International Economic Law and Policy Blog

The Response to Buy America

From Canada's National Post:

The federal government is looking to cut a deal with Washington that would persuade U.S. legislators to repeal controversial Buy American measures that Canadian firms say are costing them sales and forcing them to shed jobs.

The key element of such a pact, however, is getting the provinces and territories to open up their procurement markets to U.S. suppliers. At present, provinces and municipalities are not bound by global trade law and are free to discriminate against U.S. companies in favour of local suppliers.

So, in reaction to U.S. protectionism, Canada has responded by proposing additional trade liberalization?  I'm not sure I like this lesson!

Trade in Everything: Self-Outsourcing?

A reader points me to the following from the Onion:

More American Workers Outsourcing Own Jobs Overseas

Subsidy Wars

Moving away from cars, over to agriculture:

Twenty-nine countries at the World Trade Organization criticized the United States on Wednesday for reintroducing export subsidies on U.S. dairy products, calling the handouts a dangerous retreat into protectionism and warning of "subsidy wars."

...

Australia, on behalf of agricultural exporting nations, said the announcement Saturday by U.S. Agriculture Secretary Tom Vilsack of subsidies for 102,000 U.S. tons (91,000 metric tons) of mainly milk powder, butter and cheese was unfair to countries trading fairly, and potentially damaging to global economy's recovery.

The U.S. view was that the subsidies were consistent with WTO rules:

Vilsack said over the weekend that President Barack Obama's administration "remains strongly committed" to the pledge by the leaders of the Group of 20 major economies last month "to refrain from protectionist measures." He said U.S. subsidies were "fully consistent with our WTO commitments."

But this didn't satisfy anyone:

"This is not the point," retorted [Peter Grey, Australia's WTO ambassador]. "If other economies follow the example set by the U.S. and the EU and raise tariffs, domestic support and export subsidies toward their maximum WTO commitment levels, it would undermine the effectiveness and credibility of the WTO system."

One final point.  I've posted before on the meaning of "protectionism."  The article has a good definition of protectionism, from Brazil's Roberto Azevedo:

Protectionism "includes any form of government intervention, such as subsidies, which artificially tilts the field in favor of domestic enterprises, to the detriment of competitors abroad."

That's pretty much how I would define it as well. 

Using Free Trade to Promote Development

Over at vox, Kimberly Elliott says the U.S. should lower tariffs on imports from poor countries:

... the Doha Round, under the best of circumstances, will take some time to conclude, and the US and other rich countries should move as quickly as possible to further open their markets to the world’s poorest countries.  The eighth of the Millennium Development Goals adopted at a UN summit in 2000 calls on the rich countries to provide duty-free-quota-free market access for the least-developed countries (LDCs). This goal was reiterated at the WTO’s 2005 Hong Kong ministerial meeting, but US negotiators would only commit to provide access for 97% of products and only in conjunction with the conclusion of the Doha Round

...

... President Obama would lose nothing and could gain a great deal of good will, as well as providing an economic boost to struggling developing countries, by asking Congress to act now and provide access on 100% of products, as the European Union already does, rather than just 97% as promised in Hong Kong. Three percent may not sound like much, but such liberalisation would unblock a number of items that that are of the most interest to poor countries.

Providing full market access will not reverse the decline in trade flows, but it would open opportunities for some of the poorest countries in the world. It would also address a fundamental unfairness created by the fact that US trade policy, like that of other rich countries, discriminates against poor countries and poor people. The highest US tariffs fall on agricultural products and labour-intensive light manufactures, where many developing countries have a comparative advantage.

I've always thought this argument was pretty compelling, especially when you take into account Figure 2 of her piece, which shows how Bangladesh and Cambodia pay significantly higher U.S. tariffs than do the UK and France.

Lowering the Costs of Cap and Trade

The Economist reports the following on the latest "cap and trade" proposals in the U.S.:

On May 15th Henry Waxman and Edward Markey, the Democratic point-men on climate change in the House of Representatives, unveiled a bill that would give away 85% of carbon permits for nothing, with only 15% being auctioned.

From a trade perspective, perhaps this is good news:  If the costs on domestic producers are going to be so low, it may not be necessary to impose carbon tariffs on imports to equalize the burden!

Congrats to the ELSA WTO Moot Court Winners!

Andrew Mitchell of Melbourne Law School writes with the following:

Melbourne Law School has won the 2008-2009 European Law Students’ Association WTO Moot Court Competition in Taipei!

The Melbourne team, comprising Laura Bellamy (LLB), Rudi Kruse (JD), Erica Leaney (LLB) and Christopher Tran (LLB) and coached by Associate Professors Andrew Mitchell and Tania Voon, prevailed over the University of Barcelona (Spain) and the Universidad Javeriana (Colombia) in the Preliminary Rounds and the University of Maastricht (the Netherlands) in the Semi-Final. It then defeated Duke University (USA) in a closely fought Grand Final before an expert bench of nine panellists, chaired by Professor Mitsuo Matsushita, a former WTO Appellate Body Member.

In addition to winning the competition, the team received awards for Best Overall Written Submissions, Best Oralist in the Semi-Finals (Christopher Tran), and Fifth Best Oralist in the Preliminary Rounds (Rudi Kruse). The team’s prizes include scholarships to complete the five-week Summer Academy of the World Trade Institute in Berne as well as specialised courses in conjunction with the University of Barcelona’s new Master of Laws in International Economic Law and Policy.

Melbourne Law School is now the only institution to have won this global competition more than once. Melbourne first entered the competition in 2006-2007 and won the Final Oral Round in Geneva that year.

Beef Hormones: A Few More Details Emerge

In two recent posts, we had been talking about the U.S.-EU beef agreement.  The agreement seemed to be mostly about market access for non-hormone treated beef, which led me to wonder what everyone involved had in mind in relation to market access for hormone-treated beef.  USTR Ron Kirk's remarks today, to the U.S. Meat Export Federation, may clarify things a bit:

I know that some of you remain skeptical of the EU market so long as it continues to ban beef from cattle treated with hormones, and does not permit the use of Pathogen Reduction Treatments, or PRTs.

This agreement gives us a chance to take steps toward a longer term agreement.

In the first phase, we will see whether the EU comes to a conclusion on approval of PRT’s. In the second phase, we will negotiate to resolve other long term issues connected with the beef hormone litigation.

