International Economic Law and Policy Blog

China and the Economic Crisis

NYU grad student Alireza Gharagozlou sends the following overview of a paper he has written, and asks for comments:

China's accumulation of foreign currency is a hotly debated topic. Secretary of Treasury Geithner recently characterized it as "currency manipulation," a legal term of art which allows the United States to take retaliatory measures.

I have written a paper that approaches this practice from a different angle, and recommends a different solution. The paper can be downloaded here: http://ssrn.com/abstract=1332842

In this paper, I revisit the historic ideas surrounding miserliness and usury. I explain why these were economically pernicious activities, and why they were socially stigmatized or made illegal. The paper then moves onto international relations. I argue that China has been acting as miser and usurer on the world stage, at the expense of its own needs and global productivity. The world needs to balance spending vs. saving/investing/lending, and if there is too much of the latter then a rebalancing is inevitable. China has been doing too much of the latter, and the current economic crisis is that rebalancing.

The preferred solution to this problem is not trade protectionism, but rather increased trade. Over the past decade Americans have spent trillions of dollars on Chinese goods and services. This created employment in China and helped the country achieve its potential. The Chinese have responded by hoarding and lending that money. But a relationship where Americans spend and Chinese save and lend is not viable. Only when China takes the dollars Americans spend to employ Chinese, and uses it to employ Americans, will there be a sustainable relationship that can tap the productive potential of both countries. The United States has taken the first step and spent to establish this relationship. It is now China's turn to spend, to advance that relationship.

I am interested in comments before the paper is published, so please do not hesitate to write me at the link above with any feedback.

"Buy America" Stimulus Provisions

Sen. Sherrod Brown of Ohio supports them:

"As we are losing jobs in record numbers, we obviously need to devote these funds to direct creation of American jobs. To do that, we must ensure that federal funds are used to buy American products and to help promote manufacturing in our country," Brown said.

I see his point about the creation of specific American jobs, although (as most readers might guess) I disagree that this is good for the economy overall (the costs to many outweigh the benefits to a few).  But putting that aside, shouldn't those who take Sen. Brown's view be worried that our trading partners will respond in kind, which will result in American job losses as American companies are shut out of foreign procurement projects?

There's lots of talk in the blogosphere and the MSM about this issue.  See: Ben Muse, Julian Ku at Opinio Juris, Eyes on Trade, Reuters, the Washington Post, and the Washington Post again.

UPDATE:

Joe Biden says:

"I don't view that as some of the pure free traders view it, as a harbinger of protectionism. I don't buy that at all. So I think it's legitimate to have some portions of buy American in it," Biden told CNBC.

In my view, whether it's a "harbinger" of protectionism kind of misses the point.  It's actual, current protectionism!

US vs. China: IPRs

Despite the fact that the Western press is reporting a win for the US in its IPRs dispute with China (see here and here), in reality this seems to be a win for China. Michael Geist (Ottawa) provides excellent initial analysis on his website (click here) showing why China was actually the big winner is this dispute.

Geist summarizes the three key issues in the dispute as follows:

1. Does China's copyright law provide appropriate protection for all works in compliance with international copyright law (Berne Convention as incorporated by TRIPS)?

2. Do China's border measures, which allow customs officials to donate, auction, or sell to the rights holder confiscated goods, violate TRIPS?

3. Does China's IP enforcement system, which sets a minimum threshold for criminal prosecution, violate TRIPS?

The panel backed the US on the first measure, thus the cause for celebration at the USTR. Of course, the USTR is ‘disappointed’ that the panel ruled against its claims for points two and three.

While I found China's arguments concerning issue 2 to be plausible, I really didn’t think that China’s arguments on point three were strong enough to win on the issue. Moreover, it seems that any numerical threshold (China's threshold is set at 500 copies) is arbitrary. Why would 499 copies not be commercial scale but 500 is commercial scale? To me, this seemed to be very difficult to defend. It also would seem to allow an individual to rent premises and set up shop selling pirated copies of music/DVDs and counterfeit TMs but avoid criminal prosecution as long as only 499 copies of each item are copied and sold. A case-by-case analysis following certain pre-set factors seems like a fairer, and more sensible way to determine commercial scale.

