International Economic Law and Policy Blog

What Is Section 421?

Am placing here, as a new post, part of a comment that otherwise would have been stuck under the wrong heading (antidumping).  At issue was a piece in The Economist about the Tires 421 result.

What I found interesting in the Economist piece is that it stopped short of what seems an obvious punch line: that Section 421 apparently is not a “safeguard” remedy at all.  If it were, there would be no presumption (see the legislative history) in favor of providing relief whenever the ITC finds market disruption, and there would be a baked-in requirement for adjustment plans. A basic premise of traditional safeguards is that the "problem" resides in the importing market whose producers simply need time to adjust.  Import relief is a temporary umbrella, but the key thing is getting ready to live exposed to permanently heavy rain.  That premise is seemingly reversed in Section 421, which embodies a presumption -- applicable throughout the transition period -- that the "problem" underlying any observed import-related market disruption resides in China.

There is a lively debate over whether one can find that same presumption in China’s WTO accession protocol.  Regardless, classifying the Section 421 remedy is a puzzler.  It grew out of Section 406 of the 1974 Trade Act, which is broadly similar to that same Act’s Section 201 (the United States’ global safeguard law).  But the differences from traditional safeguard concepts seem, in today’s light, to be more important than the similarities.

Maybe what Section 421 most resembles is the Special Safeguard Mechanism in the WTO agriculture agreement, which as the piece linked here explains amounts to strict liability for growing trade.

Except … Section 421 does have an injury test.  So perhaps it’s a thing unto itself, and will have to remain uncategorized during its remaining lifetime.

Subsidies, CVD Complaints and the Auto Industry

A recent Economist article notes:

Across the world governments have lavished their ailing car firms with subsidies. Although General Motors (supported with over $50 billion of taxpayers’ money) has shed some brands and factories in America, so far not a single carmaker of any size has disappeared. One of the weakest was Chrysler, but thanks to a $7 billion federal bail-out and a deal with none other than Fiat, it motors on. So too does GM’s perennially lossmaking former European arm, Opel/Vauxhall, propelled with a €4.5 billion ($6.5 billion) dowry from the German government last week into the arms of Magna, a Canadian auto-parts company, and Russia’s Sberbank.

Opel’s new owners are threatening to cut some jobs and, perhaps, shut a couple of small factories in Belgium and Britain. But the remarkable thing is that not a single car factory in Europe has closed in the past 12 months. According to industry estimates, overcapacity in Europe next year will be around 7m units, or 30%. In America, a market of similar size, overcapacity will fall from about 6m vehicles this year to 3.5m next year, but a great deal of the overcapacity elsewhere will be aimed at America when sales begin to recover.

...

Government aid, in the form of bail-outs and scrappage schemes, may have prevented outright collapse, but it has merely delayed the reckoning. 

What I wonder is this:  In a few years from now, if all the major car-makers are still struggling to make a profit, as the Economist predicts, are we going to see some countervailing duty cases relating to the various auto bailout subsidies?  It's true that everyone was doing it, so perhaps this is a risky strategy for a company to pursue, due to the complaints that might be brought against the subsidies it received.  But it is likely that some companies feel as though others got a better deal out of the bailouts, and they may be tempted to take a chance that their own trade remedy authorities will impose higher duties than authorities in other countries.  (In addition, there is the possibility of personal animosity, as noted in this later Economist article, triggering a complaint:  "When GM, having emerged from bankruptcy with renewed confidence, explored the possibility of hanging on to Opel, it was brutally rebuffed by the Germans. The money being offered was for Magna, not for the Americans.")

The L Prize and WTO Rules

A while back, we talked about whether prizes offered by the government could be challenged at the WTO as subsidies.  This discussion was somewhat in the abstract.  Now, though, we have an actual prize program to talk about:  The "L Prize."  The New York Times describes it as "an Energy Department contest that will award up to $10 million to the first person or group to create a new energy-sipping version of the most popular type of light bulb used in America."  The government's web site for the prize further explains:

The Energy Independence and Security Act of 2007 directs the U.S. Department of Energy (DOE) to establish the Bright Tomorrow Lighting Prizes (L Prize) competition. The L Prize competition is the first government-sponsored technology competition designed to spur development of ultra-efficient solid-state lighting products to replace the common light bulb.

My original post was mostly about whether such prizes were "subsidies" and whether they were "specific."  With this program, though, there is a more obvious trade problem.  As the Times notes: "at least 75 percent of the bulb must be made or assembled in the United States."  More specifically, the competition requirements state:

In addition to meeting technical performance specifications discussed in Section IV, qualified entrants must meet one of the requirements from Section A and the requirement of Section B:

A1) A majority (≥75% by count) of the LED die or chip, defined as the solid-state semiconductor material that converts electrical energy directly into light, must be manufactured in the United States.

or

A2) The LED must be packaged in the United States. Packaged LED (also known as an LED device) refers to an assembly of one or more LED dies possibly including the mounting substrate, encapsulant, phosphor if applicable, electrical connections, and optical components along with thermal and mechanical interfaces.

or

A3) A majority (≥75% by subsystem and assembly cost) of the final product assembly/integration must be carried out within the United States. This includes all of the applicable: final assembly of the LED die or chip, packaged LED, optics, heat sink or cooling components, and driver and electronics.

and

B) In the case of a private entity, the entity shall be incorporated in and maintain a primary place of business in the United States; and in the case of an individual, (whether participating as a single individual or in a group), the individual shall be a citizen or a lawful permanent resident of the United States.

I'm not sure how big a deal these local content requirements are.  If it's just for the actual product entered in the competition rather than subsequent commercial production, it's not likely to have much of an impact.  Technically, though, the requirement to use local content in order to be eligible for the prize seems like a probable violation of GATT Article III:4 and SCM Agreement Article 3.1(b).

I also had some questions as to the exact nature of the government involvement in the program, but I'll leave those for another time.

IEL in Bosnian Law

Following-up on item 2 in this post, here's a news report on a Bosnian court decision:

Bosnia's top court has annulled an import tax law which it said violated a regional free trade treaty and commitments to the EU, while about 1,000 farmers and food producers protested outside the court building.

