International Economic Law and Policy Blog

Winners and Losers from Free Trade

Via Greg Mankiw, I see that Economist Robert Driskill asks this question in an article in Foreign Policy:

What if free trade is making a small percentage of the country much better off, but is hurting a much greater percentage (the “Joe Sixpacks”), as some argue is the case?

Here's my question:  Who is arguing that this is the case, and what exactly is it that they are arguing?  I thought it was generally accepted, even among most trade critics, that consumers as a whole benefit from free trade, whereas some producers (and their employees) will lose.  The result, of course, is that everyone benefits a little bit, whereas a small fraction of people are hurt (although on an individual basis these people are likely to be hurt more than individual consumers benefit).  This is very different than what is suggested in the article, and I'm not quite sure what the author has mind.

Update on the Zeroing Negotiations

The Chair of the Negotiating Group on Rules has issued a new working document: http://www.wto.org/english/tratop_e/rulesneg_e/rules_may08_annexa_e.doc  Of course, I skipped right to the zeroing part.

Here's what the Chairman's Text (TN/RL/W/213) from last year said:

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

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

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

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

The "Delegations' Comments on Chairman's Text" were summarized as follows:

Numerous delegations expressed the view that zeroing is a biased and partial method for calculating the margin of dumping which inflates anti-dumping duties, and that its use could nullify the results of trade liberalization efforts (see TN/RL/W/214/Rev.3), and therefore considered that the Chairman's text on zeroing was unacceptable. Accordingly, twenty delegations co-sponsored a Working Paper that proposed alternative language that would prohibit a Member from disregarding the amount by which the export price exceeds the normal value for any comparisons in all proceedings, including original investigations, proceedings under Articles 9.3 and 9.5 and reviews under Articles 11.2 and 11.3, and in respect of all methodologies (see TN/RL/W/215). They further proposed to make clear that Article 2.4.2 applies in all proceedings, to set a minimum time period on the basis of which a margin of dumping could be calculated, and to require consistency between the methodology  used  in an original investigation and a subsequent proceeding pursuant to Article 9.3.

Other delegations had different views about the Chairman's text.  Some of these delegations believed that while the draft text went too far, zeroing might be permitted in some contexts.  In particular, a number of delegations expressed the view that zeroing should be permitted in the context of the weighted average-transaction comparison methodology ("targeted dumping"), while it was also suggested that the same methodology need not necessarily be applied in original investigations as in the context of duty collection.  One delegation considered that the Chairman's text permitted zeroing in certain contexts but prohibited it in the most common comparison methodology in investigations, and insisted that a restoration of zeroing in all contexts was necessary to return to the status quo that emerged from the Uruguay Round.  This delegation could not conceive of a result that did not address zeroing. 

Delegations on all sides of the issue emphasized how critical the issue was to their delegations.

And finally here was the "Consolidated Proposals" in response to these comments:

2.4.3 [[When aggregating the results of comparisons of normal value and export price to determine any margin of dumping, whether in an investigation pursuant to paragraph 4.2 or for any other purpose (including determinations pursuant to Articles 9 or 11), authorities are not required to offset the results of any comparison in which the export price is greater than the normal value against the results of any comparison in which the normal value is greater than the export price.]]

My quick read is that this new text is saying that governments are not required to use the "offset" method (i.e., the method that does not involve zeroing).  In other words, they are not required to "not zero."  That is to say, they may engage in zeroing.  However, the use of so many negatives combined with the anti-dumping jargon is making this a bit fuzzy for me, so let me know if somebody reads this differently than I have.

UPDATE:  In the comments, anon99 says the following:

"To avoid any confusion, the "Consolidated Proposals" are NOT the Chair's own proposals. That is, the Chair is NOT proposing this new text that would appear to allow zeroing.

The layout of the document is as follows. The middle column contains the Chairman's text from last year (the first box you have above). The left column - i.e. the "Consolidated Proposals" column - sets forth/consolidates proposals from Members made in response to the Chair's text (the third box you have above). Finally, the right column - i.e. the "Comments" column - is the Chair's summary of the delegation's comments."

Thanks to anon99 for the clarification.

UPDATE 2: more from anon99:

Corr.1 Please note that left column - i.e. the "Consolidated Proposals" column - sets forth/consolidates proposals from Members made prior to the Chair's text, and not, as I mistakenly wrote above, "in response to the Chair's text".

Justice Kennedy for the Appellate Body?

If we can't stop internal domestic discrimination, how are we ever going to stop it in the international arena?  The recent U.S. Supreme Court decision in Davis v. Kentucky Department of Revenue dealt with the issue of explict tax discrimination against out-of-staters.  As explained on ScotusWiki:

At issue in Davis is a provision in Kentucky’s income tax law that taxes interest income from bonds issued by other state and local governments while providing an exemption for interest from Kentucky bonds. Two Kentucky taxpayers challenged the law, arguing that the tax discriminated against holders of out-of-state bonds and thus violated the Commerce Clause. Kentucky’s intermediate appellate court agreed. It held that the state’s scheme for taxing bond interest was unconstitutional, “as it obviously affords more favorable taxation treatment to in-state bonds than it does to extraterritorially issued bonds.”

So, the measure at issue is a Kentucky state law that gives a tax advantage to interest income on Kentucky government bonds as compared to other states' bonds.

The Supreme Court majority found that the Kentucky law did not violate the dormant commerce clause.  There were a number of separate opinions, discussing a bunch of issues, but of key importance seemed to be the following two points.  First, as a NY Times piece noted about the majority view:

All 49 other states had filed a brief urging the Supreme Court to overturn the Kentucky court and uphold the state preference. In his majority opinion, Justice David H. Souter cited the states’ unanimity as evidence of the enormity of what the court was being asked by the plaintiffs to do.

