International Economic Law and Policy Blog

More on Article III:2, first sentence discrimination in Philippines - Spirits

Recall this post on the EU position in the Philippines - Distilled Spirits (DS396,403) case in relation to Article III:2, first sentence, where I characterized the EU argument on the discrimination aspect of this standard as follows:  "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."

Here's the U.S., in its second written submission, on the same issue:

13. To find that the Philippine measures are inconsistent with the first sentence of Article III:2, the second element simply requires showing that the imported products are taxed in excess of domestic products.  This conclusion is evident from the face of the measures – including the implementing annexes, which separate “local” from other brands.  These documents show that nearly every imported product is taxed at one of the high rates – from ten to 40 times the rate applied to local products on a proof liter basis.  

So the U.S. submission emphasizes that "nearly every" imported product is taxed at one of the high rates, which are much higher than those applied to domestic products.

The "nearly every" language seems to reflect a discriminatory effect view.  (The EU submission used similar language, but then mixed in the individual product approach as well.)  It's important to note, though, that the U.S. does not put this forward as the definitive legal standard which must always be applied.  It is just saying that this is the case on the facts here.  At the same time, it is perhaps relevant that the U.S. does not include the individual products language.

Infant Industry Protection in 19th Century America

It has been argued -- for example, here -- that today's industrialized countries got that way (that is, industrialized) by using a tariff to protect their infant industries from foreign competition, and that by using trade agreements to prevent developing countries from doing the same, the industrialized countries are "kicking away" the development ladder.  I don't think there's too much disagreement that there were high tariffs in today's industrialized countries during their development stage.  The question, though, is whether these tariffs were a cause of industrialization.  Here's Don Boudreaux suggesting an argument that they might not have been:

... throughout the 1800s tariff revenues were a major source of operating funds for Uncle Sam. But tariffs that could significantly reduce imports would also reduce government revenues. After all, the very purpose of a “protective tariff”—as opposed to that of a “revenue tariff”—is to dramatically decrease the occurrence of the thing being taxed: imports. (In the extreme case, even a very high tariff rate on imports yields no government revenue if that rate causes Americans to stop importing completely.)

He then asks:

I’m unaware of any historical research done on the following question: To what extent did Uncle Sam’s heavy reliance upon tariff revenues during the 19th century contribute either to (1) keeping tariffs from being more protective rather than being sources of government revenue; or (2) keeping the size of the national government smaller (than it would otherwise have been) by keeping Uncle Sam’s revenues lower (as a consequence of using tariffs to restrict imports rather than to raise revenue)?

Interesting questions.  Were U.S. tariffs in the 19th century intended more for revenue or for protection?  What balance was struck between these two goals?  I'm curious about this, too.

Additional thoughts from Tim Worstall:

But while those tariffs were indeed rising to the McKinley peak transport costs were falling precipitately over the previous 50 years. The move from (for transatlantic) sail to steam lowered rates so much that, even despite tariff rises total trade barriers were falling. The evidence they use is that commodity prices converged over this time period, despite the rises in tariffs.

Is it possible that all the high U.S. tariffs during the 19th century were more about revenue than protection, and that any tariff increases simply offset lower transportation costs?  What about other countries, such as Germany?   Of course, even if tariffs are intended mostly for revenue, when they get to 50% or so, they have a pretty significant protective effect, regardless of what the main policy goal is.

A DOC Proposal to Stop Zeroing

From today's Federal Register (PDF version here), a proposed rule by the U.S. Department of Commerce to stop zeroing in administrative reviews:

Proposal for Calculating the Weighted Average Dumping Margin and 
Assessment Rate in Certain Antidumping Duty Proceedings and Request for 
Comment

    Pursuant to section 123(g)(1) of the Uruguay Round Agreements Act 
(``the URAA''), ``[i]n any case in which a dispute settlement panel or 
the Appellate Body finds in its report that a regulation or practice of 
a department or agency of the United States is inconsistent with any of 
the Uruguay Round Agreements,'' certain requirements must be met before 
``that regulation or practice'' may be ``amended, rescinded, or 
otherwise modified * * * .'' Section 123(g)(1)(C) of the URAA requires 
that the Department provide opportunity for public comment by 
publishing ``the proposed modifications and the explanation of the 
modification'' in the Federal Register.
    Pursuant to section 123(g)(1) of the URAA, by this notice the 
Department is proposing modifications to its practice in response to 
the following WTO dispute settlement findings. The WTO Appellate Body 
in US-Zeroing (EC), US-Zeroing (Japan), US-Stainless Steel (Mexico), 
US-Continued Zeroing (EC) found denial of offsets for non-dumped 
comparisons in antidumping duty administrative reviews to be 
inconsistent with Article 9.3 of the Antidumping Agreement and Article 
VI:2 of the GATT 1994, either ``as such,'' or ``as applied'' in certain 
administrative reviews, or both.\6\ In US-Zeroing (Japan), the WTO 
Appellate Body also found denial of offsets for non-dumped comparisons 
in antidumping duty original investigations using transaction-to-
transaction comparisons was inconsistent with Articles 2.4 and 2.4.2 of 
the Antidumping Agreement.\7\ In addition, in US-Zeroing (Japan), the 
WTO Appellate Body found denial of offsets for non-dumped comparisons 
in antidumping duty new shipper reviews was inconsistent with Articles 
2.4 and 9.5 of the Antidumping Agreement.\8\ Finally, in US-Zeroing 
(EC), US-Zeroing (Japan), and US-Continued Zeroing (EC), the WTO 
Appellate Body found reliance on weighted average margins of dumping 
calculated without granting offsets for non-dumped comparisons as the 
basis for determinations made in certain five-year (sunset) reviews was 
inconsistent with Article 11.3 of the Antidumping Agreement.\9\
---------------------------------------------------------------------------

    \6\ US-Zeroing (EC), WT/DS294/R, WT/DS294/AB/R, para. 263 
(a)(i); US-Zeroing (Japan), WT/DS322/R, WT/DS322/AB/R, para. 190 (c) 
& 190(e); US-Stainless Steel (Mexico), WT/DS344/R, WT/DS344/AB/R, 
paras. 165 (a) & 165 (b); US-Continued Zeroing (EC), WT/DS350/R, 
para. 8.1(e), WT/DS350/AB/R, paras. 395 (a)(v), 395 (d) & 395 
(e)(ii).
    \7\ US-Zeroing (Japan), WT/DS322/AB/R, para. 190(b).
    \8\ Id., para. 190(d).
    \9\ US-Zeroing (EC), WT/DS294/AB/RW, para. 469(h)(iv) & (vi); 
US-Zeroing (Japan), WT/DS322/AB/R, para. 190(f); US-Continued 
Zeroing (EC), WT/DS350/R, para. 8.1(f), WT/DS350/AB/R, para. 395(f).
---------------------------------------------------------------------------

    In response to prior findings of inconsistency with respect to the 
Department's calculation of weighted average margins of dumping in 
original investigations, the Department previously modified its 
methodology such that it now provides offsets for non-dumped 
comparisons when using average-to-average comparisons in original 
investigations.\10\ In response to the findings of inconsistency 
identified above, the Department now proposes to modify its methodology 
for calculating weighted average margins of dumping and assessment 
rates to provide offsets for non-dumped comparisons while using monthly 
average-to-average comparisons in reviews in a manner that parallels 
the WTO-consistent methodology the Department currently applies in 
original investigations. In particular, except where the Department 
determines that application of a different comparison method is more 
appropriate, in reviews, the Department proposes to compare monthly 
weighted average export prices with monthly weighted average normal 
values and to grant an offset for such comparisons that show export 
price exceeds normal value in the calculation of the weighted average 
margin of dumping and assessment rate. Where the weighted average 
margin of dumping is zero or de minimis, no antidumping duties will be 
assessed. In addition, to the extent that any prior original 
antidumping duty investigations using transaction-to-transaction 
comparisons could be considered as establishing a practice of the 
Department with respect to the granting or denial of offsets for non-
dumped comparisons when calculating the weighted average margin of 
dumping,\11\ the Department proposes to withdraw any such practice. 
With respect to the findings of inconsistency in certain of the 
Department's five-year (sunset) reviews, the Department notes that the 
underlying issue is the methodology for calculating weighted average 
dumping margins in investigations and reviews, which is addressed by 
the modifications the Department has made with respect to 
investigations and is proposing herein to make with respect to reviews. 
Moreover, the Department recognizes that while section 752(c) of the 
Act provides that the Department shall consider the weighted average 
dumping margins determined in the investigation and subsequent reviews, 
among other factors, the Act does not require the Department to rely on 
the weighted average dumping margins, or any particular weighted 
average dumping margin, as the basis for its determinations in five-
year (sunset) reviews where such reliance would render the 
determination inconsistent with the United States' international 
obligations.
---------------------------------------------------------------------------

    \10\ Antidumping Proceedings: Calculation of the Weighted-
Average Dumping Margin During an Antidumping Investigation; Final 
Modification, 71 FR 77,722 (December 27, 2006).
    \11\ US-Zeroing (Japan), WT/DS322/AB/R, paras. 88, 138.
---------------------------------------------------------------------------

    The modified methodology for reviews requires the Department to 
revise certain provisions of the Department's regulations. In 
particular, 19 CFR 351.414(a) and (c) indicate a preference for making 
``average-to-transaction'' comparisons in administrative reviews. This 
proposed rule would revise these provisions to permit application of 
average-to-average comparisons in reviews in a manner that parallels 
the comparison methods used in original investigations. In addition, 
Sec.  351.414(d)(3) and (e) of the Department's regulations set forth 
the time periods over which weighted

[[Page 81535]]

averages are calculated. Section 351.414(d)(3) provides that when 
applying the ``average-to-average'' method, the weighted averages will 
normally be calculated over the entire period of investigation or 
review, unless another averaging period is deemed appropriate. Section 
351.414(e) provides that when applying the preferred ``average-to 
transaction'' method in a review, the Department will calculate 
weighted average normal values on a monthly basis. The Department 
proposes to modify Sec.  351.414(d)(3) to permit weighted averages to 
normally be calculated on a monthly basis in reviews, regardless of the 
comparison method used. Conforming changes to Sec.  351.414(e) will 
ensure Sec.  351.414(d)(3) and (e) do not contain redundant language. 
Proposed language for the modified provisions is set forth at the end 
of this notice.

Comments are due January 27, 2011.  I'm sure there will be many! 

