International Economic Law and Policy Blog

Pascal Lamy on Trade Fallacies

In a recent speech (well, not that recent at this point -- I got distracted by other things), WTO DG Pascal Lamy addressed six "trade fallacies":

Fallacy #1: Comparative advantage does not work anymore

Fallacy #2: It is unhealthy for trade to grow faster and faster compared to output

Fallacy #3: Current account imbalances are a trade problem and ought to be addressed by trade policies

Fallacy #4: Trade destroys jobs

Fallacy #5: Trade leads to a race to the bottom in social standards

Fallacy #6: Opening up trade equals deregulation

All of his responses are excellent.  I'm just going to add a couple comments (with extracts of some of his key points included).

#3 Current account imbalances are a trade problem and ought to be addressed by trade policies

... a  current account surplus is created if domestic savings exceeds domestic investment, which means that the country is a creditor to the rest of the world. A current account deficit ensues if domestic savings is less than domestic investment, in which case, the country is drawing on savings provided by foreigners.

The growth of global imbalances in the last decade reflects in part the greater integration of financial and capital markets. This has made it easier to accommodate big differences in savings propensities and investment opportunities across countries. Domestic residents can afford to save less because citizens of other countries are saving more, and with few restrictions on capital flows, those foreign savings can be made available at lower cost to domestic residents.

...

 I know that the lack of exchange rate flexibility in some countries has been raised as a problem in the context of global imbalances. The only thing I can say about this issue is that it is difficult to talk about the optimal exchange rate system for a country — whether completely flexible or fixed — without addressing the much broader question of what the appropriate international monetary system must be.

It has always seemed to me that, in the long run, exchange rate adjustments should correct trade imbalances.  Yet some imbalances have been around for a long time.  Does that mean that exchange rate adjustments do not fully resolve trade imbalances?  Or does it mean that exchange rate adjustments are not taking place as they should?

#4 Trade destroys jobs

The problem with the argument that trade destroys jobs is that it sees only the threat posed by imports to jobs but does not take into consideration how jobs may be created in the export sector as a consequence of trade opening. It also fails to take into account that trade opening can increase the rate of economic growth, and therefore improve the ability of the economy to create new jobs.

He's right about all this, but I wonder if perhaps there is another way of thinking about this issue.  It is true that if you are in a situation where substantial trade barriers exist, and you then open the economy to imports by removing those barriers, some jobs will be lost in import-competing sectors.  But is the lesson to be drawn from this that trade destroys jobs?  Take the reverse situation, where there are no trade barriers, but countries suddenly decide to impose them.  This, too, would result in job losses, as existing export markets are closed.  A lesson that could be drawn from this latter situation is that the absence of trade destroys jobs.  However, if you take both situations together, perhaps the appropriate conclusion is that disruptions to the trade status quo destroy jobs.  (More precisely, they destoy some jobs and create others).  Thus, it's not really about trade or no trade; it's about changes to trade policy.  And if that's the lesson, we can then focus on the overall benefits of trade liberalization as compared to protected domestic markets, and think about good ways to deal with the harm from changes in trade policy (for example, making sure trade liberalization is gradual, and setting up adjustment mechanisms).

Fallacy #5: Trade leads to a race to the bottom in social standards.

Some have argued that more trade will drive governments in rich countries to lower their social or labour standards. More trade would hurt workers in rich countries. The problem with this argument is that there is very little empirical basis for it. It is difficult to find examples where countries have lowered social or labour standards in response to trade competition.

One variant of this argument has been used by Emmanuel Todd who claims that open trade between developing countries such as China and industrial countries is the reason for the economic crisis. In his view, the competition coming from low-wage countries has put pressure on wages in industrial countries and caused a deficiency in aggregate demand.

I would argue that differences in wages largely reflect differences in labour productivity. There is a fairly close correlation between wages and productivity across countries with some estimates going so far as to suggest that 90 percent of wage differences between countries can be explained by productivity differences. While wages in many developing countries may be low, labour productivity in these countries is also a fraction of western levels.

With regard to the wage argument, I can see how wages might fall in some cases, but rise in others, due to trade.  Take a product like air conditioners, which are mostly sold in richer countries.  If air conditioners are being produced in the U.S. for the U.S. market, but due to the tariff reductions resulting from NAFTA producers have the option of setting up factories in Mexico, companies that make air conditioners will now have additional sources of labor to draw from.  That is, the supply of labor goes up.  By contrast, the demand for air conditioners won't go up by much, at least not right away (maybe it will later as Mexican incomes go up).  So, you have an increase in labor supply, but no increase in demand, which should bring wages down.

On the other hand, if you look at an industry like entertainment, opening up new markets leads to greater demand for certain performers, especially those at the top, with the supply pretty constant.

Of course, this is not a comprehensive look at what will happen to wages, but rather just a couple examples to illustrate that wages could go up or down due to trade, depending on market circumstances.

#6    Opening up trade equals deregulation

There is a tendency to confuse trade opening with deregulation of the economy. One way to distinguish between the two is that trade opening refers to a reduction in trade barriers or a reduction of those measures that discriminate against foreign goods and services. A country that opens up to trade does not compromise its ability to regulate, provided of course those regulations do not discriminate in an unjustifiable manner against foreign goods and services, thus contradicting opening commitments.

I'm not sure that anyone equates trade and deregulation, but there are people who argue that trade agreements contribute to deregulation, by putting constraints on domestic regulation.  What's important here, I think, is to separate out the non-discrimination rules that Lamy refers to from the various trade rules that go beyond non-discrimination.

Manufacturing Comes Back to America

From the Daily Show:

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Wham-O Moves to America
www.thedailyshow.com
Daily Show Full Episodes Political Humor Tea Party

Drafting the WTO's "General Exceptions"

Over at Opinio Juris, Roger Alford discusses the different policy exceptions included in the GATT and GATS "General Exceptions," and then says:  "I have yet to discover a satisfactory explanation for the disparate treatment that the WTO drafters have given to the general exceptions in GATT versus GATS."

Along these same lines, there is the issue of the varying terms under the specific exceptions under the GATT, which require different degrees of connection between a measure and its goals.  Some measures must be "necessary," others must be merely "relating to."  My view has long been that the GATT drafters were not thinking about this in a very legalistic manner, and were just trying to make each exception read well.  But recently, when doing a post about balance of payments issues, I came across this comment (see p. 13) from the original GATT negotiations regarding the meaning of "necessary" (in a different context):

The existing wording of paragraph 1 provides that import restrictions may be imposed "insofar as this is necessary" to safeguard the Member's position. Paragraph 2 sets out the requirements limiting the application and the extent of the restrictions, according to the circumstances of the Member. The words quoted from paragraph 1 presumably were not intended to have force in themselves, since paragraph 2 covers the same point in greater detail. There may possibly be some risk, however, that they could be interpreted to mean that import restrictions ware not "necessary" (and therefore were not permitted) until every other possible corrective measure (such as exchange control, exchange depreciation, etc.) had been tried and found inadequate. (emphasis added)

Based on this quote, it seems that perhaps the drafters were thinking more specifically about the meaning of the words they chose than I had imagined they were.  So, maybe the differences within the GATT exceptions, and the differences between the GATT and the GATS, were intended, although this doesn't tell us why the drafters chose to make these distinctions.

Do BITs Promote Foreign Direct Investment?

From Jason Yackee, on SSRN, a new paper entitled "Do Bilateral Investment Treaties Promote Foreign Direct Investment? Some Hints from Alternative Evidence":

In this article I present a multi-method examination of whether bilateral investment treaties, or BITs, are likely to promote inflows of foreign direct investment. Using regression analysis I show that BITs are not meaningfully correlated with measures of political risk, and using survey evidence I show that providers of political risk insurance do not reliably take BITs into account when deciding the terms of insurance. Nor do in-house counsel in large U.S. corporations view BITs as playing a major role in their companies' foreign investment decisions. In contrast to existing empirical studies, which claim to prove that BITs can have massive positive impacts on FDI, my results suggest that such results are probably spurious. BITs are unlikely to be a significant driver of foreign investment.

I was particularly interested in the following sentence:  "Nor do in-house counsel in large U.S. corporations view BITs as playing a major role in their companies' foreign investment decisions."  My question is, who is pressing for BITs (or investment chapters of FTAs)?  Clearly, somebody thinks they are important.   But if the lawyers at "large U.S. corporations" don't care all that much, where does the push come from?

"Global Competition: Law, Markets and Globalization" by David Gerber

OUP has just published a very interesting, and important, book on the global competition regime. Here is the link. http://www.oup.com/us/catalog/general/subject/Law/?view=usa&ci=9780199228225 and here is the description.

Global competition now shapes economies and societies in ways unimaginable only a few years ago, and competition (or 'antitrust') law is a key component of the legal framework for global competition. These laws are intended to protect competition from distortion and restraint, and on the national level they reflect the relationships between markets, their participants, and those affected by them. The current legal framework for the global economy is provided, however, by national laws and institutions. This means that those few governments that have sufficient 'power' to apply their laws to conduct outside their own territory provide the norms of global competition. This has long meant that the US (and, more recently, the EU) structure global competition, but China and other countries are increasingly using their economic and political leverage to apply their own competition laws to global markets. The result is increasing uncertainty, costs, and conflicts that burden global economic development.

This book examines competition law on the global level and reveals its often complex and little-understood dynamics. It focuses on the interactions between national and international legal regimes that are central to these dynamics and a key to understanding them.

Part I examines the evolution of the current global system, the factors that have shaped it, how it operates today, and recent efforts to alter that system-e.g., by including competition law in the WTO. Part II focuses on national competition law systems, revealing how national laws and experiences shape global competition law dynamics and how global factors, in turn, shape national laws and experiences. It examines the central roles of US and European law and experience, and it also pays close attention to countries such as China that are playing increasingly important roles in the global competition law arena. Part III analyzes current strategies for improving the legal framework for global competition and identifies the factors that may contribute to a system that more effectively supports global economic and political development. This analysis also suggests a pathway for moving toward that goal.

Guest Post: Russia-Ukraine Gas Deal: Any potential WTO-related issues?

The Moscow Times has reported that Russia and Ukraine reached a new gas agreement under which Russia would effectively give a 30 percent discount for its gas exports to Ukraine, potentially costing cost Russia approximately $40 billion over the life of the agreement. (see Anatoly Medetsky, “Deal Struck on Gas, Black Sea Fleet”, http://www.themoscowtimes.com/business/article/deal-struck-on-gas-black-sea-fleet/404501.html). According to the newspaper report, Gazprom, the state-controlled gas export monopoly, “would remove a 30 percent export duty to achieve the price cut. The discount will apply to 30 billion cubic meters of gas sold this year and 40 bcm of gas annually until the contract expires in 2019, Gazprom said in a statement.”

