International Economic Law and Policy Blog

Coming Soon: The China - Auto Parts Decision

Let's say a country has bound a 10% tariff duty on auto parts, but a 25% duty on automobiles.  To reduce the amount of duties paid, foreign companies have an incentive to export parts rather than completed automobiles.  The parts can then be assembled into finished automobiles after they arrive in the country.

What if the importing country responds by declaring that imported parts which are subsequently assembled into automobiles should not be treated as parts for duty purposes, but rather should be treated as automobiles subject to the 25% tariff?  The justification is that by importing auto parts that are then assembled into automobiles, the exporter is evading the 25% rate for automobile imports.  Does the importing country's action violate GATT Article II, by imposing duties on auto parts above their bound rate?  Does it violate GATT Article III by acting as a local content requirement, because an additional charge is imposed on automobiles that use high levels of imported parts as compared to automobiles that use mostly domestic content? 

Roughly speaking, these are the issues in the China - Auto Parts case, for which the WTO panel report is likely to be circulated to the public soon (it's a little more complicated than that, of course).  I'm very curious to see how the panel dealt with these issues.

Call for Papers: Georgetown Journal of International Law

A Call for Papers:

The Georgetown Journal of International Law, the affiliated journal of the U.S. Court of International Trade, is soliciting articles for its third annual publication of the International Trade Review.

We welcome submissions that cover current developments in international trade law. Articles may include issues concerning the U.S. Court of International Trade, the U.S. Court of Appeals for the Federal Circuit, the U.S. Department of Commerce, the U.S. International Trade Commission, regional and bilateral trade agreements, and the WTO.

To receive priority consideration, articles should be submitted by August 15, 2008 to the Georgetown Article Management System, available via http://www.law.georgetown.edu/AMSAuthor

Authors may also submit manuscripts though e-mail in Microsoft Word format to [email protected]. All manuscripts should be cited according to the 18th edition of the Bluebook, double-spaced, and include an abstract and the author's CV.

Is Trade Skepticism on the Rise?

Perhaps, but it has a long history, as shown by this AEI paper that looks at public responses to trade-related polling over time.  Here's one illustration:

Do you think it should be the policy of the United States to restrict foreign imports into this country in order to protect American industry and American jobs, or do you think there should be no restrictions on the sale of foreign products in the United States in order to permit the widest choice and the lowest prices for the American consumer?
		Restrict	No
		Imports	Restrictions
		To protect	On sale
		American Industry	Of foreign	Not Sure
		And Jobs	Products	(Vol.)/Refused
Jul. 4-8, 1982	LAT	72	22	6
May 8-12, 1983	LAT	68	26	6
Feb. 4-9, 1984	LAT	67	26	7
Apr. 28-May 3, 1984*	LAT	65	25	10
Sep. 21-26, 1985	LAT	65	27	8
Oct. 28-Nov. 2, 1987	LAT	69	21	10
Jul. 5-10, 1988	LAT	72	21	7
Sep. 23-25, 1988+	LAT	71	19	10
Sep. 25-26, 1988^	LAT	66	26	8
Sep. 29, 1988^	LAT	68	21	11
Oct. 11-13, 1988#	LAT	71	21	8
Oct. 13-15, 1988%	LAT	73	18	9
Jan. 8-12, 1991	LAT	67	25	8
Jan. 31-Feb. 3, 1992	LAT	70	23	7
Jun. 12-14, 1993	LAT	68	24	8
Aug. 3-6, 1996	LAT	63	28	9
Sep. 6-9, 1997	LAT	67	24	9

More historical data, with a number of variations of the question, in the paper.

Trade in Everything: Supermodels and Nobel Laureates

From an Economist article about a proposed U.S. law to give more work visas to fashion models:

The visas for models bill is still far from becoming reality, and comprehensive immigration reform is a distant dream. Luckily though, supermodels like Gisele Bündchen are in the clear. They are eligible for O-1 visas, given to those with “extraordinary ability,” like Nobel laureates.

Another Trade Law Job

VACANCY JUNIOR LEGAL RESEARCHER

International Economic Law

The Leuven Centre for Global Governance Studies and the Institute for International Law of the
Katholieke Universiteit Leuven are looking for a full-time junior legal researcher for an interdisciplinary
research project on the relationship between Foreign Direct Investment (FDI) and Human
Development funded by the Federal Government. The project is part of a larger set of projects which
focus on ‘Democratic Governance and Reflexive Theory of Collective Action.’ The project examines, in
particular, the impact of FDI liberalization has on human development, through the conclusion of
international investment agreements, whether under the form of bilateral investment treaties (BITs),
regional trade agreements (RTAs) or multilateral treaties (WTO; GATS, TRIMS). Combining legal and
economic expertise, the research aims to offer an in-depth diagnosis on the opportunities and risks
associated with the various tools seeking to encourage FDI. This will enable the researchers to put
forward policy proposals on improving the impact of FDI on sustainable development.

More here: http://www.asil.org/pdfs/vacancy_junior.pdf

Obama on NAFTA in Fortune

There's an upcoming piece on Obama in Fortune magazine, where he talks about trade issues. Here are some snippets about it on Fortune's web site.  Fortune characterizes his views as "NAFTA not so bad after all."  A lot of people are talking about it already (here's a criticism of what's currently posted about the interview on the Fortune web site, saying that Fortune has distorted his views).  The Obama campaign has issued its own response to the Fortune article as well. Here's a quote from the campaign's version of what Obama said:

"But from a pure economic, you know if you're just an economist looking at this in an abstract way you would say well a more efficient producer displaced a less efficient producer in Mexico, there's nothing wrong with that. As a practical matter those are millions of people in Mexico who are displaced. Many of whom now are moving up to the United States, contributing to the immigration concerns that people are feeling. And so, those human factors should be taken into account. They may not override or every single decision that we make in respect to trade, but to pretend those costs aren't there, that those costs aren't real, and my job as president to take those into account, I think, does no service to free trade. And its part of what has fed the protection incentive and the anti-immigration incentive that is out there in both parts and you know I think that if we manage trade more effectively, if we're better partners, if we are thinking about the dislocations that occurs as a consequence of it, if were true to our belief that labor and environmental standards should be a part of raising living standards around the world instead of a race to the bottom, then we can have free trade and it will be sustainable and we will have political support over the long run."

