International Economic Law and Policy Blog

Ongoing Seals' Case (ECJ initial decision)

For those following the Canada-EU seals case, it continues to develop - with one avenue being its slow progress through EU (ECJ) domestic fora.  The Sydney Morning Herald (via the AFP news service), and other papers (but probably not read by as many of the Blog's readers), reported in a story titled "Seal hunters lose bid to lift EU ban" (see www.smh.com.au) that:

"A European judge has refused to suspend a ban on the import of seal products in Europe, dealing a blow to Canada's Inuit hunters and fur traders. . . . The new ruling on Thursday by the European Court of Justice further "disappointed" both Canadian sealers and Ottawa. Judge Marc Jaeger rejected an argument made by the Inuits that the embargo on seal products would cause severe financial damage and raise the risk of suicide among youths in their communities.

The ban took partial effect on August 20, with a temporary exemption for Inuit Tapiriit Kanatami (ITK), a native Canadian group, and 15 other plaintiffs who sought a freeze until Europe's top court makes a final ruling. But Jaeger rejected the request, making it a total ban until the European Court of Justice decides on the legality of the prohibition.

The European ban includes an exemption for seal products derived from hunts traditionally conducted by Inuit and indigenous communities for subsistence. Despite the exemption, Inuits insist that they are nevertheless affected because it shrinks the market for the product. They also fear that the exemption would not always be respected. Jaeger was not swayed. "The plaintiffs presented no concrete indication that would justify their fears in this regard," the judge wrote in his October 25 decision issued in French.

His decision can be appealed. In Brussels, the European Commission said the legislation would now apply "to all, fully and without restriction". The EU executive said the plaintiffs' case was "misguided and clearly inadmissible.  . . ."

The story also noted that the next round of the WTO seals dispute negotiations were to start this month.  If anyone knows more about the status and content of those negotiations it would be great to hear about it.  I think this case has the potential to be a very significant Article XX case (with the morals exception looming large).  

 

 

Monetary Policy and Subsidized Government Loans

It is pretty well accepted, I think, that government loans provide a "benefit" (one component of a subsidy) when they are made at "below market" interest rates.  However, given the role of governments in setting interest rates, through the monetary policy implemented by central banks, are interest rates ever really "market based"?  Is there a free market here at all?  And if not, can government lending ever be "below market"?  These questions occur to me after reading the following passages from the U.S. - AD/CVD on Products from China panel report:

10.124 ... China ... argues [that] central banks set interest rates as a tool of monetary policy, which rates in turn affect the interest rates on commercial loans charged by all banks, whether or not the latter are government-owned. According to China, ... the effect that governments have on interest rates does not result from whatever role they play in the market for commercial lending, i.e., from their "role in providing the financial contribution". Rather, it arises from their role as a government in guiding monetary policy.

10.125 ... China's argument presumes that all government control or regulation of or intervention in lending markets, of whatever kind and degree, must be treated as the simple implementation of general monetary policy, which by definition cannot give rise to distortion of lending rates so as to make the observed interest rates within the country unusable as benchmarks (even if all of those observed interest rates happened to be for government-provided loans). We see no such rule in Article 14(b) or anywhere else. Indeed, we recall that the overall purpose of the SCM Agreement includes, precisely, to discipline certain forms of market interventions by governments. We can see no logic, given this, to considering that a particular class of government market interventions (relating to interest rates) must be accepted "as is" as the underlying "market" condition, particularly where the question to be resolved is exactly whether on a given loan transaction the interest rate charged by that same government is "below-market".

10.126 ... Here, we see a clear distinction between, on the one hand, the government as the setter and implementer of the general monetary policy of a country; and, on the other hand, the government participating as a lender and/or otherwise intervening in the lending market as such, in a way and to an extent that effectively it is the government, and not the market, that establishes the lending rates.

10.127 We acknowledge, as China points out, that government influence over interest rates is an important feature of monetary policy. Indeed, adjusting their own lending rates up or down is one of the principal tools by which central banks influence the money supply. It also is true that interest rate movements at the central bank level ripple through the commercial lending market such that the different sorts of commercial lending rates (short- and long-term, fixed and floating, for borrowers of different risk levels, etc.) tend to move in parallel with the central bank rates. This indeed is generally the goal of such central bank actions, as the loosening or tightening of commercial credit directly increases or decreases the money supply. 

10.128 This is a very different matter, however, from a hypothetical situation in which, for example, the government is the only lender in a country. ...

Is there a difference between central banks setting interest rates to guide the economy, as compared to government lending at low interest rates as a policy tool?  If so, is the difference one of degree, or are these completely different categories of actions?

It's worth noting that even if there were an issue here relating to central banks influencing interest rates, this is an area where "everyone's doing it," so it would be hard for a WTO panel to condemn it. 

Location Incentives for Film-Making

Reader Pietro Poretti points me to this article indicating that subsidies and other incentives for movie production are alive and well:

The Hobbit will be made in New Zealand, Prime Minister John Key has announced.

He said at a press conference this evening that new labour laws would be introduced to Parliament tomorrow to support this. It will apply only to the film industry.

Mr Key also announced The Hobbit will get a $20million ($15m US) tax rebate - US$7.5m per film - and said he would be surprised if the films were the last to be made by Warners in New Zealand.

The Government will also offset U$10m of Warner Brothers' marketing costs. In exchange Warner Brothers will work with the government to promote New Zealand as a film production and tourism destination.

Marketing from the movies will be worth ''tens of millions'' to New Zealand, Mr Key said.

The future of the $670 million production hung in the balance after an actors union issued a no-work order on the films last month.

Talks were held overnight with studio executives from Warner Brothers to resolve concerns about industrial laws in New Zealand.

But the studio was also holding out for a bigger tax subsidy from the Government.

The film's executive producer Sir Peter Jackson would "be a very happy camper" Mr Key said at the announcement.

The movie will premiere in New Zealand and the Government would plan a major campaign promoting the country to coincide with its launch, Mr Key said.

"It's good to have the uncertainty over, and to have everyone now full steam ahead on this project."

He said he thought the Government had got the package right. A memorandum of understanding with Warner Brothers was signed at around 7pm tonight.

It was "unacceptable" to the New Zealand public to have the film go offshore, he said.

He believed the new legislation would not take rights off workers.

See here and here for previous posts on this topic.

 

Brazil's Proposal on Currency Undervaluation Issues

From Reuters:

Brazil's Finance Minister Guido Mantega will propose at the Group of 20 nations meeting next month that the International Monetary Fund create an index measuring currency manipulation, local media reported on Thursday.

The idea is to identify who is keeping their currency artificially low to boost exports, Mantega said, lending support to eventual actions against illegal subsidies at the World Trade Organization.

"The IMF would have to come up with a method to measure which currencies reflect the structural situation of their countries, which are floating currencies, and which ones are forcing their hand," Mantega told O Globo newspaper in an interview.

The next step would be to make a deal to reduce such intervention, and if that didn't happen the manipulation could eventually be considered a commercial subsidy, Mantega said.

"In fact, the WTO considers currency manipulation to be a commercial subsidy that has to be avoided and could result in sanctions", he said.

It will be interesting to see if this proposal goes anywhere.

Trade in Everything: Lethal Injection Drugs

From the AP:

Facing a nationwide shortage of a lethal injection drug, Arizona has taken an unusual step that other death penalty states may soon follow: get their supplies from another country.

Such a move, experts say, raises questions about the effectiveness of the drug. But it also may further complicate executions in the 35 states that allow them, as inmates challenge the use of drugs not approved by federal inspectors for use in the U.S.

Arizona said Tuesday that it got its sodium thiopental from Great Britain, the first time a state has acknowledged obtaining the drug from outside the United States since the shortage began slowing executions in the spring.

"This drug came from a reputable place," Chief Deputy Attorney General Tim Nelson said. "There's all sorts of wild speculation that it came from a third-world country, and that's not accurate."

