International Economic Law and Policy Blog

The Trump Administration Takes on the WTO

A new Executive Order on Trade Agreement Violations and Abuses is coming soon (I haven't seen the official document yet). An explanation by Commerce Secretary Wilbur Ross at a press briefing is here.  I have some thoughts on what Ross said.  Here's how he started off:

SECRETARY ROSS:  Thank you.  It’s me again.  (Laughter.)  I notice the audience is dwindling.  I hope that's due to Friday rather than to the speaker.  But in any event, this is the executive order addressing specifically violations and abuses under existing trade agreements.  So that's what differentiates it from some of the earlier ones that we had.  This is focusing more narrowly on the agreements themselves.

Now, not all of the free-trade agreements that we have result in deficits.  But some of the larger ones also result in some of the larger deficits.  In all trade relations with companies, other than free-trade companies, are governed by the WTO, the World Trade Organization.  So that's really the grandparent of all trade arrangements that we have.

And as far as I can tell there has never been a systematic evaluation of what has been the impact of the WTO agreements on the country as an integrated whole.  So it’s trying to find violations and abuses.  It calls for a report within 180 days.  But this particular report, it calls for not just outlining the problem or problems, but also proposing the solutions -- alternative solutions to them.  

So that's the guts of it.  Now, why?  What is it really all about?  I think everyone here is generally aware that we do have a big trade deficit.  It’s some $700 billion -- not counting our trade surplus in services, just counting the trade deficit in goods; and it’s $500 billion, counting the trade deficit in -- after netting out the benefits of the exported services.  So that's the general parameters.

This order involves the Department of Commerce and the U.S. Trade Rep jointly to conduct that review.  

And so maybe it would be useful to you to hear where are some of the big deficits so that you can put it into perspective.  China alone is the number-one deficit.  It’s $347 billion.  This is on the goods part alone.  So the base is $700 billion.  And China is 47.2 percent of that.  

Japan is next at $68.9 billion, which is 9.4 percent.  

Germany, $64.9 billion -- 8.8 percent.  I might point out that Germany doesn't negotiate separately trade agreements.  It negotiates them as part of the European Commission.

Mexico, which is obviously part of NAFTA, $63.2 billion, or 8.6 percent. 

Ireland, $35.9 billion, 4.9 percent -- also part of European Commission.

Vietnam, $32 billion, 4.3 percent.  

Italy, again, part of the EU, $28.5 billion, 3.9 percent.

South Korea, $27.7 billion.  We do have a free-trade agreement with South Korea.  And that's 3.8 percent of the problem.

Malaysia, $24.8 billion, 3.4 percent.  

India, $24.3 billion, 3.3 percent.  

So that's the top 10 of the agreements.  But for the most part, as you can tell from that, the largest portion is with the countries that are really just covered by WTO rules, as opposed to countries that are covered by individual free-trade agreements.

What are some of the problems under WTO?  Its 160-some-odd countries are participants in the WTO, and the vast majority of those are countries that export to us, and in most cases, export more than they buy from us.  

Clearly, the Trump administration is very concerned with trade deficits for goods. Most economists think their emphasis on bilateral deficits, trade in goods (to the exclusion of services), and on trade deficits in general is misguided. But nevertheless, this is important to them. I'm not sure how a trade policy that focuses so heavily on trade deficits in this way can function, but we'll find out soon enough.

He then says:

The U.S. only has 20 free-trade agreement partners, and that’s a very small number.  Those of you who have been at some of the earlier briefings know Mexico, for example, has more than twice as many free-trade agreements by number as we do, and has them with the most important areas, such as the European Commission, which we do not have.

So it’s anomalous that the U.S. with its huge trade deficit has relatively fewer free-trade agreements than do much smaller countries like Mexico.  And I think that points out one of the issues with our current relationship with the World Trade, namely Mexico and others have had very big external tariffs on many, many goods.  U.S. is the least protectionist country.  Many goods come in totally free, and others have little, tiny tariffs, like 2.5 percent.  Countries like Mexico frequently have 15, 20 percent, even more than 20 percent tariffs.  

The implication of that is, when they negotiate a free-trade agreement with another country, they can give something important to that country by way of tariff relief.  If we, for example, only have a 2.5 percent tariff on autos, and no tariff on steel, what is it that the other country gains by making a free-trade agreement with us?

So in a weird way, the fact that we have been so free-trade oriented historically actually impedes our ability to make new free-trade agreements.  And that’s something that I don’t think is very well understood, so I think it would actually do your readers a very good service to point out to them that the fact that we have made so many unilateral concessions impedes having more free-trade agreements with other countries.  It’s an oddity of the way that we’ve behaved in the past.

Is the U.S. really the least protectionist country?  I would have though it was one of the least protectionist countries, but not the least protectionist.  Also, I'm not sure it is less protectionist than other developed countries by all that much.  Anyway, it would be interesting for someone to study this and come up with a good ranking of countries in this regard.

It's an interesting idea that our lower tariffs might hurt us in getting other countries to lower their tariffs as part of a trade negotiation.  That doesn't seem to have been the case with NAFTA.  I wonder, though, whether another factor here is all the demands the U.S. makes on other countries in areas unrelated to protectionism.  If we did not push so hard on labor, the environment, intellectual property and investment protection, could we have convinced other countries to lower their tariffs more?

Here's Ross again:  

The other thing about it, the President has talked a lot about reciprocal concept; namely if we have a country that has big trade barriers against us, we should logically have similar trade barriers against them.  And if there’s a country that has relatively few barriers against us, we should have relatively few against them.  

The only problem is, the World Trade Organization has what’s called a "most favored nation clause," meaning that of all the countries with whom we do not have a free-trade agreement, we must charge the same tariff on the same item to those -- each of those countries as we charge to the others.  So that’s a significant impediment toward getting to anything like a reciprocal agreement.

This statement is puzzling, given GATT Article XXIV and GATS Article V, which allow countries to negotiate bilateral or regional trade agreements.  Ross alludes to this when he says "all the countries with whom we do not have a free-trade agreement."  What actions does he think MFN prohibits?  If he means that we can't charge tariffs that match other countries' tariffs (e.g., the U.S. could charge 5% on Mexican imports, 10% on Brazilian imports, or whatever amount matches those countries' levels) outside the context of an FTA, I suppose that's true.  But the WTO tariff levels themselves are negotiated: We agreed to all of these tariff levels.  That's what led to the different tariff levels for different countries, not the MFN clause.  And if we want the tariffs to match up (that is, U.S. tariffs should be at the same level as those of each trading partner), aren't FTAs the answer?  NAFTA does a pretty good job of getting almost all U.S., Canadian and Mexican tariffs to zero.  In other words, we all charge each other the same tariffs (with a couple exceptions).  That's both trade liberalizing and reciprocal, which should make people from both camps happy.

More from Ross: 

The second thing is the WTO doesn’t really deal very much with non-tariff trade barriers, and it doesn’t deal very effectively with intellectual property rights, and doesn’t deal very much effectively with the whole digital economy.  So there are some real gaps within it. 

In my view, the WTO deals with non-tariff trade barriers better than any other agreement. Think of all the GATT Article III, TBT, and SPS cases, for example.  Have any other trade agreements been anywhere near as effective in addressing such barriers?  Now, there is talk about going further in some agreements (the TTIP comes to mind), with some mutual recognition and other cooperation.  But that's hard, and my impression was that it was the U.S. who was resisting this in the TTIP. 

The WTO also does a lot with intellectual property rights, although not as much as some FTAs.  As for the digital economy, the WTO does not do much; the TPP would have gone the furthest here.  (What happened to the TPP again? Oh, right). 

Now it's on to the WTO dispute process:

But there are those problems that I mentioned, then there’s also the structural problem of the dispute resolution mechanism.  Takes a very long time, and given the composition of the WTO panels, often we’re defeated when people come and appeal it.  Because if the people on the panel are mostly people who are doing the same thing as what you’re complaining about, it’s a little bit hard to get them to vote for you.

He should check the WTO dispute statistics, which show that the U.S. mostly wins when it brings complaints, and loses when complaints are brought against it (just like every other country).  So I don't think there is really an issue with the U.S. getting panelists or Appellate Body Members to vote for it.

But regardless, they will be proposing some changes here.  Note that he first says "panels," but then he mentions "appeal."  Which one is he most concerned about here?  I'm not sure.  He specifically refers to "composition" of the panels. Of course, DSU Article 8.3 limits the participation of Americans as panelists in disputes involving the U.S., as it says that "[c]itizens of Members whose governments are parties to the dispute or third parties as defined in paragraph 2 of Article 10 shall not serve on a panel concerned with that dispute, unless the parties to the dispute agree otherwise."  (As an aside, while the indicative list of panelists does not have much correlation to people who actually serve as panelists, a former intern of mine named Christina Woo put together this cool table of Americans on the indicative list since the GATT era. The Obama administration never appointed anyone, and the list has kind of been frozen in time. Will the Trump administration take a look at this?)

As for the Appellate Body, the U.S. has already made appointments to the Appellate Body a big deal.  Will this issue get bigger somehow?  I think I'd rather see the Trump administration propose some substantive changes, for example to the standard or review, then to mess around with the Appellate Body itself.

And then there's the WTO more broadly: 

So those are just a few illustrations of the kinds of issues that we’re liable to come up with and try to figure out some solutions.  Also, WTO is a very, very bureaucratic organization.  Their main meetings occur four times a year.  Well, when you think about how dynamic trade is and how rapidly it changes, the idea of a leisurely four-times-a-year meeting schedule, it’s really not very consistent with dealing with problems.

When you check the full schedule of all the meetings undertaken at the WTO each year, it is anything but leisurely.  In fact, it's kind of exhausting!

And finally this:

And then the last thing -- if you look at the last annual report that the WTO published, it’s filled with complaints that there are more trade actions, more actions alleging violations than there used to be.  And they lament that as protectionist.  It apparently doesn’t occur to them that perhaps the cause of it is more violations by more countries.  But that’s the reality.  That’s why the trade actions are being brought, is that there’s more and more dumping all over the place, but there’s an institutional bias on their part toward the exporters rather than toward people who are being beleaguered by inappropriate imports.

There's been a debate about this in the past. I'm not sure the WTO is saying all of these measures are protectionist. As I read it, they are just saying, here are all the trade restrictions. Be aware of them, because some might be protectionist (although I think they could be clearer about this). 

As for "inappropriate imports," there really needs to be a conversation about this at the WTO.  What exactly is the "dumping" that some people consider harmful?  What is the best way to address subsidies? We have rules, but they are vague, and people do not agree about what they should say or how they should be interpreted.

Then there was also some Q & A with Ross, which you can check out at the link.