The NY Times had a piece on both candidate's trade views.  I found this last bit interesting:

Gov. Ted Strickland of Ohio, a Democrat, was asked whether Mr. Obama, if elected, would have the United States withdraw from Nafta if he were not satisfied with any renegotiated deal. “That’s just not going to happen,” he said. “It’s beyond the realm of any real possibility that people are going to stomp away from the table and one of the countries is going to walk away from Nafta.”

Obama on Ethanol Tariffs

Via Peter Gallagher, I saw this NY Times article on ethanol subsidies, which referred to an old Obama speech where he said the following:

Greater Brazilian production of renewable fuels could boost sustainable economic development throughout Latin America, and reshape the geopolitics of energy in the hemisphere, reducing the oil-driven influence of Venezuela's Hugo Chavez. The more inter-hemispheric production and use of ethanol and other biofuels occurs, and the more such indigenously-produced renewable fuels are used to replace fossil fuels, the better it is for our friends in the hemisphere.

As it relates to our country’s drive toward energy independence, it does not serve our national and economic security to replace imported oil with Brazilian ethanol. In other words, those who advocate replacement of US-based biofuels production with Brazilian ethanol exports however well intentioned they may be, are both misunderstanding our long term energy security challenge and ignoring a valuable foreign policy opportunity. The U.S. needs to dramatically expand domestic biofuels production, not embrace a short term fix that discourages investment in the expansion of the domestic renewable fuels in industry. Also, accelerating technology advances and transferring the technology to our neighbors in the Caribbean and South America will help them employ their own resources to produce environmentally clean ethanol to reduce their imported oil bill, thereby promoting economic stability in the Caribbean and South and Central America and strengthen the U.S.-Brazil relationship.

So imported Brazilian sugar-based ethanol is bad because it undermines U.S. corn-based ethanol.  But as the NY Times article says:

Corn ethanol generates less than two units of energy for every unit of energy used to produce it, while the energy ratio for sugar cane is more than 8 to 1. With lower production costs and cheaper land prices in the tropical countries where it is grown, sugar cane is a more efficient source.

Here's what I'd like ask Obama:  How much will it cost U.S. consumers to keep a permanent system of protection in place to allow corn-based ethanol to compete with more efficient sugar-based ethanol?

Obama on Chinese Steel Duties

From an Obama press release:

U.S. Senator Barack Obama today released the following statement after the International Trade Commission (ITC) concluded that Chinese pipe producers have injured U.S. manufacturers for several years by dumping circular welded steel pipe exports into our market - a practice which has been enabled through Chinese pipe producers receiving illegal government subsidies.

"I appreciate and support the ITC determination. This is the first case in the history of U.S. trade agreement enforcement involving subsidies in China that has resulted in the imposition of countervailing duties by the U.S. Department of Commerce.

"A month ago, the Department of Commerce determined that the actual rates of Chinese dumping range from 69 to 85 percent and that the actual illegal subsidies range from 29 to 615 percent. These are egregious and outrageous violations of fair trade, and the ITC's determination today was the only responsible response.

"The United States must always use the full range of multilateral and bilateral tools to insist that China and all other nations abide by the rules that govern the economic policies of nations. Our trade agreements must provide for fair competition and for fair treatment of American workers, and then they must be fully enforced as Congress intended them to operate."

I'm not too surprised that he supports this particular result.  What I'd be more curious about is how he would react to a WTO ruling finding an ITC decision like this one in violation of WTO rules.  Would he instinctively criticize it as undermining U.S. trade laws?  Or would he praise the international rule of law?  I'm guessing the former, but I'm not absolutely sure.

McCain on NAFTA

From a McCain speech in Ottawa last week:

We must also work to ensure reliable energy supplies and increase sources of renewable energy. As you all know, Canada is America's largest energy supplier. Not only does Canada have the second largest proven oil reserves in the world, 60 percent of the energy produced in Canada is hydroelectric, clean energy. We stand much to gain by harmonizing our energy policies, just as have gained by cooperating in trade through NAFTA. Since NAFTA was concluded, it has contributed to strong job growth and flourishing trade. Since the agreement was signed, the United States has added 25 million jobs and Canada more than 4 million. Cross-border trade has more than doubled since NAFTA came into force. We have established North America as the world's largest economic market and the integration of our economies has led to greater competitiveness of American and Canadian businesses. Because of our common market, our workers are better able to compete, and to find opportunities of their own in the global economy.

There is still more work to do. Complying with NAFTA's rules of origin can be cumbersome and costly. Border delays can pose a serious impediment to trade, the equivalent of a tariff. And even now, for all the successes of NAFTA, we have to defend it without equivocation in political debate, because it is critical to the future of so many Canadian and American workers and businesses. Demanding unilateral changes and threatening to abrogate an agreement that has increased trade and prosperity is nothing more than retreating behind protectionist walls. If I am elected president, have no doubt that America will honor its international commitments -- and we will expect the same of others. We will strengthen and extend the open and rules-based international trading system. I aspire to lead a proud, outward-looking America that deepens its partnerships throughout the hemisphere and the world.

The part about "Complying with NAFTA's rules of origin can be cumbersome and costly" amused me a bit.  I suppose rules of origin can be better or worse, depending on how they are crafted.  But isn't the problem of "cumbersome and costly" rules of origin something inherent in bilateral/regional FTAs?  If he was really concerned about problems with rules of origin, he might want to emphasize multilateral trade agreements over regional or bilateral FTAs.

Speaking of the downside of FTAs, Jagdish Bhagwati will have some things to say at an upcoming AEI event enitled Termites in the Trading System: How Preferential Agreements Undermine Free Trade.

The Economist on Carbon Tariffs

The Economist has an interesting "Economics focus" piece on the use of carbon tariffs against countries that do not take measures to limit their emissions.  The piece describes the issue as follows:

... how can policy ensure that legal limits on emissions do not put local firms at a disadvantage to their foreign competitors? After all, if the cost of compliance puts factories in countries with strict rules out of business, while those in grubbier places flourish, a regulation is worse than useless. The planet's emissions stay the same, or rise, while the country doing its bit for the environment loses investment and jobs.

