International Economic Law and Policy Blog

Trade in Everything (New Year's Eve Edition): (Alleged) Hallucinogens

From the Palm Beach Post:

Blame Johnny Depp's dazed bathtub scene in 2001's From Hell for making absinthe popular. Blame the fall of the Berlin Wall for making it available. It was the post-Soviet Czech Republic that gleefully jumped on the absinthe manufacturing bandwagon.

The Czech stuff is noxious, according to connoisseurs. But now that the Food and Drug Administration has determined there's little chemical basis for the milky green drink's reputation as a hallucinogen and aphrodisiac, a 95-year ban on imports has been lifted, and French and Swiss absinthe is trickling into South Florida - both legally and illegally - just in time for New Year's Eve. This holiday marks the first New Year's absinthe can be legally served to partygoers. They appear to be ready for a sip of the spirit.

I probably won't be trying any myself, at least not this year.  I'm going to exercise the "precautionary principle" on this one and see how others react first.

UN sanctions: are authorizations sufficient? The House of Lords speaks

On 12 December the House of Lords delivered its long-awaited judgment in Al-Jeddah, which is to do with the application of the ECHR to a person detained in a UK detention facility in Iraq. One of the issues concerned the scope of Article 103 of the UN Charter (which states that UN obligations override all other agreements). The HL held that this provision applies not only to UN obligations but also to UN authorizations.

This has direct relevance to Article XXI(c) GATT, which allows 'any action in pursuance of [a WTO Member's] obligations under the United Nations Charter for the maintenance of international peace and security.' According to the HL reasoning, this provision would now be triggered by a UN sanction that merely authorizes trade sanctions - as most do.

Two other points. If this question arose in WTO dispute settlement proceedings, a WTO panel/AB would need to decide it, as a necessary interpretation of a WTO provision. But doing this would also be 'determining rights and obligations outside of the covered agreements', which the AB said in Soft Drinks (para 56) that it would not do. This indicates that the AB's statement in this case might be in need of some refining. Second, this case provides further support for the argument (put forcefully by Joost) that, in terms of treaty conflicts, rights can conflict with obligations, though with the interesting spin that the term 'obligation' is interpreted also to mean 'right'.

Paul Krugman on The "Trouble With Trade"

Paul Krugman has not had much to say about trade (that I've seen) in his op-ed columns, but today he writes:

For the world economy as a whole — and especially for poorer nations — growing trade between high-wage and low-wage countries is a very good thing. Above all, it offers backward economies their best hope of moving up the income ladder.

But for American workers the story is much less positive. In fact, it’s hard to avoid the conclusion that growing U.S. trade with third world countries reduces the real wages of many and perhaps most workers in this country. And that reality makes the politics of trade very difficult.

...

So am I arguing for protectionism? No. Those who think that globalization is always and everywhere a bad thing are wrong. On the contrary, keeping world markets relatively open is crucial to the hopes of billions of people.

But I am arguing for an end to the finger-wagging, the accusation either of not understanding economics or of kowtowing to special interests that tends to be the editorial response to politicians who express skepticism about the benefits of free-trade agreements.

It’s often claimed that limits on trade benefit only a small number of Americans, while hurting the vast majority. That’s still true of things like the import quota on sugar. But when it comes to manufactured goods, it’s at least arguable that the reverse is true. The highly educated workers who clearly benefit from growing trade with third-world economies are a minority, greatly outnumbered by those who probably lose.

As I said, I’m not a protectionist. For the sake of the world as a whole, I hope that we respond to the trouble with trade not by shutting trade down, but by doing things like strengthening the social safety net. But those who are worried about trade have a point, and deserve some respect.

To some extent, it doesn't seem like he's saying anything new here, but rather just stating the obvious.  It is clear that imports do not help everyone, as they hurt those in import-competing industries.  The argument for free trade is not that everyone benefits, but rather that the benefits to consumers outweigh the harms to these workers.

But perhaps he does go further when he says:  "when it comes to manufactured goods ... [t]he highly educated workers who clearly benefit from growing trade with third-world economies are a minority, greatly outnumbered by those who probably lose."  This strikes me as misleading.  Everyone benefits from low-priced imports, not just "highly educated workers."  In fact, this group probably benefits the least.  Rich people don't notice lower prices very much because this is such a small percentage of their income, whereas poor people find lower prices much more beneficial, allowing them to buy things they might not otherwise have been able to.  Elsewhere in the article he criticizes lower prices at Wal-Mart as insufficient compensation, but it seems to me he is underestimating these benefits.

Also, his distinction between the sugar quota and manufactured goods strikes me as odd.  It's not as though "manufactured goods" are subject to a uniform tariff.  Rather, there are hundreds of tariff lines, each with a different tariff.  If the sugar quota is bad, why is a high tariff on a particular manufactured good any less bad?

It's hard to delve fully into this issue without some detailed statistics, but I thought I'd offer some general thoughts anyway.

Oh, and one more thing.  Keeping out imports from poor countries can't be very good for those countries!

