International Trade Laws | The 0-1-0 Basics Guidance

International trade laws are a set of laws and practices aimed at helping the exchange of goods, services and trade between countries take place smoothly, fairly and reasonably; also giving guidance in dealing with legal issues arising in the process of trade between countries like tariffs and such.

Promulgated by the World Trade Organization (WTO), international commercial law has become an important branch of law in academic works and researched by global law universities. This article would guide you through the most crucial aspects of the International Trade Laws, including its definition, advantages/disadvantages as well as the components of the trading regulations operated globally. 

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What is International Trade?

International trade is the exchange of capital, goods, and services across international borders or territories to meet a need or desire for goods or services. In layman’s terms, it refers to the export and import of goods and services. Export refers to the sale of goods and services outside of the country, whereas import refers to the flow of goods and services into the country.

Key features:

• International trade refers to trade agreements between countries for the exchange of goods and services.
• Trading internationally exposes citizens and countries to goods and services that are not available in their home countries or are more expensive if purchased domestically.
• Well-known political economists have acknowledged the importance of international trade.
• There is still some debate that international trade is detrimental to smaller countries due to their lower competence on the global stage when compared to more developed countries.

Types of international trade

There are three types of international trade: Export Trade, Import Trade and Entrepot Trade. Export and import trade we have already covered above. 

Entrepot Trade, also known as Re-export, is a combination of export and import trade. It entails importing goods from one country and exporting them to another after adding value to them. For example, India imports gold from China, uses it to make jewelry, and then exports it to other countries.

Why International trade is necessary for the economy

When a country lacks the resources or capacity to meet domestic demand, it seeks international trade. So, by importing the necessary goods, a country can use its domestic resources to produce what it excels at. The surplus can then be exported to the international market. A country imports commodities and services for the following reasons

Price: Foreign trade may be advantageous if foreign companies can produce or provide goods and services at a lower cost.

Quality: If the foreign company is capable of providing high-quality products and services. For example, Scotland is well-known for its whisky, which allows the country to export 37 bottles of whiskey every second.

Availability: If a product, such as a rare variety of fruit or a mineral, cannot be produced in the United States. Japan, for example, has no natural oil reserves and thus imports all of its oil.

Demand: If a country’s demand for a product or service exceeds what it can produce domestically, the product or service is imported.

International Trade Laws

In general, international trade law encompasses the rules and customs that govern international trade. International trade lawyers may concentrate on the application of domestic laws to international trade as well as the application of treaty-based international law governing trade.

On the domestic side, two major areas of international trade are trade remedy work and export controls/sanctions. Trade remedies are tools that the government can use to take corrective action against imports that cause material harm to a domestic industry due to unfair foreign pricing and/or foreign government subsidies.

Antidumping duties imposed by the International Trade Commission (“ITC”) in response to dumping are one example of a trade remedy; dumping occurs when a foreign company sells a product in the United States at a lower price than it does in its “home market,” causing harm to the U.S. industry.

Export control laws govern the exportation of sensitive equipment, software, and technology for foreign policy and national security reasons.

The Departments of State, Commerce, and Treasury are the three government agencies in the United States with the authority to issue export licenses. Export control law violations can result in both civil and criminal penalties.

Companies may require advice on the rules of the World Trade Organization (“WTO”), which is a formal international organization that regulates trade. The North American Free Trade Agreement (“NAFTA”) and bilateral investment treaties are also relevant.

Some law firms specialize in a single area of the law (such as antidumping), whereas others have very broad practice groups that cover all aspects of international trade. The laws governing data and privacy information flow are expected to grow in the future, as what is permissible varies greatly by country.

Principles of International Trade Laws

• National Treatment Principle: Imported and domestically produced goods should be treated equally — at least after the foreign goods enter the market. The same should be true for foreign and domestic services, as well as for foreign and domestic trademarks, copyrights, and patents. These principles apply to both goods and services trade, as well as trade-related aspects of intellectual property rights.
• Most Favored Nation (MFN) Principle: The MFN principles require that whenever a WTO Member lowers a trade barrier or opens a market, it must do so for similar goods or services from all WTO Members, regardless of economic size or level of development. According to the MFN principle, any advantage given to another country must be shared by all WTO members. A WTO Member may give an advantage to another WTO Member without having to give an advantage to non-members, but only WTO Members receive preferential treatment.

Trade and intellectual property

The World Trade Organization Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) required signatory countries to strengthen intellectual property rights (also known as intellectual monopoly privileges).

This has arguably had a negative impact on access to essential medicines in some countries, particularly in less developed countries, because the local economy is not as capable of producing more technical products such as pharmaceuticals.

Cross-border transactions

Cross-border transactions are taxed by more than one country. A cross-border transaction is any commercial activity that takes place between two or more jurisdictions or countries.

Those involved in international business development or international trade should be familiar with tax law, as each country has different laws that apply to foreign businesses. International tax planning ensures that cross-border businesses remain tax compliant while avoiding or minimizing double taxation.

Dispute settlement

The WTO dispute settlement system is the most prominent in the field of international trade law dispute settlement. The WTO Dispute Settlement Body has been in operation since 1995 and has been very active since then, handling 369 cases between January 1, 1995 and December 1, 2007.

Almost a quarter of disputes were settled amicably; in other cases, the parties to the dispute sought adjudication. The WTO Dispute Settlement Body has exclusive and mandatory jurisdiction over WTO law disputes (Article 23.1 Dispute Settlement Understanding).

International trade’s advantages and disadvantages

Advantages

comparative advantage

It allows countries to specialize in producing only those products and services, which it is good at.

Economies of scale

If a country wishes to sell its goods on the international market, it must produce more than is required to meet domestic demand. As a result, producing more items results in economies of scale, which means that the cost of producing each item is reduced.

competition

Selling goods and services in foreign markets increases competition in those markets. In some ways, it benefits both local suppliers and consumers. Suppliers must ensure that their prices and quality are competitive enough to compete with foreign suppliers.

transfer of technology

International trade frequently results in the transfer of technology from a developed to a developing country. The government of a developing country frequently sets terms for foreign companies that include the development of local manufacturing capacity.

more job creation

Increased international trade creates employment opportunities in both countries. That is a major reason why major trading nations such as the United States, Japan, and South Korea have lower unemployment rates.

Disadvantages

over-dependence

Foreign trade countries and companies are vulnerable to global events. An unfavorable event may have an impact on product demand and even result in job losses. For example, the recent trade war between the United States and China is harming China’s export industry.

unfair to new companies

New companies or start-ups with limited resources and experience may find it difficult to compete with large foreign firms.

a threat to national security

If a country is overly reliant on imports for strategic industries, exporters may force it to make a decision that is not in its best interests.

pressure on natural resources

If a country is overly reliant on imports for strategic industries, exporters may force it to make a decision that is not in its best interests.

Conclusion

International Trade law is an important law set that all countries are opposed to being compliant with as for the global trading process and the end consumers’ interests are under appropriate protection. International trade’s beneficial homogeneity remains to be a controversial topic, since it brings about the pressure of incompetence to smaller and less developed countries.