International Economic Law and Policy Blog

Globalization, Income, and Income Inequality

At the risk of my posts on this blog turning into Dani Rodrik comments exclusively, I have a comment on a short post he did on globalization and income inequality.  He refers to a Wall Street Journal article called "Globalization's Gains Come with a Price," and notes that "it's all about how the wage distribution has gotten wider in developing countries, contrary to what a lot of people were expecting."  He says that when he read it, his first reaction was, "this is news?" The article is available here.

Now, it is true that the article says that the wage gap has gotten wider in developing countries.  But it also suggests that all groups have seen their incomes rise; it's just that the income of poor people has not increased as quickly as the income or rich people.  In this regard, the article gives the following examples:

• "From 2000 to 2005, per-capita income of the bottom 10% of urban households in China rose 26% while those at the top saw gains of 133%."
• "While Mexico hasn't experienced the spectacular growth of China, wages of those at the bottom 10th percentile of urban full-time workers increased 12% between 1987, when the country first took steps toward opening its economy, and 2004. Since 2000, the percentage of Mexicans living in extreme poverty also has fallen below 20% for the first time ever in the nation's history."

In essence, the article explains, "Incomes of low-skilled workers may rise, but incomes of skilled workers rise a lot faster."

My question is this.  Assuming that this rise in incomes is due, in some part, to "globalization," are people suggesting that we should adopt trade policies that make people poorer but more equal?  It doesn't surprise me that, all else equal, people would favor policies that promote equality.  But to me, criticisms of globalization for making everyone better off, but helping the rich more than the poor, miss a very important point: poor people are now less poor.

Indonesia--WHO Negotiations re Virus Samples

Today's FT reports that there is a resolution of Indonesia's concerns regarding sharing virus samples and access to virus vaccines:

The language of the World Health Assembly draft resolution is vague. It says a working group of the WHO, the UN’s health agency, will develop rules to guarantee “timely sharing of viruses” between affected countries and the WHO and ensure ”fair and equitable distribution of pandemic influenza vaccines at affordable prices in the event of a pandemic”.

It does not meet Indonesia’s demand that samples only be given to vaccine manufacturers with the prior consent of the donor nation. It says that ”in times of public health emergencies of international concern,” manufacturers should be given ”full access” to samples.

It will be interesting to see how the WHO rules ensuring "fair and equitable distribution" of vaccines will be reconciled, or not, with TRIPS rules. 

Make Or Break Time for the Doha Round (Again)

A Reuters story today is titled, "Blair says coming weeks are make-or-break for WTO."  Blair is quoted as saying: "The reality is that if we don't get ... the headline agreement in the next two to three weeks then we won't do it."  This sounded very familiar to me, so I did some searches in Google's news archives:

• From the Guardian in January 2001: "Make-or-break move for trade pact." ("Pascal Lamy, the EU's trade commissioner, said: 'The multilateral trading system has a future but it is a future which will be decided this year.'")
• The Age in June 2004: "Trade meeting could make or break." ("Australia will join four of the world's most important trading nations this weekend in a meeting that could make or break the current round of trade talks.")
• Taipei Times in December 2005: "Hong Kong talks are make-or-break for both WTO and Lamy." ("Global trade talks opening in Hong Kong next week will seriously test the credibility of the WTO and Pascal Lamy, its director-general.")
• BusinessWorld in June 2006: "Trade body in make or break aggie deal." ("It's another make or break weekend as the World Trade Organization (WTO) firms up discussions in Geneva on tariffs for the controversial agriculture sector.")

Chevron

As we discuss standards of review, and Article XVII:2 of the Anti-DUmping Agreement, we often refer to the U.S. administrative law case, Chevron.  The following article seems to suggest that importing an unrefined Chevron into international trade law may exceed Chevron's domestic force. 

