International Economic Law and Policy Blog

Beyond "Trade Policy," Towards "Integration Policy"

In the Financial Post, some well known trade experts argue for deeper Canada - U.S. integration:

That a big idea on Canada-U.S. trade is needed there is little doubt.

...

"We reached the high point in the year 2000 in volume in terms of trucks and human traffic," Mr. Hart says.

While security concerns since Sept. 11, 2001, have led to a thickening of the border between Canada and the United States, raising costs and creating delays for both goods and people, the main problem is neither country has accepted it needs to move beyond "trade policy" toward a new "integration policy," the experts argue.

From a common security perimeter to common regulation, it is time Canada-U.S. trade grew up. As Europe embraces the concept of mutual recognition of regulations and Asia speeds toward freer trade, the biggest trading relationship in the world is increasingly bogged down.

"Canada and the United States don't really trade with each other any more; they build things together," Mr. Hart says.

The point really hit home during the BSE crisis, Mr. Hart says. A calf may be born in Alberta, but it is sent to Montana to eat grass, back to an Alberta feedlot to get fattened up and on to Chicago to get butchered. That is why tracing the infected meat was so important.

That is also why one North American food standard would make sense.

Mr. Hufbauer argues Canada would benefit from simply adopting large swathes of U.S. regulation.

Mr. Hart points out as the gold standard in drug regulation, U.S. Food and Drug Administration employs 10,000 people and spend billions of dollars vetting drugs. Yet Canada feels it has to employ another 985 people to second-guess the FDA. The result? Drug approval can take years longer, denying Canadians potentially life-saving drugs.

He adds two-thirds of Canadian regulatory standards are not as tough as U.S. standards and carry far lower liability costs. Mr. Hufbauer says common Canadian and U.S. standards could cover at least 90% of the trade in food products.

"After all, 30 million Canadians and Americans eat in the other country during their annual travels," he says.

A new trade integration campaign is badly needed. "This needs political momentum, this needs political leadership, this needs to be put of the top of the Canada-U.S. agenda," Mr. Hart says.

More at the link.  I'm not sure what the reaction to these proposals will be.  There could be a good deal of concern on both sides of the border.  Whether such proposals are at all feasible could depend on the form they take (e.g., binding rules or simple cooperation).

Trade in Everything: Swiss Army Knives

The title of the post is a bit mis-leading, as it appears there are some things that are not to be traded:

Swiss soldiers will continue to pack knives made in Switzerland, after the defence ministry decided not to have them produced them abroad.

The NZZ am Sonntag and Sonntag newspapers revealed on Sunday that Victorinox in canton Schwyz would supply 65,000 silver knives, worth around SFr1.2 million ($1.1 million).

The defence ministry's procurement agency caused an uproar when it announced that it was calling for tenders from abroad last summer, claiming that under World Trade Organization (WTO) rules it had no choice given the size of the contract.

According to Sonntag, the army chose though to demand a blade that could be locked into position, effectively making it a weapon and no longer subject to WTO standards.

While foreign offers were still considered, the procurement services allegedly decided though that Swiss quality standards were still the best for the army.

More here.

Job Losses from Trade vs. Non-Trade

We've talked before on this blog about whether job losses from trade deserve greater compensation than job losses from other things.  Here is a real world example of the latter that I came across:

Polaroid Corp. is dropping the technology it pioneered long before digital photography rendered instant film obsolete to all but a few nostalgia buffs.

Polaroid is closing factories in Massachusetts, Mexico and the Netherlands and cutting 450 jobs as the brand synonymous with instant images focuses on ventures such as a portable printer for images from cell phones and Polaroid-branded digital cameras, televisions and DVD players.

My question is, how are these Polaroid workers any less deserving of assistance than the Maytag workers discussed during the Presidential campaign?  This story make me wonder whether we need to re-think the idea of "trade adjustment assistance," replacing it with a broader program of "adjustment assistance."

Anti-Dumping Reform

From a post about anti-dumping over at VoxEU:

Even leaving aside legal details, our recent work and other studies suggest some obvious starting points for any reform of the EU antidumping system. Antidumping instruments that are simply another form of protection leave too much discretion in the hands of the administrating authorities. Duties are thus used in a retaliatory fashion or to compensate for lost tariff protection resulting from trade liberalisation. The solution is relatively simple: prescribe (and enforce) tighter economic criteria identifying dumping, injury, and the causal link between the two. Here, the extensive economic literature and legal doctrine on competition policy can be of great help.

