International Economic Law and Policy Blog

Report on the Third Participants' Oral Statements in the WTO Airbus Dispute

As mentioned the other day, Malorie Schaus (malorie.schaus [at] graduateinstitute.ch) and Tobiasz Kaczor (tobiasz.kaczor [at] gmail.com) of the Graduate Institute in Geneva attended the public viewing in the WTO Airbus hearing.  Their summary of the third participants' oral statements is here: http://www.worldtradelaw.net/abhearings/WTO-Airbus-Case-ThirdParties-Statements.pdf

Here are a few excerpts related to export contingency:

Australia points out that the submissions to the Appellate Body in this dispute illustrate considerable divergence between the participants and third participants on what facts will demonstrate in fact export contingency. In this respect, Australia submits that the WTO Members need to know which subsidies are prohibited and which are not.

Therefore, Australia considers that these proceedings provide the opportunity for the Appellate Bodyto give a necessary clarification of Article 3.1 (a) and footnote 4 of the SCM Agreement.

...

According to Canada, for a subsidy to be contingent on export performance, the level of export sales, as opposed to the level of sales, must have played a determinative role in the government’s decision to grant the subsidy, irrespective of whether the financial contribution is inthe form of a grant or loan.

...

China is of the opinion that a legal standard of in fact contingency should be interpreted consistently with the object and purpose of the WTO. According to China, small and global industries should not be adversely discriminated. 

Expropriation Through Taxation?

From AFP:

US-owned bottled water giant Fiji Water shut down operations in the military-ruled Pacific nation Monday, branding it "increasingly unstable" and a risky place to do business.

Fiji Water president John Cochran condemned the government's decision last week to hike taxes on the mineral water it extracts at an aquifer on the main island Viti Levu by 5,000 percent, from 0.3 to 15 cents a litre.

"This new tax is untenable and as a consequence, Fiji Water is left with no choice but to close our facility in Fiji," he said in a statement, adding the loss of one of Fiji's main exporters would cost hundreds local jobs.

Cochran said the government action was effectively "a taking of our business".

"(It) sends a clear and unmistakable message to businesses operating in Fiji or looking to invest there -- the country is increasingly unstable, and is becoming a very risky place in which to invest," he said.

The choice of the word "taking" is interesting.  Are they thinking about a "measure tantamount to expropriation"-type claim?  I glanced around the web quickly, but did not see anything to indicate that Fiji has signed on to an investment treaty with the U.S. (or anyone else) that has investor-state dispute settlement.

Here's the Fijian government response:

"As usual Fiji Water has adopted tactics that demonstrate (it) does not care about Fiji or Fijians. They have made statements about supposed instability in Fiji and know it is not true, yet do so because they simply do not want to pay the new taxes," he said.

"If Fiji Water is no longer interested in Fiji then the Fijian Government, following cancellation of the (company's land) leases, will call for international tenders from credible and reputable private sector companies to extract this valuable resource," he said.

 

Is there something wrong with this picture? (as painted by the Panel in US-AD/CVD)

I have finally finished reading the Panel report in DS379. What an amazing decision! The Panel has effectively declared the second largest economy in the world as a completely distorted one for the purpose of the SCM. The following are some key points of the decision, and their possible implications:

 - All SOEs (in which the state owns more than 50% equity) are “public bodies”, i.e., government agencies. Consequently, all buyers of products made by SOEs are potentially being subsidized. That includes all utilities, energy, and telecommunications services, and many other sectors in which the state dominates.

- All prices for land-use rights in China are distorted because there is no private land ownership in China. Hence, every economic actor in China is potentially being subsidized since it has to exist on some land. 

- All interest rates in China are distorted because the state controls the banking sector. Hence, any company may be subsidized if it buys input from another firm that borrowed money in China, whether from Bank of China or HSBC.

In short, the entire Chinese economy is built upon distortion. Consequently, WTO members are entitled to use (higher) prices in a third country as the basis for calculating countervailing duties on Chinese exports.

The above summary may lack nuance, but I think captures the big picture.

But is there something strange about this picture? The second largest economy, and one of the most important economic engines in today’s world, does not have any legitimate market in the eye of the WTO. 

It is particularly important to note: All the above findings of the Panel are based, not on China’s status as a nonmarket economy under its accession protocol, but on the AB’s decision in US-Softwood Lumber IV. In that case, the AB famously held that in-country private prices may be rejected if the government has a predominant position in the industry, despite that SCM Article 14(d) explicitly provides that in-country prices are to be used for calculating benefits arising from the provision of goods and services (so much for AB’s textualism).

Therefore, the legal reasoning in this case is applicable to all WTO members that have SOEs (including GM between July 2009 and October 2010, when the US government held more than 60% of its equity), or invest in China or other countries where the state has a dominant position in some economic sectors. Insofar as China is concerned, the tens of thousands of FIEs (foreign-invested enterprises) will all be implicated, since they live and thrive (most of them) in that distorted yet booming economy. And remember that FIEs are responsible for nearly 60% of China’s exports.

To me, the case raises a profound question: Can the WTO, as an institution, handle “state capitalism”, which has been on the rise in the post-financial crisis era? If it cannot, the WTO may risk further losing its relevance. Decisions such as this can only drive China to form more bilateral and regional arrangements, away from the WTO regime. But maybe that is inevitable and the world may be better off with more fragmentation (or diversity) in governance.

 

Report on the EU and U.S. Oral Statements in the WTO Airbus Dispute

For those who couldn't make it to Geneva and view the Appellate Body oral hearing in the WTO Airbus dispute, you are in luck.  Malorie Schaus (malorie.schaus [at] graduateinstitute.ch) and Tobiasz Kaczor (tobiasz.kaczor [at] gmail.com) of the Graduate Institute in Geneva attended the public viewing and have provided a very detailed summary of the participants' oral statements.  Their report is here: http://www.worldtradelaw.net/abhearings/WTO-Airbus-Case-Parties-Statements.pdf

They also did a summary of the third participants' statements, which they will send along shortly.

More on Thai Liquor Labeling

As mentioned here, a number of WTO Members recently raised concerns in the TBT Committee regarding Thai liquor labeling measures:

Alcohol companies world-wide are lining up to fight a Thai plan to require graphic warning labels about alcohol on the country's domestic and imported beer, wine and liquor bottles.

The proposed labels—which would cover 30% of the bottles' surface area—include unusually explicit warnings about risks associated with alcohol use. One picture shows a shirtless man grasping a woman by the hair and raising his fist to hit her, accompanied by the words, "Alcohol consumption could harm yourself, children and family."

Another shows a pair of bare feet dangling in the air after an apparent suicide and the words, "Alcohol consumption could alter consciousness and lead to mortality." Others show diseased livers and a bloody motorbike accident.

The discussion at the TBT Committee is now available here (Word document):

(xxii) Thailand – Health warnings for alcoholic beverages (G/TBT/N/THA/332 and Add.1)

237. The representative of the European Union asked Thailand for further information with regard to the scientific evidence leading to the decision by Thai authorities not to use less trade-restrictive, less costly and burdensome alternatives to pictorial health warnings.  She asked for a clarification on the scientific data justifying the assumption that the conditions described by the health warnings were generally caused by any level of alcohol consumption, even moderate ones.  Furthermore, it was the EU experience that public policies aiming to modify drinking behaviour needed to be approached in a holistic manner, for instance by encompassing education campaigns to raise the awareness level of the public with regard to specific alcohol-related problems.  Therefore, the European Union asked Thailand to indicate whether it was considering also other alternatives to mandatory product labelling, such as education and/or information activities.

238. The representative of the European Union noted that if the Thai authorities nevertheless decided to go ahead with the introduction of these requirements, the European Union requested more flexibility with regard to their implementation – in particular, with regard to the size and placement of the health warnings. The European Union also asked Thailand to allow for a sufficient transition period for economic operators to adapt their labels to the new requirements. Finally, the European Union reiterated its request for Thailand to clarify the relationship between the draft measure and the text notified under G/TBT/N/THA/282.

239. The representative of Mexico raised concerns about the means by which Thailand's legitimate objective of protecting human health was to be achieved and requested that Thailand consider less costly and less trade-restrictive alternatives, as well additional scientific and economic reasoning behind the provision.  He pointed out that exporters would require sufficient time to be able to adapt to Thailand's proposed modifications of the regulation.

240. The representative of the United States said that the United States had difficulties understanding the scientific and technical basis Thailand had used for the language in the warning statement requirements, and would review the further information supplied by Thailand. He also expressed his delegation's concern that the proposed labelling requirement could interfere with legitimate trademarks on the bottle, as well as with the display of useful information on product labels, including information that was necessary to distinguish one product from another.

