International Economic Law and Policy Blog

Live Blog: Divided by a Common Language - Kirk and Ashton Statements

The marathon of Minister's statements in the Ministerial Plenary is on (you can watch them live on the WTO website, recommencing Tuesday morning). The statements are of course very short - three minutes each. Although some statements sound like shopping lists, and others like anthologies of WTO cliches, the short time allowed means that some of the statements have very little fluff and that the speaker actually says what he or she means, or what he has to say. Take Ron Kirk's statement from about an hour ago (the US was one of the first to speak as a host of a former Ministerial). Kirk's statement was essentially a blunt one about opening markets and deflecting responsibility for Doha stagnation from the US. The US is committed to success, but success is not something that any single state, large or small, can deliver. All states that are part of the leadership of the WTO's membership have a responsibility; to avoid any misunderstanding of what this means he then quoted IMF figures according to which - and in the next decade 58% of world growth will be in Brazil, China, India, Argentina and a few other states  - and these markets have to be opened (by the way, Tim Groser of New Zealand in his statement just made a very similar comment, but he came across much more constructively; for Kirk, this seemed to be the main point of the statement). The speech ended on the note that (and I quote from memory) 'the US is ready to move into the "endgame" but we have signalled our interests in significant market access opening' and expect to receive corresponding responses from members. I don't think he even mentioned development, or climate change. Issues of reform he seemed to set aside, saying that "we should not confuse process with substance".  

Compare to Catherine Ashton, on her last day in office at DG Trade, and as she put it - in her last three minutes of speech. She said that 'low-intensity protectionism has been contained, and very quickly she turned to discuss the need to address the needs of poor developing countries, and that we are moving too slowly to reach the goal of completing the round in 2010, with an 'ambitious, balanced and comprehensive' development package as its goal. She then moved on to discuss climate change issues, especially the encouragement of development and trade in environmental goods and services. I don't think she mentioned market access. And she even found time to thank Pascal Lamy for his efforts.

It's easy to be critical of both of these statements - could Kirk have said much else, given the evident lack of a mandate to make any progress on key issues? By focusing on development and climate change was Ashton not evading responsibility for some EU positions that have nothing to do with either and everything to do with protection and market access? In any case, it's interesting to see how these very different statements reflect very different styles of rhetoric and cultures of discourse. The Americans and the English are indeed divided by a common language.     

       

Live Blog: Reform, Regulation and the Stationary Bicycle Theory

On questions of reforming the WTO and its role in regulation, DG Lamy was very much in the minority opinion at this morning's ICTSD Panel on "Strengthening the Multilateral Trading System". In 2003, you will recall, Lamy (as EU Trade Commissioner) said that the WTO is a 'medieval organization' in need of urgent reform. Today he takes the different view, that the WTO does not need reform, but merely "incremental adaptation". Thomas Cottier agreed with the terminology, but not quite with the substance, saying he is unsure that the 1947 "operating system" can cope with today's complex negotiations; he disagreed outright with Lamy's earlier proposition that "the business of the WTO is trade liberalization, not regulation", pointing out that many trade issues overlap with regulation and must be addressed through negotiations and oversight. Cottier advocates a 'two-tier approach' in the WTO, distinguishing between trade rounds devoted to 'horse-trading', and an ongoing process on regulation, that needs to be separated from the rounds, and strengthened institutionally, for example through the establishment of a Ministerial Executive Council with permanent and rotating members, who would meet more regularly at Ministerial level, getting ministers more involved in the WTO. Sergio Marchi, former Candian ambassador to the WTO and trade minister added to this last point that a central problem is that ministers get involved only in the negotiations relating to particular concessions, not in the big picture, although the ministers have greater legitimacy in making systemic changes. Marchi was perhaps the most forceful speaker on the need for reform, without waiting to complete the Doha Round; "ideas for reform have gone nowhere but our bookshelves" because there is no legitimate process for making changes to the WTO. Ideas of reform, he said are "trade refugees". He, like others, would like to see the Indian led proposal on strengthening the WTO (WT/GC/W/605), that is "accepted by seven-eighths or more" of the membership, adopted this week or soon. The proposal makes a number of points on relatively small ("incremental"?) changes to the WT, the most important of which relate to strengthening of committee chairs and also the work of the Committee on RTAs. 

Not likely to happen, but who knows? Lamy, who left before the other panelists spoke, described the Ministerial as a test to gauge the political determination to conclude the Doha Round in 2010. The elephant in the room (who is more often not in the room, or at least in another room) is the US. As Marchi said, a lot depends on a particular country, that needs to get its mandate, or else Ministers will be on a "stationary bicycle - a lot of sweating, but very little moving".   

  

Live, from Geneva

A few weeks ago, I conspired with Simon to apply for media accreditation to the WTO's 7th Ministerial Conference taking place in Geneva this week. We thought we would have a blog story in any case: if we were rejected, we could address the WTO's transparency; if we were accepted, we could provide some live blogging from Geneva. The WTO obliged - worldtradelaw.net is now an accredited web publication! -  and so I am on my way to Geneva, with the intention of providing blog readers with some impressions from both the Ministerial and the other action taking place in town in parallel, mainly ICTSD's Trade and Development Symposium. The MC has had a rocking start, even though there is little chance that any agreements will be reached, given that the expectations have been lowered to a minimum. Nevertheless, if connectivity allows, I hope to provide you with a glimpse of what is going on (and please take into account that the forecast is for heavy rain and snow!).

T.  

Offshoring As A Way To Promote Development

Over at Eyes on Trade, Todd Tucker cites this WSJ article and expresses concerns about offshoring of Japanese animation jobs to China, Korea and Viet Nam. I’m going to use his post as a jumping off point for the following questions about offshoring: Isn’t offshoring good for economic growth in developing countries, and, therefore, shouldn’t we value offshoring as a way to promote economic development?

At the outset, let me note that, as with trade more generally, offshoring has its winners and losers. The most prominent losers are people in rich countries (such as Japan) who lose their jobs when these jobs are outsourced to countries where wages are lower. The winners may include several groups: the people in developing countries who now have jobs (or higher paying, higher skill-level jobs than they had previously); the corporations who now pay lower wages; and consumers of the products and services in question, who will likely pay lower prices.

It’s certainly reasonable to be troubled by the job losses in Japan. Any government should be concerned about this, and the people affected are not going to be happy about it. But is trying to stop offshoring an appropriate response? I think there are good arguments that it is not.

First, any measures taken in this regard will prevent developing countries from moving up the economic ladder, or at least slow their progress. Rich countries talk a lot these days about helping developing countries grow their economies (e.g., tariff preference programs, various aid programs). It would be a shame to see a promising private sector initiative that achieves this same goal be undermined by government action. All that is required by governments here is to do nothing and it will be a positive for economic development.

And second, in the absence of offshoring, developing country governments are more likely to take action to encourage their own, competing industries. If they succeed, the result would be competition for rich country companies from those same, lower-wage workers, which means that the ultimate result would be similar, just delayed a few years. (And if the response to that competition is protectionism in the rich countries, then we just end up with a large number of protected, national markets, which doesn’t seem like a very efficient outcome.)

So, yes, be concerned about job losses from offshoring, and try to help those who are affected through various government programs. But offshoring is not necessarily something we should try to stop, even if we could, as there are many people who benefit from offshoring, including a large number of people in developing countries. It may be one of the best development programs available.

The Economist on the Trade / Cap and Trade Conflict

The Economist has a good article discussing the likely trade conflicts arising from cap and trade measures.  They talk about the problem of countries reducing emissions by varying amounts, and the possibility of companies relocating production to "carbon havens."  According to the article, studies suggest that the scope of the problem is not as great as some fear, but nonetheless many countries have proposed border tax adjustments to address the perceived harms.  The article notes that the application of such measures is quite difficult in practice.

All good points, but I was disappointed to see no mention of the carbon consumption tax alternative, which can reduce or eliminate a lot of the trade conflict.

