International Economic Law and Policy Blog

International Trade Agreements and Domestic Law

I came across two items related to the treatment of international trade agreements in domestic law.  I'm going to combine them in this post even though they are completely unrelated otherwise.

1.  From the R-CALF (a group which represents U.S. cattle producers) submission to USTR related to the Canadian/Mexican complaints on the U.S. country of origin labelling law (COOL) dispute (DS384 and DS386):

R-CALF USA believes it is fundamentally contrary to our U.S. Constitution for the United States Trade Representative (“USTR”) to agree that foreign governments – specifically Canada and Mexico – have any standing whatsoever to bring a complaint against our constitutionally passed mandatory country-of-labeling (“COOL”) law.

Our domestic COOL law imposes no duty or restrictions on any foreign government; it does not impose any limits on the volume or type of commodities that a foreign country may export to the United States; foreign countries are not obligated, in any way, to export to the United States any of the commodities that would be subject to our COOL law – hence, a foreign country’s decision to market their products in the U.S. market and under the rules of the U.S. market is purely voluntary; and, COOL jurisdiction is exclusively limited to United States retailers, as defined exclusively by U.S. law, and subjects all covered commodities marketed by U.S. retailers to identical information requirements, regardless of where the commodities originate. Thus, our domestic COOL law does not affect international trade agreements and it is fundamentally inappropriate for the World Trade Organization (“WTO”) to even entertain a foreign country’s complaint against our domestic COOL law. Further, and for the foregoing reasons, the USTR should not consent to WTO jurisdiction over our domestic COOL law.

Assuming, but only hypothetically, that United States officials had inadvertently surrendered the right of its sovereign U.S. citizens to govern themselves – as guaranteed by our U.S. Constitution – to the WTO, the complaints by Canada and Mexico against our domestic COOL law would still be baseless and wholly without legitimacy. ...

I'm not completely sure I follow this, but I think they are saying that because of the nature of the COOL law (for example, that it is not a border measure), it should not be covered by WTO rules.  Thus, the WTO has no jurisdiction over it.  In addition, they seem to argue that, as a matter of domestic law, allowing the WTO to have jurisdiction over such a measure violates the U.S. Constitution.

Speaking very generally, it seems to me that the R-CALF position is in line with those of other groups who want to narrow the scope of international trade agreements.  Such arguments are not likely to have much impact with a WTO panel, but I wonder whether they plan to pursue this argument in a domestic forum.  Do they have some type of constitutional challenge in mind?  I'm not sure if submitting this kind of argument to USTR is pretty standard and never goes anywhere, or if there is some significance to R-CALF including it here.

2.  And from Europe, there was this:

 A Bosnian court said on Saturday it had temporarily suspended a recently adopted law on protection of domestic production seen as violating a regional trade pact and the Balkan country's commitments toward the EU.

The Constitutional Court of Bosnia-Herzegovina decided to suspend the law on the request of the chairman of the upper house of the country's parliament Ilija Filipovic, it said in a statement.

The law will be suspended until the court reaches a final decision on Filipovic's motion at one of its coming sessions.

The controversial law imposing higher customs duties on nearly 1,000 items was passed by parliament earlier this month despite strong opposition from the European Union and Bosnia's neighbours.

The EU said the law violated the Central European Free Trade Association accord (CEFTA) reached by the Balkan countries in 2006 with the aim of boosting regional trade and preparing members for the EU single market.

I looked for the decision online, but could not find it.  I am curious to hear more about the court's reasoning.  Did they have much to say about the role of international law in domestic law?  Maybe not in this decision, but perhaps there will be something in the final decision.

 

Carbon Tariffs and Cap and Trade: The Devil is the Details

The Washington Post explains the details of the Waxman-Markey energy bill and argues that such tariffs are unnecessary:

... American firms that pay in order to comply with mandatory limits on carbon emissions would be at a disadvantage competing against foreign outfits whose leaders aren't as environmentally conscious.

But this measure is redundant. The bill already provides ample compensation to "trade-vulnerable industries" through at least 2026, devoting as much as a whopping 15 percent of allowances -- valuable pollution rights created under the bill's cap-and-trade regime -- to shelter firms from foreign competition.

The details of this rebate scheme leave ample room for overpayment. And because rebates are based on firms' historical output, argues Michael Levi of the Council on Foreign Relations, manufacturers might have even an incentive to scale back or close down and simply collect the cash. Better to head off these problems, Mr. Levi argues, by aiming to compensate U.S. firms for 75 percent of their compliance costs instead.

The tariffs, meanwhile, are meant to kick in if the rebates don't level the playing field enough. But they are questionably designed. The bill instructs regulators to apply tariffs to foreign exporters if the emissions per unit of their industrial sector back home are greater than that of the same sector in America. That makes no distinction between the carbon footprint of the goods countries export and those they consume domestically. More efficient exporters could get punished.

 

The FT on Carbon Tariffs

Here's an excellent, balanced look at the carbon tariff issue from the Financial Times.  A short excerpt:

Some trade lawyers point out that past WTO decisions have permitted governments to restrict trade in order to protect natural resources. But others say the case law is patchy, and it is hard to prove that such measures are being applied in a fair and consistent manner – a necessary condition for meeting WTO rules.

Carbon Tariffs "Are" WTO-Legal Versus Carbon Tariffs "Can Be" WTO-Legal

In a post entitled "Carbon tariffs — the legal aspects," Paul Krugman quotes Joost Pauwelyn as saying:

In sum, if carefully calibrated along the lines suggested above, carbon equalization measures at the border, imposed on certain imports, can be modeled in compliance with WTO non-discrimination rules and/or the WTO’s environmental exception.

Krugman then says:

So the economics are right; it’s WTO-legal; and it would neutralize a major political argument against controlling greenhouse gases. Why, oh, why, would Obama say “Ni”?

I think Krugman is overstating things when he draw the conclusion "it's WTO-legal" (that is, carbon tariffs are WTO-legal) from Joost's statement.  Joost was careful to say that such tariffs "can be" legal "if" designed in the right way.  Whether this condition will be met is far from clear.

