US Tariffs on Steel and Aluminum and their conformity with the GATT


Seminar Paper, 2020

26 Pages, Grade: 1,3


Excerpt

Table of Contents

List of Figures

List of Tables

List of Abbreviations

1 Introduction
1.1 Problem Definition and Limitations of Research
1.2 Objective and Organization of Research

2 Definition of Basic Terminology
2.1 Definition of Trade
2.2 US Trade Policy and National Laws
2.3 Definition Trade Barriers with the Focus on Tariffs

3 World Trade Organisation
3.1 History of the World Trade Organisation
3.2 Structure of the World Trade Organisation
3.3 Principles of the World Trade Organisation

4 US Tariffs on Steel and Aluminum
4.1 General Facts about the US Tariffs on Steel and Aluminum
4.2 Microeconomic Effects of Imports and Tariffs on Supply and Demand
4.2.1 The Functioning of Supply and Demand
4.2.2 Effects of Import on Supply and Demand of Steel
4.2.3 Effects of Tariffs on Import on Supply and Demand of Steel
4.2.4 Evaluation of the Effects of Imports and Tariffs on Free Trading
4.3 Evaluation of the Conformity of Tariffs with the GATT

5 Conclusion
5.1 Summary
5.2 Critical Review and Outlook

Appendices
Appendix 1: Figures
Appendix 2: Tables

List of Figures

Figure 1: Exemplary Equilibrium of Supply and Demand

Figure 2: Rough Calculation State Revenue by Realizing SCI

Figure 3: Domestic Supply and Demand of Steel including Imports and Tariffs

Figure 4: US Supply and Demand of Steel including Imports and Tariffs

List of Tables

Table 1: Surplus of Consumers and Producers Concerning Imports

Table 2: Surplus of Consumers, Producers and the State Concerning Tariffs

List of Abbreviations

Abbildung in dieser Leseprobe nicht enthalten

1 Introduction

1.1 Problem Definition and Limitations of Research

“I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so.”1 These are the words of the current president of the US, Donald Trump. During the election for president in 2016 he made numerous protectionist election promises. One of his election promises was to create new jobs in the American industry. American companies should purchase on the domestic markets to strengthen the manufacturing sector and create jobs. Added to this is Trump's aversion to free trade agreements which makes him a supporter of tariffs.2 These two points are in line with the development of US tariffs on imports. Looking at the steel and aluminum industry, the USA introduced Tariffs during the term of Donald Trump. The import tariff on aluminum currently equals 10 % and the tariff on steel 25 % of the goods value.3

However, the US is as well one of the main responsible states in the creation of the General Agreement on Tariffs and Trade (GATT) which provides free trade and has been a contracting party of the trade agreement since 1948 which in other words means since the very first hour.4 The question in this context is to what extent tariffs and the GATT are compatible with each other and how it is possible for a contracting party to the GATT to levy tariffs at all. The focus will be on the American steel and aluminum industry.

1.2 Objective and Organization of Research

This seminar paper evaluates the conformity of US tariffs on Steel and Aluminum with the GATT. In order to deal with this problem, the basic terminology must first be defined. This includes the definition of trade, aspects of US trade policy and national laws and the definition of trade barriers.

In order to understand how the GATT works and what exceptions there might be, the history, structure and principles of the World Trade Organization (WTO) are explained. This is because GATT is the origin of the WTO.

This is followed by a concrete look at the US tariffs. First of all, the general facts are explained in order to be able to describe the microeconomic effect of the tariffs. On the basis of this information, the conformity of the tariffs with GATT will be conclusively assessed.

2 Definition of Basic Terminology

2.1 Definition of Trade

In general, every exchange of goods or services is trade. For the purposes of simplification, only goods will be considered below. Typical characteristics are the spatial, temporal, qualitative and quantitative coordination.5 From a spatial perspective, the focus of this seminar work is on the trade that goes beyond the national borders. Principally trade between countries is free. As trade is free, it can in general take place anywhere and between anyone. Free trade means that the action is free of trade barriers in the context of foreign trade policy.6

2.2 US Trade Policy and National Laws

In the further course of this subchapter the focus will be on the influence of national laws and regulations of the US on free trade. In terms of exports, the USA was in second place in the world rankings in 2018 with a goods value of USD 2,487.05.7 In terms of imports, at the same year the USA, with a goods value of USD 2,614.33, was even in first place.8 Since both imports and exports play a significant role in the US economy, it is necessary to have opportunities to exert influence. The national law is an example of how the USA can influence trade with foreign countries. The so called Code of Laws of the United States of America (USC) which is the official compilation of the general statutes of the USA also includes trade laws.9

2.3 Definition Trade Barriers with the Focus on Tariffs

One instrument that can be regulated by trade law is a trade barrier. Trade barriers inhibit the free exchange of goods and are generally separated in Non-Tariff Barriers (NTB) and Tariff Barriers (TB).

