International Economic Law and Policy Blog

The Zeroing Negotiations

From the draft consolidated texts on anti-dumping and subsidies and countervailing measures circulated by the WTO today, there's this new provision that appears to govern zeroing:

2.4.3 When the authorities aggregate the results of multiple comparisons in order to establish the existence or extent of a margin of dumping, the provisions of this paragraph shall apply:

  (i) when, in an investigation initiated pursuant to Article 5, the authorities aggregate the results of multiple comparisons of a weighted average normal value with a weighted average of prices of all comparable export transactions, they shall take into account the amount by which the export price exceeds the normal value for any of the comparisons.

  (ii) when, in an investigation initiated pursuant to Article 5, the authorities aggregate the results of multiple comparisons of normal value and export prices on a transaction-to-transaction basis or of multiple comparisons of individual export transactions to a weighted average normal value, they may disregard the amount by which the export price exceeds the normal value for any of the comparisons.

  (iii) when, in a review pursuant to Articles 9 or 11, the authorities aggregate the results of multiple comparisons, they may disregard the amount by which the export price exceeds the normal value for any of the comparisons.

I've only looked at this quickly, but it seems to say the following.  Under 2.4.3(i), for weighted average to weighted average comparisons in original investigations, zeroing is not permitted ("they shall take into account the amount by which the export price exceeds the normal value for any of the comparisons").

Under 2.4.3(ii), for transaction to transaction comparisons and weighted average to transaction comparisons in original investigations, zeroing is permitted ("they may disregard the amount by which the export price exceeds the normal value for any of the comparisons").

Under 2.4.3(iii), in reviews, zeroing is permitted for any type of comparison ("they may disregard the amount by which the export price exceeds the normal value for any of the comparisons").

This is the first I've seen or heard of this proposal, so I'm not sure of the origins.  It clearly seems like a compromise, but I'm not sure what its chances of making the final cut are.

ADDED:  Here is a Reuters article about the issue.

MORE:  The U.S. press release on the text:

"We appreciate Rules Negotiating Group Chairman Valles' leadership in this difficult and complex negotiation. While the U.S. is very disappointed with important aspects of this draft text, we believe it provides a basis for further negotiations. As we proceed with those negotiations, we will be fully committed to preserving the strength and effectiveness of U.S. trade remedy laws."

China's AB Appointment and Judicial Impartiality

Over at OpinioJuris, Roger Alford voices some concerns about the willingness of a Chinese AB Member to rule against China. AB Member have so far had a very good record of impartiality, with EC and US members regularly contributing to reports ruling to the detriment of their home state. Would a Chinese member (and I intentionally make no specific reference to Zhang Yeujiao) be different?

From an interesting empirical paper by Erik Voeten of Georgetown University, we might infer the opposite. On the basis of a study of dissents in the European Court of Rights, Voeten finds, inter alia,  "strong evidence that judges from countries with low levels of domestic legal independence are more likely to find against their own government than judges from countries where the legal system is better insulated from political interference. Presumably the latter judges perceive an activist international court as an intrusion on a satisfactory status quo, whereas the former perceive it as a potentially useful constraint on domestic executive power. There is some evidence that career ambitions also motivated judicial behavior but no evidence that judges ruled based on cultural biases or that geopolitics played a role in judicial decisions".

This is somewhat counterintuitive, but makes sense. Dissents in the WTO are rare, but this should make it more difficult for a judicial decision maker to act impartially, not less.

T 

Korea DRAMs and the Interpretation of "Allowing": The Source of the Appellate Body's Mistake.

The interpretation of the term "allowing"  in Article 12.9 of the SCM by the AB in Korea DRAMs is based on a decisive mistake. It feigns to read the word "allowing"  as a term which concerns the investigative authorities and that these are the ones "allowed" by the text to include various interested parties.  However,  the text says  something else completely.  The text says clearly that the term "allowing" concerns in fact  the domestic or foreing parties which are the real agents "allowed" and in no way this term is used to express that the investigative authorities are allowed to include unilaterally various parties as interested parties.  This decisive mistake appears clearly in the following passage of the AB:

"In our view, the term "allowing" in the residual clause connotes the power or authority given to a Member to include other parties as interested parties, rather than a restriction on such power of inclusion to those parties that make a request".

By interpreting the word "allowing" in the context of the "power given" to an investigative authority, the AB simply forgets that the word "allowing" in article 12.9 deals in fact with the parties  which could be allowed if they desire to be included in the interested parties even if they are not explicity mentionned by Article 12.9. This mistake explains why  we do not have in the AB report  an answer to a fundamental question: How is it possible to "allow" someone to do something that he does not want to do? Of course, investigative authorities could in advance allow "through national legislation or implementing regulations", certain  potential willing parties to participate in investigations as interested parties. However, this is completly different from giving national authorities the power to decide unilaterally who are the parties that they want to consider as interested parties.

In sum, the text of Article 12.9 does not say that it "allows Members to....". The text speaks about "allowing domestic or foreign parties...". This latter perspective is completely different.

The Real World Impact of WTO Rulings

Yesterday, the Appellate Body upheld many of the violations found in an earlier panel report relating to Japan's countervailing duties on Korean DRAMS.  Today, the markets reacted:

Seoul shares gained more than 2 percent on Thursday, as local institutional investors chased beaten-down blue chips and chip maker Hynix Semiconductor surged after a WTO ruling in its favour in a Japanese tariff dispute.

