International Economic Law and Policy Blog

Hudec Conference Redux

If you missed the conference on "Developing Countries in the WTO Legal System" at the University of Minnesota in late May, you can now see most of the proceedings on-line.  The draft papers are available there too. 

iPod and U.S. Trade Deficit with China

An interesting NYT article today reports that due to using conventional trade statistics,

“Even though Chinese workers contribute only about 1 percent of the value of the iPod, the export of a finished iPod to the United States directly contributes about $150 to our bilateral trade deficit with the Chinese.”

Is trade statistics generally compiled this way? If so, its policy implications would seem to be substantial. Also,
do rules of origin for customs purposes have anything to do with this?

Zeroing: The Negotiations Begin

In a submission from June 1, the U.S. made its case in the Negotiating Group on Rules for amending WTO rules to allow "zeroing":

... the Appellate Body reports are contrary to what many have long understood to be consistent with the text of the AD Agreement.  The fact that three panels, composed of experienced anti-dumping practitioners, administrators, and negotiators, came to conclusions different from those reached by the Appellate Body demonstrates that this issue has not been resolved in any genuine sense and underscores the reality that there remain fundamental differences among Members as to the proper interpretation and operation of the AD Agreement and the underlying concept of dumping.

...

The Negotiating Group on Rules needs to evaluate openly the panel and Appellate Body reports and understand as clearly as possible the reasoning adopted, whether we agree with it or not, and what that reasoning means for different aspects of the AD Agreement as well as for the different systems recognized by the AD Agreement as legitimately operating within its rules.  As negotiators responsible for clarifying and improving the provisions of the AD Agreement, it behoves us to evaluate the panel and Appellate Body reasoning and its implications and, to the extent that there is a lack of clarity with respect to the proper interpretation of the text and the proper operation of anti-dumping systems, to resolve these issues with clear, precise text.  To this end, it is the view of the United States that the proper resolution of this issue requires clear text providing that margins of dumping may be determined without offsets for non-dumped transactions, consistent with the long-held concept of dumping. ...

Getting more specific, the U.S. just today proposed some specific language amending the AD Agreement in this regard (the language to be added to the existing text is underlined):

Proposed Text – Antidumping Agreement

2.4 A fair comparison shall be made between the export price and the normal value as follows.  This comparison shall be made at the same level of trade, normally at the ex factory level, and in respect of sales made at as nearly as possible the same time.  Due allowance shall be made in each case, on its merits, for differences which affect price comparability, including differences in conditions and terms of sale, taxation, levels of trade, quantities, physical characteristics, and any other differences which are also demonstrated to affect price comparability.   In the cases referred to in paragraph 3, allowances for costs, including duties and taxes, incurred between importation and resale, and for profits accruing, should also be made.  If in these cases price comparability has been affected, the authorities shall establish the normal value at a level of trade equivalent to the level of trade of the constructed export price, or shall make due allowance as warranted under this paragraph.  The authorities shall indicate to the parties in question what information is necessary to ensure a fair comparison and shall not impose an unreasonable burden of proof on those parties. 

*****

2.4.3 When aggregating the results of comparisons of normal value and export price to determine any margin of dumping, whether in an investigation pursuant to paragraph 4.2 or for any other purpose (including determinations pursuant to Articles 9 or 11), authorities are not required to offset the results of any comparison in which the export price is greater than the normal value against the results of any comparison in which the normal value is greater than the export price. 

*****

9.3 The amount of the anti dumping duty shall not exceed the margin of dumping as established under Article 2.  For purposes of this provision, in determining whether the amount of the anti-dumping duty exceeds the margin of dumping, the authorities may calculate the margin of dumping on the basis of an individual export transaction or multiple export transactions.  The authorities are not required to offset the results of a comparison for any transaction for which the export price is greater than the normal value against the results of a comparison for any transaction for which the export price is less than the normal value. 

From Online Gambling to Online Everything

It has been clearly established that online gambling is within the WTO's jurisdiction. Now some want to expand the WTO's role in internet matters even further. The Associated Press reports:

Once relatively indifferent to government affairs, Google Inc. is seeking help inside the Beltway to fight the rise of Web censorship worldwide.

The online search giant is taking a novel approach to the problem by asking U.S. trade officials to treat Internet restrictions as international trade barriers, similar to other hurdles to global commerce, such as tariffs.

Google sees the dramatic increase in government Net censorship, particularly in Asia and the Middle East, as a potential threat to its advertising-driven business model, and wants government officials to consider the issue in economic, rather than just political, terms.

"It's fair to say that censorship is the No. 1 barrier to trade that we face," said Andrew McLaughlin, Google's director of public policy and government affairs. A Google spokesman said Monday that McLaughlin has met with officials from the U.S. Trade Representative's office several times this year to discuss the issue.