NTBs are measures that restrict free trade without having a direct effect on prices. They are classified according to the objective of the measure.10

The first type of NTBs are measures with the direct objective of restricting trade such as import or export quotas or embargoes. Quotas limit the quantity of a good that is produced abroad and domestically imported or the other way around.11 Embargoes prohibit imports from certain countries or respectively exports to certain countries. An example of this is the trade embargo called “The Cuban Democracy Act” of the USA against Cuba, that prohibits trade between companies from America and Cuba.12

The second type of NTBs are measures that pursue a different objective but where trade restrictions are a side effect. Examples for this type of NTBs are regulations concerning quality, administration, distribution or packaging of a good or service. Foreign companies that do not fulfil the requirements cannot distribute their products in the domestic market.13 However, NTBs also include subsidies to domestic companies, since they give them a competitive advantage over foreign companies.14

In the further course of this seminar paper the focus will be on TB. Tariffs for example increase the price of goods that are purchased from abroad, to make the goods less attractive for the domestic market. Because of the price difference consumers shall prefer the domestic product on whose price the tariff is not applicable.

In principle, there are three common types of tariffs. They differ in their fee base.15 The fee of an ad volorem tariff is based on the value of the product, which means that the total value of the tariff increases or decreases depending on the value of the imported good.16 The fee of the specific tariff can be based on the quantity, the weight, the volume or the length of a product. The higher the influence factor considered, the higher the tariff that is charged.17 A mixed tariff is a combination of an ad volorem tariff and a specific tariff.18

3 World Trade Organisation

3.1 History of the World Trade Organisation

The WTO was officially founded in 1995. Nowadays, the WTO pursues the general goal of supporting the global economy. The WTO provides a platform for now 165 member states to negotiate trade agreements and resolve disputes where necessary. To solve trade problems, the WTO has established trade agreements in cooperation with the governments of the member states.19

However, the origin of the WTO is much older. The multilateral economic system WTO is based on the GATT. The GATT pursues the goal of promoting the reduction of tariffs. It was originally intended as an interim solution until the Havana Charter would came into force and was therefore drafted in a more rudimentary form. The Havana Charter goes back from the time of World War II and should establish clear trade rules. After the war, there was a consensus that tariffs and other trade barriers would slow down the progress of economic development in the world. However, during the final conference there were disputes over the latest changes to the Charter, so that it was never signed.20 21 Since GATT was negotiated separately from the Havana Charter, the failure of the Charter did not bring these negotiations to a standstill. The GATT officially came into force in 1948 and contributed significantly to the development of the global economic system for five decades. The GATT was reformed in 1995 and, with its integration into the newly established WTO, reflects one of its basic agreements.

3.2 Structure of the World Trade Organisation

To explain the structure of the WTO, it is necessary to take a look at all three basic agreements that cover six areas. In addition to the GATT, which covers the area of goods, there is the General Agreement on Trade in Services (GATS), which covers the area of services, and the Trade-Related Aspects of Intellectual Property Rights (TRIPS), which covers the area of intellectual property.22

All three agreements can also cover the areas of reviews of governments' trade policies and dispute settlement. The sixth and last area of the WTO structure is the framework agreement of the WTO in the context of the establishment.23

3.3 Principles of the World Trade Organisation

All of this agreements concern different areas, but also follow and include the same principles, on which the WTO is based on. This basic principles should lead to non- discriminatory trade, fair competition, promotion of development and economic reform, freer trade based on negotiating opportunities and predictability through commitment and transparency.24

In the further explanation focus will be on the principles that encourage trade without discrimination such as tariffs. The GATT (Art. 1, GATT), the GATS (Art. 2, GATS) and the TRIPS (Art. 4, TRIPS) include the Most-Favoured-Nation (MFN) Treatment. This principle provides that all members of the WTO treat each other equally to avoid discrimination against trading partners.25

As there is almost no regulation without exceptions, this also applies to the MFN Treatment. General reasons for exceptions are for example the protection of human health, animal health or environment (Art. 10, GATT). Furthermore, countries can conclude a free trade agreement for goods that are traded among WTO members (Art. 24, GATT). WTO member states may also allow developing countries access to their markets (Art. 18, GATT). In Addition, countries can create barriers against unfairly traded products from specific countries (Art. 19, GATT). The last reason for an exception is to protect the national security (Art. 21, GATT).

The national treatment principle is mentioned in the GATT (Art. 3, GATT), the GATS (Art. 17, GATS) and the TRIPS (Art. 3, TRIPS) as well. It implies that foreigners should be treated in the same way as nationals, which means that goods should be treated equally regardless of whether a good was produced locally or abroad. This promotes trade without discrimination as well, but applies only if the product is already traded on the local market.