We are confident that the Agreement will move us in the right direction on these outstanding issues. If not, we reserve the right to return to the WTO.

...

The EU remains one of the few markets to ban beef from cattle given growth-promoting hormones – beef that is perfectly safe to eat. However, we see this agreement as a pragmatic way forward.

U.S. Beverages Taxes

Taxes on beverages have a long and interesting history in GATT/WTO dispute settlement.  I hope Congress keeps this in mind as they consider taxing soda and alcoholic beverages to help pay for health care reform.  See here, here and here for details.  The last article notes that the soda tax "wouldn’t apply to diet soda or real juice."  And with alcohol, there would be separate taxes on beer, wine and hard liquor.  So, it sounds like there will be lots of distinctions made between similar products, which always runs the risk of triggering a discrimination claim.  As well-known blogger Ann Althouse put it in relation to the soda tax:

It's just sugar. Lots of things are full of sugar. Why single out the watery versions of sugar? And why be so sure that diet soda is not worse? Quite aside from the strange chemicals, diet soda seems to free many people to pig out on other fattening foods. Our terrible obesity problem correlates with the consumption of diet soda, not sugar.

I doubt she was thinking about international trade obligations when she wrote that, but it's not too difficult to imagine how this point could be used as part of the basis for a WTO claim.

Trade Liberalization that Dani Rodrik Can Get Behind

I am often left wondering what Dani Rodrik thinks of trade.  I try to parse his various criticisms of the current trade regime, but I still can't figure out where exactly he stands on core issues such as, "Is protectionism a good policy?"  Most likely, his answer would be, sometimes yes and sometimes no.  But the specifics of his views on this are a bit unclear to me.

So, I was excited to read that Rodrik does support at least some forms of trade liberalization:

I can think of two areas of liberalization where existing barriers are high and do not face the objections that I have considered so far.

First, agriculture.  Subsidies and other trade-distorting measures are rampant in agriculture, especially in crops like cotton and sugar.  It is hard to argue that these activities generate externalities or that their contraction would be bad for income distribution as a whole.  So this is clearly an area of priority.  (Note that I am not considering the impacts on other countries, which is not my focus here.  The positive impacts abroad are typically vastly exaggerated, but the domestic benefits are not in question.)

Second, visa restrictions on highly-skilled foreign workers.  The barriers here are large, since we know the visa quotas bind severely.  Allowing more foreign scientists and engineers in will reduce incentives to outsource technologically-advanced operations abroad, and will help expand sectors that are likely to generate positive spillovers.  The distributional effects are unlikely to be adverse, as it is the top of the labor market that will be affected.

To clarify, he is making these statements in the context of U.S. policies.  He may (and probably does) take a different view for developing countries.  But regardless, I was pleased to see him come out publicly in favor of some trade liberalization.

On the other hand, he loses me with his conclusion:

Note that the U.S. can do both of these on its own, and does not need Doha or action on the part of the rest of the world to reap the gains from these reforms.    

I suppose it is true that the U.S. "can" do these on its own, without Doha.  However, the U.S. may be much more likely to do them, agriculture liberalization in particular, in the context of Doha, and very unlikely to do them on its own.  Which leads me to ask two questions:  Why is he so anti-Doha?  And, if he could be convinced that Doha would achieve these goals, whereas they would not happen unilaterally, would he change his mind about the benefits of Doha?

Metric Labeling as a Trade Barrier

The Commerce Department announces a victory with regard to EU metric labeling:

The Commerce Department today announced the successful culmination of its efforts to ensure extension of both non-metric and metric labeling provisions on product packaging for U.S. businesses exporting to the European Union—saving U.S. firms hundreds of millions of dollars.

More here from the BBC:

The move to shelve EU plans to enforce metrication by 2009 comes after a long campaign by pro-imperial groups, including the Metric Martyrs.

The European industry commissioner has ruled that imperial weights and measures can be displayed indefinitely alongside metric measurements.

A similar regulatory barrier is left-side drive versus right-side drive countries, with the steering wheel on different sides of the vehicle in each.  Along the lines of the duel labeling proposal, I propose a similar solution for the driving issue:  From now on, people should be able to drive on either side of the road!

 

It's World Trade Week

Apparently, May 17-23 is "World Trade Week."  See the White House press release here, which concludes:

NOW, THEREFORE, I, BARACK OBAMA, President of the United States of America, by virtue of the authority vested in me by the Constitution and the laws of the United States, do hereby proclaim May 17 through May 23, 2009, as World Trade Week. I encourage all Americans to observe this week with events, trade shows, and educational programs that celebrate the benefits of trade to our Nation and the global economy.

For my celebration, I will try to purchase only imports this week.

More seriously, I was impressed by the inclusion of this sentence:

Imports can ... benefit the United States by increasing consumer choice while lowering prices for millions of working families.

It's nice to see the benefits of imports acknowledged every now and then.

“Currency Reform for Fair Trade Act”: How Does it Settle the Debate about the Subsidy Nature of An Undervalued Currency?

Even when  legal analysts agree that the undervalued Yuan is equivalent to a subsidy under WTO rules, they disagree however about how to find in this instance,  “financial contribution”, “benefit” and “specificity”.  

I was curious to see how the recent draft of the “Currency Reform for Fair Trade Act” arbitrates between these divergent views and what I have found seems interesting.

Governmental Financial Contribution

Some legal analysts think that the financial contribution takes in the yuan instance the form of the provision by the Chinese Government of  a service or a good. Others think that it takes the form of a direct transfer of fund. And of course, some think that there is no financial contribution at all.

I was surprised to see that the Act chooses to answer clearly this issue. According to the Act,
“Section 771(5)(D) of the Tariff Act of 1930 (19 U.S.C. 1677(5)(D)) is  amended by adding at the end the following new sentence: ‘‘A fundamentally and actionably undervalued currency (as determined under section 771C) constitutes a  financial contribution under clause (I)”. Since clause (I) deals with “the direct transfer of funds, such as grants, loans, and equity infusions, or the potential direct transfer of funds or liabilities, such as loan guarantees”, we see here clearly that the debate has been settled under the Act by selecting the “direct transfer of funds” view of financial contribution.

