This is from ASIL’s International Economic Law Interest Group:
The next ASIL International Economic Law Biennial Conference will be held on May 16-17, 2025, at Michigan Law, in Ann Arbor, Michigan. Applications are now open for paper and panel proposals, and the deadline by which to submit a proposal is October 15, 2024. To learn more about how to submit a proposal, please see the Call for Papers, available here. We look forward to seeing you in Michigan next May!
It was not a particularly productive discussion, but here is a transcript of NBC's Kristen Welker talking to J.D. Vance about tariffs last weekend:
Welker:
Vice President Kamala Harris, in making her case, said that the tariff plans Donald Trump is proposing will hurt the middle class. Here's what she said specifically: "he intends to enact what in effect is a national sales tax, call it a Trump tax, that would raise prices on middle class families by almost $4,000 a year." Now the estimates vary, but how do you respond to that charge that Trump's tariffs would hurt the middle class?
Vance:
If you step back a little bit, Kristen, there's this whole thing that Kamala Harris did at the convention where she made a bunch of claims about what would happen and not enough actually reflection on what already happened, right? Because Donald Trump was already president. He used tariffs to bring manufacturing jobs back to our country. And I think he'll do it again. And he did it while keeping prices extremely low. Because if you go back to the Trump presidency, we had 12,000 factories that were built during Donald Trump's presidency, inflation never really ticked above 2% his entire administration, in fact, it was sort of around one and a half percent most of the time that he was president. So when Kamala Harris says, if we do the thing that Trump already did, it's going to be way worse than it was last time, I just don't think that makes a lot of sense.
Welker:
Well, let's talk about Trump's record during his first term. He did impose rounds of tariffs, and it cost Americans nearly $80 billion in new taxes. Do you acknowledge that imposing more tariffs will ultimately cost consumers?
Vance:
Well, what it really does is it penalizes importers from bringing goods outside the country into the country. And I think that's just a necessary thing. We know that China and a number of other countries are using effectively slave labor to undercut the wages of American workers. Donald Trump thinks that has to stop. And again, what Kamala Harris here is saying, Kristen, is that if you do this, you're somehow going to cause skyrocketing inflation. In reality, Donald Trump already did it. He brought a lot of jobs back, and it didn't cause inflation.
Welker:
But it caused consumers to pay more. They paid more in taxes, $80 billion worth. Do you acknowledge that consumers ultimately will pay more if there are more tariffs?
Vance:
I think economists really disagree about the effects of tariffs, because there can be a dynamic effect, right? So what some economists will say is, what you just said, that it will actually raise costs for consumers. But what other people say, and I think the record supports this other view, is that it causes this dynamic effect where more jobs come into the country. Anything that you lose on the tariff, from the perspective of the consumer, you gain in higher wages, so you're ultimately much better off. You have more take home pay, you have better jobs, and also you have more reliance. Because one of the things we learned during covid -- I don't, by the way, blame Democrats for this -- but one of the things we learned during covid Kristen is that if our supply chains are really brittle, if we depend on the Chinese to make too much of our stuff, then prices can skyrocket at a time of crisis. The economists who say the tariffs are bad, they don't take that into account. We've all learned at the hard way.
Welker:
And it is economists across the board, really. I mean, the Wall Street Journal says economic data show that Donald Trump's trade war with China did not achieve its objectives of reversing the declines in US manufacturing, or reshoring factory jobs. I hear what you're saying. It's a complicated picture. But just on that bottom line point, you can't guarantee that Americans won't wind up paying a penny more, can you?
Vance:
Well, I think what you can guarantee is that if you don't bring more manufacturing jobs back into this country, you don't make our supply chains more stable, you're gonna cause higher prices over the long term. I think that is what is absolutely true ...
Welker:
But you acknowledge they could wind up paying more?
Vance:
What I acknowledge, Kristen, is that unless we bring more manufacturing jobs back to this country, we are going to end up paying more in the long term. Remember the whole promise -- again, this was a bipartisan thing. My own party was as wrong about it as Democrats were, and Donald Trump was right about it -- what they said is that if you shift all of our manufacturing to East Asia and to Mexico, Americans would pay lower prices. Well, here we are now, and Americans are paying higher prices. And just one more thing on this, Kristen, because it's really important to go at what Kamala Harris actually said her convention speech. She says that she wants to stand up to China on behalf of American workers. If you're not willing to impose tariffs on companies that are manufacturing in China using slave labor in China, you're not standing up to the Chinese and Americans are going to suffer.
I'm going to make a few points here.
First, over on social media, plenty of people piled on to debunk his suggestion that economists disagree about the effect of tariffs. As they noted, there really isn't much disagreement that tariffs raise prices for consumers. And there is little support for the idea of the "dynamic effects" of tariffs (if Vance has anything he thinks is evidence from the "other people" he referred to, he should cite to it).