Nelson said the state revealed the drug's origins to let the public know that its supply is trustworthy and to dispel rumors. However, he did not name the company that manufactured it.

...

There are no FDA-approved overseas manufacturers of the drug.

The limited supply has also directly affected executions in California, Kentucky and Oklahoma, and may affect executions in Missouri, which says its supply of sodium thiopental expires in January.

...

The issue will come down to whether an overseas version of sodium thiopental would be equivalent to what the FDA has approved here, said Ty Alper, associate director of the death penalty clinic at the University of California-Berkeley.

Does this give death penalty opponents a new avenue to pursue, higher tariffs on lethal injection drugs, to make the process more expensive?

And note the reference to "equivalence" in the last quoted paragraph.   I don't think the SPS Agreement (and its Article 4 provisions on equivalence) would apply here, but similar issues could arise under other agreements if the sale of foreign products is not allowed.

And by the way, I fully expect this to be my first, last, and only post on the death penalty.

A Non Liquet Example

A little while ago, I posted about Claude Barfield's suggestion on using "non liquet" in WTO dispute settlement:

where the texts are unclear or contradictory, panels and the AB should be allowed or even instructed to adopt the non liquet doctrine—or in effect, “it is not clear.” Invocating this doctrine would allow the judicial panels to throw the issue back to the WTO General Council or to trade round negotiations.

I think I have a good example of a situation where a panel might have very much liked to have the option of throwing an issue back to the WTO Members, from the U.S. - AD/CVD on Chinese Products panel report (DS379), circulated lasted Friday.  Here's the issue.

SCM Agreement Article 12.1.1 states in relevant part:

Exporters, foreign producers or interested Members receiving questionnaires used in a countervailing duty investigation shall be given at least 30 days for reply. ...

The parties disagreed on whether certain "questionnaires" sent out by the Department of Commerce were  "questionnaires" covered by Article 12.1.1.  The arguments were as follows:

15.2 China submits that the term "questionnaires" in Article 12.1.1 of the SCM Agreement refers not only to the first questionnaire issued in a countervailing duty investigation, but to "all" questionnaires, without qualification. Therefore, China claims, the United States acted inconsistently with this provision by failing to give China and investigated producers at least 30 days to reply to the "supplemental" and "new allegations" questionnaires issued by the USDOC in the four investigations at issue.

...

15.7 The United States considers that there is no obligation under Article 12.1.1 of the SCM
Agreement to provide the minimum 30-day period for reply to supplemental and new allegations questionnaires. According to the United States, "questionnaires" in Article 12.1.1, for which investigating authorities must provide at least 30 days for reply, refers to the questionnaire issued at the outset of an investigation, and not to subsequent requests for information.

So, the issue was whether "questionnaires" covers only the initial "questionnaires," or certain later "questionnaires" as well.

Here's the Panel's conclusion:

15.37 For the foregoing reasons, we conclude that the term "questionnaires", as used in Article 12.1.1 of the SCM Agreement, refers to the initial comprehensive questionnaire (or set of questionnaires) issued by an investigating authority at or following the initiation of a countervailing duty investigation covering the spectrum of issues on which the investigating authority will have to make determinations in relation to subsidization of the investigated product, injury and causation.

The Panel's interpretation is detailed and thorough, relying heavily on the context and the object and purpose.  (And there's a similar finding under the corresponding AD Agreement provision to provide further support).  At first glance, its reasoning seemed sensible to me.  Nevertheless, interpreting a word such as "questionnaires" is a difficult task.  I suspect this is a situation where the panelists may have wanted the option of throwing the issue back to the WTO Members.  Of course, there's an obvious problem with that.  The Members do not agree, as evidenced by the views of two of the third parties:

15.12 Argentina agrees with China that the minimum 30-day period for reply in Article 12.1.1 of the SCM Agreement applies to all "questionnaires" issued in an investigation, including the "new allegation" questionnaires. According to Argentina, this interpretation is consistent with the due process principle of "ample opportunity" in Article 12.1 of the Agreement. ...


15.13 Canada, recalling the findings of the panel in Egypt – Steel Rebar, considers that the 30-day requirement in Article 12.1.1 of the SCM Agreement only applies to the initial questionnaire issued inan investigation. Canada considers that this interpretation is supported by the context of Articles 12.1and 12.1.1 of the Agreement.  ...

 

The Ukraine-Armenia Cigarettes and Alcohol Dispute

I had been trying to do some posts on the Ukraine-Armenia WTO dispute over taxes and duties on cigarettes and alcohol (DS411), because I figured it would not get reported on much in the mainstream media.  But perhaps I better stop trying to do this kind of reporting, given my record of accuracy.  In my last post, based on a news report on an Armenian web site indicating that the measure had been modified, I said:

The Ukraine had requested a panel, but the dispute didn't even reach the panel establishment stage. Apparently, sometimes a panel request is all you need in order to get compliance.

But now I see a report from the WTO in its summary of yesterday's DSB meeting, noting that the panel request is going ahead: 

Ukraine introduced its first-time request for a panel. Ukraine was of the view that Armenia’s measures violated Articles III:1, III:2 and III:4 of GATT 1994 as well as Armenia’s commitment in its accession working party report to apply its domestic taxes in a non-discriminatory manner consistent with the national treatment provisions before or from the date of accession. According to Ukraine, the measures at issue are: the Presumptive Tax which imposes higher tax rates on imported cigarettes than on like domestic products; the collection of import duties on imported cigarettes in excess of duties set forth in Armenia’s Schedule of Concessions; and the imposition of higher excise tax rates on imported alcoholic beverages than on like domestic products. Armenia said that it hoped to intensify bilateral consultations with Ukraine and was thus not in a position to agree to the establishment of a panel. Consequently, the DSB agreed to revert to this matter.

I think the lesson is that I should stick to quoting cases and such, and avoid trying to figure out what is in the minds of governments in relation to their plans for particular cases!

The EU Tries to Co-opt Some Americans on GIs

From Reuters:

A gourmet coffee from the island of Hawaii won an European prize for top quality foods on Saturday as part of Europe's efforts to bolster the global use of prestigious place names like Champagne, Parma or Roquefort.

The European Union is in a long-running dispute with countries such as the United States over the enforcement of geographical names for some of the world's most popular foods to stem the booming trade in counterfeit goods.

"(The prize) is a symbol of solidarity towards Hawaiian producers and of a shared battle aimed at eliminating all imitations," Leo Bertozzi, director of Italy's Parmigiano-Reggiano cheese consortium which assigns the annual prize, said in a statement.

The EU is pushing to extend protection under the World Trade Organisation rules to all "geographical indicators" -- the names of foods and wines based on places such as Champagne and Parma -- but is being resisted by the U.S. and other New World producers.

...

Kona coffee grows on the slopes of Hawaiian mountains, in rich volcanic soil and is hand picked, sun dried and custom roasted. Kona coffee has a premium price of $29.87 per lb, compared with the average retail price of $3.17 per lb, according to the Food and Agriculture Organization data.