That's not a bad explanation of the issue, although it may be that domestic companies do not necessarily go out of business.  Rather, as the opening sentence puts it, they are merely at a "disadvantage."  So, for example, they may just lose market share, not go out of business.  Later, the article points to some studies that examine how much harm specific industries would suffer in the face of domestic action against carbon emissions without an import component, and then states:

... even the most vulnerable industries would not suffer the Armageddon that lobbying groups are predicting.

That is important, since it suggests that the politicians are over-reacting, and that their remedies may actually make matters worse.

To me, this seemed like a strange way to conclude.  They recognize the problem, they quantify it by reference to the studies, but then they only say that the problem has been exaggerated.  They never offer a view of what to do about a problem they seem to think is a real one (even it has been exaggerated by some).  They seem skeptical of carbon tariffs, for reasons I can understand.  But what do they think should be done with regard to countries that do not take action on their emissions?  Nothing?  I have a hard time believing it is nothing, but they don't really offer any view.

Do Prizes Constitute Subsidies?

I meant to post on this a while back, but never did (I don't see any record of it anyway).  Suddenly, I find myself with a good opportunity.

Last year, in response to this NY Times article, there was some talk in the blogosphere about the merits of using prizes (such as large sums of money), rather than typical subsidies, to spur innovation (see Dan Drezner's post here, Jonathan Adler's post here and Robin Hanson's post here).

John McCain seems to have been listening.  In a speech today, he says:

I further propose we inspire the ingenuity and resolve of the American people by offering a $300 million prize for the development of a battery package that has the size, capacity, cost and power to leapfrog the commercially available plug-in hybrids or electric cars. This is one dollar for every man, woman and child in the U.S. -- a small price to pay for helping to break the back of our oil dependency -- and should deliver a power source at 30 percent of the current costs.

I don't have strong opinions on the relative merits of prizes versus normal subsidies in terms of their effectiveness, but I wondered whether using prizes rather than subsidies would allow a government to avoid violations of the SCM Agreement.

Starting with the definition of a subsidy, assuming the terms of the prize competition are met and the money is paid out, you would pretty clearly have a "financial contribution" and a "benefit" under SCM Agreement Article 1.

However, applying the specificity requirement to this situation is a little more complicated.  The government offering the prize could argue that the prize is not specific because it is open to anyone, and thus not "specific to an enterprise or industry or group of enterprises or industries."  In this regard, it could invoke Article 2.1(b), which provides:

"Where the granting authority, or the legislation pursuant to which the granting authority operates, establishes objective criteria or conditions governing the eligibility for, and the amount of, a subsidy, specificity shall not exist, provided that the eligibility is automatic and that such criteria and conditions are strictly adhered to. The criteria or conditions must be clearly spelled out in law, regulation, or other official document, so as to be capable of verification."

Now, a lot depends, of course, on how exactly the prize competition is written.  However, I can see how the rules could be drafted carefully so that the competition might meet these requirements.  In this way, it is possible that specifity could be avoided.

Article 2.1(c) may also be relevant here.  This provision states in part:  "If, notwithstanding any appearance of non-specificity resulting from the application of the principles laid down in subparagraphs (a) and (b), there are reasons to believe that the subsidy may in fact be specific, other factors may be considered."  However, the other factors listed relate mostly to use by certain enterprises, which wouldn't necessarily be the case with a prize competition (either in the sense that it is open to all enterprises, or there could be a number of prize competitions under the same program and thus many enterprises get the money).  Of course, the program couldn't be a sham.  For example, a prize for a domestic company that could build a jumbo aircraft would pretty obviously be intended for certain enterprises.

So, overall, I think there is a chance that prize competitions like the McCain one could be considered non-specific under the SCM Agreement.  Have I missed anything here?

Two Intriguing Trade Law Jobs

For aspiring academics, a couple positions at the World Trade Institute:

Assistant Professor of international economic law, with a specialization in WTO law and trade regulation

Assistant Professor of international economics, with a specialization in trade and development

Assistant Professor of international relations, with a specialization in in-ternational economic governance and trade regulation

Here's the link: http://www.wti.org/index.php?option=com_content&task=view&id=563&Itemid=292

And for those not interested in academia, this was advertised in BRIDGES:

WTO Position Available in Diplomatic Mission.

A diplomatic mission in Geneva seeks an Assistant to work on international trade matters as part of its delegation to the WTO. Key qualifications and requirement include: a good knowledge of the World Trade Organisation, its mission and functions; a degree in International Law/ International Relations/ Political Science. Postgraduate qualifications and/or relevant experience; an excellent command of English, both written and spoken, knowledge of French or Spanish, an advantage; ability to work independently, while reporting regularly to supervisors; good social and representation skills; and experience related to WTO or other international organisations is an advantage. Please send your CV by e-mail to [email protected]. In the subject field please indicate: "WTO Position in Diplomatic Mission." Only suitable candidates will be contacted.

WTO Scholars' Forum Event in London

For those in London this coming Monday:

The Directors of the WTO Scholars' Forum would like to invite you to a seminar on Monday 23rd June

Dr Lorand Bartels, University of Cambridge, 'The EU's Economic Partnership Agreements with African, Caribbean and Pacific States'

Speaker: Dr Lorand Bartels, University Lecturer in International Law, University of Cambridge

Monday 23rd June, 5-7pm, Moot Court, UCL Laws, London
(map: http://www.ucl.ac.uk/laws/faculty/index.shtml?laws_map)

Chair:
Dr Andrew Mitchell, Senior Lecturer, Melbourne Law School, University of Melbourne

Here's the link:  http://www.ucl.ac.uk/laws/wto-forum/index.shtml?events_new

OPEC as an International Commodity Agreement?

Every time the question of challenging OPEC at the WTO comes up, and even assuming for the sake of argument that OPEC supply management practices fall under GATT Art. XI and therefore a violation of this provision, one possible ground of defence that is often raised but easily dismissed has been GATT Art. XX(h) on commodity agreements.

The reason it is dismissed so easily is that, to be justified under XX(h), OPEC has to qualify as an intergovernmental commodity agreement and the supply management measures must be “undertaken in pursuance of obligations under” it.

The problem is that the definition of an intergovernmental commodity agreement has been limited to agreements involving both producers and consumers of the commodity concerned, and OPEC by definition fails on that requirement. As such, the argument goes, OPEC does not qualify as an ICA and therefore the GATT Art. XX(h) defence does not apply.