I can understand the suggestion to look at competition policy for guidance in administering anti-dumping.  However, if we're going down that route, why not propose using competition policy directly to deal with allegations of unfair pricing by foreign companies?  That is, why not propose replacing anti-dumping with competition policy?  It's possible that the authors have this in mind, but prefer not to say it explicitly, keeping a formally separate anti-dumping regime.

Romney Goes Out on a Populist Note

In pulling out of the Presidential race, Mitt Romney said the following in his withdrawal speech:

The attack on our culture is not our sole challenge. We face economic competition unlike anything we have ever known before. China and Asia are emerging from centuries of poverty. Their people are plentiful, innovative and ambitious. If we do not change course, Asia or China will pass us by as the economic superpower, just as we passed England and France during the last century. The prosperity and security of our children and grandchildren depend on us.

I was somewhat surprised by the tone of this.  I had thought of Romney as being more pro-globalization and pro-trade agreement.  But this quote suggests he was going to take a tough stance on trade, at least with respect to Asia.

Another Argument Against Ethanol Subsidies

Putting the trade issues aside, there is an environmental argument against corn ethanol subsidies:

The widespread use of ethanol from corn could result in nearly twice the greenhouse gas emissions as the gasoline it would replace because of expected land-use changes, researchers concluded Thursday. The study challenges the rush to biofuels as a response to global warming.

"the U.S. dollar just ain't what it used to be"

From Reuters:

In the latest example that the U.S. dollar just ain't what it used to be, some shops in New York City have begun accepting euros and other foreign currency as payment for merchandise.

"We had decided that money is money and we'll take it and just do the exchange whenever we can with our bank," Robert Chu, owner of East Village Wines, told Reuters television.

The increasingly weak U.S. dollar, once considered the king among currencies, has brought waves of European tourists to New York with money to burn and looking to take advantage of hugely favorable exchange rates.'

For some reason, the fall in the U.S. dollar doesn't concern me that much.  In part, that's because our subscription service has a lot of export sales, so it helps our competitve position.  But even thinking about the issue more generally, isn't the problem essentially self-correcting?   As noted in the article, the weak dollar will stimulate U.S. sales to foreigners, boosting the U.S. economy and, probably, the dollar as well.  It's true that if the U.S. economy were collapsing, or inflation were out of control, the problems might not correct themselves so easily.  But that doesn't seem to be the case.

Junk Mail, the Environment, and Market Access

Over at the Conglomerate, Gordon Smith complains about all the junk mail he gets and says: "... I am willing to vote for the presidential candidate who proclaims, 'I look forward to nailing the going out of business sign on the front door of the United States Postal Service.'"  Of course, there's not much chance of this actually happening.  But putting reality aside for a moment, couldn't this be a great "win-win" for trade and the environment?  Cutting out all that wasted paper from unwanted junk mail would save a lot of trees.  And getting rid of a domestic monopoly would make foreign competitors very happy with their improved market access possibilities.

So What Does the U.S.-EU Gambling Settlement Say?

Writer Ed Brayton tried to find out, to no avail:

I immediately filed a Freedom of Information Act request for a copy of the agreement and, predictably, the USTR is denying that request. And just in case you thought this administration had hit rock bottom on making dishonest and mendacious arguments to maintain the secrecy of their actions in contravention of Federal law, let me disabuse you of that notion by reprinting the letter I received today:

Dear Mr. Brayton:

This is USTR's response to your request for "a copy of the full text of the settlement between the USTR and the European Union regarding America's online gambling laws", under the Freedom of Information Act.

Please be advised that the document you seek is being withheld in full pursuant to 5 U.S.C. § 552(b)(1), which pertains to information that is properly classified in the interest of national security pursuant to Executive Order 12958.

Inasmuch as this constitutes a complete grant of your request, I am closing your file in this office. In the event you are dissatisfied with USTR's determination, you may appeal such a denial, within thirty (30) days, in writing...