The India Visa Fee Issue is Back

Recall the issue with a U.S. law that imposed a fee on visa applications where the companies involved have a high percentage of workers who use the special visas given to skilled foreign workers, discussed here and here.  There seemed to be a disparate impact on India, and hence there was talk of a WTO violation.  I hadn't heard anything in a while, so I thought things had been resolved, or, at the least, were not being pursued for some reason.  However, the issue appears to have returned through the 9/11 responders health care bill, which includes an extension of the original measure (along with an additional charge on procurement involving certain foreign goods and services).  As reported by India's Economic Times, India is now talking about WTO dispute settlement again:

India may drag the United States to the World Trade Organization , or WTO, over its decision to raise professional visa fees for an extended period and impose a 2% import levy on goods and services sold to the US government, a senior official has said. 

The commerce department is studying details of the James Zadroga 9/11 Health and Compensation Act of 2010 which aims to increase visa fee and import taxes on supplies to government to set up a $4.3 billion fund for sharing the healthcare burden of those affected by 9/11 terror attack in New York. 

The Senate passed the bill last week and India will soon take a decision on approaching the WTO, commerce secretary Rahul Khullar told ET on Monday.

The final bill, which is now with US President Barak Obama to be signed into law, spells more trouble for Indian industry than the one initially proposed as it imposes an additional levy of 2% on all goods and services sold by Indian companies to the US government and extends the period for higher visa fees from 2014 to 2021. 

India has been trying for months to persuade its third largest trade partner to revoke the proposal to increase H1B and L1 visa fees as it could raise the cost of Indian IT companies operating in the US by $200 million annually. 

"We do not rush into disputes, but beyond a point, patience does run out," Dr Khullar said, adding that it may be time for the country to explore the option of settling the issue at the WTO.

See also here.

A WSJ blog reports the visa situation a little differently:

Indian information technology companies should heave a sigh of relief. For now, at least.

The U.S. Congress passed a bill on Wednesday that extended higher fees for skilled-worker visas by one year to 2015. Money from the visa fees, which apply to companies that have more than half their U.S. staff on such visas and deeply affect Indian IT firms, is to go towards a health fund for 9/11 first responders.

The one-year extension is much better than the earlier proposal by New York Senators Kirsten Gillibrand and Charles E. Schumer, to extend the hike by seven years.

A press release on Senator Gillibrand’s Web site says that the senators expected to raise $800 million through this extension, to pay for the proposed bill for Sept. 11 responders. The release said that fee increases would affect “outsourcing companies such as: Wipro, Tata, Infosys, Satyam—but does not affect American companies such as: Microsoft, Oracle, Intel, Apple, etc.”

India’s technology majors are directly impacted because they hire tens of thousands of Indians and other foreign workers in their U.S. offices. While U.S. companies like Microsoft and Oracle also hire thousands of Indians, they are not affected by the fee provision because their U.S. offices are so large that workers on visas don’t count for as large a share of their total workers in America as they do for the Indian firms.

Earlier this year, Indian technology industry trade group Nasscom had estimated that the visa fee increase for a four-year period through September 30, 2014, could cost Indian technology companies as much as $250 million.

By this estimate, an extension of another five years would have raised visa and human resources costs for technology companies by another $250 million at least.

Nasscom president Som Mittal says that partly due to India’s coaxing, the extension was reduced to just one year. However, he worries that U.S. senators could easily decide to extend the fee increase the next time they need to fund another social cause. He says the fee increases are “against the spirit and letter” of the free trade message that U.S. President Barack Obama gave during his visit to India in November.

So, this makes the law sound not quite so bad -- a 1 year extension as opposed to 7. (Section 302 of the final bill seems to confirm the 1 year period.)  On the other hand, the law also throws in the new procurement fee.  This may not violate WTO rules (India is not a member of the Government Procurement Agreement), but is it enough of a trade irritant to lead to a complaint on the visa issue?

Offshoring Lawyers

From The Economist:

Some legal tasks cannot be done cheaply. If the fate of your company hinges on the verdict, you will want a brilliant lawyer to argue your case. But plenty of legal jobs are routine. American law firms typically get fresh law graduates to do such grunt work and then bill clients for it at steep rates. But the recession has prompted clients to rebel. A recent survey by the American Lawyer found that 47% of large firms had seen clients refuse to have hours billed to beginner lawyers.

American Express, GE, Sony, Yahoo! and Netflix have all started using Pangea3 [, a legal outsourcing firm with most of its lawyers in Mumbai,] for basic legal tasks. The firm reviews documents, drafts contracts and does other jobs with repetitive elements. Many clients hire outsourcers such as Pangea3 directly. They often then approach their expensive American law firm and demand that it start working with the outsourcer.

Law firms are responding in different ways. Some hire outsourcers themselves: a quarter of Pangea3’s business, for example, comes from law-firm clients. DLA Piper, a big American law firm, plans to set up its own outsourcing operation next year. Taking advantage of the tough legal jobs market, the firm will build a network of thousands of non-staff lawyers, says Peter Pantaleo, the managing partner of the New York office. These lawyers will be American but cheaper, perhaps because they are looking for a work-family balance. They will do for perhaps $100 an hour work that might otherwise cost the client $500, says Mr Pantaleo.

The part about DLA Piper is interesting.  The article implies that the outsourcing will be to Americans.  But what if a law firm started a branch in a foreign country with the goal of doing its low-level legal work more cheaply?  (Kind of like Ford opening a factory in Mexico to take advantage of lower labor costs.)  I don't know if this has happened yet, or what all the legal and other implications are, but I can imagine things moving this way.

A Discussion of Remand in EC - Aircraft

I just noticed the EU's brief discussion of remand in its closing memorandum following the first hearing in the EC - Aircraft appeal:

E. Completion of the Analysis and Remand

50. As the European Union stated in its Opening Statement, as a result of the Panel’s erroneous rejection of any relevance of  “continuing benefit” for its analysis of subsidisation, the factual basis for the Appellate Body to complete the analysis does not exist.  This raises the question, briefly discussed at the First Hearing, of what the Appellate Body can or should do in these or similar circumstances.

51. The European Union would like to make clear that, in its view, there are a number of possible solutions to this kind of problem, which will often arise in appellate proceedings, and that those solutions include the possibility of remand.

52. In some cases, the Appellate Body may be  able to complete the analysis on the basis of other panel findings and uncontested facts on the record.  In its Other Appellee Submission, the European Union has developed at some length its view on the limits to this exercise, responding to the United States’ requests to complete the analysis made in its Other Appellant Submission.

53. In other cases, a reversal of critical errors by a panel may lead to the conclusion that no inconsistency with the covered agreements has been established (although it may be that if the panel had conducted a proper analysis, a finding of inconsistency might have been made.)   In these circumstances, the case could be remanded to the Panel with instructions to conduct a proper analysis.

54. The European Union notes that there is no provision in the DSU that prevents remand, and that it has advocated this solution to the Appellate Body in the past.  It also notes that these issues have been discussed in the literature.  In light of the position taken by the United States at the Hearing and the fact that it is the defendant in these proceedings, the European Union refrains from further discussion at this stage.  It simply repeats that remand is a possibility under the DSU, and stands ready to develop its view on the possibilities open to the Appellate Body in response to questions from the Appellate Body, if necessary. 

Here's the U.S. response:

VI. REMAND

31. The EU requests the Appellate Body, in the event it decides the extinction issues in its favor, to remand this dispute to the Panel.  The only support it provides is the assertion that “there is no provision in the DSU that prevents remand.”  However, in reality, Article 17.13 of the DSU clearly limits the options at this stage to upholding, modifying, or reversing the legal findings and conclusions of the Panel.  The DSU does not provide for remand.  Indeed, WTO Members have been engaged for some time in negotiations over whether the DSU should be amended to provide for the possibility of a remand.  Members have recognized that this is a complicated issue that would require a number of decisions by Members, including the scope of any remand, the precise task of the panel, timing, and the disposition of any findings not subject to remand.  

Reporting on the GATT Negotiations

It's pretty well established that trade agreements today are controversial.  But how does the situation compare to the past?  I was recently digging around the NY Times archives for something non-trade related, and I thought I'd see what was being said about the original GATT negotiations.  Here's a sampling of a few articles.  My initial impression is that things today are not radically different from what was going on back then.

What was being negotiated:

Editorial from October 31, 1947

Trade agreements have been negotiated which affect in varying degrees 45,000 separate items – items which represent two-thirds of the entire trade of the participating nations. This second phase of the Geneva task falls, itself, into two distinct parts.  First, there is the basic Geneva trade agreement, known as the General Agreement on Tariffs and Trade. This consists of a series of general provisions calculated to outlaw various forms of trade discrimination other than tariffs. Then there are the 45,000 specific tariff concessions, the product of 123 separate bilateral agreements.

Article from October 31, 1947

Chairman Suetens’ address reviewed the long history of the meeting and contrasted its success with the failures of former tariff conferences.

“The signing of the final act today,” he said, “marks the completion of the most comprehensive, the most significant and the most far-reaching negotiations ever undertaken in the history of world trade.”

Trade with China may be controversial:

Article from September 25, 1947

The Geneva Trade Conference unanimously approved today the text of the General Agreement on Tariffs and Trade.

…

United States delegation circles are unreservedly enthusiastic about the Benelux and Cuba accords. That with China, a country with an essentially revenue tariff is regarded as valuable for the future and for the political importance of strengthening the United States links with China. Some of the concessions that the United States has granted China are going to be hot to handle when pressure groups get working the United States. 

A positive review of the events from a free trade supporter:

Letter to the Editor from November 28, 1947

The general agreement on tariffs and trade reached at Geneva deserves a round of applause from every consumer and student of economics.

The agreement should represent within two or three years a deterrent to inflation, a healthy stimulus to American business, and the opening of greater world markets.

J.L. Gibson
Schenectady, N.Y., Nov. 19, 1947

Treatment of developing countries causes controversy:

Article from December 24, 1947

Clair Wilcox, acting chairman of the United States delegation to the United Nations Conference on Trade and Employment, warned today that the United States might have to abandon the International Trade Organization project and adopt retaliatory measures if economically undeveloped countries insisted on freedom to use import quotas and other quantitative restrictions on world trade.

Telling the conference that the United States could not agree to proposals that amount to a “prescription for economic anarchy,” he said:

“If quantitative restrictions are to be fastened on the commerce of the world without let or hindrance, the restrictionism of the Fifties and Sixties will make the restrictionism of the Thirties look like absolute free trade. If this is to be the outcome of our negotiations here I say that all our hopes for expanding trade, raising the standard of living promoting economic development and achieving world peace are doomed to failure.”

 … 

Mr. Wilcox denied the charges of some advocates of quantitative restrictions that big countries were trying to prevent the industrialization of underdeveloped countries and to protect young industries against unfair competition from highly developed countries. He said there had never been any dispute about the right of undeveloped opened countries to progress and that the ITO Charter specifically provided for certain uses of quantitative restrictions with prior ITO approval in case where it could be justified.