I am sensing however that this approach is changing fast, and the latest and clearest manifestation comes from the recent Doha Draft Modalities for Agriculture (TN/AG/W/4/Rev.2, 19 May 2008) at http://www.wto.org/english/tratop_e/agric_e/chair_texts08_e.htm

Without going into too much detail, I found the following provisions particularly interesting:

Para 90: “Provision shall be made to ensure the possibility that Members may take joint action through adoption of suitable measures, including through adoption of intergovernmental commodity agreements, for stabilization of prices for exports of agricultural commodities at levels that are stable, equitable and remunerative. …”

Para 91: “Action for negotiations and adoption of intergovernmental commodity agreements in pursuance of the provisions of the paragraph above may be taken either jointly by producing and consuming countries or by commodity-dependent producing countries only.”

Para 94: “Such agreements may provide for participation of association of producers.”

Most importantly of all, Para 95 provides: “The general exceptions provisions of Article XX:h of GATT 1994 shall also apply to intergovernmental commodity agreements of which only producing countries of the concerned commodities are Members.”

This is a radical shift from the long-established approach to international commodity regulation, and if this is indicative of an emerging consensus on the role of ICAs, even though it still is confined to agricultural commodities, it will have implications for all primary products, including oil and other minerals.

I wonder whether we are about to enter a new chapter in international law relating to commodities trade, one that will not just further strengthen OPEC in international law terms but even make it look like a role model other sectors should try to replicate.

Public Order and Chinese Copyright Enforcement

One of the newly published SIEL working papers is The Doctrine of Ordre Public and the Sino-US Copyright Dispute by Prof. Kong Qingjiang of Zhejiang Gongshang University. The paper addresses the ongoing dispute in China — Measures Affecting the Protection and Enforcement of Intellectual Property Rights , arguing that an ordre public exception applies to copyright enforcement under TRIPS. The claim is that such an exception applies on the basis of the TRIPS preamble (I think this is unpersuasive on a textual and contextual level) and on the basis of Article 17 of the Berne Convention which provides that "[T]he provisions of this Convention cannot in any way affect the right of the Government of each country of the Union to permit, to control, or to prohibit, by legislation or regulation, the circulation, presentation, or exhibition of any work or production in regard to which the competent authority may find it necessary to exercise that right". There is a host of  arguments against this position, For example, while Article 17 Berne might mean that the obligation to copyright protection cannot restrict the right of a government to censorship (to the extent that it is acknowledged), it does not follow that the right to censorship can restrict the obligation to copyright protection. In other words, frontally resorting to the censorship argument does not mean that censored works (or yet-to-be-authorized works) do not enjoy copyright protection.

Furthermore, not affording copyright protection to censored works can be understood as actually promoting distribution of the censored work. They might be illegal, but as a matter of fact readily available, and at a lower cost that does not reflect copyright protection exclusivity. Therefore the public order argument, if at all applicable, would not necessarily support non-application of copyright. Indeed, if distribution of a particular work is deemed illegal by the government, copyright can be a relevant factor in assignment of criminal responsibility to violations of censorship laws.

Another question that arises in this respect is the relationship between the TRIPS and Art. XX GATT (public morals). To the extent that Art. XX does not apply to TRIPS, can one claim that the public order exception as argued by Prof. Kong, if it applies, can apply to TRIPS without satisfaction of the Article XX GATT tests that would apply otherwise, such as necessity? What factual implications would this have, or is it argued that states have complete discretion? And there are burden of proof issues that should be taken into account as well...

I would think hard about raising the public order defense. Its formal grounds appear to be shaky, and its public relations effects would be disastrous.

T.

    

SIEL Inaugural Conference Working Papers - Now Online

The working papers that will be presented at the Inaugural Conference of the Society of International Economic Law (SIEL) in Geneva (July15-17) are gradually being uploaded to a dedicated "online proceedings" website at the Social Sciences Research Network (SSRN), here. The conference itself has been heavily oversubscribed and so registration has been closed. The online proceedings will, however, allow those who are unable to attend with a comprehensive view of the issues that will be discussed.

Thanks to SSRN, one of SIEL's sponsors, for providing this service.

T.

 

Korea Beef Redux

Trade in food products can have tremendous political resonance. A new example of this phenomenon is the mass protests in South Korea regarding the proposed reopening of South Korea’s market to US beef in light of alleged risks of bovine spongiform encephalopathy (“mad cow disease”). The protests have deepened over the last weeks and finally made it to the NYT’s headlines. The South Korean President’s popularity has dropped dramatically over his agreement with the US to reopen the South Korean market, which US negotiators have made a condition for the Korea-US FTA. See http://www.iht.com/articles/2008/06/08/asia/korea.php. To put this in a different light, recall that when Canada banned Brazilian beef imports in the context in 2001 on the grounds that there had been an outbreak of mad cow disease in Brazil, this drew a strong reaction from Brazilian agricultural groups which stoked Brazilian popular reaction against Canada’s unilateral action. The Brazilians maintained that Canada’s actions were in bad faith because there was no evidence of mad cow disease in Brazil. The Canadian action led to large protests, a huge barbecue before the Canadian embassy, a consumer boycott of Canadian products, and soured Brazil-Canada relations. See Mark MacKinnon, Beef Ban Could End As Brazil Talks Tough; ‘No Evidence’ Found of Mad-Cow Disease, GLOBE & MAIL (Toronto), Feb. 10, 2001, at A1. Note that in the Brazil case, however, Brazil was the exporter, not the importer.

Guest Post from Christoph Herrmann: The Lisbon Treaty

A guest post from Christoph Herrman:

Lisbon Treaty's Future Uncertain

On June 12, the people of Ireland in constitutionally required referendum rejected the "Lisbon Treaty" which would bring about significant changes to the Treaties forming the legal fundament of the European Union and the European Community, its most important part. As a consequence the future of the Lisbon Treaty is uncertain, since it can only enter into force - initially envisaged for 1 January 2009 - after ratification by all the 27 Member States of the European Union. Apart from all the other serious impacts on the European Integration process, this is also of great significance to international trade policy. Well known, the EC's competencies in the field of WTO law were always contested and to some extent unclear. At present, the EC has no exclusive competence for the whole body of agreements under the WTO, which is the reason for the peculiar mixed membership of both, the EC and its Member States in the WTO. Under the Lisbon Treaty, this situation would have changed dramatically. After its entry into force, the then European Union (which would replace the EC legally) would have the exclusive competence for trade in goods, services, trade-related aspects of intellectual property rights and foreign investment. Rumor has it that the EC Commission already circulates papers stating that under the Lisbon Treaty, the Doha Round would have been concluded only by the EC but not by its Member States, which in turn would give rise to difficult questions under the amendment provision of the WTO agreement.