A Bold Proposal on Anti-Dumping

From a letter to the FT by Professors Robert McGee and Yeomin Yoon:

President Obama should be audacious enough to proclaim the following: In a free enterprise economic system, domestic producers have no inherent claim on the funds of consumers. The only ethical way of obtaining the funds of consumers is through voluntary trade. Using the force of the government to obtain the funds (by prohibiting foreign suppliers from competing) puts domestic producers in the role of the aggressor, and in fact makes consumers the real victims. That is exactly what happens when a domestic producer appeals to the government to request an anti-dumping investigation against some foreign producer that is merely taking business away. Therefore, all anti-dumping laws and policies should be abrogated to promote freer trade.

Tariff Preferences and Drug Policies

This all sounds familiar.  A developed country uses illegal drug production/trafficking as a criterion for deciding which countries to include in a tariff preference program.  The DS246 EC - Tariff Preferences case, brought by India?  No, this time it's the United States excluding Bolivia from one of its preference programs.

In DS246, India complained because the European Communities gave preferences designed to help out countries experiencing drug problems, and included 11 Latin American countries and Pakistan in its proference program.  India thought Pakistan's inclusion was unjustified (and was worried about the advantages Pakistani exports would have over Indian exports), so it brought a WTO complaint, which it won.

The Bolivia issue has parallels, but is slightly different.  Here, the United States is excluding Bolivia from the Andean trade preference program on the basis that Bolivia is not doing enough to address its drug problems.

Bolivian President Evo Morales is not happy about the U.S. action:

"I'm disappointed ... because the Obama administration has used slander, lies and false accusations to suspend the preferential tariffs," said Morales, who threw out the U.S. ambassador to La Paz and American anti-drug agents last year.

"They said I shouldn't trust Obama ... I want to thank those people for giving me that advice," the former coca farmer told reporters.

I talked about the legal issues a (little) bit back here in relation to the possibility of excluding Ecuador from the program and also here in relation to Bolivia.

China Does Not Like Carbon Tariffs

Reuters reports:

Proposals to impose "carbon tariffs" on imported products will violate the rules of the World Trade Organization as well as the spirit of the Kyoto Protocol, China's Ministry of Commerce said.

In a statement posted on its website, the ministry said collecting carbon duties from foreign products would enable developed countries to "protect trade in the name of protecting the environment."

"This will not help strengthen confidence that the international community can cooperate to handle the (economic) crisis, it also will not help any country's endeavors during the climate change negotiations, and China is strongly opposed to it," the statement said.

I looked for the statement on the Ministry of Commerce site, but could not find it.  What I wonder is the following:  Is China opposed to any and all carbon tariffs, or just those implemented in a way that imposes an unfair burden on foreign companies?  That is, if a WTO Member could write a carbon emission measure in a way that imposed equal costs on foreign and domestic companies (using tariffs for foreign companies), would China be OK with it?  Based on the quote above, my guess is they would not, but I wasn't completely sure.

Catfish Inspection: A Difficult Trade Issue

As this AP article explains, there is a long history of trade disputes involving the U.S. catfish industry and its Vietnamese competitors, including anti-dumping duties and labelling regulations.  The latest chapter is particularly interesting, though, because it gets at what I think could be a growth industry for trade disputes:  food and product safety inspections.  From the article:

U.S. farmers ... want the Vietnamese imports [to] be covered by a new inspections regime that they pushed through Congress last year.

...

The inspections requirement could be the U.S. producers' silver bullet, stopping imports in their tracks. Applying to all catfish sold in the U.S., it would require Vietnam to establish a complicated inspection system and demonstrate that it is equivalent to U.S. inspections, a process that could take years.

...

Seafood typically is regulated by the Food and Drug Administration, which administers spot inspections that are relatively easy for foreign countries to participate in. Cochran's provision singles out catfish as the only seafood to be regulated by the Agriculture Department, which traditionally oversees only beef, pork and poultry products.

... in various forums, the industry has argued that the new inspections would prevent scares like those involving lead-tainted toys or poisonous dog food that could damage the image of their product. The industry has pointed out that the FDA inspects only around 2 percent of seafood imports and that a better system is needed to keep banned chemicals out of the U.S. They also point to cases in which importers have been caught selling pangasius under false names and avoiding tariffs.

Food safety is clearly an important domestic policy.   And ensuring the safety of imported foods is particularly difficult, so some sort of inspection regime for foreign-produced food seems reasonable to me.  However, getting the right balance between effective regulation and burdens on foreign companies could be difficult and contentious.

China's PC Software Filtering Delayed

Bloomberg reports:

China postponed tomorrow’s deadline for personal-computer makers to include a state-backed anti- pornography software on new PCs after U.S. officials and business groups urged it to scrap the rule

Twittering About Trade Law

I can't figure out what to make of Twitter.  Is this really the next big thing?  In case it is, a little while ago I went ahead and used the RSS feeds for our news service and this blog to create a Twitter feed.  (I think this is "cheating," in a sense -- I don't really "tweet" anything, but rather just pass along outside items which then get tweeted).  The result is here: http://twitter.com/worldtradelaw

I wasn't really sure what to expect from doing this, but to my great surprise, we now have 216 "followers"!   However, this figure may not be as impressive as it sounds.  I've noticed that a decent number of these are either 1) porn sites hoping to get themselves noticed, or 2) people who give advice about how to get more twitter followers.

Having said that, there is some good trade law-related twittering going on, with some actual postings rather than just feeding from other sources like we do.  For those trade lawyers who want to check out twitter for the first time, I recommend the following as a good starting point:

John Boscariol of McCarthy Tetrault, twittering as tradelawyer

Lawrence Friedman of Barnes Richardson, twittering as customslawblog

Martha Harrison of Heenan Blaikie, twittering as intltradelawyer

Doug Jacobson of Sandler, Travis and Rosenberg, twittering as tradelawnews

And Inside U.S. trade, twittering as insidetrade

(Apologies if I missed anyone -- feel free to add other trade law twitterers in the comments to this post).