ADDED:  When Paul Krugman talks, people listen.  Some reactions from the blogosphere: Dani Rodrik, Greg Mankiw, Angry Bear, Don Boudreaux, the Economist's Free Exchange blog, Tyler Cowen.

Some Support for a WTO Agreement on Currency Manipulation

I've said before on this blog (see, e.g. here) that WTO rules on exchange rate manipulation would be useful.  I didn't have any detailed proposal in mind; it was my gut instinct plus some very basic arguments.  Well, now I can cite to some top-notch economists who support the idea.  In an op-ed piece, Arvind Subramanian writes:

India could work toward multilateralising the exchange rate issue. And here’s the punch line: this multilateralisation should be in the context of the WTO rather than the IMF. In a new paper, Aaditya Mattoo of the World Bank and I offer suggestions on how the exchange rate can be made into a multilateral trade issue. The WTO is the obvious alternative to the IMF since undervalued exchange rates have large and direct trade consequences. What is needed is a new rule in the WTO proscribing undervalued exchange rates, which are in effect a combination of export subsidies and tariffs, each of which is currently disciplined by the WTO.

I haven't seen the paper online yet, but I'll look for it, because it would be nice to have some support for my off-the-cuff blog post views.  I agree with them in principle and I think something along these lines can be achieved.  No doubt the details will be very tricky, though.  I'm curious to see what they have to say in this regard.

The Chinese Film Ban (If It Existed) No Longer Exists

The Chinese film ban, if there was one, is apparently over:

China's blackout of Hollywood films has been broken by the Will Smith starrer "The Pursuit of Happyness," which Chinese film import officials now say will be released here in January.

...

'Happiness Knocks at the Door' (the film's Chinese title) is coming in January. We are planning what day to release it," Yuan Wenqiang, China Film Group Import Export Co. deputy manager, said in a telephone interview.

The unofficial ban of imported films, earlier denied by China Film Group executives, was thought to have come down from on high in the Communist government, which long has moved to prevent what it calls "pollution" of domestic culture and to protect the struggling domestic film industry.

That's a good movie to open with.  I didn't see the whole thing (I only caught bits and pieces on cable), but from what I did see it was pretty moving.

Some Exchange Rate Items of Interest

Here are two unrelated items about exchange rates:

1. From Marginal Revolution:

Canadian shoppers taking advantage of the parity between the U.S. and Canadian dollars are leaving behind more than cash when the head home.

They're leaving behind their old clothes.

Some Canadian shoppers wear their new clothes home to avoid paying a duty when they cross back into Canada. The old clothes get left behind in parking lots, dressing rooms and restrooms at malls and shopping plazas in the Buffalo-Niagara Falls region.

This could have gone under the "trade in everything" theme, but I put it here because I have this next item to mention ...

2. From an AP story reported in various papers, regarding the increase in foreign buyers of U.S. real estate due to the dollar's fall:

The currency advantage is greatest for British citizens, given that each pound is worth well over $2. By contrast, the euro currently is worth about $1.45 while the Canadian dollar in recent weeks is hovering near parity with its U.S. counterpart.

Sigh.  If I'm reading this correctly, the AP reporter seems to think the strength of a currency is based on the absolute numbers.  Thus, under this view, the UK has a stonger currency than Canada because one British pound buys 2 US dollars whereas Canada's dollar only buys 1 US dollar.  This kind of confused thinking out there in the media can only make the policy debates more muddled. 

Trade in Everything: Christmas Trees

Typepad has a nice feature that lets you schedule a post for publication at a later date, so I'm scheduling this for Christmas day.  Two items to note:

From the FT, "Fir flies as Danish Xmas tree growers charged":

Denmark’s Christmas tree growers, the biggest exporters of the trees in Europe, have been charged with organising a cartel as prices this year spike by up to 25 per cent.

...

Almost half of Danish exports go to Germany – the biggest producer in the EU – and 15 per cent go to the UK and France.

And from the AP, how the U.S. dollar's decline is hurting Canadian Christmas tree exports:  "The drooping value of the U.S. dollar means Canadian Christmas tree growers are seeing less green this season."

The Gambling Arbitration: US$21 Million Per Year

From the Award:

6.1 For the reasons set out above, the Arbitrator determines that the annual level of nullification or impairment of benefits accuing to Antigua in this case is US$21 million and that Antigua has followed the principles and procedures of Article 22.3 of the DSU in determining that it is not practicable or effective to suspend concessions or other obligations under the GATS and that the circumstances were serious enough. Accordingly, the Arbitrator determines that Antigua may request authorization from the DSB, to suspend the obligations under the TRIPS Agreement mentioned in paragraph 5.6 above, at a level not exceeding US$21 million annually.

The U.S. must be pretty happy with that amount.  I haven't looked through the reasoning yet, but I did notice there was a separate opinion on one of the interpretive issues.

ADDED:

-- From USTR's press release:

In the arbitration, Antigua claimed that its level of impairment of WTO benefits resulting from U.S. noncompliance amounted to $3.4 billion per year – a figure more than three times the size of Antigua’s entire economy.  During the arbitration, the United States explained to the Arbitrator that Antigua's claim was patently excessive.  The United States is pleased that the figure arrived at by the Arbitrator is over 100 times lower than Antigua’s claim.

