International Economic Law and Policy Blog

Protectionism as Extortion

Economist Steven Landsburg argues:

Bullying and protectionism have a lot in common. They both use force (either directly or through the power of the law) to enrich someone else at your involuntary expense. If you’re forced to pay $20 an hour to an American for goods you could have bought from a Mexican for $5 an hour, you’re being extorted.

This is in the context of a provocative article suggesting that we should not compensate those who lose from free trade.  As he puts it:

Even if you’ve just lost your job, there’s something fundamentally churlish about blaming the very phenomenon that’s elevated you above the subsistence level since the day you were born. If the world owes you compensation for enduring the downside of trade, what do you owe the world for enjoying the upside?

Trade Versus The Environment: Biofuels PPMs

The NY Times reports:

In a sign of growing concern about the impact of supposedly “green” policies, European Union officials will propose a ban on imports of certain biofuels, according to a draft law to be unveiled next week.

If approved by European governments, the law would prohibit the importation of fuels derived from crops grown on certain kinds of land — including forests, wetlands or grasslands — into the 27-nation bloc.

...

Not only is native vegetation, including tropical rain forests, being chopped down in places to plant the crops, but fossil fuels, like diesel for tractors, are often used to farm the crops. They also demand nitrogen fertilizer made largely with natural gas and consume huge amounts of water.

Already, the draining and deforesting of peatlands in Southeast Asia — mainly to make way for palm plantations — accounts for up to 8 percent of global annual carbon dioxide emissions, said Adrian Bebb of Friends of the Earth, an environmental group.

In Indonesia, he said, more than 18 million hectares of forest, or 44 million acres, have already been cleared for palm oil developments. Environmental groups say the developments are endangering wildlife like the orangutan and the Sumatran tiger, and putting pressure on indigenous peoples who depend on the forests.

This all calls to mind the paper by Stephanie Switzer mentioned here.  There are certainly some possible trade implications, depending on the specific terms of the law.  As the Times article points out:

... in answer to a reporter’s question, an organization representing major growers of crops for biofuels in Malaysia said the E.U. should be cautious before imposing new rules. It said that farmers in the region were adopting more sustainable practices, and warned that restrictions on imports could cause trade tensions.

“The Malaysian government is very concerned about the E.U. scheme for sustainability of biofuels,” said Zainuddin Hassan, the manager in Europe for the Malaysian Palm Oil Council in Brussels. The measures “should not be a trade barrier to the palm oil industry and it should comply with the W.T.O. rules as well,” he said, referring to the World Trade Organization.

Public International Law and Economics

For those interested in the methodology of law and economics as applied to international law, it might be worth checking the latest issue of the Illinois Law Review, for a series of papers using and commenting on this method. 

Global Toys

The Jan 10 FT explains that the chair of the large toy company, Hasbro, is calling for global regulatory standards for toys:

The US, EU and other jurisdictions enforce unique safety regimes that can force toy companies and their suppliers, most of whom are based in China, to adopt different testing and even manufacturing procedures for each destination market. Standards can vary between states within the US.

“Why can’t we have one mandatory global safety standard for toys?” Alan Hassenfeld, chairman of the US-based Hasbro toy company, said on Thursday in an interview with the Financial Times. “If we had one standard for the entire world everyone would cheer because we’re so confused [by the competing standards] and it’s a huge cost.”

While this seems utterly reasonable, one wonders whether global standards would give Hasbro a competitive advantage over more local toymakers.  Also, presumably larger companies from wealthier countries would dominate the standard-setting process, and might set standards that benefit their positions.   

Nevertheless, it is hard to argue for a right to regulate less in this field, and presumably the global standard would be a minimum, not a maximum.   

Some Comments the US-Antigua Gambling Arbitration

The recent arbitration of the SCOO available for Antigua to use against the United States in the Gambling case featured some important developments (WT/DS285/ARB, 12/21/07).

Perhaps the most interesting is the new standard employed by the arbitrator to determine the counterfactual that would be used to model the level of the SCOO. In this new test, the counterfactual selected has to be “reasonable” and “plausible” given the policy objectives of the government that has been found to violate WTO law (see paras. 3.45, 3.51, 3.56). I do not recall the arbitrator in the Hormones or FSC case taking into account policy objectives of the EC and the US respectively.

