International Economic Law and Policy Blog

Panels versus the Appellate Body: The DS344 Appeal

Some of you may recall the recent panel ruling in U.S. - Stainless Steel (Mexico) (DS344), where a panel decided not to follow the Appellate Body's "zeroing" jurisprudence, saying the following in this regard:

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.

Well, the Appellate Body has now circulated its decision in the appeal of that case, and had the following to say:

162. We are deeply concerned about the Panel's decision to depart from well-established Appellate Body jurisprudence clarifying the interpretation of the same legal issues. The Panel's approach has serious implications for the proper functioning of the WTO dispute settlement system, as explained above. Nevertheless, we consider that the Panel's failure flowed, in essence, from its misguided understanding of the legal provisions at issue. Since we have corrected the Panel's erroneous legal interpretation and have reversed all of the Panel's findings and conclusions that have been appealed, we do not, in this case, make an additional finding that the Panel also failed to discharge its duties under Article 11 of the DSU.

In the context of doing so, the Appellate Body offered some helpful clarifications of the role of precedent in the WTO dispute settlement system, including the following: "Ensuring 'security and predictability' in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, absent cogent reasons, an adjudicatory body will resolve the same legal question in the same way in a subsequent case."  The "absent cogent reasons" language appears to be the new standard for following precedent:  You must follow precedent unless you have "cogent reasons" for doing otherwise.

Global Food Crisis and the Doha Negotiation

It seems all of sudden, the world is facing a food crisis. Food prices are rising and food shortages growing in different parts of the world. According to news reports, many food producing countries have recently imposed ban, quota or taxes on the export of rice, wheat, barley, and soybeans, including Brazil, Argentina,Thailand, Vietnam, China, India, Egypt, Indonesia, Russia, and Kazakhstan. The situation has prompted the United Nations, World Bank, IMF and WTO to issue a joint call for countries to lift export restrictions on agricultural products.

WTO members may impose temporary export restrictions on foodstuffs under GATT XI:2(a) and, if the member is a developed country, in compliance with the notification requirement under the Agricultural Agreement, art. 12. It appears, therefore, that the above identified countries are within their rights to impose the export restrictions.

The question I have is: if the food shortages are not temporary but structural in nature, as indicated by some experts, then how would this situation affect the Doha negotiations on agriculture? Indeed, here is an interesting article from AFP: "Food crisis sparks role reversal in WTO".

A Gambling "Appeal"?

This would be a novel development, although I must say I'm not sure exactly what Mr. Mendel has in mind:

Mark Mendel, Antigua and Barbuda’s attorney in the Internet gambling trade dispute with the United States, has indicated that the decision by a World Trade Organisation (WTO) arbitrator to limit Antigua and Barbuda’s claim against the US to US$21 million per year may not be final.

Speaking during a visit to Antigua last week, Mendel said there is a method through which the December arbitration decision could be reviewed. Though there is not an automatic appeals process for such decisions, Mendel indicated that the decision was thought to be such a bad one that Antigua and Barbuda might be in a position to take the matter before the General Council of the WTO. Antigua and Barbuda sought to claim US$3.4 billion per year in compensation from the US, but the arbitration panel limited that claim to losses related to bets on horse racing – a tiny portion of the gaming industry.

“Going to the General Council of the WTO (is) an action that has never been taken before. As I have mentioned, we seem to be groundbreakers over there in Geneva because a lot of what’s happened had never happened before. But we could do this and I’ve heard from other delegations in Geneva that there’s a lot of unhappiness with the financial end of the December decision. A lot of countries think, as I do, that it was not a very good decision so we could pursue that,” Mendel said.

High Gas Prices, OPEC and the WTO

It has been a while since we talked about the possibility of a WTO complaint against OPEC.  Given the recent increase in gas prices, I was a bit surprised that it took the U.S. Presidential campaigns so long to raise the issue, but at long last here is something from Hillary Clinton:

Take more aggressive action to pressure OPEC to increase production - OPEC recently reiterated that it will not even consider increasing crude output until September 2008, even though limited supplies are contributing to record oil prices. Hillary believes we should be taking more aggressive action to address OPEC’s control over global production levels and hold OPEC accountable for its decisions. President Bush’s efforts to pressure OPEC over the past seven years have been inconsistent and unsuccessful. Hillary supports sending a strong signal to OPEC that the era of complacency has ended. Hillary will:

• Use the WTO to Challenge OPEC’s Production Quotas - With nine of the thirteen OPEC member countries also being members of the WTO, Hillary believes we should use the tools available at the WTO to address OPEC’s refusal to increase production. WTO rules currently prohibit member countries from imposing export quotas. Yet OPEC member countries are actively and explicitly banding together to restrict oil production and affect global prices. Hillary is calling on the President to engage in immediate negotiations with OPEC members and, if no progress is made, file a formal complaint against OPEC countries at the WTO. Filing a complaint at the WTO will send a clear signal to OPEC countries that the U.S. is committed to an open, transparent global oil market. Such a step will give OPEC members an incentive to increase production as well.

Some of the legal issues involved were discussed at the links provided above.

For good measure, she also wants to take antitrust action:

Allow OPEC Production Decisions to Be Challenged Under U.S. Anti-Trust Law - Currently, OPEC countries cannot be challenged under U.S. anti-trust laws, even when they are engaged in coordinated, commercial activity to control the global oil market. Hillary supports amending the Foreign Sovereignty Immunities Act so that the Justice Department can bring suits against OPEC countries in U.S. courts for price fixing. Changing the rules would help hold OPEC countries accountable for their decisions.

New World Trade Law Textbook/Casebook

Apologies in advance for the shameless self-promotion, but I wanted to let everyone know that "World Trade Law: Text, Materials and Commentary" (co-authored with Bryan Mercurio, and also featuring Arwel Davies and Kara Leitner) has been published by Hart Publishing.

