International Economic Law and Policy Blog

Trade Agreements and Regulations on Plain Packaging of Tobacco Products

Australia and Korea seem to be working hard towards a free trade agreement:

Australia and South Korea should seal a free trade agreement by the end of the year, after Julia Gillard and South Korean President Lee Myung-bak agreed yesterday to fast-track talks.

...

Mr Lee hosted the Prime Minister in Seoul yesterday, greeting her as a friend, holding her hand and lauding the special relationship between them.

"It makes me feel as if I have known you for a very long time," he said after welcoming Ms Gillard with a warm embrace.

Ms Gillard emerged later, saying she and Mr Lee had agreed to press for a swift conclusion to the FTA talks.

"I will be instructing Australia's trade negotiators to work to this timetable (the end of the year)," Ms Gillard said. "A comprehensive high-quality FTA is good for both of us. Trade means jobs for both of our nations."

One issue that might get in the way is Australia's proposed regulations on plain packaging of tobacco products:

Drastic plans by Australia to become the first country to enforce plain packaging for cigarettes could cut smoking rates, and are likely to be emulated by Canada, New Zealand, and Britain, reinforcing Australia's record as a world leader in antismoking measures.

The Australian government has announced draft legislation to outlaw all logos, colors, brand imagery, and promotional text from cigarette packets. The move will “take away the tobacco industry’s final capacity to promote its product,” says John Daube, professor of public health at Curtin University’s Institute of Public Policy in Perth.

...

Under Australia’s plan, all cigarette packets will be a drab olive green – the least appealing color, according to research – and covered in health warnings. The brand name will appear in a standard font and position on the box, which “will now only show the death and disease that can come from smoking,” says Health Minister Nicola Roxon. 

Korea's tobacco industry is not happy with these regulations, and has raised the issue in the context of the possible FTA:

Korea’s tobacco farmers are planning to hold a rally protesting the Australian government’s moves to reduce the country’s cigarette market. 

The farmers claim the action limits Korean exports unfairly as the countries discuss a free trade agreement.

The Korea Tobacco Growers Cooperative Association, KTGCA, demanded yesterday that Australian Prime Minister Julia Gillard, who will be arriving today to discuss a possible free trade agreement, withdraw proposed plain packaging regulations.

...

The official said that for a company trying to enter a new market already dominated by global companies such as Philip Morris, limiting package design completely blocks its chances of selling in the market. 

Korean tobacco farmers said that a comprehensive ban on tobacco advertising already in place in Australia has made it difficult for new brands to enter the new market, and the additional antismoking measures will make things worse.

That last bit is interesting.  Clearly, plain packaging hurts sales of all tobacco products.  But who does it hurt most?  Unknown, prospective new entrants, or established incumbents?  The Korean farmers are assuming it hurts new entrants, but I wonder about that.  Would appealing packaing by the new entrants really be able to unseat the familiar designs of the incumbents?  Or would the incumbents' familiar packaging hinder the progress of new entrants?  Perhaps the new entrants are better off with a system where customers can't tell the difference between packages, and base their decisions only on price.

Either way, though, all producers will no doubt lose sales.  More here, including a sample picture of what plain packaging might look like.

Finally, here's a letter from the ICC criticizing Australia' plain packaging measure: http://www.iccwbo.org/uploadedFiles/BASCAP/Statements/Letter%20-%20Australian%20Trade%20Minister_plain_packaging.pdf   

The Scope of the MFN Standard

When it comes to non-discrimination, National Treatment gets most of the attention.  But MFN can be interesting, too.  Here's a passage from the U.S. third participant submission in the EC - Fasteners appeal:

24. A number of WTO rules explicitly recognize that, in the context of AD and CVD proceedings, products from one Member may be treated differently from those of another Member.  For example, and as discussed above, Ad Note 2 to Article VI:1 of the GATT recognizes that dumping comparisons with domestic prices may not be possible in economies in which State interference is pervasive.  Similarly, China’s Accession Protocol provides that a dumping comparison using costs or prices in China is not required unless and until investigated Chinese firms show that market conditions exist in the industry.  Thus, various provisions of the WTO agreements provide for situations in AD and CVD proceedings where products from one Member may be treated differently from those of another Member, without contravening the obligation in Article I:1 of the GATT 1994.

What is the scope for treating different Members differently without violating GATT Article I:1?  We may get some guidance from the Appellate Body soon.

The Latest on the Seals Dispute

From last week's DSB meeting, where the panel for Norway's complaint was established:

Norway said it was of the firm view that the EU seal regime was inconsistent with WTO rules.

The EU believed that the WTO was not an appropriate forum to discuss Norway’s concerns and added that the seal regulation fell within the scope of the European Economic Area agreement. The EU said that Norway provided no meaningful explanation regarding why the EU’s measures were inconsistent with WTO rules. The EU said it was strongly convinced of the strength of its case and stood ready to defend its measures.

Canada said it had long made efforts to ensure that the seal hunt was humane, well managed and sustainable and hoped that the dispute would cast meaningful light on a measure it considered being unjust and unnecessary.

Namibia stated that the exploitation of seals along its coast dated back to the 17th century. Namibia said that there were 25 colonies of seals along its coast and that their harvest was done according to the Marine Resources Act of 2000 and in the presence of a fishery inspector. Namibia noted that the seal industry was very important in terms of employment and GDP contribution to its economy.

Iceland said that this dispute was not just about seal products but was also related to the sustainable utilization of all living marine resources and the right to market the products coming from such legitimate practices. Iceland added that there were no justifiable grounds for the EU’s ban.

New Appellate Body Members Needed

From last week's DSB meeting:

The DSB chair, Ambassador Johansen (Norway), announced that the first term of two Appellate Body members, Ms Jennifer Hillman and Ms Lilia Bautista will expire on 10 December 2011. Under article 17.2 of the DSU, Appellate Body members are appointed by the DSB for a 4 year term, renewable once.