Some Upcoming Trade Events in Geneva

From Jalal Alavi, three upcoming trade events in Geneva:

• World Trade Report 2007
  Tuesday, 4 December 2007
  11.30 am
  WTO Headquarters – Centre William Rappard
  Conference Room II
  Programme
  Chair: Keith Rockwell, Director
  Information and Media Relations
  11.30 -11.45 Introductory Remarks
  Director-General,
  Pascal Lamy
  11.45 -12.30 Presentation of Report
  followed by a discussion

• Professor Joost Pauwelyn, "New Trade Politics after the Doha Round" at the Graduate Institute of International Studies (HEI), next building to the WTO premises. The presentation will start at 18h30, Wednesday 5th of December. http://www.hei.unige.ch/apps/agenda/?language=e

• The Report of the Warwick Commission: "The Multilateral Trade Regime: Which Way Forward?"  The meeting will take place on Thursday, 6 December 2007 at 11.00 a.m. to 12 p.m. in CRI at the Centre William Rappard.

From Last Night's Republican Debate

Some trade questions from last night's Republican Presidential debate:

On agriculture subsidies:

Ted Faturos: Hi, I'm Ted Faturos from Manhattan Beach, California.

Mmmmmm, nothing says delicious like cheap corn subsidized by the American taxpayer. For a lot of Americans, however, a bitter taste is left in their mouth when they learned about how the U.S. taxpayer bankrolls billions of dollars in farm subsidies that mostly go to large item business interests.

I'm curious which candidate could label themselves fiscally responsiblee, will endorse the elimination of farm subsidies if they are elected president in 2008.

Cooper: Governor Romney, a lot of folks in Iowa interested in this answer.

(Laughter)

So I hear.

Romney: Not to mention Kansas, Missouri, North Dakota, South Dakota and so forth. We don't want to find ourselves, with regards to our food supply, in the same kind of position we're in with regards to our energy supply. And so it's important for us to make sure that our farmers are able to stay on the farm and raise the crops that we need to have a secure source of food. And so I believe in supports that will allow us to do that.

And the same time, I recognize that we're also investing in new technologies to get ourselves energy independent. And I happen to believe that some of the best sources for having renewable energy come from the farm. And so we're investing with subsidies in those areas to create new technology that otherwise wouldn't be ready for the market yet. So I support these programs.

And finally, I'd say this. We have, in our nation, about one out of three acres that are planted are for sale overseas.

We send products around the world. We're competing with European and Brazilian and other farmers, and we're competing in a marketplace where they are heavily subsidized, at great disadvantage for our farmers. And so, if we're going to change our support structure, we want to make sure that they change their support structure.

And we do this together, as opposed to unilaterally saying: We're going to put our farmers in a tough position and have the farmers in the rest of the world continue to be subsidized.

So, open markets, let our goods go around the world and secure our source of food.

Cooper: Mayor Giuliani, 30 seconds.

Giuliani: The governor's right. It isn't a level playing field. The subsidies in Europe are far higher than they are in the United States. We could reduce subsidies here if they would do it there. But we shouldn't do it on our own.

And also, we have to be very aware of the fact that we have to have our own supply of food. We can't be dependent on foreign countries for our food.

So, both of those reasons would say that although simplistically, it might seem like you'd want to get rid of all the subsidies, you've got to do this very carefully, and you have to do it in concert with these free-trade agreements and other agreements you're making so that European countries reduce their much heavier subsidies.

Key points:  (1) no reduction unless the Europeans do it; (2) must have a secure food supply; and (3) must protect farmers' incomes.

On the safety of Chinese imports:

LeeAnn Anderson: My name is LeeAnn Anderson and I am from Pittsburgh, Pennsylvania, and these are my kids Evan and May. Maya is from China and we adopted him to give her a better life. We never dreamed that she would that she'd be exposed to lead after leaving China, and now we find trains like this that are covered with lead in our home.

My question for the candidates are, what are you going to do to make sure that these kind of toys don't make their way into our homes and that we have safe toys that are made in America again and we keep jobs in America?

Cooper: Congressman Tancredo, you have 90 seconds.

Tancredo: It is illegal to import that kind of thing. The problem is, of course, no one really pays a lot of attention to a lot of our laws, with regard to immigration of both people and, now in this case, of course, items, goods and services.

I voted against permanent normalized trade relations with China -- this is one reason why. It wasn't -- that was never devised simply to be a place for us to sell our products; it was devised to be a place where we could get cheap labor to then import products to the United States.

So, one of the things you'd have to do, and I certainly would intend to do, is to change our trade arrangement entirely -- with China, by the way, in particular, but with other countries, as well, that violate those agreements.

Cooper: Congressman Hunter, you have 30 seconds.

(Applause)

Hunter: China is cheating on trade, and they're using that $200 billion trade deficit over the United States to buy ships, planes and missiles. They are clearly arming.

And it's in the interest of the United States...

(Applause)

... to stop China's cheating. My bill, incidentally, that's up right now would do that.

But what we all ought to do in this Christmas season, with about a month to go before Christmas is buy American.

That might hire the young person. That'll result in a...

(Applause)

You know, that just might keep your neighbor from losing his job, and it might help that young person coming back from Iraq and Afghanistan in uniform to have a job when they get back.

Let's buy American this Christmas season.

It's too bad Romney and Giuliani didn't get to answer this latter question.

Coming Soon: The Brazil - Tyres AB Report

On December 3, the Appellate Body is scheduled to issue the Brazil - Tyres report.  There will be a lot of things said about GATT Article XX, all of which should be interesting and informative.  In addition, though, there is a slight posssiblity that the AB will clarify GATT Article XXIV a bit as it applies to free trade areas and customs unions.  Before the Panel, the EC had claimed that an exemption for Mercosur imports violated GATT Articles XIII:1 and I:1.  As a defense, Brazil argued that the exemption was justified under GATT Article XXIV.  The Panel exercised judicial economy, though, and did not address the issue.