For more information on the book, see http://www.hartpub.co.uk/books/details.asp?isbn=9781841136608

To view the Table of Contents, see http://www.hartpub.co.uk/pdf/1841136603.pdf

For those of you who teach in the area, please feel free to order an inspection copy and consider prescribing the book in your class. An inspection copy can be ordered by emailing mail@hartpub.co.uk

Finally, I wanted to highlight two things we have done that differentiate this book from other law textbooks/casebooks.

First, we have taken a "hybrid" approach that combines the textbook model (which emphasizes narrative descriptions of the law) and casebook model (which emphasizes excerpts of cases).  In this regard, we provide detailed descriptions of the legal and policy issues, but also offer extracts of cases to help illustrate the issues further and give a flavor of the judicial reasoning used by trade tribunals.

Second, we have taken a "global" approach to the issues, in the sense that we do not focus on just one jurisdiction.  While many international trade rules, such as the WTO Agreement and NAFTA, are international in nature, trade law issues often arise in the domestic context (most prominently with trade remedies and customs rules).  When discussing these issues, we provide cases from various countries, in order to give readers a sense of how trade law is applied around the world and to make the book useful and accessible to students everywhere (well, the English speaking world, anyway).

Biodiesel Tit-for-Tat

From the EU:

In a move which could trigger a new transatlantic trade row, the European Biodiesel Board (EBB) said it was formally requsting the EU's executive Commission to hit U.S. imports with anti-dumping and anti-subsidy duties due to unfair subsidies.

"Since 2007, as a result of these measures, there has been a dramatic surge in U.S. biodiesel exports to the EU, thus creating a severe injury to the EU biodiesel industry," the EBB said in a statement.

...

The European industry has long complained that U.S. subisidies for "B99" biodiesel, which is blended with small amounts of mineral diesel, break World Trade Organisation rules.

And right back at you from the U.S.:

"It is hypocritical for the European Biodiesel Board to cry foul while they benefit from a blatant trade barrier," said Manning Feraci, vice president of federal affairs at the National Biodiesel Board.

He said EU biodiesel fuel specifications were discriminatory and inconsistent with WTO rules.

"Our industry will be asking the U.S. Trade Representative to take action where appropriate on this and any other EU member state biofuel policy that is meant to confer special protection or treatment to European biodiesel producers," he said.

Development Aid for Education

Development aid can be very controversial.  Are we giving enough?  Is it for the right projects?  Is it effective?  Does it harm specific groups?  Despite these tough issues, here is an example of a program with long-term benefits that I think just about everyone can get behind:

Japan will build about 1,000 elementary schools in Africa over five years, Foreign Minister Masahiko Komura said Wednesday.

Komura announced the African assistance plan at an international forum on education held here.

To build the schools, Japan will offer some 30 billion yen under the official development assistance program, he said.

...

The world's challenge to improve accessibility, quality and fairness of education is only half done, Komura said, underscoring the importance of educational support.

Komura also said Japan will help improve the abilities of some 300,000 science and mathematics teachers in Africa and other nations.

Specialized knowledge and technical capabilities are necessary for economic growth in developing countries, he noted.

Food Prices and Export Restrictions

The recent rise in food prices seems to be causing some people to take a closer look at export restrictions:

From Japan:

Japanese Agriculture Minister Masatoshi Wakabayashi said on Tuesday that Japan will propose that the World Trade Organisation set clear rules for food export restrictions imposed by producing countries.

Wakabayashi said Japan will urge that the WTO create a mechanism for food importers, such as Japan, to give an opinion when notified about restrictions by an exporting country.

"In order to exercise export controls, rules have to be clearer," Wakabayashi told a news conference, the text of which was published on the ministry's website.

From the EU:

In Tokyo, EU Trade Commissioner Peter Mandelson said the World Trade Organization should pressure food-producing countries to maintain exports. Some nations have banned exports in an attempt to avert domestic shortages.

"If we restrict trade, we're simply going to add food scarcity to the already large problems of food shortages that exist in different countries," Mandelson said in an interview.

"The WTO stands for free trade. It's also got to stand up against export restrictions, export taxes, which too will stop the free flow of trade in foodstuffs and agricultural produce."

I found the reference to "export taxes" interesting.  Perhaps the food price issue will generate some support for bringing export taxes more clearly within the WTO framework.

Unsure about Offshoring

There's a lot of talk these days about the "offshoring" of jobs.  For example, here is a recent press release from Global Trade Watch:

“Offshoring” is the term businesses coined to describe their practice of sending work now performed in the United States to other countries.

“For many years, white-collar workers have watched as blue-collar workers’ jobs have been shipped to China and Mexico,” said Leo Gerard, president of the United Steelworkers. “Now it is white-collar workers whose jobs are being targeted for offshoring. Pennsylvania workers need to wake up and join together to demand concrete solutions from our presidential candidates before their only option is a job at Wal-Mart.”

...

A surprising array of jobs are at risk of offshoring, not just computer programmers and call centers, but actuaries and accountants, editors and writers, drafters and graphic designers, underwriters and financial analysts, even scientists and mathematicians. Most jobs done in front of a computer are vulnerable to offshoring.

Global Trade Watch has more about its offshoring concerns here.  The core of the issue seems to be that when the U.S. trades with other countries, some jobs done by Americans are shifted abroad to be done by non-Americans.  (Countries other than the U.S. also have these same concerns about their own jobs, of course.)

Now, there may be situations here and there in which foreign competition is not a concern (e.g., if a small country that does not produce cars imposes a tariff on car imports, it will not be protecting domestic jobs from going overseas because there is no domestic industry).  But for a large economy like the United States, which produces just about everything, it seems likely that there will almost always be both a domestic industry and foreign competition.  This leads me to some questions.  How far would groups like Global Trade Watch go in preventing offshoring or reversing current offshoring?  If they could, would they want to stop all imports that compete with domestic producers?  Is there some amount of offshoring that is acceptable?  Or should we allow imports only where there is no domestic industry?