"Chevron's Demise: A Survey of Chevron from Infancy to Senescence"

Administrative Law Review, Vol. 59, 2006

Contact: LINDA JELLUM

Mercer University - Walter F. George School of Law

Email: [email protected]

Auth-Page: http://ssrn.com/author=624243

Full Text: http://ssrn.com/abstract=985380

ABSTRACT: This article explores Chevron's role in statutory interpretation. In Chevron the Supreme Court resolved the question of how much deference courts must give to an agency's interpretation of a statute: first, determine whether Congress had decided the issue; if not, then defer to any reasonable agency interpretation. But Chevron has proved to be less clear, predictable, and simple than originally envisioned. For example, exactly how searching should the inquiry be at the first step?

Should a court limit its search to the text of the statute at issue, or should a court look more broadly for Congressional intent? These are different questions. And, more importantly, the answer directly impacts the distribution of lawmaking power among the three branches of government.

This article explores the Court's reformulation of Chevron's first step and ultimately concludes that Chevron's importance is

fading: where Chevron's early application knew no bounds, today, Chevron applies less often and is cited by the Court far less frequently. In the end, the Court's reformulation of Chevron's first step has hastened Chevron's demise.

Visas

One of the latest areas of contention in the Doha round is India's concern that its citizens cannot obtain enough U.S. visas to provide GATS authorized services in the U.S.  See Minister Kamal Nath's statement. 

India has raised the issue of visas in negotiations, but we might ask whether there is any potential for a dispute under current law.  Of course, the Annex on Movement of Natural Persons provides some exclusions from the GATS for certain related issues (see paragraphs 2 and 4 quoted below).  Paragraph 2 appears to apply to those seeking employment in the host country, while paragraph 4 applies to those employed abroad who travel to the host country to perform services.  Assuming India's concern is covered by paragraph 4, note the proviso to paragraph 4.  Under the proviso to para. 4, the nullification or impairment must be of a specific commitment.  So, India would have to identify a specific U.S. Mode 4 commitment that is nullified or impaired by U.S. visa requirements.  Here, it is worth noting that the U.S. reserves a portion of its H1B visas for Chile, Australia and Singapore under its FTA agreements with those countries.  It may be that this denial of mfn itself constitutes the nullification or impairment:  that the relative competitive position vis a vis Chile, Australia and Singapore is one of the benefits of the commitment.  So, there would have to be a specific commitment, and denial of mfn in this context would have to be viewed as nullification or impairment for India to have a successful dispute settlement case.

From the Annex on Movement of Natural Persons:

2.         The Agreement shall not apply to measures affecting natural persons seeking access to the employment market of a Member, nor shall it apply to measures regarding citizenship, residence or employment on a permanent basis.

4.         The Agreement shall not prevent a Member from applying measures to regulate the entry of natural persons into, or their temporary stay in, its territory, including those measures necessary to protect the integrity of, and to ensure the orderly movement of natural persons across, its borders, provided that such measures are not applied in such a manner as to nullify or impair the benefits accruing to any Member under the terms of a specific commitment.[1]

---

[1] The sole fact of requiring a visa for natural persons of certain Members and not for those of others shall not be regarded as nullifying or impairing benefits under a specific commitment.

The Section 301 Currency Petition - The Full Text

The full text of the Section 301 currency petition is available here.  The legal arguments start here.  Here are some excerpts (based on an OCR conversion of a scanned document -- hopefully the text came through OK, but there may be occasional typos):

SCM Agreement Article 1/3.1(a) (prohibited export subsidy)

The Chinese govermnent's foreign-exchange scheme provides to Chinese exporters and their exports to the United States a financial contribution within the meaning of the SCM Agreement. The Chinese govermnent requires its citizens to exchange their dollars for local currency, sets the rate of exchange by fiat, and prints the money to fund the transaction. By directing the conversion of U.S. dollars at an extremely undervalued rate, the Chinese govermnent provides a financial contribution and service within the meaning of Article 1.1(a)(1)(iii) of the SCM Agreement.

...

... there is no doubt that, under these terms, Chinese exporters and exports receive a primary benefit from China's essentiaIIy pegged-exchange rate of the considerable difference between the govemmentaIIy-controIIed exchange rate and the rate that would prevail under a market-exchange system for the yuan.

