International Economic Law and Policy Blog

Achieving Domestic Free Trade

With all the talk of international trade negotiations, it's easy to forget that there may still be work to be done at the domestic level:

As the [Canadian] premiers gather in Regina from August 5 to 7 for their Council of the Federation summer meeting, a business coalition is urging them to act faster to cut longstanding barriers to interprovincial trade.

...

Among the key internal barriers in Canada are policies and regulations that hinder interprovincial trade in goods and those that make it difficult for workers to move between provinces and have their credentials recognized.

Many areas, including the environment, food and agriculture, securities, and government procurement, are regulated by the provinces and territories.

And changes in labour mobility require working with the many self-regulating associations in the jurisdictions that govern numerous professions and trades affecting everyone from lawyers, doctors, nurses, and teachers to welders, mechanics, and construction workers.

The Economist on Buying Local

The Economist has an article in this week's issue about the "Buy Local" movement, in which three reasons for buying local are put forward:

• A "character" argument: "local and independent businesses have more individual character" and "are owned by your friends and neighbours. "
• An environmental argument: "it takes much less carbon to haul a truck from a few towns over than from halfway across the country. "
• An economic argument: studies show that "locally-owned businesses put about twice as much money back into the community as the chains do."

I can understand the first two as valid reasons to buy local, but I question the third.  No doubt there is a short-term economic boost to a particular community if people start buying local, and part of this may come from locally-owned businesses putting more money "back into the community."  But it seems to me that the inevitable response will be that other communities start buying local, too, which means that the first community loses a portion of its "export" markets.  On balance, I don't think we are better off with an economy characterized by lots of small, regional markets that don't trade much with each other.
 

Alan Sykes on Enforcing WTO Obligations

From the abstract of a paper called "Optimal Sanctions in the WTO: The Case for Decoupling (and the Uneasy Case for the Status Quo)," posted on SSRN:

Various commentators have suggested that the current system of trade sanctions for violation of WTO obligations be replaced with financial compensation. The details of these proposals vary, but one option is to allow firms injured by violations to recover damages. This paper questions the wisdom of such proposals, and argues that the current system in which those injured by violations do not reap the benefit of sanctions – a “decoupled” sanctions regime in economic parlance – may well be superior for a number of reasons. The paper also reviews and refines the view of current WTO practice as an analogue to expectation damages in private contracts.

And from the conclusion:

I believe that the case for replacing the current system of trade sanctions with some form of direct compensation to injured exporters is a weak one. Despite its imperfections, the current “decoupled” mechanism of trade sanctions has a number of considerable virtues.

WTO Disputes: It's All About China These Days

Here are the 11 most recent WTO consultations requests:

Dispute Name	DS Number	Complainant(s)	Respondent	Request Date
European Communities - Definitive Anti-Dumping Measures on Certain Iron or Steel Fasteners from China	397	China	European Communities	Jul 31, 2009
Philippines - Taxes on Distilled Spirits	396	European Communities	Philippines	Jul 29, 2009
China - Measures Related to the Exportation of Various Raw Materials	395	European Communities	China	Jun 23, 2009
China - Measures Related to the Exportation of Various Raw Materials	394	United States	China	Jun 23, 2009
Chile - Anti-Dumping Measures on Imports of Wheat Flour from Argentina	393	Argentina	Chile	May 14, 2009
United States - Certain Measures Affecting Imports of Poultry from China	392	China	United States	Apr 17, 2009
Korea - Measures Affecting the Importation of Bovine Meat and Meat Products from Canada	391	Canada	Korea	Apr 09, 2009
China - Grants, Loans, and Other Incentives	390	Guatemala	China	Jan 19, 2009
European Communities - Certain Measures Affecting Poultry Meat and Poultry Meat Products from the United States	389	United States	European Communities	Jan 16, 2009
China - Grants, Loans, and Other Incentives	388	Mexico	China	Dec 19, 2008
China - Grants, Loans, and Other Incentives	387	United States	China	Dec 19, 2008

Of these 11, 7 have involved China, 2 as a complainant and 5 as a respondent.  It is worth noting that some of these requests overlap, in that they relate to the same matter (DS387,388 and 390, and then DS394 and 395).  But even taking that into account, it still leaves China in 4 of the last 8 requests relating to individual "matters."