The DSB chair said that neither Ms Bautista nor Ms Hillman will seek a second term. Therefore, the DSB would be required to take certain action with respect to these appellate body positions.

The DSB chair announced that this issue will be on the agenda of the next meeting (24 May 2011).

What Remand Might Look Like in WTO Dispute Settlement

From the draft negotiating text on dispute settlement (Word doc), released last Thursday by the WTO, here's the section on remand:

17.12(b)           Where the Appellate Body finds that there is not a sufficient factual basis to complete the analysis with respect to certain issues, it shall in its report provide a detailed description of the [types of] findings that are required to complete the analysis with respect to those issues. 

With more details here:

[Article 17bis

Referral Procedure

1.         Where the Appellate Body has identified certain issues according to paragraph 12(b) of Article 17, [a complaining party] [the party who advanced the particular claim or defence to which the unresolved issue relates] may refer [such] [that] issue[s] to the panel.

2.             The referring party shall make the referral before the adoption of the Appellate Body report.  It shall do so in writing and shall identify the specific issues it seeks to have addressed by the panel as well as the relevant paragraphs in the Appellate Body report.  The referring party shall address the referral to the panel and shall notify the DSB thereof.

3.             The panel may examine only those issues with respect to which the Appellate Body has expressly found that there is not a sufficient factual basis to complete the analysis, and that [a party to the dispute][the referring party] has identified in accordance with paragraph 2.

4.             The panel shall make such findings and recommendations, in accordance with the [guidance][description] provided by the Appellate Body pursuant to paragraph 12 of Article 17, as will assist the DSB in making its rulings and recommendations.

5.             As a general rule, the panel shall circulate its report within 90 days after the date of referral of the matter to it.  When the Panel considers that it cannot provide its report within 90 days, it shall inform the DSB in writing of the reasons for the delay together with an estimate of the period within which it will provide its report.

6.             If a party appeals the report of the panel, Article 17 and Article 17bis apply to Appellate Body proceedings and the adoption of the Appellate Body report.]

In the original text, there are shaded parts that reflect proposed changes by the Chairman, but it was too much of a hassle to reproduce them in this post, so see the original for the full details. 

The Impact of Exchange Rates on Trade

From Canada's Financial Post:

... The data is clear that Canadian consumers can save major bucks if they head south of the border to buy their goods.

A Bank of Montreal study released this month looked at a basket of goods and found on average Canadians were spending 20% more here on the same items that could be found stateside. With the dollar at par and now above, the discrepancy is clear.

Canadians have figured it out because spending in the U.S. has lurched ahead over the last year, according to Visa Canada. The credit card company says visitors spent $9.2-billion in the U.S. in 2010, more than triple of any other nationality, and an 18% jump from 2009.

As Mr. Wiginton found out, the savings can be huge when you get to the big ticket items.

“Buying a car in the U.S. was a bit of challenge because there is so much to figure out to do that,” says Mr. Wiginton, who looked for a car manufactured in North America that would be covered by the North American Free Trade Agreement and therefore not subject to duty. “I paid $18,000 and change for a $26,000 car. There was no HST at the time, so I just had to pay GST, there were no other fees.”

Is the WTO Gambling Dispute Back?

For selfish reasons, I kind of hope so.  It was a lot of fun to watch, and I've missed it the past couple years.  This Reuters article suggests it may be on its way back:

The United States violated global trade law by shutting down Internet gambling sites based in Antigua and elsewhere and prosecuting their owners, according to Antigua and Barbuda officials considering action in the World Trade Organization.

Antigua and Barbuda, which licenses Internet gambling companies, has waged a long battle in the WTO over U.S. efforts to keep Americans from patronizing offshore betting sites. Last week's shutdown of the three biggest online poker sites has the Caribbean nation ready to go another round.

It contends U.S. crackdowns against foreign betting sites are illegal and protectionist, since gambling for money is permitted in U.S. casinos and since online betting is allowed for state-regulated horse racing in the United States.

...

Antigua says its betting operators have every right to offer their services to American consumers, and the WTO has agreed.

It ruled in 2005 that the United States violated international agreements on trade in services by prosecuting the operators of offshore Internet gambling sites. The WTO rejected the U.S. argument that the restrictions were necessary to protect public morality.

Antigua claimed it was losing $3.4 billion a year because of the U.S. ban, but the WTO put the figure at $21 million. In 2007, it said Antigua could retaliate by suspending that amount annually in intellectual property rights held by U.S. firms.

Government officials from the Caribbean nation are meeting this week to discuss whether to go back to the WTO to seek more sanctions against the United States because of the poker shutdown.

Over at the Conglomerate blog, law prof Christine Hurt has some details on the U.S. prosecutions: http://www.theconglomerate.org/2011/04/the-sdnys-war-against-online-gambling.html

More on Donald Trump's Trade Policy

I'm not sure it's worth the effort to talk much more about Donald Trump's trade policy, but some of his recent statements raise an issue that applies beyond just his particular trade views.  The Wall Street Journal article noted in the last post says the following: 

As for foreign policy, Mr. Trump said he is "only interested in Libya if we take the oil," and that if he were President, "I would not leave Iraq and let Iran take over the oil." He remains sharply critical of the Chinese, asserting that as President, "I would tell China that you're either going to shape up, or I'm going to tax you at 25% for all the products you send into this country.

Expanding on the Iraq oil point, he has also said this:

The US-led invasion of Iraq in 2003 cost the Pentagon an estimated $1bn a week and led to the death of at least 4,447 US military deaths. In compensation, Trump said, the military should seize the country’s oil fields and funnel off the profits.

“We go into Iraq. We have spent thus far, $1.5 trillion. We could have rebuilt half of the United States. So, in the old days, you know when you had a war, to the victor belong the spoils,” he said.

“You’re not stealing anything. You’re taking - we’re reimbursing ourselves - at least, at a minimum, and I say more. We’re taking back $1.5 trillion to reimburse ourselves.”