In its appeal, the EC argues that the Panel's decision in this regard was in error, arguing that "[g]iven the
very limited basis of the Panel's finding of violation regarding the ban, a finding concerning the EC's claims under Article XIII:1 and I:1 GATT would have been necessary to ensure a complete resolution of the dispute."  However, this appeal is a "conditional" one, as the EC only asks the AB to address it if the AB does not find, as requested by the EC, that the Mercosur exemption leads to a finding that the ban is inconsistent with the chapeau of GATT Article XX.  (See paras. 370-371 of the EC appellant submission)

Categories

I've added categories to the blog (see previous post for an example).  It would be too much to go back and classify all the previous posts (510 of them) in particular categories, but hopefully this will be useful going forward.

Environmental Dumping?

This sounds like something along the lines of what Joseph Stiglitz had in mind:

[The European Parliament invites the European Commission] to consider whether it would be appropriate to evaluate the rules on trade defence measures, such as the rules on anti-dumping or subsidies, under the WTO aegis, with a view to taking into account, in some way, the disrespect of global, social and environmental agreements or international covenants as forms of dumping or undue subsidy.

Ben Muse: New Blog Location

Ben Muse is moving his trade posts to a new blog, called "The Custom-House."  He explains here; the new blog is here.

Antigua Did It. Why Not Fiji?

In the Gambling case, Antigua has done a good job of demonstrating that a small country can have some success in bringing a WTO complaint.  Maybe Fiji will follow their example:

The chairman of Fiji’s Kava Council Ratu Josateki Nawalowalo, says he will continue to pursue a meeting with the European Union to reopen the kava trade.

The reputation of kava from Pacific countries was badly tarnished and farmers lost billions of dollars in export revenue when bans were imposed on the crop from 2000, fearing claims of toxity and ill health effects.

But the World Health Organisation has conducted independent scientific studies to confirm that kava, in its raw form, is safe.

Ratu Josateki, who is also a member of the International Kava Executive Council, says a meeting scheduled with EU officials in Berlin has been deferred several times, and is now likely to take place some time next year.

He says he is not giving up hope that trade to European countries will resume.

“We see no reasons why the trade has still yet to open up. So we are hoping with the WTO our concerns will be, that they will intervene. And we are now seriously considering legal action, but that would be a last option really.”

Appellate Body Members Appointed

According to a WTO press release (as also mentioned by Jalal Alavi in the comments), the four new Appellate Body Members have been appointed:

The WTO Dispute Settlement Body appointed today (27 November 2007) the following four new members to the seven-member Appellate Body: Ms Lilia R. Bautista of the Philippines and Ms Jennifer Hillman of the United States for four years commencing on 11 December 2007; and Mr Shotaro Oshima of Japan and Ms Yuejiao Zhang of China for four years commencing on 1 June 2008.

The WTO, of course, has nothing to say about how the situation was resolved.  Here are brief articles on the matter by AFP and Reuters.

MORE:

From something called "Taiwan Headlines":

Taiwan will stop blocking the appointment of a Chinese lawyer as a judge on the World Trade Organization (WTO)'s Appellate Body, Taiwan's representative to the WTO Lin Yi-fu confirmed Tuesday.

Lin told the Central News Agency (CNA) that an agreement has been achieved in the latest round of negotiations held between Taiwan delegates and high-ranking WTO officials.

...

During the interview, Lin did not reveal further details of the agreement, but assured that the DSB meeting "will proceed smoothly."

...

Lin, for his part, also told the CNA that Taiwan delegates have never directly spoke to their Chinese counterparts over the dispute, and that Gosper has never mentioned whether he has ever talked to the Chinese delegates.

Jacob Katz Cogan of the International Law Reporter notes:

It's unclear whether, in exchange for withdrawing its opposition, Taiwan has received some assurances from other WTO members regarding, for example, future appointments of Taiwanese nationals to WTO committees.

Here is the first report I've seen from Xinhua on the issue.  No mention of the Taiwanese objections.

Trade Versus Environment: Biofuels Again

A New Zealand perspective:

Biofuel companies say it would make more sense for them to build plants in subsidised US cornfields than in New Zealand to meet new biofuel sales quotas.

They're pressing for protection from US-made competitors who they say could crowd out the market, as petrol and diesel prices soar.

"It would make more sense for me to build a biodiesel plant in the US and ship it over," Argent Energy New Zealand managing director Dickon Posnett said.

More at the link.

Sweatshops: "One of the Trickiest Issues in International Trade"

That is what Dani Rodrik calls them.  His post is commenting on a NY Times article describing how a NY utility company and government agency recently became aware of the conditions under which their manhole covers were made:

Seemingly impervious to the heat from the metal, the workers at one of West Bengal’s many foundries relied on strength and bare hands rather than machinery. Safety precautions were barely in evidence; just a few pairs of eye goggles were seen in use on a recent visit.

Rodrik then notes the company's response:

An embarrassed Con Edison says that it is now rewriting its international contracts to include safety requirements.

But the issue may not be that easy to solve, Rodrik points out:

Fine, but what if these requirements now raise the cost sufficiently for the utility to want to switch its supplies to another source? And what if these West Bengali workers now find themselves out of a job, or earning less in even worse working environments?  Would we have we done them any favors by becoming outraged at their condition?

I've always thought this was one of the most powerful arguments against decisions not to trade with countries that have less stringent domestic regulations (labor, health, etc.) than ours:  Are the workers really better off without their current job?  Presumably they took the job because it put them in a better position than whatever they were doing previously.

