International Economic Law and Policy Blog

China Accession and Auto Parts

The WTO Director-General has recently named the panel in the China Auto Parts case.  It appears to be an excellent panel.  It will be chaired by Julio Lacarte, a former Appellate Body member and veteran of at least six GATT or WTO panels.  The other two panelists are Ujal Singh Bhatia, India’s ambassador to the WTO, and Wilhelm Meier, a Swiss diplomat.  Meier has served on four previous WTO panels.  (Of course, the WTO lacks the transparency to disclose the background or qualifications of panelists, but I was able to gather this information from published reports and the Worldtradelaw.net website.)

This is the first dispute against China and the first dispute claiming a violation of an accession agreement.  The accession-related claims will be particularly interesting because the panel may be asked to decide whether an accession commitment is enforceable under the DSU and, if so, why.  This is a more difficult conceptual question than may appear at first blush because the status of accession agreements is unclear.  Are they WTO secondary law?  Or are they constitutional changes to the WTO text that rise to the level of covered agreements. 

I recently finished a paper that explores some of these issues.  It is called “Mapping the Law of WTO Accession” and is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=957651.

Race to the top? (again)

Charles Schumer and Michael Bloomberg, in addition to their other many duties, have prepared a report on the future of New York as a financial center.  One of the main thrusts of the report is an attack on the Sarbanes Oxley law, legislated in 2002 as a political response to the Enron and Worldcom scandals/crises.  This law increases the costs of listing on a U.S. exchange greatly, both in terms of auditing and in terms of potential liability.  At the same time, other financial centers around the world provide liquidity that is competitive with the U.S.  The Sarbanes Oxley law may indeed be worthy of review, as Schumer/Bloomberg argue.  But this report raises the broader question of whether this type of competition for business--a very stark competition of immobile factors for mobile ones--might put pressure on good regulation.  If it does, the next step to consider is how to coordinate among regulators--to create a regulatory cartel-in order to reduce regulatory competition. 

On a slightly different note, the Sarbanes Oxley law has been attacked as being "extraterritorial" in that it is intended to apply to foreign companies listed on U.S. exchanges (what's extraterritorial about that?), and in that it regulates the types of auditors that may be hired to check compliance with the "internal controls" requirements of its Section 404.  As of July 15, foreign companies having market valuation exceeding $75 million and listing on a major U.S. stock exchange became subject to Sarbanes-Oxley Act.

Social Insurance

There's a nice NY Times profile of Dani Rodrik, highlighting the need for social insurance to promote political support for free trade, at http://www.nytimes.com/2007/01/30/business/worldbusiness/30trade.html?pagewanted=1&_r=1 (login required).

Rodrik, Jacob Hacker and others are quoted on the need for greater social insurance programs.  This is similar to the recent burst of enthusiasm for the Danish model:  social insurance programs providing the confidence to induce political support for liberalization.  Rodrik thinks we've had enough liberalization for now. 

A View from the Appellate Body Bench

Here's a link to an article, in a publication called Engineering News, about recent appointee AB David Unterhalter.  Among other things, he discussed his goals as an AB Member:

But what are his personal ambitions arising from the WTO appointment? “What I would hope, personally, to have achieved at the end of my time in Geneva is that I have left some kind of mark on the jurice prudence of the WTO, which I can be proud of and, hopefully, South Africa can be proud of too.”

He also talked about the work involved:

But the prestigious appointment also means that Unterhalter will have to tailor his South African practice to the demands arising from Geneva. In fact, there are clear time-defined parameters in which the Appellate Body operates, which means its cases have to take precedence. “It works out that a good deal of preparation on the cases can be done at home and then I spend spurts of two to three weeks in Geneva. So it does not require a relocation to Geneva, but just a slightly peripatetic lifestyle,” the 48-year-old Unterhalter quips. He is, thus, optimistic about prospects of continuing an active, if somewhat rescaled, practice in South Africa.

The Gambling Dispute: The Interim Report

Reuters reports that the panel in the US - Gambling Article 21.5 dispute has issued its interim report, finding that the United States did not comply with the original rulings:

The United States has suffered a new setback in a four-year-old legal battle with Antigua and Barbuda over U.S. restrictions on Internet gambling, a U.S. trade official said on Thursday.