241. The US industry had informed the United States trade representative that the requirement to rotate the warning labels every thousand bottles would require a stop and a change in the production line every three to four minutes, which would be extremely difficult for suppliers to manage and very disruptive to the production process. The United States also asked that the implementation period be extended to allow time for suppliers to make the modifications that were being proposed . Finally, the United States was concerned that a Thai requirement for warning messages in media advertisements for alcoholic beverages had already been implemented, even though comments on these warning messages were still under consideration.

242. The representative of Australia asked whether Thailand had considered less trade restrictive alternatives and shared the concerns of other Members in relationship to the labels and pictorials, and rotational labels, as well as the already implemented measures with regards to warning messages in advertising for alcoholic beverages.

243. The representative of Chile was of the view that alcohol consumption in itself was not harmful, and while excessive alcohol consumption was dangerous, moderate alcohol consumption could even have beneficial effects for human health as had been demonstrated by many international studies. She noted that the consumption of alcohol and in particular of wine, had been a common practice for many centuries. The moderate consumption of alcohol had historically always been accepted, as it was not considered to be harmful. Therefore, Chile believed that only excessive consumption of alcohol should be prevented, not the consumption of alcohol per se. Furthermore, at a conceptual level, the proposal could potentially serve as a precedent for many food products which all had the potential to harm human health when consumed in excess. Chile believed that the objective of preventing excess alcohol consumption could be attained with less trade restrictive practices. Chile also was concerned by the large size of the labels proposed by the Thai authorities and proposal that warning messages should instead take up less than 15 per cent of the label space.

244. The representative of Argentina recalled that his delegation had submitted comments and questions to Thailand four months previously, to date without response. Argentina recognized Thailand's legitimate objective to protect human health and specifically to prevent problems connected with a high consumption of alcohol among young people.  Nevertheless, Argentina felt that the measure was unnecessarily costly as it deviated from the legislation of all other Members.  Argentina joined other Members in requesting further information on the scientific basis underlying the proposed warning statements.

245. The representative of New Zealand acknowledged that in seeking to address the public health concern of the harmful use of alcohol, Thailand's draft Notification on labelling of alcoholic beverages was directed toward a legitimate public health objective. However, the proposed requirements could be unnecessarily trade restrictive; alternative, less trade-restrictive approaches could be available to achieve the same objective.  He also noted that the new requirements would impose significant additional costs and administrative burden on exporters, which could result in a reluctance for exporters to service the Thai market and, therefore, for trade to be reduced.  New Zealand was of the opinion that, in line with the "World Health Assembly Strategy on the Harmful Use of Alcohol", a proper balance between policy goals in relation to the harmful use of alcohol and other public policy goals should be achieved.  Finally, New Zealand expressed its interest in learning about the background leading to the selection of the proposed labelling approach, including information on what alternatives had been considered to achieve the same objective, for example the development of public education campaigns and consideration of current international practices.

246. The representative of Thailand said that the notification had been submitted in accordance with the TBT Agreement.  In accordance with Article 2.2, the measure pursued the legitimate objective of protecting human health.  In accordance with Article 2.1, the regulation would apply to both domestic and imported goods without discrimination.  The measure had been notified properly, and in line with Article 10.6, and Members’ had been given opportunity to comment.  Thailand had initially allowed for a comment period of 60 days, as recommended by the TBT Committee, and had even extended this period by a further 30 days.  All comments had been taken into account by the relevant authority, which was the Disease Control Department of the Ministry of Public Health. The measure envisaged a transition period of 180 days after its publication in the Gazette.

247. The representative of Thailand went on to state that her country did not consider alcohol to be an "ordinary" commodity due to its potential adverse effects on health, as well as on social development and economic growth.  Thailand considered the choice to drink an individual right, however felt that the addressing of alcohol-related problems was a public responsibility.  The consumption of alcohol had historically not been traditional in the Thai society.  The two major religions Buddhism and Islam, which were followed by an estimated 99 per cent of the population, both discouraged and even prohibited the consumption of alcohol.  Nevertheless, the Ministry of Public Health did not endeavour to eliminate the consumption of alcohol from Thai Society, and did not oppose drinking per se, however, it intended to combat alcohol-related problems in a cost-effective and sustainable way.  To achieve this goal, the Ministry had elaborated its measure to include a mix of policy interventions.

248. The representative of Thailand explained that the ban on small-sized bottles for alcoholic drinks was intended to reduce the occurrence of underage drinking, since small bottles were attractive to minors due to both their relatively cheap price, as well the possibility to be hidden from parents and teachers.  Thailand had already banned "tiny bottles" nearly a decade ago.  She was of the view that all six pictorial warning messages had high contextual-relevance and were supported by both domestic and international scientific evidence.  They were aware of studies indicating that moderate drinking might have health benefits for people with specific characteristics. However, they pointed out that epidemiological evidence showed that no health benefits could be measured at the aggregate level in countries with low prevalence of coronary heart diseases, especially in low and middle-income countries like Thailand.  In Thailand, the occurrence of diseases attributable to alcohol consumption had increased by 40 per cent from 1999 to 2004 in terms of "Disability-Adjusted Life-Years (DALY)".  The 2004 value was 10.4 per cent of the total health burden, which was twice the global average. Alcohol consumption was now considered the second greatest health risk factor to the Thai population.  The market for alcohol in Thailand was characterized by increased consumption volumes, drinking frequencies, product varieties and exposure to direct and indirect alcohol marketing all leading to an increase in alcohol consumption as well as in alcohol-related problems in Thai society.

249. Evidence showed, according to the Thai representative, that warnings on the packages of commodities entailing potential harm were an effective means to educate the general population about risks associated with the use of the item.  Furthermore, the higher the level of alcohol consumption, the higher also the level of exposure to the warning measures.  Experience with tobacco packaging had shown that pictorial warnings yielded a higher impact than text-only messages.  At present, Thai drinkers exhibited low levels of awareness of the text-only warnings that were currently employed.  The experts believed that the location of these messages as well as their small size could be one reason for this.  Therefore, the new measure required the pictorial warning messages to occupy between 30 per cent and 50 per cent of the container surface, which would still allow displaying product information in the remaining space.  Pictorial messages furthermore were able to reach parts of the population with low literacy rates.  Moreover, pictorial warnings would deter children from drinking alcohol. It was the view of the Thai delegation that it was technically feasible to implement a rotation of warning messages.  Finally, it was pointed out that the measure was embedded in the national agenda to combat alcohol-related problems, which included an education campaign.

250. The representative of Mexico remarked that the statement by Thailand gave the impression that the decision of Thailand had already been taken without the consideration of all arguments raised, and of possible alternatives.

251. The representative of Thailand responded that the alternatives proposed so far included education campaigns in school and for the general population, which Thailand had already implemented.  It was in addition to this that the new measure was being proposed; she assured delegations that all concerns would be taken into account.

A number of interesting points were raised.  From countries other than Thailand:

-- is there scientific evidence that supports the measure?

-- has Thailand considered alternative, less trade restrictive measures? 

-- how will the measure affect trademarks?

-- moderate consumption of alcohol is not necessarily harmful, and may even have benefits

-- does the Thai measure diverge too much from what other countries are doing on this issue?

From Thailand:

-- Thailand's religious traditions related to alcohol consumption are different from many other countries

-- the Thai measures are supported by evidence and address various issues related to the specific situation of Thailand

-- the measure is non-discriminatory

All of this makes me wonder:  How would Prohibition in the U.S. (1920-1933) have been treated under WTO rules?  Were there any concerns raised by U.S. trading partners back then, perhaps during the League of Nations economic conferences held during that period?

It's interesting to compare the Thai liquor labeling issue to the ongoing investment treaty case related to Uruguay's tobacco labeling law.  See here, here and here for more on that case.  A recent NY Times articles explains:

This year, Philip Morris International sued the government of Uruguay, saying its tobacco regulations were excessive. World Health Organization officials say the suit represents an effort by the industry to intimidate the country, as well as other nations attending the conference, that are considering strict marketing requirements for tobacco.

Uruguay’s groundbreaking law mandates that health warnings cover 80 percent of cigarette packages. It also limits each brand, like Marlboro, to one package design, so that alternate designs don’t mislead smokers into believing the products inside are less harmful.

The lawsuit against Uruguay, filed at a World Bank affiliate in Washington, seeks unspecified damages for lost profits.

“They’re using litigation to threaten low- and middle-income countries,” says Dr. Douglas Bettcher, head of the W.H.O.’s Tobacco Free Initiative. Uruguay’s gross domestic product is half the size of the company’s $66 billion in annual sales.

Peter Nixon, a vice president and spokesman for Philip Morris International, said the company was complying with every nation’s marketing laws while selling a lawful product for adult consumers.

He said the company’s lawsuits were intended to combat what it felt were “excessive” regulations, and to protect its trademark and commercial property rights. 