So there you have it.  I'm confident the WTO will survive this, but it will be an interesting next couple of years.

Annual Conference on WTO Law, 9 & 10 June, 2017

Georgetown Law and the Graduate Institute, Geneva, are hosting the Annual Conference on WTO Law on June 9 & 10, 2017, in Geneva, Switzerland.

The full conference program is now available here. Please see the website for additional details, and how to register, here.

The EU-Singapore FTA ECJ Opinion

On May 16, the ECJ will issue its opinion on the EU-Singapre FTA.  In anticipation of that, here's a new paper on the case from David Kleimann:

On December 21, the Court of Justice of the EU (CJEU) published the legal view of CJEU Advocate General (AG) Sharpston as part of the Opinion 2/15 proceedings.1 AG Sharpston’s opinion responds to the question to the Court of whether the EU has the ‘requisite competence’ to conclude the EUSingapore Free Trade Agreement (EUSFTA) alone and without including the Member States (MS) as independent parties to the treaty. The Commission had requested the Court’s opinion on this matter pursuant to Article 218(11) TFEU in October 2014. 2 More specifically, the Commission asked the Court to clarify which parts of the EUSFTA fall within the realm EU exclusive competence; competences shared with the member states; or even MS exclusive competences, respectively.3 In her submission to the Court, Advocate General Sharpston argues that certain parts of the EUSFTA fall under EU shared competence – including certain transport services, portfolio investment, labour rights and environmental protection obligations - whereas one provision, in her view, falls within the scope of exclusive competence of the member states. According to AG Sharpston, the EUSFTA hence ought to be concluded as a ‘mixed agreement’ by the EU and its member states independently. The Court is expected to issue its opinion on May 16 of this year. Against this background, this note aims at reviewing the constitutional fundamentals of the questions that are at stake in this important proceeding and outlines the practical implications of the Court’s judgment.

This paper is divided in two parts. The first part scrutinizes the relevant methodological approaches and standards of analysis, which the Court employs in its response to the Commission’s competence enquiry. Based on the examination of relevant case law, it is argued that the Court retains ample space for discretionary judicial decision-making, which surfaces in the delimitation of the substantive scope of the Common Commercial Policy; at the intersection of the competence enquiry and the necessary legal basis analysis; as well as in the Court’s reading of implied powers. It is desirable, against this background, that the Court renders its choice of analytical parameters and benchmarks transparent – or: inter-subjectively verifiable - so as to advance systemic clarity in regard of the unresolved question over the delimitation of EU external competence for the CCP and other external policies beyond the specific issues addressed in Opinion 2/15. It is in this way that the Court could profoundly minimize the legal-institutional incentives for future litigation and inter-institutional political battles over both external competences and the appropriate legal bases for external economic treaty making.

With these methodological considerations in mind, the second part of this paper examines key aspects of the legal view of Advocate General Eleonor Sharpston and points at contentious issues that may still be subject to further clarification by the Court. Using the legal view of Advocate General as a benchmark, this note discusses the practical implications of the Court’s judgment for EU international trade and investment treaty-making. Finally, the paper proposes a number of institutional alternatives that may serve to ‘save’ EU external economic treaty-making from ‘mixity’ and the pitfalls of the associated treaty-making procedures in the EU and the member states.

Does Section 201 Still Work?

This is from Reuters:

Bankrupt U.S. solar panel maker Suniva on Wednesday asked federal trade officials to recommend new duties on imported solar products to combat a global oversupply of panels that has depressed prices and made American producers unable to compete.

The company, which was founded in Georgia but sold a majority stake to Hong Kong-based Shunfeng International Clean Energy (1165.HK) in 2015, filed a rare Section 201 petition with the U.S. International Trade Commission nine days after seeking Chapter 11 bankruptcy protection.

 

...

Under Section 201, Suniva must convince the ITC that the U.S. industry has suffered "serious injury" because of imports. If it does, then the Commission could recommend relief measures to the president such as tariffs or volume limitations.

President Trump would make a final decision on whether to provide relief and, if so, what type. Final approval from the president is a key difference in the Section 201 process compared with prior solar trade cases.

I know there are some people who think that Section 201 can't function under the constraints imposed by the Appellate Body, and perhaps this is why we haven't seen cases filed for a while.  This case will be an interesting test for the ITC.

If the U.S. Withdraws from NAFTA, Does the U.S.-Canada FTA Come Back?

I've been asked this question, and I'm not completely sure of the answer.  This is what a CRS report says:

An interesting question is the basis on which U.S.-Canada trade would be conducted following a withdrawal from NAFTA. Sec. 107 of the NAFTA implementing legislation “suspended” CFTA during the time that the two countries remain parties to NAFTA. It amended CFTA implementing legislation to supersede certain of its provisions while continuing other provisions. The CFTA potentially could “snap-back” into force after a withdrawal from NAFTA, but it may require the issuance of a presidential proclamation to return it into force.

And this is Section 107 of the NAFTA implementing legislation:

SEC. 107. TERMINATION OR SUSPENSION OF UNITED STATES-CANADA FREE-TRADE AGREEMENT.

Section 501(c) of the United States-Canada Free-Trade Implementation Act of 1988 (19 U.S.C. 2112 note) is amended to read as follows:

‘‘(c) TERMINATION OR SUSPENSION OF AGREEMENT.— ‘

‘(1) TERMINATION OF AGREEMENT.—On the date the Agreement ceases to be in force, the provisions of this Act (other than this paragraph and section 410(b)), and the amendments made by this Act, shall cease to have effect.

‘‘(2) EFFECT OF AGREEMENT SUSPENSION.—An agreement by the United States and Canada to suspend the operation of the Agreement shall not be deemed to cause the Agreement to cease to be in force within the meaning of paragraph (1).

‘‘(3) SUSPENSION RESULTING FROM NAFTA.—On the date the United States and Canada agree to suspend the operation of the Agreement by reason of the entry into force between them of the North American Free Trade Agreement, the following provisions of this Act are suspended and shall remain suspended until such time as the suspension of the Agreement may be terminated:

‘‘(A) Sections 204 (a) and (b) and 205(a).

‘‘(B) Sections 302 and 304(f).

‘‘(C) Sections 404, 409, and 410(b).’’

If anyone has further thoughts, feel free to offer them in the comments.

Comments of Steve Charnovitz to the Section 232 Steel Investigation

Comments on Section 232 National Security Investigation of Imports of Steel

From Steve Charnovitz, George Washington University Law School

April 26, 2017

DOC Billing Code 3510-33-P

The idea that imports of goods, services, or capital could undermine national security is farfetched.  Imports serve to supplement domestic capacity and therefore provide more options to governments and to the private sector.  Just as Benjamin Franklin taught us that no nation was ever ruined by trade, the same is generally true for national security; no nation can ruin its national security by having more supply.

To be sure, an analyst could lay out certain conditions in which a reliance on foreign imports could lead to a risk of a shortage from a foreign embargo. In such a situation, the appropriate instrument would be to stockpile the commodity as the United States has done intermittently for over a century. Another instrument would be to try to prevent supplying countries from barring exports of that strategic good to the United States.  Rules to that effect was included in the General Agreement on Tariffs and Trade (GATT) in 1947 largely due to US leadership.  In recent years, the United States brought an important case against China in the World Trade Organization (WTO) to oppose China’s export barriers on rare earths. That case hinged on China-specific WTO law.

Of all the sectors in the world economy, steel is probably the sector for which there is the smallest risk of a shortage due to reliance on foreign imports.  As Secretary Ross noted in his Press Briefing on April 20, 2017, the US domestic steel industry is “only operating at about 71 percent of capacity.” As for the availability of foreign steel, Secretary Ross explained that there was an “overcapacity” of steel in global markets.  If there is unused US domestic steelmaking capacity and a glut of foreign steel, then obviously no real security risk exists from importing foreign steel.

Section 232 is titled “Safeguarding National Security.” Section 232(b) directs the Secretary of Commerce to determine the effects on the national security of imports of the investigated article, which in this case is steel. The law also states that if the Secretary finds that steel “is being imported under such circumstances as to threaten to impair the national security, the Secretary shall so advise the President in such report.” Thus, the purpose of Section 232 is to protect US national security, not to protect particular industries that happen to be politically favored.  Of course, it is true that Section 232(b) is supplemented by 232(d) which expands the scope of the investigation to consider whether foreign competition affects the welfare of individual domestic industries in a way that could lead to a “weakening of our internal economy” that “may impair the national security.” But even here, the bottom line is that the imports have to impair national security in order to be actionable under Section 232(b).

Given the limited scope of Section 232, the unused capacity in US steelmaking, and the glut in foreign steel availability, the only justifiable conclusion from the ongoing Section 232 investigation would be that imported steel does not impair US national security.

Among the topics on which the Department has specifically requested public comments are: (h) relevant factors that are causing or will cause a weakening of our national economy and (i) any other relevant factors.  Having explained above why imported steel does not currently impair national security, I would also like to comment on those two additional relevant factors. 

First, if an affirmative finding under this study led to steel import restraints, such as tariffs or quotas, such action would be found to be a violation of GATT Articles II or XI (and possibly Article I) and would not be defensible under GATT Articles XX or XXI.  Any violation of WTO law by the United States weakens the rule of law in the global economy and cannot help but hurt the US national economy since the United States is the largest beneficiary of the open world trading system. 

Second, any downward adjustment of steel imports could also lead to retaliation by our trading partners including actions that would truly undermine US national security.  For example, should the United States ban freely traded imports of steel from China for bogus national security reasons, China could respond by being less cooperative in helping to protect the United States and our ally South Korea from attacks by North Korea.  Countries that supply critical commodities to the United States could also retaliate by withholding access to those commodities. 

In conclusion, the Commerce Department has important things to do under an Administration that has promised to make American great again.  I hope that this investigation can be put to bed quickly so that the Department can move on to solving the serious problems undermining US economic growth and job creation.

Will There Be an Executive Order on NAFTA Withdrawal?

From Politico:

The Trump administration is considering an executive order on withdrawing the U.S. from NAFTA, according to two White House officials.

A draft order has been submitted for the final stages of review and could be unveiled late this week or early next week, the officials said. The effort, which still could change in the coming days as more officials weigh in, would indicate the administration’s intent to withdraw from the sweeping pact by triggering the timeline set forth in the deal.

The approach appears designed to extract better terms with Canada and Mexico. President Donald Trump pledged on the campaign trail to renegotiate NAFTA, a trade deal signed in 1994 by former President Bill Clinton that removes tariffs and allows for the free flow of goods and supplies between the three countries in North America. Trump in recent weeks has stepped up his rhetoric vowing to terminate the agreement all together.

...