...

Gretchen Hamel, a spokesman for the U.S. Trade Representative's office, confirmed press reports that a WTO panel "did not agree with the United States that we had taken the necessary steps to comply" with that ruling.

At the same time, Hamel downplayed the decision contained in a preliminary, confidential report to the two parties.

"The panel's findings issued today involve a narrow issue of federal law" and the United States will have opportunity to submit comments to the WTO before it issues its final, public report in March, Hamel said.

"Nothing in the panel's interim report undermines the broad, favorable results that the United States obtained from the WTO in April 2005," she said.

...

The United States will decide after the final panel decision ruling in March whether to appeal.

The Bush administration may not have to ask Congress to pass new legislation in any case, Hamel said.

"The panel report clarifies that compliance does not necessarily require new legislation, but could instead involve other steps, such as administrative or judicial action," she said.

US-Taiwan Times Two

Two recent articles discuss the legal and political aspects of a U.S. - Taiwan FTA, including the role of China and East Asia generally.

Claude Barfield of AEI writes:

Turning to the political and strategic background to the proposal for a US-Taiwan FTA, it should first be acknowledged that according to the economic and political criteria set forth by the administration of US President George W. Bush itself to prioritize the choice of FTA partners, Taiwan should rank near the top of the list.

Among the key tests that Taiwan meets are the following: It is a democracy; it already has a significant economic relationship with the US; it is willing to negotiate a comprehensive agreement that goes beyond WTO liberalization; it is a stalwart diplomatic and security ally of the US; and finally, an agreement would enjoy bipartisan support in the US Congress.

On the downside, Beijing adamantly and forcefully opposes nations signing FTAs with Taiwan, arguing that this will in effect give Taiwan the status of an independent nation and violate what it considers the international rule of "one China." In pursuit of the goal of isolating Taiwan diplomatically, Beijing has directly threatened nations that have considered FTAs with Taiwan, warning them that they "would bring political trouble to themselves" if they proceeded with such an action.

Over the past decade, both the Clinton and the Bush administrations have cultivated a policy of "engagement" with China; and currently, the Bush administration has a number of diplomatic irons in the fire that depend upon Beijing's help and support--with the difficult and dangerous situations in North Korea and Iran heading the list. Thus, the US must carefully balance support for a democratic Taiwan with equally important goals and relations with China.

In fashioning a response and a policy for future US-Taiwan trade relations, the following economic realities should be considered regarding potential Taiwan FTAs.

One, the economic benefits of a US-Taiwan FTA are real but small; two, the cumulative negative economic effects of East Asian bilateral trade agreements that exclude Taiwan are becoming quite sizable because of trade diversion--and would reach truly damaging proportions for Taiwan's economy if a large East Asian FTA (ASEAN countries plus Japan, South Korea and China) were negotiated; and three, given its strong position within highly integrated East Asian production networks, Taiwan would reap the greatest benefit from entering into FTAs with its important regional partners, such as Japan, South Korea, Singapore and Thailand--leveling the playing field now tilted against Taiwan by existing and planned FTAs.

How to proceed? First, the US should base its future course firmly upon Taiwan's status under international law and practice.

Thus, the US should point out to Beijing's leadership that their argument that the FTAs would violate the "one China" policy is fundamentally flawed. China has accepted Taiwan's membership into the WTO, where it is treated and defined under international law as a "customs territory."

By extension, bilateral FTAs are merely another manifestation of that legal status--and indeed, the basis upon which China has become Taiwan's most important trade and investment partner.

As it moves to implement a regional trade policy in East Asia, the US should quietly, but firmly, present China with the following options. First, ask the Chinese to back off and allow Taiwan to negotiate FTAs with other nations, particularly its regional neighbors.

In turn, the US would strongly reiterate its commitment to the "one China" policy and affirm that Taiwan's status remained the same as in the WTO--a customs territory. In addition, the US would step up pressure on Taiwan to remove direct transportation restrictions on the movement of goods to and from China and allow in more Chinese imports.

