International Economic Law and Policy Blog

China Currency Talk

The rhetoric a few weeks back from Obama's new Treasury Secretary Tim Geithner on China's currency "manipulation" has generated a bit of a response.  Here's a sampling:

The Economist:

Attacks on China’s cheap currency are overdone

CHINA has been accused of “manipulating” its currency by Tim Geithner, America’s new treasury secretary, and this week Dominique Strauss-Kahn, the managing director of the IMF, said that it was “common knowledge” that the yuan was undervalued. You would assume that such strong claims were backed by solid proof, but the evidence is, in fact, mixed.

...

The real issue is whether Beijing is deliberately keeping the yuan cheap to give exporters an unfair advantage.

...

The evidence that the yuan is significantly undervalued is hardly rock-solid. It probably is still a bit too cheap, and it would certainly be a mistake for Beijing to allow it to fall, not least because this would risk a protectionist backlash from abroad. In the longer term, the yuan needs to keep rising against a basket of currencies. But for now, some of the accusations being thrown at China are wide of the mark.

Tibita Kaneene in Foreign Policy:

... there is little evidence that a currency appreciation would have an effect on the U.S. economy -- let alone a positive one.

Gary Becker:

During his confirmation hearing before the United States Senate toward the end of January, Secretary of the Treasury Timothy Geithner accused China of "manipulating" its currency. This is not a statement that helps to further China-US cooperation on trying to stimulate the depressed world economy and on other issues- Secretary of State Hillary Clinton is now in China trying to mend some fences. Yet Geithner's statement is a correct evaluation of the Chinese policy of keeping the value of its currency, the yuan, low relative to the dollar and other currencies. It is far less clear, however, whether this and related Chinese policies harm the US and other countries.

A Trade and Environment Success Story

Not all trade and the environment conflicts result in protests outside the WTO.  The Economist reports on one success story:

UNTIL recently, the glaze on most Mexican pottery contained lead. ... . [As a result,] products were banned from the American market, where their hand-painted beauty could fetch much higher prices than in rural Mexico, where the pots were merely a practicality.

Over the past 15 years the lead has gradually disappeared, thanks to the efforts of Fonart, a government entity that promotes handicrafts, and various NGOs. Researchers sponsored by them came up with a non-toxic, low-temperature glaze based on boron. They also encouraged potters to install fans costing just $40 in their kilns so that combustion became more efficient. Thanks to these changes, some Mexican potters who used to make less than $1,000 a year are now earning up to $40,000 by exporting to the United States and Europe, says Eric O’Leary, an American potter who has worked with Fonart.

WTO Dispute Settlement 2008

For those who will be in Geneva next Monday, March 2, the Graduate Institute's Center for Trade and Economic Integration will hold its 2nd Annual "Update on WTO Dispute Settlement," discussing developments in 2008.  The program is here.

U. of Chicago Law Faculty Blog on "The Future of the WTO"

The U. of Chicago Law School Faculty Blog is discussing "The Future of the WTO," with posts by Anu Bradford, Daniel Abebe, Greg Shaffer and Richard Steinberg.

Steinberg begins his post as follows:  "As a location for trade negotiation, the WTO is dead."  I'm going to be a bit contrarian here and predict that the proliferation of FTAs is in its final stages (its "last throes," one might say).  We will soon (within a couple years) have some negotiating successes at the WTO and countries will then try to multilateralize all of the FTA trade liberalization at the WTO.  Of course, this is no doubt just wishful thinking on my part!

Decision out in Byrd Amendment Constitutionality Lawsuit

On Feb. 19, the U.S. Court of Appeals for the Federal Circuit issued its decision in the interesting case about the Constitutionality of the Byrd Amendment.  The name of the case is SKF USA Inc. v. U.S. Customs and Border Protection, Fed. Cir. No. 2008-1005.  The question of its constitutionality had not occurred to me when the initial law was passed nearly a decade ago, but once I heard the claim, I immediately agreed that it is a clear instance of the government rewarding speech with cash depending on what side of a controversy the speaker is on.  And I would have been surprised to have that sort of law declared to be constitutional.  I was surprised, therefore, to see the Federal Circuit uphold the law on a 2-1 vote.  I commend the thoughtful dissent by Judge Richard Linn.  The majority opinion, authored by Judge Timothy Dyk, suggests that support for or opposition to a petition is commercial speech and that the government payment is designed to reward parties who promote the government's policy against dumping. In my view, the majority went off course in viewing support for antidumping duties as commercial speech and in likening the government payments given to companies hurt by dumping as attorney's fees or a qui tam payment.  A qui tam payment is a payment to an informer who helps in the prosectution of a fraud against a government when the government recovers damages.  Dumping, of course, is not a fraud against the government and the antidumping duties collected are not a monetary recovery by the government.  Rather, antidumping duties are prospective tariffs paid by importers and sometimes passed on to consumers. 

Buy America under WTO Rules

With regard to Brazil's possible WTO complaint against the Buy America stimulus provisions, I had been caught up with trying to figure out how Brazil would deal with the GATT Article III:8(a) exemption.  However, a commenter pointed out SCM Agreement Article 3.1(b), which I had not thought of.  Doing some quick and dirty legal analysis, the following are the key elements in a 3.1(b) claim:  (1) there must be a "subsidy" (which usually involves a "financial contribution" and a "benefit"); and (2) the subsidy must be "contingent" on "the use of domestic over imported goods."  Let's take these one by one.

Financial contribution:  Article 1.1(a)(1) lists a number of possible financial contributions.  Of relevance here is Article 1.1(a)(1)(iii), which refers to the situation where "a government ... purchases goods."  Well, we've certainly got that with the stimulus, so this element is satisfied.