On the other hand, perhaps it is possible that such actions will induce governments of these countries to take action on behalf of the workers who might lose their jobs due to a boycott, by passing laws that improve their working conditions.

Rodrik also mentions this solution:

Libertarians and fair-traders, which make an odd couple, do have a solution: they would say let consumers have information about the full hedonics--all the characteristics of a good, including the manner in which they are manufactured--and then let markets take care of it.  So if Con Edison believes its customers value the welfare of West Bengali workers, it ought to be willing to pay for the extra costs its suppliers incur for running safe factories. No regulation is required; just better information.

It seems to me this is kind of a middle ground solution.  We're not going to go for full out coercion to get you to change your laws through a government-led boycott, but we will provide information to the public to allow them to conduct individual boycotts, which will have a lesser, but perhaps still significant, impact.

The Trade Impact of the Writers' Strike

Tyler Cowen quotes a couple articles suggesting that the U.S. writers' strike could, in theory, benefit Canadian entertainment industries, in two ways.  First, it could help Canadian shows gain viewers in the home market, as there is suddenly less U.S. competition.  And second, it could help Canadians sell shows to the U.S. market, as U.S. companies look for content elsewhere (although the article notes that there is no indication they are doing so at this point).

More Complaints About Indian Sugar Subsidies

A while back I mentioned that Bangladesh was accusing India of subsidizing sugar and "dumping" it abroad.  Now others are asking questions as well:

Leading global sugar producers have joined hands and approached the WTO, asking the multilateral body to seek details from India on subsidy to exporters at a time when the country is set to double the sweetener exports.

The World Trade Organisation has asked India to furnish full details of the "subsidy" announced recently for its sugar exporters, after Australia and Thailand took the issue to WTO in Geneva.

The issue of India giving subsidy to its sugar exporters was discussed at the meeting of the WTO Agricultural Committee in Geneva on November 21 where New Delhi was asked to respond to Australia and Thailand, leading producers and exporters of sweetener in the international market.

"Australia and Thailand sought information and clarification, which India said it would supply shortly," the WTO said.

ADDED:  India says its measures are "WTO-compliant."

Progress on the Appellate Body Appointments

From one news reports:

Taiwan may back away from its boycott of the placing of a Chinese judge on the World Trade Organization's top legal panel if the island is assured of fair treatment, a Taiwanese official said Sunday.

And another:

Taiwan on Sunday set a condition for ending its boycott of the first Chinese judge at the World Trade Organization (WTO): she must promise fair treatment of Taiwan.

FROM AFP:

Taiwan's government said Sunday it would stop boycotting the appointment of a Chinese judge to the World Trade Organisation's top court if its fears of possible bias by the Asian giant were addressed.

"As long as our concerns are clarified, we could cease the boycott," Phoebe Yeh, Taiwan's foreign ministry spokeswoman, told AFP.

What Happens in Vegas ... Doesn't Happen in Massachusetts

While Nevada contemplates legalizing intra-state online gambling for its residents, Massachusetts contemplates banning online gambling entirely for its residents:

Even as Governor Deval Patrick seeks to license three resort casinos in Massachusetts, he hopes to clamp down on the explosion in Internet gambling by making it illegal for state residents to place a bet on line. He has proposed jail terms of up to two years and $25,000 fines for violators.

Antigua will not be happy with either of these approaches.

Trade in Everything: International Shopping

The Boston Globe reports:

... America is one big discount bin, thanks to a weak dollar that slid this week to another record low against the euro. As a result, tourists are spending thousands to travel to the United States to snag blockbuster bargains on everything from iPods to designer clothes and handbags.

I guess the goods themselves would be counted as exports, even though they are sent abroad after the final purchase by a consumer, rather than before as is normally the case.  And the various services the shoppers consume (e.g., eating at restaurants) would be under mode 2 of GATS, consumption abroad.

What Happens in Vegas ...

We may see another WTO complaint by Antigua if this comes to pass:

... while a seemingly endless debate rages on in Congress over whether to legalize Internet gambling nationwide, some gaming interests are pursuing a different tack by appealing to Nevada regulators with the power to allow and oversee online betting for Nevada residents within the state's borders.

Appellate Body Update

A little news about the Appellate Body situation:

Taiwan's decision to block the appointment of a Chinese judge to the World Trade Organisation's top court threatens an institutional crisis, a key official warned.

...

'I'm extremely concerned that if the situation persists much longer we will have a crisis in this organisation,' Bruce Gosper, chairman of the WTO's Dispute Settlement Body (DSB), told journalists.

Taiwan's objection meant Monday's meeting of the DSB was indefinitely postponed, leaving pending complaints on US agricultural subsidies and Chinese intellectual property restrictions in limbo.

...

Gosper said he was planning to hold further talks with Taiwan and other parties in a bid to resolve the dispute.

More details, from Reuters:

WTO members other than Taiwan were unanimous at a meeting on Friday that the nomination of appeal judges should be kept on the agenda, ambassadors said.

And from the AP (through the IHT):

U.S. Ambassador Peter Allgeier, one of about 30 speakers Friday to urge Taiwan to drop its demands, said WTO rules already ensure impartiality and that the situation was becoming "very urgent." China, the EU, Japan and others made similar statements.

From Asia-Pacific News:

Taiwan stood up to some 30 countries to oppose the appointment of Chinese lawyer Zhang Yuejiao, the Central News Agency (CNA) said in dispatch from Geneva.

...

... Taiwan argued that it had recently conferred with Gosper and WTO Director-General Pascal Lamy to find a solution. The consultations should continue and Taipei's objective was to ensure the credibility of WTO's Appellate Body.