Second, if China refuses, and the US cannot get other Asian nations to conclude FTAs with Taiwan because of Chinese threats, the US should inform Chinese leaders that it will proceed itself to conclude a bilateral FTA with the island.

Jacques deLisle of Penn law school writes:

Taiwan is, on economic grounds, an obvious FTA candidate for the U.S. It has a relatively open economy, one that has moved far from its protectionist and illiberal past, one that has done much to satisfy U.S. requirements of support for liberal trade rules, and one that has seemingly bridgeable gaps to what an FTA in practice would require. Taiwan also has the high trade to GDP ratios that make it disproportionately important as a trading entity and thus a more significant FTA prospect. It is a major trading partner for both China and the U.S. As with FTAs generally, membership in FTAs with major trading partners would expand trade among the partners and increase each partner’s total trade and gains from trade. While these economic effects likely would not be large in a U.S.-Taiwan FTA, that does not distinguish it from many others that are on the table. Indeed, estimates of the economic benefits of a U.S.-Taiwan FTA place it near the top of the list of contemplated U.S. FTAs. The greater economic gains for Taiwan, however, could lie in second-order effects, with other regional states entering into FTAs with Taiwan if the U.S. were to break the pattern of Taiwan’s exclusion from such arrangements.

Any given FTA, of course, would also skew Taiwan’s trade toward its FTA partners. A U.S.-Taiwan FTA is expected to produce more trade diversion than trade creation. An ACFTA excluding Taiwan likely would divert ASEAN states’ trade from Taiwan to the PRC. It would also encourage substitution of ASEAN-produced goods for some of China’s imports from Taiwan, cutting into the growth of cross-Strait trade that has become important to Taiwan. A Japan-Korea-China FTA or SCOFTA would have broadly parallel effects.

For Taiwan, even the economic is fraught with security implications. The great concern for Taiwan of a Taiwan-excluding ACFTA is that it will increase economic dependence and promote political ties between the ASEAN states and China just the way Beijing apparently seeks. Already unsupportive of Taipei on issues of Taiwan’s autonomy and international status, China’s ACFTA partners would be even more reluctant to roil relations with the PRC. Taipei’s real fear is that an ACFTA would be another potent tool in Beijing’s diplomatic kit for marginalizing the ROC. Much the same would apply if the PRC’s notion of a China-Japan-Korea FTA were to go forward. The potential political loss for Taiwan would be especially great in the case of Japan, which remains the principal regional state that has the will and the capacity to work to balance China and that has recently articulated an interest in Taiwan’s security. A SCOFTA would be less significant, given the SCO states’ more limited economic relations with and lack of diplomatic support for Taiwan.

The politics of a U.S.-Taiwan FTA are simpler fare. For Taiwan, U.S. willingness to enter into an FTA would be an affirmation of the broader U.S. commitment to Taiwan. President Chen and others have phrased it as such. So too have congressional supporters of a U.S.-Taiwan FTA. While it formally implies nothing about statehood or state-like status, Taiwan’s status as a partner or even partner candidate in an FTA would imply standing with the U.S. akin to that of Canada, Mexico, Singapore, and Korea. Chinese sources have made this basic argument, suggesting that an FTA would be a step along the road to Taiwan independence. Moreover, Taiwanese sources and American supporters have played the democracy and human rights card, linking a U.S.-Taiwan FTA to support for those values, as they are embodied in Taiwan--and thereby invoking principles that also are relevant to claiming state- or state-like status.

For precisely such reasons, Beijing does not welcome the prospect and has been no less chilly to the prospect of a U.S.-Taiwan FTA than it was to the more easily deterred prospects of a Japan-Taiwan or Singapore-Taiwan FTA. Partly because much of Washington does not want such diplomatic frictions with Beijing, the Taiwan FTA faces an uphill fight. The steepness of the climb is increased by the waning of the influence of the Taiwan caucus and Taiwan lobbying in Congress and by the increasing tendency in Washington to regard Taiwan as a subordinate issue in the broader universe of U.S.-PRC relations.

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"Doha round failure will set loose lawyers"

According to Australian Trade Minister Warren Truss.  He also said:

... if the Doha round negotiations could not be revived, then differences would move to international courts in coming months.