So given the Philip Morris investment case, what are the chances of WTO Member(s) bringing a claim against the Thai liquor labeling measure?  There are two obvious differences in the situations.  First, unlike with investor-state, there is no private right of action at the WTO.  All claims must be filtered through governments, who look at a broader set of considerations before they bring a complaint.  Second, liquor is not tobacco.  While it may be used in harmful ways, I think most people would agree that (a) its harms are not as great as tobacco and (b) it may actually have some benefits.



Non-Discrimination Standards: More on Discriminatory Effect and Individual Products

This is from the EU first written submission in the Philippines - Distilled Spirits case (DS396 for the EC case, DS403 for the parallel U.S. complaint):

105. In the light of the above, it is useful to recall once again that the vast majority of imported products are subject to the higher tax rates whereas all (or most of)118 local products enjoy the lower tax rate119. It has just to be pointed out that the fact that few imported products (e.g. 'Bacardi') may also enjoy the lower tax rate doesnot exclude that the measures violate Article III:2. As the Panel in Argentina – Bovine Hides made it clear: "Article III:2, first sentence, is applicable to each individual import transaction."120 It is thus sufficient to establish a breach of that provision that some (or even one) imported product is taxed in excess of a like domestic product.

106. In the present case, it must be therefore concluded that the taxes applied to (the vast majority of) imported spirits are ‘in excess of’ those applied to the like domestic products.

What's interesting about this passage is that the discriminatory effect (or disparate impact or disproportionate disadvantage or asymmetric impact, or whatever you want to call it) approach is mixed together with the individual product (or diagonal test or best treatment, or whatever you want to call it) approach.  The argument starts off by recalling that "the vast majority of imported products are subject to the higher tax rates whereas all (or most of) local products enjoy the lower tax rate."  So it sounds like they'll be relying on discriminatory effect.  But it then cites to Argentina - Bovine Hides for the proposition that "Article III:2, first sentence, is applicable to each individual import transaction," and on this basis argues, "[i]t is thus sufficient to establish a breach of that provision that some (or even one) imported product is taxed in excess of a like domestic product."  Thus, now they are comparing individual products.  Finally, they note that "the taxes applied to (the vast majority of) imported spirits are ‘in excess of’ those applied to the like domestic products," which seems to go back to the discriminatory effect test.

It may not be as clear as if the opposing sides were arguing for the different approaches, but this claim definitely puts the different options for non-discrimination standards in front of the panel.  I think everyone knows at this point what my view of this issue is (some recent thoughts are here, but in a nutshell, I argue for looking at the overall discriminatory effect rather than just looking at individual products).  The question now is, what will the panel do with this issue?  If the EU is correct about the facts, it seems that the discriminatory effect standard is easily satisfied.  How will that affect the Panel's approach?

Pascal Lamy on Macroeconomic Imbalances

From a recent speech:

The stimulus worked:

Coordinated fiscal and monetary stimulus has worked to bring back the global economy from the edge of a depression.

But unemployment is still a problem, and this is at the heart of the "imbalances" issue:

What lies behind concerns about macro-economic imbalances is in reality a concern about unsustainable and socially unacceptable unemployment levels. Whether it is the worker in Bangalore, in Ohio or in Guangdong, the real issue is jobs. 

And unemployment is also the source of the "currency wars":

For it is generating employment which is at the heart of the strategy of some countries to keep their currencies undervalued. Just as it is also at the heart of other countries' loose monetary policies. 

To deal with this issue, we need economic cooperation:

The Havana Charter of 1948 which envisaged the creation of the International Trade Organisation, but never came into being, considered employment as an integral part of a global trading system. In its Article 2 it recognized the fact that “while the avoidance of unemployment or underemployment must depend primarily on internal measures taken by individual countries, such measures should be supported by concerted action”. What was true more than 60 years ago is even more so in today's globalised economy.

This is why the G20 has repeatedly emphasized the importance of international cooperation in global economic issues. Cooperation means listening to each other, understanding each others' constraints, and entering into compromises towards commonly identified goals. Today the constraints of countries may be different, the individual actions required from individual countries may be different but they must all be directed towards these common goals. 
 
Consider, for example, the issue of macro-economic imbalances. Addressing them will be inevitably complex. It will require looking into monetary policies, investments in social safety nets, competitiveness, public finances or taxation systems to name but a few.

Trade restrictions are not the answer:

These imbalances do not originate in trade. And therefore addressing them through trade restrictive measures will not work. Worse, it will trigger tit-for-tat protectionism.
 
In the short term, the uneven growth in the world and high unemployment carry the risk of countries diverging from global solutions and embracing go-it-alone measures. Such uncoordinated 'beggar-thy-neighbour' policies, however, will not result in increased employment. Hence, for a sustainable global recovery, there is a need for coordinated policy action across countries, which would lead to a progressive reduction of these global imbalances and to a greater number of jobs.

Trade agreements can be part of the solution:

Let me now turn to global trade. Trade - both exports and imports - can increase income or output levels through efficiency gains from specialization based on comparative advantage, through greater competition and through economies of scale. In turn, an increase in incomes creates jobs in different sectors by increasing demand. ...

Trade is also likely to contribute directly to the reduction of unemployment in the recovery phase following the crisis. This is because the share of employment which depends on exports and imports is typically large.

But trade agreements are not good for everyone:

Well of course, greater import competition associated with trade opening may lead to job loss in certain sectors of the economy. There are both winners and losers.

 ******************

The part about economic cooperation is particularly interesting to me.  He says we should be looking into "monetary policies, investments in social safety nets, competitiveness, public finances or taxation systems to name but a few."  Is there any possibility for cooperation on these issues?  If cooperating means "listening to each other" and "understanding each others' constraints," I can see that.  If cooperating means "entering into compromises towards commonly identified goals," I am skeptical.

Also, can international economic cooperation deal with unemployment?  The ITO Charter addressed these issues to some extent.  Was that unrealistic?  Is there anything that can be done today at the international level?  Other than trade agrements, of course, which he says create new jobs (on balance). 

Trade in Everything: Electronic Waste

From CBS News:

Up to 1.2 million second-hand TVs, refrigerators, washing machines, and air conditioners were estimated to have entered the Philippines between 2001 and 2005, and according to a study by Japan International Cooperation Agency and the Philippine Board of Investment, 60-70 percent of it all came from Japan.

That Japan has been sending its enormous piles of e-waste to the Philippines is not a revelation, but with the enforcement of the Japan-Philippines Economic Partnership Agreement (JPEPA), a wide-ranging bilateral trade agreement, critics fear the Philippines may essentially become Japan's dumping ground. Under JPEPA, certain hazardous waste products are allowed to enter the Philippines tax-free.

"The problem is that e-waste, under JPEPA, is considered a good," explains BAN's Gutierrez. When items are treated in economic terms as goods, then can be legally traded.

The Philippine Department of Environment and Natural Resources (DENR) says it has made it clear to the negotiators of the agreement that if waste items -- not goods -- are coming in, the Department should control the materials under the terms of the Basel Convention, which aims to limit the trans-boundary movement of hazardous waste.

"We said, 'wastes are not goods,' so we don't trade waste, very simple. Electronic wastes are not goods," says Salvador Pace, of the DENR. But nowhere is the Basel Convention mentioned in the final agreement between Japan and the Philippines.

Japan's National Institute for Environmental Studies estimates that, on average, about 400,000 used cathode ray tube (CRT) television sets are exported from Japan to the Philippines annually. But government data show less than 800 used TVs arriving from Japan between 2006 and 2009, and only 10 in 2009.

"If we bring in lead CRTs, they are waste. Glass monitors are dinosaurs, nobody recycles the glass anymore," says Gutierrez, questioning the "goods" label assigned to the old sets.

The previous administration of Gloria Macapagal-Arroyo hailed JPEPA as a landmark agreement to boost the Philippine economy and bring more jobs to Filipinos, touting the hundreds of nurses who have gone to Japan for training and employment.

The current president, Benigno Aquino III, objected to JPEPA when he was a senator, but has said his administration will review the agreement.

"Is it really the national plan that we become a dumpsite? Is it sustainable development? When you're creating employment and investment, it shouldn't harm people," admonishes Gutierrez.

I see less of a conflict here than is implied.  Even if electronic waste is a "good," I assume (but have not checked) that there is an environmental exception of some sort in the JPEPA.  As suggested by the Brazil - Tyres WTO dispute, you have to be careful when implementing exceptions for these kinds of measures, but I'm fairly confident that it could be done in a way that was consistent with trade rules.

More on trade in electronic waste here and here.