The negative impact on domestic industry:

Article from November 19, 1947

U.S. TARIFF CUTS ARE CALLED BLOW TO INDUSTRY HERE

Concessions in Geneva Pact Threaten Labor and Farms Also, Trade League Asserts

Tariff concessions in the Geneva trade pacts published yesterday are a “blow” to those segments of United States industry, agriculture and labor that depend upon import duties to compete with products from countries with lower wage standards, the American Tariff League asserted yesterday.

Other reports from various business quarters indicated favorable reception of both the concessions made and obtained by this country. Many groups still were analyzing the specific changes in duties contained in Schedule XX of the General Agreement on Tariffs and Trade, which contains the concessions by the United States. Metal products manufacturers, with few exceptions, saw long-term stabilization in durable goods as a result of the new schedules.

Richard H. Anthony, secretary of the American Tariff League, asserted that, “with dutiable items accounting for only 40 per cent of total imports and already bearing the lowest duties in at least a decade, the new and drastic tariff cuts cast doubt on whether the United States negotiators were mindful of President Truman’s promise that there was no intention to endanger or trade out segments of American industry, agriculture and labor.”

…

“By agreeing to a multilateral form of ‘escape clause’ machinery,” Mr. Anthony commented, “instead of the bilateral form heretofore employed the United States negotiators have made it all the more unlikely that United States groups injured by the workings of the new agreements will be able to get redress.    

…

Makers of sporting firearms here were among the first with adverse reactions to the new rates. They asserted that while Belgian metal-working plants could be making vitally needed industrial products for Europe, some had turned to fabricating automatic American type shotguns, patterned after American design, and would be able to undersell domestic producers here.

Protection for certain industries and rules for foreign investment

Article from October 4, 1947

Turning to amended provisions of the charter Dr. Wilcox said the American delegation was successful in obtaining most of the amendments suggested by criticism of the original draft in the United States. He singled out two amendments as outstanding. These were: New provisions protecting the motion picture industry, and secondly, expansion of provisions for the protection of private foreign investment.

…

On the score of protection of foreign investments, he explained, ITO will develop an international investment code for ratification, containing certain general commitments as to treatment of foreign investments. He said this enables us “to get our foot in the door on protection of foreign investments which was scarcely recognized in the early draft of the charter."

Public Opinion on Investor-State

From a New Zealand publication:

Concerns that the Trans Pacific Partnership (TPP) will result in the New Zealand Government being successfully sued by international corporations are unfounded and incorrect, says the NZ US Council.

"It is absurd to suggest that the New Zealand Government would be so naive to allow itself to be hoodwinked into an agreement that damaged its ability to regulate in the national interest," Executive Director Stephen Jacobi said.

"Modern investor state dispute settlement provisions in free trade agreements do not undermine the rights of sovereign states. In fact, the opposite is true - they explicitly protect the rights of states to regulate in areas like the environment, health and safety and other matters of public policy.

"What they do provide is protection against arbitrary and discriminatory decisions by governments leading, for example, to the expropriation of assets without compensation. Investment dispute settlement is about providing assurances to investors that governments abide by proper legal processes. Most people would see this as sensible and fair."

What do "most people" -- that is, average citizens, not trade and investment law types -- think of investor-state dispute settlement?  I'm not aware of any polling on this.  If anyone knows of something, I'd love to hear about it.

Here are the two questions I would ask (in the U.S. -- you can substitute different country names as appropriate):

"Would you be in favor of rules and procedures that allow foreign companies who invest in the United States to sue the U.S. government (federal, state or local) for monetary damages before an international tribunal, for acts that discriminate against them, expropriate their assets, or are generally arbitrary and unfair?"

"Would you be in favor of rules and procedures that allow U.S. companies who invest in foreign countries to sue foreign governments for monetary damages before an international tribunal, for acts that discriminate against them, expropriate their assets, or are generally arbitrary and unfair?"

Or something along those lines.

Cato Goes after Anti-Dumping

From Cato's Dan Ikenson, writing in Forbes:

The U.S.antidumping law still enjoys broad bipartisan support in Congress and within pockets of the executive branch. Although some of that support can be chalked up to politicians representing the narrow interests of influential constituencies that have mastered the use of antidumping as a bludgeon to cripple the competition, much more support stems from a fundamental misunderstanding of the purpose, history, mechanics, and consequences of the law.

Too many policymakers passively accept the anachronistic rationalizations proffered by the steel industry, labor unions, other big antidumping users, and their hired guns in Washington. Too many buy into the idealized imagery of a patriotic, upstanding American producer working tirelessly to ensure the preservation of well-paying jobs for hard-working Americans, but is suffering the ravages of unscrupulous, predatory foreign traders intent on destroying U.S. firms and monopolizing the U.S. market. What politician could oppose a law presumed to protect that kind of a company against that kind of a scourge?

But when the curtain is peeled back, exposing the reality of the operation of the U.S. antidumping law, one discerns a very different reality.  Antidumping measures always raise the costs of firms in downsteam industries that rely on the affected imports.  The law routinely claims domestic firms as victims.  The law is often used as a tool by domestic firms waging battle for supremacy over other domestic firms.  Sometimes foreign-owned firms are the petitioners and U.S-owned firms are the respondents.  Rarely does the law lead to job creation or job restoration in the domestic industry.  And never is the allegation of “unfair trade” substantiated, or even investigated.  Myth and misinformation explain the persistence of the U.S. antidumping regime.

Much more detail in Cato's latest Trade Policy Analysis: Protection Made to Order: Domestic Industry's Capture and Reconfiguration of U.S. Antidumping Policy.  From the conclusion:

U.S. antidumping law no longer seeks to advance the pro-competition objectives of its original charter. What began as an outgrowth of antitrust intended to discipline predatory pricing—and, therefore, to safeguard competition—was gradually transformed into a mishmash of rules and discretion that enables inefficient, uncompetitive behavior on the part of domestic firms at great cost to other domestic entities.

Antidumping has done little, if anything, to focus the spotlight on the alleged sources of unfairness that presumably give rise to cross border price discrimination. By systemically disregarding that kind of inquiry, antidumping’s overseers have blurred any distinctions between possibly objectionable price discrimination and the kind that is the product of profit-maximizing decision making. Furthermore, market access barriers and transportation costs have fallen precipitously since the establishment of antidumping policy, removing the impediments to arbitrage necessary for cross border price discrimination to occur without undermining the market power of the foreign producer. 

GSP and the U.S. Sleeping Bag Industry

Reuters reports:

Valuable U.S. trade benefits for about 130 developing countries could expire at the end of the year because of a Republican senator's objection to duty-free treatment for sleeping bags from Bangladesh.
 
 With Congress hoping to finish its work this week, Alabama Senator Jeff Sessions is blocking a vote on a bill to renew the Generalized System of Preferences program, or GSP, already approved by the House of Representatives.
 
  ...
 
 "I'm not going to stand by and allow nations to cheat on their trade agreements and manipulate trade agreements that in effect destroy our industry," Sessions said last week in a speech on the Senate floor.
 
 Supporters of Bangladesh say the country is not cheating, but only taking advantage of a provision in the GSP program that allows poor countries to export sleeping bags to the United States without paying a 9 percent import duty.
 
 Earlier this year, President Barack Obama turned down a request to end the benefit for Bangladesh.
 
 Sleeping bags have been in GSP since 1992, when U.S. policymakers determined they are not import sensitive.
 
 Sessions says the sleeping bag exemption is a "loophole" that threatens jobs at Exxel Outdoors, a sporting goods manufacturer with a plant in his state.
 
 China, which is not a GSP beneficiary, accounted for about 98 percent of all U.S. sleeping bag imports in 2009. But Bangladesh's shipments have risen this year.
 
 The Obama administration, in response to concerns raised by Sessions and Exxel, conducted an "expedited review" of whether to revoke GSP benefits for sleeping bags.
 
 Obama, upon the recommendation of U.S. Trade Representative Ron Kirk, decided against that. But at Exxel's request, the administration is considering the issue again as part of its regular annual review of the GSP program.
 
 CellCorp Global, a Kentucky-based camping products designer that makes sleeping bags in Bangladesh, is fighting Exxel's request, which it says would raise prices for U.S. consumers and hurt employment at its own U.S. operations.

Here's the testimony of the Exxel CEO, from the hearing held by USTR:

11 TESTIMONY BY
 12 HARRY KAZAZIAN
 13 EXXEL OUTDOORS
 14 MR. KAZAZIAN: My name is Harry
 15 Kazazian, and I'm the CEO of Exxel Outdoors.
 16 And next to me is Ron Sorini. I want to thank
 17 you guys, everybody, for giving us an
 18 opportunity to be here today. On behalf of
 19 everybody at Exxel Outdoors, all of our
 20 employees, it means a lot to us to know that
 21 we're getting our voice heard.
 22 Our story is very unique in the
 
 Page 12
 1 sense that our company bought the factory in
 2 Haleyville, Alabama, in the year 2000 when it
 3 was slated to be closed by Brunswick
 4 Corporation when they made a decision to move
 5 that production to China.
 6 At the time we bought that factory
 7 we actually had a factory in Mexico, and
 8 really, we were just going there for the asset
 9 sale. It took going to the plant, seeing the
 10 workers, seeing what the factory was able to
 11 do, that we made a decision as a company to
 12 close our Mexican operations, invest in that
 13 factory, automate it, do all the things that
 14 you're supposed to do to compete.
 15 We're proud to say it took over
 16 five, five, six years, a lot of hard work from
 17 everybody in that factory, to get it to the
 18 point where we were producing a sleeping bag
 19 between two to three percent cheaper than what
 20 we could produce one in China. And under
 21 those conditions, we were able not only to
 22 compete with China, we were able to succeed.
 
 Page 13
 1 We are adding employees, making more products
 2 on the shelves that are made in America, and
 3 it was a win-win situation for everybody.
 4 About two years ago we had heard
 5 that imports were coming in from Bangladesh
 6 duty-free, and when I heard that I was like,
 7 it can't be. You know, it's not true. So
 8 after we researched it we discovered that
 9 under some -- you know, when the Berlin Wall
 10 came down there was an agreement that was
 11 done. Sleeping bags were changed over to
 12 become, from a textile product to a
 13 non-textile product, and somehow slipped into
 14 GSP and it was just sitting there dormant
 15 until somebody discovered it recently and
 16 started importing.
 17 The problem with that is it's
 18 twofold we're able to compete with foreign
 19 countries because of automation and a lot of,
 20 you know, innovation and efficiency. What we
 21 can't do as a company is compete when the
 22 products, the raw goods, that we are using are
 
 Page 14
 1 more expensive for our factory than our
 2 competitor.
 3 Probably most of the products that
 4 are manufactured overseas, in Bangladesh and
 5 other GSP countries if they do take advantage
 6 of it, the majority of the products, are
 7 coming from China, the raw materials. We also
 8 import our raw materials from overseas as well
 9 because it's not available at that market
 10 price in the US.
 11 Most of the products that are
 12 manufactured overseas are brought in from
 13 China duty-free; in this case, to Bangladesh.
 14 They're manufactured and then they're broad
 15 duty-free to this country. When we're
 16 bringing our fibers and all our raw materials,
 17 we are paying duty. The bottom line is, no
 18 manufacturer in this country, whether it's
 19 General Motors, Chrysler or anybody else, can
 20 compete if the cost of their raw materials is
 21 at a higher standard cost -- in this case nine
 22 percent -- than their competitors.
 