PC Filtering: The Investment Issues

Over at the Kluwer Arbitration Blog, Luke Peterson talks about the investment aspects of the Chinese PC filtering issue.  He notes:

One critical question in any claims arising out of this internet-filtering software dispute would be the expectations that investors had upon entering the Chinese market. For instance, it has been widely reported that Google, the search company, which has had its own ups and downs in China, operates under the terms of a highly-detailed license. I’m guessing that the terms of such licenses make it crystal clear that foreign technology companies are no longer in the highly-permissive State of California.

While I will leave it to others to handicap the chances of any investment treaty claims, it seems to me that the investment treaty route could be the “sleeper” option in this whole controversy.

Obama on Carbon Tariffs

From a NY Times interview:

Q. One of the provisions that got added very late to this bill that senators had expressed some reservations about was the one that puts tariffs on goods imported from countries that don't have these sort of restrictions. What do you think of that revision and would you like to see the Senate strip it out?

President Obama: At a time when the economy worldwide is still deep in recession and we've seen a significant drop in global trade, I think we have to be very careful about sending any protectionist signals out there. There were a number of provisions that were already in place, prior to this last provision you talked about, to provide transitional assistance to heavy manufacturers. A lot of the offsets were outdated to those industries. I think we're going to have to do a careful analysis to determine whether the prospects of tariffs are necessary, given all the other stuff that was done and had been negotiated on behalf of energy-intensive industries.

So certainly it is a legitimate concern on the part of American businesses that they are not disadvantaged vis-a-vis their global competitors. Now, keep in mind, European industries are looking at an even more ambitious approach than we are. And they obviously have confidence that they can compete internationally under a regime that controls carbons. I think the Chinese are starting to move in the direction of recognizing that the future requires them to take a clean energy approach. In fact, in some ways they're already ahead of us -- on fuel efficiency standards, for example, they've moved beyond where we've moved on this.

There are going to be a series of negotiations around this and I am very mindful of wanting to make sure that there's a level playing field internationally. I think there may be other ways of doing it than with a tariff approach.

The article accompanying the interview is entited, "Obama Opposes Trade Sanctions in Climate Bill."  The article begins as follows:  "President Obama on Sunday praised the energy bill passed by the House late last week as an “extraordinary first step,” but he spoke out against a provision that would impose trade penalties on countries that do not accept limits on global warming pollution." I suppose it depends on what specific actions the measure would take, but I'm not sure I agree with the language used.  Are the trade measures envisioned here "trade sanctions" or "trade penalties"?  If I were one of the proponents of this bill, I would try hard to characterize any charges on importers/imported products as simply a non-discriminatory imposition of the costs of the measure.  (Also, I would try to make sure the costs actually are non-discriminatory!)

ADDED:  Paul Krugman says something similar here:

It has long been accepted that a VAT is essentially a sales tax — a tax on consumers — which for administrative reasons is collected from producers. Because it’s essentially a tax on consumers, it’s legal, and also economically efficient, to collect it on imported goods as well as domestic production; it’s a matter of leveling the playing field, not protectionism.

And the same would be true of carbon tariffs.

 

Krugman on the WTO and Cap and Trade

Paul Krugman is happy with the recent WTO/UNEP report on trade and climate change:

There was some question about how the WTO would handle cap-and-trade — whether it would accept the need for carbon tariffs, if some countries (cough China cough) drag their feet, or whether it would adopt a purist free-trade rule. The answer seems to be in — the WTO is going to treat cap-and-trade the same way it treats VATs, with border taxes allowed if they can be seen as reducing distortions.

I suppose one way to define the "purist free-trade" position is that no import tariffs/charges of any sort are allowed.  So, in this sense, he is correct that accepting the need for carbon tariffs goes against the purist view.

Another way to think about the "purist free-trade" position, though, is to say that any such tariffs/charges must not be imposed in a discriminatory manner, that is, they must be equivalent to a domestic counterpart.  If that definition is used, than the WTO report is completely consistent with a "purist free-trade" stance.

More on the Software Filtering Issue

The Economist mentions an interesting new detail about China's efforts to have all personal computers sold in China come with filtering software called Green Dam Youth Escort:

An American firm, Solid Oak Software, claims Green Dam includes stolen copyrighted code from one of its products, and has launched legal action.

I hadn't heard much about this Green Dam software before.  This certainly complicates things!

I wish I had more to say about the general issue of the requirement to install filterating software as a potential WTO case.  The trouble is, I'm a little fuzzy on the facts and the legal claims, which makes it difficult to say much.

New Map from the WTO – and some thoughts it sparked

The WTO recently released a very nice interactive map of WTO DSB litigation.  The map shows total numbers of cases filed for each country  - as complainant or as respondent, and who are the parties.  The map is at http://www.wto.org/english/tratop_e/dispu_e/dispu_maps_e.htm?country_selected=ARM&sense=e.  The map would be a useful addition in the classroom. 

 

Additionally, the map reminds me of an article I wrote a bit back where I did a little bit of rough and dirty comparisons between Canada and the United States (see Reputational Fallacies in International Law:  A Comparative Review of United States and Canadian Trade Actions, 30 Brooklyn J. Int’l L. 67 (2004), available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=970087).  In that article, and a related book chapter, I found that that when one took the size of the states’ economies and participations in the international economy into account, the numbers of complaints filed by each (for whatever that means – though I offered my views of what it means), and the numbers of times they were a respondent (for whatever that means, and once again, I offered my views)  - the results were comparable, despite the different reputations of the two countries.  A quick glance at this map suggests to me that a similar analysis of other countries would might show such a phenomenon. 

 

Take for example a comparison between the Untied States, Australia, and New Zealand.  According to this map, the United States has been a complainant in 92 cases, a respondent in 106 cases, and a third party in 73.  The numbers for Australia are respectively 7, 10, and 47 and for New Zealand respectively 7, 0, and 27.  Interesting.  Of course, any real analysis should include many more factors (and my article does include more).  But if one were just to play with the numbers, if the universe was just those three countries, and using the figures the Economist has provided for 2008 for their exports and imports of goods (as a measure of their international economy, I did not have the numbers for services – sorry), we find that the size of those economies are (in billion US dollars) for the US, Australia and NZ: 2639, 224.5 and 47.9 or ratios of roughly 90.6 to 7.7 to 1.6  - respectively.  And yet, their ratios for acting as a complainant in the WTO are 86 to 6.6 to 6.6 (raw numbers are at the map).  Their ratios for being a respondent are 91.4 to 8.6 to 0.  As a third party participant they are 49.6 to 32 to 18.4.  Do these numbers suggest some sort of similarity in their trade behaviors?  Perhaps. 