"If censorship regimes create barriers to trade in violation of international trade rules, the USTR would get involved," USTR spokeswoman Gretchen Hamel said. She added though that human rights issues, such as censorship, typically falls under the purview of the State Department.

...

One likely source for Google's censorship idea is a paper written two years ago by Timothy Wu, a professor at Columbia Law School, who argues that downloading a Web page hosted in another country effectively imports a service.

Drawing on that concept, Google envisions using trade agreements to fight back. The negotiated pacts would include provisions guaranteeing free trade in "information services." As is true of most trade pacts, the provisions would call for arbitration if there are violations.

...

Columbia's Wu said the trade pact approach is likely to be more effective when governments are guilty of blocking entire Web sites or applications, such as Internet phone-calling, than when they filter specific content.

I think this is the Tim Wu paper the article is referring to: The World Trade Law of Internet Filtering

ADDED:  It just occurred to me that a very early post by Joel also mentioned Tim Wu's article.

Multilateral Currency Rules

In a comment on one of Sungjoon's recent posts, I said the following in response to an earlier comment:

... while a WTO agreement on currencies would be difficult, I think some rules could be worked out on what constitutes "manipulation" or "misalignment." As to "what would determine when intervention is permissible and for what time duration" and "what level of intervention is considered to be 'manipulation?'", these are hard questions and I don't have a substantive answer other than: negotiation among the Members.

But a recent Economist "economics focus" article makes this task sound quite difficult. 

... the awkward truth is that it is almost impossible to be sure when a currency is misaligned, let alone by how much. A recent Treasury research paper admitted that there was no fail-safe method to estimate the correct value of a currency. A study by two IMF economists, Steven Dunaway and Xiangming Li, examined eight different estimates of the yuan's supposed undervaluation: they ranged from zero to almost 50% depending on the methods and assumptions used.

...

The ... awkward conclusion is that the highly subjective nature of assessing currency misalignment will make it very hard for America or the IMF to agree on whether a currency is out of line.

I'm not giving up hope, but it does make the task sound quite difficult.

"You Shall not Make the Case for the Complaining (or defending) Party": A Constant Double Bind for WTO Panels Faced with a Hesitant Jurisprudence

A disturbing and recurring theme in WTO Panel proceedings is the accusation that panelists are "making the case" for one of the parties. This is a serious accusation and panelists try to avoid it by repeating the mantra that they are aware of their limits. This mantra however cannot conceal the fact that panelists are confronted with two conflicting signals from the Appellate Body and that, at the moment, no one is able to say precisely what it means to "make the case" for a party.

On one hand, panelists are reminded by the Appellate Body that a panel is not obliged to limit its legal reasoning to arguments presented by the parties and that a panel can even develop its own legal reasoning to rule on a case. This is a very tempting signal for panels since they can gather much more information that the one provided by parties, first by themselves, but also through experts and now through amicus curiae briefs.

On the other hand, panelists are constantly reminded by parties that the Appellate Body bashed the Japan-Varietals panel for using expert information and advice as the basis for a finding of inconsistency with Article 5.6 of the SPS Agreement. According to the AB, the United States did not establish a "prima facie case of inconsistency with Article 5.6 based on claims relating to the determination of sorption levels". Moreover, according to the AB, the United States did not even argue that the "determination of sorption levels" is an alternative measure which meets the three elements under Article 5.6.

The words used by the Appellate Body in Japan-Varietals are so confusing that at the moment no one knows exactly what are the exact conditions in which a panel oversteps its limits and can be said to "make the case" for a party.

In Upland Cotton, Brazil argued that Japan Varietals stands for the proposition that not making the case for a party means only that a Panel cannot make a "claim" for a party, i.e., a legal claim that would be required to be set out in a request for the establishment of a panel. For Brazil, the fact that the United States had also not made "arguments" on its non-claim only reinforced the underlying reasoning of the Appellate Body.

However, the United States replied that Brazil’s position reveals a profound misunderstanding of the difference between a claim and an argument. For the US, there was no question that the United States advanced a legal claim that Japan's varietal testing measure was inconsistent with Article 5.6 of the SPS Agreement. Therefore the only issue was whether the United States had presented evidence and arguments relating to an alternative measure that satisfied its burden of making a prima facie case with respect to its Article 5.6 claim. In other words, for the US, panels "make a case" as soon as they use information in a context where a party has not presented enough facts and arguments relating to this information and therefore does not meet its burden of proof.

This divergence of opinions is aggravated by the fact that until now, the Appellate Body has refused to precise explicitly if "testing of the basis of sorption levels" was a claim or an argument.

My impression is that this state of affairs is very disturbing to say the least and that the Appellate Body should take the first opportunity to put an end to such a double bind.

Brazil–Tyres: Breaking New Ground in Chapeau Interpretation

In an earlier post, Joel and Simon commented on the importance of the Panel decision in the Brazil–Tyres case and indicated that there would be much more to discuss, especially how the Panel treated Brazil’s obligation under Mercosur. Here are some of my thoughts to share.