 Page 15
 1 Being that sleeping bags are very
 2 -- it's not like a fashion, where, wow, you
 3 know, it's got a big brand name. It's a
 4 sleeping bag. It's just the same bag as when
 5 you went camping and everybody else who goes
 6 camping. It's been the same thing for 40
 7 years and probably even further back. So,
 8 that's what makes it tough is that we can't
 9 compete on a commodity-driven product if our
 10 competitors are at a major damage over a US
 11 manufacturer.
 12 Now, granted, there's a lot of
 13 advantages that -- we understand Bangladesh
 14 and we understand the reason for GSP. And as
 15 we'll submit later on -- you'll see data -- as
 16 far as like tents are another commodity
 17 product that is nine-percent duty that's in
 18 the same industry. And Bangladesh exports of
 19 tents have been rapidly growing, where
 20 Chinese, being bigger market share in
 21 relations to, you know, Chinese tents.
 22 No matter what happens here, no
 
 Page 16
 1 matter what decision is made, Bangladesh will
 2 export more sleeping bags and will continue to
 3 export more sleeping bags to America. The
 4 challenge here is whether they take the
 5 Chinese share and the US jobs. And that's
 6 what we're here to say, that it shouldn't be
 7 taken away from the US jobs. It should be
 8 taken away from the market share from China
 9 because they naturally will continue to
 10 expand.
 11 This decision to revoke GSP will
 12 not adversely affect Bangladesh. It will
 13 just, it will just make sure that the jobs are
 14 protected in the US. One of the things that
 15 I always try to drive home is that we're not
 16 asking for any advantages. We're not asking
 17 for anything. We're just saying that the
 18 playing field needs to be level.
 19 It can't be tilted against an
 20 American -- we already have -- you know, we
 21 pay more in healthcare costs, three times what
 22 the labor costs alone is in Bangladesh. We
 
 Page 17
 1 have already enough challenges that we have to
 2 overcome and that we as a company did. You
 3 know, at the end of the day, if the decision
 4 is made against us, it's only going to hurt
 5 that factory when it closes down. It's only
 6 going to hurt our workers.
 7 We should want to have more
 8 made-in-USA bags. We should want more -- you
 9 know, that's the kind of things that we need
 10 to have. The playing field needs to be level.
 11 We're not asking for any advantages other than
 12 keep things fair for everybody. That's our
 13 company's position.
 14 If there's anything else -- you
 15 know, that's pretty much our case. Any
 16 questions you may have?

Of course, there's another side to the story.  Here's some of the testimony by Bangladesh [note -- the official transcript says he is from Indonesia, but I'm pretty sure that should be Bangladesh]:

2 TESTIMONY BY
 3 MOHAMMAD WAHID HOSSAIN
 4 EMBASSY OF THE PEOPLE'S REPUBLIC
 5 OF INDONESIA
 6 MR. HOSSAIN: Mr. Chairman and the
 7 Panel, good morning.
 8 I would now like to put some light
 9 on some less technical aspects of the matter.
 10 Bangladesh exports mostly without
 11 GSP. In January-August 2010, a period of
 12 eight months, Bangladesh exported worth of
 13 only $3.1 million of sleeping bags to USA, of
 14 which only 40 percent in value of GSP
 15 facilities. So there is no scope to blame GSP
 16 scheme for the increase in import of sleeping
 17 bags from Bangladesh and other countries.
 18 And a mere withdrawal of GSP from
 19 sleeping bags would not address the
 20 competitiveness issue for Exxel. Since 90
 21 percent of imports for sleeping bags is coming
 22 from China, Exxel should have focused on
 
 1 tackling the size of imports from there rather
 2 than targeting Bangladesh, which is a tiny
 3 supplier.
 4 Exxel's comment on working
 5 atmosphere also is not correct. Exxel has
 6 made their own comments about the lack of
 7 regulation and also low-level cost in the free
 8 zones of Bangladesh who are companies that
 9 produce sleeping bags. Sleeping bag industry
 10 is in the export processing zones, and a small
 11 segment of various export-oriented industries
 12 regulated by statute under the close
 13 supervision of Bangladesh Exports Processing
 14 Zones Authority (BEPZA).
 15 BEPZA strictly enforces rules and
 16 regulations for industries within its own
 17 jurisdiction. Also, labor cost in Bangladesh
 18 is rising rapidly, as reflected BEPZA's
 19 circular on minimum wages just a month back.
 20 The wages has a minimum increase of 65 percent
 21 or so, only a few days back.
 22 Adverse impacts on the withdrawal
 
 1 of GSP -- Bangladesh is a least developed
 2 company, where almost half of these people
 3 still live under the poverty line -- that is,
 4 less than a dollar a day -- and its
 5 unemployment rate is about 40 percent.
 6 Despite many obstacles, Bangladesh is on its
 7 way to poverty alleviation, social development
 8 and, in the process, achievement of Millennium
 9 Development Goals, MDG, development goals.
 10 On the other hand, USA is in
 11 charge of all leadership. It's guiding the
 12 course of actions across world. Given that
 13 reality, withdrawal of GSP by USA is likely to
 14 give the wrong signal to the exporters and
 15 investors, damaging prospects of enhanced
 16 bilateral trade within the US and Bangladesh.
 17 In conclusion, we'd like to
 18 emphasize that that there no justifiable
 19 reason for withdrawing the GSP under sleeping
 20 bags, so the petition should be denied.
 21 Thank you. 

Talking Trade in Thailand

From the American Chamber of Commerce in Thailand:

The American Chamber of Commerce in Thailand (AMCHAM) plans on conducting a symposium in the latter part of 2011 on plurilateral and bilateral FTAs generally and the challenges Thailand will likely face meeting its AFTA obligations by 2015 specifically.  As part of this symposium, AMCHAM would like to have a recognized international trade law specialist (knowledgeable about RTAs, etc.) present at this symposium.  There is little international expertise on the ground in Thailand (at least in the private bar) in this area, and AMCHAM is looking for speakers with substantial and recognized experience on international trade agreements, who can speak to the subject of trade agreements generally.  Although AMCHAM does not pay for airfare, accommodations or any other expenses, this could represent an excellent client development opportunity for any lawyer practicing in this area.  If there are any lawyers with expertise in this area who are willing to speak to this subject and who will be travelling through Thailand in the latter part of 2011, kindly let the head of AMCHAM’s Legal Committee (Douglas Mancill) know, by sending him an email at [email protected].

 

Non-Confidential Summaries in Anti-Dumping Investigations

A finding by the EC - Fasteners panel (DS397), which may only be of much interest to you trade remedy lawyers (and legal assistants) out there, brings back long ago memories of preparing exhibits in anti-dumping investigations.

AD Agreement Article 6.5.1 states:

The authorities shall require interested parties providing confidential information to furnish non-confidential summaries thereof.  These summaries shall be in sufficient detail to permit a reasonable understanding  of the substance of the information submitted in confidence.  In exceptional circumstances, such parties may indicate that such information is not susceptible of summary.  In such exceptional circumstances, a statement of the reasons why summarization is not possible must be provided.

 Here's the standard the Panel set out for this provision:

7.515 In our view, Article 6.5.1 serves to balance  the goal of ensuring that the availability of confidential treatment does not undermine the transparency of the  investigative process, with recognition of the importance of maintaining the confidentiality of information where appropriate.  We consider that it is the investigating authorities' obligation to ensure that all the requirements of Article 6.5.1 are respected by interested parties.  That is, we consider that the investigating authority must ensure that an appropriate non-confidential summary is provided, or in exceptional circumstances, if that is not possible, that an appropriate statement of reasons why summarization is not possible is given.  Clearly, in the absence of scrutiny of the non-confidential summaries or stated reason why summarization is not possible by the investigating authority, the potential for abuse of confidential treatment by interested parties would be unchecked unless and until the matter were reviewed by a panel.  This would obviously defeat the goal of maintaining transparency during the course of the investigation itself that is one of the purposes of Article 6.5.  Thus, in our view, the investigating authorities must ensure that where an interested party asserts that a particular piece of confidential information is not susceptible of summary, the reasons for that assertion are appropriately explained. 

And here's how they apply it in one instance:

7.516 With these considerations in mind, we now turn to the facts underlying China's claim.  With respect to the EU producer Agrati, we note that the non-confidential questionnaire response of this company contains non-confidential summarized information on some injury factors, including employment, sales and re-sales of the subject product (both in volume and value terms), inventories, production, capacity and capacity utilization.  However, the questionnaire response does not contain any non-confidential summary of the confidential information on other injury factors, including return on investment, investments, profitability (with  respect to the product concerned and the overall company), cash flows, cost of production, suppliers of direct (raw) materials during the investigation period, volume of raw materials used to produce the subject product, extraordinary items with respect to costs, list of all sales to unrelated customers in the European Union, and allocation of different cost elements among different types of products.  In each instance, the reason given for the lack of a nonconfidential summary is the following: "The information cannot be summarized without disclosing confidential information which can cause a damage to our company.  The information has been provided as limited." We recall that Article 6.5.1 requires a party submitting confidential information to also submit a nonconfidential summary in sufficient detail to permit a reasonable understanding of the substance of the confidential information or, if that is not possible, to provide a statement of reasons explaining why such a summary is not possible.  Moreover, as discussed above, we consider that the investigating authorities must ensure that the reasons given in this regard are appropriate.  There is nothing in the Definitive Regulation, or any other evidence that has been proffered, that would even suggest that the Commission ever considered whether Agrati's stated reason for the lack of a non-confidential summary of such information as profitability, or cash flows was more than  pro forma.  Agrati's statement simply reflects one of the bases on which information may be considered "by nature confidential" - that its disclosure would have a significantly adverse effect on the person supplying it – and asserts that the confidential information cannot be summarized without disclosure.  The statement does not, however, relate to any of the specific information for which no non-confidential summary is provided, or to anything having to do with Agrati itself, the party supplying it.  We also note the fact that Fontana Luigi was able to provide non-confidential summaries with respect to some of the information for which Agrati did not provide such a summary, which to us suggests that these categories of information are in fact susceptible of summary.  There is certainly nothing in Agrati's stated reason which would demonstrate otherwise.  We therefore consider that the Commission failed to ensure Agrati's compliance with the requirements of Article 6.5.1, and thus acted inconsistently with that provision with respect to Agrati.