Benefit: Article 1.1(b) says that "a benefit is thereby conferred."  This one's a little complicated, but the jurisprudence on this point refers to a comparison with the "market."  Given that the Buy America provisions talk about using American products unless they "increase the cost of the overall project by more than 25 percent," it seems as though there is a good argument that above market prices will be paid (up to 25% above the market price to be exact), and thus a benefit conferred.

Contingent on the use of domestic goods: Article 3.1(b) says that the following is a prohibited subsidy: "subsidies contingent, whether solely or as one of several other conditions, upon the use of domestic over imported goods."  This is kind of the whole point of Buy America, so that one is easy to satisfy.

That all looks pretty easy.  A clear violation, right?  Well, maybe not.  The "benefit" part is a bit tricky.  One reason is that the U.S. government has the discretion not to follow the Buy America provisions under certain circumstances.  Those of you who know a bit about WTO law will recognize the importance of the word "discretion," as it means the somewhat complicated and confusing "mandatory/discretionary" distinction will play a role.  Oversimplifying a bit, the U.S. could argue that because it has the discretion to apply the law consistently with WTO rules, the law does not violate WTO rules "as such" (although specific applications of the law could still be challenged).  In fact, the U.S. might point out, the law explicitly requires the government to apply it consistenty with the rules. On this basis, the U.S. would argue that because there is discretion to apply the law consistently, there is no violation.  (I have some thoughts on the mandatory/discretionary distinction that I've been saving up for a blog post, but I don't have it in me to go through them all right now!) 

So, that's one problem with the claim.  I'm sure Brazil's lawyers are thinking through this issue in more detail than I have in this post. 

In addition, you also get into issues of what is the "market," and possibly other factors as well.

Any thoughts on this from blog readers?

Obama and Harper Talk Trade

From their joint press conference:

Q Thank you, to both of you. I've got a question for both of you. Mr. President, on Tuesday you said that now is not the time to reopen NAFTA. But your aides said that you would be trying to convince our friends in Canada and in Mexico of the rightness of your position. So, first, did you convince our friends in Canada? And when is the right time to incorporate labor and environmental standards into the main body of NAFTA?

Second, for Prime Minister Harper. Mr. Prime Minister, is there a way for a "Buy American" provision to be compliant with the U.S. obligations under the World Trade Organization?

PRESIDENT OBAMA: Well, first of all, Jonathan, I'm not sure that was my exact quote. I always get a little nervous about responding to quotes without me actually seeing it. I think what I said was, is that now is a time where we've got to be very careful about any signals of protectionism, because, as the economy of the world contracts, I think there's going to be a strong impulse on the part of constituencies in all countries to see if we -- they can engage in "beggar thy neighbor" policies. And as obviously one of the largest economies in the world, it's important for us to make sure that we are showing leadership in the belief that trade ultimately is beneficial to all countries.

Having said that, what I also indicated was that with a NAFTA agreement that has labor provisions and environmental provisions as side agreements, it strikes me if those side agreements mean anything then they might as well be incorporated into the main body of the agreement so that they can be effectively enforced. And I think it is important, whether we're talking about our relationships with Canada or our relationships with Mexico, that all countries concerned are thinking about how workers are being treated and all countries concerned are thinking about environmental issues of the sort that Emmanuelle just raised earlier.

So, you know, I raised this issue with Prime Minister Harper. My hope is, is that as our advisors and staffs and economic teams work this through, that there's a way of doing this that is not disruptive to the extraordinarily important trade relationships that exist between the United States and Canada.

Now you didn't ask me about the "Buy American" provisions, but since it relates to our recovery package, let me just reiterate -- and I said this very clearly before the bill was passed and before I signed it -- that I think it was very important to make sure that any provisions that were there were consonant with our obligations under WTO and NAFTA.

And I think that is what we achieved. I recognize the concerns of Canada, given how significant trade with the United States is to the Canadian economy. I provided Prime Minister Harper an assurance that I want to grow trade and not contract it. And I don't think that there was anything in the recovery package that is adverse to that goal.

PRIME MINISTER HARPER: I'll answer both questions, as well. First of all, I just think it's important to reiterate that since NAFTA came into force, and more importantly since Canada signed its free trade agreement with the United States in 1988, trade agreements between our two countries have been nothing but beneficial for these two countries. There has been a massive explosion of trade. It was already the biggest trading relationship in the world; it's so much bigger now. And that trade supports, you know, countless millions of jobs.

And I don't think we should also forget the leadership that was established in that. You know, this was about the end of the Cold War, and Canada and the U.S. signed the first modern generation trade agreement that really started -- started the proliferation of these types of agreements, which really gave us the growth of the global economy.

Now, you know, I know some aspects of trade invariably cause political concerns, but nobody should think for a minute that trade between Canada and the United States is anything but a benefit between the two of us. And quite frankly, the trade challenges we face are common trade challenges. The trade challenges we face in North America are common trade challenges; they're not problems between our countries.

So I just think it's always important to keep this in mind. The President and I did have a good discussion of his concerns. You know, our position is that we're -- we're perfectly willing to look at ways we can -- we can address some of these concerns, which I understand, without, you know, opening the whole NAFTA and unraveling what is a very complex agreement. But we had a good discussion on that and I think -- I'm hopeful we'll be able to make some progress.

On -- on the "Buy American" provisions -- and let's also be very clear, as well, that in both WTO and NAFTA, there are -- there are industries and there are ways in which and there are levels of government at which one can have domestic preferences and purchasing policies. These things are allowed, in some cases, but they are certainly not allowed without limit. We expect the United States to adhere to its -- to its international obligations. I have every expectation, based on what the President has told me and what he's said publicly many times in the past, that the United States will do just that.