Second, the cost figures Harris was referring to are based on the 10-20% universal baseline tariffs proposed by Trump. The $4,000 figure could be derived from the following studies: "The Center for American Progress released a report concluding that costs for American families would increase by $3,900 per year if Trump were to impose a blanket 20 percent tariff on imports, while the National Taxpayers Union estimated in February that Trump’s original suggestion of a 10 percent tariff would cost households $3,942 per year." In his response, Vance focused mainly on China, which ignores the point that Harris was making about the universal tariffs, and therefore his comments don't add much to the discussion of Trump's proposal to impose these tariffs.
With regard to China, I think it's worth noting that Trump's tariffs on China have not changed China's non-market practices, if anybody has that in mind as a goal (it's not clear to me how many people do -- there seem to be a mix of opinions on this at the moment).
As to Chinese labor issues, there is a whole system in place for addressing certain aspects of this, and as far as I can tell the various tariffs that have been imposed on China have little to do with this issue and little impact on it.
And as a general point, I think people would be shocked at the price rises that would result from Trump's recent tariff proposals, and that would put an end to the debate about tariffs. But I hope we don't have to actually experience this to learn that lesson.
Given the prominence of the tariff issue due to Trump (and Vance) constantly raising it, it would be nice if some media folks would press the candidates on the specifics a bit more. Based on the exchange above, I'm not hopeful that these discussions will be very informative, but you never know for sure until you try.
(The Harris/Walz campaign responded to Vance's remarks with this.)
In a recent Foreign Affairs piece entitled "The Case for a Clean Energy Marshall Plan," Brian Deese -- the Director of the White House National Economic Council from 2021 to 2023 and a current economic adviser to Kamala Harris -- sets out a vision for how a Harris administration might lead international action against climate change. My overall reaction was that I'm not sure how well some of his arguments will be received in other countries, in particular in the developing world. I'm going to focus on two points in particular.
First, if I understand Deese correctly, he is trying to make the case that the U.S. should take the lead in manufacturing clean energy products and then sell these American-made products in developing countries (and provide subsidies to help people in developing countries make these purchases). Deese starts out by offering up the Marshall Plan as a blueprint:
... the clean energy transition remains the most important planetary challenge. It also presents the greatest economic opportunity: it will be the largest capital formation event in human history. And it presents the United States with a chance to lead. Thanks to its still unparalleled power and influence, Washington maintains a unique capacity—and a strategic imperative—to shape world outcomes.
In 2022, the United States recognized these opportunities when it passed the Inflation Reduction Act, the world’s largest-ever investment in clean energy technologies. This transformative industrial strategy was a crucial first step for the United States in positioning its economy for success by accelerating the clean energy transition at home. Now is the time to take this leadership to the global stage, in a way that promotes U.S. interests and supports aligned countries. But the United States need not create a new model for doing so.
Seventy-six years ago, also facing a fractured world order and an emerging superpower competitor, U.S. President Harry Truman and U.S. Secretary of State George Marshall launched an ambitious effort to rebuild European societies and economies. Although often associated with free-market neoliberalism, the 1948 Marshall Plan was hardly laissez-faire. It was, in fact, an industrial strategy that established the United States as a generous partner to European allies while promoting U.S. industries and interests. Generations later, the Marshall Plan is rightly understood as one of the great successes of the postwar era.
Although today’s challenges are undoubtedly different, the United States should draw lessons from that postwar period and launch a new Marshall Plan, this time for the global transition to clean energy. Just as the Marshall Plan assisted those countries most ravaged by World War II, the new Marshall Plan should aim to help countries most vulnerable to the effects of climate change: the United States’ partners in the developing world. Developing countries and emerging markets will need access to cheap capital and technology to transition away from fossil fuels quickly enough to halt global warming.
This idea sounds plausible in general terms, although it would be politically difficult domestically for a number of reasons. But when he gets to the details, the plan takes a turn towards economic nationalism, as he appears to suggest that U.S. products will be the only/dominant ones sold in developing countries:
The United States again has the chance to help others while helping itself. Putting its own burgeoning industries front and center in the energy transition will generate further innovation and growth. ... By creating global markets for its own clean energy industries and innovators, the United States can scale these economic gains and strengthen domestic support for an energy shift that has not always been an easy sell to voters.
The fracturing world order and the ominous climate crisis lead some observers to focus on the potential tensions between those two developments. But they also provide an opening for the United States to deploy its innovation and capital in a generous, pragmatic, and unapologetically pro-American way—by launching a Clean Energy Marshall Plan.
