International Trade Policies And Regulations

1.1. International Policy & Environmental Regulations

International policy and the environment do not always go “hand-in-hand”. There are so many obstacles to consider. Most international trade deals generally collapse before they have even begun. This is due to environmental concerns. A recent trade deal attempt was between India. Although India needed the Barley for their large distilleries across India, they rejected the Barley because a certain pesticide is used which India considers unacceptable to the environment.

With regards to environmental regulations on International trade deals, most nations will use various methods to regulate and manage certain aspects of their own exports and imports. Certain countries may create regulation for the manufacturing industry by requiring specific permits for the release of all the pollutants associated with manufacturing. Another example would be regulation for all car manufacturing to reach a certain emissions target before the cars can be exported to their contractual destination.

Due to the number of issues relating to environmental issues for exports and exports of specific goods, most countries have stated that that effective and suitable environmental policy is urgently required in order to make a positive difference in international trade. As nearly all the countries trade across the globe, smooth and “hassle-free” trade depends on environmental policies being in place before the parties can agree on a suitable trade deal. It is vital that effective environmental policies are compatible with multi-party trade agreements.

Over the years there have been a number of related efforts under the World Trade Organization (WTO) environmental framework to try and streamline the process of trade deals and to create a set of policies that would be mutually beneficial to most nations doing business overseas. Countries have included tariff reductions for certain environmental goods and services.

1.2. Classical Theories to Measure Trade Barriers

Theory of Mercantilism:

The way to measure trade barriers is by using a set theory system. The first theory is what is known as Mercantilism. This classical theory tends to focus on the concept of standard commercial exports and imports. This particular theory also addresses the issue of relying less on imports and developing one’s exports at a higher rate. China is a classic example of mass exports and minimal imports due to the high demand from other countries who rely upon China as its main supply chain. Another way to develop their exports is by the use of low subsidies, low cost salaries and of course low regional taxes.

Theory of Absolute Advantage:

Adam Smith created this theory in 1776 and it is quite practical. Basically, for absolute advantage to be applied, countries who wish to focus on large scale exports should focus on a particular product that they know can be exported in large volume. Such examples include tea, coffee, sugar. Absolute Advantage also focuses on a skilled work force and key infrastructure, as well as land and technology. For example, large tracts of land to grow tea and coffee

Theory of Comparative Advantage:

The final theory and considered the most important is the law of comparative advantage. This theory focuses on vital factors of key production. Not only is the labor force and financial capita relevant but also other aspects such as major resources such as technology and land.

1.3. Preferential Agreements

Most countries around the globe are party to at least one Preferential Trade Agreement (PTA). These are drafted with the sole aim of reducing tariffs to acceptable levels for specific products and services. However, it should be noted that tariffs are not always reduced, however these tariffs will generally be lower than other countries who are not a party to the agreement. The object of the PTA’s is to develop a deeper economic friendship between the signatories. PTA’s also contribute to the local regions as well as global production supply chains.

There are various types of Preferential Agreements, for example, the European Union, the Customs Union and the Free Trade Area. There are more than 600 Preferential Trade Agreements in existence. Even though PTA’s are used widely between World Trade Organization member states. PTA’s have also come under some criticism. We will use the Trade Agreement between the United States, the North America Free Trade Agreement (NAFTA) and the Dominican Republic-Central America Free Trade Agreement as an example. US President Donald Trump referenced these Agreements during his election campaign in 2016. It was discussed by President Trump that these Agreements were not considered “fair” and it was mentioned that American blue-collar workers were displaced from their jobs as a result of the terms of these agreements.

International Organization published a paper discussing the disparity of PTA’s and its trading partners. The results are from the activities of nearly all large companies based in the U.S. The paper stated that tariff reductions offered by the U.S. to its trading partners has led to an expansion of the global supply chain, but at the expense of smaller firms. The report found that small firms were “squeezed out” of the market following preferential liberalization,

1.4. Economic Rules and Principles of the GATT

After the second World War ended in 1945, The General Agreement on Tariffs and Trade (GATT) was formed to kick-start the global economic recovery after the total collapse of European nations. The key to recovery was reconstructing and opening up global international trade to the rest of world. The main objective of the GATT was to reduce tariff barriers, quotas and food subsidies. The World Trade Organization (WTO) have now taken over all aspects of the GATT.

If we look at both WTO and the GATT, they both share the same objective, which is promoting the positives of “free trade”. The WTO using the same principles of the GATT believe in a system of rules dedicated to open, and fair competition.

The GATT follows a certain set of principles. One of the main principles is non-discrimination. This in effect avoids the restrictive protectionist measures that are often put in place by various countries and guarantees the freedom of trade among all member states. In essence it is really designed to provide fair and open conditions of trade with other states. GATT also prohibits the use of unequal treatment of foreign imported and locally-produced goods.

However, even though the GATT has a strong theoretical principle of open and fair trade, it still has its flaws. The WTO has openly talked about the “grey area of the GATT”. To put it simply, most trading partners are no longer following the GATT and less than 50% of the current international world trade have since moved away from it. Even though the GATT has a great deal of positives, there is no doubt that it falls short in some areas. For example, domestic industry will have a lower rate of success globally. External Trade Agreements could essentially fall outside of the GATT principles and local national domestic laws. Large corporations could squeeze out small businesses and economies.

