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GATT, FCPA, and Legal Issues

Case Study:
The United States produces approximately 241 million tons of corn annually, which is about 41 percent of the world's output. About 47 million tons are exported. About 35 percent of all corn grown in the U.S. is genetically modified. Corn grown in the U.S. is not separated by whether it's genetically modified or not; thus, as much as 98 percent of corn products may be genetically modified.
You work in the U.S. Trade Office and the phones have been ringing off the hook all day. Your office is being asked to intervene in a decision that has caught the American farmers off guard. The European Union (EU) has just stated that it will no longer accept genetically modified goods into its markets unless it meets certain restrictions. This would reduce the exportation of corn to the EU from the 3.3 million tons that is currently exported, to just under 26,000 tons of non-genetically modified corn. The restrictions that are being placed on the corn exports are onerous to the farmers. The EU has labeled genetically modified corn as "novel," which requires extra labeling for genetically modified corn and any product made with genetically modified corn. This increased labeling will deter corn production in the U.S., severely cut the value of corn as a product for farmers in this country, and deter the continued research and development of genetically modified agricultural products in the future. Farmers expect that the EU will replace its corn imports with non-genetically produced corn from Argentina. What can be done about the EU's position? What kind of impediment does this place on the farmers in the U.S.? Are there other consequences to making this kind of decision on trade between the two countries? Has Argentina violated any regional agreements with the U.S. over this trade decision? Are there any treaties that are being violated by this kind of unilateral decision? Can the U.S. retaliate against the EU? What do you tell these farmers who are asking you to do something?

Questions:

1. The European Union and the US are in permanent normal trade relations status. This means that refusing to accept genetically modified corn from the US is treating corn from the US differently from corn grown in Europe, which is a violation of the General Agreement of Tariff and Trade (GATT). What options would you have as an employee of the Office of the US Trade Representative (USTR)?
2. Suppose that, when he EU refuses to accept the corn exports from the US, US farmers are left with an abundance of genetically modified corn that they are unable to sell at market prices. Because corn is fungible (subject to spoil) if kept for long periods of time, something has to be done to sell the corn. Some farmers begin to sell this corn in markets in which there are food shortages to get whatever money they can for their corn product, even if it is less than what it would have sold for in the US or the EU. What rule does this violate and how would a country address the action by the US farmers? What harm is caused by this practice?
3. Suppose you learn that the genetically modified corn farmers have organized. Many members of the organization think the EU's motivations are financial. They think they can negotiate successfully by approaching each member country of the EU to make a deal to allow genetically modified corn to be sold there. The farmers intention is to pay key public individuals to pass the laws necessary to allow the importation of genetically modified corn. When you try to explain to the farmers that this would likely violate the FCPA, they counter that these would be grease payments, which are legal under the act. Are the farmers right?

Solution Preview

1. The European Union and the US are in permanent normal trade relations status. This means that refusing to accept genetically modified corn from the US is treating corn from the US differently from corn grown in Europe, which is a violation of the General Agreement of Tariff and Trade (GATT). What options would you have as an employee of the Office of the US Trade Representative (USTR)

The trade representative can go through the dispute resolution process set up by the WTO to quickly settle disputes between groups over trade violations. The process is meant to enforce the rules, while cutting down on the time it takes to get through the process. It would mean the trade rep would have to file a dispute under Article XII or XXIII of GATT 1947. First the parties are required to attempt to work through the dispute themselves. If no resolution occurs there are several groups to handle the dispute. The Dispute Settlement Board ( DSB panels), the Appellate Body, the WTO Secretariat, arbitrators, independent experts ...

Solution Summary

This solution provides a discussion on the dispute process for GATT violations, dumping violations, and FCPA laws.

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