Like the original Marshall Plan, a Clean Energy Marshall Plan should meet other countries’ development needs while advancing U.S. interests. In this case, the goal is to speed the adoption of low-cost, zero-carbon solutions, such as the manufacture of batteries, the deployment of nuclear and geothermal energy, and the processing of critical minerals. This approach reflects the basic intuition that, as useful as it can be to make carbon pollution more expensive by putting a price on it, the most credible way to accelerate the adoption of zero-carbon technologies is to make that technology cheap and widely available.
...
Implementing a Clean Energy Marshall Plan won’t be easy, but the process must begin now. As after World War II, the United States can be generous as well as pro-American in its approach. It can promote U.S. interests by scaling its industries to meet global needs while winning greater influence in this new geopolitical landscape. And it can meet developing countries where they are—supplying them with the energy they need to expand their economies and the innovation they need to decarbonize efficiently.
...
The United States should begin with a focused investment and commercial diplomacy effort, akin to that of the Marshall Plan. The Marshall Plan had a straightforward aim: subsidize European demand for U.S. products and services needed to rebuild Europe. Today, the United States should establish a Clean Energy Finance Authority with an updated mission: subsidize foreign demand for clean energy technology and put American innovation and industry at the front of the line.
...
The Clean Energy Finance Authority should be capitalized with a significant upfront commitment of money—enough to generate market momentum that tips the balance of clean energy investment toward the private sector; ultimately the private sector, not the public sector, will need to provide the majority of the financing the energy transition needs over the coming decades. If this new authority is set up and deployed properly, U.S. companies and innovators would gain more foreign demand, on favorably negotiated terms, and new market share. Foreign consumers, for their part, would gain access to new channels of cheap clean energy technology. For emerging-market countries and major emitters—such as Brazil, India, and Indonesia—the United States could act with both generosity and its own interests in mind.
He later adds: "... the [U.S.] needs to turn to foreign markets to boost demand for U.S. products."
The first problem I see here is that many developing countries -- he mentions Brazil, India, and Indonesia -- want to be producing these products themselves. They aren't going to like a plan that makes them dependent on the U.S. for these products. There are producers in the U.S. that complain about subsidized imports, and there are producers in these other countries that will do the same. As a result, I don't think the reaction to Deese's plan will be to thank the U.S. for the subsidies and happily rely on U.S.-made products. Rather, I think these countries are more likely to adopt policies that attempt to stimulate their own domestic production and to limit competition from subsidized U.S. producers.
Now, as this blog's readers know, I'm not a fan of this type of tit-for-tat protectionism/industrial policy, either from those who start it or those who respond to it. Nevertheless, as a matter of political reality, I think this is where we would likely be headed under a U.S. approach such as this one.
Another problem is that producers in Europe, South Korea, Japan and other places will have their own objections, and are likely to respond with subsidies or trade complaints of their own. Subsidy races of this kind end up being contentious, and trade wars are not a very efficient way to expand these industries.
In addition, this kind of subsidized production designed to supply the rest of the world appears to be similar to the overcapacity the U.S. has been complaining about in relation to China. The U.S. government has been struggling for years to come up with an effective response to Chinese non-market practices, and this plan might make the issue even more difficult: Why would China change if the U.S. is now doing something very similar?
Having said all this, I do think there is room for international cooperation on reducing carbon emissions. However, if the goal is to get developing countries on board with U.S. efforts, I think there's going to have to be acceptance of the idea that developing countries can make these products as well. It's worth noting that more competition has the benefit of bringing prices down and helping adoption by consumers happen more quickly.
Second, Deese wants to use tariffs as a tool to promote the fight against climate change:
As part of the Clean Energy Marshall Plan, Washington must level the global playing field through the active yet measured use of trade tools such as tariffs. Doing nothing and being resigned to China’s statist approach is neither economically nor politically sustainable. And using blunt tools to effectuate what amounts to a unilateral retreat is dangerous. Former U.S. President Donald Trump's call to essentially end all imports from China within four years is a cynical fantasy playing on populist fears. In 2022, U.S. goods and services trade with China amounted to over $750 billion. It is not practicable to decouple from any major economy, let alone the United States’ third-largest trading partner. Global trade delivers important benefits, whereas unilateral, asymmetric escalation would leave the United States isolated and vulnerable.
The right approach is to harmonize more active trade policies with like-minded countries. Indeed, Brazil, Chile, India, South Africa, Thailand, Turkey, and Vietnam, among others, are all investigating or imposing tariffs on Chinese dumping practices. China is now the object of twice as many retaliatory measures as it was four years ago. This growing pushback represents a chance for the United States to address the Chinese-driven global trade imbalance by crafting a global coalition to galvanize a coordinated response while creating more global trade in clean energy goods and services.