Using RTAs to Reduce Trade Remedies

Tania Voon has posted a working paper entitled “Eliminating Trade Remedies from the WTO: Lessons from Regional Trade Agreements” on SSRN. Some key excerpts:

[This paper] explores RTAs as positive models to reduce or eliminate the use of trade remedies among WTO Members, providing a concrete case study of the potential for ‘multilateralizing regionalism’.

Reducing reliance on trade remedies would diminish market distortions and enable fairer competition among producers across the world, bringing the WTO closer to its theoretical foundations (encouraging Members to specialise in areas in which they have a comparative advantage) and hence closer to its broader welfare objectives.

…

It is true that a wide range of developed and developing countries (well beyond the group of traditional users) are now heavily reliant on trade remedies, rendering impossible wholesale reform in the near future. However, this should not prevent thoughtful, steady progress towards the longer-term goal of reducing the use of trade remedies among WTO Members, in order to begin to bridge the gap between economic rationality and political reality regarding trade remedies in the WTO. It may well be too soon to propose the wholesale elimination of anti-dumping measures or any other form of trade remedy in the WTO, but I do not believe it is too late.

…

The paper concludes that a small number of RTAs do provide realistic models for ultimately reducing or eliminating trade remedies across the WTO Membership. Eventually, WTO Members could instead respond to predatory dumping with competition laws, to illegal subsidies with WTO dispute settlement, and to import surges with safeguards pursuant to a reformed safeguard regime. In the shorter term, WTO provisions do not prevent RTA partners from eliminating trade remedies amongst themselves.

The RTAs she refers to in the last paragraph are those which "substantively modify the WTO rules on trade remedies by restricting or eliminating their use in particular circumstances.” She finds 32 of these.

More Chinese and fewer Indians in the Secretariat?

It has been reported that India and China jointly sponsored a proposal in the WTO advocating more representation of staff members from developing countries in the WTO Secretariat. While it is understandable that China would want more of its citizens on the Secretariat, it is puzzling that India would support the move.

According to the WTO, out of the total of 629 members of the Secretariat, only 5 are from China, while 12 are from India. In other words, it's less than 1% for China, while about 2% for India. In 2009, China contributed to 5.898% of the WTO's budget, while India's share is only 1.243%. This seems to indicated that India is already over-represented while China is under-represented. If we look at the world trade shares, again the picture is largely the same.

Thus, if India were really serious about its support for China, the first thing it should have done would be asking half of its citizen's on the Secretariat's payroll to resign and give the seats to those from China. 

The only logical explanation seems to be that the claim is based on neither the real trade share or the contribution to the budget. Instead, there are three possibilities:

1. population: but this is rather unlikely. Otherwise, one third of the Secretariat staff members should be either Indian or Chinese;

2. real-world trade share multiplied by different co-efficients for developed and developing countries: but whatever co-efficient we are using, I think it is reasonable to assume that China and India will have the same co-efficient. Thus the net result would still be a very large share for China (assuming, for the purpose of argument, that we multiply developing countries' trade share by 2, this would mean China getting 12% of the seats in the Secretariat, or about 75 people, which would mean that there are at least 3 Chinese in each of the functional divisions excluding the Language Services & Documentation Division - as Chinese is yet an official language in the WTO, it is unlikely that they will work in this devision)

3. Some non-trade-related criterion: However, given that the WTO is a trade body, what is the legitimacy of using non-trade criterion to determine the composition of the Secretariat?

Having excluded all three possibilities, I'm lost. Can anyone enlighten me on this issue?

GATT Article XV:4 and Intent

GATT Article XV:4 states in part:

[WTO Members] shall not, by exchange action, frustrate* the intent of the provisions of this Agreement ...

Thus, Article XV:4 refers to the "intent of the provisions of this Agreement."  One provision of "this Agrement" (that is, the GATT) is Article II, which is titled "Schedules of Concessions" and requires Members to abide by their scheduled tariff concessions.  Here's a question I have:  What is the intent of Article II and how does that impact on the Article XV:4 obligation?

A narrow view of the purpose of Article II might be that it obligates Members not to impose duties/charges in excess of the scheduled duties/charges (i.e., the amounts they have promised).  That is, its purpose is simply to enforce the concessions.

But it may also be possible to justify a broader characterization and suggest that the underlying purpose of enforcing the concessions is to provide greater "market access" for imports.  That is, the true goals of scheduling the concessions are to (1) reduce duties/charges and (2) provide certainty by establishing an upper limit on them.  This helps open the domestic market to imports.

So breaking down my original question, the first part is, which of these two purposes (keeping tariffs at or below the bound rates vs. greater market access) is a better description of the objectives of Article II?  Then, if the purpose is market access, the second part is, can an exchange rate peg which keeps a currency undervalued be said to frustrate the intent of Article II by keeping prices of imports artificially high, and thus undermining the market access achieved by the tariff concessions?

Any thoughts?

More China Currency Scholarship

From Christoph Herrmann, in the European Yearbook of International Economic Law 2010, an article entitled "Don Yuan: China’s “Selfish” Exchange Rate Policy and International Economic Law." 

From the intro:  "This paper will deal with the question whether the exchange rate regime operated by the People’s Republic of China is contrary to the rules of International Economic Law, or whether it is merely a—maybe selfish but absolutely lawful—way for the Chinese government to pursue an economic policy it deems appropriate for its country for the time being. The questions dealt with in this contribution are,
however, not limited to the case of China. Other countries have been accused of exchange rate manipulation as well. In the immediate past, the recent economic downturn caused increased concerns about competitive currency devaluations taking place."  And from the conclusion:  "even the intentional devaluation or suppression of the exchange rate does not necessarily—as I have tried to point out—infringe the WTO agreements."

There are lots of other good pieces in the publication as well.  See the TOC here.

Pascal Lamy on Buy National

I'm often surprised by how much support there is for "Buy National" provisions (see, e.g., the proposal of many U.S. Democratic house members here).  WTO DG Pascal Lamy, in his 2009 annual report on trade and trade-related developments, discusses the issue in the context of the recent stimulus measures, and then presents a brief critique of such policies:

70. Annexes 2 and 3 provide factual information on the general economic stimulus measures and the specific measures for financial institutions.  Most of these measures were undertaken at the beginning of the review period.  Monitoring the impact on trade of fiscal stimulus programmes and industrial and financial support programmes presents a particular challenge because of the paucity of data available, in particular on the specifics of how these programmes are being implemented.  Concerns have been raised by some governments and businesses about "buy/invest/lend/hire local" requirements that have been attached officially or unofficially to some of these programmes.  Because of their evident nationalistic appeal in current circumstances, there is a particular danger that these programmes could become targets for retaliation and proliferate.  Several new cases of "buy local" campaigns, usually at local government levels, have been reported in the press throughout the year.

...

139. The importance of the GPA was seen clearly in the framing of the American Recovery and Reinvestment Act of 2009 (i.e. the U.S. "stimulus legislation").  The U.S. legislation (Pub. Law 111-5, enacted by Congress and signed into law in February of 2009) introduced two new "Buy American" requirements, one relating to the procurement of iron, steel, and manufactured goods for construction and related projects concerning public buildings and works (section 1605 of the legislation), and the other involving the procurement of specified items of clothing or equipment for the Department of Homeland Security (section 604).  In both cases, the stimulus legislation addresses the potential conflict with the WTO Agreement on Government Procurement (GPA) and other U.S. international trade commitments by including a further provision stipulating that:  "This section shall be applied in a manner consistent with United States obligations under international agreements" (section 604(k) and section 1605(d) of the legislation).  Subsequently, a notification by the United States to the WTO Committee on Government Procurement (GPA/98 of 24 April 2009) provided details of interim implementing measures relating to the two requirements.  These measures have been an important topic of discussion in the Committee during the year.

140. "Buy National" requirements raise concerns for trade and the international trading system in three main ways.  First, they can exclude foreign suppliers from markets in which they could otherwise hope to compete, either by reserving the market completely for domestic suppliers or by introducing administrative complexities that make procurement procedures less easily accessible for foreign suppliers.  Second, paradoxically, in some cases they may even raise the costs or impede the operations of domestic companies in the countries implementing the relevant measures, if such companies experience difficulties in sourcing domestically and cannot easily obtain waivers for purchases abroad.  Third, as in other economic sectors, the implementation of discriminatory government procurement measures in one country may engender pressures for the adoption of similar measures by other countries.  In this context, following the adoption of the U.S. stimulus legislation, China reinforced its own "Buy Chinese" regulations and there were press reports of pressures building for the adoption of "Buy Canadian" procurement measures particularly at the sub-central government level.