"The lawyers will have a field day," Truss told Reuters in an interview before traveling to Davos, Switzerland.

"The negotiators will give way to the lawyers, who will take advantage of the expiry of the so-called peace clauses to exploit elements of the U.S. and current European programs in particular."

WTO citizenship ranking

There is an interesting ranking of the WTO-citizenship of  member states available from the WTO summer program at the HEI .

Guess who's #1? (hint: not Singapore or HK, the usual suspects for die-hard free traders).

Several CIS states and middle-eastern states score very high in the ranking, and there is even an LDC (Lesotho) in the top 10, while Moldova is #1 for services.

The complete methodology is as explained here:

The methodology of the agricultural and industrial rankings were based on the level of bound and applied tariffs. As many members cannot afford extensive subsidies they were not deemed a helpful determinant, low levels of subsidy could just be a consequence of budgetary constraint rather than intention.   Services and contingency protection rankings were made on the basis of the number of notifications the particular country had made in respective committees.

There is a Panel On Trade

There is a panel on trade at Davos, among 229 panels.  But there is also a panel on "The Scent of Success," "Classic Clarets," and "Reveal Your True Colours."  My personal favorite, from a very quick scan:  "Brands:  Today's Gods."  Here's the WEF website. 

I know that there will be a side meeting on agriculture and Doha, but my real question is whether anything serious has ever happened at Davos?   Or is this just a "recharge the intellectual batteries" for masters of the universe kind of thing?  If it is, why do the panel titles seem so, well, vapid? 

Subsidies to Corn and Ethanol: Is Ethanol an Agricultural Product?

The European Union, Australia, Argentina and Brazil have joined Canada in a complaint against the United States over allegedly illegal  subsidies to American corn growers. Although corn is clearly an agricultural product, it is interesting to note the following comment by Clodoaldo Hugueney, Brazilian ambassador to the WTO: "This is not just about corn. Brazil is the world's largest ethanol exporter, so this is an important issue for us." I don't know if Brazil is going to put the ethanol issue on the table to demonstrate for example serious prejudice. Although it could do so under the SCM, the panel would have to answer completely new questions in order to know whether or not  it is dealing with an agricultural product. This would be especially the case if the complaints invoke simultaneously the AoA and the SCM. The reason is that the biofuels industry did not exist when the current WTO rules were written. Biofuels are not subject to a standard classification system and production from agricultural feedstocks leaves much uncertainty about how they should be regulated.

"Iraq war costs may affect US farm subsidies"

For those who oppose the Iraq war, there is some small consolation if you also oppose farm subsidies:

US Agriculture Committee head Tom Harkin says farm subsidies are likely to be reduced, because the Iraq war is becoming a "black hole" in the US Budget.

Mr Harkin says there is no way that the next US farm bill can escape the effects of the Iraq war on the Budget.

The Iraq war has cost the US about half-a-trillion dollars so far.

"It's going to impinge on the farm bill, it's going to impinge on everything around here so anybody that's thinking, well we've got to continue and get good support for agriculture, well I don't know if it's going to be there, because of all the money we're spending in Iraq," he says.

US Agriculture secretary Mike Johanns said recently that the US farm support system may be sitting in quicksand under challenge abroad in the WTO and under fire at home with a Budget strained by wars in Iraq and Afghanistan.

I'm no expert on domestic trade politics, but this does seem like part of an administration strategy to make the case for lower farm subsidies and use that to (finally) complete the Doha round.

AAFTA We Hafta?

In an op-ed published in the WSJ (here's a version re-published on another site: http://www.truthabouttrade.org/article.asp?id=6820 ), former USTR Robert Zoellick has called for a new trade initiative in the Americas:

This year President Bush and the Democratic-led Congress should launch a new Association of American Free Trade Agreements (AAFTA). The AAFTA could shape the future of the Western Hemisphere, while offering a new foreign and economic policy design that combines trade, open societies, development and democracy. In concert with successful immigration reform, the AAFTA would signal to the Americas that, despite the trials of war and Asia's rising economic influence, U.S. global strategy must have a hemispheric foundation.