Cash for Clunkers and MFN

Over at Opinio Juris, Roger Alford notes that the "Cash for Clunkers" program has seemed to favor non-U.S. car-makers such as Toyota and Honda over the U.S. car-makers (with the caveat that some Toyota and Honda cars are made, in part at least, in the U.S.):

consumers are showing a preference for imported cars when they purchase under the program, with Toyota (17%) and Honda (14%) leading the way. The top ten sellers under the program are Ford Focus, Honda Civic, Toyota Corolla, Toyota Prius, Ford Escape, Toyota Camry, Dodge Caliber, Hyundai Elantra, Honda Fit, and Chevy Cobalt. In other words, six of the top ten sellers are foreign cars (although the Camry is built at home and abroad).

He notes that the preference for imports is fine under WTO rules because "You can favor imports, but not disfavor them."

The underlying data is here.  After looking at this data, I wondered whether any country could make an MFN claim:  Are there particular countries that are worse off than others under the program?  I suppose what you would have to do is compare the break-down of purchases under the program with the breakdown of purchases more generally, to see whether there is a disparate impact on any particular country.  Of course, a disparate impact of this sort, if it existed, is not necessarily sufficient to find a violation of GATT Article I:1.  There are a number of competing views out there on how different aspects of non-discrimination standards should be applied, and the likelihood of finding a violation depends in part on which approach you take.  (How big the disparate impact is may also be relevant).

Charnovitz: USTR Refuses Public Disclosure of US-Russia Trade Agreement

One final Steve Charnovitz Eyes on Trade cross-post:

by Steve Charnovitz

This is a follow-up to my blog post of July 20, 2009 about my efforts to use the Freedom of Information Act (FOIA) to get the Office of the U.S. Trade Representative (USTR) to release the text of the US-Russia Bilateral Market Access agreements signed on November 19, 2006.  After several unsuccessful efforts by email and phone to get the text, I had written to the USTR FOIA officer, Carmen Suro-Bredie, on November 19, 2008.  The US-Russia agreement was negotiated as part of Russia’s longtime efforts to join the World Trade Organization and I was interested to see the precise terms of this legal arrangement.

Ms. Suro-Bredie denied my request in a letter dated July 28, 2009 which I received on August 3.  She said that the completed trade agreements are considered “foreign government information” that are exempt from disclosure under Exemption 1 of the FOIA.  In addition, she described her turndown letter as a “complete response to your request,” and advised that “I am closing your file in this office.”

Although I was surprised about how long it takes to get a response from USTR(251 days elapsed between November 19 and July 28), I was not surprised by USTR’s position that it will disclose only what it is required to by law. As a veteran USTR watcher, I have observed that USTR is hardwired to keep trade treaties and negotiations as secret as possible from the American public.Bureaucracies are highly resistant to change, even when a new Administration comes to office promising “Change We Can Believe In” and specifically pledging that it wanted a presumption for FOIA disclosure and greater transparency and accountability in government. So I was not surprised by the turndown of my request for transparency.

But I was surprised by the specific reason Ms. Suro-Bredie gave for the denial.Her letter states: “The individual (unimplemented) agreements are protected from public disclosure as Confidential WTO Information under WTO procedures to which the U.S. has agreed.” I was surprised by this because I had not been aware that the WTO had adopted binding obligations which prevent the United States from disclosing its agreement with Russia to the American public.Certainly, Article XII of the WTO Agreement (Accession) says nothing about a secrecy pact, and the webpage on the WTO website for Accession does not contain any information about such a nondisclosure requirement in WTO regulations. Of course, it is possible that the United States has surrendered some of its sovereignty to the WTO regarding transparency. As I have noted in my trade law scholarship, the WTO accession process is one of the most unaccountable and secretive of all of the WTO negotiations. 

In summary, USTR will not publicly disclose the text of the US-Russia trade deal signed by the Bush Administration. That’s a sad outcome in my view because it undermines the legitimacy of US trade policy, and also the legitimacy of the WTO, if what Ms. Suro-Bredie says is true. I would urge an enterprising reporter to investigate this matter with the WTO to see whether such a binding rule is in place and, if so, when it was adopted. It would also be interesting to know whether this purported act of WTO rulemaking has been reported to the Congress pursuant to the reporting requirements in Section 122(c) of the Uruguay Round Agreements Act.

