In the comments, Jim Mathis points me to this paper by Terence Stewart and Elizabeth Drake, entitled "Addressing Balance-of-Payments Difficulties under World Trade Organization Rules". The background they provide on GATT Article XII and balance of payments issues is excellent. They pack a lot of information into a fairly short (13 pages) paper. It's well worth a read.
In addition to this background, they make a brief case for the Warren Buffett "trade balancing" proposal as a measure justified under GATT Article XII. They describe the proposal as follows:
Warren Buffett’s trade balancing proposal would bring the chronic U.S. trade deficit into balance by creating import certificates equal to the value of U.S. exports. These certificates could be granted to exporters and sold by them on the open market, or they could be auctioned by the government through a certificate market. While the first method would provide benefits to exporters, the second method would help reduce or eliminate potential inconsistencies with WTO prohibitions on export subsidies. In addition, the second method could generate a stream of revenue for the government. Importers would be required to redeem a certificate equal to the value of the merchandise being imported for each entry.
With regard to GATT Article XII, the key bit is para. 2(a), which states in part:
Import restrictions instituted, maintained or intensified by a contracting party under [Article XII] shall not exceed those necessary:
(i) to forestall the imminent threat of, or to stop, a serious decline in its monetary reserves,
or
(ii) in the case of a contracting party with very low monetary reserves, to achieve a reasonable rate of increase in its reserves.
So can the U.S. argue that it is experiencing a "serious decline in its monetary reserves" (or threat thereof), or "very low monetary reserves," and thus can invoke Article XII to use this kind of trade balancing measure? Stewart and Drake address the point as follows:
... the fact that Article XII focuses on the decline in a country’s monetary reserves should not prevent the United States from invoking Article XII merely because the dollar is now the international reserve currency. As Table 1 demonstrates, in 2007 the amount of international reserves held by the United States was small in absolute terms compared to other countries and extremely low relative to the value of U.S. imports. In fact, U.S. reserves were not sufficient to cover even eleven days worth of imports. When the U.S. invoked Article XII in 1971, and the IMF and GATT parties agreed the country was facing a balance-of-payments crisis, U.S. reserves equaled the value of about three months worth of imports.
While other countries may argue that the United States does not need large reserves due to the status of the dollar as the dominant global reserve currency, the IMF has repeatedly stated its concerns regarding the unsustainability of the U.S. trade deficit.
I'm in a little over my head talking about monetary reserves, but if I understand this all correctly, Stewart and Drake are making the point that "international reserves" held by the U.S. (that is, reserves of currencies other than the U.S. dollar) are very low right now. As a result, the terms of Article XII:2(a) are met. And while other countries might argue that the U.S. reserves being examined should include U.S. dollars, as that is the main global reserve currency, Stewart and Drake argue that, even if true, this is not sufficient to preclude the use of Article XII in this situation, as the IMF has expressed concerns about the U.S. trade deficit.
I had always assumed that the U.S. would not be able to satisfy the low monetary reserves standard, because the dollar is the main reserve currency and we have lots of those (and can print more if we need them). But I'd be interested in hearing other views on this. Is there something to the idea that U.S. "international reserves" could be low enough to justify recourse to Article XII?
In looking at some of the sources cited in the Stewart/Drake paper, I came across this statement from the GATT negotiations: "The underlying principle of Article 26 is the protection of the balance of payments and monetary reserves. It is being generally understood that the term 'monetary reserves' includes gold and convertible currencies." (p. 12 of this document) Not a definitive interpretation, but interesting nonetheless. No doubt there is more out there, and some of it may contradict this.
