Exercise 3.

Silk
Since colonial times, Wonderland has been a major producer and exporter of
textile made of silk. In recent years, RichYear Inc., the biggest silk producer of
Richland, has made significant investment in new production facilites in
Wonderland. While at present still modest in size, the silk industry in
Wonderland is expected to grow further in the near future and employ more
people, exporting to more countries. Currently, Wonderland still import most of
its silk from Richland and Oldland (a developed country, and an original
Member of WTO, until 1945, Wonderland was part of colonial empire of
Oldland). Ever more of the silk imported from Richland-especially silk in the
lower price-is made from synthetic material rather than natural material. Silk
from Oldland remains primarily silk made from natural material.
To support its infant silk industry, Wonderland imposes a special import charge
on silk imported from Richland of 3USD per meter, no such charge is levied on
silk from other countries. Also, silk made from synthetic material is subject to a
value added tax (VAT) of 25% ad valorem, while silk from natural material is
subject to a 15% per cent of VAT.
Since last year, when a case of serious customs fraud was discovered,
Wonderland has required that all silk be imported through two designated ports
of entry only. This requirement does not apply, however to silk imported from
neighbouring Nearland, a country currently negotiating accession to the WTO.
Shortly, after joining the WTO, Wonderland imposed an export duty on the
natural silk destined for Richland. No such duty applies to natural silk exported
to any other country.
In Wonderland, silk made from natural material originating in Oldland may be
sold by the importer directly to the final consumer (rather than to
shops/companies or specialised silk workshops). Silk made from natural
material originating in Richland may also be sold directly to final consumer, but
only on condition that the imported silk are accompanied by a certificated that
the silk is indeed made from natural material. All other silk (and in particular
silk made from synthetic material) may only be sold by the importer to shops or
specialized workshops.
OldYear Inc, a big silk producer from Oldland, has established in Wonderland a
chain of specialised silk workshops, which has allowed it to boost its sales of
silk. Inspired by this examples, RichYear Inc, wants to establish in Wonderland
a chain of silk shops. RichYear is told that it would be allowed to establish as
did OldYear from Oldland, specialised silk workshop, but that it would not be
authorised to establish silk shops. In Wonderland, all silk shops are owned and
run by Ministry of Trade and Agriculture.
You are an associate with Wonderland-based law firm. Your firm has been
requested by RichYear Inc, to give legal advice on all issues raised above. You
have been instructed to limit your legal brief to the question of whether there are
violation of MFN treatment obligation under the WTO law.