International Economic Law and Policy Blog

WHY STIGLITZ IS LEGALLY WRONG

From a WTO legal  perspective, it seems that  Stiglitz’s article (" A  New Agenda for Global Warming" ) proposes a mix of  several  strategies that must in fact be carefully distinguished because every strategy rests on the invocation of different dispositions which pose specific legal problems. Even if Sitglitz does not attempt to distinguish legally the various strategies that he suggests, such is not his purpose, it is however easy to recognize them through the text of his article.

I) The “Anti-Subsidy” Strategy

The Multilateral Option

Stigliz suggests this option when he writes that “Japan, Europe, and the other signatories of Kyoto should immediately bring a WTO  case [against the US] charging unfair subsidization”.  If the potential complainants choose this option, and without that being explicitly distinguished by Siglitz,  they would in fact have to choose between two possible scenarios.

1) The “Lax Emissions Standards” Scenario

Let us suppose  for the sake of the argument that US emission standards are, all things considered,  sub-Kyoto.  It seems however, that such lax standards do not fall under any category of financial contribution listed in Article 1/SCM.  Moreover, and this is a crucial point, these categories are exhaustive and not illustrative, a fact recognized by the Export Restraints panel when it declares that these categories constitute  “a finite list [of] the kinds of government measures that would, if they conferred benefits, constitute subsidies”. In other words, the exhaustive nature of these categories, does not leave any room for manoeuver for considering lax emission standards as embodying a governmental financial contribution.

Before a WTO panel, this conclusion would for all intents and purposes close the complaint since it would be impossible for the panel to examine allegedly violated subsidy disciplines in the absence of such a financial contribution. This means that the panel could even dodge the issue of “specificity” (namely, are CO2 emitting firms a “sufficiently discrete segment” of the US economy?) and the issue of “benefit” ( namely, are these firms "better off"  than they  would otherwise have been, absent the lax emission standards?).  Of course, the panel would  not even consider the issue of what subsidies disciplines are possibly violated by these sub-standards since they are quite simply not “subsidies” in the  legal meaning of the term.

2) The “Failure to Tax ” Scenario

In contrast with the “lax emission standards” scenario, this latter scenario is explicitly considered by Sitglitz when he writes that :

A subsidy means that a firm does not pay the full costs of production. Not paying the cost of damage to the environment is a subsidy.... In most of the developed countries of the world today, firms are paying the cost of pollution to the global environment, in the form of taxes imposed on coal, oil, and gas. But American firms are being subsidized—and massively so.

In other words, in such a scenario the complainants would have to demonstrate the failure by  the US government  to impose adequate fees for CO2 emissions ( in the form of a tax or a charge) entails  a governmental financial contribution providing selectively ( “specific”) a benefit on some firms.

One could be tempted to say that we have here a financial contribution within the meaning of Article 1 of the SCM, since  a “government revenue that is otherwise due is forgone or not collected”.  However, this view appears to be unfounded.  In the  US  FSC case which tested an “otherwise due”  tax scenario, the Appellate Body agreed with the panel that the basis of comparison (namely,  the situation “otherwise due”) must be tax rules applied by the Member in question and rejected the idea that WTO obligations somehow compel Members to choose a particular kind of tax system. This means, that if the US government exempts all firms emitting  CO2  from a tax, whereas such a tax  exemption would not be available for other firms  “in a comparable situation”, then of course there would be a governmental financial contribution in the form of “revenue foregone” on an “otherwise due” tax. This is not however the case here, since  we are not in a situation where CO2 emitters are exempted from a tax that other firms in a comparable situation have to pay.

The Countervailing Duty Option

Stiglitz proposes implicitly this option when he suggests that, at the very least, others countries should  “impose a high tax on [the importation of American goods], to offset the subsidy that those goods currently are receiving”.  This vocabulary is exactly the same as the one found in the SCM Agreement which says that  the aim of countervailing duties is “ to offset subsidization”.

The legal problem arising for such an option is exactly the same as in the multilateral option. Once again, the inexistence of a governmental financial contribution in the sense of Article1/SCM would be a stumbling block. In fact, the SCM Agreement specifies clearly that “countervailing duties may only be imposed pursuant to investigations initiated and conducted in accordance with the provisions of this Agreement....”.

