International Economic Law and Policy Blog

An SSM Solution

Robert Baldwin proposes a solution to the SSM stalemate.  As I understand it, he suggests that an increase in imports by itself should not be enough to trigger the safeguard.  Rather, you should look at the level of import consumption as well, and only impose the safeguard when import consumption is significant.  This acts as a proxy for determining whether domestic producers are being injured by the increase in imports (an actual injury test would be hard to manage in these situations, the argument goes).  Makes sense to me, but I don't know if it can bridge the political divide.

U.S. to join P-4...but will it be P-4 as we know it?

As many will have seen, Susan Schwab announced this week the U.S.'s intention to join the Comprehensive Trans-Pacific Strategic Economic Partnership agreement, aka (at least here in New Zealand) the P-4 Agreement or P-4.  P-4 is a pretty interesting agreement.  The current parties are New Zealand, Singapore, Brunei, and Chile.  Of note is that P-4 is a very comprehensive agreement in comparison to many, and that it has an open accession provision, meaning that other countries willing to agree to the terms of P-4 can join the agreement.  Until now no country has sought to join the agreement, presumably in part because of its comprehensive nature.  All that may change now, however.  Assuming that the new administration decides to proceed with these negotiations next year as Schwab intends, it seems highly likely to me that the U.S. will insist on its FTA template, which will entail a ratcheting back of the scope of P-4.  How will the current members respond?  The U.S. already has FTAs in place with P-4 members Chile and Singapore, and New Zealand has been very anxious to form an FTA with the U.S. for several years now.  One doubts Brunei will sway the balance.  If the P-4 becomes the P-5 based on more of a U.S. FTA model, other U.S. FTA partners will presumably be keen to join in.  This may be the avenue by which the U.S. shapes the core agreement underlying an ultimate APEC free trade area.  In any case, it will be interesting - if it goes forward - to see if the scope of the agreement is renegotiated such that the commitments are less comprehensive than at present.  Has that ever happened before, to anyone's knowledge?

Reviewing "Battle in Seattle"

From the Washington Post review of the movie "Battle in Seattle":

Townsend even opens the film with a narrator's summary of the issues involved (as the protesters see them), and it's an ingenious gambit: It relieves him of the expository task of explaining what the WTO is, or why some people would hate it. It's all laid out. Convincingly. Earnestly. And with no pretense of objectivity. Which is okay, because "Battle in Seattle" is agitprop and unashamedly so.

I'd be curious to see a review from someone who knows a bit about the WTO.  Does the view of the WTO presented in the movie even come close to reality?  (I don't know if I'll get out to see the movie myself -- when I do go to the movies, it's usually for something my 5 year old would like).

ADDED:

From the Chicago Tribune:

I'm no expert on trade guidelines, but the deck is stacked against the WTO so heavily that, in dramatic terms, they're the underdogs. The activists are uniformly young, attractive and adventurous—the film opens with an exciting sequence of protesters hooking a protest banner to a construction crane that makes protest look like a kick-ass extreme sport. Their adversaries are a phalanx of anonymous, frowning wrinklies in suits.

...

The film's ambitions exceed Townsend's grasp. After the tear gas clears, Benjamin's character sums up what the conflict accomplished. "Now people know what the WTO is," he says. After a moment's consideration, he says, "No they don't. But they know the WTO is bad." The same could be said for the movie, which will leave you slightly better informed than two hours spent staring at a wall.

The Spread of Bailouts, Part II

The big auto industry loan package I mentioned the other day seems close to passing in Congress:

Key members of the U.S. Congress are confident a provision needed to trigger $25 billion in loans to automakers will become law within days ...

I haven't seen the full details, but this was helpful:

The government interest rate for the loans would be about 5 percent, providing about $100 million a year in savings for every $1 billion the companies received in loans. The companies have poor bond ratings, meaning they would only qualify for double-digit interest rates on the open market.

Doing some quick math, that's $100 million in saving for every $1 billion in loans, so with $25 billion in loans that's $2.5 billion in "savings"/subsidies!

And there may be more coming:

“We’ve got the best deal for the industry that we can,” said Rep. John Dingell, D-Dearborn. “I think we got that which they need to go forward.”

But, “we will be starting on the second $25 billion, which we’re going to have to get because the costs to the industry are going to be larger."

I still haven't seen a reaction from foreign car makers, but I'm eager to see what they have to say.

UDPATE:

German car makers are not happy about all of this:

The German auto industry attacked U.S. politicians on Thursday over plans to give $25 billion in low-interest loans to Detroit's crisis-stricken carmakers.

"We are opponents of subsidy contests," the head of the VDA automotive industry association, Matthias Wissmann, said during the IAA truck show in Hanover.