Furthermore, the Lisbon Treaty would have established full participation of the European Parliament in WTO matters, something which does not exist in present. This would have shifted the power dramatically, since EP-participation does at the same time diminish the role of the Commission significantly: under the then applicable procedure, the EP and the Council can adopt legislation which is based on a proposal by a Commission but may have undergone substantial changes during the legislative procedures. Allegedly, this was the reason that the EC's trade commissioner Peter Mandelson made efforts to reform the EC's trade defence instruments last year, an effort that failed due to lack of support by the Member States in the Council.

With the Lisbon Treaty at least being significantly delayed - there is talk about repeating the Irish referendum once all other Member States have ratified the Lisbon Treaty - the EC's participation in the WTO will remain unchanged for at least another one to two years. After a still possible entry into force of the Lisbon Treaty, ratification of any possible Doha Round Result will be more difficult for the reasons above.

McCain Adviser Calls Obama Protectionist

From a recent speech by Obama:

But even as we welcome competition, we need to remember that our economic policies must be supported by strong and smart trade policies. I have said before, and will say again – I believe in free trade.  It can save money for our consumers, generate business for U.S. exporters, and expand global wealth.  But unlike George Bush and John McCain, I do not think that any trade agreement is a good trade agreement. I don't think an agreement that allows South Korea to import hundreds of thousands of cars into the U.S., but continues to restrict U.S. car exports into South Korea to a few thousand, is a smart deal.  I don't think that trade agreements without labor or environmental agreements are in our long term interests

If we continue to let our trade policy be dictated by special interests, then American workers will continue to be undermined, and public support for robust trade will continue to erode. That might make sense to the Washington lobbyists who run Senator McCain's campaign, but it won't help our nation compete. Allowing subsidized and unfairly traded products to flood our markets is not free trade and it's not fair to the people of Michigan. We cannot stand by while countries manipulate currencies to promote exports, creating huge imbalances in the global economy. We cannot let foreign regulatory policies exclude American products. We cannot let enforcement of existing trade agreements take a backseat to the negotiation of new ones. Put simply, we need tougher negotiators on our side of the table – to strike bargains that are good not just for Wall Street, but also for Main Street.  And when I am President, that's what we will do.

I didn't see much new here.  Just the usual generalities.  I hope some day soon to get a clearer picture of what Obama wants to do on trade (for example, what parts of NAFTA does he dislike?  what does he want the rules to say?), but this seemed like the standard line he always gives.  So, I was a bit surprised by this reaction:

Following Sen. Barack Obama's speech on competitiveness in Flint, Mich., McCain adviser Carly Fiorina blasted the Illinois senator's trade positions in a conference call with reporters.

"Competitiveness requires competing, and competing means that we must be a nation that engages fully in free trade. Many have called Barack Obama the most protectionist candidate that the Democratic Party has ever fielded, and indeed his record supports that charge. He has said on numerous occasions that we should unilaterally renegotiate NAFTA. He voted against free trade agreements with our friends and allies like Colombia and South Korea. Fairly clear, from the reality of his record, if you set aside his rhetoric, Barack Obama does not believe that Americans can compete with anyone in the world."

That all seemed a bit over the top to me.  Take the Korea FTA example.  If you vote against it because you think the U.S. did not get a good enough deal, as Obama appears to believe, are you protectionist or are you devoted to the most free trade that the U.S. can possibly get?  OK, that's probably a bit over the top as well, but the point is just that these "protectionst"/"free trade" labels need to be used carefully.

More Pressure for an OPEC WTO Case

From a press release by Sen. Frank Lautenberg

Today, a coalition of eleven Senators led by Sen. Frank R. Lautenberg (D – NJ) called on the Bush Administration to take action in the World Trade Organization (WTO) against eight Petroleum Exporting Countries (OPEC) by ordering United States Trade Representative (USTR) Ambassador Susan Schwab to file a complaint with the WTO.  These eight countries, operating as an illegal cartel, have refused to increase production, reduced the supply of oil on the market and driven up the gas prices that consumers pay at the pump.

In a letter to Ambassador Schwab, the Senators wrote, “The very existence of the OPEC cartel violates GATT Article XI, which prohibits nations from maintaining quotas or any other quantitative restriction on exports.  The refusal of OPEC nations who are members of the WTO to play by these rules is inexcusable, and they must be held accountable.  I hope you will inform the President and direct your agency to look into these charges and work to directly confront OPEC’s violations of international law.”

I haven't been able to track down the actual letter.  What I found interesting was the other signatories, which included Bob Casey and Dick Durbin, two big Obama supporters.  Would Obama take up the cause if elected?  Oh, and one other signatory stood out:  Hillary Clinton.  There was a lot of speculation about why she stayed in the race so long and what she wanted from Obama.  Perhaps it was all about OPEC!  OK, probably not.

Via the AP, here was USTR's response:

Gretchen Hamel, spokeswoman for the Office of U.S. Trade Representative, said "We have considered this before and remain of the view that under WTO rules filing a (complaint) case cannot be an effective course of action."