-- More from an AP story.

-- From Reuters.

-- What Antigua's legal team thought of the decision:

Mark Mendel, the lawyer who has been spearheading this case for the Antiguan government since it began back in 2003 observed “I am pleased that the panel approved our ability to cross-retaliate by suspension of intellectual property rights of United States business interests. That has only been done once before and is, I believe, a very potent weapon.”

Mr Mendel expressed less satisfaction with the amount of damages assessed. “I find it astonishing that two of the three panelists would in essence grant the United States the benefit of a hypothetical method of compliance most favorable to the American side in assessing Antigua’s level of trade impairment. What appears to have been done here is assuming a form of compliance that has not happened and probably will not happen without giving Antigua the ability to contest the method under the WTO’s normal procedures,” he added. Unlike other WTO rulings, awards of arbitrators are not subject to review by the Appellate Body of the WTO.

While questioning the low number, Mr Mendel remains positive about the dispute going forward. “US $21 million a year in intellectual property rights suspension going forward indefinitely is not such a bad asset to have. I hope that the United States government will now see the wisdom in reaching some accommodation with Antigua over this dispute and look forward to seeing efforts in this regard.”

-- From Sallie James at Cato.

-- From the NY Times, with a quote from Brendan McGivern:

Still, implementation will prove difficult, the lawyers say.

“Even if Antigua goes ahead with an act of piracy or the refusal to allow the registration of a trademark, the question still remains of how much that act is worth,” said Brendan McGivern, a trade lawyer with White & Case in Geneva. “The Antiguans could say that’s worth $50,000, and then the U.S. might say that’s worth $5 million — and I can tell you that the U.S. is going to dog them on every step of the way.”

No doubt he's right about that.

Here's my question.  How much relevance does the amount of nullification or impairment decided in this arbitration decision have for any GATS Article XXI arbitration that occurs on the matter?  The terms of reference for such arbitrations say:

13. The arbitration body shall have the following terms of reference unless the parties to the arbitration agree otherwise within ten days from the request for arbitration:

"To examine the compensatory adjustments offered by (name of modifying Member) or requested by (affected Member requesting the arbitration) and to find a resulting balance of rights and obligations which maintains a general level of mutually advantageous commitments not less favourable to trade than that provided for in Schedules of specific commitments prior to the negotiations. In such examination, the Arbitration body shall take into account any agreement reached, in negotiations under paragraph 4. above, between the modifying Member and any affected Member".

Seems like the $21 million figure could play some role there.

-- And here is the Antiguan legal team's press release.

-- Various quotes on the decision collected in the National Journal.

-- My favorite headline of the day: "WTO OKs Antigua as pirate of Caribbean"

-- More from Antigua's lawyer Mark Mendel.

The Light Bulb Ban

I was a bit surprised by the ban on incandescent light bulbs in the U.S. energy bill (probably because I hadn't been following the legislation very closely).  Usually regulation of this sort consists of higher standards, or maybe occasionally additional taxes, but here we have an outright ban (well, by 2012, anyway).  It is not sitting well in some circles, but it seems like an effective way to achieve greater energy efficiency.  I wonder why it was possible to achieve a ban here, but in other areas it's difficult even to regulate?

But getting to the trade issues, I haven't seen any mention of trade concerns resulting from this ban.  Isn't there an incandescent light bulb producing country out there who is upset by this?  I think that any WTO challenge would be rejected, but nonetheless I'm surprised I haven't seen concerns expressed.

The US-EU Gambling Settlement Is Not So Settled

So the EU is now out of the picture in the gambling dispute because they settled on compensation ... Wait, hold on a minute:

European online gaming firms are filing a formal complaint against the United States for discrimination after their controversial exit from the US market.

The companies say that the US Department of Justice has violated international trade law by kicking them out of the market and taking legal action while allowing domestic online gaming operators to continue trading.

...

The group has asked the EU to investigate the situation, arguing that although the US has repeatedly stated that all forms of online gambling are illegal, it has enforced this view only with non-US businesses.

More details at Reason Magazine's blog.

ADDED:  It is being suggested that the Arbitrator's Article 22.6 decision is coming out tomorrow.  I'll believe it when I see it.

Why Does the WTO Have So Much Power?

Dani Rodrik asks:

Whether you like it or not, the WTO is the only international organization in existence that actually makes the U.S. do what it would not otherwise have done on its own. No other organization has such power. I would love it if somebody would come up with a sensible story as to why the U.S. has ceded so much power in trade, while zealously guarding its sovereignty and right to unilateral action in every other domain.

One part of the answer may be:  Because the U.S. wants a trade regime that can pry open foreign countries' markets, so it is willing to give up sovereignty to get that.  In other policy areas, it wants to coerce foreign behavior to a much lesser extent.

Another part may be that there are people in the U.S. who want to open the U.S. market (and thus cede sovereignty) and this is a way to achieve that (unilateral market opening won't be politically feasible).

Perhaps the answer lies in the combined effect of these two things -- a strong desire for foreign market access and a weak desire to give access to our own markets.