I believe the most significant contribution of the Panel decision is the new ground it developed for interpreting the chapeau of GATT Article XX. This new ground is also the key for understanding the Panel’s treatment of Mercosur.

The gist of the case is this: Brazil imposed an import ban on retreaded tyres, which are new tyres made out of used tyres but have a shorter lifespan than normal new tyres. The shortened lifespan of retreaded tyres results in a faster accumulation of waste tyres that cause special environmental and health hazards in Brazil’s tropical weather. The import ban, however, does not apply to Mercosur countries under an arbitration order of the Mercosur. Furthermore, while Brazil bans the imports of retreaded tyres, it allows the imports of used tyres from any country. Brazil did originally impose an import ban on used tyres, but had to suspend that ban pursuant to a domestic court order.

The Panel found that the import ban on retreaded tyres violated GATT XI, but was “necessary” to protect health within the meaning of Article XX(b). The Panel held, however, the ban did not meet the requirements of the chapeau of Article XX because it was applied in a manner that constitutes a means of “unjustifiable discrimination” and a “disguised restriction” on trade. The Panel’s decision is based on the finding that Brazil’s imports of used tyres are so substantial that they have “significantly undermined” the policy objective of the import ban on retreaded tyres. As for the Mercosur exemption, the Panel found that, at the time of its ruling, imports from Mercosur countries had not increased significantly, and therefore the exemption did not result in the ban being inconsistent with the chapeau. The Panel’s holding suggests that, should the imports from Mercosur countries increase substantially in the future, the exemption can be found to be inconsistent with the chapeau.

Thus, the Panel interpreted the chapeau requirements in this case by examining whether the declared policy objective of the ban has been “significantly undermined” by another measure (the imports of used tyres), or by the way in which the ban was implemented (the Mercosur exemption). In other words, the Panel examined whether the major loopholes existing in the Brazilian system have rendered the ban ineffective in achieving its declared policy goals. Using this approach necessarily requires the Panel to assess the impact of those loopholes quantitatively. And it was based on this quantitative assessment that the Panel reached its conclusions under the chapeau.

The Panel’s approach is new in Article XX jurisprudence. Previously, the chapeau had been substantively interpreted only in GATT XX(g) cases, namely, U.S.–Gasoline and U.S.–Shrimp. Given that XX(g) merely requires a “relating to” standard for justifying environmental measures, the AB more or less construed the chapeau as imposing a “necessary” standard, a higher one than that of “relating to”, as it suggested that there were alternative methods to achieve the same policy objective (such as reasonable efforts to collect foreign data in Gasoline, and negotiation in Shrimp). Article XX(b) and (d) cases, such as Korea–Beef, and EC– Asbestos, typically did not reach the stage of chapeau analysis because the measure in question would be either upheld or struck down under the stricter “necessary” standard of (b) or (d). One exception is the Panel decision in Argentina–Bovine Hides, in which the Panel held the measure in question was “necessary” under (d) but inconsistent with the chapeau because it was not “unavoidable.” This decision effectively interpreted (d) and the chapeau as requiring two different levels of necessity. The Panel decision was not appealed. The only AB decision involving a measure that has passed a “necessary” standard to the stage of chapeau analysis is U.S. – Gambling under GATS XIV(a). But that decision contains no substantive chapeau analysis, because the AB struck down the U.S. measure on the ground that the U.S. failed to prove its claim that the measure was not discriminatory at all. Hence, how to interpret the chapeau requirements in cases where the measure at issue has been found to meet the “necessary” standard under (a), (b) or (d) remains a puzzle under previous WTO decisions.

Now, the Tyre Panel has developed a new criterion for judging chapeau consistency: whether the declared policy objective of the measure in question has been significantly undermined by other measures of the government. This new criterion seems a permissible interpretation of the chapeau language (“such measures are not applied in a manner that would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade”). The Panel simply construed the words “applied in a manner” broadly, so as to cover not only the Mercosur exemption (which is part of the manner in which the ban was applied), but also the permitted imports of used tyres under the domestic court order (which is technically a different measure from the ban).

This new criterion also appears to be conceptually sound. It hinges on the policy objective of the measure, rather than looking at whether the measure is applied in a “rigid” or “unilateral” manner, standards applied by the AB in U.S.–Shrimp that are largely devoiced from the policy objective of the general exceptions. (One of the Panelists in this case had written critical comment on the AB interpretation of the chapeau, see Donald M. McRae, GATT Article XX and the WTO Appellate Body, in NEW DIRECTIONS IN INTERNATIONAL ECONOMIC LAW, ESSAYS IN HONOR OF JOHN H. JACKSON 219 (Bronckers & Quick eds., Kluwer 2000). For a further analysis and critique of the chapeau jurisprudence, see my article, at 251-273.)

