International trade Law:
Amazonia is a small (and fictional) nation in South America. It is a Member of the WTO and has signed onto the WTO Covered Agreements.
During the Great Recession (2008-2011), Amazonia’s economy grew at a relatively healthy annual rate of about 4%, due largely to increased exports of primary products, including soybeans and sugar, to China and India. However, as both those Asian economies began to experience slower growth in 2011 and 2012, Amazonia’s exports decreased substantially. Also, strong coffee crops worldwide in 2012 caused the price of coffee, another of Amazonia’s major exports, to fall as a result of global oversupply. As a result of these changes (and because of some unwise domestic policies), Amazonia’s economic growth in 2012 decreased to less than 1%, and unemployment has increased from about 8% to nearly 15% over the course of the past 18 months.
Because Amazonia’s economy depends on imports of manufactured goods and consumer goods from the United States, Japan, the members of the European Union, and China, imports during 2012 and 2013 substantially exceeded export revenue. As of March 1, 2014, Amazonia’s hard currency reserves (e.g., US. dollars, Euros, Japanese Yen) had decreased to a supply of only two months (where a minimum of three months’ reserves is considered the lowest safe level). The foreign exchange situation is exacerbated by the fact that the wealthiest 5% of the population are continuing to import high volumes of expensive automobiles, flat screen TV sets, and alcoholic beverages, among other things.
Amazonia has recently applied to the International Monetary Fund for a loan, but officials are aware that IMF negotiations can drag on for many months, and thus do not offer any possibility of immediate relief. Overall, the economic situation for Amazonia is grim and could be made worse by the political unrest that may result if the Amazonian government, for lack of funds, were forced to reduce or eliminate current consumer subsidies for bread, rice and gasoline.
Amazonia’s President, Secretary of the Economy, and a few key members of Parliament (a committee known as “Council for Emergency Action”) have met secretly to discuss the economy and possible measures which, if implemented, might improve Amazonia’s position over the next 9 to 12 months, the period which the Secretary of the Economy believes will be necessary to work out an agreement with the IMF. The measures under consideration for 2014 include the following:
1. In order to reduce the volume of imports (with their foreign exchange costs), the Council proposes to increase Amazonia’s MFN tariffs across the board from the average “applied” rate of 10%, to the “bound” rates, which average about 15% ad valorem. (Under this proposal, none of the tariffs would be increased above the bound rates.)
2. Because China is the major source of consumer goods imported into Amazonia, resulting in a substantial trade deficit with China in 2012 and 2013, the Council proposes a special tariff surcharge of 15% (above Amazon’s MFN bound tariffs) on all goods of Chinese origin.
3. Research undertaken by the Amazonian Secretariat of the Economy suggests that some of the apparel that Amazonia is importing from manufacturers in Bangladesh and the Philippines is made by workers who are as young as 9 to 12 years old. The Council plans to impose an embargo on imports of apparel from these manufacturers.
Similarly, some of the Chinese clothing imported into Amazonia originates in a factory whose laborers are prisoners at a nearby correctional facility; those imports would be banned as well. In both cases, the Council believes that the embargoes would ease pressure on foreign exchange reserves and be in line with its just labor policy of not selling products domestically made with child labor.
4. In large part because of the economic downturn and increasing unemployment, many Amazonian citizens have increased their consumption of alcoholic beverages; consumption both of the local rum and imported distilled spirits, particularly Chilean pisco, US. (Kentucky) bourbon, and US. (Puerto Rican) rum, have increased. The Council proposes to discourage imports of these and other distilled spirits by imposing an additional excise tax of 25% of the transaction value of all distilled spirits imported into Amazonia. No similar tax would be imposed on domestic rum.
Considering the following:
At the request of China (which through hacking of Amazonian Government computer systems has discovered the plans described above), the WTO ambassadors of Amazonia’s other major trading partners (Chile, Peru, and the United States, along with Bangladesh and the Philippines) have convened an urgent meeting in Geneva to consider what steps, if any, they should take in response to the allegedly protectionist actions of Amazonia, should any of those steps be implemented by the Amazonian Government. They have asked you as an expert in GATT/WTO law to prepare a short memorandum discussing the various proposed Amazonian measures and their consistency or inconsistency with international trade rules. The memorandum at minimum should discuss:
A. The consistency of each of the Amazonian measures with the GATT and other WTO provisions you have studied; and
B. Any legal defenses under GATT that representatives of Amazonia might raise in their defense with regard to each of the steps under consideration as well as the kinds of actions that the participating WTO members might initiate under WTO dispute settlement procedures.