II) The “Ban on Importation of US Goods Using Energy Intensive Technologies”  Strategy

Stiglitz suggests this strategy when he writes that  “other countries should prohibit the importation  of American goods produced using energy intensive technologies”.

According to the Shrimp-Turtle jurisprudence, the legal obstacle for a country wishing to impose a ban on  imports on environmental grounds by invoking Article XX of GATT 94 does not come from the fact that the natural resources that it wants to protect are located outside its jurisdiction or the fact that it invokes unilaterally decided environmental standards.  The obstacle resides above all in the fact that under the Chapeau of  Article XX , an exporting country can challenge such a ban if it is applied  in a manner that amounts to an “ arbitrary or unjustifiable discrimination between countries” where the same conditions prevail  or to “a disguised restriction on international trade”.

In particular, the Appellate Body held in the Shrimp-Turtle case that to avoid “arbitrary or unjustifiable discrimination”,  the country imposing a ban on imports from an exporting country must provide a formal hearing that allows the exporting country to argue that it has comparable environmental policies even if they are not precisely the same as the policies in the importing country.  It must also  make the same efforts to negotiate with all exporting countries, make the same efforts to transfer technology to all exporting countries, and provide a formal notice of the reasons for adverse decisions and some procedure for review of or appeal from these denials.

Since the United States has its own environmental strategy centered on technology improvement that it most likely considers as effective even if not identical to  Kyoto prescriptions, one could legitimately ask if an  ban on imports could be justified without clashing with the Chapeau of Article XX.  Add to that that these countries would have to prove according to Article XX that the ban is made “ in conjunction with restrictions on domestic production or consumption”, which is not obvious since many countries are not really restricting production and consumption even if they have ratified  Kyoto, and that  many important developing countries are exempted from  Kyoto disciplines.

Non-Discrimination in Trade Law

One of my favorite topics in trade law is the non-discrimination standard, so I'm always excited when I see that someone has tried to tackle the issue, or at least some aspect of it.  Julia Qin of Wayne State University Law School has just written a paper entitled "Defining Nondiscrimination under the Law of the World Trade Organization," available here from SSRN.  In the article abstract, she explains:

The article proposes an analytical framework for the assessment of the "likeness" or "similarity" issues, which are the key to determining whether discrimination exists. This analytical framework is built upon the "similarly situated" paradigm suggested by the WTO Appellate Body in the case of EC-Preferences, and draws upon general moral philosophy on the concepts of equality and similarity, as well as nondiscrimination jurisprudence developed under the equal protection and commerce clauses of the United States Constitution. Applying this framework, the article examines WTO judicial interpretations of nondiscrimination in a variety of treaty contexts, including those concerning "like products", "like services", "like conditions", and "similarly situated countries" under GATT, GATS, SPS, and the Enabling Clause. This analysis exposes gaps, ambiguities and inconsistencies in existing WTO jurisprudence. Moreover, it demonstrates that through the use of the proposed framework it becomes possible to interpret various nondiscrimination requirements of the WTO in a conceptually coherent and policy-consistent manner.

In the paper, she explains further:

This paper seeks to explore and develop a general approach to analyzing the likeness or similarity issues within the WTO context. Under this approach, we are directed to focus on the object and purpose of the WTO rule that contains the “likeness” or “similarity” concept or otherwise requires a “likeness” or “similarity” comparison between the concerned subjects. The criteria for determining likeness or similarity, or the bases for drawing distinctions, between the concerned subjects must be relevant to the rule’s object and purpose – that is, such criteria must be conducive to, useful, or necessary for the advancement of the object and purpose of the rule. The identification of the relationship between the purpose of the rule and the basis for determining likeness or similarity under the rule is of pivotal importance. Without a clear understanding of this relationship, we will be at loss how to choose a relevant criterion for determining likeness or similarity. Unless a criterion is indispensable for furthering the goal of the rule, however, whether to use it in determining likeness or similarity is a matter of normative decision.

The Gambling Case: More Complainants?