I'm certain this isn't the last time we will hear about this dispute... 

Generic Pharmaceuticals, Patent Infringement and Freedom of Transit

Brazil and India are both upset over the interception (and return) by Dutch authorities of generic pharmaceuticals exported from India’s Dr. Reddy’s on route to Brazil. See here for one newspaper article.  The article states:

Commerce secretary G.K. Pillai said the department has taken up the matter with the European Commission (EC) and has written to them. “This is an act of piracy by the European Union. The consignment was going to Latin America and was seized in Europe... This is a dangerous thing happening, which is totally uncalled for. It is part of the strategy by these countries to target generic drugs from India.”

Frequent IEL and Policy blogger Shamnad Bashir is quoted in the article as saying:

“If the consignment does infringe a patent, then you cannot question the EU for seizing it under their patent laws.”

This seems to be correct. EC Customs and Regulation 1383/2003) mandates Members to detain suspicious goods. The Regulation provides the authorities right to suspend goods to be released for circulation within the EU, goods for export or re-export and goods in free zones or warehouses during transit through the EU. It seems that Cross Co v Sunil in the US (under the Lanham Act) and even the Indian Supreme Court decision of Gramophone Company Of India Ltd. vs Birendra Bahadur Pandey & Ors. allow similar action.

The relevant articles in TRIPS are 51-60 (dealing with border enforcement measures). Footnote 13 of TRIPS implies that countries can, but do not have to, apply the enforcement measure to transiting goods. In this regard, I don't see a conflict between the EC regulations and TRIPS.

Unsurprisingly, MSF have a different view:

"The EC regulations that have led to the seizure of Indian generic drugs in transit to Brazil have created barriers to the export of affordable, quality, low-cost generic drugs from India to other developing countries. This is part of the IP (intellectual property) enforcement agenda,” said lawyer Leena Menghaney, who is also India project manager for the Campaign for Access to Essential Medicines, an initiative of Medecins Sans Frontieres, a non-profit organization".

Despite the fact that a compulsory licence wasn’t issued for the relevant drugs at issue, the Brazilian government is considering a WTO complaint:

 

"The Brazilian government feels that the decision by the Dutch authorities to detain the basic material critical for the public health of a developing country ... a serious step backward on the question of universal access to drugs," said the note released by the Brazilian ministries late Thursday.

The statement also said the government would take its complaint to the executive council of the World Trade Organization in Geneva.

The relevant provisions of TRIPS seem to substantiate the actions of the EC, but does a strict interpretation in this instance frustrate the object and purpose of TRIPS? Moreover, is Article V of GATT ('freedom of transit') implicated?

Note: A big assist goes to R.V. Anuradha for the email discussion as well as suggesting this post and some of the contents therein.

Follow-up on Bailing out "Foreign" Car Companies

When I mentioned the Fiat-Chrysler alliance the other day, and expressed a little surprise that a bailout of a "foreign" company would go through without protests by some members of Congress, this is the kind of thing I had in mind:

Chrysler LLC should be required to return billions of dollars in government loans if Italian carmaker Fiat takes a majority stake in the company, a New Jersey senator said Thursday.

Sen. Bob Menendez, D-N.J., urged President Barack Obama to prevent the auto industry bailout from being used to help foreign automakers. The Bush administration provided Chrysler with $4 billion in federal loans earlier this month to help the company reorganize and the Auburn Hills, Mich.-based automaker is seeking another $3 billion.

...

"I am sure you would agree that the responsible action is to ensure that American taxpayers are not financing foreign automakers," Menendez wrote.

It will be interesting to see how this develops.

Measures to Support Domestic Production

From the Economist:

The president of France, Nicolas Sarkozy, has made it clear that support for PSA Peugeot-Citroën and Renault will depend on production staying in the country.

This is the kind of measure -- in essence, a location incentive -- that feels like it violates WTO rules, but probably does not.  There are arguments to be made about how it favors domestic products over imports, but they are all a bit of a stretch.

