CHAPTER 12
International Trade
INTRODUCTION
Managers are increasingly faced with doing
business in a global environment. This chapter
begins with the presentation of a framework for
understanding U.S. trade law and policy,
highlighting certain aspects of U.S. trade law and
policy and process, domestic trade laws, and U.S.
participation in international agreements, such as
NAFTA and WTO. The final section discusses the
European Union and its plan for economic,
monetary, and political integration.
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U.S. TRADE POLICY:
THREE PERSPECTIVES
 Economy Theory
1. Objective of U.S. trade policy is the promotion of free and fair trade.
2. Elimination of government regulations to ensure real market costs of
goods.
 Practical and Political Perspective
1. Traditional competing interests (export vs. import industries).
2. Plus, add managers’ duty to maximize shareholder value.
3. Now, environment and human health are concerns.
4. Major battle between proponents of WTO and those who are
concerned with national sovereignty.
 Legal Perspective
1. U.S. laws that govern implementation of treaties and governmental
actions.
2. Congress and Executive Branch check and balance.
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STRUCTURE OF U.S.
GOVERNMENTAL REGULATION
OF TRADE
 Role of Congress
1. Power to regulate all aspects of commerce with foreign nations.
2. Imports restricted by tariffs and treaties.
3. Exports may be facilitated by federal subsidy (wheat) and tax breaks.
4. What role do state and local governments play?
 The Role of the President—has broad power to negotiate trade agreements.
 Administrative Agencies.
1. U.S. Trade Representative, Department of Commerce, Department of State,
Department of Treasury, U.S. International Trade Commission.
2. The Interagency Committee.
3. U.S. Export-Import Bank—helps subsidize U.S. exporters.
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THE ROLE OF CONGRESS
Case 12.1 Synopsis--Crosby v. National Foreign Trade Council
Massachusetts passed a law barring state governmental entities
from buying goods or services from companies doing business
with Burma. Later, the U.S. Congress enacted federal legislation
imposing mandatory and conditional sanctions on Burma. The
Massachusetts law was inconsistent with the new federal
legislation. The National Foreign Trade Council sued on behalf of
its several members claiming that the Massachusetts law
unconstitutionally infringed on federal foreign affairs power,
violated the Foreign Commerce Clause of the U.S. Constitution,
and was preempted by the subsequent federal legislation. The
district and appeals courts ruled in favor of the Council, and the
Commonwealth appealed.
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THE ROLE OF CONGRESS
ISSUE: Did Massachusetts exceed the scope of its
authority by passing a law barring state entities from
purchasing goods or services from companies doing
business in Burma? HELD: AFFIRMED. The
Massachusetts law is preempted, and its application
unconstitutional under the Supremacy Clause of the
U.S. Constitution. State law must yield to a
congressional act if Congress intends to occupy the
field, or to the extent of any conflict with a federal
statute.
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THE ROLE OF THE PRESIDENT
Case 12.2 Synopsis. Consumers Union v. Kissinger, (1974).
To assist the U.S. steel industry, President Richard Nixon
(through Henry Kissinger) sought to reduce steel imports from
Japan and Europe by convincing foreign producers to limit their
exports to the United States. The undertakings to do so were
voluntary, and no attempt was made by the United States to
legally enforce them. Consumers Union, believing that U.S.
consumers were hurt by this restriction on supplies of foreign
steel, sued the secretary of state. It argued that the president
had, in effect, regulated foreign commerce without any specific
statutory delegation of authority from Congress and, thus,
exceeded his authority. CONTINUED
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THE ROLE OF THE PRESIDENT
Case 12.2 Synopsis. (Cont’d).
ISSUE: Did President Nixon act within his powers in
negotiating nonbinding, voluntary undertakings by foreign
producers to reduce their exports to the United States?
HELD: YES, the export restraints by the foreign producers
were upheld. The president did not exceed his constitutional
authority, because the export restraints were accomplished
through an informal, voluntary agreement. The restraints
were not legally binding on the foreign exporters, and they
were not enforced by U.S. authorities.