I had been wondering whether the EU would bring a complaint against the new U.S. online gambling ban, adding significant support to Antigua's existing complaint (the EU's sanctions would obviously be more potent than Antigua's sanctions).  It appears that Antigua's lawyers in the case are wondering the same thing.  In a short op-ed, one of its lawyers notes:

In fact, US non-compliance is so painfully obvious that one cannot but wonder about the complete lack of response from the EU and the UK. Companies do not have direct access to WTO dispute settlement and have to rely on governments (or the European Commission) to defend their interests. Of course, gambling is politically sensitive. However, there is little doubt that, if this were to have been a matter of US v EU (as opposed to EU v US), the US would be breaking down the EU's door.

I have seen criticism of the ban by UK officials:

Britain's culture secretary on Friday compared the U.S. crackdown on online gambling to the failed alcohol ban of Prohibition as she prepared to host an international summit on Internet gambling next week.

Tessa Jowell warned that the U.S. ban on Internet gambling would make unregulated offshore sites the "modern equivalent of speakeasies," illegal bars that opened in 1920s America when alcohol was banned.

But no word on a WTO complaint.

UPDATE:  Still nothing definite, but this was interesting:

Britain is sympathetic to Antigua's complaint to the World Trade Organisation over the United States' decision to effectively ban online gaming, UK sports minister Richard Caborn said on Tuesday.

He stopped short of saying Britain would support Antigua's complaint claiming the United States was acting in a protectionist manner however.

"It will be a landmark decision... We sympathise in the sense we want the WTO to clear up this area," Caborn said at an online gaming summit at Britain's Ascot racecourse west of London.

"Antigua has made it very clear it welcomes the support of the EU in this. We will find out the WTO's position in 2007," he added.

Korea-US FTA Talks

Ben Muse has an excellent summary of the latest session of the Korea-U.S. FTA talks.

Trade in Trans Fat

A while back, Joel mentioned the city of Chicago's ban on foie gras as a good exam question for a trade law class.  Here's another.  Tomorrow, New York's Board of Health "will hold its first public hearing on a proposal to make New York the first U.S. city to ban restaurants from serving food containing artificial trans fats."  The primary source of these trans fats is partially hydrogenated vegetable oil.  Who makes this oil?  I'm not sure, but whichever companies and countries it is must be getting nervous (and possibly consulting their trade lawyers).

Here's an interesting side note:

Ironically, many fast food companies become dependent on hydrogenated oil about 15 years ago when they were pressured by health groups to do something about saturated fat. McDonald's emptied its fryers of beef tallow in 1990 and filled them with what was then thought to be "heart healthy" partially hydrogenated vegetable oil.

UPDATE: It appears that at least one fast food restaurant, KFC, has taken the initiative and is eliminating trans fat from its food.  (Well, from its chicken anyway.  They are still looking for a replacement oil to use in the biscuits.)  Other big chains may follow soon.  Taking the government out of the change makes the likelihood of a trade complaint much lower.

"Likeness" under GATS Article XVII

I found this to be an excellent discussion of "likeness", and the non-discrimination principle more generally, under the GATS: http://www.wto.org/english/res_e/reser_e/ersd200608_e.pdf .  It's by Mireille Cossy of the WTO's Trade in Services division.  I felt like she really addressed some of the hard issues involved in an intelligent way.  There are no easy answers, of course, but she asks the right questions.  Unfortunately, there's too much packed in there for me to give a quick summary, but I recommend taking a look if the subject interests you.  Here's the summary provided on the WTO web site:

The concept of “like services and service suppliers” used in the General Agreement on Trade in Services (GATS) is still very much uncharted territory. The few dispute cases involving national treatment and most-favoured-nation treatment claims under the GATS are vague concerning the criteria which should be used to establish “likeness”. Discussions among WTO Members on this subject have remained limited and inconclusive. Perhaps the only point on which everybody agrees is that a determination of “likeness” under the GATS gives rise to a wider range of questions — and uncertainties — than under the GATT. The intangibility of services, the difficulty to draw a line between product and production, the existence of four modes of supply, the combined reference to like services and like service suppliers, and the lack of a detailed nomenclature are some of the factors which complicate the task of establishing “likeness” in services trade.