The draft executive order could be a hardball negotiating tactic designed to bring Mexico and Canada to the table to renegotiate NAFTA. But once Trump sets the withdrawal process in motion, the prospects for the U.S. pulling out of one of the largest trade deals on the globe becomes very real.

This action would probably upset pro-trade members of Congress, but I'm not convinced it would help the U.S. negotiating position much.  But anyway, let's wait and see if they do it.

Call for Papers—4th Biennial Conference and First High Level Multi-stakeholder Conference of the Africa Trade Policy Experts Roundtable

The Africa International Economic Law Network invites submissions for its 4th Biennial Conference and First High Level Multi-stakeholder Conference of the Africa Trade Policy Experts Roundtable (ATEPAR) on 8-10th November, 2017 at the University of Middlesex Mauritius Campus, Mauritius. 

For a full list of topics, and submission guidelines, please see the call for papers, here. Submissions of paper proposals are due on 31st May, 2017. 

 

Time for Trump to Get Tough With Mexico-About Tuna and Abusing the WTO Dispute System

Today, an arbitrator at the WTO awarded Mexico the right to impose trade retaliation against United States imports in the amount of 163,230,000 US. This result is the outcome of a process whereby Mexico violated its own obligations under NAFTA in suing the US at the WTO.  The case concerns a labeling scheme that enables US consumers to make animal welfare-motivated consumption decisions about tuna.  Despite Mexico's egregious abuse of WTO proceedings, and flaunting of the NAFTA, administration officials played nice: originally, a panel ruling that went against the US was upheld on narrow grounds by the WTO Appellate Body, and the US conscientiously responded to that ruling, conforming its regulations to the Appellate Body's instructions: thus the US introduced an approach that was even-handed in the way it monitored tuna-fishers' compliance with the dolphin-friendly designation on the label, applying appropriate monitoring not just in seas where Mexicans fished, but others as well.

Not to be deterred from abusing WTO processes, Mexico-even after the US had changed its regulations-restarted another WTO proceeding to try and get more than the Appellate Body gave it before. In one of the worst decisions in the history of WTO dispute settlement the Appellate Body upheld an incoherent panel report that rewarded Mexico for trying a second kick at the can, reworking a theory rejected in the earlier proceeding.

Now, again taking an aggressive posture, Mexico insists it will proceed with retaliation immediately, although the United States has further actions pending in the WTO to attempt to correct the disastrous and incoherent earlier rulings.

Why should the Trump Administration tolerate US exporters to Mexico suffering $163 million plus retaliation per annum as a consequence of Mexico's abusive bad faith conduct of this dispute?  

First of all, the text of the NAFTA is crystal clear that a responding NAFTA party has the legal right to insist that any dispute concerning environment and animal life and health be brought in NAFTA alone, to the exclusion of the WTO: 

3. In any dispute referred to in paragraph 1 where the responding Party claims that its action is subject to Article 104 (Relation to Environmental and Conservation Agreements) and requests in writing that the matter be considered under this Agreement, the complaining Party may, in respect of that matter, thereafter have recourse to dispute settlement procedures solely under this Agreement.

4. In any dispute referred to in paragraph 1 that arises under Section B of Chapter Seven (Sanitary and Phytosanitary Measures) or Chapter Nine (Standards-Related Measures):

(a) concerning a measure adopted or maintained by a Party to protect its human, animal or plant life or health, or to protect its environment, and

(b) that raises factual issues concerning the environment, health, safety or conservation, including directly related scientific matters,

Previously, the US was unable to block Mexico from pursuing a dispute at the WTO in violation of these provisions of NAFTA because there is no explicit basis in the relevant WTO treaty law for a WTO panel declining jurisdiction on the grounds that the complaining State has an obligation under a different treaty to bring the case exclusively to the forum stipulated in the non-WTO treaty. While in previous litigation related to this issue at the WTO, estoppel-type arguments were raised to address this gap in the treaty law, none succeeded on the facts of those particular earlier disputes. Still, one may question why, although the US did object to the Dispute Settlement Body striking a panel in these circumstances (and obviously failed), US trade officials did not try and emphatically to make the case for abuse of process before the panel itself.  

But what the Trump Administration has to do now is to pursue vigorously a case against Mexico under NAFTA Chapter 20 dispute procedures for violation of its choice of forum obligations.  The clear remedy would be the immediate cessation of the retaliation that  Mexico won from bringing suits before the WTO in violation of those obligations.  If Mexico doesn't stop retaliating, then under NAFTA 2019 the US could suspend benefits of equal commercial effect.

Of course, such a dispute could take several years; in the mean time the US suffers the injury of trade restrictions being imposed by Mexico that originate in the internationally wrongful act of bringing a case to the WTO in violation of its NAFTA obligations.  NAFTA Ch. 20 does not allow for interim or provisional measures in this kind of situation, and NAFTA 2004 seems to require that the US go through the NAFTA dispute settlement procedure as means of redress for a NAFTA violation-so without that ruling, Trump could probably not legally impose countermeasures on Mexico for its violation of NAFTA.  However, to the extent that US investors or investments in Mexico suffer economic harm from Mexico's retaliation against the US they may have a claim for damages under Chapter 19 of NAFTA, through investor-state arbitration for a violation of fair and equitable treatment or MFN, for example. Given the integrated supply chains across the US-Mexico border, Mexico would have to be very careful in trying to avoid forms of retaliation that have a negative economic impact on "investments" or "investors", broadly defined categories in NAFTA.     

 

 

  

How Will Trump React to the Tuna/Dolphin Dispute?

A WTO arbitrator ruled today that Mexico can retaliate in the Tuna/Dolphin dispute:

7.1. For the reasons set out above, the Arbitrator determines that the level of nullification or impairment of benefits accruing to Mexico as a result of the 2013 Tuna Measure is USD 163.23 million per annum. Therefore, in accordance with Article 22.4 of the DSU, Mexico may request authorization from the DSB to suspend concessions or other obligations as indicated in document WT/DS381/29 at a level not exceeding USD 163.23 million per annum.

Obviously, the imposition of this retaliation needs DSB authorization first. Also, there is an Article 21.5 panel that will rule soon on whether the subsequent U.S. compliance measure is consistent with WTO rules, which would, I think, de-authorize the retaliation.  But let's assume that Mexico moves forward now with the process of imposing $163 million of authorized retaliation against the U.S. imports.  How will the Trump administration react?  You can imagine that some people in the administration will not be happy about it.  But you can also imagine that some people in the administration would be excited to have an excuse to repeal the regulation in question. Presumably the Mexicans are aware of this, so maybe it's possible that this dispute does not get splashed across the headlines as the lumber tariffs currently are, and the parties quietly work out an agreement behind the scenes.

ADDED: To clarify, I mentioned the possibility of "repealing the regulation," but I recognize there is a court ruling on these issues as well, so the Trump administration will not have unlimited discretion.  But they may be eager to look for creative ways to ease the regulatory burden on all the private actors involved.

Things Wilbur Ross Said About U.S. - Canada Trade

Here are a couple statements by Commerce Department Secretary Wilbur Ross on U.S. - Canada trade issues.  First this: 

It has been a bad week for U.S.-Canada trade relations. Last Monday, it became apparent that Canada intends to effectively cut off the last dairy products being exported from the United States. Today, in a different matter, the Department of Commerce determined a need to impose countervailing duties of roughly one billion dollars on Canadian softwood lumber exports to us. This is not our idea of a properly functioning Free Trade Agreement.

The point about Canada cutting off dairy products has to do with ultrafiltered milk, I think, but as I understand it, that's a complicated situation of a government program interacting with private sector pricing decisions.  What we may see is a WTO claim with elements similar to the famous Canada - Dairy case.

As for the CVDs on lumber, I'm sure the Canadians also feel that this is not their idea of a properly functioning trade agreement.  I've always thought that the only way to resolve the lumber subsidies dispute is for the U.S. to bring an SCM Agreement claim against the Canadian lumber programs, and let the WTO DS process weigh in directly.  Instead, we get these recurring CVD (and dumping) cases, which then get struck down at the NAFTA and WTO level, without actually resolving anything.  A finding that the DOC acted improperly in a particular case does not address the underlying issue. 

Speaking of NAFTA, Ross also said this: 

One of the peculiarities with NAFTA, one of the very bad features, is that often the panel turns out to be three Canadians and two Americans. So you have this strange situation of foreign nationals deciding whether or not the Commerce Department properly applied its rules

Obviously, he is talking about Chapter 19 here. The question is, does he want to get rid of it entirely, or just change the process for choosing panelists? 

Trump's Lumber CVDs: Don't Panic!

The Department of Commerce has made a preliminary determination of countervailable subsidies on imports of softwood lumber from Canada.  This is from the fact sheet:

Commerce calculated preliminary subsidy rates for five mandatory respondents: for Canfor Corporation, 20.26 percent; for J.D. Irving, Limited, 3.02 percent; for Resolute FP Canada, Ltd., 12.82 percent; for Tolko Marketing and Sales Ltd. and Tolko Industries Ltd., 19.50 percent; and, for West Fraser Mills, Ltd., 24.12 percent. Commerce established a preliminary subsidy rate of 19.88 percent for all other producers/exporters in Canada.

Before anybody panics, keep in mind there was a preliminary determination on subsidized Canadian lumber back in August 2001, where DOC calculated a single country-wide subsidy rate of 19.31%.  So, while there are a lot of possible upcoming trade actions by the Trump administration to worry about, this one seems to be the usual, routine kind of trade remedy action.  Not that I support this sort of thing, of course, but it's part of the system.

Moving Trade into the 21st Century: Towards a More Inclusive Trade Agenda?

This is a guest post by Markus Wagner, and is cross-posted from EJIL: Talk!

International organizations sometimes publish general reports – in addition to the usual annual versions – about their work and the future of their remit. Such reports invariably have a theme and are done when these organizations or the work they carry out has come under challenge. In 2005, on the occasion of the WTO’s so-called Sutherland report, Armin von Bogdandy and I found that:

“[a] perception of institutional crisis is pervading international organizations. One evermore fashionable response by the administration of an affected organization is to entrust a group of eminent persons to consider its future. Perhaps not surprisingly the resulting report calls for a politically feasible strengthening of that organization for which it provides good grounds.”

Early April saw the release of a – much less frequent – joint report by the World Bank, the International Monetary Fund, and the World Trade Organization, entitled Making Trade an Engine of Growth for All. The motive for the report is best interpreted as responding to a problem that is fundamental enough to warrant such an unusual step: the increasing calls for and a turn to more inward-looking economic policies. The Trump administration’s protectionist rhetoric and actions (see here, here and here) are the prime example for this development, with Brexit – despite assertions to the contrary: think Global Britain – serving as another.