In a nutshell, such programs make procurement more expensive for the purchasing government, and lead to domestic companies losing business as other countries copy the discrimination.

The China Currency "Nuclear Option"

From Dean Baker (via Todd Tucker):

... the US doesn't have to "pressure" China to boost the yuan. Contrary to what you may have read in the paper, Washington is not helpless in this story.

Just as China can set a value of its currency against the dollar, the US government can set a value of the dollar against the yuan. The Chinese government currently supports an exchange rate at which the dollar can buy 6.8 yuan. This high value of the dollar makes US goods uncompetitive relative to China's. To make US goods more competitive, the US could adopt a policy through which it will sell dollars at a much lower price, say 4.5 yuan.

The difference in exchange rates would provide an enormous incentive for Chinese businesses and individuals to exchange their yuan at the Treasury rate rather than the official Chinese rate. While this may violate Chinese law, the enormous potential profits would make the law difficult to enforce. In a relatively short period of time, the US exchange rate is likely to become the effective market exchange rate.

Is there any precedent for this kind of battle of exchange rate pegs?  It sounds like it could be worse than trade litigation.  As Baker himself notes "this situation of warring exchange rates would lead to a period of instability and unnecessary hostility between the two countries."

"New Directions" in U.S. Trade Policy

Some Democrats (127 in the House) are urging a "new direction" for U.S. trade policy.  For instance:

H.R. 3012, TRADE Act
...

The bill spells out what should be in trade agreements including standards on: labor, environment, food and product safety, agriculture, human rights, currency anti-manipulation rules, national security, procurement, investment 

The bill also lists issues that should NOT be in trade agreements including: bans on Buy America, bans on anti-sweatshop rules, new rights for foreign investors to promote off-shoring, service sector privatization and deregulation requirements, special protections for pharmaceutical companies that limit affordable access to drugs. 

...

H.R. 3786, Reciprocal Market Access Act
...

Authority to receive or eliminate tariffs in trade agreements is tied to achieving meaningful market access for U.S. domestic producers that have identified and worked with the U.S. government to address those barriers. 

To better ensure meaningful market access, the bill requires that the President provide a certification to the Congress in advance of agreeing to a modification of any existing duty on any product, that sectoral reciprocal market access has been obtained. 

I wish I had a better sense of how they envisioned the trade regime.  Let's say they controlled Congress and the White House, and could convince the rest of the world to go along.  What would things look like?  I'm pretty sure of the following:

-- international labor and environment rules would be strengthened (broader and more enforceable)

-- international IP rules would be weakened (e.g., more leeway for compulsory licensing)

-- Buy (Your Country Here) rules would be allowed and widely used

-- subsidies and protection for agriculture would be higher

-- services liberalization would mostly stop

-- investment agreements would be weakened (e.g., perhaps no more investor-state)

But there's one very important point that I can't figure out.  What is their ideal view of tariffs?  They seem to want to condition lowering U.S. tariffs on other countries lowering their tariffs.  My question is, would they prefer that other countries don't lower tariffs, and thus all tariffs remain high?  Or are they hoping everyone else lowers their tariffs, after which the U.S. will do so as well?

 

Jagdish Bhagwati, Trade Agreement Skeptic?

Via Todd Tucker at Eyes on Trade, I came across a Reason magazine interview with Jagdish Bhagwati.  The whole piece is interesting, but I'm going to focus on this one part:

reason: Was NAFTA a mistake?

Bhagwati: I think in retrospect, yes. It’s not a slam dunk argument because it did bring in Mexico. Otherwise, they were talking about CAFTA which included just Canada and the U.S. But when you brought in Mexico, it made it a much bigger thing.

President Clinton was carrying on the multilateral negotiations in tandem with NAFTA. But NAFTA created worries on the part of the unions here, because this is a poor country and they were worried that Mexican competition would really hurt their wages. So even though the multilateral talks would’ve gone through without any difficulty, President Clinton ended up having to fight very hard for NAFTA, which survived by a very narrow majority. In order to win NAFTA, he had to give in on things like labor standards and so on. That’s when all these social things became part of trade deals. From there, it never looked back.

So in retrospect, I would say, because of the concessions they had to make, Clinton started us down a road which really has been counterproductive.

There is another thing to worry about. When you look at a trade agreement like NAFTA, it’s about that thick (holds his hands about two feet apart). When I debate people like Lori Wallach of Public Citizen, she arrives with a lot of books, and among them is this NAFTA treaty she carries for effect. I hope she gets a hernia from doing this often enough, because it looks pretty heavy to me. I wouldn’t be carrying it around. Anyway, she shows this book and asks, “Is this free trade?” And mad as she is, she’s right to raise that issue. You should be able to say maybe in 10 pages that in these sectors we are going to liberalize and so on. But nine-tenths of what’s in these agreements are things which have nothing to do with trade. Labor standards, environmental standards, intellectual property rights. If I were Jane Fonda, in order to sell more workout tapes, I could put into the agreement a clause that the president of Mexico has to do his exercise to my tapes. And it would go in, because ours is a lobbying culture and nobody really would know that it’s there. Because who opens these things except the lobbyists?

So many developing countries are now waking up to the fact that they’re being sold a bill of goods in the form of trade agreements.

Today's DSB Meeting

A quick run-down, with links:

-- Panel requested by Canada and Mexico on U.S. country of origin labeling (DS384 and 386): established.

-- Panel requested by the U.S. on EC restrictions on poultry imports (DS389): established.

-- Panel requested by the EC, Mexico and the U.S. on Chinese export restrictions (DS394, 395 and 398): blocked.

-- Request for retaliation by Brazil in relation to the U.S. - Cotton dispute (DS267): authorized.

Eligibility Criteria for U.S. Trade Preference Programs

From a statement by USTR General Counsel Tim Reif to the House Committee on Ways and Means
Subcommittee on Trade, related to the eligibility criteria for U.S. trade preference programs:

First, the criteria were intended to and have achieved four core goals: (1) strengthened the rule of law in beneficiary countries; (2) provided incentives for sensible policies and policy reforms; (3) promoted development; and (4) improved the operating environment for U.S. exporters in the beneficiary countries. There are numerous examples:

• In response to a GSP review, Swaziland ratified a new constitution and amended its Industrial Relations Act to strengthen labor rights.

• In response to GSP and AGOA reviews, Uganda enacted comprehensive labor reform, established a new industrial court to address labor issues, and has undertaken to assign labor inspectors in every district in the country.

• To have GSP reinstated in 2006, Liberia repealed a decree that prohibited strikes and invited the International Labor Organization (ILO) to assist in bringing its laws and practices into conformity with international standards.

• The April 2009 Special 301 report announced among other things that USTR would review the IPR practices of beneficiaries, including The Bahamas, as part of its biennial review of the operation of the Caribbean Basin Economic Recovery Act. Following a meeting with U.S. officials and industry representatives in August 2009, the government of The Bahamas announced that it would implement changes to its Copyright Act to restore copyright protection for U.S. pay television content. Those changes went into effect last month.

• Similarly, increased protection and enforcement of intellectual property rights have occurred in Ukraine and India. Following the suspension of its GSP benefits, in July 2005, Ukraine passed legislation that strengthened its licensing regime and enforcement efforts to stem the illegal production and trade of CDs and DVDs, and its GSP benefits were restored. Also in 2005, India's GSP benefits were restored after it adopted legislation that strengthened its patent protection of pharmaceutical and agricultural chemical products.

Here's my question:  In using these criteria, is there an intent to discriminate among countries?  (Putting aside the question of whether intent should matter under the relevant WTO non-discrimination standards, which is a separate issue).