 

Vitaliy Pogoretskyy, Ukrainian trade lawyer and a PhD student at CEPMLP, University of Dundee, thinks that the agreement raises WTO law, particularly MFN-related, issues that could figure in Russia’s accession negotiations.  He has the following comments:

"it appears that if Russia accedes to the WTO, it will have to extend the privilege granted to Ukraine (i.e., the removal of gas export duties) to all other WTO Members. The agreed concessions of Russia vis-à-vis its other trade partners in the course of its WTO accession negotiations are still not in the public domain, but clearly the elimination of all the existing gas export duties will be a multi-billion loss for Russia’s budget revenue.

 

A possible leeway for Russia as to how it reserves this discount only for Ukraine could be an existing free trade agreement between Russia and Ukraine, which theoretically could qualify as an MFN exception under the GATT Article XXIV (i.e., Customs Unions and Free-trade Areas). However, it needs to be examined to what extent this free trade agreement can satisfy the requirements of Article XXIV, and it should be kept in mind that the consistency of a free trade agreement (as an MFN exception) with WTO law can also be challenged. I would also not exclude the possibility that the gas agreement between Russia and Ukraine will ultimately be followed by the further negotiations on Ukraine’s accession to the customs union, formed recently by Russia, Belarus and Kazakhstan, which is another MFN exception under the GATT Article XXIV. In this case, either Russia would have to extend its gas discount to Belarus and Kazakhstan, or there will not be internal export duties within the customs union at all.

 

Finally, the GATT Article XXI (i.e., Security Exceptions) could also be an exception to the MFN obligation in this case: ‘Nothing in this Agreement shall be construed ... (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests ... (iii) taken in time of ... emergency in international relations ...’.

 

The contentious issues in Article XXI appear to be the definitions of ‘essential security interests’ and ‘actions taken in time of emergency in international relations’. Along these lines, the questions most relevant to Russia – Ukraine gas agreement deriving from the text and the essence of Article XXI are whether this exception is adjudicatable in the first place (as it was questioned by the US representatives during the WTO consultations between the USA and the EC over the US Helms-Burton Act of 1996), and, if yes, who has the burden of proof in defining the above terms and demonstrating the existence of ‘essential security interests’, falling under the GATT Article XXI?

 

Any comments on the Russia – Ukraine gas agreement are highly welcome. I wonder whether this agreement may have any implications from trade remedies perspective?"

Some Congressional Criticism of the Cotton Deal

Via Sallie James of Cato, I see that four members of Congress want real reform of U.S. cotton subsidies and are not happy with the proposed deal with Brazil:

“This proposal takes our federal farm subsidy policy from the impractical to the absurd,” said Rep. Flake.  “We want to pay Brazil almost $150 million a year so that we can continue subsidizing U.S. cotton - only in Washington could this pass for logic.”

    “We need to reform these programs now,” said Rep. Kind.  “They are obstructing future trade growth and distorting the market.  I fought hard to restructure these unfair subsidies in the 2007-2008 farm bill and will continue to work to update these fiscally irresponsible programs. We cannot continue to take the easy way out by maintaining this payout.” 

    “We need to reform our outdated and non-WTO compliant farm subsidy programs,” said Rep. Ryan.  “The case for reform takes on greater urgency in light of trillion dollar deficits and fiscal challenges ahead.  We cannot afford business as usual in Washington.”

“The sensible thing for us to do with the WTO finding – which, unfortunately for American cotton farmers, is clearly correct – would be to reform our own inefficient system of spending millions of dollars a year to subsidize cotton farmers, many of whom are quite wealthy,” said Rep. Frank.  “Instead, the Obama administration apparently feels compelled to preserve our right to subsidize American cotton farmers by extending that subsidy to Brazilian cotton farmers.  People looking for an illustration of the meaning of the phrase, ‘from bad to worse,’ need look no further.”

And from the letter they sent to President Obama:

... it is clear that our agricultural subsidies are grossly outdated and are quickly becoming a liability for future trade growth. Instead of effectively reforming our programs, we are electing to pay $147.3 million annually to Brazilian agribusiness so that we can continue to pay around $3 billion a year to large U.S. agribusiness. This policy distorts the marketplace and is fiscally irresponsible. By the time we reform the cotton programs in 2012 farm bill, the U.S. will have spent close to a half a billion dollars in "technical assistance" to Brazilian agribusiness.

Why the Decline in Anti-Globalization Protests?

Kindred Winecoff notes that anti-globalization protests have died down over the years, and wonders why:

I can think of a few possibilities. First, the protests were loudest in the 1990s because of NAFTA (1994), the establishment of the WTO to supplant the GATT (1995), the fairly brutal "Big Bang" liberalization of the post-Soviet economies throughout the 1990s, the harsh austerity measures that came with IMF aid following the East Asian financial crises (1997-8), and the accession of China to the WTO (2001). It was a pretty active decade for neoliberals, which means it was a fairly active decade for anti-capitalists and anti-globalizationists despite the collapse of the Soviet system a few years prior.

Since 2001? Not much has happened on the globalization front. Doha is stuck in limbo, even modest FTAs with small countries have been slow in progressing through Congress, and the IMF had basically nothing to do for nearly a decade. Now that the IMF has been pressed into action again it's largely taken a more accommodating line toward recipient states, and it's pretty difficult to argue that Greece, e.g., is a victim of Western economic imperialists. The globalization of the Naughties was a kindler, gentler, calmer globalization compared to the Brave New World Is Flat globalization of the 1990s.

But I think that's only part of it. I think a better explanation is that people in general, and college students in particular, only have attention for one cause at a time, and environmentalism has definitely become the sexy issue over the past 8-10 years. When I hear people complain about China's trade practices these days, the arguments are less about the use of sweatshop labor and more about environmental degradation. To me it seems that the one has simply supplanted the other as the most pressing issue for the socially conscious.

Dan Drezner responds with two points.  First, he says the change is actually more recent:

I would dispute the empirics of Winecoff's assertion.  The protests didn't die out with the change in the decade -- they were pretty robust at G-8 summits in the first part of the naughties, as well as the 2003 Cancun WTO Ministerial and the 2005 Hong Kong Ministerial.  This is a more recent phenomenon.   

He then offers some alternative explanations:

I'd proffer three possible explanations.  The first, which I don't really buy, is that the protestors have wised up and realized that these meetings are not the cause of the ills that they bemoan and bewail. 

The second possibility, which I'm very unsure about, is that public opinion has shifted.  Anti-globalization activists usually demand greater state intervention in the economy, and that's an increasingly unappetizing idea for people living in the advanced industrialized economies. 

The final possibility is an idea I floated in a book review many moons ago:

During boom times, antiglobalizers score political points by stoking fears of cultural debasement and environmental degradation. During leaner years, naked self-interest becomes the salient concern: in the current economic climate, American opponents of globalization talk less about its effect on the developing world and more about the offshore outsourcing of jobs.

Let's call this the Business Cycle Theory of Economic Protestors.  I don't know if it's true either. 

I'd go with three answers (focusing a bit more on the WTO than the World Bank/IMF).  First, after Seattle, event organizers had a lot more awareness of the possibility of negative public reaction.  As a result, they (1) held some of the meetings in locations where controlling the protests was easier (e.g., Doha) and (2) took security at these meetings more seriously than they had in the past.  The protests are still there, they just won't get out of hand like they did in Seattle.

Second, as Winecoff notes, the WTO has seen a continued struggle to complete Doha, which probably makes protests in this area seem less important.  The governments are doing a fine job on their own getting nothing done, so no need for protesters to try to get in the way in order to block the agenda.

And finally, there was that War in Iraq thing, which probably siphoned off a lot of the anti-globalization protesters, who now had more important things to worry about.

Why Is ACTA Called a "Trade Agreement"?

Following-up on Henning's post, let me ask a very basic question:  Why is the Anti-Counterfeiting Trade Agreement (ACTA) referred to as a "trade agreement"?  I'm sure this has been discussed somewhere, but I have not come across it. 

As Henning points out, ACTA appears to create trade barriers, not reduce them, which is the opposite of what "trade agreements" normally do (that's how I see it, anyway; some who accuse the WTO of creating "managed trade" would no doubt disagree).  And from an overview of key ACTA issues at Balkinization, it seems that the scope is pretty clearly about substantive IP issues, with only a limited connection to trade.

So why call it a trade agreement?  Two possibilities occur to me:

1)  It's easier to market international agreements as "trade agreements" than as IP protection agreements.  That may sound odd, given how difficult it has been recently to adopt actual trade agreements.  But perhaps the feeling is that greater protections for IP would be even less popular, so calling it a "trade agreement" is a better approach.

2)  Having moved IP protection into the trade sphere, through TRIPS and IP chapters of FTAs, everyone just got used to thinking of IP as a trade issuue, and it seemed natural to call ACTA a trade agreement, even though it has nothing to do with trade.  Well, not nothing, but very little.  Yes, it deals with "border measures" related to goods with possible IP violations.  Overall, though, in my view, ACTA relates to trade as much as, say, carbon emissions relate to trade, and I have not heard anyone suggest calling for a "Carbon Emission Trade Agreement."

Große Ruse-Khan: ACTA – A Draft Trade Agreement with a Potential to Create Trade Barriers?

A guest post from frequent commenter Dr. Henning Große Ruse-Khan

ACTA – A Draft Trade Agreement with a Potential to Create Trade Barriers?

After years of secrecy and forced by recent leaks (http://www.laquadrature.net/files/201001_acta.pdf), the negotiating parties to an Anti-Counterfeiting Trade Agreement (ACTA), currently the EU, the US, Japan, Australia, South Korea, Singapore, Morocco, and Switzerland, now have released an ‘official’ draft text (http://trade.ec.europa.eu/doclib/docs/2010/april/tradoc_146029.pdf)

In its press release (http://trade.ec.europa.eu/doclib/press/index.cfm?id=552), the EU Commission emphasises that

the overall objective of ACTA is to address large-scale infringements of intellectual property rights which have a significant economic impact. ACTA will by no means lead to a limitation of civil liberties or to "harassment" of consumers.

The Commission also points out that ACTA “will not hamper access to generic medicines.”