The circumstances surrounding the release of the report also lead to the conclusion that it is designated to respond to the growing trend of inward-looking economic policies: it took place a) just prior to the 2017 Spring Meetings of the IMF and the World Bank Group, and b) in Berlin which the Financial Times’ Shawn Donnan called the “new capital of global free market liberalism”. The policy differences between the proponents and opponents of multilateralism are now clearly at display: Chancellor Merkel and the leaders of the IMF, the World Bank, the ILO, and the WTO have called for increasing trade policy cooperation and coordination, with the stated goal to not only curb protectionism, but also in order to reduce inequality and combat climate change. US Commerce Secretary Wilbur Ross on the other hand denied that US policies were protectionist (calling warnings of protectionism – ostensibly geared towards the US and other countries – “rubbish”).

The Trump administration policies and Brexit are the most visible manifestations of perceived political solutions to the discontent with the current globalized and interdependent economic system. The report itself recognizes that the public attitude towards trade is not as favorable as they used to be (paras 21-23). While it does not explicitly say so, it is worth noting that the three institutions have recognized that economic inequality is one of the main drivers of this discontent and that their past policies were – or at the very least were seen to be – partially responsible for this discontent.

The report touches on a number of issues, ranging from the long-term trends and benefits of trade, the interplay between trade and (domestic) adjustment (policies), to the need for a stronger rules-based trade regime. It is this last part that this post will focus on by analyzing the sometimes subtle, but important changes in direction that the report advocates as well its shortcomings.

The overall narrative of the report is such that the policies of trade liberalization championed by the three institutions since the end of WW II have resulted in a period of expansion of world trade at an “unprecedented historical pace” (para. 5). The institutions’ policies, indeed their very raison d’être, such as open markets, increased trade integration and competition, efforts to curb protectionist policies, “good governance” and fiscal discipline have come under intense scrutiny. But the report also contains remarkable language – at least for the institutions involved: it recognizes that globalization provides positive effects only where the appropriate domestic policies, including “social protection policies” (page 33), are in place so as to lead to a more equal distribution of gains.

The section entitled “Building Stronger Rules-Based Trade” (page 37 et seq.) reiterates the centrality of a strong WTO as opposed to a more fragmented trading system characterized by preferential/regional trade agreements or bilateral arrangements. By doing so, it picks up ideas put forth by Robert Hudec & John Jackson that the “power-based” GATT has been replaced by a “rules-based” WTO system. It rightly points out that a “core set of rules, a strong enforcement mechanism, and a common forum for cooperating on policy and sharing information” assists in “[reducing] overall levels of trade distortions, including conventional trade measures, subsidies, and other forms of state support” (para. 72). This echoes long-standing WTO principles: reducing tariff and non-tariff barriers (para. 69), promoting competition, “reassuring the public that international trade is evenhanded” and that “rules-based trade integration is critical to share trade benefits more widely” (para. 64). Such statements are a direct response to efforts of the Trump administration to pursue a more protectionist trade and fiscal agenda.

But beyond the orthodox ideas discussed above, the report broaches – although it may not break – new ground. It mentions new forms of services (mainly in conjunction with digitization) without however stating what reforms – beyond a need for rules to be clarified or enhanced – would be needed (para. 70). An area that is marked as a “frontier area” for trade reform is investment. The report explicitly argues for linking trade and investment more closely and for a more coherent policy approach in light of global supply chains (para. 71). The report would have benefited from further clarification of this point: should efforts be made to bring investment genuinely (beyond the TRIMS Agreement) under the purview of the WTO? The report does not provide any details about the extent to which, or how, this could happen. It does not mention a range of PTAs that have incorporated both trade and investment chapters over the last years and whether these developments were the impetus for the renewed effort of integrating trade and investment policies. In addition, there has been considerable debate about the current state of investment law in general, and investor state dispute settlement in particular (see here, here, here and here). It is also worth noting that there is considerable pushback by developing countries at the moment against recent efforts within the WTO to develop rules on investment facilitation.

Finally, the report puts forward pathways for the WTO to retain its relevancy as a negotiating forum. It proposes conducting negotiations on narrower issues similar to the Trade Facilitation Agreement or the Information Technology Agreement (para. 74). Beyond that, it recommends thinking further about a more plurilateral approach to negotiations (aka variable geometry) within the WTO, without however suggesting areas in which this may be fruitful (para. 75).

While there are a number of positive elements in the report, it contains shortcomings and omissions. The first is its economics-centered focus. While impressive, the bibliography contains only a very small number of sources that are from non-economists. Eg, the only identifiable legal academic’s work cited is one that deals with political economy rather than law. This wouldn’t be an issue – and could quite easily be shrugged off as a quibble by a member of an academic community yearning for greater recognition – if the report made suggestions of, or at least hint at, how trade and investment policies could be intertwined (never mind rules implemented); how health, the environment, and equality could be reconciled with trade or investment liberalization (para. 67 of the report is – to use the words of the Appellate Body in EC – Hormones – “not a model of clarity in drafting and communication”); what the extent of regulatory autonomy of governments should be without losing sight of a minimum degree of universality of rules; how consumer or citizen welfare can become more of a direct focus for the WTO rather than producers or exporters; or whether the structural design of the current system of international economic governance could be enhanced/reformed to contribute to achieving these goals. It is rather unfortunate – and a missed opportunity – that the report relegates the important discussion on poverty and developing countries to an annex. The five paragraphs devoted to Annex A reiterate the potential positive role of trade to assist in reducing poverty (paras 82-95, see eg para. 84: “Although causality is hard to establish, this fact pattern suggest (sic) that openness promotes poverty reduction by accelerating growth.” Emphasis in original.) and the need for sound domestic institutional arrangements (para. 86). What is missing is an acknowledgement of the obstacles developing countries are facing when trying to compete with developed country producers in eg the agricultural sector.

Both political science and legal literature are replete with discussions of these issues. Given the interdisciplinary nature of international economic relations it would be more useful in the future to include a broader set of disciplines in the formulation of such important reports. Overall, Making Trade an Engine of Growth for All is a cautious step in the right direction, away from well-trodden orthodoxy. In that sense, it serves the purpose of preserving the importance of the three institutions involved in its drafting. The report recognizes that the trade (and investment) liberalization paradigm can function for a wider swath of the global population only if cushioned by domestic policies (and even that is contested, see here). This is evidenced by statements such as “[t]rade and trade-related policies have a role to play not just in promoting growth and prosperity, but helping to share that prosperity more widely” (para. 81). But it stops short of recognizing that the institutions of global economic governance themselves have opportunities to do more to achieve greater equality.

Would Section 232 Duties on Steel Violate the AD Agreement?

This is from President Trump's remarks announcing a Section 232 investigation on steel:

This investigation will look at how steel imports are impacting the United States national security, taking into account foreign practices such as steel dumping.  Dumping is a tremendous problem in this country.  They're dumping vast amounts of steel in our country, and they're really hurting not only our country, but our companies.  Their targeting of American industry and other foreign strategies designed to undermine American industry as a whole.  

And this was from the Q & A that followed:

Q    Mr. President, how will this affect your dealing with China on North Korea?  Are you concerned that this will affect that at all?

THE PRESIDENT:  This has nothing to do with China.  This has to do with worldwide, what’s happening.  The dumping problem is a worldwide problem.

But there are rules on how governments can respond to dumping. Recall that the Appellate Body said the following in the 1916 Act case:

124. Article 18.1 of the Anti-Dumping Agreement contains a prohibition on the taking of any "specific action against dumping" of exports when such specific action is not "in accordance with the provisions of GATT 1994, as interpreted by this Agreement". Since the only provisions of the GATT 1994 "interpreted" by the Anti-Dumping Agreement are those provisions of Article VI concerning dumping, Article 18.1 should be read as requiring that any "specific action against dumping" of exports from another Member be in accordance with the relevant provisions of Article VI of the GATT 1994, as interpreted by the Anti-Dumping Agreement.

Is there an argument based on Trump's remarks that this Section 232 investigation is, in part, a "specific action against dumping," and one that is not consistent with GATT Article VI?

Country Influence and Success in WTO Disputes

In a new paper, Mark Daku and Krzysztof Pelc argue that certain countries have more influence than others in shaping the language of WTO panel and AB rulings:

We argue that power is most likely to be exercised at the margins. In the case of the WTO, such power can take on two forms: it can be proxied by wealth, or by capacity. The belief we want to test in each case is that more powerful countries, either in terms of wealth or legal capacity, are better able to get the court to adopt the language of their submissions in its final rulings. We begin by visualizing the variation in influence across countries in the simplest way possible. Figure 2 shows a dot plot of the average proximity of countries’ submissions to the final ruling. We consider the 15 most frequent users of dispute settlement, to avoid having countries with a single submission skewing the results. This figure makes no distinction as to the role countries were playing in the dispute, and mixes in the panel and AB stage.

This quick snapshot of influence appears to match expectations: submissions by the United States and the EU appear as most influential. In fact, US submissions appear significantly more influential than any other country. ... 

On the other hand, this doesn't seem to help them with the result: 

The premise of this article is that countries hold more influence at the margins. Put in terms of the incentives of an international court, because the content of rulings is harder to scrutinize than “who wins”, politically savvy judges are more likely to defer to country interests in the content of the ruling than in its direction. For the sake of comparison, we thus show the effects of legal capacity on the direction of the verdict itself. To do this, we code the direction of every claim in every WTO dispute from 1995 to 2013. All told, panels have delivered 1,429 findings on 820 individual claims. We first collapse these findings at the claim level, and then collapse claims at the dispute level, to obtain the number of claims won by the complainant. We divide this number by the total number of claims ruled on, to obtain the percentage of claims won by the complainant, which varies from 0 to 1; its mean is 0.74 for panel rulings, and 0.69 for appellate rulings. The results are shown in Table 4, where we estimate the odds of a pro-complainant verdict, using the same explanatory variables as in our estimation of influence.

What Table 4 shows is that capacity, however measured, does not help countries “win cases”.

Invoking National Security to Restrict Imports

From Reuters:

U.S. President Donald Trump on Thursday will sign a directive asking for a speedy probe into whether imports of foreign-made steel are hurting U.S. national security, two administration officials said on Wednesday.

Trump is to sign the memorandum related to section 232 of the Trade Expansion Act of 1962 at a White House event that is expected to include leaders of some U.S. steel companies. The law allows the president to impose restrictions on imports for reasons of national security.