It’s also clear to me that Congress needs to amend the organic act establishing USTR to require the public disclosure of any trade agreement signed by the United States. Reasonable people may differ on how much secrecy is needed for ongoing trade negotiations. But I have never heard any argument to justify why a trade agreement signed by the United States should remain a secret from the American people. If new trade negotiating authority is enacted, it should also contain much tougher public disclosure requirements. It’s time to begin a new era of responsibility in Washington.

by Steve Charnovitz

This is a follow-up to my blog post of July 20, 2009 about my efforts to use the Freedom of Information Act (FOIA) to get the Office of the U.S. Trade Representative (USTR) to release the text of the US-Russia Bilateral Market Access agreements signed on November 19, 2006.  After several unsuccessful efforts by email and phone to get the text, I had written to the USTR FOIA officer, Carmen Suro-Bredie, on November 19, 2008.  The US-Russia agreement was negotiated as part of Russia’s longtime efforts to join the World Trade Organization and I was interested to see the precise terms of this legal arrangement.

Ms. Suro-Bredie denied my request in a letter dated July 28, 2009 which I received on August 3.  She said that the completed trade agreements are considered “foreign government information” that are exempt from disclosure under Exemption 1 of the FOIA.  In addition, she described her turndown letter as a “complete response to your request,” and advised that “I am closing your file in this office.”

Although I was surprised about how long it takes to get a response from USTR(251 days elapsed between November 19 and July 28), I was not surprised by USTR’s position that it will disclose only what it is required to by law. As a veteran USTR watcher, I have observed that USTR is hardwired to keep trade treaties and negotiations as secret as possible from the American public.Bureaucracies are highly resistant to change, even when a new Administration comes to office promising “Change We Can Believe In” and specifically pledging that it wanted a presumption for FOIA disclosure and greater transparency and accountability in government. So I was not surprised by the turndown of my request for transparency.

But I was surprised by the specific reason Ms. Suro-Bredie gave for the denial.Her letter states: “The individual (unimplemented) agreements are protected from public disclosure as Confidential WTO Information under WTO procedures to which the U.S. has agreed.” I was surprised by this because I had not been aware that the WTO had adopted binding obligations which prevent the United States from disclosing its agreement with Russia to the American public.Certainly, Article XII of the WTO Agreement (Accession) says nothing about a secrecy pact, and the webpage on the WTO website for Accession does not contain any information about such a nondisclosure requirement in WTO regulations. Of course, it is possible that the United States has surrendered some of its sovereignty to the WTO regarding transparency. As I have noted in my trade law scholarship, the WTO accession process is one of the most unaccountable and secretive of all of the WTO negotiations. 

In summary, USTR will not publicly disclose the text of the US-Russia trade deal signed by the Bush Administration. That’s a sad outcome in my view because it undermines the legitimacy of US trade policy, and also the legitimacy of the WTO, if what Ms. Suro-Bredie says is true. I would urge an enterprising reporter to investigate this matter with the WTO to see whether such a binding rule is in place and, if so, when it was adopted. It would also be interesting to know whether this purported act of WTO rulemaking has been reported to the Congress pursuant to the reporting requirements in Section 122(c) of the Uruguay Round Agreements Act.

It’s also clear to me that Congress needs to amend the organic act establishing USTR to require the public disclosure of any trade agreement signed by the United States. Reasonable people may differ on how much secrecy is needed for ongoing trade negotiations. But I have never heard any argument to justify why a trade agreement signed by the United States should remain a secret from the American people. If new trade negotiating authority is enacted, it should also contain much tougher public disclosure requirements. It’s time to begin a new era of responsibility in Washington.