Amongst the various concerns expressed by NGOs and academics about the impact of ACTA, its potential impact on the free transit of goods and hence on international trade is one issue. Allegations were that ACTA would oblige countries to introduce border measures against goods in transit along the lines of an existing EU regulation which had lead to the highly controversial seizures of generic drugs in transit from India to various developing countries (http://worldtradelaw.typepad.com/ielpblog/2009/01/generic-pharmaceuticals-patent-infringement-and-freedom-of-transit-.html )

Now with an official draft text available, does ACTA indeed mandate seizures against goods in transit (and not only against imports, as Art.51 TRIPS provides)? And does it extend to goods allegedly infringing patents (instead of merely applying to pirated copyright- and counterfeit trademark goods, as the case with TRIPS)? The relevant ACTA provision states:

1. This section sets out the conditions for action by the competent authorities when goods are suspected of infringing intellectual property rights, within the meaning of this agreement, when they are imported, exported, in-transit or in other situations where the goods are under customs supervision.
2. For the purposes of this section, “goods infringing an intellectual property right” means goods infringing any of the intellectual property rights covered by TRIPS22. However, Parties may decide to exclude from the scope of this section, certain rights other than trade marks, copyrights and GIs when [not protected exclusively by copyright and trade mark systems and] [protected by [non-product- or sector-specific] [registration] sui generis systems.] (emphasis added)

ACTA hence obliges contracting parties to foresee border measures against goods in transit. And ‘goods infringing an intellectual property right’ generally cover all IP rights under TRIPS, including patents. Does it mean that ACTA would lead to more seizures of generic drugs or other goods merely on the basis of allegations of patent infringements in the transit country? If so, one might question its consistency with Art.V GATT (Freedom of Transit) and several TRIPS provisions such as Art.41:1 (which demands that IP enforcement procedures “shall be applied in such a manner as to avoid the creation of barriers to legitimate trade”).

The answer to these questions however does not seem so straightforward: An initial look leads to the following points and further questions:

- para.2 of the ACTA provision cited above allows to exclude certain types of IP infringements if the rights concerned are inter alia “[protected by [non-product- or sector-specific] [registration] sui generis systems.]” The still heavily bracketed text indicates certain (registration) rights may be excluded – does this cover patents?
- A bracketed Fn.21 to the border measure provision in the ACTA draft states: “No Party shall be obliged to apply this section to any goods that do not infringe an intellectual property right held within the territory of that Party.” Art.1.3:2 of the ACTA draft confirms this in form of a general rule. This seems to make the final fate of allegedly infringing goods in transit dependant upon the question whether the scope of IP protection in the transit country actually covers the mere transit as an infringing act. In other words, would the domestic IP law consider acts with a marginal territorial link to the transit country as infringements or does it demand a real and proven threat of trade diversion onto the market of transit country? In a similar UK case (Nokia vs. Commissioner of Customs), exactly this question has recently been posed to the European Court of Justice.
- Finally, the ACTA draft does not contain any ‘free trade’ safeguard provision like Art.41:1 TRIPS. But Art.1.1 states: “Nothing in this Agreement shall derogate from any international obligation of a Party with respect to any other Party under existing agreements to which both Parties are party.” Hence ACTA would have to interpreted in a manner consistent with GATT and TRIPS. Can this really be achieved – given that also a temporary detention of goods in transit (until courts have decided that such act does not infringe domestic IP rights) can interfere with free transit and create barriers to trade?

The Clove Cigarette Case and GATT Article III:4

As mentioned the other day, Indonesia is moving ahead with a WTO complaint against the U.S. clove cigarette ban, having now filed a consultations request.  I thought I'd do a short post on the GATT Article III:4 claim.

Here's the Article III:4 part of the consultations request:

(a) Discrimination under Article III:4 of the GATT 1994 between clove cigarettes and menthol cigarettes which are deemed to be "like products": Indonesia sees that these measures discriminate against imported clove cigarettes where clove cigarettes sold in the United States are imported (primarily from Indonesia), while virtually all of the menthol cigarettes sold in the United States are produced domestically (imports are negligible).

Article III:4 states:

The products of the territory of any WTO Member imported into the territory of any other WTO member shall be accorded treatment no less favourable 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.

There are two aspects of Article III:4 that I wanted to talk about:  (1) less favorable treatment, and (2) like products.

With regard to the less favorable treatment issue, let me first point out that this is a de facto discrimination claim, as there is no explicit reference in the statute to treatment of foreign or domestic products.  As to the nature of the discrimination claim, Indonesia appears to be making an argument based on the comparison of the group of imported products to the group of domestic products.  Indonesia sees the relevant group of like products as clove cigarettes (which are banned) and menthol cigarettes (which are not banned, at least not yet).  Because the banned clove cigarettes "are imported" ("primarily from Indonesia"), whereas the permitted menthol cigarettes are "virtually all" from the U.S. (and imports "are negligible), there is a disparate impact against Indonesian products.  Hence, there is less favorable treatment for imported products.  (Note that Indonesia does not seem to be making an argument based on the individual product approach, under which a violation would be found as long as an individual Indonesian product was treated worse than an individual U.S. "like" product.)

Assuming the facts are clear in terms of the distribution of clove and menthol cigarette production and sales in Indonesia and the U.S., the U.S. seems to have a difficult task here.  Perhaps it could make an argument based on the Appellate Body's statement in Dominican Republic - Cigarettes that "the existence of a detrimental effect on a given imported product resulting from a measure does not necessarily imply that this measure accords less favourable treatment to imports if the detrimental effect is explained by factors or circumstances unrelated to the foreign origin of the product, such as the market share of the importer in this case."  (See para. 96)  Or maybe it can put forward an argument about the intent of the measure.  But I think these are difficult arguments to win, and thus its focus will probably be on like products, which I turn to now.

The likeness of the products is going to be a difficult factual issue, and my discussion here is not going to do it justice.  These are just some general thoughts, not rooted in any actual research.

From the law itself:

Beginning 3 months after the date of enactment of the Family Smoking Prevention and Tobacco Control Act, a cigarette or any of its component parts (including the tobacco, filter, or paper) shall not contain, as a constituent (including a smoke constituent) or additive, an artificial or natural flavor (other than tobacco or menthol) or an herb or spice, including strawberry, grape, orange, clove, cinnamon, pineapple, vanilla, coconut, licorice, cocoa, chocolate, cherry, or coffee, that is a characterizing flavor of the tobacco product or tobacco smoke. Nothing in this subparagraph shall be construed to limit the Secretary's authority to take action under this section or other sections of this Act applicable to menthol or any artificial or natural flavor, herb, or spice not specified in this subparagraph.

So, the law identifies a bunch of sweet/fruit/candy/otherwise desirable flavors, and also cloves, that may be used in cigarettes, and bans these flavors.  It then explicitly permits action to be taken against menthol or other flavors, but does not ban them right away.  (The FDA recently began considering a menthol ban).

Thinking about the scope of the like products at issue here, my sense is there are a number of possibilities, including the following:

(1) all flavored cigarettes are like products;

(2) flavored cigarettes with flavors not likely to attract children to smoking is one group of like products, and flavored cigarettes with flavors likely to attract children to smoking is a separate group of like products; or

(3) menthol cigarettes are not like the other flavors, either the cloves or the sweet/fruit/candy flavors.

From Indonesia's perspective, it might make the most sense to argue that clove and menthol cigarettes are "like," in the sense that they are both flavored cigarettes of a kind not that likely (or at least, not as likely at the sweet/fruit/candy ones) to appeal to children.  (On the other hand, given the Washington Post article cited below, which indicates that menthol products appeal to children, perhaps Indonesia should just argue that all flavored cigarettes are "like.")

By contrast, the U.S. will try to make the case that clove and menthol cigarettes are not like, and thus their treatment should not be compared for the purposes of Article III:4.  I'm not quite sure how the U.S. plans to make this point.  From what I vaguely recall (although I don't have a particular source I can find), I don't think it can credibly claim that clove cigarettes cause children to smoke (and thus should be grouped with the sweet/fruit/candy ones).  In fact, it might be just the opposite -- the harsh taste is a deterrent.  It's actually menthol that is more of a problem in this regard. According to this Washington Post article:

Menthol cigarettes are especially popular among young smokers. According to the National Survey on Drug Use and Health, 62 percent of middle-school students who smoke begin with menthol cigarettes, whose minty taste can mask the harshness of tobacco.

One option is to talk about how clove cigarettes have been shown to be more harmful generally than menthols and other cigarettes.  I once came across a study suggesting that was the case, but it wasn't something I could evaluate with any degree of confidence.

WTO Consistency of China's Currency Policy: Views of Some Experts

As mentioned here, a number of experts recently weighed in on the consistency of China's currency policy with WTO rules.  Here are some highlights:

Staiger / Sykes

GATT XV:4/SCM

... we question whether China’s trading partners can readily make a convincing case that China has violated its WTO commitments by intervening in currency markets in a manner that frustrates the intent of the General Agreement on Tariffs and Trade. Similarly, the suggestion that one can characterise China’s policies as the equivalent of an illegal tariff and an illegal export subsidy is problematic. We do not necessarily advocate that China’s policies be ignored, but urge a great deal of caution toward proposals that would sweep them into the domain of unfair trade practices and bring to bear the arsenal of unilateral or multilateral trade sanctions.

Miranda

GATT XV:4

this paper argues that the existing language in Article XV(4) would permit challenging the undervaluation of the renminbi and that the prospects for obtaining a favourable outcome under this approach are reasonable

...

the sentence "Contracting Partners shall not by exchange action frustrate the intent of the provisions of the GATT", read in the context of Article II, arguably means that Members shall not institute "exchange action" (including exchange-rate policy or exchange-rate management) in order to "make ineffectual", "counteract" or "invalidate" the tariff concessions protected under Article II.

It would appear that a challenge of China’s currency undervaluation under Article
XV(4) would require showing that:

• exchange-rate intervention to support the renminbi has been massive;
• absent such intervention, the renminbi would have heavily appreciated (given the underlying trade flows);
• the degree of currency undervaluation is such that it has "made ineffectual", "counteracted", or "invalidated", in whole or in part. the tariff concessions granted by China under Article II; and that
• currency undervaluation has been mainly caused by government intervention, and thus meets the threshold requirement set forth in the Ad Note to Article XV(4) for triggering a violation of this provision by reason of a violation of Article II;

...

This paper has discussed the prospects for challenging currency undervaluation under GATT Article XV(4) and concluded, contrary to the existing literature, that such challenge is perfectly viable and has a reasonable chance of success. Notably, unlike US law, the legal standard under Article XV(4) does not require demonstrating that currency undervaluation constitutes "currency manipulation" targeted at preventing effective balance-of-payments adjustment "or to gain an unfair competitive advantage over other Members".

Trachtman

GATT XV:4/SCM

But Article XV(4) is a confusing provision when read, as it must be, in conjunction with its "ad note."5 The example of frustration provided by the ad note suggests that Article XV(4) might not be intended to provide an independent basis for claims against national exchange action, but instead is intended to reduce the coverage of other substantive provisions. Infringements of the letter of another substantive provision are only to be considered violations if they frustrate the intent of that substantive provision. If this were all that Article XV(4) covered, then it would definitely not expand prohibitions beyond the existing substantive provisions. And it is by no means clear that China’s currency regime violates the explicit prohibition of any substantive provision of GATT. However, this part of the ad note is framed as an example. So it is possible that there might be other unstated examples, such as a circumstance where the letter of a substantive provision is not violated, but its intent is violated. We simply do not know. If this broadening interpretation is available, however, then we might understand Article XV(4) as having a purpose similar to the concept of "non-violation nullification or impairment" in WTO law: making the nullification or impairment of the intent of another provision, through an exchange action, an independent violation of GATT. Indeed, this seems to be the natural meaning of the language of Article XV(4), absent the ad note.
...