So, his main two issues are:  (1) he wants to seize Iraq's oil, and (2) he wants to impose a 25% tariff on China (in order to stop their currency manipulation).

Leaving the merits of taking over Iraq's oil fields to other blogs, let me just point out that there is an inherent tension between his two policies.  If he really wants to take over Iraq's oil fields, he is going to need to convince the rest of the world to go along with this.  China, of course, is an important part of the rest of the world.  If he is busy threatening them with a 25% tariff, they are not likely to be very accommodating.

This is all pretty obvious, I think.  But it also gives broader insights into why there is so much tough talk about China's currency manipulation, and so little action.  There are a decent number of fairly smart and reasonable people who think China is doing something "wrong," in some sense, with its currency policies.  (Of course, other smart and reasonable people disagree.)  There are also many people who scream loudly that China is doing something wrong, and perhaps aren't quite so reasonable.  When you combine these two groups of China critics, there's a lot of support for taking action against China.  Nevertheless, despite all the efforts of both groups, no action is ever taken.  A big part of the reason is the same as with the tension Trump will face:  Trade is not the only policy goal.  As long as the U.S. has other policy goals where it needs China's support, it won't push too hard on trade.

Of course, there is some possibility that a President Trump really wouldn't care what the rest of the world thought about anything and would simply seize the oil and impose the tariff.  The reality, though, is that he probably would care, and would not act much differently than current and past Presidents on these issues.  Pretending not to care about the rest of the world may play well in a Presidential primary, but it doesn't work so well when you eventually have to deal with rest of the world.

Donald Trump as U.S. Trade Rep

Dan Drezner critiques Donald Trump's views on trade policy and Iraq:

From the Wall Street Journal: 

As for foreign policy, Mr. Trump said he is "only interested in Libya if we take the oil," and that if he were President, "I would not leave Iraq and let Iran take over the oil." He remains sharply critical of the Chinese, asserting that as President, "I would tell China that you're either going to shape up, or I'm going to tax you at 25% for all the products you send into this country."

"I'm all for free trade, but it's got to be fair trade," he said. "China has taken advantage of this country for a long time." Regarding the $300 billion he said China stands to make from trade with the U.S. this year, Mr. Trump said, "What's protectionism? ...I want to be protected if that's the case." As for pending trade deals with Colombia, Korea and other countries, he said he would only sign them if they were the right deals for the U.S. "If it's a bad deal, I wouldn't sign it," he said.

Here's a fun little project for the commenters:  predict what would happen to the global political economy if, in fact, President Trump seized all of Iraq's oil reserves and slapped a 25% tariff on Chinese exports.  Hint:  I don't think it ends well. 

As for the trade deals, given that almost all of Panamanian and Colimbian exports come into the United States duty-free, I'm dying to hear how the Donald is going to improve upon them. 

Trump has been even more over the top than usual lately, which has been somewhat amusing.  For the trade world, what would be even more fun is if Trump himself were to serve as the U.S. Trade Representative. Here he is from 1999 suggesting just that:

Denouncing United States trade policy, Mr. Trump promised to appoint himself as the nation's trade representative, saying he would have no trouble serving both in that post and as president. He then attacked the current holder of the job, Charlene Barshefky. ''Who is she?'' demanded Mr. Trump. ''I never heard of her!''

More on the New Zeroing

As discussed in a number of posts on this blog, "zeroing" is under attack in various ways at the WTO and in domestic courts.  But even if these attacks succeed, as noted here "targeted dumping" may become the new way to use "zeroing" as part of an anti-dumping investigation.  Here's more on this new form of zeroing in relation to a wood flooring anti-dumping case:

U.S. engineered wood flooring manufacturers have alleged certain producers in China are performing "targeted dumping," or selling a product in the U.S. at a lower price to certain customers or in certain regions than they do to other customers. The Coalition for American Hardwood Parity (CAHP) made the allegations in a petition to the U.S. Department of Commerce (DOC) on Tuesday.

The new allegation comes in anticipation of a preliminary ruling from DOC in its ongoing antidumping investigation of engineered wood flooring from China. The allegation could result in DOC using a different methodology to determine its antidumping duty, according to a CAHP release.

Jonathan Train, president of the Alliance for Free Choice & Jobs in Flooring (AFCJF), a group opposed to the implementation of antidumping duties, says CAHP's petition is an attempt to "find a backdoor loophole" to permit DOC to use an antidumping duty methodology known as "zeroing." With zeroing, Train said, DOC bases its antidumping duty determination "only on the dumped sales, ignoring the non-dumped sales and excluding non-dumped sales from its averages." In turn, zeroing artificially and inaccurately increases antidumping duties, Train said. He added that zeroing has been largely discredited by the World Trade Organization (WTO), of which the U.S. is a founding member.

Jeff Levin is counsel for CAHP and, citing the attorney-client privilege, would not say whether his organization is pursuing DOC to use zeroing in its antidumping duty determination; however, he did say his group's latest allegations "were filed in full accord with the controlling statute and regulations." He added, "… We trust that the Department of Commerce will employ appropriate and applicable methodologies in its calculations of estimated dumping margins."

Is "targeted dumping" just another way to use "zeroing," by excluding various non-dumped sales?  Is it legitimate in some cases, but in need of oversight to make sure it is not abused as a "zeroing" substitute?  What will U.S. courts and the WTO dispute settlement process say about the specific implementation of targeted dumping?

Australia, the TPP and Investor-State

As noted in the last post, Australia has announced that it no longer wants any part of investor-state dispute settlement.  This is not a total surprise, of course, given its past opposition to investor-state in the U.S.-Australia FTA.  Nonetheless, such a strong and formal renouncement of investor-state is noteworthy.  Not wanting U.S. investors to bring complaints against the Australian government under the U.S.-Australia FTA was one thing.  Abandoning investor-state altogether in future trade agreements with any and all countries -- even with developing countries, where Australia would presumably be the main beneficiary -- goes much further.