...

The application of these factors to China's foreign-exchange policy and practice confirms that China's undervalued-exchange-rate regime constitutes a de facto export subsidy. First, the Chinese government, as the granting authority, imposes a condition based on export performance in providing the subsidy. The subsidy, derived from the undervalued yuan, is dependent upon the existence of export performance in order to take effect. The nexus between the subsidy of the yuan's exceptional undervaluation and the prerequisite ofexportation for a company in China to enjoy that subsidy is so close and inextricably linked that conditionality is indisputable.

Second, the facts demonstrate that the granting of the subsidy is tied to or contingent upon actual or anticipated exports from China, because the subsidization would not occur if exports did not occur. In order for the foreign-exchange program to operate, products must be traded internationally. Without export performance, there would be no foreign currency to exchange. Moreover, the fact that the subsidy results in increased exports to the United States and elsewhere and in the accumulation by China of massive foreign-exchange reserves provides additional evidence oftying. Thus, the required tying/contingency element is satisfied.

Finally, while not a definitive factor, the primary recipients of the subsidy under this foreign-exchange program are undoubtedly manufacturing companies in China that export and that are exporting in ever-increasing amounts so as to benefit from this program. These beneficiaries of China's undervalued-exchange-rate regime accordingly are export-oriented.

Agriculture Agreement

... China's undervaluation of the yuan is an export subsidy that is contrary to China's commitment to end export subsidies upon its accession to the WTO and prohibited by the Agriculture Agreement on exports from China to the United States of agricultural products.

GATT Article XV:4

... by means of the expedient of undervaluing and misaligning its currency as it has, China dramatically has frustrated the intent of the GATT. This exchange action by China at once is undercutting all of the GATT's principal concepts that together have formed the backbone of the international trading system since the end of World War II. With reference to the addendum to Article XV:4, China's undervaluation of the yuan appreciably departs from the intent of the foregoing provisions of the GATT. In actuality, China's refusal to set a realistic exchange rate for the yuan based on market conditions or allow the yuan to seek its own market-driven balance against the U.S. dollar is a direct challenge to the GATT's principles with debilitating effects both for the United States and the global economy as a whole. China's undervaluation of the yuan violates Article XV:4 ofthe GATT.

Article IV of the IMF's Articles of Agreement

China's undervalued-exchange rate system causes prices of U.S. products in the Chinese market to be higher than what would prevail under market conditions and causes prices of China's products to be lower in the U.S. market than what would prevail under market-determined exchange rates. This subsidized practice gives China's products a competitive advantage when competing with U.S. products in the Chinese marketplace, in the United States and in third-country markets, contrary to the obligations under the IMF's Article IV, section l(iii).

Article VIII of the IMF's Articles of Agreement

Other currencies adjust simultaneously to the yuan and the U.S. dollar, because the exchange rate is essentially pegged. Those currency adjustments, however, must be greater than what would be required under market conditions, because the yuan is undervalued and unable to appreciate significantly in real terms against the dollar. China's undervalued exchange rate clearly discriminates against the United States and other IMF members. The fact that China has shown no real flexibility indicates that China has continued to be in violation of its obligations to the IMF under Article VIII ofthe IMF's Articles ofAgreement.

Another Section 301 Currency Petition

Forty-two members of Congress have submitted a Section 301 petition in relation to Chinese and Japanese currency valuation.  According to the press release:

The petition, filed under section 301 of the Trade Act of 1974, calls on the United States Trade Representative to take strong action to end China’s continued undervaluation of its currency, the renminbi (RMB), and to consider taking action against the undervalued Japanese yen.

Here are links to the summary portion of the petition and an "accompanying letter." I'm not sure where the full petition can be found.  The summary says that the RMB undervaluation is a "prohibited export subsidy" and says that it "frustrates the intent of and breaches basic principles of" the GATT.  The summary also refers to Articles IV and VIII of the IMF's Articles of Agreement.