Speaking of the effect on foreign car makers, there was also this:

In an interesting footnote, the funding bill that includes the federal loan guarantees for the auto industry restricts benefits to plants that have been in operation for at least 20 years, effectively excluding most foreign automakers.

UPDATE II:

Some further details from the FT:

The continuing resolution provides funding for $7.5bn, which is the estimated subsidy on the loans - in other words, the cost to the government of providing them at well below market rates.

The loans will not take effect until the energy department has written detailed regulations dealing with, among other issues, which investments will qualify and conditions for repayment. Congress has directed the department to begin writing the regulations quickly and will provide any extra staff required to do so. One lobbyist said he hoped the regulations would be completed by early 2009.

All carmakers and suppliers with operations in the US are theoretically eligible. However, the energy bill restricts benefits to plants that have been in operation for at least 20 years, thereby excluding most foreign carmakers.

A Toyota spokesman said his company was agnostic on whether it derived any benefits. It has kept a low profile in the debate on the loans.

Ha-Joon Chang Argues for Infant Industry Protection

In an interview related to his (somewhat) new book, Ha-Joon Chang makes the case for infant industry protection:

When you are trying to get into a more difficult and thereby higher return activity, developing countries have to invest in it. The investment comes in the form of protection, which makes, for the moment, your local consumer use expensive and inferior domestic products. But unless you do that, these industries are not going to grow. You accept that you will use inferior products from inefficient producers for the time being. In the meantime, you do certain things to make sure that these firms grow up, i.e. they increase their productivity and eventually give you cheaper domestic goods, create jobs and stimulate other activities. In the end, you are better off that way.

I agree with this view in part.  I think it is possible that protection could result in the development of efficient local firms: There is a chance that if given access to a protected market for enough time, local firms could eventually become competitive with their foreign competitors.  On the other hand, I think it is just as likely they will not become competitive, even after the "20, 40, even 100 years" that Chang would like to give them.

Here's what I don't understand, though.  Why not just let foreign firms who are already efficient producers set up shop in your country?  Take the car industry for example.  Sure, you could put up high tariffs and hope local car companies become good enough that they can compete on the world market. But wouldn't you be better off if you let Toyota come in and build a factory?  While there is a chance that local firms will become competitive, there is a much better chance that a Toyota factory would be competitive, and it would be competitive much sooner.

What is it about having a local firm that is preferable?  Here are some of the arguments I've heard (there are probably others as well):

(1) Foreign companies are too powerful and would exert too much influence over the government.

(2) Foreign companies are more likely than domestic companies to shift production to another country at some point in the future.

(3) National pride.

(4) Foreign companies are unwilling to do much beyond basic assembly operations.

I can't really argue with the national pride point.  If that's the way some people feel, I don't think there is much I can do to talk them out of it (I haven't had much sucess in the past, anyway).

As for the other points, I'm not convinced that the situation is any worse than it would be with locally-owned companies.  I would be curious to see any empirical research on these issues.  Do developing countries really fare better on these issues with domestic companies? 

I wanted to offer one final thought, related to the historical use of protection by the current crop of industrialized countries, which many people, including Ha-Joon Chang, use as part of the basis for arguing that today's developing countries should use protection.  In the 19th century, when much of the West industrialized, foreign investment wasn't a realistic option for countries trying to industrialize.  For example, the English steel industry was not going to open subsidiaries in the U.S.  As a result, if the U.S. wanted a steel industry, it had to develop its own.  Today, by contrast, the situation is different.  Established companies are more than happy to look around the world for production locations.  It seems to me that it is a good idea to take advantage of this.

The Spread of Openness

In another small victory for transparency, the Appellate Body hearing in the latest Bananas appeals will be open to the public:  http://www.wto.org/english/news_e/news08_e/hearing_22sept08_e.htm  Of note is that one of the parties is Ecuador, which makes this, I believe, the first time a developing country has agreed to open hearings.

Battles over Buy American

First John McCain brags about buying American, rather than foreign, cars.  Then Barack Obama puts together a TV ad alleging that McCain lied and actually owns several foreign-made cars.  You can see the ad, which includes the McCain statement, here:  http://my.barackobama.com/page/community/post/amandascott/gGg9HV

I was hoping trade policy would play a role in the election, but this was not what I had in mind.

GATS, NAFTA and the bailout

As initially announced, the Treasury purchase of toxic waste would not extend to the U.S. establishments of foreign financial institutions. Mohammad Fadel at Toronto University asked in a private exchange whether this restriction would violate US obligations under GATS or NAFTA. According to the NYTimes, Treasury is now considering extending this facility to all U.S. based financial institutions, whatever their nationality. Is this extension a matter of obligation? It certainly is wise, in the sense that the ownership of the banks is irrelevant to their role in the U.S. financial system. But will this produce a demagogic reaction in Congress or by the candidates? Will arguments about U.S. obligations under GATS or NAFTA tamp down or ratchet up such a reaction?