This contribution focuses on the concept of “likeness” in the context of the national treatment obligation (Article XVII of the GATS). It discusses the possible implications of the combined reference to “like services and service suppliers”, as well as the relevance and role of the modes of supply in determining “likeness”. It also examines whether the criteria developed by GATT case-law (physical properties, classification, end-use and consumer tastes) can be mechanically transposed to services trade and how far they may contribute to establishing “likeness” under the GATS. It then discusses whether other parameters, such as the regulatory context or an “aim and effect” type approach could be relevant.

A Community by Any Other Name . . .

Christoph Herrmann of EUI asks the following question:

One question that puzzles me already for quite some time is the "naming" of the EC in the WTO framework. E.g. dispute settlement reports consistently refer to the "European Communities", however, in singular. Well, technically, this is not correct. Before the foundation of the WTO it may have been correct to refer to the the EEC and the EAC together as the "European Communities" as de facto Contracting Parties, but the WTO was only joined by the EC (new name of the EEC since the Treaty of Maastricht). But then, why speak of "Communities" instead of Community? It seems to rest on a fundamental misconception of the nature of the Community. The word Community refers to the central body, not to the parts of it it's been made of, insofar different from the

United States

and the United Nations...

"Aid for Trade" or "Subsidy for Market Opening" - Guest Post from Jalal Alavi

Jalal Alavi, PhD Candidate at the University of Neuchatel, writes the following:

The EU trade commissioner Peter Mandelson has urged the EU ministers yesterday to boost trade and development aid, as promised, to help him conclude market-opening deals with 78 countries in the ACP region. He further asked EU to send a strong signal to these countries that aid is on the negotiating table. According to the Associated Press report from Luxembourg meeting, the envisaged trade deals foresee gradual market opening by ACP countries in parallel with EU funding for good governance and reforms in these countries so as to spur trade among them. It means that as far as access to market is concerned, these deals will aim mainly at EU access to markets of these countries rather than enhanced access to EU markets by them. This runs contrary to the EU self-commitments in the WTO, including the recent one in the context of the so-called aid for trade. The WTO General Council at its last meeting (10 October 2006) endorsed the report and recommendations of the Aid for Trade Task Force (WT/AFT/1, 27 July 2006) established under the paragraph 57 of Hong Kong ministerial declaration. The main purpose of the Hong Kong mandate is to explore ways and means to opperationalize aid for trade initiative with a view to helping developing countries, particularly LDCs, to build their supply-side capacity and trade-related infrastructure. It is quite obvious that the aid for trade from Hong Kong ministerial perspective as well as in Task Force view is an attempt to help disadvantaged countries to secure enhanced access to the global markets, including EU markets. In Hong Kong meeting and in the context of the aid for trade, EU and its members pledged to allocate on an annual basis 2 billion Euros by 2010 as trade-related development assistance. This Mandelson's reading of EU negotiations with ACP countries gives the impression that EU sees the money as "subsidy for market opening" rather than "aid for trade".

Statoil, Bribery and Extraterritoriality

Statoil has recently settled with the U.S. SEC regarding its bribery of Iranian officials in order to secure lucrative oil and gas rights in Iran.  So, one might ask, why would a Norwegian company making a bribe in Iran have to deal with the SEC?  The U.S. Foreign Corrupt Practices Act prohibits bribery by U.S. persons, as well as by companies registered under the Securities Exchange Act of 1934.  In order to get a NYSE listing, Statoil registered.  Other governments do not seem to worry too much about this type of extraterritoriality, although it certainly departs from territorial conduct as a basis for regulatory jurisdiction. 

ABILA--International Law Weekend

I've just had a look at the program for International Law Weekend--October 26-28, in NYC.  It looks like an interesting, and sometimes even edgy, event.  Lots of panels on international business law, and some interesting international economic law subjects as well.  And it's free . . . .

All Bets Are Off (Literally)

It's official:  Due to legislation signed today, online gambling is now banned in the U.S.  This means, of course, that the weekly internet poker game among IELP blog members is cancelled.  (For the Americans among us, anyway -- the non-Americans can carry on as usual.  We Americans will have to satisfy our gambling urges with betting on horse-racing, since there's an exception for that in the law.)