While the Panel’s approach was prompted by the specific facts of this case, I believe the new criterion developed by the Panel can be generally applicable in interpreting the chapeau of GATT XX and GATS XIV. That is, if there is inconsistent application of the law in the country that significantly undermines the policy objective of the measure in question, the measure can be found to be inconsistent with the chapeau.

It is exciting to see new development of WTO jurisprudence in this important area. Brazil has indicated it will not appeal the decision. Presumably, it will keep the ban, but use the WTO ruling to fix the loopholes in its domestic system. If that happens, the Panel decision will have helped to promote environmental values in WTO law.

One additional comment on the Mercosure exemption: Brazil could have made an argument based on the “same conditions” element in the chapeau. It could have argued that Mercosur countries are located in the same geographic region that gives rise to the special health hazards from waste tyres, and are in similar stages of economic development that influence the demand for cheap retreaded tyres, whereas the EC has very different geographic and economic conditions affecting the consumption and health effect of retreaded tyres. This argument, if accepted, could have led to a finding that the ban was not applied in a manner that resulted in arbitrary or unjustifiable discrimination between the EC and Mercosure countries. Brazil may still use this line of reasoning to avoid conflicts between WTO and Mercosur obligations in the future if imports from Mercosur countries should increase substantially. But as a policy matter, Brazil would only want to make this argument if it is willing to share the burden of dealing with waste tyres with its fellow Mercosur countries.

The Gambling Case: Suspension and Compensation

While the WTO negotiations flounder, the WTO dispute process carries on.  Antigua's DSU Article 22.2 suspension request in the Gambling case is now available.  In it, Antigua requests authorization to suspend concessions and obligations in the amount of US$3.443 billion per year to match the level of the alleged nullification or impairment.  Antigua explains that "the withdrawal of concessions solely under the GATS is at present not practicable or effective" and therefore it "intends to take countermeasures in the form of suspension of concessions and obligations under the following sections of Part II of the TRIPS":

Section 1: Copyright and related rights
Section 2: Trademarks
Section 4: Industrial designs
Section 5: Patents
Section 7: Protection of undisclosed information

It says it may suspend concessions under the Communication Services sector as well.  This request will be on the agenda at the July 24 DSB meeting, where the U.S. will no doubt request arbitration on the matter.

All of this is separate from the GATS Article XXI process, under which the U.S. has notified the WTO that it will withdraw its gambling commitments, with other Members able to request compensation.  Antigua has made a request here as well, as have the the EU, Japan and India.  I have seen it suggested that China might make a request, but have not seen anything definite about it.

Quo Vadis the Doha Round?

To one’s (yet another) disappointment on the Doha round talks, the Fantastic 4 (the U.S., the EU, Brazil, and India) failed to hammer out a framework deal in Potsdam, Germany yesterday. Such a deal was badly needed to complete the negotiation by the end of this year. It seems that a trade deal would be hard to be sold in the U.S. in an election year. See Financial Times, World trade talks collapse in acrimony, June 21, 2007. In a damage control mode, the WTO quickly downplayed this incidence. See Statement from DG Lamy concerning Potsdam outcome, June 21, 2007. Pascal Lamy said that:

G4 Members (US, EU, Brazil and India) have been meeting in Potsdam to try to bridge gaps in their negotiating positions. Prior convergence among these Members would have been helpful to pave the way towards multilateral convergence. But helpful does not mean indispensable. This negotiation is an endeavour among the 150 Members of the WTO.

As a trade scholar, what I am afraid is that this kind of news might be no more shocking to people. Is the global trading community slipping into the status of “learned helplessness”?

Appellate Body Turnover

According to the summary of the latest DSB meeting:

The DSB agreed on the process for selecting Appellate Body members to replace four current members whose terms of office expire in December 2007 and May 2008.

...

The DSB set a deadline of 31 August 2007 for members to nominate candidates to the Selection Committee which will, in turn, make its recommendation to the DSB by no later than 5 November 2007 to enable the DSB to take a decision at its meeting on 19 November 2007

The four to be replaced are:

• Merit Janow, United States (December 10, 2007)
• Yasuhei Taniguchi, Japan (December 10, 2007)
• Georges Abi-Saab, Egypt (May 31, 2008)
• A.V. Ganesan, India (May 31, 2008)

The politics of these things make it difficult to predict where (geographically) the new Appellate Body Members will come from.

China’s Response to the IMF’s Response in the Currency Debate

China’s central bank (People’s Bank of China) reacted to the IMF’s recent new surveillance mechanism allegedly targeted for China’s currency intervention (or manipulation, if you like). China emphasized that any solution for this problem should be based on “mutual understanding and respect” rather than being imposed. It also highlighted that “developing countries” perspectives should be taken into account and warned that any hasty prescriptions might generate more problems. (“An unregulated and massive adjustment will not only worsen external instability, but also influence the sustainability of domestic economic growth, and therefore global growth and the stability of international financial markets.”)