Peter Mandelson on Carbon Taxes

From a speech by Peter Mandelson:

The elephant in the room when we talk about trade incentives for the right climate policy is of course the idea of a carbon border tax. This is intended to punish free-riders who don't sign up to a global climate deal and who therefore don't bear the competitiveness costs of paying for the carbon they emit. In the jargon they benefit from 'carbon leakage' – carbon that is used without being paid for. The Commission recognised the potential risks of free riding in its January package - in particular in relation to energy intensive industries.

Clearly the best way to stop carbon 'leaking' out of a global regulatory system is to make sure that nobody stays outside of the system. That is why the Commission's priority has always been a comprehensive international climate agreement that has no free-riders.

There are also numerous potential complications with a carbon tax. Border measures may provide some relief to energy intensive industries, but there would be pitfalls and negative side effects for other sectors and consumers. Measures would be extremely difficult to administer and enforce. Input prices for industry would rise, which would in turn push up prices of European exports and reduce competiveness.

Border measures could also invite retaliation and provoke a negative spiral of protectionism, under the pretext of environmental protection. Quite aside from the fact that it is technically difficult to design a measure that is WTO compatible.

Most importantly, we cannot really address the problem of free-riding until we know the extent of it. So first we must be sure we have done everything we can to secure a globally inclusive climate change package for the post-2012 period, with all the key players inside.

It is clear that the problem and the debate on carbon leakage won't go away. But right now we should be focusing on building a global coalition for a new global climate treaty. Tough talk on a climate tax will only alienate the very partners we need to get on board. I think the Commission's action reflects this reality.

(emphasis added)  There's a lot in here, but I wanted to focus on the WTO compatibility issue.  Maybe I'm being naive, but I'm not convinced it's that hard to design a WTO compatible carbon tax.  Here's one thought in this regard.  First, set up a labeling system, under which the amount of carbon emissions is identified for each product.  Then, put together a related tax regime, with higher taxes on products with higher carbon emission.  I think this could possibly be consistent with GATT Article III, but even if not, could be justifed by Article XX(g).

Granted, the labeling part would not be easy, but I think it could be done.  From what I gather, various private and public entities are already trying it in some areas.

Am I missing anything here, in terms of the legal issues?  Is this less likely to be consistent with WTO rules than I am suggesting?

On the other hand, maybe he is not referring to the legal design by itself, but rather the political task of coming up with a carbon tax that all the relevant players can agree to.  That might be difficult.

The WTO is "like the Freemasons"

According to Jon Stewart:

From an interview with Charlize Theron, star of the movie "Battle in Seattle," about the Seattle WTO protests.  It's a couple minutes in before they start talking about the WTO.

Which brings me to a related point.  This is from an interview with Stuart Townsend, who directed the movie:

American democracy is challenged because the WTO can impose laws or sanctions on the U.S. without its citizens or government having any say in the matter. For example, the Clean Air Act was overturned because it was deemed an illegal barrier to trade. Which means Americans breathe dirtier air.  (emphasis added)

Sigh.  I think it's safe to say that anyone familiar with the case would agree that it is not completely accurate to state that the WTO Gasoline ruling "overturned" the Clean Air Act.  Rather, it struck down one aspect of the Act because it discriminated against foreign goods.  I know it's a lot to expect of a movie director to get the details of WTO decisions right.  But at the same time, I have no doubt that he's getting his info from NGOs who follow these issues, because I've seen similar statements from them.  The problem I have with these kinds of exaggerated and inaccurate criticisms of trade rules is that they undermine the many legitimate criticisms that can be made.

ADDED:  In the comments, people have pointed out that some of my own language was not quite right.  What I should have said was that the WTO ruling found one aspect of the related Regulation (not the Act) to be in violation of WTO rules.

The Spread of Bailouts

There is lots of talk about bailouts these days, mostly to the financial industry.  Given that there are no subsidies rules for services, we are not likely to see many WTO disputes over this.  However, when the government starts bailing companies out, sometimes it becomes hard to draw the line.  Now there is talk about a bailout for GM, Ford and Chrysler:

Electoral politics and the recent willingness of the federal government to aid teetering financial firms have come into play, analysts and congressional sources said. "We know the auto industry feels somewhat emboldened to come to Washington and ask for subsidies," the associate director of the Cato Institute's Center for Trade Policy Studies, Daniel Ikenson, said.