 

On the one hand, it could be argued that the purpose of the criteria is to have every country satisfy the criteria, and thus meet the policy goals that have been set out.  Thus, the hope is that no one will be discriminated against.

 

On the other hand, it may not be realistic to expect everyone to comply.  Thus, there is likely to be a disparate impact, and this outcome is known with a reasonable degree of certainty.

 

 

Concurrent AD/CVD Investigations by DOC in the NME Context

Yes, I know, that's a lot of acronyms in the post title!

Those who read my previous post on this topic may have noticed that I buried the NME issues towards the end.  You may have suspected that was because I wasn't quite sure what to say about them.  If so, you were right.  I still don't have the issues quite sorted out yet, but I thought I would point readers to the recent U.S. statement to the panel in the DS379 case, where the issue was discussed as follows:

2. NME Methodology is Not Designed to Offset Subsidization

75. China’s position rests on the extraordinary proposition that an NME anti-dumping methodology, by its very nature, offsets subsidization.59 This proposition is without merit. It reflects an understanding of the NME methodology that has no basis in, and is contradicted by, the text of the covered agreements.

a. The Covered Agreements Provide No Support for China’s Proposition

76. First, as the United States has observed,60 the covered agreements establish the antidumping and countervailing duty regimes as two different mechanisms to address two separate and distinct unfair trade practices. China has not cited any provision of the GATT 1994, Anti-Dumping Agreement or SCM Agreement that would support its proposition. Indeed, if the NME methodology does in fact counteract subsidization, leading directly to a so-called double remedy, one might have expected China to negotiate in its Protocol conditions on a Member’s recourse to that methodology or, even better, an express prohibition on the concurrent application of AD and CVD measures, as it seeks to have the Panel insert now. China did neither.

77. Furthermore, accepting the view that the NME methodology is designed to offset subsidization would lead to incongruous results under the covered agreements. The United States recalls that footnote 36 to the SCM Agreement states that a countervailing duty “shall be understood to mean a special duty levied for the purpose of offsetting any subsidy bestowed directly or indirectly upon the manufacture, production or export of any merchandise, as provided for in paragraph 3 of Article VI of GATT 1994.” If China’s theory was applied, that is, if the NME methodology offset subsidization, then any anti-dumping duty calculated pursuant to the NME methodology would fall squarely within this definition of “countervailing duty.” Because such an anti-dumping duty would also be a countervailing duty, that anti-dumping duty, as required by Article 10 of the SCM Agreement, could “only be imposed pursuant to [an] investigation[] initiated and conducted in accordance with [the SCM Agreement].”61 Therefore, an investigating authority could not impose an anti-dumping duty calculated pursuant to the NME methodology without first also conducting a CVD investigation. In the absence of such an investigation, an anti-dumping duty calculated pursuant to the NME methodology, under China’s theory, would appear to be inconsistent with Article 10 of the SCM Agreement. Under China’s theory, this would be the case whether or not a concurrent CVD case were ongoing. And of course, under China’s argument, even after conducting the two investigations, that investigating authority could not also impose the duty resulting from the separate CVD investigation, but instead, would be permitted to impose only one of the duties calculated.

b. U.S. Law on the NME Methodology Provides No Support for China’s Proposition

78. Just as China’s view that the NME methodology counteracts subsidization cannot be
reconciled with the text of the covered agreements, so too can it find no support in the text of the U.S. law governing the NME methodology. As explained in the U.S. rebuttal submission,62 U.S. law identifies an exporting country as an “NME” based on an examination of multiple statutory factors, none of which references subsidization. Put simply, the existence, nature, or extensiveness of subsidization in the exporting country has no bearing on the designation of that country as an “NME.” There is no basis to contend that subsidization is one of the “‘distortions’ in the market that the NME construct was designed to address”63 when it is not even a factor examined when considering whether a country constitutes an NME.

79. The exclusive focus of the NME methodology on making a price comparison for the purpose of calculating the dumping margin is also reflected in U.S. legislative history, which notes that normal antidumping methodologies were “insufficient to counteract dumping in State controlled economy countries where the supply and demand forces do not operate to produce prices … which can be relied upon for comparison purposes.”64 In its First Written Submission, China relies on one mention of subsidization in the NME context in the U.S. legislative history as support for its view that the NME methodology offsets subsidization.65 However, this reliance is misplaced.

80. The United States has explained in its rebuttal submission that Commerce tends to avoid
factor values in the limited circumstances where those values are based on import prices of inputs and the inputs are from countries that have been found in prior CVD investigations to be providing non-product-specific export subsidies.66 This naturally leaves a whole swathe of
potential subsidies unaccounted for in Commerce’s application of the NME methodology. In
respect of this broad range of potential subsidies, Commerce undertakes virtually no inquiry.
Moreover, even where Commerce excludes factor values based on subsidized inputs, the factor values that are ultimately selected may well reflect subsidization themselves because Commerce does not and cannot ensure otherwise. Therefore, the prices used by Commerce when constructing normal value under the NME methodology cannot be concluded to be “unaffected by subsidies,” as presumed by China’s theory.67

81. This is not surprising, though, when one recognizes that the proper objective of the NME
methodology is not to offset subsidization, but is to measure the margin of dumping in a context where normal value cannot be reliably measured using the exporting country’s own costs and prices.68 China’s attempt to argue otherwise finds no basis in the covered agreements or in U.S. implementation of the NME methodology.

Old Hawaiian Case Applying GATT (Articles III and XX) Law

I've often seen references to the 1957 Hawaiian court case Territory v. Ho, in which a Hawaiian law requiring those selling foreign eggs to display a "WE SELL FOREIGN EGGS" sign was struck down as a violation of the GATT (via Article VI, clause 2 of the Constitution).  Now, thanks to Google, it is available online.  We are not likely to see similar reasoning by a domestic court today, but it is an interesting read nonetheless:

In this case, information was filed against defendant for offering or exposing for sale imported chicken shell eggs of Australian origin without complying with section 1308.02 of the Revised Laws of Hawaii 1945. The section is a new section added to chapter 20 of the Revised Laws, relating to sale of eggs, by section 5 of Act 167 of the Session Laws of 1955. It provides that it is unlawful for any person to sell, offer or expose for sale any imported chicken shell eggs of foreign origin unless a placard bearing the words "WE SELL FOREIGN EGGS" printed in legible boldface letters of a size not less than three inches 566in height is displayed in a conspicuous place where the customers entering can see it.

Act 167 also amended, by section 1 thereof, section 1307 of the Revised Laws, relating to grading standards and regulations. It authorized the board of commissioners of agriculture and forestry to make rules and regulations with respect to sale and transportation for sale of eggs for human consumption; grades or standards of quality and condition; size and weight classes; inspection and classification; assessment and collection of fees for requested certification; labeling of containers of imported and locally produced eggs; character of newspaper advertisements, posters or signs as to size, grade and geographic origin of eggs offered or exposed for sale; seller's invoice for sale of eggs; records of imported shell eggs of foreign origin; and enforcement of the provisions of the subtitle of chapter 20 relating to eggs and the rules and regulations promulgated under the authority of such subtitle.

To the information, defendant filed a demurrer and set forth ten grounds in support thereof. The court below sustained the demurrer on three grounds, namely (a) that Act 167, and in particular section 5 thereof, is in contravention of the fifth and fourteenth amendments to the Constitution of the United States in that it deprives defendant of his property without due process of law by preventing the sale of his property without compliance with its provisions, which provisions are in excess of the lawful exercise of the police power of the Territory; (b) that the Act is void in that section 1 thereof authorizes the board to make rules and regulations without defining any standards therefor; and (c) that the Act is in contravention of clause 2 of Article VI of the Constitution of the United States in that its provisions are in conflict with the express provisions of the General Agreement on Tariffs 567and Trade to which the United States and Australia are signatories.

Defendant is charged with violation of section 5 of Act 167, not with violation of any rule or regulation promulgated under section 1. Consequently, we deem it unnecessary to discuss the legality of section 1. We are of the opinion that the demurrer was properly sustained on the ground that section 5 contravenes the General Agreement on Tariffs and Trade.