I have read some of their materials, but I don't have a good sense of what kind of trade policy they would like to see in this regard.

The Surprising Return in the International Arena of the Pejorative Adjective "Mercantilist"

A few weeks ago, I posted a few lines about "neo-mercantilism" in the Doha Round. I am intrigued now  to see that my impulse to use the word "mercantilist" in a pejorative sense is in fact widespread.

Just yesterday, Jayant Dasgupta, the Indian joint secretary of the commerce ministry, said that the Agriculture Text has not yet addressed livelihood concerns on agriculture and that "The mercantilist interests of major agricultural exporters was the reason behind the lack of consensus".

In an another surprising context, according to Newsweek Editorialist  Robert J. Samuelson, the most typical mercantilist policy of today is the Yuan undervaluatiion:

Mercantilism was an economic philosophy that favored large trade surpluses. At the time, this had some logic. Trade was an adjunct to military power. Exports earned gold and silver coin, which financed armies and navies. But mercantilism fell into disfavor as a way to promote national prosperity. Free trade, argued Adam Smith and David Ricardo, would benefit all countries, because each could specialize in what it did best—the doctrine of "comparative advantage." The post-World War II economic order took free trade as its ideal, even though trade barriers were lifted slowly. Now mercantilism is making a comeback, as governments try to manipulate markets to their advantage.

The undervalued renminbi is the most glaring example. China's leaders have staked their country's political stability on export-led job creation, driven by an artificially cheap currency that puts competitors—Mexico, India and other developing countries as well as the United States and Europe—at a disadvantage. Naturally, China's trade surpluses have swelled. In 2007, the current account—a broad trade balance—will register a $400 billion surplus, about 12 percent of gross domestic product, up from $21 billion, or 1.7 percent of GDP, in 2000, according to economist Nicholas Lardy of the Peterson Institute. As a share of GDP, China's current-account surplus is "triple Japan's level in the 1980s when Japan bashing was at its peak."

Finally, the retreat from global trade agreements also reflects the new mercantilism. The Doha Round of worldwide trade talks is floundering. Countries feel more comfortable with nation-to-nation and regional agreements, where they have more control over the terms. The World Trade Organization counts more than 400 such agreements.

The problem with such pejorative adjective as "mercantilist" is that you are never sure  of the precise technical sense in which they are used. I must admit however that I am  impressed by the link made by Samuelson between the Yuan undervaluation, Bilateral-Regional Agreements and Mercantilism. This link was not obvious! 

IEL at the Supreme Court

Via Jonathan Dingel, I see that the Supreme Court will be taking up an anti-dumping issue:

The Supreme Court said Monday it will rule on a case that could make it harder for U.S. companies to obtain protective tariffs on low-priced foreign goods.

The dispute centers on whether uranium that U.S. utilities send to France for enrichment and then import for use in nuclear power plants qualifies as a 'good' or 'service.'

...

In the case accepted by the court, a French uranium enrichment company, Eurodif SA, and a group of U.S. utilities argue that only the service of uranium enrichment is being imported, because the raw uranium was provided by the utilities. As a result, the enriched uranium shouldn't be subject to antidumping duties, they say.

The Commerce Department, however, decided in 2002 that enriching uranium is a 'manufacturing process' and not a service, and imposed a 20 percent antidumping duty on imports from Eurodif.

But the U.S. Court of Appeals for the Federal Circuit overruled Commerce in September 2007. That prompted the Bush administration and USEC Inc. (NYSE:USU) , a Bethesda, Md.-based company that is the sole U.S. uranium enricher, to appeal to the Supreme Court.

The Justice Department's Solicitor General, the administration's lawyer, said the appeals court's ruling 'has opened a potentially gaping loophole in the nation's trade laws' by encouraging U.S. importers and foreign companies 'to structure their transactions as contracts for 'services'' rather than for goods in order to avoid punitive duties.

Oral argument will be scheduled for the court's next term, which begins in October. The dispute consists of two cases, U.S. v. Eurodif, 07-1059, and USEC v. Eurodif and the Ad Hoc Utilities Group, 07-1078.

I heard about this case a number of years ago, but never really thought through the issues.  My gut reaction is that WTO rules would permit anti-dumping duties to be imposed in this situation.  While there is a service involved here, ultimately there is a good being imported, and thus anti-dumping duties are pemissible.  However, I'm not sure what U.S. law says about it or what the Supreme Court will think of it.  I'll try to follow the case as it develops next year.

ADDED: Here's the cert petition, with many related documents attached.  I may have to re-think my views on how WTO rules would apply.  I'm not sure I understand the facts completely at this point.

MORE:  That was the government's cert petition linked to above.  More documents are at the bottom of this page: http://www.scotusblog.com/wp/petitions-to-watch-conference-of-41808/

Here's my question:  Was the uranium in question subject to normal tariff duties when it was entered into the United States after enrichment?  I skimmed through some of the documents related to the case, but did not see the answer at first glance.  (That's not to say it's not in there; there was a lot to read through, and I could have missed it).

AND YET MORE:  Here's a summary of the appeal from Sidley Austin. 

The Democratic Candidates on Investment Rules

Here are some statements from the Democratic candidates on investment rules in trade agreements, from responses to questions from the Pennsylvania Fair Trade Coalition (answers are in italics).

Obama:

9. Will you commit to renegotiate NAFTA to eliminate its investor rules that allow private enforcement by foreign investors of these investor privileges in foreign tribunals and that give foreign investors greater rights than are provided by the U.S. Constitution as interpreted by our Supreme Court thus promoting offshoring?

