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Topic: trade law

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FACTUAL BACKGROUND

In December 2016, Uzbekistan, a Central Asian state that was formerly a republic within the Soviet Union but became independent after the USSR’s disintegration, adopted a „free trade“ orientation, abandoning its prior „import substitution“ trade policy which imposed high tariffs on imports to protect Uzbekistan’s nascent national industries. This switch in policy is believed to be connected with China’s ambitious, „New Silk Road“ infrastructure project that is aimed, among other things, to expand China’s trade with Central Asian, African and even European countries. See, e.g., https://www.forbes.com/sites/helenwang/2016/01/15/chinas-triple-wins-the-new-silk-roads/#59cc05c6520b. For a more detailed history of this project, see Chris Devonshire Ellis, China’s New Economic Silk Road: The Great Eurasian Game & the String of Pearls, Asia Briefing, Ltd., Kowloon, Hong Kong (2015). It is expected that the newly created Asian Infrastructure Investment Bank („AIIB“) conceived andorganized by China will finance infrastructure development in Central Asia and Africa as a means of increasing China’s foreign trade and its political and economic influence in these regions. Of course, such investment will open up trade and foreign direct investment for other countries and trade blocs, especially the European Union, which will be one of the termini for the „Road.“ Uzbekistan is a country through which the land route of this road will pass and should become one of its beneficiaries.

Uzbekistan is a landlocked nation; its capital is Tashkent. The ancient Chinese „Silk Road“ beginning in Xian traversed through this country as this trade route threaded its way ultimately to Europe. Uzbekistan’s current political regime has been described as authoritarian, but in recent years the European Union has increased trade and other contacts with the country. See, e.g., https://www.bbc.com/news/world-asia-16218116 for a very brief description of Uzbekistan. For more detailed information, see the US State Department’s Background Note about this nation, which can be accessed at https://www.infoplease.com/country/profiles/uzbekistan.html. Uzbekistan’s main products for world trade include cotton (the production of which over the years has depleted the waters of the Aral Sea, causing significant environmental damage in the region), gold, uranium (for potential use in, e.g., nuclear weapons), other minerals, and even transport vehices. For detailed trade data on Uzbekistan, see, e.g., https://www.tradingeconomics.com/uzbekistan/imports; https://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113461.pdf;
https://www.tradingeconomics.com/uzbekistan/balance-of-trade;
https://stat.wto.org/CountryProfile/WSDBCountryPFView.aspx?Language=S&Country=ZU,
https://atlas.media.mit.edu/en/profile/country/uzb/. Important trading partners of Uzbekistan include China, Russia, South Korea, Kazakhstan, the United States, Germany and Turkey. Uzbekistan is not a member of the World Trade Organization, although it applied for accession in December, 1994. Uzbekistan is also not a member of the Eurasian Customs Union involving Russia, Kazakhstan and other nearby countries. See generally https://www.wto.org/english/thewto_e/acc_e/a1_ouzbekistan_e.htm.
YOUR TASK AS MEMBER OF EUROPEAN UNION TASK FORCE ON THE UZBEKISTAN-EU FREE TRADE AGREEMENT UNDER DISCUSSION

The Council of Ministers of the European Union has given the „green light“ to the European Commission’s proposal to discuss with the government of Uzbekistan the possibility of entering into a Free Trade Agreement or Association Agreement. Your immediate superior has requested that you prepare a memorandum, no longer than five (5) single-spaced, typewritten pages, discussing the following issues that she (Cecilia Malmström, the current EU Trade Commissioner) has identified. Commissioner Malmström has also asked you to include in this memorandum your recommendations with respect to these issues:

Should the trade agreement be structured as a standard free trade agreement or should the agreement be modeled as an association agreement?

What provisions affecting customs clearance of goods to be traded between the EU and Uzbekistan should be incorporated into the agreement?

Do you have any recommendations for proposed rules of origin determining the „economic origin“ of traded goods to be incorporated into the agreement? In this context, please consider that Uzbekistan is primarily interested in obtaining industrial machinery, consumer goods, construction equipment and transport equipment (including automobiles and rail transport equipment) from the EU. How would you structure the tariffs on these items? Remember that these types of goods are produced by global supply chains and that the level of Uzbekistan tariffs on these products will likely be lower if they are determined under the rules of origin to be originated from EU members.

The EU is primarily interested in obtaining cotton and uranium from Uzbekistan. Should the EU be sensitive to any particular issues with respect to these two items? For example, substantial increases in cotton production without more will accelerate the continuing deterioration of the Aral Sea. Should this problem be addressed in the trade agreement and how?

There is a concern about the volume of counterfitting of well-known, branded goods within Uzbekistan and their subsequent sale to unwary consumers. Can you recommend any provisions to be included in the agreement to protect EU-based manufacturers?

Do you have any other recommendations for the Commissioner as to what provisions to include in the agreement (e.g., trade in services, dispute settlement mechanisms, etc.)? Regarding trade in services, note that because Uzbekistan lacks indigenous construction companies that are able to build the types of complex and extensive infrastructure projects necessary to service the trade flows generated by the New Silk Road, Uzbekistan envisions bidding out many of these construction projects to established and experienced foreign firms. Thus, Uzbekistan correctly anticipates that construction engineers and laborers from foreign countries will be living in Uzbekistan for long periods of time while working on these projects. Uzbekistan also properly anticipates that, as the New Silk Road trade increases and expands, foreign businesses (e.g., financial institutions, auto assemblers and suppliers, etc.), are likely to seek permission to establish Uzbekistan affiliates/branches within the country. Such a development would require that foreign nationals reside within the nation for long periods of time. This development may also result in claims being asserted by these foreign investors that national laws, regulations and practices have caused economic harm to their businesses. Consequently, it will be necessary to include a dispute settlement („ISDS“) mechanism in the trade agreement that will be satisfactory to both the EU and Uzbekistan.

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