It is interesting to note that this position is similar to the one adopted by Wiley Rein & Fielding. According to them, “The Chinese government's transfer of cash to an exporter required to convert his export receipts into yuan at the prescribed rate of exchange is indistinguishable from and as much a governmental financial contribution as the situation in which a government transfers cash to a recipient in return for an equity interest in a company”

Benefit

According to the Act, a benefit exists “(v) in the case of a fundamentally  and actionably undervalued currency (as  determined under section 771C), if the exporter or producer receives or is entitled to  receive more of the exporting country's  currency in exchange for the United States  dollars paid for the subject merchandise  than if the exporting country's currency  were not fundamentally and actionably undervalued.''

This view seems to reflect the classical “market benchmark”. In other words, a benefit exists when the recipient receives more yuans  than he would receive in a counterfactual situation where the exchange rate is market determined.  Of course, this counterfactual market rate would have to be constructed as a proxy by the Department of Commerce according to the indications given by  the Act, because there is no place in China or in the World where such a market rate is observable.

Specificity

Here there is also no surprise, because the Act indicates that " For purposes of this subparagraph, a fundamentally and actionably undervalued currency (as determined under section 771C) constitutes an export subsidy.''  In other words, it is a subsidy contingent upon export performance (more likely implicitely de facto contingent) in the sense of Article 3 of the SCM. The consequence for the specificity criterion is immediate since  Article 2.3 of the SCM Agreement stipulates that "Any subsidy falling under the provisions of Article 3 shall be deemed to be specific."

The Seals Dispute: The Economist Offers Some Arguments

In this week's issue, the Economist weighs in on the EU's decision to ban most seal products.  They make the point that if the EU wanted to promote animal welfare, they had other avenues, closer to home, to do so:

ROUGHLY handled, and incompetently stunned, terrified animals may awaken several times before they are slaughtered. Some have their throats slit fully conscious. Europe’s industrial farms dispatch 1m sheep, cattle and pigs every day. You cannot cater to the welfare of a large animal like a pig when the line must kill five in a minute.

...

By the grim standards of Europe’s farrowing sheds, millions of seals enjoy a blissful life fishing and breeding on the Canadian ice. At least Canadian seals have the luxury of being stunned before they die. Compassion in World Farming, a lobby group, says that half the sheep killed in France are conscious when their throats are slit. Such treatment is possible through a loophole that allows for religious slaughter—a loophole that the same champions of animal welfare in the European Parliament voted to avoid closing on May 7th.

A few seals are killed to protect fish, others as a source of blubber or food. Most are indeed killed for their fur. That may not be to everyone’s taste, but it is hardly unEuropean. Europe’s fur farms produce over 30m mink and fox pelts a year. Every four or five days Europe kills more animals for their fur than the entire annual Canadian hunt does in a year. Seal hunting sounds unfair; but Europeans are reluctant to ban the hunting of similarly defenceless game birds, deer or wild boar.

In essence, they question the consistency of the overall EU animal welfare policy.  It would not be at all surprising to see Canada use this in its discrimination claims, as part of an argument that the EU is only promoting animal welfare in relation to foreign products.   It's not clear how such arguments will play out in that context, or under other legal provisions, but they are likely to make an appearance.

In this week's issue, the Economist weighs in on the EU's decision to ban most seal products.  They make the point that if the EU wanted to promote animal welfare, they had other avenues, closer to home, to do so:

ROUGHLY handled, and incompetently stunned, terrified animals may awaken several times before they are slaughtered. Some have their throats slit fully conscious. Europe’s industrial farms dispatch 1m sheep, cattle and pigs every day. You cannot cater to the welfare of a large animal like a pig when the line must kill five in a minute.

...

By the grim standards of Europe’s farrowing sheds, millions of seals enjoy a blissful life fishing and breeding on the Canadian ice. At least Canadian seals have the luxury of being stunned before they die. Compassion in World Farming, a lobby group, says that half the sheep killed in France are conscious when their throats are slit. Such treatment is possible through a loophole that allows for religious slaughter—a loophole that the same champions of animal welfare in the European Parliament voted to avoid closing on May 7th.

A few seals are killed to protect fish, others as a source of blubber or food. Most are indeed killed for their fur. That may not be to everyone’s taste, but it is hardly unEuropean. Europe’s fur farms produce over 30m mink and fox pelts a year. Every four or five days Europe kills more animals for their fur than the entire annual Canadian hunt does in a year. Seal hunting sounds unfair; but Europeans are reluctant to ban the hunting of similarly defenceless game birds, deer or wild boar.

In essence, they question the consistency of the overall EU animal welfare policy.  It would not be at all surprising to see Canada use this in its discrimination claims, as part of an argument that the EU is only promoting animal welfare in relation to foreign products.   It's not clear how such arguments will play out in that context, or under other legal provisions, but they are likely to make an appearance.

Important Speeches by Tim Groser

Ambassador Tim Groser, New Zealand’s dynamic minister of trade, gave two important speeches this week.  The speeches are posted at http://www.beehive.govt.nz/minister/tim+groser.

The first speech is titled “Adapting the International Trade Regime to New Challenges: Climate Change.”  The speech was delivered on May 10 to the International Food and Agriculture Trade Policy Council Seminar in Salzburg, Austria.

The second speech is titled “Trade and the Road to Recovery: An Asia Pacific Perspective.”  It was delivered on May 13 to the US Chamber of Commerce in Washington, DC.

In the climate speech, Groser discusses the well-known problem that the architecture of the Kyoto Agreement is flawed in that only Annex I  countries make commitments. He notes that “Only half of all current emissions now come from Annex 1 countries, and that proportion is falling rapidly with the growth in emerging economies.”

He also looks at four ways that trade rules can help countries shift to low-carbon economic development.  First, through liberalization of environmental goods and services.  Second through investment liberalization important for enabling technology transfer. Third from reducing environmentally harmful subsidies.  Fourth through sustainability standards that “could play a useful role in cutting through the confusion and doubt around the climate benefits of biofuels.”

Perhaps the most cutting edge part of the speech discussed the role of agriculture in GHG emissions.  Groser notes that in developing countries agriculture accounts for an average of 27% of emissions.  Emissions reductions could be achieved through a large scaling up of investment in research and development, but that has not been happening because agricultural emissions are comparatively small in developed countries which have not devoted sufficient attention and resources to agriculture.