Previous petitions have been rejected by USTR.  We'll see how this one does.  The article notes:

Since prior rejections of the "Section 301" petitions, however, the Democrats have gained control of Congress and the White House needs their cooperation on a long list of trade priorities, including renewal of trade promotion authority to negotiate trade deals.

More on Trade and Labor

See Claude Barfield's article explaining the conflicting spins being put on the bipartisan trade compromise on FTAs and labor. 

Bartels on the New EU GSP Program

Lorand Bartels has a draft paper in which he argues that the EU's new GSP+ arrangement is not consistent with WTO rules.  He explains:

Under this arrangement, additional tariff preferences (normally duty free treatment), were made available to developing countries committing to ratify and implement a list of human rights and good governance conventions, so long as these countries applied by 31 October 2005. All but one of the countries benefiting from the former drugs arrangement are on the new list, now joined by Georgia, Sri Lanka, Moldova and Mongolia. This arrangement will apply until 31 December 2008.

According to the EU, the GSP+ arrangement complies with the Appellate Body’s interpretation of the Enabling Clause. This article argues that it does not. This is, on the one hand, because of the substantive criteria chosen by the EU to select GSP+ beneficiaries, which do not meet the Appellate Body’s criteria for differential tariff treatment of developing countries; and, on the other, because of the EU’s requirement that would-be beneficiaries must have applied by a certain date. This, somewhat oddly, replicates the problem of the ‘closed list’ of beneficiaries that was fatal to the earlier incarnation of the EU’s GSP program.

There's a lot more to it, of course.  Check out the whole paper.

Starbucks v. Ethiopia

See the nice post by Peter Spiro at Opinio Juris.

The Expanding Scope of Trade Agreements

Just two quick points related to Joel's earlier posts about the "new" U.S. approach to trade policy.

First, according to the USTR fact sheets on labor and the environment, there is to be a requirement that any alleged labor/environment violations must "affect" trade or investment in order to be challenged (as Joel notes).  But how broadly will "affect" be interpreted?  This is a vague term and dispute settlement panels will have a great deal of latitude in defining the scope.  In practice, will every violation of a covered labor or environmental agreement be found to "affect" trade?  If not, how will the line be drawn?  I wonder whether the actual agreements will try to clarify the term.  If it is left open, one side or the other could find an unpleasant surprise in the meaning decided on by a panel.

Second, at a certain point, do we have to come up with a new name for these kinds of agreements other than "free trade agreements"?  Certainly trade (and free trade) is still a substantial component.  But with IP protection, investment and now labor/environment included, perhaps we need a more accurate title.  Maybe "Economic Partnership" agreement? 

New Trade and Labor Deal

The USTR has now published a fact sheet providing a bit more detail on the new deal between the administraiton and congress (hat tip to Julian Ku at Opinio Juris).  The idea is to make the 5 core principles subject to the same dispute settlement as commercial obligations, but (i) only insofar as they relate to trade and investment, and (ii) with no private rights of action. 

It will be interesting to see if anything happens under these provisions.  Experience may serve as a pathfinder for a multilateral arrangement relating trade to labor. 

The WTO in HK, again?

There is an interesting article in the IHT recently on the possibility of the WTO moving its headquarters in protest of the unattractive offer made by the Swiss government to expand its building. Both HK and Singapore, two Members with the most liberalized trade regimes, were rumored to be among top choices for the new headquarters.

A New Approach to Trade and Labor/Environment

News reports today are filled with stories of the deal between democrats and republicans regarding trade and labor/environment.  One particularly detailed story is here.  According to the report, ranking republican member of the House Ways and Means Committee McCreary says the deal won't be applicable to WTO negotiations.  The focus is Peru and Panama (although Korea and Colombia may be covered too):

Under the new policy, free trade agreement countries would be committed to adopting and enforcing laws that abide by basic international labor standards as outlined in a 1998 International Labor Organization declaration. It would prohibit those countries from lowering their labor standards.

