ASSIGNMENT – 2022/23
ABJ 4405 – INTERNATIONAL FINANCIAL MANAGEMENT
STUDENT NUMBER: 500673122
STUDENT NAME: NGOZICHUKWU ANNE FORWARD
Question 1a:
The Role of the WTO in Limiting Protectionism
Trade protectionism is a strategy used by some countries to protect their own industries from foreign
competition. They do this by implementing barriers, such as taxes on imports or limits on how many
goods can be brought in from other countries. This is done to try and support their own businesses and
economy by making it harder for foreign companies to compete. In the preamble of the WTO
Agreement, the GATT’s outlined goal of reducing tariffs and other protectionist measures as well as
combatting discrimination in international trade activities, are brought over due to its relevance. It also
highlights the ways in which this can be done:
1. Carefully preserving and protecting the environment while making the best use of the world's
resources in order to achieve sustainable growth.
2. Implementing proactive measures designed to guarantee that developing nations will benefit
from the expansion of global commerce. (Davey W.J., 2020)
Question 1b:
WTO procedures for Resolving Conflict between Governments.
The WTO's major contribution to the sustainability of the global market is dispute settlement, which also
happens to be the foundational element of multiparty trading amongst countries and governments. The
enforcement of rules and regulations would be ineffective, without an adequate system for conflict
resolution. The World Trade Organization (WTO) has set up a process for settling disagreements
between countries to ensure that everyone follows the rules and that the global trade system works
effectively. This process entails a defined set of rules and time structures for resolving disputes. Initially,
an expert panel evaluates the case and their decision is subsequently approved or rejected by WTO
members. However, there is also the option to review the decision through a legal process.
It is important to note that this process is not solely about passing judgement but strives to resolve the
conflict and reach a form of mutual understanding amongst the conflicting parties. In fact, by January
2008, only 36% of the cases had gone through the full panel process. Most had been settled
independently, between the parties or remained in consultations. (World Trade Organisation, 2019)
Independent settlement of dispute is often encouraged at all stages of the WTO’s process for dispute
resolution. This process is encoded in a legal text developed by the World Trade Organisation which is
an Understanding on rules and procedures governing the settlement of dispute (World Trade
Organisation, 2019)
As earlier highlighted, independent settlements are the ideal for conflict resolution. If this is not
possible, WTO Members have the option to request the establishment of a panel to settle the dispute.
The WTO Appellate Body is a standing body of seven members that hears appeals from dispute
settlement panels. Its function is to review the legal aspects of the panel's report and to make findings
on the consistency of the panel's report with WTO agreements. The Appellate Body's decision is final
and binding, and the parties must comply with the findings of the Appellate Body (WTO, 2019).
If the losing party fails to comply with the WTO's decision, the winning party may request the WTO's
permission to impose retaliatory measures against the losing party. Retaliatory measures may include
the imposition of tariffs or other trade barriers against the losing party's exports (WTO, 2019).
Question 1c:
Potential Impact of the Tax credit restrictions in the IRA on international trade.
The $369Bn climate and energy bill passed by the US Senate on the 12th of August 2022 includes tax
credit legislation that would remove the limit placed on manufacturers who could not qualify for the
current $7,500 EV tax credit (implemented for the buyers of these electric vehicles) because they had
surpassed a production cap of 200,000 electric vehicles. Essentially, the car manufacturing giants in the
US who previously were not eligible would now be able to claim this credit on some of their cars for
whoever buys them. However, this legislation excludes vehicles that were not ‘final assembled’ in North
America. The obvious implication is that US citizens are now disincentivised to purchase of foreign
electric vehicles. Particularly, the new bill targets the importation and use of battery components or
critical minerals derived from China. (Tax Foundation, 2022)
This development came with a host of complaints from the EU due to the absence of a Free Trade
Agreement between them and the US, and Asia, especially South Korea. The claim is that the legislation
is discriminatory and may be in direct violation of the WTO’s rules of multilateral trade. (Reuters, 2023)
The bill has caused negative reactions from Europe because it presents as an impediment to free trade.
It is important to note that this was not the original intention however, passing the bill meant hard
bargaining with politicians with diverse interests and reaching a compromise on these interests.
Nevertheless, due to the competitive threat this bill poses, the EU has increased efforts to put together
a response to the situation. The prolongation of the situation may end up causing damage to the
existing relationship between the EU and the US which would be costly. (Financial Times, 2023)
In addition, the bill itself affects healthy competition amongst countries, negatively promotes selfdependence and runs the risk of starting a race amongst other countries to provide other kinds of anticompetitive trade subsidies in retaliation. The blatant discrimination would also draw production to
areas where it is less efficient while stifling competitive pressures from imports which are a good source
of innovation for domestic providers, therefore undermining local strategic goals. (Financial Times,
2023)
The obvious solution to this would be a collaboration between the EU and the US on the major issues
including climate change. Towing the line between supporting domestic production and avoiding
extreme discriminatory trade policies will be difficult but may be possible through a mutual
understanding by both parties of what the ground rules are.
Question 1d:
Reasons for including the Restrictions on Tax Credits in the IRA
Replacing traditional gas-powered vehicles with electric cars is a straightforward method of reducing
greenhouse gas emissions, given that transportation is the largest contributor to carbon emissions in the
country. The recently introduced incentives for electric vehicle adoption by the IRA can accelerate the
shift towards sustainable transportation, offering numerous advantages such as cost savings, job
creation, and a reliable source of renewable energy. (Forbes, 2022). To highlight, the US included their
restrictions on tax credits for the stated reasons:
1. The sustained advancement of the American economy by creating millions of new jobs in
manufacturing
2. Reduce mortality rates by preventing almost 5,000 deaths caused by air pollution, which would
be a direct result of the reduction in carbon emissions.
(Forbes, 2022)
3. As earlier mentioned, the fact that the EV credits may cause a move of manufacturing jobs from
the EU and Asia to the US, due to their car companies setting up shop in the US in order to take
advantage of the tax credit.
4. The reduction of the United States’ dependence on importation from China, who is known for
manipulating production regions in order to gain access to certain natural resources, to further
drive its own interests. (Financial Times, 2022)
Question 1e:
Reasons put forward by the EU and South Korea for why they consider the rules are in breach of the
WTO rules
The European Union and South Korea have raised concerns that the rules of the United States tax breaks
on electric vehicles may be in violation of the World Trade Organization's (WTO) international trade
rules.
The EU and South Korea claim that this violates the principle of non-discrimination under the General
Agreement on Tariffs and Trade (GATT) of the WTO, which prohibits countries from treating imported
products less favorably than domestic products (World Trade Organization, 2019).
In addition, the EU and South Korea argue that the tax breaks constitute a subsidy that may harm
foreign electric vehicle manufacturers. Under WTO rules, subsidies that are contingent on the use of
domestic goods over imported goods can be considered trade-distorting and are subject to WTO
scrutiny (World Trade Organization, 2019). In general, the EU and South Korea claim that the tax breaks
could provide a financial advantage to U.S. electric vehicle manufacturers, which could harm foreign
competitors in the market.
References
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