Another interesting feature was the willingness of the arbitrator to use a counterfactual that might not itself constitute compliance. The arbitrator implies that its counterfactual is WTO-consistent (see para. 3.49), but the arbitrator does not analyze the point. Indeed the arbitrator claims that it is not considering the WTO-legality of the counterfactual offered by the US and accepted by the arbitrator as a substitute for the counterfactual offered by Antigua and rejected by the arbitrator as being unreasonable. I don’t recall this happening in a previous arbitration.

A third feature was Antigua’s decision to reject the U.S. proposal for transparency in the arbitration process (see para. 2.29). Antigua does not explain why it opposed the open hearing and one wonders why they would have rejected the opportunity to get more public scrutiny of what the United States was saying in the arbitration and the questions that the arbitrator was asking.

One possible answer is that Antigua’s counsel pursued its self-interest on this point and did not want public scrutiny because they were so obviously out-lawyered by the U.S. government attorneys with greater experience. Antigua made a number of embarrassing mistakes in the arbitration (see for example, paras. 4.46 and 4.47).

A fourth feature was the arbitrator’s authorization for Antigua to use a SCOO in intellectual property. It will be interesting to see if Antigua does so.

A Rising Yuan?

The Economist reports:

IN 2005 two American senators introduced a bill into Congress that threatened to slap a tariff of 27.5% on all Chinese imports unless the yuan was revalued by the same amount (their estimate of how much the currency was undervalued). That legislation was dropped, but several other China-bashing bills are still working their way through Congress and accusations about “unfair” Chinese competition will surely play a big role in this year's presidential election. Many American politicians and economists talk as if the yuan was still fixed against the dollar. Yet on current trends, by the time the next president enters the White House the yuan could be within spitting distance of the magic figure demanded in 2005.

Since the beginning of October the yuan has climbed at an annual rate of 13% against the dollar—its fastest pace since China stopped pegging to the dollar in July 2005 .... Since 2005 it has appreciated by a total of 14%. The offshore forward market is pricing in another 8% increase over the next 12 months; several economists are betting on a rise of 10% or more.

So does this mean the U.S.-China currency dispute is close to being over?  Probably not, they say:

The yuan's rise is unlikely to silence flag-waving American Congressmen or economists. The slide in the dollar since 2005 means the yuan has risen by only 5% in trade-weighted terms, according to the Bank for International Settlements. China's current-account surplus has risen from 4% of GDP in 2004 to 11% last year, so any gauge that defines the equilibrium exchange rate as the rate that would eliminate the surplus would suggest the yuan is now even more undervalued. In 2005 Morris Goldstein and Nicholas Lardy at the Peterson Institute for International Economics estimated the yuan was 20-25% undervalued. By late 2007 they thought it was at least 30-40% undervalued despite its gain over the previous two years.

More at the link.

Trade in Everything: Doctors Without Borders

From Dani Rodrik (via the Center for Global Development):

Seventy-five percent of Mozambican physicians practice abroad, mostly in Portugal. The corresponding numbers for Ghana and Cameroon are 56% and 46% respectively.

Who Makes the Most "American" Cars?

According to Cars.com, two of the top 10 models are from Toyota.  They explain:

Cars.com's American-Made Index highlights the cars that are built here, have the highest amount of domestic parts, and are bought in the largest numbers by Americans.

Musings on Anti-Dumping and Zeroing

As I read through the recent U.S. - Stainless Steel from Mexico panel report, in which the Panel rejected prior Appellate Body rulings and found that certain types of zeroing are permissible, some questions occurred to me:

-- Why is injurious dumping to be "condemned," as stated in GATT Article VI:1?  What's wrong with, for example, price discriminating between markets, one of the ways that dumping can be found to exist?  Should we really "condemn" companies for setting different prices in different markets where the price level differs between the markets?

-- If dumping is to be "condemned," for whatever reason, should the rules try to limit it to the greatest extent possible?

-- There is an argument that the existence of anti-dumping laws makes greater tariff reductions possible in trade negotiations.  But is it possible that we'd be better off with higher tariffs and no anti-dumping rules?

These seem like good questions to me.  I don't have any good answers, though.

More zeroing in the news:  An article from Reuters; and Japan is thinking about pressing its case further.

"Why not a North American Union?"

Will Wilkinson of the Cato Institute asks this question and argues:

There are some who believe a grave threat to American sovereignty looms over the horizon. A shadowy cabal, they say, is planning a massive "NAFTA superhighway," a new North American currency, and a common market in goods and labor. It will all culminate in an E.U.-like North American Union.