Yes, they are actually claiming that this document, which has nothing even remotely do to with anything that could conceivably, in Dick Cheney's wildest imagination, have anything to do with national security, has been properly classified. Americans, according to this administration, have no right to know how many billions of our tax dollars they've spent with no legislative authorization whatsoever in order to buy the cooperation of other nations and allow them to continue to violate the rights of American adults by preventing them from gambling in the privacy of their own home.

Yes, I will be filing an appeal immediately, and I will be filing a lawsuit if that appeal fails to restore some sanity to the situation. They've got me pissed off now.

I've sometimes wondered what would happen if I filed a FOIA request to get information on certain trade issues.  My guess was that I wouldn't be very successful, so I never bothered.

Trade in Everything: Orchestral Manoeuvres in North Korea

From the AP:

Her mother's town was briefly occupied by North Korea. Her father survived the communists during the Korean War by hiding in the mountains.

So when the New York Philharmonic decided to accept an invitation to perform in the reclusive country that was a charter member of President Bush's "Axis of Evil," violinist Lisa Kim had grave doubts about going. She said she initially wanted to know if she had the right to stay home. She later decided to go.

"It just kind of feels that the stuff that happened in the past or what's going on there makes you feel uncomfortable," she said in a telephone interview.

The 106-member orchestra is leaving Thursday for a three-week Asian tour that culminates in a historic concert in the North Korean capital, Pyongyang, on Feb. 26. The Philharmonic will spend two days in the North, a visit by an American cultural organization unprecedented since the Korean peninsula was divided in 1948.

Word of the trip came after Kim Jong Il's Stalinist government agreed to dismantle its nuclear weapons program. The visit has elicited hopeful comparisons to the 1970s pingpong diplomacy era that led to the restoration of U.S.-China relations after a 2 1/2-decade freeze. But it also drew criticism from those pointing to the millions of North Koreans facing starvation or imprisonment.

Philharmonic music director Lorin Maazel rejects such assertions, noting that he had conducted concerts in Brezhnev's Russia, Salazar's Portugal and Franco's Spain.

Free Trade and War

Over at IntLawGrrls, Marjorie Florestal has a three part series of posts asking:  Can Free Trade End War?

My short answer would be that free trade is more likely to contribute to peace than are the alternatives.  However, it's probably too complicated a question for a short answer to be of much use.

Could a WTO Panel Reject the Appellate Body's Rulings?

Despite the well-established AB case law invalidating zeroing, a recent panel in U.S. – Stainless Steel explicitly rejected the AB’s established anti-zeroing position, in particular that expressed in U.S. – Zeroing (EC) and U.S. – Zeroing (Japan), both of which addressed the same issue as the panel faced, i.e., a “simple zeroing” in the administrative (periodic) review. (paras. 7. 106, 7. 115) The panel acknowledged that the AB “de facto expects” the panel to follow adopted AB reports “to the extent that the legal issues are similar.” (para. 7.105) However, it emphasized that panels “are not, strictly speaking, bound by previous Appellate Body or panel decisions that have addressed the same issue.” (para. 7.107) Interestingly, it found support for its position in Article 19.2 of the Dispute Settlement Understanding (DSU) which prohibits the panel and the AB from “adding or diminishing” WTO members’ rights and obligations. (para. 7.107) It also viewed that its reversal of the AB’s position in this issue is in pursuit of its obligation of an “objective examination” under Article 11 of the DSU.

The panel followed the same line of reasoning that was employed in the two previous panels (U.S. – Zeroing (EC) and U.S. – Zeroing (Japan)) but ultimately rejected by the AB in both cases, although it emphasized that its analysis was “not simply an unthinking repetition of these past panel decisions.” (para. 7.115) The fundamental difference between the panel and the AB on this issue centers on how to define “dumping” or “dumping margins” under the Antidumping Agreement and GATT Article VI. According to the AB, dumping and dumping margins must be defined in terms of the “product as a whole” under investigation. Therefore, all intermediate, individual calculations (normal value minus export price) as to various sub-product categories must be “aggregated” to obtain the final dumping margin. (paras. 7.113, 7.117) In stark contrast, the panel viewed that dumping and dumping margin could be defined in terms of “a particular export sale” and that antidumping authorities need “not necessarily require an examination of different export sales at an aggregate level.” (para. 7.117) The panel viewed that the AB’s interpretation was not based on a “solid textual basis” and that it should adopt a “permissible interpretation” which accommodates a certain type of zeroing (simple zeroing) in this case. (para. 7.119)