The Zeroing Battle in the Courts

In a decision circulated today, a WTO panel says it disagrees with the Appellate Body's views on zeroing under AD Agreement Article 9.3, and decides not to follow the Appellate Body's approach. Here's an excerpt:

7.115 We respectfully disagree with the Appellate Body's reasoning. We recognize that our analysis inevitably resembles that of the panels in the last two cases that dealt with simple zeroing in periodic reviews, US – Zeroing (EC) and US – Zeroing (Japan), and that the Appellate Body reversed those panels' findings that simple zeroing is not inconsistent with Article 9.3 of the Anti-Dumping Agreement. We would like to underline, however, that our analysis is not simply an unthinking repetition of these past panel decisions. Rather, it reflects our own appreciation of the facts and the legal arguments presented by the parties in these proceedings, as is required by our obligation under Article 11 of the DSU to carry out an objective examination of the matter before us.

...

7.119 We are troubled by the fact that the principal basis of the Appellate Body's reasoning in the
zeroing cases seems to be premised on an interpretation that does not have a solid textual basis in the relevant treaty provisions. We recall the rules on treaty interpretation (supra, paras. 7.3-7.5) which we have to follow in these proceedings. We are of the view that a good faith interpretation of the ordinary meaning of the texts of Articles VI:1 and VI:2 of the GATT 1994 and Article 2.1 of the Anti-Dumping Agreement, read in their context and in light of the object and purpose of the mentioned agreements, does not exclude an interpretation that allows the concept of dumping to exist on a transaction-specific basis. We recall that according to the standard of review that we have to follow in these proceedings (supra, paras. 7.1-7.2), we are precluded from excluding an interpretation which we find permissible, even if there may be other permissible interpretations.

More later after I've read the decision (but I'm still working on Cotton, so it might not happen soon).

Obama's Import Ban

In response to the recent safety scares related to toys imported from China, Barack Obama says: "I would stop the import of all toys from China."  Does he really mean that?

First off, this sounds like campaign rhetoric more than a policy proposal.

In addition to that, it seems that the ban would be a temporary measure, to be followed by more thorough inspections:

"We have the power right now to set up our own inspection systems in China," said Obama, who is in a tight race with Democratic front-runner Sen. Hillary Clinton of New York according to polls.

"The Japanese do this on food, they basically say to China, you cannot import food unless you meet our safety inspectors. They sent Japanese inspectors to China, set up the testing system, and oversee and make sure that every single bite of food that is sent into from China has been tested," he said.

So perhaps the bark is likely to be worse than the bite.

The Gambling Ban Hits Microsoft

No doubt Microsoft is concerned about the prospect of Antigua getting authorization to sell pirated copies of its products, but we're not quite there yet.  However, it is already feeling some pain from the U.S. online gambling ban:

Internet giants Google, Microsoft and Yahoo agreed to pay a total of $31.5 million to settle with the United States Attorney's office in St. Louis for taking ads from internet gambling websites.

"This is a very profitable business that had a lot of money to spend on marketing," stated U.S. Attorney Catherine Hanaway.  "I do think it will have a major impact. Obviously these are three of the largest online organizations in the world."

As part of the agreement, Google, Microsoft and Yahoo agreed to stop accepting ads for sports wagering and other online gambling.  The three internet giants already stopped taking such ads approximately 4 years ago.  The settlement reached today was finalized after a year and a half of negotiations between the tech companies and federal prosecutors.

What the Horse-Racing Folks Think of the Recent Gambling Settlement

Not surprisingly, given that the status quo is very good for them, they are quite happy with it:

“The U.S. withdrawal of its WTO commitments in gambling services was the only approach that could meet U.S. treaty obligations, remove the gambling issue from the WTO agenda and restore stability to the domestic regulatory environment,” said Alex Waldrop, President and CEO of the National Thoroughbred Racing Association. “The NTRA has long advocated the withdrawal of U.S. gaming commitments. This agreement is a major step toward the conclusion of the WTO dispute involving the U.S. regulation of remote gambling services.”

I suppose it is a major step, but there are some big hurdles left.

Fuel Efficiency Standards and Trade Rules

New U.S. fuel efficiency standards were signed into law today.  Will we see a repeat of the early 1990s U.S. - Autos case?  A National Foreign Trade Council report thinks it is possible, but probably unlikely:

Unlike other bills, which continue the 1994 CAFE standards' distinction between foreign and domestic manufacturers, H.R. 1506 is structured to impose a more equal burden on domestic and foreign manufacturers. H.R. 1506 is less likely to violate the WTO's National Treatment provisions than the approach to CAFE regulations used in 1994, which used separate foreign and domestic fleet accounting. However, it is possible that this "safeguard" may still, in effect, discriminate between foreign and domestic producers, in violation of GATT Article III.

...