I was thinking that prohibition lasted about 13 years.  Anyone want to take bets on how long the gambling ban will last?  Well, not bets obviously, just guessing for fun.  Antigua will likely amend its existing WTO complaint to challenge the new law, and the EC may not be far behind in bringing its own case, so there will be some foreign pressure to repeal (or at least modify) it.  And this Economist article (subscriber only) suggests that some American companies would prefer to legalize online gambling, so there may be domestic pressure as well.  Based on those factors, I'm going with 2 years and 5 months until it is amended or repealed (that would be March of 2010).  Make your guess in the comment section.

There's not much analysis of the new law out there yet, but here are two short items that may be of interest.  First, an article by a U of Wash. Law prof, entitled "The New Federal Law Banning Payments for Online Gambling: Why It's the Wrong Choice."  http://writ.news.findlaw.com/ramasastry/20061010.html

In it, she notes:

"Even if the U.S. continues to ignore the Caribbean nations and the WTO on this matter, it may not be able to ignore the European Union -- which is liberalizing its own markets for Internet gambling, and may seek to hold the U.S. to GATS. "

She also argues that:

"There's no question that Internet gambling raises serious issues. But they are far better addressed through regulation, than though an unfair and ineffective partial ban like the one UIGA imposes."

According to another article (http://www.timesonline.co.uk/article/0,,200-2394785,00.html )

... there continue to be ways, legally, for UK companies to continue to do business with their American customers.

“It’s a case of unjustified panic,” Julian Harris, of Harris Hagan, says. “For example, the Bill does not affect payments by cheque and customers will still be able to use overseas payment systems. So if you want to gamble you can use an intermediary as your method of payment. Now, of course, it may take some time for customers to adjust but it does mean that the operators will be able to regroup and find ways of dealing with the new position.”

Also, here's a blog post with some analysis of how the law came into being, in terms of the key interest groups. The author quotes a reader who implies it wasn't about protectionism, but rather Bill Frist courting votes in his presumed bid for the Presidency.

Fidelity Fiduciary Bank: Grameen's Nobel

Muhammad Yunus and Grameen Bank were awarded the Nobel peace Prize yesterday, for their efforts in developing the practice of micro-credit in Bangladesh for the benefit of the extreme poor, mainly women. Micro-finance is not perfect, but it is a great idea that generally works for the poor. Only incorrigible cynics would find fault with the high interest rates and rates of return that have become attractive for major commercial financial institutions that would not normally give tuppence for, or about, the poor.   

Some background on Microfinance can be found in this survey by The Economist from last year, and some perspective on how the microfinance industry has grown can be gained from the Microfinance Portal.

T.

Stiglitz Redux?

The other day Joel posted about the suggestion by Joseph Stiglitz that the EU should impose trade barriers on the U.S. to coerce a change in U.S. environmental policy.  Now I see that Jonathan Adler, over at the Volokh Conspiracy, has posted about a similar proposal:

[according to a report], the European Union may consider adopting a "border tax adjustment" on imports from countries that do not impose domestic caps on carbon dioxide emissions. The idea is to reduce some of the costs of the EU's emission trading scheme.

The "report," or a description of it anyway, is available here: http://www.euractiv.com/en/sustainability/eu-moots-border-tax-offset-costs-climate-action/article-158641.  As stated there:

Commission advisors are considering slapping a tax on imported goods from countries which do not impose a CO2 cap on their industry, according to a draft paper seen by European Voice (5-11 October).

The paper will be presented to a top group of industrialists, member-state and civil- society experts who help the Commission shape policies in the field of environment and energy - the high-level group on competitiveness, energy and the environment.

The idea, known in academic circles as a "border tax adjustment", is understood to have emerged from expert discussions on long-term energy scenarios at a September meeting of the competitiveness sub-group.

According to the Voice, cement is cited in the paper as "a good product to trial this approach".

On the other hand, it is noted:

not everyone at the Commission is supportive. One senior source, who preferred not to be named, said it would not be a good idea "politically".

In addition to the "political" problems, of course, are the "legal" ones.  This plan seems to have the advantage that it does not necessarily target a particular country, like Stiglitz seemed to, but it's still going to be tough to get it through GATT Article XX.