Foreign Investment and the Auto Bailout

From the FT:

Chrysler declared its new alliance with Fiat would enhance its long-term viability yesterday in an apparent bid by the Detroit carmaker to strengthen its case for billions of extra dollars in US government aid.

This is interesting.  When I saw the headline about Fiat's alliance with Chrysler, I thought, is this going to hurt their chances for bailout money?  Will there be an outcry in Cogress about giving money to a "foreign" company?  But apparently Chrysler thinks it will be the opposite:  a stable, foreign partner will increase its chances for bailout money.

The Hormones Sanctions Trade Battle is Heating Up

Some people in France want to retaliate for the extra import duties just imposed by the U.S. on French cheese:

"Symbol versus symbol," said Philippe Folliot, a French member of parliament whose Tarn constituency contains many roquefort producers. "Since the United States has decided to surtax one of the most ancient (cheese) appellations, I think that the French government, with the European Union, must think about a heavy specific tax on imports of Coca-Cola concentrates produced in the US."

The all-American fizzy drink, he went on, "is the symbol of a product that is standardised the world over, whose ill-effects on health are known, and which is made by an arrogant North American multinational that doesn't hesitate to sponsor dictatorships."

My guess is that some people in Brussels will try to talk them out of this.

Separation of Trade Powers

H.R. 496, the "Trade Enforcement Act of 2009", introduced by Reps. Rangel and Levin, would shift some trade power from the President to Congress.  It would create an "Office of the Congressional Trade Enforcer," whose purpose is "to ensure compliance by trading partners of the United States with trade agreements to which the United States and such trading partners are parties."  As set out in the legislation (excerpted below), the Congressional Trade Enforcer "shall have the authority to investigate foreign trade practices that are barriers to United States exports and issue indictments in cases where such practices violate any of the Uruguay Round Agreements or any bilateral or regional trade agreement to which the United States is a party."

I wonder what the Obama team thinks of this.  Will they fight to keep as much power as possible with the Executive branch?  Or will they be happy to pass off some some of the responsibility to Congress so they can focus on other issues?

Here's the relevant text below the jump:

Buffett on the Trade Deficit

This piece by Warren Buffett is a bit old, but a commenter here just drew it to my attention.  Normally I wouldn't comment on something from so long ago.  However, given that it was published before this blog existed (so I couldn't comment at the time), and noting that Buffett has been advising Barack Obama, I thought it was worth raising it now.

In a nutshell, Buffett argues for reducing the trade deficit through a trade balancing plan:

My remedy may sound gimmicky, and in truth it is a tariff called by another name. But this is a tariff that retains most free-market virtues, neither protecting specific industries nor punishing specific countries nor encouraging trade wars. This plan would increase our exports and might well lead to increased overall world trade. And it would balance our books without there being a significant decline in the value of the dollar, which I believe is otherwise almost certain to occur.

We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties—either exporters abroad or importers here—wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance.

I have three criticisms here (others may have aditional ones they want to mention).

1.  This a clear WTO violation.  The measure is a bit more complex than many trade measure, but it seems to me that there would likely be a violation of GATT Article III, GATT Article XI and/or the TRIMs Agreement Annex.  And, of course, there would be some serious nullification or impairment.

2.  It is likely to result in a severe retaliatory response from our trading partners (Buffett is way off, in my view, when he says this will not "encourag[e] trade wars.")

3.  It is bad economic policy.  As Buffett himself notes: "There is no free lunch in the IC plan: It would have certain serious negative consequences for U.S. citizens. Prices of most imported products would increase, and so would the prices of certain competitive products manufactured domestically. The cost of the ICs, either in whole or in part, would therefore typically act as a tax on consumers."