The panel’s unusual behavior raises many interesting legal questions. As it admitted itself, the AB expects panels to follow its jurisprudence, even in the absence of formal binding force. More importantly, such jurisprudence creates “legitimate expectations” among WTO members. (para. 7.103) It seems controversial whether a panel could reject the AB’s established case law on the same issues in the presence of Article 3.2 of the DSU which underscores the “stability and predictability” of the multilateral trading system. As a practical matter, it is likely that the complainant in this case (Mexico) will appeal the panel ruling, in which situation the AB is likely to reject the panel ruling and adhere to its previous position. However, if Mexico chose not to appeal and the panel decision was adopted, two conflicting case laws would co-exist in this area.

The Gambling Dispute: Is Investment Arbitration An Option?

A law firm representing some gambling interests thinks it might be:

protections contained in the US IIAs, comprising 40 Bilateral Investment Treaties (BITs) and 11 Free Trade Agreements (FTA’s), may be relied upon by foreign investors seeking to establish a gaming business in the US under the “commercial presence” route.

...

in the event the US denies an investor permission to establish a gaming business, this may well amount to a breach of its treaty obligations. The putative investor could then choose to enforce its rights by recourse to the dispute resolution mechanism contained in the applicable IIA.

See pages 8-9 of the document.

(HT to Investment Treaty News)

Trade and Health Care

Over at Eyes on Trade, Todd Tucker says: "a move to universal health care could be challenged as a limitation on market access for health insurance companies."  Upon reading this, my first thought was to look at the relevant part of the U.S. GATS Schedule to see what commitments had been made.  However, when I did so my eyes immediately glazed over.  There are lots of "nones" and "unbounds" and "horizontals."  I assume I could figure it out if I really tried, but I couldn't get up the energy just now.  But an interesting thought did occur to me:  As long as private insurance companies are still involved, couldn't universal health care expand market access by increasing the number of insured people (that is, the number of customers)?

Fragmentation Can of Worms

I thought it might be interesting if we try to develop an inventory of circumstances in which WTO law conflicts with other international law, in the narrow meaning of "conflict".  That is, where are there specific circumstances in which an  obligation of WTO law requires or prohibits an act that is prohibited or required by other international law:  where one legal requirement prohibits an act which the other forbids.  (I know there are other definitions of "conflict," but I am interested in this type of strict conflict for now.)  Also, I would not consider it a conflict where one of the treaties or rules contains a safeguard or other exception that would result in deference to the other.  So, for example, if compliance with the Montreal Protocol would be permitted under Article XX, it ain't a conflict. 

How Sweet It Is

Sugar is fairly big down here in Palm Beach County.  My local paper just ran a story on the recent lobbying efforts to moderate the effect of free trade in sugar between the U.S. and Mexico pursuant to NAFTA, by putting up various new trade barriers.  The article notes the following concerns expressed by sugar producers:

On one side of the battle are the sugar industries of the U.S. and Mexico. They say that unless the NAFTA provision, which went into effect last month, is modified to sharply limit the sugar trade, there's a prospect of "market chaos" leading to a crash of sugar prices in both countries.

...

Jack Roney, director of economics and policy analysis for the American Sugar Alliance, said implementing NAFTA as written could cause "a downward price spiral" for sugar in both countries.

I couldn't help thinking:  Wasn't a "crash of sugar prices" and "a downward price spiral" the whole point?

Is Obama Better Than Clinton On Free Trade?

Here's an argument from Daniel Koffler that he is:

Whereas Clinton has recently taken to pulling protectionist stunts and rethinking the fundamental theoretical soundness of free trade, and Edwards is behaving like the love child of Huey Long and Pat Buchanan, Obama instinctively supports free trade and grasps the universe of possibilities that globalisation opens up, and seamlessly integrates it into his "audacity of hope" theme.  As he remarked in a recent debate: "Globalisation is here, and I don't think Americans are afraid to compete. And we have the goods and the services and the skills and the innovation to compete anywhere in the world."