 

But the real fun, for me anyway, is when one compares countries that are neighbors – with all the psychological baggage that goes with that (as I did for the US and Canada).  As I am off to Australia next week (to be a visiting fellow at University of New South Wales, and then will later present a paper in Wellington, NZ) I though it might be entertaining to compare those two countries – admittedly in this very rough method.  So, just using those two countries, the relative sizes of their international economies are 82.4 to 17.6.  And yet for the ratio of the number of complaints filed at the WTO, they are 50 to 50, though for being a respondent 100 to 0, and as third party participants 63.5 to 26.5.   True, the numbers are small – but do these ratios suggest anything with respect to their respective reputations (such as they may be determined) or with their self images?  Anyway, a real analysis would involve plenty more factors, but would likely be just as entertaining. 

Just some thoughts sparked by this new cool map.

 

 

Green Car Subsidies

At the same time that we are about to have a ruling on the legality of various subsidies to the aircraft industry, subsidies are proliferating in many other industries, in large part due to the impact of the financial crisis.  The question then arises, if everyone is subsidizing, will any new WTO complaints be brought in this area?  Perhaps only if there is an imbalance in the subsidies, with certain governments giving more to particular industries than other governments are.  Otherwise, everyone is equally guilty, and a kind of subsidy equilibrium has been reached.

Here's a recent example, with a twist:

Ford Motor Co will receive nearly $5.9 billion in U.S. government loans to build fuel-efficient vehicles as the Obama administration deepened its commitment to reshaping the cash-strapped auto industry.

Japan's Nissan Motor Co Ltd will receive $1.6 billion and start-up Tesla Motors Inc will receive $465 million in low-cost loans to build all-electric cars in the first wave of financing from an Energy Department program intended to offset the cost meeting sharply higher new fuel economy standards.

So here we have the U.S. government subsidizing the efforts of several companies (including a foreign one, although only for its U.S. factory) to produce cars that use less gasoline, which, at long last, brings me to the question I was trying to get to:  Do WTO rules need to be modified so that subsidies to promote a cleaner environment are explicitly permitted?  I don't mean to make the Doha negotiations any more difficult than they already are, but it's possible that without some clarification, we could see some disputes in this area.  (As noted, if everyone is doing it, perhaps there will be no challenges.  But if one country does more of it than others, there is a chance of a complaint being filed.)

Speaking of the environment, the FT has the following story on a report to be issued tommorrow:

Countries implementing cap-and-trade systems for greenhouse gases may be able to use border taxes to protect domestic industries, after the World Trade Organisation gave a cautious nod to such measures.

In a report to be published on Friday, written jointly with the United Nations Environment Programme, the WTO said it was possible to implement border measures for environmental reasons under its rules.

“Rules permit, under certain conditions, the use of border tax adjustments on imported and exported products,” said the WTO. “The objective of a border tax adjustment is to level the playing field between taxed domestic industries and untaxed foreign competition by ensuring that internal taxes on products are trade neutral.”

The PC Filtering Software Issue

From USTR:

Today U.S. Secretary of Commerce Gary Locke and U.S. Trade Representative Ron Kirk sent a joint letter to their counterparts in China's Ministry of Industry and Information Technology (MIIT) and Ministry of Commerce (MOFCOM) urging China to revoke a proposed rule (Circular 226) that would mandate that all computers produced and sold in China pre-install a widely-criticized Chinese Internet filtering program called Green Dam. This proposed measure is scheduled to take effect on July 1, 2009.

The letter points out that the proposed new rule raises fundamental questions regarding regulatory transparency and notes concerns about compliance with World Trade Organization (WTO) rules, such as notification obligations. Locke and Kirk also listed for MIIT Minister Li Yizhong and MOFCOM Minister Chen Deming numerous concerns raised by global technology companies, Chinese citizens, and the worldwide media about the stability of the software, the scope and extent of the filtering activities and its security weaknesses. All of these problems have serious implications for consumers and businesses

"China is putting companies in an untenable position by requiring them, with virtually no public notice, to pre-install software that appears to have broad-based censorship implications and network security issues," Locke said.

"Protecting children from inappropriate content is a legitimate objective, but this is an inappropriate means and is likely to have a broader scope. Mandating technically flawed Green Dam software and denying manufacturers and consumers freedom to select filtering software is an unnecessary and unjustified means to achieve that objective, and poses a serious barrier to trade," Kirk said.

Both U.S. government officials offered China an opportunity to exchange views with U.S. and Chinese government and industry officials on ways in which parental control software can be promoted in the market consistent with the goals of user choice, system reliability, freedom of expression, and the free flow of information.

The USTR press release doesn't say much about the legal theory, and the letter that is mentioned has not, as far as I know, been made public.  So what is the legal claim?  The WSJ explains it as follows:

U.S. officials argue the tight deadline for implementing the software requirement constitutes an unfair trade barrier. PC makers have expressed concerns about being able to meet the July 1 start date.

Foreign and domestic PC makers in China are required to begin shipping computers with the software on July 1, so the U.S. would have to show Chinese manufacturers had more notice or information to meet that deadline for a WTO complaint to succeed.

More from Bloomberg here. 

What Should Be In Trade Agreements

From Congressman Mike Michaud, one of the sponsors of the “Trade Reform, Accountability, Development and Employment (TRADE) Act,” introduced in the House:

What Must and Must Not Be in All Agreements: The bill contains a detailed description of the key provisions that must be included in all future U.S. trade agreements and what aspects of the current model must never again be replicated to ensure that trade pacts provide broader benefits. It sets forth the environmental and labor, food and product safety, agriculture, trade remedy, human rights, federalism safeguard and currency anti-manipulation rules and national security exceptions that must be included in all U.S. trade pacts. This section also lists what aspects of the NAFTA-WTO model cannot be included in future deals, including bans on Buy American and anti-sweat shop or environmental procurement policies; new rights and privileges for foreign investors to promote offshoring and expose domestic health and environmental laws to attacks in foreign tribunals; service sector privatization and deregulation requirements; and special protections for Big Pharma to limit affordable access to drugs. This section comprises over half of the bill, given that today trade pacts extend far beyond traditional trade matters to cover so many different essential policy topics that are the crux of Congress’ domestic agenda - from access to essential services such as health care and education to regulation of financial services to medicine patents to investment, procurement and local development policy to procurement and food and product safety policy.