To remedy this problem, New Zealand has taken the lead in establishing a virtual world research center on agricultural greenhouse gas mitigation.  Groser’s initiative is to be commended.

Groser also discusses the dangers of a “trade war” over climate measures and expresses interest in hearing ideas about a “peace clause.”  Such a peace clasuse could be for measures implemented in a manner broadly consistent with core WTO principles even if technically there might be room for doubt about WTO consistency.” 

In the second speech, Groser talks frankly about the erosion of political confidence in globalization and public support for trade.  He calls for “increasing the level of ambition” in the Doha Round and for US trade leadership. 

With respect to trade and climate, Groser suggests that “in the washup” to the Doha Round, negotiatiators should think about “some type of political commitment” to put in place “a Peace Clause to allow our negotiators time to work through” the many “complexities” in how the “international disciplines on climate change may cut across world trade.”

Optmistically looking ahead to how the WTO should operate after the Doha Round is concluded, Groser suggests that future market access negotiatioons not be separated into agricultural and non-agricultural sectors.

Would the US-Korea FTA be good for the WTO system? Can the USA be both for multilateralism and for FTAs?

Those following the proposed Discriminatory Trade Agreement (‘DTA’ – some of you call them FTAs) between the USA and South Korea may be interested in my submission to the Australian government regarding the proposed negotiation of a DTA between Australia and South Korea. You can find it here http://www.dfat.gov.au/geo/rok/fta/submissions/index.html or here http://www.law.usyd.edu.au/scil/pdf/2009/KoreaFTASubmission.pdf .

The current and the previous Australian governments have consistently maintained, first, that their principal trade strategy is multilateral liberalization through the WTO and, secondly, that it is not inconsistent with Australia’s support for the multilateral system to be simultaneously negotiating ‘good’ DTAs.   Australian government spokespersons have frequently used the term “good FTA” to refer to DTAs which achieve comprehensive (but discriminatory) liberalization across all products and services.   This has been the justification for negotiating Australia’s DTAs with NZ, with Singapore, with Thailand, with the USA and with Chile. 

Now that Australia has concluded a DTA with ASEAN - NZ and has launched DTA negotiations with China, the Gulf Cooperation Council, Japan, Korea, Malaysia and the Trans Pacific Partnership countries, it is worth having a fresh look at Australia’s argument that there is no inconsistency between supporting the multilateral trading system under the WTO and negotiating DTAs.  

It is true that making a DTA comprehensive, in the sense that it exempts very few products or sectors from the elimination of import barriers, reduces the chance that the DTA would NOT result in welfare gains for the countries that are parties to the DTA. 

However, in distinguishing between good and bad DTAs, another factor is very important.  This arises from the assessment of whether the DTA is welfare enhancing or diminishing for the world as a whole (not just for the parties to the DTA).  A DTA will be welfare diminishing for the world as a whole if the welfare enhancing effects of trade creation are outweighed by the welfare diminishing effects of trade diversion.  A couple of factors are relevant to that assessment of whether DTAs will be welfare diminishing for the world as a whole:

1 if the DTAs are concluded between countries which have low MFN import barriers so that the margin of preference is small then the size of any trade diversion losses will be small;

2 if after entering into the DTAs the parties to them subsequently reduce their MFN import barriers through multilateral commitments so as to reduce the margins of preference, then the size of any existing trade diversion losses will be diminished over time.

A further factor is relevant.  The assessment of whether one or more DTAs is welfare enhancing or welfare diminishing for the world will also be affected by whether the DTA or DTAs make it less likely that multilateral liberalization can be agreed upon.  We do need to consider not only the comparison between having the DTA and not having the DTA with all else staying the same but also the comparison between having the multilateral liberalization without the DTA and having DTA without having the multilateral liberalization.

One of the critical determinants of whether multilateral liberalization is likely is whether  exporters are motivated by the proposed multilateral agreement to support politicians who wish to lead their countries into the proposed multilateral agreement. The more substantial is the export access gained through any DTA, the greater is the extent to which the DTA diminishes the incentive for exporters to lobby in favour of achieving multilateral liberalization.    

In Australia’s previous DTAs, it might be (almost) true that:

-          The degree of comprehensiveness of the liberalization was sufficient to avoid the possibility that  the DTA was welfare diminishing for Australia and its particular DTA partner;

-          The height of MFN import barriers was mostly not high enough for the preferences to cause significant trade diversion; and

-          All of the parties with whom Australia had negotiated the DTAs were supporters of making liberalization through the WTO comprehensive and dispersion reducing so as to ensure that the WTO process did reduce the trade diversion arising from all existing DTAs. 

For all of Australia’s DTAs except for the DTA with the USA, it is probably also true that the DTAs had a trivial effect on diminishing the incentive for Australian exporters to support multilateral liberalization. 

The opening of DTA negotiations between Australia and South Korea should make us rethink the question of when negotiating DTAs is consistent with a commitment to the multilateral system.  As detailed in my submission to the Australian Department of Foreign Affairs and Trade, some relevant factors are:

-          That South Korea has obstructed the achievement of comprehensive and dispersion reducing liberalization in the Doha Round by positioning itself in one group of developed protectionist countries, the G10,  and in one group of developing  protectionist countries, the G33 (note the details in my DFAT submission about the difference between the deal that Australia would be signing on to under the draft Doha texts and the concessional deal that South Korea would be signing on to under those draft texts).

-          That a DTA with South Korea would reward South Korea for playing an obstructive role in the Doha round;

-          That negotiating a DTA with South Korea will make it even harder for future Korean governments to garner sufficient political support from exporters to offset the opposition to trade liberalization that they receive from import competing producers

-          That negotiating a DTA with South Korea will make it even more difficult than it already is to achieve multilateral tariff reductions so as to diminish the diversion effects of existing Discriminatory Trade Agreements.  

In addition, we might note that a DTA between Australia and South Korea may not be comprehensive.  Even the feasibility study for the DTA was premised on the DTA not including liberalization of barriers to imports of rice.

Everything I have said above about the negotiation of a DTA between South Korea and Australia is also true of the proposed DTA between South Korea and the USA – except that in the case of the South Korea –USA DTA, the impact on diminishing incentives for Korea exporters to support a government liberalizing multilaterally is much, much larger.  We ought also to note that the principal reason for their being political support in Australia for an Australia- South Korea DTA is that without such a DTA, Australian exporters (in particular, beef exporters) would be at a disadvantage to US exporters.  Wouldn't it make more sense for both Australia and the US to abstain from negotiating DTAs with South Korea and instead to seek to have South Korea join them in supporting comprehensive dispersion reducing multilateral trade liberalization in the Doha Round.