Google Paper on Free Trade and the Internet

Last week, Google posted a paper entitled "Enabling Trade in the Era of Information Technologies: Breaking Down Barriers to the Free Flow of Information."  There's a Technical Appendix (p. 17 of the document) called "Applicability of the WTO rules to restrictions on free flow of information."  It seemed interesting enough, but I couldn't think of anything to say about it, so I didn't mention it on the blog.  But now Yohai Baisburd (of the new International Trade and Customs blog) points out another part of the paper, which I had not noticed initially because I skipped directly to the WTO legal analysis part:

[governments should] ensure that rules in the next generation of trade agreements reflect new challenges of Internet trade. In this new era, addressing the trade-related problems posed by government censorship and disruption of the Internet will be critical. Fresh, creative thinking will be required in order to properly address the unprecedented problems and opportunities that arise every day.

In particular, Google says that governments should do two things:

First, governments must close gaps in the existing WTO framework in order to ensure that all GATS disciplines apply to all Internet trade. Second, governments must negotiate new rules that reflect today’s information economy and include them in bilateral and multilateral trade agreements.

I'm going to focus on the latter part, i.e., the new rules.  Google elaborates on this a bit by arguing for three "priorities for promoting internet trade"  in the negotiation of new trade agreements: "advancing the unrestricted flow of information; promoting new, stronger transparency rules; and ensuring that Internet services can be provided without a local investment."  My sense is that transparency is not all that controversial.  As for the "local investment" part, this seems to be a simple case for anti-protectionism.  This is controversial in a sense, but in predictable ways.  All governments want to give advantages to domestic companies.  Trade agreements simply set the rules on the extent to which they can do so.

The most interesting part is the call for the "unrestricted flow of information":

Advancing the unrestricted flow of information

Information is the currency of the Internet and the innovation economy. The Internet’s power and ability to deliver benefits, including to the international trading system, depends on the free flow of information across the entire global network. When data is blocked or disrupted, a wide range of businesses and consumers who depend on the Internet as a tool of trade are potentially affected.

Governments should therefore insist on trade agreements that explicitly recognize this and establish a presumption in favor of the free flow of electronic information. In some sense, this is simply applying the same concepts that have long been accepted in the realm of goods
trade, and updating them to adapt to the 21st century economy.

Governments have long agreed that any restriction on the importation of goods should be
prohibited. In addition there is consensus that, to the extent that any technical regulations
are imposed that restrict trade, they should be limited to pursuit of legitimate governmental objectives and tailored to be no more trade restrictive than necessary to achieve that objective. Other than tariffs, which have to be negotiated on a reciprocal basis, the default
position under the WTO is that governments may not restrict imports of goods, and any deviations from that must be justified.

Trade officials should work to ensure that all governments accept the same presumption for the Internet – a presumption that governments may not restrict online information flows.
While this concept can be translated into binding trade agreement language in different ways, the end result must put the burden on governments to justify with particularity any
censorship or other disruption of the Internet. And in such scenarios, governments must tailor restrictions narrowly, spell out legitimate government objectives that are being advanced, and provide basic legal process to affected service providers.

The United States and Korea took an initial, positive step in this direction in 2007 by agreeing to the following provision in the Korea-U.S. Free Trade Agreement (KORUS): “Recognizing the importance of the free flow of information in facilitating trade, and acknowledging the importance of protecting personal information, the Parties shall endeavor to refrain from imposing or maintaining unnecessary barriers to electronic information flows across borders.” This provision applies to any measure that disrupts information flows and applies to all digital content, whether goods or services.

The U.S. and other governments should improve the KORUS language and incorporate it into other trade agreements. Among other things, the provision should be revised to be binding – in KORUS it is an agreement to “endeavor to refrain from” certain restrictions – and it should apply to all electronic information flows, not just those “across borders”.

In essence, Google is asking for trade agreements to include a necessity requirement for information flows.   In this regard, they mention this preambular provision from the KORUS FTA (Article 15.8): “Recognizing the importance of the free flow of information in facilitating trade, and acknowledging the importance of protecting personal information, the Parties shall endeavor to refrain from imposing or maintaining unnecessary barriers to electronic information flows across borders.”  They say they want to put this provision in other trade agreements and make it binding. This would constitute a general necessity requirement applying to all measures affecting "information flows," similar to what already exists in TBT Agreement Article 2.2 for measures that are "technical regulations" (which they also refer to).

The underlying issue here is establishing the proper balance between the free flow of information and other policy goals.  The key other goals are likely to be national security, public order and public morals.  Google wants to put constraints on governments' ability to pursue these goals (or rather, it wants governments to constrain themselves, through trade agreements).  By contrast, some governments are likely to want to maintain a good deal of flexibility in these matters.

So what are the chances of success for Google in achieving this?  My guess is that in the context of the WTO, they may have some trouble.  What they are suggesting would lead to a shift in the current balance between international oversight and flexibility in domestic regulatory autonomy.  It would certainly be an interesting debate if WTO Members were to look closely at these issues, but I'm not at all sure what the ultimate result would be. 

On the other hand, it may be possible to find a few countries who would agree that a tightening of international rules is desirable, and thus they may find takers for their proposed changes in particular bilateral or regional FTAs.

There is more on this issue from Roger Alford at Opinio Juris and Emmanuel at the IPEZone.

Do Kids Smoke Clove Cigarettes?

This may be a key issue in the U.S. - Clove Cigarettes case (DS406).  (See this link for some past posts on the case).  Briefly, the case is about whether the U.S. ban on clove cigarettes (produced mainly in Indonesia), but not menthol cigarettes (produced mainly in the U.S.), violates certain National Treatment and other obligations.

According to the first U.S. written submission:

Indonesia repeatedly claims that clove cigarettes are only smoked by adults and rarely, if ever smoked by youth.  The survey data generated in the last decade refutes this claim, and strongly supports the United States’ view that clove cigarettes are disproportionately used by youth smokers and are properly considered a “trainer” smoking product, just as chocolate, cherry, and coconut flavored cigarettes are. This is in direct contrast to the use patterns of menthols, which are heavily used by both adults and youths alike.

(See para. 54) The point the U.S. is making is that its decision to ban clove cigarettes and other candy/fruit flavored cigarettes, but not to ban menthol cigarettes, was justified as a measure designed to prevent kids from picking up smoking.  The idea is that these flavored cigarettes make it more likely that kids will try it.

As a factual matter, is the U.S. correct?  The U.S. cites to some survey data in support.  I tried to sort through it, but it was taking too long and I gave up.  Here are some links if anyone wants to go further with it: survey of high school seniors (p. 253); survey of secondary school (p. 122); surveys of multiple age groups.  The footnotes in this section of the U.S. submission provide more details on where to look for this data.

Generally speaking, it seems to me that this is a crucial factual point, one that will affect the conclusion on many of the key legal issues in the dispute, both the claims and defenses.

In (somewhat) related news, the WHO conference going on right now may not take any action in relation to flavored cigarettes:

But industry lobbying appears to have persuaded delegates to a global conference on tobacco regulation not to recommend tough new limits on adding aromas and flavors like licorice and chocolate to cigarettes to make them more palatable to first-time smokers.

The additives question will likely be sent back to a working group for more development, said Nick Guroff, a spokesman for the watchdog group Corporate Accountability International.

"Big Tobacco has been very overt in subverting public health policy until they can't get away with it anymore, at which time it exports all of the same tactics to countries that have less political will to combat the same tactics," Guroff complained.

He scoffed at the industry's key argument -- that small tobacco growers in developing countries would be devastated by a ban -- and expressed frustration at seeing industry lobbyists working the conference rooms in Uruguay's Punta del Este beach resort.

The conference ending Friday was sponsored by the World Health Organization and brought together 171 nations that have signed the Framework Convention on Tobacco Control treaty. 

ADDED:  This (more recent) Reuters article tells a different story about the flavoring issue:

 World health officials recommended on Saturday limiting additives that make cigarettes more palatable, but they postponed until 2012 a number of other issues after five days of deliberations.

...

Delegates approved a proposal to limit the use of tobacco additives, which critics say improve the flavor of cigarettes, encouraging consumers to smoke more.

New Zealand, the TPP and Investor-State

From Eyes on Trade:

Today's edition of Inside U.S. Trade (subscription only) reports that the Prime Minister of New Zealand, one of the negotiating parties of the Trans-Pacific Partnership (TPP), stated that a NAFTA-style investor-state lawsuit provision will likely be excluded from the TPP:

In a Nov. 15 press conference, New Zealand Prime Minister John Key said it was a "far-fetched" idea that a Trans-Pacific Partnership (TPP) agreement would contain an investor-state dispute settlement mechanism, according to a video of that New Zealand press conference posted on the prime minister's website.

The Prime Minister's statements add greater momentum to the effort to exclude investor-state enforcement provisions from the TPP. Another TPP negotiating partner - Australia - today breathes easier because its "free trade" agreement with the United States excluded investor-state enforcement.

 More here: 

The Prime Minister has unintentionally made a significant announcement on New Zealand's approach to negotiating the Trans Pacific Partnership (TPP).

Late Monday the Prime Minister was asked whether New Zealand would follow Australia's lead and resist rules in the TPP, which exist in other US trade agreements, allowing investors to sue foreign governments to enforce investor rights.