Basically, every state does this, and the Court was reluctant to overturn such an established practice.

In addition, there was the notion that this law involved a "public function" of government, as had a recent case, and for that reason did not violate the dormant commerce clause.

What interested me more, though, was Justice Kennedy's dissent.  He started it this way:

Eighteenth-century thinkers, even those most prescient, could not foresee our technological and economic interdependence. Yet they understood its foundation. Free trade in the United States, unobstructed by state and local barriers, was indispensable if we were to unite to ensure the liberty and progress of the whole Nation and its people. This was the vision, and a primary objective, of the Framers of the constitution. History, as we know, vindicates their judgment. The national, free market within our borders has been a singular force in shaping the consciousness and creating the reality that we are one in purpose and destiny. The Commerce Clause doctrine that emerged from the decisions of this Court has been appropriate and necessary to implement the Constitution’s purpose and design.

These general observations are offered at the outset to underscore the imprudent risk the Court now creates by misinterpreting our precedents to decide this case. True, the majority opinion, wrong as it is, will not threaten the whole economy or national unity on these facts alone. The explicit, local discrimination the Court ratifies today likely will result in extra, though manageable, accommodation costs and can be welcomed by existing interests ready to profit from it. This market perhaps can absorb the costs of discrimination; our jurisprudence, unless the decision stands alone as an anomaly, cannot.

Reactive institutions and adjusting forces—for instance mutual funds for state and municipal bonds issued within a single State—already are in place in response to the local protectionist laws here at issue and now in vogue. These mechanisms may allow the market, though necessarily distorted by deviation from essential constitutional principles, to continue to cope in a more or less efficient manner; and the damage likely will be limited to the discrete, and now distorted, market for state and municipal bonds. Many economists likely will find it unfortunate, and inefficient, that a specialized business has emerged to profit from a departure from constitutional principles. Even if today’s decision is welcomed by those who profit from the discrimination, the system as a whole would benefit from a return to a market with proper form, freed from artificial restraints. It does seem necessary, however, to point out the systemic consequences of today’s decision—if only to confine it and to discourage new experiments with local laws that discriminate against interstate commerce and trade.

And he concluded:

... today the Court weakens the preventative force of the Commerce Clause and invites other protectionist laws, thus risking further dislocations and market inefficiencies based on the origin of products and commodities that should be traded nationwide and without local trade barriers.

Wow!  If there had been more of this kind of talk when I was taking con law, I might have focused on that instead of trade law.  After reading this, I'd really like to see Justice Kennedy take on GATT Article III:4!

In addition to Kennedy, Scalia and Thomas also had interesting things to say.  From Scalia:

JUSTICE SCALIA, concurring in part.

I join all but Part III–B and Part IV of the opinion of the Court. I will apply our negative Commerce Clause doctrine only when stare decisis compels me to do so. In my view it is “an unjustified judicial invention, not to be expanded beyond its existing domain.”

I read this as saying he doesn't much like the dormant commerce claus doctrine, but he won't go so far as to get rid of it entirely.  Rather, he'll just keep it as narrow as possible, e.g., no state-imposed tariffs on out of state goods.

As for Thomas, it seems as though he would go further than Scalia in reversing the doctrine:

JUSTICE THOMAS, concurring in the judgment.

I agree with the Court that Kentucky’s differential tax scheme is constitutional. But rather than apply a body of doctrine that “has no basis in the Constitution and has proved unworkable in practice,” I would entirely “discard the Court’s negative Commerce Clause jurisprudence.” ... Because Congress’ authority to regulate commerce “among the several States,” U. S. Const., Art. I, §8, cl. 3, necessarily includes the power “to prevent state regulation of interstate commerce,” United Haulers, supra, at ___ (slip op., at 2) (THOMAS, J., concurring in judgment), the text of the Constitution makes clear that the Legislature—not the Judiciary—bears the responsibility of curbing what it perceives as state regulatory burdens on interstate commerce.

Thomas seems to say that it is entirely up to the (federal) legislature to address the problem of state protectionism.  Would he go so far as to say that tariff duties imposed by a state on products from other states are constitutional?

More commentary from SCOTUSBlog here.

The Role of Precedent at the WTO: What the Members Think

From the summary of the DSB meeting where the recent U.S. - Stainless Steel from Mexico case was adopted:

There was a debate among members on whether or not panels were obliged to follow AB decisions.

Some members argued that prior AB rulings constituted a clear line of jurisprudence that should be used by panels if relevant to the case examined.

Some others argued that there was no provision in the Dispute Settlement Understanding that requires panels to follow prior AB or other panel findings. The panel or AB decisions are binding only to the parties involved in a dispute.

More on this when the full minutes of the meeting are circulated.  I'm curious to see which Members took the different sides in the debate.  The U.S. view was mentioned ("On the obligation by panels to follow previous AB rulings, the United States declared that panels were not required to follow previous AB decisions but could take them into account if relevant to the case") but I'd like to hear what others said.

Protectionism for English Footballers

From the Economist:

The [English] Premier League's main source of strength is its financial clout. Since the early 1990s, when stadiums were upgraded and lucrative broadcasting deals agreed upon, the league has become a money-spinner. Foreign investors have poured in (Liverpool and Manchester United are owned by Americans, Chelsea by a Russian). England's big four clubs are among the world's ten richest, according to Deloitte, an accounting firm. This allows the clubs to hire the best players, which in turn draws crowds and increases revenues.

In most industries such a virtuous circle would be a cause for celebration. But Sepp Blatter, the president of FIFA, football's governing body, cites English dominance of the Champions League as proof of the need to restrict how many foreigners a team may field. Michel Platini, the head of UEFA, the European wing of FIFA, concurs. Some old-style hoof-it English managers claim that import restrictions would somehow help the coaching of young British talent.