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U.S. LAWS AFFECTING IMPORTS
 Tariffs
1. Ad Valorem Tariffs - importer must pay percentage (a
“duty”) of the value of imported merchandise.
2. Federal Law.
 The Harmonized Tariff Schedule - two basic rates of duty.
 Country of Origin - tariffs vary depending on the country of
origin.
- Substantial Transformation.
 Tariff Classifications
 Customs Valuation and Laws
1. Customs Valuation.
2. Transaction Value (price on the sales invoice).
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U.S. LAWS AFFECTING IMPORTS
 Tariff Preferences
 Generalized System of Preferences - assists developing
nations with exports.
 Import Relief Laws.
1. President can raise tariffs if there are unfair trade
practices.
2. U.S. International Trade Commission investigates.
 Anti-Dumping Law - found in Tariff Act of 1930 - relieves U.S.
industries injured by foreign nations “dumping” cheap
products in the market.
 The Countervailing Duty Law.
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IMPORT RELIEF LAWS
Case 12.3 Synopsis. Presidential Decision Under Section 201:
Lamb Imports, Statement by the President, July 7, 1999.
The U.S. lamb industry lodged a complaint that a surge in cheap lamb
imports from Australia and New Zealand were causing serious injury to
the U.S. lamb market. The ITC launched a thorough investigation of lamb
imports under Section 201 of the Trade Act of 1974, concluding that lamb
imports had increased nearly 50 percent between 1993 and 1997, with a
rapid increase through 1999. The ITC concluded that lamb imports were a
substantial cause of serious injury to the domestic industry and it
unanimously recommended that trade restrictions be imposed on lamb
imports for four years. ISSUE: Would imposing trade restrictions on lamb
imports be detrimental to the national economic interest?
RESULT: President Clinton agreed and the recommendation by the ITC to
provide relief for the U.S. lamb industry was accepted.
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U.S. LAWS AFFECTING IMPORTS




Section 337 of the Tariff Act of 1930.
Section 406 of the Tariff Act of 1930.
Section 232 of the Tariff Act of 1930.
The Buy American Act - federal agencies must
give preference to American made products
unless their price is a certain percentage higher
than an import.
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FOREIGN TRADE ZONES
 Merchandise may be imported directly into
the zone for demonstration purposes and
may be re-exported with no duties.
 No duties owed until merchandise leaves
zone. Parts may be assembled in the
zone without paying duties. Only the
finished product leaving the zone pays
duties.
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U.S. LAWS AFFECTING
EXPORTS
 Section 301of the Trade Act of 1974 - addresses foreign unfair
trade practices.
 U.S. Trade Representative investigates
 Relationship between Section 301 and WTO
 The Export Administration Act of 1979.
1. Regulates export of technology and other products that
impact National Security.
2. Export Licenses for Goods and Technology.
 The Arms Export Control Act
 Export Trading Companies : 1. Certificate that exempts
company treble damages and criminal actions or 2. Permits
Export-Import Bank to guarantee loans.
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INTERNATIONAL
TRADE REGIMES
 U.S.-Israel Free Trade Agreement all tariffs eliminated in 1995.
 The Trade and Development Act of
2000 - includes Africa and
Caribbean.
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THE NORTH AMERICAN FREE
TRADE AGREEMENT
 World’s Largest Free Trade Zone between U.S., Mexico and
Canada.
 Process to remove Tariffs (“Duty Free”).
1. Categories “A” (e.g., automobiles), “B” (e.g., textiles) and
“C” (capital goods).
2. Elimination of customs.
 Prohibits new restrictions on investment.
 Protects Intellectual Property rights
- Berne Convention (copyrights).
- Paris Convention for Protection of Industrial Property Rights
(patents).
 Environmental Sanctions.
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FREE TRADE AREA OF THE
AMERICAS (FTAA)
 Initiated by thirty-four countries to create a
Free Trade Area by 2005.
 Agriculture, services, investment,
government procurement, intellectual
property, subsidies, competition policies and
dispute settlement.
 Fast-Tracking Negotiating Authority.
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THE WTO AND GATT
 U.S. participates in various bilateral and regional trade agreements and
WTO (the successor to GATT).