The law imposed duty on around 1,000 imported products, and was approved by parliament in June despite strong objections from the European Union and neighbouring countries.

...

The European Union said the law breached the Central Europe Free Trade Agreement (CEFTA) agreed by Balkan countries in 2006 to boost regional trade and prepare for EU single market entry.

It said the law also violated Bosnia's commitments under its 2008 Stabilisation and Association Agreement (SAA) with the EU, the country's first formal contract with the 27-nation bloc.

Based on the article, it sounds like the court struck down the law as a result of its conflict with international trade agreements.  However, the actual reasoning may be more nuanced than reported.

Were the Tires Tariffs Really About China's Currency?

From Steven R. Weisman of the Peterson Institute for International Economics:

2) Speaking of China, trade will be a big and perhaps contentious issue, because the Chinese are still furious over Obama's recent imposition of tariffs on Chinese tires—and the implicit threat that such tariffs could be slapped on other products like steel, cement, aluminum, paper, and many other things if China does not let the value of its currency, the renminbi, rise more than it has against the dollar.

Are the tires tariffs really all about encouraging China to let the value of its currency rise?  If so, will this strategy work?

The WTO Boeing Ruling and State Subsidies

A Rhode Island state representative explains that a WTO ruling which finds that state subsidies to Boeing violate WTO obligations would be a good way to rein in state and local subsidies:

a forthcoming decision will determine whether billions of dollars in government aid to Boeing is also illegal. We should hope the WTO sides with Airbus and the E.U. this time: These grants and tax breaks are busting state budgets, at a time when every last penny is precious. There's a war among the states to lure in businesses; our federal government should mediate it, but it could be the WTO that forces a cease-fire.

...

Large corporations have become adept at pitting state and city governments against each other to secure ever bigger budget-busting tax concessions and subsidies, ever threatening to locate their facilities in some more 'business-friendly' state.

In fact, many fellow state legislators and I were lamenting these wasteful tax breaks, the race to the bottom they have precipitated, and the harm they have done in this era of budgetary crises. More than ever, we need those squandered dollars for schools and public works and social services. ...

...

States are trapped in a paradigm wherein it seems to make sense to lure in new corporations, or hold onto old ones, by dangling goodies in front of them -- there's nothing more likely to win a potential vote than securing or saving the job of he or she who shall cast it. ...

...

As states swipe employers from each other with tax breaks, businesses are moved around and countless tax dollars are lost, but on the net, few new jobs are created. The Boeing plant would be built somewhere, no matter what. If we care about all Americans equally -- as should any cabinet secretary -- it's clear that it would have been better for the public if it had been built without a mammoth subsidy, even if not in Washington State. The same phenomenon, on a somewhat smaller scale, manifests countless of times over, as states and cities compete for factories, stadiums and their sports teams, and corporate headquarters. Public coffers throughout the nation are poorer for it.

Locke suggested such interstate competition is a matter of "states' rights." One could argue, however, that it's really a matter of interstate commerce, and hence under the purview of the federal government; the Constitution's commerce clause empowers Congress to regulate commerce "among the several states." Unfortunately, the courts have made it unclear who, if anybody, has standing to force a ruling on the matter.

Regardless of its constitutionality, the phenomenon is a destructive one. Rather than encourage the practice, the secretary of commerce should facilitate cooperation among the states -- via federal legislation or an interstate compact -- to reduce corporations' abilities to extract subsidies by playing states and their residents off of each other, as states sprint past one another, into ever deeper deficits.

We ought to celebrate the WTO's recent decision not because it hurts Airbus and Europe, but because it reduces pressure to cede public money to corporate giants like Boeing. A ruling against Boeing in coming months could circumvent a complacent administration and commerce secretary and force a reorientation of tax policy that will leave cities and states across our country better off.

It probably won't come as any surpise for readers to hear that I agree with the view that states using subsidies/tax breaks to compete for investment is a bad thing.  And I agree it would be great if the federal government or courts could put a stop to this.  I'm a little skeptical that the Boeing ruling is going to have much impact here, though.

Is Dumping "Against International Trade Rules"?

I'm feeling nit-picky again today.  In an article criticizing the U.S. tariffs on Chinese tires, the Economist writes: 

Even now Mr Obama insists he is “committed to pursuing expanded trade and new trade agreements”, and this week he defended his action as nothing more than the enforcement of trade laws.

That, however, is a stretch. Mr Obama had no obligation to act. Under the terms of joining the WTO, China gave other countries the right until 2013 to impose temporary “safeguards” against surges of Chinese imports. In America the relevant law, Section 421 of the Trade Act, does not require proof that China has broken international trade rules against subsidising or dumping goods (ie, selling below cost), only that the domestic industry was disrupted. (emphasis added)

But are there really any "international trade rules against dumping"?  Sure, GATT Article VI says that injurious dumping is to be "condemned."  And, of course, under GATT Article VI and the AD Agreement, WTO Members are permitted to impose anti-dumping duties as a response.  But there is no prohibition in international trade rules against dumping itself (whether injurious or not).  That is to say, you can't bring a WTO complaint alleging that foreign companies are dumping.

Speaking of dumping, is Coke "dumping" its products in the U.S.?  Matthew Yglesias writes:

I’m one of those “drinks a ton of Diet Coke” people, and thus every time I come to Europe I find myself dismayed at the cost of soda over here. Does anyone have a good explanation of why it’s so much more expensive than in the US?

 

More on WTO Law and Global Administrative Law

Following-up on my recent post, Andrew Mitchell and Elizabeth Sheargold have more to say on WTO law and global administrative law in their paper "Global Governance: The World Trade Organization's Contribution".  Here's the abstract:

Democracy and administrative law concern ideas of governance, legitimacy, and accountability. With the growth of bureaucracy and regulation, many democratic theorists would argue that administrative law mechanisms are essential to achieving democratic objectives. This article considers the World Trade Organization’s (WTO) contribution to governance both in terms of global administrative law and democracy. In relation to administrative law, it first explores the extent to which the WTO’s own dispute settlement process contributes to this area. Second, it considers the operation of administrative law principles embedded within the WTO Agreements on Members. For example, the WTO Agreements require that certain laws be administered “in a uniform, impartial and reasonable manner.” This obligation was recently considered by the Appellate Body, but uncertainty remains about the scope this provision has to permit WTO panels to review domestic administrative practices. In relation to the WTO’s contribution to democracy, this article first considers the challenges and limitations of the current system of decision making within the WTO and compares it to democratic theory. Second, it examines how democracies comply with the findings of WTO dispute settlement tribunals and how compliance could be improved. It concludes by speculating on the implications of this discussion for public international law more broadly.