It turns out this is mostly fantasy. But the fantasy is more dream than nightmare. Because some aspects of a North American Union would leave Americans and our neighbors both richer and freer.

The population of undocumented migrants in the U.S. has grown rapidly in recent decades -- in part because we have implemented increasingly restrictive border policies. What we've done is make passage riskier. This has slowed in-migration. But those who do come now are more likely to stay. And this has increased the permanent population of undocumented Mexicans.

The best solution to America's immigration problem is not a wall or a new crackdown on the hiring of undocumented workers. It's NAFTA's unfinished business: a common North American labor market. It's illogical and impractical to create a single North American economy that integrates markets for goods, capital, raw materials, services, and information but tries to keep labor markets divided.

Ron Paul is not going to like this.

Greg Mastel on Global Warming versus Free Trade

Greg Mastel writes:

In the United States, the Senate is considering legislation authored by Sens. Joseph Lieberman, I.-Conn., and John Warner, R.-Va., to impose an ambitious cap-and-trade system designed to reduce carbon-dioxide emissions. Under the legislation, companies emitting carbon dioxide would be obliged to purchase credits for their emissions with the total number of these credits being reduced over time. After five years, foreign companies selling products in the United States would also be obliged to purchase credits, unless their home country adopted a similar system of carbon-dioxide emissions controls.

...

Efforts to "share the burden" with restrictions on imports, like those envisioned in the Lieberman-Warner bill, are a practical necessity. Unfortunately, they are at most partial or delayed responses, would be difficult to administer and could easily run afoul of global trading rules under the World Trade Organization, resulting in potential trade sanctions. The WTO has cried foul over previous U.S. environmental statutes--most notably the 1990 Clean Air Act.

The ideal response to global warming would be a truly global policy response. Unfortunately, in the real world, that may not be achievable. Environmental realities may now dictate that the United States adopt legislation like Lieberman-Warner, but America should be resolved to face serious competitive realities and related international trade disputes when embarking on this course.

I agree with him that applying a cap-and-trade system to imports "could easily run afoul" of WTO rules.  I noticed that during a recent debate, Barack Obama said he favored a cap-and-trade system.  Although he has a long way to go before being elected, he is looking good right now, which means these issues might become more than just theoretical in the near future.

More on Huckabee and Obama

According to a Reuters article, some business groups question Huckabee's free trade credentials:

While Huckabee's campaign Web site provides few details of his views on trade, some of his public statements "sound awfully protectionist," said Nachama Soloveichik, a spokeswoman for Club for Growth, a pro-business advocacy group.

And they prefer Obama to the other Democrats on trade issues:

[Doug Goudie, director of International Trade Policy for the National Association of Manufacturers] took some comfort from Illinois Sen. Barack Obama's decisive victory in Iowa's Democratic caucuses.

While all the top Democrats have distanced themselves from free trade, Obama appears to be "a little more open" to it than former North Carolina Sen. John Edwards and New York Sen. Hillary Clinton, who finished second and third in Iowa, Goudie said.

A Trade Tidbit from the Republican Debate

There wasn't much trade talk that I noticed in last night's Presidential debates.  But I found this one bit from the Republican debate amusing.  In response to a question about illegal immigration, Governor Huckabee said:

The fact is Americans are upset about this issue because they feel like that we've violated the rule of law. Every one of us, I think, agree that you have to secure the border, and until that's done, nothing makes sense. That ought to be done. It ought to be done with American workers, with American products, and it ought to be done immediately. If the Empire State Building can be built in 14 months, if some of the great works of this country can be built in a record period of time, I'm convinced we can secure our borders. (emphasis added)

I couldn't help thinking, would Mexico file a trade complaint if a border wall were built with "American products"?

Phyllis Schlafly on the Gambling Ruling and the WTO

Yes, that's right, I said Phyllis Schlafly. She has read a bit and even quotes from the Gambling decision and also Article XVI:4 of the WTO Agreement. Her main point seems to be that it's outrageous for the WTO to have authorized Antigua to "pirate" U.S. intellectual property.  I'm not sure she's aware the rules explicitly provide for this.  Thus, it's not clear if she's upset by the Arbitrator's decision or the rules themselves.

There was also this:

How is a foreign tribunal in Geneva able to put the United States in such a box? It's because the internationalist free-trade lobby cooked up a sleazy deal to force the World Trade Organization on Americans in 1994 during the week after Thanksgiving, when Americans were preoccupied with Christmas shopping and festivities.