This is the sort of protectionist tosh that most industries have not dared utter in public since the 1970s. How could a sport get better by limiting competition or lowering standards? English children are bad at football mainly because their training is bad (something other places have fixed). The league football in Britain is unimaginably better than it was. With luck EU labour law will stop Mr Blatter and keep it that way.

I think there are two points here.  First, there is the notion that "import restrictions would somehow help the coaching of young British talent."  This seems like the classic "infant industry" argument for import protection for goods, but applied to athletes:  we need to keep out foreign athletes, so as to nurture domestic athletes and allow them to catch up to the level of foreign competition.  I don't follow European sports leagues that closely (most of the articles I read on the subject are in the Economist!), but I've seen stories like this before.  What I always wonder is, why I have never heard these issues come up in relation to American sports leagues?  Maybe it's because the level of foreign participation is still fairly low, especially in sports like basketball and football (it is rising in basketball, though).  In baseball, however, my sense is that foreign participation is significant, and I've never heard concerns expressed.

Hockey is a particularly interesting example in this context.  NHL hockey teams, including the many American-based ones, used to be dominated by Canadians.  Now, by contrast, there is a significant American (and also European) presence, probably in part because Americans were exposed to high quality hockey over the years (probably also in part due to improved hockey facilities in the somewhat warmer U.S. over the years).  Maybe there's a good lesson for the English leagues there.

The second point is a bit different: "English dominance of the Champions League as proof of the need to restrict how many foreigners a team may field."  The argument here appears to be that, in the absence of restrictions on labor mobility, rich leagues can buy up all the good players.  In my view, this is a very different issue.  Fundamentally, the issue is competition between teams with vastly different levels of financial resources.  However, I'm not sure that restrictions on signing foreigners is the best way to deal with problem.

ADDED:  More here from Oxonomics (via Trade Diversion)

McCain on Other Benefits of Trade Agreements

Trade talk would be much more straightforward if trade agreements were only about trade, but things are never that simple.  Here John McCain points out one of his non-trade reasons for supporting the Colombia FTA:

The strategic implications of rejecting this agreement are profound. Colombia is a beacon of hope in a region where the Castro brothers, Hugo Chavez, and others are actively seeking to thwart economic progress and democracy. Delaying approval of the Colombian Free Trade Agreement will not create one American job or start one American business, but it will divide us from our Colombian partners at a time when they are battling the FARC terrorists and their allied drug cartels. It will undercut America's standing with our allies in a critical region and across the world, at a moment when rebuilding these relationships has never been more important. It will set back the goal of deepening relations with our neighbors to the south and enhancing the stability, peace, and prosperity of our hemisphere.

There's a part of me that resists these considerations, preferring to focus on what makes for good economic policy.  But there's another part of me that recognizes that economics is not the only consideration.  I'm not sure how I come out on the issue with respect to the Colombia FTA, but I can see why people want to take these kinds of issues into account.

A Final Word on Food Aid and the Farm Bill

Well, maybe not the final word, but one more thing anyway, from a Bloomberg article:

Shipments of U.S. food aid took five months to reach Ethiopia during a famine in 1999-2000, arriving after the death toll had reached 20,000, according to Chris Barrett, an economics professor at Cornell University who specializes in food aid to Africa.

By contrast, Catholic Relief Services of Baltimore said it got emergency food supplies to Malawi and Zimbabwe within 30 to 60 days in 2005. The difference was that the agency bought $2.6 million of peas, vegetable oil, maize and high-energy protein supplement in Mozambique and Zambia.

Aid groups, President George W. Bush and the U.S. Government Accountability Office all say the U.S. approach to food aid needs to be fixed. The U.S. donates almost half the food used for international aid, worth about $2 billion in 2007. Efforts to get it to such places as Myanmar, China and Africa are hostage to 50- year-old policies that favor agricultural giants such as Archer- Daniels-Midland Co. and Cargill Inc. and shippers such as Maersk.

``This is a cumbersome process that ends up costing lives,'' said Marc Cohen, a food aid expert at the International Food Policy Research Institute, which is funded by the World Bank and over 20 governments. ``Buying food locally could cut the months into weeks.''

Congress took a step toward changing the system by including a $60 million pilot program in the $289 billion farm bill passed last week. The measure would shift part of the food aid budget to buying commodities nearer the point of need. The bill appears to have enough Congressional support to override a veto promised by Bush because he says it wouldn't do enough to reduce subsidies to farmers who are benefiting from increased prices.

So the problem with sending U.S. food directly is not just the harm to local producers; it's also the extra time involved in getting it there.

New Paper on Development and Human Rights under WTO law

Here's a new paper from Gillian Moon of University of New South Wales, entitled "The WTO-Minus Strategy: Development and human rights under WTO law."  The abstract:

International trade law, human rights law and development studies share the common objective of promoting higher standards of living in the poorer countries of the world. Human rights and development scholars have been critical of the law of the World Trade Organisation (WTO), as implementing a development strategy which dominates and constrains the development strategy options of developing countries but which perceives development only in a narrow, economic sense. In this paper, the different theoretical underpinnings of international trade law and international human rights law are described and compared and their differing conceptions of development are examined from the perspective of the broader development discourse. The package of rights and obligations of developing countries under WTO law (the ‘WTO-Minus strategy’) is also described and examples of significant constraints placed by this package on the development strategy options open to developing countries regarding trade in goods are examined from the perspectives of the broader development discourse and international human rights norms. The capacity of the WTO to incorporate new and multidisciplinary knowledge about development is considered.

Protectionism and Wind Power

From a WSJ blog:

We’ve noted before how China’s headlong push into wind power could put pressure on the rest of the global wind industry. Chinese turbines need the same scarce components as the turbines being built and installed in Europe, India, and the U.S.