India-Additional Duties and the Burden of Proof

From an initial reading (and for the sake of discussion), the latest Panel Report (DS360 -- India - Additional and Extra-Additional Duties on Imports from the United States) released last week appears to enrich WTO jurisprudence on the fundamentals of tariff bindings under Article II GATT, if only because of its colorful references to football, faucets, hens and sheep (see para. 7.181), but mainly with its analysis of the relation between Article II GATT and Article III:2 GATT (National Treatment). In this respect, however, I was surprised to find no reference to note ad Article III, because this note largely complements the Panel's analysis of the "equivalence" referred to between internal charges and charges imposed on the importation of a product. Although ad note III refers to internal charges collected at the time or point of importation, and Article II(a) refers to "a charge equivalent to an internal tax", I think it is reasonable to say that both provisions serve the same purpose of equalizing charges imposed at the border with internal charges on the functional basis advocated by the Panel, ie. whereby "It follows that, in effect, an "equivalence" determination under Article II:2(a) aims at establishing whether despite constituting separate charges, the border charge on the importation of a product and the internal tax on the like domestic product, when viewed together, can be considered to form a distinct whole within the relevant Member's customs duty and tax system." Possibly, this is not an oversight, nor related to the United States abandonment of Article III claims (paras. 7.402 et seq.) but rather stems from the Panel's tendency to understand "equivalence" in loose terms, in the sense that the internal tax and additional duty on imports need not be identical, whereas the text of ad note III is less forgiving.

Of particular interest, however, is the Panel's analysis of the relationship between Article II:1 and Article II:2. Article II:1, roughly stated, binds Members to their scheduled "Ordinary Customs Duties" (OCD) and "Other Charges and Duties" (OCD). Article II:2(a) allows charges "equivalent to an internal tax" consistent with Article III:2; AD duties and CVD; and fees for services rendered. The United States argued that the Indian taxes under scrutiny were ODC or OCD, the Indian counter-argument was that they were charges equivalent to internal taxes. Vive la difference? After all, even if they were found to be OCD or ODC, they might be exempted or discounted from scheduling requirements as charges equivalent to internal taxes - an obligation-exception construction. Yet the panel takes pains to construct Articles II:1 and II:2 as separate categories of charges that do not act as rule and exception (para. 7.148):

Our view that Article II:2 charges are not subject to the obligations set out in Article II:1(b) has significant implications.  In particular, it means that Article II:2 does not set out exceptions to the positive obligations contained in Article II:1(b).  Accordingly, the sub-paragraphs of Article II:2 cannot be invoked to justify a breach of the obligations contained in Article II:1(b).  In saying this, we are mindful of the fact that the chapeau of Article II:2 opens with the phrase "[n]othing in this Article [Article II] shall prevent ...".  That phrase is similar to the phrase "nothing in this Agreement shall be construed to prevent ..." in the chapeau of Article XX of the GATT 1994 which is entitled "General Exceptions" and which jurisprudence confirms sets out exceptions to positive obligations.  However, we do not consider that a phrase like "nothing in this Article shall prevent ..." always and necessarily introduces an exception of the kind described above.  We think that instead, as in the case of Article II:2, such a phrase may also serve to provide confirmation, clarification or reassurance and carries no necessary implication that a measure caught by a clause introduced by such a phrase would otherwise (i.e., but for that phrase and the clause it introduces) be prevented by a positive obligation set out elsewhere in the relevant article or agreement.

Why does the panel think this distinction is important? Evidently the importance is the allocation of the burden of proof. If Article II:2 were considered to be an exception to Article II, the burden of proving consistency of the Indian measures with Article II:2(a) would rest with India. This would mean that India would have to prove prima facie compliance of its taxes with Article III:2. But normally, it would be for the complainant to prove inconsistency of a measure with Article III:2. Alternatively, the path chosen by the panel, if Article II:2 charges are a separate category of charges, the burden of proving non-compliance remains with the US as complainant. That this was among the panels considerations is evident in the Panel's subsequent "case-specific analysis" (para. 7.159):

"In the case before us, the debate between the Parties has revolved almost exclusively around the issue of whether the measures at issue fall within the scope of Article II:2(a) (dealing with charges equivalent to internal taxes).  In this situation, if the United States as the complaining party cannot establish that a charge which meets the elements of its definition of "ordinary customs duties" falls outside the scope of Article II:2(a), it cannot successfully establish that the charge is in the nature of an ordinary customs duty (or an "other duty or charge" imposed on the importation of a good).[1]  Conversely, if the United States can establish that such a charge falls outside the scope of Article II:2(a), II:2(b) and II:2(c), bearing in mind the Appellate Body report on Chile – Price Band System, the issue could arise whether Article II:2 exhaustively defines the universe of charges that do not inherently discriminate against, or disadvantage, imports or whether it identifies only examples of such charges.[2]  In the latter case, a showing that a charge falls outside the scope of Article II:2 might not be sufficient, per se, to bring that charge within the scope of Article II:1."

So, we see in this case another example of substantive legal relationships being constructed with procedural and evidentiary considerations in mind, something of a WTO tradition. While at this stage I have no particular qualms with the Panel's method of construction – indeed it seems to be teleogically and contextually sound while remaining faithful to the text – I am critical of the tail-wagging-the-dog syndrome reflected by this.

But, ultimately, in contrast to previous cases where burden of proof considerations merged with substantive law issues, in this case it seems that the burden of proof was indeed crucial in determining which party would prevail. The case involved insufficient information on internal excise duties imposed not by the Indian federal government but by Indian states. Without full information available, the Panel made its determinations on an explicit burden of proof basis, against the US as complainant ("there is no evidence on the record to demonstrate…we can only conclude that the US had failed to meet its burden…") – see Paras. 7.294-5 and 7.389-90.

There are other, perhaps more important, substantive and procedural findings in this Report, but the burden of proof aspect is worth noting.

T.

Obama's New Economics Adviser

How much do a candidate's advisers matter?  I'm not sure, but there has been some concern expressed on the left about a new economics guy hired by Obama:

Sen. Barack Obama, D-Ill., underscored his affinity with Democratic centrists this week when he tapped Jason Furman, who worked closely with former Treasury Secretary Robert Rubin, to be his director of economic policy.

But the selection is now drawing criticism from some on the left who are wondering if the presumptive Democratic nominee will challenge corporate power and make good on his promise to renegotiate the North American Free Trade Agreement (NAFTA). 

"When people see someone like Barack Obama promise change and then see that same person make their first move the hiring of a Wall Street economic team, that’s what sows disengagement and cynicism in the public,” said David Sirota, a one-time backer of former Sen. John Edwards, D-N.C., who is the author of “The Uprising: An Unauthorized Tour of the Populist Revolt Scaring Wall Street and Washington."

More here:

Lori Wallach, a lawyer and leading opponent of free-trade policies, said the appointment was jarring from a policy and a political perspective.