The CAFE regulations that affected the sale of automobiles in the U.S. based on whether they were produced domestically or imported, rather than on some intrinsic “un-likeness” between the automobiles, violated Article III Paragraph 4. In the case of the CAFE standards, the regulation could still be permissible by qualifying under GATT 1994 Article XX, Paragraph (b) or (g). However, having scrutinized the manner in which the 1994 CAFE regulations had been applied, the panel found that they did not qualify for an exception. This suggests that although they are meant to preserve clean air, CAFE standards must be applied in a non-arbitrary, non-discriminatory manner in order to be justifiable under GATT Article XX.

See pages 9-10.  The report also has analysis of how trade rules apply to other aspects of U.S. policies related to climate change.

The Economist on Carbon Border Measures

In reaction to the proposal for carbon border measures noted here the other day, the Economist's Free Exchange blog expresses skepticism:

There are good reasons to react cautiously toward this idea, however.

In the first place, developed nation carbon pricing is likely to be helpful to the fight against climate change with or without leakage. Per capita emissions in America are among the highest in the world, and given our position as one of the leading global producers of carbon, reductions at home can have a significant effect on the global path of emissions growth. Much of our economy is concentrated in non-tradables or involves trade with other developed nations (who, one guesses, would adopt similar carbon rules), and should therefore be immune to leakage pressures. Developed nation carbon regulations would also jump-start investments and innovations in efficiency technologies, which would make later adoption of carbon pricing cheaper and easier for countries like China and India.

It's difficult to imagine how import permits might be deployed in a cost effective way. The principle challenge is likely to be setting the right price. If we price carbon near the source, then that price trickles throughout the supply chain, saving us hard choices about how much to weight different aspects of the production process. Pricing a good at the final stage, however, is sure to be a nightmare. How do we weight the emissions of components produced from scattered locations across the globe? How do we price a carbon permit for an outsourced computer programmer in Bangalore? End-stage pricing is sure to be complicated, and that complexity will increase the chance of politicisation. Domestic firms, after all, will have a powerful incentive to use carbon permits as instruments of protectionism.

China is also unlikely to take such rules lying down. No stranger to trade manipulation, China could easily fiddle with the yuan or provide hidden subsidies to domestic producers to overcome the cost of the permits. Cases could also get bogged down at the WTO, and broader patterns of trade could be threatened. But most importantly, China might just turn its focus to production for domestic consumers, of which there are quite a few. As a long-term solution, import permits do not bring rapidly growing industrial powers into the regulatory scheme, and as such, they fail.

They conclude with a plug for international regulation on the issue:

The obvious best option, as Dean Baker notes, is to establish an international regulatory environment that includes developing nations. Felix Salmon says it will never happen, but I have a difficult time understanding why. We have not yet seen what kind of agreement is possible with strong American leadership pushing negotiations ahead. Our lack of seriousness in international talks means that we don't even know what concessions developing nations might require, if any. Eventually, we may need to decide that the perfect ought not be the enemy of the good, but there's no reason to do that without first giving the perfect a good-faith effort.

I confess that I have a hard time believing that meaningful international regulation in this area, in terms of carbon caps or carbon taxes, will be achieved any time soon.  Part of my skepticism comes from the fact that even the most serious proposals seem weak and ineffective to me.  Even if they were adopted as proposed, which they are unlikely to be, I'm not sure how much carbon reduction would actually be achieved.

State of Play of U.S. FTAs

I found this table from Washington Trade Daily to be a useful summary of the state of play of U.S. FTAs:

1985	US-Israel FTA	Implemented
1989	US-Canada FTA	Implemented; combined with NAFTA in 1994
1994	North American Free Trade Agreement	Implemented
2001	US-Jordan FTA	Implemented
2004	US-Singapore FTA	Implemented
2005	US-Chile FTA	Implemented
2005	US-Australia FTA	Implemented
2006	US-Morocco FTA	Implemented
	US-Central American-Dominican Republic FTA	Implemented for the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.  Implementation for Costa Rica expected early 2008
	Free Trade Area of the Americas	Negotiations inactive
	US-Southern African Customs Union	Negotiations inactive with South Africa, Namibia, Lesotho, Botswana and Swaziland
	US-Bahrain FTA	Implemented
	US-Thailand FTA	Negotiations inactive
	US-Columbia FTA	Under Congressional review
	US-Peru FTA	Signed into law; implementation expected by mid-2008.
	US-Ecuador FTA	Negotiations inactive
	US-Panama FTA	Under Congressional review
	US-United Arab Emirates FTA	Negotiations inactive
	US-Oman FTA	Signed into law, implementation expected in 2008
	US-Malaysia FTA	Negotiations ongoing
	US-South Korea FTA	Under Congressional review

Zeroing: Artificially Higher Margins or Artificially Lower Margins?

From the U.S. statement to the Rules Negotiating Group last week:

I’d like to address the issue that has been the focus of so many delegations here today – that is the issue of mandatory offsets or “zeroing.”  Dumping margins occur when export prices are less than normal value, and requiring an offset for non-dumped transactions would result in an artificially lower margin. (emphasis added)

Of course, zeroing opponents say that zeroing results in an artificially higher margin.  But higher or lower than what?  What's the baseline?  That's what the argument is fundamentally about.

There's also a reference in the U.S. statement to the prospective versus retrospective issue mentioned earlier on this blog, as well as some comments on issues other than zeroing.