See Financial Times, China warns IMF over renminbi, June 21, 2007, http://www.ft.com/cms/s/4f8c027e-1f5b-11dc-ac86-000b5df10621.html

RIP Doha (or, It's Always Darkest Just Before the Dawn?)

Choose the title you like.  Here is today's statement from the U.S.:

Postdam, Germany- Statement from USTR Ambassador Susan C. Schwab and USDA Secretary Mike Johanns on Doha Round:

The United States is deeply disappointed with the outcome of this week’s negotiations. 

For the past six years we have pursued an agreement in the Doha Round that will spur economic growth and development - especially in the world’s poorest countries - by creating new trade flows and disciplining subsidies.  To meet the Doha Round’s promise, developed and advanced developing economies need to open their domestic markets for agricultural goods, industrial products, and services. 

We came this week with the commitment to make significant progress towards a successful Round. Unfortunately, this week’s negotiations could not generate political consensus to meaningfully open markets to new trade - particularly in manufactured goods.

The U.S. has worked tirelessly to build an international consensus to launch the Round, we sustained it at critical junctures, and recently showed even more flexibility to achieve success.  Regrettably, some key Members continue to be unwilling to show the same flexibility and not even minimal additional market access was put on the table.

Consistent with Congress’ grant of Trade Promotion Authority to this Administration, we have consistently pushed for economically strong trade agreements for the United States- and we will continue to do so. The United States remains deeply committed to providing leadership to help advance the World Trade Organization and the rules-based multilateral trading system from which we benefit greatly. We look forward to speaking with Director - General Pascal Lamy and other WTO members about next steps.

China's Selective Export Tax Rebate

China has announced that it will cut back on rebates of its export tax (which is designed to replicate its value added tax).  Rebates of indirect taxes are OK under WTO law (see item (g) of the Illustrative List in Annex 1 of the SCM Agreement), but it would seem that the move to selective application would raise the issue of whether the continuing rebates are export subsidies.  Where "government revenue that is otherwise due is foregone" this constitutes a financial contribution under the SCM Agreement.  But the history of the Chinese measure does not quite fit, as the change is not to forego, but to stop foregoing some revenue.   

Extra! Extra! Canadian Periodicals Delivered Here

The NAFTA Chapter 11 arbitral award on UPS v. Canada is out. Of particular interest is the difference of opinion on the relation between Canada's "Publications Assistance Program" and the Cultural Industries exception of Article 2106 NAFTA (Tribunal majority: it's a carve out, and conditioning periodical benefits on distribution via Canada Post benefits a cultural industry; Minority opinion (Dean Ronald Cass) what's cultural about a red/blue truck vs. a brown truck?). Much of this debate hinges on textual analysis of the NAFTA and CUSFTA language, and so is of limited non-NAFTA application, but interesting nevertheless. The full text is available on Todd Weiler's www.investmentclaims.org, at http://investmentclaims.com/decisions/UPSMeritsAward24May2007.pdf .

Timely fodder for a conference on trade and culture at National Taiwan University next week.

T. 

An IMF’s Response to China’s Currency Problem?

The IMF has announced to overhaul its international surveillance system which has been in operation since 1977. The new surveillance system will impose more rigorous obligations on Members to protect the stability of international financial system. It seems no coincidence that this decision has been made amid the high-profile debate in the U.S. Congress over China’s alleged renminbi manipulation. The U.S. Treasury, which has been more reserved in this issue than Congress, welcomed the decision. The Financial Times reported that:

“Warning lights will include large-scale currency intervention, the accumulation of reserves and “fundamental exchange rate misalignment” – a term that mirrors language in a bill before the US Congress that would impose penalties on nations that failed to correct such misalignments.”

(IMF to scrutinise exchange rate policies, June 18, 2007, http://www.ft.com/cms/s/6b034b14-1de1-11dc-89f7-000b5df10621.html)

It remains to be seen to what extent this new IMF mandate will be able to quiet the U.S. Congress as well as truly influence China’s foreign exchange policy.

Legal Capacity and Dispute Settlement

Eric Reinhardt, Greg Shaffer and I recently completed a survey of WTO members.  One of the questions we asked each delegation concerned the sources of advantage in dispute settlement for the most powerful members. Fully 88 percent of the respondents answered that the advantage held by the largest members in dispute settlement comes from their greater legal capacity (i.e., the “number and legal sophistication of government officials,” “experience of government officials with WTO dispute settlement,” their greater ability to afford the “high cost of WTO litigation,” and “greater private sector support”), versus only 48 percent who thought that the advantages of powerful members derive from considerations related to market power (i.e., the “lack of retrospective remedies,” “reliance on suspension of trade concessions,” or “ability to apply external political (non-legal) pressure”). In fact, the survey indicates that the members’ delegations view legal capacity as the number one issue that shapes how effectively countries use the WTO dispute settlement system.  Many DSU reform proposals speak about S&D, but there is little mention of what to do about helping developing countries build legal capacity per se.  What can or should be done?