So what does this mean for investor-state provisions in the Trans Pacific Partnership (TPP)?  The countries who are part of the negotiations are Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam.  If Australia opts out of investor-state in the TPP negotiations, how will the others approach the issue?  Presumably, the provisions can be drafted so that they apply only to the other countries involved.  So, you could just have an investor-state mechanism that applies to everyone but Australia.  Is there any precedent for this kind of country limit on investor-state participation?  I'm not aware of it, but it shouldn't be too hard to work out the necessary provisions.

One key question:  Will any of the other countries be influenced by Australia's change in view?  The U.S. is almost certain to maintain its current position.  Will any of the other countries involved get cold feet now as a result of Australia's decision?  Of interest here is the position of New Zealand. New Zealand has been back and forth a little.  At one point, they seemed maybe to want to avoid investor-state, although the latest statement on the matter seems to indicate they are pro-investor-state.  But will the views of their good friends the Australians affect them?

As a final point, I'm curious about what makes Australia different from other countries.  In most rich countries, there seems to be a good deal of opposition to investor-state among various advocacy groups. Despite this, however, the dominant position within the government in these countries favors investor-state (although there is sometimes a vocal minority opposed).  How did the anti-investor-state position prevail in Australia? This would be an interesting topic for a paper, if anyone is looking.

Australia and Investor-State

Via Luke Peterson, I see that Australia, in a recent Trade Policy Statement, has come out firmly against investor-state dispute settlement in trade agreements:

Some countries have sought to insert investor-state dispute resolution clauses into trade agreements.  Typically these clauses empower businesses from one country to take international legal action against the government of another country for alleged breaches of the agreement, such as for policies that allegedly discriminate against those businesses and in favour of the country’s domestic businesses.

The Gillard Government supports the principle of national treatment – that foreign and domestic businesses are treated equally under the law.  However, the Government does not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses.  Nor will the Government support provisions that would constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses.  The Government has not and will not accept provisions that limit its capacity to put health warnings or plain packaging requirements on tobacco products or its ability to continue the Pharmaceutical Benefits Scheme.

In the past, Australian Governments have sought the inclusion of investor-state dispute resolution procedures in trade agreements with developing countries at the behest of Australian businesses.  The Gillard Government will discontinue this practice.  If Australian businesses are concerned about sovereign risk in Australian trading partner countries, they will need to make their own assessments about whether they want to commit to investing in those countries.  

Luke's article notes the following:

Jonathan Bonnitcha, a doctoral candidate in law at Oxford University, and the co-author of one of several dozen submissions made to the Australian Productivity Commission last year, says that it is important to note that the Australian Productivity Commission could find no compelling economic rationale for the inclusion of investor-state arbitration mechanisms in its trade and investment agreements. As reported by IAReporter last year**, a draft report of that same Commission had generated a flurry of debate as to the merits and rationale of investor-state arbitration provisions, and lead to a final report wherein the Commission concluded that there were few clear benefits, and several worrying risks, associated with such provisions.

On Bonnitcha’s view, the government’s new policy may be explained more by the Commission’s failure to find an economic justification for a core plank of Australia’s trade policy, as by concerns that Australia will be sued by foreign investors.

I found this point interesting, as it relates to my post from the other day about measuring the benefits of trade agreements.  As I said there, you don't see much economic analysis of trade agreement provisions other than tariff/quota reductions.  It appears that for Australia, this lack of analysis provided a reason to move away from investor-state.

The Airbus AB Report: Perhaps Coming Soon

Reuters reports:

The WTO appellate body is expected to issue its decision in the Airbus case in late April, although decision dates frequently slip at the WTO.

I haven't seen that from any official source, though.

Measuring the Benefits of Trade Agreements

Writing about why Colombia might want to sign an FTA with the U.S., Phil Levy -- responding to a blog post by Clyde Prestowitz -- says:

... it may seem a bit odd that a country like Colombia would devote so much time and effort to negotiating the agreement and seeking its passage without even bothering to assess the country's current market access terms. And yet, how else can we explain their behavior? What could they be thinking?

One radical approach would be to ask. A couple years back I did just that in the wake of the implementation of the U.S. FTA with Peru. There are important differences between Peru and Colombia, of course, but both enjoyed substantial access to the U.S. market under the same preference programs (Andean trade preferences). I conducted a series of interviews in Lima with those who were instrumental in negotiating the agreement, with academics, and with leaders in key sectors such as pharmaceuticals and textiles.

As one might suspect, they were fully aware of U.S. preference programs and the rules governing market access. However, they had observed that the programs were being renewed for shorter and shorter time periods. They feared that one day, in the midst of Congressional squabbling, the preference programs might be allowed to lapse. They were prescient: in February of this year, Andean trade preferences did lapse. Peru's access is secure. Colombia is left out in the cold. (USTR Kirk and Secretary of State Clinton issued a call yesterday for a reauthorization of these preference programs. Whether and when that will happen will depend on the broader untangling of the trade agenda impasse).

A far more important lesson of the study, though, was that concerns about U.S. tariff levels were not the principal driving force behind Peru's push for an FTA with the United States. The Peruvians were focused on attracting investment. Tariffs played a role, of course; uncertain market access served as a deterrent to investment. But issues such as investment policies, services market regulation, rule of law, and signals about Peru's commitment to economic reforms were given much greater weight. The FTA was a way for Peru to sign up to an internationally recognized set of standards for commercial behavior. As such, it paved the way for Peru to negotiate a quick series of bilateral deals with other countries in its aftermath.

...

In Prestowitz' defense, even distinguished trade analysts have fallen prey to the temptation to overemphasize the role of tariffs and market access in North-South FTAs. For example, this is the basis of Jagdish Bhagwati's attack on preferential agreements as "Termites in the Trading System." For academic trade economists, it is the equivalent of looking for lost keys under the lamppost - that's where the light is. We have good tools for analyzing tariff reductions, very few for analyzing a bolstering of the rule of law. Academic journals can favor rigor over relevance.