IN THE comments, Henry Gao says:  "According to some Chinese news source here, Taiwan has agreed to approve the appointment on a conditional basis after consulting with the Quad Members."  He also points to an exhange on his blog related to some of these issues:  http://wtoandchina.blogspot.com/2007/11/first-chinese-in-wto-appellate-body.html   

"China's currency is undervalued and increased flexibility is 'essential' ...'"

No, that's not a quote from a U.S. Senator, but from a member of the People's Bank of China's monetary policy committee.  Here's more from a Bloomberg article:

China's yuan rose beyond 7.4 to the dollar for the first time since a link to the U.S. currency was scrapped in 2005 before a European delegation arrives in Beijing next week to press for faster appreciation.

The People's Bank of China signaled it wanted the yuan to gain as it set the reference rate for the day's trading at 7.399 from the close of 7.4145 yesterday. Xie Fuzhan, a member of the central bank's monetary policy committee, said yesterday that China's currency is undervalued and increased flexibility is ``essential'' to make economic growth more stable.

UPDATE:  The article at the link seems to have been updated or revised by Bloomberg since I first posted.  The following link to a different version of the article has the "undervalued" quote: http://www.bloomberg.com/apps/news?pid=20601080&sid=a9rliePJB5dY&refer=asia

China's yuan is undervalued and increased currency flexibility is ``essential'' to make economic growth more stable, said Xie Fuzhan, the statistics bureau head.

Xie, a member of the central bank's monetary policy committee, spoke at a university in Beijing today. He wouldn't specify an appropriate level for the currency.

Just to be clear, though, the word "undervalued" was from the Bloomberg reporters, and I'm not 100 percent sure it was said by Xie Fuzhan.

A Subsidy-Free Thanksgiving

I don't have a link for this because it came in an email (from AEI):

America ’s farmers are highly productive, as Thursday’s Thanksgiving meal demonstrates. The Census Bureau reports that U.S. farmers this year will raise 272 million turkeys and produce 690 million pounds of cranberries, 1.6 billion pounds of sweet potatoes, and 1 billion pounds of pumpkins. And they are doing this while bringing down costs. According to the American Farm Bureau Federation, the real cost of Thanksgiving dinner has declined 9 percent in the past twenty years. As policymakers in Washington debate reauthorization of the farm bill-–a bill in which, according to AEI adjunct scholar Dan Sumner, “pretty much everywhere you look, farm subsidies are being increased”--it is worth noting that none of these traditional Thanksgiving foods receives a direct government subsidy. Enjoy.

That is good news, although I'm not a big fan of cranberries, sweet potatoes or pumpkins.  Is stuffing subsidized?  I'm not sure, but I'm having some anyway.

The Carbon Border Tax in Reverse?

Most of the talk about carbon border taxes involves imposing taxes/charges in a manner that might discriminate against China and other developing countries.  But could China impose a border tax of its own?  They might not be there quite yet, but they seem to be thinking about these kinds of taxes:

At the 2007 Forum on China Energy Sustainable Development in Beijing last weekend, an official from the State Environmental Protection Administration (SEPA) disclosed that it was quite likely car owners in China would be taxed for their car emissions in the future.

According to Yang Chaofei, Director of the SEPA Policy Department, authorities inside the Ministry of Finance, the State Administration of Taxation and SEPA are now conducting research on taxation for pollution and other emissions.

Yang explained that drivers would be taxed for the pollutants emitting from their cars, for example, carbon monoxide and sulfur dioxide. They might have to pay the tax when purchasing petrol. A separate pollution tax would target enterprises; companies would pay for producing products that discharge high levels of pollution.

Note that last part: "companies would pay for producing products that discharge high levels of pollution."  When the U.S. and EU have been considering these kinds of measures, there are often suggestions that foreign products must be subject to the law as well, leading to border taxes.  I wonder if China will take this approach.

More Criticism of the VAT Versus Income Tax Distinction

As noted in an earlier post, I don't know if this issue is building up momentum, but I seem to be coming across it quite a bit.  This is from an op-ed in the Boston Globe:

The second core problem is hidden foreign tariffs called value-added taxes, or VATs. Most US import tariffs have dropped tremendously in the last 40 years, but virtually all our trading partners have replaced their tariffs with VATs, reflecting taxes they place on their own goods, on our exports to them.

A VAT tax system taxes goods - including imports - as value is added. When the World Trade Organization was established, VAT tariffs were exempted to placate France, which lowered its tariffs but raised its VAT tariffs on imports.

Today, more than 140 of our trading partners have implemented VAT systems. The average is 18 percent. The United States is the only major trading nation without a VAT, and cannot legally impose its income tax on imported goods. The playing field is not level. The overall trade impact is astounding.

For example, when the United States ships a $20,000 car to Germany, a 19 percent VAT is imposed at the border, or about $3,800. The delivered price rises to $23,800. The effect is the same as a tariff, which is why we call these VAT tariffs.

The House of Representatives just approved the Peru Free Trade Agreement. Peru has a 19 percent VAT. The United States will drop its already low tariffs further, and Peru will drop tariffs on a slower schedule. But Peru will always be able to impose a 19 percent VAT on US goods that it imports.

...

Correcting the VAT tariff problem is more difficult. Because the VAT tariffs are legal under the WTO, America cannot neutralize them without risking trade sanctions. America should consider lowering taxes on jobs, replacing them with a US version of a VAT.