I don't agree with all of these conclusions about what should be in trade agreements, but I think it's one of the most important trade issues out there, and I hope this bill triggers some serious debate.  More from The Hill.

 

The EC/U.S. Complaint Against Chinese Export Restrictions

Some links related to today's announcement of the EC/U.S. complaint against Chinese export restrictions:

U.S. Slams China on Exports - BusinessWeek

The U.S. and the European Union on June 23 formally accused China of illegally hampering exports of raw materials in order to benefit its own manufacturers. The move comes during a period of heightened concern over protectionism amid the global economic crisis. It also coincides with resistance in Congress to an attempt by the Obama Administration to advance a bilateral trade agreement with Panama.

China's export rebates hurt steel industry-US Steel|| Reuters

NEW YORK, June 23 (Reuters) - China's move to cut export taxes for its steelmakers will increase its steel exports at the expense of other producers around the world, undermining the industry, said U.S. Steel (X.N) Chairman and Chief Executive Officer John Surma.

FT.com - US launches WTO case against China

The US raised the stakes in a growing trade dispute with China on Tuesday, lodging a case at the World Trade Organisation over export quotas and duties of raw materials.

Europe and U.S. Accuse China of Unfair Trade Practices - NYTimes.com

The United States and European Union accused China of unfair trade practices on Tuesday, saying the Chinese government was restricting exports of raw materials to give manufacturers in that country a competitive advantage.

FACTBOX-Materials targeted by EU, U.S. in China WTO case | Reuters

June 23 (Reuters) - The European Union and the United States are taking action against China at the World Trade Organisation over export restrictions on a number of industrial raw materials used in steel, cars, microchips, planes and other products. [ID:nLN887624]

SFGate: Politics Blog : Obama strikes at China

Whatever Austan Goolsbee may have told Candadian officials during the Ohio primary, and whatever NAFTA trashing Obama the candidate thought he needed to do to win it (before he lost it to Hillary Clinton), the evidence is in: Obama the president has shown no inclination to undo NAFTA.

Ambassador Kirk Announces WTO Case Against China Over Export Restraints on Raw Materials | Office of the United States Trade Representative

Now more than ever, trade is essential to keeping America's economy afloat.

Factsheet - FACTSHEET: EU requests WTO consultations on Chinese export restrictions on raw materials

European Commission - EU requests WTO consultations with China over export restrictions on raw materials

U.S., Europe File Trade Complaint Against China - WSJ.com

WASHINGTON -- U.S. Trade Representative Ron Kirk on Tuesday said the U.S. has filed a World Trade Organization case against China over export restraints on raw materials, calling those policies a "giant thumb on the scale" in favor of Chinese producers.

U.S. Files WTO Complaint Against China Over Export Restraints - Bloomberg.com

June 23 (Bloomberg) -- The U.S. said it filed a World Trade Organization complaint accusing China of curbing exports of raw materials to benefit its domestic manufacturers.

TheHill.com - Obama starts first trade case against China

President Obama's administration on Tuesday announced it will bring its first trade case against China in the World Trade Organization unless consultations solve the dispute.

United States Files WTO Case Against China Over Export Restraints on Raw Materials | Office of the United States Trade Representative

WASHINGTON, DC - U.S. Trade Representative Ron Kirk announced today that the United States has requested World Trade Organization (WTO) dispute settlement consultations with the People's Republic of China regarding China's export restraints on numerous important raw materials.  China's measures appear to be part of a troubling industrial policy aimed at providing substantial competitive advantages for the Chinese industries using these inputs.  The materials at issue are: bauxite, coke, fluorspar, magnesium, manganese, silicon metal, silicon carbide, yellow phosphorus, and zinc.  These are key inputs for numerous downstream products in the steel, aluminum, and chemical sectors across the globe.  China ranks as a top global producer of these materials.  The European Union also requested formal WTO consultations with China on this matter today.

Call for Papers: OGEL special issue on "antitrust in the energy sector"

http://www.ogel.org/news.asp?key=189

Oil, Gas and Energy Law Intelligence (www.ogel.org) invites submissions for a Special issue covering antitrust issues in energy. The guest editor for this special issue is Prof. Nicolas Petit (Lecturer in Competition Law and Economics at the University of Liege in Belgium and Associate at Howrey LLP).

The energy sector is one of the areas where antitrust enforcement in the EU has been the most intensive in recent years. In addition to the very significant sector inquiry 2005-2007 and the cases that are now resulting from that inquiry, the remedies (e.g. divestiture of significant network assets, energy release programmes, etc.) that have been ordered by the European Commission in the energy sector have sparked a lot of controversy. Whilst the EU seems to lean towards increased antitrust intervention in energy markets, including access issues, downstream markets, long-term agreements, LNG imports, etc. other jurisdictions, such as the United States, apparently promote less intrusive approaches (as a result, amongst others, of some US Supreme Court decisions such as Trinko). Finally, a number of antitrust agencies inside and outside the EU have a significant record in the enforcement of antitrust rules in the energy sector.

We encourage submission of relevant papers, studies, and brief comments on various aspects of this subject. The topics may cover all aspects of antitrust enforcement (vertical/horizontal cooperation agreements, abuse of dominance, merger control, etc.) relevant for oil, gas, electricity and other energy sub-sectors including LNG and nuclear.

Papers should be submitted by the end of November 2009 to: 
Prof. Nicolas Petit
University of Liège
email: Nicolas.Petit [at] ulg.ac.be.