2.1. Contract for Sales of Goods and Products (UN International Sales Contract)

The United Nations (UN) developed a suitable contract structure that resolved the many issues and problems that occurred with global trading contracts. The United Nations Convention on Contracts for the International Sale of Goods (CISG) is the answer to such a complex area and by all accounts considered to be very successful in unifying such a very large and complex area of international trade and commercial law at the global level. The CISG is specifically geared and designed for international trading partners and governments who wish to use it. This form of contract has no relevance to private commercial law.

The CISG is now the main provider for multiple countries. The CISG has now become so popular that most countries have adopted its provisions. This form of contract is only applicable if both contractual parties are located in the UN approved countries or states. When it comes to approved international sales contracts, the CISG contracts have addressed a few of the following areas:

• Clear Interpretation of the agreement;
• Clarification of the roles between the parties to the contract;
• Acceptances of offers;
• To add or change the terms in a formal acceptance;
• Amendments and modifications to international sales agreements;
• Remedy and contractual obligations with respect to the overall quality of the goods;
• Time and place of final payment

2.2. Rights and obligations imposed under international sales contracts

When the UN created and drafted this form of agreement for use in global trade transactions, the contract (as with all legal contracts) carried with it right and obligations which were (and still are) imposed on the parties to the contract. The obligations for each of the parties is set out below:

Sellers Rights and Obligations Under the CISG Agreement:

• The seller must confirm to the terms and conditions of the contract
• The seller must ensure that the goods are delivered to the buyer
• All documents (i.e. bill of lading, invoice etc.) must be handed over to the buyer
• The seller must transfer the property but not the passing of title (‘Rights and Obligations of the Seller and Buyer’ (Lawteacher.net, June 2020)
• Time and specified place of delivery is normally agreed between both parties. In the absence of such a provision, Article 31 CISG will take effect and will determine the correct form of delivery.
• Article 31 is the clause that specifies delivery of the goods. It states that the seller is bound to deliver to the specified place as agreed with the buyer.

Buyers Rights and Obligations Under the CISG Agreement:

• The buyer agrees to pay for the goods as specified in the contract and take delivery of the product;
• It states in Article 38 CISG that the buyer must examine the goods on delivery to ensure they match the description;
• Article 53 CISG states that “the buyer must pay the price for the goods and take delivery of them as required by the contract and this convention” (‘Rights and Obligations of the Seller and Buyer’ (Lawteacher.net, June 2020);
• The buyer has an obligation to take delivery of the goods;
• The buyer is required to examine the goods on delivery.

2.3. The Validity of Rights and obligations of International Sales Contracts

Over the years, there has been major obstacles regarding the issue of international law and domestic law. The conflict between the two has also been an issue for arbitration, lawyers and the civil courts. Resolution has always been an issue. If we look at the old Hague Uniform Sales Laws, the draft document stated “questions of great importance, such as the validity of the contract had been left for the domestic laws to govern but that this decision had been inevitable because of the difficulties of unifying the law in this area” (Page 95, The validity of International Sales Contracts, Ulrich G.Schroeter)

The issue of validity was raised in the Common European Sales Law (2011). Here the draft document suggested that national law would be applicable under the laws of conflict. Again, the theme of validity was debated and discussed at the UN and previously the 1980 Vienna Sales Convention. The current CISG address the validity issue in Article 4.

Technically the convention itself “governs only the formation of the contract of sale”. If we take the convention and its understanding at face value, it is saying that any obligations of the seller and buyer to an international contract, the validity of the contract and its clauses cannot fall within the scope of the CISG (Page 94, The validity of International Sales Contracts, Ulrich G.Schroeter) Under Article 4, various US courts have attempted to define the precise definition of Article 4. It was determined that Article 4 “encompasses any issue by which the domestic law would render the contract void, voidable or unenforceable” (Page 100, The validity of International Sales Contracts, Ulrich G.Schroeter)

2.4. Implications of Making International Contracts Online

In an ever-expanding global world, small companies are avoiding lawyer fees and looking to cut costs. They are opting instead to create their own contract online. Most companies fail to see the ramifications of entering into a standard template international agreement. There are three types of international template contracts which can be found online. These are (1) Clickwrap (2) Browsewrap and (3) Sign-in wrap. Most companies who are not “legal savvy” should be aware that electronic agreements do not need an actual physical signature from the parties.

The risks when entering into an online agreement is that it lacks a “lawyers touch”. International export and import can generate huge revenue, and such a contract should take into account every eventuality, from the description, payment, place of delivery, inspection, force majeure (this is especially important given the current Covid/19 outbreak), frustration of contract and misrepresentation.

The implications for both parties are as follows:

• The actual signature is not needed on an electronic contract
• The parties will not necessarily have legal training and as such will fail to draft the terms and conditions that are so needed.
• The parties should be aware of domestic and international law.
• The parties will need to be aware of the requirement of Arbitration and the required jurisdiction
• Due diligence will also be needed before entering into any contract.
• Taxation as well as any other financial costs should be included.

Relying upon a standard online contract is fraught with risk. The overall conclusion is that any company intending on entering into legal relations with an overseas supplier should instruct a suitably qualified commercial lawyer who specializes in contract law.