So what are they asking for specfically?

The nation's top car manufacturers are pushing Congress to act by the end of this month to guarantee $25 billion in loans to help them invest in the production of fuel-efficient vehicles.

And what do the Presidential contenders think?

The Democratic nominee, Senator Obama, supports the full $50 billion loan guarantee, while the Republican nominee, Senator McCain, signaled last month that he would agree to unspecified federal backing after earlier warning against "predicting failure" for the Big Three automakers.

What I'm curious about is how our trading partners will react.  For example, having just been on the losing end of a WTO panel ruling on auto parts, would China decide to challenge these subsidies?

Policy Space for "Smart Protectionism"

We've talked before about policy space for developing countries, often in response to Dani Rodrik blog posts, but other times as well.  The following piece seemed like a great case study of the issue: http://www.policyinnovations.org/ideas/commentary/data/000082 In a nutshell, the piece makes the case that Uganda has used protectionism -- "smart protectionism," the author calls it -- very effectively to develop it's rice industry.  The suggestion is that Uganda used high tariffs (75%!) to help support its rice industry, and thereby succeeded in creating a competitive rice industry that has the ability to export, while at the same time consumer prices for rice stayed the same.

I don't know enough about the industry to argue the facts here.  It's possible that there is a different view of the state of the Ugandan rice industry and the impact of the tariffs, but I'm not aware of it.  So I'm just going to assume for the sake of argument that this description is accurate.

Instead, I'm going to focus on the issue of "policy space."  I have made the argument (somewhere on this blog -- I can't remember exactly where) that WTO rules offer plenty of policy space for poor countries to take whatever development policies they would like, including protectionism.  The Uganda rice example seemed like a great way to test my view.  Was Uganda permitted to charge 75% tariffs on rice under WTO rules?  Well, let's check its tariff schedule, which is available here: http://www.wto.org/english/tratop_e/schedules_e/goods_schedules_table_e.htm

Agriculture is always tricky, so somebody please correct me if I've missed something, but here's how I read Uganda's schedule.  The relevant part is "PART I  -  MOST-FAVOURED-NATION TARIFF, SECTION I  -  Agricultural Products, SECTION I - A  Tariffs."  There is a note that says:  "80% ceiling binding to all items included in Annex I of the Agreement on Agriculture, with the following exceptions."  (Rice is not listed as an exception.)  Looking at Annex I of the Agriculture Agreement, I see:

"ANNEX 1: PRODUCT COVERAGE
1. This Agreement shall cover the following products:
(i) HS Chapters 1 to 24 less fish and fish products"

Rice falls under HS Chapter 10 (Cereals), with the following specific codes: 100610, 100620, 100630, 100640. See http://www.foreign-trade.com/reference/hscode.cfm?code=1006  Therefore, it is covered by Annex I, and thus the note in the schedule applies.

The upshot of all this, as I understand it, is that Uganda is charging 75% duties on rice, and it is permitted to do so because its WTO tariff schedule has a binding of 80% for rice, which allows tariffs of up to 80%.

Granted, this is just one example, and there are thousands of industries among the 100+ developing country WTO Members that could be the subject of development policy.  But at least in this one case, WTO rules seem to contain plenty of policy space for a developing country Member to engage in protectionism.

WTO Discrimination

I have often heard it said that non-discrimination is a fundamental principle of the WTO. Yet I have never believed that for a moment. The WTO is enamored with discrimination. This can be seen in the way that the WTO encourages governments to discriminate between countries with antidumping duties and countervailing duties, and the way that the WTO permits preferential trade agreements without imposing any real disciplines. Another example of discrimination, which has gotten much worse under the WTO than it was under the GATT, is discrimination against countries seeking to join the WTO by requiring applicant WTO-plus provisions in Accession agreements and by requiring applicants to accept incumbent WTO-minus provisions.

The latest example of the fact that the WTO is hard wired for discrimination is the recent posting on the WTO website about the architectural competition that the WTO is organizing for the building extension of the Centre William Rappard. According to the WTO website, “The competition is open to any qualified architect from any WTO Member country.” The WTO website does not explain why it is discriminating against architects from non-WTO member countries. One wonders whether the WTO thinks such individuals to be incompetent. Or perhaps the WTO doesn’t want a building design tainted by intellectual input from outside the WTO mainstream. Or perhaps the WTO doesn’t want to help the economy of a non-member country by using one of its architectural firms.

Whatever the reason, it is shameful.

Where is the link between financial markets and WTO?