To accomplish this, the United States must use expanded, stronger, and smarter trade authorities. For example, Washington should build into its tariffs on imported goods an assessment of how much carbon was used to produce them. Tariffs should be determined by the emission intensity of the trading partner’s entire industry, rather than company by company, to avoid “resource reshuffling,” whereby countries try to dodge penalties by limiting their exports to only products manufactured with clean energy instead of reducing their emissions overall. These tariffs should be aimed at all countries, but given its current production practices, China would be hit the hardest.
This form of tariff regime could be coordinated with what other countries are doing on the same front. The effort should begin with the steel sector. Chinese-made steel is two to five times as carbon-intensive as U.S.-made steel and is being dumped in markets around the world. The United States has been working on an arrangement with the European Union to harmonize tariffs on steel and aluminum. But the EU need not be the United States’ first or only partner in this initiative. There is a global appetite to enact a common external tariff regime on China to respond to its overproduction and carbon-intensive practices. Washington should work to pull this group together through the G-7 and G-20.
...
A carbon-based tariff, or a carbon border adjustment, should further motivate climate action by exempting countries that are hitting their nationally determined goals under the 2016 Paris climate agreement or those that fall below certain income and emission thresholds. To complement the Clean Energy Finance Authority, the tariff could be lowered in exchange for foreign procurement of clean energy technologies or of clean products made in the United States. For many developing countries, the tariff would act as a powerful accelerant to their energy development plans.
This approach would allow the United States to transition from its current indiscriminate, broad-based tariff regime to a more comprehensive carbon-based system that more accurately targets Chinese overcapacity and trade imbalance concerns. And the United States should leave the door open to cooperating with China in this context, as well.
Policymakers will have to reimagine existing trade rules—and be willing to lead the World Trade Organization and other international institutions in thinking about how trade can accelerate the clean energy transition. The WTO’s objective was never just to promote free trade for free trade’s sake; its founding document includes a vision for sustainable development. The WTO must reform if it is to deliver on that vision, but in the meantime, the United States shouldn’t cling to old trade conventions when more targeted and effective approaches exist.
I'm skeptical that tariffs on products associated with high carbon emissions will have the impact Deese thinks. The main reaction I would expect from the developing world is annoyance and resentment. From their perspective, the U.S. is much more of a problem in terms of carbon emissions, so why should the U.S. be trying to punish them through tariffs on their exports? Some people in the U.S. like to focus on carbon emissions related to manufacturing, but for people elsewhere that just feels like cherry-picking to make the U.S. look better. And with regard to whether this tariff and a possible exemption would motivate countries to take action on climate, it's worth noting here that even if they could avoid this particular tariff, U.S. trade remedy tariffs are likely to be used against them if their exports reached a significant level.
In addition, the reports of an increase in trade remedy actions by other countries against China are a bit misleading. As Huan Zhu and I explain on China Trade Monitor, there has been a pretty steady use of these measures dating all the way back to China's WTO accession. It may turn out that there is a slight increase in trade remedy measures against China in 2024, but this isn't really a big new development. Rather, it's just a core feature of the trading system since I've been involved in it (and a lucrative feature for trade lawyers!). Can these measures be ratcheted up and coordinated? Maybe. But past usage was already pretty strong.
What I might suggest, instead of an emphasis on punishing others with tariffs, is a more positive approach, perhaps along the lines of the new Agreement on Climate Change, Trade and Sustainability (ACCTS). Deese talks about reimagining trade rules so as to promote the clean energy transition. That, I would say, is what the ACCTS negotiators have done, and it would be interesting to see Harris's reaction to some of the ideas in there.
This is a guest post from Maarten Meulenbelt, Chris Boyle, Lauren Shapiro, Maryanne Kamau, and Alix Vermulst of Sidley Austin. The full article on which the post is based is available here.
In the EU, much has been written about the so-called “Pharma Review” proposals, published by the European Commission (“Commission”) on 26 April 2023. One of the main goals of the Pharma Review (set out in a proposed Pharmaceutical Directive and a Pharmaceutical Regulation) is to steer investment into areas of unmet medical needs by reducing and “modulating” the main intellectual property (“IP”) and regulatory rights – such as regulatory data protection (“RDP”) and orphan market exclusivity – and to speed up generic and biosimilar market access.[1] The Pharma Review is currently going through the legislative process.[2]
One of the proposed EU measures to speed up generic and biosimilar market access deserves particular attention from an international IP law perspective: the proposal to expand the so-called “Bolar exemption”. This wide-reaching proposal raises significant concerns under international law, as it is likely incompatible with the EU’s obligations under the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (“TRIPS”).