Law Clerks at the Appellate Body

The U.S. proposes giving each Appellate Body Member his/her own law clerk:

... Appellate Body members currently rely on a common pool of Appellate Body Secretariat employees to perform research and manage appeals.  However, an Appellate Body member does not have any personal staff dedicated to working on the specific issues of interest to that individual Appellate Body member.  Appellate Body members are likely to be senior members of the legal profession, and it is unrealistic to expect them to do all of the basic legal research and drafting to develop their individual views and positions.  Such basic work, however, is often required for any adjudicator in any legal system to make an informed decision and fully develop his or her views.  While some of these functions have been performed by the Appellate Body Secretariat, we believe the WTO dispute settlement system would benefit if each Appellate Body member were allotted a law clerk.  Such an approach would facilitate a more informed debate when Appellate Body members gather to resolve a matter.  We note that many legal systems use law clerks to support adjudicators in these functions. If each Appellate Body member had a staff person assigned to that member, each member could be confident that they would have assistance in conducting the research and other work they consider important to their work and elaborating their views.  This step would have an ancillary benefit of allowing lawyers in various WTO Members who are early in their careers to get advanced training in WTO law, and help develop a pool of experienced WTO lawyers in Members that do not currently have an extensive number of persons with that expertise.  These law clerks could be hired as temporary staff to serve for the term of an individual Appellate Body member and not as part of the permanent WTO Secretariat.  We also want to ensure that any action taken on modifying or creating posts is carried out in a manner that is consistent with existing remuneration practices.

Having worked at the Appellate Body, I'm not going to say too much about this, but I don't think I'm divulging any secrets by pointing out that this could result in a significant change in the internal process through which the Appellate Body considers cases.

 

Inaugurating a New U.S. Trade Policy

There will be no avoiding trade issues for long, even if President-Elect Obama wanted to, as they will apparently play a role in the inauguration:

Barack Obama has a pungent and politically charged inauguration gift coming his way from France.

The head of a region in the Pyrenees known for its Roquefort cheese, Martin Malvy, said Friday he had sent the U.S. president-elect a 2-kilogram (4.5-pound) "package of prestige" of the odorous fromage to mark his ascension to office next week.

Along with the cheese was a letter lamenting the U.S. announcement Thursday of new sanctions on European foods, including a tripling of the duties for Roquefort imported into the U.S. The American move was the latest volley in a larger, 13-year-old trade fight between the European Union and the U.S. over beef treated with hormones.

The GATT/GATS Overlap

In a piece about Rolls-Royce, the Economist notes:

In practice, there is no clear line between what counts as a service and what has been made. Look closer and those burger-flippers work on a small assembly line. Rolls-Royce’s designers, salesforce, analysts and financial-support staff are hardly different from their counterparts at ARM, which gets other people to make its microprocessors. The distinction owes more to government statisticians than anything else.

The overlap between goods and services will be familiar to most of this blog's readers, I would guess.  Many, perhaps most, goods have a services aspect (distribution, if nothing else).  Is it possible that some day we will get rid of the artificial distinction in their international regulation by merging the GATT and the GATS?

The U.S., Korea and Trade in Cars

Somehow this seems like a disconnect to me.  U.S. and Korean companies working together and trading:

General Motors Corp. on Monday named LG Chem Ltd. of South Korea as the lithium-ion battery supplier for its Chevrolet Volt electric car, and the automaker also announced the seeds of what could become a battery development and manufacturing center in Michigan.

LG Chem will make the battery cells in Korea and ship them to the U.S., where they will be assembled into packs at an unspecified GM factory in Michigan, both companies said at the North American International Auto Show.

But the U.S. and Korea fighting over trade:

[Hillary] Clinton argued that some provisions [of the Korea-U.S. FTA], including those concerning the services sector, could help U.S. companies. But the Bush administration failed to reach a fair trade agreement involving automobile sales, she noted. ``U.S. trade representatives failed to secure fair trade conditions related to automobiles, trucks and other products.''

Trade Talk in the Clinton Confirmation

From a question for Hillary Clinton during her Secretary of State confirmation hearings:

SHAHEEN: Thank you. The second question is related somewhat, and it deals with trade. We have a company in New Hampshire -- and forgive me for being parochial -- called Goss International that makes large printing presses.