Reading the Doha Tea Leaves

It seems that there is a great deal of synchronicity between the global economy and the Doha trade talks. Both of them were in their nadir last summer and now both of them seem to have found their green shoots. Of course, there may be a plethora of explanations why such synchronicity exists. Many politicians tend to regard free trade a liability or a hard sell even in a normal economic situation. Free trade inevitably involves some “churning effects” which connote job losses and dislocation. Gains of free trade are thinly spread and very few people would appreciate the fact that they can save money for most of their everyday amenities thanks to free trade. In contrast, negative consequences of free trade tend to materialize quickly and easy to attract media attentions. Some scholars study this asymmetry from the standpoint of social psychology. (e.g., Simon Kemp, Psychology and Opposition to Free Trade, 6 World Trade Review 1 25-44 (2007)) Given this innate asymmetry between gains and pains (yes, they rhyme) of trade, it may be even a tougher sell under these economic woes. Perhaps that explained why Obama as a candidate was harsh on trade issues. Yet with some stimulus packages in action and new signs of hope, might now be a good time to resume trade talks?

It seems that there is a great deal of synchronicity between the global economy and the Doha trade talks. Both of them were in their nadir last summer and now both of them seem to have found their green shoots. Of course, there may be a plethora of explanations why such synchronicity exists. Many politicians tend to regard free trade a liability or a hard sell even in a normal economic situation. Free trade inevitably involves some “churning effects” which connote job losses and dislocation. Gains of free trade are thinly spread and very few people would appreciate the fact that they can save money for most of their everyday amenities thanks to free trade. In contrast, negative consequences of free trade tend to materialize quickly and easy to attract media attentions. Some scholars study this asymmetry from the standpoint of social psychology. (e.g., Simon Kemp, Psychology and Opposition to Free Trade, 6 World Trade Review 1 25-44 (2007)) Given this innate asymmetry between gains and pains (yes, they rhyme) of trade, it may be even a tougher sell under these economic woes. Perhaps that explained why Obama as a candidate was harsh on trade issues. Yet with some stimulus packages in action and new signs of hope, might now be a good time to resume trade talks?

Ironically, the current crisis itself augmented the cause of a successful trade round to some degree. The whole world was shocked by the fact that global trade had contracted for the first time since the World War II. Protectionist measures, be they WTO-illegal or WTO-legal, mushroomed. Suddenly, we were witnessing a déjà vu of interwar economic balkanization. In a more positive tone, Pascal Lamy enthusiastically presented that completing the Doha Round would be one of the most effective “global stimulus packages.” Finally, world leaders turned more serious about the idea of completing the Doha Round in the near future, say by the end of 2010. Captain Kirk demonstrated his zeal for a successful Doha Round and was warmly received in Geneva. The negotiation engine in Geneva also seems to have revved up again. Negotiators have now begun to prepare for the post-modalities stage, i.e., scheduling.

Enough for feel-good stories. Let us counter this rosy picture with some pessimistic observations. First of all, big players, such as the United States and India, are still ambivalent on their genuine commitments to a successful Doha Round by the end of 2010. Many trade pundits observe that President Obama is not spending much political capital for the cause of free trade in general. (See Claude Barfield’s article in The American.) Obviously, the heath care reform seems to usurp all his political energy. In addition, the current U.S. Congress is notoriously protectionist. The U.S. businesses want more tangible Doha benefits, especially from emerging economies, such as India, China and Brazil. So, USTR Ron Kirk wanted to replace the current modalities deal by direct bilateral negotiations, which was strongly resisted by developing countries. Markedly, these developing countries’ domestic political situations are not necessarily more susceptible to trade liberalization than developed countries. So, the initial optimism which the new Indian Commerce Minister Anand Sharma brought might have to be put into perspective.

All told, what do you think will happen to the Doha Round in the end? Will it be delivered by the end of 2010 deadline as scheduled? Or will we have yet another collapse? To some, “the future is not ours to see” (Que Sera, Sera), but we international trade lawyers/scholars might be more clairvoyant than that. So, bring your crystal balls and share your visions with us! We might be right or wrong, but the point is that we can learn from each other’s observations.

Ironically, the current crisis itself augmented the cause of a successful trade round to some degree. The whole world was shocked by the fact that global trade had contracted for the first time since the World War II. Protectionist measures, be they WTO-illegal or WTO-legal, mushroomed. Suddenly, we were witnessing a déjà vu of interwar economic balkanization. In a more positive tone, Pascal Lamy enthusiastically presented that completing the Doha Round would be one of the most effective “global stimulus packages.” Finally, world leaders turned more serious about the idea of completing the Doha Round in the near future, say by the end of 2010. Captain Kirk demonstrated his zeal for a successful Doha Round and was warmly received in Geneva. The negotiation engine in Geneva also seems to have revved up again. Negotiators have now begun to prepare for the post-modalities stage, i.e., scheduling.