Currently, the EU’s Bolar exemption exempts from patent infringement the “necessary studies and trials” conducted by generic/biosimilar applicants and “consequential practical requirements” to obtain a marketing authorisation. As part of the Pharma Review, the Commission’s proposal seeks to expand the scope of the Bolar exemption to include, inter alia, situations where a reference medicinal product is used to generate data for an application for pricing and reimbursement (“P&R Bolar”). If amended as proposed by the European Parliament on 10 April 2024, the P&R Bolar would allow, potentially years before the relevant patent expiry date (“Day 1”), any activity reasonably related to pricing and reimbursement (“P&R”) procedures or approvals at Member State level, including negotiations with payors on prices and quantities (and potentially listing) of generic and biosimilar products. There has been no published impact assessment for these proposals. They offer no mechanism to determine the “Day 1” date, no clear safeguards, and no clarity on whether the “signalling” function of P&R steps would be preserved for the enforcement of patents.
The present article is limited to assessing the consistency of the P&R Bolar with TRIPS, as applied to patents (Supplementary Protection Certificates are not discussed). We find strong arguments that the proposal is inconsistent with the EU’s obligations under TRIPS.
There is no doubt that the P&R Bolar encroaches upon the rights set out in Article 28.1 of TRIPS (“Rights Conferred”). Indeed, the sole purpose of the P&R Bolar is to permit any generic or biosimilar applicant seeking a marketing authorisation (“MA”), a health technology assessment (“HTA”) or P&R to engage in activities that would otherwise be reserved to the patent holder during the patent term. The EU would bear the burden of proof of justification of this infringement under the three cumulative conditions of Article 30 of TRIPS (“Exceptions to Rights Conferred”).
The EU is unlikely to be able to meet this burden of proof under Article 30 of TRIPS. Given the wide scope of activities permitted, and the lack of definition of the core concept of “Day 1” market entry, the P&R Bolar can hardly be called “limited”. The P&R Bolar interferes with “normal exploitation”, especially where it would permit offers for sale before the expiration of the patent. The “legitimate interest” of patent holders does not appear sufficiently protected, and there is no consensus view in society that generic and biosimilar companies should be able to engage, for an undefined period of time before the expiration of the patent, in any activities including offers and negotiations of post-expiry supplies to obtain P&R.
The P&R Bolar also appears inconsistent with Article 27.1 of TRIPS (“Patentable Subject Matter”) because it unjustifiably imposes differentially disadvantageous treatment to inventions in the field of medicinal products relative to inventions in all other fields of technology. The P&R Bolar differs from the measures examined in the Canada – Pharmaceutical Patents case in this respect: the Canadian laws at issue in that case were not, as the P&R Bolar, limited to medicinal products.
By adopting the P&R Bolar, which we find to be inconsistent with the relevant requirements in Articles 27.1, 28.1, and 30 of TRIPS, the EU would not be giving effect to all provisions of TRIPS – and is contravening certain provisions of TRIPS – in violation of Article 1.1 of TRIPS.
This is a guest post from Csongor István Nagy, Professor of Law at the University of Galway, Ireland, and at the University of Szeged, Hungary, and research professor at the HUN-REN Center for Social Sciences, Hungary
At first it may raise eyebrows. But think it over! Why couldn’t the Russia-Ukraine BIT (RUBIT) be used by Ukrainians to claim compensation for war damage in certain cases? And why couldn’t a part of the frozen Russian assets be used to enforce these investment awards? In my paper forthcoming in the University of Pennsylvania Journal of International Law I argue that both are possible. The pre-print version is available at SSRN.
The key issue of applicability is territorial scope. In the Crimea cases, arbitral tribunals consistently applied the RUBIT to Russian measures and treated Crimea (strictly for the purpose of the BIT!) as the territory of Russia on account of de facto control and legal incorporation. This is a question of treaty interpretation (one may say a contractual dispute and not a quiet title action!) and the foregoing principles should be valid outside Crimea in cases where Russia occupies a territory and/or unilaterally incorporates (annexes) it. And if these territories can be treated as a territory for which Russia bears responsibility under international law, Ukrainians may be able rely on this responsibility.
The Crimea arbitral awards’ notion of territorial scope is not unprecedented in international law at all. For instance, in Loizidou v. Turkey and in Cyprus v Turkey, the European Court of Human Rights applied the European Convention on Human Rights to Turkey by reason of its occupation of Northern Cyprus. In Al-Skeini v. United Kingdom, it found the Convention applicable to the UK’s operations in Iraq on account of the occupation of the country.
Legal title, effective control (occupation) and unilateral claim (incorporation) generate the following matrix of scenarios for the territorial applicability of RUBIT.
