2009)
DS431 (2012)
European
Communities
DS395 (2009)
DS432 (2012)
Mexico DS398 (2009)
Japan DS433 (2012)
Raw
materials
Articles X and XI.
Accession Protocol.
United States DS508 (2016)
European Union DS509 (2016)
Source: Based on data from WTO (2017d)
Regarding the disputes of NTB or non-tariff measures presented within the WTO shown in Table 5, it
is possible to mention that the 4 disputes presented are related to leather, fur, and general goods. The
GATT articles "X: Publication and Administration of Trade Regulations", "XI: General Elimination
of Quantitative Restrictions", "XXIII: Nullification or Impairment" were specifically invoked.
Also, the Agreement on Subsidies and Countervailing Measures articles "1 Definition of subsidy",
"10 Application of Article VI of GATT 1994"," 11 Initiation and Subsequent Investigation"," 17
Provisional Measures","19 Imposition and Collection of Countervailing Duties" and "32 Other Final
Provisions" were invoked, as well as the article "XVI: 4 Miscellaneous Provisions" of the Marrakesh
Agreement.
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Table 5: Disputes within the WTO of NTB neo-protectionist policies
Respondent
country Product Laws invoked Complainant
country Dispute name
Pakistan
Leather
and fur
Articles XI and XXIII
(GATT) European
Communities
DS107 (1997)
India DS120 (1998)
Argentina Articles X and XI
(GATT) DS155 (1998)
United States General
goods
Agreement on
Agreement on Subsidies
and Countervailing
Measures (ASCM)
Articles 1, 10, 11, 17, 19
and 32. Articles XVI: 4
Marrakesh Agreement
Canada DS194 (2000)
Source: Based on data from WTO (2017d)
Consequently, it is possible to determine in Figure 2 that the reverse protectionism registered so far is
equivalent to only 5.0% of the disputes within international trade, while conventional protectionism
represents 95.0% of the registered protectionism, with more than 1200 TB and NTB in international
trade.
Figure 2:
Neo-protectionism and conventional protectionism in the international trade
Source: Based on data from GTA (2016)
Therefore, of 64 measures exclusively related to reverse protectionism, only five of these have to do
with TB or tariff measures related to export taxes, which means 0.4% of total protectionism disputes.
On the other hand, 59 measures of reverse protectionism have to do with NTB or non-tariff measures,
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i.e., 4.6% of total protectionism disputes, which include licenses as a requirement for export, export
quotas and other non-specified export measures.
Conclusions
This study identified that the TBs and NTBs tend to increase over time in international trade because
disputes before DSB alluding to reverse protectionism have been increased significantly after the
creation of the WTO. Most of these disputes have been addressed against the People's Republic of
China, a State that has been applying restrictive trade policies against its exports, in an attempt to
manage the production of rare earth elements and other strategic resources for its benefit.
Although there is a regulatory framework with the GATT provisions, it apparently shows some
problems which do not allow regulate properly the export restraints as trade policies. Whereby the
invoked articles in all the disputes, such as Article I "General Most-Favoured-Nation Treatment,"
Article VII "Valuation for Customs Purposes," Article VIII "Fees and Formalities connected with
Importation and Exportation," Article X Publication and Administration of Trade Regulations",
Article XI "General Elimination of Quantitative Restrictions," Article XX "General Exceptions" and
Article XXIII "Nullification of Impairment", they are insufficient to define the legal boundaries of the
reverse protectionism and the legal texts neither reach to complement these provisions.
Thus, taking into account this situation the WTO nowadays is pushing the new aspirants to be a full
member if the includes special stipulations in their accession protocols. Even the states are also
signing trade agreements with especial provision for regulating export restraints between the
implicated parties supposing then a parallel regulatory framework in the international trading system.
Therefore, it is crucial that the WTO address this whole issue in depth at ministerial conferences or
conduct a new negotiation process to develop a detailed agreement on the regulation of export
restrictions, taking into account the increase of disputes related to export restrictions in recent years
before the DSB. Then, in any case, it is essential to remark that the export restraints as trade policies
are commonly applied due to the unstoppable resources depletion, especially for non-renewable
resources, just like currently happens with the rare earth elements. Consequently, the gray areas in the
GATT provisions and legal texts are disturbing, as well as the future of the international trade based
on this sort of protectionism, especially in countries that tend to accumulate strategic raw materials
that currently present shortage.
Finally, it is striking that the reverse protectionism (neo-protectionism) tends to accentuate some
economic practices that are currently questioned and even reprehensible. In this way, this scenario
could lead to the resurgence of collusive practices, the consolidation of some current economic
cartels, and even the creation of new cartels of some countries that seek to have control of certain
common resources. Therefore, all this situation shows an unexpected dynamic of the protectionism as
trade policy where nations with available strategic resources increase their interventionism levels,
once again becoming valid the discussion about trade protectionism, but from a new point of view.
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Innovation Management and Education Excellence through Vision 2020
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... Source: Based on Bouet and Laborde (2010) Thus, according to Baena and Cano (2018), the reverse protectionism for exports seems to be more popular and they are increasingly included in new trade agreements, showing some problems in the multilateral trading system related with the export restraints. Therefore, this type of trade policies tends to be relatively recent given that the restrictions to the export of goods were not regulated by the GATT due to the low application by the countries in the international trade (Lambert & Rueffer, 2010). ...
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