Now that pressure’s rising, China is raising tariffs on imported wind turbines and slashing tariffs on imports of turbine parts—all part of a campaign to jumpstart China’s domestic wind-turbine manufacturing industry.

Xinhua reports today that China will refund value-added tax and slash tariffs on wind-turbine components imported to feed the country’s burgeoning domestic wind-turbine-manufacturing industry. That will give Chinese turbine makers a freer hand to bid for many of the thousands of tiny components that make up turbines, even as supply-chain bottlenecks for many of those components persist around the world.

And starting May 1, the government will scrap the tax holiday for imports of most wind turbines (those under 2.5 megawatts). That will make it more expensive for big turbine makers like Vestas of Denmark and Suzlon of India to sell their wares in China.

Should tariff protection ("raising tariffs on imported wind turbines") and subsidies ("refund value-added tax ... on wind-turbine components") be used to promote clean technologies?   More competition in this industry is probably good, so as to bring down prices.  But trade disputes based on perceived violations of WTO rules might not be for the best.

Airbus vs. Boeing vs. China

The Economist has an article about how the Chinese are planning to develop aircraft to compete with Airbus and Boeing.  The article noties:

Although Boeing huffs and puffs about ensuring that China sticks to WTO rules banning market-distorting subsidies, both it and Airbus are studiously polite about the prospect of a new rival. Boeing says that competition has always been good for the business, and an Airbus spokesman describes it as “a natural ambition” for a country of China's size to make big jets.

My first point is a bit nit-picky, but I'm going to make it anyway.  I know that you need to use short-hand when writing these kinds of articles, but isn't saying that WTO rules ban "market-distorting" subsidies a bit of an exaggeration?  Obviously they can't flesh out the entire SCM Agreement here, but perhaps "trade-distorting" would be more accurate.  If the rules banned "market-distorting" subsidies, wouldn't that prohibit just about all subsidies?

Aside from that, I found the part about Airbus and Boeing being "polite" in the face of potential Chinese competition to be interesting.  Are they really going to let this happen without a trade fight?  I would not have thought so, especially given their experience with trade litigation.  On the other hand, one reason the answer could be yes is provided in the final paragraph of the piece:

... manufacturing big commercial aircraft has ceased to be a national enterprise. Boeing and Airbus increasingly rely on global supply chains and risk-sharing partners, some of which are involved from the design stage to produce not just components, but entire sections of planes.

It may be that in the future, just about every country will have a stake in producing all of the big aircraft, meaning there will be nobody to bring a complaint.

Judging RTAs in WTO Dispute Settlement

Among the many difficulties with reconciling bilateral/regional trade agreements and the WTO Agreement is which "branch" of the WTO, the Dispute Settlement Body or the Committee on Regional Trade Agreements, should judge the overall consistency of these agreements with WTO rules.  A recent article by Youri Devust and Asja Serdarevic argues that it should be the CRTA, and that the Appellate Body erred when it stated otherwise:

Following the logic of the Panel Report in the Turkey-Textiles case, this article proposes that, during the enforcement exercise, a distinction should be made between, on the one hand, the legality of the regional arrangement as such and, on the other hand, the legality of concrete trade policy measures adopted by the RTA. The latter should be subject of strict surveillance and sanctioning, notably via WTO dispute settlement. In contrast to the line taken by the WTO’s Appellate Body, it would, however, not be advisable for the WTO dispute settlement system to get into questions of the overall legality of specific regional arrangements. The overall compatibility of regional arrangements with WTO rules is better suited for diplomatic transparency and peer review exercises in the CRTA on the basis of the clarified benchmarks, ...

See http://www.worldtradelaw.net/articles/devuystwtorta.pdf

For reference, in the Turkey - Textiles case mentioned, the Appellate Body had said the following:

58. Accordingly, on the basis of this analysis of the text and the context of the chapeau of paragraph 5 of Article XXIV, we are of the view that Article XXIV may justify a measure which is inconsistent with certain other GATT provisions. However, in a case involving the formation of a customs union, this "defence" is available only when two conditions are fulfilled. First, the party claiming the benefit of this defence must demonstrate that the measure at issue is introduced upon the formation of a customs union that fully meets the requirements of sub-paragraphs 8(a) and 5(a) of Article XXIV. And, second, that party must demonstrate that the formation of that customs union would be prevented if it were not allowed to introduce the measure at issue. Again, both these conditions must be met to have the benefit of the defence under Article XXIV.

(emphasis added)

Face to Face with 14 Appellate Body Members

An event that should be of interest, organized at the Graduate Institute's new "Centre for Trade and Economic Integration" (CTEI), in cooperation with the WTO Appellate Body:

Next week Tuesday, May 27, 10-12am, Graduate Institute, Geneva
Roundtable discussion with the following AB members (former, current & future):

Chairman:
Luiz Olavo Baptista

Discussants:
Georges Abi-Saab (2000-2008)
A.V. Ganesan (2000-2008)
Julio Lacarte (1995-2001)
Florentino Feliciano (1995-2001)
Claus-Dieter Ehlermann (1995-2001)
Mitsuo Matsushita (1995-2000)
Yasuhei Taniguchi (2000-2007)

Commentators:
Shotaro Oshima (2008-2012)
Giorgio Sacerdoti (2001-2009)
David Unterhalter (2006-2009)
Lilia Bautista (2007-2011)
Jennifer Hillman (2007-2011)
Yuejiao Zhang (2008-2012)

For more info go to http://graduateinstitute.ch/ctei
or contact ctei@graduateinstitute.ch

Suing USTR

Public Citizen has filed a lawsuit, on behalf of journalist Ed Brayton, alleging that:

The Bush administration is illegally withholding the details of its offer accepted by the European Union to bind more sectors of the U.S. economy to World Trade Organization (WTO) jurisdiction as part of a settlement relating to a WTO ruling against the U.S. ban on Internet gambling, ...