The General Agreement on Tariffs and Trade is a multilateral agreement originally entered into on October 30, 1947, by twenty-three nations, including the United States and Australia. (61 Stat. Part 5) It was modified by the Geneva Protocol of September 14, 1948. (62 Stat. 3679) It was executed on behalf of the United States by a plenipotentiary of the President. It is not a treaty made by the President by and with the advice and consent of the Senate under Article II, section 2, of the Constitution of the United States. It is an executive agreement made in the exercise of the authority granted to the President "To enter into foreign trade agreements with foreign governments or instrumentalities thereof," under section 350 (a) of the Tariff Act of 1930, as amended. The constitutionality of the grant of such authority has been repeatedly questioned in and out of Congress. Nevertheless, Congress has extended from time to time the period during which the President may exercise such authority. The latest extension is contained in Trade Agreements Extension Act of 1955, which extends the authority until the close of June 30, 1958. In the Act, Congress provided, "That the enactment of the Trade Agreements Extension Act of 1955 shall not be construed to determine or indicate the approval or disapproval by the Congress of the executive agreement known as the General Agreement on Tariffs and Trade."

Article VI, clause 2, of the Constitution of the United 568States provides that "all Treaties made, or which shall be made, under the Authority of the United States, shall be the supreme Law of the Land." Under this constitutional provision, there is no question that a treaty made by the President, by and with the advice and consent of the Senate, is the supreme law of the land, overriding all state laws in conflict therewith. This case poses the question: Is an executive agreement, such as the General Agreement on Tariffs and Trade, a treaty within the meaning of this constitutional provision, so that it has the same efficacy as a treaty made by the President by and with the advice and consent of the Senate? We think that it is, under the decisions of the Supreme Court of the United States in United States v. Belmont, 301 U.S. 324, and United States v. Pink, 315 U.S. 203. In both cases the court had under its consideration an executive agreement known as the Litvinov Assignment. In United States v. Belmont, the court stated at page 331: "Plainly, the external powers of the United States are to be exercised without regard to state laws or policies. The supremacy of a treaty in this respect has been recognized from the beginning. * * * And while this rule in respect of treaties is established by the express language of cl. 2, Art. VI, of the Constitution, the same rule would result in the case of all international compacts and agreements from the very fact that complete power over international affairs is in the national government and is not and cannot be subject to any curtailment or interference on the part of the several states." In United States v. Pink, the court stated at page 230, "A treaty is a `Law of the Land' under the supremacy clause (Art. VI, Cl. 2) of the Constitution. Such international compacts and agreements as the Litvinov Assignment have a similar dignity."

The Territory is a fortiori bound by an international agreement having the dignity of a treaty because section 56955 of the Organic Act specifically enjoins that its legislative power be exercised consistently with the Constitution and laws of the United States.

Then, in what respects does section 5 of Act 167 contravene the General Agreement on Tariffs and Trade?

The General Agreement on Tariffs and Trade provides in Article III, paragraphs 1 and 4, as follows:

"1. The contracting parties recognize that internal taxes and other internal charges, and laws, regulations and requirements affecting the internal sale, offering for sale, purchase, transportation, distribution or use of products, and internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products so as to afford protection to domestic production."

"4. The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation, distribution or use. The provisions of this paragraph shall not prevent the application of differential internal transportation charges which are based exclusively on the economic operation of the means of transport and not on the nationality of the product."

Certain exceptions to the above quoted provisions are set forth in Article XX of the agreement, as follows:

"Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement 570shall be construed to prevent the adoption or enforcement by any contracting party of measures:

I. (a) necessary to protect public morals;

(b) necessary to protect human, animal or plant life or health;

* * * * *

(d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices."

Section 5 of Act 167, in requiring a conspicuous display of a placard of origin, singles out chicken shell eggs of foreign origin from domestic eggs. No such requirement is imposed in connection with the sale, or offering or exposing for sale, of chicken shell eggs of local or mainland origin. That its purpose is to protect domestic production is indicated by the following statement in Standing Committee Report No. 482 to the President of the Senate, Twenty-Eighth Legislature: "Your Committee conducted a public hearing, at which time it was determined that the majority of poultrymen in the Territory were in favor of this measure." Thus, it contravenes the proscription of Article III, paragraph 1, of the General Agreement on Tariffs and Trade that internal laws affecting the internal sale or offering for sale should not be applied to imported products so as to afford protection to domestic production. Furthermore, in imposing an additional requirement on foreign eggs which is not imposed on domestic eggs, it contravenes Article III, paragraph 4, of the agreement which provides that the products of the territory of any contracting party imported into the territory of any other contracting 571party shall be accorded treatment no less favorable than that accorded to like products of national origin in respect of all laws affecting their internal sale or offering for sale.

The requirement of section 5 of Act 167 does not come within any of the exceptions in Article XX of the agreement. Such requirement is not necessary for the protection of public morals; nor is it necessary for the protection of human, animal or plant life or health.

If it be deemed that a measure to prevent deceptive practices is necessary, such a measure, more comprehensive and nondiscriminatory, is found in section 1308 of the Revised Laws, which provides: "In the case of eggs imported from the mainland United States or foreign countries, regardless of the person producing the same, each egg so imported shall be marked in clear and plain letters, of not less than twelve point type, the letters `U.S.', if such egg was produced in the mainland United States, or the name of the country, if such egg was produced in a foreign country, before such eggs may be removed from any dock or landing * * *." The exception under Article XX of a measure relating to the prevention of deceptive practices is subject to the requirement that such a measure is not applied "in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade." We think that the additional requirement of a placard of origin only in the case of foreign eggs constitutes a disguised restriction on international trade.

More Krugman on China's Currency Value

I'm beginning to think that Paul Krugman is the only one more obsessed with the Chinese currency value issue than I am (not that I agree with all of his views of the issue, but I do share his interest).  As Dan Drezner notes, here is yet another piece by Krugman making the same points he made a couple weeks ago:

Most of the world’s major currencies “float” against one another. That is, their relative values move up or down depending on market forces.  ...  most nations try to keep the value of their currency in line with long-term economic fundamentals.

China is the great exception. Despite huge trade surpluses and the desire of many investors to buy into this fast-growing economy — forces that should have strengthened the renminbi, China’s currency — Chinese authorities have kept that currency persistently weak. They’ve done this mainly by trading renminbi for dollars, which they have accumulated in vast quantities.

And in recent months China has carried out what amounts to a beggar-thy-neighbor devaluation, keeping the yuan-dollar exchange rate fixed even as the dollar has fallen sharply against other major currencies. This has given Chinese exporters a growing competitive advantage over their rivals, especially producers in other developing countries.

He has said this part before.  The new point he makes is this:

What makes China’s currency policy especially problematic is the depressed state of the world economy. Cheap money and fiscal stimulus seem to have averted a second Great Depression. But policy makers haven’t been able to generate enough spending, public or private, to make progress against mass unemployment. And China’s weak-currency policy exacerbates the problem, in effect siphoning much-needed demand away from the rest of the world into the pockets of artificially competitive Chinese exporters.

But why do I say that this problem is about to get much worse? Because for the past year the true scale of the China problem has been masked by temporary factors. Looking forward, we can expect to see both China’s trade surplus and America’s trade deficit surge.

That, at any rate, is the argument made in a new paper by Richard Baldwin and Daria Taglioni of the Graduate Institute, Geneva. As they note, trade imbalances, both China’s surplus and America’s deficit, have recently been much smaller than they were a few years ago. But, they argue, “these global imbalance improvements are mostly illusory — the transitory side effect of the greatest trade collapse the world has ever seen.”

Basically, his view is that it's even worse than we thought, and the Obama administration better do something quick.

The Burley Tobacco Producers Make Their Case

From an op-ed by the president of the Burley Tobacco Growers Cooperative Association, in The Hill:

Less than a month after Prime Minister Stephen Harper visited Washington to lecture President Obama about the dangers of “Buy American” laws, his government passed a “Buy Canada” tobacco ban that violates Canada’s World Trade Organization (WTO) responsibilities. 

The legislation, C-32, was intended to ban candy-flavored tobacco products, a worthy goal that U.S. burley growers share. 