ASIL/IELG Annual Conference at Bretton Woods

The full program of the ASIL International Economic Law Interest Group, November 9th-12th, at the historic Mt. Washington Resort at Bretton Woods, New Hampshire, is now online. This year the conference theme is "IEL: the state and future of the discipline", and it is organized around three pillars: research, practice and teaching. As if in partial response to Andrew Guzman's thought-provoking post below, the program includes presentations on diverse subjects such as investment arbitration, international financial law, corporate social responsibility, and specific questions relating to the OECD, IMF and World Bank - all in addition to many trade-related issues. Each panel will be devoted to one of the pillars of the field, and will then be followed by a workshop that will allow for more open discussion. Another session will be devoted to discussing ideas for establishing a global IEL organization/society.

The program includes quite a few IELP bloggers and hopefully many more contributors and readers will attend. Registration for the conference is through ASIL Services.

Congratulations to the group Co-chairs, Colin Picker (UMKC) and Isabella Bunn (Oxford) for putting together the program and conference.

T.

Michael Ewing-Chow and Bryan Mercurio

It's a great pleasure to welcome Michael Ewing-Chow, one of the leading lights of the National University of Singapore Law Faculty, and Bryan Mercurio, an insightful trade law and policy analyst from University of New South Wales, as contributors to our blog. 

What is International Economic Law?

What is “International Economic Law?” Like many contributors to this blog, I have pronounced myself as someone who works in this area but I am a little embarrassed when my colleagues ask me to explain the big problems or major issues in the field. Especially when they ask “what is included other than trade?” I wonder if, as a scholarly community, our focus on trade almost to the exclusion of other areas of international economic law is healthy.

Consider the objective evidence. Casebooks with the words “international economic law” (or variations on them) are usually thinly disguised books on international trade. The Journal of International Economic Law is overwhelmingly about trade; and this blog is too – look at the last several postings and it is clear that the line between a “trade” blog and an “international economic law blog” is thin indeed. Perhaps one reason why we have failed to make international economic law (other than trade) a major course in many law schools is that we don’t have a vigorous and high profile dialog on the subject.

To be clear, this is not a complaint about international trade or the fact that we talk about it. I write and teach in trade too, and consider it one of my major interests. The question is instead why there is so little focus on the rest of international economic law.

We can all recite a list of topics that fall under the heading of international economic law: foreign investment, jurisdictional issues, international arbitration, international contract law, and so on. I doubt that I am the only law professor who has pulled this list out when explaining to a colleague that there really is a field here. But why are these topic given so little attention? Quick, name the five best legal academics working on international contracts? How about arbitration? Foreign investment? Hard to do, isn't it? How about trade? Piece of cake. In fact, off the top of my head I could list many more than 5 people writing sensibly about trade.

Why is there such a discrepancy? Is it because the law in these areas is less institutionalized? Or perhaps less enforceable? That may be right in some areas, but clearly not others (e.g., international arbitration normally yields enforceable decisions). It can’t be about importance – trade represents only a fraction of all international economic activity. Are other areas less interesting? Less accessible to us?

There are, of course, books and courses on international business transactions (IBT), but ask a law school colleague what is in those books and they will stare at you blankly. Even among those of us who embrace the international economic law label there is no consensus view of what belongs is an IBT course. Might this be because we have not been talking about the potential issues enough?

I guess my question is: Have we fallen down of the job by focusing too much on trade and too little on everything else that falls under the international economic law label?

Optimal Obfuscation - What Really Drives TBT/SPS Measures?

Daniel Kono, a political scientist at UC Davis, has an interesting article in the latest issue (100:3) of the American Political Science Review (APSR), entitled "Optimal Obfuscation: Democracy and Trade Policy Transparency" (the modest abstract follows below; the full article is available here for APSA Members and other APSR subscribers). Kono's article is intended as a mildly provocative contribution to the ongoing (neo-Kantian) democracy-trade-peace discourse, but I find his analysis more interesting with respect to the way we view TBT/SPS measures, not least on the backdrop of the just-released GMO Panel Report.