The China - Publications Notice of Appeal

is here.  China did not appeal everything, as parties sometimes do.  But it did appeal a decent number of issues.  One of particular interest is the public morals defense under GATT Article XX(a).  There is the potential for the AB to say a lot of interesting things about this (for example, the relationship between Article XX(a) and the Accession Protocol), but it is very possible it will do its best to avoid addressing controversial issues.  Here is China's appeal on this point (with footnotes omitted):

1.    China seeks review by the Appellate Body of the Panel's legal conclusions set out in paragraphs 7.913 and 8.2(a)(i) and (ii) of the Panel Report that China's measures are not justified under Article XX(a) of the General Agreement on Tariffs and Trade 1994 ("GATT 1994"). The Panel committed errors of law and legal interpretation in concluding that none of the relevant measures are "necessary" to protect public morals, within the meaning of Article XX(a) of the GATT 1994. In particular:

1)   The Panel erred in law and failed to make an objective assessment of the matter before it, in violation of Article 11 of the DSU, in considering that the state-ownership requirement in Article 42 of the Publications Regulation makes no material contribution to the protection of public morals in China.

2)   To the extent that it based its findings on its reasoning concerning Article 42 of the Publications Regulation, the Panel also erred in law in considering that the exclusions relating to foreign-invested enterprises in Articles X.2 and X.3 of the Catalogue, Articles 3 and 4 of the Foreign Investment Regulation, Article 4 of the Several Opinions and Article 21 of the Audiovisual (Sub‑)Distribution Rule make no material contribution to the protection of public morals in China.

3)   The Panel erred in interpreting Article XX(a) of the GATT 1994 as requiring the Panel to also weigh the restrictive impact that the measures at issue may have on those wishing to engage in importing, in particular on their right to trade.

4)   The Panel committed errors of law and legal interpretation, and failed to make an objective assessment of the facts, in violation of Article 11 of the DSU, in considering that at least one of the alternative measures referred to by the United States was an alternative "reasonably available" to China.

Should the Appellate Body reverse the Panel's findings that China's measures are not "necessary" to protect public morals, within the meaning of Article XX(a) of the GATT 1994, China requests that the Appellate Body complete the Panel's analysis and find that China's measures are fully justified under Article XX(a) of the GATT 1994.

From Seals to Cats and Dogs

From the Canadian Press:

Blame the seal hunt if you find out you're wearing Fluffy or Rover.

The federal government won't ban imports of cat and dog fur because doing so might undermine Canada's support for the seal hunt, a newly released document shows.

An internal memo shows government officials urged Agriculture Minister Gerry Ritz not to follow the United States and Europe in barring cat and dog fur from entering the country.

Officials worried a ban would weaken Canada's argument against other countries closing their borders to its seal products.

...

"An import ban on cat and dog fur, if it were to be considered, could ... undermine Canada's position against the implementation of foreign import bans on Canadian seal products," the document says.

...

"Canada's imposition of a trade ban based on perceived animal welfare abuses by other countries could be considered a technical barrier to trade," the memo to Ritz says.

"Such measures could be inconsistent with WTO obligations if, among other things, they are not linked to legitimate objectives such as animal health."

Daniel Sokol on Trade, Competiton and the WTO

Daniel Sokol has posted "Limiting Anti-Competitive Government Interventions that Benefit Special Interests" on SSRN.  From the abstract:

When government regulates, it may either intentionally or unintentionally generate restraints that reduce competition (“public restraints”). Public restraints allow a business to cloak its action in government authority and to immunize it from antitrust. Private businesses may misuse the government’s grant of antitrust immunity to facilitate behavior that benefits businesses at consumers’ expense. One way is by obtaining government grants of immunity from antitrust scrutiny. This Article offers a new contribution to the extensive literature on the globalization of antitrust. The present Article focuses both on the processes of creating public restraints, as well as upon the negative impacts of these restraints. Government can exempt a company from antitrust regulation, which allows the firm unbridled discretion to monopolize and harm consumers.

The issue of government intervention in the economy and its competitive impacts has taken on renewed importance as the global financial crisis has led countries to provide various benefits to favored companies, which may distort competition. Distorting competition may keep the world in recession longer, as countries may retaliate with new distortions of their own, creating a downward spiral for the global economy. Thus, local “solutions” may cause international problems, and require international resolutions.

This Article addresses the important domestic and international institutional dynamics of how to reduce such anti-competitive immunities. It then provides a theoretical framework to identify potential domestic and international institutional responses to public restraints and the costs and benefits of these responses. The institutional framework developed in this Article proposes both substantive policies and institutional structures that can undertake these policies. The framework builds on both new institutional economics and international organization literatures, while recognizing the difficult limitations in design and capacity that existing institutions face. Part I of this Article explores the causes and effects of public restraints. Part II analyzes the potential institutional choices to address public restraints. In Part III, this Article undertakes a case study of the current inadequacies of existing institutional solutions to the problem of government restraints. Part IV then suggests a set of reforms to correct for the existing institutional shortcomings. The Conclusion suggests that a modified WTO is the least bad alternative to address international antitrust public restraints.

And from the conclusion:

Anti-competitive public restraints play a distortive role in the global economy. Antitrust
immunities are one such case in which public restraints hurt consumers. Though anticompetitive public restraints plague each country, domestic institutions seem ill- equipped to adequately limit these restraints. International institutions can assist domestic antitrust institutions to create better outcomes to address anti-competitive public restraints.

