Professor Claire R. Kelly organized a WTO PublicForum, co-sponsored by the International Economic Law Group of the American Society of International Law, entitled "The Evolving International Trade Order: The Global Sourcing and New Challenges tothe WTO System." Here is an inside look at what the paneldiscussed and the panelists themselves.
"The Evolving International Trade Order: The Global Sourcing and New Challenges to the WTO System"
Reporter: Claire R. Kelly, Professor of Law and Co-Director of the Dennis J. Block Center for the Study of International Law, Brooklyn Law School
Summary of the Panel
This panel explored the implementation of the current trading and investment rules in light of today’s global trading patterns. In particular, the panel considered standards established under the General Agreement on Tariffs and Trade, the Agreement on Customs Valuation, the WTO Agreement on the Rules of Origin, the World Customs Organization and the international investment law regime. Despite the increasingly complex and diversified sourcing realities today, the rules that govern trade and investment are based on outdated trading patterns of the 19th and early 20th century in which trade flows were linear and supply chains were not very diversified, if at all. Today, however, there is a very different picture. Production processes, through economies of scale and intermediate input trade, depend on increased outsourcing. Unlike pre-World War II, where vertical integration of the production in one country, with few if any intermediate inputs, was commonplace, today fragmentation in the production process characterizes global supply chains. Importers now source from multiple countries, sell in multiple countries and are themselves incorporated in multiple countries. Yet the current trading rules are premised on mono-location and a linear trade flow endemic to a mercantilist structure under which state actors compete to maximize exports while containing imports.
As a threshold matter one can see how these evolving global supply chains challenge outmoded trading rules and exert mounting tolls within the global trading system. For example, the current trading patterns are enormously complex making it difficult for businesses to track themovement of goods through the supply chain. The current trading patterns suggest the need for businesses to make use of sophisticated systems, such as master data systems. Such systems should be available in a purportedly harmonized trading system. However, one can see many examples, particularly in relation to the classification of imported merchandise, where the implementation of the trading rules are not in fact harmonized. The subjectivity and discretion within national customs systems, with classification in particular, makes the use of programs such as master data systems often unavailable as a practical matter.
Likewise, importers confront both country of origin rules and the rules relating to value that have failed to keep pace with the realities of today's trading patterns. As the WTO’s Made in the World Initiative reflects, country of origin rules that try to identify a single source for a product are deceiving. Many products are truly multinational in origin with value from components, labor, and intellectual property, not to mention advertising and marketing, spanning not just countries but continents. The value rules for customs purposes can conflict with value rules for tax purposes in the transfer pricing area, making valuation more complex and costly than it needs to be for related parties.
Origin and value chain fragmentation is accompanied by what many would call a broader fragmentation, that of the international trade system itself. The proliferation of preferential trade agreements through regional and bilateral trade agreements containing their own set of rules around rules of origin for example, further blurs the effectiveness and applicability of the current multilateral trade rules and may lead to competing rules.
Likewise, an increasingly important regulatory layer is international investment law which presents a potential regulatory mismatch between trade and investment rules. Conduct which may be consistent with international trade law may be inconsistent with international trade rules and vice versa. The potential for regulatory clashes persists in a number of sectors including the technology sector. Trade in technologies requires a great deal of capital and coordination. Many actors working across the globe are subject to various jurisdictions as well as both the trade investment regimes.
These current trading and investment rules offer a fertile ground for a perverted political debate on trade and to some extent the panel explored whether the current crisis over the Doha Round negotiations is due, in part, to such misguided political debates on trade.
Panelists
Professor Elizabeth Trujillo (Suffolk University Law School) moderated the discussion. Ms. Trujillo gave the audience an overview of the panel and noted that some of the themes discussed in the earlier session would be revisited, including M. Pascal Lamy’s discussion of the “Made in the World” label as a much more accurate reflection of the realities of today’s complex global supply chains. The “Made in the World” initiative, among other things, encourages us to think about the international trade regime as a “trade in tasks paradigm” and in turn, look for specific ways that the WTO may better address value-added trade. As a result, international trade no longer functions in its specific silo of trade rules and customs control; but rather, it has acquired transnational qualities where a single territorial locus loses its importance and actors involved are more than any one national government or private national company.
Mr. Philippe Orban (KPMG) started the panel with a discussion of the harmonized
tariff system. Mr. Orban provided an overview of its background, and described its significance for countries in classifying and monitoring goods in order to assess tariffs and address the challenges and proposed solutions for a fully operational harmonized system in the context of global supply chains. Significantly, Mr. Orban illustrated that despite its nature as a harmonized
system, there are many components of the system where significant discretion is granted to national authorities. As a result, the system is a great deal less harmonized than is desirable.
Professor Claire R. Kelly (Brooklyn Law School) discussed the reality of global supply chains today with respect to both valuation concerns and rules of origin. After describing the realities of global supply chains and noting the WTO Made in the World Initiative, she illustrated how these realities create difficulties in terms of both value and country of origin rules. One of the difficulties discussed was that of multinational enterprises that find themselves confronted by tax authorities who assume businesses are inflating costs and customs authorities who assume that businesses are deflating costs. Similar uncertainty persists with respect to country of origin determinations. The determination of the country of origin of a particular good often requires a subjective analysis. Global businesses face subjective country of origin determinations in multiple jurisdictions adding to their costs. Professor Kelly suggested that better use could be made of networks of trade professionals to find ways of mitigating some of this uncertainty.
Professor Jorge Viñuales (The Graduate Institute of Geneva) discussed the several regulatory layers that are part of the global supply chain system. Aside from international trade law, an increasingly important regulatory layer is international investment law. International investment law presents many differences from international trade law, three of which were raised in his presentation. First, unlike international trade law, international investment law allows private investors to sue the host State directly (instead of having to persuade their home State to bring a claim before the WTO DSB) as well as to get compensation even for past effects (which is not the case of international trade law). Second, domestic measures affecting global supply chains present significant litigation risk not only from an international trade law but also from an international investment law perspective. Third, the situation is further complicated by the potential emergence of 'regulatory mismatches', when the measure that would be WTO-consistent is potentially inconsistent with international investment law and vice-versa. An example is the carbon equalization measures. It has been persuasively argued that granting subsidies to local producers facing competition from exporters based in pollution havens would be better, from a WTO perspective, than import restrictions. Yet, from an international investment law perspective, such subsidies would likely be much more problematic than import restrictions, as the overwhelming majority of investment treaties do not restrain regulation of entry.
Ms. Konstantina K. Athanasakou (White & Case, Geneva) discussed the landscape of global supply chains. She discussed trade challenges with respect to providing access and dissemination to technologies operating on the basis of the global supply chain structure. She noted that the main challenge of promoting access and dissemination of technologies that operate on the basis of global supply chains is the involvement of large capital requirements and the presence of multiple actors across different continents. She emphasized that it is important to consider how the trade framework affects global supply chains for technologies, and in particular, whether the trade framework helps or hinders dissemination of the technologies and whether it encourages or discourages investment.
Conclusion
The panel highlighted that international trade no longer functions in specific silos of trade rules, customs control, or investment rules; but rather, it has acquired transnational qualities where a single territorial locus loses its importance and actors involved are more than any one national government or private national company. International trade today is therefore no longer a function of a geographical place at any given time, but a much more fluid transnational phenomenon where various commercial and government interests may converge and translate common interests into new and modern rules.
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