John Key said that he'd imagine New Zealand would take Australia's approach, saying the idea was far-fetched.

How important was this statement?  One NZ commentator didn't think it meant all that much:

Asked this week about the possibility the TPP would also include it, Prime Minister John Key dismissed the idea as "far-fetched".

But his reaction sounded more like "I have only just encountered this idea, but I wouldn't have thought so" than "I have looked into this and I can assure you it won't happen".

Haveing seen the video, I see his point.  You can watch for yourself, though.  The video is here.  The relevant portion starts a little after 38 minutes.

Speaking of investor-state, the last post suggested that investment (in particular investor-state dispute settlement) was something that some members of Congress want to re-think in the Korea-U.S. FTA.  So what's the Korean view of this?  Via Ben Muse, I see this:

Seoul, however, will not exclude the maligned investor-state dispute settlement clause, which allows a private investor to legally challenge a host government`s public policy.
 
A high-ranking Korean Foreign Ministry official said, “The government believes that the investor-state dispute settlement mechanism is not a poison clause but something Korea needs. We won’t cover it in our next round of negotiations.”

I'm a little confused by the language used, but I think they are saying they want to keep it in, and would consider removing it a concession on their part.

The Korea - U.S. FTA: Negotiating with Congress

From Reuters:

U.S. President Barack Obama told congressional critics of a free trade deal with South Korea he would consider asking Seoul for changes to labor, investment and financial provisions of the pact to help win approval of the deal in Congress, a lawmaker said on Thursday.

"He wanted us to give him a list of what our other concerns were," Representative Michael Michaud, a Maine Democrat, told Reuters after he and eight other lawmakers met with Obama.

Obama said he "is willing to go over that list and see which ones they agree with, and the ones that they do (agree with) they'll try (to pursue) when they continue the negotiations with the Koreans," the Maine Democrat said.

But Michaud, who is chairman of the House of Representatives Trade Working Group, said also Obama made clear finalizing the trade deal was a priority and "he definitely does not want to start from scratch" to get that done.

Obama's conversation with Michaud and his colleagues reflects the political problems he faces in embracing the Korea-U.S. Free Trade Agreement, which the two countries signed three years ago when George W. Bush was president.

For many Democrats, the pact is based on a "bad template" that Bush used to negotiate a raft of trade deals during his eight years in office, Michaud said.

U.S. and South Korean negotiators plan to resume talks soon on the trade deal in Washington, following their failure to resolve beef and auto trade issues during Obama's recent trip to Seoul for the Group of 20 summit.

Michaud said his group told Obama "we're willing to work with him on Korea and other trade deals, but we have very serious concerns beyond autos and beef ... We have issues with labor, investment and financial chapters ."

An extended list of U.S. demands could complicate chances of quick agreement on the deal, and Michaud acknowledged they had to be "realistic" about what more Obama could get.

And from Roll Call:

Members of the House Trade Working Group emerged from a private meeting with President Barack Obama on Thursday feeling heartened about the prospects for revamping U.S. trade policy.

“We went to the White House to begin a genuine dialogue because there are trade agreements that many of us could support,” said Rep. Mike Michaud, chairman of the group. “We wanted this conversation to be one that gets away from the same old talking points, and I think we’re off to a good start.”

The Maine Democrat was one of nine lawmakers invited to the White House meeting, which was not listed on Obama’s daily schedule. He outlined for the president changes that he and others in the group want in a pending free-trade agreement with South Korea: clearer labor standards, more targeted tariff reduction for small and medium manufactures, and more focus on trade deficit reduction.

Above all, Michaud said, U.S. trade policy is simply due for an overhaul.

“While I remain concerned about this agreement, I believe there is a viable, alternative way forward on trade,” he said. “U.S. trade policy has not changed in the last 16 years, but it has changed our districts, and not for the better. That’s why making some improvements to the agreement and future ones to limit offshoring of jobs and promote U.S. manufacturing would be a good step forward.”

Here's an excerpt from the Michaud press release about the meeting:

“I appreciated the discussion we had with the President.  As millworker for nearly 30 years in Maine, this is an issue that hits close to home and which effects I’ve seen firsthand.

“During our meeting, we told the President that we believe the agreement as it exists now has several fundamental problems that go beyond the issues with beef and autos.  Because of these fundamental problems, the agreement will not help to fix the U.S. economy, which voters just signaled is their number one priority.

“We also delivered to the President the same message we all hear back home: the American people do not support more of the same.  They want Congress and this Administration to work together to fix our flawed policies.

“And while I remain concerned about this agreement, I believe there is a viable, alternative way forward on trade.  U.S. trade policy has not changed in the last sixteen years, but it has changed our districts, and not for the better.  That’s why making some improvements to the agreement and future ones to limit off-shoring of jobs and promote U.S. manufacturing would be a good step forward.  And making these changes would do nothing to derail the U.S. trade agenda as some have tried to claim.

“We went to the White House to begin a genuine dialogue because there are trade agreements that many of us could support.  We wanted this conversation to be one that gets away from the same old talking points and I think we’re off to a good start.”

And here's a letter he and others sent to President Obama and Korean President Lee last month, outlining their concerns.

 



Sarah Palin on Free Trade

I don't know if Sarah Palin is officially part of any tea party group, but she is certainly identified closely with tea partiers.  So, recalling the earlier post about the tea party view of free trade, I thought these Sarah Palin comments on free trade and free trade agreements (via Scott Lincicome), in her Open Letter to Republican Freshmen Members of Congress, were worth noting:

On foreign policy and national security, I urge you to stick to our principles: strong defense, free trade, nurturing allies, and steadfast opposition to America’s enemies.

...

 

You will also have the opportunity to push job-creating free trade agreements with allies like Colombia and South Korea.

 

Sallie James on GSP

Sallie James of Cato has a good piece on the U.S. GSP program.  Here are some snippets.

The opening salvo:

To the extent that preference recipients jealously guard their special access and resist global efforts to liberalize trade on a nondiscriminatory basis, unilateral preference programs can be counterproductive to achieving a more liberal global trade regime and a more stable and permanent path to economic growth.

Some aspects of current programs may not be consistent with WTO obligations:

The degree to which preference-granting countries abide by the principles of a generalized system of preferences as originally envisaged by the UNCTAD declaration—especially with respect to conditionality and nonreciprocity—is a point of contention. Certainly the United States GSP program has some questionable gaps and limitations in that regard.

The inability of current programs to help the poorest of the poor:

most of the top sources of GSP imports are relatively fast-growing and among the “richer” developing countries, with the exception of Angola and Equatorial Guinea, prominent because as LDC beneficiaries they get duty-free access for their oil exports.

The influence of special interests: 

This year, although the president denied the petition to remove certain sleeping bags from the list of GSP-eligible products, Rep. Robert Aderholt (R-AL) has since introduced the Save U.S. Manufacturing and Jobs Act (H.R. 5940) to remove them from the list by legislative means, on the grounds that sleeping bags should be considered textile goods (not included in GSP). Representative Aderholt’s congressional district is, coincidentally, home to a sleeping bag manufacturing company called Exxel Outdoors Inc.

The complex interaction of different trade laws:

eligible countries are still vulnerable to traps set by other U.S. trade barriers. A recent example is passenger tires from Thailand. When the U.S. International Trade Commission ruled in September 2009 that Chinese passenger tires were harming the interests of U.S. tire producers, President Obama imposed tariffs of 35 percent on Chinese tires. U.S. tire importers started sourcing their tires from other countries, including Thailand, instead. As a result of the increase in imports of tires from Thailand, the CNL was breached and Thailand lost its GSP access for its tires, which now face the MFN rate of 4 percent.

And finally:

Ideally, the United States, as the world’s largest economy and a global proponent of open markets and globalization, should open its markets to all goods from all countries on a permanent, nondiscriminatory basis.

I'm guessing she had trouble holding in a smile when she wrote that last bit!

Matt Yglesias on Trade Negotiations

I'm always curious to read what the mainstream press says about trade.  They may be a little light on the details, but they have the ability to influence "the masses," which despite our respectable readership here at this blog, we probably don't.  Here's Matt Yglesias, who is a widely read blogger, in a post commenting on the U.S. GSP system (which I'll get back to in the next post):

Far and away the most persuasive critique of the most recent round of proposed trade deals is that these agreements actually have relatively little to do with trade. Instead since all kinds of business regulations “affect” trade, you’ve got a lot of stuff about intellectual property rules, capital flows, privatization of government services, etc. It’s possible to make a case for these things, but you certainly can’t take the general “case for free trade” and then apply it across the board.

What interests me is how he seems to take what is a pretty typical critique (I think) of the current system a bit too far.  He says "the most recent round of proposed trade deals" -- which I assume refers to the Doha round and/or various bilateral U.S. trade deals -- "have relatively little to do with trade."  Instead, they have "a lot of stuff about intellectual property rules, capital flows, privatization of government services, etc."