Jackson and Davey Disagree on Monetary Remedies

See them "debate" at the WTO's new on-line forum, moderated by Keith Rockwell. 

The China Currency Bill

For those who want to know what's in the new China currency bill but don't want to read the bill itself, Dan Ikenson of the Cato Institute has some analysis and commentary.  His view of the bill:  "Despite some harsh provisions, it could have been worse.  Practically speaking, at the end of the day, there might not be much difference between this legislation and the gradual, negotiations approach to the Chinese currency issue that is favored by the administration, and to which this legislation is supposed to be an alternative."

A New Blog

We are starting a new blog related to this one.  It will be similar in substantive scope, although much different in nature.  The idea is to make it more of a news-reporting blog, with law (and other) students doing the posting.  We have it going now in "beta" mode if people want to check it out: http://www.worldtradelaw.net/community/  Right now the only one doing the posting is Jordan Taylor (I did some earlier posts as well, just to give examples).  Jordan is currently Deputy Counsel for International Trade Policy at the Humane Society International, but starting in the fall he will begin an LLM at Georgetown (not in the trade law field, though).  By the fall, we hope to have a number of students from various parts of the world join the effort so as to make it more comprehensive.  If people have any questions, comments or suggestions in the meantime, please feel free to pass them along to me at [email protected].

ADDED:  Oops, I see that a few people have tried to "register" with the new blog.  Feel free to do so, but I don't think it will mean anything right now.  Eventually there will be some neat features when people register, though.

The EU's New Organic Food Labeling (Logo) Regime

EU agricultural ministers agreed on a mandatory labeling (logo) regime for organic food, which replaces a previous voluntary labeling scheme adopted in 1991. (See Financial Times, Fears EU Logo Sets Organic Standards Too Low, June 13, 2007, http://www.ft.com/cms/s/b0694860-194b-11dc-a961-000b5df10621.html.)

This new regime is slated to take effect in 2009, while the catering industry is exempt until 2011. National and other industry logos which are usually more stringent than this rule will coexist with it. To be classified as organic, food must contain 95 percent "organic ingredients." But, the thorny issue is how much this new scheme should tolerate inorganic ingredients, especially genetically modified organisms (GMOs). The current proposal allows GMOs up to 0.9 percent. Environmentalists argue that the bar should be lowered to 0.1 percent.

This new EU logo on organic food raises several legal and political issues, which may warrant further attention and discussion.

First, is it an SPS or TBT measure? It could be a "technical regulation" under TBT because it aims to protect human health and/or consumers, and it is mandatory. It might be an SPS measure because at least part of the measure is to protect human health from risks arising from the entry, establishment or spread of "additives, contaminants, toxins or disease-causing organisms in foods," to which one might say GMOs belong.

Second, is it protectionism in a different name? The EU farm commissioner reportedly said that "organic food is a successful and growing market and I hope that this new set of rules will provide the framework to allow this growth to continue - through a combination of market demand and the entrepreneurship of European farmers."

Third, how organic is organic? This organic-ness has been hotly debated in the U.S. Would U.S. farmers be hit negatively by this rule? How about African farmers? Is this a new window of opportunity for African farmers? (Of course, it depends whether African food is organic under the EU standard.)

Fourth, would this rule’s purpose (nurturing the EU’s organic food industry) be undermined as GM technology further develops? Suppose that we can now harvest cancer-fighting tomatoes thanks to a new biotechnology. These tomatoes may not be organic in a technical sense because of their heavy reliance on GMOs. But, even conservative European farmers would jump to this Frankenstein, perhaps Pygmalion, food.

Vox Economi

I just received the following notice--it looks like it will be an excellent resource. 

CEPR (the Center for Economic Policy Research) has launched a new website, VoxEU.org, that is to be a focal point for research-based discussion and analysis of policy relevant economics by researchers. The plan is that everyone reads VoxEU.org since so many high-calibre economists post there, and people want to post there since so many influential and high-calibre people visit the site.

The 'Founding Contributors', who have agreed to contribute regularly, are: Philippe Aghion, Alberto Alesina, Richard Baldwin, Giuseppe Bertola, Tim Besley, Olivier Blanchard, Tito Boeri, Willem Buiter, Michael Burda, Stephen Cecchetti, Daniel Cohen, Juan Dolado, Esther Duflo, Barry Eichengreen, Francesco Giavazzi, Jeffrey Frankel, Rachel Griffith, Philip Lane, Philippe Martin, Richard Portes, Anne Sibert, Guido Tabellini, Shang-Jin Wei, and Charles Wyplosz.