Benchmarking through soft law and bottom-up harmonization based upon domestic
approaches on competition advocacy can help domestic institutions to limit some of the effects of public restraints. However, there are limitations to the soft law approach in improving domestic antitrust capacities. Where substantive coordination is difficult, such as with public restraints, binding rules may be the most effective way to address the global nature of the problem. This implicates the WTO as the most appropriate institutional choice to combat public restraints. Because the WTO considers global welfare, the WTO disciplines countries that fail to reduce international spillover and market access policies.335 However, the WTO contains significant limitations in its adjudicatory ability to adequately identify and remedy antitrust public restraints.

All institutions have weaknesses, but in the case of public restraints, international hard
law through the WTO (properly reformed) can help address these problems in ways that create few domestic overlaps and new distortions of their own. Creating an antitrust panel for WTO antitrust public restraints that would be deferential to domestic antitrust solutions is a first step to improving the adjudicatory capacity of the WTO. Hard law will work with soft law to improve the domestic institutions so that over time, domestic institutions need much less of the international institutions to do this work, because many of the cases will be decided in the shadow of the law. In a world of imperfect alternatives, this proposal has fewer costs and
greater benefits than domestic or international soft law solutions.

Investor-State Arbitration, WTO Law and Global Administrative Law

Benedict Kingsbury and Stephan W. Schill have posted Investor-State Arbitration as Governance: Fair and Equitable Treatment, Proportionality and the Emerging Global Administrative Law on SSRN.  Here's the abstract:

Investor-State arbitration is not only a mechanism to settle disputes between an investor and a State arising out of an investment, it is also a form of global governance that involves the exercise of power by arbitral tribunals in the global administrative space. In setting standards for State conduct vis-à-vis foreign investors, for example in defining what is improper administration or a violation of due process under fair and equitable treatment, tribunals set standards which may influence future conduct by the respondent State and other States, and will very likely influence the decision-making of tribunals in other cases. In settling disputes between investors and States, the tribunals also act as pre-agreed review agencies of a State’s specific actions, in some cases applying proportionality analysis or other tools of public law review when confronted with difficult balances between investor protection and the State’s environmental or economic policy choices in the wider public interest. In these respects, investor-State arbitration forms part of a governance structure, and helps constitute and shape the emerging body of global administrative law. At the same time, this regulatory activity of arbitral tribunals attracts significant criticism, not only of specific decisions but with regard to the legitimacy of the decision-making powers of these tribunals as such. This paper argues that these concerns can be addressed, at least in part, by application of principles of the emerging global administrative law to, and by, these tribunals.

The idea that investor-state arbitration is part of "global administrative law" made me wonder whether some of WTO law could also be thought of this way.  For example:

-- The review by WTO panels of domestic trade remedy decisions, a big part of which is examining the sufficiency of the domestic agency's reasoning.

-- The review by WTO panels of domestic SPS measures, to determine if they are based on scientific principles.

-- Under GATT Article X:3(a), the determination of whether laws, regulations, decisions and rulings are being "administer[ed] in a uniform, impartial and reasonable manner." 

In some sense, when panels address these issues, it seems more like administrative law than pure trade law.  For these provisions, panels are not saying directly that the measures are protectionist.  On the other hand, perhaps a finding of violation under these provisions is an indirect finding of protectionism, in the sense that because particular process standards were not met, the actions are presumed to be protectionist.

Trade & Energy Conference at the WTO Oct. 22-23

The Graduate Institute/CTEI, in cooperation with the WTO, is organizing a high level conference on

Global Challenges at the Intersection of Trade, Energy and the Environment

WTO Headquarters, Geneva, Oct. 22-23.

One of the main goals is to hear from people in the private energy industry on how the trading system could adapt to new challenges.

Speakers include Pascal Lamy, Peter Sutherland, representatives of OPEC, GE, BP, ESKOM, Energy Charter Secretariat and WTO.

All welcome!

What Economists Think of Trade Issues

From a 2007 survey of a random sample of members of the American Economic Association, in which economists were asked to respond to the following statement:

The U.S. should eliminate remaining tariffs and other barriers to trade.

STRONGLY DISAGREE	DISAGREE	NEUTRAL	AGREE	STRONGLY AGREE	MEAN
1	2	3	4	5
1.5%	8.3%	6.8%	46.2%	37.1%	4.09

It's not too surprising, of course, that the vast majority of economists agreed with this statement.  However, I think it would be more interesting if they would ask the question a little more precisely.  For example, I can think of the following additional statements to be presented to economists:

 

1.  The U.S. should eliminate anti-dumping/countervailing duties.

 

2.  The U.S. should eliminate safeguard tariffs/quotas.

 

3.  The U.S. should eliminate internal measures that discriminate against foreign goods and services.

 

4.  The U.S. should eliminate measures that place too much of a burden on foreign goods and services and thus act as "barriers to trade."

 

5.  The U.S. should try to harmonize its regulations with those of foreign countries to reduce the burdens these regulations impose on trade.

 

 

 

Counsel Position at the ACWL

The Advisory Centre on WTO Law is looking to hire a lawyer:

The Advisory Centre on WTO Law (ACWL) is a public international organisation, independent of the WTO, which was established in 2001 to provide legal advice on WTO law, support in WTO dispute settlement proceedings and training in WTO law to developing countries and least developed countries.  

The ACWL is seeking to fill a vacancy for one of its positions of Counsel.
 
Under the supervision of the Executive Director or his deputy, the Counsel drafts legal opinions on WTO matters, prepares submissions and presents the positions of parties in dispute settlement proceedings before panels and the Appellate Body, delivers lectures to participants in the ACWL's training programmes and performs other functions assigned by the Executive Director.

Applicants should have an advanced university degree in law; at least three years of practical experience in WTO law, good understanding of the economic issues underlying WTO law; excellent drafting, communication and presentation skills; ability to manage, organize, plan and deliver work assignments in a timely manner and the ability to work independently and cooperate with others in a diverse international setting.   Applicants should also have a commitment to international public service and an interest in the advancement of developing countries.  Applicants must be fluent in English.  Experience in representing parties in international dispute settlement proceedings and the ability to work in Spanish or French would be distinct advantages.

An internationally competitive salary and benefits package will be offered in accordance with the ACWL's staff regulations, which are similar to those of the WTO.