But I can't emphasize how important it is that we do that. We have agreed in Canada and, you know, all the major countries of the world through the G20, we agreed to pursue economic stimulus measures -- not just to stimulate our own economies, but to recognize that we have a synchronized global recession that requires policies that will not just benefit ourselves but benefit our trading partners at the same time. If we pursue stimulus packages, the goal of which is only to benefit ourselves or to benefit ourselves, worse, at the expense of others, we will deepen the world recession, not solve it.

So I think it's critical that the United States has been a leader for a long time in the goals of an open global economy. I think it's critical that that -- that that leadership continue. And I'm -- I'm quite confident that the United States will respect those obligations and continue to be a leader on the need for globalized trade.

If I could just comment on our stimulus package, one of the things we did in our stimulus package was actually remove duties on some imported goods. Part of the reason we did that, it's in our own economic interest, but also, as well, it will help stimulate continental and global trade. And this is important for our recovery. We know as a small economy we can't recover without recovery in the United States and recovery around the world. But that's true for all of us these days.

Trade Implications of The Auto Bailout

Some experts weigh in:

Claire Brunel and Gary Hufbauer of the Peterson Institute:

Auto bailouts in the United States and elsewhere largely fall within the purview of the WTO definition of actionable subsidies. But fuel-efficiency and environmental standards complicate the issue, and bringing a case to the WTO based on environmental mandates would be hard to justify politically. Moreover, since virtually all major auto exporters have implemented some auto industry aid, any country that brings the first case to the WTO can expect to be challenged with a case against their own auto measures. Therefore, it is unlikely that WTO cases will arise on auto-assistance measures.

National CVDs are more likely. However, any country that became the target of a US CVD case would probably not abandon the subsidy in response to the duties imposed against its exports. The target country would simply limit its exports to the United States. This would probably be followed by measures targeting US auto firms. Therefore, even a successful US CVD case would likely serve to fragment global auto markets even further, not a desirable outcome.

As auto bailouts and aid continue and intensify without WTO challenges, the world auto industry could gradually leave the realm of WTO discipline. This would set a dangerous precedent. If an important industry, like autos, can take itself out of WTO disciplines, the world trading system will be seriously weakened. Instead, G-20 leaders should proclaim a vision of restoring “normal market conditions” to both the auto industries and others that are now heavily subsidized.

Phil Levy and Michael Moore in The American:

[U.S. exports] could potentially be subject to retaliation from nations under WTO rules that the United States has long championed. These “countervailing” duties would be set to offset any competitive advantages that the Big Three exports might have received. This would be no empty threat as many countries could be quite aggressive in defending their own auto industries and would find it all too tempting to use permissible procedures, especially those that have previously blocked them from the American market. Other countries that primarily export cars to the United States could challenge the new subsidies at the WTO by arguing that their car companies had unfairly lost sales in America as a consequence of U.S. government intervention. If the United States were to lose these cases, then retaliation against other American export industries would result.

"Buy Keynesian"

Todd Tucker at Eyes on Trade points to the following proposal, referred to as a "Buy Keynesian" policy, from John Schmitt at CEPR:

The President could rewrite the current "Buy American" restriction to allow US recovery funds to be spent on US goods — as well as those from any country that passes an economic stimulus program that is at least as large (as a percent of their national GDP) as the package ultimately passed here. Call it a "Buy Keynesian" plan.

The "Buy Keynesian" clause would let the President thread the political needle. He gets to keep the "Buy American" provision that many taxpayers (and Senators) are demanding. And, when foreign leaders accuse him of protectionism, he can rightly respond that their goods have been excluded not because they are foreign, but because their countries aren't pulling their weight in the international recovery.

Todd notes that this "is a great idea, and obviously a great way to reflate the economy."  However, he states, such a provision would violate the WTO Government Procurement Agreement (for covered measures, anyway), noting that "unfortunately, there is no Keynesian exception to the national-treatment and most-favored nation obligation."

This proposal reflects a long-standing thorn in the side of the GATT/WTO:  "unilateral" trade measures used by some (often developed) countries to encourage other (often developing) countries to follow certain policies.  I've always been torn about such measures.  While I'm not a big fan of the general policy, I'm sometimes skeptical, at least for a few of the measures, that they violate WTO rules.

There are several points I wanted to make in response to the proposal: 

(1) I'm not completely sure there is a violation here.  If every Member is eligible, based on objective criteria, for U.S. recovery funds, there is an argument that the measure does not violate MFN.  Does it matter that some countries are in fact excluded from the funds based on failure to meet the criteria?  Probably yes, I have to concede, but it would be interesting to see how the Appellate Body dealt with this question. 

(2) For those who advocate these policies, if it's OK (as a policy matter, not in terms of WTO legality) if we do things like this, is it OK if others do them, too?  For example, let's say the EU gets annoyed with us for having such a weak currency, and takes action to discriminate against our goods unless we do something about it.

(3) Do the policies we are promoting affect the analysis?  Today we may be using this approach to promote policies you like.  Tomorrow it may be for something you don't like.

A Possible "Buy America" WTO Complaint

From Reuters:

Brazil may challenge the legality of a "Buy American" clause in the recently approved U.S. economic stimulus package at the World Trade Organization, Brazilian Foreign Minister Celso Amorim said on Monday.

"It's a complex legal analysis, but we're doing it," Amorim said.

...

Amorim said he thought Brazil could challenge the "Buy American" clause at the WTO, despite not being a signatory to an international agreement on government procurement.