Ukrainian territory controlled by Ukraine and neither claimed, nor controlled by Russia;
Ukrainian territory controlled by Ukraine and claimed by Russia (those parts of the Luhansk, Donetsk, Kherson, and Zaporizhzhia oblasts that are not occupied by Russia);
Line of contact (line of battle) on Ukrainian territory claimed by Russia (the line of contact in the above four oblasts);
Line of contact on Ukrainian territory not claimed by Russia (the line of contact during the offensive towards Kyiv);
Ukrainian territory controlled but not claimed by Russia (e.g. the areas captured during the offensive towards Kyiv, such as Bucha);
Ukrainian territory controlled and claimed by Russia (e.g. Crimea, occupied parts of the Luhansk, Donetsk, Kherson, and Zaporizhzhia oblasts).
The applicability of the RUBIT is not an academic question. Russian assets of enormous value were frozen throughout the world. It is highly dubious if these can be used for the purpose of war reparations under international law. Nonetheless, a good part of these assets can be used to enforce (investment) arbitral award. Although “non-commercial” assets, such as the property of diplomatic missions, military assets, cultural property, items displayed at an exhibition and, most importantly, the property of the central bank are immune from enforcement due to sovereign immunity, sovereign direct investments, airplanes, ships and the assets of persons attributable to the state can be used to satisfy investment awards.
Although the RUBIT was recently terminated by Ukraine, it remains in force until January 27, 2025, and has a “continuing effects” clause in Article 14(3), which sustains investment claims for ten years after termination.
For the purposes of U.S. anti-dumping/countervailing duty law, the Commerce Department maintains a list of non-market economies. Vietnam is one of the economies on that list. A March 2024 Congressional Research Service paper on "Vietnam’s Nonmarket Economy (NME) Status" notes that the government of Vietnam "has long sought to remove the designation, arguing it may hinder closer ties." Vietnam officially submitted a removal request in September 2023, and on October 30, 2023, the Commerce Department initiated a review of Vietnam’s NME status.
On August 2, the Commerce Department announced its determination that "Vietnam will continue to be classified as a non-market economy (NME) country for purposes of calculating U.S. antidumping duties (ADs) on imports from Vietnam." While acknowledging "Vietnam’s substantive reforms made over the past 20 years," Commerce nevertheless concluded that "the extensive government involvement in Vietnam’s economy distorts Vietnamese prices and costs and ultimately render them unusable for the purpose of calculating U.S. antidumping duties." Therefore, Commerce "will continue to use market-based prices and costs from a country at a comparable level of economic development to Vietnam that produces comparable merchandise to calculate ADs."
In terms of the practical impact of this determination, the Congressional Research Service paper explains that "Commerce’s usual practice of applying alternative methods when calculating dumping margins in antidumping investigations involving NMEs generally leads to higher tariffs in affirmative determinations."
Commerce's full reasoning on this issue can be found in a memo entitled "Review of Vietnam’s Status as a Non-market Economy Country." In the memo, Commerce explained that:
Vietnam has implemented notable market-oriented economic reforms for nearly two decades under a broader economic initiative known as the “Doi Moi” (often translated as “renovation” or “innovation”). Those reforms aimed to transition Vietnam out of an economic system that relied on intensive government direction and intervention, which Commerce characterized as an NME for purposes of U.S. AD laws when it last reviewed Vietnam’s NME status in 2002.
However, Commerce said, "based on the assessment of the record evidence, persistent structural and institutional issues in Vietnam remain," as "[t]he extensive and pervasive government involvement in Vietnam’s economy that pertains to the six statutory factors Commerce relies upon in making a market economy determination distorts Vietnamese prices and costs, and ultimately renders them unusable for purposes of calculating U.S. AD duties." The six factors considered were:
The Extent to Which the Currency of the Foreign Country is Convertible Into the Currencies of Other Countries
The Extent to Which Wage Rates in the Foreign Country are Determined by Free Bargaining Between Labor and Management
The Extent to Which Joint Ventures or Other Investments by Firms of Other Foreign Countries are Permitted in the Foreign Country
The Extent of Government Ownership or Control of the Means of Production
The Extent of Government Control Over the Allocation of Resources and Over the Price and Output Decisions of Enterprises
Such Other Factors as the Administering Authority Considers Appropriate (here, rule of law and corruption)
Commerce said its determination to maintain Vietnam’s status as an NME country "is the result of a collective analysis of all statutory factors, and not any singular issue or statutory factor."
It's interesting to read this analysis, but it leaves me wondering about the way forward on the big picture related to the structure of Vietnam's economy.