This last week just witnessed the largest government intervention in the financial market - the U.S. government took control of the two mortgage giants, Fannie Mae and Freddie Mac, and will acquire $1 billion of preferred shares in each and provide as much as $200 billion to the two companies on a need basis. As the current financial crisis unfolds and spreads, the fate of more financial companies is hanging in the balance: Lehman, AIG, Merrill ... The perceived threat for a melt-down of the financial system may trigger further government rescue efforts.

In terms of its magnitude and scale, the U.S. government intervention probably dwarfs many of the government interventions targeted by WTO disciplines. You see headlines like this: "U.S. is 'more communist than China'", here, and "Is America now more socialist than France?" here. And you wonder what is the significance of an event like this for the multilateral trading system? The hazard of financial crisis may have much bigger and more immediate impact on world trade and welfare of the trading nations than, say, climate change. But where is the link between the financial markets and trade? Is it mostly in the foreign exchange system or much broader and deeper than that?

With these questions in mind, I was glad to spot Pascal Lamy's introduction to the WTO Public Forum this year, which says:

This year's Forum, which takes place against a background of financial instability, high oil and food prices, will ask: “how can the trading system be taken into the future?” In doing so, we expect to trigger a frank and open debate on the role and responsibility of the multilateral trading system on complex issues such as the food crisis, financial markets, climate change, human rights, and electronic commerce, to mention but a few topics.

But to my disappointment, the program of the Forum does not show any reference to the financial markets, let alone discussion of such issues. I understand that trade and finance are traditionally segregated both in government practice and in academic discourse. But how long can we afford to ignore the close and deep connection between the two? I would be grateful for any recommendation of scholarly writings addressing this problem.

Conference in Singapore: The WTO in Difficult Times: New Challenges and New Prospects

The WTO in Difficult Times: New Challenges and New Prospects

Dear Friends and Colleagues,

It is with great pleasure that we invite you to the International Conference on "The WTO in Difficult Times: New Challenges and New Prospects", co-hosted by SMU School of Law and the Asian WTO Research Network.

Synopsis of Conference

The subprime meltdown, inflation, global food shortage, and rising oil prices……the world has become a very difference place as we entered 2008. How will the new economic environment affect the World Trade Organization (WTO), and how shall the WTO deal with these new challenges in such difficult time? Bringing together leading WTO scholars from Asia and beyond, this international conference will provide a good opportunity to reflect upon some of the most pressing issues facing the multilateral trading system today.

Registration

Free Admission. Click here for registration.
Further details can be found at our conference website.

Feel free to let me know if you have any question regarding the conference.

Russia's WTO Accession and the U.S. Presidential Election

How would Russia's WTO accession progress under an Obama-Biden administration?  Everyone is talking tough about Russia right now in relation to the Georgia situation, but Joe Biden has an actual trade dispute with them:

United States Senator Joseph R. Biden, Jr. (D-DE) today issued the following statement after learning that Russia will start banning chicken imports from 19 plants in the United States beginning on Monday. Two Delaware plants, operated by Mountaire Farms in Selbyville and Millsboro, are included in this ban.

Sen. Biden's full statement is below.

"Russia is once again using non-tariff barriers as an excuse to close its markets to American poultry.  I am concerned about the effect of this action on Mountaire, a major employer and integral part of our state's agricultural production.  Other local poultry processing plants may be targeted.

"Russia has repeatedly shown that it is not ready to abide by the rules of international trade.  Let's not forget this is part of a bigger picture in which Russia has failed to behave as a responsible member in the international community.  Until Russia reverses their recent actions -- both big and small - its application to join the World Trade Organization should remain on hold.

"The United States must take immediate and necessary steps -- just like we did in 2002  -to restore access to this market, which is critical to Delaware's farmers, Delaware's poultry industry and Delaware's economy, which relies heavily on the agricultural industry."

Society of International Economic Law on SSRN

In cooperation with the Society of International Economic Law (SIEL), the Legal Scholarship Network (LSN) is pleased to announce the SIEL Inaugural Conference Online Proceedings. These proceedings are available to all users at no charge and contain abstracts of the meeting's papers with links to the full text within the SSRN eLibrary. The proceedings have been made possible by the support of the University of Missouri-Kansas City School of Law (http://www.law.umkc.edu/).

Papers from the SIEL Inaugural Conference focus on building links and networks between and among International Economic Law (IEL) academics and academically-minded practitioners and officials, fostering the development of local IEL expertise and IEL organizations where needed, representing the discipline of international economic law as appropriate in global, regional, and national fora, and encouraging research, practice, service, and teaching in the field of IEL.

You can browse all SIEL Inaugural Conference abstracts in the SSRN database by clicking on the following link. There are currently more than 50 such papers in the system. You may wish to bookmark it in your browser.