Now, I agree that they do have "a lot of stuff about intellectual property rules," and depending exactly what he means, a bit of "stuff" about capital flows and privatization of government services.  And I do think that all this "stuff" can be a distraction from what I would say is the core of trade agreements, which includes lowering tariffs, quotas and subsidies.  But I cetainly wouldn't say that recent trade negotiations "have relatively little to do with trade."  I'm pretty sure that tariffs, quotas and subsidies still come up quite a bit!  The other "stuff" has grown, course, but these issues are still at the core.

Anyway, for what it's worth, that's what is being said in the "mainstream media."  Perhaps that's part of the reason why, as noted in the last post, so many people think that trade agreements will lead to higher prices, not lower ones.

Free Trade and Public Opinion

The other day, I mentioned the polling questions related to the free trade views of the Tea Party.  Looking a little more closely at these questions, I noticed something else of interest.  One of the questions (see p. 11 of the document) asked was:

Do free trade agreements make the price of products sold in the U.S. higher, lower or not make a difference?

To my great surprise, 31% of people said that prices were higher because of free trade agreements!!  Now, I can understand opposing trade agreements because of specific job losses, or because more generally you weigh the disruptive effects of trade on employment, as compared to consumer benefits, differently than I do.  But how can 31% of people think that trade agreements lead to higher prices?  What do they think trade agreements do?

I can think of two possible answers.  First, as noted in the post from the other day, some people think that trade agreements are about "managed trade."  I'm not always sure what they mean by this, but my guess is they have in mind some sort of market sharing arrangement, in which corporations perhaps get guaranteed market access.  Or they think trade organizations are where you go to increase tariffs, as Ron Paul once said.

Second, it is possible that a few people are aware of the IP protection aspects of trade agreements, and for that reason think that trade agreements will mean higher prices.  But I can't imagine that, aside from a few committed activists, many people know this.

But either way, I can only assume that those who responded by saying that prices would be higher are unaware of the tariff cutting aspects of trade agreements, which, of course, is a pretty important part.  Cutting tariffs lowers a tax and increases competition.  How could that not lower prices?

I'd be interested to see what the responses would have been if instead of asking about "free trade agreements," the pollsters replaced that term with "lower tariffs (import taxes)" in all the questions.

Not Accepting an Amicus Brief at the WTO

A couple months ago, I noted how the Australia - Apples panel "accepted" an amicus brief: "the Panel notified the Parties that it had decided to accept the unsolicited communication received from APAL, and would inform that entity accordingly."  However, today's Thailand - Cigarettes (Philippines) panel report suggests there may still be some differences of opinion on that issue.  This is from para. 2.5 of the report:

On 27 March 2009, the Panel received a request from a private entity wishing to submit information to the Panel with regard to this dispute. On 17 April 2009, the Panel responded by requesting that such amicus curiae briefs be addressed directly to the parties and third parties to the dispute. Upon receiving such briefs, the parties and third parties would decide whether and how to use such briefs and/or any information contained therein in their submissions and arguments to the Panel in these proceedings.

This Panel seemed to take the view that panels shouldn't accept these briefs directly, but rather everything should be filtered through the parties.

ICSID Hearing Livestreaming Right Now

It's the preliminary objections hearing in Commerce Group Corp. and San Sebastian Gold Mines, Inc. v. Republic of El Salvador(ICSID Case No. ARB/09/17). Go here for the feed: 

http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=OpenPage&PageType=AnnouncementsFrame&FromPage=Announcements&pageName=Announcement68

 

 

Exports and Domestic Demand

President Obama:

"countries with large surpluses must shift away from an unhealthy dependence on exports and take steps to boost domestic demand".

Is domestic demand too low in China and other countries with trade surpluses?  Or is domestic demand too high in the U.S. and other countries with trade deficits?  How do we determine the appropriate level of domestic demand?

The Chinese Currency Issue and Congress

So the G-20 couldn't deal with the Chinese currency issue.  Does that mean Congress will take some action?  From The Hill:

Sen. Lindsey Graham (R-S.C.) predicted Sunday that Congress would pick up Chinese currency manipulation after President Obama was rebuffed on the issue at the G-20 summit.

The leaders of the world's top 20 economies refused to get behind a U.S. effort in Seoul this weekend to condemn "competitive devaluation" of currencies. 

"The currency issue was disappointing to me," Graham said on ABC's "This Week."

"Clearly, China does manipulate the value of the yuan to get an advantage in exports. They already have enough advantages. I was disappointed with the other nations who would not get behind President Obama to push the Chinese to change their currency policy."

He called the meetings "dispappointing" on the front of a lack of a trade agreement with South Korea and no movement in the currency fight with China.

"And I think you're going to see the Congress get more involved on the currency front after this trip," Graham said.

 

Expanding the TPP

Japan might join.  And Korea is thinking about it as well.

Is an expanded Trans Pacific Partnership a good development for trade agreements, helping create an important new free trade area?  Or will adding these large economy countries with sensitive agricultural sectors cause the TPP negotiations to get bogged down like a certain other trade negotiation we are all familiar with?

The Tea Party and Free Trade

There has been some talk about the Tea Party and free trade.  Dani Rodrik says: "Republicans who support the Tea Party are even more hostile to trade agreements than the rest."  He cites to this Pew poll.  Similarly, Robert Lighthizer says: "Strangely, for a movement named after an 18th-century protest against import levies, Tea Partyers are largely skeptical about free trade’s benefits — according to a recent poll by NBC and The Wall Street Journal, 61 percent of Tea Party sympathizers believe it has hurt the United States."

To some extent, I think these poll results are misleading.  Rather than being opponents of free trade, I suspect that many Tea Partiers are actually extreme free traders who think that so-called "free trade agreements" are just another example of big government favors for large corporations.  The problem with the polls at issue is that the specific questions don't distinguish free trade from free trade agreements.  When I follow the links, I'm not sure I'm seeing the actual questions that were asked, but from what I can tell from the language that I do see, the questions are, for the most part, not about the impact of "free trade," but rather that of "free trade agreements" like NAFTA and the WTO.  In the Tea Partiers' eyes, it may be that there's a difference between the two.  To illustrate this, Ron Paul, a favorite of many in the Tea Party, doesn't see NAFTA and the WTO as free trade, but as "managed trade."

He's wrong, of course.  While NAFTA and the WTO certainly do not lead to pure free trade (there are many exceptions to the general rules, and the agreements include a number of policies that have little to do with trade), I don't see how they could possibly be characterized as "managed trade," as I understand that term.

Nevertheless, being wrong about what's in trade agreements doesn't mean Ron Paul is skeptical of free trade.  He clearly wants free trade.  He just doesn't like the trade agreements currently being negotiated in the name of free trade, and furthermore doesn't believe that trade agreements are necessary for free trade.

So, while I would argue that Ron Paul and the Tea Partiers are exaggerating the difference between pure free trade and actual trade agremeents, and that their perception of trade agreements as some kind of market sharing arrangement is completely off-base, I think the reality is that although some Tea Partiers may be nationalist protectionists, others are unilateral free traders.  But until the pollsters ask more precise questions on this issue, I don't know what the breakdown is between these two groups.

Having said all that, I recognize that the reason for their opposition to trade agreements (from the extreme free trade side rather than from the protectionist side) doesn't change the fact that they oppose trade agreements, and that this could make it difficult for the U.S. to sign any new ones.

ASIL IEL Conference in Minnesota

The ASIL International Economic Law Interest Group conference on "International Economic Law in a Time of Change: Reassessing Legal Theory, Doctrine, Methodology and Policy Prescriptions" is coming up on November 18-20, at the University of Minnesota Law School.  I see lots of big IEL names and interesting paper topics on the agenda, which is here.

If you can't make it, you can view the live stream here:  http://www.ustream.tv/channel/international-economic-law-in-a-time-of-change.  There is also a facebook page: http://www.facebook.com/?sk=ru&ap=1#!/pages/Biennial-Conference-of-the-ASIL-2010-MJIL-Symposium/145764852104616.

Various other links related to the conference are here, here and here.

G20 Highlights

If you can call them that.  This is from the official communique:

Currencies:

Monetary and Exchange Rate Policies: We reaffirm the importance of central banks' commitment to price stability, thereby contributing to the recovery and sustainable growth. We will move toward more market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic fundamentals and refrain from competitive devaluation of currencies. Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates. Together these actions will help mitigate the risk of excessive volatility in capital flows facing some emerging market economies. Nonetheless, in circumstances where countries are facing undue burden of adjustment, policy responses in emerging market economies with adequate reserves and increasingly overvalued flexible exchange rates may also include carefully designed macro-prudential measures. We will reinvigorate our efforts to promote a stable and well functioning international monetary system and call on the IMF to deepen its work in these areas.