Successful and sustainable international strategies must be constructed across administrations. Ronald Reagan called for free trade throughout the Americas, opened U.S. markets to our Caribbean neighbors, and completed an FTA with Canada. George H.W. Bush completed negotiations for a North American FTA, offered trade preferences to the Andean countries, negotiated peace in Central America, and freed Panama. Bill Clinton secured the passage of Nafta, launched work on a Free Trade Area of the Americas, and backed Plan Colombia.

George W. Bush enacted FTAs with Chile, the five states of Central America and the Dominican Republic. He also completed FTAs with Colombia, Peru and Panama. If Congress passes these agreements, the U.S. will finally have an unbroken line of free trade partners stretching from Alaska to the tip of South America. Not counting the U.S., this free trade assembly would comprise two-thirds of both the population and GDP of the Americas.

The AAFTA would draw together these 13 partners to build on the gains of free trade. It could also include the island states of the Caribbean Basin Trade Partnership Act. Starting with a small secretariat, perhaps in Miami, the AAFTA should advance hemispheric economic integration; link development and democracy with trade and aid; improve working and environmental conditions; and continue to pursue the goal of free trade throughout the hemisphere. It might even foster cooperation in the WTO's global trade negotiations. The AAFTA might be connected to an academic center, which could combine research and practice through an association among universities in the Americas.

For somewhat selfish reasons, I like the idea.  There aren't too many trade people or events where I live in South Florida, so a secretariat and academic center in Miami would be welcome.  As to the chances of this coming about, I've been searching the web for commentary, but have not found much yet.  To see what has been said, click the link below.  I'll add new items if and when I find them. 

Blood Diamonds' Many Facets

For the few of you who are not regular readers of the Durham, North Carolina based "News & Observer" newspaper, here is a link to an op-ed that my Duke Law colleague Barak Richman and I just wrote on Leonardo DiCaprio's new movie "Blood Diamond".

Blood Diamonds Op-ed N&O Jan. 11 2007

We acknowledge the innovative nature of the UN sponsored Kimberley Scheme against conflict diamonds, but question its incentives, cost and effectiveness.

Seminar on Developing Country Participation in WTO Disputes

For those who will be in Brussels on January 23, there is an interesting seminar entitled, "Are developing countries deterred from using the WTO dispute settlement mechanism?"  Here is a link with more info and here is a brief description:

The dispute settlement mechanism (DSM) is the backbone of the rules-based multilateral trading system. By providing a legal framework for solving disputes – rather than having them subjected to endless negotiations, fuzzy diplomacy and, potentially, big-power politics – the reformed DSM that emerged from the Uruguay Round has increased predictability in world trade and facilitated an order for fair dispute settlements open to every member. In fact, the dispute settlement mechanism has worked so well it was recently portrayed as ‘the only thing that works in the WTO today’.

But there is a fly in the ointment. The overall participation by developing countries has been disturbingly low. As shown in a recent paper by Roderick Abbott, many developing countries did not participate at all in the DSM in the years 1995-2005. Some observers has used this ‘absences from the game’ to criticise the whole WTO as a ‘rich-country product’ not in the interest of developing countries. Others, and more balanced observers, have pointed to a lack of resources as the explanation to this pattern.

"But is the low participation primarily a function of insufficient resources? What other and potentially more important factors can explain the ‘absence from the game’? ECIPE cordially invites you to a seminar on developing-country participation in dispute settlements (programme on the reverse side). At the seminar, Roderick Abbott will present his new research on dispute settlements in the WTO and discuss the reasons for the low participation by many developing countries. This presentation is followed by comments from key trade-policy officials in the EU, Mexico and the WTO.

Airbus, pre-WTO expired programmes and retroactivity?

I have noticed that the United States mentions many pre-WTO programmes (namely pre-1995) in its panel request against Airbus. Most likely, some of  these programmes were expired  when the WTO  entered into force.  I wonder if the panel will accept to consider these pre-WTO expired programmes. In Upland Cotton, the AB confirmed that expired programmes could still be considered by a panel if they are “affecting” in the present the complaining party through their “lingering effects”. However, in Upland Cotton the programmes were post-WTO in the sense that they expired after 1995. Would the Airbus panel adopt the same reasoning and accept to consider expired pre-WTO programmes on the basis on their “lingering effects” in the present? If yes, would this amount to a retroactive application of the SCM?