Article 3 of the Subsidies and Countervailing Measures Agreement prohibits export subsidies and import substitution subsidies. But the definition of "subsidy" contained in Article 1 of the agreement demands that there be a financial contribution by a government. It is difficult to view the Chinese exchange action through the PBC as a financial contribution by a government to an exporter in this sense. If a creative reading of this provision were to result in a finding that the Chinese exchange action is indeed a subsidy, it is difficult to see it as a prohibited export subsidy or import substitution subsidy. This is because the availability of the alleged subsidy does not seem to be contingent on exportation or on the substitution of domestic products for imported goods.

Waibel

GATT XV:4/SCM

The IMF Articles draw a distinction between exchange policies (convertibility) and exchange-rate policies (Denters 2003). Article XV(4) presumably refers only to exchange policies.

...

It is difficult to qualify a fundamentally undervalued exchange rate as an export subsidy.

• First, Article 1 of the SCM Agreement contains a closed list of financial contributions, and exchange-rate valuations do not feature in this list.
• Second, the benefit to Chinese exporters as a result of the allegedly undervalued yuan is ambiguous. These benefits are also not sector-specific, but broadly shared.
• Third, even if a benefit is conferred, it does not appear to be contingent on export performance. This is because the exchange-rate applies across the board to various types of transactions.

Ahn

GATT XV:4/SCM/Non-violation

what the US government is complaining about is not the adoption of crawling peg system per se, but rather "maintaining" the current exchange rate for a prolonged period of time despite huge trade and financial consequences. This specific governmental policy choice can be understood as "exchange action", although adoption of crawling peg system may not be qualified for deliberate and specific nature connoted from "exchange action".

...

Although it is argued that China’s exchange-rate policy somehow provides financial contribution, those arguments are not tenable.

...

it is very difficult to argue that China’s exchange-rate policy satisfies specificity requirement by affecting only a small number of enterprises or industries.

...

it will be very difficult to demonstrate that China’s exchange-rate policy is a measure to be disciplined under the SCM Agreement simply because it has export promoting effects.

...

In the case of China’s exchange-rate policy, it will be unattainable to demonstrate that other WTO Members cannot legitimately expect China to maintain basically the same exchange-rate policy as that retained prior to the WTO accession. Accordingly, it is unlikely that a non-violation complaint can be successfully raised in the case of China’s exchange-rate policy.

Magnus / Brightbill

SCM/CVD

The Commerce Department began applying the US CVD law to Chinese products in 2007. Since that time, US industries have filed numerous petitions asking Commerce to include Chinese currency practices among the investigated subsidy programmes. Although the standard for initiating with respect to an individual subsidy programme alleged in a CVD petition is relatively low, Commerce has each time refused to investigate currency subsidies. In the first few China CVD cases, Commerce simply said, without detail, that the currency subsidy claims were inadequately pleaded. Yet the petitions did allege, with reasonably available supporting information, all the required elements: financial contribution (which exists any time a government and a company trade one thing for another, even yuans for dollars), benefit (the petitions adequately alleged, although one could not say that they fully proved, undervaluation), and specificity (more on this below). So Commerce was wrong, but there was no way to tell where it went wrong.

In a more recent case on coated paper, Commerce at last named the required element that in its view had been pleaded insufficiently: specificity1 In particular, Commerce stated: "Petitioners have failed to sufficiently allege that the receipt of the excess renminbi is contingent on export or export performance because receipt of the excess renminbi is independent of the type of transaction or commercial activity for which the dollars are converted or of the particular company or individuals converting the dollars."2

...

Commerce’s statement on specificity has some superficial plausibility since tourists and foreign investors receive the same exchange rate as Chinese exporters when converting dollars to renminbi; if there is any excess, it is made available to "dollar sellers" in all three categories. However, those familiar with US and international law on specificity regard Commerce’s position as indefensible. Among other things, the vast majority (reportedly at least 70%) of the subsidy goes to companies who can receive it only by exporting. This is precisely the fact pattern that led the WTO to decide in 2002 that the US’ extraterritorial income regime constituted a countervailable subsidy. In particular, the WTO Appellate Body found that the subsidy conferred by the extraterritorial income regime - an interim measure promulgated en route to full repeal of the earlier foreign sales corporation scheme - was export-contingent.3 Export-contingent subsidies are automatically specific.

Eventual Implementation in the WTO Cotton Subsidies Case

Sallie James of Cato sees signs of hope that the WTO U.S. - Cotton Subsidies ruling will eventually be implemented:

I’ve written before about Rep. Collin Peterson’s (D, MN) disdain for the World Trade Organization, and its rulings against U.S. farm programs. However, in launching his 2012 Farm Bill listening tour, the Brownfield blog reports that he sees that perhaps some changes might be necessary after all. And, lo and behold, he cites the WTO rulings as the reason:

One of the key issues [in the 2012 Farm Bill] will be what to do about the way that cotton farmers are subsidized. The committee’s chairman, Rep. Collin Peterson, D-Minn., said today that the cotton program will have to be overhauled in the wake of Brazil’s successful challenge to the subsidies at the World Trade Organization. The Obama administration agreed to change the program in a deal to avert retaliation against U.S. exports to Brazil. [link added]

Subsidies for cotton currently mirror those for corn, soybeans, wheat and other commodities, but there’s no reason why they have to be the same for each crop in the future, said Peterson. “In the past we’ve tried to have a one-size-fits-all approach, but maybe that’s not the case in the future. I’m willing to consider that,” he said. “If we don’t address it, we may be back in the soup again with potential retaliation issues.” [emphasis mine]

Finally, the penny drops.

Some good anecdotal evidence that WTO rulings can have an impact, and that DSU-authorized retaliation can be effective, although at this stage it is all just talk.

Plain Packaging of Tobacco Products under TRIPS

In the comments to another post, two readers suggested a discussion of this memo by the law firm Lalive, written to Philip Morris, entitled "Why Plain Packaging is in Violation of WTO Members’ International Obligations under TRIPS and the Paris Convention." 

The memo defines "plain packaging" as follows:

Plain packaging refers to regulations requiring tobacco companies to sell cigarettes in generic packages.    Except for  the  brand  name of  the  tobacco  product,  which would be  written  in  a standard font, colour and size, all other trademarks, logos, colour schemes and graphics would be prohibited and the package  itself would be in  a neutral colour.  Only the product content information and health warnings required by law would be displayed. The stated objective of plain packaging is to strip cigarettes of their perceived attractive image in order to reduce the incidence of smoking.

It sees a number of TRIPS violations:

Plain packaging would be inconsistent with a Member State’s obligations under TRIPS and the Paris Convention.  Indeed, such a requirement would breach a number of key provisions as  a  result  of  its  undue  impact  on  the  trademark  owner’s  intellectual  property  rights.    In particular, it would constitute a breach of Article 15(4) of TRIPS (which reproduces Article 7 of the Paris Convention), Article 6 quinquies (B) of the Paris Convention, as well as Articles 17  and  20  of  TRIPS.    In  addition,  contrary  to  what  is  argued  by proponents  of  plain packaging,  Article  8(1)  of  TRIPS  does  not  allow  States  to  circumvent  the  minimum protections provided by TRIPS.

Also in the comments to the other post, Benn McGrady starts off the discussion of these issues as follows:

With respect to the opinion concerning the TRIPs Agreement, it is far from an accurate reflection of the law. In 2004, I wrote the following article on the issue ‘TRIPs and Trademarks: The Case of Tobacco’, 3(1) World Trade Review (2004), 53 – 82. The analysis is a little dated, but in my view, the central conclusions remain valid. The most important of these conclusions is that the TRIPs Agreement does not oblige WTO Members to grant an affirmative right for a trademark owner to use a mark. The right is simply a right to exclude third parties from using the mark in certain circumstances.

Since then, the panel in EC – Protection of Trademarks and Geographical Indications has confirmed this conclusion. The Lalive opinion neglects to consider this aspect of the panel report and the merits of that opinion are undermined as a consequence.

As for me, I'm just going to make some brief points about Article 17 and Article 8(1).  Any TRIPS experts out there should feel free to add their thoughts in the comments.

First up, Article 8(1), which states:

Members  may,  in  formulating  or  amending  their  laws  and  regulations,  adopt  measures necessary to protect public health and nutrition, and to promote the public interest in sectors of  vital  importance  to  their  socio-economic  and  technological  development,  provided  that such measures are consistent with the provisions of this Agreement.

Here, I just have a quick question:  Does this provision have any impact?  It says you can pursue certain policy goals, but only to the extent the measures you take are consistent with the TRIPS Agreement.  So doesn't it really just say you have to follow the TRIPS Agreement with regard to any policies you are pursuing? 

Turning to Article 17, the memo has this to say: 

26. Article  17  of  TRIPS  sets  out  that Member  States  may  only  impose  limited exceptions  on trademark  rights,  and  even  then  they  must  take  into  account  the  legitimate  interests  of  the trademark’s owners.  Article 17 reads as follows:

Members  may  provide  limited  exceptions  to  the  rights  conferred  by  a  trademark,  such  as fair  use  of  descriptive  terms,  provided  that  such  exceptions  take  account  of  the  legitimate interests of the owner of the trademark and of third parties.

27. Plain  packaging,  unlike  exceptions  such  as  fair  use,  would  not  fall  under  the  scope  of  the exceptions  permitted  by  Article  17  because  it  in  no  way  takes  into  account  the  legitimate interests of the owners of tobacco trademarks or of tobacco consumers and is an overly broad encroachment on the owners’ rights.

28. First,  plain  packaging cannot  be  said  to  constitute  a  “limited”  exception.    Indeed,  plain packaging annihilates the rights conferred by trademarks.

29. Second, plain packaging fails to take account of the legitimate interests of trademark holders, which have been defined by a WTO dispute settlement Panel as follows:

Every  trademark  owner  has  a  legitimate  interest  in  preserving  the  distinctiveness,  or capacity to distinguish, of its trademark so that it can perform that function.  This includes its interest in using its own trademark in connection with the relevant goods and services of its own and authorized undertakings.  Taking account of that interest will also take account of  the  trademark  owner’s  interest  in  the  economic  value  of  its  mark  arising  from  the reputation that it enjoys and the quality that it denotes.