I have a feeling this could mean a lot more work for those who are responsible for providing non-confidential summaries!

 

The Origin of the Word "Tariff"

Fun with Google Books:  This is from "The protective system considered in connection with the present tariff," by someone named Edmund Burke (this one, I'm pretty sure, but certainly not that one), published in the mid-1800s:

But have digressed from my purpose which was to give the original signification of the word tariff. I find on referring to a distinguished lexicographer that the word tariff was originally derived from the Arabic word d'araf which signifies "to know."  Such was the meaning of the word from which the term tariff was derived; and it then must have been innocent of all evil designs and intents. But even that thing of Arab nativity, born in purity and innocence, was obliged to encounter all the perils and dangers which abound in this finite and fallible world; and as is sometimes the fate of innocence and virtue in fairer forms it has been corrupted and has fallen from its high estate to one of vice, wickedness and crime.  At some stage of history -- the precise time I have not been able to ascertain -- it suffered itself to be prostituted to a vile purpose as the following extract from the fragments of Bolingbroke most clearly proves. In speaking of the sale of indulgences under which great frauds were alleged to have been practised by the Roman Catholic priests he says:

"This traffic (for such it was) became so frequent that even in times less ancient the church of Rome found it necessary to publish a TARIFF or BOOK OF RATES which I have seen in print, wherein the price is set over against every sin lest purchasers should be imposed upon."

Thus, it seems the term "tariff" was first applied to designate the "rates," or duties which the Roman Catholic priests levied upon sins.  It cannot be supposed that, in that early age, they had arrived at a knowledge of all the curious devices by which duties may be collected, discovered and practised in modern times and by the high priests of protection. It is very likely the framers of the tariff on sins knew nothing of the fraudulent and cheating device of minimum duties discovered in this latter age and with which the existing tariff abounds.  Nor could they very well, from the nature of the subject, have adopted in their system the honest and open handed principle of ad valorem duties, such as the democratic party advocates. But the particular kind of duties levied under this tariff devised to regulate the exactions of the priests was undoubtedly specific. That is to say, the church permitted the priest to absolve or let the offender off for so many dollars or pounds sterling no matter what the denomination for murder, so much for robbery, so much for theft so much for adultery etc., etc.  Such was the original meaning and such the first authentic application of the word tariff in its modern signification. The history of the matter is curious, interesting and significant and proves that the fallen angel has never been restored that with the additional cognomen of protective under the guardianship of the high priests of the manufacturing monopoly, it has ministered to wicked uses, as it did under the care of the ancient priests of the Roman Catholic church.

I have not tried to verify whether this explanation is in any way accurate!

Did iPhone really add $2 billion to U.S. trade deficit with China?

Here is a very interesting article on trade statistics and trade deficit.

Click here

According to the author, "if trade statistics were adjusted to reflect the actual value contributed to a product by different countries, the size of the U.S. trade deficit with China—$226.88 billion, according to U.S. figures—would be cut in half."  

The Korean Auto Market, FTAs, and U.S. vs. European vs. Japanese Imports

Here's a little more on the issue of Korean car regulation and standards for imported cars:

The Korean government is expected to apply tougher standards on cars manufactured in Europe than those made in the US in terms of fuel efficiency and greenhouse gas emissions.

Trade Minister Kim Jong-hoon told Yonhap News Agency on Thursday that with European car sales exceeding those of the US a stricter standard must be applied.

The trade ministry plans to carry out negotiations with the EU on the issue in the near future but Kim said the talks will be separate from the Korea-EU free trade agreement.

First off, it's interesting that implicit in this statement may be the point that U.S. car sales in Korea are fairly low, and thus the harms from U.S. car imports that do not meet normal standards are not worth worrying about.

Second, I'm not sure the efficiency and emissions standards mentioned here are the same as the "safety" standards mentioned in the context of the U.S. quota.  This may be a completely separate issue.

Third, you would think that the Europeans would press hard in any negotiations to get the same benefits the U.S. got from KORUS.  On the other hand, there's this. The White House fact sheet on the KORUS FTA says the following:

Automotive Safety Standards:  Safety standards have effectively operated as a non-tariff barrier to U.S. auto exports.  The 2010 supplemental agreement announced today allows for 25,000 cars per U.S. automaker – or almost four times the number allowed in the 2007 agreement -- to be imported into Korea provided they meet U.S. federal safety standards, which are among the most stringent in the world. 

Here's what I wonder.  As this article in the China Post explains, the Europeans (and Japanese) export cars from their U.S. factories to Korea.  As a result, the KORUS FTA may actually have substantial benefits for European (and Japanese) car-makers:

While beneficial to U.S. carmakers' Korean operations, some in the industry suspect that non-U.S. brands stand to gain more out of the pact than their U.S. rivals.

While the majority of vehicles shipped from the U.S. are those of U.S. carmakers, a significant number of European and Japanese firms' vehicles sold here are manufactured in the United States.

According to industry statistics about 46 percent of the 8,362 U.S.-made automobiles imported to Korea were European and Japanese brands.

Of the non-U.S. brand vehicles imported from the U.S., about 60 percent were Japanese brands, with Nissan's mid-sized sedan Altima making up the bulk of the volume.

With Nissan Korea, one of the fastest growing foreign carmakers in Korea, planning a major expansion drive next year, the number of U.S.-manufactured Nissan imports is likely to increase.

Having sold 3,217 vehicles on the local market by the end of November, Nissan's Korean sales increased by 78.3 percent compared to the same period last year. For the whole of 2010, the company projects an increase of 75 percent.

Next year the company is aiming to sell 5,000 units on the local market.

In addition, the company's plans to introduce the Cube next year are likely to push up the number of U.S.-made Nissan vehicles imported to Korea further.

According to Nissan Korea officials, Cube vehicles sold here will be shipped from the U.S., and while no specific sales target has been set the Cube is likely to prove popular. The Cube, which has proved a hit in other markets with more than 1 million units having been sold in Japan, is the most anticipated Nissan vehicle in Korea, the company said.

In addition, with Japanese carmakers having a larger presence here, some in the industry expect that European and Japanese brands' vehicles could take up as much as 70 percent of automobiles imported from the U.S. once the pact is implemented.

But beyond these general benefits, here's my question.  Are European (and Japanese) car factories in the U.S. considered "U.S. automakers" and thus able to benefit from the 25,000 car quota?   Or is that just for the Big 3?  Some readers might know the answer to this (I didn't see anything in a quick web search).  Feel free to let me know in the comments.

Don Boudreaux: "The only reason for exporting is to import"

From Don Boudreaux:

... U.S. exports ... unloaded on foreign docks generate money income for American producers.

But what’s the value to Americans of receiving this money?  Ultimately, that value is what this money can purchase abroad – the amount of goods, services, and assets that Americans are able to buy in foreign countries.

The only reason for exporting is to import – and the success of a country’s exports is measured by the value of imports these exports fetch in exchange (either currently or in the future).  That’s why all the talk of imports and trade deficits being drags on the economy is so misleading.

Keeping in mind that the ultimate value of buying assets in foreign countries lies in enabling their owners to increase their consumption in the future, the point remains that the success of American efforts to export is measured by the value of imports that we Americans receive in return for our exports.  The more imports per unit of export, the better off we are.

But isn't it possible that some people would like to export so as to accumulate wealth through saving, and not spend the earnings on either domestic products or imports?  How do we deal with different preferences for saving as between countries?  Do we need to deal with it at all?

On a slightly related note, here is a video from Don Boudreaux on protectionism:

 

Dan Ikenson on the Rule of Law vs. a Policy of Free Trade

Cato's Dan Ikenson, commenting on yesterday's WTO Tyres panel decision, points out that international trade law still allows a good deal of protectionism:

Yesterday’s WTO decision was arguably a victory for the rule of law in international trade—but also a reminder that politicians write the rules of trade, including some that are so antithetical to its purpose.

Will the WTO Tyres Decision Help Free Trade?

On its face, today's panel report finding that U.S. tariffs on Chinese tires do not violate WTO rules could be seen as a victory for protectionism.  But looking at the larger picture, will allowing these tariffs help to promote free trade?  This is from the FT:

The WTO victory on tyres could increase the odds of smooth congressional passage of a pending free trade agreement with South Korea, following revised terms recently reached by Seoul and Washington. This is because the Obama administration will be able to point to its success in enforcing existing trade deals, particularly in talks with recalcitrant Democrats sceptical of the benefits of such deals.

"Outsourcing" and "Globalization" in Today's U.S - Tyre's Report

This is from the the Panel's "preliminary observations" in today's U.S. - Tyres WTO panel report:

7.6 ... the investigation that led to the imposition of a safeguard measure in this case against the importation of tyres from China was initiated, unusually, as the result of a petition by a labour union in the United States and not by the domestic producers of tyres.  This, of itself, alerted the Panel to the possibility that there was something different about this case, particularly where the domestic producers, the normal petitioners in such cases, had indicated that they would not make any adjustments notwithstanding that a safeguard remedy was put in place with adjustment purposes. 

...

7.8  ... an important allegation in this case relating to this key issue of causation was that the U.S. tyre manufacturing industry had voluntarily reduced its investment in the United States and had invested in manufacturing tyres in China instead.  Thus, according to this view, the reduction in domestic manufacturing of tyres and the increase in imports from China were the consequences of deliberate economic decision-making by the U.S. tyre industry.

7.9 In such circumstances, the argument went, this case involved the invocation of a mechanism designed to protect a domestic industry that did not want that protection and by its own actions had precipitated the events that were now being invoked to justify the application of the transitional product-specific safeguard mechanism of China's Protocol of Accession.  Arguably, it explained too why the investigation had been initiated by a labour union, a body that was concerned with job losses resulting from this transfer of manufacturing capacity to China, and not by the domestic producers themselves.  Thus, the Panel was aware that this aspect of the case raised the question of the suitability or relevance of safeguard mechanisms in the context of "outsourcing" and "globalization", matters of considerable systemic interest to WTO Members.

I haven't gotten to the substance yet, but here's the conclusion:

8.1 For the reasons set forth above, we find that in imposing the transitional safeguards measure on 26 September  2009 in respect of imports of subject tyres from China, the United States did not fail to comply with its obligations under Paragraph 16 of the Protocol and Articles I:1 and II:1 of the GATT 1994.