Some Gambling Updates: Compensation and Arbitration

In the Gambling compensation negotiations, the U.S. and EU have apparently reached a deal:

The United States agreed on Monday to widen access to some of its services in compensation to the European Union for preventing betting businesses from offering on-line gambling in the US, the EU said here.

The compensatory measures will increase opportunities for EU companies in the fields of postal and courier services, storaging and warehousing, and in research and development.

More from the BBC:

The concessions, which relate to mail and storage services among others, will affect how Germany's DHL competes with US-based firms Fedex and UPS.

The proposed deal also includes new US market opportunities for European firms offering testing and analysis services, as well as in research and development.

As to the Article 22.6 arbitration, not surprisingly the ruling has been delayed.

ADDED:  Here's a Bloomberg article from today on the dispute, with quotes from a few prominent trade lawyers.

MORE:  Apparently the settlement was not just with the EU, but also Japan and Canada:

A spokeswoman for the US Trade Representative's office (USTR) confirmed an earlier report from a European official, and noted that Japan and Canada were also included in the agreement settling the World Trade Organization complaint.

"The agreement involves commitments to maintain our liberalized markets for warehousing services, technical testing services, research and development services and postal services relating to outbound international letters," said Gretchen Hamel, the USTR spokeswoman, in a statement.

"These commitments meet our WTO obligation ... to make a compensatory adjustment in our WTO services commitments."

Hamel said the deal allows for a 45-day period "in which the remaining claimants have a right to request arbitration. We will continue to discuss this matter with the other claimants to explain how our proposal is consistent with our WTO obligations."

That leaves Australia, Costa Rica, India, Macau (although this report says Australia settled, too), and, of course, Antigua, still to reach a deal.

AND: Global Trade Watch points out that Congress must OK all of this.

They also state:  "After the gambling case showed how the WTO places major constraints on non-trade domestic policy space, ..."  I'm not sure I agree with that.  The key constraint in this case was not to discriminate against foreigners.  That's not much of a constraint on domestic policy space, in my view.

SO WHAT do FedEx and UPS think of being the subject of the compensation:

A FedEx spokeswoman said it was unclear what the deal would mean to the Memphis-based courier. "We're looking into this now," said spokeswoman Sandra Munos. A call to Atlanta-based UPS was not immediately returned.

AND HOW much was the compensation worth?  No one's talking:

In any case, the overall trade valuation of the package will fall far short of the US$100 billion that European online gaming sites had claimed the United States owed. EU officials could not immediately say how much the deal was worth.

"This compensation cannot be quantified up to the euro," the EU mission to the WTO said in an e-mailed statement. "Nonetheless, it is clear that new trade opportunities are created for EU service suppliers in important sectors in the U.S."

GLOBAL TRADE WATCH's Eyes on Trade blog is not happy about it:

What this could mean in practice is that there would be additional pressures to privatize and deregulate not only our postal service, but also our safety policy around dangerous LNG terminals. Oh, yeah, and this is just for the right to maintain a gambling policy that corporations don't like - a policy that treats foreign and domestic gambling firms THE SAME.

The pressure to privatize and deregulate the postal service, etc. sounds unlikely, but I don't know for sure what they have in mind; I do think they have their facts wrong about the "treating foreign and domestic gambling firms the same", though.

A BIT more from Reuters.

AND HERE is USTR's press release on the deal.

TO wrap things up for the day, two articles from the FT: here and here.

Note to Feedblitz Subscribers

For those of you who read this blog via the Feedblitz email updates, I made a couple tweaks which you might notice.  The sender will now be "IELP Blog," not "Feedblitz."  And the reply email address will be mine (administrator@worldtradelaw.net).  Also, the name of the post's author will be in the emails.

Hopefully I made these modifications properly.  I'll know tomorrow when the email goes around.  If I made any mistakes (and I might have), I'll fix them when I figure out what they are.

Trade Talk from the Final Republican Debate

The final Republican primary debate was held last week in Iowa.  There were a few references to trade issues, many of which were vague and difficult to characterize (e.g., the usual references to "free and fair trade").  But this statement from John McCain jumped out at me:

[Question:] Some of our big trading partners commit human rights violations.

Considering that poverty and abuse are often blamed for fostering terrorism, should we alter trade policies with those countries?

Senator McCain.

SEN. MCCAIN: Well, obviously we should make sure that every nation respects human rights, and we should advocate that and try to enforce it. But I will open every market in the world to Iowa's agricultural products. I'm the biggest free marketer and free trader that you will ever see.

And I will also eliminate subsidies on ethanol and other agricultural products. They are an impediment to competition; they are an impediment to free markets. And I believe that subsidies are a mistake, and I don't believe that anybody can stand here and say that they're a fiscal conservative and yet support subsidies which distort markets and destroy our ability to compete in the world, and destroy our ability to get cheaper products into the United States of America.

He didn't really answer the question very directly, but it's the latter part that's of more interest.  This was quite a bold statement in opposition to agriculture subsidies.  Remember, he said this in Iowa!  If the trade ministers of U.S. trading partners could vote, I think they'd vote for McCain.