Applicants are requested to complete the personal history form available on the ACWL website at www.acwl.ch and to send it before 31 October 2009 to: 

The Executive Director
Advisory Centre on WTO Law (ACWL)
Avenue Giuseppe-Motta 31-33
Case Postale 132
1211 Geneva 20
Switzerland

This is a wonderful opportunity.  It's a great group of people doing interesting work.  Spots at the ACWL don't open up very often, so if there is any possibility you might want to do this, I would encourage you to apply.  You might not get another chance for a while.

Tom Friedman on Solar Panels

He's concerned that the U.S. doesn't produce enough and will have to import them from China:

... although consumer demand for solar power has incrementally increased here, it has not been enough for anyone to have Applied Materials — the world’s biggest solar equipment manufacturer — build them a new factory in America yet. So, right now, our federal and state subsidies for installing solar systems are largely paying for the cost of importing solar panels made in China, by Chinese workers, using hi-tech manufacturing equipment invented in America.

...

In October, Applied will be opening the world’s largest solar research center — in Xian, China. Gotta go where the customers are. So, if you like importing oil from Saudi Arabia, you’re going to love importing solar panels from China.

First off, I thought Friedman was a big free trader.  Shouldn't he consider importing them from China to be a good thing?

The issue here, from what I can gather from his piece, is that China and others are subsidizing solar panels more than we are.  This is an area where, it seems to me, free traders are split into different groups.  Some argue that we should be happy that others are subsidizing and thank them for the cheap products.  Others say we should challenge their subsidies -- which, they would say, distort trade -- either through CVDs or directly at the WTO.   Friedman seems to be saying that the U.S. should match, or surpass, the subsidies given by others, so as to ensure that solar panel production happens in the U.S.  I'm not quite sure how he thinks that fits in with his general support for free trade. 

One final question:  Given his concern about China dominating the solar panel market, but his support (I assume) for cheap solar panels, I wonder how he feels about the allegations of solar panel dumping, talked about here, here and here?  Which is more important, cheaper solar panels or helping U.S. solar panel production?

Jake Colvin (NFTC) Responds to Paul Krugman on Carbon Tariffs

Here are two of the points he makes, from the Huffington Post:

2. Carbon tariffs could ignite a green trade war and harm the U.S. economy. China and India have called U.S. proposals for a carbon tariff unacceptable and protectionist and have hinted at retaliation. Developing countries have pointed to U.S. per capita CO2 emissions, which are dramatically higher than the world average, as a basis for retaliating against any U.S. efforts to place tariffs on foreign goods. ...

3. Carbon tariffs are likely to violate global trade rules. While Mr. Krugman correctly notes that global rules provide for the use of trade measures to address environmental issues, they also require that "a connection must be established between the stated goal of the climate change policy and the border measure at issue" and that "the measure must not constitute a means of arbitrary or unjustifiable discrimination" or a "disguised restriction on international trade." It turns out that it is difficult to design a border measure in a way that satisfies these criteria, particularly when you leave it to politicians. As Jeffrey Frankel of Harvard University has written, "border measures to address leakage need not necessarily violate the WTO or sensible trade principles, but there is a very great danger that in practice they will."

His first point makes me wonder the following.  The general idea behind carbon tariffs is for developed countries to tax imports from countries which have not taken sufficient steps to fight climate change.  In practice, the countries being targeted are India and China (and the U.S., if it does not take action soon).  But if, as he points out, developing countries have much lower per capita CO2 emissions, could they just respond with their own carbon tariffs, based on the argument that those producing most of the emissions have not done enough to reduce those emissions?

Buy America vs. Buy Japan vs. Buy Korea

Senator Debbie Stabenow sent the following letter to President Obama:

President Barack Obama
The White House
1600 Pennsylvania Avenue, NW
Washington, DC 20502

Dear President Obama,

When we put together the CARS Program (more commonly known as “Cash for Clunkers”), we followed international law and made it apply to all cars sold in the United States – not just American cars, which is what I and most of my constituents would have greatly preferred.

Instead, we followed the law, and the CARS Program was written to abide by our international agreements. That is why it is so outrageous that Japan and Korea would have the audacity to implement similar programs that discriminate against American automakers.

In Japan, a tangle of complicated paperwork keeps American cars from being eligible. Cars purchased in their program must get “Type Approval” to qualify, but importers commonly use a different method of certification, known as the Preferred Handling Procedure. Cars with this PHP certification are not eligible for Japan’s program, thus excluding almost all American-made cars.

In Korea, any car that is 10 years or older can be turned in for a tax incentive toward the purchase of a new car. This sounds great – except that in Korea, imports face numerous non-tariff trade barriers effectively capping all foreign imports at 5 percent, meaning that American cars are essentially disqualified from the purchase program.

When you meet with Prime Minister Yukio Hatoyama of Japan and President Lee Myung-Bak of South Korea at the upcoming G-20, I strongly urge you to remind them of their obligations under the WTO. Over the years, you and I have worked together to hold countries accountable who ignore their trade agreements. We cannot allow other countries to violate trade rules and harm American Businesses and American workers, who are the backbone of our middle class.

I look forward to working with you to truly create a level playing field on trade.

Sincerely,

Senator Debbie Stabenow

I found a number of the points in here interesting:

1.  She doesn't say "WTO law" or "trade law" at the beginning, but rather "international law."  It's official -- we trade law types have now been subsumed under international law!

2.  Trade law actually had an effect -- she and others wanted to discriminate against foreign products in the U.S. legislation, but they followed trade rules instead.

3.  She alleges that Japan and Korea are discriminating against U.S. cars on a de facto basis.  Is that true?  If so, is there a violation in there somewhere?  I'm not sure I follow how the measures she refers to actually work.