Americans sure are easily distracted!

Her more general point about the WTO is the following:

The World Trade Organization is a direct attack on U.S. sovereignty because it claims it can force any nation to change its laws to comply with World Trade Organization rulings. Article XVI, paragraph 4, states: "Each Member shall ensure the conformity of its laws, regulations, and administrative procedures with its obligations." The World Trade Organization has the final say about whether U.S. laws meet World Trade Organization requirements.

In this presidential season, the World Trade Organization should make easy target practice for any candidate to speak up and defend U.S. sovereignty against globalists who, under the mantra of "free trade," willingly allow the World Trade Organization to say which laws the U.S. may or may not adopt.

While the majority of trade skeptics are on the left, this is a good illustration of trade skepticism from the right.

I can't figure out what her position on "free trade" is, though. She says: "The World Trade Organization is not 'free trade' at all, but is a supra-national body in Geneva that sets, manages and enforces World Trade Organization-made rules to govern global trade." But would she support "free trade" outside the context of trade agreements, like Ron Paul would? I don't see an answer in this piece.

Ben Muse on Cuba Trade and the U.S.-Korea FTA

I wanted to point out a couple recent Ben Muse posts.

First, he has one today arguing that it is "time to move away from the Cuban trade embargo," and also describing various Presidential candidates' position on the issue.

Second, he had a post a little while back asking whether the U.S.-Korea FTA would undermine Korean anti-smoking efforts:

The Koreans generally impose 20% tariffs on unprocessed tobacco and 40% tariffs on processed tobacco products - suggesting that the tariffs play a role in encouraging domestic manufactures as well as in smoking policy.  Processed and unprocessed tobacco products alike fall into the "staging category" G, which means that tariffs will be removed in ten equal annual increments, starting the day the agreement enters into force, eventually going to zero.

[The Center for Policy Analysis on Trade and Health (CPATH)] thinks the drop in tariffs will reduce domestic Korean prices and encourage increased tobacco consumption.  Note that increased competition in the Korean market may also be associated with increased marketing efforts.

I suspect that, all other things equal, that might happen, noting that: (a) there would be some offsetting reductions in domestic production and in imports from other countries, (b) some of the impact on U.S. imports may represent a shift from unprocessed to processed product. 

Korea would presumably be free to impose non-discriminatory sales taxes on tobacco products to offset any price impacts and restrain consumption.  I assume it could also limit advertizing and promotional efforts in non-discriminatory ways.

[The Center for Policy Analysis on Trade and Health (CPATH)] thinks the drop in tariffs will reduce domestic Korean prices and encourage increased tobacco consumption.  Note that increased competition in the Korean market may also be associated with increased marketing efforts.

I suspect that, all other things equal, that might happen, noting that: (a) there would be some offsetting reductions in domestic production and in imports from other countries, (b) some of the impact on U.S. imports may represent a shift from unprocessed to processed product. 

Korea would presumably be free to impose non-discriminatory sales taxes on tobacco products to offset any price impacts and restrain consumption.  I assume it could also limit advertizing and promotional efforts in non-discriminatory ways.

Huckabee and Obama

Congrats to the winners of tonight's Iowa caucuses.  Their reward?  Additional scrutiny of their trade policies. 

Here's Huckabee, talking about trade in the context of his FairTax:

If you buy a bottle of domestic wine, you're paying the taxes/compliance/matching payments of all the folks who produced the grapes, the wine, the bottle, the cork, the label. If you buy a bottle of French wine, the producers had their Value Added Tax rebated to them when the wine was exported. So French consumers pay those taxes, but you don't. Our current tax system puts our goods at a disadvantage both here and overseas. Other governments give their goods an advantage on the world market, an advantage estimated at 18% compared to American goods.

So no matter how hard Americans work, no matter how innovative and creative we are, no matter how superior our products are, we suffer from a built-in competitive disadvantage simply because of our tax system. A recent study by MIT found that our tax system deprives us of about $1 billion in exports annually. When you export over-priced goods as we have, you inevitably end up exporting jobs and industries as we now are. We are the square peg trying to fit into the round hole of international trade. The rest of the world isn't going to change, it's time that we do.

Later, he says:

I believe in free trade, but it has to be fair trade. We are losing jobs because of an unlevel, unfair trading arena that has to be fixed. Behind the statistics, there are real families and real lives and real pain. I'm running for President because I don't want people who have worked loyally for a company for twenty or thirty years to walk in one morning and be handed a pink slip and be told, "I'm sorry, but everything you spent your life working for is no longer here."