I'm curious to hear their legal theory.

"Naming and Shaming" Protectionism

Gary Hufbauer proposes the following:

Here’s one proposal, built on the force of “name and shame.” A visionary private foundation might convene a blue-ribbon bench of respected trade economists and lawyers, independent of any government or the WTO. The bench would be drawn from eminent persons around the world.  It would be charged with grading new trade restrictions on an accelerated schedule. 

...

Panels would evaluate measures against the standards of the WTO, any relevant Free Trade Agreement (FTA), the G-20 pledge of November 2008, and any subsequent G-20 pledge.  Reports would describe the measure and determine whether it violates the relevant standards. To repeat, the reports are meant to “name and shame”; they are not meant to be used as evidence in subsequent WTO disputes or other judicial proceedings. 

I would suggest calling this group "Global Trade Watch," but that name has already been taken.

The Final "Buy America" Provisions in the Stimulus Bill

The White House approves:

Congressional negotiators have come up with the "right compromise" on 'Buy American' provisions of the economic stimulus bill that have raised concern among U.S. trade partners, a White House spokesman said on Thursday.

"I think where we ended up with the Buy America provision is the right compromise that respects the Buy America laws that we've had on our books for many, many years while also ensuring that the language doesn't create unnecessary trade disagreements in a time of economic crisis," White House spokesman Robert Gibbs told reporters aboard Air Force One.

A reaction from Canada:

Canadian officials took cold comfort today as the U.S. government finalized the wording of a provocative Buy American initiative with no last-minute surprises that would awaken further trade-war fears.

Diplomatic sources in Washington early today confirmed that the nearly $800-billion stimulus package will proceed toward President Barack Obama's desk to be signed into law with a provision to steer the money toward American-made products — but not in any way that would violate international agreements.

The clause to uphold trade agreements gives "some comfort" to Canada, said Trade Minister Stockwell Day. But the bill also serves as a reminder that the threat of protectionism must never be taken lightly, he said.

The Canadian paper linked to above quotes the relevant provisions as follows:

SEC. 1605. USE OF AMERICAN IRON, STEEL, AND MANUFACTURED GOODS

(a) None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.

(b) Subsection (a) shall not apply in any case or any category of cases in which the head of the Federal department or agency involved finds that

(1) applying subsection (a) would be inconsistent with the public interest;

(2) iron, steel, and the relevant manufactured goods are not produced in the United States if sufficient and reasonably available quantities and of a satisfactory quality; or

(3) inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent.

(c) If the head of a Federal department or agency determines that it is necessary to waive the application of subsection (a) based on a finding under subsection (b) the head of the department or agency shall publish in the Federal Register a detailed written jurisdiction as to why the provision is being waived.

(d) This section shall be applied in a manner consistent with United States obligations under international agreements.

The Joint Explanatory Statement indicates:

Section 1605 provides for the use of American iron, steel, and manufactured goods, except in certain instances. Section 1605 (d) is not intended to repeal by implication the President’s authority under Title III of the Trade Agreements Act of 1979. The conferees anticipate that the Administration will rely on the authority under 19 U.S.C. 2511 (b) to the extent necessary to comply with U.S. obligations under the WTO Agreement on Government Procurement and under US free trade agreements and so that section 1605 will not apply to least developed countries to the same extent that it does not apply to the parties to those international agreements. The conferees also note that waiver authority under section 2511 (b) (2) has not been used.

 

The US-EU Gambling Settlement

I've mentioned before (here and here) that journalist Ed Brayton has been trying to find out what is in the settlement reached by the U.S. and EU in relation to the Gambling case.  Brayton now has something to report, although it appears the full details will have to wait a couple weeks:

Since I've just spent the day talking about it, I just realized that I don't think I've ever said here what happened with my FOIA lawsuit, so here's a tease. Just before the election, the Bush administration caved in and gave us the document we wanted. I now have a copy of the WTO settlement that was signed between the US Trade Representative and the European Union. There was just one problem: it was pretty much meaningless gibberish to me.

The document consisted of a table that showed various subsections of the WTO's General Agreement on Trade in Services (GATS), all of which are part of what is called a "schedule of commitments" that determines what types of businesses and industries are open to foreign companies and what types are not. Each subsection listed then had a series of numbers and statements.

The only way to discern what it meant was to look at the full GATS text, the current schedule of commitments and map the differences. This is an incredibly long agreement and each subsection was very general. For instance, one of the subsections is titled "storage and warehousing services." Storage and warehousing of what, exactly? More digging is required to figure that out.

It took a trade attorney with Public Citizen nearly 3 months to figure out what the document meant - which sectors previously closed to foreign companies would now be open, what being open to foreign companies means (it's more than you'd think) and what the implications could be for the country. I'm going to be writing this up for publication in the next couple weeks as we go public with it all.

Remember that what this document tells us is how far the government is willing to go to be allowed to continue to make it more difficult for people to spend their own money doing something that is perfectly legal in virtually every state. It tells us what they are willing to sell out in order to pay back the EU for the lost revenue of being shut out of our markets.

So here's a tease: it may have some fairly serious national security implications. Stay tuned.

Do We Need Subsidies Rules for Services?

The UK gives up on a WTO subsidies complaint because there are no rules for subsidies to services:

"Last year the Government said that the UK via the European Union would take legal action against Canada if its support for its videogames industry violated WTO rules," said Richard Wilson, Tiga's CEO. "We now know that there are no legal grounds on which to lodge a complaint."

"We cannot stop our competitors from benefiting from tax breaks but there is a simple solution: copy them. The Government should announce in the Budget its intention to introduce a 20 per cent tax break for games production, similar to the EU approved French regime that applies to games that pass a cultural test," he added.