The labor commitments would be incorporated as part of the core free trade treaty rather than, as has been the practice, spelled out in side agreements or side letters.

Similarly, countries that reach trade agreements with the United States would have to adopt and enforce laws that are in line with seven major multilateral environmental agreements.

Peru would have to take steps to crack down on illegal logging, including mahogany.

The new policy also takes steps to make it easier for poor people in trading partner countries to get access to cheaper generic drugs. 

World Trade Online had some interesting reports about the incorporation of labor and environmental standards, but there appears to be more work to be done to elaborate the details.  Here's what they said about the environment provisions:

On the environment, the new template would include the affirmative obligation for countries to implement the multilateral environmental agreements (MEAs) they have ratified, and a list of seven MEAs that would be considered not to conflict with FTA obligations. As a result, the FTA cannot be used to undermine an MEA, according to the Pelosi fact sheet.
The MEAs subject to the so-called conflict of law provisions are the ones that the U.S. and other signatories have both ratified, sources said. But the language does not address the situation most likely to lead to a fight over whether an MEA conflicts with an FTA, which is when one signatory to a trade deal has ratified the MEA and the other one has not.

Obama's Trade Team

Bloomberg reports that Barack Obama will be getting trade policy advice from Dan Tarullo of Georgetown:

The tough task of helping to develop a trade policy that avoids overt protectionism may fall to [Daniel] Tarullo, a 54-year-old trade expert. Tarullo ``escapes easy labeling,'' said former Clinton chief of staff John Podesta, president of the Center for American Progress, a self-described progressive advocacy group in Washington. ``That makes him especially valuable in finding new solutions to a new set of thorny problems.''

Efavirenz

Brazil has issued a compulsory license for the medicine Efavirenz, an important anti-retroviral.  See the story here.  Brazil had negotiated with Merck for a couple of years, and failed to reach agreement on price.  Apparently, Brazil would have been satisfied with the same price charged in Thailand, but Merck felt that Brazil could afford more.  These negotiations take place under the shadow of Article 31(h) of TRIPS: 

(h)        the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization;

I am not sure that anyone knows precisely what this language means.  But one argument is that "economic value" means "fair market value."  Merck would also argue that "adequate" means what it is defined to mean in BITs:  fair market value.  See the U.S. model BIT.  Of course, Brazil would counter that the BIT definition is neither customary international law nor applicable in TRIPS.  If the "fair market value" is calculated based on the state imposing the compulsory license, then Merck may have a point in arguing that the Thai price is not determinative for Brazil. 

More Dani Rodrik

So far, Dani Rodrik's blog has been extremely interesting.  In a post today, he says that the issue of "whether we should increase trade restrictions or lower them" is part of the "old debate," and then suggests that today's questions are different:

Should the U.S. negotiate more bilateral free trade agreements, or fewer? Should we consider a “strategic pause” in trade negotiations to improve the functioning of the WTO or push hard on the existing Doha agenda? Should core labor standards and environmental safeguards be negotiated jointly with trade agreements? How much “policy space” should the WTO allow for? Should labor mobility be part of international trade agreements? How much quid pro quo should the developing countries offer “in return” for agricultural liberalization in the North? Does competition policy and investment belong in the WTO? Should intellectual property rights protection rules be different for developing nations?  None of these questions maps neatly into the more-versus-less restriction dichotomy.

I definitely agree with him that these questions are important.  I'm not so sure that high versus low trade restrictions is part of the "old debate," though.  Whether to raise or lower trade barriers is still a hotly contested issue.

The key, I think, is that when discussing these issues, it is important to distinguish between the traditional free trade versus protectionism argument and the new issues he points to.  For example, you can be for lower tariffs but against international intellectual property protection through the WTO, or vice versa.  Or you can be for both or against both.  When the issues get blurred together, however, the discussion sometimes loses its clarity.

Developments in the Gambling Dispute

According to press reports, the U.S. is planning to "clarify" its GATS commitments relating to gambling services, pursuant to GATS Article XXI:

The United States said Friday it was not required to comply with a WTO ruling to open its borders to the Internet gambling industry because of an "oversight" in a decade-old trade agreement.