International Law as "Conceptual Guidance"

As most of this blog's readers are aware, there is an ongoing debate about the role of international law in WTO dispute settlement.  Perhaps adding to that discussion, this is from yesterday's WTO panel report in U.S. - AD/CVD on Products from China (DS379):

8.87 Before we address the substance of this argument, we consider the status of the [International Law Commission's Draft Articles on Responsibility of States for Internationally Wrongful Acts], and in particular whether as China argues we must as a matter of law interpret the provisions of the SCM Agreement at issue in conformity with language and concepts in certain provisions of the Draft Articles. In this regard, the first question is whether the Draft Articles are recognized in the WTO as "rules of international law applicable in the relations between the parties" to the dispute, and the second question is whether they are "relevant" to this dispute. On the first question, in our view, China significantly overstates the status that has been accorded to the Draft Articles where they have been referred to by panels and the Appellate Body. Indeed, in not a single instance of such citations identified by China has a panel or the Appellate Body identified the Draft Articles as "relevant rules of international law applicable in the relations between the parties" in the sense of Article 31(3)(c) of the Vienna Convention, such that they should be "taken into account together with the context" when interpreting the treaty. Rather, in our view, the various citations to the Draft Articles have been as conceptual guidance only to supplement or confirm, but not to replace, the analyses based on the ordinary meaning, context and object and purpose of the relevant covered Agreements.  In particular, while in some cases the Draft Articles have been cited as containing similar provisions to those in certain areas of the WTO Agreement, in others they have been cited by way of contrast with the provisions of the WTO Agreement, as a way to better understand the possible meaning of the provisions of the WTO Agreement. In all cases, however, the exercise undertaken by these panels and the Appellate Body has been to interpret the WTO Agreement on its own terms, i.e., on the basis of the ordinary meaning of the terms of the treaty in their context and in the light of the object and purpose of the treaty. (emphasis added)

Is the Panel on to something in the italicized sentence?  Is "conceptual guidance" a good way to think about how international law is most likely to play a role in WTO dispute settlement?

This reminds me of the "role of precedent" discussion.  Prior panel and Appellate Body reports clearly have some relevance.  The question is, how much?  The same issue arises for the use of international law. 

Concurrent AD/CVD in the WTO Panel on U.S. - AD/CVD on Products from China

In November of last year, I said this about the issue of concurrent anti-dumping/countervailing duties:

GATT Article VI:5 provides: "No product of the territory of any Member imported into the territory of any other Member shall be subject to both anti-dumping and countervailing duties to compensate for the same situation of dumping or export subsidization."  Thus, under this provision, double remedies cannot be applied to the "same situation" of dumping and export subsidies, perhaps indicating an assumption by the drafters that export subsidies lead to dumping.  There is no similar provision excluding double remedies for domestic subsidies and dumping.

However, given the earlier discussion of how domestic subsidies could lead to dumping, the question arises as to whether there is some general principle that might prohibit double counting in the domestic subsidy context.  It certainly seems unfair, in some general sense, to allow authorities to impose remedies on both subsidies and dumping where the subsidies have led to the dumping.  But it is difficult to fit this concern within a specific WTO obligation, and the explicit prohibition in relation to export subsidies makes the argument difficult. ...

Today's WTO panel report on U.S. - AD/CVD on Products from China (DS379) seems to take this view, addressing the issue as follows:

14.117 Thus, by its very terms, Article VI:5 of the GATT 1994 is limited to "situation[s] of [...]export subsidization". In our view, these terms are self-explanatory in their intention to limit the scope of the prohibition in Article VI:5 to situations involving export subsidies, to the exclusion of situations in which domestic subsidies are granted on exported goods. Such a narrow reading of the terms "situation of [...] export subsidization" is supported by the context to Article VI:5, and in particular by the distinction made between domestic vs. export subsidies in Article VI:3 of the GATT 1994, which deals with countervailing duties, and by the separate treatment accorded to export subsidies under Article XVI of the GATT 1994. These provisions demonstrate that the drafters intended to make a distinction between subsidies granted with respect to the production or manufacture of goods (i.e., domestic subsidies) and subsidies granted in respect of the export of goods (i.e., export subsidies). ...

14.118 Not only is Article VI:5 limited to potential double remedies in respect of export subsidies, but the explicit terms in which the drafters addressed the issue in that provision makes it all the more unlikely that they sought to prohibit the imposition of double remedies in respect of other types of subsidies through Article 19.4 of the SCM Agreement given, again, that Article 19.4 on its face makes no reference to that issue.

Based purely on the Article VI:5 text, this conclusion makes some sense, but it is a bit unsatisfying nonetheless.  More on all this later.

Zeroing and Prospective Normal Value Systems

This is from the U.S. opening statement at the second panel meeting in U.S. - AD Measures on Orange Juice (DS382):

Brazil’s Arguments Are Inconsistent with Both the Concept of, and Its Own
Application of, a Prospective Normal Value System

13. The United States has demonstrated that the obligation that Brazil seeks to impose on Members is contrary to the very concept of a prospective normal value system provided for in Article 9 of the Antidumping Agreement. Under such a system, the amount of liability for payment of antidumping duties is determined at the time of importation on the basis of a comparison between the price of the individual export transaction and the prospective normal value. For example, an importer who imports a product the export price of which is equal to or higher than the prospective normal value cannot incur liability for payments of antidumping duties. The converse is also true. A liability for a dumped sale would be determined by comparing the price of an individual export transaction with a prospective normal value and the prices of other transactions have no relevance to this determination. As the panel in US –
Zeroing (Japan) found, “there is no textual support in Article 9 for the proposition that export
prices in other transactions are of any relevance.”

14. The United States has provided evidence that demonstrates how prospective normal value systems operate and that the refund mechanism under a prospective normal value system normally addresses specific individual transactions. In contrast, there is no evidence to support the assertions that a refund mechanism must recalculate a margin of dumping based on an aggregation of all comparisons. Indeed, Brazil acknowledged that it has never granted a single refund when collecting antidumping duties on the basis of a prospective normal value.

15. Brazil nonetheless argues that an obligation to calculate the margin of dumping with respect to “product as a whole” is consistent with prospective normal value systems. In its answers to the Panel’s Questions, Brazil asserts that when it has applied prospective normal value, “the collection of the duty was limited to a dumping margin determined in accordance with Article 2 of the Anti-Dumping Agreement”. A review of the facts, however, raises questions about how this assessment comports with Brazil’s proposed interpretation of the Antidumping Agreement.

16. Brazil has used prospective normal value to collect antidumping duties on products from at least seven countries: the United States, Mexico, Romania, Germany, France, Spain, and the United Kingdom. In each case, Brazil calculated the antidumping duty as the absolute difference between the normal value (or reference price) and the adjusted export price of a specific transaction. Brazil assessed the antidumping duty in instances where the price of the imported product (an entry) was lower than the established normal value. However, Brazil assessed no duty if the result of the comparison was less than or equal to zero. And, Brazil has never provided a refund or an offset based on non-dumped transactions.

...

18. There is no reason why liability for payment of antidumping duties in the retrospective system applied by the United States may not be similarly assessed on the basis of transaction-specific export prices. Accepting the interpretation that a Member must aggregate the results of “all” comparisons on an exporter-specific basis would require that retrospective reviews be conducted even in a prospective normal value system. This result is contrary to the very concept of a prospective normal value system.

As I understand it, the basic point, which the U.S. has made in other proceedings as well, is that in a prospective normal value system, the duty collections are undertaken in a way that involves zeroing.  Furthermore, in practice these systems operate so that refunds are not provided on the basis of the product "as a whole," and thus final assessment of duties also involves zeroing. 

The U.S. wants to use this point to argue that if prospective systems can use zeroing, retrospective systems should be able to do so as well.  But is another conclusion possible?  If the U.S. is right about how prospective systems work, does WTO zeroing jurisprudence mean that all or most prospective systems would be found in violation of the AD Agreement on this basis?    Even if that were the case, though, given that most countries use such systems, would anyone bring a claim?  The U.S. doesn't use a prospective system, of course, but would it ever bring a case that tries to rein in zeroing?

Zeroing and the Role of WTO Precedent

One of the interesting things about the zeroing cases (some might say more interesting than the issue of zeroing itself) is how the existence of many, many prior panel/Appellate Body reports addressing zeroing leads to discussions of the role of precedent in WTO law.  This is from the U.S. opening statement in the U.S. - Zeroing (Korea) (DS402) case:

To be clear, as Korea and the United States agree, prior adopted panel and Appellate Body reports are not binding on panels considering other disputes. Rather, the rights and obligations of Members flow from the text of the covered agreements. In that regard, we disagree strongly with the presentation by one third party relating to the status of adopted Appellate Body reports under the DSU and their relation to the role of this Panel. In addressing the issues presented in this dispute, what we have asked you to do, and are confident you will do, is to fulfill your function under Article 11 of the DSU, and make an objective assessment of the matter before you, including an objective assessment of the facts and the conformity of the challenged measures with the relevant covered agreements.