Commerce Finds Subsidies in First CVD Action Against Vietnam

The U.S. Department of Commerce has issued a preliminary determination in the first U.S. countervailing duty (CVD) action lodged against Vietnam.  (74 Fed. Reg. 45811, Sep. 4, 2009) The action relates to imports of polyethylene retail carrier bags (“PCRBs”), the plastic bags used for packaging dry cleaning and other consumer products.  The aggregate subsidy rates ranged from 0.20% (de minimis) to 4.24%.  This proceeding follows at least eight  U.S. CVD actions against Chinadating from 2006.  Both Commerce's rationale in departing from its long-followed policy of not lodging CVD actions against non-market economies (see Georgetown Steel Corp. v. United States, 801 F.2d 1308 (Fed. Cir. 1986)) and its calculation methodologies are similar to those used in the Chinese cases.  For example, in calculating the benefits afforded by interest subsidies Commerce rejected local bank rates because they were allegedly controlled by the Vietnamese Government, and relied instead on the average commercial bank lending rates in the World Bank's "lower middle income countries" (excluding those that are not market oriented).  Also, since local land use costs are also subject to government control (as there is no private ownership of land in Vietnam) Commerce used as a surrogate the commercial rental rates in Pune and Bangalore, India, both cities determined to have comparable size, per-capital GNI and population densities to Ho Chi Minh City. Assuming that the final determination (January 2010) produces similar results, one can reasonably expect additional CVD actions against Vietnam, not withstanding the relatively low volume of U.S. imports covered by this proceeding ($79 million, less than 1% of total Vietnamese exports to the U.S. in 2008).  A pending companion anti-dumping action against PCRBs is the third U.S. AD action against Vietnam (after Frozen Fish Fillets and Shrimp).

China's WTO Complaint on the Tires Tariffs

China's complaint is here.  There's a challenge to the statute itself, as well as its application in the case at hand.

It's difficult to imagine that this one will get settled, so in all likelihood this is just step 1 on the way to a panel.  It will be interesting to see if China elaborates on the claims any more in the panel request.

One thing I found interesting was the way the claim was presented:

China considers that these higher tariffs, not having been justified as emergency action under relevant WTO rules, are inconsistent with Article I:1 of the GATT 1994 because the US does not accord the same treatment it grants to passenger and light truck tires originating in other countries to the like products originating in China.

Nor can the US justify these measures as properly applied exceptions to this fundamental WTO principle.  These measures have not been properly justified pursuant to Article XIX of GATT 1994 and the Agreement on Safeguards. Nor have these measures been properly justified as China-specific restrictions under the Protocol on the Accession of the People's Republic of China (the Protocol of Accession).

So instead of simply claiming a violation of the Protocol, China characterizes its claims as being under GATT Article I, and then says that no "exceptions" have been met.  I should probably double check before I say this, but I don't feel like these kinds of complaints are usually presented this way.  For example, a complaint under the Safeguards Agreement would just allege violations of the Safeguards Agreement, without getting into the relationship with GATT Article I.  I've often wondered why complainants don't take the approach China has taken here.  It remains to be seen, though, whether there is any benefit to this approach (e.g., in terms of burden of proof).

ADDED:  Julia's comment on this post makes me realize I probably didn't get this quite right.  With regard to the normal safeguard provisions, the issue may not be Article I (MFN) so much as Article II (tariff concessions) or Article XI (quotas).  While it is possible that a Member might complain about MFN discrimination in relation to a safeguard measure, at least in theory these are global measures that apply in a non-discriminatory manner.  (With anti-dumping, by contrast, both Article I and Article II could generally serve as the basis for a claim.)

Putting a Positive Spin on the Tires Tariffs

USTR Kirk had the following to say about the tires decisions:

A spat over US tariffs on Chinese tires need not trigger a trade war between Washington and Beijing, US Trade Representative Ron Kirk said Wednesday.

"I don't believe it should or need spark any trade war," Kirk said during a visit to Brazil.

"In the short-term it could mean that we buy a lot more tires from Brazil," he added to a conference of Brazilian businesspeople.

So China's loss is Brazil's gain.

 

ADDED: 

Hmm, after seeing this comment on the post, perhaps I should add that the spin is positive for Brazil.  I'm not sure the union folks who brought the complaint will be as thrilled.  An excerpt from the comment:

The tire tariffs will have absolutely no beneficial impact on the U.S. industry, as the U.S. does not and will not produce the types of low-end tires that China exports to the United States. As Ron Kirk correctly (but imprudently) noted to his Brazilian audience, the United States will simply import more of these tires from other countries.

How Much Does a Section 421 Complaint Cost?

For those wondering about the likelihood of future Section 421 (China specific safeguard) determinations, here's an interesting tidbit about the cost of filing such complaints, from The Hill:

The cost of preparing, filing and arguing the complaint the United Steelworkers union filed against China is relatively inexpensive, according to experts in the field.

Legal fees for most cases will run well under $1 million, according to a K Street source with experience on the filings. The safeguard case could cost as little as $750,000.

New Blog: Adjudicating Europe

Taking a break from our 24/7 China tires safeguard coverage, there's a new EU law blog that just started up called Adjudicating Europe: http://adjudicatingeurope.eu/  Here's how they introduce themselves:

EU Law has come of age. Periodicals, text-books, conferences, professorships, institutes, research groups, associations, all give testimony of the unstoppable drive of what the European Court of Justice, fifty-five years ago, described as a “new legal order”.

In the present world, any area of expertise claiming any kind of pedigree has a lively blogsphere. Blogs, like journals in the seventeenth and eighteenth century, and television broadcasts in the twentieth, have revolutionised the way we discuss, update and expand our knowledge and opinions on matters as varied as economics, politics, cooking, gardening or literature. The legal profession has also benefited from the powerful role of blogs, particularly in the United States, where blogging and its surrounding media have drastically influenced the way in which lawyers work.

EU Law, despite its expansion and maturity, has not yet developed a comparable blogsphere of its own. Languages, the vastness of its scope, or a tendency to work and discuss inside national communities, have probably influenced this lack of blogging culture among EU lawyers.

Adjucating Europe is an initiative led by a group of academics and practitioners specialized in EU Law, with the aim of filling this gap in the current European landscape. Our aim is to stimulate discussion on issues of relevance for EU Law, with a particular attention to judicial developments. Our main focus will obviously rest on the European Court of Justice’s case law. However, EU Law is not only the product of European Institutions, but also of national authorities, and mostly national courts. We intend to follow and ignite interest in the decisions rendered by national courts with relevance for EU Law. When necessary, decisions of international courts or of non-member States will also be commented, but with our eyes always set on EU Law, its developments and challenges.