US officials said they were submitting documents to "clarify" Washington's commitment to "recreational services," which was interpreted in a WTO dispute settlement as including a commitment to allow cross-border Internet gambling services.

The clarification "should dispose of this matter," said Deputy United States Trade Representative John Veroneau.

...

US officials said Article 21 of the GATS agreement allows a member to file clarifications to their original schedule of commitments, a procedure that has been used only once.

Under the procedure, an affected country may file a claim for compensation that may be subject to arbitration at the WTO. A finding against the US might allow a country to retaliate by restricting some services, US officials said.

I take it this means the U.S. will not appeal the Article 21.5 panel report circulated on March 30, and will pursue GATS Article XXI instead, but I haven't seen anything definitive to that effect.

I didn't see anything in the press about Antigua's response, so I emailed Mark Mendel, one of Antigua's lawyers, and we had this brief exchange:

Simon Lester: I have seen a number of press reports regarding the planned U.S. response to the Article 21.5 Gambling Panel report findings, indicating that the U.S. intends to seek modification of its GATS commitments pursuant to GATS Article XXI.

I wonder if you could offer any comments regarding Antigua's likely response to this development?

Mark Mendel: It is over all a most shocking development.  To my knowledge, Article XXI has never been used before (other than by the EU in connection with harmonising schedules upon enlargement), and to use it in the face of an adverse DSU ruling is nothing short of incredible.  If the United States goes forward with this most unwise plan, Antigua will once again be breaking new ground in pushing forth a claim for compensation for the withdrawal of the commitment.  We are currently assessing our options, although it may take some time to sort through all of the implications of this decision.  It is, however, simply stunning that the United States would take this action and I would expect it will have very serious adverse implications for the WTO and the Doha round.

One of the really incredible things about the USTR's statement today is this allegation that it was simply a "mistake" or drafting error to make the commitment.  Over 100 WTO members managed to exclude gambling commitments from their schedules, over a dozen of them by explicit reference.  It is simply impossible for the United States to have made a mistake in this regard.

Simon Lester: Do you view recourse to GATS Article XXI as precluding suspension of concessions under DSU Article 22?  In other words, assuming the Article 21.5 panel report gets adopted, would Antigua pursue suspension under DSU Article 22 at the same time the U.S. is pursuing modification under GATS Article XXI?

Mark Mendel: Just off the cuff, under Article XXI, it appears that we would pretty much be using the same process that we would use under Article 22 of the DSU, but measuring damages on a permanent rather than an annual basis, so it seems there wouldn't be much sense in going to Article 22.  I wouldn't think, however, that we would be precluded from Article 22.  We may well consider arguing that the US is precluded from withdrawing the commitment with respect to Antigua under the circumstances.  It is all going to be new ground.

This is certainly a novel procedural situation, and it's going to be interesting to see how it develops.

ADDED:  I thought it was worth updating this post with a couple points.

First, in an ASIL Insight piece from November 2004 that was particularly insightful, Joost Pauwelyn concluded his short article on the original Gambling panel report with the following:  "... if necessary, the United States can always re-negotiate its GATS commitments and withdraw the one on internet gambling (GATS Article XXI).  All it needs to do is offer equivalent compensation or accept reciprocal trade retaliation by Antigua."  This is not to say that Joost would endorse going to Article XXI in the midst of an Article 21.5 compliance proceeding, but nevertheless it was a pretty good call!

Second, not surprisingly, Antigua is not happy with this development: See the Antigua Online Gaming Association Press Release and the Antiguan Government Press Release.