For a long time, the USA criticized the Europeans for undermining the multilateral system by negotiating so many special deals.  The USA’s regional arrangements with the Caribbean countries and the NAFTA  could be argued not to undermine the general MFN principle of the WTO system.  Beyond that though we have to ask the question:

Has the US (like Australia in negotiating a DTA with South Korea) crossed a line beyond which it is no longer possible to argue that the negotiation of its DTAs is consistent with a commitment to a non-discriminatory multilateral trading system?

The Latest on Currency Disputes

I'm going to go out on (somewhat of) a limb, and predict that this legislation, or something like it, will pass and result in a major trade dispute in the near future:

US lawmakers on Wednesday unveiled a plan to retaliate against countries, like China, that allegedly manipulate their currencies to snare an edge in international trade.

"The time has come for Congress to stand up for American workers and not allow China to run roughshod over the American economy. With this legislation we will finally force China to stop cheating and level the playing field for America's manufacturers," said Republican Representative Tim Murphy.

The Currency Reform for Fair Trade Act, backed by Republicans and Democrats as well as business groups and major labor unions, aims to use US anti-dumping and countervailing duties to strike back at prolonged currency manipulation.

I make this prediction because direct action (e.g., a WTO complaint against currency manipulation) seems unlikely, based on the recent statements I've seen from Obama administration officials on the matter.  There is strong support for some action to be taken, though, and acting unilaterally in this way may be the easiest approach politically.  Yes, there will be concerns about WTO complaints being filed against the legislation, but this may be a situation like the Byrd Amendment, where the legislation passes and then an adverse WTO ruling eventually gets rid of it (or the ruling upholds it -- you never know).

Or, I might be completely wrong.

Is the Intel Verdict Protectionist?

Some people say yes:

American technology advocates and legal experts have roundly condemned the EU's decision to fine Intel nearly a billion pounds for breaking anti-trust laws.

Grant Aldonas, Senior Advisor at the bipartisan Center for Strategic and International Studies (CSIS), says, "This is a potentially costly ruling for both the United States and Europe. It could lead to higher computer prices, which will hinder investment in information technology, making both economic recovery and improvements in our long-term competitiveness more difficult."

He went on to say, "I can't help but wonder whether the EU's singling out of an American company for this sort of fine isn't protectionism by another name, with the fine replacing the more conventional means of protection, like tariffs, that the WTO now enjoins."

"U.S. trade chief wows partners, substance awaited"

That's how Reuters describes USTR Ron Kirk's Geneva trip.  More here.

Interpreting International Law

On SSRN, Professor Michael Paulsen has posted "The Constitutional Power to Interpret International Law."  An extract from the paper:

What, then, of international bodies’ interpretations of international law, including international treaties to which the United States is party—such as the U.N. Charter, the Geneva Conventions, and the Convention Against Torture? Are international bodies’ (like the International Court of Justice’s) interpretations of these international treaties binding on the United States?

It follows from what has already been discussed that the answer must be no. As a matter of U.S. constitutional law, the interpretation of U.S. law, including U.S. treaties, cannot be authoritatively or finally vested in non-U.S. authorities. Such persons or bodies possess no part of the Constitution’s authority. They are not officers of the government of the United States, within the meaning of that term as used in the Constitution.  They are certainly not Article III judges. Their decisions may not govern the United States. Nor may U.S. government actors cede their constitutional powers to such persons or entities. U.S. officials of course may consider what international organizations or courts have to say about America’s international obligations. And surely the President may contract (by treaty or by executive agreement) with other nations to agree to submit certain disputes to resolution by international or neutral authorities, and thereby create international and moral obligations. But no such agreement literally may dictate or control the actions of U.S. government authorities. It follows that no decision of an international tribunal or court may be self-executing—binding on U.S. executive, legislative, or judicial authorities— consistently with the Constitution, unless U.S. law (self-executing treaty or statute) both makes it so and makes it so in a fashion permitted by the U.S. Constitution.

Thus, Professor Paulsen takes the position that the interpretations of international tribunals are not "binding" on the United States.  (In the WTO context, many people will recall the well-known exchange between Judith Bello (whose article is not online as far as I can tell) and Professor John Jackson (whose article is online here:(http://www.asil.org/ajil/v9160.pdf ) on similar issues.

I find some aspects of the discussion of whether international decisions are "binding" confusing.  I'm often left unsure about what people are saying exactly.  I suppose it may depend on what is meant by "binding."  Does calling an international decision (and the interpretations therein) "binding" mean that there is a mechanism to force the United States (or other countries) to follow the ruling of the international tribunal?  If so, then the interpretations of these tribunals are probably not binding, because there is no way to force compliance (although there are, in some international agreements, mechanisms to encourage compliance).  So in that sense, an interpretation by an international tribunal is not "binding."

On the other hand, "binding" could also mean that the interpretation offered by the tribunal is formally part of a treaty's body of law.  Thus, for example, under the DSU, panels and the Appellate Body interpret (technically speaking, they "clarify") the WTO agreements.  Are these clarifications "binding" in the sense that they become a formal part of WTO law, which the United States has agreed to follow?  I would say the answer is yes.

Based on the above quote, however, I'm not completely sure what Professor Paulsen's view is on this.  At one point he says, "As a matter of U.S. constitutional law, the interpretation of U.S. law, including U.S. treaties, cannot be authoritatively or finally vested in non-U.S. authorities."  That makes me think his answer would be a clear no.  But later he says "no such agreement literally may dictate or control the actions of U.S. government authorities"; and, "It follows that no decision of an international tribunal or court may be self-executing—binding on U.S. executive, legislative, or judicial authorities"; and also, "And surely the President may contract (by treaty or by executive agreement) with other nations to agree to submit certain disputes to resolution by international or neutral authorities, and thereby create international and moral obligations." These statements make me wonder if he has something more limited in mind.  For example, perhaps his view is that interpretations by international tribunals can, in fact, be part of international law as part of that law in and of itself; however, they cannot be part of that law as it is incorporated into domestic law.  Thus, taking the WTO context as an example, interpretations by the Appellate Body could be part of the WTO law that is applied by panels and the Appellate Body in future WTO disputes.  However, they cannot play the same role in U.S. law as the WTO Agreement itself does.  That is to say, international agreements play a special role in domestic law, and international decisions interpreting the agreements do not play this same role.  (If I recall correctly, this is the view taken in recent years in some U.S. Court of International Trade decisions.)  If he does take this latter view, I can see why he argues that the decisions are not "binding" on the United States.  That is true, in one sense.  But in another sense, they are, as they become part of U.S. international obligations.