I'm curious to see what this third party had to say (hopefully there will be some details in the panel report).  Perhaps the disagreement among the Members as part of this dispute will lead to further clarification on exactly how persuasive prior panel and Appellate Body reports are supposed to be.

Prohibitions on Labeling under Trade Rules

Most trade law discussions of labeling relate to whether labeling is a possible alternative to a ban or similar strict prohibition on a product, or whether the labeling itself is too trade restrictive.  But what would trade rules have to say when there is a government ban on labeling:

The Ohio Department of Agriculture, pursuant to an Executive Order by Governor Ted Strickland, adopted rules governing the such voluntary labeling of milk products.  Specifically, these rules barred the use of  “rbST Free” or equivalent composition claims on milk labels.  In addition, the rules required that any production claims about milk, such as “this milk is from cows not treated with rbST,” be accompanied with a prominent disclaimer noting that the FDA has determined that there is no significant difference between  milk from cows administered rbST and those that have not.  The rules were influenced by, and largely followed, a 1994 FDA guidance on milk labeling.

In the usual situation, it is the labeling requirement that is said to be trade restrictive.  But could banning labels also restrict trade, by preventing companies from presenting key characteristics of a product to consumers?

 

Pascal Lamy and Designations of Origin

From a recent speech:

In the 19th Century, when Ricardo developed what was to become the foundations of international trade theory, countries exported what they produced. In fact, the industrial revolution took root in countries that had coal mines and iron ore. A Portuguese entrepreneur importing a steam engine from England would know that everything from the steel of the wheels to the boiler pressure gauge came from the United Kingdom. Similarly, an English club importing Port wine for its members could be sure that it came from Portugal.

Today, Port wine is still of Portuguese origin. Thanks to progress on registered designations of origin, the English importer today is in fact more certain of this than his 19th Century counterpart. However, the concept of country of origin for manufactured goods has gradually become obsolete as the various operations, from the design of the product to the manufacture of the components, assembly and marketing have spread across the world, creating international production chains. Nowadays, more and more products are “Made in the World” rather than “Made in the UK” or “Made in France”.

So with manufacturing, we have an integrated production system, in which products are made all over the world.  That is an improvement, right?  As Lamy says, the old concept of country of origin has become "obsolete."  We are becoming more integrated, and losing touch with our old nationalist impulses.  It has not yet happened for people, but at least our products are truly "citizens of the world."

And yet with "designations of origin," the old ways remain.  Products come from one country only; production is not integrated.  I know he refers to "progress" on registered designations of origin, but was the larger point intended as a subtle dig at the idea of designations of origin and the 19th century mentality they reflect?

Probably not, but still, the contrast between the two situations is noticeable.

Some problems to come in this area:

Rep. Tom Petri has joined with other members of the Congressional Dairy Farmers Caucus in sending a letter to U.S. Trade Representative Ron Kirk expressing concerns about the European Union's increased use of "geographic indicator" protections for cheese products.

"A lot of people know the French have long insisted that only champagne which actually comes from the Champagne region of France has the right to be called 'champagne,' and they enforce that definition wherever they can," Petri explained.  "Now Europe is trying to broaden the use of so-called 'geographic indicators' in ways which threaten our dairy industry."

The European Union recently signed a free trade agreement with South Korea which includes provisions asserting geographic indicator protections for many generic cheese names, including Provolone, Parmesan, Romano, Feta, Asiago, Gorgonzola, Grana and Fontina.

If implemented fully, these restrictions could mean that, within the South Korean market, U.S. exporters would be restricted from using those generic cheese names for their cheese products. 

"Obviously, the Europeans would like to stifle U.S. competition in cheese products all over the world, and South Korea is just an opening shot," Petri said.

The letter Petri sent to Trade Representative Ron Kirk asks him to work with the Koreans to ensure that concessions granted for U.S. dairy exports in the proposed U.S.-Korea Free Trade Agreement are not undermined by the geographic indicator protections asserted by Europeans.

How will an EU-Korea FTA, a U.S.-Korea FTA, and the WTO agreements interact on this issue?

Mobil v. Canada: The Scope of Fair and Equitable Treatment

Via a Luke Peterson tweet, I see that the Mobil v. Canada ICSID hearing will be going on this week, starting tomorrow (Tuesday), and is open to the public.  No webcasting as far as I can tell, unfortunately.  You have to make your way down there.

One issue that is of interest to me is the appropriate standard for "fair and equitable treatment," about which the parties have a pretty significant disagreement.  From the last sentence of para. 194 of the claimants' memorial:

Canada breached [the NAFTA Article 1105(1) guarantee of fair and equitable treatment] by failing to provide a stable regulatory framework for the conduct of petroleum development projects in the Newfoundland offshore area and by frustrating Claimants' legitimate expectations with regard to that regulatory framework. 

 And from para. 242(a) of Canada's counter memorial:

Article 1105 prescribes that the NAFTA Parties must accord the customary international law minimum standard of treatment of aliens and the Claimants have failed to prove that this standard includes protection of a foreign investor's legitimate expectations or the obligation to maintain a stable legal and business environment for investments. These are not obligations that form part of customary international law and accordingly are not part of Canada's obligations under Article 1105;

More from para. 255:

The Claimants have merely cited various investment treaty arbitral awards, some NAFTA, others under unrelated BITs, in support of the above proposition. This falls far short of what is required to fulfil the Claimants' burden of proving a rule of custom. Arbitral awards cannot create customary international law only states can create custom. ... While arbitral awards may contain valuable analysis of State practice and opinio juris in relation to a particular rule of custom, they cannot by themselves substitute for actual evidence of state practice and opinio juris.

So the question is:  Does "fair and equitable treatment" cover "protection of a foreign investor's legitimate expectations or the obligation to maintain a stable legal and business environment for investments"?  Presumably this issue will be discussed in some detail at the hearing.

Krugman on Quantitative Easing and Currencies

He seems to take the same "aim and effect" (as Julia referred to it) approach to the issue that I do:

In various comments and other places I keep seeing people compare European complaints about the weak dollar to American complaints about the undervalued renminbi. It’s a false equivalence, which should be obvious if you think about the basics of the situation.

What the United States is doing is an expansionary monetary policy in the face of a depressed economy and threats of deflation; what else do you expect us to do? Now, one effect of that policy, if it isn’t matched abroad, is a weaker dollar — but that’s not the goal of the policy.

Beyond that, the overall effect of quantitative easing in America is expansionary for the world economy as a whole: expansionary in the United States, and ambiguous for the rest of the world. (It’s ambiguous because there are two effects: the weaker dollar tends to reduce the US trade deficit, but a stronger US economy tends to increase the deficit, with the net effect uncertain.)

Now compare this with China’s situation. China isn’t fighting deflation — it’s fighting inflation, so the undervaluation of the yuan has to be accompanied by restrictive credit policies domestically. (China can separate exchange rate policy from domestic monetary policy because it has capital controls). The overall effect of the policy is therefore to reduce, not increase, world demand — and the effect on foreign economies is clearly negative.

The policies, then, aren’t at all equivalent. 

I'm not sure I support some of his related points, but at least on the narrow issue of whether a currency peg at an undervalued exchange rate is equivalent to quantitative easing, I agree.  However, I would add that they can have similar effects, and at a certain point a very strong "effect" starts to make the absence of "aim" seem less important.  But I'm not sure where that point is.



The U.S. Investigation of China's Clean Energy Subsidies

Reuters reports:

China on Saturday hit back at U.S. government action to investigate a labour union's charges that it subsidises its green technology producers, saying the move sends a wrong signal on trade protectionism.