They ask the court "to find that the USTR is illegally withholding the settlement agreement and to order the agency to provide Brayton a copy of the agreement."

Here's the complaint.

McCain Goes After the Free Trade Vote

I'm not sure how big that voting bloc is anymore, but in a speech today, Sen. McCain has a lot to say on trade.  If this is a sign of things to come, trade is going to be a hot issue in the Presidential campaign.

First, he goes at Sen. Obama pretty hard:

For his part, however, Senator Obama has a habit of talking down the value of our exports and trade agreements. He even proposed a unilateral re-negotiation of NAFTA – our agreement with Canada and Mexico that accounts for 33 percent of American exports, and 17 billion dollars’ worth of exports last year just for Illinois. As you may recall, the Senator’s senior economic advisor told a representative of Canada to pay no attention to this anti-trade rhetoric from Senator Obama – it was all just, quote, “political positioning” for the primary elections. But for those of us who were paying attention, what we heard was not impressive. It was bad judgment and a bit inconsistent. Senator Obama is fond of scolding others for engaging in the “old-style politics,” but when he plays on fears of foreign trade he’s resorting to the oldest kind of politics there is. It’s the kind of politics that exploits problems instead of solving them, that breeds resentment instead of opportunity.

If I am elected president, this country will honor its international agreements, including NAFTA, and we will expect the same of others. And in a time of uncertainty for American workers, we will not undo the gains of years in trade agreements now awaiting final approval.

I'm not sure his description of what Obama's adviser said is accurate.  I never felt completely satisfied with the explanations that were given, but from what I recall, it may not be correct to say that "the Senator’s senior economic advisor told a representative of Canada to pay no attention to this anti-trade rhetoric from Senator Obama" and that it was just "political positioning."

Then, McCain also goes hard at U.S. protectionism, in agriculture specifically:

It is a longstanding goal of American trade policy – and a goal I share – to open foreign markets across the world to American farmers. But the biggest obstacle is not to be found in any foreign market, or in the policies of any other government. It’s right there in the Congress of the United States, in the billions of dollars in subsidies served up every five years to corporate farmers. The original idea was to provide a buffer to small farmers in tough times and to assure a stable supply of food for our country. But nowadays, the small farmers have been forgotten, and instead the Congress sends a steady supply of subsidies to agribusiness.

It would be hard to find any single bill that better sums up why so many Americans in both parties are so disappointed in the conduct of their government, and at times so disgusted by it. Here we are at a time when food prices are at historic highs, and farm income is up by 56 percent in just the past two years. Yet even now, the Congress has voted to give billions of dollars in subsidies to some of the biggest and richest agribusiness corporations in America – many of which are heavy political contributors to members in both parties.

Even as American workers and taxpayers struggle to buy food, because of rising prices, the Congress refuses to place real limits on farm subsidies. Most of the subsidies are going to large commercial farms with an average income of two-hundred thousand dollars, and an average net worth of two million dollars. And, of course, along with the subsidies comes the usual harvest of tax breaks, bailouts, and other forms of corporate welfare. To take just a few examples, the thoroughbred industry hit it big this year with 93 million in tax breaks for race horses. The timber industry made off with 260 million dollars in tax breaks. And then there’s a company that describes itself as, quote, “the largest and most geographically diverse land owner in the nation.” That doesn’t sound like a hardship case to me. But the Congress has just voted to give that same company 250 million dollars in public money.

I don't know how this message will play politically, in terms of how many votes it gains and how many it loses, but I do give McCain credit for speaking out like this. 

Next, he talks about poor people in developing countries.  Again, I'm not sure how much benefit he will see politically (the Oxfam vote can't be that big!), but nevertheless I'm impressed that he is saying it: 

Lost in all of this deal-making and money-grabbing in Washington is not only the common good in our own country, but a concern for other people across the world – people who look to us for an example of fairness and honesty. When the United States and Europe subsidize our biggest agricultural producers, we distort global prices and we hurt the world’s poorest farmers in Africa and elsewhere. These men and women wonder how our government can live with such policies, even at the expense of our own citizens. They believe that our massive subsidies to American producers are a form of protectionism, helping already rich companies at the expense of people and nations in need. They think that these corporate subsidies are inconsistent with our own standards and ideals, and with the good heart of America. And my friends, they are right.

And here is his conclusion:

If I am elected president, I will seek an end to all agricultural tariffs, and to all farm subsidies that are not based on clear need. I will veto any bill containing special-interest favors and corporate welfare in any form. We’re going to base our farm policy on the common good, with policies that help our small farmers to succeed, and our rural communities to survive and flourish once again. We’re going to help American producers large and small to compete in foreign markets – because we know they are up to the challenge, without need of unfair advantages and billion-dollar favors. We’re going to help developing countries in every way we can – by sharing our technologies, by supporting micro-credit banking programs in Africa and elsewhere, and above all by setting an example of fair dealing with other nations.

I don't think he can be much clearer than this!  There are still some nuances, of course, such as how he feels about investment expropriation rules, but he has now laid out his vision pretty strongly.  I suspect (and hope) that Sen. Obama is preparing a response.

How Would a President Obama Govern on Trade?

Bob Davis of the Wall Street Journal is skeptical of Obama's free trade credentials:

Since at least John F. Kennedy, presidential candidates have campaigned as tough on trade and then governed as free traders. Some business leaders are expecting the same if Barack Obama makes it to the White House.

Don't count on it.

