BEIJING BOSTON BRUSSELS CHICAGO DALLAS FRANKFURT GENEVA HONG KONG HOUSTON LONDON LOS ANGELES NEW YORK PALO ALTO SAN FRANCISCO SHANGHAI SINGAPORE SYDNEY TOKYO WASHINGTON, D.C.

Use trade rules to resolve problems and create opportunities

Arnoud R. Willems

FASA Congress Metal Pages, Barcelona 11 November 2013

Introduction

• Global rules provide leverage with regulators – World Trade Organization – Trade Agreements (bi-lateral, regional, multi-lateral) – Bilateral Investment Treaties

• Companies incorporate rules into business strategy – When planning a transaction or investment (control

risks) – After a deal goes bad (get compensation)

• However, there are also opportunities during the day to day operations

Agenda

• Understanding Trade Agreements • How to use the trade rules to resolve problems and

create opportunities – Realize harmonization and increase compliance – Resolve violations that cost you money – Use the rules to create a benefit – Use the rules to avoid a disadvantage – Prepare a defense against possible complaints, or better,

make them impossible – Enforce rules through the dispute settlement provisions

• But first some basics on trade agreements

Trade Agreements – Some Facts

• Increase in trade agreements as of 2000 > role WTO • Not only EU and US, also India, Mexico, China, Brazil • Origin rules are key but not up to date • Impact is big

– Often WTO plus commitments – Agreement with one partners forces the other – Significant increase in investments and trade value – Rule in one agreement often in all future agreements – Political influence (Ukraine)

• Although similarities, each country has a different approach to trade agreements – US mercantilistic = trade focus – EU broad coverage = broad focus

Trade Agreements – EU Example

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Trade Agreements – US Example

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Trade Agreements – Mexico Example

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Trade Agreements – China Example

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Trade Agreements – India Example

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Trade Agreements - Coverage

Trade Agreements make trade and investments cheaper, faster and more predictable

• Eliminate most customs duties (over time) • Resolve (non-tariff) trade barriers, e.g. export

prohibition, quantitative restrictions, standards, testing • Facilitate transit of goods through customs • Commitments in areas affecting trade, e.g. intellectual

property, competition rules, procurement, environment, investment protection

• Establish regular consultations • Establish dispute settlement mechanisms • Key are preferential rules of origin

Trade Agreements - Negotiations

Example EU • Trade agreements are the exclusive power of the EU • EU Council gives mandate to EU Commission • EU Commission negotiates on behalf of the whole EU

and keeps EU Council and EU Parliament in the loop • EU Council has to sign • European Parliament can only accept of reject the

whole • During the whole process and at all levels

stakeholders are active

Examples How to Use Trade Agreements

• Customs Value • Remanufactured goods • Avoid negative legislation, e.g. introducing a new tax • Keep raw materials in a country or avoid export

restrictions • Negotiations • Dispute settlement

Case Study 1: Hamonize Customs Valuation • WTO panel decision in the case “Thailand – Customs

and Fiscal measures on Cigarettes from the Philippines” • Thai Customs rejected the “transaction values” of

imported cigarettes and ordered the use of “the deductive value”

• First time the WTO clarifies the Customs Valuation Agreement – Transaction value is the primary method for customs valuation and may

be rejected solely where warranted by the facts following proper procedures

– The application of the deductive valuation method is possible after the other methods are rejected and must be based on importer’s information

– Need to be a right to judicial review of (i) collected guarantees and (ii) the final assessment of the customs value

Case Study 1: Harmonize Customs Valuation • Improve customs procedures through specialized

international organisations – Multilateral (WTO and WCO)

• Current Doha negotiation on trade facilitation • WCO Revised Kyoto Convention and Framework of Standards

to Secure and Facilitate Global Trade • Technical assistance

– Bilateral (FTAs) • EU-Korea FTA provides a comprehensive benchmark for customs

procedures and a Customs Committee

– Private sector organizations (ICC) • Contribution to intergovernmental discussions to facilitate business

transactions • ICC Customs guidelines • WCO-ICC Agreement to foster cooperation in customs

Case Study 2: Negotiate Re-manufactured Goods

• Re-manufactured goods fall between new and second-hand products

• Many countries restrict trade in re-manufactured goods through import bans, regulations and certification or inspection requirements

• Example: India – para. 2.17 of Second Hand Goods of Foreign Trade Policy – “Import of re-manufactured goods shall be allowed only

with a licence”