The Clove Cigarette Ban and the Impact of WTO Rules on Government Regulation

At Eyes on Trade, Todd Tucker responds to my post on the clove cigarette ban.  The focus of his post is a quote from an insider involved in the debate over the bill, who had this to say:

Menthol historically in the US has been marketed to African Americans, so there is actually extra good public health reason to ban it.

The failure to ban was not because of so-called protectionist impulse, but political reality: It's too big a market to wipe out and get the bill passed. This is probably a combination of both manufacturer power and worries about protests from African-American smokers.

Todd then follows-up on the point with this comment:

This observer's comment that "political reality is no WTO defense at all" is what's key here. God willing, over the next few years, we're going to see a lot of consumer and environmental protection laws going into effect. A lot of them will be messy, and a lot of them will be criticized by groups like Public Citizen. But I don't think there's an advocate here among us that doesn't realize that the political process is going to yield imperfect results that are still better than nothing. Maybe it's time for a "political reality" carveout from WTO obligations.

I think it may be worth talking about this issue a bit more, because I sense there is some confusion here about what is wrong with the measure.  I did not mean to suggest that, on its own, allowing menthol cigarettes was "protectionist."  Rather, there is a very specific set of circumstances here that makes one aspect of the measure seem protectionist to me.  Let me lay it out in detail.

I am not a smoker, so I don't have any specific experience with this, but my sense of what's going on is the following.  There is concern about certain flavored cigarettes appealing to kids.  You've got a bunch of sweet or candy-like flavors, such as strawberry, grape, orange, cinnamon, pineapple, vanilla, coconut, licorice, cocoa, chocolate, cherry, and coffee.  I see the argument that these sweet flavors might encourage kids to smoke, as the flavor is not as harsh as regular tobacco.  In addition to the sweet flavors, you've got flavored cigarettes of the clove and menthol variety.  Clove cigarettes are spicy and menthol ones are minty.  It's possible that these also make smoking less harsh and thus encourage some people to smoke, but not to the extent of the sweet ones.  (Someone who knows more or who has actually smoked these things, feel free to correct me on this).

I don't think there would have been a problem if the sweet flavors had been banned but clove and menthol allowed, or if they had all been banned.  The problem is with the treatment of clove and menthol cigarettes, which appear similar in nature.  As it happens, clove cigarettes are mainly produced in Indonesia.   As a result, when you ban clove cigarettes, there is a huge discriminatory effect on Indonesian products.  Legislators were clearly aware of this, as a speech by one Congresswoman demonstrates.  Thus, at least in some sense, I think it's fair to say that there was a protectionist intent in banning clove cigarettes but not menthol ones.

The insider quoted above discusses how the political reality required menthols to be exempt from the ban on flavored products, and that's fine.  I can understand that, and on its own I don't see a trade problem here.  But even accepting that, I don't see how banning clove cigarettes while allowing menthols was anything other than protectionist.   (That's not to say there is no possible defense here, just that I'm not aware of what it might be.  If someone comes forward with an explanation, I'm happy to consider it.  I haven't heard anything so far, though.)

So, how to respond to Todd's final comment:  "Will this be the next case of the WTO chilling effect?"  I'm not really sure there is much to this.  It is true that under WTO rules, as I read them based on what I know about the facts of the case, a ban on menthol but not clove cigarettes could violate the rules.  Would a ruling that this aspect of the measure violates the rules have a "chilling effect"?  Well, everyone was aware of the issue, and the measure passed anyway, so in that sense the answer is pretty clearly no.  Beyond that simple point, if this aspect of the measure is challenged and there is a finding of violation, then trade sanctions could be authorized to bring the aspect into compliance.  This would likely mean either allowing cloves or banning menthol, so as to have equal treatment between a predominantly foreign good and a predominantly domestic one.  To me, then, the only "chilling effect" that could possibly exist is a very minor one, in that discriminatory treatment is not permitted.  This suggests to me that my original instinct was correct:  It is a very narrow, arguably protectionist, aspect of the measure that is at issue, and the impact of WTO rules does very little to inhibit the ability of governments to regulate in this area.  Yes, it does inhibit their ability to discriminate against foreigners, but that's it.

As a final point, let me note that there are a number of areas where I agree with Todd that WTO rules do go too far in terms of governments' ability to regulate.  This isn't one of them, though. 

As a final, final point, I also wanted to mention the title of Todd's post: "The WTO Wants You to Light up a Cancer Stick."  Now, I'm sure he meant this in a light-hearted kind of way, but I do have concerns that this kind of language gives many people with limited knowledge of trade rules the wrong idea of what the rules actually say.

A Test for Obama on Trade

As is fairly well-known, WTO and other trade rules permit a good deal of protectionism.  For example, when certain conditions are met, "safeguard" measures may be imposed to keep out imports.  With these kinds of measures, governments have some discretion as to how much protection for domestic industry to pursue.  They don't have to impose such measures at all.  However, most governments establish a set of domestic regulations under which they can do so. 

One way to evaluate a particular government's degree of protectionism, then, is how it uses the discretion it has under these regulations.  It looks like the Obama administration will soon have a decision to make in this regard.  As The Hill reports:

A U.S. trade body ruled Thursday that imports of Chinese tires are hurting U.S. manufacturers, teeing up a difficult decision for President Obama.

The U.S. International Trade Commission voted Thursday in favor of a petition brought by U.S. Steelworkers, which said a huge increase in Chinese tire imports had forced plant shutdowns and the loss of jobs in six states over the past five years.

The Steelworkers group wants a quota to be imposed on Chinese tires to limit imports, and the ITC will meet later this month to recommend a remedy, which could be a quota, tariff on imports or some combination.

A final decision by September on whether to impose any curbs on Chinese tires will be left to Obama, who may also decide it is not in the best national interests of the country to limit Chinese tires.

If Obama does not provide relief, he’ll disappoint unions and leading Democrats such as Senate Majority Whip Dick Durbin (Ill.).

“We're hopeful the Obama administration will enforce the ITC's wise ruling,” said Scott Paul, executive director of the Alliance for American Manufacturing, which includes steelworkers. He said China’s tire industry benefits from government subsidies, labor exploitation and currency manipulation, all of which make it impossible for U.S. producers to compete.