Sen. Obama, the Democratic party frontrunner, and his rival, Sen. Hillary Clinton, have expressed some support for trade liberalization during their careers, as public opinion and congressional politics have shifted markedly against free trade. A coalition of anti-free trade activists and labor unions also has used the long primary season to wring commitments from the two candidates on an astonishingly detailed list of trade issues, making it hard for them to reverse course.

More at the link.

I suppose this issue depends in part on what you mean by "govern as a free trader."  Obama might look more like Bill Clinton than like George Bush on trade issues, but he's clearly no Ross Perot.

The Farm Bill and the U.S. Trade Policy Review

Reader R.V. Anuradha points me to this Reuters report on the forthcoming U.S. Trade Policy Review done by the WTO:

In agriculture, some programs may provide incentives that are inconsistent with market signals and affect trade when supported output reaches world markets, it said. “The expiration of the 2002 Farm Act, and the current environment of high commodity prices, offers a favorable juncture to introduce policy change aimed at further improving the market orientation of the agriculture sector to the benefit of both consumers and taxpayers,” the WTO said.

From everything I've read about it, it seems like the new Farm Bill was a missed oppotunity in this regard.

The Farm Bill and Food Aid

I mentioned the Bush Administration's food aid proposal a few days ago.   So what did the Farm Bill -- passed with a veto-proof majority -- do with the issue?  According to Reuters:

U.S. lawmakers unveiled a five-year global food aid plan on Thursday, snubbing White House demands for significantly greater flexibility when buying food for the world's poor.

The final House-Senate compromise on the 2008 farm bill, if approved, would spend a mandatory $60 million over four years on a pilot program to test overseas purchases of food aid -- a step away from the traditional reliance on U.S. farmers.

The pilot provides far less, though, than what the Bush administration had asked be freed, up to about $400 million a year based on recent budgets, for purchases abroad.

More here:

Oxfam and other groups have joined the White House in criticizing lawmakers for ignoring an administration request to allow a quarter of U.S. food aid funds for abroad to be used to purchase foreign supplies near crisis areas.

Farm groups have traditionally pushed for food aid designated for foreign locations to come from the United States, which means it often takes too long to get the food to where it's needed most, according to the Agriculture Department.

Instead, congressional negotiators set up a small-scale pilot program that would allow limited local foreign purchases using U.S. aid money and then study how effective that was. They say the idea of such local purchases is untested.

But Schafer says that local buying in foreign locations "would just simply help save lives in some of the most stressed areas in the world." He also criticized a mandate in the bill to reduce the amount of emergency foreign food aid in favor of more money for non-emergency assistance.

Obama on Prying Open Foreign Markets

At a recent town hall meeting:

Democratic presidential hopeful Barack Obama urged Japan and South Korea on Friday to scrap all their controls on U.S. beef imports and fully open their beef markets.

"You can't get beef into Japan and Korea, even though, obviously, we have the highest safety standards of anybody," he told a town hall meeting in Watertown, South Dakota. "They don't want to have that competition from U.S. producers."

"So we've got to have a president who's a tougher negotiator and, when we have tougher negotiations, that means that other countries are going to have to allow us to sell into their markets," he said.

Trade in Everything: French Fries

OK, technically speaking it is trade in potatoes, but french fries made for a better title:

Anyone who has been to a soccer game in Europe knows that fries and burgers are among the most popular food items on sale at football grounds. So, it must have come as a shock when Switzerland's potato industry association warned supplies of the lowly spud were running low -- just weeks before Euro 2008, the continent's biggest soccer tournament, gets underway.

But fans heading to Switzerland for next month's tournament can rest assured they will not have to do without fries. The Swiss government has taken measures to ease the potato shortage. A spokesman for the country's Department of Agriculture told Swiss radio station RadioDRS Wednesday that the government would allow an extra 5,000 tons of potatoes to be imported.

Obama and McCain on Farm Subsidies

The U.S. Senate approved the farm bill today.  The bill is now off to the President for an expected veto, but there appear to be enough Congressional votes to override the veto.

What do the candidates think of it?  Well, neither McCain nor Obama was there for today's vote, but here is what they have said on the issue:

-- From McCain:

"I have to give you a little straight talk about the farm bill that is wending its way through Congress," McCain said Thursday at the Polk County Convention Center in Des Moines. "I do not support it. I would veto it," he said. "I would do that because I believe that the subsidies are unnecessary."

-- As for Obama, I haven't found anything specific he said recently, but late last year he was supportive of the overall package as it stood at the time.  See here and here.  Here's an excerpt:

I was disappointed to see that important improvements and solutions for our family farmers in this bill fell victim to partisan politics and obstructionism. Those who stood in the way of this bill stood against our farmers and a clean energy future. While the bill that passed committee didn't include everything I would have liked, including specific reforms to help family farmers instead of big agribusiness, it did take much-needed steps to invest in conservation, nutrition, specialty crops and rural development. It provided funding for renewable energy and recognized farmers who are working to reduce our dependence on foreign oil. And it included a packer ban, which is so important for market transparency.

More on what's in the bill here: http://ap.google.com/article/ALeqM5hKiCUGVmDQJYT51475bq5PwW3aXwD90LMH2G0

ADDED:  I spoke too soon.  Here is an Obama press release from today:

"I applaud the Senate's passage today of the Farm Bill, which will provide America's hard-working farmers and ranchers with more support and more predictability."

"The bill places greater resources into renewable energy and conservation. And, during this time of rising food prices, the Farm Bill provides an additional $10 billion for critical nutrition programs. I am also pleased that the bill includes my proposal to help thousands of African-American farmers get their discrimination claims reviewed under the Pigford settlement."