Third, I've been wondering what the GATS Article XXI rules mean for the possibility of cross-retaliation under another agreement.  DSU Article 22.3(c) explicitly allows this under certain conditions.  On the other hand, GATS Article XXI:4(b) merely says: "If the modifying Member implements its proposed modification or withdrawal and does not comply with the findings of the arbitration, any affected Member that participated in the arbitration may modify or withdraw substantially equivalent benefits in conformity with those findings."  Does the absence of a mention of this kind of cross-retaliation in Article XXI mean that such cross-retaliation is not permitted there?  A quick web search led me to this answer: "While there is some dissent, the predominant view appears to be that Article XXI permits cross-retaliation; retaliatory sanctions need not be confined to services but could also be applied, to exert maximum pressure, to agricultural or goods trade." (Page 33 of this document: http://policyalternatives.ca/documents/National_Office_Pubs/facing_facts.pdf )  But I wonder how the Article XXI arbitration body would interpret the provision.

Call for Panels: International Law Weekend

From Peggy McGuinness:

International Law Weekend 2007

Towards a New Vision of International Law

Call for Panel Proposals

The post-9/11 era has been one of great contestation for international law.  Scholars and practitioners debate basic questions about the content and nature of public international law and how the political and judicial branches of the

U.S.

government should interact with it. At the same time, quite removed from these controversies, international law continues to develop and expand.  Trade agreements and arbitral conventions, for example, play a critical role in facilitating the ever-growing business transactions across borders, and regional human rights institutions have expanded the protection of individual rights.

This simultaneity of conflict and routine occur against a complex legal, socio-political, economic, and cultural backdrop.  Literature across different disciplines has attempted to grapple with the effects of globalization and the legacy of colonialism.  Traditional accounts of international governance through sovereign equality have been supplemented by divergent accounts of the role of nonstate and substate actors. 

Amid these uncertainties, International Law Weekend 2007 asks what it means to move towards a new vision of international law.  How should scholars and practitioners engage the multiple conceptual and normative perspectives on international law?  Are these contestations within international law new?  How should academics, practitioners, and policymakers interact?  How are generational shifts influencing this discourse? What is the role of interdisciplinary interchange?  And, perhaps most important, what would progress in international law look like?

The 2007 International Law Weekend will be held October 25 to 27, 2007, at the House of the Association of the Bar of the City of

New York

.  We invite proposals for panels to discuss issues related to this theme.  Panel proposals should be submitted to the conference co-chairs— Peggy McGuinness ([email protected]), Hari Osofsky ([email protected]), Patrick Reed ([email protected]), Nancy Thevenin ([email protected])—by June 1, 2007.  Proposals should include a title, one paragraph description of the panel’s focus, and a list of speakers.  We also welcome alternative formats such as roundtables, audio-visual materials, etc.

Outshoring and Offsourcing

Well, I spent the afternoon at a conference at Harvard today, where Jagdish Bhagwati was to debate Alan Blinder about Offshoring/Outsourcing. Actually, their biggest disagreement was about the name of the phenomenon. Blinder uses offshoring to refer to country effects, as opposed to firm effects, whereas Bhagwati just uses “outsourcing” for both. I’m with Bhagwati on this one.  The most remarkable thing is that they did not really disagree. I think a lot of their agreement has to do with the level of uncertainty in the data—they certainly don’t disagree on the theory. Not much of a debate. 

Blinder thinks that there will be substantial effects that will cause significant dislocation. The magnitude will be caused by improving IT and the rise of China, India, and the former Soviet Union. These places have labor but no capital.  This change will be bad for labor and good for capital. It will be most severe for workers in the “impersonal service sector:” where services do not need to be provided face-to-face. When I described this to my 18 year old and 13 year old sons at dinner, they were surprised that I needed a brilliant economist to tell me that. In any event, Blinder conceded that there would be some equilibrating mechanisms, and some onshoring and cost reductions. The dollar will fall.  But he sees a long, large transition, with difficult adjustment problems, and expects it to “dominate the political economy landscape” for years. He noted that the U.S. does a bad job of compensating losers, and said there should be a broader and deeper social safety net. Trade Adjustment Assistance should be available for service workers. 

Bhagwati did not find the argument that there will be lots of jobs lost compelling.  He sees continuity with the trend that has occurred in goods, with jobs lost and adjustment. He sees lots of insourcing.  He disagreed with Blinder’s observation that there are lots of English-speaking Indians, and said that the China and India effects are overstated.