Enough for feel-good stories. Let us counter this rosy picture with some pessimistic observations. First of all, big players, such as the United States and India, are still ambivalent on their genuine commitments to a successful Doha Round by the end of 2010. Many trade pundits observe that President Obama is not spending much political capital for the cause of free trade in general. (See Claude Barfield’s article in The American.) Obviously, the heath care reform seems to usurp all his political energy. In addition, the current U.S. Congress is notoriously protectionist. The U.S. businesses want more tangible Doha benefits, especially from emerging economies, such as India, China and Brazil. So, USTR Ron Kirk wanted to replace the current modalities deal by direct bilateral negotiations, which was strongly resisted by developing countries. Markedly, these developing countries’ domestic political situations are not necessarily more susceptible to trade liberalization than developed countries. So, the initial optimism which the new Indian Commerce Minister

Investor-State in FTAs

In the context of the proposed Trans-Pacific Partnership Agreement, the Emergency Committee for American Trade makes the following point:

The U.S.-Australia FTA did not include one vitally important component of a strong
investment chapter, namely investor-state dispute settlement. ECAT very strongly urges that investor-state dispute settlement be included with respect to all Trans-Pacific partners in the final agreement. Without such a mechanism, the investment chapter would be largely unenforceable for U.S. companies. ECAT also notes that Australia has included investor-state provisions in its most recently signed agreement – the Agreement Establishing the Association of Southeast Asian Nations (ASEAN)–Australia–New Zealand Free Trade Area (AANZFTA).

If anyone knows, I'm curious as to what was going on behind the scenes that led to the U.S.-Australia FTA not having investor-state.  As far as I know, every other recent U.S. FTA has it, and it sounds like Australia has used it in at least some other FTAs (although perhaps not all).  So what were the factors that led to it being excluded from the U.S.-Australia FTA?

In Praise of Trade Deficits

From the always provocative Don Boudreaux:

Beyond contributing to American economic vitality, foreign investment here signals global confidence in that vitality. Investors go long only in assets or places that promise a reasonable prospect of future profits.

These facts are why the recent decline in America's trade deficit is just another piece of bad news: Foreign investors, like their American counterparts, are less willing now to take risks in this economy. As foreigners grow more reluctant to invest here, they become less eager to earn dollars by selling goods and services to Americans. So foreigners export less to America.

History reflects the validity of this analysis.  During the Greatly Depressed 1930s, America ran a trade deficit for only 18 of the 120 months of that decade. In each of the other 102 months, Americans exported more than they imported -- that is, ran trade surpluses. The only calendar year of that decade that saw America's trade in deficit was 1936 -- and then only slightly. All of the other nine years were ones of trade surpluses.

For the decade as a whole, America ran a trade surplus of $4.92 billion, which was 19 percent of the value of America's total exports during the 1930s.

These data from the Great Depression suggest that trade surpluses neither help an economy nor are evidence that an economy's fundamentals are sound. Quite the opposite, in fact. As long as the U.S. economy remains in turmoil, foreign investors will be scared away, as they were during the Great Depression -- causing our trade deficit to shrink and possibly even to disappear. Americans will be all the poorer.

Let's hope for the rapid restoration of U.S. economic vitality. When that time comes, wise Americans will celebrate what will surely be a return to the days of high and growing U.S. trade deficits.

I agree that it is good when foreign companies want to invest in the U.S.  However, I'm not sure that foreigners' willingness to invest here is the only relevant factor, or even the main factor, causing trade deficits.  I see foreign investment as more of an effect of trade deficits than a cause.

Mutual Assured Dumping

The AFP mentions the following interesting fact in relation to the WTO complaint by China against EU anti-dumping duties on fasteners (e.g., screws and bolts):

In one of the biggest anti-dumping cases against China, the EU decided after an investigation to impose levies on imports of some Chinese fasteners, ranging from 26.5 percent to as high as 85 percent.

China retaliated by launching its own anti-dumping probe into imports of screws and bolts made in the European Union.

With the spread of anti-dumping, I wonder if we will see an increase in this kind of tit-for-tat anti-dumping action.