The Recommencement of History (again)

Chavez is planning on causing Venezuela to nationalize all energy production assets.  See the CNN story.  See Chris Borgen's take at opinio juris.  There'll be a lot to fight about with respect to compensation. As we hav epointed out earlier, Venezuela does not have a BIT with the U.S., and Venezuela is only an observer to the Energy Charter Treaty.  So, it is not clear how this will come to a formal forum for a U.S. owner of energy assets in Venezuela. 

I am sitting in Miami Airport, on my way home from Buenos Aires.  I learned that despite Argentina's recent massive default on debt, it is able to enter the international debt markets with only a modest (less than 2%) risk premium.  This is pretty astounding given that investors recently lost 70% of their investments.  Are those who do not remember, and impute in thier decisions, history, condemned to repeat it?  Is the lack of memory a result of a modern lack of continuing or durable sovereignty--is the state a new "person" every few years?

The "Private Law" Oxymoron

See Peter Spiro's story on Opinio Juris about the big retailers' (Walmart, Tesco, etc.) Global Social Compliance Program.  I had not heard of this one.  It is interesting that the retailers would join together to set standards for their suppliers.  Is it intended to take the wind out of the sails of the UN's social compact program?  Is it really going to help marketing?  Was there pressure from investor groups?  Why else would these companies do this?  If developing countries would oppose these types of measures in the WTO as possible blue protectionism, would they prefer a private initiative? 

Biofueling Doha?

Some optimism from a US administration figure that the increasing attractiveness of agro-based fuels will bring progress in Doha. Of course this over-simplifies the issue, and the catches are many. I could've posted this as a trade law "brain-teaser", but see this interesting discussion paper, co-authored by Rob Howse, discussing the whole slew of WTO disciplines that may be relevant to production of and trade in biofuels.

T.

Vietnam MFN?

On December 29, President Bush took the final step, authorized by legislation signed December 20, to provide MFN treatment to Vietnamese goods.  At the same time, the U.S. Commerce Department is discussing a special textiles monitoring arrangement, applicable only to Vietnam.  This raises a good question about the scope of the MFN obligation (not to mention provisions of the Anti-Dumping Agreement).  Does MFN include an obligation of equal procedural treatment in connection with surveillance, as well as equal substantive treatment?  While related issues were addressed in the GATT Brazilian Non-Rubber Footwear case, and in connection with national treatment in the Section 337 case, I am not sure there is an easy answer to this question.   

Today's Trade Law Brain Teaser

I was recently asked whether Israel's large excise tax on automobiles, applied at the border, raises WTO law issues.  Israel has no domestic production of automobiles, so the tax de facto only applies to imports.  However, it is by definition non-discriminatory, because there is not domestic production to compare it with.  Nor does it seem to raise issues under Article XI, which specifically excludes taxes from its application.   If the measure were a product standard, it would be required to be the least trade restrictive measure under the TBT Agreement, regardless of domestic production.  But as a tax, it  appears subject to no similar proportionality requirement.  So, it seems that there is no legal problem.  What am I missing?

EU-US Deepening

Wednesday's FT reports that Angela Merkel is seeking greater regulatory harmonization between the US and EU, as Germany begins its presidency of the EU.  This initiative is alternatively referenced as "transatlantic co-operation", a "transatlantic partnership", and a move toward a "transatlantic single market".  Except for agriculture, there would be little to impede a transatlantic FTA, but tariffs on both sides of the Atlantic are already low on manufactured goods.  And Merkel says she does not plan a FTA with zero tariffs.  On the other hand, Merkel seems interested in working on regulatory issues along the lines of the EU single market.  I have not seen studies of the costs of failure to harmonize or recognize, but Merkel must believe they are significant.  The FT quotes a German parliamentairan as saying that financial market integration would cut trading costs by 60% and the cost of equity capital by 9 percent.  These are surprisingly large figures.