I've often wondered why I could not find much analysis of the economic impact of trade agreement provisions other than tariff/quota reductions.  I'm not an economist, so I thought perhaps I wasn't looking in the right places.  But Phil Levy knows where to look, and he can't seem to find anything either.

So why isn't there more analysis of provisions dealing with issues such as regulatory expropriation, the rule of law, or intellectual property protection?  Levy suggests it is the lack of tools for this analysis, which is certainly a possiblity.  But it may also be that some economists do not see much benefit to international rules of this sort, and instead consider them to be negatives that have to be accepted in order to get agreement on the positives that result from tariff/quota reductions.  For example, see p. 279 of this link for Bhagwati's negative take on TRIPS, and p. 313 for his criticism of the Multilateral Agreement on Investment.  So perhaps the answer is that they support trade agreements generally, and don't want to draw too much attention to the parts they don't think are beneficial.

The Financial Crisis and Protectionist Measures

From the abstract from a new report by Robert Wolfe:

Leaders of the G20 promised repeatedly that they would refrain from trade restrictions in response to the global financial crisis that began in 2008, and that they would minimize the negative impact on trade and investment of stimulus measures. They also promised to hold themselves accountable for this commitment using a novel transparency mechanism based in the World Trade Organization. At the same time, the Global Trade Alert set itself up as an alternative accountability mechanism. A detailed comparison first of GTA and WTO data on the number of measures each found, and second, of their ability to offer robust interpretations of the measures, allows both a check on the official story, and a consideration of how transparency can help to close the gap between commitment and action, thereby contributing to accountable global governance.

And from the conclusion:

The curious incident of the protectionist dog not barking during the financial crisis is worthy of reflection. The great collapse of trade was not due to any failings of the trading system. We can be excited by the protectionist whimpers that were heard, but the amount of trade affected, in relation to actual trade flows, was trivial. The protectionist virus, the social and economic factors that create pressures to favour “us” at the expense of “them,” are always present, but fears that the endemic virus would be unleashed in a pandemic have been overblown—so far.

As the WSJ reports, though, there may still be more crisis-related protectionism to come:

April 1 marked the start of a new financial quarter, and with it a whole new trade headache for the Obama Administration. Five new requests for antidumping duties were filed in only two days at the end of March by U.S. producers seeking protection from imports. More petitions are likely to follow, ironically enough because the economy has been improving.

The new petitions cover products ranging from steel nails from the United Arab Emirates to high-end refrigerators from South Korea. Three of the five—steel tires, steel wire and special brightening dyes—ask for duties against China in combination with other countries such as Taiwan and Mexico. All of these products allegedly have been sold to Americans at a price that's less than the cost of production. Several cases ask for antisubsidy duties, too.

The sudden uptick in such cases after a lull (only three were filed in all of 2010) is a result of the economic recovery. To win its case, an American company has to convince the U.S. International Trade Commission it has been "materially injured" by unfair import competition. That's hard to prove during a recession when most companies suffer slack sales. But filing a case now means that the three-year review period ITC examines will include both a period of poor sales at the end of the last recession plus enough of the recovery to undermine a defense argument that the pain was due mostly to the recession itself.

A Tar Sands Project in the U.S.

Tar sands oil production has been a big deal in the EU-Canada FTA negotiations.  This AP story has me thinking that NAFTA might be dragged in to this issue:

 Beneath the lush, green hills of eastern Utah's Uinta Basin, where elk, bear and bison outnumber people, the soil is saturated with a sticky tar that may soon provide a new domestic source of petroleum for the United States. It would be a first-of-its kind project in the country that some fear could be a slippery slope toward widespread wilderness destruction.

With crude prices surging beyond $100 a barrel, and politicians preaching the need to reduce America's reliance on foreign supplies, companies are now looking for more local sources. One Canadian firm says it's found it in the tar sands of Utah's Book Cliffs.

Alberta-based Earth Energy Resources Inc. aims to start with a roughly 62-acre mine here to produce bitumen, a tar-like form of petroleum, from oil-soaked sands. For decades, other Utah operators have used oil sands as a poor-man's asphalt, and Canada has been wringing oil from the ground for years, but nobody has yet tried to produce petroleum from U.S. soil on such a scale.

And it could be just the beginning. The company has over 7,800 acres of Utah state land under lease, with plans to acquire more, and estimates its current holdings contain more than 250 million barrels of recoverable oil.

"This is not just a 62-acre project that will last seven years. We are looking at a 30,000-acre project that will destroy the environment in this area over many years," said John Weisheit, a Colorado River guide and founder of the Moab, Utah-based environmental group Living Rivers.

Weisheit worries that shortsightedness and the rush to feed America's insatiable appetite for oil could trump reason at the expense of other precious natural resources.

The Bureau of Land Management says Utah has an estimated 12 to 19 billion barrels of oil buried in its tar sands, mostly in the eastern part of the state, though not all of that would be accessible.

Weisheit says if Earth Energy is allowed to mine the land, he fears others may not be far behind.

"We used hear that it's not lucrative to extract oil from tar sands unless oil prices were above $60 barrel," he said. "But now that prices have risen, we're definitely seeing companies take advantage of the situation."

Living Rivers is challenging this project's approval and contends it would dig up fragile topsoil, destroy limestone plateaus formed over thousands of years and pollute groundwater downstream that flows into the Colorado River. The group claims the Utah Division of Water Quality didn't accurately assess the potential for widespread environmental damage from the PR Springs mine. A hearing is set for May 25.

So you have a Canadian company investing in tar sands oil production in the U.S., and local environmental groups trying to prevent this.  I think I can hear the NAFTA Chapter 11 briefs being written already.

More Tobacco Talk under the TBT

More on this when the official minutes are released, but this is from the WTO web site summary of the latest TBT Committee meeting:

Brazil has introduced a new draft regulation establishing the maximum permissible levels of tar, nicotine and carbon monoxide in tobacco products, and prohibiting the use of all additives in these products (G/TBT/N/BRA/407 — notified to the WTO on 29 November 2010). 