For anyone who needs a refresher on Section 232, White & Case has a good summary:

Section 232 of the Trade Expansion Act of 1962

Section 232 authorizes the Secretary of Commerce to investigate whether imports pose a threat to "national security." In Section 232 investigations, the Bureau of Industry and Security (BIS) within DOC investigates the effects of certain imports on US national security. DOC is required to initiate an investigation to determine the effects on the "national security of imports" (i) upon the request of the head of any department or agency; (ii) upon application of an interested party; or (iii) on the Secretary's own motion (typically, these investigations are initiated at the request of a specific industry). The Secretary issues a report, based on which the President is authorized to negotiate agreements to limit or restrict imports, or to "take such actions as the president deems necessary to adjust the imports of such article so that such imports will not threaten or impair the national security." The statute places no limit on the nature of the restrictions or the height of tariffs.

The key requirement for action under Section 232 is a threat or impairment of "national security," which is not defined in the law or in its implementing regulations. BIS in the most recent (2001) Section 232 investigation found, based on the statutory language and congressional intent, that the standard would be met where imports of the product at issue threaten to impair US national security either: (i) "by fostering US dependence on unreliable or unsafe imports"; or (ii) "by fundamentally threatening the ability of US domestic industries to satisfy national security needs."

Historically, Section 232 has been invoked to limit imports of specific items. There have been only two Section 232 investigations since the United States joined the WTO in 1995 – on crude oil in 1999 and iron and steel in 2001 – and in both cases BIS declined to recommend that the President take action under Section 232.[15] However, Section 232 measures were imposed several decades ago. President Nixon imposed an across-the-board 10 percent surcharge program in 1971 pursuant to Section 232(b). In addition, by presidential proclamation in 1975, President Ford found that it was "necessary and consistent with the national security to discourage importation into the United States of petroleum, petroleum products, and related product...", and invoking Section 232(b), issued a proclamation to raise licensing fees on petroleum products.[16] The proclamation also imposed on all imported oil a supplemental $1 per barrel fee for oil entering the US after March 1, 1975, and a $3 fee for oil entering the US after April 1, 1975. However, following the imposition of these fees, on April 10, 1975, Congress passed the Emergency Petroleum Allocation Act of 1973 to prohibit the President from using Section 232(b) of the Trade Expansion Act of 1962 or any other provision of law to establish minimum prices for crude oil without congressional authority.

President Trump could instruct his administration to investigate the national security implications of specific imports (such as Chinese steel imports) under Section 232, but doing so would face significant legal and practical constraints. First, legal challenges to these unilateral actions are likely because such measures could contradict both past BIS practice and the original intent of the statute – indeed, it is difficult to imagine how BIS' current standard would be met today in the case of almost all globally-traded commodities. However, courts could decline to intervene given that this provision aims to safeguard national security interests, an area where courts have shown great deference to the executive branch.[17]

Second, the foreign target countries of a Section 232 action also would have recourse to bring a complaint to the WTO. In response, the US could cite to the little-used GATT Article XXI Security Exceptions, which permit a member country to depart from GATT obligations in "time[s] of war or other emergency in international relations."[18] However, the United States' use of Article XXI would be highly controversial and could encourage other WTO Members to rely thereupon, thus breeding tit-for-tat protectionism under the guise of "national security" and undermining the efficacy of WTO dispute settlement. These concerns have historically acted as a check on WTO Members' invocation of Article XXI.

Third, President Trump's use of Section 232 could have severe economic repercussions. A target country would likely retaliate with equivalent measures on US goods, similar to when China initiated retaliatory AD investigations of imports of US cars and poultry in response to President Obama's imposition of new duties on imports of Chinese tries under Section 421 of the Trade Act of 1974. This risk may be even more serious for President Trump with respect to China, for example, as the country's AD enforcement agency has become more sophisticated and experienced in bringing an increasing number of trade cases against foreign products in recent years. The emergence of such actions would not only hurt US exporters and consumers, but also likely rattle financial markets that currently expect President Trump to pursue a far less aggressive US trade policy.

Being charged by an elephant: A story of globalisation and inequality

Along with many economists and globalisation scholars, my favourite graph these days is the elephant graph. Named for its distinctive elephant-shaped curve (see below), this graph by Branko Milanovic shows the rise in real incomes for people in different income brackets throughout the world over a twenty year period of intense economic globalisation (1998 to 2008). Economists often like to tell us that free trade is good because it is a rising tide that lifts all boats. What this graph suggests, however, is that economic globalisation has produced clear winners and clear losers. This division seems to be playing an important role in explaining some of the rising nationalist and pro-protectionist sentiments we are witnessing in certain developed states, as shown by the rise of Trump and the vote for Brexit.

So who has won and lost in the age of economic globalisation? According to the elephant graph, there have been two big winners. The first are individuals who sit in the lower to middle income tiers (between the 10^th to the 65^th percentiles) who have seen their real incomes go up by between 50 and 80 percent (marked as point 1 in the graph above). Although the incomes of individuals do not correlate perfectly with particular states, the vast majority of these individuals have come from the middle classes of some of the emerging economies like China and India.

The second are the richest individuals around the world, the global top 1 percent, whose real incomes have also risen sharply during this period (marked as point 3 above). Most, though clearly not all, of these individuals come from developed states and, in particular, from the United States. The global top 1 percent remains heavily dominated by individuals from developed states. Half of the global 1 percent is made up of Americans, with 11 to 12 percent of all Americans being included in the global top 1 percent. Not only have these individuals experienced strong growth in their real incomes in relative terms but, as they started from a much higher baseline, the absolute growth in their real incomes has been even greater.

But the biggest losers, at least in relative terms, are those individuals whose incomes lie at around the 75^th to 85^th percentile point. Again, these individuals do not map neatly onto specific states, but they include a significant proportion of some of the poor and working class people of developed states like the United States (marked as point 2 above). According to Branko Milanovic who created the chart, seven out of ten people at that point are from “old rich” OECD countries. Although these individuals are still relatively wealthy when compared to global averages, they have seen their real incomes largely stagnate over this 20 year period. Compared to others who have benefited greatly from economic globalisation, many of these individuals feel left behind.

This graph provides a way of understanding two different narratives that have emerged in recent elections. A politician like Trump speaks to poor and working class voters (point 2) and says to them: America is being “raped” by China and “killed” by Mexico as a result of terrible trade deals that have ripped out the wealth of America’s middle class and redistributed it to other states around the globe (i.e., blame those at point 1). By contrast, a politician like Bernie Sanders speaks to those same disenchanted voters and says to them: the poor and working classes in America have been done over by a greedy elite while the middle class has been hollowed out by America’s failure to redistribute from the top 1 percent (i.e., blame those at point 3). One tells a story of too much international redistribution, the other a story of too little national redistribution.

As with many stories, both narratives have some truth to them and neither captures the full picture. Although the overall narrative surrounding the elephant graph is clear, the real story is – as always – more complicated. Some studies suggest that the poor and working classes in developed states have not seen their incomes go backwards, even if they have not reaped high rewards (particularly in comparison to some other groups). Factors other than economic globalisation also influence the shape of the curve, such as compostitional issues (i.e., which states are included in the analysis), demographic changes (i.e., population sizes in many developing states have grown considerably faster than in most developed states, which affects the shape of the curve), and technology (i.e., many jobs have also been lost to automation rather than to foreign workers).

Even accounting for these nuances, two points seem to remain. First, there has been a strong growth in real income for the middle classes in many developing states at the same time as there has been weak growth for the poor and working classes in many developed states. Although correlation does not equal causation, this does suggest that there is some truth to the first narrative framed above, particularly as economic globalisation makes it easier to offshore manufacturing jobs from the developed to the developing world. Second, in line with the second narrative, domestic policies play a crucial role in redressing, or failing to redress, income inequality within states. Differences in how the various income brackets have fared within different developed states (like the United States and France) speak to the importance of issues such as tax and welfare policies in redressing inequalities that might be exacerbated by globalisation. On these points generally, see here and here.

The elephant graph tells a powerful story about the relationship between globalisation and both growing equality between states and growing inequality within states during a period of intense economic globalisation. It is a story that has potentially significant domestic and international political implications. For instance, if the bottom incomes of rich states continue to stagnate while the middle incomes in various developing states continue to climb, does that mean that trade and investment treaties are likely to have ongoing destabalising effects in developed states? If a strong democracy is correlated with having a large middle class, what will the hollowing out of the middle class mean for developed states, and the burgeoning of the middle class mean for developing states? And are we at risk of creating, or cementing, a global plutocracy as the richest 1 percent surge ahead?

This story of growing equality between states and growing inequality within states is also likely to underpin many of the developments in international economic law in the coming decades. In Africa, they tell you that if you are ever charged by an elephant, you should run for cover but, if you can’t reach cover in time, you must stand your ground and face the elephant. (As someone who was fortunate to survive being charged by an elephant whilst on foot in Tanzania, I can tell you that the advice to stand your ground is even harder to follow in practice than it sounds in theory … and it sounds very hard in theory.) With the rise of anti‑globalisation sentiments in the United States, the United Kingdom and Europe, we may well see many developed states run for cover. Indeed, we have already seen Trump withdraw from the TPP, the TTIP negotiations be shelved and discussions about renegotiating NAFTA be put on the agenda.

However, many states in Asia have done well out of the last few decades of globalisation. Indeed, of the people around the median whose real incomes almost doubled during this period, 9 out of 10 of these “winners” were from “resurgent Asia.” Perhaps it should come as no surprise, then, that China has become a champion of further international economic integration and many eyes have turned to focus on the ongoing RCEP negotiations, which is the mega-regional trade and investment agreement currently under negotiation among the ASEAN states and Australia, China, India, Japan, South Korea and New Zealand. Some members of the TPP are also looking to push that deal forward without the United States. It is too early to tell how these negotiations will play out. But, given the generally more positive experiences many of these states have had with economic globalisation over the last few decades, states in the Asia Pacific seem to be more likely than others to stand their ground in the face of this charging elephant.

First posted on EJIL: Talk!

 

The Latest Trump Executive Order on Trade

... is here.  This is an excerpt:

Presidential Executive Order on Buy American and Hire American

By the authority vested in me as President by the Constitution and the laws of the United States of America, and to ensure the faithful execution of the laws, it is hereby ordered as follows:

...

Sec. 2.  Policy.  It shall be the policy of the executive branch to buy American and hire American.

(a)  Buy American Laws.  In order to promote economic and national security and to help stimulate economic growth, create good jobs at decent wages, strengthen our middle class, and support the American manufacturing and defense industrial bases, it shall be the policy of the executive branch to maximize, consistent with law, through terms and conditions of Federal financial assistance awards and Federal procurements, the use of goods, products, and materials produced in the United States.

...

Sec. 3.  Immediate Enforcement and Assessment of Domestic Preferences According to Buy American Laws.  (a)  Every agency shall scrupulously monitor, enforce, and comply with Buy American Laws, to the extent they apply, and minimize the use of waivers, consistent with applicable law.