I can see why they gave up on the case, given GATS Article XV, which states:

1. Members recognize that, in certain circumstances, subsidies may have distortive effects on trade in services. Members shall enter into negotiations with a view to developing the necessary multilateral disciplines to avoid such trade-distortive effects.7 The negotiations shall also address the appropriateness of countervailing procedures. Such negotiations shall recognize the role of subsidies in relation to the development programmes of developing countries and take into account the needs of Members, particularly developing country Members, for flexibility in this area. For the purpose of such negotiations, Members shall exchange information concerning all subsidies related to trade in services that they provide to their domestic service suppliers.

2. Any Member which considers that it is adversely affected by a subsidy of another Member may request consultations with that Member on such matters. Such requests shall be accorded sympathetic consideration.

If the result of the absence of rules is a subsidy war, as the industry has now requested, perhaps this will motivate WTO Members to negotiate some rules in this area.

Economic Nationalism

The Economist has a pretty dramatic cover piece this week.  The title is "The Return of Economic Nationalism," and the cover shows a hand clawing its way out of the ground in a graveyard full of names such as Smoot/Hawley.  In the piece, they argue:

Economic nationalism—the urge to keep jobs and capital at home—is both turning the economic crisis into a political one and threatening the world with depression. If it is not buried again forthwith, the consequences will be dire.

I have to say, their reaction seems a bit overblown to me.  Yes, there have been some recent efforts to impose new trade barriers:  raising tariffs, imposing more anti-dumping measures, and inserting discriminatory provisions in procurement legislation (the "Buy America" issue), among other things.  But I think we need to keep things in perspective.  Prior to these recent events, we did not have anything close to complete free trade.  As Fred Bergsten recently put it:

"The WTO rules are very porous," said C. Fred Bergsten, director of the Peterson Institute for International Economics, a Washington think tank. "If you simply say live up to your rules, you still have massive scope for what I call legal protectionism."

Along the same lines, I was only half-joking when I said last week that "'protectionist power balance between all the big countries' is a pretty good description of the GATT/WTO in general."  The point is, it's not as though we have gone from free trade to autarky in recent months.  Rather, we went from a situation with a good deal of protectionism to a situation with a little bit more protectionism.  I haven't been involved with these issues for as long as some of this blog's readers, but I've been following since about the early 1990s.  From what I can recall, there have always been strong criticisms of free trade and many calls for protectionism.  It may be a little worse today, but not by much.

The important thing, though, and the difference from the 1930s, the period everyone keeps warning us about, is that the basic rules-based international trading system is still intact.  Countries are free to impose legal protectionism, as they always were.  They cannot, however, violate international trade rules, just as they could not before the recent financial crisis.

I agree that it's important to keep an eye on the growth of protectionist measures.  They are a real concern, and having the WTO (and others) monitor this is a good idea  But I think that we (that is, free traders) should be wary of using overblown rhetoric, or else we risk losing some credibility.

That's my view, anyway.  I'd by happy to hear it if someone disagrees, though.

Free Book Chapter on the History of Investment Treaty Law

New from Andrew Newcombe, Law and Practice of Investment Treaties: Standards of Treatment, co-authored with Lluís Paradell.  The first chapter (a 73 page in-depth treatment of the historical development of investment treaty law) is available for free here: http://ita.law.uvic.ca/documents/NewcombeandParadellLawandPracticeofInvestmentTreaties-Chapter1.pdf

Tax Breaks for Buying New Cars "Assembled in the United States"

Is this a WTO violation:

Senators Tom Harkin (D-IA) and Debbie Stabenow (D-MI) announced that they plan to introduce an amendment to the Senate stimulus package tonight that would help American automakers sell their cars ,while also taking older, less fuel-efficient cars off the road. The Sell Fuel Efficient Cars Amendment would provide a rebate of $10,000 to buyers who trade in a car more than ten years old for a new car assembled in the United States.

No doubt there are good claims to be made under both GATT Article III:4 and SCM Agreement Article 3.1(b).  But note that the rebate is tied to "assembly."  Assembly could, in theory, be done with all imported parts.  My guess is this measure would be found in violation, but it might have to get into a de facto analysis, which could make it a little more complicated.  Or am I making this more complicated than it is, and a car "assembled" in the U.S. is a domestic product, which is favored over imported products through the rebate?  I suppose it would help if I knew how the Senators were defining "assembled."

More on Separation of Trade Powers

A little while back, I mentioned a proposal to change the balance of power on trade issues between Congress and the President.  Now, under a bill proposed by Sen. Olympia Snowe, the courts could play a greater role as well:

The Trade CLAIM Act of 2009, which is cosponsored by Senators Jay Rockefeller (D-WV) and Kent Conrad (D-ND), would help domestic industries battle the negative affects of trade liberalization by giving them a greater say in how U.S. trade rights should be enforced.  Specifically, the measure would give the U.S. Court of International Trade the authority to overturn decisions by the U.S. Trade Representative not to take enforcement action against countries violating international trade law.

Global Trade Watch on the Buy America Controversy

Global Trade Watch says:

The hysteria coming from European Union (EU) and Canadian officials about the Buy America and Buy American domestic preferences in the U.S. stimulus bill is particularly odd, given that both the EU and Canada have wisely excluded considerably broader swaths of their procurement activity from World Trade Organization (WTO) rules (and in the case of Canada also from the North American Free Trade Agreement, or NAFTA) than has the United States. Because of this, the EU and Canada have no obligation to provide U.S. firms with access to a wide array of their government contracts.