More at the link. (HT to Jonathan Dingel)  I've been reluctant to express an explicit view on any of the candidates, but speaking very generally, I think Obama has a better grasp of, and appreciation for, markets than the other Democrats and many of the Republicans.  (When I say that, I have in mind a very specific point he made in one of the debates.  I can try to dig it up if people want to know what it is.)

ADDED:

-- Ben Muse takes an empirical look at the issue of who is more pro-trade, here.

-- As for my point about Obama's understanding of markets, Greg Mankiw has a post that explains the issue and I agree with his take on it: http://gregmankiw.blogspot.com/2008/01/pigou-club-watches-debates.html

Airbus vs. Boeing: In the Courts and In the Market

The Airbus-Boeing WTO dispute is plodding along.  It's fine with me if the panels take their time.  I'm not sure I'll ever be quite ready to digest the monstrous panel reports that are likely to come out of this dispute.

In the meantime, Airbus and Boeing continue to compete in the marketplace, with the WTO dispute playing an important background role.  From The Economist:

... On February 13th the United States Air Force (USAF) will decide which of two contenders—Boeing or a consortium of Northrop Grumman and EADS—will supply an initial tranche of 179 aerial-refuelling tankers as it starts to replace its 530 elderly KC-135 aircraft.

...

Given the air force's earlier preference for the [Boeing] 767, it is tempting to dismiss the chances of the Northrop-EADS partnership, which is offering a tanker version of the Airbus A330. But the political pressure for a genuine competition has made it harder (though not impossible) for Boeing to play the patriotism card. As there are only two makers of commercial jets that can meet the USAF's requirements, there would have been no contest had EADS, the Franco-German aerospace company that owns Airbus, not been convinced that it was in with a chance. But with the contest reaching its final stages, the attempts by both sides to prove that theirs is the better plane for the job have become increasingly acrimonious.

...

Amid the fog of claim and counter-claim, there is little doubt that the KC-30 is the more capable aircraft. But whatever the air force decides, Congress will have the last word—and there its prospects look fairly bleak. More than 60% of the value of the KC-30 would be sourced in America, and EADS would also build commercial freighters on the KC-30 assembly line in Mobile, Alabama. But Boeing's proposal would provide more jobs for Americans.

The fact that Democrats are now calling the shots in both houses in Congress also plays to Boeing's advantage. Patty Murray, a senator from Washington, Boeing's home state, makes it clear she will use a simmering row between Airbus and Boeing at the World Trade Organisation to knock the KC-30 out of the sky. Says the flag-waving Mrs Murray: “American taxpayers should not reward a company that has spent decades hurting American workers, and we should not turn a critical military contract over to a foreign company that is unfairly supported and subsidised by foreign powers.”

If Boeing wins the contract, it would not be too surprising if the EU adds a new item to its WTO complaint.

Trade in Everything: Dental Services

Reuters reports:

It was fear of the hefty bill as much as fear of the drill that kept American musician Don Clay away from U.S. dental clinics for 30 years.

When a sorely infected tooth eventually drove him to the dentist last month, it was to a clinic in a Mexican border city better known for violent crime and drug cartels.

Shrugging off concerns about hygiene and Mexico's brutal drug war, thousands of Americans are heading to Ciudad Juarez and other Mexican border cities for cheap dental treatment.

...

U.S. dental treatment costs up to four times as much as in Mexico, making it tough for uninsured Americans to treat common problems such as abscessed teeth or pay for dentures.

A dental crown in the United States costs upward of $600 per tooth, compared to $190 or less in Mexico.

I hate going to the dentist.  I just went the other day and it was as miserable as ever.  It's not the prices that bother me, though.  It's the metal things they use to scrape with.  And the annoying gag-inducing things they use to take the X-rays. If someone in Mexico can find a way to clean my teeth without all that, I'm going!

A "United States of Africa"?

Is a "United States of Africa" possible:

Proponents of the so-called "United States of Africa" want to develop a central government, army, and foreign policy. They say a cohesive continent would better compete in the global economy.

But with 53 African countries, is it realistic?

It's a nice idea, although it is surely a long way off.

Trade Talk in Davos

Most of us did not get an invitation to Davos, but YouTube has some video of the trade talk going on over there: http://www.youtube.com/watch?v=J7jOIAvsPa8.  Thanks to Amy Porges for the pointer.