(b)  Within 150 days of the date of this order, the heads of all agencies shall:

(i)    assess the monitoring of, enforcement of, implementation of, and compliance with Buy American Laws within their agencies;

(ii)   assess the use of waivers within their agencies by type and impact on domestic jobs and manufacturing; and

(iii)  develop and propose policies for their agencies to ensure that, to the extent permitted by law, Federal financial assistance awards and Federal procurements maximize the use of materials produced in the United States, including manufactured products; components of manufactured products; and materials such as steel, iron, aluminum, and cement.

(c)  Within 60 days of the date of this order, the Secretary of Commerce and the Director of the Office of Management and Budget, in consultation with the Secretary of State, the Secretary of Labor, the United States Trade Representative, and the Federal Acquisition Regulatory Council, shall issue guidance to agencies about how to make the assessments and to develop the policies required by subsection (b) of this section.

(d)  Within 150 days of the date of this order, the heads of all agencies shall submit findings made pursuant to the assessments required by subsection (b) of this section to the Secretary of Commerce and the Director of the Office of Management and Budget.

(e)  Within 150 days of the date of this order, the Secretary of Commerce and the United States Trade Representative shall assess the impacts of all United States free trade agreements and the World Trade Organization Agreement on Government Procurement on the operation of Buy American Laws, including their impacts on the implementation of domestic procurement preferences.

(f)  The Secretary of Commerce, in consultation with the Secretary of State, the Director of the Office of Management and Budget, and the United States Trade Representative, shall submit to the President a report on Buy American that includes findings from subsections (b), (d), and (e) of this section.  This report shall be submitted within 220 days of the date of this order and shall include specific recommendations to strengthen implementation of Buy American Laws, including domestic procurement preference policies and programs.  Subsequent reports on implementation of Buy American Laws shall be submitted by each agency head annually to the Secretary of Commerce and the Director of the Office of Management and Budget, on November 15, 2018, 2019, and 2020, and in subsequent years as directed by the Secretary of Commerce and the Director of the Office of Management and Budget.  The Secretary of Commerce shall submit to the President an annual report based on these submissions beginning January 15, 2019.

Sec. 4.  Judicious Use of Waivers.  (a)  To the extent permitted by law, public interest waivers from Buy American Laws should be construed to ensure the maximum utilization of goods, products, and materials produced in the United States.

(b)  To the extent permitted by law, determination of public interest waivers shall be made by the head of the agency with the authority over the Federal financial assistance award or Federal procurement under consideration.

(c)  To the extent permitted by law, before granting a public interest waiver, the relevant agency shall take appropriate account of whether a significant portion of the cost advantage of a foreign-sourced product is the result of the use of dumped steel, iron, or manufactured goods or the use of injuriously subsidized steel, iron, or manufactured goods, and it shall integrate any findings into its waiver determination as appropriate.

...

Sec. 6.  General Provisions.  (a)  Nothing in this order shall be construed to impair or otherwise affect:

(i)    the authority granted by law to an executive department or agency, or the head thereof;

(ii)   the functions of the Director of the Office of Management and Budget relating to budgetary, administrative, or legislative proposals; or

(iii)  existing rights or obligations under international agreements.

(b) This order shall be implemented consistent with applicable law and subject to the availability of appropriations.

(c) This order is not intended to, and does not, create any right or benefit, substantive or procedural, enforceable at law or in equity by any party against the United States, its departments, agencies, or entities, its officers, employees, or agents, or any other person.

I see a lot of assessments and reports, as is the case with many other Trump trade orders, so we'll have to wait to see where this goes. I also see that "Nothing in this order shall be construed to impair or otherwise affect: ... (iii)  existing rights or obligations under international agreements," which is good news.

When they are making their various decisions about Buy America, I hope they take into account the cost to taxpayers and the potential for proliferating Buy National policies in other countries.

Requiring Domestic Steel and Iron in Pipeline Construction

This is from a DOC notice and request for comments related to the use of domestic steel and iron in pipelines:

The Department of Commerce is seeking information on the construction and maintenance of American pipelines. This information will help the Department develop a plan for the domestic sourcing of materials for the construction, retrofitting, repair, and expansion of pipelines inside the United States as directed by the January 24, 2017 Presidential Memorandum regarding “Construction of American Pipelines” (Presidential Memorandum). The Secretary of Commerce, in consultation with relevant agencies, is required to deliver this plan to the President by July 23, 2017. In response to this directive, the Department of Commerce is conducting industry outreach to better understand: Current pipeline construction technology and requirements; potential advances in pipeline technology; domestic and foreign supply chain for pipeline materials; and all other information respondents consider pertinent to the development of the domestic sourcing plan. Responses to this notice (posted at https://www.regulations.gov) will inform the Secretary's plan for the domestic sourcing of materials used in pipelines within the boundaries of the United States.

Here are some of the comments received. The EU points out that domestic content requirements violate WTO obligations:

the EU is concerned that the plan under discussion would not comply with the US commitments in the World Trade Organization (WTO). In this respect, we would draw attention to the obligations based on the WTO agreements, in particular GATT 1994. The US Government has committed to treat imports and foreign companies the same way it treats domestic products and companies. The imposition of domestic preference requirements on private entities could be considered an introduction of discrimination between domestic and foreign producers/suppliers in potential violation of the National Treatment obligation of Art. III of GATT 1994.

Canada makes a similar point:

Specifically, a U.S. requirement for the use of domestic steel in private pipeline construction would be inconsistent with WTO and NAFTA provisions in the areas of trade in goods and investment, in particular, GATT Article III (National Treatment), NAFTA Article 301 (National Treatment), as well as the provisions of the WTO Agreement on Trade-Related Investment Measures (TRIMs) and NAFTA Article 1106:1 (Performance Requirements).  Canada will continue to protect its interests to preserve these fundamental obligations in the face of any prima facie violations.

Beyond this, there is also the issue of whether such requirements are permissible under U.S. law. This is from the Associated General Contractors of America:  

III. Domestic Content Requirements on Privately Funded Construction Projects

What all three aforementioned statutory systems that regulate domestic content have in common is that they each apply to construction projects that have some level of federal funding involved. Unlike these steel and iron restrictions designed as conditions of federal funding or federal assistance eligibility, this Memorandum would govern commercially-built projects paid for entirely without federal funding. As such, this language would establish a precedent whereby the federal government can shut off U.S. Companies from access to wholly privately-funded, privately-built pipeline projects in the U.S.

AGC strenuously objects to this model of attaching federal content rules, derived from statutes designed to apply to federal and federally-assisted purchasing, to non-federal requirements. The Memorandum states that these provisions should be put in place “to the extent permitted by law” and it is AGC’s position that the Department lacks statutory authority to extend these requirements as a condition of receiving a federal pipeline safety permit. Such expansions of domestic content sourcing requirements to private markets are also likely to be judged as violations of long-established international trade law.

Attaching such conditions to the receipt of a federal permit is a very dangerous slippery slope that opens the door to all sorts of federal requirements that have never before been conditions on privately funded construction work. Such an action could lead to the creation of more federal impediments—not fewer—to the building of the nation’s infrastructure. The federal government denying access to private markets to U. S. companies is unprecedented and will result in job losses for U.S. workers.

Trade Deficit Hearing

The link is here, and the full text of the DOC's "Notice of public hearing and request for comments" is below. I hope they get lots of good submissions on macroeconomics. 

Action

Notice of public hearing and request for comments.

Summary

Pursuant to Executive Order 13786 of March 31 2017, the Secretary of Commerce and the United States Trade Representative (USTR), in consultation with the Secretaries of State, the Treasury, Defense, Agriculture, and Homeland Security and the heads of any other executive departments or agencies with relevant expertise, as determined by the Secretary of Commerce and the USTR, shall prepare and submit to the President an Omnibus Report on Significant Trade Deficits. The Executive Order can be found here: https://www.whitehouse.gov/the-press-office/2017/03/31/presidential-executive-order-regarding-omnibus-report-significant-trade.

The Department of Commerce (Commerce) and USTR will hold a public hearing and seek written comments to assist in the analysis for the assessment called for in Executive Order 13786. The trading partners with which the United States had a significant trade deficit in goods in 2016 (in alphabetical order) were Canada, China, the European Union, India, Indonesia, Japan, Korea, Malaysia, Mexico, Switzerland, Taiwan, Thailand, and Vietnam.

Dates

The schedule and deadlines are as follows:

Wednesday, May 10, 2017 at 11:59 p.m. Eastern Daylight Time (EDT): Deadline for interested persons to submit written comments. Also, this is the deadline for requests to appear at the hearing, which must include a summary of your testimony.

Thursday, May 18, 2017: A public hearing at the U.S. Department of Commerce, 1401 Constitution Avenue NW., Washington, DC, beginning at 9:30 a.m. EDT.

Addresses

All written comments, requests to appear at the hearing, hearing summaries, and rebuttal comments must be in English and submitted electronically via the Internet at www.regulations.gov docket number DOC 2017-0003. For alternatives to on-line submissions please contact Patrick Kirwan, Director of the Trade Promotion Coordinating Committee Secretariat, U.S. Department of Commerce, at (202) 482-5455 or [email protected]. The public is strongly encouraged to file submissions electronically rather than by facsimile or mail. Follow the instructions for submitting comments in section C below.

For Further Information Contact

For procedural questions concerning written comments or participating in the public hearing, contact Patrick Kirwan at (202) 482-5455 or [email protected].

Supplementary Information

A. Topics on Which Commerce and USTR Seek Information

To assist Commerce and USTR in preparing the Report, commenters should submit information related to one or more of the assessments called for in the Executive Order:

For each identified trading partner with which the United States had a significant trade deficit in goods in 2016, the Report shall:

(a) Assess the major causes of the trade deficit including, as applicable, differential tariffs, non-tariff barriers, injurious dumping, injurious government subsidization, intellectual property theft, forced technology transfer, denial of worker rights and labor standards, and any other form of discrimination against the commerce of the United States or other factors contributing to the deficit;

(b) assess whether the trading partner is, directly or indirectly, imposing unequal burdens on, or unfairly discriminating in fact against, the commerce of the United States by law, regulation, or practice and thereby placing the commerce of the United States at an unfair disadvantage;

(c) assess the effects of the trade relationship on the production capacity and strength of the manufacturing and defense industrial bases of the United States;

(d) assess the effects of the trade relationship on employment and wage growth in the United States; and

(e) identify imports and trade practices that may be impairing the national security of the United States.

Commenters may also address the following questions which are relevant for the assessment:

(a) Which bilateral trade deficits are structural or cyclical rather than mercantilist-driven?