If Obama imposes a quota or tariffs on Chinese tires, he’ll alienate China, which the administration is asking to help with the global recovery. China also owns about $763 billion in U.S. bonds, leading U.S. officials to offer Beijing assurances they will adopt policies to ensure the viability of the U.S. dollar.

It could also lead China to impose restrictions on U.S. exports at a time when world trade is already being crushed by the global recession.

...

Steelworkers filed the petition under the Section 421 trade law, which applies only to Chinese exports to the United States. Many lawmakers voted in favor of China’s joining the World Trade Organization in 2000 only after China agreed to the 421 law.

President Bush rejected every petition for relief under the law that reached his desk. No petition for relief has ever been granted.

For those who have been waiting to see how Obama will approach trade policy, this could be an important indicator.

More on Foreign Competition in Health Care

I was thinking about what I said briefly the other day regarding the benefits of foreign competition in the health care (specifically, health insurance) industry.  I thought maybe someone else had discussed this idea in more detail, so I did some quick web searches.  The best I found was this:

... there is limited foreign competition to replace and offer alternatives to an inefficient industry. Health care, especially in- patient and primary health care is almost inherently a domestic industry. Japan, India, or China cannot easily begin a strategy of exporting health care to America and provide a competitive hammer to the industry. But this trend can be hard to predict.  If a consultant would have advised the CEOs of the Big 3 in 1960 that they would be brought to their knees by Japanese companies exporting two ton cars from Japan across the Pacific Ocean, he would have been laughed out of the board room. In the high technology world of internet, ipods, blackberrys, and instant data transmission, it is not inconceivable that a cheaper, more efficient health care model could be imported into the US and provide consumers with an alternative. If this does happen, you can be sure the first persons to cry foul will be the doctors, US health care companies, and their lobbyists who, predictably, will complain about low quality, “non-approved” health care, cheaper replacements, job losses, un-American competition, etc. – the mantra that car companies have moaned about for years.

Is it possible that some day we will allow foreign competition in this area?  My own experience with private health insurance in Switzerland was very good, so I would welcome it.

To be honest, I'm not even sure what the law is in this regard.  I am assuming foreign companies cannot offer health insurance in the United States, based on various state/federal regulations.   But the situation may be more complicated than that.

An Interesting Trade Job

From ICTSD:

The International Centre for Trade and Sustainable Development (ICTSD), an independent non-profit and non-governmental organization contributing to a better understanding of development and environment concerns in the context of international trade, seeks to recruit a pro-active professional to fill position of Trade Negotiations Insights (TNI) Editor.

More at the link.

The WTO as a Constitutional Model?

Adrian Vermeule of Harvard Law School proposes reining in the role of courts:

Professor Adrian Vermeule’s newest book is likely to raise a few judicial eyebrows. “Law and the Limits of Reason,” just published by Oxford University Press, is a broad-based criticism of the dominant role played by courts in the American lawmaking process.

...

Congress should be given the power to codify the Constitution, enacting what he calls “liquidating statutes.” These laws would “define constitutional meaning where the Constitution is ambiguous, or establish constitutional ground rules,” thus reducing the role of the U.S. Supreme Court.

I hope I'm not making too much of a leap here, but this reminded me of Article IX:2 of the WTO Agreement:

The Ministerial Conference and the General Council shall have the exclusive authority to adopt interpretations of this Agreement and of the Multilateral Trade Agreements. ...

It's not an exact parallel, but both put the legislative branch ahead of the courts, to some extent, in interpreting the "constitution."

Of course, Article IX:2 has not actually been used, so perhaps this is not such a great example for Professor Vermeule ...

 

WTO Chairs Programme

As many of you probably have heard already, the WTO has established a WTO Chairs Program to support WTO-related research and teaching activities in developing countries. While the deadline for the first round of call for proposals has expired on May 29th, similar opportunities might be offered in the future. Interested readers can find out more about the background of the program, application guidelines and members of the Advisory Board of the program here.

Is This "Reverse" Foreign Investment?

From Reuters:

Sweden's Koenigsegg, a niche manufacturer of some of the world's fastest and most expensive sports cars, has struck a deal to buy loss-making Saab Automobile from General Motors, the companies said on Tuesday.

In one of the most unlikely pairings in automotive history, the tiny sports car firm of 45 staff is expected to take over a company that employs around 3,400, a cherished Swedish brand that became a national icon for stability and reliability.

So a Swedish company is buying a Swedish brand from a U.S. parent company.  Is this "reverse" foreign investment?  I suppose it is just undoing a previous foreign investment.

The Continued Impact of the Byrd Amendment

It is not stated explicitly, but I assume that the Byrd Amendment is at work here:

Despite a 22.7% drop in sales, La-Z-Boy recorded a profit of $5.3 million in the quarter ended April 25.

...

The third quarter also included $8.1 million in added revenue from U.S. antidumping duties on Chinese-made bedroom furniture.

So, there would have been a loss, but Byrd Amendment revenues of $8.1 million led to a profit of $5.3 million!

More on Clove Cigarettes

Following-up on the last post, it looks like the Indonesian clove cigarette makers have at least one defender in Congress.  Congresswoman Virginia Foxx gave the following speech in the context of the discussion of the tobacco regulation bill (begins at bottom right of page and continues to next page):

Mr. Speaker, ‘‘The Family Smoking Prevention and Tobacco Control Act,’’ which is before us today, contains a socalled ‘‘special rule for cigarettes’’ in Section 907 of the bill that would ban flavored cigarettes—with the exception of menthol flavored cigarettes.

Since the legislation allows the sale of menthol cigarettes, which are produced in the United States and in my home State, while banning clove cigarettes, which are imported primarily from Indonesia, the Indonesian Government has made it clear that it considers this provision an attempt to discriminate against imported clove cigarette products in favor of a competing U.S. product—and thus section 907 in the bill runs contrary to the free-trade commitments the United States has made as part of the WTO.

According to WTO rules Mr. Speaker, an imported ‘‘good’’ (clove cigarettes) should receive treatment that is ‘‘no less favorable than that provided to a domestic good.’’ Adhering to this principle would appear to require that clove cigarettes be treated no less favorably than menthol cigarettes and thus under this bill both should be exempt from the prohibition on flavored cigarettes or both should be banned in order to ensure there is no unfair discrimination in the treatment of the two products. The latter option is not an option at all in my opinion but neither is ignoring the concerns of our ally Indonesia, a country well known to our President.