... I firmly believe that foreign investors should have no greater rights than Americans in our trade agreements.

10. Will you commit to renegotiate CAFTA and the other FTAs now in effect to eliminate their investor rules that allow private enforcement by foreign investors of the FTA investor privileges in foreign tribunals and that give foreign investors greater rights than are provided by the U.S. Constitution as interpreted by our Supreme Court thus promoting offshoring?

... With regards to provisions in several FTAs that give foreign investors the right to sue governments directly in foreign tribunals, I will ensure that foreign investor rights are strictly limited and will fully exempt any law or regulation written to protect public safety or promote the public interest. And I will never agree to granting foreign investors any rights in the U.S. greater than those of Americans. Our judicial system is strong and gives everyone conducting business in the United States recourse in our courts. The tribunal system was created to ensure that our investors would have access to similar protection abroad. I understand the concerns surrounding this issue, and am committed to working to address them.

Clinton:

9. Will you commit to renegotiate NAFTA to eliminate its investor rules that allow private enforcement by foreign investors of these investor privileges in foreign tribunals and that give foreign investors greater rights than are provided by the U.S. Constitution as interpreted by our Supreme Court thus promoting offshoring?

... 2. Changing NAFTA’s investment provisions that grant special rights to foreign companies. Under NAFTA, foreign companies can challenge American laws before special tribunals and outside of our court system. The laws that foreign companies can challenge include regulations intended to protect workers and protect the environment. I believe that trade agreements must elevate standards of living around the world, not empower corporations to hold them down.

10. Will you commit to renegotiate CAFTA and the other FTAs now in effect to eliminate their investor rules that allow private enforcement by foreign investors of the FTA investor privileges in foreign tribunals and that give foreign investors greater rights than are provided by the U.S. Constitution as interpreted by our Supreme Court thus promoting offshoring?

... As President, I will observe a trade timeout until my administration has reviewed all existing trade agreements to fully determine how they have affected our economy. I do not believe that our trade agreements should give private investors any ability to circumvent U.S. laws, particularly with respect to regulations intended to protect workers and protect the environment. As part of my plan to fix NAFTA, I have called for revising the provisions that permit foreign companies to challenge U.S. laws before special panels rather than in courts. I believe that trade agreements must elevate standards of living around the world and not empower corporations to hold those standards down.

Born To Trade?

Despite growing up in New Jersey, I was not a big Bruce Springsteen fan when I was younger.  Over the years, though, I've come to appreciate him, and he is now one of my favorites.  So, I was amused to stumble across this quote from a 1984 George Will column:

If all Americans -- in labor and management, who make steel or cars or shoes or textiles -- made their products with as much energy and confidence as Springsteen and his merry band make music, there would be no need for Congress to be thinking about protectionism. No "domestic content" legislation is needed in the music industry. The British and other invasions have been met and matched.

Maybe we should call this the "Bruce Springsteen" theory of trade policy:  Make your products of such high quality that you can compete with anybody!

Just the other day Springsteen endorsed Obama, but I suspect that George Will is not going to follow Springsteen on that one.

GSP Plus in Sri Lanka

From a Tamil Star editorial arguing that Sri Lanka should sign on to certain human rights treaties in order get access to preferential tariffs under the EU's GSP program:

The regime appears to be suggesting in a communiqué that something in the nature of a conspiracy encompassing a member of civil society, the Leader of the Opposition and the LTTE has been hatched to deprive Sri Lanka of the GSP Plus concession granted by the European Union.

Withdrawal of this concession, according to some estimates, will result in the direct loss of at least a 100,000 jobs in the pivotal garment industry and many more indirectly. The charge of conspiracy is very much in the vein of the traitors/patriots discourse that characterises these polarised times. It is also in the hackneyed tradition of offence as the best form of defence.

...

The regime is not interested. The opposition is willing to provide it support to pass a constitutional amendment which would meet the mandatory EU GSP Plus requirements and strengthen human rights protection, but the government is just not interested. There is no guarantee that this in itself will satisfy the EU GSP Plus criteria in full, but would it not go a long way in doing so?

...

Because this is the case, the unions and the apparel industry should convince the government that the pressing issue is not the name calling but the satisfaction of human rights protection criteria which is required for GSP Plus. There is no escaping responsibility for ensuring human rights protection.

Is it appropriate to use preferential tariffs as an incentive for developing countries to sign human rights treaties?  Is it consistent with WTO rules to do so?  Eventually these questions may be raised at the WTO, but it doesn't seem like that will happen in this case.

Tough Talk on China's Currency

The Democratic candidates were talking to the Alliance for American Manufacturing today, and they had some strong words on the Chinese currency issue.

From Obama:

It’s not just that China is following the path taken by so many other countries before it, and dumping goods into our market while not opening their own markets, something I’ve spoken out against. It’s not just that they’re violating intellectual property rights. They’re also grossly undervaluing their currency, and giving their goods yet another unfair advantage. Each year they’ve had the chance, the Bush administration has failed to do anything about this. That’s unacceptable. That’s why I co-sponsored the Currency Exchange Rate Oversight Reform Act. And that’s why as President, I’ll use all the diplomatic avenues open to me to insist that China stop manipulating its currency.

I thought the reference to "all the diplomatic avenues" was interesting.  Does that include WTO litigation, which as we know has become less diplomatic and more legalistic over the years?  Are his trade advisers carefully wording his statements to make sure he has not committed himself to bringing a complaint?

From Clinton:

With our trade deficit with China now at a record $256 billion, Hillary believes it is time for aggressive action to crack down on China's unfair trade practices. Hillary Clinton will not take a passive line on unfair trade practices and will work to level the playing field for American workers, reducing our trade deficit and keeping more jobs here at home.