They had Japan come in and dump imports into the market. They went to court and sued under our trade laws and got a judgment in U.S. district court. And Japan retaliated by passing a recovery or a claw back that allowed the company that was doing the dumping to actually appropriate Goss' investments in Japan. And the State Department has really done very little to address this issue in a way that -- despite the court judgment on behalf of the American company.

So what role do you see the State Department playing as companies like Goss are dealing with this violation of U.S. trade laws?

I'm vaguely familiar with the case, but I'm having a hard time figuring out what Senator Shaheen had in mind when saying "Japan retaliated by passing a recovery or a claw back that allowed the company that was doing the dumping to actually appropriate Goss' investments in Japan."  Do any commenters know what was going on here?  Is she referring to Japan's suspension request in the 1916 Act case?

Article XXIV vs Enabling Clause

Frequent commenter Jalal Alavi sends the following:

There has been a request submitted by GCC Customs Union ( Bahrain, the United Arab Emirates, Saudi Arabia, Oman, Qatar and Kuwait) to the WTO Committee on Trade and Development to change the status of its notification under article XXIV GATT to a notification under Enabling Clause. The European Communities and the United States have opposed it contending, among others, that:

- paragraph 2(c) of Enabling Clause does not cover customs unions. (EC, WT/COMTD/66/Add.2)

- Enabling Clause is an exception to GATT article I (MFN) only, and as long as a regional arrangement results in inconsistencies with other GATT provisions, such as article II on tariff bindings, these inconsistencies can only be justified under GATT article XXIV. (US, WT/COMTD/66/Add.1)

- Enabling Clause provides no legal basis for justification of preferential non-tariff measures among members of a trade arrangement. (EC, WT/COMTD/66/Add.2)

- GCC Customs Union should be exclusively reviewed by Committee on Regional Trade Agreements rather than Committee on Trade and Development. (EC and US)

Paragraph 2(c) of the Enabling Clause allows MFN-inconsistency of "Regional or global arrangements entered into amongst less-developed contracting parties for the mutual reduction or elimination of tariffs and, in accordance with criteria or conditions which may be prescribed by the CONTRACTING PARTIES, for the mutual reduction or elimination of non-tariff measures, on products imported from one another;". According to the EC, this paragraph can only be invoked to justify preferential non-tariff measures in a regional arrangement among developing countries if criteria or conditions specified therein are established by the membership. For this is not the case yet, EC argues, the GCC Customs Union (because of its non-tariff provisions) is not justifiable under Enabling Clause. According to US, GCC Customs Union has resulted in a common external tariff which is above the tariff bindings of some of its members and this inconsistency with the GATT article II can only be justified, and shall be compensated accordingly, under GATT article XXIV.

If we accept these arguments, does that mean in practice that article XXIV prevails over Enabling Clause para 2(c) in almost all cases today? What is left if we exclude Customs Unions and regional arrangements with non-tariff provisions from Enabling Clause? What was the very intention of the drafters of para 2(c) of the Enabling Clause? Any thoughts and comments are appreciated.

Discrimination Against Domestic Producers

In a comment posted here, Susan Aaronson says:

Does the WTO require that member states not discriminate among foreign and domestic producers in instances where foreign producers could be treated better than domestic producers? While the WTO requires that member states provide national treatment to foreign producers, it raises the question: why would repressive states provide broader or additional rights to their own citizens? Under national treatment rules, governments are not supposed to favor domestic producers over foreign producers once a good enters the market (there are some limited exceptions). But the WTO’s national treatment rules don’t explicitly require governments to treat domestic producers exactly the same as foreign producers. Repressive governments could, in theory, treat domestic producers worse than foreign producers.

I think the answer to the first part of the question is pretty clear:  WTO Members can discriminate against domestic producers.  Does anyone have other thoughts?

Sallie James on U.S. Trade Policy

On reason.tv, Sallie James of the Cato Institute talks about the past Bush trade policy and the future Obama trade policy.  It starts at about :50 of the video.

More on Chinese Internet Censorship as a Trade Barrier

At the Huffington Post, Michael Santoro and Wendy Goldberg make the case to the incoming Obama team for Chinese internet censorship to be treated as a trade barrier:

Almost all discussion of the harm done by China's strict censorship of the Internet focuses around its human rights implications. However, by restraining the ability of U.S. companies to fairly compete in the world's largest market, serious damage is also being done to America's free trade interests by its largest trading partner.