The U.S. probe will look into whether Chinese support for its clean energy sector was a violation of World Trade Organization rules, as requested by the United Steelworkers Union.

China's commerce ministry said in a statement the charges by the union were "groundless and irresponsible" and it regretted that the U.S. government agreed to open investigations.

"The U.S. government's acceptance of the appeal and its decision to launch a probe into the issue is sending a wrong signal of trade protectionism to the rest of the world," an unnamed official with the commerce ministry's division to safeguard fair foreign trade said in a statement on its website (www.mofcom.gov.cn).

The official said the United States was also promoting its energy sector and more than 2,300 projects, including those related to clean energy, were eligible for government subsidies.

"As such, the U.S. has no reason to blame other countries' efforts to improve the well-being of mankind."

China will protect its rights and interest in accordance with WTO rules, the official said.

I've said this before, and I'm going to keep saying it.  I think that in the coming years, subsidies designed to promote domestic production of clean energy are going to be an ever greater source of trade conflict.  One solution would be an agreement on the amount of subsidies permitted in this area.  That hasn't worked in the aircraft industry, though, and I doubt there's much hope here.  Another solution would be to subsidize consumption, rather than domestic production, which sounds great in theory but I don't know if the political will is there.

 

Fiscal Policy, Monetary Policy and Currency Values

I've thought a bit more about the previous post where I suggested that not all measures affecting currencies should lead to fears of a "currency war".  I'm not much of an expert in this area, and I'm happy to have someone explain to me where I'm going wrong, but until then I'm sticking with the view I expressed there.  If the main goal of a measure is to promote economic growth, the incidental impact on currencies should not be deemed equivalant to an action which directly sets the currency value.  Yes, there will be an effect on that value through various other actions, but a wide range of policies will have such an effect, and if all of these are brought under the general rubric of currency regulation, domestic economic policy will be seriously constrained.

At the same time, though, I can see the argument that if the degree of a particular fiscal and monetary policy action reaches a certain level, the effect on currencies is perhaps large enough that it becomes almost equal in impact to an intentional currency devaluation.  Along these lines, the FT reports that Fed chairman Bernanke "supports a new monetary stimulus to battle high unemployment and head off the risk of a downward spiral in prices":

The increasing likelihood of hundreds of billions of dollars of further asset purchases by the Fed – a strategy known as quantitative easing – will heighten tensions in international currency markets by weakening the dollar further. That may prompt other central banks to follow suit with currency intervention or QE of their own.

...

“The implications for the dollar are stark,” said Michael Woolfolk, strategist at BNYMellon in New York.

“Not only do zero interest rates keep US interest rate differentials negative with most countries, but also QE measures are generally viewed to be corrosive to a currency’s value.”

Here's more, also from the FT:

Increasing expectations the Federal Reserve will pump more money into the US economy next month under a policy known as quantitative easing sent the dollar to new lows against the Chinese renminbi, Swiss franc and Australian dollar. It dropped to a 15-year low against the yen and an eight-month low against the euro.

...

A senior European policy-maker, who asked not to be named, said a further aggressive round of monetary easing by the US Federal Reserve would be “irresponsible” as it made US exports more competitive at the expense of its rivals.

Simon Derrick, chief currency strategist for BNY Mellon, said: “In narrow terms, the US is winning the currency wars as a weaker dollar will help its economy, but it could damage the other big economic blocs of China, Japan and Europe.”

Here's the question I have: When fiscal policy (massive deficit spending) and monetary policy (near zero interest rates and quantitative easing) goes as far as the U.S. is taking it in an attempt to create growth, are other countries justified in treating this as a currency devaluation and taking action in response?

No doubt these actions will cause difficulties for them in the short run, in part related to the currency value.  For example, there is likely to be an increase in capital inflows in some countries.  Actions to temper these effects seem justified.

In the longer run, though, it seems to me that the necessity of taking action in response depends in part on what you, as an economic policy maker in another country, think the impact of these policies will be.  If you think they will help the U.S. economy grow and gain an advantage, perhaps you feel threatened.  As a response, you might do something similar yourself, or take actions to mitigate specific effects of the U.S. policies.  On the other hand, you might also take the view that these actions are dooming the U.S. economy to many years of weakness, stagnation and inflation.  If that's the case, you might just want to wait out any short term problems you face, and look forward to the not too distant future when your own economy is more competitive than the U.S. one.

Alternative Approaches to Causation

In the Journal of World Trade (and free on SSRN), Dukgeun Ahn and William J. Moon argue for a new approach to the causation standard in trade remedy investigations, which they call the "Cost of Production" test.  Here's an excerpt:

We argue that correlation, in a strict temporal sense, is neither a sufficient nor a necessary condition to prove causation. ... correlation will not be observed in many instances, even when there is genuine harm caused by increase in imports.  Correlation, for example, will not be observed when rational firms show symptoms of decline five years after the increase in imports, because they take into account the ubiquity of sunk cost. Correlation may also simply be a temporal coincidence to industry decline, rather than a cause. To ameliorate this problem, we propose an additional tool that can be used as complement to Elasticity/ Partial Equilibrium Model. We propose the following hypotheses:

HYPOTHESIS 1 (H1)
If the price of imports is less than the domestic marginal cost of production, we should see an immediate decline in production that is attributable to import surge.

HYPOTHESIS 2 (H2)
If the price of imports is greater than the domestic marginal cost of production but lower than the domestic average cost of production, we should not observe immediate decline in production that is attributable to import surge; instead, we should expect decline sometime in the future.

HYPOTHESIS 3 (H3)
If the import price is greater than the domestic average cost of production, we should not see an immediate nor future decline that is attributable to import increase.

Copenhagen Competition on Access to Medicines -- Live Broadcast this evening

Kudos to the University of Copenhagen (and especially Prof. Laura Nielsen) for organizing the Copenhagen international negotiation competition. Last year the competition simulated a climate change treaty in parallel with the COP15 talks. This year, the teams from OECD and non-OECD law schools have been negotiating segments of a protocol on border measures and access to medicine. Notably, none of the European or North American law schools who participated in the written rounds and in the first two oral rounds made it to the finals, so the final negotiation round, which will be webcast live this evening (15.10, 5pm, Copenhagen time) will be held between simulated delegations from India (Gujarat National Law University), Singapore (NUS), Australia (ANU) and Israel (Hebrew University). The written submissions of the teams are available on the website.

Having coached the Hebrew University team (with my colleague, Gil-Ad Noam) I know who I'd like to see emerge as the best negotiators, but I wonder, more generally: might this be one area in which the world could do worse than have the rules set by a 'green room' that excluded the US and EU?

Dan Griswold on Trade Negotiations versus Trade Enforcement

Which is more important: Trade negotiations or trade enforcement?  Writing in the Washington Times, Dan Griswold argues: 

The Obama administration has vowed to ramp up enforcement of existing trade agreements in an effort to open markets further to U.S. exports. The pledge is popular with members of Congress who blame job losses on trading partners that "cheat," especially China, but the tactic could backfire easily.

The U.S. government is certainly within bounds to expect other governments to follow the letter of international commitments, whether on trade, arms control, extradition or a host of other areas where international treaties apply. But an obsession with enforcement at the expense of trade liberalization would be a mistake. Such an approach exposes American producers to countermeasures and undermines efforts to open markets further in the United States and abroad.

...

Besides the obvious risk of retaliation, the enforcement-only strategy ignores the simple truth that Americans are better off participating in trade agreements that are imperfectly adhered to than not participating at all. Even when either party fails to adhere fully to an agreement, the glass is usually still well more than half full.

For example, the accession agreement that China signed to enter the WTO in 2001 committed it to a major opening of its economy. While critics rightly can point to some foot-dragging and backsliding, the Chinese economy is much more open to U.S. exports than it was 10 years ago and more open than it would have been without the accession agreement. Getting tough with China over its less-than-perfect compliance exposes American hypocrisy while at the same time putting in jeopardy our rapidly growing exports to China.