"This bill is far from perfect. I believe in tighter payment limits and a ban on packer ownership of livestock. As president, I will continue to fight for the interests of America's family farmers and ranchers and ensure that assistance is geared towards those producers who truly need them, instead of large agribusinesses. But with so much at stake, we cannot make the perfect the enemy of the good."

"By opposing the bill, President Bush and John McCain are saying no to America's farmers and ranchers, no to energy independence, no to the environment, and no to millions of hungry people."

ADDED #2:  And more from McCain:

“The American taxpayer has been told before that Farm Bills and their thirst for subsidies were a necessary evil to provide our county—and the world—with affordable, abundant food. Today, as food prices reach historic highs, they’re being told the same thing. We must challenge that notion as grocery bills soar, food banks go bare, and food rationing occurs on a global scale. We must question policies that divert over 25 percent of corn out of the food supply and into subsidized ethanol production. Do Americans really want a support system that costs consumers $2 billion annually in higher sugar prices? Will we truly reduce our dependency on foreign oil by extending tariffs that make it too expensive to invest in sugar ethanol production? Can we honestly demand fair and free trade at Doha while domestic cotton growers dump subsidized cotton on the world market?

“The Farm Bill conference report is expected to cost taxpayers around $289 billion dollars. According to the Congressional Budget Office, this bill will exceed the government’s budget by $10 billion. But the Administration points out that with clever accounting made famous by Congressional budget dodgers, the real cost of the bill will exceed the government’s budget by about $18 billion. And even though Democrats and Republicans in both chambers have promised to rein in pork barrel spending, this bill betrays that promise. Buried within its hundreds of pages are special favors like:

§ $170 million dollar bailout for the West Coast salmon industry included at the insistence of the Speaker of the House.

§ $93 million in special tax treatment for race horses.
$260 million in tax cuts for the timber industry.

§ $15 million for asparagus growers. During debate on the Senate farm bill last year, my colleague Senator Gregg offered an amendment, which failed, to strike this provision. This is a crop that has never before received farm subsidies.

§ $175 million would be transferred to Bureau of Reclamation for activities at three Nevada lakes.

§ $500,000 to the Walker River Paiute Tribe for legal and professional services in support of settling tribal water claims. Other tribes have dealt with water rights without a half million dollar earmark.

§ $5 million for joint planning and development activities for water, wastewater, and sewer facilities by the city of Fernley, Nevada, and the Pyramid Lake Paiute Tribe.

§ The bill authorizes a myriad of grant programs including grants for research into pig genetics, grants for the preservation of historic barns, and $300 million for the Sun Grant Program, which provides grants to 6 universities and science centers that conduct bioenergy research.

§ $20 million goes to the collection and storage of seeds for research purposes.

§ $75 million for a crop research facility in El Reno, Oklahoma.

§ $35 million to promote the production of “hard white wheat.”

§ A $4 billion dollar disaster assistance package on top of an existing crop insurance program that’s subsidized by the federal government.

John McCain's Trade Vision for 2013

In a speech today, John McCain took "a little time to describe what [he] would hope to have achieved at the end of [his] first term as President."  Here's the trade part:

New free trade agreements have been ratified and led to substantial increases in both exports and imports. The resulting growth in prosperity in countries from South America to Asia to Africa has greatly strengthened America's security and the global progress of our political ideals. U.S. tariffs on agricultural imports have been eliminated and unneeded farm subsidies are being phased out. The world food crisis has ended, inflation is low, and the quality of life not only in our country, but in some of the most impoverished countries around the world is much improved.

Americans, who through no fault of their own, lost jobs in the global economy they once believed were theirs for life, are assisted by reformed unemployment insurance and worker retraining programs. Older workers who accept lower paying jobs while they acquire new skills are provided assistance to make up a good part of the income they have lost. Community colleges and technical schools all over the country have developed worker retraining programs suited to the specific economic opportunities available in their communities and are helping millions of workers who have lost a job that won't come back find a new one that won't go away.

Expropriation Standards in Investment Rules

From the previously mentioned Norwegian draft model BIT (MS Word document) that reader Perry Bechky pointed me to:

ARTICLE [6]: EXPROPRIATION

1. A Party shall not expropriate or nationalise an investment of an investor of the other Party except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

...

What's noticeably absent is the "measures equivalent to expropriation or nationalization" or "measures tantamount to nationalization or expropriation" language.

I'm not sure how much detail we will get during the campaign about the specifics of trade agreement rules, but I wonder if this meets the goal of Senator Obama, mentioned here, that "... 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."

ACP-EU Relations Conference

Arbitration and Mediation in the ACP-EU Relations Conference
ACP House 451 Avenue Georges Henri, 1200 Brussels, Belgium.
May 21st 2008, Brussels

The Association for International Arbitration (AIA) is organising this conference to promote and create awareness of the Arbitration and Mediation in the ACP (African, Caribbean and Pacific Group of countries) – EU Relations. Our goal is to promote arbitration and mediation as an alternative dispute resolution mechanism, ultimately in benefit of business development and creation of tighter bounds between the ACP states and the EU states.

This conference will not only serve to raise awareness and create stability for future business development, but also it will also lead to a working group in this area.

The 1 day conference will take place in the city of Brussels at the secretariat of the ACP, from 9:30h - 18:30h, coffee breaks, lunch as well as a cocktail after the conference will be part of the event.

More details here: http://www.arbitration-adr.org/activities/upcoming_conf.html

Obama and McCain on Cap-and-Trade

Via Peter Gallagher, I came across the following from Obama adviser Jason Grumet:

To be unequivocally clear, Sen. Obama believes that the United States must and will act to put a mandatory limit on our domestic greenhouse-gas emissions. That is a predicate for us leading the world to enact a truly equitable and global program in which China and India and Brazil and all the major emitting countries also put legal limits on their emissions. The story of this country has not been waiting to be led by others to address global challenges.

