Class

Notes 5
Trade Rules
Momo Deretic
Sauder School of Business
 Main Points
Just clearing customs and paying standard du:es can
be confusing and costly.
Special import measures (SIMs) can be triggered as a
result of unfair trade prac:ces or sudden surges in
imports.
The world trading system has rules. The World Trade
Organiza:on (WTO) is the referee supervising
interna:onal trade.
Bilateral and regional agreements have proliferated
in recent years.
 Clearing Customs
Procedures:
Classica:on
Valua:on
Origin-na:on
Barriers
Standard du:es
Special Import Measures
Prohibi:ons
 Valua:on
Rules call for transac:on values between
unrelated buyers and sellers (in prac:ce: prices on
invoices)
Exclude costs of transport from the point of direct
shipment (PoDS) to the impor:ng country.
Note: With ad valorem (%) du:es, importers save
from under-valua:on. But, be careful: income tax
issues (ch. 12), an:-dumping du:es (later this
lecture)
 Classica:on of goods:
Harmonized System
First 6 digits are same for all countries
9506.11: Skis
9506.21: Sailboards
9506.99: Other outdoor sport equipment
Last 4 digits specic to each importer
9506.11.1000: downhill skis in Ca, duty: 0%
9506.11.9010: x-country skis in Ca, duty: 7.5%
9506.11.1000 (x-country skis in US, duty: 0%)
9506.11.4010 (other skis in US, duty: 2.6%)
First 8 digits (HS6+2) tari item
For example: 9506.11.10
 Origin-na:on
Most-Favored Na:on (MFN) principle
Many Excep:ons:
General Preferen:al, Least Developed Countries
Free Trade Agreements, Customs Unions
To receive lower duty status, need
Cer:cate of origin
Proof of direct shipment
 Origin-na:on: Example
Sailboards (9506.21.0000) origina:ng from
WTO member or other MFN origin: 9.5%
General Preferen6al Tari country (e.g. Algeria,
Brazil): 6%
Least Developed Country (e.g. Mali): 0%
FTA (U.S., Mexico, Costa Rica, Chile): 0%
General rate (Libya, North Korea): 35%

 Special Import Measures (SIMs)
An:dumping du:es
Pricing exports unfairly low
Causing injury to suppliers in impor:ng country.
Countervailing du:es
Producers receiving unfair assistance from government
Con:ngent on expor:ng, OR,
Specic to an industry AND injury-causing.
Safeguards
Temporary relief
Injury, compensa:on requirements
 An:dumping Du:es (ADD)
Dumping is dened as charging an export price
(Px) that is below the normal value (Pn)
The normal value is normally equal to the price
charged for comparable sales in the exporters
home market during the ordinary course of
trade.
Comparable dont mix wholesale w/ retail prices
Ordinary dont include prices below average cost
of produc:on
 Implementa:on of ADD
Import-compe:ng rms complain to their
government that imports are being dumped
Customs-related agency determines the normal price,
compares with export price.
If ordinary & comparable home sales are not
available, the normal price is calculated as
price charged to other (3rd country) markets
cost of produc:on + normal prot
 Implementa:on of ADD (con:nued)
If preliminary nding supports dumping claim,
then suspension of liquida:on, accused
rms must pay deposits equal to dumping
margin.
Dumping margin is (Pn Px)/Px.
Dumping margin is usually rm-specic.
In solwood lumber, Weyerhauser paid 12.39%
but Canfor paid 5.96%
All other rms rate of 8.43%

 Dumping example I
A Canadian gadget maker sees gadgets imported from
Munchkinland selling for $165 in Canadian stores, $34 less than
the $199 price of Canadian gadgets.
Aler deduc:ng retail markups, transport costs, and du:es
(total: $65), you calculate an EXW price of $100 for exports to
Canada.
Px=100.
The same gadget sells in Munchkin stores for $142. Deduc:ng
an es:mated $17 of retail markup, you es:mate the EXW price
charged in the home market is Pn = 142-17=125.
Dumping margin = (125-100)/100 = 25%.
 Dumping example II
Suppose as before Px = 100.
it is pointed out that you omiped $25 of internal transport costs.
You now calculate a home market price of Pn = 142-17-25=
$100.
Dumping margin = (100-100)/100= 0%.
No du:es! L

But, you then calculate that the Munchkin makers average
costs plus an 8% profit are $115. You propose that this be
the normal price (not $100).
Dumping margin = (115-100)/100= 15%. J
 The Injury Determina:on
Aler dumping (or LTFV= less than fair value in
US) determina:on, impor:ng government
determines whether its dumped imports caused
material injury to domes:c industry.
Injury can be measured by loss of market share,
price suppression, falling prots, laid o workers,
etc.
Injury determina:on olen nega:ve, then duty
deposits should be refunded (with interest).
 How to respond to an An:-dumping case?

Exit market.
Agree on a price undertaking in exchange
for withdrawal of case.
Argue case before import tribunal. Points to
emphasize:
Home sales are not comparable to export sales
Dumped imports not cause of domes:c injury
 What does the WTO do?
Sponsors rounds of mul:lateral tari reduc:on
(from post-war 40% to current 4%).
Kennedy (60s), Tokyo (70s), Uruguay (86-94),
Tari reduc:ons phased in aler round concludes.
Establishes rules that member countries must
obey.
Seples disputes over implementa:on of rules.
Trade has grown much faster than incomes,
while taris have declined. Credit to GATT?
 The WTO Rules
Members Should except for
Treat imports from all WTO Free Trade Areas,
members equally (MFN Customs Unions
principle)
Treat imported goods no worse Health Protection,
than like domestic goods Conservation
(National treatment)
Use tariffs, not quotas or bans Health etc.,
(no Quantitative Restrictions) Safeguards
Set tariffs at or below Antidumping duties,
bindings Countervailing duties
 Prohibi:ons
Beef scares (hormones, BSE), Frankenfoods,
tuna, shrimp
WTO allows import restric:ons for health,
safety, public morals, and preserva:on of
natural resources.
But rules must be followed:
Scien:c risk analysis
Least restric:ve method to pursue goal
No protec:on in disguise
Prolifera:on of regional agreements
 Canadas Free Trade Agreements
1988/89: United States
1993/94: Mexico (NAFTA)
1996: Israel
1996/97: Chile
2001: Costa Rica
2009: EFTA (Switzerland, Norway, Iceland)
In nego:a:on: Dominican Rep., Panama, CARICOM,
Cen. Am. 4, Singapore, Korea, European Union
 Helpful Advice before Impor6ng

Obtain detailed informa:on from vendor or exporter

Choose reputable carrier
Choose loca:on of release
Be aware of trac peaks and Customs hours
of service
Decide who will prepare your documenta:on
( you or an agent )
Determine du:es and arrange how and when to pay
them
Know your rights and obliga:ons
 Helpful Advice before Impor6ng- cont.

Obtain detailed invoices

Use Na:onal Customs Rulings
Maintain records for 6 years aler import
Obtain valid cer:cate of origin from exporters
and have them available to present to Customs
upon request
If you need further informa:on, contact Canada
Customs Agency