Comments will always be welcome. In fact, that is precisely the aim of any decent blog, and we encourage our readers to participate in our discussions by adding comments to our posts.

So then… as of today, let the blogging begin!

More China Specific Safeguard Background

Chad Bown writes with some more useful background on the China specific safeguard:

For context on previous usage, you might point your readers to the (now misnamed!) Global Antidumping Database's on-line compiled data on all of the instances in which WTO members have notified use of the China-safeguard:http://www.brandeis.edu/~cbown/global_ad/csg/  In short, 28 initiated China-safeguard investigations to date ... .

Re: the China safeguard -- note that there are not many economics-based papers on this provision either. However, I have two that put some of its elements into context, here they are:

Bown, Chad P., "China’s WTO Entry: Antidumping, Safeguards, and Dispute Settlement," in Robert Feenstra and Shang-Jin Wei (eds.) China’s Growing Role in World Trade. Chicago, IL: University of Chicago Press for NBER, forthcoming, 2009.

http://www.nber.org/books_in_progress/china07/bown12-6-08.pdf
Bown, Chad P. and Meredith A. Crowley, "China's Export Growth and the China Safeguard: Threats to the World Trading System?" Federal Reserve Bank of Chicago Working Paper No. 2004-28, June 2007.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=639261
Abstract:

China's deepening engagement in the global trading system and the threat of its export capacity have affected the negotiation, formation, and rules of international trade agreements. Among other changes, China's 2001 accession to the World Trade Organization (WTO) introduced new allowances for existing members to deviate from core WTO principles of reciprocity and most-favored-nation (MFN) treatment by giving existing members access to a discriminatory, import-restricting China safeguard based on the threat of "trade deflection." This paper asks whether there is historical evidence that imposing discriminatory trade restrictions against China during its pre-accession period led to Chinese exports surging to alternative markets. To examine this question, we use a newly constructed data set of product-level, discriminatory trade policy actions imposed on Chinese exports to two of its largest destination markets over the 1992-2001 period. Perhaps surprisingly, we find no systematic evidence that either U.S. or EU imposition of such import restrictions during this period deflected Chinese exports to alternative destinations. To the contrary, we provide evidence that such import restrictions may have a chilling effect on China's exports of these products to secondary markets - i.e., the conditional mean U.S. antidumping duty on China is associated with a 20 percentage point reduction in the relative growth rate of China's targeted exports. We explore explanations for these puzzling results as well as potential implications for the sustainability of the rules of the world trading system.

Obama's Take on the Tires Tariffs: Enforcing Trade Agreements

From an Obama speech today:

A healthy economy in the 21st century also depends on our ability to buy and sell goods in markets across the globe.  And make no mistake, this administration is committed to pursuing expanded trade and new trade agreements.  It is absolutely essential to our economic future.  And each time that we have met -- at the G20 and the G8 -- we have reaffirmed the need to fight against protectionism.  But no trading system will work if we fail to enforce our trade agreements, those that have already been signed.  So when -- as happened this weekend -- we invoke provisions of existing agreements, we do so not to be provocative or to promote self-defeating protectionism, we do so because enforcing trade agreements is part and parcel of maintaining an open and free trading system.

I said this before, but I think it's worth repeating, because this time it is coming from Obama himself:  I don't think the decision to impose tariffs on Chinese tires, or any trade remedy action for that matter, can be accurately characterized as "enforcing trade agreements."  The WTO Agreement does not require that countries not export "in such increased quantities or under such conditions as to cause or threaten to cause market disruption to the domestic producers of like or directly competitive products" (the language of the transitional safeguard provision).  Rather, it permits importing countries to take action against imports in these circumstances.  To me, "enforcing" an agreement implies that someone else is violating the agreement.  Well, China is not doing anything to violate the WTO Agreement.  Thus, when the U.S. imposes safeguard measures like this one, it is not enforcing a trade agreement.  It may be correct to say that it is "invoking a provision of an existing agreement," as Obama also said.  But "enforcing" it, which he said twice, is just not accurate.

In addition, as I also said before, I'm not sure how this action can be described as anything other than "protectionist" ("self-defeating" or otherwise).

Given all of these statements, it will be interesting to see how the administration reacts to China "enforcing trade agreements" right back at us.

ADDED:  More from Obama, via Reuters:

"If we don't enforce the rules that are contained in our trade agreements, then it's very hard to have credibility," Obama told CNBC television.

...

"Here's a situation where China entered into the WTO. It had rules contained in that accession that said that, in fact, if there is a big surge like this, there is a surge breaker," Obama said.

"We have exercised it. I'm not surprised that China's upset about it. But keep in mind we have a huge economic relationship with China," he added. "But I just want to make sure that if we actually have rules written down, they mean something."

Asked whether he was confident a trade war can be avoided, Obama said, "Absolutely. I think it's in China's interest and our interest and the world's interest to avoid protectionism, particularly just as world trade is starting to bounce back from the huge decline that we have seen in the last year."

If it were me imposing the tariffs, I would have explained this a bit differently.  I would have said something like this:  "Our overall trade policy and the international trade agreements we have signed onto emphasize the importance of reducing protectionism.  However, there are exceptions, and one of these is where a large increase in imports is causing significant economic harm to domestic producers.  That's the situation with Chinese tires, and that's why we took this action."

At times, Obama seems to be saying this, such as when talks about the "surge breaker."  But the "enforcing trade agreements" part gives a different impression, in my view.

The China Specific Safeguard: Some Background

For those of you looking for background on the China specific safeguard, check out the following:

-- The China Accession Protocol, at Section 16, "Transitional Product-Specific Safeguard Mechanism", for the full text.

-- The following articles, which I have not read but look like they would be useful (two of them are available online):

Yong-Shik Lee, "The Specific Safeguard Mechanism in the Protocol on China’s Accession to the WTO: A Serious Step Backward from the Achievement of the Uruguay Round," 5 J. WORLD INTEL. PROP. 219, 227 (2002).