...

Ultimately the solution to global climate change is going to be mediated through the lens of global trade. Sen. Obama has been supportive of mechanisms that have the U.S. take a first step, and if after a period of years other nations are not acting in what is deemed to be a commensurate responsible manner, look to our trade laws to try to ensure that there's no inequity or competitive disadvantage imposed on U.S. businesses. The idea that was initiated by the International Brotherhood of Electrical Workers, in which importers of energy-intensive products would be required to purchase permits for the carbon embedded in those products -- the details need to be fleshed out, but that seems to be a reasonable approach to level the playing field, if we get there.

But Sen. Obama also has faith in the intellect of others. While he believes the United States has a vital role to play in leading this discussion, he does not believe we are going to have to bludgeon other countries into appreciating their own self-interest. Climate change is a real problem. The Chinese are going to suffer the impacts of it much more harshly and immediately than we will. The Chinese and the Brazilians and the Mexican government and others read the same scientific reports as we do. They recognize that the exacerbating cycles of flood and drought will be devastating for countries trying to support billions of people on smaller amounts of arable land, who don't have the same kind of water-handling and -treatment systems. It is the wealthy nations who are in many ways the most hedged and capable of adapting early on.

Here's how I interpret Obama's views based on these statements.   As President, Obama would first take action to limit U.S. carbon emissions through a cap-and-trade program.  Then, he would try hard for an international agreement on the issue, with the goal of including the developing countries which so far have been reluctant to sign on.  But if it becomes clear that some countries cannot be brought into an international agreement, he is willing to act unilaterally to impose equivalent burdens on imports from these countries.

As for McCain, here's something from his recent speech on climate change:

If the efforts to negotiate an international solution that includes China and India do not succeed, we still have an obligation to act.

In my approach to global climate-control efforts, we will apply the principle of equal treatment. We will apply the same environmental standards to industries in China, India, and elsewhere that we apply to our own industries. And if industrializing countries seek an economic advantage by evading those standards, I would work with the European Union and other like-minded governments that plan to address the global warming problem to develop a cost equalization mechanism to apply to those countries that decline to enact a similar cap.

This wasn't quite as specific, but that's to be expected given that it was the candidate's own speech rather than a Q & A with an adviser, as with Obama.  Nonetheless, it seems that McCain's views are similar to Obama's:  International rules are preferred, but we will act unilaterally, if necessary, to impose similar burdens on countries that do not act.

Of course, within those broad principles, there is a lot of room for disagreement, both on cap-and-trade generally and the international trade component specifically.  No doubt these disagreements will get fleshed out a bit more in the coming months.

(Notice that I've created an Obama vs. McCain '08 category for this post.  I may be jumping the gun a bit here, but this matchup has begun to look inevitable.)

The Problem of Food Aid and Local Production

A proposal from President Bush on food aid:

As America increases its food assistance, it's really important that we transform the way that food aid is delivered. In my State of the Union address this year, I called on Congress to support a proposal to purchase up to nearly 25 percent of food assistance directly from farmers in the developing world. And the reason you do that is, in order to break the cycle of famine that we're having to deal with too often in a modern era, it's important to help build up local agriculture. I ask Congress to approve this measure as soon as possible. It's a common sense way to help deal with food emergencies around the world.

The criticism of food aid that this plan addesses is that food aid can harm farmers in the countries to whom the aid is given, by displacing demand for their products.  It's a very difficult issue, and I think the Administration deserves some credit for recognizing the problem (harm to poor country farmers) and trying to come up with a solution (purchases from those farmers).

Here's a question, though.  Would it perhaps be better to allocate some kind of "food credit" to allow for the purchase of food, rather than give food directly?  This is not something I've thought through in detail, and it may have been discussed already by experts in the field. But it seems like a good approach to me.

For a recent article on the WTO food aid negotiations, click here.

ASIL Event - ASEAN's Evolving Legal and Institutional Framework

Please note the following event:

The American Society of International Law in conjunction with its International Organizations, International Economic Law, and Law in the Pacific Rim Region Interest Groups as well as The Asian Society of International Law presents

ASEAN’s Evolving Legal and Institutional Framework

Panelists:

Ms. Amelia Porges
Counsel, Sidley Austin LLP

Mr. Sungjoon Cho
Assistant Professor of Law, Chicago-Kent College of Law

Mr. Edmund W. Sim
Partner, Hunton & Williams LLP-Singapore

Mr. Michael Ewing-Chow
Associate Professor, National University of Singapore

Moderator:

Dr. Pek Koon Heng
Course Chair for the Insular Southeast Asia Advanced Area Studies program at the Foreign Studies Institute, United States Department of State; Assistant Professor at the School of International Service at American University


When: Wednesday, May 21, 2008
8:30 a.m.-10:00 a.m.

Where: The American Society of International Law
2223 Massachusetts Avenue, NW, Washington, DC 20008
Metro: Dupont Circle map*

This panel discussion will consider, within the context of international law, the Association of Southeast Asian Nations' (ASEAN) legal personality as an international organization as well as what impact this personality has on the legal nature of regional free trade agreements.

Key areas that will be examined include:

• What is the significance of the ASEAN Charter?
• ASEAN as an integrated entity is bound by both Regional Dispute mechanisms (ASEAN Protocol on Enhanced Dispute Settlement Mechanism, 2004) and WTO dispute settlement mechanisms (DSU). Will these mechanisms conflict with each other, or will they compliment one another? Which mechanism is better for solving disputes amongst ASEAN members?
• How can the legal regime of ASEAN be improved to enhance the integrated economic development of its members?
• What enforcement mechanisms does ASEAN need to make sure it can implement the ASEAN Single Window Program?

To register for this session, please click here.