Teson on Trade

Fernando Teson (with co-author Jonathan Klick) has an interesting take on trade and global justice. See here. This is the abstract:

"Economists generally agree that free trade leads to economic growth. This proposition is supported both by theoretical models and empirical data. Further, while the empirical evidence is more limited on this question, the general consensus among economists holds that trade restrictions are likely to hurt the poor. Even if the latter consensus turns out to be wrong, if free trade leads to superior growth, governments would have more resources to redistribute to the poor. It is surprising then that philosophers and human rights scholars do not advocate liberalizing trade as a way to improve the welfare of the poor as a class. While many scholars in these fields are silent with respect to the effect of free trade on the poor, some actually argue that liberalized trade is harmful for the poor, contrary to the claims of economists. In this article, we argue that any serious scholar concerned with the plight of the poor needs to address the theory and evidence regarding the effects of trade liberalization on economic growth, suggesting that the standard policy prescriptions of the philosophers and human rights scholars are, at best, of second order concern and, at worst, likely to be counterproductive in terms of improving the welfare of the poor".

T.

Appellate Body Appointments Blocked

Diplomatic maneuvering of some sort:

Taiwan on Monday blocked a World Trade Organization meeting that would have appointed new judges to the WTO appeals body, including the first Chinese member.

Chinese attorney Yuejiao Zhang appeared set for nomination to the seven-member panel until Taiwan made the rare move of forcing an adjournment of the monthly meeting of the dispute settlement body, trade officials said.

Taiwan, which is excluded from most international organizations because of Chinese opposition, has seldom flexed its muscles in the WTO, which makes all decisions by consensus.

It joined the body in early 2002, just after China, which has claimed sovereignty over the island since the nationalist government left the mainland in 1949 during China's civil war. Under Beijing's insistence, the WTO admitted "Chinese Taipei" as a tariff territory, rather than a sovereign state.

Taiwan did not mention Zhang by name or say why it wanted to defer the discussion. The WTO confirmed in a statement that the meeting was adjourned because of a Taiwanese objection on the appointment of judges, but did not elaborate.

I'm not sure what the ultimate goal is.

ADDED:  Maybe this 2005 story offers a partial explanation:

Beijing is pressuring the WTO to downgrade the name of Taiwan's mission in the directory, which contains contact details, such as phone numbers, of WTO member states' missions in Geneva.

...

China wants the WTO Secretariat to replace "permanent mission" with "office of permanent representative" in the directory, according to a Taiwanese official, who requested anonymity.

MORE DETAILS:  From an Asian news source:

Taiwan on Monday objected to the proposed appointment of a Chinese judge to the World Trade Organisation's top court, citing the possibility of bias.

"We have deep concerns on the question of impartiality and qualification of one of the recommended candidates," the Taiwanese delegation said in a statement.

...

Taiwan said in its statement that "we will not agree to the adoption of (the) agenda until our concerns have been addressed" but stressed its willingness to hold further discussions.

MORE from Reuters.

AND I suppose this, from September of this year, is another part of the explanation:

The United Nations has once again blocked Taiwan's quest for membership of the world body, despite a huge high-profile campaign by the island.

A key UN committee has rejected a proposal from Taiwan's allies to put its bid on the agenda of the general assembly, meeting now in New York.

China, which claims Taiwan as a province, is adamantly opposed to UN membership for the island.

AND from Radio Taiwan International:

Vice Economics Affairs Minister Hsieh Fadah said on Tuesday that the move was meant to protect Taiwan's rights and interests.

The WTO was on the verge of approving the Chinese lawyer on Monday. He would have become a judge for the WTO's appellate body, which has the final say in the WTO's dispute settlement system. According to Hsieh, this is the first time that a WTO appellate judge appointment has been blocked in this way.

The foreign ministry also said on Tuesday that the move was justified...that's considering China's continued suppression of Taiwan in the international community.

CHINA is not pleased with all of this, obviously:

Chinese Foreign Ministry spokesman Liu Jianchao indicated that the Chinese administration still wanted to see the appointment approved.

"I'm sure that the relevant members of the WTO will be able to appropriately resolve this issue through consultations," he told a regular news conference.

But Mr Liu also suggested that China was not happy, leaving open the possibility of greater tensions with Taiwan over the move.

...

"If someone wants to exploit the occurrence of problems such as this in international organisations - in the WTO - to achieve political ends, we are resolutely opposed," Mr Liu said.

THIS is not much of an update, but it's something at least:

The DSB is not expected to meet on the Appellate Body appointment issue until after all the concerns expressed by member states are clarified or addressed, Hsieh added.

FROM a China Ministry of Foreign Affairs press conference:

Q: In the discussion among WTO members on candidates for its Appellate Body yesterday, representatives from Taiwan expressed their concern that the judge recommended by the Chinese mainland might not be fair in handling trade cases involving Taiwan. Do you have any comment?

A: This is an issue involving personnel arrangements within the WTO. We believe that it will be properly solved through negotiations among relevant WTO members. You can refer to the Ministry of Commerce which is in charge of the WTO issues. I'd like to emphasize that we are firmly opposed to any attempts to bring up this kind of issue in international organizations out of political motives.

TAIWAN says this is not a reprisal:

Taiwan's opposition to the appointment of a Chinese lawyer as an appellate judge of the World Trade Organization (WTO) is by no means retaliatory, but a justified and reasonable action, a trade official said Wednesday.

The official, who spoke on condition of anonymity, made the remarks in response to a foreign wire service report that China once blocked a Taiwanese expert from joining the WTO Committee on Subsidies and Countervailing Measures, so Taiwan disputed the appointment of Zhang Yuejiao as a judge on the Appellate Body, which has a final say in the world trade regulatory organization's dispute settlement system.

According to the official, China indeed refused to accept the accession of Lo Chang-fa, a Taiwanese expert in international trade laws, to an expert panel under the Committee on Subsidies and Countervailing Measures in 2005, but Taiwan's objection to Zhang's appointment was unrelated with that matter.