(b) To what extent are non-market economies operating within a market-based system create trade imbalances?

(c) To what extent does chronic industrial overcapacity resulting from government subsidies affect the U.S. trade deficit?

(d) Have free trade agreements contributed to bilateral trade deficits and how?

(e) To what extent have weak enforcement and dispute resolution mechanisms inadequately addressed trade issues that result in trade deficits?

(f) Are there any other factors related to trade deficits that the report should consider?

With regard to manufacturing and the defense industrial base (with specific focus on electronics, aerospace, avionics, materials, machinery, and equipment), comments may address how the following requirements or practices of trading partners have affected opportunities for increased U.S. exports, profitability, and employment:

(a) Mandated coproduction and licensed production;

(b) mandated subcontracting; counter trade;

(c) required technology transfer;

(d) required collaborative research and development;

(e) mandated joint ventures and intellectual property transfer; and

(f) required capital investments.

B. Public Comment and Hearing

Commerce and USTR seek public comments with respect to the above stated issues and questions. To be assured of consideration, you must submit written comments by 11:59 p.m. EDT on Wednesday, May 10, 2017 in accordance with the instructions in section C below.

Commerce and USTR will also convene a public hearing at the U.S. Department of Commerce beginning at 9:30 a.m. on Thursday, May 18, 2017. Persons wishing to appear at the hearing must provide written notification of their intention and a summary of the proposed testimony by 11:59 p.m. EDT on Wednesday, May 10, 2017 in accordance with the instructions in section C below.

Indicate in the “Type Comment” field if you are submitting a request to appear at the hearing, and include the name, address and telephone number of the person presenting the testimony. A summary of the testimony should be attached by using the “Upload File” field. The file name should include who will be presenting the testimony. Remarks at the hearing should be limited to no more than five minutes to allow for possible questions from the panel.

C. Requirements for Submissions

Persons submitting a notification of intent to testify or written comments must do so in English and must identify (on the reference line of the first page of the submission) “Comments Regarding Causes of Significant Trade Deficits for 2016.” In addition, if the submission covers the causes of significant trade deficits in more than one country, commenters should, whenever possible, provide a separate submission for each country. If identifying specific sectors, commenters should identify the relevant Harmonized System (HS) category(ies) for that sector. To ensure the timely receipt and consideration of comments, Commerce and USTR strongly encourage commenters to make on-line submissions, using the http://www.regulations.gov Web site.

All submissions must be in English and must be submitted electronically via www.regulations.gov, using docket number DOC-2017-0003. Hand-delivered submissions will not be accepted.

To submit comments via www.regulations.gov enter docket number DOC 2017-0003 on the home page and click “search.” The site will provide a search-results page listing all documents associated with this docket. Find a reference to this notice and click on the link entitled “Comment Now!” (For further information on using the www.regulations.gov Web site, please consult the resources provided on the Web site by clicking on “How to Use This Site” on the left side of the home page).

The www.regulations.gov Web site allows users to provide comments by filling in a “Type Comment” field, or by attaching a document using an “Upload File” field. Commerce and USTR prefer that comments be provided in an attached document. If a document is attached, please identify the name of the country to which the submission pertains in the “Type Comment” field. For example: “See attached comments with respect to (name of country)”. Commerce and USTR prefer submissions in Microsoft Word (.doc) or Adobe Acrobat (.pdf). If the submission is in an application other than those two, please indicate the name of the application in the “Type Comment” field. For any comments submitted electronically containing business confidential information, the file name of the business confidential version should begin with the characters “BC”. Any page containing business confidential must be clearly marked “BUSINESS CONFIDENTIAL” on the top of that page. Filers of submissions containing business confidential information must also submit a public version of their comments. The file name of the public version should begin with the character “P”. The “BC” and “P” should be followed by the name of the person or entity submitting the comments or reply comments. Filers submitting comments containing no business confidential information should name their file using the name of the person or entity submitting the comments.

Please do not attach separate cover letters to electronic submissions; rather, include any information that might appear in a cover letter in the comments themselves. Similarly, to the extent possible please include any exhibits, annexes, or other attachments in the same file as part of the submission itself rather than in separate files.

As noted, Commerce and USTR strongly urge submitters to file comments through www.regulations.gov if at all possible. Any alternative arrangements must be made with Patrick Kirwan in advance of transmitting a comment. Patrick Kirwan can be reached at (202) 482-5455 or [email protected]. General information concerning Commerce is available at www.commerce.gov and USTR at www.ustr.gov.

Comments will be placed in the docket and open to public inspection, except confidential business information. Comments may be viewed on the www.regulations.gov Web site by entering the relevant docket number in the search field on the home page.

Dated: April 13, 2017.

Patrick Kirwan,

Director, Trade Promotion Coordinating Committee Secretariat, U.S. Department of Commerce.

[FR Doc. 2017-07827 Filed 4-14-17; 8:45 am]

BILLING CODE 3510-25-P

Is there an Alternative to Trade Adjustment Assistance?

Over at Project Syndicate, Dani Rodrik has an important essay on compensation to trade’s “losers.”  He argues that it is too late to compensate them, certainly in terms of harm done to individuals whose livelihoods have been impaired, and also in terms of political support for liberalization.  He is certainly correct that trade adjustment assistance in the U.S. has been a long-term failure.  His main argument is one of time inconsistency:  that, at least in the U.S., politicians may promise appropriate compensatory measures ex ante, but fail to provide them ex post.  While this may be a simplification of the U.S. political context, it suggests that the fundamental problem is that political commitments cannot be made reliably.  Other countries seem to have solved that problem, and perhaps it could be addressed better in the U.S.  My concern, though, is with Rodrik’s argument at the end of his essay that compensation can’t work, but that “to bring the losers along, we will need to consider changing the rules of globalization itself.”  He does not specify how in the Project Syndicate essay, but when asked in comments what changes he has in mind, he directed one commentator to his 2011 book, The Globalization Paradox: Democracy and the Future of the World Economy.  

In that book, he proposes to amend WTO law to establish the principle that states may raise border barriers “when trade demonstrably threatens domestic practices enjoying broad popular support.”[1]  More specifically, Rodrik prescribes a special “safeguard” allowing states to violate otherwise applicable WTO law when those rules threaten to undermine domestic environmental and labor standards or when they hamper the pursuit of sound development policies.[2]   In my review of The Globalization Paradox, I explain that some of these exceptions are unnecessary or counterproductive.

But the point I want to make here is that none of these suggestions seems to provide much relief to those hurt by trade.  Rodrik’s suggestions address some asserted excesses of international trade law, but the fundamental problem of winners and losers will not be solved by these changes.  Indeed, it is tough to think of measures that would help those whose livelihoods are hurt by trade other than trade adjustment assistance in the form of training or income support, unless Rodrik has in mind simply reduced trade, which seems unattractive because it reduces total welfare and imposes losses on consumers and exporters. Rodrik seems right that there is a time inconsistency problem, and it is true that trade adjustment assistance has not been available in the U.S., and it is also true that the human and political support damage has been incurred and will be tough to reverse, However, he has not proposed a viable solution.  I would argue that it is not too late to make more binding commitments, as other countries have done, to provide appropriate adjustment assistance.  Trade liberalization will always produce losers.  For an excellent treatment of the options for dealing with them, see Michael Trebilcock’s book, Dealing with Losers:  The Political Economy of Policy Transitions (2014).

 

[1]  The Globalization Paradox. at 241 (emphasis in original).

[2] Id. at 253.

Which Countries Are Most Protectionist?

This is from Commerce Secretary Wilbur Ross:

Speaking ahead of the arrival in Washington of global finance officials for this week’s IMF and World Bank spring meetings, commerce secretary Wilbur Ross said those accusing the Trump administration of protectionism were firing at the wrong target. 

The billionaire investor, who Mr Trump has put in charge of trade policy and tasked with finding ways to reduce the US’s $500bn trade deficit, said veiled criticism by Ms Lagarde and other defenders of multilateralism about rising protectionism were clearly aimed at the new administration. 

“It is! It is! And the response is very simple: we are the least protectionist of the major areas. We are far less protectionist than Europe. We are far less protectionist than Japan. We are far less protectionist than China,” he told the Financial Times in an interview.

“We also have trade deficits with all three of those places. So they talk free trade. But in fact what they practise is protectionism. And every time we do anything to defend ourselves, even against the puny obligations that they have, they call that protectionism. It’s rubbish.”

I think it's fair to say the U.S. is less protectionist than the other places mentioned, although by how much I'm not really sure.  At the same time, there are probably a few countries which are less protectionist than the U.S.

But has anyone tried to measure this precisely?  It would be interesting to go through the various categories of protectionist measures, and evaluate how protectionist each country is.

Ordinary tariffs are easy.  All the details are here.

Information on anti-dumping and safeguard measures is all publicly available somewhere, but I'm not sure if someone has compiled the data on a country-by-country basis.  (Countervailing duties are more complicated, because, to some extent at least, they are intended to address other countries' protectionist subsidies).

Speaking of subsidies, this is where it gets difficult.  Lots of governments give out subsidies, but classifying them as protectionist or not can be difficult.

The same thing goes for regulations.  There are many regulations that constitute "trade barriers," in some sense, but it is often hard to tell which ones are protectionist.  Identifying all regulatory trade barriers could help determine the universe of measures that might be considered protectionist, but someone still needs to do the hard work of identifying which regulations are protectionist.

To be honest, I think this would be a useful exercise for the Trump administration to undertake (much more valuable than the study they are doing on the causes of trade deficits).  Among other things, it would help deal with the problem identified here.

Conference (May 4, 2017): "Free trade, public interest and reality: new generation free trade agreements and national regulatory sovereignty"

From the University of Szeged:

Prof. Csongor István Nagy, professor of law and head of the HAS-Szeged Federal Markets “Momentum” Research Group is hosting a conference at the University of Szeged, Hungary on May 4, 2017, entitled: "Free trade, public interest and reality: new generation free trade agreements and national regulatory sovereignty." 

For more details, please visit the website here.

Two Trump Trade Things That Just Happened

There was this:

President Trump on Wednesday said he would not label China a currency manipulator, contradicting one of the biggest economic promises he made on the campaign trail.

And there was also this:

COMMERCE TAKES ‘UNPRECEDENTED’ STEP IN TRADE CASE: The Trump administration flexed its enforcement muscles by taking the “unprecedented action” of invoking a new authority Congress granted under the Trade Preferences Extension Act of 2015. The action resulted in higher dumping margins on imports of oil country tubular goods — steel pipe used in oil extraction — from South Korea after an administrative review.