Kono doesn't dispute the robustness of existing research indicating a correlation between democracy and trade-openness measured by tariff levels and what he calls "core" non-tariff barriers (quotas etc.). Rather, he argues (and demonstrates empirically) that democracy induces protectionism-bound politicians to replace transparent trade barriers with more complex, less transparent ones, primarily "high quality" non-tariff barriers such as TBT and SPS measures.  

This finding is fairly unsurprising, I think, for trade scholars and practitioners, but it is interesting to see empirical analysis substantiating it. If we were talking about services trade this would be even more obvious. Moreover, Kono takes things a step further and asks "why do democracies have higher quality non-tariff barriers", facing-off two alternative explanations: the first, benign, one, is that democracies "make politicians more responsive to public concerns about health, safety, and the environment"; the second, somewhat less benign, is that democracies compel politicians to pursue "optimal obfuscation" by reducing protectionist measures whose consumer effects are more transparent (tariffs and "low-quality" non-tariff barriers), adopting instead less transparent "high quality" non tariff barriers (in blunter terms, high-quality NTBs are the political response bypassing public demand to remove barriers, in the face of interest group pressure to maintain them, not the result of public pressure to install them for non-trade reasons).

To discern which of these explanations is more realistic - and I think this is where the analysis gets interesting - Kono uses three proxies for "public demand for health, safety and environmental standards" - ISO certifications per capita, an environmental governance index (WEF-EC-Yale-Columbia) and water quality (same source). Kono postulates (reasonably, I believe) that if high quality NTBs reflect voter demand, they should roughly correlate with these three proxies. Yet he finds that countries with higher ISO certifications, standards and water quality actually have lower quality NTBs - gleaning no evidence that voter pressure leads to quality NTBs. In an additional analytical step, Kono shows that where high-quality NTBs showed no correlation to voter preferences, they do show consistently positive correlative relations to interest group variables, such as high sectoral employment and import penetration - similar to "core" NTBs.

Now, these conclusions need not taint all TBT/SPS and similar measures as driven by "optimally obfuscatory" protectionist motivations, rather than by public demand. Surely, beyond statistical regressions, there are many specific measures driven wholely by justified public health/safety/environment preferences, while many others are driven by domestic industry needs.

A subsequent thought on the legal plane: should it not be the role of the international legal system to be able to distinguish between the two (the publically driven, and the politically opaque) - perhaps instead of the more traditional tests of trade-restrictiveness? Indeed, furthering these findings, perhaps we should not consider each TBT/SPS case as an instance in which democracy confronts free trade. Rather, in promoting democracy, a potential role of an international rule and judiciary should be to expose national measures as ones pursuing "optimal obfuscation", in order to help correct democracy's imperfections?

T.

Abstract:

"A growing body of research shows that democracies have more liberal trade policies than do autocracies. I argue, in contrast, that democracy has contradictory effects on different types of trade policies because electoral competition generates more information about some than about others. It generates considerable information about policies whose effects on consumer welfare are easy to explain to voters, but less information about policies whose effects are more complex. By increasing the transparency of some policies relative to others, democracy induces politicians to reduce transparent trade barriers but also to replace them with less transparent ones. I test this hypothesis by examining the impact of democracy on tariffs, “core” nontariff barriers (NTBs) such as quotas, and “quality” NTBs such as product standards in 75 countries in the 1990s. I find that democracy leads to lower tariffs, higher core NTBs, and even higher quality NTBs. I conclude that democracy promotes “optimal obfuscation” that allows politicians to protect their markets while maintaining a veneer of liberalization".

Global Hot Air

Somebody call a lawyer. 

I just read that Joseph Stiglitz, in an article in the bepress.com "Economist's Voice" publication (thanks to Dan Drezner for mentioning this to me), has argued that Japan, Europe and other signatories of the Kyoto Protocol should bring a WTO case against the U.S. for the subsidy conferred by virtue of the U.S. failure to comply with the Kyoto Protocol, which does not bind the U.S.  He asserts that except in certain limited situations, the WTO does not allow subsidies.  This is simply incorrect.  Well, the WTO does allow domestic subsidies to be countervailed, provided that they are specific, and provided that there is a government financial contribution.  Before the WTO was created, there was a possible argument that lax environmental regulation could be understood as a subsidy, and in 1993 I even wrote an article describing this possibility.  But the definition of "subsidy" in the SCM requires a financial contribution.  I suppose that GATT does not, and a panel or the AB might find the GATT requirements do not require a financial contribution.  But we still have the question--where is the subsidy, and how is it measured.  How did the Kyoto Protocol become the baseline against which subsidization is measured?  When does the search for subsidization by virtue of lax regulation end--at the time when all states have the same regulation? 