Is the Beef Hormones Dispute Settled?

My reading of the terms of the "provisional" agreement signed last week between the U.S. and EU on the WTO beef hormones dispute was that some small steps had been taken, but there was still a lot of work to be done.  In particular, the key issue in dispute had not been resolved:  Can hormone-treated beef be sold in the EU?

So I was a little surprised to see this reported today:

In a major coup since his confirmation to the post in March, Kirk has managed to settle a 20-year-long dispute between the European Union and the United States over Brussels' ban on US hormoned-treated beef.

...

"Assuming that we get the beef issue finally put to bed, which we are 99 percent there, then we'll look and see if there are other issues that we might be able to address as well," Kirk said.

I'm all for "hope" and "change," but is it possible some people are being overly optimistic here?

The Impact of Buy America

Not so good for at least one Canadian company:

A Toronto company that has been exporting pipe to the United States market for 60 years recently landed a contract to supply plastic piping for a new health-care centre at the Camp Pendleton Marine base in California.

But the piping is now being ripped out of the ground. Why? Because the pipes are branded with the words Made in Canada.

ADDED:  In the comments section of this post, an anonymous commenter explains that there may be less to this story than the article implies.

Would Bringing the WTO Seals Dispute Be Bad for Free Trade?

The Ottawa Citizen makes the case:

Using trade-law arguments to force Europe to accept seal-hunt products from Canada, while tempting, could ultimately do more harm than good for trade in general.

Opponents of free-trade agreements have long argued that such agreements have the potential to undermine national sovereignty. By invoking trade law to force seal products on Europe, Canada would be unwittingly strengthening the hand of these anti-traders.

Besides, countries shouldn't have to surrender sovereignty. ... If countries are acting in good faith, they should be able to make ethical and environmental decisions, even if those decisions have trade dimensions.

... Canada should be attempting to change the minds of European politicians, not to force their hands. International trade agreements depend on domestic support; it's never a good idea to give people a reason to be nervous about trade rules, and especially not when Canada and the EU are negotiating a new agreement.

As Prime Minister Stephen Harper has wisely acknowledged, a $7-million industry is not worth poisoning our trade relationship with Europe.

Of course, this assumes that the complaint would be successful, which is still an open question.

 

More Sports and the Seals Dispute

I had not expected sports to play such a big role in Seals dispute.  The other day I mentioned the role of former hockey player Peter Stastny.  Now there's this:

Canadian MPs have pushed forward a motion urging Canada's 2010 Olympic team to add seal skin to their uniforms to show solidarity for the embattled East Coast seal hunters.

"With the upcoming Winter Olympics that will be in Vancouver in 2010, the government has a chance to offer some concrete action to promote seal products. Today we are tabling a motion aimed at studying the possibility to integrate [seal skin] into the Canadian athletes' uniforms, and we hope the Canadian government is ready to act, to save an industry, one which several families in my riding depend on," said Bloc Quebec MP Raynald Blais.

The motion, which received unanimous support, said "the government should take advantage of the opportunity provided by the 2010 Vancouver Olympic Games to promote seal products, particularly by studying the possibility of using these products in the making of the Canadian Olympic clothing."

A "New Spirit" of U.S.-EU Trade Relations

From Reuters:

Ashton, who took over from Peter Mandelson last October, said a "new spirit" of transatlantic cooperation had been fostered by the U.S. administration under President Barack Obama.

So-called "carousel" duties from the United States in the beef dispute were one of then U.S. Trade Representative Susan Schwab's parting shots under George W. Bush. "I don't want to talk about the old administration or say whether we would have resolved the beef row ... but certainly of the new administration I can say this is much easier and I take the view we can resolve some issues," Ashton said.

9th Annual BIICL WTO Conference

BIICL's 9th Annual WTO Conference will be held in London on May 20-21.  It has the usual outstanding group of participants:

Welcome
Professor John H. Jackson, Institute of International Economic Law, Georgetown University Law Center
The Rt Honourable Sir Francis G. Jacobs KCMG QC, King's College London
Professor Robert McCorquodale, British Institute International Comparative Law

Chairs
Professor Jane Bradley, Institute of International Economic Law, Georgetown Law
Professor Marco Bronckers, WilmerHale, Brussels
Professor William Davey, University of Illinois
Norah Gallagher, British Institute of International and Comparative Law
Alejandro Jara, WTO Deputy D-G
Dr Federico Ortino, King's College London
Dr Andrew Lang, London School of Economics
Werner Zdouc, Appellate Body Secretariat, Geneva

Speakers & Commentators
Professor Frederick Abbott, Florida State University
Scott Andersen, Sidley Austin LLP, Geneva
Jan Bohanes, Sidley Austin LLP, Geneva
Professor Tomer Broude, Hebrew University of Jerusalem
Professor Sungjoon Cho, Chicago-Kent College of Law
Professor Thomas Cottier, World Trade Institute
Professor Piet Eeckhout, King's College London
R. Michael Gadbaw, Institute of International Economic Law, Georgetown Law
Dr Joanna Gomula, Lauterpacht Centre for International Law
Dr Henning Grosse Ruse-Khan, Max Planck Institute for Intellectual Property, Competition and Tax Law
David Hartridge, White & Case, Geneva
Gary Horlick, Law Offices of Gary N. Horlick
Linda Horton, Hogan & Hartson, Washington DC
Professor Pieter Jan Kuijper, University of Amsterdam
Dr Andrew Lang, London School of Economics
Professor Rosa Lastra, Queen Mary, University of London
Professor Gabrielle Marceau, University of Geneva
Brendan McGivern, White & Case, Geneva
Professor Don McRae, University of Ottawa
Professor Laura Nielsen, University of Copenhagen
Rodney Neufeld, Canadian Mission Geneva
Hunter Nottage, Advisory Centre for WTO Law
Dr Lazaros Panourgias, European Investment Fund
Oleg Riabokon, Magisters, CIS
Ahila Sornarajah, LL.M. candidate (2009) and IIEL Fellow, Georgetown Law
Dr Michael Waibel, Lauterpacht Centre for International Law
Jayashree Watal, WTO Secretariat
Dr. Ronnie R. F. Yearwood, Durham University

Progress in The Beef Hormones Dispute

A "provisional" agreement has been reached between the U.S. and EU (I'm not sure what Canada's views on all of this are).  Sounds like they still have some hard issues to deal with, though.