Producers and exporters of Burley and Oriental varieties of tobacco perceive the ban on additives to be a de facto prohibition on 'blended' tobacco products (conventionally produced by blending these varieties of tobacco with a number of additives) in the Brazilian market. About 15 members said that this regulation was more trade restrictive than necessary to achieve Brazil's objective. This was particularly important for some countries, including African and least-developed countries (Zambia, Tanzania, Dominican Republic, Mozambique, Kenya), which depend on the sale of Burley and Oriental tobacco for national revenue.

Most members argued that Brazil gave insufficient scientific evidence justifying that additives made tobacco products more dangerous to health, or more attractive to consumers, especially young ones.

I've been surprised at how much talk about tobacco regulation there has been at the TBT Committee.  It will be interesting to see what impact the Clove Cigarettes DS panel (and possibly AB) decision has on these dicussions.  The panel report should be out some time this year.

The Danger of Talking about Competitiveness

From President Obama's State of the Union Speech this past January:

nations like China and India realized that with some changes of their own, they could compete in this new world. And so they started educating their children earlier and longer, with greater emphasis on math and science.  They’re investing in research and new technologies.  Just recently, China became the home to the world’s largest private solar research facility, and the world’s fastest computer.

      So, yes, the world has changed.  The competition for jobs is real.  But this shouldn’t discourage us.  It should challenge us. Remember -– for all the hits we’ve taken these last few years, for all the naysayers predicting our decline, America still has the largest, most prosperous economy in the world.  (Applause.)  No workers -- no workers are more productive than ours.  No country has more successful companies, or grants more patents to inventors and entrepreneurs.  We’re the home to the world’s best colleges and universities, where more students come to study than any place on Earth.

     ...

      The future is ours to win.  But to get there, we can’t just stand still.  As Robert Kennedy told us, “The future is not a gift.  It is an achievement.”  Sustaining the American Dream has never been about standing pat.  It has required each generation to sacrifice, and struggle, and meet the demands of a new age.

      And now it’s our turn.  We know what it takes to compete for the jobs and industries of our time.  We need to out-innovate, out-educate, and out-build the rest of the world.  (Applause.)  We have to make America the best place on Earth to do business.  We need to take responsibility for our deficit and reform our government.  That’s how our people will prosper.  That’s how we’ll win the future.  (Applause.)  And tonight, I’d like to talk about how we get there.
                                  
      The first step in winning the future is encouraging American innovation.  None of us can predict with certainty what the next big industry will be or where the new jobs will come from.  Thirty years ago, we couldn’t know that something called the Internet would lead to an economic revolution.  What we can do -- what America does better than anyone else -- is spark the creativity and imagination of our people.  We’re the nation that put cars in driveways and computers in offices; the nation of Edison and the Wright brothers; of Google and Facebook.  In America, innovation doesn’t just change our lives.  It is how we make our living.  (Applause.)

      Our free enterprise system is what drives innovation.  But because it’s not always profitable for companies to invest in basic research, throughout our history, our government has provided cutting-edge scientists and inventors with the support that they need.  That’s what planted the seeds for the Internet.  That’s what helped make possible things like computer chips and GPS.  Just think of all the good jobs -- from manufacturing to retail -- that have come from these breakthroughs.

      Half a century ago, when the Soviets beat us into space with the launch of a satellite called Sputnik, we had no idea how we would beat them to the moon.  The science wasn’t even there yet.  NASA didn’t exist.  But after investing in better research and education, we didn’t just surpass the Soviets; we unleashed a wave of innovation that created new industries and millions of new jobs.

      This is our generation’s Sputnik moment.  Two years ago, I said that we needed to reach a level of research and development we haven’t seen since the height of the Space Race.  And in a few weeks, I will be sending a budget to Congress that helps us meet that goal.  We’ll invest in biomedical research, information technology, and especially clean energy technology -– (applause) -- an investment that will strengthen our security, protect our planet, and create countless new jobs for our people.

It's a big vague, but it certainly sounds like the government will be spending a good deal of money to help American businesses compete with foreign businesses.

Now look at this passage from the U.S. - Aircraft panel report:

7.1704 The Panel considers that its analysis of the nature of the U.S. federal aeronautics subsidies at issue needs to be viewed in the context of their overall policy objectives.  Numerous statements on record demonstrate that a key objective of  these subsidies was the enhancement of the competitiveness and increase of the market share of the U.S. industry, and Boeing in particular, vis-à-vis its international competitors.

7.1705 For example, NASA's Langley Director has stated:

"The reason there is a NASA Langley and the other aeronautics centers is to contribute technology to assure the pre-eminence of U.S. aeronautics.  When Boeing brings out a flagship product like the 777, that uses as many products of NASA technology as are on this plane, it reaffirms the reason that we exist and is very gratifying to us."

... 

7.1765 A further factor that we consider to be relevant to our evaluation of whether the aeronautics R&D subsidies have caused serious prejudice to the interests of the European Communities by reason of their "technology effects" concerns the particular conditions of competition in the LCA industry.  As explained by the United States' economic consultants, NERA Consulting, the real competition between Airbus and Boeing occurs through their  respective investments in R&D to build better airplanes:  "The essence of the intense competition between Boeing and Airbus is to design and build better airplanes – improved versions of existing models as well as new models."

... 

7.1769 It is clear to us that the conditions of competition in the LCA industry are such that a subsidy that enhances an LCA manufacturer's ability to develop innovative technologies for application to its aircraft will potentially give rise to a significant competitive advantage to that manufacturer.  

...

7.1773 The Panel concludes that the aeronautics R&D subsidies contributed in a genuine and substantial way to Boeing's development of technologies for the 787 and that, in the light of the conditions of competition in the LCA industry, these subsidies conferred a competitive advantage on Boeing. …

...