1. Take a Tough Line on Currency Manipulation. Foreign countries manipulate their currencies to make American goods expensive in their markets and to make their own goods artificially inexpensive. This practice hurts American workers and domestic producers, and it must end. Hillary is a co-sponsor of legislation that will require the administration to take definitive steps to stop China and other countries from harming American interests by undervaluing their currencies.

• As President, she will move aggressively to address currency manipulation in China and other countries. Hillary has supported legislation to take one or more of the following actions to pressure China to revalue its currency, and will consider all of these actions as President: 1) adjusting export prices to account for the price distortion caused by currency misalignment; 2) disallowing the federal government to purchase products or services from China; 3) directing U.S. banks to pause in issuing loans to China; 4) pressuring the IMF to consult with China; and/or 5) imposing a 27.5 percent tariff on all Chinese goods.

No mention of a WTO complaint here.  Some of the actions listed seem likely to generate a WTO complaint against the U.S., though.

ADDED:  More from Clinton in the transcript of her remarks:

China should be a trade partner, not a trade master. I'll start with currency manipulation. It is outrageous that China and other countries continue to manipulate their currencies to put our goods at a disadvantage.

I've already cosponsored legislation to crack down on currency manipulation as president and I will finish the job.

Insourcing

I wanted to find something to say about Hillary Clinton's recent proposal for tax credits to companies who "insource."  It seems possible there is some sort of favoritism for domestic companies in there somewhere.  The problem is, I can't figure out what the proposal actually entails.  The most detailed statement I can find is from her web site:

3. A new Insourcing Markets Tax Credit to spur business investment in communities facing global competition. Building off the success of the New Markets Tax Credit Program, Senator Clinton will launch a new public/private partnership to bring new investment and jobs to communities that are vulnerable to global competition, and provide them with the tools to become leaders in our economy. While the NMTC has played a crucial role in bringing investment and job growth to poor and underserved areas, many communities impacted by globalization have acute needs: requiring large and fast-acting infusions of capital to diversify and modernize in the wake of job losses and unemployment.

In addition to reauthorizing the NMTC, Senator Clinton will create a new $5 billion Insourcing Markets Tax Credit dedicated to communities impacted by global competition, trade and technological change. The Secretary of Treasury – in consultation with the Secretary of Labor and Commerce – will determine eligible trade-impacted communities, using relevant economic data and workforce data. Given the goals of modernization and economic diversification in these areas, Treasury will require the community development groups selected to solicit private IMTC investors to put particular emphasis on projects that bring in new industries and companies into these communities as well as create high-quality long term employment. Eligibility for IMTCs will also be expanded to Small Business Investment Corporations (SBICs) that have expertise in trade-impacted industries, such as manufacturing. SBICs have invested more than $4.3 billion in small manufacturing companies during the past decade, even during a challenging time for the industry.

So, the tax credit goes to "communities impacted by global competition, trade and technological change."  But what exactly do they have to do to get it?  Finding "projects that bring in new industries and companies into these communities as well as create high-quality long term employment" appears to be the key.  This sounds kind of like a location incentive, but it's not completely clear.

A Survey of Foreign Investment Fears

A reader points me to the following article on fears of foreign investment in Canada:

In an unprecedented move, the federal government has blocked the $1.3-billion sale of the space technology division of Vancouver-based MacDonald, Dettwiler and Associates to a U.S. firm.

In a letter this week to Alliant Techsystems Inc. (ATK), Industry Minister Jim Prentice said he is "not satisfied" the sale will be a net benefit for Canada.

Alliant has been given 30 days to state its case to win approval for the sale.

After question period Thursday, Prentice told reporters he was "very confident" of his decision.

"It's a very significant step under the Investment Canada regime of saying we don't see net benefits to Canada in this transaction."

By coincidence, I came across a couple articles on what's going in other countries.

In the U.S., Dave Zaring over at the Conglomerate takes a look at CFIUS:

I wanted to have a look at these matters to see if there were any opinions that could establish in more detail what criteria CFIUS used when evaluating foreign acquisitions. Unfortunately it is not to be. A Treasury Department employee told me that CFIUS does not publish anything, and interprets itself not to be subject to FOIA.

And in the Economist, there is some discussion of Japan and the EU in relation to the energy industry:

“J-POWER is different,” says Akira Amari, Japan's trade minister, justifying his unease over a request by The Children's Investment Fund (TCI), a British activist shareholder group, to double its stake in Japan's formerly state-owned electricity wholesaler. Although Japan is open to foreign investment, says Mr Amari, the company deserves special treatment because of its strategic importance: its transmission lines link Japan's four main islands and it is building a nuclear reactor.

Japan is particularly sensitive about investments in energy, because the country is devoid of oil, gas, uranium and other fuels, and so must import almost all its needs. Officials fear that foreign investors might put profits before the long-term planning and investment this natural deficit demands. TCI, after all, has called on J-Power to pay a higher dividend and take on more debt.

Japan is not alone in this view. The European Commission is struggling to persuade the governments of European Union countries that they should allow foreigners to buy their national energy champions (although the British government seems to have no objection to selling its 35% stake in British Energy, a nuclear-power firm, to the various foreign suitors that have been lining up in recent days).

Colombia FTA Links

I don't have anything particularly insightful to say about the Colombia FTA recently submitted to Congress, so I'll just pass along some links (in no particular order):

George Will: "Under the Andean Trade Preference Act, passed by a Democratic Congress is 1991, the United States imposes tariffs on only 8 percent of imports from Colombia. But more than 90 percent of U.S. exports to Colombia are subjected to tariffs, some as high as 35 percent. The trade agreement would make this "one-way free trade," which now primarily serves Colombia's interests, more mutually beneficial. "

Kevin Gallagher: "The U.S.-Colombia Free Trade deal is one of the most deeply flawed trade pacts in U.S. history. It will hardly make a dent in the U.S. economy, looks to make the Colombian economy worse off and accentuate a labor and environmental crisis in Colombia. The Democratic majority in Congress is right to oppose this agreement and call for a rethinking of U.S. trade policy."