"Furman seems like a liability, given his anti-worker writings and statements about Wal-Mart, fair trade and other middle-class issues," said Wallach, director of Public Citizen's global trade watch division.

And some commentary on what Furman thinks about trade issues:

1) Furman is no protectionist. He understands the benefits that open trade brings America, such as low-priced goods at Wal-Mart and the intense competition that leads to innovation. The Hamilton Project, the program he ran at Brookings, is all about making sure the benefits of trade are more widely dispersed and the losers from trade taken care of—not scrapping NAFTA or the World Trade Organization. Here is what Furman told me back in 2007:

Jason Furman, director of the Hamilton Project, a centrist economic group, thinks there will be plenty of China-bashing rhetoric and talk of trade barriers—like one proposal to slap a 27.5 percent tariff on Chinese goods because of the weak yuan--over the next few years, not to mention a pause in new trade agreements. But in the end, he speculates, Democrats will mostly push for greater social insurance, such as vastly increased unemployment benefits. "Social insurance," he says, "can lead to a more dynamic society by letting people feel more comfortable taking risks."

Here is something else I wrote about Furman:

In the past, I have differentiated—using an idea stolen from economist Jason Furman at the Hamilton Project-between "pretax Democrats," who want to alter the trade environment such as reopening NAFTA, and "after-tax Democrats," who want to mostly deal with any negative trade effects after they happen, such as through an expanded social insurance program that might include wage insurance for displaced workers.

In other words, Furman would rather see expanded unemployment insurance, wage insurance, and more education for workers rather than trade barriers to protect their jobs. Unions tend to dismiss those sorts of policies, "burial insurance."

It's amazing what a fine line politicians have to walk in trying to create a majority coalition.  It seems that at any moment, parts of it are ready to revolt.

McCain on NAFTA and Trade Agreements

In a recent speech, John McCain was unequivocal in his support for trade agreements:

Unfortunately, Senator Obama has a habit of talking down the value of our exports and trade agreements. He even proposed a unilateral re-negotiation of NAFTA -- our agreement with Canada and Mexico that accounts for 33 percent of American exports. But we have a sharp disagreement here that I look forward to debating. If I am elected president, this country will honor its international agreements, including NAFTA, and we will expect the same of others. And in a time of uncertainty for American workers, we will not undo the gains of years in trade agreements now awaiting final approval.

Apparently, McCain is on his way to Canada (perhaps followed by Mexico and Colombia) to talk about the benefits of free trade.

I think I read somewhere that Obama might have something to say on trade next week.

Fear of Foreign Beer

There is talk of Anheuser-Busch being bought:

Anheuser-Busch Cos., the nation's biggest brewery, received a $46 billion buyout offer Wednesday from a Belgian brewer that might be too good to refuse.

The maker of Budweiser beer disclosed late Wednesday that InBev SA, whose brands include Beck's and Stella Artois, delivered an unsolicited all-cash bid of $65 a share. It's unclear whether senior Anheuser-Busch executives think the deal makes sense, but shareholders may be drawn to the offer that represents a sizable premium over the company's closing price of $58.35 Wednesday.

It's not too shocking to hear concern expressed about Budweiser being taken over by a non-American company, although the extent of the criticism was a bit surprising to me.  The Governor of Missouri (where the company is based) had this to say:

  “Anheuser-Busch is a great Missouri company, a great employer, a great corporate citizen and the maker of great products that are enjoyed in Missouri and around the world.

   “I am strongly opposed to the sale of Anheuser-Busch and today’s offer to purchase the company is deeply troubling to me.  I have said that while I am supportive of action to prevent the sale there is no immediate tool available at the state level to block it.

   “I have directed the Department of Economic Development to explore every option and any opportunity we may have at the state level to help keep Anheuser-Busch where it belongs - in St. Louis, Missouri.”

And some people are beyond concerned, moving to "up in arms."  From a web site devoted to stopping the purchase (http://saveab.com/)

My fellow Americans,

Like baseball, apple pie and ice cold beer (wrapped in a red, white and blue label), Anheuser-Busch is an American original. Founded in St. Louis, Missouri, AB represents the spirit of our country, giving millions of Americans the "pursuit of happiness" through its high quality products and thousands of great paying jobs. Generations of Americans have grown up loving AB products and have appreciated its committment to our communities.

Now, our city, our state, our nation and our workers are being threatened with the loss of A-B to foreign investors.

With your help we can fight the foreign invasion of A-B. We will fight to protect this American treasure. We will take to the Internet, to the streets, to the marble halls of our capitals, whatever it takes to stop the invasion.

On the other hand, someone at the WSJ takes a contrary view:

Free trade and globalization are in the national interest. So is the sale of Anheuser-Busch to InBev.

Brookings Event on Climate Change, Trade and Competitiveness

The conference is over, but the papers are up on the Brookings web site: http://www.brookings.edu/events/2008/0609_climate_trade.aspx

Here's a brief summary:

On June 9, 2008, Brookings convened more than 70 stakeholders for a conference on “Climate Change, Trade and Competitiveness.” The conference was led by Lael Brainard, Vice President and Director of Brookings Global, and focused on how climate change presents a new set of challenges for the world trading system.

Participants discussed potential conflicts that may arise as some wealthy nations begin to adopt carbon pricing regimes while others resist any policies that might limit their growth. Additionally, as the leakage of carbon emissions and the resulting shift of production across borders have attracted the attention of policymakers, participants debated potential policy solutions and their affect on economic competitiveness and the environment.

Conference papers cover a number of related issues, including: governance of climate change and trade issues, potential economic and environmental effects of border adjustments for carbon taxes, technology transfer and climate change, international trade law and options for addressing leakage/competitiveness issues.

The "Kicking Away the Ladder" Syndrome and Developing Countries in the Doha Round

When one attempts  to understand the philosophy of Developing Countries in the Doha Round, there is a much neglected idea that developing Countries negotiators do not like to express explicitly in broad daylight. It is however a powerful force behind their positions.

This idea is that the Doha Round must be a "development round" , as they understand this expression,  in order to compensate developing countries for the fact that rich countries and especially the US were in the past the greatest beneficiaries of the previous rounds. This idea appears clearly in the following passage by China's WTO ambassador Sun Zhenyu:

China urges the U.S., as the greatest beneficiary for decades of the multilateral trading system, to play a leading role and make a new and meaningful offer to substantially reduce its domestic support in agriculture to break the ice...