I could not stay to hear what the other commentators, including Richard Freeman, Douglas Irwin and Robert Lawrence, had to say. One of my students may add some observations later. 

Non-Discrimination: How Others Do It

The proper standard for non-discrimination has long been a vexing question in GATT/WTO law.  Is there anything to be learned from seeing how others do it?  Yesterday the U.S. Supreme Court decided a "dormant" commerce clause case, where non-discrimination is part of the legal standard (at least under the view of some people).  The following summary of the case and the various opinions is from Scotusblog. I focus here on the parts that apply the non-discrimination standard (there is more to the case as well).

The background of the case is as follows:

During the 1980s, the New York counties of Oneida and Herkimer faced, according to the Chief Justice, a “solid waste ‘crisis’” that included not only health and safety problems, but also “price fixing, pervasive overcharging, and the influence of organized crime.” ... In response, the counties enacted ordinances that required all of their solid waste to be delivered to processing sites owned and operated by the Oneida-Herkimer Solid Waste Management Authority, a corporation created by the New York state government. Buoyed by the Supreme Court’s 1994 decision in C & A Carbone v. Clarkstown, which invalidated a similar ordinance that required trash to go to a privately operated processing facility, trash haulers filed suit, alleging that the ordinance violated the dormant Commerce Clause.

In essence, the local government ordinance requires that waste be delivered only to a designated local government owned corporation. A prior Supremore Court case struck down a similar ordinance that required waste to go to a local private corporation.

The majority's opinion finding that the law does not violate the dormant commerce clause is summarized as follows:

Relying on the difference between the privately operated facility at issue in Carbone and the publicly owned Oneida-Herkimer facility, the Court today rejected the trash haulers’ challenge to the “flow control” regulations. In the majority’s view, Carbone could not be dispositive because it did not address the public-private distinction. And because governments have responsibilities – such as health and safety concerns – beyond those of private businesses, the majority posits that “it does not make sense” to subject laws that favor local government to the same level of scrutiny as laws that “favor[] in-state business over out-of-state competition,” as the latter often seek to achieve “simple economic protectionism.” Indeed, the majority emphasizes, “treating public and private entities the same under the dormant Commerce Clause would lead to unprecedented and unbounded interference by the courts with state and local government” – interference that is particularly inappropriate in the area of traditional local government functions such as solid waste.

Thus, the majority thinks this law is permissible because it discriminates in favor of a government-owned corporation rather than a private corporation, referring in this regard to the importance of "traditional local government functions." However, there was also a three person dissent, which held as follows:

Joined by Justices Stevens and Kennedy, Justice Alito would have invalidated the ordinances on the ground that they were “essentially identical” to those at issue in Carbone. In Justice Alito’s view, statements by the Carbone majority “reflect[ed] a clear understanding that the station was, for all purposes relevant to the dormant Commerce Clause, a municipal facility.” More importantly, however, Justice Alito rejects the majority’s public-private distinction as “illusory”: “The Court has long subjected discriminatory legislation to strict scrutiny, and has never, until today, recognized an exception for discrimination in favor of a state-owned entity.” Moreover, there is no justification for the exception that, in the dissent’s view, the majority is creating out of whole cloth today. Contrary to the majority’s assertion, discrimination in favor of a state-owned entity, Justice Alito posits, does serve “local economic interests” (such as providing jobs to local residents and business for local suppliers), while discrimination in favor of privately owned local entities may serve legitimate health and safety purposes. Thus, Justice Alito contends, the proper inquiry in dormant Commerce Clause cases looks not only at the goals of the challenged regulation, but also at “the means by which those goals are realized.” If the means are discriminatory, then the regulation must be subjected to strict scrutiny.

I think I side with the dissent on this one.  If you are going to apply a non-discrimination rule, why carve out an exception for discriminating in favor of a government-owned corporation?  That could be quite a big exception in practice.