 

      For instance, while the United States safeguards its preferences (only) for domestic iron and steel used in federally funded state transportation projects, Canada carves out steel, motor vehicles and coal altogether (for all provinces, for all sectors), and also carves out all construction contracts issued by the Departments of Transport. The EU carved out of its WTO procurement obligations contracts awarded by federal governments and sub-federal governments in connection with activities in the areas of drinking water, energy, transport or telecommunications.

 

...

 

      ... it is hypocritical for countries that wisely have taken broad trade-pact exceptions, which ensure that they have no obligation to provide U.S. firms with access to their taxpayer-funded projects, to attack the relatively narrow and modest U.S. domestic preferences. (See excerpts of the WTO and NAFTA texts below for more detail.)

 

    Under the WTO and NAFTA procurement agreements, Canada excludes:

 

* All "construction contracts tendered on behalf of the Department of Transport";
* Steel, motor vehicles and coal procurement for all provinces; and
* Procurements in respect of "urban rail and urban transportation equipment, systems, components and materials incorporated therein, as well as all project-related materials of iron or steel".

 

 Plus, NAFTA procurement rules do not apply to any construction contracts for Canadian provinces.

 

    Under the WTO procurement agreement, the EU actually includes a reciprocity requirement for service-sector contracts and excludes the following measures in its general notes applying to all sectors and annexes:

 

* "Contracts awarded by entities in Annexes 1 [federal governments] and 2 [subfederal governments] in connection with activities in the fields of drinking water, energy, transport or telecommunications";
* Contracts for U.S. firms with airport, water and urban transportation authorities;
* Sector-specific exclusions for the United States in respect of all EU states' subfederal governments' service-sector procurement until and unless the U.S. offers similar commitments; and
* Country-specific exceptions for Austria, Finland and Sweden.

 

 The reciprocity agreement excludes commitments from U.S. service providers seeking procurement contracts in sectors (and with levels of government) that the United States has not reciprocally offered to the European Union.

Now, I know this is not what Global Trade Watch had in mind, but If they are right on the facts (and I haven't checked this), I wonder whether this is a good opportunity to start up some negotiatations to further reduce the discrimination against foreigners that is so prevalent in government procurement.

Buy America in the White House Press Briefing

Not that this really clarifies anything (press briefings rarely do), but I thought it worth noting anyway:

Q Robert, in some of the interviews last night, the President seemed to back off -- pardon me -- earlier commitments to "Buy American" provisions. Is he in favor of "Buy American" provisions in the stimulus, yes or no?

MR. GIBBS: Well, I mean, obviously, Ed, we've got laws on the books relating to "Buy America" -- and thinks that those provisions are important. But he also -- as he said in these interviews -- wants to ensure that -- make sure that we're -- that any legislation that passes is consistent with trade agreements and doesn't signal a change in our overall stance on trade in these economic times.

Q Well, you were just talking before about how these times are so important; these leaders need to step up, so the American people are listening. Where is the President on this? What balance does he want to strike, then? What does the President want?

MR. GIBBS: The balance he wants to strike is to continue to get our economy going by -- without -- without unnecessarily starting something with trading partners all over the world and global partners that will hinder getting our economy moving again. The President believes we can strike that balance in this legislation.

You've heard the President speak any number of times about we have to be coordinated in the strategies that we undergo, whether it's recovery or stability or regulation, not just here, but throughout the world, in order to meet those collective global challenges. Obviously the President has heard concerns, but believes that a balance can be struck that ensures the laws of our country are upheld, but we can also do that in a way that's consistent with the WTO and trade agreements.

Q I still don't know where you are, then. Does that mean he wants a "Buy American" provision in this bill or not?

MR. GIBBS: Again, I think a provision can be struck that --

Q And the current one does not strike that?

MR. GIBBS: Well, I'm not a trade lawyer. But I think that whatever bill passes the Senate and is ultimately conferenced and signed by the President will strike a balance that ensures that we meet our commitments in global trade agreements.

Jeffrey Frankel on Trade and Climate Change

From the conclusions of a paper entitled "Environmental Effects of International Trade" by Jeffrey Frankel of the Kennedy School:

Concluding recommendations regarding trade penalties in climate legislation

The central message of this section of the report is that border measures to address leakage need not necessarily violate the WTO or sensible trade principles, but that there is a very great danger in practice that they will.

I conclude with some subjective judgments as to some principles that could guide a country’s border measures if its goal were indeed to reduce leakage and avoid artificially tilting the playing field toward carbon-intensive imports of non-participating countries. I classify characteristics of possible border measures into two categories, which I will name by color (for lack of better labels):

(1) the “Black” category: those that seem to me very dangerous, in that they are likely to become an excuse for protectionism; and

(2) the “White” category: those that seem to me reasonable and appropriate.

The Black (inappropriate) border measures include:

• Unilateral measures applied by countries that are not participating in the Kyoto Protocol or its successors.
• Judgments as to findings of fact that are made by politicians, vulnerable to political pressure from interest groups for special protection.
• Unilateral measures that seek to sanction an entire country, rather than targeting narrowly defined energy-intensive sectors.
• Import barriers against products that are further removed from the carbon-intensive activity, such as firms that use inputs that are produced in an energy-intensive process.
• Subsidies – whether in the form of money or extra permit allocations -- to domestic sectors that are considered to have been put at a competitive disadvantage.