30. The  Panel  clearly  set  out  that  the  trademark  owner’s  legitimate  interests,  including  “its interest  in using its own trademark in connection with the relevant  goods and services of its own and authorized undertakings.”  Plain packaging, unlike more benign exceptions such as fair use, entirely prohibits the use of tobacco trademarks, and therefore entirely deprives the owner of the trademark’s basic function, which is its “capacity to distinguish”.  In addition, a plain packaging measure does not in any way attempt to accommodate the owners’ interest in the economic value of the trademark as it effectively wipes out that value.  The value of the trademark, according to the WTO Panel, arises from the reputation it enjoys and the quality it denotes.    If  the  trademark  owner  is  precluded  from  using  the  trademark,  such  goodwill becomes meaningless.  Trademark owners’ legitimate interests in the use of their trademarks would  therefore  not be taken  into  account  at  all  by a  plain packaging  requirement.    Rather, they  would  be  entirely  disregarded  and  denied. Indeed,  as  noted  above,  plain  packaging effectively amounts to an indirect invalidation of the trademarks subject to such regulation.

31. More  generally,  a  plain  packaging  measure  completely  ignores  the  balance  that  TRIPS, according to its preamble, seeks to establish between the private rights of intellectual property owners and the public interest.16 A TRIPS provision cannot be interpreted in a way that shifts that  balance.    As  a  result  of  its  complete  disregard  for  the  intellectual  property  rights  of obacco trademark owners, a plain packaging measure would be in clear breach of Article 17 of TRIPS.

There's a lot going on here, and I'm just going to make a brief point.  I wonder whether the plain packaging situation could be considered "limited" because it does not let someone else use the trademarks.  In the various TRIPS cases where these kinds of exceptions have come up, the issue has been someone other than the copyright/patent/trademark holder using the copyright/patent/trademark.  Here, that is not the case.  No one else is going to use the cigarette trademark, so that aspect of the trademark right remains intact.  It's just that the trademark holder cannot use it.  As a result, it could be argued that the diminution of rights is "limited."  (The McGrady comment makes a similar point, I think.)  For more on the "limited exception" issue under Article 17, see the EC - Trademarks/GIs reports:  Australia case, paras. 7.650-661 and U.S. case, paras. 7.650-661.

NAFTA Chapter 19 and the Constitution

I haven't yet gotten to the substantive discussion of the NAFTA Chapter 19 panel finding that zeroing violates U.S. law, but in the meantime let me ask this question:  Is there any chance this finding will lead to a constitutional challenge to NAFTA Chapter 19?  That's what happened in the softwood lumber case (the complaint was dropped after the case was settled).  Here's a brief snippet of the argument that was made there:

The constitutional argument is that binational panels and extraordinary challenge committees replace judicial review of decisions by the Department of Commerce and the U.S. Court of International Trade that would ordinarily be subject to review under Article III. The complaint charges Congress with "impermissibly outsourc[ing]" to binational panels adjudicatory power that were previously exercised by Article III courts. It asserts numerous constitutional infirmities including violations of Articles I, II, III, and V, the Due Process Clause, the Appointments clause, and the Non-Delegation Doctrine.

More here from the Coalition for Fair Lumber Imports.

I haven't heard any suggestion of such a complaint here, but it's clear that the supporters of zeroing feel pretty strongly about their position.

More on Is the U.S. Manipulating its Currency?

In response to this post, a reader points me to the Annex of a 2007 IMF Decision:

ANNEX

Article IV, Section 1(iii) and Principle A

1. Article IV, Section 1 (iii) of the Fund's Articles provides that members shall "avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members." The language of this provision is repeated in Principle A contained in Part II of this Decision. The text set forth below is designed to provide further guidance regarding the meaning of this provision.

2. A member would only be acting inconsistently with Article IV, Section 1(iii) if the Fund determined both that: (a) the member was manipulating its exchange rate or the international monetary system and (b) such manipulation was being carried out for one of the two purposes specifically identified in Article IV, Section 1(iii).

(a) "Manipulation" of the exchange rate is only carried out through policies that are targeted at—and actually affect—the level of an exchange rate. Moreover, manipulation may cause the exchange rate to move or may prevent such movement.

(b) A member that is manipulating its exchange rate would only be acting inconsistently with Article IV, Section 1(iii) if the Fund were to determine that such manipulation was being undertaken "in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members." In that regard, a member will only be considered to be manipulating exchange rates in order to gain an unfair competitive advantage over other members if the Fund determines both that: (A) the member is engaged in these policies for the purpose of securing fundamental exchange rate misalignment in the form of an undervalued exchange rate and (B) the purpose of securing such misalignment is to increase net exports.

3. It is the responsibility of the Fund to make an objective assessment of whether a member is observing its obligations under Article IV, Section 1 (iii), based on all available evidence, including consultation with the member concerned. Any representation made by the member regarding the purpose of its policies will be given the benefit of any reasonable doubt.

In para. 2(a), the IMF sees "manipulation" as "carried out through policies that are targeted at—and actually affect—the level of an exchange rate."  "Targeted at" sounds like a question of intent, and unlike some people I have no problem basing trade rules on intent, so to me this seems like a good starting point.  However, I think some additional criteria would be useful here, in both the flexible and floating exchange rate situations, to provide the basis for a determination that particular policies are "targeted at" the exchange rate level.

Industrial Policy Versus Protectionism

Dani Rodrik argues:

British Prime Minister Gordon Brown promotes it as a vehicle for creating high-skill jobs. French President Nicolas Sarkozy talks about using it to keep industrial jobs in France. The World Bank’s chief economist, Justin Lin, openly supports it to speed up structural change in developing nations. McKinsey is advising governments on how to do it right.

Industrial policy is back.

In fact, industrial policy never went out of fashion. Economists enamored of the neo-liberal Washington Consensus may have written it off, but successful economies have always relied on government policies that promote growth by accelerating structural transformation.

He then gives some specifics:

China is a case in point. Its phenomenal manufacturing prowess rests in large part on public assistance to new industries. State-owned enterprises have acted as incubators for technical skills and managerial talent. Local-content requirements have spawned productive supplier industries in automotive and electronics products. Generous export incentives have helped firms break into competitive global markets.

Chile, which is often portrayed as a free-market paradise, is another example. The government has played a crucial role in developing every significant new export that the country produces. Chilean grapes broke into world markets thanks to publicly financed R&D. Forest products were heavily subsidized by none other than General Augusto Pinochet. And the highly successful salmon industry is the creation of Fundación Chile, a quasi-public venture fund.

But when it comes to industrial policy, it is the United States that takes the cake. ...

... the US owes much of its innovative prowess to government support. As Harvard Business School professor Josh Lerner explains in his book Boulevard of Broken Dreams, US Department of Defense contracts played a crucial role in accelerating the early growth of Silicon Valley. The Internet, possibly the most significant innovation of our time, grew out of a Defense Department project initiated in 1969.

And he also says:

The shift toward embracing industrial policy is therefore a welcome acknowledgement of what sensible analysts of economic growth have always known: developing new industries often requires a nudge from government. The nudge can take the form of subsidies, loans, infrastructure, and other kinds of support. But scratch the surface of any new successful industry anywhere, and more likely than not you will find government assistance lurking beneath.

Here's my question:  Is there any meaningful distinction between protectionism and industrial policy?  He doesn't say it, but presumably Rodrik would also agree that tariffs, quotas and other traditional forms of protectionism can be used to "nudge" the development of new industries.  Thus, tariffs, quotas, etc., are a form of industrial policy.  He doesn't mention these measures, but all of the measures he does mention act similarly, in the sense that they provide a domestic industry with an advantage over (foreign) competitors, thereby helping them to develop.  The "nudge" is to domestic industries, and is at the expense of foreign competitors.

So isn't "industrial policy," in effect, the same as protectionism?  Isn't it just favoring domestic industries over foreign industries?  It certainly seems like there is a high degree of overlap between the two, anyway, especially given the examples he provides.

ICTSD: The Impact of the Cotton Dispute on Africa

A new report from ICTSD:

African farmers could have gained from a 3.5 percent average increase in world cotton prices, if the US had moved quickly to implement the recommendations of an international trade panel, a new study finds.

The study, commissioned ICTSD and conducted by Mario Jales of Cornell University, suggests that cotton prices would have risen over a 1998-2007 base period if the US had cut subsidies that were deemed unlawful by a dispute panel at the World Trade Organisation (WTO), following complaints by Brazil.

A recently-announced deal to resolve the dispute, on the eve of punitive retaliatory trade measures that Brazil was due to impose on the US, could leave African countries dependent on a negotiated settlement at the WTO. Under the bilateral accord, the US will review its export credit programme and provide USD 150 million in compensation to Brazilian producers - leaving cuts to the controversial ‘countercylical’ payments and marketing loan payment programmes to be discussed in subsequent talks.

The paper also finds that farmers in poor countries could have gained from an average 6 percent increase in world cotton prices over the same base period, if the US had accepted proposals made by African nations to slash the lavish subsidies enjoyed by rich country
producers.

Cotton production in the US could have declined by as much as 15 percent, the study suggests, if African proposals in the draft Doha accord were applied to historical output levels over the ten-year period examined by the study, and production in the EU could drop by as much as 30 percent. However, production volumes could increase by as much as 3-3.5 percent in Brazil, Central Asia and West Africa - with production values growing by up to 13 percent.

Similarly, if African proposals that are included in the Doha draft were applied to trade flows over the ten-year period that the study examines, US export volumes would have fallen by 16 percent on average. Average export volumes would have increased dramatically for Brazil and India (12-14 percent), and by a lower but still substantial amount in Uzbekistan, the ‘C-4′ West African cotton producing countries (Benin, Burkina Faso, Chad and Mali), and Australia (2-2.5 percent).

“There is an urgent need to rebalance existing trade rules that permit developed countries to highly subsidize domestic production, depress world prices, push farmers elsewhere out of production and impair prospects for economic advancement in the developing world”, Jales said.

“The adoption of ambitious domestic support reforms for cotton in the Doha Round would be a significant step towards the establishment of a fair and market-oriented trading system” added Jales.

The full paper is here: http://ictsd.org/i/publications/73808/

Is the U.S. Manipulating its Currency?

Scott Lincicome writes:

the Canadians ... announced an amazingly sane response to rapid currency devaluation by... wait for it... the United States.  Here's BNA (subscription) with the embarrassing details:

The government will not intervene in the Canadian dollar's continued increase in value compared to the United States dollar, but will instead focus on making businesses more competitive so they can better adjust to a stronger currency, Prime Minister Stephen Harper said April 7.

Scott and I then had a little back and forth in the comments to his post, partly about the difference between the meaning of "devaluation" and "depreciation".  One point Scott made was the following:

I see very little difference between what China does/did (i.e., hoarding USD to maintain the RMB's relative value) and what the US is doing (flooding the mkt with dollars at almost 0% interest and constantly signaling a desire for a weaker Dollar). Both nations are "manipulating" the value of their respective currencies for domestic policy reasons. The Chinese action might be a little more blatant, but both strategies involve "unnatural" (i.e., non-market) distortions of currency markets to further domestic policy agendas.