For years now, senior officials of the Indonesian Government have repeatedly and doggedly attempted to communicate their country’s concerns to U.S. legislators and executive branch policy-makers alike—to no avail. The communique from the Indonesian Ambassador to Chairman WAXMAN, as well as the Indonesian Trade Minister’s dispatch to former Ambassador Schwab clearly articulate the imperative the Indonesian Government places on the trade violation contained in ‘‘The Family Smoking Prevention and Tobacco Control Act.’’

Last year, the HHS Secretary sent a letter to Congress expressing various concerns about Mr. WAXMAN’s bill on behalf of the Administration. Among his concerns he included the following statement about the bill’s prohibition on imported clove cigarettes that reflects the concerns expressed by the Indonesian Government:

There is a further issue regarding the bill that I would like to bring to your attention. Our trading partners believe that by banning the sale of clove cigarettes but not prohibiting the sale of menthol cigarettes, the bill raises questions under U.S. international trade obligations. The government of Indonesia has repeatedly objected to the bill on the ground that this disparate treatment is unjustified and incompatible with WTO trade rules. Accordingly, I would recommend that the Committee further review the relevant language in this light to ensure the bill is consistent with U.S. trade obligations.

Mr. Speaker, Congress is increasingly—and rightly—calling on our United States Trade Representative and the Administration to more strenuously enforce the WTO and other trade agreements to ensure that our trade partners are playing by the rules and not discriminating against our products and services. I think that it is only right that we abide by the same standards that we expect of our trade partners when the question is as clear as this situation. It would have been my hope that the minor changes needed to correct this avoidable trade complication in the bill could have be made before the legislation was brought to the floor for consideration, but that was not the case. Section 907 affects a de facto ban on the importation of clove cigarettes from Indonesia. It is another troublesome example of serious flaws overlooked by Mr. WAXMAN in his bill.

Tobacco Regulation and Trade

Remember Indonesia's concern that clove cigarettes (kreteks), which they produce a lot of, would be banned under U.S. tobacco legislation?  (See here and here).  Well, Congress has passed this legislation and it looks like the clove cigarette ban will soon be upon us.

The problem is not the clove ban by itself.  Rather, it is that the law does not ban certain other, arguably similar, tobacco products.  As Bloomberg reports:

While other flavors including cloves and strawberry would be banned from the market, menthol would remain unless the FDA later determined it to be a health risk.

So, clove cigarettes are banned, but menthol cigarettes are allowed (at least for now).

Paul Smalera explains the clove/menthol issue as follows:

The next most popular flavored cigarette, clove, accounts for .09 percent of the market. Those cigarettes will be banned under the bill. Indonesia, which provides 99 percent of the clove cigarettes to the U.S. market, has complained to the U.S. trade representative about the disparity with menthol. If Indonesia brings a protectionist complaint to the World Trade Organization, it would compel our government to prove cloves were banned for health reasons. Namely, the United States would have to show that the flavor of cloves enhances cigarettes' addictive properties. If it can't, the ban could be considered a trade violation.

It's a lose-lose proposition. If the United States proves it banned clove cigarettes strictly for health reasons, it would be admitting that menthol cigarettes, manufactured domestically, are getting a free pass despite their clovelike increased health risks. Which puts the FDA, as the tobacco regulator, in the position of justifying a ban on cloves but not menthols. ...

In other words, the United States will have two choices in the above scenario, both hairy: protect the FDA's independence by admitting it banned cloves but not menthols only to protect Philip Morris' market share or let the FDA manufacture an explanation, contrary to recent studies, by which menthol cigarettes, which are used to lure children to smoke, are just as safe as unflavored cigarettes.

This passage hints at some of the issues that will come up in the context of examining the measure under WTO rules, such as:  "less favorable treatment" (it appears that Indonesia is the predominant supplier of clove cigarettes); "likeness" (menthol and clove cigarettes have similar characteristics and health effects); and "necessity" exceptions in relation to health (same as previous).

Will Indonesia file a complaint?  That seems quite possible:

Menthol cigarettes will not be included in the ban, however, which has angered Indonesian trade officials who point out that a ban on kretek but not menthol is discriminatory and are threatening to complain to the World Trade Organization. Government officials’ comments on the ban make it likely that WTO action will now proceed.

In a related matter, from the Department of "What Comes Around Goes Around," apparently U.S. producers have similar concerns about a Canadian tobacco regulation bill:

Tobacco growers in Kentucky have launched a protest against the Harper government over a new anti-smoking bill they argue will lead to a ban on the vast majority of U.S. cigarette exports to Canada.

Two U.S. congressmen have taken up the cause of 8,100 Kentucky farmers who grow burley tobacco — used in popular American-style cigarettes like Camel and Winston — and have warned International Trade Minister Stockwell Day that Canada's legislation violates NAFTA and other trade agreements.

The U.S. grievance was sparked by the introduction last month of Bill C-32, an amendment to the Tobacco Act which would ban the addition of certain flavours and additives to cigarettes and cigarillos that Ottawa said are marketed primarily at children and teenagers.

Health Canada said the legislation will prohibit the tobacco industry from adding fruit and candy flavours such as chocolate, grape, banana and peach to make their product more appealing to youth. Menthol cigarettes are exempt from the ban.

But Kentucky tobacco growers contend the legislation has been written so broadly it could also bar American-blend cigarettes that include burley tobacco, which they say has flavouring added during normal processing to mitigate its naturally harsh taste.

Thus, the proposed Canadian ban may target U.S. "burley" tobacco in the same way that the U.S. law targets clove cigarettes (the Canadian bill also has the menthol exemption).

As a final point, I hate to sound defensive here, but I just want to emphasize to trade skeptics out there that this issue does not mean that countries can't regulate tobacco.   It just means that they can't insert protectionist components into their tobacco regulation measures.  99.9% of these measures are fine under trade rules.  The main problem area is the part about (possibly) treating foreign products less favorably than domestic ones.