The White (appropriate) border measures could be either tariffs or (equivalently) a requirement for importers to surrender tradable permits. The principles include:

• Measures should follow some multilaterally-agreed set of guidelines among countries participating in the emission targets of the Kyoto Protocol and/or its successors.
• Judgments as to findings of fact -- what countries are complying or not, what industries are involved and what is their carbon content, what countries are entitled to respond with border measures, or the nature of the response – should be made by independent panels of experts.
• Measures should only [be] applied by countries that are reducing their emissions in line with the Kyoto Protocol and/or its successors, against countries that are not, either due to refusal to join or to failure to comply.
• Import penalties should target fossil fuels, and a few of the most energy-intensive major industries: aluminum, cement, steel, paper, glass, and perhaps iron and chemicals.

If countries follow these guidelines in enacting border penalties, they may be consistent with the avowed goals of preventing leakage and undue loss of competitiveness and are unlikely to fall afoul of the WTO. If they do not follow these guidelines – the more likely outcome – they can be inconsistent with these goals, and with the WTO as well.

Unfortunately, I think he may be right about the way things will operate in practice.

Top 50 Foreign Policy Blogs

"Masters in Criminal Justice" offers the Top 50 Foreign Policy Blogs, and they were kind of enough to include this blog.

"Protectionist Power Balance"

From an FT article:

Fredrik Erixon, of the European Centre for International Political Economy, a free-market think-tank in Brussels, says: “WTO rules are effective where you have one country behaving badly. Where there is a protectionist power balance between all the big countries, they aren’t of much use.”

I don't know.  There is a lot of protectionism allowed under WTO rules.  One could argue that "protectionist power balance between all the big countries" is a pretty good description of the GATT/WTO in general. 

The End of the Zeroing Debate?

Well, the end of the debate in the WTO's judicial organs anyway (the political battle will surely continue).  From a concurring opinion in today's AB decision in U.S. - Continued Zeroing (DS350):

304. One Member of the Division wishes to make the following statement in relation to section V.C.2.

305. Over a period of time, successive panels and the Appellate Body have engaged in a very considerable interpretative enterprise to determine whether the Anti-Dumping Agreement and Article VI of the GATT 1994 prohibit the use of zeroing.  At the heart of the debate is a contestation as to the correct interpretation of the concept of dumping.  The Appellate Body has interpreted dumping to be an exporter-specific concept, requiring that a determination be made for the product under consideration.  By contrast, successive panels have found that dumping is permissibly determined at the level of individual export transactions.  To resolve this difference, the text, context, and object and purpose have been carefully scrutinized, as well as supplementary means of treaty interpretation.  Each interpretation has found support in different places.  These interpretative exercises have not lacked for hermeneutic ingenuity, and each has generated its own puzzles:  witness the question of mathematical equivalence and the consequential issue of textual redundancy.

306. This debate at once demonstrates the robustness of the WTO's system of dispute settlement, but also its limits.  The interpretation of the covered agreements requires scrupulous adherence to the disciplines of the customary rules of interpretation of public international law.  Those disciplines are directed towards arriving at a coherent and harmonious interpretation to develop an answer to an interpretative problem and thereby provide certainty as to the rights and obligations of the parties.  Variability, contradiction, and uncertainty stalk the interpretative enterprise, but they are the hallmarks of its failure, not its success.  Just as the interpreter of a treaty strives for coherence, there is an inevitable recognition that a treaty bears the imprint of many hands.  And what is left behind is a text, sometimes negotiated to a point where an agreement to regulate a matter could only be reached on the basis of constructive ambiguity, carrying both the hopes and fears of the parties.  Interpretation is an endeavour to discern order, notwithstanding these infirmities, without adding to or diminishing the rights and obligations of the parties.

307. Article 2.1 of the Anti-Dumping Agreement illustrates this problem.  Nothing could be more
important than the definition of the concept of "dumping".  It is foundational and applies throughout the Agreement, as the clear wording of Article 2.1 makes plain.  It cannot have variable or contradictory meanings, for that would infect the entire Agreement.  Yet the definition is cast at a high level of generality.  The definition makes no attribution of agency;  it does not say who introduces a product into the commerce of another country.  Article 2.1 might so easily have included the words "by an exporter", but it does not.  So too, the definition might have referred to the product as a whole, and not simply a product.  The definition is inchoate, and thus it must be interpreted.

308. The Appellate Body has found contextual support for its interpretation of "dumping" as a product-wide and exporter-specific concept by reference to other provisions in the Anti-Dumping Agreement.  In particular, the Appellate Body has emphasized the significance of Articles 2.4, 2.4.2, 5.8, 6.10, 9.5, and 3.1 and concluded that the cumulative contextual force of these provisions is dispositive of the meaning attaching to the concept of "dumping", and excludes an interpretation of dumping that is transaction-specific.

309. There can be little doubt that the Anti-Dumping Agreement requires aggregation.  In Article 6.10, an individual margin of dumping must be determined for each known exporter.  Article 3.1 requires an assessment of the volume of dumped imports and their effect.  Save for the most exceptional case where an importation consists only of a single transaction (for example, the importation of a large piece of capital equipment), this is an exercise that requires a determination by taking into account the entire volume of dumped imports.  Under Article 5.8, a de minimis assessment could not be made with respect to an individual export transaction;  and Article 9.5 requires a determination of individual margins of dumping for any exporters who have not exported the product during the period of investigation.

310. While aggregation is an unavoidable requirement of the Anti-Dumping Agreement, these provisions are not clear as to what it is that must be aggregated.  Does aggregation require the aggregation of all comparison results, positive and negative, or does it suffice to aggregate only those comparison results that are positive, having considered all transactions and determined which are dumped and which are not.  The Appellate Body has found that aggregation must give equal weight to all comparison results if the exercise is to be fair and arrive at a determination for the product as a whole;  successive panels have found no such requirement, save where the first methodology in Article 2.4.2 refers in express terms to all comparable export transactions.

