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Case Study #2: Non-tariff Barriers to International Trade

Bear 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
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? (5 Marks)
2. If the details of the Xia case were indeed presented to the WTO, explain what the WTO ruling would most
likely be and why. (5 Marks)
3. 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? (5 Marks)
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. (5 Marks)

5. This assignment will be graded out of 25 Marks. The final 5 Marks will be based on
Professionalism – this will include spelling, grammar, proper title page and proper citations.

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