• Resolve the classification of re-manufactured goods for customs purposes

Case Study 2: Negotiate Re-manufactured Goods

• WTO NAMA negotiations resulted in a Ministerial Decision on Trade in Re-manufacturedGoods – Sponsors: Japan, Switzerland, USA – Expand market access for re-manufactured goods by reducing

non-tariff barriers facing their importation – India called for a workshop that would clarify the definition of

re-manufactured goods

• Asia-Pacific Economic Cooperation – Work on a “pathfinder” process designed to familiarize

countries on the benefits and quality of re-manufactured goods

• Free trade agreements – USA incorporated market access for re-manufactured goods

into FTAs with Chile and Singapore by defining goods in the agreements’ rules of origin chapter

Case Study 3: Avoid Negative Legislation

• New Zealand: Telecommunications Amendment Bill introduced on 23 November 2010

• The Bill establishes a regulatory framework for telecommunication networks developed under the UltraFast Broadband (UFB) initiative

• The Bill prevents New Zealand’s independent regulator from: – regulating the price and non-price terms of access to

UFB services for at least ten years, and – reviewing any present or future acquisition by Telecom

of other telecommunications network companies or networks

• Result: foreign telecom operators cannot enter the market

Case Study 3: Avoid Negative Legislation

Telecommunications: Substantive Rules

• The General Agreement on Trade in Services (GATS) – The principles for trade in all services – Annex on telecommunications provides guarantees for

reasonable access to and use of public telecommunications by suppliers of all services benefitting from commitments scheduled by the member concerned

• Reference Paper – set of regulatory principles that is legally binding for those WTO governments which have (in whole or part) put it in their schedules of commitments

Case Study 3: Avoid Negative Legislation • Rules inconsistent with New Zealand’s GATS

commitments – Does not maintain appropriate measures for preventing major

suppliers from engaging in anti-competitive practices – Does not ensure that interconnection of basic

telecommunication services suppliers with the FTTP transport networks and services is provided at cost-oriented rates

– Prevents any independent regulator from reviewing price and non-price terms set by a major supplier of an essential facility for ten years

– Prevents any independent domestic body from resolving disputes between a suppler of basic telecommunication services and the major supplier controlling the FTTP network regarding appropriate interconnection rates

– Prevents New Zealand from ensuring that access for foreign service suppliers to the FTTP transport networks is on reasonable terms and conditions

Case Study 4: Raw Materials - Challenges • Export restrictions (tariff and non-tariff) are

frequently applied to raw materials – Concerns about security of supply – Concerns about price distortion

• Many countries are revisiting their raw materials policies

Case Study 4: Raw Materials - Example

Indonesia plans to ban nickel ore exports as of 1/1/2014 • Russian companies support this ban in order to reduce global

supplies and push up prices • Chinese companies source 65% of nickel from Indonesia

Implications for China • Buy from other countries • Cut down output

Implications for Indonesia • Lose export revenue but local industry to become more

competitive • Lose potential investments from Russia

Case Study 4: Raw Materials - Strategies

EU Strategy based on the following pillars • List of critical raw mat, efficiency, recycling, own sources • Define rules of the game through trade negotiations • Debate on raw materials in bilateral and multilateral

settings, e.g. G20, UCTAD, WTO and OECD • Enforce the rules and tackle market barriers e.g. through

WTO dispute settlement

US Raw Materials Strategy • Create a critical materials policy group with aim to identify

materials subject to supply disruptions • The US raises the issue in

– Trade negotiations and WTO accession to remove export restraints

– WTO Dispute Settlement

Case Study 4: Negotiations Solve Problems Examples how the EU addresses export

restrictions • EU-South Korea FTA: prohibition of duties, taxes or

other fees on exportation • EU-Singapore FTA: prohibition of duties, taxes or

measures of an equivalent effect on exportation • EU-Colombia/Peru trade agreement: prohibition of

export duties or taxes, with some minor exceptions

• WTO accession Tajikistan: prohibition of export duties or taxes, exc. for a list of products with bound rates

• WTO accession of China: promise to decrease export duties

Case Study 4: Raw Materials - Litigation

• Big issue in China’s WTO accession was the access to raw materials and building block products like coke, silicon metal, magnesium, manganese and rare earths that are primarily produced in China

• China imposed export duties and quotas on important raw materials but promised in WTO accession to decrease some restrictions

• US, EU, Japan brought the “raw materials” case against China on products that were not particularly of strategic value but which involved measures that were very similar to restrictions on rare earths – products that they did care about

