Reference no: EM133051599

Case Study: Non-Tariff Barriers to International Trade Global Popularity:

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 multinational toy company, it began by designing and manufacturing its 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 2012, 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 2013, 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 about China's use of hazardous materials (for example, lead paint and potentially carcinogenic plastic and rubbers) to manufacture toys cheaply has 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 similarly to Brazil, brought the case before the WTO for resolution. Trade Retaliation? While waiting for the WTO to make a ruling on the validity of Brazil's Xia ban, the Chinese government restricted all imports of soybeans exported to China from Brazil. Until the Xia dispute, low-grade Brazilian soybean exports had increased dramatically to China, where they were being used to create an 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 soybean prices domestically to offset harvest losses from flooding. China stated the quota restriction would only last for eighteen months, long enough for the farmers to recover economically. Brazil, declaring the quotas were retaliation for the Xia ban, brought the case before the WTO for resolution.

Question:

1) 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?