View papers: http://www.ssrn.com/link/SIEL-Inaugural-Conference.html
Conference URL: http://www.sielnet.org

WTO Rulings in EU Law: More from Bananas

EU law experts will probably have more insights into this then I will, but I thought it worth noting the latest developments in the case in which some European companies claimed compensation under EU law for financial damages arising from the U.S. sanctions in the EC - Bananas case.  Reuters reports:

In its judgment, the European Court of Justice upheld an earlier ruling that a lower EU court issued in 2006 holding that the EU should not compensate companies for any losses incurred as a result of the increased U.S. import tariffs.

The European Community "cannot be called upon to make good damage resulting from a failure of its institutions to comply with the WTO agreements," the court said in a statement.

Here's the decision press release: http://curia.europa.eu/en/actu/communiques/cp08/aff/cp080062en.pdf  And the decision is here: http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=EN&Submit=rechercher&numaff=C-120/06  A key excerpt:

125    The distinction which the appellants seek to draw between the ‘direct effect’ of the WTO rules imposing substantive obligations and the ‘direct effect’ of a decision of the DSB, asserting that it should be open to individuals to have the legality of the conduct of the Community institutions reviewed by the Community courts in the light of the DSB decision itself if such a review is not possible in the light of the WTO rules which that decision has found to have been infringed, calls for the following comments.

126    Even though the Court has not yet been required to rule expressly on such a distinction, it nevertheless necessarily follows from its case-law mentioned above that there is no basis for the distinction.

127    In holding that the WTO rules which have been found by a decision of the DSB to have been infringed cannot, notwithstanding the expiry of the period of time laid down for implementing that decision, be relied upon before the Community courts for the purpose of having the legality of the conduct of the Community institutions reviewed by the Community courts in the light of those rules, the Court has necessarily excluded such a review in the light of the DSB decision itself.

128    A DSB decision, which has no object other than to rule on whether a WTO member’s conduct is consistent with the obligations entered into by it within the context of the WTO, cannot in principle be fundamentally distinguished from the substantive rules which convey such obligations and by reference to which such a review is carried out, at least when it is a question of determining whether or not an infringement of those rules or that decision can be relied upon before the Community courts for the purpose of reviewing the legality of the conduct of the Community institutions.

129    A recommendation or a ruling of the DSB finding that the substantive rules contained in the WTO agreements have not been complied with is, whatever the precise legal effect attaching to such a recommendation or ruling, no more capable than those rules of conferring upon individuals a right to rely thereon before the Community courts for the purpose of having the legality of the conduct of the Community institutions reviewed.

130    First, as is apparent from paragraphs 113 to 124 of the present judgment, the considerations linked to the nature of the WTO agreements and to the reciprocity and flexibility characterising them continue to obtain after such a ruling or recommendation has been adopted and after the reasonable period of time allowed for its implementation has expired. The Community institutions continue in particular to have an element of discretion and scope for negotiation vis-à-vis their trading partners with a view to the adoption of measures intended to respond to the ruling or recommendation, and such leeway must be preserved.

131    Second, as is apparent from Article 3(2) of the DSU, recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the agreements concerned. It follows in particular that a decision of the DSB finding an infringement of such an obligation cannot have the effect of requiring a party to the WTO agreements to accord individuals a right which they do not hold by virtue of those agreements in the absence of such a decision.

132    It should, in particular, be recalled in this regard that the Court has already held in relation to the provisions of the GATT 1994, which have been found by the DSB to have been infringed in the present case, that those provisions are not such as to create rights upon which individuals may rely directly before the courts by virtue of Community law (see, to this effect, the order in OGT Fruchthandelsgesellschaft, paragraphs 25 and 26).

133    It follows from all of the foregoing considerations that the Court of First Instance rightly decided that, notwithstanding the expiry of the period of time allowed for implementing a decision of the DSB, the Community courts could not, in the circumstances of the case in point, review the legality of the conduct of the Community institutions in the light of WTO rules.

State Tax Incentives on the Increase

I've complained before about the use of government tax breaks to lure investment.  A new FT article indicates that such measures are on the increase among U.S. states (via Trade Diversion):

Tennessee, for instance, has just disclosed that it agreed to give German carmaker Volkswagen $577m in incentives for its $1bn plant in Chattanooga.

A senior executive at Fiat, the Italian industrial conglomerate, said: “With the amount of money US states are willing to throw at you, you would be stupid to turn them down at the moment. It is one of the low-cost locations to be in at the moment.”

ThyssenKrupp, the German steelmaker and industrial group, is receiving more than $811m to build a new steel mill in Alabama. It turned down even more from Louisiana, which reportedly offered as much as $2bn, as well as an additional $900m in cheap debt from Alabama, which it declined as it wished to remain debt-free.

