Uploaded by andrewsandon on Nov 13, 2006
The managing director of the Four –X Company is concerned about the implications concerning the issues mentioned below. As a legal advisor, I have been asked to address the issues in terms of research and analysis of GATT/WTO principles and structure. My purpose is to advise the Four-X company on the action that the country of Fargo may take against the country of Narnia under GATT/WTO Law, specifically, whether it can challenge the Designer Tax.
I think that the Four – X company does can challenge the Designer Tax, because it is was introduced in contradiction with the theories of international trade. Besides, the government of the country of Narnia did not have the sovereignty to impose this tax on imported products, and ignore it with similar products produced locally.
In this paper I am going to discuss the concepts of international trade and the implications of corresponding law in order to find the appropriate decision that could help the Four – X company to cope with the problem.
Theories other than comparative advantage have been advanced to explain why nations trade. During the past twenty years, a new trade theory has been hypothesized by economists. The new position is referred to as the theory of increasing returns. This term is short for “increasing returns to scale” and is synonymous with “economies of scale.” 1 This theory holds that trade happens in order to take advantage of economies of scale. Industries in two trading countries can achieve lower unit costs by producing large volume and spreading the high start-up expenses over the entire volume produced. If the countries did not trade with each other and relied on the domestic markets only, they might not be able to reach the highest level of scale economies. International trade will result in the volume, which will produce greater economies of scale.
Such a theory explains why nations trade the same product with each other. Location results in the higher economies of scale. For example, the Japanese and the United States trade automobiles with each...