I agree there's an argument to be made here.  On the other hand, I do think that perhaps they overstate the case a bit at times.  For example, they say:

The United States, Canada, and the European Union recently won an important WTO-based concession from China which may have a positive effect in moving this issue forward. In November 2008, a formal complaint based on China's WTO obligations was settled by agreeing to allow financial information providers, including Thomson Reuters, Dow Jones and Bloomberg, to distribute financial news independently of the Chinese-controlled Xinhua news agency. These news organizations will now be able to set up shop independently of Xinhua and establish direct commercial relationships with Chinese subscribers -- and make it much harder for the Chinese government to censor news about the country's economy. While the issues are more complex in the case of broad Internet services, the idea that censorship and control of information violates fundamental trade principles has now been firmly established.

Reading this, I wonder which "trade principles" they have in mind.  In the financial services case, there were some non-discrimination issues (with Xinhua favored over foreign competitors), which are clearly a "fundamental trade principle."  By contrast, I'm not sure which trade principles are at issue here.  The authors perhaps imply there is discrimination in the censorship context when they say:

Censorship gives an unfair market advantage to Chinese internet providers like Baidu, which doesn't need to present a superior product to lead the market - it needs simply to offer operational and editorial compliance with what the government wants, or what Baidu thinks it wants.

However, it's not clear to me how Baidu has an advantage.  Aren't they being censored, too, and in the same exact way?  The core of the financial services case, it seems to me, was government action favoring a domestic company.  But from what I can tell, it's harder to make the case that this is what is going on here.

For more on this, see these three old posts.

More on Carbon Emissions and Trade

As a result of my post the other day on the carbon tax proposal by Congressman Inglis and Arthur Laffer, I received a call from Congressman Inglis' office, inviting the media, which to my surprise apparently includes me, to join a conference call hosted by Inglis and Laffer, where they would talk about their proposal and take questions.  I had never done one of these before and it sounded like fun, so I joined in.

My question for them was, how exactly would they structure this carbon tax?  In my view, the structure is key for making such a tax consistent with trade rules, so I was curious to see what they had in mind.

Dr. Laffer was thinking of a pure gas tax. If this just means increasing the rate of the current federal gax tax, such a measure is, in my view, unlikely to be a problem under WTO rules.

By contrast, Congressman Inglis wanted a dual approach -- a gas tax to keep gas above $3 or so per gallon, as well as a carbon tax of some sort.  The Congressman has prepared a document which elaborates a bit on both aspects (it's not linkable for now, but it should be on his web site soon).  He explains that there will be a "price" on carbon (if I understand correctly, either through a direct tax or through a cap-and-trade program).  In addition, the tax "would apply to fossil fuels as they enter the economy: at the mine mouth, the oil refinery and the natural gas pipeline."  Then, to prevent carbon leakage, there will be a border tax applied to imports: "In order to accord similar tax treatments to domestic and imported goods, products imported from countries without carbon constraints would be subjected to the U.S. carbon tax. The tax would be applied at the U.S. port of entry."

I worry about this approach.  It seems to me it would be difficult to set this up in a way that treats imports and domestic products equally, not to mention treating imports from different countries equally.  Just trying to do the calculations so that everyone is equal is hard enough, but then when you have domestic industry lobbying on the issue as well, the task may be too much.

At the risk of being too bold and weighing in on issues I don't know enough about, I thought I might offer a suggestion for how I think a carbon tax might be designed so as to reduce carbon emissions in a way that does not violate trade rules.  Mind you, this will be a very brief description, leaving out a A LOT of important details (it's just a blog post, after all).  And it no doubt ignores many political realities.  But maybe it can provide a useful framework (or at least an interesting discussion).  So, without further ado, here's my two-step proposal.