Investor-State in Australian Trade Agreements

Some in Australia are still skeptical of investor-state dispute settlement.  This is from Chapter 14 of today's Productivity Commission report on bilateral and regional trade agreements:

It is the Commission’s assessment that although some of the risks and problems associated with ISDS can be ameliorated through the design of relevant provisions, significant risks would remain. Meanwhile, it seems doubtful that the inclusion of ISDS provisions within IIAs (including the relevant chapters of BRTAs) affords material benefits to Australia or partner countries. The Commission has also not received evidence to suggest that Australia’s systems for recognising and resolving investor disputes have significant shortcomings that should be rectified through the inclusion of ISDS in agreements with trading partners. 

Against this background, the Commission considers that Australia should seek to avoid accepting ISDS provisions in trade agreements that confer additional substantive or procedural rights on foreign investors over and above those already provided by the Australian legal system. Nor, in the Commission’s assessment, is it advisable in trade negotiations for Australia to expend bargaining coin to seek such rights over foreign governments, as a means of managing investment risks inherent in investing in foreign countries. Other options are available to investors.

The Commission notes that, if perceptions of problems with a foreign country’s legal system are sufficient to discourage investment in that country, a bilateral arrangement with Australia to provide a  ‘preferential legal system’ for Australian investors is unlikely to generate the same benefits for that country than if its legal system was developed on a domestic non-preferential basis. To the extent that secure legal systems facilitate investment  in a similar way that customs and port procedures facilitate goods trade, there may be a role for developed nations to assist through legal capacity building to develop stable and transparent legal and judicial frameworks. While not an immediate solution, over time such capacity building goes towards addressing the underlying problem, and provides benefits not only for foreign investors (including Australian investors), but all participants in the domestic economy.

The recommendation:

The Australian Government should not include matters in bilateral and regional trade agreements that would serve to increase barriers to trade, raise costs or affect established social policies without a comprehensive review of the implications and available options for change. On specific matters, the Australian Government should:  

...

c) seek to avoid the inclusion of investor-state dispute settlement provisions in BRTAs that grant foreign investors in Australia substantive or procedural rights greater than those enjoyed by Australian investors. 

Associate Commissioner Andy Stoler disagrees:

The Associate also disagrees with the Commission’s recommendation regarding the inclusion of investor-state dispute settlement (ISDS) in future Australian BRTAs. He notes that foreign direct investment  is very important in the modern economy and that Australians have significant investments in other economies. He considers that where the Australian Government deems it appropriate to negotiate a BRTA with a partner, that agreement should promote and protect investment and where the legal system of a partner is judged as  not sufficiently developed to effectively handle investment disputes, Australian negotiators should preserve the option of including ISDS in the agreement.

The report argues that Australia’s investors do not require this added protection and that, by including ISDS, the Australian Government is taking on a risk (of being sued by foreign investors). The Associate notes that the report suggests that the investors are able to protect their overseas interests by accessing a variety of insurance schemes. In the view of the Associate , this is analogous to arguing against the need for a fire department because homeowners can buy property insurance.

The Associate notes that those who oppose ISDS in BRTAs also tend to cite the risk of ‘regulatory chill’ for Australia — in  other words, the Australian Government might elect not to proceed with certain  policies or regulations because it may be afraid of being sued in the ICSID. Opponents of ISDS cite cases such as where governments may back off regulating cigarette packaging due to the threat of a suit by a foreign investor. In the Associate’s  view, the appropriate response to these concerns is to ensure that the ISDS-related provisions of a BRTA are drafted carefully enough that they preclude challenges to those regulatory areas that Australia wants to ensure are protected (for example, health-related policies). In addition, in the Associate’s view, there is reason to believe that a little bit of ‘regulatory chill’ might be a good thing, even in Australia.

Finally, the Associate considers that it is not realistic to suggest, as in his view part (c) of the recommendation suggests and the report implies, that it might be possible to agree an ISDS provision  in a BRTA that does not give foreigners rights not available to nationals, or that a BRTA partner might seek to offer ISDS to Australia without seeking a reciprocal grant of ISDS rights. 

Earlier post on this here: http://worldtradelaw.typepad.com/ielpblog/2010/07/australia-productivity-commission-draft-report-on-bilateral-and-regional-trade-agreements-.html

Less Favorable Treatment in the Clove Cigarettes Case

There are some good non-discrimination cases going on right now in WTO dispute settlement (including the Philippines - Spirits case mentioned here).  For DSC subscribers, here is a run-down we did of the U.S. position on GATT Article III:4 less favorable treatment issues in the U.S. - Tuna Labeling (DS381) case.  In the U.S. - Clove Cigarettes (DS406) case, only the U.S. first written submission is publicly available at this point, so the issues have not been developed as much as in Tuna, but there's a bit to talk about nonetheless.

Here's how Indonesia put its discrimination argumement, in general terms, in its panel request:

Indonesia believes that the measure discriminates against imported clove cigarettes based on the fact that the clove cigarettes that were sold in the United States were imported (primarily from Indonesia), while virtually all of the menthol cigarettes sold in the United States are produced domestically (imports are negligible).

In its first written submission, the U.S. rejects this de facto discrimination argument.  Here are some key passages:

207. Similarly, the Appellate Body’s approach in Chile – Alcoholic Beverages is instructive on this point. In Chile – Alcoholic Beverages, a tax measure that was not facially discriminatory in fact imposed a higher rate to an imported product. However, the different treatment accorded by the tax was not enough in itself to constitute de facto discrimination, unless the different treatment was based on national origin. Following its approach in Japan – Alcoholic Beverages, the Appellate Body examined the design, architecture and structure of the measure at issue, seeking to determine whether the measure was applied “so as to afford protection to domestic production.” The Appellate Body concluded that the measure in question was “anomalous” and inconsistent with respect to the Chilean tax system, and therefore constituted an instance of de facto discrimination.

208. Unlike in Chile – Alcoholic Beverages, where the Appellate Body found an “absence of countervailing explanations from Chile,” there is in this case a legitimate countervailing explanation for the different treatment under Section 907(a)(1)(A) of tobacco and menthol cigarettes as compared to clove cigarettes.

209. In this case, the application of 907(a)(1)(A) is entirely consistent with the object and purpose of the FPSTCA and the approach of the United States to tobacco regulation, in general. An Indonesian product is adversely effected under Section 907(a)(1)(A) not as a result of origin based discrimination, but because U.S. health authorities legitimately determined that clove cigarettes fall into a category of cigarettes that should be banned from the U.S. market for the protection of the public health. Section 907(a)(1)(A) distinguishes among cigarettes as appropriate for the public health, and not based on the national origin of the products. Tobacco and menthol-flavored cigarettes are not covered under Section 907(a)(1)(A) because a ban on such products would involve countervailing public health concerns.

...

212. Article III:4 protects Members from discrimination based on origin – but does not protect foreign products from all adverse effects of a measure which, in pursuit of a legitimate objective, has an adverse impact upon a foreign product. The protections contained in the GATT 1994 are not designed, and should not be applied, to require that Members only can ban a specific class of cigarettes for a legitimate policy reason unless they ban all domestic cigarettes. Such an outcome would seriously hamper national regulatory prerogatives to minimize the harms of tobacco products.

I read the U.S. position as follows:  Discriminatory effect, even if it exists here, is not enough for an Article III:4 violation; you need to show protectionist intent, too.

Hopefully we will get more details of the argument as the dispute progresses.

Investor-State in the CETA

Including investor-state in the Comprehensive Economic and Trade Agreement between Canada and the EU would, in my view, be a big deal in a number of ways (including the number of investments covered):

 A controversial NAFTA provision that allows corporations to seek compensation from governments is likely to be included in any eventual free-trade deal with Europe, say sources close to the negotiations.

...

The shape of a final deal is still far from certain, but it appears the Europeans are increasingly warming up to a Canadian demand that closely resembles the Chapter 11 clause in the North American Free Trade Agreement.

Under the NAFTA clause, investors have received huge cash payments to compensate for government policies that hurt their business interests.

European negotiators were initially leery about a similar clause being included in a free-trade deal with Canada, according to one Canadian official who plays a senior role at the bargaining table.

Among the considerations that has helped change their mind, the official said, was the recent $130-million cheque Ottawa handed to newsprint giant AbitibiBowater (TSX:ABH) to settle a Chapter 11 claim.

"I think we'll see the inclusion of a Chapter 11-type clause," the official said at a recent briefing, which was conducted on condition of anonymity.

The KORUS FTA U.S. Auto Quota and GATT Article XXIV

This is from the White House fact sheet on the KORUS FTA:

Automotive Safety Standards:  Safety standards have effectively operated as a non-tariff barrier to U.S. auto exports.  The 2010 supplemental agreement announced today allows for 25,000 cars per U.S. automaker – or almost four times the number allowed in the 2007 agreement -- to be imported into Korea provided they meet U.S. federal safety standards, which are among the most stringent in the world. 

As I understand it, this means that each U.S. automaker is allowed to export 25,000 cars per year to Korea without having to meet Korean safety standards, as long as the cars in question meet U.S. safety standards.

So here's my question.  Presumably the Korean auto safety standards are a "technical regulation" covered by the TBT Agreement.  And if cars from other countries -- say, Japan -- do not have their own quota of this type, the Korean measure implementing this FTA provision would likely violate the MFN obligation of TBT Agreement Article 2.1.  But there's nothing in the TBT Agreement about an exception for FTAs.  So does GATT Article XXIV provide an exemption for the TBT Article 2.1 violation?

Here are some general thoughts on the relationship of GATT Article XXIV and non-GATT WTO agreements, from Nic Lockhart and Andrew Mitchell:

On its face, the exception in Article XXIV:5 of GATT 1994 applies solely to inconsistencies with the provisions of ‘this Agreement’, that is GATT 1994 itself. The exception might not, therefore, justify RTA measures that are inconsistent with other WTO agreements. Remarking on this issue in a footnote in Turkey – Textiles, the Appellate Body observed that ‘legal scholars’ have taken the view that Article XXIV:5 provides an exception for inconsistencies with GATT provisions. It went on to note that the chapeau ‘refers only to the provisions of the GATT 1994’. Nonetheless, the Appellate Body considered that Article XXIV:5 could provide an exception for an inconsistency with Article 2.4 of the ATC because Article 2.4 itself permits restrictions introduced under ‘relevant GATT 1994 provisions’. The Appellate Body considered that this explicit reference to GATT 1994 in Article 2.4 means that the exception in Article XXIV is‘incorporated in the ATC’.

