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WTO Importing Regulations, Reliance, and National Security Vulnerability

The World Trade Organization promotes fair trade between all affiliated countries. In 1947, the General Agreement on Trade and Tariffs (GATT) was enacted in order to reduce trade barriers and increase international trading.  GATT pertains to tariffs, services, and intellectual property.  In 1994, the GATT evolved into the modern WTO, further establishing and negotiating enforceable trade rules.  The WTO also acts as a municipal settlement body in the event of a dispute between countries.  During these disputes, the WTO references the principals of the GATT in order to assess whether a country has violated its fairness policies.  However, there are circumstances under which the WTO’s commitment to fairness conflict with other priorities.  Particularly, these policies may prove problematic in matters of economic national security.  The Department of Homeland Security recognizes trade as critical to the American economy, and thereby also critical to United States national security.

Mandatory importing regulations are an example of when the WTO’s policies may be problematic.  According to world trade case law, a country may violate this aspect of the GATT in three instances:  (1) prohibition of imports, (2) less favorable treatment of imports, and (3) domestic protection of exports.  All three of these scenarios create a disadvantage to the imported products, thus violating the WTO’s fairness policy.  Still, the regulations in place create a quasi-reliance on importing, which could leave the country economically vulnerable.

In order to analyze the case law properly, one must first have a general understanding of the GATT 1994 (read in conjunction with GATT 1947) and the Articles to be addressed.  Article I of the GATT pertains to Most Favored National treatment, whereas Article III concerns national treatment.  Article XI involves limitation in quantitative restrictions, with section b. focusing on importing in particular.

Article I.1 of the GATT regulates fair market access opportunities in exporting.  Promoting these exporting opportunities inherently involves importing regulations.  In April of 2009, China requested consultations with the WTO on the U.S. passing § 727 of the Omnibus Appropriations Act of 2009.  The section specifically prohibited funds to be allocated towards poultry imports from China, despite that the USDA approved the poultry. China claimed this financial measure fell under Article XI:1’s quantitative restrictions in importing.  Additionally, China claimed that § 727 was a rule in connection with importing, thus falling under Article I, and directly impacted its importing abilities.

The WTO Dispute Settlement Body Panel noted that exporting opportunities “affect the commercial relationship between products of different origins.”  By limiting imports from China, the U.S. was giving “immediate and unconditional” importing advantages to all other countries except China.  Therefore, the Panel held that U.S. violated the GATT because it limited China’s access to a “favorable market economy.” However, the Panel did not discuss the reasoning behind Congress’s prohibition on importing Chinese poultry in the first place.  The Panel noted that no sanitation issues were present, thus the importing restrictions on China seemed not only unjustly prejudicial but also arbitrary.

The notion of domestic protectionism is at issue when the government gives an advantage to domestic products, thus creating a disadvantage to imports. For example, what if the United States had passed the § 727 legislature in order to help U.S. chicken farmers and producers?  During the early 2000’s, Brazil brought a dispute to the WTO against the U.S. over cotton imports, U.S. subsidies to farmers, and unfair competition.  While the U.S. supported cotton exports from Brazil, Brazil claimed that U.S. government subsidies inflated the costs of production.  In this sense, Brazil could not compete.  The DSB Panel agreed with Brazil and applied an exception [to the GATT] to retain a level playing field for trading.  In other words, the Panel held that tariffs could be applied to U.S. cotton more than to other countries, in order to balance the domestic advantage given by the subsidies. The U.S. did not challenge this holding because keeping the farmers happy through subsidies was more important than an additional tariff on the cotton.

In this sense, the WTO’s active deterrence of domestic protectionism can result in additional costs, purely for the purpose of retaining a fair-trading realm.  One could argue that this puts the United States in a position of vulnerability when we incur costs for protecting ourselves and for self-reliance. If we choose not to self-rely, then we face the potentially detrimental consequences from relying on another.

An example of relying on an import to our financial detrimental may be China’s monopolizing of the rare earth metal market.  In 2010, China announced it would be reducing its “export quota of rare earth elements by 70%,” and then reduced the quota even further in 2011.  The USTR moved to bring an action against China for these restrictions.  The reason for this action may be the U.S. reliance on Chinese harvesting of rare earth metals.  While the U.S. also has mines, it is much cheaper to import the metals from China rather than mine the elements ourselves.  However, China is rapidly decreasing its export of them, and subsequently increasing demand and costs of the remaining elements on the market.  Because of the GATT regulations, the U.S. would most likely be forced to either rely on Chinese rare earth import or face a fine for harvesting the metals (domestic protectionism), hence the double-edged sword of current international trade law.

Rare earth metals are a particularly important import during wartime. The metals are used in radar, bombs, and the like. A decrease in our ability to acquire the metals could pose an immediate threat to national security overall.  A decrease could also pose an economic security threat because we would have to immediately begin harvesting the metals ourselves or appeal to other countries, both serving to our financial detriment. In 2012, the Department of Defense conducted an assessment of our reliance on importing these materials from China and the potential vulnerabilities. The U.S., Japan, and the European Union have brought a joint action to the WTO against China for its reduction in exporting the metals.  The Panel’s ruling is to be released November 2013.

While we anxiously await the Panel’s decision on the matter, it is important to note the bigger picture.  The WTO’s current regulations on importing are meant to establish a level playing field for international trading.  The purpose of Article III, in particular, is the avoid protectionism, thus encouraging reliance on importing.  This reliance has been proven financially detrimental and also presents a national security threat. The question remains whether current WTO standards sufficiently protect the affiliated countries security, or whether certain domestic regulations should be implemented in order to decrease the consequences of this detrimental reliance. Hopefully, the decision this month will shed light on that issue.


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