Over at vox, Avinash Persaud makes a similar point:

China held to the same exchange rate peg to the dollar for ten years up to 2005. Under a fixed exchange rate, a country only develops increasing trade surpluses as a result of improving price competitiveness. Of course, for your average American voter familiar with floating currencies, the whole idea of a fixed exchange rate smells of manipulation, but in fact it is easier to "manipulate" a floating exchange rate than a fixed one.

The US will deliberately pursue a policy of a loose monetary policy, partly in order for the dollar to weaken and US exports to grow at the expense of others. Many Europeans would like their central banks to follow a similar path.

This US policy was precisely the kind of beggar-thy-neighbour currency manipulation the IMF was set up to avoid. Instead the IMF is questioning whether a pegged exchange rate is manipulative. Welcome to doublespeak.

And here's Joe Stiglitz:

all governments take actions that directly or indirectly affect the exchange rate. Reckless budget deficits can lead to a weak currency; so can low interest rates. Until the recent crisis in Greece, the US benefited from a weak dollar/euro exchange rate. Should Europeans have accused the US of "manipulating" the exchange rate to expand exports at its expense?

Is the U.S. "manipulating" its currency?  How do the various U.S. actions compare to China's actions?  What standards would you use to answer these questions?  Unfortunately, I'm not sure there are any good standards to apply.  This is a big part of why I think international rules on exchange rate policies would be useful.  Exchange rates (whether fixed or floating) can be manipulated in order to favor domestic industries.  What we need are some objective criteria that can be used to evaluate whether this is happening.  Such standards might help avoid some of the heated rhetoric that we have seen over the past few months. 

As to the specific substance of the rules, well, that's beyond me.  I don't know how you figure out whether "loose monetary policy" has been adopted "in order for the dollar to weaken and US exports to grow at the expense of others."  But I would think that if you got together the relevant economic policy-makers in this area, it's possible they could come up with at least some general guidelines for when actions related to exchange rates (both fixed and floating) cross the line, going too far towards the intent of favoring domestic industries through an undervalued exchange rate.

 

WTO Rules and the Chinese Currency Issue

VoxEU has a new e-book entitled The US-Sino Currency Dispute: New Insights from Economics, Politics, and Law.  Here's the abstract:

Thanks to deft diplomatic footwork, a US-China confrontation over the renminbi has been avoided. But the US Treasury has merely postponed the publication of its report on foreign currency manipulators, and the dispute may overshadow the G20 meetings in June and November. The 28 short essays in this Ebook provide the best available economic, legal, political, and geopolitical thinking on the causes and likely consequences of the dispute.

And here's the part of the TOC addressing WTO legal issues:

SECTION 5: Does the crisis-era renminbi regime violate WTO rules? Is the threat of WTO litigation credible?

13. Currency ‘manipulation’ and world trade: a caution
Robert W. Staiger and Alan O. Sykes

14. Currency undervaluation as a violation of GATT Article XV:4 
Jorge Miranda

15. Yuan to fight about it? The WTO legality of China’s exchange regime 
Joel P. Trachtman

16. Retaliating against exchange rate manipulation under WTO rules 
Michael Waibel

17. Is the Chinese exchange-rate regime ‘WTO-legal’? 
Dukgeun Ahn

18. China's currency regime is legitimately challengeable as a subsidy under ASCM rules
John Magnus and Timothy C. Brightbill

Does Zeroing Violate U.S. Law?

A NAFTA Chapter 19 panel (well, the majority, anyway) says yes.  An excerpt:

A plain reading of the statute requires that all sales be analyzed in the dumping analysis as dumping refers to an aggregate concept. In directing the DOC to analyze aggregate amounts and compare average sales, the statute does not countenance a methodology, which permits the DOC to select some sales over others in the calculation of dumping margins. The wording of the statute requires that the DOC employ a methodology which analyzes all sales. Simply stated, the exclusion of positive value sales cannot be supported by the definition of aggregated amounts.

See pages 5-24.  There's lots of good Charming Betsy/Chevron talk, for those are into that sort of thing.

There is a two member (Lichtenstein and Liebman) dissent that says zeroing does not violate U.S. law.  See pages 53-90.

I hope to have something more to say about all this at some point, but it may be a while, so I thought I'd just mention the case for those who are interested.

WTO Complaint on the Clove Cigarette Ban

As some may have seen in the news, Indonesia is going forward with its WTO challenge to the U.S. clove cigarette ban.  Here is the key part of the WTO consultations request:

The Government of Indonesia maintains that the ban on the sale of clove cigarettes in the United States is inconsistent with various US obligations under the WTO rules and principles, including:

(a) Discrimination under Article III:4 of the GATT 1994 between clove cigarettes and menthol cigarettes which are deemed to be "like products": Indonesia sees that these measures discriminate against imported clove cigarettes where clove cigarettes sold in the United States are imported (primarily from Indonesia), while virtually all of the menthol cigarettes sold in the United States are produced domestically (imports are negligible).

(b) Article XX of GATT 1994 provides that any measures taken shall only be applied to the extent necessary to protect human, animal or plant life or health. The measures shall not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade.

(c) The TBT Agreement Article 2 obligates the United States to, inter alia, ensure that technical regulations accord imported products treatment that is no less favourable than that afforded to like products of national origin. Article 2 also obligates the United States to ensure that its technical regulations are not more trade-restrictive than necessary, thereby creating unnecessary obstacles to international trade. Article 2 also sets out additional commitments for the preparation, adoption, and application of technical regulations. In that regard, the TBT Agreement requires that the United States take account of scientific and technical information in adopting regulations.

(d) Article 12 of the TBT Agreement obligates the United States to take into account the special development and trade needs of developing country Members, such as Indonesia and to ensure that technical regulations to not create unnecessary barriers to exports from developing countries.

(e) The SPS Agreement Articles 2, 3, 5, and 7 provides detailed obligations on the adoption of sanitary and phytosanitary measures necessary to protect human, animal, or plant life or health.

With regard to the other possible WTO tobacco complaint, relating to a similar Canadian law, Eyes on Trade recently had this to say:

In October of last year, the Canadian Parliament passed the Cracking Down on Tobacco Marketing Aimed at Youth Act, which contained a provision outlawing the sale of cigarettes made with flavor additives that appeal to children.  This law applies equally to tobacco products that are imported and domestically produced, but this hasn’t stopped several countries from attacking the new law.

Last month, 14 countries, including the United States, raised concerns about Canada’s new tobacco law at a WTO committee meeting.  They believe that the public health law might constitute a technical barrier to trade that could be challenged under the WTO dispute resolution mechanisms.

The U.S. Trade Representative (USTR) raising concerns about the law is objectionable enough, but a 1998 law prohibiting the USTR and some other federal agencies from “using appropriated funds to promote the sale or export of tobacco or tobacco products and from seeking the removal of nondiscriminatory foreign restrictions on the marketing of tobacco” could get USTR into some hot water if it chooses to directly challenge the law.

In a letter obtained by Inside U.S. Trade, Rep. Lloyd Doggett, the sponsor of that 1998 law, asked USTR to change course:

I strongly urge that USTR take no action contrary to Canada on this matter, and indeed, good public policy on tobacco voiced generally by the Administration suggests USTR should be actively supporting the Canadians….Even beyond the troubling implications of the United States opposing a strong public health measure of another country, in this instance, prior law expressly forbids USTR from doing so.

USTR also raised the issue in its National Trade Estimate report last month.  In the report, though, USTR stated that “The United States strongly supports the objective of deterring youth from tobacco use.” If this is the case truly the case, USTR should back down from this misadventure and respect Canada’s right to enact common sense laws regulating its tobacco market.

I looked back at the discussion of this issue in the TBT Committee, and I was surprised to see there was no mention of discrimination.  I would have thought there would be some way to make a discrimination claim, similar to the way Indonesia raised it with regard to the U.S. law.  But at least according to the minutes of that meeting, it was not mentioned.  Perhaps the burley situation is different, in the sense that the impact is as great on Canadians as it is on others?  I'm not sure about all of the facts here.

Which Side Takes the Seal Products Dispute More Seriously?

The Economist says it's Canada:

Last July the European Parliament voted to ban the importation of seal products. ...

Canada and Norway believe that the European ban breaks international trade rules, and have both lodged complaints with the World Trade Organisation.  ...

The Canadian government clearly takes the issue seriously. It might even become a stumbling block in negotiations toward a free-trade agreement between Canada and the EU. The International Fund for Animal Welfare, a conservation charity, has criticised Canada’s zeal, complaining that the government it is spending more money defending the seal hunters than the industry actually earns. The Canadian government, for its part, feels duty bound to protect the interests of a number of its poorer citizens against lobbying from special interest groups a long way away.

The evidence that the EU takes the issue seriously is harder to find. The ban appears to be a cheap way to be seen to be doing something to protect animals, thus appeasing the animal welfare lobby, by attacking a group of people who cannot fight back. Anti-sealing activists view the trade ban as a monumental victory for animal rights, having had the Canadian hunters in their sights for years. Relatively few Europeans agree with animal-rights activists that any killing of animals is bad. But most people do not eat or wear seals, are squeamish about killing cuddly doe-eyed mammals, and do not worry about the inconsistency of such a ban being enforced by a group of nations which kills it own seals for the expediency of fishermen, and kills tens of millions of farmed foxes and minks for their pelts every year.

I'm not so sure about the conclusion that the Canadian government takes this more seriously than the EU government.  The way I see it, each side has a small group of enthusiastic supporters, with probably a slim majority of its citizens overall in support of the official position.  The Canadians seem more passionate about the issue, but that's because they are the ones who have to get the EU law repealed.  Those protesting the status quo always seem more emotional.  By contrast, the EU folks have the law they want on the books right now, so they are just calmly playing defense.

Anyway, I'm not sure any of that matters as much as the WTO consistency of the EU law.  In that regard, I'm curious to hear the EU response on the mink and fox point.

 

More on Australia - Apples

Following up on Meredith's post, there has been a lot of reporting in the Australia/New Zealand press about the decision.  Here is a sampling:

» Fruit decision a victory - opinion - blogs | Stuff.co.nz Citing "informed sources", it said the World Trade Organisation had found in New Zealand's favour in the long-running apple access case with Australia.

» Battle to exclude NZ apples - The Mercury TASMANIA'S apple growers will fight to have the state exempt from a World Trade Organisation ruling which will allow New Zealand apples into Australia.

» Rotten ruling a threat to apple industry | Adelaide Now THE Adelaide Hills apple industry is facing similar devastation to the Riverland's horticultural downturn, because of a World Trade Organisation decision to allow New Zealand apples into Australia for the first time in nearly a century.

» Crunch time for apple growers | The Australian Free trade benefits consumers and the wider economy

» WTO angers farmers over apple imports - AAP Australian apple growers are angered by reports the World Trade Organisation (WTO) will overturn Australia's 90-year ban on New Zealand apple imports.