Dani Rodrik: "Virtually all of Colombia's exports enter the United States tariff-free, a  fact that is advertised in the USTR web site to assuage US critics who worry about adverse employment implications in this country.  But of course the same fact suggests Colombia is not getting much out of the proposed FTA either (or at least any more than what it could have gotten on its own)."

Ben Muse: "Congress is supposed to take action on a trade agreement negotiated under the trade promotion authority within 90 days of the date the president submits it.  However the 90 day requirement just lies in the legislature's rules, and a legislature can change the rules it sets for itself. "

Dan Drezner: "The biggest benefit of the FTA with Colombia has little to do with economics and everything to do with our bilateral and regional relationships. Go back to NAFTA. Kevin is right to point out that the agreement's efonomic effects were not terribly large. On the other hand, even skeptics of trade liberalization -- Dani Rorik, Paul Krugman, and Joseph Stiglitz -- supported NAFTA because it locked Mexican economic reforms, promoted political reforms, and cemented a stronger bilateral relaionship. There's no reason to believe that the same effects would not take place with Colombia."

The Economist: "Killing the treaty would be a blow to Colombia and its leader, Álvaro Uribe, a staunch American ally in a region trending in the opposite direction. This week he issued a plea for America to maintain its long tradition of bipartisan policy towards his country and pass a measure that would help Colombia give its people alternatives to drugs and terrorism. If the deal goes down, the benefits of befriending the colossus to the north will seem less dependable across the continent, complicating American diplomacy there. And in America the FTA's death might shatter the long-standing consensus on free trade in Washington by emboldening protectionists."

Jonathan Dingel: "The US-Colombian free trade agreement is not a free trade agreement -- it's a preferential trade agreement. Calling it a PTA instead of an FTA will satisfy both Jagdish Bhagwati and Dean Baker."

And Todd Tucker is live-blogging the fast track debate.

The Latest on Gambling

From the Antigua Sun this past Monday:

The government may be prepared to make a statement on the current status of the Internet gambling dispute with the US as early as today, but early indications are that a proposal for the resolution of the trade dispute received from the US last week has not been met favourably by the government.

The Antigua Sun understands that the American settlement proposal was discussed in Cabinet last Wednesday and was not well received.

...

Antigua and Barbuda’s attorney in the matter, Mark Mendel, told the SUN that this process had automatically restarted at the WTO once the body was not informed at the end of March that the parties had agreed on a settlement.

And from a WSJ Europe editorial today:

A trans-Atlantic spat over online gambling may help rewrite the rules of the game for Internet commerce across borders. For a change, the Europeans stand on the side of free trade, while America dabbles in regulatory overreach.

The European Union last month launched an internal probe into whether the U.S. Justice Department selectively enforces its antigambling laws against European online firms that offer wagers on sports events. Brussels is making a narrow legal point that Washington discriminates against Europeans by simultaneously permitting U.S. Internet horse betting. That's against World Trade Organization rules, and the case may end up there.

...

By legalizing and regulating the business, however, Washington could more effectively battle such problems as underage gambling and addiction. It would also avoid unnecessary trade tiffs with its leading commercial partners. And it would exempt cyberspace from overaggressive regulators, in America or anywhere else.

An Olympic Boycott and the WTO

All the recent talk about a boycott of the Olympics, or the opening ceremonies at least, has me wondering:  Is there a WTO violation here? My guess is no, but I have more questions than definite answers.  Some questions:

-- First, services seems like the most promising place to look, but what is the service to be considered here?  Given that the athletes would be boycotting, is the proper UN CPC category "Services of athletes"?

-- What mode of service supply is involved?  My first thought was that it would be the movement of natural persons, with non-Chinese athletes providing their services in China, to the Olympic games themselves.  But maybe the services are really being provided to the fans, Chinese and non-Chinese, in China and elsewhere.  In that case, the mode could be consumption abroad or cross-border trade.

-- Would these services benefit from the exception for "services supplied in the exercise of governmental authority"?  Governments do have a fairly important role here, after all.

-- And, of course, the most important question:  Have the potential boycotting governments made any commitments in their GATS Schedules that would be relevant here?  I'm having a hard time with this part, in particular relating the actual services supplied to possible commitments that might have been made.

That's as far as I got with the analysis before my head started to spin.  Anyone with clearer thoughts on this should feel free to set me straight. 

Trade in Water

From an editorial in the Toronto Star:

As aquifers and rivers in the United States run dry, there seems little doubt that the Americans will be turning their thirsty eyes north toward our seemingly plentiful water supply. Indeed, no less an authority than former Alberta premier Peter Lougheed has predicted: "The United States will be coming after our water in three to five years."

But isn't our water protected by federal-provincial agreements and legislation, such as Bill C-6, which amended the International Waters Treaty Act in 2000 to ban water exports from the Canadian side of the Great Lakes and other regional basins?

Maybe not. There is a concern that such protections would have no real force against World Trade Organization rules, which prohibit the use of export bans or limitations on any product that a trade partner has contracted to buy – especially when these WTO rules are considered in combination with the provisions of the North American Free Trade Agreement (NAFTA).

Summing up this concern in a report this week, the Polaris Institute declared: "It is not at all clear that either Ottawa or the provinces are in a position to deal with a challenge coming from Washington to turn on the taps for Canadian bulk water exports to the U.S."

Here's the Polaris Institute report mentioned in the article.

I'm not sure that there is really anything to fear from WTO rules on this.  A water export ban or limitation would clearly violate GATT Article XI:1, but I would think that it would not be too hard to justify it under Articles XX(b) or XX(g).