Unfortunately, C-32 morphed into an overreaching piece of legislation that prohibits the manufacture or sale of blended cigarettes that contain burley tobacco. This outcome is especially troublesome because American blend cigarettes are not candy-flavored in any way. The Canadian government conceded this vital fact during Parliament’s consideration of C-32, but it proceeded to target a legitimate American product anyway because small amounts of additives were used to reduce the harshness of the burley tobacco. ...

Given the difficulty the burley folks may be having in getting USTR to take action, I'm wondering if there are any Canadian investments they have made so as to bring an investor-state case under NAFTA Chapter 11.

Staiger and Sykes on Trade Agreements and Domestic Regulation

Robert Staiger and Alan Sykes have posted "International Trade and Domestic Regulation" on SSRN.  From the abstract: 

Employing the terms-of-trade framework for the modeling of trade agreements, we show how  "large" nations may have an incentive to impose discriminatory product standards against imported goods once border instruments are constrained, and how inefficiently stringent standards may emerge under certain circumstances even if regulatory discrimination is prohibited. We then assess the WTO legal framework in light of our results, arguing that it does a reasonably thorough job of policing regulatory discrimination, but that it does relatively little to address excessive nondiscriminatory regulations.

The issue of how WTO rules should and do address non-discriminatory measures has long been an interest of mine and is something I have blogged about before (see, e.g., here).   In my view, the extent to which trade agreements should go beyond discrimination is one of the most important issues facing the trade regime.  Are there good reasons to regulate non-discriminatory measures?  Is there a downside to doing so?  The Staiger/Sykes paper provides a number of insights on these issues.

Early on in the paper, they state:

We then suppose that governments agree to a national treatment clause that applies to both domestic taxation and regulatory standards, and we ask: Will a tariff agreement that is protected by this broader nondiscrimination rule allow governments to reach internationally efficient policies? Again we show that the answer is "no," because governments have an incentive to distort their consumption taxes to inefficiently high levels even if these taxes cannot be set in a discriminatory fashion, and they may (and will, if product-level consumption taxes are unavailable) have an incentive to distort upward their nondiscriminatory product standards as well.

Our economic analysis thus leads to the following broad conclusion. To achieve internationally efficient policy levels in this environment, tariff agreements must include rules that prevent the use of discriminatory domestic tax and regulatory policies, while at the same time preventing governments from setting excessively high nondiscriminatory taxes and product standards in response to the ability to shift some of the costs of these policies onto foreign exporters.

Thus, they make the point that a non-discrimination rule is insufficient to achieve "internationally efficient policies."  In this regard, they refer to "excessively high" taxes and product standards.  They argue that additional rules might be useful in this regard:

The analysis suggests as well a possible need for additional legal disciplines on nondiscriminatory regulatory and tax policies to prevent international cost-shifting and over-regulation in appropriate cases.

However, they note, WTO rules do little to address this issue:

the explicit obligations contained in GATT Article III and the SPS and TBT Agreements probably do little to address this ... issue. We then evaluate the possible role for "nonviolation" claims in cases involving nondiscriminatory regulations, which would allow exporting nations to seek compensation for reduced market access, but suggest that as currently interpreted the nonviolation doctrine is also probably ineffective in providing the needed discipline.

They elaborate on these points as follows.  With non-violation, they see it as effectively limited, in the case law, to discriminatory measures, and suggest that even if it could be used to address non-discriminatory measures, this would only be appropriate in exceptional cases.  With regard to the SPS and TBT Agreements, they argue that:

it is at least questionable whether the obligations to use international standards, the scientific evidence requirements, and the consistency requirements will do much in practice to address instances of economically excessive nondiscriminatory regulation. Indeed, it is possible to interpret all of these provisions as falling within the nondiscrimination framework. If a nation declines to adopt international standards when they would achieve its objectives adequately, it might be presumed to be acting strategically to disadvantage foreign suppliers, whose goods will often meet the international standard but perhaps not the domestic alternative. The obligation to use international standards is then perhaps little more than a corollary of the least restrictive means principle. Similarly, a regulation that has no scientific justification might be considered a sham, again designed to raise the costs of foreign suppliers relative to their domestic competitors.

Their focus here was on international standards, scientific evidence requirements, and consistency requirements.  Let me note here that I disagree a bit with the authors on whether provisions of the SPS and TBT Agreements go beyond non-discrimination.  To me, all of the provisions they mention, as well as the "necessity" provisions, do, in fact, go beyond this, although exactly how far beyond is a little hard to say.  There is clearly some overlap between these provisions and the non-discrimination requirement.  However, there are at least some cases (although it is not clear how many) where such obligations will catch measures that would not violate the non-discrimination obligations.  For example, while a regulation not based on science might be a sham designed to raise costs for foreigners (as suggested by the authors), it could also be that the legislators/regulators believed that the science was too uncertain to follow or that science is not the only consideration.  It is also possible that while such a regulation raises costs for foreigners, it raises them for domestic entities even more.  As a result, it could be argued that if these kinds of rules are a proxy for discrimination, they are not a very good one.

Given their emphasis on the importance of disciplining non-discriminatory measures, it is not surprising that the authors are skeptical of a view of trade agreements that is restricted to non-discrimination:

For Regan (2006), the goal of trade agreements is to eliminate protectionism. But why do governments care about protection imposed by other governments? In our view, the answer lies in the fact that their exporters are harmed, and earn less on their export sales than otherwise. This is precisely the injury that terms-of-trade theory captures. Thus, we view the “governments do not take account of the terms of trade” objection to the terms-of-trade theory as misguided. It is not necessary for governments to literally “take account” of terms-of-trade effects in their decision making processes for the issues that the model highlights to arise. It is enough that government policy is the result of a political process in which domestic interest groups are represented and foreign interests are not. The resulting political equilibrium will then naturally select policies that ignore the harm done to foreign interest groups, and in particular the harm due to the fact that tariffs, consumption taxes, regulatory standards and the like may force foreign exporters to reduce their prices to remain competitive. As long as governments ignore such harm to foreign interests, they will tend to behave “as if” they were consciously manipulating their terms of trade.

In response to this, I offer three points.  First, it is no doubt true that there are non-discriminatory policies that affect trade.  So, trade concerns clearly go beyond simple protectionism.  However, when trying to build a trade regime, we need to balance out the goal of achieving efficient regulatory outcomes with that of creating a sustainable and legitimate legal and political structure for trade agreements.

Second, an agreement requiring "internationally efficient" domestic regulation would be extremely broad in scope.  There are likely to be arguments that a wide range of domestic regulation is inefficient.  Subjecting all such regulation to international discipline would lead to a situation where trade agreements could seriously hinder the adoption of much domestic regulation.

As a third point, the authors note that "governments care about protection imposed by other governments" because "their exporters are harmed, and earn less on their export sales than otherwise."  While this is no doubt true, I think it is likely that they care more about lost export sales when they are the result of discrimination against their products.  Most governments can probably live with a certain amount of incidental impact on their trade due to variations in regulatory policies; they are more likely to be upset when their goods are explicitly or intentionally targeted, or if discrimination can otherwise be shown.

With regard to all of these points, the following statement by the authors later in the paper seems relevant:  "An international system that second-guessed the cost-benefit determinations of national regulators would also likely intrude heavily on notions of national sovereignty and meet considerable political resistance."  Arguably, restricting trade agreements to the goal of eliminating protectionism is a way to achieve the appropriate balance between efficiency and regulatory autonomy.

Finally, it does seem clear that, all else equal, it would be a good thing if we had "internationally efficient policies" and could avoid "excessively high" taxes and regulatory standards.  The question I would ask is, are binding international agreements the best way to achieve this?  It may be that we could achieve just as much, if not more, through a cooperative and consultative system, as this could alleviate some of the sovereignty concerns noted above.