I believe that globalization, done right, done fairly, can be a blessing for our society. As the Industrial Revolution raised living standards by allowing ordinary people to buy mass-produced goods that previously only the rich could afford, so globalization gives all of us the equivalent of a big pay raise by letting us buy all kinds of things from clothing to computers to TVs much more inexpensively.

It's hard to cut through all the rhetoric, but I see Huckabee as a moderate free trader.  He has some specific criticisms of the current rules, such as the perceived unfairness of the VAT export exemption that some countries use, but there is no talk about "withdrawing" from NAFTA or even "fixing" it, as we've heard from some Democrats.  The reference to "fair trade" could be taken as implicitly endorsing protectionist policies, but it's a pretty common qualifier even for free traders.  My take is that trade is not really his focus, and if he were elected his views would not differ much from the Bush Administration.

On the other side, I'm going to mention a very specific point Obama makes on investment rules in trade agreements.  He has said that he wants to make sure that investor rights in FTAs are "strictly limited" and do not undermine other policies.  He wants to "amend" NAFTA so that its investment rules reflect these principles.  And he supports the way the Peru FTA dealt with these issues.

Here's my question for him on these issues.  Annex 10-B of Chapter 10 of the Peru FTA tries to clarify this area, and in sub-paragaph 3(b) states:

Except in rare circumstances, non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.

That strikes me as moving towards where the trade skeptics want to go, but does it really go far enough for these folks?  The "except in rare circumstances" language is quite vague.  Under what "circumstances" could non-discriminatory regulations constitute an indirect expropriation?  If I were Obama, I'd want to know the answer to that.

My Trade Question for the U.S. Presidential Candidates

I wish we could cut through the campaign rhetoric and get answers to some of the fundamental trade questions.  Along these lines, here's my question for the U.S. Presidential candidates:  Under what circumstances, if any, do you think discrimination against foreign goods and services is good policy?

Alas, even if they or their advisers read this blog (unlikely), it is probably not the kind of question they would want to answer.

The Champagne Cartel

There's always a lot of talk about the OPEC oil cartel, even in the trade context, but what about the French champagne cartel:

A looming shortage of the bubbly French wine, spurred by limits on grape production and rising demand in the U.S., Japan, and the U.K., will push shares of champagne producers higher.

...

"If the champagne craze continues at the current pace, winemakers won't be able to satisfy demand and prices will skyrocket,'' said Laetitia Delaye, analyst at Landsbanki Kepler in Paris, who has been following French beverage companies for three years.

...

The fizzy wine can be produced only in the 34,000-hectare (84,000 acres) Champagne region under strictly defined rules that include producing no more than 15,000 kilos of grapes per hectare.

I think we can safely rule out a WTO complaint any time soon. Similar legal arguments perhaps, but it just doesn't arouse the same broad-based consumer outrage as do high gas prices.

Republicans versus Democrats in the WTO Negotiations

Which party is more likely to complete the Doha Round?  According to this WSJ story, the Republicans are saying they are:

... the U.S. administration is using rising protectionist sentiment among the Democrat candidates ... to pressure delegates from around the globe to cut deals fast, while Republicans still hold the White House.

Peter Allgeier, U.S. ambassador to the WTO, "tells everybody, 'You want to work with us, because look who might be coming next,' " a WTO official said. Mr. Allgeier's office didn't return calls seeking comment.

I don't know if things like that are really being said, but it does seem that, on trade as opposed to just about every other issue, Republican politicians are more likely to be multilateralists than are Democrats (with many notable exceptions, of course).

"Illegal Subsidies" versus "Legal Inducements"

From a statement by John Edwards to the Iowa Fair Trade Campaign:

And our trade deals must include prohibitions against illegal subsidies and currency manipulation and other trade cheating of the sort that is in fact encouraged under most of our current arrangements, to the detriment of American farmers, workers and firms.

On the other hand:

When I am president, I will use government resources to provide legal inducements to those corporations, domestic and foreign, that want to provide good jobs to Americans so they can sell their goods into the biggest, most advanced market in the world for their goods.

So, knock off those "illegal subsidies," but "government resources" and "legal inducements" are apparently OK.  It's a fine line, I guess.

Other Democratic candidates' statements to the Fair Trade Campaign are here: http://www.iowafairtrade.org/candidates.php

(HT to Eyes on Trade)