311. The interpretative endeavour has ranged far and wide.  The Appellate Body has emphasized that dumping is an exporter-specific concept.  Panels have pointed out that the liability for anti-dumping duties rests upon importers.  The Appellate Body views its interpretation as one that respects the differences in the prospective and retrospective systems of duty assessment;  its critics think otherwise.

312. There is little point in further rehearsing the fine points of these interpretations.  In my view, there is every reason to survey this debate with humility.  There are arguments of substance made on both sides;  but one issue is unavoidable.  In matters of adjudication, there must be an end to every great debate.  The Appellate Body exists to clarify the meaning of the covered agreements.  On the question of zeroing it has spoken definitively. Its decisions have been adopted by the DSB.  The membership of the WTO is entitled to rely upon these outcomes.  Whatever the difficulty of interpreting the meaning of "dumping", it cannot bear a meaning that is both exporter-specific and transaction-specific.  We have sought to elucidate the notion of permissibility in the second sentence of Article 17(6)(ii).  The range of meanings that may constitute a permissible interpretation does not encompass meanings of such wide variability, and even contradiction, so as to accommodate the two rival interpretations.  One must prevail.  The Appellate Body has decided the matter.  At a point in every debate, there comes a time when it is more important for the system of dispute resolution to have a definitive outcome, than further to pick over the entrails of battles past.  With respect to zeroing, that time has come.

Without going into too much detail on this, I'll simply note that those who have followed this issue will probably have a guess as to which AB Member is the author of the concurring opinion.

"I think we need to make sure that any provisions that are in there are not going to trigger a trade war"

That's Barack Obama, talking about the Buy America controversy.  He also said:

"I think it would be a mistake though, at a time when worldwide trade is declining, for us to start sending a message that somehow we're just looking after ourselves and not concerned with world trade."

And he said he opposes any provisions "that are going to be a violation of World Trade Organization agreements, or in other ways signal protectionism" by the United States.

This is pretty encouraging stuff for free traders.  During the campaign, it was a little unclear sometimes where he stood on trade issues.  I think we are now getting a better understanding.

Here's the transcript of one of the interviews:

CHARLES GIBSON: A couple of quick questions. There are "Buy America" provisions in this bill. A lot of people think that could set up a trade war, cost American jobs. You want them out?

PRESIDENT OBAMA: I want provisions that are going to be a violation of World Trade Organization agreements or in other ways signal protectionism [out of the legislation]. I think that would be a mistake right now. That is a potential source of trade wars that we can't afford at a time when trade is sinking all across the globe.

CHARLES GIBSON: What's in there now? Do you think that does that? Do you want it out?

PRESIDENT OBAMA: I think we need to make sure that any provisions that are in there are not going to trigger a trade war.

CEPMLP, Dundee: Chair in International Law

From the CEPMLP:

Dear Friends,

We are now formally launching the search to seek a Professor of International Law to replace the late Professor Thomas Walde. Those of you who read The Economist or the UK’s Times Higher Education will have seen the notices.

We are deliberately keeping the field of specialisation wide, and have therefore just stipulated that the candidate should be a leading scholar or scholar/practitioner in one or more fields of International Law relating to CEPMLP’s activities.

Full details are available at:
http://www.dundee.ac.uk/cepmlp/staff/vacancies_Jan09.php


The closing date is 31st March 2009.

Given the importance to CEPMLP of this appointment, I would be very grateful if you could draw this opportunity to the attention of any person whom you feel may be qualified and interested. They may contact me informally by email if they wish to learn more about the post or about CEPMLP.

If you yourself have any questions, please do not hesitate to contact me.

Best wishes

Philip


Philip Andrews-Speed
Professor of Energy Policy
Director,
Centre for Energy, Petroleum and  Mineral Law and Policy

A More Subtle "Buy America" Approach

Richard Posner proposes the following alternative to the current Buy America provisions (which require the use of American inputs in certain projects):

An appropriate solution to this dilemma is to focus the stimulus package on goods and services that are made in the United States. That is one more reason why, as some Republican senators are now urging, more of the stimulus money should go to construction, whether of roads or bridges or schools. True, some inputs into these products, such as steel for bridges, may come from abroad, but most are local, in particular of course labor--and there is a lot of unemployment in the construction industry.

I wonder how different this is than the existing approach.  It's a little more subtle, but it would have the same practical effect.  The problem is, if we focus our stimulus money on domestic goods and services, other countries are likely to do the same.  And if everyone does it, does anyone benefit?  I suppose the countries who currently spend the highest percentage of their budget on foreign goods and services might, but I'm not even sure who those countries are.

ADDED:

Food for thought from Doug Irwin:

Once we get through the current economic mess, China, India and other countries are likely to continue their large investments in building projects. If such countries also adopt our preferences for domestic producers, then America will be at a competitive disadvantage in bidding for those contracts.

More on Trade News

A while back, I mentioned that we (that is, WorldTradeLaw.net) were working on a trade news feature.  Some of you may have already noticed this, but in case you have not, here is the news page we set up: http://www.worldtradelaw.net/wtlnews.htm  We're still tweaking it, but check it out and let us know if you have suggestions. 

The EU Defends its Anti-Dumping Measures

In relation to anti-dumping duties it imposed on Chinese screws and bolts, the European Commission says:

"We reject strongly the implication from various sources quoted in the press that any anti-dumping measures in this case would be protectionist and not based on fact," the Commission said in a statement to Reuters.

It may be true that the measures are based on fact -- the fact that imported goods were sold below normal value.  But there are many people who would argue that regardless of whether anti-dumping measures are based on this fact, they are still protectionist.