So which WTO provisions, in which other WTO agreements, are covered by the exception in Article XXIV:5? The Appellate Body’s reasoning in Turkey – Textiles suggests that the exception does not extend automatically to all WTO provisions. In Turkey – Textiles, the extension was based on an express reference, in another covered agreement, to GATT 1994. In all likelihood, other extensions will also depend on the wording and context of the relevant provisions. This approach is supported by the general interpretative note to the WTO goods agreements, found in Annex 1A of the WTO Agreement. The note states that ‘in the event of a conflict’ between provisions of GATT 1994 and provisions of one of the other goodsagreements, the latter prevails. If the exception in Article XXIV:5 permits an RTA measure that is inconsistent with another goods agreement, a conflict exists between GATT 1994 and the other agreement. If a panel automatically applied the GATT 1994 exception to the other agreement, without examining the specific context, this would be contrary to Annex 1A of the WTO Agreement.
...

Similar questions could arise in relation to the effect of Article XXIV:5 of GATT 1994 on the provisions of other WTO agreements. For instance, a number of RTAs have adopted harmonised rules that differ from the WTO disciplines in the SPS Agreement and the TBT Agreement. Based on the existing jurisprudence on Article XXIV:5, the extension of the exception to provisions of these or other WTO agreements will depend on whether there is a ‘close interrelation’ between the provisions and GATT 1994. While the approaches of the panel and Appellate Body in US – Line Pipe are firmly rooted in the language of Article XXIV:5, it may be questioned whether that provision, dating from GATT 1947, remains appropriate for a legal framework that now comprises 12 separate agreements dealing with goods, in addition to GATT 1994. Article XXIV expresses a policy decision by WTO Members to accept the inevitable positive discrimination that RTAs create in favour of the RTA parties. If Members accept this discrimination for all of the obligations in GATT 1994, as well as for certain obligations in other WTO goods agreements that have a ‘close interrelation’ with GATT 1994, what reason could there be not to extend the exceptions to all obligations in the WTO goods agreements?

ADDED:  More here from Lorand Bartels:

C. Relationship between the TBT Agreement and GATT 1994

Even if Article XX or Article XXIV could justify the EC mutual recognition clause, at most they could excuse a violation of Article I:1 GATT. It is highly unlikely that these provisions would be able to justify violations of the TBT Agreement. This follows from the General Interpretive Note to Annex IA ofthe WTO Agreement, which states that the TBT Agreement prevails over GATT 1994 to the extent of any conflict.85 Prima facie, in a situation in which a measure is prohibited under the TBT Agreement but permitted under GATT 1994, the prohibition under the TBT Agreement will prevail.86 Thereis an exception, however, where another agreement incorporates by reference a right in GATT 1994. Thus, the Article XXIV defence has been applied to violations of obligations in other WTO agreements where there has been an express87 or implied88 reference to rights under the GATT. However, there are no such references in the TBT Agreement, and so it is difficult to escape the conclusion that a measure prohibited under the TBT Agreement cannot be saved under Article XXIV GATT.89 At most, Article XXIV has the potential, in this set of circumstances, to justify a violation of Article I:1 GATT.

The corollary of the priority granted to the TBT Agreement is that where a measure involving technical regulations, technical standards or conformity assessment procedures is permitted under the TBT Agreement but prohibited under the GATT 1994, the implied ‘right’ to take the measure under the TBT Agreement prevails. This is a difficult argument, because the right is atmost implied, based on the fact that the TBT Agreement purports to ‘cover the field’ with respect to the regulation of technical regulations, standards and conformity assessment procedures. Nonetheless, if this is correct, then it might be concluded that, even if it violates Article I:1 GATT, the discriminatory EC mutual recognition clause may be justified if the affected WTO Member has not made an application for recognition of the equivalence of itstechnical regulations (under Article 2.7) or its conformity assessment procedures (under Article 6.1), which – according to the above analysis – are requirements for any violation to be found under the TBT Agreement.

______________________________________

85 This Note states that ‘[i]n the event of a conflict between the provisions of the General Agreementon Tariffs and Trade 1994 and a provision of another agreement in Annex 1A to the AgreementEstablishing the World Trade Organization [including the TBT agreement] . . . the provision of theother agreement shall prevail to the extent of the conflict.’

86 See Pauwelyn, above n 82, at 129–30. Trachtman, above n 61, at 472, takes the view that the GeneralInterpretative Note does not apply to this situation, on the grounds that there can be no ‘conflict’between a right (as in Article XXIV) and a prohibition (as in the TBT Agreement). For the reasonsgiven in J. Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to OtherRules of International Law (Cambridge: Cambridge University Press, 2003), 170–71, this is not persuasive.See also Appellate Body Report, EC – Tariff Preferences, above n 54, at paras 101–02, wherethe Appellate Body held that exceptions (containing rights) prevail over prohibitions to the extent ofany conflict.

87 WTO Appellate Body Report, Turkey – Textiles, above n 76, at para 45 n 13 (applying the ArticleXXIV defence to the Agreement on Textiles and Clothing, based on a statement in that agreementthat ‘[n]o new restrictions . . . shall be introduced except under the provisions of this Agreement orrelevant GATT 1994 provisions’); referred to in the context of the Safeguards Agreement in WTO Panel Report, United States – Definitive Safeguard Measures on Imports of Wheat Gluten from theEuropean Communities, WT/DS166/R, adopted as modified by the Appellate Body Report on 21January 2001, para 8.180.

88 WTO Panel Report, US – Line Pipe, above n 79, at para 7.150; see Pauwelyn, above n 82, at 128.

89 Trachtman, above n 61, at 473, comes to the opposite conclusion, on the basis of an ‘effective’ interpretation.

The cite is Journal of International Economic Law 8(3), 691–720

Also, additional thoughts here from Joel: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=317858  See pages 12-15.

 

Investor-State, the TPP, and the Philip Morris BIT Claim

Is the BIT investment claim by Philip Morris against Uruguay going to make it difficult to get investor-state in the TPP? From an NZ online publication:

The Greens have stepped up their attack on a planned trans-Pacific free trade zone after tobacco giant Philip Morris called for the right to challenge anti-smoking laws.

Greens co-leader Russel Norman revealed yesterday a Philip Morris submission to the United States Government which insisted any deal must allow challenges to laws such as the regulation of cigarette packaging or bans on tobacco products.

The company is presently suing the Uruguay Government over a law requiring graphic warnings on smoking to cover 80 per cent of cigarette packs, saying it infringes trademark rights under a free-trade deal with Switzerland, where it has a base.

Mr Norman said the Philip Morris submission on the proposed Trans-Pacific Partnership showed it wanted similar powers under that deal.

"The real issue is about what they call beyond the border restrictions, which is about governments passing laws that restrict what corporations can do, like selling their cigarettes.

"Most New Zealanders will be shocked to learn ... Philip Morris is using trade agreements to try to stop governments from introducing anti-smoking measures. But it is true."

This is from the Green Party press release:

The Green Party is calling on the Government to reject attempts to introduce investor-state disputes mechanisms into the Trans-Pacific Partnership (TPP) trade negotiations in light of evidence that the Philip Morris tobacco company is planning to use the TPP to block anti-smoking laws.

“Most New Zealanders will be shocked to learn that the huge multinational tobacco company Philip Morris is using trade agreements to try to stop governments from introducing anti-smoking measures. But it is true," Green Party Co-leader Dr Russel Norman said today.

Philip Morris is currently taking action against Uruguay’s proposed anti-smoking laws under the investor-state disputes mechanism of the trade agreement between Uruguay and Switzerland (1). Uruguay is proposing to introduce new measures requiring 80 percent of cigarette packaging to carry graphic warnings against smoking. The company argues such measures effectively expropriate their investments. Under the investor-state disputes mechanism a World Bank panel will decide if Uruguay must pay Philip Morris for this ‘expropriation’.

Philip Morris is also targeting New Zealand’s TPP negotiations to ensure there are investor-state disputes mechanisms so Philip Morris will be able to sue governments that attempt to introduce similar anti-smoking laws.

Philip Morris’ submission (2) on the TPP to the United States Government specifically identifies proposals to introduce plain packaging of cigarette packages. They argue that such plain packaging of cigarettes is “tantamount to expropriation on the use of long-held and extremely valuable property rights”.

Here's the Philip Morris submission: http://www.regulations.gov/search/Regs/home.html#documentDetail?R=0900006480a81289 

Could an FTA Hurt Imports?

I'm not sure I understand this article from the Philadelphia Inquirer:

The 150,000 shiny new Hyundai and Kia cars expected to arrive annually through the Port of Philadelphia will not be hurt by a proposed free-trade agreement between the Obama administration and South Korea, officials said.

Since August, Hyundai and Kia vehicles have arrived, almost weekly, on ships at Packer Avenue Marine Terminal in South Philadelphia, headed for U.S. showrooms.

The revised free-trade pact should not slow down imports or manufacturing of Hyundai and Kia cars in this country, Hyundai said.

Perhaps they are channeling Ron Paul, and think trade agreements are used to limit imports?

Expanding Investor-State?

Investor-state dispute settlement has been heavily criticized by many people who are opposed to international trade and investment rules generally.  Would making this kind of dispute settlement available to entities other than "investors" make it more palatable to the critics?  This is from an article in Slate:

One specific nontariff issue that's crept into FTAs and causes alarm for environmentalists is something called "investor state dispute settlement." This basically lets a corporation sue for lost profits if a country in which said company does business makes laws that reduce the corporation's ability to make money. In the past, this kind of legal action was available to governments, but Chapter 11 of NAFTA gave corporations the key to the clubhouse. The problem, says Eileen Appelbaum, senior economist at the Center for Economic and Policy Research, is that this clause doesn't offer any comparable legal option for consumers or watchdog groups to challenge corporate practices that they believe violate environmental, human rights, or other regulations. ...

So should we add consumer-state, union-state and NGO-state mechanisms to trade agreements, providing for enforcement of, inter alia, the environment and labor chapters of FTAs, so as to counterbalance the special rights given to investors?  More on this from Thea Lee of the AFL-CIO (from the previous post):

We have talked a lot about whether unions, for example, should have the right to sue another government if it is not in compliance with a labor chapter, and whether we would have the opportunity to bypass our own government, so that we wouldn't have to convince our government to bring that case. Everything but the investment language in the trade agreement is adjudicated on a government-to-government basis. I think it creates a huge imbalance in the trade agreements, certainly, if you give one group, private investors, the right to sue. Even in the context of the bilateral investment treaties, it creates an imbalance between private companies and governments.

House Ways and Meaning Hearing on Investment Protection

Congressional committee hearings are often interesting, but they are difficult to blog about.  The Q & A is the best part, but an official transcript -- which is much more blog-friendly than typing things up as they go along -- doesn't come out for a while.  So, that's why I'm just now doing a post about a May 2009 House Ways and Means hearing on investment protection.  The transcript is here.  Some excerpts:

Negotiating a balancing between investor protection and sovereignty:

Mr. Larson.  