This idea is in fact a variant of a more general idea which has a profound influence on many developing countries negotiators and which could be called the "Kicking Away the Ladder" syndrome. According to this idea, rich nations of today have become rich by adopting a range of protectionist and interventionist policies but are now "kicking away" the ladder they had used to climb up, by trying to prevent developing nations from using today the same policies.

This is one of the most powerful reasons of why many developing countries have understood the "development round" notion as in fact another way of saying a "compensation round".

Would The Failure of the Doha Round Take the WTO Down With It?

I have noticed in a recent article in the Washington Post the resurgence of an idea which is frequently mentioned, namely that the failure of the Doha Round would mean the end of the WTO:

the time is fast approaching when [Lamy] must step in, lest the Doha round fail, taking the once-promising World Trade Organization down with it.

Since it appears that the failure of the Doha Round is now a realistic possibility, this means (if this hypothesis is true) that everyone involved in WTO negotiations would have to think twice before accepting this failure. Of course, for us who study WTO law, this hypothesis would mean that our knowledge would become suddenly obsolete! More seriously, it would mean that the collective price paid by the international community for this failure would be much heavier than it appears at first glance.

Fine-Tuning the Discrimination Against Foreign Ethanol

From a press release related to a Senate bill to reduce ethanol tariffs:

U.S. Senator Judd Gregg (R-NH) today introduced a bipartisan measure with Senator Dianne Feinstein (D-CA) to reduce the tariff on imported ethanol. If passed, the legislation would allow U.S. refiners to purchase cheaper and more climate-friendly ethanol from foreign sources, which could then help lower gas prices.

...

The Ethanol Subsidy and Import Tariff

• The ethanol industry currently receives a 51-cent per gallon subsidy to help increase production and consumption of ethanol.
• This subsidy is applied to both domestic and foreign ethanol.
• In order to prevent foreign ethanol producers from benefiting from the subsidy, an import tariff of 54-cents per gallon was established to essentially offset the subsidy.

Ethanol Subsidies in the Farm Bill 

• The Farm Bill reduces subsidies to the ethanol industry from 51-cents per gallon to 45-cents per gallon. 
• Yet, it leaves the tariff on the importation of cleaner, greener imported sugar-based ethanol at 54-cents per gallon.
• So this tilts the playing field in favor of the heavily subsided domestic corn-based ethanol. 

What does the Feinstein-Gregg bill do?

• Mandate that the tariff on imported ethanol could not be set higher than the subsidy.
• In effect, the legislation would lower the tariff on imported sugar-based ethanol from Brazil to 45-cents per gallon – the same as the ethanol subsidy.
• This would ensure that foreign ethanol neither benefits from the ethanol subsidy, nor is penalized by a 9-cent barrier to trade.

What would this accomplish?

• This would help make it more affordable for U.S. refiners to purchase imported ethanol – and in turn help lower prices at the pump.

So if I understand this all correctly, we (the U.S., that is) had this subsidy for the use of ethanol, which helped both domestic and foreign ethanol producers by encouraging the use of ethanol.  To eliminate the benefit to foreign producers, we put a tariff on foreign ethanol in an amount that was just about that of the subsidy, with the result that the subsidy would help domestic producers at the expense of foreign ones.  But now that the latest farm bill has lowered the ethanol subsidy, the tariff exceeds the subsidy by more than it used to, and thus foreign ethanol producers are punished by the tariff to a greater degree than they had been before.  This bill seeks to eliminate that extra harm, and bring us closer to the original situation.

Basically, the bill's authors want to make sure we get the exact right amount of discrimination against foreigner ethanol producers.  Not too much, not too little.

My understanding -- and someone please correct me if I'm wrong -- is that the subsidy is paid to refiners, who blend ethanol with gasoline and are required to use a certain amount of ethanol.  I may be missing something here, but couldn't we simplify all of this by giving the subsidy directly to the domestic ethanol producers?  Then those ethanol producers could reduce their prices by the amount of the subsidy, to achieve the same effect, with only domestic producers benefitting.  Not that I'm recommending this as a matter of policy.  It just seems simpler than the subsidy/tariff combination.   The only reason I can think of for not doing it this way is that perhaps there is a fear that the refiners won't use the ethanol even with the subsidy, so those writing the laws feel they need a mandate to use ethanol combined with a subsidy directly to the refiners.

The Global Trade Watch Vision of Trade Agreements

I've often wondered what trade critics like Global Trade Watch thought trade rules should look like.  They don't like what we have now, but what do they want?  Now I have a better idea of this, as they have endorsed a new House trade bill.  Here's their press release; here's a fact sheet; and here's the bill.

I'm not sure that, based on my quick skim of the bill, I can give a precise summary of what changes they want to see.  Generally speaking, though, they want to strengthen the labor and environmental rules in trade agreements; weaken IP and investment rules; make sure health and safety rules are permitted; and exclude service sectors and public procurement to some degree.  (Correct me if that's wrong, Global Trade Watch folks!)  On its face, it's not as radical as I anticipated.  For example, I wondered if they might make an explicit call for higher tariffs.  However, it may be that some of the environmental and labor rules they seek would be deal-breakers for our trading partners, and the weakening of IP and investment rules would cause U.S. industries who support trade deals to abandon the process.  Thus, these changes could make it very difficult to sign any new trade agreements.

One news report explains the goal of the bill:

The sponsors don’t expect the bill to pass this year. Rather, it’s a vehicle to draw attention to the issue as the presidential and congressional campaigns progress – and to make sure the issue, and the legislation, is front and center when a new president enters the White House.

ASIL IELIG Conference on "The Politics of International Economic Law"

From the ASIL's International Economic Law Interest Group:

"The ASIL's International Economic Law Interest Group will hold its biennial conference in Washington this year just after the U.S. Presidential election, on the timely theme of "The Politics of International Economic Law: The Next Four Years."  The conference committee has just issued its Call for Papers here. Paper proposals are due by July 20.  The Call supplies a wide range of suggested topics, but it is open for "politics-of" topics in any area of international economic law, not just trade. 

The conference will take place at George Washington University Law School in downtown Washington, on Friday and Saturday November 14-15, in a month when new vistas will open, no matter which candidate wins."