The Economist on Carbon Border Measures

The Economist has two articles this week on the America's Climate Security Act (ACSA), a bill in the U.S. Senate.  They are generally in favor of its goals (reduction of greenhouses gases through a cap-and-trade scheme), but have a concern about one aspect of it.  In one article, they explain the concern as follows:

ACSA's biggest concession to industry, however, is a clause that would penalise imports from countries that do not have an emissions cap. To get such goods through customs, importers would have to buy permits to cover the greenhouse gases emitted during their manufacture. One of the biggest fans of this idea is the AFL-CIO, America's trade union federation, which worries that a cap-and-trade scheme would further sap the competitiveness of American manufacturing and hasten the exodus of jobs to China, India and Mexico.

In the other article, they say:

The main purpose of the bill is to establish a carbon price through a cap-and-trade system. The proposal is a reasonable one, informed by the experience of Europe's similar scheme. But to placate the manufacturers and the unions, the bill also includes a measure which Europe has rightly abjured (although some member states have recently been demanding one) for a border tax on carbon-intensive goods. Imports would have to be certified as to their carbon content, and would be taxed accordingly.

Proponents of the idea argue, first, that American producers would otherwise be disadvantaged by the higher costs that their country's stricter standards impose on them. Second, they maintain, a tax would encourage developing-country governments to cut the carbon-intensity of their economies for fear of losing lucrative export markets.

...

On the first argument, if America establishes a carbon price, an energy-intensive industry such as aluminium would very likely choose to expand capacity elsewhere. Yet it is not clear that, in the long run, environmental regulation does much to suppress economic growth. After all, California imposes tighter rules on companies than do most other American states, but its long boom suggests that greenery and growth can coexist comfortably.

China and India might well come more swiftly to the negotiating table if they faced the possibility of losing their export markets. But the experience of America and Europe suggests that threatening trade sanctions is not the only way to bring a country round. After all, Europe set a carbon price without imposing tariffs on American goods, and America looks like following its lead anyway. What's more, the costs of a border tax could be huge, not just because of the massive bureaucracy needed to certify the carbon content of different goods imported from different factories in different countries, but also because such a tax would be a dangerous weapon in the hands of America's growing gang of protectionists.

The people who worry most about the costs of trying to constrain carbon emissions are the very ones demanding protectionist measures. But if those measures are passed, America risks something far costlier than a switch to cleaner energy: a global trade war.

I can understand their concerns.  What I wonder, though, is if they would be OK with a measure that achieves the goal of encouraging green production abroad in a slightly different way.  Imagine if a state (say, California) passed a law offering an exemption from state sales tax if it could be shown that the goods in question had been produced in a manner that involved a low level of carbon emissions.  The effects on (some) foreign producers are likely still there, but they are now less explicit.  Would that still risk a "global trade war"? 

Panel on Irwin & Mavroidis, Creating the GATT

Creating the General Agreement on Tariffs and Trade:

What the Founders Intended, What They Got, and What It Means Today

Thursday, November 29, 2007, 9:00–11:00 a.m.

Wohlstetter Conference Center, Twelfth Floor, AEI

1150 Seventeenth Street, N.W., Washington, D.C. 20036

International trade scholars Douglas Irwin of Dartmouth College and Petros Mavroidis of Columbia University Law School have just completed a study of the motivations and goals that underpinned the creation of the General Agreement on Trade and Tariffs (GATT) at the end of World War II. Given the dire straits of the world trading system today—with the Doha Round of multilateral negotiations near collapse—it is particularly timely to analyze in some detail the aspirations of the fathers of GATT in attempting to establish a postwar system that would lead to peace and prosperity. In this seminar, Irwin and Mavroidis will describe their findings. Three international trade experts will discuss the original goals for GATT, how the system has changed in the ensuing decades, and the implications for the twenty-first century multilateral trading system.

8:45 a.m.

Registration

9:00

Presenters:

Douglas Irwin, Dartmouth College

Petros Mavroidis, Columbia University Law School

Discussants:

John Jackson, Georgetown University Law Center

Gary Horlick, WilmerHale

Brink Lindsey, Cato Institute

                                                            

Moderator:

Claude Barfield, AEI

It's Not Just Agriculture

The zeroing litigation seems to be winding down (albeit very slowly), but the zeroing negotiations may be heating up.  From Reuters:

Congress is likely to reject a world trade agreement unless it restores eroded U.S. ability to impose duties on unfairly traded imports, a pair of senior Democratic lawmakers said on Thursday.

"The starting point must be to restore the balance that was struck in the Uruguay Round, more than 10 years ago," House of Representatives Ways and Means Committee Chairman Charles Rangel and House trade subcommittee Chairman Sander Levin said in a letter to Bush administration officials.

The lawmakers would play a key role in congressional approval of any world trade agreement. Like many in Congress, they believe a series of World Trade Organization panel rulings against the way the United States calculates anti-dumping duties go beyond what countries agreed to do in the 1994 Uruguay Round trade deal.

They want any new agreement to clarify the United States' right to use a long-standing procedure known as "zeroing," which was struck down by a WTO panel.

"It is hard to imagine Congress approving any final package that fails to include this essential clarification," Rangel and Levin said.

Here is the full text of the House letter, which also mentions other trade remedy issues and expresses concern with judicial "overreaching" more generally.

Some Gambling Case Irony

From a gambling news web site:

Gary Loveman, CEO of Harrah's Entertainment, announced at the Global Gaming Expo in Las Vegas that the World Series of Poker may soon branch into online formats in Europe.