Vox will feature items that are diverse both in terms of length and depth of analysis, but a key element will be 'columns' by researchers on policy relevant topics. These are 500-1500 word "research-based policy analysis and commentary". The level should be above a newspaper column but very much more accessible than a journal article. The audience is trained economists (not necessarily PhD but some formal training) in the public and private sectors, academia as well as the specialized media, so authors can use words like ‘present discounted value’ and ‘median voter’ when discussing, say, pension reform. We encourage references to research in the columns as well as tables, charts and diagrams where appropriate. We encourage submissions from all professional economists.

Vox is in a consortium with LaVoce (Italy), Telos (France) and a Spanish site launching later this month, with German and Dutch partners joining soon. The best contributions will be translated into all the languages and posted on the various sites (each site decides what to translate); thus the best columns will reach much deeper into the policy-making community than a newspaper column.

I hope you'll have a look at VoxEU.org soon.

Tyres

The panel report in the Brazil-Tyres case is out.  In this important case involving environmental justification for Brazil's import ban on used tires, the panel found that while Brazil's measure is "necessary" within the meaning of GATT XX(b), it does not satisfy the requirements of the chapeau of Article XX.  "The Panel finds that the importation of used tyres through court injunctions results in the import ban being applied in a manner that constitutes a means of unjustifiable discrimination and a disguised restriction to trade within the meaning of the chapeau of Article XX."

There will be lots more to discuss, including especially how the panel treated MERCOSUR law and Brazil's obligations thereunder.   

Putin and WTO-Alternatives

See Julian Ku's post at Opinio Juris about Putin's suggestion that an alternative to the WTO that focused on poor countries should be considered. 

Of course, this is not the first time that an alternative to the WTO/GATT has been discussed. For a nice account of the UNCTAD's rather modest role as a threat to the GATT, see Hudec's Developing Countries in the GATT Legal System.  The developing countries got little that they wanted in exchange for giving up on replacing GATT with UNCTAD, which was probably a good thing.  The question for Putin is what exactly he would change at the WTO. 

The Border Tax Equity Act

Several members of the U.S. House of Representatives have introduced the Border Tax Equity Act:

A bipartisan quartet of Congressmen today introduced legislation that would levy a border tax on imported goods unless the U.S. Trade Representative negotiates with other countries to end their border taxes on U.S. exports as well as tax rebates to their own manufacturers.

...

... proponents of the bill note that while World Trade Organization rules do not allow the United States to rebate the corporate taxes its exporters pay, the majority of U.S. trading partners still do so under an exemption in the WTO rules. Under the proposed legislation, if the US Trade Representative fails to negotiate a remedy by an as-yet unspecified date, the federal government will issue rebates to U.S. exporters equal to the amount of taxes they've paid on their goods to an importing nation. It will also levy new taxes on goods being imported into the United States.

As further explained by another source:

US manufacturers say the VAT penalizes US-made goods in two ways: In foreign markets, US goods and services carry the cost of US taxation as well as the added cost of the foreign VAT; and in the US market, foreign goods that have been given a VAT tax rebate have a subsidy because no equivalent VAT tax exists in the United States.

I have to admit, the rules do seem unfair.  Is there something I'm missing to suggest that the different treatment of U.S. companies as compared to foreign companies in VAT systems is appropriate?  There's more background on the proponents' side of the issue here.

Heiligendamm

I need two things explained to me.  First, why are all the world leaders in a hurry to have their picture taken with Bono and Geldof, as opposed to say, spending time working out what to do about world problems?  Including Bush, who presumably would just as soon listen to a Dixie Chics concert.  Did I miss polling data that shows that the constituencies for debt relief and poverty reduction are numerous and vote? 

Second, Germany has chosen globalization and African development as the main topics.  African development I understand.  Having just completed my third year teaching a seminar on legal aspects of globalization, I am still not sure what the G-8 will talk about under this heading. 

I await enlightenment. 

Prohibiting More Subsidies

Under the SCM Agreement, there is no need to demonstrate "adverse effects" for subsidies in the prohibited category and there are shorter than normal time-frames for compliance where these subsidies have been found in violation.  As a result, complaints under the prohibited category are much more attractive to complainants than those in the actionable category.

Right now only subsidies that are contingent on export or on the use of local goods fall into this category.  However, the U.S. wants to tighten up the WTO's subsidy disciplines by expanding the "prohibited" category to cover the following:

The U.S. proposal would prohibit the following five types of subsidies if they are “specific” (i.e., are only given to a particular company or industry) and benefit a product that is exported or competes with imports: (1) coverage of operating losses; (2) forgiveness of government-held debt; (3) lending to “uncreditworthy” companies; (4) equity investments in “unequityworthy” companies; and (5) other financing, such as “royalty-based” financing, that is not commercially available.

According to USTR, the reason for the expansion is the following:

The subsidies we want to prohibit maintain inefficient production capacity in industries ranging from steel to semiconductors.  Stronger rules for these types of subsidies would address significant trade-distorting practices of many of our trading partners that often lead to unfair trade.