Case Study 4: Raw Materials - Litigation

China imposed/imposes export tariffs and export quotas on bauxite, coke, fluorspar, magnesium, manganese, silicon carbide, silicon metal, yellow phosphorus and zinc

In 2009 the EU, US and Mexico these restrictions at the WTO (support from Canada, Turkey) – Targets the 9 products listed in accession protocol that

contain specific commitments from China – Does not concern the most critical products (rare

earths)

WTO Panel ruled against China but China appealed WTO Appellate Body upheld most Panel findings • China implemented the reports • Now case law for the rare earths case

Case Study 4: Raw Materials - Litigation

Product Export tariff Since 1 January 2013

Manganese ores 15% 0%

Unwrought magnesium 10% 0%

Unwrought manganese 20% 0%

Silicon metal 15% 0%

Implementation of WTO rulings

Still in place export duties on ferro-chrome, silico-manganese, ferro-manganese, ferro-molybdenum, ferro-nickel, ferro-silicon, ferro-tungsten

Case Study 4: Raw Materials - Litigation • WTO ruling important for future cases

– The finding that general resource conservation efforts do not permit export restrictions through Art. XI:2(a) GATT is likely to shape global trading pattern in essential raw materials in the coming decade

– The ruling provides helpful clarification regarding the meaning of the terms ‘critical shortage’ and ‘essentially’ in the context of Art. XI:2(a) GATT regarding products subject to export quotas

– Acceding countries will have to carefully ensure that Art. XX is referenced in all those provisions that they want covered by the article’s justifications for measures taken in the interest of the environment, resource conservation, human health, or public morality

– The alternative would be to incorporate Article XX as an umbrella clause in the accession protocols

Case Study 4: Raw Materials - Litigation Rare Earths, Tungsten and Molybdenum

• China's restrictions on the export of various rare earths, tungsten and molybdenum include export duties, export quotas, minimum export price requirements, export licensing requirements and additional administrative requirements

• Rumors of decision of WTO Panel: China’s rare earth export quota are against the rules (Final ruling is expected by 21 November 2013)

• Uncertain whether the export quota system will be cancelled. – Some sources report that China might adjust export

duties and the export quota system at the start of 2015 – Appeal at Appellate Body is possible

Reverse Case Study 4: How to Keep Scrap

• EU sees all scrap going to export markets • How to keep scrap in EU • Certification • Linked to waste shipment directive

Case Study 5: FTA Dispute Settlement • Negotiate under FTA (Committee or regular meeting) • Raise under WTO rules

– Negotiations regarding global rules (e.g. trade facilitation, anti-dumping)

– Consult or clarify matters or behavior relating to the operation and interpretation of Agreements (place issues on agenda, submit documents)

– Many Agreements, Councils and Committees (GATT, GATS, Customs Valuation, Technical Barriers to Trade, Anti-Dumping, Trade Policy Review Body, SPS, Trade facilitation, Trade and Environment

– Task force, work shop, ICC, door knock visits

• Choice to litigate under FTA (not always binding) or WTO

How to Use These New Opportunities

• Know your way around re. procedures and people • Know what you want (e.g. lower duties on green

products) • Develop and execute a strategy

– Know who: delegations (know or create interest) – Know where: negotiations, committee, council,

secretariat (legal affairs), bid-book or create new – Know how: agenda, report, door-knocks – Create and guide the discussion

– Workshop leading to seminars and a work program: e.g. on exchange rates by Brazil, energy transit

– Task forces SG, e.g. Panel defining the future of trade, statistics

Conclusions

• Trade agreements offer new avenues • Create, adapt or clarify global rules through

negotiations or specialized committees • Tackle legislation that discriminates or hinders market

access • Use negotiations to tackle issues • Use committees and dispute settlement procedures to

raise an issue • WTO arguments support advocacy and policy work on

national level

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Questions

Arnoud R. Willems awillems@sidley.com +32 2 504 6400 (office) +32 496 165 176 (mobile – Belgium)

• Partner, EU Trade Practice Leader • Recommended by Chambers, Who’s Who Legal, the

Legal 500 and Best Lawyers

International Trade Group

Market Access and Competitiveness • Trade Remedies: anti-dumping, anti-subsidy and

safeguards • Global Trade Policy: WTO, BITs, FTAs, Bi-lateral

Agreements • Customs & Duties • Economic Sanctions & Export Controls • Investment Protection • Regulatory: Industrial and Environmental Standards,

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