When it comes to trade agreements, the U.S. government should seek the most comprehensive and ambitious deals it can with our major trading partners but then exercise patience and restraint when those agreements are not always fully implemented. As the ancient warning goes, by the measure you use to judge, so you will be judged.

The basic argument seems to be that we should focus more on negotiating new trade agreements than on enforcing existing ones.  The specific points in support are:

-- if we bring complaints against others, they will bring complaints against us

-- negotiation achieves a lot more than enforcement

On the first point, one response is that complaints against our own protectionism should be encouraged and celebrated, as that will lead to more liberalization.  But I suppose his deeper argument is that trade disputes undermine support for new trade agreements, which, as the second point indicates, are the most important.  So, let's focus on the second point.

Let's say you have have a trade agreement that lowers tariffs on thousands of items, prohibits discrimination against foreign goods, and puts limits on subsidies.  (I'm going to ignore issues such as IP protection, which, it could argued, aren't really about liberalization.)  I don't know how to quantify the liberalization precisely, but let's just assign a number to it:  100.  Now, let's say there is a dispute about whether a party is complying with a particular obligation in relation to a specific product.   Again, quantification is difficult, but let's assign the number 5 as the amount of liberalization involved with that product.  Is it worth bringing a complaint in the hopes of achieving those 5 units of liberalization, if doing so might undermine (e.g., through retaliatory trade measures against us which turn certain groups against trade agreements) efforts to obtain another 100 units through the signing of a trade agreement with another country?

Some related questions:  If we never enforced trade agreements, would there be a significant increase in non-compliance?  Is there an optimal level of enforcement?  How many complaints per year need to be filed in order to prevent non-compliance from getting to unacceptable levels?  Should we only bring trade complaints if the degree of non-compliance is very high, and ignore small violations?

On a different point, how do you factor into all this the fact that most "free trade agreements" being negotiated right now are preferential trade agreements, and thus, some would argue, not really free trade at all?

Unilateral Free Trade in Cabbage

Every now and then, a unique set of circumstances arises that leads a government to embrace free trade unilaterally, if only for a particular product.  The Economist reports on the impact of a dramatic rise in cabbage prices:

Normally, Koreans serve home-grown kimchi as a matter of honour. But people are now looking abroad for their fix, sparking a debate about the suitability or otherwise of different countries’ cabbages. Many Koreans think Chinese-grown agricultural produce is unsafe, but they are having to swallow their pride about that. President Lee Myung-bak says he will be getting his personal stash from Western producers, earning him comparisons to Marie-Antoinette from South Korea’s numerous and critical bloggers. His administration has announced the temporary lifting of tariffs on imported cabbages, in advance of the traditional kimjang season, in which kimchi is prepared for the winter.

 

The Export Contingency Standard

I've got a hypothetical related to the export contingency standard, and I'm curious to hear what people think of it.  Let's say you have a subsidy measure under which the subsidy is available to producers on the following basis.  You get the subsidy if you satisfy either Condition 1 or Condition 2, each of which has multiple, required elements:

Condition 1:

-- the product is exported

-- the product is made with domestically produced energy

 Condition 2:

-- the product is made using a designated minimum percentage of clean energy

-- the product is made using a minimum percentage of recycled inputs

To reiterate, you can get the subsidy if you satisfy both elements of Condition 1 or if you satisfy both elements of Condition 2.  But you need only satisfy Condition 1 or Condition 2; no need to satisfy both.

Just to make clear what I'm going for here, export is not a necessary condition (you can get the subsidy without exporting, by satisfying Condition 2) and it is not a sufficient condition (exporting alone will not get you the subsidy under Condition 1, as you still need to satisfy the other element of Condition 1).

So here's my question:  Does this measure satisfy the SCM Agreement Article 3.1(a) export contingency standard?  Why or why not?  I would guess that most people will say it does, but I'm curious to hear the rationale.

For easy reference, Article 3.1(a) states in relevant part:

3.1 ... the following subsidies, within the meaning of Article 1, shall be prohibited:

(a) subsidies contingent, in law or in fact [fn. 4], whether solely or as one of several other conditions, upon export performance, ...

********************************************

[Fn. 4]   This standard is met when the facts demonstrate that the granting of a subsidy, without having been made legally contingent upon export performance, is in fact tied to actual or anticipated exportation or export earnings. The mere fact that a subsidy is granted to enterprises which export shall not for that reason alone be considered to be an export subsidy within the meaning of this provision.

I assume the main reason people would put forward for why export contingency exists here will relate to either "several other conditions" or "tied to," but I'm eager to hear the details.

Mitchell and Voon on WTO Law and Tobacco Regulation

Two papers to mention here.  First up, Andrew Mitchell and Tania Voon have posted "Regulating Tobacco Flavours: Implications of WTO Law" on SSRN.  Here's the abstract:

Within the World Trade Organization (‘WTO’), regulatory measures of Canada and the United States restricting ‘flavouring’ of tobacco products including cigarettes with additives such as chocolate, clove and sweeteners are under challenge. At the same time, the tobacco lobby continues to target other tobacco control measures on the basis that they violate international trade or investment law, including Australia’s plain packaging proposal, Uruguay’s stricter labelling requirements, and Norway’s display ban. The WTO-consistency of regulatory restrictions on tobacco flavouring provides an informative case study of the relationship between tobacco control and international economic law. The WTO’s General Agreement on Tariffs and Trade 1994 and Agreement on Technical Barriers to Trade grant WTO Members significant flexibility in implementing genuine health measures including these kinds of restrictions. Nevertheless, to ensure WTO-consistency, tobacco flavouring measures must be carefully designed to achieve their health objectives based on available scientific and empirical evidence, avoiding unnecessary discrimination against or between imported tobacco products and unjustified barriers to international trade. Exemptions for additives that cause direct or indirect harm by masking tobacco harshness, attracting certain groups of consumers such as young people, or increasing the toxicity or addictiveness of tobacco products, are likely to undermine a Member’s health goals and in turn its claim of WTO-consistency.

From the conclusion:

the consistency of a flavouring measure with WTO law will depend heavily on the link that can be demonstrated between the measure and its health objective. This demonstration will require sufficient qualitative and qualitative evidence concerning the difference between flavoured and non-flavoured products, the additional direct or indirect harm caused by flavoured products when compared to non-flavoured products, the predicted or verified impact of the flavouring measure or similar regulatory measures on consumption patterns, the availability of alternative regulatory measures that have the same health effects without infringing on international trade or foreign investment to the same degree, and the consistency of the State’s laws and practices (including its participation in the FCTC) with its declared health objectives.

And here was my favorite line from the paper:

... WTO caselaw does not clearly and consistently explain how to determine whether imported products are treated less favourably than like domestic products.

Unfortunate, but true, I would say.  There are some cases coming up where we might get some clarification.

And second, Andrew by himself has posted "The TRIPS-Consistency of Australia's Move Towards Plain Cigarette Packaging".  His conclusion:

Concerns raised by tobacco companies about plain packaging breaching international trade obligations must be critically examined. In the light of Australia‘s intention to introduce plain packaging of cigarettes by 1 July 2012, this article has argued that plain packaging is consistent with the TRIPS Agreement. Under this treaty, WTO Members retain a high degree of regulatory autonomy to enact measures to protect and promote public health. Details of the Australian proposal are yet to be released, and may be affected by the still uncertain outcome of the 2010 federal election in Australia. However, a strong argument can be made that the general move towards plain packaging in Australia and elsewhere falls within the scope of permissible regulation under Article 20 of the TRIPS Agreement. Concerns about plain packaging violating the TRIPS Agreement should not prevent WTO Members from placing plain packaging firmly on the public health agenda.