 WTO is the principal multilateral institution regulating international trade
with 135 member nations.
 WTO requires member nations to participate in:
1. Goods and Services.
2. Intellectual Property Rights.
3. Dispute Settlement.
4. Trade Policy Reviews.
 Basic Principles for WTO.
1. Most Favored Nation Treatment.
2. Bound Tariffs - once lowered cannot be raised again.
3. National Treatment - members may not discriminate
against “like products.
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THE WTO AND GATT
 View From Cyberspace: WTO Tackles Electronic
Commerce.
 Non-Tariff Barriers – in some cases have replaced
tariffs as a means of protecting domestics
industries threatened by import competition.
 Environmental and Health Exceptions.
1. Article XX of GATT construed very narrowly.
2. Agreement on Application of Sanitary and
Phytosanitary Measures (SPS) .
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AGREEMENT ON APPLICATION OF
SANITARY AND PHYTOSANITARY
MEASURES (SPS)
Case 12.5 Synopsis. EC Measure Concerning Meat And Meat Products
(Hormones), World Trade Organization Appellate Body
WTO Docs. WT/DS26/AB/R, WT/DS46/ABR (Jan. 16, 1998).
The European Union banned the import of all meat from cattle treated
with any of six growth hormones. The United States and Canada claimed
that the hormone ban was not based on convincing scientific evidence
and conflicted with the SPS Agreement. ISSUE: Under what
circumstances can a WTO member set a level of consumer protection
higher than international health standards? HELD: The WTO Appellate
Body held that WTO members have a sovereign and autonomous right to
set a level of sanitary protection for their own consumers that exceeds
international health standards, as long as the sanitary measures are
based on a scientific risk assessment. The EU ban was inconsistent with
the requirements of the SPS Agreement.
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THE WTO AND GATT
 WTO Dispute Settlement Procedures
- U.S. most active participant in WTO dispute
resolution.
- Panel created by complaining party that issues report.
- Enforcement of WTO decisions.
- Timetable.
 China’s WTO Accession
- U.S. approved Permanent Normal Trade Relations in 2000.
- Linkage between U.S.-China trade and human rights
policies.
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FUTURE DIRECTION OF
U.S. TRADE POLICY
 Seattle WTO Summit failed to move future
agenda forward.
 Protection of environment, workers rights
and human rights in the agenda.
 What about jurisdiction, competition and
investment policies?
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THE EUROPEAN UNION
 No customs or tariffs between member nations.
 EU negotiates international trade agreements but approval
is allowed by individual nations.
 EU Competition Law.
- Boeing’s acquisition of McDonnell-Douglas
which affected EU’s Omnibus.
- AOL acquisition of Time Warner.
 The European Commission - Executive branch of EU.
 Council of Ministers - Legislative branch of EU.
- Regulations
- Directives
- Decisions
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THE EUROPEAN UNION(CONT’D)
 European Court of Justice—Judicial branch of EU.
1. Failure to Comply.
2. Annulment.
3. Failure to Act.
4. Civil Liabilities.
5. Preliminary Rulings.
 Court of First Instance
 The European Central Bank and EMU
- The “Euro.”
- European Monetary Union.
 Challenges to EU
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THE RESPONSIBLE
MANAGER
 Engaging in International Trade
– Planning in Advance for ImportExport.
– Removal of Barriers in Mexico and
Europe causes increased competition
in United States.
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NEW TRADE WAR:
SEATTLE 1999
 WTO will continue to symbolize loss
of sovereignty, environmental
protections, human rights abuse.
 Do developing nations really get a
good deal from WTO?
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REVIEW
1. What relationship should U.S.-China trade have with human rights
policies?
2. Should the U.S. trade with countries where fundamental rights to
speech and religion are not protected?
3. Do the protests at Seattle 1999 have merit? Are the rich getting richer
and the poor becoming more disenfranchised?
4. Under NAFTA, how does the average U.S citizen benefit? How does
the average Mexican citizen benefit? Does U.S.-Mexican trade really
benefit the entire country or only a few wealthy Mexican families and
U.S. multinational companies?
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