The Commerce Department seems happy with the reforms Vietnam has undertaken so far, but disappointed that it has not gone further. So what might cause Vietnam to adopt further reforms? Will this updated NME classification for AD purposes induce Vietnam to make additional reforms and become more market-oriented? Or is the NME classification simply designed as a defensive mechanism while Vietnam remains an NME, without any sense that it will lead to additional reforms?
If the NME classification will not push Vietnam in a market-oriented direction, what might do so? One option is to make use of the commitments Vietnam made in its 2006 WTO Accession Protocol and Working Party Report. For example, on the issue of the price and output decisions of state-owned enterprises (see factor 5 above), the Working Party Report states:
78. The representative of Viet Nam confirmed that Viet Nam would ensure that all enterprises that were State-owned or State-controlled, including equitized enterprises in which the State had control, and enterprises with special or exclusive privileges, would make purchases, not for governmental use, and sales in international trade, based solely on commercial considerations, e.g., price, quality, marketability, and availability, and that the enterprises of other WTO Members would have an adequate opportunity in accordance with customary business practice to compete for participation in sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of Viet Nam would not influence, directly or indirectly, commercial decisions on the part of enterprises that are State-owned, State-controlled, or that have special and exclusive privileges, including decisions on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement and the rights accorded to non-governmental enterprise owners or shareholders. The Working Party took note of these commitments.
(Not all explanations and statements in the Working Party Report are incorporated into the Accession Protocol as binding commitments, but paragraph 527 of the Working Party Report notes that paragraph 78 is, and para. 2 of the Protocol states: "This Protocol, which shall include the commitments referred to in paragraph 527 of the Working Party Report, shall be an integral part of the WTO Agreement.")
The commitments in paragraph 78 are a good start, but from what I could see, many of the other factors relied on by Commerce are not mentioned in the Working Party Report/Accession Protocol. That suggests additional rules may be needed. Given the difficulty of negotiating rules at the WTO, one way to approach this is with a bilateral or regional trade agreement through which Vietnam agrees to make structural changes to its economy in exchange for concessions or commitments of some sort from the U.S.
How the U.S. government approaches this issue going forward depends on its goals. Is it a priority to push trading partners with high levels of state involvement in the economy in a more market-oriented direction? On balance, this would be good for both them and us, but there has been a reluctance to pursue this objective recently. U.S. government officials express concern about foreign non-market practices in various ways, but few concrete actions are taken. It often feels like restrictions on trade are the U.S. priority these days, and that may mean no action is taken on Vietnam beyond the Commerce Department NME determination.
(And yes, to state the obvious, the logic above does apply to China as well, although the geopolitical considerations are different of course. I will have more to say on this at some point.)
Scott Lincicome and some Cato Institute polling experts have worked with YouGov to put together what I think is the definitive work on Americans' views of trade policy. For me, two of the most important findings are: (1) American voters think of trade as much less important than other policy issues; and (2) they are mildly pro-trade, but their views on trade policy are complex and a bit hard to pin down.
Let's go through a couple of the questions/responses. First up is the importance (or lack thereof) of trade:
Maybe the role of swing states makes trade slightly more important in presidential elections, as Pennsylvania, Michigan, and Wisconsin are states where competition with foreign manufacturing matters more than average. But overall, trade is clearly not a top issue for voters.
Nest up is a question about "free trade," which people seem to like:
Of course, there are endless debates on what exactly is meant by "free trade," but it would be difficult to get that much nuance into these questions, and what we have is a clear majority that sees free trade favorably.
Turning to a question about tariffs, even though people are strongly pro-free trade, they are somewhat pro-tariff as well, which is hard to make sense of:
The breakdown by particular demographic category is also interesting on these last two questions. Democrats, Republicans, and Independents were all favorable towards free trade, with Democrats slightly more in favor; and Democrats, Republicans, and Independents were all favorable towards tariffs, with Republicans slightly more in favor.
With actual trade experts involved in crafting the questions, they could get a bit more sophisticated with the questions than is usually the case with polling. Here's an example related to tariffs, where the question offers information on the costs of tariffs and distinguishes between fair/unfair trade:
For those who are in to these issues, it's worth taking a look at the full survey as well as the crosstabs.