With regard to the NAFTA, the report seems to focus on the Chapter 11 investment provisions.  I wouldn't have thought Chapter 11 would prohibit such regulations, but maybe the report has a point here.

Labor Rules in Trade Agreements: Child Labor

A reader points me to the following from the Progressive Policy Institute:

The ILO's 'core' labor standard on child labor is set out in ILO Convention #138 on Minimum Working Age. Dating to 1973, the Convention reads as follows:

"The minimum age ... shall not be less than the age of completion of compulsory schooling and, in any case, shall not be less than 15 years. ... The provisions of [this] Convention shall be applicable as a minimum to the following: mining and quarrying, manufacturing; construction; electricity, gas and water; sanitary services; transport, storage and communications; and plantations and other agricultural undertakings mainly producing for commercial purposes, but excluding family and small-scale holdings producing for local consumption and not regularly employing hired workers."

With the ILO standard as context (though the United States has not ratified the Convention) some state child labor laws make startling reading. According to the Department of Labor's online summary of 35 state agricultural child labor codes, at least 27 states are at least close to the ILO standard, with a minimum age of 16 or higher in the school year. But the summaries nonetheless find Illinois with a minimum agricultural age of 12 (and 10 outside the school year); Hawaii with a minimum age of 10 for coffee-picking and Oregon a nine-year minimum age for berry-picking (though both are outside the school year and Oregon's requires parental consent); and Vermont exempting youth agricultural work from working-hour limits. North Dakota's guide to child labor law says bluntly that child labor law is not meant for agriculture: "Work on a farm (doing agricultural work) -- exempt from all child labor provisions."

This leads to some questions for Barack Obama and Hillary Clinton, who have argued for including international labor standards in trade agreements:  Would the ILO Convention at issue be included in future trade agreements?  And if so, will U.S. state laws be changed to conform to ILO rules?

China-NZ FTA: MFN (perhaps)

The China-New Zealand FTA has now been signed and, in a follow up to an earlier post, I thought I would complete the analysis on its MFN clause.

MFN does not appear to apply for goods, and only applies to a limited number of services (environmental services, construction, agriculture and forestry, engineering, integrated engineering, computer and related services, and tourism) (Article 107), investment (Article 139) and government procurement.

The exclusion of goods from MFN is interesting, as it means that Australia may indeed strike a 'better' deal in terms of agricultural exports to China than New Zealand. I had initially believed that New Zealand was seeking an MFN clause to achieve equality with Australia in this very important export market.

Interestingly, and unsurprisingly, there is a carve out for FTAs signed prior to the completion of the China-NZ FTA . This deals with the problem of China giving 'Greater China' (i.e. Hong Kong and Macau, at the very least) and other close friends (ASEAN, Pakistan, etc) more favourable treatment.

Even more, the agreement excludes 'any measures taken as part of a wider process of economic integration or trade liberalization between the parties to such agreements'. My initial reaction to this is that it again allows China to provide subsequent, more favourable, treatment to countries/customs territories in which it is engaging in a 'wider process of economic integration or trade liberalization'. No doubt, this means 'Greater China'. Of course, this language is imprecise and open to interpretation. Could this language be read to mean that the MFN clause is almost worthless? Or am I mis-reading the text? 

The text of Article 107 (MFN relating to services) is as follows:

1. In respect of the services sectors listed in Annex 9, and subject to any conditions and qualifications set out therein, each Party shall accord to services and service suppliers of the other Party treatment no less favourable than that it accords to like services and service suppliers of a third country.

2. Notwithstanding paragraph 1, the Parties reserve the right to adopt or maintain any measure that accords differential treatment to third countries under any free trade agreement or multilateral international agreement in force or signed prior to the date of entry into force of this Agreement.

3. For greater certainty, paragraph 2 includes, in respect of agreements on the liberalisation of trade in goods or services or investment, any measures taken as part of a wider process of economic integration or trade liberalization between the parties to such agreements.

Lawyers versus Economists: Round 1: Economists

See Dani Rodrik's interesting, and a bit angry, post about Bob Zoellick's views regarding the relationship between food prices and agricultural trade liberalization.  The problem is that food prices are too high.  Zoellick's prescription:  end rich country agricultural subsidies, and open rich country markets. Rodrik points out that this is like bleeding people to cure anemia:  prices are expected to rise upon liberalization.  Effects on poverty depend on whether the poor country is a net food importer or exporter, etc. 

The Candidates' Advisers on Trade

One of our readers pointed me to a recent panel discussion at the Institute for Policy Innovation on "Where the Candidates Stand on Trade."  It was quite good, I thought.  Here are some excerpts, but it's worth skimming through the whole thing, including the Q & A at the end.

Doug Holtz-Eakin (McCain)

Demonizing trade agreements is a bad economic policy, it’s bad foreign policy. The recent attempts to point to NAFTA as the source of grave difficulties in the U.S. manufacturing sector is at odds with any reputable study of the impact of that trade agreement on the United States, Canada, and Mexico.

Dan Tarullo (Obama)

[Obama] does believe in trade as an important component of a market-based economy that
can produce economic growth in a strong, sustained, and shared fashion.

...

what he wants to do is to shift trade policy and to shift it in accordance with the way in which he approaches these trade issues. Because the first thing I think one needs to understand is that the issue of trade or not is not a binary issue, it’s not as simple as people indicate.

...

To the degree that trade agreements are serving as an impediment to reasonable regulation in the public interest by all parties to trade agreements, there’s a problem, and I leave it to you to divine how some of those provisions got in there in the first place.

So, again, for Obama, yes, trade, open markets, globalization. But you need to look to what’s actually in those agreements, what their effects are on people.

