CASE STUDY #2: NON-TARIFF BARRIERS TO INTERNATIONAL TRADEBear on the move Located in Guangdong, China’s richest province, Xianda Co. is a toy company that has been manufacturing toys since the onset of Guangdong’s economic boom in the early 1990s. While Xianda Co. is now a major manufacturer for a number of multinational toy companies, it began by designing and manufacturing its own line of dolls, teddy bears, puppets and building blocks based on its trademark character “Xia the Panda Bear”.
Xia’s popularity was initially limited mostly to China’s mainland until late 2002; a year after China joined the WTO. In 2002, Xianda Co. saw a surge in demands for Xia products start in France, spread throughout Europe and North America, and move into South America. Today, Brazil is Xianda Co.’s biggest export market for Xia goods, and Xia’s popularity in Brazil alone accounts for 19 percent of worldwide Xia sales and 2 percent of Xianda Co.’s manufacturing output. Since 2003, Xia the Panda Bear has become the most popular toy in Brazilian history.
A bear market A media frenzy of confirmed cases and unconfirmed speculation pertaining to China’s use of hazardous materials (for example, lead paint and potentially carcinogenic plastic and rubbers) to manufacture toys cheaply, sparked consumer panic around the globe. In response, the Brazilian government ordered all Xia goods pulled from store shelves and banned further toy imports from China until toxicology tests had been performed to guarantee they were free of potential hazards. Almost overnight, Xia product sales fell by almost 20 percent and Xianda Co. production decreased by 2 percent
The Chinese government, fearing other countries would act in a similar manner to Brazil, brought the case before the WTO for resolution.
Not bearing the burden While waiting for the WTO to make a ruling on the validity of Brazil’s Xia ban, the Chinese government restricted all imports on soybeans; coincidentally, the majority of soybeans imported to China come from Brazil. Until the Xia dispute, low grade Brazilian soybean exports had increased dramatically to China, where they were being used to create animal feed for domestic cattle and poultry stocks.
As justification, China declared the lower cost and surge of all imported soybeans were jeopardizing the livelihood of coastal soybean farmers who were being forced to raise soybeans prices domestically to offset harvest losses from flooding. China stated the quota restriction would only last for eighteen months, long enough for their farmers to recover economically. Brazil, declaring the quotas were retaliation for the Xia ban, brought the case before the WTO for resolution.
Case Study Discussion Questions - In the Xia case, if the WTO were to rule in favor of Brazil, which of the WTO trade agreements would contain the justification and why?
- If the details of the Xia case were indeed presented to the WTO, explain what the WTO ruling would most likely be and why.
- In the soybean case, what was the measure adopted by the Chinese government to protect soybean farmers from import surges, and what are the WTO parameters for instituting such measures?
4. If the details of the soybean case were indeed presented to the WTO, explain what the WTO ruling would most likely be and why.