IEL Lectureship at University of Edinburgh

Here:

Applications are invited for a Lectureship (UE08) in the School of Law from candidates with research interests in either or both of international commercial arbitration and international trade law. Applications would also be welcome from candidates with an interest in international investment law. Candidates may have either a private law or public international law background. The successful candidate will be expected to contribute to the teaching programme, particularly at post graduate level, and to undertake post graduate supervision.   He or she will contribute to the development of new initiatives in teaching, research, and continuing professional development ("cpd"), including those which will connect the School of Law with others in the College of Humanities and Social Science.  Applications from individuals with demonstrable experience and achievement in their specialist area, as reflected in a growing personal research portfolio, will be particularly welcome.  In addition, applicants are invited to explore how their research interests complement the existing strengths of the School of Law in cognate areas such as commercial law, EU law and international law.

Laura Tyson on Foreign TRIMs

Writing in the Harvard Business Review, Laura D'Andrea Tyson is concerned about trade related investment measures (TRIMs) in the high-tech sector:

Too often foreign governments committed to building their own high-tech economies pressure American companies to outsource their activities. They do this in two ways: by enticing them with generous subsidies or by requiring them to comply with local-content and technology-transfer policies in order to gain access to their markets. In many cases, these policies are inconsistent with their obligations to the World Trade Organization.

...

Under President Obama, the Office of the U.S. Trade Representative (USTR) and the Department of Commerce are committed to using the WTO more energetically to enforce existing trade agreements. One way to deliver on this commitment is to bring WTO cases against violations of the TRIMS agreement in technology-intensive industries. The USTR should also review this agreement and develop proposals for strengthening it, particularly in these industries where temporary "infant industry" policies to shift production and research activities to emerging market locations can have long-term effects on the U.S. innovation base.

She also warns about trade conflict in the renewable energy sector:

The potential for conflict over trade-related measures to influence patterns of cross-border investment and sourcing is mounting in the technology-intensive area of renewable energy. Both the U.S. and China, along with many other countries, want to nurture domestic suppliers of renewable energy to serve demand at home and abroad. Renewable energy is the new target for a variety of industrial policies, ranging from R&D support, tax credits, and grants for domestic producers to local content requirements on foreign investors. Many of these policies might violate WTO commitments.

For example, all wind farms in China must use wind turbines that meet a local content requirement of 70%, and China is considering whether to require wind turbines to contain mandated shares of Chinese-owned intellectual property. Even Canada has made the use of local content a factor in government selection and approval of wind-power projects.

According to the Harvard Business School's Gary Pisano and Willy Shih, the U.S. has already lost parts of the industrial commons to support manufacturing and innovation in wind turbines, solar panels, and other renewable energy products. Thus, it should not come as a surprise that about 80% of the stimulus money spent on wind farms in the U.S. has gone to the purchase of wind-turbine equipment from foreign companies. The U.S. should use WTO cases to stem the use of local content and other WTO-violating policies in the renewable energy sector.

The U.S. should also try to negotiate a trade and foreign-investment agreement in renewable-energy products. A sectoral trade agreement in IT products negotiated in the mid 1990s fostered rapid trade growth and contained trade conflicts in these products. A sectoral trade agreement that covered trade-related investment measures could do the same for renewable energy products.

In the absence of such an agreement, if other countries use preferential industrial policies for domestic producers and local content restrictions on foreign producers to build their renewable energy sector, the U.S. is likely to do the same. That would clearly be a step backward in open trade and investment flows and a second-best outcome from an efficiency perspective. But it could prove to be a justifiable one.

The key points seem to be:  (1) an international agreement in this area would be useful; and (2) in the absence of an agreement, the U.S. should consider matching the trade advantages handed out by other governments.

Not quite "Who's Bashing Whom," perhaps, but it does bring back memories of the early 1990s.

 

Mercurio and Leung: "Is China a 'Currency Manipulator'?"

Bryan Mercurio and Celine Sze Ning Leung have posted "Is China a 'Currency Manipulator'?: The Legitimacy of China’s Exchange Regime Under the Current International Legal Framework" on SSRN.  Here's the abstract:

While most economists are in agreement that China’s currency is undervalued, economists are less certain as to the effect of the undervaluation. Despite the equivocal data, critics of China’s regime claim that the undervaluation leads to cheaper, and therefore increased exported goods, while at the same time raising the price of imported goods. For this reason, U.S. lawmakers perpetually raise the issue and periodically initiate legislation, which would deem China a “currency manipulator” and thus trigger retaliatory measures. Lawyers are less certain whether there can be a multilateral solution to the perceived problem.

With the existing legal literature consisting mostly of industry-funded research, the time is ripe to undertake a large-scale legal analysis of China’s exchange regime under the existing international legal framework. This article undertakes such an analysis and in particular, evaluates the legitimacy of China’s exchange regime under applicable international law, that being the Articles of Agreement of the International Monetary Fund (IMF) and both the General Agreement on Tariffs and Trade and the Agreement on Subsidies and Countervailing Measures of the World Trade Organization (WTO). We conclude that while China clearly manipulates its currency, its measures are not inconsistent with the IMF Articles or the applicable WTO agreements. The article concludes by noting that modification of either the IMF Articles or applicable WTO agreements is the only multilateral option available to those determined to more strongly sanction “currency manipulation”.

From the conclusion:

With China’s exchange regime compliant with the IMF Articles and the relevant provisions of the WTO, the only other option available to the international community (barring amendment of the IMF Articles or relevant WTO agreement) is to negotiate a new agreement or treaty to prohibit, manage, or counter the effects of controlled exchange rate regimes. Until that time, however, China’s exchange regime remains in compliance with the international legal regime.

I have said before on this blog that I think new rules on exchange rates would be good, so I'm on board with the idea of  negotiating "a new agreement or treaty to prohibit, manage, or counter the effects of controlled exchange rate regimes."  But before giving up on the current rules, I'm going to throw out one other legal option:  the non-violation nullification or impairment remedy.  Its scope is uncertain, its remedy is unclear, and as panels and the Appellate Body have said it "should be approached with caution."  But as its name suggests, it can be invoked even if there is no violation, so it could, in theory, play some role here.

GATT Article XX and Non-GATT Agreements: Will We Get Some Answers in the China - Exportation Case?

There have been some brief references in the jurisprudence recently as to whether GATT Article XX provides an exception to agreements others than the GATT (see here and, to a lesser extent, here), but no substantive findings on the issue.  The China - Exportation of Raw Materials case (DS394,395,398), for which the U.S., EC and Mexico just requested panels, may give us some answers, although there is a good chance we will all be disappointed as a panel once again avoids the issue.

As set out in the panel requests, the measures at issue are: (1) "quantitative restrictions such as quotas"; (2) "export duty rates, 'temporary' export duty rates, and/or 'special' export duty rates"; and (3) "other restraints on the exportation of the materials, administ[ration of] measures in a manner that is not uniform, impartial, and reasonable, ... excessive fees and formalities on exportation, and [failure to] publish certain measures pertaining to requirements, restrictions, or prohibitions on exports."

The claims are under various provisions of the GATT, and also China's Accession Protocol and the Working Party Report (incorporated into the Accession Protocol).

Press reports suggest that China may invoke the GATT Article XX environmental exceptions as a defense:

... China's Ministry of Commerce told AFP the aim of the "measures on some raw materials is to protect the environment and our limited resources".

Assuming China invokes this provision in relation to the claims under the Accession Protocol/Working Party Report, the panel will be faced with the question of whether Article XX provides an exception to these instruments.

If China's Article XX defense is strong and it meets all the Article XX(g) and XX chapeau criteria, the panel will be forced to decide whether Article XX actually offers an exception in this situation.  Unfortunately, there is the possibility the panel will simply assume for the sake of argument that Article XX can apply here, reject the Article XX defense on substantive grounds, and then find it unnecessary to decide whether Article XX applies outside the context of the GATT (which is essentially what happened in the China - Publications case).  This would be disappointing for those of us who would like to get some clarity on this issue, but would not be too surprising.  It all depends on how good China's environmental defense is, which is something I don't have a sense of from reading the press reports on the case.

Pascal Lamy's Lessons of European Integration for Global Governance

From a speech he gave today:

The first lesson I would draw is the importance of the rule of law and that of enforceable commitments. Global governance must be anchored in commitments adopted by stakeholders, in rules and regulations with mechanisms which foster and promote its respect.