An Argument for Carbon Restrictions on Imports

From a NY Times op-ed, here is an argument that carbon consumption should be the focus of carbon regulation, which necessarily requires carbon border measures:

A problem would arise, however, if a producer needed to buy permits to make televisions in a country with a carbon cap, while no permits were required in a country without a cap. The television from the country without the cap would be cheaper, consumers would prefer it, and there would be no economic incentive to cut emissions. Environmentalists call this the “leakage problem”: just as a balloon squeezed at one end will bulge at the other, emissions caps applied in only some economies will lead to emissions surges in others.

...

If the United States adopted a tradable permit system that treated emissions from domestic producers identically to emissions associated with imported goods, then products that are more emissions-intensive, whether domestic or imported, would require more permits and thus be more expensive. Producers in the United States and abroad would have an incentive to reduce greenhouse gases to make their goods more competitive.

While international agreement is preferable, we have to be realistic about what can be achieved:

“The best policy — both in terms of the environment and in terms of economic theory — would be to have all countries take on binding emissions caps under an international agreement,” said Nathaniel Keohane, director of economic policy and analysis at Environmental Defense, a nonprofit advocacy group. “But we have to recognize that’s not going to happen overnight.” In the meantime, he said, the United States and other developed countries “need to take the lead.” He called carbon consumption caps “a good first step.”

“FROM an environmental point of view,” Mr. Keohane said, “it would ensure that the pollution we cut here at home doesn’t simply end up coming out of a smokestack somewhere else. It levels the playing field for American companies in the global economy. And it also helps us move toward a truly international system, by providing an incentive for developing countries to take on binding caps of their own.”

At the end of the piece, the role of trade agreements is acknolwedged:

The carbon consumption provision will face scrutiny under current trade agreements, but there is sound logic for including it in any emissions legislation. Most important, it would eliminate an excuse for doing nothing.

In my view, it may be possible to set up a measure that discourages carbon consumption in a non-discriminatory manner so that it has a good chance of surviving a WTO challenge.  But, it is harder to do so with cap-and-trade than with a tax, and, furthermore, in practice it may be difficult for the legislative process to provide us with a perfectly drafted measure that can satisfy trade rules.

An even better way to do achieve these goals, though, might be to provide subsidies for consumers to be more energy efficient.  For example, a tax credit for using solar energy to power homes would be a good way to reduce carbon emissions, and would not, I don't think, conflict with trade rules.  There are other, more complicated types of emissions to deal with, of course, but this would at least be a good start.

John Edwards' Views on Carbon Border Measures

He seems to like them:

I will also require strong environmental standards so multinational companies cannot profit by exploiting weak environmental laws and enforcement in some countries. For example, after the U.S. has capped its greenhouse gas pollution as I have proposed, trade policy could be used if necessary to encourage similar commitments by other nations.

This statement is a little vague, but as I read it he is saying, once the U.S. has dealt with its own carbon issues, it could start sanctioning others who have not.  Here's my question:  If the U.S. does not deal with these issues, would he support the EU or others imposing sanctions on the U.S.?

(Hat tip to Opinio Juris for pointing out the ASIL survey that included this statement)

U.S. Subprime Expropriation?

I saw an interview in Businessweek of Martin Feldstein, where he expressed concern that a legislative modification of interest rates on mortgages underlying collateralized mortgage obligations and other mortgage securities, intended to protect vulnerable mortgage borrowers, might impair the creditworthiness of U.S. debt securities, and that set me thinking.  These securities probably meet the definition of "investment" under at least some U.S. BITs.  Would the impairment of the underlying debts constitute impairment of the "investment"?  If so, the next question is whether the legislative modification downward of the interest rates on these securities is an expropriation.  If it is, then the U.S. will be required to provide compensation to foreign investors of BIT parties. 

Gutierrez Speaks on the Chinese Film Ban

From news reports:

China has suspended imports of American films, US Commerce Secretary Carlos Gutierrez said here today, as he urged the mainland to lift a tight quota on foreign movies.

China allows just 20 foreign films to be shown in the country's cinemas each year but it was not immediately known whether the halt on screenings was due to that number already being reached.

'There has been a suspension,' Gutierrez told reporters, confirming a US media report that Hollywood films had been mysteriously blocked.

Gutierrez, speaking at the sidelines of top-level economic talks between the two nations during which trade tensions have been exposed, said suspensions had happened previously.

'(This) has happened in the past and at certain times of the year where they will suspend foreign movies,' he told Agence France-Presse, declining further specific comment on the latest movie stoppage.

But Gutierrez, who along with other US Cabinet secretaries is taking part this week in a twice-a-year Strategic Economic Dialogue with China just outside Beijing, expressed displeasure with the quota system.

'The problem we have with movies... is that there is a limit, there is a number, there is a quota, and we would like to get that lifted,' he said.

So it's not just the ban that is of concern, but also the quota system itself.

More generally, I guess the U.S. complaint is that China is restricting movies being shown through normal channels, while at the same time allowing them to be viewed in pirated form.