» Radio New Zealand News : Australian apple growers vow to fight NZ imports The Australian pip fruit industry says it will keep fighting New Zealand apple imports because of the fire blight threat, despite a reported defeat over the case in the World Trade Organisation

» Win for NZ in apple dispute | Stuff.co.nz New Zealand has won the right to export apples to Australia

» NZ wins fight for apples to Australia NZ Apple and pear growers seem to have finally notched up a win against Australia at the WTO, in their battle to export pipfruit across the Tasman according to reports.

» ABC Radio Australia News:Stories:NZ claims victory on exporting apples to Australia The World Trade Organisation has reportedly overturned Australia's 90-year-old ban on importing New Zealand apples and pears.

» Peter Gallagher | NZ Apples, at last! But… The Apples Case should never have arisen because we should have welcomed NZ apples into our market decades ago

» NZ wins WTO apple war against Australia says report | BUSINESS News A 90-year battle to export New Zealand apples just across the Tasman to Australia could be coming to an end.

» Govt waits to claim 'big win' for apple growers - NZ Herald News The Government is declining to confirm that the World Trade Organisation's (WTO) interim panel report on Australia's non-tariff trade barriers to New Zealand pipfruit is a big win for local growers.

» NZ apple growers win trade dispute - Fruitnet.com  It has been reported that the long-running apple trade dispute between New Zealand and Australia is finally over

I thought one of the most interesting points was in this piece:

Local fruit retailers also have a problem with the imports proposal and say they will not stock the New Zealand fruit.

Benny Parsons, of The Nut House at Ulverstone, said the seven different varieties of apples he sells are grown in the Mersey Valley area and it would stay that way.

Grower Shane Weeks, of Ayer's Orchards, said the two big supermarkets would probably be the only retailers looking for the imported, and most likely cheaper, product.

He hoped NZ apples would be labelled as such if they ended up in local supermarkets.

So let's say Australia does eventually remove the restrictions.  How will Australian retailers and consumers react?

New Zealand - Australia Apples Dispute

The parties have received the confidential version of the panel's interim report in the Apples dispute, and the New Zealand press (citing unnamed officials) is reporting a comprehensive victory for New Zealand.  Assuming this is indeed the result, on the one hand it is not surprising due to the similarities to the Japan - Apples dispute.  However, it will be interesting to see how the panel applied the concepts of deference elaborated in Hormones - Continued Suspension as the approach taken by the AB in that report is one that has evolved since the Japan - Apples dispute.  It will also be interesting to see if Australia appeals.

Merrill & Ring v. Canada: More About NAFTA Ch. 11 Non-Discrimination Standards

Continuing with my occasional (although becoming somewhat frequent) posts on NAFTA Chapter 11 non-discrimination standards, there is a new decision to talk about: Merrill & Ring v. Canada.  The basic facts, from the Tribunal:

26. This case concerns a claim by the Investor in respect of the implementation of Canada‘s Log Export Regime to the Investor‘s timber operations in British Columbia and the requirement that any of its exports be subject to a log surplus testing procedure, among other regulatory measures.

Luke Peterson of the Investment Arbitration Reporter describes the case as follows:

The U.S. firm had contended that Canada imposed restrictions on the export of logs from Canada to the United States, and that these restrictions obliged the company to sell its products in Canada for less than they could fetch if exported to the United States. The claimant also objected to the administration of the log export regime which was viewed as exerting unfair, un-transparent and discriminatory effects.

With regard to the national treatment claims, the investor's arguments are at paras. 60-68 and Canada's arguments are at 69-78.  Here are some key extracts the Tribunal's summary of the investor's arguments (much of the focus was on "in like circumstances"):

61. It is argued in this connection that the Investor is in "like circumstances" with log producers that export logs from other parts of Canada and from other parts of British Columbia, as is also in "like circumstances" with other log exporters in that province, including those located in coastal areas. All these other log exporters are either not subject to the Log Export Control regime as practiced by Canada in British Columbia or subject to less restrictive regulatory measures.

62. This different treatment is, in the Investor‘s argument, particularly evident with respect to the unavailability of standing exemptions for its operations. Those benefiting from such exemptions have a significant advantage in treatment as opposed to those that have been excluded, such as the Investor. These advantages result from the fact that the producer knows in advance that it will be able to export its logs and can thus enter into supply contracts with its customers, for which it will be able to obtain the best market price, it is not subject to the surplus test and thus free from "blockmailing", and its products will not be subject to the exposure to the natural elements resulting in deterioration and infestation.

...

64. ... the Investor asserts that treatment ought to be compared with that accorded to domestic investments in the same economic or business sector, which is to be broadly understood, including in particular the requirement to provide for competitive opportunities. It is argued in this respect that in view of NAFTA‘s objective of promoting conditions of fair competition in a free trade area, the equality of competitive opportunities is an essential element of the national treatment standard. ...

65. In the Investor‘s submission, the concept of "like circumstances" does not mean that circumstances need to be identical and that even if the standard laid down in the Methanex decision is followed, so as to compare an investor with a domestic investor in an identical product market, in the instant case the test is satisfied because the product market for all comparisons is that of log producers.

...

67. The fact that the Investor is in "like circumstances" with log producers in Alberta, but subject to a restrictive regulatory export regime which does not apply to the latter, should be enough to establish that national treatment has not been observed. In addition, the Investor, as a producer in the British Columbia coast, is subject to stricter harvesting and sorting requirements than those that apply in the British Columbia interior. The Investor also asserts to be in "like circumstances" with producers in the British Columbia coast, many of which are subject to the more lenient conditions of provincial regulations. ...

The Tribunal's reasoning is at paras. 79-94.  I'm not going to go through all of the reasoning; rather I'll just quote some parts I found interesting and talk a bit about them.

First up, the role of intent:

80.  The Tribunal in S.D. Myers related "treatment" to a requirement of a practical impact on the investment and not merely a motive or intent so as to produce a breach of Article 1102. While motive or intent cannot be excluded from the scope of Article 1102 beforehand, it is not an issue that arises in the instant case.

I always like talking about intent in the context of non-discrimination, and I was glad to see that this Tribunal would not exclude intent entirely.  But nothing going on with the issue in this case, unfortunately.

Next, an important issue related to the relevance of different levels of government in the context of "in like circumstances":

81. An additional issue concerning treatment that the Tribunal also needs to consider is whether the treatment accorded to the Investor by the national government can be compared to that accorded under British Columbia jurisdiction. Canada argues in this respect that Article 1102(3) specifically distinguishes the treatment accorded by a state or province from that of the national government and, thus, the two cannot be compared.

82. Despite the fact that, on occasion, concurrent jurisdictions relating to the same activity might make that distinction difficult, as in some respects the instant case appears to reflect, the Tribunal considers the argument made by Canada correct.  Treatment accorded to foreign investors by the national government needs to be compared to that accorded by the same government to domestic investors, subject to meeting the requirement to be in "like circumstances", just as the treatment accorded by a province ought to be compared to the treatment of that province in respect of like investments.

I'm not sure yet what I think about this aspect of the reasoning.  I suppose it depends in part on what exactly the claim is.  If the claim relates entirely to the actions of the national government, then I think I agree that sub-national government actions would not be relevant.  But if it is the overall treatment resulting from the actions of various levels of government, it might not be so easy to separate out the different actions.  The issue came up again later in the reasoning:

89. Having decided that the proper comparison is between investors which are subject to the same regulatory measures under the same jurisdictional authority, which in the instant case is the comparison between foreign and domestic investors subject to Notice 102 and the national jurisdiction of the Canadian government, the Tribunal must now determine which is the appropriate comparator for the purposes of the treatment accorded to investors "in like circumstances" under Article 1102.

90. To the extent there are investors in identical circumstances to be compared, this makes it unnecessary to resort to the Methanex alternative choice noted above of finding investors in the most like circumstances. Such identically situated investors are those log producers operating on lands under federal jurisdiction in British Columbia and subject of course to the same requirements under Notice 102. ...

91. Canada has persuasively argued that the Investor must be compared to other log producers subject to Notice 102 and not to producers in other provinces, notably Alberta, or to producers that are operating under the provincial regulations. As some of the Investor‘s operations are located in provincially regulated lands, these ought to be compared with those operations of similarly located log producers, whether in respect of the surplus test or of harvesting and sorting requirements. Some sub-categories of provincially regulated operations, such as producers in remote areas of British Columbia, which is also the case of some of the Investor‘s operations, ought to be compared within that sub-category.

...

93. ... In all the comparisons that are made within the appropriate category, the treatment the Investor is accorded is identical to that accorded to domestic investors in the same category. ...

The basic idea, if I follow this correctly, is that the companies subject to particular regulations (e.g., federal or provincial) should be grouped together, and compared within the category (federal to federal, provincial to provincial).  I see the argument, but I'm not sure I'm convinced that companies that fall into different regulatory categories are never in "like circumstances."  However, I have a hard time reaching a firm conclusion on the point in the context of this case, mainly because this is in part a factual question and I'm not all that clear on the facts here.  I can imagine a situation where it is the overall regulatory regime, including both national and sub-national laws, that is at issue, and thus the categories might not be relevant for the comparison.  But I'm not sure this case matches that situation.

Now a bit of talk about whether to look at the "best treatment" available:

93. ... In all the comparisons that are made within the appropriate category, the treatment the Investor is accorded is identical to that accorded to domestic investors in the same category. Here, there is no issue as to which is the best treatment available to an investor, such as was discussed in Pope & Talbot, since the treatment here is the same in each category of comparison.

This "best treatment" point is another issue I would have liked to have seen discussed, as it is important for the scope of the national treatment standard.  Nothing got resolved here -- it will have to wait for another case.

Finally, the last paragraph, which for me was the most interesting part:

94. The Tribunal turns lastly to the issue of whether the purpose of Article 1102 is to prevent nationality-based discrimination as discussed in Feldman. In that case, the Tribunal concluded that the concept of national treatment in Article 1102 "is designed to prevent discrimination on the basis of nationality, or by 'reasons of nationality‘". While nationality-based discrimination would make a finding of breach of national treatment unavoidable, some argue that this is not the only aim of the concept of national treatment under Article 1102. They would say that, even in the absence of discrimination, a differentiated treatment which is arbitrary and unjustified might qualify as a breach of national treatment. Thus discrimination might entail considerations other than nationality. However, in the instant case there is not the slightest evidence that any of the measures discussed might be based on considerations of the nationality of the Investor. As concluded above, nor is there any differentiated treatment on other grounds among the appropriate categories of comparison. Accordingly the Investor‘s Article 1102 case must fail.

Parsing the things people say about non-discrimination can be extremely difficult.  I've been reading some old GATT cases recently, and I often find myself thinking, "What did they mean by that?"  Sometimes the same phrase can be used by different people to refer to different conceptions of national treatment.  Also, the different conceptions can be hard to define.  As a result, it's not always clear what a panel/tribunal has in mind.