Gary Gensler (Clinton)

In terms of NAFTA, she feels strongly that there should be some changes to that, and she has a very specific plan. One is to sit down with the Canadians and the Mexicans and try to get the labor and environmental standards embedded into the core agreement. And when we talk about labor and environmental standards, we know what a package of labor and environmental standards were acceptable to Senator Clinton in the Peru agreement.

We know that those are not really reaching that far, and she’s very hopeful that both the Mexicans and Canadians would want to comply with the major International Labor Organization agreements.

...

Same with the environmental standards. ...

Secondly, the investment standards. I think Dan mentioned this in one regard, but to change NAFTA’s investment provisions that grant special rights for foreign companies to in essence go, in an extraterritorial way, go to the tribunals rather than relying on the courts.

During the Q & A, Bob Davis of The Wall Street Journal followed up with a question about investment:

... you talked about the investment provisions, which were inserted at the insistence of the U.S. because Mexico has a corrupt legal system. So are you saying that the U.S. should abandon those, or should push for the elimination of those provisions, which would then open U.S. companies to having to go through Mexican courts?

Gary Gensler (Clinton)

And the way that the investment standards have been used by other countries’ companies has sort of avoided going into our court systems and where our laws can be applied, so she does feel that we’ve gotta – when we sit down and try to renegotiate and try to address and get to a better place than where we are.

SIEL Conference Update

From The SIEL Conference Committee:

Society of International Economic Law - Conference Booking Arrangements

For those of you who are planning to attend SIEL's Inaugural Conference in Geneva on July 15-17 this year, we strongly suggest that you register and book your travel and accommodation as early as you possibly can. If, as appears possible at this stage, there is a meeting of Ministers at the WTO during that time, it may become impossible to find available accommodation and flights later on. Please refer to the conference section on our website, www.sielnet.org, for a list of recommended hotels near the conference venue.

Please also register for the conference before booking your travel and accommodation, as it is possible that we will be forced to restrict registration in due course, depending on numbers of participants.

The SIEL Conference Committee

Play Ball: MLB and the WTO

With the U.S. professional baseball season under way this week, I was happy to come across a reason for a blog post about baseball.  A Time magazine article reports that Japan's professional baseball league is complaining about the trade impact of Major League Baseball (MLB), after MLB opened its season with two games in Japan: 

While Japanese fans cheered the lightning series, the country's baseball organization, the Nippon Professional Baseball league (NPB) grumbled. Its best players are migrating to the States. American games are cutting into the Japanese pastime's TV ratings. And now this latest spit in its eye just as NPB opening week commenced. Complained Yomiuri Giants pitching star Koji Uehara, "We're just starting our season. So why does the MLB have to come to play here. There's nothing to be gained from this." Added a Japanese professional baseball official, who wished to remain anonymous, "Every time the MLB holds one of their openers in Japan, sales of our opening week tickets go down.... We see more and more empty seats. It's not necessary for the big leaguers to come here."

As the article explains, it's not just the competition that annoys the Japanese, it's the alleged unfair nature of the competition:

NPB teams lack what might be called the "trade advantages" of their North American counterparts, namely, stadium subsidies, salary depreciation allowances and the anti-trust exemption which helps free up millions upon millions of dollars for MLB teams to spend on raiding Japan's top stars. Most MLB teams use stadiums for little or nothing, having strenuously convinced the cities they play in to build new facilities for them. By contrast the Tokyo Giants pay $250,000 a game to use the Tokyo Dome, while the Softbank Hawks pay $40 million dollars a year to use a similar facility in Fukuoka. Says one longtime observer of the situation, "The NPB should file a grievance with the WTO [the World Trade Organization]."

There are a couple points here.  First, stadium subsidies.  This one is well known.  Many professional U.S. sports teams are able to convince local governments to fund most, if not all, of the cost of their fancy, new stadiums.  There are plenty of complaints about this practice on the merits of the policy (e.g., wouldn't the money be better spent on education?), but there is also a trade impact.  This impact is most directly felt by the other cities that are competing for a franchise, but in addition, according to Japan at least, there is an international impact on competing leagues as well.

Second, salary depreciation.  I'm not really sure about the specifics of this one, although I assume it involves special tax treatment of player salaries.  In essence, another subsidy.

Third, baseball's antitrust exemption, which is also well-known.  On this one, I'm in the minority who take the view that MLB should be treated as a single entity, and thus allegations of antitrust violations involving horizontal restraints (such as team owners acting jointly to prevent another franchise from moving) should be rejected.  As a result, I don't view this exemption as all that significant.  For those who take a different view (most people), the antitrust exemption can lead to a significant advantage for MLB.

So is there a WTO complaint in there somewhere?  I don't really see it, especially given that GATS rules don't have an effective remedy for subsidies that are given to services.  There are the GATS Article XV:2 consultations provisions, but those don't seem to go anywhere concrete.

Finally, there are some practical limits to the competition from MLB:

And so what's next for the American invaders? Might the MLB be contemplating a Japan division to field teams against its National League and American League in the U.S.? The rumors to that effect exist because the Yomiuri Shimbun, the huge newspaper that also owns its own baseball team, was a major sponsor of the Boston-Oakland series and was responsible for the timing of the games to coincide with the local leagues' opening week — which the NPB found so obnoxious. Could Japan be further drawn into the American baseball empire? Well, maybe not. Says Masaki Nagino, planning director of the NPB's Central League: "Not just yet, if you consider the logistics. It still takes 11 hours to fly across the Pacific and as long as that holds, that's our protection."

So perhaps Japan does not have that much to worry about.  Actually, I think the competition could go the other direction.  Remember, there used to be three New York baseball teams.  Now, with a substantially bigger market, there are only two.  Maybe Japan's baseball league could set up a couple franchises over here, in New York and other big cities.  (If the Japanese league were not given an antitrust exemption of its own, that could be a WTO violation, of course.)