After Kamala Harris announced Tim Walz as her running mate yesterday, there has been a lot of discussion of Walz's policy views. Vice-Presidents don't typically take the lead on trade policy, but nonetheless I thought it was worth mentioning something Walz said in a speech back in 2007 on the interaction of foreign policy and trade policy (starts at 12:50):
So this focus on the global war on terror has distracted and is teaching the next generation of leaders that that is all that matters, that is how foreign policy is carried out. And I say this because I think there's some glaring examples where we're missing opportunities, and I'd like to share a couple of those. One thing is, this administration has been very aggressive, very outgoing, and I think there's a positive side to this, and it's a realization that the world is very globalized. And they've gone out with a lot of trade agreements, reaching out. Well, I think there's one that shows something very interesting that's a lack of this. And this should be a very close ally of ours and a very close trading partner, but unfortunately, they're not, and that is New Zealand. New Zealand has failed to be included in some of these trade agreements. Whether it's Australia, we're getting ready for the Caribbean Basin, we just signed one on April 1 that'll come to Congress on South Korea. But New Zealand is missing from this. And I think when I look at this, there is really only one factor. There's a possibility, there's great markets there, there's great ability to trade, there's a common heritage. Everything seems to say New Zealand should be a much broader trading partner than they are. But many of you in this room know probably what the reason for that is. New Zealand has a very strong stance, and if you can remember back in the 90s, when they made the decision, they have refused to allow our nuclear submarines and our warships to dock there. So New Zealand doesn't play a role in this so called strategy theory or this security theory of our foreign policy. So New Zealand was kind of left out, and I think it's an interesting omission.
The role of foreign policy in setting trade policy priorities doesn't always get the attention it deserves, and I appreciate Walz pointing out the link between the Bush administration's foreign and trade policy tradeoffs. Walz seemed to doubt the wisdom of excluding New Zealand from the Bush administration's FTA efforts, and I think he was right to be skeptical.
On more general trade policy issues, Walz said this in 2015 after voting against Congressional authorization of Trade Promotion Authority:
I’m for trade as long as it’s fair trade, but we can’t ensure that is the case if we fast-track this agreement and keep Congress—and constituents—in the dark. Trade can be a powerful tool for good, but as we’ve seen in the past with agreements like NAFTA, sometimes these agreements work against the American worker. We need a trade deal that’s fair, that restricts currency manipulation, promotes ‘Made in America’ manufacturing, and opens foreign markets for our agricultural products. Unfortunately, TPA—and by extension TAA—by its very nature, makes it so Congress cannot ensure that is the case, which is why I voted against these measures today.
This particular variety of trade skepticism is fairly typical among Congressional Democrats. However, the position of Democrats in the Executive branch tends to be different from those in Congress, because they represent all Americans rather than just their constituents, and also international relations plays a bigger role for them. As a result, someone's views as a member of Congress may not carry over directly to their views as President or Vice-President. It may be unlikely that Walz as VP would play much of a role in trade policy, but nonetheless it will be interesting to see if there is any shift in his views if the Harris/Walz ticket is elected.
During a DSB meeting in January 2023, the U.S. indicated that it would be seeking an "authoritative interpretation" of the GATT security exception:
The United States believes that Members need to deepen their collective understanding of this issue that is so critical to all of us. We intend to raise this fundamental issue as part of our discussions on reform of the WTO dispute settlement system. Ultimately, we believe Members need to clarify and adopt a shared understanding of the essential security exception, and we therefore intend to seek an authoritative interpretation of Article XXI of the GATT 1994, pursuant to Article XI of the WTO Agreement.
In April 2023, I tried to press Ambassador Tai about when we would see a formal proposal, but didn't get anything definitive (although she did make a good joke!).
Now it appears that the security exception is one of the holdups to U.S. support for the Agreement on E-Commerce that WTO Members are working on. This is from the U.S. statement on the E-Commerce Agreement text that was released on July 26:
as the United States has repeatedly communicated to the co-conveners and participants, the current text falls short and more work is needed, including with respect to the essential security exception.
The security exception in that text states: "For the purposes of this Agreement, Article XXI of the GATT 1994 and Article XIV bis of the GATS shall apply, mutatis mutandis."
So my question is, with security exceptions getting in the way of progress, are we going to see anything from the U.S. on what its authoritative interpretation of Article XXI (and related exceptions) would look like? Is there one floating around in Geneva that hasn't been leaked yet?
To me, this seems like an area where more U.S. engagement would be helpful. Everyone understands that the U.S. objects to recent WTO panel interpretations of GATT Article XXI, and of course everyone also has a general sense of the interpretation preferred by the U.S. based on its arguments in various WTO disputes and statements at DSB meetings. But it would still be useful to see the precise wording of how the U.S. would want to see Article XXI (and the other WTO security exceptions) interpreted, if it has something in mind here (as it suggested it did). Some specific and clear positions could help everyone evaluate the possibilities for moving the discussion forward on this and related issues.
At this point, I'm not sure what the chances are for achieving a breakthrough on the broader issues in WTO dispute settlement reform. However, it is worth noting that in the context of security exceptions in particular, in the USMCA and various FTAs the U.S. and other governments did agree to what is arguably a broader security exception. But those situations were different in a number of important ways, including fewer countries being involved.
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