Trade Imbalances:

MAP beyond the Seoul Summit: In addition, we will enhance the MAP to promote external sustainability. We will strengthen multilateral cooperation to promote external sustainability and pursue the full range of policies conducive to reducing excessive imbalances and maintaining current account imbalances at sustainable levels. Persistently large imbalances, assessed against indicative guidelines to be agreed by our Finance Ministers and Central Bank Governors, warrant an assessment of their nature and the root causes of impediments to adjustment as part of the MAP, recognizing the need to take into account national or regional circumstances, including large commodity producers. These indicative guidelines composed of a range of indicators would serve as a mechanism to facilitate timely identification of large imbalances that require preventive and corrective actions to be taken. To support our efforts toward meeting these commitments, we call on our Framework Working Group, with technical support from the IMF and other international organizations, to develop these indicative guidelines, with progress to be discussed by our Finance Ministers and Central Bank Governors in the first half of 2011; and, in Gyeongju, our Finance Ministers and Central Bank Governors called on the IMF to provide an assessment as part of the MAP on the progress toward external sustainability and the consistency of fiscal, monetary, financial sector, structural, exchange rate and other policies. In light of this, the first such assessment, to be based on the above mentioned indicative guidelines, will be initiated and undertaken in due course under the French Presidency.

• We have a shared responsibility. Members with sustained, significant external deficits pledge to undertake policies to support private savings and where appropriate undertake fiscal consolidation while maintaining open markets and strengthening export sectors. Members with sustained, significant external surpluses pledge to strengthen domestic sources of growth.

Quantitative Easing, Growth and Currencies

I think it's safe to say that there is some disagreement about whether quantitative easing will lead to economic growth.  Personally, I'm a skeptic.  I would rather focus on measures that promote long-term growth, for example those that can lead to productivity increases.  To me, quantitative easing reflects mostly a short-term vision for growth, with very uncertain long-term consequences.

But regardless of your view on the merits of quantitative easing for growth, I think it's a mistake to ignore its impact on others.  I've said before that I don't think currency devaluation is the main goal of the Fed's quantitative easing.  But it will be an effect, and we shouldn't ignore it.  What that means is, even if you think the Fed's policy is a good one, as many people do, you should be aware of the impact this policy has on our trading partners.  The view of the Fed and the Obama administration seems to be that quantitative easing is so important for growth that we should just ignore this impact.  I disagree on the importance, but even if you think it is important, I think it's worth recognizing the impact on others, and trying to mitigate this somehow.

All of this leads me to the Alan Greenspan - Tim Geithner exchange:

Greenspan:

"America is also pursuing a policy of currency weakening. The suppression of the renminbi and the recent weakening of the dollar are, of necessity, producing firming exchange rates in the rest of the world to, as they see it, the rest of the world’s competitive disadvantage."

Geithner:

"The US will never do that. We will never seek to weaken our currency as a tool to gain competitive advantage or to grow the economy."

Again, I think the intent/effect distinction is important here.  Geithner says we are not "seeking" to weaken the currency.  I think that's right.  The goal is growth, not devaluation.  But devaluation is an effect, which, as Greenspan notes, is to "the world’s competitive disadvantage."

Exporting As A Way To Prosperity

President Obama:

"We want to be known not just for what we consume, but for what we produce. And the more we export abroad, the more jobs we create in America. In fact, every $1 billion we export supports more than 5,000 jobs at home.

It is for this reason that I set a goal of doubling America’s exports in the next five years. To do that, we need to find new customers in new markets for American-made goods. And some of the fastest-growing markets in the world are in Asia, where I’m traveling this week."

President Lula:

"If the rich countries are not consuming and want to grow its economy on exports, the world goes bankrupt because there would be no one to buy," he told reporters. "Everybody would like to sell."

It's certainly true that not everyone can increase exports at the same time.  But if there is an "imbalance" in trade, should those who are currently exporting too little be able to export more, to bring things into balance?  Does it matter what the cause of the imbalance is?  Is a country with a negative trade balance exporting too little, or is it consuming too much?  How do we deal with the fact that the "results" of trade flows -- that is, the absolute numbers -- end up in an "imbalance"?  Does that mean the rules are unfair?  If so, which aspect of the rules?  Would floating exchange rates correct these imbalances?  How do we deal with the fact many economic policies affect exchange rates?

No doubt the G20 participants are kicking around a lot of these questions.  I'm not sure how likely it is they will find much common ground.

The Conservative View of the Chinese Currency Issue

Well, one conservative view, anyway.  There is no doubt a wide variation in views.  But here's National Review deputy managing editor Kevin Williamson (taking a view that seems similar to economist Don Boudreaux's):

It is undeniable that Beijing plays games with China’s currency in order to bolster exports. To put it bluntly, China keeps its people artificially poor, their wages artificially low, and their savings diminished in value, in order to increase the profits flowing into the state enterprises run by Beijing’s power elite, a good deal of the returns being captured by the thriving entrepreneurs who make up the officers’ corps of the People’s Liberation Army.  ...

...

... the Obama administration’s populist fist-shaking notwithstanding, China’s economic policy is not what ails America — any more than Japan’s economic policy was what ailed America during the Carter years, that awful interlude during which Honda and Toyota viciously conspired to dump affordable, reliable, fuel-efficient automobiles on unsuspecting Americans who really wanted to buy an AMC Gremlin but were duped into an upgrade by those inscrutable Orientals and their long-game industrial policies. China’s economic policy is what ails China. ...

In a nutshell, he says that a policy of currency manipulation is bad for China, but of very little relevance for America.  And changing that policy wouldn't do much to help America:

So what should the United States “do” about China? Nothing. Nada. Sit on our national hands. Economists who have looked at the renminbi situation conclude that the currency is indeed undervalued, but that it could climb as much as 6 percent with basically no effect on the U.S.-China trade relationship. Even if the renminbi were allowed to climb the full 20 or 30 percent by which the most fearful China hawks believe it to be undervalued, it is extraordinarily unlikely that this would have the effect of causing manufacturing employment to shift from China to the United States. If that $5 plastic toy at Wal-Mart goes up to $6, is that suddenly going to make California, Ohio, or New Jersey more attractive to low-end manufacturers than China, India, or Bangladesh? Doubtful. In all likelihood, the result would simply be that the United States would pay more for its imports than it does today — meaning that our trade deficit would get worse, not better. Paying more money for the same amount of stuff would not make us any richer, nor would replacing Chinese imports with imports from Vietnam, Mexico, or Honduras.

There were some other interesting tidbits in the article.  China imports quite a lot:

... Like any poor country that cares at all about feeding its people, China is hugely dependent upon imports, both for sophisticated goods from the West and for food, energy, and basic commodities. According to World Bank figures, China’s imports in 2005 were 32 percent of GDP; America’s imports were exactly half that: 16 percent of GDP. Our politicians are befouling their Underoos over the cheap foreign goods allegedly inundating U.S. markets, but China imports considerably more than we do. As China’s economy has grown, imports have declined a bit as a percentage of GDP, but not that much: In 2008, imports were still 27 percent of China’s GDP, a much larger share than in the United States. After the financial crisis, China’s imports dropped sharply, to 21 percent: One of the upsides to the Chinese police state that American progressives so admire is that it can shut its people off from goods and services, lowering their standard of living to achieve its immediate policy goals.

True, China remains the world’s largest exporter. It is also the world’s second-largest importer. It runs substantial trade deficits with Japan, South Korea, Taiwan, Australia, and Malaysia — five of its ten biggest trading partners. It has smaller trade surpluses with Germany, Russia, and Singapore. ...

And China is following the Japanese model, but only up to a point:

How Japan went wrong is a big and complicated and contested story, and it is really beside the point: What most matters right now is what Beijing thinks happened to Japan. In the Chinese version, the United States forced Japan to allow the yen to appreciate, with Washington orchestrating the Japanese catastrophe with malice aforethought. So when Barack Obama comes around saying, in effect, “Pump up that renminbi — or else!” the guys in Beijing are pretty sure they’ve heard that story before, and they do not plan to be played for chumps the way they think the Japanese were. They drive tanks over people who don’t see the world the way they do, and they are not going to be bullied by Professor Obama.

The Seal Products Case Under EU Law

Following-up on Colin's post, I have been wondering for quite some time what the arguments were that the EU seal products ban violates EU law.  The Canadian seal fur people were kind enough to point me to their pleas here: 

The applicants put forward three pleas in law in support of its claims.