Step 1 would be to require labeling of all products sold in the United States to indicate the carbon emissions that result from their production and distribution.   (Other countries have already suggested doing this, for some products at least.)  There would be as little differentiation between imported and domestic products as possible here.  There may be a couple implementation areas for which you would need different rules, but for the most part it would just be a labeling requirement that applies to all products.

Once Step 1 has been successfully implemented (which could take a little while, I admit), you could then move to Step 2, which is to impose taxes on these goods in relation to their carbon content.  If Step 1 goes well, Step 2 really won't be that difficult.  It's just a question of setting the appropriate tax rates.

There is no getting around the fact that this will be enormously complicated to set up.  But is it any more difficult than the alternatives?  Cap-and-trade sounds much harder to me.

And in terms of trade concerns, I think this approach would be much less of a problem than the alternatives.

Any thoughts?  What are the advantages and disadvantages of this idea as compared to the alternatives?

Carolyn Deere on the WTO DG Non-Race

It is being reported that Pascal Lamy is the only candidate for DG.  Carolyn Deere comments:

This year, with only one nominee at hand, WTO Members must nonetheless ensure that there is vigorous debate on the challenges facing the organization and the changes that the Director-General should pursue. They must then provide a clear mandate to the Director-General. Here, even in the absence of contenders, Lamy himself needs to demonstrate that he can be an agent for change by catalysing debate. He should seize the opportunity to explicitly and publicly present a forward-looking vision for the multilateral trading system, the WTO system and its Secretariat, and propose a comprehensive action plan for his second term for Members to consider.

More at the link.

Accession Protocol Commitments

Henry recently mentioned the issue of paragraph 15 of China's protocol of accession.  Here's the text (link is to a Word document):

15.       Price Comparability in Determining Subsidies and Dumping

            Article VI of the GATT 1994, the Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994 ("Anti-Dumping Agreement") and the SCM Agreement shall apply in proceedings involving imports of Chinese origin into a WTO Member consistent with the following:

            (a)        In determining price comparability under Article VI of the GATT 1994 and the Anti‑Dumping Agreement, the importing WTO Member shall use either Chinese prices or costs for the industry under investigation or a methodology that is not based on a strict comparison with domestic prices or costs in China based on the following rules:

(i)         If the producers under investigation can clearly show that market economy conditions prevail in the industry producing the like product with regard to the manufacture, production and sale of that product, the importing WTO Member shall use Chinese prices or costs for the industry under investigation in determining price comparability;

(ii)        The importing WTO Member may use a methodology that is not based on a strict comparison with domestic prices or costs in China if the producers under investigation cannot clearly show that market economy conditions prevail in the industry producing the like product with regard to manufacture, production and sale of that product.

            (b)        In proceedings under Parts II, III and V of the SCM Agreement, when addressing subsidies described in Articles 14(a), 14(b), 14(c) and 14(d), relevant provisions of the SCM Agreement shall apply;  however, if there are special difficulties in that application, the importing WTO Member may then use methodologies for identifying and measuring the subsidy benefit which take into account the possibility that prevailing terms and conditions in China may not always be available as appropriate benchmarks.  In applying such methodologies, where practicable, the importing WTO Member should adjust such prevailing terms and conditions before considering the use of terms and conditions prevailing outside China.

            (c)        The importing WTO Member shall notify methodologies used in accordance with subparagraph (a) to the Committee on Anti-Dumping Practices and shall notify methodologies used in accordance with subparagraph (b) to the Committee on Subsidies and Countervailing Measures.

            (d)        Once China has established, under the national law of the importing WTO Member, that it is a market economy, the provisions of subparagraph (a) shall be terminated provided that the importing Member's national law contains market economy criteria as of the date of accession.  In any event, the provisions of subparagraph (a)(ii) shall expire 15 years after the date of accession.  In addition, should China establish, pursuant to the national law of the importing WTO Member, that market economy conditions prevail in a particular industry or sector, the non‑market economy provisions of subparagraph (a) shall no longer apply to that industry or sector.