7.1797 In conclusion, the Panel finds that the effect of the aeronautics R&D subsidies is a threat of displacement and impedance of European Communities' exports from third country markets within the meaning of Article 6.3(b) of the SCM Agreement, with respect to the 200-300 seat wide-body LCA product market, and significant lost sales and significant price suppression, within the meaning of Article 6.3(c) of the SCM Agreement with respect to that product market, each of which constitute serious prejudice to the interests of the European Communities within the meaning of Article 5(c) of the SCM Agreement.

(emphasis added)  It definitely seems that talk about competitiveness can come back to hurt you later on in a WTO subsidies dispute.

First Conference of the African International Economic Law Network

Tomer emails me with this:

"On May 5-6 the Nelson Mandela Institute at the University of the Witwatersrand in Johannesburg will host the first conference of the African International Economic Law Network. This will be a special event, hopefully
launching a genuine regional network of interested academicians and practitioners in the region."

The program is here.

The CAFC and Inconsistent Zeroing

Last Thursday, the U.S. Court of Appeals for the Federal Circuit (CAFC) issued its decision in Dongbu Steel, saying, in essence, that the Department of Commerce can't take an inconsistent approach to zeroing -- no zeroing in investigations, but zeroing in administrative reviews -- without a good reason.  Here are some key excerpts.

First, some background:

Commerce has previously argued that the relevant statutory provision compels zeroing.  This court has opined that the statutory text applicable to both investigations and administrative reviews—namely the term “exceeds” in 19 U.S.C. § 1677(35)(A)—is sufficiently ambiguous to defer to Commerce’s decision of whether or not to use zeroing in both stages of its antidumping procedures.  

...

Commerce has now decided to stop using zeroing in investigations to comply with international treaty obligations while continuing to use it in administrative reviews.  Surely, under appropriate circumstances, Commerce may change its position as to whether to apply zeroing. ... The circumstances here, however, present a unique twist because Commerce’s compliance with international treaty obligations has lead it to interpret a single ambiguous statutory term inconsistently during different phases of an antidumping duty assessment, i.e., using zeroing for administrative reviews but no longer using zeroing for investigations.  The issue presented in this case is whether Commerce is entitled to deference when it interprets 19 U.S.C. § 1677(35) inconsistently. 

In a nutshell, the CAFC has made clear in the past that Commerce has the discretion to use zeroing, but is not required to. But now Commerce has stopped using zeroing in one situation, yet still uses it another.

In response to Commerce's approach, the appellant argued that:

it is unreasonable under  Chevron for Commerce to construe the identical statutory provision—19 U.S.C. § 1677(35)—to have opposite meanings in investigations and administrative reviews where (1) nothing in the statutory language indicates that different interpretations were intended and (2) this court has rejected the claim that the meaning of § 1677(35) depends on the stage of the antidumping proceeding.  

In this regard, during the proceedings before Commerce, the appellant had "submitted a letter to Commerce on January 11, 2007 challenging Commerce’s decision to continue using zeroing in administrative reviews after abandoning its use in investigations.  Commerce rejected the letter as untimely."

The Court of International Trade "sustained Commerce’s final results" and held that "Timken and Corus I did not foreclose Commerce’s inconsistent use of zeroing in administrative reviews and investigations." 

In the CAFC appeal, the CAFC explained that:  "The central question here is whether it is reasonable for Commerce to use zeroing in administrative reviews even though it no longer uses this methodology in investigations."  On this point, the CAFC said:  "We have indicated that an agency action is arbitrary when the agency offers insufficient reasons for treating similar situations differently."  The CAFC concluded as follows:

Commerce’s final determination does not contain any rationale for its inconsistent interpretations due to the procedural way in which the issue was raised.  Oral Argument at 15:13-15:33.  Recognizing this deficiency in the record, the government proffers a single explanation for Commerce’s inconsistent interpretation:  The methodology for investigations was changed in response to an adverse WTO report though the  Section 123 Determination.  Basically, the government concedes that “it’s the same statute, the same provision, the same issue to be determined in both initial investigations and administrative reviews,” but the government has made the determination to implement a WTO decision with respect to investigations.  ...

...

... the political branches’ decision to comply with the WTO ruling only as to investigations does not mean that it is lawful to give inconsistent constructions to the same statutory language.  Rather, Commerce’s interpretation of the statute must comply with domestic law including reasonably interpreting statutes.  Chevron, 467 U.S. at 842-43.  In other words, the government’s decision to implement an adverse WTO report standing alone does not provide sufficient justification for the inconsistent statutory interpretations.  ...

...

Applying Chevron step two to this ambiguous statute, we conclude that the agency has not provided a reasonable explanation for why the statute supports such inconsistent interpretations.  ...  We accordingly vacate the decision of the Court of International Trade and remand for further proceedings to give Commerce the opportunity to explain its reasoning.  It may be that Commerce cannot justify using opposite interpretations of 19 U.S.C. § 1677(35) in investigations and in administrative reviews.  Under such circumstances, Commerce is of course free to choose a single consistent interpretation of the statutory language.  ...

So now it's over to Commerce to come up with some reasons for the inconsistent interpretation. [ADDED - Or to stop zeroing in reviews, thus removing the inconsistency.]

See Roger Alford's post here for more.

Trade in Everything: Public School Students

From the AP:

Northern Maine is 7,000 miles and a world away from China, but that's not stopping a school superintendent from recruiting Chinese students to attend public high school in this remote mill town.

Faced with declining enrollments and shrinking revenues, public school districts from Maine to California are seeking out students from overseas, particularly China, to attend their high schools. At least two public schools in Maine have 10 tuition-paying Chinese students in classes this year, and the superintendent in Millinocket is the latest to set his sights on China.

Call for Papers on "The Intersection Between Litigation and International Commercial Arbitration"

Call for Papers on "The Intersection Between Litigation and International Commercial Arbitration":

Gary Born will give the keynote address at a symposium entitled “Border Skirmishes:  The Intersection Between Litigation and International Commercial Arbitration,” to be convened at the University of Missouri School of Law on October 21, 2011.  A works-in-progress conference and a student writing competition is being organized in association with this event, and the University of Missouri School of Law is issuing a call for papers and proposals.  