First, the applicants argue that the European Parliament and the Council erred in law when using Article 95 EC (currently Article 114 TFEU) as the legal basis for adopting contested regulation. In this regard, the applicants submit that established case law of the European Court of Justice confirms that measures referred to in Article 95 EC must genuinely have as their object the improvement of the conditions for the establishment and functioning of the internal market and that the mere fact that they have a bearing on its establishment is not sufficient to make Article 95 EC applicable. In the applicants ‘opinion, the contested regulation does not result in such improvement as required by the European Courts’ case law but, on the contrary, it will effectively eliminate any possibility of an internal market in seal products covered by the regulation’s scope.

Second, the applicants contend that the defendants erred in law by infringing the principles of subsidiarity and proportionality as enshrined in Article 5 TEU and further elaborated on in the Protocol on the application of the principles of subsidiarity and proportionality. They claim that the defendants do not demonstrate why intervention at the European Union level is required. The applicants point out that only two Member States had already introduced a ban on seal products. Furthermore, they argue that, even if action at European Union level was to meet the subsidiarity requirement, less intrusive measures would have sufficed to meet the stated goals of the regulation. The applicants contest the fact that the defendants opted for a near total ban on seal products, rather than adopting less restrictive alternatives, such as labelling requirements.

Third, the applicants claim that the contested regulation unduly limits the subsistence possibilities of the applicants, relegating their economic activities to traditional hunting methods and subsistence. They contend that, despite this direct interference with their daily way of life, they have never been heard by the Council nor by the Parliament. Moreover, the applicants submit that the defendants did not weigh the interests of the Inuit Community in surviving in the Arctic against the moral convictions of some citizens in the Union and therefore violated the Article I of Protocol No I to the European Convention of Human Rights (ECHR) and Article 8 ECHR, read in light of Articles 9 and l0 ECHR and as explained in the Court’s case law, as well as their fundamental right to be heard.

If any EU law folks out there care to explain any of this, I'm sure many people (including me!) would greatly appreciate it!

Free Trade and Cultural Diversity

Economist Don Boudreaux argues that free trade is about more than just "stuff," it's about cultural diversity:

One of the chief concerns expressed by anti-globalization activists is that freer trade leads to worldwide cultural homogeneity. Paris, France, according to this view, will become just like Paris, Texas, and both will be dreary. Travel will become pointless. Why travel if every place you can visit differs little from where you are now?

This concern has some merit. A century ago, there were no internationally franchised restaurants in Paris, France or, for that matter, in Paris, Texas. A century ago, residents of neither Omaha, Nebraska nor Birmingham, England could find sushi restaurants near their homes; today, sushi restaurants are all over the Western world. A century ago, blue jeans were not the international fashion that they are today. A century ago, the typical man's business suit worn by New York lawyers and London bankers was not widely worn in Africa and Asia, as it is today. In many ways, global commerce has indeed made the world more homogeneous.

But look more closely. While the differences between Paris, France and Paris, Texas are fewer than they were in the past, the cultural richness of each of these places today is far greater than it was just a few years ago. For a resident of Paris, Texas, circa 2010, the richness of the cultural smorgasbord available to him or her right at home is vast. A Texan can stay in town and dine on Vietnamese, Italian, or Greek food—or on barbeque. A Texan can listen to German symphonic music or medieval chants or Irish dance music or Edith Piaf—or country and western. A Texan can buy French neckties, English raincoats, and Italian scarves—and cowboy boots. Likewise a Parisian can choose croissants or New-York-style bagels. A mere century ago—even thirty years ago—the cultural diversity of both places was much less than it is today.

While greater cultural richness at home might remove some of the excitement from traveling, it nevertheless creates greater cultural diversity. It expands and enhances the ordinary individual's cultural experiences. As French economist Daniel Cohen concluded after examining the record of globalization's effects on culture: "[E]conomic integration does not at all entail the eradication of cultural diversity."

 And don't worry about American cultural imperialism, he says:

Another, related, concern is that globalization will allow America to overwhelm other cultures with its own. Obviously, the far-flung familiarity with Coca-Cola, Apple computers, blue jeans, and Matt Damon fuels this fear. Again, though, closer inspection reveals a more nuanced and attractive picture. This inspection shows that there is no singular American culture. What's called "American culture" is an ever-changing amalgam of influences from around the world.

Consider the life of an ordinary American family in the early 21st century. This family has a home filled with electronic products made in Japan and China and a cabinet full of music CDs—which were invented in The Netherlands. Mom and Dad drink coffee grown in Columbia or Ethiopia and brewed in a coffee maker made in Germany. They shower using soap milled in France and wear contact lenses that were invented by a Czech scientist.

The children watch a TV episode of Pokemon, one of Japan's many successful exports to America. The family shops later that day at the Swedish furniture store Ikea; they drive to Ikea in a car made in Korea and fueled with gasoline purchased from a (Royal Dutch) Shell station. For dinner, they debate between Mexican, Indian, or Thai. Later that evening, Mom and Dad enjoy wine from South Africa while listening to bossa nova music from Brazil—or, perhaps, they watch a movie starring the Canadian actor Jim Carrey, while their kids lose themselves in the latest Harry Potter novel by British author J.K. Rowling. And before finally turning out the lights, Mom reads several pages from a novel by Russian writer Leo Tolstoy, and Dad finishes a book written by the Peruvian Mario Vargas Llosa.

What's happening here? Such experiences of a typical American family are routine. They reveal that from the moment ordinary Americans awaken, until they fall asleep, they enjoy comforts, conveniences, culture, knowledge, and entertainment created by people from all around the world.

Donald Trump is a Mercantilist

Speaking of mercantilism, here's something from a Greta Van Susteren interview with Donald Trump:

VAN SUSTEREN:  ...

All right, the economy, the unemployment rate not getting better. If you were advising the president, what would you tell him to do?

TRUMP: Obviously the word is "jobs." How do you get jobs? I hear so many people talking so many different things. The problem is our jobs have left this country. We are making our products in China and in other places.

And what the politicians have done to this country, they should be ashamed of themselves. The other day I was watching "60 Minutes" I see a place, Newton, Iowa, beautiful place, beautiful people they lost Maytag. The jobs went to Mexico, most of the jobs to Mexico.

I'm saying to myself, isn't that a shame. Here you have this beautiful community with these incredible people and the jobs went to Mexico.

So the problem with this country is between China and other places, we just don't make product any more. We do health care here, but that's not the kind of product I'm talking about. I'm talking about where you really make product. If I build a building many of the materials and things I get are made in China. It is very, very sad.

VAN SUSTEREN: You talked about Mexico. There was a company in northwest Wisconsin where I'm from just moved its entire production to Mexico. I assume the labor is cheaper there and that's why the companies are doing it?

TRUMP: I think they get incentives from our government. NAFTA, whether people like it or don't, give me a break. You look at what's happened where New England in particular, they've been wiped out and the people have just gone to Mexico.

But not only that, it is not only Mexico, it is China. To me, it's so many products. I see it because I'm a big buyer of things, windows, pipes or lots of different things, because I build buildings. So much of the product -- glass, curtain walls -- so much of the product is made in China.

We are rebuilding China. Our economy is just getting killed. And you look at China it is going through the roof. A friend of mine went to a pretty much new city in China. They said unbelievable the airport and everything else. They come back to LaGuardia. They said it is like coming into a third world country. It is horrible what has happened.

So somebody is going to get smart. They talk about the economy, incentives. We are losing our jobs to other countries. You are not going to solve unemployment unless something very, very stringent is done with regard to China and other countries.

VAN SUSTEREN: So what do you do to turn that around so the jobs are staying here or coming here?

TRUMP: I would tax Chinese products. People say that's not free trade. What is free trade when they have billions and billions of dollars of surplus over us? So we don't want free trade with people that are ripping us.

One of the reasons -- first of all their product isn't as good as ours. If you look at windows, glass, curtain wall, it's not as good as ours. If you look at the sheetrock people are dying because of Chinese sheetrock. So their product is not as good as ours.

But they manipulated their currency so it is hard to compete with Chinese dollars, cost. What happens is the dollar versus Chinese currency is not competitive.

So when somebody comes in with a curtain wall for a big office building, and it they're buying from China, it is very hard to compete with that price. The quality, we have better. But you can't -- they just have manipulated their currency to such a point.

What I would do is I would tax like 25 percent tax. You want to buy from China, that's great. But you are paying 25 percent tax. If you buy it in this country you don't have that tax. By the way, you know what is going happen? People are going to start creating jobs in this country because they are not going to pay that tax.

VAN SUSTEREN: What is the resistance to a 25 percent tax? Just a commitment to free trade?

TRUMP: People tell me, Donald, that's not free trade. We don't have free trade right now. We have a country, China in particular, that is ripping us like nobody's ripped us before. And we are rebuilding China. Our country is so big in terms of what we buy that we are rebuilding China.

Of course, even with these kinds of statements, there is some debate as to whether "mercantilist" is an appropriate word.  He seems convinced that China is engaging in its own mercantilism, so perhaps (but it's far from certain!) he would support free trade if he could be convinced that others were doing it.