From the USTR press release:

The agreement in principle would provide additional duty-free access to the EU market for high-quality beef produced from cattle that have not been treated with growth-promoting hormones – 20,000 tons in the first three years and increasing to 45,000 tons beginning in the fourth year.  Under the agreement, the United States will maintain existing sanctions and will not impose new sanctions on EU products during the initial three-year period, and will eliminate all sanctions during the fourth year.  The two sides will refrain from further litigation at the World Trade Organization regarding the EU’s ban on beef treated with certain growth-promoting hormones for at least 18 months.  Before the end of the four-year period, the two sides will seek to conclude a longer-term agreement. 

From the EC DG Trade press release:

Under the terms of the agreement, the U.S. would agree not to impose new so-called 'Carousel' sanctions which were due to come into force this week and would affect a range of EU products including Italian mineral water, Roquefort cheese and a number of other food products. The U.S. would maintain the currently reduced level of existing sanctions against EU products (68% or USD 79 million lower), and would eliminate all sanctions beginning in the fourth year of the agreement. In return, the agreement would provide additional duty-free access to the EU market for the type of high quality beef traditionally exported by the U.S. and produced from cattle that have not been treated with growth-promoting hormones. The agreement would provide additional duty-free access for 20,000 tons of beef in the first three years, increasing to 45,000 tons beginning in the fourth year. Before the end of the four-year period, the two sides will seek to agree on the conditions for the settlement applicable beyond that period.

ADDED:  Senator Grassley's comment makes clear that a final resolution will be difficult:

“This provisional accommodation would increase exports of U.S. beef, and that’s good news for cattle and beef producers in Iowa and consumers in Europe. At the same time, it’s disappointing that U.S. beef from cattle treated with growth-promoting hormones remains locked out of the EU market. This beef is safe and consumed by millions of people in the United States and other countries every day. The European Union should reopen its market to all U.S. beef, which is entirely safe.”

 

Seals Dispute Update

Today's developments (so far) in the WTO seals dispute (DS369), with links:

» Canada will challenge seal ban to WTO: Day OTTAWA — The federal government will take the European Union to the World Trade Organization to challenge a pending ban on seal products unless the EU exempts Canada because it practises a humane and sustainable hunt, Trade Minister Stockwell Day said Tuesday.

» Canada will fight European seal ban | Alberta Talks The European Parliament voted Today in favour of an EU ban on products derived from seals. The hunting methods are said to be inhumane and cruel.

» EU says seal ban takes account of WTO obligations BRUSSELS (Reuters) - The European Commission said on Tuesday it was up to Canada to decide whether to take action at the World Trade Organization over an EU ban on seal products, but Brussels had worked hard to meet global trade rules.

» edmontonsun.com - Canada - Ottawa wants exemption to EU seal ban OTTAWA — The federal government is demanding an exemption to a “politically motivated” decision by the European Parliament to ban seal products — or it will take the issue to the world trade body.

» EU seal ban a 'black day for Atlantic Canada': Industry The Canadian sealing industry grappled with the loss of a major market for seal products Tuesday, as the European Parliament voted overwhelmingly in favour of a ban across its 27 nations.

» EU Bans Seals, Ottawa Sits on Fence In the wake of a vote in the European Parliament the government of Canada has once again proven itself a champion at political doublespeak and dereliction of its duty to Canadian citizens.

» CTV Toronto - EU Parliament passes import ban on seal products The European Parliament passed a bill Tuesday banning the import of seal products, a move that is expected to cripple the Canadian sealing industry.

» BBC NEWS | EU ban looms over seal products The European Parliament has voted to ban the sale of seal products in the 27-nation EU.

 

ADDED:  I referred to the seals dispute as DS369.  However, that dispute is actually a complaint by Canada against a different set of measures related to protection of seals, in particular certain Belgian and Dutch laws, rather than the European Parliament bill being discussed now.   If a new complaint is filed, it could get a new DS number.

Mission Creep at the WTO

On Saturday, the WTO joined three other international organizations in issuing a Statement about the H1NI virus. The other three IGOs were the FAO, the OIE, and the WHO.

The Statement can be found at http://www.wto.org/english/news_e/news09_e/jt_stat_02may09_e.htm.

According to the Statement: "To date there is no evidence that the virus is transmitted by food. There is currently therefore no justification in the OIE Terrestrial Animal Health Standards Code for the imposition of trade measures on the importation of pigs or their products."

The Statement, which is obviously intended to be normative, led me to reflect on a number of interconnected issues.

First, is this Statement international trade law? Could it be used in a WTO dispute to preclude a defense to a trade measure on pigs if one were challenged in the WTO?

Second, if the Statement is law, is it within the competence of the WTO to state? Previously, I was not aware that the WTO had any competence for public health. I would also doubt that the WTO has any expertise on the OIE Standards Code.  

Third, if the Statement is law, what authority did the WTO use to join it? Did the WTO enact it under WTO Agreement Article V:1 authority? If so, does that make the Statement a covered agreement?

If the Statement is not hard law, but rather only soft law, then there is still a question of what authority the WTO used to join it. Was it Article III:2 authority?

Fourth, whatever level of normativity the Statement has, what internal procedures were used within the WTO to agree to it? I see that there was a General Council meeting on April 30 so perhaps the General Council approved the Statement under Article IX:1 authority. Unfortunately, the WTO remains (to use Pascal Lamy's word) "medieval" in its transparency practices, and there are not minutes available for the General Council meeting. Indeed, there is not even an agenda posted as of May 4. I also looked on the WTO website to see if there was any advance notice of the proposal to enact the Statement and I didn't see any. There was also not any request for public comment. So it seems that once again, the WTO does not use the best practices for administrative procedure that it demands of its Members under the covered agreements.