Based on the above only (I think that additional details will be released soon), this strikes me as a potentially very significant expansion of the rules.  There are some limits, as the subsidies must benefit products that are exported or compete with imports.  However, in practice this limitation would likely exclude only a few products, and certainly most major industrial products would be covered by such a provision.

What seems odd to me is that these five types of subsidies have been singled out.  Why these but not others (such as direct payments to producers)?  I can understand the distinctions drawn in the current rules, with the existing prohibited subsidies having such a clear effect on trade.  But it seems to me that the types of subsidies listed above do not necessarily have a more significant impact on trade than many other subsidies.  Furthermore, it would not be too difficult for countries to revise their subsidy programs so as to shift their classification to some other type.

ADDED:  There are a lot more details in the full submission, which is now available here.  There are some exceptions for small business subsidies, subsidies to public utilities, and subsidies for arms, ammunition or war materials.  I still don't fully understand why these particular subsidies but not others are covered, but the submission refers to some of these subsidies as "the most extreme forms of government economic intervention."  I guess part of the reasoning is that these subsidies prop up companies that might otherwise not even be in business, and in this way maintain capacity that distorts the market.  Also, the U.S. submission makes clear something I had overlooked earlier, which is that the listed subsidies are mostly taken from the now lapsed Article 6.1 of the SCM Agreement.

Some Weekend Reading

Andrew Guzman proposes a change to the standard of review for certain SPS cases:

This Article proposes that the DSB should apply a more deferential standard of review when evaluating: (1) the level of risk a state is prepared to tolerate; (2) scientific data; and (3) the relationship between the measure at issue and the 'risk assessment' that is required by the SPS Agreement. In fact, it is advocated that the WTO Body should refuse to review these types of assessments altogether. It is asserted that the DSB should not evaluate state priorities and is inadequately qualified to make complicated scientific evaluations. Moreover, the author contends that errors in this field are more costly than in others, in both political and financial terms. Nevertheless, it is asserted that there should still be vigorous review of state conduct in certain other respects, for instance, to determine whether state measures are arbitrary or discriminatory.

And Joost Pauwelyn explores the options for dealing with the "design flaw" of appeal without remand in WTO dispute settlement.

The Week in China Currency Issues

The week began with Steven Pearlstein of the Washington Post taking a forceful position against China's currency policies, in an article entitled "Forget Revaluation. Hit China With Tariffs."  The title makes his position pretty clear, but he elaborated as follows:

The American challenge is to slow the growth of a China trade that has become dangerously unbalanced. And now that China has made it clear that it cannot take the one step that would restore some balance -- revalue its currency -- our course is clear. Many of the same effects of a revaluation can be achieved through an across-the-board tariff on Chinese imports that would disappear as the yuan rises to "market" levels.

The world would not end, the global trading system would not collapse. Legal challenges would be filed, contracts canceled and China might impose retaliatory tariffs of its own. Chinese exports to the United States would slow, the U.S. trade deficit would moderate.

At some point, however, China would tire of an arrangement that required it to live with the disadvantages of revaluation (less export growth) without the benefits (a stronger currency that can buy more imports). And that would be a good time for some future treasury secretary to convene the next session of the U.S.-China strategic dialogue.

Dan Ikenson of the Cato Institute hit back with the following:

Though Pearlstein has grown increasingly hostile to trade recently, Sunday’s column, in which he describes the upside of a massive levy against all Chinese imports, is probably the most irresponsible one I’ve read from him.

The “currency issue” is the most prominent source of contention afflicting the U.S.-China economic relationship.  But it is merely a proxy for broader concern over the U.S. trade deficit with China.  From the large and growing deficit, many policymakers conclude that we are losing at trade, and we’re losing because China is cheating.  Intervention in the currency market by China’s central bank to keep the Yuan artificially low is the chief form of cheating, which acts as a subsidy on exports and a tax on imports.  Fix the currency manipulation, and you fix the trade account.

That is an extremely simplistic take on the cause and effect of Chinese intervention in the currency market.

As for policy-makers, they seem to be closer to the Pearlstein side of the argument, although the specifics are still being debated:

The Senate bill is to be introduced in the next month and will mandate the US Treasury to intervene in global markets if currencies become fundamentally "misaligned", people involved in the process said.

...

Congressional aides are drawing up an approach to Beijing that shifts the emphasis to the World Trade Organisation from the International Monetary Fund, which is viewed as having been ineffectual in tackling global imbalances.

A new WTO case proposed in the bill would seek to define China's weak currency as an unfair subsidy and look to the IMF to measure the percentage by which the currency is undervalued. Fred Bergsten, of the International Economic Institute, said that percentage could then be applied to Chinese goods, if the case were successful.

"A ruling that the currency was undervalued by 10 per cent could mean a tariff of 10 per cent on all Chinese exports," Mr Bergsten said. He added that if the US brought the case it was more likely to be resolved through consultations than a WTO ruling.