Busch and Levy on a WTO Complaint Against China's Currency Policies

Writing in The American, Marc Busch and Phil Levy are are skeptical of a WTO complaint against China's currency policies:

... the legal merits of the case are dubious. China’s exchange rate regime could be attacked as a subsidy scheme or as a way of frustrating market opening under the WTO’s trade agreements. Subsidies are only prohibited if they meet certain criteria. Along these lines, China’s exchange rate regime does not benefit a specific firm or industry, nor is it contingent on export promotion or import substitution.

Alternatively, the case could rest upon Article XV:4 of the General Agreement on Tariffs and Trade (GATT), which says that WTO members “shall not by exchange action frustrate the intent of the provisions of the GATT.” There is no case law on the article and no consensus on how it might work. The language of the article is brief and sketchy, prominently pointing away from the WTO and toward the International Monetary Fund as a source of exchange rate expertise.

Given the lack of established case law, arguments for Chinese violation tend to the creative. One line of argument is that China’s exchange rate action is not an illegal violation under WTO law per se, but is prohibited because it undermines the intent of the trade pact. The challenge here is that China’s exchange rate regime is the same one it had when it joined the WTO, so the United States (and others) would be hard-pressed to argue that there has been a new policy action that casts doubt on China’s obligations. While there is a pro-plaintiff bias at the WTO, the dispute system has treated this sort of “non-violation” complaint with skepticism.

Even if all went according to plan, what might U.S. litigators hope for? There would be years of appeals and uncertainty about what Chinese compliance should look like. A bigger concern is how this could recast the role of the WTO dispute settlement system. That system has been very successful when there is agreement among trading powers on principles and argument over facts. Using a dispute to try to compel action where no such principled agreement exists, however, poses serious risks. It could strain the system’s ability to compel compliance, it could set a precedent for expansive interpretation of agreements and broadened WTO authority, and it could cause countries to rethink their commitment to the WTO. All of this happens should the United States win. Should the case fail, China would claim its policies have been vindicated.

 It seems to me their last point ties in nicely with the prior post on the limits of WTO dispute settlement.

 

Evenett and Barfield on the Limits of WTO Dispute Settlement

Over at vox, Simon Evenett writes:

The failure to conclude the Doha Round isn't the only drain on the credibility of the WTO and the rules-based trading system. Poor choices of dispute settlement cases are too. It appears that some are so besotted with the "power" of multilateral trade rules that they actually believe that governments will be cowed sufficiently by losing WTO disputes that they will bring themselves back into compliance with those rules. The threat of sanctions may affect the incentives to come back into compliance, but that is no guarantee that compliance will occur. In some disputes the commercial interests at stake are so big that compliance is unlikely and the magnitude of sanctions so large that their imposition would significantly disrupt the trade.

The foolishness of bringing the EU-US disputes over subsidies to wide-bodied aircraft to the WTO has been compounded by a recent case to bring a case against China on export taxes for a provision which it alone is legally bound to in its accession protocol. The latter dispute is likely to backfire, allowing the Chinese to highlight the inequities of the WTO accession process and the asymmetries in WTO rules. Moreover, a "victory" here for the plaintiffs will be pyrrhic--for it will only encourage Beijing to retaliate against the commercial interests of the plaintiffs, taking advantage of the fact that WTO accords do not cover every way to harm foreign commercial interests. Of course, the rules don't allow for the loser in a case to retaliate but expecting every government to have respect for the rules is the kind of naivety that a EU trade policy grounded in realism would avoid.

As a vehicle for advancing Europe's commercial interests in the larger emerging markets, the above considerations imply that limits of what the WTO dispute settlement system can deliver have been reached. Bringing highly controversial cases will invite retaliation against EU commercial interests from vengeful losers and will only discredit the DSU system in the eyes of developing country WTO members. Case selection should be handled very careful: "do no harm" being the operative principle. Find some other way to induce foreign governments to change their behaviour.

Claude Barfield, recalling some of his Free Trade, Sovereignty, Democracy arguments, responds:

... As long as WTO member states are promised legal victories—one party is right and the other is wrong—then there will be an ineluctable movement toward seeking absolute vindication even (or especially) where WTO rules are murky or contradictory.

...

I think Evenett is on to something important concerning a viable future for the world trading system. Further, I would argue that the logic of his statement, in the context of the assignment to plot a course for future EU trade policy, provides the opportunity for a revival of Europe’s older, more pragmatic view of the role of GATT in disputes among major trading nations. Until the sweeping changes in dispute settlement instituted during the Uruguay Round, which moved the system far down the road to excessive legalism, two distinct theories of dispute settlement had existed in an uneasy combination. On one side were the “pragmatists,” who argued for a “diplomatic” approach that stressed conciliation and problem-solving over legal precision: by and large European trade officials espoused this view. As a Swiss GATT Director stated in the late 1980s: “GATT cannot be a world trade court. Conciliation is our priority; it is not our job to determine who is right and wrong.”

On the other side were—and are—the “legalists,” led by the Americans, who held that legally binding rules would produce more certainty, predictability and fairness for all GATT/WTO members. ...

Ironically, the new legalism that promised greater certainty came into being just as GATT/WTO rules vastly extended the reach of the trade regime. New rules for health and safety; regulation of services such as telecommunications, banks, insurance, securities; intellectual property; and the environment, plunged the multinational trading system into complex issues that went deep into the social and economic structures of member states. ...

Over the past decade it has become clear that deep-seated societal views in different countries and regions do not lend themselves to rapid evolution or submission to a legal demand from a WTO panel—thus, Evenett’s examples regarding large aircraft subsidies or Chinese export taxes—to which could be added GMOs, climate change, and pressure to challenge social justice issues. ...

But where pragmatism and diplomacy will be needed in the future, the current legalistic WTO system precludes and forestalls such flexibility. ..

...

Change, even from Europe, will be difficult: the legal system has spawned a new set of powerful interests on the continent itself. Emulating the highly litigious U.S. society, new generations of EU trade lawyers now have a stake (earnings not least) in the system.

...

In that light, attention should be paid to proposals to rein in, or at least deflect a backlash against, the current WTO dispute system. This essay is not the place to set forth such reforms in detail. But several suggestions are worth exploring as the process unfolds. First, where the texts are unclear or contradictory, panels and the AB should be allowed or even instructed to adopt the non liquet doctrine—or in effect, “it is not clear.” Invocating this doctrine would allow the judicial panels to throw the issue back to the WTO General Council or to trade round negotiations. Critics of non liquet have argued that it is prohibited because international law is necessarily “complete”—or that it is the duty of judges to step in and fill gaps. However, proponents of ‘completing’ the law and ‘gap-filling’ in the contentious areas described by Evenett reflect a dangerous technocratic myopia that will increasingly bring into question the legitimacy of the DSU process.

Alternately, the WTO could adopt a variation of the so-called “political issue” doctrine developed by the U.S. Supreme Court. The doctrine is meant to provide a means for the judiciary to avoid decisions that have deeply divisive political ramifications and thus, in the opinion of the court, should be settled through more traditional democratic processes, involving both the legislature and the executive. For the WTO, this would again drive the responsibility back to the negotiations table or to the General Council.

To me, it's the combination of the new substantive rules and binding dispute settlement that has caused the problem (assuming there is one).  If it is true that the WTO can't handle certain cases, should one of these two -- the substance or the binding dispute process -- be pulled back a bit?  Both Barfield and Evenett focus more on the dispute process, although the substance seems to lurk underneath a bit.

Barfield wants to pull back on the dispute settlement side of things by having the courts avoid addressing certain issues.  In theory, I like his suggestions, as I am sympathetic to concerns about judicial "law-making" and would like to see more "legislative" or "executive" involvement in making the rules.  In practice, though, while it would be a great discussion to have, I think it would be very difficult to come up with a workable proposal on this issue that Members (or anyone, really) could agree on.