Hugo Driving

Clay Risen writes in the current issue of The New Republic as follows:

“The most significant challenge [to the liberal economic order, and to U.S. power], arising from the slow collapse of the Doha trade negotiations, is Venezuela's plan to replace the international trade structure with a series of trading blocs. Many of its efforts have been the banal sort of bilateral deals that would go unnoticed--if they weren't with an eyebrow-raising set of partners: Vietnam, Nicaragua, Russia, Libya, and other countries at the edges of the liberal economic order. Just days before his U.N. appearance, Chávez signed some 20 trade accords with Iran, totaling more than $200 million. Iranian tractors are already under production in Venezuela, and the Iranian national oil company has spoken of investing up to $4 billion there. Chávez has promised a $500 million oil refinery in Uruguay, a country the United Stateshas been courting for its own trade deal. And he has pursued countless oil-related deals with China--with the expressed goal of disengaging his country's oil sector from the United States. . . .

Alongside his bilateral efforts, Chávez has pursued a set of multilateral trade agreements with the intention of displacing American economic hegemony in the western hemisphere. In 2005 Cuba

and Venezuela created the Bolivarian Alternative for the Americas (ALBA), also known as the People's Trade Agreement, which sets up zero-tariff trade among members. The ALBA has since expanded to Bolivia, and Nicaraguan presidential candidate Daniel Ortega has promised to join if he wins in November. Chávez has also signed onto Mercosur, the pact among several South American countries designed to challenge NAFTA and the EU. Mercosur is, for now, a fairly innocuous group, but Chávez has spoken frequently of transforming it into an anti-U.S. regional bloc. Trading blocs such as these, especially in light of the Doha collapse, not only undermine the structure and spirit of the liberal trading regime, but they also push the world back to the era in which politics, rather than growth-oriented national interest, determined trade policy, with all the economic and political instability that went with it. “

Perhaps I should not be surprised at the strong political take on international trade negotiations . . . .  But it seems that many things that seemed settled just a few years ago are now up for grabs.  I suppose I should not be too shocked to see non-trade politics driving decisions about the WTO:  several U.S. senators have recently announced that they want to block Russia's WTO accession over Russia's assistance to Iran with respect to a nuclear power plant.   

Panel Opinions on Hormones

I must admit that I was disheartened as I opened the GMO panel report, and my pdf reader told me that it was 2400 pages.  It took a while to open.  The problem is not (just) the challenge to my laziness, but the fact that many of us who might otherwise study this report will be discouraged and will turn our attention elsewhere.  And it is not just the length, but also the method of organization.  Even using the table of contents, it is hard to navigate within the report.

This is, to some extent, a transparency issue.  Panel and Appellate Body reports have gotten longer and longer, and less and less accessible.  National judicial opinions deal with equally complicated legal and factual issues, yet seem able to retain their readability.  Is there any solution?

Hormones Panel Meetings

As mentioned in an earlier post, we have arranged with Anna-Emilia Autio ([email protected]) and Petko Kantchevski ([email protected]) to report on the panel meetings in the Hormones Sanctions cases (DS320 and DS321).  Due to the length of the meetings, it probably doesn't make sense to post their full reports here on the blog.  Instead, I'll set up this post as a guide to their reports, with links to the full text on the WorldTradeLaw.net server. The first stage of these reports is their rough notes from the meetings. Later, I think they'll try to prepare something that synthesizes the information a bit more, and I'll post that as well.

Summary of Hormones Sanctions Panel Meetings

Wednesday, September 27, 2006, meeting of Panel with parties and scientific experts (notes of Petko Kantchevski)

Thursday, September 28, 2006, meeting of Panel with parties and scientific experts (notes of Petko Kantchevski)

Monday/Tuesday, October 2-3, 2006, meeting of Panel with parties (notes of Anna-Emilia Autio)