Here, the Tribunal was somewhat clear in distinguishing between two approaches to national treatment, but I do have some questions nonetheless.

First, the Tribunal refers to "nationality-based discrimination."  I'm not sure everyone uses this term in the same way.  It could mean: (1) de jure discrimination based on nationality, or (2) de facto discrimination where there is evidence of intent and effect, or even (3) de facto discrimination where there is a clear disparate impact, or possibly even (4) something else entirely.  It's not clear to me what exactly the Tribunal had in mind here.

Second, the Tribunal also mentions "differentiated treatment which is arbitrary and unjustified."  It notes that some people would find a national treatment violation in this situation.   I think what is meant here is that an individual investor gets really bad treatment in comparison to the treatment received by some other investor (domestic or foreign).  This constitutes a violation even though none of the standards for "nationality-based discrimination" are met.  Here, my question is, is this basically the same standard as an "individual product" approach in GATT/WTO jurisprudence, where any less favorable treatment for a particular foreign product, as compared to an individual domestic product, leads to a finding of violation?  Or is it something different?

Moving to the conclusion, the Tribunal rejected the claims under either standard.  With the nationality-based argument, it said there was no evidence; on the "differentiated treatment" point, it went back to its "categories" reasoning.  As a result, it didn't have anything more to say about all this.

Summing up, it seemed to me that this Tribunal went with a narrow legal standard for national treatment, under which it is difficult to prove a claim of violation.  The key was its reliance on the different categories as part of the "in like circumstances" analysis.  This provided a good route for the panel to reject the claim, without having to get into some of the other national treatment issues noted above.

Causes of the China Currency Detente

Assuming we are on our way to a resolution of the China currency dispute, what caused the situation to improve so rapidly, when not long ago the rhetoric was getting quite heated?  Dan Drezner sets out some possibilities, along with his view:

If China's shift is a real one, there appear to be three possible sources of change:

1)  Domestic factors and actors convinced China's leadership that diminishing marginal returns for keeping the yuan fixed and masively undervalued had kicked in;

2)  China responded to mounting multilateral pressure and feared being isolated at the upcoming G-20 meetings. 

3)  China responded to threats of unilateral U.S. action, such as being named as a currency manipulator, and/or calls for a trade war;

These are not mutually exclusive arguments, and we might never know exactly what caused China's [change].  But for the record, I think (1) and (2) mattered a hell of a lot more than (3).  That said, I can't rule out the possiblity that their antics helped scare China into action. 

Thus, Drezner's view seems to be that the more strident unilateral approach of people such as Chuck Schumer and Paul Krugman was probably not the main reason for the recent positive developments.  That sounds reasonable and may be right.  Nevertheless, I wonder if this piece from the Economist offers some insights:

Mr Geithner also tried to shift the terms of the debate away from bilateral threats, by making clear that forthcoming multilateral meetings, especially those of the G20, are the right places to discuss China’s currency. And his willingness to stand up to domestic political pressure (130 congressmen had sent him a letter demanding immediate action), set a good example to policymakers in Beijing.

Note the part about Geithner's "willingness to stand up to domestic political pressure (130 congressmen had sent him a letter demanding immediate action)".  I wonder if this was a kind of "good cop, bad cop" exercise, in which the Krugmans and Schumers (the bad cops) of the world argue strenuously for strong unilateral action; then, the good cop (Geithner) can step in and reassure everyone that 25% tariffs, etc., will never happen, and that cooler heads will prevail as long as China shows some progress.  All along, Schumer and Krugman knew they were playing this role; that their proposals would not be followed; and that by making these demands they were setting the stage for a more moderate solution.  Somebody had to play that role, and they were happy to be the ones to do it.

On the other hand, maybe I'm reading way too much into all of this.  Perhaps they were simply arguing for what they thought was needed, and it was just that the moderate view won out.

SIEL Translations: Mercosur TPR Decision, 1/2005

The Society of International Economic Law has just released the first fruits of a trial project it is running, translating Spanish language material related to international economic law into English. The first project has been to translate the first decision of the MERCOSUR Permanent Tribunal for Review (N^o1/2005), on the Prohibition of the Importation of Retreaded Tyres from Uruguay.

The translation is on the SIEL website, at www.sielnet.org/sieltranslationproject.The official Spanish language version can be found here. 

The translation was carried out by: Taïs Jost; Nicolás Perrone (London School of Economics, Universidad de Buenos Aires); Maria Alejandra Calle-Saldarriaga (Universidad EAFIT); and Carolina Saldanha (Uno – Trade Strategy Advisors). Further detailed editorial work was then carried out byAleksandra Bojovic (London School of Economics), Nicolás Perrone, and Taïs Jost, with some assistance from myself. All have considerable expertise in international economic law, and they have volunteered an enormous amount of time to this project. I would like to thank them publicly on behalf of SIEL.

Substantively, there are quite a number of points of interest in this judgement. Some which spring immediately to mind:

-       the decision makes considerable and very explicit use of the case law of other integration arrangements, namely EC and Andean Community judgements, and one WTO judgement (Korea-Beef). It does so under the rubric of a notion of ‘the law of integration’. This will be of interest to those interested in tracking transnational interactions between courts, and in particular the borrowings and transplantations between different regional arrangements.

-       There are some interesting contrasts and comparisons with WTO law which present themselves. For example, the explicit (and summary) treatment of the subjective intention behind the prohibition on imported retreaded tyres (para 16) – which they dismiss as self-evidently protectionist.  Or the assertion that exceptions to the principle of free trade must be interpreted narrowly (para 10), an approach which has of course been rejected in WTO law.

-       There are intriguing references to the (in)ability of Mercosur Tribunals to refer to principles of public international law external to the Mercosur legal system. It’s not entirely clear, but what looks initially like an unequivocal rejection seems to get slightly more complicated later on the judgement. This at least offers some counterpoint to the usual discussion of whether and how the WTO could take regional law into account.

-       I found it interesting also that the PTR went out of its way to reject the notion that the application of environmental exceptions involves the balancing of two competing objectives, ie the freeing of trade and the protection of the environment (para 9) – particularly as the approach it preferred might not be that different in practice. There is a story to be told at some point, I am sure, which situates this kind of ‘conflicting considerations’ analysis (which we are very familiar with from the WTO’s approach to GATT Article XX) within the narratives told by of Duncan Kennedy and David Kennedy in their chapters in Trubek and Santos’ recent book on Law and Development.

We hope you find the translation of some use. The unusual language of the Tribunal in some places presented its own difficulties of translation, and we would value feedback. We would also value suggestions as to what material is most urgently in need of translation. At present, we have a second Mercosur judgement in the process of translation, as well as the Protocol of Olivos.

Settlements in Cotton and the Chinese Currency Disputes?

There has been some talk of settling two big disputes, the U.S. - Cotton WTO dispute and the Chinese currency dispute.  Cotton has progressed a bit further.  USTR provides the following details:

... the United States agreed to work with Brazil to establish a fund of approximately $147.3 million per year on a pro rata basis to provide technical assistance and capacity building. Under terms to be agreed by the United States and Brazil in the Memorandum of Understanding, the fund would continue until passage of the next Farm Bill or a mutually agreed solution to the Cotton dispute is reached, whichever is sooner. The fund would be subject to transparency and auditing requirements.

The United States also agreed to make some near term modifications to the operation of the GSM-102 Export Credit Guarantee Program, and to engage with the Government of Brazil in technical discussions regarding further operation of the program. The United States also agreed to publish a proposed rule by April 16, 2010, to recognize the State of Santa Catarina as free of foot-and-mouth disease, rinderpest, classical swine fever, African swine fever, and swine vesicular disease, based on World Organization for Animal Health Guidelines and to complete a risk evaluation that is currently underway and identify appropriate risk mitigation measures to determine whether fresh beef can be imported from Brazil while preventing the introduction of foot-and-mouth disease in the United States.

Following implementation of these initial steps, the United States and the Government of Brazil agreed to continue engagement on these issues, with a view to agreeing on a process by June that will allow us to reach a mutually agreed solution to the Cotton dispute.

And in the currency dispute:

U.S. Treasury Secretary Timothy Geithner will visit Beijing for talks with a Chinese vice premier for economic affairs on Thursday, Geithner's spokesman said, in a sign the two sides are moving toward settling a dispute over China's currency controls.

From the FT on the same issue:

China has begun to prepare the ground publicly for a shift in exchange rate policy, days after the US Treasury said it would postpone a decision on whether to name China a “currency manipulator”.

A senior government economist told reporters in Beijing on Tuesday China could widen the daily trading band for the renminbi and allow it to resume the gradual appreciation it halted in July 2008 in response to the global credit crisis.

I'm a little skeptical sometimes when settlements are announced, but perhaps progress is being made.  One thing I wonder about in Cotton is, what do other U.S. trading partners think of all this?  For example, how will the African cotton producers who were third parties in the dispute react to whatever "mutually agreed solution" is reached between the United States and Brazil?  Will they be satisfied with what the U.S. eventually offers?

And in the currency dispute, I guess the big question is, assuming a "gradual appreciation" occurs, will it be enough to satisfy those pushing hardest for revaluation?

A Possible WTO Complaint on Credit Card Services

I had seen brief references to a WTO complaint against China related to the credit card industry, but didn't know the details.  Here's the argument, as set out by Eric Grover in the Washington Times:

Chinese banks have 1.88 billion debit cards and 190 million credit cards outstanding, on which cardholders made 19.7 billion purchases last year. But they can't buy domestic card payment network services from American Express, Discover, JCB, MasterCard or Visa. China UnionPay (CUP) enjoys a protected card-payment-network monopoly. And merchant processors such as First Data and Global Payments, which have joint ventures in China with British banks Standard Chartered and HSBC respectively, can't compete with CUP and Chinese banks providing domestic card acceptance to merchants.

...

By Dec. 11, 2006, China's entire domestic credit and debit card market should have been open to foreign payment networks and processors. But there has not yet been a single domestic MasterCard or Visa payment transaction in China, almost nine years after it joined the WTO and three years after it pledged to have completely opened its domestic retail cards market.

While Chinese banks co-brand payment cards with MasterCard and Visa, it's only for use overseas where CUP's acceptance network is weak. Similarly, foreign merchant processors only provide card acceptance for MasterCard and Visa payments by tourists and business travelers visiting China.

...

China's ban on American, European and Japanese firms from its domestic credit and debit card market violates the letter and spirit of its WTO commitments, harms Chinese consumers and merchants, and hurts businesses such as Amex, Discover, First Data, Global Payments, JCB, MasterCard and Visa. Dialogue with no credible possibility of punitive consequences won't change China's conduct. Successful WTO complaints have borne fruit in other sectors. The United States should bring a card-payments WTO action against China unilaterally, or, possibly, with Japan and the EU.