I hadn't heard of these recent deals, which make clear that the practice is as strong as ever.

When the amounts get this high, isn't there a risk that they will be challenged under the SCM Agreement "actionable subsidies" rules?  Or is every country both giving and getting the subsidies, so there is no one willing to bring a complaint?

Esserman and Howse Rethink the WTO

At Forbes.com, Sue Esserman and Rob Howse rethink the WTO.  One of their points is the following:

Issues of global equity are simultaneously becoming more challenging; the WTO cannot afford to ignore the question of who gains and who loses and the fairness of those consequences. In collaboration with other international institutions, the WTO should begin to evaluate the effects of its agreements on working men and women and vulnerable communities.

I like this idea.  One thing I would add is that it might be worth evaluating the effects separately for the many different policies that WTO rules pursue.  For example, what are the effects of lowering tariffs and prohibiting discrimination more generally; what are the effects of IP protection rules; and what are the effects of the sound science requirements of the SPS Agreement.  With most of the estimates of the benefits of trade rules that I come across, the entire package of rules is lumped together.  I'm curious to see how each aspect of the rules fares under the Esserman/Howse proposal.

Free Trade Unilateralism from Ron Paul

Ron Paul sets out his views on free trade in an interview with CFR:

How would you approach globalization and trade differently from a McCain administration or the current Bush administration would?

[Ron Paul:] I consider myself the strongest advocate of free trade. I don't want any tariffs and I don't want any barriers. I want to really trade. But I just don't like the international government organizations, because that becomes managed trade for the benefit of some companies. So I'm not much into nor do I support WTO [the World Trade Organization] and NAFTA [the North American Free Trade Agreement] and all these agreements, because those are only tools for when you're being undermined, you go there to get your tariffs put on, to try to get fair trade, so to speak. But that's managed trade.

The suggestion that the WTO and NAFTA are places to go "to get your tariffs put on" seems way off the mark.  I would really like to have the opportunity some day to talk to people with this view to understand how they came to their conclusions.

On the other hand, putting that point aside, the idea of "unilateral" free trade raises some interesting questions for me.  For example:  Where exactly would be today in terms of free trade, without international agreements or organizations?  My best guess is that trade barriers would be much higher, but is there some small chance that if we had spent the last 50 years talking about tariff cuts as something other than "concessions," we would actually have made more progress?

WHO is the culprit of the DDA negotiation breakdown?

In the latest round of the finger-pointing game since the breakdown of the trade talks in Geneva, the WHO emerged as the winner. According to a recent report in BNA's International Trade Daily, the WHO's Commission on Social Determinants of Health blamed trade liberalization for reducing the "capacity of national governments to support public expenditures in health, education and other sectors" in many low-income countries because of their greater reliance on import tariffs for public revenue.

After checking the actual report, I found the argument in the report is not as radical as it sounds:

"Low-income countries often have relatively weak direct tax institutions and mechanisms and a majority of the workforce operating in the informal sector. They have relied in many cases on indirect taxes such as trade tariffs for government income. Economic agreements between rich and poor countries that require tariff reduction can reduce available domestic revenue in low-income countries before alternative streams of finance have been established. Strengthened progressive tax capacity is an important source of public finance and a necessary prerequisite of any further tariff-cutting agreements."

We all know that you can temporarily suspend your TRIPS obligations for public health reasons, but the really interesting question for our fellow trade lawyers is: can a country invoke its public health obligation under the WHO to defend its chaotic tariff regime?

The Role of Precedent: What the WTO Members Think (Part 2)

A while back, I mentioned a discussion among the WTO Members, at a DSB meeting, on the role of precedent in WTO dispute settlement.  This discussion was in the context of the U.S. - Stainless Steel (Mexico) dispute, where the AB made some statements that seemed to indicate a fairly strong view of the role of AB precedent (although just how strong was open to interpretation).

The full minutes of the DSB meeting in question are now available here: http://www.worldtradelaw.net/dsbminutes/m250.pdf   I've excerpted the relevant bits below.  To briefly (and very roughly) summarize the various views:

• The U.S. thinks prior AB (and panel) reports should create "legitimate expections," but not be binding.
• The EC seems to approve of AB reports being something close to binding.
• Japan, Hong Kong, India and Mexico seem to agree with the AB's concerns about panels departing from AB jurisprudence.
• Chile expresses some concerns about the AB's statements on this issue.
• Colombia seems to be worried that the AB overreached a bit.

Excerpts (with emphasis added):

[U.S.]