...

The irony of the move by Harrah's, and part of the reason the WTO ruled against the US over their Internet gambling laws, is that they are a US company that is allowed to make money from online gambling sites dedicated to European players, while foreign companies are not allowed to offer online gambling services to US citizens.

More on (Alleged) Tax and Trade Inequities

I posted a while back on the treatment of different tax systems (direct vs. indirect systems) under trade rules.  Here's an FT op-ed that makes the case that the current system is unfair to U.S. producers.  The authors argue as follows:

In 2005, 137 nations accounting for 94 per cent of trade with the US had some form of border-adjusted taxes on manufactured goods and services. By contrast, the US has direct taxes, such as the corporate income tax, which is precluded from being refunded on US exports or assessed on imports under World Trade Organisation rules.

The net effect is an unfair disadvantage for US companies and their staff, as the goods they produce and export are hit with taxes abroad, while foreign goods coming into the country are not. The additional embedded tax burden for US companies exporting goods is at least $100bn annually.

They then propose two steps to fix the problem:

First, the US must aggressively engage the Europeans to repeal the distinction between direct and indirect taxes. This distinction is a charade that was established in the 1960s and never challenged in a meaningful way.

...

Second, Congress should move our corporate code towards a consumption-based tax. ...

There was a nice discussion of this issue in reaction to my original post (see the comments section there).  I hear this argument raised every now and then, but I can't figure out whether it will gain traction any time soon or just fade away.

Coming Soon: The EC - Salmon Panel Report

It is being reported that the EC - Salmon WTO panel report, which deals with an anti-dumping determination, will be circulated this Friday.

According to Norway, the final report "is the same as the interim decision in August, which Norway considered a victory."

According to the EC, "no one wins on all points, but on the most essential points the EU has been upheld."

From the House Gambling Hearing

I decided I wasn't up for live blogging the House hearing on internet gambling, but here is a brief review of some points that were made.  (You can view the webcast here -- it's still ongoing, but they have taken a break). [UPDATE - here is a link to the webcast, now completed: http://judiciary.house.gov/oversight.aspx?ID=396]

Rep. Shelley Berkley of Nevada (Las Vegas) criticizes existing gambling laws for their "selective enforcement" and for the "hypocritical carve out for horse-racing."  She notes that the WTO has ruled against us and the Bush Administration has tried to withdraw our commitments, which, she says, is the "trade equivalent of taking our ball and going home."

Rep. Bob Goodlatte of Virginia says that "gambling is not a victimless activity" and says the current laws are reducing underage gambling.

U.S. Attorney Catherine Hanaway offers the views of the DOJ.  She says that all forms of internet gambling are illegal under federal law and should remain illegal, based on the unacceptable risk due to gambling by minors, compulsive gambling, fraud, money laundering and organized crime.

Now to the trade law parts, with Professor Weiler.  His testimony starts about 45 minutes into the hearing and lasts about 7 minutes.

First, Prof. Weiler noted that he expresses no views on gambling or internet gambling.  On the trade law issues, he says that the U.S. reaction to the WTO ruling has been "curious," in two respects: (1) despite a clear ruling that there is a WTO violation, the U.S. continues to prosecute people for internet gambling activities; (2) the U.S. has announced it will withdraw its commitments.  These two reactions, he says, are "damaging" to the U.S.  He notes that the U.S. is a world leader in trade matters and leads by example.  This, however, is not a good example to set.  He points out that the U.S. reaction in this case could be detrimental if other Members follow this example in the future.

His written testimony is here:  http://judiciary.house.gov/media/pdfs/Weiler071114.pdf  In it, along the lines of the Gary Kaplan WTO defense mentioned here, he says:

This Committee is not a court of law so I will spare it a lengthy legal analysis concerning the question whether or not individuals may rely in their defense against the indictments brought against them on the fact that the Acts on which such indictments have been brought have been found to be in violation of the US legal obligations when applied to individuals supplying remote betting services from other WTO Members.  Some language in the Uruguay Round Agreement Act notwithstanding I think there are weighty legal arguments that individuals should not be denied, in defending themselves, the ability to argue that Congress did not intend in approving US participation in the WTO, that prosecutorial discretion should be exercised in a manner which would bring the United States into violation of its international legal obligations.  There is, however, one crucial point which should be of interest to this Committee. In many of its utterances the Executive Branch has taken the position that it is defending the “sovereignty” of the United States as a whole, and that in its conduct in this matter it is executing the will of Congress. I respectfully and vigorously dispute both these propositions. When  a country solemnly adopts an international legal obligation and then honors that obligation it does not compromise its sovereignty – it manifests its sovereignty. For generations the United States has taken the view that all Congressional Acts should, if at all possible, be interpreted and applied in such a way as to respect international obligations solemnly undertaken by this Country. This is called the Charming Betsy doctrine. We expect the same from all other countries. It is possible to interpret both the Uruguay Round Agreement Act (taking the US into the WTO) and the Statutes under which the Executive Branch is seeking to ban remote betting from service suppliers located in our WTO partners, in a manner which would respect American international legal obligation and commitment to the rule of law. The Executive Branch is doing no service to the US by violating these obligations, and laying the responsibility at the feet of Congress. Congress should not allow such.

After a few more witnesses testified, the Chairperson then asked the witnesses for any general views they wanted to offer.  Prof. Weiler's response is around one hour and 22 minutes into the hearing.  Prof. Weiler says he was struck by the absence of mention in the DOJ statement anything about the prosecution issue.  He wonders what the DOJ position would be if China were to prosecute a U.S. citizen in violation of international legal obligations owed to the U.S.?

In response, Ms. Hanaway