… I think the challenge for U.S. negotiators is that in many -- for U.S. foreign investors in other jurisdictions, we want to obtain greater substantive rights for our investors than domestic investors may have in those countries.  That is sort of the value of the BIT.

We understand, as negotiators, that we would generally want to offer as little as possible, in terms of, you know, the substantive benefits that foreign investors might get under a BIT here.  But there is clearly a trade-off between what we want for our investors in some of the jurisdictions, and what we want to give up, in terms of rights for foreign investors in our country.

Investment protection as "exporting Constitutional protections," and finding the right balance

Mr. Brady.  … Mr. Posner, you talked about how those improvements have taken what is, at its basics, a way to export our Constitutional protections, and improve even greater upon it over the years.  Can you expound? You are always looking for ways to improve provisions in trade agreements.  Have we seen improvements, and have they been good for us?

Mr. Posner.  Well, I think we have seen improvement, to the extent that you had a debate on the appropriate balance between protecting the interests of U.S. investors seeking to do business overseas, and the so-called defensive interests, taking account of the risk that the United States might be sued with respect to a regulatory action.So, I see where we are today as an improvement over, say, where we were in 1982, in the sense that we have now had that debate and achieved that balance.

The role of competitive investment liberalization:

Ms. Menghetti.  

…. Many OECD countries have investment treaties with Korea that have investor-state.  If, as was proposed, we took out investor-state from our FTA with Korea, our investors, our businesses, our economy, and our workers would be the worse off.

Mr. Brady. So it is a competitiveness issue, as well?

Ms. Menghetti.  Absolutely, it is a competitiveness issue.

Different rules for different countries, different rules for different entities

Mr. Doggett.  …So, the first question that has to be asked, I think -- and I don't believe that USTR has had any real set of guidelines about how to do this -- is whether you need any investment agreement or not, or whether, as we determined with Australia, that their courts are adequate to handle this.There is, for an example, the decision to include investor panels for Korea.  There is a body of case law in this country on forum non conveniens that Korea provides, through its judicial system, an adequate forum.  And, therefore, cases have been dismissed that would be brought here, because it's maintained that Korea, through its court system, provides an adequate system. Now, if I were a trade lawyer, and I had the choice of going to a Korean court or going to a panel of other trade lawyers who that day, instead of being advocates, were arbitrators, I think I would clearly prefer the arbitrator panel.  But that doesn't mean that's what is in the best interest of the American public.…And the fact that the United States has yet to have a ruling against it, I think has to be considered against the backdrop of the fact that the trade lawyers who are the arbitrators in these panels are well aware of what the impact would be if the United States did lose a major decision.

Ms. Lee.   …If you look at the trade agreements, investors have a privilege that no other group -- not a union, not a non-governmental organization -- has, to challenge whether the other party to the agreement is living up to its obligations or not. We have talked a lot about whether unions, for example, should have the right to sue another government if it is not in compliance with a labor chapter, and whether we would have the opportunity to bypass our own government, so that we wouldn't have to convince our government to bring that case.  Everything but the investment language in the trade agreement is adjudicated on a government-to-government basis. I think it creates a huge imbalance in the trade agreements, certainly, if you give one group, private investors, the right to sue. Even in the context of the bilateral investment treaties, it creates an imbalance between private companies and governments.  Governments have an obligation to protect the interests of their citizens.  They have a democratic process for determining the level of regulation, whether it's public health or the environment.

Bailouts and the prudential exception

Dr. McDermott.  And that same thing, then, could be happening with our bail-out money to banks.  If there is some creative lawyers in some countries, we may wind up, our $700 billion bail-out of our banks -- Mr. Stumberg?

Ms. Menghetti.  I think that's not the case.  I mean, in 2004, one of the very big innovations put into our model BIT was this prudential carve-out--that governments have the right to take measures, precisely financial measures, if they need to, for prudential reasons.The bail-out that we have seen, the TARP, has not been discriminatory.  I don't see any allegation that it has come close to violating anything our government has committed to.

Mr. Stumberg.  The question about the prudential carve-out was raised in Ambassador Kirk's confirmation hearing.  It's a two-sentence exception.  The first sentence says nothing in the agreement should stop a government from taking prudential measures.  The second sentence says that governments may not take advantage of the exception, if to do so would avoid their obligations under the agreement.  It appears to be self-canceling.  Or, perhaps it creates a burden of proof in favor of the investor and against the government. That is the kind of question I am trying to raise to your attention, where I am not arguing that there shouldn't be investor protections.  I am saying that these are very complex agreements.  We learn as we go.  And every time we anticipate a new factual scenario, we should take advantage of it.  We should be prudent and manage future risk, and do things like tighten the screws on that prudential exception.

Recent refinements in expropriation and minimum treatment standards

Dr. McDermott.  ….So, I want a system of trade agreements that does not trump the common good, whether it is in Honduras or the United States.  And I would like to hear from you what you think we ought to do with this issue.

Mr. Stumberg.  Let me limit my answer to the two most important investor protections.  Recall earlier what you were talking about America's defense team and the offense team.  The defense team is a crack squad of lawyers at the U.S. State Department, and they successfully defended the California measures in the Methanex case, which we should all celebrate.…  They won the Methanex case, and they got the arbitrators to adopt the following one-sentence conclusion about the scope of expropriation.  May I read it to you?  I am proposing this as yet a further improvement. "As a matter of general international law, a non-discriminatory regulation for a public purpose, which is enacted in accordance with due process, and which affects the foreign investor, is not deemed an expropriation.''  That is more protective of the public interest than even the crafted language that Mr. Posner was talking about before.  I would submit that idea as the best the State Department's lawyers have accomplished: it is the high water mark of clarity in an arbitral decision. And then, with respect to the other investment protection, the minimum standard of treatment, the so-called substantive due process issue, the brief of the State Department's lawyers in the Glamis case is a masterpiece. Unfortunately, it is a long masterpiece.  But if you look at page 221, you will see that --

Chairman Levin.  It is long.

Mr. Stumberg.  You will see that definition --

Dr. McDermott.  I will have my staff write down, "221".

Mr. Stumberg.  And I will leave it for you.  The customary international law treatment of aliens, which the State Department lawyers have, in scholarly fashion, illuminated in a way that is a logical, tight and unambiguous definition. It is tighter, more clear, and less risky than even the improved language in the draft Panama and Korea -- free trade agreements.So, I would submit page 221 of the brief of the State Department is the United States government's lawyers' best guidance on how to clarify this investor protection.

The End of Anti-Dumping in Brazil

Just temporarily, I assume:

Brazil froze all investigations of dumping practices by other countries after a presidential decree in October prohibited the tax agency from sharing information, Trade Minister Miguel Jorge said.

About 70 probes cannot be completed without data such as the amount of goods imported and the price paid, Jorge told reporters in Brasilia. Brazil’s tax agency halted the exchange of sensitive data days after President Luiz Inacio Lula da Silva issued the decree on Oct. 5, Jorge said.

“It’s a collapse,” Jorge said. “Without data from the tax agency we can’t investigate.”

...

Brazil currently has 69 anti-dumping retaliatory measures in place, the second highest number in the world, Jorge said. The suspended probes involve products such as cement from Mexico and Venezuela and shoes and magnets from China.

LSE post in International Economic Law

For those who don't receive these things via the normal channels, it might be helpful to circulate this announcement of an additional post in International Economic Law via this blog. With thanks to Simon for the service -  

 

http://www.jobs.ac.uk/job/ABZ348/lectureships-in-law/ 

Lectureships in Law

London School of Economics and Political Science - Department of Law

£40,323-£46,710 pa inclusive

The Department of Law at the London School of Economics was rated as the best law department in the country by the Research Assessment Exercise 2008. To support our undergraduate and postgraduate teaching programmes and to strengthen our research profile, we are now seeking to appoint at least two lecturers in Law.

For these posts, we invite applications from candidates with teaching experience and evidence of a strong research potential in one or more of the following areas: International Law (preferably International Economic Law), Torts, Employment Law and IT Law.

You will contribute to the scholarship and intellectual life of the School by conducting research which will enhance the School's high reputation as a research-led teaching institution. We encourage the development of teaching at both undergraduate and postgraduate levels and all members of the Department's academic staff are expected to contribute to core undergraduate teaching.

A PhD (completed or soon to be completed) or commensurate experience is essential. Appointments will commence on 1 September 2011 or as soon as possible thereafter.

For further information about the Department see http://www/lse.ac.uk/law

To apply for this post please go to www.lse.ac.uk/JobsatLSE and select "Visit the ONLINE RECRUITMENT SYSTEM web page". If you have any queries about applying on the online system, please call 020 7955 7859 or email [email protected] quoting reference LEC/10/15. We value diversity and wish to promote equality at all levels

The closing date for receipt of applications is Monday 10 January 2011 (11.59pm, UK time). Regrettably, we are unable to accept any late applications.

Interviews will be held on 22 February 2011.

Click here for Employer Profile

 

More on Krugman's Job-Creating CVDs

Some further thoughts on Paul Krugman's suggestion that "[a] countervailing duty on Chinese exports would be job-creating."

First off, I don't think he had in mind countervailing duties imposed pursuant to the Tariff Act of 1930.  I think he just meant "slap a tariff on all products China."  The reason I say this is because a countervailing duty takes time.  You need to carry out an actual investigation of subsidization and injury.  That means you can't impose duties (and create jobs) right away, which I presume is what he wants.

But let's just assume he is talking about an actual countervailing duty imposed pursuant to all the rules. Keep in mind that you don't know for sure if there is subsidization and resulting injury until you have carried out the investigation.  I doubt Krugman has done that himself as part of his blog post, so we don't even know for sure to what extent (e.g., on what products) a CVD would be available.

But let's also assume that due to Chinese subsidies examined as part of an investigation, CVDs could be legally imposed on some products.  Let's even assume that the duties are imposed consistently with WTO rules in all respects.  How would China react to such CVDs?  Well, cause and effect may be a little difficult to ascertain here, but arguably this is how China reacted to the Tires safeguard tariffs a while back:

China announced dumping and subsidy probes of chicken and auto products from the U.S., two days after President Barack Obama imposed tariffs on tires from the Asian nation.

I suspect that the response to CVDs imposed in the circumstances envisioned by Krugman (i.e., as part of a job creation policy) would be along the same lines.

ADDED:  In response to feedback from readers, let me just mention that there is an issue as to whether Chinese "retaliation" in this way would constitute a violation of DSU Article 23.1.  I did a post a while back which mentioned this issue in another context:  http://worldtradelaw.typepad.com/ielpblog/2009/09/the-tires-tariffs-chinas-response.html  Clearly, China cannot "seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements" without "abid[ing] by, the rules and procedures of this Understanding" (the language of DSU Article 23.1).  But they may have arguments that this is not what they are doing.