...

The second lesson I would draw for global governance is that of respect for the principle of subsidiarity. It is about performing functions at the level where these are more effectively carried.

...

The third lesson is that “coherence starts at home”. Coherence lies first and foremost with the members of international organizations.

...

The final lesson I would draw is that since the political “demos” remains essentially national, legitimacy would be greatly enhanced if international issues become part of the domestic political debate. If national governments are held accountable for their behaviour at the international level. The exercise of democracy at the national level needs to integrate an international dimension to foster legitimacy at the global level.

He concludes:

Among the many regional integration attempts, the European Union remains the laboratory of international governance — the place where the new technological frontier of international governance is being tested.

Regardless of your particular views on global governance and international economic integration, I think this speech is very well done and worth a read.  Here's one more excerpt:

The global economic crisis we are witnessing has accelerated the move towards a new architecture of global governance, in what I have called a “triangle of coherence”.

On one side of the triangle lies the G20, replacing the former G8, providing political leadership and policy direction. On another side lie member-driven international organizations providing expertise and specialized inputs, be they rules, policies or programmes. The third side of the triangle is the G-192, the United Nations, providing a forum for accountability.

In the longer term, we should have both the G20 and the international agencies reporting to the “parliament” of the United Nations.

 

More on Trade in Health Services

With the passage of a health care bill this past week-end by the U.S. House of Representatives, I thought it was time for another post on trade in health services.  This time I'll rely on an expert, Lior Herman of ECIPE.  From the abstract of Assessing International Trade in Healthcare Services:

Many stories and anecdotal evidence document doctors and patients travelling across the globe to give and receive medical and cosmetic surgeries, dental care and other kinds of treatments. But very little is actually known on the extent to which health services are traded internationally. In this new paper, Lior Herman maps and analyses trends in international trade in health services, drawing on a wide range of sources to provide a comprehensive and systematic picture. He finds high levels of movement of foreign health professionals between countries and significant presence of foreign healthcare firms in local markets. Cross-border services and patient travel remain low. Given the economic significance of the healthcare sector in overall economic activity, there is scope and unexploited potential for greater international trade in healthcare services.

And from the conclusion:

On the basis of the availability of data this paper finds that a great deal of variation exists within different segments of international trade in healthcare services. For the most part, international trade is conducted through the movement of foreign health professionals between countries, as well as the presence of foreign healthcare firms in local markets. International trade through cross-border activity, whereby healthcare services are provided and consumed in different territories, remains very low. Trade based on the travel of healthcare consumers to foreign markets is also very low but is significantly higher than cross border trade.

...

Given the economic significance of the healthcare sector in overall economic activity, and in particular the high levels of both total and private expenditure on healthcare, it seems that there is scope and unexploited potential for greater international trade in healthcare services. Trade is growing in cross border trade, consumption abroad, commercial presence and movement of professionals. But the greatest potential lies in cross border provision and consumption abroad of services.

Free Trade Within Canada: For Canadians Only

Bloomberg reports:

 Northrop Grumman Corp. can’t challenge Canada’s award of a $140 million contract for weapon- targeting equipment to Lockheed Martin Corp. because it isn’t a Canadian company, the nation’s highest appeals court ruled.

Only domestic companies can file complaints based on the country’s internal free-trade agreement, known as AIT, the Supreme Court of Canada ruled unanimously today.

Allowing non-Canadian suppliers to bring complaints based on the AIT would lead to “problematic results,” Judge Marshall Rothstein wrote for the nine-member court. Los Angeles-based Northrop “would gain rights under the AIT despite its government not being a party.”

The opinion is here.

Trade in Everything: Heart Operations

From the NY Times:

No matter what Congress does with health care legislation in the next few weeks, one thing is already clear: the result will not do much to control the climbing costs of medical care in the United States.

And that is why many employers and insurance companies may seek savings by encouraging patients to travel abroad for treatment.

Offshore medical care is usually significantly less expensive than in the United States, and the wait times are often shorter. A heart operation that might cost $130,000 in this country could cost $18,500 in Singapore or $10,000 in India.

The Tuna-Dolphin Case: The NAFTA-WTO Conflict Heats Up

From a USTR press release:

The Office of the United States Trade Representative announced today that the United States has requested North American Free Trade Agreement (NAFTA) dispute settlement consultations with Mexico regarding Mexico's failure to move its "dolphin safe" labeling dispute from the World Trade Organization (WTO) to the NAFTA, as requested by the United States and as required by Article 2005 of the NAFTA. Specifically, the NAFTA requires that in a dispute of this nature, if the responding party so requests, the NAFTA, rather than any other forum, should be the sole venue of any dispute. In this case, that would mean that the NAFTA - rather than the WTO - should be the forum to hear Mexico's challenge to U.S. law concerning dolphin safe labeling of tuna and tuna products.

The U.S. request came in response to Mexico's resumption of its dispute settlement proceedings in the WTO by requesting the WTO to begin the process of selecting panelists.

"We regret that Mexico is continuing its WTO case despite the fact that the United States has invoked its right under NAFTA provisions to have the dispute moved from the WTO to the NAFTA," said Debbie Mesloh, a USTR spokesperson. "In resuming its current proceedings in the WTO, Mexico continues to disregard its obligation to the United States to have recourse solely under the NAFTA for this dispute."

"In requesting NAFTA consultations, we are enforcing the right that the United States, Canada and Mexico negotiated in the NAFTA," said Mesloh. "This is an important right that has not previously been invoked by a NAFTA party, and defending our right under this clause preserves and strengthens the NAFTA dispute settlement regime."

The U.S. dolphin safe labeling provisions at issue in the WTO dispute prohibit tuna sellers from labeling their products as "dolphin safe" if the tuna is caught by intentionally encircling ("setting on") dolphins with purse seine nets. Mexican fishing vessels use this technique to fish for tuna.

Mexico's challenge to the U.S. dolphin safe labeling provisions meets the criteria in NAFTA Article 2005(4) choice of forum provision. This provision states that certain disputes which pertain to matters arising under both the WTO Agreement and the standards-related provisions of the NAFTA, and which concern human, animal or plant life or health or the environment and raise factual issues concerning the environment or conservation, shall be heard - at the responding party's option - solely under the NAFTA's dispute settlement procedures.

NAFTA rules provide that once a responding party invokes the choice of forum provision, the complaining party may pursue the dispute solely under the NAFTA and must withdraw from the WTO proceedings.

For more background on this conflict, see prior posts here and here.  In the latter post, Tomer commented:  "It would be better for the US if it could find a way to get a NAFTA panel to order Mexico to stay WTO procedures."  It appears they have taken up his suggestion.

Clean Energy Competition

When I read about proposals to reduce tariffs on environmental goods and services, my sense is that, assuming trade negotiators can agree on anything these days, this should be a goal that is achievable.  On the other hand, subsidies and discriminatory government procurement in the area of clean energy seem to be a much more difficult problem.  The latest:

Senator Charles Schumer, the New York Democrat, is calling on the Obama administration to block the use of stimulus funds for a utility-scale wind farm in West Texas that would make use of turbines manufactured largely in China.

...

“The idea that stimulus funds would be used to create jobs overseas is quite troubling,” Mr. Schumer reportedly wrote, according to The Associated Press, in a letter to be sent Thursday to Energy Secretary Steven Chu.

Mr. Schumer plans a news conference on Thursday afternoon, in which he will urge the Obama administration to block any stimulus money from financing the proposed wind farm.

Organizers of the project have estimated that more than 2,000 manufacturing jobs would be created in China as a result of the project, while a little over 300 would be created in Texas.

...

China’s reputation for blocking foreign access to its own burgeoning clean-energy sector has been fueling anger over the planned project in Texas.

What is really needed is an agreement that covers not just tariffs, but subsidies and government procurement as well.  But it's hard to imagine reaching agreement in these areas.  It seems clear that a lot of countries want to be the leader in the clean energy industry. Is it really possible that they would agree not to compete, or even to rein in their competition?  I see a great deal of trade conflict in clean energy's future.