Fifth, would be the implications if the WTO Secretariat did not receive permission from the General Council before signing this Statement in the name of the WTO? I would hope that the SPS Committee at least signed off on the action by the WTO to the Statement. Did it? It would seem very troubling if someone in the Secretariat can join agreements with other international organizations in the name of the WTO without Member approval. Given this episode as a precedent, could the WTO join an ILO Statement about the need for fundamental worker rights or a UNFCCC Statement about the need for emissions reduction?  

Finally, what liability does the WTO have if the Statement proves to be wrong. Suppose we do learn that pigs or pig products transmit the virus and a state held off on measures upon the advice of the WTO. Would the WTO have responsibility for the harm caused to that state? What the State be able to bring a lawsuit against the WTO in its municipal courts? Ordinarily, one would think the WTO would have immunity under Article VIII:4. But does that apply if the WTO action lacks any legal justification under its own rules?

The WTO Seals Dispute: He Shoots, He Scores?

Or maybe he puts the biscuit in the basket?  Two minutes for roughing?  I don't know, there must be some hockey term that is relevant here, but I can't quite find the right one.  I had been wondering what famous hockey players thought of the Canadian seal hunt, and finally I have some information:

Former hockey superstar Peter Stastny, one of Canada's few allies in a historic European Parliament vote Tuesday to ban seal product imports, says it is a shame that Europeans aren't listening to the poor Canadian sealers.

On the anti-sealing lobby: "these people have millions of dollars," Stastny told Canwest News Service Monday. "And they are misleading people by telling them only one side of the story, and people just don't have the time to learn the facts."

Stastny's complaint reflects his sympathy and affection for Canadian sealers that dates back to his playing days with the Quebec Nordiques.

"They're like hockey players, the nicest people in the world, good hearted, generous, and friendly," he said. "All they're trying to do is make an extra buck to help their families and their communities."

Stastny said the animal rights lobbyists, who were declaring victory Monday in anticipation of Tuesday's vote, have proven to be a formidable rival as he has tried to convince colleagues to show some sympathy for Canadian sealers.

Stastny compared the anti-sealing campaign to the powerful New York Islanders of the early 1980s, when Stastny was a dazzling playmaker just starting his Hall of Fame career with Quebec.

"The Islanders were very, very tough, almost unbeatable, but you knew who they were, what to expect, and they played by the rules," said Stastny, 52, a dual Canadian-Slovak citizen who represents Slovakia in the 785-seat European Parliament.

For what it's worth, the Edmonton Oilers eventually brought down the Islanders' dynasty.  I'm not sure how that fits in with his analogy, though.  I'll certainly report more on this if Wayne Gretzky or Mark Messier go public with their views on sealing.

Taxing U.S. Multinationals Abroad and at Home

From today's headlines:

President Barack Obama vowed on Monday to overhaul tax policies that he said reward companies for shifting U.S. jobs overseas and allow wealthy people to evade taxes using offshore accounts.

The White House estimated the plan would save $210 billion over the next decade.

In one proposal businesses are poised to fight, Obama would tighten tax-code provisions that allow firms to defer paying taxes on profits they make overseas as long as those earnings are plowed back into the foreign subsidiaries.

Congress is skeptical:

Sen. Max Baucus of Montana, the Democratic chairman of the Senate Finance Committee, said the plan needed further study, even though similar ideas have been around for years.

One of the key disagreements is the following:

[Obama] contends the current system gives companies an incentive to invest overseas rather than creating jobs in the U.S.

"It's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, N.Y.," Obama said Monday.

But the other side says:

The business community argues the deferral system helps them compete against foreign companies that pay taxes only in the countries where they generate profits.

What if they are both right?  That is, in some instances, the current system gives companies an incentive to invest abroad rather than at home.  At the same time, however, changing the current system would put U.S. companies at a disadvantage when competing against non-U.S. companies in foreign countries.  How do we deal with this problem?  One way is this part of the plan, which makes up for the lost tax breaks with new tax breaks:

In exchange for the increased taxes some companies would have to pay, Obama agreed to make permanent a research tax credit that would provide firms about $75 billion in breaks over the next 10 years. The credit currently is to expire at the end of the year.

There's more on this in the White House press release:

3.       Making R&E Tax Credit Permanent to Encourage Investment in Innovation in the United States: The resources saved by curbing tax incentives for jobs overseas and limiting losses to tax havens would be used to strengthen incentives to invest in jobs in the United States by making permanent the R&E tax credit.

Current Law

• R&E Credit Is Set to Expire At End of 2009: Under current law, companies are eligible for a tax credit equal to 20 percent of qualified research expenses above a base amount. But the research and experimentation tax credit has never been made permanent – instead, it has been extended on a temporary basis 13 times since it was first created in 1981 – and is set to expire on December 31, 2009.

How It Works

• Through the research and experimentation tax credit, companies receive a credit valued at 20 percent of qualified research expenses in the United States above a base amount. Taxpayers can also elect to take an alternative simplified research credit that provides an incentive for increasing research expenses above the level of the previous three years. Taxpayers may also take a credit based on spending on basic research and certain energy research.

• Any uncertainty about whether the R&E credit will be extended reduces its effectiveness in stimulating investments in new innovation, as it becomes more difficult for taxpayers to factor the credit into decisions to invest in research projects that will not be initiated or completed prior to the credit’s expiration.

The Administration’s Proposal

• Create Certainty to Encourage New Investment and Innovation at Home By Making the Research and Experimentation Tax Credit Permanent: To give companies the certainty they need to make long-term research and experimentation investment in the U.S., the Administration’s budget includes the full cost of making the R&E credit permanent in future years. By making this tax credit permanent, businesses would be provided with the greater confidence they need to initiate new research projects that will improve productivity, raise standards of living, and increase our competitiveness. And with over 75 percent of credit dollars attributed to wages, the credit would provide an important incentive for businesses to create new jobs.

• Paid For With Provisions That Make the Tax Code More Efficient and Fair: This change would cost $74.5 billion over 10 years, which will be paid for by reforming the treatment of deferred income and the use of the foreign tax credit.

I just hope they are keeping in mind WTO rules when handing out these R&E subsidies.