“There is fair and unfair trade, and the distinction is not very hard to make,” Commerce Secretary Wilbur Ross said in a statement late Tuesday announcing the action. “We will not stand for the distortions in foreign markets being used against U.S. businesses. The Trump administration will continue to employ all of the tools provided under the law to take swift action against harmful trade practices from foreign nations attempting to take advantage of our markets, workers, and businesses.”

The new authority allows the U.S. to apply a “particular market situation” as justification for ratcheting up duties -- which it did in this case by raising the maximum tariffs from 16 percent to 24.9 percent. In the South Korea case, the domestic industry argued that imports deserved more dire tariffs because of allegations that South Korean producers were using unfairly priced Chinese steel to make the pipe and tube. The so-called particular market situation of cheap Chinese steel in this case allowed Commerce to disregard home market prices or costs of production when calculating dumping margins.

Is this the future of Trump's trade policy? Pulling back on the most aggressive trade threats, and focusing instead on methodological and other changes that generate higher trade remedy duties?

The CFTA: Tobacco Carveouts are Spreading

Carveouts for tobacco control measures are spreading. The carveout was first used in the TPP, then was brought over to the Australia-Singapore FTA update. Now there is one in the Canadian Free Trade Agreement:

Article 806: Tobacco Control Measures

This Agreement does not apply to any measure adopted or maintained by a Party relating to tobacco control.

But why is this needed?  When is there a risk that a tobacco control measure will violate a trade agreement?  And if there is such a risk, by carving out tobacco control measures but not other public health measures, aren't you ignoring the broader issue?

The CFTA: Will We See More Intra-Canadian Trade Disputes?

Over the years, I've tried on this blog to get people interested in the Canadian Agreement on Internal Trade (AIT), with little apparent success.  In part, that may have been because there just weren't enough cases (roughly 3 per year -- the list is here).  A couple of cases per year wasn't enough for people to follow it.

But now we have a revised and improved version of this agreement, called the Canadian Free Trade Agreement.  This is from the CBC:

Trade ministers gathered in Toronto Friday to congratulate each other for pledging to lower internal trade barriers that have irritated businesses for decades.

Every province and territory, as well as the federal government, has signed on to the Canada Free Trade Agreement, a new deal to co-ordinate trade across interprovincial borders and replace the limited rules put in place two decades ago that are no longer up to the job.

Will people take more of an interest in this new agreement?  Perhaps they will if there are more disputes now, which there may be, for at least two reasons.

First, the scope of coverage is said to be broader, with more areas of trade liberalized.

And second, one of the impediments to individuals bringing cases has been removed (most of the AIT cases were brought by provinces, not individuals).  In the AIT, complaints by individuals had to be "screened" first (see Article 1712). Is it possible this acted as a deterrent to bringing cases?  People who practiced in this area may be able to weigh in on this.  In the CFTA, by contrast, there is no such screening mechanism. If you want to bring a case, you can.  With enough publicity, maybe individuals and companies will make greater use of the new procedure.

Beyond disputes, there is also this:

The deal sets up a new panel to review, prioritize and eventually standardize longstanding inconsistencies that add costs and hassle when businesses operate outside their home province.

It's expected to look at things like:

• Harmonizing or recognizing equivalent safety standards for cross-border industries like transportation.
• Standardizing labelling, packaging and classification rules for consumer products, to make it easier to sell goods across the country.
• Common recognition of credentials and qualifications for professionals and tradespeople, making it less expensive and easier for Canadians to work in more than one part of the country.
• Long-term liberalization goals for sectors where provinces hold local monopolies, like alcohol distribution, or impose licensing restrictions, like financial services.

But none of these changes will happen with the simple stroke of ministers' pens Friday.

A long reconciliation process lies ahead. And it doesn't require unanimity, calling into question whether this standardization can be truly effective if provinces are still free to opt out of a harmonized regulation they don't like.

This may be more challenging than handling disputes, but it will be interesting to see if they make progress. 

Could the U.S. and China Negotiate a Trade Deal?

In a recent interview with the FT, President Trump had this to say about the existing U.S. trade relationship with China: 

How do you bring China’s trade surplus down quickly?

By telling China that we cannot continue to trade if we are going to have an unfair deal like we have right now. This is an unfair deal.

If the existing trade arrangements with China (based on WTO rules) are unfair, shouldn't we negotiate a new trade deal with China?  My colleague Huan Zhu and I make the case for a bilateral trade negotiation with China in a Cato paper published today.  This is from the introduction:

When China completed its 15-year accession process and joined the World Trade Organization (WTO) in 2001, it was a rising power, but still clearly a developing country. Its GDP per capita was $3,227, and its share of global trade was only 4 percent.

By 2015, however, its GDP per capita had risen to $14,450, and its global trade share to 11.9 percent. As China’s economic power has increased, so has criticism of its market-distorting economic practices. The U.S. government has brought international trade complaints against China and used unilateral actions and threats, but U.S. businesses are unsatisfied with the results. While there have been some successes, the limits of the current approach to making China’s economy more market-oriented may have been reached, as there are gaps in the existing international trade rules, and unilateral demands are of limited value against a powerful trading partner with its own domestic politics to contend with. Moreover, in the current political climate, an overly aggressive approach runs the risk of a serious U.S.-China trade war, which would cause great harm to both sides.

But there is another option. If the United States wants to promote the liberalization of Chinese trade and investment policy, it needs to engage with China in a more positive way. To this end, it should sit down with China and negotiate a new economic relationship, one that goes beyond the terms of the WTO. In particular, the United States should initiate formal negotiations on a trade agreement with China. Negotiations of this kind will be a challenge, especially with a president who has been so critical of China. However, negotiations offer the best hope for addressing concerns about China’s economic policies and practices.

The paper is not that long, but if you want a shorter version of the argument, see our op-ed here. If you don't feel like clicking on anything, here are some of the key points:

-- There are limits to what threats, unilateral actions, high-level dialogues, and WTO litigation can accomplish. If the U.S. wants to address Chinese trade and investment barriers, such as high tariffs, SOEs or intellectual property, the best approach would be to negotiate a comprehensive trade agreement with China.  

-- The U.S. will have to make some concessions too (maybe on the NME methodology).

-- Obviously, such a negotiation will be controversial and difficult. But if both sides were committed, maybe it could be accomplished. (Australia and New Zealand have already done it; Canada has an investment agreement with China, and is exploring trade talks).

-- I don't know if there is any chance that the Trump administration will be open to this. If they are not, the task of negotiating with China to reduce these barriers will be passed on to a future administration.

Missed and new opportunities in world trade: is Trump China’s trump in world trade? (April 12, 2017)

From the Faculty of Law at the University of Szeged, Hungary:

Prof. Csongor István Nagy, professor of law and head of the HAS-Szeged Federal Markets “Momentum” Research Group and Dr. Zoltán Víg, associate professor of law and senior research fellow at the HAS- Szeged Federal Markets “Momentum” Research Group will convene an event on April 12, 2017 on "Missed and new opportunities in world trade: is Trump China’s trump in world trade?" 

The conference program is available here.

The conference is open to the public but participants are kindly requested to register here.

The Omnibus Report on Significant Trade Deficits

On Friday, President Trump signed an executive order for an "Omnibus Report on Significant Trade Deficits."  Here's how it starts:

OMNIBUS REPORT ON SIGNIFICANT TRADE DEFICITS

By the authority vested in me as President by the Constitution and the laws of the United States of America, and in order to ensure the informed exercise of the authority over international trade granted to me by law, it is hereby ordered as follows:

Section 1. Policy.

...

The United States must address the challenges to economic growth and employment that may arise from large and chronic trade deficits and the unfair and discriminatory trade practices of some of our trading partners.

I have two questions about this:

1. What exactly are the "the challenges to economic growth and employment that may arise from large and chronic trade deficits"?  I have never seen a convincing argument that the U.S. trade deficit of the last 40 years has hurt economic growth and employment.  In fact, higher trade deficits tend to be associated with a strong economy.

2. Don't we already do quite a lot to address the "unfair and discriminatory trade practices" of our trading partners?

Now we get to the report that will be issued: 

Sec. 2. Report. Within 90 days of the date of this order, the Secretary of Commerce and the United States Trade Representative (USTR), in consultation with the Secretaries of State, the Treasury, Defense, Agriculture, and Homeland Security, and the heads of any other executive departments or agencies with relevant expertise, as determined by the Secretary of Commerce and the USTR, shall prepare and submit to the President an Omnibus Report on Significant Trade Deficits (Report).  To aid in preparing the Report, the Secretary of Commerce and the USTR may hold public meetings and seek comments from relevant State, local, and nongovernmental stakeholders, including manufacturers, workers, consumers, service providers, farmers, and ranchers.

So they "may" hold public meetings and seek comments. I really hope they do.  Without public input, I worry that this report will not take a balanced approach to the issue.  [ADDED: I can imagine some people saying, even with public input, the report will not be balanced. Regardless, I think that public input could really help here.]

Now here's the key part in terms of the substance of the report:

The Report shall identify those foreign trading partners with which the United States had a significant trade deficit in goods in 2016. For each identified trading partner, the Report shall:

(a) assess the major causes of the trade deficit, including, as applicable, differential tariffs, non-tariff barriers, injurious dumping, injurious government subsidization, intellectual property theft, forced technology transfer, denial of worker rights and labor standards, and any other form of discrimination against the commerce of the United States or other factors contributing to the deficit;

(b) assess whether the trading partner is, directly or indirectly, imposing unequal burdens on, or unfairly discriminating in fact against, the commerce of the United States by law, regulation, or practice and thereby placing the commerce of the United States at an unfair disadvantage;

(c) assess the effects of the trade relationship on the production capacity and strength of the manufacturing and defense industrial bases of the United States;

(d) assess the effects of the trade relationship on employment and wage growth in the United States; and

(e) identify imports and trade practices that may be impairing the national security of the United States.

Here are some comments and questions on this part:

1. Their list of causes of the trade deficit is non-exhaustive. I hope they got lots of submissions explaining that the difference in savings rates between the U.S. and other countries is the main cause of trade deficits.

2. Doesn't USTR already gather information on unfair trade practices? Will this report just summarize the existing information?

3. They are only looking at the trade deficit for goods. I hope the public submissions emphasize the importance of services trade.

4. In addition to "assess[ing] the effects of the trade relationship on employment and wage growth in the United States," they should also assess the effects on consumers and the overall economy.

5. What will they do with the results of this report?  I would think we already go after "discrimination against the commerce of the United States" to the maximum extent possible at the WTO, but perhaps there are new cases to be brought. With regard to "differential tariffs," the best way to address this is probably through a trade negotiation.  Could the end result of this be more trade liberalization via trade negotiations? But of course, the concern is that the report will be used to justify unilateral restrictions.