Evenett focuses on a different aspect of the dispute settlement process (although perhaps the substance is involved as well, at least to some extent).  In particular, he seems to be concerned about cases that are too big in terms of the amounts involved (aircraft subsidies), and cases that will not be implemented if successful and could invite retaliation (Chinese export restrictions).

As a general matter, he appears to be arguing that Members should try hard to recognize when particular cases are too controversial to be resolved at the WTO.  That seems like a reasonable suggestion.  There are a variety of reasons why a successful WTO complaint is not likely to achieve compliance.  Governments should be aware of this, and perhaps not overstress the system with such complaints.  On the other hand, sometimes it's hard to know in advance if a complaint will succeed (in the sense of achieving compliance).  There is a lot of uncertainty, and you won't know for sure unless you try.  In addition, if respondent countries know that they can avoid a complaint against them by emphasizing the domestic importance of the issue, suggesting that they will retaliate, etc., the WTO dispute settlement process will be seriously undermined.  So, I would be cautious about suggestions that WTO complaints be reined in on this basis.  This may only apply to the most extremely contentious of cases.

With regard to the cases he mentions, I'm not sure how problematic these examples really are.  I know that a lot of people are skeptical of a resolution to the Airbus-Boeing dispute through litigation, especially given the non-resolution to the Bombardier-Embraer dispute.  But I'm going to wait and see how the final panel/Appellate Body reports in the two aircraft cases look before making a judgement there.  It may be possible that the results of the WTO dispute process provide a realistic framework for a negotiated solution, one that would not have been possible without litigation.  Or, they may not, and a lot of money and resources will have been wasted.  We shall see.

On the Chinese export restrictions case, perhaps his concern here involves the substance a bit, in the sense that he fears China will point to the imbalance in substantive obligations taken on as part of the accession process.  That is possible, but it seems to me that everyone claims inequities, so I'm not sure China doing it here will have much impact.  And if China's response to an adverse finding is to take protectionst actions of its own, well, they can try to do it in a way that doesn't violate WTO rules as he suggests, but some of the rules are quite broad.

Finally, on the general issue of certain substantive areas of WTO law being controversial and perhaps not very suitable for WTO dispute settlement, Barfield points to "GMOs, climate change, and pressure to challenge social justice issues."  I agree that there are areas of substance that are very difficult for the WTO dispute process to handle.  Defining those areas has not been easy, though, as it is hard to find agreement on what should be in or out.

To sum up, I think these are great issues for WTO Members to think and talk about.  However, it may be hard to find solutions that anyone can agree on.

Global Trade Watch on Trade and Jobs

From Global Trade Watch:

The Trade Data Center that we launched last week contains so many data products that they can almost be lost in a blur. Right now I’d like to take some time to zoom in and profile the most exciting new data product – the overhauled Trade Adjustment Assistance (TAA) database. The TAA database, available here, tracks specific layoffs that have occurred due to rising imports or outsourcing, as certified by the Department of Labor.

I assume they are hard at work on a similar database for jobs gained due to rising exports and investment by foreign companies in the United States.

Measures that Affect Currencies / Measures that Affect Trade

I have found the recent discussions of "currency wars" hard to follow.  There seems to be a fear that many governments are taking actions which cause their currency to decline in value, in the interest of pursuing competitive devaluations.  I'm not convinced.  It seems to me that currency related measures are somewhat like trade related measures, in the following sense.

There are a lot of things a government might do that can affect a currency's value.  However, not all of these are done for that purpose.  Take interest rates, for example.  When governments lower key interest rates, their main goal is to increase lending, and thus investment, and thus economic growth.  Will that have an impact on the currency level?  Yes, in a number of ways.  In the short term, it might discourage foreign investors from putting their money in certain domestic financial instruments, lowering demand for the domestic currency and reducing its value.  On the other hand, in the long run, it might help the economy grow (or it might not, depending on your view), strengthening the domestic currency as foreign investment rolls in.

Similarly, with trade, almost all government measures will have some impact on trade.  But not all such measures have an effect on trade as their main goal.  For example, take product safety regulation.  There will almost certainly be an effect on trade (ranging from incidental to significant) from any attempt to promote safer products.  But not all effects on trade are problematic, either in terms of setting the right policy or in terms of complying with trade rules.

All in all, I'm not sure there is much of a problem here.  I think it is important to come up with rules (in both areas) that clearly define what kinds of measures we are concerned with.  But worring about any and all measures that affect currencies or affect trade is too much, in my view.

WTO Dispute Settlement: Ukraine vs. Armenia

It appears that the Ukraine - Armenia dispute has been resolved:

Citing the need to comply with international trading rules, the Armenian government pushed through parliament on Wednesday a bill setting a new regime of taxation for imported fuel, tobacco and alcohol.

Importers of these products currently pay only fixed taxes pegged to the physical volume of their deliveries. By contrast, local tobacco and alcohol manufacturers are subject to regular taxation that covers all businesses operating in Armenia. That includes payment of value-added and excise taxes, which appears to give them some competitive edge over their importing competitors.

Under a package of amendments to several Armenian laws passed by the National Assembly in the first reading, the same taxes will be levied from petrol and vodka starting from next January. The government decided to exempt diesel fuel from value-added tax on the grounds that it is widely used by farmers owning tractors and other diesel-powered agricultural equipment.

Cigarette imports will fall under regular taxation from January 2014. Deputy Finance Minister Suren Karayan said the existing fixed duties for foreign-made cigarettes will be raised before their abolition. 

The opposition minority in the Armenian parliament rejected the changes as a blow to local tobacco and alcohol firms. “In effect, our manufacturers, which create jobs and pay wages, are equated with importers and the country is becoming more import-oriented,” said Artsvik Minasian, a parliament deputy from the Armenian Revolutionary Federation (Dashnaktsutyun). 

According to the government, Armenia has to ensure equal taxation for all imported and domestically manufactured products in accordance with its obligations to the World Trade Organization and other international bodies. Officials said on Wednesday that the International Monetary Fund has also pressed for the changes. 

Opposition parliamentarians claimed that Yerevan has mainly faced pressure from Russia and Ukraine, leading importers of vodka and alcohol to Armenia. Ukraine recently complained lodged a complaint against Armenia with the WTO.

The Ukraine had requested a panel, but the dispute didn't even reach the panel establishment stage.  Apparently, sometimes a panel request is all you need in order to get compliance.

(I'm assuming it has been resolved, anyway.  The fact that the domestic industry supporters are upset by the changes makes me think this will bring Armenia into compliance.)

Trade Rules and Restrictions on Large Stores

This takes me back to the Japan  - Film case:

South Korean lawmakers are finalising legislation that would restrict the opening and operation of large urban supermarkets – a potential blow to Tesco, which counts the country as its biggest overseas market.

...

Leftwing South Korean politicians began targeting Tesco early this year when it opened a “super-supermarket” in the port of Incheon, near Seoul. Tesco is suing protesters for about Won300m ($268,000) in damages to its business. The clash spurred opposition legislators to propose restrictions that recently gained support from the ruling conservative party.

...

One bill that is moving through the South Korean parliament would require retail chains to seek special permission from local government before opening a super-supermarket, meaning a store of 1,000-3,000 sq metres, within 500 metres of a “traditional market” – a term that is very broadly defined in order to include the ubiquitous corner shop.

Another bill, opposed by some conservatives because they fear it runs counter to World Trade Organisation rules, would enable small shopkeepers to demand the temporary closure of a super-supermarket if they were able to prove it was eroding their business. Parliamentarians hope to vote on the bills by October 25.

Tesco – which operates more than 300 stores under the Homeplus brand in South Korea – argues that both bills would conflict with WTO rules and would also unfairly target super-supermarkets while placing no restrictions on convenience store chains.

I'm not sure exactly what violations of WTO rules they have in mind.  Perhaps there is something in Korea's GATS Schedule, and they are thinking about market access or de facto discrimination.