There are probably others who have put more thought into this issue than I have, so I thought I'd just post a couple questions that occur to me to see if anyone has some answers (or thoughts, anyway):

1)  Can a protocol of accession modify/amend/interpret the terms of GATT Article VI and the AD/SCM Agreements?   Without having looked closely at these provisions, it's not clear to me exactly what the language of Article 15 does to the provisions, but it seems to do something.

2)  If these obligations apply only with respect to China, isn't this an MFN problem?  I see two MFN issues: (a) only China benefits from the conditions imposed on importing Members; and (b) all Members except China must follow these rules.  So can the protocol act as an exception to MFN?

Market Access for Safe Toys

Whenever I am talking with someone about the purpose of the WTO (or trade agreements generally), I like to draw the distinction between discrminatory trade barriers and non-discriminatory trade barriers, with the point being that we may want to treat the two categories differently.  Putting aside the difficult question of how to define discrimination, I find there is often confusion about what exactly I mean by a non-discriminatory trade barrier.  For many of the examples I come up with, some people see a discriminatory intent buried in there.  Well, this might be a good, clear example:

Worries over lead paint in mass-market toys made the holidays a little brighter for handcrafted toy makers last year, but now the federal government's response to the scare has some workshops fearful that this Christmas might be their last.

Without changes to strict new safety rules, they say, mom-and-pop toy makers and retailers could be forced to conduct testing and labeling they can't afford, even if they use materials as benign as unfinished wood, organic cotton and beeswax.

"It's ironic that the companies who never violated the public trust, who have already operated with integrity, are the ones being threatened," said Julia Chen, owner of The Playstore in Palo Alto, which specializes in wooden and organic playthings.

A spokeswoman for the Consumer Product Safety Commission said Wednesday the agency is working to set up some exemptions.

Lead paint spurred the recall of 45 million toys last year, mostly made in China for larger manufacturers. Parents flocked to stores like The Playstore in the recall's aftermath searching for safer alternatives.

Lawmakers also responded. In August, President Bush imposed the world's strictest lead ban in products for children 12 or younger by signing the Consumer Product Safety Improvement Act.

Small toy makers strongly back the restrictions in the bill, which they say reflect voluntary standards they have long observed to keep harmful substances out of toys. But they never thought their products would also be considered a threat.

Under the law, all children's products must be tested for lead and other harmful substances. Toy makers are required to pay a third-party lab for the testing and to put tracking labels on all toys to show when and where they were made.

Those requirements make sense for a multinational toy manufacturer churning out thousands of plastic toys on an overseas assembly line, said Dan Marshall, co-owner of Peapods Natural Toys and Baby Care in St. Paul, Minn.

But a business that makes, for example, a few hundred handcrafted wooden baby rattles each year cannot afford to pay up to $4,000 per product for testing, a price some toy makers have been quoted, he said.

...

One European toy maker has already announced it will stop its exports to the U.S. because of the law's costs and uncertainties. Selecta Spielzeug, a German company, said earlier this month that it will stop shipping its wooden push toys, games and other products to 1,200 U.S. stores after Dec. 31.

As noted in the article, there's talk of clarifying the rules to make sure they do not apply to companies that use only products that are not harmful.  Regardless, though, the law at issue is clearly a "trade barrier" in some sense.  As the article states, a European toy maker is stopping its exports because the cost of complying with the law is too great.  Despite the clear impact on trade, though, the law seems to be non-discriminatory, as some domestic producers are hurt by it, too (it's not clear whether there is an overall disparate impact on foreign toy makers).

So what should international trade rules say about such measures?  Should there be limits on non-discriminatory trade barriers such as this one?  If there are limits, how strict should they be?

Gilston on Trade

I'm not sure I know how to link to this properly, but Sam Gilston of the Washington Tariff & Trade Letter was on C-Span's Washington Journal talking U.S. trade policy.  He comes on at about 2:07:30 of the program, so you have to scroll forward a bit.  (The link works for now, but by tomorrow, you may need to search C-Span to find the program, which aired on Jan 3.  Or it might still work -- I'm not sure.)

An Anti-Dumping Case on Toilet Paper

An opportunity for some good puns, as you can probably imagine, courtesy of the Sydney Morning Herald.