What was more, WTO Members had made it clear – in fact, the DSU said it twice – that the findings of panels and the Appellate Body could not add to, or diminish the rights and obligations in the covered agreements. Perhaps unlike some other institutions, the WTO did not rely on adjudication to advance its objectives. However, this Appellate Body Report's approach, including its references to a "coherent and predictable body of jurisprudence", would appear to transform the WTO dispute settlement system into a common law system. But that was nowhere agreed among Members. ...

54. The United States did, of course, share the Appellate Body's interest in having similar cases treated similarly. The United States expected that all Members would do likewise. The United States did not, however, share this Report's view that this meant that panels must follow Appellate Body reports in different disputes. Rather, to cite again the "Japan – Alcoholic Beverages" Appellate Body Report, the United States would expect any panel to take account of any other relevant adopted report, whether authored by the Appellate Body or by a different panel. To take account of an adopted report, of course, did not mean to follow it without hesitation. To the contrary, to take account of such a report meant to examine it, to consider it, and to engage with its reasoning. The United States recalled that an objective assessment was one that was critical and searching. Such an assessment could lead, in fact, to further or greater clarification.

...

[EC]

The EC particularly welcomed the clarifications from the Appellate Body to the effect that "absent cogent reasons, an adjudicatory body would resolve the same legal question in the same way in a subsequent case" (para. 160) and "the relevance of clarification contained in adopted Appellate Body reports is not limited to the application of a particular provision in a specific case" (para. 161). Whilst self-evident, these statements confirmed the rules-based nature of the WTO, and the multilateral aspects of dispute settlement.

...

[Japan]

Japan shared the concerns expressed by the Appellate Body in this Report about "the Panel's decision to depart from well-established Appellate Body jurisprudence clarifying the interpretation of the same legal issues".

...

[Hong Kong]

Hong Kong, China shared the concern of the Appellate Body regarding the following of its jurisprudence on the same legal issues by subsequent panels. This was an important systemic issue with profound implications on the functioning of the WTO dispute settlement system, which was a central element in providing security and predictability of the multilateral trading system. Hong Kong, China was grateful for the clarifications and comments made by the Appellate Body in its Report. With these observations and comments, Hong Kong, China supported the adoption of the Report of the Appellate Body, and that of the Panel, as modified by the Appellate Body. Hong Kong, China encouraged all parties concerned to take prompt actions to bring any WTO-inconsistent practices and measures into compliance.

...

[Chile]

certain phrases in the Report gave Chile some cause for concern. According to paragraph 160, "[e]nsuring "security and predictability" in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implied that, absent cogent reasons, an adjudicatory body would resolve the same legal question in the same way as had been done in previous cases. Paragraph 162 likewise stated as follows: "We are deeply concerned about the Panel's decision to depart from well-established Appellate Body jurisprudence clarifying the interpretation of the same legal issues." Such phrases could lead to unfortunate conclusions regarding the nature of the dispute settlement system, and Chile hoped that this would not become a trend likely to constrain panels in future disputes, and above all, that this would not alter the nature of the rights and obligations negotiated by the Membership. Chile believed that an interim report at the Appellate Body stage would have prevented the phrases in question from appearing in the final Report.

...

[India]

India believed that the legal interpretations embodied in the adopted Panel and Appellate Body Reports had become part and parcel of the acquis of the WTO dispute settlement system. Rejecting this prior jurisprudence by the Panel amounted to undermining the Member's faith that the adopted reports created legitimate expectations for the purpose of consistency and stability in the interpretation of their rights and obligations under the covered Agreements. The Panel in the present dispute, had bypassed and disregarded the conclusions of the Appellate Body in prior disputes that were directly on point.

...

[Colombia]

Colombia wished to express its views on the systemic issue as to whether a panel may rely on the findings of previous panel reports that the Appellate Body had reversed, and in particular whether panels were required to follow the Appellate Body's findings. In this connection, Colombia agreed with the reasoning of the Panel that there was no provision in the DSU that required WTO panels to follow the findings of previous panels or of the Appellate Body on the same issues brought before them. In fact, a panel or Appellate Body decision bound only the parties to the relevant dispute. On the other hand, in compliance with the last sentence of Article 3.2 of the DSU: "recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements". While recognizing the need to provide security and predictability to the multilateral trading system through the development of a consistent line of jurisprudence, Colombia wished to recall that the Ministerial Conference and the General Council alone were empowered to adopt authoritative interpretations.

...

[Mexico]

With regard to certain comments made by some delegations at the present meeting, Mexico pointed out that the decision by the Appellate Body should not be quoted out of its context. Panels must pay attention to the Appellate Body's findings particularly when dealing with the same legal questions. In this regard, Mexico did not share the concerns expressed by some Members at the present meeting. Mexico would have been very concerned if the Appellate Body had accepted a different approach concerning the question of zeroing.