4 US Tariffs on Steel and Aluminum

4.1 General Facts about the US Tariffs on Steel and Aluminum

In 2017 the USA imported steel to the value of $ 29 billion and aluminum to the value of $ 19 billion.26 With a goods value of 5.1 billion $ and 6.2 billion $ both the EU and Canada are considered the main suppliers of steel to the US. With a goods value of 6.9 billion $ Canada is the main supplier of aluminum as well. Still worth to be mentioned are the subsequent volumes of China with $ 1.8 billion, Russia with $ 1.6 billion and the EU with $ 1.1 billion. As the main suppliers of steel and aluminum in 2017 these are primary affected by the US tariffs.27

The tariffs were introduced on March 2018. Both tariffs are ad valorem tariffs with 25 % on steel and 10 % on aluminum. As they are import tariffs, the USA acts in accordance with the MFN principle. Although the tariffs were generally imposed for all countries, the EU, Canada, Mexico, Australia, Argentina, Brazil and South Korea were excluded by a temporary carve-out clause.28 For the EU, Canada and Mexico, this exemption was reversed in May 2018.29 One year later, in May 2019, Canada and Mexico reached a deal with the USA which frees them from the tariffs on steel and aluminum again.30 Concerning the main suppliers of steel and aluminum, only the EU, China and Russia are currently affected.

4.2 Microeconomic Effects of Imports and Tariffs on Supply and Demand

4.2.1 The Functioning of Supply and Demand

The following subchapter analyses the microeconomic effects of imports and tariffs on a free economy. Microeconomics include the correlation between an economic subject for example companies, consumers or the state and goods market.31

The applied model to describe the functioning of supply and demand finds its origin in the invisible hand of Adam Smith. It describes a market situation in which consumer pay a price adequate to the value of the product and supplier receive a price that enables them to cover their costs and make a reasonable profit. Under these conditions the allocation of resources is efficient as both parties maximize their benefits, thereby maximizing the economic welfare of the entire country.32

[...]


1 https://twitter.com/realdonaldtrump/status/1069970500535902208?lang=de, accessed on 20.02.2020.

2 Cf. https://www.focus.de/politik/ausland/us-wahlen-2016/donald-trump-ziele-und-politische- positionen-des-neuen-praesidenten-der-usa_id_6180474.html, accessed on 20.02.2020; Cf. https://www.morgenpost.de/ politik/us-wahl/article208638535/Donald-Trump-Das-sind-seine- Ziele-im-Falle-eines-Wahlsiegs.html, accessed on 20.02.2020.

3 Cf. Felbermayr, Gabriel, Sandkamp, Alexander, Trumps Importzolle auf Stahl und Aluminium, 2018, p. 1.

4 Cf. http://sul-derivatives.stanford.edu/derivative?CSNID=90260240&mediaType=application/pdf, accessed on 20.02.2020.

5 Cf. https://wirtschaftslexikon.gabler.de/definition/handel-35491, accessed on 20.02.2020.

6 Cf. https://www.bmwi.de/Redaktion/DE/Artikel/Aussenwirtschaft/aussenwirtschaftsrecht.html, accessed on 20.02.2020.

7 Cf. https://de.statista.com/statistik/daten/studie/37013/umfrage/ranking-der-top-20-exportlaender- weltweit/, accessed on 20.02.2020.

8 Cf. https://de.statista.com/statistik/daten/studie/157858/umfrage/groesste-importlaender-weltweit/, accessed on 20.02.2020.

9 Cf. https://ustr.gov/about-us/trade-toolbox/trade-laws, accessed on 20.02.2020.

10 Cf. Zentes, Joachim, Morschett, Dirk, Schramm-Klein, Hanna, AuBenhandel, Marketingstrategien und Managementkonzepte, 2004, p. 165.

11 Cf. Mankiw, N. Gregory, Taylor, Mark P., Grundzuge der Volkswirtschaftslehre, 2018, p. 594.

12 Cf. https://www.handelsblatt.com/politik/international/strafmassnahmen-usa-verschaerfen- handelsembargo-gegen-kuba/24065182.html?ticket=ST-708460-q2ZnuqfPOFdysqPErITu-ap6, accessed on 20.02.2020.

13 Cf. Mankiw, N. Gregory, Taylor, Mark P., Grundzuge der Volkswirtschaftslehre, 2018, pp. 597.

14 Cf. Zentes, Joachim, Morschett, Dirk, Schramm-Klein, Hanna, AuBenhandel, Marketingstrategien und Managementkonzepte, 2004, p. 165.

15 Cf. Apolte, Thomas, et al., Vahlens Kompendium der Wirtschaftstheorie und Wirtschaftspolitik Band 1, 2019, p. 410.

16 Cf. https://wirtschaftslexikon.gabler.de/definition/wertzoll-49337, accessed on 20.02.2020; Cf. Apolte, Thomas, et al., Vahlens Kompendium der Wirtschaftstheorie und Wirtschaftspolitik Band 1, 2019, p. 410.