"Product-Specific Safeguard in China's WTO Accession Agreement: An Analysis of Its Terms and Its Initial Application in Section 421 Investigations", Jing Ma

"Transitional Product Specific Safeguard Mechanism: A WTO-Minus measure of the Protocol on the Accession of the People’s Republic of China and its implication on the WTO legal system," Eun Kyeong Lee

The Tires Tariffs: The Impact of Trade Policy on Stock Market Prices

Because of the Chinese tire tariffs, the share price of U.S. producers is up:

Goodyear Tire & Rubber Co. and Cooper Tire & Rubber Co., the largest U.S. tiremakers, rose the most since at least July in New York trading after President Barack Obama placed tariffs on tires from China.

While the share price of producers in China is down:

Hankook Tire Co., the largest overseas tiremaker in China, fell the most in almost eight months in Seoul trading after the U.S. slapped a 35 percent tariff on Chinese-made tires.

These results are not surprising, but nevertheless provide a good illustration of how trade policy can affect the real world (well, the stock market, anyway).

ADDED:

As for the real, real world, Reuters reports:

A developing U.S.-China trade dispute will drive tire prices higher for American consumers ...

The Tires Tariffs: China's Response

Since the Obama administration decided to impose safeguard tariffs on Chinese tires, China has announced two things:

1. WTO consultations:

China has requested WTO-sanctioned consultations with the United States over Washington's new duties on Chinese-made tires, a spokesman for China's Commerce Ministry said.

2. AD/CVD actions:

China announced dumping and subsidy probes of chicken and auto products from the U.S., two days after President Barack Obama imposed tariffs on tires from the Asian nation.

On the first one, I don't know what the chances of China succeeding on the merits are, but nevertheless I think that it makes sense for China to send a message thay any country who takes these actions is going to have spend resources defending them at the WTO.

As to the second, well, the connection between this and the Tires decision is a bit unclear, although the timing certainly seems to link them.  If there is a link, it looks like we are moving towards an old style "trade war," which is not good.   Could DSU Article 23.1 be of any help here:

When Members seek the redress of a violation of obligations or other nullification or
impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by, the rules and procedures of this Understanding.

Perhaps.  On the other hand, China could argue that, even if the AD/CVD actions were in reaction to the Tires decision, it was not concerned with a WTO violation/nullification or impairment of benefits, but rather the economic impact of the decision.

 

The Implications of the China Tires Decision

As everyone has probably heard by now (although you may not have heard, as the decision was announced late on Friday night) the Obama administration has decided to impose tariffs on Chinese tire imports pursuant to the China-specific safeguard mechanism.  The rates are 35 percent ad valorem in the first year, 30 percent in the second year, and 25 percent in the third year

The reactions are not too surprising.  Free trader Dan Ikenson of the Cato Institute is not happy:

American credibility on trade is spent. And maybe Obama will find comfort in that fact because he won’t be burdened with that historic responsibility, as he signs off on the slew of new requests for trade restrictions (which are undoubtedly coming soon) under this law from other U.S. industries seeking handouts.

By contrast, the AFL-CIO is pleased:

President Obama took decisive action yesterday to provide relief to the domestic consumer tire industry in response to surging exports of tires from China. His actions will bring relief to many workers and their families and reverse course after eight years of neglect of trade laws by the Bush administration.

I'm just going to make two quick, general comments on all of this.  First, regardless of where you stand on the issue of free trade versus protectionism, I don't see how this action can be characterized as anything other than protectionism.  These are tariffs imposed on foreign products without any finding of wrongdoing by the foreign companies or governments.  That's protectionism.  So, I didn't find these comments by U.S. government officials defending the tariffs to be very convincing:

"The president is very committed to open and free trade," the official added. "Part of that is being committed to enforcing trade laws and trade agreements."

...

"We don't view enforcing trade laws as protectionism," the White House official said.

With regard to the part about trade agreements, I don't think these actions can be accurately described as enforcing trade agreements.  In my view, enforcing a trade agreement would mean bringing a complaint under the trade agreement dispute procedures, alleging that someone is violating the agreement.  That's not what is happening here.   There is no allegation that China is violating a trade agreement.  Rather, the situation is that the trade agreement permits governments to take action to limit imports in certain circumstances, pursuant to domestic procedures.  So, yes, the action is an effort to "enforce [domestic] trade laws."  However, that does not mean the action is not protectionist.  When the domestic trade law creates a mechanism to impose protective tariffs in these circumstances, actions under that law are protectionist.

But that may be a bit nit-picky.  The bigger question is, what are the implications of this decision for U.S. trade policy?  On this one, I'm inclined to agree with Charlene Barshefsky:

Charlene Barshefsky, who served as United States Trade Representative under President Clinton, said she did not think the decision signals any broad reversal in trade policy. “The administration has made it clear that it recognizes that open markets are one of the keys to the economic recovery,” Ms. Barshefsky said.

Yes, this particular action is protectionist, and as Dan Ikenson notes above, there may be similar actions coming (and perhaps the administration could have made clear they would look critically at future requests).  But these actions are fairly minor in the grand scheme of trade policy.  The overall Obama trade policy will be motivated by free trade, even though we will see more individual protectionist actions than under the previous administration.

 

What is Free Trade?

Paul Krugman says:

Free trade is supposed to be about a principle: nondiscrimination between domestic and foreign goods.

If only it were so simple. Certainly everyone would agree that non-discrimination betweeen domestic and foreign goods (and services) is a crucial part of free trade.  But there are a number of other conceptions of free trade floating around out there (many of which overlap), including:

-- free movement of goods, services, labor and capital

-- domestic laws and regulations should not burden trade too much

-- freedom from arbitrary and unreasonable domestic laws and regulations

-- international harmonization of laws and regulations to eliminate trade barriers

-- international regulation of policy areas that affect trade

All of these conceptions appear in free trade agreements to some degree (which, in my view, is a big reason that these agreements are more controversial today than they were in the past).

As for the specific subject of Krugman's post, which was French President Sarkozy's call for a carbon tax on imports, I think this proposal could be re-framed and re-structured as a non-discriminatory tax on all high carbon products, making it both more effective and less controversial to free traders.  As the current import tax proposal stands, it seems very possible that it could violate even Krugman's narrow conception of free trade.