The EU-ACP EPAs

I've only been following the EU-ACP negotiations from a distance, and there were a number of aspects that I found confusing.  For example, how serious was the talk about an end of year deadline?  A good FT article from today offers thoughts and insights on a lot of the issues, including this one:

But since there is a dearth of case law, no one knows what degree of liberalisation would survive legal challenge. Some regard the EU’s insistence on the end-year deadline rather than, say, extending existing privileges for a temporary period, as aggressive and unjustified brinkmanship. The WTO disputes process takes years, so the spectre of the current agreements being mown down in a hail of hostile litigation on January 1 is unlikely.

Zeroing Showdown

Reuters reports:

The United States squared off against other World Trade Organisation members on Wednesday over its use of import penalties, an issue diplomats see as the latest obstacle to a new global trade deal.

The U.S. view:

"It is a very serious issue," U.S. ambassador to the WTO Peter Allegeier said after a heated negotiating session at the trade body's Geneva headquarters. He has previously said the United States "cannot envisage an outcome to the negotiations without addressing zeroing."

Everyone else's view:

Diplomats from major economies including the European Union, China, Brazil and India denounced that text at Wednesday's meeting, saying the "biased and partial" U.S. method had no place in a WTO accord meant to remove global barriers to trade.

"If the use of such practice prevails in the future, it could nullify the results of trade liberalisation efforts," said a joint statement from countries including Brazil, China, India and Japan and backed by the European Union and Canada.

Diplomats involved in Wednesday's session said no country spoke in defence of zeroing other than the United States, but the WTO's 151 member states need consensus on all aspects of a Doha deal for it to be achieved.

...

The Japanese WTO ambassador, Ichiro Fujisaki, told diplomats that his country was "both perplexed and disappointed" with the rules text, stressing "the negative impact of zeroing on future world trade."

And China's ambassador Sun Zhenyu said that if all WTO members were to use zeroing, the level of protectionism worldwide would surely increase "which is clearly not the objective of this organisation."

One part of the debate which confuses me is that, as I understand it, some Members with prospective systems use a practice that seems a lot like zeroing when they impose duties, under which they apply anti-dumping duties to products that sell below a designated price but not to products that sell above that price.  But it's complicated by the fact that there are a variety of approaches, so I don't have a good sense of the issue. It's not clear to me how this issue is being dealt with, if at all, in the current negotiations.

Peter Sutherland on the Doha Round and Hillary Clinton's Remarks

From an FT interview:

CP: Does Hillary Clinton’s intervention suggest that the WTO is effectively finished as the main forum for liberalising trade?

PS: Absolutely not. Absolutely not, even if those policies were pursued in an administration in the future I don’t believe that they would have that dramatic an effect. The WTO will remain an adjudicating mechanism for most disputes globally; it will remain the base for international trading negotiation. But it will certainly be a body blow to the credibility of a multi lateral institution, which above all has evidenced the age of intra-dependence, global intra-dependence that followed the collapse of the iron curtain.

A Domestic SPS Dispute

If Florida and California were sovereign states, they might be at the WTO with this:

Last week, the Florida Department of Agriculture issued a new regulation requiring all citrus fruit shipped from California to Florida to be inspected, fumigated and certified free of a fungal disease known as Septoria spot.

Otherwise, no California fruit will be allowed in Florida.

"Florida doesn't have it, and frankly, we would like to keep it that way," said Liz Compton, a spokeswoman for the state agriculture department.

"We are not saying we won't take their fruit, we are saying they have to follow certain measures. We don't understand why that is so onerous."

For California's part, growers there say the state's move is all about retaliation.

The federal government is not allowing Florida growers to ship citrus to other citrus-growing states because canker is epidemic here.

"We're not shipping fruit to Florida," said Joel Nelsen, president of California Citrus Mutual. "If you start subjecting yourself to those arbitrary rules that anybody puts in place you will have arbitrary rules for each state and country."

...

California citrus interests had asked for Florida fruit to be restricted from all states except northern states east of the Mississippi.

A Suggestion to Negotiators on Fisheries Subsidies: Insert a Conflict Clause in Annex VIII.

In the new draft SCM, Annex VIII on fisheries Subsidies appears, as indicated by its name, as a simple Annex which is an integral part of the draft SCM by virtue of Article 32.8 of this draft.   

This is however a fiction since Annex VIII on fisheries subsidies is in fact a mini-treaty which is inserted in the SCM.

What is then the relationship between this mini-treaty and the rest of the SCM? The new draft SCM is silent on this point. There is a conflict clause between GATT 1994 and the SCM which gives precedence to the SCM to the extent of a particular conflict, and in my view, negotiators should include in Annex VIII a conflict clause giving precedence to Annex VIII in case of a particular conflict with the rest of the SCM.  This would avoid many headaches in the future to panel and AB members, who in the absence of a conflict clause, would have to resort to a tortuous reasoning invoking the  not very well established lex specialis doctrine in order to give precedence to Annex VIII in case of a limited conflict with the rest of the SCM and its case law.

In sum, it must be clear that, in case of a conflict,  the most recent rights and obligations relating to the discipline of fisheries subsidies are to be found in Annex VIII.