• Proposals for the works-in-progress conference are due by May 20, 2011, with responses anticipated in mid-June.  The works-in-progress conference will be held at the University of Missouri on October 20, 2011, the day before the symposium itself. 

• Papers for the student writing competition are due August 15, 2011, with the winning paper announced at the symposium.  The winner will receive a $300 prize sponsored by the Chartered Institute of Arbitrators (CIArb) North American Branch and may have his or her paper published in the Journal of Dispute Resolution as part of the symposium edition.    

The symposium brings speakers from Canada, Austria, Switzerland, the United Kingdom and the United States together to discuss complex issues relating to international dispute resolution.  Submissions for the works-in-progress conference and student writing competition should therefore bear some relationship to international commercial arbitration, transnational litigation or the connection between the two.

More information about the works-in-progress conference, the student writing competition and the submission process is available at the symposium website, located at:  http://www.law.missouri.edu/csdr/symposium/2011/.  Submissions and questions should be directed to Professor S.I. Strong at [email protected].  Registration for the symposium itself will open shortly.

 

Trade Law Research Project

These two short-term research projects may be of interest to this blog's readers:

Post: Legal researcher (2)

Pay: £11,900

Work completed by: 16 September 2011

The Clean Trade project is based on the premise that the citizens of each country have the ultimate right to control the natural resources of their country. As common Article 1 of the human rights covenants states, “All peoples shall, for their own ends, freely dispose of their natural wealth and resources.” Yet the people of the world’s worst authoritarian and failed states have no way to control their territory’s oil, metals and gems. Clean Trade aims to stop the authoritarians and militias in these countries from enriching themselves by selling off what are, essentially, stolen goods.

Clean Trade has received a substantial grant from the Leverhulme Foundation for research on two distinct areas of its policy framework.

1. A legal researcher with expertise in WTO/GATT regulations and recent dispute resolution is required. Part of the Clean Trade framework recommends imposing duties on imports from trade partners who buy natural resources from the worst authoritarians and militias. The researcher will write a brief setting out the strongest case for these duties in response to a challenge in the WTO. GATT Article XX will be one foundation for this case; further strategies for defending against a challenge may also be explored.

2. A legal researcher with expertise in conflict of laws, and knowledge of public international law, is required to write a guide for lawyers wanting to bring Clean Trade legal actions. The aims of these actions will be (a) to pressure international resource corporations not to deal with the worst actors in exporting states; and (b) to pressure governments to impose trade sanctions on the worst regimes. The guide will extrapolate from recent cases to catalogue promising approaches to litigation, especially in the UK / US / EU. The Alien Torts Statute in the US will define one approach; others strategies may be based on ‘ill-gotten gains,’ financial loss to shareholders, corporate pillage, state complicity in a second state’s human rights violations, etc.

Candidates should be accustomed to doing independent work. The two researchers may, if they wish, also choose to work collaboratively. The results of the research will be checked for quality by experts in the respective areas of law.

More information on the project:        wenar.info/CleanTrade.html

Please submit a cover letter and c.v. by 18 April 2011 to:      [email protected]

Interviews will be held in London in late April / early May.

 

GATT Article XX and Domestic Production of Environmental Goods

From an article (subscription only) describing the Columbia panel discussion mentioned here: 

China could plead environmental necessity to win a dispute over its wind industry subsidies, a case now moving through the World Trade Organization, one legal expert suggests.

Provisions under Chinese law mandating that nearly all wind power equipment be purchased from China for projects to be eligible for state financial support are facing a WTO challenge by the United States.

The domestic content requirement that helped China build a wind industry at the expense of foreign firms does, on the face of it, seem to violate WTO rules against such protectionist measures, experts say. But the WTO panel and appellate body have explicitly shown in the past that they will allow exceptions for environmental protection.

And if Beijing could convince the trade body that the domestic content requirement is necessary to help curb global climate change, the WTO board may toss out the U.S. complaint, said Robert Howse, an international law professor at New York University and an expert on international trade law.

"I think in China's case in particular, there might be a plausible argument, which is that China's demand for clean energy is so enormous that it would be irresponsible for China not to take measures to ensure it has an adequate domestic industry in this area," Howse said.

The law professor admitted that his judgment is speculative at best -- China hasn't yet publicly stated what its defense of the foreign product block is. But given the rules in the various international treaties the WTO governs that allow for exceptional state support for efforts on environmental problems, China's trade negotiators may be looking for loopholes among those provisions, he said.

...

Howse acknowledges that the facts of the case as known so far don't lend credence to this argument. "I think it's fair to say that under the subsidies agreement, there's a reasonable prima facie case that China will have violated that agreement," he said.

However, he argued the Chinese authorities may be able to keep the support for domestic manufacturers in place and continue to block imports of wind equipment from the United States and Europe if they can prove there's a compelling environmental reason for the subsidies.

It would amount to China proving that the climate change problem is so huge that it requires the country to develop a complete domestic wind industry supply chain that doesn't have to rely on foreign inputs to tackle rapidly growing greenhouse gas emissions rates.

"China has good grounds, environmental grounds, for wanting to ensure its security of a domestic supply of alternative energy technologies in the future," said Howse.

The argument seems to be that in order to achieve a particular policy goal (i.e., environmental protection), there needs to be domestic production of the product at issue (wind power equipment).  Therefore, protectionist measures which encourage that domestic production are justified.

I've often wondered how this kind of argument would do.  Can it ever be the case that protectionism used to develop domestic production would be considered "necessary" to protect human, animal or plant life or health under GATT Article XX(b), or "related to" the conservation of exhaustible natural resources under Article XX(g)?  And if it were, would this be "arbitrary or unjustifiable" discrimination under the Article XX chapeau?  Are the circumstances Rob describes (the size of the climate change problem) sufficient to satisfy Article XX?