17 Cf. https://wirtschaftslexikon.gabler.de/definition/spezifischer-zoll-46609, accessed on 20.02.2020; Cf. Apolte, Thomas, et al., Vahlens Kompendium der Wirtschaftstheorie und Wirtschaftspolitik Band 1, 2019, p. 410.

18 Cf. https://wirtschaftslexikon.gabler.de/definition/mischzoll-40739, accessed on 20.02.2020; Cf. Apolte, Thomas, et al., Vahlens Kompendium der Wirtschaftstheorie und Wirtschaftspolitik Band 1, 2019, p. 410.

19 Cf. https://www.wto.org/english/thewto_e/whatis_e/whatis_e.htm, accessed on 20.02.2020; Cf. https://www.wto.org/english/thewto_e/thewto_e.htm, accessed on 20.02.2020.

20 Cf. Koul, Autar, Krishen, Guide to the WTO and GATT, Economics, Law and Politics, 2018, pp. 5; Cf. https://www.bmz.de/de/themen/welthandel/welthandelssystem/gatt/index.html, accessed on 20.02.2020.

21 Cf. Koul, Autar, Krishen, Guide to the WTO and GATT, Economics, Law and Politics, 2018, p. 8; Cf. https://www.wto.org/english/thewto_e/history_e/history_e.htm, accessed on 20.02.2020.

22 Cf. https://www.wto.org/english/docs_e/legal_e/26-gats_01_e.htm#ArticleII, accessed on 20.02.2020; Cf. https://www.wto.org/english/docs_e/legal_e/27-trips_03_e.htm#art4, accessed on 20.02.2020; Cf. http://www.bmz.de/de/themen/welthandel/welthandelssystem/WTO/, accessed on 20.02.2020.

23 Cf. https://www.wto.org/english/thewto_e/whatis_e/tif_e/agrm1_e.htm, accessed on 20.02.2020.

24 Cf. https://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm, accessed on 20.02.2020.

25 Cf. https://www.wto.org/english/docs_e/legal_e/gatt47_01_e.htm, accessed on 20.02.2020; Cf. https://www.wto.org/english/docs_e/legal_e/31bis_trips_03_e.htm, accessed on 20.02.2020; Cf. https://www.wto.org/english/docs_e/legal_e/26-gats_01_e.htm, accessed on 20.02.2020.

26 Cf. Frenkel, Michael, Walter, Benedikt, Der neue Protektionismus der USA, 2018, p. 277.

27 Cf. https://de.statista.com/statistik/daten/studie/815478/umfrage/stahl-und-aluminiumimporte-in-die- usa-nach-ausgewaehlten-laendern/, accessed on 20.02.2020.

28 Cf. Frenkel, Michael, Walter, Benedikt, Der neue Protektionismus der USA, 2018, p. 277.

29 Cf. https://www.washingtonpost.com/news/wonk/wp/2018/05/31/trump-has-officially-put-more-tariffs- on-u-s-allies-than-on-china/, accessed on 20.02.2020.

30 Cf. https://www.bbc.com/news/business-48309703, accessed on 20.02.2020; Cf. https://www.nytimes.com/2019/05/17/us/politics/china-auto-tariffs-donald-trump.html, accessed on 20.02.2020.

31 Cf. https://wirtschaftslexikon.gabler.de/definition/mikrooekonomik-39342, accessed on 20.02.2020.

32 Cf. Mankiw, N. Gregory, Taylor, Mark P., Grundzuge der Volkswirtschaftslehre, 2018, pp. 59.

Excerpt out of 26 pages

Details

Title
US Tariffs on Steel and Aluminum and their conformity with the GATT
College
University of applied sciences, Gütersloh
Grade
1,3
Author
Year
2020
Pages
26
Catalog Number
V542900
ISBN (eBook)
9783346166067
ISBN (Book)
9783346166074
Language
English
Tags
Trade, Handel, National laws, Nationale Gesetze, US Trade Policy, US-Handelspolitik, Amerikanische Handelspolitik, Trade barriers, Handelsbarrieren, tariff barriers, non-tariff barrieres, NTB, Tarif, WTO, World Trade Organisation, Welthandelsorganisation, Principles of the WTO, US Tariffs, US Tariffs on Steel, US Tariffs on Aluminum, Aluminum, Steel, US-Tarife, Angebot und Nachfrage, Supply and Demand, Freihandel, Free Trade, GATT, GATS, TRIPS
Quote paper
Aristoteles Kourtidis (Author), 2020, US Tariffs on Steel and Aluminum and their conformity with the GATT, Munich, GRIN Verlag, https://www.grin.com/document/542900

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